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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Tax Disclosure [Abstract] |
Income Taxes | INCOME TAXES U.S. Federal Income Tax Reform On December 22, 2017, H.R. 1, also known as the Tax Cuts and Jobs Act (“Tax Act”), was enacted in the U.S. This enactment resulted in a number of significant changes to U.S. federal income tax law for U.S. corporations. Most notably, the statutory U.S. federal corporate income tax rate was changed from 35% to 21% for corporations. In addition to the change in the corporate income tax rate, the Tax Act further introduced a number of other changes including a one-time transition tax via a mandatory deemed repatriation of post-1986 undistributed foreign earnings and profits; the introduction of a tax on global intangible low-taxed income (“GILTI”) for tax years beginning after December 31, 2017; the limitation of deductible net interest to 30% of adjustable taxable income; the further limitation of the deductibility of share-based compensation of certain highly compensated employees; the ability to elect to accelerate bonus depreciation on certain qualified assets; and the Base Erosion and Anti-Abuse Tax ("BEAT"), amongst other changes. Additionally, on December 22, 2017, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. Specifically, SAB 118 provides a measurement period for companies to evaluate the impacts of the Tax Act on their financial statements. This measurement period may not exceed one year and begins in the reporting period that includes the enactment date and ends when an entity has obtained, prepared, and analyzed the information necessary to complete the accounting requirements. Transition Tax The Tax Act requires us to pay U.S. income taxes on accumulated foreign subsidiary earnings not previously subject to U.S. income tax. We have recorded provisional amounts based on estimates of the effects of the Tax Act as the analysis requires significant data from our foreign subsidiaries that is not regularly collected or analyzed. The U.S. federal transition tax liability, net of newly generated income tax credits, is an obligation of $17.1 million. The Company has existing foreign tax credits and other attributes which fully offset this transition tax obligation. The associated deferred tax assets that offset the obligation have a full valuation allowance, so there is no net impact to income tax expense. Deferred Tax Effects The Tax Act reduces the U.S. statutory tax rate from 35% to 21% for years after 2017. Accordingly, we have remeasured our deferred tax positions as of December 31, 2017 to reflect the reduced rate that will apply in future periods when these deferred taxes are settled or realized. The remeasurement resulted in a net decrease in deferred tax assets of $0.6 million and a $0.1 million change in the valuation allowance. Therefore, we recognized a deferred tax expense of $0.7 million to reflect the reduced U.S. tax rate and other effects of the Tax Act. We have not collected the necessary data to complete our analysis of the effect of the Tax Act on the underlying deferred taxes and as such, the amounts recorded as of December 31, 2017 are provisional. The net tax expense recognized in 2017 related to the Tax Act which was not offset by a change in valuation allowance was $0.7 million. As we complete our analysis of the impacts of the Tax Act and incorporate additional guidance that may be issued by the U.S. Treasury Department, the IRS, or other standard-setting bodies, we may identify additional effects not reflected as of December 31, 2017. Additionally, we consider these amounts preliminary as we continue to evaluate the impacts of the Tax Act and further understand its implications, as well as the related, and yet to be issued, regulator rules, regulations, and interpretations. For example, subsequent to the enactment, the FASB staff has concluded that companies should make an accounting policy election to account for the tax effects of GILTI either as a component of income tax expense in the future period the tax arises, or as a component of deferred taxes on the related investments in foreign subsidiaries. We are currently evaluating the GILTI provisions of the Tax Act and the related implications and have not finalized our accounting policy election; however, we have preliminarily concluded that we will record GILTI provisions as a periodic expense as incurred and, therefore, have not recorded deferred taxes for GILTI as of December 31, 2017. We will continue to evaluate in future periods and will finalize our accounting policy election at that time. Additional impacts of the Tax Act will be recorded as they are identified during the measurement period pursuant to SAB 118. Any adjustments to provisional amounts that are identified during the measurement period will be recorded and disclosed in the reporting period in which the adjustment is determined. The complexity of the Tax Act could necessitate the need to use the full one year measurement period to adequately interpret, analyze, and conclude upon the tax effects of the Tax Act as of the enactment date. Finally, BEAT is a new minimum tax on international payments as a means to reduce the ability of multi-national companies to erode the U.S. tax base through deductible related-party payments. We do not have any material deductible related party payments originating from the U.S. to our foreign subsidiaries that this would apply to. As a result, BEAT is not expected to have a material impact on our income tax expense. Income Taxes The following table sets forth income before taxes and the expense for income taxes:
| Year Ended December 31,
| 2017 |  | 2016 |  | 2015
| (in thousands)
Income (loss) before taxes: |  |  |  |  |  |  |  |
U.S. | $ | (34,406 | ) |  | $ | (55,617 | ) |  | $ | (83,537 | )
Foreign | 52,586 |  |  | 48,404 |  |  | 8,793 |
Total income (loss) before taxes | $ | 18,180 |  |  | $ | (7,213 | ) |  | $ | (74,744 | )
Income tax expense: |  |  |  |  |  |  |  |
Current income taxes: |  |  |  |  |  |  |  |
U.S. federal | $ | 1,383 |  |  | $ | 49 |  |  | $ | 480 |
U.S. state | 127 |  |  | 126 |  |  | 195 |
Foreign | 9,525 |  |  | 9,494 |  |  | 7,488 |
Total current income taxes | 11,035 |  |  | 9,669 |  |  | 8,163 |
Deferred income taxes: |  |  |  |  |  |  |  |
U.S. federal | 1,300 |  |  | 263 |  |  | (3,902 | )
U.S. state | — |  |  | — |  |  | (118 | )
Foreign | (4,393 | ) |  | (651 | ) |  | 4,309 |
Total deferred income taxes | (3,093 | ) |  | (388 | ) |  | 289 |
Total income tax expense | $ | 7,942 |  |  | $ | 9,281 |  |  | $ | 8,452 |
The following table sets forth income reconciliations of the statutory federal income tax rate to actual rates based on income or loss before income taxes:
| Year Ended December 31,
| 2017 |  | 2016 |  | 2015
| (in thousands)
Income tax expense and rate attributable to: |  |  |  |  |  |  |  |  |  |  |
Federal | $ | 6,363 |  |  | 35.0 | % |  | $ | (2,524 | ) |  | (35.0 | )% |  | $ | (26,160 | ) |  | (35.0 | )%
State, net of federal benefit | 53 |  |  | 0.3 |  |  | (202 | ) |  | (2.8 | ) |  | (543 | ) |  | (0.7 | )
Foreign differential | (11,768 | ) |  | (64.7 | ) |  | (12,624 | ) |  | (175.0 | ) |  | (3,678 | ) |  | (4.9 | )
Enacted changes in tax law | 17,645 |  |  | 97.1 |  |  | — |  |  | — |  |  | — |  |  | — |
Non-deductible / non-taxable items | 6,006 |  |  | 33.0 |  |  | 2,694 |  |  | 37.4 |  |  | (2,181 | ) |  | (2.9 | )
Change in valuation allowance | 24,400 |  |  | 134.2 |  |  | 16,041 |  |  | 222.4 |  |  | 10,892 |  |  | 14.5 |
U.S. tax on foreign earnings | (32,427 | ) |  | (178.4 | ) |  | 23,130 |  |  | 320.6 |  |  | 82,311 |  |  | 110.0 |
Foreign tax credits | (7,980 | ) |  | (43.9 | ) |  | (18,581 | ) |  | (257.6 | ) |  | (49,432 | ) |  | (66.1 | )
Uncertain tax positions | 1,054 |  |  | 5.8 |  |  | 19 |  |  | 0.3 |  |  | (3,952 | ) |  | (5.3 | )
Audit settlements | 354 |  |  | 1.9 |  |  | 253 |  |  | 3.5 |  |  | 1,167 |  |  | 1.6 |
Stock compensation windfall / shortfall | 882 |  |  | 4.9 |  |  | 2,120 |  |  | 29.4 |  |  | — |  |  | — |
Deferred income tax account adjustments | 2,679 |  |  | 14.7 |  |  | (842 | ) |  | (11.7 | ) |  | — |  |  | — |
Other | 681 |  |  | 3.8 |  |  | (203 | ) |  | (2.8 | ) |  | 28 |  |  | 0.1 |
Effective income tax expense and rate | $ | 7,942 |  |  | 43.7 | % |  | $ | 9,281 |  |  | 128.7 | % |  | $ | 8,452 |  |  | 11.3 | %
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We recorded a provisional adjustment to our U.S. deferred income taxes as of December 31, 2017 to reflect the reduction in the U.S. statutory tax rate from 35% to 21% resulting from the Tax Act. The following table sets forth deferred income tax assets and liabilities as of the date shown:
| December 31,
| 2017 |  | 2016
| (in thousands)
Non-current deferred tax assets: |  |  |  |  |
Stock compensation expense | $ | 2,940 |  |  | $ | 4,597 |
Long-term accrued expenses | 20,728 |  |  | 26,127 |
Net operating loss | 42,956 |  |  | 36,424 |
Intangible assets | 1,620 |  |  | 3,654 |
Future uncertain tax position offset | 498 |  |  | 396 |
Unrealized loss on foreign currency | 119 |  |  | — |
Foreign tax credit | 67,655 |  |  | 69,586 |
Other | 2,792 |  |  | 5,481 |
Valuation allowance | (119,494 | ) |  | (90,900 | )
Total non-current deferred tax assets | $ | 19,814 |  |  | $ | 55,365 |
Non-current deferred tax liabilities: |  |  |  |  |
Intangible assets | $ | — |  |  | $ | (41 | )
Unremitted earnings of foreign subsidiary | — |  |  | (32,427 | )
Property and equipment | (9,640 | ) |  | (16,072 | )
Total non-current deferred tax liabilities | $ | (9,640 | ) |  | $ | (48,540 | )
During 2017, additional valuation allowances of $28.6 million were recorded on deferred tax assets that are not anticipated to be realized. The change in the valuation allowance includes $24.4 million related to income tax expense and $4.2 million which does not impact the tax provision because this amount reflects the impact of unrecorded tax attributes related to changes in cumulative translation adjustment. During 2016, additional valuation allowances of $34.3 million were recorded. The change in the 2016 valuation allowance includes $16.0 million related to income tax expense and $18.3 million which does not impact the tax provision because this amount reflects the cumulative impact of unrecorded tax attributes related to the adoption in 2016 of U.S. GAAP guidance related to income tax effect of share-based compensation and changes in cumulative translation adjustment. We annually receive cash from our foreign subsidiaries’ current year earnings. The transition tax in the Tax Act imposes a tax on undistributed and previously untaxed foreign earnings at various tax rates. This tax largely eliminated the differences between the financial reporting and income tax basis of foreign undistributed earnings. As a result of the transition tax, the Company no longer has a deferred tax liability associated with undistributed earnings and profits. Furthermore, as of December 31, 2017, foreign withholding taxes have not been provided on unremitted earnings of subsidiaries operating outside of the U.S. as these amounts are considered to be indefinitely reinvested. During 2017, we recorded additional tax loss carryforwards in certain foreign jurisdictions which aggregate to $18.8 million, primarily driven by operational losses recognized based on local statutory accounting requirements. As these carryforwards were generated in jurisdictions where we have historically had book losses or do not have strong future projections related to those operations, we concluded that it was more likely than not that the associated net operating losses would not be realized, and thus recorded a valuation allowance on the majority of the associated deferred tax assets. As of December 31, 2017, Crocs maintains a valuation allowance of $119.5 million. The following table sets forth a reconciliation of the beginning and ending amount of unrecognized tax benefits:
| Year Ended December 31,
| 2017 |  | 2016 |  | 2015
| (in thousands)
Unrecognized tax benefit as of January 1 | $ | 4,750 |  |  | $ | 4,957 |  |  | $ | 8,444 |
Gross increases in tax positions in prior period | 1,025 |  |  | 646 |  |  | 643 |
Gross decreases in tax positions in prior period | — |  |  | (664 | ) |  | (385 | )
Gross increases in tax positions in current period | 966 |  |  | 245 |  |  | 549 |
Settlements | (123 | ) |  | (238 | ) |  | (4,126 | )
Lapse of statute of limitations | (414 | ) |  | (196 | ) |  | (168 | )
Unrecognized tax benefit as of December 31 | $ | 6,204 |  |  | $ | 4,750 |  |  | $ | 4,957 |
The Company recorded a net expense of $1.5 million related to increases in 2017 unrecognized tax benefits combined with amounts effectively settled under audit. Unrecognized tax benefits as of December 31, 2017 relate to tax years that are currently open under the statute of limitation. The primary impact of uncertain tax positions on the rate reconciliation includes audit settlements, net increases in position changes, and accrued interest expense. Interest and penalties related to income tax liabilities are included in ‘Income tax expense’ in the consolidated statement of operations. For the years ended December 31, 2017, 2016, and 2015, Crocs recorded approximately $0.2 million, $0.2 million, and $0.2 million, respectively, of penalties and interest. During the year ended December 31, 2017, Crocs released $0.2 million of interest from settlements, lapse of statutes, and change in certainty. The cumulative accrued balance of penalties and interest was $0.7 million, $0.6 million, and $0.5 million, as of December 31, 2017, 2016, and 2015, respectively. Unrecognized tax benefits of $6.2 million, $4.8 million and $5.0 million as of December 31, 2017, 2016, and 2015, respectively, if recognized, would reduce the annual effective tax rate offset by deferred tax assets recorded for uncertain tax positions. The following table sets forth the tax years subject to examination for the major jurisdictions where we conduct business as of December 31, 2017:
Netherlands | 2005 to 2017
Canada | 2010 to 2017
Japan | 2011 to 2017
China | 2011 to 2017
Singapore | 2014 to 2017
United States | 2010 to 2017
The Company is currently under audit in Taiwan. U.S state tax returns are generally subject to examination for a period of three to five years after filing of the respective return. The state impact of any federal changes remains subject to examination by various state jurisdictions for a period up to two years after formal notification to the states. As such, U.S. state income tax returns for the Company are generally subject to examination for the years 2012 to 2017. The Company has recorded deferred tax assets related to U.S. federal tax carryforwards, including foreign tax credits and net operating losses, which expire at various dates between 2023 and 2037 of $48.6 million and $57.3 million at December 31, 2017 and 2016, respectively. The Company has recorded deferred tax assets related to U.S. state tax net operating loss carryforwards which expire at various dates between 2017 and 2037 of $12.5 million and $9.4 million at December 31, 2017 and 2016, respectively. The Company has recorded deferred tax assets related to foreign tax carryforwards, including foreign tax credits and net operating losses, which expire starting in 2021 and those which do not expire of $49.5 million and $39.3 million as of December 31, 2017 and 2016, respectively.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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