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 August 31, ~~2015~~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 August 31, ~~2015~~2016.

There were ~~92,071,598~~84,773,093 shares of the registrant’s common stock, par value $1.00 per share, outstanding on August 31, ~~2015~~2016. The registrant’s grantor stock ownership trust held an additional ~~10,335,461~~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 - Nine Months and Three Months Ended August 31, ~~2015~~2016 and ~~2014~~2015	3

Consolidated Balance Sheets - August 31, ~~2015~~2016 and November 30, ~~2014~~2015	4

Consolidated Statements of Cash Flows - Nine Months Ended August 31, ~~2015~~2016 and ~~2014~~2015	5

Notes to Consolidated Financial Statements	6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3132

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	53

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)


	Nine Months Ended August 31,						Three Months Ended August 31,						Nine Months Ended August 31,						Three Months Ended August 31,
	2015			2014			2015			2014			2016			2015			2016			2015
Total revenues	$	2,046,247		$	1,604,908		$	843,157		$	589,214		$	2,402,704		$	2,046,247		$	913,283		$	843,157
Homebuilding:
Revenues	$	2,038,896		$	1,596,894		$	840,204		$	586,231		$	2,394,315		$	2,038,896		$	910,111		$	840,204
Construction and land costs	(1,725,976		)	(1,305,258		)	(709,148		)	(479,424		)	(2,018,022		)	(1,725,976		)	(760,490		)	(709,148		)
Selling, general and administrative expenses	(244,678		)	(205,715		)	(95,074		)	(72,897		)	(279,886		)	(244,678		)	(98,144		)	(95,074		)
Operating income	68,242			85,921			35,982			33,910			96,407			68,242			51,477			35,982
Interest income	342			393			87			110			395			342			109			87
Interest expense	(17,850		)	(26,289		)	(4,394		)	(6,455		)	(5,667		)	(17,850		)	—			(4,394		)
Equity in income (loss) of unconsolidated joint ventures	(1,180		)	1,161			(422		)	(751		)
Equity in loss of unconsolidated joint ventures													(1,964		)	(1,180		)	(536		)	(422		)
Homebuilding pretax income	49,554			61,186			31,253			26,814			89,171			49,554			51,050			31,253
Financial services:
Revenues	7,351			8,014			2,953			2,983			8,389			7,351			3,172			2,953
Expenses	(2,802		)	(2,563		)	(910		)	(859		)	(2,621		)	(2,802		)	(891		)	(910		)
Equity in income (loss) of unconsolidated joint ventures	3,023			(289		)	658			(277		)	(652		)	3,023			132			658
Financial services pretax income	7,572			5,162			2,701			1,847			5,116			7,572			2,413			2,701
Total pretax income	57,126			66,348			33,954			28,661			94,287			57,126			53,463			33,954
Income tax expense	(16,500		)	(800		)	(10,700		)	(300		)	(26,200		)	(16,500		)	(14,100		)	(10,700		)
Net income	$	40,626		$	65,548		$	23,254		$	28,361		$	68,087		$	40,626		$	39,363		$	23,254
Earnings per share:
Basic	$	.44		$	.74		$	.25		$	.31		$	.79		$	.44		$	.46		$	.25
Diluted	$	.42		$	.68		$	.23		$	.28		$	.72		$	.42		$	.42		$	.23
Weighted average shares outstanding:
Basic	92,005			88,389			92,065			91,793			85,952			92,005			84,457			92,065
Diluted	101,605			98,614			101,874			102,070			96,437			101,605			95,203			101,874
Cash dividends declared per common share	$	.075		$	.075		$	.025		$	.025		$	.075		$	.075		$	.025		$	.025

See accompanying notes.

KB HOME

CONSOLIDATED BALANCE SHEETS

(In Thousands – Unaudited)


	August 31, 2015			November 30, 2014			August 31, 2016			November 30, 2015
Assets
Homebuilding:
Cash and cash equivalents	$	352,952		$	356,366		$	334,669		$	559,042
Restricted cash	25,028			27,235			602			9,344
Receivables	159,576			125,488			149,219			152,682
Inventories	3,401,737			3,218,387			3,597,673			3,313,747
Investments in unconsolidated joint ventures	72,800			79,441			61,526			71,558
Deferred tax assets, net	810,016			825,232			756,596			782,196
Other assets	114,352			114,915			113,341			112,774
	4,936,461			4,747,064			5,013,626			5,001,343
Financial services	12,035			10,486			14,135			14,028
Total assets	$	4,948,496		$	4,757,550		$	5,027,761		$	5,015,371

Liabilities and stockholders’ equity
Homebuilding:
Accounts payable	$	178,604		$	172,716		$	195,785		$	183,770
Accrued expenses and other liabilities	497,158			409,882			471,295			513,414
Notes payable	2,630,732			2,576,525			2,674,795			2,625,536
	3,306,494			3,159,123			3,341,875			3,322,720
Financial services	1,776			2,517			3,436			1,817
Stockholders’ equity:
Common stock	115,524			115,387			116,199			115,548
Paid-in capital	679,600			668,857			695,686			682,871
Retained earnings	1,424,992			1,391,256			1,528,329			1,466,713
Accumulated other comprehensive loss	(21,008		)	(21,008		)	(17,319		)	(17,319		)
Grantor stock ownership trust, at cost	(112,106		)	(112,106		)	(105,871		)	(109,936		)
Treasury stock, at cost	(446,776		)	(446,476		)	(534,574		)	(447,043		)
Total stockholders’ equity	1,640,226			1,595,910			1,682,450			1,690,834
Total liabilities and stockholders’ equity	$	4,948,496		$	4,757,550		$	5,027,761		$	5,015,371

See accompanying notes.

KB HOME

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands – Unaudited)


	Nine Months Ended August 31,						Nine Months Ended August 31,
	2015			2014			2016			2015
Cash flows from operating activities:
Net income	$	40,626		$	65,548		$	68,087		$	40,626
Adjustments to reconcile net income to net cash used in operating activities:
Equity in income of unconsolidated joint ventures	(1,843		)	(872		)
Equity in (income) loss of unconsolidated joint ventures							2,616			(1,843		)
Amortization of discounts and issuance costs	5,866			5,246			5,668			5,866
Depreciation and amortization	2,547			1,677			2,763			2,547
Deferred income taxes	15,216			—			25,600			15,216
Stock-based compensation	10,444			5,959			10,180			10,444
Inventory impairments and land option contract abandonments	4,516			5,211			16,758			4,516
Changes in assets and liabilities:
Receivables	(25,032		)	(27,754		)	6,637			(25,032		)
Inventories	(72,509		)	(784,457		)	(265,529		)	(72,509		)
Accounts payable, accrued expenses and other liabilities	(1,952		)	20,388			28,508			(1,952		)
Other, net	37			(7,608		)	(3,900		)	37
Net cash used in operating activities	(22,084		)	(716,662		)	(102,612		)	(22,084		)
Cash flows from investing activities:
Contributions to unconsolidated joint ventures	(20,955		)	(34,034		)	(1,000		)	(20,955		)
Return of investments in unconsolidated joint ventures	14,000			—			3,495			14,000
Proceeds from sale of investment in unconsolidated joint venture	—			10,110
Purchases of property and equipment, net	(2,100		)	(4,158		)	(2,680		)	(2,100		)
Net cash used in investing activities	(9,055		)	(28,082		)	(185		)	(9,055		)
Cash flows from financing activities:
Change in restricted cash	2,207			9,450			8,742			2,207
Proceeds from issuance of debt	250,000			400,000			—			250,000
Payment of debt issuance costs	(4,561		)	(5,448		)	—			(4,561		)
Repayment of senior notes	(199,906		)	—			—			(199,906		)
Payments on mortgages and land contracts due to land sellers and other loans	(13,736		)	(23,292		)	(41,913		)	(13,736		)
Proceeds from issuance of common stock, net	—			137,045
Issuance of common stock under employee stock plans	436			202			7,351			436
Payments of cash dividends	(6,890		)	(6,682		)	(6,471		)	(6,890		)
Stock repurchases	(300		)	(46		)	(87,531		)	(300		)
Net cash provided by financing activities	27,250			511,229
Net cash provided by (used in) financing activities							(119,822		)	27,250
Net decrease in cash and cash equivalents	(3,889		)	(233,515		)	(222,619		)	(3,889		)
Cash and cash equivalents at beginning of period	358,768			532,523			560,341			358,768
Cash and cash equivalents at end of period	$	354,879		$	299,008		$	337,722		$	354,879

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 August 31, ~~2015~~2016, the results of our consolidated operations for the three months and nine months endedAugust 31, ~~2015~~2016 and ~~2014~~,2015, and our consolidated cash flows for the nine months ended August 31, ~~2015~~2016 and ~~2014~~.2015. The results of our consolidated operations for the three months and nine months endedAugust 31, ~~2015~~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, ~~2014~~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, ~~2014~~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 ~~informed~~ 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 ~~$231.0~~$222.4 million at August 31, ~~2015~~2016 and ~~$197.7~~$342.3 million at November 30, ~~2014~~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 August 31, ~~2015~~2016 and November 30, ~~2014~~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 ~~$23.3~~$39.4 million for the three months ended August 31, ~~2015~~2016 and ~~$28.4~~$23.3 million for the three months ended August 31, ~~2014.~~2015. For the nine months ended August 31, ~~2015~~2016 and ~~2014,~~2015, our comprehensive income was ~~$40.6~~$68.1 million and ~~$65.5~~$40.6 million, respectively. Our comprehensive income for each of the three-month and nine-month periods ended August 31, ~~2015~~2016 and ~~2014~~2015 was equal to our net income for the ~~same~~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 public companies~~ 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 January 2015, the FASB issued Accounting Standards Update No. 2015-01, “Income Statement — Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items”(“ASU 2015-01”). ASU 2015-01 eliminates the concept of extraordinary items from GAAP but retains the presentation and disclosure guidance for items that are unusual in nature or occur infrequently and expands the guidance to include items that are both unusual in nature and infrequently occurring. ASU 2015-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. A reporting entity may apply ASU 2015-01 prospectively. A reporting

entity may also apply ASU 2015-01 retrospectively to all periods presented in the financial statements. We believe the adoption of ASU 2015-01 will not have a material effect on our consolidated financial statements.

~~In February 2015, the FASB issued Accounting Standards Update No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis”~~(“ASU 2015-02”). ASU 2015-02 changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. ASU 2015-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. We believe the adoption of ASU 2015-02 will not have a material effect 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. For public entities, ASU 2015-03 is 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. ASU 2015-03 is to be applied on a retrospective basis and represents a change in accounting principle. ~~We believe the adoption of ASU 2015-03 will not have a material effect on our consolidated financial statements.~~

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 ~~the adoption of~~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 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.

In August 2016, the FASB issued Accounting Standards Update No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 provides guidance on how certain cash receipts and cash payments are to be presented and classified in the statement of cash flows. For public entities, ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, 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 August 31, ~~2015~~2016, we had identified five operating reporting segments, comprised of four homebuilding reporting segments and one financial services reporting segment. As of August 31, ~~2015~~2016, our homebuilding reporting segments conducted ~~ongoing~~ operations in the following states:

West Coast: California

Southwest: Arizona and Nevada

Central: Colorado ~~New Mexico~~ 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. This transition is expected to be completed within 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 both the three months and nine months ended August 31, 2016. We plan to continue constructing and delivering homes in our remaining communities 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 nine months ended August 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. Prior to July 21, 2014, this segment also earned revenues pursuant to the terms of a marketing services agreement with Nationstar Mortgage LLC (“Nationstar”), under which Nationstar was our preferred mortgage lender andUntil September 2016, we offered mortgage banking services, including residential mortgage loan (“mortgage loan”) originations, to our homebuyers who elected to use the lender. Our homebuyers may select any lender of their choice to obtain mortgage financing for the purchase of their home. Since July 21, 2014, we have offered mortgage banking services, including 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.~~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. In September 2016, we and Nationstar began the process of winding down HCM and transferring HCM’s assets and operations to Stearns Lending, LLC (“Stearns Lending”). During this transition, Stearns Lending is offering mortgage banking services to our homebuyers, and we are working with Stearns Lending to establish a new relationship. 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 ~~implements~~oversees the implementation of company-wide strategic initiatives and provides support to our ~~homebuilding~~ reporting segments by centralizing certain administrative ~~functions, such as promotional marketing, legal, purchasing administration, architecture, accounting, treasury, insurance and risk management, information technology and human resources.~~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 ~~the~~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):


	Nine Months Ended August 31,						Three Months Ended August 31,						Nine Months Ended August 31,						Three Months Ended August 31,
	2015			2014			2015			2014			2016			2015			2016			2015
Revenues:
West Coast	$	932,905		$	707,532		$	378,362		$	265,491		$	1,029,269		$	932,905		$	414,150		$	378,362
Southwest	273,339			144,597			128,021			50,101			318,190			273,339			106,187			128,021
Central	545,913			477,518			210,417			179,972			707,917			545,913			265,524			210,417
Southeast	286,739			267,247			123,404			90,667			338,939			286,739			124,250			123,404
Total homebuilding revenues	2,038,896			1,596,894			840,204			586,231			2,394,315			2,038,896			910,111			840,204
Financial services	7,351			8,014			2,953			2,983			8,389			7,351			3,172			2,953
Total	$	2,046,247		$	1,604,908		$	843,157		$	589,214		$	2,402,704		$	2,046,247		$	913,283		$	843,157

Pretax income (loss):
West Coast	$	76,177		$	93,599		$	35,769		$	39,270		$	78,647		$	76,177		$	36,912		$	35,769
Southwest	20,420			7,599			11,732			2,543			31,229			20,420			8,592			11,732
Central	42,000			24,806			18,649			11,514			61,515			42,000			27,601			18,649
Southeast	(20,965		)	(9,881		)	(4,751		)	(7,965		)	(11,825		)	(20,965		)	2,329			(4,751		)
Corporate and other	(68,078		)	(54,937		)	(30,146		)	(18,548		)	(70,395		)	(68,078		)	(24,384		)	(30,146		)
Total homebuilding pretax income	49,554			61,186			31,253			26,814			89,171			49,554			51,050			31,253
Financial services	7,572			5,162			2,701			1,847			5,116			7,572			2,413			2,701
Total	$	57,126		$	66,348		$	33,954		$	28,661		$	94,287		$	57,126		$	53,463		$	33,954


									Nine Months Ended August 31,				Three Months Ended August 31,
									2016		2015		2016		2015
Inventory impairment charges:
West Coast	$	—	$	—	$	—	$	—	$	7,153	$	—	$	2,579	$	—
Southwest	—		—		—		—		—		—		—		—
Central	—		—		—		—		787		—		—		—
Southeast	3,173		3,408		3,173		3,408		5,915		3,173		—		3,173
Total	$	3,173	$	3,408	$	3,173	$	3,408	$	13,855	$	3,173	$	2,579	$	3,173

Land option contract abandonments:
West Coast	$	134	$	554	$	134	$	451	$	691	$	134	$	270	$	134
Southwest	—		—		—		—		253		—		142		—
Central	225		995		225		562		460		225		—		225
Southeast	984		254		—		—		1,499		984		61		—
Total	$	1,343	$	1,803	$	359	$	1,013	$	2,903	$	1,343	$	473	$	359



	August 31, 2016		November 30, 2015
Inventories:
Homes under construction
West Coast	$	826,153	$	535,795
Southwest	128,242		112,032
Central	307,957		263,345
Southeast	140,298		120,184
Subtotal	1,402,650		1,031,356

Land under development
West Coast	809,404		788,607
Southwest	322,596		317,331
Central	455,374		421,783
Southeast	186,588		238,324
Subtotal	1,773,962		1,766,045

Land held for future development
West Coast	212,103		277,954
Southwest	87,929		104,677
Central	14,806		22,082
Southeast	106,223		111,633
Subtotal	421,061		516,346
Total	$	3,597,673	$	3,313,747

August 31,
2015 November 30,
2014
Inventories:
Homes under construction
West Coast $ 649,874
$ 536,843
Southwest 117,705
65,647
Central 280,330
201,164
Southeast 139,667
124,618
Subtotal 1,187,576
928,272

Land under development
West Coast 719,557
765,577
Southwest 322,676
334,691
Central 396,115
363,933
Southeast 248,326
245,948
Subtotal 1,686,674
1,710,149

Land held for future development
West Coast 287,365
294,060
Southwest 113,661
138,367
Central 22,063
22,957
Southeast 104,398
124,582
Subtotal 527,487
579,966
Total $ 3,401,737
$ 3,218,387


					August 31, 2016		November 30, 2015
Assets:
West Coast	$	1,775,422	$	1,695,753	$	1,954,542	$	1,740,299
Southwest	598,260		579,201		575,972		582,030
Central	810,123		678,139		894,230		829,811
Southeast	528,270		531,011		453,259		507,844
Corporate and other	1,224,386		1,262,960		1,135,623		1,341,359
Total homebuilding assets	4,936,461		4,747,064		5,013,626		5,001,343
Financial services	12,035		10,486		14,135		14,028
Total	$	4,948,496	$	4,757,550	$	5,027,761	$	5,015,371


3.	Financial Services

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

Nine Months Ended August 31, Three Months Ended August 31,
2015 2014 2015 2014
Revenues
Insurance commissions $ 4,581
$ 4,364
$ 1,857
$ 1,832
Title services 2,769
2,503
1,096
904
Marketing services fees —
1,147
—
247
Interest income 1
—
—
—
Total 7,351
8,014
2,953
2,983


													Nine Months Ended August 31,						Three Months Ended August 31,
													2016			2015			2016			2015
Revenues
Insurance commissions													$	4,844		$	4,581		$	1,897		$	1,857
Title services													3,545			2,769			1,275			1,096
Interest income													—			1			—			—
Total													8,389			7,351			3,172			2,953
	Nine Months Ended August 31,						Three Months Ended August 31,
	2015			2014			2015			2014
Expenses
General and administrative	$	(2,802	)	$	(2,563	)	$	(910	)	$	(859	)	(2,621		)	(2,802		)	(891		)	(910		)
Operating income	4,549			5,451			2,043			2,124			5,768			4,549			2,281			2,043
Equity in income (loss) of unconsolidated joint ventures	3,023			(289		)	658			(277		)	(652		)	3,023			132			658
Pretax income	$	7,572		$	5,162		$	2,701		$	1,847		$	5,116		$	7,572		$	2,413		$	2,701


	August 31, 2015		November 30, 2014		August 31, 2016		November 30, 2015
Assets
Cash and cash equivalents	$	1,927	$	2,402	$	3,053	$	1,299
Receivables	846		1,738		1,222		2,245
Investments in unconsolidated joint ventures	9,171		6,149		9,788		10,440
Other assets	91		197		72		44
Total assets	$	12,035	$	10,486	$	14,135	$	14,028
Liabilities
Accounts payable and accrued expenses	$	1,776	$	2,517	$	3,436	$	1,817
Total liabilities	$	1,776	$	2,517	$	3,436	$	1,817


4.	Earnings Per Share

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

Nine Months Ended August 31, Three Months Ended August 31,
2015 2014 2015 2014
Numerator:
Net income $ 40,626
$ 65,548
$ 23,254
$ 28,361
Less: Distributed earnings allocated to nonvested restricted stock (24 ) (18 ) (7 ) (6 )
Less: Undistributed earnings allocated to nonvested restricted stock (115 ) (159 ) (63 ) (73 )
Numerator for basic earnings per share 40,487
65,371
23,184
28,282
Effect of dilutive securities:
Interest expense and amortization of debt issuance costs associated with convertible senior notes, net of taxes 2,000
2,000
667
667
Add: Undistributed earnings allocated to nonvested restricted stock 115
159
63
73
Less: Undistributed earnings reallocated to nonvested restricted stock (104 ) (142 ) (57 ) (66 )
Numerator for diluted earnings per share $ 42,498
$ 67,388
$ 23,857
$ 28,956


	Nine Months Ended August 31,				Three Months Ended August 31,				Nine Months Ended August 31,						Three Months Ended August 31,
									2016			2015			2016			2015
Numerator:
Net income									$	68,087		$	40,626		$	39,363		$	23,254
Less: Distributed earnings allocated to nonvested restricted stock									(31		)	(24		)	(10		)	(7		)
Less: Undistributed earnings allocated to nonvested restricted stock									(296		)	(115		)	(180		)	(63		)
Numerator for basic earnings per share									67,760			40,487			39,173			23,184
Effect of dilutive securities:
Interest expense and amortization of debt issuance costs associated with convertible senior notes, net of taxes									2,000			2,000			667			667
Add: Undistributed earnings allocated to nonvested restricted stock									296			115			180			63
Less: Undistributed earnings reallocated to nonvested restricted stock									(264		)	(104		)	(161		)	(57		)
Numerator for diluted earnings per share									$	69,792		$	42,498		$	39,859		$	23,857
	2015		2014		2015		2014
Denominator:
Weighted average shares outstanding — basic	92,005		88,389		92,065		91,793		85,952			92,005			84,457			92,065
Effect of dilutive securities:
Share-based payments	1,198		1,823		1,407		1,875		2,083			1,198			2,344			1,407
Convertible senior notes	8,402		8,402		8,402		8,402		8,402			8,402			8,402			8,402
Weighted average shares outstanding — diluted	101,605		98,614		101,874		102,070		96,437			101,605			95,203			101,874
Basic earnings per share	$	.44	$	.74	$	.25	$	.31	$	.79		$	.44		$	.46		$	.25
Diluted earnings per share	$	.42	$	.68	$	.23	$	.28	$	.72		$	.42		$	.42		$	.23

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 August 31, ~~2015~~2016 or ~~2014.~~2015.

Outstanding stock options to purchase 6.6 million shares of our common stock were excluded from the diluted earnings per share calculations for the three-month and nine-month periods ended August 31, 2016, and outstanding options to purchase 5.7 million shares of our common stock were excluded from the diluted earnings per share calculations for the three-month and nine-month periods ended August 31, 2015, and outstanding stock options to purchase 5.2 million shares of our common stock were excluded from the diluted earnings per share calculations for the three-month and nine-month periods ended August 31, 2014, 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 ~~three-month and nine-month~~ periods ~~ended~~ ~~August 31, 2015~~ ~~and 2014,~~presented, as the applicable vesting conditions had not been satisfied.


5.	Inventories

Inventories consisted of the following (in thousands):


	August 31, 2015		November 30, 2014		August 31, 2016		November 30, 2015
Homes under construction	$	1,187,576	$	928,272	$	1,402,650	$	1,031,356
Land under development	1,686,674		1,710,149		1,773,962		1,766,045
Land held for future development	527,487		579,966		421,061		516,346
Total	$	3,401,737	$	3,218,387	$	3,597,673	$	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):


	Nine Months Ended August 31,						Three Months Ended August 31,						Nine Months Ended August 31,						Three Months Ended August 31,
	2015			2014			2015			2014			2016			2015			2016			2015
Capitalized interest at beginning of period	$	266,668		$	216,681		$	299,678		$	241,583		$	288,442		$	266,668		$	309,045		$	299,678
Interest incurred	140,789			127,041			46,587			44,603			138,994			140,789			46,485			46,587
Interest expensed	(17,850		)	(26,289		)	(4,394		)	(6,455		)	(5,667		)	(17,850		)	—			(4,394		)
Interest amortized to construction and land costs (a)	(99,488		)	(59,471		)	(51,752		)	(21,769		)	(106,663		)	(99,488		)	(40,424		)	(51,752		)
Capitalized interest at end of period (b)	$	290,119		$	257,962		$	290,119		$	257,962		$	315,106		$	290,119		$	315,106		$	290,119


(a)	Interest amortized to construction and land costs for the nine months ended August 31, 2016 included $.5 million related to land sales during the period. Interest amortized to construction and land costs for the three months and nine months ended August 31, 2015 included $16.4 million related to land sales during those periods.


(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 2943 and 2529 communities or land parcels for recoverability during the nine months ended August 31, ~~2015~~2016 and ~~2014,~~2015, respectively. The carrying value of the communities or land parcels evaluated during the nine months ended August 31, 2016 and 2015 ~~and 2014~~ was ~~$232.8~~$350.0 million and ~~$207.4~~$232.8 million, respectively. Some of the communities or land parcels evaluated during the nine months ended August 31, ~~2015~~2016 and ~~2014~~2015 were evaluated in more than one quarterly period. Communities or land parcels evaluated for recoverability in more than one quarterly period, if any, ~~are~~were counted only once for each nine-month ~~period shown.~~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:



	Nine Months Ended August 31,		Three Months Ended August 31,
Unobservable Input (a)	2016	2015	2016	2015
Average selling price	$280,100 - $486,000	$178,100	$351,600 - $486,000	$178,100
Deliveries per month	1 - 4	4	2 - 3	4
Discount rate	17% - 20%	20%	17%	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 an inventory impairment ~~charge~~charges of ~~$3.2~~$2.6 million for the three months ended August 31, 2016 and $13.9 million for the nine months ended August 31, ~~2015 associated with a community located~~2016 that reflected our decisions within the periods to make changes in ~~Florida. We decided to change~~ our operational and marketing ~~strategy for this community in order to monetize~~strategies at specific communities aimed at more quickly monetizing our investment ~~more quickly by accelerating~~in those communities, as discussed below. Inventory impairment charges for the three months ended August 31, 2016 related to two communities in California where we decided to accelerate the overall pace for selling, building and delivering homes, primarily through lowering ~~the average~~ selling price of these homes. Significant quantitative unobservable inputs used in our fair value measurement with respect to this community included an average selling price of $178,100; four deliveries per month; and a discount rate of 20%.

~~For~~prices. The inventory impairment charges for the ~~three months and~~ nine months ended August 31, ~~2014, we recognized a $3.4~~2016 also included $5.4 million ~~inventory impairment charge~~ associated with the ~~then-planned sale~~planned future sales of two land parcels in the Metro Washington, D.C. market, reflecting our decision in the second quarter to wind down our operations in this market, and $5.2 million associated with our decision to activate, and thereby accelerate the overall timing for selling, building and delivering homes in, one community in California and one community in Florida that were each previously held for future development. The estimated fair values of the Metro Washington, D.C. land parcels were based on broker quotes. The balance of the charges for the nine months ended August 31, 2016 related to the sales of our last remaining land ~~parcel~~parcels in ~~Atlanta, Georgia, a former market~~the Rio Grande Valley area of Texas, where we ~~do not have ongoing operations.~~decided to sell the land rather than build and sell homes on the parcels as previously intended. The ~~land sale~~estimated fair values of the Rio Grande Valley parcels were based on executed sales contracts. These sales closed in the ~~2014 fourth quarter.~~second quarter of 2016. Inventory impairment charges for the three-month and nine-month periods ended August 31, 2015 of $3.2 million were associated with a community in Florida where we decided to accelerate the overall pace for selling, building and delivering homes, primarily through lowering selling prices.

As of August 31, 2016, the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was $224.4 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 $~~248.3 million, representing 25 communities and various other land parcels. As of~~ ~~November 30, 2014, the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was~~ ~~$266.6~~254.2 million, representing 3328 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 $.5 million corresponding to 50 lots for the three months ended August 31, 2016, and $2.9 million of such charges corresponding to 542 lots for the nine months ended August 31, 2016. Of the land option contract abandonment charges recognized for the nine months ended August 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 $.4 million corresponding to 740 lots for the three months ended August 31, 2015, and ~~$1.0~~$1.3 million of such charges ~~corresponding to 624 lots for the three months ended August 31, 2014. We recognized land option contract abandonment charges of $1.3 million~~ corresponding to 1,166 lots for the nine months ended August 31, 2015, and $1.8 million of such charges corresponding to 1,306 lots for the nine months ended August 31, 2014. We sometimes abandon land option contracts and other similar contracts when we have incurred costs of less than $100,000; the corresponding lots, which totaled zero and 1,651 lots for the three months ended ~~August 31, 2015~~ ~~and 2014, respectively, and zero and 7,018 lots for the nine months ended August 31, 2015 and 2014, respectively, and the related costs are not included in the amounts above.~~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

Unconsolidated Joint Ventures. 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. ~~None~~Based on our analysis, we determined that one of our joint ventures at August 31, ~~2015~~2016 ~~and~~was a VIE, but we were not the primary beneficiary of this VIE. At November 30, ~~2014~~2015, we determined that none of our joint ventures were ~~determined to be~~ VIEs. All of our joint ventures at August 31, 2016 and November 30, 2015 were unconsolidated and accounted for under the equity method because we did not have a controlling financial interest.

Land Option Contracts and Other Similar Contracts. 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 ~~such~~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 August 31, ~~2015~~2016 and November 30, ~~2014~~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):


	August 31, 2015				November 30, 2014				August 31, 2016				November 30, 2015
	Cash Deposits		Aggregate Purchase Price		Cash Deposits		Aggregate Purchase Price		Cash Deposits		Aggregate Purchase Price		Cash Deposits		Aggregate Purchase Price
Unconsolidated VIEs	$	21,907	$	472,169	$	10,633	$	520,628	$	24,583	$	492,079	$	32,436	$	611,567
Other land option contracts and other similar contracts	20,864		469,427		22,426		437,842		20,481		416,197		22,101		576,140
Total	$	42,771	$	941,596	$	33,059	$	958,470	$	45,064	$	908,276	$	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 ~~with third parties and unconsolidated entities~~ consisted of pre-acquisition costs of $~~60.0~~48.2 million at August 31, ~~2015~~2016 and $~~48.0~~65.6 million at November 30, ~~2014~~2015. These pre-acquisition costs and cash deposits were included in inventories in our consolidated balance sheets. ~~We had outstanding letters of credit of $.1 million at~~

~~November 30, 2014~~ ~~in lieu of cash deposits under certain~~For land option contracts and other similar ~~contracts. There were no~~contracts where the land seller entity is not required to be consolidated under the variable interest model, we consider whether such ~~outstanding letters~~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 ~~credit at August 31, 2015.~~

~~We also evaluate~~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 to 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, ~~and, as a result of~~we recorded inventories in our ~~evaluations, increased inventories,~~consolidated balance sheets, with a corresponding increase to accrued expenses and other liabilities, ~~in our consolidated balance sheets by~~of $~~89.4~~50.8 million at August 31, ~~2015~~2016 and ~~$3.1~~$110.0 million at November 30, ~~2014~~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 ~~profits and losses~~earnings (losses) of these unconsolidated joint ventures generally in accordance with our respective equity interests. In some instances, we recognize ~~profits and losses~~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 ~~profits or losses~~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):


	Nine Months Ended August 31,						Three Months Ended August 31,						Nine Months Ended August 31,						Three Months Ended August 31,
	2015			2014			2015			2014			2016			2015			2016			2015
Revenues	$	9,758		$	6,118		$	3,338		$	—		$	41,190		$	9,758		$	19,338		$	3,338
Construction and land costs	(17,373		)	(3,523		)	(3,381		)	—			(45,379		)	(17,373		)	(19,383		)	(3,381		)
Other expense, net	(2,164		)	(3,088		)	(753		)	(1,050		)	(3,599		)	(2,164		)	(1,008		)	(753		)
Loss	$	(9,779	)	$	(493	)	$	(796	)	$	(1,050	)	$	(7,788	)	$	(9,779	)	$	(1,053	)	$	(796	)

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


	August 31, 2015		November 30, 2014		August 31, 2016		November 30, 2015
Assets
Cash	$	23,454	$	23,699	$	27,125	$	23,309
Receivables	7,631		5,106		1,566		7,546
Inventories	169,471		153,427		152,760		175,196
Other assets	658		—		703		910
Total assets	$	201,214	$	182,232	$	182,154	$	206,961

Liabilities and equity
Accounts payable and other liabilities	$	16,832	$	10,824	$	11,635	$	17,108
Notes payable (a)	31,963		—		39,243		39,064
Equity	152,419		171,408		131,276		150,789
Total liabilities and equity	$	201,214	$	182,232	$	182,154	$	206,961

(a)

~~On August 28, 2015, one~~One of our unconsolidated joint ventures ~~entered into~~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. ~~The unconsolidated joint venture’s outstanding secured~~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 August 31, ~~2015. None of our unconsolidated joint ventures had outstanding debt at~~2016 or November 30, ~~2014.~~2015.

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

August 31,
2015 November 30,
2014
Number of investments in unconsolidated joint ventures 7
6
Investments in unconsolidated joint ventures $ 72,800
$ 79,441
Number of unconsolidated joint venture lots controlled under land option contracts and other similar contracts 538
618

In the first quarter of 2014, we sold our interest in an unconsolidated joint venture in Maryland for $10.1 million, which resulted in a gain of $3.2 million that was included in equity in income of unconsolidated joint ventures in our consolidated statement of operations for the nine months ended August 31, 2014.



	August 31, 2016		November 30, 2015
Number of investments in unconsolidated joint ventures	7		7
Investments in unconsolidated joint ventures	$	61,526	$	71,558
Number of unconsolidated joint venture lots controlled under land option contracts and other similar contracts	515		677

We and our partner in the unconsolidated joint venture that ~~entered into~~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 under the construction loan agreement.~~debt. However, various financial and non-financial covenants apply with respect to the outstanding secured debt ~~under the construction loan agreement~~ 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 August 31, ~~2015,~~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 ~~under the construction loan agreement~~ is material to our consolidated financial statements.

Of the unconsolidated joint venture lots controlled under land option and other similar contracts at August 31, 2016, we are committed to purchase 121 lots from one of our unconsolidated joint ventures in quarterly takedowns over the next three years for an aggregate purchase price of approximately $53.0 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):


	August 31, 2015		November 30, 2014		August 31, 2016		November 30, 2015
Cash surrender value of insurance contracts	$	67,357	$	70,571	$	71,486	$	67,786
Debt issuance costs	26,896		27,082		20,944		25,408
Property and equipment, net	12,425		11,831		13,006		13,100
Prepaid expenses	7,674		5,431		7,905		6,480
Total	$	114,352	$	114,915	$	113,341	$	112,774


10.	Accrued Expenses and Other Liabilities

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


	August 31, 2015		November 30, 2014		August 31, 2016		November 30, 2015
Inventory-related obligations	$	129,874	$	52,009
Employee compensation and related benefits	110,061		113,875		$	118,722	$	114,456
Self-insurance and other litigation liabilities	94,303		89,606		96,870		96,496
Inventory-related obligations (a)					84,863		148,887
Accrued interest payable	76,108		63,275		81,824		62,645
Warranty liability	48,642		45,196		52,124		49,085
Customer deposits	18,436		15,197		19,987		14,563
Real estate and business taxes	11,935		13,684		12,844		14,255
Other	7,799		17,040		4,061		13,027
Total	$	497,158	$	409,882	$	471,295	$	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. ~~We recognized income tax expense of $10.7 million for the three months ended August 31, 2015 and $.3 million for the three months ended August 31, 2014.~~ Our income tax expense and effective income tax rate were as follows (dollars in thousands):



	Nine Months Ended August 31,						Three Months Ended August 31,
	2016			2015			2016			2015
Income tax expense (a)	$	26,200		$	16,500		$	14,100		$	10,700
Effective income tax rate (a)	27.8		%	28.9		%	26.4		%	31.5		%


(a)	Amounts reflect the favorable net impact of federal energy tax credits we earned from building energy-efficient homes. The net impact of these tax credits was $6.7 million and $2.5 million for the three months ended August 31, 2016 and 2015, respectively, and $10.4 million and $5.6 million for the nine months ended August 31, 2016 and 2015, respectively.

The majority of the nine months ended August 31, 2015 was $16.5 million, compared to $.8 million for the nine months ended August 31, 2014. Income tax expense for the three months ended August 31, 2015 reflected the favorable net impact of $2.5 million of federal energy tax credits ~~we earned from building energy-efficient homes, resulting in an effective income tax rate of 31.5%. For~~for the ~~nine months~~three-month and nine-month periods ended August 31, 2015, our effective income tax rate of 28.9% reflected the favorable net impact of $5.6 million of federal energy tax credits. Our effective income tax rates for the three months and nine months ended August 31, 2014 were not meaningful items due to the effects of the full valuation allowance against our deferred tax assets for those periods.

~~The tax credit impact in the three months ended August 31, 2015 included energy tax credits we earned~~2016 resulted from building energy-efficient homes in 2011. The tax credit impact in the nine months ended August 31, 2015 included energy tax credits we earned from building energy-efficient homes in 2011, 2012 and 2013, as well as from building energy-efficient homes in 2014 pursuant to the Tax Increase Prevention Act, which waslegislation enacted ~~into law~~ on December ~~19, 2014.~~18, 2015. Among other things, ~~the law retroactively~~this legislation extended the availability of a business tax credit for building new energy-efficient homes through December 31, ~~2014.~~2016. Prior to this legislation, the tax credit expired on December 31, ~~2013.~~2014. The federal energy tax credits for the three-month and nine-month periods ended August 31, 2015 were earned primarily 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 ~~the~~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 ~~the generation of~~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 ~~will depend~~depends on applicable income tax rates. Based on our evaluation through August 31, 2014, we maintained a full valuation allowance against our deferred tax assets due to the uncertainty of their realization. At November 30, 2014, we evaluated the need for a valuation allowance against our

Our deferred tax assets of ~~$866.4~~$794.4 million as of August 31, 2016 and ~~determined that it was more likely than not that most~~$820.0 million as of ~~our deferred tax assets would be realized. Accordingly, we reversed $825.2 million~~November 30, 2015 were partly offset by a valuation allowance in each period of ~~the~~$37.8 million. The deferred tax asset valuation ~~allowance in the fourth quarter~~allowances as of ~~2014. The remaining deferred tax asset valuation allowance of $41.2 million at~~August 31, 2016 and November 30, ~~2014 was~~2015 were primarily related to foreign tax credits and certain state net operating losses (“~~NOL”~~NOLs”) that had not met the “more likely than not” realization standard.

We Based on our evaluation of our deferred tax assets as of August 31, 2016, we determined that most of our deferred tax assets would be realized. Therefore, we made no adjustments to our deferred tax ~~asset~~ valuation allowance during the three months ~~and~~or nine months ended August 31, ~~2015. Therefore, at August 31, 2015, we had deferred tax assets of $851.2 million that were partly offset by a valuation allowance of $41.2 million.~~2016.

Unrecognized Tax Benefits. At both August 31, ~~2015~~2016 and November 30, ~~2014,~~2015, our gross unrecognized tax benefits (including interest and penalties) totaled $.1 million, ~~and $.3 million, respectively,~~all of which,~~$.1 million~~, 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. ~~Our~~The fiscal years ending ~~2012~~2013 and later remain open to federal examinations, while fiscal years ~~2010~~2011 and later remain open to state examinations.


12.	Notes Payable

Notes payable consisted of the following (in thousands):


	August 31, 2015		November 30, 2014		August 31, 2016		November 30, 2015
Mortgages and land contracts due to land sellers and other loans	$	41,244	$	38,250	$	83,719	$	35,664
6 1/4% Senior notes due June 15, 2015	—		199,891
9.10% Senior notes due September 15, 2017	263,282		262,729		264,082		263,475
7 1/4% Senior notes due June 15, 2018	299,515		299,402		299,676		299,554
4.75% Senior notes due May 15, 2019	400,000		400,000		400,000		400,000
8.00% Senior notes due March 15, 2020	346,691		346,253		347,318		346,843
7.00% Senior notes due December 15, 2021	450,000		450,000		450,000		450,000
7.50% Senior notes due September 15, 2022	350,000		350,000		350,000		350,000
7.625% Senior notes due May 15, 2023	250,000		—		250,000		250,000
1.375% Convertible senior notes due February 1, 2019	230,000		230,000		230,000		230,000
Total	$	2,630,732	$	2,576,525	$	2,674,795	$	2,625,536

Unsecured Revolving Credit Facility. ~~On August 7, 2015, we entered into an amended and restated~~We have a $275.0 million unsecured revolving ~~loan agreement~~credit facility with a syndicate of financial institutions ~~that increased the commitment under our unsecured credit facility (as amended, “Amended~~ (“Credit Facility”) ~~from $200.0 million to $275.0 million and extended its maturity from March 12, 2016 to~~that will mature on August 7, 2019. The ~~Amended~~ 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, as well as~~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 ~~Amended~~ 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 ~~Amended~~ Credit Facility. The ~~Amended~~ Credit Facility also requires the payment of a commitment fee ranging from .30% to .50% of the unused commitment, based on our Leverage Ratio. ~~Under the~~The terms of the ~~Amended~~ Credit Facility ~~we are required,~~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 August 31, ~~2015~~2016,

we had no cash borrowings and ~~$1.7~~$32.5 million of letters of credit outstanding under the ~~Amended~~ Credit Facility. Therefore, as of August 31, ~~2015,~~2016, we had $~~273.3~~242.5 million available for cash borrowings under the ~~Amended~~ Credit Facility, with up to $~~135.8~~105.0 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 August 31, ~~2015~~2016 and November 30, ~~2014,~~2015, we had ~~$24.7~~$.6 million and ~~$26.7~~$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 August 31, ~~2015~~2016, inventories having a carrying value of $~~145.0~~230.9 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 ~~on file~~that was filed with the SEC ~~that was filed~~ on July 18, 2014 (“2014 Shelf Registration”). ~~The 2014 Shelf Registration registers the offering~~Issuances of debt and equity securities ~~that we may issue from time to time in amounts~~under our 2014 Shelf Registration require the filing of a prospectus supplement identifying the amount and terms of the securities to be ~~determined.~~issued. Our ability to issue equity and/or debt is subject to market conditions and other factors impacting our borrowing capacity.

Senior Notes. ~~On February 17, 2015, pursuant to~~All of the ~~2014 Shelf Registration, we completed the underwritten public issuance of $250.0 million in aggregate principal amount of 7.625%~~ senior notes ~~due 2023 (“7.625% Senior Notes due 2023”). We used a portion~~outstanding at August 31, 2016 and November 30, 2015 represent senior unsecured obligations and rank equally in right of ~~the net proceeds of approximately $247 million from this issuance to retire the remaining $199.9 million in aggregate principal amount~~payment with all of our ~~6 1/4%~~existing and future indebtedness. Interest on each of these senior notes due 2015 (“6 1/4% Senior Notes due 2015”) at their maturity on June 15, 2015. The remainder of the net proceeds was used for general corporate purposes, including working capital, land acquisition and land development.

The 1.375% convertible senior notes due 2019 (“1.375% Convertible Senior Notes due 2019”) will mature on February 1, 2019, unless converted earlier by the holders, at their option, or redeemed by us, or purchased by us at the option of the holders following the occurrence of a fundamental change, as defined in the instruments governing these 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 ~~these notes.~~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.

All of the senior notes outstanding at August 31, 2015 and November 30, 2014 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.

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 August 31, ~~2015~~2016, we were in compliance with the applicable terms of all our covenants and other requirements under the ~~Amended~~ 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 ~~Amended~~ 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 ~~the~~ senior notes, ~~the~~ mortgages and land contracts due to land sellers and other loans are due as follows: ~~2015 – $15.8 million;~~ 2016 – ~~$25.4~~$46.0 million; 2017 – ~~$265.0~~$302.7 million; 2018 – $300.0 million; 2019 – $630.0 million; 2020 – $350.0 million; and thereafter – ~~$1.40~~$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 nine months ended August 31, ~~2015~~2016 and the year ended November 30, ~~2014~~2015 (in thousands):


Description	Fair Value Hierarchy	August 31, 2015		November 30, 2014		Fair Value Hierarchy	August 31, 2016		November 30, 2015
Inventories (a)	Level 2	$	—	$	6,421	Level 2	$	1,054	$	—
Inventories (a)	Level 3	3,356		24,174		Level 3	12,487		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 ~~that~~ 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 ~~$6.6~~$27.1 million were written down to their fair value, less associated costs to sell (where applicable), of $13.2 million during the nine months ended August 31, 2016, resulting in inventory impairment charges of $13.9 million. Inventories with a carrying value of $20.0 million were written down to their fair value of $3.4 million during the nine months ended August 31, 2015, resulting in an inventory impairment charge of $3.2 million. Inventories with a carrying value of $68.2 million were written down to their fair value of $30.6$12.0 million during the year ended November 30, ~~2014,~~2015, resulting in inventory impairment charges of ~~$37.6~~$8.0 million.

The fair values for inventories that were determined using Level 2 inputs were based on an executed ~~contract.~~sales contracts. The fair values for inventories that were determined using Level 3 inputs were ~~primarily~~ based on the estimated future net cash flows discounted for inherent risk associated with each underlying ~~asset. Additionally, the fair values for inventories determined using Level 3 inputs that involved a~~asset, or, with respect to planned future land ~~sale~~sales, were ~~estimated~~ based on a broker ~~quote.~~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):


		August 31, 2015				November 30, 2014					August 31, 2016				November 30, 2015
	Fair Value Hierarchy	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value		Fair Value Hierarchy	Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Financial Liabilities:
Senior notes	Level 2	$	2,359,488	$	2,452,825	$	2,308,275	$	2,468,852	Level 2	$	2,361,076	$	2,518,188	$	2,359,872	$	2,429,850
Convertible senior notes	Level 2	230,000		217,063		230,000		229,713		Level 2	230,000		221,950		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):


	Nine Months Ended August 31,						Three Months Ended August 31,						Nine Months Ended August 31,						Three Months Ended August 31,
	2015			2014			2015			2014			2016			2015			2016			2015
Balance at beginning of period	$	45,196		$	48,704		$	46,472		$	40,937		$	49,085		$	45,196		$	48,837		$	46,472
Warranties issued	15,209			12,332			6,325			4,546			19,573			15,209			8,006			6,325
Payments(a)	(19,927		)	(30,795		)	(5,285		)	(10,633		)	(17,186		)	(19,927		)	(4,719		)	(5,285		)
Adjustments ~~(a)~~(b)	8,164			12,155			1,130			7,546			652			8,164			—			1,130
Balance at end of period	$	48,642		$	42,396		$	48,642		$	42,396		$	52,124		$	48,642		$	52,124		$	48,642


(a)	~~As discussed below, adjustments~~Payments for the three months and nine months ended August 31, 2015 included $1.1 million and ~~2014~~$8.6 million, respectively, to repair homes affected by water intrusion-related issues in certain of our communities in central and southwest Florida. These issues were ~~primarily comprised~~substantially resolved as of November 30, 2015.

(b)

Adjustments for the three months and nine months ended August 31, 2016 and 2015 included the reclassification of certain estimated minimum probable recoveries to ~~receivables. Adjustments~~receivables in connection with the above-noted water intrusion-related issues. The adjustments for ~~the nine months ended August 31, 2014 also included a reclassification~~each period had no impact on our consolidated statements of operations. There were no estimated minimum probable recoveries ~~to establish a separate accrual for a water intrusion-related inquiry.~~netted against our warranty liability at August 31, 2016.

~~Central and Southwest Florida Claims~~. Since 2012, we have received warranty claims from homeowners in certain of our communities in central and southwest Florida primarily involving framing, stucco, roofing and/or sealant matters on homes we delivered between 2003 and 2009, with many concerning water intrusion-related issues. Based on the status of our ongoing investigation and repair efforts with respect to homes affected by these water intrusion-related issues, our overall warranty liability at August 31, 2015 and November 30, 2014 included $1.3 million and $9.4 million, respectively, for estimated remaining repair costs associated with (a) 52 and 324 identified affected homes, respectively, and (b) similarly affected homes that we believed at each respective date may be identified in the future. The $1.3 million at August 31, 2015 encompasses what we believe to be the probable overall cost of the repair effort remaining with respect to affected homes before insurance and other recoveries. However, our actual costs to fully resolve repairs on affected homes could differ from the overall costs we have estimated depending on the identification of additional affected homes in future periods, if any, and the nature of the work that is undertaken to complete repairs on identified affected homes. During the ~~nine months ended~~ August 31, 2015, we resolved repairs on 346 affected homes and identified 74 additional affected homes. We consider repairs for affected homes to be resolved when all repairs are completed and all repair costs are fully paid. In the three-month periods ended August 31, 2015 and 2014, we paid $1.1 million and $7.2 million, respectively, to repair affected homes. During the ~~nine months ended~~ August 31, 2015 and 2014, we paid $8.6 million and $21.3 million, respectively, to repair affected homes. As of August 31, 2015, we had paid $71.9 million of the probable total repair costs of $73.2 million that we have estimated for the overall repair effort. We anticipate resolving repairs on affected homes by the end of 2015.

We believe it is probable that we will recover a portion of our repair costs associated with affected homes from various sources, including our insurers, and subcontractors involved with the original construction of the homes and their insurers. During the nine months ended August 31, 2015 and 2014, we collected $5.0 million and $.5 million, respectively, of such recoveries. Based on a review of our estimated potential recoveries during the second quarter of 2015, we increased our estimate of minimum probable recoveries. During the third quarter of 2015, we did not change our estimate of minimum probable recoveries. As of August 31, 2015, our estimated minimum probable recoveries, net of amounts collected, totaled $22.6 million, of which $1.3 million was included as an offset to our overall warranty liability and the remainder was included in receivables. During the three months and nine months ended August 31, 2014, we recorded adjustments to increase our warranty liability mainly to reflect additional affected homes identified at one attached home community and our updated estimate of repair costs on identified affected homes. We also recorded adjustments to increase our estimated minimum probable recoveries during these periods based on our updated estimate of repair costs on identified affected homes. Together these items did not have an impact on our consolidated statements of operations for the three months and nine months ended

August 31, 2014. As of November 30, 2014, our estimated minimum probable recoveries, net of amounts collected, was $26.6 million. The estimated minimum probable recoveries pertaining to affected homes are included in receivables to the extent they exceed the estimated remaining repair costs in our overall warranty liability associated with such homes. During the three months and nine months ended August 31, 2015, we reclassified $1.1 million and $8.2 million, respectively, of estimated minimum probable recoveries that were in excess of the estimated remaining repair costs to a receivable. During the three months and nine months ended August 31, 2014, we similarly reclassified $7.2 million and $12.8 million, respectively, of then-estimated minimum probable recoveries that were in excess of the then-estimated remaining repair costs. Our assessment of the water intrusion-related issues in central and southwest Florida, including the process of determining potentially responsible parties and our efforts to obtain recoveries, is ongoing, and, as a result, our estimate of minimum probable recoveries may change as additional information is obtained.

~~Overall Warranty Liability Assessment.~~ In assessing our overall warranty liability at a reporting date, we evaluate the costs for warranty-related items on a combined basis for all of our previously delivered homes that are under our limited warranty program, which would include homes in central and southwest Florida that have been or may in the future be identified as affected by water intrusion-related issues. Based on this evaluation, we believe our overall warranty liability as of August 31, 2015 is adequate. Depending on the number of additional homes in central and southwest Florida that are identified as affected by water intrusion-related issues, if any, and the actual costs we incur in future periods to repair such affected homes and/or homes affected by other issues, we may revise the amount of our estimated liability, which could result in an increase or decrease in our overall warranty liability. Based on our assessment of the water intrusion-related issues in central and southwest Florida, we believe that our overall warranty liability is adequate to cover the estimated probable total repair costs with respect to affected homes, though we believe it is reasonably possible that our loss in this matter could exceed the amount accrued as of August 31, 2015 by zero to $3 million.

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 are cooperating with the Florida Attorney General’s Office inquiry and are in discussions to resolve its concerns. While the ultimate outcome of the inquiry is uncertain, based on the status of our discussions, 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 ~~nine months ended~~ ~~August 31, 2015. At~~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 ~~stage~~inquiry was adequate based on the terms of ~~our discussions, we believe it is reasonably possible that our loss in this matter could exceed~~ the ~~amount accrued by zero to $5 million.~~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 ~~evidence,~~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 self-insure a portion of our overall risk through the use of a captive insurance subsidiary.~~ 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 ~~captive insurance subsidiary.~~ 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. ~~These estimated costs are based on~~The amount of our self-insurance liability is determined through an analysis ~~of our historical claims and industry data, and include an estimate of claims incurred but not yet reported.~~

~~We engage~~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 ~~liabilities related to~~overall costs for unpaid claims, incurred but not reported claims and claim adjustment expenses ~~third-party recoveries and incurred but not yet reported claims~~that are associated with the risks ~~that~~ we are assuming ~~under~~with respect to our ~~self-insurance.~~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 ~~structural warranty or~~ 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, ~~structural warranty or~~ 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 ~~yet reported claims. Because the majority of our estimated liabilities relate to incurred but not yet~~ 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):


	Nine Months Ended August 31,						Three Months Ended August 31,						Nine Months Ended August 31,						Three Months Ended August 31,
	2015			2014			2015			2014			2016			2015			2016			2015
Balance at beginning of period	$	86,574		$	92,214		$	80,136		$	90,458		$	82,175		$	86,574		$	82,536		$	80,136
Self-insurance expense (a)	11,919			8,761			4,694			3,108			15,532			11,919			7,110			4,694
Payments, net of recoveries (b)	(17,892		)	(12,666		)	(4,229		)	(5,257		)
Payments													(19,922		)	(17,892		)	(11,861		)	(4,229		)
Balance at end of period	$	80,601		$	88,309		$	80,601		$	88,309		$	77,785		$	80,601		$	77,785		$	80,601


(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.


~~(b)~~	~~Recoveries are reflected in the period we receive funds from subcontractors and/or their insurers.~~

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 $14.9 million at August 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 August 31, ~~2015~~2016, we had ~~$542.9~~$522.9 million of performance bonds and ~~$26.4~~$33.1 million of letters of credit outstanding. At November 30, ~~2014,~~2015, we had $~~541.6~~565.4 million of performance bonds and ~~$26.7~~$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 August 31, ~~2015~~2016, we had total cash deposits of $~~42.8~~45.1 million to purchase land having an aggregate purchase price of $~~941.6~~908.3 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 district 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 district court’s decisions, the only remaining claims against KB Nevada are for contract damages and rescission. In August 2013, the district court granted motions that further narrowed the scope of the Claimed Damages. The lender plaintiffs filed an appeal from the district court’s summary judgment decisions with the Nevada Supreme Court and that court heard oral argument on June 6, 2016. On September 22, 2016, the Nevada Supreme Court rejected the lender plaintiffs’ appeal and upheld the district court’s summary judgment decisions against the lender plaintiffs in favor of KB Nevada. The 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. The non-jury trial was originally set for September 2012 and extended multiple times by the court. In September 2015, the court scheduled a hearing for October 28, 2015 at which the court will address the setting of a new trial date and other matters.

Wage and Hour Litigation. ~~We, together with certain of our subsidiaries, are a defendant in lawsuits that allege violations of federal and state wage and hour statutes.~~ 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 ~~alleges~~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, ~~that, as of the date of this report, consists of 409 plaintiffs. On~~and in May ~~21,~~ 2015, ~~the~~ ~~Edwards~~ ~~court~~ scheduled an initial trial involving a portion of the plaintiffs ~~in that case~~ for December 2015. ~~One or more additional trials involving other plaintiffs in the~~ ~~Edwards~~ ~~case are expected to be scheduled to occur in 2016 or later.~~

In September 2013, 11some 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.~~al. The lawsuit ~~alleges~~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. ~~As of~~Although the ~~date of this report, the~~case involved a putative class ~~consists~~ of ~~241 members, some of whom are plaintiffs in the~~ ~~Edwards~~ ~~case,~~individuals who were our sales representatives from September 2009 toforward, the ~~present. The~~ Bejenaru ~~court has~~case was not certified ~~the case~~ as a class action. ~~Depending on the~~ ~~Bejenaru~~ ~~court’s decisions in the matter, the putative class could increase in size and include other individuals, and the case could be certified as a class action.~~

In the second quarter of 2015, ~~plaintiffs~~plaintiff representatives in the Edwards ~~case~~ and the Bejenaru ~~case~~cases claimed $66 million in compensatory damages, penalties and interest, as well as injunctive relief, attorneys’ fees and costs for both matters. ~~We deny~~On November 18, 2015, we reached a tentative mediated settlement with the ~~allegations~~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. On September 15, 2016, the court approved the final settlement terms with respect to the Bejenaru case. In 2015, we established an accrual for these cases in the ~~lawsuits~~amount of $7.5 million, which we maintained at August 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 ~~intend~~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 ~~defend ourselves vigorously.~~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 originally scheduled for August 10, 2016 has been continued and a new hearing date has not yet been set. While the ultimate outcome ~~of these matters~~ is uncertain, we ~~had an accrual~~believe that any penalties and related corrective measures the RWQCB may impose under the NOV could exceed $100,000 (the threshold for the ~~estimated minimum probable loss with respect~~required disclosure of this type of environmental proceeding) but they are not expected to ~~these matters at August 31, 2015. We believe it is reasonably possible that~~be material to our ~~loss in these matters could exceed the amount accrued by zero to $6 million. However, we believe we have meritorious defenses to the plaintiffs’ claims.~~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 August 31, ~~2015,~~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):


	Nine Months Ended August 31, 2015																				Nine Months Ended August 31, 2016
	Common Stock		Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Grantor Stock Ownership Trust			Treasury Stock			Total Stockholders’ Equity			Common Stock		Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Grantor Stock Ownership Trust			Treasury Stock			Total Stockholders’ Equity
Balance at November 30, 2014	$	115,387	$	668,857		$	1,391,256		$	(21,008	)	$	(112,106	)	$	(446,476	)	$	1,595,910
Balance at November 30, 2015																					$	115,548	$	682,871		$	1,466,713		$	(17,319	)	$	(109,936	)	$	(447,043	)	$	1,690,834
Net income	—		—			40,626			—			—			—			40,626			—		—			68,087			—			—			—			68,087
Dividends on common stock	—		—			(6,890		)	—			—			—			(6,890		)	—		—			(6,471		)	—			—			—			(6,471		)
Employee stock options/other	52		384			—			—			—			—			436			527		6,824			—			—			—			—			7,351
Restricted stock awards	85		(85		)	—			—			—			—			—
Stock awards																					124		(4,189		)	—			—			4,065			—			—
Stock-based compensation	—		10,444			—			—			—			—			10,444			—		10,180			—			—			—			—			10,180
Stock repurchases	—		—			—			—			—			(300		)	(300		)	—		—			—			—			—			(87,531		)	(87,531		)
Balance at August 31, 2015	$	115,524	$	679,600		$	1,424,992		$	(21,008	)	$	(112,106	)	$	(446,776	)	$	1,640,226
Balance at August 31, 2016																					$	116,199	$	695,686		$	1,528,329		$	(17,319	)	$	(105,871	)	$	(534,574	)	$	1,682,450

We maintain ~~a common stock reserve~~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 August 31, ~~2015~~2016. The maximum number of shares would potentially be deliverable to holders only in certain limited circumstances as set forth in the ~~instruments~~ governing ~~these notes.~~instruments.

AsOn February 12, 2016, the management development and compensation committee of ~~August 31, 2015, we~~our board of directors approved the payout of PSUs that were ~~authorized~~granted to ~~repurchase~~ ~~4,000,000~~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. ~~We did not~~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 August 31, 2016, we had repurchased 8,373,000 shares of our common stock ~~under~~pursuant to this ~~program in~~authorization, at a total cost of $85.9 million. During the three months ended August 31, 2016, no shares were repurchased pursuant to this authorization.

During the nine months ended August 31, ~~2015. We have~~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 ~~repurchased any shares pursuant to this common stock repurchase plan for the past several years and any resumption of such stock~~considered repurchases under ~~this program or any other program will be at~~ the ~~discretion of our board of directors.~~

Unrelated to the common stock repurchase plan, in connection with an amendment of the Amended and Restated KB Home Non-Employee Directors Compensation Plan (“Director Plan”) effective July 17, 2014, ourabove-described board of directors authorized the repurchase of no more than 680,000 shares of our common stock solely as necessary for director elections in respect of outstanding stock appreciation right awards under the Director Plan. We had not repurchased any shares pursuant to this board of directors authorization as of August 31, 2015.authorization.

During the three months ended August 31, ~~2015~~2016 and ~~2014,~~August 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 nine months ended August 31, ~~2015~~2016 and ~~2014~~2015 totaled $.075 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 nine months ended August 31, ~~2015:~~2016:


	Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Options outstanding at beginning of period	11,735,042		$	20.45	12,635,644		$	19.39
Granted	—		—		—		—
Exercised	(52,000	)	8.38		(526,966	)	13.95
Cancelled	(130,384	)	23.26		(2,281	)	22.51
Options outstanding at end of period	11,552,658		$	20.47	12,106,397		$	19.63
Options exercisable at end of period	9,992,609		$	21.32	9,879,040		$	20.68

As of August 31, ~~2015~~2016, the weighted average remaining contractual life of stock options outstanding and stock options exercisable was ~~4.4~~4.2 years and ~~3.7~~3.2 years, respectively. There was $~~2.8~~2.1 million of total unrecognized compensation expense related to unvested stock option awards as of August 31, ~~2015~~2016. For the three months ended August 31, ~~2015~~2016 and ~~2014, stock-~~

~~based compensation expense associated with stock options totaled $1.1 million and~~ ~~$.6 million, respectively. For the nine months ended~~ ~~August 31,~~ 2015, ~~and~~ ~~2014~~, stock-based compensation expense associated with stock options totaled ~~$3.1~~$.9 million and ~~$1.8~~$1.1 million, respectively. For each of the nine-month periods ended August 31, 2016 and 2015, stock-based compensation expense associated with stock options totaled $2.9 million and $3.1 million, respectively. The aggregate intrinsic ~~value~~values of ~~both~~ stock options outstanding and stock options exercisable ~~was~~were $~~18.4~~23.7 million and $21.8 million, respectively, at August 31, ~~2015~~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 $~~1.9~~1.8 million for the three months ended August 31, ~~2015~~2016 and $~~1.7~~1.9 million

for the three months ended August 31, ~~2014~~2015 related to restricted stock and PSUs. We recognized total compensation expense of $7.3 million for each of the ~~nine months ended~~ ~~August 31, 2015~~ ~~and $4.2 million for the nine months~~nine-month periods ended August 31, ~~2014~~2016 and August 31, 2015 related to restricted stock and PSUs.

Director Awards. On April 7, 2016, we granted equity awards to our non-employee directors pursuant to the Amended and Restated KB Home Non-Employee Directors Compensation Plan and the respective elections each director made under the plan. The equity awards consisted of 58,958 shares of our common stock that were issued on an unrestricted basis to the respective recipients on the grant date, and 65,670 shares to be paid out on the earlier of a change in control or the date the respective recipient leaves our board of directors.

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):


	Nine Months Ended August 31,					Nine Months Ended August 31,
	2015		2014			2016			2015
Summary of cash and cash equivalents at end of period:
Homebuilding	$	352,952	$	297,058		$	334,669		$	352,952
Financial services	1,927		1,950			3,053			1,927
Total	$	354,879	$	299,008		$	337,722		$	354,879

Supplemental disclosures of cash flow information:
Interest paid, net of amounts capitalized	$	5,017	$	312		$	(13,512	)	$	5,017
Income taxes paid	2,915		1,537			3,208			2,915

Supplemental disclosures of noncash activities:
Reclassification of warranty recoveries to receivables	$	8,164	$	12,794		$	2,151		$	8,164
Increase (decrease) in consolidated inventories not owned	86,211		(4,931		)	(59,144		)	86,211
Increase in inventories due to distributions of land and land development from an unconsolidated joint venture	12,416		81,670			4,331			12,416
Inventories and inventory-related obligations associated with tax increment financing entities assessments tied to distribution of land from an unconsolidated joint venture	—		33,197
Inventories acquired through seller financing	16,730		52,561			89,968			16,730
Conversion of liability awards to equity awards	—		6,455


19.	Supplemental Guarantor Information

Our obligations to pay principal, premium, if any, and interest on the senior notes and borrowings, if any, under the ~~Amended~~ 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 ~~Amended~~ 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 ~~Amended~~ 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 August 31, ~~2015~~2016.

Condensed Consolidating Statements of Operations (in thousands)


	Nine Months Ended August 31, 2015															Nine Months Ended August 31, 2016
	KB Home Corporate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total			KB Home Corporate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Revenues	$	—		$	1,866,015		$	180,232		$	—		$	2,046,247		$	—		$	2,111,343		$	291,361		$	—		$	2,402,704
Homebuilding:
Revenues	$	—		$	1,866,015		$	172,881		$	—		$	2,038,896		$	—		$	2,111,343		$	282,972		$	—		$	2,394,315
Construction and land costs	—			(1,566,720		)	(159,256		)	—			(1,725,976		)	—			(1,760,842		)	(257,180		)	—			(2,018,022		)
Selling, general and administrative expenses	(63,886		)	(158,403		)	(22,389		)	—			(244,678		)	(66,752		)	(180,433		)	(32,701		)	—			(279,886		)
Operating income (loss)	(63,886		)	140,892			(8,764		)	—			68,242			(66,752		)	170,068			(6,909		)	—			96,407
Interest income	337			3			2			—			342			336			53			6			—			395
Interest expense	(136,292		)	(4,497		)	—			122,939			(17,850		)	(135,192		)	(3,802		)	—			133,327			(5,667		)
Intercompany interest	218,684			(88,780		)	(6,965		)	(122,939		)	—			228,596			(85,792		)	(9,477		)	(133,327		)	—
Equity in loss of unconsolidated joint ventures	—			(1,180		)	—			—			(1,180		)	—			(1,961		)	(3		)	—			(1,964		)
Homebuilding pretax income (loss)	18,843			46,438			(15,727		)	—			49,554			26,988			78,566			(16,383		)	—			89,171
Financial services pretax income	—			—			7,572			—			7,572			—			—			5,116			—			5,116
Total pretax income (loss)	18,843			46,438			(8,155		)	—			57,126			26,988			78,566			(11,267		)	—			94,287
Income tax benefit (expense)	2,900			(18,700		)	(700		)	—			(16,500		)	(3,700		)	(23,600		)	1,100			—			(26,200		)
Equity in net income of subsidiaries	18,883			—			—			(18,883		)	—			44,799			—			—			(44,799		)	—
Net income (loss)	$	40,626		$	27,738		$	(8,855	)	$	(18,883	)	$	40,626		$	68,087		$	54,966		$	(10,167	)	$	(44,799	)	$	68,087



	Nine Months Ended August 31, 2015
	KB Home Corporate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Revenues	$	—		$	1,780,489		$	265,758		$	—		$	2,046,247
Homebuilding:
Revenues	$	—		$	1,780,489		$	258,407		$	—		$	2,038,896
Construction and land costs	—			(1,492,896		)	(233,080		)	—			(1,725,976		)
Selling, general and administrative expenses	(63,886		)	(149,086		)	(31,706		)	—			(244,678		)
Operating income (loss)	(63,886		)	138,507			(6,379		)	—			68,242
Interest income	337			3			2			—			342
Interest expense	(136,292		)	(4,497		)	—			122,939			(17,850		)
Intercompany interest	218,684			(83,579		)	(12,166		)	(122,939		)	—
Equity in loss of unconsolidated joint ventures	—			(1,178		)	(2		)	—			(1,180		)
Homebuilding pretax income (loss)	18,843			49,256			(18,545		)	—			49,554
Financial services pretax income	—			—			7,572			—			7,572
Total pretax income (loss)	18,843			49,256			(10,973		)	—			57,126
Income tax benefit (expense)	2,900			(18,700		)	(700		)	—			(16,500		)
Equity in net income of subsidiaries	18,883			—			—			(18,883		)	—
Net income (loss)	$	40,626		$	30,556		$	(11,673	)	$	(18,883	)	$	40,626

Nine Months Ended August 31, 2014

KB Home
Corporate

Guarantor
Subsidiaries

Non-Guarantor
Subsidiaries

Consolidating
Adjustments
Total
Revenues $ —
$ 1,436,822
$ 168,086
$ —
$ 1,604,908
Homebuilding:
Revenues $ —
$ 1,436,822
$ 160,072
$ —
$ 1,596,894
Construction and land costs —
(1,167,762 ) (137,496 ) —
(1,305,258 )
Selling, general and administrative expenses (47,489 ) (131,443 ) (26,783 ) —
(205,715 )
Operating income (loss) (47,489 ) 137,617
(4,207 ) —
85,921
Interest income 385
7
1
—
393
Interest expense (122,634 ) (4,408 ) —
100,753
(26,289 )
Intercompany interest 206,943
(99,077 ) (7,113 ) (100,753 ) —
Equity in income (loss) of unconsolidated joint ventures —
(2,132 ) 3,293
—
1,161
Homebuilding pretax income (loss) 37,205
32,007
(8,026 ) —
61,186
Financial services pretax income —
—
5,162
—
5,162
Total pretax income (loss) 37,205
32,007
(2,864 ) —
66,348
Income tax expense (100 ) (600 ) (100 ) —
(800 )
Equity in net income of subsidiaries 28,443
—
—
(28,443 ) —
Net income (loss) $ 65,548
$ 31,407
$ (2,964 ) $ (28,443 ) $ 65,548


	Three Months Ended August 31, 2015															Three Months Ended August 31, 2016
	KB Home Corporate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total			KB Home Corporate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Revenues	$	—		$	761,783		$	81,374		$	—		$	843,157		$	—		$	805,718		$	107,565		$	—		$	913,283
Homebuilding:
Revenues	$	—		$	761,783		$	78,421		$	—		$	840,204		$	—		$	805,718		$	104,393		$	—		$	910,111
Construction and land costs	—			(638,451		)	(70,697		)	—			(709,148		)	—			(668,551		)	(91,939		)	—			(760,490		)
Selling, general and administrative expenses	(28,540		)	(58,137		)	(8,397		)	—			(95,074		)	(23,436		)	(64,091		)	(10,617		)	—			(98,144		)
Operating income (loss)	(28,540		)	65,195			(673		)	—			35,982			(23,436		)	73,076			1,837			—			51,477
Interest income	86			1			—			—			87			96			11			2			—			109
Interest expense	(45,040		)	(1,547		)	—			42,193			(4,394		)	(46,485		)	—			—			46,485			—
Intercompany interest	74,501			(30,203		)	(2,105		)	(42,193		)	—			78,834			(29,643		)	(2,706		)	(46,485		)	—
Equity in loss of unconsolidated joint ventures	—			(422		)	—			—			(422		)	—			(536		)	—			—			(536		)
Homebuilding pretax income (loss)	1,007			33,024			(2,778		)	—			31,253			9,009			42,908			(867		)	—			51,050
Financial services pretax income	—			—			2,701			—			2,701			—			—			2,413			—			2,413
Total pretax income (loss)	1,007			33,024			(77		)	—			33,954
Income tax benefit (expense)	2,200			(12,100		)	(800		)	—			(10,700		)
Total pretax income																9,009			42,908			1,546			—			53,463
Income tax expense																(1,600		)	(11,900		)	(600		)	—			(14,100		)
Equity in net income of subsidiaries	20,047			—			—			(20,047		)	—			31,954			—			—			(31,954		)	—
Net income (loss)	$	23,254		$	20,924		$	(877	)	$	(20,047	)	$	23,254
Net income																$	39,363		$	31,008		$	946		$	(31,954	)	$	39,363


	Three Months Ended August 31, 2014															Three Months Ended August 31, 2015
	KB Home Corporate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total			KB Home Corporate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Revenues	$	—		$	529,599		$	59,615		$	—		$	589,214		$	—		$	728,165		$	114,992		$	—		$	843,157
Homebuilding:
Revenues	$	—		$	529,599		$	56,632		$	—		$	586,231		$	—		$	728,165		$	112,039		$	—		$	840,204
Construction and land costs	—			(429,998		)	(49,426		)	—			(479,424		)	—			(609,947		)	(99,201		)	—			(709,148		)
Selling, general and administrative expenses	(15,995		)	(47,653		)	(9,249		)	—			(72,897		)	(28,540		)	(54,799		)	(11,735		)	—			(95,074		)
Operating income (loss)	(15,995		)	51,948			(2,043		)	—			33,910			(28,540		)	63,419			1,103			—			35,982
Interest income	109			1			—			—			110			86			1			—			—			87
Interest expense	(42,955		)	(1,648		)	—			38,148			(6,455		)	(45,040		)	(1,547		)	—			42,193			(4,394		)
Intercompany interest	76,512			(35,728		)	(2,636		)	(38,148		)	—			74,501			(28,554		)	(3,754		)	(42,193		)	—
Equity in loss of unconsolidated joint ventures	—			(751		)	—			—			(751		)	—			(422		)	—			—			(422		)
Homebuilding pretax income (loss)	17,671			13,822			(4,679		)	—			26,814			1,007			32,897			(2,651		)	—			31,253
Financial services pretax income	—			—			1,847			—			1,847			—			—			2,701			—			2,701
Total pretax income (loss)	17,671			13,822			(2,832		)	—			28,661
Income tax expense	(50		)	(200		)	(50		)	—			(300		)
Total pretax income																1,007			32,897			50			—			33,954
Income tax benefit (expense)																2,200			(12,100		)	(800		)	—			(10,700		)
Equity in net income of subsidiaries	10,740			—			—			(10,740		)	—			20,047			—			—			(20,047		)	—
Net income (loss)	$	28,361		$	13,622		$	(2,882	)	$	(10,740	)	$	28,361		$	23,254		$	20,797		$	(750	)	$	(20,047	)	$	23,254

Condensed Consolidating Balance Sheets (in thousands)


	August 31, 2015											August 31, 2016
	KB Home Corporate		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating Adjustments			Total		KB Home Corporate		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating Adjustments			Total
Assets
Homebuilding:
Cash and cash equivalents	$	288,869	$	60,271	$	3,812	$	—		$	352,952	$	272,694	$	58,908	$	3,067	$	—		$	334,669
Restricted cash	25,028		—		—		—			25,028		602		—		—		—			602
Receivables	284		156,354		2,938		—			159,576		2,957		142,051		4,211		—			149,219
Inventories	—		3,163,292		238,445		—			3,401,737		—		3,293,563		304,110		—			3,597,673
Investments in unconsolidated joint ventures	—		72,800		—		—			72,800		—		59,027		2,499		—			61,526
Deferred tax assets, net	218,954		534,728		56,334		—			810,016		187,227		477,791		91,578		—			756,596
Other assets	98,917		13,448		1,987		—			114,352		100,567		10,418		2,356		—			113,341
	632,052		4,000,893		303,516		—			4,936,461		564,047		4,041,758		407,821		—			5,013,626
Financial services	—		—		12,035		—			12,035		—		—		14,135		—			14,135
Intercompany receivables	3,663,944		—		104,306		(3,768,250		)	—		3,772,921		—		95,322		(3,868,243		)	—
Investments in subsidiaries	71,219		—		—		(71,219		)	—		80,311		—		—		(80,311		)	—
Total assets	$	4,367,215	$	4,000,893	$	419,857	$	(3,839,469	)	$	4,948,496	$	4,417,279	$	4,041,758	$	517,278	$	(3,948,554	)	$	5,027,761
Liabilities and stockholders’ equity
Homebuilding:
Accounts payable, accrued expenses and other liabilities	$	144,782	$	426,452	$	104,528	$	—		$	675,762	$	154,057	$	402,649	$	110,374	$	—		$	667,080
Notes payable	2,564,378		66,354		—		—			2,630,732		2,565,966		108,829		—		—			2,674,795
	2,709,160		492,806		104,528		—			3,306,494		2,720,023		511,478		110,374		—			3,341,875
Financial services	—		—		1,776		—			1,776		—		—		3,436		—			3,436
Intercompany payables	17,829		3,475,060		275,361		(3,768,250		)	—		14,806		3,487,370		366,067		(3,868,243		)	—
Stockholders’ equity	1,640,226		33,027		38,192		(71,219		)	1,640,226		1,682,450		42,910		37,401		(80,311		)	1,682,450
Total liabilities and stockholders’ equity	$	4,367,215	$	4,000,893	$	419,857	$	(3,839,469	)	$	4,948,496	$	4,417,279	$	4,041,758	$	517,278	$	(3,948,554	)	$	5,027,761


	November 30, 2014											November 30, 2015
	KB Home Corporate		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating Adjustments			Total		KB Home Corporate		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Consolidating Adjustments			Total
Assets
Homebuilding:
Cash and cash equivalents	$	303,280	$	38,124	$	14,962	$	—		$	356,366	$	444,850	$	98,281	$	15,911	$	—		$	559,042
Restricted cash	27,235		—		—		—			27,235		9,344		—		—		—			9,344
Receivables	15		123,024		2,449		—			125,488		39		148,338		4,305		—			152,682
Inventories	—		2,980,056		238,331		—			3,218,387		—		2,979,617		334,130		—			3,313,747
Investments in unconsolidated joint ventures	—		79,441		—		—			79,441		—		69,057		2,501		—			71,558
Deferred tax assets, net	215,923		552,653		56,656		—			825,232		190,770		501,454		89,972		—			782,196
Other assets	99,099		13,922		1,894		—			114,915		97,590		11,783		3,401		—			112,774
	645,552		3,787,220		314,292		—			4,747,064		742,593		3,808,530		450,220		—			5,001,343
Financial services	—		—		10,486		—			10,486		—		—		14,028		—			14,028
Intercompany receivables	3,582,612		—		112,919		(3,695,531		)	—		3,627,150		—		102,103		(3,729,253		)	—
Investments in subsidiaries	39,356		—		—		(39,356		)	—		39,383		—		—		(39,383		)	—
Total assets	$	4,267,520	$	3,787,220	$	437,697	$	(3,734,887	)	$	4,757,550	$	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	$	138,298	$	331,361	$	112,939	$	—		$	582,598	$	136,352	$	442,529	$	118,303	$	—		$	697,184
Notes payable	2,513,165		63,360		—		—			2,576,525		2,564,762		60,774		—		—			2,625,536
	2,651,463		394,721		112,939		—			3,159,123		2,701,114		503,303		118,303		—			3,322,720
Financial services	—		—		2,517		—			2,517		—		—		1,817		—			1,817
Intercompany payables	20,147		3,392,499		282,885		(3,695,531		)	—		17,178		3,305,227		406,848		(3,729,253		)	—
Stockholders’ equity	1,595,910		—		39,356		(39,356		)	1,595,910		1,690,834		—		39,383		(39,383		)	1,690,834
Total liabilities and stockholders’ equity	$	4,267,520	$	3,787,220	$	437,697	$	(3,734,887	)	$	4,757,550	$	4,409,126	$	3,808,530	$	566,351	$	(3,768,636	)	$	5,015,371

Condensed Consolidating Statements of Cash Flows (in thousands)


	Nine Months Ended August 31, 2015															Nine Months Ended August 31, 2016
	KB Home Corporate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total			KB Home Corporate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Net cash provided by (used in) operating activities	$	41,620		$	(43,447	)	$	(20,257	)	$	—		$	(22,084	)	$	49,705		$	(169,547	)	$	17,230		$	—		$	(102,612	)
Cash flows from investing activities:
Contributions to unconsolidated joint ventures	—			(20,954		)	(1		)	—			(20,955		)	—			(1,000		)	—			—			(1,000		)
Return of investments in unconsolidated joint ventures	—			14,000			—			—			14,000			—			3,495			—			—			3,495
Purchases of property and equipment, net	(498		)	(1,565		)	(37		)	—			(2,100		)	(2,066		)	(489		)	(125		)	—			(2,680		)
Intercompany	(96,519		)	—			—			96,519			—			(141,886		)	—			—			141,886			—
Net cash used in investing activities	(97,017		)	(8,519		)	(38		)	96,519			(9,055		)
Net cash provided by (used in) investing activities																(143,952		)	2,006			(125		)	141,886			(185		)
Cash flows from financing activities:
Change in restricted cash	2,207			—			—			—			2,207			8,742			—			—			—			8,742
Proceeds from issuance of debt	250,000			—			—			—			250,000
Payment of debt issuance costs	(4,561		)	—			—			—			(4,561		)
Repayment of senior notes	(199,906		)	—			—			—			(199,906		)
Payments on mortgages and land contracts due to land sellers and other loans	—			(13,736		)	—			—			(13,736		)	—			(41,913		)	—			—			(41,913		)
Issuance of common stock under employee stock plans	436			—			—			—			436			7,351			—			—			—			7,351
Payments of cash dividends	(6,890		)	—			—			—			(6,890		)	(6,471		)	—			—			—			(6,471		)
Stock repurchases	(300		)	—			—			—			(300		)	(87,531		)	—			—			—			(87,531		)
Intercompany	—			87,849			8,670			(96,519		)	—			—			170,081			(28,195		)	(141,886		)	—
Net cash provided by financing activities	40,986			74,113			8,670			(96,519		)	27,250
Net increase (decrease) in cash and cash equivalents	(14,411		)	22,147			(11,625		)	—			(3,889		)
Net cash provided by (used in) financing activities																(77,909		)	128,168			(28,195		)	(141,886		)	(119,822		)
Net decrease in cash and cash equivalents																(172,156		)	(39,373		)	(11,090		)	—			(222,619		)
Cash and cash equivalents at beginning of period	303,280			38,124			17,364			—			358,768			444,850			98,281			17,210			—			560,341
Cash and cash equivalents at end of period	$	288,869		$	60,271		$	5,739		$	—		$	354,879		$	272,694		$	58,908		$	6,120		$	—		$	337,722


	Nine Months Ended August 31, 2014															Nine Months Ended August 31, 2015
	KB Home Corporate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total			KB Home Corporate			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			Total
Net cash provided by (used in) operating activities	$	66,251		$	(730,397	)	$	(52,516	)	$	—		$	(716,662	)	$	41,620		$	(53,030	)	$	(10,674	)	$	—		$	(22,084	)
Cash flows from investing activities:
Contributions to unconsolidated joint ventures	—			(33,786		)	(248		)	—			(34,034		)	—			(20,955		)	—			—			(20,955		)
Proceeds from sale of investment in unconsolidated joint venture	—			—			10,110			—			10,110			—			14,000			—			—			14,000
Purchases of property and equipment, net	(131		)	(3,499		)	(528		)	—			(4,158		)	(498		)	(1,535		)	(67		)	—			(2,100		)
Intercompany	(840,839		)	—			—			840,839			—			(96,519		)	—			—			96,519			—
Net cash provided by (used in) investing activities	(840,970		)	(37,285		)	9,334			840,839			(28,082		)
Net cash used in investing activities																(97,017		)	(8,490		)	(67		)	96,519			(9,055		)
Cash flows from financing activities:
Change in restricted cash	9,450			—			—			—			9,450			2,207			—			—			—			2,207
Proceeds from issuance of debt	400,000			—			—			—			400,000			250,000			—			—			—			250,000
Payment of debt issuance costs	(5,448		)	—			—			—			(5,448		)	(4,561		)	—			—			—			(4,561		)
Repayment of senior notes																(199,906		)	—			—			—			(199,906		)
Payments on mortgages and land contracts due to land sellers and other loans	—			(23,292		)	—			—			(23,292		)	—			(13,736		)	—			—			(13,736		)
Proceeds from issuance of common stock, net	137,045			—			—			—			137,045
Issuance of common stock under employee stock plans	202			—			—			—			202			436			—			—			—			436
Payments of cash dividends	(6,682		)	—			—			—			(6,682		)	(6,890		)	—			—			—			(6,890		)
Stock repurchases	(46		)	—			—			—			(46		)	(300		)	—			—			—			(300		)
Intercompany	—			804,809			36,030			(840,839		)	—			—			94,522			1,997			(96,519		)	—
Net cash provided by financing activities	534,521			781,517			36,030			(840,839		)	511,229			40,986			80,786			1,997			(96,519		)	27,250
Net increase (decrease) in cash and cash equivalents	(240,198		)	13,835			(7,152		)	—			(233,515		)	(14,411		)	19,266			(8,744		)	—			(3,889		)
Cash and cash equivalents at beginning of period	476,847			39,952			15,724			—			532,523			303,280			37,112			18,376			—			358,768
Cash and cash equivalents at end of period	$	236,649		$	53,787		$	8,572		$	—		$	299,008		$	288,869		$	56,378		$	9,632		$	—		$	354,879


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):


	Nine Months Ended August 31,								Three Months Ended August 31,								Nine Months Ended August 31,								Three Months Ended August 31,
	2015			2014			Variance		2015			2014			Variance		2016			2015			Variance		2016			2015			Variance
Revenues:
Homebuilding	$	2,038,896		$	1,596,894		28	%	$	840,204		$	586,231		43	%	$	2,394,315		$	2,038,896		17	%	$	910,111		$	840,204		8	%
Financial services	7,351			8,014			(8	)	2,953			2,983			(1	)	8,389			7,351			14		3,172			2,953			7
Total revenues	$	2,046,247		$	1,604,908		27	%	$	843,157		$	589,214		43	%	$	2,402,704		$	2,046,247		17	%	$	913,283		$	843,157		8	%
Pretax income:
Homebuilding	$	49,554		$	61,186		(19	)%	$	31,253		$	26,814		17	%	$	89,171		$	49,554		80	%	$	51,050		$	31,253		63	%
Financial services	7,572			5,162			47		2,701			1,847			46		5,116			7,572			(32	)	2,413			2,701			(11	)
Total pretax income	57,126			66,348			(14	)	33,954			28,661			18		94,287			57,126			65		53,463			33,954			57
Income tax expense	(16,500		)	(800		)	(a)		(10,700		)	(300		)	(a)		(26,200		)	(16,500		)	(59	)	(14,100		)	(10,700		)	(32	)
Net income	$	40,626		$	65,548		(38	)%	$	23,254		$	28,361		(18	)%	$	68,087		$	40,626		68	%	$	39,363		$	23,254		69	%
Basic earnings per share	$	.44		$	.74		(41	)%	$	.25		$	.31		(19	)%	$	.79		$	.44		80	%	$	.46		$	.25		84	%
Diluted earnings per share	$	.42		$	.68		(38	)%	$	.23		$	.28		(18	)%	$	.72		$	.42		71	%	$	.42		$	.23		83	%

Housing market conditions remained favorable in most of our served markets during the first nine months of 2016, with generally positive economic, employment and household income trends fueling steady demand amid constrained supply. With the gradually improving operating environment and our focused execution on our core strategies in the 2016 third 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 14% year over year to $910.1 million, as the number of homes we delivered increased 11% to 2,487 and the overall average selling price of those homes rose 2% to $365,900. Our housing gross profit margin for the quarter increased 20 basis points year over year to 16.4%, partly due to lower inventory-related charges in the current quarter. Inventory-related charges totaled $3.1 million for the three months ended August 31, 2016, compared to $3.5 million for the year-earlier period. Our selling, general and administrative expense ratio improved 110 basis points to 10.8% of housing revenues, reflecting enhanced operating leverage from delivering more homes and generating corresponding higher revenues. Homebuilding operating income for the 2016 third quarter increased 43% to $51.5 million. For the three months ended August 31, 2016, we posted net income of $39.4 million, up 69% from the corresponding period of 2015, and diluted earnings per share of $.42, up 83% year over year.

During the nine months ended August 31, 2016, we invested $1.06 billion 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 $701.6 million. Approximately 50% of our total investment in the first three quarters of 2016 related to land acquisition, compared to approximately 30% 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 nine-month periods ended August 31, 2016 and 2015 (dollars in thousands):



	Nine Months Ended August 31,						Three Months Ended August 31,
	2016			2015			2016			2015
Net orders	8,029			7,371			2,508			2,167
Net order value (a)	$	2,957,265		$	2,579,330		$	929,589		$	773,288
Cancellation rate (b)	25		%	26		%	29		%	30		%
Ending backlog — homes	5,226			4,664			5,226			4,664
Ending backlog — value	$	1,848,580		$	1,585,478		$	1,848,580		$	1,585,478
Ending community count	227			252			227			252
Average community count	239			244			235			257


(a)	~~Percentage not meaningful.~~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.

~~Conditions~~Net Orders. For the three months ended August 31, 2016, net orders from our homebuilding operations grew 16% from the year-earlier period, despite a 9% decrease in ~~most~~our average community count. The combination of higher net orders and a higher overall average selling price resulted in the value of our ~~served markets remained generally positive during~~2016 third quarter net orders increasing 20% from the ~~first~~year-earlier quarter. For the nine months ended August 31, 2016, net orders grew 9% and net order value increased 15% from the corresponding period of 2015, with healthy housing supply and demand dynamics fueled by strengthening fundamental demographic trends and steady employment and economic growth. Within this favorable environment, we continued to execute on our key strategic initiatives and generated year-over-year improvement2015. Our cancellation rates in ~~several key operational and financial metrics across our segments. We expanded our revenues on a year-over-year basis for~~ the three months and nine months ended August 31, ~~2015, reflecting increases in both~~2016 showed marginal improvement compared to the corresponding prior-year periods.

Backlog. The number of homes ~~delivered~~in our backlog at August 31, 2016 rose 12% from August 31, 2015, primarily reflecting the 10% higher backlog level we had at the beginning of the 2016 third quarter as compared to the year-earlier quarter and a 16% year-over-year increase in our third quarter net orders. The potential future housing revenues in our backlog at August 31, 2016 grew 17% from August 31, 2015 due to the larger number of homes in our backlog and the ~~overall~~higher average selling price of those ~~homes, as well as higher land sale revenues. We also maintained profitability and generated sequential improvement~~homes. The growth in our housing gross profit margin, with a 20 basis point increase to 16.2% in the third quarter from 16.0% in the 2015 second quarter. However, our housing gross profit margins for the three months and nine months ended August 31, 2015 were lower compared to the corresponding year-earlier periods, primarily due to a shift in product and geographic mix, higher land and construction costs, increased pricing pressures within certain markets andbacklog value reflected substantial year-over-year increases in the amortization of previously capitalized interest associated with housing operations and housing inventory-related charges. The impact of these items was partly offset by increased operating leverage as a resulteach of our ~~higher deliveries and revenues.~~four homebuilding reporting segments, ranging from 11% in our Central segment to 24% in our West Coast segment.

In addition, through our investments in land and land development, we significantly grew our community count during the first nine months of 2015, which we believe will continue to be an important driver for increasing our revenues in the fourth quarter. In the third quarter and first nine months of 2015, our average community count rose 30% and 26%, respectively, compared to the corresponding year-earlier periods, which helped produce strong increases in both our net orders and net order value for each period and, in turn, expand our backlog. 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 ~~net order value for a given period represents the potential future housing revenues associated with net orders, including various lot~~ending and ~~product premiums, and homebuyer spending on design studio options and upgrades for homes in backlog during the same period.~~

~~The following table presents information concerning our net orders, net order value, cancellation rate as a percentage of gross orders, ending backlog and~~average community ~~count~~counts for the ~~three-month~~2016 third quarter decreased 10% and ~~nine-month periods ended August 31, 2015 and 2014 (dollars~~9%, respectively, each on a year-over-year basis, in ~~thousands):~~

Nine Months Ended August 31, Three Months Ended August 31,
2015 2014 2015 2014
Net orders 7,371
5,861
2,167
1,827
Net order value $ 2,579,330
$ 1,992,576
$ 773,288
$ 629,248
Cancellation rate 26 % 29 % 30 % 31 %
Ending backlog — homes 4,664
3,432
4,664
3,432
Ending backlog — value $ 1,585,478
$ 1,104,140
$ 1,585,478
$ 1,104,140
Ending community count 252
200
252
200
Average community count 244
193
257
197

~~Net Orders.~~ ~~For the three months ended August 31, 2015, net orders from~~part reflecting our ~~homebuilding operations rose 19% from the year-earlier period, largely due to the 30% year-over-year growth~~lower relative investment in ~~our average community count.~~land development in 2016. For the nine months ended August 31, ~~2015, net orders grew 26% from the corresponding period of 2014, mainly due to the 26% year-over-year increase in~~2016, our average community ~~count.~~count was relatively flat with the year-earlier period.

~~The combination~~In the 2016 second quarter, we announced that we had begun a transition out of ~~higher net orders and higher overall average selling prices resulted~~the Metro Washington, D.C. market. This transition is expected to be completed within 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 ~~value~~Metro Washington, D.C. market consisted of ~~the net orders we generated~~communities in ~~the third quarter~~Maryland and ~~first nine months~~Virginia, which are included in our Southeast homebuilding reporting segment, and represented 2% of ~~2015 increasing~~ ~~23%~~ ~~and 29%, respectively, from the corresponding year-earlier periods.~~

~~For~~our consolidated homebuilding revenues for both the three-month and nine-month periods ended August 31, 2015, our cancellation rate as a percentage of gross orders improved from the corresponding period of 2014. Our cancellation rate as a percentage of beginning backlog for the three months ~~ended August 31, 2015 also improved to 20%, compared to 24% in the year-earlier period.~~

~~Backlog~~. The potential future housing revenues in our backlog at August 31, 2015 grew 44% from August 31, 2014, reflecting substantial year-over-year increases in each of our four homebuilding reporting segments that ranged from 27% in our West Coast segment to 194% in our Southwest segment. The number of homes in our backlog at August 31, 2015 rose ~~36%~~ ~~from August 31, 2014, primarily reflecting the~~ ~~19%~~ ~~year-over-year increase in our net orders for the three months ended~~ ~~August 31, 2015~~and ~~the 39% higher backlog level we had at the beginning of the 2015 third quarter as compared to the year-earlier quarter.~~

~~Community Count.~~ We achieved year-over-year increases in our ending and average community counts for the third quarter and first nine months of 2015 primarily due to the strong inventory pipeline we have strategically built over the past few years through substantial investment in land and land development and by increasing the proportion of those investments dedicated to land development. While we moderated our overall investment level in the nine months ended August 31, ~~2015~~2016. We plan to $701.6 million from $1.19 billion in the year-earlier period, approximately 70% of our total investment in the current period related to land development, compared to approximately 42% in the year-earlier period, reflecting our emphasis in the current year to convert our owned land into new communities open for sales to promote growth in our net orders, backlog, homes deliveredcontinue constructing and ~~revenues.~~

~~At August 31, 2015, the number of~~delivering homes in our ~~backlog and the corresponding backlog value reached their highest third-quarter levels since 2008 and 2007, respectively, while our ending community count was up 26% from a year ago. As a result,~~remaining communities in this market. We also have other land interests in this market that we ~~believe we are well-positioned~~intend to ~~accomplish our top financial and operational priorities for the year.~~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):


	Nine Months Ended August 31,						Three Months Ended August 31,						Nine Months Ended August 31,						Three Months Ended August 31,
	2015			2014			2015			2014			2016			2015			2016			2015
Revenues:
Housing	$	1,928,395		$	1,586,173		$	798,633		$	586,231		$	2,390,165		$	1,928,395		$	910,111		$	798,633
Land	110,501			10,721			41,571			—			4,150			110,501			—			41,571
Total	2,038,896			1,596,894			840,204			586,231			2,394,315			2,038,896			910,111			840,204
Costs and expenses:
Construction and land costs
Housing	(1,622,530		)	(1,292,224		)	(668,871		)	(476,016		)	(2,007,621		)	(1,622,530		)	(760,490		)	(668,871		)
Land	(103,446		)	(13,034		)	(40,277		)	(3,408		)	(10,401		)	(103,446		)	—			(40,277		)
Total	(1,725,976		)	(1,305,258		)	(709,148		)	(479,424		)	(2,018,022		)	(1,725,976		)	(760,490		)	(709,148		)
Selling, general and administrative expenses	(244,678		)	(205,715		)	(95,074		)	(72,897		)	(279,886		)	(244,678		)	(98,144		)	(95,074		)
Total	(1,970,654		)	(1,510,973		)	(804,222		)	(552,321		)	(2,297,908		)	(1,970,654		)	(858,634		)	(804,222		)
Operating income	$	68,242		$	85,921		$	35,982		$	33,910		$	96,407		$	68,242		$	51,477		$	35,982
Homes delivered	5,616			4,986			2,236			1,793			6,769			5,616			2,487			2,236
Average selling price	$	343,400		$	318,100		$	357,200		$	327,000		$	353,100		$	343,400		$	365,900		$	357,200
Housing gross profit margin as a percentage of housing revenues	15.9		%	18.5		%	16.2		%	18.8		%	16.0		%	15.9		%	16.4		%	16.2		%
Adjusted housing gross profit margin as a percentage of housing revenues	20.4		%	22.4		%	21.1		%	22.7		%	20.9		%	20.4		%	21.2		%	21.1		%
Selling, general and administrative expenses as a percentage of housing revenues	12.7		%	13.0		%	11.9		%	12.4		%	11.7		%	12.7		%	10.8		%	11.9		%
Operating income as a percentage of homebuilding revenues	3.3		%	5.4		%	4.3		%	5.8		%	4.0		%	3.3		%	5.7		%	4.3		%

For reporting purposes, we organize our homebuilding operations into four segments — West Coast, Southwest, Central and Southeast. As of August 31, ~~2015~~2016, our homebuilding reporting segments consisted of ~~ongoing~~ operations located in the following states: West Coast — California; Southwest — Arizona and Nevada; Central — Colorado ~~New Mexico~~ 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):


	Nine Months Ended August 31,								Nine Months Ended August 31,
	Homes Delivered		Net Orders		Cancellation Rates				Homes Delivered		Net Orders		Cancellation Rates
Segment	2015	2014	2015	2014	2015		2014		2016	2015	2016	2015	2016		2015
West Coast	1,498	1,288	1,886	1,618	20	%	20	%	1,799	1,498	2,325	1,886	19	%	20	%
Southwest	888	521	1,305	590	21		25		1,111	888	1,337	1,305	20		21
Central	2,212	2,167	2,864	2,587	31		35		2,647	2,212	3,042	2,864	30		31
Southeast	1,018	1,010	1,316	1,066	25		30		1,212	1,018	1,325	1,316	29		25
Total	5,616	4,986	7,371	5,861	26	%	29	%	6,769	5,616	8,029	7,371	25	%	26	%


	Nine Months Ended August 31,													Nine Months Ended August 31,
	Net Order Value						Average Community Count							Net Order Value						Average Community Count
Segment	2015		2014		Variance		2015		2014			Variance		2016		2015		Variance		2016		2015			Variance
West Coast	$	1,088,175	$	949,794	15	%	53		42			26	%	$	1,346,091	$	1,088,175	24	%	58		53			9	%
Southwest	368,394		155,592		137		37		19			95		385,501		368,394		5		37		37			—
Central	758,592		598,011		27		93		82			13		845,164		758,592		11		90		93			(3	)
Southeast	364,169		289,179		26		61		50			22		380,509		364,169		4		54		61			(11	)
Total	$	2,579,330	$	1,992,576	29	%	244		193			26	%	$	2,957,265	$	2,579,330	15	%	239		244			(2	)%


	Three Months Ended August 31,													Three Months Ended August 31,
	Homes Delivered				Net Orders				Cancellation Rates					Homes Delivered				Net Orders				Cancellation Rates
Segment	2015		2014		2015		2014		2015			2014		2016		2015		2016		2015		2016			2015
West Coast	625		458		564		529		23		%	19	%	710		625		775		564		19		%	23	%
Southwest	372		185		384		198		29			24		369		372		437		384		22			29
Central	822		807		818		745		36			38		976		822		931		818		35			36
Southeast	417		343		401		355		28			32		432		417		365		401		36			28
Total	2,236		1,793		2,167		1,827		30		%	31	%	2,487		2,236		2,508		2,167		29		%	30	%

	Net Order Value						Average Community Count							Net Order Value						Average Community Count
Segment	2015		2014		Variance		2015		2014			Variance		2016		2015		Variance		2016		2015			Variance
West Coast	$	331,864	$	305,840	9	%	60		40			50	%	$	435,598	$	331,864	31	%	60		60			—	%
Southwest	110,181		50,692		117		41		20			105		122,876		110,181		12		36		41			(12	)
Central	223,168		178,657		25		93		83			12		263,707		223,168		18		91		93			(2	)
Southeast	108,075		94,059		15		63		54			17		107,408		108,075		(1	)	48		63			(24	)
Total	$	773,288	$	629,248	23	%	257		197			30	%	$	929,589	$	773,288	20	%	235		257			(9	)%

	August 31,													August 31,
	Backlog – Homes						Backlog – Value							Backlog – Homes						Backlog – Value
Segment	2015		2014		Variance		2015		2014			Variance		2016		2015		Variance		2016		2015			Variance
West Coast	981		750		31	%	$	586,862	$	463,643		27	%	1,264		981		29	%	$	724,795	$	586,862		24	%
Southwest	741		257		188		204,802		69,621			194		831		741		12		234,736		204,802			15
Central	2,141		1,768		21		571,433		396,838			44		2,237		2,141		4		636,234		571,433			11
Southeast	801		657		22		222,381		174,038			28		894		801		12		252,815		222,381			14
Total	4,664		3,432		36	%	$	1,585,478	$	1,104,140		44	%	5,226		4,664		12	%	$	1,848,580	$	1,585,478		17	%

Revenues. Homebuilding revenues for the three months ended August 31, ~~2015 were generated~~2016 rose 8% from ~~both~~the year-earlier period to $910.1 million. The year-over-year growth reflected an increase in our housing ~~operations and~~revenues that was partly offset by the absence of revenues from land ~~sales.~~ sales in the current period.

Housing revenues ~~rose 36%~~increased 14% to ~~$798.6~~$910.1 million for the quarter ended August 31, ~~2015~~2016 from ~~$586.2~~$798.6 million for the corresponding quarter of ~~2014~~2015 due to increases in both the number of homes we delivered and the overall average selling price of those homes. We delivered 2,487 homes in the 2016 third quarter, up 11% from 2,236 homes in the 2015 third quarter ~~of 2015, up 25% from 1,793 homes in the year-earlier quarter, primarily~~largely due to the ~~39%~~10% higher backlog level we had at the beginning of the ~~2015~~2016 third quarter as compared to the year-earlier period.

The backlog level at the beginning of the 2016 third quarter was higher in each of our homebuilding reporting segments as compared to the year-earlier quarter. The overall average selling price of homes delivered ~~advanced 9%~~rose 2% to ~~$357,200~~$365,900 for the three months ended August 31, ~~2015~~2016 from ~~$327,000~~$357,200 for the year-earlier period. ~~The year-over-year increase reflected our continued strategic focus on positioning our new communities~~Our housing revenues and overall average selling price in ~~land-constrained submarkets that typically feature homebuyers~~the current quarter were

tempered in part by an unexpected delay in the delivery of certain homes with ~~higher household incomes; higher median home selling prices; stronger demand for larger home sizes and various lot and product premiums, and design studio options and~~

~~upgrades; our actions to balance home~~relatively high selling prices ~~and sales pace to optimize revenues and profits; and generally favorable market conditions.~~from our northern California operations.

Land sale revenues totaled $41.6 million for the three months ended August 31, 2015, reflecting activity in three of our four homebuilding reporting segments as part of an ongoing focus on enhancing asset efficiency by executing on targeted opportunities to monetize certain land positions. The current quarter land sale revenues largely related to land previously held for future development. We had2015. There were no land sales in the three months ended August 31, ~~2014.~~2016. 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 opportunities to sell land at ~~reasonable~~acceptable prices and prevailing market conditions.

For the nine months ended August 31, ~~2015,~~2016, our homebuilding revenues ~~grew 28% to $2.04 billion~~increased 17% from ~~$1.60 billion for~~ the year-earlier ~~period.~~period to $2.39 billion. Housing revenues for the nine months ended August 31, ~~2015~~2016 rose ~~$342.2~~$461.8 million, or ~~22%~~24%, from the corresponding period of ~~2014~~2015 due to a ~~13%~~21% increase in the number of homes delivered and ~~an 8%~~a 3% increase in ~~our~~the overall average selling ~~price.~~price of those homes. We delivered ~~5,616~~6,769 homes in the first nine months of ~~2015,~~2016, compared to ~~4,986~~5,616 homes in the year-earlier period. Our overall average selling price of homes delivered for the nine months ended August 31 rose to $353,100 in 2016 from $343,400 in ~~2015 from $318,100 in 2014~~2015.

Land sale revenues decreased to $4.2 million for the ~~reasons described above with respect to the three~~nine months ended August 31, ~~2015.~~

~~Land sale revenues increased to~~2016 from $110.5 million for the nine months ended August 31, 2015, ~~from $10.7 million for the nine months ended August 31, 2014~~ primarily ~~due to the current-quarter land sales mentioned above,~~ as ~~well as~~a result of our sale of a large parcel in northern California ~~earlier in 2015.~~during the 2015 period.

Operating Income. Our homebuilding operating income ~~rose~~increased 43% to ~~$36.0~~$51.5 million for the three months ended August 31, ~~2015~~2016 from ~~$33.9~~$36.0 million for the year-earlier ~~period due~~period. Homebuilding operating income for the three months ended August 31, 2016 included $3.1 million of inventory impairment and land option contract abandonment charges, compared to ~~an increase~~$3.5 million of such charges in ~~housing gross profits and improved land sale results that were partly offset by an increase in selling, general and administrative expenses. However, as~~the three months ended August 31, 2015. As a percentage of homebuilding revenues, our homebuilding operating income ~~decreased 150~~increased 140 basis points year over year to ~~4.3%~~5.7% for the ~~current quarter from 5.8%~~three months ended August 31, 2016. Excluding inventory-related charges and prior year land sale results, our homebuilding operating income margin for the ~~2014 third quarter.~~ three months ended August 31, 2016 rose 120 basis points from the year-earlier quarter to 6.0%.

For the nine months ended August 31, ~~2015,~~2016, our homebuilding operating income ~~decreased~~increased to ~~$68.2~~$96.4 million from ~~$85.9~~$68.2 million for the ~~year-earlier period.~~corresponding period of 2015. The nine-month period ended August 31, 2016 included inventory impairment and land option contract abandonment charges totaling $16.8 million, compared to $4.5 million of such charges in the nine-month period ended August 31, 2015. As a percentage of homebuilding revenues, ~~our~~homebuilding operating income for the nine months ended August 31, ~~2015 declined 210~~2016 improved 70 basis points year over year to ~~3.3%, compared to 5.4%~~4.0%. Excluding inventory-related charges and land sale results for ~~the corresponding~~each period, ~~of 2014. The year-over-year decrease in~~as applicable, our homebuilding operating income margin for the nine months ended August 31, ~~2015 was due~~2016 rose 130 basis points from the year-earlier period to ~~an increase~~4.7%.

The year-over-year improvements in our homebuilding operating income for the three-month and nine-month periods ended August 31, 2016 primarily reflected increases in housing gross profits that were partly offset by increases in selling, general and administrative ~~expenses that~~expenses. In addition, the year-over-year comparison for the nine months ended August 31, 2016 was ~~partly offset~~negatively impacted by ~~higher housing gross profits and improved~~ land sale ~~results.~~losses of $6.3 million, compared to land sale profits of $7.1 million in the year-earlier period.

Housing gross profits increased to ~~$129.8~~$149.6 million for the three months ended August 31, ~~2015~~2016 from ~~$110.2~~$129.8 million for the year-earlier period. Our housing gross profits for the third ~~quarter~~quarters of 2016 and 2015 included ~~a $3.2 million~~ inventory impairment ~~charge~~ and ~~$.4 million of~~ land option contract abandonment ~~charges. In the third quarter~~charges of ~~2014, our housing gross profits included $1.0~~$3.1 million ~~of land option contract abandonment charges.~~ and $3.5 million, respectively.

Our housing gross profit margin for the 2016 third quarter ~~of 2015 declined 260~~improved 20 basis points to ~~16.2%~~16.4% from ~~18.8%~~16.2% for the year-earlier ~~quarter. Approximately 120 basis points of the year-over-year decrease was~~quarter, primarily due to ~~a shift in product~~lower construction and ~~geographic mix. The remainder of the decline was attributable to higher~~ land ~~and construction~~ costs ~~and increased pricing pressures in certain markets~~ (approximately ~~110~~10 basis points)~~, an increase~~ and a decrease in ~~the amortization of previously capitalized interest associated with housing operations (approximately 70 basis points), and higher housing~~ inventory impairment and land option contract abandonment charges (approximately ~~30 basis points). The impact of these items was partly offset by increased operating leverage as a result of our higher deliveries and revenues (approximately 70~~10 basis points). Sales incentives ~~as a percentage of~~did not impact our year-over-year housing ~~revenues in~~gross profit margin comparison for the ~~third quarter of 2015 were essentially the same as in the year-earlier quarter.~~three months ended August 31, 2016.

Excluding the amortization of previously capitalized interest associated with housing operations of ~~$35.3~~$40.4 million and ~~$21.8~~$35.3 million in the ~~third quarter of~~three-month periods ended August 31, 2016 and 2015, ~~and 2014,~~ respectively, and the above-mentioned ~~housing inventory impairment and land option contract abandonment~~inventory-related charges in the applicable periods, our adjusted housing gross profit margin ~~decreased to 21.1% in the current quarter~~improved 10 basis points from ~~22.7% in~~ the year-earlier ~~quarter.~~quarter to 21.2%. 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 third quarter ~~of 2015~~ rose to ~~$95.1~~$98.1 million from ~~$72.9~~$95.1 million for the year-earlier quarter, mainly ~~reflecting~~due to higher variable expenses associated with the year-over-year increases in ~~both~~ homes delivered and ~~housing~~corresponding revenues. Also contributing to the year-over-year increase were higher staffing levels and new community and related operational platform investments for the current quarter to support both our community count expansion strategy and anticipated growth in deliveries in the fourth quarter of 2015. As a percentage of housing revenues, selling, general and administrative expenses improved 50110 basis points from the prior-year period to ~~11.9%~~10.8% for the three months ended August 31, ~~2015~~2016, largely due to improved operating leverage on fixed costs from ~~12.4% for~~ the ~~year-earlier period.~~increased volume of homes delivered and corresponding revenues.

Land ~~sales generated~~sale profits oftotaled $1.3 million for the three months ended August 31, ~~2015 and losses of $3.4 million for~~2015. There was no land sale activity in the ~~three months ended August 31, 2014.~~current period.

Our housing gross profits of ~~$305.9~~$382.5 million for the nine months ended August 31, ~~2015~~2016 increased ~~$12.0~~$76.7 million, or 4%25%, from ~~$293.9~~$305.9 million for the year-earlier period. Housing gross profits for the nine months ended August 31, ~~2015~~2016 included an$7.7 million of inventory impairment ~~charge~~charges and $2.9 million of ~~$3.2 million and~~ land option contract abandonment ~~charges of $1.3 million. In~~charges. Housing gross profits for the nine months ended August 31, ~~2014, housing gross profits~~2015 included $3.2 million of inventory impairments and $1.3 million of land option contract abandonment ~~charges of $1.8 million.~~charges. Our housing gross profit margin of ~~15.9%~~16.0% for the first nine months of ~~2015 decreased 260~~2016 increased 10 basis points from ~~18.5%~~15.9% for the year-earlier period, ~~mainly for~~primarily reflecting the ~~reasons described above with respect~~impact of improved operating leverage from the increased volume of homes delivered and corresponding revenues compared to the ~~three months ended August 31, 2015.~~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~~ nine months ~~of 2015~~ended August 31, 2016 were roughly the same as in the year-earlier period. In the nine months ended August 31, ~~2015,~~2016, our adjusted housing gross profit margin ~~declined 200~~improved 50 basis points year over year to ~~20.4%, compared to 22.4% in the nine months ended August 31, 2014.~~20.9%.

Selling, general and administrative expenses increased ~~$39.0~~$35.2 million, or ~~19%~~14%, to ~~$244.7~~$279.9 million for the nine months ended August 31, ~~2015~~2016 from ~~$205.7~~$244.7 million for the corresponding period of ~~2014~~2015 for the reasons described above with respect to the three months ended August 31, ~~2015.~~2016. As a percentage of housing revenues, selling, general and administrative expenses improved to 11.7% for the nine months ended August 31, 2016 from 12.7% for the year-earlier period.

For the nine months ended August 31, 2016, land sale losses totaled $6.3 million, reflecting inventory impairment charges associated with the planned future sales of two land parcels in the Metro Washington, D.C. market as a result of our decision in the 2016 second quarter to wind down our operations in this market, and inventory impairment charges recorded in the 2016 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 nine months ended August 31, 2015 ~~from 13.0% for the year-earlier period.~~

~~As discussed~~generated profits of $7.1 million, primarily reflecting our sale of a large parcel in Note 6. Inventory Impairments and Land Option Contract Abandonments in the Notes to Consolidated Financial Statements in this report, we had a $3.2 million inventory impairment charge for the three months and nine months ended August 31, 2015, and recognized an inventory impairment charge of $3.4 million for the three months and nine months ended August 31, 2014.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 ~~under current and expected future market conditions~~ to range generally from one year to in excess of 10 ~~years. Based on current market conditions~~years and ~~anticipated home delivery timelines, we~~ expect to realize, on an overall basis, the majority of our current inventory balance within five years. The following table presents our ~~inventories~~inventory balance as of August 31, ~~2015~~2016 based on our current estimated timeframe ~~as to the~~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 $ 1,443.9
$ 1,470.3
$ 336.5
$ 151.0
$ 3,401.7



	0-2 years		3-5 years		6-10 years		Greater than 10 years		Total
Inventories	$	1,851.9	$	1,322.5	$	290.0	$	133.3	$	3,597.7

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 ~~86%~~88% of our total inventory balance at August 31, ~~2015. The inventory balances in the 6-10 years and greater than 10 years categories were primarily comprised of land held for future development.~~2016. The inventory balance in the 6-10 years category ~~as of August 31, 2015~~ was also located ~~across~~in all of our homebuilding reporting segments. The inventory balance in the greater than 10 years category was primarily located in our Southwest and Southeast 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 ~~the estimation process with respect to~~our inventory ~~impairments,~~impairment and land option contract ~~abandonments,~~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 and reflected~~estimated.

Deterioration in the ~~table above.~~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, or that we otherwise monetize to help increase our asset efficiency, 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 August 31, ~~2015~~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 ~~competitive home sales, economic and~~ regulatory environment, ~~as well as~~competition from other ~~factors~~homebuilders, inventory levels and ~~trends that are incorporated into our impairment analyses.~~sales activity of resale homes, and the local economic conditions where an asset is located. In addition, we consider the financial and operational status of and ~~our~~ expectations ~~regarding~~of our inventories as well as ~~unique~~specific attributes or circumstances of each community or land parcel in our inventory that could be ~~viewed as~~ indicators of potential ~~future~~ impairments. However, if conditions in the overall housing market or in a specific ~~markets~~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 $.1 million for each of the three-month periods ended August 31, ~~2015~~2016 and ~~2014.~~2015. For the ~~nine-month periods~~nine months ended August 31, 2016 and 2015, ~~and 2014,~~our interest income totaled ~~$.3~~$.4 million and ~~$.4~~$.3 million, respectively. 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, ~~housing inventory~~land development, home construction and other operating and capital needs. ~~Our~~All interest ~~expense, net of amounts capitalized, decreased to $4.4 million for~~incurred during the three months ended

August 31, ~~2015 from $6.5 million~~2016 was capitalized as the average amount of our inventory qualifying for interest capitalization was higher than our average debt level for the period. As a result, we had no interest expense for the three months ended August 31, ~~2014, as an increase in interest incurred, stemming from our higher average debt level, was more than offset by an increase in the amount~~2016, compared to $4.4 million of interest expense, net of amounts capitalized, ~~due to a higher amount of inventory qualifying~~ for ~~interest capitalization in~~ the ~~current quarter.~~three months ended August 31, 2015. For the nine months ended August 31, ~~2015,~~2016, our interest expense, net of amounts capitalized, totaled ~~$17.9~~$5.7 million, decreasing from ~~$26.3~~$17.9 million ~~for~~in the year-earlier period. ~~Further information regarding our~~The percentage of interest capitalized ~~to inventories and~~generally fluctuates based on the amount of our inventory qualifying for interest ~~amortized to construction and land costs is provided in Note 5. Inventories in the Notes to Consolidated Financial Statements in this report.~~capitalization.

During the ~~three months and~~ nine months ended August 31, ~~2015~~2016 and ~~2014,~~the three-month and nine-month periods ended August 31, 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 nine-month periods ended August 31, ~~2015~~2016 increased more than our average 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 ~~2014~~2015 and in the first nine months of ~~2015,~~2016, as well as recently activated land previously held for future development. Accordingly, we expensed ~~less~~no interest in the three months ended August 31, 2016, and expensed less interest in the nine months ended August 31, ~~2015~~2016 as compared to the corresponding year-earlier ~~periods.~~period.

Interest incurred ~~rose 4% to $46.6~~was $46.5 million for the three months ended August 31, ~~2015 from $44.6~~2016 and $46.6 million for the year-earlier ~~period due to the higher average debt outstanding in the current~~ period. We capitalized ~~$42.2~~$46.5 million and ~~$38.1~~$42.2 million of the interest incurred in the three months ended August 31, ~~2015~~2016 and ~~2014,~~August 31, 2015, respectively. For the nine months ended August 31, ~~2015,~~2016, interest incurred ~~increased 11%~~declined 1% to ~~$140.8~~$139.0 million from ~~$127.0~~$140.8 million for the year-earlier period due to the ~~higher~~lower average debt outstanding during the ~~2015~~2016 period. We capitalized ~~$122.9~~$133.3 million and ~~$100.8~~$122.9 million of the interest incurred in the nine months ended August 31, ~~2015~~2016 and ~~2014,~~August 31, 2015, respectively.

Interest amortized to construction and land costs associated with housing operations increased to ~~$51.8~~$40.4 million for the three months ended August 31, ~~2015~~2016 from ~~$21.8~~$35.3 million for the ~~three months ended August 31, 2014.~~year-earlier period. For the nine months ended August 31, ~~2015,~~2016, such interest amortized ~~to construction and land costs~~ rose to ~~$99.5~~$106.2 million from ~~$59.5~~$83.1 million for the year-earlier period. The year-over-year ~~increases~~increase in interest amortized for each of the ~~three months~~three-month and ~~nine months~~nine-month periods ended August 31, ~~2015~~2016 reflected year-over-year increases in the number of homes delivered and higher overall construction and land costs attributable to those homes, as well as the amortization of previously capitalized interest related to land sales included in the 2015 periods. The amortization of previously capitalized interest associated with housing operations totaled $35.3 million for the three months ended August 31, 2015 and $83.1 million for the nine months ended August 31, 2015.homes. As a percentage of housing revenues, the amortization of previously capitalized interest associated with housing operations was 4.4% for each of the ~~three months~~three-month periods ended August 31, ~~2015~~2016 and ~~3.7% for the three months ended August 31, 2014.~~2015. For the nine months ended August 31, ~~2015~~2016 and ~~2014,~~2015, this percentage was ~~4.3%~~4.4% and ~~3.7%~~4.3%, respectively. Additionally, interest amortized to construction and land costs for the first nine months of 2016 included $.5 million related to land sales that occurred during the period. Such interest for the three months and nine months ended August 31, 2015 totaled $16.4 million.

Equity in ~~Income (Loss)~~Loss of Unconsolidated Joint Ventures. Our equity in loss of unconsolidated joint ventures ~~was~~totaled $.5 million and $.4 million for the three months ended August 31, 2016 and 2015, ~~and $.8 million for the three months ended August 31, 2014.~~respectively. For the nine months ended August 31, ~~2015,~~2016, our equity in loss of unconsolidated joint ventures was ~~$1.2~~$2.0 million, compared to ~~equity in income of unconsolidated joint ventures of~~ $1.2 million for the ~~nine months ended August 31, 2014. The results for the nine months ended August 31, 2014 included a $3.2 million gain on the sale~~same period of ~~our interest in an unconsolidated joint venture.~~2015. Further information regarding our investments in unconsolidated joint ventures is provided in Note 8.8 – 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):


	Nine Months Ended August 31,						Three Months Ended August 31,						Nine Months Ended August 31,						Three Months Ended August 31,
	2015			2014			2015			2014			2016			2015			2016			2015
Housing revenues	$	1,928,395		$	1,586,173		$	798,633		$	586,231		$	2,390,165		$	1,928,395		$	910,111		$	798,633
Housing construction and land costs	(1,622,530		)	(1,292,224		)	(668,871		)	(476,016		)	(2,007,621		)	(1,622,530		)	(760,490		)	(668,871		)
Housing gross profits	305,865			293,949			129,762			110,215			382,544			305,865			149,621			129,762
Add: Amortization of previously capitalized interest associated with housing operations	83,050			59,471			35,314			21,769
Housing inventory impairment and land option contract abandonment charges	4,516			1,803			3,532			1,013
Add: Amortization of previously capitalized interest (a)													106,181			83,050			40,424			35,314
Inventory-related charges (b)													10,615			4,516			3,052			3,532
Adjusted housing gross profits	$	393,431		$	355,223		$	168,608		$	132,997		$	499,340		$	393,431		$	193,097		$	168,608
Housing gross profit margin as a percentage of housing revenues	15.9		%	18.5		%	16.2		%	18.8		%	16.0		%	15.9		%	16.4		%	16.2		%
Adjusted housing gross profit margin as a percentage of housing revenues	20.4		%	22.4		%	21.1		%	22.7		%	20.9		%	20.4		%	21.2		%	21.1		%


(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 ~~(a)~~(1) amortization of previously capitalized interest associated with housing operations and ~~(b)~~(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):


	August 31, 2015			November 30, 2014			August 31, 2016			November 30, 2015
Notes payable	$	2,630,732		$	2,576,525		$	2,674,795		$	2,625,536
Stockholders’ equity	1,640,226			1,595,910			1,682,450			1,690,834
Total capital	$	4,270,958		$	4,172,435		$	4,357,245		$	4,316,370
Ratio of debt to capital	61.6		%	61.8		%	61.4		%	60.8		%

Notes payable	$	2,630,732		$	2,576,525
Less: Cash and cash equivalents and restricted cash	(377,980		)	(383,601		)
Net debt	2,252,752			2,192,924
Stockholders’ equity	1,640,226			1,595,910
Total capital	$	3,892,978		$	3,788,834
Ratio of net debt to capital	57.9		%	57.9		%



	August 31, 2016			November 30, 2015
Notes payable	$	2,674,795		$	2,625,536
Less: Cash and cash equivalents and restricted cash	(335,271		)	(568,386		)
Net debt	2,339,524			2,057,150
Stockholders’ equity	1,682,450			1,690,834
Total capital	$	4,021,974		$	3,747,984
Ratio of net debt to capital	58.2		%	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):


	Nine Months Ended August 31,								Three Months Ended August 31,								Nine Months Ended August 31,								Three Months Ended August 31,
	2015			2014			Variance		2015			2014			Variance		2016			2015			Variance		2016			2015			Variance
Revenues	$	932,905		$	707,532		32	%	$	378,362		$	265,491		43	%	$	1,029,269		$	932,905		10	%	$	414,150		$	378,362		9	%
Construction and land costs	(790,795		)	(554,871		)	(43	)	(318,331		)	(206,535		)	(54	)	(877,363		)	(790,795		)	(11	)	(350,636		)	(318,331		)	(10	)
Selling, general and administrative expenses	(57,810		)	(47,966		)	(21	)	(22,123		)	(17,368		)	(27	)	(70,321		)	(57,810		)	(22	)	(26,188		)	(22,123		)	(18	)
Operating income	84,300			104,695			(19	)	37,908			41,588			(9	)	81,585			84,300			(3	)	37,326			37,908			(2	)
Other expense, net	(8,123		)	(11,096		)	27		(2,139		)	(2,318		)	8		(2,938		)	(8,123		)	64		(414		)	(2,139		)	81
Pretax income	$	76,177		$	93,599		(19	)%	$	35,769		$	39,270		(9	)%	$	78,647		$	76,177		3	%	$	36,912		$	35,769		3	%


Homes delivered	1,498			1,288			16	%	625			458			36	%	1,799			1,498			20	%	710			625			14	%
Average selling price	$	571,500		$	549,300		4	%	$	579,800		$	579,700		—	%	$	572,100		$	571,500		—	%	$	583,300		$	579,800		1	%
Housing gross profit margin																	14.8		%	15.9		%	(110	)bps	15.3		%	16.4		%	(110	)bps

~~The year-over-year increases in this~~This segment’s ~~total~~ revenues for the three months and nine months ended August 31, 2016 were generated solely from housing operations. For the three months and nine months ended August 31, 2015, ~~reflected higher~~this segment’s revenues were generated from both housing operations and land ~~sale revenues.~~sales. Housing revenues of $414.2 million for the 2016 third quarter grew 14% from $362.4 million for the ~~2015 third quarter grew 36% from $265.5 million for the~~ year-earlier ~~quarter due to an increase in the number of homes delivered across this segment’s operations as we delivered homes from more communities.~~quarter. For the nine months ended August 31, ~~2015,~~2016, housing revenues ofrose 20% from $856.1 ~~million rose 21% from $707.5~~ million for the corresponding period of ~~2014, reflecting increases in both the number of homes delivered and the average selling price of those homes.~~2015. The year-over-year growth in housing revenues for the three-month and nine-month periods ended August 31, 2016 primarily reflected increases in the number of homes delivered ~~for the nine months ended August 31, 2015 was due to an increase in homes delivered~~ from our coastal submarkets that was partly offset by a decrease from our inland submarkets. The average selling price for the nine months ended August 31, 2015 rose from the corresponding year-earlier period due to the combination of a greater proportion of homes delivered from higher-priced communities located in coastal submarkets, a shift in product mix, and generally rising home prices. Thissouthern California operations. Our West Coast segment generated land sale revenues of $16.0 million and $76.8 million for the three months and nine months ended August 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 August 31, ~~2015 and $76.8 million for the nine months ended August 31, 2015, primarily reflecting our sales of a large parcel in northern California~~2016 reflected higher housing gross profits and a ~~parcel located~~decrease in ~~an inland southern California submarket. There~~other expense, net that were ~~no land sale revenues in the corresponding year-earlier periods.~~

~~For the three months ended August 31, 2015, this segment’s pretax income decreased~~ ~~$3.5 million~~ ~~from the year-earlier period as a result of~~partly offset by higher selling, general and administrative expenses and the absence of land sale profits in the current quarter. Housing gross profits increased as a result of the higher volume of homes delivered, partly offset by ~~land sale profits of $.6 million and~~ a ~~slight increase~~decrease in the housing gross ~~profits.~~profit margin. The year-over-year decline in the housing gross profit margin ~~decreased~~was mainly due to ~~16.4%~~inventory impairment and land option contract abandonment charges, higher construction and land 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. Inventory-related charges impacting the 2016 third quarter housing gross profit margin totaled $2.8 million, compared to $.1 million in the year-earlier quarter. Land sale profits totaled

$.6 million for the three months ended August 31, ~~2015 from~~ ~~22.2%~~ for the year-earlier period, mainly due to higher land and construction costs, a shift in product and geographic mix, and increased pricing pressures in some markets, partly offset by increased operating leverage as a result of higher deliveries and revenues. Sales incentives as a percentage of housing revenues in the third quarter of 2015 were slightly lower than in the year-earlier quarter.2015. Selling, general and administrative expenses for the three months ended August 31, ~~2015 rose~~2016 increased from the year-earlier quarter, primarily due to higher variable expenses associated with the ~~increase in~~increased volume of homes delivered and ~~housing revenues, and higher staffing levels to support delivery growth anticipated~~corresponding revenues. Other expense, net for ~~the fourth quarter of 2015.~~

For the nine months ended August 31, 2015, pretax income from this segment decreased $17.4 million from the year-earlier period due to a decline in housing gross profits and an increase in selling, general and administrative expenses, partially offset by land sale profits of $6.2 million and a decrease in other expense, net. The housing gross profit margin decreased to 15.9% for the nine months ended August 31, 2015 from 21.6% for the year-earlier period, mainly for the reasons described above with respect to the three-month period ended August 31, 2015, as well as start-up field costs associated with community openings. Sales incentives as a percentage of housing revenues in the first nine months of 2015 were slightly lower than in the year-earlier period. Selling, general and administrative expenses for the nine months ended August 31, 2015 increased from the year-earlier period, primarily for the reasons described above with respect to the three months ended August 31, ~~2015. Other expense, net for the nine months ended August 31, 2015~~2016 decreased from the corresponding period of ~~2014,~~2015, reflecting lower interest expense as a result of an increase in the amount of interest capitalized.

39For the nine months ended August 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 nine months ended August 31, 2016 totaled $7.8 million and primarily related to three communities where we decided to make changes in our operational and marketing strategies aimed at more quickly monetizing our investment by accelerating the overall timing and/or pace for selling, building and delivering homes in the communities. One of these communities was previously held for future development. Inventory-related charges for the nine months ended August 31, 2015 totaled $.1 million. Land sale profits totaled $6.2 million in the nine-month period ended August 31, 2015. Selling, general and administrative expenses for the first nine months of 2016 rose from the year-earlier period, primarily due to the reason described above with respect to the three months ended August 31, 2016. Other expense, net for the nine months ended August 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):


	Nine Months Ended August 31,								Three Months Ended August 31,								Nine Months Ended August 31,								Three Months Ended August 31,
	2015			2014			Variance		2015			2014			Variance		2016			2015			Variance		2016			2015			Variance
Revenues	$	273,339		$	144,597		89	%	$	128,021		$	50,101		156	%	$	318,190		$	273,339		16	%	$	106,187		$	128,021		(17	) %
Construction and land costs	(226,962		)	(112,447		)	(102	)	(106,965		)	(39,691		)	(169	)	(260,541		)	(226,962		)	(15	)	(87,790		)	(106,965		)	18
Selling, general and administrative expenses	(21,146		)	(16,112		)	(31	)	(7,873		)	(5,671		)	(39	)	(24,986		)	(21,146		)	(18	)	(9,695		)	(7,873		)	(23	)
Operating income	25,231			16,038			57		13,183			4,739			178		32,663			25,231			29		8,702			13,183			(34	)
Other expense, net	(4,811		)	(8,439		)	43		(1,451		)	(2,196		)	34		(1,434		)	(4,811		)	70		(110		)	(1,451		)	92
Pretax income	$	20,420		$	7,599		169	%	$	11,732		$	2,543		361	%	$	31,229		$	20,420		53	%	$	8,592		$	11,732		(27	) %

Homes delivered	888			521			70	%	372			185			101	%	1,111			888			25	%	369			372			(1	) %
Average selling price	$	279,500		$	277,500		1	%	$	285,200		$	270,800		5	%	$	286,400		$	279,500		2	%	$	287,800		$	285,200		1	%
Housing gross profit margin																	18.1		%	18.6		%	(50	)bps	17.3		%	19.7		%	(240	)bps

~~For the three months and nine months ended~~ ~~August 31, 2015, total revenues from this segment increased from the corresponding year-earlier periods, mainly due to higher housing and land sale revenues.~~ This segment’s revenues for the three months and nine months ended August 31, ~~2014~~2016 were generated solely from housing operations. For the corresponding periods of 2015, revenues were generated from both housing and land sale revenues. Housing revenues offor the 2016 third quarter were flat compared to $106.1 million for ~~the 2015 third quarter grew 112% from~~ the year-earlier quarter. For the nine months ended August 31, ~~2015,~~2016, housing revenues ofgrew 28% from $248.2 million ~~grew 72% from~~for the ~~nine months ended August 31, 2014. The~~corresponding period of 2015, primarily due to substantial year-over-year growth ~~in housing revenues for the three months and nine months ended August 31, 2015 was primarily driven by increases~~ in the number of homes delivered from both our Arizona and Nevada operations as we delivered homes from more communities in those markets. In addition, the average selling prices of homes delivered for the three months and nine months ended August 31, 2015 increased from the comparable year-earlier periods.operations. This segment generated land sale revenues of $21.9 million and $25.2 million for the three months and nine months ended August 31, 2015, respectively, associated with land sales in Nevada.

~~This segment’s pretax~~Pretax income for the three months ended August 31, ~~2015~~ ~~increased~~ ~~$9.2 million~~2016 decreased from the corresponding period of ~~2014,~~2015, mainly due to ~~higher~~lower housing gross profits and higher selling, general and administrative expenses that were partly offset by a decrease in other expense, ~~net that was partly offset by an increase in selling, general and administrative expenses.~~net. Housing gross profits ~~increased~~decreased primarily as a result of a year-over-year decline in the ~~higher volume of homes delivered. The~~ housing gross profit margin ~~decreased to~~ ~~19.7%~~ ~~for the third quarter of 2015~~resulting from ~~20.8%~~ ~~for the year-earlier quarter, mainly due to~~ higher construction and land ~~and construction~~ costs ~~partly offset by improved operating leverage~~ and a ~~slight decrease~~shift in ~~sales incentives as a percentage of housing revenues.~~product mix. The land sale activity in the third quarter of 2015 generated a nominal profit. Selling, general and administrative expenses ~~increased in~~rose from the 2015 third quarter ~~of 2015 from the year-earlier quarter, primarily~~ due to ~~the growth in homes delivered and housing revenues, and~~ higher staffing levels to support delivery growth anticipated for the 2016 fourth ~~quarter of 2015.~~quarter. Other expense, net in the ~~2015~~2016 third 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 nine months ended August 31, ~~2015,~~2016, the year-over-year increase in this segment’s pretax income ~~from this segment rose $12.8 million from the year-earlier period, reflecting~~reflected an increase in housing gross profits and a decrease in other expense, ~~net that was partly offset by an increase in selling, general and administrative expenses. Higher housing~~net. Housing gross profits ~~were mainly the~~rose as a result of the higher volume of homes ~~delivered.~~delivered, partly offset by a decrease in the housing gross profit margin. The housing gross profit margin declined to 18.6% for the nine months ended August 31, 2015 from 22.2% for the nine months ended August 31, 2014, primarily for the reasons described above with respect to the three-month period ended August 31, 2015. The land sale activity for the nine months ended August 31, 2015 produced a nominal profit. Selling, general and administrative expenses for the first nine months of 2015 increaseddecreased from the year-earlier period, mainly for the reasons described above with respect to the three-month period, partially offset by improved operating leverage from the increased volume of homes delivered and the corresponding revenues, and a decrease in sales incentives as a percentage of housing revenues. Land sales for the first nine months of 2015 produced a nominal profit. Selling, general and administrative expenses increased from the nine-month period ended August 31, 2015, ~~as well as community opening-related~~primarily due to higher variable expenses ~~for~~associated with the increased volume of homes delivered and corresponding revenues, partly offset by a favorable legal settlement in the nine months ended August 31, ~~2015 in connection with our community count expansion strategy.~~2016. Other expense, net ~~for~~in the ~~nine months~~nine-month period ended August 31, ~~2015~~2016 decreased from the ~~year-earlier~~corresponding period of 2015 due to ~~a decrease in~~lower interest expense ~~reflecting~~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):


	Nine Months Ended August 31,								Three Months Ended August 31,								Nine Months Ended August 31,								Three Months Ended August 31,
	2015			2014			Variance		2015			2014			Variance		2016			2015			Variance		2016			2015			Variance
Revenues	$	545,913		$	477,518		14	%	$	210,417		$	179,972		17	%	$	707,917		$	545,913		30	%	$	265,524		$	210,417		26	%
Construction and land costs	(445,298		)	(400,335		)	(11	)	(170,757		)	(149,817		)	(14	)	(572,262		)	(445,298		)	(29	)	(212,629		)	(170,757		)	(25	)
Selling, general and administrative expenses	(58,836		)	(51,480		)	(14	)	(21,628		)	(18,635		)	(16	)	(74,253		)	(58,836		)	(26	)	(25,294		)	(21,628		)	(17	)
Operating income	41,779			25,703			63		18,032			11,520			57		61,402			41,779			47		27,601			18,032			53
Other income (expense), net	221			(897		)	(a)		617			(6		)	(a)
Other income, net																	113			221			(49	)	—			617			(100	)
Pretax income	$	42,000		$	24,806		69	%	$	18,649		$	11,514		62	%	$	61,515		$	42,000		46	%	$	27,601		$	18,649		48	%

Homes delivered	2,212			2,167			2	%	822			807			2	%	2,647			2,212			20	%	976			822			19	%
Average selling price	$	244,600		$	219,200		12	%	$	256,000		$	223,000		15	%	$	265,900		$	244,600		9	%	$	272,100		$	256,000		6	%
Housing gross profit margin																	19.4		%	18.6		%	80	bps	19.9		%	18.8		%	110	bps


~~(a)~~	~~Percentage not meaningful.~~

This segment’s revenues for the three months ended August 31, ~~2015~~2016 and ~~2014~~2015 were generated solely from housing operations. For the nine months ended August 31, ~~2015~~2016 and ~~2014,~~2015, this segment’s revenues were ~~comprised of~~generated from both housing operations and land ~~sale revenues.~~sales. Housing revenues for the 2016 third quarter ~~of 2015~~ increased ~~17%~~26% from the year-earlier ~~quarter.~~quarter, reflecting increases in both the number of homes delivered and the average selling price of those homes. For the nine months ended August 31, ~~2015,~~2016, housing revenues of ~~$541.1~~$703.8 million ~~grew 14%~~increased 30% from ~~$474.9~~$541.1 million for the ~~nine months ended August 31, 2014.~~same period of 2015. The year-over-year growth in ~~housing revenues~~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 nine months ended August 31, ~~2015 reflected higher average selling prices and slight growth in the number of homes delivered. The average selling prices for the three-month and nine-month periods ended August 31, 2015~~2016 rose from the corresponding periods of ~~2014,~~2015, primarily due to a greater proportion of homes delivered from higher-priced communities, a shift in product mix and generally rising home prices. InLand sale revenues for the ~~first~~ nine months ofended August 31, 2016 and 2015 ~~this segment’s land sale revenues~~ totaled $4.2 million and $4.9 million, ~~compared to $2.6 million in the year-earlier period.~~respectively.

Pretax income ~~from this segment~~ for the three months ended August 31, ~~2015 rose $7.1~~2016 increased $9.0 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 110 basis points from the year-earlier quarter to 19.9%, largely due to improved operating leverage and lower overall construction and land costs. Selling, general and administrative expenses for the 2016 third 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 nine months ended August 31, 2016 increased $19.5 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.~~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 increased to 18.8% for the third quarter of 2015 from 16.8% for the third quarter of 2014, primarily due to an increased proportion of homes delivered from higher margin communities, and improved operating leverage. Sales incentives as a percentage of housing revenues in the third quarter of 2015 were slightly lower than in the year-earlier quarter. Selling, general and administrative expenses for the 2015 third quarter rose from the corresponding period of 2014, mainly due to increased variable expenses associated with the increase in housing revenues.

~~The pretax income generated by this segment~~ for the nine months ended August 31, ~~2015~~2016 improved by $17.2 million from the year-earlier period, reflecting higher housing gross profits and improvement in other income (expense), net, partly offset by higher selling, general and administrative expenses. The housing gross profit margin increased to 18.6% for the nine months ended August 31, 2015 from 16.2% for the year-earlier period, mainlyon a year-over-year basis for the reasons described above with respect to the ~~three months ended August 31, 2015. For~~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 nine months ended August 31, ~~2015 and 2014, profits from~~2016, which included an inventory impairment charge of approximately $.8 million related to the sales of our last remaining land ~~sales were negligible. The year-over-year increase~~parcels in ~~selling,~~the Rio Grande Valley area of Texas. Selling, general and administrative expenses for the first nine months of 2016 rose from the corresponding period of 2015, ~~was primarily~~ mainly

due to higher variable expenses associated with the ~~reasons described above with respect~~increased volume of homes delivered and corresponding housing revenues, and an increase to ~~the three-month period ended August 31, 2015. The year-over-year change in other income (expense), net for the nine months ended August 31, 2015 was mainly due to~~a legal accrual, partly offset by lower ~~interest expense in 2015~~overhead costs as a result of ~~an increase in the amount of interest capitalized.~~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):


	Nine Months Ended August 31,								Three Months Ended August 31,								Nine Months Ended August 31,								Three Months Ended August 31,
	2015			2014			Variance		2015			2014			Variance		2016			2015			Variance		2016			2015			Variance
Revenues	$	286,739		$	267,247		7	%	$	123,404		$	90,667		36	%	$	338,939		$	286,739		18	%	$	124,250		$	123,404		1	%
Construction and land costs	(258,535		)	(235,636		)	(10	)	(111,495		)	(82,686		)	(35	)	(303,308		)	(258,535		)	(17	)	(108,002		)	(111,495		)	3
Selling, general and administrative expenses	(42,856		)	(36,803		)	(16	)	(14,818		)	(13,261		)	(12	)	(44,140		)	(42,856		)	(3	)	(13,919		)	(14,818		)	6
Operating loss	(14,652		)	(5,192		)	(182	)	(2,909		)	(5,280		)	45
Operating income (loss)																	(8,509		)	(14,652		)	42		2,329			(2,909		)	(a)
Other expense, net	(6,313		)	(4,689		)	(35	)	(1,842		)	(2,685		)	31		(3,316		)	(6,313		)	47		—			(1,842		)	100
Pretax loss	$	(20,965	)	$	(9,881	)	(112	)%	$	(4,751	)	$	(7,965	)	40	%
Pretax income (loss)																	$	(11,825	)	$	(20,965	)	44	%	$	2,329		$	(4,751	)	(a)


Homes delivered																	1,212			1,018			19	%	432			417			4	%
Average selling price																	$	279,700		$	278,100		1	%	$	287,600		$	287,300		—	%
Housing gross profit margin																	12.1		%	9.8		%	230	bps	13.1		%	9.5		%	360	bps

Nine Months Ended August 31, Three Months Ended August 31,
2015 2014 Variance 2015 2014 Variance

Homes delivered 1,018
1,010
1 % 417
343
22 %
Average selling price $ 278,100
$ 256,500
8 % $ 287,300
$ 264,300
9 %


(a)	Percentage not meaningful.

This segment’s ~~total~~ revenues for the three months and nine months ended August 31, 2016 were generated solely from housing operations. For the corresponding periods of 2015, this segment’s revenues were generated from both housing operations and land sales. Housing revenues for the three months ended August 31, 2016 increased 4% from $119.8 million for the year-earlier period. For the nine months ended August 31, ~~2014 were comprised~~2016, housing revenues rose 20% from $283.1 million in the corresponding period of 2015. The year-over-year growth in housing revenues in both ~~housing and land sale revenues. For the three months ended August 31, 2014, this segment’s revenues were generated solely from housing operations. Housing revenues~~periods of ~~$119.8 million for the third quarter of 2015 increased 32% from $90.7 million for the year-earlier quarter, reflecting~~2016 was due to increases in ~~both~~ the number of homes delivered, ~~and~~as the average selling ~~price of those homes.~~prices in both periods were essentially flat year over year. The ~~year-over-year~~ growth in the number of homes delivered for the ~~third quarter of 2015 mainly occurred in our Florida~~three-month and ~~Washington D.C. operations. For the nine months~~nine-month periods ended August 31, ~~2015, housing revenues of $283.1 million grew 9%~~2016, compared to ~~$259.1 million for~~ the corresponding ~~period of 2014, largely due to an increase in the average selling price as the number of homes delivered remained nearly flat with the~~ year-earlier ~~period. The year-over-year increase in the average selling prices for the three months and nine months ended August 31, 2015~~periods, was ~~primarily due to a greater proportion of homes delivered~~mainly from ~~higher-priced communities, a change in product mix and generally rising home prices.~~our Florida operations. This segment generated $3.6 million of revenues from land sales in the three months and nine months ended August 31, ~~2015, and $8.1 million of revenues from land sales in the nine months ended August 31, 2014.~~2015.

For the three months ended August 31, ~~2015,~~2016, this segment’s pretax results improved ~~$3.2 million~~ from the year-earlier period ~~mainly~~ due to ~~the inclusion of~~an increase in housing gross profits, a ~~$3.4 million inventory impairment charge~~decrease in ~~the year-earlier quarter related to~~selling, general and administrative expenses and a ~~then-planned sale of our last remaining land parcel~~decrease in ~~Atlanta, Georgia, a former market where we do not have ongoing operations. This impairment charge was reflected as a land sale loss in the third quarter of 2014.~~other expense, net. Housing gross profits ~~remained flat year over year as the increase in the~~increased due to a higher number of homes delivered ~~was offset by a decrease in the~~and an improved housing gross profit margin. ~~The~~This segment’s housing gross profit margin ~~declined~~increased on a year-over-year basis, primarily due to ~~9.5%~~improved operating leverage from the increased volume of homes delivered and corresponding revenues, lower overall construction and land costs and the absence of inventory impairment charges in the current quarter. In the 2015 third quarter, we recognized $3.2 million of inventory impairment charges. Sales incentives as a percentage of housing revenues in the 2016 third quarter did not have a significant impact on the year-over-year housing gross profit margin comparison. Land sale profits for the 2015 third quarter from 12.6% for the third quarter of 2014 as a result of the combined impact of higher land and construction costs, lower margins on homes delivered from recently activated communities, and a $3.2 million inventory impairment charge recognized in the current quarter. For the three months ended August 31, 2015, profits from land sales totaled $.6 million. Selling, general and administrative expenses ~~rose~~decreased in the 2016 third quarter ~~of 2015~~ from the year-earlier period, primarily due to lower overhead costs as a result of our cost containment efforts, partly offset by increased variable expenses associated with the ~~increase in~~increased volume of homes delivered and ~~housing revenues, and higher overhead costs to support new community openings.~~corresponding revenues. Other expense, net for the three months ended August 31, ~~2015~~2016 decreased from the corresponding period of ~~2014~~2015 due to lower interest expense as a result of an increase in the amount of interest capitalized.

~~The pretax loss from this segment for~~For the nine months ended August 31, ~~2015 increased by $11.1~~2016, this segment’s pretax results improved $9.1 million, ~~compared to the year-earlier period, due to a decrease~~reflecting an increase in housing gross profits and ~~increases~~a decrease in ~~both~~other expense, net that were partially offset by land sale losses and an increase in selling, general and administrative ~~expenses~~expenses. The growth in this segment’s housing gross profits was due to the increase in the number of homes delivered and ~~other expense, net. These impacts were partly offset by a year-over-year~~an improvement in ~~land sale results.~~the housing gross profit margin. The housing gross profit margin ~~declined~~increased on a year-over-year basis primarily due to ~~9.8% for~~improved operating leverage from the ~~first nine months~~increased volume of ~~2015, compared~~homes delivered and corresponding revenues, and lower construction and land costs, partly offset by $2.1 million of inventory-related charges that were largely related to ~~13.1% for~~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, and unfavorable warranty adjustments. In addition to the $3.2 million of inventory impairment charges mentioned above in the three-month period, the year-earlier period mainly for the reasons described above with respect to the three-month period ended August 31, 2015, as well as lower operating leverage and increased pricing pressures in certain markets, unfavorable warranty adjustments andincluded $1.0 million of land option contract abandonment charges ~~in the current period. Partially offsetting these impacts was the~~as well as unfavorable warranty adjustments, partly offset by an increase in our estimate of minimum probable recoveries for water intrusion-related issues. Land sale losses of $5.4 million for the nine months ended August 31, 2016, compared to land sale profits of $.6 million for the year-earlier period, 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 increased in the nine-month period ended August 31, 2016 from the corresponding year-earlier period. In the nine months ended August 31, 2015, land sale profits totaled $.6 million, compared to land sale losses of $2.4 million in the year-earlier quarter, including the inventory impairment charge of $3.4 million related to a then-planned land sale mentioned above. Selling,this segment’s selling, general and administrative expenses ~~increased in the first nine months of 2015 primarily for the reasons described above with respect to the three-month period ended August 31, 2015, as well as~~included an increase in the accrual for ~~the estimated minimum probable loss with respect to the~~a Florida ~~Attorney General’s Office inquiry. Further discussion of the water intrusion-related issues and the Florida Attorney General’s Office~~legal inquiry ~~is provided~~that was resolved in February 2016, as discussed in Note ~~14.~~14 – Commitments and Contingencies in the Notes to Consolidated Financial Statements in this report. Other expense, net for the nine months ended August 31, 2016 decreased from the corresponding period of 2015 ~~reflected a decrease in~~due to lower interest expense ~~that resulted from~~as a result of an increase in the amount of interest capitalized. ~~In addition, other expense, net for the nine months ended August 31, 2014 included a $3.2 million gain on the sale of our interest in an unconsolidated joint venture in Maryland.~~

FINANCIAL SERVICES REPORTING SEGMENT

Our financial services reporting segment offers property and casualty insurance services 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. In addition, since July 2014, this segment has offered mortgage banking services, including mortgage loan originations, to our homebuyers indirectly through HCM, a joint venture of a subsidiary of ours and a subsidiary of Nationstar. As discussed in Note

2. Segment Information in the Notes to Consolidated Financial Statements in this report, prior to HCM’s operational launch on July 21, 2014, this segment earned revenues pursuant to the terms of a marketing services agreement with Nationstar.

~~Based on the number of homes delivered in the~~ ~~nine months ended~~ August 31, 2015, 64% of our homebuyers used HCM to finance the purchase of their home, compared to 61% that used HCM or Nationstar in the year-earlier period. We expect to see increases in future periods if and as a greater percentage of our homebuyers obtain mortgage financing from HCM.

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


	Nine Months Ended August 31,						Three Months Ended August 31,						Nine Months Ended August 31,						Three Months Ended August 31,
	2015			2014			2015			2014			2016			2015			2016			2015
Revenues	$	7,351		$	8,014		$	2,953		$	2,983		$	8,389		$	7,351		$	3,172		$	2,953
Expenses	(2,802		)	(2,563		)	(910		)	(859		)	(2,621		)	(2,802		)	(891		)	(910		)
Equity in income (loss) of unconsolidated joint ventures	3,023			(289		)	658			(277		)	(652		)	3,023			132			658
Pretax income	$	7,572		$	5,162		$	2,701		$	1,847		$	5,116		$	7,572		$	2,413		$	2,701

Total originations (a):
Loans	3,167			290			1,236			290			2,944			3,173			1,062			1,243
Principal	$	796,641		$	70,345		$	325,366		$	70,345		$	750,916		$	796,360		$	277,893		$	325,085
Percentage of homebuyers using HCM	64		%	64		%	63		%	64		%	47		%	61		%	46		%	59		%
Average FICO score	719			713			718			713			713			721			715			720

Loans sold (a):
Loans sold to Nationstar	2,977			51			960			51			3,083			3,001			1,082			984
Principal	$	777,880		$	12,503		$	264,180		$	12,503		$	796,727		$	752,530		$	283,031		$	259,846
Loans sold to third parties	122			—			57			—			187			106			33			23
Principal	$	23,100		$	—		$	12,047		$	—		$	42,008		$	19,178		$	6,790		$	4,012

(a) Loan originations and sales occurred within ~~HCM, which began operations on July 21, 2014.~~HCM.

Revenues. Financial services revenues ~~totaled~~ ~~$3.0~~increased to $3.2 million for ~~each of~~ the ~~three-month periods~~three months ended August 31, ~~2015~~ ~~and 2014.~~2016 from $3.0 million for the three months ended August 31, 2015. For the nine months endedAugust 31, ~~2015~~ ~~and 2014,~~2016, financial services revenues ~~totaled~~rose to $8.4 million from $7.4 million ~~and $8.0 million, respectively.~~for the corresponding period of 2015. The year-over-year ~~decrease~~growth in our financial services revenues for the three months and nine months endedAugust 31, ~~2015~~ ~~was mainly due to the absence of marketing~~2016 reflected increases in both title services revenues ~~in the current period.~~and insurance commissions.

Expenses. General and administrative expenses totaled ~~$.9~~$.9 million for each of the three-month periods ended August 31, ~~2015~~2016 and ~~2014.~~2015. For the nine months endedAugust 31, ~~2015~~2016 and ~~2014,~~2015, general and administrative expenses totaled ~~$2.8~~$2.6 million and ~~$2.6~~$2.8 million, respectively.

Equity in Income (Loss) of Unconsolidated Joint Ventures. The equity in income of unconsolidated joint ventures was $.1 million for the three months ended August 31, 2016, compared to $.7 million for the three months ended August 31, ~~2015, compared to~~2015. For the nine months ended August 31, 2016, the equity in loss of unconsolidated joint ventures ~~of $.3~~was $.7 million, ~~for the three months ended August 31, 2014. For the~~ ~~nine months endedAugust 31, 2015~~,compared to the equity in income of unconsolidated joint ventures ~~was~~of $3.0 million ~~compared to the equity in loss~~for corresponding period of ~~unconsolidated joint ventures of $.3 million for the~~ ~~nine months ended~~ ~~August 31, 2014.~~2015. The equity in income (loss) of unconsolidated joint ventures for the three months and nine months endedAugust 31, 2016 and 2015 was ~~primarily comprised~~related to the operations of ~~income~~HCM. For the three months and nine months ended August 31, 2016, the results from ~~HCM.~~HCM declined from the corresponding year-earlier periods mainly due to 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 nine months ended August 31, 2016 decreased from the corresponding year-earlier periods, reflecting 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 nine months ended August 31, 2016.

In September 2016, we and Nationstar began the process of winding down HCM and transferring HCM’s assets and operations to Stearns Lending. During this transition, Stearns Lending is offering mortgage banking services to our homebuyers, and we and Stearns Lending are working to establish a new relationship. We expect our equity in loss of unconsolidated joint ventures to range from $1 million to $3 million in the fourth quarter as a result of this transition.

INCOME TAXES

~~We recognized~~Our income tax expense oftotaled $14.1 million and $10.7 million for the three months ended August 31, 2016 and 2015, ~~and $.3 million for the three months ended August 31, 2014. Our income tax expense for~~respectively. For the nine months ended August 31, 2016 and 2015, our income tax expense was $26.2 million and $16.5 million, ~~compared to $.8 million for the nine months ended August 31, 2014.~~respectively. Income tax expense for the three months ended August 31, ~~2015~~2016 reflected the favorable net impact of ~~$2.5~~$6.7 million of federal energy tax credits we earned from building energy-efficient homes, resulting in an effective income tax rate of ~~31.5%~~26.4%. For the ~~nine~~three months ended August 31, 2015, our effective income tax rate of ~~28.9%~~31.5% reflected the favorable net impact of ~~$5.6~~$2.5 million of federal energy tax credits. ~~Our effective income~~Income tax ~~rates~~expense for the ~~three~~

~~months and~~ nine months ended August 31, ~~2014 were not meaningful items due to~~2016 and 2015 reflected the ~~effects~~favorable net impact of federal energy tax credits of $10.4 million and $5.6 million, respectively. Our effective income tax rate was 27.8% for the nine months ended August 31, 2016 and 28.9% for the nine months ended August 31, 2015. The extension of the ~~full valuation allowance against~~federal energy tax credit may continue to benefit our ~~deferred~~effective tax ~~assets~~rate for ~~those periods.~~the remainder of 2016, though to a lesser degree than in the third quarter.

Our deferred tax assets of ~~$851.2~~$794.4 million as of August 31, ~~2015~~2016 and ~~$866.4~~$820.0 million as of November 30, ~~2014~~2015 were ~~both~~ partly offset by a valuation allowance in each period of ~~$41.2~~$37.8 million. The deferred tax asset valuation allowances as of August 31, ~~2015~~2016 and November 30, ~~2014~~2015 were primarily related to foreign tax credits and certain state ~~NOL~~NOLs that had not met the “more likely than not” realization standard.

Further information ~~regarding our deferred tax asset valuation allowance~~ is provided in Note ~~11.~~11 – Income Taxes in the Notes to Consolidated Financial Statements in this report.

The benefits of our ~~NOL,~~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 August 31, ~~2015~~,2016, we do not believe we have experienced an ownership change as defined by Section 382, and, therefore, the ~~NOL,~~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 ~~surety~~performance bonds.

We also have the ability to borrow funds under the ~~Amended~~ 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 ~~moderated~~increased to ~~$701.6 million~~approximately $1.06 billion for the nine months ended August 31, ~~2015~~2016 ~~from~~, compared to $~~1.19 billion~~701.6 million for the ~~year-earlier~~corresponding period ~~reflecting our strategic focus on generating cash from operations in 2015 after having built a strong inventory pipeline over the past few years.~~of 2015. Approximately ~~70%~~50% of our total investments in the nine months ended August 31, ~~2015~~2016 related to land ~~development,~~acquisition, compared to approximately ~~42%~~30% 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 nine months of 2016 and 2015, approximately 65% and ~~2014, most~~50%, respectively, of these investments 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. However, given our present inventory pipeline, we expect our investment in land~~standards to support home delivery and land development for the year ended November 30, 2015 will moderate on an overall basis compared to the prior year and that a higher proportion of our investment will continue to be dedicated to land development, reflecting our emphasis in the current year to convert our owned land into new communities open for sales to promoterevenue growth in ~~our net orders, backlog, homes delivered~~2017 and ~~revenues.~~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):


	August 31, 2015			November 30, 2014			Variance					August 31, 2016			November 30, 2015			Variance
Segment	Lots	$		Lots	$		Lots		$			Lots	$		Lots	$		Lots		$
West Coast	11,362	$	1,656,796	12,834	$	1,596,480	(1,472	)	$	60,316		11,266	$	1,847,660	11,420	$	1,602,356	(154	)	$	245,304
Southwest	8,781	554,042		9,557	538,705		(776	)	15,337			8,466	538,767		8,981	534,040		(515	)	4,727
Central	17,653	698,508		19,129	588,054		(1,476	)	110,454			18,776	778,137		17,747	707,210		1,029		70,927
Southeast	9,548	492,391		10,678	495,148		(1,130	)	(2,757		)	8,128	433,109		9,251	470,141		(1,123	)	(37,032		)
Total	47,344	$	3,401,737	52,198	$	3,218,387	(4,854	)	$	183,350		46,636	$	3,597,673	47,399	$	3,313,747	(763	)	$	283,926

The ~~number~~carrying value of the lots we owned or controlled ~~under land option contracts and other similar contracts~~ at August 31, ~~2015~~ ~~decreased~~2016 increased from November 30, ~~2014 largely~~2015 primarily due to ~~homes delivered in the~~ ~~nine months endedAugust 31, 2015. The increase in the carrying value~~

~~of lots owned or controlled under land option contracts and other similar contracts at~~ ~~August 31, 2015~~ ~~compared to November 30, 2014 reflected~~ the investments we made ~~in land and land development~~ during the ~~first~~ nine months ~~of 2015.~~

ended August 31, 2016. Overall, the number of lots we controlled under land option contracts and other similar contracts as a percentage of total lots ~~decreased to 18%~~was 19% at August 31, ~~2015~~2016~~, compared to 21%~~ and 20% at November 30, ~~2014.~~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 ~~2015~~2016 third quarter with $~~378.0~~335.3 million of cash and cash equivalents and restricted cash, compared to $~~383.6~~568.4 million at November 30, ~~2014.~~2015. Our balance of unrestricted cash and cash equivalents decreased to $~~353.0~~334.7 million at August 31, ~~2015~~2016 from $~~356.4~~559.0 million at November 30, ~~2014.~~2015, reflecting our investments in land and land development and repurchase of shares of our common stock during the first nine months of 2016. The majority of our cash and cash equivalents at August 31, ~~2015~~2016 and November 30, ~~2014~~2015 were invested in money market funds and interest-bearing bank deposit accounts.

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


	August 31, 2015		November 30, 2014		Variance		August 31, 2016		November 30, 2015		Variance
Mortgages and land contracts due to land sellers and other loans	$	41,244	$	38,250	$	2,994	$	83,719	$	35,664	$	48,055
Senior notes	2,359,488		2,308,275		51,213		2,361,076		2,359,872		1,204
Convertible senior notes	230,000		230,000		—		230,000		230,000		—
Total	$	2,630,732	$	2,576,525	$	54,207	$	2,674,795	$	2,625,536	$	49,259

~~Our higher debt balance at~~ ~~August 31, 2015~~ compared to November 30, 2014 was mainly due to the issuance of $250.0 million in aggregate principal amount of the 7.625% Senior Notes due 2023 in the first quarter of 2015. We used a portion of the net proceeds of approximately $247 million from this issuance to retire the remaining $199.9 million in aggregate principal amount of our 6 1/4% Senior Notes due 2015 at their maturity on June 15, 2015. The remainder of the net proceeds was used for general corporate purposes, including working capital, land acquisition and land development. Our financial leverage, as measured by the ratio of debt to capital, was ~~61.6%~~61.4% at August 31, ~~2015~~2016, compared to ~~61.8%~~60.8% at November 30, ~~2014.~~2015. Our ratio of net debt to capital (a calculation that is described above under “Non-GAAP Financial Measures”) was ~~57.9%~~58.2% at August 31, ~~2015~~2016 and 54.9% at November 30, ~~2014.~~2015. The increase in mortgages and land contracts due to land sellers and other loans was primarily related to land acquisitions within our West Coast homebuilding reporting segment during the 2016 third quarter.

LOC Facilities. As of August 31, ~~2015~~2016 and November 30, ~~2014,~~2015, we had $~~24.7~~.6 million and ~~$26.7~~$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 $~~25.0~~.6 million at August 31, ~~2015~~2016 and ~~$27.2~~$9.3 million at November 30, ~~2014,~~2015, and these amounts were included in restricted cash onin our consolidated balance sheets as of those dates.

Unsecured Revolving Credit Facility. ~~On August 7, 2015, we entered into an amended and restated revolving loan agreement with~~We have a ~~syndicate of financial institutions that increased the commitment under our Amended~~$275.0 million Credit Facility ~~from $200.0 million to $275.0 million and extended its maturity from March 12, 2016 to~~that will mature on August 7, 2019. The amount of ~~our Amended~~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 ~~Amended~~ Credit Facility and the maximum available amount under the terms of the ~~Amended~~ Credit Facility. As of August 31, ~~2015,~~2016, we had no cash borrowings and ~~$1.7~~$32.5 million of letters of credit outstanding under the ~~Amended~~ Credit Facility. Therefore, as of August 31, ~~2015,~~2016, we had ~~$273.3~~$242.5 million available for cash borrowings under the ~~Amended~~ Credit Facility, with up to ~~$135.8~~$105.0 million of that amount available for the issuance of letters of credit. The ~~Amended~~ Credit Facility is further described in Note ~~12.~~12 – Notes Payable in the Notes to Consolidated Financial Statements in this report.

~~Under~~

There have been no changes to the terms of the ~~Amended~~ Credit Facility we are required, among other things, to maintain compliance with various covenants, including financial covenants relating to our consolidated tangible net worth, Leverage Ratio, and either an Interest Coverage Ratio or minimum level of liquidity, each as defined therein. Our compliance with these financial covenants is measured by calculations and metrics that are specifically defined or described byduring the ~~terms of the Amended Credit Facility and can differ in certain respects from comparable GAAP or other commonly used terms. The financial covenant requirements are set forth below:~~

~~Consolidated Tangible Net Worth.~~ We must maintain a minimum consolidated tangible net worth at the end of any fiscal quarter equal to the sum of (a) $1.13 billion, plus (b) an amount equal to 50% of the aggregate of the cumulative consolidated net income for each fiscal quarter commencing after May 31, 2015 and ending as of the last day of such fiscal quarter (provided that there shall be no reduction if there is a consolidated net loss in any such fiscal quarter), plus (c) an amount equal to 50%

~~of the cumulative net proceeds we receive from the issuance of our capital stock after May 31, 2015. As of~~nine months ended August 31, ~~2015,~~2016 from those disclosed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in our ~~applicable minimum consolidated tangible net worth requirement was $1.14 billion.~~

~~Leverage Ratio.~~ ~~We must also maintain a Leverage Ratio of less than or equal to .70 for each fiscal quarter through and including the fourth quarter of 2016. This ratio adjusts to less than or equal to .65~~Annual Report on Form 10-K for the ~~first quarter of 2017 and each quarter thereafter during the term of the Amended Credit Facility.~~

~~Interest Coverage Ratio or Liquidity.~~ We are also required to maintain either (a) an Interest Coverage Ratio of greater than or equal to 1.40 for each fiscal quarter through and including the second quarter of 2016, which adjusts to greater than or equal to 1.50 for the third quarter of 2016 and each quarter thereafter during the term of the Amended Credit Facility; or (b) a minimum level of liquidity, but not both. Our minimum liquidity is required to be greater than or equal to consolidated interest incurred, as defined under the Amended Credit Facility, for the four most recentlyyear ended ~~fiscal quarters in the aggregate. As of August 31, 2015, our minimum liquidity requirement was $183.4 million.~~

In addition, under the Amended Credit Facility, our investments in joint ventures and non-guarantor subsidiaries (which are shown, respectively, in Note 8. Investments in Unconsolidated Joint Ventures and in Note 19. Supplemental Guarantor Information in the Notes to Consolidated Financial Statements in this report) cannot exceed the sum of (a) approximately $117.4 million and (b) 20% of consolidated tangible net worth; and our borrowing base indebtedness, which is the aggregate principal amount of our outstanding indebtedness for borrowed money and non-collateralized financial letters of credit, cannot be greater than our borrowing base (a measure of our inventory and unrestricted cash assets).November 30, 2015.

The ~~financial~~ covenants and other requirements under ~~our Amended~~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 ~~related to our consolidated tangible net worth, Leverage Ratio, either our Interest Coverage Ratio or minimum level of liquidity~~ and other requirements under the ~~Amended~~ Credit Facility, ~~each as defined therein,~~ and our actual levels or ratios (as applicable) with respect to those covenants and other requirements, in each case as of August 31, ~~2015~~2016:

Financial Covenants and Other Requirements

Covenant Requirement

Actual

Covenant Requirement

Actual

Consolidated tangible net worth

$1.14 billion

$1.64 billion

$1.20 billion

$1.68 billion

Leverage Ratio

.700

.616

.700

.614

Interest Coverage Ratio (a)

1.400

1.564

1.500

1.933

Minimum liquidity (a)

$183.4 million

$353.0 million

$183.0 million

$334.7 million

Investments in joint ventures and non-guarantor subsidiaries

$445.5 million

$111.0 million

$453.9 million

$98.9 million

Borrowing base in excess of borrowing base indebtedness (as defined)

n/a

$322.2 million

n/a

$364.1 million


(a)	Under the terms of the ~~Amended~~ Credit Facility, we are required to meet either the Interest Coverage Ratio or a minimum level of liquidity, but not both. As of August 31, ~~2015,~~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 ~~Amended~~ 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.~~19 – Supplemental Guarantor Information in the Notes to Consolidated Financial Statements in this report.

AsDepending 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 August 31, ~~2015~~2016, we had outstanding mortgages and land contracts due to land sellers and other loans payable in connection with such financing of $83.7 million, secured primarily by the underlying property, which had an aggregate carrying value of $230.9 million.

As of August 31, 2016, we were in compliance with the applicable terms of all our covenants under the ~~Amended~~ 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 ~~Amended~~ 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 ~~Amended~~ Credit Facility, which would restrict our payment of

dividends if a default under the ~~Amended~~ Credit Facility exists at the time of any such payment, or if any such payment would result in such a default.

~~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~~ ~~August 31, 2015, we had outstanding mortgages and land contracts due to land sellers and other loans payable in connection with such financing of~~ ~~$41.2 million, secured primarily by the underlying property, which had an aggregate carrying value of~~ ~~$145.0 million~~.

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


	Nine Months Ended August 31,						Nine Months Ended August 31,
	2015			2014			2016			2015
Net cash provided by (used in):
Operating activities	$	(22,084	)	$	(716,662	)	$	(102,612	)	$	(22,084	)
Investing activities	(9,055		)	(28,082		)	(185		)	(9,055		)
Financing activities	27,250			511,229			(119,822		)	27,250
Net decrease in cash and cash equivalents	$	(3,889	)	$	(233,515	)	$	(222,619	)	$	(3,889	)

Operating Activities. Operating activities used net cash of $~~22.1~~102.6 million in the nine months ended August 31, ~~2015~~2016 and $~~716.7~~22.1 million in the ~~corresponding period of 2014.~~nine months ended August 31, 2015. Generally, our net operating cash flows fluctuate ~~primarily~~ based on changes in our inventories and our profitability. The year-over-year change in net operating cash flows for the nine months ended August 31, ~~2015~~2016 was largely due to ~~a decrease~~an increase in cash used for investments in land and land ~~development.~~development, partly offset by an increase in net income.

Our net cash used in operating activities in the nine months endedAugust 31, ~~2015~~ ~~mainly~~2016 largely reflected net cash of ~~$72.5~~$265.5 million used for investments in inventories, partly offset by net income of $68.1 million, a net increase in accounts payable, accrued expenses and other liabilities of $28.5 million and a net decrease in receivables of $6.6 million. In the nine months ended August 31, 2015, our net cash used in operating activities mainly reflected investments in inventories of $72.5 million, a net increase in receivables of $25.0 million, and a net decrease in accounts payable, accrued expenses and other liabilities of $2.0 million, partly offset by net income of ~~$40.6 million. In the~~ ~~nine months ended~~ ~~August 31, 2014, our net cash used in operating activities was largely due to~~ ~~$784.5 million~~ ~~of net cash used for investments in inventories, a net increase in receivables of $27.8 million, and other operating uses of $7.6~~$40.6 million. ~~Partially offsetting the cash used was net income of $65.5 million and a net increase in accounts payable, accrued expenses and other liabilities of $20.4 million.~~

Investing Activities. Investing activities used net cash of ~~$9.1~~$.2 million in the nine months ended August 31, ~~2015~~2016 and ~~$28.1~~$9.1 million in the year-earlier period. In the nine months ended August 31, ~~2015,~~2016, our uses of cash included $2.7 million for net purchases of property and equipment and $1.0 million for contributions to unconsolidated joint ventures. These uses of cash were largely offset by a $3.5 million return of investments in unconsolidated joint ventures. In the nine months ended August 31, 2015, cash of $21.0 million was used for contributions to unconsolidated joint ventures, and $2.1 million of cash was used for net purchases of property and equipment. ~~Partially offsetting the~~These uses of cash ~~used was~~were partly offset by a return of investments in unconsolidated joint ventures of $14.0 million. ~~In the~~ ~~nine months ended~~ August 31, 2014, cash of $34.0 million used for contributions to unconsolidated joint ventures and $4.2 million used for net purchases of property and equipment was partly offset by proceeds of $10.1 million from the sale of our investment in an unconsolidated joint venture.

Financing Activities. Financing activities used net cash of $119.8 million in the nine months ended August 31, 2016 and provided net cash of $27.3 million in the nine months ended August 31, ~~2015 and $511.2 million in the~~ ~~nine months ended~~ ~~August 31, 2014.~~2015. The year-over-year change ~~in cash provided by financing activities~~ was ~~largely~~primarily due to cash used to repurchase shares of our common stock in the first nine months of 2016, compared to the net proceeds received from the underwritten public issuance of senior notes ~~and common stock~~ in the corresponding period of 2015.

In the nine months ended August 31, ~~2014.~~

2016, cash was used 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 $41.9 million and dividend payments on our common stock of $6.5 million. The cash used was partly offset by a decrease of $8.7 million in our restricted cash balance and $7.4 million of issuances of common stock under employee stock plans. In the nine months ended August 31, 2015, cash was provided mainly by proceeds of $250.0 million from the underwritten public issuance of ~~the~~ 7.625% ~~Senior Notes~~senior notes due 2023 and a decrease of $2.2 million in our restricted cash balance. The cash provided was partly offset by cash used to retire ~~the remaining~~ $199.9 million in aggregate principal amount of ~~our 6 1/4% Senior Notes due 2015~~certain senior notes at their maturity on June 15, 2015, payments on mortgages and land contracts due to land sellers and other loans of $13.7 million, dividend payments on our common stock of $6.9 million, and the payment of debt issuance costs of $4.6 ~~million associated with the issuance of the 7.625% Senior Notes due 2023 and the Amended Credit Facility. In the~~ ~~nine months ended~~ August 31, 2014, cash was provided primarily by proceeds of $400.0 million from the issuance of the 4.75% senior notes due 2019 and net proceeds of $137.0 million from the underwritten public issuance of 7,986,111 shares of our common stock, and a decrease of $9.5 million in our restricted cash balance. The cash provided was partly offset by payments on mortgages and land contracts due to land sellers and other loans of $23.3 million, dividend payments on our common stock of $6.7 million, and the payment of debt issuance costs of $5.4 million associated with the issuance of the 4.75% senior notes due 2019.million.

During the three months ended August 31, ~~2015~~2016 and ~~2014,~~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 ~~nine-month periods~~nine months ended August 31, ~~2015~~2016 and ~~2014~~2015 totaled $.075 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.

~~In the present environment,~~We believe we ~~are managing our use of cash for investments to maintain and grow our business. Based on our current capital position, we believe that we will~~ 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 ~~capital~~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 the remainder of ~~2015~~2016 we may use or redeploy our unrestricted cash resources or cash borrowings under the ~~Amended~~ Credit Facility to support other business purposes that are aligned with our primary strategic ~~goals, including our~~ growth ~~and asset efficiency initiatives.~~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, ~~and may include~~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 ~~Amended~~ 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 ~~financial~~ transactions, however, may be constrained by economic, capital, credit and/or financial market conditions, investor ~~or financial institution~~ 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 8.8 – 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 $~~201.2~~182.2 million at August 31, ~~2015~~2016 and $~~182.2~~207.0 million at November 30, ~~2014.~~2015. Our investments in unconsolidated joint ventures totaled $~~72.8~~61.5 million at August 31, ~~2015~~2016 and $~~79.4~~71.6 million at November 30, ~~2014.~~2015. As of August 31, 2016 and November 30, 2015, one of our unconsolidated joint ventures had outstanding secured debt of ~~$32.0~~$39.2 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 under the construction loan agreement.~~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 ~~under the construction loan agreement~~ is material to our consolidated financial statements. None of our other unconsolidated joint ventures had outstanding debt at August 31, 2016 or November 30, 2015. ~~None~~As discussed in Note 7 – Variable Interest Entities in the Notes to Consolidated Financial Statements in this report, we determined that one of our ~~unconsolidated~~ joint ventures ~~had outstanding debt~~ at August 31, 2016 was a VIE, but we were not the primary beneficiary of this VIE. At November 30, ~~2014. In addition,~~2015, we determined that none of our joint ventures at ~~August 31, 2015~~ ~~or November 30, 2014~~ were ~~determined to be~~ 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 515 unconsolidated joint venture lots controlled under land option and other similar contracts at August 31, 2016, we are committed to purchase 121 lots from one of our unconsolidated joint ventures in quarterly takedowns over the next three years for an aggregate purchase price of approximately $53.0 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 7.7 – 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 August 31, ~~2015~~2016, we had total cash deposits of $~~42.8~~45.1 million to purchase land having an aggregate purchase price of $~~941.6~~908.3 million. At November 30, ~~2014,~~2015, we had total deposits of ~~$33.2~~$54.5 million ~~comprised of $33.1 million of cash deposits and $.1 million of letters of credit,~~ to purchase land having an aggregate purchase price of ~~$958.5 million.~~$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 August 31, ~~2015~~2016, we estimate the remaining purchase price to be paid would be as follows: ~~2015 – $129.9 million;~~ 2016 – ~~$413.7~~$159.8 million; 2017 – ~~$110.4~~$385.0 million; 2018 – ~~$71.4~~$95.0 million; 2019 – ~~$41.7~~$77.4 million; 2020 – $37.2 million; and thereafter – ~~$131.7~~$108.8 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 $~~60.0~~48.2 million at August 31, ~~2015~~2016 and $~~48.0~~65.6 million at November 30, ~~2014.~~2015. These pre-acquisition costs and cash deposits were included in inventories in our consolidated balance sheets.

We determined that as of August 31, ~~2015~~2016 and November 30, ~~2014~~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 $~~89.4~~50.8 million at August 31, ~~2015~~2016 and ~~$3.1~~$110.0 million at November 30, ~~2014.~~2015.

Contractual Obligations. ~~Due to the issuance of the 7.625% Senior Notes due 2023 and the retirement of the 6 1/4% Senior Notes due 2015, both of which are further described~~There have been no significant changes in ~~Note 12. Notes Payable in the Notes to Consolidated Financial Statements in this report,~~ our contractual obligations ~~as of~~ ~~August 31, 2015~~ ~~have changed materially~~ from those reported in ~~Part II, Item 7.~~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, 2014. In addition, based on our evaluation of our land option contracts and other similar contracts for financing arrangements as of August 31, 2015, our inventory-related obligations changed materially from November 30, 2014. The following table sets forth our future cash requirements related to the contractual obligations of our long-term debt, interest and inventory-related obligations as of 2015.~~August 31, 2015~~ ~~(in thousands):~~

Total 2015 2016-2017 2018-2019 Thereafter
Contractual obligations:
Long-term debt $ 2,636,244
$ 15,835
$ 290,409
$ 930,000
$ 1,400,000
Interest 869,011
59,368
343,131
254,970
211,542
Inventory-related obligations (a) 129,874
9,436
80,713
7,033
32,692
Total $ 3,635,129
$ 84,639
$ 714,253
$ 1,192,003
$ 1,644,234

~~(a)~~

Represents liabilities for inventory not owned associated with financing arrangements, as well as liabilities for fixed or determinable amounts associated with tax increment financing entity (“TIFE”) assessments. As homes are delivered, the 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.

There have been no other significant changes in our contractual obligations from those reported in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended November 30, 2014.

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 ~~three~~nine months ended August 31, ~~2015~~2016 from those disclosed in ~~Part II, Item 7.~~the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” ~~included~~section in our Annual Report on Form 10-K for the year ended November 30, ~~2014.~~2015.

Recent Accounting Pronouncements

Recent accounting pronouncements are discussed in Note 1.1 – Basis of Presentation and Significant Accounting Policies in the Notes to Consolidated Financial Statements in this report.

Outlook

WeBased on our ending community count and backlog levels at August 31, 2016, we believe we are well-positioned to ~~accomplish~~achieve our ~~top priorities~~primary operational and financial objectives for ~~2015, particularly in view of~~ the ~~favorable housing market conditions in most of our served markets and our backlog level and ending community count at August 31, 2015.~~year. Our present outlook is as follows:

2016 Fourth Quarter:

We ~~anticipate our investment in land and land development for 2015~~expect to begenerate housing revenues in the range of ~~$1.0~~$1.1 billion to ~~$1.1~~$1.2 billion, ~~on an overall basis,~~ compared to $979.8 million in the ~~$1.47 billion we invested in 2014, with a higher proportion of our current-year investment dedicated to land development in order to advance~~year-earlier quarter, reflecting both the conversion of our ~~owned land~~higher backlog at August 31, 2016 into ~~new communities open for sales.~~

~~We expect our~~homes delivered and an anticipated year-over-year increase in the overall average ~~community count for the full year~~selling price of those homes to ~~increase more than 20% compared~~a range of $385,000 to ~~2014, depending on sales absorption rates and the timing of community close-outs.~~$390,000.

We expect our housing gross profit margin will improve on a sequential basis to the low 17% range, 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 in the low-to-mid 9% range, 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 36% for the quarter, based on our present forecasts for pretax income and an anticipated decrease in federal energy tax credits for the period as compared to the 2016 third quarter.

We expect our average community count will decline in the fourth quarter by about 8% compared to the same quarter of ~~2015 to improve sequentially to in excess of 18%.~~2015.

◦

This improvement is anticipated to result primarily through an increasing proportion of homes delivered from recently opened communities, which in many cases are projected to produce higher housing gross profit margins compared to those achieved in the first nine months of 2015; raising home selling prices as market conditions allow and capturing incremental revenue opportunities through various lot and product premiums, and design studio options and upgrades; containing increases in direct construction costs to the extent feasible; and delivering a higher number of homes, which will allow us to benefit from economies of scale and better operating leverage.


◦	Sales incentives did not contribute to the year-over-year decline in our housing gross profit margin in the first three quarters of 2015 and are not expected to significantly impact our year-over-year housing gross profit margin comparisons in the fourth quarter.


◦	While we believe we will generate substantial sequential improvement in our fourth quarter housing gross profit margin, we anticipate that our 2015 fourth quarter and full-year housing gross profit margin results will each be lower on a year-over-year basis.

2016 Full-Year:

We expect our ~~overall 2015 fourth quarter~~ housing revenues to be in the range of ~~$1.04~~$3.5 billion to ~~$1.10~~$3.6 billion, an increase from $2.91 billion in 2015.

We expect our housing gross profit margin will be approximately 16.7%, excluding inventory impairment and land option contract abandonment charges, a slight improvement year over year.

We expect our ~~2015 full-year~~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 fourth quarter ratio.

Capital Investment:

We currently own and control all of the lots needed to meet our current 2016 and 2017 delivery forecasts. Under our current capital allocation program, inclusive of our investment of $1.06 billion in land and land development for the first nine months 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. While we intend to continue to execute our capital allocation program consistent with this general framework during the 2016 fourth quarter, depending on the opportunities we identify to advance our strategic growth, community/land activation, return enhancement and/or capital structure goals, our cash balance at the end of 2016 could be lower than at the end of 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 our asset efficiency and stockholder returns. We believe we will have the liquidity and flexibility to continue to invest in our business in the ~~range~~remainder of ~~$2.97 billion~~2016 to ~~$3.03 billion.~~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. ~~However, we expect to achieve additional growth in the years ahead if and as housing markets continue to strengthen.~~

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 ~~“expects,~~“expect,” ~~“anticipates,~~“anticipate,” ~~“intends,~~“intend,” ~~“plans,~~“plan,” ~~“believes,~~“believe,” ~~“estimates,~~“estimate,” ~~“hopes,~~“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;

adverse market conditions, including an increased supply of unsold homes, declining home prices and greater foreclosure and short sale activity, among other things, that could negatively affect our consolidated financial statements, including due to additional impairment or land option contract abandonment charges, lower revenues and operating and other losses;

conditions in the capital, credit and financial ~~markets (including mortgage lending standards,~~markets;

our ability to access external financing sources and raise capital through the ~~availability~~issuance of ~~mortgage~~common stock, debt or other securities, and/or project financing, ~~and mortgage foreclosure rates);~~on favorable terms;

material ~~prices~~ and ~~availability;~~

~~subcontracted~~ trade ~~labor~~ costs and availability;

changes in interest rates;

~~inflation;~~

our debt level, including our ratio of debt to capital, and our ability to adjust our debt level and maturity schedule and structure and to access the equity, credit, capital or other financial markets or other external financing sources, including raising capital through the public or private issuance of common stock, debt or other securities, and/or project financing, on favorable terms;schedule;

our compliance with the terms ~~and covenants~~ of the ~~Amended~~ 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 ~~for home sales~~ from other sellers of new and resale ~~homes, including lenders and other sellers of homes obtained through foreclosures or short sales;~~homes;

~~the impact of~~ 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 ~~credits, tax incentives and/or subsidies for~~benefits associated with purchasing and owning a home, purchases, tax deductions for mortgage interest payments and property taxes, tax exemptions for profits on home sales, programs intended to modify existing mortgage loans and to prevent mortgage foreclosures 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;

~~decisions regarding federal fiscal and monetary policies, including those relating to taxation, government spending, interest rates and economic stimulus measures;~~

the availability and cost of land in desirable areas;

our warranty claims experience with respect to homes previously delivered and actual warranty costs ~~incurred, including our warranty claims and costs experience at certain of our communities in Florida;~~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 ~~with respect~~related to our product, geographic and market positioning (including our ~~efforts~~plans to ~~expand~~transition out of the Metro Washington, D.C. area), and gaining share and scale in our inventory base/pipeline with desirable land positions or interests at reasonable cost and to expand our community count, open additional new home communities for sales, sell higher-priced homes and more design options, increase the size and value of our backlog, and served markets;

our operational and investment concentration in markets in ~~California), revenue growth, asset optimization (including by effectively balancing home sales prices and sales pace~~California;

consumer interest in our new home communities), asset activation and/or monetization, local field management and talent investment, containing and leveraging overhead costs, gaining share and scale in our served markets and increasing our housing gross profit margins and profitability;

~~consumer traffic to~~ our new home communities and ~~consumer interest in our product designs and offerings,~~products, particularly from first-time homebuyers andhigher-income consumers;

~~cancellations and~~

our ability to ~~realize~~generate orders andconvert our backlog ~~by converting net~~of orders to home deliveries and ~~revenues;~~

~~our home sales and delivery performance,~~revenues, particularly in key markets in California;

our ability to ~~generate cash from our operations, enhance our asset efficiency, increase~~successfully implement strategic and operational initiatives that will enable us to expand revenues and our operating income margin, ~~and/or improve~~increase our ~~return~~asset efficiency and generate higher returns on invested capital;

the ~~manner in which~~ability of our homebuyers ~~are offered and whether they are able~~ to obtain residential mortgage loans and mortgage banking ~~services, including from HCM;~~services;

the performance of ~~HCM;~~mortgage lenders to our homebuyers;

completing the wind-down of HCM as planned, and the management of its assets and operations during the wind-down process;

whether we can establish a joint venture or other relationship with a mortgage banking services provider;

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, ~~2014~~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

We enter into debt obligations primarily to support general corporate purposes, including the operations of our subsidiaries. We are subject to interest rate risk on the senior notes. For fixed rate debt,There have been no material changes in ~~interest rates generally affect the fair value of the debt instrument, but not~~ our ~~earnings or cash flows. Under our current policies, we do not use interest rate derivative instruments to manage our exposure to changes in interest rates.~~

The following table presents principal cash flows by scheduled maturity, weighted average effective interest rates and the estimated fair value of our long-term fixed rate debt obligations as of August 31, 2015 (dollars in thousands):

Fiscal Year of Expected Maturity Fixed Rate Debt
Weighted Average
Effective Interest Rate
2015 $ —
— %
2016 —
—
2017 265,000
9.5
2018 300,000
7.3
2019 630,000
3.5
Thereafter 1,400,000
7.5
Total $ 2,595,000
6.9 %
Fair value at August 31, 2015 $ 2,669,888

market risk since November 30, 2015. For additional information regarding our market risk, refer to ~~Part II, Item 7A.~~the “Quantitative and Qualitative Disclosures About Market Risk” ~~included in~~section of our Annual Report on Form 10-K for the year ended November 30, ~~2014.~~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 Chairman, 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 August 31, ~~2015~~2016.

There were no changes in our internal control over financial reporting during the quarter ended August 31, ~~2015~~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.~~15 – Legal Matters in the Notes to Consolidated Financial Statements ~~included in Part I, Item 1. “Financial Statements”~~ in this report.


Item 1A.	Risk Factors

~~Except as set forth below, there~~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, ~~2014.~~2015.

~~Negative environmental impacts from,~~Item 2. Unregistered Sales of Equity Securities and ~~legal and regulatory requirements~~Use of Proceeds

As publicly reported in ~~response~~Note 24 – Subsequent Event in the Notes to ~~severe and prolonged drought conditions~~Consolidated Financial Statements in ~~Arizona, California and Nevada could adversely affect~~ our ~~business and results of operations in those regions and our consolidated financial statements.~~

Certain areas in which we operate, particularly parts of Arizona, California and Nevada, are experiencing extreme or exceptional drought conditions. In response to these conditions and concerns that they may continue for an extended period of time or worsen, government officials have taken, or have proposed taking, a number of steps to preserve potable water supplies. For instance, California has declared a state of emergency due to drought conditions, and the governor issued an executive order directing the State Water Resources Control Board (“SWRCB”) to impose restrictions to achieve a statewide 25% reduction in potable urban water use through February 28, 2016. In turn, the SWRCB adopted emergency regulations that, among other things, require local water agencies or other water suppliers to achieve 4% to 36% reductions in their water use, with each agency/supplier expected to implement its own plans and measures to achieve its respective water conservation target. The SWRCB’s emergency regulations also prohibited irrigation with potable water outside newly constructed homes and buildings not in accordance with conservation standards adopted by a separate state agency, which apply to structures over 2,500 square feet. To address the SWRCB’s conservation requirements and its own available potable water supplies, local water agencies/suppliers could potentially restrict, delay the issuance of, or proscribe new water connection permits for homes or businesses; increase the costs for securing such permits, either directly or by requiring participation in impact mitigation programs; adopt higher efficiency requirements for water-using appliances or fixtures; limit or ban the use of water for construction activities; impose requirements as to the types of allowed plant material or irrigation for outdoor landscaping that are more strict than state standards and less desired by consumers; and/or impose fines and penalties for noncompliance with any such measures. These local water agencies/suppliers could also increase rates and charges to residential usersAnnual Report on Form 10-K for the ~~water they use, potentially increasing~~year ended November 30, 2015, and discussed in Note 16 – Stockholders’ Equity in the ~~cost~~Notes to Consolidated Financial Statements in this report, on January 12, 2016, our board of ~~homeownership. It is uncertain if, where and~~directors authorized us to what extent these or additional conservation measures might be imposed by local water agencies/suppliers in California or by other federal, state or local lawmakers or regulators in Arizona, California and Nevada. However, if potable water supplies become further constrained duerepurchase a total of up to ~~persistent drought conditions, tighter conservation requirements may be imposed in Arizona, California and Nevada that could limit, impair or delay~~10,000,000 shares of our ~~ability~~outstanding common stock. During the three months ended August 31, 2016, no shares were repurchased pursuant to acquire land for homebuilding, develop land we own, market and sell homes and/or build and deliver homes (even if we have obtained water connection permits); increase our land development and home construction costs; or cause the fair value of affected land or land interests in our inventory to decline, which could result in inventory impairment or land option contract abandonment charges, or both; or negatively affect the economies of, or diminish consumer interest in living in, water-constrained areas. These impacts, individually or collectively, could adversely affect our business and consolidated financial statements, and the effect could be material.this authorization.

Item 6. Exhibits



Exhibits

~~4.32~~		~~Form of 7.625% Senior Notes due 2023, filed as an exhibit to our Current Report on Form 8-K dated February 17, 2015 (File No. 001-09195), is incorporated by reference herein.~~

~~4.33~~		Form of officers’ certificates and guarantors’ certificates establishing the terms of the 7.625% Senior Notes due 2023, filed as an exhibit to our Current Report on Form 8-K dated February 17, 2015 (File No. 001-09195) is incorporated by reference herein.

~~10.59~~		~~Amended and Restated Revolving Loan Agreement, dated as of August 7, 2015, among us, the banks party thereto, and Citibank, N.A., as Administrative Agent.~~

31.1		Certification of Jeffrey T. Mezger, Chairman, 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, Chairman, 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 August 31, ~~2015,~~2016, formatted in eXtensible Business Reporting Language (XBRL): (a) Consolidated Statements of Operations for the three months and nine months ended August 31, ~~2015~~2016 and ~~2014,~~2015, (b) Consolidated Balance Sheets as of August 31, ~~2015~~2016 and November 30, ~~2014,~~2015, (c) Consolidated Statements of Cash Flows for the nine months ended August 31, ~~2015~~2016 and ~~2014,~~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	October ~~8, 2015~~4, 2016	By:	/s/ JEFF J. KAMINSKI
			Jeff J. Kaminski Executive Vice President and Chief Financial Officer (Principal Financial Officer)



Dated	October ~~8, 2015~~4, 2016	By:	/s/ WILLIAM R. HOLLINGER
			William R. Hollinger Senior Vice President and Chief Accounting Officer (Principal Accounting Officer)

INDEX OF EXHIBITS




~~4.32~~		~~Form of 7.625% Senior Notes due 2023, filed as an exhibit to our Current Report on Form 8-K dated February 17, 2015 (File No. 001-09195), is incorporated by reference herein.~~

~~4.33~~		Form of officers’ certificates and guarantors’ certificates establishing the terms of the 7.625% Senior Notes due 2023, filed as an exhibit to our Current Report on Form 8-K dated February 17, 2015 (File No. 001-09195) is incorporated by reference herein.

~~10.59~~		~~Amended and Restated Revolving Loan Agreement, dated as of August 7, 2015, among us, the banks party thereto, and Citibank, N.A., as Administrative Agent.~~

31.1		Certification of Jeffrey T. Mezger, Chairman, 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, Chairman, 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 August 31, ~~2015,~~2016, formatted in eXtensible Business Reporting Language (XBRL): (a) Consolidated Statements of Operations for the three months and nine months ended August 31, ~~2015~~2016 and ~~2014,~~2015, (b) Consolidated Balance Sheets as of August 31, ~~2015~~2016 and November 30, ~~2014,~~2015, (c) Consolidated Statements of Cash Flows for the nine months ended August 31, ~~2015~~2016 and ~~2014,~~2015, and (d) Notes to Consolidated Financial Statements.



	Total		2015		2016-2017		2018-2019		Thereafter
Contractual obligations:
Long-term debt	$	2,636,244	$	15,835	$	290,409	$	930,000	$	1,400,000
Interest	869,011		59,368		343,131		254,970		211,542
Inventory-related obligations (a)	129,874		9,436		80,713		7,033		32,692
Total	$	3,635,129	$	84,639	$	714,253	$	1,192,003	$	1,644,234



Fiscal Year of Expected Maturity	Fixed Rate Debt		Weighted Average Effective Interest Rate
2015	$	—	—	%
2016	—		—
2017	265,000		9.5
2018	300,000		7.3
2019	630,000		3.5
Thereafter	1,400,000		7.5
Total	$	2,595,000	6.9	%
Fair value at August 31, 2015	$	2,669,888