Stock-Based Compensation

6 Months Ended

May 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

Stock-Based Compensation

We measure and recognize compensation expense associated with our grant of equity-based awards in accordance with ASC 718, which requires that companies measure and recognize compensation expense at an amount equal to the fair value of share-based payments granted under compensation arrangements over the vesting period. Compensation expense related to equity-based awards is included in selling, general and administrative expenses in our consolidated statements of operations.

Stock Options. In accordance with ASC 718, we estimate the grant-date fair value of stock options using the Black-Scholes option-pricing model, which takes into account assumptions regarding an expected dividend yield, a risk-free interest rate, an expected volatility factor for the market price of our common stock and an expected term of the stock options. The following table summarizes stock option transactions for the six months ended May 31, 2014:

	Options		Weighted Average Exercise Price
Options outstanding at beginning of period	10,531,938		$	21.11
Granted	—		—
Exercised	(10,000	)	6.32
Cancelled	(5,747	)	35.39
Options outstanding at end of period	10,516,191		$	21.12
Options exercisable at end of period	9,409,188		$	22.25

As of May 31, 2014, the weighted average remaining contractual life of stock options outstanding and stock options exercisable was 5.1 years and 4.7 years, respectively. There was $2.1 million of total unrecognized compensation expense related to unvested stock option awards as of May 31, 2014. For the three months ended May 31, 2014 and 2013, stock-based compensation expense associated with stock options totaled $.6 million and $.4 million, respectively. For the six months ended May 31, 2014 and 2013, stock-based compensation expense associated with stock options totaled $1.2 million and $.8 million, respectively. The aggregate intrinsic value of stock options outstanding was $26.7 million at May 31, 2014. The aggregate intrinsic value of stock options exercisable was $21.1 million at May 31, 2014. (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. We recognized total compensation expense of $1.3 million for the three months ended May 31, 2014 and $.7 million for the three months ended May 31, 2013 related to restricted stock and PSUs. We recognized total compensation expense of $2.5 million for the six months ended May 31, 2014 and $1.3 million for the six months ended May 31, 2013 related to restricted stock and PSUs.

Approval of the KB Home 2014 Equity Incentive Plan. At our Annual Meeting of Stockholders held on April 3, 2014, our stockholders approved the KB Home 2014 Equity Incentive Plan (the “2014 Plan”), authorizing, among other things, the issuance for grants of stock-based awards to our employees, non-employee directors and consultants of up to 4,800,000 shares of our common stock, plus any shares that were available for grant as of April 3, 2014 under our 2010 Equity Incentive Plan (the “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, subject to the terms of the 2014 Plan. No new awards may be made under the 2010 Plan. As a result, as of April 3, 2014, the 2014 Plan became our only active equity compensation plan. As of May 31, 2014, no grants of stock-based awards had been made under the 2014 Plan.