Columbia Sportswear Company Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Income Taxes

Income Taxes

12 Months Ended

Dec. 31, 2015

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Consolidated income from continuing operations before income taxes consisted of the following (in thousands):



	Year Ended December 31,
	2015		2014		2013
U.S. operations	$	173,966	$	118,743	$	88,561
Foreign operations	73,353		79,778		42,865
Income before income tax	$	247,319	$	198,521	$	131,426

The components of the provision (benefit) for income taxes consisted of the following (in thousands):



	Year Ended December 31,
	2015			2014			2013
Current:
Federal	$	61,211		$	42,790		$	14,953
State and local	6,520			3,175			1,999
Non-U.S.	21,014			20,679			14,178
	88,745			66,644			31,130
Deferred:
Federal	(8,883		)	(5,147		)	11,363
State and local	(906		)	(739		)	(120		)
Non-U.S.	(11,488		)	(4,096		)	(4,550		)
	(21,277		)	(9,982		)	6,693
Income tax expense	$	67,468		$	56,662		$	37,823

The following is a reconciliation of the statutory federal income tax rate to the effective rate reported in the financial statements:



	Year Ended December 31,
	2015		2014		2013
	(percent of income)
Provision for federal income taxes at the statutory rate	35.0	%	35.0	%	35.0	%
State and local income taxes, net of federal benefit	2.2		1.5		1.5
Non-U.S. income taxed at different rates	(3.9	)	(3.4	)	(3.7	)
Foreign tax credits	(1.7	)	—		(0.5	)
Reduction of unrecognized tax benefits	(0.8	)	(3.2	)	(1.9	)
Research credits	(0.9	)	(0.9	)	(2.1	)
Reduction of valuation allowance	(2.7	)	—		—
Other	0.1		(0.5	)	0.5
Actual provision for income taxes	27.3	%	28.5	%	28.8	%

Significant components of the Company’s deferred taxes consisted of the following (in thousands):



	December 31,
	2015			2014
Deferred tax assets:
Accruals and allowances	$	47,290		$	44,678
Capitalized inventory costs	27,669			25,962
Stock compensation	6,585			6,488
Net operating loss carryforwards	2,971			6,660
Depreciation and amortization	14,288			1,947
Tax credits	5,805			5,496
Other	400			578
Gross deferred tax assets	105,008			91,809
Valuation allowance	(258		)	(6,008		)
Net deferred tax assets	104,750			85,801
Deferred tax liabilities:
Depreciation and amortization	(26,608		)	(25,579		)
Foreign currency loss	(1,477		)	(3,055		)
Other	(713		)	(814		)
Gross deferred tax liabilities	(28,798		)	(29,448		)
Total net deferred taxes	$	75,952		$	56,353

The Company records net deferred tax assets to the extent it believes these assets will more likely than not be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. The Company had net operating loss carryforwards at December 31, 2015 and 2014 in certain international tax jurisdictions of $12,159,000 and $51,965,000, respectively, which will begin to expire in 2026. The net operating losses result in deferred tax assets of $2,971,000 and $6,660,000 at December 31, 2015 and 2014, respectively. These deferred tax assets were subject to a valuation allowance of $5,707,000 at December 31, 2014. During 2015, the Company released the valuation allowance associated with these net operating losses as a reduction to income tax expense. At December 31, 2015, no net operating losses were subject to a valuation allowance.

The Company had undistributed earnings of foreign subsidiaries of approximately $360,295,000 at December 31, 2015 for which deferred taxes have not been provided. Such earnings are considered indefinitely invested outside of the United States. If these earnings were repatriated to the United States, the earnings would be subject to U.S. taxation. The amount of the unrecognized deferred tax liability associated with the undistributed earnings was approximately $75,022,000 at December 31, 2015. The unrecognized deferred tax liability approximates the excess of the United States tax liability over the creditable foreign taxes paid that would result from a full remittance of undistributed earnings.

The Company early-adopted ASU 2015-17, effective December 31, 2015, which requires that deferred tax assets and liabilities be classified as non-current in the Consolidated Balance Sheet. See Note 1 under Changes affecting comparability.

The Company conducts business globally, and as a result, the Company or one or more of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as Canada, China, France, Japan, South Korea, Switzerland and the United States. The Company has effectively settled Canadian tax examinations of all years through 2010, U.S., French and Japanese tax examinations of all years through 2012, and Swiss tax examinations of all years through 2013. The Korean National Tax Service concluded an audit of the Company's 2009 through 2013 corporate income tax returns in 2014, and due to the nature of the findings, the Company has invoked the Mutual Agreement Procedures outlined in the U.S.-Korean income tax treaty. The Company does not anticipate that adjustments relative to this dispute, or any other ongoing tax audits, will result in material changes to its consolidated financial position, results of operations or cash flows. Other than the dispute previously noted, the Company is not currently under examination in any major jurisdiction.

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



	December 31,
	2015			2014			2013
Balance at beginning of year	$	6,630		$	14,639		$	12,431
Increases related to prior year tax positions	365			821			252
Decreases related to prior year tax positions	(2,019		)	(7,623		)	(332		)
Increases related to current year tax positions	6,564			2,473			4,281
Settlements	—			(3,121		)	(84		)
Expiration of statute of limitations	(353		)	(559		)	(1,909		)
Balance at end of year	$	11,187		$	6,630		$	14,639

Due to the potential for resolution of income tax audits currently in progress, and the expiration of various statutes of limitation, it is reasonably possible that the unrecognized tax benefits balance may change within the twelve months following December 31, 2015 by a range of zero to $6,083,000. Open tax years, including those previously mentioned, contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, timing, or inclusion of revenue and expenses or the sustainability of income tax credits for a given examination cycle.

Unrecognized tax benefits of $9,358,000 and $5,139,000 would affect the effective tax rate if recognized at December 31, 2015 and 2014, respectively.

The Company recognizes interest expense and penalties related to income tax matters in income tax expense. The Company recognized a net reversal of accrued interest and penalties of $356,000, $65,000 and $253,000 in 2015, 2014 and 2013, respectively, all of which related to uncertain tax positions. The Company had $2,402,000 and $2,758,000 of accrued interest and penalties related to uncertain tax positions at December 31, 2015 and 2014, respectively.