13.

Income Taxes

The Company is required, at the end of each interim period, to estimate its annual effective tax rate for the fiscal year and use that rate to provide for income taxes for the current year-to-date reporting period. Due to the effects of the deferred tax valuation allowance and changes in unrecognized tax benefits, the Company's effective tax rates in 2011 and 2010 are not meaningful as the income tax benefit is not directly correlated to the amount of pretax loss. The income tax benefits of $1.8 million and $5.6 million during the three and six months ended June 30, 2011, respectively, resulted primarily from the Company's 2011 second quarter settlement of various state income tax matters and the Company's 2011 first quarter settlement with the IRS on the audit of its 2004 and 2005 federal income tax returns. The Company's income tax benefits during the three and six months ended June 30, 2010 were not material to the Company's results of operations.

The Company is required to recognize the financial statement effects of a tax position when it is more likely than not (defined as a likelihood of more than 50%), based on the technical merits, that the position will be sustained upon examination. Any difference between the income tax return position and the benefit recognized in the financial statements results in a liability for unrecognized tax benefits. The Company's liability for unrecognized tax benefits was $11.8 million and $55.9 million at June 30, 2011 and December 31, 2010, respectively. This decrease resulted primarily from the Company's settlement with the IRS on the audit of its 2004 and 2005 federal income tax returns and settlement of various state income tax matters.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The increase in the Company's total deferred tax asset at June 30, 2011 (per the table below) resulted primarily from an increase in the Company's net operating loss carry forwards.

A valuation allowance is recorded against a deferred tax asset if, based on the weight of available evidence, it is more-likely-than-not (a likelihood of more than 50%) that some portion, or all, of the deferred tax asset will not be realized. At June 30, 2011 and December 31, 2010, the Company had a full valuation allowance recorded against its net deferred tax assets. The Company's future realization of its deferred tax assets ultimately depends upon the existence of sufficient taxable income in the carryback or carryforward periods under the tax laws. The Company will continue analyzing, in subsequent reporting periods, the positive and negative evidence in determining the expected realization of its deferred tax assets.

The tax effects of significant temporary differences that give rise to the net deferred tax asset are as follows (in thousands).


	June 30, 2011			December 31, 2010
Deferred tax assets
Federal net operating loss carryforward	$	98,854		$	73,189
State net operating loss carryforward		49,485			47,041
Asset impairment charges		38,307			46,118
Warranty, litigation and other reserves		24,641			27,635
Stock-based compensation expense		25,124			22,777
Alternative minimum tax and other tax credit carryforwards		10,296			10,296
Accrued liabilities		10,529			9,789
Inventory, additional costs capitalized for tax purposes		5,368			5,368
Property, equipment and other assets, net		1,761			1,773
Charitable contribution on carryforward		946			938
Deferred revenue		293			326

Total deferred tax assets		265,604			245,250
Valuation allowance		(252,209	)		(231,379	)

Total deferred tax assets, net of valuation allowance		13,395			13,871

Deferred tax liabilities
Deferred revenue		5,731			6,401
Unrealized gain		2,393			1,880
Inventory, additional costs capitalized for financial statement purposes		580			604
Accrued liabilities		383			713
Other, net		4,308			4,273

Total deferred tax liabilities		13,395			13,871

Net deferred tax asset	$	-		$	-