14. INCOME TAXES

The following table sets forth income before taxes and the expense for income taxes for the years ended December 31, 2015, 2014, and 2013:



		December 31,
	2015		2014		2013

	(in thousands)
Income (loss) before taxes:
U.S.	$	(83,537)	$	(34,622)	$	(7,818)
Foreign		8,793		26,073		67,777
Total income (loss) before taxes		(74,744)		(8,549)		59,959
Income tax expense:
Current income taxes
U.S. federal		480		(12,049)		3,311
U.S. state		195		(23)		355
Foreign		7,488		7,620		22,337
Total current income taxes		8,163		(4,452)		26,003
Deferred income taxes:
U.S. federal		(3,902)		400		14,968
U.S. state		(118)		236		3,639
Foreign		4,309		193		4,929
Total deferred income taxes		289		829		23,536
Total income tax expense (benefit)	$	8,452	$	(3,623)	$	49,539

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 for the years ended December 2015, 2014, and 2013:



	December 31,
	2015				2014				2013

	(in thousands)
Federal income tax rate	$	(26,160)	35.0	%	$	(2,992)	35.0	%	$	20,781	35.0	%
State income tax rate, net of federal benefit		(543)	0.7			2,598	(30.4)			(373)	(0.6)
Effect of rate differences		(3,678)	4.9			5,317	(62.2)			(28,671)	(47.9)
Non-deductible / Non-taxable items		(2,181)	2.9			(9,904)	115.8			2,231	3.4
Change in valuation allowance		10,892	(14.5)			5,370	(62.8)			21,370	35.6
U.S. tax on foreign earnings		32,879	(43.9)			6,620	(77.4)			22,877	38.2
Uncertain tax positions		(3,952)	5.3			(25,172)	294.4			4,091	6.8
Audit settlements		1,167	(1.6)			13,448	(157.3)			3,035	5.1
Non-deductible write-off of intercompany debt		-	-			-	-			1,114	1.9
Non-deductible impairment		-	-			-	-			2,118	3.5
Write-off of income tax receivable		-	-			1,577	(18.4)			-	-
Other		28	(0.1)			(485)	5.7			966	1.6
Effective income tax rate	$	8,452	(11.3)	%	$	(3,623)	42.4	%	$	49,539	82.6	%

The following table sets forth deferred income tax assets and liabilities as of December 2015 and 2014:



	December 31,
	2015		2014

	(in thousands)
Current deferred tax assets:
Accrued expenses	$	-	$	13,217
Unrealized loss on foreign currency		-		342
Other		-		-
Valuation allowance		-		(7,008)
Total current deferred tax assets (1)	$	-	$	6,551
Current deferred tax liabilities:
Unremitted earnings of foreign subsidiary	$	-	$	(14,186)
Other		-		(44)
Total current deferred tax liabilities (1)	$	-	$	(14,230)
Non-current deferred tax assets:
Stock compensation expense	$	7,142	$	9,760
Long-term accrued expenses		26,114		6,773
Net operating loss and charitable contribution carryovers		22,518		20,047
Intangible assets		4,725		1,517
Property and equipment		-		12,097
Future uncertain tax position offset		456		445
Unrealized loss on foreign currency		466		-
Foreign tax credit		27,109		6,259
Other		5,548		1,207
Valuation allowance		(56,572)		(40,273)
Total non-current deferred tax assets	$	37,506	$	17,832
Non-current deferred tax liabilities:
Unremitted earnings of foreign subsidiary	$	(24,572)	$	-
Property and equipment		(6,432)		-
Total non-current deferred tax liabilities	$	(31,004)	$	-

(1)

In November 2015, the FASB issued guidance to simplify the financial statement presentation of deferred income taxes. The new guidance requires an entity to present deferred tax assets and liabilities as non-current in a classified balance sheet. Prior to the issuance of this guidance, deferred tax liabilities and assets were required to be separately classified into a current amount and a non-current amount in the balance sheet. The new guidance represents a change in accounting principle and is effective for annual reporting periods beginning after December 15, 2016, with early adoption permitted. The Company elected to early adopt this guidance as of December 31, 2015 and to apply it prospectively. Prior period information was not adjusted. Because the application of this guidance affects the balance sheet classification only, adoption of this guidance did not have a material impact on our consolidated financial statements.

As of December 31, 2015, U.S. income and foreign withholding taxes have not been provided on for approximately $249.3 million of unremitted earnings of subsidiaries operating outside of the U.S. These earnings are estimated to represent the excess of the financial reporting over the tax basis in Crocs’ investments in those subsidiaries. These earnings, which are considered to be indefinitely reinvested, would become subject to U.S. income tax if they were remitted to the U.S. The amount of unrecognized deferred U.S. income tax liability on the unremitted earnings has not been determined because the hypothetical calculation is not practicable.

Crocs maintains a valuation allowance of $56.5 million on certain deferred tax assets in various tax jurisdictions for which the Company believes it is not more-likely-than-not to realize, and relate primarily to state and foreign net operation losses and other tax attributes across all jurisdictions.

As a result of certain accounting realization requirements, the table of deferred tax assets and liabilities shown above does not include certain deferred tax assets as of December 31, 2015 that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting. Equity would be increased by $18.2 million if and when such deferred tax assets are ultimately realized. Crocs applies ASC 740 with-and-without ordering for purposes of determining when excess tax benefits have been realized.

The following table sets forth a reconciliation of the beginning and ending amount of unrecognized tax benefits during the years ended December 31, 2015, 2014, and 2013:



	December 31,
	2015		2014		2013

	(in thousands)
Unrecognized tax benefit—January 1	$	8,444	$	31,616	$	31,900
Gross increases—tax positions in prior period		643		7		572
Gross decreases—tax positions in prior period		(385)		(3,711)		(2,086)
Gross increases—tax positions in current period		549		904		3,743
Settlements		(4,126)		(20,210)		(2,291)
Lapse of statute of limitations		(168)		(162)		(222)
Unrecognized tax benefit—December 31	$	4,957	$	8,444	$	31,616

Unrecognized tax benefits of $5.0 million, $8.4 million and $31.6 million as of December 31, 2015, 2014, and 2013, respectively, if recognized, would reduce the annual effective tax rate offset by deferred tax assets recorded for uncertain tax positions.

The Company also recorded a net benefit of $2.8 million related to increases in 2015 unrecognized tax benefits, net of amounts effectively settled under audit in several major jurisdictions including Japan and Finland. Although the timing of the resolution, settlement, and closure of any audits is highly uncertain, it is reasonably possible that the balance of gross unrecognized tax benefits could significantly change in the next 12 months. However, given the number of years remaining that are subject to examination, Crocs is unable to estimate the full range of possible adjustments to the balance of gross unrecognized tax benefits.

As it relates to the impact of Uncertain Tax Positions on the rate reconciliation, the primary impact includes audit settlements, net increases in position changes (both are noted as part of the tax position tabular disclosure), and accrued interest expense. The gross impact of positions effectively settled are disclosed separately as audit settlements. The net benefit related to audit settlements is not expected to recur in future periods. Note that the interest component, while carried as a liability on the balance sheet and recorded as a component of tax expense, is excluded from the tabular disclosure pursuant to the guidance under ASC 740-10-50.

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, 2015, 2014 and 2013, Crocs recorded approximately $0.2 million, $0.8 million and $0.6 million, respectively, of penalties and interest. During the year ended December 31, 2015, Crocs released $0.6 million of interest from settlements, lapse of statutes, and change in certainty. The cumulative accrued balance of penalties and interest was $0.5 million, $0.9 million and $5.0 million, as of December 31, 2015, 2014 and 2013, respectively.

The following table sets forth the tax years subject to examination for the major jurisdictions where the Company conducts business as of December 31, 2015:



Netherlands	2008	to	2015
Canada	2008	to	2015
Japan	2009	to	2015
China	2007	to	2015
Singapore	2011	to	2015
United States	2011	to	2015

State income 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.