Income Tax Expense

Net loss before income tax benefit attributable to U.S. and international operations, consists of the following:



	Year Ended December 31,
	2015			2014			2013
U.S.	$	(44,114	)	$	(9,799	)	$	(4,123	)
Foreign	(15,647		)	(22,681		)	(11,955		)
Net loss before income tax	$	(59,761	)	$	(32,480	)	$	(16,078	)

Income tax (benefit) expense consists of the following:



	Year Ended December 31,
	2015			2014			2013
Current:
Federal	$	50		$	(20	)	$	51
State	100			181			138
Foreign	148			34			(300		)
Total current	$	298		$	195		$	(111	)
Deferred:
Federal	$	(8,621	)	$	(10	)	$	(116	)
State	(1,008		)	—			(16		)
Foreign	(6		)	(247		)	233
Total deferred	$	(9,635	)	$	(257	)	$	101
Total:
Federal	$	(8,571	)	$	(30	)	$	(65	)
State	(908		)	181			122
Foreign	142			(213		)	(67		)
Income tax benefit	$	(9,337	)	$	(62	)	$	(10	)

Income tax benefit was computed by applying the U.S. federal statutory rate of 34% to net loss before taxes as follows:



	Year Ended December 31,
	2015			2014			2013
Income tax benefit at federal statutory rate	$	(20,315	)	$	(11,043	)	$	(5,467	)
State income tax expense (benefit), net of federal benefit	(937		)	(1,097		)	73
Meals and entertainment	328			279			298
Research and development credits	(1,756		)	(4,897		)	—
Stock-based compensation	1,633			1,161			546
Contingent consideration	34			(2,696		)	2,890
Foreign tax rate differential	1,013			1,418			656
Net change in valuation allowance	10,052			8,930			2,417
Return to provision true-up	583			593			(1,347		)
Unrecognized tax benefits	928			6,444			—
Other, net	(900		)	846			(76		)
Income tax benefit	$	(9,337	)	$	(62	)	$	(10	)

Significant components of the Company’s deferred tax assets and (liabilities) are as follows:



	Year Ended December 31,
	2015			2014
Deferred tax assets:
Net operating loss carryforwards	$	66,280		$	56,331
Accrued expenses	4,391			4,274
Tax credits	8,438			7,368
Bad debt	81			72
Inventory	2,307			2,121
Capitalized research and development	8,948			6,586
Deferred compensation	3,075			2,587
Other	1,659			—
Deferred tax asset	95,179			79,339
Valuation allowance	(67,172		)	(57,883		)
Total deferred tax assets	28,007			21,456
Deferred tax liabilities:
Developed technology and trademark	(14,645		)	(15,535		)
Trademarks and tradenames	(1,002		)	(1,043		)
Depreciation and amortization	(1,183		)	(2,077		)
Convertible debt	(12,056		)	(3,595		)
Other	—			(85		)
Total deferred tax liabilities	(28,886		)	(22,335		)
Net deferred tax liability	$	(879	)	$	(879	)

The Company has evaluated the available evidence supporting the realization of its gross deferred tax assets, including the amount and timing of future taxable income, and has determined that it is more likely than not that the domestic and foreign deferred tax assets will not be realized. Due to such uncertainties surrounding the realization of the domestic and foreign deferred tax assets, the Company maintains a valuation allowance of $67.2 million against a substantial portion of its deferred tax assets as of December 31, 2015. For the year ended December 31, 2015, the change in valuation allowance was $9.3 million, of which $10.1 million was recorded as a tax benefit through the income statement. Realization of the deferred tax assets will be primarily dependent upon the Company's ability to generate sufficient taxable income prior to the expiration of its net operating losses.

At December 31, 2015, the Company had net operating loss carryforwards for federal and state income tax purposes of approximately $166.7 million and $97.6 million, respectively.

Federal and state net operating loss carryforwards began expiring in 2015 and will continue to expire through 2035. The majority of the state net operating losses are attributable to California. In addition, the Company had research and development credits for federal and state income tax purposes of approximately $8.0 million and $8.6 million, respectively, which will begin to expire in 2020. The California research and development credits do not expire.

The table of deferred tax assets and liabilities shown above does not include certain deferred tax assets at December 31, 2015 and 2014 that arose directly from (or the use of which was postponed by) tax deductions related to equity compensation in excess of compensation recognized under GAAP. Those deferred tax assets include federal and state net operating losses. The Company utilizes the with-and-without approach in determining if and when such excess tax benefits are realized, and under this approach excess tax benefits of $9.8 million related to stock based compensation are the last to be realized.

In general, an "ownership change" results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percentage points of the outstanding stock of a company by certain stockholders or public groups. Since the Company's formation, the Company has raised capital through the issuance of capital stock on several occasions which, combined with the purchasing stockholders' subsequent disposition of those shares, may have resulted in such an ownership change, or could result in an ownership change in the future upon subsequent disposition.

The Company intends to complete a study in the future to assess whether an ownership change has occurred or whether there have been multiple ownership changes since the Company's formation.

The following is a tabular reconciliation of the total amounts of unrecognized tax benefits (in thousands):



	Year Ended December 31, 2015
Balance at January 1, 2015	$	7,808
Additions for tax positions related to prior periods	50
Decreases related to prior year tax positions	—
Lapse of statute of limitations	—
Additions for tax positions related to current period	1,070
Balance at December 31, 2015	$	8,928

Our unrecognized benefits presented above would not reduce our annual effective tax rate if recognized because we have recorded a full valuation allowance on the deferred tax assets. We do not foresee any material changes to our gross unrecognized tax benefit within the net twelve months. We recognize interests and/or penalties related to income tax matters in income tax expense. We did not recognize any accrued interest and penalties related to gross unrecognized tax benefits related to the year ended December 31, 2015.

The undistributed earnings of the Company's foreign subsidiaries are considered to be indefinitely reinvested. Accordingly, no provision for U.S. federal and state income taxes or foreign withholding taxes has been provided on such undistributed earnings. As of December 31, 2015, the cumulative amount of earnings upon which U.S. income taxes have not been provided is approximately $108,000. The unrecognized deferred U.S. income tax liability and foreign withholding taxes would not have a material effect on the Company's financial statements.

In general, the Company is no longer subject to U.S. federal, state, local, or foreign examinations by taxing authorities for years before 2010, however, net operating loss and other tax attribute carryforwards utilized in subsequent years continue to be subject to examination by the tax authorities until the year to which the net operating loss and/or other tax attributes are carried forward is no longer subject to examination.

For the twelve months ended December 31, 2015, our provision for income taxes was $9.3 million benefit and our effective tax rate was 15.6% for the year ended December 31, 2015. During the twelve months ended December 31, 2015, we had operating legal entities in the U.S., Italy, New Zealand, Singapore, Poland and the Netherlands (plus registered sales branches of our Dutch entity in certain countries in Europe).

The Company's issuance of the 3.25% Senior Notes and the requirement for the Company to separately account for the liability (debt) and equity (conversion option) components of the 3.25% Senior Notes resulted in a difference between the carrying amount and the tax basis of the 3.25% Senior Notes. This temporary difference resulted in the Company recognizing a deferred tax liability for the temporary difference between the carrying value and the tax basis of the 3.25% Senior Notes, which was recorded as an adjustment to additional paid-in capital of $9.6 million. The creation of the deferred tax liability recognized as a component of equity represents a source of future taxable income pursuant to ASC 740, "Income Taxes”. The Company considered amounts recorded directly to equity in evaluating the need for a valuation allowance on deferred tax assets related to continuing operations. Accordingly, the Company recognized a tax benefit in continuing operations that represents the hypothetical realizable benefit of its current year operating losses resulting from the creation of the deferred tax liability in an amount equal to $9.6 million deferred tax liability that it recognized in connection with the issuance of the 3.25% Senior Notes.