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, 2016

Provisions for Income Tax Expense (Benefit)

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

	2016			2015			2014
Federal:
Current	$	45,258		$	45,095		$	7,677
Deferred		(3,961	)		2,774			23,659
Total federal		41,297			47,869			31,336
State:
Current		3,406			2,506			2,060
Deferred		(49	)		1,798			529
Total state		3,357			4,304			2,589
Foreign:
Current		31,046			21,204			5,399
Deferred		(1,575	)		(927	)		(140	)
Total foreign		29,471			20,277			5,259
Total income taxes	$	74,125		$	72,450		$	39,184

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 2016, 2015 and 2014 are as follows (in thousands):

	Years Ended December 31,
	2016						2015						2014
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	$	105,589		$	44,654		$	136,726		$	52,173		$	82,778		$	32,500
Peoples Republic of China (“China”)		72,584			11,720			49,027			11,084			15,201			1,179
Jersey ⁽¹⁾		146,880			—			123,721			—			77,555			—
Non-benefited loss operations ⁽²⁾		(16,189	)		12			(16,719	)		164			(13,021	)		—
Other jurisdictions⁽³⁾		50,620			17,739			40,742			9,029			28,867			5,505
Earnings before income taxes	$	359,484		$	74,125		$	333,497		$	72,450		$	191,380		$	39,184
Effective tax rate⁽⁴⁾					20.6	%					21.7	%					20.5	%

⁽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: Brazil, India, Israel, Japan, Panama, Poland, Romania, and South Korea.

⁽³⁾

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

⁽⁴⁾	The effective tax rate is calculated by dividing income tax expense 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):

	2016			2015			2014
Expected income tax expense	$	125,819		$	116,724		$	66,981
State income tax, net of federal benefit		2,335			2,011			1,032
Rate differential on foreign income		(58,508	)		(44,541	)		(27,364	)
Change in unrecognized tax benefits		135			(2,233	)		(2,717	)
Non-deductible expenses		2,330			(350	)		288
Other		575			285			3,333
Change in valuation allowance		1,439			554			(2,369	)
Total provision for income taxes	$	74,125		$	72,450		$	39,184
Effective tax rate		20.6	%		21.7	%		20.5	%

Deferred Tax Assets and Liabilities

The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at December 31, 2016 and 2015 are presented below (in thousands):

	2016			2015
Deferred tax assets:
Inventory adjustments	$	6,985		$	6,249
Accrued expenses		29,094			17,619
Allowances for bad debts and chargebacks		4,837			6,972
Loss carryforwards		20,891			23,073
Business credit carryforward		5,031			5,214
Share-based compensation		5,993			3,628
Valuation allowance		(19,527	)		(18,088	)
Total deferred tax assets		53,304			44,667
Deferred tax liabilities:
Prepaid expenses		8,422			8,566
Depreciation on property, plant and equipment		19,251			22,406
Total deferred tax liabilities		27,673			30,972
Net deferred tax assets	$	25,631		$	13,695

Reconciliation of Unrecognized Tax Benefits

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

	2016			2015
Beginning balance	$	6,143		$	7,936
Additions for current year tax positions		1,069			888
Additions for prior year tax positions		138			—
Reductions for prior year tax positions		—			(1,099	)
Settlement of uncertain tax positions		(616	)		—
Reductions related to lapse of statute of limitations		(126	)		(1,582	)
Ending balance	$	6,608		$	6,143