Warranty Accrual

Our homes are sold with limited

third

-party warranties and, under our agreement with the issuer of the

third

-party warranties, we are responsible for performing all of the work for the

first

two

years of the warranty coverage and paying for substantially all of the work required to be performed during years

three

through

ten

of the warranties. We record accruals for general and structural warranty claims, as well as accruals for known, unusual warranty-related expenditures. Our warranty accrual is recorded based upon historical payment experience in an amount estimated to be adequate to cover expected costs of materials and outside labor during warranty periods. The determination of the warranty accrual rate for closed homes and the evaluation of our warranty accrual balance at period end are based on an internally developed analysis that includes known facts and interpretations of circumstances, including, among other things, our trends in historical warranty payment levels and warranty payments for claims

not

considered to be normal and recurring.

Our warranty accrual is included in accrued liabilities in the homebuilding section of our consolidated balance sheets and adjustments to our warranty accrual are recorded as an increase or reduction to home cost of sales in the homebuilding section of our consolidated statements of operations and comprehensive income.

The table set forth below summarizes accrual, adjustment and payment activity related to our warranty accrual for the

three

and

six

months ended

June 30, 2017

and

2016.

For the

six

months ended

June 30, 2017,

we recorded adjustments to increase our warranty accrual of

$0.1

million.

such adjustments were recorded during the

three

months ended

June 30, 2017.

For the

three

and

six

months ended

June 30, 2016,

we increased our warranty reserve by

$0.3

million and

$3.2

million, respectively. The adjustments made during

2016

were due to higher than expected recent warranty related expenditures.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2017			2016			2017			2016
	(Dollars in thousands)
Balance at beginning of period	$	20,770		$	16,852		$	20,678		$	15,328
Expense provisions		2,836			2,305			5,243			3,757
Cash payments		(2,641	)		(2,190	)		(5,006	)		(5,105	)
Adjustments		-			250			50			3,237
Balance at end of period	$	20,965		$	17,217		$	20,965		$	17,217