Century Communities, Inc. 10-K

ITEM 9A. CONTROLS AND PROCEDURES. Evaluation of Disclosure Controls and Procedures Under the supervision and with the participation of our management, including our co-principal executive officers and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined under Rule 13a-15(e) under the Exchange Act) as of December 31, 2021, the end of the period covered by this Form 10-K. Based on this evaluation, our co-principal executive officers and principal financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2021 in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. 65 Table of Contents Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). In addition, our management is required to report their assessment, including their evaluation criteria, on the design and operating effectiveness of our internal control over financial reporting in this Form 10-K. Our internal control over financial reporting is a process designed under the supervision of our co-principal executive officers and principal financial officer. During 2021, our management conducted an assessment of the internal control over financial reporting based upon criteria established in the “Internal Control – Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on our management’s assessment, which included a comprehensive review of the design and operating effectiveness of our internal control over financial reporting, our management has concluded that our internal control over financial reporting was effective as of December 31, 2021. Our internal control over financial reporting as of December 31, 2021 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report, which is included herein. Changes in Internal Control over Financial Reporting There were no changes during the fourth quarter of 2021 in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. ‎ 66 Table of Contents Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Century Communities, Inc. Opinion on Internal Control Over Financial Reporting We have audited Century Communities, Inc.’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Century Communities, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2021 consolidated financial statements of the Company and our report dated February 2, 2022 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Denver, Colorado February 2, 2022 ‎ 67 Table of Contents ITEM 9 B. OTHER INFORMATION. None. ITE M 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. Not applicable. PART III Item 1 0. Directors, Executive Officers and Corporate Governance. The information required in response to this Item is incorporated herein by reference to the information contained under the captions entitled “Proposal No. 1 Election of Directors—Information about Director Nominees,” “Executive Officers,” and “Corporate Governance” in our definitive proxy statement for our 2022 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission not later than 120 days after the end of the fiscal year covered by this report (which we refer to as our “2022 Proxy Statement”). Our Code of Business Conduct and Ethics, which applies to all of our directors, executive officers and employees, is available in the “Investors—Corporate Governance—Governance Documents” section of our website located at www.centurycommunities.com. In addition, printed copies of our Code of Business Conduct and Ethics are available upon written request to Century Communities, Inc., 8390 East Crescent Parkway, Suite 650, Greenwood Village, Colorado 80111, Attention: Corporate Secretary. Any waiver of our Code of Business Conduct and Ethics for our executive officers, directors, or any employees may be made only by the Nominating and Corporate Governance Committee of the Board of Directors and will be promptly disclosed as required by law and NYSE rules. We intend to satisfy the disclosure requirements of Item 5.05 of Form 8-K and applicable NYSE rules regarding amendments to or waivers from any provision of our Code of Business Conduct and Ethics by posting such information in the “Investors—Corporate Governance—Governance Documents” section of our website located at www.centurycommunities.com . Item 1 1. Executive Compensation. The information required in response to this Item is incorporated herein by reference to the information contained under the captions entitled “Executive Compensation,” “Compensation Discussion and Analysis,” “Compensation Committee Report” and “Director Compensation” in our definitive proxy statement for our 2022 Proxy Statement . Item 1 2. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. The information required in response to this Item is incorporated herein by reference to the information contained under the caption entitled “Stock Ownership” in our 2022 Proxy Statement. Item 1 3. Certain Relationships and Related Transactions, and Director Independence. The information required in response to this Item is incorporated herein by reference to the information contained under the captions entitled “Certain Relationships and Related Party Transactions” and “Corporate Governance—Director Independence” in our 2022 Proxy Statement. 68 Table of Contents Item 1 4. Principal Accounting Fees and Services. The information required in response to this Item is incorporated herein by reference to the information contained under the captions entitled “Proposal No. 2: Ratification of Appointment of Independent Registered Public Accounting Firm—Audit, Audit-Related, Tax, and Other Fees” and “Proposal No. 2: Ratification of Appointment of Independent Registered Public Accounting Firm—Pre-Approval Policies and Procedures” in our 2022 Proxy Statement. ‎ 69 Table of Contents PAR T IV ITEM 1 5. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a)(1) Financial Statements The following financial statements of the Company are included in a separate section of this Form 10-K commencing on the page numbers specified below: Page Consolidated Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB 000 42 ) F-2 Consolidated Balance Sheets as of December 31, 2021 and December 31, 2020 F-4 Consolidated Statements of Operations for the Years Ended December 31, 2021, 2020 and 2019 F-5 Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2021, 2020 and 2019 F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019 F-7 Notes to Consolidated Financial Statements F-8 (a)(2) Financial Statements Schedules Financial statement schedules have been omitted because they are not applicable, not material, not required or the required information is included in this Form 10-K. (a)(3) Exhibits The following exhibits are either filed herewith or incorporated herein by reference: Exhibit Number Description 3.1 Certificate of Incorporation of Century Communities, Inc., as amended (incorporated by reference to Exhibit 3.1 to the initial filing of the Registration Statement on Form S-1 of Century Communities, Inc. (File No. 333-195678) filed with the SEC on May 5, 2014). 3.2 Restated Bylaws of Century Communities, Inc. (incorporated by reference to Exhibit 3.2 to Century Communities, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 (File No. 001-36491)). 4.1 Specimen Common Stock Certificate of Century Communities, Inc. (incorporated by reference to Exhibit 4.1 to the initial filing of the Registration Statement on Form S-1 of Century Communities, Inc. (File No. 333-195678) filed with the SEC on May 5, 2014). 4.2 Century Communities, Inc. Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 (incorporated by reference to Exhibit 4.2 to Century Communities, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2020). 4.3 Indenture (including form of 6.750% Senior Notes due 2027), dated as of May 23, 2019, by and among Century Communities, Inc., the Guarantors party thereto, and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Century Communities, Inc.’s Current Report on Form 8-K filed with the SEC on May 23, 2019 (File No. 001-36491)). 4.4 Form of 6.750% Senior Notes due 2027 (included as Exhibit A to Rule 144A/Regulation S Appendix to the Indenture) (incorporated by reference to Exhibit 4.1 to Century Communities, Inc.’s Current Report on Form 8-K filed with the SEC on May 23, 2019 (File No. 001-36491)). 4.5 Indenture (including form of 3.875% Senior Notes due 2029), dated as of August 23, 2021, by and among Century Communities, Inc., the Guarantors party thereto, and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Century Communities, Inc.’s Current Report on Form 8-K filed with the SEC on August 23, 2021 (File No. 001-36491)). 4.6 Form of 3.875% Senior Notes due 2029 (included as Exhibit A to the Indenture) (incorporated by reference to Exhibit 4.2 to Century Communities, Inc.’s Current Report on Form 8-K filed with the SEC on August 23, 2021 (File No. 001-36491)). 70 Table of Contents 10.1† Century Communities, Inc. Amended and Restated 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to Century Communities, Inc.’s Current Report on Form 8-K filed with the SEC on May 9, 2019 (File No. 001-36491)). 10.2† Form of Employee Restricted Stock Unit Award Agreement for use with the Century Communities, Inc. 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.2 to Century Communities, Inc.’s Current Report on Form 8-K filed with the SEC on May 12, 2017 (File No. 001-36491)). 10.3† Form of Performance Share Unit Award Agreement for use with the Century Communities, Inc. 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.3 to Century Communities, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2018 (File No. 001-36491)). 10.4† Form of Non-Employee Director Restricted Stock Unit Award Agreement for use with the Century Communities, Inc. 2017 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.4 to Century Communities, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2020). 10.5† Amended and Restated Employment Agreement, dated as of July 28, 2020, between Century Communities, Inc. and Dale Francescon (incorporated by reference to Exhibit 10.1 to Century Communities, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 (File No. 001-36491)). 10.6† Amended and Restated Employment Agreement, dated as of July 28, 2020, between Century Communities, Inc. and Robert J. Francescon (incorporated by reference to Exhibit 10.2 to Century Communities, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 (File No. 001-36491)). 10.7† Amended and Restated Employment Agreement, dated as of July 28, 2020, between Century Communities, Inc. and David Messenger (incorporated by reference to Exhibit 10.3 to Century Communities, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 (File No. 001-36491)). 10.8† Form of Director and Officer Indemnification Agreement between Century Communities, Inc. and each of its directors and officers (incorporated by reference to Exhibit 10.1 to Century Communities, Inc.’s Current Report on Form 8-K filed with the SEC on December 9, 2020 (File No. 333-195678). 10.9 Second Amended and Restated Credit Agreement, dated as of May 21, 2021, by and among Century Communities, Inc., the lenders party thereto, Texas Capital Bank, National Association, as Administrative Agent and L/C Issuer, and Texas Capital Bank, National Association, BBVA USA, BofA Securities, Inc., Fifth Third Bank, National Association and U.S. Bank National Association, as Joint Lead Arrangers and Joint Book Runners, and Wells Fargo Bank, N.A., as Syndication Agent (incorporated by reference to Exhibit 10.1 to Century Communities, Inc.’s Current Report on Form 8-K filed with the SEC on May 25, 2021 (File No. 001-36491)). 10.10 Purchase Agreement, dated May 9, 2019, among Century Communities, Inc., the Guarantors party thereto, and J.P. Morgan Securities LLC, as representative of the initial purchasers named on Schedule A thereto (incorporated by reference to Exhibit 10.1 to Century Communities, Inc.’s Current Report on Form 8-K filed with the SEC on May 14, 2019 (File No. 001-36491)). 10.11 Registration Rights Agreement, dated as of May 23, 2019, by and among Century Communities, Inc., the Guarantors party thereto, and J.P. Morgan Securities LLC, on behalf of the initial purchasers (incorporated by reference to Exhibit 10.1 to Century Communities, Inc.’s Current Report on Form 8-K filed with the SEC on May 23, 2019 (File No. 001-36491)). 10.12 Distribution Agreement, dated November 27, 2019, among Century Communities, Inc. and J.P. Morgan Securities LLC, BofA Securities, Inc., Citigroup Global Markets Inc., and Fifth Third Securities, Inc. (incorporated by reference to Exhibit 1.1 to Century Communities, Inc.’s Current Report on Form 8-K filed with the SEC on November 27, 2019 (File No. 001-36491)). 10.13 Amendment No. 1 to Distribution Agreement, dated August 3, 2021, among Century Communities, Inc. and J.P. Morgan Securities LLC, BofA Securities, Inc., Citigroup Global Markets Inc., Fifth Third Securities, Inc., and Wells Fargo Securities, LLC (incorporated by reference to Exhibit 1.1 to Century Communities, Inc.’s Current Report on Form 8-K filed with the SEC on August 3, 2021 (File No. 001-36491)). 10.14 Purchase Agreement, dated August 3, 2021, among Century Communities, Inc., the Guarantors party thereto, and BofA Securities, Inc., as representative of the initial purchasers named in Schedule A thereto (incorporated by reference to Exhibit 10.1 to Century Communities, Inc.’s Current Report on Form 8-K filed with the SEC on August 5, 2021 (File No. 001-36491)). 21.1 Subsidiaries of Century Communities, Inc. (filed herewith). 71 Table of Contents 22.1 List of Guarantor Subsidiaries (filed herewith). 23.1 Consent of Independent Registered Public Accounting Firm (filed herewith). 24.1 Power of Attorney (filed herewith). 31.1 Certification of the Co-Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith). 31.2 Certification of the Co-Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith). 31.3 Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith). 32.1 Certification of the Co-Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). 32.2 Certification of the Co-Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). 32.3 Certification of the Principal Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). 101.INS Inline XBRL Instance Document (the instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document). 101.SCH Inline XBRL Taxonomy Extension Schema Document (filed herewith). 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith). 101.DEF Inline XBRL Taxonomy Definition Linkbase Document (filed herewith). 101.LAB Inline XBRL Taxonomy Extension Labels Linkbase Document (filed herewith). 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith). 104 Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101). _____________________ † Management contract or compensatory plan or arrangement. ITEM 16. FORM 10-K SUMMARY. None. 72 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Century Communities, Inc. Date: February 2, 2022 By: /s/ Dale Francescon Dale Francescon Chairman of the Board and Co-Chief Executive Officer (Co-Principal Executive Officer) Date: February 2, 2022 By: /s/ Robert J. Francescon Robert J. Francescon Co-Chief Executive Officer and President (Co-Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Dale Francescon Dale Francescon Chairman of the Board of Directors and Co-Chief Executive Officer (Co-Principal Executive Officer) February 2, 2022 /s/ Robert J. Francescon Robert J. Francescon Co-Chief Executive Officer, President and Director (Co-Principal Executive Officer) February 2, 2022 /s/ David L. Messenger David L. Messenger Chief Financial Officer (Principal Financial Officer) February 2, 2022 /s/ J. Scott Dixon Chief Accounting Officer J. Scott Dixon (Principal Accounting Officer) February 2, 2022 /s/ David L. Messenger, attorney in fact Patricia L. Arvielo Director February 2, 2022 /s/ David L. Messenger, attorney in fact John P. Box Director February 2, 2022 /s/ David L. Messenger, attorney in fact Keith R. Guericke Director February 2, 2022 /s/ David L. Messenger, attorney in fact James M. Lippman Director February 2, 2022 73 Table of Contents CENTURY COMMUNITIES, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Consolidated Financial Statements Report of Independent Registered Public Accounting Firm (PCAOB 00042) F- 2 Consolidated Balance Sheets as of December 31, 2021 and 2020 F- 4 Consolidated Statements of Operations for the Years Ended December 31, 2021, 2020 and 2019 F-5 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2021, 2020 and 2019 F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019 F-7 Notes to the Consolidated Financial Statements F-8 ‎ F- 1 Table of Contents Report of Independe nt Registered Public Accounting Firm To the Board of Directors and Stockholders of Century Communities, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Century Communities, Inc. (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 2, 2022 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Impairment of Inventories Description of the Matter As more fully described in Note 1 to the consolidated financial statements, management evaluates inventories for impairment at the community level. If an indicator of impairment is identified, the Company estimates the recoverability of the community by comparing the estimated future cash flows on an undiscounted basis to its carrying value. When indicators of impairment have been identified, auditing the Company’s assessment of inventories for impairment requires subjective auditor judgment in evaluating the expected homebuilding revenues included in the estimated future undiscounted cash flows. The estimated future homebuilding revenues is a forward-looking assumption that can be significantly affected by sub-market information including competition, customer demand for a specific type of home, recent pricing trends, and sales pace. This assumption can have a significant impact on the results of the estimated future undiscounted cash flows and the evaluation of recoverability. F- 2 Table of Contents How We Addressed the Matter in Our Audit We tested the Company’s internal controls over the inventory impairment process. This included testing controls over management’s review of the homebuilding revenues, which is a significant assumption, and their analysis of the forecasted revenue amounts compared to the historical average sales price and sales price trends. Our testing of the Company's impairment analysis included, among other procedures, evaluating the significant assumptions and operating data used to estimate the future undiscounted cash flows. To test the homebuilding revenues assumption included in the estimated future undiscounted cash flows, among other procedures, we compared the home sales revenue assumption and estimated sales pace at the community level to market industry information, including publicly available competitor data, recent pricing trends, changes in customer demands, and historical community operating trends. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2013. Denver, Colorado February 2, 2022 ‎ F- 3 Table of Contents Century Communities, Inc. Consolidated B alance Sheets As of December 31, 2021 and 2020 (in thousands, except share and per share amounts) December 31, December 31, 2021 2020 Assets Cash and cash equivalents $ 316,310 $ 394,001 Cash held in escrow 52,297 23,149 Accounts receivable 41,932 21,781 Inventories 2,456,614 1,929,664 Mortgage loans held for sale 353,063 282,639 Prepaid expenses and other assets 200,087 122,630 Property and equipment, net 24,939 28,384 Deferred tax assets, net 21,239 12,450 Goodwill 30,395 30,395 Total assets $ 3,496,876 $ 2,845,093 Liabilities and stockholders' equity Liabilities: Accounts payable $ 84,679 $ 107,712 Accrued expenses and other liabilities 316,877 302,751 Notes payable 998,936 894,875 Revolving line of credit — — Mortgage repurchase facilities 331,876 259,050 Total liabilities 1,732,368 1,564,388 Stockholders' equity: Preferred stock, $ 0.01 par value, 50,000,000 shares authorized, none outstanding — — Common stock, $ 0.01 par value, 100,000,000 shares authorized, 33,760,940 and 33,350,633 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively 338 334 Additional paid-in capital 697,845 697,200 Retained earnings 1,066,325 583,171 Total stockholders' equity 1,764,508 1,280,705 Total liabilities and stockholders' equity $ 3,496,876 $ 2,845,093 See Notes to Consolidated Financial Statements. F- 4 Table of Contents Century Communities, Inc. Consolidated Statem ents of Operations For the Years Ended December 31, 2021, 2020 and 2019 (in thousands, except per share amounts) Year Ended December 31, 2021 2020 2019 Revenues Homebuilding revenues Home sales revenues $ 4,032,969 $ 3,027,167 $ 2,481,465 Land sales and other revenues 59,607 30,717 11,184 Total homebuilding revenues 4,092,576 3,057,884 2,492,649 Financial services revenues 123,738 103,308 43,262 Total revenues 4,216,314 3,161,192 2,535,911 Homebuilding cost of revenues Cost of home sales revenues ( 3,056,048 ) ( 2,468,133 ) ( 2,040,241 ) Cost of land sales and other revenues ( 39,315 ) ( 21,929 ) ( 8,130 ) Total homebuilding cost of revenues ( 3,095,363 ) ( 2,490,062 ) ( 2,048,371 ) Financial services costs ( 72,578 ) ( 54,797 ) ( 32,575 ) Selling, general and administrative ( 389,610 ) ( 341,710 ) ( 301,525 ) Loss on debt extinguishment ( 14,458 ) — ( 10,832 ) Inventory impairment and other ( 41 ) ( 2,172 ) ( 4,783 ) Other income (expense) ( 3,142 ) ( 2,211 ) ( 5,190 ) Income before income tax expense 641,122 270,240 132,635 Income tax expense ( 142,618 ) ( 64,083 ) ( 19,641 ) Net income $ 498,504 $ 206,157 $ 112,994 Earnings per share: Basic $ 14.79 $ 6.19 $ 3.66 Diluted $ 14.47 $ 6.13 $ 3.62 Weighted average common shares outstanding: Basic 33,706,782 33,312,554 30,886,382 Diluted 34,444,918 33,610,098 31,186,952 See Notes to Consolidated Financial Statements. F- 5 Table of Contents Century Communities, Inc. Consolidated State ments of Stockholders’ Equity For the Years Ended December 31, 2021, 2020 and 2019 (in thousands) Additional Total Paid-In Retained Stockholders' Shares Amount Capital Earnings Equity Balance at December 31, 2018 30,155 $ 302 $ 595,037 $ 264,020 $ 859,359 Issuance of common stock, net 2,717 27 79,025 — 79,052 Repurchases of common stock ( 83 ) ( 1 ) ( 1,438 ) — ( 1,439 ) Vesting of restricted stock units 430 4 ( 4 ) — — Withholding of common stock upon vesting of restricted stock units ( 152 ) ( 1 ) ( 3,582 ) — ( 3,583 ) Stock-based compensation expense — — 15,316 — 15,316 Net income — — — 112,994 112,994 Balance at December 31, 2019 33,067 $ 331 $ 684,354 $ 377,014 $ 1,061,699 Vesting of restricted stock units 454 5 ( 5 ) — — Withholding of common stock upon vesting of restricted stock units ( 170 ) ( 2 ) ( 5,098 ) — ( 5,100 ) Stock-based compensation expense — — 18,334 — 18,334 Other — — ( 385 ) — ( 385 ) Net income — — — 206,157 206,157 Balance at December 31, 2020 33,351 $ 334 $ 697,200 $ 583,171 $ 1,280,705 Vesting of restricted stock units and issuance of unrestricted common stock awards 675 7 ( 7 ) — — Withholding of common stock upon vesting of restricted stock units ( 265 ) ( 3 ) ( 13,723 ) — ( 13,726 ) Stock-based compensation expense — — 14,377 — 14,377 Cash dividends declared — — 158 ( 15,350 ) ( 15,192 ) Other — — ( 160 ) — ( 160 ) Net income — — — 498,504 498,504 Balance at December 31, 2021 33,761 $ 338 $ 697,845 $ 1,066,325 $ 1,764,508 S ee Notes to Consolidated Financial Statements. F- 6 Table of Contents Century Communities, Inc. Consolidated Statem ents of Cash Flows For the Years Ended December 31, 2021, 2020 and 2019 (in thousands) Year Ended December 31, 2021 2020 2019 Operating activities Net income $ 498,504 $ 206,157 $ 112,994 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 10,912 13,141 13,382 Stock-based compensation expense 14,377 18,334 15,316 Fair value of mortgage loans held for sale and other 5 ( 7,145 ) ( 1,566 ) Loss on debt extinguishment 14,458 — 10,832 Inventory impairment and other 41 2,172 4,783 Deferred income taxes ( 8,701 ) ( 1,861 ) 3,174 Loss on disposition of assets 1,483 1,425 361 Changes in assets and liabilities: Cash held in escrow ( 29,148 ) 12,159 ( 10,964 ) Accounts receivable ( 5,763 ) 5,657 ( 13,974 ) Inventories ( 580,365 ) 94,498 ( 129,024 ) Mortgage loans held for sale ( 72,378 ) ( 90,248 ) ( 72,853 ) Prepaid expenses and other assets ( 76,478 ) 3,142 43,108 Accounts payable ( 23,033 ) 22,918 ( 5,113 ) Accrued expenses and other liabilities 54,933 60,229 ( 39,263 ) Net cash provided by (used in) operating activities ( 201,153 ) 340,578 ( 68,807 ) Investing activities Purchases of property and equipment ( 11,576 ) ( 9,004 ) ( 16,797 ) Proceeds from sale of property and equipment and intangible asset 2,666 482 2,410 Proceeds from secured note receivable and other 2,434 117 104 Net cash used in investing activities ( 6,476 ) ( 8,405 ) ( 14,283 ) Financing activities Borrowings under revolving credit facilities 30,000 678,000 1,548,500 Payments on revolving credit facilities ( 30,000 ) ( 746,700 ) ( 1,682,300 ) Proceeds from issuance of senior notes due 2029 500,000 — — Extinguishment of senior notes due 2025 ( 411,752 ) — — Proceeds from issuance of senior notes due 2027 — — 500,000 Extinguishment of senior notes due 2022 — — ( 391,942 ) Proceeds from issuance of insurance premium notes and other 21,484 5,778 13,719 Principal payments on insurance premium notes and other ( 15,532 ) ( 8,769 ) ( 20,237 ) Debt issuance costs ( 6,159 ) ( 392 ) ( 6,140 ) Net proceeds from mortgage repurchase facilities 72,826 84,955 69,540 Net proceeds from issuances of common stock — — 79,052 Withholding of common stock upon vesting of restricted stock units ( 13,726 ) ( 5,100 ) ( 3,583 ) Repurchases of common stock under stock repurchase program — — ( 1,439 ) Dividend payments ( 15,192 ) — — Other ( 160 ) ( 385 ) — Net cash provided by financing activities 131,789 7,387 105,170 Net increase (decrease) $ ( 75,840 ) $ 339,560 $ 22,080 Cash and cash equivalents and Restricted cash Beginning of period 398,081 58,521 36,441 End of period $ 322,241 $ 398,081 $ 58,521 Supplemental cash flow disclosure Cash paid for income taxes $ 155,590 $ 48,789 $ 26,936 Cash and cash equivalents and Restricted cash Cash and cash equivalents $ 316,310 $ 394,001 $ 55,436 Restricted cash (Note 6) 5,931 4,080 3,085 Cash and cash equivalents and Restricted cash $ 322,241 $ 398,081 $ 58,521 See Notes to Consolidated Financial Statements. ‎ F- 7 Table of Contents Century Communities, Inc. No t es to the Consolidated Financial Statements December 31, 2021, 2020 and 2019 1. Nature of Operations and Summary of Significant Accounting Policies Nature of Operations Century Communities, Inc. (which we refer to as “we,” “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 17 states. 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 Century Complete brands. Our Century Communities brand offers a wide range of buyer profiles including: entry-level, first and second time move-up, and lifestyle homebuyers, and provides our homebuyers with the ability to personalize their homes through certain option and upgrade selections. Our Century Complete brand targets entry-level homebuyers, primarily sells homes through retail studios and the internet, and generally provides no option or upgrade selections. Our homebuilding operations are organized into the following five reportable segments: West, Mountain, Texas, Southeast, and Century Complete. 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, primarily to our home buyers have been identified as our Financial Services segment. Principles of Consolidation The 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 do not have any variable interest entities in which we are deemed the primary beneficiary. All intercompany accounts and transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles (which we refer to as “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. Cash and Cash Equivalents The Company considers all liquid investments with original maturities of three months or less to be cash equivalents. Cash Held in Escrow Cash held in escrow consists of amounts related to the proceeds from home closings held for our benefit in escrow, which are typically held for a few days. Accounts Receivable Accounts receivable primarily consists of rebates receivables, receivables under insurance policies, and income tax receivables. We periodically review the collectability of our accounts receivable, and, if it is determined that a receivable might not be fully collectible, an allowance is recorded for the amount deemed uncollectible. Inventories and Cost of Sales We capitalize pre-acquisition, land, development, and other allocated costs, including interest, during development, periods of entitlement, and home construction. Land, development, and other common costs are allocated to inventory using the relative-sales-value method; however, as lots within a project typically have comparable market values, we generally allocate land, development, and common costs equally to each lot within the project. Home construction costs are recorded using the specific-identification method. Cost of sales for homes closed includes the allocation of construction costs of each home and all applicable land acquisition, land development, and related common costs, both incurred and estimated to be incurred. Changes to estimated total development costs subsequent to initial home closings in a community are generally allocated to the remaining homes in the community. F- 8 Table of Contents When a home is closed, the Company generally has not paid all incurred costs necessary to complete the home, and a liability and a charge to cost of home sales revenues are recorded for the amount that is estimated will ultimately be paid related to completed homes. Inventories are carried at cost unless events and circumstances indicate that the carrying value may not be recoverable. We review for indicators of impairment at the lowest level of identifiable cash flows, which we have determined to be the community level. Indicators of impairment include, but are not limited to, significant decreases in local housing market values and selling prices of comparable homes, decreases in actual or trending gross margins or sales absorption rates, significant unforeseen cost in excess of budget, and actual or projected cash flow losses. If an indicator of impairment is identified, we estimate the recoverability of the community by comparing the estimated future cash flows on an undiscounted basis to its carrying value. If the undiscounted cash flows are more than the carrying value, the community is recoverable and no impairment is recorded. If the undiscounted cash flows are less than the community’s carrying value, we generally estimate the fair value using a discounted cash flow approach. A community with a fair value less than its carrying value is impaired and is written down to fair value. When estimating cash flows of a community, we make various assumptions, including the following: (i) expected sales prices and sales incentives to be offered, including the number of homes available, pricing and incentives being offered by us or other builders in other communities, and future sales price adjustments based on market and economic trends; (ii) expected sales pace based on local housing market conditions, competition, and historical trends; (iii) costs expended to date and expected to be incurred, including, but not limited to, land and land development costs, home construction costs, interest costs, indirect construction and overhead costs, and selling and marketing costs; and (iv) alternative uses for the property. For the year ended December 31, 2021, we recorded nominal impairment charges on one community and for the year ended December 31, 2020, we recorded impairment charges on four communities totaling $ 2.2 million. Inventory impairments are included in inventory impairment and other in our consolidated statements of operations. Home Sales Revenues and Profit Recognition As defined in the Accounting Standards Codification (which we refer to as “ASC”) 606, Revenue from Contracts with Customers (“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 a few days. When it is determined that the earnings process is not complete and we have remaining performance obligations that are material in the context of the contract, 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 and we collect these deposits at the time a home buyer’s contract is accepted. 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 $ 56.8 million and $ 30.6 million at December 31, 2021 and December 31, 2020, respectively. Performance Deposits We are occasionally required to make a land, bond, and utility deposit as each new development is started. These amounts typically are refundable as each home is delivered. Performance deposits are included in prepaid expenses and other assets on the consolidated balance sheet. Lot Option and Escrow Deposits We enter into lot option and purchase agreements with unrelated parties to acquire lots for the construction of homes. Under these agreements, we have paid deposits, which in many cases are non-refundable, in consideration for the right, but not the obligation, to purchase land or lots at a future point in time with predetermined terms. Lot option and escrow deposits are included in prepaid expenses and other assets on the consolidated balance sheet. Model Homes 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. F- 9 Table of Contents Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is charged to expense on the straight-line basis over the estimated useful life of each asset. The estimated useful lives for each major depreciable classification of property and equipment are as follows: Years Leasehold improvements, furniture and fixtures, and other 2 - 40 years Machinery and equipment 3 - 25 years Model furnishings 2 - 3 years Computer hardware and software 1 - 5 years Mortgage Loans Held for Sale and Revenue Recognition Mortgage loans held for sale, mortgage servicing rights, mortgage loans in process for which interest rates were committed to the borrowers (referred to as “interest rate lock commitments”), and the derivative instruments used to economically hedge our interest rate risk, which are typically forward commitments on mortgage-backed securities, forward commitments, and investor commitments, are carried at fair value. Changes in fair value are reflected in financial services revenue on the consolidated statements of operations. Management believes carrying loans held for sale at fair value improves financial reporting by mitigating volatility in reported earnings caused by measuring the fair value of the loans, interest rate lock commitments, and the derivative instruments used to economically hedge them. Also included in financial services revenue are gains and losses from the sale of mortgage loans held for sale, which are recognized based upon the difference between the sales proceeds and carrying value of the related loans upon sale and loan origination fees. Loan origination fees represent revenue earned from originating mortgage loans, which generally represent a flat per loan fee based on a percentage of the original principal loan balance, as well as discount points to reduce interest rates, and are recognized at the time the mortgage loans are funded. Stock-Based Compensation We account for stock-based awards in accordance with ASC 718, Compensation—Stock Compensation . ASC 718 requires us to estimate the grant date fair value of stock-based compensation awards and to recognize the fair value as compensation costs over the requisite service period, which is generally three years, for all awards that vest. We value our restricted stock units and awards in the form of unrestricted shares of common stock equal to the closing price of our common stock on the New York Stock Exchange on the date of grant. Stock-based compensation expense associated with outstanding performance share units is measured using the grant date fair value and is based on the estimated achievement of the established performance criteria at the end of each reporting period until the performance period ends, recognized on a straight-line basis over the performance period. Stock-based compensation expense is only recognized for performance share units that we expect to vest, which we estimate based upon an assessment of the probability that the performance criteria will be achieved. The performance share units granted during the fiscal years ended December 31, 2021, 2020, and 2019 have three-year performance-based metrics measured over performance periods ending on December 31 of each three-year period. Stock-based compensation expense associated with outstanding performance share units is updated for actual forfeitures. Income Taxes We account for income taxes in accordance with ASC 740, Income Taxes , which requires recognition of deferred tax assets and liabilities at enacted income tax rates for the temporary differences between the financial reporting bases and the tax bases of its assets and liabilities. Any effects of changes in income tax rates or tax laws are included in the provision for income taxes in the period of enactment. When it is more likely than not that a portion or all of a deferred tax asset will not be realized in the future, the Company records a corresponding valuation allowance against the deferred tax asset. As of December 31, 2021 and 2020, we had no valuation allowance recorded against our deferred tax assets. In addition, when it is more likely than not that a tax position will be sustained upon examination by a tax authority that has full knowledge of all relevant information, the Company measures the amount of tax benefit from the position and records the largest amount of tax benefit that is more likely than not of being realized after settlement with a tax authority. The Company’s policy is to recognize interest to be paid on an underpayment of income taxes in interest expense and any related statutory penalties in the provision for income taxes on the consolidated statements of operations. As of December 31, 2021 and 2020 we had no reserves for uncertain tax positions. F- 10 Table of Contents Goodwill We evaluate goodwill for possible impairment in accordance with ASC 350, Intangibles–Goodwill and Other, on an annual basis, or more frequently if events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We use a two step process to assess whether or not goodwill can be realized. The first step is a qualitative assessment that analyzes current economic indicators associated with a particular reporting unit. If the qualitative assessment indicates a stable or improved fair value, no further testing is required. If a qualitative assessment indicates that a significant decline to fair value of a reporting unit is more likely than not, we will proceed to the second step where we calculate the fair value of a reporting unit based on discounted future cash flows. If this step indicates that the carrying value of a reporting unit is in excess of its fair value, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. As of December 31, 2021 and 2020, we determined our goodwill was no t impaired. Business Combinations We account for business combinations in accordance with ASC 805, Business Combinations , if the acquired assets assumed and liabilities incurred constitute a business. We consider acquired companies to constitute a business if the acquired net assets and processes have the ability to create outputs in the form of revenue. For acquired companies constituting a business, we recognize the identifiable assets acquired and liabilities assumed at their acquisition-date fair values and recognize any excess of total consideration paid over the fair value of the identifiable net assets as goodwill. Variable Interest Entities (“VIEs”) We review land option contracts where we have a non-refundable deposit to determine whether the corresponding land seller is a VIE and, if so, whether we are the primary beneficiary. Although we do not have legal title to the underlying land, we are required to consolidate a VIE if we are the primary beneficiary. In determining whether we are the primary beneficiary, we consider, among other things, whether we have the power to direct the activities that most significantly impact the economic performance of the VIE. In making this determination, we consider whether we have the power to direct certain activities, including, but not limited to, determining or limiting the scope or purpose of the VIE, the ability to sell or transfer property owned or controlled by the VIE, or arranging financing for the VIE. As a result of our analysis, we determined that as of December 31, 2021 and 2020, we were not the primary beneficiary of any VIE from which we have acquired rights to land under the land option contract. As of December 31, 2021 and 2020, we had non-refundable cash deposits totaling $ 38.1 million and $ 31.3 million, respectively, classified in prepaid expenses and other assets in our consolidated balance sheets for land option contracts. The non-refundable deposit is our maximum exposure to loss for the transactions as of December 31, 2021 and 2020, respectively. Advertising and Marketing Costs Advertising and marketing costs are expensed as incurred and totaled $ 7.7 million, $ 11.3 million and $ 17.0 million for the years ended December 31, 2021, 2020 and 2019, respectively. Advertising and marketing costs are included in selling, general and administrative on the consolidated statement of operations. Self-Insurance We maintain general liability insurance coverage, including coverage for certain construction defects. These insurance policies protect us against a portion of the risk of loss from claims, subject to certain self-insured per occurrence and aggregate retentions, deductibles, and available policy limits. In circumstances where we have elected to retain a higher portion of the overall risk for construction defect claims in return for a lower initial premium, we reserve for the costs that are above our coverage limits or that are not covered by our insurance policies. The reserve is recorded on an undiscounted basis at the time revenue is recognized for each home closing. Amounts accrued, which are included in other accrued liabilities within accrued expenses and other liabilities on the consolidated balance sheets, are based on third party actuarial analyses of our historical claims and industry data, which include estimates of claims incurred but not yet reported. Adjustments to estimated reserves are recorded in the period in which the change in estimate occurs. Our self-insurance liability is presented on a gross basis without consideration of insurance recoveries and amounts we have paid on behalf of and expect to recover from other parties, if any. Estimates of insurance recoveries and amounts we have paid on behalf of and expect to recover from other parties, if any, are recorded as receivables when such recoveries are considered probable. As of December 31, 2021, our accrual for incurred but not reported construction defect claims was $ 5.1 million. As of December 31, 2020, we had no accrual recorded for incurred but not reported construction defect claims. F- 11 Table of Contents Reclassifications Certain prior period amounts have been reclassified to conform to current period presentation. Recently Adopted Accounting Standards Income Taxes In December 2019, the Financial Accounting Standards Board (which we refer to as “FASB”) issued Accounting Standards Update (which we refer to as “ASU”) No. 2019-12, “ Income Taxes (Topic 740) : Simplifying the Accounting for Income Taxes” (which we refer to as “ASU 2019-12”). The standard simplifies the accounting for income taxes, eliminates certain exceptions, and clarifies certain aspects of ASC 740 to promote consistency among reporting entities. We adopted this standard on January 1, 2021 with no material effect on the consolidated financial statements and related disclosures. 2. Reporting Segments Our homebuilding operations are engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in 17 states. We build and sell homes under our Century Communities and Century Complete brands. Our Century Communities brand is managed by geographic location, and each of our four geographic regions offers a wide range of buyer profiles including: entry-level, first and second time move-up, and lifestyle 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 Century Complete brand targets entry-level homebuyers, primarily sells homes through retail studios and the internet, and generally provides no option or upgrade selections. Our Century Complete brand currently has operations in 11 states and is managed separately from our four geographic regions. Accordingly, it is considered a separate operating segment. The management of our four Century Communities geographic regions and Century Complete 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 five reportable segments:  West (California and Washington)  Mountain (Arizona, Colorado, Nevada and Utah)  Texas  Southeast (Florida, Georgia, North Carolina, South Carolina and Tennessee)  Century Complete (Alabama, Arizona, Florida, Georgia, Indiana, Kentucky, 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 are 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 legal departments. F- 12 Table of Contents The following table summarizes total revenue and income before income tax expense by segment (in thousands): Year Ended December 31, 2021 2020 2019 Revenue: West $ 1,022,523 $ 683,138 $ 534,613 Mountain 1,151,911 860,041 729,045 Texas 481,915 339,346 252,921 Southeast 663,728 672,790 548,661 Century Complete 772,499 502,569 427,409 Financial Services 123,738 103,308 43,262 Corporate — — — Total revenue $ 4,216,314 $ 3,161,192 $ 2,535,911 Income (loss) before income tax expense: West $ 213,301 $ 71,417 $ 43,027 Mountain 212,335 114,722 89,201 Texas 68,565 34,694 25,866 Southeast 92,420 57,181 31,435 Century Complete 109,213 33,449 22,044 Financial Services 51,160 48,511 10,687 Corporate ( 105,872 ) ( 89,734 ) ( 89,625 ) Total income before income tax expense $ 641,122 $ 270,240 $ 132,635 The following table summarizes total assets by segment (in thousands): December 31, December 31, 2021 2020 West $ 668,830 $ 536,907 Mountain 1,008,481 778,198 Texas 322,302 207,746 Southeast 360,644 329,930 Century Complete 371,096 218,604 Financial Services 533,159 421,153 Corporate 232,364 352,555 Total assets $ 3,496,876 $ 2,845,093 Corporate assets include certain cash and cash equivalents, certain property and equipment, prepaid insurance, and deferred financing costs on our revolving line of credit. F- 13 Table of Contents 3. Inventory Inventory included the following (in thousands): December 31, December 31, 2021 2020 Homes under construction $ 1,188,270 $ 1,040,584 Land and land development 1,214,965 828,242 Capitalized interest 53,379 60,838 Total inventories $ 2,456,614 $ 1,929,664 4. Financial Services Our Financial Services are principally comprised of our mortgage lending operations, Inspire. Inspire is a full-service mortgage lender and primarily originates mortgage loans for our homebuyers. Inspire sells substantially all of the loans it originates either as loans with servicing rights released, or with servicing rights retained, in the secondary mortgage market within a short period of time after origination, generally within 30 days. Inspire primarily finances these loans using its mortgage repurchase facilities. Mortgage loans in process for which interest rates were locked by borrowers, or interest rate lock commitments, totaled approximately $ 164.3 million and $ 172.3 million at December 31, 2021 and 2020, respectively, and carried a weighted average interest rate of approximately 3.3 % and 2.8 %, respectively. As of December 31, 2021 and 2020, Inspire had mortgage loans held for sale with an aggregate fair value of $ 353.1 million and $ 282.6 million, respectively, and an aggregate outstanding principal balance of $ 342.0 million and $ 269.6 million, respectively. Our net gains on the sale of mortgage loans were $ 85.3 million, $ 87.6 million and $ 32.2 million for the years ended December 31, 2021, 2020, and 2019, respectively, and are included in financial services revenue on the consolidated statements of operations. Interest rate risks related to mortgage loans held for sale and interest rate lock commitments are typically mitigated by utilizing forward commitments on mortgage-backed securities, forward commitments, and investor commitments to protect the value from fluctuations in mortgage-related interest rates. 5. Property and Equipment Property and equipment included the following (in thousands): December 31, December 31, 2021 2020 Land $ — $ 2,245 Leasehold improvements, furniture and fixtures, and other 10,038 10,478 Machinery and equipment 11,470 11,752 Model furnishings 24,427 27,109 Computer hardware and software 17,227 13,572 63,162 65,156 Less accumulated depreciation ( 38,223 ) ( 36,772 ) Total property and equipment, net $ 24,939 $ 28,384 F- 14 Table of Contents 6. Prepaid Expenses and Other Assets Prepaid expenses and other assets included the following (in thousands): December 31, December 31, 2021 2020 Prepaid insurance $ 37,814 $ 18,699 Lot option and escrow deposits 61,649 39,985 Performance deposits 11,196 9,372 Deferred financing costs on revolving line of credit, net 5,135 3,206 Restricted cash (1) 5,931 4,080 Secured note receivable — 2,434 Right of use assets 16,939 16,175 Other assets and prepaid expenses 28,322 8,082 Mortgage loans held for investment 13,456 8,727 Derivative assets and mortgage servicing rights 19,645 11,870 Total prepaid expenses and other assets $ 200,087 $ 122,630 (1) Restricted cash consists of earnest money deposits for home sale contracts held by third parties as required by various jurisdictions, and certain pledge balances associated with our mortgage repurchase facilities. 7. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities included the following (in thousands): December 31, December 31, 2021 2020 Earnest money deposits $ 56,811 $ 30,578 Warranty reserve 13,343 13,824 Accrued compensation costs 81,604 60,692 Land development and home construction accruals 88,155 80,088 Liability for product financing arrangements — 62,084 Accrued interest 9,653 13,649 Lease liabilities - operating leases 17,359 16,801 Income taxes payable 1,684 3,118 Derivative liabilities 359 3,807 Other accrued liabilities 47,909 18,110 Total accrued expenses and other liabilities $ 316,877 $ 302,751 8. Warranties Estimated future direct warranty costs are accrued and charged to cost of home sales revenues in the period when the related home sales revenues are recognized . Amounts accrued, which are included in accrued expenses and other liabilities on the consolidated balance sheets, are based upon historical experience rates. We subsequently assess the adequacy of our warranty accrual on a quarterly basis through a model that incorporates historical payment trends and adjust the amounts recorded if necessary. Based on favorable warranty payment trends relative to our estimates at the time of home closing, we reduced our warranty reserve by $ 5.4 million, $ 2.4 million and $ 1.9 million during the years ended December 31, 2021, 2020 and 2019, respectively, which is included as a reduction to cost of home F- 15 Table of Contents sales revenues on our consolidated statements of operations. Changes in our warranty accrual for the years ended December 31, 2021, 2020 and 2019 are detailed in the table below (in thousands): Year Ended December 31, 2021 2020 2019 Beginning balance $ 13,824 $ 9,731 $ 7,970 Warranty expense provisions 10,512 9,592 7,727 Payments ( 5,615 ) ( 3,056 ) ( 4,024 ) Warranty adjustment ( 5,378 ) ( 2,443 ) ( 1,942 ) Ending balance $ 13,343 $ 13,824 $ 9,731 9. Debt Our outstanding debt obligations included the following as of December 31, 2021 and 2020 (in thousands): December 31, December 31, 2021 2020 3.875 % senior notes, due August 2029 (1) $ 494,117 $ — 6.750 % senior notes, due May 2027 (1) 495,581 494,768 5.875 % senior notes, due July 2025 (1) — 396,821 Other financing obligations 9,238 3,286 Notes payable 998,936 894,875 Revolving line of credit — — Mortgage repurchase facilities 331,876 259,050 Total debt $ 1,330,812 $ 1,153,925 (1) The carrying value of senior notes reflects the impact of premiums, discounts, and issuance costs that are amortized to interest cost over the respective terms of the senior notes. Issuance of 3.875% Senior Notes Due 2029 In August 2021, we completed a private offering of $ 500.0 million aggregate principal amount of our 3.875 % Senior Notes due 2029 (which we refer to as the “2029 Notes”) in reliance on Rule 144A and Regulation S under the Securities Act of 1933, as amended (which we refer to as the “Securities Act”). The 2029 Notes were issued under an Indenture, dated as of August 23, 2021, among the Company, our subsidiary guarantors party thereto, and U.S. Bank National Association, as trustee (which we refer to as the “August 2021 Indenture,” as it may be supplemented or amended from time to time). The 2029 Notes were issued at 100% of their principal amount and we received proceeds of $ 493.8 million, net of $ 6.2 million in issuance costs. The August 2021 Indenture contains certain restrictive covenants on issuing future secured debt and other transactions. The aggregate principal balance of the 2029 Notes is due August 2029, with interest only payments due semi-annually in February and August of each year, beginning on February 15, 2022. As of December 31, 2021, the aggregate obligation, inclusive of unamortized financing costs on the 2029 Notes was $ 494.1 million. The issuance of the 2029 Notes, along with the redemption and extinguishment of our 5.875 % Senior Notes due 2025 discussed below, effectively extended the maturity of our senior notes by more than four years , increased the aggregate principal amount by $ 100.0 million and reduced our weighted average rate on our senior notes by approximately 105 basis points. F- 16 Table of Contents 6.750% Senior Notes Due 2027 In May 2019, we completed a private offering of $ 500.0 million aggregate principal amount of the Company’s Initial 6.750 % Senior Notes due 2027 (which we refer to as the “Initial Notes due 2027”) in reliance on Rule 144A and Regulation S under the Securities Act of 1933. The Initial Notes due 2027 were issued under the Indenture, dated as of May 23, 2019, among the Company, our subsidiary guarantors party thereto, and U.S. Bank National Association, as trustee (which we refer to as the “May 2019 Indenture,” as it may be supplemented or amended from time to time). The Initial Notes due 2027 were issued at 100 % of their principal amount and we received net proceeds of $ 493.9 million. In connection with this issuance, we deferred $ 6.1 million of issuance costs, which is presented in the notes payable line item of the consolidated balance sheet. In February 2020, we completed an offer to exchange approximately $ 500.0 million in aggregate principal amount of our Initial Notes due 2027, which are registered under the Securities Act (which we refer to as the “Exchange Notes due 2027”), for an equivalent amount of the Initial Notes due 2027 that were tendered and accepted for exchange. The terms of the Exchange Notes due 2027 are identical in all material respects to the Initial Notes due 2027, except that the Exchange Notes due 2027 are registered under the Securities Act and the transfer restrictions, registration rights, and additional interest provisions that are applicable to the Initial Notes due 2027 do not apply to the Exchange Notes due 2027. The Initial Notes due 2027 and Exchange Notes due 2027 (which we refer to collectively, as the “Existing Notes due 2027”) will be treated as a single series of notes under the May 2019 Indenture, and will vote as a single class of notes for all matters submitted to a vote of holders under the May 2019 Indenture. The Existing Notes due 2027 are unsecured senior obligations which are guaranteed on an unsecured senior basis by certain of our current and future subsidiaries. The May 2019 Indenture governing the Existing Notes due 2027 contains certain restrictive covenants on issuing future secured debt and other transactions. The aggregate principal balance of the Existing Notes due 2027 is due July 2027, with interest only payments due semi-annually in June and December of each year, which began on December 1, 2019. As of December 31, 2021, the aggregate obligation, inclusive of unamortized financing costs on the Existing Notes due 2027, was $ 495.6 million. Redemption and Extinguishment of 5.875% Senior Notes Due 2025 During the year ended December 31, 2021, we redeemed $ 400.0 million in outstanding principal of our 5.875% Senior Notes due 2025 at a redemption price equal to 102.938 % of the principal amount, plus accrued and unpaid interest, totaling $ 414.8 million. The redemption transaction resulted in a $ 14.5 million loss on debt extinguishment in our consolidated statement of operations. Revolving Line of Credit On May 21, 2021, we entered into a Second Amended and Restated Credit Agreement (which we refer to as the “Second A&R Credit Agreement”) with Texas Capital Bank, National Association, as Administrative Agent and L/C Issuer, and the lenders party thereto. The Second A&R Credit Agreement, which amended and restated our prior Amended and Restated Credit Agreement , provides us with a senior unsecured revolving line of credit (which we refer to as the “Credit Facility”) of up to $ 800.0 million, and unless terminated earlier, will mature on April 30, 2026 . The Credit Facility includes a $ 250.0 million sublimit for standby letters of credit. Under the terms of the Second A&R Credit Agreement, the Company is entitled to request an increase in the size of the Credit Facility by an amount not exceeding $ 200 million. Our obligations under the Second A&R Credit Agreement are guaranteed by certain of our subsidiaries. The Second A&R Credit Agreement contains customary affirmative and negative covenants (including limitations on our ability to grant liens, incur additional debt, pay dividends, redeem our common stock, make certain investments and engage in certain merger, consolidation or asset sale transactions), as well as customary events of default. Borrowings under the Second A&R Credit Agreement bear interest at a floating rate equal to the adjusted Eurodollar Rate plus an applicable margin between 2.05 % and 2.65 % per annum, and if made available in the Administrative Agent’s discretion , a base rate plus an applicable margin between 1.05 % and 1.65 % per annum. As of December 31, 2021, no amounts were outstanding under the credit facility and were in compliance with all covenants. Mortgage Repurchase Facilities – Financial Services On May 4, 2018, September 14, 2018 and August 1, 2019, Inspire entered into mortgage warehouse facilities, with Comerica Bank, J.P. Morgan and Wells Fargo, respectively. The mortgage warehouse lines of credit (which we refer to as the “Repurchase Facilities”), which were increased during 2020, provide Inspire with uncommitted repurchase facilities of up to $ 400 million as of December 31, 2021, secured by the mortgage loans financed thereunder. The repurchase facilities have varying short term maturity dates through August 23, 2022 and bear a weighted average interest rate of 2.13 %. Amounts outstanding under the Repurchase Facilities are not guaranteed by us or any of our subsidiaries and the agreements contain various affirmative and negative covenants applicable to Inspire that are customary for arrangements of this type. As of December 31, F- 17 Table of Contents 2021 and 2020, we had $ 331.9 million and $ 259.1 million outstanding under these Repurchase Facilities, respectively, and were in compliance with all covenants thereunder. During the years ended December 31, 2021 and 2020, we incurred interest expense on our Repurchase Facilities of $ 2.1 million and $ 3.0 million, respectively, which are included in financial services costs on our consolidated statements of operations. Other Financing Obligations As of December 31, 2021, we had no outstanding land development notes and $ 9.2 million of outstanding insurance premium notes, compared to $ 2.0 million of outstanding land development notes and $ 1.3 million outstanding insurance premium notes as of December 31, 2020. Aggregate annual maturities of debt as of December 31, 2021 are as follows (in thousands): 2022 $ 341,114 2023 — 2024 — 2025 — 2026 — Thereafter 1,000,000 Total 1,341,114 Less: Discount and deferred financing costs, net on senior notes ( 10,302 ) Carrying amount $ 1,330,812 During the years ended December 31, 2021 and 2020, we paid approximately $ 59.2 million and $ 66.8 million, respectively, in interest expense payments. 10. Interest Interest is capitalized to inventories while the related communities are being actively developed and until homes are completed. As our qualifying assets exceeded our outstanding debt during the years ended December 31, 2021, 2020, and 2019, we capitalized all interest costs incurred during these periods, except for interest incurred on our mortgage repurchase facilities. Our interest costs are as follows (in thousands): Year Ended December 31, 2021 2020 2019 Interest capitalized beginning of period $ 60,838 $ 67,069 $ 53,842 Interest capitalized during period 59,387 65,771 74,377 Less: capitalized interest in cost of sales ( 66,846 ) ( 72,002 ) ( 61,150 ) Interest capitalized end of period $ 53,379 $ 60,838 $ 67,069 11. Income Taxes Our income tax expense for the years ended December 31, 2021, 2020 and 2019 comprises the following current and deferred amounts (in thousands): Year Ended December 31, 2021 2020 2019 Current Federal $ 120,448 $ 51,741 $ 9,113 State and local 30,871 14,203 7,354 Total current 151,319 65,944 16,467 Deferred Federal ( 7,151 ) ( 1,375 ) 2,528 State and local ( 1,550 ) ( 486 ) 646 Total deferred ( 8,701 ) ( 1,861 ) 3,174 Income tax expense $ 142,618 $ 64,083 $ 19,641 F- 18 Table of Contents Total income tax expense differed from the amounts computed by applying the federal statutory income tax rate of 21 % for the years ended December 31, 2021, 2020, and 2019, to income before income taxes as a result of the following items (in thousands): Year Ended December 31, 2021 2020 2019 Statutory income tax expense $ 134,636 $ 56,730 $ 27,844 State income tax expense, net of federal income tax expense 24,123 11,153 5,483 Executive compensation 3,520 4,566 4,123 Excess tax benefits upon vesting of share based payment awards ( 764 ) ( 108 ) ( 252 ) Federal energy credits ( 16,451 ) ( 8,549 ) ( 17,256 ) State tax credits ( 1,220 ) ( 900 ) — Other ( 1,226 ) 1,191 ( 301 ) Income tax expense $ 142,618 $ 64,083 $ 19,641 Income tax expense for the years ended December 31, 2021, 2020, and 2019 was impacted by benefits of $ 16.5 million, $ 8.5 million, and $ 17.3 million, respectively, associated with the Energy Efficient Home Credit under Internal Revenue Code Section 45L (which we refer to as “Federal Energy Credits”). The Federal Energy Credits provide eligible contractors a federal income tax credit of $ 2,000 for each home delivered that meets the energy saving and certification requirements under the statute. On December 27, 2020, an extension of the Federal Energy Credits was enacted into law, extending the current provisions through December 31, 202 1, and no similar legislation has been enacted as of the date of this Form 10-K, and it is uncertain whether an extension or similar tax credit will be adopted or available in the future or the scope of any modified program requirements. Deferred income tax assets and liabilities are recognized for the future tax consequences of temporary differences. Temporary differences arise when revenues and expenses for financial reporting are recognized for tax purposes in a different period. ASC 740 requires that a valuation allowance be recorded against deferred tax assets unless it is more likely than not that the deferred tax assets will be utilized. As a result of this analysis, the Company has no t recorded a valuation allowance against its deferred tax assets. The Company will continue to evaluate the need to record valuation allowances against deferred tax assets and will make adjustments in accordance with the accounting standard. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2021 and 2020 (in thousands): As of December 31, 2021 2020 Deferred tax assets Warranty reserves $ 3,265 $ 3,389 Stock-based compensation 770 841 Accrued compensation and other 16,151 9,949 Inventories, additional costs capitalized for tax 6,959 2,028 Lease liabilities 4,433 4,245 Other 2,205 1,794 Deferred tax asset 33,783 22,246 Deferred tax liabilities Prepaid expenses ( 246 ) ( 141 ) Property and equipment ( 4,801 ) ( 4,658 ) Mortgage servicing rights ( 3,352 ) ( 1,009 ) Right of use assets ( 4,145 ) ( 3,988 ) Deferred tax liability ( 12,544 ) ( 9,796 ) Net deferred tax asset $ 21,239 $ 12,450 The uncertainty provisions of ASC 740 also require the Company to recognize the impact of a tax position in its consolidated financial statements only if the technical merits of that position indicate that the position is more likely than not of being sustained upon audit. During the years ended December 31, 2021 and 2020 , the Company did no t record a reserve for uncertain tax positions. We file income F- 19 Table of Contents tax returns in the U.S. federal jurisdiction and various state jurisdictions. We are subject to U.S. federal income tax and various state income tax examinations for calendar tax years ending 2016 through 2021 . 12. Fair Value Disclosures Fair value measurements are used for the Company’s mortgage loans held for sale, mortgage loans held for investment, mortgage servicing rights, interest rate lock commitments and other derivative instruments on a recurring basis. We also utilize fair value measurements on a non-recurring basis for inventories, and intangible assets when events and circumstances indicate that the carrying value is not recoverable. The fair value hierarchy and its application to the Company’s assets and liabilities is as follows: Level 1 – Quoted prices for identical instruments in active markets. Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are inactive; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets at measurement date.  Mortgage loans held for sale – Fair value is based on quoted market prices for committed and uncommitted mortgage loans.  Derivative assets and liabilities – Derivative assets are interest rate lock commitments and derivative liabilities are associated with forward commitments and investor commitments on loans. F air value is based on market prices for similar instruments. Level 3 – Valuations derived from techniques where one or more significant inputs or significant value drivers are unobservable in active markets at measurement date.  Mortgage servicing rights – The fair value of the mortgage servicing rights is calculated using third-party valuations. The key assumptions, which are generally unobservable inputs, used in the valuation of the mortgage servicing rights include mortgage prepayment rates, discount rates and cost to service.  Mortgage loans held for investment – The fair value of mortgage loans held for investment is calculated based on Level 3 analysis which incorporates information including the value of underlying collateral, from markets where there is little observable trading activity. The following outlines the Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2021 and 2020, and the changes in the fair value of the Level 3 assets during the years ended December 31, 2021 and 2020: December 31, December 31, Balance Sheet Classification Hierarchy 2021 2020 Mortgage loans held for sale Mortgage loans held for sale Level 2 $ 353,063 $ 282,639 Mortgage loans held for investment (1) Prepaid expenses and other assets Level 3 $ 13,456 $ 8,727 Derivative assets Prepaid expenses and other assets Level 2 $ 5,944 $ 7,755 Mortgage servicing rights (2) Prepaid expenses and other assets Level 3 $ 13,701 $ 4,115 Derivative liabilities Accrued expenses and other liabilities Level 2 $ 359 $ 3,807 (1) The unobservable inputs used in the valuation of the mortgage loans held for investment include the value of underlying collateral, from markets where there is little observable trading activity. (2) The unobservable inputs used in the valuation of the mortgage servicing rights include mortgage prepayment rates, discount rates and cost to service, which were 8.5 %, 9.9 %, and $ 0.085 per year per loan, respectively as of December 31, 2021 and 10.4 %, 9.8 %, and $ 0.084 per year per loan, respectively, as of December 31, 2020. The high and low end of the range of unobservable inputs used in the valuation did not result in a significant change to the fair value measurement. F- 20 Table of Contents The following table represents the reconciliation of the beginning and ending balance for the Level 3 recurring fair value measurements: Year Ended December 31, Mortgage servicing rights 2021 2020 Beginning of period $ 4,115 $ — Originations 10,295 4,115 Settlements ( 920 ) — Changes in fair value 211 — End of period $ 13,701 $ 4,115 Year Ended December 31, Mortgage loans held for investment 2021 2020 Beginning of period $ 8,727 $ 3,385 Transfers from loans held for sale 7,075 7,050 Settlements ( 2,235 ) ( 1,525 ) Reduction in unpaid principal balance ( 213 ) ( 111 ) Changes in fair value 102 ( 72 ) End of period $ 13,456 $ 8,727 For the financial assets and liabilities that the Company does not reflect at fair value, the following present both their respective carrying value and fair value at December 31, 2021 and 2020: December 31, 2021 December 31, 2020 Hierarchy Carrying Fair Value Carrying Fair Value Cash and cash equivalents Level 1 $ 316,310 $ 316,310 $ 394,001 $ 394,001 Secured notes receivable (1) Level 2 $ — $ — $ 2,434 $ 2,448 3.875% senior notes (2)(3) Level 2 $ 494,117 $ 504,375 $ — $ — 5.875% senior notes (2)(3) Level 2 $ — $ — $ 396,821 $ 417,500 6.750% senior notes (2)(3) Level 2 $ 495,581 $ 526,875 $ 494,768 $ 533,750 Revolving line of credit (4) Level 2 $ — $ — $ — $ — Other financing obligations (4)(5) Level 3 $ 9,238 $ 9,238 $ 3,286 $ 3,286 Mortgage repurchase facilities (4) Level 2 $ 331,876 $ 331,876 $ 259,050 $ 259,050 (1) During the year ended December 31, 2021, the secured note receivable was paid in full at $ 2.4 million. Prior year estimated fair value of the secured note receivable was based on cash flow models discounted at market interest rates which considered the underlying risks of the note. (2) Estimated fair value of the senior notes is based on recent trading activity in inactive markets. (3) Carrying amounts include any associated unamortized deferred financing costs, premiums and discounts. As of December 31, 2021, these amounts totaled $ 5.9 million and $ 4.4 million for the 3.875 % senior notes and 6.750 % senior notes, respectively. As of December 31, 2020, these amounts totaled $ 5.2 million and $ 3.2 million for the 6.750 % senior notes and 5.875 % senior notes, respectively. (4) Carrying amount approximates fair value due to short-term nature and interest rate terms. (5) Insurance premium notes included in other financing obligations bore interest rates ranging from 2.99 % to 3.24 % during the year ended December 31, 2021 from 3.20 % to 3.24 % during the year ended December 31, 2020. During the year ended December 31, 2021, we recorded nominal impairment charges for one community. During the year ended December 31, 2020, we determined that inventory with a carrying value before impairment of $ 12.0 million within four communities across our Texas and Century Complete segments was not recoverable. Accordingly, we recognized impairment charges of an aggregate $ 2.2 million to reflect the estimated fair value of the communities of $ 9.8 million. The estimated fair value of the communities was determined through a discounted cash flow approach utilizing Level 3 inputs. Changes in our cash flow projections in future periods related to these communities may change our conclusions on the recoverability of inventory in the future. F- 21 Table of Contents 13. Leases Under ASC 842, the Company determines if a contract is or contains a lease at inception or modification of a contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration. Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset. We primarily enter into operating leases for the right to use office space and computer and office equipment, which have lease terms that generally range from 1 to 7 years and often include one or more options to renew. We include renewal terms in the lease term when it is reasonably certain that we will exercise the option. We establish a right of use asset and a lease liability at the commencement date of the lease based on the present value of future minimum lease payments. As the rate implicit in each lease is not readily determinable, we utilize our incremental borrowing rate in determining the present value of future minimum payments. Our incremental borrowing rate is determined based on information available at the commencement date. We account for the lease components and non-lease components as a single lease component. As of December 31, 2021, the Company had $ 16.9 million and $ 17.4 million recognized as a right of use asset and lease liability, respectively, which are presented on the consolidated balance sheet within prepaid expenses and other assets and accrued expenses and other liabilities, respectively. As of December 31, 2020, the Company had $ 16.2 million and $ 16.8 million recognized as a right of use asset and lease liability, respectively. The Company has entered into various short-term operating leases, primarily for marketing billboards, with an initial term of twelve months or less. These leases are not recorded on our consolidated balance sheet. Under ASC 842, operating lease expense is recognized on a straight-line basis over the lease term. Operating lease expense was $ 7.3 million and $ 6.5 million for the years ended December 31, 2021 and 2020, respectively, which are presented on the consolidated statement of operations within selling, general, and administrative expense. Information related to the Company’s right of use asset and lease liability were as follows (in thousands): Year Ended December 31, 2021 2020 Cash paid for operating lease liabilities $ 6,768 $ 6,074 Right of use assets obtained in exchange for new operating lease obligations $ 6,712 $ 2,815 Weighted-average remaining lease term 3.21 yrs 3.52 yrs Weighted-average discount rate 4.65 % 5.64 % Maturities of lease liabilities as of December 31, 2021 were as follows (in thousands): 2022 $ 5,989 2023 5,893 2024 4,427 2025 1,775 2026 587 Thereafter 17 Total $ 18,688 Less: discount ( 1,329 ) Total lease liabilities $ 17,359 14. Post-Retirement Plan The Company has 401(k) plans available to substantially all employees. The Company generally makes matching contributions of 50 % of employees’ salary deferral amounts on the first 6 % of employees’ compensation. Contributions to the plans during the years ended December 31, 2021, 2020 and 2019 were $ 3.2 million, $ 2.5 million and $ 1.9 million, respectively. 15. Stock-Based Compensation During the years ended December 31, 2021, 2020 and 2019, we granted performance share units (which we refer to as “PSUs”) covering up to 0.2 million, 0.3 million, and 0.3 million shares of common stock, respectively in each year, assuming maximum level of performance, with grant date fair values of $ 58.28 , $ 26.38 , and $ 22.01 , respectively, per share that are subject to both service and F- 22 Table of Contents performance vesting conditions. The quantity of shares that will ultimately vest for the PSUs ranges from 0 % to 250 % of a targeted number of shares for each participant and will be determined based on an achievement of a three year pre-tax income performance goal. During the year ended December 31, 2021, 0.3 million PSUs of common stock vested that were granted in 2018. Approximately 0.8 million shares will vest in 2022 to 2024 if the defined maximum performance targets are met, and no shares will vest if the defined minimum performance targets are not met. During the years ended December 31, 2021, 2020 and 2019, we also granted restricted stock units (which we refer to as “RSUs”) covering 0.2 million, 0.4 million and 0.6 million shares of common stock, respectively, with grant date fair values of $ 53.21 , $ 30.44 and $ 23.85 per share, respectively, that vest over a 1 to 3 year period. During the year ended December 31, 2021, we granted 7.0 thousand shares of common stock on an unrestricted basis (which we refer to as “stock awards”) with grant date fair values of $ 78.30 to our non-employee directors. The following table summarizes the activity of our PSUs, RSUs, and stock awards for the years ended December 31, 2021, 2020 and 2019 (in thousands): Year Ended December 31, 2021 2020 2019 Shares Weighted average per share grant date fair value Shares Weighted average per share grant date fair value Shares Weighted average per share grant date fair value Outstanding, beginning of year 1,462 $ 26.76 1,219 $ 24.64 846 $ 25.14 Granted 347 55.60 701 28.90 882 23.49 Vested ( 675 ) 29.31 ( 454 ) 24.42 ( 430 ) 23.53 Forfeited ( 30 ) 37.68 ( 4 ) 28.56 ( 79 ) 24.99 Outstanding, end of year 1,104 $ 31.48 1,462 $ 26.76 1,219 $ 24.64 A summary of our outstanding RSUs and PSUs, assuming current estimated level of performance achievement, are as follows (in thousands, except years): As of December 31, 2021 Unvested units 1,104 Unrecognized compensation cost $ 17,206 Weighted-average period to recognize compensation cost 1.69 During the years ended December 31, 2021, 2020 and 2019, the Company recognized stock-based compensation expense of $ 14.4 million, $ 18.3 million and $ 15.3 million, respectively, which is generally included in selling, general and administrative on the consolidated statements of operations . 16. Stockholders’ Equity The Company’s authorized capital stock consists of 100.0 million shares of common stock, par value $ 0.01 per share, and 50.0 million shares of preferred stock, par value $ 0.01 per share. As of December 31, 2021, and 2020, there were 33.8 million and 33.4 million shares of common stock issued and outstanding, respectively, and no shares of preferred stock outstanding. On May 10, 2017, our stockholders approved the adoption of the Century Communities, Inc. 2017 Omnibus Incentive Plan (which we refer to as our “2017 Incentive Plan”), which replaced our First Amended & Restated 2013 Long-Term Incentive Plan. We had reserved a total of 1.8 million shares of our common stock for issuance under our First Amended & Restated 2013 Long-Term Incentive Plan, of which approximately 0.6 million shares rolled over into the 2017 Incentive Plan when it became effective. On May 8, 2019, our stockholders approved the Century Communities, Inc. Amended and Restated 2017 Omnibus Incentive Plan (which we refer to as our “Amended 2017 Incentive Plan”), which increased the number of shares of our common stock authorized for issuance under the 2017 Incentive Plan by an additional 1.6 million shares. We issued 0.7 million and 0.5 million shares of common stock related to the vesting of RSUs and stock awards during the years ended December 31, 2021 and 2020, respectively . As of December 31, 2021, approximately 0.7 million shares of common stock remained available for issuance under the Amended 2017 Incentive Plan. On November 27, 2019, we entered into a Distribution Agreement with J.P. Morgan Securities LLC, BofA Securities, Inc., Citigroup Global Markets Inc., and Fifth Third Securities, Inc. (which we refer to as the “Distribution Agreement”), as sales agents pursuant to which we may offer and sell shares of our common stock having an aggregate offering price of up to $ 100.0 million from time to time through any of the sales agents party thereto in “at-the-market” offerings, in accordance with the terms and conditions set forth in the Distribution Agreement. This Distribution Agreement, which superseded and replaced a prior similar distribution agreement, and was amended in July 2021 to acknowledge our filing of a new registration statement on Form S-3 registering the issuance and sale of shares F- 23 Table of Contents of our common stock under the Distribution Agreement and replace Citigroup Global Markets Inc. with Wells Fargo Securities, LLC as a sales agent, had all $ 100.0 million available for sale as of December 31, 2021. We did no t sell or issue any shares of our common stock during the years ended December 31, 2021 and 2020. The Distribution Agreement will remain in full force and effect until terminated by either party pursuant to the terms of the agreement or such date that the maximum offering amount has been sold in accordance with the terms of the agreement . In November 2018, we authorized a stock repurchase program, under which we may repurchase up to 4,500,000 shares of our outstanding common stock. During the years ended December 31, 2021 and 2020, we did no t repurchase any shares of common stock. The maximum number of shares available to be purchased under the stock repurchase program as of December 31, 2021 was 3,812,939 shares. During the year ended December 31, 2019, we repurchased 83,000 shares of common stock under this program for approximately $ 1.4 million. On May 19, 2021, our Board of Directors approved the initiation of a quarterly cash dividend. The following table sets forth cash dividends declared by our Board of Directors to holders of record of our common stock during the year ended December 31, 2021 (in thousands, except per share information): Cash Dividends Declared Declaration Date Record Date Payable Date Per Share Amount May 19, 2021 June 2, 2021 June 16, 2021 $ 0.15 $ 5,064 August 18, 2021 September 1, 2021 September 15, 2021 $ 0.15 $ 5,064 November 10, 2021 December 1, 2021 December 15, 2021 $ 0.15 $ 5,064 17. Earnings Per Share During the years ended December 31, 2021, 2020 and 2019, we used the treasury stock method of calculating earnings per share (which we refer to as “EPS”) as our currently non-vested RSUs and PSUs do not have participating rights. The following table sets forth the computation of basic and diluted earnings per share for the years ended December 31, 2021, 2020 and 2019 (in thousands, except share and per share information): Year Ended December 31, 2021 2020 2019 Numerator Net income $ 498,504 $ 206,157 $ 112,994 Denominator Weighted average common shares outstanding - basic 33,706,782 33,312,554 30,886,382 Dilutive effect of restricted stock units 738,136 297,544 300,570 Weighted average common shares outstanding - diluted 34,444,918 33,610,098 31,186,952 Earnings per share: Basic $ 14.79 $ 6.19 $ 3.66 Diluted $ 14.47 $ 6.13 $ 3.62 Stock-based awards are excluded from the calculation of diluted EPS in the event they are subject to unsatisfied performance conditions or are antidilutive. We excluded 0.2 million, 0.8 million, and 0.6 million common stock unit equivalents from diluted earnings per share during the years ended December 31, 2021, 2020 and 2019 respectively, related to the PSUs for which performance conditions remained unsatisfied. F- 24 Table of Contents 18 . Commitments and Contingencies Letters of Credit and Performance Bonds In the normal course of business, the Company posts letters of credit and performance and other bonds primarily related to our land development performance obligations, with local municipalities. As of December 31, 2021 and 2020, we had $ 492.5 million and $ 402.7 million, respectively, in letters of credit and performance and other bonds issued and outstanding. Legal Proceedings The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business, which consist primarily of construction claims. It is the opinion of management that if the claims have merit, parties other than the Company would be, at least in part, liable for the claims, and eventual outcome of these claims will not have a material adverse effect upon our consolidated financial condition, results of operations, or cash flows. When we believe that a loss is probable and estimable, we record a charge to selling, general and administrative expense on our consolidated statements of operations for our estimated loss. Under various insurance policies, we have the ability to recoup costs in excess of applicable self-insured retentions. Estimates of such amounts are recorded in other assets on our consolidated balance sheet when recovery is probable. We do not believe that the ultimate resolution of any claims and lawsuits will have a material adverse effect upon our consolidated financial position, results of operations, or cash flow. 19. Results of Quarterly Operations (Unaudited) Quarter First Second Third Fourth (in thousands, except per share amounts) 2021 Home sales revenues $ 959,279 $ 1,004,789 $ 917,337 $ 1,151,564 Gross margin from home sales revenues $ 202,772 $ 240,121 $ 235,325 $ 298,704 Income before income tax expense $ 131,049 $ 152,134 $ 145,761 $ 212,177 Net income $ 101,652 $ 117,910 $ 113,977 $ 164,965 Basic earnings per share $ 3.03 $ 3.49 $ 3.38 $ 4.89 Diluted earnings per share $ 3.00 $ 3.47 $ 3.31 $ 4.78 2020 Home sales revenues $ 572,710 $ 747,415 $ 760,239 $ 946,803 Gross margin from home sales revenues $ 102,183 $ 126,760 $ 132,875 $ 197,216 Income before income tax expense $ 34,088 $ 50,103 $ 64,885 $ 121,164 Net income $ 26,126 $ 38,450 $ 49,764 $ 91,817 Basic earnings per share $ 0.79 $ 1.15 $ 1.49 $ 2.75 Diluted earnings per share $ 0.78 $ 1.15 $ 1.48 $ 2.72 F- 25