Entity information:
Note
11
. Income Taxes
 
Significant components of the income tax provision are as follows:
 
   
Years ended
  
   
July 2, 2017
    
July 3, 2016
    
June 28, 2015
  
   
(in thousands)
  
                         
Current provision (benefit):
                        
Federal
   $
11,859
     $
15,876
     $
6,630
  
State
    
1,758
      
2,703
      
1,840
  
Foreign
    
-
      
-
      
(11
 )
Current income tax expense
    
13,617
      
18,579
      
8,459
  
Deferred provision (benefit):
                        
Federal
    
(1,563
 )    
(2,949
 )    
1,970
  
State
    
(90
 )    
(7
 )    
631
  
Foreign
    
4
      
(44
 )    
(130
 )
Deferred
income tax expense (benefit)
    
(1,649
 )    
(3,000
 )    
2,471
  
                         
Income tax expense
   $
11,968
     $
15,579
     $
10,930
  
 
A reconciliation of the U.S. federal statutory tax rate to the Company
’s effective tax rate is as follows:
 
   
Years ended
  
   
July 2, 2017
    
July 3, 2016
    
June 28, 2015
  
                         
Tax at U.S. statutory rates
    
35.0
 %    
35.0
 %    
35.0
 %
State income taxes, net of federal tax benefit
    
2.3
      
3.4
      
3.8
  
Valuation allowance change (*)
    
14.9
      
1.3
      
2.6
  
Foreign rate differences
    
0.1
      
(2.6
 )    
1.1
  
Deductible
stock-based compensation
    
(1.6
 )    
(0.2
 )    
(1.3
 )
Domestic production deduction
    
(2.1
 )    
(2.6
 )    
(2.2
 )
Tax credits
    
(1.7
 )    
(4.2
 )    
(3.9
 )
Tax effect of disposition (*)
    
(25.3
 )    
-
      
-
  
Other, net
    
(0.2
 )    
0.2
      
1.0
  
Effective tax rate
    
21.4
 %    
30.3
 %    
36.1
 %
(*) rate impact due to the disposition of Fannie
May
– see discussion below.
 
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
  
   
July 2,
2017
    
July 3, 2016
  
   
(in thousands)
  
Deferred income tax assets:
                
Loss and credit
carryforwards
   $
12,717
     $
6,901
  
Accrued expenses and reserves
    
4,626
      
7,267
  
Stock-based compensation
    
2,565
      
2,991
  
Deferred compensation
    
1,950
      
1,540
  
Gross deferred income tax assets
    
21,858
      
18,699
  
Less: Valuation allowance
    
(11,772
 )    
(4,936
 )
Deferred tax assets, net
    
10,086
      
13,763
  
                 
Deferred income tax liabilities:
                
Other intangibles
    
(20,537
 )    
(24,357
 )
Tax in excess of book depreciation
    
(23,417
 )    
(24,923
 )
Deferred tax liabilities
    
(43,954
 )    
(49,280
 )
Net deferred income
tax liabilities
   $
(33,868
 )   $
(35,517
 )

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 and capital loss carryforwards in federal, certain states, and for its Brazilian and Canadian subsidiaries. During fiscal
2017,
the Company’s valuation allowance increased primarily as a result of the disposition of Fannie
May (
see
Note
4.
above for details), which generated a federal capital loss carryforward of
$23.6
million,
partially offset by a write-off of tax attributes of foreign dissolved entities consisting mainly of net operating losses which previously had a full valuation allowance.
 The Company does
not
expect to utilize the capital loss carryforward prior to expiration and has therefore provided for a full valuation allowance. At
July 2, 2017,
the Company’s total federal and state capital loss carryforwards were
$23.7
million, which if
not
utilized, will expire in fiscal
2022.
The Company’s foreign net operating loss carryforwards were
$2.4
million,
which if
not
utilized, will begin to expire in fiscal
2034.
 
 
The Company files income tax returns in the U .S. federal jurisdiction, various state jurisdictions, and various foreign countries. The Compa
ny concluded its U.S. federal examination for fiscal
2014,
however, fiscal years
2015
and
2016
remain subject to U.S. federal examination. Due to ongoing state examinations and nonconformity with the U.S. federal statute of limitations for assessment, certain states remain open from fiscal
2012.
The Company commenced operations in foreign jurisdictions in
2012.
The Company's foreign income tax filings are open for examination by its respective foreign tax authorities, mainly Canada and the United Kingdom. 
 
The Company
’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. At
July 2, 2017,
the Company has an unrecognized tax benefit, including an immaterial amount of accrued interest and penalties, of approximately
$0.4
million. During fiscal
2017,
the unrecognized tax benefit decreased by
$0.8
million as a result of federal and state tax settlements. The Company believes that
no
significant unrecognized tax positions will be resolved over the next
twelve
months.