PART I

ITEM 1.     FINANCIAL STATEMENTS.

Century Communities, Inc.

Condensed Consolidated Balance Sheets

As of September 30, 20182019 and December 31, 20172018

(in thousands, except share amounts)

Century Communities, Inc.

Unaudited Condensed Consolidated Statements of Operations

For the Three and Nine Months endedEnded September 30, 20182019and 20172018

(in thousands, except share and per share amounts)

Century Communities, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

For the Nine Months endedEnded September 30, 20182019 and 20172018

(in thousands)

See Notes to Unaudited Condensed Consolidated Financial Statements

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Century Communities, Inc.

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

For the Three and Nine Months Ended September 30, 2019 and 2018

(in thousands)

Three Months Ended September 30, 2019 and 2018

Nine Months Ended September 30, 2019 and 2018

See Notes to Unaudited Condensed Consolidated Financial Statements

Century Communities, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

September 30, 20182019

1. Basis of Presentation

Century Communities, Inc. (which we refer to as “we,” “our,“CCS,” or the “Company”), together with its subsidiaries, is engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in metropolitan areas in the States of Alabama, Arizona, California, Colorado, Florida, Georgia, Indiana, Iowa, Michigan, Nevada, North Carolina, Ohio, South Carolina, Tennessee, Texas, Utah, and Washington. In many of our projects, in addition to building homes, we are responsible for the entitlement and development of the underlying land.  We build and sell homes under our Century Communities and Wade Jurney Homes brands. Our Century Communities brand targets a wide range of buyer profiles including: first time, first and second time move up, and active adultlifestyle homebuyers, and provides our homebuyers with the ability to personalize their homes through certain option and upgrade selections. Our Wade Jurney Homes brand solely targets first time homebuyers, in markets which are traditionally underserved by new homebuilders,primarily sells homes through retail studios and the internet, and provides no option or upgrade selections. Our homebuilding operations are organized into the following five5 reportable segments: West, Mountain, Texas, Southeast, and Wade Jurney Homes. Additionally, our indirect wholly-owned subsidiaries, Inspire Home Loans, Inc., Parkway Title, LLC, and IHL Home Insurance Agency, LLC, which provide mortgage, title and insurance services, respectively, to our home buyers have been identified as our Financial Services segment.

On August 4, 2017, we acquired UCP, Inc. (which we refer to as “UCP”) which was a homebuilder and land developer with expertise in residential land acquisition, development and entitlement, as well as home design, construction and sales, and with operations in the States of California, Washington, North Carolina, South Carolina, and Tennessee.  In connection with the merger, each share of UCP Class A common stock outstanding immediately prior to the closing was converted into $5.32 in cash and 0.2309 of a newly issued share of our common stock.  Approximately 4.2 million shares of our common stock were issued and $100.2 million in cash was paid in connection with the merger for total consideration of $209.0 million.  On October 31, 2017, we acquired substantially all the assets and operations and assumed certain liabilities of Sundquist Homes, LLC and affiliates (which we refer to as “Sundquist Homes”), a homebuilder with operations in the greater Seattle, Washington area, for approximately $50.2 million.   On June 14, 2018, we acquired the remaining 50% ownership interest in WJH, LLC (which we refer to as “WJH” or “Wade Jurney Homes”) for $37.5 million. WJH specializes in providing single family homes for first time buyers.  On the acquisition date, WJH had operations in Alabama, Florida, Georgia, North Carolina and South Carolina.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (which we refer to as “GAAP”) for interim financial statements and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (which we refer to as the “SEC”). In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of our financial position and results of operations. Interim results of operations are not necessarily indicative of the results that may be achieved for the full year. The financial statements and related notes do not include all information and footnotes required by GAAP and should be read in conjunction with the consolidated financial statements for the year ended December 31, 2017,2018, which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 20172018 that was filed with the SEC on March 1, 2018.February 13, 2019.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company, as well as all subsidiaries in which we have a controlling interest, and variable interest entities for which the Company is deemed to be the primary beneficiary. We currently do not have any variable interest entities in which we are deemed the primary beneficiary. All intercompany accounts and transactions have been eliminated.

All numbers related to lots and communities disclosed in the notes to the consolidated financial statements are unaudited.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates.

Reclassifications

In order to conform to current year presentation, mortgage loans held for investment and derivative assets of $1.0 million and $0.7 million, respectively, have been reclassified to prepaid expenses and other assets from mortgage loans held for sale on the condensed consolidated balance sheets as of December 31, 2018.

Recently IssuedAdopted Accounting Standards

Leases

The Financial Accounting Standards Board (which we refer to as “FASB”) has issued “Leases (Topic 842),”Accounting Standards Codification (ASC) 842, Leases (which we refer to as “ASC 842”) which requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP.  Topic

most leases.  ASC 842 is effective for the Company beginning January 1, 2019 and interim periods within the annual periods.period.  We are currently evaluating the impact Topicadopted ASC 842 will have on our consolidated financial statements.  We plan to adopt Topic 842 under

a modified retrospective approach using the option to apply the transition provisions on the effective date January 1, 2019. The modified retrospective approach allows the Company to carry forward our historical lease classification, and to present historical periods under legacy lease accounting guidance. The Company’s leases primarily consist of leases for office space, and computer and office equipment where we are the lessee.

ASC 842 includes several practical expedients which we elected upon adoption including to (a) not reassess the lease classification for any expired or existing leases and (b) not reassess whether previously capitalized initial direct costs qualify for capitalization under ASC 842. Additionally, we elected to utilize hindsight when determining the lease term.

The adoption of ASC 842 resulted in the establishment of a right of use asset of $17.7 million and a lease liability of $18.7 million on our condensed consolidated balance sheet as of January 1, 2019. The adoption of ASC 842 did not impact stockholders’ equity.

Recently AdoptedIssued Accounting Standards

Cash Flows

In AugustJune 2016, the FASB issued Accounting Standards Update (ASU) 2016-13, “Financial Instruments – Credit Losses (Topic 326).” The standard changes the accounting for credit losses for most financial assets and certain other instruments. Credit losses which have historically been accounted for on an incurred loss basis will now be accounted for using an estimate of lifetime expected credit losses. This will generally result in earlier recognition of allowances for credit losses. The standard is effective for the Company on January 1, 2020. Upon adoption, the standard will be applied through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We anticipate ASU 2016-15, “Statement2016-13 will apply to certain of Cash Flows - Classification of Certain Cash Receiptsour loans held for investment and Cash Payments.” ASU 2016-15 consists of eight provisions that provide guidancecertain receivable balances. We do not anticipate this standard having a material effect on the classification of certain cash receiptsconsolidated financial statements and cash payments in the statement of cash flows. related disclosures.

In November 2016,August 2018, the FASB issued ASU 2016-18 “Statement of Cash Flows2018-15, “Intangibles – Restricted Cash.Goodwill and Other – Internal-Use Software (Subtopic 350-40).” ASU 2016-18 requiresThis standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a statement of cash flows explainservice contract with the change duringrequirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The standard is effective for the period in the total of cash, cash equivalents, and restricted cash when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows.  We adopted ASU 2016-15 and 2016-18 onCompany January 1, 2018.2020. Upon adoption, of 2016-18, we have included restricted cash in the beginning and ending balances on our Statements of Cash FlowsCompany has elected to presentapply the changes during the period in total cash, cash equivalents and restricted cash.  Distributions from investments in unconsolidated subsidiaries are classified based on the nature of the activity of the investeestandard prospectively. The Company does not believe that generated the distribution on our Statements of Cash Flows.  In accordance with ASU 2016-18, our prior year Statements of Cash Flows have also been retrospectively adjusted.

Revenue Recognition

On January 1, 2018, we adopted “Revenue from Contracts with Customers (ASC 606),” which we refer to as “ASC 606.”  ASC 606 requires entities to recognize revenues when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. We adopted ASC 606 as of January 1, 2018 using the modifiedretrospective approach to contracts which were not completed as of January 1, 2018.

While the adoption of ASC 606 did not result inthis standard will have a material impact to oureffect on its consolidated financial statements it did impact the following:and related disclosures.

Under the modified retrospective approach, we have recorded an opening adjustment to decrease retained earnings by $0.6 million, related to model homes costs that were previously capitalized to inventory, but would have been expensed as incurred under ASC 606.  This amount is included as a non-cash adjustment on our Condensed Consolidated Statements of Cash Flows.  Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historic accounting. 

Effective January 1, 2018, the following accounting policies have been modified to reflect the adoption of ASC 606.

Home Sales Revenues - Under ASC 606, revenues from home sales and the related profit are recorded when our performance obligations are satisfied, which generally occurs when the respective homes are closed and title has passed to our homebuyers.  We generally satisfy our performance obligations in less than one year from the contract date.  Proceeds from home closings that are held for our benefit in escrow, are presented as “Cash held in escrow” on our Consolidated Balance Sheets.  Cash held for our benefit in escrow is typically held by the escrow agent for less than a few days.  When it is determined that the earnings process is not complete and we have remaining obligations, the related revenue and costs are deferred for recognition in future periods until those performance obligations have been

satisfied.  Prior to satisfying our performance obligations, we typically receive deposits from customers related to sold but undelivered homes.  These deposits are classified as earnest money deposits and are included in Accrued expenses and other liabilities on our Consolidated Balance Sheets.  Earnest money deposits totaled $19.0 million and $14.1 million at September 30, 2018 and December 31, 2017, respectively. 

Home and Sales Facilities – Costs related to our model homes and sales facilities are treated in one of three ways depending on their nature.  Costs directly attributable to the home including upgrades that are permanent and sold with the home are capitalized to inventory and included in cost of home sales revenues when the unit is closed to the home buyer.  Marketing related costs, such as non-permanent signage, brochures and marketing materials as well as the cost to convert the model into a salable unit are expensed as incurred.  Costs to furnish the model home sites, permanent signage, and construction of sales facilities are capitalized to property and equipment and depreciated over the estimated life of the community based on the number of lots in the community which typically range from 2 to 3 years. 

2. Reporting Segments

Our homebuilding operations are engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in 1517 states. We build and sell homes under our Century Communities and Wade Jurney Homes brands. Our Century Communities brand is managed by geographic location, and each of our four4 geographic regions targets a wide range of buyer profiles including: first time, first and second time move up, and active adultlifestyle homebuyers, and provides our homebuyers with the ability to personalize their homes through certain option and upgrade selections. Each of our four geographic regions is considered a separate operating segment. Our Wade Jurney Homes brand solely targets first time homebuyers, in markets which are traditionally underserved by new homebuilders,primarily sells homes through retail studios and the internet, and provides no option or upgrade selections. Our Wade Jurney Homes brand currently has operations in eight11 states and is managed separately from our four geographic regions, accordingly,regions. Accordingly, it is considered a separate operating segment.

The management of each of our four geographic regions and Wade Jurney Homes reports to our chief operating decision makers (which we refer to as “CODMs”), the Co-Chief Executive Officers of our Company. The CODMs review the results of our operations, including total revenue and income before income tax expense to determine profitability and to allocate resources. Accordingly, we have presented our homebuilding operations as the following five5 reportable segments:

West (California and Washington)

Mountain (Colorado, Nevada and Utah)

Texas

Southeast (Georgia, North Carolina, South Carolina and Tennessee)

Wade Jurney Homes (Alabama, Arizona, Florida, Georgia, Indiana, Iowa, Michigan, North Carolina, Ohio, South Carolina, and Texas)

We have also identified our Financial Services operations, which provide mortgage, title, and insurance services to our homebuyers, as a sixth reportable segment. Our Corporate operations aresegment is a non-operating segment, as it serves to support our homebuilding, and to a lesser extent our financial services operations, through functions, such as our executive, finance, treasury, human resources, accounting and accountinglegal departments. 

The following table summarizes total revenue and income before income tax expense by operating segment, where adjustments for purchase price accounting are included in the relative segment (in thousands):

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