Income Taxes

The Company adjusts its effective tax rate each quarter based on its current estimated annual effective tax rate. The Company also records the tax impact of certain discrete items, unusual or infrequently occurring tax events and the effects of changes in tax laws or rates, in the interim period in which they occur. In addition, the Company evaluates its deferred tax assets quarterly to determine if a valuation allowance is required.

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 this 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. Accordingly, the Company is maintaining a valuation allowance against its deferred tax assets. The Company decreased its valuation allowance by $1.8 million in the three months ended December 31, 2013 to $79.9 million. The valuation allowance at June 30, 2013 was $82.5 million.

A summary of the income tax expense recorded for the three and six months ended December 31, 2013 and 2012 is as follows:



(In thousands)	Three Months Ended December 31,						Six Months Ended December 31,
	2013			2012			2013			2012
Income (loss) before taxes	$	5,111		$	(7,189	)	$	7,223		$	(3,769	)

Income tax expense (benefit) at statutory rate	1,738			(2,445		)	2,456			(1,282		)
State income tax expense (benefit), net of federal tax benefit	374			(325		)	587			137
Valuation allowance	(1,847		)	2,817			(2,582		)	1,315
Other permanent items	137			(79		)	248			239
Income tax expense (benefit)	$	402		$	(32	)	$	709		$	409

As of December 31, 2013 and June 30, 2013, the Company had not recognized the following tax benefits in its consolidated financial statements:



	As of
(In thousands)	December 31, 2013		June 30, 2013

Total unrecognized tax benefits*	$	3,211	$	3,211
Unrecognized tax benefits that, if recognized, would affect the Company's effective tax rate, subject to the valuation allowance*	$	3,064	$	3,064

____________

* Excluding interest and penalties

The Company believes it is reasonably possible that none of its total unrecognized tax benefits could be released in the next 12 months.