Skechers U.S.A., Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes (Tables)

Income Taxes (Tables)

12 Months Ended

Dec. 31, 2015

Provisions for Income Tax Expense (Benefit)

The provisions for income tax expense were as follows (in thousands):

	2015			2014			2013
Federal:
Current	$	45,095		$	7,677		$	632
Deferred		2,774			23,659			11,537
Total federal		47,869			31,336			12,169
State:
Current		2,506			2,060			519
Deferred		1,798			529			119
Total state		4,304			2,589			638
Foreign:
Current		21,204			5,399			8,228
Deferred		(927	)		(140	)		312
Total foreign		20,277			5,259			8,540
Total income taxes	$	72,450		$	39,184		$	21,347

Schedule of Earnings (Loss) before Income Taxes and Income Tax Expense (Benefit)

The Company’s earnings (loss) before income taxes and income tax expense for 2015, 2014 and 2013 are as follows (in thousands):

	Years Ended December 31,
	2015						2014						2013
Income tax jurisdiction	Earnings (loss) before income taxes			Income tax expense			Earnings (loss) before income taxes			Income tax expense			Earnings (loss) before income taxes			Income tax expense
United States	$	136,725		$	52,173		$	82,778		$	32,500		$	38,705		$	12,807
Canada		4,228			1,024			6,241			1,572			4,091			1,187
Chile		2,983			572			629			138			9,622			1,920
Peoples Republic of China (“China”)		49,028			11,084			15,201			1,179			6,148			1,646
Jersey ⁽¹⁾		123,721			—			77,555			—			25,348			—
Non-benefited loss operations ⁽²⁾		(16,719	)		164			(13,021	)		—			(15,841	)		—
Other jurisdictions⁽³⁾		33,531			7,433			21,997			3,795			14,142			3,787
Earnings before income taxes	$	333,497		$	72,450		$	191,380		$	39,184		$	82,215		$	21,347
Effective tax rate⁽⁴⁾					21.7	%					20.5	%					26.0	%

⁽¹⁾	Jersey does not assess income tax on corporate net earnings.

⁽²⁾	Consists of entities in the following tax jurisdictions where no tax benefit is recognized in the period being reported because of the provision of offsetting valuation allowances: Panama, Poland, Romania, Japan, Brazil and India.

⁽³⁾

Consists of entities in the following tax jurisdictions, each of which comprises not more than 5% of 2015 consolidated earnings (loss) before taxes: Hungary, Serbia, Bosnia, Herzegovina, Montenegro, Macedonia, Albania, Kosovo, Vietnam, Panama, Peru, Colombia, Costa Rica, UK, Germany, France, Spain, Belgium, Italy, Netherlands, Switzerland, Malaysia, Thailand, Singapore, Hong Kong, Portugal and Austria.

⁽⁴⁾	The effective tax rate is calculated by dividing income tax expense (benefit) by earnings before income taxes.

Summary of Earnings before Income Taxes

Income taxes differ from the statutory tax rates as applied to earnings before income taxes as follows (in thousands):

	2015			2014			2013
Expected income tax expense	$	116,724		$	66,981		$	28,775
State income tax, net of federal benefit		2,011			1,032			255
Rate differential on foreign income		(44,541	)		(27,364	)		(11,897	)
Change in unrecognized tax benefits		(2,233	)		(2,717	)		740
Non-deductible expenses		(350	)		288			(150	)
Prior year R&D credit claims		—			—			(493	)
Other		285			3,333			(1,187	)
Change in valuation allowance		554			(2,369	)		5,304
Total provision for income taxes	$	72,450		$	39,184		$	21,347
Effective tax rate		21.7	%		20.5	%		26.0	%

Deferred Tax Assets

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at December 31, 2015 and 2014 are presented below (in thousands):

	2015			2014
Deferred tax assets:
Inventory adjustments	$	6,249		$	4,942
Accrued expenses		17,619			15,103
Allowances for bad debts and chargebacks		6,972			6,407
Loss carryforwards		23,073			23,247
Business credit carryforward		5,214			4,042
Share-based compensation		3,628			2,282
Valuation allowance		(18,088	)		(17,534	)
Total deferred tax assets		44,667			38,489
Deferred tax liabilities:
Prepaid expenses		8,566			7,588
Depreciation on property, plant and equipment		22,406			22,050
Total deferred tax liabilities		30,972			29,638
Net deferred tax assets	$	13,695		$	8,851

Reconciliation of Unrecognized Tax Benefits

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

	2015			2014
Beginning balance	$	7,936		$	10,816
Additions for current year tax positions		888			773
Reductions for prior year tax positions		(1,099	)		(2,227	)
Reductions related to lapse of statute of limitations		(1,582	)		(1,426	)
Ending balance	$	6,143		$	7,936