Income Taxes

The components of loss before income taxes are as follows (in thousands):



	December 31,
	2014			2013			2012
Domestic	$	(12,879	)	$	(27,460	)	(11,723	)
Foreign	3,332			1,196			3,201
Total	$	(9,547	)	$	(26,264	)	(8,522	)

The components of the provision for income taxes are as follows (in thousands):



	December 31,
	2014		2013		2012
Current taxes:
United States	$	15	$	57	32
International	1,137		1,577		1,397
Total current tax expense	1,152		1,634		1,429
Deferred taxes:
United States	5		5		5
International	273		32		(255	)
Total deferred tax expense (benefit)	278		37		(250	)
Income tax expense	$	1,430	$	1,671	1,179

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred taxes at December 31, 2014 and 2013 are as follows (in thousands):



	Years Ended December 31,
	2014			2013
Deferred tax assets:
Current deferred tax assets:
Inventory	$	729		$	1,649
Reserves and allowances	410			296
Other	392			5
Valuation allowance	(1,003		)	(1,383		)
Total current deferred tax assets	528			567
Noncurrent deferred tax assets:
Net operating loss and tax credits carryforwards	27,395			24,311
Amortization	154			149
Other	2,842			749
Valuation allowance	(28,731		)	(23,942		)
Total noncurrent deferred tax assets	$	1,660		$	1,267
Deferred tax liabilities:
Current deferred tax liabilities:
Prepaid and other	$	232		$	1,107
Total current deferred tax liabilities	232			1,107
Noncurrent deferred tax liabilities:
Depreciation	2,208			754
Total noncurrent deferred tax liabilities	$	2,208		$	754

The provision for income taxes for the years ended December 31, 2014, 2013 and 2012 includes both domestic and foreign income taxes at applicable statutory rates adjusted for non-deductible expenses and other permanent differences. The effective tax rate differs from the statutory rate due to non-deductible expenses, valuation allowance increase and foreign tax rate differentials. The Company has established a full valuation allowance relating to substantially all of its U.S. net deferred tax assets due to uncertainties regarding the realization of the deferred tax assets based on the Company’s lack of earnings history in the U.S. The valuation allowance increased by $4.4 million and $5.0 million during the years ended December 31, 2014 and 2013, respectively.

As of December 31, 2014 and 2013, the Company has no accrued interest or penalties associated with uncertain tax positions. The jurisdictions in which the Company files income taxes include the U.S., France and Brazil. The Company’s returns are not currently under examination by the Internal Revenue Service or other taxing authorities. The Company is subject to income tax examinations for the Company’s U.S. federal and state and local income taxes for 2004 and subsequent years and foreign tax examinations for 2006 and subsequent years.

A reconciliation of the statutory U.S. federal tax rate to the Company’s effective rate is as follows:



	December 31,
	2014		2013		2012
Statutory U.S. federal tax rate	34.0	%	34.0	%	34.0	%
State taxes	(0.2	)	(0.2	)	0.5
Valuation allowance	(38.8	)	(15.5	)	(45.4	)
Permanent items	(5.2	)	(24.7	)	(2.0	)
Foreign tax rate differentials	(3.6	)	(0.2	)	(0.9	)
Other	(1.2	)	0.2		—
Total	(15.0	)%	(6.4	)%	(13.8	)%

The Company pays income taxes in France related to intercompany sales in the year the sale occurs; however the recognition of tax expense related to intercompany sales is deferred in the consolidated financial statements until the product is sold to an unrelated third party. The deferred income tax charge is included in other current assets in the consolidated balance sheets. As of December 31, 2014 and 2013, the deferred income tax charge was $2.7 million and $1.5 million, respectively.

As of December 31, 2014, the Company had federal net operating loss carryforwards of approximately $74.6 million, which will begin to expire in 2024, if not utilized prior to that time. Of the net operating loss carryforward, approximately $6.2 million is due to gross excess tax benefits from stock-based award exercises not recorded as of December 31, 2014. In the fourth quarter of 2014, the Company experienced an ownership change as defined in Section 382 of the Internal Revenue Code. Due to the ownership change, the Company’s ability to use domestic net operating loss carryforwards to reduce taxable income was limited to approximately $26.4 million annually. Any unused net operating loss carryforwards that exceed the Section 382 limitations in any given year continue to be allowed as carryforwards for the remainder of the 20 year carryforward period.

Earnings occurring outside the U.S. are deemed to be indefinitely reinvested outside of the U.S. to support the Company’s foreign operations. As a result, the Company continues to accumulate earnings overseas for investment in the Company’s business outside the U.S. and to use cash generated from U.S. operations and short- and long-term borrowings to meet the Company’s U.S. cash needs. The Company has not estimated the deferred tax liabilities associated with the Company’s permanently reinvested earnings as it is impracticable to do so.

The Company recently completed a research and development study related to expenditures for FDA approval of Mobi-C^® and other implants. The study resulted in the Company recording a tax credit of $1.8 million. The credit is subject to a full valuation allowance.