INCOME TAXES

Geographic Sources of Income From Continuing Operations Before Income Taxes



	Years Ended October 31,
(in millions)	2017		2016		2015
United States	$	76.1	$	45.1	$	60.5
Foreign	10.8		6.8		11.9
Income from continuing operations before income taxes	$	86.9	$	51.9	$	72.4

Components of Income Tax (Provision) Benefit



	Years Ended October 31,
(in millions)	2017			2016			2015
Current:
Federal	$	(5.9	)	$	17.5		$	(3.7	)
State	(6.0		)	(9.3		)	(3.7		)
Foreign	(3.0		)	(1.5		)	(2.8		)
Deferred:
Federal	5.0			3.6			(7.9		)
State	0.3			(0.5		)	(0.3		)
Foreign	0.8			0.6			0.1
Income tax (provision) benefit	$	(8.8	)	$	10.4		$	(18.3	)

Reconciliation of the U.S. Statutory Tax Rate to Annual Effective Tax Rate (Benefit)



	Years Ended October 31,
	2017		2016		2015
U.S. statutory rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net of federal tax benefit	5.5		7.8		6.5
Federal and state tax credits	(7.5	)	(22.7	)	(9.6	)
Impact of foreign operations	(2.7	)	(5.0	)	(3.6	)
Changes in uncertain tax positions	(19.7	)	(40.0	)	(5.2	)
Incremental tax benefit from share-based compensation awards	(4.2	)	(4.2	)	—
Tax credits for energy efficient government buildings	(2.2	)	(2.4	)	(2.8	)
Nondeductible expenses	5.7		7.7		3.8
Other, net	0.1		3.8		1.2
Annual effective tax rate (benefit)	10.1	%	(20.0	)%	25.3	%

Our income taxes for 2017 were favorably impacted by a benefit of $17.8 million, including interest of $1.2 million, related to expiring statutes of limitations for an uncertain tax position. In addition, in 2017 we also benefited from $3.6 million of excess tax benefits related to the vesting of share-based compensation awards, $1.9 million of tax credits for energy efficient government buildings, and the 2017 WOTC.

Our income taxes for 2016 were favorably impacted by a benefit of $20.8 million, including interest of $0.6 million, related to expiring statutes of limitations for an uncertain tax position, $6.7 million of WOTC related to new hires in 2016, $5.1 million of WOTC from the retroactive reinstatement of the WOTC for calendar year 2015, $2.2 million of excess tax benefits related to the vesting of share-based compensation awards, and $1.2 million of tax credits for energy efficient government buildings.

Components of Deferred Tax Assets and Liabilities



	As of October 31,
(in millions)	2017			2016
Deferred tax assets attributable to:
Self-insurance claims (net of recoverables)	$	124.4		$	108.4
Deferred and other compensation	34.7			33.4
Impairment loss on assets held for sale	—			9.2
Accounts receivable allowances	8.9			6.6
Settlement liabilities	6.5			2.6
Other accruals	3.5			2.9
Other comprehensive income	0.4			1.5
State taxes	0.8			0.6
State net operating loss carryforwards	12.3			5.7
Federal net operating loss carryforwards	19.9			—
Tax credits	19.9			9.9
Unrecognized tax benefits	7.2			2.6
Other	3.1			3.1
Gross deferred tax assets	241.5			186.5
Valuation allowance	(7.7		)	(5.4		)
Total deferred tax assets	233.8			181.1

Deferred tax liabilities attributable to:
Property, plant and equipment	(5.9		)	(2.2		)
Goodwill and other acquired intangibles	(282.0		)	(141.8		)
Equity in earnings of foreign investments	(3.2		)	(3.2		)
Total deferred tax liabilities	(291.1		)	(147.2		)

Net deferred tax (liabilities) assets	$	(57.3	)	$	33.9

Operating Loss Carryforwards and Tax Credits

State operating loss carryforwards totaling $208.4 million at October 31, 2017 are being carried forward in a number of state jurisdictions where we are permitted to use tax operating losses from prior periods to reduce future taxable income. These operating losses will expire between 2018 and 2037. Federal operating loss carryforwards totaling $56.8 million are available to reduce future taxable income and will expire between 2037 and 2038. Federal and state tax credits totaling $25.1 million are available to reduce future cash taxes and will expire between 2021 and 2038, other than alternate minimum tax credits which do not expire.

The valuation allowance represents the amount of tax benefits related to state net operating loss carryforwards that are not likely to be realized. We believe the remaining net deferred tax assets are more likely than not to be realizable based on estimates of future taxable income.

Changes to the Deferred Tax Asset Valuation Allowance



	Years Ended October 31,
(in millions)	2017			2016			2015
Valuation allowance at beginning of year	$	5.4		$	5.5		$	6.2
GCA Services acquisition	4.1			—			—
Sale of Security business	—			—			(0.8		)
Other, net	(1.8		)	(0.1		)	0.1
Valuation allowance at end of year	$	7.7		$	5.4		$	5.5

Unrecognized Tax Benefits

At October 31, 2017, 2016, and 2015, there were $50.5 million, $52.0 million, and $75.6 million, respectively, of unrecognized tax benefits that if recognized in the future would impact our effective tax rate. We estimate that a decrease in unrecognized tax benefits of up to approximately $12.2 million is reasonably possible over the next twelve months due to the resolution of certain tax matters. At October 31, 2017 and 2016, accrued interest and penalties were $1.9 million and $2.3 million, respectively. For interest and penalties we recognized a benefit of $0.5 million and $0.9 million in 2017 and 2016, respectively, and expense of $1.0 million in 2015.

Reconciliation of Total Unrecognized Tax Benefits



	Years Ended October 31,
(in millions)	2017			2016			2015
Balance at beginning of year	$	57.2		$	82.5		$	85.5
Additions for tax positions related to the current year	—			—			2.1
Additions for tax positions related to prior years	16.4			—			0.1
Reductions for tax positions related to prior years	(0.1		)	(3.2		)	—
Reductions for lapse of statute of limitations	(19.7		)	(21.9		)	(5.2		)
Settlements	(0.3		)	(0.2		)	—
Balance at end of year	$	53.4		$	57.2		$	82.5

Jurisdictions

We conduct business in all 50 states, significantly in California, Texas, and New York, as well as in various foreign jurisdictions. Our most significant income tax jurisdiction is the United States.

Tax Years Open for Examination, by Entity



Entity	Open by Statute
ABM state tax returns⁽¹⁾	10/31/2013 – 10/31/2017
ABM federal tax returns	10/31/2014 – 10/31/2017
GCA state tax returns	12/31/2013 – 9/1/2017
GCA federal tax returns	12/31/2014 – 9/1/2017

⁽¹⁾We are currently being examined by the taxing authorities in the states of Alabama, Arizona, California, Connecticut, Florida, Massachusetts, New Jersey, New York, and Tennessee.

Reinvestment of Foreign Earnings

We plan to reinvest our foreign earnings to fund future non-U.S. growth and expansion. As a result, we do not anticipate remitting such earnings to the United States and have not provided for federal and state income taxes or foreign withholding taxes that may result if such earnings of our foreign subsidiaries are remitted to the United States.