Note I: Income Taxes

Deferred tax assets are recognized for estimated tax effects that are attributable to deductible temporary differences and tax carryforwards related to tax credits and NOLs. They are realized when existing temporary differences are carried back to a profitable year(s) and/or carried forward to a future year(s) having taxable income. Deferred tax assets are reduced by a valuation allowance if an assessment of their components indicates that it is more likely than not that all or some portion of these assets will not be realized. In the assessment for a valuation allowance, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses; actual earnings; forecasts of future earnings; the duration of statutory carryforward periods; the Company's experience with NOL carryforwards not expiring unused; and tax planning alternatives.

Based on an evaluation of positive and negative evidence regarding the Company's ability to realize its deferred tax assets and in accordance with ASC No. 740 ("ASC 740"), "Income Taxes," at June 30, 2013, it concluded that the positive evidence outweighed the negative evidence and that it was more likely than not that all of its deferred tax assets would be realized. As a result, the Company reversed its $258.9 million deferred tax valuation allowance against its deferred tax assets during 2013. At December 31, 2014 and 2013, the Company had net deferred tax assets of $91.8 million and $185.9 million, respectively. There was no valuation allowance as of December 31, 2014 or 2013.

Changes in positive and negative evidence, including differences between the Company's future operating results and estimates, could result in the establishment of a valuation allowance against its deferred tax assets. Given that the accounting for deferred taxes is based upon estimates of future results, differences between the anticipated and actual outcomes of these future results could have a material impact on the Company's consolidated results of operations or financial position. Also, changes in existing federal and state tax laws and tax rates could affect future tax results and the valuation allowance against the Company's deferred tax assets.

For federal purposes, NOLs can be carried forward 20 years; for state purposes, they can generally be carried forward 10 to 20 years, depending on the taxing jurisdiction. As of December 31, 2014, the Company does not have any federal NOL carryforwards. The Company has other carryforwards primarily composed of federal tax credits that can be carried forward 20 years with expiration dates beginning in 2029. The Company anticipates full utilization of these tax credits.

The Company's provision for income tax presented an overall effective income tax expense rate of 38.2 percent for the year ended December 31, 2014, compared to an overall effective tax benefit rate of 93.7 percent for 2013 and an overall effective income tax expense rate of 3.8 percent for 2012. The changes in overall effective income tax rates for 2014, 2013 and 2012 were primarily due to the reversal of the Company's deferred tax asset valuation allowance during the respective years.

The following table reconciles the federal income tax statutory rate to the Company's effective income tax rate for the years ended December 31, 2014, 2013 and 2012:

	2014		2013		2012

Federal income tax statutory rate	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax	3.2		3.2		3.5
Deferred tax valuation allowance	–		(132.2	)	(39.3	)
Compensation expense	0.1		0.1		2.7
Other	(0.1	)	0.2		1.9

Effective income tax rate	38.2	%	(93.7	)%	3.8	%

The Company's income tax expense (benefit) for the years ended December 31, 2014, 2013 and 2012, is summarized as follows:

(in thousands)		2014		2013			2012

CURRENT TAX EXPENSE (BENEFIT)
Federal	$	1,891	$	(75	)	$	568
State		1,731		471			1,017

Total current tax expense		3,622		396			1,585
DEFERRED TAX EXPENSE (BENEFIT)
Federal		97,210		(139,207	)		–
State		7,833		(44,597	)		–

Total deferred tax expense (benefit)		105,043		(183,804	)		–

Total income tax expense (benefit)	$	108,665	$	(183,408	)	$	1,585

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

The following table presents significant components of the Company's deferred tax assets and liabilities:

	DECEMBER 31,
(in thousands)		2014			2013

DEFERRED TAX ASSETS
Warranty, legal and other accruals	$	16,653		$	19,900
Employee benefits		18,661			19,054
Noncash tax charge for impairment of long-lived assets		47,018			59,608
Joint ventures		3,938			4,038
Federal NOL carryforwards		–			72,248
Other carryforwards		6,293			994
State NOL carryforwards		32,524			37,971
Other		993			1,131

Total deferred tax assets		126,080			214,944

DEFERRED TAX LIABILITIES
Deferred recognition of income and gains		(752	)		(1,196	)
Capitalized expenses		(31,265	)		(26,630	)
Goodwill amortization		(1,755	)		(809	)
Other		(542	)		(405	)

Total deferred tax liabilities		(34,314	)		(29,040	)

NET DEFERRED TAX ASSET	$	91,766		$	185,904

The Company accounts for unrecognized tax benefits in accordance with ASC 740. It accounts for interest and penalties on unrecognized tax benefits through its provision for income taxes. At December 31, 2014, the Company's liability for gross unrecognized tax benefits was $724,000, of which $471,000, if recognized, will affect the Company's effective tax rate. At December 31, 2013, the Company's liability for gross unrecognized tax benefits was $553,000, of which $359,000, if recognized, will affect the Company's effective tax rate. The Company had $79,000 and $46,000 in accrued interest and penalties at December 31, 2014 and 2013, respectively. The Company estimates that, within 12 months, $100,000 of its gross state unrecognized tax benefits will reverse due to the anticipated expiration of time to assess tax.

The following table displays a reconciliation of changes in the Company's tax uncertainties:

(in thousands)		2014		2013

Balance at January 1	$	553	$	318
Additions related to prior year positions		171		235

Balance at December 31	$	724	$	553

As of December 31, 2014, tax years 2011 through 2014 remain subject to examination.