Income Taxes

Earnings before taxes and equity in net earnings (loss) of affiliate for the years 2017, 2016 and 2015 were taxed under the following jurisdictions:



	2017		2016		2015
	(In millions of dollars)
Domestic	$	55.2	$	112.4	$	28.9
Foreign	26.5		37.3		34.3
Total	$	81.7	$	149.7	$	63.2

The provision for income taxes was as follows:



	2017			2016			2015
	(In millions of dollars)
Current tax expense:
U.S. federal	$	6.6		$	10.2		$	8.3
U.S. state and local	2.4			2.4			1.4
Foreign	9.7			10.0			10.8
Total current	18.7			22.6			20.5
Deferred tax expense:
U.S. federal	0.4			11.8			(10.6		)
U.S. state and local	0.1			2.0			0.8
Foreign	(6.4		)	(6.4		)	(2.0		)
Total deferred	(5.9		)	7.4			(11.8		)
Total provision	$	12.8		$	30.0		$	8.7

Deferred taxes are comprised of the following:



	2017			2016
	(In millions of dollars)
Depreciation and amortization	$	(13.4	)	$	(14.6	)
Employee compensation and benefit plans	57.3			75.5
Workers’ compensation	14.5			22.4
Unrealized gain on securities	(60.1		)	(33.6		)
Investment in equity affiliate	(15.5		)	(22.7		)
Loss carryforwards	38.8			36.4
Credit carryforwards	132.7			121.2
Other, net	3.1			3.5
Valuation allowance	(34.6		)	(42.1		)
Net deferred tax assets	$	122.8		$	146.0

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



	2017			2016
	(In millions of dollars)
Deferred tax asset	$	183.4		$	180.1
Other long-term liabilities	(60.6		)	(34.1		)
	$	122.8		$	146.0

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



	2017			2016			2015
	(In millions of dollars)
Income tax based on statutory rate	$	28.6		$	52.4		$	22.1
State income taxes, net of federal benefit	1.6			2.9			1.3
General business credits	(18.1		)	(17.0		)	(17.9		)
Life insurance cash surrender value	(7.4		)	(3.0		)	0.3
Foreign items	(2.8		)	0.4			(2.5		)
Foreign business taxes	4.0			3.6			3.7
Tax law change	13.9			—			(0.7		)
PersolKelly Asia Pacific transaction gain	—			(4.8		)	—
Non-deductible expenses	1.3			1.6			2.3
Change in deferred tax realizability	(7.8		)	(5.9		)	—
Other, net	(0.5		)	(0.2		)	0.1
Total	$	12.8		$	30.0		$	8.7

General business credits primarily represent U.S. work opportunity credits. Foreign items include foreign income tax rate differences, foreign tax credits and deductions, and 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. For 2017, tax law change represents the revaluing of net deferred tax assets as a result of the U.S. Tax Cuts and Jobs Act (“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. Due to the ability for foreign deficits to offset foreign earnings, the Company does not anticipate paying a transition tax. As such, a provisional amount of zero has been recorded in accordance with SEC Staff Accounting Bulletin 118 for the transition tax due to the need for additional analysis of historical data. Any subsequent adjustment will be recorded in the applicable 2018 quarter. Also while the accounting for revaluing net deferred tax assets is complete, the issuance of additional guidance interpreting The Act may require adjustments.

The Company has U.S. general business credit carryforwards of $128.5 million which will expire from 2033 to 2037, foreign tax credit carryforwards of $4.1 million that expire from 2022 to 2026 and $0.1 million of state credit carryforwards that expire from 2026 to 2037, or have no expiration. The net tax effect of state and foreign loss carryforwards at year-end 2017 totaled $38.8 million, which expire as follows (in millions of dollars):



Year	Amount
2018-2020	$	1.8
2021-2034	0.8
No expiration	36.2
Total	$	38.8

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.

Provision has not been made for income taxes on an estimated $124.8 million of undistributed earnings which are permanently reinvested. If these earnings were to be repatriated, the Company could be subject to foreign withholding tax and state income tax, net of federal benefit, of $5.3 million. There would also be income taxes on foreign exchange gains or losses.

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



	2017			2016			2015
	(In millions of dollars)
Balance at beginning of the year	$	1.4		$	1.7		$	2.4

Additions for prior years’ tax positions	—			0.1			0.1
Reductions for prior years’ tax positions	—			—			(0.7		)
Additions for settlements	—			—			—
Reductions for settlements	—			—			—
Reductions for expiration of statutes	(0.2		)	(0.4		)	(0.1		)

Balance at end of the year	$	1.2		$	1.4		$	1.7

If the $1.2 million in 2017, $1.4 million in 2016 and $1.7 million in 2015 of unrecognized tax benefits were recognized, they would have a favorable effect of $1.0 million in 2017 and 2016 and $1.1 million in 2015 on income tax expense.

The Company recognizes both interest and penalties as part of the income tax provision. Interest and penalties expense in 2017 and 2016 and benefit in 2015 were not significant. Accrued interest and penalties at year-end 2017 and 2016 were not significant.

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 2014 through 2017, Canada for fiscal years 2010 through 2017, France for fiscal years 2013 through 2017, Mexico for fiscal years 2012 through 2017, Portugal for fiscal years 2014 through 2017, and Switzerland for fiscal years 2008 through 2017.

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 $0.1 million for 2017, related to tax positions which are reasonably possible to change within the next twelve months due to income tax audits, settlements and statute expirations.