Income Taxes

The current and deferred components of the provision for income taxes consist of the following:



	June 30,
	2013			2012			2011
				As Restated			As Restated
	(In thousands)
Current:
Federal	$	(24	)	$	(385	)	$	(4	)
State	191			115			323
Total current income tax expense (benefit)	167			(270		)	319
Deferred:
Federal	(819		)	(63		)	(11,373		)
State	(173		)	(14		)	(2,342		)
Total deferred income tax benefit	(992		)	(77		)	(13,715		)
Income tax benefit	$	(825	)	$	(347	)	$	(13,396	)

Income tax expense or benefit from continuing operations is generally determined without regard to other categories of earnings, such as discontinued operations and OCI. An exception is provided in ASC 740, "Tax Provisions," when there is aggregate income from categories other than continuing operations and a loss from continuing operations in the current year. In this case, the income tax benefit allocated to continuing operations is the amount by which the loss from continuing operations reduces the income tax expense recorded with respect to the other categories of earnings, even when a valuation allowance has been established against the deferred tax assets. In instances where a valuation allowance is established against current year losses, income from other sources, including gain from postretirement benefits recorded as a component of OCI, is considered when determining whether sufficient future taxable income exists to realize the deferred tax assets. As a result, for the fiscal years ended June 30, 2013, 2012 and 2011, the Company recorded income tax expense of $1.1 million, $0 and $14.1 million, respectively, in OCI related to the gain on postretirement benefits, and recorded a corresponding income tax benefit of $1.1 million, $0 and $14.1 million, respectively, in continuing operations.

A reconciliation of income tax benefit to the federal statutory tax rate is as follows:



	June 30,
	2013			2012			2011
				As Restated			As Restated
Statutory tax rate	34%			34%			34%
	(In thousands)
Income tax benefit at statutory rate	$	(3,158	)	$	(9,154	)	$	(22,246	)
State income tax (net of federal tax benefit)	(223		)	(1,023		)	(2,874		)
Dividend income exclusion	—			(85		)	(532		)
Valuation allowance	3,074			10,588			13,188
Change in contingency reserve (net)	(7		)	(561		)	(1,308		)
Research tax credit (net)	—			(15		)	(16		)
Other (net)	(511		)	(97		)	392
Income tax benefit	$	(825	)	$	(347	)	$	(13,396	)

The primary components of the temporary differences which give rise to the Company’s net deferred tax liabilities are as follows:



	June 30,
	2013			2012			2011
				As Restated			As Restated
	(In thousands)
Deferred tax assets:
Postretirement benefits	$	26,014		$	27,568		$	18,260
Accrued liabilities	4,477			3,958			4,138
Capital loss carryforward	1,105			2,865			2,945
Net operating loss carryforward	44,607			44,736			36,328
Intangible assets	694			919			—
Other	7,840			3,080			5,458
Total deferred tax assets	84,737			83,126			67,129
Deferred tax liabilities:
Fixed assets	(2,641		)	(4,117		)	(7,881		)
Intangible assets	—			—			(1,032		)
Other	(882		)	(794		)	(814		)
Total deferred tax liabilities	(3,523		)	(4,911		)	(9,727		)
Valuation allowance	(82,522		)	(79,448		)	(58,712		)
Net deferred tax liability	$	(1,308	)	$	(1,233	)	$	(1,310	)

The Company has approximately $114.4 million and $112.7 million of federal and state net operating loss carryforwards that will begin to expire in the years ending June 30, 2025 and June 30, 2020, respectively. The Company also has approximately $2.7 million and $1.2 million of federal and state capital loss carryforwards, respectively, that may only be used to offset capital gains that begin expiring in June 30, 2014. Additionally, the Company has $0.8 million of federal business tax credits that begin expiring in June 30, 2025 and $2.2 million of charitable contributions carryforwards that begin expiring in June 30, 2014.

At June 30, 2013, the Company had total deferred tax assets of $84.7 million and net deferred tax assets before valuation allowance of $81.2 million. The Company considered whether a valuation allowance should be recorded against deferred tax assets based on the likelihood that the benefits of the deferred tax assets would or would not ultimately be realized in future periods. In making such assessment, significant weight was given to evidence that could be objectively verified such as recent operating results and less consideration was given to less objective indicators such as future earnings projections.

After consideration of positive and negative evidence, including the recent history of losses, the Company cannot conclude that it is more likely than not that it will generate future earnings sufficient to realize the Company’s deferred tax assets as of June 30, 2013. Accordingly, a valuation allowance of $82.5 million has been recorded to offset this deferred tax asset. The valuation allowance increased by $3.1 million, $20.7 million and $13.3 million, in the fiscal years ended June 30, 2013, 2012 and 2011, respectively.

A tabular reconciliation of the total amounts (in absolute values) of unrecognized tax benefits is as follows:



	Year Ended June 30,
	2013		2012			2011
			As Restated			As Restated
	(In thousands)
Unrecognized tax benefits at beginning of year	$	3,211	$	3,902		$	5,218
Increases in tax positions for prior years	—		—			—
(Decreases) increases in tax positions for current year	—		—			(1,316		)
Settlements	—		(691		)	—
Lapse in statute of limitations	—		—			—
Unrecognized tax benefits at end of year	$	3,211	$	3,211		$	3,902

At June 30, 2013 and 2012, the Company has approximately $3.1 million and $3.1 million, respectively, of unrecognized tax benefits that, if recognized, would affect the effective tax rate, subject to the valuation allowance. The Company believes it is reasonably possible that none of its total unrecognized tax benefits could be released in the next 12 months.

The Company appealed a decision reached by the Internal Revenue Service regarding its June 30, 2003 through June 30, 2008 tax returns, and in August 2013 the appeals officer upheld the audit result. Additionally, in January 2012, the State of California completed an audit of the Company's June 30, 2006 and June 30, 2007 tax returns, and the Company also reached a Settlement Agreement with the State of California regarding the Company's June 30, 2002 to June 30, 2005 research and development tax credit claims. As a result of these decisions, the Company released none of the unrecognized tax benefit in the fourth quarter of fiscal 2013.

The Company files income tax returns in the U.S. and in various state jurisdictions with varying statutes of limitations. The Company is no longer subject to U.S. income tax examinations for the fiscal years prior to June 30, 2003.

The Company’s policy is to recognize interest expense and penalties related to income tax matters as a component of income tax expense. As of June 30, 2013 and 2012, the Company recorded $0 and $10,000, respectively, in accrued interest and penalties associated with uncertain tax positions. Additionally, the Company recorded income (expense) of $10,000, $37,000 and $(12,000), related to interest and penalties on uncertain tax positions in the years ended June 30, 2013, 2012 and 2011, respectively.