Note 14 - Income Taxes

12 Months Ended

Dec. 31, 2013

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

14.          Income Taxes

Our provision for (benefit from) income taxes for the years ended December 31, 2013, 2012 and 2011 consisted of the following:

	Year Ended December 31,
	2013			2012			2011
	(Dollars in thousands)
Current tax benefit:
Federal	$	2,611		$	(374	)	$	(3,652	)
State		-			(1,210	)		(5,430	)
Total Current		2,611			(1,584	)		(9,082	)
Deferred expense
Federal	$	(171,037	)	$	-		$	-
State		(16,134	)		-			-
Total deferred		(187,171	)		-			-
Benefit from income taxes		(184,560	)		(1,584	)		(9,082	)

The provision for (benefit from) income taxes differs from the amount that would be computed by applying the statutory federal income tax rate of 35% to income before income taxes as a result of the following:

	Year Ended December 31,
	2013			2012			2011
	(Dollars in thousands)
Tax expense (benefit) computed at federal statutory rate	$	45,439		$	21,390		$	(37,615	)
State income tax expense (benefit), net of federal benefit		4,544			2,139			(3,762	)
Permanent differences		(358	)		1,771			93
Expiration of state net operating loss		3,874			2,634			-
Liability for unrecognized tax benefits		(552	)		(1,857	)		(9,173	)
Write-off of deferred tax asset for deferred compensation retirement plans		11,856			-			-
Federal Energy Credits		(6,530	)		-			-
Change in valuation allowance		(242,833	)		(27,661	)		41,375
Benefit from income taxes	$	(184,560	)	$	(1,584	)	$	(9,082	)
Effective tax (benefit) rate		-142.2	%		-2.6	%		-8.5	%

We recorded income tax benefits of $184.6 million, $1.6 million and $9.1 million for the years ended December 31, 2013, 2012 and 2011, respectively.

The income tax benefit for the year ended December 31, 2013 was due primarily to a $187.6 million reversal of a portion of our deferred tax asset valuation allowance in the 2013 second quarter in addition to a $6.5 million benefit from energy credits relating to current and prior years. These amounts were slightly offset by an $11.9 million write-off of a deferred tax asset related to the termination of certain post-retirement pension benefits contained in the employment agreements of our Chief Executive Officer and Chief Operating Officer as discussed in Note 13 to the Consolidated Financial Statements.

In our evaluation of the need for, and level of, a valuation allowance recorded against our deferred tax assets at June 30, 2013, the most significant piece of evidence considered was the objective and direct positive evidence related to our recent financial results. Through June 30, 2013, we had generated pretax income in each of the six consecutive preceding quarters totaling $121.7 million, with our second quarter 2013 pretax income being higher than any of the five previous quarters. In prior periods, a significant part of the negative evidence we considered was our three-year cumulative loss position. However, at June 30, 2013, when including expected earnings from homes currently in our backlog, we no longer anticipated being in a cumulative loss position at December 31, 2013. Lastly, if our quarterly income in future years remained consistent with earnings levels experienced in recent quarters, we estimated that we would utilize all of our current federal net operating losses by 2016. Other negative evidence considered was the recent rise in mortgage interest rates, caused largely by an expectation that the Federal Reserve may taper its use of quantitative easing as early as the second half of 2013. However, the Federal Reserve has also indicated that such tapering would likely only occur if economic conditions continue to improve, which would help to offset the impact of rising interest rates on the homebuilding industry.

Based on our evaluation of both positive and negative evidence as of June 30, 2013, we concluded that the objective and direct positive evidence related to operating results achieved during the recent challenging economic and housing market conditions and the sustainability of current pretax income levels outweighed the negative evidence and that it is more likely than not that the substantial majority of the Company's deferred tax assets will be realized. After considering the results of the year ended December 31, 2013, we have determined that these conclusions reached during the second quarter of 2013 remain appropriate. In addition, the Company was out of a three year cumulative loss position as of September 30, 2013. A portion of our remaining valuation allowance as of June 30, 2013 was related to amounts expected to be reversed in the third and fourth quarters of 2013 as pretax income is realized as required by ASC 740-270, Income Taxes - Interim Reporting, when a change in a valuation allowance is recognized in an interim period. As a result of the valuation allowance release in the 2013 second quarter and the utilization of a portion of our remaining valuation allowance during the second half of 2013, our effective tax rate in 2013 is not meaningful as the income tax benefit is not directly correlated to the amount of pretax income or loss.

At December 31, 2013 we have a remaining valuation allowance of $8.2 million related to various state net operating loss carryforwards where realization is more uncertain at this time due to the more limited carryforward periods that exist in certain states.

The income tax benefit for the year ended December 31, 2012 was due primarily to the release of reserves related to settlements with various taxing authorities.  

The income tax benefit for the year ended December 31, 2011 was primarily from settlements of various state income tax matters and our settlement with the IRS on its audit of our 2004 and 2005 federal income tax returns.

Due to the effects of the deferred tax valuation allowance and changes in unrecognized tax benefits, our effective tax rates in 2012 and 2011 were not meaningful as the income tax benefit is not directly correlated to the amount of pretax income or loss generated in such periods.

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 tax effects of significant temporary differences that give rise to the net deferred tax asset are as follows:

	December 31,
	2013			2012
	(Dollars in thousands)
Deferred tax assets:
Federal net operating loss carryforwards	$	72,915		$	129,695
State net operating loss carryforwards		40,227			49,551
Alternative minimum tax and other tax credit carryforwards		24,196			10,988
Stock-based compensation expense		26,651			29,196
Warranty, litigation and other reserves		15,543			14,556
Deferred compensation retirement plans		-			11,252
Accrued compensation		11,136			-
Asset impairment charges		5,889			14,080
Inventory, additional costs capitalized for tax purposes		7,064			3,930
Other, net		3,446			2,063
Total deferred tax assets		207,067			265,311
Valuation allowance		(8,201	)		(248,306	)
Total deferred tax assets, net of valuation allowance		198,866			17,005
Deferred tax liabilities:
Property, equipment and other assets		5,512			5,753
Discount on notes receivable		4,204			4,204
Deferred revenue		3,985			3,796
Unrealized gain on marketable securities		7,368			1,863
Other, net		1,535			1,389
Total deferred tax liabilities		22,604			17,005
Net deferred tax asset	$	176,262		$	-

At December 31, 2013, we had $72.9 million in tax effected federal net operating loss carryforwards. These operating loss carryforwards, if unused, will begin to expire in 2030. Additionally, we had $40.2 million in tax-effected state net operating loss carryforwards and $3.3 million of these operating loss carryforwards are at risk to expire in 2014 if they remain unused. The remaining operating loss carryforwards, if unused, will begin to expire in 2018.

At December 31, 2013 and 2012, our total liability for uncertain tax positions was $0.3 million and $0.8 million, respectively, which is included in accrued liabilities in the Homebuilding section of our consolidated balance sheets. The following table summarizes activity for the gross unrecognized tax benefit component of our total liability for uncertain tax positions for the years ended December 31, 2013, 2012 and 2011:

	Year Ended December 31,
	2013			2012			2011
	(Dollars in thousands)
Gross unrecognized tax benefits at beginning of year	$	575		$	2,712		$	48,963
Increases related to prior year tax positions		124			63			-
Decreases related to prior year tax positions		(53	)		(84	)		(286	)
Increases related to current year tax positions		-			-			85
Decreases related to current year tax positions		-			-			-
Settlements with taxing authorities		-			-			(38,543	)
Lapse of applicable statute of limitations		(275	)		(2,116	)		(7,507	)
Gross unrecognized tax benefits at end of year	$	371		$	575		$	2,712

Our liability for gross unrecognized tax benefits was $0.3 million and $0.6 million at December 31, 2013 and 2012, respectively, all of which, if recognized, would reduce our effective tax rate.

The net expense (benefit) for interest and penalties reflected in the consolidated statements of operations for the years ended December 31, 2013, 2012 and 2011 was $0, ($0.4) million and ($4.8) million, respectively. The corresponding liabilities in the consolidated balance sheets were $0.3 million and $0.4 million at December 31, 2013 and 2012, respectively.

We have taken positions in certain taxing jurisdictions for which it is reasonably possible that the total amounts of unrecognized tax benefits may decrease within the next twelve months. The possible decrease could result from the expiration of various statutes of limitation and the finalization of various state income tax matters. The estimated range of the reasonably possible decrease is $0 to $0.3 million.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. We are subject to U.S. federal income tax examination for calendar tax years ending 2010 through 2013. Additionally, we are subject to various state income tax examinations for the 2007 through 2012 calendar tax years.