Note 6 - Warranty Costs

6 Months Ended

Apr. 30, 2024

Warranty Costs

Warranty Costs

6. Warranty Costs

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 2024, our deductible under our general liability insurance is $30.0 million, aggregated for construction defect and warranty claims, and for homes previously delivered in 2023, our deductible under our general liability insurance was $25.0 million, aggregated for construction defect, warranty, and bodily injury claims. As of November 1, 2023, we no longer have an aggregate deductible for bodily injury claims. For bodily injury claims, our deductible per occurrence in fiscal 2024 is $0.25 million and $0.5 million for action over claims, both with a $30.0 million limit, and for fiscal 2023 it was $0.25 million for all other states and $0.5 million for California, both with a $5.0 million limit. 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, charges and changes in the warranty reserve and general liability reserve for the three and six months ended April 30, 2024 and 2023 were as follows:

	Three Months Ended						Six Months Ended
	April 30,						April 30,
(In thousands)	2024			2023			2024			2023
Balance, beginning of period	$	99,836		$	91,067		$	98,919		$	97,719
Additions – Selling, general and administrative		2,041			2,217			4,588			3,794
Additions – Cost of sales		1,982			1,937			4,850			3,240
Charges incurred during the period		(18,949	)		(4,584	)		(25,593	)		(13,387	)
Changes to pre-existing reserves		267			(27	)		2,413			(756	)
Balance, end of period	$	85,177		$	90,610		$	85,177		$	90,610

The majority of the charges incurred during the first half of fiscal 2024 represented a payment for construction defects related to the settlement of one litigation matter (see Note 7).