CalAtlantic (CAA) 10-Q 2017 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2017

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

For the transition period from N/A to

Commission file number 1-10959

CALATLANTIC GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware	33-0475989
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1100 Wilson Boulevard, #2100, Arlington, Virginia (Address of principal executive offices)	22209 (Zip Code)

(240) 532-3806

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

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 X 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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).Yes X No ___.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See definitions of "large accelerated filer", "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer x	Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company ¨
Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

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

Registrant's shares of common stock outstanding at April 27, 2017: 114,623,151

CALATLANTIC GROUP, INC.

FORM 10-Q

INDEX

				Page No.
PART I.	Financial Information
		ITEM 1.	Financial Statements
			Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2017 and 2016	2
			Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2017 and 2016	3
			Condensed Consolidated Balance Sheets as of March 31, 2017 (Unaudited) and December 31, 2016	4
			Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016	5
			Notes to Unaudited Condensed Consolidated Financial Statements	6
		ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
		ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	37
		ITEM 4.	Controls and Procedures	37
PART II.	Other Information
		ITEM 1.	Legal Proceedings	39
		ITEM 1A.	Risk Factors	39
		ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	39
		ITEM 3.	Defaults Upon Senior Securities	39
		ITEM 4.	Mine Safety Disclosures	39
		ITEM 5.	Other Information	40
		ITEM 6.	Exhibits	40
SIGNATURES				41

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PART I.   FINANCIAL INFORMATION

ITEM 1.         FINANCIAL STATEMENTS

CALATLANTIC GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	Three Months Ended March 31,
	2017			2016
	(Dollars in thousands, except per share amounts)
	(Unaudited)
Homebuilding:
Home sale revenues	$	1,337,699		$	1,179,165
Land sale revenues		―			6,518
Total revenues		1,337,699			1,185,683
Cost of home sales		(1,062,855	)		(932,128	)
Cost of land sales		―			(6,367	)
Total cost of sales		(1,062,855	)		(938,495	)
Gross margin		274,844			247,188
Selling, general and administrative expenses		(156,276	)		(136,701	)
Income (loss) from unconsolidated joint ventures		3,888			1,189
Other income (expense)		(169	)		(3,408	)
Homebuilding pretax income		122,287			108,268
Financial Services:
Revenues		19,956			17,552
Expenses		(12,375	)		(10,616	)
Financial services pretax income		7,581			6,936
Income before taxes		129,868			115,204
Provision for income taxes		(47,248	)		(42,543	)
Net income		82,620			72,661
Less: Net income allocated to unvested restricted stock		(301	)		(113	)
Net income available to common stockholders	$	82,319		$	72,548
Income Per Common Share:
Basic	$	0.72		$	0.60
Diluted	$	0.62		$	0.52
Weighted Average Common Shares Outstanding:
Basic		114,487,245			120,814,939
Diluted		132,505,435			138,430,580
Cash Dividends Declared Per Common Share	$	0.04		$	0.04

The accompanying notes are an integral part of these condensed consolidated statements.

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CALATLANTIC GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	Three Months Ended March 31,
	2017			2016
	(Dollars in thousands)
	(Unaudited)
Net income		$	82,620	$	72,661
Other comprehensive income, net of tax:
Unrealized gain on marketable securities, available for sale			―		39
Total comprehensive income		$	82,620	$	72,700

The accompanying notes are an integral part of these condensed consolidated statements.

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CALATLANTIC GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	March 31,2017			December 31,2016
	(Dollars in thousands)
	(Unaudited)
ASSETS
Homebuilding:
Cash and equivalents	$	143,881		$	191,086
Restricted cash		30,306			28,321
Inventories:
Owned		6,556,275			6,438,792
Not owned		62,772			66,267
Investments in unconsolidated joint ventures		120,364			127,127
Deferred income taxes, net of valuation allowance of $2,456 at
March 31, 2017 and December 31, 2016		325,749			330,378
Goodwill		970,185			970,185
Other assets		221,091			204,489
Total Homebuilding Assets		8,430,623			8,356,645
Financial Services:
Cash and equivalents		38,112			17,041
Restricted cash		21,242			21,710
Mortgage loans held for sale, net		157,851			262,058
Mortgage loans held for investment, net		25,744			24,924
Other assets		20,198			26,666
Total Financial Services Assets		263,147			352,399
Total Assets	$	8,693,770		$	8,709,044
LIABILITIES AND EQUITY
Homebuilding:
Accounts payable	$	170,545		$	211,780
Accrued liabilities		638,165			599,905
Revolving credit facility		―			―
Secured project debt and other notes payable		27,397			27,579
Senior notes payable		3,390,504			3,392,208
Total Homebuilding Liabilities		4,226,611			4,231,472
Financial Services:
Accounts payable and other liabilities		17,576			22,559
Mortgage credit facility		154,467			247,427
Total Financial Services Liabilities		172,043			269,986
Total Liabilities		4,398,654			4,501,458
Equity:
Stockholders' Equity:
Preferred stock, $0.01 par value; 10,000,000 shares authorized; none issued
and outstanding at March 31, 2017 and December 31, 2016		―			―
Common stock, $0.01 par value; 600,000,000 shares authorized; 114,587,534
and 114,429,297 shares issued and outstanding at March 31, 2017 and
December 31, 2016, respectively		1,146			1,144
Additional paid-in capital		3,206,584			3,204,835
Accumulated earnings		1,079,815			1,001,779
Accumulated other comprehensive income (loss), net of tax		(172	)		(172	)
Total Stockholders' Equity		4,287,373			4,207,586
Noncontrolling Interest		7,743			―
Total Equity		4,295,116			4,207,586
Total Liabilities and Equity	$	8,693,770		$	8,709,044

The accompanying notes are an integral part of these condensed consolidated balance sheets.

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CALATLANTIC GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	Three Months Ended March 31,
	2017			2016
	(Dollars in thousands)
	(Unaudited)
Cash Flows From Operating Activities:
Net income	$	82,620		$	72,661
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
(Income) loss from unconsolidated joint ventures		(3,888	)		(1,189	)
Depreciation and amortization		12,716			12,032
Amortization of stock-based compensation		4,294			3,786
Deferred income tax provision		5,483			2,203
Other operating activities		2,910			271
Changes in cash and equivalents due to:
Mortgage loans held for sale		104,225			138,433
Inventories - owned		(47,350	)		(186,680	)
Inventories - not owned		(9,428	)		(8,237	)
Other assets		(9,895	)		5,599
Accounts payable		(41,235	)		(22,045	)
Accrued liabilities		(8,694	)		(44,456	)
Net cash provided by (used in) operating activities		91,758			(27,622	)
Cash Flows From Investing Activities:
Investments in unconsolidated homebuilding joint ventures		(18,909	)		(4,191	)
Distributions of capital from unconsolidated homebuilding joint ventures		6,471			99
Other investing activities		(1,921	)		1,142
Net cash provided by (used in) investing activities		(14,359	)		(2,950	)
Cash Flows From Financing Activities:
Change in restricted cash		(1,517	)		1,267
Borrowings from revolving credit facility		109,550			386,400
Principal payments on revolving credit facility		(109,550	)		(120,400	)
Principal payments on secured project debt and other notes payable		(179	)		(1,781	)
Net proceeds from (payments on) mortgage credit facility		(92,960	)		(138,479	)
Repurchases of common stock		―			(87,050	)
Common stock dividend payments		(4,584	)		(4,792	)
Issuance of common stock under employee stock plans, net of tax withholdings		(4,167	)		2,055
Other financing activities		(126	)		(23	)
Net cash provided by (used in) financing activities		(103,533	)		37,197
Net increase (decrease) in cash and equivalents		(26,134	)		6,625
Cash and equivalents at beginning of period		208,127			186,594
Cash and equivalents at end of period	$	181,993		$	193,219
Cash and equivalents at end of period	$	181,993		$	193,219
Homebuilding restricted cash at end of period		30,306			34,652
Financial services restricted cash at end of period		21,242			22,985
Cash and equivalents and restricted cash at end of period	$	233,541		$	250,856

The accompanying notes are an integral part of these condensed consolidated statements.

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CALATLANTIC GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2017

1.Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for Form 10-Q and include the accounts of CalAtlantic Group, Inc., its wholly owned subsidiaries and a variable interest entity in which CalAtlantic Group, Inc. is deemed to be the primary beneficiary.  Certain information normally included in the annual financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") has also been omitted pursuant to applicable rules and regulations.   In the opinion of management, the unaudited condensed consolidated financial statements included herein reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly our financial position as of March 31, 2017 and the results of operations and cash flows for the periods presented.

The unaudited condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10‑K for the year ended December 31, 2016.  Unless the context otherwise requires, the terms "we," "us," "our" and "the Company" refer to CalAtlantic Group, Inc. and its subsidiaries.  The results of operations for interim periods are not necessarily indicative of results to be expected for the full year.

2.Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), which supersedes existing accounting literature relating to how and when a company recognizes revenue.  Under ASU 2014-09, a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods and services.  In August 2015, the FASB issued ASU 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.  As a result, for public companies, ASU 2014-09 will be effective for annual reporting periods and interim periods within those annual periods beginning after December 15, 2017, and is to be applied either with a full retrospective or modified retrospective approach, with early application permitted.  We do not plan to early adopt the guidance.  We expect to adopt the new standard under the modified retrospective approach.  Although we are still in the process of evaluating our contracts, we do not believe the adoption of ASU 2014-09 will have a material impact on the amount or timing of our homebuilding revenues. We are continuing to evaluate the impact the adoption of ASU 2014-09 may have on other aspects of our business and on our condensed consolidated financial statements and disclosures.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"), which modifies how entities measure equity investments and present changes in the fair value of financial liabilities. Under the new guidance, entities will have to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicality exception.  A practicality exception will apply to those equity investments that do not have a readily determinable fair value and do not qualify for the practical expedient to estimate fair value under Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurements, and as such these investments may be measured at cost.  ASU 2016-01 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2017.  We are currently evaluating the impact adoption will have on our condensed consolidated financial statements.

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In March 2016, the FASB issued ASU No. 2016-02, Leases ("ASU 2016-02"), which provides guidance for accounting for leases. ASU 2016-02 requires lessees to classify leases as either finance or operating leases and to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of the lease classification.  The lease classification will determine whether the lease expense is recognized based on an effective interest rate method or on a straight line basis over the term of the lease.  ASU 2016-02 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2018.  We are currently evaluating the impact adoption will have on our condensed consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-07, Investments- Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting ("ASU 2016-07"), which eliminates the requirement to apply the equity method of accounting retrospectively when a reporting entity obtains significant influence over a previously held investment.  Our adoption of ASU 2016-07 on January 1, 2017 did not have an effect on our condensed consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation — Stock Compensation: Improvements to Employee Share-Based Payment Accounting ("ASU 2016-09"), which 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.  In connection with our adoption of ASU 2016-09 on January 1, 2017, the Company elected to apply the provisions of ASU 2016-09 related to the income statement and statement of cash flows impact of income taxes on a prospective basis, and as such, prior periods have not been adjusted.  The Company made a policy election to continue to estimate forfeitures at the grant date of an award.  The remaining updates required in connection with our adoption of ASU 2016-09 did not have a material effect on our condensed consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments ("ASU 2016-15"), which 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 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2017, and early adoption is permitted.  We are currently evaluating the impact adoption will have on our condensed consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash ("ASU 2016-18"), which provides guidance on the classification of restricted cash in the statement of cash flows. ASU 2016-18 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2017, and early adoption is permitted.  We are currently evaluating the impact adoption will have on our condensed consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations: Clarifying the Definition of a Business ("ASU 2017-01"), which clarifies the definition of a business for determining whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017-01 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2017, and early adoption is permitted.  We are currently evaluating the impact adoption will have on our condensed consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment ("ASU 2017-04"), which removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for annual periods and interim periods within those annual periods beginning after December 15, 2019, and early adoption is permitted.  We are currently evaluating the impact adoption will have on our condensed consolidated financial statements.

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3.Segment Reporting

We operate two principal businesses: homebuilding and financial services.

Our homebuilding operations acquire and develop land and construct and sell single-family attached and detached homes.  In accordance with ASC Topic 280, Segment Reporting ("ASC 280"), we have determined that each of our four homebuilding regions and financial services operations (consisting of our mortgage financing and title operations) are our operating segments.  Our four homebuilding reportable segments include:  North, consisting of our divisions in Georgia, Delaware, Illinois, Indiana, Maryland, Minnesota, New Jersey, Pennsylvania, Virginia and Washington D.C.; Southeast, consisting of our divisions in Florida and the Carolinas; Southwest, consisting of our divisions in Texas, Colorado and Nevada; and West, consisting of our divisions in California and Arizona.

Our mortgage financing operation, CalAtlantic Mortgage, provides mortgage financing to many of our homebuyers in substantially all of the markets in which we operate, and sells substantially all of the loans it originates in the secondary mortgage market.  Our title, escrow and insurance subsidiaries provide title, escrow and insurance services to homebuyers in many of our markets.  Our mortgage financing, title, escrow and insurance services operations are included in our financial services reportable segment, which is separately reported in our condensed consolidated financial statements under "Financial Services."

Corporate is a non-operating segment that develops and implements strategic initiatives and supports our operating segments by centralizing key administrative functions such as accounting, finance and treasury, information technology, insurance and risk management, litigation, marketing and human resources.  Corporate also provides the necessary administrative functions to support us as a publicly traded company.  All of the expenses incurred by Corporate are allocated to each of our four homebuilding regions based on their respective percentage of revenues.

Segment financial information relating to the Company's homebuilding operations was as follows:

	Three Months Ended March 31,
	2017		2016
	(Dollars in thousands)
Homebuilding revenues:
North	$	234,776	$	186,555
Southeast		351,103		277,482
Southwest		336,215		343,034
West		415,605		378,612
Total homebuilding revenues	$	1,337,699	$	1,185,683
Homebuilding pretax income (1):
North	$	18,865	$	9,570
Southeast		23,716		21,050
Southwest		30,177		26,926
West		49,529		50,722
Total homebuilding pretax income	$	122,287	$	108,268
Homebuilding income (loss) from unconsolidated joint ventures:
North	$	292	$	306
Southeast		―		457
Southwest		108		567
West		3,488		(141	)
Total homebuilding income (loss) from unconsolidated joint ventures	$	3,888	$	1,189

________________

(1) Homebuilding pretax income includes depreciation and amortization expense of $1.0 million, $4.0 million, $2.4 million and $5.3 million, respectively, in the North, Southeast, Southwest and West for the quarter ended March 31, 2017 and $1.2 million, $2.9 million, $2.6 million and $5.3 million, respectively, in the North, Southeast, Southwest and West for the quarter ended March 31, 2016.

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Segment financial information relating to the Company's homebuilding assets was as follows:

		March 31,		December 31,
		2017		2016
		(Dollars in thousands)
Homebuilding assets:
	North	$	1,227,859	$	1,181,544
	Southeast		2,300,549		2,253,289
	Southwest		1,866,350		1,842,869
	West		2,448,338		2,500,163
	Corporate		587,527		578,780
	Total homebuilding assets	$	8,430,623	$	8,356,645
Homebuilding investments in unconsolidated joint ventures:
	North	$	5,547	$	5,691
	Southeast		334		334
	Southwest		5,931		6,085
	West		108,552		115,017
	Total homebuilding investments in unconsolidated joint ventures	$	120,364	$	127,127

4.Earnings Per Common Share

We compute earnings per share in accordance with ASC Topic 260, Earnings per Share ("ASC 260"), which requires earnings per share for each class of stock to be calculated using the two-class method.  The two-class method is an allocation of earnings between the holders of common stock and a company's participating security holders.  Under the two-class method, earnings for the reporting period are allocated between common shareholders and other security holders based on their respective participation rights in undistributed earnings.  Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and, therefore, are included in computing earnings per share pursuant to the two-class method.

Basic earnings per common share is computed by dividing income or loss available to common stockholders by the weighted average number of shares of basic common stock outstanding.  Our unvested restricted stock are classified as participating securities in accordance with ASC 260.  Net income allocated to the holders of our unvested restricted stock is calculated based on the shareholders' proportionate share of weighted average shares of common stock outstanding on an if-converted basis.

For purposes of determining diluted earnings per common share, basic earnings per common share is further adjusted to include the effect of potential dilutive common shares outstanding, including stock options, stock appreciation rights, performance share awards and unvested restricted stock using the more dilutive of either the two-class method or the treasury stock method.  Under the two-class method of calculating diluted earnings per share, net income is reallocated to common stock, unvested restricted stock and all dilutive securities based on the contractual participating rights of the security to share in the current earnings as if all of the earnings for the period had been distributed.

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	Three Months Ended March 31,
	2017			2016
	(Dollars in thousands, except per share amounts)
Numerator:
Net income	$	82,620		$	72,661
Less: Net income allocated to unvested restricted stock		(301	)		(113	)
Net income available to common stockholders for basic
earnings per common share		82,319			72,548
Effect of dilutive securities:
Interest on 1.625% convertible senior notes due 2018		94			(370	)
Interest on 0.25% convertible senior notes due 2019		85			82
Interest on 1.25% convertible senior notes due 2032		64			62
Net income available to common stock for diluted
earnings per share	$	82,562		$	72,322
Denominator:
Weighted average basic common shares outstanding		114,487,245			120,814,939
Effect of dilutive securities:
Share-based awards		903,173			561,065
1.625% convertible senior notes due 2018		7,169,940			7,157,934
0.25% convertible senior notes due 2019		3,640,140			3,634,072
1.25% convertible senior notes due 2032		6,304,937			6,262,570
Weighted average diluted shares outstanding		132,505,435			138,430,580
Income per common share:
Basic	$	0.72		$	0.60
Diluted	$	0.62		$	0.52

5.Stock-Based Compensation

We account for share-based awards in accordance with ASC Topic 718, Compensation – Stock Compensation ("ASC 718") which requires that the cost resulting from all share-based payment transactions be recognized in the financial statements.  ASC 718 requires all entities to apply a fair value-based measurement method in accounting for share-based payment transactions with employees except for equity instruments held by employee share ownership plans.

Total compensation expense recognized related to stock-based compensation was $4.3 million and $3.8 million for the three months ended March 31, 2017 and 2016, respectively.  As of March 31, 2017, total unrecognized stock-based compensation expense was $23.4 million, with a weighted average period over which the remaining unrecognized compensation expense is expected to be recorded of approximately 1.8 years.

6.Cash and Equivalents and Restricted Cash

Cash and equivalents include cash on hand, demand deposits and all highly liquid short-term investments, including interest-bearing securities purchased with a maturity of three months or less from the date of purchase.  At March 31, 2017, cash and equivalents included $83.0 million of cash from home closings held in escrow for our benefit, typically for less than five days, which are considered deposits in-transit.

At March 31, 2017, homebuilding restricted cash represented $30.3 million of cash held in cash collateral accounts primarily related to certain letters of credit that have been issued.  Financial services restricted cash as of March 31, 2017 consisted of $17.7 million held in cash collateral accounts primarily related to certain letters of credit that have been issued, $3.0 million related to our financial services subsidiary mortgage credit facilities and $0.5 million related to funds held in trust for third parties.

7.Marketable Securities, Available-for-sale

The Company's investment portfolio includes mainly municipal debt securities and metropolitan district bond securities, which are included in homebuilding other assets in the accompanying condensed consolidated balance sheets.  As defined in ASC Topic 320, Investments—Debt and Equity Securities ("ASC 320"), the Company considers its investment portfolio to be available-for-sale.  Accordingly, these

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investments are recorded at their fair values.  The cost of securities sold is based on an average-cost basis.  Unrealized gains and losses on these investments are included in accumulated other comprehensive income (loss), net of tax, within stockholders' equity.  At March 31, 2017, accumulated other comprehensive income (loss) included unrealized gains of $1,000 on available-for-sale marketable securities, offset with reclassification adjustments, which represent net realized earnings associated with the Company's investment portfolio, which included interest, dividends and net realized gains on sales of marketable securities, and totaled $173,000 for the three months ended March 31, 2017.  Realized gains or losses were included in homebuilding other income (expense) in the accompanying condensed consolidated statements of operations.

The Company periodically reviews its available-for-sale securities for other-than-temporary declines in fair values that are below their cost bases, as well as whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  At March 31, 2017, the Company believes that the cost bases for its available-for-sale securities were recoverable in all material respects.

The primary objectives of the Company's investment portfolio are safety of principal and liquidity.  Investments are made with the purpose of achieving the highest rate of return consistent with these two objectives. The Company's investment policy limits investments to debt securities rated investment grade or better, as well as to bank and money market instruments and to issues by the U.S. government, U.S. government agencies and municipal or other institutions primarily with investment‑grade credit ratings.  Our policy places restrictions on maturities, as well as on concentration by type and issuer.

The following table displays the fair values of marketable securities, available-for-sale, by type of security:

		March 31, 2017			December 31, 2016
		Amortized Cost	Gross Unrealized Losses	Estimated Fair Value	Amortized Cost	Gross Unrealized Losses	Estimated Fair Value
		(Dollars in thousands)
Type of security:
	Municipal bond and metropolitan district securities	$18,563	$(465)	$18,098	$18,563	$(465)	$18,098

The following table displays the fair values of marketable securities, available-for-sale, by contractual maturity:

	March 31, 2017
	(Dollars in thousands)
Contractual maturity:
Maturing in one year or less	$	―
Maturing after three years		18,098
Total marketable securities, available-for-sale	$	18,098

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8.Inventories

a. Inventories Owned

Inventories owned consisted of the following at:

	March 31, 2017
	North		Southeast		Southwest		West		Total
	(Dollars in thousands)
Land and land under development (1)	$	418,256	$	1,119,696	$	580,263	$	1,381,594	$	3,499,809
Homes completed and under construction		396,682		720,209		768,655		687,930		2,573,476
Model homes		74,753		133,945		115,607		158,685		482,990
Total inventories owned	$	889,691	$	1,973,850	$	1,464,525	$	2,228,209	$	6,556,275
	December 31, 2016
	North		Southeast		Southwest		West		Total
	(Dollars in thousands)
Land and land under development (1)	$	445,245	$	1,177,646	$	594,585	$	1,410,264	$	3,627,740
Homes completed and under construction		327,421		585,938		710,509		680,241		2,304,109
Model homes		79,306		132,968		116,575		178,094		506,943
Total inventories owned	$	851,972	$	1,896,552	$	1,421,669	$	2,268,599	$	6,438,792

________________

(1) During the three months ended March 31, 2017, we purchased $165.3 million of land (3,075 homesites), of which 34% (based on homesites) were located in the North, 36% in the Southeast, 25% in the Southwest, and 5% in the West. During the year ended December 31, 2016, we purchased $960.8 million of land (13,566 homesites), of which 25% (based on homesites) were located in the North, 25% in the Southeast, 24% in the Southwest, and 26% in the West. 

In accordance with ASC Topic 360, Property, Plant, and Equipment ("ASC 360"), we record impairment losses on inventories when events and circumstances indicate that they may be impaired, and the future undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts.  We perform a detailed budget and cash flow review of all of our real estate communities (including actively selling communities, future communities and communities on hold/inactive) on a semi-annual basis throughout each fiscal year to, among other things, determine whether the community's estimated remaining undiscounted future cash flows are more or less than the carrying value of the inventory balance.  Inventories that are determined to be impaired are written down to their estimated fair value.  We calculate the fair value of a community under a land residual value analysis and in certain cases in conjunction with a discounted cash flow analysis.  As of March 31, 2017 and 2016, the total active and future communities that we owned were 815 and 762, respectively.  During the three months ended March 31, 2017 and 2016, we reviewed all communities for indicators of impairment and based on our review we did not record any inventory impairments during these periods.

b. Inventories Not Owned

Inventories not owned as of March 31, 2017 and December 31, 2016 consisted of land purchase and lot option deposits outstanding at the end of each period, and purchase price allocated to lot option contracts assumed in connection with business acquisitions. Under ASC Topic 810, Consolidation ("ASC 810"), a non-refundable deposit paid to an entity is deemed to be a variable interest that will absorb some or all of the entity's expected losses if they occur.  Our land purchase and lot option deposits generally represent our maximum exposure to the land seller if we elect not to purchase the optioned property.  In some instances, we may also expend funds for due diligence, development and construction activities with respect to optioned land prior to takedown.  Such costs are classified as inventories owned, which we would have to write-off should we not exercise the option.  Therefore, whenever we enter into a land option or purchase contract with an entity and make a non-refundable deposit, a variable interest entity ("VIE") may have been created.  In accordance with ASC 810, we perform ongoing reassessments of whether we are the primary beneficiary of a VIE.

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9.Capitalization of Interest

We follow the practice of capitalizing interest to inventories owned during the period of development and to investments in unconsolidated homebuilding and land development joint ventures in accordance with ASC Topic 835, Interest ("ASC 835").  Homebuilding interest capitalized as a cost of inventories owned is included in cost of sales as related units or lots are sold.  Interest capitalized to investments in unconsolidated homebuilding and land development joint ventures is included as a reduction of income from unconsolidated joint ventures when the related homes or lots are sold to third parties.  Interest capitalized to investments in unconsolidated land development joint ventures is transferred to inventories owned if the underlying lots are purchased by us.  To the extent our debt exceeds our qualified assets as defined in ASC 835, we expense a portion of the interest incurred by us.  Qualified assets represent communities that are actively selling or under development as well as investments in homebuilding and land development unconsolidated joint ventures.  During the three months ended March 31, 2017 and 2016, our qualified assets exceeded our debt, and as a result, all of our homebuilding interest incurred during the three months ended March 31, 2017 and 2016 was capitalized in accordance with ASC 835.

The following is a summary of homebuilding interest capitalized to inventories owned and investments in unconsolidated joint ventures, amortized to cost of sales and income (loss) from unconsolidated joint ventures and expensed as interest expense, for the three months ended March 31, 2017 and 2016:

	Three Months Ended March 31,
	2017			2016
	(Dollars in thousands)
Total interest incurred (1)	$	51,705		$	62,725
Less: Interest capitalized to inventories owned (1)		(50,875	)		(61,845	)
Less: Interest capitalized to investments in unconsolidated joint ventures		(830	)		(880	)
Interest expense	$	―		$	―
Interest previously capitalized to inventories owned, included in cost of home sales	$	39,428		$	30,203
Interest previously capitalized to inventories owned, included in cost of land sales	$	―		$	179
Interest previously capitalized to investments in unconsolidated joint ventures,
included in income (loss) from unconsolidated joint ventures	$	―		$	―
Interest capitalized in ending inventories owned (2)	$	377,647		$	336,922
Interest capitalized as a percentage of inventories owned		5.8	%		5.3	%
Interest capitalized in ending investments in unconsolidated joint ventures (2)	$	3,693		$	3,821
Interest capitalized as a percentage of investments in unconsolidated joint ventures		3.1	%		2.8	%

________________

(1) Total interest incurred and interest capitalized to inventories owned during the three months ended March 31, 2016 includes a $9 million increase related to the valuation of the 1.625% convertible senior notes that was completed during the 2016 first quarter. 

(2) During the three months ended March 31, 2017, in connection with lot purchases from our joint ventures, $0.5 million of capitalized interest was transferred from investments in unconsolidated joint ventures to inventories owned.

10.        Investments in Unconsolidated Land Development and Homebuilding Joint Ventures

Income (loss) from unconsolidated joint ventures reflected in the accompanying condensed consolidated statements of operations represents our share of the income (loss) of our unconsolidated land development and homebuilding joint ventures, which is allocated based on the provisions of the underlying joint venture operating agreements less any additional impairments recorded against our investments in joint ventures which we do not deem recoverable.  In addition, we defer recognition of our share of income that relates to lots purchased by us from land development joint ventures until we ultimately sell the homes to be constructed to third parties, at which time we account for these earnings as a reduction of the cost basis of the lots purchased from these joint ventures.

During each of the three months ended March 31, 2017 and 2016, all of our investments in unconsolidated joint ventures were reviewed for impairment.  Based on the impairment review, no joint venture communities were determined to be impaired for the three months ended March 31, 2017 or 2016.

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Our investments in unconsolidated joint ventures may represent a variable interest in a VIE depending on, among other things, the economic interests of the members of the entity and the contractual terms of the arrangement.  We analyze all of our unconsolidated joint ventures under the provisions of ASC 810 to determine whether these entities are deemed to be VIEs, and if so, whether we are the primary beneficiary.  As of March 31, 2017, with the exception of one homebuilding joint venture that we consolidated during the 2017 first quarter in accordance with ASC 810, all of our homebuilding and land development joint ventures with unrelated parties were determined under the provisions of ASC 810 to be unconsolidated joint ventures either because they were not deemed to be VIEs and we did not have a controlling interest, or, if they were a VIE, we were not deemed to be the primary beneficiary.  During the 2017 first quarter, we entered into a homebuilding joint venture with an unrelated party.  Based on our assessment of the joint venture's operating agreement in accordance with ASC 810, we determined that this joint venture is a consolidated VIE where CalAtlantic Group, Inc. is the primary beneficiary that has both (i) the power to direct the activities of the entity that most significantly impact the entity's economic performance and (ii) the obligation to absorb the expected losses of the entity and right to receive benefits from the entity that could be potentially significant to the joint venture.

11.        Warranty Costs

Estimated future direct warranty costs are accrued and charged to cost of sales in the period when the related homebuilding revenues are recognized.  Amounts accrued are based upon historical experience.  Indirect warranty overhead salaries and related costs are charged to cost of sales in the period incurred.  We assess the adequacy of our warranty accrual on a quarterly basis and adjust the amounts recorded if necessary.  Our warranty accrual is included in accrued liabilities in the accompanying condensed consolidated balance sheets.

Changes in our warranty accrual are detailed in the table set forth below:

	Three Months Ended March 31,
	2017				2016
	(Dollars in thousands)
Warranty accrual, beginning of the period		$	43,932			$	40,691
Warranty costs accrued during the period			4,805				4,588
Warranty costs paid during the period			(5,237	)			(4,774	)
Warranty accrual, end of the period		$	43,500			$	40,505

12.        Revolving Credit Facility and Letter of Credit Facilities

As of March 31, 2017, we were party to a $750 million unsecured revolving credit facility, $350 million of which is available for letters of credit, which matures in October 2019.  The facility has an accordion feature under which the Company may increase the total commitment up to a maximum aggregate amount of $1.2 billion, subject to certain conditions, including the availability of additional bank commitments.  Interest rates, as defined in the credit agreement, approximate (i) LIBOR (approximately 0.983% at March 31, 2017) plus 1.75%, or (ii) Prime (4.00% at March 31, 2017) plus 0.75%.

In addition to customary representations and warranties, the facility contains financial and other covenants, including a minimum tangible net worth requirement of $1.65 billion (which amount is subject to increase over time based on subsequent earnings and proceeds from equity offerings), a net homebuilding leverage covenant that prohibits the leverage ratio (as defined therein) from exceeding 2.00 to 1.00 and a land covenant that limits land not under development to an amount not to exceed tangible net worth. The Company is also required to maintain either (a) a minimum liquidity level (unrestricted cash in excess of interest incurred for the previous four quarters) or (b) a minimum interest coverage ratio (EBITDA to interest expense, as defined therein) of at least 1.25 to 1.00.  We were in compliance with all of the revolving facility covenants as of March 31, 2017. The revolving facility also limits, among other things, the Company's investments in joint ventures and the amount of the Company's common stock that the Company can repurchase.  On March 31, 2017, we had no borrowings outstanding under the facility and

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had outstanding letters of credit issued under the facility totaling $106.5 million, leaving $643.5 million available under the facility to be drawn.

As of March 31, 2017, in addition to our $350 million letter of credit sublimit under our revolving facility, we were party to four committed letter of credit facilities totaling $40.2 million, of which $26.1 million was outstanding.  These facilities require cash collateralization and have maturity dates ranging from August 2017 to October 2017.  As of March 31, 2017, these facilities were secured by cash collateral deposits of $26.6 million.  Upon maturity, we may renew or enter into new letter of credit facilities with the same or other financial institutions.

13.        Secured Project Debt and Other Notes Payable

Our secured project debt and other notes payable consist of seller non-recourse financing and community development district and similar assessment district bond financings used to finance land acquisition, development and infrastructure costs for which we are responsible.  At March 31, 2017, we had approximately $27.4 million outstanding in secured project debt and other notes payable.  

14.        Senior Notes Payable

Senior notes payable consisted of the following at:

	March 31,		December 31,
	2017		2016
	(Dollars in thousands)
8.4% Senior Notes due May 2017	$	231,725	$	235,175
8.375% Senior Notes due May 2018		574,600		574,501
1.625% Convertible Senior Notes due May 2018		221,077		220,236
0.25% Convertible Senior notes due June 2019		255,196		253,777
6.625% Senior Notes due May 2020		318,416		319,909
8.375% Senior Notes due January 2021		395,525		395,246
6.25% Senior Notes due December 2021		297,742		297,623
5.375% Senior Notes due October 2022		249,264		249,230
5.875% Senior Notes due November 2024		297,077		296,982
5.25% Senior Notes due June 2026		297,427		297,483
1.25% Convertible Senior Notes due August 2032		252,455		252,046
	$	3,390,504	$	3,392,208

The carrying amount of our senior notes listed above are net of debt issuance costs and any discounts and premiums that are amortized to interest costs over the respective terms of the notes.

The Company's 1.625% Convertible Senior Notes due 2018 are senior unsecured obligations of the Company and are guaranteed by the guarantors of our other senior notes on a senior unsecured basis. The 1.625% Convertible Notes bear interest at a rate of 1.625% per year and will mature on May 15, 2018, unless earlier converted or repurchased. The holders may convert their 1.625% Convertible Notes at any time into shares of the Company's common stock at a conversion rate of 31.8664 shares of common stock per $1,000 of their principal amount (which is equal to a conversion price of approximately $31.38 per share), subject to adjustment. The Company may not redeem the 1.625% Convertible Notes prior to the stated maturity date.

The Company's 0.25% Convertible Senior Notes due 2019 are senior unsecured obligations of the Company and are guaranteed by the guarantors of our other senior notes on a senior unsecured basis. The 0.25% Convertible Notes bear interest at a rate of 0.25% per year and will mature on June 1, 2019, unless earlier converted, redeemed or repurchased. The holders may convert their 0.25% Convertible Notes at any time into shares of the Company's common stock at a conversion rate of 13.6080 shares of common stock per $1,000 of their principal amount (which is equal to a conversion price of approximately $73.49 per share), subject to adjustment. The Company may not redeem the 0.25% Convertible Notes prior to June 6, 2017. On or after that date, the Company may redeem for cash any or all of the 0.25% Convertible Notes, at

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its option, if the closing sale price of its common stock for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending within 5 trading days immediately preceding the date on which it provides notice of redemption, including the last trading day of such 30 day trading period, exceeds 130 percent of the applicable conversion price on each applicable trading day. The redemption price will equal 100 percent of the principal amount of the 0.25% Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

The Company's 1.25% Convertible Senior Notes due 2032 are senior unsecured obligations of the Company and are guaranteed by the guarantors of our other senior notes on a senior unsecured basis. The 1.25% Convertible Notes bear interest at a rate of 1.25% per year and will mature on August 1, 2032, unless earlier converted, redeemed or repurchased. The holders may convert their 1.25% Convertible Notes at any time into shares of the Company's common stock at a conversion rate of 24.9207 shares of common stock per $1,000 of their principal amount (which is equal to a conversion price of approximately $40.13 per share), subject to adjustment. The Company may not redeem the 1.25% Convertible Notes prior to August 5, 2017. On or after August 5, 2017 and prior to the maturity date, the Company may redeem for cash all or part of the 1.25% Convertible Notes at a redemption price equal to 100% of the principal amount of the 1.25% Convertible Notes being redeemed.  On each of August 1, 2017, August 1, 2022 and August 1, 2027, holders of the 1.25% Convertible Notes may require the Company to purchase all or any portion of their 1.25% Convertible Notes for cash at a price equal to 100% of the principal amount of the 1.25% Convertible Notes to be repurchased.

Our senior notes payable are all senior obligations and rank equally with our other existing senior indebtedness and, with the exception of our Convertible Notes, are redeemable at our option, in whole or in part, pursuant to a "make whole" formula.  These notes contain various restrictive covenants, including, but not limited to, a limitation on secured indebtedness and a restriction on sale leaseback transactions.  As of March 31, 2017, we were in compliance with the covenants required by our senior notes.

Many of our 100% owned direct and indirect subsidiaries (collectively, the "Guarantor Subsidiaries") guarantee our outstanding senior notes.  The guarantees are full and unconditional, and joint and several.  Under our most restrictive indenture, a Guarantor Subsidiary will be released and relieved of any obligations under the applicable note guarantee in the event that i) such Guarantor Subsidiary ceases to be a restricted subsidiary in the homebuilding segment or ii) in the event of a sale or other disposition of such Guarantor Subsidiary, in compliance with the indenture, and such Guarantor Subsidiary ceases to guaranty any other debt of the Company.  Please see Note 20 for supplemental financial statement information about our guarantor subsidiaries group and non-guarantor subsidiaries group.

In April 2017, the Company issued $225 million in aggregate principal amount of senior notes, consisting of $125 million aggregate principal amount of additional notes to the Company's existing 5.875% Senior Notes due 2024 and $100 million aggregate principal amount of additional notes to the Company's existing 5.25% Senior Notes due 2026, which are senior unsecured obligations of the Company and are guaranteed by the guarantors of our other senior notes on a senior unsecured basis.  A portion of the net proceeds of this issuance will be used to repay or repurchase the Company's 8.4% Senior Notes due May 2017.

15.        Mortgage Credit Facility

At March 31, 2017, we had $154.5 million outstanding under our mortgage financing subsidiary's mortgage credit facility.  This mortgage credit facility consisted of a $300 million uncommitted repurchase facility with one lender, maturing in June 2017. This facility requires our mortgage financing subsidiary to maintain cash collateral accounts, which totaled $3.0 million as of March 31, 2017, and also contains financial covenants which require CalAtlantic Mortgage to, among other things, maintain a minimum level of tangible net worth, not to exceed a debt to tangible net worth ratio, maintain a minimum liquidity amount based on a measure of total assets (inclusive of the cash collateral requirement), and satisfy pretax income

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(loss) requirements.  As of March 31, 2017, CalAtlantic Mortgage was in compliance with the financial and other covenants contained in this facility.

16.        Disclosures about Fair Value

ASC Topic 820, Fair Value Measurements and Disclosures ("ASC 820"), establishes a framework for measuring fair value, expands disclosures regarding fair value measurements and defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Further, ASC 820 requires us to maximize the use of observable market inputs, minimize the use of unobservable market inputs and disclose in the form of an outlined hierarchy the details of such fair value measurements. ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. The three levels of the hierarchy are as follows:

•Level 1 – quoted prices for identical assets or liabilities in active markets;

•Level 2 – quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

•Level 3 – valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

Financial instruments measured at fair value on a recurring basis:

			Fair Value at
Description		Fair Value Hierarchy	March 31,2017		December 31,2016
			(Dollars in thousands)
	Marketable securities, available-for-sale
	Municipal debt securities	Level 2	$	9,387	$	9,387
	Metropolitan district bond securities	Level 3	$	8,711	$	8,711
	Mortgage loans held for sale	Level 2	$	161,385	$	265,542

Marketable Securities, Available-for-sale

Marketable securities that are available-for-sale are comprised mainly of municipal debt securities and metropolitan district bond securities.  The Company's municipal debt securities are valued based on quoted market prices of similar instruments, which uses Level 2 inputs, and the metropolitan district bond securities are based on a discounted future cash flow model, which uses Level 3 inputs.  The primary unobservable inputs used in our discounted cash flow model are (1) the forecasted number of homes to be closed, as homes drive increases to the taxpaying base for the metro district, (2) the forecasted assessed value of those closed homes and (3) the discount rate.

Mortgage loans held for sale

Mortgage loans held for saleconsist of FHA, VA, USDA and agency first mortgages on single-family residences which are eligible for sale to FNMA/FHLMC, GNMA or other investors, as applicable.  Fair values of these loans are based on quoted prices from third party investors when preselling loans.

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Financial instruments for which we have not elected the fair value option in accordance with ASC 825:

			March 31, 2017				December 31, 2016
Description		Fair Value Hierarchy		CarryingAmount		Fair Value		CarryingAmount		Fair Value
		(Dollars in thousands)
Financial services assets:
	Mortgage loans held for investment, net	Level 2	$	25,744	$	25,744	$	24,924	$	24,924
Homebuilding liabilities:
	Senior and convertible senior notes payable, net	Level 2	$	3,390,504	$	3,639,774	$	3,392,208	$	3,617,838

Mortgage Loans Held for Investment – Fair value of these loans is based on the estimated market value of the underlying collateral based on market data and other factors for similar type properties as further adjusted to reflect the estimated net realizable value of carrying the loans through disposition.

Senior Notes Payable – The senior notes are traded over the counter and their fair values were estimated based upon the values of their last trade at the end of the period.

The fair value of our cash and equivalents, restricted cash, accounts payable and accrued liabilities, secured project debt and other notes payable, revolving credit facility, and mortgage credit facility approximate their carrying amounts due to the short-term nature of these assets and liabilities.

17.        Commitments and Contingencies

a. Land Purchase and Option Agreements

We are subject to obligations associated with entering into contracts for the purchase of land and improved homesites. These purchase contracts typically require us to provide a cash deposit or deliver a letter of credit in favor of the seller, and our purchase of properties under these contracts is generally contingent upon satisfaction of certain requirements by the sellers, including obtaining applicable property and development entitlements.  We also utilize option contracts with land sellers as a method of acquiring land in staged takedowns, to help us manage the financial and market risk associated with land holdings, and to reduce the near-term use of funds from our corporate financing sources.  Option contracts generally require a non-refundable deposit for the right to acquire lots over a specified period of time at predetermined prices.  We generally have the right at our discretion to terminate our obligations under both purchase contracts and option contracts by forfeiting our cash deposit or by repaying amounts drawn under our letter of credit with no further financial responsibility to the land seller, although in certain instances, the land seller has the right to compel us to purchase a specified number of lots at predetermined prices.

In some instances, we may also expend funds for due diligence, development and construction activities with respect to our land purchase and option contracts prior to purchase, which we would have to write off should we not purchase the land.  At March 31, 2017, we had non-refundable cash deposits outstanding of approximately $56.0 million and capitalized pre-acquisition and other development and construction costs of approximately $16.5 million relating to land purchase and option contracts having a total remaining purchase price of approximately $788.6 million.

Our utilization of option contracts is dependent on, among other things, the availability of land sellers willing to enter into option takedown arrangements, the availability of capital to financial intermediaries, general housing market conditions, and geographic preferences.  Options may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain geographic regions.

b. Land Development and Homebuilding Joint Ventures

Our joint ventures have historically obtained secured acquisition, development and construction financing designed to reduce the use of funds from corporate financing sources.  As of March 31, 2017, we held ownership interests in 27 homebuilding and land development joint ventures, of which 13 were active

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and 14 were inactive or winding down.  As of such date, only two joint ventures had project specific debt outstanding, which totaled $30.1 million.  This joint venture bank debt is non-recourse to us and is scheduled to mature in June 2017.  At March 31, 2017, we had no joint venture surety bonds outstanding.

c. Surety Bonds

We obtain surety bonds in the normal course of business to ensure completion of the infrastructure of our communities.  At March 31, 2017, we had approximately $918.1 million in surety bonds outstanding, with respect to which we had an estimated $464.7 million remaining in cost to complete.

d. Mortgage Loans and Commitments

We commit to making mortgage loans to our homebuyers through our mortgage financing subsidiary, CalAtlantic Mortgage.  CalAtlantic Mortgage sells substantially all of the loans it originates in the secondary mortgage market and finances these loans under its mortgage credit facilities for a short period of time (typically for 30 to 45 days), as investors complete their administrative review of applicable loan documents.  Mortgage loans in process for which interest rates were committed to borrowers totaled approximately $358.4 million at March 31, 2017 and carried a weighted average interest rate of approximately 3.9%.  Interest rate risks related to these obligations are mitigated by CalAtlantic Mortgage through the preselling of loans to investors or through its interest rate hedging program.  As of March 31, 2017, CalAtlantic Mortgage had approximately $156.4 million in closed mortgage loans held for sale and $36.1 million of mortgage loans that we were committed to sell to investors subject to our funding of the loans and the investors' completion of their administrative review of the applicable loan documents.  In addition, as of March 31, 2017, CalAtlantic Mortgage had approximately $322.3 million of mortgage loans in process that were or are expected to be originated on a non-presold basis, substantially all of which were hedged by forward sale commitments of mortgage-backed securities prior to entering into loan sale transactions with third party investors.

Substantially all of the loans originated by CalAtlantic Mortgage are sold with servicing rights released on a non-recourse basis.  These sales are generally subject to CalAtlantic Mortgage's obligation to repay its gain on sale if the loan is prepaid by the borrower within a certain time period following such sale, or to repurchase the loan if, among other things, the purchaser's underwriting guidelines are not met, or there is fraud in connection with the loan.  During the three months ended March 31, 2017 and 2016, CalAtlantic Mortgage recorded no loan loss expense related to indemnification and repurchase allowances.  As of March 31, 2017 and December 31, 2016, CalAtlantic Mortgage had indemnity and repurchase allowances related to loans sold of approximately $3.6 million.  In addition, during the three months ended March 31, 2017 and 2016, CalAtlantic Mortgage made make-whole payments of $0 and $0.1 million, respectively.

e. Insurance and Litigation Accruals

Insurance and litigation accruals are established with respect to estimated future claims cost. We maintain general liability insurance designed to protect us against a portion of our risk of loss from construction-related claims.  We also generally require our subcontractors and design professionals to indemnify us for liabilities arising from their work, subject to various limitations.  However, such indemnity is significantly limited with respect to certain subcontractors that are added to our general liability insurance policy.  We record allowances to cover the estimated costs of our self-insurance liability based on an analysis performed by an independent third party actuary that uses our historical claim and expense data, as well as industry data to estimate these overall costs.  Our total insurance and litigation accruals as of March 31, 2017 and December 31, 2016 were $233.7 million and $233.5 million, respectively, which are included in accrued liabilities in the accompanying condensed consolidated balance sheets.  Because of the high degree of judgment required in determining these estimated accrual amounts, actual future claim costs could differ materially from our currently estimated amounts.

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18.        Income Taxes

We account for income taxes in accordance with ASC Topic 740, Income Taxes ("ASC 740").  ASC 740 requires an asset and liability approach for measuring deferred taxes based on temporary differences between the financial statement and tax bases of assets and liabilities existing at each balance sheet date using enacted tax rates for years in which taxes are expected to be paid or recovered.  Changes to enacted tax rates could materially impact the recorded amount of our deferred tax asset.

Each quarter we assess our deferred tax asset to determine whether all or any portion of the asset is more likely than not unrealizable under ASC 740.  We are required to establish a valuation allowance for any portion of the asset we conclude is more likely than not to be unrealizable.  Our assessment considers, among other things, the nature, frequency and severity of our prior and cumulative losses, forecasts of our future taxable income, the duration of statutory carryforward periods, our utilization experience with operating loss and tax credit carryforwards, and tax planning alternatives.

Our 2017 first quarter provision for income taxes of $47.2 million primarily related to our $129.9 million of pretax income.  As of March 31, 2017, we had a $328.2 million deferred tax asset which was partially offset by a valuation allowance of $2.5 million related to state net operating loss carryforwards that are limited by shorter carryforward periods.  As of such date, $101.0 million of our deferred tax asset related to net operating loss carryforwards is subject to the Internal Revenue Code Section 382 gross annual deduction limitation of $15.6 million for both federal and state purposes.  Additionally, $15.3 million of our state deferred tax asset related to net operating losses is subject to 382 limitations resulting from our October 1, 2015 merger with Ryland, and $5.2 million related to state net operating loss carryfowards that are not limited by Section 382.  The remaining deferred tax asset balance of $206.7 million represented deductible timing differences, primarily related to inventory impairments and financial accruals, which have no expiration date.   As of March 31, 2017 and December 31, 2016, our liability for unrecognized tax benefits was $12.8 million and $12.1 million, respectively, which is included in accrued liabilities in the accompanying condensed consolidated balance sheets. In addition, as of March 31, 2017, we remained subject to examination by various tax jurisdictions for the tax years ended December 31, 2012 through 2016.

19.        Supplemental Disclosures to Condensed Consolidated Statements of Cash Flows

The following are supplemental disclosures to the condensed consolidated statements of cash flows:

			Three Months Ended March 31,
			2017		2016
			(Dollars in thousands)
Supplemental Disclosures of Cash Flow Information:
	Cash paid during the period for:
		Income taxes	$	58	$	23,027

-20-

20.        Supplemental Guarantor Information

Certain of our 100% owned direct and indirect subsidiaries guarantee our outstanding senior notes payable (please see Note 14 "Senior Notes Payable").  Presented below are the condensed consolidated financial statements for our guarantor subsidiaries and non-guarantor subsidiaries.

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

	Three Months Ended March 31, 2017
	CalAtlanticGroup, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			ConsolidatedCalAtlanticGroup, Inc.
	(Dollars in thousands)
Homebuilding:
Revenues	$	577,268		$	540,524		$	219,907		$	―		$	1,337,699
Cost of sales		(471,297	)		(431,552	)		(160,006	)		―			(1,062,855	)
Gross margin		105,971			108,972			59,901			―			274,844
Selling, general and administrative expenses		(64,708	)		(73,391	)		(18,177	)		―			(156,276	)
Income (loss) from unconsolidated joint ventures		674			133			3,081			―			3,888
Equity income of subsidiaries		57,597			―			―			(57,597	)		―
Interest income (expense), net		874			(680	)		(194	)		―			―
Other income (expense)		(1,987	)		(28	)		1,846			―			(169	)
Homebuilding pretax income		98,421			35,006			46,457			(57,597	)		122,287
Financial Services:
Financial services pretax income		―			―			7,581			―			7,581
Income before taxes		98,421			35,006			54,038			(57,597	)		129,868
Provision for income taxes		(15,801	)		(16,723	)		(14,724	)		―			(47,248	)
Net income	$	82,620		$	18,283		$	39,314		$	(57,597	)	$	82,620

	Three Months Ended March 31, 2016
	CalAtlanticGroup, Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidating Adjustments			ConsolidatedCalAtlanticGroup, Inc.
	(Dollars in thousands)
Homebuilding:
Revenues	$	461,738		$	534,454		$	189,491		$	―		$	1,185,683
Cost of sales		(372,841	)		(430,002	)		(135,652	)		―			(938,495	)
Gross margin		88,897			104,452			53,839			―			247,188
Selling, general and administrative expenses		(55,051	)		(67,846	)		(13,804	)		―			(136,701	)
Income (loss) from unconsolidated joint ventures		689			144			356			―			1,189
Equity income of subsidiaries		54,167			―			―			(54,167	)		―
Interest income (expense), net		1,337			(965	)		(372	)		―			―
Other income (expense)		(3,615	)		189			18			―			(3,408	)
Homebuilding pretax income		86,424			35,974			40,037			(54,167	)		108,268
Financial Services:
Financial services pretax income		―			―			6,936			―			6,936
Income before taxes		86,424			35,974			46,973			(54,167	)		115,204
Provision for income taxes		(13,763	)		(17,474	)		(11,306	)		―			(42,543	)
Net income	$	72,661		$	18,500		$	35,667		$	(54,167	)	$	72,661

-21-

20.        Supplemental Guarantor Information (continued)

CONDENSED CONSOLIDATING BALANCE SHEET

	March 31, 2017
	CalAtlanticGroup, Inc.		GuarantorSubsidiaries		Non-GuarantorSubsidiaries		ConsolidatingAdjustments			ConsolidatedCalAtlanticGroup, Inc.
	(Dollars in thousands)
ASSETS
Homebuilding:
Cash and equivalents	$	95,956	$	24,153	$	23,772	$	―		$	143,881
Restricted cash		―		―		30,306		―			30,306
Intercompany receivables		2,077,067		―		378,564		(2,455,631	)		―
Inventories:
Owned		2,885,973		2,320,920		1,349,382		―			6,556,275
Not owned		32,880		26,996		2,896		―			62,772
Investments in unconsolidated joint ventures		4,707		4,798		110,859		―			120,364
Investments in subsidiaries		2,011,015		―		―		(2,011,015	)		―
Deferred income taxes, net		332,392		―		―		(6,643	)		325,749
Goodwill		970,185		―		―		―			970,185
Other assets		168,787		40,902		11,402		―			221,091
Total Homebuilding Assets		8,578,962		2,417,769		1,907,181		(4,473,289	)		8,430,623
Financial Services:
Cash and equivalents		―		―		38,112		―			38,112
Restricted cash		―		―		21,242		―			21,242
Mortgage loans held for sale, net		―		―		157,851		―			157,851
Mortgage loans held for investment, net		―		―		25,744		―			25,744
Other assets		―		―		21,999		(1,801	)		20,198
Total Financial Services Assets		―		―		264,948		(1,801	)		263,147
Total Assets	$	8,578,962	$	2,417,769	$	2,172,129	$	(4,475,090	)	$	8,693,770
LIABILITIES AND EQUITY
Homebuilding:
Accounts payable	$	79,553	$	66,747	$	24,245	$	―		$	170,545
Accrued liabilities and intercompany payables		418,880		1,323,401		981,395		(2,085,511	)		638,165
Secured project debt and other notes payable		402,652		―		3,309		(378,564	)		27,397
Senior notes payable		3,390,504		―		―		―			3,390,504
Total Homebuilding Liabilities		4,291,589		1,390,148		1,008,949		(2,464,075	)		4,226,611
Financial Services:
Accounts payable and other liabilities		―		―		17,576		―			17,576
Mortgage credit facility		―		―		154,467		―			154,467
Total Financial Services Liabilities		―		―		172,043		―			172,043
Total Liabilities		4,291,589		1,390,148		1,180,992		(2,464,075	)		4,398,654
Equity:
Total Stockholders' Equity		4,287,373		1,027,621		983,394		(2,011,015	)		4,287,373
Noncontrolling interest		―		―		7,743		―			7,743
Total Equity		4,287,373		1,027,621		991,137		(2,011,015	)		4,295,116
Total Liabilities and Equity	$	8,578,962	$	2,417,769	$	2,172,129	$	(4,475,090	)	$	8,693,770

-22-

20.        Supplemental Guarantor Information (continued)

CONDENSED CONSOLIDATING BALANCE SHEET

	December 31, 2016
	CalAtlanticGroup, Inc.		GuarantorSubsidiaries		Non-GuarantorSubsidiaries		ConsolidatingAdjustments			ConsolidatedCalAtlanticGroup, Inc.
	(Dollars in thousands)
ASSETS
Homebuilding:
Cash and equivalents	$	105,261	$	38,211	$	47,614	$	―		$	191,086
Restricted cash		―		―		28,321		―			28,321
Intercompany receivables		2,045,773		―		334,926		(2,380,699	)		―
Inventories:
Owned		2,825,234		2,277,840		1,335,718		―			6,438,792
Not owned		30,953		32,596		2,718		―			66,267
Investments in unconsolidated joint ventures		4,469		4,923		117,735		―			127,127
Investments in subsidiaries		1,954,418		―		―		(1,954,418	)		―
Deferred income taxes, net		337,021		―		―		(6,643	)		330,378
Goodwill		970,185		―		―		―			970,185
Other assets		165,214		36,725		2,550		―			204,489
Total Homebuilding Assets		8,438,528		2,390,295		1,869,582		(4,341,760	)		8,356,645
Financial Services:
Cash and equivalents		―		―		17,041		―			17,041
Restricted cash		―		―		21,710		―			21,710
Mortgage loans held for sale, net		―		―		262,058		―			262,058
Mortgage loans held for investment, net		―		―		24,924		―			24,924
Other assets		―		―		28,467		(1,801	)		26,666
Total Financial Services Assets		―		―		354,200		(1,801	)		352,399
Total Assets	$	8,438,528	$	2,390,295	$	2,223,782	$	(4,343,561	)	$	8,709,044
LIABILITIES AND EQUITY
Homebuilding:
Accounts payable	$	92,611	$	78,729	$	40,440	$	―		$	211,780
Accrued liabilities and intercompany payables		387,098		1,302,228		964,796		(2,054,217	)		599,905
Secured project debt and other notes payable		359,025		―		3,480		(334,926	)		27,579
Senior notes payable		3,392,208		―		―		―			3,392,208
Total Homebuilding Liabilities		4,230,942		1,380,957		1,008,716		(2,389,143	)		4,231,472
Financial Services:
Accounts payable and other liabilities		―		―		22,559		―			22,559
Mortgage credit facility		―		―		247,427		―			247,427
Total Financial Services Liabilities		―		―		269,986		―			269,986
Total Liabilities		4,230,942		1,380,957		1,278,702		(2,389,143	)		4,501,458
Equity:
Total Equity		4,207,586		1,009,338		945,080		(1,954,418	)		4,207,586
Total Liabilities and Equity	$	8,438,528	$	2,390,295	$	2,223,782	$	(4,343,561	)	$	8,709,044

-23-

20.        Supplemental Guarantor Information (continued)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

	Three Months Ended March 31, 2017
	CalAtlanticGroup, Inc.			GuarantorSubsidiaries			Non-GuarantorSubsidiaries			ConsolidatingAdjustments			ConsolidatedCalAtlanticGroup, Inc.
	(Dollars in thousands)
Cash Flows From Operating Activities:
Net cash provided by (used in) operating activities	$	(14,708	)	$	(37,052	)	$	143,518		$	―		$	91,758
Cash Flows From Investing Activities:
Investments in unconsolidated homebuilding joint ventures		(96	)		(41	)		(18,772	)		―			(18,909	)
Distributions of capital from unconsolidated homebuilding joint ventures		500			350			5,621			―			6,471
Loan to parent and subsidiaries		―			―			(43,664	)		43,664			―
Other investing activities		(531	)		(446	)		(944	)		―			(1,921	)
Net cash provided by (used in) investing activities		(127	)		(137	)		(57,759	)		43,664			(14,359	)
Cash Flows From Financing Activities:
Change in restricted cash		―			―			(1,517	)		―			(1,517	)
Borrowings from revolving credit facility		109,550			―			―			―			109,550
Principal payments on revolving credit facility		(109,550	)		―			―			―			(109,550	)
Principal payments on secured project debt and other notes payable		―			―			(179	)		―			(179	)
Loan from subsidiary		43,664			―			―			(43,664	)		―
Net proceeds from (payments on) mortgage credit facility		―			―			(92,960	)		―			(92,960	)
(Contributions to) distributions from Corporate and subsidiaries		1,000			―			(1,000	)		―			―
Common stock dividend payments		(4,584	)		―			―			―			(4,584	)
Issuance of common stock under employee stock plans, net of tax withholdings		(4,167	)		―			―			―			(4,167	)
Other financing activities		(126	)		―			―			―			(126	)
Intercompany advances, net		(30,257	)		23,131			7,126			―			―
Net cash provided by (used in) financing activities		5,530			23,131			(88,530	)		(43,664	)		(103,533	)
Net increase (decrease) in cash and equivalents		(9,305	)		(14,058	)		(2,771	)		―			(26,134	)
Cash and equivalents at beginning of period		105,261			38,211			64,655			―			208,127
Cash and equivalents at end of period	$	95,956		$	24,153		$	61,884		$	―		$	181,993

	Three Months Ended March 31, 2016
	CalAtlanticGroup, Inc.			GuarantorSubsidiaries			Non-GuarantorSubsidiaries			ConsolidatingAdjustments			ConsolidatedCalAtlanticGroup, Inc.
	(Dollars in thousands)
Cash Flows From Operating Activities:
Net cash provided by (used in) operating activities	$	(43,214	)	$	(42,551	)	$	58,143		$	―		$	(27,622	)
Cash Flows From Investing Activities:
Investments in unconsolidated homebuilding joint ventures		(135	)		(45	)		(4,011	)		―			(4,191	)
Distributions of capital from unconsolidated homebuilding joint ventures		―			―			99			―			99
Loan to parent and subsidiaries		―			―			71,000			(71,000	)		―
Other investing activities		488			(199	)		853			―			1,142
Net cash provided by (used in) investing activities		353			(244	)		67,941			(71,000	)		(2,950	)
Cash Flows From Financing Activities:
Change in restricted cash		―			―			1,267			―			1,267
Borrowings from revolving credit facility		386,400			―			―			―			386,400
Principal payments on revolving credit facility		(120,400	)		―			―			―			(120,400	)
Principal payments on secured project debt and other notes payable		(1,724	)		―			(57	)		―			(1,781	)
Loan from subsidiary		(71,000	)		―			―			71,000			―
Net proceeds from (payments on) mortgage credit facility		―			―			(138,479	)		―			(138,479	)
(Contributions to) distributions from Corporate and subsidiaries		(700	)		―			700			―			―
Repurchases of common stock		(87,050	)		―			―			―			(87,050	)
Common stock dividend payments		(4,792	)		―			―			―			(4,792	)
Issuance of common stock under employee stock plans, net of tax withholdings		2,055			―			―			―			2,055
Other financing activities		―			(23	)		―			―			(23	)
Intercompany advances, net		20,643			(34,059	)		13,416			―			―
Net cash provided by (used in) financing activities		123,432			(34,082	)		(123,153	)		71,000			37,197
Net increase (decrease) in cash and equivalents		80,571			(76,877	)		2,931			―			6,625
Cash and equivalents at beginning of period		6,387			112,852			67,355			―			186,594
Cash and equivalents at end of period	$	86,958		$	35,975		$	70,286		$	―		$	193,219

-24-

ITEM 2.         MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

\

Results of Operations

Selected Financial Information

(Unaudited)

	Three Months Ended March 31,
	2017			2016
	(Dollars in thousands, except per share amounts)
Homebuilding:
Home sale revenues	$	1,337,699		$	1,179,165
Land sale revenues		―			6,518
Total revenues		1,337,699			1,185,683
Cost of home sales		(1,062,855	)		(932,128	)
Cost of land sales		―			(6,367	)
Total cost of sales		(1,062,855	)		(938,495	)
Gross margin		274,844			247,188
Gross margin percentage		20.5	%		20.8	%
Selling, general and administrative expenses		(156,276	)		(136,701	)
Income (loss) from unconsolidated joint ventures		3,888			1,189
Other income (expense		(169	)		(3,408	)
Homebuilding pretax income		122,287			108,268
Financial Services:
Revenues		19,956			17,552
Expenses		(12,375	)		(10,616	)
Financial services pretax income		7,581			6,936
Income before taxes		129,868			115,204
Provision for income taxes		(47,248	)		(42,543	)
Net income		82,620			72,661
Less: Net income allocated to unvested restricted stock		(301	)		(113	)
Net income available to common stockholders	$	82,319		$	72,548
Income Per Common Share:
Basic	$	0.72		$	0.60
Diluted	$	0.62		$	0.52
Weighted Average Common Shares Outstanding:
Basic		114,487,245			120,814,939
Diluted		132,505,435			138,430,580
Cash dividends declared per common share	$	0.04		$	0.04
Net cash provided by (used in) operating activities	$	91,758		$	(27,622	)
Net cash provided by (used in) investing activities	$	(14,359	)	$	(2,950	)
Net cash provided by (used in) financing activities	$	(103,533	)	$	37,197
Adjusted Homebuilding EBITDA (1)	$	178,864		$	171,230

________________

(1) Adjusted Homebuilding EBITDA means net income (plus cash distributions of income from unconsolidated joint ventures) before (a) income taxes, (b) homebuilding interest expense, (c) expensing of previously capitalized interest included in cost of sales, (d) impairment charges, (e) gain (loss) on early extinguishment of debt, (f) homebuilding depreciation and amortization, including amortization of capitalized model costs, (g) amortization of stock-based compensation, (h) income (loss) from unconsolidated joint ventures, (i) income (loss) from financial services subsidiaries, (j) purchase accounting adjustments and (k) merger and other one-time transaction related costs.  Other companies may calculate Adjusted Homebuilding EBITDA (or similarly titled measures) differently. We believe Adjusted Homebuilding EBITDA information is useful to management and investors as it provides perspective on the underlying performance of the business. However, it should be noted that Adjusted Homebuilding EBITDA is not a U.S. generally accepted accounting principles ("GAAP") financial measure. Due to the significance of the GAAP components excluded, Adjusted Homebuilding EBITDA should not be considered in isolation or as an alternative to cash flows from operations or any other liquidity performance measure prescribed by GAAP.

-25-

(1)continued

The table set forth below reconciles net income, calculated and presented in accordance with GAAP, to Adjusted Homebuilding EBITDA:

	Three Months Ended March 31,				LTM Ended March 31,
	2017		2016		2017		2016
	(Dollars in thousands)
Net income	$	82,620	$	72,661	$	494,689	$	254,565
Provision for income taxes		47,248		42,543		273,091		154,632
Homebuilding interest amortized to cost of sales		39,428		30,382		180,747		147,125
Homebuilding depreciation and amortization		12,676		12,012		62,216		47,043
EBITDA (1)		181,972		157,598		1,010,743		603,365
Add:
Amortization of stock-based compensation (1)		4,294		3,786		18,302		16,715
Cash distributions of income from unconsolidated
joint ventures		3,081		450		3,302		3,280
Merger-related purchase accounting adjustments
included in cost of home sales		―		12,677		5,858		76,847
Merger and other one-time costs		986		4,844		12,627		66,374
Less:
Income (loss) from unconsolidated joint ventures		3,888		1,189		6,756		3,606
Income from financial services subsidiaries		7,581		6,936		40,259		22,667
Adjusted Homebuilding EBITDA	$	178,864	$	171,230	$	1,003,817	$	740,308

________________

(1) Beginning with the 2016 third quarter, the Company removed amortization of stock-based compensation as a component of the EBITDA subtotal and began including this amount as an adjusting item to calculate Adjusted Homebuilding EBITDA.   Prior periods presented have been restated to conform to this new presentation.

Discussion and Analysis of CalAtlantic's Results for the Three Months Ended March 31, 2017 with comparisons to the Three Months Ended March 31, 2016

Overview

The Company's 2017 first quarter results reflect a continuation of the housing market recovery and our focus on the execution of our strategy.  We delivered 3,012 homes during the quarter, generating home sale revenues of $1.3 billion, up 13% from the prior year period, on an average selling price of $444 thousand, compared to $432 thousand for the first quarter of 2016.  We reported net income of $82.6 million, or $0.62 per diluted share, as compared to $72.7 million, or $0.52 per diluted share, for the 2016 first quarter.  Homebuilding pretax income for the 2017 first quarter was $122.3 million, compared to $108.3 million in the 2016 first quarter.  Our gross margin from home sales was 20.5% for the first quarter of 2017, compared to 21.0% for the prior year period, and our operating margin from home sales for the 2017 first quarter was 8.9%, compared to 9.4% for the 2016 first quarter.

-26-

Homebuilding

			Three Months Ended March 31,
			2017		2016		% Change
			(Dollars in thousands)
Homebuilding revenues:
	North		$	234,776	$	186,555	26%
	Southeast			351,103		277,482	27%
	Southwest			336,215		343,034	(2%)
	West			415,605		378,612	10%
		Total homebuilding revenues	$	1,337,699	$	1,185,683	13%
Homebuilding pretax income:
	North		$	18,865	$	9,570	97%
	Southeast			23,716		21,050	13%
	Southwest			30,177		26,926	12%
	West			49,529		50,722	(2%)
		Total homebuilding pretax income	$	122,287	$	108,268	13%
Homebuilding pretax income as a percentage
of homebuilding revenues:
	North			8.0%		5.1%	2.9%
	Southeast			6.8%		7.6%	(0.8%)
	Southwest			8.9%		7.8%	1.1%
	West			11.9%		13.4%	(1.5%)
		Total homebuilding pretax income percentage		9.1%		9.1%	―

Homebuilding pretax income for the 2017 first quarter was $122.3 million compared to $108.3 million in the year earlier period.  This increase was primarily attributable to the 13% increase in home sale revenues, which was partially offset by a 50 basis point decrease in gross margin percentage from home sales.  Homebuilding pretax income as a percentage of homebuilding revenues for the 2017 first quarter was flat compared to the prior year period at 9.1%, ranging from up 290 basis points in the North to down 150 basis points in the West.  The North region pretax income as a percentage of homebuilding revenues for the 2016 first quarter was adversely impacted by the fair value accounting applied to homes under construction in connection with the merger with Ryland, with $3.3 million recognized as an increase to cost of sales in the 2016 first quarter, compared to none during the 2017 first quarter. The West region pretax income as a percentage of homebuilding revenues was down 150 basis points primarily due to a mix shift from higher to lower margin communities.  Homebuilding pretax income as a percentage of homebuilding revenues for the 2017 first quarter was relatively consistent with the prior year for our Southeast and Southwest regions.

Revenues

Home sale revenues increased 13%, from $1.2 billion for the 2016 first quarter to $1.3 billion for the 2017 first quarter, primarily as a result of a 10% increase in new home deliveries and a 3% increase in the Company's average home price to $444 thousand.  In the Southwest, revenues decreased 2% in the 2017 first quarter compared to the prior year period, primarily as a result of an 8% decrease in deliveries, partially offset by a 6% increase in average home price.

			Three Months Ended March 31,
			2017	2016	% Change
New homes delivered:
	North		683	561	22%
	Southeast		881	713	24%
	Southwest		786	854	(8%)
	West		662	599	11%
		Total	3,012	2,727	10%

The increase in new home deliveries for the 2017 first quarter as compared to the prior year period resulted primarily from stronger deliveries in our Southeast, North and West regions, which experienced increased deliveries in the majority of divisions within the regions.  In the Southwest, double digit percentage decreases were experienced in Austin, Houston and Las Vegas, which were partially offset by a 47% increase in deliveries in Colorado.

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			Three Months Ended March 31,
			2017		2016		% Change
			(Dollars in thousands)
Average selling prices of homes delivered:
	North		$	344	$	332	4%
	Southeast			399		389	3%
	Southwest			428		402	6%
	West			628		622	1%
		Total	$	444	$	432	3%

Our 2017 first quarter consolidated average selling price of $444 thousand increased 3% compared to $432 thousand for the prior year period.  The increase in our consolidated average selling price was primarily attributable to product mix and general price increases within select markets.

Gross Margin

Our 2017 first quarter gross margin percentage from home sales was 20.5% compared to 21.0% in the 2016 first quarter.  The year over year decrease was primarily attributable to a shift in product mix and an increase in direct construction costs per home.  Our 2016 first quarter gross margin from home sales was adversely impacted by required fair value adjustments to homes in backlog and speculative homes under construction acquired in connection with our October 2015 merger with Ryland, with fair value accounting causing us to recognize approximately $12.7 million as an increase to cost of sales during the period.  No such merger related adjustments were required for the 2017 first quarter.

SG&A Expenses

Our 2017 first quarter SG&A expenses (including Corporate G&A) were $156.3 million compared to $136.7 million for the prior year period, up 10 basis points as a percentage of home sale revenues to 11.7% compared to 11.6% for the 2016 first quarter.  Isolating selling expenses from G&A, we continue to leverage our G&A expenses as higher year over year home sale revenues have resulted in G&A expenses as a percentage of home sale revenues improving to 6.2% for the 2017 first quarter compared to 6.3% for the prior year period.  Our selling expenses as a percentage of home sale revenues increased slightly to 5.5% for the 2017 first quarter compared to 5.3% in the prior year period, primarily as a result of a 20 basis point increase in co-broker commissions.

Operating Data

			Three Months Ended March 31,
			2017	2016	% Change	% Absorption Change (1)
Net new orders (2):
	North		1,056	891	19%	(3%)
	Southeast		1,283	1,201	7%	5%
	Southwest		987	1,131	(13%)	1%
	West		978	912	7%	26%
		Total	4,304	4,135	4%	6%

			Three Months Ended March 31,
			2017		2016		% Change
Cancellation Rates:
	North			14%		11%	3%
	Southeast			11%		10%	1%
	Southwest			13%		11%	2%
	West			15%		16%	(1%)
		Total		13%		12%	1%

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			Three Months Ended March 31,
			2017		2016		% Change
Average selling prices of net new orders:			(Dollars in thousands)
	North		$	344	$	330	4%
	Southeast			386		371	4%
	Southwest			445		428	4%
	West			631		631	―
		Total	$	445	$	435	2%

			Three Months Ended March 31,
			2017	2016	% Change
Average number of selling communities during the period:
	North		141	115	23%
	Southeast		186	183	2%
	Southwest		153	177	(14%)
	West		82	96	(15%)
		Total	562	571	(2%)

________________

(1) Represents the percentage change of net new orders per average number of selling communities during the period.

(2) Net new orders are new orders for the purchase of homes during the period, less cancellations during such period of existing contracts for the purchase of homes.

Net new orders for the 2017 first quarter increased 4%, to 4,304 homes, from the prior year period on a 2% decrease in average active selling communities.  Our monthly sales absorption rate was 2.6 per community for the 2017 first quarter, up 6% compared to the 2016 first quarter and up 56% compared to the 2016 fourth quarter.  Although our monthly sales absorption rate of 2.6 per community for the 2017 first quarter was up slightly compared to the 2016 first quarter, the change in our absorption rates varied widely across our regions, from up 26% in the West, to down 3% in the North.  In the West, most divisions experienced strong double digit increases in absorption rate, partially offset by a 2% decrease in Phoenix compared to the prior year period.  The 3% decrease in absorption rate for our North region was driven primarily by decreases in Atlanta and the Mid-Atlantic.  Our cancellation rate for the 2017 first quarter was 13%, up compared to 12% for the 2016 first quarter and down from 20% for the 2016 fourth quarter.  Our 2017 first quarter cancellation rate was down significantly from the average historical cancellation rate of approximately 18% we have experienced over the last 10 years.  At March 31, 2017, we had 555 active selling communities.

			At March 31,
			2017				2016				% Change
Backlog ($ in thousands):			Homes		Dollar Value		Homes		Dollar Value		Homes		Dollar Value
	North			1,671	$	596,498		1,333	$	456,243		25%		31%
	Southeast			2,195		929,035		2,109		876,617		4%		6%
	Southwest			1,815		875,041		2,179		989,226		(17%)		(12%)
	West			1,428		858,594		1,398		889,993		2%		(4%)
		Total		7,109	$	3,259,168		7,019	$	3,212,079		1%		1%

The dollar value of our backlog as of March 31, 2017 increased 1% from the year earlier period to $3.3 billion, or 7,109 homes.  The increase in backlog value compared to the prior year period was driven primarily by the 1% increase in units in backlog.  The average home price in our backlog of $458 thousand as of March 31, 2017 was flat compared to the prior year period.

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			At March 31,
			2017	2016	% Change
Homesites owned and controlled:
	North		14,886	15,495	(4%)
	Southeast		23,119	24,020	(4%)
	Southwest		13,407	15,007	(11%)
	West		13,491	14,370	(6%)
		Total (including joint ventures)	64,903	68,892	(6%)
	Homesites owned		50,998	51,817	(2%)
	Homesites optioned or subject to contract		12,391	15,148	(18%)
	Joint venture homesites (1)		1,514	1,927	(21%)
		Total (including joint ventures)	64,903	68,892	(6%)
Homesites owned:
	Raw lots		11,482	9,765	18%
	Homesites under development		14,607	19,468	(25%)
	Finished homesites		14,441	11,196	29%
	Under construction or completed homes		9,248	9,041	2%
	Held for sale		1,220	2,347	(48%)
		Total	50,998	51,817	(2%)

________________

(1) Joint venture homesites represent our expected share of land development joint venture homesites and all of the homesites of our homebuilding joint ventures.

Total homesites owned and controlled as of March 31, 2017 decreased 6% from the year earlier period and decreased 1% from the 65,424 homesites owned and controlled as of December 31, 2016.  We purchased $165.3 million of land (3,075 homesites) during the 2017 first quarter, of which 34% (based on homesites) were located in the North, 36% in the Southeast, 25% in the Southwest, and 5% in the West.  As of March 31, 2017, we owned or controlled 64,903 homesites, of which 46,392 were owned and actively selling or under development, 13,905 were controlled or under option (including joint venture homesites), and the remaining 4,606 homesites were held for future development or for sale.  Land acquisition remains a key strategic initiative and we continue a disciplined approach in pursuing opportunities across our regions that meet our underwriting standards.

			At March 31,
			2017	2016	% Change
Homes under construction:
	Homes under construction (excluding specs)		4,180	4,110	2%
	Speculative homes under construction		2,129	2,150	(1%)
		Total homes under construction	6,309	6,260	1%
Completed homes:
	Completed and unsold homes (excluding models)		1,121	988	13%
	Completed and under contract (excluding models)		911	884	3%
	Model homes		907	909	(0%)
		Total completed homes	2,939	2,781	6%

Homes under construction (excluding speculative homes) as of March 31, 2017 increased 2% compared to March 31, 2016, consistent with our homes in backlog, which were up 1% compared to March 31, 2016.  Speculative homes under construction as of March 31, 2017 decreased 1% from the prior year period, resulting primarily from the 2% year over year decrease in our number of active selling communities.

Financial Services

In the 2017 first quarter our financial services segment reported pretax income of $7.6 million compared to $6.9 million in the year earlier period.  The increase was driven primarily by an increase in margins on loans originated and sold, partially offset by an 8% decrease in the dollar volume of loans originated and sold.

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The following table details information regarding loan originations and related credit statistics for our mortgage financing operations:

			Three Months Ended March 31,
			2017	2016
			(Dollars in thousands)
Total Originations:
	Loans		1,356	1,451
	Principal		$423,822	$451,767
	Capture Rate		49%	61%
Loans Sold to Third Parties:
	Loans		1,678	1,847
	Principal		$527,217	$584,301
Mortgage Loan Origination Product Mix:
	FHA loans		16%	17%
	Other government loans (VA & USDA)		10%	11%
		Total government loans	26%	28%
	Conforming loans		70%	67%
	Jumbo loans		4%	5%
			100%	100%
Loan Type:
	Fixed		96%	93%
	ARM		4%	7%
Credit Quality:
	Avg. FICO score		738	736
Other Data:
	Avg. combined LTV ratio		82%	83%
	Full documentation loans		100%	100%

Income Taxes

Our 2017 first quarter provision for income taxes of $47.2 million primarily relates to our $129.9 million of pretax income.  As of March 31, 2017, we had a $328.2 million deferred tax asset which was partially offset by a valuation allowance of $2.5 million related to state net operating loss carryforwards that are limited by shorter carryforward periods.  As of such date, $101.0 million of our deferred tax asset related to net operating loss carryforwards is subject to the Section 382 gross annual deduction limitation of $15.6 million for both federal and state purposes.  Additionally, $15.3 million of our state deferred tax asset related to net operating losses is subject to 382 limitations resulting from our October 1, 2015 merger with Ryland, and $5.2 million related to state net operating loss carryfowards that are not limited by Section 382.  The remaining deferred tax asset balance of $206.7 million represented deductible timing differences, primarily related to inventory impairments and financial accruals, which have no expiration date.  

Liquidity and Capital Resources

Our principal uses of cash over the last several years have been for:

·    land acquisition ·    homebuilder acquisitions ·    investments in joint ventures ·    construction and development ·    operating expenses ·    principal and interest payments on debt ·    cash collateralization ·    stock repurchases ·    the payment of dividends

Cash requirements over the last several years have been met by:

·    internally generated funds ·    bank revolving credit and term loans ·    land option contracts and seller notes ·    sales of our equity ·    note offerings ·    joint venture financings ·    assessment district bond financings ·    letters of credit and surety bonds ·    mortgage credit facilities  

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For the three months ended March 31, 2017, cash provided by operating activities was $91.8 million as compared to $27.6 million of cash used in operating activities in the year earlier period.  The change in operating activities cash flow during 2017 as compared to the prior year period was driven primarily by a 13% increase in homebuilding revenues and a $77.4 million decrease in cash land purchase and development costs.  As of March 31, 2017, our homebuilding cash balance was $174.2 million, including $30.3 million of restricted cash.

Revolving Credit Facility. As of March 31, 2017, we were party to a $750 million unsecured revolving credit facility, $350 million of which is available for letters of credit, which matures in October 2019.  The facility has an accordion feature under which the Company may increase the total commitment up to a maximum aggregate amount of $1.2 billion, subject to certain conditions, including the availability of additional bank commitments.  Interest rates, as defined in the credit agreement, approximate (i) LIBOR (approximately 0.983% at March 31, 2017) plus 1.75%, or (ii) Prime (4.00% at March 31, 2017) plus 0.75%. 

In addition to customary representations and warranties, the facility contains financial and other covenants, including a minimum tangible net worth requirement of $1.65 billion (which amount is subject to increase over time based on subsequent earnings and proceeds from equity offerings), a net homebuilding leverage covenant that prohibits the leverage ratio (as defined therein) from exceeding 2.00 to 1.00 and a land covenant that limits land not under development to an amount not to exceed tangible net worth. The Company is also required to maintain either (a) a minimum liquidity level (unrestricted cash in excess of interest incurred for the previous four quarters) or (b) a minimum interest coverage ratio (EBITDA to interest expense, as defined therein) of at least 1.25 to 1.00.  The revolving facility also limits, among other things, the Company's investments in joint ventures and the amount of the Company's common stock that the Company can repurchase.  On March 31, 2017, no borrowings were outstanding under the facility and the Company had outstanding letters of credit issued under the facility totaling $106.5 million, leaving $643.5 million available under the facility to be drawn.

Our covenant compliance for the revolving facility is set forth in the table below:

Covenant and Other Requirement		Actual at March 31, 2017	Covenant Requirements at March 31, 2017
		(Dollars in millions)
Consolidated Tangible Net Worth (1)		$3,317.2	≥	$1,974.6
Leverage Ratio:
	Net Homebuilding Debt to Adjusted Consolidated Tangible Net Worth Ratio (2)	1.01	≤	2.00
Liquidity or Interest Coverage Ratio (3):
	Liquidity	$120.1	≥	$224.5
	EBITDA (as defined in the Revolving Facility) to Consolidated Interest Incurred (4)	3.14	≥	1.25
Investments in Homebuilding Joint Ventures or Consolidated Homebuilding Non-Guarantor Entities (5)		$878.6	≤	$1,241.0

________________

(1) The mininum covenant requirement amount is subject to increase over time based on subsequent earnings (without deductions for losses) and proceeds from equity offerings.

(2) Net Homebuilding Debt represents Consolidated Homebuilding Debt reduced for certain cash balances in excess of $5 million.

(3) Under the liquidity and interest coverage covenant, we are required to either (i) maintain an unrestricted cash balance in excess of our consolidated interest incurred for the previous four fiscal quarters or (ii) satisfy a minimum interest coverage ratio.  At March 31, 2017, we met the condition described in clause (ii).

(4) Consolidated Interest Incurred excludes noncash interest expense.

(5) Net investments in unconsolidated homebuilding joint ventures or consolidated homebuilding non-guarantor entities must not exceed 35% of consolidated tangible net worth plus $80 million. 

Letter of Credit Facilities.  As of March 31, 2017, in addition to our $350 million letter of credit sublimit under our revolving credit facility, we were party to four committed letter of credit facilities totaling $40.2 million, of which $26.1 million was outstanding.  These facilities require cash collateralization and have maturity dates ranging from August 2017 to October 2017.  As of March 31,

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2017, these facilities were secured by cash collateral deposits of $26.6 million.  Upon maturity, we may renew or enter into new letter of credit facilities with the same or other financial institutions.

Senior and Convertible Senior Notes.  As of March 31, 2017, the principal amount outstanding on our senior and convertible senior notes payable consisted of the following:

	March 31, 2017
	(Dollars in thousands)
8.4% Senior Notes due May 2017	$	230,000
8.375% Senior Notes due May 2018		575,000
1.625% Convertible Senior Notes due May 2018		225,000
0.25% Convertible Senior Notes due June 2019		267,500
6.625% Senior Notes due May 2020		300,000
8.375% Senior Notes due January 2021		400,000
6.25% Senior Notes due December 2021		300,000
5.375% Senior Notes due October 2022		250,000
5.875% Senior Notes due November 2024		300,000
5.25% Senior Notes due June 2026		300,000
1.25% Convertible Senior Notes due August 2032		253,000
	$	3,400,500

As required by the applicable note indentures, certain Company subsidiaries guarantee the Company's obligations under the notes.  The guarantees are unsecured obligations of each subsidiary, ranking equal in right of payment with all such subsidiary's existing and future unsecured and unsubordinated indebtedness. Interest on each series of notes is payable semi-annually.  Each of the senior notes rank equally with all of the Company's other unsecured and unsubordinated indebtedness.

The Company's notes contain various restrictive covenants, including, but not limited to, a limitation on secured indebtedness and a restriction on sale leaseback transactions.  As of March 31, 2017, we were in compliance with the covenants required by our senior notes.   

The Company's 1.625% Convertible Senior Notes due 2018 are senior unsecured obligations of the Company and are guaranteed by the guarantors of our other senior notes on a senior unsecured basis. The 1.625% Convertible Notes will mature on May 15, 2018, unless earlier converted or repurchased. The holders may convert their 1.625% Convertible Notes at any time into shares of the Company's common stock at a conversion rate of 31.8664 shares of common stock per $1,000 of their principal amount (which is equal to a conversion price of approximately $31.38 per share), subject to adjustment. The Company may not redeem the 1.625% Convertible Notes prior to the stated maturity date.

The Company's 0.25% Convertible Senior Notes due 2019 are senior unsecured obligations of the Company and are guaranteed by the guarantors of our other senior notes on a senior unsecured basis. The 0.25% Convertible Notes will mature on June 1, 2019, unless earlier converted, redeemed or repurchased. The holders may convert their 0.25% Convertible Notes at any time into shares of the Company's common stock at a conversion rate of 13.6080 shares of common stock per $1,000 of their principal amount (which is equal to a conversion price of approximately $73.49 per share), subject to adjustment. The Company may not redeem the 0.25% Convertible Notes prior to June 6, 2017. On or after that date, the Company may redeem for cash any or all of the 0.25% Convertible Notes, at its option, if the closing sale price of its common stock for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending within 5 trading days immediately preceding the date on which it provides notice of redemption, including the last trading day of such 30 day trading period, exceeds 130 percent of the applicable conversion price on each applicable trading day. The redemption price will equal 100 percent of the principal amount of the 0.25% Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date.

The Company's 1.25% Convertible Senior Notes due 2032 are senior unsecured obligations of the Company and are guaranteed by the guarantors of our other senior notes on a senior unsecured basis. The

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1.25% Convertible Notes will mature on August 1, 2032, unless earlier converted, redeemed or repurchased. The holders may convert their 1.25% Convertible Notes at any time into shares of the Company's common stock at a conversion rate of 24.9207 shares of common stock per $1,000 of their principal amount (which is equal to a conversion price of approximately $40.13 per share), subject to adjustment. The Company may not redeem the 1.25% Convertible Notes prior to August 5, 2017. On or after August 5, 2017 and prior to the maturity date, the Company may redeem for cash all or part of the 1.25% Convertible Notes at a redemption price equal to 100% of the principal amount of the 1.25% Convertible Notes being redeemed. On each of August 1, 2017, August 1, 2022 and August 1, 2027, holders of the 1.25% Convertible Notes may require the Company to purchase all or any portion of their 1.25% Convertible Notes for cash at a price equal to 100% of the principal amount of the 1.25% Convertible Notes to be repurchased.

In April 2017, the Company issued $225 million in aggregate principal amount of senior notes, consisting of $125 million aggregate principal amount of additional notes to the Company's existing 5.875% Senior Notes due 2024 and $100 million aggregate principal amount of additional notes to the Company's existing 5.25% Senior Notes due 2026, which are senior unsecured obligations of the Company and are guaranteed by the guarantors of our other senior notes on a senior unsecured basis.  A portion of the net proceeds of this issuance will be used to repay or repurchase the Company's 8.4% Senior Notes due May 2017.

Potential Future Transactions.  In the future, we may, from time to time, undertake negotiated or open market purchases of, or tender offers for, our notes prior to maturity when they can be purchased at prices that we believe are attractive.  We may also, from time to time, engage in exchange transactions (including debt for equity and debt for debt transactions) for all or part of our notes.  Such transactions, if any, will depend on market conditions, our liquidity requirements, contractual restrictions and other factors.

Joint Venture Loans.  As described more particularly under the heading "Off-Balance Sheet Arrangements", our land development and homebuilding joint ventures have historically obtained secured acquisition, development and/or construction financing.  This financing is designed to reduce the use of funds from our corporate financing sources.  As of March 31, 2017, only two joint ventures had project specific debt outstanding, which totaled $30.1 million.  This joint venture bank debt was non-recourse to us.  At March 31, 2017, we had no joint venture surety bonds outstanding subject to indemnity arrangements by us.

Secured Project Debt and Other Notes Payable.  At March 31, 2017, we had $27.4 million outstanding in secured project debt and other notes payable.  Our secured project debt and other notes payable consist of seller non-recourse financing and community development district and similar assessment district bond financings used to finance land acquisition, development and infrastructure costs for which we are responsible. 

Mortgage Credit Facility.  At March 31, 2017, we had $154.5 million outstanding under our mortgage financing subsidiary's mortgage credit facility.  This mortgage credit facility consisted of a $300 million uncommitted repurchase facility with one lender, maturing in June 2017.  This facility requires our mortgage financing subsidiary to maintain cash collateral accounts, which totaled $3.0 million as of March 31, 2017, and also contains financial covenants which require CalAtlantic Mortgage to, among other things, maintain a minimum level of tangible net worth, not to exceed a debt to tangible net worth ratio, maintain a minimum liquidity amount based on a measure of total assets (inclusive of the cash collateral requirement), and satisfy pretax income (loss) requirements.  As of March 31, 2017, CalAtlantic Mortgage was in compliance with the financial and other covenants contained in this facility.

Surety Bonds.  Surety bonds serve as a source of liquidity for the Company because they are used in lieu of cash deposits and letters of credit that would otherwise be required by governmental entities and other third parties to ensure our completion of the infrastructure of our communities and other performance obligations.  At March 31, 2017, we had approximately $918.1 million in surety bonds outstanding

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(exclusive of surety bonds related to our joint ventures), with respect to which we had an estimated $464.7 million remaining in cost to complete.

Availability of Additional Liquidity.  Over the last several years we have focused on acquiring and developing strategically located and appropriately priced land and on designing and building highly desirable, amenity-rich communities and homes that appeal to the home buying segments we target.  In the near term, so long as we are able to continue to find appropriately priced land opportunities, we plan to continue with this strategy.  To that end, we may utilize cash generated from our operating activities, our $750 million revolving credit facility (including through the exercise of the accordion feature which would allow the facility be increased up to $1.2 billion, subject to the availability of additional capital commitments and certain other conditions) and the debt and equity capital markets to finance these activities.

It is important to note, however, that the availability of additional capital, whether from private capital sources (including banks) or the public capital markets, fluctuates as market conditions change.  There may be times when the private capital markets and the public debt or equity markets lack sufficient liquidity or when our securities cannot be sold at attractive prices, in which case we would not be able to access capital from these sources.  A weakening of our financial condition, including in particular, a material increase in our leverage or a decrease in our profitability or cash flows, could adversely affect our ability to obtain necessary funds, result in a credit rating downgrade or change in outlook, or otherwise increase our cost of borrowing.

Dividends.  For the three months ended March 31, 2017 and 2016, we paid a dividend of $0.04 per share on March 30, 2017 and 2016, respectively.  On April 28, 2017 our Board of Directors declared a dividend of $0.04 per share to be paid on June 30, 2017 to holders of record on June 15, 2017.

Stock Repurchases.  On July 27, 2016, our Board of Directors authorized a new $500 million stock repurchase plan that replaces in its entirety its previous $200 million authorization.  During the three months ended March 31, 2017, we did not repurchase any shares of our common stock, and as of March 31, 2017, we had remaining authorization to repurchase $367.4 million of our common stock.

Leverage.  Our homebuilding debt to total book capitalization as of March 31, 2017 was 44.4%.  In addition, our homebuilding debt to adjusted homebuilding EBITDA for the trailing twelve month periods ended March 31, 2017 and 2016 was 3.4x and 5.0x, respectively, and our adjusted net homebuilding debt to adjusted homebuilding EBITDA was 3.2x and 4.7x, respectively (please see page 26 for the reconciliation of net income, calculated and presented in accordance with GAAP, to adjusted homebuilding EBITDA).  We believe that these adjusted ratios are useful to investors as additional measures of our ability to service debt.

Off-Balance Sheet Arrangements

Land Purchase and Option Agreements

We are subject to customary obligations associated with entering into contracts for the purchase of land and improved homesites. These purchase contracts typically require us to provide a cash deposit or deliver a letter of credit in favor of the seller, and our purchase of properties under these contracts is generally contingent upon satisfaction of certain requirements by the sellers, including obtaining applicable property and development entitlements.  We also utilize option contracts with land sellers as a method of acquiring land in staged takedowns, to help us manage the financial and market risk associated with land holdings, and to reduce the near-term use of funds from our corporate financing sources.  Option contracts generally require us to provide a non-refundable deposit for the right to acquire lots over a specified period of time at predetermined prices.  We generally have the right at our discretion to terminate our obligations under both purchase contracts and option contracts by forfeiting our cash deposit or by repaying amounts drawn under our letter of credit with no further financial responsibility to the land seller, although in certain

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instances, the land seller has the right to compel us to purchase a specified number of lots at predetermined prices.

In some instances, we may also expend funds for due diligence, development and construction activities with respect to our land purchase and option contracts prior to purchase, which we would have to write off should we not purchase the land.  At March 31, 2017, we had non-refundable cash deposits outstanding of approximately $56.0 million and capitalized pre-acquisition and other development and construction costs of approximately $16.5 million relating to land purchase and option contracts having a total remaining purchase price of approximately $788.6 million.

Our utilization of option contracts is dependent on, among other things, the availability of land sellers willing to enter into option takedown arrangements, the availability of capital to financial intermediaries, general housing market conditions, and geographic preferences.  Options may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain geographic regions.

Land Development and Homebuilding Joint Ventures

Historically, we have entered into land development and homebuilding joint ventures from time to time as a means of:

·    accessing larger or highly desirable lot positions ·    establishing strategic alliances ·    leveraging our capital base ·    expanding our market opportunities ·    managing the financial and market risk associated with land holdings

These joint ventures have historically obtained secured acquisition, development and/or construction financing designed to reduce the use of funds from our corporate financing sources.  As of March 31, 2017, we held ownership interests in 27 homebuilding and land development joint ventures, of which 13 were active and 14 were inactive or winding down.  As of such date, only two joint ventures had project specific debt outstanding, which totaled $30.1 million.  This joint venture debt is non-recourse to us and is scheduled to mature in June 2017.  At March 31, 2017, we had no joint venture surety bonds outstanding subject to indemnity arrangements by us.

Critical Accounting Policies

The preparation of our condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities.  On an ongoing basis, we evaluate our estimates and judgments, including those that impact our most critical accounting policies.  We base our estimates and judgments on historical experience and various other assumptions that are believed to be reasonable under the circumstances.  Actual results may differ from these estimates under different assumptions or conditions.  We believe that the accounting policies related to the following accounts or activities are those that are most critical to the portrayal of our financial condition and results of operations and require the more significant judgments and estimates:

· Segment reporting;

· Inventories and impairments;

· Stock-based compensation;

· Homebuilding revenue and cost of sales;

· Variable interest entities;

· Unconsolidated homebuilding and land development joint ventures;

· Warranty accruals;

· Insurance and litigation accruals;

· Income taxes; and

· Goodwill.

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There have been no significant changes to our critical accounting policies from those described in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of our Annual Report on Form 10-K for the year ended December 31, 2016.

ITEM 3.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks related to fluctuations in interest rates on our rate-locked loan commitments, mortgage loans held for sale and outstanding variable rate debt.  Other than forward sales commitments in connection with preselling loans to third party investors and forward sale commitments of mortgage-backed securities entered into by our financial services subsidiary for the purpose of hedging interest rate risk as described below, we did not utilize swaps, forward or option contracts on interest rates or commodities, or other types of derivative financial instruments as of or during the three months ended March 31, 2017.  We have not entered into and currently do not hold derivatives for trading or speculative purposes.

As part of our ongoing operations, we provide mortgage loans to our homebuyers through our mortgage financing subsidiary, CalAtlantic Mortgage.  For a portion of its loan originations, CalAtlantic Mortgage manages the interest rate risk associated with making loan commitments to our customers and holding loans for sale by preselling loans.  Preselling loans consists of obtaining commitments (subject to certain conditions) from third party investors to purchase the mortgage loans while concurrently extending interest rate locks to loan applicants. Before completing the sale to these investors, CalAtlantic Mortgage finances these loans under its mortgage credit facilities for a short period of time (typically for 30 to 45 days), while the investors complete their administrative review of the applicable loan documents. While preselling these loans reduces risk, we remain subject to risk relating to investor non-performance, particularly during periods of significant market turmoil.  As of March 31, 2017, CalAtlantic Mortgage had approximately $156.4 million in closed mortgage loans held for sale and $36.1 million of mortgage loans that we were committed to sell to investors subject to our funding of the loans and the investors' completion of their administrative review of the applicable loan documents.

CalAtlantic Mortgage also originates a portion of its mortgage loans on a non-presold basis.  When originating mortgage loans on a non-presold basis, CalAtlantic Mortgage locks interest rates with its customers and funds loans prior to obtaining purchase commitments from third party investors, thereby creating interest rate risk.  To hedge this interest rate risk, CalAtlantic Mortgage enters into forward sale commitments of mortgage-backed securities.  Loans originated in this manner are typically held by CalAtlantic Mortgage and financed under its mortgage credit facilities for a short period of time (typically for 30 to 45 days) before the loans are sold to third party investors.  CalAtlantic Mortgage utilizes third party hedging software to assist with the execution of its hedging strategy for loans originated on a non-presold basis.  While this hedging strategy is designed to assist CalAtlantic Mortgage in mitigating risk associated with originating loans on a non-presold basis, these instruments involve elements of market risk related to fluctuations in interest rates that could result in losses on loans originated in this manner.  As of March 31, 2017, CalAtlantic Mortgage had approximately $322.3 million of mortgage loans in process that were or are expected to be originated on a non-presold basis, all of which were hedged by forward sale commitments of mortgage-backed securities prior to entering into loan sale transactions with third party investors.

ITEM 4.        CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

As of the end of the period covered by this quarterly report on Form 10-Q, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e), including controls and procedures to timely alert management to material information relating to

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CalAtlantic Group, Inc. and its subsidiaries required to be included in our periodic SEC filings.  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures were effective as of the end of the period covered by this report.

Change in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

FORWARD-LOOKING STATEMENTS

This report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  In addition, other statements we may make from time to time, such as press releases, oral statements made by Company officials and other reports we file with the Securities and Exchange Commission, may also contain such forward-looking statements.  These statements, which represent our expectations or beliefs regarding future events, may include, but are not limited to, statements regarding:

· our strategy;

· housing market and economic conditions and trends in the geographic markets in which we operate;

· our land acquisition strategy and our sources of funds relating thereto;

· litigation outcomes and related costs;

· plans to purchase notes prior to maturity and engage in debt exchange transactions;

· the impact of recent accounting standards;

· amounts remaining to complete relating to existing surety bonds; and

· our interest rate hedging and derivatives strategy.

Forward-looking statements are based on our current expectations or beliefs regarding future events or circumstances, and you should not place undue reliance on these statements.  Such statements involve known and unknown risks, uncertainties, assumptions and other factors—many of which are out of our control and difficult to forecast—that may cause actual results to differ materially from those that may be described or implied.  Such factors include, but are not limited to, the following:

· adverse economic developments that negatively impact the demand for homes;

· the market value and availability of land;

· the willingness of customers to purchase homes at times when mortgage-financing costs are high or when credit is difficult to obtain;

· competition with other homebuilders as well as competition from the sellers of existing homes and rental properties;

· the cost and availability of labor and materials;

· our ability to obtain suitable bonding for development of our communities;

· high cancellation rates;

· the risk of our longer term acquisition strategy;

· adverse weather conditions, natural disasters and climate change;

· product liability and warranty claims;

· the inherent danger of our building sites;

· our reliance on subcontractors and their ability to construct our homes;

· risks relating to our mortgage financing activities, including our obligation to repurchase loans we previously sold in the secondary market;

· our dependence on key employees;

· risks relating to acquisitions, including integration risks;

· our failure to maintain the security of our electronic and other confidential information;

· the adverse effects of negative media publicity;

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· government regulation, including environmental, building, energy efficiency, climate change, worker health, safety, mortgage lending, title insurance, zoning and land use regulation;

· increased regulation of the mortgage industry;

· changes to tax laws that make homeownership more expensive;

· the impact of "slow growth", "no growth" and similar initiatives;

· our ability to obtain additional capital when needed and at an acceptable cost;

· the amount of, and our ability to repay, renew or extend, our outstanding debt and its impact on our operations and our ability to obtain financing;

· our ability to generate cash, including to service our debt;

· risks relating to our unconsolidated joint ventures, including our ability and the ability of our partners to contribute funds to our joint ventures when needed or contractually agreed to, entitlement and development risks for the land owned by our joint ventures, the availability of financing to the joint ventures, our completion obligations to the joint venture, the illiquidity of our joint venture investments, partner disputes, and risks relating to our determinations concerning the consolidation or non-consolidation of our joint venture investments;

· the influence of our principal stockholder;

· the provisions of our charter, bylaws, stockholders' rights agreements and debt covenants that could prevent a third party from acquiring us or limit the price investors might be willing to pay for shares of our common stock; and

· other risks discussed in this report and our other filings with the Securities and Exchange Commission, including in our Annual Report on Form 10-K for the year ended December 31, 2016.

Except as required by law, we assume no, and hereby disclaim any, obligation to update any of the foregoing or any other forward-looking statements.  We nonetheless reserve the right to make such updates from time to time by press release, periodic report or other method of public disclosure without the need for specific reference to this report.  No such update shall be deemed to indicate that other statements not addressed by such update remain correct or create an obligation to provide any other updates.

PART II.  OTHER INFORMATION

ITEM 1.         LEGAL PROCEEDINGS

Various claims and actions that we consider normal to our business have been asserted and are pending against us.  We do not believe that any of such claims and actions are material to our financial statements.

ITEM 1A.      RISK FACTORS

There has been no material change in our risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.  For a detailed description of risk factors, refer to Item 1A, "Risk Factors", of our Annual Report on Form 10-K for the year ended December 31, 2016.

ITEM 2.         UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

During the three months ended March 31, 2017, we did not repurchase any shares under our repurchase program.

ITEM 3.        DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.         MINE SAFETY DISCLOSURES

Not applicable.

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ITEM 5.        OTHER INFORMATION

Not applicable.

ITEM 6.         EXHIBITS

31.1 Certification of the CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of the CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification 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 CalAtlantic Group, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, formatted in eXtensible Business Reporting Language (XBRL): (i) Unaudited Condensed Consolidated Statements of Operations, (ii) Unaudited Condensed Consolidated Statements of Comprehensive Income, (iii) Unaudited Condensed Consolidated Balance Sheets, (iv) Unaudited Condensed Consolidated Statements of Cash Flows, and (v) Notes to Unaudited Condensed Consolidated Financial Statements.

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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.

                                                                    CALATLANTIC GROUP, INC.

                                                                    (Registrant)

Dated:  April 28, 2017	By:	/s/ Larry T. Nicholson
		Larry T. Nicholson President and Chief Executive Officer (Principal Executive Officer)
Dated:  April 28, 2017	By:	/s/ Jeff J. McCall
		Jeff J. McCall Executive Vice President and Chief Financial Officer (Principal Financial Officer)

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