XML 42 R28.htm IDEA: XBRL DOCUMENT v3.22.0.1
Income Taxes
 12 Months Ended
Jan. 02, 2022
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Earnings (loss) before taxes and equity in net earnings (loss) of affiliate for the years 2021, 2020 and 2019 were taxed under the following jurisdictions:
 202120202019
 (In millions of dollars)
Domestic$30.5 $(84.7)$46.6 
Foreign155.3 (22.1)69.8 
Total$185.8 $(106.8)$116.4 
The provision for income taxes was as follows:
 202120202019
 (In millions of dollars)
Current tax expense:   
U.S. federal$3.5 $8.2 $4.7 
U.S. state and local2.1 5.9 3.0 
Foreign7.9 9.0 11.0 
Total current13.5 23.1 18.7 
Deferred tax (benefit) expense:   
U.S. federal(11.8)(36.0)(19.4)
U.S. state and local(0.7)(12.3)(1.6)
Foreign34.1 (8.8)2.7 
Total deferred21.6 (57.1)(18.3)
Total provision$35.1 $(34.0)$0.4 

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:
 20212020
 (In millions of dollars)
Depreciation and amortization$(9.5)$(10.5)
Employee compensation and benefit plans70.4 61.4 
Accrued payroll and related taxes22.1 29.6 
Accrued workers’ compensation11.7 13.4 
Investment in Persol Holdings(70.9)(39.1)
Investment in equity affiliate(13.3)(13.1)
Operating lease liabilities21.8 21.7 
Loss carryforwards36.4 33.6 
Credit carryforwards175.0 161.2 
Other, net6.5 4.3 
Valuation allowance(19.0)(20.2)
Net deferred tax assets$231.2 $242.3 

The deferred tax balance is classified in the consolidated balance sheet as:
 20212020
 (In millions of dollars)
Deferred tax asset$302.8 $282.0 
Other long-term liabilities(71.6)(39.7)
 $231.2 $242.3 

The Company has U.S. general business credit carryforwards of $166.5 million which will expire from 2034 to 2041, foreign tax credit carryforwards of $8.4 million which will expire from 2022 to 2031 and $0.1 million of state credit carryforwards which will expire from 2026 to 2041. The net tax effect of state and foreign loss carryforwards at year-end 2021 totaled $36.4 million, $2.6 million of which expire between 2022 to 2041, and $33.8 million of which have no expiration.

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. At this time, we have no valuation allowance against our Mexican deferred tax asset of $3.8 million, though it is possible this may change as we continue to assess the impact of the new labor laws that became effective in the third quarter of 2021 on our Mexican business operations.

The differences between income taxes from continuing operations for financial reporting purposes and the U.S. statutory rate of 21% in 2021, 2020, and 2019 as follows:
 202120202019
 (In millions of dollars)
Income tax based on statutory rate$39.0 $(22.4)$24.4 
State income taxes, net of federal benefit1.1 (5.1)1.1 
Foreign tax rate differential12.2 2.8 4.6 
General business credits(9.7)(9.9)(16.7)
Life insurance cash surrender value(5.2)(4.6)(6.5)
Foreign items1.7 (1.8)0.8 
Sale of Brazil operations— (6.6)— 
Foreign business taxes2.1 3.0 3.8 
Tax law change(5.2)(1.7)(0.2)
Change in deferred tax realizability(0.7)0.4 (10.6)
Non-deductible goodwill impairment— 11.9 — 
Other(0.2)— (0.3)
Total$35.1 $(34.0)$0.4 

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 or changes in judgment regarding the realizability of deferred tax assets. Changes in the fair value of the Company’s investment in Persol Holdings are 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 2021 included $37.3 million from the gain on our investment in Persol Holdings and $4.8 million from the gain on insurance settlement, and benefited $5.2 million from a change in tax rate in the United Kingdom. The 2020 income tax benefited from lower pretax earnings and included $5.1 million from the loss on our investment in Persol Holdings, $6.6 million from the sale of Brazil operations and $23 million from the impairment of tax deductible goodwill. Income tax expense for 2019 included an $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, offset by a $14.3 million benefit on the release of valuation allowances in the United Kingdom.

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 740 (“ASC 740”), Income Taxes.

Provision has not been made for additional income taxes on an estimated $167.8 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 $10.8 million.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
 202120202019
 (In millions of dollars)
Balance at beginning of the year$0.5 $0.9 $1.1 
Additions for prior years’ tax positions0.2 — — 
Reductions for prior years’ tax positions— — — 
Additions for settlements— — — 
Reductions for settlements— — — 
Reductions for expiration of statutes(0.1)(0.4)(0.2)
Balance at end of the year$0.6 $0.5 $0.9 

If the $0.6 million in 2021, $0.5 million in 2020 and $0.9 million in 2019 of unrecognized tax benefits were recognized, they would have a favorable effect of $0.5 million in 2021, $0.4 million in 2020 and $0.8 million in 2019 on income tax expense.

The Company recognizes both interest and penalties as part of the income tax provision. The Company recognized expense of $0.1 million in 2021 and a benefit of $0.1 million in 2020 for interest and penalties. Interest and penalties expense in 2019 was not significant. Accrued interest and penalties were $0.2 million at year-end 2021 and $0.1 million at year-end 2020.

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 2018 forward, Canada for fiscal years 2014 forward, France for fiscal years 2013 forward, Portugal for fiscal years 2018 forward, Puerto Rico for fiscal years 2017 forward, Russia for fiscal years 2019 forward, and Switzerland for fiscal years 2012 forward.

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 $0.2 million for 2021, related to tax positions which are reasonably possible to change within the next twelve months due to income tax audits, settlements and statute expirations.