Income Taxes

12 Months Ended

Dec. 29, 2019

Earnings (loss) before taxes and equity in net earnings (loss) of affiliate for the years 2019, 2018 and 2017 were taxed under the following jurisdictions:


	2019		2018		2017
	(In millions of dollars)
Domestic	$	46.6	$	53.1	$	55.2
Foreign	69.8		(62.5)		26.5
Total	$	116.4	$	(9.4)	$	81.7

The provision for income taxes was as follows:


	2019		2018		2017
	(In millions of dollars)
Current tax expense:
U.S. federal	$	4.7	$	6.1	$	6.6
U.S. state and local	3.0		3.1		2.4
Foreign	11.0		11.2		9.7
Total current	18.7		20.4		18.7
Deferred tax (benefit) expense:
U.S. federal	(19.4)		(15.6)		0.4
U.S. state and local	(1.6)		1.0		0.1
Foreign	2.7		(32.9)		(6.4)
Total deferred	(18.3)		(47.5)		(5.9)
Total provision	$	0.4	$	(27.1)	$	12.8

Deferred income taxes reflect the temporary differences between the asset and liability basis for financial reporting purposes and the amounts used for income tax purposes, at the relevant tax rate. The deferred tax assets and liabilities are comprised of the following:


	2019		2018
	(In millions of dollars)
Depreciation and amortization	$	(13.3)	$	(15.6)
Employee compensation and benefit plans	58.4		52.0
Workers’ compensation	14.8		15.0
Unrealized gain on securities	(42.5)		(30.9)
Investment in equity affiliate	(13.8)		(15.8)
Loss carryforwards	30.4		30.8
Credit carryforwards	167.1		155.6
Other, net	3.9		3.9
Valuation allowance	(19.0)		(27.8)
Net deferred tax assets	$	186.0	$	167.2

The deferred tax balance is classified in the consolidated balance sheet as:


	2019		2018
	(In millions of dollars)
Deferred tax asset	$	229.1	$	198.7
Other long-term liabilities	(43.1)		(31.5)
	$	186.0	$	167.2

The Company has U.S. general business credit carryforwards of $160.9 million which will expire from 2033 to 2039, foreign tax credit carryforwards of $6.0 million which will expire from 2022 to 2029 and $0.2 million of state credit carryforwards which will expire from 2026 to 2039, or have no expiration. The net tax effect of state and foreign loss carryforwards at year-end 2019 totaled $30.4 million, which will expire as follows (in millions of dollars):


Year	Amount


2020-2021	$	0.5
2022-2036	0.8
No expiration	29.1
Total	$	30.4

The Company has established a valuation allowance for loss carryforwards and future deductible items in certain foreign jurisdictions, and for U.S. foreign tax credit carryforwards. The valuation allowance is determined in accordance with the provisions of ASC 740, which requires an assessment of both negative and positive evidence when measuring the need for a valuation allowance. The Company’s recent losses in these foreign jurisdictions, and its recent lack of adequate U.S. foreign source income to fully utilize foreign tax credit carryforwards, represented sufficient negative evidence to require a valuation allowance under ASC 740. The Company intends to maintain a valuation allowance until sufficient positive evidence exists to support realization of the foreign deferred tax assets.

The differences between income taxes from continuing operations for financial reporting purposes and the U.S. statutory rate of 21% in 2019 and 2018 and 35% in 2017 as follows:


	2019		2018		2017
	(In millions of dollars)
Income tax based on statutory rate	$	24.4	$	(2.0)	$	28.6
State income taxes, net of federal benefit	1.1		3.2		1.6
Foreign tax rate differential	4.6		(8.3)		(1.5)
General business credits	(16.7)		(22.6)		(18.1)
Life insurance cash surrender value	(6.5)		2.1		(7.4)
Foreign items	0.8		1.9		(1.3)
GILTI, net of foreign tax credit	0.5		0.5		—
Foreign-derived intangible income	(0.9)		(0.9)		—
Foreign business taxes	3.8		4.2		4.0
Non-deductible expenses	0.7		2.6		1.3
Tax law change	(0.2)		(0.5)		13.9


Change in deferred tax realizability	(10.6)		(4.3)		(7.8)
Stock compensation	(0.6)		(3.0)		(0.7)
Other, net	—		—		0.2
Total	$	0.4	$	(27.1)	$	12.8

Our tax benefit or expense is affected by recurring items, such as the amount of pretax income and its mix by jurisdiction, U.S. work opportunity credits and the change in cash surrender value of non-taxable investments in life insurance policies. It is also affected by discrete items that may occur in any given period but are not consistent from period to period, such as tax law changes, changes in judgment regarding the realizability of deferred tax assets, or the tax effects of stock compensation. With the Company’s adoption of ASU 2016-01 in the first quarter of 2018, changes in the fair value of the Company’s investment in Persol Holdings are now recognized in the consolidated statements of earnings. These investment gains or losses are treated as discrete since they cannot be estimated.

Several items have contributed to the variance in our income tax benefit or expense over the last three years. Income tax expense for 2019 included a $11.0 million expense from the gain on our investment in Persol Holdings, in addition to a $3.9 million charge to establish valuation allowances in Germany. These charges were offset by a $6.5 million benefit from tax-exempt income on life insurance policies, and a $14.3 million benefit on the release of valuation allowances in the United Kingdom. Income tax benefit for 2018 included a $29.4 million benefit from the loss on our investment in Persol Holdings, a lower U.S. income tax rate, and a benefit on the release of valuation allowances in Australia, offset by non-deductible losses on life insurance policies. Income tax expense for 2017 included a $13.9 million charge to revalue net deferred tax assets due to the U.S. Tax Cuts and Jobs Act (“the Act”), which reduced the U.S. federal corporate income tax rate from 35% to 21%. This charge was offset by a benefit from tax-exempt income on life insurance policies, and a benefit from the release of valuation allowances in Norway, Germany and France.

General business credits primarily represent U.S. work opportunity credits. Foreign items include foreign tax credits, foreign non-deductible expenses and non-taxable income. Foreign business taxes include the French business tax and other taxes based on revenue less certain expenses and are classified as income taxes under ASC Topic 740 (“ASC 740”), Income Taxes. Non-deductible expenses include executive compensation and business meals and entertainment. For 2017, tax law change represents the revaluing of net deferred tax assets as a result of the Act. Among other things, the Act reduced the U.S. federal corporate tax rate from 35% to 21%, effective January 1, 2018, and imposed a one-time transition tax on the Company's accumulated foreign earnings. For year-end 2017, the Company anticipated that the one-time transition tax under the Act would be zero. In accordance with SEC Staff Accounting Bulletin 118, a provisional amount of zero was recorded due to the need for additional analysis of historical data. During the third quarter of 2018, we completed our analysis of foreign subsidiary earnings and profits and finalized our transition tax calculation. Consistent with our estimate at year-end 2017, the transition tax was zero.

The work opportunity credit program generates a significant tax benefit. It is a temporary provision in the U.S. tax law and expires for employees hired after 2020. While the work opportunity credit has routinely been extended, it is uncertain whether

it will again be extended. In the event the program is not renewed, we will continue to receive credits for qualified employees hired prior to 2021.

Provision has not been made for additional income taxes on an estimated $135.3 million of undistributed earnings which are indefinitely reinvested. If these earnings were to be repatriated, the Company could be subject to foreign withholding tax, federal and state income tax, net of federal benefit, and income taxes on foreign exchange gains or losses, of $9.1 million.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:


	2019		2018		2017
	(In millions of dollars)
Balance at beginning of the year	$	1.1	$	1.2	$	1.4

Additions for prior years’ tax positions	—		—		—
Reductions for prior years’ tax positions	—		—		—
Additions for settlements	—		—		—
Reductions for settlements	—		—		—
Reductions for expiration of statutes	(0.2)		(0.1)		(0.2)

Balance at end of the year	$	0.9	$	1.1	$	1.2

If the $0.9 million in 2019, $1.1 million in 2018 and $1.2 million in 2017 of unrecognized tax benefits were recognized, they would have a favorable effect of $0.8 million in 2019, $0.9 million in 2018 and $1.0 million in 2017 on income tax expense.

The Company recognizes both interest and penalties as part of the income tax provision. Interest and penalties expense in 2019, 2018 and 2017 were not significant. Accrued interest and penalties were $0.2 million at year-end 2019 and 2018.

The Company files income tax returns in the U.S. and in various states and foreign countries. The tax periods open to examination by the major taxing jurisdictions to which the Company is subject include the U.S. for fiscal years 2016 through 2019, Canada for fiscal years 2012 through 2019, France for fiscal years 2013 through 2019, Mexico for fiscal years 2014 through 2019, Portugal for fiscal years 2016 through 2019, Russia for fiscal years 2017 through 2019, Switzerland for fiscal years 2010 through 2019, and the United Kingdom for fiscal years 2002 through 2019.

The Company and its subsidiaries have various income tax returns in the process of examination. The unrecognized tax benefit and related interest and penalty balances include approximately $0.5 million for 2019, related to tax positions which are reasonably possible to change within the next twelve months due to income tax audits, settlements and statute expirations.