UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

þ Annual Report Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

For the fiscal year ended November 30, ~~2008~~2010

o Transition Report Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

For the transition period from to .

Commission File No. 001-09195

KB HOME

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		95-3666267 (I.R.S. Employer Identification No.)

10990 Wilshire Boulevard, Los Angeles, California 90024

(Address of principal executive offices)

Registrant’s telephone number, including area code: (310) 231-4000

Securities Registered Pursuant to Section 12(b) of the Act:


		Name of each exchange
Title of each class		on which registered

Common Stock (par value $1.00 per share)		New York Stock Exchange
Rights to Purchase Series A Participating Cumulative Preferred Stock		New York Stock Exchange

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the ~~Exchange~~ Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of RegulationS-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form10-K or any amendment to thisForm 10-K. þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule12b-2 of the Exchange Act.


Large accelerated filer þ	Accelerated filer o	Non-accelerated filer o	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).Yes o No þ

The aggregate market value of voting stock held by non-affiliates of the registrant on May 31, ~~2008~~2010 was ~~$1,837,819,039,~~$1,274,932,694, including ~~12,091,182~~11,174,633 shares held by the registrant’s grantor stock ownership trust and excluding ~~25,483,921~~27,095,467 shares held in treasury.

~~The number of~~There were 76,973,096 shares ~~outstanding of each~~ of the registrant’s ~~classes of~~ common stock, par value $1.00 per share, outstanding on December 31, ~~2008 was as follows: Common Stock (par value $1.00 per share) 89,607,919 shares, including 11,891,482 shares held by the~~2010. The registrant’s grantor stock ownership trust ~~and excluding 25,512,386~~held an additional 11,080,023 shares ~~held in treasury.~~of the registrant’s common stock on that date.

Documents Incorporated by Reference

Portions of the registrant’s definitive Proxy Statement for the ~~2009~~2011 Annual Meeting of Stockholders (incorporated into Part III).

PART I

Item 1. BUSINESS

General

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 ~~have~~has been building ~~quality~~ homes ~~for families~~ 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 ~~herein~~in 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 through~~conducted by various subsidiaries of Kaufman and Broad, Inc. (“KBI”) and its predecessors. In 1986, KBI transferred ~~to us the outstanding capital stock~~all 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 as~~we became an independent public company, operating primarily in California and France. In 2001, we changed our name to KB Home. ~~Since 1989, we have expanded~~Today, having sold our ~~business~~French operations in ~~both our existing markets and into new markets through capital investments and acquisitions of other homebuilders. Today,~~2007, we operate a ~~geographically diverse~~ homebuilding and financial services business serving homebuyers in markets nationwide. ~~We believe our geographic diversity helps to mitigate the effects of local and regional economic cycles, enhancing our long-term growth potential.~~

Our homebuilding operations, which are divided into four ~~homebuilding~~geographically defined segments for reporting purposes, offer a variety of homes designed primarily for first-time, ~~first~~move-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 ~~12,438~~7,346 homes ~~in 2008 and 23,743 homes in 2007. In 2008, our~~at an average selling price of ~~$236,400 decreased from $261,600 in 2007. We generated total revenues of $3.03 billion and a net loss of $976.1 million in 2008,~~$214,500 during the year ended November 30, 2010, compared to ~~total revenues~~8,488 homes delivered at an average selling price of ~~$6.42 billion and a loss from continuing operations of $1.41 billion in 2007.~~$207,100 during the year ended November 30, 2009. Our homebuilding ~~revenues, which include revenues from land sales, accounted~~operations represent most of our business, accounting for ~~99.6%~~99.5% of our total revenues in ~~2008~~2010 and 99.8% of our total revenues in 2007. Our results in 2008 and 2007 reflect the significant downturn in housing markets that began in 2006, as well as our resulting actions to align the size of our operations with diminished home sales activity and to maintain a strong balance sheet. In 2008, the housing market downturn was exacerbated by a severe decline in the overall economy in the second half of the year.2009.

Our financial services ~~segment derives income from mortgage banking,~~operations offer title and insurance services ~~offered~~ to our homebuyers. ~~Mortgage~~They also offer mortgage banking services ~~are provided~~ to our homebuyers ~~indirectly~~ through ~~Countrywide KB Home Loans,~~KBA Mortgage, LLC (“~~Countrywide KB Home Loans”~~KBA Mortgage”), a joint venture ~~between us and CWB Venture Management Corporation,~~with a subsidiary of Bank of America, N.A. ~~Countrywide KB Home Loans, which is operated by our joint venture partner, offers a variety of loan programs to serve the financing needs of our homebuyers.~~ Our financial services ~~segment~~operations accounted for ~~.4%~~.5% of our total revenues in ~~2008~~2010 and ~~.2% of our~~2009.

In 2010, we generated total revenues of $1.59 billion and a net loss of $69.4 million, compared to total revenues of $1.82 billion and a net loss of $101.8 million in ~~2007.~~2009. Our financial results for 2010 and 2009 reflect challenging operating conditions that have persisted in the homebuilding industry to varying degrees since a general housing market downturn began inmid-2006, as well as our strategic actions since the downturn began to align our operations with these conditions and to maintain a strong financial position.

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.

Markets

~~We have~~Reflecting 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 organize our homebuilding operations into four ~~homebuilding~~ segments ~~based on the markets in which we construct homes~~ — West Coast, Southwest, Central and ~~Southeast — which together reflect the wide geographic reach of our homebuilding business. As of the date of this report, we operate in the eight states and 29 major markets shown below:~~Southeast.


Segment	State(s)	Major Market(s)

West Coast	California	Fresno, Los ~~Angeles/Ventura,~~Angeles, Oakland, Orange County, Riverside, Sacramento, San Bernardino, San Diego, San ~~Jose/Oakland~~Jose, Stockton and ~~Stockton~~Ventura
Southwest	Arizona	Phoenix and Tucson
	Nevada	Las Vegas and Reno
Central	Colorado	Denver
	Texas	Austin, Dallas/Fort Worth, Houston and San Antonio
Southeast	Florida	Daytona Beach, Fort Myers, Jacksonville, Lakeland, Orlando, Sarasota and Tampa
	Maryland	Washington, D.C.
	North Carolina	Charlotte and Raleigh
	~~South Carolina~~Virginia	~~Bluffton/Hilton Head, Charleston and Columbia~~Washington, D.C.

Segment Operating Information. The following table presents ~~specific~~certain operating information for our homebuilding reporting segments for the years ended November 30, ~~2008, 2007~~2010, 2009 and ~~2006:~~2008:


	Years Ended November 30,									Years Ended November 30,
	2008			2007			2006			2010			2009			2008
West Coast:
Homes delivered		2,972			4,957			7,213			2,023			2,453			2,972
Percent of total homes delivered		24	%		21	%		22	%
Percentage of total homes delivered											27	%		29	%		24	%
Average selling price	$	354,700		$	433,600		$	489,500		$	346,300		$	315,100		$	354,700
Total revenues (in millions) (a)	$	1,055.1		$	2,203.3		$	3,531.3		$	700.7		$	812.2		$	1,055.1
Southwest:
Homes delivered		2,393			4,855			7,011			1,150			1,202			2,393
Percent of total homes delivered		19	%		20	%		22	%
Percentage of total homes delivered											16	%		14	%		19	%
Average selling price	$	229,200		$	258,500		$	306,900		$	158,200		$	172,000		$	229,200
Total revenues (in millions) (a)	$	618.0		$	1,349.6		$	2,183.8		$	187.7		$	218.1		$	618.0
Central:
Homes delivered		3,348			6,310			9,613			2,663			2,771			3,348
Percent of total homes delivered		27	%		27	%		30	%
Percentage of total homes delivered											36	%		33	%		27	%
Average selling price	$	175,000		$	167,800		$	159,800		$	163,700		$	155,500		$	175,000
Total revenues (in millions) (a)	$	594.3		$	1,077.3		$	1,553.3		$	436.4		$	434.4		$	594.3
Southeast:
Homes delivered		3,725			7,621			8,287			1,510			2,062			3,725
Percent of total homes delivered		30	%		32	%		26	%
Percentage of total homes delivered											21	%		24	%		30	%
Average selling price	$	201,800		$	229,400		$	244,300		$	170,200		$	168,600		$	201,800
Total revenues (in millions) (a)	$	755.8		$	1,770.4		$	2,091.4		$	257.0		$	351.7		$	755.8
Total:
Homes delivered		12,438			23,743			32,124			7,346			8,488			12,438
Average selling price	$	236,400		$	261,600		$	287,700		$	214,500		$	207,100		$	236,400
Total revenues (in millions) (a)	$	3,023.2		$	6,400.6		$	9,359.8		$	1,581.8		$	1,816.4		$	3,023.2


(a)	Total revenues include revenues from housing and land sales.

Unconsolidated Joint Ventures. The above table does not include homes delivered from ~~our~~ unconsolidated joint ~~ventures. From time to time,~~ventures in which we ~~participate in the acquisition, development, construction and sale of residential properties through~~participate. These unconsolidated joint ~~ventures.~~ventures acquire and develop land and, in some cases, build and deliver homes on developed land. Our unconsolidated joint ventures delivered 102 homes in 2010, 141 homes in 2009 and 262 homes in ~~2008, 127 homes in 2007 and 4 homes in 2006.~~2008.

Strategy

~~Major~~To varying degrees since mid-2006, many housing markets across the United States, ~~began declining~~including those we serve, have experienced a prolonged downturn compared to the period from 2000 through 2005 due to a persistent oversupply of homes available for sale and weak consumer demand for housing. Since 2008, a generally poor economic and employment environment as well as turbulence in ~~mid-2006. Most of our served~~financial and credit markets have ~~progressively weakened since then. Over~~worsened these conditions. Although housing affordability has been at historically high levels in the ~~two-and-a-half year period, an increasing oversupply of new~~past few years due to lower selling prices and ~~resale homes, exacerbated more recently by rising foreclosure activity, drove home prices steadily lower. In 2008, weakening economic activity~~relatively low residential consumer mortgage interest rates, the negative supply and ~~rising job losses prompted a historic decline~~demand dynamics for the homebuilding industry during the present housing downturn have severely constrained our net orders, revenues and profitability.

We believe housing markets will likely remain weak in ~~consumer confidence~~2011 and that ~~further discouraged home purchases. In this environment,~~ our business ~~has confronted fierce competition from heightened homebuilder, financial institution~~ and investor efforts to sell homes and land, declining demand for new homes, and tighter lending standards due to turmoil in mortgage finance and credit markets. We expect housing market and general economic conditions to remain difficult and possibly worsen in 2009. And, while we believe that long-term fundamentals for the ~~housing sector remain strong, and that current negative conditions~~homebuilding industry will ~~stabilize over~~experience uneven results before a sustained recovery takes hold. At this time, we cannot predict when such a ~~meaningful~~ recovery might occur. Based on this view, we intend to continue to focus on achieving three primary integrated strategic goals:


	•	restoring and maintaining the profitability of our homebuilding operations;

	•	generating cash and maintaining a strong balance sheet; and

	•	positioning our business to capitalize on future growth opportunities.

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 peak levels reached in the ~~housing market will occur.~~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.

~~We recognized early~~In 2010, building on the sound financial position and the operational re-positioning we achieved over the prior four years and seeing a number of attractive opportunities becoming available, we implemented a targeted land acquisition initiative to further our primary strategic goals. Under this initiative, we concentrated on acquiring ownership or control of well-priced developed land parcels that met our investment and marketing standards and were located within or near our existing markets. This tactical shift was designed to help us restore and maintain our homebuilding operations’ profitability — currently, our highest priority — by increasing our future revenues through a larger inventory base from which we can sell our higher-margin and well-received new product. It was also designed to help us maintain athree-to-four year supply of developed or developable land. While the inventory and active community count reductions and other land portfolio and operational adjustments we made in ~~2006~~prior years and into 2010 have had a negative effect on our backlog and homes delivered on ayear-over-year basis, we anticipate that our land investment activities in 2010 and recent and planned new community openings will improve such comparisons in 2011. As a result, we believe that our land acquisition initiative and the other actions we have taken in pursuing our primary strategic goals in the present housing downturn have established a solid foundation for us to eventually achieve long-term future growth and profitability as and to the extent housing markets ~~were slowing after several years~~improve.

While market conditions in 2011 will determine the degree to which we acquire or dispose of ~~record growth. In response,~~land assets in managing our inventory, the pace with which we ~~shifted~~open new home communities, and the manner in which we pursue and refine the execution of our primary integrated strategic ~~focus from expansion to an emphasis on capital preservation, inventory, overhead and debt reduction, and cash generation. Entering fiscal 2009, with housing markets still in turmoil,~~goals, we will continue to ~~emphasize three priorities: maintaining a strong financial position; restoring~~operate in accordance with the ~~profitability of our homebuilding operations; and positioning our business for an eventual housing market recovery, while adhering to the disciplines~~principles of our core operational business model, KBnxt.

KBnxt Operational Business Model. ~~We began operating under the principles of our~~Our KBnxt operational business model, first implemented in ~~1997. The KBnxt operational business model~~1997, 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:


	•	gaining a detailed understanding of consumer location and product preferences through regular ~~surveys;~~surveys and research;


	•	managing our working capital and reducing our operating risks by acquiring primarily developed and entitled land at reasonable prices in markets with high growth potential, and disposing of land and interests in land that no longer meet our ~~strategic~~investment or ~~investment~~marketing goals;

	•	using our knowledge of consumer preferences to design, construct and deliver the products homebuyers desire;

	•	in general, commencing construction of a home only after a purchase contract has been signed;

	•	building a backlog of net orders and ~~reducing~~minimizing the time from initial construction to final delivery of homes to customers;

	•	establishing an even flow of production of ~~high quality~~high-quality homes at the lowest possible cost; and

	•	offering customers affordable base prices and the opportunity to customize their homes through choice of location, floor plans and interior design options.

~~Our~~Through its disciplines and standards, our KBnxt operational business model is designed to help us ~~accomplish several objectives in a disciplined manner:~~ build and maintain a leading position in our existing markets; opportunistically expand our business into attractive new ~~markets;~~markets near our existing operations; exit investments that no longer meet our return ~~standards~~ or marketing ~~strategy;~~standards; calibrate our product ~~lines~~designs to consumer ~~preferences in both our existing and new markets;~~preferences; and achieve lower costs and economies of scale in 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 depend~~market and our withdrawal from an existing market or submarket depends in each instance on our assessment of ~~a potential new~~the market’s viability and our ability to develop ~~sustainable~~and/or sustain operations inat a level that ~~new market. We will also continue~~meets our investment standards. Similar considerations apply to ~~consider~~ potential asset acquisitions ~~as market conditions may produce attractive opportunities. However, expansion into new markets and large acquisitions are not a strategic priority for us~~or dispositions in ~~the near term.~~our existing markets.

~~Strategic~~Operational Objectives. Guided by the disciplines of our KBnxt operational business model, ~~and building on~~our principal operational objectives during the ~~initiatives we have implemented in response to increasingly challenging market conditions, our primary strategic objectives~~present housing downturn include:


	•	~~Maintaining~~Positioning our operations to maintain ownership or control over a forecastedtwo-to-four year supply of developed or developable land and a balanced geographic footprint, ~~and focusing on~~while continuously evaluating potential growth opportunities in or near our existing ~~served~~ markets. We believe this ~~will allow~~approach enables us to efficiently capitalize on the different rates at which we expect ~~our served~~housing markets to ~~stabilize. We also believe that~~stabilize and recover. In addition, keeping our ~~existing served markets offer the most attractive long-term growth prospects.~~

	•	Providing the best value and choice in homes and options for the first-time, first move-up and active adult homebuyer. By promoting value and choice through an affordable base price and product customization,land inventory at what we believe ~~we can stand out from other homebuilders among our core customer base.~~

	•	~~Generating high levels of customer satisfaction and producing high quality homes. Achieving high customer satisfaction levels~~ is a ~~key driver to our long-term success~~prudent and ~~delivering quality homes is critical to achieving high customer satisfaction.~~

	•	~~Maintaining ownership or control over a forecasted three-to-four-year supply of developable land. Keeping our inventory~~manageable level and in line with our future sales expectations maximizes the use of our working capital, enhances our liquidity and helps us maintain a strong balance sheet to support strategic investments for long-term ~~strategic investments.~~growth.

	•	~~Improving~~Providing the best value and choice in homes and options for our core customers — first-time,move-up and active adult homebuyers. By promoting value and choice through an affordable base price and product customization through options, including many environmentally conscious options, we believe we stand out from other homebuilders and sellers of existing homes (including lender-owned homes acquired through foreclosures and short sales), and can generate higher revenues.

	•	To help achieve the above objective, enhancing the affordability of our homes ~~and lowering our production costs~~ by redesigning and ~~reengineering~~re-engineering our products, building smaller homes with flexible layouts, reducing ~~production~~ cycle times (i.e., the time between the sale of a home and its delivery to a homebuyer) and lowering our direct construction ~~costs, and targeting our pricing to median income levels in our served markets. We believe~~costs. By making our homes more affordable tofor our value-conscious core ~~customer base, with corresponding decreases in~~homebuyers while lowering our production costs, ~~will help us~~we believe we can compete effectively with ~~resales~~sellers of existing homes (including lender-owned homes acquired through foreclosures and ~~foreclosures,~~short sales), which we see as our primary competition, generate revenues while maintaining margins, and ~~maintain our margins during~~drive sustainable earnings over the ~~current housing market downturn and position us for longer-term profit growth.~~long term.

	•	As a complement to providing the best value and choice, generating high levels of customer satisfaction and producing high-quality homes. We believe achieving high customer satisfaction levels is key to our long-term performance, and delivering quality homes is critical to achieving high customer satisfaction.


	•	Restoring the profitability of our homebuilding operations by continuing to align our cost structure (including overhead) with the expected size and growth of our business, generating and preserving free cash flow, and maximizing the performance of our invested capital.

Exemplifying how we have implemented our strategic and operational objectives is our ongoing nationwide rollout ofThe Open Series^TM product designs, which began in late 2008. In addition to meeting homebuyer design sensibilities and affordability needs,The Open Seriesproduct line has been value-engineered to reduce production costs and construction cycle times, while adhering to our quality standards and using materials and construction techniques that reflect our commitment to more environmentally conscious homebuilding methods.Value-engineering encompasses measures such as simplifying the location and installation of internal plumbing and electrical systems, using prefabricated wall panels, flooring systems, roof trusses and other building components, and generally employing construction techniques that minimize costs and maximize efficiencies. It also includes working continuously with our trade partners and materials suppliers to reduce direct construction costs and construction cycle times. All of these actions have allowed us to achieve faster returns and higher gross margins from our inventory compared to our previous product designs, supporting strong cash flow generation and progress toward our profitability goal.

Marketing Strategy. During 2010, we continued to focus our marketing efforts on first-time,move-up and active adult homebuyers. These homebuyers historically have been our core customers and it is among these groups that we see the greatest potential for future home sales. Our marketing ~~strategy focuses on~~efforts are directed at differentiating the KB Home brand from resale homes and from homes sold through foreclosures, short sales and by other ~~builders.~~homebuilders. We believe that our Built to Order^TM message ~~generates~~and approach generate a high perceived value for our products and our company among ~~consumers.~~consumers and are unique amonglarge-production homebuilders. Built to Order emphasizes ~~our unique process of partnering~~that we partner with our homebuyers to create a home built to their individual preferences ~~as to a home~~in design, layout, square footage and homesite location, and to personalize their home ~~interiors~~ with features and amenities that meet their needs and interests. Built to Order serves as the consumer face of core elements of our KBnxt operational business model and ensures that our marketing strategy and advertising campaigns are closely aligned with our overall operational focus.

Our KB Home Studios are integral to ~~our~~the Built to Order ~~approach~~experience we provide. These showrooms, which are generally located close to ~~homebuying. These large showrooms~~our communities, allow our homebuyers to select from thousands of product and design options that are available for purchase as part of the original construction of their homes. The coordinated efforts of our sales representatives and KB Home Studio consultants are intended to provide high levels of customer satisfaction and lead to enhanced customer retention and referrals.

My Home. My Earth.^TMWe ~~are~~have made a dedicated effort to further ~~differentiating the KB Home brand with an industry-leading~~differentiate ourselves from other homebuilders and sellers of existing homes through our ongoing commitment to become a leading national company in environmental ~~commitment. In 2008, we launched~~sustainability. This commitment, organized under ourMy Home. My Earth.^® ~~environmental~~ initiative, ~~that is focused~~stems from growing sensitivities regarding and regulatory attention to the potential impact the construction and use of our homes can have on the ~~challenge of becoming~~environment, including on global average temperatures and associated climate change, and from our homebuyers’ interest in reducing this impact in the most cost-effective way possible. This commitment also stems from our primary strategic goal to maintain a ~~leading environmentally friendly national company~~strong balance sheet by minimizing expenses, waste and ~~issued~~inefficiencies in our ~~first sustainability report.~~ operations. Through ourMy Home. My Earth.programs:


	•	we became the first national homebuilder to commit to building homes that are designed to meet the U.S. Environmental Protection Agency’s (“EPA”) ENERGY STAR^® guidelines in all of our communities opened in 2009 and beyond;

	•	we became the first homebuilder in the country to construct homes to meet the EPA’s new WaterSense^® specifications in 2010. The ENERGY STAR and WaterSense programs require that our homes meet high standards for energy and water efficiency and performance, respectively, compared to standard new or typical existing homes.

	•	we became the first national homebuilder to commit to installing exclusively ENERGY STAR appliances in all of our homes in 2008 and beyond;

	•	we re-engineered our products to reduce the amount of building materials necessary to construct them, as discussed above with respect toThe Open Series product designs, and have developed or adopted production methods that help minimize our use of materials and the generation of construction-related debris;


	•	we became a partner in the EPA’s WasteWise program in 2010, and have voluntarily undertaken to reduce the amount of solid construction waste sent to landfills; and

	•	we have published on our website an annual sustainability report since 2007. The report outlines our accomplishments and objectives as we work towards our goal of minimizing the impact our business and homes can have on the environment, while continuing to make the dream of homeownership attainable for our homebuyers.

In ~~2008,~~many instances, we ~~were~~have been able to implement ourMy Home. My Earth.programs at minimal or no additional cost to us and to our homebuyers. Along with the ~~first national homebuilder~~standard home designs and amenities we offer pursuant to ~~commit to installing exclusively ENERGY STAR~~^TM ~~appliances in all of~~ our ~~new homes. We~~My Home. My Earth. programs, we also offer our homebuyers ~~an extensive line of high-value, low-cost products~~several options through our KB Home Studios that can help ~~minimize the environmental impact~~them to further lower their consumption of ~~the homes they purchase.~~

~~During 2008, we continued to focus our marketing initiatives on first-time, firstmove-up~~energy and ~~active adult homebuyers. These historically have been our core customers~~water resources and ~~it is among these groups that~~reduce their utility bills. As we see ~~the greatest potential for future home sales.~~

~~In 2009, our efforts~~environmental issues related to ~~differentiate the value proposition of the KB Home Built~~housing becoming increasingly important to ~~Order homebuying experience will~~consumers and government authorities at all levels, we intend to continue to research, evaluate and utilize new or improved products and construction and business practices consistent with the ~~introduction~~goals of ~~new home designs that meet~~ourMy Home. My Earth.programs. In addition to making good business sense, we believe ourMy Home. My Earth.programs can help put us in a better position, compared to homebuilders with less-developed programs, to comply with evolving ~~market trends. We also will continue~~local, state and federal rules and regulations intended to ~~develop~~protect natural resources and ~~promote our~~to address climate change and similar environmental ~~sustainability initiatives.~~concerns.

Sales Strategy. To ensure the consistency of our message and adherence to our Built to Order approach, sales of our homes are carried out by in-house teams of sales representatives and other personnel who work personally with each homebuyer to create a ~~one-of-a-kind~~ home that meets the homebuyer’s ~~style~~preferences and budget.

Customer Service and Quality Control

Customer satisfaction is a high priority for us. We are committed to building and delivering quality homes. Our on-site construction supervisors perform regular pre-closing quality checks during the construction process to ensure our homes meet our ~~quality~~ standards and our homebuyers’ expectations. ~~We have personnel who are responsible for responding to homebuyers’ post-closing needs, including warranty claims.~~ We believe prompt and courteous responses to homebuyers’ needs throughout the homebuying process reduces post-closing repair costs, enhances our reputation for quality and service, and helps encourage repeat and referral business from homebuyers and the real estate community. Our goal is for our customers to be 100% satisfied with their new homes. We also have employees who are responsible for responding to homebuyers’ post-closing needs, including warranty claims.

We provide a limited warranty on all of our homes. The specific terms and conditions vary depending on the market where we do business. We generally provide a structural warranty of 10 years, a warranty on electrical, heating, cooling, plumbing and other building systems each varying from two to five years based on geographic market and state law, and a warranty of one year for other components of a home.

Local Expertise

To maximize our KBnxt operational business model’s effectiveness and help ensure its consistent execution, our employees are continuously trained on KBnxt ~~operational~~ principles and evaluated based on their achievement of relevant KBnxt operational objectives. We also believe that our business requires in-depth knowledge of local markets in order to acquire land in desirable locations and on favorable terms, to engage subcontractors, to plan communities that meet local demand, to anticipate consumer tastes in specific markets, and to assess local regulatory environments. Accordingly, we operate our business through ~~local~~ divisions with trained personnel who have local market expertise. We have experienced management teams in each of our divisions. ~~Although~~Though we ~~have centralized~~centralize certain functions (such as marketing, advertising, legal, materials purchasing, purchasing administration, product development, architecture and accounting) to benefit from economies of scale, our local management exercises considerable autonomy in identifying land acquisition opportunities, developing and implementing product and sales strategies, ~~conducting product operations~~ and controlling costs.

Community Development and Land Inventory Management

Our community development process generally consists of four phases: land acquisition, land development, home construction and sale. Historically, the completion time of our community development process has ranged from six to 24 months in our West Coast segment to a somewhat shorter duration in our other homebuilding segments. The ~~length~~duration of

the community development process varies based on, among other things, the extent of government approvals required, the overall size of the community, necessary site preparation activities, weather conditions and marketing results.

Although they vary significantly, our communities typically consist of 50 to 250 lots ranging in size from ~~1,300~~1,000 to ~~20,000~~13,000 square feet. In our communities, we typically offer from three to 15 home designs for homebuyers to choose from. We also build an average of two to four model homes at each community so that prospective buyers can preview various home designs. Depending on the community, we may offer ~~from two to five model home designs and~~ premium lots ~~often~~ containing more square footage, better views or location benefits. ~~Our goal is to own or control enough lots to meet our forecasted production goals over the next three to four years.~~

Land Acquisition and Land Development. We ~~are currently focused on maintaining a strong balance sheet~~continuously evaluate land acquisition opportunities as they arise against our investment and ~~positioning ourselves~~marketing standards, balancing competing needs for financial strength and land inventory for future growth. ~~Significant land acquisitions are not currently a strategic priority, but we will consider attractive opportunities as they arise.~~ When we do acquire ~~and develop~~ land, we ~~do so consistent with our KBnxt operational business model, which focuses~~focus on ~~obtaining~~ land parcels containing fewer than 250 lots that are fully entitled for residential construction and are either physically developed to start home construction (referred to as “finished lots”) or partially finished. Acquiring finished or partially finished lots enables us to construct and deliver homes shortly after the land is acquired with minimal additional development

expenditures. ~~This~~We believe this is a more efficient way to use our working capital and reduces the operating risks associated with having to develop and/or entitle land, such as unforeseen improvement costs and/or changes in market conditions. However, depending on market conditions and available opportunities, we may acquire undeveloped and/or unentitled land. We expect that the overall balance of undeveloped, unentitled, entitled and finished lots in our inventory will vary over time.

Consistent with our KBnxt operational business model, we target geographic areas for potential land acquisitions and assess the viability of our current inventory based on the results of periodic surveys of both new and resale homebuyers in particular ~~markets.~~markets and other research activities. Local,in-house land acquisition specialists conduct site selection ~~research and~~ analysis in targeted geographic areas to identify desirable land acquisition targets or to evaluate whether to dispose of an existing ~~interest we hold is consistent with our marketing strategy.~~interest. We also use studies performed by third-party marketing specialists. Some of the factors we consider in evaluating land acquisition targets and assessing the viability of current inventory are: consumer preferences; general economic conditions; specific market conditions, with an emphasis on the prices of comparable new and resale homes in the market; expected sales rates; proximity to metropolitan areas and employment centers; population, household formation and commercial growth patterns; estimated costs of completing ~~lot~~land development; and environmental compliance matters.

We generally structure our land purchases and development activities to minimize or to defer the timing of cash and capital expenditures, which enhances returns associated with new land investments. While we use a variety of techniques to accomplish this, as further described below, we typically use agreements that give us an option right to purchase land at a future date, at a fixed price and for a small ~~or no~~ initial deposit payment. Our decision to exercise a particular option right is based on the results of due diligence and continued market viability ~~analysis~~analyses we conduct after entering into an agreement. In some cases, our decision to exercise an option may be conditioned on the land seller obtaining necessary entitlements, such as zoning rights and environmental and development approvals, and/or physically developing the land by a pre-determined date to allow us to build homes relatively quickly. Depending on the circumstances, our initial deposit payment for an option right may or may not be refundable to us if we abandon the land option contract and do not purchase the underlying land.

In addition to acquiring land under option agreements, we may acquire land under agreements that condition our purchase obligation on our satisfaction with the feasibility of developing the land and selling homes on the land by a certain future date, consistent with our investment and marketing standards. Our option and other purchase agreements may also allow us to phase our land purchases and/or ~~lot~~land development over a period of time and/or upon the satisfaction of certain conditions. We may also acquire land with seller financing that is non-recourse to us, or by working in conjunction with third-party land developers. Our land option contracts generally do not contain provisions requiring our specific performance.

As previously noted, under our KBnxt operational business model, we generally attempt to minimize our land development costs by focusing on acquiring finished or partially finished lots. Where we purchase unentitled and unimproved land, we typically use option agreements as described above and during the option period perform technical, environmental, engineering and entitlement feasibility studies, while we seek to obtain necessary governmental approvals and permits. These activities are sometimes done with the seller’s assistance and/or at the seller’s cost. The use of option arrangements in this context allows us to conduct these development-related activities while minimizing our inventory levels and overall financial commitments, including interest and other carrying costs. It also improves our ability to accurately estimate development costs prior to incurring them, an important element in planning communities and pricing homes.

Before we commit to any land purchase or dispose of any interest in land, ~~we hold,~~ our senior corporate and regional management ~~carefully~~ evaluates each asset based on the results of our local specialists’ due diligence and a set of ~~strict~~defined financial measures, including, but not limited to, gross margin analyses and specific discounted,after-tax cash flow internal rate of return requirements. ~~Potential land acquisition or disposal transactions are subject to review and approval by our corporate land committee, which is composed of senior corporate and regional management.~~ The ~~stringent~~ criteria guiding our land acquisition and disposition decisions have resulted in our maintaining inventory in areas that we believe generally offer better returns for lower risk, and lower cash and capital investment.

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, we~~We determined that these properties no longer met our investment or marketing standards. Although we shifted our strategic ~~needs or~~focus in 2010 to acquiring land assets in order to open more new home communities and increase our ~~internal investment standards. If~~revenues, as discussed above under “Strategy,” if market conditions remain challenging, ~~as we expect,~~ 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 ~~shows~~presents the number of inventory lots we owned, in various stages of development, or controlled under land option contracts or other agreements in our homebuilding segments as of November 30, ~~2008~~2010 and ~~2007.~~2009. The table does not include approximately 316 acres ~~optioned as of November 30, 2008~~owned and ~~376~~64 acres optioned as of November 30, ~~2007~~2010 and approximately 316 acres owned as of November 30, 2009 that had not yet been approved for subdivision into lots.


													Total Lots																Total Lots
	Homes/Lots in				Land Under				Lots Under				Owned or				Homes/Lots in				Land Under				Lots Under				Owned or
	Production				Development				Option				Under Option				Production				Development				Option				Under Option
	2008		2007		2008		2007		2008		2007		2008		2007		2010		2009		2010		2009		2010		2009		2010		2009

West Coast		7,257		8,174		1,826		2,961		1,018		3,598		10,101		14,733		6,471		4,685		1,858		2,219		1,396		1,062		9,725		7,966
Southwest		4,853		7,059		1,784		2,866		3,551		5,743		10,188		15,668		3,073		3,511		2,123		1,677		3,864		3,593		9,060		8,781
Central		7,643		9,944		2,454		3,257		1,840		2,472		11,937		15,673		6,158		5,796		2,588		2,529		2,227		1,797		10,973		10,122
Southeast		5,326		7,916		4,369		2,888		5,102		8,830		14,797		19,634		3,228		3,868		4,728		4,078		1,826		2,650		9,782		10,596

Total		25,079		33,093		10,433		11,972		11,511		20,643		47,023		65,708		18,930		17,860		11,297		10,503		9,313		9,102		39,540		37,465

Reflecting our geographic diversity and relatively balanced ~~operations,~~operational footprint, as of November 30, ~~2008, 22%~~2010, 24% of the inventory lots we owned or controlled were located in the West Coast reporting segment, ~~22%~~23% were in the Southwest reporting segment, ~~25%~~28% were in the Central reporting segment and ~~31%~~25% were in the Southeast reporting segment.

The following table ~~shows~~presents the dollar value of inventory we owned, in various stages of development, or controlled under land option contracts or other agreements in our homebuilding segments as of November 30, ~~2008~~2010 and ~~2007~~2009 (in thousands):


													Total Lots																Total Lots
	Homes/Lots in				Land Under				Lots Under				Owned or				Homes/Lots in				Land Under				Lots Under				Owned or
	Production				Development				Option				Under Option				Production				Development				Option				Under Option
	2008		2007		2008		2007		2008		2007		2008		2007		2010		2009		2010		2009		2010		2009		2010		2009

West Coast	$	854,522	$	1,020,637	$	52,339	$	192,790	$	68,600	$	199,396	$	975,461	$	1,412,823	$	715,979	$	530,030	$	82,408	$	80,229	$	30,766	$	29,390	$	829,153	$	639,649
Southwest		192,530		491,098		96,073		161,820		24,673		34,357		313,276		687,275		118,599		116,779		110,068		94,431		3,716		8,409		232,383		219,619
Central		300,454		420,811		38,688		59,802		53,358		53,248		392,500		533,861		238,848		240,825		35,280		41,405		10,469		42,077		284,597		324,307
Southeast		252,541		464,922		127,241		131,009		45,697		82,530		425,479		678,461		192,414		190,488		147,812		115,611		10,362		11,720		350,588		317,819

Total	$	1,600,047	$	2,397,468	$	314,341	$	545,421	$	192,328	$	369,531	$	2,106,716	$	3,312,420	$	1,265,840	$	1,078,122	$	375,568	$	331,676	$	55,313	$	91,596	$	1,696,721	$	1,501,394

Home Construction and Sale. Following the purchase of land and, if necessary, the ~~completion~~finishing 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 a signed a 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 of~~Our contracts with our subcontractors ~~enables us~~require that they comply with all laws applicable to ~~reduce our investment in direct~~their work, including labor ~~costs, equipment~~laws, meet performance standards, and ~~facilities. Where practical, we use mass production techniques~~follow local building codes and ~~pre-made, standardized components and materials to streamline the on-site production process.~~permits. We have ~~also~~ developed programs for national and regional purchasing of certain building materials, appliances and other items to take

advantage of economies of scale and to reduce costs through improved pricing and, where available, participation in manufacturers’ or suppliers’ rebate programs. ~~As part of our~~~~My Home. My Earth.~~ environmental initiative, we have begun to integrate products, materials and construction practices into our home building process in certain areas to reduce the environmental impact of our operations and the homes we build. At all stages of production, our administrative and on-site supervisory personnel coordinate the activities of subcontractors and subject their work to quality and cost controls. ~~As part of our KBnxt operational business model, we also emphasizeeven-flow~~ ~~production methods to enhance the quality of our homes and minimize production costs.~~

Backlog

We sell our homes under standard purchase contracts, which generally require a ~~customer~~homebuyer 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 home purchase contracts stipulate that if a homebuyer cancels a contract with us, we have the right to retain the homebuyer’s deposits. However, we generally permit our homebuyers to cancel their obligations and obtain refunds of all or a portion of their deposits 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) ~~taken~~generated 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, deliveries~~The number of ~~new~~ homes ~~typically increase~~delivered has historically increased from the first to the fourth quarter in any year.

Our backlog at November 30, ~~2008,~~2010, excluding backlog of unconsolidated joint ventures, consisted of ~~2,269~~1,336 homes, ~~down 64%~~a decrease of 37% from the ~~6,322~~2,126 homes in backlog at ~~year-end 2007. Our backlog represented future housing revenues of approximately $521.4 million at~~ November 30, ~~2008 and $1.50 billion at November 30, 2007. Our backlog ratio was 82% for the fourth quarter of 2008 and 68% for the fourth quarter of 2007, as we experienced fewer cancellations~~2009. The decrease in ~~the fourth quarter of 2008. (Backlog ratio is defined as homes delivered as a percentage of beginning backlog in the quarter.)~~

~~The significant decrease in~~our backlog levels in ~~2008 reflects the aggregate impact over the past several quarters of successive negative year-over-year net order results, lower average selling prices, and~~2010 primarily reflected our strategic ~~initiatives~~decisions in the mid-2006 through 2009 time period to reduce our inventory and active community counts to align our operations with ~~reduced~~diminished housing market ~~activity.~~ activity and overall lower net orders. Our backlog at 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 lower number of homes in backlog. Our backlog ratio, defined as homes delivered in the quarter as a percentage of backlog at the beginning of the quarter, was 88% for the quarter ended November 30, 2010 and 82% for the quarter ended November 30, 2009.

Our net orders ~~declined 58% to 8,274~~totaled 6,556 in ~~2008~~2010, a decrease of 21% from ~~19,490~~8,341 net orders in ~~2007.~~2009. Our average cancellation rate based on ~~net~~gross orders was 28% in ~~2008 was 41%,~~2010, compared to an average of ~~42%~~25% in ~~2007.~~2009. During the fourth quarter of ~~2008,~~2010, our net orders ~~decreased 50%~~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 ~~2007, with decreases occurring in each of our homebuilding segments. The lower level of net orders reflects our reduced active community counts~~2010, compared to 31% in the ~~year-earlier~~ fourth quarter ~~as well as our strategic decisions to wind down or exit certain communities as backlog is delivered and to discontinue product in particular communities as part~~ of ~~a product transition initiative.~~2009.

The following ~~table shows~~tables present homes delivered, net orders and cancellation rates (based on gross orders) ~~and ending backlog~~ by homebuilding reporting segment and with respect to our unconsolidated joint ventures for each quarter during the years ended November 30, ~~2008~~2010 and ~~2007:~~2009, and our ending backlog at the end of each quarter within those years:


											Unconsolidated																	Unconsolidated
	West Coast		Southwest		Central		Southeast		Total		Joint Ventures		West Coast			Southwest			Central			Southeast			Total			Joint Ventures
Homes delivered
2008
2010
First		614		740		899		675		2,928		75		340			216			529			241			1,326			21
Second		603		534		863		810		2,810		74		500			359			550			373			1,782			34
Third		731		425		745		887		2,788		45		600			337			855			528			2,320			24
Fourth		1,024		694		841		1,353		3,912		68		583			238			729			368			1,918			23

Total		2,972		2,393		3,348		3,725		12,438		262		2,023			1,150			2,663			1,510			7,346			102

2007
2009
First		895		1,185		1,427		1,629		5,136		8		351			267			447			380			1,445			23
Second		950		1,061		1,236		1,529		4,776		11		569			241			525			426			1,761			55
Third		1,252		1,133		1,433		1,881		5,699		13		669			314			783			474			2,240			37
Fourth		1,860		1,476		2,214		2,582		8,132		95		864			380			1,016			782			3,042			26

Total		4,957		4,855		6,310		7,621		23,743		127		2,453			1,202			2,771			2,062			8,488			141

Net orders
2008
2010
First		539		186		231		493		1,449		48		429			313			715			456			1,913			19
Second		977		760		964		1,499		4,200		131		608			351			796			489			2,244			27
Third		361		282		506		180		1,329		39		335			186			556			237			1,314			16
Fourth		375		207		353		361		1,296		17		331			157			370			227			1,085			4

Total		2,252		1,435		2,054		2,533		8,274		235		1,703			1,007			2,437			1,409			6,556			66

2007
2009
First		1,467		1,108		1,333		1,836		5,744		85		459			222			622			524			1,827			28
Second		1,673		1,437		1,903		2,252		7,265		109		928			359			1,048			575			2,910			45
Third		713		604		1,370		1,220		3,907		79		591			355			808			404			2,158			17
Fourth		679		482		660		753		2,574		9		417			200			491			338			1,446			21

Total		4,532		3,631		5,266		6,061		19,490		282		2,395			1,136			2,969			1,841			8,341			111

Cancellation Rates
2008
Cancellation rates
2010
First		41%		56%		70%		50%		53%		45%		17	%		14	%		29	%		21	%		22	%		21	%
Second		29%		21%		31%		26%		27%		24%		15			16			31			26			24			—
Third		48%		37%		43%		74%		51%		57%		23			26			37			40			33			—
Fourth		42%		40%		48%		50%		46%		71%		23			26			49			35			37			33

Total		38%		34%		45%		43%		41%		43%		19	%		19	%		36	%		29	%		28	%		10	%

2007
2009
First		28%		34%		40%		34%		34%		19%		26	%		27	%		29	%		28	%		28	%		48	%
Second		30%		30%		39%		33%		34%		25%		16			18			20			26			20			31
Third		57%		51%		47%		49%		50%		43%		23			20			28			32			27			32
Fourth		58%		55%		61%		57%		58%		92%		20			24			40			30			31			16

Total		41%		40%		45%		41%		42%		44%		21	%		22	%		28	%		29	%		25	%		34	%

Ending backlog — homes
2008
First		1,115		752		1,343		1,633		4,843		182
Second		1,489		978		1,444		2,322		6,233		239
Third		1,119		835		1,205		1,615		4,774		233
Fourth (a)		581		348		717		623		2,269		71

2007
2010
First		2,187		2,453		2,961		3,582		11,183		131		612			379			1,105			617			2,713			35
Second		2,910		2,829		3,628		4,305		13,672		229		720			371			1,351			733			3,175			28
Third		2,371		2,300		3,565		3,644		11,880		295		455			220			1,052			442			2,169			20
Fourth		1,190		1,306		2,011		1,815		6,322		209		203			139			693			301			1,336			1

2009
First														689			303			892			767			2,651			76
Second (a)														1,048			421			1,419			916			3,804			62
Third														970			462			1,444			846			3,722			42
Fourth														523			282			919			402			2,126			37

910

Ending backlog — value, in thousands

Land and Raw Materials

We currently own or control enough land to meet our forecasted production ~~goals for approximately the next three to four years, and believe that~~goals. As discussed above, however, depending on market conditions we ~~will be able~~may continue to acquire land ~~on acceptable terms for our anticipated future needs. However, as discussed above, we have recently sold some of our land and abandoned options to purchase land~~assets in ~~order to balance our holdings with current and forecasted market conditions and~~2011 or we may sell ~~additional~~certain land or land ~~interests in 2009.~~interests. In ~~2008,~~2010, our land sales generated ~~$82.9~~$6.3 million of revenues and ~~$82.8~~$.3 million of ~~pretax~~ losses, including ~~$86.2~~$.3 million of impairments. In 2009, our land sales generated $58.3 million of revenues and $47.9 million of losses, including $10.5 million of impairments. Our land option contract abandonments resulted in pretax, noncash charges of ~~$40.9~~$10.1 million in ~~2008.~~2010 and $47.3 million in 2009.

The principal raw materials used in the construction of our homes are concrete and forest products. In addition, we use a variety of other construction materials in the homebuilding process, including sheetrock and plumbing and electrical items. We attempt to ~~maintain efficient~~enhance the efficiency of our operations by usingpre-made, standardized materials that are commercially available on competitive terms from a variety of sources. In addition, our centralized and/or regionalized purchasing of certain building materials, appliances and fixtures allows us to benefit from large quantity purchase discounts and, in some cases, manufacturer or supplier rebates. When possible, we ~~make~~arrange for bulk purchases of these products at favorable prices from manufacturers and ~~suppliers and often instruct subcontractors to submit bids based on these prices.~~suppliers.

Customer Financing

~~On-site~~Our homebuyers may obtain mortgage financing from any lending institution of their choice. KBA Mortgage representatives on site at our communities ~~facilitate sales by offering~~offer to arrange mortgage financing for prospective homebuyers through ~~our Countrywide KB Home Loans retail mortgage banking~~the joint venture. ~~Although our homebuyers may obtain financing from any qualified lender, we~~We believe that the ability of ~~Countrywide KB Home Loans~~KBA Mortgage to offer customers a variety of financing options on competitive terms as a part of the on-site sales process ~~is an important factor in completing~~helps to complete sales. This includes both fixed and adjustable rate mortgages under conventional, FHA-insured and VA-guaranteed mortgages, and mortgages through revenue bond programs sponsored by states and municipalities. Countrywide KB Home LoansKBA Mortgage originated loans for ~~80%~~82% of our customers who obtained mortgage financing in ~~2008~~2010 and ~~72%~~84% in ~~2007.~~2009.

~~Discontinued Operations~~

In July 2007, we sold our 49% interest in our publicly traded French subsidiary, Kaufman and Broad, S.A. (“KBSA”). The disposition of the French operations enabled us to invest additional resources in our domestic homebuilding operations and we have since operated exclusively in the United States. The sale generated total gross proceeds of $807.2 million and a pretax gain of $706.7 million ($438.1 million net of income taxes). As a result of the sale, the French operations are presented as discontinued operations in our consolidated financial statements in 2007 and 2006.

Employees

We employ a trained staff of land acquisition specialists, architects, planners, engineers, construction supervisors, marketing and sales personnel, and finance and accounting personnel, supplemented as necessary by outside consultants, who guide the development of our communities from their conception through the marketing and ~~sale~~delivery of completed homes.

At December 31, ~~2008,~~2010, we had approximately ~~1,600~~1,300 full-time employees, ~~in our operations,~~ compared to approximately ~~3,100~~1,400 at December 31, ~~2007.~~2009. None of our employees are represented by a collective bargaining agreement.

Competition and Other Factors

We believe ~~the use of~~ our KBnxt operational business model, particularly the aspects that involve gaining a deeper understanding of customer interests and needs and offering a wide range of choices to homebuyers, provides us with long-term competitive advantages. The homebuilding industry and housing ~~industry is~~market are highly competitive, and we compete with numerous homebuilders ranging from regional and national firms to small local builders primarily on the basis of price, location, financing, design, reputation, quality and amenities. In addition, we compete with housing alternatives other than new homes, including resale homes, foreclosed and short sale homes, and rental housing. In certain markets and at times when housing demand is high, we also compete with other builders to hire subcontractors.

During ~~2008, difficult~~2010, operating conditions ~~prevailed across~~in most U.S. housing ~~markets. The supply~~markets remained difficult, reflecting the impact of ~~unsold homes~~the housing downturn and the weak economy as discussed above under “Strategy.” We believe the heightened competition for homebuyers stemming from these conditions will continue in the marketplace increased substantially, exacerbated by record-high mortgage defaults and foreclosures. Many consumers were no longer able to afford their mortgage payments or were unable to refinance homes when their principal payments became due. Meanwhile, demand for new homes was constrained by weak consumer confidence, a downturn in the general economy and job markets, and tightening consumer mortgage lending standards. This protracted supply/demand imbalance intensified competition among homebuilders for orders throughout the year and produced relentless downward pressure on home prices. We expect this tough market environment to continue, and possibly worsen, in 2009.2011, if not intensify.

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 ~~our~~an unsecured revolving credit facility with various ~~banks~~financial 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.

~~Regulation and~~ Environmental Compliance Matters

As part of our due diligence process for all land acquisitions, ~~our policy is to~~we often use third-party environmental consultants to investigate ~~for~~potential environmental risks and towe require ~~disclosure~~disclosures 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 ~~modest~~us 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 will 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.

Access to Our Information

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://~~www.kbhome.com,~~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.

Item 1A. RISK FACTORS

The 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 from time to time in our news releases, annual reports and other written reports or communications, (ii) that we post on or make available through our website, and ~~(ii)~~(iii) made orally from time to time by our personnel and representatives.

The homebuilding industry is experiencing a prolonged and severe downturn that may continue for an indefinite period and adversely affect our business and results of ~~operations compared to prior periods.~~operations.

In ~~2008 and 2007,~~recent years, many of our served markets and the U.S. homebuilding industry as a whole ~~continued to experience~~have experienced a significant and sustained decrease in demand for new homes and an oversupply of new and existing homes available for

sale, conditions that generally began in ~~2006. In many markets,~~mid-2006. As a ~~rapid increase in new~~result, sincemid-2006, compared to the period from 2000 through 2005, we and existing home prices in the years leading up to and including 2006 reduced housing affordability relative to consumer incomes and tempered buyer demand. At the same time, investors and speculators reduced their purchasing activity and instead stepped up their efforts to sell residential property they had earlier acquired. These trends, which were more pronounced in markets that hadother homebuilders have generally experienced ~~the greatest levels of price appreciation, resulted in overall~~ fewer home sales and greater volatility in the cancellations of home purchase ~~agreements~~contracts by ~~buyers,~~homebuyers, and faced higher inventories of unsold homes and the increased use ~~by homebuilders, speculators, investors and others~~ of discounts, incentives, price concessions and other marketing efforts by sellers of new and existing homes to close sales, putting downward pressure on home ~~sales in 2008~~selling prices, revenues and ~~2007 compared to the past several years. In 2008 and 2007, these~~profitability. These negative supply and demand trends ~~were~~have been exacerbated since 2008 by ~~increasing foreclosure activity that reached successive record highs,~~a number of factors, including (a) a severe and persistent downturn in general economic and employment conditions ~~weakening employment trends, turmoil~~that, among other things, has further tempered consumer demand and confidence for buying homes; (b) increasing residential consumer mortgage loan foreclosure and short sales activity and sales of lender-owned homes; (c) volatility and uncertainty in credit and consumer lending markets, including from voluntary and involuntary delays by financial institutions in finalizing residential consumer mortgage loan foreclosures and increasing demands from investors for lenders, residential consumer mortgage loan brokers and other institutions, or their agents, to repurchase the residential consumer mortgage loans or securities backed by residential consumer mortgage loans that they originated, issued or administer; (d) generally tighter lending ~~standards.~~standards for residential consumer mortgage loans; and (e) the termination, expiration or scaling back of homebuyer tax credits and other government programs supportive of home sales. It is uncertain when, and to what extent, these housing industry trends and factors might reverse or improve.

Reflecting ~~the impact of~~ this difficult operating environment, we, like many other homebuilders, have experienced ~~a large drop~~to varying degrees since the housing downturn began, declines in net orders, ~~a decline~~decreases in the average selling price of new homes we have sold and ~~a reduction in our~~delivered and reduced revenues and margins ~~in 2008 and 2007~~ relative to ~~prior years,~~the period from 2000 through 2005, and we have generated operating losses. WeThough we improved our operating margins and narrowed our net loss in 2010 compared to 2009, and housing affordability is currently at historically high levels overall, we can provide no assurances that the homebuilding ~~market~~industry or our business will improve substantially or at all in ~~the near future. In fact, we expect the weakness to~~2011. If economic conditions, employment, personal income growth and consumer confidence remain weak and residential consumer mortgage loan foreclosures, delinquencies and short sales continue ~~and possibly worsen,~~rising in ~~2009 and have~~future periods, there would likely be a corresponding adverse effect on our business and our results of operations, including, but not limited to, ~~lower home sales~~the number of homes we deliver, the amount of revenues we generate and ~~revenues.~~our ability to achieve or maintain profitability.

Further tightening of residential consumer mortgage lending or mortgage financing requirements or further ~~turmoil~~volatility in credit and ~~mortgage~~consumer lending markets could adversely affect the availability of ~~credit~~residential consumer mortgage loans for some potential purchasers of our homes and thereby reduce our sales.

~~During~~Since 2008, ~~and 2007,~~ the residential consumer mortgage lending and mortgage finance industries have experienced significant instability due to, among other things, relatively high rates of delinquencies, defaults and foreclosures on ~~home~~residential consumer mortgage loans and a resulting decline in their market value ~~particularly subprime~~ and ~~adjustable-rate~~the market value of securities backed by such loans. The delinquencies, defaults and foreclosures have been driven in part by persistent poor economic and employment conditions, which have negatively affected borrowers’ incomes, and by a decline in the values of many existing homes in various markets below the principal balance of the residential consumer mortgage loans secured by such homes. A number of providers, purchasers and insurers of ~~such~~residential consumer mortgage loans and residential consumer mortgage-backed securities have gone out of business or exited the ~~market. In light of these developments,~~market, and lenders, investors, regulators and others have questioned the oversight and the adequacy of lending standards ~~and other credit requirements~~ for several residential consumer mortgage loan programs made available to borrowers in recent ~~years. This~~years, including programs offered or supported by the Federal Housing Administration (“FHA”), the Veterans Administration (“VA”) and the federal government sponsored enterprises, the Federal National Mortgage Association (also known as “Fannie Mae”) and the Federal Home Loan Mortgage Corporation (also known as “Freddie Mac”). Compared to prior periods, this has led to reduced investor demand for residential consumer mortgage loans and residential consumer mortgage-backed securities, tightened credit requirements, reduced liquidity and availability of residential consumer mortgage loan products (particularly subprime and nonconforming loans), and increased down payment requirements and credit risk premiums related to home purchases. It has also led to enhanced regulatory and ~~regulatory actions. Deterioration~~legislative actions, and government programs focused on modifying the principal balances, interest ratesand/or payment terms of existing residential consumer mortgage loans and preventing residential consumer mortgage loan foreclosures, which have achieved somewhat mixed results.

The reduction in ~~credit quality among subprime, adjustable-rate and other nonconforming loans has caused most lenders to stop offering such loan products. Fewer~~the availability of residential consumer mortgage loan products and providers and tighter residential consumer mortgage loan qualifications ~~in turn make~~and down payment requirements have made it more difficult for some categories of

borrowers to finance the purchase of our homes or the purchase of existing homes from potentialmove-up buyers who wish to purchase one of our homes. ~~In general,~~Overall, these ~~developments~~factors have ~~resulted in a reduction in~~

~~demand for our homes and~~ slowed any general improvement in the housing ~~market. Furthermore,~~market, and they have resulted in ~~a reduction in~~volatile home purchase cancellation rates and reduced demand for ~~the~~our homes and for residential consumer mortgage loans originated through our ~~Countrywide KB Home Loans~~KBA Mortgage joint venture. These reductions in demand have had ~~and are expected to continue to have,~~ a materially adverse effect on our business and results of operations in ~~2009.~~2010 that is expected to continue in 2011.

Potentially exacerbating the foregoing trends, in 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was signed into law and established several new standards and requirements (including risk retention obligations) relating to the origination, securitizing and servicing of, and consumer disclosures for, residential consumer mortgage loans. These new standards and requirements are expected to further reduce the availability ofand/or increase the costs to borrowers to obtain such loans. Federal regulators and legislators are also discussing steps that may significantly reduce the ability or authority of the FHA, Fannie Mae and Freddie Mac to purchase or insure residential consumer mortgage loans. In the last few years, the FHA, Fannie Mae and Freddie Mac have purchased or insured substantially all new residential consumer mortgage loans originated by lenders, including KBA Mortgage. Also in 2010, and as noted above, investors in residential consumer mortgage-backed securities, as well as Fannie Mae and Freddie Mac, increasingly demanded that lenders, brokers and other institutions, or their agents, repurchase the loans underlying the securities based on alleged breaches of underwriting standards or of representations and warranties made in connection with transferring the loans. These “put-back” demands are expected to continue into 2011 and, to the extent successful, could cause lenders and brokers to further curtail their residential consumer mortgage loan origination activities due to reduced liquidity. Concerns about the soundness of the residential consumer mortgage lending and mortgage finance industries have also been heightened recently due to allegedly widespread errors by lenders or brokers, or their agents, in the processing of residential consumer mortgage loan foreclosures and sales of foreclosed homes, leading to voluntary or involuntary delays and higher costs to finalize foreclosures and foreclosed home sales, and greater court and regulatory scrutiny. In addition to having a potential negative impact on the origination of new residential consumer mortgage loans, these disruptions in residential consumer mortgage loan foreclosures and lender-owned home sales may make it more difficult for us to accurately assess the supply of and prevailing prices for unsold homesand/or the overall stability of particular housing markets.

Many of our homebuyers obtain financing for their home purchases from ~~Countrywide KB Home Loans.~~our KBA Mortgage joint venture. Our partner, a Bank of America, N.A. subsidiary, provides the loan products that the joint venture offers to our homebuyers. If, due to higher costs, reduced liquidity, heightened risk retention obligationsand/or new operating restrictions or regulatory reforms related to or arising from compliance with the Dodd-Frank Act, residential consumer mortgage loan put-back demands or internal or external reviews of its residential consumer mortgage loan foreclosure processes, or other factors or business decisions, our partner refuses or is unable to make loan products available to the joint venture to provide to our homebuyers, our home sales and our homebuilding and financial services results of operations may be adversely affected. For instance, in the fourth quarter of 2010, stricter lending standards led to an increase in our cancellation rate compared to the fourth quarter of 2009. The degree to which this more cautious approach to providing loans to our homebuyers continues into 2011 is unclear, and we can provide no assurance that the trend of tighter residential consumer mortgage lending standards will slow or reverse in the foreseeable future.

Our strategies in responding to the adverse conditions in the homebuilding industry have had limited success, and the continued implementation of these and other strategies may not be successful.

While we have been successful in generating positive operating cash flow ~~and reducing our inventories in 2008 and 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 ~~reduce~~improve our ~~inventories~~operating efficiency have involved lowering overhead through workforce reductions, for which we incurred significant costs, and reducing our active community ~~counts~~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 ~~successively~~to varying degrees fewer net orders, homes delivered and revenues compared to ~~prior~~ periods before the housing downturn began, and have contributed to the net losses we have recognized in recent years.

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

Open Series, and we continued to take steps to reduce our selling, general and administrative expenses, and to redeploy our capital into housing markets with perceived higher future growth prospects.

These integrated strategic steps helped us narrow our net losses and improve our operating margins in ~~2008,~~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~~have experienced volatility in our net orders and in cancellations of home purchase ~~contracts.~~contracts by buyers throughout the present housing downturn, including in 2010. We believe that ~~the~~our volatile net order and cancellation ~~rates~~levels have largely reflected ~~a decrease in~~weak homebuyer confidence ~~based on~~due to sustained home sales price declines, increased offerings of sales incentives in the marketplace for both new and existing homes, tightened residential consumer mortgage lending standards, and generally poor economic and employment conditions, all of which have prompted homebuyers to forgo or delay home purchases. Additional 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 ~~more restrictive~~relatively tight consumer mortgage lending environment and the inability of some ~~buyers~~homebuyers to sell their existing homes have also led to lower demand for new homes and ~~higher cancellations.~~to volatility in home purchase contract cancellations for us and the homebuilding industry. Many of these factors affecting ~~new~~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 and to what degree these factors, and the ~~reduced sales levels~~volatility in net orders and ~~volatility in~~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 operations.

Our business is cyclical and is significantly affected by changes in general and local economic conditions.

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


	•	short- and long-term interest rates;

	•	employment levels and job and personal income growth;

	•	housing demand from population growth, household formation and other demographic changes, among other factors;

	•	the availability and pricing of financing for homebuyers;

	•	consumer confidence generally and the confidence of potential homebuyers in particular;

	•	U.S. and global financial system and credit market stability;

	•	private party and ~~federal~~government residential consumer mortgage ~~financing~~loan programs, and federal and state regulation of lending and appraisal practices;

	•	federal and state personal income tax rates and provisions, including provisions for the deduction of residential consumer mortgage loan interest ~~payments;~~

	•	~~housing demand from population growth~~payments and ~~demographic changes, among~~ other ~~factors;~~expenses;

	•	the supply of and prices for available new or existing homes (including lender-owned homes acquired through foreclosures and short sales) and other housing alternatives, such as apartments and other residential rental property;

	•	~~employment levels~~homebuyer interest in our current or new product designs and ~~job~~community locations, and ~~personal income growth;~~general consumer interest in purchasing a home compared to choosing other housing alternatives; and

	•	real estate taxes.

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 ~~2008 and 2007,~~recent 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 ~~in 2009. A continued downturn~~into 2011. Continued weakness in the economy, employment levels and consumer confidence would likely ~~worsen~~exacerbate the unfavorable trends the housing market has experienced ~~in 2008 and 2007.~~since mid-2006.

Weather conditions and natural disasters, such as earthquakes, hurricanes, tornadoes, floods, droughts, fires and other environmental conditions, can also impair our homebuilding business on a local or regional basis. Civil unrest or acts of terrorism can also have a negative effect on our business.

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 ~~unrest~~disruptions among key trades, such as carpenters, roofers, electricians and plumbers, can delay the delivery of our homes ~~and~~and/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 ~~diminish~~fall 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 ~~cause~~also lead some homebuyers to cancel or refuse to honor their home purchase contracts altogether. ~~In fact, reflecting~~Reflecting 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 volatile~~have experienced volatility in our net orders and in home purchase contract ~~cancellation rates~~cancellations in ~~2008~~recent years, and we may experience similar or increased volatility in ~~2009.~~2011.

Supply shortages and other risks related to demand for building materialsand/or skilled labor could increase costs and delay deliveries.

There is a high level of competition in the homebuilding industry 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 ~~customers~~homebuyers who have already entered into home purchase contracts, as the purchase 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 due ~~among other things,~~ to ~~pricing~~ competition for materials and skilled labor and higher commodity prices (including prices for lumber, metals and other building material inputs), among other things, may, over time, decrease our margins.

Changes in global or regional environmental conditions and governmental actions in response to such changes may adversely affect us by increasing the costs of or restricting our planned or future residential development activities.

There is growing concern from the scientific community and the general public that an increase in global average temperatures due to emissions of greenhouse gases and other human activities will cause significant changes in weather patterns and increase the frequency and severity of natural disasters. An increased frequency or duration of extreme weather conditions and environmental events could limit, delayand/or increase the costs to build new homes and reduce the value of our land and housing inventory in locations that become less desirable to consumers or blocked to development. Projected climate change, if it occurs, may exacerbate the scarcity of water and other natural resources in affected regions, which could limit, prevent or increase the costs of residential development in certain areas. In addition, government mandates, standardsand/or regulations intended to mitigate or reduce greenhouse gas emissionsand/or projected climate change impacts could result in increased energy, transportation and raw material costs that make building materials less available or more expensive, or cause us to incur compliance expenses and other financial obligations to meet permitting or development- or construction-related requirements that we will be unable to fully recover (due to market conditions or other factors), and reduce our margins. As a result, climate change impacts, and laws and construction standards,and/or the manner in which they are interpreted or implemented, to address potential climate change impacts, could increase our costs and have a long-term adverse impact on our business and results of operations. This is a particular concern with respect to our West Coast reporting segment as California has instituted some of the most extensive and stringent environmental laws and residential building construction standards in the country.

Inflation may adversely affect us by increasing costs that we may not be able to recover, particularly if sales prices decrease.

Inflation can have ~~a long-term~~an adverse impact on usour results of operations because increasing costs offor land, building materials and skilled labor may ~~call~~raise a need for us to increase ~~sales~~home 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 ~~homebuilding~~housing market persist, we may ~~further~~not be able to increase, and may need to decrease, our home selling prices ~~in an attempt~~ to help stimulate ~~sales volume. Our~~sales. If determined necessary, our lowering of ~~sales~~home 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 with ~~new~~ home ~~sales~~selling prices or, if we choose, in disposing 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 noncash charges against our earnings for inventory impairments if the value of our owned inventory is 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.

Reduced home sales may impair our ability to recoup development costs or force us to absorb additional costs.

We incur many costs even before we begin to build homes in a community. Depending on ~~the~~a 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. ~~Reducing~~In addition, local municipalities may impose requirements resulting in additional costs. If the rate at which we ~~build~~sell and deliver homes ~~extends~~slows or falls, which has occurred throughout the ~~length~~present housing downturn, we may incur additional costs and it will take a longer period of time ~~it takes~~for us to recover ~~these costs. Also,~~our costs, including the costs we ~~frequently acquire~~incurred 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 may be forfeited if we do not exercise the options within specified periods. Because of current market conditions, we have strategically terminated 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 own or control may fall significantly and our ~~profits~~profitability may decrease.

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, ~~such~~this 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 market~~which has generally depressed home sales and selling prices, has caused the fair value of certain of our owned or controlled inventory to fall, in some cases well below the estimated fair value at the time we acquired it. ~~Because of~~Through our periodic assessments of fair value, we have been required to write down the carrying value of certain of our inventory, including ~~certain~~ inventory that we have previously written down, and ~~take~~record corresponding noncash charges against our earnings to reflect the impaired value. We have also ~~abandoned~~taken noncash charges in connection with abandoning our interests in certain ~~land~~optioned inventory that no longer meets our ~~internal~~ investment ~~standards, which also required us~~or marketing standards. Although the magnitude of such noncash charges diminished significantly in 2010 compared to ~~take noncash charges. If~~prior periods, if the current ~~downturn in the~~ housing ~~market~~downturn continues, we may need to take additional charges against our earnings for inventory

impairments or land option contract abandonments, or both. Any such noncash charges would have an adverse effect on our ~~consolidated~~ results of ~~operations.~~operations, including our ability to achieve or maintain profitability.

Some homebuyers may cancel their home purchases because the required deposits are small and generally refundable.

Our backlog ~~numbers reflect~~information reflects the number of homes for which we have entered into a purchase contract with a ~~customer~~homebuyer, but not yet delivered the home. Our home purchase contracts typically require only a small deposit, and in ~~many states,~~some circumstances, the deposit is ~~fully~~ refundable ~~at any time~~ prior to closing. If the prices for new homes decline, competitors increase their use of sales incentives, interest rates increase, the availability of residential consumer mortgage financing diminishes or there is continued weakness or a further downturn in local or regional economies or the national economy ~~homebuyers~~and in consumer confidence, customers may terminate their existing home purchase contracts with us because they have been unable to

finalize their mortgage financing for the purchase, or in order to attempt to negotiate for a lower price, explore other options or ~~because~~for other reasons they ~~cannot,~~are unable or ~~become reluctant~~unwilling to complete the purchase. In ~~2008, 2007 and 2006,~~recent years, we have experienced ~~elevated and~~ volatile ~~cancellation rates,~~home purchase contract cancellations, in part because of these ~~reasons. Continued elevated~~reasons and, as discussed above, in part due to the April 30, 2010 expiration of the federal homebuyer tax credit. To the extent they continue, volatile ~~cancellation rates~~home purchase contract cancellations due to these conditions, or otherwise, could have an adverse effect on our business and our results of operations.

Our long-term success depends on the availability of ~~improved~~finished lots and undeveloped land that meet our land investment criteria.

The availability of finished and partially ~~developed~~finished lots and undeveloped land ~~for purchase~~assets that meet our ~~internal~~ investment and marketing standards depends on a number of factors outside of our control, including land availability in general, climate conditions, competition with other homebuilders and land buyers for desirable property, credit market conditions, legal or government agency processes (particularly for land assets that are part of bankruptcy estates or are held by financial institutions taken over by government agencies), inflation in land prices, zoning, allowable housing density, our ability and the costs to obtain building permits, the amount of environmental impact fees, property tax rates and other regulatory requirements. Should suitable lots or land become less available, the number of homes we may be able to build and sell could be reduced, and the cost of attractive land could increase, perhaps substantially, which could adversely impact our results of operations including, but not limited to, our ~~margins.~~margins, and our ability to maintain ownership or control of a sufficient supply of developed or developable land inventory. The availability of suitable land assets will also affect the success of the land acquisition strategy we initiated in 2010, and if we decide to reduce our acquisition of new land due to a lack of available assets that meet our standards, our ability to increase our average community count and revenues and to achieve or maintain profitability would likely be constrained.

Home prices and sales activity in the particular markets and regions in which we do business affect our results of operations because our business is concentrated in these markets.

Home selling prices and sales activity in some of our key served markets have declined from time to time for market-specific reasons, including adverse weather, high levels of foreclosures, and lack of affordability or economic contraction due to, among other things, the failure or decline of key industries and employers. If home selling prices or sales activity decline in one or more of our key served markets, particularly in Arizona, California, Florida, Nevada or Texas, our costs may not decline at all or at the same rate and, as a result, our overall results of operations may be adversely affected.

Interest rate increases or changes in federal lending programs or ~~regulation~~regulations could lower demand for our homes.

Nearly all of our customers finance the purchase of their homes. ~~Prior to 2006,~~Before the housing downturn began, historically low interest rates and the increased availability of specialized residential consumer mortgage loan products, including ~~mortgage~~ products requiring no or low down payments, and interest-only and ~~adjustable rate mortgages, had~~adjustable-rate residential consumer mortgage loans, made ~~homebuying~~purchasing a home more affordable for a number of customers and more available to customers with lower credit scores. Increases in interest rates or decreases in the availability of residential consumer mortgage loan financing or of certain residential consumer mortgage loan products or programs may, as discussed above, ~~may~~ lead to fewer residential consumer mortgage loans being provided, higher down payment requirements or ~~monthly mortgage~~borrower costs, or a combination of the foregoing, and, as a result, reduce demand for our ~~homes.~~

~~Increased interest rates can also hinder our ability to realize our backlog because~~homes and increase our home purchase ~~contracts provide our customers with~~contract cancellation rates.

As a ~~financing contingency. Financing contingencies allow customers to cancel their home purchase contracts~~result of the volatility and uncertainty in the ~~event they cannot arrange~~credit markets and in the residential consumer mortgage lending and mortgage finance industries since 2008, the federal government has taken on a significant role in supporting residential consumer mortgage lending through its conservatorship of Fannie Mae and Freddie Mac, both of which purchase or insure residential consumer mortgage loans and residential consumer mortgage-backed securities, and its insurance of residential consumer mortgage loans through the FHA and the VA. FHA-backing of residential consumer mortgage loans has been particularly important to the residential consumer mortgage finance industry and to our business. In 2010, approximately 62% of our homebuyers (compared to approximately 63% in 2009) that chose to finance with our KBA Mortgage joint venture purchased a home using an FHA-backed loan. The availability and affordability of residential consumer mortgage loans, including interest rates for ~~adequate financing.~~

~~Because~~such loans, could be adversely affected by a scaling back or termination of the ~~availability~~federal government’s mortgage-related programs or policies. For example, in October 2010, the FHA instituted higher mortgage insurance premiums to help address its low cash reserves and imposed new minimum credit scores and higher down payment requirements for borrowers with lower credit scores for

the residential consumer mortgage loans it insures. In addition, due to growing federal budget deficits, the U.S. Treasury may not be able to continue supporting the residential consumer mortgage-related activities of Fannie Mae, Freddie Mac, the FHA and the VA at present levels.

Because Fannie Mae-, Freddie Mac-, FHA- and VA-backed residential consumer mortgage loan financing is an important factor in marketing and selling many of our homes, any limitations or restrictions in the availability of such government-backed financing could reduce our home sales and adversely affect our results of ~~operations. This may occur as a result~~operations, including the income we earn from our equity interest in our KBA Mortgage joint venture due to lower levels of ~~the federal government’s conservatorship of Fannie Mae and Freddie Mac in 2008.~~residential consumer mortgage loan originations.

Tax law changes could make home ownership more expensive or less attractive.

~~Significant~~Under current tax law and policy, significant expenses of owning a home, including residential consumer mortgage loan interest ~~expense~~costs and real estate taxes, generally are deductible expenses for the purpose of calculating an individual’s federal, and in some cases state, taxable income, subject to various ~~limitations, under current tax law and policy.~~limitations. If the federal government or a state government changes income tax laws, as some policy makers and a presidential commission have ~~discussed recently,~~proposed, by eliminating or substantially reducing these income tax

benefits, the after-tax cost of owning a ~~new~~ home ~~would~~could increase substantially. This could adversely impact demand forand/or sales prices of new ~~homes.~~homes, as could increases in personal income tax rates.

Moreover, in early 2010, our home sales increased in part because of a federal homebuyer tax credit made available to certain qualifying homebuyers until April 30. The expiration of this homebuyer tax credit adversely affected our net orders, home purchase contract cancellation rates, customer traffic levels and results of operations in subsequent periods of 2010, as weak consumer confidence and unfavorable economic and employment conditions caused many potential homebuyers to delay or forgo the purchase of a home. It is uncertain whether and to what degree the higher demand driven by the federal homebuyer tax credit might return, if at all.

We are subject to substantial legal and regulatory requirements regarding the development of land, the homebuilding process and protection of the environment, which can cause us to suffer delays and incur costs associated with compliance and which can prohibit or restrict homebuilding activity in some regions or areas.

Our homebuilding business is heavily regulated and subject to an increasing amount of local, state and federal regulation concerning zoning, natural and other resource protection, ~~and other environmental impacts,~~ building ~~design,~~designs, construction methods and similar matters. These regulations often provide broad discretion to ~~governmental~~government authorities that oversee these matters, which can result in unanticipated delays or increases in the cost of a specified development project or a number of projects in particular markets. We may also experience periodic delays in homebuilding projects due to building moratoria and permitting requirements in any of the ~~areas~~locations in which we operate.

WeIn addition, we are ~~also~~ subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning the environment, and ~~recently~~in 2008 we entered into a consent decree with the EPA and certain states concerning our storm water pollution prevention practices. ~~These~~As noted above with respect to potential climate change impacts, these laws and regulations, and/or evolving interpretations thereof, and the EPA consent decree may cause delays in our construction and delivery of new homes, may cause us to incur substantial compliance and other costs, and can prohibit or ~~severely~~ restrict homebuilding activity in certain ~~environmentally sensitive~~ regions or areas. ~~In addition, environmental~~

Environmental laws may also impose liability for the costs of removal or remediation of hazardous or toxic substances whether or not the developer or owner of the property knew of, or was responsible for, the presence of those substances. The presence of those substances on our properties may prevent us from selling our homes and we may also be liable, under applicable laws and regulations or lawsuits brought by private parties, for hazardous or toxic substances on properties and lots that we have sold in the past.

Further, a significant portion of our business is conducted in California, one of the most highly regulated and litigious states in the country. Therefore, our potential exposure to losses and expenses due to new laws, regulations or litigation may be greater than other homebuilders with a less significant California presence.

The residential consumer mortgage banking operations of ~~Countrywide KB Home Loans~~our KBA Mortgage joint venture are heavily regulated and subject to the rules and regulations ~~promulgated~~issued by a number of ~~governmental~~government and ~~quasi-governmental~~quasi-government agencies. There are a

number of federal and state statutes and regulations which, among other things, prohibit discrimination, impose various disclosure obligations, establish underwriting guidelines that include verifying prospective borrowers’ incomes and obtaining property inspections and appraisals, require credit reports on prospective borrowers and fix maximum loan amounts. As discussed above, the recently enacted Dodd-Frank Act imposed additional standards and obligations with respect to the origination, securitizing and servicing of residential consumer mortgage loans. A finding that ~~we or Countrywide KB Home Loans~~KBA Mortgage materially violated any of the foregoing lawsand/or the additional costs it may incur in complying with such laws or to address any violations thereof could have an adverse effect on our results of ~~operations.~~operations to the extent it impacts the income we earn from our equity interest in KBA Mortgage.

We are subject to a ~~Consent Order~~consent order that we entered into with the Federal Trade Commission in 1979 and related ~~Consent Decrees~~consent decrees that were entered into in 1991 and 2005. Pursuant to the ~~Consent Order~~consent order and the related ~~Consent Decrees,~~consent decrees, we provide explicit warranties on ~~the quality of~~ our homes, follow certain guidelines in advertising and provide certain disclosures to prospective purchasers of our homes. A finding that we have significantly violated the ~~Consent Order~~ consent orderand/or the related ~~Consent Decrees~~consent decrees could result in substantial liabilities or penalties and could limit our ability to sell homes in certain markets.

~~Homebuilding~~The homebuilding industry and ~~financial services~~housing market are very competitive, and competitive conditions could adversely affect our business or our financial results.

The homebuilding industry is highly competitive. Homebuilders compete not only for homebuyers, but also for desirable land assets, financing, building materials, and skilled management talent and trade labor. We compete in each of our served markets with other local, regional and national homebuilders, including ~~those with a sales presence on the Internet, often~~ within larger subdivisions containing ~~portions~~sections designed, planned and developed by such homebuilders. ~~These~~Other homebuilders may also have long-standing relationships with local labor, materials suppliers or land sellers in certain areas, which may provide an advantage in their respective regions or local markets. We also compete with other housing alternatives, such as existing home sales (including ~~existing~~lender-owned homes ~~sold~~acquired through ~~foreclosures)~~foreclosure or short sales) and rental housing. The competitive conditions in the homebuilding industry can result in:


	•	our delivering fewer homes;

	•	our selling homes at lower ~~selling~~ prices;

	•	our offering or increasing sales incentives, discounts or price ~~concessions;~~concessions for our homes;


	•	our experiencing lower ~~profit~~ margins;

	•	~~declining new~~our selling fewer homes or experiencing higher home ~~sales or increasing~~purchase contract cancellations by ~~homebuyers of their home purchase contracts with us;~~buyers;

	•	impairments in the value of our inventory and other assets;

	•	difficulty in acquiring desirable land assets that ~~meets~~meet our investment return criteria, and in selling our interests in land assets that no longer meet such criteria on favorable terms;

	•	difficulty in our acquiring raw materials and skilled management and trade labor at acceptable prices; or

	•	delays in the construction of our ~~homes.~~homes; and/or

	•	difficulty in securing external financing, performance bonds or letters of credit facilities on favorable terms.

These competitive conditions may adversely affect our business and financial results by decreasing our revenues, impairing our ability to successfully execute our land acquisition and land asset management strategies, increasing our costsand/or diminishing growth in our local or regional homebuilding ~~business.~~businesses. In the ~~current~~present housing downturn, ~~in the homebuilding industry, the reactions of~~actions taken by our new home and housing alternative competitors are reducing the effectiveness of our efforts to achieve ~~pricing~~ stability in home selling prices, to generate higher home sales, revenues and ~~reduce~~margins, and to achieve and maintain profitability.

Our ability to attract and retain talent is critical to the success of our ~~inventory levels.~~business and a failure to do so may materially adversely affect our performance.

Our officers and employees are an important resource, and we see attracting and retaining a dedicated and talented team to execute our KBnxt operational business model as crucial to our ability to achieve and maintain an advantage over other homebuilders. We face intense competition for qualified personnel, particularly at senior management levels, from other homebuilders, from other companies in the housing and real estate industries, and from companies in various other industries with respect to certain roles or functions. Moreover, the prolonged housing downturn and the decline in the market value of our common stock during the downturn have made it relatively more difficult for us to attract and retain talent compared to the 2000 to 2005 period. In addition, we currently have a limited number of shares of our common stock available for grant as incentive compensation awards, and an inability to grant equity compensation to the same degree as other companies may adversely affect our talent recruitment and retention efforts. If we are unable to continue to retain and attract qualified employees, our performance and our ability to achieve and maintain a competitive advantage could be materially adversely affected.

Homebuilding is subject to warranty and liability claims in the ordinary course of business that can be significant.

In the ordinary course of our homebuilding business, we are subject to home warranty and construction defect claims. We record warranty and other ~~reserves~~liabilities for the homes we sell based primarily on historical experience in our served markets and our judgment of the risks associated with the types of homes we build. We have, and require the majority of our subcontractors to ~~have,~~maintain, general liability ~~property, errors~~insurance (including construction defect and ~~omissions, workers~~bodily injury coverage) and workers’ compensation ~~and other business~~ insurance. These insurance policies protect us against a portion of our risk of loss from claims related to our homebuilding activities, subject to certain self-insured retentions, deductibles and other coverage limits. Through our captive insurance subsidiary, we ~~reserve for~~record expenses and liabilities based on the estimated costs required to cover our self-insured retention and deductible amounts under ~~these~~our insurance policies, and ~~for any~~on the estimated costs of potential claims and ~~lawsuits,~~claim adjustment expenses above our coverage limits or that are not covered by our policies. These estimated costs are based on an analysis of our historical claims ~~which includes~~and include an estimate of construction defect claims incurred but not yet reported. Because of the uncertainties inherent to these matters, we cannot provide assurance that our insurance coverage, our subcontractor arrangements and our ~~reserves~~liabilities will be adequate to address all our warranty and construction defect claims in the future, or that any potential inadequacies will not have an adverse affect on our results of operations. Additionally, the coverage offered by and the availability of general liability insurance for construction defects are currently limited and costly. There can be no assurance that coverage will not be further restricted, increasing our risks, ~~and~~and/or become more costly.

In 2009, we incurred warranty-related charges associated with the repair of homes primarily delivered in 2006 and 2007 and located in Florida that were identified as containing or suspected of containing allegedly defective drywall manufactured in China. We are continuing to review whether there are additional homes delivered in Florida or other locations that contain or may contain this drywall material. Based on the results of our review, we have not identified homes outside of Florida that contain this drywall material. Depending on the outcome of our review and our actual claims experience, we may incur additional warranty-related costs and increase our warranty liability in future periods. In addition, we have been named as a defendant in lawsuits relating to this drywall material, and we may in the future be subject to other similar litigation or claims that could cause us to incur significant costs.

Because of the seasonal nature of our business, our quarterly operating results fluctuate.

We have experienced seasonal fluctuations in our quarterly operating results. We typically do not commence significant construction on a home before a home purchase contract has been signed with a homebuyer. Historically, a significant percentage of our home purchase contracts are entered into in the spring and summer months, and we deliver a corresponding significant percentage of our ~~deliveries occur~~homes in the fall and winter months. Construction of our homes typically requires approximately three to four months and weather delays that often occur in late winter and early spring may extend this period. As a result of these combined factors, we historically have experienced uneven quarterly results, with lower revenues and operating income generally during the first and second quarters of the year. ~~However,~~During the ~~increasingly challenging market conditions~~present housing downturn, however, we have experienced ~~in 2008 resulted in~~ lower sales in the spring and summer months and correspondingly ~~lower deliveries~~fewer homes delivered in the fall and winter months as compared to ~~2007.~~the period from 2000 through 2005. Moreover, our normal selling patterns were disrupted to a significant extent in 2010 by the federal homebuyer tax credit that was made

available to qualifying homebuyers until April 30. The increased demand driven by the federal tax homebuyer credit in early 2010 resulted in our delivering more homes in the third quarter of 2010 and experiencing lower net orders and higher home purchase contract cancellations in our third and fourth quarters, in each case compared to a more typical seasonal pattern. With the current difficult market conditions expected to continue into ~~2009,~~2011, and the expiration of the federal homebuyer tax credit, we can make no assurances that our ~~normal~~historical seasonal patterns will ~~occur~~return in the near ~~future.~~future if at all.

Failure to comply with the covenants and conditions imposed by the agreements governing our indebtedness could restrict future borrowing or cause our debt to become immediately due and payable.

~~Our Credit Facility and the~~The indenture governing our outstanding ~~public~~senior notes ~~impose~~imposes restrictions on our business operations and activities. ~~The restrictions primarily relate~~Though it does not contain any financial maintenance covenants, the indenture contains certain restrictive covenants that, among other things, limit our ability to ~~cash dividends, stock repurchases, incurrence~~incur secured indebtedness, to engage in sale-leaseback transactions involving property or assets above a specified value, and, as in the case of ~~indebtedness, creation~~one of ~~liens~~our outstanding senior notes, to engage in mergers, consolidations, and ~~asset dispositions, defaults with respect to other debt obligations and require maintenance~~sales of ~~a maximum debt to equity (or leverage) ratio, a minimum interest coverage ratio, and a minimum level of tangible net worth.~~assets. If we fail to comply with these restrictions, ~~or covenants,~~ the holders of ~~those debt instruments or the banks, as appropriate,~~our senior notes could cause our debt to become due and payable prior to maturity or could demand that we compensate them for waiving instances of noncompliance. In addition, a default under ~~the indenture for~~ any series of our senior notes ~~or our Credit Facility~~ could cause a default with respect to our other senior notes ~~or the Credit Facility, as the case may be,~~ and result in the acceleration of the maturity of all such defaulted ~~indebtedness and our inability to borrow under the Credit Facility, which would have a~~

significant adverse effect on our ability to invest in and grow our business. Moreover, we may curtail our investment activities and other uses of cash to maintain compliance with these restrictions and covenants.indebtedness.

We participate in certain unconsolidated joint ventures where we may be adversely impacted by the failure of the unconsolidated joint venture or the other partners in the unconsolidated joint venture to fulfill their obligations.

We have investments in and commitments to certain unconsolidated joint ventures with unrelated strategic partners to acquire and develop land and, in some cases, build and deliver homes. To finance these activities, our unconsolidated joint ventures often obtain loans from third-party lenders that are secured by the unconsolidated joint venture’s assets. In certain instances, we and the other partners in an unconsolidated joint venture provide guarantees and indemnities to lenders with respect to the unconsolidated joint venture’s debt, which may be triggered under certain conditions when the unconsolidated joint venture fails to fulfill its obligations under its loan agreements. Because we do not have a controlling interest in these unconsolidated joint ventures, we depend heavily on the other partners in each unconsolidated joint venture to both ~~(i)~~(a) cooperate and make mutually acceptable decisions regarding the conduct of the business and affairs of the unconsolidated joint venture and ~~(ii)~~(b) ensure that they, and the unconsolidated joint venture, fulfill their respective obligations to us and to third parties. If the other partners in our unconsolidated joint ventures do not provide such cooperation or fulfill these obligations due to their financial condition, strategic business interests (which may be contrary to ours), or otherwise, we may be required to spend additional resources (including payments under the guarantees we have provided to the unconsolidated joint ventures’ lenders) and suffer losses, each of which could be significant. Moreover, our ability to recoup such expenditures and losses by exercising remedies against such partners may be limited due to potential legal defenses they may have, their respective financial condition and other circumstances.

As discussed below under “Part I — Item 3. Legal Proceedings,” we are currently a party to an involuntary bankruptcy case initiated by the lenders to one of these unconsolidated joint ventures, which includes seeking to enforce a guarantee. An unfavorable outcome in this case could have a material adverse effect on our consolidated financial position and results of operations.

The downturn in the housing market and the continuation of the disruptions in the credit markets could limit our ability to access capital and increase our costs of capital or stockholder dilution.

We have historically funded our homebuilding and financial services operations with internally generated cash flows and external sources of debt and equity financing. However, during ~~this~~the present housing downturn, ~~in the housing market,~~ we have relied primarily on the positive operating cash flow we have generated to meet our working capital needs and repay outstanding indebtedness. While we ~~anticipate generating~~generated positive operating cash flow in ~~2009,~~recent years, principally through the receipt of federal income tax refunds, and from home and land sales and our efforts to reduce our overhead and operating expenses, the ~~prolonged downturn~~persistent weakness in the housing markets and the disruption in the credit markets since 2008 have reduced the availability and increased the costs to us of other sources of liquidity.

~~As of November 30, 2008, we had $200.0 million of 8~~5/8% senior subordinated notes (the “$200 Million Senior Subordinated Notes”) outstanding, which matured on December 15, 2008. We had sufficient cash on hand and redeemed these notes upon their scheduled maturity. However, current marketMarket conditions ~~would~~may significantly limit our ability to replace ~~this~~or refinance indebtedness, ~~if we chose to do so,~~ particularly due to the lowering of our senior debt ratings by the three principal nationally recognized registered credit rating agencies, ~~during 2008. Pricing in the public debt markets has increased substantially, and the indenture~~as discussed further below. The terms ~~available in these markets are generally~~of potential future issuances of indebtedness by us may be more restrictive than ~~those in~~the terms governing our current ~~indentures.~~indebtedness, and the issuance, interest and debt service expenses may be higher. Moreover, due to the deterioration in the credit markets and the uncertainties that exist in the general economy and for homebuilders in particular, we cannot be certain that we would be able to replace existing financing or secure additional sources of ~~financing.~~financing, if necessary, on terms satisfactory to us or at all. In addition, the significant decline in our stock price since 2006, the ongoing volatility in the stock markets and the reduction in our stockholders’ equity relative to our debt could also impede our access to the equity markets or increase the amount of dilution our stockholders would experience should we seek or need to raise capital through issuance of equity.

While we believe we can meet our forecasted capital requirements from our cash resources, expected future cash flow and the sources of financing that we anticipate will be available to us, we can provide no assurance that we will be able to do so, particularly if current difficult housing or credit market or economic conditions continue or deteriorate further. The effects on our business, liquidity and financial results of these conditions could be material and adverse to us.

~~Our~~We may not realize our deferred income tax assets. In addition, our net operating loss carryforwards could be substantially limited if we experience an ownership change as defined in the Internal Revenue Code.

Since the end of our 2007 fiscal year, we have generated significant net operating losses (“NOLs”), and we may generate additional NOLs in ~~2009.~~2011. Under federal tax laws, we can use our NOLs (and certain related tax credits) to ~~offset ordinary income tax on~~reduce our future taxable income for up to 20 years, after which they expire for such purposes. Until they expire, we can carry forward our NOLs (and certain related tax credits) that we do not use in any particular year to ~~offset~~reduce our taxable income ~~tax~~ in future ~~years.~~years, and we have recorded a valuation allowance against net deferred tax assets representing the NOLs (and certain related tax credits) that we have generated but have not yet realized. At November 30, 2010, we had net deferred tax assets totaling $772.2 million against which we have provided a valuation allowance of $771.1 million. Our ability to realize our net deferred tax assets is based on the extent to which we generate profits and we cannot provide any assurances as to when and to what extent we will generate future taxable income to realize our net deferred tax assets, whether in whole or in part.

~~The~~In addition, the benefits of our NOLs, built-in losses and tax credits would be reduced or eliminated if we experience an “ownership change,” as determined under Internal Revenue Code Section 382 ~~of the Internal Revenue Code.~~(“Section 382”). A Section 382 ~~“ownership change”~~ownership change occurs if a stockholder or a group of stockholders who are deemed to own at least 5% of our common stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. If an ~~“ownership change”~~ownership change occurs, Section 382 would impose an annual limit on the amount of NOLs we can use to ~~offset~~reduce our taxable income ~~tax~~ equal to the product of the total value of our outstanding equity immediately prior to the ~~“ownership change”~~ownership change (reduced by certain items specified in Section 382) and the federal long-term tax-exempt interest rate in effect for the month of the ~~“ownership~~ownership change.” A number of ~~special~~complex rules apply to calculating this annual limit.

While the complexity of Section 382’s provisions and the limited knowledge any public company has about the ownership of its publicly-traded stock make it difficult to determine whether an ~~“ownership change”~~ownership change has occurred, we currently believe that an ~~“ownership change”~~ownership change has not occurred. However, if an ~~“ownership change”~~ownership change were to occur, the annual limit Section 382 may impose could result in a material amount of our NOLs expiring unused. This would significantly impair the value of our ~~NOL assets~~NOLs and, as a result, have a negative impact on our consolidated financial position and results of operations.

In 2009, our stockholders approved an amendment to our restated certificate of incorporation that is designed to block transfers of our common stock that could result in an ownership change, and a rights agreement pursuant to which we have issued certain stock purchase rights with terms designed to deter transfers of our common stock that could result in an ownership change. However, these measures cannot guarantee complete protection against an ownership change and it remains possible that one may occur.

~~A decline~~We have a substantial amount of indebtedness in relation to our tangible net worth, ~~and the resulting increase in our leverage ratio may place burdens on our ability to comply with the terms of our indebtedness,~~which may restrict our ability to ~~operate~~meet our operational and ~~may prevent us from fulfilling our obligations.~~strategic goals.

As of November 30, 2010, we had total outstanding debt of approximately $1.78 billion and total stockholders’ equity of approximately $631.9 million. The amount of our debt could have important consequences. For example, it could:


	•	limit our ability to obtain future financing for working capital, capital expenditures, acquisitions, debt service requirements or other ~~requirements;~~business needs;

	•	limit our ability to renew or, if necessary or desirable, expand the capacity of our letter of credit facilities, and to obtain performance bonds in the ordinary course of our business;

	•	require us to dedicate a substantial portion of our cash flow from operations to the payment of our debt and reduce our ability to use our cash flow for other purposes;

	•	impact our flexibility in planning for, or reacting to, changes in our business;

	•	place us at a competitive disadvantage because we have more debt than some of our competitors; and

	•	make us more vulnerable in the event of continued weakness or a further downturn in our business or in general economic or housing market conditions.

Our ability to meet our debt service and other obligations will depend ~~upon~~on our future performance. Our business is substantially affected by changes in economic cycles. Our revenues, earnings and cash flows vary with the level of general economic activity and competition in the markets in which we operate. Our business could also be affected by financial, political, regulatory, environmental and other factors, many of which are beyond our control. ~~Changes in prevailing interest rates may also affect our ability to meet our debt service obligations because borrowings under our Credit Facility bear interest at floating rates.~~ A higher interest rate on our debt could adversely affect our operating results.

Our business may not generate sufficient cash flow from operations and ~~borrowings~~external financing may not be available to us ~~under our Credit Facility~~ in an amount sufficient to ~~pay~~meet our debt service obligations, fulfill the financial or operational ~~guarantees~~obligations we may have ~~provided for~~under certain unconsolidated joint venture transactions, support our letter of credit facilities (including ourcash-collateralized letter of credit facilities with various financial institutions (the “LOC Facilities”)), or to fund our other liquidity or operational needs. ~~In fact,~~Further, if a change of control occurs as defined in the ~~total commitment available under~~indenture governing our ~~Credit Facility was reduced in 2008. Should~~$265.0 million of 9.1% senior notes due 2017 (the “$265 Million Senior Notes”), we would be required to offer to purchase these notes (but not our other outstanding senior notes) at 101% of their principal amount, together with all accrued and unpaid interest, if any. If we are unable to generate sufficient cash flow from operations or have ~~borrowings~~external financing available to us, ~~under our Credit Facility,~~ we may need to refinance all or a portion of our debt obligations on or before maturity, which we may not be able to do on favorable terms or at all, or raise capital through equity issuances that would dilute existing stockholders’ interests. ~~However, we currently do not anticipate a need to borrow under the Credit Facility through its November 2010 maturity.~~

Our ability to obtain external financing could be adversely affected by a negative change in our credit rating by a third-party rating agency.

Our ability to access external sources of financing on favorable terms is a key factor in our ability to fund our operations and to grow our business. As of the date of this report, our credit rating by Fitch Ratings is BB-, with a stable outlook, and our credit rating by Moody’s Investor Services is B1, with a negative outlook. On July 16, 2010, Standard and Poor’s Financial Services lowered our credit rating to B+ from BB-, though it upgraded its outlook from negative to stable. Further downgrades of our credit rating by any of these principal nationally recognized registered credit rating agencies may make it more difficult and costly for us to access external financing.

We may have difficulty in continuing to obtain the additional financing required to operate and develop our business.

Our homebuilding operations require significant amounts of cashand/or ~~available credit.~~ the availability of external financing. While we terminated the Credit Facility in 2010, we established LOC Facilities in order to support certain aspects of our operations in the ordinary course of our business, including our acquisition of land assets and our development of communities. We anticipate that we will need to maintain these facilities in 2011, and, if necessary or desirable, we may in the future seek to expand their capacity or enter into additional such facilities. It is not possible to predict the future

terms or availability of additional ~~capital.~~external capital or for maintaining or, if necessary or desirable, expanding the capacity of the LOC Facilities or entering into additional such facilities. Moreover, our outstanding ~~public debt and the Credit Facility~~senior notes contain provisions that may restrict the amount and nature of debt we may incur in the future. The Credit Facility limits our ability to borrow additional funds by placing a maximum cap on our leverage ratio. Under the most restrictive of these provisions, at November 30, 2008, we would have been permitted to incur up to $1.55 billion of consolidated total indebtedness, as defined in the Credit Facility. This maximum amount exceeded our actual consolidated total indebtedness at November 30, 2008 by $814.5 million. In addition, the Credit Facility limits our ability to borrow senior indebtedness, as defined in the Credit Facility, subject to a specified borrowing base. At November 30, 2008, we would have been permitted to incur up to

~~$2.47 billion of senior indebtedness under the Credit Facility. This maximum amount exceeded our actual total senior indebtedness at November 30, 2008 by $825.0 million.~~ There can be no assurance that we can actually borrow ~~up to these maximum amounts of total consolidated indebtedness or senior indebtedness at any time, as our ability to borrow~~ additional funds, ~~and to~~ raise additional capital through other means, ~~also~~or successfully maintain or, if necessary or desirable, expand the capacity of the LOC Facilities or enter into additional such facilities, each of which depends, among other factors, on conditions in the capital markets and our perceived credit worthiness, as discussed above. If conditions in the capital markets change significantly, it could reduce our ability to generate sales and may hinder our future growth and results of operations. Potential federal and state regulations limiting the investment activities of financial institutions, including regulations that have been or may be issued under the recently enacted Dodd-Frank Act, could also impact our ability to obtain additional financing and to maintain or, if necessary or desirable, expand the LOC Facilities or enter into additional such facilities, in each case on favorable terms or at all.

Our results of operations could be adversely affected if we are unable to obtain performance bonds.

In the course of developing our communities, we are often required to provide to various municipalities and other government agencies performance bonds to secure the completion of our projects and to support similar development activities by certain of our unconsolidated joint ventures. Our ability to obtain such bonds and the cost to do so depend on our credit rating, overall market capitalization, available capital, past operational and financial performance, management expertise and other factors, including prevailing surety market conditions, which tightened in 2010 with certain providers exiting the market or substantially reducing their issuances of performance bonds, and the underwriting practices and resources of performance bond issuers. If we are unable to obtain performance bonds when required or the cost or operational restrictions or conditions imposed by issuers to obtain them increases significantly, we may not be able to develop or we may be significantly delayed in developing a community or communitiesand/or we may incur significant additional expenses, and, as a result, our consolidated financial position, results of operations, cash flowsand/or liquidity could be adversely affected.

Changes in accounting standards could affect our reported financial results.

New accounting standards or interpretations of existing standards that may become applicable to us could have a significant effect on our reported results of operations, and may also cause us to incur significant additional expenses in order to comply with them.

Item 1B. UNRESOLVED STAFF COMMENTS

None.

Item 2. PROPERTIES

We lease our corporate headquarters in Los Angeles, California. Our homebuilding division offices ~~except~~(except for our San Antonio, Texas ~~office,~~office) and our KB Home Studios are located in leased space in the markets where we conduct business. We own the premises for our San Antonio ~~Texas~~ office.

We believe that such properties, including the equipment located therein, are suitable and adequate to meet the needs of our businesses.

Item 3. LEGAL PROCEEDINGS

~~Derivative Litigation~~

In the summer of 2006, four shareholder derivative lawsuits were filed, ostensibly on our behalf, alleging, among other things, that the defendants (various of our current and former directors and officers) breached their fiduciary duties to us by, among other things, backdating grants of stock options to various current and former executives in violation of our stockholder-approved stock option plans. Two of the lawsuits were state court actions filed in Los Angeles County Superior Court, and two were federal actions filed in the United States District Court for the Central District of California. The two federal lawsuits also included substantive claims under the federal securities laws.

We recently reached a tentative global settlement with the parties in the four actions. The settlement also includes a resolution of all issues with our former Chairman and Chief Executive Officer, Bruce Karatz. On December 9, 2008, the parties to the federal court actions submitted the proposed settlement to the court, and the plaintiffs in those actions concurrently filed an unopposed motion seeking preliminary approval of the proposed settlement. On December 15, 2008, the court granted preliminary approval of the proposed settlement and scheduled a hearing for February 9, 2009 to determine whether the settlement should be finally approved by the court. If it is finally approved, the federal litigation will be dismissed, and all parties have agreed that the state court litigation will be dismissed as well. If the settlement is not approved, the federal and state court litigation will continue.

~~ERISA~~South Edge, LLC Litigation

On ~~March 16, 2007, plaintiffs Reba Bagley and Scott Silver~~December 9, 2010, certain lenders to South Edge, LLC, a Nevada limited liability company (“South Edge”) filed ~~an action brought under Section 502 of the Employee Retirement Income Security Act (“ERISA”), 29 U.S.C. § 1132, Bagley et al., v. KB Home, et al.,~~a Chapter 11 involuntary bankruptcy petition in the United States ~~District~~Bankruptcy Court, ~~for the Central~~ District of ~~California.~~Nevada,JPMorgan Chase Bank, N.A. v. South Edge, LLC (CaseNo. 10-32968-bam). KB HOME Nevada Inc., our wholly-owned subsidiary, is a member of South Edge together with other unrelated homebuilders and a third-party property development firm. KB HOME Nevada Inc. holds a 48.5% interest in South Edge. The ~~action was brought against us, our directors,~~involuntary bankruptcy petition alleges that South Edge failed to undertake certain development-related activities and ~~certain~~to repay amounts due on secured loans that the petitioning lenders (as part of ~~our current~~a lending syndicate) made to South Edge in 2004 and former officers. After the court allowed leave to file an amended complaint, on April 3, 2008, plaintiffs filed an amended complaint adding Tolan Beck and Rod Hughes as additional plaintiffs and dismissing certain individuals as defendants. All four plaintiffs claim to be former employees of KB Home who participated2007, totaling $585.0 million in ~~the KB Home 401(k) Savings Plan~~initial aggregate principal amount (the “Plan”). Plaintiffs allege on behalf of themselves and on behalf of all others similarly situated that all defendants breached fiduciary duties owed to plaintiffs and purported class members under ERISA by failing to disclose information to and providing misleading information to participants in the Plan about our alleged prior stock option backdating practices and by failing to remove our stock as an investment option under the Plan. Plaintiffs allege that this breach of fiduciary duties caused plaintiffs to earn less on their Plan accounts than they would have earned but for defendants’ alleged breach of duties. Plaintiffs seek unspecified money damages and injunctive and other equitable relief. On May 16, 2008, we filed a motion to dismiss on the ground that plaintiffs’ allegations fail to state a claim against us. Plaintiffs filed an opposition to the motion on June 20, 2008. The hearing on the motion was held on September 8, 2008. On October 6, 2008, the court issued its order. The court denied our motion to dismiss the plaintiffs’ claims for breach of fiduciary duty and breach of the duty to monitor and granted our motion to dismiss the plaintiffs’ claims for breach of the fiduciary duty of disclosure. The court also denied a separate motion to dismiss filed by the

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~~individual defendants based~~“Loans”). At November 30, 2010, the outstanding principal balance of the Loans was approximately $328.0 million. The Loans were used by South Edge to partially finance the purchase and development of the underlying property for a residential community located near Las Vegas, Nevada. The petitioning lenders for the involuntary bankruptcy — JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A. and Crédit Agricole Corporate and Investment Bank — also filed motions to appoint a Chapter 11 trustee for South Edge, and have asserted that, among other actions, the trustee can enforce alleged obligations of the South Edge members to purchase land parcels from South Edge resulting in repayment of the Loans. On January 6, 2011, South Edge filed a motion for the court to dismiss or to abstain from the involuntary bankruptcy petition, and the court scheduled a trial that commenced on January 24, 2011 and is planned to continue until no later than February 4, 2011. The exact timing of the court’s decision on the ~~standing of plaintiffs to sue.~~ motion is uncertain.

We, ~~filed our answer~~KB HOME Nevada Inc., and the other South Edge members and their respective parent companies each provided certain guaranties to the ~~first amended complaint on~~lenders in connection with the Loans, including a limited several guaranty that, by its terms, purports to guarantee the repayment to the lenders of the Loans certain amounts, including principal and interest, if an involuntary bankruptcy petition is filed against South Edge that is not dismissed within 60 days or for which an order approving relief under bankruptcy law is entered (the “Springing Repayment Guaranty”). If our Springing Repayment Guaranty were enforced, our maximum potential responsibility at November ~~5, 2008. On November 24,~~30, 2010 would have been approximately $180.0 million in aggregate principal amount, plus a potentially significant amount for accrued and unpaid interest and attorneys’ fees in respect of the Loans. This potential Springing Repayment Guaranty obligation, however, does not account for any offsets or defenses that could be available to us to prevent or minimize the impact of its enforcement, or any reduction in the principal balance of the Loans arising from purchases of land parcels from South Edge under authority potentially given to a Chapter 11 trustee (as described above) or otherwise.

The petitioning lenders previously filed a lawsuit in December 2008 against the ~~court approved a stipulation~~South Edge members and their respective parent companies (including us and KB HOME Nevada Inc.) (JP Morgan Chase Bank, N.A. v. KB HOME Nevada, et al., U.S. District Court, District of Nevada (CaseNo. 08-CV-01711 PMP)) (the “Lender Litigation”). The Lender Litigation, which, among other things, is seeking to ~~stay all discovery~~enforce completion guaranties and also to force the South Edge members (including KB HOME Nevada Inc.) to purchase land parcels from and to provide certain financial and other support to South Edge, has been stayed pending the outcome of the involuntary bankruptcy petition. If the involuntary bankruptcy petition is dismissed, we expect the Lender Litigation to resume.

While there are defenses to the above legal proceedings, ~~through February 6, 2009,~~the ultimate resolution of these matters and the timing of such resolutions are uncertain and involve multiple factors. Therefore, a meaningful range of potential outcomes cannot be reasonably estimated at this time. If unfavorable outcomes were to occur, however, there is a possibility that we could incur significant losses in ~~order to allow the parties time to attempt to settle the plaintiffs’ claims through mediation.~~excess of amounts accrued for these matters that could have a material adverse effect on our consolidated financial position and results of operations.

Other Matters

We are also involved in litigation and ~~governmental~~government proceedings incidental to our business. These ~~cases~~proceedings are in various procedural stages and, based on reports of counsel, we believe as of the date of this report that provisions or ~~reserves~~accruals made for any potential losses (to the extent estimable) are adequate and that any liabilities or costs arising out of ~~currently pending litigation should~~these proceedings are not likely to have a materially adverse effect on our consolidated financial position or results of operations. The outcome of any of these proceedings, however, is inherently uncertain, and if unfavorable outcomes were to occur, there is a possibility that they could, individually or in the aggregate, have a materially adverse effect on our consolidated financial position or results of operations.

Item 4. ~~SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS~~REMOVED AND RESERVED

~~No matters were submitted during the fourth quarter of 2008 to a vote of security holders, through the solicitation of proxies or otherwise.~~

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EXECUTIVE OFFICERS OF THE REGISTRANT

The following ~~sets forth~~table presents certain information regarding our executive officers as of ~~January 22, 2009:~~December 31, 2010:


				Year		Years							Year		Years
				Assumed		at		Other Positions and Other					Assumed		at		Other Positions and Other
				Present		KB		Business Experience within the					Present		KB		Business Experience within the
Name	Age		Present Position	Position		Home		Last Five Years (a)	From – To	Age		Present Position	Position		Home		Last Five Years (a)	From – To

Jeffrey T. Mezger		53	President and Chief Executive Officer (b)		2006		15	Executive Vice President and Chief Operating Officer	1999-2006		55	President and Chief Executive Officer (b)		2006		17	Executive Vice President and Chief Operating Officer	1999-2006

Wendy C. Shiba		58	Executive Vice President, General Counsel and Secretary		2007		1	Senior Vice President, Chief Legal Officer and Secretary, Polyone Corporation (a global provider of specialized polymer materials, services and solutions)	2006-2007
Jeff J. Kaminski											49	Executive Vice President and Chief Financial Officer		2010		—	Senior Vice President, Chief Financial Officer and Strategy Board member, Federal-Mogul Corporation (a global supplier of automotive powertrain and safety technologies)	2008-2010
								Vice President, Chief Legal Officer and Secretary, Polyone Corporation	2001-2006								Senior Vice President, Global Purchasing and Strategy Board Member, Federal-Mogul Corporation	2005-2008

Glen Barnard		64	Senior Vice President, KBnxt Group		2006		10	Regional General Manager (c)	2004-2006
Brian J. Woram											50	Executive Vice President, General Counsel and Secretary		2010		—	Senior Vice President and Chief Legal Officer, H&R Block, Inc. (a provider of tax, banking and business and consulting services)	2009-2010
								Chief Executive Officer, Constellation Real Technologies (real estate consortium)	2001-2003								Senior Vice President, Chief Legal Officer and Chief Compliance Officer, Centex Corporation (a homebuilder and provider of mortgage banking services)	2005-2009

Glen W. Barnard											66	Senior Vice President, KBnxt Group		2006		12	Regional General Manager	2004-2006

William R. Hollinger		50	Senior Vice President and		2007		21	Senior Vice President and Controller	2001-2006		52	Senior Vice President and		2007		23	Senior Vice President and Controller	2001-2006
			Chief Accounting Officer


Kelly Masuda		41	Senior Vice President and Treasurer		2005		5	Senior Vice President, Capital Markets and Treasurer	2005
								Vice President, Capital Markets and Treasurer	2003-2005			Chief Accounting Officer

Thomas F. Norton		38	Senior Vice President, Human Resources		2009		—	Chief Human Resources Officer, BJ’s Restaurants, Inc. (owner and operator of restaurants)	2006-2009		40	Senior Vice President, Human Resources		2009		2	Chief Human Resources Officer, BJ’s Restaurants, Inc. (an owner and operator of national full service restaurants)	2006-2009
								Senior Vice President of Human Resources, American Golf Corporation (golf course management firm)	2003-2006								Senior Vice President of Human Resources, American Golf Corporation (a worldwide golf course management firm)	2003-2006


(a)	All positions described were with us, unless otherwise indicated.


(b)	Mr. Mezger has served as a director since 2006.


~~(c)~~	~~Mr. Barnard was a senior executive with us from 1996-2001, and rejoined us in 2004.~~

There is no family relationship between any of our executive officers or between any of our executive officers and any of our directors.

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PART II


Item 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

As of December 31, ~~2008,~~2010, there were ~~843~~775 holders of record of our common stock. Our common stock is traded on the New York Stock Exchange under the ticker symbol “KBH.” The following table ~~sets forth,~~presents, for the periods indicated, the price ranges of our common stock, and cash dividends declared and paid per share:


																	Year Ended November 30, 2010								Year Ended November 30, 2009
	2008								2007												Dividends		Dividends						Dividends		Dividends
					Dividends		Dividends						Dividends		Dividends		High		Low		Declared		Paid		High		Low		Declared		Paid
	High		Low		Declared		Paid		High		Low		Declared		Paid

First Quarter	$	28.99	$	15.76	$	.25	$	.25	$	56.08	$	47.69	$	.25	$	.25	$	17.30	$	12.54	$	.0625	$	.0625	$	16.38	$	8.70	$	.0625	$	.0625
Second Quarter		28.93		19.62		.50		.25		50.90		40.89		.25		.25		20.13		14.07		.0625		.0625		19.61		7.85		.0625		.0625
Third Quarter		21.93		13.16		—		.25		47.57		28.00		.25		.25		14.41		9.43		.0625		.0625		19.00		11.15		.0625		.0625
Fourth Quarter		25.43		6.90		.0625		.0625		31.69		18.44		.25		.25		13.16		10.28		.0625		.0625		20.70		13.37		.0625		.0625

The declaration and payment of cash dividends on shares of our common stock, whether at current levels or at all, are at the discretion of our board of directors, and depend upon, among other things, our expected future earnings, cash flows, capital requirements, debt structure and adjustments thereto, operational and financial investment strategy and ~~our~~ general financial condition, ~~and general business conditions~~ as well as ~~compliance with covenants contained in our Credit Facility. In November 2008, our board of directors reduced the quarterly cash dividend on our common stock to $.0625 per share from $.25 per share.~~general business conditions.

The description of our equity compensation plans required by Item 201(d) of Regulation S-K is incorporated herein by reference to ~~Part~~“Part III — Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder ~~Matters~~Matters” of this ~~Form 10-K.~~report.

~~The following table summarizes our purchases~~We did not repurchase any of our ~~own~~ equity securities during the ~~three months ended November 30, 2008:~~

Maximum

Number of Shares

Total Number of
That May Yet be

Shares Purchased as
Purchased

Total Number
Average
Part of Publicly
Under the

of Shares
Price Paid
Announced
Plans or

Period
Purchased per Share Plans or Programs Programs

September 1 - 30 — $ — — 4,000,000
October 1 - 31 28,465 14.37 — 4,000,000
November 1 - 30 — — — 4,000,000

Total 28,465 $ 14.37 —

~~On December 8, 2005, our board~~fourth quarter of directors authorized a share repurchase program under which we may repurchase up to 10 million shares of our common stock. Acquisitions under the share repurchase program may be made in open market or private transactions and will be made strategically from time to time at management’s discretion based on its assessment of market conditions and buying opportunities. At November 30, 2008, we were authorized to repurchase four million shares under this share repurchase program. During the three months ended November 30, 2008, no shares were repurchased pursuant to this share repurchase program. The 28,465 shares purchased during the three months ended November 30, 2008 were previously issued shares delivered to us by employees to satisfy withholding taxes on the vesting of restricted stock awards. These transactions are not considered repurchases pursuant to the share repurchase program.2010.

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Stock Performance Graph

The graph below compares the cumulative total return of KB Home common stock, the S&P 500 Index, the S&P Homebuilding Index and the Dow Jones Home Construction Index for the last five year-end periods ended November 30.

Comparison of Five-Year Cumulative Total Return
Among KB Home, S&P 500 Index, S&P Homebuilding
Index and Dow Jones Home Construction Index

The above graph is based on the KB Home common stock and index prices calculated as of the last trading day before December 1^st of the year-end periods presented. As of November 30, ~~2008,~~2010, the closing price of KB Home common stock ~~price~~ on the New York Stock Exchange was ~~$11.63~~$11.30 per share. On December 31, ~~2008,~~2010, our common stock closed at ~~$13.62~~$13.49 per share. The performance of our common stock depicted in the graphs above represents past performance only and is not indicative of future performance. Total return assumes $100 invested at market close on November 30, ~~2003~~2005 in KB Home common stock, the S&P 500 Index, the S&P Homebuilding Index and the Dow Jones Home Construction Index including reinvestment of dividends.

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Item 6. SELECTED FINANCIAL DATA

The data in this table should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and our Consolidated Financial Statements and the Notes thereto. Both are included later in this report.

KB HOME

SELECTED FINANCIAL INFORMATION

(In Thousands, Except Per Share Amounts)


	Years Ended November 30,												Years Ended November 30,
	2008			2007			2006		2005		2004		2010			2009			2008			2007			2006

Homebuilding:
Revenues	$	3,023,169		$	6,400,591		$	9,359,843	$	8,123,313	$	5,974,496	$	1,581,763		$	1,816,415		$	3,023,169		$	6,400,591		$	9,359,843
Operating income (loss)		(860,643	)		(1,358,335	)		570,316		1,188,935		637,229		(16,045	)		(236,520	)		(860,643	)		(1,358,335	)		570,316
Total assets		3,992,148			5,661,564			7,825,339		6,881,486		4,760,288		3,080,306			3,402,565			3,992,148			5,661,564			7,825,339
Mortgages and notes payable		1,941,537			2,161,794			2,920,334		2,211,935		1,771,962		1,775,529			1,820,370			1,941,537			2,161,794			2,920,334

Financial services:
Revenues	$	10,767		$	15,935		$	20,240	$	31,368	$	44,417	$	8,233		$	8,435		$	10,767		$	15,935		$	20,240
Operating income		6,278			11,139			14,317		10,968		8,688		5,114			5,184			6,278			11,139			14,317
Total assets		52,152			44,392			44,024		29,933		210,460		29,443			33,424			52,152			44,392			44,024
Notes payable		—			—			—		—		71,629

Discontinued operations:
Total assets	$	—		$	—		$	1,394,375	$	1,102,898	$	1,020,082	$	—		$	—		$	—		$	—		$	1,394,375

Consolidated:
Revenues	$	3,033,936		$	6,416,526		$	9,380,083	$	8,154,681	$	6,018,913	$	1,589,996		$	1,824,850		$	3,033,936		$	6,416,526		$	9,380,083
Operating income (loss)		(854,365	)		(1,347,196	)		584,633		1,199,903		645,917		(10,931	)		(231,336	)		(854,365	)		(1,347,196	)		584,633
Income (loss) from continuing operations		(976,131	)		(1,414,770	)		392,947		754,534		430,384		(69,368	)		(101,784	)		(976,131	)		(1,414,770	)		392,947
Income from discontinued operations, net of income taxes (a)		—			485,356			89,404		69,178		43,652		—			—			—			485,356			89,404
Net income (loss)		(976,131	)		(929,414	)		482,351		823,712		474,036		(69,368	)		(101,784	)		(976,131	)		(929,414	)		482,351
Total assets		4,044,300			5,705,956			9,263,738		8,014,317		5,990,830		3,109,749			3,435,989			4,044,300			5,705,956			9,263,738
Mortgages and notes payable		1,941,537			2,161,794			2,920,334		2,211,935		1,843,591		1,775,529			1,820,370			1,941,537			2,161,794			2,920,334
Stockholders’ equity		830,605			1,850,687			2,922,748		2,773,797		2,039,390		631,878			707,224			830,605			1,850,687			2,922,748


Basic earnings (loss) per share:
Continuing operations	$	(12.59	)	$	(18.33	)	$	4.99	$	9.21	$	5.49	$	(.90	)	$	(1.33	)	$	(12.59	)	$	(18.33	)	$	4.99
Discontinued operations		—			6.29			1.13		.85		.56		—			—			—			6.29			1.13

Basic earnings (loss) per share	$	(12.59	)	$	(12.04	)	$	6.12	$	10.06	$	6.05	$	(.90	)	$	(1.33	)	$	(12.59	)	$	(12.04	)	$	6.12

Diluted earnings (loss) per share:
Continuing operations	$	(12.59	)	$	(18.33	)	$	4.74	$	8.54	$	5.10	$	(.90	)	$	(1.33	)	$	(12.59	)	$	(18.33	)	$	4.74
Discontinued operations		—			6.29			1.08		.78		.52		—			—			—			6.29			1.08

Diluted earnings (loss) per share	$	(12.59	)	$	(12.04	)	$	5.82	$	9.32	$	5.62	$	(.90	)	$	(1.33	)	$	(12.59	)	$	(12.04	)	$	5.82


Cash dividends declared per common share	$	.8125		$	1.00		$	1.00	$	.75	$	.50	$	.25		$	.25		$	.8125		$	1.00		$	1.00


(a)	Discontinued operations consist only of our former French operations, which have been presented as discontinued operations for all periods presented. Income from discontinued operations, net of income taxes, in 2007 includes a gain of $438.1 million realized on the sale of our former French operations.

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Item 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Overview. Revenues are generated from our homebuilding operations and our financial services operations. ~~On July 10, 2007, we sold our 49% equity interest in KBSA. Accordingly, our French operations are presented as discontinued operations in this report.~~ The following table presents a summary of our consolidated results of operations for the years ended November 30, ~~2008, 2007~~2010, 2009 and ~~2006~~2008 (in thousands, except per share amounts):

Years ended November 30,
2008 2007 2006

Revenues:
Homebuilding $ 3,023,169 $ 6,400,591 $ 9,359,843
Financial services 10,767 15,935 20,240

Total $ 3,033,936 $ 6,416,526 $ 9,380,083

Pretax income (loss):
Homebuilding $ (991,749 ) $ (1,494,606 ) $ 538,311
Financial services 23,818 33,836 33,536

Income (loss) from continuing operations before income taxes (967,931 ) (1,460,770 ) 571,847
Income tax benefit (expense) (8,200 ) 46,000 (178,900 )

Income (loss) from continuing operations (976,131 ) (1,414,770 ) 392,947
Income from discontinued operations, net of income taxes — 47,252 89,404
Gain on sale of discontinued operations, net of income taxes — 438,104 —

Net income (loss) $ (976,131 ) $ (929,414 ) $ 482,351

Basic earnings (loss) per share:
Continuing operations $ (12.59 ) $ (18.33 ) $ 4.99
Discontinued operations — 6.29 1.13

Basic earnings (loss) per share $ (12.59 ) $ (12.04 ) $ 6.12

Diluted earnings (loss) per share:
Continuing operations $ (12.59 ) $ (18.33 ) $ 4.74
Discontinued operations — 6.29 1.08

Diluted earnings (loss) per share $ (12.59 ) $ (12.04 ) $ 5.82


	Years Ended November 30,
	2010			2009			2008

Revenues:
Homebuilding	$	1,581,763		$	1,816,415		$	3,023,169
Financial services		8,233			8,435			10,767

Total	$	1,589,996		$	1,824,850		$	3,033,936

Pretax income (loss):
Homebuilding	$	(88,511	)	$	(330,383	)	$	(991,749	)
Financial services		12,143			19,199			23,818

Total pretax loss		(76,368	)		(311,184	)		(967,931	)
Income tax benefit (expense)		7,000			209,400			(8,200	)

Net loss	$	(69,368	)	$	(101,784	)	$	(976,131	)

Basic and diluted loss per share	$	(.90	)	$	(1.33	)	$	(12.59	)

Extreme negative conditions continued to confront the homebuilding industry throughout 2008, deepening the downturn that began in the second half of 2006. Record-high foreclosure activity during the year worsened the oversupply of unsold homes existing in several housing markets when the year began, and put sustained downward pressure on home prices. At the same time, tepid demand for new homes weakened further as deteriorating conditions in the overall economy and rising unemployment precipitated historic declines in consumer confidence, discouraging home purchases. Demand also suffered as consumer mortgage financing became progressively less available due to credit market turmoil and tightening lending standards. Our results forDuring the year ended November 30, ~~2008 reflect~~2010, we and the ~~impact~~homebuilding industry continued to face a difficult operating environment amid the ongoing housing downturn that began inmid-2006. This environment, in which there is a persistent oversupply of ~~these~~homes available for sale and soft demand for new homes, was prolonged throughout 2010 by rising sales of lender-owned homes acquired through foreclosures and short sales, generally weak economic conditions, ~~which show no signs~~high unemployment, tighter mortgage lending standards and reduced credit availability, muted consumer confidence, intense competition for home sales, and the expiration on April 30 of ~~abating~~a federal homebuyer tax credit. These negative factors undermined progress toward broad-based market stabilization and stalled any meaningful recovery in the ~~year ahead.~~overall U.S. housing market, despite improved affordability in several markets stemming from lower home selling prices and relatively low residential consumer mortgage interest rates.

Although this environment resulted in our delivering fewer homes and, consequently, generating lower revenues in 2010 compared to 2009, we narrowed our net loss in 2010 by 32% due to a higher housing gross margin and lower overhead costs. In ~~2008,~~addition, we ~~posted year-over-year declines~~generated operating income from our homebuilding operations in ~~net orders, homes delivered~~each of the last two quarters of 2010; achievedyear-over-year improvement in our pretax results in each quarter of 2010, extending a trend of such improvement to 11 consecutive quarters; and ~~revenues across all~~in the fourth quarter of 2010 generated pretax earnings for the first time in nearly four years. These improved results were largely due to the initiatives we have put into place over the past several quarters to achieve the following three primary integrated strategic goals: restore and maintain the profitability of our homebuilding ~~reporting segments. These decreases reflected~~operations; generate cash and maintain a strong balance sheet; and position our business to capitalize on future growth opportunities. This includes continuing to execute on our KBnxt operational business model; improving and refining our product offerings, includingThe Open Series, to compete with resale homes and to meet the ~~impact~~affordability demands and environmental sustainability concerns of ~~the prolonged housing~~our core customers — first-time,move-up and active adult homebuyers; aligning our overhead to current market ~~downturn as well as the strategic actions we have taken to reduce~~conditions while retaining a solid growth platform through a tight focus on controlling costs, improving our ~~inventory~~operating efficiencies and monitoring local market activity levels and ~~community count~~demographic trends; maintaining a strong and liquid balance sheet to allow us to make opportunistic investments in ~~line~~our business; and acquiring attractively-priced new land interests meeting our investment standards in desirable markets with ~~current~~perceived favorable growth prospects. We believe these initiatives have helped position us operationally and financially to be able to generate higher future revenues and sustained profitability as and to the extent housing ~~market activity. We operated from 38% fewer active communities~~markets improve over time. Given the present operating environment and our outlook, however, the positive trends in ~~2008 than~~our gross margin and earnings results may not continue in ~~2007. In addition, our inventory of lots owned~~2011 or ~~controlled~~to the same degree as ~~of November 30, 2008 was down 28% from a year ago.~~

We recorded a net loss for the year, largely due to pretax, noncash charges for inventory and joint venture impairments, land option contract abandonments and goodwill impairments, and noncash charges for net deferred taxin 2010.

2631

~~asset valuation allowances. Our year-over-year results for 2008 were also affected by~~In 2010, we continued to make progress toward achieving our ~~providing targeted price reductions~~highest priority of restoring and ~~sales incentives in certain communities in response to competitive conditions, or to facilitate~~maintaining the profitability of our ~~exit from specific markets, projects or product types.~~

~~Despite the difficult housing market conditions and our year-over-year declines in homes delivered and revenues generated,~~homebuilding operations, as we narrowed our net loss on ayear-over-year basis. This result was largely driven by lower pretax, noncash charges for asset impairments and land option contract abandonments, as well as our success in ~~2008 was smaller than~~expanding our ~~loss from continuing operations in 2007. This improvement was principally due to the substantially lower asset impairment~~housing gross margin and abandonment charges we incurred in 2008 compared to the previous year. Our financial results in 2008 were also helped by strategic adjustments we have made in response to the changing operating environment. Since 2006, we have implemented a series of aggressive actions focused on generating and preserving cash, lowering our direct building costs, gaining operational efficiencies, lowering overhead, developing new product to compete with resales and foreclosures, and restoring profitability. Specific strategic actions taken during 2008 included calibrating our business to market conditions by consolidating certain operating divisions, reducing our ~~workforce by 57%,~~selling, general and transitioning to new, value-engineered homes that are less expensive to build and can be offered to homebuyers at more affordable prices and with greater design choices. These actions had a positive impact on our results for the year, particularly in the fourth quarter, creating a foundation we intend to build on as we enter 2009.administrative expenses.

Our total revenues of ~~$3.03~~$1.59 billion for the year ended November 30, ~~2008~~2010 decreased ~~53%~~13% from ~~$6.42~~$1.82 billion in ~~2007,~~2009, which had ~~decreased 32%~~declined 40% from ~~$9.38~~$3.03 billion in ~~2006.~~2008. Revenues ~~declined~~decreased in ~~2008~~2010 and ~~2007~~2009 primarily due to ~~decreases~~lower housing and land sale revenues. The year-over-year decrease in ~~our~~ housing revenues ~~corresponding to~~in 2010 reflected fewer homes delivered, partly offset by a higher average selling price. In 2009, the decline in housing revenues resulted from a decrease in homes delivered and a lower average selling price. Homes delivered decreased in 2010 and 2009 mainly due to our operating with a strategically lower overall average active community count in each year compared to the previous year, as discussed above under “Part I — Item 1. Business — Strategy.” “Active communities” are those that deliver five or more homes in a quarterly reporting period. The active community count for the year is based on the average of the quarterly reporting periods. Land sale revenues totaled $6.3 million in 2010 compared to $58.3 million in 2009, reflecting a significantly reduced volume of land sales activity.

Our overall average selling price increased in 2010 compared to 2009 primarily due to changes in community and product mix, as we delivered more homes from markets that supported higher selling prices. In 2009, our overall average selling price declined from 2008, reflecting the challenging housing market conditions and intense competition for sales as well as our rollout of new product, includingThe Open Series,at lower price points compared to our previous product.

Included in our total revenues were financial services revenues of $8.2 million in 2010, $8.4 million in 2009 and $10.8 million in ~~2008, $15.9 million in 2007 and $20.2 million in 2006.~~2008. Financial services revenues decreased in both ~~2008~~2010 and ~~2007 primarily due to our delivering~~2009, reflecting fewer homes ~~and the termination of~~delivered by our ~~escrow coordination business in 2007.~~homebuilding operations.

We posted a net loss of $69.4 million, or $.90 per diluted share, in 2010, which narrowed from our net loss of $101.8 million, or $1.33 per diluted share, in 2009. In 2010, our net loss included pretax, noncash charges of $19.9 million for inventory impairments and the abandonment of land option contracts we no longer planned to pursue, an after-tax valuation allowance charge of $26.6 million against net deferred tax assets to fully reserve the tax benefits generated from our net loss for the period, and an income tax benefit of $7.0 million, primarily associated with an increase in the carryback of our 2009 NOLs to offset earnings we generated in 2004 and 2005. The majority of the inventory impairments and land option contract abandonments in 2010 occurred during the first quarter and affected our Central and Southeast reporting segments.

In 2009, our net loss of $101.8 million, or $1.33 per diluted share, was largely due to pretax, noncash charges of $206.7 million for inventory and joint venture impairments and the abandonment of land option contracts. These charges reflected the ongoing weakness in housing market conditions, which depressed asset values. The majority of these charges were associated with our West Coast and Southeast reporting segments. The net loss in 2009 also included an income tax benefit of $209.4 million, which primarily resulted from federal tax legislation enacted in the fourth quarter of 2009 that allowed us to carry back our 2009 NOLs to offset earnings we generated in 2004 and 2005. As a result, we received a federal tax refund of $190.7 million in the first quarter of 2010.

In 2008, we incurred a net loss of $976.1 million, or $12.59 per diluted share, ~~in 2008,~~ largely due to pretax, noncash charges of $748.6 million for inventory and joint venture impairments and the abandonment of land option contracts, and $68.0 million for goodwill impairments. ~~These charges reflected the deterioriating housing market conditions, which exerted downward pressure on asset values. The bulk~~Most of these charges were associated with our West Coast, Southwest and Southeast reporting segments. The ~~goodwill impairment charges in 2008 related to our Central and Southeast reporting segments, and resulted in our having no remaining goodwill company-wide at November 30, 2008. The~~ net loss in 2008 also reflected a $355.9 million valuation allowance charge ~~taken~~ against net deferred tax assets to fully reserve the tax benefits generated from our pretax loss for the ~~year~~period.

Our housing gross margin increased to 17.4% in ~~accordance~~2010 from 6.5% in 2009 and negative 7.1% in 2008. We have improved our housing gross margin for the last nine consecutive quarters, as measured on a year-over-year basis. The improvement in our housing gross margin in 2010 compared to 2009 primarily reflected improved operating efficiencies, an increase in the number of homes delivered from our new products, such asThe Open Series, which are designed to be built with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS No. 109”). In 2007, our continuing operations generated an after-tax loss of $1.41 billion, or $18.33 per diluted share, due to pretax, noncashlower direct construction costs, a decrease in inventory impairment and land option contract abandonment charges, ~~of $1.41 billion for inventory and joint venture impairments~~ and the ~~abandonment~~impact of inventory impairment charges incurred in prior years, which lowered our land cost basis with respect to the relevant communities. In 2009, theyear-over-year increase in our housing gross margin resulted from lower inventory impairment and land option ~~contracts,~~contract abandonment charges and ~~$107.9 million for goodwill impairments recognized during the year. The majority of the inventory-related~~our strategies to reduce direct construction costs and increase our operational efficiencies. Our housing gross margin, excluding inventory impairment and land option contract abandonment charges (as described below under “Non-GAAP Financial Measures”), improved to 18.6% in ~~2007 related~~2010, compared to ~~our West Coast~~15.5% in 2009 and Southwest reporting segments, and the goodwill impairments related solely to our Southwest reporting segment. Our 2007 loss from continuing operations also reflected a noncash charge of $514.2 million to establish a valuation allowance for our net deferred tax assets. In 2006, we reported after-tax income from continuing operations of $392.9 million or $4.74 per diluted share.

~~Income from our French discontinued operations, net of income taxes, totaled $485.4 million~~10.6% in ~~2007, including a $438.1 million after-tax gain on the sale of these operations. Income from our French discontinued operations, net of income taxes, totaled $89.4 million in 2006.~~2008.

Overall, we posted a net loss of $929.4 million, or $12.04 per diluted share (including the discontinued operations) in 2007. This compares to net income of $482.4 million, or $5.82 per diluted share, in 2006.

Our backlog at November 30, ~~2008~~2010 was comprised of ~~2,269~~1,336 homes, representing projected future housing revenues of approximately ~~$521.4~~$263.8 million, compared to a backlog at November 30, 2009 of 2,126 homes, representing projected future housing revenues of $422.5 million. ~~These backlog measures decreased 64% and 65%, respectively, from the 6,322~~The number of homes in backlog ~~representing approximately $1.50 billion in future housing revenues, at November 30, 2007. These decreases were due to the combined impact~~declined 37% year over the past several quarters of negative year-over-year net order results, lower average selling prices, and our strategic initiatives to reduce our inventory and community count to better align with reduced housing market activity. Our homebuilding operations generated 8,274 net orders in 2008, down 58% from 19,490 net orders in 2007. Theyear, reflecting a decrease in net orders in ~~2008 reflected~~the latter half of 2010 and an increase in the percentage of homes delivered from our ~~year-over-year~~backlog in the fourth quarter, partly due to improved construction cycle times. The potential future housing revenues in backlog decreased 38% year over year, reflecting the lower level of homes in backlog. Net orders from our homebuilding operations declined 21% to 6,556 in 2010 from 8,341 in 2009 due to a 12% decrease in our overall average active community count, generally weak economic and housing market conditions, a sharp reduction in ~~community counts,~~demand following the ~~gradual winding down~~April 30, 2010 expiration of ~~certain communities as backlog was delivered,~~the federal homebuyer tax credit, and an increase in our ~~discontinuation of product in particular communities as part of our product transition strategy. Order cancellations as~~cancellation rate. As a percentage of gross orders, ~~improved slightly~~our cancellation rate increased to ~~41%~~28% in ~~2008 from 42%~~2010, compared to 25% in ~~2007.~~2009.

~~We generated $341.3 million of positive~~Our cash, ~~flow from operating activities in 2008 and ended the year with cash and~~ cash equivalents and restricted cash ~~totaling $1.25 billion. Our total debt at year-end stood at $1.94 billion, down $220.3 million from $2.16~~totaled $1.02 billion at November 30, ~~2007,~~2010, compared to $1.29 billion at November 30, 2009. Our debt balance at November 30, 2010 was $1.78 billion, down from $1.82 billion at November 30, 2009, mainly due to the ~~early redemption~~repayment of ~~our $300.0 million of 7~~3/4~~% senior subordinated notes due in 2010 (the “$300 Million Senior Subordinated Notes”) partially offset by increased~~ mortgages and land contracts due to land ~~sellers. We ended 2008 with no cash borrowings outstanding under our Credit Facility. As of~~sellers and other loans. At November 30, ~~2008,~~2010, our ratio of debt to total capital was 73.8%, compared to 72.0% at November 30, 2009. Our ratio of net debt to total capital (as described below under “Non-GAAP Financial Measures”) was 54.5% at November 30, 2010 and 42.9% at November 30, 2009.

Our inventory balance of cash and cash equivalents and restricted cash, was 45.4%, within our targeted range of 40%-50%. Restricted cash consists of an interest reserve account established with the Credit Facility’s administrative agent (the “Interest Reserve Account”), as discussed below. Our liquidity, including the available capacity under our Credit Facility, was approximately $1.84$1.70 billion at November 30, ~~2008. Our inventory balance of $2.10 billion at November 30, 2008~~2010 was ~~36% lower~~13% higher than the ~~$3.31~~$1.50 billion balance at November 30, ~~2007. We~~2009. This increase primarily reflected the results of our land acquisition initiative in 2010, as discussed above under “Part I — Item 1. Business — Strategy.” Through this initiative, we ended ~~2008~~our 2010 fiscal year with ~~what we believe is an attractive,~~a geographically diverse land portfolio comprised of ~~approximately 47,000~~39,540 lots owned or ~~controlled. We ended 2007 with approximately 66,000~~controlled, compared to 37,465 lots owned or controlled. We believe our solid financial position and fewer, well-situated lot positions give us a distinct competitive advantage relative to other homebuilding companies and should allow us to capitalize on opportunities as housing markets stabilize. However, it is uncertain when meaningful stabilization will occur.controlled at November 30, 2009.

HOMEBUILDING

We have grouped our homebuilding activities into four reportable segments, which we refer to as West Coast, Southwest, Central and Southeast. As of November 30, ~~2008,~~2010, our reportable homebuilding segments consisted of ongoing operations located in the following states: West Coast — California; Southwest — Arizona and Nevada; Central — Colorado and Texas; and Southeast — Florida, Maryland, North Carolina, and ~~South Carolina.~~Virginia.

The following table presents a summary of certain financial and operational data for our homebuilding operations (dollars in thousands, except average selling price):


	Years ended November 30,									Years Ended November 30,
	2008			2007			2006			2010			2009			2008

Revenues:
Housing	$	2,940,241		$	6,211,563		$	9,243,236		$	1,575,487		$	1,758,157		$	2,940,241
Land		82,928			189,028			116,607			6,276			58,258			82,928

Total		3,023,169			6,400,591			9,359,843			1,581,763			1,816,415			3,023,169


Costs and expenses:
Construction and land costs
Housing		(3,149,083	)		(6,563,082	)		(7,456,003	)		(1,301,677	)		(1,643,757	)		(3,149,083	)
Land		(165,732	)		(263,297	)		(210,016	)		(6,611	)		(106,154	)		(165,732	)

Total		(3,314,815	)		(6,826,379	)		(7,666,019	)		(1,308,288	)		(1,749,911	)		(3,314,815	)
Selling, general and administrative expenses		(501,027	)		(824,621	)		(1,123,508	)		(289,520	)		(303,024	)		(501,027	)
Goodwill impairment		(67,970	)		(107,926	)		—			—			—			(67,970	)


Total		(3,883,812	)		(7,758,926	)		(8,789,527	)		(1,597,808	)		(2,052,935	)		(3,883,812	)


Operating income (loss)	$	(860,643	)	$	(1,358,335	)	$	570,316
Operating loss										$	(16,045	)	$	(236,520	)	$	(860,643	)


Homes delivered		12,438			23,743			32,124			7,346			8,488			12,438

Average selling price	$	236,400		$	261,600		$	287,700		$	214,500		$	207,100		$	236,400

Housing gross margin		(7.1	)%		(5.7	)%		19.3	%		17.4	%		6.5	%		(7.1	)%

Selling, general and administrative expenses as a percent of housing revenues		17.0	%		13.3	%		12.2	%
Selling, general and administrative expenses as a percentage of housing revenues											18.4	%		17.2	%		17.0	%

Operating income (loss) as a percent of homebuilding revenues		(28.5	)%		(21.2	)%		6.1	%
Operating loss as a percentage of homebuilding revenues											(1.0	)%		(13.0	)%		(28.5	)%

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Revenues. Homebuilding revenues totaled $1.58 billion in 2010, decreasing 13% from $1.82 billion in 2009, which had decreased 40% from $3.02 billion in ~~2008, decreasing 53% from $6.40 billion in 2007, which had decreased 32% from $9.36 billion in 2006.~~2008. Theyear-over-year decreases in ~~both 2008~~2010 and ~~2007 primarily~~2009 reflected ~~declines in~~lower housing ~~revenues driven by fewer homes delivered~~ and ~~lower average selling prices.~~land sale revenues.

Housing revenues decreased to $1.58 billion in 2010 compared to $1.76 billion in 2009 and $2.94 billion in ~~2008 from $6.21 billion in 2007 and $9.24 billion in 2006.~~2008. In ~~2008,~~2010, housing revenues ~~fell 53%~~declined 10% from the previous year due to a ~~48%~~13% decrease in homes delivered, partly offset by a 4% increase in the average selling price. In 2009, housing revenues fell 40% from 2008 due to a 32% decrease in homes delivered and a ~~10% decline in the average selling price. In 2007, housing revenues fell 33% from 2006 due to a 26% decrease in homes delivered and a 9%~~12% decline in the average selling price.

WeIn 2010, we delivered ~~12,438~~7,346 homes, down from 8,488 homes in ~~2008, down from 23,743 homes in 2007, mainly due to a 38% year-over-year reduction in the number~~2009. Each of our active communities and poor demand for new homes. Over the past several quarters, we progressively reduced our community counts in line with diminished housing market activity in the wake of the persistent housing market downturn. Each of ourhomebuilding reporting segments delivered fewer homes in ~~2008~~2010 compared to ~~2007,~~2009, with decreases ranging from ~~40%~~4% to ~~51%~~27%. Theyear-over-year decline in the total number of homes delivered in 2010 was principally due to a 12% decrease in the overall average number of active communities we operated and weak demand for new homes. This decline in our overall average active community count reflects the impact of the reduction in our community count that we undertook in prior years, although in 2010 we implemented a targeted land acquisition initiative that is designed to support future growth in our average active community count and our revenues. These actions are further discussed above under “Part I — Item 1. Business — Strategy.”

In ~~2007,~~2009, we delivered ~~23,743~~8,488 homes, down from ~~32,124~~12,438 homes delivered in ~~2006, reflecting~~ 2008, withyear-over-year decreases in each of our homebuilding reporting segments. The lower delivery volume in ~~2007~~2009 compared to ~~2006~~2008 was mainly due ~~in part,~~ to a ~~14% year-over-year~~38% reduction in ~~our~~the overall average number of active ~~community count.~~communities we operated.

~~Our~~The average ~~new home~~ selling price ~~decreased~~of our homes rose to ~~$236,400~~$214,500 in ~~2008~~2010 from ~~$261,600~~$207,100 in ~~2007. Year-over-year~~2009, reflecting higher average selling prices ~~declined 18%~~in three of our four homebuilding reporting segments. Year over year, average selling prices increased 10% in our West Coast segment, 5% in our Central segment and 1% in our Southeast segment. In our Southwest segment, the average selling price for 2010 decreased 8% from 2009. The increase in our overall average selling price was primarily due to changes in our community and product mix, as we delivered more homes from markets that supported higher selling prices.

Our 2009 overall average selling price decreased 12% from $236,400 in 2008 as average selling prices declined 11% in our West Coast segment, 25% in our Southwest segment, 11% in our Central segment and ~~12%~~16% in our Southeast ~~segment as a result~~segment. In 2009, selling price declines, which varied depending on local market circumstances, occurred because of ~~downward pricing pressures. These pressures were driven by~~ difficult economic and job market conditions, intense competition from homebuilders and sellers of existing homes (including lender-owned homes acquired through foreclosures and ~~foreclosed homes,~~short sales), and our ~~introducing~~rollout of new product at ~~lower~~ price points ~~in line with median income levels,~~lower than those of our previous product to meet consumer demand for more affordable homes. ~~The average selling price in our Central segment increased 4% in 2008 from the previous year, reflecting changes in product mix.~~

Our 2007 average new home selling price had decreased 9% from $287,700 in 2006. Year-over-year, average selling prices declined 11% in our West Coast segment, 16% in our Southwest segment and 6% in our Southeast segment due to weak consumer demand and heightened competition from homebuilders and other sellers, which put downward pressure on home prices. The average selling price in our Central segment increased 5% in 2007 from 2006, solely due to changes in product mix.

Land sale revenues totaled $6.3 million in 2010, $58.3 million in 2009 and $82.9 million in ~~2008, $189.0 million in 2007 and $116.6 million in 2006.~~2008. Generally, land sale revenues fluctuate with our decisions to maintain or decrease our land ownership position in certain markets based upon the volume of our holdings, our marketing strategy, the strength and number of competing developers entering particular markets at given points in time, the availability of land in markets we serve, and prevailing market conditions. Land sale revenues were more significant in ~~2007~~2009 and ~~2006~~2008 compared to ~~2008 as~~2010 because we sold a ~~higher~~greater volume of land ~~that no longer fit our marketing strategy or met our investment standards,~~in those years, rather than hold it for future ~~development.~~development, as the housing downturn continued and the land no longer fit our marketing strategy.

Operating ~~Income (Loss).~~Loss. Our homebuilding ~~operations~~business generated operating losses of $16.0 million in 2010, $236.5 million in 2009 and $860.6 million in ~~2008 and $1.36 billion in 2007 due to losses from both housing operations and land sales. In 2006, our homebuilding operations posted operating income of $570.3 million.~~2008. Our homebuilding operating ~~losses represented negative 28.5%~~loss as a percentage of homebuilding revenues was negative 1.0% in ~~2008~~2010, negative 13.0% in 2009, and negative ~~21.2% of homebuilding revenues~~28.5% in ~~2007. The losses increased~~2008. Homebuilding operating results improved on a percentage basis in ~~2008~~2010 and 2009, mainly due to ~~a decrease~~the increase in our housing gross margin ~~and an increase~~ in ~~our selling, general and administrative expenses as a percentage~~each of ~~housing revenues.~~those years.

Within ~~housing~~our homebuilding operations, the ~~2008~~2010 operating loss was principally due to pretax, noncash charges of $19.9 million for inventory impairments and land option contract abandonments. In 2009, our homebuilding operating loss was largely due to pretax, noncash charges of $157.6 million for inventory impairments and land option contract abandonments. The 2008 homebuilding operating loss reflected pretax, noncash charges of $520.5 million for inventory impairments and land option contract abandonments and $68.0 million for goodwill impairments, as well as a lower ~~margins achieved amid fiercely competitive market conditions and higher overhead costs relative to the volume of homes delivered.~~housing gross margin. Inventory impairment charges in 2010, 2009 and 2008 were ~~necessitated by declining asset values in certain markets, the~~incurred as a result of persistent increases in housing supply and decreases in demand, both of which ~~reduced achievable~~put downward pressure on sales ~~prices. In 2007, the operating loss within housing operations was driven by pretax, noncash charges of $1.18 billion for inventory impairments~~prices and, ~~land option contract abandonments and $107.9 million for goodwill impairments. The inventory-related charges~~ in ~~2007 resulted from declining market conditions, which depressed new home values and sales rates in certain housing markets across the country. Poor~~turn,

asset values. During these years, poor market conditions also depressed land values and led us to terminate our land option contracts on projects that no longer met our investment and/or marketing standards.

Our housing gross margin ~~decreased~~improved by 10.9 percentage points to ~~negative 7.1%~~17.4% in ~~2008~~2010 from ~~negative 5.7%~~6.5% in ~~2007.~~2009. Our housing gross margin, excluding inventory impairment and land option contract abandonment charges, increased by 3.1 percentage points to 18.6% in 2010 from 15.5% in 2009. Theyear-over-year improvement in our housing gross margin, excluding inventory impairment and land option contract abandonment charges, reflected an increase in homes delivered from our new, value-engineered products, such asThe Open Series,which are designed to be built with lower direct construction costs, and improved operating efficiencies. Our housing gross margin in ~~2008~~2010 was ~~adversely~~also favorably impacted by ~~pretax, noncash~~an increase in homes delivered from communities newly opened during the year, which had a relatively lower land cost basis compared to many of our older communities; an increase in homes delivered from markets that supported higher selling prices; and the impact of inventory impairment charges incurred in prior years, which lowered our land cost basis with respect to the relevant communities. In light of the soft demand and intense competition for ~~inventory impairments and land option contract abandonments, lower average selling prices and our providing targeted price reductions and~~ sales ~~incentives~~ in ~~response to competitive conditions or to facilitate strategic project or product exits. Excluding~~ the ~~inventory-related noncash charges ($520.5 million~~present operating environment, however, we may not experience similar margin improvement in ~~2008 and $1.18 billion in 2007), our housing gross margin would have been 10.6% in 2008 and 13.3% in 2007.~~2011.

In ~~2007,~~2009, the homebuilding operating loss was ~~$1.36 billion~~$236.5 million compared to ~~operating income of $570.3~~$860.6 million in ~~2006. The operating loss in 2007 represented negative 21.2% of homebuilding revenues. In 2006, operating income as~~2008. As a percentage of homebuilding revenues, ~~was 6.1%. The~~our homebuilding operating loss was negative 13.0% in ~~2007 resulted~~2009 and negative 28.5% in 2008. The 2009 homebuilding operating loss narrowed from ~~a decrease~~2008 mainly due to an increase in our housing gross margin, which ~~fell~~improved by 13.6 percentage points to a6.5% in 2009 from negative ~~5.7%~~7.1% in 2008. Our housing gross margin, excluding inventory impairment and land option contract abandonment charges, increased by 4.9 percentage points to 15.5% in 2009 from ~~19.3%~~10.6% in ~~2006.~~2008. The ~~change~~year-over-year improvement in our housing gross margin ~~was largely~~reflected the ~~result~~impact of ~~higher pretax, noncash~~our delivering more of our new value-engineered product, which helped lower direct construction costs, and increased operating efficiencies. Our margins were also favorably impacted by inventory-related charges ~~for inventory impairments and land option contract abandonments~~incurred in 2007, primarily in our West Coast and Southwest segments. Excluding the inventory-related noncash charges ($1.18 billion in 2007 and $309.5 million in 2006), our housing gross margin would have been 13.3% in 2007 and 22.7% in 2006.prior periods.

~~In 2008, our land sales generated losses of $82.8 million, including impairment charges of $86.2 million relating to future land sales.~~ Our land sales generated losses of ~~$74.3~~$.3 million in ~~2007 and $93.4~~2010, $47.9 million in ~~2006, including~~2009 and $82.8 million in 2008. The land sale losses in 2010, 2009 and 2008 included impairment charges ~~relating~~of $.3 million, $10.5 million and $86.2 million, respectively, related to planned future land ~~sales of $74.8 million in 2007 and $63.1 million in 2006.~~sales.

We evaluate our land and housing inventory for recoverability in accordance with ~~Statement of Financial~~ Accounting Standards Codification Topic No. ~~144, “Accounting for the Impairment or Disposal of Long-Lived Assets”~~360, “Property, Plant, and Equipment” (“~~SFAS No. 144”~~ASC 360”), whenever indicators of potential impairment exist. Based on our evaluations, we recognized pretax, noncash charges for inventory impairments of $9.8 million in 2010, $120.8 million in 2009 and $565.9 million in ~~2008, $1.11 billion in 2007 and $228.7 million in 2006.~~2008.

The inventory impairment charges in ~~2008~~all three years reflected declining asset values in certain markets due to the challenging economic and ~~2007 reflected the deteriorating~~ housing market conditions that we experienced during those years, which lowered the value of certain assets compared to prior periods. These conditions included a significant oversupply of homes available for sale, reduced housing affordability and tighter credit conditions that kept prospective buyers from trading up or entering the market, higher foreclosure activity, and heightened competition. As a result, our order rates, selling prices and gross margins declined in 2008 and 2007, lowering the fair value of certain inventory positions and resulting in the impairment of that inventory.conditions. Further deterioration in housing market ~~conditions~~supply and demand factors may lead to additional ~~noncash~~ impairment charges or cause us to reevaluate our strategy concerning certain assets that could result in future charges associated with land sales or the abandonment of land option contracts. In 2006, most of our inventory impairment and abandonment charges were incurred in the fourth quarter, as conditions became more challenging in certain markets, mainly as a result of a growing imbalance between new home supply and demand. These market dynamics caused a decline in the fair value of certain inventory positions and led us to reassess our strategy concerning certain inventory positions.

When we decide not to exercise certain land ~~purchase~~ option contracts due to market conditionsand/or changes in ~~our market~~marketing strategy, we write off the costs, including non-refundable deposits and pre-acquisition costs, related to the abandoned projects. We recognized abandonment charges associated with land option contracts of $10.1 million in 2010, $47.3 million in 2009 and $40.9 million in ~~2008, $144.0 million in 2007 and $143.9 million in 2006. The inventory~~2008. Inventory impairment ~~charges~~ and land option contract ~~abandonments~~abandonment charges are included in construction and land costs in our consolidated statements of operations.

Selling, general and administrative expenses totaled ~~$501.0~~$289.5 million in ~~2008,~~2010, down from ~~$824.6~~$303.0 million in ~~2007,~~2009, which had decreased from ~~$1.12 billion~~$501.0 million in ~~2006.~~2008. Theyear-over-year ~~decreases~~ decrease in ~~2008 and 2007~~each period reflected ~~the results of our ongoing efforts to rescale the size of our operations to the lower volume of homes~~actions we ~~were delivering and to our future sales expectations. During 2008, we took aggressive actions~~have taken to streamline our organizational structure by consolidating certain homebuilding operations, strategically exiting or winding down activity in certain markets, and reducing our ~~workforce. Since~~workforce to adjust the ~~beginning~~size of ~~2008, we have reduced~~ our ~~workforce by 57%. The full impact of these actions~~operations in ~~reducing our~~line with market conditions. Our selling, general and administrative expenses ~~is not reflected~~also decreased in 2010 and 2009 based on the lower volume of homes delivered. A portion of the cost reductions in 2010 and 2009 were related to lower salary and other payroll-related expenses stemming from year-over-year decreases in our ~~2008 results due to the costs we incurred to implement them.~~personnel count of 7% in 2010 and 24% in 2009. As a percentage of housing revenues, to which these expenses are most closely correlated, selling, general and administrative expenses increased to ~~17.0%~~18.4% in ~~2008~~2010 from ~~13.3%~~17.2% in ~~2007,~~2009, which had increased slightly from ~~12.2%~~17.0% in ~~2006.~~2008. The percentages increased in ~~2008~~2010 and ~~2007~~2009 because our expense reductions have been ~~exceeded~~outpaced by the ~~significant~~ correspondingyear-over-year declines in our housing ~~revenues and the costs of implementing these reductions.~~revenues.

3035

Goodwill Impairment. We ~~have~~ recorded goodwill in connection with various acquisitions in prior years. Goodwill ~~represents~~represented the excess of the purchase price over the fair value of net assets acquired. ~~In accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), we test~~We tested goodwill for potential impairment annually as of November 30 and between annual tests if an event ~~occurs~~occurred or circumstances ~~change~~changed that would more likely than not reduce the fair value of a reporting unit below its carrying amount. During 2008, ~~and 2007,~~ we determined that it was necessary to evaluate goodwill for impairment between annual tests due to deteriorating conditions in certain housing markets and the significant inventory impairments we identified and recognized in ~~those years, in accordance with SFAS No. 144.~~that year.

Based on the results of our goodwill impairment ~~evaluation~~evaluations performed in ~~the second quarter of~~ 2008, we ~~recorded an impairment charge of $24.6 million in~~determined that ~~quarter related to our Central reporting segment, where~~ all of the goodwill previously recorded was ~~determined to be~~ impaired. ~~The annual~~As a result, we recognized goodwill impairment ~~test we performed as~~charges of ~~November 30, 2008 resulted in an impairment charge of~~$24.6 million related to our Central reporting segment and $43.4 million ~~in the fourth quarter of 2008~~ related to our Southeast reporting segment where all of the goodwill previously recorded was determined to be impaired. Based on the results of our impairment evaluation performed in the third quarter of 2007, we recorded an impairment charge of $107.9 million in that quarter related to our Southwest reporting segment, where all of the goodwill previously recorded was determined to be impaired. The annual goodwill impairment test we performed as of November 30, 2007 indicated no additional impairment. The goodwill impairmentduring 2008. These charges ~~in 2008 and 2007~~ were recorded at our corporate level because all goodwill iswas carried at that level. ~~As a result~~We had no goodwill balance as of ~~these impairment charges, we have no remaining goodwillcompany-wide~~ at November 30, 2010, November 30, 2009 or November 30, 2008.

The process of evaluating goodwill for impairment involves the determination of the fair value of our reporting units. Inherent in such fair value determinations are certain judgments and estimates relating to future cash flows, including our interpretation of current economic indicators and market valuations, and assumptions about our strategic plans with regard to our operations. Due to the uncertainties associated with such estimates, actual results could differ from such estimates.

Interest Income. Interest income, which is generated from short-term investments and mortgages receivable, totaled $2.1 million in 2010, $7.5 million in 2009 and $34.6 million in ~~2008, $28.6 million in 2007 and $5.5 million in 2006.~~2008. Generally, increases and decreases in interest income are attributable to changes in the interest-bearing average balances of our short-term investments and mortgages receivable, as well as fluctuations in interest rates. Mortgages receivable are primarily related to land sales. Theyear-over-year ~~increases~~ decrease in interest income in ~~2008 and 2007~~2010 was mainly due to lower interest rates. In 2009, theyear-over-year decline in interest income reflected a decrease in the ~~higher levels~~average balance of cash and cash equivalents ~~on our balance sheet stemming from the July 2007 sale of our French discontinued operations~~we maintained and ~~other assets, the cash generated from our operations, and our reduction in land purchases.~~lower interest rates.

~~Loss on Early Redemption/~~Interest Expense, Net of Amounts ~~Capitalized.~~Capitalized/Loss on Early Redemption of Debt. On July 14, 2008, we completed the early redemption of the $300 Million Senior Subordinated Notes at a price of 101.938% of the principal amount plus accrued interest to the date of redemption. We incurred a loss of $7.1 million in 2008 related to the early redemption of debt, as a result of the call premium and the unamortized original issue discount. On August 28, 2008, we entered into the fifth amendment (the “Fifth Amendment”) to our Credit Facility, which reduced the aggregate commitment under the Credit Facility from $1.30 billion to $800.0 million. In light of this reduction in the aggregate commitment, we wrote off $3.3 million of unamortized fees associated with the Credit Facility.

~~On July 27, 2007, we redeemed all $250.0 million of our 9~~1/2% senior subordinated notes due in 2011 (the “$250 Million Senior Subordinated Notes”) at a price of 103.167% of the principal amount of the notes, plus accrued interest to the date of redemption. In addition, on July 31, 2007, we repaid in full an unsecured $400.0 million term loan due 2011 (the “$400 Million Term Loan”), together with accrued interest to the date of repayment. The $400 Million Term Loan was scheduled to mature on April 11, 2011. We incurred a loss of $13.0 million in the third quarter of 2007 related to the early redemption of debt, mainly due to the call premium on the senior subordinated notes and the write-off of unamortized debt issuance costs.

Interest expense results principally from borrowings to finance land purchases, housing inventory and other operating and capital needs. ~~In 2008,~~Our interest expense, net of amounts capitalized, totaled $66.5 million in 2010, $50.8 million in 2009 and $2.6 ~~million. In 2007, all~~million in 2008. Interest expense in 2010 included a total of $1.8 million of debt issuance costs written off in connection with our ~~interest was capitalized~~voluntary reduction of the aggregate commitment under the Credit Facility from $650.0 million to $200.0 million and ~~consequently, we had no interest expense, net~~our subsequent voluntary termination of ~~amounts capitalized.~~the Credit Facility. The percentage of interest capitalized ~~decreased to~~was 45% in 2010, 57% in 2009 and 98% in ~~2008 as~~2008. The percentages for 2010 and 2009 decreased from the ~~amount~~corresponding year-earlier periods due to the lower amounts of inventory qualifying for interest ~~capitalization fell below our debt level in the fourth quarter, reflecting our inventory reduction strategies and our suspension of land development~~

~~in certain communities. In 2006, interest expense, net of amounts capitalized, totaled $16.7 million.~~capitalization. Gross interest incurred during ~~2008~~2010 increased by $2.6 million to $122.2 million, from $119.6 million in 2009 primarily due to the write-off of debt issuance costs and a higher overall average interest rate for borrowings in 2010. Gross interest incurred during 2009 decreased by ~~$43.2~~$36.8 million tofrom $156.4 million ~~from $199.6 million incurred~~ in ~~2007, due to~~2008, reflecting comparatively lower overall debt levels in ~~2008. Gross interest incurred~~2009.

In 2009, our loss on early redemption of debt totaled $1.0 million. This amount represented a $3.7 million loss associated with our early redemption of $250.0 million in ~~2007 decreased $38.2~~aggregate principal amount of our $350.0 million ~~from~~of 63/8% senior notes due 2011 (the “$350 Million Senior Notes”), partly offset by a gain of $2.7 million associated with our early extinguishment of mortgages and land contracts due to land sellers and other loans. In 2008, our loss on early redemption of debt of $10.4 million was comprised of $7.1 million associated with our redemption of $300.0 million of our 73/4% senior subordinated notes due 2010 (the “$300 Million Senior Subordinated Notes”) and $3.3 million associated with an amendment of the ~~amount incurred in 2006, reflecting lower debt levels in 2007.~~Credit Facility, which reduced our aggregate commitment under the Credit Facility.

Equity in Loss of Unconsolidated Joint Ventures. Our unconsolidated joint ventures operate in various markets, typically where our ~~consolidated~~ homebuilding operations are located. These unconsolidated joint ventures posted combined revenues of $122.2 million in 2010, $60.8 million in 2009 and $112.8 million in ~~2008, $662.7 million~~2008. Theyear-over-year increase in ~~2007 and $167.5 million~~unconsolidated joint venture revenues in ~~2006.~~2010 was primarily related to the sale of land by an unconsolidated joint venture in our Southeast reporting segment. Theyear-over-year decrease in unconsolidated joint venture revenues in ~~2008 primarily reflected fewer land sales by the unconsolidated joint ventures than in 2007. The increase in revenues in 2007 over the prior year~~2009 was primarily due to ~~an increase~~a decline in the number of ~~lots sold~~homes delivered by ~~these~~the unconsolidated joint ventures. Activities performed by our unconsolidated joint ventures generally include ~~buying,~~acquiring, developing and selling land, and, in some cases, constructing and delivering homes. Our unconsolidated joint ventures delivered 102 homes in 2010, 141 homes in 2009 and 262 homes in 2008, ~~127 homes~~reflecting in ~~2007 and 4 homes in 2006. Unconsolidated~~part the lower number of unconsolidated joint venture investments we had each year. Our unconsolidated joint ventures generated combined losses of $17.2 million in 2010, $102.9 million in 2009 and $383.6 million in ~~2008, $51.6 million in 2007 and $48.6 million in 2006.~~2008. Our equity in loss of unconsolidated joint ventures oftotaled $6.3 million in 2010, $49.6 million in 2009 and $152.8 million in 2008. In 2009 and 2008, our equity in loss of unconsolidated joint ventures included ~~a charge~~charges of $38.5 million and $141.9 million, respectively, to recognize the impairment of certain unconsolidated joint ventures primarily in our West Coast, Southwest and Southeast reporting segments. ~~In 2007,~~There were no such charges in 2010.

Non-GAAP Financial Measures

This report contains information about our ~~equity~~housing gross margin, excluding inventory impairment and land option contract abandonment charges, and our ratio of net debt to total capital, both of which are not calculated in ~~loss of unconsolidated joint ventures of $151.9 million included a similar charge of $156.4 million also mainly related~~accordance with generally accepted accounting principles (“GAAP”). We believe these non-GAAP financial measures are relevant and useful to investors in understanding our ~~West Coast, Southwest~~operations and ~~Southeast reporting segments. In 2006, our equity in loss of unconsolidated joint ventures of $20.8 million included a charge of $58.6 million for unconsolidated joint venture impairments~~the leverage employed in our ~~West Coast~~operations, and ~~Southeast reporting segments, and a gain of $27.6 million related~~may be helpful in comparing us with other companies in the homebuilding industry to the ~~sale~~extent they provide similar information. However, because the housing gross margin, excluding inventory impairment and land option contract abandonment charges, and the ratio of net debt to total capital are not calculated in accordance with GAAP, these measures may not be completely comparable to other companies in the homebuilding industry and thus, should not be considered in isolation or as an alternative to operating performance measures prescribed by GAAP. Rather, these non-GAAP financial measures should be used to supplement their respective most directly comparable GAAP financial measures in order to provide a greater understanding of the factors and trends affecting our operations.

Housing Gross Margin, Excluding Inventory Impairment and Land Option Contract Abandonment Charges. The following table reconciles our housing gross margin calculated in accordance with GAAP to the non-GAAP financial measure of our ~~ownership interest~~housing gross margin, excluding inventory impairment and land option contract abandonment charges (dollars in thousands):


	Years Ended November 30,
	2010			2009			2008

Housing revenues	$	1,575,487		$	1,758,157		$	2,940,241
Housing construction and land costs		(1,301,677	)		(1,643,757	)		(3,149,083	)

Housing gross margin		273,810			114,400			(208,842	)
Add: Inventory impairment and land option contract abandonment charges		19,577			157,641			520,543

Housing gross margin, excluding inventory impairment and land option contract abandonment charges	$	293,387		$	272,041		$	311,701

Housing gross margin as a percentage of housing revenues		17.4	%		6.5	%		(7.1	)%
Housing gross margin, excluding inventory impairment and land option contract abandonment charges, as a percentage of housing revenues		18.6	%		15.5	%		10.6	%

Housing gross margin, excluding inventory impairment and land option contract abandonment charges, is a non-GAAP financial measure, which we calculate by dividing housing revenues less housing construction and land costs before pretax, noncash inventory impairment and land option contract abandonment charges associated with housing operations recorded during a given period, by housing revenues. The most directly comparable GAAP financial measure is housing gross margin. We believe housing gross margin, excluding inventory impairment and land option contract abandonment charges, is a relevant and useful measure to investors in evaluating our performance as it measures the gross profit we generated specifically on the homes delivered during a given period and enhances the comparability of housing gross margin between periods. This financial measure assists us in making strategic decisions regarding product mix, product pricing and construction pace. We also believe investors will find housing gross margin, excluding inventory impairment and land option contract abandonment charges, relevant and useful because it represents a profitability measure that may be compared to a prior period without regard to variability of charges for inventory impairments or land option contract abandonments.

Ratio of Net Debt to Total Capital. The following table reconciles our ratio of debt to total capital calculated in accordance with GAAP to the non-GAAP financial measure of our ratio of net debt to total capital (dollars in thousands):


	November 30,
	2010			2009

Mortgages and notes payable	$	1,775,529		$	1,820,370
Stockholders’ equity		631,878			707,224

Total capital	$	2,407,407		$	2,527,594

Ratio of debt to capital		73.8	%		72.0	%


Mortgages and notes payable	$	1,775,529		$	1,820,370
Less: Cash and cash equivalents and restricted cash		(1,019,878	)		(1,289,007	)

Net debt		755,651			531,363
Stockholders’ equity		631,878			707,224

Total capital	$	1,387,529		$	1,238,587

Ratio of net debt to total capital		54.5	%		42.9	%

The ratio of net debt to total capital is a non-GAAP financial measure, which we calculate by dividing mortgages and notes payable, net of homebuilding cash and cash equivalents and restricted cash, by total capital (mortgages and notes payable, net of homebuilding cash and cash equivalents and restricted cash, plus stockholders’ equity). The most directly comparable GAAP financial measure is the ratio of debt to capital. We believe the ratio of net debt to total capital is a relevant and useful measure to investors in understanding the leverage employed in our operations and as an ~~unconsolidated joint venture.~~indicator of our ability to obtain external financing.

HOMEBUILDING SEGMENTS

The following table presents financial information related to our homebuilding reporting segments for the years indicated (in thousands):


	Years Ended November 30,									Years Ended November 30,
	2008			2007			2006			2010			2009			2008

West Coast:
Revenues	$	1,055,021		$	2,203,303		$	3,531,279		$	700,645		$	812,207		$	1,055,021
Construction and land costs		(1,202,054	)		(2,635,415	)		(2,879,509	)		(545,983	)		(792,182	)		(1,202,054	)
Selling, general and administrative expenses		(120,446	)		(213,133	)		(299,464	)		(64,459	)		(79,659	)		(120,446	)

Operating income (loss)		(267,479	)		(645,245	)		352,306			90,203			(59,634	)		(267,479	)
Other, net		(30,568	)		(20,600	)		7,558			(29,953	)		(28,808	)		(30,568	)

Pretax income (loss)	$	(298,047	)	$	(665,845	)	$	359,864		$	60,250		$	(88,442	)	$	(298,047	)

Southwest:
Revenues	$	618,014		$	1,349,570		$	2,183,830		$	187,736		$	218,096		$	618,014
Construction and land costs		(722,643	)		(1,492,933	)		(1,616,458	)		(141,883	)		(210,268	)		(722,643	)
Selling, general and administrative expenses		(69,865	)		(124,462	)		(193,472	)		(45,463	)		(35,485	)		(69,865	)

Operating income (loss)		(174,494	)		(267,825	)		373,900			390			(27,657	)		(174,494	)
Other, net		(37,700	)		(19,514	)		(8,802	)		(16,192	)		(20,915	)		(37,700	)

Pretax income (loss)	$	(212,194	)	$	(287,339	)	$	365,098

Central:
Revenues	$	594,317		$	1,077,304		$	1,553,309
Construction and land costs		(570,512	)		(970,912	)		(1,368,530	)
Selling, general and administrative expenses		(96,306	)		(163,689	)		(223,452	)

Operating loss		(72,501	)		(57,297	)		(38,673	)
Other, net		(10,288	)		(6,913	)		(16,076	)

Pretax loss	$	(82,789	)	$	(64,210	)	$	(54,749	)	$	(15,802	)	$	(48,572	)	$	(212,194	)

3238


	Years Ended November 30,									Years Ended November 30,
	2008			2007			2006			2010			2009			2008

Southeast:
Central:
Revenues	$	755,817		$	1,770,414		$	2,091,425		$	436,404		$	434,400		$	594,317
Construction and land costs		(808,354	)		(1,718,548	)		(1,794,326	)		(364,736	)		(391,274	)		(570,512	)
Selling, general and administrative expenses		(125,798	)		(213,536	)		(241,674	)		(62,550	)		(62,645	)		(96,306	)

Operating income (loss)		(178,335	)		(161,670	)		55,425			9,118			(19,519	)		(72,501	)
Other, net		(80,233	)		(68,750	)		(16,492	)		(10,890	)		(9,863	)		(10,288	)

Pretax income (loss)	$	(258,568	)	$	(230,420	)	$	38,933
Pretax loss										$	(1,772	)	$	(29,382	)	$	(82,789	)

Southeast:
Revenues										$	256,978		$	351,712		$	755,817
Construction and land costs											(245,416	)		(346,728	)		(808,354	)
Selling, general and administrative expenses											(36,055	)		(40,092	)		(125,798	)

Operating loss											(24,493	)		(35,108	)		(178,335	)
Other, net											(18,308	)		(43,306	)		(80,233	)

Pretax loss										$	(42,801	)	$	(78,414	)	$	(258,568	)

The following table presents information concerning our housing revenues, homes delivered and average selling price by homebuilding reporting segment:


			Percent				Percent						Percentage					Percentage
			of				of						of					of
			Total				Total		Average				Total					Total			Average
	Housing		Housing		Homes		Homes		Selling		Housing		Housing			Homes		Homes			Selling
Years Ended November 30,	Revenues		Revenues		Delivered		Delivered		Price		Revenues		Revenues			Delivered		Delivered			Price
	(in thousands)										(in thousands)

2010
West Coast											$	700,645		44	%		2,023		27	%	$	346,300
Southwest												181,917		12			1,150		16			158,200
Central												435,947		28			2,663		36			163,700
Southeast												256,978		16			1,510		21			170,200

Total											$	1,575,487		100	%		7,346		100	%	$	214,500

2009
West Coast											$	772,886		44	%		2,453		29	%	$	315,100
Southwest												206,747		12			1,202		14			172,000
Central												430,799		24			2,771		33			155,500
Southeast												347,725		20			2,062		24			168,600

Total											$	1,758,157		100	%		8,488		100	%	$	207,100

2008
West Coast	$	1,054,256		36%		2,972		24%	$	354,700	$	1,054,256		36	%		2,972		24	%	$	354,700
Southwest		548,544		19		2,393		19		229,200		548,544		19			2,393		19			229,200
Central		585,826		20		3,348		27		175,000		585,826		20			3,348		27			175,000
Southeast		751,615		25		3,725		30		201,800		751,615		25			3,725		30			201,800

Total	$	2,940,241		100%		12,438		100%	$	236,400	$	2,940,241		100	%		12,438		100	%	$	236,400

2007
West Coast	$	2,149,547		35%		4,957		21%	$	433,600
Southwest		1,254,932		20		4,855		20		258,500
Central		1,058,985		17		6,310		27		167,800
Southeast		1,748,099		28		7,621		32		229,400

Total	$	6,211,563		100%		23,743		100%	$	261,600

2006
West Coast	$	3,530,679		38%		7,213		22%	$	489,500
Southwest		2,151,908		23		7,011		22		306,900
Central		1,536,075		17		9,613		30		159,800
Southeast		2,024,574		22		8,287		26		244,300

Total	$	9,243,236		100%		32,124		100%	$	287,700

West Coast —. Our West Coast segment generated total revenues of $700.7 million in 2010, down 14% from $812.2 million in 2009 mainly due to lower housing revenues. All of this segment’s revenues in 2010 were generated from housing operations. Housing revenues decreased by 9% in 2010 from $772.9 million in 2009 due to an 18% decline in homes delivered, partially offset by a 10% increase in the average selling price. Homes delivered decreased to 2,023 in 2010 from 2,453 homes in 2009, reflecting a 23%year-over-year decline in the overall average number of active communities we operated in this segment. The average selling price increased to $346,300 in 2010 from $315,100 in 2009, mainly due to a change in product mix, somewhat improved operating conditions, and an increase in homes

delivered from certain markets within this segment that supported higher selling prices. There were no land sale revenues from this segment in 2010. Land sale revenues totaled $39.3 million in 2009.

This segment posted pretax income of $60.3 million in 2010, compared to a pretax loss of $88.4 million in 2009. Pretax results improved in 2010 compared to 2009 primarily due to a reduction in pretax, noncash charges for inventory impairments and land option contract abandonments and lower selling, general and administrative expenses. Pretax, noncash charges for inventory impairments and land option contract abandonments decreased to $4.6 million in 2010 from $77.6 million in 2009, and were less than 1% of segment total revenues in 2010 and 10% of segment total revenues in 2009. The gross margin improved to 22.1% in 2010 from 2.5% in 2009, reflecting an increase in the average selling price, a decrease in direct construction costs, and lower inventory-related impairment and abandonment charges in 2010. Selling, general and administrative expenses of $64.5 million in 2010 decreased by $15.2 million, or 19%, from $79.7 million in 2009, primarily due to cost reduction initiatives and the lower number of homes delivered. Other, net expenses included no unconsolidated joint venture impairment charges in 2010 and $7.2 million of such charges in 2009.

In 2009, revenues from this segment decreased 23% to $812.2 million from $1.06 billion in 2008 ~~down 52% from $2.20 billion in 2007~~ due to lower housing ~~and land sale~~ revenues. Housing revenues decreased 26% to $772.9 million in 2009 from $1.05 billion in 2008 ~~from $2.15 billion in 2007 due to~~as a ~~40%~~result of a 17% decrease in homes delivered and an ~~18% decrease~~11% decline in the average selling price. We delivered 2,453 homes at an average selling price of $315,100 in 2009 and 2,972 homes at an average selling price of $354,700 in ~~2008 and 4,957 homes at an average selling price of $433,600 in 2007.~~2008. Theyear-over-year decrease in the number of homes delivered was ~~largely~~primarily due to a ~~34% decrease~~26% reduction in the overall average number of active communities we operated in the segment. The lower average selling price in ~~2008 resulted~~2009 reflected downward pricing pressures resulting from ~~highly competitive conditions~~intense competition and ~~rising foreclosures as well as from~~ our ~~introduction~~rollout of new product at lower price ~~points. Revenues~~points compared to those of our previous product. Land sale revenues totaled $39.3 million in 2009 and $.8 million in 2008.

This segment generated pretax losses of $88.4 million in 2009 and $298.0 million in 2008. The pretax loss decreased in 2009 compared to 2008, largely due to a reduction in total charges for inventory impairments and land option contract abandonments. These charges decreased to $77.6 million in 2009 from ~~land sales totaled $.8~~$246.5 million in 2008, and, ~~$53.8 million~~as a percentage of segment total revenues were 10% in ~~2007.~~

~~Our West Coast segment posted pretax losses of $298.0 million~~2009 and 23% in ~~2008 and $665.8 million~~2008. The gross margin improved to positive 2.5% in ~~2007. Pretax results improved~~2009 from negative 13.9% in 2008 ~~compared to 2007~~ due to lower inventory impairment and land option contract abandonment charges, reduced direct construction costs, and lower selling, general and administrative expenses. Inventory impairment and land option contract abandonment charges totaled $246.5 million in 2008 and $659.4 million in 2007. As a percentage of revenues, these charges were 23% in 2008 and 30% in 2007. The gross margin was negative 13.9% in 2008 compared to negative 19.6% in 2007, reflecting a decrease in inventory-related charges as a percent of revenues, partly offset by lower average selling prices and greater use of targeted sales price reductions and sales incentives.improved operating efficiencies. Selling, general and administrative expenses decreased by ~~$92.7~~$40.7 million, or ~~43%~~34%, to $79.7 million in 2009 from $120.4 million in 2008 ~~from $213.1~~as a result of operational consolidations, workforce reductions and other cost-saving initiatives. Other, net expenses included unconsolidated joint venture impairments of $7.2 million in ~~2007~~2009 and $43.1 million in 2008.

Southwest. Total revenues from our Southwest segment decreased 14% to $187.7 million in 2010 from $218.1 million in 2009, mainly due to lower housing revenues. Housing revenues decreased 12% to $181.9 million in 2010 from $206.7 million in 2009, reflecting a 4% decrease in the number of homes delivered and an 8% decline in the average selling price. We delivered 1,150 homes in 2010 compared to 1,202 homes in 2009, principally due to our ~~actions~~operating an overall average of 13% fewer active communities in this segment year over year. The average selling price decreased to ~~align overhead~~$158,200 in 2010 from $172,000 in 2009 due to downward pricing pressures from intense competition and our continued rollout of new product at lower price points compared to our previous product. Land sale revenues totaled $5.8 million in 2010 compared to $11.4 million in 2009.

Pretax losses from this segment narrowed to $15.8 million in 2010 from $48.6 million in 2009, largely due to a decrease in pretax, noncash charges for inventory impairments. These charges decreased to $1.0 million in 2010 and represented less than 1% of segment total revenues. In 2009, pretax, noncash inventory impairment charges totaled $28.8 million and represented 13% of segment total revenues. The gross margin improved to 24.4% in 2010 from 3.6% in 2009, reflecting a decrease in direct construction costs and the reduction in inventory impairment charges. Selling, general and administrative expenses increased by $10.0 million, or 28%, to $45.5 million in 2010 from $35.5 million in 2009, mainly due to a charge associated with the writedown of a note receivable, and higher legal and advertising expenses. Other, net expenses included no unconsolidated joint venture impairment charges in 2010 and $5.4 million of such charges in 2009.

In 2009, total revenues from our Southwest segment decreased 65% to $218.1 million from $618.0 million in 2008, primarily due to lower housing revenues. Housing revenues fell 62% to $206.7 million in 2009 from $548.5 million in 2008 due to a 50% decrease in the number of homes delivered and a 25% decline in the average selling price. We delivered 1,202 homes at an average selling price of $172,000 in 2009, and 2,393 homes at an average

33
40

~~with~~selling price of $229,200 in 2008. Theyear-over-year decrease in the ~~reduced volume~~number of homes delivered was largely due to a 47% decrease in the overall average number of active communities we operated in this segment. The lower average selling price in 2009 reflected intense pricing pressure stemming from an oversupply of new and resale homes in our ~~future~~served markets in the segment, rising foreclosures and lower demand, as well as our rollout of new product at lower price points compared to our previous product. Revenues from land sales ~~expectations.~~totaled $11.4 million in 2009 compared to $69.5 million in 2008.

Pretax losses from this segment totaled $48.6 million in 2009 and $212.2 million in 2008. The 2009 pretax loss decreased from the prior year principally due to lower charges for inventory impairments and land option contract abandonments. These charges decreased to $28.8 million in 2009 from $160.8 million in 2008, and represented 13% of segment total revenues in 2009 compared to 26% in 2008. The gross margin improved to positive 3.6% in 2009 from negative 16.9% in 2008, mainly due to the reduced inventory impairment charges. Selling, general and administrative expenses decreased by $34.4 million, or 49%, to $35.5 million in 2009 from $69.9 million in 2008, due primarily to overhead reductions and other cost-saving initiatives. Included in other, net expenses were unconsolidated joint venture impairments of ~~$43.1~~$5.4 million in ~~2008~~2009 and ~~$57.0~~$30.4 million in ~~2007.~~2008.

~~Revenues~~Central. Total revenues from our ~~West Coast~~Central segment ~~decreased 38%~~increased slightly to ~~$2.20 billion~~$436.4 million in ~~2007,~~2010 from ~~$3.53 billion~~$434.4 million in ~~2006, due to lower~~2009, reflecting higher housing revenues. Housing revenues rose 1% to $435.9 million in 2010 from $430.8 million in 2009, mainly due to a 5% increase in the average selling price, partially offset by a 4% decline in the number of homes delivered. Homes delivered decreased to 2,663 in 2010 from 2,771 in 2009, despite a 4% increase in the overall average number of active communities we operated in this segment. The average selling price rose to $163,700 in 2010 from $155,500 in 2009, primarily due to favorable changes in community and product mix and somewhat improved operating conditions in certain markets within this segment. Land sale revenues totaled $.5 million in 2010 and $3.6 million in 2009.

Pretax losses from this segment totaled $1.8 million in 2010 and $29.4 million in 2009. These pretax results improved in 2010 compared to 2009 largely due to lower pretax, noncash inventory-related charges. The pretax loss in 2010 included $6.9 million of pretax, noncash land option contract abandonment charges, compared to $23.9 million of pretax, noncash inventory impairment charges in 2009. As a percentage of segment total revenues, these pretax, noncash charges were 2% in 2010 and 5% in 2009. The gross margin improved to 16.4% in 2010 from 9.9% in 2009, mainly due to an increase in the average selling price, a decrease in direct construction costs and lower inventory-related charges. Selling, general and administrative expenses totaled $62.6 million in both 2010 and 2009.

In 2009, this segment generated total revenues of $434.4 million, down ~~39%,~~27% from ~~$3.53 billion~~$594.3 million in ~~2006,~~2008, reflecting lower housing and land sale revenues. Housing revenues declined 26% to $430.8 million in 2009 from $585.8 million in 2008, mainly due to a ~~31%~~17% decrease in homes delivered and an 11% decline in the average selling price. Homes delivered decreased to 2,771 in 2009 from 3,348 homes in 2008, partly due to a 30%year-over-year reduction in the overall average number of active communities we operated in this segment. The average selling price declined to $155,500 in 2009 from $175,000 in 2008, reflecting downward pricing pressure due to highly competitive conditions, and our rollout of lower-priced new product. Land sale revenues totaled $3.6 million in 2009 and $8.5 million in 2008.

This segment posted pretax losses of $29.4 million in 2009 and $82.8 million in 2008. The loss decreased in 2009 compared to 2008 largely due to lower inventory impairment charges. These charges decreased to $23.9 million in 2009 compared to $51.5 million in 2008. As a percentage of segment total revenues, inventory impairment charges were 5% in 2009 and 9% in 2008. The gross margin improved to 9.9% in 2009 from 4.0% in 2008, mainly due to lower inventory impairment charges and lower direct construction costs. Selling, general and administrative expenses decreased by $33.7 million, or 35%, to $62.6 million in 2009 from $96.3 million in 2008, as a result of the steps we had taken to align our overhead costs with market conditions in this segment. Other, net expenses included no unconsolidated joint venture impairment charges in 2009 and $2.6 million of such charges in 2008.

Southeast. Our Southeast segment generated total revenues of $257.0 million in 2010, down 27% from $351.7 million in 2009, primarily due to lower housing revenues. All of this segment’s revenues in 2010 were generated from housing operations. In 2010, housing revenues declined 26% from $347.7 million in 2009 due to a 27% decrease in homes delivered, partly offset by an 1% increase in the average selling price. We delivered ~~4,957~~1,510 homes in ~~2007~~2010 compared ~~with 7,213~~to 2,062 homes in ~~2006 due primarily to our reducing~~2009, reflecting a 19% reduction in the overall average number of active communities ~~by 10% to match reduced levels of demand~~we operated in this ~~segment compared to 2006. Our~~segment. The average selling price ~~declined~~rose to ~~$433,600~~$170,200 in ~~2007~~2010 from ~~$489,500~~$168,600 in ~~2006~~2009, principally due to a change in community and product mix. There were no land sale revenues in 2010. Land sale revenues totaled $4.0 million in 2009.

This segment posted pretax losses of $42.8 million in 2010 and $78.4 million in 2009. The pretax loss narrowed on ayear-over-year basis, primarily due to the decline in total pretax, noncash charges for inventory impairments and land option contract abandonments, which decreased to $7.5 million in 2010 from $37.8 million in 2009. As a percentage of segment total revenues, these charges were 3% in 2010 and 11% in 2009. The gross margin improved to 4.5% in 2010 from 1.4% in 2009, largely due to the reduction in pretax, noncash charges for inventory impairments and land option contract abandonments and the slight increase in the average selling price. Selling, general and administrative expenses decreased by $4.0 million, or 10%, to $36.1 million in 2010 from $40.1 million in 2009 as a result of our actions to reduce overhead in line with market conditions in this segment. Other, net expenses included no unconsolidated joint venture impairment charges in 2010 and $25.9 million of such charges in 2009.

In 2009, this segment generated total revenues of $351.7 million in 2009, down 53% from $755.8 million in 2008, primarily due to a decrease in housing revenues. In 2009, housing revenues declined 54% to $347.7 million from $751.6 million in 2008 as a result of a 45% decrease in homes delivered and a 16% decline in the average selling price. We delivered 2,062 homes in 2009 compared to 3,725 homes in 2008, reflecting a 48% reduction in the overall average number of active communities we operated. The average selling price fell to $168,600 in 2009 from $201,800 in 2008, due to downward pricing pressure from highly competitive conditions and ~~weak demand. Our~~our rollout of new product at lower ~~average selling~~ price ~~in 2007 versus 2006 also reflected~~points compared to our efforts to redesign and reengineer our products to improve their affordability, particularly in light of tighter mortgage financing standards applicable to loans above conforming limits. Land sale revenuesprevious product. Revenues from land sales totaled ~~$53.8~~$4.0 million in ~~2007 compared with $.6~~2009 and $4.2 million in ~~2006.~~2008.

~~Our West Coast~~This segment ~~generated a~~posted pretax losses of $78.4 million in 2009 and $258.6 million in 2008. Theyear-over-year decrease in the pretax loss ~~of $665.8~~primarily reflected lower total charges for inventory impairments and land option contract abandonments, which decreased to $37.8 million in ~~2007, down~~2009 from ~~pretax income of $359.9~~$148.0 million in ~~2006. This decrease was principally~~2008. As a percentage of segment total revenues, these charges were 11% in 2009 and 20% in 2008. The gross margin improved to positive 1.4% in 2009 from negative 7.0% in 2008, mainly due to ~~increased~~the lower level of inventory impairment and land option contract abandonment charges in 2007 that reflected deteriorating market conditions. These charges totaled $659.4 million in 2007 compared to $178.8 million in 2006. As a percentage of revenues, inventory impairments and land option contract abandonment charges were 30% in 2007 and 5% in 2006. The gross margin decreased to negative 19.6% in 2007 from 18.5% in 2006 as a result of higher inventory-related charges as a percent of revenues, a lower average selling price and more frequent use of price concessions and sales incentives.charges. Selling, general and administrative expenses decreased by ~~$86.3~~$85.7 million, or ~~29%~~68%, to ~~$213.1~~$40.1 million in ~~2007~~2009 from ~~$299.5~~$125.8 million in ~~2006.~~2008 as a result of our actions to reduce overhead in line with market conditions in this segment. Included in other, net expenses were unconsolidated joint venture impairments of ~~$57.0~~$25.9 million in ~~2007~~2009 and ~~$34.4 million in 2006.~~

~~Southwest~~ — Total revenues from our Southwest segment declined 54% to $618.0 million in 2008 from $1.35 billion in 2007, reflecting decreases in housing and land sale revenues. Housing revenues fell 56% to $548.5 million in 2008 from $1.25 billion in 2007 due to a 51% decrease in the number of homes delivered and an 11% decrease in the average selling price. We delivered 2,393 homes in this segment for 2008 compared with 4,855 homes in 2007, largely due to a 32% reduction in the number of our active communities. Our average selling price of $229,200 in 2008 decreased from $258,500 in 2007, reflecting highly competitive conditions driven by an excess supply of new and resale homes, rising foreclosures and lower demand, as well as our introduction of new, value-engineered product at lower price points. Revenues from land sales totaled $69.5 million in 2008 compared to $94.6 million in 2007.

Our Southwest segment generated pretax losses of $212.2 million in 2008 and $287.3 million in 2007. The decrease in the pretax loss in 2008 reflected a decrease in inventory-related charges and lower selling, general and administrative expenses. Inventory impairment and land option contract abandonment charges totaled $160.8 million in 2008 compared with $354.4 million in 2007. These charges represented 26% of revenues in both 2008 and 2007. The gross margin was negative 16.9% in 2008 compared to negative 10.6% in 2007 primarily due to the decline in average selling prices. Selling, general and administrative expenses decreased by $54.6 million, or 44%, to $69.9 million in 2008 from $124.5 million in 2007, largely as a result of our cost reduction efforts. Included in other, net expenses were unconsolidated joint venture impairments of $30.4 million in 2008 and $31.0 million in 2007.

In 2007, our Southwest segment’s total revenues decreased 38% to $1.35 billion from $2.18 billion in 2006 due to lower housing revenues. Housing revenues decreased 42% to $1.25 billion in 2007 from $2.15 billion in 2006, due to a 31% decrease in homes delivered and a 16% decrease in the average selling price. We delivered 4,855 homes in 2007, down from 7,011 homes in 2006, primarily due to a 24% decrease in the number of our active communities, principally in Las Vegas, reflecting our efforts to align our operations with lower levels of demand. The average selling price decreased to $258,500 in 2007 from $306,900 in 2006 due to a persistent oversupply of new and resale homes in certain markets coupled with declining demand. Land sale revenues totaled $94.6 million in 2007 and $31.9 million in 2006.

Our Southwest segment posted a pretax loss of $287.3 million in 2007 and pretax income of $365.1 million in 2006. The pretax results decreased in 2007 principally due to increased inventory impairment and land option contract abandonment charges. Inventory impairment and land option contract abandonment charges totaled $354.4 million in 2007 and $39.4 million in 2006. As a percentage of revenues, these charges were 26% in 2007 and 2% in 2006. The gross margin in our Southwest segment fell to negative 10.6% in 2007 compared to 26.0% in 2006, reflecting an increase in inventory-related charges as a percent of revenues, weakness in market conditions, greater competition, and the increased use of price concessions and sales incentives to stimulate sales. Selling, general and administrative expenses in our

Southwest segment decreased by $69.0 million, or 36%, to $124.5 million in 2007 from $193.5 million in 2006 due to our actions to rescale the size of our operations to the reduced number of homes we delivered and our future sales expectations. Included in other, net expenses were unconsolidated joint venture impairment charges of $31.0 million in 2007. In 2006, there were no unconsolidated joint venture impairment charges in the Southwest segment.

~~Central~~ — Our Central segment generated total revenues of $594.3 million in 2008, down 45% from $1.08 billion in 2007, reflecting lower revenues from housing and land sales. Housing revenues decreased 45% to $585.8 million in 2008 from $1.06 billion in 2007, due to a 47% decrease in the number of homes we delivered, partly offset by a 4% increase in our average selling price. In 2008, we delivered 3,348 homes at an average price of $175,000 compared to 6,310 homes delivered at an average price of $167,800 in 2007. The decrease in homes delivered reflected a 38% reduction in the number of active communities we operated. The increase in the average selling price was due to a change in product mix. Land sale revenues totaled $8.5 million in 2008 and $18.3 million in 2007.

Our Central segment generated pretax losses of $82.8 million in 2008 and $64.2 million in 2007. The loss increased in 2008 principally due to higher inventory-related charges driven by deteriorating market conditions. These charges totaled $51.5 million in 2008 compared to $34.4 million in 2007. As a percentage of revenues, inventory impairments and land option contract abandonment charges were 9% in 2008 and 3% in 2007. The gross margin decreased to 4.0% in 2008 from 9.9% in 2007 as a result of an increase in inventory-related charges as a percent of revenues, partly offset by a higher average selling price. Selling, general and administrative expenses decreased by $67.4 million, or 41%, to $96.3 million in 2008 from $163.7 million in 2007, reflecting our efforts to calibrate our operations with reduced housing market activity. Included in other, net expenses were unconsolidated joint venture impairments of $2.6 million in 2008 and $4.5 million in 2007.

In 2007, total revenues from our Central segment fell 31% from $1.55 billion in 2006, primarily due to lower housing revenues. Housing revenues of $1.06 billion in 2007 decreased 31% from $1.54 billion in 2006, reflecting a year-over-year decrease of 34% in homes delivered, partially offset by a 5% increase in the average selling price. Homes delivered decreased to 6,310 in 2007 from 9,613 in 2006 primarily due to a 26% decrease in the number of our active communities, principally in Texas and Indiana, due to our exiting smaller submarkets and adjusting our operations to our reduced sales expectations in these states. The average selling price increased to $167,800 in 2007 from $159,800 in 2006 due to a change in product mix.

Our Central segment posted pretax losses of $64.2 million in 2007 and $54.7 million in 2006. The pretax results decreased in 2007 mainly due to a decrease in gross margin. Inventory-related impairment and land option contract abandonment charges totaled $34.4 million in 2007 and $48.8 million in 2006. As a percentage of revenues, these charges were 3% in both 2007 and 2006. The gross margin decreased to 9.9% in 2007 from 11.9% in 2006. Selling, general and administrative expenses decreased by $59.8 million, or 27%, to $163.7 million in 2007 from $223.5 million in 2006 due to our actions to reduce overhead. Included in other, net expenses were unconsolidated joint venture impairment charges of $4.5 million in 2007. There were no unconsolidated joint venture impairment charges in the Central segment in 2006.

~~Southeast~~ — Our Southeast segment generated total revenues of $755.8 million in 2008 compared to $1.77 billion in 2007 due to lower housing and land sale revenues. Housing revenues decreased 57% to $751.6 million in 2008 from $1.75 billion in 2007 as a result of a 51% decrease in homes delivered and a 12% decline in the average selling price. Homes delivered fell to 3,725 in 2008 from 7,621 in 2007, while the average selling price decreased to $201,800 in 2008 from $229,400 in 2007. The decrease in homes delivered was principally due to a 44% reduction in the number of our active communities. The lower average selling price mainly reflected highly competitive conditions and rising foreclosures as well as our introduction of value-engineered product at lower price points. Revenues from land sales totaled $4.2 million in 2008 and $22.3 million in 2007.

Our Southeast segment posted pretax losses of $258.6 million in 2008 and $230.4 million in 2007. The increased loss was principally due to a decline in the gross margin, partly offset by a decrease in selling, general and administrative expenses. The gross margin decreased to negative 7.0% in 2008 from 2.9% in 2007, reflecting the impact of lower average selling prices. Inventory impairment and land option contract abandonment charges totaled $148.0 million in 2008 compared to $205.8 million in 2007. As a percentage of revenues, inventory impairments and land option contract abandonment charges were 20% in 2008 and 12% in 2007. Selling, general and administrative expenses decreased by $87.7 million, or 41%, to $125.8 million in 2008 from $213.5 million in 2007, reflecting our actions to reduce costs in

~~line with the reduced volume of homes delivered and our future sales expectations. Included in other, net expenses were unconsolidated joint venture impairments of~~ $65.7 million in ~~2008 and $63.8 million in 2007.~~

In 2007, total revenues from the Southeast segment declined 15% from $2.09 billion in 2006, reflecting decreases in housing and land sale revenues. Housing revenues decreased 14% to $1.75 billion in 2007 from $2.02 billion in 2006 due to decreases of 8% in homes delivered and 6% in the average selling price. Homes delivered decreased to 7,621 in 2007 from 8,287 in 2006, reflecting difficult conditions in many Southeast markets. The average selling price decreased to $229,400 in 2007 from $244,300 in 2006 as highly competitive conditions exerted downward pressure on home prices, primarily in Florida. In 2007, revenues from land sales totaled $22.3 million, down from $66.9 million in 2006.

Our Southeast segment generated a pretax loss of $230.4 million in 2007 compared to pretax income of $38.9 million in 2006. This decrease was mainly due to increased inventory-related charges in 2007 resulting from challenging market conditions. These inventory-related charges totaled $205.8 million in 2007 compared to $105.7 million in 2006. The inventory impairment and land option contract abandonment charges in 2007 were principally in Florida. As a percentage of revenues, inventory impairments and land option contract abandonment charges were 12% in 2007 and 5% in 2006. The gross margin decreased to 2.9% in 2007 from 14.2% in 2006 as a result of an increase in inventory-related charges as a percent of revenues. Selling, general and administrative expenses decreased by $28.2 million, or 12%, to $213.5 million in 2007 from $241.7 million in 2006, reflecting our efforts to calibrate operations with reduced housing market activity. Included in other, net expenses were unconsolidated joint venture impairments of $63.8 million in 2007 and $24.2 million in 2006.2008.

FINANCIAL SERVICES SEGMENT

Our financial services segment provides title and insurance services to our ~~homebuyers and provided escrow coordination services until 2007, when we terminated our escrow coordination business.~~homebuyers. This segment also provides mortgage banking services to our homebuyers indirectly through ~~Countrywide KB Home Loans.~~KBA Mortgage. We and ~~CWB Venture Management Corporation,~~ a subsidiary of Bank of America, N.A., each have a 50% ownership interest in ~~Countrywide KB Home Loans. Countrywide KB Home Loans~~KBA Mortgage. KBA Mortgage is operated by our joint venture ~~partner. Countrywide KB Home Loans~~partner and is accounted for as an unconsolidated joint venture in the financial services reporting segment of our consolidated financial statements.

The following table presents a summary of selected financial and operational data for our financial services segment (dollars in thousands):


	Years Ended November 30,									Years Ended November 30,
	2008			2007			2006			2010			2009			2008

Revenues	$	10,767		$	15,935		$	20,240		$	8,233		$	8,435		$	10,767
Expenses		(4,489	)		(4,796	)		(5,923	)		(3,119	)		(3,251	)		(4,489	)
Equity in income of unconsolidated joint venture		17,540			22,697			19,219			7,029			14,015			17,540

Pretax income	$	23,818		$	33,836		$	33,536		$	12,143		$	19,199		$	23,818


Total originations (a):
Loans		10,141			16,869			15,740			5,706			7,170			10,141
Principal	$	2,073,382		$	3,934,336		$	3,843,793		$	1,092,508		$	1,317,904		$	2,073,382
Retention rate		80	%		72	%		57	%
Percentage of homebuyers using KBA Mortgage											82	%		84	%		80	%
Loans sold to third parties (a):
Loans		11,289			16,909			15,613			5,850			6,967			11,289
Principal	$	2,328,702		$	3,969,827		$	3,787,597		$	1,092,739		$	1,275,688		$	2,328,702


(a)	Loan originations and sales ~~are~~occur within ~~Countrywide KB Home Loans.~~KBA Mortgage.

Revenues. ~~In 2008, 2007 and 2006, our~~Our financial services operations ~~generated~~generate revenues primarily from the following sources: interest income, title services, and insurance commissions. ~~In 2007 and 2006, financial services revenues also included escrow coordination fees.~~ Financial services revenues totaled $8.2 million in 2010, $8.4 million in 2009 and $10.8 million in ~~2008, $15.9 million in 2007 and $20.2 million in 2006.~~2008. Theyear-over-year decrease in financial services revenues in ~~2008 versus 2007 resulted~~2010 was primarily due to lower revenues from title services as a result of our homebuilding operations delivering fewer homes. In 2009, theyear-over-year decline in financial services revenues was mainly due to lower revenues from title and insurance services, also reflecting in each case fewer homes delivered from our homebuilding

operations. The lower financial services revenues in 2007 compared to 2006 was mainly due to the decreased number of homes delivered by our homebuilding operations and the reduction in escrow coordination fee revenues due to the termination of our escrow coordination business in the second quarter of 2007.

Financial services revenues ~~in 2008, 2007 and 2006~~ included a nominal amount of interest income ofin 2010 and 2009 and $.2 million of interest income in 2008, which was earned ~~in each year~~ primarily from money market ~~deposits and first mortgages held for sale.~~deposits. Financial services revenues also included revenues from title services and insurance commissions oftotaling $8.2 million in 2010, $8.4 million in 2009 and $10.6 million in ~~2008, $15.1 million in 2007 and $16.6 million in 2006, and escrow coordination fees of $.6 million in 2007 and $3.4 million in 2006.~~2008.

Expenses. General and administrative expenses totaled $3.1 million in 2010, $3.2 million in 2009 and $4.5 million in ~~2008, $4.8 million~~2008. In 2010, these expenses decreased slightly from 2009 corresponding to the slight decrease in ~~2007 and $5.9 million in 2006.~~revenues. Theyear-over-year decreases in general and administrative expenses primarily reflect the actions we have taken to reduce overhead in ~~2008 and 2007 were primarily due to the termination of~~ our ~~escrow coordination business in the second quarter of 2007.~~financial services operations.

Equity in Income of Unconsolidated Joint Venture. The equity in income of unconsolidated joint venture of $7.0 million in 2010, $14.0 million in 2009 and $17.5 million in 2008 ~~$22.7 million in 2007 and $19.2 million in 2006 relates~~related to our 50% interest in ~~the Countrywide KB Home Loans joint venture.~~KBA Mortgage. The ~~decrease~~year-over-year decreases in unconsolidated joint venture income in ~~2008 compared to 2007 was largely~~2010 and 2009 were mainly due to ~~a 40% decline~~declines in the number of loans originated by ~~Countrywide KB Home Loans,~~KBA Mortgage, reflecting in large part the lower volume of homes we delivered ~~partly offset by an increase~~ in ~~Countrywide KB Home Loans’ retention rate (the~~each year. Theyear-over-year decline in unconsolidated joint venture income in 2009 was also due to a decrease in average loan size as a result of the generally lower average selling prices of our homes compared to 2008. KBA Mortgage originated 5,706 loans in 2010, 7,170 loans in 2009 and 10,141 loans in 2008. The percentage of our homebuyers using ~~Countrywide KB Home Loans~~KBA Mortgage as a loan ~~originator). Countrywide KB Home Loans’ retention rate increased to~~originator was 82% in 2010, 84% in 2009 and 80% in 2008 from 72% in 2007. The higher retention rate primarily reflected the diminished availability of alternative consumer mortgage lenders in the marketplace. In 2007, unconsolidated joint venture income increased from the previous year due to a 7% increase in the number of loans originated by the Countrywide KB Home Loans joint venture reflecting a higher retention rate. The overall retention rate rose to 72% in 2007 from 57% in 2006 reflecting the maturation of the joint venture’s operations, which began in late 2005.2008.

The equity in income of unconsolidated joint venture in 2008 was affected by ~~Countrywide KB Home Loans’~~KBA Mortgage’s adoption of Topic 5DD (formerly Staff Accounting Bulletin No. 109, “Written Loan Commitments Recorded at Fair Value Through Earnings” ~~(“SAB No. 109”~~) and ~~Statement of Financial~~the provisions as required by Accounting Standards Codification Topic No. ~~159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115”~~825, “Financial Instruments” (“~~SFAS No. 159”~~ASC 825”). ~~SAB No. 109 revises and rescinds portions of Staff Accounting Bulletin No. 105, “Application of Accounting Principles to Loan Commitments” (“SAB No. 105”), and~~Topic 5DD expresses the current view of the SEC that, consistent with the guidance in ~~Statement of Financial~~ Accounting Standards Codification Topic No. ~~156, “Accounting for Servicing of Financial Assets — an amendment of FASB Statement No. 140” (“SFAS No. 156”)~~860, “Transfers and ~~SFAS No. 159,~~Servicing” and ASC 825, the expected net future cash flows related to the associated servicing of loans should be included in the measurement of the fair value of all written loan commitments that are accounted for at fair value through earnings. ~~SFAS No. 159~~ASC 825 permits entities to choose to measure various financial instruments and certain other items at fair value on acontract-by-contract basis. Under ~~SFAS No. 159, Countrywide KB Home Loans~~ASC 825, KBA Mortgage elected the fair value option for residential consumer mortgage loans held for sale that were originated subsequent to February 29, 2008. As a result of ~~Countrywide KB Home Loans’~~KBA Mortgage’s adoption of ~~SAB No. 109~~Topic 5DD and ~~SFAS No. 159,~~ASC 825, our equity in income of unconsolidated joint venture of the financial services segment increased by $1.7 million in 2008.

INCOME TAXES

We recognized an income tax benefit of $7.0 million in 2010, compared to an income tax benefit of $209.4 million in 2009 and income tax expense of $8.2 million in ~~2008, an~~2008. The income tax benefit in 2010 reflected the recognition of a $5.4 million federal income tax benefit from ~~continuing operations~~an additional carryback of ~~$46.0~~our 2009 NOLs to offset earnings we generated in 2004 and 2005, and the reversal of a $1.6 million liability for unrecognized tax benefits due to the status of federal and state tax audits. The income tax benefit in ~~2007,~~2009 resulted primarily from the recognition of a $190.7 million federal income tax benefit based on the carryback of our 2009 NOLs to offset earnings we generated in 2004 and 2005, and the reversal of a $16.3 million liability for unrecognized federal and state tax benefits due to the status of federal and state tax audits. The income tax expense from continuing operations of $178.9 million in 2006. These amounts represent effective income tax rates of approximately .8% for 2008, 3% for 2007 and 31% for 2006. The change in our effective tax rate in 2008 ~~from 2007~~ was ~~primarily~~mainly due to the disallowance of tax benefits related to our ~~current year~~2008 loss as a result of a full valuation allowance. ~~The decrease~~Due to the effects of our deferred tax asset valuation allowance, carryback of NOLs, and changes in our unrecognized tax benefits, our effective tax ~~rate~~rates in ~~2007~~2010, 2009 and 2008 are not meaningful items as our income tax amounts are not directly correlated to the amount of our pretax losses for those periods.

$190.7 million and reflected this amount as a receivable in our consolidated balance sheet as of November 30, 2009. We received the cash proceeds from the refund in the first quarter of 2010. In September 2010, we filed an amended application for a federal tax refund to carry back an additional amount of our 2009 NOLs to offset earnings we generated in 2004 and 2005. The amended application generated a refund in the amount of $5.4 million, and we received the cash proceeds of this refund in the fourth quarter of 2010.

Since 2007, due to the prolonged housing downturn, the asset impairment and land option contract abandonment charges we have incurred and the NOLs we have posted, we have generated substantial deferred tax assets and established a ~~noncash~~corresponding valuation allowance ~~recorded as a reserve~~ against ~~net~~certain of those deferred tax assets.

In accordance with ~~SFAS~~Accounting Standards Codification Topic No. ~~109,~~740, “Income Taxes” (“ASC 740”), we evaluate our deferred tax assets quarterly to determine if valuation allowances are required. ~~SFAS No. 109~~ASC 740 requires that companies assess whether valuation allowances should be established based on the consideration of all available evidence using a “more likely than not” standard. ~~For~~During 2010, we recorded a net increase of $21.1 million to the valuation allowance against net deferred tax assets. The net increase was comprised of a $26.6 million valuation allowance recorded against the net deferred tax assets generated from the loss for the year, partially offset by the $5.4 million federal income tax benefit from the additional carryback of our 2009 NOLs to offset earnings we generated in 2004 and 2005.

During the first nine months of 2009, we recognized a net increase of $67.5 million in the valuation allowance. This increase reflected the net impact of an $89.9 million valuation allowance recorded during the first nine months of 2009, partly offset by a reduction of deferred tax assets due to the forfeiture of certain equity-based awards. In the fourth quarter of 2009, we recognized a decrease in the valuation allowance of $196.3 million primarily due to the benefit derived from the carryback of our 2009 NOLs to offset earnings we generated in 2004 and 2005. As a result, the net decrease in the valuation allowance for the year ended November 30, 2009 totaled $128.8 million. The decrease in the valuation allowance was reflected as a noncash income tax benefit of $130.7 million and a noncash charge of $1.9 million to accumulated other comprehensive loss. During 2008, we recorded a valuation allowance of $355.9 million against our net deferred tax assets. The valuation allowance was reflected as a noncash charge of $358.2 million to income tax expense and a noncash benefit of $2.3 million to accumulated other comprehensive loss (as a result of an adjustment made in accordance with ~~Statement~~the adoption of ~~Financial~~provisions of Accounting Standards Codification Topic No. ~~158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans~~715, “Compensation — ~~an amendment of FASB Statements No. 87,~~

~~88, 106 and 132(R)”~~Retirement Benefits” (“~~SFAS No. 158”~~ASC 715”)). For 2007, we recorded a valuation allowance totaling approximately $522.9 million against our deferred tax assets. The valuation allowance was reflected as a noncash charge of $514.2 million to income tax expense and $8.7 million to accumulated other comprehensive loss. The majority of the tax benefits associated with our net deferred tax assets can be carried forward for 20 years and applied to offset future taxable income.

Our net deferred tax assets ~~for which we did not establish a~~totaled $1.1 million at both November 30, 2010 and 2009. The deferred tax asset valuation allowance ~~relate~~increased to ~~amounts that can be realized through future reversals of existing taxable temporary differences or through carrybacks to~~$771.1 million at November 30, 2010 from $750.0 million at November 30, 2009, reflecting the ~~2007 and 2006 years. To the extent we generate sufficient taxable income in the future to fully utilize the tax benefits~~impact of the ~~related deferred tax assets, we expect our effective tax rate to decrease as~~$21.1 million net increase in the valuation allowance ~~is reversed.~~recorded in 2010 described above.

~~DISCONTINUED OPERATIONS~~

~~Discontinued operations consist solely~~The benefits of our ~~French operations which were sold~~NOLs, built-in losses and tax credits would be reduced or potentially eliminated if we experienced an “ownership change” under Section 382. Based on ~~July 10, 2007. We sold~~ our ~~49% equity interest in KBSA for total gross proceeds~~analysis performed as of ~~$807.2 million~~November 30, 2010, we do not believe we have experienced an ownership change as defined by Section 382, and, therefore, the NOLs, built-in losses and tax credits we ~~recognized a pretax gain of $706.7 million ($438.1 million, net of income taxes) in the third quarter of 2007 related to the transaction. The sale was made pursuant~~have generated should not be subject to a ~~share purchase agreement (the “Share Purchase Agreement”), among us, Financière Gaillon 8 SAS (the “Purchaser”), an affiliate~~Section 382 limitation as of PAI partners, a European private equity firm, and three of our wholly owned subsidiaries: Kaufman and Broad Development Group, International Mortgage Acceptance Corporation, and Kaufman and Broad International, Inc. (collectively, the “Selling Subsidiaries”). Under the Share Purchase Agreement, the Purchaser agreed to acquire our 49% equity interest (representing 10,921,954 shares held collectively by the Selling Subsidiaries) at a price of 55.00 euros per share. The purchase price consisted of 50.17 euros per share paid by the Purchaser in cash, and a cash dividend of 4.83 euros per share paid by KBSA.

In 2007, income from discontinued operations, net of income taxes, totaled $485.4 million, or $6.29 per diluted share, including the gain realized on the sale of these operations. Income from discontinued operations, net of income taxes, totaled $89.4 million, or $1.08 per diluted share, in 2006.this reporting date.

LIQUIDITY AND CAPITAL RESOURCES

Overview. ~~Historically, we~~We historically have funded our homebuilding and financial services ~~operations~~activities with internally generated cash flows and external sources of debt and equity financing. ~~We may also borrow funds from time to time under our Credit Facility.~~

~~In light of~~During the ~~prolonged downturn~~period from mid-2006 through 2009, amid challenging conditions in the housing market, we ~~remain~~ focused on generating cash by exiting or reducing our investments in certain markets, selling land positions and interests, and improving the financial performance of our homebuilding operations. The cash generated from these efforts improved our liquidity, enabled us to reduce debt levels and strengthened our consolidated financial position. Based on the prolonged housing downturn and our goals of maintaining a strong ~~balance sheet. We took several decisive actions in 2007 that resulted in substantial cash flow generation~~ and debt reductions, including selling our French operations and other assets, reducing inventory and our active community counts, reducing our workforce, consolidating operations, and selectively exiting or winding down operations in underperforming markets. During 2008, we remained committed to ourliquid balance sheet ~~initiatives~~ and ~~as a result, generated positive operating~~positioning our business to capitalize on future growth opportunities, in 2010, we continued to manage our use of cash ~~flows~~to operate our business and we made strategic acquisitions of attractive land assets that met our investment and marketing standards. We ended ~~the~~our 2010 fiscal year with ~~$1.25~~$1.02 billion of cash and cash equivalents and restricted cash, compared to $1.29 billion at November 30, 2009. The majority of our cash and ~~$1.94 billion~~cash equivalents were invested in money market accounts and U.S. government securities. Depending on housing market conditions in 2011, we plan to use a portion of ~~debt.~~our unrestricted cash to acquire additional land assets and increase our active community count.

Capital Resources. At November 30, ~~2008,~~2010, we had ~~$1.94~~$1.78 billion of mortgages and notes payable outstanding compared to ~~$2.16~~$1.82 billion outstanding at November 30, ~~2007. The decrease in our debt balance was mainly~~2009, reflecting the repayment of mortgages and land contracts due to ~~the early redemption of debt~~land sellers and other loans during the third quarter of 2008. On July 14, 2008, we completed the early redemption of the $300 Million Senior Subordinated Notes at a price of 101.938% of the principal amount plus accrued interest to the date of redemption. We incurred a loss of $7.1 million in 2008 related to the early redemption of debt, as a result of the call premium and the unamortized original issue discount.2010.

In managing our investments in unconsolidated joint ventures, we expect in some cases, as occurred in 2008, to opportunistically purchase our partners’ interests and consolidate the joint venture, which would result in an increase in our consolidated mortgages and notes payable. We do not believe that such consolidations should have a material effect on our consolidated financial position, our results of operations, or our ability to comply with the terms governing our Credit Facility or public debt. In the first fiscal quarter of 2009, we redeemed the $200 Million Senior Subordinated Notes upon their December 15, 2008 scheduled maturity. Our next bond maturity does not occur until August 15, 2011, when $350.0 million of 63/8~~% senior notes (the “$350 Million Senior Notes”) become due.~~

Our financial leverage, as measured by the ratio of debt to total capital, was ~~70.0%~~73.8% at November 30, ~~2008~~2010, compared to ~~53.9%~~72.0% at November 30, ~~2007.~~2009. The increase in ~~this ratio~~our financial leverage primarily reflected ~~lower retained earnings at November 30, 2008, primarily due to~~ the ~~pretax, noncash charges recorded during 2008 for the~~decrease in our stockholders’ equity as a result of net losses and inventory impairment ~~of inventory, joint ventures~~ and ~~goodwill, and the abandonment of~~ land option ~~contracts, as well as a noncash charge to record a valuation allowance against the net deferred tax assets generated during the period.~~contract abandonment charges we incurred in 2010. Our ratio of net debt to ~~net~~ total capital at November 30, ~~2008~~2010 was ~~45.4%~~54.5%, compared to ~~31.1%~~42.9% at November 30, 2007. Net debt to net total capital is calculated by dividing mortgages and notes payable, net of homebuilding cash and cash equivalents and restricted cash, by net total capital (mortgages and notes payable, net of homebuilding cash and cash equivalents and restricted cash, plus stockholders’ equity). We believe the ratio of net debt to net total capital is useful in understanding the leverage employed in our operations and in comparing us with other companies in the homebuilding industry.2009.

~~As of~~At November 30, ~~2008,~~2009, we ~~had no cash borrowings outstanding and $211.8 million in letters of credit outstanding under our~~maintained the Credit Facility ~~leaving us~~ with ~~$588.2 million available for future borrowings.~~

~~On August 28, 2008,~~a syndicate of lenders that was scheduled to mature in November 2010. Anticipating that we ~~entered into the Fifth Amendment~~would not need to borrow under the Credit ~~Facility. The Fifth Amendment, among other things,~~Facility before its scheduled maturity and to trim the costs associated with maintaining it, effective December 28, 2009, we voluntarily reduced the aggregate commitment under the Credit Facility from ~~$1.30 billion~~$650.0 million to ~~$800.0~~$200.0 million, and ~~provided that~~effective March 31, 2010, we voluntarily terminated the ~~aggregate commitment may be permanently reduced to: (a) $650.0~~Credit Facility.

With the Credit Facility’s termination, we proceeded to enter into the LOC Facilities with various financial institutions to obtain letters of credit in the ordinary course of operating our business. As of November 30, 2010, $87.5 million if at the end of any fiscal quarter our consolidated tangible net worth is less than or equal to $800.0 million but greater than $500.0 million, and (b) $500.0 million, if at the end of any fiscal quarter our consolidated tangible net worth is less than or equal to $500.0 million. In addition, the Fifth Amendment reduced the sublimit for swing line loans from $100.0 million to $60.0 million; reduced the sublimit for the issuance of letters of credit ~~from $1.00 billion~~were outstanding under the LOC Facilities. The LOC Facilities require us to ~~$600.0 million;~~deposit and ~~reduced~~maintain cash with the financial institutions as collateral for our letters of credit outstanding. As of November 30, 2010, the amount of ~~unrestricted~~ cash ~~applied to~~maintained for the ~~borrowing base calculation by the amount of outstanding borrowings under the Credit Facility~~LOC Facilities totaled $88.7 million and was included in restricted cash on our consolidated balance sheet as of that date. In 2011, we may maintain or, if necessary or desirable, enter into additional or expanded letter of credit facilities with the ~~measurement date.~~same or other financial institutions.

Under the terms of the Credit Facility, we ~~are~~were required, among other things, to maintain a minimum consolidated tangible net worth and certain financial statement ratios, and ~~are~~were subject to limitations on acquisitions, inventories and indebtedness. ~~Specifically,~~As a result of the Credit Facility’s termination, these restrictions and requirements are no longer in effect. In addition, the termination of the Credit Facility requires us to maintain a minimum consolidated tangible net worth of $1.00 billion, reduced by the cumulative deferred tax valuation allowances not to exceed $721.8 million (“Permissible Deferred Tax Valuation Allowances”). The minimum consolidated tangible net worth requirement is increased by the amount of the proceeds from any issuance of capital stockreleased and ~~50%~~discharged six of our ~~cumulative consolidated net income, before the effect~~subsidiaries from guaranteeing any obligations with respect to our senior notes (the “Released Subsidiaries”). Three of deferred tax valuation allowances, for each quarter after May 31, 2008 where we have cumulative consolidated net income. There is no decrease when we have cumulative consolidated net losses. At November 30, 2008, our ~~applicable minimum consolidated tangible net worth requirement was $278.2 million.~~subsidiaries (the “Guarantor Subsidiaries”) continue to provide a guarantee with respect to our senior notes.

Other financial statement ratios required under the Credit Facility consist of maintaining at the end of each fiscal quarter a Coverage Ratio greater than 1.00 to 1.00 and a Leverage Ratio less than 2.00 to 1.00, 1.25 to 1.00, or 1.00 to 1.00, depending on our Coverage Ratio. The Coverage Ratio is the ratio of our consolidated adjusted EBITDA to consolidated interest expense (as defined under the Credit Facility) over the previous 12 months. The Leverage Ratio is the ratio of our consolidated total indebtedness (as defined under the Credit Facility) to the sum of consolidated tangible net worth and Permissible Deferred Tax Valuation Allowances (“Adjusted Consolidated Tangible Net Worth”).

If our Coverage Ratio is less than 1.00 to 1.00, we will not be in default under the Credit Facility if our Leverage Ratio is less than 1.00 to 1.00 and we establish the Interest Reserve Account equal to the amount of interest we incurred on a consolidated basis during the most recent completed quarter, multiplied by the number of quarters remaining until the Credit Facility maturity date of November 2010, not to exceed a maximum of four. We may withdraw all amounts deposited in the Interest Reserve Account when our Coverage Ratio at the end of a fiscal quarter is greater than or equal to 1.00 to 1.00, provided that there is no default under the Credit Facility at the time the amounts are withdrawn. An Interest Reserve Account is not required when our actual Coverage Ratio is greater than or equal to 1.00 to 1.00.

~~The following table summarizes certain key financial metrics we are required to maintain under our Credit Facility at November 30, 2008 and our actual ratios:~~


	~~November 30, 2008~~
	~~Covenant~~
~~Financial Covenant~~	~~Requirement~~			~~Actual~~

~~Minimum consolidated tangible net worth~~	$	~~278.2 million~~		$	~~827.9 million~~
~~Coverage Ratio~~		~~(a)~~			~~(a)~~
~~Leverage Ratio (b)~~		~~≤1.00~~			~~.47~~
~~Investment in subsidiaries and joint ventures as a percent of Adjusted Consolidated Tangible Net Worth~~		~~<35~~	%		15	%
~~Borrowing base in excess of senior indebtedness (as defined)~~		~~Greater than zero~~		$	~~825.0 million~~


~~(a)~~		Our Coverage Ratio of negative .27 was less than 1.00 to 1.00 as of November 30, 2008. Because our Leverage Ratio as of August 31, 2008 was below 1.00 to 1.00, we established an Interest Reserve Account of $115.4 million in the fourth quarter of 2008 to remain in compliance with the terms of the Credit Facility. The Interest Reserve Account had a balance of $115.4 million at November 30, 2008. Because our Leverage Ratio as of November 30, 2008 was below 1.00 to 1.00, we will continue to maintain the Interest Reserve Account, but the balance will be reduced to $111.2 million in the first quarter of 2009.

~~(b)~~		The Leverage Ratio requirement varies based on our Coverage Ratio. If our Coverage Ratio is greater than or equal to 1.50 to 1.00, the Leverage Ratio requirement is less than 2.00 to 1.00. If our Coverage Ratio is between 1.00 and 1.50 to 1.00, the Leverage Ratio requirement is less than 1.25 to 1.00. If our Coverage Ratio is less than 1.00 to 1.00, the Leverage Ratio requirement is less than or equal to 1.00 to 1.00.

The Credit Facility also contains limitations on the total consideration paid for exchanges of capital stock with our employees, unimproved land book value, investments in subsidiaries and joint ventures, speculative home deliveries and borrowing base requirements. Transactions with employees for exchanges of capital stock, such as payments for incentive and employee benefit plans or cashless exercises of stock options, cannot exceed $5.0 million in any fiscal year. In addition to the ~~financial covenants summarized~~cash deposits maintained for the LOC Facilities, restricted cash on our consolidated balance sheet at November 30, 2010 included $26.8 million of cash in ~~the above table, other covenants provide that: (a) the unimproved land book value cannot exceed consolidated tangible net worth; and (b) speculative home deliveries within~~an escrow account required as collateral for a ~~given quarter cannot exceed 40% of the previous 12 months’ total deliveries.~~

If our Coverage Ratio is less than 2.00 to 1.00, we are restricted from optional payment or prepayment of principal, interest or any other amount for subordinated obligations before their maturity; payments to retire, redeem, purchase or acquire for value shares of capital stock from or with non-employees; and investments in a holder of 5% or more of our capital stock if the purpose of the investment is to avoid default. These restrictions do not apply if (a) our unrestricted cash equals or exceeds the aggregate commitment; (b) there are no outstanding borrowings against the Credit Facility; and (c) there is no default under the Credit Facility.surety bond.

The indenture governing our senior notes does not contain any financial maintenance covenants. Subject to specified exceptions, the ~~senior notes~~ indenture contains certain restrictive covenants that, among other things, limit our ability to incur secured ~~indebtedness;~~indebtedness, or engage in sale-leaseback transactions involving property or assets above a certain specified ~~value; or engage in~~value. Unlike our other senior notes, the terms governing our $265 Million Senior Notes contain certain limitations related to mergers, consolidations, orand sales of assets.

As of November 30, ~~2008,~~2010, we were in compliance with the applicable terms of all of our covenants under our senior notes, the indenture, and ~~our Credit Facility. However, our~~mortgages and land contracts due to land sellers and other loans. Our ability to ~~continue to borrow funds depends~~secure future debt financing may depend in part on our ability to remain in such compliance. ~~Our inability to do so could make it more difficult and expensive to maintain our current level of external debt financing or to obtain additional financing.~~

~~During~~As further discussed below under “Off-Balance Sheet Arrangements,” various financial and non-financial covenants apply to the ~~quarter ended February 29, 2008,~~outstanding debt of our ~~board~~unconsolidated joint ventures, and a failure of ~~directors declared~~such an unconsolidated joint venture to comply with any applicable debt covenants could result in a ~~cash dividend~~default and cause lenders to seek to enforce guarantees, if applicable, provided by usand/or our corresponding unconsolidated joint venture partner(s). As discussed above under “Part I — Item 3. Legal Proceedings,” we are currently party to an involuntary bankruptcy case initiated by the lenders to one of ~~$.25 per share~~these unconsolidated joint ventures, which may impact the enforcement of ~~common stock, which was paid~~a guarantee. An unfavorable outcome in this case could have a material adverse effect on ~~February 21, 2008 to stockholders~~our consolidated financial position and results of record on February 7, 2008. During the quarter ended May 31, 2008, our board of directors declared a cash dividend of $.25 per share of common stock, which was paid on May 22, 2008 to stockholders of record on May 8, 2008, and declared a cash dividend of $.25 per share of common stock, which was paid on July 24, 2008 to stockholders of record on July 10, 2008. During the quarter ended November 30, 2008, our board of directors declared a cash dividend of $.0625 per share of common stock, which was paid

~~on November 25, 2008 to shareholders of record on November 14, 2008. During 2008, we have declared and paid total cash dividends of $.8125 per share of common stock.~~operations.

Depending on available terms, ~~and our negotiating leverage related to specific market conditions,~~ we also finance certain land acquisitions with purchase-money financing from land sellers or with other forms of financing from third parties. At November 30, ~~2008,~~2010, we had outstanding ~~notes~~mortgages and land contracts due to land sellers and other loans payable in connection with such financing of ~~$96.4~~$118.1 million, secured primarily by the underlying property, which had a carrying value of ~~$169.8~~$161.9 million.

Consolidated Cash Flows. Operating, investing and financing activities used net cash of $269.5 million in 2010 and $202.2 million in 2008. These activities provided net cash of ~~$539.6~~$36.4 million in ~~2007 and $479.2 million in 2006.~~2009.

Operating Activities. Operating activities used net cash of $133.9 million in 2010 and provided net cash ~~flows~~ of ~~$341.3~~$349.9 million in ~~2008 and $1.05 billion in 2007.~~2009. Theyear-over-year change in net operating cash ~~flow~~flows was ~~primarily~~largely due to an increase in inventories in 2010, reflecting land acquisition activity undertaken as part of our strategy to restore our homebuilding operations to profitability, as discussed above under “Part I — Item 1. Business — Strategy.” In contrast, in 2009, we strategically reduced our inventories and limited land purchase activity to align our operations with the ~~$297.4 million~~prevailing market conditions during that period and to support our balance sheet goals. As noted above under “Overview,” we may use a portion of our unrestricted cash ~~provided by the French discontinued operations~~ in ~~2007~~2011 to acquire additional land assets and ~~feweryear-over-year~~ ~~homes delivered and lower average selling prices in 2008.~~ increase our active community count, depending on market conditions.

Our ~~sources~~uses of operating cash in 2010 included a net increase in inventories of $129.3 million (excluding inventory impairments and land option contract abandonments, $55.2 million of inventories acquired through seller financing and a decrease of $41.6 million in consolidated inventories not owned) in conjunction with our land asset acquisition activities, a decrease in accounts payable, accrued expenses and other liabilities of $199.2 million, a net loss of $69.4 million, and other operating uses of $1.7 million. Partially offsetting the cash used was a decrease in receivables of $211.3 million, mainly due to a $190.7 million federal income tax refund we received during the first quarter of 2010 as a result of the carryback of our 2009 NOLs to offset earnings we generated in 2004 and 2005.

In 2009, operating cash was provided by a net decrease in inventories of $433.1 million (excluding inventory impairments and land option contract abandonments, $16.2 million of inventories acquired through seller financing, a decrease of $45.3 million in consolidated inventories not owned, and an increase of $97.6 million in inventories in connection with the consolidation of certain previously unconsolidated joint ventures), other operating sources of $8.3 million and various noncash items added to the net loss for the year. The cash provided in 2009 was partly offset by a decrease in accounts payable, accrued expenses and other liabilities of $252.6 million and a net loss of $101.8 million.

In 2008, ~~included~~operating cash was provided by a net decrease in inventories of $545.9 million (excluding inventory impairments and land option contract abandonments, $90.0 million of inventories acquired through seller financing and a decrease of $143.1 million in consolidated inventories not owned), other operating sources of $32.6 million and various noncash items added to the net ~~loss.~~loss for the year. Partially offsetting the cash provided in 2008 was a net loss of $976.1 million, a decrease in accounts payable, accrued expenses and other liabilities of $282.8 million and an increase in receivables of $60.6 million.

In 2007, operating cash provided by our continuing operations included a net decrease in inventories of $779.9 million (excluding inventory impairments and land option contract abandonments, $4.1 million of inventories acquired through seller financing and a decrease of $409.5 million in consolidated inventories not owned), other operating sources of $13.4 million and various noncash items added to the loss from continuing operations. Partially offsetting the cash provided in 2007 was a net loss of $929.4 million, a decrease in accounts payable, accrued expenses and other liabilities of $340.6 million and an increase in receivables of $71.4 million. Our French discontinued operations provided net cash from operating activities of $297.4 million in 2007.

In 2006, sources of operating cash from our continuing operations included earnings of $482.4 million, an increase in accounts payable, accrued expenses and other liabilities of $205.7 million, other operating sources of $7.2 million and various noncash items deducted from net income. Our sources of operating cash in 2006 were partially offset by an increase in inventories of $356.3 million (excluding inventory impairments and land option contract abandonments, $128.7 million of inventories acquired through seller financing and a decrease of $18.1 million in consolidated inventories not owned) and an increase in receivables of $23.5 million. Our French discontinued operations provided net cash from operating activities of $229.5 million in 2006.

Investing Activities. Investing activities used net cash of ~~$167.9~~$16.1 million in ~~2008~~2010, $21.3 million in 2009 and ~~provided net~~$52.5 million in 2008. In 2010, cash of ~~$643.1 million in 2007. In 2008, $115.4 million of cash was used to establish the Interest Reserve Account as required under the terms of our Credit Facility (making it restricted cash), and $59.6~~$15.7 million was used for investments in unconsolidated joint ~~ventures.~~ventures and $.4 million was used for net purchases of property and equipment. The year-over-year decreases in cash used for investing activities in 2010 and 2009 were primarily due to a reduction in our investments and participation in unconsolidated joint ventures each year. In 2009, $19.9 million of cash was used for investments in unconsolidated joint ventures and $1.4 million of cash was used for net purchases of property and equipment. In 2008, $59.6 million of cash used for investments in unconsolidated joint ventures was partially offset by $7.1 million provided from net sales of property and equipment. In 2007, continuing operations provided cash of $739.8 million from the sale of our French discontinued operations, net of cash divested, and $.6 million was provided from net sales of property and equipment. Partially offsetting the cash provided in the period was $85.2 million used for investments in unconsolidated joint ventures. Our French discontinued operations used net cash of $12.1 million for investing activities in 2007.

In 2006, our continuing operations used cash for investing activities, including $179.2 million for investments in unconsolidated joint ventures and $17.6 million for net purchases of property and equipment. The cash used was partially offset by proceeds of $57.8 million from the sale of our investment in an unconsolidated joint venture and $.7 million from other investing activities. In 2006, our French discontinued operations used net cash of $4.5 million for investing activities.

Financing Activities. Net cash used for financing activities totaled ~~$375.6~~$119.5 million in 2010, $292.2 million in 2009 and $491.0 million in 2008. We used a larger amount of cash for financing activities in 2009 than in 2010 primarily due to our repayment of $200.0 million in aggregate principal amount of 85/8% senior subordinated notes upon their scheduled maturity in December 2008. In 2009, our uses of financing cash decreased from the prior year due to cash required to establish an interest reserve account in connection with the Credit Facility in 2008 (which was restricted cash) and ~~$1.15 billion~~the higher amount of dividends paid on our common stock in ~~2007.~~ 2008.

In 2010, cash was used for net payments on mortgages and land contracts due to land sellers and other loans of $101.2 million, dividend payments on our common stock of $19.2 million, an increase in the restricted cash balance of $1.2 million, and repurchases of common stock of $.4 million in connection with the satisfaction of employee withholding taxes on vested restricted stock. The cash used was partially offset by $1.9 million provided from the issuance of common stock under employee stock plans and $.6 million from excess tax benefits associated with the exercise of stock options.

As with the dividends on our common stock paid in 2009, our board of directors declared four quarterly cash dividends of $.0625 per share of common stock during 2010. The last of these was paid on November 18, 2010 to

shareholders of record on November 4, 2010. The declaration and payment of future cash dividends on our common stock are at the discretion of our board of directors, and depend upon, among other things, our expected future earnings, cash flows, capital requirements, debt structure and any adjustments thereto, operational and financial investment strategy and general financial condition, as well as general business conditions.

In 2009, cash was used for the repayment of $250.0 million in aggregate principal amount of the $350 Million Senior Notes and the $200.0 million in aggregate principal amount of 85/8% senior subordinated notes due December 15, 2008 upon their maturity, payments of $79.0 million on mortgages and land contracts due to land sellers and other loans, dividend payments on our common stock of $19.1 million, payment of senior notes issuance costs of $4.3 million, and repurchases of common stock of $.6 million in connection with the satisfaction of employee withholding taxes on vested restricted stock. These uses of cash were partly offset by $259.7 million of cash provided from the issuance of the $265 Million Senior Notes, $3.1 million of cash provided from the issuance of common stock under employee stock plans and $1.1 million of cash provided from a reduction in the balance of cash deposited in an interest reserve account we established in connection with the Credit Facility (which was restricted cash).

In 2008, cash was used for the early redemption of the $300 Million Senior Subordinated Notes, to establish an interest reserve account with a balance of $115.4 million in connection with the Credit Facility (which was restricted cash), dividend payments on our common stock of $63.0 million, net payments on ~~short-term borrowings~~mortgages and land contracts due to land sellers and other loans of $12.8 million and repurchases of common stock of $1.0 million in connection with the satisfaction of employee withholding taxes on vested restricted stock. These uses of cash ~~in 2008~~ were partly offset by $7.0 million provided from the issuance of common stock under our employee stock plans.

In 2007, our continuing operations used cash for the redemption of the $400 Million Term Loan, which was scheduled to mature on April 11, 2011, the redemption of the $250 Million Senior Subordinated Notes, net payments on short-term borrowings of $114.1 million, dividend payments of $77.2 million, and repurchases of common stock of $6.9 million in connection with the satisfaction of employee withholding taxes on vested restricted stock. These uses of cash were partly offset in 2007 by $12.3 million provided from the issuance of common stock under our employee stock plans and $.9 million of excess tax benefit associated with the exercise of stock options. Our French discontinued operations used net cash of $306.5 million for financing activities in 2007.

~~In 2006, sources of cash from our continuing operations included proceeds from the $400 Million Term Loan, $298.5 million in total proceeds from the issuance of $300.0 million of 7~~1/4~~% senior notes due 2018 (the “$300 Million 7~~1/4% Senior Notes”), $65.1 million from the issuance of common stock under employee stock plans and $15.4 million of excess tax benefits associated with the exercise of stock options. Partially offsetting the sources of cash were $394.1 million used for repurchases of common stock, net payments on short-term borrowings of $120.7 million and dividend payments of $78.3 million. In 2006, our French discontinued operations used net cash of $215.0 million for financing activities.

Shelf Registration Statement. On October 17, 2008, we filed an automatically effective universal shelf registration statement (the “2008 Shelf Registration”) with the SEC, registering debt and equity securities that we may issue from time to time in amounts to be determined. Our previously ~~outstanding universal~~effective shelf registration filed with the SEC on November 12, 2004 (the “2004 Shelf Registration”) was subsumed within the 2008 Shelf Registration. ~~As of~~On July 30, 2009, we issued the ~~date of thisForm 10-K,~~ we$265 Million Senior Notes under the 2008 Shelf Registration. We have not issued any other securities under ~~our~~the 2008 Shelf Registration.

Share Repurchase Program. At November 30, ~~2008,~~2010, we were authorized to repurchase four million shares of our common stock under a board-approved share repurchase program. We did not repurchase any shares of our common stock under this program in ~~2008.~~2010. We have not repurchased common shares pursuant to a common stock repurchase plan for the past several years and any resumption of such stock repurchases will be at the discretion of our board of directors.

In the present environment, we are ~~carefully~~ managing our use of cash ~~including internal capital investments,~~for investments to maintain and grow our ~~business and additional debt reductions.~~business. Based on our current capital position, we believe we have adequate resources and sufficient ~~credit facilities~~access to external financing sources to satisfy our current and reasonably anticipated future requirements for funds to acquire capital assets and land, consistent with our investment, marketing ~~strategies~~ and ~~investment~~operational standards, to construct homes, to finance our financial services operations, and to meet any other needs in the ordinary course of our business, both on a short- and long-term basis. Although ~~we anticipate that~~ our land asset acquisition and development activities will remain ~~limited~~subject to market conditions in ~~the near term until markets stabilize,~~2011, we are analyzing potential ~~asset~~ acquisitions and will use our present financial ~~strength~~position and cash resources to ~~acquire~~purchase assets in ~~good,~~desirable, long-term markets when the prices, timing and strategic fit ~~are compelling.~~meet our investment and marketing standards. We may also use or redeploy our cash or engage in other financial transactions in 2011 to modify our overall debt structure to, among other things, reduce our financial leverage and interest costs.

OFF-BALANCE SHEET ARRANGEMENTS

We ~~participate~~have investments in unconsolidated joint ventures that conduct land acquisition, developmentand/or other homebuilding activities in various markets ~~typically~~ where our homebuilding operations are located. Our partners in these unconsolidated joint ventures are unrelated homebuilders, and/or land developers and other real estate entities, or commercial enterprises. ~~Through~~We entered into these unconsolidated joint ventures ~~we seek~~in previous years to reduce ~~and~~or share market and development risks and ~~to reduce our investment in land inventory, while potentially increasing~~increase the number of ~~homesites we own or control.~~our owned and controlled homesites. In some instances, participating in unconsolidated joint ventures ~~enables~~has enabled us to acquire and develop land that we might not otherwise have had access to due to a project’s size, financing needs, duration of development or other circumstances. While we ~~view~~have viewed our participation in unconsolidated joint ventures as beneficial to our homebuilding activities, we do not view such

participation as ~~essential.~~essential and have unwound our participation in a number of unconsolidated joint ventures in the past few years.

Weand/or our unconsolidated joint venture partners typically ~~obtain~~have obtained options or ~~enter~~entered into other arrangements to have the right to purchase portions of the land held by certain of the unconsolidated joint ventures. ~~The prices for these land options are generally negotiated prices that approximate fair value.~~ When an unconsolidated joint venture sells land to our homebuilding operations, we defer recognition of our share of such unconsolidated joint venture earnings until a home sale is closed and title passes to a homebuyer, at which time we account for those earnings as a reduction of the cost of purchasing the land from the unconsolidated joint venture.

We and our unconsolidated joint venture partners make initial and/or ongoing capital contributions to these unconsolidated joint ventures, typically on a pro rata basis. The ~~obligation~~obligations to make capital contributions isare governed by each unconsolidated joint venture’s respective operating ~~agreement.~~

~~Each unconsolidated joint venture maintains financial statements~~agreement and related documents. We also share in ~~accordance with U.S. generally accepted accounting principles. We share in~~the profits and losses of these unconsolidated joint ventures generally in accordance with our respective equity interests. These unconsolidated joint ventures had total assets of $789.4 million at November 30, 2010 and $921.5 million at November 30, 2009. Our investment in these unconsolidated joint ventures totaled ~~$177.6~~$105.6 million at November 30, ~~2008~~2010 and ~~$297.0~~$119.7 million at November 30, 2007. These unconsolidated joint ventures had total assets of $1.26 billion at November 30, 2008 and $2.51 billion at November 30, 2007. We expect our investments in unconsolidated joint ventures to continue to decrease over time and are reviewing each investment to ensure it fits into our current overall strategic plans and business objectives.2009.

The unconsolidated joint ventures ~~finance~~have financed land and inventory investments through a variety of arrangements. To finance their respective land acquisition and development activities, ~~many~~certain of our unconsolidated joint ventures have obtained loans from third-party lenders that are secured by the underlying property and related project assets. ~~Unconsolidated~~Our unconsolidated joint ventures had outstanding debt, substantially all of which was secured, of approximately ~~$871.3~~$327.9 million at November 30, ~~2008~~2010 and ~~$1.54 billion~~$469.1 million at November 30, ~~2007. The unconsolidated joint ventures are subject to various financial and non-financial covenants in conjunction with their~~2009. South Edge accounted for all or most of those outstanding debt primarily related to equity maintenance, fair value of collateral and minimum land purchase or sale requirements within a specified period. In a few instances, the financial covenants are based on our financial position.amounts.

In certain instances, weand/or our partner(s) in an unconsolidated joint venture ~~provide guarantees and indemnities to the unconsolidated joint venture’s lenders that may include one or more of the following: (a) a~~have provided completion ~~guaranty; (b) a loan-to-value maintenance guaranty;~~and/or ~~(c) a~~ carve-out ~~guaranty.~~guaranties. A completion guaranty refers to the physical completion of improvements for a projectand/or the obligation to contribute equity to an unconsolidated joint venture to enable it to fund its completion obligations. ~~A loan-to-value maintenance guaranty refers to~~Our potential responsibility under our completion guarantees, if triggered, is highly dependent on the ~~payment~~facts of ~~funds to maintain the applicable loan balance at or below~~ a ~~specific percentage of the value of an unconsolidated joint venture’s secured collateral (generally land and improvements).~~particular case. A carve-out guaranty generally refers to the payment of (i) losses a lender suffers due to certain bad acts or omissions by an unconsolidated joint venture or its partners, such as fraud or misappropriation, or due to environmental liabilities arising with respect to the relevant project, or (ii) outstanding principal and interest and certain other amounts owed to lenders upon the filing by an unconsolidated joint venture of a voluntary bankruptcy petition or, in certain circumstances, the filing of an involuntary bankruptcy ~~petition by creditors of the unconsolidated joint venture in which an unconsolidated joint venture or its partners collude or which the unconsolidated joint venture fails to contest.~~petition.

In ~~most cases, our maximum potential responsibility under these guarantees and indemnities is limited~~addition to ~~either a specified maximum dollar amount or an amount equal to our pro rata interest in~~ the ~~relevant unconsolidated joint venture. In a few cases, we have entered into agreements with our unconsolidated joint venture partners to be reimbursed or indemnified with respect to the~~above-described guarantees, we have also provided a Springing Repayment Guaranty to ~~an unconsolidated joint venture’s~~the lenders ~~for any amounts we may pay pursuant~~ to ~~such guarantees above our pro rata interest~~South Edge. The Springing Repayment Guaranty and certain legal proceedings regarding South Edge are discussed further below in Note 15. Legal Matters in the ~~unconsolidated joint venture. If~~Notes to Consolidated Financial Statements in this report. The lenders to one of our unconsolidated joint venture partners are unable to fulfill their reimbursement or indemnity obligations, or otherwise fail to do so, we could incur more than our allocable share under the relevant guaranty. Should there be indications that advances (if made) will not be voluntarily repaid by an unconsolidated joint venture partner under any such reimbursement arrangements, we vigorously pursue all rights and remedies available to us under the applicable agreements, at law or in equity to enforce our reimbursement rights.

Our potential responsibility under our completion guarantees, if triggered, is highly dependent on the facts of a particular case. In any event, we believe our actual responsibility under these guarantees is limited to the amount, if any, by which an unconsolidated joint venture’s outstanding borrowings exceed the value of its assets, but may be substantially less than this amount.

At November 30, 2008, our potential responsibility under our loan-to-value maintenance guarantees totaled approximately $45.4 million, if any liability were determined to be due thereunder. This amount represents our maximum responsibility under such loan-to-value maintenance guarantees assuming the underlying collateral has no value and without regard to defenses that could be available to us against attempted enforcement of such guarantees.

Notwithstanding these potential responsibilities, at this time we do not believe that our exposure under our existing completion, loan-to-value and carve-out guarantees and indemnities related to unconsolidated joint venture debt is material to our consolidated financial position or results of operations.

~~Recently, the lenders for two of our~~other unconsolidated joint ventures have filed ~~lawsuits~~a lawsuit against some of the unconsolidated joint ~~ventures’~~venture’s members and certain of those members’ parent companies seeking to recover damages under completion guarantees, among other ~~claims.~~claims(Wachovia Bank, N.A. v. Focus Kyle Group LLC, et al. U.S. District Court, Southern District of New York (CaseNo. 08-cv-8681 (LTS)(GWG))). We and the other parent companies, together with the members, are defending the ~~lawsuits~~lawsuit.

In June 2009, the Financial Accounting Standards Board (“FASB”) revised the authoritative guidance for determining the primary beneficiary of a variable interest entity (“VIE”). In December 2009, the FASB issued Accounting Standards UpdateNo. 2009-17, “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities” (“ASU2009-17”), which provided amendments to Accounting Standards Codification No. 810, “Consolidation” (“ASC 810”) to reflect the revised guidance. The amendments to ASC 810 replaced the quantitative-based risk and rewards calculation for determining which reporting entity, if any, has a controlling interest in a VIE with an approach focused on identifying which ~~they have been named.~~reporting entity has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (i) the obligation to absorb losses of the VIE or (ii) the right to receive benefits from the VIE. The amendments also require additional disclosures about a reporting entity’s involvement with VIEs. We doadopted the amended provisions of ASC 810 effective December 1, 2009. The adoption of the amended provisions of ASC 810 did not ~~believe that these lawsuits will~~ have a material ~~impact~~effect on our consolidated financial position or results of operations.

~~In addition~~Our investments in joint ventures may create a variable interest in a VIE, depending on the contractual terms of the arrangement. We analyze our joint ventures in accordance with ASC 810 to determine whether they are VIEs and, if so,

whether we are the ~~above-described guarantees and indemnities, we have also provided a several guaranty to the lenders of one~~primary beneficiary. All of our ~~unconsolidated~~ joint ventures. By its terms, the guaranty purports to guarantee the repayment of principal and interest and certain other amounts owed to the unconsolidated joint venture’s lenders when an involuntary bankruptcy proceeding is filed against the unconsolidated joint venture that is not dismissed within 60 days or for which an order approving relief under bankruptcy law is entered, even if the unconsolidated joint venture or its partners do not collude in the filing and the unconsolidated joint venture contests the filing. Our potential responsibility under this several guaranty fluctuates with the outstanding borrowings against the unconsolidated joint venture’s debt and with us and our partners’ respective land purchases from the unconsolidated joint venture. Atventures at November 30, ~~2008, this unconsolidated joint venture had total outstanding indebtedness of approximately $373.9 million~~2010 and ~~if this guaranty~~November 30, 2009 were ~~then enforced, our maximum potential responsibility~~determined under the ~~guaranty would have been approximately $182.7 million, which amount does not account for any offsets or defenses that could~~provisions of ASC 810 applicable at each such date to be available to us. This unconsolidated joint venture has received notices from its lenders’ administrative agent alleging a number of defaults under its loan agreement. We are currently exploring resolutions with the lenders, the lenders’ administrative agent and our unconsolidated joint venture partners, but there is no assurance that we will reach a satisfactory resolution with all of the parties involved.

~~Certain of our other~~ unconsolidated joint ventures, ~~operating in difficult market conditions are in default of their debt agreements with their lenders~~either because they were not VIEs or, are at risk of defaulting. In addition, certain of our unconsolidated joint venture partners have curtailed funding of their allocable joint venture obligations. We are carefully managing our investments in these particular unconsolidated joint ventures and are working withif they were VIEs, we were not the relevant lenders and unconsolidated joint venture partners to reach satisfactory resolutions. In some instances, we may decide to opportunistically purchase our partners’ interests and would consolidate the joint venture, which would result in an increase in our consolidated mortgages and notes payable. However, such purchases may not resolve a claimed default by the joint venture under its debt agreements. Additionally, we may seek new equity partners to participate in our unconsolidated joint ventures or, based on market conditions and other strategic considerations, may decide to withdraw from an unconsolidated joint venture and allow the unconsolidated joint venture’s lenders to exercise their remedies with respect to the underlying collateral (subject to any relevant defenses available to us). Based on the terms and amountsprimary beneficiary of the debt involved for these particular unconsolidated joint ventures and the terms of the applicable joint venture operating agreements, we do not believe that our exposure related to any defaults by or with respect to these particular unconsolidated joint ventures is material to our consolidated financial position or results of operations.VIEs.

In the ordinary course of our business, we enter into land option contracts, or similar contracts, to procure land for the construction of homes. The use of such land option and other similar contracts generally allows us to reduce the market risks associated with direct land ownership and development, reduces our capital and financial commitments, including interest and other carrying costs, and minimizes the amount of our land inventories on our consolidated balance ~~sheet.~~sheets. Under such ~~land option~~ contracts, we will pay a specified option deposit or earnest money deposit in consideration for the right to purchase land in the future, usually at a predetermined price. Under the requirements of ~~FASB Interpretation No. 46(R), “Consolidation of Variable Interest Entities” (“FASB Interpretation No. 46(R)”),~~ASC 810, certain of ~~our land option~~these contracts may create a variable interest for us, with the land seller being identified as a ~~variable interest entity (“VIE”).~~VIE.

In compliance with ~~FASB Interpretation No. 46(R),~~ASC 810, we analyze our land option ~~contracts~~ and other ~~contractual arrangements when they~~similar contracts to determine whether the corresponding land sellers are ~~entered into or upon a reconsideration event,~~VIEs and, ~~as a result have consolidated the fair value of certain VIEs from which~~if so, whether we are ~~purchasing land under option contracts.~~the primary beneficiary. Although we do not have legal title to the optioned land, ~~FASB Interpretation No. 46(R)~~ASC 810 requires us to consolidate ~~the~~a VIE if we are determined to be the primary beneficiary. As a result of our analyses, we determined that as of November 30, 2010 we were not the primary beneficiary of any VIEs from which we are purchasing land under land option and other similar contracts. Since adopting the amended provisions of ASC 810, in determining whether we are the primary beneficiary, we consider, among other things, whether we have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. Such activities would include, among other things, determining or limiting the scope or purpose of the VIE, selling or transferring property owned or controlled by the VIE, or arranging financing for the VIE. We also consider whether we have the obligation to absorb losses of the VIE or the right to receive benefits from the VIE.

Based on our analyses as of November 30, 2009, which were performed before we adopted the amended provisions of ASC 810, we determined that we were the primary beneficiary of certain VIEs from which we were purchasing land under land option or other similar contracts and, therefore, consolidated such VIEs. Prior to our adoption of the amended provisions of ASC 810, in determining whether we were the primary beneficiary, we considered, among other things, the size of our deposit relative to the contract price, the risk of obtaining land entitlement approval, the risk associated with land development required under the land option or other similar contract, and the risk of changes in the market value of the optioned land during the contract period. The consolidation of VIEs in which we ~~were~~ determined ~~to be~~we were the primary beneficiary increased ~~our~~

inventories, with a corresponding increase to accrued expenses and other liabilities, on our consolidated balance ~~sheets~~sheet by ~~$15.5~~$21.0 million at November 30, ~~2008 and $19.0 million at November 30, 2007.~~2009. The liabilities related to our consolidation of VIEs from which we ~~are purchasing~~have arranged to purchase land under option and other similar contracts represent the difference between the purchase price of ~~optioned~~ land not yet purchased and our cash deposits. Our cash deposits related to these land option and other similar contracts totaled ~~$3.4~~$4.1 million at November 30, ~~2008 and $4.7 million at November 30, 2007.~~2009. Creditors, if any, of these VIEs have no recourse against us.

As of November 30, ~~2008, excluding consolidated VIEs,~~2010, we had cash deposits totaling ~~$29.7~~$2.6 million ~~which were~~ associated with land option and other similar contracts that we determined to be unconsolidated VIEs, having an aggregate purchase price of ~~$533.2~~$86.1 million, and had cash deposits totaling $12.2 million associated with land option and other similar contracts that we determined were not VIEs, having an aggregate purchase price of $274.3 million.

We also evaluate our land option and similar contracts for financing arrangements in accordance with ~~Statement of Financial~~ Accounting Standards Codification Topic No. ~~49, “Accounting for Product Financing Arrangements”~~470, “Debt” (“~~SFAS No. 49”~~ASC 470”), and, as a result of our evaluations, increased inventories, with a corresponding increase to accrued expenses and other liabilities, on our consolidated balance sheets by ~~$81.5~~$15.5 million at November 30, ~~2008~~2010 and ~~$221.1~~$36.1 million at November 30, ~~2007.~~2009.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

The following table ~~summarizes~~presents our future cash requirements under contractual obligations as of November 30, ~~2008~~2010 (in ~~thousands)~~millions):


	Payments due by Period										Payments due by Period
	Total		2009		2010-2011		2012-2013		Thereafter		Total		2011		2012-2013		2014-2015		Thereafter

Contractual obligations:
Long-term debt	$	1,941,537	$	279,522	$	365,754	$	—	$	1,296,261	$	1,775.5	$	204.3	$	13.7	$	998.3	$	559.2
Interest		643,579		112,813		201,867		163,750		165,149		578.3		110.5		212.0		157.3		98.5
Operating lease obligations		61,743		18,957		26,317		11,712		4,757		31.7		9.4		15.3		7.0		—

Total(a)	$	2,646,859	$	411,292	$	593,938	$	175,462	$	1,466,167	$	2,385.5	$	324.2	$	241.0	$	1,162.6	$	657.7


(a)		Total contractual obligations exclude our accrual for uncertain tax positions recorded for financial reporting purposes as of November 30, 2010 because we are unable to make a reasonable estimate of cash settlements with the respective taxing authorities for all periods presented. We anticipate potential cash settlement requirements for 2011 to range from $2.0 million to $3.0 million.

We are often required to obtain performance bonds and letters of credit in support of our obligations to various municipalities and other government agencies in connection with ~~subdivision~~community improvements such as roads, sewers and ~~water.~~water, and to support similar development activities by certain of our unconsolidated joint ventures. At November 30, ~~2008,~~2010, we had ~~$761.1~~$414.3 million of performance bonds and ~~$211.8~~$87.5 million of letters of credit outstanding. At November 30, ~~2007,~~2009, we had ~~$1.08 billion~~$539.7 million of performance bonds and ~~$296.8~~$175.0 million of letters of credit outstanding. ~~In the event~~If any such performance bonds or letters of credit are called, we would be obligated to reimburse the issuer of the performance bond or letter of credit. ~~At this time, we~~We do not believe that a material amount of any currently outstanding performance bonds or letters of credit will be called. Performance bonds do not have stated expiration dates. Rather, we are released from the performance bonds as the ~~contractual~~underlying performance is completed. The expiration dates of some letters of credit issued in connection with ~~subdivision~~community improvements coincide with the expected completion dates of the related ~~projects. If the obligations related to a project are ongoing, annual extensions of the~~projects or obligations. Most letters of credit, however, are issued with an initial term of one year and are typically ~~granted~~extended on a year-to-year ~~basis.~~basis until the related performance obligation is completed.

CRITICAL ACCOUNTING POLICIES

Discussed below are accounting policies that we believe are critical because of the significance of the activity to which they relate or because they require the use of significant judgment in their application.

Homebuilding Revenue Recognition. As discussed in Note 1. Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements in this~~Form 10-K,~~ report, revenues from housing and other real estate sales are recognized in accordance with ~~Statement of Financial Accounting Standards No. 66, “Accounting for Sales of Real Estate” (“SFAS No. 66”),~~ASC 360 when sales are closed and title passes to the buyer. Sales are closed when all of the following conditions are met: a sale is consummated, a ~~significant~~sufficient down payment is received, the earnings process is complete and the collection of any remaining receivables is reasonably assured.

Inventories and Cost of Sales. As discussed in Note 1. Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements in this~~Form 10-K,~~ report, housing and land ~~and housing~~ inventories are stated at cost, unless the carrying amount is determined not to be recoverable, in which case the inventories are written down to fair value in accordance with ~~SFAS No. 144.~~ASC 360. Fair value is determined based on estimated future cash flows discounted for inherent risks associated with the real estate assets, or other valuation techniques. Due to uncertainties in the estimation process, it is possible that actual

results could differ from those ~~estimates.~~estimated. Our inventories typically do not consist of completed projects. However, order cancellations or strategic considerations may result in our having a relatively small amount of inventory of constructed or partially constructed unsold homes. In 2010, we had slightly more standing inventory than we have had historically, as discussed above under “Part I — Item 1. Business — Community Development and Land Inventory Management.”

We rely on certain estimates to determine our construction and land costs and resulting gross margins associated with revenues recognized. Construction and land costs are comprised of direct and allocated costs, including estimated future costs for warranties and amenities. Land, land improvements and other common costs are generally allocated on a

relative fair value basis to homes within a parcel or community. Land and land development costs include related interest and real estate taxes.

In determining a portion of the construction and land costs for each period, we rely on project budgets that are based on a variety of assumptions, including future construction schedules and costs to be incurred. It is possible that actual results could differ from budgeted amounts for various reasons, including construction delays, labor or materials shortages, increases in costs that have not yet been committed, changes in governmental requirements, unforeseen environmental hazard discoveries or other unanticipated issues encountered during construction. While the actual results for a particular construction project are accurately reported over time, variances between the budgeted and actual costs of a project could result in the understatement or overstatement of construction and land costs and homebuilding gross margins in a specific reporting period. To reduce the potential for such distortion, we have set forth procedures that collectively comprise a “critical accounting policy.” These procedures, which we have applied on a consistent basis, include updating, assessing and revising project budgets on a monthly basis, obtaining commitments from subcontractors and vendors for future costs to be incurred, reviewing the adequacy of warranty accruals and historical warranty claims experience, and utilizing the most current information available to estimate construction and land costs to be charged to expense. The variances between budgeted and actual costs have historically not had a material impact on our consolidated results of operations. We believe that our policies provide for reasonably dependable estimates to be used in the calculation and reporting of construction and land costs.

Inventory Impairments and Land Option Contract Abandonments. As discussed in Note 6. Inventory Impairments and Land Option Contract Abandonments in the Notes to Consolidated Financial Statements in this~~Form 10-K,~~ report, each land parcel or community in our owned inventory is assessed to determine if indicators of potential impairment exist. ~~If indicators of potential impairment exist for a parcel or community, the identified inventory is evaluated for recoverability in accordance with SFAS No. 144.~~ Impairment indicators are assessed separately for each land parcel or community on a quarterly basis and include, but are not limited to: significant decreases in sales rates, average selling prices, volume of homes delivered, gross margins on homes delivered or ~~gross margins;~~projected margins on homes in backlog or future housing sales; significant increases in budgeted land development and construction costs or cancellation rates; or projected losses on expected future ~~housing~~land sales. If indicators of potential impairment exist for a land parcel or ~~land sales.~~community, the identified inventory is evaluated for recoverability in accordance with ASC 360. When an indicator of potential impairment is identified, we test the asset for recoverability by comparing the carrying amount of the asset to the undiscounted future net cash flows expected to be generated by the asset. The undiscounted future net cash flows are impacted by trends and factors known to us at the time they are calculated and our expectations related to: market supply and demand, including estimates concerning average selling prices; ~~sales incentives;~~ sales and cancellation rates; and anticipated land development, construction and overhead costs to be incurred. These estimates, trends and expectations are specific to each land parcel or community and may vary among land parcels or communities.

A real estate asset is considered impaired when its carrying amount is greater than the undiscounted future net cash flows the asset is expected to generate. Impaired real estate assets are written down to fair value, which is primarily based on the estimated future cash flows discounted for inherent risk associated with each asset. The discount rates used in our estimated discounted cash flows ranged from 17% to 20% during 2010 and from 10% to 22% during 2009 and 2008. These discounted cash flows are impacted by: the risk-free rate of return; expected risk premium based on estimated land development, construction and delivery timelines; market risk from potential future price erosion; cost uncertainty due to development or construction cost increases; and other risks specific to the asset or conditions in the market in which the asset is located at the time the assessment is made. These factors are specific to each land parcel or community and may vary among land parcels or communities.

Based on the results of our evaluations, we recognized pretax, noncash inventory impairment charges of $9.8 million in 2010 corresponding to eight communities or land parcels with a post-impairment fair value of $11.6 million. In 2009, we recognized pretax, noncash inventory impairment charges of $120.8 million corresponding to 61 communities or land parcels with a post-impairment fair value of $129.0 million.

As of November 30, 2010, the aggregate carrying value of inventory that had been impacted by pretax, noncash inventory impairment charges was $418.5 million, representing 72 communities and various other land parcels. As of November 30, 2009, the aggregate carrying value of inventory that had been impacted by pretax, noncash inventory impairment charges was $603.9 million, representing 128 communities and various other land parcels.

Our optioned inventory is assessed to determine whether it continues to meet our ~~internal~~ investment and marketing standards. Assessments are made separately for each optioned parcel on a quarterly basis and are affected by, among other factors: currentand/or anticipated sales rates, average selling prices and home delivery ~~volume and gross margins;~~volume; estimated land

development and construction costs; and projected profitability on expected future housing or land sales. When a decision is made not to exercise certain land option contracts due to market conditionsand/or changes in ~~market~~marketing strategy, we write off the costs, including non-refundable deposits and pre-acquisition costs, related to the abandoned projects. Based on the results of our assessments, we recognized land option contract abandonment charges of $10.1 million in 2010 corresponding to 1,007 lots. In 2009, we recognized land option contract abandonment charges of $47.3 million corresponding to 1,362 lots.

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, such inventory. We have analyzed trends and

other information related to each of the markets where we do business and have incorporated this information as well as our current outlook into the assumptions we use in our impairment analyses. Due to the judgment and assumptions applied in the estimation process with respect to impairments and land option contract abandonments, it is possible that actual results could differ substantially from those estimated.

We believe the carrying value of our remaining inventory is ~~currently~~ recoverable. In addition to the factors and trends incorporated in our impairment analyses, we consider, as applicable, the specific regulatory environment, competition from other homebuilders, the impact of the resale and foreclosure markets, and the local economic conditions where an asset is located in assessing the recoverability of each asset remaining in our inventory. However, if conditions in the overall housing market or in specific markets worsen in the future beyond our current expectations, or if future changes in our marketing strategy significantly affect any key assumptions used in our fair value calculations, or if there are material changes in the other items we consider in assessing recoverability, we may need to take additional charges in future periods for inventory impairments or land option contract abandonments, or both, related to existing assets. Any such noncash charges would have an adverse effect on our consolidated financial position and results of operations and may be material.

Fair Value Measurements. As discussed in Note 7. Fair Value Disclosures in the Notes to Consolidated Financial Statements in this report, Accounting Standards Codification Topic No. 820, “Fair Value Measurements and Disclosures,” (“ASC 820”) defines fair value, provides a framework for measuring the fair value of assets and liabilities under GAAP and establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy can be summarized as follows:


	Level 1	Fair value determined based on quoted prices in active markets for identical assets or liabilities.

	Level 2	Fair value determined using significant observable inputs, such as quoted prices for similar assets or liabilities or quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, or inputs that are derived principally from or corroborated by observable market data, by correlation or other means.

	Level 3	Fair value determined using significant unobservable inputs, such as pricing models, discounted cash flows, or similar techniques.

Fair value measurements are used for inventories on a nonrecurring basis when events and circumstances indicate the carrying value may not be recoverable. Fair value is determined based on estimated future cash flows discounted for inherent risks associated with real estate assets, or other valuation techniques. Due to uncertainties in the estimation process, it is possible that actual results could differ from those estimates.

Our financial instruments consist of cash and cash equivalents, restricted cash, mortgages and notes receivable, senior notes, and mortgages and land contracts due to land sellers and other loans. Fair value measurements of financial instruments are determined by various market data and other valuation techniques as appropriate. When available, we use quoted market prices in active markets to determine fair value.

Warranty Costs. As discussed in Note ~~12.~~14. Commitments and Contingencies in the Notes to Consolidated Financial Statements in this~~Form 10-K,~~ report, we provide a limited warranty on all of our homes. The specific terms and conditions of warranties vary depending upon the market in which we do business. We generally provide a structural warranty of 10 years, a warranty on electrical, heating, cooling, plumbing and other building systems each varying from two to five years based on geographic market and state law, and a warranty of one year for other components of the home. We

estimate the costs that may be incurred under each limited warranty and record a liability in the amount of such costs at the time the revenue associated with the sale of each home is recognized. Our expense associated with the issuance of these warranties totaled $5.2 million in 2010, $6.8 million in 2009 and $17.2 million in 2008.

Factors that affect our warranty liability include the number of homes delivered, historical and anticipated rates of warranty claims, and cost per claim. Our primary assumption in estimating the amounts we accrue for warranty costs is that historical claims experience is a strong indicator of future claims experience. We periodically assess the adequacy of our recorded warranty liabilities, which are included in accrued expenses and other liabilities in the consolidated balance sheets, and adjust the amounts as necessary based on our assessment. While we believe the warranty accrual reflected in the consolidated balance sheets to be adequate, unanticipated changes in the legal environment, local weather, land or environmental conditions, quality of materials or methods used in the construction of homes, or customer service practices could have a significant impact on our actual warranty costs in the future and such amounts could differ from our current estimates. A 10% change in the historical warranty rates used to estimate our warranty accrual would not result in a material change in our accrual.

Insurance. As discussed in Note 14. Commitments and Contingencies in the Notes to Consolidated Financial Statements in this report, we have, and require the majority of our subcontractors to maintain, general liability insurance (including construction defect and bodily injury coverage) and workers’ compensation insurance. These insurance policies protect us against a portion of our risk of loss from claims related to our homebuilding activities, subject to certain self-insured retentions, deductibles and other coverage limits. In Arizona, California, Colorado and Nevada, our general liability insurance takes the form of awrap-up policy, where eligible subcontractors are enrolled as insureds on each project. We self-insure a portion of our overall risk through the use of a captive insurance subsidiary. We record expenses and liabilities based on the estimated costs required to cover our self-insured retention and deductible amounts under our insurance policies, and on the estimated costs of potential claims and claim adjustment expenses above our coverage limits or that are not covered by our policies. These estimated costs are based on an analysis of our historical claims and include an estimate of construction defect claims incurred but not yet reported. Our expense associated with self-insurance totaled $7.4 million in 2010, $9.8 million in 2009 and $10.1 million in 2008.

We engage a third-party actuary that uses our historical claim and expense data, as well as industry data, to estimate our unpaid claims, claim adjustment expenses and incurred but not reported claims liabilities for the risks that we are assuming under the self-insured portion of our general liability insurance. Projection of losses related to these liabilities requires actuarial assumptions that are subject to variability due to uncertainties regarding construction defect claims relative to our markets and the types of product we build, claim settlement patterns, insurance industry practices and legal or regulatory interpretations, among other factors. Because of the degree of judgment required and the potential for variability in the underlying assumptions used in determining these estimated liability amounts, actual future costs could differ from our currently estimated amounts.

Stock-Based Compensation. As discussed in Note 1. Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements in this ~~Form 10-K, effective December 1, 2005,~~report, we ~~adopted the fair value recognition provisions~~measure and recognize compensation expense associated with our grant of ~~Statement of Financial~~equity-based awards in accordance with Accounting Standards Codification Topic No. ~~123(R), “Share-Based Payment”~~718, “Compensation—Stock Compensation” (“~~SFAS No. 123(R)”~~ASC 718”), which requires that companies measure and recognize compensation expense at an amount equal to the fair value ofshare-based payments granted under compensation ~~arrangements.~~arrangements over the vesting period. We ~~provide~~have provided some compensation benefits ~~by issuing~~to our employees in the form of stock options, restricted stock, phantom shares and stock appreciation rights (“SARs”). Determining the fair value of share-based awards ~~at the grant date~~ requires judgment to identify the appropriate valuation model and develop the assumptions, including the expected term of the stock options or SARs, expected stock-price volatility and dividend yield, to be used in the calculation. Judgment is also required in estimating the percentage of share-based awards that are expected to be forfeited. We estimated the fair value of stock options and SARs granted using the Black-Scholes option-pricing model with assumptions based primarily on historical data. The expected volatility factor was based on a combination of the historical volatility of our common stock and the implied volatility of publicly traded options on our common stock. In addition, we estimated the fair value of certain restricted common stock that is subject to a market condition (“Performance Shares”) using a Monte Carlo simulation ~~model.~~model, as discussed in Note 18. Employee Benefit and Stock Plans in the Notes to Consolidated Financial Statements in this report. If actual results differ significantly from these estimates, stock-based compensation expense and our consolidated results of operations could be materially impacted.

~~Insurance.~~ ~~As disclosed in Note 1. Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements in thisForm 10-K,~~ we have, and require the majority of our subcontractors to have, general liability insurance (including construction defect coverage) and workers’ compensation insurance. These insurance policies protect us against a portion of our risk of loss from claims related to our homebuilding activities, subject to certain self-insured retentions, deductibles and other coverage limits. We self-insure a portion of our overall risk through the use of a captive insurance subsidiary. We record expenses and liabilities based on the costs required to cover our self-insured retention and deductible amounts under our insurance policies, and on the estimated costs of potential claims and claim adjustment expenses above our coverage limits or not covered by our policies. These estimated costs are based on an analysis of our historical claims and include an estimate of construction defect claims incurred but not yet reported. We engage a third-party actuary that uses our historical claim data to estimate our unpaid claims, claim adjustment expenses and incurred but not reported claims reserves for the risks that we are assuming under the self-insured portion of our general liability insurance. Projection of losses related to these liabilities is subject to a high degree of variability due to uncertainties such as trends in construction defect claims relative to our markets and the types of product we build, claim settlement patterns, insurance industry practices and legal interpretations, among others. Because of the high degree of judgment required in determining these estimated liability amounts, actual future costs could differ significantly from our currently estimated amounts.

~~Goodwill.~~ ~~As disclosed in Note 1. Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements in thisForm 10-K,~~ we have recorded goodwill in connection with various acquisitions in prior years. Goodwill represents the excess of the purchase price over the fair value of net assets acquired. In accordance with SFAS No. 142, we test goodwill for potential impairment annually as of November 30 and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. We evaluate goodwill for impairment using the two-step process prescribed in SFAS No. 142. The first step is to identify potential impairment by comparing the fair value of a reporting unit to the book value, including goodwill. If the fair value of a reporting unit exceeds the book value, goodwill is not considered impaired. If the book value exceeds the fair value, the second step of the process is performed to measure the amount of impairment. In accordance with SFAS No. 142, we have determined that our reporting units are the same as our reporting segments. Accordingly, we have four homebuilding reporting units (West Coast, Southwest, Central and Southeast) and one financial services reporting unit.

The process of evaluating goodwill for impairment involves the determination of the fair value of our reporting units. Inherent in such fair value determinations are certain judgments and estimates relating to future cash flows, including our interpretation of current economic indicators and market valuations, and assumptions about our strategic plans with regard to our operations. To the extent additional information arises, market conditions change or our strategies change, it is possible that our conclusion regarding whether existing goodwill is impaired could change and result in a material effect on our consolidated financial position or results of operations.

In performing our impairment analysis, we developed a range of fair values for our homebuilding and financial services reporting units using a discounted cash flow methodology and a market multiple methodology. For the financial services reporting unit, we also used a comparable transaction methodology.

The discounted cash flow methodology establishes fair value by estimating the present value of the projected future cash flows to be generated from the reporting unit. The discount rate applied to the projected future cash flows to arrive at the present value is intended to reflect all risks of ownership and the associated risks of realizing the stream of projected future cash flows. The discounted cash flow methodology uses our projections of financial performance for a five-year period. The most significant assumptions used in the discounted cash flow methodology are the discount rate, the terminal value and expected future revenues, gross margins and operating margins, which vary among reporting units.

The market multiple methodology establishes fair value by comparing us to other publicly traded companies that are similar to us from an operational and economic standpoint. The market multiple methodology compares us to the comparable companies on the basis of risk characteristics in order to determine our risk profile relative to the comparable companies as a group. This analysis generally focuses on quantitative considerations, which include financial performance and other quantifiable data, and qualitative considerations, which include any factors which are expected to impact future financial performance. The most significant assumptions affecting the market multiple methodology are the market multiples and control premium. The market multiples we use are: a) price to net book value and b) enterprise value to revenue (for each of the homebuilding reporting units). A control premium represents the value an investor would pay above minority interest transaction prices in order to obtain a controlling interest in the respective company. The comparable transaction methodology establishes fair value similar to the market multiple methodology, utilizing recent transactions within the industry as the market multiple. However, no control premium is applied when using the comparable transaction methodology because these transactions represent control transactions.

Based on the results of our impairment evaluation performed in the second quarter of 2008, we recorded an impairment charge of $24.6 million in that quarter related to our Central reporting segment, where all of the goodwill previously recorded was determined to be impaired. The annual goodwill impairment test we performed as of November 30, 2008 resulted in an impairment charge of $43.4 million in the fourth quarter of 2008 related to our Southeast reporting segment, where all of the goodwill previously recorded was determined to be impaired. Based on the results of our impairment evaluation performed in the third quarter of 2007, we recorded an impairment charge of $107.9 million in that quarter related to our Southwest reporting segment, where all of the goodwill previously recorded was determined to be impaired. The annual goodwill impairment test we performed as of November 30, 2007 indicated no additional impairment. The goodwill impairment charges in 2008 and 2007 were recorded at our corporate level because all goodwill is carried at that level. As a result of these impairment charges, we have no remaining goodwill company-wide at November 30, 2008.

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Income Taxes. As discussed in Note 1. Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements in this~~Form 10-K,~~ report, we account for income taxes in accordance with ~~SFAS No. 109.~~ASC 740. The provision for, or benefit from, income taxes is calculated using the asset and liability method, under which deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are evaluated on a quarterly basis to determine whether a valuation allowance is required. In accordance with ~~SFAS No. 109,~~ASC 740, we assess whether a valuation allowance should be established based on our determination of whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends primarily on the generation of future taxable income during the periods in which those temporary differences become deductible. Judgment is required in determining the future tax consequences of events that have been recognized in our consolidated financial statementsand/or tax returns. Differences between anticipated and actual outcomes of these future tax consequences could have a material impact on our consolidated financial position or results of operations.

As discussed in Note ~~17.~~16. Income Taxes in the Notes to Consolidated Financial Statements in this~~Form 10-K,~~ ~~we implemented~~ report, in July 2006, the ~~provisions~~FASB issued guidance that prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of ~~FASB Interpretation No. 48, “Accounting for Uncertainty~~a tax position taken or expected to be taken in ~~Income Taxes — an interpretation of FASB Statement No. 109” (“FASB Interpretation No. 48”),~~a tax return. We adopted this guidance effective December 1, 2007. The cumulative effect of the adoption ~~of FASB Interpretation No. 48~~ was recorded in 2008 as a $2.5 million reduction to beginning retained earnings. In accordance with ~~the provisions of FASB Interpretation No. 48,~~this guidance, we ~~recognized,~~recognize, in our consolidated financial statements, the impact of a tax position if a tax return’s position or future tax position is “more likely than not” to prevail (defined as a likelihood of more than 50% of being sustained upon audit, based on the technical merits of the tax position).

We recognize accrued interest and penalties related to unrecognized tax benefits in our consolidated financial statements as a component of the provision for income ~~tax provision~~taxes consistent with our historical accounting policy. Our liability for unrecognized tax benefits, combined with accrued interest and penalties, is reflected as a component of accrued expenses and other liabilities in our consolidated balance sheets.

Prior to the adoption of FASB Interpretation No. 48, we applied Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies,” (“SFAS No. 5”), to assess and provide for potential income Judgment is required in evaluating uncertain tax ~~exposures. In accordance with SFAS No. 5, we maintained reserves for~~positions. We evaluate our uncertain tax ~~contingencies~~positions quarterly based on ~~reasonable estimates~~various factors, including changes in facts or circumstances, tax laws or the status of audits by tax authorities. Changes in the recognition or measurement of uncertain tax liabilities, interest, and penalties (if any) that may result from such audits. FASB Interpretation No. 48 substantially changes the applicable accounting model and is likely to cause greater volatility inpositions could have a material impact on our consolidated ~~statements~~results of operations ~~and effective tax rates as more items are specifically recognizedand/or~~ ~~derecognized within income tax expense.~~in the period in which we make the change.

RECENT ACCOUNTING PRONOUNCEMENTS

In ~~September 2006,~~January 2010, the ~~Financial~~FASB issued Accounting Standards ~~Board (“FASB”) issued Statement of Financial Accounting Standards~~Update No. ~~157, “Fair~~2010-06, “Improving Disclosures About Fair Value Measurements” (“~~SFAS No. 157”~~ASU 2010-06”), which provides ~~guidance~~amendments to Accounting Standards Codification Subtopic No. 820-10, “Fair Value Measurements and Disclosures — Overall.” ASU 2010-06 requires additional disclosures and clarifications of existing disclosures for ~~using fair value to measure assets~~recurring and ~~liabilities, defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about~~nonrecurring fair value measurements. ~~SFAS No. 157 is~~The revised guidance was effective for ~~fiscal years beginning after November 15, 2007 and for interim periods within those years. In February 2008, the FASB issued FASB Staff Position No.FAS 157-2,~~ ~~“Effective Date of FASB Statement No. 157” (“FSP No. FAS157-2”),~~ which delayed for one year the applicability of SFAS No. 157’s fair value measurements to certain nonfinancial assets and liabilities. We adopted SFAS No. 157 in 2008, except as it applies to those nonfinancial assets and liabilities affected by the one-year delay. The partial adoption of SFAS No. 157 did not have a material impact on our consolidated financial position or results of operations. While we are currently evaluating the impact of adopting the remaining provisions of SFAS No. 157, we do not expect SFAS No. 157 to have a material impact on our consolidated financial position or results of operations.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141(R)”). SFAS No. 141(R) amends Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS No. 141”), and provides revised guidance for recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed, and any noncontrolling interestus in the ~~acquiree. It also provides disclosure requirements to enable users~~second quarter of 2010, except for the ~~financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) is~~Level 3 activity disclosures, which are effective for fiscal years beginning after December 15, ~~2008 and~~

~~is to be applied prospectively. We are currently evaluating the potential impact of adopting SFAS No. 141(R) on our consolidated financial position and results of operations.~~

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51” (“SFAS No. 160”). SFAS No. 160 establishes accounting and reporting standards pertaining to ownership interests in subsidiaries held by parties other than the parent, the amount of net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of any retained noncontrolling equity investment when a subsidiary is deconsolidated. SFAS No. 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. We are currently evaluating the potential impact of adopting SFAS No. 160 on our consolidated financial position and results of operations.

In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. We do not expect the adoption of SFAS No. 162 to have a material impact on our consolidated financial position or results of operations.

In May 2008, the FASB issued Statement of Financial Accounting Standards No. 163, “Accounting for Financial Guarantee Insurance Contracts — an interpretation of FASB Statement No. 60” (“SFAS No. 163”). SFAS No. 163 clarifies how Statement of Financial Accounting Standards No. 60, “Accounting and Reporting by Insurance Enterprises” (“SFAS No. 60”) applies to financial guarantee insurance contracts, including the recognition and measurement of premium revenue and claim liabilities. SFAS No. 163 also requires expanded disclosures about financial guarantee insurance contracts. SFAS No. 163 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. We are currently evaluating the potential impact of adopting SFAS No. 163 on our consolidated financial position and results of operations.

~~In June 2008, the FASB issued FASB Staff Position No. EITF03-6-1,~~ ~~“Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities” (“FSP No.EITF 03-6-1”).~~ ~~Under FSP No.EITF 03-6-1,~~ unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. FSP No.~~EITF 03-6-1~~ is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years and requires retrospective application. We are currently evaluating the impact of adopting FSP No.~~EITF 03-6-1~~ ~~on our earnings per share.~~

~~In October 2008, the FASB issued FASB Staff PositionNo. FAS 157-3,~~ ~~“Determining the Fair Value of a Financial Asset When the Market For That Asset Is Not Active” (“FSP No.FAS 157-3”).~~ ~~FSP No.FAS 157-3~~ ~~clarifies the application of SFAS No. 157 in a market that is not active. FSP No.FAS 157-3~~ ~~became effective upon issuance, including prior periods for which financial statements have not been issued. Our adoption of FSP No.FAS 157-3~~ ~~did not have a material impact on our consolidated financial position or results of operations.~~

~~In December 2008, the FASB issued FASB Staff PositionNo. FAS 140-4~~ ~~andFIN 46-(R)-8,~~ ~~“Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities” (“FSPNo. FAS 140-4~~ ~~and FIN 46(R)-8”). FSPNo. FAS 140-4~~ and FIN 46(R)-8 amends FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (“SFAS No. 140”), to require public entities to provide additional disclosures about transfers of financial assets. It also amends FASB Interpretation No. 46(R),~~to require public enterprises, including sponsors that have a variable interest in a VIE, to provide additional disclosures about their involvement with VIEs. FSPNo. FAS 140-4~~ ~~and FIN 46(R)-8 is related to~~2010. ASU 2010-06 concerns disclosure only and will not have an impact on our consolidated financial position or results of operations.

In December 2010, the FASB issued Accounting Standards Update~~OUTLOOK~~No. 2010-29,

~~At November 30, 2008,~~ “Disclosure of Supplementary Pro Forma Information for Business Combinations” (“ASU2010-29”), which addresses diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations. The amendments in ASU2010-29 specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments in ASU2010-29 also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in ASU2010-29 are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. We believe the adoption of this guidance will not have a material impact on our ~~backlog~~consolidated financial position or results of new home orders totaled 2,269 homes, a decrease of 64% from the 6,322 homes in backlog at November 30, 2007. Our backlog at November 30, 2008 represented projected future housing revenues of approximately $521.4 million, down 65% from approximately $1.50 billion at November 30, 2007. Theoperations.

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~~substantially lower~~OUTLOOK

Our backlog ofat November 30, 2010 totaled 1,336 homes, ~~and projected~~representing potential future housing revenues of approximately $263.8 million. By comparison, at November 30, 2009, our backlog totaled 2,126 homes, representing potential future housing revenues of approximately $422.5 million. The 37%year-over-year decline in the ~~end~~number of ~~our 2008 fiscal year~~homes in backlog was primarily due to a lower number of net orders generated in the latter half of 2010 compared to ~~the prior year-end was due to the combined impact over the past several quarters of negative year-over-year net order results, lower average selling prices,~~2009 and our strategic initiatives to reduce our inventory and active community counts to better align with diminished housing market activity. In 2008, our average active community count was 38% lower than in 2007.

~~Our lower active community count also reduced our operating results~~a higher backlog conversion rate, which approached 90% in the fourth quarter of ~~2008 compared to~~2010 versus 82% in the year-earlier ~~quarter.~~ quarter, partly due to improved construction cycle times. The 38%year-over-year decrease in the projected future housing revenues in our backlog reflected the lower number of homes in backlog.

Our homebuilding operations generated ~~1,296~~1,085 net orders in the fourth quarter of ~~2008, down 50%~~2010, representing a decrease of 25% from the ~~2,574~~1,446 net orders ~~generated~~posted in the corresponding quarter of ~~2007. Our net~~2009. This decrease primarily reflected a 24% decline in our overall average active community count, generally weak economic and housing market conditions, a sharp reduction in demand following the April 30, 2010 expiration of the federal homebuyer tax credit and an increase in our cancellation rate. As a percentage of gross orders, our fourth quarter cancellation rate was 37% in 2010 and 31% in 2009. As a percentage of beginning backlog, the cancellation rate was 29% in the fourth quarter of ~~2008~~2010 and 17% in the year-earlier quarter. The relatively higher cancellation rates in 2010 were ~~also reduced~~driven in part by ~~our transition to new, value-engineered product, which disrupted sales activity as some communities were temporarily shut down~~tighter residential consumer mortgage lending standards, particularly in the fourth quarter of the year.

Throughout 2010, adverse housing market conditions — primarily an ongoing oversupply of homes available for sale and ~~other communities experienced a lag in orders while discontinuing current product offerings, and by continued weakness in~~restrained consumer demand for ~~new housing.~~

~~Conditions in~~housing, particularly following the ~~housing sector continued to decline throughout 2008, accelerating~~expiration of the federal homebuyer tax credit in the second ~~half of~~quarter — prolonged the year with the sharp decline in the general economy. A deteriorating economy and turbulent financial and credit markets further eroded consumer confidence, increased unemployment and foreclosures and caused credit standards for homebuyers to tighten further. As a result, although home prices and mortgage rates fell substantially during 2008, improving affordability, many potential homebuyers remain reluctant or are unable to commit to a new home purchase. There are several reasons for their reluctance, including an inability to obtain adequate financing; an inability to sell their existing home at a perceived fair price or at a pricedifficult operating environment that covers their existing mortgage; anxiety about current economic conditions or employment prospects; or expectations that home prices will fall further or that greater incentives will be offered by home sellers given the persistent oversupply in many markets.

As we ~~enter 2009, the U.S. economy remains in a severe recession~~ and the homebuilding industry ~~faces even greater adverse pressures than~~have faced since the housing downturn began inmid-2006. The main factors perpetuating these conditions in 2010 were mounting sales of lender-owned homes acquired through foreclosures and short sales; a generally weak economic and employment environment; tighter mortgage credit standards and reduced credit availability; tepid consumer confidence; intense competition for home sales; and the actual or proposed winding down, reduction or reversal of government programs and policies supportive of homeownership such as the federal homebuyer tax credit that expired in April 2010. We expect these factors to continue to negatively impact housing markets, including our served markets, to varying degrees into 2011.

Though market conditions are likely to remain challenging, our highest priority for 2011 continues to be restoring and maintaining the profitability of our homebuilding operations at the ~~beginning~~scale of 2008. Affordability, wavering buyer confidence and significantly tighter mortgage lending standards, coupled with a considerable oversupply of new and existing homes for sale (boosted by foreclosures), continue to weigh on theprevailing housing market activity. We made progress toward this goal throughout 2010, particularly in the fourth quarter, as we achieved year-over-year improvement in our pretax results for the eleventh consecutive quarter and ~~may cause further deterioration~~generated pretax earnings for the first time in ~~operating conditions~~nearly four years. These financial results were achieved due in large part to both higher housing gross margins and ~~sales results. Meanwhile, it remains uncertain when the housing market or the broader economy will experience a meaningful recovery.~~lower selling, general and administrative expenses.

~~Recent actions taken or under consideration by~~To support the ~~federal government designed to boost housing demand could soften the impact~~achievement of the recession. Nonetheless, it is very likely that key housing metrics, including starts, new home sales and existing home sales, will continue to weaken in 2009. We therefore expect fierce price competition to persist well into 2009 and margins to remain under pressure throughout the year. This could lead to more inventory impairments and land option contract abandonments, though potentially smaller in magnitude.

~~Given the volatile trends and uncertain economic conditions clouding the housing markets, and~~ our ~~current backlog levels,~~profitability goal as we ~~have limited ability to forecast our 2009 consolidated operating and financial results. As of the date of thisForm 10-K,~~ we expect poor demand for, and the substantial oversupply of, housing to continue, sustaining the sharply reduced home sales volumes and severe downward pricing pressures that we and our industry have experienced since the second half of 2006, compared to the first half of this decade.

~~While there are many significant factors that we cannot control,~~enter 2011, we intend to ~~navigate~~maintain the ~~present housing market~~essential elements of the integrated strategic actions we have taken in the past few years to transform and ~~general economic downturn by remaining focused on improving areas within our control and on achieving further progress on three primary goals: maintaining a strong cash~~ position ~~and balance sheet; restoring our homebuilding operations to profitability; and positioning~~ our business to capitalize on a housing market recovery when it occurs. Consistent with these goals, in the past two years we have: (i) built up and conserved our cash, ending 2008 with a substantial cash balance of $1.25 billion,future growth opportunities, including $115.4 million of restricted cash in the Interest Reserve Account, and no cash borrowings under our Credit Facility; (ii) reduced our inventory and active community counts, consolidated operations and cut overhead costs in many markets, while selectively exiting or winding down activity in others; and (iii) introduced new products designed to meet consumers’ needs, tastes and affordability concerns. Our key business strategies and plans for 2009 will continue to reflect these priorities, and we expect to be cash flow positive and to have no outstanding cash borrowings under our Credit Facility during the year.

Our highest priority as we move ahead is to increase our margins and restore the profitability of our homebuilding operations. In the near term, our focus on margins and profitability will mean selling the right product at the right price, with the right marketing strategy, for each individual served market, and maintaining our presence in those markets that

~~we believe will provide the best operating platform to drive future growth. It also means continuing to reduce our costs and to operate more efficiently in accordance with the~~following principles of our KBnxt operational business ~~model.~~model; working diligently to increase our future revenues by expanding our active community count and increasing traffic to our communities along with improving our net order conversion levels; making targeted inventory investments in attractive markets; driving additional operational efficiencies and overhead expense reductions; maintaining a strong balance sheet; remaining attentive to market conditions; and achieving high levels of customer satisfaction by offering homebuyers our unique combination of value and choice together with innovative and flexible home designs and a commitment to environmentally conscious products and options. Foremost among these actions are our ongoing initiatives to acquire ownership or control of well-priced finished or partially finished lots that meet our investment and marketing standards within or near our existing served markets, and to open new home communities in select locations that are expected to offer attractive potential sales growth. Accordingly, we currently expect to increase our total count of owned or controlled lots in 2011 from the 39,540 lots we owned or controlled at November 30, 2010, which represented an increase of 2,075 such lots from the 37,465 lots we owned or controlled at November 30, 2009, and to open approximately 70 new home communities in the first half of the year, primarily in our West Coast and Central regions. Many of these new communities will feature our value-engineered new product and, with the improved operating efficiencies and opportunistic inventory investments we have made, are expected to generate revenues more quickly and at a lower cost basis compared to our older communities. We anticipate increasing our average active community count by

approximately 25% in 2011, compared to the average active community count for 2010. The pace and the extent to which we acquire new land interests, open new home communities and generate revenues in 2011, however, will depend significantly on market and economic conditions during the year, including actual and expected sales rates, and the availability of desirable land assets. It may also depend on our using or redeploying our cash resources to reduce our present financial leverage and related interest expense through purchases of, or tender offers for, our outstanding senior notes, or in conjunction with broader financial transactions to adjust our overall debt structure.

~~Consistent with~~Despite our ~~near-term focus on offering~~progress over the ~~right product at~~past several quarters and our current plans for 2011, we remain cautious in our overall outlook given the ~~right price, we accelerated~~significant negative factors and trends noted above and the continuing uncertainty as to when our served markets may experience a ~~product transition strategy~~sustained recovery. Our ability to generate positive results from our strategic initiatives, including achieving and maintaining profitability and sustaining improvement in the second half of 2008, introducing in particular communities new, value-engineered product with more affordable standard features that are more cost-effective to build and can be offered at lower base selling prices compared to prior product offerings. The reengineered product, which we refer to as The Open Series^tm, is designed to meet the demands of our core first-time homebuyers in the current market environment by offering greater design choices than the product it is replacing and price points for consumers at or near median income levels. At the same time, it gives homebuyers more flexibility and options to customize a home to meet their own tastes and budget. We are continuing to roll out the reengineered product and expect to have more communities fully transitioned to The Open Series in 2009. We believe our product transition strategy, when fully implemented, will have a positive impact on our margins and ~~net orders~~increasing the number of homes delivered, remains constrained by, among other things, the current unbalanced supply and demand conditions in ~~future periods. However, we expect that~~many housing markets, which are unlikely to abate soon given the ~~implementation process will temporarily depress our sales~~present economic and ~~margins for transitioning communities~~employment environment and low levels of consumer confidence, and by the reduction in ~~2009, reflecting a lag between discontinuing prior product~~government programs and ~~bringing~~incentives designed to support homeownershipand/or home purchases. Given present and expected market conditions, the ~~new product online,~~sequential and ~~will reduce our~~ year-over-year ~~results of operations for that period.~~

During 2008, we continued our aggressive steps to streamline our organizational structure to reduce costs in proportion to our revenues. We expect these changes to produce tangible benefits, in the form of selling, general and administrative expense reductions, in future quarters. In making these adjustments, improvements we have ~~selectively maintained operations~~experienced in ~~key served markets~~recent quarters in our margins and ~~have made investments that we believe will enable us to prudently and effectively expand our operations when market conditions improve. In 2009, we will maintain our focus on bringing our costs~~earnings may not continue in ~~line with our revenues and preserving a solid foundation for growth as market conditions become more favorable.~~2011.

We ~~will~~ continue to ~~assess~~believe a meaningful improvement in housing market conditions will require a sustained decrease in unsold homes, selling price stabilization, reduced mortgage delinquency and ~~re-assess our geographic footprint, seeking optimal volume~~foreclosure rates, and an improved economic climate, particularly with respect to employment levels atand consumer and credit market confidence that support a decision to buy a home. We cannot predict when or the extent to which ~~to operate, and adjusting our community counts and product mix to maximize financial performance. We expect to continue to operate with fewer active communities and to remain conservative~~these events may occur. Moreover, if conditions in our asset acquisition and development activities until we see reasonable signs of a housing market recovery, though we remain alert to potential new opportunities. As a result, we expect our delivery volume and corresponding revenues to remain at reduced levels in 2009 and, if market conditionsserved markets decline further, we may need to take ~~additional~~ noncash charges for inventory and joint venture impairments and land option contract ~~abandonments. In addition,~~abandonments, and we may decide that we need to reduce, slow or even abandon our ~~2009~~present land acquisition and development and new home community opening plans for those markets. Our 2011 results could also be adversely affected if general economic conditions ~~continue to deteriorate,~~do not notably improve or actually decline, if job losses accelerate or weak employment levels persist, if residential consumer mortgage delinquencies, short sales and foreclosures increase, if residential consumer mortgage lending becomes less available or more expensive, or if consumer confidence ~~remains weak or declines further,~~weakens, any or all of which could further delay a recovery in housing markets or result in further deterioration ofin operating conditions, and ~~our financial results.~~

~~In light of the current recession, conditions in the housing market~~if competition for home sales intensifies. Despite these difficulties and the overall economy are likely to deteriorate further before they improve. We continue to believe that a meaningful improvement in housing market conditions will require a sustained decrease in unsold homes, price stabilization, reduced foreclosure rates, and the restoration of consumer and credit market confidence that will support a decision to buy a home. While we cannot predict when these events will occur, based in large part on the aggressive actions we have taken over the past two years,risks, we believe we are ~~well-positioned~~favorably positioned financially and ~~strategically~~operationally to ~~weather the current downturn~~succeed in advancing our primary strategic goals, particularly in view of longer-term demographic, economic and ~~to capitalize on potential~~population-growth trends that we expect will once again drive future ~~opportunities for growth in the expected near-term housing market environment. Longer term, we believe favorable demographics, population growth and the continuing desire for home ownership will drive~~ demand for ~~new homes in our served markets, and that our operating approach and financial resources will allow us to capitalize on opportunities in those markets as they emerge.~~homeownership.

FORWARD-LOOKING STATEMENTS

Investors are cautioned that certain statements contained in this document, as well as some statements by us in periodic press releases and other public disclosures and some oral statements by us to securities analysts and stockholders during presentations, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Act”). Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” “hopes,” and similar expressions constitute forward-looking statements. In addition, any statements concerning future financial or operating performance (including future revenues, homes delivered, net orders, selling prices, expenses, expense ratios, margins, earnings or

earnings per share, or growth or growth rates), future market conditions, future interest rates, and other economic conditions, ongoing business strategies or prospects, future dividends and changes in dividend levels, the value of backlog (including amounts that we expect to realize upon delivery of homes included in backlog and the timing of those deliveries), potential future acquisitions and the impact of completed acquisitions, future share repurchases and possible future actions, which may be provided by us, are also forward-looking statements as defined by the Act. Forward-looking statements are based on current expectations and projections about future events and are subject to risks, uncertainties, and assumptions about our operations, economic and market factors, and the homebuilding industry, among other things. These statements are not guarantees of future performance, and we have no specific policy or intention to update these statements.

Actual events and results may differ materially from those expressed or forecasted in ~~the~~ forward-looking statements due to a number of factors. The most important risk factors that could cause our actual performance and future events and actions to differ materially from such forward-looking statements include, but are not limited to: general economic, employment and business conditions; adverse market conditions that could result in additional impairments or abandonment charges and operating losses, including an oversupply of unsold homes, ~~and~~ declining home prices and increased foreclosure and short sale activity, among other things; conditions in the capital and credit markets (including residential consumer mortgage lending

standards, the availability of residential consumer mortgage financing and mortgage foreclosure rates); material prices and availability; labor costs and availability; changes in interest rates; inflation; our debt ~~level; declines in~~level and structure; weak or declining consumer ~~confidence; increases in competition;~~confidence, either generally or specifically with respect to purchasing homes; competition for home sales from other sellers of new and existing homes, including sellers of homes obtained through foreclosures or short sales; weather conditions, significant natural disasters and other environmental factors; government actions, policies, programs and regulations directed at or affecting the housing market (including, but not limited to, the Dodd-Frank Act, tax credits, tax incentivesand/or subsidies for home purchases, tax deductions for consumer mortgage interest payments and property taxes, tax exemptions for profits on home sales, and programs intended to modify existing mortgage loans and to prevent mortgage foreclosures), the homebuilding industry, or construction activities; the availability and cost of land in desirable ~~areas;~~areas and our ability to identify and acquire such land; legal or regulatory proceedings or ~~claims;~~claims, including the claims concerning South Edge described above in “Part I — Item 3. Legal Proceedings”; the abilityand/or willingness of participants in our unconsolidated joint ventures to fulfill their obligations; our ability to access ~~capital, including our capacity under our Credit Facility;~~capital; our ability to use the net deferred tax assets we have generated; our ability to successfully implement our current and planned product, ~~transition,~~ geographic and market ~~repositioning~~positioning (including, but not limited to, our efforts to expand our inventory base/pipeline with desirable land positions or interests at reasonable cost and to expand our active community count and open new communities), revenue growth and cost ~~reduction~~control strategies; consumer interest in our new product ~~designs;~~designs, includingThe Open Series; and ~~the~~ other ~~risks discussed above in Item 1A. Risk Factors.~~events outside of our control.

5357


Item 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We ~~primarily~~ enter into debt obligations primarily to support general corporate purposes, including the operations of our subsidiaries. We are subject to interest rate risk on our senior notes. For fixed rate debt, changes in interest rates generally affect the fair value of the debt instrument, but not our earnings or cash flows. Under our current policies, we do not use interest rate derivative instruments to manage our exposure to changes in interest ~~rate changes.~~rates.

The following tables ~~set forth~~present principal cash flows by scheduled maturity, weighted average interest rates and the estimated fair value of our long-term debt obligations as of November 30, ~~2008~~2010 and November 30, ~~2007~~2009 (dollars in thousands):

Fair Value at

As of November 30, 2008 for the Years Ended November 30, November 30,

2009 2010 2011 2012 2013 Thereafter Total 2008

Long-term debt (a)
Fixed Rate $ 200,000 $ — $ 348,908 $ — $ — $ 1,296,261 $ 1,845,169 $ 1,270,979
Weighted Average Interest Rate 8.6 % — % 6.4 % — % — % 6.3 %

~~(a)The fixed rate debt expected to mature in our 2009 fiscal year matured on December 15, 2008 and was redeemed by us.~~


																					Fair Value at																						Fair Value at
	As of November 30, 2007 for the Years Ended November 30,																				November 30,		As of November 30, 2010 for the Years Ended November 30,																				November 30,
	2008			2009			2010			2011			2012			Thereafter			Total		2007		2011			2012			2013			2014			2015			Thereafter			Total		2010

Long-term debt
Fixed Rate	$	—		$	200,000		$	298,273		$	348,549		$	—		$	1,295,832		$	2,142,654	$	1,921,042	$	99,916		$	—		$	—		$	249,498		$	748,813		$	559,245		$	1,657,472	$	1,638,700
Weighted Average Interest Rate		—	%		8.6	%		7.8	%		6.4	%		—	%		6.3	%						6.4	%		—	%		—	%		5.8	%		6.1	%		8.1	%


																																											Fair Value at
																							As of November 30, 2009 for the Years Ended November 30,																				November 30,
																							2010			2011			2012			2013			2014			Thereafter			Total		2009

Long-term debt
Fixed Rate																							$	—		$	99,800		$	—		$	—		$	249,358		$	1,307,244		$	1,656,402	$	1,587,201
Weighted Average Interest Rate																								—	%		6.4	%		—	%		—	%		5.8	%		7.0	%

5458

KB HOME

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Amounts)

Years Ended November 30,
2008 2007 2006

Total revenues
$ 3,033,936 $ 6,416,526 $ 9,380,083

Homebuilding:
Revenues $ 3,023,169 $ 6,400,591 $ 9,359,843
Construction and land costs (3,314,815 ) (6,826,379 ) (7,666,019 )
Selling, general and administrative expenses (501,027 ) (824,621 ) (1,123,508 )
Goodwill impairment (67,970 ) (107,926 ) —

Operating income (loss) (860,643 ) (1,358,335 ) 570,316
Interest income 34,610 28,636 5,503
Loss on early redemption/interest expense, net of amounts capitalized (12,966 ) (12,990 ) (16,678 )
Equity in loss of unconsolidated joint ventures (152,750 ) (151,917 ) (20,830 )

Homebuilding pretax income (loss) (991,749 ) (1,494,606 ) 538,311

Financial services:
Revenues 10,767 15,935 20,240
Expenses (4,489 ) (4,796 ) (5,923 )
Equity in income of unconsolidated joint venture 17,540 22,697 19,219

Financial services pretax income 23,818 33,836 33,536

Income (loss) from continuing operations before income taxes (967,931 ) (1,460,770 ) 571,847
Income tax benefit (expense) (8,200 ) 46,000 (178,900 )

Income (loss) from continuing operations
(976,131 ) (1,414,770 ) 392,947
Income from discontinued operations, net of income taxes — 47,252 89,404
Gain on sale of discontinued operations, net of income taxes — 438,104 —

Net income (loss)
$ (976,131 ) $ (929,414 ) $ 482,351

Basic earnings (loss) per share:

Continuing operations $ (12.59 ) $ (18.33 ) $ 4.99
Discontinued operations — 6.29 1.13

Basic earnings (loss) per share $ (12.59 ) $ (12.04 ) $ 6.12

Diluted earnings (loss) per share:

Continuing operations $ (12.59 ) $ (18.33 ) $ 4.74
Discontinued operations — 6.29 1.08

Diluted earnings (loss) per share $ (12.59 ) $ (12.04 ) $ 5.82


	Years Ended November 30,
	2010			2009			2008

Total revenues	$	1,589,996		$	1,824,850		$	3,033,936

Homebuilding:
Revenues	$	1,581,763		$	1,816,415		$	3,023,169
Construction and land costs		(1,308,288	)		(1,749,911	)		(3,314,815	)
Selling, general and administrative expenses		(289,520	)		(303,024	)		(501,027	)
Goodwill impairment		—			—			(67,970	)

Operating loss		(16,045	)		(236,520	)		(860,643	)
Interest income		2,098			7,515			34,610
Interest expense, net of amounts capitalized/loss on early redemption of debt		(68,307	)		(51,763	)		(12,966	)
Equity in loss of unconsolidated joint ventures		(6,257	)		(49,615	)		(152,750	)

Homebuilding pretax loss		(88,511	)		(330,383	)		(991,749	)

Financial services:
Revenues		8,233			8,435			10,767
Expenses		(3,119	)		(3,251	)		(4,489	)
Equity in income of unconsolidated joint venture		7,029			14,015			17,540

Financial services pretax income		12,143			19,199			23,818

Total pretax loss		(76,368	)		(311,184	)		(967,931	)
Income tax benefit (expense)		7,000			209,400			(8,200	)

Net loss	$	(69,368	)	$	(101,784	)	$	(976,131	)

Basic and diluted loss per share	$	(.90	)	$	(1.33	)	$	(12.59	)

Basic and diluted average shares outstanding		76,889			76,660			77,509

See accompanying notes.

5660

KB HOME

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Shares)


	November 30,						November 30,
	2008			2007			2010			2009

Assets
Homebuilding:
Cash and cash equivalents	$	1,135,399		$	1,325,255		$	904,401		$	1,174,715
Restricted cash		115,404			—			115,477			114,292
Receivables		357,719			295,739			108,048			337,930
Inventories		2,106,716			3,312,420			1,696,721			1,501,394
Investments in unconsolidated joint ventures		177,649			297,010			105,583			119,668
Deferred income taxes		1,152			222,458
Goodwill		—			67,970
Other assets		98,109			140,712			150,076			154,566

		3,992,148			5,661,564			3,080,306			3,402,565
Financial services		52,152			44,392			29,443			33,424

Total assets	$	4,044,300		$	5,705,956		$	3,109,749		$	3,435,989


Liabilities and stockholders’ equity
Homebuilding:
Accounts payable	$	541,294		$	699,851		$	233,217		$	340,977
Accrued expenses and other liabilities		721,397			975,828			466,505			560,368
Mortgages and notes payable		1,941,537			2,161,794			1,775,529			1,820,370

		3,204,228			3,837,473			2,475,251			2,721,715

Financial services		9,467			17,796			2,620			7,050
Stockholders’ equity:
Preferred stock — $1.00 par value; authorized, 10,000,000 shares; none issued		—			—			—			—
Common stock — $1.00 par value; authorized, 290,000,000 shares at November 30, 2008 and 2007; 115,120,305 and 114,976,285 shares issued at November 30, 2008 and 2007, respectively		115,120			114,976
Common stock — $1.00 par value; authorized, 290,000,000 shares at November 30, 2010 and 2009; 115,148,586 and 115,120,305 shares issued at November 30, 2010 and 2009, respectively								115,149			115,120
Paid-in capital		865,123		��	851,628			873,519			860,772
Retained earnings		927,324			1,968,881			717,852			806,443
Accumulated other comprehensive loss		(17,402	)		(22,923	)		(22,657	)		(22,244	)
Grantor stock ownership trust, at cost: 11,901,382 and 12,203,282 shares at November 30, 2008 and 2007, respectively		(129,326	)		(132,608	)
Treasury stock, at cost: 25,512,386 and 25,451,107 shares at November 30, 2008 and 2007, respectively		(930,234	)		(929,267	)
Grantor stock ownership trust, at cost: 11,082,723 and 11,228,951 shares at November 30, 2010 and 2009, respectively								(120,442	)		(122,017	)
Treasury stock, at cost: 27,095,467 and 27,047,379 shares at November 30, 2010 and 2009, respectively								(931,543	)		(930,850	)

Total stockholders’ equity		830,605			1,850,687			631,878			707,224

Total liabilities and stockholders’ equity	$	4,044,300		$	5,705,956		$	3,109,749		$	3,435,989

See accompanying notes.

5761

KB HOME

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In Thousands)


	Years Ended November 30, 2008, 2007 and 2006																															Years Ended November 30, 2010, 2009 and 2008
	Number of Shares																Accumulated															Number of Shares																Accumulated
			Grantor														Other						Grantor											Grantor														Other			Grantor
			Stock														Comprehensive						Stock						Total					Stock														Comprehensive			Stock						Total
	Common		Ownership			Treasury			Common		Paid-in			Retained			Income			Deferred			Ownership			Treasury			Stockholders’			Common		Ownership			Treasury			Common		Paid-in			Retained			Income			Ownership			Treasury			Stockholders’
	Stock		Trust			Stock			Stock		Capital			Earnings			(Loss)			Compensation			Trust			Stock			Equity			Stock		Trust			Stock			Stock		Capital			Earnings			(Loss)			Trust			Stock			Equity

Balance at November 30, 2005		113,905		(13,000	)		(19,021	)	$	113,905	$	742,978		$	2,571,372		$	28,704		$	(13,605	)	$	(141,266	)	$	(528,291	)	$	2,773,797
Comprehensive income:
Net income		—		—			—			—		—			482,351			—			—			—			—			482,351
Foreign currency translation		—		—			—			—		—			—			34,493			—			—			—			34,493
Balance at November 30, 2007																																	114,976		(12,203	)		(25,451	)	$	114,976	$	851,628		$	1,968,881		$	(22,923	)	$	(132,608	)	$	(929,267	)	$	1,850,687
Comprehensive loss:
Net loss																																	—		—			—			—		—			(976,131	)		—			—			—			(976,131	)
Postretirement benefits adjustment																																	—		—			—			—		—			—			5,521			—			—			5,521

Total comprehensive income		—		—			—			—		—			—			—			—			—			—			516,844
Total comprehensive loss																																	—		—			—			—		—			—			—			—			—			(970,610	)
Dividends on common stock																																	—		—			—			—		—			(62,967	)		—			—			—			(62,967	)
Adoption of new income tax accounting guidance																																	—		—			—			—		—			(2,459	)		—			—			—			(2,459	)
Exercise of employee stock options																																	144		—			—			144		1,443			—			—			—			—			1,587
Restricted stock amortization																																	—		—			—			—		4,946			—			—			—			—			4,946
Stock-based compensation																																	—		—			—			—		5,018			—			—			—			—			5,018
Grantor stock ownership trust																																	—		302			—			—		2,088			—			—			3,282			—			5,370
Treasury stock																																	—		—			(61	)		—		—			—			—			—			(967	)		(967	)

Balance at November 30, 2008																																	115,120		(11,901	)		(25,512	)		115,120		865,123			927,324			(17,402	)		(129,326	)		(930,234	)		830,605
Comprehensive loss:
Net loss																																	—		—			—			—		—			(101,784	)		—			—			—			(101,784	)
Postretirement benefits adjustment																																	—		—			—			—		—			—			(4,842	)		—			—			(4,842	)

Total comprehensive loss																																	—		—			—			—		—			—			—			—			—			(106,626	)
Dividends on common stock		—		—			—			—		—			(78,258	)		—			—			—			—			(78,258	)		—		—			—			—		—			(19,097	)		—			—			—			(19,097	)
Exercise of employee stock options		744		—			—			744		34,723			—			—			—			—			—			35,467			—		—			—			—		(4,093	)		—			—			—			—			(4,093	)
Restricted stock awards		—		537			—			—		32,726			—			—			—			5,839			—			38,565			—		—			—			—		(4,846	)		—			—			4,846			—			—
Restricted stock amortization		—		—			—			—		4,649			—			—			—			—			—			4,649			—		—			—			—		1,390			—			—			—			—			1,390
Stock-based compensation		—		—			—			—		19,358			—			—			—			—			—			19,358			—		—			—			—		2,587			—			—			—			—			2,587
Grantor stock ownership trust		—		118			—			—		5,129			—			—			—			1,277			—			6,406			—		672			—			—		611			—			—			2,463			—			3,074
Treasury stock		—		—			(6,253	)		—		—			—			—			—			—			(394,080	)		(394,080	)		—		—			(1,535	)		—		—			—			—			—			(616	)		(616	)
Reclass due to SFAS No. 123(R) implementation		—		—			—			—		(13,605	)		—			—			13,605			—			—			—

Balance at November 30, 2006		114,649		(12,345	)		(25,274	)		114,649		825,958			2,975,465			63,197			—			(134,150	)		(922,371	)		2,922,748
Comprehensive loss:
Net loss		—		—			—			—		—			(929,414	)		—			—			—			—			(929,414	)
Foreign currency translation		—		—			—			—		—			—			(63,197	)		—			—			—			(63,197	)

Total comprehensive loss		—		—			—			—		—			—			—			—			—			—			(992,611	)
Postretirement benefits adjustment		—		—			—			—		—			—			(22,923	)		—			—			—			(22,923	)
Dividends on common stock		—		—			—			—		—			(77,170	)		—			—			—			—			(77,170	)
Exercise of employee stock options		327		—			—			327		9,718			—			—			—			—			—			10,045
Restricted stock amortization		—		—			—			—		4,993			—			—			—			—			—			4,993
Stock-based compensation		—		—			—			—		9,354			—			—			—			—			—			9,354
Grantor stock ownership trust		—		142			—			—		1,605			—			—			—			1,542			—			3,147
Treasury stock		—		—			(177	)		—		—			—			—			—			—			(6,896	)		(6,896	)

Balance at November 30, 2007		114,976		(12,203	)		(25,451	)		114,976		851,628			1,968,881			(22,923	)		—			(132,608	)		(929,267	)		1,850,687
Balance at November 30, 2009																																	115,120		(11,229	)		(27,047	)		115,120		860,772			806,443			(22,244	)		(122,017	)		(930,850	)		707,224
Comprehensive loss:
Net loss		—		—			—			—		—			(976,131	)		—			—			—			—			(976,131	)		—		—			—			—		—			(69,368	)		—			—			—			(69,368	)
Postretirement benefits adjustment		—		—			—			—		—			—			5,521			—			—			—			5,521			—		—			—			—		—			—			(413	)		—			—			(413	)

Total comprehensive loss		—		—			—			—		—			—			—			—			—			—			(970,610	)		—		—			—			—		—			—			—			—			—			(69,781	)
Dividends on common stock		—		—			—			—		—			(62,967	)		—			—			—			—			(62,967	)		—		—			—			—		—			(19,223	)		—			—			—			(19,223	)
FASB Interpretation No. 48 adjustment		—		—			—			—		—			(2,459	)		—			—			—			—			(2,459	)
Exercise of employee stock options		144		—			—			144		1,443			—			—			—			—			—			1,587			29		—			—			29		2,074			—			—			—			—			2,103
Restricted stock awards																																	—		—			—			—		(307	)		—			—			307			—			—
Restricted stock amortization		—		—			—			—		4,946			—			—			—			—			—			4,946			—		—			—			—		2,297			—			—			—			—			2,297
Stock-based compensation		—		—			—			—		5,018			—			—			—			—			—			5,018			—		—			—			—		5,777			—			—			—			—			5,777
Cash-settled stock appreciation rights exchange																																	—		—			—			—		2,348			—			—			—			—			2,348
Grantor stock ownership trust		—		302			—			—		2,088			—			—			—			3,282			—			5,370			—		146			—			—		215			—			—			1,268			—			1,483
Treasury stock		—		—			(61	)		—		—			—			—			—			—			(967	)		(967	)		—		—			(48	)		—		343			—			—			—			(693	)		(350	)

Balance at November 30, 2008		115,120		(11,901	)		(25,512	)	$	115,120	$	865,123		$	927,324		$	(17,402	)	$	—		$	(129,326	)	$	(930,234	)	$	830,605
Balance at November 30, 2010																																	115,149		(11,083	)		(27,095	)	$	115,149	$	873,519		$	717,852		$	(22,657	)	$	(120,442	)	$	(931,543	)	$	631,878

See accompanying notes.

KB HOME

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)


	Years Ended November 30,									Years Ended November 30,
	2008			2007			2006			2010			2009			2008
Cash flows from operating activities:
Net income (loss)	$	(976,131	)	$	(929,414	)	$	482,351
Income from discontinued operations, net of income taxes		—			(47,252	)		(89,404	)
Gain on sale of discontinued operations, net of income taxes		—			(438,104	)		—
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Equity in loss of unconsolidated joint ventures		135,210			129,220			1,611
Net loss										$	(69,368	)	$	(101,784	)	$	(976,131	)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
Equity in (income) loss of unconsolidated joint ventures											(772	)		35,600			135,210
Distributions of earnings from unconsolidated joint ventures		22,183			42,356			13,553			20,410			7,662			22,183
Gain on sale of investment in unconsolidated joint venture		—			—			(27,612	)
Amortization of discounts and issuance costs		2,062			2,478			2,441			2,149			1,586			2,062
Depreciation and amortization		9,317			17,274			18,091			3,289			5,235			9,317
Loss on early redemption of debt		10,388			12,990			—
Deferred income taxes		221,306			208,348			(189,047	)
Tax benefit associated with exercise of stock options		2,097			(882	)		(15,384	)
Loss on voluntary termination of revolving credit facility/early redemption of debt											1,802			976			10,388
Provision for deferred income taxes											—			—			221,306
Tax benefits from stock-based compensation											(583	)		4,093			2,097
Stock-based compensation expense		5,018			9,354			19,358			8,074			3,977			5,018
Inventory impairments and land option contract abandonments		606,791			1,253,982			372,637			19,925			168,149			606,791
Goodwill impairment		67,970			107,926			—			—			—			67,970
Changes in assets and liabilities:
Receivables		(60,565	)		(71,406	)		(23,529	)		211,318			35,667			(60,565	)
Inventories		545,850			779,875			(356,342	)		(129,334	)		433,075			545,850
Accounts payable, accrued expenses and other liabilities		(282,781	)		(340,630	)		205,707			(199,205	)		(252,620	)		(282,781	)
Other, net		32,607			13,387			7,182			(1,669	)		8,296			32,607

Net cash provided by operating activities — continuing operations		341,322			749,502			421,613
Net cash provided by operating activities — discontinued operations		—			297,397			229,505

Net cash provided by operating activities		341,322			1,046,899			651,118
Net cash provided (used) by operating activities											(133,964	)		349,912			341,322

Cash flows from investing activities:
Sale of discontinued operations, net of cash divested		—			739,764			—
Sale of investment in unconsolidated joint venture		—			—			57,767
Change in restricted cash		(115,404	)		—			—
Investments in unconsolidated joint ventures		(59,625	)		(85,188	)		(179,184	)		(15,669	)		(19,922	)		(59,625	)
Sales (purchases) of property and equipment, net		7,073			685			(17,638	)		(420	)		(1,375	)		7,073
Other, net		—			—			772

Net cash provided (used) by investing activities — continuing operations		(167,956	)		655,261			(138,283	)
Net cash used by investing activities — discontinued operations		—			(12,112	)		(4,477	)

Net cash provided (used) by investing activities		(167,956	)		643,149			(142,760	)
Net cash used by investing activities											(16,089	)		(21,297	)		(52,552	)

Cash flows from financing activities:
Net payments on credit agreements and other short-term borrowings		—			—			(84,100	)
Proceeds from (redemption of) term loan		—			(400,000	)		400,000
Redemption of senior subordinated notes		(305,814	)		(258,968	)		—
Change in restricted cash											(1,185	)		1,112			(115,404	)
Proceeds from issuance of senior notes		—			—			298,458			—			259,737			—
Payments on mortgages, land contracts and other loans		(12,800	)		(114,119	)		(36,595	)
Payment of senior notes issuance costs											—			(4,294	)		—
Repayment of senior and senior subordinated notes											—			(453,105	)		(305,814	)
Payments on mortgages and land contracts due to land sellers and other loans											(101,154	)		(78,983	)		(12,800	)
Issuance of common stock under employee stock plans		6,958			12,310			65,052			1,851			3,074			6,958
Excess tax benefit associated with exercise of stock options		—			882			15,384			583			—			—
Payments of cash dividends		(62,967	)		(77,170	)		(78,258	)		(19,223	)		(19,097	)		(62,967	)
Repurchases of common stock		(967	)		(6,896	)		(394,080	)		(350	)		(616	)		(967	)

Net cash provided (used) by financing activities — continuing operations		(375,590	)		(843,961	)		185,861
Net cash used by financing activities — discontinued operations		—			(306,527	)		(215,010	)

Net cash used by financing activities		(375,590	)		(1,150,488	)		(29,149	)		(119,478	)		(292,172	)		(490,994	)

Net increase (decrease) in cash and cash equivalents		(202,224	)		539,560			479,209			(269,531	)		36,443			(202,224	)
Cash and cash equivalents at beginning of year		1,343,742			804,182			324,973			1,177,961			1,141,518			1,343,742

Cash and cash equivalents at end of year	$	1,141,518		$	1,343,742		$	804,182		$	908,430		$	1,177,961		$	1,141,518

See accompanying notes.

5963

KB HOME

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1.	Summary of Significant Accounting Policies

Operations. KB Home is a builder of single-family homes, townhomes and condominiums. ~~The~~As of November 30, 2010, the Company ~~has~~had ongoing operations in Arizona, California, Colorado, Florida, Maryland, Nevada, North Carolina, ~~South Carolina~~Texas and ~~Texas.~~Virginia. The Company also offers mortgage banking services through ~~Countrywide KB Home Loans,~~KBA Mortgage, a joint venture with a subsidiary of Bank of America, N.A. ~~Countrywide KB Home Loans~~KBA Mortgage is accounted for as an unconsolidated joint venture within the Company’s financial services reporting segment. ~~Through~~The Company provides title and insurance services through its financial services subsidiary, KB Home Mortgage Company (“KBHMC”)~~, the Company provides title and insurance services to its homebuyers.~~.

Basis of Presentation. The consolidated financial statements include the accounts of the Company and all significant subsidiaries and joint ventures in which a controlling interest is held, as well as certain VIEs required to be consolidated pursuant to ~~FASB Interpretation No. 46(R).~~ASC 810. All intercompany transactions have been eliminated. Investments in unconsolidated joint ventures in which the Company has less than a controlling interest are accounted for using the equity method.

In July 2007, the Company sold its 49% equity interest in its publicly traded French subsidiary, KBSA. Therefore, for the years ended November 30, 2007 and 2006, the French operations have been presented as discontinued operations in the consolidated financial statements.

Use of Estimates. The accompanying consolidated financial statements have been prepared in conformity with ~~U.S. generally accepted accounting principles~~GAAP and, ~~as such,~~therefore, include amounts based on informed estimates and judgments of management. Actual results could differ from these estimates.

Cash and Cash Equivalents and Restricted Cash. The Company considers all highly liquid ~~debt instruments and other~~ short-term investments purchased with an original maturity of three months or less to be cash equivalents. The Company’s cash equivalents totaled ~~$1.05~~$797.2 million at November 30, 2010 and $1.07 billion at November 30, ~~2008 and $1.11 billion at November 30, 2007.~~2009. The majority of the Company’s cash and cash equivalents were invested in ~~high-quality~~ money market accounts ~~that are covered by the U.S. Treasury’s Temporary Guarantee Program, currently set to expire on April 30, 2009,~~ and U.S. government securities.

Restricted cash of $115.5 million at November 30, ~~2008~~2010 consisted of $88.7 million of cash deposited with various financial institutions that is required as collateral for the LOC Facilities, and $26.8 million of cash in an escrow account required as collateral for a surety bond. Restricted cash of $114.3 million at November 30, 2009 consisted solely of ~~$115.4 million maintained~~cash deposited in an ~~Interest Reserve Account~~interest reserve account with the administrative agent of the ~~Company’s~~ Credit ~~Facility.~~Facility pursuant to the Credit Facility’s terms. The ~~Company may withdraw~~Credit Facility was terminated effective March 31, 2010 and the ~~amounts~~cash deposited in the ~~Interest Reserve Account when its Coverage Ratio at the end of a fiscal quarter is greater than or equal to 1.00 to 1.00, provided there is no default under the Credit Facility at the time amounts are~~interest reserve account was withdrawn.

~~Goodwill.~~ The Company has recorded goodwill in connection with various acquisitions in prior years. Goodwill represents the excess of the purchase price over the fair value of net assets acquired. In accordance with SFAS No. 142, the Company tests goodwill for potential impairment annually as of November 30 and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company evaluates goodwill for impairment using the two-step process prescribed in SFAS No. 142. The first step is to identify potential impairment by comparing the fair value of a reporting unit to the book value, including goodwill. If the fair value of a reporting unit exceeds the book value, goodwill is not considered impaired. If the book value exceeds the fair value, the second step of the process is performed to measure the amount of impairment. In accordance with SFAS No. 142, the Company has determined that its reporting units are the same as its reporting segments. Accordingly, the Company has four homebuilding reporting units (West Coast, Southwest, Central and Southeast) and one financial services reporting unit.

Property and Equipment, Operating Properties and Depreciation. Property and equipment are recorded at cost and are depreciated over their estimated useful lives, which generally range from two to 10 years, using the straight-line method. Operating properties are recorded at cost and are depreciated over their estimated useful lives of 39 years, using thestraight-line method. Repair and maintenance costs are charged to earnings as incurred. Property and equipment and operating properties are included in other assets on the consolidated balance ~~sheets~~sheets. Property and equipment totaled ~~$16.3~~$9.6 million, net of accumulated depreciation of ~~$36.9~~$27.1 million, at November 30, ~~2008,~~2010, and ~~$32.7~~$12.5 million, net of accumulated depreciation of ~~$61.3~~$30.0 million, at November 30, ~~2007.~~2009. Depreciation expense totaled ~~$9.4~~$3.3 million in ~~2008, $17.3~~2010, $5.2 million in ~~2007,~~2009 and ~~$17.2~~$9.3 million in ~~2006.~~2008.

~~Foreign Currency Translation.~~ Results of operations for KBSA were translated to U.S. dollars using the average exchange rates during the period. Assets and liabilities were translated using the exchange rates in effect at the balance sheet date. Resulting translation adjustments were recorded in stockholders’ equity as foreign currency translation adjustments. Cumulative translation adjustments of $63.2 million related to the Company’s French operations were recognized in 2007 in connection with the sale of those operations.

Homebuilding Operations. Revenues from housing and other real estate sales are recognized in accordance with ~~SFAS No. 66~~ASC 360 when sales are closed and title passes to the buyer. Sales are closed when all of the following conditions are met: a sale is consummated, a ~~significant~~sufficient down payment is received, the earnings process is complete and the collection of any remaining receivables is reasonably assured.

Construction and land costs are comprised of direct and allocated costs, including estimated future costs for warranties and amenities. Land, land improvements and other common costs are generally allocated on a relative fair value basis to homes within a parcel or community. Land and land development costs include related interest and real estate taxes.

Housing and land inventories are stated at cost, unless the carrying amount is determined not to be recoverable, in which case the inventories are written down to fair value in accordance with ~~SFAS No. 144. SFAS No. 144~~ASC 360. ASC 360 requires that real estate assets be tested for recoverability whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. Recoverability of assets is measured by comparing the carrying amount of an asset to the undiscounted future net cash flows expected to be generated by the asset. These evaluations for impairment are significantly impacted by estimates of the amounts and timing of revenues, costs and expenses, and other factors. If real estate assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying value of the

assets exceeds the fair value of the assets. Fair value is determined based on estimated future cash flows discounted for inherent risks associated with the real estate assets, or other valuation techniques.

Fair Value Measurements. ASC 820 defines fair value, provides a framework for measuring the fair value of assets and liabilities under GAAP and establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Financial Services Operations. Revenues from the Company’s financial services segment are generated primarily from ~~the following sources:~~ interest ~~income;~~income, title ~~services;~~services, and insurance commissions. Interest income is accrued as earned. Title services revenues are recognized as closing services are rendered and title insurance policies are issued, both of which generally occur simultaneously at the time each home is closed. Insurance commissions are recognized when policies are issued.

Warranty Costs. The ~~financial services segment also generated revenues from escrow coordination services until~~Company provides a limited warranty on all of its homes. The Company estimates the ~~escrow coordination business was terminated~~costs that may be incurred under each limited warranty and records a liability in ~~2007. Escrow coordination fees were recognized~~the amount of such costs at the time the revenue associated with the sale of each home ~~was closed.~~is recognized. Factors that affect the Company’s warranty liability include the number of homes delivered, historical and anticipated rates of warranty claims, and cost per claim. The Company’s primary assumption in estimating the amounts it accrues for warranty costs is that historical claims experience is a strong indicator of future claims experience. The Company periodically assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary based on its assessment.

Insurance. The Company self-insures a portion of its overall risk through the use of a captive insurance subsidiary. The Company records expenses and liabilities based on the estimated costs required to cover its self-insured retention and deductible amounts under its insurance policies, and on the estimated costs of potential claims and claim adjustment expenses above its coverage limits or that are not covered by its policies. These estimated costs are based on an analysis of the Company’s historical claims and include an estimate of construction defect claims incurred but not yet reported.

The Company engages a third-party actuary that uses the Company’s historical claim and expense data, as well as industry data, to estimate its unpaid claims, claim adjustment expenses and incurred but not reported claims liabilities for the risks that the Company is assuming under the self-insured portion of its general liability insurance. Projection of losses related to these liabilities requires actuarial assumptions that are subject to variability due to uncertainties regarding construction defect claims relative to the Company’s markets and the types of product it builds, claim settlement patterns, insurance industry practices and legal or regulatory interpretations, among other factors. Because of the degree of judgment required and the potential for variability in the underlying assumptions used in determining these estimated liability amounts, actual future costs could differ from the Company’s currently estimated amounts.

Advertising Costs. The Company expenses advertising costs as incurred. The Company incurred advertising costs of $25.9 million in 2010, $16.5 million in 2009 and $34.6 million in 2008.

Stock-Based Compensation. With the approval of the management development and compensation committee, consisting entirely of independent members of the Company’s board of directors, the Company ~~provides~~has provided some compensation benefits ~~by issuing~~to its employees in the form of stock options, restricted stock, phantom shares and SARs.

~~Effective December 1, 2005, the~~The Company ~~adopted the fair value recognition provisions~~measures and recognizes compensation expense associated with its grant of ~~SFAS No. 123(R),~~equity-based awards in accordance with ASC 718, which requires that companies measure and recognize compensation expense at an amount equal to the fair value of share-based payments granted under compensation ~~arrangements.~~arrangements over the vesting period. The Company ~~adopted SFAS No. 123(R) using~~estimates the modified prospective transition method. Under that transition method, the provisions of SFAS No. 123(R) apply to all awards granted or modified after the date of adoption. In addition, compensation expense must be recognized for any unvested stock option awards outstanding as of the date of adoption on a straight-line basis over the remaining vesting period. The fair value of stock options and SARs granted ~~is estimated on the date of grant~~ using the Black-Scholes option-pricing model. ~~SFAS No. 123(R)~~ASC 718 also requires the tax benefit resulting from tax deductions in excess of the compensation expense recognized for those options to be reported in the statement of cash flows as an operating cash outflow and a financing cash ~~inflow rather than as an operating cash inflow as previously reported.~~

~~Advertising Costs.~~ ~~The Company expenses advertising costs as incurred. The Company incurred advertising costs of $34.6 million in 2008, $68.0 million in 2007 and $107.0 million in 2006.~~

~~Insurance.~~ The Company has, and requires the majority of its subcontractors to have, general liability insurance (including construction defect coverage) and workers compensation insurance. These insurance policies protect the Company against a portion of its risk of loss from claims related to its homebuilding activities, subject to certain self-insured retentions, deductibles and other coverage limits. The Company self-insures a portion of its overall risk through the use of a captive insurance subsidiary. The Company records expenses and liabilities based on the costs required to cover its self-insured retention and deductible amounts under its insurance policies, and on the estimated costs of potential claims and claim adjustment expenses above its coverage limits or not covered by its policies. These estimated costs are based on an analysis of the Company’s historical claims and include an estimate of construction defect claims incurred but not yet reported. The Company engages a third-party actuary that uses the Company’s historical claim data to estimate its unpaid claims, claim adjustment expenses and incurred but not reported claims reserves for the risks that the Company is assuming under the self-insured portion of its general liability insurance. Projection of losses related to these liabilities is subject to a high degree of variability due to uncertainties such as trends in construction defect claims relative to the Company’s markets and the types of product it builds, claim settlement patterns, insurance industry practices and legal interpretations, among others. Because of the high degree of judgment required in determining these

~~estimated liability amounts, actual future costs could differ significantly from the Company’s currently estimated amounts.~~inflow.

Income Taxes. Income taxes are accounted for in accordance with ~~SFAS No. 109.~~ASC 740. The provision for, or benefit from, income taxes is calculated using the asset and liability method, under which deferred tax assets and liabilities are recorded based on

the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are evaluated on a quarterly basis to determine whether a valuation allowance is required. In accordance with ~~SFAS No. 109,~~ASC 740, the Company assesses whether a valuation allowance should be established based on its determination of whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends primarily on the generation of future taxable income during the periods in which those temporary differences become deductible. Judgment is required in determining the future tax consequences of events that have been recognized in the Company’s consolidated financial statements and/or tax returns. Differences between anticipated and actual outcomes of these future tax consequences could have a material impact on the Company’s consolidated financial position or results of operations.

Accumulated Other Comprehensive ~~Income (Loss).~~Loss. The accumulated balances of other comprehensive loss in the consolidated balance sheets as of November 30, ~~2008~~2010 and ~~2007~~2009 are comprised solely of adjustments recorded directly to accumulated other comprehensive loss in accordance with ~~SFAS No. 158. SFAS No. 158~~ASC 715. ASC 715 requires an employer to recognize the funded status of a defined postretirement benefit ~~plan~~plans as an asset or liability on the balance sheet and requires any unrecognized prior service costs and actuarial gains/losses to be recognized in accumulated other comprehensive income (loss). ~~The Company initially applied the provisions of SFAS No. 158, as required, in 2007.~~

~~Earnings (Loss)~~Loss Per Share. Basic ~~earnings (loss)~~and diluted loss per share iswere calculated ~~by dividing net income (loss) by the average number of common shares outstanding for the period. Diluted earnings (loss)~~as follows (in thousands, except per share ~~is calculated by dividing net income (loss) by the average number of common shares outstanding including all potentially dilutive shares issuable under outstanding stock options.~~ amounts):


	Years Ended November 30,
	2010			2009			2008

Numerator:
Net loss	$	(69,368	)	$	(101,784	)	$	(976,131	)

Denominator:
Basic and diluted average shares outstanding		76,889			76,660			77,509

Basic and diluted loss per share	$	(.90	)	$	(1.33	)	$	(12.59	)

All outstanding stock options were excluded from the diluted ~~earnings (loss)~~loss per share calculations for the years ended November 30, ~~2008~~2010, 2009 and ~~2007~~2008 because the effect of their inclusion would be antidilutive, or would decrease the reported loss per share. For the year ended November 30, 2006, options to purchase 597,100 shares were excluded from the diluted earnings per share calculation because the exercise price was greater than the average market price of the common stock and their effect would have been antidilutive. The following table presents a reconciliation of average shares outstanding (in thousands):

Years Ended November 30,
2008 2007 2006

Basic average shares outstanding 77,509 77,172 78,829
Net effect of stock options assumed to be exercised — — 4,027

Diluted average shares outstanding 77,509 77,172 82,856

Recent Accounting ~~Pronouncements.~~Pronouncements. In ~~September 2006,~~January 2010, the FASB issued ~~SFAS No. 157,~~ASU 2010-06, which provides ~~guidance~~amendments to Accounting Standards Codification Subtopic No. 820-10, “Fair Value Measurements and Disclosures — Overall.” ASU 2010-06 requires additional disclosures and clarifications of existing disclosures for ~~using fair value to measure assets~~recurring and ~~liabilities, defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about~~nonrecurring fair value measurements. ~~SFAS No. 157 is~~The revised guidance was effective for the Company in the second quarter of 2010, except for the Level 3 activity disclosures, which are effective for fiscal years beginning after ~~November~~December 15, ~~2007~~2010. ASU 2010-06 concerns disclosure only and ~~for interim periods within those years. In February 2008, the FASB issued FSPNo. FAS 157-2,~~ which delayed for one year the applicability of SFAS No. 157’s fair-value measurements to certain nonfinancial assets and liabilities. The Company adopted SFAS No. 157 in 2008, except as it applies to those nonfinancial assets and liabilities affected by the one-year delay. The partial adoption of SFAS No. 157 didwill not have ~~a material~~an impact on the Company’s consolidated financial position or results of operations. While it is currently evaluating the impact of adopting the remaining provisions of SFAS No. 157, the Company does not expect SFAS No. 157 to have a material impact on its consolidated financial position or results of operations.

In December ~~2007,~~2010, the FASB issued ~~SFAS No. 141(R),~~ASU2010-29, which ~~amends SFAS No. 141,~~addresses diversity in practice about the interpretation of the pro forma revenue and ~~provides revised guidance for recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed, and any noncontrolling interest in the acquiree. It also provides~~earnings disclosure requirements ~~to enable users~~for business combinations. The amendments in ASU2010-29 specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the ~~financial statements~~combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments in ASU2010-29 also expand the supplemental pro forma disclosures to ~~evaluate~~include a description of the nature and financial effects of the business combination. SFAS No. 141(R) is effective for fiscal years beginning after December 15, 2008 and is to be applied prospectively. The Company is currently evaluating the potential impact of adopting SFAS No. 141(R) on its consolidated financial position and results of operations.

~~In December 2007, the FASB issued SFAS No. 160, which establishes accounting and reporting standards pertaining to ownership interests in subsidiaries held by parties other than the parent, the~~ amount of ~~net income~~material, nonrecurring pro forma adjustments directly attributable to the ~~parent~~business combination included in the reported pro forma revenue and toearnings. The amendments in ASU2010-29 are effective prospectively for business combinations for which the ~~noncontrolling interest, changes in a parent’s ownership interest, and~~acquisition date is on or after the valuation of any retained noncontrolling equity investment when a subsidiary is deconsolidated. SFAS No. 160 also establishes disclosure requirements that clearly identify and distinguish between the interestsbeginning of the ~~parent and the interests of the noncontrolling owners. SFAS No. 160 is effective for fiscal years~~first annual reporting period beginning on or after December 15, ~~2008.~~2010. The Company ~~is currently evaluating the potential impact of adopting SFAS No. 160 on its consolidated financial position and results of operations.~~

In May 2008, the FASB issued SFAS No. 162, which identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. The Company does not expectbelieves the adoption of ~~SFAS No. 162 to have a material impact on its consolidated financial position or results of operations.~~

In May 2008, the FASB also issued SFAS No. 163, which clarifies how SFAS No. 60 applies to financial guarantee insurance contracts, including the recognition and measurement of premium revenue and claim liabilities. SFAS No. 163 also requires expanded disclosures about financial guarantee insurance contracts. SFAS No. 163 is effective for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. The Company is currently evaluating the potential impact of adopting SFAS No. 163 on its consolidated financial position and results of operations.

~~In June 2008, the FASB issued FSP No.EITF 03-6-1.~~ ~~Under FSP No.EITF 03-6-1,~~ unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method.~~FSP No. EITF 03-6-1~~ is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those years and requires retrospective application. The Company is currently evaluating the impact of adopting FSP No.~~EITF 03-6-1~~ ~~on its earnings per share.~~

~~In October 2008, the FASB issued FSP No. FAS157-3,~~ ~~which clarifies the application of SFAS No. 157 in a market that is not active. FSP No. FAS157-3~~ ~~became effective upon issuance, including prior periods for which financial statements have not been issued. The Company’s adoption of FSP No. FAS 157-3 did~~this guidance will not have a material impact on its ~~consolidated financial position or results of operations.~~

~~In December 2008, the FASB issued FSP No. FAS140-4~~ and FIN 46(R)-8, which amends SFAS No. 140, to require public entities to provide additional disclosures about transfers of financial assets. It also amends FASB Interpretation No. 46(R), to require public enterprises, including sponsors that have a variable interest in a VIE, to provide additional disclosures about their involvement with VIEs. FSP No. FAS~~140-4~~ ~~and FIN 46(R)-8 is related to disclosure only and will not have a impact on the Company’s~~ consolidated financial position or results of operations.

Reclassifications. Certain amounts in the consolidated financial statements of prior years have been reclassified to conform to the ~~2008~~2010 presentation.


Note 2.	Segment Information

As of November 30, ~~2008,~~2010, the Company ~~has~~had identified five reporting segments, comprised of four homebuilding reporting segments and one financial services reporting segment, within its consolidated operations in accordance with ~~Statement of Financial~~ Accounting Standards Codification Topic No. ~~131, “Disclosures about Segments of an Enterprise and Related Information.~~280, “Segment Reporting.” As of November 30, ~~2008,~~2010, the Company’s homebuilding reporting segments conducted ongoing operations in the following states:

West Coast: California

Southwest: Arizona and Nevada

Central: Colorado and Texas

Southeast: Florida, Maryland, North Carolina, and ~~South Carolina.~~Virginia

The Company’s homebuilding reporting segments are engaged in the acquisition and development of land primarily for residential purposes and offer a wide variety of homes that are designed to appeal to first-time, ~~first~~ move-up and active adult ~~buyers.~~homebuyers.

The Company’s homebuilding reporting segments were identified based primarily on similarities in economic and geographic characteristics, ~~as well as similar~~ product ~~type,~~types, regulatory environments, methods used to sell and construct homes and land acquisition characteristics. The Company evaluates segment performance primarily based on segment pretax ~~income.~~results.

The Company’s financial services reporting segment provides title and insurance services to the Company’s ~~homebuyers and provided escrow coordination services until the second quarter of 2007, when the Company terminated the escrow coordination business. The~~homebuyers. This segment also provides mortgage banking services to the Company’s homebuyers ~~indirectly~~ through ~~Countrywide KB Home Loans, a joint venture between a Company subsidiary and CWB Venture Management Corporation, a subsidiary of Bank of America N.A.~~KBA Mortgage. The Company’s financial services reporting segment conducts operations in the same markets as the Company’s homebuilding reporting segments.

The Company’s reporting segments follow the same accounting policies used for the Company’s consolidated financial statements as described in Note 1. Summary of Significant Accounting Policies. Operational results of each segment are not necessarily indicative of the results that would have occurred had the segment been an independent, stand-alone entity during the periods ~~presented.~~presented, nor are they indicative of the results to be expected in future periods.

The following tables present financial information relating to the Company’s reporting segments (in thousands):

Years Ended November 30,
2008 2007 2006
Revenues:
West Coast $ 1,055,021 $ 2,203,303 $ 3,531,279
Southwest 618,014 1,349,570 2,183,830
Central 594,317 1,077,304 1,553,309
Southeast 755,817 1,770,414 2,091,425

Total homebuilding revenues 3,023,169 6,400,591 9,359,843
Financial services 10,767 15,935 20,240

Total revenues $ 3,033,936 $ 6,416,526 $ 9,380,083

Income (loss) from continuing operations before income taxes:
West Coast $ (298,047 ) $ (665,845 ) $ 359,864
Southwest (212,194 ) (287,339 ) 365,098
Central (82,789 ) (64,210 ) (54,749 )
Southeast (258,568 ) (230,420 ) 38,933
Corporate and other (a) (140,151 ) (246,792 ) (170,835 )

Total homebuilding income (loss) from continuing operations before income taxes (991,749 ) (1,494,606 ) 538,311
Financial services 23,818 33,836 33,536

Total income (loss) from continuing operations before income taxes $ (967,931 ) $ (1,460,770 ) $ 571,847

Interest cost:
West Coast $ 43,140 $ 63,902 $ 20,160
Southwest 32,953 45,827 49,622
Central 23,836 21,184 37,518
Southeast 38,955 44,364 31,850
Corporate and other 3,983 9,209 20,777

Total (b) $ 142,867 $ 184,486 $ 159,927


	Years Ended November 30,									Years Ended November 30,
	2008			2007			2006			2010			2009			2008
Equity in income (loss) of unconsolidated joint ventures:
West Coast	$	(45,180	)	$	(64,886	)	$	(25,732	)
Southwest		(35,633	)		(15,734	)		(26	)
Central		(4,515	)		(6,916	)		(3,829	)
Southeast		(67,422	)		(64,381	)		(12,290	)
Corporate and other		—			—			21,047

Total	$	(152,750	)	$	(151,917	)	$	(20,830	)

Inventory impairments:
Revenues:
West Coast	$	229,059		$	631,399		$	113,022		$	700,645		$	812,207		$	1,055,021
Southwest		160,574			337,889			17,343			187,736			218,096			618,014
Central		51,518			24,662			30,592			436,404			434,400			594,317
Southeast		124,726			116,023			67,808			256,978			351,712			755,817

Total	$	565,877		$	1,109,973		$	228,765
Total homebuilding revenues											1,581,763			1,816,415			3,023,169
Financial services											8,233			8,435			10,767

Inventory abandonments:
Total revenues										$	1,589,996		$	1,824,850		$	3,033,936

Pretax income (loss):
West Coast	$	17,475		$	28,011		$	65,740		$	60,250		$	(88,442	)	$	(298,047	)
Southwest		187			16,479			22,069			(15,802	)		(48,572	)		(212,194	)
Central		—			9,783			18,198			(1,772	)		(29,382	)		(82,789	)
Southeast		23,252			89,736			37,865			(42,801	)		(78,414	)		(258,568	)
Corporate and other (a)											(88,386	)		(85,573	)		(140,151	)

Total	$	40,914		$	144,009		$	143,872
Total homebuilding loss											(88,511	)		(330,383	)		(991,749	)
Financial services											12,143			19,199			23,818

Joint venture impairments:
West Coast	$	43,116		$	57,030		$	34,401
Southwest		30,434			31,049			—
Central		2,629			4,483			—
Southeast		65,671			63,801			24,201
Total pretax loss										$	(76,368	)	$	(311,184	)	$	(967,931	)

Total	$	141,850		$	156,363		$	58,602


(a)		Corporate and other includes corporate general and administrative expenses and goodwill impairment.


~~(b)~~		Interest cost for 2008 included $129.9 million of interest amortized in construction and land costs, $2.6 million of interest expense, $7.1 million related to the loss on early redemption of debt and $3.3 million of unamortized fees that were written off in connection with an amendment of the Credit Facility. Interest cost for 2007 included $171.5 million of interest amortized in construction and land costs and $13.0 million related to the loss on early redemption of debt. Interest cost for 2006 included $143.2 million of interest amortized in construction and land costs and $16.7 million of interest expense.

November 30,
2008 2007
Assets:
West Coast $ 1,086,503 $ 1,542,948
Southwest 497,034 887,361
Central 443,168 643,599
Southeast 453,771 845,679
Corporate and other 1,511,672 1,741,977

Total homebuilding assets 3,992,148 5,661,564
Financial services 52,152 44,392

Total assets $ 4,044,300 $ 5,705,956

65
67

November 30,
2008 2007
Investments in unconsolidated joint ventures:
West Coast $ 55,856 $ 63,450
Southwest 113,564 134,082
Central 3,339 7,230
Southeast 4,890 92,248

Total $ 177,649 $ 297,010


	Years Ended November 30,
	2010			2009			2008
Equity in income (loss) of unconsolidated joint ventures:
West Coast	$	1,476		$	(7,761	)	$	(45,180	)
Southwest		(8,631	)		(15,509	)		(35,633	)
Central		—			506			(4,515	)
Southeast		898			(26,851	)		(67,422	)

Total	$	(6,257	)	$	(49,615	)	$	(152,750	)

Inventory impairments:
West Coast	$	3,828		$	44,895		$	229,059
Southwest		962			28,833			160,574
Central		348			23,891			51,518
Southeast		4,677			23,229			124,726

Total	$	9,815		$	120,848		$	565,877

Land option contract abandonments:
West Coast	$	797		$	32,679		$	17,475
Southwest		—			—			187
Central		6,511			—			—
Southeast		2,802			14,622			23,252

Total	$	10,110		$	47,301		$	40,914

Joint venture impairments:
West Coast	$	—		$	7,190		$	43,116
Southwest		—			5,426			30,434
Central		—			—			2,629
Southeast		—			25,915			65,671

Total	$	—		$	38,531		$	141,850


	November 30,
	2010		2009
Assets:
West Coast	$	965,323	$	838,510
Southwest		376,234		346,035
Central		328,938		357,688
Southeast		372,611		361,551
Corporate and other		1,037,200		1,498,781

Total homebuilding assets		3,080,306		3,402,565
Financial services		29,443		33,424

Total assets	$	3,109,749	$	3,435,989

Investments in unconsolidated joint ventures:
West Coast	$	37,830	$	54,795
Southwest		59,191		56,779
Central		—		—
Southeast		8,562		8,094

Total	$	105,583	$	119,668

Note 3. Financial Services

~~Financial~~The following tables present financial information ~~related~~relating to the Company’s financial services reporting segment ~~is as follows~~ (in thousands):


										Years Ended November 30,
	Years Ended November 30,									2010			2009			2008
	2008			2007			2006

Revenues
Interest income	$	209		$	158		$	230		$	6		$	31		$	209
Title services		2,369			5,977			7,205			992			1,184			2,369
Insurance commissions		8,189			9,193			9,410			7,235			7,220			8,189
Escrow coordination fees		—			607			3,395

Total		10,767			15,935			20,240			8,233			8,435			10,767
Expenses
Interest		—			—			(49	)
General and administrative		(4,489	)		(4,796	)		(5,874	)		(3,119	)		(3,251	)		(4,489	)

Operating income		6,278			11,139			14,317			5,114			5,184			6,278
Equity in income of unconsolidated joint venture		17,540			22,697			19,219			7,029			14,015			17,540

Pretax income	$	23,818		$	33,836		$	33,536		$	12,143		$	19,199		$	23,818


	November 30,				November 30,
	2008		2007		2010		2009

Assets
Cash and cash equivalents	$	6,119	$	18,487	$	4,029	$	3,246
Receivables		1,240		2,655		1,607		1,395
Investment in unconsolidated joint venture		44,733		23,140		23,777		28,748
Other assets		60		110		30		35

Total assets	$	52,152	$	44,392	$	29,443	$	33,424

Liabilities
Accounts payable and accrued expenses	$	9,467	$	17,796	$	2,620	$	7,050

Total liabilities	$	9,467	$	17,796	$	2,620	$	7,050

Although KBHMC ceased originating and selling mortgage loans on September 1, 2005, it may be required to repurchase an individual loan that it funded on or before August 31, 2005 and sold to an investor if the representations or warranties that it made in connection with the sale of the loan are breached, in the event of an early payment default, or if the loan does not comply with the underwriting standards or other requirements of the ultimate investor. ~~KBHMC ceased originating and selling loans on September 1, 2005.~~


Note 4.	Receivables

Mortgages and notes receivable totaled ~~$53.5~~$40.5 million at November 30, ~~2008~~2010 and ~~$46.8~~$70.7 million at November 30, ~~2007.~~2009. Mortgages and notes receivable are primarily related to land sales. Interest rates on mortgages and notes receivable ranged from 5%3% to 8% at November 30, ~~2008. The interest rate on~~2010 and from 4% to 8% at November 30, 2009. Included in mortgages and notes receivable at November 30, ~~2007 ranged from 5% to 8~~1/4~~%. Principal amounts at November 30, 2008 are due during~~2010 is a note receivable of $40.0 million on which the ~~following years: 2009 — $9.8 million; 2010 — $3.3 million; 2011 — $0; 2012 — $40.0 million; and 2013 — $.4 million.~~ Company is in the process of foreclosing on the underlying real estate.

Federal and state

income taxes receivable totaled ~~$211.3~~$.8 million at November 30, ~~2008~~2010 and ~~$124.0~~$191.5 million at November 30, ~~2007.~~2009. Other receivables of ~~$92.9~~$66.7 million at November 30, ~~2008~~2010 and ~~$124.9~~$75.7 million at November 30, ~~2007~~2009 included amounts due from municipalities and utility companies, and escrow deposits. Other receivables were net of allowances for doubtful accounts of ~~$72.5~~$31.2 million in ~~2008~~2010 and ~~$76.9~~$48.9 million in ~~2007.~~2009.


Note 5.	Inventories

Inventories consisted of the following (in thousands):


	November 30,				November 30,
	2008		2007		2010		2009

Homes, lots and improvements in production	$	1,649,838	$	2,473,980	$	1,298,085	$	1,091,851
Land under development		456,878		838,440		398,636		409,543

Total	$	2,106,716	$	3,312,420	$	1,696,721	$	1,501,394

Inventories include land and land development costs, direct construction costs, capitalized interest and real estate taxes. Land under development primarily consists of parcels on which 50% or less of estimated development costs have been incurred.

Interest is capitalized to inventories while the related communities are being actively ~~developed.~~developed and until homes are completed. Capitalized interest is amortized in construction and land costs as the related inventories are delivered to homebuyers. The Company’s interest costs are as follows (in thousands):

Years Ended November 30,
2008 2007 2006

Capitalized interest at beginning of year $ 348,084 $ 333,020 $ 255,195
Interest incurred 156,402 199,550 237,752
Loss on early redemption/interest expensed (12,966 ) (12,990 ) (16,678 )
Interest amortized to construction and land costs (129,901 ) (171,496 ) (143,249 )

Capitalized interest at end of year (a) $ 361,619 $ 348,084 $ 333,020


	Years Ended November 30,
	2010			2009			2008

Capitalized interest at beginning of year	$	291,279		$	361,619		$	348,084
Capitalized interest related to consolidation of previously unconsolidated joint ventures		9,914			—			—
Interest incurred (a)		122,230			119,602			156,402
Interest expensed/loss on early redemption of debt (a)		(68,307	)		(51,763	)		(12,966	)
Interest amortized to construction and land costs		(105,150	)		(138,179	)		(129,901	)

Capitalized interest at end of year (b)	$	249,966		$	291,279		$	361,619


(a)		Amounts for the year ended November 30, 2010 include a total of $1.8 million of debt issuance costs written off in connection with the Company’s voluntary reduction of the aggregate commitment under the Credit Facility from $650.0 million to $200.0 million and the subsequent voluntary termination of the Credit Facility. Amounts for the years ended November 30, 2009 and 2008 include losses on the early redemption of debt of $1.0 million and $10.4 million, respectively.


(b)		Inventory impairment charges are recognized against all inventory costs of a community, such as land, land improvements, cost of home construction and capitalized interest. Capitalized interest amounts presented in the table reflect the gross amount of capitalized interest as impairment charges recognized are not generally allocated to specific components of inventory.


Note 6.	Inventory Impairments and Land Option Contract Abandonments

Each land parcel or community in the Company’s owned inventory is assessed to determine if indicators of potential impairment exist. ~~If indicators of potential impairment exist for a parcel or community, the identified inventory is evaluated for recoverability in accordance with SFAS No. 144.~~ Impairment indicators are assessed separately for each land parcel or community on a quarterly basis and include, but are not limited to: significant decreases in sales rates, average selling prices, volume of homes delivered, gross margins on homes delivered or ~~gross margins;~~projected margins on homes in backlog or future housing sales; significant increases in budgeted land development and construction costs or cancellation rates; or projected losses on expected future ~~housing~~land sales. If indicators of potential impairment exist for a land parcel or ~~land sales.~~community, the identified inventory is evaluated for recoverability in accordance with ASC 360. When an indicator of potential impairment is identified, the Company tests the asset for recoverability by comparing the carrying amount of the asset to the undiscounted future net cash flows expected to be generated by the asset. The undiscounted future net cash flows are impacted by trends and factors known to the Company at the time they are calculated and the Company’s expectations related to: market supply and demand, including estimates concerning average selling prices; ~~sales incentives;~~ sales and cancellation rates; and anticipated land development, construction and overhead costs to be incurred. These estimates, trends and expectations are specific to each land parcel or community and may vary among land parcels or communities.

impacted by: the risk-free rate of return; expected risk premium based on estimated land development, construction and delivery timelines; market risk from potential future price erosion; cost uncertainty due to development or construction cost increases; and other risks specific to the asset or conditions in the market in which the asset is located at the time the assessment is made. These factors are specific to each land parcel or community and may vary among land parcels or communities.

Based on the results of its evaluations, the Company recognized pretax, noncash inventory impairment charges of $9.8 million in 2010, $120.8 million in 2009 and $565.9 million in ~~2008, $1.11 billion in 2007 and $228.7 million in 2006.~~2008. As of November 30, ~~2008,~~2010, the aggregate carrying value of inventory that had been impacted by pretax, noncash inventory impairment charges was ~~$1.01 billion,~~$418.5 million, representing ~~163~~72 communities and various other land parcels. As of November 30, ~~2007,~~2009, the aggregate carrying value of inventory that had been impacted by pretax, noncash inventory impairment charges was ~~$1.35 billion,~~$603.9 million, representing ~~145~~128 communities and various other land parcels.

The Company’s optioned inventory is assessed to determine whether it continues to meet the Company’s internal investment and marketing standards. Assessments are made separately for each optioned parcel on a quarterly basis and are affected by, among other factors: currentand/or anticipated sales rates, average selling prices and home delivery ~~volume and gross margins;~~volume; estimated land development and construction costs; and projected profitability on expected future housing or land sales. When a decision is made not to exercise certain land option contracts due to market conditionsand/or changes in ~~market~~marketing strategy, the Company writes off the costs, including non-refundable deposits and pre-acquisition costs, related to the abandoned projects.

~~The~~ Based on the results of its assessments, the Company recognized land option contract abandonment charges ~~associated with land option contracts~~ of $10.1 million in 2010, $47.3 million in 2009 and $40.9 million in ~~2008, $144.0 million in 2007 and $143.9 million in 2006.~~2008.

~~The inventory~~Inventory impairment ~~charges~~ and land option contract abandonment charges are included in construction and land costs in the Company’s consolidated statements of operations.

Due to the judgment and assumptions applied in the estimation process with respect to inventory impairments and land option contract abandonments, it is possible that actual results could differ substantially from those estimated.


Note 7.	Fair Value Disclosures

ASC 820 defines fair value, provides a framework for measuring the fair value of assets and liabilities under GAAP and establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair value hierarchy can be summarized as follows:


	Level 1	Fair value determined based on quoted prices in active markets for identical assets or liabilities.

	Level 2	Fair value determined using significant observable inputs, such as quoted prices for similar assets or liabilities or quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability, or inputs that are derived principally from or corroborated by observable market data, by correlation or other means.

	Level 3	Fair value determined using significant unobservable inputs, such as pricing models, discounted cash flows, or similar techniques.

Fair value measurements are used for inventories on a nonrecurring basis when events and circumstances indicate the carrying value may not be recoverable. The following table presents the Company’s assets measured at fair value on a nonrecurring basis (in thousands):

Fair Value Measurements Using

Quoted

Significant

Prices in

Other

Significant

Year Ended

Active

Observable

Unobservable

November 30,

Markets

Inputs

Description

2010 (a)

(Level 1)

(Level 2)

(Level 3)

Total Losses

Long-lived assets held and used

11,570

—

11,570

(9,815

)


(a)		Amount represents the aggregate fair values for communities where the Company recognized noncash inventory impairment charges during the period, as of the date that the fair value measurements were made. The carrying value for these communities may have subsequently increased or decreased from the fair value reflected due to activity that has occurred since the measurement date.

In accordance with the provisions of ASC 360, long-lived assets held and used with a carrying amount of $21.4 million were written down to their fair value of $11.6 million during the year ended November 30, 2010, resulting in noncash inventory impairment charges of $9.8 million.

The fair values for long-lived assets held and used, determined using Level 3 inputs, were primarily based on the estimated future cash flows discounted for inherent risk associated with each asset. These discounted cash flows are impacted by: the risk-free rate of return; expected risk premium based on estimated land development, construction and delivery timelines; market risk from potential future price erosion; cost uncertainty due to development or construction cost increases; and other risks specific to the asset or conditions in the market in which the asset is located at the time the assessment is made. These factors are specific to each land parcel or community and may vary among land parcels or communities.

The Company’s financial instruments consist of cash and cash equivalents, restricted cash, mortgages and notes receivable, senior notes, and mortgages and land contracts due to land sellers and other loans. Fair value measurements of financial instruments are determined by various market data and other valuation techniques as appropriate. When available, the Company uses quoted market prices in active markets to determine fair value. The following table presents the carrying values and estimated fair values of the Company’s financial instruments, except for those for which the carrying values approximate fair values (in thousands):


	November 30,
	2010				2009
	Carrying		Estimated		Carrying		Estimated
	Value		Fair Value		Value		Fair Value

Financial Liabilities:
Senior notes due 2011 at 63/8%	$	99,916	$	101,500	$	99,800	$	100,250
Senior notes due 2014 at 53/4%		249,498		246,250		249,358		234,375
Senior notes due 2015 at 57/8%		299,068		289,500		298,875		276,000
Senior notes due 2015 at 61/4%		449,745		435,375		449,698		419,063
Senior notes due 2017 at 9.1%		260,352		279,575		259,884		276,263
Senior notes due 2018 at 71/4%		298,893		286,500		298,787		281,250

The fair values of the Company’s senior notes are estimated based on quoted market prices.

The carrying amounts reported for cash and cash equivalents, restricted cash, mortgages and notes receivable, and mortgages and land contracts due to land sellers and other loans approximate fair values.


Note 7.8.	Consolidation of Variable Interest Entities

In ~~December 2003, FASB Interpretation No. 46(R) was issued by~~June 2009, the FASB ~~to clarify~~revised the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to certain entities, VIEs, in which equity investors do not have the characteristics of a controlling interest or do not have sufficient equity at riskauthoritative guidance for the entity to finance its activities without additional subordinated financial support. Under FASB Interpretation No. 46(R), an enterprise that absorbs a majority of the VIE’s expected losses, receives a majority of the VIE’s expected residual returns, or both, is considered to bedetermining the primary beneficiary of a VIE. In December 2009, the FASB issued ASU2009-17, which provided amendments to ASC 810 to reflect the revised guidance. The amendments to ASC 810 replaced the quantitative-based risk and rewards calculation for determining which reporting entity, if any, has a controlling interest in a VIE with an approach focused on identifying which reporting entity has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (i) the obligation to absorb losses of the VIE ~~and must consolidate~~or (ii) the ~~entity in its~~right to receive benefits from the VIE. The amendments also require additional disclosures about a reporting entity’s involvement with VIEs. The Company adopted the amended provisions of ASC 810 effective December 1, 2009. The adoption of the amended provisions of ASC 810 did not have a material effect on the Company’s consolidated financial ~~statements.~~position or results of operations.

The Company participates in joint ventures from time to time for the purpose of conducting land acquisition, developmentand/or other homebuilding activities. Its investments in these joint ventures may create a variable interest in a VIE, depending on the contractual terms of the arrangement. The Company analyzes its joint ventures in accordance

with ~~FASB Interpretation No. 46(R) when~~ASC 810 to determine whether they are ~~entered into or upon a reconsideration event.~~VIEs and, if so, whether the Company is the primary beneficiary. All of the Company’s joint ventures at November 30, ~~2008~~2010 and ~~2007~~November 30, 2009 were determined under the provisions of ASC 810 applicable at each such date to be unconsolidated joint ventures, either because they were not VIEs or, if they were VIEs, the Company was not the primary beneficiary of the VIEs.

In the ordinary course of its business, the Company enters into land option contracts, or similar contracts, to procure land for the construction of homes. The use of such land option and other similar contracts generally allows the Company to reduce the market risks associated with direct land ownership and development, reduces the Company’s capital and financial commitments, including interest and other carrying costs, and minimizes the amount of the Company’s land inventories onin its consolidated balance ~~sheet.~~sheets. Under such ~~land option~~ contracts, the Company will pay a specified option deposit or earnest money deposit in consideration for the right to purchase land in the future, usually at a predetermined price. Under the requirements of ~~FASB Interpretation No. 46(R),~~ASC 810, certain of ~~the Company’s land option~~these contracts may create a variable interest for the Company, with the land seller being identified as a VIE.

In compliance with ~~FASB Interpretation No. 46(R),~~ASC 810, the Company analyzes its land option ~~contracts~~ and other ~~contractual arrangements when they~~similar contracts to determine whether the corresponding land sellers are ~~entered into or upon a reconsideration event,~~VIEs and, ~~as a result has consolidated the fair value of certain VIEs from which~~if so, whether the Company is ~~purchasing land under option contracts.~~the primary beneficiary. Although the Company does not

have legal title to the optioned land, ~~FASB Interpretation No. 46(R)~~ASC 810 requires the Company to consolidate ~~the~~a VIE if the Company is determined to be the primary beneficiary. As a result of its analyses, the Company determined that as of November 30, 2010 it was not the primary beneficiary of any VIEs from which it is purchasing land under land option and other similar contracts. Since adopting the amended provisions of ASC 810, in determining whether it is the primary beneficiary, the Company considers, among other things, whether it has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. Such activities would include, among other things, determining or limiting the scope or purpose of the VIE, selling or transferring property owned or controlled by the VIE, or arranging financing for the VIE. The Company also considers whether it has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE.

Based on its analyses as of November 30, 2009, which were performed before the Company adopted the amended provisions of ASC 810, the Company determined that it was the primary beneficiary of certain VIEs from which it was purchasing land under land option or other similar contracts and, therefore, consolidated such VIEs. Prior to its adoption of the amended provisions of ASC 810, in determining whether it was the primary beneficiary, the Company considered, among other things, the size of its deposit relative to the contract price, the risk of obtaining land entitlement approval, the risk associated with land development required under the land option or other similar contract, and the risk of changes in the market value of the optioned land during the contract period. The consolidation of VIEs in which the Company ~~was~~ determined ~~to be~~it was the primary beneficiary increased inventories, with a corresponding increase to accrued expenses and other liabilities, on the Company’s consolidated balance ~~sheets~~sheet by ~~$15.5~~$21.0 million at November 30, ~~2008 and $19.0 million at November 30, 2007.~~2009. The liabilities related to the Company’s consolidation of VIEs from which it ~~is purchasing~~has arranged to purchase land under option and other similar contracts represent the difference between the purchase price of ~~optioned~~ land not yet purchased and the Company’s cash deposits. The Company’s cash deposits related to these land option and other similar contracts totaled ~~$3.4~~$4.1 million at November 30, ~~2008 and $4.7 million at November 30, 2007.~~2009. Creditors, if any, of these VIEs have no recourse against the Company.

As of November 30, ~~2008, excluding consolidated VIEs,~~2010, the Company had cash deposits totaling ~~$29.7~~$2.6 million ~~which were~~ associated with land option and other similar contracts that the Company determined to be unconsolidated VIEs, having an aggregate purchase price of ~~$533.2~~$86.1 million, and had cash deposits totaling $12.2 million associated with land option and other similar contracts that the Company determined were not VIEs, having an aggregate purchase price of $274.3 million.

The Company’s exposure to loss related to its land option and other similar contracts with third parties and unconsolidated entities consisted of its non-refundable ~~option~~ deposits, ~~totaling $33.1~~which totaled $14.8 million at November 30, ~~2008~~2010 and ~~$59.3~~$9.6 million at November 30, ~~2007.~~2009 and are included in inventories in the Company’s consolidated balance sheets. In addition, the Company ~~posted~~had outstanding letters of credit of ~~$32.5~~$4.2 million at November 30, ~~2008~~2010 and ~~$103.7~~$8.7 million at November 30, ~~2007~~2009 in lieu of cash deposits under certain land option or other similar contracts.

The Company also evaluates its land option and other similar contracts for financing arrangements in accordance with ~~SFAS No. 49,~~ASC 470, and, as a result of its evaluations, increased inventories, with a corresponding increase to accrued expenses and other liabilities, onin its consolidated balance sheets by ~~$81.5~~$15.5 million at November 30, ~~2008~~2010 and ~~$221.1~~$36.1 million at November 30, ~~2007.~~2009.


Note 8.9.	Investments in Unconsolidated Joint Ventures

The Company ~~participates~~has investments in unconsolidated joint ventures that conduct land acquisition, developmentand/or other homebuilding activities in various markets ~~typically~~ where the Company’s homebuilding operations are located. The Company’s partners in these unconsolidated joint ventures are unrelated homebuilders, and/or land developers and other real estate entities, or commercial enterprises. ~~Through~~The Company entered into these unconsolidated joint ventures ~~the Company seeks~~in previous years to reduce ~~and~~or share market and development risks and ~~to reduce its investment in land inventory, while potentially increasing~~increase the number of ~~homesites it owns or controls.~~its owned and controlled homesites. In some instances, participating in unconsolidated joint ventures ~~enables~~has enabled the Company to acquire and develop land that it might not otherwise have had access to due to a project’s size, financing needs, duration of development or other circumstances. While the Company ~~views~~has viewed its participation in unconsolidated joint ventures as beneficial to its homebuilding activities, it does not view such participation as ~~essential.~~essential and has unwound its participation in a number of unconsolidated joint ventures in the past few years.

The Companyand/or its unconsolidated joint venture partners typically ~~obtain options~~have obtained or ~~enter~~entered into other arrangements to have the right to purchase portions of the land held by certain of the unconsolidated joint ventures. ~~The prices for these land options are generally negotiated prices that approximate fair value.~~ When an unconsolidated joint venture sells land to the Company’s homebuilding operations, the Company defers recognition of its share of such unconsolidated joint venture earnings until a home sale is closed and title passes to a homebuyer, at which time the Company accounts for those earnings as a reduction of the cost of purchasing the land from the unconsolidated joint venture.

The Company and its unconsolidated joint venture partners make initial and/or ongoing capital contributions to these unconsolidated joint ventures, typically on a pro rata basis. The ~~obligation~~obligations to make capital contributions isare governed by each unconsolidated joint venture’s respective operating ~~agreement.~~agreement and related documents.

Each unconsolidated joint venture ~~maintains~~is obligated to maintain financial statements in accordance with ~~U.S. generally accepted accounting principles.~~GAAP. The Company shares in profits and losses of these unconsolidated joint ventures generally in accordance with its respective equity interests. In some instances, the Company recognizes profits and losses that differ from its pro rata share of profits and losses recognized by an unconsolidated joint venture. Such differences may arise from impairments recognized by the Company related to its investment in an unconsolidated joint venture which differ from the recognition of impairments by the unconsolidated joint venture; differences between the Company’s basis in assets transferred to an unconsolidated joint venture and the unconsolidated joint venture’s basis in those assets; the deferral of unconsolidated joint venture profits from land sales to the Company; or other items.

The following table presents information from the combined condensed ~~statement~~statements of operations ~~information for~~of the Company’s unconsolidated joint ventures (in thousands):


	Years Ended November 30,									Years Ended November 30,
	2008			2007			2006			2010			2009			2008

Revenues	$	112,767		$	662,705		$	167,536		$	122,200		$	60,790		$	112,767
Construction and land costs		(458,168	)		(670,133	)		(189,507	)		(120,010	)		(117,255	)		(458,168	)
Other expenses, net		(38,170	)		(44,126	)		(26,598	)		(19,362	)		(46,432	)		(38,170	)

Loss	$	(383,571	)	$	(51,554	)	$	(48,569	)	$	(17,172	)	$	(102,897	)	$	(383,571	)

With respect to the Company’s investment in unconsolidated joint ventures, its equity in loss of unconsolidated joint ventures ~~in 2008~~ included pretax, noncash impairment charges of $38.5 million in 2009 and $141.9 million in ~~2008 and $156.4 million in 2007. In 2006, the Company’s equity in income of unconsolidated joint ventures included pretax, noncash~~2008. There were no such impairment charges ~~of $58.6 million associated with certain unconsolidated joint ventures and a gain of $27.6 million related~~in 2010. Due to the ~~sale of~~judgment and assumptions applied in the ~~Company’s ownership interest in an unconsolidated~~estimation process with respect to joint ~~venture.~~venture impairments, it is possible that actual results could differ substantially from those estimated.

The following table presents combined condensed balance sheet information for the Company’s unconsolidated joint ventures (in thousands):


	November 30,				November 30,
	2008		2007		2010		2009

Assets
Cash	$	29,194	$	51,249	$	14,947	$	12,816
Receivables		143,926		234,265		147,025		142,639
Inventories		1,029,306		2,209,907		575,632		709,130
Other assets		55,289		15,513		51,755		56,939

Total assets	$	1,257,715	$	2,510,934	$	789,359	$	921,524

Liabilities and equity
Accounts payable and other liabilities	$	85,064	$	68,217	$	113,478	$	139,626
Mortgages and notes payable		871,279		1,540,931		327,856		469,079
Equity		301,372		901,786		348,025		312,819

Total liabilities and equity	$	1,257,715	$	2,510,934	$	789,359	$	921,524

The following ~~table presents~~tables present information relating to the Company’s investments in unconsolidated joint ventures and the ~~aggregate~~ outstanding debt of unconsolidated joint ventures as of the dates specified, categorized by the nature of the Company’s potential responsibility under a guaranty, if any, for such debt (dollars in thousands):


	November 30,				November 30,
	2008		2007		2010		2009

Number of investments in unconsolidated joint ventures:
With recourse debt (a)		1		1
With limited recourse debt (b)		4		7
With non-recourse debt (c)		10		14
With limited recourse debt (a)						—		2
With non-recourse debt (b)						—		2
South Edge						1		1
Other ~~(d)~~(c)		10		13		9		8

Total		25		35		10		13

Investments in unconsolidated joint ventures:
With recourse debt	$	3,339	$	1,855
With limited recourse debt		1,360		17,342	$	—	$	1,277
With non-recourse debt		24,590		161,721		—		9,983
South Edge						55,269		55,502
Other		148,360		116,092		50,314		52,906

Total	$	177,649	$	297,010	$	105,583	$	119,668

Aggregate outstanding debt of unconsolidated joint ventures:
With recourse debt	$	3,249	$	6,317
Outstanding debt of unconsolidated joint ventures:
With limited recourse debt		112,700		276,553	$	—	$	11,198
With non-recourse debt		381,393		894,115		—		130,025
Other		373,937		363,946
South Edge						327,856		327,856

Total (e)	$	871,279	$	1,540,931
Total (d)					$	327,856	$	469,079


(a)		This category consists of an unconsolidated joint venture as to which the Company has entered into a several guaranty with respect to the repayment of a portion of the unconsolidated joint venture’s outstanding debt.

~~(b)~~		This category consists of unconsolidated joint ventures as to which the Company has entered into a loan-to-value maintenance guaranty with respect to a portion of each such unconsolidated joint venture’s outstanding secured debt.

~~(c)~~(b)		This category consists of unconsolidated joint ventures as to which the Company does not have a guaranty or any other obligation to repay or to support the value of the collateral ~~(including~~(which collateral includes any letters of credit) underlying such unconsolidated joint ventures’ respective outstanding secured ~~debt (excluding any potential responsibility under a carve-out guaranty).~~debt.



~~(d)~~(c)		This category consists of unconsolidated joint ventures with no outstanding debt and an unconsolidated joint venture as to which the Company has entered into a several guaranty that, by its terms, purports to require the Company to guarantee the repayment of a portion of the unconsolidated joint venture’s outstanding debt in the event an involuntary bankruptcy proceeding is filed against the unconsolidated joint venture that is not dismissed within 60 days or for which an order approving relief under bankruptcy law is entered, even if the unconsolidated joint venture or its partners do not collude in the filing and the unconsolidated joint venture contests the filing, as further described below.debt.

		~~In some cases, the Company may have also entered into a completion guaranty and/or a carve-out guaranty with the lenders for the unconsolidated joint ventures identified in categories (a) through~~ (d).

~~(e)~~		The “Total” amounts represent the aggregate outstanding principal balance of the debt of the unconsolidated joint ventures in which the Company participates. The amounts do not represent the Company’s potential responsibility for such debt, if any. The Company’s maximum potential responsibility for any portion of such debt, if any, is limited to either a specified maximum amount or an amount equal to its pro rata interest in the relevant unconsolidated joint venture, as further described below.

In most cases, the Company may have also entered into a completion guaranty and/or a carve-out guaranty with the lenders for the unconsolidated joint ventures with outstanding debt as further described below.

The unconsolidated joint ventures ~~finance~~have financed land and inventory investments through a variety of arrangements. To finance their respective land acquisition and development activities, ~~many~~certain of the Company’s unconsolidated joint ventures have obtained loans from third-party lenders that are secured by the underlying property and related project assets. ~~Unconsolidated~~The Company’s unconsolidated joint ventures had outstanding debt, substantially all of which was secured, of approximately ~~$871.3~~$327.9 million at November 30, ~~2008~~2010 and ~~$1.54 billion~~$469.1 million at November 30, ~~2007. The unconsolidated joint ventures are subject to various financial and non-financial covenants in conjunction with their~~2009. South Edge accounted for all or most of these outstanding debt primarily related to equity maintenance, fair value of collateral and minimum land purchase or sale requirements within a specified period. In a few instances, the financial covenants are based on the Company’s financial position.amounts.

In certain instances, the Companyand/or its partner(s) in an unconsolidated joint venture ~~provide guarantees and indemnities to the unconsolidated joint venture’s lenders that may include one or more of the following: (a) a~~have provided completion ~~guaranty; (b) a loan-to-value maintenance guaranty;~~and/or ~~(c) a~~ carve-out ~~guaranty.~~guaranties. A completion guaranty refers to the physical completion of improvements for a projectand/or the obligation to contribute equity to an unconsolidated joint venture to enable it to fund its completion obligations. ~~A loan-to-value maintenance guaranty refers to~~The Company’s potential responsibility under its completion guarantees, if triggered, is highly dependent on the ~~payment~~facts of ~~funds to maintain the applicable loan balance at or below~~ a ~~specific percentage of the value of an unconsolidated joint venture’s secured collateral (generally land and improvements).~~particular case. A carve-out guaranty generally refers to the payment of (i) losses a lender suffers due to certain bad acts or omissions by an unconsolidated joint venture or its partners, such as fraud or misappropriation, or due to environmental liabilities arising with respect to the relevant project, or (ii) outstanding principal and interest and certain other amounts owed to lenders upon the filing by an unconsolidated joint venture of a voluntary bankruptcy petition or, in certain circumstances, the filing of an involuntary bankruptcy ~~petition by creditors of the unconsolidated joint venture in which an unconsolidated joint venture or its partners collude or which the unconsolidated joint venture fails to contest.~~petition.

In ~~most cases,~~addition to the Company’s maximum potential responsibility under these guarantees and indemnities is limited to either a specified maximum dollar amount or an amount equal to its pro rata interest in the relevant unconsolidated joint venture. In a few cases, the Company has entered into agreements with its unconsolidated joint venture partners to be reimbursed or indemnified with respect to theabove-described guarantees, the Company has also provided ~~to an unconsolidated joint venture’s lenders for any amounts the Company may pay pursuant to such guarantees above its pro rata interest in the~~

unconsolidated joint venture. If the Company’s unconsolidated joint venture partners are unable to fulfill their reimbursement or indemnity obligations, or otherwise fail to do so, the Company could incur more than its allocable share under the relevant guaranty. Should there be indications that advances (if made) will not be voluntarily repaid by an unconsolidated joint venture partner under any such reimbursement arrangements, the Company vigorously pursues all rights and remedies available to it under the applicable agreements, at law or in equity to enforce its reimbursement rights.

~~The Company’s potential responsibility under its completion guarantees, if triggered, is highly dependent on the facts of~~ a ~~particular case. In any event, the Company believes its actual responsibility under these guarantees is limited~~Springing Repayment Guaranty to the ~~amount, if any, by which an unconsolidated joint venture’s outstanding borrowings exceed the value of its assets, but may be substantially less than this amount.~~

~~At November 30, 2008, the Company’s potential responsibility under its loan-to-value maintenance guarantees totaled approximately $45.4 million, if any liability were determined~~lenders to ~~be due thereunder. This amount represents the Company’s maximum responsibility under such loan-to-value maintenance guarantees assuming the underlying collateral has no value~~South Edge. The Springing Repayment Guaranty and ~~without regard~~certain legal proceedings regarding South Edge are discussed further below in Note 15. Legal Matters. The lenders to ~~defenses that could be available to the Company against attempted enforcement of such guarantees.~~

Notwithstanding these potential responsibilities, at this time the Company does not believe that its exposure under its existing completion, loan-to-value and carve-out guarantees and indemnities related to unconsolidated joint venture debt is material to the Company’s consolidated financial position or results of operations.

~~Recently, the lenders for two~~one of the Company’s other unconsolidated joint ventures have filed ~~lawsuits~~a lawsuit against some of the unconsolidated joint ~~ventures’~~venture’s members and certain of those members’ parent companies seeking to recover damages under completion guarantees, among other ~~claims.~~claims(Wachovia Bank, N.A. v. Focus Kyle Group LLC, et al. U.S. District Court, Southern District of New York (CaseNo. 08-cv-8681 (LTS)(GWG))). The Company and the other parent companies, together with the members, are defending the ~~lawsuits in which they have been named. The Company does not believe that these lawsuits will have a material impact on the Company’s consolidated financial position or results of operations.~~

In addition to the above-described guarantees and indemnities, the Company has also provided a several guaranty to the lenders of one of the Company’s unconsolidated joint ventures. By its terms, the guaranty purports to guarantee the repayment of principal and interest and certain other amounts owed to the unconsolidated joint venture’s lenders when an involuntary bankruptcy proceeding is filed against the unconsolidated joint venture that is not dismissed within 60 days or for which an order approving relief under bankruptcy law is entered, even if the unconsolidated joint venture or its partners do not collude in the filing and the unconsolidated joint venture contests the filing. The Company’s potential responsibility under this several guaranty fluctuates with the outstanding borrowings against the unconsolidated joint venture’s debt and with the Company’s and its partners’ respective land purchases from the unconsolidated joint venture. At November 30, 2008, this unconsolidated joint venture had total outstanding indebtedness of approximately $373.9 million and, if this guaranty were then enforced, the Company’s maximum potential responsibility under the guaranty would have been approximately $182.7 million, which amount does not account for any offsets or defenses that could be available to the Company. This unconsolidated joint venture has received notices from its lenders’ administrative agent alleging a number of defaults under its loan agreement. The Company is currently exploring resolutions with the lenders, the lenders’ administrative agent and the Company’s unconsolidated joint venture partners, but there is no assurance that the Company will reach a satisfactory resolution with all of the parties involved.

Certain of the Company’s other unconsolidated joint ventures operating in difficult market conditions are in default of their debt agreements with their lenders or are at risk of defaulting. In addition, certain of the Company’s unconsolidated joint venture partners have curtailed funding of their allocable joint venture obligations. The Company is carefully managing its investments in these particular unconsolidated joint ventures and is working with the relevant lenders and unconsolidated joint venture partners to reach satisfactory resolutions. In some instances, the Company may decide to opportunistically purchase its partners’ interests and would consolidate the joint venture, which would result in an increase in the Company’s consolidated mortgages and notes payable. However, such purchases may not resolve a claimed default by the joint venture under its debt agreements. Additionally, the Company may seek new equity partners to participate in its unconsolidated joint ventures or, based on market conditions and other strategic considerations, may decide to withdraw from an unconsolidated joint venture and allow the unconsolidated joint venture’s lenders to exercise their remedies with respect to the underlying collateral (subject to any relevant defenses available to the Company). Based on the terms and amounts of the debt involved for these particular unconsolidated joint ventures and the terms of the

applicable joint venture operating agreements, the Company does not believe that its exposure related to any defaults by or with respect to these particular unconsolidated joint ventures is material to the Company’s consolidated financial position or results of operations.lawsuit.


Note 9.10.	Goodwill

The ~~changes in the carrying amount of goodwill are as follows (in thousands):~~

Years Ended November 30,
2008 2007

Balance at beginning of year $ 67,970 $ 177,333
Impairments (67,970 ) (107,926 )
Other — (1,437 )

Balance at end of year $ — $ 67,970

~~The Company’s goodwill balance at November 30, 2007 consisted of $24.6 million and $43.4 million related to the Central and Southeast reporting segments, respectively.~~

~~In accordance with SFAS No. 142, the~~ Company ~~tests~~has historically tested goodwill for potential impairment annually as of November 30 and between annual tests if an event ~~occurs~~occurred or circumstances ~~change~~changed that would more likely than not reduce the fair value of a reporting unit below its carrying amount. During 2008, ~~and 2007,~~ the Company determined that it was necessary to evaluate goodwill for impairment between annual tests due to deteriorating conditions in certain housing markets and the significant inventory impairments the Company identified and recognized ~~during those years~~ in ~~accordance with SFAS No. 144.~~that year.

Based on the results of its goodwill impairment ~~evaluation~~evaluations performed in ~~the second quarter of~~ 2008, the Company ~~recorded an impairment charge of $24.6 million in~~determined that ~~quarter related to its Central reporting segment, where~~ all of the goodwill previously recorded was ~~determined to be~~ impaired. ~~The annual~~As a result, the Company recorded goodwill impairment ~~test performed by the Company as~~charges of ~~November 30, 2008 resulted in an impairment charge of~~$24.6 million related to its Central reporting segment and $43.4 million ~~in the fourth quarter of 2008~~ related to its Southeast reporting segment where all of the goodwill previously recorded was determined to be impaired. Based on the results of its impairment evaluation performed in the third quarter of 2007, the Company recorded an impairment charge of $107.9 million in that quarter related to its Southwest reporting segment, where all of the goodwill previously recorded was determined to be impaired. The annual goodwill impairment test performed by the Company as of November 30, 2007 indicated no additional impairment. The goodwill impairmentduring 2008. These charges ~~in 2008 and 2007~~ were recorded at the Company’s corporate level because all goodwill iswas carried at that level. ~~As a result~~The Company had no goodwill balance as of ~~these impairment charges, the Company has no remaining goodwill company-wide at~~November 30, 2010, November 30, 2009 or November 30, 2008.

The process of evaluating goodwill for impairment involves the determination of the fair value of the Company’s reporting units. Inherent in such fair value determinations are certain judgments and estimates relating to future cash flows, including the Company’s interpretation of current economic indicators and market valuations, and assumptions about the Company’s strategic plans with regard to its operations. Due to the uncertainties associated with such estimates, actual results could differ from such estimates.

In performing its impairment analysis, the Company developed a range of fair values for its homebuilding and financial services reporting units using a discounted cash flow methodology and a market multiple methodology. For the financial services reporting unit, the Company also used a comparable transaction methodology.

The discounted cash flow methodology establishes fair value by estimating the present value of the projected future cash flows to be generated from the reporting unit. The discount rate applied to the projected future cash flows to arrive at the present value is intended to reflect all risks of ownership and the associated risks of realizing the stream of projected future cash flows. The discounted cash flow methodology uses the Company’s projections of financial performance for a five-year period. The most significant assumptions used in the discounted cash flow methodology are the discount rate, the terminal value and expected future revenues, gross margins and operating margins, which vary among reporting units.

7376

~~The market multiple methodology establishes fair value by comparing~~


Note 11.	Other Assets

Other assets consisted of the Company to other publicly traded companies that are similar to it from an operational and economic standpoint. The market multiple methodology compares the Company to the comparable companies on the basis of risk characteristics in order to determine its risk profile relative to the comparable companies as a group. This analysis generally focuses on quantitative considerations, which include financial performancefollowing (in thousands):


	November 30,
	2010		2009

Operating properties, net	$	71,938	$	72,548
Cash surrender value of insurance contracts		59,103		54,595
Property and equipment, net		9,596		12,465
Debt issuance costs		5,254		6,334
Prepaid expenses		3,033		7,472
Deferred tax assets		1,152		1,152

Total	$	150,076	$	154,566


Note 12.	Accrued Expenses and Other Liabilities

Accrued expenses and other quantifiable data, and qualitative considerations, which include any factors which are expected to impact future financial performance. The most significant assumptions affecting the market multiple methodology are the market multiples and control premium. The market multiples the Company uses are: (a) price to net book value and (b) enterprise value to revenue (for eachliabilities consisted of the homebuilding reporting units). A control premium represents the value an investor would pay above minority interest transaction prices in order to obtain a controlling interest in the respective company. The comparable transaction methodology establishes fair value similar to the market multiple methodology, utilizing recent transactions within the industry as the market multiple. However, no control premium is applied when using the comparable transaction methodology because these transactions represent control transactions.following (in thousands):


	November 30,
	2010		2009

Construction defect and other litigation liabilities	$	124,853	$	121,781
Warranty liability		93,988		135,749
Employee compensation and related benefits		76,477		88,385
Accrued interest payable		42,963		46,302
Liabilities related to inventory not owned		15,549		57,150
Real estate and business taxes		8,220		12,516
Other		104,455		98,485

Total	$	466,505	$	560,368


Note ~~10.~~13.	Mortgages and Notes Payable

Mortgages and notes payable consisted of the following (in thousands, interest rates are as of November 30):


	November 30,				November 30,
	2008		2007		2010		2009

Mortgages and land contracts due to land sellers and other loans (41/4% to 8% in 2008 and 4% to 10% in 2007)	$	96,368	$	19,140
Senior subordinated notes due December 15, 2008 at 85/8%		200,000		200,000
Senior subordinated notes due 2010 at 73/4%		—		298,273
Mortgages and land contracts due to land sellers and other loans (3% to 7% in 2010 and 2% to 8% in 2009)					$	118,057	$	163,968
Senior notes due 2011 at 63/8%		348,908		348,549		99,916		99,800
Senior notes due 2014 at 53/4%		249,227		249,102		249,498		249,358
Senior notes due 2015 at 57/8%		298,692		298,521		299,068		298,875
Senior notes due 2015 at 61/4%		449,653		449,612		449,745		449,698
Senior notes due 2017 at 9.1%						260,352		259,884
Senior notes due 2018 at 71/4%		298,689		298,597		298,893		298,787

Total	$	1,941,537	$	2,161,794	$	1,775,529	$	1,820,370

At November 30, 2009, the Company maintained the Credit Facility with a syndicate of lenders that was scheduled to mature in November 2010. As the Company did not anticipate borrowing under the Credit Facility before its scheduled maturity and to trim the costs associated with maintaining the Credit Facility, effective December 28, 2009, the Company voluntarily reduced the aggregate commitment under the Credit Facility from $650.0 million to $200.0 million, and effective March 31, 2010, the Company voluntarily terminated the Credit Facility.

With the Credit Facility’s termination, the Company proceeded to enter into the LOC Facilities to obtain letters of credit in the ordinary course of operating its business. As of November 30, 2010, $87.5 million of letters of credit were outstanding under the LOC Facilities. The LOC Facilities require the Company to deposit and maintain cash with the issuing financial institutions as collateral for its letters of credit outstanding. As of November 30, 2010, the amount of cash maintained for the LOC Facilities totaled $88.7 million and was included in restricted cash on the Company’s consolidated balance sheet as of that date. In 2011, the Company may maintain or enter into additional or expanded facilities with the same or other financial institutions.

In connection with the termination of the Credit Facility, the Released Subsidiaries were released and discharged from guaranteeing any obligations with respect to the Company’s senior notes. Each of the Released Subsidiaries is not a “significant subsidiary,” as defined underRule 1-02(w) ofRegulation S-X, and does not guarantee any other indebtedness of the Company. Each Released Subsidiary may be required to again provide a guarantee with respect to the Company’s senior notes if it becomes a “significant subsidiary.” The Guarantor Subsidiaries continue to provide a guarantee with respect to the Company’s senior notes.

The indenture governing the Company’s senior notes does not contain any financial maintenance covenants. Subject to specified exceptions, the indenture contains certain restrictive covenants that, among other things, limit the Company’s ability to incur secured indebtedness, or engage in sale-leaseback transactions involving property or assets above a certain specified value. The terms governing the Company’s $265 Million Senior Notes contain certain limitations related to mergers, consolidations, and sales of assets.

As of November 30, 2010, the Company was in compliance with the applicable terms of all of its covenants under the Company’s senior notes, the indenture, and mortgages and land contracts due to land sellers and other loans. The Company’s ability to secure future debt financing may depend in part on its ability to remain in such compliance.

On July 14, 2008, the Company completed the early redemption of the $300 Million Senior Subordinated Notes at a price of 101.938% of the principal amount plus accrued interest to the date of redemption. The Company incurred a loss of $7.1 million in 2008 related to the early redemption of debt, as a result of the call premium and the unamortized original issue discount. This loss is included in ~~the~~ interest expense, net of amounts capitalized/loss on early redemption of debt in the consolidated statements of operations.

The Company has a Credit Facility with a syndicate of lenders that matures in November 2010. Interest on the Credit Facility is payable monthly at the London Interbank Offered Rate plus an applicable spread on amounts borrowed. At November 30, 2008 and 2007, the Company had no cash borrowings outstanding and $211.8 million and $296.8 million, respectively, in letters of credit outstanding under the Credit Facility.

On August 28, 2008, the Company entered into the Fifth Amendment to the Credit Facility. The Fifth Amendment, among other things, reduced the aggregate commitment under the Credit Facility from $1.30 billion to $800.0 million and provided that the aggregate commitment may be permanently reduced to: (a) $650.0 million, if at the end of any fiscal quarter the Company’s consolidated tangible net worth is less than or equal to $800.0 million but greater than $500.0 million, or (b) $500.0 million, if at the end of any fiscal quarter the Company’s consolidated tangible net worth is less than or equal to $500.0 million. In addition, the Fifth Amendment reduced the sublimit for swing line loans from $100.0 million to $60.0 million; reduced the sublimit for the issuance of letters of credit from $1.00 billion to $600.0 million; and reduced the amount of unrestricted cash applied to the borrowing base calculation by subtracting the amount of outstanding borrowings under the Credit Facility as of the measurement date.

The Fifth Amendment also (a) made permanent certain prior amendments to covenant requirements regarding the minimum Coverage Ratio, the maximum consolidated Leverage Ratio, and distributions in respect of capital stock; (b) amended covenants regarding payment of subordinated obligations, investments in subsidiaries and joint ventures,

and the minimum level of consolidated tangible net worth; and (c) increased the applicable rates for Eurodollar borrowings, the letter of credit fees, and unused commitment fee. The maturity date of the Credit Facility remains unchanged. The Company paid a fee to lenders party to the Fifth Amendment. In light of the reduction in the aggregate commitment, the Company wrote off $3.3 million of unamortized fees associated with the Credit Facility during 2008. This write-off is included in the loss on early redemption of debt in the consolidated statements of operations.

In addition to the financial covenants affected by the Fifth Amendment, the Credit Facility also contains covenants limiting the Company’s unimproved land book value, speculative unit deliveries within a given fiscal quarter and borrowing base requirements.

On October 17, 2008, the Company filed the 2008 Shelf Registration with the SEC, registering debt and equity securities that it may issue from time to time in amounts to be determined. The Company’s previously ~~outstanding~~effective 2004 Shelf Registration was subsumed within the 2008 Shelf Registration. ~~As of~~On July 30, 2009, the ~~date of this Annual Report onForm 10-K,~~Company issued the $265 Million Senior Notes under the 2008 Shelf Registration. The Company has not issued any other securities under its 2008 Shelf Registration.

On ~~December 14, 2001, pursuant to its universal shelf registration statement filed with~~June 30, 2004, the SEC on December 5, 1997 (the “1997 Shelf Registration”), the Company issued the $200 Million Senior Subordinated Notes at 100% of the principal amount of the notes. The notes, which matured on December 15, 2008, represented unsecured obligations of the Company and were subordinated to all existing and future senior indebtedness of the Company. The notes were not redeemable at the option of the Company. The Company used $175.0 million of the net proceeds from the issuance of the notes to redeem all of its then-outstanding $175.0 million of 93/8~~% senior subordinated notes, which were due in 2003. The remaining net proceeds were used for general corporate purposes.~~

~~The~~ Company issued the $350 Million Senior Notes ~~on June 30, 2004~~ at 99.3% of the principal amount of the notes in a private placement. The ~~notes,~~$350 Million Senior Notes, which are due August 15, 2011, with interest payable semi-annually, represent senior unsecured obligations of the Company and rank equally in right of payment with all of the Company’s existing and future senior unsecured indebtedness. The $350 Million Senior Notes may be redeemed, in whole at any time or from time to time in part, at a price equal to 100% of their principal amount, plus a premium, plus accrued and unpaid interest to the applicable redemption date. The notes are unconditionally guaranteed jointly and severally by certain of the Company’s subsidiaries (“Guarantor Subsidiaries”) on a senior unsecured basis. The Company used all of the net proceeds from the issuance of the $350 Million Senior Notes to repay bank borrowings. On December 3, 2004, the Company exchanged all of the privately placed $350 Million Senior Notes for notes that are substantially identical except that the new ~~notes~~$350 Million Senior Notes are registered under the Securities Act of 1933. The $350 Million Senior Notes are unconditionally guaranteed jointly and severally by the Guarantor Subsidiaries on a senior unsecured basis.

On July 30, 2009, the Company purchased $250.0 million in aggregate principal amount of its $350 Million Senior Notes pursuant to a tender offer simultaneous with the issuance of the $265 Million Senior Notes. The total consideration paid to purchase the notes was $252.5 million. The Company incurred a loss of $3.7 million in the third quarter of 2009 related to the early redemption of debt due to the tender offer premium and the unamortized original issue discount. This loss, which is included in interest expense, net of amounts capitalized/loss on early redemption of debt in the consolidated statements of operations, was partly offset by a gain of $2.7 million on the early extinguishment of mortgages and land contracts due to land sellers and other loans.

On January 28, 2004, the Company issued $250.0 million of 53/4% senior notes due 2014 (the “$250 Million Senior Notes”) at 99.474% of the principal amount of the notes in a private placement. The ~~notes,~~$250 Million Senior Notes, which are

due February 1, 2014, with interest payable semi-annually, represent senior unsecured obligations of the Company and rank equally in right of payment with all of the Company’s existing and future senior unsecured indebtedness. The $250 Million Senior Notes may be redeemed, in whole at any time or from time to time in part, at a price equal to 100% of their principal amount, plus a premium, plus accrued and unpaid interest to the applicable redemption date. The notes are unconditionally guaranteed jointly and severally by the Guarantor Subsidiaries on a senior unsecured basis. The Company used all of the net proceeds from the issuance of the $250 Million Senior Notes to repay bank borrowings. On June 16, 2004, the Company exchanged all of the privately placed $250 Million Senior Notes for notes that are substantially identical except that the new ~~notes~~$250 Million Senior Notes are registered under the Securities Act of 1933. The $250 Million Senior Notes are unconditionally guaranteed jointly and severally by the Guarantor Subsidiaries on a senior unsecured basis.

On December 15, 2004, pursuant to the 2004 Shelf Registration, the Company issued $300.0 million of 57/8% senior notes due 2015 (the “$300 Million 57/8% Senior Notes”) at 99.357% of the principal amount of the notes. The $300 Million 57/8% Senior Notes, which are due January 15, 2015, with interest payable semi-annually, represent senior unsecured obligations of the Company and rank equally in right of payment with all of the Company’s existing and future senior unsecured indebtedness. The $300 Million 57/8% Senior Notes may be redeemed, in whole at any time or from time to time in part, at a price equal to the greater ~~of:~~of (a) 100% of their principal amount and (b) the sum of the present values of the remaining scheduled payments discounted to the date of redemption at a defined rate, plus, in each case, accrued and unpaid interest to the applicable redemption date. The notes are unconditionally guaranteed jointly and severally by the Guarantor Subsidiaries on a senior unsecured basis. ~~The Company used all of the net proceeds from the issuance of the $300 Million 5~~7/8~~% Senior Notes to pay down bank borrowings.~~

~~Pursuant~~On June 2, 2005, pursuant to the 2004 Shelf Registration, ~~on June 2, 2005,~~ the Company issued $450.0 million of 61/4% senior notes due 2015 (the “$450 Million Senior Notes”) at 100.614% of the principal amount of the notes plus accrued interest from June 2, 2005. The $450 Million Senior Notes, which are due June 15, 2015, with interest payable semi-annually, represent senior unsecured obligations of the Company and rank equally in right of payment with all of the Company’s existing and future senior unsecured indebtedness. The $450 Million Senior Notes may be redeemed, in whole at any time or from time to time in part, at a price equal to the greater ~~of:~~of (a) 100% of their principal amount and (b) the sum of the present values of the remaining scheduled payments discounted to the date of redemption at a defined rate, plus, in each case, accrued and unpaid interest to the applicable redemption date. The notes are unconditionally guaranteed jointly and severally by the Guarantor Subsidiaries on a senior unsecured basis. ~~The Company used all of the net proceeds from the issuance of the $450 Million Senior Notes to pay down bank borrowings.~~

On ~~April 3, 2006,~~July 30, 2009, pursuant to the ~~2004~~2008 Shelf Registration, the Company issued the ~~$300~~$265 Million 71/4% Senior ~~Notes.~~Notes at 98.014% of the principal amount of the notes. The ~~notes,~~$265 Million Senior Notes, which are due ~~June~~on September 15, ~~2018~~2017, with interest payable ~~semi-annually,~~semiannually, represent senior unsecured obligations of the Company, and rank equally in right of payment with all of the Company’s existing and future senior unsecured ~~indebtedness~~indebtedness. The $265 Million Senior Notes may be redeemed, in whole at any time or from time to time in part, at a price equal to the greater of (a) 100% of their principal amount and (b) the sum of the present values of the remaining scheduled payments of principal and interest discounted to the date of redemption at a defined rate, plus, in each case, accrued and unpaid interest to the applicable redemption date. If a change in control occurs as defined in the indenture, the Company would be required to purchase these notes at 101% of their principal amount, together with all accrued and unpaid interest, if any. The notes are unconditionally guaranteed jointly and severally by the Guarantor Subsidiaries on a senior unsecured basis. The Company used substantially all of the net proceeds from the issuance of the $265 Million Senior Notes to purchase, pursuant to a simultaneous tender offer, $250.0 million in aggregate principal amount of the $350 Million Senior Notes.

On April 3, 2006, pursuant to the 2004 Shelf Registration, the Company issued $300.0 million of 71/4% senior notes due 2018 (the “$300 Million 71/4% Senior Notes”) at 99.486% of the principal amount of the notes. The $300 Million 71/4% Senior Notes, which are due June 15, 2018 with interest payable semi-annually, represent senior unsecured obligations of the Company and rank equally in right of payment with all of the Company’s existing and future senior unsecured indebtedness. The $300 Million 71/4% Senior Notes may be redeemed, in whole at any time or from time to time in part, at a price equal to the greater ~~of:~~of (a) 100% of their principal amount and (b) the sum of the present values of the remaining scheduled payments of principal and interest on the notes to be redeemed discounted at a defined rate, plus, in each case, accrued and unpaid interest to the applicable redemption date. The ~~Company used all of~~notes are unconditionally guaranteed jointly and severally by the ~~proceeds from the $300 Million 7~~1/4~~% Senior Notes to repay borrowings under its Credit Facility.~~

~~The Company’s~~Guarantor Subsidiaries on a senior notes indenture does not contain any financial covenants. Subject to specified exceptions, the senior notes indenture contains certain restrictive covenants that, among other things, limit the Company’s ability to incur secured indebtedness; engage in sale-leaseback transactions involving property or assets above a certain specified value; or engage in mergers, consolidations, or sales of assets.

As of November 30, 2008, the Company was in compliance with the terms of its Credit Facility and senior notes indenture. However, the Company’s ability to continue to borrow funds depends in part on its ability to remain in such compliance. The Company’s inability to do so could make it more difficult and expensive to maintain its current level of external debt financing or to obtain additional financing. Based on the applicable terms of the Credit Facility and the senior notes indenture, $549.6 million of retained earnings would have been available for the payment of dividends at November 30, 2008.unsecured basis.

Principal payments on senior notes, mortgages and land contracts due to land sellers and other loans are due as follows: ~~2009 — $279.5 million; 2010 — $16.8 million;~~ 2011 — ~~$348.9~~$204.3 million; 2012 — ~~$0;~~$13.7 million; 2013 — $0; 2014 — $249.5 million; 2015 — $748.8 million; and thereafter — ~~$1.30 billion.~~$559.2 million.

Assets (primarily inventories) having a carrying value of approximately ~~$169.8~~$161.9 million as of November 30, ~~2008~~2010 are pledged to collateralize mortgages and land contracts due to land sellers and other ~~secured~~ loans.


~~Note 11.~~	~~Fair Values of Financial Instruments~~

The estimated fair values of financial instruments have been determined based on available market information and appropriate valuation methodologies. However, judgment is required in interpreting market data to develop the estimates of fair value. In that regard, the estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.

The carrying values and estimated fair values of the Company’s financial instruments, except for those for which the carrying values approximate fair values, are summarized as follows (in thousands):

November 30,
2008 2007
Estimated Fair
Estimated Fair

Carrying Value Value Carrying Value Value

Financial liabilities
85/8% Senior subordinated notes
$ 200,000 $ 199,500 $ 200,000 $ 194,750
73/4% Senior subordinated notes
— — 298,273 277,394
63/8% Senior notes
348,908 274,765 348,549 319,358
53/4% Senior notes
249,227 165,113 249,102 216,096
57/8% Senior notes
298,692 182,949 298,521 256,728
61/4% Senior notes
449,653 275,412 449,612 388,352
71/4% Senior notes
298,689 173,240 298,597 268,364

~~The Company used the following methods and assumptions in estimating fair values:~~

~~The fair values of the Company’s senior subordinated and senior notes are estimated based on quoted market prices.~~

~~The carrying amounts reported for cash and cash equivalents and restricted cash approximate fair values.~~


Note ~~12.~~14.	Commitments and Contingencies

Commitments and contingencies include the usual obligations of homebuilders for the completion of contracts and those incurred in the ordinary course of business.

Warranty.The Company provides a limited warranty on all of its homes. The specific terms and conditions of warranties vary depending upon the market in which the Company does business. The Company generally provides a structural warranty of 10 years, a warranty on electrical, heating, cooling, plumbing and other building systems each varying from two to five years based on geographic market and state law, and a warranty of one year for other components of the home. The Company estimates the costs that may be incurred under each limited warranty and records a liability in the amount of such costs at the time the revenue associated with the sale of each home is recognized. Factors that affect the Company’s warranty liability include the number of homes delivered, historical and anticipated rates of warranty claims, and cost per claim. The Company’s primary assumption in estimating the amounts it accrues for warranty costs is that historical claims experience is a strong indicator of future claims experience. The Company periodically assesses the adequacy of its recorded warranty liabilities, which are included in accrued expenses and other liabilities in the consolidated balance sheets, and adjusts the amounts as necessary based on its assessment.

The changes in the Company’s warranty liability are as follows (in thousands):


	Years Ended November 30,									Years Ended November 30,
	2008			2007			2006			2010			2009			2008

Balance at beginning of year	$	151,525		$	141,060		$	122,503		$	135,749		$	145,369		$	151,525
Warranties issued		25,324			60,620			78,527			5,173			6,846			17,169
Payments and adjustments		(31,480	)		(50,155	)		(59,970	)
Payments											(44,973	)		(24,690	)		(29,682	)
Adjustments											(1,961	)		8,224			6,357

Balance at end of year	$	145,369		$	151,525		$	141,060		$	93,988		$	135,749		$	145,369

The Company’s warranty liability at November 30, 2010 included $11.3 million associated with approximately 296 homes that have been identified as containing or suspected of containing allegedly defective drywall manufactured in China. These homes, which have repairs remaining to be completedand/or repair costs remaining to be paid, were primarily delivered in 2006 and 2007 and are located in Florida. The Company believes that its overall warranty liability at November 30, 2010 is sufficient with respect to its general limited warranty obligations and the estimated costs remaining to repair the identified homes affected by the allegedly defective drywall. The Company is continuing to review whether there are any additional homes delivered in Florida or other locations that contain or may contain this drywall material. Depending on the outcome of its review and its actual claims experience, the Company may incur additional warranty-related costs and increase its warranty liability in future periods. The amount accrued to repair these homes is based largely on the Company’s estimates of future costs. If the actual costs to repair these homes differ from the estimated costs, the Company may revise its warranty estimate for this issue. The Company’s warranty liability at November 30, 2009 included $14.4 million of estimated remaining costs associated with approximately 230 homes that were identified as containing or suspected of containing allegedly defective drywall manufactured in China. In addition, for the year ended November 30, 2009, the Company incurred a charge of $5.7 million associated with the repair of allegedly defective drywall. During the years ended November 30, 2010 and 2009, the Company made payments totaling $25.5 million and $1.3 million, respectively, for the repair of homes that had been identified as containing or suspected of containing allegedly defective drywall manufactured in China.

The Company has been named as a defendant in nine lawsuits relating to this drywall material, and it may in the future be subject to other similar litigation or claims that could cause the Company to incur significant costs. Given the preliminary stages of the proceedings, the Company has not concluded whether the outcome of any of these lawsuits, if unfavorable, is likely to be material to its consolidated financial position or results of operations.

The Company intends to seek and is undertaking efforts, including legal proceedings, to obtain reimbursement from various sources for the costs it has incurred or expects to incur to investigate and complete repairs and to defend itself in litigation associated with this drywall material. At this early stage of its efforts to investigate and complete repairs and to respond to litigation, however, the Company has not recorded any amounts for potential recoveries as of November 30, 2010.

Guarantees.In the normal course of its business, the Company issues certain representations, warranties and guarantees related to its home sales and land sales that may be affected by ~~FASB Interpretation~~Accounting Standards Codification Topic No. ~~45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.~~460, “Guarantees.” Based on historical evidence, the Company does not believe any of these representations, warranties or guarantees would result in a material effect on its consolidated financial position or results of operations.

Insurance.The Company has, and requires the majority of its subcontractors to ~~have,~~maintain, general liability insurance (including construction defect and bodily injury coverage) and workers’ compensation insurance. These insurance policies protect the Company against a portion of its risk of loss from claims related to its homebuilding activities, subject to certain self-insured retentions, deductibles and other coverage limits. In Arizona, California, Colorado and Nevada, the Company’s general liability insurance takes the form of a wrap-up policy, where eligible subcontractors are enrolled as insureds on each project. The Company self-insures a portion of its overall risk through the use of a captive insurance subsidiary. The Company records expenses and liabilities based on the estimated costs required to cover its self-insured

retention and deductible amounts under its insurance policies, and on the estimated costs of potential claims and claim adjustment expenses above its coverage limits or that are not covered by its policies. These estimated costs are based on an analysis of the Company’s historical claims and include an estimate of construction defect claims incurred but not yet reported. The Company’s estimated liabilities for such items were ~~$101.5~~$95.7 million at November 30, ~~2008~~2010 and ~~$95.6~~$107.0 million at November 30, ~~2007, and~~2009. These amounts are included in accrued expenses and other liabilities in the Company’s consolidated balance sheets. The Company’s expenses associated with self-insurance totaled $7.4 million in 2010, $9.8 million in 2009 and $10.1 million in 2008.

Performance Bonds and Letters of Credit.The Company is often required to obtain performance bonds and letters of credit in support of its obligations to various municipalities and other government agencies in connection with ~~subdivision~~community improvements such as roads, sewers and ~~water.~~water, and to support similar development activities by certain of its unconsolidated joint ventures. At November 30, ~~2008,~~2010, the Company had ~~$761.1~~$414.3 million of performance bonds and ~~$211.8~~$87.5 million of letters of credit outstanding. At November 30, ~~2007,~~2009, the Company had ~~$1.08 billion~~$539.7 million of performance bonds and ~~$296.8~~$175.0 million of letters of credit outstanding. ~~In the event~~If any such performance bonds or letters of credit are called, the Company would be obligated to reimburse the issuer of the performance bond or letter of credit. ~~At this time, the~~The Company does not believe that a material amount of any currently outstanding performance bonds or letters of credit will be called. Performance bonds do not have stated expiration dates. Rather, the Company is released from the performance bonds as the ~~contractual~~underlying performance is completed. The expiration dates of some letters of credit issued in connection with ~~subdivision~~community improvements coincide with the expected completion dates of the related ~~projects. If the obligations related to a project are ongoing, annual extensions of the~~projects or obligations. Most letters of credit, however, are issued with an initial term of one year and are typically ~~granted~~extended on a year-to-year ~~basis.~~basis until the related performance obligation is completed.

~~Borrowings outstanding and letters of credit issued under the Credit Facility are guaranteed by the Guarantor Subsidiaries.~~

Land Option Contracts.In the ordinary course of business, the Company enters into land option contracts, or similar contracts, to procure land for the construction of homes. At November 30, ~~2008,~~2010, the Company had total deposits of ~~$65.6~~$19.0 million, comprised of cash deposits of ~~$33.1~~$14.8 million and letters of credit of ~~$32.5~~$4.2 million, to purchase land ~~with a total remaining~~having an aggregate purchase price of ~~$548.7~~$360.4 million. The Company’s land option and other similar contracts generally do not contain provisions requiring ~~its~~the Company’s specific performance.

Leases.The Company leases certain property and equipment under noncancelable operating leases. Office and equipment leases are typically for terms of three to five years and generally provide renewal options for terms up to an additional five years. In most cases, the Company expects that, in the normal course of business, leases that expire will be renewed or replaced by other leases. The future minimum rental payments under operating leases, which primarily consist of office leases having initial or remaining noncancelable lease terms in excess of one year, are as follows: ~~2009 — $19.0 million; 2010 — $16.5 million;~~ 2011 — ~~$9.8~~$9.4 million; 2012 — ~~$6.8~~$8.4 million; 2013 — ~~$4.9~~$6.9 million; 2014 — $4.8 million; 2015 — $2.2 million; and thereafter — ~~$4.8 million.~~$0. Rental expense on these operating leases was $8.5 million in 2010, $10.3 million in 2009 and $17.3 million in ~~2008, $21.7 million in 2007 and $22.8 million in 2006.~~2008.


Note ~~13.~~15.	Legal Matters

~~Derivative~~South Edge, LLC Litigation. ~~In the summer of 2006, four shareholder derivative lawsuits were~~On December 9, 2010, certain lenders to South Edge filed ostensibly on behalf of the Company, alleging, among other things, that the defendants (various current and former directors and officers of the Company) breached their fiduciary duties to the Company by, among other things, backdating grants of stock options to various current and former executives in violation of the Company’s stockholder-approved stock option plans. Two of the lawsuits were state court actions filed in Los Angeles County Superior Court, and two were federal actions fileda Chapter 11 involuntary bankruptcy petition in the United States ~~District~~Bankruptcy Court, ~~for the Central~~ District of ~~California. The two federal lawsuits also included substantive claims under the federal securities laws.~~

~~The Company recently reached a tentative global settlement with the parties in the four actions. The settlement also includes a resolution of all issues with~~Nevada,JPMorgan Chase Bank, N.A. v. South Edge, LLC (CaseNo. 10-32968-bam). KB HOME Nevada Inc., the Company’s ~~former Chairman~~wholly-owned subsidiary, is a member of South Edge together with other unrelated homebuilders and ~~Chief Executive Officer, Bruce Karatz. On December 9, 2008,~~a third-party property development firm. KB HOME Nevada Inc. holds a 48.5% interest in South Edge. The involuntary bankruptcy petition alleges that South Edge failed to undertake certain development-related activities and to repay amounts due on the ~~parties to~~Loans. At November 30, 2010, the ~~federal court actions submitted the proposed settlement to the court, and the plaintiffs in those actions concurrently filed an unopposed motion seeking preliminary approval~~outstanding principal balance of the ~~proposed settlement. On December 15, 2008,~~Loans was approximately $328.0 million. The Loans were used by South Edge to partially finance the ~~court granted preliminary approval~~purchase and development of the ~~proposed settlement and scheduled~~underlying property for a hearing for February 9, 2009 to determine whether the settlement should be finally approved by the court. If it is finally approved, the federal litigation will be dismissed, and all parties have agreed that the state court litigation will be dismissed as well. If the settlement is not approved, the federal and state court litigation will continue. At this time, the Company does not believe that the shareholder derivative litigation or the resolution of issues with the Company’s former Chairman and Chief Executive Officer should have a material impact on the Company’s consolidated financial position or results of operations.residential community located near Las

7881

~~ERISA Litigation.~~ ~~On March 16, 2007, plaintiffs Reba Bagley~~

Vegas, Nevada. The petitioning lenders for the involuntary bankruptcy — JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A. and ~~Scott Silver~~Crédit Agricole Corporate and Investment Bank — also filed ~~an action brought under Section 502~~motions to appoint a Chapter 11 trustee for South Edge, and have asserted that, among other actions, the trustee can enforce alleged obligations of the ~~ERISA, 29 U.S.C. § 1132,~~~~Bagley et al.~~South Edge members to purchase land parcels from South Edge resulting in repayment of the Loans. On January 6, 2011, South Edge filed a motion for the court to dismiss or to abstain from the involuntary bankruptcy petition, and the court scheduled a trial that commenced on January 24, 2011 and is planned to continue until no later than February 4, 2011. The exact timing of the court’s decision on the motion is uncertain.

The Company, KB HOME Nevada Inc., v.and the other South Edge members and their respective parent companies each provided certain guaranties to the lenders in connection with the Loans, including the Springing Repayment Guaranty. If the Company’s Springing Repayment Guaranty were enforced, its maximum potential responsibility at November 30, 2010 would have been approximately $180.0 million in aggregate principal amount, plus a potentially significant amount for accrued and unpaid interest and attorneys’ fees in respect of the Loans. This potential Springing Repayment Guaranty obligation, however, does not account for any offsets or defenses that could be available to the Company to prevent or minimize the impact of its enforcement, or any reduction in the principal balance of the Loans arising from purchases of land parcels from South Edge under authority potentially given to a Chapter 11 trustee (as described above) or otherwise.

The petitioning lenders previously filed the Lender Litigation. The Lender Litigation, which, among other things, is seeking to enforce completion guaranties and also to force the South Edge members (including KB ~~Home, et al.~~,HOME Nevada Inc.) to purchase land parcels from and to provide certain financial and other support to South Edge, has been stayed pending the outcome of the involuntary bankruptcy petition. If the involuntary bankruptcy petition is dismissed, the Company expects the Lender Litigation to resume.

A separate arbitration proceeding was also commenced in May 2009 to address one South Edge member’s claims for specific performance by the other members and their respective parent companies to purchase land parcels from and to make certain capital contributions to South Edge and, in the alternative, damages. On July 6, 2010, the arbitration panel issued a decision denying the specific performance claims and awarding to the claimant total damages of approximately $37.0 million against all of the defendants. The parties involved have appealed the arbitration panel’s decision to the United States ~~District Court~~Courts of Appeal for the ~~Central District of California. The action was brought against~~Ninth Circuit,Focus South Group, LLC, et al. v. KB HOME Nevada Inc, et al., (CaseNo. 10-17562), and the ~~Company, its directors, and certain of its current and former officers. After~~case is pending. If the court allowed leave to file an amended complaint, on April 3, 2008, plaintiffs filed an amended complaint adding Tolan Beck and Rod Hughes as additional plaintiffs and dismissing certain individuals as defendants. All four plaintiffs claim to be former employees of the Company who participated in the Plan. Plaintiffs allege on behalf of themselves and on behalf of all others similarly situated that all defendants breached fiduciary duties owed to plaintiffs and purported class members under ERISA by failing to disclose information to and providing misleading information to participants in the Plan about alleged prior stock option backdating practices of the Company and by failing to remove the Company’s stock as an investment option under the Plan. Plaintiffs allege that this breach of fiduciary duties caused plaintiffs to earn less on their Plan accounts than they would have earned but for defendants’ alleged breach of duties. Plaintiffs seek unspecified money damages and injunctive and other equitable relief. On May 16, 2008, the Company filed a motion to dismissappeal on the ground that plaintiffs’ allegations fail to state a claim against the Company. Plaintiffs filed an opposition to the motion on June 20, 2008. The hearing on the motion was held on September 8, 2008. On October 6, 2008, the court issued its order. The court denied the Company’s motion to dismiss the plaintiffs’ claims for breach of fiduciary duty and breach of the duty to monitor and granted the Company’s motion to dismiss the plaintiffs’ claims for breach of the fiduciary duty of disclosure. The court also denied a separate motion to dismiss fileddamages awarded by the ~~individual defendants based on the standing~~arbitration panel is denied, KB HOME Nevada Inc. will be responsible for a share of plaintiffs to sue. The Company filed its answer to the first amended complaint on November 5, 2008. On November 24, 2008, the court approved a stipulation to stay all discovery and other proceedings through February 6, 2009, in order to allow the parties time to attempt to settle the plaintiffs’ claims through mediation. those damages.

While ~~the Company believes it has strong~~there are defenses to the ~~ERISA claims, it has not concluded whether an~~above legal proceedings, the ultimate resolution of these matters and the timing of such resolutions are uncertain and involve multiple factors. Therefore, a meaningful range of potential outcomes cannot be reasonably estimated at this time. If unfavorable ~~outcome~~outcomes were to occur, however, there is ~~likely to be~~a possibility that the Company could incur significant losses in excess of amounts accrued for these matters that could have a material toadverse effect on its consolidated financial position orand results of operations.

Other Matters. The Company is also involved in litigation and ~~governmental~~government proceedings incidental to its business. These ~~cases~~proceedings are in various procedural stages and, based on reports of counsel, the Company believes as of the date of this report that provisions or ~~reserves~~accruals made for any potential losses (to the extent estimable) are adequate and that any liabilities or costs arising out of ~~currently pending litigation should~~these proceedings are not likely to have a materially adverse effect on its consolidated financial position or results of operations. The outcome of any of these proceedings, however, is inherently uncertain, and if unfavorable outcomes were to occur, there is a possibility that they could, individually or in the aggregate, have a materially adverse effect on the Company’s consolidated financial position or results of operations.


Note 16.	Income Taxes

The components of income tax benefit (expense) in the consolidated statements of operations are as follows (in thousands):


	Federal			State		Total

2010
Current	$	6,500		$	500	$	7,000
Deferred		—			—		—

Income tax benefit	$	6,500		$	500	$	7,000

2009
Current	$	207,900		$	1,500	$	209,400
Deferred		—			—		—

Income tax benefit	$	207,900		$	1,500	$	209,400

2008
Current	$	(18,704	)	$	10,504	$	(8,200	)
Deferred		—			—		—

Income tax benefit (expense)	$	(18,704	)	$	10,504	$	(8,200	)

Deferred income taxes result from temporary differences in the financial and tax basis of assets and liabilities. Significant components of the Company’s deferred tax liabilities and assets are as follows (in thousands):


	November 30,
	2010			2009

Deferred tax liabilities:
Capitalized expenses	$	106,800		$	117,684
State taxes		56,915			52,223
Other		177			142

Total	$	163,892		$	170,049

Deferred tax assets:
Inventory impairments and land option contract abandonments	$	275,640		$	378,834
2010, 2009 and 2008 NOLs		277,089			84,424
Warranty, legal and other accruals		103,359			147,924
Employee benefits		51,335			60,822
Partnerships and joint ventures		49,339			58,611
Depreciation and amortization		22,830			38,888
Capitalized expenses		5,927			6,573
Tax credits		145,643			140,133
Deferred income		1,219			1,219
Other		3,743			3,738

Total		936,124			921,166
Valuation allowance		(771,080	)		(749,965	)

Total		165,044			171,201

Net deferred tax assets	$	1,152		$	1,152

Income tax benefit computed at the statutory U.S. federal income tax rate and income tax benefit (expense) provided in the consolidated statements of operations differ as follows (in thousands):


	Years Ended November 30,
	2010			2009			2008

Income tax benefit computed at statutory rate	$	26,729		$	108,914		$	338,776
Increase (decrease) resulting from:
State taxes, net of federal income tax benefit		4,010			11,079			25,142
Reserve and deferred income		1,204			(11,075	)		4,825
Basis in joint ventures		13,729			(3,336	)		(4,992	)
NOLs reconciliation		(24,749	)		(36,941	)		—
Recognition of federal tax benefits		1,621			16,411			4,757
Tax credits		5,384			203			(3,984	)
Valuation allowance for deferred tax assets		(21,115	)		128,813			(355,839	)
Other, net		187			(4,668	)		(16,885	)

Income tax benefit (expense)	$	7,000		$	209,400		$	(8,200	)

The Company recognized an income tax benefit of $7.0 million in 2010, compared to an income tax benefit of $209.4 million in 2009 and income tax expense of $8.2 million in 2008. The income tax benefit in 2010 reflected the recognition of a $5.4 million federal income tax benefit from an additional carryback of the Company’s 2009 NOLs to offset earnings the Company generated in 2004 and 2005, and the reversal of a $1.6 million liability for unrecognized tax benefits due to the status of federal and state tax audits. The income tax benefit in 2009 resulted primarily from the recognition of a $190.7 million federal income tax benefit based on the carryback of the Company’s 2009 NOLs to offset earnings the Company generated in 2004 and 2005, and the reversal of a $16.3 million liability for unrecognized federal and state tax benefits due to the status of federal and state tax audits. The income tax expense in 2008 was mainly due to the disallowance of tax benefits related to the Company’s 2008 loss as a result of a full valuation allowance. Due to the effects of its deferred tax asset valuation allowance, carrybacks of its NOLs, and changes in its unrecognized tax benefits, the Company’s effective tax rates in 2010, 2009 and 2008 are not meaningful items as the Company’s income tax amounts are not directly correlated to the amount of its pretax losses for those periods.

On November 6, 2009, the Worker, Homeownership, and Business Assistance Act of 2009 was enacted into law and amended Section 172 of the Internal Revenue Code to extend the permitted carryback period for offsetting certain NOLs against earnings from two years to up to five years. Due to this federal tax legislation, the Company was able to carry back its 2009 NOLs to offset earnings it generated in 2004 and 2005. As a result, the Company filed an application for a federal tax refund of $190.7 million and reflected this amount as a receivable in its consolidated balance sheet as of November 30, 2009. The Company received the cash proceeds from the refund in the first quarter of 2010. In September of 2010, the Company filed an amended application for a federal tax refund to carry back an additional amount of its 2009 NOLs to offset earnings the Company generated in 2004 and 2005. The amended application generated a refund in the amount of $5.4 million, and the Company received cash proceeds of this refund in the fourth quarter of 2010.

In accordance with ASC 740, the Company evaluates its deferred tax assets quarterly to determine if valuation allowances are required. ASC 740 requires that companies assess whether valuation allowances should be established based on the consideration of all available evidence using a “more likely than not” standard. During 2010, the Company recorded a net increase of $21.1 million to the valuation allowance against net deferred tax assets. The net increase was comprised of a $26.6 million valuation allowance recorded against the net deferred tax assets generated from the loss for the year, partially offset by the $5.4 million federal income tax benefit from the additional carryback of the Company’s 2009 NOLs to offset earnings it generated in 2004 and 2005.

During the first nine months of 2009, the Company recognized a net increase of $67.5 million in the valuation allowance. This increase reflected the net impact of an $89.9 million valuation allowance recorded during the first nine months of 2009, partly offset by a reduction of deferred tax assets due to the forfeiture of certain equity-based awards. In the fourth quarter of 2009, the Company recognized a decrease in the valuation allowance of $196.3 million primarily due to the benefit derived from the carryback of its 2009 NOLs to offset earnings it generated in 2004 and 2005. As a result, the net decrease in the valuation allowance for the year ended November 30, 2009 totaled $128.8 million. The decrease in the valuation allowance was reflected as a noncash income tax benefit of $130.7 million and a noncash charge of $1.9 million to accumulated other comprehensive loss. During 2008, the Company recorded a valuation allowance of $355.9 million against its net deferred tax assets. The valuation allowance was reflected as a noncash charge of $358.2 million to income tax expense and a noncash benefit of $2.3 million to accumulated other comprehensive loss (as a result of an adjustment made in accordance with ASC 715). The majority of the tax benefits associated with the Company’s net deferred tax assets can be carried forward for 20 years and applied to offset future taxable income. The federal NOL carryforward if not utilized will expire in 2030, and the various state NOLs will expire within the next three to 20 years. In addition, the Company’s tax credits, if not utilized will expire within six to 20 years.

The Company’s net deferred tax assets totaled $1.1 million at both November 30, 2010 and 2009. The deferred tax asset valuation allowance increased to $771.1 million at November 30, 2010 from $750.0 million at November 30, 2009. The Company’s deferred tax assets for which it did not establish a valuation allowance relate to amounts that can be realized through future reversals of existing taxable temporary differences or through carrybacks to the 2006 and 2007 years. To the extent the Company generates sufficient taxable income in the future to fully utilize the tax benefits of the related deferred tax assets, the Company expects its effective tax rate to decrease as the valuation allowance is reversed.

Gross unrecognized tax benefits are the differences between a tax position taken, or expected to be taken in a tax return, and the benefit recognized for accounting purposes. A reconciliation of the beginning and ending balances of the gross unrecognized tax benefits, excluding interest and penalties, is as follows (in thousands):


	Years Ended November 30,
	2010			2009			2008

Balance at beginning of year	$	11,024		$	18,332		$	27,617
Additions for tax positions related to prior years		1,720			4,230			199
Reductions for tax positions related to prior years		(1,183	)		(270	)		—
Reductions due to lapse of statute of limitations		—			(1,277	)		—
Reductions due to resolution of federal and state audits		(253	)		(9,991	)		(9,484	)

Balance at end of year	$	11,308		$	11,024		$	18,332

In July 2006, the FASB issued guidance which prescribes a recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company adopted this guidance effective December 1, 2007. As of the date of adoption, the Company’s net liability for unrecognized tax benefits was $18.3 million, which represented $27.6 million of gross unrecognized tax benefits less $9.3 million of indirect tax benefits. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in its consolidated financial statements as a component of the provision for income taxes. As of November 30, 2010, 2009 and 2008, there were $.9 million, $1.3 million and $7.0 million, respectively, of unrecognized tax benefits that if recognized would affect the Company’s annual effective tax rate. The Company’s total accrued interest and penalties related to unrecognized income tax benefits was $3.5 million at November 30, 2010 and $4.9 million at November 30, 2009. The Company’s liabilities for unrecognized tax benefits at November 30, 2010 and 2009 are included in accrued expenses and other liabilities in its consolidated balance sheets.

Included in the balance of gross unrecognized tax benefits at November 30, 2010 and 2009 are tax positions of $7.9 million and $6.5 million, respectively, for which the ultimate deductibility is highly certain but there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to a tax authority to an earlier period.

The Company anticipates that total gross unrecognized tax benefits will decrease by an amount ranging from $2.0 million to $3.0 million during the 12 months from this reporting date due to various state filings associated with the resolution of the federal audit.

The fiscal years ending after 2005 remain open to federal examination and fiscal years after 2004 remain open to examination by various state taxing jurisdictions.

The benefits of the Company’s NOLs, built-in losses and tax credits would be reduced or potentially eliminated if the Company experienced an “ownership change” under Section 382. Based on the Company’s analysis performed as of November 30, 2010, the Company does not believe it has experienced an ownership change as defined by Section 382, and, therefore, the NOLs, built-in losses and tax credits the Company has generated should not be subject to a Section 382 limitation as of this reporting date.


Note ~~14.~~17.	Stockholders’ Equity

Preferred Stock. On ~~February 4, 1999,~~January 22, 2009, the Company adopted a ~~stockholder~~Rights Agreement between the Company and Mellon Investor Services LLC, as rights ~~plan to replace the shareholder rights plan it adopted in 1989~~agent, dated as of that date (the ~~“1989~~“2009 Rights ~~Plan”~~Agreement”), and declared a dividend distribution of one preferred share purchase right for each outstanding share of common ~~stock; such rights were issued~~stock that was payable to stockholders of record as of the close of business on March 5, ~~1999, immediately after~~2009. Subject to the ~~expiration~~terms, provisions and conditions of the 2009 Rights Agreement, if these rights ~~issued under~~become exercisable, each right would initially represent the ~~1989 Rights Plan. On January 22, 2009,~~right to purchase from the Company adopted an amendment to the rights plan designed to preserve the value of certain of the Company’s net deferred tax assets. Under the plan as amended, under certain circumstances, each right will entitle the holder to purchase 1/100th of a share of ~~the Company’s~~its Series A Participating Cumulative Preferred Stock ~~at an exercise~~for a purchase price of ~~$270.00, subject~~$85.00 (the “Purchase Price”). If issued, each fractional share of preferred stock would generally give a stockholder approximately the same dividend, voting and liquidation rights as does one share of the Company’s common stock. However, prior to ~~adjustment.~~exercise, a right does not give its holder any rights as a stockholder, including without limitation any dividend, voting or liquidation rights. The rights ~~are~~will not be exercisable until the earlier ~~to occur~~ of ~~(a)~~(i) 10 calendar days ~~following~~after a public announcement by the Company that a person or group has ~~acquired Company common stock representing 4.9% or more of~~become an Acquiring Person (as defined under the ~~then-outstanding shares of common stock, or (b)~~2009 Rights Agreement) and (ii) 10 business days ~~following~~after the commencement of a tender or exchange offer ~~for Company common stock representing~~by a person or group if upon consummation of the offer the person or group would beneficially own 4.9% or more of the ~~then-outstanding~~Company’s outstanding common stock.

Until these rights become exercisable (the “Distribution Date”), common stock certificates will evidence the rights and may contain a notation to that effect. Any transfer of shares of the Company’s common stock prior to the Distribution Date will constitute a transfer of the associated rights. After the Distribution Date, the rights may be transferred other than in connection with the transfer of the underlying shares of the Company’s common stock. If there is an Acquiring Person on the ~~Company is acquired in~~Distribution Date or a ~~merger~~person or group becomes an Acquiring Person after the Distribution Date, each holder of a right, other ~~business combination transaction,~~than rights that are or ~~50% or more of~~were beneficially owned by an Acquiring Person, which will be void, will thereafter have the ~~Company’s assets or earning power is sold, each~~ right ~~will entitle its holder~~ to receive upon exercise ~~common stock~~of a right and payment of the ~~acquiring company~~Purchase Price, that number of shares of the Company’s common stock having a market value of ~~twice~~two times the ~~exercise~~Purchase Price. After the later of the Distribution Date and the time the Company publicly announces that an Acquiring Person has become such, the Company’s board of directors may exchange the rights, other than rights that are or were beneficially owned by an Acquiring Person, which will be void, in whole or in part, at an exchange ratio of one share of common stock per right, subject to adjustment.

At any time prior to the later of the Distribution Date and the time the Company publicly announces that an Acquiring Person becomes such, the Company’s board of directors may redeem all of the then-outstanding rights in whole, but not in part, at a price of ~~the right; and if, without approval of~~$0.001 per right, subject to adjustment (the “Redemption Price”). The redemption will be effective immediately upon the board of ~~directors, any person~~directors’ action, unless the action provides that such redemption will be effective at a subsequent time or ~~group acquires Company stock representing 4.9%~~upon the occurrence or nonoccurrence of one or more specified events, in which case the redemption will be effective in accordance with the provisions of the ~~outstanding shares of common stock, each right will entitle its holder to receive,~~action. Immediately upon ~~exercise, common stock~~the effectiveness of the ~~Company having a market value of twice the exercise price~~redemption of the ~~right. At~~rights, the ~~option of the Company, the rights may be redeemed prior~~right to ~~becoming exercisable at a redemption price of $.005 per right. Unless previously redeemed or exchanged,~~exercise the rights will ~~expire on March 5, 2009. Until a~~terminate and the only right ~~is exercised, the holder will have no rights as a stockholder~~ of the ~~Company, including~~holders of rights will be to receive the right to vote or receive dividends. Further, on January 22, 2009, the Company adopted a successor rights plan, dated as of that date, and declared a dividend distribution of one preferred share purchase right for each outstanding share of common stock.Redemption Price, with interest thereon. The ~~terms of the successor rights plan are substantially similar to the Company’s current rights plan, as amended. The successor rights plan will take effect upon the expiration of the~~ rights issued pursuant to the ~~existing rights plan. Unless~~2009 Rights Agreement will expire on the ~~rights issued pursuant to~~earliest of (a) the ~~successor~~

~~rights plan are earlier exchanged or redeemed, they will expire~~close of business on March 5, 2019, or(b) the time at which the rights are redeemed, (c) the time at which the rights are exchanged, (d) the time at which the Company’s board of directors determines that a related provision in the Company’s Restated Certificate of Incorporation is no longer necessary, and (e) the close of business on ~~March 5, 2010 if~~ the ~~successor rights plan has not been approved by~~first day of a taxable year of the Company to which the Company’s board of directors determines that no tax benefits may be carried forward. At the Company’s annual meeting of stockholders on April 2, 2009, the Company’s stockholders ~~prior to that date.~~approved the 2009 Rights Agreement.

Common Stock. As of November 30, ~~2008,~~2010, the Company was authorized to repurchase four million shares of its common stock under a board-approved stock repurchase program. The Company did not repurchase any of its common stock under this program in ~~2008~~2010, 2009 or ~~2007.~~2008. The Company has not repurchased ~~six million~~common shares ~~of its~~pursuant to a common stock ~~in 2006~~repurchase

plan for the past several years and any resumption of such stock repurchases will be at ~~an aggregate price~~the discretion of ~~$377.4 million under stock repurchase programs authorized by its~~the Company’s board of directors. ~~In addition to~~

During 2010 and 2009, the ~~repurchases in 2006, which consisted~~Company’s board of ~~open market transactions, the Company acquired $1.0 million in 2008, $6.9 million in 2007 and $16.7 million in 2006,~~directors declared four quarterly dividends of $.0625 per share of common stock ~~which~~that were previously issued shares delivered to the Company by employees to satisfy withholding taxes on the vesting of restricted stock awards. These transactions are not considered repurchases under the share repurchase program.

On April 6, 2006, the Company’s stockholders approved an amendment to the Company’s certificate of incorporation reducing the number of authorized shares of the Company’s common stock from 300 million to 290 million.

also paid during those years. In November 2008, the Company’s board of directors reduced the quarterly cash dividend on the Company’s common stock to $.0625 per share from $.25 per share. Consequently, during 2008, the Company’s board of directors declared three quarterly dividends of $.25 per share of common stock and one quarterly dividend of $.0625 per share of common stock, all of which were paid that year.

Treasury Stock. The Company acquired $.4 million of common stock in 2010, $.6 million in 2009 and $1.0 million in 2008, which were previously issued shares delivered to the Company by employees to satisfy withholding taxes on the vesting of restricted stock awards or forfeitures of previous restricted stock awards. Differences between the cost of treasury stock and the reissuance are recorded to paid-in capital. These transactions are not considered repurchases under the share repurchase program.


Note ~~15.~~18.	Employee Benefit and Stock Plans

Most employees are eligible to participate in the ~~Company’s~~KB Home 401(k) Savings Plan (the “401(k) Plan”) under which contributions by employees are partially matched by the Company. The aggregate cost of ~~this plan~~the 401(k) Plan to the Company was $3.2 million in 2010, $3.2 million in 2009 and $4.1 million in ~~2008, $6.2 million in 2007 and $10.8 million in 2006.~~2008. The assets of the ~~Company’s~~ 401(k) ~~Savings~~ Plan are held by a third-party trustee. ~~Plan~~The 401(k) plan participants may direct the investment of their funds among one or more of the several fund options offered by the ~~plan.~~401(k) Plan. A fund consisting of the Company’s common stock is one of the investment choices available to participants. As of November 30, ~~2008, 2007~~2010, 2009 and ~~2006,~~2008, approximately 5%, 5%6% and ~~11%~~5%, respectively, of the ~~plan’s~~401(k) Plan’s net assets were invested in the fund consisting of the Company’s common stock.

~~The~~At the Company’s ~~Amended and Restated 1999~~Annual Meeting of Stockholders held on April 1, 2010, the Company’s stockholders approved the KB Home 2010 Equity Incentive Plan (the ~~“1999~~“2010 Plan”), authorizing, among other things, the issuance of up to 3,500,000 shares of the Company’s common stock for grants of stock-based awards to employees, non-employee directors and consultants of the Company. This pool of shares includes all of the shares that were available for grant as of April 1, 2010 under the Company’s 2001 Stock Incentive Plan, and no new awards may be made under the 2001 Stock Incentive Plan. Accordingly, as of April 1, 2010, the 2010 Plan became the Company’s only active equity compensation plan. Under the 2010 Plan, grants of stock options and other similar awards reduce the 2010 Plan’s share capacity on a1-for-1 basis, and grants of restricted stock and other similar “full value” awards reduce the 2010 Plan’s share capacity on a1.78-for-1 basis. In addition, subject to the 2010 Plan’s terms and conditions, a stock-based award may also be granted under the 2010 Plan to replace an outstanding award granted under another Company plan (subject to the terms of such other plan) with terms substantially identical to those of the award being replaced.

The Company’s 2010 Plan provides that stock options, performance stock, restricted stock and stock units may be awarded to any employee of the Company for periods of up to 10 years. The ~~1999~~2010 Plan also enables the Company to grant cash bonuses, SARs and other stock-based awards. In addition to awards outstanding under the 2010 Plan, the Company has awards outstanding under its Amended and Restated 1999 Incentive Plan (the “1999 Plan”), which provides for generally the same types of awards as the 2010 Plan. The Company also has awards outstanding under its ~~2001 Stock Incentive Plan, 1998 Stock Incentive Plan,~~ 1988 Employee Stock Plan and its Performance-Based Incentive Plan for Senior Management, each of which provides for generally the same types of awards as the ~~1999~~2010 Plan, but ~~with periods~~stock option awards granted under these plans have terms of up to 15 years. ~~The 1999 Plan and the 2001 Stock Incentive Plan are the Company’s primary employee stock plans. New awards may not be issued under the 1999 Plan after April 2, 2009.~~

Stock Options. Stock option transactions are summarized as follows:


																Years Ended November 30,
	Years Ended November 30,															2010					2009					2008
	2008					2007					2006								Weighted					Weighted					Weighted
				Weighted					Weighted					Weighted					Average					Average					Average
				Average					Average					Average					Exercise					Exercise					Exercise
				Exercise					Exercise					Exercise		Options			Price		Options			Price		Options			Price
	Options			Price		Options			Price		Options			Price

Options outstanding at beginning of year		8,173,464		$	30.17		8,354,276		$	28.71		9,176,253		$	28.16		5,711,701		$	27.39		7,847,402		$	30.11		8,173,464		$	30.17
Granted		—			—		787,600			34.78		85,569			67.53		3,572,237			18.71		1,403,141			15.44		—			—
Exercised		(144,020	)		18.31		(327,681	)		24.27		(743,481	)		24.19		(28,281	)		13.00		—			—		(144,020	)		18.31
Cancelled		(182,042	)		42.33		(640,731	)		37.04		(164,065	)		38.63		(457,044	)		22.05		(3,538,842	)		28.69		(182,042	)		42.33

Options outstanding at end of year		7,847,402		$	30.11		8,173,464		$	30.17		8,354,276		$	28.71		8,798,613		$	24.19		5,711,701		$	27.39		7,847,402		$	30.11

Options exercisable at end of year		7,321,170		$	29.77		7,238,598		$	28.98		7,428,952		$	26.46		6,146,605		$	28.73		4,046,027		$	31.05		7,321,170		$	29.77

Options available for grant at end of year		593,897					501,892					1,016,199					21,703					1,714,650					593,897

The total intrinsic value of stock options exercised during the years ended November 30, 2010 and 2008 ~~2007~~was $.1 million and ~~2006 was~~ $1.0 million, ~~$5.5~~respectively. There were no stock options exercised during the year ended November 30, 2009. The aggregate intrinsic value of stock options outstanding was $.3 million, $.1 million and ~~$29.5~~$.1 million at November 30, 2010, 2009 and 2008, respectively. The aggregate intrinsic value of stock options ~~outstanding~~exercisable was

~~$.1 million, $9.9 million and $199.1~~ less than $.1 million at November 30, ~~2008, 2007~~2010, and ~~2006, respectively. The aggregate intrinsic value of options exercisable at November 30, 2008, 2007 and 2006~~ was $.1 million ~~$9.9 million~~at both November 30, 2009 and ~~$190.8 million, respectively.~~2008. The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the price of the option. ~~The total amount~~In 2009, in connection with the settlement of certain stockholder derivative litigation, the Company’s former chairman and chief executive officer relinquished 3,011,452 stock options ~~cancelled in 2007 includes 371,399~~to the Company and those stock options ~~that~~ were ~~cancelled as a result~~cancelled.

On August 13, 2010, the Company consummated an exchange offer (the “August 2010 Exchange Offer”) pursuant to which eligible employees of the ~~irrevocable election of each~~Company had the opportunity to exchange their outstanding cash-settled SARs granted on October 2, 2008 and January 22, 2009 for non-qualified options to purchase shares of the Company’s ~~non-employee directors to receive payouts in cash of all outstanding stock-based awards~~common stock granted ~~to them~~ under the ~~Company’s Non-Employee Directors Stock~~2010 Plan.

~~In 2007,~~On November 9, 2010, the Company ~~performed~~consummated a ~~review~~separate exchange offer (the “November 2010 Exchange Offer”) pursuant to which eligible employees of ~~past equity grants under its employee stock plans in compliance with an Equity-Based Award Grant Policy that was adopted~~the Company had the opportunity to exchange their outstanding cash-settled SARs granted on ~~February 1,~~July 12, 2007 ~~by the management development~~ and ~~compensation committee~~October 4, 2007 for non-qualified options to purchase shares of the Company’s ~~board~~common stock granted under the 2010 Plan.

Pursuant to both the August 2010 Exchange Offer and the November 2010 Exchange Offer, each stock option granted in exchange for a SAR had an exercise price equal to the SAR’s exercise price and the same number of ~~directors. Based on that review,~~underlying shares, vesting schedule and expiration date as each such SAR. The August 2010 Exchange Offer and the November 2010 Exchange Offer did not include a re-pricing or any other changes impacting the value to the employees. The Company conducted the August 2010 Exchange Offer and November 2010 Exchange Offer in an effort to reduce the overall degree of variability in the expense recorded for employee equity-based compensation by replacing the SARs, which are accounted for as liability awards, with stock options, which are accounted for as equity awards.

Pursuant to the August 2010 Exchange Offer, 19 eligible employees returned a total of 1,116,030 SARs to the Company, ~~determined that as~~and those SARs were cancelled on August 13, 2010 in exchange for corresponding grants of ~~November 30, 2006, the Company should have counted 2,890,260 shares of restricted~~ stock ~~against the limits stated in its employee stock plans based on the terms~~options to 18 of those ~~plans and recent changes in New York Stock Exchange rules. In addition, because~~employees to purchase an aggregate of ~~the irrevocable cash payout election of each~~1,073,737 shares of the Company’s ~~non-employee directors,~~common stock at $19.90 per share and one grant of stock options to one employee to purchase 42,293 shares of the Company’s common stock at $11.25 per share.

Pursuant to the November 2010 Exchange Offer, nine eligible employees returned a total of 925,705 SARs to the Company, and those SARs were cancelled on November 9, 2010 in exchange for corresponding grants of stock options to those employees to purchase an aggregate of 732,170 shares of the Company’s common stock at $28.10 per share and grants of stock options to seven of those employees to purchase an aggregate of 193,535 shares of the Company’s common stock at $36.19 per share.

The stock options granted pursuant to the August 2010 Exchange Offer and the November 2010 Exchange Offer are included in the stock options granted total in the above table.

On October 7, 2010, the Company’s president and chief executive officer was granted an award ofperformance-based stock options to purchase an aggregate of 260,000 shares of the Company’s common stock at the purchase price of $11.06 per share. The performance-based stock options shall vest and become exercisable if the Company’s president and chief executive officer does not experience a termination of service prior to the applicable dates described in the 2010 Equity Incentive Plan Stock Option Agreement (the “Agreement”), and if the performance goal, as set forth in the Agreement, has ~~no intention~~been satisfied. The number of ~~issuing any shares under~~performance-based stock options that ultimately vests depends on the ~~Non-Employee Directors Stock Plan. Therefore,~~achievement of one of three performance metrics: positive cumulative operating margin; relative operating margin; and relative customer satisfaction. In accordance with ASC 718, the Company ~~considers~~used the ~~plan as having no available capacity~~Black-Scholes option-pricing model to ~~issue shares~~estimate the grant-date fair value per performance-based stock option of common stock, rather than the 566,061 shares of available capacity previously reported as of November 30, 2006. The options available for grant at November 30, 2006 have been adjusted to reflect the results of the review and the elimination of the Non-Employee Directors Stock Plan’s capacity.$4.59.

Stock options outstanding and stock options exercisable at November 30, ~~2008~~2010 are as follows:

Options Outstanding Options Exercisable
Weighted
Weighted

Weighted
Average
Weighted
Average

Average
Remaining
Average
Remaining

Exercise
Contractual
Exercise
Contractual

Range of Exercise Price
Options Price Life Options Price Life

$ 8.88 to $15.64 1,519,401 $ 14.76 7.83 1,519,401 $ 14.76
$15.65 to $21.51 1,863,452 21.36 8.79 1,863,452 21.36
$21.52 to $34.05 1,943,963 31.80 9.66 1,852,297 31.98
$34.06 to $40.90 1,674,766 39.01 9.87 1,241,366 40.00
$40.91 to $69.63 845,820 55.47 8.79 844,654 55.47

$ 8.88 to $69.63 7,847,402 $ 30.11 9.05 7,321,170 $ 29.77 9.10


	Options Outstanding						Options Exercisable
					Weighted						Weighted
			Weighted		Average				Weighted		Average
			Average		Remaining				Average		Remaining
			Exercise		Contractual				Exercise		Contractual
Range of Exercise Price	Options		Price		Life		Options		Price		Life

$ 8.88 to $12.50		1,501,001	$	11.10		9.58		65,260	$	11.52
$12.51 to $15.44		1,828,270		14.94		7.89		966,126		14.55
$15.45 to $26.29		1,896,619		20.81		7.25		1,542,496		21.02
$26.30 to $35.26		1,833,299		31.01		7.42		1,833,299		31.01
$35.27 to $69.63		1,739,424		41.69		7.22		1,739,424		41.69

$ 8.88 to $69.63		8,798,613	$	24.19		7.81		6,146,605	$	28.73		7.20

The weighted average fair value of stock options granted in 2010 and 2009 was $2.81 and $7.16, respectively. The Company granted no stock options in 2008. The ~~weighted average fair value of options granted in 2007 and 2006 was $11.42 and $24.76, respectively. The~~ fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions used for grants in ~~2007~~2010 and ~~2006,~~2009, respectively: a risk-free interest rate of ~~4.8%~~.7% and ~~4.8%~~1.9%; an expected volatility factor for the market price of the Company’s common stock of ~~41.1%~~61.7% and ~~41.0%~~64.3%; aan expected dividend yield of ~~2.9%~~2.2% and ~~1.9%~~1.6%; and an expected ~~life~~term of 53 years and 54 years.

The risk-free interest rate assumption is determined based on observed interest rates appropriate for the expected term of the Company’s stock options. The expected volatility factor is based on a combination of the historical volatility of the Company’s common stock and the implied volatility of publicly traded options on the Company’s stock. The expected dividend yield assumption is based on the Company’s history of dividend payouts. The expected term of employee stock options is estimated using historical data.

The Company’s stock-based compensation expense related to stock option grants was $5.8 million in 2010, $2.6 million in 2009 and $5.0 million in ~~2008, $9.4 million in 2007 and $19.4 million in 2006.~~2008. As of November 30, ~~2008,~~2010, there was ~~$2.2~~$8.0 million of total unrecognized stock-based compensation expense related to unvested stock option awards. This expense is expected to be recognized over a weighted average period of ~~1.1~~1.6 years.

The Company records proceeds from the exercise of stock options as additions to common stock and paid-in capital. Actual tax ~~shortfall~~shortfalls realized for the tax deduction from stock option exercises of $2.8 million in 2010, $4.1 million in 2009 and $1.1 million in 2008, ~~and actual tax benefits realized for the tax deduction from stock option exercises of $2.1 million and $17.5 million in 2007 and 2006, respectively,~~ were recorded as paid-in capital. In ~~2008, 2007~~2010, 2009 and ~~2006,~~2008, the consolidated statement of cash flows reflects $.6 million, $0 ~~$.9 million~~ and ~~$15.4 million,~~$0, respectively, of excess tax benefit associated with the exercise of stock options since December 1, 2005, in accordance with the cash flow classification requirements of ~~SFAS No. 123(R).~~ASC 718.

Other Stock-Based Awards. From time to time, the Company grants restricted common stock to ~~key executives.~~various employees as a compensation benefit. During the restriction periods, the ~~executives~~employees are entitled to vote and receive dividends on such shares. The restrictions imposed with respect to the shares granted lapse over periods of three or eight years if certain conditions are met. ~~The~~

Restricted stock transactions are summarized as follows:


	Years Ended November 30,
	2010					2009
				Weighted					Weighted
				Average					Average
				per Share					per Share
				Grant Date					Grant Date
	Shares			Fair Value		Shares			Fair Value
Outstanding at beginning of year		445,831		$	15.44		700,000		$	15.70
Granted		51,023			12.58		445,831			15.44
Vested		—			—		—			—
Cancelled		(94,377	)		15.36		(700,000	)		15.70

Outstanding at end of year		402,477		$	15.09		445,831		$	15.44

In 2009, in connection with the settlement of certain stockholder derivative litigation, the Company’s former chairman and chief executive officer relinquished 700,000 shares of restricted ~~stock outstanding totaled 700,000 at November 30, 2008 and 830,750 at November 30, 2007.~~common stock.

On July 12, 2007, the Company awarded 54,000 Performance Shares to its ~~President~~president and ~~Chief Executive Officer~~chief executive officer subject to the terms of the 1999 Plan, the ~~President~~president and ~~Chief Executive Officer’s~~chief executive officer’s Performance Stock Agreement dated

July 12, 2007 and his Employment Agreement dated February 28, 2007. Depending on the Company’s total shareholder return over the three-year period ending on November 30, 2009 relative to a group of peer companies, zero to 150% of the Performance Shares ~~will~~would vest and become unrestricted. In accordance with ~~SFAS No. 123(R),~~ASC 718, the Company used a Monte Carlo simulation model to estimate the grant-date fair value of the Performance Shares. The total grant-date fair value of $2.0 million ~~will be~~was recognized over the requisite service period. On January 21, 2010, the management development and compensation committee of the Company’s board of directors certified the Company’s relative total shareholder return over the performance period associated with the Performance Shares and determined that the vesting restrictions lapsed with respect to 48,492 Performance Shares effective on that date.

~~During~~In 2009 and 2008, ~~and 2007,~~ the Company granted phantom shares ~~and~~to various employees. In 2008, the Company also granted SARs to various employees. ~~These awards~~Both phantom shares and SARs are accounted for as liabilities in the Company’s consolidated financial statements because such awards provide for settlement in cash. Each phantom share represents the right to receive a cash payment equal to the closing price of the Company’s common stock on the applicable vesting date. Each SAR represents a right to receive a cash payment equal to the positive difference, if any, between the grant price and the market value of a share of the Company’s common stock on the date of exercise. The phantom shares vest in full at the end of three years, while the SARs vest in equal annual installments over three years. ~~There~~As of November 30, 2010, there were ~~1,099,722~~268,762 phantom shares and ~~2,424,507~~37,517 SARs outstanding. There were 926,705 phantom shares and 2,292,537 SARs outstanding as of November 30, ~~2008,~~2009 and ~~892,926~~1,099,722 phantom shares and ~~1,100,519~~2,345,154 SARs outstanding as of November 30, ~~2007.~~2008. The year-over-year decrease in the number of outstanding SARs in 2010 from 2009 reflects the impact of the August 2010 Exchange Offer and the November 2010 Exchange Offer.

The Company recognized total compensation expense of $1.8 million in 2010, $10.0 million in 2009 and $7.1 million in 2008 ~~$7.4 million in 2007 and $4.7 million in 2006~~ related to restricted common stock, the Performance Shares, phantom shares and SARs.

Grantor Stock Ownership Trust. ~~In connection with a share repurchase program, on~~On August 27, 1999, the Company established a grantor stock ownership trust (the “Trust”) into which certain shares repurchased in 2000 and 1999 were transferred. The Trust, administered by a third-party trustee, holds and distributes the shares of common stock acquired to support certain employee compensation and employee benefit obligations of the Company under its existing stock option, the 401(k) ~~Savings~~ Plan and other employee benefit plans. The existence of the Trust has no impact on the amount of benefits or compensation that is paid under these plans.

For financial reporting purposes, the Trust is consolidated with the Company. Any dividend transactions between the Company and the Trust are eliminated. Acquired shares held by the Trust remain valued at the market price at the date of purchase and are shown as a reduction to stockholders’ equity in the consolidated balance sheets. The difference between the Trust share value and the market value on the date shares are released from the Trust is included in paid-in capital. Common stock held in the Trust is not considered outstanding in the computations of earnings (loss) per share. The Trust held ~~11,901,382~~11,082,723 and ~~12,203,282~~11,228,951 shares of common stock at November 30, ~~2008~~2010 and ~~2007,~~2009, respectively. The trustee votes shares

held by the Trust in accordance with voting directions from eligible employees, as specified in a trust agreement with the trustee.


Note ~~16.~~19.	Postretirement Benefits

The Company has ~~two~~a supplemental non-qualified, unfunded retirement ~~plans, the KB Home Supplemental Executive Retirement Plan, restated effective as of July 12, 2001, and~~plan, the KB Home Retirement Plan, effective as of July 11, 2002, pursuant to which the Company pays supplemental pension benefits to certain ~~key~~ employees upon retirement. The Company’s supplemental non-qualified, unfunded retirement plan, the KB Home Supplemental Executive Retirement Plan, restated effective as of July 12, 2001, was terminated during 2009. In connection with the plans, the Company has purchased cost recovery life insurance on the lives of certain employees. Insurance contracts associated with each plan are held by a trust, established as part of the plans to implement and carry out the provisions of the plans and to finance the benefits offered under the plans. The trust is the owner and beneficiary of such contracts. The amount of the insurance coverage is designed to provide sufficient revenues to cover all costs of the plans if assumptions made as to employment term, mortality experience, policy earnings and other factors are realized. The cash surrender value of these insurance contracts was ~~$43.5~~$41.4 million at November 30, ~~2008~~2010 and ~~$53.6~~$38.3 million at November 30, ~~2007.~~2009.

~~On November 1, 2001, the~~The Company ~~implemented~~also has an unfunded death benefit plan, the KB Home Death Benefit Only Plan, implemented on November 1, 2001, for certain key management employees. In connection with the plan, the Company has purchased cost recovery life insurance on the lives of certain employees. Insurance contracts associated with the plan are held by a trust, established as part of the plan to implement and carry out the provisions of the plan and to finance the benefits offered under the plan. The trust is the owner and beneficiary of such contracts. The amount of the coverage is designed to provide sufficient revenues to cover all costs of the plan if assumptions made as to employment term, mortality experience, policy earnings and other factors are realized. The cash surrender value of these insurance contracts was ~~$15.0~~$13.6 million at November 30, ~~2008~~2010 and ~~$19.6~~$12.9 million at November 30, ~~2007.~~2009.

The net periodic benefit cost of the Company’s postretirement benefit plans for the year ended November 30, 2010 was $5.5 million, which included service costs of $1.2 million, interest costs of $2.2 million, amortization of unrecognized loss of $.3 million, amortization of prior service costs of $1.6 million and other costs of $.2 million. The net periodic benefit cost of these plans for the year ended November 30, 2009 was $5.6 million, which included service costs of $1.1 million, interest costs of $2.4 million, amortization of prior service costs of $1.5 million and a charge of $.8 million due to plan settlements, partly offset by other income of $.2 million. For the year ended November 30, 2008, the net periodic benefit cost of these plans was $6.5 million, which included service costs of $1.3 million, interest costs of $2.9 million, amortization of prior service costs of $1.6 million and other costs of $.7 million. ~~The net periodic benefit cost~~In 2009, in connection with the settlement of ~~these plans for~~certain stockholder derivative litigation, the ~~year ended November 30, 2007 was $5.6~~Company paid $22.2 million ~~which included service costs of $1.4 million, interest costs of $2.6 million~~to its former chairman and ~~amortization of prior service costs of $1.6 million,~~chief executive officer under the KB Home Retirement Plan and ~~for~~ the ~~year ended November 30, 2006 was $6.8 million, which included service costs of $2.7 million, interest costs of $2.5 million and amortization of prior service costs of $1.6 million.~~KB Home Supplemental Executive Retirement Plan. The liabilities related to the postretirement benefit plans were ~~$50.1~~$44.1 million at November 30, ~~2008~~2010 and ~~$49.1~~$38.3 million at November 30, ~~2007,~~2009, and are included in accrued expenses and other liabilities in the consolidated balance sheets. For the years ended November 30, ~~2008~~2010 and ~~2007,~~2009, the discount ~~rate~~rates used for the plans ~~was 6%~~were 5.2% and ~~the rate of compensation increase was 4%.~~5.7%, respectively.

~~Effective November 30, 2007,~~Benefit payments under the ~~Company adopted SFAS No. 158, which requires an employer to recognize the funded status of defined~~Company’s postretirement benefit plans ~~as an asset or liability on the balance sheet and requires any unrecognized prior service cost and actuarial gains/losses~~are expected to be ~~recognized in other comprehensive income (loss). The postretirement benefit liability at~~paid as follows: 2011 — $.2 million; 2012 — $.3 million; 2013 — $1.0 million; 2014 — $1.5 million; 2015 — $1.6 million; and for the five years ended November 30, ~~2007 reflects the Company’s adoption of SFAS No. 158, which increased the liability by $22.9~~2020 — $14.9 million ~~with a corresponding charge to accumulated other comprehensive loss in stockholders’ equity~~ in the consolidated balance sheet. The $8.7 million deferred tax asset resulting from the adoption of SFAS No. 158 was offset by a valuation allowance established in accordance with SFAS No. 109. The adoption of SFAS No. 158 did not affect the Company’s consolidated results of operations or cash flows. The Company uses November 30 as the measurement date for its postretirement benefit plans.aggregate.


~~Note 17.~~	~~Income Taxes~~

~~The components of income tax benefit (expense) in the consolidated statements of operations are as follows (in thousands):~~

Federal State Total

2008
Current $ (18,704 ) $ 10,504 $ (8,200 )
Deferred — — —

Income tax benefit (expense) $ (18,704 ) $ 10,504 $ (8,200 )

2007
Current $ 236,961 $ 27,195 $ 264,156
Deferred (156,772 ) (61,384 ) (218,156 )

Income tax benefit (expense) $ 80,189 $ (34,189 ) $ 46,000

2006
Current $ (277,960 ) $ (9,476 ) $ (287,436 )
Deferred 80,555 27,981 108,536

Income tax benefit (expense) $ (197,405 ) $ 18,505 $ (178,900 )

November 30,
2008 2007

Deferred tax liabilities:
Capitalized expenses $ 137,975 $ 131,147
State taxes 36,699 56,751
Other 398 647

Total $ 175,072 $ 188,545

November 30,
2008 2007

Deferred tax assets:
Inventory impairments and land option contract abandonments $ 483,199 $ 479,716
2008 net operating loss 52,841 —
Warranty, legal and other accruals 191,209 198,118
Employee benefits 90,521 103,525
Partnerships and joint ventures 107,838 59,035
Depreciation and amortization 49,909 41,558
Capitalized expenses 9,039 19,530
Tax credits 59,676 18,823
Deferred income 2,741 9,411
Other 8,029 4,140

Total 1,055,002 933,856
Valuation allowance (878,778 ) (522,853 )

Total 176,224 411,003

Net deferred tax assets $ 1,152 $ 222,458

Income tax benefit (expense) computed at the statutory U.S. federal income tax rate and income tax benefit (expense) provided in the consolidated statements of operations differ as follows (in thousands):

Years Ended November 30,
2008 2007 2006

Income tax benefit (expense) computed at statutory rate $ 338,776 $ 511,270 $ (200,148 )
Increase (decrease) resulting from:
State taxes, net of federal income tax benefit 25,142 46,116 12,028
Non-deductible stock-based and other compensation and related expenses — (3,574 ) (3,871 )
Internal Revenue Code Section 199 manufacturing deduction — — 6,265
Tax credits (3,984 ) (3,594 ) 4,625
Valuation allowance for deferred tax assets (358,159 ) (514,234 ) —
Other, net (9,975 ) 10,016 2,201

Income tax benefit (expense) $ (8,200 ) $ 46,000 $ (178,900 )

The Company recognized income tax expense of $8.2 million in 2008, an income tax benefit from continuing operations of $46.0 million in 2007 and income tax expense from continuing operations of $178.9 million in 2006. These amounts represent effective tax rates of .8% for 2008, 3.0% for 2007 and 31.0% for 2006. The change in the Company’s effective tax rate in 2008 from 2007 was primarily due to the disallowance of tax benefits related to the Company’s current year loss as a result of a full valuation allowance. The decrease in the Company’s effective tax rate in 2007 from 2006 was primarily due to the noncash valuation allowance recorded against net deferred tax assets.

In accordance with SFAS No. 109, the Company evaluates its deferred tax assets quarterly to determine if valuation allowances are required. SFAS No. 109 requires that companies assess whether valuation allowances should be established based on the consideration of all available evidence using a “more likely than not” standard. For 2008, the Company recorded a valuation allowance of $355.9 million against its net deferred tax assets. The valuation allowance was reflected as a noncash charge of $358.2 million to income tax expense and a noncash benefit of $2.3 million to accumulated other comprehensive loss (as a result of an adjustment made in accordance with SFAS No. 158). For 2007, the Company recorded a valuation allowance totaling approximately $522.9 million against its deferred tax assets. The valuation allowance was reflected as a noncash charge of $514.2 million to income tax expense and $8.7 million to accumulated other comprehensive income. The majority of the tax benefits associated with the Company’s net deferred tax assets can be carried forward for 20 years and applied to offset future taxable income. The Company’s deferred tax assets for which it did

8491

not establish a valuation allowance relate to amounts that can be realized through future reversals of existing taxable temporary differences or through carrybacks to the 2007 and 2006 years. To the extent the Company generates sufficient taxable income in the future to fully utilize the tax benefits of the related deferred tax assets, the Company expects its effective tax rate to decrease as the valuation allowance is reversed.

The Company implemented the provisions of FASB Interpretation No. 48 effective December 1, 2007. As of the date of adoption, the Company’s net liability for unrecognized tax benefits was $18.3 million, which represented $27.6 million of gross unrecognized tax benefits less $9.3 million of indirect tax benefits. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in its consolidated financial statements as a component of the provision for income taxes. As of November 30, 2008, the Company’s liability for gross unrecognized tax benefits was $18.3 million, of which $7.0 million, if recognized, will affect the Company’s effective tax rate. The Company had $16.5 million and $16.9 million in accrued interest and penalties at December 1, 2007 and November 30, 2008, respectively.

It is reasonably possible that, within the next 12 months, total unrecognized tax benefits may decrease as a result of the potential resolution with the Internal Revenue Service relating to issues stemming from fiscal years 2004 and 2005. However, any such change cannot be estimated at this time.

~~A reconciliation of the beginning and ending balances of the gross unrecognized tax benefits, excluding interest and penalties, is as follows (in thousands):~~

Year Ended

November 30, 2008
Balance at beginning of year $ 27,617
Additions for tax positions related to prior years —
Reductions for tax positions of prior years 199
Settlements (9,484 )

Balance at end of year $ 18,332

Included in the balance of gross unrecognized tax benefits at the beginning of the year and the end of the year are tax positions of $6.3 million and $4.3 million, respectively, for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but would accelerate the payment of cash to the tax authority to an earlier period.

~~The tax years2004-2007~~ ~~remain open to examination by major taxing jurisdictions to which the Company is subject.~~


Note ~~18.~~20.	Supplemental Disclosure to Consolidated Statements of Cash Flows

The following are supplemental disclosures to the consolidated statements of cash flows (in thousands):


	Years Ended November 30,									Years Ended November 30,
	2008			2007			2006			2010			2009			2008
Summary of cash and cash equivalents:
Summary of cash and cash equivalents at the end of the year:
Homebuilding	$	1,135,399		$	1,325,255		$	700,041		$	904,401		$	1,174,715		$	1,135,399
Financial services		6,119			18,487			15,417			4,029			3,246			6,119
Discontinued operations		—			—			88,724

Total	$	1,141,518		$	1,343,742		$	804,182		$	908,430		$	1,177,961		$	1,141,518

Supplemental disclosures of cash flow information:
Supplemental disclosure of cash flow information:
Interest paid, net of amounts capitalized	$	20,726		$	29,572		$	—		$	71,647		$	55,892		$	20,726
Income taxes paid		(122,872	)		131,329			322,983			807			7,145			2,354
Income taxes refunded											196,868			242,418			125,226

Supplemental disclosures of noncash activities:
Supplemental disclosure of noncash activities:
Increase in inventories in connection with consolidation of joint ventures										$	72,300		$	97,550		$	—	��
Increase in secured debt in connection with consolidation of joint ventures											—			133,051			—
Increase in accounts payable, accrued expenses and other liabilities in connection with consolidation of joint ventures											38,861			—			—
Stock appreciation rights exchanged for stock options											2,348			—			—
Reclassification from inventory to operating properties											—			72,548			—
Reclassification from accounts payable to investments in unconsolidated joint ventures											—			50,626			—
Cost of inventories acquired through seller financing	$	90,028		$	4,139		$	128,726			55,244			16,240			90,028
Decrease in consolidated inventories not owned		(143,091	)		(409,505	)		(18,130	)		(41,626	)		(45,340	)		(143,091	)


Note ~~19.~~	~~Discontinued Operations~~

On July 10, 2007, the Company sold its 49% equity interest in its publicly traded French subsidiary, KBSA. The sale generated total gross proceeds of $807.2 million and a pretax gain of $706.7 million ($438.1 million, net of income taxes), which was recognized in the third quarter of 2007. The sale was made pursuant to the Share Purchase Agreement among the Company, the Purchaser and the Selling Subsidiaries. Under the Share Purchase Agreement, the Purchaser agreed to acquire the 49% equity interest (representing 10,921,954 shares held collectively by the Selling Subsidiaries) at a price of 55.00 euros per share. The purchase price consisted of 50.17 euros per share paid by the Purchaser in cash, and a cash dividend of 4.83 euros per share paid by KBSA.

As a result of the sale, the results of the French operations are included in discontinued operations in the Company’s consolidated statements of operations for all periods presented. In addition, cash flows related to these discontinued operations are presented separately in the consolidated statements of cash flows for all periods presented.

The following amounts related to the French operations were derived from historical financial information and have been segregated from continuing operations and reported as discontinued operations (in thousands):

Years Ended November 30,
2007 2006

Revenues $ 911,841 $ 1,623,709
Construction and land costs (680,234 ) (1,187,484 )
Selling, general and administrative expenses (129,407 ) (251,104 )

Operating income 102,200 185,121
Interest income 1,199 643
Interest expense, net of amounts capitalized — (2,045 )
Minority interests (38,665 ) (68,020 )
Equity in income of unconsolidated joint ventures 4,118 10,505

Income from discontinued operations before income taxes 68,852 126,204
Income tax expense (21,600 ) (36,800 )

Income from discontinued operations, net of income taxes $ 47,252 $ 89,404


~~Note 20.~~21.	Quarterly Results (unaudited)

~~Shown below are~~The following tables present consolidated quarterly results for the Company for the years ended November 30, ~~2008~~2010 and ~~2007~~2009 (in thousands, except per share amounts):

First Second Third Fourth

2008
Revenues $ 794,224 $ 639,065 $ 681,610 $ 919,037
Gross profit (loss) (121,333 ) (118,746 ) 25,383 (76,950 )
Loss from continuing operations (268,172 ) (255,930 ) (144,745 ) (307,284 )
Net loss (268,172 ) (255,930 ) (144,745 ) (307,284 )

Basic loss per share $ (3.47 ) $ (3.30 ) $ (1.87 ) $ (3.96 )

Diluted loss per share $ (3.47 ) $ (3.30 ) $ (1.87 ) $ (3.96 )

2007
Revenues $ 1,388,838 $ 1,413,208 $ 1,543,900 $ 2,070,580
Gross profit (loss) 208,370 (69,419 ) (461,774 ) (102,965 )
Income (loss) from continuing operations 10,655 (174,152 ) (478,620 ) (772,653 )
Income from discontinued operations, net of income taxes (a) 16,882 25,466 443,008 —
Net income (loss) 27,537 (148,686 ) (35,612 ) (772,653 )

Basic earnings (loss) per share:
Continuing operations $ .14 $ (2.26 ) $ (6.19 ) $ (9.99 )
Discontinued operations .22 .33 5.73 —

Basic earnings (loss) per share $ .36 $ (1.93 ) $ (.46 ) $ (9.99 )

Diluted earnings (loss) per share:
Continuing operations $ .13 $ (2.26 ) $ (6.19 ) $ (9.99 )
Discontinued operations .21 .33 5.73 —

Diluted earnings (loss) per share $ .34 $ (1.93 ) $ (.46 ) $ (9.99 )


	First			Second			Third			Fourth


2010
Revenues	$	263,978		$	374,052		$	501,003		$	450,963
Gross profit		35,971			65,671			87,008			84,825
Pretax income (loss)		(54,504	)		(30,609	)		(6,697	)		15,442
Net income (loss)		(54,704	)		(30,709	)		(1,397	)		17,442

Basic and diluted earnings (loss) per share	$	(.71	)	$	(.40	)	$	(.02	)	$	.23

2009
Revenues	$	307,361		$	384,470		$	458,451		$	674,568
Gross profit		14,783			6,115			41,773			3,833
Pretax loss		(59,572	)		(83,583	)		(77,048	)		(90,981	)
Net income (loss)		(58,072	)		(78,383	)		(66,048	)		100,719

Basic and diluted earnings (loss) per share	$	(.75	)	$	(1.03	)	$	(.87	)	$	1.31


~~(a)~~		Discontinued operations consist only of the Company’s French operations, which have been presented as discontinued operations for all periods presented. Income from discontinued operations, net of income taxes, in 2007 includes a gain of $438.1 million realized on the sale of the French operations.

Included in gross profit ~~(loss)~~in the first, third and fourth quarters of 2010 were pretax, noncash inventory impairment charges of $6.8 million, $1.4 million and $1.6 million, respectively, and pretax, noncash charges for land option contract abandonments of $6.5 million, $2.0 million and $1.6 million, respectively.

Included in gross profit in the first, second, third and fourth quarters of ~~2008~~2009 were pretax, noncash inventory impairment charges of ~~$180.3~~$24.4 million, ~~$154.0~~$5.7 million, ~~$39.1~~$22.8 million and ~~$192.5~~$67.9 million, ~~respectively. Gross profit (loss) in the first, second~~respectively, and ~~fourth quarters of 2008 also included~~ pretax, noncash charges for land option contract abandonments of ~~$7.3~~$.3 million, ~~$20.4~~$36.5 million, $1.7 million and ~~$13.2~~$8.8 million, respectively. There were no such charges in the third quarter of 2008. The loss from continuing operations in the first, second, third and fourth quarters of 2008 also included pretax charges for joint venture impairments of $36.4 million, $2.2 million, $43.1 million and $60.2 million, respectively. Included in gross profit (loss) in the first, second, third and fourth quarters of 2007 were inventory impairment charges of $5.0 million, $261.2 million, $610.3 million and $233.5 million, respectively, and pretax charges for land option contract abandonments of $3.6 million, $5.7 million, $62.7 million and $72.0 million, respectively. The loss from continuing operations in the second, third and fourth quarters of 2007 also included pretax charges for joint venture impairments of $41.3 million, $17.2 million and $97.9 million, respectively.

The loss from continuing operations in the second and fourth quarters of 2008 included pretax charges of $24.6 million and $43.4 million, respectively, for goodwill impairments recorded in accordance with SFAS No. 142. The loss from continuing operations in the third quarter of 2007 included a pretax charge of $107.9 million for goodwill impairments recorded in accordance with SFAS No. 142.

8792

The ~~net~~pretax loss in the first, second, third and fourth quarters of ~~2008~~2009 also included charges for joint venture impairments of $7.6 million, $7.2 million, $23.2 million and $.5 million, respectively.

The net loss in the first, second and third quarters of 2010 included charges of ~~$100.0~~$21.2 million, ~~$98.9 million, $58.1~~$12.8 million and ~~$98.9~~$3.0 million, respectively, to record valuation allowances against net deferred tax assets in accordance with ~~SFAS No. 109. In~~ASC 740. Net income in the fourth quarter of ~~2007, the loss from continuing operations, net of income taxes,~~2010 included a ~~charge~~decrease of ~~$514.2~~$10.4 million in the deferred tax asset valuation allowance. The net loss in the first, second and third quarters of 2009 included charges of $22.7 million, $31.7 million and $35.5 million, respectively, to record a valuation ~~allowance on~~allowances against net deferred tax assets in accordance with ~~SFAS No. 109.~~ASC 740. The charge in the first quarter of 2009 was substantially offset by a reduction of deferred tax assets due to the forfeiture of certain equity-based awards. Net income in the fourth quarter of 2009 included a decrease of $196.3 million in the deferred tax asset valuation allowance primarily due to the benefit derived from the Company’s carryback of its 2009 NOLs to offset earnings it generated in 2004 and 2005 in accordance with federal tax legislation enacted in that quarter.

Quarterly andyear-to-date computations of per share amounts are made independently. Therefore, the sum of per share amounts for the quarters may not agree with per share amounts for the year.


Note ~~21.~~22.	Supplemental Guarantor Information

The Company’s obligations to pay principal, premium, if any, and interest under ~~certain debt instruments~~its senior notes are guaranteed on a joint and several basis by the Guarantor Subsidiaries. The guarantees are full and unconditional and the Guarantor Subsidiaries are 100% owned by the Company. The Company has determined that separate, full financial statements of the Guarantor Subsidiaries would not be material to investors and, accordingly, supplemental financial information for the Guarantor Subsidiaries is presented.

In connection with the Company’s voluntary termination of the Credit Facility effective March 31, 2010, the Released Subsidiaries were released and discharged from guaranteeing any obligations with respect to the Company’s senior notes. Accordingly, the supplemental financial information presented below reflects the relevant subsidiaries that were Guarantor Subsidiaries as of the respective periods then ended.

8893

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(In Thousands)


	Year Ended November 30, 2008															Year Ended November 30, 2010
	KB Home			Guarantor			Non-Guarantor			Consolidating						KB Home			Guarantor			Non-Guarantor			Consolidating
	Corporate			Subsidiaries			Subsidiaries			Adjustments			Total			Corporate			Subsidiaries			Subsidiaries			Adjustments		Total

Revenues	$	—		$	2,331,771		$	702,165		$	—		$	3,033,936		$	—		$	429,917		$	1,160,079		$	—	$	1,589,996

Homebuilding:
Revenues	$	—		$	2,331,771		$	691,398		$	—		$	3,023,169		$	—		$	429,917		$	1,151,846		$	—	$	1,581,763
Construction and land costs		—			(2,555,911	)		(758,904	)		—			(3,314,815	)		—			(360,450	)		(947,838	)		—		(1,308,288	)
Selling, general and administrative expenses		(74,075	)		(296,964	)		(129,988	)		—			(501,027	)		(68,149	)		(48,233	)		(173,138	)		—		(289,520	)
Goodwill impairment		(67,970	)		—			—			—			(67,970	)

Operating loss		(142,045	)		(521,104	)		(197,494	)		—			(860,643	)
Operating income (loss)																	(68,149	)		21,234			30,870			—		(16,045	)
Interest income		31,666			2,524			420			—			34,610			1,770			30			298			—		2,098
Loss on early redemption/interest expense, net of amounts capitalized		56,541			(34,946	)		(34,561	)		—			(12,966	)
Interest expense, net of amounts capitalized/loss on early redemption of debt																	20,353			(41,686	)		(46,974	)		—		(68,307	)
Equity in loss of unconsolidated joint ventures		—			(10,742	)		(142,008	)		—			(152,750	)		—			(186	)		(6,071	)		—		(6,257	)

Homebuilding pretax loss		(53,838	)		(564,268	)		(373,643	)		—			(991,749	)		(46,026	)		(20,608	)		(21,877	)		—		(88,511	)
Financial services pretax income		—			—			23,818			—			23,818			—			—			12,143			—		12,143

Total pretax loss		(53,838	)		(564,268	)		(349,825	)		—			(967,931	)		(46,026	)		(20,608	)		(9,734	)		—		(76,368	)
Income tax expense		(400	)		(4,600	)		(3,200	)		—			(8,200	)
Income tax benefit																	4,200			1,900			900			—		7,000
Equity in net loss of subsidiaries		(921,893	)		—			—			921,893			—			(27,542	)		—			—			27,542		—

Net loss	$	(976,131	)	$	(568,868	)	$	(353,025	)	$	921,893		$	(976,131	)	$	(69,368	)	$	(18,708	)	$	(8,834	)	$	27,542	$	(69,368	)



	Year Ended November 30, 2007
	KB Home			Guarantor			Non-Guarantor			Consolidating
	Corporate			Subsidiaries			Subsidiaries			Adjustments			Total

Revenues	$	—		$	4,752,649		$	1,663,877		$	—		$	6,416,526

Homebuilding:
Revenues	$	—		$	4,752,649		$	1,647,942		$	—		$	6,400,591
Construction and land costs		—			(5,299,357	)		(1,527,022	)		—			(6,826,379	)
Selling, general and administrative expenses		(104,646	)		(518,912	)		(201,063	)		—			(824,621	)
Goodwill impairment		(107,926	)		—			—			—			(107,926	)

Operating loss		(212,572	)		(1,065,620	)		(80,143	)		—			(1,358,335	)
Interest income		21,869			6,193			574			—			28,636
Loss on early redemption/interest expense, net of amounts capitalized		179,100			(146,204	)		(45,886	)		—			(12,990	)
Equity in loss of unconsolidated joint ventures		—			(26,105	)		(125,812	)		—			(151,917	)

Homebuilding pretax loss		(11,603	)		(1,231,736	)		(251,267	)		—			(1,494,606	)
Financial services pretax income		—			—			33,836			—			33,836

Loss from continuing operations before income taxes		(11,603	)		(1,231,736	)		(217,431	)		—			(1,460,770	)
Income tax benefit		400			38,800			6,800			—			46,000

Loss from continuing operations before equity in net loss of subsidiaries		(11,203	)		(1,192,936	)		(210,631	)		—			(1,414,770	)
Income from discontinued operations, net of income taxes		—			—			485,356			—			485,356

Income (loss) before equity in net income (loss) of subsidiaries		(11,203	)		(1,192,936	)		274,725			—			(929,414	)
Equity in net income (loss) of subsidiaries:
Continuing operations		(1,403,567	)		—			—			1,403,567			—
Discontinued operations		485,356			—			—			(485,356	)		—

Net income (loss)	$	(929,414	)	$	(1,192,936	)	$	274,725		$	918,211		$	(929,414	)


	Year Ended November 30, 2009
	KB Home			Guarantor			Non-Guarantor			Consolidating
	Corporate			Subsidiaries			Subsidiaries			Adjustments		Total

Revenues	$	—		$	1,608,533		$	216,317		$	—	$	1,824,850

Homebuilding:
Revenues	$	—		$	1,608,533		$	207,882		$	—	$	1,816,415
Construction and land costs		—			(1,548,678	)		(201,233	)		—		(1,749,911	)
Selling, general and administrative expenses		(71,181	)		(198,964	)		(32,879	)		—		(303,024	)

Operating loss		(71,181	)		(139,109	)		(26,230	)		—		(236,520	)
Interest income		5,965			887			663			—		7,515
Interest expense, net of amounts capitalized/loss on early redemption of debt		31,442			(74,946	)		(8,259	)		—		(51,763	)
Equity in loss of unconsolidated joint ventures		—			(22,840	)		(26,775	)		—		(49,615	)

Homebuilding pretax loss		(33,774	)		(236,008	)		(60,601	)		—		(330,383	)
Financial services pretax income		—			—			19,199			—		19,199

Total pretax loss		(33,774	)		(236,008	)		(41,402	)		—		(311,184	)
Income tax benefit		22,700			158,800			27,900			—		209,400
Equity in net loss of subsidiaries		(90,710	)		—			—			90,710		—

Net loss	$	(101,784	)	$	(77,208	)	$	(13,502	)	$	90,710	$	(101,784	)

8994

Year Ended November 30, 2006
KB Home
Guarantor
Non-Guarantor
Consolidating

Corporate Subsidiaries Subsidiaries Adjustments Total

Revenues $ — $ 7,386,128 $ 1,993,955 $ — $ 9,380,083

Homebuilding:
Revenues $ — $ 7,386,128 $ 1,973,715 $ — $ 9,359,843
Construction and land costs — (5,875,431 ) (1,790,588 ) — (7,666,019 )
Selling, general and administrative expenses (156,099 ) (713,519 ) (253,890 ) — (1,123,508 )

Operating income (loss) (156,099 ) 797,178 (70,763 ) — 570,316
Interest income 1,256 3,485 762 — 5,503
Loss on early redemption/interest expense, net of amounts capitalized 201,837 (153,141 ) (65,374 ) — (16,678 )
Equity in income (loss) of unconsolidated joint ventures 27,653 (25,272 ) (23,211 ) — (20,830 )

Homebuilding pretax income (loss) 74,647 622,250 (158,586 ) — 538,311
Financial services pretax income — — 33,536 — 33,536

Income (loss) from continuing operations before income taxes 74,647 622,250 (125,050 ) — 571,847
Income tax benefit (expense) (23,400 ) (194,600 ) 39,100 — (178,900 )

Income (loss) from continuing operations before equity in net income of subsidiaries 51,247 427,650 (85,950 ) — 392,947
Income from discontinued operations, net of income taxes — — 89,404 — 89,404

Income before equity in net income of subsidiaries 51,247 427,650 3,454 — 482,351
Equity in net income of subsidiaries:
Continuing operations 341,700 — — (341,700 ) —
Discontinued operations 89,404 — — (89,404 ) —

Net income $ 482,351 $ 427,650 $ 3,454 $ (431,104 ) $ 482,351


	Year Ended November 30, 2008
	KB Home			Guarantor			Non-Guarantor			Consolidating
	Corporate			Subsidiaries			Subsidiaries			Adjustments		Total

Revenues	$	—		$	2,331,771		$	702,165		$	—	$	3,033,936

Homebuilding:
Revenues	$	—		$	2,331,771		$	691,398		$	—	$	3,023,169
Construction and land costs		—			(2,555,911	)		(758,904	)		—		(3,314,815	)
Selling, general and administrative expenses		(74,075	)		(296,964	)		(129,988	)		—		(501,027	)
Goodwill impairment		(67,970	)		—			—			—		(67,970	)

Operating loss		(142,045	)		(521,104	)		(197,494	)		—		(860,643	)
Interest income		31,666			2,524			420			—		34,610
Interest expense, net of amounts capitalized/loss on early redemption of debt		56,541			(34,946	)		(34,561	)		—		(12,966	)
Equity in loss of unconsolidated joint ventures		—			(10,742	)		(142,008	)		—		(152,750	)

Homebuilding pretax loss		(53,838	)		(564,268	)		(373,643	)		—		(991,749	)
Financial services pretax income		—			—			23,818			—		23,818

Total pretax loss		(53,838	)		(564,268	)		(349,825	)		—		(967,931	)
Income tax expense		(400	)		(4,600	)		(3,200	)		—		(8,200	)
Equity in net loss of subsidiaries		(921,893	)		—			—			921,893		—

Net loss	$	(976,131	)	$	(568,868	)	$	(353,025	)	$	921,893	$	(976,131	)

90
95

CONDENSED CONSOLIDATING BALANCE SHEETS

(In Thousands)


	November 30, 2008												November 30, 2010
	KB Home			Guarantor		Non-Guarantor		Consolidating					KB Home			Guarantor		Non-Guarantor		Consolidating
	Corporate			Subsidiaries		Subsidiaries		Adjustments			Total		Corporate			Subsidiaries		Subsidiaries		Adjustments			Total

Assets
Homebuilding:
Cash and cash equivalents	$	987,057		$	25,067	$	123,275	$	—		$	1,135,399	$	770,603		$	3,619	$	130,179	$	—		$	904,401
Restricted cash		115,404			—		—		—			115,404		88,714			—		26,763		—			115,477
Receivables		218,600			126,713		12,406		—			357,719		4,205			6,271		97,572		—			108,048
Inventories		—			1,748,526		358,190		—			2,106,716		—			774,102		922,619		—			1,696,721
Investments in unconsolidated joint ventures		—			176,290		1,359		—			177,649		—			37,007		68,576		—			105,583
Other assets		83,028			13,954		2,279		—			99,261		68,166			72,805		9,105		—			150,076

		1,404,089			2,090,550		497,509		—			3,992,148		931,688			893,804		1,254,814		—			3,080,306
Financial services		—			—		52,152		—			52,152		—			—		29,443		—			29,443
Investments in subsidiaries		51,848			—		—		(51,848	)		—		36,279			—		—		(36,279	)		—

Total assets	$	1,455,937		$	2,090,550	$	549,661	$	(51,848	)	$	4,044,300	$	967,967		$	893,804	$	1,284,257	$	(36,279	)	$	3,109,749

Liabilities and stockholders’ equity
Homebuilding:
Accounts payable, accrued expenses and other liabilities	$	190,455		$	786,717	$	285,519	$	—		$	1,262,691	$	124,609		$	150,260	$	424,853	$	—		$	699,722
Mortgages and notes payable		1,845,169			96,368		—		—			1,941,537		1,632,362			112,368		30,799		—			1,775,529

		2,035,624			883,085		285,519		—			3,204,228		1,756,971			262,628		455,652		—			2,475,251
Financial services		—			—		9,467		—			9,467		—			—		2,620		—			2,620
Intercompany		(1,410,292	)		1,207,465		202,827		—			—		(1,420,882	)		631,176		789,706		—			—
Stockholders’ equity		830,605			—		51,848		(51,848	)		830,605		631,878			—		36,279		(36,279	)		631,878

Total liabilities and stockholders’ equity	$	1,455,937		$	2,090,550	$	549,661	$	(51,848	)	$	4,044,300	$	967,967		$	893,804	$	1,284,257	$	(36,279	)	$	3,109,749


	November 30, 2007												November 30, 2009
	KB Home			Guarantor		Non-Guarantor		Consolidating					KB Home			Guarantor		Non-Guarantor			Consolidating
	Corporate			Subsidiaries		Subsidiaries		Adjustments			Total		Corporate			Subsidiaries		Subsidiaries			Adjustments			Total

Assets
Homebuilding:
Cash and cash equivalents	$	1,104,429		$	71,519	$	149,307	$	—		$	1,325,255	$	995,122		$	56,969	$	122,624		$	—		$	1,174,715
Restricted cash														114,292			—		—			—			114,292
Receivables		126,531			151,089		18,119		—			295,739		191,747			109,536		36,647			—			337,930
Inventories		—			2,670,155		642,265		—			3,312,420		—			1,374,617		126,777			—			1,501,394
Investments in unconsolidated joint ventures		—			199,254		97,756		—			297,010		—			115,402		4,266			—			119,668
Other assets		405,306			19,892		5,942		—			431,140		68,895			85,856		(185	)		—			154,566

		1,636,266			3,111,909		913,389		—			5,661,564		1,370,056			1,742,380		290,129			—			3,402,565
Financial services		—			—		44,392		—			44,392		—			—		33,424			—			33,424
Investments in subsidiaries		64,148			—		—		(64,148	)		—		35,955			—		—			(35,955	)		—

Total assets	$	1,700,414		$	3,111,909	$	957,781	$	(64,148	)	$	5,705,956	$	1,406,011		$	1,742,380	$	323,553		$	(35,955	)	$	3,435,989

Liabilities and stockholders’ equity									��
Homebuilding:
Accounts payable, accrued expenses and other liabilities	$	210,697		$	1,130,047	$	334,935	$	—		$	1,675,679	$	147,264		$	588,203	$	165,878		$	—		$	901,345
Mortgages and notes payable		2,142,654			19,140		—		—			2,161,794		1,656,402			163,967		1			—			1,820,370

		2,353,351			1,149,187		334,935		—			3,837,473		1,803,666			752,170		165,879			—			2,721,715
Financial services		—			—		17,796		—			17,796		—			—		7,050			—			7,050
Intercompany		(2,503,624	)		1,962,722		540,902		—			—		(1,104,879	)		990,210		114,669			—			—
Stockholders’ equity		1,850,687			—		64,148		(64,148	)		1,850,687		707,224			—		35,955			(35,955	)		707,224

Total liabilities and stockholders’ equity	$	1,700,414		$	3,111,909	$	957,781	$	(64,148	)	$	5,705,956	$	1,406,011		$	1,742,380	$	323,553		$	(35,955	)	$	3,435,989

9196

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(In Thousands)

Year Ended November 30, 2008
KB Home
Guarantor
Non-Guarantor
Consolidating

Corporate Subsidiaries Subsidiaries Adjustments Total

Cash flows from operating activities:
Net loss $ (976,131 ) $ (568,868 ) $ (353,025 ) $ 921,893 $ (976,131 )
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
Deferred income taxes 221,306 — — — 221,306
Inventory impairments and land option contract abandonments — 469,017 137,774 — 606,791
Goodwill impairment 67,970 — — — 67,970
Changes in assets and liabilities:
Receivables (92,069 ) 24,376 7,128 — (60,565 )
Inventories — 409,629 136,221 — 545,850
Accounts payable, accrued expenses and other liabilities (20,246 ) (210,319 ) (52,216 ) — (282,781 )
Other, net 48,519 19,978 150,385 — 218,882

Net cash provided (used) by operating activities (750,651 ) 143,813 26,267 921,893 341,322

Cash flows from investing activities:
Change in restricted cash (115,404 ) — — — (115,404 )
Investments in unconsolidated joint ventures — 8,985 (68,610 ) — (59,625 )
Sales (purchases) of property and equipment, net 5,837 (55 ) 1,291 — 7,073

Net cash provided (used) by investing activities (109,567 ) 8,930 (67,319 ) — (167,956 )

Cash flows from financing activities:
Redemption of senior subordinated notes (305,814 ) — — — (305,814 )
Payments on mortgages, land contracts and other loans — (12,800 ) — — (12,800 )
Payments of cash dividends (62,967 ) — — — (62,967 )
Repurchase of common stock (967 ) — — — (967 )
Other, net 6,958 — — — 6,958
Intercompany 1,105,636 (186,395 ) 2,652 (921,893 ) —

Net cash provided (used) by financing activities 742,846 (199,195 ) 2,652 (921,893 ) (375,590 )

Net decrease in cash and cash equivalents (117,372 ) (46,452 ) (38,400 ) — (202,224 )
Cash and cash equivalents at beginning of year 1,104,429 71,519 167,794 — 1,343,742

Cash and cash equivalents at end of year $ 987,057 $ 25,067 $ 129,394 $ — $ 1,141,518


	Year Ended November 30, 2010
	KB Home			Guarantor			Non-Guarantor			Consolidating
	Corporate			Subsidiaries			Subsidiaries			Adjustments			Total

Cash flows from operating activities:
Net loss	$	(69,368	)	$	(18,708	)	$	(8,834	)	$	27,542		$	(69,368	)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
Inventory impairments and land option contract abandonments		—			1,980			17,945			—			19,925
Changes in assets and liabilities:
Receivables		187,542			3,557			20,219			—			211,318
Inventories		—			(99,216	)		(30,118	)		—			(129,334	)
Accounts payable, accrued expenses and other liabilities		(16,973	)		(65,878	)		(116,354	)		—			(199,205	)
Other, net		(8,461	)		1,794			39,367			—			32,700

Net cash provided (used) by operating activities		92,740			(176,471	)		(77,775	)		27,542			(133,964	)

Cash flows from investing activities:
Investments in unconsolidated joint ventures		—			(517	)		(15,152	)		—			(15,669	)
Purchases of property and equipment, net		(229	)		(70	)		(121	)		—			(420	)

Net cash used by investing activities		(229	)		(587	)		(15,273	)		—			(16,089	)

Cash flows from financing activities:
Change in restricted cash		25,578			—			(26,763	)		—			(1,185	)
Payments on mortgages and land contracts due to land sellers and other loans		—			(81,041	)		(20,113	)		—			(101,154	)
Issuance of common stock under employee stock plans		1,851			—			—			—			1,851
Excess tax benefit associated with exercise of stock options		583			—			—			—			583
Payments of cash dividends		(19,223	)		—			—			—			(19,223	)
Repurchases of common stock		(350	)		—			—			—			(350	)
Intercompany		(325,469	)		217,240			135,771			(27,542	)		—

Net cash provided (used) by financing activities		(317,030	)		136,199			88,895			(27,542	)		(119,478	)

Net decrease in cash and cash equivalents		(224,519	)		(40,859	)		(4,153	)		—			(269,531	)
Cash and cash equivalents at beginning of year		995,122			44,478			138,361			—			1,177,961

Cash and cash equivalents at end of year	$	770,603		$	3,619		$	134,208		$	—		$	908,430

9297

Year Ended November 30, 2007
KB Home
Guarantor
Non-Guarantor
Consolidating

Corporate Subsidiaries Subsidiaries Adjustments Total

Cash flows from operating activities:
Net loss $ (929,414 ) $ (1,192,936 ) $ (210,631 ) $ 1,403,567 $ (929,414 )
Income from discontinued operations, net of income taxes — — (47,252 ) — (47,252 )
Gain on sale of discontinued operations, net of income taxes (438,104 ) — — — (438,104 )
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
Deferred income taxes 208,348 — — — 208,348
Inventory impairments and land option contract abandonments — 1,173,855 80,127 — 1,253,982
Goodwill impairment 107,926 — — — 107,926
Changes in assets and liabilities:
Receivables (121,225 ) 41,726 8,093 — (71,406 )
Inventories — 367,142 412,733 — 779,875
Accounts payable, accrued expenses and other liabilities (199,306 ) 62,000 (203,324 ) — (340,630 )
Other, net (151,042 ) 53,528 323,691 — 226,177

Net cash provided (used) by operating activities — continuing operations (1,522,817 ) 505,315 363,437 1,403,567 749,502
Net cash provided by operating activities — discontinued operations — — 297,397 — 297,397

Net cash provided (used) by operating activities (1,522,817 ) 505,315 660,834 1,403,567 1,046,899

Cash flows from investing activities:
Sale of discontinued operations, net of cash divested 739,764 — — — 739,764
Investments in unconsolidated joint ventures — (35,227 ) (49,961 ) — (85,188 )
Sales (purchases) of property and equipment, net (558 ) (201 ) 1,444 — 685

Net cash provided (used) by investing activities — continuing operations 739,206 (35,428 ) (48,517 ) — 655,261
Net cash used by investing activities — discontinued operations — — (12,112 ) — (12,112 )

Net cash provided (used) by investing activities 739,206 (35,428 ) (60,629 ) — 643,149

Cash flows from financing activities:
Redemption of term loan (400,000 ) — — — (400,000 )
Redemption of senior subordinated notes (258,968 ) — — — (258,968 )
Payments on mortgages, land contracts and other loans — (87,566 ) (26,553 ) — (114,119 )
Payments of cash dividends (77,170 ) — — — (77,170 )
Repurchases of common stock (6,896 ) — — — (6,896 )
Other, net 13,192 — — — 13,192
Intercompany 2,170,661 (461,631 ) (305,463 ) (1,403,567 ) —

Net cash provided (used) by financing activities — continuing operations 1,440,819 (549,197 ) (332,016 ) (1,403,567 ) (843,961 )
Net cash used by financing activities — discontinued operations — — (306,527 ) — (306,527 )

Net cash provided (used) by financing activities 1,440,819 (549,197 ) (638,543 ) (1,403,567 ) (1,150,488 )

Net increase (decrease) in cash and cash equivalents 657,208 (79,310 ) (38,338 ) — 539,560
Cash and cash equivalents at beginning of year 447,221 150,829 206,132 — 804,182

Cash and cash equivalents at end of year $ 1,104,429 $ 71,519 $ 167,794 $ — $ 1,343,742


	Year Ended November 30, 2009
	KB Home			Guarantor			Non-Guarantor			Consolidating
	Corporate			Subsidiaries			Subsidiaries			Adjustments			Total

Cash flows from operating activities:
Net loss	$	(101,784	)	$	(77,208	)	$	(13,502	)	$	90,710		$	(101,784	)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
Inventory impairments and land option contract abandonments		—			153,294			14,855			—			168,149
Changes in assets and liabilities:
Receivables		26,853			33,210			(24,396	)		—			35,667
Inventories		—			216,554			216,521			—			433,075
Accounts payable, accrued expenses and other liabilities		(47,284	)		(83,316	)		(122,020	)		—			(252,620	)
Other, net		22,313			24,411			20,701			—			67,425

Net cash provided (used) by operating activities		(99,902	)		266,945			92,159			90,710			349,912

Cash flows from investing activities:
Investments in unconsolidated joint ventures		—			(14,517	)		(5,405	)		—			(19,922	)
Sales (purchases) of property and equipment, net		(142	)		(1,497	)		264			—			(1,375	)

Net cash used by investing activities		(142	)		(16,014	)		(5,141	)		—			(21,297	)

Cash flows from financing activities:
Change in restricted cash		1,112			—			—			—			1,112
Proceeds from issuance of senior notes		259,737			—			—			—			259,737
Payment of senior notes issuance costs		(4,294	)		—			—			—			(4,294	)
Repayment of senior and senior subordinated notes		(453,105	)		—			—			—			(453,105	)
Payments on mortgages and land contracts due to land sellers and other loans		—			(78,983	)		—			—			(78,983	)
Issuance of common stock under employee stock plans		3,074			—			—			—			3,074
Payments of cash dividends		(19,097	)		—			—			—			(19,097	)
Repurchases of common stock		(616	)		—			—			—			(616	)
Intercompany		321,298			(140,046	)		(90,542	)		(90,710	)		—

Net cash provided (used) by financing activities		108,109			(219,029	)		(90,542	)		(90,710	)		(292,172	)

Net increase (decrease) in cash and cash equivalents		8,065			31,902			(3,524	)		—			36,443
Cash and cash equivalents at beginning of year		987,057			25,067			129,394			—			1,141,518

Cash and cash equivalents at end of year	$	995,122		$	56,969		$	125,870		$	—		$	1,177,961

9398

Year Ended November 30, 2006
KB Home
Guarantor
Non-Guarantor
Consolidating

Corporate Subsidiaries Subsidiaries Adjustments Total

Cash flows from operating activities:
Net income (loss) $ 482,351 $ 427,650 $ (85,950 ) $ (341,700 ) $ 482,351
Income from discontinued operations, net of income taxes — — (89,404 ) — (89,404 )
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Deferred income taxes (189,047 ) — — — (189,047 )
Inventory impairments and land option contract abandonments — 252,642 119,995 — 372,637
Changes in assets and liabilities:
Receivables 1,464 (10,126 ) (14,867 ) — (23,529 )
Inventories — (156,135 ) (200,207 ) — (356,342 )
Accounts payable, accrued expenses and other liabilities (63,541 ) 125,535 143,713 — 205,707
Other, net 96,937 35,116 (112,813 ) — 19,240

Net cash provided (used) by operating activities — continuing operations 328,164 674,682 (239,533 ) (341,700 ) 421,613
Net cash provided by operating activities — discontinued operations — — 229,505 — 229,505

Net cash provided (used) by operating activities 328,164 674,682 (10,028 ) (341,700 ) 651,118

Cash flows from investing activities:
Sale of investment in unconsolidated joint venture 57,767 — — — 57,767
Investments in unconsolidated joint ventures 22,587 (98,505 ) (103,266 ) — (179,184 )
Purchases of property and equipment, net (3,146 ) (8,674 ) (5,818 ) — (17,638 )
Other, net — — 772 — 772

Net cash provided (used) by investing activities — continuing operations 77,208 (107,179 ) (108,312 ) — (138,283 )
Net cash used by investing activities — discontinued operations — — (4,477 ) — (4,477 )

Net cash provided (used) by investing activities 77,208 (107,179 ) (112,789 ) — (142,760 )

Cash flows from financing activities:
Net payments on credit agreements and
other short-term borrowings (84,100 ) — — — (84,100 )
Proceeds from issuance of senior notes and term loan 698,458 — — — 698,458
Payments of cash dividends (78,258 ) — — — (78,258 )
Repurchases of common stock (394,080 ) — — — (394,080 )
Other, net 89,571 (33,494 ) (12,236 ) — 43,841
Intercompany (244,421 ) (519,129 ) 421,850 341,700 —

Net cash provided (used) by financing activities — continuing operations (12,830 ) (552,623 ) 409,614 341,700 185,861
Net cash used by financing activities — discontinued operations — — (215,010 ) — (215,010 )

Net cash provided (used) by financing activities (12,830 ) (552,623 ) 194,604 341,700 (29,149 )

Net increase in cash and cash equivalents 392,542 14,880 71,787 — 479,209
Cash and cash equivalents at beginning of year 54,679 135,949 134,345 — 324,973

Cash and cash equivalents at end of year $ 447,221 $ 150,829 $ 206,132 $ — $ 804,182


	Year Ended November 30, 2008
	KB Home			Guarantor			Non-Guarantor			Consolidating
	Corporate			Subsidiaries			Subsidiaries			Adjustments			Total

Cash flows from operating activities:
Net loss	$	(976,131	)	$	(568,868	)	$	(353,025	)	$	921,893		$	(976,131	)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
Provision for deferred income taxes		221,306			—			—			—			221,306
Inventory impairments and land option contract abandonments		—			469,017			137,774			—			606,791
Goodwill impairment		67,970			—			—			—			67,970
Changes in assets and liabilities:
Receivables		(92,069	)		24,376			7,128			—			(60,565	)
Inventories		—			409,629			136,221			—			545,850
Accounts payable, accrued expenses and other liabilities		(20,246	)		(210,319	)		(52,216	)		—			(282,781	)
Other, net		48,519			19,978			150,385			—			218,882

Net cash provided (used) by operating activities		(750,651	)		143,813			26,267			921,893			341,322

Cash flows from investing activities:
Investments in unconsolidated joint ventures		—			8,985			(68,610	)		—			(59,625	)
Sales (purchases) of property and equipment, net		5,837			(55	)		1,291			—			7,073

Net cash provided (used) by investing activities		5,837			8,930			(67,319	)		—			(52,552	)

Cash flows from financing activities:
Change in restricted cash		(115,404	)		—			—			—			(115,404	)
Repayment of senior subordinated notes		(305,814	)		—			—			—			(305,814	)
Payments on mortgages and land contracts due to land sellers and other loans		—			(12,800	)		—			—			(12,800	)
Issuance of common stock under employee stock plans		6,958			—			—			—			6,958
Payments of cash dividends		(62,967	)		—			—			—			(62,967	)
Repurchases of common stock		(967	)		—			—			—			(967	)
Intercompany		1,105,636			(186,395	)		2,652			(921,893	)		—

Net cash provided (used) by financing activities		627,442			(199,195	)		2,652			(921,893	)		(490,994	)

Net decrease in cash and cash equivalents		(117,372	)		(46,452	)		(38,400	)		—			(202,224	)
Cash and cash equivalents at beginning of year		1,104,429			71,519			167,794			—			1,343,742

Cash and cash equivalents at end of year	$	987,057		$	25,067		$	129,394		$	—		$	1,141,518

~~Note 22. Subsequent Events~~

~~On December 15, 2008, the Company redeemed the $200 Million Senior Subordinated Notes upon their scheduled maturity.~~

On January 22, 2009, the Company adopted an amendment to the 1989 Rights Plan and a successor rights plan designed to preserve the value of certain of the Company’s net deferred tax assets. The amendment and the successor rights plan are discussed in Note 14. Stockholders’ Equity in this~~Form 10-K.~~

94
99

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of KB Home:

We have audited the accompanying consolidated balance sheets of KB Home as of November 30, ~~2008~~2010 and ~~2007,~~2009, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended November 30, ~~2008.~~2010. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of KB Home at November 30, ~~2008~~2010 and ~~2007,~~2009, and the consolidated results of its operations and its cash flows for each of the three years in the period ended November 30, ~~2008,~~2010, in conformity with U.S. generally accepted accounting principles.

~~As discussed in Note 16 to the consolidated financial statements, in 2007, the Company changed its method of accounting for defined postretirement benefit plans.~~

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), KB Home’s internal control over financial reporting as of November 30, ~~2008,~~2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated January ~~26, 2009~~31, 2011 expressed an unqualified opinion thereon.

Los Angeles, California

January ~~26, 2009~~31, 2011

95100


Item 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Item 9A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We have established disclosure controls and procedures to ensure that information we are required to disclose in the reports we file or submit under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and accumulated and communicated to management, including the President and Chief Executive Officer (the “Principal Executive Officer”) and ~~Senior~~Executive Vice President and Chief ~~Accounting~~Financial Officer (the “Principal Financial Officer”), as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of senior management, including our Principal Executive Officer and Principal Financial Officer, we evaluated our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of November 30, ~~2008.~~2010.

Internal Control Over Financial Reporting

(a) Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined inRule 13a-15(f) under the Securities and Exchange Act of 1934. Under the supervision and with the participation of senior management, including our Principal Executive Officer and Principal Financial Officer, we evaluated the effectiveness of our internal control over financial reporting based on the framework inInternal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the evaluation under that framework and applicable SEC rules, our management concluded that our internal control over financial reporting was effective as of November 30, ~~2008.~~2010.

Ernst & Young LLP, the ~~Independent~~independent registered public accounting firm that audited ~~the Company’s~~our consolidated financial statements included in this annual report, has issued its report on the effectiveness of ~~the Company’s~~our internal control over financial reporting as of November 30, ~~2008.~~2010.

(b) Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of KB Home:

We have audited KB Home’s internal control over financial reporting as of November 30, ~~2008,~~2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). KB Home’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with

96101

generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, KB Home maintained, in all material respects, effective internal control over financial reporting as of November 30, ~~2008,~~2010, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of KB Home as of November 30, ~~2008~~2010 and ~~2007,~~2009, and the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended November 30, ~~2008~~2010 and our report dated January ~~26, 2009~~31, 2011 expressed an unqualified opinion thereon.

Los Angeles, California

January ~~26, 2009~~31, 2011

(c) Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended November 30, ~~2008~~2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


Item 9B.	OTHER INFORMATION

None.

97102

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item for executive officers is set forth under ~~the heading~~ “Executive Officers of the Registrant” in Part I. Except as set forth below, the other information called for by this item is incorporated by reference to the “Corporate Governance and Board Matters” and the “Proposal 1: Election of Directors” sections of our Proxy Statement for the ~~2009~~2011 Annual Meeting of Stockholders (the “2011 Proxy Statement”), which will be filed with the SEC not later than March 30, ~~2009~~2011 (120 days after the end of our fiscal year) ~~(the “2009 Proxy Statement”)~~.

Ethics Policy

We have adopted an Ethics Policy for our directors, officers (including our principal executive officer, principal financial officer and principal accounting officer) and employees. The Ethics Policy is available on our website at http://~~www.kbhome.com/investor.~~investor.kbhome.com. Stockholders may request a free copy of the Ethics Policy from:


		KB Home
		Attention: Investor Relations
		10990 Wilshire Boulevard
		Los Angeles, California 90024
		(310) 231-4000
		investorrelations@kbhome.com

Within the time period required by the SEC and the New York Stock Exchange, we will post on our website at http://~~www.kbhome.com/investor~~investor.kbhome.com any amendment to our Ethics Policy and any waiver applicable to our principal executive officer, principal financial officer or principal accounting officer, or persons performing similar functions, and our other executive officers or directors.

Corporate Governance Principles

We have adopted Corporate Governance Principles, which are available on our website at http://~~www.kbhome.com/investor.~~investor.kbhome.com. Stockholders may request a free copy of the Corporate Governance Principles from the address, phone number and email address set forth above under “Ethics Policy.”

~~New York Stock Exchange Annual Certification~~

On April 14, 2008, we submitted to the New York Stock Exchange a certification of our President and Chief Executive Officer that he was not aware of any violation by KB Home of the New York Stock Exchange’s corporate governance listing standards as of the date of the certification.

Item 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to the “Corporate Governance and Board Matters” and the “Executive Compensation” sections of the ~~2009~~2011 Proxy Statement.


Item 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this item is incorporated by reference to the “Ownership of KB Home Securities” section of the ~~2009~~2011 Proxy Statement, except for the information required by Item 201(d) of Regulation S-K, which is provided below.

98103

The following table ~~provides~~presents information as of November 30, ~~2008~~2010 with respect to shares of our common stock that may be issued under our existing compensation plans:

Equity Compensation Plan Information

Number of common

Number of

shares remaining

Number of

shares remaining

common shares to

available for future

common shares to

available for future

be issued upon

issuance under equity

be issued upon

issuance under equity

exercise of

Weighted-average

compensation plans

exercise of

Weighted-average

compensation plans

outstanding options,

exercise price of

(excluding common

outstanding options,

exercise price of

(excluding common

warrants and

outstanding options,

shares reflected in

warrants and

outstanding options,

shares reflected in

rights

warrants and rights

column(a))

rights

warrants and rights

column(a))

Plan category

(a)

(b)

(c)

(a)

(b)

(c)

Equity compensation plans approved by stockholders

7,847,402

30.11

593,897

8,798,613

24.19

21,703

Equity compensation plans not approved by stockholders

—

(d)

—

(1)

Total

7,847,402

30.11

593,897

8,798,613

24.19

21,703

~~(d)~~(1)

Represents ~~the Non-Employee Directors Stock Plan. The Non-Employee Directors Stock Plan~~our current compensation plan for our non-employee directors that provides for ~~an unlimited number of~~ grants of deferred common stock units or stock ~~options to our non-employee directors. The terms of the~~options. These stock units and options ~~granted under the Non-Employee Directors Stock Plan~~ are described in the “Director Compensation” section of our ~~2009~~2011 Proxy Statement, which is incorporated herein. Although we may purchase shares of our common stock on the open market to satisfy the payment of these stock ~~awards under the Non-Employee Directors Stock Plan,~~units and options, to date, all ~~stock awards under the Non-Employee Directors Stock Plan~~of them have been settled in cash. ~~In addition, because of~~Further, under the ~~irrevocable election of each of~~non-employee directors’ current compensation plan, ournon-employee directors tocannot receive ~~payouts in cash of all outstanding stock-based awards granted to them under the Non-Employee Directors Stock Plan, we do not intend to issue any~~ shares of our common stock ~~under the plan.~~in satisfaction of their stock units or options unless and until approved by our stockholders. Therefore, we consider the~~Non-Employee~~non-employee ~~Directors Stock Plan~~directors compensation plans as having no available capacity to issue shares of our common stock.


Item 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated by reference to the “Corporate Governance and Board Matters” and the “Other Matters” sections of our ~~2009~~2011 Proxy Statement.


Item 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is incorporated by reference to the “Independent Auditor Fees and Services” section of our ~~2009~~2011 Proxy Statement.

99104

PART IV


Item 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

~~Financial Statements~~


(a) 1.	Financial Statements

Reference is made to the index set forth on page 5559 of this Annual Report onForm 10-K.

    ~~Exhibits~~
     2.   Financial Statement Schedules
Financial statement schedules have been omitted because they are not applicable or the required information is provided in the consolidated financial statements or notes thereto.

Exhibit

Number

Description

2 .1 Share Purchase Agreement, dated May 22, 2007, by and between KB Home, Kaufman and Broad Development Group, International Mortgage Acceptance Corporation, Kaufman and Broad International, Inc. and Financière Gaillon 8 S.A.S., filed as an exhibit to the Company’s Current Report onForm 8-K dated May 22, 2007, is incorporated by reference herein.
3 .1 Restated Certificate of Incorporation, filed as an exhibit to the Company’s Quarterly Report onForm 10-Q for the quarter ended February 28, 2007, is incorporated by reference herein.
3 .2 Certificate of Designation of Series A Participating Cumulative Preferred Stock, dated as of January 22, 2009, filed as an exhibit to the Company’s Current Report on Form 8-K/A dated January 28, 2009, is incorporated by reference herein.
3 .3 By-Laws, as amended and restated on April 5, 2007, filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2007, is incorporated by reference herein.
4 .1 Rights Agreement between the Company and Mellon Investor Services LLC, as rights agent, dated January 22, 2009, filed as an exhibit to the Company’s Current Report on Form 8-K/A dated January 28, 2009, is incorporated by reference herein.
4 .2 Rights Agreement between the Company and ChaseMellon Shareholder Services, L.L.C., as rights agent, dated February 4, 1999, filed as an exhibit to the Company’s Current Report on Form 8-K dated February 4, 1999, is incorporated by reference herein.
4 .3 First Amendment, dated as of April 29, 2005, to the Rights Agreement, dated as of February 4, 1999, between the Company and Mellon Investor Services LLC, as rights agent, filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2005, is incorporated by reference herein.
4 .4 Second Amendment, dated as of January 22, 2009, to the Rights Agreement, dated as of February 4, 1999 and amended as of April 29, 2005, between the Company and Mellon Investor Services LLC, as rights agent, filed as an exhibit to the Company’s Current Report on Form 8-K/A dated January 28, 2009, is incorporated by reference herein.
4 .5 Indenture and Supplemental Indenture relating to 53/4% Senior Notes due 2014 among the Company, the Guarantors and Sun Trust Bank, Atlanta, each dated January 28, 2004, filed as exhibits to the Company’s Registration StatementNo. 333-114761 onForm S-4, are incorporated by reference herein.
4 .6 Second Supplemental Indenture relating to 63/8% Senior Notes due 2011 among the Company, the Guarantors and Sun Trust Bank, Atlanta, dated June 30, 2004, filed as an exhibit to the Company’s registration statementNo. 333-119228 onForm S-4, is incorporated by reference herein.
4 .7 Third Supplemental Indenture relating to the Company’s Senior Notes by and between the Company, the Guarantors named therein, the Subsidiary Guarantor named therein and SunTrust Bank, dated as of May 1, 2006, filed as an exhibit to the Company’s Current Report onForm 8-K dated May 3, 2006, is incorporated by reference herein.
4 .8 Fourth Supplemental Indenture relating to the Company’s Senior Notes by and between the Company, the Guarantors named therein and U.S. Bank National Association, dated as of November 9, 2006, filed as an exhibit to the Company’s Current Report onForm 8-K dated November 13, 2006, is incorporated by reference herein.
4 .9 Fifth Supplemental Indenture, dated August 17, 2007, relating to the Company’s Senior Notes by and between the Company, the Guarantors, and the Trustee, filed as an exhibit to the Company’s Current Report onForm 8-K dated August 22, 2007, is incorporated by reference herein.
4 .10 Specimen of 53/4% Senior Notes due 2014, filed as an exhibit to the Company’s Registration StatementNo. 333-114761 onForm S-4, is incorporated by reference herein.
     3.   Exhibits

Exhibit

Number Description

3 .1 Restated Certificate of Incorporation, as amended, filed as an exhibit to the Company’s Current Report onForm 8-K dated April 7, 2009, is incorporated by reference herein.
3 .2 By-Laws, as amended and restated on April 5, 2007, filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2007, is incorporated by reference herein.
4 .1 Rights Agreement between the Company and Mellon Investor Services LLC, as rights agent, dated January 22, 2009, filed as an exhibit to the Company’s Current Report on Form 8-K/A dated January 28, 2009, is incorporated by reference herein.
4 .2 Indenture and Supplemental Indenture relating to 53/4% Senior Notes due 2014 among the Company, the Guarantors and Sun Trust Bank, Atlanta, each dated January 28, 2004, filed as exhibits to the Company’s Registration StatementNo. 333-114761 onForm S-4, are incorporated by reference herein.
4 .3 Second Supplemental Indenture relating to 63/8% Senior Notes due 2011 among the Company, the Guarantors and Sun Trust Bank, Atlanta, dated June 30, 2004, filed as an exhibit to the Company’s Registration StatementNo. 333-119228 onForm S-4, is incorporated by reference herein.
4 .4 Third Supplemental Indenture relating to the Company’s Senior Notes by and between the Company, the Guarantors named therein, the Subsidiary Guarantor named therein and SunTrust Bank, dated as of May 1, 2006, filed as an exhibit to the Company’s Current Report onForm 8-K dated May 3, 2006, is incorporated by reference herein.
4 .5 Fourth Supplemental Indenture relating to the Company’s Senior Notes by and between the Company, the Guarantors named therein and U.S. Bank National Association, dated as of November 9, 2006, filed as an exhibit to the Company’s Current Report onForm 8-K dated November 13, 2006, is incorporated by reference herein.
4 .6 Fifth Supplemental Indenture, dated August 17, 2007, relating to the Company’s Senior Notes by and between the Company, the Guarantors, and the Trustee, filed as an exhibit to the Company’s Current Report onForm 8-K dated August 22, 2007, is incorporated by reference herein.
4 .7 Specimen of 53/4% Senior Notes due 2014, filed as an exhibit to the Company’s Registration StatementNo. 333-114761 onForm S-4, is incorporated by reference herein.
4 .8 Specimen of 57/8% Senior Notes due 2015, filed as an exhibit to the Company’s Current Report onForm 8-K dated December 15, 2004, is incorporated by reference herein.
4 .9 Form of officers’ certificates and guarantors’ certificates establishing the terms of the 57/8% Senior Notes due 2015, filed as an exhibit to the Company’s Current Report onForm 8-K dated December 15, 2004, is incorporated by reference herein.
4 .10 Specimen of 61/4% Senior Notes due 2015, filed as an exhibit to the Company’s Current Report onForm 8-K dated June 2, 2005, is incorporated by reference herein.
4 .11 Form of officers’ certificates and guarantors’ certificates establishing the terms of the 61/4% Senior Notes due 2015, filed as an exhibit to the Company’s Current Report on Form 8-K dated June 2, 2005, is incorporated by reference herein.
4 .12 Specimen of 61/4% Senior Notes due 2015, filed as an exhibit to the Company’s Current Report onForm 8-K dated June 27, 2005, is incorporated by reference herein.

~~100~~105


Exhibit	Exhibit			Exhibit
Number	Number		Description	Number		Description

	4	.11	Specimen of 57/8% Senior Notes due 2015, filed as an exhibit to the Company’s Current Report onForm 8-K dated December 15, 2004, is incorporated by reference herein.	4	.13	Form of officers’ certificates and guarantors’ certificates establishing the terms of the 61/4% Senior Notes due 2015, filed as an exhibit to the Company’s Current Report on Form 8-K dated June 27, 2005, is incorporated by reference herein.
	4	.12	Form of officers’ certificates and guarantors’ certificates establishing the terms of the 57/8% Senior Notes due 2015, filed as an exhibit to the Company’s Current Report onForm 8-K dated December 15, 2004, is incorporated by reference herein.	4	.14	Specimen of 71/4% Senior Notes due 2018, filed as an exhibit to the Company’s Current Report onForm 8-K dated April 3, 2006, is incorporated by reference herein.
	4	.13	Specimen of 61/4% Senior Notes due 2015, filed as an exhibit to the Company’s Current Report onForm 8-K dated June 2, 2005, is incorporated by reference herein.	4	.15	Form of officers’ certificates and guarantors’ certificates establishing the terms of the 71/4% Senior Notes due 2018, filed as an exhibit to the Company’s Current Report onForm 8-K dated April 3, 2006, is incorporated by reference herein.
	4	.14	Form of officers’ certificates and guarantors’ certificates establishing the terms of the 61/4% Senior Notes due 2015, filed as an exhibit to the Company’s Current Report on Form 8-K dated June 2, 2005, is incorporated by reference herein.	4	.16	Specimen of 9.100% Senior Notes due 2017, filed as an exhibit to the Company’s Current Report onForm 8-K dated July 30, 2009, is incorporated by reference herein.
	4	.15	Specimen of 61/4% Senior Notes due 2015, filed as an exhibit to the Company’s Current Report onForm 8-K dated June 27, 2005, is incorporated by reference herein.	4	.17	Form of officers’ certificates and guarantors’ certificates establishing the terms of the 9.100% Senior Notes due 2017, filed as an exhibit to the Company’s Current Report onForm 8-K dated July 30, 2009, is incorporated by reference herein.
	4	.16	Form of officers’ certificates and guarantors’ certificates establishing the terms of the 61/4% Senior Notes due 2015, filed as an exhibit to the Company’s Current Report on Form 8-K dated June 27, 2005, is incorporated by reference herein.	10	.1	Consent Order, Federal Trade Commission Docket No. C-2954, dated February 12, 1979, filed as an exhibit to the Company’s Registration Statement No. 33-6471 on Form S-1, is incorporated by reference herein.
	4	.17	Specimen of 71/4% Senior Notes due 2018, filed as an exhibit to the Company’s Current Report onForm 8-K dated April 3, 2006, is incorporated by reference herein.	10	.2*	Kaufman and Broad, Inc. Executive Deferred Compensation Plan, effective as of July 11, 1985, filed as an exhibit to the Company’s 2007 Annual Report onForm 10-K, is incorporated by reference herein.
	4	.18	Form of officers’ certificates and guarantors’ certificates establishing the terms of the 71/4% Senior Notes due 2018, filed as an exhibit to the Company’s Current Report onForm 8-K dated April 3, 2006, is incorporated by reference herein.	10	.3*	Amendment to Kaufman and Broad, Inc. Executive Deferred Compensation Plan for amounts earned or vested on or after January 1, 2005, effective January 1, 2009, filed as an exhibit to the Company’s 2008 Annual Report onForm 10-K, is incorporated by reference herein.
	10	.1	Consent Order, Federal Trade Commission Docket No. C-2954, dated February 12, 1979, filed as an exhibit to the Company’s Registration Statement No. 33-6471 on Form S-1, is incorporated by reference herein.	10	.4*	KB Home 1988 Employee Stock Plan, as amended and restated on October 2, 2008, filed as an exhibit to the Company’s 2008 Annual Report onForm 10-K, is incorporated by reference herein.
	10	.2*	Kaufman and Broad, Inc. Executive Deferred Compensation Plan, effective as of July 11, 1985, filed as an exhibit to the Company’s 2007 Annual Report onForm 10-K, is incorporated by reference herein.	10	.5*	Kaufman and Broad Home Corporation Directors’ Deferred Compensation Plan established effective as of July 27, 1989, filed as an exhibit to the Company’s 2007 Annual Report onForm 10-K, is incorporated by reference herein.
	10	.3*†	Amendment to Kaufman and Broad, Inc. Executive Deferred Compensation Plan for amounts earned or vested on or after January 1, 2005, effective January 1, 2009.	10	.6	Consent decree, dated July 2, 1991, relating to Federal Trade Commission Consent Order, filed as an exhibit to the Company’s 2007 Annual Report onForm 10-K, is incorporated by reference herein.
	10	.4*†	KB Home 1986 Stock Option Plan, as amended and restated on October 2, 2008.	10	.7*	KB Home Performance-Based Incentive Plan for Senior Management, as amended and restated on October 2, 2008, filed as an exhibit to the Company’s 2008 Annual Report on Form 10-K, is incorporated by reference herein.
	10	.5*†	KB Home 1988 Employee Stock Plan, as amended and restated on October 2, 2008.	10	.8*	Form of Stock Option Agreement under KB Home Performance-Based Incentive Plan for Senior Management, filed as an exhibit to the Company’s 1995 Annual Report onForm 10-K, is incorporated by reference herein.
	10	.6*	Kaufman and Broad Home Corporation Directors’ Deferred Compensation Plan established effective as of July 27, 1989, filed as an exhibit to the Company’s 2007 Annual Report onForm 10-K, is incorporated by reference herein.	10	.9*	KB Home 1998 Stock Incentive Plan, as amended and restated on October 2, 2008, filed as an exhibit to the Company’s 2008 Annual Report on Form 10-K, is incorporated by reference herein.
	10	.7	Consent decree, dated July 2, 1991, relating to Federal Trade Commission Consent Order, filed as an exhibit to the Company’s 2007 Annual Report onForm 10-K, is incorporated by reference herein.	10	.10	KB Home Directors’ Legacy Program, as amended January 1, 1999, filed as an exhibit to the Company’s 1998 Annual Report onForm 10-K, is incorporated by reference herein.
	10	.8*†	KB Home Performance-Based Incentive Plan for Senior Management, as amended and restated on October 2, 2008.	10	.11	Trust Agreement between Kaufman and Broad Home Corporation and Wachovia Bank, N.A. as Trustee, dated as of August 27, 1999, filed as an exhibit to the Company’s 1999 Annual Report onForm 10-K, is incorporated by reference herein.
	10	.9*	Form of Stock Option Agreement under KB Home Performance-Based Incentive Plan for Senior Management, filed as an exhibit to the Company’s 1995 Annual Report onForm 10-K, is incorporated by reference herein.	10	.12*	Amended and Restated KB Home 1999 Incentive Plan, as amended and restated on October 2, 2008, filed as an exhibit to the Company’s 2008 Annual Report onForm 10-K, is incorporated by reference herein.
	10	.10*	KB Home Unit Performance Program, filed as an exhibit to the Company’s 1996 Annual Report on Form 10-K, is incorporated by reference herein.	10	.13*	Form of Non-Qualified Stock Option Agreement under the Company’s Amended and Restated 1999 Incentive Plan, filed as an exhibit to the Company’s Quarterly Report onForm 10-Q for the quarter ended May 31, 2006, is incorporated by reference herein.
	10	.11*†	KB Home 1998 Stock Incentive Plan, as amended and restated on October 2, 2008.	10	.14*	Form of Restricted Stock Agreement under the Company’s Amended and Restated 1999 Incentive Plan, filed as an exhibit to the Company’s Quarterly Report onForm 10-Q for the quarter ended May 31, 2006, is incorporated by reference herein.
	10	.12	KB Home Directors’ Legacy Program, as amended January 1, 1999, filed as an exhibit to the Company’s 1998 Annual Report onForm 10-K, is incorporated by reference herein.	10	.15*	KB Home 2001 Stock Incentive Plan, as amended and restated on October 2, 2008, filed as an exhibit to the Company’s 2008 Annual Report onForm 10-K, is incorporated by reference herein.
	10	.13	Trust Agreement between Kaufman and Broad Home Corporation and Wachovia Bank, N.A. as Trustee, dated as of August 27, 1999, filed as an exhibit to the Company’s 1999 Annual Report onForm 10-K, is incorporated by reference herein.
	10	.14*†	Amended and Restated KB Home 1999 Incentive Plan, as amended and restated on October 2, 2008.
	10	.15*	Form of Non-Qualified Stock Option Agreement under the Company’s Amended and Restated 1999 Incentive Plan, filed as an exhibit to the Company’s Quarterly Report onForm 10-Q for the quarter ended May 31, 2006, is incorporated by reference herein.

~~101~~106


Exhibit	Exhibit			Exhibit
Number	Number		Description	Number		Description

	10	.16*	Form of Incentive Stock Option Agreement under the Company’s Amended and Restated 1999 Incentive Plan, filed as an exhibit to the Company’s Quarterly Report onForm 10-Q for the quarter ended May 31, 2006, is incorporated by reference herein.	10	.16*	Form of Stock Option Agreement under the Company’s 2001 Stock Incentive Plan, filed as an exhibit to the Company’s 2006 Annual Report onForm 10-K, is incorporated by reference herein.
	10	.17*	Form of Restricted Stock Agreement under the Company’s Amended and Restated 1999 Incentive Plan, filed as an exhibit to the Company’s Quarterly Report onForm 10-Q for the quarter ended May 31, 2006, is incorporated by reference herein.	10	.17*	Form of Stock Restriction Agreement under the Company’s 2001 Stock Incentive Plan, filed as an exhibit to the Company’s 2006 Annual Report onForm 10-K, is incorporated by reference herein.
	10	.18*	Form of Amended and Restated 1999 Incentive Plan Stock Appreciation Right Agreement, filed as an exhibit to the Company’s Current Report onForm 8-K dated July 18, 2007, is incorporated by reference herein.	10	.18*	KB Home Nonqualified Deferred Compensation Plan with respect to deferrals prior to January 1, 2005, effective March 1, 2001, filed as an exhibit to the Company’s 2001 Annual Report onForm 10-K, is incorporated by reference herein.
	10	.19*	Form of Amended and Restated 1999 Incentive Plan Phantom Share Agreement, filed as an exhibit to the Company’s Current Report onForm 8-K dated July 18, 2007, is incorporated by reference herein.	10	.19*	KB Home Nonqualified Deferred Compensation Plan with respect to deferrals on and after January 1, 2005, effective January 1, 2009, filed as an exhibit to the Company’s 2008 Annual Report onForm 10-K, is incorporated by reference herein.
	10	.20*	Amended and Restated Employment Agreement of Bruce Karatz, dated July 11, 2001, filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2001, is incorporated by reference herein.	10	.20*	KB Home Change in Control Severance Plan, as amended and restated effective January 1, 2009, filed as an exhibit to the Company’s 2008 Annual Report onForm 10-K, is incorporated by reference herein.
	10	.21*	Tolling Agreement, dated as of November 12, 2006, by and between the Company and Bruce Karatz, filed as an exhibit to the Company’s Current Report onForm 8-K dated November 13, 2006, is incorporated by reference herein.	10	.21*	KB Home Death Benefit Only Plan, filed as an exhibit to the Company’s 2001 Annual Report on Form 10-K, is incorporated by reference herein.
	10	.22*†	KB Home 2001 Stock Incentive Plan, as amended and restated on October 2, 2008.	10	.22*	Amendment No. 1 to the KB Home Death Benefit Only Plan, effective as of January 1, 2009, filed as an exhibit to the Company’s 2008 Annual Report onForm 10-K, is incorporated by reference herein.
	10	.23*	Form of Stock Option Agreement under the Company’s 2001 Stock Incentive Plan, filed as an exhibit to the Company’s 2006 Annual Report onForm 10-K, is incorporated by reference herein.	10	.23*	KB Home Retirement Plan, as amended and restated effective January 1, 2009, filed as an exhibit to the Company’s 2008 Annual Report onForm 10-K, is incorporated by reference herein.
	10	.24*	Form of Stock Restriction Agreement under the Company’s 2001 Stock Incentive Plan, filed as an exhibit to the Company’s 2006 Annual Report onForm 10-K, is incorporated by reference herein.	10	.24*	Employment Agreement of Jeffrey T. Mezger, dated February 28, 2007, filed as an exhibit to the Company’s Current Report onForm 8-K dated March 6, 2007, is incorporated by reference herein.
	10	.25*	KB Home Nonqualified Deferred Compensation Plan with respect to deferrals prior to January 1, 2005, effective March 1, 2001, filed as an exhibit to the Company’s 2001 Annual Report onForm 10-K, is incorporated by reference herein.	10	.25*	Amendment to the Employment Agreement of Jeffrey T. Mezger, dated December 24, 2008, filed as an exhibit to the Company’s 2008 Annual Report onForm 10-K, is incorporated by reference herein.
	10	.26*†	KB Home Nonqualified Deferred Compensation Plan with respect to deferrals on and after January 1, 2005, effective January 1, 2009.	10	.26*	Form of Stock Option Agreement under the Employment Agreement between the Company and Jeffrey T. Mezger dated as of February 28, 2007, filed as an exhibit to the Company’s Current Report onForm 8-K dated July 18, 2007, is incorporated by reference herein.
	10	.27*†	KB Home Change in Control Severance Plan, as amended and restated effective January 1, 2009.	10	.27*	Form of Stock Option Agreement under the Amended and Restated 1999 Incentive Plan for stock option grant to Jeffrey T. Mezger, filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2007, is incorporated by reference herein.
	10	.28*	KB Home Death Benefit Only Plan, filed as an exhibit to the Company’s 2001 Annual Report on Form 10-K, is incorporated by reference herein.	10	.28*	Policy Regarding Stockholder Approval of Certain Severance Payments, adopted July 10, 2008, filed as an exhibit to the Company’s Current Report on Form 8-K dated July 15, 2008, is incorporated by reference herein.
	10	.29*†	Amendment No. 1 to the KB Home Death Benefit Only Plan, effective as of January 1, 2009.	10	.29*	KB Home Executive Severance Plan, filed as an exhibit to the Company’s Quarterly Report onForm 10-Q for the quarter ended August 31, 2008, is incorporated by reference herein.
	10	.30*†	KB Home Retirement Plan, as amended and restated effective January 1, 2009.	10	.30*	Form of Fiscal Year 2009 Phantom Shares Agreement, filed as an exhibit to the Company’s Current Report onForm 8-K dated October 8, 2008, is incorporated by reference herein.
	10	.31†	KB Home Non-Employee Directors Stock Plan, as amended and restated effective January 1, 2009.	10	.31*	KB Home Annual Incentive Plan for Executive Officers, filed as Attachment C to the Company’s Proxy Statement on Schedule 14A for the 2009 Annual Meeting of Stockholders, is incorporated by reference herein.
	10	.32	Revolving Loan Agreement, dated as of November 22, 2005, filed as an exhibit to the Company’s Current Report onForm 8-K dated November 23, 2005, is incorporated by reference herein.	10	.32	Amendment to Trust Agreement by and between KB Home and Wachovia Bank, N.A., dated August 24, 2009, filed as an exhibit to the Company’s Quarterly Report onForm 10-Q for the quarter ended August 31, 2009, is incorporated by reference herein.
	10	.33	First Amendment, dated as of October 10, 2006, to the Revolving Loan Agreement dated as of November 22, 2005 among the Company, the lenders party thereto and Bank of America, N.A., filed as an exhibit to the Company’s Current Report onForm 8-K dated October 19, 2006, is incorporated by reference herein.	10	.33	Amended and Restated KB Home Non-Employee Directors Compensation Plan, effective as of July 9, 2009, filed as an exhibit to the Company’s 2009 Annual Report onForm 10-K, is incorporated by reference herein.
	10	.34	Second Amendment to the Revolving Loan Agreement dated as of November 22, 2005 among KB Home, the lenders party thereto, and Bank of America, N.A., as administrative agent, filed as an exhibit to the Company’s Current Report onForm 8-K dated December 12, 2006, is incorporated by reference herein.	10	.34	Form of Indemnification Agreement, filed as an exhibit to the Company’s Current Report on Form 8-K dated April 2, 2010, is incorporated by reference herein.
	10	.35	Third Amendment Agreement, dated August 17, 2007, to Revolving Loan Agreement, dated as of November 22, 2005, between the Company, as Borrower, the banks party thereto, and Bank of America, N.A., as Administrative Agent, filed as an exhibit to the Company’s Current Report onForm 8-K dated August 22, 2007, is incorporated by reference herein.	10	.35*	KB Home 2010 Equity Incentive Plan, filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2010, is incorporated by reference herein.
	10	.36	Fourth Amendment Agreement, dated January 25, 2008, to Revolving Loan Agreement, dated as of November 22, 2005, between the Company, as Borrower, the banks party thereto, and Bank of America, N.A., as Administrative Agent, filed as an exhibit to the Company’s Current Report onForm 8-K dated January 28, 2008, is incorporated by reference herein.	10	.36*	Form of Stock Option Award Agreement under the KB Home 2010 Equity Incentive Plan, filed as an exhibit to the Company’s Current Report on Form 8-K dated July 20, 2010, is incorporated by reference herein.

~~102~~107

Exhibit

Number

Description

10 .37 Fifth Amendment, dated August 28, 2008, to Revolving Loan Agreement, dated as of November 22, 2005, among the Company, as Borrower, the banks party thereto, and Bank of America, N.A., as Administrative Agent, filed as an exhibit to the Company’s Current Report onForm 8-K dated August 29, 2008, is incorporated by reference herein.
10 .38* Employment Agreement of Jeffrey T. Mezger, dated February 28, 2007, filed as an exhibit to the Company’s Current Report onForm 8-K dated March 6, 2007, is incorporated by reference herein.
10 .39*† Amendment to the Employment Agreement of Jeffrey T. Mezger, dated December 24, 2008.
10 .40* Amended and Restated 1999 Incentive Plan Performance Stock Agreement between the Company and Jeffrey T. Mezger, filed as an exhibit to the Company’s Current Report on Form 8-K dated July 18, 2007, is incorporated by reference herein.
10 .41* Form of Stock Option Agreement under the Employment Agreement between the Company and Jeffrey T. Mezger dated as of February 28, 2007, filed as an exhibit to the Company’s Current Report onForm 8-K dated July 18, 2007, is incorporated by reference herein.
10 .42* Form of Stock Option Agreement under the Amended and Restated 1999 Incentive Plan for stock option grant to Jeffrey T. Mezger, filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2007, is incorporated by reference herein.
10 .43* Form of Phantom Share Agreement for Non-Senior Management, filed as an exhibit to the Company’s Current Report onForm 8-K dated July 18, 2007, is incorporated by reference herein.
10 .44* Form of Over Cap Phantom Share Agreement, filed as an exhibit to the Company’s Current Report onForm 8-K dated July 18, 2007, is incorporated by reference herein.
10 .45* Description of fiscal year 2007 bonus arrangements with the Company’s Named Executive Officers and description of fiscal year 2008 annual incentive compensation arrangements with executive officers, each determined on January 22, 2008, filed on the Company’s Current Report onForm 8-K dated January 25, 2008, is incorporated by reference herein.
10 .46* Policy Regarding Stockholder Approval of Certain Severance Payments, adopted July 10, 2008, filed as an exhibit to the Company’s Current Report on Form 8-K dated July 15, 2008, is incorporated by reference herein.
10 .47* KB Home Executive Severance Plan, filed as an exhibit to the Company’s Quarterly Report onForm 10-Q for the quarter ended August 31, 2008, is incorporated by reference herein.
10 .48* Description of Fiscal Year 2009 Long-Term Incentive Awards to the Company’s Named Executive Officers granted on October 2, 2008, filed on the Company’s Current Report onForm 8-K dated October 8, 2008, is incorporated by reference herein.
10 .49* Form of Fiscal Year 2009 Stock Appreciation Rights Agreement, filed as an exhibit to the Company’s Current Report onForm 8-K dated October 8, 2008, is incorporated by reference herein.
10 .50* Form of Fiscal Year 2009 Phantom Shares Agreement, filed as an exhibit to the Company’s Current Report onForm 8-K dated October 8, 2008, is incorporated by reference herein.
12 .1† Computation of Ratio of Earnings to Fixed Charges.
21 † Subsidiaries of the Registrant.
23 † Consent of Independent Registered Public Accounting Firm.
31 .1† Certification of Jeffrey T. Mezger, President and Chief Executive Officer of KB Home Pursuant to Section 302 of theSarbanes-Oxley Act of 2002.
31 .2† Certification of William R. Hollinger, Senior Vice President and Chief Accounting Officer of KB Home Pursuant to Section 302 of theSarbanes-Oxley Act of 2002.
32 .1† Certification of Jeffrey T. Mezger, President and Chief Executive Officer of KB Home Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of 2002.
32 .2† Certification of William R. Hollinger, Senior Vice President and Chief Accounting Officer of KB Home Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of 2002.
Exhibit
Number Description
10 .37* Form of Restricted Stock Award Agreement under the KB Home 2010 Equity Incentive Plan, filed as an exhibit to the Company’s Current Report on Form 8-K dated July 20, 2010, is incorporated by reference herein.
10 .38* Agreement, dated July 15, 2010, between the Company and Wendy C. Shiba, filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2010, is incorporated by reference herein.
10 .39* Form of Fiscal Year 2011 Restricted Cash Award Agreement, filed as an exhibit to the Company’s Current Report on Form 8-K dated October 13, 2010, is incorporated by reference herein.
10 .40*† KB Home 2010 Equity Incentive Plan Stock Option Agreement for performance stock option grant to Jeffrey T. Mezger.
12 .1† Computation of Ratio of Earnings to Fixed Charges.
21 † Subsidiaries of the Registrant.
23 † Consent of Independent Registered Public Accounting Firm.
31 .1† Certification of Jeffrey T. Mezger, President and Chief Executive Officer of KB Home Pursuant to Section 302 of theSarbanes-Oxley Act of 2002.
31 .2† Certification of Jeff J. Kaminski, Executive Vice President and Chief Financial Officer of KB Home Pursuant to Section 302 of theSarbanes-Oxley Act of 2002.
32 .1† Certification of Jeffrey T. Mezger, President and Chief Executive Officer of KB Home Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of 2002.
32 .2† Certification of Jeff J. Kaminski, Executive Vice President and Chief Financial Officer of KB Home Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of 2002.
101 The following materials from KB Home’s Annual Report on Form 10-K for the year ended November 30, 2010, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Statements of Operations, (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text. Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

* Management contract or compensatory plan or arrangement in which executive officers are eligible to participate.
† Document filed with this Form 10-K.
~~103~~

~~Financial Statement Schedules~~

~~Financial statement schedules have been omitted because they are not applicable or the required information is shown in the consolidated financial statements and notes thereto.~~

~~104~~108

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

KB Home

By: /s/  ~~WILLIAM R. HOLLINGER~~JEFF J. KAMINSKI
~~William R. Hollinger~~Jeff J. Kaminski
~~Senior~~Executive Vice President and Chief ~~Accounting~~Financial Officer
Date: January ~~22, 2009~~27, 2011

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

Signature

Title

Date

/s/  JEFFREY T. MEZGER

Jeffrey T. Mezger
Director, President and
Chief Executive Officer
(Principal Executive Officer) January ~~22, 2009~~27, 2011
/s/  JEFF J. KAMINSKI

Jeff J. Kaminski
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer) January 27, 2011

/s/  WILLIAM R. HOLLINGER

William R. Hollinger
Senior Vice President and
Chief Accounting Officer
(Principal ~~Financial and~~ Accounting Officer) January ~~22, 2009~~27, 2011

/s/  STEPHEN F. BOLLENBACH

Stephen F. Bollenbach
Chairman of the Board and Director January ~~22, 2009~~27, 2011

/s/  ~~RONALD W. BURKLE~~BARBARA T. ALEXANDER

~~Ronald W. Burkle~~Barbara T. Alexander
Director January ~~22, 2009~~27, 2011

/s/  TIMOTHY W. FINCHEM

Timothy W. Finchem
Director January ~~22, 2009~~27, 2011

/s/  KENNETH M. JASTROW, II

Kenneth M. Jastrow, II
Director January ~~22, 2009~~27, 2011

/s/  ROBERT L. JOHNSON

Robert L. Johnson
Director January ~~22, 2009~~27, 2011

/s/  MELISSA LORA

Melissa Lora
Director January ~~22, 2009~~27, 2011

/s/  MICHAEL G. MCCAFFERY

Michael G. McCaffery
Director January ~~22, 2009~~27, 2011

/s/  LESLIE MOONVES

Leslie Moonves
Director January ~~22, 2009~~27, 2011

/s/  LUIS G. NOGALES

Luis G. Nogales
Director January ~~22, 2009~~27, 2011

~~105~~109

LIST OF EXHIBITS FILED


				Sequential				Sequential
Exhibit	Exhibit			Page	Exhibit			Page
Number	Number		Description	Number	Number		Description	Number

	2	.1	Share Purchase Agreement, dated May 22, 2007, by and between KB Home, Kaufman and Broad Development Group, International Mortgage Acceptance Corporation, Kaufman and Broad International, Inc. and Financière Gaillon 8 S.A.S., filed as an exhibit to the Company’s Current Report onForm 8-K dated May 22, 2007, is incorporated by reference herein.		3	.1	Restated Certificate of Incorporation, as amended, filed as an exhibit to the Company’s Current Report onForm 8-K dated April 7, 2009, is incorporated by reference herein.
	3	.1	Restated Certificate of Incorporation, filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2007, is incorporated by reference herein.		3	.2	By-Laws, as amended and restated on April 5, 2007, filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2007, is incorporated by reference herein.
	3	.2	Certificate of Designation of Series A Participating Cumulative Preferred Stock, dated as of January 22, 2009, filed as an exhibit to the Company’s Current Report on Form 8-K/A dated January 28, 2009, is incorporated by reference herein.		4	.1	Rights Agreement between the Company and Mellon Investor Services LLC, as rights agent, dated January 22, 2009, filed as an exhibit to the Company’s Current Report on Form 8-K/A dated January 28, 2009, is incorporated by reference herein.
	3	.3	By-Laws, as amended and restated on April 5, 2007, filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2007, is incorporated by reference herein.		4	.2	Indenture and Supplemental Indenture relating to 53/4% Senior Notes due 2014 among the Company, the Guarantors and Sun Trust Bank, Atlanta, each dated January 28, 2004, filed as exhibits to the Company’s Registration StatementNo. 333-114761 onForm S-4, are incorporated by reference herein.
	4	.1	Rights Agreement between the Company and Mellon Investor Services LLC, as rights agent, dated January 22, 2009, filed as an exhibit to the Company’s Current Report on Form 8-K/A dated January 28, 2009, is incorporated by reference herein.		4	.3	Second Supplemental Indenture relating to 63/8% Senior Notes due 2011 among the Company, the Guarantors and Sun Trust Bank, Atlanta, dated June 30, 2004, filed as an exhibit to the Company’s Registration StatementNo. 333-119228 onForm S-4, is incorporated by reference herein.
	4	.2	Rights Agreement between the Company and ChaseMellon Shareholder Services, L.L.C., as rights agent, dated February 4, 1999, filed as an exhibit to the Company’s Current Report on Form 8-K dated February 4, 1999, is incorporated by reference herein.		4	.4	Third Supplemental Indenture relating to the Company’s Senior Notes by and between the Company, the Guarantors named therein, the Subsidiary Guarantor named therein and SunTrust Bank, dated as of May 1, 2006, filed as an exhibit to the Company’s Current Report onForm 8-K dated May 3, 2006, is incorporated by reference herein.
	4	.3	First Amendment, dated as of April 29, 2005, to the Rights Agreement, dated as of February 4, 1999, between the Company and Mellon Investor Services LLC, as rights agent, filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2005, is incorporated by reference herein.		4	.5	Fourth Supplemental Indenture relating to the Company’s Senior Notes by and between the Company, the Guarantors named therein and U.S. Bank National Association, dated as of November 9, 2006, filed as an exhibit to the Company’s Current Report onForm 8-K dated November 13, 2006, is incorporated by reference herein.
	4	.4	Second Amendment, dated as of January 22, 2009, to the Rights Agreement, dated as of February 4, 1999 and amended as of April 29, 2005, between the Company and Mellon Investor Services LLC, as rights agent, filed as an exhibit to the Company’s Current Report on Form 8-K/A dated January 28, 2009, is incorporated by reference herein.		4	.6	Fifth Supplemental Indenture, dated August 17, 2007, relating to the Company’s Senior Notes by and between the Company, the Guarantors, and the Trustee, filed as an exhibit to the Company’s Current Report onForm 8-K dated August 22, 2007, is incorporated by reference herein.
	4	.5	Indenture and Supplemental Indenture relating to 53/4% Senior Notes due 2014 among the Company, the Guarantors and Sun Trust Bank, Atlanta, each dated January 28, 2004, filed as exhibits to the Company’s Registration StatementNo. 333-114761 onForm S-4, are incorporated by reference herein.		4	.7	Specimen of 53/4% Senior Notes due 2014, filed as an exhibit to the Company’s Registration StatementNo. 333-114761 onForm S-4, is incorporated by reference herein.
	4	.6	Second Supplemental Indenture relating to 63/8% Senior Notes due 2011 among the Company, the Guarantors and Sun Trust Bank, Atlanta, dated June 30, 2004, filed as an exhibit to the Company’s registration statementNo. 333-119228 onForm S-4, is incorporated by reference herein.		4	.8	Specimen of 57/8% Senior Notes due 2015, filed as an exhibit to the Company’s Current Report onForm 8-K dated December 15, 2004, is incorporated by reference herein.
	4	.7	Third Supplemental Indenture relating to the Company’s Senior Notes by and between the Company, the Guarantors named therein, the Subsidiary Guarantor named therein and SunTrust Bank, dated as of May 1, 2006, filed as an exhibit to the Company’s Current Report onForm 8-K dated May 3, 2006, is incorporated by reference herein.		4	.9	Form of officers’ certificates and guarantors’ certificates establishing the terms of the 57/8% Senior Notes due 2015, filed as an exhibit to the Company’s Current Report onForm 8-K dated December 15, 2004, is incorporated by reference herein.
	4	.8	Fourth Supplemental Indenture relating to the Company’s Senior Notes by and between the Company, the Guarantors named therein and U.S. Bank National Association, dated as of November 9, 2006, filed as an exhibit to the Company’s Current Report onForm 8-K dated November 13, 2006, is incorporated by reference herein.		4	.10	Specimen of 61/4% Senior Notes due 2015, filed as an exhibit to the Company’s Current Report on Form 8-K dated June 2, 2005, is incorporated by reference herein.
	4	.9	Fifth Supplemental Indenture, dated August 17, 2007, relating to the Company’s Senior Notes by and between the Company, the Guarantors, and the Trustee, filed as an exhibit to the Company’s Current Report onForm 8-K dated August 22, 2007, is incorporated by reference herein.		4	.11	Form of officers’ certificates and guarantors’ certificates establishing the terms of the 61/4% Senior Notes due 2015, filed as an exhibit to the Company’s Current Report on Form 8-K dated June 2, 2005, is incorporated by reference herein.
					4	.12	Specimen of 61/4% Senior Notes due 2015, filed as an exhibit to the Company’s Current Report on Form 8-K dated June 27, 2005, is incorporated by reference herein.

Sequential

Exhibit
Page

Number
Description
Number

4 .10 Specimen of 53/4% Senior Notes due 2014, filed as an exhibit to the Company’s Registration StatementNo. 333-114761 onForm S-4, is incorporated by reference herein.
4 .11 Specimen of 57/8% Senior Notes due 2015, filed as an exhibit to the Company’s Current Report onForm 8-K dated December 15, 2004, is incorporated by reference herein.
4 .12 Form of officers’ certificates and guarantors’ certificates establishing the terms of the 57/8% Senior Notes due 2015, filed as an exhibit to the Company’s Current Report onForm 8-K dated December 15, 2004, is incorporated by reference herein.
4 .13 Specimen of 61/4% Senior Notes due 2015, filed as an exhibit to the Company’s Current Report on Form 8-K dated June 2, 2005, is incorporated by reference herein.
4 .14 Form of officers’ certificates and guarantors’ certificates establishing the terms of the 61/4% Senior Notes due 2015, filed as an exhibit to the Company’s Current Report on Form 8-K dated June 2, 2005, is incorporated by reference herein.
4 .15 Specimen of 61/4% Senior Notes due 2015, filed as an exhibit to the Company’s Current Report on Form 8-K dated June 27, 2005, is incorporated by reference herein.
4 .16 Form of officers’ certificates and guarantors’ certificates establishing the terms of the 61/4% Senior Notes due 2015, filed as an exhibit to the Company’s Current Report on Form 8-K dated June 27, 2005, is incorporated by reference herein.
4 .17 Specimen of 71/4% Senior Notes due 2018, filed as an exhibit to the Company’s Current Report onForm 8-K dated April 3, 2006, is incorporated by reference herein.
4 .18 Form of officers’ certificates and guarantors’ certificates establishing the terms of the 71/4% Senior Notes due 2018, filed as an exhibit to the Company’s Current Report onForm 8-K dated April 3, 2006, is incorporated by reference herein.
10 .1 Consent Order, Federal Trade Commission Docket No. C-2954, dated February 12, 1979, filed as an exhibit to the Company’s Registration Statement No. 33-6471 on Form S-1, is incorporated by reference herein.
10 .2* Kaufman and Broad, Inc. Executive Deferred Compensation Plan, effective as of July 11, 1985, filed as an exhibit to the Company’s 2007 Annual Report onForm 10-K, is incorporated by reference herein.
10 .3*† Amendment to Kaufman and Broad, Inc. Executive Deferred Compensation Plan for amounts earned or vested on or after January 1, 2005, effective January 1, 2009.
10 .4*† KB Home 1986 Stock Option Plan, as amended and restated on October 2, 2008.
10 .5*† KB Home 1988 Employee Stock Plan, as amended and restated on October 2, 2008.
10 .6* Kaufman and Broad Home Corporation Directors’ Deferred Compensation Plan established effective as of July 27, 1989, filed as an exhibit to the Company’s 2007 Annual Report on Form 10-K, is incorporated by reference herein.
10 .7 Consent decree, dated July 2, 1991, relating to Federal Trade Commission Consent Order, filed as an exhibit to the Company’s 2007 Annual Report on Form 10-K, is incorporated by reference herein.
10 .8*† KB Home Performance-Based Incentive Plan for Senior Management, as amended and restated on October 2, 2008.
10 .9* Form of Stock Option Agreement under KB Home Performance-Based Incentive Plan for Senior Management, filed as an exhibit to the Company’s 1995 Annual Report onForm 10-K, is incorporated by reference herein.
10 .10* KB Home Unit Performance Program, filed as an exhibit to the Company’s 1996 Annual Report on Form 10-K, is incorporated by reference herein.
10 .11*† KB Home 1998 Stock Incentive Plan, as amended and restated on October 2, 2008.

Sequential

Exhibit
Page

Number
Description
Number

10 .12 KB Home Directors’ Legacy Program, as amended January 1, 1999, filed as an exhibit to the Company’s 1998 Annual Report onForm 10-K, is incorporated by reference herein.
10 .13 Trust Agreement between Kaufman and Broad Home Corporation and Wachovia Bank, N.A. as Trustee, dated as of August 27, 1999, filed as an exhibit to the Company’s 1999 Annual Report onForm 10-K, is incorporated by reference herein.
10 .14*† Amended and Restated KB Home 1999 Incentive Plan, as amended and restated on October 2, 2008.
10 .15* Form of Non-Qualified Stock Option Agreement under the Company’s Amended and Restated 1999 Incentive Plan, filed as an exhibit to the Company’s Quarterly Report onForm 10-Q for the quarter ended May 31, 2006, is incorporated by reference herein.
10 .16* Form of Incentive Stock Option Agreement under the Company’s Amended and Restated 1999 Incentive Plan, filed as an exhibit to the Company’s Quarterly Report onForm 10-Q for the quarter ended May 31, 2006, is incorporated by reference herein.
10 .17* Form of Restricted Stock Agreement under the Company’s Amended and Restated 1999 Incentive Plan, filed as an exhibit to the Company’s Quarterly Report onForm 10-Q for the quarter ended May 31, 2006, is incorporated by reference herein.
10 .18* Form of Amended and Restated 1999 Incentive Plan Stock Appreciation Right Agreement, filed as an exhibit to the Company’s Current Report onForm 8-K dated July 18, 2007, is incorporated by reference herein.
10 .19* Form of Amended and Restated 1999 Incentive Plan Phantom Share Agreement, filed as an exhibit to the Company’s Current Report onForm 8-K dated July 18, 2007, is incorporated by reference herein.
10 .20* Amended and Restated Employment Agreement of Bruce Karatz, dated July 11, 2001, filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2001, is incorporated by reference herein.
10 .21* Tolling Agreement, dated as of November 12, 2006, by and between the Company and Bruce Karatz, filed as an exhibit to the Company’s Current Report onForm 8-K dated November 13, 2006, is incorporated by reference herein.
10 .22*† KB Home 2001 Stock Incentive Plan, as amended and restated on October 2, 2008.
10 .23* Form of Stock Option Agreement under the Company’s 2001 Stock Incentive Plan, filed as an exhibit to the Company’s 2006 Annual Report onForm 10-K, is incorporated by reference herein.
10 .24* Form of Stock Restriction Agreement under the Company’s 2001 Stock Incentive Plan, filed as an exhibit to the Company’s 2006 Annual Report onForm 10-K, is incorporated by reference herein.
10 .25* KB Home Nonqualified Deferred Compensation Plan with respect to deferrals prior to January 1, 2005, effective March 1, 2001, filed as an exhibit to the Company’s 2001 Annual Report onForm 10-K, is incorporated by reference herein.
10 .26*† KB Home Nonqualified Deferred Compensation Plan with respect to deferrals on and after January 1, 2005, effective January 1, 2009.
10 .27*† KB Home Change in Control Severance Plan, as amended and restated effective January 1, 2009.
10 .28* KB Home Death Benefit Only Plan, filed as an exhibit to the Company’s 2001 Annual Report on Form 10-K, is incorporated by reference herein.
10 .29*† Amendment No. 1 to the KB Home Death Benefit Only Plan, effective as of January 1, 2009.
10 .30*† KB Home Retirement Plan, as amended and restated effective January 1, 2009.
10 .31† KB Home Non-Employee Directors Stock Plan, as amended and restated effective January 1, 2009.


				Sequential				Sequential
Exhibit	Exhibit			Page	Exhibit			Page
Number	Number		Description	Number	Number		Description	Number

	10	.32	Revolving Loan Agreement, dated as of November 22, 2005, filed as an exhibit to the Company’s Current Report onForm 8-K dated November 23, 2005, is incorporated by reference herein.		4	.13	Form of officers’ certificates and guarantors’ certificates establishing the terms of the 61/4% Senior Notes due 2015, filed as an exhibit to the Company’s Current Report on Form 8-K dated June 27, 2005, is incorporated by reference herein.
	10	.33	First Amendment, dated as of October 10, 2006, to the Revolving Loan Agreement dated as of November 22, 2005 among the Company, the lenders party thereto and Bank of America, N.A., filed as an exhibit to the Company’s Current Report onForm 8-K dated October 19, 2006, is incorporated by reference herein.		4	.14	Specimen of 71/4% Senior Notes due 2018, filed as an exhibit to the Company’s Current Report onForm 8-K dated April 3, 2006, is incorporated by reference herein.
	10	.34	Second Amendment to the Revolving Loan Agreement dated as of November 22, 2005 among KB Home, the lenders party thereto, and Bank of America, N.A., as administrative agent, filed as an exhibit to the Company’s Current Report onForm 8-K dated December 12, 2006, is incorporated by reference herein.		4	.15	Form of officers’ certificates and guarantors’ certificates establishing the terms of the 71/4% Senior Notes due 2018, filed as an exhibit to the Company’s Current Report onForm 8-K dated April 3, 2006, is incorporated by reference herein.
	10	.35	Third Amendment Agreement, dated August 17, 2007, to Revolving Loan Agreement, dated as of November 22, 2005, between the Company, as Borrower, the banks party thereto, and Bank of America, N.A., as Administrative Agent, filed as an exhibit to the Company’s Current Report onForm 8-K dated August 22, 2007, is incorporated by reference herein.		4	.16	Specimen of 9.100% Senior Notes due 2017, filed as an exhibit to the Company’s Current Report on Form 8-K dated July 30, 2009, is incorporated by reference herein.
	10	.36	Fourth Amendment Agreement, dated January 25, 2008, to Revolving Loan Agreement, dated as of November 22, 2005, between the Company, as Borrower, the banks party thereto, and Bank of America, N.A., as Administrative Agent, filed as an exhibit to the Company’s Current Report onForm 8-K dated January 28, 2008, is incorporated by reference herein.		4	.17	Form of officers’ certificates and guarantors’ certificates establishing the terms of the 9.100% Senior Notes due 2017, filed as an exhibit to the Company’s Current Report on Form 8-K dated July 30, 2009, is incorporated by reference herein.
	10	.37	Fifth Amendment, dated August 28, 2008, to Revolving Loan Agreement, dated as of November 22, 2005, among the Company, as Borrower, the banks party thereto, and Bank of America, N.A., as Administrative Agent, filed as an exhibit to the Company’s Current Report onForm 8-K dated August 29, 2008, is incorporated by reference herein.		10	.1	Consent Order, Federal Trade Commission Docket No. C-2954, dated February 12, 1979, filed as an exhibit to the Company’s Registration Statement No. 33-6471 on Form S-1, is incorporated by reference herein.
	10	.38*	Employment Agreement of Jeffrey T. Mezger, dated February 28, 2007, filed as an exhibit to the Company’s Current Report onForm 8-K dated March 6, 2007, is incorporated by reference herein.		10	.2*	Kaufman and Broad, Inc. Executive Deferred Compensation Plan, effective as of July 11, 1985, filed as an exhibit to the Company’s 2007 Annual Report onForm 10-K, is incorporated by reference herein.
	10	.39*†	Amendment to the Employment Agreement of Jeffrey T. Mezger, dated December 24, 2008.		10	.3*	Amendment to Kaufman and Broad, Inc. Executive Deferred Compensation Plan for amounts earned or vested on or after January 1, 2005, effective January 1, 2009, filed as an exhibit to the Company’s 2008 Annual Report on Form 10-K, is incorporated by reference herein.
	10	.40*	Amended and Restated 1999 Incentive Plan Performance Stock Agreement between the Company and Jeffrey T. Mezger, filed as an exhibit to the Company’s Current Report on Form 8-K dated July 18, 2007, is incorporated by reference herein.		10	.4*	KB Home 1988 Employee Stock Plan, as amended and restated on October 2, 2008, filed as an exhibit to the Company’s 2008 Annual Report on Form 10-K, is incorporated by reference herein.
	10	.41*	Form of Stock Option Agreement under the Employment Agreement between the Company and Jeffrey T. Mezger dated as of February 28, 2007, filed as an exhibit to the Company’s Current Report onForm 8-K dated July 18, 2007, is incorporated by reference herein.		10	.5*	Kaufman and Broad Home Corporation Directors’ Deferred Compensation Plan established effective as of July 27, 1989, filed as an exhibit to the Company’s 2007 Annual Report on Form 10-K, is incorporated by reference herein.
	10	.42*	Form of Stock Option Agreement under the Amended and Restated 1999 Incentive Plan for stock option grant to Jeffrey T. Mezger, filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2007, is incorporated by reference herein.		10	.6	Consent decree, dated July 2, 1991, relating to Federal Trade Commission Consent Order, filed as an exhibit to the Company’s 2007 Annual Report on Form 10-K, is incorporated by reference herein.
	10	.43*	Form of Phantom Share Agreement for Non-Senior Management, filed as an exhibit to the Company’s Current Report onForm 8-K dated July 18, 2007, is incorporated by reference herein.		10	.7*	KB Home Performance-Based Incentive Plan for Senior Management, as amended and restated on October 2, 2008, filed as an exhibit to the Company’s 2008 Annual Report on Form 10-K, is incorporated by reference herein.
	10	.44*	Form of Over Cap Phantom Share Agreement, filed as an exhibit to the Company’s Current Report onForm 8-K dated July 18, 2007, is incorporated by reference herein.		10	.8*	Form of Stock Option Agreement under KB Home Performance-Based Incentive Plan for Senior Management, filed as an exhibit to the Company’s 1995 Annual Report onForm 10-K, is incorporated by reference herein.
	10	.45*	Description of fiscal year 2007 bonus arrangements with the Company’s Named Executive Officers and description of fiscal year 2008 annual incentive compensation arrangements with executive officers, each determined on January 22, 2008, filed on the Company’s Current Report onForm 8-K dated January 25, 2008, is incorporated by reference herein.		10	.9*	KB Home 1998 Stock Incentive Plan, as amended and restated on October 2, 2008, filed as an exhibit to the Company’s 2008 Annual Report on Form 10-K, is incorporated by reference herein.
					10	.10	KB Home Directors’ Legacy Program, as amended January 1, 1999, filed as an exhibit to the Company’s 1998 Annual Report onForm 10-K, is incorporated by reference herein.
					10	.11	Trust Agreement between Kaufman and Broad Home Corporation and Wachovia Bank, N.A. as Trustee, dated as of August 27, 1999, filed as an exhibit to the Company’s 1999 Annual Report onForm 10-K, is incorporated by reference herein.


				Sequential
Exhibit				Page
Number			Description	Number

	10	.46.12	~~Policy Regarding Stockholder Approval of Certain Severance Payments, adopted July 10,~~Amended and Restated KB Home 1999 Incentive Plan, as amended and restated on October 2, 2008, filed as an exhibit to the Company’s ~~Current~~2008 Annual Report on Form ~~8-K dated July 15, 2008,~~10-K, is incorporated by reference herein.
	10	.47.13	~~KB Home Executive Severance~~Form of Non-Qualified Stock Option Agreement under the Company’s Amended and Restated 1999 Incentive Plan, filed as an exhibit to the Company’s Quarterly Report onForm 10-Q for the quarter ended ~~August~~May 31, ~~2008,~~2006, is incorporated by reference herein.
	10	.48.14	~~Description~~Form of ~~Fiscal Year 2009 Long-Term~~Restricted Stock Agreement under the Company’s Amended and Restated 1999 Incentive ~~Awards~~Plan, filed as an exhibit to the Company’s ~~Named Executive Officers granted on October 2, 2008, filed on the Company’s Current~~Quarterly Report onForm ~~8-K~~10-Q ~~dated October 8, 2008,~~for the quarter ended May 31, 2006, is incorporated by reference herein.
	10	.49.15	~~Form of Fiscal Year 2009~~KB Home 2001 Stock ~~Appreciation Rights Agreement,~~Incentive Plan, as amended and restated on October 2, 2008, filed as an exhibit to the Company’s ~~Current~~2008 Annual Report onForm ~~8-K~~ ~~dated October 8, 2008,~~10-K, is incorporated by reference herein.
	10	.50.16	Form of ~~Fiscal Year~~Stock Option Agreement under the Company’s 2001 Stock Incentive Plan, filed as an exhibit to the Company’s 2006 Annual Report onForm 10-K, is incorporated by reference herein.
	10	.17*	Form of Stock Restriction Agreement under the Company’s 2001 Stock Incentive Plan, filed as an exhibit to the Company’s 2006 Annual Report onForm 10-K, is incorporated by reference herein.
	10	.18*	KB Home Nonqualified Deferred Compensation Plan with respect to deferrals prior to January 1, 2005, effective March 1, 2001, filed as an exhibit to the Company’s 2001 Annual Report onForm 10-K, is incorporated by reference herein.
	10	.19*	KB Home Nonqualified Deferred Compensation Plan with respect to deferrals on and after January 1, 2005, effective January 1, 2009, ~~Phantom Shares~~filed as an exhibit to the Company’s 2008 Annual Report on Form 10-K, is incorporated by reference herein.
	10	.20*	KB Home Change in Control Severance Plan, as amended and restated effective January 1, 2009, filed as an exhibit to the Company’s 2008 Annual Report on Form 10-K, is incorporated by reference herein.
	10	.21*	KB Home Death Benefit Only Plan, filed as an exhibit to the Company’s 2001 Annual Report on Form 10-K, is incorporated by reference herein.
	10	.22*	Amendment No. 1 to the KB Home Death Benefit Only Plan, effective as of January 1, 2009, filed as an exhibit to the Company’s 2008 Annual Report on Form 10-K, is incorporated by reference herein.
	10	.23*	KB Home Retirement Plan, as amended and restated effective January 1, 2009, filed as an exhibit to the Company’s 2008 Annual Report on Form 10-K, is incorporated by reference herein.
	10	.24*	Employment Agreement of Jeffrey T. Mezger, dated February 28, 2007, filed as an exhibit to the Company’s Current Report onForm 8-K dated ~~October 8, 2008,~~March 6, 2007, is incorporated by reference herein.
	1210	~~.1†~~.25*	~~Computation~~Amendment to the Employment Agreement of ~~Ratio of Earnings~~Jeffrey T. Mezger, dated December 24, 2008, filed as an exhibit to ~~Fixed Charges.~~the Company’s 2008 Annual Report onForm 10-K, is incorporated by reference herein.
	2110	†.26*	~~Subsidiaries~~Form of Stock Option Agreement under the ~~Registrant.~~Employment Agreement between the Company and Jeffrey T. Mezger dated as of February 28, 2007, filed as an exhibit to the Company’s Current Report onForm 8-K dated July 18, 2007, is incorporated by reference herein.
	2310	†.27*	~~Consent~~Form of ~~Independent Registered Public Accounting Firm.~~Stock Option Agreement under the Amended and Restated 1999 Incentive Plan for stock option grant to Jeffrey T. Mezger, filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2007, is incorporated by reference herein.

Sequential
Exhibit
Page
Number Description Number

10 .28* Policy Regarding Stockholder Approval of Certain Severance Payments, adopted July 10, 2008, filed as an exhibit to the Company’s Current Report on Form 8-K dated July 15, 2008, is incorporated by reference herein.
10 .29* KB Home Executive Severance Plan, filed as an exhibit to the Company’s Quarterly Report onForm 10-Q for the quarter ended August 31, 2008, is incorporated by reference herein.
10 .30* Form of Fiscal Year 2009 Phantom Shares Agreement, filed as an exhibit to the Company’s Current Report onForm 8-K dated October 8, 2008, is incorporated by reference herein.
10 .31* KB Home Annual Incentive Plan for Executive Officers, filed as Attachment C to the Company’s Proxy Statement on Schedule 14A for the 2009 Annual Meeting of Stockholders, is incorporated by reference herein.
10 .32 Amendment to Trust Agreement by and between KB Home and Wachovia Bank, N.A., dated August 24, 2009, filed as an exhibit to the Company’s Quarterly Report onForm 10-Q for the quarter ended August 31, 2009, is incorporated by reference herein.
10 .33 Amended and Restated KB Home Non-Employee Directors Compensation Plan, effective as of July 9, 2009, filed as an exhibit to the Company’s 2009 Annual Report onForm 10-K, is incorporated by reference herein.
10 .34 Form of Indemnification Agreement, filed as an exhibit to the Company’s Current Report on Form 8-K dated April 2, 2010, is incorporated by reference herein.
10 .35* KB Home 2010 Equity Incentive Plan, filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended February 28, 2010, is incorporated by reference herein.
10 .36* Form of Stock Option Award Agreement under the KB Home 2010 Equity Incentive Plan, filed as an exhibit to the Company’s Current Report onForm 8-K dated July 20, 2010, is incorporated by reference herein.
10 .37* Form of Restricted Stock Award Agreement under the KB Home 2010 Equity Incentive Plan, filed as an exhibit to the Company’s Current Report on Form 8-K dated July 20, 2010, is incorporated by reference herein.
10 .38* Agreement, dated July 15, 2010, between the Company and Wendy C. Shiba, filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ended August 31, 2010, is incorporated by reference herein.
10 .39* Form of Fiscal Year 2011 Restricted Cash Award Agreement, filed as an exhibit to the Company’s Current Report on Form 8-K dated October 13, 2010, is incorporated by reference herein.
10 .40*† KB Home 2010 Equity Incentive Plan Stock Option Agreement for performance stock option grant to Jeffrey T. Mezger.
12 .1† Computation of Ratio of Earnings to Fixed Charges.
21 † Subsidiaries of the Registrant.
23 † Consent of Independent Registered Public Accounting Firm.
31 .1† Certification of Jeffrey T. Mezger, President and Chief Executive Officer of KB Home Pursuant to Section 302 of theSarbanes-Oxley Act of 2002.
31 .2† Certification of Jeff J. Kaminski, Executive Vice President and Chief Financial Officer of KB Home Pursuant to Section 302 of theSarbanes-Oxley Act of 2002.
32 .1† Certification of Jeffrey T. Mezger, President and Chief Executive Officer of KB Home Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of 2002.
32 .2† Certification of Jeff J. Kaminski, Executive Vice President and Chief Financial Officer of KB Home Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of theSarbanes-Oxley Act of 2002.


			31	~~.1†~~	~~Certification of Jeffrey T. Mezger, President and Chief Executive Officer of KB Home Pursuant to Section 302 of theSarbanes-Oxley~~ ~~Act of 2002.~~	Sequential
Exhibit					Page
			31	~~.2†~~Number	~~Certification of William R. Hollinger, Senior Vice President and Chief Accounting Officer of KB Home Pursuant to Section 302 of theSarbanes-Oxley~~ ~~Act of 2002.~~Description		Number

	32	~~.1†~~		~~Certification of Jeffrey T. Mezger, President and Chief Executive Officer of KB Home Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of theSarbanes-Oxley~~ ~~Act of 2002.~~101
	32	~~.2†~~		~~Certification~~The following materials from KB Home’s Annual Report on Form 10-K for the year ended November 30, 2010, formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Statements of ~~William R. Hollinger, Senior Vice President~~Operations, (ii) Consolidated Balance Sheets, (iii) Consolidated Statements of Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows, and ~~Chief Accounting Officer~~(v) Notes to Consolidated Financial Statements, tagged as blocks of ~~KB Home~~text. Pursuant to ~~18 U.S.C. Section 1350, as Adopted Pursuant to Section 906~~Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the~~Sarbanes-Oxley~~ Securities Act of ~~2002.~~1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

* Management contract or compensatory plan or arrangement in which executive officers are eligible to participate.


†	Document filed with thisForm 10-K.


												Unconsolidated													Unconsolidated
		West Coast		Southwest		Central		Southeast		Total		Joint Ventures			West Coast		Southwest		Central		Southeast		Total		Joint Ventures
Ending backlog — value, in thousands	Ending backlog — value, in thousands													Ending backlog — value, in thousands
2008
First		$	438,505	$	179,114	$	236,725	$	376,872	$	1,231,216	$	77,196
Second			516,073		222,279		260,404		467,141		1,465,897		101,748
Third			391,525		190,279		230,154		321,321		1,133,279		136,918
Fourth (a)			211,713		74,488		120,954		114,231		521,386		33,192

2007
2010
First		$	1,054,825	$	640,856	$	494,429	$	846,070	$	3,036,180	$	42,401		$	193,938	$	59,439	$	172,068	$	98,305	$	523,750	$	13,825
Second			1,357,973		733,211		633,775		1,012,098		3,737,057		84,773			241,383		60,278		224,212		122,365		648,238		11,760
Third			1,042,194		590,711		599,400		834,588		3,066,893		108,821			165,546		34,490		171,577		83,703		455,316		7,480
Fourth			466,726		313,120		312,952		406,037		1,498,835		80,523			74,816		21,306		113,155		54,517		263,794		511

2009
First															$	214,997	$	57,169	$	153,538	$	134,135	$	559,839	$	30,180
Second (a)																334,600		72,429		228,723		161,104		796,856		24,118
Third																293,329		75,439		218,430		146,896		734,094		15,456
Fourth																174,445		46,135		137,271		64,645		422,496		15,577


	Page
	Number

Consolidated Statements of Operations for the Years Ended November 30, ~~2008, 2007~~2010, 2009 and ~~2006~~2008		5660
Consolidated Balance Sheets as of November 30, ~~2008~~2010 and ~~2007~~2009		5761
Consolidated Statements of Stockholders’ Equity for the Years Ended November 30, ~~2008, 2007~~2010, 2009 and ~~2006~~2008		5862
Consolidated Statements of Cash Flows for the Years Ended November 30, ~~2008, 2007~~2010, 2009 and ~~2006~~2008		5963
Notes to Consolidated Financial Statements		6064
Report of Independent Registered Public Accounting Firm		95100
EX-10.40
EX-12.1
EX-21
EX-23
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT


(a)		Ending backlog amounts have been adjusted to reflect the consolidation of previously unconsolidated joint ventures during the ~~fourth~~second quarter of ~~2008.~~2009.


							Maximum
							Number of Shares
					Total Number of		That May Yet be
					Shares Purchased as		Purchased
	Total Number		Average		Part of Publicly		Under the
	of Shares		Price Paid		Announced		Plans or
Period	Purchased		per Share		Plans or Programs		Programs

September 1 - 30		—	$	—		—		4,000,000
October 1 - 31		28,465		14.37		—		4,000,000
November 1 - 30		—		—		—		4,000,000

Total		28,465	$	14.37		—


																					Fair Value at
	As of November 30, 2008 for the Years Ended November 30,																				November 30,
	2009			2010			2011			2012			2013			Thereafter			Total		2008

Long-term debt (a)
Fixed Rate	$	200,000		$	—		$	348,908		$	—		$	—		$	1,296,261		$	1,845,169	$	1,270,979
Weighted Average Interest Rate		8.6	%		—	%		6.4	%		—	%		—	%		6.3	%


	Year Ended November 30, 2006
	KB Home			Guarantor			Non-Guarantor			Consolidating
	Corporate			Subsidiaries			Subsidiaries			Adjustments			Total

Revenues	$	—		$	7,386,128		$	1,993,955		$	—		$	9,380,083

Homebuilding:
Revenues	$	—		$	7,386,128		$	1,973,715		$	—		$	9,359,843
Construction and land costs		—			(5,875,431	)		(1,790,588	)		—			(7,666,019	)
Selling, general and administrative expenses		(156,099	)		(713,519	)		(253,890	)		—			(1,123,508	)

Operating income (loss)		(156,099	)		797,178			(70,763	)		—			570,316
Interest income		1,256			3,485			762			—			5,503
Loss on early redemption/interest expense, net of amounts capitalized		201,837			(153,141	)		(65,374	)		—			(16,678	)
Equity in income (loss) of unconsolidated joint ventures		27,653			(25,272	)		(23,211	)		—			(20,830	)

Homebuilding pretax income (loss)		74,647			622,250			(158,586	)		—			538,311
Financial services pretax income		—			—			33,536			—			33,536

Income (loss) from continuing operations before income taxes		74,647			622,250			(125,050	)		—			571,847
Income tax benefit (expense)		(23,400	)		(194,600	)		39,100			—			(178,900	)

Income (loss) from continuing operations before equity in net income of subsidiaries		51,247			427,650			(85,950	)		—			392,947
Income from discontinued operations, net of income taxes		—			—			89,404			—			89,404

Income before equity in net income of subsidiaries		51,247			427,650			3,454			—			482,351
Equity in net income of subsidiaries:
Continuing operations		341,700			—			—			(341,700	)		—
Discontinued operations		89,404			—			—			(89,404	)		—

Net income	$	482,351		$	427,650		$	3,454		$	(431,104	)	$	482,351


Signature	Title	Date

/s/ JEFFREY T. MEZGER Jeffrey T. Mezger	Director, President and Chief Executive Officer (Principal Executive Officer)	January ~~22, 2009~~27, 2011

/s/ JEFF J. KAMINSKI Jeff J. Kaminski	Executive Vice President and Chief Financial Officer (Principal Financial Officer)	January 27, 2011

/s/ WILLIAM R. HOLLINGER William R. Hollinger	Senior Vice President and Chief Accounting Officer (Principal ~~Financial and~~ Accounting Officer)	January ~~22, 2009~~27, 2011

/s/ STEPHEN F. BOLLENBACH Stephen F. Bollenbach	Chairman of the Board and Director	January ~~22, 2009~~27, 2011

/s/ ~~RONALD W. BURKLE~~BARBARA T. ALEXANDER ~~Ronald W. Burkle~~Barbara T. Alexander	Director	January ~~22, 2009~~27, 2011

/s/ TIMOTHY W. FINCHEM Timothy W. Finchem	Director	January ~~22, 2009~~27, 2011

/s/ KENNETH M. JASTROW, II Kenneth M. Jastrow, II	Director	January ~~22, 2009~~27, 2011

/s/ ROBERT L. JOHNSON Robert L. Johnson	Director	January ~~22, 2009~~27, 2011

/s/ MELISSA LORA Melissa Lora	Director	January ~~22, 2009~~27, 2011

/s/ MICHAEL G. MCCAFFERY Michael G. McCaffery	Director	January ~~22, 2009~~27, 2011

/s/ LESLIE MOONVES Leslie Moonves	Director	January ~~22, 2009~~27, 2011

/s/ LUIS G. NOGALES Luis G. Nogales	Director	January ~~22, 2009~~27, 2011