Income Taxes

Income (loss) before taxes consisted of the following:



	Years Ended December 31,
	2015		2014		2013
	(In thousands)
Domestic	$	58,498	$	49,173	$	(12,535	)
Foreign	1,733		1,077		518
	$	60,231	$	50,250	$	(12,017	)

The provision for (benefit from) income taxes is comprised of:



	Years Ended December 31,
	2015			2014			2013
	(In thousands)
Federal:
Current	$	20,497		$	19,386		$	19,319
Deferred	(170,798		)	2,337			2,200
State:
Current	609			713			47
Deferred	(1,933		)	—			(501		)
Foreign:
Current	443			1,640			446
Deferred	25			(27		)	220
	$	(151,157	)	$	24,049		$	21,731

The differences between Rambus’ effective tax rate and the U.S. federal statutory regular tax rate are as follows:



	Years Ended December 31,
	2015		2014		2013
Expense (benefit) at U.S. federal statutory rate	35.0	%	35.0	%	(35.0	)%
Expense (benefit) at state statutory rate	(1.5	)	1.0		(3.3	)
Withholding tax	34.1		38.6		160.4
Foreign rate differential	0.4		2.5		4.1
Research and development (“R&D”) credit	(2.3	)	(6.1	)	(36.7	)
Executive compensation	0.5		0.2		0.8
Stock-based compensation	5.3		1.4		2.5
Foreign tax credit	(34.1	)	(38.7	)	(163.3	)
Other	(0.6	)	0.6		(1.0	)
Valuation allowance	(287.8	)	13.4		252.3
	(251.0	)%	47.9	%	180.8	%

The components of the net deferred tax assets are as follows:



	As of December 31,
	2015			2014
	(In thousands)
Deferred tax assets:
Depreciation and amortization	$	30,019		$	29,099
Other liabilities and reserves	7,227			9,916
Deferred equity compensation	23,176			29,511
Net operating loss carryovers	11,746			12,307
Tax credits	117,078			116,658
Total gross deferred tax assets	189,246			197,491
Convertible debt	(6,044)			(8,092)
Total net deferred tax assets	183,202			189,399
Valuation allowance	(20,717		)	(193,874		)
Net deferred tax assets (liabilities)	$	162,485		$	(4,475	)



	As of December 31,
	2015		2014
	(In thousands)
Reported as:
Current deferred tax assets	$	—	$	187
Current deferred tax liabilities	—		(1,131		)
Non-current deferred tax assets	162,485		536
Non-current deferred tax liabilities	—		(4,067		)
Net deferred tax assets (liabilities)	$	162,485	$	(4,475	)

In November 2015, the FASB issued ASU No. 2015-17, "Balance Sheet Classification of Deferred Taxes (Topic 740)," to simplify the presentation of deferred income taxes. The amendments in this update require that deferred tax liabilities and assets be classified as non-current in a classified statement of financial position. This ASU is effective for financial statements issued for fiscal years beginning after December 15, 2016 and interim periods within those fiscal years. Early adoption is permitted. The Company has early adopted this ASU as of December 31, 2015 on a prospective basis.

Management periodically evaluates the realizability of our net deferred tax assets based on all available evidence, both positive and negative. The realizability of the Company’s net deferred tax assets is dependent on its ability to generate sufficient future taxable income during periods prior to the expiration of tax attributes to fully utilize these assets. Management evaluated the realizability of its net deferred tax assets based on all available evidence, both positive and negative, in determining that it was appropriate to release the valuation allowance for the Company’s U.S. federal and other state deferred tax assets of $174.5 million during the third quarter of 2015 in accordance with FASB ASC 740-10-30-16 to 25.

The Company emerged from a cumulative loss position over the previous three years during the first quarter of 2015. The cumulative three-year pre-tax income is considered positive evidence which is objective and verifiable, and thus, received significant weighting. The continued stability in the Company’s operations along with the increased visibility into the adoption of its security technology in the third quarter of 2015 provided additional evidence to the Company’s belief that it will generate sufficient taxable income in the future. Additional positive evidence considered by management in its assessment included a lack of unused operating loss carryforwards in the Company’s history as well as anticipated future benefits from its cost management. Negative evidence management considered included economic uncertainties such as volatility of the semiconductor industry and uncertainties associated with the development of new products that could impact the Company’s ability to generate a sustained level of future profits.

Upon considering the relative impact of all evidence during the third quarter of 2015, both negative and positive, and the weight accorded to each, the Company concluded that it was more likely than not that its deferred tax assets would be realizable with the exception of primarily its California deferred tax assets that have not met the “more likely than not” realization threshold criteria. As a result, the Company released the related valuation allowance against such deferred tax assets which is included as a component of the benefit from income taxes in the accompanying unaudited condensed consolidated statement of operations. The Company continues to maintain a deferred tax asset valuation allowance of $20.7 million as of December 31, 2015.

The following table presents the tax valuation allowance information for the years ended December 31, 2015, 2014 and 2013:



	Balance at Beginning of Period		Charged (Credited) to Operations	Charged to Other Account*	Valuation Allowance Release		Balance at End of Period
Tax Valuation Allowance
Year ended December 31, 2013	$	184,817	—	8,006	—		$	192,823
Year ended December 31, 2014	$	192,823	—	1,051	—		$	193,874
Year ended December 31, 2015	$	193,874	—	1,299	(174,456	)	$	20,717

______________________________________


*	Amounts not charged to operations are charged to other comprehensive income or deferred tax assets (liabilities).

As of December 31, 2015, Rambus had California and other state net operating loss carryforwards of $285.0 million and $75.9 million, respectively. As of December 31, 2015, Rambus had federal research and development tax credit carryforwards of $34.2 million, alternative minimum tax credits of $2.5 million, and foreign tax credits of $118.6 million. As of December 31, 2015, Rambus had California research and development tax credit carryforwards of $22.3 million. These carryforward amounts included $37.9 million of federal tax credits and $97.7 million of California net operating losses for which no deferred tax asset has been recognized because they relate to excess tax benefits from stock-based compensation tax deductions. The excess tax benefits will be recorded to additional paid-in capital when they reduce cash taxes payable. The federal foreign tax credits and research and development credits begin to expire in 2016 and 2018, respectively. Approximately $55 million of federal foreign tax credits expire in 2020. The California net operating losses begin to expire in 2018. The federal alternative minimum tax credits and the California research and development credits carry forward indefinitely.

In the event of a change in ownership, as defined under federal and state tax laws, Rambus' net operating loss and tax credit carryforwards could be subject to annual limitations. The annual limitations could result in the expiration of the net operating loss and tax credit carryforwards prior to utilization.

As of December 31, 2015, the Company had $20.8 million of unrecognized tax benefits including $18.6 million recorded as a reduction of long-term deferred tax assets and $2.2 million recorded in long term income taxes payable. If recognized, $2.2 million would be recorded as an income tax benefit in the consolidated statements of operations. As of December 31, 2014, the Company had $19.9 million of unrecognized tax benefits including $17.8 million recorded as a reduction of long-term deferred tax assets and $2.1 million recorded in long term income taxes payable. If recognized, $2.1 million would be recorded as an income tax benefit in the consolidated statements of operations. It is reasonably possible that a reduction of up to $1.0 million of existing unrecognized tax benefits could occur in the next 12 months.

A reconciliation of the beginning and ending amounts of unrecognized income tax benefits for the years ended December 31, 2015, 2014 and 2013 is as follows (amounts in thousands):



	Years Ended December 31,
	2015			2014			2013
Balance at January 1	$	19,903		$	18,794		$	16,773
Tax positions related to current year:
Additions	1,186			1,134			1,156
Tax positions related to prior years:
Additions	—			531			956
Reductions	(35		)	(556		)	(91		)
Settlements	(218		)	—			—
Balance at December 31	$	20,836		$	19,903		$	18,794

Rambus recognizes interest and penalties related to uncertain tax positions as a component of the income tax provision (benefit). At December 31, 2015 and 2014, an immaterial amount of interest and penalties are included in long-term income taxes payable.

Rambus files income tax returns for the U.S., California, India and various other state and foreign jurisdictions. The U.S. federal returns are subject to examination from 2013 and forward. The California returns are subject to examination from 2010 and forward. In addition, any R&D credit carryforward or net operating loss carryforward generated in prior years and utilized in these or future years may also be subject to examination. The India returns are subject to examination from fiscal year ending March 2009 and forward. The Company is currently under examination by California for the 2010 and 2011 tax years. The Company’s India subsidiary is under examination by the Indian tax administration from 2009 and forward. These examinations may result in proposed adjustments to the income taxes as filed during these periods. Management regularly assesses the likelihood of outcomes resulting from income tax examinations to determine the adequacy of their provision for income taxes and believes their provision for unrecognized tax benefits is adequate.

At December 31, 2015, no deferred taxes have been provided on undistributed earnings of approximately $3.9 million from the Company’s international subsidiaries since these earnings have been, and under current plans will continue to be, indefinitely reinvested outside the United States. It is not practicable to determine the amount of the unrecognized tax liability at this time.