Income Taxes:

Our income tax expense consists of the following for the periods presented:



	Three Months Ended
	July 1, 2018			July 2, 2017
	(in thousands)
Federal and state income taxes	$	(2,251	)	$	(3,420	)
Foreign income taxes ⁽¹⁾	77			103
Income tax benefit	$	(2,174	)	$	(3,317	)



	Six Months Ended
	July 1, 2018		July 2, 2017
	(in thousands)
Federal and state income taxes	$	1,284	$	6,678
Foreign income taxes ⁽¹⁾	475		383
Income tax expense	$	1,759	$	7,061

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(1) Including foreign taxes withheld.

Our effective income tax rates for the three and six months ended July 1, 2018 were 19.5% and 35.1%, respectively, as compared to 35.9% and 38.5%, respectively, for the three and six months ended July 2, 2017. Our effective income tax rate for the three and six months ended July 1, 2018 was impacted by the reduction in the U.S. federal statutory corporate income tax rate from 35% to 21% resulting from the Tax Cuts and Jobs Act (TCJA) signed into law on December 22, 2017. Our effective income tax rate for the three and six months ended July 1, 2018 differs from the statutory tax rate primarily due to state income taxes, the favorable impact of employment-related federal income tax credits, a one-time adjustment to deferred taxes (the tax effect of the cumulative foreign currency translation adjustment existing as of January 1, 2018) resulting from the change in our intent to no longer indefinitely reinvest monies previously loaned to our Canadian subsidiary partially offset by the negative impact of nondeductible litigation costs related to the Merger, non-deductible penalties, and state tax legislation enacted during the second quarter of 2018 that increased the amount of income subject to state taxation and changed state income tax rates. Our effective income tax rates for the three and six months ended July 2, 2017 differed from the statutory rate primarily due to state income taxes and the favorable impact of employment-related federal income tax credits.

The TCJA’s reduction in the U.S. corporate tax rate from 35% to 21% (effective for Fiscal 2018) and increased allowance for bonus depreciation will have a favorable impact on our future net income and cash flows. While we were able to make provisional estimates for the impact of the TJCA, the actual results may differ from these estimates, due to, among other things, changes in our interpretations and assumptions relating to the changes made by the TCJA and additional guidance that is anticipated to be issued by the U.S. Treasury and Internal Revenue Service regarding (i) the newly enacted increase in bonus depreciation for qualifying assets acquired and placed in service after September 27, 2017, (ii) the expansion of the limitation under Section 162(m) relating to the deductibility of executive compensation in excess of $1.0 million, and (iii) the one-time transition tax, net of foreign tax credits and operating losses, on earnings of foreign subsidiaries that were previously deferred from U.S. tax.

For the periods presented herein, we have used the year-to-date effective tax rate (the “discrete method”), as prescribed by ASC 740-270, Accounting for Income Taxes-Interim Reporting when a reliable estimate of the estimated annual rate cannot be made. We believe at this time, the use of the discrete method is more appropriate than the annual effective tax rate method due to significant variations in the customary relationship between income tax expense and projected annual pre-tax income or loss which occurs when annual projected pre-tax income or loss nears a relatively small amount in comparison to the differences between income and deductions determined for financial statement purposes versus income tax purposes. Using the discrete method, we have determined our current and deferred income tax expense as if the interim period were an annual period.

Our liability for uncertain tax positions (excluding interest and penalties) was $3.9 million as of July 1, 2018 and December 31, 2017 and if recognized would decrease our provision for income taxes by $2.7 million. Within the next twelve months, we could settle or otherwise conclude certain ongoing income tax audits. As such, it is reasonably possible that the liability for uncertain tax positions could decrease by as much as $1.1 million as a result of settlements with certain taxing authorities and expiring statutes of limitations within the next twelve months.

Total accrued interest and penalties related to unrecognized tax benefits as of July 1, 2018 and December 31, 2017 was $1.1 million and $1.0 million, respectively. On the Consolidated Balance Sheets, we include current interest related to unrecognized tax benefits in “Accrued interest,” current penalties in “Accrued expenses” and noncurrent accrued interest and penalties in “Other noncurrent liabilities.”