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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Tax Expense (Benefit), Continuing Operations [Abstract] |
Income Taxes | Income Taxes Income (loss) before taxes consisted of the following:
| Years Ended December 31,
| 2017 |  | 2016 |  | 2015
| (In thousands)
Domestic | $ | 46,031 |  |  | $ | 38,211 |  |  | $ | 58,498 |
Foreign | (5,042 | ) |  | (15,574 | ) |  | 1,733 |
| $ | 40,989 |  |  | $ | 22,637 |  |  | $ | 60,231 |
The provision for (benefit from) income taxes is comprised of:
| Years Ended December 31,
| 2017 |  | 2016 |  | 2015
| (In thousands)
Federal: |  |  |  |  |
Current | $ | 20,661 |  |  | $ | 22,115 |  |  | $ | 20,497 |
Deferred | 43,678 |  |  | (2,198 | ) |  | (170,798 | )
State: |  |  |  |  |
Current | 495 |  |  | 884 |  |  | 609 |
Deferred | (43 | ) |  | (271 | ) |  | (1,933 | )
Foreign: |  |  |  |  |
Current | 1,101 |  |  | 1,275 |  |  | 443 |
Deferred | (2,041 | ) |  | (5,988 | ) |  | 25 |
| $ | 63,851 |  |  | $ | 15,817 |  |  | $ | (151,157 | )
The differences between Rambus’ effective tax rate and the U.S. federal statutory regular tax rate are as follows:
| Years Ended December 31,
| 2017 |  | 2016 |  | 2015
Expense at U.S. federal statutory rate | 35.0 | % |  | 35.0 | % |  | 35.0 | %
Expense (benefit) at state statutory rate | 0.7 |  |  | 1.8 |  |  | (1.5 | )
Withholding tax | 50.1 |  |  | 97.0 |  |  | 34.1 |
Foreign rate differential | 2.8 |  |  | 4.1 |  |  | 0.4 |
Research and development (“R&D”) credit | (3.9 | ) |  | (8.3 | ) |  | (2.3 | )
Executive compensation | 1.8 |  |  | 1.5 |  |  | 0.5 |
Stock-based compensation | 14.9 |  |  | 34.8 |  |  | 5.3 |
Foreign tax credit | (50.1 | ) |  | (97.0 | ) |  | (34.1 | )
Impact of corporate rate change on deferred taxes | 50.6 |  |  | — |  |  | — |
Other | 1.4 |  |  | 1.0 |  |  | (0.6 | )
Valuation allowance | 52.5 |  |  | — |  |  | (287.8 | )
| 155.8 | % |  | 69.9 | % |  | (251.0 | )%
The components of the net deferred tax assets are as follows:
| As of December 31,
| 2017 |  | 2016
| (In thousands)
Deferred tax assets: |  |  |
Depreciation and amortization | $ | 10,840 |  |  | $ | 22,348 |
Other timing differences, accruals and reserves | 8,766 |  | 12,268
Deferred equity compensation | 7,979 |  | 17,426
Net operating loss carryovers | 16,335 |  | 11,439
Tax credits | 157,051 |  | 120,660
Total gross deferred tax assets | 200,971 |  |  | 184,141 |
Convertible debt | (791) |  | (3,870)
Total net deferred tax assets | 200,180 |  |  | 180,271 |
Valuation allowance | (50,911 | ) |  | (23,529 | )
Net deferred tax assets | $ | 149,269 |  |  | $ | 156,742 |
| As of December 31,
| 2017 |  | 2016
| (In thousands)
Reported as: |  |  |
Non-current deferred tax assets | $ | 159,099 |  |  | $ | 168,342 |
Non-current deferred tax liabilities | (9,830 | ) |  | (11,600 | )
Net deferred tax assets | $ | 149,269 |  |  | $ | 156,742 |
On December 22, 2017, the Tax Cuts and Jobs Act (TCJA) was enacted into law. The TCJA provides for numerous significant tax law changes and modifications including the reduction of the U.S. federal corporate income tax rate from 35% to 21%, the requirement for companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and the creation of new taxes on certain foreign-sourced earnings. Accounting Standards Codification (ASC) 740, Income Taxes, requires companies to recognize the effect of the tax law changes in the period of enactment. However, the SEC staff issued Staff Accounting Bulletin 118 which allows companies to record provisional amounts during a measurement period that is similar to the measurement period used when accounting for business combinations. As of December 31, 2017, the Company has made a reasonable estimate of the effects on its existing deferred tax balances and the one-time transition tax. The Company recognized a provisional amount of $20.7 million, which was included as a component of income tax expense from continuing operations due to a reduction in the corporate federal tax rate from 35% to 21% which will become effective for 2018. The Company will continue to assess the impact of the recently enacted tax law (and expected further guidance from federal and state tax authorities as well as further guidance for the associated income tax accounting) on its business and consolidated financial statements. The Company re-measured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally 21%. However, the Company is still analyzing certain aspects of TCJA and refining its calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. The provisional amount recorded related to the re-measurement of the Company's net deferred tax assets was $20.7 million. The one-time transition tax is based on the Company’s total post-1986 earnings and profits (E&P) of its foreign subsidiaries. The Company has not yet completed the calculation of total post-1986 E&P and related income tax pools for its foreign subsidiaries. The Company did not record a provisional amount for the one-time transition tax liability based on information currently available. The Company will continue to evaluate the impact of the tax law change as it relates to the accounting for the outside basis difference of its foreign entities. Other significant items which are being evaluated by the Company but for which no estimate can currently be made and for which no provisional amounts were recorded in the Company’s financial statements, include the impact of the “Global Intangible Low-Taxed Income” (GILTI) provision and “Foreign-Derived Intangible Income” (FDII) of U.S. tax reform. The GILTI provision imposes taxes on foreign earnings in excess of a deemed return on tangible assets. The Company is evaluating whether deferred taxes should be recorded in relation to the GILTI, or if the tax should be recorded in the period in which it occurs. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or to treat any taxes on GILTI inclusions as period cost are both acceptable methods subject to an accounting policy election. The Company may choose either method as an accounting policy election. The Company has not yet decided on the accounting policy related to GILTI and will only do so after completion of the analysis. The FDII imposes taxes on the excess returns earned directly by a U.S. company from foreign sales or services. The accounting for the deduction for FDII is similar to a special deduction and should be accounted for based on the guidance in ASC 740-10-25-37. The tax benefits for special deductions ordinarily are recognized no earlier than the year in which they are deductible on the tax return. Management periodically evaluates the realizability of its deferred tax assets based on all available evidence, both positive and negative. The realizability of the Company’s 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 deferred tax assets based on all available evidence, both positive and negative, and determined that it was appropriate to establish a partial valuation allowance on the Company’s U.S. federal research and development (“R&D”) credits and foreign tax credits (“FTC”) of $21.5 million during the fourth quarter of 2017 in accordance with FASB ASC 740-10-30-16 to 25. This partial valuation allowance is due to the fact that these credits are not more likely than not to be realized before they expire, as a result of the Company's federal tax rate change from 35% to 21%. Changes in the Company's underlying facts or circumstances, such as the impact of the acquisitions, will be continually assessed and the Company will re-evaluate its valuation allowance position accordingly. 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 was considered positive evidence which was 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 would 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 fourth quarter of 2017, 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 certain FTC, U.S. federal R&D credits and its California deferred tax assets that have not met the “more likely than not” realization threshold criteria. The Company continues to maintain a deferred tax asset valuation allowance of $50.9 million as of December 31, 2017. The following table presents the tax valuation allowance information for the years ended December 31, 2017, 2016 and 2015:
| Balance at Beginning of Period |  | Charged (Credited) to Operations |  | Charged to Other Account* |  | Valuation Allowance Release |  | Valuation Allowance Set up |  | Balance at End of Period
Tax Valuation Allowance |  |  |  |  |  |  |  |  |  |  |
Year ended December 31, 2015 | $ | 193,874 |  |  | — |  |  | 1,299 |  |  | (174,456 | ) |  | — |  |  | $ | 20,717 |
Year ended December 31, 2016 | $ | 20,717 |  |  | — |  |  | 2,812 |  |  | — |  |  | — |  |  | $ | 23,529 |
Year ended December 31, 2017 | $ | 23,529 |  |  | — |  |  | 5,855 |  |  | — |  |  | 21,527 |  |  | $ | 50,911 |
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* | Amounts not charged to operations are charged to other comprehensive income or deferred tax assets (liabilities).
As of December 31, 2017, Rambus had California and other state net operating loss carryforwards of $195.4 million and $125.0 million, respectively. As of December 31, 2017, Rambus had federal research and development tax credit carryforwards of $38.0 million, alternative minimum tax credits of $2.5 million, and foreign tax credits of $116.5 million. As of December 31, 2017, Rambus had California research and development tax credit carryforwards of $27.0 million. The federal foreign tax credits and research and development credits begin to expire in 2020 and 2018, respectively. Approximately $54.9 million of federal foreign tax credits expire in 2020. The California net operating losses began to expire in 2017, and $67.1 million expired during the year. Additionally, $21.5 million of California net operating loss is expected 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, 2017, the Company had $22.6 million of unrecognized tax benefits including $20.4 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, 2016, the Company had $21.9 million of unrecognized tax benefits including $19.7 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. It is reasonably possible that a reduction of up to $0.2 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, 2017, 2016 and 2015 is as follows (amounts in thousands):
| Years Ended December 31,
| 2017 |  | 2016 |  | 2015
Balance at January 1 | $ | 21,925 |  |  | $ | 20,836 |  |  | $ | 19,903 |
Tax positions related to current year: |  |  |  |  |
Additions | 1,083 |  |  | 1,225 |  |  | 1,186 |
Tax positions related to prior years: |  |  |  |  |
Additions | 16 |  |  | 256 |  |  | — |
Reductions | (372 | ) |  | (171 | ) |  | (35 | )
Settlements | — |  |  | (221 | ) |  | (218 | )
Balance at December 31 | $ | 22,652 |  |  | $ | 21,925 |  |  | $ | 20,836 |
Rambus recognizes interest and penalties related to uncertain tax positions as a component of the income tax provision (benefit). At December 31, 2017 and 2016, 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, the U.K., the Netherlands and various other state and foreign jurisdictions. The U.S. federal returns are subject to examination from 2014 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 2012 and forward. The Company is currently under examination by the IRS for the 2015 tax year, California for the 2010 and 2011 tax years, and New York for the 2013, 2014, and 2015 tax years. The Company’s India subsidiary is under examination by the Indian tax administration for tax years beginning with 2011, except for 2014, which was assessed in the Company's favor. 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, 2017, no foreign withholding taxes have been provided on undistributed earnings of approximately $11.5 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.

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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/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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