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 net deferred tax assets. Accordingly, the Company is maintaining a valuation allowance against its net deferred tax assets. The Company decreased its valuation allowance by $1.2 million in the three months ended December 31, 2014 to $70.4 million. The valuation allowance at June 30, 2014 was $72.6 million.

The Company will continue to monitor its cumulative three-year loss position together with all other available evidence, both positive and negative, in determining whether it is more likely than not that the Company will realize its net deferred tax assets. If the Company continues to be profitable, the Company may have enough positive evidence to release part or all of its valuation allowance against its net deferred tax assets during the second half of fiscal 2015.

A summary of the income tax expense recorded for the three and six months ended December 31, 2014 and 2013 is as follows:



	Three Months Ended December 31,						Six Months Ended December 31,
(In thousands)	2014			2013			2014			2013
Income before taxes	$	3,148		$	5,111		$	5,861		$	7,223

Income tax expense at statutory rate	1,070			1,738			1,993			2,456
State income tax expense, net of federal tax benefit	220			374			377			587
Valuation allowance	(1,235		)	(1,847		)	(2,211		)	(2,582		)
Other permanent items	197			137			291			248
Income tax expense	$	252		$	402		$	450		$	709

As of December 31, 2014 and June 30, 2014, the Company had no unrecognized tax benefits.