CCS 10-Q Quarter ended June 30, 2015

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2015

or

Commission File Number 001-36491

Century Communities, Inc.

(Exact name of registrant as specified in its charter)

( Registrant’s telephone number, including area code): (303) 770-8300

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files ).    Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

On August 4 , 201 5 , 21 , 330,428 shares of common stock, par value 0.01 per share, were outstanding.

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CENTURY COMMUNITIES, INC.

FORM 10-Q

For the three and six months ended June 30, 2015

Ind ex

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PA RT I

ITEM 1.     FINANCIAL STATEMENTS.

Century Communities, Inc.

Unaudited Condensed Consolidated Balance Sheet s

As of June 30, 2015 and December 31, 2014

(in thousands, except share amounts)

See Notes to Unaudited Condensed Consolidated Financial Statements

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Century Communities, Inc.

Unaudited Condensed Consolidated Statements of Operations

For the Three and Six Months Ended June 30, 2015 and 2014

(in thousands, except share and per share amounts)

See Notes to Unaudited Condensed Consolidated Financial Statements

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Century Communities, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2015 and 2014

( in thousands )

See Notes to Unaudited Condensed Consolidated Financial Statements

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Century Communities, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

June 30, 2015

1. Basis of Presentation

Century Communities, Inc. (“we” or the “ Company”) is engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in metropolitan areas in Colorado, Austin and San Antonio, Texas (which we refer to as “Central Texas”), Houston, Texas, Las Vegas, Nevada , and Atlanta, Georgia.  Our homebuilding operations are organized into the following five operating segments based on the geographic markets in which we operate: Atlanta, Central Texas, Colorado, Houston and Nevada.  In many of our projects, in addition to building homes, we are responsible for the entitlement and development of the underlying land.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles ( which we refer to as “GAAP”) for interim financial statements and pursuant to the rules and regulations of the Securities and Exchange Commission ( which we refer to as the “SEC”). In the o pinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments necessary for a fair presentation of its financial position and results of operations. Interim results of operations are not necessarily indicative of the results that may be achieved for the full year. The financial statements and related notes do not include all information and footnotes required by GAAP and should be read in conjunction with the consolidated financial statements for the year ended December 31, 201 4 , which are included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 that was filed with the SEC on March 6, 201 5 .

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 ( which we refer to as “ VIE’s ” ) for which the Company is deemed the primary beneficiary.  All intercompany accounts and transactions have been eliminated.

Reclassifications

Certain prior period amounts have been reclassified to conform to our current year’s presentation.

Use of Estimates

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

Recently Issued Accounting Standards

In January 2015, the Financial Accounting Standards Board (“FASB”) issued A SU No. 2015-01, “Income Statement — Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items . ” ASU 2015-01 eliminates the concept of extraordinary items from GAAP , but the pr esentation and disclosure guidance for items that are unusual in nature or occur infrequently will be retained and will be expand ed to include items that are both unusual in nature and infrequently occurring. ASU 2015-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. A reporting entity may apply ASU 2015-01 prospectively. A reporting entity may also apply ASU 2015-01 retrospectively to all periods presente d in the financial statements. Our adoption of ASU 2015-01 is not expected to have a material effect on our consolidated financial statements and related disclosures.

In February 2015, the FASB issued A SU No. 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis . ” ASU 2015-02 updates the analysis that a reporting entity must perform to determine whether to consolidate certain types of legal entities. ASU 2015-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. We do not intend to a dopt ASU 2015-02 early, and the adoption thereof is not expected to have a material effect on our consolidated financial statements and related disclosures.

In April 2015, the FASB issued ASU No. 2015-03, “Interest — Imputation of Interest (Subtopic 835- 3 0) . ” ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016.  Early adoption is permitted for financial statements that have not been previously

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issued and the guidance should be applied retrospectively to each period presented. The adoption of ASU 2015-03 will require us to adjust our current presentati on of debt issuance costs related to our Senior Notes on our consolidated balance sheet s from prepaid expenses and other assets to a reduction of the related liability . We do not intend to adopt ASU 2015-03 early.

In May 2015, the FASB issued ASU No. 2015-05, “Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40).” ASU 2015-05 will help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. ASU 2015-05 is effective for public business entities for annual periods, including interim periods within those annual periods, beginning after December 15, 2015.  Early adoption is permitted . We do not intend to adopt ASU 2015-05 early, and the adoption thereof is not expected to have a material effect on our consolidated financial statements.

2. Reporting Segments

We have identified our Atlanta, Central Texas, Colorado, Houston, and Nevada divisions as reportable operating segme nts.  Corporate is a non-operating segment, as it serves to support our homebuilding operations through functions such as our executive, finance, treasury, human resources, and accounting departments.

The following tables summarize total revenue and income before income tax expense by operating segment (in thousands):

The following table summarizes total assets by operating segment (in thousands):

Corporate assets include certain cash and cash equivalents, prepaid insurance, deferred financing costs, and certain property and equipment.

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3 . Inventor ies

Inventories included the following (in thousands):

4 . Prepaid Expenses and Other Assets

Prepaid expenses and other assets included the following (in thousands):

5 . Accrued Expenses and Other Liabilities

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

6. Warranty Reserve

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 an internal 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 $0.6 million during the three months ended June 30, 2015, which is included as a reduction to cost of homes sales revenues on our consolidated statement

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of operations. The following table summarizes the c hanges in our warranty accrual for the three and six months ended June 30, 2015 and 2014 (in thousands):

7 . Notes Payable and Revolving Line of Credit

Notes payable and revolving l ine of credit included the following as of June 30, 2015 and December 31, 2014 (in thousands):

6.875% senior notes

In May 2014, we completed a private offering of $200.0 million in aggregate principal amount of 6.875% senior notes due 2022 (which we refer to as the “Initial Senior Notes”).  The Initial Senior Notes were issued at a price equal to 99.239% of their principal amount, and we received net proceeds of approximately $193.3 million.  In February 2015, we completed an offer to exchange $200.0 million in aggregate principal amount of our 6.875% senior notes due 2022, which are registered under the Securities Act (which we refer to as the “Exchange Notes”), for all of the Initial Senior Notes.  The terms of the Exchange Notes are identical in all material respects to the Initial Senior Notes, except that the Exchange Notes are registered under the Securities Act and the transfer restrictions, registration rights, and additional interest provisions applicable to the Initial Senior Notes do not apply to the Exchange Notes.  The Exchange Notes carry a coupon of 6.875% per annum.  The Exchange Notes are unsecured senior obligations which are guaranteed on an unsecured senior basis by certain of our current and future subsidiaries. The Exchange Notes contain certain restrictive covenants on issuing future secured debt and other transactions but do not contain financial covenants. The principal balance of the Exchange Notes is due May 2022, with interest only payments due semi-annually in May and November of each year.

In April 2015, we completed a private offering of an additional $60 million in aggregate principal amount of our 6.875% senior notes due 2022 (which we refer to as the "Additional Senior Notes") in reliance on Rule 144A and Regulation S under the Securities Act of 1933, as amended.  The Additional Senior Notes were issued at a price equal to 98.26% of their principal amount, and we received net proceeds of approximately $58.6 million.  The Additional Senior Notes are additional notes issued under the indenture pursuant to which the initial $200 million in aggregate principal amount of Initial Senior Notes were issued.  In connection with the sale and issuance of the Additional Senior Notes, we entered into a registration rights agreement pursuant to which we agreed to effect a registered offer to exchange the Additional Senior Notes for new senior notes (which we refer to as the “Additional Exchange Notes”) having terms substantially identical in all material respects to the Additional Senior Notes, except that the Additional Exchange Notes will be registered under the Securities Act and the transfer restrictions, registration rights, and additional interest provisions applicable to the Additional Senior Notes will not apply to the Additional Exchange Notes.  The Exchange Notes and the Additional Senior Notes have substantially identical terms and are treated as a single series of notes under the indenture.  Following consummation of the exchange offer contemplated under the registration rights agreement, we expect that the Additional Exchange Notes will bear the same CUSIP number as the Exchange Notes and will be fungible with the Exchange Notes.  We refer to the Exchange Notes and the Additional Senior Notes, collectively, as the “Senior Notes.”

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Revolving line of credit

On October 21, 2014, we entered into a credit agreement with Texas Capital Bank, National Association, as Administrative Agent and L/C Issuer, and the lenders from time to time party thereto ( which we refer to as the “Credit Agreement”). The Credit Agreement provides us with a revolving line of credit of up to $120 million ( which we refer to as the “Revolving Credit Facility”). Unless terminated earlier, the Revolving Credit Facility will mature on October 21, 2017, and the principal amount thereunder, together with all accrued unpaid interest and other amounts owing thereunder, if any, will be payable in full on such date. We may request a 12-month extension of the maturity date subject to the approval of the lenders and the Administrative Agent.

Under the terms of the Credit Agreement, we are entitled to request an increase in the size of the Revolving Credit Facility by an amount not exceeding $80 million. If the existing lenders elect not to provide the full amount of a requested increase, we may invite one or more other lender(s) to become a party to the Credit Agreement, subject to the approval of the Administrative Agent and L/C Issuer. The Credit Agreement includes a letter of credit sublimit of $20 million. The obligations under the Revolving Credit Facility are guaranteed by substantially all of our operating subsidiaries.

Borrowings under the Revolving Credit Facility bear interest at a floating rate equal to LIBOR plus an applicable margin between 2.75% and 3.25% per annum, or, in the Administrative Agent’s discretion, a base rate plus an applicable margin between 1.75% and 2.25% per annum.

A t June 30, 2015 , we had $ 40 million outstanding under the Credit Agreement , which accrued interest at 2.9 3 % .

Other financing obligations

The Company has four land development notes with maturity dates ranging from September 2015 to April 2016 , with interest only payments ranging from 0.5% to 5.0% , and four insurance premium notes w hich accrue interest at 3.89% and have maturity dates ranging from Novem ber 2015 to March 201 6.

8. 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 three and six months ended June 30, 2015 and 2014, we capitalized all interest costs incurred during these periods, except for interest incurred on capital leases of equipment related to our golf course operations.

Our interest costs are as follows (in thousands):

9 . 2014 Business Combinations

Acquisition of Las Vegas Land Holdings, LLC

On April 1, 2014, we purchased substantially all of the assets and operations of Las Vegas Land Holdings, LLC ( which we refer to as “LVLH”), a homebuilder with operations in Las Vegas, Nevada, for a purchase price of approximately $165 million. The acquired assets consisted of 1,761 lots within five single-family communities in the greater Las Vegas, Nevada metropolitan area. The 1,761 lots included 57 homes in backlog, 17 model homes and three custom lots. In addition, we acquired two fully operational golf courses and two one-acre commercial plots.  As the acquired assets and processes have the ability to create outputs in the form of revenue from the sale of single family residences, we concluded that the acquisition represents a business combination. We incurred $0.8 million in acquisition-related costs in con nection with the purchase of LVLH.

The following table summarizes the final estimate of the fair value of assets acquired and liabilities assumed as of the acquisition date (in thousands):

Acquired inventories consist of both acquired land and work in process inventories.  We determined the estimate of fair value for acquired land inventory with the assistance of a third party appraiser primarily using a forecasted cash flow approach for the development, marketing, and sale of each community acquired. Significant assumptions included in our estimate include future per lot development costs, construction and overhead costs, mix of products sold in each community as well as average sales price, and absorption rates. We estimated the fair value of acquired work in process inventories based upon the stage of production of each unit and a gross margin that we believe a market participant would require to complete the remaining development and requisite selling efforts.  The stage of production, as of the acquisition date, ranged from finished lots to fully completed single family residences.  We estimated a market participant would require a gross margin ranging from 7% to 24% based upon the stage of production of the individual lot.

We determined the estimate of fair value for amortizable intangible assets, which includes a non-solicitation agreement, cell phone tower leases, and home plans, with the assistance of a third party valuation firm.  Our estimate of the fair value of the non-solicitation agreement, cell phone tower leases, and homes plans was $1.4 million, $1.4 million and $0.3 million, respectively, which will be amortized over 2 years, 1 6.6 years, and 7 years, respectively.  In total, amortizable intangible assets will be amortized over a weighted average life of 9. 1 years.

We determined that LVLH’s carrying costs approximated fair value for all other acquired assets and assumed liabilities.

Goodwill includes the anticipated economic value of the acquired workforce. Approximately $10. 5 million of goodwill is expected to be deductible for tax purposes.

Acquisition of Grand View Builders

On August 12, 2014, we purchased substantially all of the assets and operations of Grand View Builders ( which we refer to as “Grand View”) in Houston, Texas for a purchase price of approximately $13 million and annual earnout payments based on a percentage of adjusted pre-tax income over the next two years. As the acquired assets and processes have the ability to create outputs in the form of revenue from the sale of single family residences, we concluded that the acquisition represents a business combination. We incurred $0.1 million in acquisition-related costs in con nection with the purchase of Grand View.

The following table summarizes the final estimate of the fair value of assets acquired and liabilities assumed as of the acquisition date (in thousands):

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Acquired inventories consist of both acquired land, work in process and model inventories.  We determined the fair value for acquired inventories on a lot by lot basis primarily using a forecasted cash flow approach for the development, marketing, and sale of each lot acquired. Significant assumptions included in our estimate include future construction and overhead costs, sales price, and absorption rates.  We estimated the fair value of acquired work in process inventories based upon the stage of production of each unit and a gross margin that we believe a market participant would require to complete the remaining development and requisite selling efforts.  The stage of production, as of the acquisition date, ranged from finished lots to fully completed single family residences.  We estimated a market participant would require a gross margin ranging from 6% to 18% based upon the stage of production of the individual lot.

We determined the estimate of fair value for amortizable intangible assets, which includes a non-compete agreement, a trade name, home plans, and a backlog associated with certain custom home contracts, with the assistance of a third party valuation firm.  Our estimate of the fair value of the non-compete agreement, trade n ame, home plans and backlog was $0. 5 million, $1. 0 million, $0.1 million, and $0.2 million respectively, which will be amortized over 4 years, 2 years, 7 years, and 1.5 years, respectively.  In total, amortizable intangible assets will be amortized over a weighted average life of 2.8 years.

The fair value of the earnout on the acquisition date of $2. 5 million was determined with the assistance of a third party valuation firm based on probability weighting scenarios and discounting the potential payments which range from $0 to a maximum of $5.3 million.  The maximum earnout amount is subject to downward reductions of up to $1.5 million based on the number of future lots acquired over the next two years in our Houston d ivision.  The earnout liability is included in accrued expenses and other liabilities on the consolidated balance sheet s .

We determined that Grand View’s carrying costs approximated fair value for all other acquired assets and assumed liabilities.

Goodwill includes the anticipated economic value of the acquired workforce. Approximately $3.7 million of goodwill is expected to be deductible for tax purposes.

During the six months ended June 30, 2015 , we recorded measurement period adjustments , which decreased the estimated value of amortizable intangible assets by $0.5 million and decreas ed t he estimated value of inventories by $ 0. 2 million, result ing in a n increase in goodwill of $0 . 7 million.  The measurement period adjustments also resulted in a decrease of $0.1 million for the six months ended June 30, 2015 to selling, general, and administrative expenses and a reduction of $0.2 million to cost of home sales revenues on the consolidated statement s of operations .

Acquisition of Peachtree

On November 13, 2014, we acquired substantially all the assets and operations of Peachtree Communities Group, Inc. and its affiliates and subsidiaries ( which we refer to as “Peachtree”) , a leading homebuilder in Atlanta, Georgia , for approximately $57 million in cash. The acquired assets include land, homes under construction, model homes and lot option contacts in 36 communities in the greater A tlanta area. As a result of the acquisition , we obtained ownership or control of 2,120 lots in the greater Atlanta market. As the acquired assets and processes have the ability to create outputs in the form of revenue from the sale of single family residences, we concluded that the acquisition represents a business combination. We incurred $0.5 million in acquisition-related costs in con nection with the purchase of Peachtree.

The following table summarizes the final estimate of the fair value of the assets acquired and liabilities assumed as of the acquisition date (in thousands):

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Acquired inventories primarily consist of work in process homebuilding inventory in various stages of construction and do not include significant amounts of land held for future development.  Accordingly, we estimated the fair value based upon the stage of production of each unit and a gross margin that we believe a market participant would require to complete the remaining development and requisite selling efforts.  The stage of production, as of the acquisition date, ranged from finished lots to fully completed single family residences.  We estimated a market participant would require a gross margin ranging from 6% to 18% based upon the stage of production of the individual lot.  Due to the nature of these estimates combined with uncertainties in the estimation process and the significant volatility in demand for new housing, actual results could differ significantly from such estimates.

Intangible assets consist of a non-compete agreement with the former owner of Peachtree, acquired home plans and acquired lot option agreement s .  The non-compete agreement was valued using a with and with-out approach which estimates the impact on future cash flows with and with-out the non-compete agreement. The difference between the projected cash flows is then discounted in order to estimate the fair value of the non-compete agreement. We estimated a fair value of $3.2 million for the non-compete agreement.  Acquired home plans were valued using a replacement cost approach, which resulted in an estimated fair value of $0.2 million. The fair value of the acquired lot option agreements o f $0.6 million was es timated based upon the difference between the contractual lot option purchase prices and the estimated fair value of similar lots on the acquisition date . The non-compete agreement , home plans and lot option agreements will be amortized over 5 , 7 and 3 years, respectively.  In total, amortizable intangible assets will be amortized over a weighted average life of 4.8 years.

We determined that Peachtree’s carrying costs approximated fair value for all other acquired assets and assumed liabilities.

Goodwill includes the anticipated economic value of the acquired workforce.  Approximately $17.1 million of goodwill is expected to be deductible for tax purposes.

During the three months ended June 30, 2015, we recorded a measurement period adjustment, which increased the estimated value of amortizable intangible assets and decreased the fair value of goodwill by $0. 6 million. The measurement period adjustment also resulted in a n in crease of $0.1 million for the three and six months ended June 30, 2015 to cost of home sales revenues on our consolidated statements of operations.

Pro forma Financial Information

No pro forma financial information is required for the three and six months ended June 30, 2015 , as our acquisitions of LVLH, Grand View, and Peachtree occurred during 2014.

Pro forma financial information for the three and six months ended June 30, 2014 gives effect to and includes the results of our acquisitions of LVLH, Grand View, and Peachtree a s if the acquisition s occurred at January 1, 2014.  P ro forma income before income tax expense adjusts the operating results of LVLH, Grand View, and Peachtree to reflect the additional costs that would have been recorded assuming the fair value adjustments had been applied as of the beginning of the period presented.

The following summarizes pro forma financial information for the three and six months ended June 30, 2014 (in thousands):

10. Income Taxes

At the end of each interim period we are required to estimate our annual effective tax rate for the fiscal year, and use that rate to provide for income taxes for the current year-to-date reporting period. Accordingly, we recorded income tax expense of $ 4.6 million , and $ 2.7 million for the three months ended June 30, 2015 and 2014, respectively . For the six months ended June 30, 2015 and 2014 , we recorded $7.8 million and $4.5 million of income tax expense , respectively. Our income tax expense for the three and six months ended June 30, 2015 is based on our estimated annual effective tax rate of approximately 34.4 % and certain discreet items, which benefited our effective tax rate by approximately 1. 9 % and 1.4% for the three and six months ended June 30, 2015, respectively .

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1 1 . Fair Value Disclosures

ASC 820, Fair Value Measurement , defines fair value as the price that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants at measurement date and requires assets and liabilities carried at fair value to be classified and disclosed in the following three categories:

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.

Level 3 — Valuations derived from techniques where one or more significant inputs or significant value drivers are unobservable in active markets at measurement date.

The following table presents carrying values and estimated fair values of financial instruments (in thousands):

The carrying amount of cash and cash equivalents approximates fair value. Non - financial assets and liabilities include items such as inventory and long-lived assets that are measured at fair value when acquired and resulting from impairment, if deemed necessary.

12. Stock-Based Compensation

Our authorized capital stock consists of 100.0 million shares of common stock, $0.01 par value per share, and 50.0 million shares of preferred stock, $0.01 par value. As of June 30, 2015 and December 31, 2014, there were 20.6 and 20.5 million shares of common stock issued and outstanding , respectively, exclusive of the restricted common stock issued. We also have reserved a total of 1.8 million shares of our common stock for issuance under our First Amended & Restated 2013 Long-Term Incentive Plan, including outstanding awards.

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During the three months ended June 30, 2015, we issued 15 thousand shares of restricted common stock awards with a weighted average grant date fair value of $19.41 per share. The awards vest over a three year period from the grant date.

During the six months ended June 30, 2015, we issued 0.5 million shares of restricted common stock awards with a weighted average grant date fair value of $16.92 per share. The awards vest over a three year period from the grant date.

As of June 30, 2015, 0.8 million shares of restricted common stock were unvested, and $11.8 million of unrecognized compensation costs is expected to be recognized over a weighted average period of 2.3 years.

During the three months ended June 30, 2015 and 2014, we recognized stock-based compensation expense of $1.4 million and $0.4 million, respectively. During the six months ended June 30, 2015 and 2014, we recognized stock-based compensation expense of $ 2.5 million and $ 0.7 million, respectively. Stock-based compensation expense is included in selling, general, and administrative on our consolidated statements of operations.

1 3 . Earnings Per Share

We use the two-class method of calculating earnings per share ( which we refer to as “EPS”) as our non-vested restricted stock awards have non- forfeitable rights to dividends and , accordingly , represent a participating security. The two-class method is an earnings allocation method under which EPS is calculated for each class of common stock and participating security considering both dividends declared (or accumulated) and participation rights in undistributed earnings as if all such earnings had been distributed during the period.

The following table sets forth the computation of basic and diluted EPS for the three and six months ended June 30, 2015 and 201 4 (in thousands, except share and per share information):

1 4 . Commitments and Contingencies

Letters of Credit and Performance Bonds

In the normal course of business, the Company posts letters of credit and performance bonds related to our land development performance obligations with local municipalities. As of June 30, 2015 and December 31, 2014 , we had $3 9.3 million and $34.0 million, respectively, in letters of credit and performance bonds issued and outstanding.

Litigation

The Company is subject to claims and lawsuits that arise primarily in the ordinary course of business, which consist primarily of construction defect 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 on our consolidated statement s of operations for our estimated loss.

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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.

15. Disposition of Golf Course s

On May 26, 2015, we disposed of the operations of the golf course in our Tuscany community in our Nevada operating segment for total consideration of $4.0 million, which includ ed $1.0 million in cash and a $3.0 million secured note , and resulted in a gain on sale of $2 thousand. The secured note accrues interest at rates ranging from 4.5% to 5.5% per annum and requires monthly payments of principal and interest with a balloon payment of $2.5 million of principal in May of 2020 .

On May 19, 2015, we initiated our rights under a fixed price put option to dispose of the golf course in our Rhodes Ranch community in our Nevada operating segment for $5.9 million . The fixed price put option requires closing to occur on or before June 1, 2016 . Accordingly, the assets and liabilities of the Rhodes Ranch golf course have been classified as held for sale and presented in prepaid expenses and other assets and accrued expenses and other liabilities on the consolidated balance sheet as of June 30, 2015 .

1 6 . Supplemental Guarantor Information

In May 2014 and April 2015, we completed private offering s of $200.0 million and $60.0 million, respectively, in aggregate principal amount of our 6.875% senior notes due 2022 (which we refer to collectively as the “ Senior Notes” ). The Senior Notes are unsecured s enior obligations of the Company (which we refer to as “CCS”) , which are fully and unconditionally guaranteed on an unsecured basis, jointly and severally, by substantially all of our operating subsidiaries (which we refer to as “Guarantors”), which are wholly owned subsidiaries of the Company.

The Indenture governing the Senior Notes provides that the guarantees of a Guarantor will be automatically and unconditionally released and discharged: (1) upon any sale, transfer, exchange or other disposition (by merger, consolidation or otherwise) of all of the equity interests of such Guarantor after which the applicable Guarantor is no longer a “Restricted Subsidiary” (as defined in the Indenture), which sale, transfer, exchange or other disposition does not constitute an “Asset Sale” (as defined in the Indenture) or is made in compliance with applicable provisions of the Indenture; (2) upon any sale, transfer, exchange or other disposition (by merger, consolidation or otherwise) of all of the assets of such Guarantor, which sale, transfer, exchange or other disposition does not constitute an Asset Sale or is made in compliance with applicable provisions of the Indenture; provided, that after such sale, transfer, exchange or other disposition, such Guarantor is an “Immaterial Subsidiary” (as defined in the Indenture); (3) unless a default has occurred and is continuing, upon the release or discharge of such Guarantor from its guarantee of any indebtedness for borrowed money of the Company and the Guarantors so long as such Guarantor would not then otherwise be required to provide a guarantee pursuant to the Indenture; provided that if such Guarantor has incurred any indebtedness in reliance on its status as a Guarantor in compliance with applicable provisions of the Indenture, such Guarantor’s obligations under such indebtedness, as the case may be, so incurred are satisfied in full and discharged or are otherwise permitted to be incurred by a Restricted Subsidiary (other than a Guarantor) in compliance with applicable provisions of the Indenture; (4) upon the designation of such Guarantor as an “Unrestricted Subsidiary” (as defined in the Indenture), in accordance with the Indenture; (5) if the Company exercises its legal defeasance option or covenant defeasance option under the Indenture or if the obligations of the Company and the Guarantors are discharged in compliance with applicable provisions of the Indenture, upon such exercise or discharge; or (6) in connection with the dissolution of such Guarantor under applicable law in accordance with the Indenture.

As the guarantees were made in connection with the May 2014 and April 2015 private offering s of the Senior Notes, the Guarantors’ condensed financial information is presented as if the guarantees existed during the period s presented. If any Guarantors are released from the guarantees in future periods, the changes are reflected prospectively.

In February 2015, we completed an offer to exchange $200.0 million in aggregate principal amount of our 6.875% Senior Notes due 2022, which are registered under the Securities Act (which we refer to as the “Ex change Notes”), for all of the I nitial Senior Notes sold and issued in the May 2014 private offering .  The terms of the Exchange Notes are identical i n all material respects to the I nitial Senior Notes, except that the Exchange Notes are registered under the Securities Act and the transfer restrictions, registration rights, and additional interest provisions applicable to the I nitial Senior Notes do not apply to the Exchange Notes.

We have determined that separate, full financial statements of the Guarantors would not be material to investors and, accordingly, supplemental financial information is presented below :

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17. Subsequent Events

On July 31 , 2015, we entered into a First Modification Agreement (the “ First Modification Agreement ”) with Texas Capital Bank, National Association, as Administrative Agent, the lenders party thereto, and the subsidiary guarantors of the Company party thereto.  The First Modification Agreement modifies the Credit Agreement, which provided us with a revolving line of credit of up to $120 million.  The First Modification Agreement, among other things, (i) increases the Credit Facility from $120 million to $200 million, (ii) extends the maturity date of the Credit Facility from October 21, 2017 to October 21, 2018 , (iii) admits Bank of America, N.A. as a new lender under the Credit Facility, and (iv) provides an option for the Company to request, from time to time, an additional increase in the amount of the Credit Facility of up to $100 million, subject to the terms and conditions of the First Modification Agreement and the Credit Agreement.

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ITEM 2.     MANAGEMENT’S DISCUSSION AND A NALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Some of the statements included in this Quarterly Report on Form 10-Q (which we refer to as this “Form 10-Q”) constitute forward-looking statements within the meaning of the federal securities laws.  Forward-looking statements relate to expectations, beliefs, projections, forecasts, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts.  These statements are only predictions.  We caution that forward-looking statements are not guarantees.  Actual events and results of operations could differ materially from those expressed or implied in the forward-looking statements.  Forward-looking statements are typically identified by the use of terms such as “may,” “will,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential” or the negative of such terms and other comparable terminology.  You can also identify forward-looking statements by discussions of strategy, plans or intentions.  Actual results and the timing of events may differ materially from those contained in these forward-looking statements due a number of factors.

The forward-looking statements included in this Form 10-Q reflect our current views about future events and are subject to numerous known and unknown risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ significantly from those expressed in any forward-looking statement.  Statements regarding the following subjects, among others, may be forward-looking:

The forward-looking statements are based on our beliefs, assumptions and expectations of future events, taking into account all information currently available to us.  Forward-looking statements are not guarantees of future events or of our performance.  These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us.  Some of these events and factors are described in “Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in “Part II, Item 1A.  Risk Factors” in this Form 10-Q, and other risks and uncertainties detailed in this and our other reports and filings with the SEC.  If a change occurs, our business, financial condition, liquidity, cash flows and results of operations may vary materially from those expressed in or implied by our forward-looking statements.  New risks and uncertainties arise over time, and it is not possible for us to predict the occurrence of those matters or the manner in which they may affect us.  Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  Therefore, you should not rely on these forward-looking statements as of any date subsequent to the date of this Form 10-Q.

As used in this Form 10-Q, references to “we,” “us,” “our” or the “Company” refer to Century Communities, Inc., a Delaware corporation, and, unless the context otherwise requires, its subsidiaries and affiliates.

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Overview

We are engaged in the development, design, construction, marketing and sale of single-family attached and detached homes in metropolitan areas in Colorado, Austin and San Antonio, Texas (which we refer to as “Central Texas”), Houston, Texas, Las Vegas, Nevada, and Atlanta, Georgia.  Our homebuilding operations are organized into the following five operating segments based on the geographic markets in which we operate: Atlanta, Central Texas, Colorado, Houston and Nevada.  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 an extensive range of home types across a variety of price points. Our emphasis is on acquiring well located land positions and offering quality homes with innovative design elements.

Results of Operations

During the three months ended June 30, 2015 , we delivered 636 homes, with an average sales price of $293.7 thousand. During the same period, we generated approximately $186.8 million in home sales revenues, approximately $14.4 million in income before income tax expense, and approximately $9.8 million in net income. During the six months ended June 30, 2015, we delivered 1,178 homes, with an average sales price of $289.6 thousand. During the same period, we generated approximately $341.1 million in home sales revenues, approximately $24.0 million in income before income tax expense, and approximately $16.1 million in net income. For the three and six months ended June 30, 2015 , our net sales orders totaled 718 and 1,424 homes, a 155.5% and 221.4% increase over the same periods in 2014, respectively. On June 30, 2015 , we had a backlog of 1,005 sold but unclosed homes, a 155.1% increase over the same period in 2014, consisting of approximately $348.0 million in sales value, a 107.3% increase over the same period in 2014.  Our results of operations are significantly impacted by our acquisitions of Peachtree Communities Group, Inc. and its affiliates and subsidiaries (which we refer to as “P eachtree”) in November 2014, Gran d View Builders (which we refer to as “Grand View”) in August 2014, and Las Vegas Land Holdings, LLC (which we refer to as “LVLH”) in April 2014. Subsequent to our acquisitions, these operations are our Atlanta, Houston and Nevada operating segments, respectively.

The following table summarizes our results of operation for the three and six months ended June 30, 2015 and 2014.

Home Sales Revenues and Homes Delivered

The following tables summarize our home deliveries and average sales price for each of our operating segments for the three and six months ended June 30, 2015 and 2014:

NM - Not meaningful.

We generated $186.8 and $341.1 million in home sales revenues during the three and six months ended June 30, 2015 , respectively.  This represents a 141.6% and 168.6% increase as compared to the three and six months ended June 30, 2014 where we generated $77.3 and $127.0 million in home sales revenues, respectively.  The increase in home sales revenues is primarily a result of an increase of 221.2% and 261.3% in the number of homes delivered for the three and six months ended June 30, 2015 , respectively, as compared to the previous year, which is partially offset by a decrease in average sales price. The increase in deliveries was driven by our acquisitions of Peachtree, Grand View, and LVLH, which comprise our Atlanta, Houston, and Nevada operating segments, respectively.

Our average sales price decreased 24.8% to $293.7 thousand for the three months ended June 30, 2015 , and decreased 25.7% to $289.6 thousand for the six months ended June 30, 2015, as compar ed to the same periods in 2014.  The decrease is primarily a result of the lower average sales prices in our new Atlanta, Houston, and Nevada operating segments.

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Cost of Home Sales Revenues

Cost of home sales revenues increased $92.0 million, or 158.1%, for the three months ended June 30, 2015 , and $180.0 million, or 188.1%, for the six months ended June 30, 2015 , as compared to the same period in 2014 . The increase in cost of home sales revenues was a result of the increase in deliveries discussed above which were driven by the addition of our Atlanta, Houston, and Nevada operating segments.

Homebuilding Gross Margin

Homebuilding gross margin represents home sales revenues less cost of home sales revenues. Our homebuilding gross margin percentage, which represents homebuilding gross margin divided by home sales revenues, decreased during the three and six months ended June 30, 2015 to 19.6% and 19.4% as compared to 24.7% and 24.8% for the three and six months ended June 30, 2014 , respectively. The decrease is primarily driven by our entry into the Atlanta and Houston markets, which have lower average sales prices and lower average homebuilding gross margins than our existing markets, and the impact of an increase of previously capitalized interest costs in cost of sales as a result of higher outstanding debt balances, as well as, the impact of purchase price accounting for acquired work in process inventory.

In the following table, we calculate our homebuilding gross margins adjusting for interest in cost of sales, and purchase price accounting for acquired work in process inventory.

(1) Non-GAAP financial measure.

Excluding interest in cost of home sales revenues and purchase price accounting for acquired work in process inventory, our adjusted homebuilding gross margin percentage was 21.3% and 21.4% for the three and six months ended June 30, 2015 as compared to 26.5% and 26.1% for the three and six months ended June 30, 2014 , respectively. The decrease in adjusted homebuilding gross margin is primarily from entering the Atlanta and Houston markets, which have lower average sales prices and lower average homebuilding gross margins than our existing markets.  We believe the above information is meaningful as it isolates the impact that indebtedness and acquisitions have on homebuilding gross margin and allows for comparability of our homebuilding gross margins to previous periods and our competitors.

Gross Margin on Land Sales

During the three months ended June 30, 2015, we disposed of land for $0.4 million, which had a carrying basis of $0.4 million.

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Gross Margin on Golf Course and Other

In our Nevada operating segment, we are the operators of two golf courses within our Rhodes Ranch and Tuscany communities. We generated approximately $1.9 million and $4.0 million in revenue during the three and six months ended June 30, 2015 , respectively, which was partially offset by costs associated with the courses of $1.7 million and $3.2 million for the three and six months ended June 30, 2015 , respectively .

On May 26, 2015, we disposed of the operations of the golf course in our Tuscany community in our Nevada operating segment for total consideration of $4.0 million, which included $1.0 million in cash and a $3.0 million secured note, and resulted in a gain of $2 thousand. The secured note accrues interest at rates ranging from 4.5% to 5.5% per annum and requires monthly payments of principal and interest with a balloon payment of $2.5 million of principal in May of 2020 .

On May 19, 2015, we initiated our rights under a fixed price put option to dispose of the golf course in our Rhodes Ranch community in our Nevada operating segment for $5.9 million. The fixed price put option requires closing to occur on or before June 1, 2016 . Accordingly, the assets and liabilities of the Rhodes Ranch golf course have been classified as held for sale and presented in prepaid expenses and other assets and accrued expenses and other liabilities on the consolidated balance sheet as of June 30, 2015.

Selling, General and Administrative Expense

Our selling, general and administrative costs increased $11.5 million for the three m onths ended June 30, 2015 as compared to the same period in the previous year. The increase for the three months ended June 30, 2015 was primarily attributable to the following: (1) an increase of $3.4 million in our compensation-related expenses, including incentive compensation, resultin g largely from a 97.0% increase in our headcount to 461 employees as of June 30, 2015 compared to 234 employees as of June 30, 2014 , (2) an increase of $5.0 million in commission expense to $7.2 million for the three months ended June 30, 2015 , resulting from a 141.6% increase in home sales revenue s , (3) an increase of $0.2 million related to advertising costs associated with our increased number of active communities, (4) an increase of $0.6 million related to depreciation and amortization as a result of amortization expense of intangible assets from our acquisitions of Peachtree, Grand View, and LVLH, and (5) moderate increases in outside professional services, insurance, legal, and other miscellaneous expenses related to increased operations from our growth and overall increase in costs associated with being a public company, partially offset by a r eduction to selling, general and administrative for the three months ended June 30, 2015 of $0.5 m illion to adjust the carrying value of the earnout liability to fair value .

Our selling, general and administrative costs increased $ 25.4 million for the six months ended June 30, 2015 as compared to the same period in the previous year. The increase for the six months ended June 30, 2015 was primarily attributable to the following: (1) an increase of $ 8.6 million in our compensation-related expenses, including incentive compensation, resultin g largely from the increase in headcount to 461 employees as of June 30, 2015 compared to 234 employees as of June 30, 2014 , (2) an increase of $ 10.3 million in commission expense to $ 14.0 million for the six months ended June 30, 2015 , resulting from a 168 .6% increase in home sales revenue s , (3) an increase of $0. 7 million related to advertising costs associated with our increased number of active co mmunities, (4) an increase of $1.1 million related to depreciation and amortization as a result of amortization expense of intangible assets from our acquisitions of Peachtree, Grand View, and LVLH, and (5) moderate increases in outside professional services, insurance, legal, and other miscellaneous expenses related to increased operations from our growth and overall increase in costs associated with being a public company , partially offset by a r eduction to selling, general and administrative for the six months ended June 30, 2015 of $0. 7 m illion to adjust the carrying value of the earnout liability to fair value .

Other Income (Expense)

Other income (expense) increased by $0.6 m illion to income of $0.4 million and increased by $1.1 million to income of $0.8 million for the three and six months ended June 30, 2015 , respectively, from expense of $0.1 million and $0.3 million for the three and six months

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ended June 30, 2014 , respectively. The increase was primarily driven by a decrease in acquisition related expenses during the three and six months ended June 30, 2015 as compared to the same period in the prior year , as well as an increase in forfeited deposit income .

Income Tax Expense

Our income tax expense for the three and six months ended June 30, 2015 was $4.6 million and $7.8 million, respectively, as compared to $2.7 million and $4.5 million for the three and six months ended June 30, 2014 , respectively. Our income tax expense for the three and six months ended June 30, 2015 is based on our estimated annual effective tax rate of approximately 34.4% and certain discreet items, which benefited our effective tax rate by approximately 1.9% and 1.4% for the three and six months ended June 30, 2015, respectively .

Other Homebuilding Operating Data

NM - Not meaningful.

Net new home contracts (new home contracts net of cancellations) for the three months ended June 30, 2015 increased by 437 homes, or 155.5%, to 718, compared to 281 for the three months ended June 30, 2014 . For the six months ended June 30, 2015 net new home contracts increased by 981 homes, or 221.4%, to 1,424, compared to 443 for the six months ended June 30, 2014 . The increase in our net new home contracts was driven by our entry into the Atlanta, Houston, and Nevada markets through the acquisitions of Peachtree, Grand View, and LVLH, in November 2014, August 2014, and April 2014, respectively. Our Atlanta, Houston, and Nevada operating segments contributed 329, 37, and 81 net new home contracts, respectively, during the three months ended June 30, 2015 , and contributed 660, 64, 158 net new home contracts, respectively, during the six months ended June 30, 2015 . Additionally, we experienced an increase in our Central Texas and Colorado segments of 25.0% and 44.4% for the three months ended June 30, 2015, respectively, and 72.3% and 48.3% for the six months ended June 30, 2015, respectively, as a result of an increase in selling communities as compared to the same periods in 2014.

Our overall “absorption rate” (the rate at which home orders are contracted, net of cancellations) for the three and six months ended June 30, 2015 was an average of 8.2 and 16.7 per selling community (2.7 and 2.8 monthly), respectively, compared to an average of 8.8 and 16.1 per selling community (2.9 and 2.7 monthly), respectively, for the three and six months ended June 30, 2014 . Our cancellation rate of buyers who contracted to buy a home but did not close escrow (as a percentage of overall orders) was approximately 19% for the three and six months ended June 30, 2015, compared to 17% and 16% for the three and six months ended June 30, 2014, respectively. The change in our cancellation rate was not due to any one significant factor but was the result of general market activity during this period.

NM - Not meaningful.

Our selling communities increased by 53 communities, or 147.2%, to 89 communities at June 30, 2015 , as compared to June 30, 2014 .  The increase is driven by our acquisition s of Peachtree and Grand View during 2014 that now comprise our Atlanta and Houston

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operating segments, respectively, which contributed an aggregate of 4 0 communities as of June 30, 2015 . Our Central Texas and Colorado operating segments increased communities by 44.4% and 29.2%, respectively, as a result of our land acquisition activity.

NM - Not meaningful.

Backlog reflects the number of homes, net of actual cancellations experienced during the period, for which we have entered into a sales contract with a customer but for which we have not yet delivered the home.  At June 30, 2015 , we had 1,005 homes in backlog with a total value of $348.0 million, which represents an increase of 155.1% and 107.3%, respectively, as compared to June 30, 2014 .  The increase is primarily attributable to our acquisition s of our Atlanta and Houston operating segments during 2014 which contributed 409 and 66 homes, respectively, to backlog at June 30, 2015 .  Our Central Texas and Colorado operating segments also experienced an increase of 26.7% and 57.4% in the number of homes in backlog, respectively, as compared to June 30, 2014 .  The increase is a result of the increased number of selling communities discussed above.

Our average sales price of homes in backlog decreased from $425.9 thousand as of June 30, 2014 to $346.2 thousand as of June 30, 2015 .  The decrease in the average sales price of homes in backlog is the result of the inclusion of our Atlanta and Houston operating segments, which generally have a lower price point than our Central Texas, Colorado and Nevada operating segments.

NM - Not meaningful.

As a result of our business acquisitions and land acquisition strategy, we increased our lots owned and controlled by 34.9% from 9,852 at June 30, 2014 to 13,288 at June 30, 2015 .

Critical Accounting Policies

Critical accounting estimates are those that we believe are both significant and that require us to make difficult, subjective or complex judgments, often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences and various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates, and the estimates included in our financial statements might be impacted if we used different assumptions or conditions. A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, filed with the SEC on March 6, 2015, in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Significant Accounting Policies.”  We have had no significant changes in our critical accounting policies from those described therein.

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Liquidity and Capital Resources

Overview

Our principal uses of capital for the three months ended June 30, 2015 were land purchases, land development, home construction, and the payment of routine liabilities. We used funds generated by operations and available borrowings under our Credit Agreement to meet our short-term working capital requirements.

Cash flows for each of our communities depend on the stage in the development cycle, and can differ substantially from reported earnings. Early stages of development or expansion require significant cash outlays for land acquisitions, entitlements and other approvals, and construction of model homes, roads, utilities, general landscaping and other amenities. Because these costs are a component of our inventory and not recognized in our statement of operations until a home closes, we incur significant cash outlays prior to our recognition of earnings. In the later stages of community development, cash inflows may significantly exceed earnings reported for financial statement purposes, as the cash outflow associated with home and land construction was previously incurred. From a liquidity standpoint, we are currently actively acquiring and developing lots in our markets to maintain and grow our lot supply and active selling communities that are strategically located in our core Colorado markets, and in the greater Austin, San Antonio, and Houston, Texas, Las Vegas, Nevada, and Atlanta, Georgia metropolitan areas. As we continue to expand our business, we expect that cash outlays for land purchases and land development to grow our lot inventory will exceed our cash generated by operations.

Covenant Compliance

On October 21, 2014, we entered into a credit agreement with Texas Capital Bank, National Association, as Administrative Agent and L/C Issuer, and the lenders from time to time party thereto (which we refer to as the “Credit Agreement”). The Credit Agreement provides the Company with a revolving line of credit (which we refer to as the “Revolving Credit Facility”) of up to $120 million. Under the terms of the Credit Agreement, we are entitled to request an increase in the size of the Revolving Credit Facility by an amount not exceeding $80 million. If the existing lenders elect not to provide the full amount of a requested increase, we may invite one or more other lender(s) to become a party to the Credit Agreement, subject to the approval of the Administrative Agent and L/C Issuer. The Credit Agreement includes a letter of credit sublimit of $20 million. The obligations under the Revolving Credit Facility are guaranteed by substantially all of our operating subsidiaries.

The Credit Agreement contains customary affirmative and negative covenants (including limitations on the Company’s ability to grant liens, incur additional debt, pay dividends, redeem its common stock, make certain investments and engage in certain merger, consolidation or asset sale transactions), as well as customary events of default. The Credit Agreement also requires the Company to maintain (i) a leverage ratio of not more than 1.50 to 1.0 as of the last day of any fiscal quarter, based upon the ratio of debt to tangible net worth of the Company and its subsidiaries on a consolidated basis, (ii) an interest coverage ratio of not less than 1.50 to 1.0 for any four fiscal quarter period, based upon the ratio of EBITDA to cash interest expense of the Company and its subsidiaries on a consolidated basis, (iii) a consolidated tangible net worth of not less than the sum of $250 million, plus 50% of the net proceeds of any issuances of equity interests of the Company and the guarantors of the Revolving Credit Facility, plus 50% of the amount of consolidated net income of the Company and its subsidiaries, (iv) liquidity of not less than $25 million, and (v) a risk asset ratio of not more than 1.25 to 1.0, based upon the ratio of the book value of all risk assets owned by the Company and its subsidiaries to the Company’s tangible net worth.

As of June 30, 2015 , we were in compliance with all covenants under the Credit Agreement.

Cash Flows— Six Months Ended June 30, 2015 Compared to the Six Months Ended June 30, 2014

For the six months ended June 30, 2015 and June 30, 2014 , the comparison of cash flows is as follows:

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As of June 30, 2015 , our cash balance was $32.6 million.

Off-Balance Sheet Arrangements

In the ordinary course of business, we enter into land purchase contracts in order to procure lots for the construction of our homes. We are subject to customary obligations associated with entering into contracts for the purchase of land and improved lots. These purchase contracts typically require a cash deposit, and the purchase of properties under these contracts is generally contingent upon satisfaction of certain requirements, including obtaining applicable property and development entitlements. We also utilize option contracts with land sellers as a method of acquiring land in staged takedowns, to help us manage the financial and market risk associated with land holdings, and to reduce the use of funds from our corporate financing sources. Option contracts generally require payment by us of a non-refundable deposit for the right to acquire lots over a specified period of time at pre-determined prices. We generally have the right at our discretion to terminate our obligations under both purchase contracts and option contracts by forfeiting our cash deposit with no further financial responsibility to the land seller. Our obligations with respect to the option contracts are generally limited to t he fo rfeiture of the related non-refundable cash deposits. As of June 30, 2015 , we had outstanding options for 1,567 lots totaling $78.7 million, and had $4.1 million of non-refundable cash deposits pertaining to land option contracts.

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

We post letters of credit and performance bonds related to our land development performance obligations, with local municipalities. As of June 30, 2015 and December 31, 2014 , we had $3 9.3 million and $34.0 million, respectively, in letters of credit and performance bonds issued and outstanding. We anticipate that the obligations secured by these performance bonds and letters of credit generally will be performed in the ordinary course of business.

Subsequent Events

On July 31 , 2015, we entered into a First Modification Agreement (the “ First Modification Agreement ”) with Texas Capital Bank, National Association, as Administrative Agent, the lenders party thereto, and the subsidiary guarantors of the Company party thereto.  The First Modification Agreement modifies the Credit Agreement, which provided us with a revolving line of credit of up to $120 million.  The First Modification Agreement, among other things, (i) increases the Credit Facility from $120 million to $200 million, (ii) extends the maturity date of the Credit Facility from October 21, 2017 to October 21, 2018 , (iii) admits Bank of America, N.A. as a new lender under the Credit Facility, and (iv) provides an option for the Company to request, from time to time, an additional increase in the amount of the Credit Facility of up to $100 million, subject to the terms and conditions of the First Modification Agreement and the Credit Agreement.

Adjusted EBITDA

The following table presents adjusted EBITDA for the three and six months ended June 30, 2015 and 2014 . Adjusted EBITDA is a non-GAAP financial measure we use as a supplemental measure in evaluating operating performance. We define adjusted EBITDA as consolidated net income before (i) income tax expense, (ii) interest in cost of home sales revenues, (iii) other interest expense, (iv) depreciation and amortization expense, and (v) adjustments resulting from the application of purchase accounting for acquired work in process inventory related to business combinations. We believe adjusted EBITDA provides an indicator of general economic performance that is not affected by fluctuations in interest rates or effective tax rates, levels of depreciation or amortization, and items considered to be non-recurring. Accordingly, our management believes that this measurement is useful for comparing general operating performance from period to period. Adjusted EBITDA should be considered in addition to, and not as a substitute for, consolidated net income in accordance with GAAP as a measure of performance. Our presentation of adjusted EBITDA should not be construed as an indication that our future results will be unaffected by unusual or non-recurring items. Our adjusted EBITDA is limited as an analytical tool, and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP.

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ITEM 3.     QUANTIT ATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rates

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our Credit Agreement, which was entered into on October 21, 2014. Future borrowings under the Credit Agreement bear interest at a floating rate equal to the London Interbank Offered Rate plus an applicable margin between 2.75% and 3.25% per annum, or, in the Administrative Agent’s discretion, a base rate plus an applicable margin between 1.75% and 2.25% per annum. The “applicable margins” described above are determined by a schedule based on the leverage ratio of the Company, as defined in the Credit Agreement. The Credit Agreement also provides for fronting fees and letter of credit fees payable to the L/C Issuer and commitment fees payable to the Administrative Agent equal to 0.20% of the unused portion of the Revolving Credit Facility.

Inflation

Our homebuilding operations can be adversely impacted by inflation, primarily from higher land, financing, labor, material and construction costs. In addition, inflation can lead to higher mortgage rates, which can significantly affect the affordability of mortgage financing to homebuyers. While we attempt to pass on cost increases to customers through increased prices, when weak housing market conditions exist, we are often unable to offset cost increases with higher selling prices.

Seasonality

Historically, the homebuilding industry experiences seasonal fluctuations in quarterly operating results and capital requirements. We typically experience the highest new home order activity during the spring, although this activity is also highly dependent on the number of active selling communities, timing of new community openings and other market factors. Since it typically takes four to six months to construct a new home, we deliver more homes in the second half of the year as spring and summer home orders convert to home deliveries. Because of this seasonality, home starts, construction costs and related cash outflows have historically been highest in the second and third quarters, and the majority of cash receipts from home deliveries occurs during the second half of the year. We expect this seasonal pattern to continue over the long term, although it may be affected by volatility in the homebuilding industry.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Co-Chief Executive Officers and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of June 30, 2015 , the end of the period covered by this Form 10-Q, we evaluated, under the supervision and with the participation of our management, including our Co-Chief Executive Officers and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures to, among other matters, detect any material weaknesses.  A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented or detected on a timely basis.  As of June 30, 2015 , we continued to remediate previously identified material weaknesses related to the period-end financial reporting and information technology processes. Once fully implemented, the new and enhanced controls will need to operate for a sufficient amount of time in order for management to conclude that the material weaknesses have been remediated.

Remediation and Changes in Internal Controls

We have developed and are implementing remediation plans to address the material weaknesses discussed above and to improve our internal controls over the period-end financial reporting process.  Specifically, our remediation plan requires (i) documenting and formalizing our internal controls, and financial reporting and information technology policies and procedures, including implementing additional controls over our financial close and information technology processes, (ii) hiring additional resources with significant experience to our accounting team, and (iii) instituting appropriate review and oversight responsibilities within our accounting and information technology functions.

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Our management believes that the measures described above should be sufficient to remediate the identified material weaknesses and strengthen our internal control over financial reporting.  Our management is committed to improving our internal control processes.  Once fully implemented, the new and enhanced controls will need to operate for a sufficient amount of time for management to conclude that the material weaknesses have been remediated.  Accordingly, we will continue to monitor the effectiveness of our remediation efforts and will make any further changes management determines appropriate.  As we continue to evaluate and improve our internal control over financial reporting, additional measures to address the material weaknesses or modifications to the remediation plan described above may be identified.

Changes in Internal C ontrol over Financial Reporting

Except as discussed above, there were no changes during the quarter ended June 30, 2015 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.

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PART II

IT EM 1 . LEGAL PROCEEDINGS.

Because of the nature of the homebuilding business, we and certain of our subsidiaries and affiliates have been named as defendants in various claims, complaints and other legal actions arising in the ordinary course of business.  In the opinion of our management, the outcome of these ordinary course matters will not have a material adverse effect upon our financial condition, results of operations or cash flows.

ITEM 1A. RISK FACTORS.

There have been no material changes to the risk factors we previously disclosed in our Annual Report o n Form 10-K for the fiscal year ended December 31, 2014 that was filed with the SEC on March 6, 201 5 .

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

During the three months ended June 30, 2015, certain of our employees surrendered shares of common stock owned by them to satisfy their statutory minimum federal and state tax obligations associated with the vesting of restricted shares of common stock issued under our First Amended & Restated 2013 Long-Term Incentive Plan . The following table summarizes t he repurchases that occurred during the t hree months ended June 30, 2015:

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4 . MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

None.

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ITEM 6. E XHIBITS.

The following exhibits are either filed herewith or incorporated herein by reference:

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized.

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