INCOME TAXES

Income tax expense (benefit) consisted of the following:



	Twelve Weeks Ended					Twenty-Eight Weeks Ended
	August 13, 2012		August 15, 2011			August 13, 2012			August 15, 2011
Federal and state income taxes	$	339	$	(760	)	$	(1,478	)	$	(2,672	)
Foreign income taxes	498		446			1,137			937
Income tax expense (benefit)	$	837	$	(314	)	$	(341	)	$	(1,735	)

Our effective income tax rate for the twelve and twenty-eight weeks ended August 13, 2012 differs from the federal statutory rate primarily as a result of non-deductible share-based compensation expense, state income taxes and federal income tax credits. Our effective tax rate for the twenty-eight weeks ended August 13, 2012 also differs from the federal statutory rate as a result of the release of $6,370 of valuation allowance on state income tax credit and net operating loss (“NOL”) carryforwards. After considering all available evidence, both positive and negative, including future reversals of existing taxable temporary differences and estimated future taxable income exclusive of reversing temporary differences on a jurisdictional basis and statutory expiration dates of NOL carryforwards, we concluded that we will more likely than not realize future tax benefits related to certain of our state income tax credit and NOL carryforwards, for which an income tax benefit has not previously been recognized. As of August 13, 2012, we maintained a valuation allowance of $2,935 for a portion of our state NOL and income tax credit carryforwards. Realization of the tax benefit of such deferred income tax assets may remain uncertain for the foreseeable future, even if we generate consolidated taxable income, since they are subject to various limitations and may only be used to offset income of certain entities or in certain jurisdictions.

Our effective income tax rate for the twelve and twenty-eight weeks ended August 15, 2011 differs from the federal statutory rate primarily as a result of non-deductible share-based compensation expense, state income taxes and federal income tax credits.

We had $2,977 of unrecognized tax benefits as of January 31, 2012 that, if recognized, would affect our effective income tax rate. There were no material changes in the unrecognized tax benefits during the twenty-eight weeks ended August 13, 2012. We believe that it is reasonably possible that decreases in unrecognized tax benefits of up to $1,642 may be necessary within twelve months as a result of statutes closing on such items. In addition, we believe that it is reasonably possible that our unrecognized tax benefits may increase as a result of tax positions that may be taken during the next twelve months.