MaxLinear, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Dec. 31, 2015

The domestic and international components of loss before provision (benefit) from income taxes are presented as follows:



	Years Ended December 31,
	2015			2014			2013
	(in thousands)
Domestic	$	(44,094	)	$	(9,631	)	$	(12,770	)
Foreign	1,188			886			439
Loss before income taxes	$	(42,906	)	$	(8,745	)	$	(12,331	)

Income tax provision (benefit) consists of the following:



	Years Ended December 31,
	2015			2014			2013
	(in thousands)
Current:
Federal	$	—		$	—		$	—
State	16			1			—
Foreign	942			577			574
Total current	958			578			574
Deferred:
Federal	(13,759		)	(3,341		)	(5,217		)
State	(1,034		)	253			(1,174		)
Foreign	126			54			(166		)
Valuation allowance release due to acquisition	(1,757		)	(2,335		)	—
Change in valuation allowance	14,891			3,087			6,385
Total deferred	(1,533		)	(2,282		)	(172		)
Total income tax provision (benefit)	$	(575	)	$	(1,704	)	$	402

The actual income tax provision (benefit) differs from the amount computed using the federal statutory rate as follows:



	Years Ended December 31,
	2015			2014			2013
	(in thousands)
Provision (benefit) at statutory rate	$	(14,588	)	$	(2,973	)	$	(4,191	)
State income taxes (net of federal benefit)	275			(391		)	1
Research and development credits	(2,083		)	(66		)	(3,630		)
Foreign rate differential	(62		)	(31		)	(80		)
Stock compensation	549			609			460
Foreign deemed dividend	279			—			835
Transaction costs	1,329			—			—
Uncertain tax positions	600			304			266
Foreign tax credits	(144		)	—			—
Permanent and other	96			92			356
Valuation allowance release due to acquisition	(1,757		)	(2,335		)	—
Valuation allowance	14,931			3,087			6,385
Total provision (benefit) for income taxes	$	(575	)	$	(1,704	)	$	402

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



	December 31,
	2015			2014
	(in thousands)
Deferred tax assets:
Net operating loss carryforwards	$	27,996		$	9,878
Research and development credits	48,531			12,784
Accrued expenses and other	13,654			1,271
Accrued compensation	1,747			1,380
Stock-based compensation	4,245			4,516
Intangible assets	7,198			3,173
	103,371			33,002
Less valuation allowance	(98,535		)	(28,753		)
	4,836			4,249
Deferred tax liability:
Fixed assets	(2,322		)	(3,523		)
Unremitted foreign earnings	(2,628		)	(614		)
Net deferred tax assets	$	(114	)	$	112

At December 31, 2015, the Company had federal and state tax net operating loss carryforwards of approximately $96.5 million and $37.1 million, respectively. These amounts include share-based compensation for federal and state of $22.9 million and $3.8 million, that will be recorded to contributed capital when realized. The federal and state tax loss carryforwards will begin to expire in 2020 and 2016, respectively, unless previously utilized.

At December 31, 2015, the Company had federal and state tax credit carryforwards of approximately $33.2 million and $37.0 million, respectively. The federal tax credit carryforward will begin to expire in 2020, unless previously utilized. The state tax credits do not expire. In addition, the Company has federal alternative minimum tax credit carryforwards of $1.0 million that can be carried forward indefinitely.

The Company evaluated its net deferred income taxes, which included an assessment of the cumulative income or loss over the prior three-year period and future periods, to determine if a valuation allowance is required. After considering its recent history of losses and management's expectations of additional near-term losses, the Company recorded a valuation allowance on its net federal and state deferred tax assets net of deferred tax liabilities related to indefinite-lived intangibles for which no future realization can be expected. During 2015, the Company maintained a valuation allowance against all of its federal and state deferred tax assets as realization of such assets does not meet the more-likely-than-not threshold required under accounting guidelines. The Company will continue to assess the need for a valuation allowance on the deferred tax assets by evaluating positive and negative evidence that may exist.

The change in valuation allowance during 2015 related to operations was $14.9 million. Additionally, the Company completed the acquisition of Entropic in the second quarter. As a result of the acquisition, there was a valuation allowance release resulting in a tax benefit of $1.8 million.

At December 31, 2015, the Company’s unrecognized tax benefits totaled $26.1 million, $20.7 million of which, if recognized at a time when the valuation allowance no longer exists, would affect the effective tax rate. The Company will recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. At December 31, 2015, the Company had accrued approximately $0.1 million of interest and penalties. The Company expects a decrease to its unrecognized tax benefits of $0.1 million within twelve months.

The following table summarizes the changes to the unrecognized tax benefits during 2015, 2014 and 2013:



	(in thousands)
Balance as of December 31, 2012	$	3,750
Additions based on tax positions related to the current year	1,689
Additions based on tax positions of prior years	23
Balance as of December 31, 2013	5,462
Additions based on tax positions related to the current year	3,158
Additions based on tax positions of prior years	2,188
Balance as of December 31, 2014	10,808
Additions based on tax positions related to the current year	2,585
Additions related to Entropic acquisition	13,733
Decreases based on tax positions of prior year	(1,073		)
Balance as of December 31, 2015	$	26,053

The Company is subject to federal and state income tax in the United States and is also subject to income tax in certain other foreign tax jurisdictions. At December 31, 2015, the Company is no longer subject to federal, state or foreign income tax examinations for the years before 2012, 2011 and 2007, respectively. However, to the extent allowed by law, the tax authorities may have the right to examine prior periods where net operating losses or tax credits were generated and carried forward, and make adjustments up to the amount of the net operating loss or credit carryforward amount.

At December 31, 2013, the Company was under examination by the federal tax authorities for the tax years 2010 and 2011. This examination closed in January, 2014. The impact of any adjustments was reflected in 2013. At December 31, 2012, the Company was under examination by the California tax authorities for the tax years 2008 and 2009. This examination closed during the three months ended March 31, 2013 with no adjustment to taxable income. The Company is not currently under federal, state or foreign examination.

On January 2, 2013, the American Taxpayer Relief Act of 2012 was enacted. The Act included several provisions related to corporate income tax including the reinstatement of the credit for qualified research and development. The credit was reinstated for years beginning after January 1, 2012. On December 19, 2014, the Tax Increase Prevention Act was enacted. The Act included several business tax provisions including the extension of the credit for qualified research and development through 2014. On December 18, 2015, the Protecting Americans from Tax Hikes Act of 2015 was enacted. The Act included several business tax provisions including the permanent extension of the credit for qualified research and development.