NOTE 7—INCOME TAXES

The difference between the effective tax rate on earnings from continuing operations before income taxes and the U.S. federal income tax statutory rate is as follows:

(In thousands)	Six Months Ended June 30, 2013			Twenty-six Weeks Ended June 28, 2012

	(Successor)			(Predecessor)
Income tax expense at the federal statutory rate	$	18,900		$	7,950
Effect of:
State income taxes		1,800			905
Permanent items		100			1,150
Change in FIN 48 Reserve		—			600
Out of period adjustment (See Note 1)		5,520			—
Valuation allowance		(13,370	)		(9,700	)

Income tax expense	$	12,950		$	905

Effective income tax rate		24.0	%		4.0	%

The accounting for income taxes requires that deferred tax assets and liabilities be recognized, using enacted tax rates, for the tax effect of temporary differences between the financial reporting and tax bases of recorded assets and liabilities. Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some or all of the deferred tax assets will not be realized.

The state tax provision was for the states that impose their income based taxes on a gross sales method, that impose a margin tax or that have suspended the use of net operating loss carryforwards into the current tax year.

If, in the future, the Company generates sufficient earnings in the United States federal and state tax jurisdictions where it has recorded valuation allowances, management's conclusion regarding the need for a valuation allowance in these tax jurisdictions could change. Accordingly, it is reasonably possible the Company could have a reduction of some or a significant portion of the Company's recorded valuation allowance in the near term. This determination would be dependent on a number of factors which would include, but not be limited to, the Company's expectation of future taxable income.