Income Taxes

Income before income taxes consists of the following (in thousands):



	Year Ended December 31,
	2015			2014		2013
United States	$	88,681		$	25,152	$	91,318
International	(3,117		)	5,609		1,664
Total	$	85,564		$	30,761	$	92,982



	Year Ended December 31,
	2015			2014			2013
Current:
U.S. Federal	$	30,970		$	29,089		$	30,989
State	3,139			2,873			3,751
Foreign	6,105			10,930			11,224
	40,214			42,892			45,964
Deferred:
U.S. Federal	(2,645		)	(20,347		)	(6,741		)
State	134			(326		)	(1,164		)
Foreign	(723		)	(246		)	(294		)
	(3,234		)	(20,919		)	(8,199		)
Total	$	36,980		$	21,973		$	37,765

Net deferred tax assets consist of the following (in thousands):



	Year Ended December 31,
	2015				2014
Deferred Tax Assets:
Accruals and allowances	$	29,279			$	25,756
Net operating loss carryforwards	5,353				6,210
Stock-based compensation	9,895				12,416
Deferred rent	2,740				2,137
Deferred revenue	1,185				1,654
Tax credit carryforwards	2,262				1,769
Acquired intangibles	22,778				21,916
Other	—				142
Total deferred tax assets	73,492				72,000

Deferred Tax Liabilities:
Depreciation and amortization	(967		)		(1,245		)
Other	(438		)		—
Total deferred tax liabilities	(1,405		)		(1,245		)

Valuation Allowance**:	(3,642		)		(3,020		)

Net deferred tax assets	$	68,445			$	67,735

Current portion	$	—			$	29,039
Non-current portion	68,445			*	38,696
Net deferred tax assets	$	68,445			$	67,735

* This includes a reclassification of the net current deferred tax asset to the net non-current deferred tax asset in the consolidated Balance Sheet as of December 31, 2015. No prior periods were retrospectively adjusted. Refer to Note 1, The Company and Summary of Significant Accounting Policies, for additional information regarding the early adoption of the ASU 2015-17.

** Valuation allowance is presented gross. The valuation allowance net of the federal tax effect is ($2,367) and ($1,963) for the years ended December 31, 2015 and December 31, 2014, respectively.

Management's judgment is required in determining the Company's provision for income taxes, its deferred tax assets and any valuation allowance recorded against its deferred tax assets. As of December 31, 2015, a valuation allowance of $3.6 million was placed against California deferred tax assets since the recovery of the assets is uncertain. There was a valuation allowance of $3.0 million placed against deferred tax assets as of December 31, 2014. Accordingly, the valuation allowance increased $0.6 million during 2015. In management's judgment it is more likely than not that the remaining deferred tax assets will be realized in the future as of December 31, 2015, and as such no valuation allowance has been recorded against the remaining deferred tax assets.

The effective tax rate differs from the applicable U.S. statutory federal income tax rate as follows:



	Year Ended December 31,
	2015		2014		2013
Tax at federal statutory rate	35.0	%	35.0	%	35.0	%
State, net of federal benefit	2.6	%	2.5	%	2.2	%
Impact of international operations	7.1	%	19.8	%	3.9	%
Stock-based compensation	(0.4	)%	5.5	%	1.8	%
Tax credits	(1.2	)%	(3.8	)%	(1.9	)%
Valuation allowance	—	%	3.5	%	—	%
Goodwill impairment	—	%	7.8	%	—	%
Others	0.1	%	1.1	%	(0.4	)%
Provision for income taxes	43.2	%	71.4	%	40.6	%

Income tax benefits (detriments) in the amount of $(2.2) million, $(0.5) million and $0.4 million related to stock options were credited to additional paid-in capital during the years ended December 31, 2015, 2014, and 2013, respectively. As a result of changes in fair value of available for sale securities, income tax benefit of $21,000 , $5,000 and $16,000 were recorded in comprehensive income related to the years ended December 31, 2015, 2014, and 2013, respectively.

As of December 31, 2015, the Company has approximately $15.3 million and $50,000 of acquired federal and state net operating loss carry forwards as well as $2.3 million of California tax credits carryforwards. All of these losses are subject to annual usage limitations under Internal Revenue Code Section 382. The federal losses expire in different years beginning in fiscal 2021. The state loss begins to expire in fiscal 2017. The state tax credit carryforwards have no expiration.

The Company files income tax returns in the U.S. federal jurisdiction and various state, local, and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state, or local income tax examinations for years before 2009. The Company is no longer subject to foreign income tax examinations before 2004. In November 2012, the Italian Tax Authority (ITA) commenced an audit of the Company’s 2004 through 2011 tax years, and has subsequently extended audit procedures to include the 2012 tax year. The Company is currently in litigation with the ITA with respect to all of these years. In April 2015, the German Tax Authority commenced an examination of the Company’s 2008 and 2013 tax years. The examination is ongoing. The Company has limited audit activity in various states and other foreign jurisdictions. Due to the uncertain nature of ongoing tax audits, the Company has recorded its liability for uncertain tax positions as part of its long-term liability as payments cannot be anticipated over the next 12 months. The existing tax positions of the Company continue to generate an increase in the liability for uncertain tax positions. The liability for uncertain tax positions may be reduced for liabilities that are settled with taxing authorities or on which the statute of limitations could expire without assessment from tax authorities. The possible reduction in liabilities for uncertain tax positions resulting from the expiration of statutes of limitation in multiple jurisdictions in the next 12 months is approximately $0.6 million, excluding the interest, penalties and the effect of any related deferred tax assets or liabilities.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits (“UTB”) is as follows (in thousands):



	Federal, State, and Foreign Tax
Gross UTB Balance at December 31, 2012	$	12,339
Additions based on tax positions related to the current year	1,866
Additions for tax positions of prior years	4,106
Settlements	(3,134		)
Reductions for tax positions of prior years	(1,163		)
Reductions due to lapse of applicable statutes	(1,314		)
Adjustments due to foreign exchange rate movement	43
Gross UTB Balance at December 31, 2013	12,743
Additions based on tax positions related to the current year	1,894
Additions for tax positions of prior years	1,722
Settlements	(503		)
Reductions for tax positions of prior years	(152		)
Reductions due to lapse of applicable statutes	(1,838		)
Adjustments due to foreign exchange rate movement	(502		)
Gross UTB Balance at December 31, 2014	$	13,364
Additions based on tax positions related to the current year	1,608
Additions for tax positions of prior years	228
Settlements	(199		)
Reductions for tax positions of prior years	(302		)
Reductions due to lapse of applicable statutes	(1,053		)
Adjustments due to foreign exchange rate movement	(816		)
Gross UTB Balance at December 31, 2015	12,830

The total amount of net UTB that, if recognized would affect the effective tax rate as of December 31, 2015 is $11.3 million. The ending net UTB results from adjusting the gross balance at December 31, 2015 for items such as U.S. federal and state deferred tax, foreign tax credits, interest, and deductible taxes. The net UTB is included as a component of non-current income taxes payable within the consolidated balance sheet.

The Company recognizes interest and penalties accrued related to unrecognized tax benefits in income tax expense. During the years ended December 31, 2015, 2014, and 2013, total interest and penalties expensed were $0.1 million, $1.1 million and $0.4 million, respectively. As of December 31, 2015 and 2014, accrued interest and penalties on a gross basis was $3.1 million and $3.0 million, respectively. Included in accrued interest are amounts related to tax positions for which the ultimate deductibility is highly certain but for which there is uncertainty about the timing of such deductibility.

With the exception of those foreign sales subsidiaries for which deferred tax has been provided, the Company intends to indefinitely reinvest foreign earnings. These earnings were approximately $136.9 million and $78.3 million as of December 31, 2015 and December 31, 2014, respectively. Because of the availability of U.S. foreign tax credits, it is not practicable to determine the income tax liability that would be payable if such earnings were not indefinitely reinvested.