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, 2018

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

	2018			2017			2016
Federal:
Current	$	11,379		$	110,448		$	45,258
Deferred		(3,971	)		3,768			(3,961	)
Total federal		7,408			114,216			41,297
State:
Current		5,408			2,747			3,406
Deferred		(1,316	)		(3,356	)		(49	)
Total state		4,092			(609	)		3,357
Foreign:
Current		53,071			40,147			31,046
Deferred		(3,960	)		(4,598	)		(1,575	)
Total foreign		49,111			35,549			29,471
Total income taxes (benefit)	$	60,611		$	149,156		$	74,125

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

The Company’s earnings (loss) before income taxes and income tax expense (benefit) for 2018, 2017 and 2016 are as follows (in thousands):

	Years Ended December 31,
	2018						2017						2016
Income tax jurisdiction	Earnings (loss) before income taxes			Income tax expense (benefit)			Earnings (loss) before income taxes			Income tax expense			Earnings (loss) before income taxes			Income tax expense
United States⁽¹⁾	$	16,597		$	11,500		$	25,628		$	113,607		$	105,589		$	44,654
Peoples Republic of China (“China”)		89,429			19,595			95,668			12,971			72,584			11,720
Hong Kong		48,352			8,106			17,778			5,030			15,156			5,206
Jersey ⁽²⁾		213,327			—			198,048			—			146,880			—
Non-benefited loss operations ⁽³⁾		(11,422	)		(3,387	)		(17,350	)		3,306			(16,189	)		12
Other jurisdictions⁽⁴⁾		75,601			24,797			64,488			14,242			35,464			12,533
Earnings before income taxes	$	431,884		$	60,611		$	384,260		$	149,156		$	359,484		$	74,125
Effective tax rate⁽⁵⁾					14.0	%					38.8	%					20.6	%

⁽¹⁾	United States income tax expense for 2017 includes a provisional one-time $99.9 million tax expense related to the enactment of the United States Tax Cuts & Jobs Act on December 22, 2017.

⁽²⁾	Jersey does not assess income tax on corporate net earnings.

⁽³⁾	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: Barbados, Brazil, China, India, Israel, Japan, Panama, Romania, Thailand, and South Korea.

⁽⁴⁾

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, Hungary, India, Italy, Kosovo, Macau, Macedonia, Malaysia, Montenegro, Netherlands, Panama, Peru, Poland, Portugal, Serbia, Singapore, Spain, Switzerland, Vietnam, and the United Kingdom.

⁽⁵⁾	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):

	2018			2017			2016
Expected income tax expense	$	90,696		$	134,491		$	125,819
State income tax, net of federal benefit		3,051			297			2,335
Rate differential on foreign income		(40,065	)		(95,565	)		(58,508	)
Change in unrecognized tax benefits		820			1,449			135
Non-deductible compensation		6,269			6,592			4,414
Tax credits		(2,539	)		(2,151	)		(2,044	)
Excess tax benefit on share based compensation		(1,557	)		(2,571	)		—
U.S. tax rate change		—			1,923			—
U.S. transition tax		(10,963	)		98,015			—
U.S. tax on foreign earnings		9,956			—			—
Other		2,077			(1,110	)		535
Change in valuation allowance		2,866			7,786			1,439
Total provision (benefit) for income taxes	$	60,611		$	149,156		$	74,125
Effective tax rate		14.0	%		38.8	%		20.6	%

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, 2018 and 2017 are presented below (in thousands):

	2018			2017
Deferred tax assets:
Inventory adjustments	$	5,779		$	5,375
Accrued expenses		42,637			33,983
Allowances for bad debts and chargebacks		3,549			3,470
Loss carryforwards		24,834			24,308
Business credit carryforward		7,015			6,562
Share-based compensation		4,283			4,154
Valuation allowance		(30,179	)		(27,313	)
Total deferred tax assets		57,918			50,539
Deferred tax liabilities:
Prepaid expenses		6,263			5,709
Depreciation on property, plant and equipment		12,674			15,069
Total deferred tax liabilities		18,937			20,778
Net deferred tax assets	$	38,981		$	29,761

Reconciliation of Unrecognized Tax Benefits

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

	2018			2017
Beginning balance	$	7,381		$	6,608
Additions for current year tax positions		1,161			1,154
Reductions for prior year tax positions		(55	)		(26	)
Reductions related to lapse of statute of limitations		(512	)		(355	)
Ending balance	$	7,975		$	7,381