Income Taxes

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The provision (benefit) for income taxes for the years ended December 31, 2019, 2018 and 2017 was as follows:

	Year Ended December 31,
	2019			2018			2017
Provision (benefit) for income taxes:	(In millions)
Current
Federal	$	31.2		$	33.6		$	42.6
State	6.5			6.4			5.1
Foreign	1.9			2.1			2.9
	39.6			42.1			50.6
Deferred
Federal	(3.8		)	(7.8		)	(131.0		)
State	(1.7		)	(4.0		)	(5.1		)
	(5.5		)	(11.8		)	(136.1		)
Provision (benefit) for income taxes	$	34.1		$	30.3		$	(85.6	)

The provision (benefit) for income taxes differs from the expected federal income tax rates as follows:

	Year Ended December 31,
	2019		2018		2017
Statutory federal income tax rate	21.0	%	21.0	%	35.0	%
Non-deductibility of goodwill impairment	—		—		(29.3	)
Change in federal tax rate	—		—		15.5
State and other taxes, net of federal tax benefit	2.8		3.6		0.4
Change in unrecognized tax benefits	1.8		3.3		(0.7	)
Change in valuation allowance	0.5		0.4		0.3
Domestic production activity deduction	—		—		0.3
Changes in tax rates and state tax laws	(0.5	)	(1.6	)	(0.3	)
Change in accounting for excess tax deficiencies/benefits	(0.6	)	0.1		(0.5	)
General business credits	(1.3	)	(0.2	)	0.0
Other	0.9		0.8		(0.7	)
Effective tax rate	24.6	%	27.4	%	20.0	%

The difference in the 2019 overall effective tax rate from the U.S. statutory rate was primarily attributed to state taxes and unrecognized tax benefits offset by benefits associated with an increase in general business credits.

The Company applied a lower state tax rate to the deferred tax balances during fourth quarter of 2018, a result of the state legislative changes and the acquisition of 69 Applebee’s restaurants in December 2018. The change in the state tax rate applied to the deferred tax balances lowered the 2018 effective tax rate by 1.6%.

The Company recognized a $358.2 million impairment of goodwill during the third quarter of 2017 that was not deductible for federal income tax purposes and therefore had no associated tax benefit. The impairment of goodwill lowered the 2017 effective tax rate by 29.3%. Additionally, the Company was required to revalue its deferred taxes at the federal tax rate of 21% in accordance with the Tax Act. The change in the federal tax rate applied to the deferred tax balances increased the 2017 effective tax rate by 15.5%.

The Company files federal income tax returns and the Company or one of its subsidiaries file income tax returns in various state and international jurisdictions. The IRS Examination of tax years 2011 to 2013 concluded during the second quarter of 2019, and the Company received a refund of $13.3 million, inclusive of interest income of $0.9 million. With few exceptions, the Company is no longer subject to federal tax examinations by tax authorities for years before 2014 and state or non-United States tax examinations by tax authorities for years before 2011. The Company believes that adequate reserves have been recorded relating to all matters contained in the tax periods open to examination.

Net deferred tax assets (liabilities) consisted of the following components:

	2019			2018
	(In millions)
Employee compensation	$	9.2		$	9.0
Revenue recognition	32.8			34.3
Other	5.9			16.8
Deferred tax assets	47.9			60.1
Valuation allowance	(1.5		)	(0.4		)
Total deferred tax assets after valuation allowance	46.4			59.7
Recognition of franchise and equipment sales	(13.7		)	(16.8		)
Capitalization and depreciation (1)	(130.8		)	(139.2		)
Acquisition financing costs	—			(0.6		)
Basis of property and equipment	—			(8.1		)
Other	(0.4		)	(0.8		)
Deferred tax liabilities	(144.9		)	(165.5		)
Net deferred tax liabilities	$	(98.5	)	$	(105.8	)

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⁽¹⁾  Primarily related to the 2007 Applebee's acquisition.

As of each reporting date, the Company’s management considers new evidence, both positive and negative, that could impact management’s view with regards to future realization of deferred tax assets. As of December 31, 2019, management determined it is more likely than not that the benefit from foreign tax credit carryforward will not be realized. In recognition of this risk, the Company provided a valuation allowance of $1.5 million on the deferred tax assets related to the foreign tax credit carryforward.

The Company had gross operating loss carryforwards for state tax purposes of $0.5 million and $0.4 million as of December 31, 2019 and 2018, respectively. The net operating loss carryforwards begin to expire in 2031 if not utilized.

The total gross unrecognized tax benefit as of December 31, 2019 and 2018 was $7.6 million and $5.2 million, respectively, excluding interest, penalties and related income tax benefits. If recognized, these amounts would affect the Company's effective income tax rates.

The Company estimates the unrecognized tax benefits may decrease over the upcoming 12 months by an amount up to $1.5 million related to settlements with taxing authorities, statutes of limitations expirations and method changes. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	Year Ended December 31,
	2019			2018			2017
Unrecognized tax benefit as of January 1	$	5.2		$	5.9		$	3.9
Changes for tax positions of prior years	2.1			3.8			2.8
Increases for tax positions related to the current year	0.5			0.4			0.6
Decreases relating to settlements and lapsing of statutes of limitations	(0.2		)	(4.9		)	(1.4		)
Unrecognized tax benefit as of December 31	$	7.6		$	5.2		$	5.9

As of December 31, 2019, the accrued interest was $2.5 million and accrued penalties were less than $0.1 million, excluding any related income tax benefits. As of December 31, 2018, the accrued interest and penalties were $1.1 million and less than $0.1 million, respectively, excluding any related income tax benefits. The Company recognizes interest accrued related to unrecognized tax benefits and penalties as a component of the income tax provision recognized in the Consolidated Statements of Comprehensive Income (Loss).