10.

Warranty Accrual

The Company records expenses and warranty accruals for general and structural warranty claims, as well as reserves for known, unusual warranty-related expenditures. The Company’s management estimates the warranty reserves based on the Company’s trends in historical warranty payment levels and warranty payments for claims not considered to be normal and recurring. Warranty payments incurred for an individual house may differ from the related accrual established for the home at the time it was closed. The actual disbursements for warranty claims are evaluated in the aggregate. The table set forth below summarizes warranty accrual activity for the three and six months ended June 30, 2012 and 2011.


	Three Months Ended June 30,						Six Months Ended June 30,
	2012			2011			2012			2011
				(Dollars in thousands)
Balance at beginning of period	$	25,076		$	33,615		$	25,525		$	34,704
Expense provisions		878			1,034			1,643			1,875
Cash payments		(1,918	)		(1,617	)		(3,132	)		(3,116	)
Adjustments		—			(1,832	)		—			(2,263	)

Balance at end of period	$	24,036		$	31,200		$	24,036		$	31,200

The cash payments for the six months ended June 30, 2012 are shown net of $1.3 million of reimbursements received from a third party vendor during the 2012 first quarter for amounts that were or will be paid from the Company’s warranty reserves. Excluding the reimbursement, cash payments for the six months ended June 30, 2012 were significantly higher than the previous year primarily due to payments made on a specific warranty reserve related to several subdivisions in the Texas market, which we exited in 2006.

During the three and six months ended June 30, 2011, we experienced lower warranty payments on previously closed homes as compared to the prior year periods. We believe the lower warranty payment experience rate in the 2011 periods were driven by, among other things, tighter focus and controls over our warranty expenditures, a significant drop in sales volumes over the last several years, which resulted in fewer homes under warranty, and better quality controls and construction practices. As a result of favorable warranty payment experience relative to our estimates at the time of home closing, partially offset by increases in specific warranty reserves established for warranty-related issues in a limited number of subdivisions, we recorded adjustments to reduce our warranty reserve by $1.8 million and $2.3 million for the three and six months ended June 30, 2011, respectively.