Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Quarterly Results of Operations

	Three Months Ended
	2015																2014
	December 31, 2015				September 30, 2015				June 30, 2015				March 31, 2015				December 31, 2014				September 30, 2014				June 30, 2014				March 31, 2014
	(in thousands, except per share data) (unaudited )
Net revenues	$	230,276			$	207,636			$	209,488			$	198,086			$	198,600			$	189,876			$	192,531			$	180,646
Gross profit	172,810				157,576				158,634				151,090				150,662				145,054				145,476				137,251
Income from operations 1	59,339				38,046				42,325				48,924				51,493				51,547				48,732				41,804
Net income 1	48,877				27,616				31,350				36,177				39,541				38,247				35,600				32,444
Net income per share:
Basic	$	0.61			$	0.35			$	0.39			$	0.45			$	0.49			$	0.47			$	0.44			$	0.40
Diluted	$	0.60			$	0.34			$	0.39			$	0.44			$	0.48			$	0.47			$	0.43			$	0.39
Shares used in computing net income per share:
Basic	79,481				79,808				80,257				80,459				80,266				80,629				81,027				81,120
Diluted	81,051				81,092				81,394				81,824				81,691				82,014				82,341				82,817

1 In the three months ended June 30, 2014, we recorded an out of period correction that resulted in an increase in the provision for income taxes of $2.1 million, which $1.8 million related to prior years and $0.3 million related to the three months ended March 31, 2014. The out of period correction was not material to the consolidated financial statements for any quarter within 2014.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Management on Internal Control over Financial Reporting	53
Report of Independent Registered Public Accounting Firm	54
Consolidated Statements of Operations	55
Consolidated Statements of Comprehensive Income	56
Consolidated Balance Sheets	57
Consolidated Statements of Stockholders’ Equity	58
Consolidated Statements of Cash Flows	59
Notes to Consolidated Financial Statements	60

REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of Align is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed by, or under supervision of, our CEO and CFO, and effected by the board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that:

•	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Align;

•	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of Align are being made only in accordance with authorizations of management and directors of Align; and

•	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Align's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2015. In making this assessment, management used the criteria set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on its assessment, management has concluded that, as of December 31, 2015, our internal control over financial reporting was effective based on criteria in Internal Control - Integrated Framework (2013) issued by the COSO.

The effectiveness of our internal control over financial reporting as of December 31, 2015 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.

/S/ JOSEPH M. HOGAN
Joseph M. Hogan
President and Chief Executive Officer
February 25, 2016
/S/ DAVID L. WHITE
David L. White
Chief Financial Officer
February 25, 2016

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of Align Technology, Inc.:

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a) (1), present fairly, in all material respects, the financial position of Align Technology, Inc. and its subsidiaries at December 31, 2015 and December 31, 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it classifies deferred income tax assets and liabilities in 2015.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

San Jose, California

February 25, 2016

ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

	Year Ended December 31,
	2015				2014				2013
Net revenues	$	845,486			$	761,653			$	660,206
Cost of net revenues	205,376				183,210				162,100
Gross profit	640,110				578,443				498,106
Operating expenses:
Selling, general and administrative	390,239				332,068				292,798
Research and development	61,237				52,799				44,083
Impairment of goodwill	—				—				40,693
Impairment of long lived assets	—				—				26,320
Total operating expenses	451,476				384,867				403,894
Income from operations	188,634				193,576				94,212
Interest and other income (expense), net	(2,533		)		(3,207		)		(1,073		)
Net income before provision for income taxes	186,101				190,369				93,139
Provision for income taxes	42,081				44,537				28,844
Net income	$	144,020			$	145,832			$	64,295
Net income per share:
Basic	$	1.80			$	1.81			$	0.80
Diluted	$	1.77			$	1.77			$	0.78
Shares used in computing net income per share:
Basic	79,998				80,754				80,551
Diluted	81,521				82,283				82,589

The accompanying notes are an integral part of these consolidated financial statements.

ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

	Year Ended December 31,
	2015				2014				2013
Net income	$	144,020			$	145,832			$	64,295
Net change in cumulative translation adjustment	(154		)		(196		)		62
Change in unrealized gains (losses) on available-for sale securities, net of tax	(686		)		(238		)		29
Other comprehensive income (loss)	(840		)		(434		)		91
Comprehensive income	$	143,180			$	145,398			$	64,386

The accompanying notes are an integral part of these consolidated financial statements.

ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

	December 31,
	2015				2014
ASSETS
Current assets:
Cash and cash equivalents	$	167,714			$	199,871
Marketable securities, short-term	359,581				254,787
Accounts receivable, net of allowance for doubtful accounts and returns of $2,472 and $1,563, respectively	158,550				129,751
Inventories	19,465				15,928
Prepaid expenses and other current assets	26,700				19,770
Deferred tax assets	—				37,053
Total current assets	732,010				657,160
Marketable securities, long-term	151,370				147,892
Property, plant and equipment, net	136,473				90,125
Goodwill and intangible assets, net	79,162				82,056
Deferred tax assets	51,416				3,099
Other assets	8,202				7,665
Total assets	$	1,158,633			$	987,997
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	34,354			$	23,247
Accrued liabilities	107,765				87,880
Deferred revenues	129,553				90,684
Total current liabilities	271,672				201,811
Income tax payable	37,512				30,483
Other long-term liabilities	1,523				2,932
Total liabilities	310,707				235,226
Commitments and contingencies (Notes 6 and 8)
Stockholders’ equity:
Preferred stock, $0.0001 par value (5,000 shares authorized; none issued)	—				—
Common stock, $0.0001 par value (200,000 shares authorized; 79,500 and 80,205 issued and outstanding at 2015 and 2014, respectively)	8				8
Additional paid-in capital	821,507				783,410
Accumulated other comprehensive income (loss), net	(980		)		(140		)
Accumulated surplus (deficit)	27,391				(30,507		)
Total stockholders’ equity	847,926				752,771
Total liabilities and stockholders’ equity	$	1,158,633			$	987,997

The accompanying notes are an integral part of these consolidated financial statements.

ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the year ended December 31, 2015, 2014 and 2013

(in thousands)

	Common Stock							Additional Paid in Capital				Accumulated Other Comprehensive Income (Loss)				Accumulated Surplus (Deficit)				Total
	Shares			Amount
Balances at December 31, 2012	80,611			$	8			$	670,732			$	203			$	(89,626	)		$	581,317
Net income	—			—				—				—				64,295				64,295
Net change in unrealized gain from available-for sale securities	—			—				—				29				—				29
Net change in cumulative translation adjustment	—			—				—				62				—				62
Issuance of common stock relating to employee equity compensation plans	2,694			—				34,196				—				—				34,196
Tax withholdings related to net share settlement of restricted stock units	—			—				(4,363		)		—				—				(4,363		)
Common stock repurchased and retired	(2,722	)		—				(24,528		)		—				(70,579		)		(95,107		)
Tax benefits from stock-based awards	—			—				27,103				—				—				27,103
Stock based compensation	—			—				26,438				—				—				26,438
Balances at December 31, 2013	80,583			8				729,578				294				(95,910		)		633,970
Net income	—			—				—				—				145,832				145,832
Net change in unrealized gain from available-for sale securities	—			—				—				(238		)		—				(238		)
Net change in cumulative translation adjustment	—			—				—				(196		)		—				(196		)
Issuance of common stock relating to employee equity compensation plans	1,536			—				18,028				—				—				18,028
Tax withholdings related to net share settlements of restricted stock units	—			—				(7,608		)		—				—				(7,608		)
Common stock repurchased and retired	(1,914	)		—				(17,804		)		—				(80,429		)		(98,233		)
Tax benefits from stock-based awards	—			—				21,393				—				—				21,393
Stock based compensation	—			—				39,823				—				—				39,823
Balances at December 31, 2014	80,205			8				783,410				(140		)		(30,507		)		752,771
Net income	—			—				—				—				144,020				144,020
Net change in unrealized gain from available-for sale securities	—			—				—				(686		)		—				(686		)
Net change in cumulative translation adjustment	—			—				(10		)		(154		)		—				(164		)
Issuance of common stock relating to employee equity compensation plans	991			—				11,325				—				—				11,325
Tax withholdings related to net share settlements of restricted stock units	—			—				(20,716		)		—				—				(20,716		)
Common stock repurchased and retired	(1,696	)		—				(15,669		)		—				(86,122		)		(101,791		)
Tax (shortfalls) benefits from stock-based awards	—			—				10,224				—				—				10,224
Stock based compensation	—			—				52,943				—				—				52,943
Balances at December 31, 2015	79,500			$	8			$	821,507			$	(980	)		$	27,391			$	847,926

The accompanying notes are an integral part of these consolidated financial statements.

ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year Ended December 31,
	2015				2014				2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	144,020			$	145,832			$	64,295
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes	(11,424		)		4,088				(5,899		)
Depreciation and amortization	18,004				17,856				16,825
Stock-based compensation	52,943				39,823				26,438
Tax (shortfalls) benefits from stock-based awards	10,224				21,393				27,103
Excess tax benefit from share-based payment arrangements	(10,396		)		(21,393		)		(27,103		)
Impairment of goodwill	—				—				40,693
Impairment of long-lived assets	—				—				26,320
Other non-cash operating activities	13,799				10,106				4,142
Changes in assets and liabilities, excluding the effects of business combinations:
Accounts receivable	(40,775		)		(27,229		)		(11,981		)
Inventories	(3,563		)		(1,999		)		1,158
Prepaid expenses and other assets	(3,726		)		(2,924		)		(392		)
Accounts payable	7,575				2,887				(186		)
Accrued and other long-term liabilities	19,462				22,692				9,662
Deferred revenues	41,854				15,767				14,901
Net cash provided by operating activities	237,997				226,899				185,976
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition, net of cash acquired	—				—				(7,652		)
Purchase of property, plant and equipment	(53,451		)		(24,092		)		(19,412		)
Purchase of marketable securities	(447,092		)		(437,152		)		(303,917		)
Proceeds from maturities of marketable securities	304,125				176,810				90,917
Proceeds from sales of marketable securities	30,011				82,990				31,741
Other investing activities	46				(183		)		(2,411		)
Net cash used in investing activities	(166,361		)		(201,627		)		(210,734		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock	11,325				18,028				34,196
Common stock repurchase	(101,791		)		(98,233		)		(95,107		)
Excess tax benefit from share-based payment arrangements	10,396				21,393				27,103
Employees’ taxes paid upon the vesting of restricted stock units	(20,716		)		(7,608		)		(4,363		)
Net cash used in financing activities	(100,786		)		(66,420		)		(38,171		)
Effect of foreign exchange rate changes on cash and cash equivalents	(3,007		)		(1,934		)		(504		)
Net decrease in cash and cash equivalents	(32,157		)		(43,082		)		(63,433		)
Cash and cash equivalents, beginning of year	199,871				242,953				306,386
Cash and cash equivalents, end of year	$	167,714			$	199,871			$	242,953

The accompanying notes are an integral part of these consolidated financial statements.

ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies

Business Description

Align Technology, Inc. (“We”, “Our”, or “Align”) was incorporated in April 1997 in Delaware and focuses on designing, manufacturing and marketing innovative, technology-rich products to help dental professionals achieve the clinical results they expect and deliver effective, convenient cutting-edge dental treatment options to their patients. We are headquartered in San Jose, California with offices worldwide. Our international headquarters are located in Amsterdam, the Netherlands. We have two operating segments, (1) Clear Aligner, known as the Invisalign System, and (2) Scanners and Services ("Scanner"), known as the iTero intra-oral scanner and OrthoCAD services.

Basis of presentation and preparation

The consolidated financial statements include the accounts of Align and our wholly-owned subsidiaries after elimination of intercompany transactions and balances.

In connection with the preparation of the consolidated financial statements, we evaluated events subsequent to the balance sheet date through the financial statement issuance date and determined that all material transactions have been recorded and disclosed properly.

Out of period adjustment

In 2013, we recorded an out of period correction that resulted in decreases in cost of net revenues of approximately $1.7 million and operating expense of $0.7 million offset in part by an increase in the provision for income taxes of $0.5 million. We do not believe the increase of $1.9 million to net income related to the out of period adjustment is material to the consolidated financial statements for the fiscal year ended December 31, 2013 or to any prior years' consolidated financial statements.

In 2014, we recorded an out of period correction that resulted in an increase in the provision for income taxes of $1.8 million. We do not believe the decrease to net income related to the out of period adjustment is material to the consolidated financial statements for the fiscal year ended December 31, 2014 or to any prior years' consolidated financial statements.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S.”) requires our management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ materially from those estimates. On an ongoing basis, we evaluate our estimates, including those related to the fair values of financial instruments, intangible assets and goodwill, useful lives of intangible assets and property and equipment, stock-based compensation, revenue recognition, income taxes, and contingent liabilities, among others. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Fair value of financial instruments

The carrying amounts of our cash, accounts receivable, accounts payable and other current liabilities approximate their fair value.

We measure our cash equivalents, marketable securities, and our Israeli severance fund at fair value. Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1— Quoted (unadjusted) prices in active markets for identical assets or liabilities.

Level 2— Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability.

Cash and cash equivalents

We consider currency on hand, demand deposits, time deposits, and all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash and cash equivalents. Cash and cash equivalents are held in various financial institutions in the U.S. and internationally.

Restricted cash

Our restricted cash balance as of December 31, 2015 was $3.5 million, of which $3.3 million was classified as a long term asset and $0.2 million as a current asset. Our restricted cash balance as of December 31, 2014 was $3.8 million, of which $3.6 million was classified as a long term asset and $0.2 million as a current asset. The restricted cash primarily consisted of funds reserved for legal requirements.

Marketable securities

We invest primarily in money market funds, commercial paper, corporate bonds, U.S. government agency bonds, asset-backed securities, municipal securities, U.S. dollar dominated foreign corporate bonds, U.S. government treasury bonds and certificates of deposits.

Marketable securities are classified as available-for-sale and are carried at fair value. Marketable securities classified as current assets have maturities of less than one year. Unrealized gains or losses on such securities are included in accumulated other comprehensive income, net in stockholders’ equity. Realized gains and losses from maturities of all such securities are reported in earnings and computed using the specific identification cost method. Realized gains or losses and charges for other-than-temporary declines in value, if any, on available-for-sale securities are reported in Interest and other income (expense), net as incurred. We periodically evaluate these investments for other-than-temporary impairment.

Derivative Financial Instruments

In September 2015, we began entering into foreign currency forward contracts to minimize the short-term impact of foreign currency exchange rate fluctuations on cash and certain trade and intercompany receivables and payables. These forward contracts are not designated as hedging instruments and do not subject us to material balance sheet risk due to fluctuations in foreign currency exchange rates. The gains and losses on these forward contracts are intended to offset the gains and losses in the underlying foreign currency denominated monetary assets and liabilities being economically hedged. We do not enter into foreign currency forward contracts for trading or speculative purposes. These instruments are marked to market through earnings every period and generally are one month in original maturity. The net gain or loss from the settlement of these foreign currency forward contracts is recorded in Interest and other income (expense), net in the Consolidated Statements of Operations.

Foreign currency

For our international subsidiaries where the U.S. dollar is the functional currency, we analyze on an annual basis or more often if necessary, if a significant change in facts and circumstances indicate that the primary economic currency has changed. Adjustments from translating certain European and Asia Pacific subsidiaries’ financial statements from the local currency to the U.S. dollar are recorded as a separate component of accumulated other comprehensive income (loss), net in the stockholders’ equity section of the Consolidated Balance Sheet. This foreign currency translation adjustment reflects the translation of the balance sheet at period end exchange rates, and the income statement at an average exchange rate in effect during the period. As of December 31, 2015 and 2014, there were no material amounts in accumulated other comprehensive income, net related to the translation of our foreign subsidiaries’ financial statements.

Some of our international entities operate in a U.S. dollar functional currency environment, and therefore, the foreign currency assets and liabilities are remeasured into the U.S. dollar at current exchange rates except for non-monetary assets and liabilities which are remeasured at historical exchange rates. Revenues and expenses are generally remeasured at an average exchange rate in effect during each period. Gains or losses from foreign currency remeasurement are included in Interest and other income (expense), net. For the year ended December 31, 2015 and 2014, we had foreign currency net losses of $4.0 million and $3.8 million.

ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Certain risks and uncertainties

Our operating results depend to a significant extent on our ability to market and develop our products. The life cycles of our products are difficult to estimate due, in part, to the effect of future product enhancements and competition. Our inability to successfully develop and market our products as a result of competition or other factors would have a material adverse effect on our business, financial condition and results of operations.

Our cash and investments are held primarily by two financial institutions. Financial instruments which potentially expose us to concentrations of credit risk consist primarily of cash equivalents, marketable securities and accounts receivable. We invest excess cash primarily in money market funds of major financial institutions, U.S. government agencies, U.S. dollar dominated foreign corporate bonds and domestic corporate bonds. If the carrying value of our investments exceeds the fair value, and the decline in fair value is deemed to be other-than-temporary, we will be required to write down the value of our investments, which could materially harm our results of operations and financial condition. Moreover, the performance of certain securities in our investment portfolio correlates with the credit condition of the U.S. economy. We provide credit to customers in the normal course of business. Collateral is not required for accounts receivable, but ongoing evaluations of customers’ credit worthiness are performed. We maintain reserves for potential credit losses and such losses have been within management’s expectations. No individual customer accounted for 10% or more of our accounts receivable at December 31, 2015 or 2014, or net revenues for the year ended December 31, 2015, 2014, or 2013.

In the U.S., the Food and Drug Administration (“FDA”) regulates the design, manufacture, distribution, pre-clinical and clinical study, clearance and approval of medical devices. Products developed by us may require approvals or clearances from the FDA or other international regulatory agencies prior to commercialized sales. There can be no assurance that our products will receive any of the required approvals or clearances. If we were denied approval or clearance or such approval was delayed, it may have a material adverse impact on us.

We have manufacturing operations located outside the U.S. We currently rely on our manufacturing facility in Costa Rica to prepare digital treatment plans using a sophisticated, internally developed computer-modeling program. In addition, we manufacture our clear aligners and distribute our intra-oral scanners at our facility in Juarez, Mexico, and we produce our handheld scanner wand in Or Yehuda, Israel. Our reliance on international operations exposes us to related risks and uncertainties, including difficulties in staffing and managing international operations such as hiring and retaining qualified personnel; controlling production volume and quality of manufacture; political, social and economic instability, particularly as a result of increased levels of violence in Juarez, Mexico and Or Yehuda, Israel; interruptions and limitations in telecommunication services; product and material transportation delays or disruption; trade restrictions and changes in tariffs; import and export license requirements and restrictions; fluctuations in foreign currency exchange rates; and potential adverse tax consequences. If any of these risks materialize, our international manufacturing operations, as well as our operating results, may be harmed.

We purchase certain inventory from sole suppliers. Additionally, we rely on a limited number of hardware manufacturers. The inability of any supplier or manufacturer to fulfill our supply requirements could materially and adversely impact our future operating results.

Inventories

Inventories are valued at the lower of cost or market, with cost computed using either standard cost, which approximates actual cost, or average cost on a first-in-first-out basis. Excess and obsolete inventories are determined primarily based on future demand forecasts, and write-downs of excess and obsolete inventories are recorded as a component of cost of revenues.

Property, plant and equipment

Property, plant and equipment are stated at historical cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets, generally three to ten years. We amortize leasehold improvements over the shorter of the remaining lease term or the estimated useful lives of the assets. We depreciate buildings over periods up to 20 years. Land is not depreciated. Construction in progress ("CIP") is related to the construction or development of property (including land) and equipment that have not yet been placed in service for their intended use. Upon sale or retirement, the asset’s cost and related accumulated depreciation are removed from the general ledger and any related gains or losses are reflected in expenses. Maintenance and repairs are expensed as incurred.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Goodwill and finite-lived acquired intangible assets

Goodwill represents the excess of the purchase price paid over the fair value of tangible and identifiable intangible net assets acquired in business combinations and is allocated to the respective reporting units based on relative synergies generated.

Our intangible assets primarily consist of intangible assets acquired as part of the Cadent acquisition. These assets are amortized using the straight-line method over their estimated useful lives ranging from one to fifteen years, reflecting the period in which the economic benefits of the assets are expected to be realized.

Impairment of goodwill and long-lived assets

Goodwill

We evaluate goodwill for impairment at least annually on November 30th or more frequently if indicators are present, an event occurs or circumstances changes that suggest an impairment may exist and that it would more likely than not reduce the fair value of a reporting unit below its carrying amount. The allocation of goodwill to the respective reporting unit is based on relative synergies generated as a result of an acquisition.

We perform an initial assessment of qualitative factors to determine whether the existence of events and circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. In performing the qualitative assessment, we identify and consider the significance of relevant key factors, events, and circumstances that affect the fair value of our reporting units. These factors include external factors such as macroeconomic, industry, and market conditions, as well as entity-specific factors, such as our actual and planned financial performance. We also give consideration to the difference between the reporting unit fair value and carrying value as of the most recent date a fair value measurement was performed. If, after assessing the totality of relevant events and circumstances, we determine that it is more likely than not that the fair value of the reporting unit exceeds its carrying value and there is no indication of impairment, no further testing is performed; however, if we conclude otherwise, the first step of the two-step impairment test is performed by estimating the fair value of the reporting unit and comparing it with its carrying value, including goodwill.

Step one of the goodwill impairment test consists of a comparison of the fair value of a reporting unit against its carrying amount, including the goodwill allocated to each reporting unit. We determine the fair value of our reporting units based on the present value of estimated future cash flows under the income approach of the reporting units as well as various price or market multiples applied to the reporting unit's operating results along with the appropriate control premium under the marketing approach, both of which are classified as level 3 within the fair value hierarchy (as described in Note 2). If the carrying amount of the reporting unit is in excess of its fair value, step two requires the comparison of the implied fair value of the reporting unit’s goodwill against the carrying amount of the reporting unit’s goodwill. Any excess of the carrying value of the reporting unit’s goodwill over the implied fair value of the reporting unit’s goodwill is recorded as an impairment loss.

Finite-lived intangible assets and long-lived assets

We evaluate long-lived assets (including finite-lived intangible assets) for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. An asset or asset group is considered impaired if its carrying amount exceeds the future undiscounted net cash flows the asset or asset group is expected to generate. Factors we consider important which could trigger an impairment review include significant negative industry or economic trends, significant loss of customers and changes in the competitive environment. If an asset or asset group is considered to be impaired, the impairment to be recognized is calculated as the amount by which the carrying amount of the asset or asset group exceeds its fair market value. Our estimates of future cash flows attributable to our long-lived assets require significant judgment based on our historical and anticipated results and are subject to many assumptions. The estimation of fair value utilizing a discounted cashflow ("DCF") approach includes numerous uncertainties which require our significant judgment when making assumptions of expected growth rates and the selection of discount rates, as well as assumptions regarding general economic and business conditions, and the structure that would yield the highest economic value, among other factors. Refer to Note 5 for details of the impairment analysis.

There were no further triggering events in 2015 that would cause further impairments of our long-lived assets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Development costs for internal use software

Internally developed software includes enterprise-level business software that we are customizing to meet our specific operational needs. Such capitalized costs include external direct costs utilized in developing or obtaining the applications and payroll and payroll-related costs for employees, who are directly associated with the development of the applications. In 2014, we started an ERP project which we have capitalized $25.4 million of costs as of December 31, 2015 which is included in construction in progress ("CIP"). When the ERP is placed into production, these costs will be amortized over 10 years.

The costs to develop software that is marketed externally have not been capitalized as we believe our current software development process is essentially completed concurrent with the establishment of technological feasibility. As such, all related software development costs are expensed as incurred and included in research and development expense in our Consolidated Statement of Operations.

Product Warranty

Clear Aligner

We warrant our Invisalign products against material defects until the Invisalign case is complete. We accrue for warranty costs in cost of net revenues upon shipment of products. The amount of accrued estimated warranty costs is primarily based on historical experience as to product failures as well as current information on replacement costs. Actual warranty costs could differ materially from the estimated amounts. We regularly review the accrued balances and update these balances based on historical warranty cost trends.

Scanners and Services

We warrant our intra-oral scanners for a period of one year, which include materials and labor. We accrue for these warranty costs based on average historical repair costs. An extended warranty may be purchased for additional fees.

Allowance for Doubtful Accounts and Returns

We maintain allowances for doubtful accounts, for customers that are not able to make payments, and for sales returns. We periodically review these allowances, including an analysis of the customers’ payment history and information regarding the customers’ creditworthiness, as well as historical sales returns as a percentage of revenue. Actual write-offs have not materially differed from the estimated allowance.

Revenue Recognition

We measure and allocate revenue according to the accounting guidance for multiple-deliverable revenue arrangements in Accounting Standards Update (“ASU”) 2009-13, Multiple-Deliverable Revenue Arrangements-a consensus of the Financial Accounting Standard Board (“FASB”) Emerging Issues Task Force.

Multiple-Element Arrangements (“MEAs”): Arrangements with customers may include multiple deliverables, including any combination of products/equipment and services. The deliverables included in the MEAs are separated into more than one unit of accounting when (i) the delivered product/equipment has value to the customer on a stand-alone basis, and (ii) delivery of the undelivered service element(s) is probable and substantially in our control. Arrangement consideration is then allocated to each unit, delivered or undelivered, based on the relative selling price of each unit of accounting based first on vendor-specific objective evidence (“VSOE”) if it exists, second on third-party evidence (“TPE”) if it exists, or on best estimated selling price (“BESP”) if neither VSOE or TPE exist.

•	VSOE - In most instances, this applies to products and services that are sold separately in stand-alone arrangements. We determine VSOE based on pricing and discounting practices for the specific product or service when sold separately, considering geographical, customer, and other economic or marketing variables, as well as renewal rates or stand-alone prices for the service element(s).

•	TPE - If we cannot establish VSOE of selling price for a specific product or service included in a multiple-element arrangement, we use third-party evidence of selling price. We determine TPE based on sales of comparable amount of

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

similar products or service offered by multiple third parties considering the degree of customization and similarity of product or service sold.

•

BESP - The best estimated selling price represents the price at which we would sell a product or service if it were sold on a stand-alone basis. When VSOE or TPE do not exist for all elements, we determine BESP for the arrangement element based on sales, cost and margin analysis, as well as other inputs based on our pricing practices. Adjustments for other market and Company-specific factors are made as deemed necessary in determining BESP. We regularly review our estimates of selling price and maintain internal controls over the establishment and update of these estimates.

Revenue is recognized when persuasive evidence of the arrangement exists, the price is fixed or determinable, collectability is reasonably assured, title and risk of loss has passed to customers based on the shipping terms, and allowances for discounts, returns, and customer incentives can be reliably estimated. Provisions for discounts and rebates to customers are provided for in the same period that the related product sales are recorded.

Clear Aligner

We enter into arrangements (“treatment plans”) that involve multiple future product deliverables. Invisalign Full, Invisalign Teen, and Invisalign Assist products include optional Additional Aligners at no charge for a period of up to five years after initial shipment. Invisalign Teen also includes up to six optional replacement aligners in the price of the product and may be ordered by the dental professional any time throughout treatment. Invisalign Lite includes one optional case refinement in the price of the product. Case refinement is a finishing tool used to adjust a patient's teeth to the desired final position and may be elected by the dental professional at any time during treatment, however, it is generally ordered in the last stages of orthodontic treatment.

We determined that our treatment plans, except Invisalign Assist with progress tracking, comprise the following deliverables which also represent separate units of accounting: single-batched aligners, additional aligners, case refinement, and replacement aligners. We allocate revenue for each treatment plan based on each unit's relative selling price based on BESP and recognize the revenue upon the delivery of each unit in the treatment plan.

For Invisalign Assist with the progress tracking feature, aligners and services are provided to the dental professional every nine stages (“a batch”). We are able to reliably estimate the number of batches which are expected to be shipped for each case based upon our historical experience. The amounts allocated to this deliverable are recognized on a prorated basis as each batch is shipped.

Scanners and Services

We recognize revenues from the sales of iTero intra-oral scanners and CAD/CAM services. CAD/CAM services include scanning services, extended warranty for the intra-oral scanners, a range of iTero restorative services, and OrthoCAD services such as OrthoCAD iRecord. We sell intra-oral scanners and services through both our direct sales force and distribution partners. The intra-oral scanner sales price includes one year of warranty, and for additional fees, the customer may select an unlimited scanning service agreement over a fixed period of time or extended warranty periods. When intra-oral scanners are sold with either an unlimited scanning service agreement and/or extended warranty, we allocate revenue based on each element's relative selling price. We estimate the selling price of each element, as if it is sold on a stand-alone basis, taking into consideration historical prices as well as our discounting strategies.

Scanner revenue, net of related discounts and allowances, is recognized when products or equipment have been shipped and no significant obligations for installation or training remain. For certain distributors who provide installation and training to the customer, we recognize scanner revenue when the intra-oral scanner is shipped to the distributor assuming all of the other revenue recognition criteria have been met. Discounts are deducted from revenue at the time of sale. Returns of products, excluding warranty related returns, are infrequent and insignificant.

Service revenue, including iTero restorative and all OrthoCAD services are recognized upon delivery or ratably over the contract term as the specified services are performed. If a customer selects a pay per use basis for scanning service fees, the revenue is recognized as the service is provided.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

We offer customers an option to purchase extended warranties on certain products. We recognize revenue on these extended warranty contracts ratably over the life of the contract. The costs associated with these extended warranty contracts are recognized when incurred.

Shipping and Handling Costs

Shipping and handling charges to customers are included in net revenues, and the associated costs incurred are recorded in cost of revenues.

Legal Proceedings and Litigations

We are involved in legal proceedings on an ongoing basis. If we believe that a loss arising from such matters is probable and can be reasonably estimated, we accrue the estimated liability in our financial statements. If only a range of estimated losses can be determined, we accrue an amount within the range that, in our judgment, reflect the most likely outcome; if none of the estimates within that range is a better estimate than any other amount, we accrue the low end of the range.

Research and development

Research and development expense is expensed as incurred and includes the costs associated with the research and development of new products and enhancements to existing products. These costs primarily include compensation costs, including stock-based compensation expense, outside consulting expenses, costs associated with conducting clinical and pre-commercialization trial and testing, allocations of corporate overhead expenses including facilities and IT costs, equipment costs and depreciation and amortization.

Advertising costs

The cost of advertising and media is expensed as incurred. For the year ended December 31, 2015, 2014 and 2013 advertising costs totaled $23.4 million, $26.9 million and $26.0 million, respectively.

Common stock repurchase

We repurchase our own common stock from time to time in the open market when our Board of Directors approve a stock repurchase program. We account for these repurchases under the accounting guidance for equity where we allocate the total repurchase value that are in excess over par between additional paid in capital and retained earnings. All shares repurchased are retired.

Operating leases

We currently lease office spaces, automobiles and equipment under operating leases with original lease periods of up to 9 years. Certain of these leases have free or escalating rent payment provisions and lease incentives provided by the landlord. We recognize rent expense under such leases on a straight-line basis over the term of the lease as certain leases have adjustments for market provisions.

Income taxes

We make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.

As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our current tax exposure under the applicable tax laws and assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our Consolidated Balance Sheets.

We account for uncertainty in income taxes pursuant to authoritative guidance based on a two-step approach to recognize and measure uncertain tax positions taken or expected to be taken in a tax return. The first step is to determine if the weight of available evidence indicates that it is more likely than not that the tax position will be sustained on audit based on its technical

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

merits, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. We adjust reserves for our uncertain tax positions due to changing facts and circumstances, such as the closing of a tax audit, or refinement of estimates due to new information. To the extent that the final outcome of these matters is different than the amounts recorded, such differences will impact our tax provision in our Consolidated Statements of Operations in the period in which such determination is made.

We assess the likelihood that we will be able to realize our deferred tax assets. Should there be a change in our ability to realize our deferred tax assets, our tax provision would increase in the period in which we determine that it is more likely than not that we cannot realize our deferred tax assets. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. If it is more likely than not that we will not realize our deferred tax assets, we will increase our provision for taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be realizable. The available positive evidence at December 31, 2015 included historical operating profits and a projection of future income sufficient to realize most of our remaining deferred tax assets. As of December 31, 2015, it was considered more likely than not that our deferred tax assets would be realized with the exception of certain foreign loss carryovers as we are unable to forecast sufficient future profits to realize the deferred tax assets.

As of December 31, 2015, U.S. income taxes and foreign withholding taxes associated with the repatriation of undistributed earnings of foreign subsidiaries were not provided for on a cumulative total of $359.8 million. We intend to reinvest these earnings indefinitely in our foreign subsidiaries. If these earnings were distributed in the form of dividends or otherwise, or if the shares of the relevant foreign subsidiaries were sold or otherwise transferred, we would be subject to additional U.S. income taxes subject to an adjustment for foreign tax credit, and foreign withholding taxes. Determination of the amount of unrecognized deferred income tax liability related to these earnings is not practicable.

Accounting guidance for stock-based compensation prohibits recognition of a deferred income tax asset for excess tax benefits due to stock option exercises that have not yet been realized through a reduction in income taxes payable. We follow the tax law ordering method to determine when excess tax benefits have been realized and consider only the direct impacts of awards when calculating the amount of windfalls or shortfalls.

Stock-based compensation

We recognize stock-based compensation cost for only those shares ultimately expected to vest on a straight-line basis over the requisite service period of the award. We use the Black-Scholes option pricing model to determine the fair value of employee stock purchase plan shares. We estimate the fair value of market-performance based restricted stock units using a Monte Carlo simulation model which requires the input of assumptions, including expected term, stock price volatility and the risk-free rate of return. In addition, judgment is also required in estimating the number of stock-based awards that are expected to be forfeited. Forfeitures are estimated based on historical experience at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The assumptions used in calculating the fair value of share-based payment awards represent management’s best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.

Medical Device Excise Taxes

In accordance with the Patient Protection and Affordable Care Act, effective January 1, 2013, we began to incur an excise tax on sales of medical devices in the U.S. In March 2014, we were informed by IRS that our aligners are not subject to the medical device excise tax ("MDET") which we had been paying and expensing in selling, general and administrative expenses in the Consolidated Statements of Operations since January 1, 2013; however, our scanners are still subject to the MDET. Beginning in March 2014, we ceased expensing and paying the MDET for aligners. In the first quarter of 2015, the IRS approved our MDET refund claim of $6.8 million refund of MDET paid in 2013 related to our aligners; reducing expense for the year ended December 31, 2015.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Comprehensive income

Comprehensive income includes all changes in equity during a period from non-owner sources. Comprehensive income, including unrealized gains and losses on available-for-sale securities and foreign currency translation adjustments, are reported net of their related tax effect.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (" FASB") released Accounting Standards Update ("ASU") 2014-9 "Revenue from Contracts with Customers" to supersede nearly all existing revenue recognition guidance under GAAP. The core principle of the standard is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for the goods or services. The new standard defines a five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.

In August 2015, the FASB deferred the effective date of the update by one year, with early adoption on the original effective date permitted. We are required to adopt this standard starting in the first quarter of fiscal year 2018 using either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within the standard; or (ii) retrospective with the cumulative effect of initially applying the standard recognized at the date of initial application and providing certain additional disclosures as defined per the standard. We have not yet selected a transition method, and are in the process of determining the impact that the new standard will have on our consolidated financial statements.

In April 2015, the FASB issued ASU No. 2015-05, "Customer's Accounting for Fees Paid in a Cloud Computing Arrangement." providing guidance to entities about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the entity should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the entity should account for the arrangement as a service contract. The new guidance does not change the accounting for an entity's accounting for service contracts. The updated standard becomes effective for interim and annual reporting periods beginning after December 15, 2015. We adopted this ASU in January, 2016, and we do not expect it to have a material impact on our consolidated financial statements and related disclosures.

In November 2015, the FASB issued ASU 2015-17, "Income Taxes" (Topic 740), to simplify the presentation of deferred income taxes. Under the new standard, both deferred tax liabilities and assets are required to be classified as noncurrent in a classified balance sheet. ASU 2015-17 will become effective for fiscal years, and the interim periods within those years, beginning after December 15, 2016, with early adoption permitted. The new guidance has been adopted on a prospective basis by the Company for the year ended December 31, 2015, thus resulting in the reclassification of $30.1 million of current deferred tax assets to noncurrent on the accompanying Consolidated Balance Sheets. The prior reporting period was not retrospectively adjusted. The adoption of this guidance had no impact on our Consolidated Statements of Operations or Consolidated Statements of Comprehensive Income.

In February 2016, the FASB issued ASU No. 2016-02, “Leases” (topic 842). The FASB issued this update to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The updated guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption of the update is permitted. The Company is evaluating the impact of the adoption of this update on our consolidated financial statements and related disclosures.

Note 2. Marketable Securities and Fair Value Measurements

As of December 31, 2015 and 2014, the estimated fair value of our short-term and long-term investments, classified as available for sale, are as follows (in thousands):

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Short-term

December 31, 2015	Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
Commercial paper	$	38,537			$	—			$	—			$	38,537
Corporate bonds	179,765				6				(251		)		179,520
U.S. dollar dominated foreign corporate bonds	510				—				(2		)		508
Municipal securities	14,209				7				(2		)		14,214
U.S. government agency bonds	75,172				—				(53		)		75,119
U.S. government treasury bonds	51,763				1				(81		)		51,683
Total Marketable Securities, Short-Term	$	359,956			$	14			$	(389	)		$	359,581

Long-term

December 31, 2015	Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
U.S. government agency bonds	$	43,853			$	—			$	(178	)		$	43,675
Corporate bonds	64,012				9				(217		)		63,804
U.S. government treasury bonds	37,673				—				(107		)		37,566
Municipal securities	3,993				—				(2		)		3,991
Asset-backed securities	2,338				—				(3		)		2,335
Total Marketable Securities, Long-Term	$	151,869			$	9			$	(507	)		$	151,371

Short-term

December 31, 2014	Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
Commercial paper	$	33,998			$	—			$	—			$	33,998
Corporate bonds	152,055				27				(116		)		151,966
U.S. dollar dominated foreign corporate bonds	901				—				—				901
Municipal securities	9,147				13				—				9,160
U.S. government agency bonds	41,574				14				(1		)		41,587
U.S.government treasury bonds	15,770				7				—				15,777
Asset-backed securities	1,398				—				—				1,398
Total Marketable Securities, Short-Term	$	254,843			$	61			$	(117	)		$	254,787

Long-term

December 31, 2014	Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
U.S. government agency bonds	$	48,233			$	12			$	(28	)		$	48,217
Corporate bonds	57,195				6				(112		)		57,089
U.S. dollar dominated foreign corporate bonds	523				—				(2		)		521
U.S. government treasury bonds	20,814				5				(6		)		20,813
Municipal securities	9,552				5				(6		)		9,551
Asset-backed securities	11,713				—				(12		)		11,701
Total Marketable Securities, Long-Term	$	148,030			$	28			$	(166	)		$	147,892

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the year ended December 31, 2015 and 2014, realized losses were immaterial. Cash and cash equivalents were not included in the table above as the gross unrealized gains and losses were not material. We have no material short-term or long-term investments that have been in continuous unrealized loss positions for greater than twelve months as of December 31, 2015. Amounts reclassified to earnings from unrealized gain or losses were immaterial in 2015 and 2014.

Our fixed-income securities investment portfolio consists of corporate bonds, U.S. dollar dominated foreign corporate bonds, commercial paper, municipal securities, U.S. government agency bonds, U.S. government treasury bonds and asset-backed securities that have a maximum maturity of two years. The securities that we invest in are generally deemed to be low risk based on their credit ratings from the major rating agencies. The longer the duration of these securities, the more susceptible they are to changes in market interest rates and bond yields. As interest rates increase, those securities purchased at a lower yield show a mark-to-market unrealized loss. The unrealized losses are due primarily to changes in credit spreads and interest rates. We expect to realize the full value of all these investments upon maturity or sale. The weighted average remaining duration of these securities was approximately 9 months and 10 months as of December 31, 2015 and 2014, respectively.

As the carrying value approximates the fair value for our short-term and long-term marketable securities shown in the tables above, the following table summarizes the fair value of our short-term and long-term marketable securities classified by maturity as of December 31, 2015 and 2014 (in thousands):

		December 31,				December 31,
		2015				2014
One year or less		$	359,581			$	254,787
Due in greater than one year		151,370				147,892
Total available for short-term and long-term marketable securities		$	510,951			$	402,679

Fair Value Measurements

We measure the fair value of our cash equivalents and marketable securities as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We use the U.S. GAAP fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value:

Level 1—Quoted (unadjusted) prices in active markets for identical assets or liabilities.

Our Level 1 assets consist of money market funds and U.S government treasury bonds. We did not hold any Level 1 liabilities as of December 31, 2015 or 2014.

Level 2—Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Our Level 2 assets consist of commercial paper, corporate bonds, U.S. dollar denominated foreign corporate bonds, municipal securities, U.S. government agency bonds, asset-backed securities, and our Israeli funds that are mainly invested in insurance policies and foreign currency forward contracts. We obtain these fair values for level 2 investments from our asset manager for each of our portfolios. Our custody bank and asset managers independently use professional pricing services to gather pricing data which may include quoted market prices for identical or comparable financial instruments, or inputs other than quoted prices that are observable either directly or indirectly, and we are ultimately responsible for these underlying estimates. The foreign currency forward contracts are valued using observable inputs such as quotations on forward foreign exchange rates.

Level 3—Unobservable inputs to the valuation methodology that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities. Level 3 assets and liabilities include those whose fair value measurements are determined using pricing models, discounted cash flow ("DCF") methodologies or similar valuation techniques, as well as significant management judgment or estimation.

We did not hold any Level 3 assets or liabilities as of December 31, 2015 and 2014.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following tables summarizes our financial assets measured at fair value on a recurring basis as of December 31, 2015 and 2014 (in thousands):

Description	Balance as of December 31, 2015				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)
Cash equivalents:
Money market funds	$	70,148			$	70,148			$	—
Commercial paper	36,887				—				36,887
U.S. government Agency bonds	3,599								3,599
Corporate bonds	625				—				625
Short-term investments:
Commercial paper	38,537				—				38,537
Corporate bonds	179,520				—				179,520
U.S. dollar denominated foreign corporate bonds	508				—				508
Municipal securities	14,214				—				14,214
U.S. government agency bonds	75,119				—				75,119
U.S. government treasury bonds	51,683				51,683				—
Long-term investments:
Corporate bonds	63,804				—				63,804
U.S. government agency bonds	43,675				—				43,675
U.S. government treasury bonds	37,566				37,566				—
Municipal securities	3,991				—				3,991
Asset-backed securities	2,335				—				2,335
Long-term other assets:
Israeli funds	2,436				—				2,436
	$	624,647			$	159,397			$	465,250

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Description	Balance as of December 31, 2014				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)
Cash equivalents:
Money market funds	$	80,786			$	80,786			$	—
Commercial paper	21,997				—				21,997
Corporate bonds	1,745								1,745
Short-term investments:
Commercial paper	33,998				—				33,998
Corporate bonds	151,966				—				151,966
U.S. dollar denominated foreign corporate bonds	901				—				901
Municipal securities	9,160				—				9,160
U.S. government agency bonds	41,587				—				41,587
U.S. government treasury bonds	15,777				15,777				—
Certificate of Deposits	1,398								1,398
Long-term investments:
Corporate bonds	57,089				—				57,089
U.S. government agency bonds	48,217				—				48,217
U.S. dollar denominated foreign corporate bonds	521				—				521
U.S. government treasury bonds	20,813				20,813				—
Municipal securities	9,551				—				9,551
Asset-backed securities	11,701				—				11,701
Long-term other assets:
Israeli funds	2,307				—				2,307
	$	509,514			$	117,376			$	392,138

Derivative Financial Instruments

In September 2015, we began entering into foreign currency forward contracts to minimize the short-term impact of foreign currency exchange rate fluctuations on certain trade and intercompany receivables and payables, which are classified within level 2 of the fair value hierarchy. The net loss on these forward contracts was immaterial for the year ended December 31, 2015. As of December 31, 2015, the fair value of foreign exchange forward contracts outstanding was immaterial.

The following table presents the gross notional value of all our foreign exchange forward contracts outstanding as of December 31, 2015 (in thousands):

	As of December 31, 2015
	Local Currency Amount				Notional Contract Amount (USD)
US dollar	$	20,700			$	20,700
Euro	€22,100				24,222
Japanese yen	¥583,000				4,839
Australian dollar	A$4,700				3,426
Hong Kong dollar	HK$	51,000			6,579
					$	59,766

ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 3. Balance Sheet Components

Inventories

Inventories consist of the following (in thousands):

	December 31,
	2015				2014
Raw materials	$	9,950			$	8,143
Work in process	7,067				2,970
Finished goods	2,448				4,815
Total Inventories	$	19,465			$	15,928

Work in process includes costs to produce our clear aligner and intra-oral scanner products. Finished goods primarily represent our intra-oral scanners and ancillary products that support our clear aligner products.

Property, plant and equipment

Property, plant and equipment consist of the following (in thousands):

		December 31,
	2015				2014
Clinical and manufacturing equipment		$	128,044			$	107,707
Computer hardware		25,843				24,092
Computer software		21,451				22,044
Furniture and fixtures		8,855				7,386
Leasehold improvements		20,172				15,358
Building		4,227				1,868
Land		3,072				1,162
CIP		42,846				18,310
Total		254,510				197,927
Less: Accumulated depreciation and amortization and impairment charges		(118,037		)		(107,802		)
Total Property, plant and equipment, net		$	136,473			$	90,125

As of December 31, 2015, CIP consists primarily of costs for capital equipment to be placed in service in the next year. In late 2014, we started an ERP project and have capitalized $25.4 million as of December 31, 2015, which we anticipate will be placed in service in 2016. Depreciation and amortization was $18.0 million, $17.9 million, and $16.8 million, for the year ended December 31, 2015, 2014 and 2013, respectively.

ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Accrued liabilities

Accrued liabilities consist of the following (in thousands):

	December 31,
	2015				2014
Accrued payroll and benefits	$	55,430			$	44,610
Accrued accounts payable	13,834				5,736
Accrued sales rebate	8,486				11,110
Accrued sales and marketing expenses	7,071				5,979
Accrued sales tax and value added tax	4,801				5,456
Accrued professional fees	2,775				2,494
Accrued income taxes	2,646				2,027
Accrued warranty	2,638				3,148
Other accrued liabilities	10,084				7,320
Total Accrued Liabilities	$	107,765			$	87,880

Warranty

We regularly review the accrued balances and update these balances based on historical warranty trends. Actual warranty costs incurred have not materially differed from those accrued. However, future actual warranty costs could differ from the estimated amounts.

Clear Aligner

We warrant our Invisalign products against material defects until the Invisalign case is complete. We accrue for warranty costs in cost of net revenues upon shipment of products. The amount of accrued estimated warranty costs is primarily based on historical experience as to product failures as well as current information on replacement costs.

Scanners

We warrant our scanners for a period of one year from the date of training and installation. We accrue for these warranty costs which includes materials and labor based on estimated historical repair costs. Extended service packages may be purchased for additional fees.

Warranty accrual as of December 31, 2015 and 2014 consists of the following activity (in thousands):

Warranty accrual, December 31, 2013	$	3,104
Charged to cost of revenues	1,990
Actual warranty expenditures	(1,946		)
Warranty accrual, December 31, 2014	3,148
Charged to cost of revenues	1,796
Actual warranty expenditures	(2,306		)
Warranty accrual, December 31, 2015	$	2,638

Note 4. Business Combinations

ICA Holdings Pty Limited

On April 30, 2013, we completed the acquisition of ICA Holdings Pty Limited ("ICA") upon the expiration of the distribution agreement between certain subsidiaries of ICA and Align Technology B.V., for a total cash consideration of approximately $8.6 million, of which $7.4 million was attributed to assets acquired, $2.4 million in liabilities assumed and $3.6 million to goodwill.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Goodwill as a result of this acquisition represents the excess of the purchase price over the fair value of the underlying net assets acquired and represents the knowledge and experience of the workforce in place. None of this goodwill will be deductible for tax purposes. Under the applicable accounting guidance, goodwill will not be amortized but will be tested for impairment on an annual basis or more frequently if certain indicators are present.

Pro forma results of operations for this acquisition have not been presented as it is not material to our results of operations, either individually or in aggregate, for the year ended 2013.

Note 5. Goodwill and Intangible Assets

Goodwill

The change in the carrying value of goodwill for the year ended December 31, 2015 for the Clear Aligner segment, which are also our reporting units, are as follows (in thousands):

	Total
Balance as of December 31, 2013	$	61,623
Adjustments 1	(254		)
Balance as of December 31, 2014	61,369
Adjustments 1	(295		)
Balance as of December 31, 2015	$	61,074

1	The adjustments to goodwill were a result of foreign currency translation.

Impairment of Goodwill

We evaluate goodwill for impairment at least annually on November 30th or more frequently if indicators are present, an event occurs or circumstances changes that suggest an impairment may exist and that it would more likely than not reduce the fair value of a reporting unit below its carrying amount. The allocation of goodwill to the respective reporting unit is based on relative synergies generated as a result of an acquisition.

2013 Impairment

During March 2013, changes in the competitive environment for intra-oral scanners, including announcements from our competitors of new low-priced scanners targeted at orthodontists and general practitioner dentists in North America, caused us to lower our expectations for growth and profitability for our Scanner reporting unit. As a result, we determined that goodwill related only to our Scanner reporting unit should be tested for impairment as of March 2013. There was no triggering event related to the Clear Aligner goodwill.

We performed a step one analysis for our Scanner reporting unit which consists of a comparison of the fair value of the Scanner reporting unit against its carrying amount, including the goodwill allocated to it. In deriving the fair value of the Scanner reporting unit, we utilized the income approach which is classified as Level 3 within the fair value hierarchy. As a result of our step one analysis, we concluded that the fair value of the Scanner reporting unit was less than its carrying value; therefore, we proceeded to step two of the goodwill impairment analysis. We use a discounted cash flow (“DCF”) approach to estimate the fair value of a reporting unit, utilizing the harvest model, which we believe is the most reliable indicator of fair value of this business, and is most consistent with the approach a market place participant would use. Based on our analysis, there was no implied goodwill for the Scanner reporting unit; therefore, we recorded a goodwill impairment charge of $40.7 million in March, 2013, which represents the remaining goodwill balance in the Scanner reporting unit. None of the goodwill impairment charge was deductible for tax purposes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Annual Impairment Test

The remaining goodwill is entirely attributable to our Clear Aligner reporting unit. During the fourth quarter of fiscal 2015, we performed the annual goodwill impairment testing and found no impairment events as the fair value of our Clear Aligner reporting unit was significantly in excess of the carrying value.

Acquired Intangible Assets

We amortize our intangible assets over their estimated useful lives. We evaluate long-lived assets, which includes property, plant and equipment and intangible assets, for impairment whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. The carrying value is not recoverable if it exceeds the undiscounted cash flows resulting from the use of the asset and its eventual disposition. Our estimates of future cash flows attributable to our long-lived assets require significant judgment based on our historical and anticipated results and are subject to many factors. Factors we consider important which could trigger an impairment review include significant negative industry or economic trends, significant loss of customers and changes in the competitive environment of our intra-oral scanning business.

During March 2013, changes in the competitive environment for intra-oral scanners, including announcements from our competitors of new low-priced scanners targeted at orthodontists and general practitioner dentists in North America, that caused us to lower our expectations for growth and profitability for our Scanner reporting unit. As a result, we determined that the carrying value of the Scanner long-lived assets was not recoverable as compared to the value of the undiscounted cash flows of our revised projections for the asset group. In order to determine the impairment amount of our long-lived assets, we fair valued each key component of our long-lived assets within the asset group, which involved the use of significant estimates and assumptions including replacement costs, revenue growth rates, operating margins, and plant and equipment cost trends. Upon completion of this analysis, we recorded a total impairment charge of $26.3 million of which $19.3 million represented the impairment related to our Scanner intangible assets and $7.0 million related to plant and equipment. There was no triggering event related to the Clear Aligner asset group.

There were no triggering events in 2015 that would cause further impairments of our long-lived assets.

Intangible assets arising either as a direct result from the Cadent acquisition or individually acquired are being amortized as follows (in thousands):

	Weighted Average Amortization Period (in years)		Gross Carrying Amount as of December 31, 2015				Accumulated Amortization				Impairment Charge				Net Carrying Value as of December 31, 2015
Trademarks	15		$	7,100			$	(1,492	)		$	(4,179	)		$	1,429
Existing technology	13		12,600				(3,577		)		(4,328		)		4,695
Customer relationships	11		33,500				(10,957		)		(10,751		)		11,792
Other	8		285				(113		)		—				172
Total Intangible Assets			$	53,485			$	(16,139	)		$	(19,258	)		$	18,088

	Weighted Average Amortization Period (in years)		Gross Carrying Amount as of December 31, 2014				Accumulated Amortization				Impairment Charge				Net Carrying Value as of December 31, 2014
Trademarks	15		$	7,100			$	(1,354	)		$	(4,179	)		$	1,567
Existing technology	13		12,600				(3,015		)		(4,328		)		5,257
Customer relationships	11		33,500				(9,095		)		(10,751		)		13,654
Other	8		285				(76		)		—				209
Total Intangible Assets			$	53,485			$	(13,540	)		$	(19,258	)		$	20,687

ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The total estimated annual future amortization expense for these acquired intangible assets as of December 31, 2015 is as follows (in thousands):

Fiscal Year
2016	$	2,600
2017	2,600
2018	2,600
2019	2,592
2020	2,582
Thereafter	5,114
Total	$	18,088

Note 6. Legal Proceedings

Securities Class Action Lawsuit

On November 28, 2012, plaintiff City of Dearborn Heights Act 345 Police & Fire Retirement System filed a lawsuit against Align, Thomas M. Prescott (“Mr. Prescott”), Align’s former President and Chief Executive Officer, and Kenneth B. Arola (“Mr. Arola”), Align’s former Vice President, Finance and Chief Financial Officer, in the United States District Court for the Northern District of California on behalf of a purported class of purchasers of our common stock (the “Securities Action”). On July 11, 2013, an amended complaint was filed, which named the same defendants, on behalf of a purported class of purchasers of our common stock between January 31, 2012 and October 17, 2012. The amended complaint alleged that Align, Mr. Prescott and Mr. Arola violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and that Mr. Prescott and Mr. Arola violated Section 20(a) of the Securities Exchange Act of 1934. Specifically, the amended complaint alleged that during the purported class period defendants failed to take an appropriate goodwill impairment charge related to the April 29, 2011 acquisition of Cadent Holdings, Inc. in the fourth quarter of 2011, the first quarter of 2012 or the second quarter of 2012, which rendered our financial statements and projections of future earnings materially false and misleading and in violation of U.S. GAAP. The amended complaint sought monetary damages in an unspecified amount, costs and attorneys’ fees. On December 9, 2013, the court granted defendants’ motion to dismiss with leave for plaintiff to file a second amended complaint. Plaintiff filed a second amended complaint on January 8, 2014 on behalf of the same purported class. The second amended complaint states the same claims as the amended complaint. On August 22, 2014, the court granted our motion to dismiss without leave to amend. On September 22, 2014, Plaintiff filed a notice of appeal to the Ninth Circuit Court of Appeals. Align intends to vigorously defend itself against these allegations. Align is currently unable to predict the outcome of this amended complaint and therefore cannot determine the likelihood of loss nor estimate a range of possible loss, if any.

Shareholder Derivative Lawsuit

On February 1, 2013, plaintiff Gary Udis filed a shareholder derivative lawsuit against several of Align’s current and former officers and directors in the Superior Court of California, County of Santa Clara. The complaint alleges that our reported income and earnings were materially overstated because of a failure to timely write down goodwill related to the April 29, 2011 acquisition of Cadent Holdings, Inc., and that defendants made allegedly false statements concerning our forecasts. The complaint asserts various state law causes of action, including claims of breach of fiduciary duty, unjust enrichment, and insider trading, among others. The complaint seeks unspecified damages on behalf of Align, which is named solely as nominal defendant against whom no recovery is sought. The complaint also seeks an order directing Align to reform and improve its corporate governance and internal procedures, and seeks restitution in an unspecified amount, costs, and attorneys’ fees. On July 8, 2013, an Order was entered staying this derivative lawsuit until an initial ruling on our first motion to dismiss the Securities Action. On January 15, 2014, an Order was entered staying this derivative lawsuit until an initial ruling on our second motion to dismiss the Securities Action. On October 14, 2014, an Order was entered staying this derivative lawsuit until a ruling by the Ninth Circuit in the Securities Action discussed above. Align is currently unable to predict the outcome of this complaint and therefore cannot determine the likelihood of loss nor estimate a range of possible losses.

In addition, in the course of Align's operations, Align is involved in a variety of claims, suits, investigations, and proceedings, including actions with respect to intellectual property claims, patent infringement claims, government investigations, labor and employment claims, breach of contract claims, tax, and other matters. Regardless of the outcome, these proceedings can have an

adverse impact on us because of defense costs, diversion of management resources, and other factors. Although the results of complex legal proceedings are difficult to predict and Align's view of these matters may change in the future as litigation and events related thereto unfold; Align currently does not believe that these matters, individually or in the aggregate, will materially affect Align's financial position, results of operations or cash flows.

Note 7. Credit Facility

On March 22, 2013, we entered into a credit facility with Wells Fargo Bank. The credit facility provides for a $50.0 million revolving line of credit, with a $10.0 million letter of credit sublimit, and has a maturity date on March 22, 2016. The credit facility also requires us to maintain a minimum unrestricted cash balance of $50.0 million and comply with specific financial conditions and performance requirements. The loans bear interest, at our option, at a fluctuating rate per annum equal to the daily one-month adjusted LIBOR rate plus a spread of 1.75% or an adjusted LIBOR rate (based on one, three, six or twelve-month interest periods) plus a spread of 1.75%. As of December 31, 2015, we had no outstanding borrowings under this credit facility and were in compliance with the conditions and performance requirements.

Note 8. Commitments and Contingencies

Operating leases

We lease our facilities and certain equipment and automobiles under non-cancelable operating lease arrangements that expire at various dates through 2022 and provide for pre-negotiated fixed rental rates during the terms of the lease. The terms of some of our leases provide for rental payments on a graduated scale. We recognize rent expense on a straight-line basis over the lease period and accrue for any rent expense incurred but not paid. Total rent expense was $8.2 million, $7.6 million and $7.3 million, for the year ended December 31, 2015, 2014 and 2013, respectively.

Minimum future lease payments for non-cancelable leases as of December 31, 2015, are as follows (in thousands):

Fiscal Year	Operating leases
2016	$	10,236
2017	6,078
2018	2,475
2019	527
2020	326
Thereafter	108
Total minimum lease payments	$	19,750

Off-balance Sheet Arrangements

As of December 31, 2015, we had no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.

Indemnification Provisions

In the normal course of business to facilitate transactions in our services and products, we indemnify certain parties: customers, vendors, lessors, and other parties with respect to certain matters, including, but not limited to, services to be provided by us and intellectual property infringement claims made by third parties. In addition, we have entered into indemnification agreements with our directors and certain of our officers that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. Several of these agreements limit the time within which an indemnification claim can be made and the amount of the claim.

It is not possible to make a reasonable estimate of the maximum potential amount under these indemnification agreements due to the unique facts and circumstances involved in each particular agreement. Additionally, we have a limited history of prior indemnification claims and the payments we have made under such agreements have not had a material adverse effect on our results of operations, cash flows, or financial position. However, to the extent that valid indemnification claims arise in the future, future payments by us could be significant and could have a material adverse effect on our results of operations or cash flows in

ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

a particular period. As of December 31, 2015, we did not have any material indemnification claims that were probable or reasonably possible.

Note 9. Stockholders’ Equity

Common Stock

The holders of common stock are entitled to receive dividends whenever funds are legally available and when and if declared by the Board of Directors. We have never declared or paid dividends on our common stock.

Stock-based Compensation Plans

Our 2005 Incentive Plan, as amended, provides for the granting of incentive stock options, non-statutory stock options, restricted stock units, market stock units, stock appreciation rights, performance units and performance shares to employees, non-employee directors, and consultants. Shares granted on or after May 16, 2013 as an award of restricted stock, restricted stock unit, market stock units, performance share or performance unit ("full value awards") are counted against the authorized share reserve as one and nine-tenths (1 9/10) shares for every one (1) share subject to the award, and any shares canceled that were counted as one and nine-tenths against the plan reserve will be returned at the same ratio. Full value awards granted prior to May 16, 2013 were counted against the authorized share reserve as one and one half (1 1/2) share for every one (1) share subject to the award, and any shares canceled that were counted as one and one half against the plan reserve will be returned at this same ratio.

As of December 31, 2015, the 2005 Incentive Plan (as amended) has a total reserve of 23,283,379 shares for issuance of which 4,869,639 shares are available for issuance. No shares were added to the plan in 2015 or 2014. We issue new shares from our pool of authorized but unissued shares to satisfy the exercise and vesting obligations of our stock-based compensation plans.

Stock-based Compensation

Stock-based compensation is based on the estimated fair value of awards, net of estimated forfeitures, and recognized over the requisite service period. Estimated forfeitures are based on historical experience at the time of grant and may be revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The stock-based compensation related to all of our stock-based awards and employee stock purchases for the year ended December 31, 2015, 2014 and 2013 is as follows (in thousands):

	For the Year Ended December 31,
	2015				2014				2013
Cost of net revenues	$	3,938			$	3,616			$	2,565
Selling, general and administrative	40,813				29,625				20,354
Research and development	8,192				6,582				3,519
Total stock-based compensation	$	52,943			$	39,823			$	26,438

Stock Options

We have not granted options since 2011, thus all options outstanding are fully vested. Activity for the year ended December 31, 2015, under the stock option plans are set forth below (in thousands, except years and per share amounts):

ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	Stock Options
	Number of Shares Underlying Stock Options			Weighted Average Exercise Price per Share				Weighted Average Remaining Contractual Term (in years )		Aggregate Intrinsic Value
Outstanding as of December 31, 2014	668			15.57
Granted	—			—
Exercised	(172	)		16.82
Cancelled or expired	—			—
Outstanding as of December 31, 2015	496			$	15.14			2.05		$	25,163
Vested and expected to vest at December 31, 2015	496			$	15.14			2.05		$	25,163
Exercisable at December 31, 2015	496			$	15.14			2.05		$	25,163

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between our closing stock price on the last trading day in 2015 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2015. This amount will fluctuate based on the fair market value of our stock. The total intrinsic value of stock options exercised for the year ended December 31, 2015, 2014 and 2013 was $7.4 million, $24.5 million and $46.7 million, respectively. The total fair value of the options vested during the year ended December 31, 2015, 2014 and 2013 was $0.1 million, $0.7 million, $3.7 million, respectively.

All compensation costs relating to stock options have been recognized as of December 31, 2015, the total recognized tax effect from exercised options was $0.5 million.

Restricted Stock Units

The fair value of nonvested restricted stock units (“RSUs”) is based on our closing stock price on the date of grant. A summary for the year ended December 31, 2015, is as follows (in thousands, except years and per share amounts):

	Shares Underlying RSUs			Weighted Average Grant Date Fair Value				Weighted Remaining Vesting Period (in years)		Aggregate Intrinsic Value
Nonvested as of December 31, 2014	2,124			$	42.08
Granted	843			57.78
Vested and released	(781	)		38.41
Forfeited	(107	)		49.42
Nonvested as of December 31, 2015	2,079			$	49.45			1.16		$	136,857

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (calculated by multiplying our closing stock price on the last trading day of 2015 by the number of nonvested RSUs) that would have been received by the unit holders had all RSUs been vested and released on December 31, 2015. This amount will fluctuate based on the fair market value of our stock. During 2015, of the 781,232 shares vested and released, 269,634 vested shares were withheld for employee minimum statutory tax obligations, resulting in a net issuance of 511,598 shares.

The total intrinsic value of RSUs vested and released during 2015, 2014 and 2013 was $45.9 million, $38.9 million and $20.3 million, respectively. The total fair value RSUs vested during the year ended December 31, 2015, 2014 and 2013 was $30.0 million, $22.0 million, $13.2 million, respectively. As of December 31, 2015, there was $65.2 million of total unamortized compensation costs, net of estimated forfeitures, related to RSUs, and these costs are expected to be recognized over a weighted average period of 2.0 years.

On an annual basis, we grant market-performance based restricted stock units (“MSUs”) to our executive officers. Each MSU represents the right to one share of Align’s common stock and will be issued through our amended 2005 Incentive Plan. The actual number of MSUs which will be eligible to vest will be based on the performance of Align’s stock price relative to the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

performance of the NASDAQ Composite Index over the vesting period, generally two to three years, up to 150% of the MSUs initially granted.

The following table summarizes the MSU performance as of December 31, 2015:

	Number of Shares Underlying MSUs (in thousands)			Weighted Average Grant Date Fair Value			Weighted Average Remaining Vesting Period (in years )		Aggregate Intrinsic Value (in thousands)
Nonvested as of December 31, 2014	498			42.00
Granted	289			55.92
Vested and released	(162	)		30.28
Forfeited	(14	)		53.69
Nonvested as of December 31, 2015	611			51.41			1.30		$	40,244

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (calculated by multiplying our closing stock price on the last trading day of 2015 by the number of non-vested MSUs) that would have been received by the unit holders had all MSUs been vested and released on December 31, 2015. This amount will fluctuate based on the fair market value of our stock. During 2015, of the 161,502 shares vested and released 83,842 shares were withheld for tax payments, resulting in a net issuance of 77,660 shares.

The total intrinsic value of MSUs vested and released during 2015, 2014 and 2013 was $9.2 million, $2.9 million and $3.2 million. The total fair value MSUs vested during the year ended December 31, 2015, 2014 and 2013 was $4.9 million, $1.2 million and $1.5 million, respectively. As of December 31, 2015, we expect to recognize $14.0 million of total unamortized compensation cost, net of estimated forfeitures, related to MSUs over a weighted average period of 1.3 years.

The fair value of the MSUs is estimated at the grant date using a Monte Carlo simulation that includes factors for market conditions. The following weighted-average assumptions used in the Monte Carlo simulation were as follows:

	Year Ended December 31,
	2015				2014				2013
Expected term (in years)	3				3				3
Expected volatility	36.9		%		46.0		%		47.0		%
Risk-free interest rate	1.0		%		0.7		%		0.4		%
Expected dividends	—				—				—
Weighted average fair value per share at grant date	$	61.73			$	50.46			$	35.49

Total payments to tax authorities for payroll taxes related to RSUs, including MSUs, that vested during the period, were $20.7 million, $7.6 million and $4.4 million in 2015, 2014 and 2013, respectively, reflected as a financing activity in the Consolidated Statements of Cash Flows.

Employee Stock Purchase Plan

In May 2010, our shareholders approved the 2010 Employee Stock Purchase Plan (the “2010 Purchase Plan”), replacing our 2001 Employee Stock Purchase Plan, which consists of consecutive overlapping twenty-four month offering periods with four six-month purchase periods in each offering period. Employees purchase shares at 85% of the fair market value of the common stock at either the beginning of the offering period or the end of the purchase period, whichever is lower. The 2010 Purchase Plan will continue until terminated by either the Board or its administrator. The maximum number of shares available for issuance under the 2010 Purchase Plan is 2,400,000 shares. During the year ended December 31, 2015, 2014 and 2013, we issued 230,078, 247,343, and 288,675 shares, respectively, at average prices of $36.66, $29.24 and $21.96, respectively. As of December 31, 2015, 1,133,749 shares remain available for future issuance.

The fair value of the option component of the Purchase Plan shares was estimated at the grant date using the Black-Scholes option pricing model with the following weighted average assumptions:

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

	Year Ended December 31,
	2015				2014				2013
Employee Stock Purchase Plan:
Expected term (in years)	1.2				1.2				1.2
Expected volatility	31.1		%		38.8		%		44.9		%
Risk-free interest rate	0.3		%		0.2		%		0.2		%
Expected dividends	—				—				—
Weighted average fair value at grant date	$	16.19			$	17.15			$	11.69

We recognized stock-based compensation expense of $4.1 million, $2.6 million, $3.4 million related to our employee stock purchase plans for the year ended December 31, 2015, 2014 and 2013, respectively. As of December 31, 2015, there was $1.9 million of total unamortized compensation costs related to employee stock purchases. These costs are expected to be recognized over a weighted average period of 0.5 years.

Note 10. Common Stock Repurchase Program

In 2013, we repurchased approximately 2.7 million shares of our common stock at an average price of $34.95 per share under our October 27, 2011 stock repurchase program , including commissions, for an aggregate purchase price of approximately $95.1 million. The common stock retirements reduced additional paid-in capital by approximately $24.5 million and increased accumulated deficit by $70.6 million. All repurchased shares were retired. No further authorization for repurchases remains outstanding as we completed the repurchases under this program as of December 31, 2013.

On April 23, 2014, we announced that our Board of Directors had authorized a stock repurchase program pursuant to which we may purchase up to $300.0 million of our common stock over three years, with $100.0 million of that amount authorized to be purchased during each twelve month period. Any purchases under this stock repurchase program may be made, from time-to-time, pursuant to open market purchases (including pursuant to Rule 10b5-1 plans), privately-negotiated transactions, accelerated stock repurchases, block trades or derivative contracts or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of 1934.

As part of our $300.0 million stock repurchase program, we entered into an accelerated share repurchase agreement ("ASR") with Goldman, Sachs & Co. on April 28, 2014 to repurchase $70.0 million of our common stock. We paid $70.0 million on April 29, 2014 and received an initial delivery of approximately 1.0 million shares. The ASR was completed on July 29, 2014 with a final delivery of approximately 0.4 million shares. We received a total of approximately 1.4 million shares under the ASR for an average purchase price per share of $51.46, which all shares were retired. The final number of shares repurchased was based on our volume-weighted average stock price during the term of the transaction, less an agreed upon discount.

During 2014, we repurchased on the open market approximately 0.6 million shares of our common stock at an average price of $50.93 per share, including commissions, for an aggregate purchase price of approximately $28.2 million. All repurchased shares were retired. As of December 31, 2014, we have $201.8 million remaining under the April 2014 stock repurchase program, of which $1.8 million was repurchased in January 2015.

In January 2015, our Board of Directors authorized the repurchase of the next $100.0 million under the repurchase program which we anticipate completing within twelve months. On April 28, 2015, we entered into an accelerated share purchase agreement ("2015 ASR") to repurchase $70.0 million of our common stock. Under the terms of the 2015 ASR, we paid $70.0 million on April 29, 2015 and received an initial delivery of approximately 0.8 million shares. The 2015 ASR was completed on July 23, 2015 with a final delivery of approximately 0.3 million shares. We received a total of approximately 1.2 million shares under the 2015 ASR for an average share price of $60.52. The final number of shares repurchased was based on our volume-weighted average stock price during the term of the transaction, less an agreed upon discount.

During 2015, we repurchased on the open market approximately 0.5 million shares of our common stock at an average price of $58.89 per share, including commissions, for an aggregate purchase price of approximately $31.8 million. All repurchased shares were retired. As of December 31, 2015, we have $100.0 million remaining under the April 2014 stock repurchase program.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 11. Employee Benefit Plans

401(k) Plan

In January 1999, we adopted a defined contribution retirement plan under Section 401(k) of the Internal Revenue Code for our U.S. employees. This plan covers substantially all U.S. employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis. In 2009, our Board of Directors authorized us to match 50% of our employee’s salary deferral contributions up to a 6% of the employee’s eligible compensation effective 2010. We contributed approximately $2.7 million, $2.2 million and $2.1 million to the 401(k) plan during 2015, 2014 and 2013, respectively.

Israeli Funds

Under the Israeli severance fund law, we are required to make payments to dismissed employees and employees leaving employment in certain circumstances. The funding is calculated based on the salary of the employee multiplied by the number of years of employment as of the applicable balance sheet date. Our Israeli employees are entitled to one month’s salary for each year of employment, or a pro-rata portion thereof. We fund the liability through monthly deposits into funds, and the values of these contributions are recorded in other long-term current assets.

As of December 31, 2015 and 2014, the accrued funds liability was approximately $2.7 million and $2.5 million, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 12. Income Taxes

Income before provision for income taxes consisted of the following (in thousands):

	Year ended December 31,
	2015				2014				2013
Domestic	$	87,803			$	94,784			$	31,993
Foreign	98,298				95,585				61,146
Total Income before provision for income taxes	$	186,101			$	190,369			$	93,139

The provision for income taxes consisted of the following (in thousands):

	Year Ended December 31,
	2015				2014				2013
Federal
Current	$	28,596			$	1,569			$	26
Deferred	6,679				37,570				24,262
	35,275				39,139				24,288
State
Current	3,271				2,162				1,235
Deferred	(703		)		971				1,158
	2,568				3,133				2,393
Foreign
Current	4,305				1,596				3,113
Deferred	(67		)		669				(950		)
	4,238				2,265				2,163
Provision for income taxes	$	42,081			$	44,537			$	28,844

The differences between income taxes using the federal statutory income tax rate of 35% and our effective tax rate were as follows:

	Year Ended December 31,
	2015			2014			2013
U.S. federal statutory income tax rate	35.0	%		35.0	%		35.0	%
State income taxes, net of federal tax benefit	1.5			1.6			2.5
Impact of differences in foreign tax rates	(16.2	)		(16.4	)		(20.4	)
Goodwill Impairment	—			—			15.3
Stock-based compensation	1.6			1.0			0.5
Other items not individually material	0.7			2.2			(1.9	)
	22.6	%		23.4	%		31.0	%

As of December 31, 2015, U.S. income taxes and foreign withholding taxes associated with the repatriation of undistributed earnings of foreign subsidiaries were not provided for on a cumulative total of $359.8 million. We intend to reinvest these earnings indefinitely in our foreign subsidiaries. If these earnings were distributed in the form of dividends or otherwise, or if the shares of the relevant foreign subsidiaries were sold or otherwise transferred, we would be subject to additional U.S. income taxes and foreign withholding taxes, net of related foreign tax credits. Determination of the amount of unrecognized deferred income tax liability related to these earnings is not practicable.

In June 2009, the Costa Rica Ministry of Foreign Trade, an agency of the Government of Costa Rica, granted a twelve year extension of certain tax incentives, which were previously granted in 2002. The incentive tax rates will expire in various years beginning in 2017. Under these incentives, all of the income in Costa Rica during these twelve year incentive periods is subject to reduced rates of Costa Rica income tax. In order to receive the benefit of the incentives, we must hire specified numbers of

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

employees and maintain minimum levels of fixed asset investment in Costa Rica. If we do not fulfill these conditions for any reason, our incentive could lapse and our income in Costa Rica would be subject to taxation at higher rates, which could have a negative impact on our operating results. The Costa Rica corporate income tax rate that would apply, absent the incentives, is 30% for 2015, 2014 and 2013. As a result of these incentives, income taxes were reduced by $32.7 million, $32.5 million, and $27.7 million in 2015, 2014, and 2013, respectively. The benefit of the tax holiday on diluted net income per share was $0.40, $0.40, and $0.34 in 2015, 2014 and 2013, respectively.

As of December 31, 2015 and 2014, the significant components of our deferred tax assets and liabilities were (in thousands):

	Year Ended December 31,
	2015				2014
Deferred tax assets:
Net operating loss and capital loss carryforwards	$	31,247			$	33,202
Credit carryforwards	1,932				1,446
Deferred revenue	24,432				15,685
Reserves and accruals	17,455				17,203
Translation gains	649				637
Stock-based compensation	16,523				11,964
	92,238				80,137
Deferred tax liabilities:
Prepaid expenses	601				709
Depreciation and amortization	8,555				6,878
	9,156				7,587
Net deferred tax assets before valuation allowance	83,082				72,550
Valuation allowance	(31,685		)		(32,498		)
Net deferred tax assets	$	51,397			$	40,052

We assess the likelihood that we will be able to realize our deferred tax assets quarterly. We consider all available evidence, both positive and negative, including historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. If it is more likely than not that we do not expect to realize our deferred tax assets, we will increase our provision for income taxes by recording a valuation allowance against the deferred tax assets that we estimate will not ultimately be realizable. As of December 31, 2015, we believed, except for the items noted in the subsequent paragraph, that it was more likely than not that the amount of deferred tax assets recorded on the balance sheet will be realized.

As of December 31, 2015, we maintained a valuation allowance of $31.7 million against our deferred tax assets which primarily relate to Israel operating loss carryforwards and Australia capital loss carryforwards. These net operating and capital loss carryforwards would result in an income tax benefit if we were to conclude it is more likely than not that the related deferred tax assets will be realized. The valuation allowance decreased from December 31, 2014 by $0.8 million due to the decrease of foreign tax rate which resulted in lower tax impact on net operating and capital loss carryforwards.

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740), to simplify the presentation of deferred income taxes. Under the new standard, both deferred tax liabilities and assets are required to be classified as noncurrent in a classified balance sheet. ASU 2015-17 will become effective for fiscal years, and the interim periods within those years, beginning after December 15, 2016, with early adoption permitted. The new guidance has been adopted on a prospective basis by the Company for the year ended December 31, 2015, thus resulting in the reclassification of $30.1 million of current deferred tax assets to noncurrent on the accompanying Consolidated Balance Sheets. The prior reporting period was not retrospectively adjusted. The adoption of this guidance had no impact on our Consolidated Statements of Operations or Consolidated Statements of Comprehensive Income.

As of December 31, 2015, we have California net operating loss carryforwards of $20.5 million, which if not utilized, will begin to expire in 2016. As of December 31, 2015, we have California research credit carryforwards of approximately $3.9 million

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

which can be carried forward indefinitely. In addition, we had foreign net operating loss carryforwards of approximately $127.6 million, which, if not utilized will expire beginning in 2017.

Our net operating loss carryforwards due to the excess tax benefits associated with share-based compensation deductions totaled $17.3 million as of December 31, 2015 for California state tax purposes, which was not included in our deferred tax assets. The reduction of income taxes payable by the excess tax benefits associated with the share-based compensation deductions during the fiscal year, and utilization of net operating loss carryover applicable to excess tax benefits were approximately $10.2 million, $21.4 million, and $27.1 million in 2015, 2014, and 2013, respectively. The excess tax benefits were credited directly to stockholders’ equity when realized. We follow the tax law ordering method to determine when excess tax benefits have been realized and consider only the direct impacts of awards when calculating the amount of windfalls or shortfalls.

In the event of a change in ownership, as defined under federal and state tax laws, our net operating loss and tax credit carryforwards may be subject to annual limitations. The annual limitations may result in the expiration of the net operating loss and tax credit carryforwards before utilization.

The changes in the balance of gross unrecognized tax benefits, which exclude interest and penalties, for fiscal year ended December 31, 2015, 2014, and 2013, is as follows (in thousands):

Unrecognized tax benefit as of December 31, 2012	$	20,639
Tax positions related to current year:
Additions for uncertain tax positions	6,110
Tax positions related to prior year:
Additions for uncertain tax positions	(81		)
Unrecognized tax benefit as of December 31, 2013	26,668
Tax positions related to current year:
Additions for uncertain tax positions	6,659
Tax positions related to prior year:
Decreases for uncertain tax positions	(260		)
Unrecognized tax benefit as of December 31, 2014	33,067
Tax positions related to current year:
Additions for uncertain tax positions	6,346
Tax positions related to prior year:
Decreases for uncertain tax positions	—
Unrecognized tax benefit as of December 31, 2015	$	39,413

We account for uncertain tax positions pursuant to authoritative guidance based on a two-step approach to recognize and measure uncertain tax positions taken or expected to be taken in a tax return. We first determine whether it is more likely than not that a tax position will be sustained upon audit based on its technical merits. If a tax position meets the more-likely-than-not recognition threshold it is then measured to determine the amount of benefit to recognize in the financial statements. The tax position is measured as the largest amount of benefit that is more than 50 percent likely to be realized upon ultimate settlement. We adjust our uncertain tax positions due to changing facts and circumstances, such as the closing of a tax audit, or refinement of estimates due to new information. To the extent the final outcome of these matters is different than the amounts recorded, such differences will impact our tax provision in our Consolidated Statements of Operations in the period in which such determination is made.

During fiscal year 2015, the amount of gross unrecognized tax benefits increased by $6.3 million. The total amount of unrecognized tax benefits, excluding interest, was $39.4 million as of December 31, 2015, all of which would impact our effective tax rate if recognized. We have elected to recognize interest and penalties related to unrecognized tax benefits as a component of income tax expense. The interest accrued as of December 31, 2015 is $0.7 million. As of December 31, 2014, the interest accrued was immaterial. We do not expect any significant changes to the amount of unrecognized tax benefits within the next twelve months.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

We file U.S. federal, U.S. state, and non-U.S. income tax returns. Our major tax jurisdictions are U.S. federal and the State of California. For U.S. federal and state tax returns, we are no longer subject to tax examinations for years before 2000. With few exceptions, we are no longer subject to examination by foreign tax authorities for years before 2007. Our subsidiary in Israel is under audit by the local tax authorities for calendar years 2006 through 2012. We are currently under audit by the California Franchise Tax Board for fiscal year 2011, 2012 and 2013.

Note 13. Net Income per Share

Basic net income per share is computed using the weighted average number of shares of common stock outstanding during the period. Diluted net income per share is computed using the weighted average number of shares of common stock, adjusted for any dilutive effect of potential common stock. Potential common stock, computed using the treasury stock method, includes stock options, RSU, MSU, stock options and our ESPP.

The following table sets forth the computation of basic and diluted net income per share attributable to common stock (in thousands, except per share amounts):

	Year Ended December 31,
	2015				2014				2013
Numerator:
Net income	$	144,020			$	145,832			$	64,295
Denominator:
Weighted-average common shares outstanding, basic	79,998				80,754				80,551
Dilutive effect of potential common stock	1,523				1,529				2,038
Total shares, diluted	81,521				82,283				82,589
Net income per share, basic	$	1.80			$	1.81			$	0.80
Net income per share, diluted	$	1.77			$	1.77			$	0.78

For the year ended December 31, 2015, 2014 and 2013, the anti-dilutive effect on net income per share from RSUs, MSUs and ESPP was not material.

Note 14. Supplemental Cash Flow Information

The supplemental cash flow information consists of the following (in thousands):

	Year Ended December 31,
	2015				2014				2013
Taxes paid	$	40,621			$	5,666			$	4,125
Non-cash investing activities:
Fixed assets acquired with accounts payable or accrued liabilities	$	9,285			$	4,899			$	2,308

Note 15. Segments and Geographical Information

Segment Information

Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (“CODM”), or decision-making group, in deciding how to allocate resources and in assessing performance. Our CODM is our Chief Executive Officer. We report segment information based on the management approach. The management approach designates the internal reporting used by CODM for decision making and performance assessment as the basis for determining our reportable segments. The performance measures of our reportable segments include net revenues and gross profit.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

We have grouped our operations into two reportable segments which are also our reporting units: Clear Aligner segment and Scanner segment.

•	Our Clear Aligner segment consists of our Invisalign System which includes Invisalign Full, Express/Lite, Teen, Assist, Vivera Retainers, along with our training and ancillary products for treating malocclusion.

•	Our Scanner and Services ("Scanner") segment consists of intra-oral scanning systems and additional services available with the intra-oral scanners that provide digital alternatives to the traditional cast models. This segment includes our iTero scanner and OrthoCAD services.

These reportable operating segments are based on how our CODM views and evaluates our operations as well as allocation of resources. The following information relates to these segments (in thousands):

	For the Year Ended December 31,
Net Revenues	2015				2014				2013
Clear Aligner	$	800,186			$	712,549			$	614,649
Scanner	45,300				49,104				45,557
Total net revenues	$	845,486			$	761,653			$	660,206
Gross Profit
Clear Aligner	$	628,187			$	562,889			$	484,835
Scanner	11,923				15,554				13,271
Total gross profit	$	640,110			$	578,443			$	498,106

Geographical Information

Net revenues and tangible long-lived assets are presented below by geographic area (in thousands):

	For the Year Ended December 31,
	2015				2014				2013
Net revenues 1:
United States	$	585,874			$	532,569			$	491,410
the Netherlands	167,128				156,817				122,494
Other international	92,484				72,267				46,302
Total net revenues	$	845,486			$	761,653			$	660,206

1	Net revenues are attributed to countries based on location of where revenue is recognized.

	As of December 31,
	2015				2014
Long-lived assets 2:
United States	$	112,632			$	76,511
Mexico	15,422				6,229
Other international	8,419				7,385
Total long-lived assets	$	136,473			$	90,125

2	Long-lived assets are attributed to countries based on entity that owns the assets.