9. Income Taxes

        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 tax assets and liabilities are as follows (in thousands):

                                                                                                                                                                                    

        The effective tax rate was 14.8% for the year ended December 31, 2017, (18.7%) for the year ended January 1, 2017, and 37.6% for the year ended January 3, 2016. Reconciliation between the federal statutory income tax rate of 35% and the effective tax rate for each year is as follows (in thousands):

                                                                                                                                                                                    

        On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act. The Tax Cuts and Jobs Act amended the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions for individuals and businesses.

        For businesses, the Tax Cuts and Jobs Act reduced the corporate federal tax rate from a maximum of 35% to a flat 21% rate. The rate reduction took effect on January 1, 2018. At December 31, 2017, the Company had a net deferred tax liability totaling $38.1 million. Under generally accepted accounting principles, the Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company's net deferred tax liability of $38.1 million was determined at December 31, 2017 based on the current enacted federal tax rate of 21%.

        In addition to the federal tax rate reduction, the Tax Cuts and Jobs Act allowed for 100% bonus depreciation on qualifying assets acquired and placed in service on or after September 27, 2017. The Company had approximately $31 million of qualifying assets allowed for 100% bonus depreciation as of December 31, 2017.

        Further, the Tax Cuts and Jobs Act provides for a one-time "deemed repatriation" of accumulated foreign untaxed earnings for the year ended December 31, 2017. The Company has calculated the mandatory deemed repatriation tax (also called "toll charge") on its share of earnings in SF Mexico and SFDN. The estimated toll charge of $0.1 million (gross toll charge income of $3.4 million net against $3.3 million reversal of deferred tax liability for foreign taxes expensed in prior years), as included in the tax provision is based on a provisional calculation and will be updated to reflect a more refined calculation once additional financial data for the relevant measurement dates is obtained.

        On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Cuts and Jobs Act. In accordance with SAB 118, the Company has determined that the $28.9 million of the income tax benefit recorded in connection with the effects of U.S. tax law changes under the Tax Cuts and Jobs Act was based on provisional amounts and reasonable estimates at December 31, 2017. Any subsequent refinement and adjustment to these amounts will be recorded to current tax expense in the quarter of 2018 when the analysis is complete.

        The Tax Cuts and Jobs Act has other provisions restricting use of net operating losses ("NOL") arising in taxable years beginning after December 31, 2017, changing NOL carryover period from 20 years to indefinite carry forward period, removal of exclusion of performance-based compensation under Section 162(m), limitations on deductibility of net business interest expense, etc. These provisions are effective for years beginning on or after January 1, 2018.

        The Company had $63.0 million, tax effected, of impairment on goodwill, resulting in a rate reconciliation item in the current year, as there will be no tax benefit of the pre-tax expense and no deferred was previously established for the difference between book and tax basis in goodwill.

        The significant components of the provision for income taxes are as follows (in thousands):

                                                                                                                                                                                    

        At December 31, 2017, the Company had no federal net operating loss carryforwards, and approximately $14.6 million of net operating loss carryforwards for state income tax purposes, which have begun to expire in 2017.

        As of December 31, 2017, the total tax credits available were $7.7 million. These tax credits consist primarily of $4.6 million of California state tax incentive programs designed to encourage employers hiring from targeted groups. The California state tax credits will begin to expire in 2024. The remainder of the tax credits relate to foreign tax credits of $1.3 million, which will begin to expire in 2026, and general business credits of $1.8 million, which will begin to expire in 2036.

        In assessing the realizability of deferred tax assets included in the consolidated balance sheets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. In accordance with this policy and the requirements of ASC 740, a valuation allowance of $2.0 million is recorded against certain California tax credits and California and Florida net operating loss carryforwards, and a full valuation allowance of $1.3 million is recorded against foreign tax credits. The net change during the year in total valuation allowance was approximately $1.8 million.

        The Company intends to leave the 2012 to 2016 undistributed income related to SFDN permanently reinvested offshore. The amount of earnings designated as indefinitely reinvested offshore is based upon the actual deployment of such earnings in offshore assets and expectations of the future cash needs of the U.S. and foreign entities. Accordingly, other than the toll charge, the Company has not recognized any additional income tax effects.

        In July 2006, the FASB issued further guidance to clarify the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. It also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition and applies to all tax positions related to income taxes. A reconciliation of the beginning and ending amount of unrecognized tax benefits, including accrued interest and penalties, is as follows (in thousands):

                                                                                                                                                                                    

        As of December 31, 2017 and January 1, 2017, the total amounts of unrecognized tax benefits were $3.5 million and $0.8 million, respectively. If the entire liability were recognized, only $0.1 million would affect the effective tax rate.

        The Company does not anticipate any of its unrecognized tax benefits, as disclosed above, to be settled in the next 12 months; however, the Company will continue to analyze its positions. The Company's policy is to accrue any interest and penalties related to unrecognized tax benefits in its income tax provision. For the years ended December 31, 2017 and January 1, 2017, approximately $0.1 million was recorded as interest and penalties.

        As of December 31, 2017, the Company is not under any federal or state examinations.

        The Company files income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and Mexico. The Company is no longer subject to U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2013.

        The tax years which remain subject to examination by major tax jurisdictions as of December 31, 2017 include fiscal years 2013 through 2017 for state purposes and 2014 through 2017 for federal purposes.