Quarterly Report



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
  FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended February 28, 2017 .
or
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       No  
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       No  
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
Accelerated filer
Non-accelerated filer
  (Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes        No     
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of February 28, 2017 .
There were 85,273,440 shares of the registrant’s common stock, par value $1.00 per share, outstanding on February 28, 2017 . The registrant’s grantor stock ownership trust held an additional 9,153,296 shares of the registrant’s common stock on that date.



KB HOME
FORM 10-Q
INDEX
 
 
Page
Number
 
 
 
 
 
 
Consolidated Statements of Operations -
Three Months Ended February 28, 2017 and February 29, 2016
 
 
Consolidated Balance Sheets -
February 28, 2017 and November 30, 2016
 
 
Consolidated Statements of Cash Flows -
Three Months Ended February 28, 2017 and February 29, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


PART I.    FINANCIAL INFORMATION
Item 1.
Financial Statements
KB HOME
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts – Unaudited)
 

 
Three Months Ended
 
February 28,
2017
 
February 29,
2016
Total revenues
$
818,596

 
$
678,371

Homebuilding:
 
 
 
Revenues
$
816,246

 
$
675,742

Construction and land costs
(698,080
)
 
(568,818
)
Selling, general and administrative expenses
(92,889
)
 
(87,932
)
Operating income
25,277

 
18,992

Interest income
198

 
152

Interest expense
(6,307
)
 
(3,697
)
Equity in income (loss) of unconsolidated joint ventures
731

 
(603
)
Homebuilding pretax income
19,899

 
14,844

Financial services:
 
 
 
Revenues
2,350

 
2,629

Expenses
(819
)
 
(859
)
Equity in income (loss) of unconsolidated joint ventures
29

 
(587
)
Financial services pretax income
1,560

 
1,183

Total pretax income
21,459

 
16,027

Income tax expense
(7,200
)
 
(2,900
)
Net income
$
14,259

 
$
13,127

Earnings per share:
 
 
 
Basic
$
.17

 
$
.15

Diluted
$
.15

 
$
.14

Weighted average shares outstanding:
 
 
 
Basic
85,122

 
89,239

Diluted
96,273

 
99,427

Cash dividends declared per common share
$
.025

 
$
.025

See accompanying notes.

3


KB HOME
CONSOLIDATED BALANCE SHEETS
(In Thousands – Unaudited)
 

 
February 28,
2017
 
November 30,
2016
Assets
 
 
 
Homebuilding:
 
 
 
Cash and cash equivalents
$
351,880

 
$
592,086

Receivables
238,358

 
231,665

Inventories
3,423,344

 
3,403,228

Investments in unconsolidated joint ventures
64,916

 
64,016

Deferred tax assets, net
731,885

 
738,985

Other assets
96,679

 
91,145

 
4,907,062

 
5,121,125

Financial services
15,518

 
10,499

Total assets
$
4,922,580

 
$
5,131,624

 
 
 
 
Liabilities and stockholders’ equity
 
 
 
Homebuilding:
 
 
 
Accounts payable
$
178,491

 
$
215,331

Accrued expenses and other liabilities
501,902

 
550,996

Notes payable
2,504,449

 
2,640,149

 
3,184,842

 
3,406,476

Financial services
1,278

 
2,003

Stockholders’ equity:
 
 
 
Common stock
116,299

 
116,224

Paid-in capital
697,656

 
696,938

Retained earnings
1,575,786

 
1,563,742

Accumulated other comprehensive loss
(16,057
)
 
(16,057
)
Grantor stock ownership trust, at cost
(99,279
)
 
(102,300
)
Treasury stock, at cost
(537,945
)
 
(535,402
)
Total stockholders’ equity
1,736,460

 
1,723,145

Total liabilities and stockholders’ equity
$
4,922,580

 
$
5,131,624

See accompanying notes.

4


KB HOME
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands – Unaudited)
 
 
Three Months Ended
 
February 28,
2017
 
February 29,
2016
Cash flows from operating activities:
 
 
 
Net income
$
14,259

 
$
13,127

Adjustments to reconcile net income to net cash used in operating activities:
 
 
 
Equity in (income) loss of unconsolidated joint ventures
(760
)
 
1,190

Amortization of discounts and issuance costs
1,665

 
1,881

Depreciation and amortization
802

 
900

Deferred income taxes
7,100

 
2,800

Loss on early extinguishment of debt
5,685

 

Stock-based compensation
3,152

 
2,893

Inventory impairments and land option contract abandonments
4,008

 
1,966

Changes in assets and liabilities:
 
 
 
Receivables
(6,788
)
 
3,999

Inventories
(36,878
)
 
(150,265
)
Accounts payable, accrued expenses and other liabilities
(64,105
)
 
(20,558
)
Other, net
(5,182
)
 
(1,246
)
Net cash used in operating activities
(77,042
)
 
(143,313
)
Cash flows from investing activities:
 
 
 
Contributions to unconsolidated joint ventures
(8,750
)
 
(291
)
Return of investments in unconsolidated joint ventures
1,107

 

Purchases of property and equipment, net
(1,015
)
 
(1,413
)
Net cash used in investing activities
(8,658
)
 
(1,704
)
Cash flows from financing activities:
 
 
 
Change in restricted cash

 
4,987

Repayment of senior notes
(105,326
)
 

Payments on mortgages and land contracts due to land sellers and other loans
(45,428
)
 
(5,659
)
Issuance of common stock under employee stock plans
662

 

Payments of cash dividends
(2,215
)
 
(2,270
)
Stock repurchases
(2,543
)
 
(87,526
)
Net cash used in financing activities
(154,850
)
 
(90,468
)
Net decrease in cash and cash equivalents
(240,550
)
 
(235,485
)
Cash and cash equivalents at beginning of period
593,000

 
560,341

Cash and cash equivalents at end of period
$
352,450

 
$
324,856

See accompanying notes.

5




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 February 28, 2017 , the results of our consolidated operations for the three months ended February 28, 2017 and February 29, 2016, and our consolidated cash flows for the three months ended February 28, 2017 and February 29, 2016. The results of our consolidated operations for the three months ended February 28, 2017 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, 2016 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, 2016 , which are contained in our Annual Report on Form 10-K for that period.
Unless the context indicates otherwise, the terms “we,” “our,” and “us” used in this report refer to KB Home, a Delaware corporation, and its subsidiaries.
Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Cash and Cash Equivalents. We consider all highly liquid short-term investments purchased with an original maturity of three months or less to be cash equivalents. Our cash equivalents totaled $206.1 million at February 28, 2017 and $396.1 million at November 30, 2016 . The majority of our cash and cash equivalents was invested in interest-bearing bank deposit accounts.
Comprehensive Income. Our comprehensive income was $14.3 million for the three months ended February 28, 2017 and $13.1 million for the three months ended February 29, 2016 . Our comprehensive income for each of the three-month periods ended February 28, 2017 and February 29, 2016 was equal to our net income for the respective periods.
Recent Accounting Pronouncements Not Yet Adopted . 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. 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. ASU 2014-09, as amended, is effective for us for annual and interim periods beginning December 1, 2018 (with early adoption permitted beginning in our 2018 fiscal year) and allows for full retrospective or modified retrospective methods of adoption. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements, as well as the adoption method we will use, and have been involved in industry specific discussions with the FASB on the treatment of certain items. We do not believe the adoption of ASU 2014-09 will have a material impact on the amount or timing of our homebuilding revenues.
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. ASU 2016-02 will be effective for us beginning December 1, 2019 (with early adoption permitted) and mandates a modified retrospective transition method. We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

6


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. ASU 2016-09 will be effective for us beginning December 1, 2017 (with early adoption 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. ASU 2016-15 will be effective for us beginning after December 1, 2018 (with early adoption permitted). We are currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.
In November 2016, the FASB issued Accounting Standards Update No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash” (“ASU 2016-18”). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 will be effective for us beginning December 1, 2018 (with early adoption permitted) and will be applied using a retrospective transition method to each period presented. 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
We have identified five operating reporting segments, comprised of four homebuilding reporting segments and one financial services reporting segment. As of February 28, 2017 , our homebuilding reporting segments conducted ongoing operations in the following states:
West Coast: California
Southwest: Arizona and Nevada
Central: Colorado and Texas
Southeast: Florida and North Carolina
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. Management evaluates segment performance primarily based on segment pretax results.
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. Until October 2016, we provided mortgage banking services, including residential mortgage loan (“mortgage loan”) originations, to our homebuyers indirectly through Home Community Mortgage, LLC (“HCM”), a joint venture of a subsidiary of ours and a subsidiary of Nationstar Mortgage LLC (“Nationstar”). Through these respective subsidiaries, we have a 49.9% ownership interest and Nationstar has a 50.1% ownership interest in HCM, with Nationstar providing management oversight of HCM’s operations. In the 2016 fourth quarter, we and Nationstar began the process to wind down HCM and transfer HCM’s operations and certain assets to Stearns Lending, LLC (“Stearns Lending”). Our homebuyers may select any lender of their choice to obtain mortgage financing for the purchase of their home.
In the 2016 fourth quarter, a subsidiary of ours and a subsidiary of Stearns Lending entered into an agreement to form KBHS Home Loans, LLC (“KBHS”), an unconsolidated mortgage banking joint venture that will offer mortgage banking services, including mortgage loan originations, to our homebuyers. We and Stearns Lending each have a 50.0% ownership interest in KBHS, with Stearns Lending providing management oversight of KBHS’s operations. KBHS, which did not have a significant

7


impact on our consolidated statement of operations for the three months ended February 28, 2017 , is expected to be operational in most of our served markets by the end of our 2017 second quarter, subject to obtaining all requisite regulatory approvals and clearances. Our financial services reporting segment is separately reported in our consolidated financial statements.
Corporate and other is a non-operating segment that develops and oversees the implementation of company-wide strategic initiatives and provides support to our reporting segments by centralizing certain administrative functions. Corporate management is responsible for, among other things, evaluating and selecting the geographic markets in which we operate, consistent with our overall business strategy; allocating capital resources to markets for land acquisition and development activities; making major personnel decisions related to employee compensation and benefits; and monitoring the financial and operational performance of our divisions. Corporate and other includes general and administrative expenses related to operating our corporate headquarters. A portion of the expenses incurred by Corporate and other is allocated to our homebuilding reporting segments.
Our segments follow the same accounting policies used for our consolidated financial statements. The results of each segment are not necessarily indicative of the results that would have occurred had the segment been an independent, stand-alone entity during the periods presented, nor are they indicative of the results to be expected in future periods.
The following tables present financial information relating to our homebuilding reporting segments (in thousands):
 
Three Months Ended
 
February 28,
2017
 
February 29,
2016
Revenues:
 
 
 
West Coast
$
355,832

 
$
283,846

Southwest
117,636

 
100,332

Central
242,256

 
202,161

Southeast
100,522

 
89,403

Total
$
816,246

 
$
675,742

 
 
 
 
Pretax income (loss):
 
 
 
West Coast
$
22,853

 
$
22,116

Southwest
8,672

 
12,503

Central
19,678

 
10,579

Southeast
(2,213
)
 
(7,564
)
Corporate and other
(29,091
)
 
(22,790
)
Total
$
19,899

 
$
14,844

Inventory impairment charges:
 
 
 
West Coast
$

 
$

Southwest
1,343

 

Central

 
787

Southeast
1,874

 
559

Total
$
3,217

 
$
1,346

 
Land option contract abandonments:
 
 
 
West Coast
$
791

 
$
160

Southwest

 

Central

 
460

Southeast

 

Total
$
791

 
$
620


8


 
February 28,
2017
 
November 30,
2016
Inventories:
 
 
 
Homes under construction
 
 
 
West Coast
$
760,720

 
$
695,742

Southwest
137,732

 
130,886

Central
314,071

 
297,290

Southeast
119,863

 
122,020

Subtotal
1,332,386

 
1,245,938

 
 
 
 
Land under development
 
 
 
West Coast
754,126

 
820,088

Southwest
253,674

 
268,507

Central
473,646

 
456,508

Southeast
176,829

 
182,554

Subtotal
1,658,275

 
1,727,657

 
 
 
 
Land held for future development or sale
 
 
 
West Coast
206,063

 
210,910

Southwest
132,183

 
122,927

Central
15,342

 
15,439

Southeast
79,095

 
80,357

Subtotal
432,683

 
429,633

Total
$
3,423,344

 
$
3,403,228

 
 
 
 
Assets:
 
 
 
West Coast
$
1,850,374

 
$
1,847,279

Southwest
566,631

 
564,636

Central
926,252

 
909,497

Southeast
396,643

 
414,730

Corporate and other
1,167,162

 
1,384,983

Total
$
4,907,062

 
$
5,121,125

3.
Financial Services
The following tables present financial information relating to our financial services reporting segment (in thousands):
 
Three Months Ended
 
February 28,
2017
 
February 29,
2016
Revenues
 
 
 
Insurance commissions
$
1,210

 
$
1,576

Title services
1,135

 
1,053

Interest income
5

 

Total
2,350

 
2,629

 
 
 
 

9


 
Three Months Ended
 
February 28,
2017
 
February 29,
2016
Expenses
 
 
 
General and administrative
(819
)
 
(859
)
Operating income
1,531

 
1,770

Equity in income (loss) of unconsolidated joint ventures
29

 
(587
)
Pretax income
$
1,560

 
$
1,183

 
February 28,
2017
 
November 30,
2016
Assets
 
 
 
Cash and cash equivalents
$
570

 
$
914

Receivables
1,859

 
1,764

Investments in unconsolidated joint ventures (a)
13,051

 
7,771

Other assets
38

 
50

Total assets
$
15,518

 
$
10,499

Liabilities
 
 
 
Accounts payable and accrued expenses
$
1,278

 
$
2,003

Total liabilities
$
1,278

 
$
2,003

(a)
Our investments in unconsolidated joint ventures as of February 28, 2017 included a $5.3 million capital contribution we made to KBHS in the 2017 first quarter.
4.
Earnings Per Share
Basic and diluted earnings per share were calculated as follows (in thousands, except per share amounts):
 
Three Months Ended
 
February 28,
2017
 
February 29,
2016
Numerator:
 
 
 
Net income
$
14,259

 
$
13,127

Less: Distributed earnings allocated to nonvested restricted stock
(15
)
 
(10
)
Less: Undistributed earnings allocated to nonvested restricted stock
(85
)
 
(50
)
Numerator for basic earnings per share
14,159

 
13,067

Effect of dilutive securities:
 
 
 
Interest expense and amortization of debt issuance costs associated with convertible senior notes, net of taxes
663

 
667

Add: Undistributed earnings allocated to nonvested restricted stock
85

 
50

Less: Undistributed earnings reallocated to nonvested restricted stock
(75
)
 
(45
)
Numerator for diluted earnings per share
$
14,832

 
$
13,739

 
 
 
 

10


 
Three Months Ended
 
February 28,
2017
 
February 29,
2016
Denominator:
 
 
 
Weighted average shares outstanding — basic
85,122

 
89,239

Effect of dilutive securities:
 
 
 
Share-based payments
2,749

 
1,786

Convertible senior notes
8,402

 
8,402

Weighted average shares outstanding — diluted
96,273

 
99,427

Basic earnings per share
$
.17

 
$
.15

Diluted earnings per share
$
.15

 
$
.14

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 February 28, 2017 or February 29, 2016 .
Outstanding stock options to purchase 5.1 million and 9.7 million shares of our common stock were excluded from the diluted earnings per share calculations for the three months ended February 28, 2017 and February 29, 2016 , respectively, because the effect of their inclusion would be antidilutive. Contingently issuable shares associated with outstanding performance-based restricted stock units (each, a “PSU”) were not included in the basic earnings per share calculations for the periods presented, as the applicable vesting conditions had not been satisfied.
5.
Receivables
Receivables consisted of the following (in thousands):
 
February 28,
2017
 
November 30,
2016
Due from utility companies, improvement districts and municipalities
$
106,923

 
$
102,780

Recoveries related to self-insurance claims
83,174

 
84,476

Refundable deposits and bonds
14,220

 
13,665

Recoveries related to warranty and other claims
13,907

 
14,609

Other
33,122

 
28,745

Subtotal
251,346

 
244,275

Allowance for doubtful accounts
(12,988
)
 
(12,610
)
Total
$
238,358

 
$
231,665



11


6.
Inventories
Inventories consisted of the following (in thousands):
 
February 28,
2017
 
November 30,
2016
Homes under construction
$
1,332,386

 
$
1,245,938

Land under development
1,658,275

 
1,727,657

Land held for future development or sale (a)
432,683

 
429,633

Total
$
3,423,344

 
$
3,403,228

(a)    Land held for sale totaled $71.7 million at February 28, 2017 and $63.4 million at November 30, 2016 .
Interest is capitalized to inventories while the related communities or land are being actively developed and until homes are completed or the land is available for immediate sale. 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 or sale.
Our interest costs were as follows (in thousands):
 
Three Months Ended
 
February 28,
2017
 
February 29,
2016
Capitalized interest at beginning of period
$
306,723

 
$
288,442

Interest incurred (a)
50,079

 
46,251

Interest expensed (a)
(6,307
)
 
(3,697
)
Interest amortized to construction and land costs (b)
(39,384
)
 
(30,682
)
Capitalized interest at end of period (c)
$
311,111

 
$
300,314

(a)
The amount for the three months ended February 28, 2017 included a charge of $5.7 million for the early extinguishment of debt.
(b)
Interest amortized to construction and land costs for each of the three-month periods ended February 28, 2017 and February 29, 2016 included $.5 million related to land sales during the periods.
(c)
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.
7.
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 on a community or land parcel that is active or held for future development when indicators of potential impairment exist and the carrying value of the 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 determined based on the estimated future net cash flows discounted for inherent risk associated with each such asset, or other valuation techniques. We record an inventory impairment charge on land held for sale when the carrying value of a land parcel is greater than its fair value. These real estate assets are written down to fair value, less associated costs to sell. The estimated fair values of such assets are generally based on bona fide letters of intent from outside parties, executed sales contracts, broker quotes or similar information.
We evaluated 39 and 20 communities or land parcels for recoverability during the three months ended February 28, 2017 and February 29, 2016 , respectively. The carrying value of those communities or land parcels evaluated during the three months ended February 28, 2017 and February 29, 2016 was $366.4 million and $179.4 million , respectively. The communities or land parcels evaluated during the three months ended February 28, 2017 included certain communities or land parcels

12


previously held for future development that were reactivated during 2016 as part of our efforts to improve our asset efficiency under our returns-focused growth plan.
Based on the results of our evaluations, we recognized inventory impairment charges of $3.2 million for the three months ended February 28, 2017 that reflected our decisions to make changes in our operational strategies aimed at more quickly monetizing our investment in two communities by accelerating the overall pace for selling, building and delivering homes on land previously held for future development. For the three months ended February 29, 2016 , we recognized inventory impairment charges of $1.3 million . These charges reflected our decision to accelerate the overall timing for selling, building and delivering homes in a community that was previously held for future development, and the sales of our last remaining land parcels in the Rio Grande Valley area of Texas, which closed in the 2016 second quarter.
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:
 
 
Three Months Ended
Unobservable Input (a)
 
February 28,
2017
 
February 29,
2016
Average selling price
 
$299,800 - $307,900
 
$310,000
Deliveries per month
 
3 - 4
 
1
Discount rate
 
17%
 
17%
(a)
The ranges of inputs used in each period primarily reflect differences between the housing markets where each impacted community is located, rather than fluctuations in prevailing market conditions.
As of February 28, 2017 , the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was $205.5 million , representing 27 communities and various other land parcels. As of November 30, 2016 , the aggregate carrying value of our inventory that had been impacted by inventory impairment charges was $215.3 million , representing 28 communities and various other land parcels.
Our inventory controlled under land option contracts and other similar contracts is assessed on a quarterly basis to determine whether it continues to meet our investment return 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 marketing 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 $.8 million corresponding to 386 lots for the three months ended February 28, 2017 and $.6 million corresponding to 180 lots for the three months ended February 29, 2016 .
Due to the judgment and assumptions applied in our inventory impairment and land option contract abandonment assessment processes, particularly as to land held for future development, it is possible that actual results could differ substantially from those estimated.
8.
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. Based on our analyses, we determined that one of our joint ventures at February 28, 2017 and November 30, 2016 was a VIE, but we were not the primary beneficiary of this VIE. All of our joint ventures at February 28, 2017 and November 30, 2016 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 these contracts, we typically make a specified option payment 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 February 28, 2017 and November 30, 2016 we

13


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 perform ongoing reassessments of whether we are the primary beneficiary of a VIE.
The following table presents a summary of our interests in land option contracts and other similar contracts (in thousands):
 
February 28, 2017
 
November 30, 2016
 
Cash
Deposits
 
Aggregate
Purchase Price
 
Cash
Deposits
 
Aggregate
Purchase Price
Unconsolidated VIEs
$
15,085

 
$
452,478

 
$
24,910

 
$
641,642

Other land option contracts and other similar contracts
23,068

 
431,644

 
17,919

 
431,954

Total
$
38,153

 
$
884,122

 
$
42,829

 
$
1,073,596

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 $35.6 million at February 28, 2017 and $56.0 million at November 30, 2016 . These pre-acquisition costs and cash deposits were included in inventories in our consolidated balance sheets.
For land option contracts and other similar contracts where the land seller entity is not required to be consolidated under the variable interest model, we consider whether such contracts should be accounted for as financing arrangements. Land option contracts and other similar contracts that may be considered financing arrangements include those we enter into with third-party land financiers or developers in conjunction with such third parties acquiring a specific land parcel(s) on our behalf, at our direction, and those with other landowners where we or our designee make improvements to the optioned land parcel(s) during the applicable option period. For these land option contracts and other similar contracts, we record the remaining purchase price of the associated land parcel(s) in inventories in our consolidated balance sheets with a corresponding financing obligation if we determine that we are effectively compelled to exercise the option 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, we recorded inventories in our consolidated balance sheets, with a corresponding increase to accrued expenses and other liabilities, of $28.0 million at February 28, 2017 and $50.5 million at November 30, 2016 .
9.
Investments in Unconsolidated Joint Ventures
We have investments in unconsolidated joint ventures that conduct land acquisition, land development and/or other homebuilding activities in various markets where our homebuilding operations are located. We and our unconsolidated joint venture partners make initial and/or ongoing capital contributions to these unconsolidated joint ventures, typically on a pro rata basis, according to our respective equity interests. The obligations to make capital contributions are governed by each such unconsolidated joint venture’s respective operating agreement and related governing documents.
We typically have obtained rights to acquire portions of the land held by the unconsolidated joint ventures in which we currently participate. When an unconsolidated joint venture sells land to our homebuilding operations, we defer recognition of our share of such unconsolidated joint venture’s earnings (losses) until a home sale is closed and title passes to a homebuyer, at which time we account for those earnings (losses) as a reduction (increase) to the cost of purchasing the land from the unconsolidated joint venture. We defer recognition of our share of such unconsolidated joint venture losses only to the extent profits are to be generated from the sale of the home to a homebuyer.
We share in the earnings (losses) of these unconsolidated joint ventures generally in accordance with our respective equity interests. In some instances, we recognize earnings (losses) related to our investment in an unconsolidated joint venture that differ from our equity interest in the unconsolidated joint venture. This typically arises from our deferral of the unconsolidated joint venture’s earnings (losses) from land sales to us, or other items.

14


The following table presents combined condensed information from the statements of operations of our unconsolidated joint ventures (in thousands):
 
Three Months Ended
 
February 28,
2017
 
February 29,
2016
Revenues
$
19,722

 
$
3,338

Construction and land costs
(17,895
)
 
(7,495
)
Other expense, net
(1,096
)
 
(1,123
)
Income (loss)
$
731

 
$
(5,280
)
The year-over-year increases in combined revenues and construction and land costs for three months ended February 28, 2017 primarily reflected increased land sale activity from unconsolidated joint ventures in California and Nevada.
The following table presents combined condensed balance sheet information for our unconsolidated joint ventures (in thousands):
 
February 28,
2017
 
November 30,
2016
Assets
 
 
 
Cash
$
28,083

 
$
31,928

Receivables
889

 
882

Inventories
152,689

 
165,385

Other assets
1,089

 
629

Total assets
$
182,750

 
$
198,824

 
 
 
 
Liabilities and equity
 
 
 
Accounts payable and other liabilities
$
19,446

 
$
19,880

Notes payable (a)
35,987

 
44,381

Equity
127,317

 
134,563

Total liabilities and equity
$
182,750

 
$
198,824

(a)
One of our unconsolidated joint ventures has a construction loan agreement with a third-party lender to finance its land development activities that is secured by the underlying property and related project assets. Outstanding debt under the agreement is non-recourse to us and is scheduled to mature in August 2018. None of our other unconsolidated joint ventures had outstanding debt at February 28, 2017 or November 30, 2016 .
The following table presents additional information relating to our investments in unconsolidated joint ventures (dollars in thousands):
 
 
February 28,
2017
 
November 30,
2016
Number of investments in unconsolidated joint ventures
 
7

 
7

Investments in unconsolidated joint ventures
 
$
64,916

 
$
64,016

Number of unconsolidated joint venture lots controlled under land option contracts and other similar contracts
 
428

 
471

We and our partner in the unconsolidated joint venture that has the construction loan agreement described above provided certain guarantees and indemnities to the lender, including a guaranty to complete the construction of improvements for the project; a guaranty against losses the lender suffers due to certain bad acts or failures to act by the unconsolidated joint venture or its partners; a guaranty of interest payments on the outstanding balance of the secured debt under the construction loan

15


agreement; and an indemnity of the lender from environmental issues. In each case, our actual responsibility under the foregoing guaranty and indemnity obligations is limited to our pro rata interest in the unconsolidated joint venture. We do not have a guaranty or any other obligation to repay or to support the value of the collateral underlying the unconsolidated joint venture’s outstanding secured debt. However, various financial and non-financial covenants apply with respect to the outstanding secured debt and the related guaranty and indemnity obligations, and a failure to comply with such covenants could result in a default and cause the lender to seek to enforce such guaranty and indemnity obligations, if and as may be applicable. As of February 28, 2017 , we were in compliance with the applicable terms of our relevant covenants with respect to the construction loan agreement. We do not believe that our existing exposure under our guaranty and indemnity obligations related to the unconsolidated joint venture’s outstanding secured debt is material to our consolidated financial statements.
Of the unconsolidated joint venture lots controlled under land option and other similar contracts at February 28, 2017 , we are committed to purchase 110 lots from one of our unconsolidated joint ventures in quarterly takedowns over the next four years for an aggregate purchase price of approximately $48.4 million under agreements that we entered into with the unconsolidated joint venture in 2016.
10.
Other Assets
Other assets consisted of the following (in thousands):
 
February 28,
2017
 
November 30,
2016
Cash surrender value of insurance contracts
$
72,547

 
$
70,829

Property and equipment, net
14,450

 
14,240

Prepaid expenses
8,610

 
4,894

Other
1,072

 
1,182

Total
$
96,679

 
$
91,145

11.
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following (in thousands):
 
February 28,
2017
 
November 30,
2016
Self-insurance and other litigation liabilities
$
174,082

 
$
170,988

Employee compensation and related benefits
97,971

 
130,352

Accrued interest payable
77,569

 
67,411

Inventory-related obligations (a)
57,751

 
82,682

Warranty liability
57,710

 
56,682

Customer deposits
16,694

 
18,175

Real estate and business taxes
10,547

 
14,370

Other
9,578

 
10,336

Total
$
501,902

 
$
550,996

(a)
Represents liabilities for financing arrangements discussed in Note 8 – 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.

16


12.
Income Taxes
Income Tax Expense. Our income tax expense and effective income tax rate were as follows (dollars in thousands):
 
Three Months Ended
 
February 28,
2017
 
February 29,
2016
Income tax expense (a)
$
7,200

 
$
2,900

Effective income tax rate (a)
33.6
%
 
18.1
%

(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 $1.1 million and $3.3 million for the three months ended February 28, 2017 and February 29, 2016 , respectively.
The majority of the federal energy tax credits for the three-month periods ended February 28, 2017 and February 29, 2016 resulted from legislation enacted in 2015 that extended the availability of a business tax credit for building new energy-efficient homes through December 31, 2016. There has been no new legislation enacted extending the business tax credit beyond December 31, 2016.
Deferred Tax Asset Valuation Allowance. We evaluate our deferred tax assets quarterly to determine if adjustments to our valuation allowance are required based on the consideration of all available positive and negative evidence using a “more likely than not” standard with respect to whether deferred tax assets will be realized. Our evaluation considers, among other factors, our historical operating results, our expectation of future profitability, the duration of the applicable statutory carryforward periods, and conditions in the housing market and the broader economy. The ultimate realization of our deferred tax assets depends primarily on our ability to generate future taxable income during the periods in which the related temporary differences in the financial basis and the tax basis of the assets become deductible. The value of our deferred tax assets depends on applicable income tax rates.
Our deferred tax assets of $756.7 million as of February 28, 2017 and $763.8 million as of November 30, 2016 were partly offset by a valuation allowance in each period of $24.8 million . The deferred tax asset valuation allowances as of February 28, 2017 and November 30, 2016 were primarily related to certain state net operating losses (“NOLs”) that had not met the “more likely than not” realization standard at those dates. Based on our evaluation of our deferred tax assets as of February 28, 2017 , we determined that most of our deferred tax assets would be realized. Therefore, we made no adjustments to our deferred tax valuation allowance during the three months ended February 28, 2017 .
We will continue to evaluate both the positive and negative evidence on a quarterly basis in determining the need for a valuation allowance with respect to our deferred tax assets. The accounting for deferred tax assets is based upon estimates of future results. Changes in positive and negative evidence, including differences between estimated and actual results, could result in changes in the valuation of our deferred tax assets that could have a material impact on our consolidated financial statements. Changes in existing federal and state tax laws and corporate income tax rates could also affect actual tax results and the realization of deferred tax assets over time.
Unrecognized Tax Benefits. At both February 28, 2017 and November 30, 2016 , our gross unrecognized tax benefits (including interest and penalties) totaled $.1 million , all of which, if recognized, would affect our effective income tax rate. We anticipate that these gross unrecognized tax benefits will decrease by an amount ranging from zero to $.1 million during the 12 months from this reporting date. The fiscal years ending 2013 and later remain open to federal examinations, while fiscal years 2012 and later remain open to state examinations.

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13.
Notes Payable
Notes payable consisted of the following (in thousands):
 
February 28,
2017
 
November 30,
2016
Mortgages and land contracts due to land sellers and other loans
$
29,313

 
$
66,927

9.10% Senior notes due September 15, 2017
164,538

 
263,932

7 1/4% Senior notes due June 15, 2018
299,701

 
299,647

4.75% Senior notes due May 15, 2019
397,617

 
397,364

8.00% Senior notes due March 15, 2020
345,156

 
344,811

7.00% Senior notes due December 15, 2021
446,080

 
445,911

7.50% Senior notes due September 15, 2022
346,886

 
346,774

7.625% Senior notes due May 15, 2023
247,482

 
247,404

1.375% Convertible senior notes due February 1, 2019
227,676

 
227,379

Total
$
2,504,449

 
$
2,640,149

Debt issuance costs and discounts deducted from the carrying amounts of the senior notes listed above totaled $19.9 million at February 28, 2017 and $21.8 million at November 30, 2016 .
Unsecured Revolving Credit Facility. We have a $275.0 million unsecured revolving credit facility with a syndicate of financial institutions (“Credit Facility”) that will mature on August 7, 2019 . The Credit F acility contains an uncommitted accordion feature under which the aggregate principal amount of available loans can be increased to a maximum of $450.0 million under certain conditions, including obtaining additional bank commitments. The Credit Facility also contains a sublimit of $137.5 million for the issuance of letters of credit, which may be utilized in combination with, or to replace, our cash-collateralized letter of credit facility with a financial institution (“LOC Facility”). Interest on amounts borrowed under the Credit Facility is payable quarterly in arrears at a rate based on either a Eurodollar or a base rate, plus a spread that depends on our consolidated leverage ratio (“Leverage Ratio”), as defined under the Credit Facility. The Credit Facility also requires the payment of a commitment fee ranging from .30% to .50% of the unused commitment, based on our Leverage Ratio. The terms of the Credit Facility require us, among other things, to maintain compliance with various covenants, including financial covenants relating to our consolidated tangible net worth, Leverage Ratio, and either a consolidated interest coverage ratio (“Interest Coverage Ratio”) or minimum level of liquidity, each as defined therein. The amount of the Credit Facility available for cash borrowings or the issuance of letters of credit depends on the total cash borrowings and letters of credit outstanding under the Credit Facility and the maximum available amount under the terms of the Credit Facility. As of February 28, 2017 , we had no cash borrowings and $31.0 million of letters of credit outstanding under the Credit Facility. Therefore, as of February 28, 2017 , we had $244.0 million available for cash borrowings under the Credit Facility, with up to $106.5 million of that amount available for the issuance of letters of credit.
LOC Facility. We maintain the LOC Facility to obtain letters of credit from time to time in the ordinary course of operating our business. As of February 28, 2017 and November 30, 2016 , we had no letters of credit outstanding under the LOC Facility.
Mortgages and Land Contracts Due to Land Sellers and Other Loans. As of February 28, 2017 , inventories having a carrying value of $60.5 million were pledged to collateralize mortgages and land contracts due to land sellers and other loans.
Shelf Registration. We have an automatically effective universal shelf registration statement that was filed with the SEC on July 18, 2014 (“2014 Shelf Registration”). Issuances of debt and equity securities under our 2014 Shelf Registration require the filing of a prospectus supplement identifying the amount and terms of the securities to be issued. Our ability to issue equity and/or debt is subject to market conditions and other factors impacting our borrowing capacity.
Senior Notes. All of the senior notes outstanding at February 28, 2017 and November 30, 2016 represent senior unsecured obligations and rank equally in right of payment with all of our existing and future indebtedness. Interest on each of these senior notes is payable semi-annually. At any time prior to the close of business on the business day immediately preceding the maturity date, holders may convert all or any portion of the 1.375% convertible senior notes due 2019 (“ 1.375% Convertible Senior Notes due 2019”). These notes are initially convertible into shares of our common stock at a conversion rate of 36.5297 shares for each $1,000 principal amount of the notes, which represents an initial conversion price of approximately $27.37

18


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.
On December 14, 2016, we elected to exercise our optional redemption rights under the terms of the 9.100% senior notes due 2017 (“ 9.10% Senior Notes due 2017”). On January 13, 2017, we redeemed $100.0 million in aggregate principal amount of the notes outstanding at the redemption price calculated in accordance with the “make-whole” provisions of the notes. We used internally generated cash to fund this redemption. We paid a total of $105.3 million to redeem the notes and recorded a charge of $5.7 million for the early extinguishment of debt. Upon this redemption, $165.0 million in aggregate principal amount of the notes remained outstanding.
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 February 28, 2017 , we were in compliance with the applicable terms of all our covenants and other requirements under the Credit Facility, the senior notes, the indenture, and the mortgages and land contracts due to land sellers and other loans. Our ability to access the Credit Facility for cash borrowings and letters of credit and our ability to secure future debt financing depend, in part, on our ability to remain in such compliance.
Principal payments on senior notes, mortgages and land contracts due to land sellers and other loans are due as follows: 2017 – $194.3 million ; 2018 – $300.0 million ; 2019 – $630.0 million ; 2020 – $350.0 million ; 2021 – $0 ; and thereafter – $1.05 billion .
14.
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 three months ended February 28, 2017 and the year ended November 30, 2016 (in thousands):  
Description
 
Fair Value Hierarchy
 
February 28,
2017
 
November 30,
2016
Inventories (a)
 
Level 2
 
$

 
$
3,657

Inventories (a)
 
Level 3
 
6,089

 
37,329

(a)
Amounts represent the aggregate fair value for real estate assets impacted by inventory impairment charges during the applicable period, as of the date the fair value measurements were made. The carrying value for these real estate assets may have subsequently increased or decreased from the fair value reflected due to activity that has occurred since the measurement date.
Inventories with a carrying value of $9.3 million were written down to their fair value of $6.1 million during the three months ended February 28, 2017 , resulting in inventory impairment charges of $3.2 million . Inventories with a carrying value of $89.1 million were written down to their fair value, less associated costs to sell (where applicable), of $39.5 million during the year ended November 30, 2016 , resulting in inventory impairment charges of $49.6 million .
The fair values for inventories that were determined using Level 2 inputs were based on bona fide letters of intent from outside parties or executed sales contracts. The fair values for inventories that were determined using Level 3 inputs were based on

19


the estimated future net cash flows discounted for inherent risk associated with each underlying asset, or, with respect to planned future land sales, were based on broker quotes.
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):
 
 
 
February 28, 2017
 
November 30, 2016
 
Fair Value
Hierarchy
 
Carrying
Value (a)
 
Estimated
Fair Value
 
Carrying
Value (a)
 
Estimated
Fair Value
Financial Liabilities:
 
 
 
 
 
 
 
 
 
Senior notes
Level 2
 
$
2,247,460

 
$
2,432,112

 
$
2,345,843

 
$
2,494,844

Convertible senior notes
Level 2
 
227,676

 
228,563

 
227,379

 
223,675

(a)
The carrying values for the senior notes and convertible senior notes, as presented, include unamortized debt issuance costs. Debt issuance costs are not factored into the estimated fair values of these notes.
The fair values of our 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, and mortgages and land contracts due to land sellers and other loans approximate fair values.
15.
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 of certain conditions or defects, 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.

20


The changes in our warranty liability were as follows (in thousands):
 
Three Months Ended
 
February 28,
2017
 
February 29,
2016
Balance at beginning of period
$
56,682

 
$
49,085

Warranties issued
7,140

 
5,252

Payments
(6,112
)
 
(4,021
)
Adjustments

 
259

Balance at end of period
$
57,710

 
$
50,575

Guarantees. In the normal course of our business, we issue certain representations, warranties and guarantees related to our home sales and land sales. Based on historical experience, we do not believe any potential liability with respect to these representations, warranties or guarantees would be material to our consolidated financial statements.
Self-Insurance. We maintain, and require the majority of our independent subcontractors to maintain, general liability insurance (including construction defect and bodily injury coverage) and workers’ compensation insurance. These insurance policies protect us against a portion of our risk of loss from claims related to our homebuilding activities, subject to certain self-insured retentions, deductibles and other coverage limits. 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 independent subcontractors are enrolled as insureds on each community. Enrolled subcontractors contribute toward the cost of the insurance and agree to pay a contractual amount in the future if there is 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 community as part of our overall general liability insurance and our self-insurance.
We self-insure a portion of our overall risk through the use of a captive insurance subsidiary, which provides coverage for our exposure to construction defect, bodily injury and property damage claims and related litigation or regulatory actions, up to certain limits. Our self-insurance liability generally covers our costs of settlements and/or repairs, if any, as well as our costs to defend and resolve the following types of claims:
Construction defect : Construction defect claims, which represent the largest component of our self-insurance liability, typically originate through a legal or regulatory process rather than directly by a homeowner and involve the alleged occurrence of a condition affecting two or more homes within the same community, or they involve a common area or homeowners’ association property within a community. These claims typically involve higher costs to resolve than individual homeowner warranty claims, and the rate of claims is highly variable.
Bodily injury : Bodily injury claims typically involve individuals (other than our employees) who claim they were injured while on our property or as a result of our operations.
Property damage : Property damage claims generally involve claims by third parties for alleged damage to real or personal property as a result of our operations. Such claims may occasionally include those made against us by owners of property located near our communities.
Our self-insurance liability at each reporting date represents the estimated costs of reported claims, claims incurred but not yet reported, and claim adjustment expenses. The amount of our self-insurance liability is based on an analysis performed by a third-party actuary that uses our historical claim and expense data, as well as industry data to estimate these overall costs. Key assumptions used in developing these estimates include claim frequencies, severities and resolution patterns, which can occur over an extended period of time. These estimates are subject to variability due to the length of time between the delivery of a home to a homebuyer and when a construction defect claim is made, and the ultimate resolution of such claim; uncertainties regarding such claims relative to our markets and the types of product we build; and legal or regulatory actions and/or interpretations, among other factors. Due to the degree of judgment involved and the potential for variability in these underlying assumptions, our actual future costs could differ from those estimated. In addition, changes in the frequency and severity of reported claims and the estimates to resolve claims can impact the trends and assumptions used in the actuarial analysis, which could be material to our consolidated financial statements. Though state regulations vary, construction defect claims are reported and resolved over a long period of time, which can extend for 10 years or more. As a result, the majority of the estimated self-insurance liability based on the actuarial analysis relates to claims incurred but not yet reported. Therefore, adjustments related to individual existing claims generally do not significantly impact the overall estimated liability.

21


Adjustments to our liabilities related to homes delivered in prior years are recorded in the period in which a change in our estimate occurs.
Our self-insurance liability is presented on a gross basis without consideration of insurance recoveries and amounts we have paid on behalf of and expect to recover from other parties, if any. Estimated probable self-insurance recoveries of $83.2 million and $84.5 million are included in receivables in our consolidated balance sheets at February 28, 2017 and November 30, 2016 , respectively. These self-insurance recoveries are principally based on actuarially determined amounts and depend on various factors, including, among other things, the above-described claim cost estimates, our insurance policy coverage limits for the applicable policy year(s), historical third-party recovery rates, insurance industry practices, the regulatory environment, and legal precedent, and are subject to a high degree of variability from period to period. Because of the inherent uncertainty and variability in these assumptions, our actual insurance recoveries could differ significantly from amounts currently estimated.
The changes in our self-insurance liability were as follows (in thousands):
 
Three Months Ended
 
February 28,
2017
 
February 29,
2016
Balance at beginning of period
$
158,584

 
$
173,011

Self-insurance expense (a)
4,640

 
4,016

Payments
(2,040
)
 
(3,406
)
Reclassification of estimated probable recoveries (b)
(1,302
)
 
(604
)
Balance at end of period
$
159,882

 
$
173,017

(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)
Amount for each period represents the changes in the estimated probable insurance and other recoveries that were reclassified to receivables to present our self-insurance liability on a gross basis.
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, 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 other claims totaled $13.9 million at February 28, 2017 and $14.6 million at November 30, 2016 . We believe collection of these receivables is probable based on our history of collections for similar claims.
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 February 28, 2017 , we had $551.1 million of performance bonds and $31.0 million of letters of credit outstanding. At November 30, 2016 , we had $535.7 million of performance bonds and $31.0 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

22


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 February 28, 2017 , we had total cash deposits of $38.2 million to purchase land having an aggregate purchase price of $884.1 million . Our land option contracts and other similar contracts generally do not contain provisions requiring our specific performance.
16.
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 denied the allegations, and believed it had 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. After the district court’s decisions, the only remaining claims against KB Nevada were 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. Effective March 3, 2017, KB Nevada, LVDA, Essex, the administrative agent for the LVDA/Essex lenders and a guarantor for the underlying LVDA/Essex loan reached a settlement. Under the settlement, the above-described litigation has been dismissed with prejudice, with mutual releases by the parties of all claims related to the matter. As part of the settlement, KB Nevada agreed to purchase the land, if certain conditions are satisfied, on or before February 15, 2020 (subject to a potential extension of up to six months). If the conditions are not satisfied and KB Nevada does not purchase the land, it will make a specified cash payment pursuant to the settlement agreement that is not material to our consolidated financial statements. This settlement did not have an impact on our consolidated financial statements for the 2017 first quarter.
San Diego Water Board Notice of Violation . In August 2015, the California Regional Water Quality Control Board, San Diego Region (“RWQCB”) issued to us and another homebuilder a Notice of Violation (“NOV”) alleging violations of the California Water Code and waste discharge prohibitions of the water quality control plan for the San Diego Region (Basin Plan). According to the NOV, the alleged violations involved the unpermitted discharge of fill material into the waters of the United States and California during the grading of a required secondary access road for a community located in San Diego County, California, which was performed pursuant to a County-issued grading permit. In its NOV, the RWQCB requested to meet with us to discuss the alleged violations as part of its process to determine whether to bring any enforcement action, and we have met with the RWQCB in an effort to resolve the matters alleged in the NOV. An administrative hearing before the RWQCB originally scheduled for August 10, 2016 has been continued and a new hearing date has not yet been set. While the ultimate outcome is uncertain, we believe that any penalties and related corrective measures the RWQCB may impose under the NOV could exceed $100,000 (the threshold for the required disclosure of this type of environmental proceeding) but they are not expected to be material to our consolidated financial statements.
Other Matters. In addition to the specific proceedings described above, we are involved in other litigation and regulatory proceedings incidental to our business that are in various procedural stages. We believe that the accruals we have recorded for probable and reasonably estimable losses with respect to these proceedings are adequate and that, as of February 28, 2017 , 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

23


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 an accrual had not been made, could be material to our consolidated financial statements.
17.
Stockholders’ Equity
A summary of changes in stockholders’ equity is presented below (in thousands):
 
Three Months Ended February 28, 2017
 
Number of Shares
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common
Stock
 
Grantor
Stock
Ownership
Trust
 
Treasury
Stock
 
Common Stock
 
Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Grantor Stock
Ownership Trust
 
Treasury Stock
 
Total Stockholders’ Equity
Balance at November 30, 2016
116,224

 
(9,432
)
 
(21,720
)
 
$
116,224

 
$
696,938

 
$
1,563,742

 
$
(16,057
)
 
$
(102,300
)
 
$
(535,402
)
 
$
1,723,145

Net income

 

 

 

 

 
14,259

 

 

 

 
14,259

Dividends on common stock

 

 

 

 

 
(2,215
)
 

 

 

 
(2,215
)
Employee stock options/other
75

 

 

 
75

 
587

 

 

 

 

 
662

Stock awards

 
279

 

 

 
(3,021
)
 

 

 
3,021

 

 

Stock-based compensation

 

 

 

 
3,152

 

 

 

 

 
3,152

Stock repurchases

 

 
(152
)
 

 

 

 

 

 
(2,543
)
 
(2,543
)
Balance at February 28, 2017
116,299

 
(9,153
)
 
(21,872
)
 
$
116,299

 
$
697,656

 
$
1,575,786

 
$
(16,057
)
 
$
(99,279
)
 
$
(537,945
)
 
$
1,736,460

We maintain an account with our transfer agent to reserve the maximum number of shares of our common stock potentially deliverable upon conversion to holders of the 1.375% Convertible Senior Notes due 2019 based on the terms of their governing instruments. Accordingly, the common stock reserve account had a balance of 12,602,735 shares at February 28, 2017 . The maximum number of shares would potentially be deliverable to holders only in certain limited circumstances as set forth in the governing instruments.
On February 15, 2017, the management development and compensation committee of our board of directors approved the payout of PSUs that were granted to certain employees on October 10, 2013. The 278,460 shares of our common stock that were granted under the terms of PSUs that vested in 2017 included an aggregate of 125,460 additional shares above the target amount awarded to the eligible recipients 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 from December 1, 2013 through November 30, 2016.
As of February 28, 2017 , we were authorized to repurchase 1,627,000 shares of our common stock under a board approved share repurchase program. We did not repurchase any of our common stock under this program in the three months ended  February 28, 2017 .
During the three months ended February 28, 2017 , we repurchased 152,569 , or $2.5 million , of previously issued shares delivered to us by employees to satisfy withholding taxes on the vesting of restricted stock awards as well as shares forfeited by individuals upon their termination of employment. These transactions were not considered repurchases under the above-described board of directors authorization.
During each of the three-month periods ended February 28, 2017 and February 29, 2016 , our board of directors declared, and we paid, a quarterly cash dividend of $.025 per share of common stock.

24


18.
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 three months ended February 28, 2017 :
 
Options
 
Weighted
Average Exercise
Price
Options outstanding at beginning of period
12,731,545

 
$
18.95

Granted

 

Exercised
(74,854
)
 
8.85

Cancelled
(124,090
)
 
19.46

Options outstanding at end of period
12,532,601

 
$
19.01

Options exercisable at end of period
10,307,866

 
$
19.78

As of February 28, 2017 , the weighted average remaining contractual life of stock options outstanding and stock options exercisable was 4.3 years and 3.3 years , respectively. There was $3.5 million of total unrecognized compensation expense related to unvested stock option awards as of February 28, 2017 that is expected to be recognized over a weighted average period of 1.5 years . For the three months ended February 28, 2017 and February 29, 2016 , stock-based compensation expense associated with stock options totaled $.8 million and $.9 million , respectively. The aggregate intrinsic values of stock options outstanding and stock options exercisable were $38.4 million and $33.3 million , respectively, at February 28, 2017 . (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 $2.3 million for the three months ended February 28, 2017 and $1.9 million for the three months ended February 29, 2016 related to restricted stock and PSUs.
19.
Supplemental Disclosure to Consolidated Statements of Cash Flows
The following are supplemental disclosures to the consolidated statements of cash flows (in thousands):
 
Three Months Ended
 
February 28,
2017
 
February 29,
2016
Summary of cash and cash equivalents at end of period:
 
 
 
Homebuilding
$
351,880

 
$
323,076

Financial services
570

 
1,780

Total
$
352,450

 
$
324,856

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Interest paid, net of amounts capitalized
$
(9,536
)
 
$
(12,955
)
Income taxes paid
836

 
458

 
 
 
 
Supplemental disclosures of noncash activities:
 
 
 
Reclassification of warranty recoveries to receivables
$

 
$
1,758

Decrease in consolidated inventories not owned
(22,554
)
 
(28,511
)
Increase in inventories due to distributions of land and land development from an unconsolidated joint venture
1,986

 
2,674

Inventories acquired through seller financing
7,814

 
32,435


25


20.
Supplemental Guarantor Information
Our obligations to pay principal, premium, if any, and interest on the senior notes and borrowings, if any, under the Credit Facility are guaranteed on a joint and several basis by certain of our subsidiaries (“Guarantor Subsidiaries”). The guarantees are full and unconditional and the Guarantor Subsidiaries are 100% owned by us. Pursuant to the terms of the indenture governing the senior notes and the terms of the Credit Facility, if any of the Guarantor Subsidiaries ceases to be a “significant subsidiary” as defined by Rule 1-02 of Regulation S-X (as in effect on June 1, 1996) using a 5% rather than a 10% threshold (provided that the assets of our non-guarantor subsidiaries do not in the aggregate exceed 10% of an adjusted measure of our consolidated total assets), it will be automatically and unconditionally released and discharged from its guaranty of the senior notes and the Credit Facility so long as all guarantees by such Guarantor Subsidiary of any other of our or our subsidiaries’ indebtedness are terminated at or prior to the time of such release. We have determined that separate, full financial statements of the Guarantor Subsidiaries would not be material to investors and, accordingly, supplemental financial information for the Guarantor Subsidiaries is presented.
The supplemental financial information for all periods presented below reflects the relevant subsidiaries that were Guarantor Subsidiaries as of February 28, 2017 .

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Condensed Consolidating Statements of Operations (in thousands)
 
Three Months Ended February 28, 2017
 
KB Home
Corporate
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Revenues
$

 
$
729,927

 
$
88,669

 
$

 
$
818,596

Homebuilding:
 
 
 
 
 
 
 
 
 
Revenues
$

 
$
729,927

 
$
86,319

 
$

 
$
816,246

Construction and land costs

 
(618,452
)
 
(79,628
)
 

 
(698,080
)
Selling, general and administrative expenses
(22,267
)
 
(62,898
)
 
(7,724
)
 

 
(92,889
)
Operating income (loss)
(22,267
)
 
48,577

 
(1,033
)
 

 
25,277

Interest income
197

 
1

 

 

 
198

Interest expense
(48,349
)
 
(568
)
 
(1,162
)
 
43,772

 
(6,307
)
Intercompany interest
73,493

 
(26,603
)
 
(3,118
)
 
(43,772
)
 

Equity in income of unconsolidated joint ventures

 
731

 

 

 
731

Homebuilding pretax income (loss)
3,074

 
22,138

 
(5,313
)
 

 
19,899

Financial services pretax income

 

 
1,560

 

 
1,560

Total pretax income (loss)
3,074

 
22,138

 
(3,753
)
 

 
21,459

Income tax benefit (expense)
1,300

 
(8,800
)
 
300

 

 
(7,200
)
Equity in net income of subsidiaries
9,885

 

 

 
(9,885
)
 

Net income (loss)
$
14,259

 
$
13,338

 
$
(3,453
)
 
$
(9,885
)
 
$
14,259


26


 
Three Months Ended February 29, 2016
 
KB Home
Corporate
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Revenues
$

 
$
601,343

 
$
77,028

 
$

 
$
678,371

Homebuilding:
 
 
 
 
 
 
 
 
 
Revenues
$

 
$
601,343

 
$
74,399

 
$

 
$
675,742

Construction and land costs

 
(500,964
)
 
(67,854
)
 

 
(568,818
)
Selling, general and administrative expenses
(24,340
)
 
(53,464
)
 
(10,128
)
 

 
(87,932
)
Operating income (loss)
(24,340
)
 
46,915

 
(3,583
)
 

 
18,992

Interest income
134

 
18

 

 

 
152

Interest expense
(44,370
)
 
(820
)
 
(1,061
)
 
42,554

 
(3,697
)
Intercompany interest
74,043

 
(27,508
)
 
(3,981
)
 
(42,554
)
 

Equity in loss of unconsolidated joint ventures

 
(603
)
 

 

 
(603
)
Homebuilding pretax income (loss)
5,467

 
18,002

 
(8,625
)
 

 
14,844

Financial services pretax income

 

 
1,183

 

 
1,183

Total pretax income (loss)
5,467

 
18,002

 
(7,442
)
 

 
16,027

Income tax benefit (expense)
700

 
(3,900
)
 
300

 

 
(2,900
)
Equity in net income of subsidiaries
6,960

 

 

 
(6,960
)
 

Net income (loss)
$
13,127

 
$
14,102

 
$
(7,142
)
 
$
(6,960
)
 
$
13,127


27


Condensed Consolidating Balance Sheets (in thousands)
 
February 28, 2017
 
KB Home
Corporate
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Assets
 
 
 
 
 
 
 
 
 
Homebuilding:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
257,656

 
$
83,677

 
$
10,547

 
$

 
$
351,880

Receivables
4,833

 
143,517

 
90,008

 

 
238,358

Inventories

 
3,072,225

 
351,119

 

 
3,423,344

Investments in unconsolidated joint ventures

 
62,417

 
2,499

 

 
64,916

Deferred tax assets, net
277,977

 
309,378

 
144,530

 

 
731,885

Other assets
85,433

 
8,728

 
2,518

 

 
96,679

 
625,899

 
3,679,942

 
601,221

 

 
4,907,062

Financial services

 

 
15,518

 

 
15,518

Intercompany receivables
3,654,435

 

 
93,065

 
(3,747,500
)
 

Investments in subsidiaries
55,813

 

 

 
(55,813
)
 

Total assets
$
4,336,147

 
$
3,679,942

 
$
709,804

 
$
(3,803,313
)
 
$
4,922,580

Liabilities and stockholders’ equity
 
 
 
 
 
 
 
 
 
Homebuilding:
 
 
 
 
 
 
 
 
 
Accounts payable, accrued expenses and other liabilities
$
134,143

 
$
327,181

 
$
219,069

 
$

 
$
680,393

Notes payable
2,450,026

 
28,393

 
26,030

 

 
2,504,449

 
2,584,169

 
355,574

 
245,099

 

 
3,184,842

Financial services

 

 
1,278

 

 
1,278

Intercompany payables
15,518

 
3,302,230

 
429,752

 
(3,747,500
)
 

Stockholders’ equity
1,736,460

 
22,138

 
33,675

 
(55,813
)
 
1,736,460

Total liabilities and stockholders’ equity
$
4,336,147

 
$
3,679,942

 
$
709,804

 
$
(3,803,313
)
 
$
4,922,580




28


 
November 30, 2016
 
KB Home
Corporate
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Adjustments
 
Total
Assets
 
 
 
 
 
 
 
 
 
Homebuilding:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
463,100

 
$
100,439

 
$
28,547

 
$

 
$
592,086

Receivables
4,807

 
135,915

 
90,943

 

 
231,665

Inventories

 
3,048,132

 
355,096

 

 
3,403,228

Investments in unconsolidated joint ventures

 
61,517

 
2,499

 

 
64,016

Deferred tax assets, net
276,737

 
318,077

 
144,171

 

 
738,985

Other assets
79,526

 
9,177

 
2,442

 

 
91,145

 
824,170

 
3,673,257

 
623,698

 

 
5,121,125

Financial services

 

 
10,499

 

 
10,499

Intercompany receivables
3,559,012

 

 
97,062

 
(3,656,074