Form 10-Q KB HOME For: May 31

Article Stock Quotes (1)

FREE Breaking News Alerts from StreetInsider.com!

StreetInsider.com Top Tickers, 4/18/2024

1. JBHT
2. UAL
3. TSLA
4. SAGE
5. TRV

6. ASML
7. ITCI
8. SLG
9. PLD
10. OMC

Top News Most Read Special Reports

July 8, 2016 4:32 PM EDT

E-mail

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended May 31, 2016.


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	95-3666267
(State of incorporation)	(IRS employer identification number)

10990 Wilshire Boulevard

Los Angeles, California 90024

(310) 231-4000

(Address and telephone number of principal executive offices)

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 ý 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 ý No o

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 Rule 12b-2 of the Exchange Act.



Large accelerated filer	ý	Accelerated filer	o
Non-accelerated filer	o (Do not check if a smaller reporting company)	Smaller reporting company	o

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of May 31, 2016.

There were 84,246,127 shares of the registrant’s common stock, par value $1.00 per share, outstanding on May 31, 2016. The registrant’s grantor stock ownership trust held an additional 9,760,831 shares of the registrant’s common stock on that date.

KB HOME

FORM 10-Q

INDEX



	Page Number
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Statements of Operations - Six Months and Three Months Ended May 31, 2016 and 2015	3

Consolidated Balance Sheets - May 31, 2016 and November 30, 2015	4

Consolidated Statements of Cash Flows - Six Months Ended May 31, 2016 and 2015	5

Notes to Consolidated Financial Statements	6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	32

Item 3. Quantitative and Qualitative Disclosures About Market Risk	52

Item 4. Controls and Procedures	52

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	52

Item 1A. Risk Factors	52

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	52

Item 6. Exhibits	53

SIGNATURES	54

INDEX OF EXHIBITS	55

PART I. FINANCIAL INFORMATION


Item 1.	Financial Statements

KB HOME

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Per Share Amounts – Unaudited)



	Six Months Ended May 31,						Three Months Ended May 31,
	2016			2015			2016			2015
Total revenues	$	1,489,421		$	1,203,090		$	811,050		$	622,969
Homebuilding:
Revenues	$	1,484,204		$	1,198,692		$	808,462		$	620,804
Construction and land costs	(1,257,532		)	(1,016,828		)	(688,714		)	(524,410		)
Selling, general and administrative expenses	(181,742		)	(149,604		)	(93,810		)	(78,532		)
Operating income	44,930			32,260			25,938			17,862
Interest income	286			255			134			152
Interest expense	(5,667		)	(13,456		)	(1,970		)	(8,118		)
Equity in loss of unconsolidated joint ventures	(1,428		)	(758		)	(825		)	(411		)
Homebuilding pretax income	38,121			18,301			23,277			9,485
Financial services:
Revenues	5,217			4,398			2,588			2,165
Expenses	(1,730		)	(1,892		)	(871		)	(928		)
Equity in income (loss) of unconsolidated joint ventures	(784		)	2,365			(197		)	1,951
Financial services pretax income	2,703			4,871			1,520			3,188
Total pretax income	40,824			23,172			24,797			12,673
Income tax expense	(12,100		)	(5,800		)	(9,200		)	(3,100		)
Net income	$	28,724		$	17,372		$	15,597		$	9,573
Earnings per share:
Basic	$	.33		$	.19		$	.18		$	.10
Diluted	$	.31		$	.18		$	.17		$	.10
Weighted average shares outstanding:
Basic	86,704			91,974			84,196			91,995
Diluted	97,060			101,470			94,720			101,544
Cash dividends declared per common share	$	.050		$	.050		$	.025		$	.025

See accompanying notes.

KB HOME

CONSOLIDATED BALANCE SHEETS

(In Thousands – Unaudited)



	May 31, 2016			November 30, 2015
Assets
Homebuilding:
Cash and cash equivalents	$	274,849		$	559,042
Restricted cash	3,517			9,344
Receivables	151,066			152,682
Inventories	3,525,089			3,313,747
Investments in unconsolidated joint ventures	65,213			71,558
Deferred tax assets, net	770,396			782,196
Other assets	112,790			112,774
	4,902,920			5,001,343
Financial services	12,923			14,028
Total assets	$	4,915,843		$	5,015,371

Liabilities and stockholders’ equity
Homebuilding:
Accounts payable	$	190,327		$	183,770
Accrued expenses and other liabilities	456,645			513,414
Notes payable	2,632,127			2,625,536
	3,279,099			3,322,720
Financial services	1,575			1,817
Stockholders’ equity:
Common stock	115,672			115,548
Paid-in capital	686,188			682,871
Retained earnings	1,491,073			1,466,713
Accumulated other comprehensive loss	(17,319		)	(17,319		)
Grantor stock ownership trust, at cost	(105,871		)	(109,936		)
Treasury stock, at cost	(534,574		)	(447,043		)
Total stockholders’ equity	1,635,169			1,690,834
Total liabilities and stockholders’ equity	$	4,915,843		$	5,015,371

See accompanying notes.

KB HOME

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands – Unaudited)



	Six Months Ended May 31,
	2016			2015
Cash flows from operating activities:
Net income	$	28,724		$	17,372
Adjustments to reconcile net income to net cash used in operating activities:
Equity in (income) loss of unconsolidated joint ventures	2,212			(1,607		)
Amortization of discounts and issuance costs	3,770			3,914
Depreciation and amortization	1,832			1,646
Deferred income taxes	11,800			5,700
Stock-based compensation	7,506			7,428
Inventory impairments and land option contract abandonments	13,706			984
Changes in assets and liabilities:
Receivables	4,469			(17,999		)
Inventories	(220,061		)	(116,664		)
Accounts payable, accrued expenses and other liabilities	(20,281		)	(34,048		)
Other, net	(1,136		)	(2,626		)
Net cash used in operating activities	(167,459		)	(135,900		)
Cash flows from investing activities:
Contributions to unconsolidated joint ventures	(750		)	(13,244		)
Purchases of property and equipment, net	(2,876		)	(1,590		)
Net cash used in investing activities	(3,626		)	(14,834		)
Cash flows from financing activities:
Change in restricted cash	5,827			22
Proceeds from issuance of debt	—			250,000
Payment of debt issuance costs	—			(3,337		)
Payments on mortgages and land contracts due to land sellers and other loans	(26,639		)	(7,757		)
Issuance of common stock under employee stock plans	—			25
Payments of cash dividends	(4,364		)	(4,599		)
Stock repurchases	(87,531		)	(300		)
Net cash provided by (used in) financing activities	(112,707		)	234,054
Net increase (decrease) in cash and cash equivalents	(283,792		)	83,320
Cash and cash equivalents at beginning of period	560,341			358,768
Cash and cash equivalents at end of period	$	276,549		$	442,088

See accompanying notes.

KB HOME

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1.	Basis of Presentation and Significant Accounting Policies

Basis of Presentation. The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with GAAP have been condensed or omitted.

In our opinion, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly our consolidated financial position as of May 31, 2016, the results of our consolidated operations for the three months and six months ended May 31, 2016 and 2015, and our consolidated cash flows for the six months ended May 31, 2016 and 2015. The results of our consolidated operations for the three months and six months ended May 31, 2016 are not necessarily indicative of the results to be expected for the full year due to seasonal variations in operating results and other factors. The consolidated balance sheet at November 30, 2015 has been taken from the audited consolidated financial statements as of that date. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended November 30, 2015, which are contained in our Annual Report on Form 10-K for that period.

Unless the context indicates otherwise, the terms “we,” “our,” and “us” used in this report refer to KB Home, a Delaware corporation, and its subsidiaries.

Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Cash and Cash Equivalents. We consider all highly liquid short-term investments purchased with an original maturity of three months or less to be cash equivalents. Our cash equivalents totaled $109.5 million at May 31, 2016 and $342.3 million at November 30, 2015. The majority of our cash and cash equivalents were invested in money market funds and interest-bearing bank deposit accounts.

Restricted Cash. Restricted cash at May 31, 2016 and November 30, 2015 consisted of cash deposited with various financial institutions that was required as collateral for our cash-collateralized letter of credit facilities (“LOC Facilities”).

Comprehensive Income. Our comprehensive income was $15.6 million for the three months ended May 31, 2016 and $9.6 million for the three months ended May 31, 2015. For the six months ended May 31, 2016 and 2015, our comprehensive income was $28.7 million and $17.4 million, respectively. Our comprehensive income for each of the three-month and six-month periods ended May 31, 2016 and 2015 was equal to our net income for the respective periods.

Recent Accounting Pronouncements. In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-09. In August 2015, the FASB issued Accounting Standards Update No. 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,” which delayed the effective date of ASU 2014-09 by one year. In 2016, the FASB issued accounting standards updates that amended several aspects of ASU 2014-09. For public entities, ASU 2014-09, as amended, is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, “Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs” (“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is to be applied on a retrospective basis and represents a change in accounting principle. In August 2015, the FASB issued Accounting Standards Update No. 2015-15, “Interest —

Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements — Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting” (“ASU 2015-15”), which clarifies the treatment of debt issuance costs from line-of-credit arrangements after the adoption of ASU 2015-03. In particular, ASU 2015-15 clarifies that the SEC staff would not object to an entity deferring and presenting debt issuance costs related to a line-of-credit arrangement as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of such arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. For public entities, ASU 2015-03 and ASU 2015-15 are effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted for financial statements that have not been previously issued. We believe adopting ASU 2015-03 and ASU 2015-15 will not have a material effect on our consolidated financial statements.

In February 2016, the FASB issued Accounting Standards Update No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). ASU 2016-02 will require organizations that lease assets — referred to as “lessees” — to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. Under ASU 2016-02, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Lessor accounting remains substantially similar to current GAAP. In addition, disclosures of leasing activities are to be expanded to include qualitative along with specific quantitative information. For public entities, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. ASU 2016-02 mandates a modified retrospective transition method. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, “Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. For public entities, ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

Reclassifications. Certain amounts in our consolidated financial statements for prior years have been reclassified to conform to the current period presentation.


2.	Segment Information

As of May 31, 2016, we had identified five operating reporting segments, comprised of four homebuilding reporting segments and one financial services reporting segment. As of May 31, 2016, our homebuilding reporting segments conducted operations in the following states:

West Coast: California

Southwest: Arizona and Nevada

Central: Colorado and Texas

Southeast: Florida, Maryland, North Carolina and Virginia

Our 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, move-up and active adult homebuyers. Our homebuilding operations generate most of their revenues from the delivery of completed homes to homebuyers. They also earn revenues from the sale of land.

Our homebuilding reporting segments were identified based primarily on similarities in economic and geographic characteristics, product types, regulatory environments, methods used to sell and construct homes and land acquisition characteristics. We evaluate segment performance primarily based on segment pretax results.

In the second quarter of 2016, we announced that we had begun a transition out of the Metro Washington, D.C. market that is expected to be completed over the next 12 months. Our operations in the Metro Washington, D.C. market consisted of communities in Maryland and Virginia, which are included in our Southeast homebuilding reporting segment, and represented 2% of our consolidated homebuilding revenues for the three months ended May 31, 2016. We plan to continue constructing and delivering homes in our active communities remaining in this market. We also have other land interests in this market that we intend to build out or sell. As described in Note 6 – Inventory Impairments and Land Option Contract Abandonments, we recorded inventory impairment and land option contract abandonment charges related to this transition during the three months ended May 31, 2016.

Our financial services reporting segment offers property and casualty insurance and, in certain instances, earthquake, flood and personal property insurance to our homebuyers in the same markets as our homebuilding reporting segments, and provides title services in the majority of our markets located within our Central and Southeast homebuilding reporting segments. This segment earns revenues primarily from insurance commissions and from the provision of title services. We currently offer mortgage banking services, including residential mortgage loan (“mortgage loan”) originations, to our homebuyers indirectly through Home Community Mortgage, LLC (“HCM”), a joint venture of a subsidiary of ours and a subsidiary of Nationstar Mortgage LLC (“Nationstar”). Through these respective subsidiaries, we have a 49.9% ownership interest and Nationstar has a 50.1% ownership interest in HCM, with Nationstar providing management oversight of HCM’s operations. Our homebuyers may select any lender of their choice to obtain mortgage financing for the purchase of their home.

Corporate and other is a non-operating segment that develops and oversees the implementation of company-wide strategic initiatives and provides support to our reporting segments by centralizing certain administrative functions. Corporate and other includes general and administrative expenses related to operating our corporate headquarters. A portion of the expenses incurred by Corporate and other is allocated to our homebuilding reporting segments.

Our segments follow the same accounting policies used for our consolidated financial statements. The 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, nor are they indicative of the results to be expected in future periods.

The following tables present financial information relating to our segments (in thousands):



	Six Months Ended May 31,						Three Months Ended May 31,
	2016			2015			2016			2015
Revenues:
West Coast	$	615,119		$	554,543		$	331,273		$	277,288
Southwest	212,003			145,318			111,671			80,181
Central	442,393			335,496			240,232			176,348
Southeast	214,689			163,335			125,286			86,987
Total homebuilding revenues	1,484,204			1,198,692			808,462			620,804
Financial services	5,217			4,398			2,588			2,165
Total	$	1,489,421		$	1,203,090		$	811,050		$	622,969

Pretax income (loss):
West Coast	$	41,735		$	40,408		$	19,619		$	18,554
Southwest	22,637			8,688			10,134			5,245
Central	33,914			23,351			23,335			13,125
Southeast	(14,154		)	(16,214		)	(6,590		)	(6,601		)
Corporate and other	(46,011		)	(37,932		)	(23,221		)	(20,838		)
Total homebuilding pretax income	38,121			18,301			23,277			9,485
Financial services	2,703			4,871			1,520			3,188
Total	$	40,824		$	23,172		$	24,797		$	12,673



Inventory impairment charges:
West Coast	$	4,574	$	—	$	4,574	$	—
Southwest	—		—		—		—
Central	787		—		—		—
Southeast	5,915		—		5,356		—
Total	$	11,276	$	—	$	9,930	$	—



	Six Months Ended May 31,				Three Months Ended May 31,
	2016		2015		2016		2015
Land option contract abandonments:
West Coast	$	421	$	—	$	261	$	—
Southwest	111		—		111		—
Central	460		—		—		—
Southeast	1,438		984		1,438		536
Total	$	2,430	$	984	$	1,810	$	536



	May 31, 2016		November 30, 2015
Inventories:
Homes under construction
West Coast	$	705,598	$	535,795
Southwest	114,147		112,032
Central	295,563		263,345
Southeast	131,915		120,184
Subtotal	1,247,223		1,031,356

Land under development
West Coast	807,694		788,607
Southwest	329,661		317,331
Central	458,954		421,783
Southeast	219,352		238,324
Subtotal	1,815,661		1,766,045

Land held for future development
West Coast	256,816		277,954
Southwest	90,540		104,677
Central	17,949		22,082
Southeast	96,900		111,633
Subtotal	462,205		516,346
Total	$	3,525,089	$	3,313,747



Assets:
West Coast	$	1,881,235	$	1,740,299
Southwest	575,881		582,030
Central	886,688		829,811
Southeast	484,325		507,844
Corporate and other	1,074,791		1,341,359
Total homebuilding assets	4,902,920		5,001,343
Financial services	12,923		14,028
Total	$	4,915,843	$	5,015,371


3.	Financial Services

The following tables present financial information relating to our financial services reporting segment (in thousands):



	Six Months Ended May 31,						Three Months Ended May 31,
	2016			2015			2016			2015
Revenues
Insurance commissions	$	2,947		$	2,724		$	1,371		$	1,290
Title services	2,270			1,673			1,217			874
Interest income	—			1			—			1
Total	5,217			4,398			2,588			2,165


Expenses
General and administrative	(1,730		)	(1,892		)	(871		)	(928		)
Operating income	3,487			2,506			1,717			1,237
Equity in income (loss) of unconsolidated joint ventures	(784		)	2,365			(197		)	1,951
Pretax income	$	2,703		$	4,871		$	1,520		$	3,188



	May 31, 2016		November 30, 2015
Assets
Cash and cash equivalents	$	1,700	$	1,299
Receivables	1,543		2,245
Investments in unconsolidated joint ventures	9,656		10,440
Other assets	24		44
Total assets	$	12,923	$	14,028
Liabilities
Accounts payable and accrued expenses	$	1,575	$	1,817
Total liabilities	$	1,575	$	1,817


4.	Earnings Per Share

Basic and diluted earnings per share were calculated as follows (in thousands, except per share amounts):



	Six Months Ended May 31,						Three Months Ended May 31,
	2016			2015			2016			2015
Numerator:
Net income	$	28,724		$	17,372		$	15,597		$	9,573
Less: Distributed earnings allocated to nonvested restricted stock	(21		)	(16		)	(10		)	(8		)
Less: Undistributed earnings allocated to nonvested restricted stock	(116		)	(45		)	(66		)	(24		)
Numerator for basic earnings per share	28,587			17,311			15,521			9,541



	Six Months Ended May 31,						Three Months Ended May 31,
	2016			2015			2016			2015
Effect of dilutive securities:
Interest expense and amortization of debt issuance costs associated with convertible senior notes, net of taxes	$	1,333		$	1,333		$	667		$	667
Add: Undistributed earnings allocated to nonvested restricted stock	116			45			66			24
Less: Undistributed earnings reallocated to nonvested restricted stock	(104		)	(41		)	(59		)	(22		)
Numerator for diluted earnings per share	$	29,932		$	18,648		$	16,195		$	10,210

Denominator:
Weighted average shares outstanding — basic	86,704			91,974			84,196			91,995
Effect of dilutive securities:
Share-based payments	1,954			1,094			2,122			1,147
Convertible senior notes	8,402			8,402			8,402			8,402
Weighted average shares outstanding — diluted	97,060			101,470			94,720			101,544
Basic earnings per share	$	.33		$	.19		$	.18		$	.10
Diluted earnings per share	$	.31		$	.18		$	.17		$	.10

We compute earnings per share using the two-class method, which is an allocation of earnings between the holders of common stock and a company’s participating security holders. Our outstanding nonvested shares of restricted stock contain non-forfeitable rights to dividends and, therefore, are considered participating securities for purposes of computing earnings per share pursuant to the two-class method. We had no other participating securities at May 31, 2016 or 2015.

Outstanding stock options to purchase 9.7 million shares of our common stock were excluded from the diluted earnings per share calculations for the three-month and six-month periods ended May 31, 2016, and outstanding options to purchase 6.9 million shares of our common stock were excluded from the diluted earnings per share calculations for the three-month and six-month periods ended May 31, 2015, respectively, because the effect of their inclusion in each case would be antidilutive. Contingently issuable shares associated with outstanding performance-based restricted stock units (each a “PSU”) were not included in the basic earnings per share calculations for the periods presented, as the applicable vesting conditions had not been satisfied.


5.	Inventories

Inventories consisted of the following (in thousands):



	May 31, 2016		November 30, 2015
Homes under construction	$	1,247,223	$	1,031,356
Land under development	1,815,661		1,766,045
Land held for future development	462,205		516,346
Total	$	3,525,089	$	3,313,747

Interest is capitalized to inventories while the related communities are being actively developed and until homes are completed. Capitalized interest is amortized to construction and land costs as the related inventories are delivered to homebuyers or land buyers (as applicable). Interest and real estate taxes are not capitalized on land held for future development.

Our interest costs were as follows (in thousands):



	Six Months Ended May 31,						Three Months Ended May 31,
	2016			2015			2016			2015
Capitalized interest at beginning of period	$	288,442		$	266,668		$	300,314		$	284,040
Interest incurred	92,509			94,202			46,258			49,199
Interest expensed	(5,667		)	(13,456		)	(1,970		)	(8,118		)
Interest amortized to construction and land costs (a)	(66,239		)	(47,736		)	(35,557		)	(25,443		)
Capitalized interest at end of period (b)	$	309,045		$	299,678		$	309,045		$	299,678


(a)	Interest amortized to construction and land costs for the six months ended May 31, 2016 included $.5 million related to land sales during the period.


(b)	Capitalized interest amounts presented in the table reflect the gross amount of capitalized interest, as inventory impairment charges recognized, if any, are not generally allocated to specific components of inventory.


6.	Inventory Impairments and Land Option Contract Abandonments

Each community or land parcel in our owned inventory is assessed on a quarterly basis to determine if indicators of potential impairment exist. We record an inventory impairment charge when indicators of potential impairment exist and the carrying value of a real estate asset is greater than the undiscounted future net cash flows the asset is expected to generate. These real estate assets are written down to fair value, which is primarily based on the estimated future net cash flows discounted for inherent risk associated with each such asset. We evaluated 32 and 26 communities or land parcels for recoverability during the six months ended May 31, 2016 and 2015, respectively. The carrying value of the communities or land parcels evaluated during the six months ended May 31, 2016 and 2015 was $248.7 million and $212.5 million, respectively. Some of the communities or land parcels evaluated during the six months ended May 31, 2016 and 2015 were evaluated in more than one quarterly period. Communities or land parcels evaluated for recoverability in more than one quarterly period, if any, were counted only once for each six-month period.

The following table summarizes ranges for significant quantitative unobservable inputs we utilized in our fair value measurements with respect to the impaired communities written down to fair value during the periods presented:



	Six Months Ended May 31,		Three Months Ended May 31,
Unobservable Input (a)	2016	2015	2016	2015
Average selling price	$280,100 - $310,000	—	$280,100	—
Deliveries per month	1 - 4	—	4	—
Discount rate	17% - 20%	—	20%	—


(a)	The ranges of inputs used in each period primarily reflect differences between the housing markets where each of the impacted communities are located, rather than fluctuations in prevailing market conditions.

Based on the results of our evaluations, we recognized inventory impairment charges of $9.9 million for the three months ended May 31, 2016 and $11.3 million for the six months ended May 31, 2016. Inventory impairment charges for the three months and six months ended May 31, 2016 included $5.4 million associated with the planned future sales of two land parcels in the Metro Washington, D.C. market, reflecting our decision in the current quarter to wind down our operations in this market, and $4.6 million associated with one community in California where we decided to change our operational and marketing strategy in order to monetize our investment more quickly by accelerating the overall timing for selling, building and delivering homes on land that had been held for future development. The estimated fair value of the Metro Washington, D.C. land parcels was based on broker quotes. Inventory impairment charges for the six months ended May 31, 2016 also included $.6 million related to a property in Florida where we decided to change our operational and marketing strategy in order to monetize our investment more quickly by accelerating the overall timing for selling, building and delivering homes on land that had been held for future development. The balance of the charges for the six months ended May 31, 2016 related to the sales of our last remaining land parcels in the Rio Grande Valley area of Texas, where we decided to change our strategy and monetize our investment through land sales rather than build and sell homes on the parcels as previously intended. The estimated fair value of the Rio Grande Valley parcels was based on executed sales contracts. These sales closed in the second quarter of 2016. We had no inventory impairment charges in the three months or six months ended May 31, 2015.

As of May 31, 2016, the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was $221.4 million, representing 24 communities and various other land parcels. As of November 30, 2015, the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was $254.2 million, representing 28 communities and various other land parcels.

Our inventory controlled under land option contracts and other similar contracts is assessed on a quarterly basis to determine whether it continues to meet our internal investment and marketing standards. When a decision is made not to exercise certain land option contracts and other similar contracts due to market conditions and/or changes in our strategy, we write off the related inventory costs, including non-refundable deposits and unrecoverable pre-acquisition costs. Based on the results of our assessments, we recognized land option contract abandonment charges of $1.8 million corresponding to 312 lots for the three months ended May 31, 2016, and $2.4 million of such charges corresponding to 492 lots for the six months ended May 31, 2016. Of the land option contract abandonment charges recognized for the three months and six months ended May 31, 2016, $1.4 million related to the wind-down of our Metro Washington, D.C. operations. We recognized land option contract abandonment charges of $.5 million corresponding to 114 lots for the three months ended May 31, 2015 and $1.0 million of such charges corresponding to 426 lots for the six months ended May 31, 2015.

Due to the judgment and assumptions applied in our inventory impairment and land option contract abandonment assessment processes, it is possible that actual results could differ substantially from those estimated.


7.	Variable Interest Entities

We participate in joint ventures from time to time that conduct land acquisition, land development and/or other homebuilding activities in various markets where our homebuilding operations are located. Our investments in these joint ventures may create a variable interest in a variable interest entity (“VIE”), depending on the contractual terms of the arrangement. We analyze our joint ventures under the variable interest model to determine whether they are VIEs and, if so, whether we are the primary beneficiary. Based on our analysis, we determined that one of our joint ventures at May 31, 2016 was a VIE, but we were not the primary beneficiary of this VIE. At November 30, 2015, we determined that none of our joint ventures were VIEs. All of our joint ventures at May 31, 2016 and November 30, 2015 were unconsolidated and accounted for under the equity method because we did not have a controlling financial interest.

In the ordinary course of our business, we enter into land option contracts and other similar contracts with third parties and unconsolidated entities to acquire rights to land for the construction of homes. Under these contracts, we typically pay a specified option or earnest money deposit in consideration for the right to purchase land in the future, usually at a predetermined price. We analyze each of our land option contracts and other similar contracts under the variable interest model to determine whether the land seller is a VIE and, if so, whether we are the primary beneficiary. Although we do not have legal title to the underlying land, we are required to consolidate a VIE if we are the primary beneficiary. As a result of our analyses, we determined that as of May 31, 2016 and November 30, 2015 we were not the primary beneficiary of any VIEs from which we have acquired rights to land under land option contracts and other similar contracts.

The following table presents a summary of our interests in land option contracts and other similar contracts (in thousands):



	May 31, 2016				November 30, 2015
	Cash Deposits		Aggregate Purchase Price		Cash Deposits		Aggregate Purchase Price
Unconsolidated VIEs	$	26,231	$	571,247	$	32,436	$	611,567
Other land option contracts and other similar contracts	21,161		386,267		22,101		576,140
Total	$	47,392	$	957,514	$	54,537	$	1,187,707

In addition to the cash deposits presented in the table above, our exposure to loss related to our land option contracts and other similar contracts consisted of pre-acquisition costs of $63.2 million at May 31, 2016 and $65.6 million at November 30, 2015. These pre-acquisition costs and cash deposits were included in inventories in our consolidated balance sheets.

For land option contracts and other similar contracts where the land seller entity is not required to be consolidated under the variable interest model, we consider whether such contracts should be accounted for as financing arrangements. Land option contracts and other similar contracts that may be considered financing arrangements include those we enter into with third-party land financiers or developers in conjunction with such third parties acquiring a specific land parcel(s) on our behalf, at our direction, and those with other landowners where we or our designee make improvements to the optioned land parcel(s)

during the applicable option period. For these land option contracts and other similar contracts, we record the remaining purchase price of the associated land parcel(s) in inventories in our consolidated balance sheets with a corresponding financing obligation if we determine that we are effectively compelled to exercise the option under the land option contract or other similar contract and purchase the optioned land parcel(s). In making this determination with respect to a land option contract or other similar contract, we consider the non-refundable deposit(s) we have made and any non-reimbursable expenditures we have incurred for land improvement activities or other items up to the assessment date; additional costs associated with abandoning the contract; and our commitments, if any, to incur non-reimbursable costs associated with the contract. As a result of our evaluations of land option contracts and other similar contracts for financing arrangements, we recorded inventories in our consolidated balance sheets, with a corresponding increase to accrued expenses and other liabilities, of $77.6 million at May 31, 2016 and $110.0 million at November 30, 2015.


8.	Investments in Unconsolidated Joint Ventures

We have investments in unconsolidated joint ventures that conduct land acquisition, land development and/or other homebuilding activities in various markets where our homebuilding operations are located. 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, according to our respective equity interests. The obligations to make capital contributions are governed by each such unconsolidated joint venture’s respective operating agreement and related governing documents.

We typically have obtained rights to acquire portions of the land held by the unconsolidated joint ventures in which we currently participate. When an unconsolidated joint venture sells land to our homebuilding operations, we defer recognition of our share of such unconsolidated joint venture’s earnings (losses) until a home sale is closed and title passes to a homebuyer, at which time we account for those earnings (losses) as a reduction (increase) to the cost of purchasing the land from the unconsolidated joint venture. We defer recognition of our share of such unconsolidated joint venture losses only to the extent profits are to be generated from the sale of the home to a homebuyer.

We share in the earnings (losses) of these unconsolidated joint ventures generally in accordance with our respective equity interests. In some instances, we recognize earnings (losses) related to our investment in an unconsolidated joint venture that differ from our equity interest in the unconsolidated joint venture. This typically arises from our deferral of the unconsolidated joint venture’s earnings (losses) from land sales to us, or other items.

The following table presents combined condensed information from the statements of operations of our unconsolidated joint ventures (in thousands):



	Six Months Ended May 31,						Three Months Ended May 31,
	2016			2015			2016			2015
Revenues	$	21,852		$	6,420		$	18,514		$	3,210
Construction and land costs	(25,996		)	(13,992		)	(18,501		)	(10,249		)
Other expense, net	(2,591		)	(1,411		)	(1,468		)	(715		)
Loss	$	(6,735	)	$	(8,983	)	$	(1,455	)	$	(7,754	)

The following table presents combined condensed balance sheet information for our unconsolidated joint ventures (in thousands):



	May 31, 2016		November 30, 2015
Assets
Cash	$	23,745	$	23,309
Receivables	1,682		7,546
Inventories	168,119		175,196
Other assets	776		910
Total assets	$	194,322	$	206,961



	May 31, 2016		November 30, 2015
Liabilities and equity
Accounts payable and other liabilities	$	12,304	$	17,108
Notes payable (a)	45,280		39,064
Equity	136,738		150,789
Total liabilities and equity	$	194,322	$	206,961

(a)

One of our unconsolidated joint ventures has a construction loan agreement with a third-party lender to finance its land development activities that is secured by the underlying property and related project assets. Outstanding debt under the agreement is non-recourse to us and is scheduled to mature in August 2018. None of our other unconsolidated joint ventures had outstanding debt at May 31, 2016 or November 30, 2015.

The following table presents information relating to our investments in unconsolidated joint ventures (dollars in thousands):



	May 31, 2016		November 30, 2015
Number of investments in unconsolidated joint ventures	7		7
Investments in unconsolidated joint ventures	$	65,213	$	71,558
Number of unconsolidated joint venture lots controlled under land option contracts and other similar contracts	574		677

We and our partner in the unconsolidated joint venture that has the construction loan agreement described above provided certain guarantees and indemnities to the lender, including a guaranty to complete the construction of improvements for the project; a guaranty against losses the lender suffers due to certain bad acts or failures to act by the unconsolidated joint venture or its partners; a guaranty of interest payments on the outstanding balance of the secured debt under the construction loan agreement; and an indemnity of the lender from environmental issues. In each case, our actual responsibility under the foregoing guaranty and indemnity obligations is limited to our pro rata interest in the unconsolidated joint venture. We do not have a guaranty or any other obligation to repay or to support the value of the collateral underlying the unconsolidated joint venture’s outstanding secured debt. However, various financial and non-financial covenants apply with respect to the outstanding secured debt and the related guaranty and indemnity obligations, and a failure to comply with such covenants could result in a default and cause the lender to seek to enforce such guaranty and indemnity obligations, if and as may be applicable. As of May 31, 2016, we were in compliance with the applicable terms of our relevant covenants with respect to the construction loan agreement. We do not believe that our existing exposure under our guaranty and indemnity obligations related to the unconsolidated joint venture’s outstanding secured debt is material to our consolidated financial statements.

Of the unconsolidated joint venture lots controlled under land option and other similar contracts at May 31, 2016, we are committed to purchase 132 lots from one of our unconsolidated joint ventures in quarterly takedowns over the next three years for an aggregate purchase price of approximately $57.7 million under agreements that were entered into with the unconsolidated joint venture in the second quarter of 2016.


9.	Other Assets

Other assets consisted of the following (in thousands):



	May 31, 2016		November 30, 2015
Cash surrender value of insurance contracts	$	66,857	$	67,786
Debt issuance costs	22,432		25,408
Property and equipment, net	14,139		13,100
Prepaid expenses	9,362		6,480
Total	$	112,790	$	112,774


10.	Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following (in thousands):



	May 31, 2016		November 30, 2015
Inventory-related obligations (a)	$	113,453	$	148,887
Employee compensation and related benefits	98,710		114,456
Self-insurance and other litigation liabilities	94,303		96,496
Accrued interest payable	65,583		62,645
Warranty liability	48,837		49,085
Customer deposits	20,255		14,563
Real estate and business taxes	9,271		14,255
Other	6,233		13,027
Total	$	456,645	$	513,414

(a)

Represents liabilities for financing arrangements discussed in Note 7 – Variable Interest Entities, as well as liabilities for fixed or determinable amounts associated with tax increment financing entity (“TIFE”) assessments. As homes are delivered, our obligation to pay the remaining TIFE assessments associated with each underlying lot is transferred to the homebuyer. As such, these assessment obligations will be paid by us only to the extent we do not deliver homes on applicable lots before the related TIFE obligations mature.


11.	Income Taxes

Income Tax Expense. Our income tax expense totaled $9.2 million and $3.1 million for the three months ended May 31, 2016 and 2015, respectively. For the six months ended May 31, 2016 and 2015, our income tax expense was $12.1 million and $5.8 million, respectively. Income tax expense for the three months ended May 31, 2016 reflected the favorable net impact of $.4 million of federal energy tax credits we earned from building energy-efficient homes, resulting in an effective income tax rate of 37.1%. For the three months ended May 31, 2015, our effective income tax rate of 24.5% reflected the favorable net impact of $1.7 million of federal energy tax credits. Our income tax expense for the six months ended May 31, 2016 and 2015 reflected the favorable net impact of federal energy tax credits of $3.7 million and $3.1 million, respectively. Our effective income tax rate was 29.6% for the six months ended May 31, 2016 and 25.0% for the six months ended May 31, 2015.

The federal energy tax credits for the three-month and six-month periods ended May 31, 2016 resulted from legislation enacted on December 18, 2015. Among other things, this legislation extended the availability of a business tax credit for building new energy-efficient homes through December 31, 2016. Prior to this legislation, the tax credit expired on December 31, 2014. The federal energy tax credits for the three-month and six-month periods ended May 31, 2015 were earned from building energy-efficient homes in prior periods based on legislation enacted on December 19, 2014, which permitted retroactive application of the credits.

Deferred Tax Asset Valuation Allowance. We evaluate our deferred tax assets quarterly to determine if adjustments to our valuation allowance are required based on the consideration of all available positive and negative evidence using a “more likely than not” standard with respect to whether our deferred tax assets will be realized. Our evaluation considers, among other factors, our historical operating results, our expectation of future profitability, the duration of the applicable statutory carryforward periods, and conditions in the housing market and the broader economy. The ultimate realization of our deferred tax assets depends primarily on our ability to generate future taxable income during the periods in which the related temporary differences in the financial basis and the tax basis of the assets become deductible. The value of our deferred tax assets depends on applicable income tax rates.

Our deferred tax assets of $808.2 million as of May 31, 2016 and $820.0 million as of November 30, 2015 were partly offset by a valuation allowance in each period of $37.8 million. The deferred tax asset valuation allowances as of May 31, 2016 and November 30, 2015 were primarily related to foreign tax credits and certain state net operating losses (“NOLs”) that had not met the “more likely than not” realization standard. Based on our evaluation of our deferred tax assets as of May 31, 2016, we determined that most of our deferred tax assets would be realized. Therefore, we made no adjustments to our deferred tax valuation allowance during the three months or six months ended May 31, 2016.

Unrecognized Tax Benefits. At both May 31, 2016 and November 30, 2015, our gross unrecognized tax benefits (including interest and penalties) totaled $.1 million, all of which, if recognized, would affect our effective income tax rate. We anticipate that these gross unrecognized tax benefits will decrease by an amount ranging from zero to $.1 million during the 12 months from this reporting date. The fiscal years ending 2012 and later remain open to federal examinations, while fiscal years 2011 and later remain open to state examinations.


12.	Notes Payable

Notes payable consisted of the following (in thousands):



	May 31, 2016		November 30, 2015
Mortgages and land contracts due to land sellers and other loans	$	41,461	$	35,664
9.10% Senior notes due September 15, 2017	263,875		263,475
7 1/4% Senior notes due June 15, 2018	299,635		299,554
4.75% Senior notes due May 15, 2019	400,000		400,000
8.00% Senior notes due March 15, 2020	347,156		346,843
7.00% Senior notes due December 15, 2021	450,000		450,000
7.50% Senior notes due September 15, 2022	350,000		350,000
7.625% Senior notes due May 15, 2023	250,000		250,000
1.375% Convertible senior notes due February 1, 2019	230,000		230,000
Total	$	2,632,127	$	2,625,536

Unsecured Revolving Credit Facility. We have a $275.0 million unsecured revolving credit facility with a syndicate of financial institutions (“Credit Facility”) that will mature on August 7, 2019. The Credit Facility contains an uncommitted accordion feature under which the aggregate principal amount of available loans can be increased to a maximum of $450.0 million under certain conditions, including obtaining additional bank commitments. The Credit Facility also contains a sublimit of $137.5 million for the issuance of letters of credit, which may be utilized in combination with, or to replace, the LOC Facilities. Interest on amounts borrowed under the Credit Facility is payable quarterly in arrears at a rate based on either a Eurodollar or a base rate, plus a spread that depends on our consolidated leverage ratio (“Leverage Ratio”), as defined under the Credit Facility. The Credit Facility also requires the payment of a commitment fee ranging from .30% to .50% of the unused commitment, based on our Leverage Ratio. The terms of the Credit Facility require us, among other things, to maintain compliance with various covenants, including financial covenants relating to our consolidated tangible net worth, Leverage Ratio, and either a consolidated interest coverage ratio (“Interest Coverage Ratio”) or minimum level of liquidity, each as defined therein. The amount of the Credit Facility available for cash borrowings or the issuance of letters of credit depends on the total cash borrowings and letters of credit outstanding under the Credit Facility and the maximum available amount under the terms of the Credit Facility. As of May 31, 2016, we had no cash borrowings and $31.6 million of letters of credit outstanding under the Credit Facility. Therefore, as of May 31, 2016, we had $243.4 million available for cash borrowings under the Credit Facility, with up to $105.9 million of that amount available for the issuance of letters of credit.

LOC Facilities. We maintain the LOC Facilities with various financial institutions to obtain letters of credit in the ordinary course of operating our business. As of May 31, 2016 and November 30, 2015, we had $3.4 million and $9.1 million, respectively, of letters of credit outstanding under the LOC Facilities. The LOC Facilities require us to deposit and maintain cash with the issuing financial institutions as collateral for our letters of credit outstanding.

Mortgages and Land Contracts Due to Land Sellers and Other Loans. As of May 31, 2016, inventories having a carrying value of $144.1 million were pledged to collateralize mortgages and land contracts due to land sellers and other loans.

Shelf Registration. We have an automatically effective universal shelf registration statement that was filed with the SEC on July 18, 2014 (“2014 Shelf Registration”). Issuances of debt and equity securities under our 2014 Shelf Registration require the filing of a prospectus supplement identifying the amount and terms of the securities to be issued. Our ability to issue equity and/or debt is subject to market conditions and other factors impacting our borrowing capacity.

Senior Notes. All of the senior notes outstanding at May 31, 2016 and November 30, 2015 represent senior unsecured obligations and rank equally in right of payment with all of our existing and future indebtedness. Interest on each of these senior notes is payable semi-annually. At any time prior to the close of business on the business day immediately preceding

the maturity date, holders may convert all or any portion of the 1.375% convertible senior notes due 2019 (“1.375% Convertible Senior Notes due 2019”). These notes are initially convertible into shares of our common stock at a conversion rate of 36.5297 shares for each $1,000 principal amount of the notes, which represents an initial conversion price of approximately $27.37 per share. This initial conversion rate equates to 8,401,831 shares of our common stock and is subject to adjustment upon the occurrence of certain events, as described in the instruments governing these notes.

The indenture governing the senior notes does not contain any financial covenants. Subject to specified exceptions, the indenture contains certain restrictive covenants that, among other things, limit our ability to incur secured indebtedness, or engage in sale-leaseback transactions involving property or assets above a certain specified value. In addition, the senior notes (with the exception of the 7 1/4% senior notes due 2018) contain certain limitations related to mergers, consolidations, and sales of assets.

As of May 31, 2016, we were in compliance with the applicable terms of all our covenants and other requirements under the Credit Facility, the senior notes, the indenture, and the mortgages and land contracts due to land sellers and other loans. Our ability to access the Credit Facility for cash borrowings and letters of credit and our ability to secure future debt financing depend, in part, on our ability to remain in such compliance.

Principal payments on senior notes, mortgages and land contracts due to land sellers and other loans are due as follows: 2016 – $40.1 million; 2017 – $266.4 million; 2018 – $300.0 million; 2019 – $630.0 million; 2020 – $350.0 million; and thereafter – $1.05 billion.


13.	Fair Value Disclosures

Fair value measurements of assets and liabilities are categorized based on the following hierarchy:



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 that their carrying value is not recoverable. The following table presents the fair value hierarchy and our assets measured at fair value on a nonrecurring basis for the six months ended May 31, 2016 and the year ended November 30, 2015 (in thousands):



Description	Fair Value Hierarchy	May 31, 2016		November 30, 2015
Inventories (a)	Level 2	$	1,054	$	—
Inventories (a)	Level 3	5,782		11,988


(a)	Amounts represent the aggregate fair value for real estate assets impacted by inventory impairment charges during the applicable period, as of the date the fair value measurements were made. The carrying value for these real estate assets may have subsequently increased or decreased from the fair value reflected due to activity that has occurred since the measurement date.

Inventories with a carrying value of $17.8 million were written down to their fair value, less associated costs to sell (where applicable), of $6.5 million during the six months ended May 31, 2016, resulting in inventory impairment charges of $11.3 million. Inventories with a carrying value of $20.0 million were written down to their fair value of $12.0 million during the year ended November 30, 2015, resulting in inventory impairment charges of $8.0 million.

The fair values for inventories that were determined using Level 2 inputs were based on executed sales contracts. The fair values for inventories that were determined using Level 3 inputs were based on the estimated future net cash flows discounted for inherent risk associated with each underlying asset, or, with respect to planned future land sales, were based on broker quotes, as described in Note 6 – Inventory Impairments and Land Option Contract Abandonments.

The following table presents the fair value hierarchy, carrying values and estimated fair values of our financial instruments, except those for which the carrying values approximate fair values (in thousands):



		May 31, 2016				November 30, 2015
	Fair Value Hierarchy	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial Liabilities:
Senior notes	Level 2	$	2,360,666	$	2,446,213	$	2,359,872	$	2,429,850
Convertible senior notes	Level 2	230,000		215,050		230,000		211,313

The fair values of the senior notes and convertible senior notes are generally estimated based on quoted market prices for these instruments. The carrying values reported for cash and cash equivalents, restricted cash, and mortgages and land contracts due to land sellers and other loans approximate fair values.


14.	Commitments and Contingencies

Commitments and contingencies include typical obligations of homebuilders for the completion of contracts and those incurred in the ordinary course of business.

Warranty. We provide a limited warranty on all of our homes. The specific terms and conditions of our limited warranty program vary depending upon the markets in which we do business. We generally provide a structural warranty of 10 years, a warranty on electrical, heating, cooling, plumbing and certain 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. Our limited warranty program is ordinarily how we respond to and account for homeowners’ requests to local division offices seeking repairs, including claims where we could have liability under applicable state statutes or tort law for a defective condition in or damages to a home. Our warranty liability covers our costs of repairs associated with homeowner claims made under our limited warranty program. These claims are generally made directly by a homeowner and involve their individual 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 primary assumption in estimating the amounts we accrue for warranty costs is that historical claims experience is a strong indicator of future claims experience. Factors that affect our warranty liability include the number of homes delivered, historical and anticipated rates of warranty claims, and cost per claim. We periodically assess the adequacy of our accrued warranty liability, which is included in accrued expenses and other liabilities in our consolidated balance sheets, and adjust the amount as necessary based on our assessment. Our assessment includes the review of our actual warranty costs incurred to identify trends and changes in our warranty claims experience, and considers our home construction quality and customer service initiatives and outside events. While we believe the warranty liability currently reflected in our consolidated balance sheets to be adequate, unanticipated changes or developments 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 and/or our warranty claims experience could have a significant impact on our actual warranty costs in future periods and such amounts could differ significantly from our current estimates.

The changes in our warranty liability were as follows (in thousands):



	Six Months Ended May 31,						Three Months Ended May 31,
	2016			2015			2016			2015
Balance at beginning of period	$	49,085		$	45,196		$	50,575		$	45,357
Warranties issued	11,567			8,884			6,315			4,751
Payments (a)	(12,467		)	(14,642		)	(8,446		)	(7,047		)
Adjustments (b)	652			7,034			393			3,411
Balance at end of period	$	48,837		$	46,472		$	48,837		$	46,472


(a)	Payments for the three months and six months ended May 31, 2015 included $3.4 million and $7.5 million, respectively, to repair homes affected by water intrusion-related issues in certain of our communities in central and southwest Florida. These issues were substantially resolved as of November 30, 2015.

(b)

Adjustments for the three months and six months ended May 31, 2016 and 2015 included the reclassification of certain estimated minimum probable recoveries to receivables in connection with the above-noted water intrusion-related issues. The adjustments for each period had no impact on our consolidated statements of operations. There were no estimated minimum probable recoveries netted against our warranty liability at May 31, 2016.

Florida Attorney General’s Office Inquiry. In 2013, we were notified by the Florida Attorney General’s Office that it was making a preliminary inquiry into the status of our communities in Florida which were affected by water intrusion-related issues. We established an accrual for the estimated minimum probable loss with respect to this inquiry during 2014 and increased the accrual during 2015. This inquiry was resolved through an agreement with the Florida Attorney General’s Office that was approved by a Florida circuit court and became effective in February 2016. We paid a stipulated amount to the Florida Attorney General’s Office under the agreement in March 2016. The amount we had previously accrued for this inquiry was adequate based on the terms of the approved agreement.

Guarantees. In the normal course of our business, we issue certain representations, warranties and guarantees related to our home sales and land sales. Based on historical experience, we do not believe any potential liability with respect to these representations, warranties or guarantees would be material to our consolidated financial statements.

Self-Insurance. We maintain, 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, including claims made under our limited warranty program, subject to certain self-insured retentions, deductibles and other coverage limits. We also maintain certain other insurance policies. In Arizona, California, Colorado and Nevada, our subcontractors’ general liability insurance primarily takes the form of a wrap-up policy under a program where eligible subcontractors are enrolled as insureds on each project. Enrolled subcontractors contribute toward the cost of the insurance and agree to pay a contractual amount in the future in the event of a claim related to their work. To the extent provided under the wrap-up program, we absorb the enrolled subcontractors’ general liability associated with the work performed on our homes within the applicable projects as part of our overall general liability insurance coverage and self-insurance.

We self-insure a portion of our overall risk through the use of a captive insurance subsidiary, which provides coverage for our exposure to construction defect, bodily injury and property damage claims and related litigation or regulatory actions, up to certain limits. Our self-insurance liability generally covers our costs of settlements and/or repairs, if any, as well as our costs to defend and resolve the following types of claims:

•

Construction defect: Construction defect claims, which represent the largest component of our self-insurance liability, typically originate through a legal or regulatory process rather than directly by a homeowner and involve the alleged occurrence of a condition affecting two or more homes within the same community, or they involve a common area or homeowners’ association property within a community. These claims typically involve higher costs to resolve than individual homeowner warranty claims, and the rate of claims is highly variable.


•	Bodily injury: Bodily injury claims typically involve individuals (other than our employees) who claim they were injured while on our property or as a result of our operations.


•	Property damage: Property damage claims generally involve claims by third parties for alleged damage to real or personal property as a result of our operations. Such claims may occasionally include those made against us by owners of property located near our communities.

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 the estimated costs of potential claims and claim adjustment expenses that are above our coverage limits or that are not covered by our insurance policies. The amount of our self-insurance liability is determined through an analysis performed by a third-party actuary that uses our historical claim and expense data, including data related to contributions from third parties, as well as industry data to estimate our overall costs for unpaid claims, incurred but not reported claims and claim adjustment expenses that are associated with the risks we are assuming with respect to our self-insurance and insurance policy deductibles. Key assumptions used in developing these estimates include claim frequencies, severities and resolution patterns, which can occur over an extended period of time. These estimates are subject to variability due to the length of time between the delivery of a home to a homebuyer and when a construction defect claim is made, and the ultimate resolution of such claim; uncertainties regarding such claims relative to our markets and the types of product we build; insurance industry practices; and legal or regulatory actions and/or interpretations, among other factors. Due to the degree of judgment involved and the potential for variability in these underlying assumptions, our actual future costs could differ from those estimated. In addition, changes in the frequency and severity of reported claims and the estimates to resolve claims can impact the trends and assumptions used in the actuarial analysis, which could be material to our consolidated financial statements. Though state regulations vary, construction defect claims are reported and resolved over

a long period of time, which can extend for 10 years or more. As a result, the majority of the estimated self-insurance liability determined through the actuarial analysis relates to incurred but not reported claims and, therefore, adjustments related to individual existing claims generally do not significantly impact the overall estimated liability. Adjustments to our liabilities related to homes delivered in prior years are recorded in the period in which a change in our estimate occurs.

The changes in our self-insurance liability were as follows (in thousands):



	Six Months Ended May 31,						Three Months Ended May 31,
	2016			2015			2016			2015
Balance at beginning of period	$	82,175		$	86,574		$	81,461		$	82,747
Self-insurance expense (a)	8,422			7,225			4,406			4,790
Payments	(8,061		)	(13,663		)	(3,331		)	(7,401		)
Balance at end of period	$	82,536		$	80,136		$	82,536		$	80,136


(a)	These expenses are included in selling, general and administrative expenses and are largely offset by contributions from subcontractors participating in the wrap-up policy.

For most of our claims, there is no interaction between our warranty liability and self-insurance liability. Typically, if a matter is identified at its outset as either a warranty or self-insurance claim, it remains as such through its resolution. However, there can be instances of interaction between the liabilities, such as where individual homeowners in a community separately request warranty repairs to their homes to address a similar condition or issue and subsequently join together to initiate, or potentially initiate, a legal process with respect to that condition or issue and/or the repair work we have undertaken. In these instances, the claims and related repair work generally are initially covered by our warranty liability, and the costs associated with resolving the legal matter (including any additional repair work) are covered by our self-insurance liability.

The payments we make in connection with claims and related repair work, whether covered within our warranty liability and/or our self-insurance liability, may be recovered from our insurers to the extent such payments exceed the self-insured retentions or deductibles under our general liability insurance policies. Also, in certain instances, in the course of resolving a claim, we pay amounts in advance of and/or on behalf of a subcontractor(s) or their insurer(s) and believe we will be reimbursed for such payments. Estimates of all such amounts described above, if any, are recorded as receivables in our consolidated balance sheets when any such recovery is considered probable. Such receivables associated with our warranty and self-insurance matters totaled $20.9 million at May 31, 2016 and $21.6 million at November 30, 2015.

Performance Bonds and Letters of Credit. We are often required to provide to various municipalities and other government agencies performance bonds and/or letters of credit to secure the completion of our projects and/or in support of obligations to build community improvements such as roads, sewers, water systems and other utilities, and to support similar development activities by certain of our unconsolidated joint ventures. At May 31, 2016, we had $533.8 million of performance bonds and $35.0 million of letters of credit outstanding. At November 30, 2015, we had $565.4 million of performance bonds and $33.4 million of letters of credit outstanding. 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. 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 underlying performance obligations are completed. The expiration dates of some letters of credit issued in connection with community improvements coincide with the expected completion dates of the related projects or obligations. Most letters of credit, however, are issued with an initial term of one year and are typically extended on a year-to-year basis until the related performance obligations are completed.

Land Option Contracts and Other Similar Contracts. In the ordinary course of our business, we enter into land option contracts and other similar contracts to acquire rights to land for the construction of homes. At May 31, 2016, we had total cash deposits of $47.4 million to purchase land having an aggregate purchase price of $957.5 million. Our land option contracts and other similar contracts generally do not contain provisions requiring our specific performance.


15.	Legal Matters

Nevada Development Contract Litigation. KB HOME Nevada Inc., a wholly owned subsidiary of ours (“KB Nevada”), is a defendant in a case in the Eighth Judicial District Court in Clark County, Nevada entitled Las Vegas Development Associates, LLC, Essex Real Estate Partners, LLC, et al. v. KB HOME Nevada Inc. In 2007, Las Vegas Development Associates, LLC (“LVDA”) agreed to purchase from KB Nevada approximately 83 acres of land located near Las Vegas, Nevada. LVDA

subsequently assigned its rights to Essex Real Estate Partners, LLC (“Essex”). KB Nevada and Essex entered into a development agreement relating to certain major infrastructure improvements. LVDA’s and Essex’s complaint, initially filed in 2008, alleged that KB Nevada breached the development agreement, and also alleged that KB Nevada fraudulently induced them to enter into the purchase and development agreements. LVDA’s and Essex’s lenders subsequently filed related actions that were consolidated into the LVDA/Essex matter. The consolidated plaintiffs sought rescission of the agreements or, in the alternative, compensatory damages of $55 million plus unspecified punitive damages and other damages, and interest charges in excess of $41 million (“Claimed Damages”). KB Nevada has denied the allegations, and believes it has meritorious defenses to the consolidated plaintiffs’ claims. On March 15, 2013, the court entered orders denying the consolidated plaintiffs’ motions for summary judgment and granting the majority of KB Nevada’s motions for summary judgment, eliminating, among other of the consolidated plaintiffs’ claims, those for fraud, negligent misrepresentation, and punitive damages. With the court’s decisions, the only remaining claims against KB Nevada are for contract damages and rescission. In August 2013, the court granted motions that further narrowed the scope of the Claimed Damages. The consolidated plaintiffs filed an appeal from the court’s summary judgment decisions with the Nevada Supreme Court and that court heard oral argument on June 6, 2016. The Nevada Supreme Court can rule on the matters at any time, but we anticipate a decision within 90 days of June 6, 2016. The Eighth Judicial District Court scheduled a new trial date of February 28, 2017 for all remaining claims. While the ultimate outcome is uncertain — we believe it is reasonably possible that the loss in this matter could exceed the amount accrued by a range of zero to approximately $55 million plus prejudgment interest, which could be material to our consolidated financial statements — KB Nevada believes it will be successful in defending against the consolidated plaintiffs’ remaining claims and that the consolidated plaintiffs will not be awarded rescission or damages.

Wage and Hour Litigation. In May 2011, a group of current and former sales representatives filed a collective action lawsuit in the United States District Court for the Southern District of Texas, Galveston Division entitled Edwards, K. v. KB Home. The lawsuit alleged that we misclassified sales representatives and failed to pay minimum and overtime wages in violation of the Fair Labor Standards Act (29 U.S.C. §§ 206-07). In September 2012, the Edwards court conditionally certified a nationwide class, and in May 2015, scheduled an initial trial involving a portion of the plaintiffs for December 2015. In September 2013, some of the plaintiffs in the Edwards case filed a lawsuit in Los Angeles Superior Court entitled Andrea L. Bejenaru, et al. v. KB Home, et al. The lawsuit alleged violations of California laws relating to overtime, meal period and rest break pay, itemized wage statements, waiting time penalties and unfair business practices for a class of sales representatives. Although the case involved a putative class of individuals who were our sales representatives from September 2009 forward, the Bejenaru case was not certified as a class action. In the second quarter of 2015, plaintiff representatives in the Edwards and the Bejenaru cases claimed $66 million in compensatory damages, penalties and interest, as well as injunctive relief, attorneys’ fees and costs for both matters. On November 18, 2015, we reached a tentative mediated settlement with the plaintiff representatives in both cases that was subject to judicial approval. Under the terms of the tentative settlement, we agreed to pay $7.5 million to a settlement administrator for distribution to individual settling plaintiffs, subject to obtaining releases from, and a specified threshold of participation by, such individuals. On May 2, 2016, after further negotiations to resolve important details related to the claims submission process for individual settling plaintiffs, we reached final settlement terms with the plaintiff representatives. The final settlement terms did not change the settlement amount, which is intended to be inclusive of all payments to settling plaintiffs and all related fees and costs, or the required threshold participation level. On May 19, 2016, the Edwards court approved the final settlement terms with respect to the Edwards case and, with the Bejenaru court’s consent, preliminarily approved the final settlement terms with respect to the Bejenaru case. Based on the court’s decision, we expect to receive its final approval with respect to the Bejenaru case in September of this year. In 2015, we established an accrual for these cases in the amount of $7.5 million, which we maintained at May 31, 2016.

San Diego Water Board Notice of Violation. In August 2015, the California Regional Water Quality Control Board, San Diego Region (“RWQCB”) issued to us and another homebuilder a Notice of Violation (“NOV”) alleging violations of the California Water Code and waste discharge prohibitions of the water quality control plan for the San Diego Region (Basin Plan). According to the NOV, the alleged violations involved the unpermitted discharge of fill material into the waters of the United States and California during the grading of a required secondary access road for a community located in San Diego County, California, which was performed pursuant to a County-issued grading permit. In its NOV, the RWQCB requested to meet with us to discuss the alleged violations as part of its process to determine whether to bring any enforcement action, and we have met with the RWQCB in an effort to resolve the matters alleged in the NOV. An administrative hearing before the RWQCB is presently scheduled for August 10, 2016. While the ultimate outcome is uncertain, we believe that any penalties and related corrective measures the RWQCB may impose under the NOV could exceed $100,000 (the threshold for the required disclosure of this type of environmental proceeding) but they are not expected to be material to our consolidated financial statements.

Other Matters. In addition to the specific proceedings described above, we are involved in other litigation and regulatory proceedings incidental to our business that are in various procedural stages. We believe that the accruals we have recorded for probable and reasonably estimable losses with respect to these proceedings are adequate and that, as of May 31, 2016, it was not reasonably possible that an additional material loss had been incurred in an amount in excess of the estimated amounts

already recognized in our consolidated financial statements. We evaluate our accruals for litigation and regulatory proceedings at least quarterly and, as appropriate, adjust them to reflect (a) the facts and circumstances known to us at the time, including information regarding negotiations, settlements, rulings and other relevant events and developments; (b) the advice and analyses of counsel; and (c) the assumptions and judgment of management. Similar factors and considerations are used in establishing new accruals for proceedings as to which losses have become probable and reasonably estimable at the time an evaluation is made. Based on our experience, we believe that the amounts that may be claimed or alleged against us in these proceedings are not a meaningful indicator of our potential liability. The outcome of any of these proceedings, including the defense and other litigation-related costs and expenses we may incur, however, is inherently uncertain and could differ significantly from the estimate reflected in a related accrual, if made. Therefore, it is possible that the ultimate outcome of any proceeding, if in excess of a related accrual or if no accrual had been made, could be material to our consolidated financial statements.


16.	Stockholders’ Equity

A summary of changes in stockholders’ equity is presented below (in thousands):



	Six Months Ended May 31, 2016
	Common Stock		Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Grantor Stock Ownership Trust			Treasury Stock			Total Stockholders’ Equity
Balance at November 30, 2015	$	115,548	$	682,871		$	1,466,713		$	(17,319	)	$	(109,936	)	$	(447,043	)	$	1,690,834
Net income	—		—			28,724			—			—			—			28,724
Dividends on common stock	—		—			(4,364		)	—			—			—			(4,364		)
Performance share-based stock issuance	124		(4,189		)	—			—			4,065			—			—
Stock-based compensation	—		7,506			—			—			—			—			7,506
Stock repurchases	—		—			—			—			—			(87,531		)	(87,531		)
Balance at May 31, 2016	$	115,672	$	686,188		$	1,491,073		$	(17,319	)	$	(105,871	)	$	(534,574	)	$	1,635,169

We maintain an account with our transfer agent to reserve the maximum number of shares of our common stock potentially deliverable upon conversion to holders of the 1.375% Convertible Senior Notes due 2019 based on the terms of their governing instruments. Accordingly, the common stock reserve account had a balance of 12,602,735 shares at May 31, 2016. The maximum number of shares would potentially be deliverable to holders only in certain limited circumstances as set forth in the governing instruments.

On February 12, 2016, the management development and compensation committee of our board of directors approved the payout of PSUs that were granted to certain employees on November 8, 2012 (“2012 PSUs”). The approved total payout of 374,630 shares of our common stock to the 2012 PSU recipients under the terms of these performance share awards was based on our achieving certain levels of average return on equity performance and revenue growth performance relative to a peer group of high-production public homebuilding companies over the three-year period commencing on December 1, 2012 and ending on November 30, 2015.

On January 12, 2016, our board of directors authorized us to repurchase a total of up to 10,000,000 shares of our outstanding common stock. This authorization reaffirmed and incorporated the then-current balance of 4,000,000 shares that remained under a prior board-approved share repurchase program. The amount and timing of shares purchased under this 10,000,000 share repurchase program are subject to market and business conditions and other factors, and purchases may be made from time to time and at any time through open market or privately negotiated transactions. This share repurchase authorization will continue in effect until fully used or earlier terminated or suspended by the board of directors. As of May 31, 2016, we had repurchased 8,373,000 shares of our common stock pursuant to this authorization, at a total cost of $85.9 million. During the three months ended May 31, 2016, no shares were repurchased pursuant to this authorization.

During the six months ended May 31, 2016, we also repurchased 155,789, or $1.6 million, of previously issued shares delivered to us by employees to satisfy withholding taxes on the vesting of restricted stock awards as well as shares forfeited by individuals upon their termination of employment. These transactions were not considered repurchases under the above-described board of directors authorization.

During the three months ended May 31, 2016 and May 31, 2015, our board of directors declared, and we paid, a quarterly cash dividend of $.025 per share of common stock. Quarterly cash dividends declared and paid during the six months ended May 31, 2016 and 2015 totaled $.050 per share of common stock.


17.	Stock-Based Compensation

Stock Options. We estimate the grant-date fair value of stock options using the Black-Scholes option-pricing model. The following table summarizes stock option transactions for the six months ended May 31, 2016:



	Options		Weighted Average Exercise Price
Options outstanding at beginning of period	12,635,644		$	19.39
Granted	—		—
Exercised	—		—
Cancelled	(533	)	45.68
Options outstanding at end of period	12,635,111		$	19.39
Options exercisable at end of period	10,389,189		$	20.35

As of May 31, 2016, the weighted average remaining contractual life of stock options outstanding and stock options exercisable was 4.3 years and 3.3 years, respectively. There was $3.0 million of total unrecognized compensation expense related to unvested stock option awards as of May 31, 2016. For the three months ended May 31, 2016 and May 31, 2015, stock-based compensation expense associated with stock options totaled $1.1 million and $.9 million, respectively. For each of the six- month periods ended May 31, 2016 and 2015, stock-based compensation expense associated with stock options totaled $2.0 million. The aggregate intrinsic value of both stock options outstanding and stock options exercisable was $15.9 million at May 31, 2016. (The intrinsic value of a stock option is the amount by which the market value of a share of the underlying common stock exceeds the exercise price of the stock option.)

Other Stock-Based Awards. From time to time, we grant restricted stock and PSUs to various employees as a compensation benefit. We recognized total compensation expense of $3.5 million for the three months ended May 31, 2016 and $3.3 million for the three months ended May 31, 2015 related to restricted stock and PSUs. We recognized total compensation expense of $5.5 million for the six months ended May 31, 2016 and $5.4 million for the six months ended May 31, 2015 related to restricted stock and PSUs.

Approval of the Amended KB Home 2014 Equity Incentive Plan. At our Annual Meeting of Stockholders held on April 7, 2016, our stockholders approved the Amended KB Home 2014 Equity Incentive Plan, authorizing, among other things, the issuance for grants of stock-based awards to our employees, non-employee directors and consultants of up to 7,500,000 additional shares above the original 4,800,000 shares our stockholders approved under the KB Home 2014 Equity Incentive Plan (or an aggregate issuance of up to 12,300,000 shares), plus any shares that were available for grant as of April 7, 2014 under our 2010 Equity Incentive Plan (“2010 Plan”), and any shares subject to then-outstanding awards under the 2010 Plan that subsequently expire or are canceled, forfeited, tendered or withheld to satisfy tax withholding obligations with respect to full value awards, or settled for cash.


18.	Supplemental Disclosure to Consolidated Statements of Cash Flows

The following are supplemental disclosures to the consolidated statements of cash flows (in thousands):



	Six Months Ended May 31,
	2016		2015
Summary of cash and cash equivalents at end of period:
Homebuilding	$	274,849	$	439,920
Financial services	1,700		2,168
Total	$	276,549	$	442,088



	Six Months Ended May 31,
	2016			2015
Supplemental disclosures of cash flow information:
Interest paid, net of amounts capitalized	$	2,729		$	10,043
Income taxes paid	2,635			1,887

Supplemental disclosures of noncash activities:
Reclassification of warranty recoveries to receivables	$	2,151		$	7,034
Increase (decrease) in consolidated inventories not owned	(32,324		)	45,613
Increase in inventories due to distributions of land and land development from an unconsolidated joint venture	4,875			13,992
Inventories acquired through seller financing	32,436			—


19.	Supplemental Guarantor Information

Our obligations to pay principal, premium, if any, and interest on the senior notes and borrowings, if any, under the Credit Facility are guaranteed on a joint and several basis by certain of our subsidiaries (“Guarantor Subsidiaries”). The guarantees are full and unconditional and the Guarantor Subsidiaries are 100% owned by us. Pursuant to the terms of the indenture governing the senior notes and the terms of the Credit Facility, if any of the Guarantor Subsidiaries ceases to be a “significant subsidiary” as defined by Rule 1-02 of Regulation S-X (as in effect on June 1, 1996) using a 5% rather than a 10% threshold (provided that the assets of our non-guarantor subsidiaries do not in the aggregate exceed 10% of an adjusted measure of our consolidated total assets), it will be automatically and unconditionally released and discharged from its guaranty of the senior notes and the Credit Facility so long as all guarantees by such Guarantor Subsidiary of any other of our or our subsidiaries’ indebtedness are terminated at or prior to the time of such release. We have 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.

The supplemental financial information for all periods presented below reflects the relevant subsidiaries that were Guarantor Subsidiaries as of May 31, 2016.

Condensed Consolidating Statements of Operations (in thousands)



	Six Months Ended May 31, 2016
	KB Home Corporate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Revenues	$	—		$	1,305,625		$	183,796		$	—		$	1,489,421
Homebuilding:
Revenues	$	—		$	1,305,625		$	178,579		$	—		$	1,484,204
Construction and land costs	—			(1,092,291		)	(165,241		)	—			(1,257,532		)
Selling, general and administrative expenses	(43,316		)	(116,342		)	(22,084		)	—			(181,742		)
Operating income (loss)	(43,316		)	96,992			(8,746		)	—			44,930
Interest income	240			42			4			—			286
Interest expense	(88,707		)	(3,802		)	—			86,842			(5,667		)
Intercompany interest	149,762			(56,149		)	(6,771		)	(86,842		)	—
Equity in loss of unconsolidated joint ventures	—			(1,425		)	(3		)	—			(1,428		)
Homebuilding pretax income (loss)	17,979			35,658			(15,516		)	—			38,121
Financial services pretax income	—			—			2,703			—			2,703
Total pretax income (loss)	17,979			35,658			(12,813		)	—			40,824
Income tax benefit (expense)	(2,100		)	(11,700		)	1,700			—			(12,100		)
Equity in net income of subsidiaries	12,845			—			—			(12,845		)	—
Net income (loss)	$	28,724		$	23,958		$	(11,113	)	$	(12,845	)	$	28,724



	Six Months Ended May 31, 2015
	KB Home Corporate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Revenues	$	—		$	1,052,324		$	150,766		$	—		$	1,203,090
Homebuilding:
Revenues	$	—		$	1,052,324		$	146,368		$	—		$	1,198,692
Construction and land costs	—			(882,949		)	(133,879		)	—			(1,016,828		)
Selling, general and administrative expenses	(35,346		)	(94,290		)	(19,968		)	—			(149,604		)
Operating income (loss)	(35,346		)	75,085			(7,479		)	—			32,260
Interest income	251			4			—			—			255
Interest expense	(91,253		)	(2,949		)	—			80,746			(13,456		)
Intercompany interest	144,184			(55,025		)	(8,413		)	(80,746		)	—
Equity in loss of unconsolidated joint ventures	—			(756		)	(2		)	—			(758		)
Homebuilding pretax income (loss)	17,836			16,359			(15,894		)	—			18,301
Financial services pretax income	—			—			4,871			—			4,871
Total pretax income (loss)	17,836			16,359			(11,023		)	—			23,172
Income tax benefit (expense)	(3,400		)	(4,300		)	1,900			—			(5,800		)
Equity in net income of subsidiaries	2,936			—			—			(2,936		)	—
Net income (loss)	$	17,372		$	12,059		$	(9,123	)	$	(2,936	)	$	17,372



	Three Months Ended May 31, 2016
	KB Home Corporate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Revenues	$	—		$	704,282		$	106,768		$	—		$	811,050
Homebuilding:
Revenues	$	—		$	704,282		$	104,180		$	—		$	808,462
Construction and land costs	—			(590,425		)	(98,289		)	—			(688,714		)
Selling, general and administrative expenses	(18,976		)	(63,206		)	(11,628		)	—			(93,810		)
Operating income (loss)	(18,976		)	50,651			(5,737		)	—			25,938
Interest income	106			24			4			—			134
Interest expense	(44,337		)	(1,921		)	—			44,288			(1,970		)
Intercompany interest	75,719			(28,086		)	(3,345		)	(44,288		)	—
Equity in loss of unconsolidated joint ventures	—			(822		)	(3		)	—			(825		)
Homebuilding pretax income (loss)	12,512			19,846			(9,081		)	—			23,277
Financial services pretax income	—			—			1,520			—			1,520
Total pretax income (loss)	12,512			19,846			(7,561		)	—			24,797
Income tax benefit (expense)	(2,800		)	(8,100		)	1,700			—			(9,200		)
Equity in net income of subsidiaries	5,885			—			—			(5,885		)	—
Net income (loss)	$	15,597		$	11,746		$	(5,861	)	$	(5,885	)	$	15,597



	Three Months Ended May 31, 2015
	KB Home Corporate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Revenues	$	—		$	541,328		$	81,641		$	—		$	622,969
Homebuilding:
Revenues	$	—		$	541,328		$	79,476		$	—		$	620,804
Construction and land costs	—			(452,616		)	(71,794		)	—			(524,410		)
Selling, general and administrative expenses	(19,674		)	(48,665		)	(10,193		)	—			(78,532		)
Operating income (loss)	(19,674		)	40,047			(2,511		)	—			17,862
Interest income	150			1			1			—			152
Interest expense	(47,710		)	(1,489		)	—			41,081			(8,118		)
Intercompany interest	73,751			(28,388		)	(4,282		)	(41,081		)	—
Equity in loss of unconsolidated joint ventures	—			(409		)	(2		)	—			(411		)
Homebuilding pretax income (loss)	6,517			9,762			(6,794		)	—			9,485
Financial services pretax income	—			—			3,188			—			3,188
Total pretax income (loss)	6,517			9,762			(3,606		)	—			12,673
Income tax benefit (expense)	(1,200		)	(2,500		)	600			—			(3,100		)
Equity in net income of subsidiaries	4,256			—			—			(4,256		)	—
Net income (loss)	$	9,573		$	7,262		$	(3,006	)	$	(4,256	)	$	9,573

Condensed Consolidating Balance Sheets (in thousands)



	May 31, 2016
	KB Home Corporate		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating Adjustments			Total
Assets
Homebuilding:
Cash and cash equivalents	$	195,383	$	64,648	$	14,818	$	—		$	274,849
Restricted cash	3,517		—		—		—			3,517
Receivables	2,828		144,716		3,522		—			151,066
Inventories	—		3,206,733		318,356		—			3,525,089
Investments in unconsolidated joint ventures	—		62,714		2,499		—			65,213
Deferred tax assets, net	188,699		489,471		92,226		—			770,396
Other assets	98,396		11,566		2,828		—			112,790
	488,823		3,979,848		434,249		—			4,902,920
Financial services	—		—		12,923		—			12,923
Intercompany receivables	3,809,514		—		100,819		(3,910,333		)	—
Investments in subsidiaries	38,683		—		—		(38,683		)	—
Total assets	$	4,337,020	$	3,979,848	$	547,991	$	(3,949,016	)	$	4,915,843
Liabilities and stockholders’ equity
Homebuilding:
Accounts payable, accrued expenses and other liabilities	$	120,801	$	410,327	$	115,844	$	—		$	646,972
Notes payable	2,565,556		66,571		—		—			2,632,127
	2,686,357		476,898		115,844		—			3,279,099
Financial services	—		—		1,575		—			1,575
Intercompany payables	15,494		3,502,950		391,889		(3,910,333		)	—
Stockholders’ equity	1,635,169		—		38,683		(38,683		)	1,635,169
Total liabilities and stockholders’ equity	$	4,337,020	$	3,979,848	$	547,991	$	(3,949,016	)	$	4,915,843



	November 30, 2015
	KB Home Corporate		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating Adjustments			Total
Assets
Homebuilding:
Cash and cash equivalents	$	444,850	$	98,281	$	15,911	$	—		$	559,042
Restricted cash	9,344		—		—		—			9,344
Receivables	39		148,338		4,305		—			152,682
Inventories	—		2,979,617		334,130		—			3,313,747
Investments in unconsolidated joint ventures	—		69,057		2,501		—			71,558
Deferred tax assets, net	190,770		501,454		89,972		—			782,196
Other assets	97,590		11,783		3,401		—			112,774
	742,593		3,808,530		450,220		—			5,001,343
Financial services	—		—		14,028		—			14,028
Intercompany receivables	3,627,150		—		102,103		(3,729,253		)	—
Investments in subsidiaries	39,383		—		—		(39,383		)	—
Total assets	$	4,409,126	$	3,808,530	$	566,351	$	(3,768,636	)	$	5,015,371
Liabilities and stockholders’ equity
Homebuilding:
Accounts payable, accrued expenses and other liabilities	$	136,352	$	442,529	$	118,303	$	—		$	697,184
Notes payable	2,564,762		60,774		—		—			2,625,536
	2,701,114		503,303		118,303		—			3,322,720
Financial services	—		—		1,817		—			1,817
Intercompany payables	17,178		3,305,227		406,848		(3,729,253		)	—
Stockholders’ equity	1,690,834		—		39,383		(39,383		)	1,690,834
Total liabilities and stockholders’ equity	$	4,409,126	$	3,808,530	$	566,351	$	(3,768,636	)	$	5,015,371

Condensed Consolidating Statements of Cash Flows (in thousands)



	Six Months Ended May 31, 2016
	KB Home Corporate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Net cash provided by (used in) operating activities	$	6,508		$	(179,676	)	$	5,709		$	—		$	(167,459	)
Cash flows from investing activities:
Contributions to unconsolidated joint ventures	—			(750		)	—			—			(750		)
Purchases of property and equipment, net	(2,437		)	(331		)	(108		)	—			(2,876		)
Intercompany	(167,470		)	—			—			167,470			—
Net cash used in investing activities	(169,907		)	(1,081		)	(108		)	167,470			(3,626		)
Cash flows from financing activities:
Change in restricted cash	5,827			—			—			—			5,827
Payments on mortgages and land contracts due to land sellers and other loans	—			(26,639		)	—			—			(26,639		)
Payments of cash dividends	(4,364		)	—			—			—			(4,364		)
Stock repurchases	(87,531		)	—			—			—			(87,531		)
Intercompany	—			173,763			(6,293		)	(167,470		)	—
Net cash provided by (used in) financing activities	(86,068		)	147,124			(6,293		)	(167,470		)	(112,707		)
Net decrease in cash and cash equivalents	(249,467		)	(33,633		)	(692		)	—			(283,792		)
Cash and cash equivalents at beginning of period	444,850			98,281			17,210			—			560,341
Cash and cash equivalents at end of period	$	195,383		$	64,648		$	16,518		$	—		$	276,549



	Six Months Ended May 31, 2015
	KB Home Corporate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Net cash provided by (used in) operating activities	$	17,630		$	(119,782	)	$	(33,748	)	$	—		$	(135,900	)
Cash flows from investing activities:
Contributions to unconsolidated joint ventures	—			(13,244		)	—			—			(13,244		)
Purchases of property and equipment, net	(399		)	(1,135		)	(56		)	—			(1,590		)
Intercompany	(187,947		)	—			—			187,947			—
Net cash used in investing activities	(188,346		)	(14,379		)	(56		)	187,947			(14,834		)
Cash flows from financing activities:
Change in restricted cash	22			—			—			—			22
Proceeds from issuance of debt	250,000			—			—			—			250,000
Payment of debt issuance costs	(3,337		)	—			—			—			(3,337		)
Payments on mortgages and land contracts due to land sellers and other loans	—			(7,757		)	—			—			(7,757		)
Issuance of common stock under employee stock plans	25			—			—			—			25
Payments of cash dividends	(4,599		)	—			—			—			(4,599		)
Stock repurchases	(300		)	—			—			—			(300		)
Intercompany	—			160,114			27,833			(187,947		)	—
Net cash provided by financing activities	241,811			152,357			27,833			(187,947		)	234,054
Net increase (decrease) in cash and cash equivalents	71,095			18,196			(5,971		)	—			83,320
Cash and cash equivalents at beginning of period	303,280			37,112			18,376			—			358,768
Cash and cash equivalents at end of period	$	374,375		$	55,308		$	12,405		$	—		$	442,088


Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

OVERVIEW

Revenues are generated from our homebuilding and financial services operations. The following table presents a summary of our consolidated results of operations (dollars in thousands, except per share amounts):



	Six Months Ended May 31,								Three Months Ended May 31,
	2016			2015			Variance		2016			2015			Variance
Revenues:
Homebuilding	$	1,484,204		$	1,198,692		24	%	$	808,462		$	620,804		30	%
Financial services	5,217			4,398			19		2,588			2,165			20
Total revenues	$	1,489,421		$	1,203,090		24	%	$	811,050		$	622,969		30	%
Pretax income:
Homebuilding	$	38,121		$	18,301		108	%	$	23,277		$	9,485		145	%
Financial services	2,703			4,871			(45	)	1,520			3,188			(52	)
Total pretax income	40,824			23,172			76		24,797			12,673			96
Income tax expense	(12,100		)	(5,800		)	(109	)	(9,200		)	(3,100		)	(197	)
Net income	$	28,724		$	17,372		65	%	$	15,597		$	9,573		63	%
Basic earnings per share	$	.33		$	.19		74	%	$	.18		$	.10		80	%
Diluted earnings per share	$	.31		$	.18		72	%	$	.17		$	.10		70	%

We continued to see healthy housing supply and demand conditions in most of our served markets in the first half of 2016, supported by steady economic growth. With the favorable market environment and our solid operational execution in the 2016 second quarter, we significantly expanded both our revenues and earnings compared to the prior-year quarter. Within our homebuilding operations, housing revenues for the quarter grew 33% year over year to $807.4 million, as the number of homes we delivered increased 30% to 2,329 and the overall average selling price of those homes rose 2% to $346,700. Although our housing gross profit margin for the quarter decreased 50 basis points year over year to 15.5%, primarily due to inventory-related charges, our selling, general and administrative expense ratio improved 140 basis points to 11.6% of housing revenues, reflecting enhanced operating leverage from delivering more homes and generating corresponding higher revenues. Homebuilding operating income for the 2016 second quarter increased 45% to $25.9 million, despite total inventory-related charges of $11.7 million, of which $6.8 million related to the wind-down of our Metro Washington, D.C. operations, which is discussed further below. Inventory-related charges in the year-earlier quarter totaled $.5 million. For the three months ended May 31, 2016, we posted net income of $15.6 million, up 63% from the corresponding period of 2015, and diluted earnings per share of $.17, up 70% year over year.

During the six months ended May 31, 2016, we invested $702.6 million in land and land development to drive year-over-year community count growth in 2017 and beyond. In the corresponding period of 2015, such investments totaled $454.7 million. Approximately 51% of our total investment in the first half of 2016 related to land acquisition, compared to approximately 28% in the year-earlier period.

The following table presents information concerning our net orders, cancellation rate, ending backlog and community count for the three-month and six-month periods ended May 31, 2016 and 2015 (dollars in thousands):



	Six Months Ended May 31,						Three Months Ended May 31,
	2016			2015			2016			2015
Net orders	5,521			5,204			3,249			3,015
Net order value (a)	$	2,027,676		$	1,806,042		$	1,203,002		$	1,052,866
Cancellation rate (b)	24		%	24		%	21		%	22		%
Ending backlog — homes	5,205			4,733			5,205			4,733
Ending backlog — value	$	1,829,102		$	1,610,823		$	1,829,102		$	1,610,823
Ending community count	242			261			242			261
Average community count	243			241			242			248


(a)	Net order value represents the potential future housing revenues associated with net orders generated during a period as well as homebuyer selections of lot and product premiums and design studio options and upgrades for homes in backlog during the same period.


(b)	The cancellation rate represents the total number of contracts for new homes canceled during a period divided by the total (gross) orders for new homes generated during the same period.

Net Orders. For the three months ended May 31, 2016, net orders from our homebuilding operations rose 8% from the year-earlier period, despite a 2% decrease in our average community count. The combination of higher net orders and a higher overall average selling price resulted in the value of our 2016 second quarter net orders increasing 14% from the year-earlier quarter. For the three-month period ended May 31, 2016, our cancellation rate improved slightly compared to the corresponding period of 2015. For the six months ended May 31, 2016, net orders grew 6% and net order value increased 12% from the corresponding period of 2015, while the cancellation rate remained flat.

Backlog. The number of homes in our backlog at May 31, 2016 rose 10% from May 31, 2015, primarily reflecting the 22% higher backlog level we had at the beginning of the 2016 second quarter as compared to the year-earlier quarter and an 8% year-over-year increase in our second quarter net orders. The potential future housing revenues in our backlog at May 31, 2016 grew 14% from May 31, 2015 due to the larger number of homes in our backlog and the higher average selling price of those homes. The growth in our backlog value reflected substantial year-over-year increases in each of our four homebuilding reporting segments, ranging from 9% in our Southwest segment to 15% in our Southeast segment.

Community Count. We use the term “community count” to refer to the number of communities with at least five homes/lots left to sell at the end of a reporting period. Our ending and average community counts for the 2016 second quarter decreased 7% and 2%, respectively, each on a year-over-year basis. For the six months ended May 31, 2016, our average community count was relatively flat with the year-earlier period.

In the 2016 second quarter, we announced that we had begun a transition out of the Metro Washington, D.C. market that is expected to be completed over the next 12 months. We made the decision to wind down our operations in this market with a view toward reallocating our resources to markets where we believe we can generate stronger returns. Our operations in the Metro Washington, D.C. market consisted of communities in Maryland and Virginia, which are included in our Southeast homebuilding reporting segment, and represented 2% of our consolidated homebuilding revenues for the three months ended May 31, 2016. We plan to continue constructing and delivering homes in our three active communities remaining in this market, which represented 1% of our overall community count at May 31, 2016. We also have other land interests in this market that we intend to build out or sell.

HOMEBUILDING

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



	Six Months Ended May 31,						Three Months Ended May 31,
	2016			2015			2016			2015
Revenues:
Housing	$	1,480,054		$	1,129,762		$	807,408		$	604,921
Land	4,150			68,930			1,054			15,883
Total	1,484,204			1,198,692			808,462			620,804
Costs and expenses:
Construction and land costs
Housing	(1,247,131		)	(953,659		)	(682,303		)	(508,276		)
Land	(10,401		)	(63,169		)	(6,411		)	(16,134		)
Total	(1,257,532		)	(1,016,828		)	(688,714		)	(524,410		)
Selling, general and administrative expenses	(181,742		)	(149,604		)	(93,810		)	(78,532		)
Total	(1,439,274		)	(1,166,432		)	(782,524		)	(602,942		)
Operating income	$	44,930		$	32,260		$	25,938		$	17,862
Homes delivered	4,282			3,380			2,329			1,787
Average selling price	$	345,600		$	334,200		$	346,700		$	338,500
Housing gross profit margin as a percentage of housing revenues	15.7		%	15.6		%	15.5		%	16.0		%
Adjusted housing gross profit margin as a percentage of housing revenues	20.7		%	19.9		%	20.7		%	20.3		%
Selling, general and administrative expenses as a percentage of housing revenues	12.3		%	13.2		%	11.6		%	13.0		%
Operating income as a percentage of homebuilding revenues	3.0		%	2.7		%	3.2		%	2.9		%

For reporting purposes, we organize our homebuilding operations into four segments — West Coast, Southwest, Central and Southeast. As of May 31, 2016, our homebuilding reporting segments consisted of operations located in the following states: West Coast — California; Southwest — Arizona and Nevada; Central — Colorado and Texas; and Southeast — Florida, Maryland, North Carolina and Virginia. The following tables present homes delivered, net orders, cancellation rates as a percentage of gross orders, net order value, average community count and ending backlog (number of homes and value) by homebuilding reporting segment (dollars in thousands):



	Six Months Ended May 31,
	Homes Delivered		Net Orders		Cancellation Rates
Segment	2016	2015	2016	2015	2016		2015
West Coast	1,089	873	1,550	1,322	18	%	18	%
Southwest	742	516	900	921	19		18
Central	1,671	1,390	2,111	2,046	28		29
Southeast	780	601	960	915	26		24
Total	4,282	3,380	5,521	5,204	24	%	24	%



	Six Months Ended May 31,
	Net Order Value						Average Community Count
Segment	2016		2015		Variance		2016		2015			Variance
West Coast	$	910,493	$	756,311	20	%	59		51			16	%
Southwest	262,625		258,213		2		37		36			3
Central	581,457		535,424		9		91		94			(3	)
Southeast	273,101		256,094		7		56		60			(7	)
Total	$	2,027,676	$	1,806,042	12	%	243		241			1	%

	Three Months Ended May 31,
	Homes Delivered				Net Orders				Cancellation Rates
Segment	2016		2015		2016		2015		2016			2015
West Coast	581		459		995		770		14		%	18	%
Southwest	392		279		541		532		16			19
Central	906		737		1,210		1,176		26			27
Southeast	450		312		503		537		28			21
Total	2,329		1,787		3,249		3,015		21		%	22	%

	Net Order Value						Average Community Count
Segment	2016		2015		Variance		2016		2015			Variance
West Coast	$	572,882	$	438,754	31	%	61		53			15	%
Southwest	155,337		149,555		4		37		39			(5	)
Central	328,242		308,381		6		91		95			(4	)
Southeast	146,541		156,176		(6	)	53		61			(13	)
Total	$	1,203,002	$	1,052,866	14	%	242		248			(2	)%

	May 31,
	Backlog – Homes						Backlog – Value
Segment	2016		2015		Variance		2016		2015			Variance
West Coast	1,199		1,042		15	%	$	703,346	$	617,354		14	%
Southwest	763		729		5		218,047		200,697			9
Central	2,282		2,145		6		638,052		558,681			14
Southeast	961		817		18		269,657		234,091			15
Total	5,205		4,733		10	%	$	1,829,102	$	1,610,823		14	%

Revenues. Homebuilding revenues for the three months ended May 31, 2016 rose 30% from the year-earlier period to $808.5 million. The year-over-year growth reflected an increase in our housing revenues that was partly offset by a decrease in revenues from land sales.

Housing revenues increased 33% to $807.4 million for the quarter ended May 31, 2016 from $604.9 million for the corresponding quarter of 2015 due to increases in both the number of homes we delivered and the overall average selling price of those homes. We delivered 2,329 homes in the 2016 second quarter, up 30% from 1,787 homes in the year-earlier quarter, largely due to the 22% higher backlog level we had at the beginning of the 2016 second quarter as compared to the year-earlier quarter, and improved backlog conversion that mainly reflected improved performance by mortgage lenders and shorter construction cycle time. The backlog level at the beginning of the 2016 second quarter was higher in each of our homebuilding reporting segments as compared to the year-earlier quarter. In addition, the backlog conversion for the 2016 second quarter improved on a year-over-year basis in three of our four homebuilding reporting segments.

The overall average selling price of homes delivered rose 2% to $346,700 for the three months ended May 31, 2016 from $338,500 for the year-earlier period. The moderate growth in our average selling price, compared to the 5% year-over-year increase in the 2016 first quarter, was largely due to a shift in product and geographic mix, as a greater proportion of our homes delivered were from communities with relatively lower average selling prices.

Land sale revenues totaled $1.1 million for the three months ended May 31, 2016 and $15.9 million for the three months ended May 31, 2015. The higher land sale revenues in the 2015 second quarter primarily reflected the particular land sale opportunities that we executed on to monetize certain land positions. 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 developers and other land buyers in particular markets at given points in time, the availability of land at reasonable prices and prevailing market conditions.

For the six months ended May 31, 2016, our homebuilding revenues increased 24% from the year-earlier period to $1.48 billion. Housing revenues for the six months ended May 31, 2016 rose $350.3 million, or 31%, from the corresponding period of 2015 due to a 27% increase in the number of homes delivered and a 3% increase in the overall average selling price of those homes. We delivered 4,282 homes in the first half of 2016, compared to 3,380 homes in the year-earlier period. Our overall average selling price of homes delivered for the six months ended May 31 rose to $345,600 in 2016 from $334,200 in 2015 for the reasons described above with respect to the three months ended May 31, 2016.

Land sale revenues decreased to $4.2 million for the six months ended May 31, 2016 from $68.9 million for the six months ended May 31, 2015, primarily as a result of our sale of a large parcel in northern California during 2015.

Operating Income. Our homebuilding operating income increased 45% to $25.9 million for the three months ended May 31, 2016 from $17.9 million for the year-earlier period, despite inventory impairment and land option contract abandonment charges in the current period totaling $11.7 million, of which $6.8 million related to the wind-down of our Metro Washington, D.C. operations. Homebuilding operating income for the three months ended May 31, 2015 included $.5 million of land option contract abandonment charges. As a percentage of homebuilding revenues, our homebuilding operating income increased 30 basis points to 3.2% for the three months ended May 31, 2016 from 2.9% for the corresponding period of 2015. Excluding inventory-related charges, our homebuilding operating income margin for the three months ended May 31, 2016 rose 170 basis points from the year-earlier quarter to 4.7%.

For the six months ended May 31, 2016, our homebuilding operating income increased to $44.9 million from $32.3 million for the corresponding period of 2015. The first half of 2016 included inventory impairment and land option contract abandonment charges totaling $13.7 million, compared to $1.0 million of land option contract abandonment charges in the first half of 2015. As a percentage of homebuilding revenues, homebuilding operating income for the first half of 2016 improved 30 basis points to 3.0%, compared to 2.7% for the year-earlier period. Excluding inventory-related charges, our homebuilding operating income margin for the six months ended May 31, 2016 rose 120 basis points from the year-earlier quarter to 4.0%.

The year-over-year improvements in our homebuilding operating income for the three-month and six-month periods ended May 31, 2016 reflected increases in housing gross profits that were partly offset by increases in both selling, general and administrative expenses and land sale losses.

Housing gross profits increased to $125.1 million for the three months ended May 31, 2016 from $96.6 million for the year-earlier period. Our housing gross profits for the 2016 second quarter included $4.6 million of inventory impairment charges and $1.8 million of land option contract abandonment charges. In the 2015 second quarter, our housing gross profits included $.5 million of land option contract abandonment charges.

Our housing gross profit margin for the 2016 second quarter declined 50 basis points to 15.5% from 16.0% for the year-earlier quarter, primarily due to an increase in inventory impairment and land option contract abandonment charges (approximately 70 basis points), higher land, land development and construction costs (approximately 30 basis points), and an increase in the amortization of previously capitalized interest (approximately 20 basis points). The impact of these items was partly offset by improved operating leverage from the increased volume of homes delivered and corresponding revenues compared to the 2015 second quarter (approximately 60 basis points) and other factors (approximately 10 basis points). Sales incentives did not have a significant impact on our year-over-year housing gross profit margin comparison for the three months ended May 31, 2016.

Excluding the amortization of previously capitalized interest associated with housing operations of $35.6 million and $25.4 million in the three-month periods ended May 31, 2016 and 2015, respectively, and the above-mentioned inventory-related charges in the applicable periods, our adjusted housing gross profit margin improved 40 basis points to 20.7% in the current quarter from 20.3% in the year-earlier quarter. The calculation of adjusted housing gross profit margin, which we believe provides a clearer measure of the performance of our business, is described below under “Non-GAAP Financial Measures.”

Selling, general and administrative expenses for the 2016 second quarter rose to $93.8 million from $78.5 million for the year-earlier quarter, mainly due to higher variable expenses associated with the year-over-year increases in homes delivered and corresponding revenues. As a percentage of housing revenues, selling, general and administrative expenses improved 140 basis points to 11.6% for the three months ended May 31, 2016 from 13.0% for the year-earlier period, largely due to improved operating leverage on fixed costs from the increased volume of homes delivered and corresponding revenues.

Land sale losses totaled $5.4 million for the three months ended May 31, 2016 and $.3 million for the three months ended May 31, 2015. In the 2016 second quarter, land sale losses were comprised of inventory impairment charges associated with the planned future sales of two land parcels in the Metro Washington, D.C. market, reflecting our decision in the current quarter to wind down our operations in this market.

Our housing gross profits of $232.9 million for the six months ended May 31, 2016 increased $56.8 million, or 32.3%, from $176.1 million for the year-earlier period. Housing gross profits for the six months ended May 31, 2016 included $5.2 million of inventory impairment charges and $2.4 million of land option contract abandonment charges. Housing gross profits for the six months ended May 31, 2015 included $1.0 million of land option contract abandonment charges. Our housing gross profit margin of 15.7% for the first six months of 2016 increased 10 basis points from 15.6% for the year-earlier period, primarily reflecting the impact of improved operating leverage from the increased volume of homes delivered and corresponding revenues compared to the 2015 period that was largely offset by increases in both inventory-related charges and the amortization of previously capitalized interest. Sales incentives as a percentage of housing revenues in the first half of 2016 were roughly the same as in the year-earlier period. In the six months ended May 31, 2016, our adjusted housing gross profit margin improved 80 basis points to 20.7%, compared to 19.9% in the six months ended May 31, 2015.

Selling, general and administrative expenses increased $32.1 million, or 21%, to $181.7 million for the six months ended May 31, 2016 from $149.6 million for the corresponding period of 2015 for the reasons described above with respect to the three months ended May 31, 2016. As a percentage of housing revenues, selling, general and administrative expenses improved to 12.3% for the six months ended May 31, 2016 from 13.2% for the year-earlier period.

For the six months ended May 31, 2016, land sale losses totaled $6.3 million, reflecting the above-mentioned inventory impairment charges associated with our planned future land sales in the Metro Washington, D.C. market, and inventory impairment charges recorded in the first quarter related to the sales of our last remaining land parcels in the Rio Grande Valley area of Texas that closed in the second quarter. Our land sales for the six months ended May 31, 2015 generated profits of $5.8 million, primarily reflecting our sale of a large parcel in northern California during 2015.

The estimated remaining life of each community or land parcel in our inventory depends on various factors, such as the total number of lots remaining; the expected timeline to acquire and entitle land and develop lots to build homes; the anticipated future net order and cancellation rates; and the expected timeline to build and deliver homes sold. While it is difficult to determine a precise timeframe for any particular inventory asset, based on current market conditions and expected delivery timelines, we estimate our inventory assets’ remaining operating lives to range generally from one year to in excess of 10 years and expect to realize, on an overall basis, the majority of our current inventory balance within five years. The following table presents our inventory balance as of May 31, 2016 based on our current estimated timeframe for delivery of the last home within an applicable community or land parcel (in millions):



	0-2 years		3-5 years		6-10 years		Greater than 10 years		Total
Inventories	$	1,652.3	$	1,356.2	$	377.1	$	139.5	$	3,525.1

The inventory balances in the 0-2 years and 3-5 years categories were located in all of our homebuilding reporting segments, though mostly in our West Coast and Central segments, and collectively represented 85% of our total inventory balance at May 31, 2016. The inventory balance in the 6-10 years category was also located in all of our homebuilding reporting segments. The inventory balance in the greater than 10 years category was primarily located in our West Coast and Southwest homebuilding reporting segments. The inventory balances in the 6-10 years and greater than 10 years categories were mainly comprised of land held for future development.

Due to the judgment and assumptions applied in our inventory impairment and land option contract abandonment assessment processes, and in our estimations of the remaining operating lives of our inventory assets and the realization of our inventory balances, particularly as to land held for future development, it is possible that actual results could differ substantially from those estimated.

Deterioration in the supply and demand factors in the overall housing market or in an individual market or submarket, or changes to our operational or selling strategy at certain communities may lead to additional inventory impairment charges, future charges associated with land sales or the abandonment of land option contracts or other similar contracts related to certain assets. Due to the nature or location of the projects, land held for future development that we activate as part of our strategic growth initiatives or to accelerate sales and/or our return on investment may have a somewhat greater likelihood of being impaired than other of our active inventory.

We believe that the carrying value of our inventory balance as of May 31, 2016 is recoverable. Our considerations in making this determination include the factors and trends incorporated into our inventory impairment analyses, and as applicable, the prevailing regulatory environment, competition from other homebuilders, inventory levels and sales activity of resale homes, and the local economic conditions where an asset is located. In addition, we consider the financial and operational status and expectations of our inventories as well as specific attributes or circumstances of each community or land parcel in our inventory that could be indicators of potential impairments. However, if conditions in the overall housing market or in a specific market or submarket worsen in the future beyond our current expectations, if future changes in our marketing strategy significantly affect any key assumptions used in our projections of future cash flows, or if there are material changes in any of the other items we consider in assessing recoverability, we may recognize charges in future periods for inventory impairments or land option contract abandonments, or both, related to our current inventory assets. Any such charges could be material to our consolidated financial statements.

Interest Income. Interest income, which is generated from short-term investments, totaled $.1 million and $.2 million for the three months ended May 31, 2016 and 2015, respectively. For each of the six-month periods ended May 31, 2016 and 2015, our interest income totaled $.3 million. Generally, increases and decreases in interest income are attributable to changes in the interest-bearing average balances of short-term investments and fluctuations in interest rates.

Interest Expense. Interest expense results principally from our borrowings to finance land purchases, land development, home construction and other operating and capital needs. Our interest expense, net of amounts capitalized, decreased to $2.0 million for the three months ended May 31, 2016 from $8.1 million for the three months ended May 31, 2015, reflecting a decrease in interest incurred and an increase in the amount of interest capitalized due to a higher amount of inventory qualifying for interest capitalization in the current quarter. For the six months ended May 31, 2016, our interest expense, net of amounts capitalized, totaled $5.7 million, decreasing from $13.5 million in the year-earlier period. The percentage of interest capitalized generally fluctuates based on the amount of our inventory qualifying for interest capitalization.

During the three months and six months ended May 31, 2016 and 2015, the average amount of our inventory qualifying for interest capitalization was lower than our average debt level and, therefore, a portion of the interest we incurred was reflected as interest expense. The amount of inventory qualifying for interest capitalization during the three-month and six-month periods ended May 31, 2016 increased more than our debt level increased, each as compared to the year-earlier period, primarily as a result of our substantial investment in land and land development during 2015 and in the first half of 2016, as well as recently activated land previously held for future development. Accordingly, we expensed less interest in the three months and six months ended May 31, 2016 compared to the corresponding year-earlier periods.

Interest incurred decreased 6% to $46.3 million for the three months ended May 31, 2016 from $49.2 million for the year-earlier period due to the lower average debt outstanding in the current period as a result of the retirement of $199.9 million in aggregate principal amount of certain senior notes at their maturity on June 15, 2015. We capitalized $44.3 million and $41.1 million of the interest incurred in the three months ended May 31, 2016 and May 31, 2015, respectively. For the six months ended May 31, 2016, interest incurred declined 2% to $92.5 million from $94.2 million for the year-earlier period due to the lower average debt outstanding during the 2016 period. We capitalized $86.8 million and $80.7 million of the interest incurred in the six months ended May 31, 2016 and May 31, 2015, respectively.

Interest amortized to construction and land costs increased to $35.6 million for the three months ended May 31, 2016 from $25.4 million for the year-earlier period. For the six months ended May 31, 2016, interest amortized to construction and land costs rose to $66.2 million from $47.7 million for the year-earlier period. The year-over-year increase in interest amortized for each of the three-month and six-month periods ended May 31, 2016 reflected year-over-year increases in the number of homes delivered and higher construction and land costs attributable to those homes. Additionally, interest amortized in the first half of 2016 included $.5 million related to land sales that occurred during the period. As a percentage of housing revenues, the amortization of previously capitalized interest associated with housing operations was 4.4% for both the three-month and six-month periods ended May 31, 2016, and 4.2% for each of the corresponding year-earlier periods.

Equity in Loss of Unconsolidated Joint Ventures. Our equity in loss of unconsolidated joint ventures totaled $.8 million for the three months ended May 31, 2016 and $.4 million for the three months ended May 31, 2015. For the six months ended May 31, 2016, our equity in loss of unconsolidated joint ventures was $1.4 million, compared to $.8 million for the same period of 2015.

Further information regarding our investments in unconsolidated joint ventures is provided in Note 8 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report.

NON-GAAP FINANCIAL MEASURES

This report contains information about our adjusted housing gross profit margin and our ratio of net debt to capital, both of which are not calculated in accordance with GAAP. We believe these non-GAAP financial measures are relevant and useful to investors in understanding our operations and the leverage employed in our operations, and may be helpful in comparing us with other companies in the homebuilding industry to the extent they provide similar information. However, because the adjusted housing gross profit margin and the ratio of net debt to capital are not calculated in accordance with GAAP, these financial measures may not be completely comparable to other companies in the homebuilding industry and, therefore, should not be considered in isolation or as an alternative to operating performance and/or financial 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.

Adjusted Housing Gross Profit Margin. The following table reconciles our housing gross profit margin calculated in accordance with GAAP to the non-GAAP financial measure of our adjusted housing gross profit margin (dollars in thousands):



	Six Months Ended May 31,						Three Months Ended May 31,
	2016			2015			2016			2015
Housing revenues	$	1,480,054		$	1,129,762		$	807,408		$	604,921
Housing construction and land costs	(1,247,131		)	(953,659		)	(682,303		)	(508,276		)
Housing gross profits	232,923			176,103			125,105			96,645
Add: Amortization of previously capitalized interest (a)	65,757			47,736			35,551			25,443
Inventory-related charges (b)	7,563			984			6,384			536
Adjusted housing gross profits	$	306,243		$	224,823		$	167,040		$	122,624
Housing gross profit margin as a percentage of housing revenues	15.7		%	15.6		%	15.5		%	16.0		%
Adjusted housing gross profit margin as a percentage of housing revenues	20.7		%	19.9		%	20.7		%	20.3		%


(a)	Represents the amortization of previously capitalized interest associated with housing operations.


(b)	Represents inventory impairment and land option contract abandonment charges associated with housing operations.

Adjusted housing gross profit margin is a non-GAAP financial measure, which we calculate by dividing housing revenues less housing construction and land costs excluding (1) amortization of previously capitalized interest associated with housing operations and (2) housing inventory impairment and land option contract abandonment charges recorded during a given period, by housing revenues. The most directly comparable GAAP financial measure is housing gross profit margin. We believe adjusted housing gross profit margin is a relevant and useful financial measure to investors in evaluating our performance as it measures the gross profits we generated specifically on the homes delivered during a given period. This non-GAAP financial measure isolates the impact that the amortization of previously capitalized interest associated with housing operations, and housing inventory impairment and land option contract abandonment charges have on housing gross profit margins, and allows investors to make comparisons with our competitors that adjust housing gross profit margins in a similar manner. We also believe investors will find adjusted housing gross profit margin relevant and useful because it represents a profitability measure that may be compared to a prior period without regard to variability of amortization of previously capitalized interest associated with housing operations, and housing inventory impairment and land option contract abandonment charges. This financial measure assists us in making strategic decisions regarding community location and product mix, product pricing and construction pace.

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



	May 31, 2016			November 30, 2015
Notes payable	$	2,632,127		$	2,625,536
Stockholders’ equity	1,635,169			1,690,834
Total capital	$	4,267,296		$	4,316,370
Ratio of debt to capital	61.7		%	60.8		%

Notes payable	$	2,632,127		$	2,625,536
Less: Cash and cash equivalents and restricted cash	(278,366		)	(568,386		)
Net debt	2,353,761			2,057,150
Stockholders’ equity	1,635,169			1,690,834
Total capital	$	3,988,930		$	3,747,984
Ratio of net debt to capital	59.0		%	54.9		%

The ratio of net debt to capital is a non-GAAP financial measure, which we calculate by dividing notes payable, net of homebuilding cash and cash equivalents and restricted cash, by capital (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 capital is a relevant and useful financial measure to investors in understanding the degree of leverage employed in our operations.

HOMEBUILDING REPORTING SEGMENTS

West Coast. The following table presents financial information related to our West Coast homebuilding reporting segment for the periods indicated (dollars in thousands, except average selling price):



	Six Months Ended May 31,								Three Months Ended May 31,
	2016			2015			Variance		2016			2015			Variance
Revenues	$	615,119		$	554,543		11	%	$	331,273		$	277,288		19	%
Construction and land costs	(526,727		)	(472,464		)	(11	)	(287,930		)	(236,873		)	(22	)
Selling, general and administrative expenses	(44,133		)	(35,687		)	(24	)	(22,892		)	(18,194		)	(26	)
Operating income	44,259			46,392			(5	)	20,451			22,221			(8	)
Other expense, net	(2,524		)	(5,984		)	58		(832		)	(3,667		)	77
Pretax income	$	41,735		$	40,408		3	%	$	19,619		$	18,554		6	%


Homes delivered	1,089			873			25	%	581			459			27	%
Average selling price	$	564,800		$	565,500		—	%	$	570,200		$	579,000		(2	) %
Housing gross profit margin	14.4		%	15.5		%	(110	)bps	13.1		%	15.4		%	(230	)bps

This segment’s revenues for the three months and six months ended May 31, 2016 were generated solely from housing operations. For the three months and six months ended May 31, 2015, this segment’s revenues were generated from both housing operations and land sales. Housing revenues of $331.3 million for the 2016 second quarter grew 25% from $265.7 million for the year-earlier quarter due to an increase in the number of homes delivered, partly offset by a slight decrease in the average selling price of those homes that resulted from a shift in product and geographic mix. For the six months ended May 31, 2016, housing revenues rose 25% from $493.7 million for the corresponding period of 2015, reflecting an increase in the number of homes delivered. The year-over-year growth in the number of homes delivered for each of the three-month and six-month periods ended May 31, 2016 was primarily attributable to inland submarkets within our southern California operations. Our West Coast segment generated

land sale revenues of $11.5 million and $60.8 million for the three months and six months ended May 31, 2015, respectively, primarily reflecting our sale of a large parcel in northern California.

The year-over-year increase in this segment’s pretax income for the three months ended May 31, 2016 reflected higher housing gross profits and a decrease in other expense, net that were largely offset by higher selling, general and administrative expenses. Housing gross profits increased as a result of the higher volume of homes delivered, partly offset by a decrease in the housing gross profit margin. The year-over-year decline in the housing gross profit margin was mainly due to inventory impairment and land option contract abandonment charges, higher land and construction costs and a shift in product and geographic mix. These impacts were partly offset by improved operating leverage from the increased volume of homes delivered and corresponding revenues, and favorable warranty adjustments. Inventory-related charges impacting the 2016 second quarter housing gross profit margin totaled $4.8 million and primarily related to one community that was previously held for future development where we decided to accelerate the overall timing for selling, building and delivering homes in the community. This segment had no inventory-related charges in the year-earlier quarter. Sales incentives as a percentage of housing revenues in the 2016 second quarter did not have a significant impact on the year-over-year housing gross profit margin comparison. Selling, general and administrative expenses for the three months ended May 31, 2016 increased from the year-earlier quarter, primarily due to higher variable expenses associated with the increased volume of homes delivered and corresponding revenues. Other expense, net for the three months ended May 31, 2016 decreased from the corresponding period of 2015, reflecting lower interest expense as a result of an increase in the amount of interest capitalized.

For the six months ended May 31, 2016, this segment’s pretax income increased from the year-earlier period, reflecting higher housing gross profits and a decrease in other expense, net that were mostly offset by the absence of land sale profits in the current period and higher selling, general and administrative expenses. The increase in housing gross profits reflected the impact of the higher volume of homes delivered, partly offset by a decline in the housing gross profit margin. The housing gross profit margin declined on a year-over-year basis for the reasons described above with respect to the three-month period. Inventory-related charges impacting the housing gross profit margin for the six months ended May 31, 2016 totaled $5.0 million. This segment had no inventory-related charges for the six months ended May 31, 2015. Selling, general and administrative expenses for the first half of 2016 rose from the year-earlier period, primarily due to the reason described above with respect to the three months ended May 31, 2016. Other expense, net for the six months ended May 31, 2016 decreased from the corresponding period of 2015, reflecting lower interest expense as a result of an increase in the amount of interest capitalized.

Southwest. The following table presents financial information related to our Southwest homebuilding reporting segment for the periods indicated (dollars in thousands, except average selling price):



	Six Months Ended May 31,								Three Months Ended May 31,
	2016			2015			Variance		2016			2015			Variance
Revenues	$	212,003		$	145,318		46	%	$	111,671		$	80,181		39	%
Construction and land costs	(172,751		)	(119,997		)	(44	)	(91,446		)	(66,211		)	(38	)
Selling, general and administrative expenses	(15,291		)	(13,273		)	(15	)	(9,581		)	(6,830		)	(40	)
Operating income	23,961			12,048			99		10,644			7,140			49
Other expense, net	(1,324		)	(3,360		)	61		(510		)	(1,895		)	73
Pretax income	$	22,637		$	8,688		161	%	$	10,134		$	5,245		93	%

Homes delivered	742			516			44	%	392			279			41	%
Average selling price	$	285,700		$	275,400		4	%	$	284,900		$	275,800		3	%
Housing gross profit margin	18.5		%	17.7		%	80	bps	18.1		%	18.0		%	10	bps

This segment’s revenues for the three months and six months ended May 31, 2016 were generated solely from housing operations. For the three months and six months ended May 31, 2015, total revenues were generated from both housing and land sale revenues. Housing revenues for the 2016 second quarter rose 45% from $77.0 million for the year-earlier quarter. For the six months ended May 31, 2016, housing revenues grew 49% from $142.1 million for the corresponding period of 2015. The substantial year-over-year growth in the number of homes delivered for the three months and six months ended May 31, 2016 reflected increases from both our Arizona and Nevada operations. The average selling price of homes delivered for the three months and six months ended May 31, 2016 increased from the corresponding year-earlier periods, primarily due to a shift in product mix and generally rising home prices. This segment generated land sale revenues of $3.2 million for the three months and six months ended May 31, 2015.

This segment’s pretax income for the three months ended May 31, 2016 increased from the corresponding period of 2015, mainly due to higher housing gross profits and a decrease in other expense, net that were partly offset by higher selling, general and administrative expenses. Housing gross profits increased as a result of the higher volume of homes delivered and a slight improvement in the housing gross profit margin. The housing gross profit margin increased from the year-earlier quarter, mainly due to improved operating leverage from the increased volume of homes delivered and corresponding revenues, and favorable warranty adjustments. Selling, general and administrative expenses rose from the 2015 second quarter, primarily due to higher variable expenses associated with the increased volume of homes delivered and corresponding revenues. Other expense, net in the 2016 second quarter decreased from the year-earlier quarter due to lower interest expense as a result of an increase in the amount of interest capitalized.

For the six months ended May 31, 2016, the year-over-year increase in this segment’s pretax income reflected an increase in housing gross profits and a decrease in other expense, net. Housing gross profits rose as a result of the higher volume of homes delivered and improvement in the housing gross profit margin. The housing gross profit margin increased on a year-over-year basis mainly due to the reasons described above with respect to the three-month period and a decrease in sales incentives as a percentage of housing revenues. Selling, general and administrative expenses increased from the 2015 first half, primarily due to the factors mentioned above for the three-month period, partly offset by a favorable legal settlement in the 2016 first half. Other expense, net in the 2016 first half decreased from the corresponding period of 2015 due to lower interest expense as a result of an increase in the amount of interest capitalized.

Central. The following table presents financial information related to our Central homebuilding reporting segment for the periods indicated (dollars in thousands, except average selling price):



	Six Months Ended May 31,								Three Months Ended May 31,
	2016			2015			Variance		2016			2015			Variance
Revenues	$	442,393		$	335,496		32	%	$	240,232		$	176,348		36	%
Construction and land costs	(359,633		)	(274,541		)	(31	)	(192,478		)	(143,125		)	(34	)
Selling, general and administrative expenses	(48,959		)	(37,208		)	(32	)	(24,857		)	(19,690		)	(26	)
Operating income	33,801			23,747			42		22,897			13,533			69
Other income (expense), net	113			(396		)	(a)		438			(408		)	(a)
Pretax income	$	33,914		$	23,351		45	%	$	23,335		$	13,125		78	%

Homes delivered	1,671			1,390			20	%	906			737			23	%
Average selling price	$	262,300		$	237,900		10	%	$	264,000		$	237,800		11	%
Housing gross profit margin	19.1		%	18.4		%	70	bps	20.0		%	19.0		%	100	bps


(a)	Percentage not meaningful.

This segment’s revenues for the three months and six months ended May 31, 2016 and 2015 were generated from both housing operations and land sales. Housing revenues for the 2016 second quarter increased 36% to $239.2 million from $175.2 million for the year-earlier quarter, reflecting increases in both the number of homes delivered and the average selling price of those homes. For the six months ended May 31, 2016, housing revenues of $438.2 million increased 33% from $330.6 million for the same period of 2015. The year-over-year growth in the number of homes delivered in the 2016 periods reflected increases from both our Texas and Colorado operations. The average selling price for the three months and six months ended May 31, 2016 rose from the corresponding periods of 2015, primarily due to a greater proportion of homes delivered from higher-priced communities, a shift in product mix and generally rising home prices. This segment generated land sale revenues of $1.1 million in each of the three-month periods ended May 31, 2016 and 2015. Land sale revenues for the six months ended May 31, 2016 and 2015 totaled $4.2 million and $4.9 million, respectively.

Pretax income for the three months ended May 31, 2016 increased $10.2 million from the year-earlier period, mainly due to growth in housing gross profits that was partly offset by higher selling, general and administrative expenses. Housing gross profits expanded as a result of the increased volume of homes delivered and improvement in the housing gross profit margin. The housing gross profit margin increased 100 basis points from the year-earlier quarter to 20.0%, largely due to improved operating leverage and lower overall land, land development and construction costs. Selling, general and administrative expenses for the 2016 second quarter rose from the corresponding period of 2015, mainly due to higher variable expenses associated with the increased volume of homes delivered and corresponding housing revenues, partly offset by lower overhead costs as a result of our cost containment efforts.

This segment’s pretax income for the six months ended May 31, 2016 increased $10.6 million from the corresponding period of 2015, primarily due to growth in housing gross profits that was partly offset by an increase in selling, general and administrative expenses and land sale losses in the current period. The year-over-year growth in housing gross profits reflected the increased volume of homes delivered and improvement in our housing gross profit margin. The housing gross profit margin for the six months ended May 31, 2016 improved on a year-over-year basis for the reasons described above with respect to the three-month period, partly offset by unfavorable warranty adjustments and $.5 million of land option contract abandonments in the current period. Land sale losses totaled $.9 million in the first half of 2016, which included an inventory impairment charge of approximately $.8 million related to the sales of our last remaining land parcels in the Rio Grande Valley area of Texas. Selling, general and administrative expenses for the first six months of 2016 rose from the corresponding period of 2015, mainly due to higher variable expenses associated with the increased volume of homes delivered and corresponding housing revenues, and an increase to a legal accrual, partly offset by lower overhead costs as a result of our cost containment efforts.

Southeast. The following table presents financial information related to our Southeast homebuilding reporting segment for the periods indicated (dollars in thousands, except average selling price):



	Six Months Ended May 31,								Three Months Ended May 31,
	2016			2015			Variance		2016			2015			Variance
Revenues	$	214,689		$	163,335		31	%	$	125,286		$	86,987		44	%
Construction and land costs	(195,306		)	(147,040		)	(33	)	(115,410		)	(76,914		)	(50	)
Selling, general and administrative expenses	(30,221		)	(28,038		)	(8	)	(14,601		)	(14,117		)	(3	)
Operating loss	(10,838		)	(11,743		)	8		(4,725		)	(4,044		)	(17	)
Other expense, net	(3,316		)	(4,471		)	26		(1,865		)	(2,557		)	27
Pretax loss	$	(14,154	)	$	(16,214	)	13	%	$	(6,590	)	$	(6,601	)	—	%


Homes delivered	780			601			30	%	450			312			44	%
Average selling price	$	275,200		$	271,800		1	%	$	278,400		$	278,800		—	%
Housing gross profit margin	11.5		%	10.0		%	150	bps	12.2		%	11.6		%	60	bps

This segment’s revenues for the three months and six months ended May 31, 2016 and 2015 were generated solely from housing operations. Housing revenues for the 2016 second quarter and first half increased from the corresponding year-earlier periods due to increases in the number of homes delivered, as the average selling prices in both periods were essentially flat year over year. The growth in the number of homes delivered for the three months and six months ended May 31, 2016, compared to the corresponding year-earlier periods, was mainly from our Florida operations.

For the three months ended May 31, 2016, this segment’s pretax results were flat with the year-earlier period as an increase in housing gross profits and a decrease in other expense, net were offset by land sale losses and an increase in selling, general and administrative expenses. Housing gross profits increased due to a higher number of homes delivered and an improved housing gross profit margin. This segment’s housing gross profit margin increased on a year-over-year basis, primarily due to improved operating leverage from the increased volume of homes delivered and corresponding revenues, and lower overall land, land development and construction costs, partly offset by $1.4 million of land option contract abandonment charges related to the wind-down of our Metro Washington, D.C. operations, as described further in Note 6 – Inventory Impairments and Land Option Contract Abandonments in the Notes to Consolidated Financial Statements in this report. The year-earlier quarter included an increase in our estimate of minimum probable recoveries attributable to water intrusion-related issues that were substantially resolved as of November 30, 2015, partly offset by land option contract abandonment charges. Sales incentives as a percentage of housing revenues in the 2016 second quarter did not have a significant impact on the year-over-year housing gross profit margin comparison. Land sale losses of $5.4 million for the three months ended May 31, 2016 reflected inventory impairment charges associated with the planned future sales of two land parcels in the Metro Washington, D.C. area in connection with the wind-down of our operations in this market. Selling, general and administrative expenses rose in the 2016 second quarter from the year-earlier period, primarily due to increased variable expenses associated with the increased volume of homes delivered and corresponding revenues, partly offset by lower overhead costs as a result of our cost containment efforts. Selling, general and administrative expenses in the 2015 second quarter included an increase in the accrual for the estimated minimum probable loss with respect to the Florida Attorney General’s Office inquiry, which was resolved in 2016. Other expense, net for the three months ended May 31, 2016 decreased from the corresponding period of 2015 due to lower interest expense as a result of an increase in the amount of interest capitalized.

For the six months ended May 31, 2016, this segment’s pretax results improved $2.1 million, reflecting an increase in housing gross profits and a decrease in other expense, net that were partially offset by land sale losses and an increase in selling, general and administrative expenses. The growth in this segment’s housing gross profits was due to the increase in the number of homes delivered and an improvement in the housing gross profit margin. The housing gross profit margin increased on a year-over-year basis primarily due to improved operating leverage from the increased volume of homes delivered and corresponding revenues, and lower land, land development and construction costs, partly offset by $2.0 million of inventory-related charges, and unfavorable warranty adjustments. The year-earlier period included $1.0 million of land option contract abandonment charges as well as unfavorable warranty adjustments, partly offset by an increase in our estimate of minimum probable recoveries for water intrusion-related issues. Selling, general and administrative expenses increased in the 2016 first half from the corresponding year-earlier period, mainly for the reasons described above for the three-month period. In the 2015 first half, this segment’s selling, general and administrative expenses included an increase in the accrual for a Florida legal inquiry that was resolved in February 2016, as discussed in Note 14 – Commitments and Contingencies in the Notes to Consolidated Financial Statements in this report. Other expense, net for the six months ended May 31, 2016 decreased from the corresponding period of 2015 due to lower interest expense as a result of an increase in the amount of interest capitalized.

FINANCIAL SERVICES REPORTING SEGMENT

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



	Six Months Ended May 31,						Three Months Ended May 31,
	2016			2015			2016			2015
Revenues	$	5,217		$	4,398		$	2,588		$	2,165
Expenses	(1,730		)	(1,892		)	(871		)	(928		)
Equity in income (loss) of unconsolidated joint ventures	(784		)	2,365			(197		)	1,951
Pretax income	$	2,703		$	4,871		$	1,520		$	3,188

Total originations (a):
Loans	1,882			1,930			1,004			1,035
Principal	$	473,023		$	471,275		$	255,633		$	255,214
Percentage of homebuyers using HCM	48		%	65		%	47		%	66		%
Average FICO score	712			712			713			710

Loans sold (a):
Loans sold to Nationstar	2,001			2,017			961			1,017
Principal	$	513,696		$	492,684		$	244,683		$	249,621
Loans sold to third parties	154			83			109			56
Principal	$	35,218		$	15,166		$	25,330		$	10,583

(a) Loan originations and sales occurred within HCM.

Revenues. Financial services revenues increased to $2.6 million for the three months ended May 31, 2016 from $2.2 million for the three months ended May 31, 2015. For the six months ended May 31, 2016, financial services revenues rose to $5.2 million from $4.4 million for the corresponding period of 2015. The year-over-year growth in our financial services revenues for the three months and six months ended May 31, 2016 reflected increases in both title services revenues and insurance commissions.

Expenses. General and administrative expenses totaled $.9 million for each of the three-month periods ended May 31, 2016 and 2015. For the six months ended May 31, 2016 and 2015, general and administrative expenses totaled $1.7 million and $1.9 million, respectively.

Equity in Income (Loss) of Unconsolidated Joint Ventures. The equity in loss of unconsolidated joint ventures was $.2 million for the three months ended May 31, 2016, compared to the equity in income of unconsolidated joint ventures of $2.0 million for the three months ended May 31, 2015. For the six months ended May 31, 2016, the equity in loss of unconsolidated joint ventures was $.8 million, compared to the equity in income of unconsolidated joint ventures of $2.4 million for corresponding period of 2015. The equity in income (loss) of unconsolidated joint ventures for the three months and six months ended May 31, 2016 and

2015 was related to the operations of HCM. For the three months and six months ended May 31, 2016, the losses from HCM mainly resulted from fewer loan originations and higher overhead costs. The percentage of homebuyers that used HCM to finance the purchase of their home in the three months and six months ended May 31, 2016 declined from the corresponding year-earlier periods, largely as a result of HCM’s transition to a new loan origination system that limited its ability to originate certain loans, as well as insufficient staffing in certain markets. The year-over-year decreases in the percentage of homebuyers that used HCM did not have a significant impact on our orders, cancellation rate or the number of homes we delivered for the three months or six months ended May 31, 2016.

INCOME TAXES

Our income tax expense totaled $9.2 million and $3.1 million for the three months ended May 31, 2016 and 2015, respectively. For the six months ended May 31, 2016 and 2015, our income tax expense was $12.1 million and $5.8 million, respectively. Income tax expense for the three months ended May 31, 2016 reflected the favorable net impact of $.4 million of federal energy tax credits we earned from building energy-efficient homes, resulting in an effective income tax rate of 37.1%. For the three months ended May 31, 2015, our effective income tax rate of 24.5% reflected the favorable net impact of $1.7 million of federal energy tax credits. Income tax expense for the six months ended May 31, 2016 and 2015 reflected the favorable net impact of federal energy tax credits of $3.7 million and $3.1 million, respectively. Our effective income tax rate was 29.6% for the six months ended May 31, 2016 and 25.0% for the six months ended May 31, 2015. The extension of this tax credit may continue to benefit our effective tax rate for the remainder of 2016.

Further information is provided in Note 11 – Income Taxes in the Notes to Consolidated Financial Statements in this report.

The benefits of our NOLs, built-in losses and tax credits would be reduced or potentially eliminated if we experienced an “ownership change” under Internal Revenue Code Section 382 (“Section 382”). Based on our analysis performed as of May 31, 2016, 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 have generated should not be subject to a Section 382 limitation as of this reporting date.

Liquidity and Capital Resources

Overview. We have funded our homebuilding and financial services activities over the last several years with:


•	internally generated cash flows;


•	public issuances of our common stock;


•	public issuances of debt securities;


•	land option contracts and other similar contracts and seller notes; and


•	letters of credit and performance bonds.

We also have the ability to borrow funds under the Credit Facility. We manage our use of cash in the operation of our business to support the execution of our primary strategic goals. Over the past several years, we have primarily used cash for:


•	land acquisition and land development;


•	home construction;


•	operating expenses;


•	principal and interest payments on notes payable; and


•	cash collateral.

Our investments in land and land development totaled approximately $702.6 million for the six months ended May 31, 2016 and $454.7 million for the corresponding period of 2015. Approximately 51% of our total investments in the six months ended May 31, 2016 related to land acquisition, compared to approximately 28% in the year-earlier period. While we made strategic investments in land and land development in each of our homebuilding reporting segments during the first six months of 2016 and 2015, most were made in our West Coast segment. Our investments in land and land development in the future will depend significantly on market conditions and available opportunities that meet our investment return and marketing standards, though we expect our investment in land and land development in 2016 will increase on an overall basis compared to the prior year to support home delivery and revenue growth in 2017 and beyond.

The following table presents the number of lots and the carrying value of inventory we owned or controlled under land option contracts and other similar contracts by homebuilding reporting segment (dollars in thousands):



	May 31, 2016			November 30, 2015			Variance
Segment	Lots	$		Lots	$		Lots		$
West Coast	11,567	$	1,770,108	11,420	$	1,602,356	147		$	167,752
Southwest	8,631	534,348		8,981	534,040		(350	)	308
Central	18,633	772,466		17,747	707,210		886		65,256
Southeast	8,452	448,167		9,251	470,141		(799	)	(21,974		)
Total	47,283	$	3,525,089	47,399	$	3,313,747	(116	)	$	211,342

The carrying value of the lots we owned or controlled at May 31, 2016 increased from November 30, 2015 primarily due to the investments we made during the six months ended May 31, 2016. Overall, the number of lots we controlled under land option contracts and other similar contracts as a percentage of total lots was 18% at May 31, 2016 and 20% at November 30, 2015. Generally, this percentage fluctuates with our assessments of opportunities to control (or abandon) lots under land option contracts and other similar contracts, compared to opportunities to purchase (or sell owned) lots, in accordance with our investment return and marketing standards.

We ended our 2016 second quarter with $278.4 million of cash and cash equivalents and restricted cash, compared to $568.4 million at November 30, 2015. Our balance of unrestricted cash and cash equivalents decreased to $274.8 million at May 31, 2016 from $559.0 million at November 30, 2015, reflecting our investments in land and land development and repurchase of shares of our common stock during the first half of 2016. The majority of our cash and cash equivalents at May 31, 2016 and November 30, 2015 were invested in money market funds and interest-bearing bank deposit accounts.

Capital Resources. Our notes payable consisted of the following (in thousands):



	May 31, 2016		November 30, 2015		Variance
Mortgages and land contracts due to land sellers and other loans	$	41,461	$	35,664	$	5,797
Senior notes	2,360,666		2,359,872		794
Convertible senior notes	230,000		230,000		—
Total	$	2,632,127	$	2,625,536	$	6,591

Our financial leverage, as measured by the ratio of debt to capital, was 61.7% at May 31, 2016, compared to 60.8% at November 30, 2015. Our ratio of net debt to capital (a calculation that is described above under “Non-GAAP Financial Measures”) was 59.0% at May 31, 2016 and 54.9% at November 30, 2015.

LOC Facilities. As of May 31, 2016 and November 30, 2015, we had $3.4 million and $9.1 million, respectively, of letters of credit outstanding under the LOC Facilities. The LOC Facilities require us to deposit and maintain cash with the issuing financial institutions as collateral for our letters of credit outstanding. The amount of cash maintained for our LOC Facilities totaled $3.5 million at May 31, 2016 and $9.3 million at November 30, 2015, and these amounts were included in restricted cash in our consolidated balance sheets as of those dates.

Unsecured Revolving Credit Facility. We have a $275.0 million Credit Facility that will mature on August 7, 2019. The amount of the Credit Facility available for cash borrowings and the issuance of letters of credit depends on the total cash borrowings and letters of credit outstanding under the Credit Facility and the maximum available amount under the terms of the Credit Facility. As of May 31, 2016, we had no cash borrowings and $31.6 million of letters of credit outstanding under the Credit Facility. Therefore, as of May 31, 2016, we had $243.4 million available for cash borrowings under the Credit Facility, with up to $105.9 million of that amount available for the issuance of letters of credit. The Credit Facility is further described in Note 12 – Notes Payable in the Notes to Consolidated Financial Statements in this report.

There have been no changes to the terms of the Credit Facility during the six months ended May 31, 2016 from those disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in our Annual Report on Form 10-K for the year ended November 30, 2015.

The covenants and other requirements under the Credit Facility represent the most restrictive covenants that we are subject to with respect to our notes payable. The following table summarizes the financial covenants and other requirements under the Credit Facility, and our actual levels or ratios (as applicable) with respect to those covenants and other requirements, in each case as of May 31, 2016:



Financial Covenants and Other Requirements	Covenant Requirement		Actual
Consolidated tangible net worth	>	$1.18 billion	$1.64 billion
Leverage Ratio	<	.700	.617
Interest Coverage Ratio (a)	>	1.400	1.914
Minimum liquidity (a)	>	$183.1 million	$274.8 million
Investments in joint ventures and non-guarantor subsidiaries	<	$444.5 million	$103.9 million
Borrowing base in excess of borrowing base indebtedness (as defined)		n/a	$354.5 million


(a)	Under the terms of the Credit Facility, we are required to meet either the Interest Coverage Ratio or a minimum level of liquidity, but not both. As of May 31, 2016, we met both the Interest Coverage Ratio and the minimum liquidity requirements.

Our obligations to pay principal, premium, if any, and interest under the senior notes and borrowings, if any, under the Credit Facility 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 us. We may also cause other subsidiaries of ours to become Guarantor Subsidiaries if we believe it to be in our or the relevant subsidiary’s best interests. Condensed consolidating financial information for our subsidiaries considered to be Guarantor Subsidiaries is provided in Note 19 – Supplemental Guarantor Information in the Notes to Consolidated Financial Statements in this report.

Depending on available terms, we finance certain land acquisitions with purchase-money financing from land sellers or with other forms of financing from third parties. At May 31, 2016, we had outstanding mortgages and land contracts due to land sellers and other loans payable in connection with such financing of $41.5 million, secured primarily by the underlying property, which had an aggregate carrying value of $144.1 million.

As of May 31, 2016, we were in compliance with the applicable terms of all our covenants under the Credit Facility, the senior notes, the indenture, and the mortgages and land contracts due to land sellers and other loans. Our ability to access the Credit Facility for cash borrowings and letters of credit and our ability to secure future debt financing depend, in part, on our ability to remain in such compliance. There are no agreements that restrict our payment of dividends other than to maintain compliance with the financial covenant requirements under the Credit Facility, which would restrict our payment of dividends if a default under the Credit Facility exists at the time of any such payment, or if any such payment would result in such a default.

Consolidated Cash Flows. The following table presents a summary of net cash provided by (used in) our operating, investing and financing activities (in thousands):



	Six Months Ended May 31,
	2016			2015
Net cash provided by (used in):
Operating activities	$	(167,459	)	$	(135,900	)
Investing activities	(3,626		)	(14,834		)
Financing activities	(112,707		)	234,054
Net increase (decrease) in cash and cash equivalents	$	(283,792	)	$	83,320

Operating Activities. Operating activities used net cash of $167.5 million in the six months ended May 31, 2016 and $135.9 million in the six months ended May 31, 2015. Generally, our net operating cash flows fluctuate based on changes in our inventories and our profitability. The year-over-year change in net operating cash flows for the six months ended May 31, 2016 was largely due to an increase in cash used for investments in land and land development, partly offset by an increase in net income.

Our net cash used in operating activities in the six months ended May 31, 2016 largely reflected net cash of $220.1 million used for investments in inventories, and a net decrease in accounts payable, accrued expenses and other liabilities of $20.3 million, partly offset by net income of $28.7 million and a net decrease in receivables of $4.5 million. In the six months ended May 31, 2015, our net cash used in operating activities mainly reflected investments in inventories of $116.7 million, a net decrease in accounts payable, accrued expenses and other liabilities of $34.0 million, and a net increase in receivables of $18.0 million, partly offset by net income of $17.4 million.

Investing Activities. Investing activities used net cash of $3.6 million in the six months ended May 31, 2016 and $14.8 million in the year-earlier period. In the six months ended May 31, 2016, our uses of cash included $2.9 million for net purchases of property and equipment and $.7 million for contributions to unconsolidated joint ventures. In the six months ended May 31, 2015, we used cash of $13.2 million for contributions to unconsolidated joint ventures and $1.6 million for net purchases of property and equipment.

Financing Activities. Financing activities used net cash of $112.7 million in the six months ended May 31, 2016 and provided net cash of $234.1 million in the six months ended May 31, 2015. The year-over-year change was primarily due to cash used to repurchase shares of our common stock in the first quarter of 2016, compared to the net proceeds received from the underwritten public issuance of senior notes in the 2015 first half.

In the six months ended May 31, 2016, cash was used mainly for repurchases of shares of our common stock at a total cost of $87.5 million, payments on mortgages and land contracts due to land sellers and other loans of $26.6 million and dividend payments on our common stock of $4.4 million. The cash used was partly offset by a decrease of $5.8 million in our restricted cash balance. In the six months ended May 31, 2015, cash was provided by proceeds of $250.0 million from the underwritten public issuance of 7.625% senior notes due 2023. The cash provided was partly offset by payments on mortgages and land contracts due to land sellers and other loans of $7.8 million, dividend payments on our common stock of $4.6 million, and the payment of debt issuance costs of $3.3 million.

During the three months ended May 31, 2016 and 2015, our board of directors declared, and we paid, a quarterly cash dividend of $.025 per share of common stock. Quarterly cash dividends declared and paid during the six months ended May 31, 2016 and 2015 totaled $.050 per share of common stock. 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.

We believe we have adequate capital resources and sufficient access to the credit and capital markets and external financing sources to satisfy our current and reasonably anticipated long-term requirements for funds to acquire assets and land, to use and/or develop acquired assets and land, to construct homes, to finance our financial services operations and to meet other needs in the ordinary course of our business. In addition to acquiring and/or developing land that meets our investment return and marketing standards, in 2016 we may use or redeploy our unrestricted cash resources or cash borrowings under the Credit Facility to support other business purposes that are aligned with our primary strategic growth goals. We may also arrange or engage in capital markets, bank loan, project debt or other financial transactions. These transactions may include additional repurchases from time to time of our outstanding common stock. They may also include repurchases from time to time of our outstanding senior notes or other debt through redemptions, tender offers, exchange offers, private exchanges, open market or private purchases or other means, as well as potential new issuances of equity or senior or convertible senior notes or other debt through public offerings, private placements or other arrangements to raise or access additional capital to support our current land acquisition and land development investment targets, to complete strategic transactions and for other business purposes and/or to effect repurchases or redemptions of our outstanding senior notes or other debt. As necessary or desirable, we may adjust or amend the terms of and/or expand the capacity of the Credit Facility or the LOC Facilities, or enter into additional letter of credit facilities, or other similar facility arrangements, in each case with the same or other financial institutions, or allow any such facilities to mature or expire. Our ability to engage in such transactions, however, may be constrained by economic, capital, credit and/or financial market conditions, investor interest and/or our current leverage ratios, and we can provide no assurance of the success or costs of any such transactions.

Off-Balance Sheet Arrangements, Contractual Obligations and Commercial Commitments

Unconsolidated Joint Ventures. As discussed in Note 8 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report, we have investments in unconsolidated joint ventures in various markets where our homebuilding operations are located. Our unconsolidated joint ventures had total combined assets of $194.3 million at May 31, 2016 and $207.0 million at November 30, 2015. Our investments in unconsolidated joint ventures totaled $65.2 million at May 31, 2016 and $71.6 million at November 30, 2015. As of May 31, 2016 and November 30, 2015, one of our unconsolidated joint ventures had outstanding secured debt of $45.3 million and $39.1 million, respectively, under a construction loan agreement. The unconsolidated joint venture’s outstanding secured debt is non-recourse to us and is scheduled to mature in August 2018. While we and our partner in the unconsolidated joint venture provided certain guarantees and indemnities to the lender, we do not have a guaranty or any other obligation to repay or to support the value of the collateral underlying the unconsolidated joint venture’s outstanding secured debt. We do not believe that our existing exposure under our guaranty and indemnity obligations related to the unconsolidated joint venture’s outstanding secured debt is material to our consolidated financial statements. None of our other unconsolidated joint ventures had outstanding debt at May 31, 2016 or November 30, 2015. As discussed in Note 7 – Variable Interest Entities in the Notes to Consolidated Financial Statements in this report, we determined that one of our joint ventures at May 31, 2016 was a VIE, but we were not the primary beneficiary of this VIE. At November 30, 2015, we determined that none of our joint ventures were VIEs. All of our joint ventures were unconsolidated and accounted for under the equity method because we did not have a controlling financial interest.

Of the 574 unconsolidated joint venture lots controlled under land option and other similar contracts at May 31, 2016, we are committed to purchase 132 lots from one of our unconsolidated joint ventures in quarterly takedowns over the next three years for an aggregate purchase price of approximately $57.7 million under agreements that were entered into with the unconsolidated joint venture in the 2016 second quarter.

Land Option Contracts and Other Similar Contracts. As discussed in Note 7 – Variable Interest Entities in the Notes to Consolidated Financial Statements in this report, in the ordinary course of our business, we enter into land option contracts and other similar contracts with third parties and unconsolidated entities to acquire rights to land for the construction of homes. At May 31, 2016, we had total cash deposits of $47.4 million to purchase land having an aggregate purchase price of $957.5 million. At November 30, 2015, we had total deposits of $54.5 million to purchase land having an aggregate purchase price of $1.19 billion. Our land option contracts and other similar contracts generally do not contain provisions requiring our specific performance. Our decision to exercise a particular land option contract or other similar contract depends on the results of our due diligence reviews and ongoing market and project feasibility analysis that we conduct after entering into such a contract. In some cases, our decision to exercise a land option contract or other similar contract may be conditioned on the land seller obtaining necessary entitlements, such as zoning rights and environmental and development approvals, and/or physically developing the underlying land by a pre-determined date. We typically have the ability not to exercise our rights to the underlying land for any reason and forfeit our deposits without further penalty or obligation to the sellers. If we were to acquire all of the land we controlled under our land option contracts and other similar contracts at May 31, 2016, we estimate the remaining purchase price to be paid would be as follows: 2016 – $390.1 million; 2017 – $234.7 million; 2018 – $81.4 million; 2019 – $65.3 million; 2020 – $37.2 million; and thereafter – $101.4 million.

In addition to the cash deposits, our exposure to loss related to our land option contracts and other similar contracts consisted of pre-acquisition costs of $63.2 million at May 31, 2016 and $65.6 million at November 30, 2015. These pre-acquisition costs and cash deposits were included in inventories in our consolidated balance sheets.

We determined that as of May 31, 2016 and November 30, 2015 we were not the primary beneficiary of any VIEs from which we have acquired rights to land under land option contracts and other similar contracts. We also evaluate our land option contracts and other similar contracts for financing arrangements and, as a result of our evaluations, increased inventories, with a corresponding increase to accrued expenses and other liabilities, in our consolidated balance sheets by $77.6 million at May 31, 2016 and $110.0 million at November 30, 2015.

Contractual Obligations. There have been no significant changes in our contractual obligations from those reported in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in our Annual Report on Form 10-K for the year ended November 30, 2015.

Critical Accounting Policies

The preparation of our consolidated financial statements requires the use of judgment in the application of accounting policies and estimates of uncertain matters. There have been no significant changes to our critical accounting policies and estimates during the six months ended May 31, 2016 from those disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in our Annual Report on Form 10-K for the year ended November 30, 2015.

Recent Accounting Pronouncements

Recent accounting pronouncements are discussed in Note 1 – Basis of Presentation and Significant Accounting Policies in the Notes to Consolidated Financial Statements in this report.

Outlook

Based on our ending community count and backlog levels at May 31, 2016, we believe we are well-positioned to achieve our primary operational and financial objectives for the year. Our present outlook is as follows:

2016 Third Quarter:


•	We expect our housing revenues to be in the range of $900 million to $960 million, compared to $798.6 million in the year-earlier quarter, reflecting both the conversion of our higher backlog at May 31, 2016 into homes delivered and an anticipated year-over-year increase in the overall average selling price of those homes to a range between $375,000 and $380,000.

•

We expect our housing gross profit margin will improve on a sequential basis to approximately 16.5%, assuming no inventory impairment or land option contract abandonment charges. We believe our selling, general and administrative expenses as a percentage of housing revenues will be approximately 10.8%, improving on a sequential and year-over-year basis due to our anticipated improved operating leverage from a higher volume of homes delivered and corresponding revenues, and cost containment efforts.


•	We are projecting an effective income tax rate of approximately 31% for the quarter, based on our present forecasts for pretax income and the impact of federal energy tax credits for the period.

2016 Full-Year:


•	We expect our housing revenues to be in the range of $3.45 billion to $3.70 billion, an increase from $2.91 billion in 2015, driven by both a higher volume of homes delivered and an increase in the overall average selling price of those homes of between 4% and 6%.


•	Assuming no inventory impairment or land option contract abandonment charges, we expect our housing gross profit margin will be in the range of 16.7% to 16.9%, reflecting sequential expansion in the second half of 2016, and an improvement year over year.


•	We expect our selling, general and administrative expenses as a percentage of housing revenues to be just below 11%, a year-over-year improvement anticipated to result from the factors noted above with respect to our 2016 third quarter ratio.


•	We expect our full-year housing operating income margin, assuming no inventory-related charges, will be in the range of 5.8% to 6.0%.


•	We expect our effective income tax rate for the full year will be approximately 32% to 34%, based on our actual first half results and our projected pretax income and the impact of a larger amount of federal energy tax credits for the balance of the year.

Capital Investment:

•

We currently own and control all of the lots needed to meet our current 2016 delivery forecast and a majority of the lots we currently expect to need for 2017. Under our current capital allocation program, which includes our investment of $702.6 million in land and land development for the first half of 2016 and our repurchases of shares of our outstanding common stock during the 2016 first quarter, we believe we have the capacity to invest up to $1.3 billion towards land and land development in 2016 to support home delivery and revenue growth in 2017 and beyond, and remain cash flow neutral for the year. However, our investments in land and land development in the 2016 second half will depend on both housing market conditions and the return potential of identified land acquisition opportunities, and could exceed this amount, which may result in our cash balance at the end of 2016 being lower than at the end of 2015.


•	We expect our average community count will decline in the third quarter by about 7% compared to the same quarter of 2015, and for the full year to be relatively flat compared to 2015.

We plan to maintain a balanced approach in managing our financial strength and financial leverage as we operate our business and seek to enhance stockholder returns. We believe we will have the liquidity and flexibility to continue to invest in our business in the remainder of 2016 to support future growth. From time to time, we may also consider repurchasing our outstanding common stock (as authorized by our board of directors) and/or potentially retiring a portion of our outstanding senior notes before their maturity (through open market or privately negotiated transactions).

Our future performance and the strategies we implement (and adjust or refine as necessary or appropriate) will depend significantly on prevailing economic and capital, credit and financial market conditions and on a fairly stable and constructive political and regulatory environment (particularly in regards to housing and mortgage loan financing policies), among other factors.

Forward-Looking Statements

Investors are cautioned that certain statements contained in this report, as well as some statements by us in periodic press releases and other public disclosures and some oral statements by us to securities analysts, stockholders and others 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 “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” “hope,” and similar expressions constitute forward-looking statements. In addition, any statements that we may make or provide concerning future financial or operating performance (including without limitation future revenues, community count, homes delivered, net orders, selling prices, sales pace per new community, expenses, expense ratios, housing gross profits, housing gross profit 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 our backlog (including amounts that we expect to realize upon delivery of homes included in our backlog and the timing of those deliveries), the value of our net orders, potential future asset acquisitions and the impact of completed acquisitions, future share issuances or repurchases, future debt issuances, repurchases or redemptions and other possible future actions are also forward-looking statements as defined by the Act. Forward-looking statements are based on our 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. In addition, forward-looking and other statements in this report and in other public or oral disclosures that express or contain opinions, views or assumptions about market or economic conditions; the success, performance, effectiveness and/or relative positioning of our strategies, initiatives or operational activities; and other matters, may be based in whole or in part on general observations of our management, limited or anecdotal evidence and/or business or industry experience without in-depth or any particular empirical investigation, inquiry or analysis.

Actual events and results may differ materially from those expressed or forecasted in 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, the following:


•	general economic, employment and business conditions;


•	population growth, household formations and demographic trends;


•	conditions in the capital, credit and financial markets;


•	our ability to access external financing sources and raise capital through the issuance of common stock, debt or other securities, and/or project financing, on favorable terms;


•	material and trade costs and availability;


•	changes in interest rates;


•	our debt level, including our ratio of debt to capital, and our ability to adjust our debt level and maturity schedule;


•	our compliance with the terms of the Credit Facility;


•	volatility in the market price of our common stock;


•	weak or declining consumer confidence, either generally or specifically with respect to purchasing homes;


•	competition from other sellers of new and resale homes;


•	weather events, significant natural disasters and other climate and environmental factors, including the severe prolonged drought and related water-constrained conditions in the southwest United States and California;

•

government actions, policies, programs and regulations directed at or affecting the housing market (including the Dodd-Frank Act, tax benefits associated with purchasing and owning a home, and the standards, fees and size limits applicable to the purchase or insuring of mortgage loans by government-sponsored enterprises and government agencies), the homebuilding industry, or construction activities;


•	the availability and cost of land in desirable areas;


•	our warranty claims experience with respect to homes previously delivered and actual warranty costs incurred;

•

costs and/or charges arising from regulatory compliance requirements or from legal, arbitral or regulatory proceedings, investigations, claims or settlements, including unfavorable outcomes in any such matters resulting in actual or potential monetary damage awards, penalties, fines or other direct or indirect payments, or injunctions, consent decrees or other voluntary or involuntary restrictions or adjustments to our business operations or practices that are beyond our current expectations and/or accruals;


•	our ability to use/realize the net deferred tax assets we have generated;


•	our ability to successfully implement our current and planned strategies and initiatives related to product, geographic and market positioning (including our transition out of the Metro Washington, D.C. area), gaining share and scale in our served markets and increasing our housing gross profit margins and profitability;


•	our operational and investment concentration in markets in California;


•	consumer interest in our new home communities and products, particularly from first-time homebuyers and higher-income consumers;


•	our ability to generate orders and convert our backlog of orders to home deliveries and revenues, particularly in key markets in California;


•	our ability to generate cash from our operations, enhance our asset efficiency, increase our operating income margin and improve our return on invested capital;


•	the ability of our homebuyers to obtain residential mortgage loans and mortgage banking services, including from HCM;


•	the performance of HCM;


•	information technology failures and data security breaches; and


•	other events outside of our control.

Please see our Annual Report on Form 10-K for the fiscal year ended November 30, 2015 and other filings with the SEC for a further discussion of these and other risks and uncertainties applicable to our business.


Item 3.	Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in our market risk since November 30, 2015. For additional information regarding our market risk, refer to the “Quantitative and Qualitative Disclosures About Market Risk” section of our Annual Report on Form 10-K for the year ended November 30, 2015.


Item 4.	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 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 Executive Vice President and Chief 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 our 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 May 31, 2016.

There were no changes in our internal control over financial reporting during the quarter ended May 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION


Item 1.	Legal Proceedings

For a discussion of our legal proceedings, see Note 15 – Legal Matters in the Notes to Consolidated Financial Statements in this report.


Item 1A.	Risk Factors

There have been no material changes to the risk factors we previously disclosed in our Annual Report on Form 10-K for the year ended November 30, 2015.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The following table summarizes our purchases of our own equity securities during the three months ended May 31, 2016:



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares That May Yet be Purchased Under the Plans or Programs
March 1-31	—	$	—	—	1,627,000
April 1-30	332	13.81		—	1,627,000
May 1-31	—	—		—	1,627,000
Total	332	$	13.81	—

As publicly reported in Note 24 – Subsequent Event in the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended November 30, 2015, and discussed in Note 16 – Stockholders’ Equity in the Notes to Consolidated Financial Statements in this report, on January 12, 2016, our board of directors authorized us to repurchase a total of up to 10,000,000 shares of our outstanding common stock. During the three months ended May 31, 2016, no shares were repurchased pursuant to this authorization.

The shares purchased during the three months ended May 31, 2016 were previously issued shares delivered to us by employees to satisfy withholding taxes on the vesting of restricted stock awards as well as shares forfeited by individuals upon their termination of employment. These transactions are not considered repurchases under the board of directors authorization.

Item 6. Exhibits



Exhibits

10.48		Amended KB Home 2014 Equity Incentive Plan, effective April 7, 2016.

31.1		Certification of Jeffrey T. Mezger, President and Chief Executive Officer of KB Home Pursuant to Section 302 of the Sarbanes-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 the Sarbanes-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 the Sarbanes-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 the Sarbanes-Oxley Act of 2002.

101		The following materials from KB Home’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2016, formatted in eXtensible Business Reporting Language (XBRL): (a) Consolidated Statements of Operations for the three months and six months ended May 31, 2016 and 2015, (b) Consolidated Balance Sheets as of May 31, 2016 and November 30, 2015, (c) Consolidated Statements of Cash Flows for the six months ended May 31, 2016 and 2015, and (d) Notes to Consolidated Financial Statements.

SIGNATURES

Pursuant to the requirements 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 Registrant



Dated	July 8, 2016	By:	/s/ JEFF J. KAMINSKI
			Jeff J. Kaminski Executive Vice President and Chief Financial Officer (Principal Financial Officer)



Dated	July 8, 2016	By:	/s/ WILLIAM R. HOLLINGER
			William R. Hollinger Senior Vice President and Chief Accounting Officer (Principal Accounting Officer)

INDEX OF EXHIBITS




10.48		Amended KB Home 2014 Equity Incentive Plan, effective April 7, 2016.

31.1		Certification of Jeffrey T. Mezger, President and Chief Executive Officer of KB Home Pursuant to Section 302 of the Sarbanes-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 the Sarbanes-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 the Sarbanes-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 the Sarbanes-Oxley Act of 2002.

101		The following materials from KB Home’s Quarterly Report on Form 10-Q for the quarter ended May 31, 2016, formatted in eXtensible Business Reporting Language (XBRL): (a) Consolidated Statements of Operations for the three months and six months ended May 31, 2016 and 2015, (b) Consolidated Balance Sheets as of May 31, 2016 and November 30, 2015, (c) Consolidated Statements of Cash Flows for the six months ended May 31, 2016 and 2015, and (d) Notes to Consolidated Financial Statements.

Exhibit 10.48

AMENDED

KB HOME

2014 EQUITY INCENTIVE PLAN

Effective April 7, 2016

TABLE OF CONTENTS

Page



ARTICLE 1.		PURPOSE	1

ARTICLE 2.		DEFINITIONS AND CONSTRUCTION	1

ARTICLE 3.		SHARES SUBJECT TO THE PLAN	8

3.1	Number of Shares		8

3.2	Stock Distributed		9

ARTICLE 4.		GRANTING OF AWARDS	9

4.1	Participation		9

4.2	Award Agreement		9

4.3	Programs		9

4.4	Limitations Applicable to Section 16 Persons		9

4.5	Fiscal Year Award Limit		9

4.6	At-Will Employment		10

4.7	Stand-Alone and Tandem Awards		10

ARTICLE 5.		PERFORMANCE-BASED COMPENSATION	10

5.1	Purpose		10

5.2	Applicability		10

5.3	Types of Awards		11

5.4	Procedures with Respect to Performance-Based Awards		11

5.5	Payment of Performance-Based Awards		11

5.6	Additional Limitations		11

ARTICLE 6.		GRANTING OF OPTIONS	11

6.1	Granting of Options to Eligible Individuals		11

6.2	Qualification of Incentive Stock Options		12

6.3	Option Exercise Price		12

6.4	Option Term		12

6.5	Option Vesting		12

6.6	Substitute Awards		13

6.7	Substitution of Stock Appreciation Rights		13

ARTICLE 7.		EXERCISE OF OPTIONS	13

7.1	Partial Exercise		13

TABLE OF CONTENTS

(continued)

Page



7.2	Manner of Exercise		13

7.3	Notification Regarding Disposition		14

ARTICLE 8.		AWARD OF RESTRICTED STOCK	14

8.1	Award of Restricted Stock		14

8.2	Rights as Stockholders		14

8.3	Restrictions		14

8.4	Repurchase or Forfeiture of Restricted Stock		15

8.5	Certificates for Restricted Stock		15

8.6	Section 83(b) Election		15

ARTICLE 9.		AWARD OF PERFORMANCE AWARDS, STOCK PAYMENTS AND RESTRICTED STOCK UNITS	15

9.1	Performance Awards		15

9.2	Stock Payments		16

9.3	Restricted Stock Units		16

9.4	Term		16

9.5	Exercise or Purchase Price		16

9.6	Dividend Equivalents		16

ARTICLE 10.		AWARD OF STOCK APPRECIATION RIGHTS	17

10.1	Grant of Stock Appreciation Rights		17

10.2	Stock Appreciation Right Term		17

10.3	Stock Appreciation Right Vesting		18

10.4	Manner of Exercise		18

10.5	Payment		18

ARTICLE 11.		ADDITIONAL TERMS OF AWARDS	18

11.1	Payment		18

11.2	Tax Withholding		19

11.3	Transferability of Awards		19

11.4	Conditions to Issuance of Shares		20

11.5	Forfeiture Provisions		21

11.6	Prohibition on Repricing		21

TABLE OF CONTENTS

(continued)

Page



11.7	Permitted Replacement Awards		21

ARTICLE 12.		ADMINISTRATION	22

12.1	Committee		22

12.2	Duties and Powers of Committee		22

12.3	Action by the Committee		22

12.4	Authority of Committee		23

12.5	Decisions Binding		23

12.6	Delegation of Authority		23

ARTICLE 13.		MISCELLANEOUS PROVISIONS	24

13.1	Amendment, Suspension or Termination of the Plan		24

13.2	Changes in Common Stock or Assets of the Company, Acquisition or Liquidation of the Company and Other Corporate Events		24

13.3	No Stockholder Rights		27

13.4	Paperless Administration		27

13.5	Effect of Plan upon Other Compensation Plans		27

13.6	Compliance with Laws		27

13.7	Titles and Headings, References to Sections of the Code, the Securities Act or Exchange Act		27

13.8	Governing Law		28

13.9	Section 409A		28

13.10	No Rights to Awards		29

13.11	Unfunded Status of Awards		29

13.12	Indemnification		29

13.13	Term		29

AMENDED KB HOME

2014 EQUITY INCENTIVE PLAN

ARTICLE 1.

PURPOSE

The purpose of the Amended KB Home 2014 Equity Incentive Plan (the “Plan”) is to attract, motivate and retain the services of Employees, Non-Employee Directors and Consultants by enabling them to participate in the growth and financial success of KB Home (the “Company”) and to align their individual interests to those of the Company’s stockholders.

ARTICLE 2.
DEFINITIONS AND CONSTRUCTION

Wherever the following terms are used in the Plan they shall have the meanings specified below:

1. “Affiliate” shall mean a person or entity that directly or indirectly controls or is controlled by, or is under common control with, the Company.

2. “Amended Effective Date” shall mean the date the Amended Plan is first approved by the Company’s stockholders in accordance with the requirements of the Company’s by-laws, the applicable Securities Exchange and Sections 162(m) and 422 of the Code.

3. “Award” shall mean, as the case may be, a grant under the Plan of Options, Restricted Stock, Restricted Stock Units, Performance Awards, Stock Payments or Stock Appreciation Rights.

4. “Award Agreement” shall mean any written notice, terms and conditions, contract or other instrument or document evidencing an Award, including in electronic form, which shall contain any terms and conditions with respect to the Award as the Committee shall determine consistent with the Plan and any applicable Program.

5. “Award Limit” shall mean with respect to Awards payable in Shares or in cash, as the case may be, the respective limit set forth in Section 4.5.

6. “Board” shall mean the Board of Directors of the Company.

7. A “Change of Ownership” shall be deemed to have occurred if any of the following has occurred: (a) any one person, or more than one person acting as a group, acquires ownership of stock of the Company that, together with stock held by such person or group, constitutes more than 50% of the total fair market value or total voting power of the stock of the Company, as determined in accordance with Section 1.409A-3(i)(5)(v) of the Treasury Regulations; provided, that if a person or group is considered either to own more than 50% of the total fair market value or total voting power of the stock of the Company, or to own more than the market value or total voting power specified in (b) below, and such person or group acquires additional stock of the Company, the acquisition of additional stock by such person or group shall not be considered to cause a “Change of Ownership”; (b) any one person, or more than one

person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) ownership of stock of the Company possessing 30% or more of the total voting power of the stock of the Company, as determined in accordance with Section 1.409A-3(i)(5)(vi) of the Treasury Regulations; provided, that if a person or group is considered to possess 30% or more of the total voting power of the stock of the Company, and such person or group acquires additional stock of the Company, the acquisition of additional stock by such person or group shall not be considered to cause a “Change of Ownership”; (c) a majority of the members of the Board is replaced during any 12-month period by directors whose appointment or election is not endorsed by a majority of the members of the Board before the date of the appointment or election, as determined in accordance with Section 1.409A-3(i)(5)(vi) of the Treasury Regulations; (d) any one person, or more than one person acting as a group, acquires (or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets from the Company that have a total gross fair market value equal to or more than 40% of the total gross fair market value of all of the assets of the Company immediately before such acquisition or acquisitions, as determined in accordance with Section 1.409A-3(i)(5)(vii) of the Treasury Regulations; provided, that a transfer of assets shall not be treated as a “Change of Ownership” when such transfer is made to an entity that is controlled by the stockholders of the Company, as determined in accordance with Section 1.409A-3(i)(5)(vii)(B) of the Treasury Regulations; or (e) the Company’s stockholders approve a liquidation or dissolution of the Company.

8. “Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, together with the Treasury Regulations and official guidance promulgated by the U.S. Department of Treasury.

9. “Committee” shall mean the Management Development and Compensation Committee of the Board or another committee of the Board designated by the Board that consists solely of Directors meeting the qualifications described in Section 12.1.

10. “Common Stock” shall mean the common stock of the Company, par value $1.00 per share.

11. “Company Stock Administrator” shall mean the stock administrator of the Company, or such other person or entity designated by the Committee, or his, her or its office, as applicable, whether or not employed by the Company.

12. “Consultant” shall mean any consultant or advisor engaged to provide services to the Company or any Affiliate that qualifies as a consultant or advisor under the instructions for use of a Form S-8 Registration Statement.

13. “Covered Employee” shall mean any Employee who is, or who the Committee believes may become, a “covered employee” within the meaning of Section 162(m) of the Code.

14. “Director” shall mean a member of the Board.

15. “Eligible Individual” shall mean any person who is an Employee, a Consultant or a Non-Employee Director, as determined by the Committee or the Board.

16. “Employee” shall mean any officer or other employee (as determined in accordance with Section 3401(c) of the Code) of the Company or of any Affiliate.

17. “Equity Restructuring” shall mean a nonreciprocal transaction between the Company and its stockholders, such as a stock dividend, stock split, spin-off, rights offering or recapitalization through a large, nonrecurring cash dividend, that affects the Shares (or other securities of the Company) or the Share price (or the price of other securities), and results upon its implementation in a change in the per-Share value of the Shares underlying outstanding Awards.

18. “Exchange Act” shall mean the Securities Exchange Act of 1934.

19. “Fair Market Value” shall mean, as of any given date, the value of a Share determined as follows:

(1) If the Common Stock is listed on any Securities Exchange, its Fair Market Value shall be the closing sales price for a Share as quoted on such Securities Exchange for such date or, if there is no closing sales price for a Share on the date in question, the closing sales price for a Share on the last preceding date for which such quotation exists, as reported by The Wall Street Journal or such other source (whether in print or electronic) as the Committee deems reliable;

(2) If the Common Stock is not listed on any Securities Exchange, but the Common Stock is regularly quoted by a recognized securities dealer, its Fair Market Value shall be the mean of the high bid and low asked prices for such date or, if there are no high bid and low asked prices for a Share on such date, the high bid and low asked prices for a Share on the last preceding date for which such information exists, as reported by The Wall Street Journal or such other source (whether in print or electronic) as the Committee deems reliable; or

(3) If the Common Stock is neither listed on any Securities Exchange nor regularly quoted by a recognized securities dealer, its Fair Market Value shall be established by the Committee in good faith.

20. “Full Value Award” shall mean any Award other than (i) an Option, (ii) a Stock Appreciation Right or (iii) any other Award for which the Holder must pay the intrinsic value existing as of the date of grant (whether directly or by forgoing a right to receive a payment from the Company or any Affiliate) as a condition to exercising or receiving payment under it.

21. “Greater Than 10% Stockholder” shall mean an individual then owning (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or any subsidiary corporation (as defined in Section 424(f) of the Code) or parent corporation (as defined in Section 424(e) of the Code) thereof.

22. “Holder” shall mean a person who has been granted an Award.

23. “Incentive Stock Option” shall mean an Option that is intended to qualify as an incentive stock option and conforms to the applicable provisions of Section 422 of the Code.

24. “Non-Employee Director” shall mean a Director of the Company who is not an Employee.

25. “Non-Qualified Stock Option” shall mean an Option that is not an Incentive Stock Option.

26. “Option” shall mean a right to purchase Shares at a specified exercise price, granted under Article 6. An Option shall be either a Non-Qualified Stock Option or an Incentive Stock Option; provided, however, that Options granted to Non-Employee Directors and Consultants shall only be Non-Qualified Stock Options.

27. “Original Effective Date” shall mean April 3, 2014.

28. “Performance Award” shall mean a cash bonus award, stock bonus award, performance award or incentive award that is paid in cash, Shares or a combination of both, awarded under Section 9.1.

29. “Performance-Based Compensation” shall mean any compensation that is intended to qualify as “performance-based compensation” as described in Section 162(m)(4)(C) of the Code.

30. “Performance Criteria” shall mean the criteria that the Committee selects for an Award for purposes of establishing the Performance Goal or Performance Goals for a Performance Period. The Performance Criteria that shall be used to establish Performance Goals are limited to the following: (i) income/loss (e.g., operating income/loss, EBIT or similar measures, net income/loss, earnings/loss per share, residual or economic earnings), (ii) cash flow (e.g., operating cash flow, total cash flow, EBITDA, cash flow in excess of cost of capital or residual cash flow, cash flow return on investment and cash flow sufficient to achieve financial ratios or a specified cash balance), (iii) returns (e.g., on revenues, investments, assets, capital or equity), (iv) working capital (e.g., working capital divided by revenues), (v) margins (e.g., variable margin, profits divided by revenues, gross margins or margins divided by revenues), (vi) liquidity (e.g., total or net debt, debt reduction, debt-to-capital, debt-to-EBITDA and other liquidity ratios), (vii) revenues, cost initiative and stock price metrics (e.g., revenues, stock price, total stockholder return, expenses, cost structure improvements and costs divided by revenues or other metrics); provided that any of the foregoing in (i) through (vii) may be calculated, or described on a GAAP or non-GAAP basis; and (viii) strategic metrics (e.g., market share, customer satisfaction, employee satisfaction /turnover/development, service quality, unit volume, orders, backlog, traffic, homes delivered, cancellation rates, productivity, operating efficiency, inventory management, community count, goals related to acquisitions, divestitures or other transactions and goals related to KBnxt operational business model principles, including goals based on a per-employee, per-home delivered or other basis).

31. “Performance Goals” shall mean, for a Performance Period, one or more goals established in writing by the Committee for the Performance Period based upon one or more Performance Criteria. Depending on the Performance Criteria used to establish such Performance Goals, the Performance Goals may be expressed in terms of overall Company performance, either independently or as compared to one or more companies, an index of companies,

performance of specific subsidiaries or business units, either independently or as compared to one or more companies or such companies’ subsidiaries or business units, an index of companies, or otherwise as determined by the Committee. If the Committee believes, in its sole discretion, that an equitable adjustment to any Performance Goal is advisable in light of new developments or circumstances, the Committee may provide for one or more objectively determinable adjustments. Such adjustments may include or arise from one or more of the following: (i) items related to a change in accounting principle; (ii) items relating to financing or capital market activities; (iii) expenses for restructuring or productivity initiatives; (iv) other non-operating items; (v) items related to acquisitions; (vi) items attributable to the business operations of any entity acquired by the Company during the Performance Period; (vii) items related to the disposal of a business or segment of a business; (viii) items related to discontinued operations that do not qualify as a segment of a business under applicable accounting standards; (ix) items attributable to any stock dividend, stock split, combination or exchange of stock occurring during the Performance Period; (x) any other items of significant income or expense which are determined to be appropriate adjustments; (xi) items relating to unusual or extraordinary corporate transactions, events or developments, (xii) items related to amortization of acquired intangible assets; (xiii) items that are outside the scope of the Company’s core, on-going business activities; (xiv) items related to acquired in-process research and development; (xv) items relating to changes in tax laws; (xvi) items relating to major licensing or partnership arrangements; (xvii) items relating to asset impairment charges; (xviii) items relating to gains or losses for litigation, arbitration and contractual settlements; or (xix) items relating to any other unusual, infrequently occurring or nonrecurring events or changes in applicable laws or business conditions. For all Awards intended to qualify as Performance-Based Compensation, such determinations shall be made within the time prescribed by, and otherwise in compliance with, Section 162(m) of the Code.

32. “Performance Period” shall mean one or more periods of time, which may be of varying and overlapping durations, as the Committee may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Holder’s right to, and the payment of, a Performance Award.

33. “Permitted Transferee” shall mean, with respect to a Holder, any person entitled to use a Form S-8 Registration Statement to exercise Awards originally granted to the Holder and to sell Shares issued pursuant to Awards originally granted to the Holder.

34. “Program” shall mean any program adopted by the Committee pursuant to the Plan containing terms and conditions intended to govern one or more specific types of Awards and/or the manner in which they may be granted.

35. “QDRO” shall mean a domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended from time to time, or the regulations or official guidance promulgated thereunder.

36. “Restricted Stock” shall mean Shares awarded under Article 8 that are subject to certain restrictions and may be subject to risk of forfeiture or repurchase.

37. “Restricted Stock Units” shall mean the right to receive Shares or the value of Shares awarded under Section 9.3.

38. “Retirement” shall mean an Employee’s severance from employment with the Company and its Affiliates for any reason other than a leave of absence, termination for cause, death or disability, at such time as the Employee’s age and years of service with the Company and its Affiliates equals at least 65 or more, provided that the Employee is then at least 55 years of age. The Company shall have the sole right to determine whether an Employee’s severance from employment constitutes a Retirement.

39. “Securities Act” shall mean the Securities Act of 1933.

40. “Securities Exchange” shall mean the New York Stock Exchange or any other securities exchange, national market system or automated quotation system on which the Shares are listed, quoted or traded.

41. “Shares” shall mean shares of Common Stock.

42. “Stock Appreciation Right” shall mean a stock appreciation right as described and granted under Article 10.

43. “Stock Payment” shall mean (a) a payment in the form of Shares or (b) a right to purchase Shares, however denominated or described, as part of a bonus, deferred compensation or other arrangement, in any such case awarded under Section 9.2.

44. “Substitute Award” shall mean Awards granted or Shares issued by the Company in assumption of, or in substitution or exchange for, awards previously granted, or the right or obligation to make future awards, in each case by a company acquired by the Company or any Subsidiary or with which the Company or any Subsidiary combines.

45. “Termination of Service” shall mean,

(1) As to a Consultant, the time when the engagement of a Holder as a Consultant to the Company or an Affiliate is terminated for any reason, with or without cause, including, without limitation, by resignation, discharge, death or retirement, but excluding terminations where the Consultant simultaneously commences or remains in employment or service with the Company or any Affiliate.

(2) As to a Non-Employee Director, the time when a Holder who is a Non-Employee Director ceases to be a Director for any reason, with or without cause, including, without limitation, a termination by resignation, failure to be elected, death or retirement, but excluding terminations where the Holder simultaneously commences employment or service with the Company or any Affiliate.

(3) As to an Employee, the time when the employee-employer relationship between a Holder and the Company or any Affiliate is terminated for any reason, with or without cause, including, without limitation, a termination by resignation, discharge, death, disability or

retirement; but excluding terminations where the Holder simultaneously commences or remains in employment or service with the Company or any Affiliate.

The Committee, in its sole discretion, shall determine the effect of all matters and questions relating to Terminations of Service, including, without limitation, the question of whether a Termination of Service resulted from a discharge for cause and all questions of whether particular leaves of absence constitute a Termination of Service; provided, however, that, with respect to Incentive Stock Options, unless the Committee otherwise provides in the terms of the Program, Award Agreement or otherwise, a leave of absence, change in status from an employee to an independent contractor or other change in the employee-employer relationship shall constitute a Termination of Service only if and to the extent that any such event interrupts employment for the purposes of Section 422(a)(2) of the Code. For purposes of the Plan, a Holder’s employee-employer relationship or consultancy relationship shall be deemed to be terminated in the event that the Affiliate employing or contracting with such Holder ceases to remain an Affiliate following any merger, sale of stock or other corporate transaction or event (including, without limitation, a spin-off).

Notwithstanding the foregoing, with respect to any Award that constitutes “deferred compensation” subject to the requirements of Section 409A of the Code, a Termination of Service shall be deemed to have occurred upon a “separation from service” within the meaning of Section 409A of the Code, as determined in accordance with Section 1.409A-1(h) of the Treasury Regulations; provided that (i) for a Holder who provides services to the Company as an Employee, a separation from service shall be deemed to occur when the Holder has experienced a termination of employment with the Company and the facts and circumstances indicate that the Holder and the Company reasonably anticipate that either (A) no further services will be performed by the Holder for the Company after a certain date or (B) the level of bona fide services the Holder will perform for the Company after a certain date (whether as an Employee or as an independent contractor) will permanently decrease to no more than 20% of the average level of bona fide services performed by the Holder (whether as an Employee or an independent contractor) over the immediately preceding 36-month period (or the full period of services performed for the Company if the Holder has been performing services for less than 36 months); and (ii) for a Holder who provides services to the Company as an independent contractor, a separation from service shall be deemed to occur upon expiration or termination of all contracts under which services are performed by the Holder for the Company, provided that such expiration or termination constitutes a good-faith and complete severing of the contractual relationship between the Holder and the Company, and provided, further, that for a Holder who provides services to the Company as both an Employee and an independent contractor, a separation from service shall generally not occur until the Holder has ceased providing services for the Company as both an Employee and an independent contractor pursuant to clauses (i) and (ii) of this sentence. For purposes of determining whether a separation from service has occurred, services performed for the Company shall include services performed both for the Company and for any other corporation that is a member of the same “controlled group” as the Company under Section 414(b) of the Code or any other trade or business (such as a partnership) that is under common control with the Company as determined under Section 414(c) of the Code, in each case as modified by Section 1.409A-1(h)(3) of the Treasury Regulations and substituting “at least 50 percent” for “at least 80 percent” each place it appears in Section 1563(a) of the Code or Section 1.414(c)-2 of the Treasury Regulations.

46. “Treasury Regulations” shall mean the final, temporary and proposed regulations promulgated by the U.S. Department of the Treasury under the Code, as such regulations may be amended from time to time.

ARTICLE 3.
SHARES SUBJECT TO THE PLAN

3.1 Number of Shares.

(a) Subject to adjustment as provided in Section 3.1(b) and Section 13.2, the aggregate number of Shares which may be authorized for grant under the Plan is the sum of (i) Four Million Eight Hundred Thousand (4,800,000) Shares, plus upon the Amended Effective Date Seven Million Five Hundred Thousand (7,500,000) Shares and (ii) any Shares which as of the Original Effective Date were available for grant under the Company’s 2010 Equity Incentive Plan, and (iii) any Shares which were, as of the Original Effective Date, subject to awards under the Company’s 2010 Equity Incentive Plan and which subsequently expire or are canceled, forfeited, tendered or withheld to satisfy tax withholding obligations in respect of full value awards or settled for cash. Any Share that is subject to an Award that could be settled with Shares and is not a Full Value Award shall be deducted from this limit at the ratio of one (1) Share for every one (1) Share subject to the Award. Any Share that is subject to a Full Value Award that could be settled with Shares shall be deducted from this limit at the ratio of 1.78 Shares for every one (1) Share subject to the Award. After the Original Effective Date, no new awards could be granted under the 2010 Equity Incentive Plan, but any awards under the 2010 Equity Incentive Plan that are outstanding as of the Original Effective Date or the Amended Effective Date shall continue to be subject to the terms and conditions of the 2010 Equity Incentive Plan.

(b) If an Award expires or is canceled, forfeited or settled for cash (in whole or in part), the Shares subject to such Award shall, to the extent of such expiration, cancellation, forfeiture or cash settlement, again be available as Shares authorized for grant under the Plan, in accordance with Section 3.1(d) below. Shares tendered by a Holder or withheld by the Company to satisfy any tax withholding obligation with respect to a Full Value Award shall again be available as Shares authorized for grant under the Plan in accordance with Section 3.1(d) below. Notwithstanding anything to the contrary contained herein, Shares tendered by a Holder or withheld by the Company in payment of the exercise price of an Award or to satisfy any tax withholding obligation with respect to an Award that is not a Full Value Award shall not be available as Shares authorized for grant under the Plan.

(c) To the extent permitted by applicable law or the requirements of the Securities Exchange, Substitute Awards shall not reduce the Shares authorized for grant under the Plan or the limitations on grants to a Participant under Section 4.5, nor shall Shares subject to a Substitute Award be added to the Shares available for Awards under the Plan as provided in paragraph (b) above. Additionally, in the event that a company acquired by the Company or any Affiliate or with which the Company or any Affiliate combines has shares available under a pre-existing plan approved by stockholders and not adopted in contemplation of such acquisition or combination, the shares available for grant pursuant to the terms of such pre-existing plan (as adjusted, to the extent appropriate, using the exchange ratio or other adjustment or valuation ratio

or formula used in such acquisition or combination to determine the consideration payable to the holders of common stock of the entities party to such acquisition or combination) may be used for Awards under the Plan and shall not reduce the Shares authorized for grant under the Plan; provided, that Awards using such available shares shall not be made after the date awards could have been made under the terms of the pre-existing plan, absent the acquisition or combination, and shall only be made to individuals who were not employed by or providing services to the Company or its Affiliates immediately prior to such acquisition or combination.

(d) Each Share that again becomes available for grant pursuant to this Section 3.1 shall be added back as (i) one (1) Share if such Share was subject to an Award other than a Full Value Award (or subject to a similar award under the 2010 Equity Incentive Plan), and (ii) as 1.78 Share if such Share was subject to a Full Value Award (or subject to a similar award under the 2010 Equity Incentive Plan).

3.2 Stock Distributed. Any Shares distributed pursuant to an Award may consist, in whole or in part, of authorized and unissued Common Stock, treasury Common Stock or Common Stock purchased on the open market.

ARTICLE 4.
GRANTING OF AWARDS

4.1 Participation. The Committee may, from time to time, select from among all Eligible Individuals, those to whom an Award shall be granted.

4.2 Award Agreement. Each Award shall be evidenced by an Award Agreement. Award Agreements shall contain such terms and conditions as may be determined by the Committee that are not inconsistent with the Plan, including any terms and conditions that are necessary for Awards to comply with, or be exempt from, the requirements of Section 409A of the Code. Award Agreements evidencing Awards intended to qualify as Performance-Based Compensation shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 162(m) of the Code. Award Agreements evidencing Incentive Stock Options shall contain such terms and conditions as may be necessary to meet the applicable provisions of Section 422 of the Code.

4.3 Programs. The Board or the Committee may from time to time establish Programs pursuant to the Plan. An Award Agreement evidencing an Award granted pursuant to any Program shall comply with the terms and conditions of such Program and the Plan.

4.4 Limitations Applicable to Section 16 Persons. Notwithstanding any other provision of the Plan, the Plan, any Award granted to any individual who is then subject to Section 16 of the Exchange Act, and any applicable Program, shall be subject to any additional limitations set forth in any applicable exemptive rule under Section 16 of the Exchange Act (including Rule 16b-3 of the Exchange Act and any amendments thereto) that are requirements for the application of such exemptive rule. To the extent permitted by applicable law, the Plan and each Program and Award shall be deemed amended to the extent necessary to conform to such applicable exemptive rule.

4.5 Fiscal Year Award Limit. Notwithstanding any provision in the Plan to the contrary, and subject to Section 13.2 and the terms of this Section 4.5 with respect to a Non-Employee Director, (a) the maximum aggregate number of Shares that may be delivered pursuant to Full Value Awards intended as Performance-Based Compensation that may be granted to any one person during any fiscal year of the Company shall be One Million (1,000,000), (b) the maximum aggregate number of Shares that may be delivered pursuant to Options or Stock Appreciation Rights that may be granted to any one person during any fiscal year of the Company shall be One Million (1,000,000), and (c) the maximum aggregate amount of cash that may be paid to any one person during any fiscal year of the Company with respect to one or more Performance Awards payable in cash shall be Ten Million Dollars ($10,000,000); provided, however, that any Award granted pursuant to Section 11.7 shall not count against such fiscal year limits. To the extent required by Section 162(m) of the Code, Shares subject to Awards that are canceled shall continue to be counted against the Award Limit specified in the preceding sentence. Notwithstanding any provision in the Plan to the contrary, the aggregate amount of all compensation granted to any Non-Employee Director during any fiscal year of the Company, including any Awards (based on grant date fair value computed as of the date of grant in accordance with applicable financial accounting rules) and any cash retainer or meeting fee paid or provided for service on the Board or any committee thereof, or any Award granted in lieu of any such cash retainer or meeting fee, shall not exceed Seven Hundred Thousand Dollars ($700,000); provided, however, that any Award granted pursuant to Section 11.7 shall not count against such fiscal year limits.

4.6 At-Will Employment. Nothing in the Plan, any Program or any Award Agreement shall confer upon any Holder any right to be employed by or to serve as a Director or Consultant for the Company or any Affiliate, or to continue in such employment or service, or shall interfere with or restrict in any way the rights of the Company and any Affiliate, which rights are hereby expressly reserved, to discharge any Holder at any time for any reason whatsoever, with or without cause, and with or without notice, or to terminate or change all other terms and conditions of employment or engagement, except to the extent expressly provided otherwise in a written agreement between the Holder and the Company or any Affiliate.

4.7 Stand-Alone and Tandem Awards. Awards granted pursuant to the Plan may, in the sole discretion of the Committee, be granted either alone, in addition to, or in tandem with, any other Award granted pursuant to the Plan. Awards granted in addition to or in tandem with other Awards may be granted either at the same time as or (subject to the requirements of Section 409A of the Code) at a different time from the grant of such other Awards.

ARTICLE 5.
PERFORMANCE-BASED COMPENSATION

5.1 Purpose. The Committee, in its sole discretion, may determine at the time an Award is granted whether such Award is intended to qualify as Performance-Based Compensation. If the Committee, in its sole discretion, decides to grant such an Award to an Eligible Individual that is intended to qualify as Performance-Based Compensation, then the provisions of this Article 5 shall control over any contrary provision contained in the Plan. The Committee may in its sole discretion grant Awards to other Eligible Individuals that are based on

Performance Criteria or Performance Goals but that do not satisfy the requirements of this Article 5 and that are not intended to qualify as Performance-Based Compensation.

5.2 Applicability. The grant of an Award to an Eligible Individual for a particular Performance Period shall not require the grant of an Award to such Eligible Individual in any subsequent Performance Period (or entitle such Eligible Individual to any such grant) and the grant of an Award to any one Eligible Individual shall not require the grant of an Award to any other Eligible Individual in such period or in any other period (or entitle any such other Eligible Individual to any such grant).

5.3 Types of Awards. Notwithstanding anything in the Plan to the contrary, the Committee may grant any Award to a Covered Employee in a manner intended to qualify as Performance-Based Compensation, including, without limitation, Restricted Stock for which the restrictions lapse upon the attainment of specified Performance Goals, and any Performance Awards described in Article 9 that vest or become exercisable or payable upon the attainment of one or more specified Performance Goals.

5.4 Procedures with Respect to Performance-Based Awards. To the extent necessary to comply with the requirements of Section 162(m)(4)(C) of the Code, with respect to any Award granted to one or more Covered Employees and that is intended to qualify as Performance-Based Compensation, no later than 90 days following the commencement of any Performance Period (or such earlier time as may be required under Section 162(m) of the Code), the Committee shall, in writing, (a) designate one or more Eligible Individuals, (b) select the Performance Criteria applicable to the Performance Period, (c) establish objective Performance Goals, and amounts of such Awards, as applicable, which may be earned for such Performance Period based on the Performance Criteria, and (d) specify an objective relationship between the Performance Criteria and the Performance Goals and the amounts of such Awards, as applicable, to be earned by each Covered Employee for such Performance Period. Following the completion of each Performance Period, the Committee shall certify in writing whether and the extent to which the applicable Performance Goals have been achieved for such Performance Period. In determining the amount earned or payable under such Awards, to the extent provided under any applicable Program or Award Agreement, the Committee shall have the right to reduce or eliminate (but not to increase) the amount earned or payable at a given level of performance to take into account additional factors that the Committee may deem relevant, including, without limitation, the assessment of individual or Company performance for the Performance Period.

5.5 Payment of Performance-Based Awards. Unless otherwise provided in the applicable Program or Award Agreement, as to an Award that is intended to qualify as Performance-Based Compensation, the Holder must be employed by the Company or an Affiliate throughout the Performance Period. Unless otherwise provided in the applicable Performance Goals, Program or Award Agreement, a Holder shall be eligible to receive payment pursuant to such Awards for a Performance Period only if and to the extent the Performance Goals for such period are achieved.

5.6 Additional Limitations. Notwithstanding any other provision of the Plan and except as otherwise determined by the Committee, any Award that is granted to a Covered Employee and is intended to qualify as Performance-Based Compensation shall be subject to any

additional limitations set forth in Section 162(m) of the Code that are requirements for qualification as Performance-Based Compensation, and the Plan, any applicable Program and the Award Agreement shall be deemed amended to the extent necessary to conform to such requirements.

ARTICLE 6.
GRANTING OF OPTIONS

6.1 Granting of Options to Eligible Individuals. The Committee is authorized to grant Options to Eligible Individuals on such terms and conditions as it may determine that are not inconsistent with the Plan; provided, however, that no Option shall be granted to any Employee or Consultant of an Affiliate unless the Company is an “eligible issuer of service recipient stock” with respect to such person within the meaning of Section 409A of the Code.

6.2 Qualification of Incentive Stock Options. No Incentive Stock Option shall be granted to any person who is not an Employee of the Company or any subsidiary corporation of the Company (as defined in Section 424(f) of the Code). No person who is a Greater Than 10% Stockholder may be granted an Incentive Stock Option unless such Incentive Stock Option conforms to the applicable provisions of Section 422 of the Code. Any Incentive Stock Option granted under the Plan may be modified by the Committee, with the consent of the Holder, to disqualify such Option from treatment as an “incentive stock option” under Section 422 of the Code. To the extent that the aggregate Fair Market Value of Shares with respect to which “incentive stock options” (within the meaning of Section 422 of the Code, but without regard to Section 422(d) of the Code) are exercisable for the first time by a Holder during any calendar year under the Plan, and all other plans of the Company and any subsidiary or parent corporation thereof (each as defined in Section 424(f) and (e) of the Code, respectively), exceeds $100,000, the Options shall be treated as Non-Qualified Stock Options to the extent required by Section 422 of the Code. The requirements set forth in the preceding sentence shall be applied by taking Options and other “incentive stock options” into account in the order in which they were granted and the Fair Market Value of Shares shall be determined as of the time the respective instruments were granted. Subject to adjustment as provided in Section 3.1(b) and Section 13.2, no more than One Million Seven Hundred and Fifty Thousand (1,750,000) Shares may be issued pursuant to the exercise of Incentive Stock Options granted under the Plan.

6.3 Option Exercise Price. The exercise price per Share subject to each Option shall be set by the Committee, but shall not be less than 100% of the Fair Market Value of a Share on the date the Option is granted (or on the date the Option is modified, extended or renewed for purposes of Section 409A of the Code or, as to an Incentive Stock Option, Section 424(h) of the Code). In addition, in the case of Incentive Stock Options granted to a Greater Than 10% Stockholder, such price shall not be less than 110% of the Fair Market Value of a Share on the date the Option is granted (or the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code).

6.4 Option Term. The term of each Option shall be set by the Committee in its sole discretion; provided, however, that the term shall not be more than ten (10) years from the date the Option is granted, or five (5) years from the date an Incentive Stock Option is granted to a Greater Than 10% Stockholder. The Committee shall determine the time period, including the

time period following a Termination of Service, during which a Holder has the right to exercise the vested Options, which time period may not extend beyond the term of the Option.

6.5 Option Vesting. The Committee shall determine the period of time and other conditions that must be satisfied before the Holder’s right to exercise an Option, in whole or in part, shall vest. Such vesting may be based on service with the Company or an Affiliate, any of the Performance Criteria, or any other criterion or condition determined by the Committee. No portion of an Option that cannot be exercised at the Holder’s Termination of Service shall thereafter become exercisable.

6.6 Substitute Awards. Notwithstanding the foregoing provisions of this Article 6 to the contrary, in the case of an Option that is a Substitute Award, the price per share of the shares subject to such Option may be less than the Fair Market Value per share on the date of grant; provided, that the excess of: (a) the aggregate Fair Market Value (as of the date such Substitute Award is granted) of the shares subject to the Substitute Award, over (b) the aggregate exercise price thereof does not exceed the excess of: (x) the aggregate Fair Market Value (as of the time immediately preceding the transaction giving rise to the Substitute Award, such Fair Market Value to be determined by the Committee) of the shares of the predecessor entity that were subject to the grant assumed or substituted for by the Company, over (y) the aggregate exercise price of such shares, and that the grant of the Substitute Award otherwise satisfies the requirements of Section 1.409A-1(b)(5)(v)(D) of the Treasury Regulations or, in the case of an Incentive Stock Option, Section 1.424-1(a) of the Treasury Regulations.

6.7 Substitution of Stock Appreciation Rights. The Committee may provide in the applicable Program or the Award Agreement evidencing the grant of an Option that the Committee, in its sole discretion, shall have the right to substitute a Stock Appreciation Right for such Option at any time prior to or upon exercise of such Option; provided, that such Stock Appreciation Right shall be exercisable with respect to the same number of Shares for which such substituted Option would have been exercisable and such Stock Appreciation Right shall have the same exercise price and the same remaining vesting schedule and term as such Option.

ARTICLE 7.
EXERCISE OF OPTIONS

7.1 Partial Exercise. An exercisable Option may be exercised in whole or in part. However, an Option shall not be exercisable with respect to fractional shares and the Committee may require that, by the terms of the Option, a partial exercise must be with respect to a minimum number of Shares.

7.2 Manner of Exercise. All or a portion of an exercisable Option shall be deemed exercised upon delivery of all of the following to the Company Stock Administrator:

(a) A written or electronic notice complying with the applicable rules established by the Company Stock Administrator stating that the Option, or a portion thereof, is exercised. The notice must be signed in writing or electronically by the Holder or other person then entitled to exercise the Option or such portion of the Option;

(b) Such representations and documents as the Company Stock Administrator, in its sole discretion, deems necessary or advisable to effect compliance with all applicable laws and regulations, and the rules of any applicable Securities Exchange. The Company Stock Administrator may, in its sole discretion, also take whatever additional actions it deems appropriate to effect such compliance including, without limitation, placing legends on share certificates and issuing stop-transfer notices to agents and registrars;

(c) In the event that the Option shall be exercised by any person other than the Holder who is permitted to exercise the Option in accordance with Section 11.3, appropriate proof of the right of such person to exercise the Option, as determined in the sole discretion of the Company Stock Administrator; and

(d) Full payment of the exercise price and applicable withholding taxes to the Company for the Shares with respect to which the Option, or portion thereof, is exercised, in a manner permitted by Section 11.1 and 11.2.

7.3 Notification Regarding Disposition. The Holder shall give the Company Stock Administrator prompt written or electronic notice of any disposition of Shares acquired by exercise of an Incentive Stock Option which occurs within (a) two years from the date of granting (including the date the Option is modified, extended or renewed for purposes of Section 424(h) of the Code) such Option to such Holder, or (b) one year after the transfer of such shares to such Holder.

ARTICLE 8.
AWARD OF RESTRICTED STOCK

8.1 Award of Restricted Stock.

(e) The Committee is authorized to grant Restricted Stock to Eligible Individuals, and shall determine such terms and conditions, including the restrictions applicable to each Award of Restricted Stock, that are not inconsistent with the Plan, and may impose such conditions on the issuance of such Restricted Stock, as it deems appropriate.

(f) The Committee shall establish the purchase price, if any, and form of payment for Restricted Stock; provided, however, that if a purchase price is charged, such purchase price shall be no less than the par value of the Shares to be purchased, unless otherwise permitted by applicable state law. In all cases, legal consideration shall be required for each issuance of Restricted Stock.

8.2 Rights as Stockholders. Subject to Section 8.4, upon the grant of a Restricted Stock Award, the Holder shall have, unless otherwise provided in the terms of the applicable Award Agreement, all the rights of a stockholder with respect to the Shares subject to the Award, subject to the restrictions in the applicable Program or in his or her Award Agreement, including the right to receive all dividends and other distributions paid or made with respect to the Shares; provided, however, that if the lifting or lapsing of the restrictions on an Award of Restricted Stock is subject to satisfaction of one or more Performance Goals, the Holder shall not be

entitled to receive dividends or other distributions with respect to the Shares subject to the Award unless and until each of the applicable Performance Goals has been satisfied, at which time declared and accrued but unpaid dividends and distributions from and after the date of grant of the Award shall become payable to the Holder as soon as practicable.

8.3 Restrictions. All Shares of Restricted Stock (including any Shares received by Holders thereof with respect to Shares of Restricted Stock as a result of stock dividends, stock splits or any other form of recapitalization) shall, under the terms of the applicable Program or Award Agreement, be subject to such restrictions and vesting requirements as the Committee shall provide. Such restrictions may include, without limitation, restrictions concerning voting rights and transferability and such restrictions may lapse separately or in combination at such times and pursuant to such circumstances or based on such criteria as selected by the Committee, including, without limitation, criteria based on the Holder’s duration of employment or service with the Company or its Affiliates, applicable Performance Criteria, Company performance or individual performance. Restricted Stock may not be sold or encumbered until all applicable restrictions are satisfied, terminated or expire.

8.4 Repurchase or Forfeiture of Restricted Stock. Except at set forth in an Award Agreement, if no purchase price was paid by a Holder in cash or property for a grant of Restricted Stock, upon a Termination of Service the Holder’s rights in any Shares of Restricted Stock then subject to restrictions shall terminate, and such Shares of Restricted Stock shall be surrendered to the Company and cancelled without consideration. Except at set forth in an Award Agreement, if a purchase price was paid by a Holder in cash or property for a grant of Restricted Stock, upon a Termination of Service the Company shall have the right to repurchase from the Holder the Shares of Restricted Stock then subject to restrictions at a cash price per Share equal to the purchase price paid by the Holder in cash or property for such Shares of Restricted Stock or such other amount as may be specified under the applicable Program or in the applicable Award Agreement.

8.5 Certificates for Restricted Stock. Restricted Stock granted pursuant to the Plan may be evidenced in such manner as the Company Stock Administrator shall determine. Certificates, book entries or electronic registration evidencing shares of Restricted Stock must include an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, and the Company may, in it sole discretion, retain physical possession of any stock certificate until such time as all applicable restrictions lapse.

8.6 Section 83(b) Election. If a Holder makes an election under Section 83(b) of the Code to be taxed with respect to the Restricted Stock as of the date of transfer of the Restricted Stock rather than as of the date or dates upon which the Holder would otherwise be taxable under Section 83(a) of the Code, the Holder shall be required to deliver a copy of such election to the Company promptly after filing such election with the Internal Revenue Service.

ARTICLE 9.

AWARD OF PERFORMANCE AWARDS, STOCK
PAYMENTS AND RESTRICTED STOCK UNITS

9.1 Performance Awards.

(a) The Committee is authorized to grant Performance Awards to any Eligible Individual, and to determine such terms and conditions that are not inconsistent with the Plan and whether such Performance Awards shall be Performance-Based Compensation. The number of Shares subject to a Performance Award and the value of a Performance Award may be linked to any one or more of the Performance Criteria or other specific criteria determined by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. Performance Awards may be paid in cash, Shares, or both, as determined by the Committee.

(b) Without limiting Section 9.1(a), the Committee may grant Performance Awards to any Eligible Individual in the form of a cash bonus payable upon the attainment of objective Performance Goals, or such other criteria, whether or not objective, which are established by the Committee, in each case on a specified date or dates or over any period or periods determined by the Committee. Any such bonuses paid to a Holder that are intended to be Performance-Based Compensation shall be based upon objectively determinable bonus formulas established in accordance with the provisions of Article 5.

9.2 Stock Payments. The Committee is authorized to make Stock Payments to any Eligible Individual and to determine such terms and conditions that are not inconsistent with the Plan. The number or value of Shares of any Stock Payment shall be determined by the Committee and may be based upon one or more Performance Criteria or any other specific criteria, including service to the Company or any Affiliate, determined by the Committee. Shares underlying a Stock Payment that is subject to a vesting schedule or other restrictions, conditions or criteria set by the Committee will not be issued until the restrictions, conditions or criteria have been satisfied. Unless otherwise provided in the applicable Award Agreement, a Holder of a Stock Payment shall have no rights as a Company stockholder with respect to such Stock Payment until such time as the Stock Payment has vested and the Shares underlying the Award have been issued to the Holder. Stock Payments may, but are not required to, be made in lieu of base salary, bonus, fees or other cash compensation otherwise payable to such Eligible Individual.

9.3 Restricted Stock Units. The Committee is authorized to grant Restricted Stock Units to any Eligible Individual. The number and terms and conditions of Restricted Stock Units shall be determined by the Committee, which shall not be inconsistent with the Plan. The Committee shall specify the date or dates on which the Restricted Stock Units shall become fully vested and nonforfeitable, and may specify such vesting restrictions, conditions or criteria as it deems appropriate, including, without limitation, conditions based on one or more Performance Criteria or other specific criteria, including service to the Company or any Affiliate, in each case on a specified date or dates or over any period or periods, as the Committee determines. The Company Stock Administrator shall specify, or permit the Holder to elect, the conditions and dates upon which the Shares underlying the Restricted Stock Units that shall be issued, if applicable, subject to the requirements of Section 409A of the Code. Restricted Stock Units may be paid in cash, Shares, or both, as determined by the Committee. On the distribution dates, the Company shall issue to the Holder one unrestricted, fully transferable Share (or the Fair Market Value of one such Share in cash) for each vested and nonforfeitable Restricted Stock Unit.

9.4 Term. The term of a Performance Award, Stock Payment award and/or Restricted Stock Unit award shall be set by the Committee in its sole discretion.

9.5 Exercise or Purchase Price. The Committee may establish an exercise or purchase price for a Performance Award, Shares distributed as a part of a Stock Payment or Shares distributed pursuant to a Restricted Stock Unit Award.

9.6 Dividend Equivalents. Dividend equivalents may be granted by the Committee based on dividends declared on the Common Stock, to be credited as of dividend payment dates during the period between the date an Award is granted and the date such Award vests, is exercised, is distributed or expires, as determined by the Committee, except that dividend equivalents may not be granted in connection with Options or Stock Appreciation Rights. Such dividend equivalents shall be converted to cash or additional shares of Common Stock by such formula and at such time and subject to such limitations as may be determined by the Committee. Notwithstanding the provisions of this Article 9, dividend equivalents, dividends and other distributions paid or made with respect to (a) any Performance Award or (b) any Stock Payment award or Restricted Stock Unit award where the applicable vesting thereof and/or lapse of restrictions, conditions or criteria thereon is subject to the satisfaction of one or more Performance Goals, shall not be payable to an Eligible Individual unless and until each of the applicable Performance Goals has been satisfied, at which time declared and accrued but unpaid dividend equivalents, dividends and distributions from and after the date of grant of the Award shall become payable to the Eligible Individual as soon as practicable.

ARTICLE 10.
AWARD OF STOCK APPRECIATION RIGHTS

10.1 Grant of Stock Appreciation Rights.

(a) The Committee is authorized to grant Stock Appreciation Rights to Eligible Individuals on such terms and conditions as it may determine that are not inconsistent with the Plan; provided, however, that no Stock Appreciation Right shall be granted to any Employee or Consultant of an Affiliate unless the Company is an “eligible issuer of service recipient stock” with respect to such person within the meaning of Section 409A of the Code.

(b) A Stock Appreciation Right shall entitle the Holder (or other person entitled to exercise the Stock Appreciation Right) to exercise all or a specified portion of the Stock Appreciation Right (to the extent then exercisable pursuant to its terms) and to receive from the Company an amount determined by multiplying the difference obtained by subtracting the exercise price of the Stock Appreciation Right from the Fair Market Value of a Share on the date of exercise of the Stock Appreciation Right, and multiplying the difference, if positive, by the number of Shares with respect to which the Stock Appreciation Right shall have been exercised, subject to any limitations the Committee may impose. Except as described in Section 10.1(c) below, the exercise price of each Stock Appreciation Right shall be set by the Committee, but shall not be less than 100% of the Fair Market Value of a Share on the date the

Stock Appreciation Right is granted (or on the date the Stock Appreciation Right is modified, extended or renewed for purposes of Section 409A of the Code).

(c) Notwithstanding the foregoing provisions of Section 10.1(b) to the contrary, in the case of a Stock Appreciation Right that is a Substitute Award, the exercise price of such Stock Appreciation Right may be less than 100% of the Fair Market Value of a Share on the date of grant; provided, that the excess of: (a) the aggregate Fair Market Value (as of the date such Substitute Award is granted) of the Shares subject to the Substitute Award, over (b) the aggregate exercise price thereof does not exceed the excess of: (x) the aggregate fair market value (as of the time immediately preceding the transaction giving rise to the Substitute Award, such fair market value to be determined by the Committee) of the shares of the predecessor entity that were subject to the grant assumed or substituted for by the Company, over (y) the aggregate exercise price of such shares, and that the grant of the Substitute Award otherwise satisfies the requirements of Section 1.409A-1(b)(5)(v)(D) of the Treasury Regulations.

10.2 Stock Appreciation Right Term. The term of each Stock Appreciation Right shall be set by the Committee in its sole discretion; provided, however, that the term shall not be more than ten (10) years from the date the Stock Appreciation Right is granted. The Committee shall determine the time period, including the time period following a Termination of Service, during which the Holder has the right to exercise a vested Stock Appreciation Right, which time period may not extend beyond the term of the Stock Appreciation Right.

10.3 Stock Appreciation Right Vesting. The Committee shall determine the period of time and other conditions that must be satisfied before the Holder’s right to exercise a Stock Appreciation Right, in whole or in part, shall vest. Such vesting may be based on service with the Company or an Affiliate, any of the Performance Criteria, or any other criterion or condition determined by the Committee. No portion of a Stock Appreciation Right that cannot be exercised at the Holder’s Termination of Service shall thereafter become exercisable.

10.4 Manner of Exercise. All or a portion of an exercisable Stock Appreciation Right shall be deemed exercised upon delivery of all of the following to the Company Stock Administrator, or such other person or entity designated by the Committee, or his, her or its office, as applicable:

(a) A written or electronic notice complying with the applicable rules established by the Company Stock Administrator stating that the Stock Appreciation Right, or a portion thereof, is exercised. The notice must be signed in writing or electronically by the Holder or other person then entitled to exercise the Stock Appreciation Right or such portion of the Stock Appreciation Right;

(b) Such representations and documents as the Company Stock Administrator, in its sole discretion, deems necessary or advisable to effect compliance with applicable laws and regulations. The Company Stock Administrator may, in its sole discretion, also take whatever additional actions it deems appropriate to effect such compliance; and

(c) In the event that the Stock Appreciation Right shall be exercised pursuant to this Section 10.4 by any person or persons other than the Holder, appropriate proof of the right of such person or persons to exercise the Stock Appreciation Right.

10.5 Payment. Payment of the amounts payable with respect to Stock Appreciation Rights pursuant to this Article 10 shall be in cash, Shares (based on their Fair Market Value as of the date the Stock Appreciation Right is exercised), or a combination of both, as determined by the Committee, less the applicable withholding taxes.

ARTICLE 11.
ADDITIONAL TERMS OF AWARDS

11.1 Payment. The Committee shall determine the methods by which payments by any Holder with respect to any Awards granted under the Plan shall be made, including, without limitation: (a) cash or check, (b) Shares (including, in the case of payment of the exercise price of an Award, Shares issuable pursuant to the exercise of the Award) or Shares not subject to any pledge or security interest and held for such period of time as may be required by the Committee, in each case, having a Fair Market Value on the date of delivery equal to the aggregate payments required, (c) delivery of a written or electronic notice that the Holder has placed a market sell order with a broker with respect to Shares then issuable upon exercise or vesting of an Award, and that the broker has been directed to pay a sufficient portion of the net proceeds of the sale to the Company in satisfaction of the aggregate payments required; provided, that payment of such proceeds is then made to the Company upon settlement of such sale, or (d) other property or legal consideration acceptable to the Committee. The Committee shall also determine the methods by which Shares shall be delivered or deemed to be delivered to Holders. Notwithstanding any other provision of the Plan to the contrary, no Holder who is a Director or an “executive officer” of the Company within the meaning of Section 13(k) of the Exchange Act shall be permitted to make payment with respect to any Awards granted under the Plan, or continue any extension of credit with respect to such payment, with a loan from the Company or a loan arranged by the Company to the extent it would violate Section 13(k) of the Exchange Act.

11.2 Tax Withholding. The Company and any Affiliate shall have the authority and the right to deduct or withhold, or require a Holder to remit to the Company, an amount sufficient to satisfy federal, state, local and foreign taxes (including the Holder’s FICA or employment tax obligation) required by law to be withheld with respect to any taxable event concerning a Holder arising as a result of the Plan. The Committee may, in its sole discretion and in satisfaction of the foregoing requirement, allow a Holder to elect to have the Company withhold Shares otherwise issuable under an Award (or allow the surrender of Shares). The number of Shares which may be so withheld or surrendered shall be limited to the number of Shares which have a Fair Market Value on the date of withholding or repurchase equal to the aggregate amount of such liabilities not to exceed the minimum statutory withholding rates for federal, state, local and foreign income tax and payroll tax purposes that are applicable to such supplemental taxable income (or such other rate that will not create an adverse accounting cost or consequence). The Company Stock Administrator shall determine the Fair Market Value of the Shares, consistent

with applicable provisions of the Code, for tax withholding obligations due in connection with a broker-assisted cashless Option exercise or a Stock Appreciation Right exercise involving the sale of Shares to pay the Option or Stock Appreciation Right exercise price or any tax withholding obligation.

11.3 Transferability of Awards.

(d) Except as otherwise provided in Section 11.3(b):

(i) No Award under the Plan may be sold, pledged, assigned or transferred in any manner other than to a Permitted Transferee by will or the laws of descent and distribution or, subject to the consent of the Committee, pursuant to a QDRO, unless and until and to the extent such Award has been exercised, or the Shares underlying such Award have been issued, and all restrictions applicable to such Shares have lapsed;

(ii) No Award or interest or right therein shall be liable for the debts, contracts or engagements of the Holder or the Holder’s successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, hypothecation, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted imposition of liability thereon or disposition thereof shall be null and void and of no effect, except to the extent that such disposition is permitted hereunder; and

(iii) During the lifetime of the Holder, only the Holder (or the personal representative of an incompetent Holder) may exercise an Award (or any portion thereof) granted to such Holder under the Plan, unless it has been disposed of pursuant to a QDRO, in which case the beneficiary of the QDRO may exercise the Award; after the death of the Holder, any exercisable portion of an Award may be exercised by a Permitted Transferee, but only prior to the time when such portion expires or becomes unexercisable under the Plan or the applicable Program or Award Agreement.

(e) Notwithstanding Section 11.3(a), the Committee, in its sole discretion and subject to such terms and conditions as it may impose, may permit a Holder to transfer an Award other than an Incentive Stock Option to any one or more Permitted Transferees, subject to any state, federal, local or foreign tax and securities laws applicable to transferable Awards.

(f) A Holder may, in the manner determined by the Committee, designate a Permitted Transferee to exercise the rights of the Holder as his or her beneficiary and to receive any distribution with respect to any Award upon the Holder’s death. Such person shall be subject to all terms and conditions of the Plan and any Program or Award Agreement applicable to the Holder, except to the extent the Plan, the Program, the Award Agreement or applicable law otherwise provide, and to any additional restrictions deemed necessary or appropriate by the Committee. If the Holder is married and resides in a community property state, a designation of a person other than the Holder’s spouse as his or her beneficiary with respect to more than 50% of the Holder’s interest in the Award shall not be effective without the prior written or electronic consent of the Holder’s spouse. Subject to the foregoing, a beneficiary designation may be

changed or revoked by a Holder at any time provided the change or revocation is filed with the Committee prior to the Holder’s death. If no beneficiary has been designated in this manner or the beneficiary does not survive the Holder, the rights of the Holder shall be exercisable by the Holder’s executor or administrator.

11.4 Conditions to Issuance of Shares.

(a) Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver any certificates or make any book entries evidencing Shares pursuant to the exercise or vesting of any Award, unless and until the Board or the Committee has determined, with advice of counsel, that the issuance of such Shares is in compliance with all applicable laws and regulations and, if applicable, the requirements of any Securities Exchange, and the Shares are covered by an effective registration statement or applicable exemption from registration. In addition to the terms and conditions provided herein, the Board or the Committee may require that a Holder make such reasonable covenants, agreements, and representations as the Board or the Committee, in its discretion, deems advisable in order to comply with any such laws, regulations, or requirements.

(b) All certificates evidencing Shares delivered pursuant to the Plan and all Shares issued pursuant to book entry procedures are subject to any stop-transfer orders and other restrictions as the Committee or the Company Stock Administrator deems necessary or advisable to comply with applicable laws and regulations and the rules of any Securities Exchange.

(c) The Company Stock Administrator shall have the right to require any Holder to comply with any timing or other restrictions with respect to the settlement, vesting, distribution or exercise of any Award, including a window-period limitation, as may be imposed in the sole discretion of the Company Stock Administrator, or because of any other requirement arising from compliance with any applicable laws or regulations, as determined by the Company Stock Administrator, in its sole discretion.

(d) No fractional Shares shall be issued and the Company Stock Administrator shall determine, in its sole discretion, whether cash shall be given in lieu of fractional Shares or whether such fractional Shares shall be eliminated by rounding.

(e) Notwithstanding any other provision of the Plan, unless otherwise determined by the Company Stock Administrator or required by any applicable laws or regulations, the Company shall not deliver to any Holder certificates evidencing Shares issued in connection with any Award and instead such Shares shall be recorded in the books of the Company (or, as applicable, its transfer agent or the Company Stock Administrator).

11.5 Forfeiture Provisions. Pursuant to its general authority to determine the terms and conditions applicable to Awards under the Plan, the Committee shall have the right to provide, in the terms or conditions of Programs or Awards made under the Plan or in any policy with respect to the recovery or recoupment of compensation or benefits in the event of financial restatements or the occurrence of other events that are inconsistent with the payment of compensation, as determined by the Committee, or to require a Holder to agree by separate written or electronic instrument, that: (a)(i) any proceeds, gains or other economic benefit

actually or constructively received by the Holder upon any receipt or exercise of the Award, or upon the receipt or resale of any Shares underlying the Award, must be paid to the Company, and (ii) the Award shall terminate and any unexercised portion of the Award (whether or not vested) shall be forfeited, if (b)(i) a Termination of Service occurs prior to a specified date, or within a specified time period following receipt or exercise of the Award, (ii) the Holder at any time, or during a specified time period, engages in any activity in competition with the Company, or which is inimical, contrary or harmful to the interests of the Company, as further defined by the Committee, (iii) the Holder incurs a Termination of Service for “cause” (as such term is defined in the sole discretion of the Committee, or as set forth in a written agreement relating to such Award between the Company and the Holder) or (iv) the Company’s financial results are restated and such proceeds, gains or other economic benefit actually or constructively received by the Holder would have been lower had they been calculated based on such restated results.

11.6 Prohibition on Repricing. Except as provided in Section 13.2, the Committee shall not, without the approval of the stockholders of the Company, (i) authorize the amendment of any outstanding Option or Stock Appreciation Right to reduce its exercise price, or (ii) cancel any outstanding Option or Stock Appreciation Right in exchange for cash or another Award that has a lower exercise price or that provides additional value to the Holder.

11.7 Permitted Replacement Awards. The Committee shall have the authority, without the approval of the stockholders of the Company, to amend any outstanding Award (or any award granted under another Company plan, subject to the terms of such other plan) to increase the exercise price or to cancel and replace an Award (or any award granted under another Company plan, subject to the terms of such other plan) with the grant of an Award having an exercise price that is greater than or equal to the original price per share and/or having vesting schedule and term equal to the remaining vesting schedule and term of the Award (or award granted under another Company plan) being replaced.

ARTICLE 12.
ADMINISTRATION

12.1 Committee. The Committee shall administer the Plan (except as otherwise permitted herein) and shall consist solely of two or more Non-Employee Directors appointed by and holding office at the pleasure of the Board, each of whom is intended to qualify as a “non-employee director” as defined by Rule 16b-3 of the Exchange Act or any successor rule, an “outside director” for purposes of Section 162(m) of the Code and an “independent director” under the rules of any Securities Exchange; provided, that any action taken by the Committee shall be valid and effective, whether or not members of the Committee at the time of such action are later determined not to have satisfied the requirements for membership set forth in this Section 12.1 or otherwise provided in any charter of the Committee.

12.2 Duties and Powers of Committee. It shall be the duty of the Committee to conduct the general administration of the Plan in accordance with its provisions, subject to the Committee’s power to delegate duties under Section 12.6. The Committee shall have the power to interpret the Plan, the Program and any Award Agreement, and to adopt such rules for the

administration, interpretation and application of the Plan as are not inconsistent therewith, to interpret, amend or revoke any such rules and to amend any Program or Award Agreement in any manner not inconsistent with the Plan; provided that the rights of the Holder of an Award that is the subject of any such Program or Award Agreement are not affected adversely by such amendment, unless the consent of the Holder is obtained or such amendment is otherwise permitted under Section 13.9. Any such Award under the Plan need not be the same with respect to each Holder. Any such interpretations and rules with respect to Incentive Stock Options shall be consistent with the provisions of Section 422 of the Code. In its sole discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan except with respect to matters which under Rule 16b-3 under the Exchange Act, Section 162(m) of the Code or the rules of any Securities Exchange require otherwise.

12.3 Action by the Committee. Unless otherwise established by the Board or in any charter of the Committee, a majority of the Committee shall constitute a quorum and the acts of a majority of the members present at any meeting at which a quorum is present, and acts approved in writing by all members of the Committee in lieu of a meeting, shall be deemed the acts of the Committee for purposes of the Plan. Each member of the Committee is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any Affiliate, the Company’s independent certified public accountants, or any compensation consultant, attorney or other professional retained by the Company to assist in the administration of the Plan.

12.4 Authority of Committee. Subject to any specific designation in the Plan or any applicable Program, the Committee has the exclusive power, authority and sole discretion to:

(a) Designate Eligible Individuals to receive Awards;

(b) Determine the type or types of Awards to be granted to each Eligible Individual;

(d) Determine the terms and conditions of any Award granted pursuant to the Plan, including, but not limited to: the exercise price, grant price, or purchase price; any Performance Criteria; any restrictions or limitations on the Award; any schedule for vesting; lapse of forfeiture restrictions or restrictions on the exercisability of an Award and accelerations or waivers thereof; and any provisions related to non-competition and recapture of gain on an Award, based in each case on such considerations as the Committee in its sole discretion determines;

(e) Determine whether, to what extent, and pursuant to what circumstances (i) an Award may be settled in, or the exercise price of an Award may be paid in cash, Shares, other Awards, or other property (subject to the requirements of Section 409A of the Code), or (ii) an Award may be canceled, forfeited, or surrendered;

(f) Prescribe the form of each Award Agreement, which need not be identical for each Holder;

(g) Decide all other matters that must be determined in connection with an Award;

(h) Establish, adopt, or revise any rules and regulations as it may deem necessary or advisable to administer the Plan;

(i) Interpret the terms of, and any matter arising pursuant to, the Plan, any Program or any Award Agreement; and

(j) Make all other decisions and determinations that may be required pursuant to the Plan or as the Committee deems necessary or advisable to administer the Plan.

12.5 Decisions Binding. The Committee’s interpretation of the Plan, any Awards granted pursuant to the Plan, any Program, any Award Agreement and all decisions and determinations by the Committee with respect to the Plan are final, binding, and conclusive on all parties.

12.6 Delegation of Authority. The Board or Committee may from time to time delegate (a) to a committee of one or more members of the Board the authority to grant or amend Awards and (b) to a committee of one or more members of the Board or to one or more officers of the Company the authority to take administrative actions pursuant to Article 12; provided that any delegation of authority shall only be permitted to the extent it is permissible under Section 162(m) of the Code, applicable securities laws, the rules of any applicable Securities Exchange and any Company policy governing the grant of equity-based awards. Any delegation hereunder shall be subject to the restrictions and limits that the Board or Committee specifies at the time of such delegation, and the Board may at any time rescind the authority so delegated or appoint a new delegate. At all times, the delegatee appointed under this Section 12.6 shall serve in such capacity at the pleasure of the Board and the Committee.

ARTICLE 13.
MISCELLANEOUS PROVISIONS

13.1 Amendment, Suspension or Termination of the Plan. Except as otherwise provided in this Section 13.1, the Plan and any Award Agreement may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Board or the Committee. However, without approval of the Company’s stockholders, no action of the Committee may, except as provided in Section 13.2, (i) increase the limits imposed in Section 3.1 on the maximum number of Shares that may be issued under the Plan, (ii) take any action described in Section 11.6 above, (iii) materially modify the requirements for eligibility to participate in the Plan, (iv) materially increase the benefits accruing to participants in the Plan, or (v) take any other action that requires the approval of the Company’s stockholders under the rules of any applicable Securities Exchange. Except as provided in Section 13.9, no amendment, suspension or termination of the Plan shall, without the consent of the Holder, adversely affect the rights of the Holder under any Award theretofore granted to such Holder, unless the Award itself otherwise expressly so provides.

13.2 Changes in Common Stock or Assets of the Company, Acquisition or Liquidation of the Company and Other Corporate Events.

(a) In the event of any stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other change affecting the Shares or the Share price other than an Equity Restructuring, the Committee shall make equitable adjustments, if any, to reflect such change with respect to (i) the aggregate number and kind of securities that may be issued under the Plan (including, but not limited to, adjustments of the limitations in Section 3.1 on the maximum number and kind of securities that may be issued under the Plan, adjustments of the Award Limit, and adjustments of the manner in which securities subject to Full Value Awards will be counted); (ii) the number and kind of securities (or other property) subject to outstanding Awards; (iii) the terms and conditions of any outstanding Awards (including, without limitation, any applicable performance targets or criteria with respect thereto); and (iv) the grant or exercise price per share for any outstanding Awards under the Plan.

(b) In the event of any transaction or event described in Section 13.2(a) or any unusual or nonrecurring transactions or events affecting the Company, any Affiliate of the Company, or the financial statements of the Company or any Affiliate, or of changes in applicable laws, regulations or accounting principles, the Committee, in its sole discretion, and on such terms and conditions as it deems appropriate, either by the terms of the Award or by action taken prior to the occurrence of such transaction or event and either automatically or upon the Holder’s request, is hereby authorized to take any one or more of the following actions whenever the Committee determines that such action is appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan or with respect to any Award under the Plan, to facilitate such transactions or events or to give effect to such changes in laws, regulations or principles:

(i) To provide for either (A) termination of any such Award in exchange for an amount of cash, if any, equal to the amount that would have been attained upon the exercise of such Award or realization of the Holder’s rights (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction or event described in this Section 13.2 the Committee determines in good faith that no amount would have been attained upon the exercise of such Award or realization of the Holder’s rights, then such Award may be terminated by the Company without payment) or (B) the replacement of such Award with other rights or property selected by the Committee in its sole discretion having an aggregate value not exceeding the amount that could have been attained upon the exercise of such Award or realization of the Holder’s rights had such Award been currently exercisable or payable or fully vested;

(ii) To provide that such Award be assumed by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices;

(iii) To make adjustments in the number and type of securities (or other property) subject to outstanding Awards, and in the number and kind of outstanding Restricted Stock and/or in the terms and conditions of (including the grant or exercise price), and the criteria included in, outstanding Awards and Awards which may be granted in the future;

(iv) To provide that such Award shall be exercisable or payable or fully vested with respect to all Shares covered thereby, notwithstanding anything to the contrary in the Plan or the applicable Program or Award Agreement; and/or

(v) To provide that the Award cannot vest, be exercised or become payable after such event.

(c) In connection with the occurrence of any Equity Restructuring, and notwithstanding anything to the contrary in Sections 13.2(a) and 13.2(b):

(i) The number and type of securities subject to each outstanding Award and the exercise price or grant price thereof, if applicable, shall be equitably adjusted; and/or

(ii) The number and kind of securities that may be issued under the Plan pursuant to new Awards shall be equitably adjusted.

d) The Committee may, in its sole discretion, include such further provisions and limitations in any Award, Program, Award Agreement or certificate or book-entry evidencing Shares, as it may deem equitable and in the best interests of the Company that are not inconsistent with the provisions of the Plan.

(e) No adjustment or action described in this Section 13.2 or in any other provision of the Plan, any applicable Program or the Award Agreement shall be authorized to the extent that such adjustment or action would cause such Award to violate the requirements of Section 409A of the Code. With respect to any Award which is granted to a Covered Employee and is intended to qualify as Performance-Based Compensation, no adjustment or action described in this Section 13.2 or in any other provision of the Plan, any applicable Program or the Award Agreement shall be authorized to the extent that such adjustment or action would cause such Award to fail to so qualify as Performance-Based Compensation, unless the Committee determines that the Award should not so qualify. No adjustment or action described in this Section 13.2 or in any other provision of the Plan shall be authorized to the extent that such adjustment or action would cause the Plan to violate Section 422(b)(1) of the Code, unless the Committee determines that Options granted under the Plan are not to qualify as “incentive stock options”. Furthermore, no such adjustment or action shall be authorized to the extent such adjustment or action could result in short-swing profits liability under Section 16 or violate the exemptive conditions of Rule 16b-3 unless the Committee determines that the Award is not to comply with such exemptive conditions.

(f) The existence of the Plan, any Program, any Award Agreement and any Awards granted hereunder shall not affect or restrict in any way the right or power of the Company or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or its business, any merger or consolidation of the Company, any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the Common Stock or the rights thereof or which are convertible into or exchangeable for Common Stock, or the dissolution or liquidation of the Company, or

any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.

(g) In the event of any pending stock dividend, stock split, combination or exchange of shares, merger, consolidation or other distribution (other than normal cash dividends) of Company assets to stockholders, or any other change affecting the Shares or the Share price, including any Equity Restructuring, for reasons of administrative convenience, the Company in its sole discretion may refuse to permit the exercise of any Award during a period of thirty (30) days prior to the consummation of any such transaction.

(h) Without limiting the generality of the foregoing, the vesting of an Award will not automatically accelerate upon the occurrence of a Change of Ownership; provided, however, the Committee may determine that upon the occurrence of a Change of Ownership, (i) the acquirer or surviving entity shall be required to assume an Award or substitute a comparable award with respect to the equity of the acquirer or surviving entity, (ii) the vesting of all or any portion of the Award will accelerate to the time immediately prior to the consummation of the Change of Ownership, or, in the case of an Option or Stock Appreciation Right, all or any portion of the Award shall become immediately exercisable so that the Holder will have the opportunity to exercise the Award (or portion thereof) immediately prior to consummation of the Change of Ownership, and/or (iii) all or any portion of the Award, including any unvested portion should the Committee so determine, shall be purchased for (x) in the case of an Option or Stock Appreciation Right, cash in an amount equal to the excess of the aggregate Fair Market Value of the Shares subject to the Award to be purchased over the aggregate exercise price for such Shares, net of tax withholding, and (y) in the case of any other Award, such consideration as the Committee may in good faith determine to be equitable under the circumstances; provided, further, that any determination of the Committee in this regard shall comply with Sections 409A and 424 of the Code.

13.3 No Stockholder Rights. Except as otherwise provided herein, a Holder shall have none of the rights of a stockholder with respect to Shares subject to any Award until the Holder becomes the record owner of such Shares.

13.4 Paperless Administration. In the event that the Company Stock Administrator establishes, for the Company or using the services of a third party, an automated system for the documentation, granting or exercise of Awards, such as a system using an internet website or interactive voice response, then the paperless documentation, granting or exercise of Awards by a Holder may be permitted through the use of such an automated system.

13.5 Effect of Plan upon Other Compensation Plans. The adoption of the Plan shall not affect any other compensation or incentive plans in effect for the Company or any Affiliate, except as described in Section 3.1(a) above with respect to the Company’s 2010 Equity Incentive Plan. Nothing in the Plan shall be construed to limit the right of the Company or any Affiliate: (a) to establish any other forms of incentives or compensation for Employees, Directors or Consultants of the Company or any Affiliate, or (b) to grant or assume options or other rights or awards otherwise than under the Plan in connection with any proper corporate purpose including without limitation, the grant or assumption of options in connection with the acquisition by

purchase, lease, merger, consolidation or otherwise, of the business, stock or assets of any corporation, partnership, limited liability company, firm or association.

13.6 Compliance with Laws. The Plan, the granting and vesting of Awards under the Plan and the issuance and delivery of Shares and the payment of money under the Plan or under Awards granted or awarded under the Plan are subject to compliance with all applicable laws and regulations, the rules of any Securities Exchange, and to such approvals by any listing, regulatory or governmental authority as may, in the opinion of counsel for the Company, be necessary or advisable in connection therewith. Any securities delivered under the Plan shall be subject to such restrictions, and the person acquiring such securities shall, if requested by the Company, provide such assurances and representations to the Company as the Company may deem necessary or desirable to assure compliance with all applicable legal requirements. To the extent permitted by applicable law, the Plan, any Program and any Awards granted or awarded hereunder shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.

13.7 Titles and Headings, References to Sections of the Code, the Securities Act or Exchange Act. The titles and headings of the Sections in the Plan are for convenience of reference only and, in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control. References to sections of the Code, the Securities Act or the Exchange Act shall include any amendment or successor thereto.

13.8 Governing Law. The Plan, any Program and any agreements hereunder shall be administered, interpreted and enforced under the internal laws of the State of Delaware without regard to conflicts of laws thereof.

13.9 Section 409A.

(a) To the extent that the Committee determines that any Award granted under the Plan is subject to Section 409A of the Code, the Program pursuant to which such Award is granted and the Award Agreement evidencing such Award shall incorporate the terms and conditions required by Section 409A of the Code. To the extent applicable, the Plan, the Program and any Award Agreements shall be interpreted in accordance with Section 409A of the Code. Notwithstanding any provision of the Plan or the applicable Program or Award Agreement to the contrary, in the event that following the Original Effective Date the Committee determines that any Award may be subject to Section 409A of the Code, the Committee may adopt such amendments to the Plan and the applicable Program and Award Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Administrator determines are necessary or appropriate to (i) exempt the Award from Section 409A of the Code and/or preserve the intended tax treatment of the benefits provided with respect to the Award, or (ii) comply with the requirements of Section 409A of the Code and related Department of Treasury guidance and thereby avoid the application of any penalty taxes under such Section.

(b) If, at the time of a Holder’s “separation from service” (within the meaning of Section 409A of the Code), (i) such Holder is a “specified employee” (within the meaning of Section 409A of the Code as determined annually by the Committee in accordance with the

methodology specified by resolution of the Board or the Committee and in accordance with Section 1.409A-1(i) of the Treasury Regulations) and (ii) the Committee shall make a good-faith determination that an amount payable pursuant to an Option or Award constitutes “deferred compensation” (within the meaning of Section 409A of the Code) the payment of which is required to be delayed pursuant to the six-month delay rule set forth in Section 409A of the Code in order to preserve the tax treatment intended for such payment or to avoid additional tax, interest, or penalties under Section 409A of the Code, then the Company shall not pay such amount on the otherwise scheduled payment date but shall instead pay it on the first business day after such six-month period. Such amount shall be paid without interest, unless otherwise determined by the Committee, in its sole discretion, or as otherwise provided in any applicable agreement between the Company and the relevant Holder.

(c) The Holder shall be solely responsible and liable for the satisfaction of all taxes, interest, and penalties that may be imposed on such Holder or for such Holder’s account in connection with any Award (including any taxes, interest, and penalties under Section 409A of the Code), and neither the Company nor its Affiliates shall have any obligation to reimburse, indemnify or otherwise hold such Holder harmless from any or all of such taxes, interest, or penalties.

13.10 No Rights to Awards. No Eligible Individual or other person shall have any claim to be granted any Award pursuant to the Plan, and neither the Company nor the Committee is obligated to treat Eligible Individuals, Holders or any other persons uniformly.

13.11 Unfunded Status of Awards. The Plan is intended to be an “unfunded” plan for incentive compensation. With respect to any payments not yet made to a Holder pursuant to an Award, nothing contained in the Plan or any Program or Award Agreement shall give the Holder any rights that are greater than those of a general creditor of the Company or any Affiliate.

13.12 Indemnification. To the extent allowable pursuant to applicable law, each member of the Committee or of the Board shall be indemnified and held harmless by the Company from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such member in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action or failure to act pursuant to the Plan and against and from any and all amounts paid by him or her in satisfaction of judgment in such action, suit, or proceeding against him or her. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled pursuant to the Company’s Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.

13.13 Term. The ability to grant new awards under this Plan shall terminate on the tenth (10^th) anniversary of the Amended Effective Date.

# # #

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jeffrey T. Mezger, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of KB Home;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Dated	July 8, 2016	/s/ JEFFREY T. MEZGER
		Jeffrey T. Mezger
		President and Chief Executive Officer
		(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jeff J. Kaminski, certify that:


1.	I have reviewed this quarterly report on Form 10-Q of KB Home;


2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;


4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;


b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;


c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and


d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):


a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and


b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Dated	July 8, 2016	/s/ JEFF J. KAMINSKI
		Jeff J. Kaminski
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT

TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of KB Home (the "Company") on Form 10-Q for the period ended May 31, 2016 (the “Report”), I, Jeffrey T. Mezger, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:


(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Dated	July 8, 2016	/s/ JEFFREY T. MEZGER
		Jeffrey T. Mezger
		President and Chief Executive Officer
		(Principal Executive Officer)

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT

TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of KB Home (the "Company") on Form 10-Q for the period ended May 31, 2016 (the “Report”), I, Jeff J. Kaminski, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:


(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and


(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



Dated	July 8, 2016	/s/ JEFF J. KAMINSKI
		Jeff J. Kaminski
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer)

Serious News for Serious Traders! Try StreetInsider.com Premium Free!

Create E-mail Alert Related Categories

SEC Filings

Sign up for StreetInsider Free!

Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!

Form 10-Q KB HOME For: May 31

You May Also Be Interested In

Create E-mail Alert Related Categories

Sign up for StreetInsider Free!

Free News Feed