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Note 11 - Income Taxes
 12 Months Ended
Oct. 31, 2023
Notes to Financial Statements  
Income Tax Disclosure [Text Block]

11. Income Taxes

 

Income taxes (receivable) payable, including deferred benefits, consists of the following:

 

  

October 31,

 

(In thousands)

 

2023

  

2022

 

State income taxes:

        

Current

 $1,861  $3,167 

Deferred

  (74,110)  (69,248)

Federal income taxes:

        

Current

  -   - 

Deferred

  (228,723)  (275,545)

Total

 $(300,972) $(341,626)

  

The (benefit) provision for income taxes is composed of the following:

 

  

Year Ended October 31,

 

(In thousands)

 

2023

  

2022

  

2021

 

Current income tax expense:

            

Federal (1)

 $-  $-  $- 

State (2)

  8,101   13,377   7,722 

Total current income tax expense:

  8,101   13,377   7,722 

Federal

  46,821   60,064   (335,608)

State

  (4,862)  20,822   (90,070)

Total deferred income tax expense (benefit):

  41,959   80,886   (425,678)

Total

 $50,060  $94,263  $(417,956)

 

(1)

The current federal income tax expense is net of the use of federal net operating losses totaling $221.2 million (tax effected $46.4 million), $306.0 million (tax effected $64.3 million) and $173.8 million (tax effected $36.5 million) for the years ended  October 31, 2023, 2022 and 2021, respectively.

 

(2)

The current state income tax expense is net of the use of state net operating losses totaling $113.3 million (tax effected $8.3 million), $80.1 million (tax effected $5.8 million) and $55.7 million (tax effected $3.9 million) for the years ended October 31, 2023, 2022 and 2021, respectively.

 

The total income tax expense of $50.1 million and $94.3 million for the years ended October 31, 2023 and 2022, respectively, was primarily due to federal and state tax expense recorded as a result of our income before income taxes. Income tax expense for fiscal 2023 was partially offset by the benefits of releasing state valuation allowances and qualifying for energy efficient home tax credits. The federal tax expense is not paid in cash as it is offset by the use of our existing net operating loss (“NOL”) carryforwards. The total income tax benefit for the year ended October 31, 2021 was $418.0 million, primarily due to the reversal of a substantial portion of our valuation allowance previously recorded against our deferred tax assets (“DTAs”).

 

We have remaining federal NOL carryforwards of $688.3 million that expire between 2030 and 2038, and $15.7 million have an indefinite carryforward period. Our total remaining state NOL carryforwards are $2.1 billion: $586.1 million that expire between 2024 through 2028; $1.1 billion that expire between 2029 through 2033; $348.8 million that expire between 2034 through 2038; $8.7 million that expire between 2039 through 2043; and $52.1 million that have an indefinite carryforward period.

 

We recognize deferred tax assets, net of deferred tax liabilities, related to NOL carryforwards, tax credits and temporary differences between book and tax income which will be recognized in future years as an offset against future taxable income. Our deferred tax assets, net as of October 31, 2023 were $302.8 million compared to $344.8 million at October 31, 2022. A valuation allowance is provided to offset DTAs if, based upon available evidence, it is more-likely-than-not that some or all of the DTAs will not be realized. We had a valuation allowance of $71.9 million as of October 31, 2023 compared to $95.7 million as of October 31, 2022 related to DTAs for tax credits and state NOL carryforwards that are expected to expire before they can be used.

 

We considered all available positive and negative evidence to determine whether, based on the weight of that evidence, the valuation allowance for our DTAs was appropriate. Overall, the positive evidence, both objective and subjective, outweighed the negative evidence. The significant improvement in our profitability over the last three years, coupled with our current contract backlog, provided positive evidence to support the conclusion that sufficient taxable income will be generated in the future and a full valuation allowance is not necessary.

 

Deferred tax assets and liabilities have been recognized on the Consolidated Balance Sheets as follows:

 

  

October 31,

 

(In thousands)

 

2023

  

2022

 

Deferred tax assets:

        

Inventory impairments

 $26,168  $30,772 

Uniform capitalization of overhead

  3,692   4,285 

Warranty and legal reserves

  4,439   5,668 

Compensation

  11,377   13,746 

Deferred income

  1,167   2,425 

Interest expense

  4,939   3,646 

Restricted stock units

  2,069   1,628 

Stock options

  209   818 

Provision for losses

  18,349   17,700 

Federal net operating losses

  

147,841

   

194,306

 

State net operating losses

  136,257   150,832 

Tax credit carryforwards

  21,260   12,254 

Other

  3,688   5,005 

Total deferred tax assets

  381,455   443,085 

Deferred tax liabilities:

        

Joint venture income

  (6,743)  (2,565)

Total deferred tax liabilities

  (6,743)  (2,565)

Valuation allowance

  (71,879)  (95,727)

Deferred tax assets, net

 $302,833  $344,793 

 

Our effective tax rate varied from the statutory federal income tax rate. The effective tax rate is affected by a number of factors, the most significant of which has been the valuation allowance related to our DTAs. The sources of these factors were as follows:

 

  

Year Ended October 31,

 
  

2023

  

2022

  

2021

 

Federal statutory income tax rate

  21.0%  21.0%  21.0%

State income taxes, net of federal income tax benefit

  6.2   9.8   4.0 

Permanent differences, net

  0.9   0.8   3.6 

Deferred tax asset valuation allowance impact

  (6.3)  0.0   (248.5)

Tax contingencies

  (0.1)  (0.1)  (0.2)

Tax credits

  (2.2)  0.0   0.0 

Adjustments to prior years’ tax accruals

  0.1   (2.0)  0.0 

Effective tax rate

  19.6%  29.5%  (220.1)%

 

The following is a tabular reconciliation of the total amount of unrecognized tax benefits, excluding interest and penalties:

 

(In millions)

  2023   2022 

Unrecognized tax benefit—November 1,

 $0.2  $0.5 

Gross increases—tax positions in current period

  -   - 

Lapse of statute of limitations

  (0.2)  (0.3)

Unrecognized tax benefit—October 31,

 $-  $0.2 

 

Related to the unrecognized tax benefits noted above, there was no liability for interest and penalties as of October 31, 2023. As of October 31, 2022, we recognized a liability for interest and penalties of $0.1 million. For the years ended October 31, 2023, 2022 and 2021, we recognized $131 thousand, $128 thousand and $84 thousand, respectively, of interest and penalties in income taxes provision (benefit).

 

The consolidated federal tax returns have been audited through October 31, 2022 and these years are closed. We are also subject to various income tax examinations in the states in which we do business. The outcome for a particular audit cannot be determined with certainty prior to the conclusion of the audit, appeal, and in some cases, litigation process. As each audit is concluded, adjustments, if any, are recorded in the period determined. To provide for potential exposures, tax reserves are recorded, if applicable, based on reasonable estimates of potential audit results. However, if the reserves are insufficient upon completion of an audit, there could be an adverse impact on our financial position and results of operations. The statute of limitations for our major tax jurisdictions remains open for examination for tax years 2019 - 2022.