Accrued Expenses

12 Months Ended

Oct. 31, 2021

Accrued expenses at October 31, 2021 and 2020, consisted of the following (amounts in thousands):


	2021		2020
Land, land development and construction	$	310,996	$	233,783
Compensation and employee benefits	232,161		219,965
Escrow liability	36,107		23,067
Self-insurance	236,369		215,884
Warranty	145,062		157,351
Lease liabilities	116,248		124,756
Deferred income	36,638		34,096
Interest	34,033		38,446
Commitments to unconsolidated entities	22,150		8,928
Other	50,471		53,920
	$	1,220,235	$	1,110,196

At the time each home is closed and title and possession are transferred to the home buyer, we record an initial accrual for expected warranty costs on that home. Our initial accrual for expected warranty costs is based upon historical warranty claim experience. Adjustments to our warranty liabilities related to homes delivered in prior periods are recorded in the period in which a change in our estimate occurs. The table below provides a reconciliation of the changes in our warranty accrual during fiscal 2021, 2020, and 2019 (amounts in thousands):


	2021		2020		2019
Balance, beginning of year	$	157,351	$	201,886	$	258,831
Additions - homes closed during the year	42,316		36,103		35,475
Addition - liabilities assumed	100		190		855
Increase in accruals for homes closed in prior years, net	9,155		6,711		6,023
Reclassification from self-insurance accruals	3,618		—		—

Decrease to water intrusion accrual	(11,823)		(24,400)		—
Charges incurred	(55,655)		(63,139)		(99,298)
Balance, end of year	$	145,062	$	157,351	$	201,886

Since fiscal 2014, we have received water intrusion claims from owners of homes built since 2002 in communities located in Pennsylvania and Delaware (which are in our North region). During fiscal 2021, we continued to receive water intrusion claims from homeowners in this region, mostly related to older homes, and we continue to perform review procedures to assess, among other things, the number of affected homes, whether repairs are likely to be required, and the extent of such repairs.

Our review process, conducted quarterly, includes an analysis of many factors applicable to these communities to determine whether a claim is likely to be received and the estimated costs to resolve any such claim, including: the closing dates of the homes; the number of claims received; our inspection of homes; an estimate of the number of homes we expect to repair; the type and cost of repairs that have been performed in each community; the estimated costs to remediate pending and future claims; the expected recovery from our insurance carriers and suppliers; and the previously recorded amounts related to these claims. We also monitor legal developments relating to these types of claims and review the volume, relative merits and adjudication of claims in litigation or arbitration.

From October 31, 2016 through the second quarter of fiscal 2020, our recorded aggregate estimated repair costs to be incurred for known and unknown water intrusion claims was $324.4 million and our recorded aggregate expected recoveries from insurance carriers and suppliers were approximately $152.6 million. Based on trends in claims experience over several years and lower than anticipated repair costs, in the second fiscal quarter of 2020 and again in the fourth fiscal quarter of 2021, we reduced the estimate of the aggregate estimated repair costs to be incurred for known and unknown water intrusion claims by $24.4 million and $11.8 million, respectively. Because these reductions were associated with periods in which we expect our insurance deductibles and self-insured retentions to be exhausted, we reduced our aggregate expected recoveries from insurance carriers and suppliers by a corresponding $24.4 million and $11.8 million, in fiscal 2020 and fiscal 2021, respectively. Our recorded remaining estimated repair costs, which reflects a reduction for the aggregate amount expended to resolve claims, were approximately $54.7 million at October 31, 2021 and $79.5 million at October 31, 2020. Our recorded remaining expected

recoveries from insurance carriers and suppliers were approximately $5.8 million at October 31, 2021 and $68.4 million at October 31, 2020.

As noted above, our review process includes a number of estimates that are based on assumptions with uncertain outcomes, including, but not limited to, the number of homes to be repaired, the extent of repairs needed, the repair procedures employed, the cost of those repairs, outcomes of litigation or arbitrations, and expected recoveries from insurance carriers and suppliers. Due to the degree of judgment required in making these estimates and the inherent uncertainty in potential outcomes, it is reasonably possible that our actual costs and recoveries could differ from those recorded and such differences could be material. In addition, due to such uncertainty, we are unable to estimate the range of any such differences. With respect to our insurance receivables, disputes between home builders and carriers over coverage positions relating to construction defect claims are common, and resolution of claims with carriers involves the exchange of significant amounts of information and frequently involves legal action. As a result of coverage disputes related to water intrusion claims, we entered arbitration proceedings during the third quarter of fiscal 2019 with certain of our insurance carriers. During the third quarter of fiscal 2021, we settled all such outstanding disputes and have since entered into coverage agreements with the relevant insurance carriers. Based on the resolution of such disputes and the terms of these coverage agreements, we concluded that no adjustments to our insurance receivables were necessary and we continue to believe that the collection of our remaining recorded insurance receivables is probable.