Note 13 - Income Taxes

12 Months Ended

Dec. 31, 2011

Income Tax Disclosure [Text Block]

13. Income Taxes

The (provision) benefit for income taxes includes the following components:

	Year Ended December 31,
	2011			2010			2009
	(Dollars in thousands)
Current (provision) benefit for income taxes:
Federal	$	(130	)	$	(899	)	$	93,861
State		186			1,456			2,702
		56			557			96,563
Deferred (provision) benefit for income taxes:
Federal		―			―			―
State		―			―			―
		―			―			―
(Provision) benefit for income taxes	$	56		$	557		$	96,563
(Provision) benefit for income taxes - continuing operations	$	56		$	557		$	96,265
(Provision) benefit for income taxes - discontinued operations		―			―			298
(Provision) benefit for income taxes	$	56		$	557		$	96,563

We account for income taxes in accordance with ASC Topic 740, Income Taxes (“ASC 740”).  ASC 740 requires an asset and liability approach for measuring deferred taxes based on temporary differences between the financial statement and tax bases of assets and liabilities existing at each balance sheet date using enacted tax rates for years in which taxes are expected to be paid or recovered.  The components of our net deferred income tax asset are as follows:

	December 31,
	2011			2010
	(Dollars in thousands)
Inventory impairment charges	$	184,393		$	216,028
Financial accruals		52,493			49,605
Federal net operating loss carryforwards		210,013			189,179
State net operating loss carryforwards		51,003			48,317
Goodwill impairment charges		17,482			22,327
Other, net		563			179
Total deferred tax asset		515,947			525,635
Less: Valuation allowance		(510,621	)		(516,366	)
Net deferred tax asset	$	5,326		$	9,269

At December 31, 2011, we had gross federal and state net operating loss carryforwards of approximately $604 million and $825 million, respectively, which if unused, will begin to expire in 2028 and 2017, respectively.

The effective tax rate differs from the federal statutory rate of 35% due to the following items:

	Year Ended December 31,
	2011			2010			2009
	(Dollars in thousands)
Loss before taxes	$	(16,473	)	$	(12,281	)	$	(110,349	)
(Provision) benefit for income taxes at federal statutory rate	$	5,765		$	4,298		$	38,622
(Increases) decreases in tax resulting from:
State income taxes, net of federal benefit		615			372			4,195
Net deferred tax asset valuation (allowance) benefit		(6,415	)		(4,687	)		51,429
Other, net		91			574			2,317
Benefit for income taxes	$	56		$	557		$	96,563
Effective tax rate		0.3	%		4.5	%		87.5	%

In accordance with ASC 740, we assess our deferred tax asset to determine whether all or any portion of the asset is more likely than not unrealizable.  We are required to establish a valuation allowance for any portion of the asset we conclude is more likely than not to be unrealizable.  Our assessment considers, among other things, the nature, frequency and severity of our current and cumulative losses, forecasts of our future taxable income, the duration of statutory carryforward periods, our utilization experience with operating loss and tax credit carryforwards, and tax planning alternatives.

As of December 31, 2011, we had a deferred tax asset of $510.6 million (excluding the $5.3 million deferred tax asset related to our terminated interest rate swap).  During the years ended December 31, 2011, 2010 and 2009, we generated a deferred tax asset of $6.4 million, $4.7 million and $42.7 million, respectively, related to pretax losses, and determined under ASC 740 that we were required to establish a full valuation allowance against this asset.  As of December 31, 2011, due primarily to our current and cumulative losses, the uncertainty as to the duration of the housing market's downturn and its impact on our ability to predict future taxable income, we have determined that an aggregate valuation allowance of $510.6 million against our deferred tax asset is required. If we generate taxable income in the future, subject to the potential limitations discussed below, we expect to be able to reduce our effective tax rate through a reduction in this valuation allowance.

We underwent a change in ownership for purposes of Internal Revenue Code Section 382 (“Section 382”) on June 27, 2008. As a result, a portion of our deferred tax asset became subject to the various limitations on its use that are imposed by Section 382.  At December 31, 2011, $258 million of this asset was subject to limitations, of which $117 million was subject to the unrealized built-in loss limitations and $141 million was subject to federal and state net operating loss carryforward limitations.

The limitations ultimately placed on the $117 million subject to the unrealized built-in loss limitations depends on, among other things, when, and at what price, we dispose of assets with built-in losses.  Assets with built-in losses sold prior to June 27, 2013, are subject to a $15.6 million gross annual deduction limitation for federal and state purposes.  Assets with built-in losses sold after June 27, 2013 are not subject to these limitations.  In general, to the extent that realized tax losses from these built-in loss assets exceed $15.6 million in any tax year prior to June 27, 2013, the built-in losses in excess of this amount will be permanently lost, such permanent loss reflected by identical reductions of our deferred tax asset and deferred tax asset valuation allowance for the tax effected amount of the difference.  During the years ended December 31, 2011, 2010 and 2009, we recorded such reductions in the amounts of $12.2 million, $22.9 million and $68.1 million, respectively, reflecting permanent losses of our deferred tax asset in such periods related to built-in losses realized during these periods that were in excess of the Section 382 annual limitation.  

As of December 31, 2011, $141 million (or approximately $343 million and $367 million, respectively, of federal and state net operating loss carryforwards on a gross basis) of our deferred tax asset related to net operating loss carryforwards is subject to the $15.6 million gross annual deduction limitation for both federal and state purposes.  The remaining $120 million (or approximately $261 million and $458 million, respectively, of federal and state net operating loss carryforwards on a gross basis) is not currently limited by Section 382.

 As of December 31, 2011, our liability for gross unrecognized tax benefits was $13.5 million, all of which, if recognized, would affect our effective tax rate.  Our liabilities for unrecognized tax benefits are included in accrued liabilities on the accompanying consolidated balance sheets.  We classify estimated interest and penalties related to unrecognized tax benefits in our provision for income taxes.   A reconciliation of the beginning and ending amount of gross unrecognized tax benefits, excluding $1.5 million and $0.9 million of accrued interest as of December 31, 2011 and 2010, respectively, is as follows:

	Year Ended December 31,
	2011			2010
	(Dollars in thousands)
Balance, beginning of the year	$	13,670		$	11,432
Changes based on tax positions related to the current year		―			4,358
Changes for tax position in prior years		―			―
Reductions due to lapse of statute of limitations		(186	)		(2,120	)
Settlements		―			―
Balance, end of the year	$	13,484		$	13,670

We do not anticipate significant changes in the accrued liability related to uncertain tax positions during the next 12-month period.  In addition, we remain subject to examination by certain tax jurisdictions for the tax years ended       December 31, 2007 through 2011.