v3.22.4
Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes
8. Income Taxes
Income (loss) before income taxes subject to taxes in the following jurisdictions is as follows:
Twelve Months Ended
December 31,
202220212020
(In millions)As AdjustedAs Adjusted
United States$463.5 $318.2 $343.6 
Outside of the United States(72.7)(61.4)(45.7)
Total$390.8 $256.8 $297.9 
Significant components of the provision for income taxes are as follows:
Twelve Months Ended
December 31,
202220212020
(In millions)As AdjustedAs Adjusted
Current:
Federal$32.6 $5.7 $— 
State26.1 8.3 6.1 
Foreign12.5 10.1 2.6 
Total current income taxes71.2 24.1 8.7 
Deferred:
Federal(4.3)23.0 (182.9)
State(17.6)(0.2)(50.5)
Foreign0.3 (7.0)(27.1)
Total deferred income taxes(21.6)15.8 (260.5)
Total$49.6 $39.9 $(251.8)
Significant loss and tax credit carryforwards and years of expiration are as follows:
December 31,Year of Expiration
(In millions)20222021
Net operating loss:
Federal$28.7 $38.0 2028
California185.0 236.3 2031
Other states8.5 21.3 2029
UK90.5 102.4 Indefinite
Other foreign9.7 — 2033
Tax credits:
Federal
R&D credits— 80.1 
Foreign tax credits— 1.5 
California R&D credits$96.4 $81.4 Indefinite
Utilization of net operating losses and credit carryforwards is subject to an annual limitation due to ownership change limitations provided by Section 382 and 383 of the Internal Revenue Code of 1986, as amended, and similar state provisions. An ownership change limitation occurred as a result of the stock offering completed in February 2009. The limitation will result in approximately $1.7 million of U.S. research and development tax credits that will expire unused, and is therefore, not reflected in the tax credit carryforwards above. In addition, the related deferred tax assets have been removed from the components of our deferred tax assets as summarized in the table below. The tax benefits related to the remaining federal and state net operating losses and tax credit carryforwards may be further limited or lost if future cumulative changes in ownership exceed 50% within any three-year period.
Significant components of our deferred tax assets and liabilities as of December 31, 2022 and 2021 are shown below. Significant judgment is required to evaluate the need for a valuation allowance against deferred tax assets. We review all available positive and negative evidence, including projections of pre-tax book income, earnings history, reliability of forecasting, and reversal of temporary differences. A valuation allowance is established when it is more likely than not that some or all of the deferred tax assets will not be realized. Realization of deferred tax assets is dependent upon future earnings in applicable tax jurisdictions.
December 31,
20222021
(In millions)As Adjusted
Deferred tax assets:
Net operating loss carryforwards$46.4 $53.0 
Capitalized research and development expenses211.9 49.3 
Tax credits61.1 105.5 
Share-based compensation16.8 13.3 
Fixed and intangible assets34.4 26.4 
Accrued liabilities and reserves105.3 105.5 
Collaborative agreement milestone accrual (1)
— 21.9 
Convertible debt9.3 21.6 
Other — 0.5 
Total gross deferred tax assets485.2 397.0 
Less: valuation allowance(78.7)(69.9)
Total net deferred tax assets406.5 327.1 
Deferred tax liabilities:
Fixed assets and acquired intangibles assets(69.9)(42.5)
Other(0.3)— 
Total deferred tax liabilities(70.2)(42.5)
Net deferred tax assets (liabilities)$336.3 $284.6 
(1) This amount is related to the $87.1 million charge recorded in the fourth quarter of 2021 associated with our Restated Collaboration Agreement with Verily, as discussed in Note 2 “Development and Other Agreements” to the consolidated financial statements.
We maintain a valuation allowance of $78.7 million against our California research and development tax credits and certain foreign intangible assets. During the year ended December 31, 2022, the valuation allowance increased by $8.9 million primarily due to generation of California research and development tax credits.
The reconciliation between our effective tax rate on income (loss) from continuing operations and the statutory rate is as follows:
Twelve Months Ended
December 31,
202220212020
(In millions)As AdjustedAs Adjusted
U.S. federal statutory tax rate$82.1 $53.9 $62.6 
State income tax, net of federal benefit5.4 8.9 5.3 
Permanent items0.6 5.2 2.6 
Research and development credits(23.3)(28.9)(24.4)
Foreign tax credit— (3.7)— 
Foreign rate differential27.7 20.9 9.8 
Stock and officers compensation(1.2)(20.4)(28.7)
Collaboration agreement milestone share-based payment(52.9)— — 
Change in statutory tax rates1.0 (10.0)(4.1)
Other1.3 (0.4)0.1 
Change in valuation allowance8.9 14.4 (275.0)
Income taxes at effective rates
$49.6 $39.9 $(251.8)
The following table summarizes the activity related to our gross unrecognized tax benefits:
(In millions)
Balance at January 1, 2020$29.5 
Decreases related to prior year tax positions(0.9)
Increases related to current year tax positions8.0 
Balance at December 31, 202036.6 
Increases related to prior year tax positions 0.4 
Increases related to current year tax positions9.8 
Balance at December 31, 202146.8 
Decreases related to prior year tax positions(0.9)
Increases related to current year tax positions6.1 
Balance at December 31, 2022$52.0 
Of the total unrecognized tax benefits at December 31, 2022, 2021, and 2020, $32.5 million, $29.5 million and $23.5 million, respectively, would affect our annual effective tax rate if recognized. Also included in the balance of unrecognized tax benefits at December 31, 2022 is $0.2 million of tax benefits that, if recognized, would result in adjustments to other tax accounts, primarily deferred tax assets.
Interest and penalties are classified as a component of income tax expense and were not material for any period presented. Although the timing and outcome of audit settlements are uncertain, it is unlikely there will be a significant reduction of the uncertain tax benefits in the next twelve months.
Due to our global business activities, we file income tax returns and are subject to routine compliance audits in numerous jurisdictions, including those material jurisdictions listed in the following table. The U.S. net operating losses generated since 1999 and utilized in recent years are open for examination. The years remaining subject to audit, by major jurisdiction, are as follows:
JurisdictionFiscal Year
United States (Federal and state)1999 - 2022
Germany2019 - 2022
United Kingdom2019 - 2022
Canada2018 - 2022
We operate under a tax holiday in the Philippines, which is effective through December 31, 2023, and may be extended for another three years if certain additional requirements are satisfied. The tax holiday is conditional upon remaining in good standing, committing no violation of Philippine Economic Zone Authority Rules and Regulations, pertinent circulars and directives. The impact of this tax holiday was immaterial in in 2022, 2021, and 2020. We have been granted a tax holiday by the Malaysian Investment Development Authority (MIDA) in Malaysia, which will not be triggered until we commence operations. The tax incentive had no effect on foreign taxes during 2022, 2021, or 2020.
We have approximately $9.1 million of undistributed earnings attributable to operations in our controlled foreign corporations as of December 31, 2022. We assert that any foreign earnings will be indefinitely reinvested. Accordingly, we have not recorded a liability for taxes associated with these undistributed earnings. If we determine that all or a portion of such foreign earnings are no longer indefinitely reinvested, we may be subject to additional foreign withholding taxes and U.S. state income taxes. Determination of the amount of unrecognized deferred tax liability on these unremitted earnings is not practicable.