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, 2017

Provisions for Income Tax Expense (Benefit)

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

	2017			2016			2015

Federal:
Current	$	110,448		$	45,258		$	45,095
Deferred		3,768			(3,961	)		2,774
Total federal		114,216			41,297			47,869
State:
Current		2,747			3,406			2,506
Deferred		(3,356	)		(49	)		1,798
Total state		(609	)		3,357			4,304
Foreign:
Current		40,147			31,046			21,204
Deferred		(4,598	)		(1,575	)		(927	)
Total foreign		35,549			29,471			20,277
Total income taxes (benefit)	$	149,156		$	74,125		$	72,450

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 2017, 2016 and 2015 are as follows (in thousands):

	Years Ended December 31,
	2017						2016						2015
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⁽¹⁾	$	25,628		$	113,607		$	105,589		$	44,654		$	136,726		$	52,173
Peoples Republic of China (“China”)		95,668			12,971			72,584			11,720			49,027			11,084
Jersey ⁽²⁾		198,048			—			146,880			—			123,721			—
Non-benefited loss operations ⁽³⁾		(17,350	)		3,306			(16,189	)		12			(16,719	)		164
Other jurisdictions⁽⁴⁾		82,266			19,272			50,620			17,739			40,742			9,029
Earnings before income taxes	$	384,260		$	149,156		$	359,484		$	74,125		$	333,497		$	72,450
Effective tax rate⁽⁵⁾					38.8	%					20.6	%					21.7	%

⁽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: Brazil, India, Israel, Japan, Macau, Panama 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, 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.

⁽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):

	2017			2016			2015
Expected income tax expense	$	134,491		$	125,819		$	116,724
State income tax, net of federal benefit		297			2,335			2,011
Rate differential on foreign income		(95,565	)		(58,508	)		(44,541	)
Change in unrecognized tax benefits		1,449			135			(2,233	)
Non-deductible expenses		4,451			2,330			(350	)
Excess tax benefit on share based compensation		(2,571	)		—			—
U.S. tax rate change		1,923			—			—
U.S. transition tax		98,015			—			—
Other		(1,120	)		575			285
Change in valuation allowance		7,786			1,439			554
Total provision (benefit) for income taxes	$	149,156		$	74,125		$	72,450
Effective tax rate		38.8	%		20.6	%		21.7	%

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, 2017 and 2016 are presented below (in thousands):

	2017			2016
Deferred tax assets:
Inventory adjustments	$	5,375		$	6,985
Accrued expenses		33,984			29,094
Allowances for bad debts and chargebacks		3,470			4,837
Loss carryforwards		24,308			20,891
Business credit carryforward		6,562			5,031
Share-based compensation		4,154			5,993
Valuation allowance		(27,313	)		(19,527	)
Total deferred tax assets		50,540			53,304
Deferred tax liabilities:
Prepaid expenses		5,709			8,422
Depreciation on property, plant and equipment		15,069			19,251
Total deferred tax liabilities		20,778			27,673
Net deferred tax assets	$	29,762		$	25,631

Reconciliation of Unrecognized Tax Benefits

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

	2017			2016
Beginning balance	$	6,608		$	6,143
Additions for current year tax positions		1,154			1,069
Additions for prior year tax positions		—			138
Reductions for prior year tax positions		(26	)		—
Settlement of uncertain tax positions		—			(616	)
Reductions related to lapse of statute of limitations		(355	)		(126	)
Ending balance	$	7,381		$	6,608