Note 11. Income Taxes

The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. The Company is currently under examination by the Internal Revenue Service for fiscal year 2011, while fiscal years 2010 and 2012 remain subject to federal examination. Due to non-conformity with the federal statute of limitations for assessment, certain states remain open from fiscal 2008.

The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. At June 30, 2013, the Company has an unrecognized tax position of approximately $0.8 million, including accrued interest and penalties of $0.1 million. The Company believes that an additional $0.4 million of its unrecognized tax positions will be resolved over the next twelve months.

Significant components of the income tax provision from continuing operations are as follows:

	Years ended
	June 30, 2013			July 1, 2012			July 3, 2011
	(in thousands)

Current provision (benefit):
Federal	$	7,983		$	(1,643	)	$	927
State	1,845			1,155			840
	9,828			(488		)	1,767
Deferred provision (benefit):
Federal	(730		)	8,479			2,038
State	(25		)	(220		)	98
	(755		)	8,259			2,136
Income tax expense	$	9,073		$	7,771		$	3,903

A reconciliation of the U.S. federal statutory tax rate to the Company’s effective tax rate is as follows:

	Years ended
	June 30, 2013		July 1, 2012		July 3, 2011

Tax at U.S. statutory rates	35.0	%	35.0	%	35.0	%
State income taxes, net of federal tax benefit	3.3		4.0		6.2
Non-deductible stock-based compensation	—		0.6		1.7
Non-deductible goodwill amortization	—		1.7		—
Rate change	(0.3	)	(1.1	)	0.1
Tax credits	(1.2	)	(1.2	)	(2.7	)
Tax settlements	1.1		—		(1.4	)
Other, net	(1.3	)	(2.2	)	(0.2	)
	36.6	%	36.8	%	38.7	%

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The significant components of the Company’s deferred income tax assets (liabilities) are as follows:

	Years ended
	June 30, 2013			July 1, 2012
	(in thousands)

Deferred income tax assets:
Net operating loss and credit carryforwards	$	3,230		$	3,569
Accrued expenses and reserves	5,848			5,680
Stock-based compensation	3,266			3,494
Book in excess of tax depreciation	1,055			—
Gross deferred income tax assets	13,399			12,743
Less: Valuation allowance	(1,477		)	(1,578		)
	11,922			11,165
Deferred income tax liabilities:
Other intangibles	(4,049		)	(3,036		)
Tax in excess of book depreciation	—			(312		)

	(4,049		)	(3,348		)

Net deferred income tax assets	$	7,873		$	7,817

A valuation allowance is provided when it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The Company has established valuation allowances primarily for net operating loss carryforwards in certain states. At June 30, 2013, the Company’s federal and state net operating loss carryforwards were approximately $3.1 million, and $3.3 million, respectively, which if not utilized, will begin to expire in fiscal year 2025 and 2015, respectively. The federal net operating loss of $3.1 million is subject to Section 382 limitations of $0.3 million per year.