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Income Taxes | 12 Months Ended
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Dec. 31, 2020
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,
(In millions) | 2020 |  | 2019 |  | 2018
United States | $ | 270.7 |  |  | $ | 119.1 |  |  | $ | (28.3) |
Outside of the United States | (45.7) |  |  | (14.9) |  |  | (98.2) |
Total | $ | 225.0 |  |  | $ | 104.2 |  |  | $ | (126.5) |
Significant components of the provision for income taxes are as follows:
| Twelve Months Ended December 31,
(In millions) | 2020 |  | 2019 |  | 2018
Current: |  |  |  |  |
Federal | $ | — |  |  | $ | — |  |  | $ | — |
State | 6.1 |  |  | 1.0 |  |  | 2.7 |
Foreign | 2.6 |  |  | 1.9 |  |  | 0.1 |
Total current income taxes | 8.7 |  |  | 2.9 |  |  | 2.8 |
Deferred: |  |  |  |  |
Federal | (198.8) |  |  | — |  |  | (1.7) |
State | (51.4) |  |  | — |  |  | (0.5) |
Foreign | (27.1) |  |  | 0.2 |  |  | — |
Total deferred income taxes | (277.3) |  |  | 0.2 |  |  | (2.2) |
Total | $ | (268.6) |  |  | $ | 3.1 |  |  | $ | 0.6 |
Significant loss and tax credit carryforwards and years of expiration are as follows:
| December 31, |  | Year of Expiration
(In millions) | 2020 |  | 2019 |
Net Operating Loss: |  |  |  |  |
Federal | $ | 169.1 |  |  | $ | 438.8 |  |  | 2027
California | 236.3 |  |  | 235.3 |  |  | 2029
Other States | 36.1 |  |  | 88.8 |  |  | 2030
UK | 113.2 |  |  | 124.1 |  |  | Indefinite
Tax Credits: |  |  |  |  |
Federal | 73.1 |  |  | 54.4 |  |  | 2026
California | $ | 66.2 |  |  | $ | 52.7 |  |  | Indefinite
On June 29, 2020, California’s Governor Newsom signed AB 85 into law, suspending California net operating loss utilization and imposing a $5.0 million cap on the amount of business incentive tax credits companies can utilize, effective for tax years 2020 through 2022. As a result of the legislation, we are utilizing $2.4 million of California research and development credits for the tax year ended December 31, 2020. 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 $1.9 million of U.S. research and development tax credits that will expire unused. 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, 2020 and 2019 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. Prior to 2020, due to our U.S. operating losses and earnings volatility in previous years, which did not allow sustainable profitability, we had established and maintained a full valuation allowance on our deferred tax assets. In 2020, we achieved three years of cumulative income. We analyzed both positive and negative evidence, and as a result, we released our valuation allowance on our deferred tax assets, with the exception of our California research and development tax credits and certain foreign intangible assets, as it is more likely than not that those deferred tax assets will not be realized.
| December 31,
(In millions) | 2020 |  | 2019
Deferred tax assets: |  |  |
Net operating loss carryforwards | $ | 69.2 |  |  | $ | 127.4 |
Capitalized research and development expenses | 53.6 |  |  | 57.1 |
Tax credits | 101.1 |  |  | 78.6 |
Share-based compensation | 13.0 |  |  | 10.9 |
Fixed and intangible assets | 16.9 |  |  | 14.0 |
Accrued liabilities and reserves | 110.3 |  |  | 62.0 |
Convertible debt | — |  |  | 1.7 |
Total gross deferred tax assets | 364.1 |  |  | 351.7 |
Less: valuation allowance | (55.5) |  |  | (332.2) |
Total net deferred tax assets | 308.6 |  |  | 19.5 |
Deferred tax liabilities: |  |  |
Fixed assets and acquired intangibles assets | (36.3) |  |  | (19.6) |
Convertible debt discount | (55.9) |  |  | — |
Total deferred tax liabilities | (92.2) |  |  | (19.6) |
Net deferred tax assets (liabilities) | $ | 216.4 |  |  | $ | (0.1) |
We released $287.2 million of valuation allowance related to our deferred tax assets, of which $285.5 million was recorded to income tax benefit and $1.7 million was recorded to additional paid-in capital. We maintain a valuation allowance of $55.5 million against our California research and development tax credits and certain foreign intangible assets. 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,
(In millions) | 2020 |  | 2019 |  | 2018
U.S. federal statutory tax rate | $ | 47.3 |  |  | $ | 21.9 |  |  | $ | (26.6) |
State income tax, net of federal benefit | 3.2 |  |  | (2.3) |  |  | (5.5) |
Permanent items | 13.1 |  |  | 1.0 |  |  | 1.3 |
Research and development credits | (24.4) |  |  | (10.8) |  |  | (11.7) |
Foreign rate differential | (0.1) |  |  | 5.6 |  |  | 3.7 |
Stock and officers compensation | (28.7) |  |  | (14.7) |  |  | (5.1) |
Change in statutory tax rates | (4.1) |  |  | — |  |  | — |
Impact of adoption of ASU 2016-16 | — |  |  | — |  |  | (13.3) |
Impact of Tax Cuts and Jobs Act of 2017 | — |  |  | — |  |  | (0.4) |
Other | 0.1 |  |  | (1.0) |  |  | 1.3 |
Change in valuation allowance | (275.0) |  |  | 3.4 |  |  | 56.9 |
Income taxes at effective rates | $ | (268.6) |  |  | $ | 3.1 |  |  | $ | 0.6 |
On June 22, 2020, the Supreme Court effectively resolved the Altera Corp. v. Commissioner case when it denied its petition to hear the case. Altera Corp. argued that the Treasury Department’s regulation requiring related companies to share the cost of stock-based employee compensation is arbitrary, and thus invalid. The denial to hear the case supports that related companies should share in the cost of stock-based employee compensation. Pursuant to an Altera clause in our cost-sharing agreement, we recalculated and retroactively billed stock-based compensation for years 2016-2020, resulting in an additional $32.0 million cost-share payment. The 2017 Tax Cuts and Jobs Act included provisions for tax on Global Intangible Low-taxed Income (“GILTI”) effective for tax years of foreign corporations beginning after December 31, 2017. We have elected to account for GILTI in the period the tax is incurred. The following table summarizes the activity related to our gross unrecognized tax benefits:
(In millions) |
Balance at January 1, 2018 | $ | 22.8 |
Decreases related to prior year tax positions | (0.3) |
Increases related to current year tax positions | 3.4 |
Decrease related to Tax Cuts and Jobs Act of 2017 | — |
Balance at December 31, 2018 | 25.9 |
Decreases related to prior year tax positions | (0.9) |
Increases related to current year tax positions | 4.5 |
Balance at December 31, 2019 | 29.5 |
Decreases related to prior year tax positions | (0.9) |
Increases related to current year tax positions | 8.0 |
Balance at December 31, 2020 | $ | 36.6 |
Of the total unrecognized tax benefits at December 31, 2020, 2019, and 2018, $23.5 million, $0, and $0, respectively, would reduce our annual effective tax rate if recognized. Interest and penalties are classified as a component of income tax expense and were not material for any period presented. We conduct business globally and consequently file income tax returns and are subject to routine compliance audits in numerous jurisdictions including those material jurisdictions listed in the following table. We are currently under a routine examination by the Federal Central Office in Germany for fiscal years 2016-2018. We do not expect any material adjustments as a result of this audit. 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:
Jurisdiction | Fiscal Year
United States (Federal and state) | 1999 - 2020
Germany | 2016 - 2020
United Kingdom | 2017 - 2020
Canada | 2015 - 2020
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 PEZA Rules and Regulations, pertinent circulars and directives. The impact of this tax holiday decreased foreign taxes by $0.1 million in 2020. We have been granted an investment tax allowance incentive by the Malaysian Investment Development Authority (MIDA) in Malaysia, which is effective through December 31, 2025. The tax incentive had no effect on foreign taxes during 2020. We have approximately $1.4 million of undistributed earnings attributable to operations in our controlled foreign corporations as of December 31, 2020. We assert that any foreign earnings will be indefinitely reinvested. Accordingly, we have not recorded a liability for taxes associated with any future distributions of these undistributed earnings as any distribution would be immaterial.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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