Note 20 - Income Taxes

9 Months Ended

Sep. 30, 2011

Income Tax Disclosure [Text Block]

20.       Income Taxes

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:

	September 30,			December 31,
	2011			2010
	(Dollars in thousands)
Inventory	$	189,562		$	216,028
Financial accruals		50,726			49,605
Net operating loss carryforwards		263,670			237,496
Goodwill impairment charges		22,327			22,327
Other, net		320			179
Subtotal		526,605			525,635
Less: Valuation allowance		(520,285	)		(516,366	)
Deferred income taxes	$	6,320		$	9,269

  Each quarter we assess our deferred tax asset to determine whether all or any portion of the asset is more likely than not unrealizable under ASC 740.  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 September 30, 2011, we had a deferred tax asset of $520.3 million (excluding the $6.3 million deferred tax asset related to our terminated interest rate swap).  During the three and nine months ended September 30, 2011, we generated a deferred tax asset of $2.3 million and $12.2 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 September 30, 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 $520.3 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 September 30, 2011, $264 million of this asset was subject to limitations, of which $123 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 $123 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 nine months ended September 30, 2011 and 2010, we recorded such reductions in the amounts of $8.2 million and $14.1 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.  We have recovered over 40% of the built-in losses contained in assets that we have sold since the beginning of 2010.

As of September 30, 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 $123 million (or approximately $267 million and $444 million, respectively, of federal and state net operating loss carryforwards on a gross basis) is not currently limited by Section 382.

As of September 30, 2011, our liability for gross unrecognized tax benefits was $13.7 million, all of which, if recognized, would affect our effective tax rate.  There were no significant changes in the accrued liability related to uncertain tax positions during the three months ended September 30, 2011, nor do we anticipate significant changes during the next 12-month period.  As of September 30, 2011, we remained subject to examination by various tax jurisdictions for the tax years ended December 31, 2006 through 2010.