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Note 6 - Warranty Costs

3 Months Ended

Jan. 31, 2023

Product Warranty Disclosure [Text Block]

6.	Warranty Costs

We have an owner-controlled insurance program for certain of our subcontractors whereby the subcontractors pay us an insurance premium (through a reduction of amounts we would otherwise owe such subcontractors for their work on our homes) based on the risk type of the trade. We absorb the liability associated with their work on our homes as part of our overall general liability insurance at no additional cost to us because our existing general liability and construction defect insurance policy and related reserves for amounts under our deductible covers construction defects regardless of whether we or our subcontractors are responsible for the defect. For the three months ended January 31, 2023 and 2022, we received $1.0 million and $1.2 million, respectively, from subcontractors related to the owner-controlled insurance program, which we accounted for as reductions to inventory.

We accrue for warranty costs that are covered under our existing general liability and construction defect policy as part of our general liability insurance deductible. For homes to be delivered in fiscal 2023 and previously delivered in 2022, our deductible under our general liability insurance is or was $25.0 million, aggregate for construction defect and warranty claims. For bodily injury claims, our deductible per occurrence in fiscal 2023 and 2022 is or was $0.5 million, up to a $5.0 million limit in California and $0.25 million, up to a $5.0 million limit in all other states. Our aggregate retention for construction defect, warranty and bodily injury claims is or was $25.0 million for fiscal 2023 and 2022. In addition, we establish a warranty accrual for lower cost-related issues to cover home repairs, community amenities and land development infrastructure that are not covered under our general liability and construction defect policy. We accrue an estimate for these warranty costs at the time each home is closed and control is transferred to the homebuyer. Additions and charges in the warranty reserve and general liability reserve for the three months ended January 31, 2023 and 2022 were as follows:

	Three Months Ended
	January 31,
(In thousands)	2023			2022

Balance, beginning of period	$	97,718		$	94,916
Additions – Selling, general and administrative		1,577			2,216
Additions – Cost of sales		1,303			1,424
Charges incurred during the period		(8,802	)		(4,154	)
Changes to pre-existing reserves		(729	)		(1,049	)
Balance, end of period	$	91,067		$	93,353

The majority of the charges incurred during the first quarter of fiscal 2023 represented payments for construction defects related to the settlement of two litigation matters. Insurance claims paid by our insurance carriers, excluding insurance deductibles paid, were less than $0.1 million for both the three months ended January 31, 2023 and 2022 for prior year deliveries.