Income Taxes

Income tax expense for the six-month periods ended June 30, 2013 and 2012 varied from the amount computed by applying the federal statutory income tax rate to income before income taxes. A reconciliation between the expected federal income tax expense using the federal statutory tax rate and our actual income tax expense is shown in the following:



	Six Months Ended June 30,
	2013		2012
U.S. federal statutory tax rate	35.0	%	35.0	%
State income taxes, net of federal benefit	1.9		1.7
General business credits	(2.6	)	—
Employee stock-based compensation	2.0		1.6
Other	0.2		1.0
Effective tax rate	36.5	%	39.3	%

The effective tax rates for the periods above differ from the expected federal statutory tax rate of 35% primarily due to state income taxes, net of the federal tax benefit, and non-deductible employee stock based compensation. The effective tax rate for six months ended June 30, 2013 was favorably impacted by the reinstatement of 2012 general business credits. In January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which retroactively extended general business credits from January 1, 2012 through December 31, 2013. As a result, we recognized the retroactive benefit of the 2012 general business credit of approximately $0.5 million as a discrete item in the first quarter of 2013, the period in which the legislation was enacted. Excluding the impact of this discrete item, our effective tax rate in the six months ended June 30, 2013 would have been 37.7%.

We are subject to examination by the Internal Revenue Service, or IRS, and various state tax authorities. Our consolidated federal income tax return for the year ended July 31, 2008 has been examined by the IRS, and there were no material changes in our tax liabilities for that year. Our consolidated federal income tax returns for the year ended July 31, 2009, the five-months ended December 31, 2009 and the years ended December 31, 2010 and 2011 are currently under examination by the IRS. We remain subject to examination of our federal income tax returns for the year ended December 31, 2012. We generally remain subject to examination of our various state income tax returns for a period of four to five years from the respective dates the returns were filed.

We continuously evaluate income tax positions that we have taken or anticipate taking in a tax return. We recognize and measure the related income tax benefit in accordance with the guidance related to uncertainty in income taxes. The reconciliation of the beginning unrecognized tax benefits balance to the ending balance is as follows:

Note 7—Income Taxes (continued)



	Six Months Ended June 30,
	2013		2012
	(In thousands)
Beginning balance	$	1,481	$	—
Increases related to positions taken during prior years	500		—
Increases related to positions taken during the current year	741		—
Ending balance	$	2,722	$	—

The total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate	$	2,722	$	—