Annual report pursuant to Section 13 and 15(d)

Income Taxes

v2.4.0.6
Income Taxes
 12 Months Ended
Dec. 31, 2012
Income Tax Disclosure [Abstract]  
INCOME TAXES
NOTE 9 — INCOME TAXES
Components of income tax (benefit)/expense are as follows (in thousands):
 
 
 
Years Ended December 31,
 
 
2012
 
2011
 
2010
Current taxes:
 
 
 
 
 
 
Federal
 
$
(589
)
 
$
—

 
$
(5,526
)
State
 
122

 
730

 
860

 
 
(467
)
 
730

 
(4,666
)
Deferred taxes:
 
 
 
 
 
 
Federal
 
(62,581
)
 
—

 
—

State
 
(13,261
)
 
—

 
—

 
 
(75,842
)
 
—

 
—

Total
 
$
(76,309
)
 
$
730

 
$
(4,666
)

Income taxes differ for the years ended December 31, 2012, 2011 and 2010, from the amounts computed using the expected federal statutory income tax rate of 35% as a result of the following (in thousands):
 
 
 
 
 
 
 
 
 
 
Years Ended December 31,
 
 
2012
 
2011
 
2010
Expected taxes at current federal statutory income tax rate
 
$
10,099

 
$
(7,132
)
 
$
869

State income taxes, net of federal tax benefit
 
1,878

 
475

 
559

Change in valuation allowance
 
(85,460
)
 
4,126

 
(2,570
)
Change in state effective tax rate
 
(788
)
 
1,750

 
—

Federal tax credits
 
(2,064
)
 
—

 
—

Net interest adjustments
 
(589
)
 
—

 
—

Recognition of tax benefits
 
—

 
—

 
(4,592
)
Non-deductible costs and other
 
615

 
1,511

 
1,068

Income tax (benefit)/expense
 
$
(76,309
)
 
$
730

 
$
(4,666
)

Due to the effects of the deferred tax asset valuation allowance and reversal, carrybacks of net operating losses (“NOLs”), and changes in unrecognized tax benefits, the effective tax rates in 2012, 2011 and 2010 are not meaningful percentages as there is no correlation between the effective tax rates and the amount of pretax income or losses for those periods.




Deferred tax assets and liabilities are netted on our balance sheet by tax jurisdiction. Net overall tax assets for all jurisdictions are grouped and included as a separate asset. Net overall deferred tax liabilities for all jurisdictions are grouped and included in other liabilities. At December 31, 2012, we have a net deferred tax asset of $86.6 million, which, inclusive of our valuation allowance, results in a net deferred tax asset of $78.0 million. We also have net deferred tax liabilities of $2.1 million. Deferred tax assets and liabilities are comprised of timing differences at December 31 (in thousands) as follows:

 
 
2012
 
2011
Deferred tax assets:
 
 
 
 
Real estate
 
$
27,611

 
$
30,381

Goodwill
 
10,227

 
12,485

Warranty reserve
 
8,431

 
8,684

Wages payable
 
1,092

 
892

Reserves and allowances
 
931

 
793

Equity-based compensation
 
5,449

 
4,317

Accrued expenses
 
6,079

 
3,826

Net operating loss carry-forwards
 
27,881

 
37,429

Federal tax credits
 
3,176

 
—

Other
 
282

 
—

Total deferred tax assets
 
91,159

 
98,807

 
 
 
 
 
Deferred tax liabilities:
 
 
 
 
Deferred revenue
 
3,668

 
3,623

Prepaids
 
586

 
519

Fixed assets
 
265

 
474

Other
 
—

 
66

Total deferred tax liabilities
 
4,519

 
4,682

 
 
 
 
 
Net total deferred tax assets
 
86,640

 
94,125

Valuation allowance
 
(8,666
)
 
(94,125
)
Deferred tax assets, net
 
77,974

 
—

 
 
 
 
 
Other deferred tax liability - state franchise taxes
 
2,132

 
—

Net deferred tax assets and liabilities
 
$
75,842

 
$
—



At December 31, 2012 and December 31, 2011, we have no unrecognized tax benefits due to the lapse of the statute of limitations and completion of audits for prior years. We believe that our current income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change. Our policy is to accrue interest and penalties on unrecognized tax benefits and include them in federal income tax expense.
In accordance with ASC 740-10, Income Taxes, we determine our deferred tax assets and liabilities by taxing jurisdiction. We evaluate our deferred tax assets, including the benefit from NOLs, by jurisdiction to determine if a valuation allowance is required. Companies must assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more likely than not” standard with significant weight being given to evidence that can be objectively verified. This assessment considers, among other matters, the nature, frequency and severity of cumulative losses, forecasts of future profitability, the length of statutory carryforward periods, experiences with operating losses and experiences of utilizing tax credit carryforwards and tax planning alternatives.
We recorded a full non-cash valuation allowance against all of our deferred tax assets during 2008 due to economic conditions and the weight of negative evidence at that time. During the second quarter of 2012, we determined that the positive evidence exceeded the negative evidence in the tax jurisdiction of Florida and that it was more likely than not that most of the deferred tax assets and NOL carryovers for the Florida tax jurisdiction would be realized. In the fourth quarter of 2012, we reversed the valuation allowance against our federal deferred tax assets and those in most of our state jurisdictions because the weight of the positive evidence in those jurisdictions exceeds that of the negative evidence. However, we retained a non-cash valuation allowance of $8.7 million for certain states which have shorter carryforward periods for utilization of NOL carryovers or lower current earnings relative to their NOL carryforward balance.
In evaluating the need for a non-cash valuation allowance against our deferred tax assets at December 31, 2012, we considered all available and objectively verifiable positive and negative evidence. We also considered evidence of recovery in the housing markets where we operate and the fact that the economic events and conditions that gave rise to establishing the full valuation allowance in 2008 will most likely not recur in the foreseeable future or be as severe. The most significant positive evidence considered for each jurisdiction was the objective evidence related to our past and current financial results, including a strong level of pre-tax income and strong growth in net sales orders. The prospects of continued profitability and growth were further supported by a strong order backlog and sufficient balance sheet liquidity to sustain and grow operations. In addition, most of our tax jurisdictions have a 20-year NOL carryforward utilization period during which time we fully expect to be able to absorb current NOL carryovers and temporary differences as they reverse in future years. Should industry or economic conditions weaken from current levels, we expect to be able to adjust our operations accordingly and maintain long-term profitability. Although we expect pre-tax income to grow and exceed 2012 levels in the near future, we considered the possibility of no growth or lower pre-tax income levels in making our determination that it is more likely than not that we will be able to realize all of our deferred tax assets in most of our jurisdictions. This analysis included the federal jurisdiction, in which we expect to fully absorb any current tax NOL carryover in less than five years at the lower pre-tax income levels.
Based on the above, we reduced our non-cash valuation allowance on our deferred tax assets from $94.1 million at December 31, 2011 to $8.7 million at December 31, 2012. The remaining valuation allowance at December 31, 2012 is for certain state jurisdictions which have a shorter NOL carryforward utilization period or a large NOL carryforward relative to their current earnings. In future periods, the remaining valuation allowance for these state jurisdictions will be evaluated to determine if sufficient positive evidence indicates that it is more likely than not that an additional portion of the underlying state NOL carryforwards should be able to be realized.
At December 31, 2012 and December 31, 2011, we had a valuation allowance against deferred tax assets as follows (in thousands):
 
December 31, 2012
 
December 31, 2011
Federal
$
—

 
$
70,228

State
8,666

 
23,897

Total Valuation Allowance
$
8,666

 
$
94,125


Our future NOL and deferred tax asset realization depends on sufficient taxable income in the carryforward periods under existing tax laws. Federal NOL carryforwards may be used to offset future taxable income for 20 years. State NOL carryforwards may be used to offset future taxable income for a period of time ranging from 5 to 20 years, depending on the state jurisdiction. At December 31, 2012, we had a federal NOL carryforward of $10.0 million that expires in 2031 and federal tax credit carryforwards of $3.2 million which expire in 2030 and 2031. At December 31, 2012, we also had tax benefits for state NOL carryforwards of $17.9 million that expire at various times from 2013 to 2031 depending on the state jurisdiction. A valuation allowance of $8.7 million was retained for the state NOL's expiring in jurisdictions with shorter NOL carryforward periods or lower current earnings relative to their NOL carryforward balance.
At December 31, 2012, we have income taxes payable of $0.7 million, which primarily consists of current state tax accruals as well as interest that we expect to pay within one year for having amended prior-year state tax returns. This amount is recorded in accrued liabilities in the accompanying balance sheet at December 31, 2012.
We conduct business and are subject to tax in the U.S. and several states. With few exceptions, we are no longer subject to U.S. federal, state, or local income tax examinations by taxing authorities for years prior to 2007. We are not subject to any federal or state income tax examination at this time.
The tax benefits from our NOLs, built-in losses, and tax credits would be materially reduced or potentially eliminated if we experience an “ownership change” as defined under Internal Revenue Code (“IRC”) §382. Based on our analysis performed as of December 31, 2012 we do not believe that we have experienced an ownership change. As a protective measure, our stockholders held a Special Meeting of Stockholders on February 16, 2009 and approved an amendment to our Articles of Incorporation that restricts certain transfers of our common stock. The amendment is intended to help us avoid an unintended ownership change and thereby preserve the value of our tax benefits for future utilization.
On January 1, 2013, Congress passed the American Taxpayer Relief Act of 2012 (the “Act”), which the President signed into law on January 2, 2013. The Act extended certain tax provisions which have a retroactive effect on 2012. Among other things, the Act extended for two years the availability of a business tax credit under IRC §45L for building new energy efficient homes which originally was set to expire at the end of 2011. Under ASC 740, the effects of new legislation are recognized in the period that includes the date of enactment, regardless of the retroactive benefit. In accordance with this guidance, we expect to record a tax effected benefit of approximately $2.5 million to $4.0 million in the first quarter of 2013 related to the extension of the IRC §45L tax credit for the qualifying new energy efficient homes that we sold in 2012. Additional IRC §45L credits for qualifying homes sold in 2013 are expected and will be recognized accordingly during 2013.