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, 2019

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

	2019			2018			2017
Federal:
Current	$	22,899		$	11,379		$	110,448
Deferred		(3,583	)		(3,971	)		3,768
Total federal		19,316			7,408			114,216
State:
Current		6,384			5,408			2,747
Deferred		(813	)		(1,316	)		(3,356	)
Total state		5,571			4,092			(609	)
Foreign:
Current		66,656			53,071			40,147
Deferred		(2,790	)		(3,960	)		(4,598	)
Total foreign		63,866			49,111			35,549
Total income taxes (benefit)	$	88,753		$	60,611		$	149,156

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 2019, 2018 and 2017 are as follows (in thousands):

	Years Ended December 31,
	2019					2018						2017
Income tax jurisdiction	Earnings (loss) before income taxes			Income tax expense		Earnings (loss) before income taxes			Income tax expense (benefit)			Earnings (loss) before income taxes			Income tax expense
United States⁽¹⁾	$	4,999		$	24,887	$	16,597		$	11,500		$	25,628		$	113,607
Peoples Republic of China (“China”)		121,702			30,320		89,429			19,595			95,668			12,971
Hong Kong		50,131			4,303		48,352			8,106			17,778			5,030
Jersey ⁽²⁾		245,561			—		213,327			—			198,048			—
Non-benefited loss operations ⁽³⁾		(7,685	)		1,184		(11,422	)		(3,387	)		(17,350	)		3,306
Other jurisdictions⁽⁴⁾		101,297			28,059		75,601			24,797			64,488			14,242
Earnings before income taxes	$	516,005		$	88,753	$	431,884		$	60,611		$	384,260		$	149,156
Effective tax rate⁽⁵⁾				17.2%					14.0%						38.8%

⁽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, Japan, Macau, 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, Israel, Italy, Kosovo, Macau, Macedonia, Malaysia, Mexico, 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):

	2019			2018			2017
Expected income tax expense	$	108,361		$	90,696		$	134,491
State income tax, net of federal benefit		1,278			3,051			297
Rate differential on foreign income		(43,327	)		(40,065	)		(95,565	)
Change in unrecognized tax benefits		2,739			820			1,449
Non-deductible compensation		7,126			6,269			6,592
Tax credits		(3,264	)		(2,539	)		(2,151	)
Excess tax benefit on share based compensation		(251	)		(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		9,786			9,956			—
Other		3,440			2,077			(1,110	)
Change in valuation allowance		2,865			2,866			7,786
Total provision (benefit) for income taxes	$	88,753		$	60,611		$	149,156
Effective tax rate		17.2	%		14.0	%		38.8	%

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, 2019 and 2018 are presented below (in thousands):

	2019			2018
Deferred tax assets:
Inventory adjustments	$	6,954		$	5,779
Accrued expenses		50,847			42,637
Allowances for bad debts and chargebacks		4,809			3,549
Loss carryforwards		28,605			24,834
Business credit carryforward		8,262			7,015
Share-based compensation		4,521			4,283
Operating lease liabilities		261,984			—
Valuation allowance		(33,044	)		(30,179	)
Total deferred tax assets		332,938			57,918
Deferred tax liabilities:
Prepaid expenses		5,586			6,263
Right-of-use assets		261,984			—
Depreciation on property, plant and equipment		16,602			12,674
Total deferred tax liabilities		284,172			18,937
Net deferred tax assets	$	48,766		$	38,981

Reconciliation of Unrecognized Tax Benefits

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

	2019			2018
Beginning balance	$	7,975		$	7,381
Additions for current year tax positions		1,795			1,161
Additions for prior year tax positions		1,638			—
Reductions for prior year tax positions		—			(55	)
Reductions related to lapse of statute of limitations		(842	)		(512	)
Ending balance	$	10,566		$	7,975