Callaway 2000 Annual Report Download - page 43

Callaway Golf Company | 43
Note 12
INCOME TAXES
The Company’s income (loss) before income tax provision (benefit)
was subject to taxes in the following jurisdictions for the following
periods:
(in thousands) Year Ended December 31,
2000 1999 1998
United States $101,890 $75,799 $(34,555)
Foreign 27,432 9,698 (4,344)
$129,322 $85,497 $(38,899)
The provision (benefit) for income taxes is as follows:
(in thousands) Year Ended December 31,
2000 1999 1998
Current tax provision:
United States $26,616 $14,779 $ 21,345
State 5,130 2,774 2,296
Foreign 10,623 3,044 250
Deferred tax expense (benefit):
United States 7,463 8,956 (31,173)
State (1,596) 1,162 (4,847)
Foreign (870) (540) (206)
Income tax provision (benefit): $47,366 $30,175 $(12,335)
During 2000, 1999 and 1998, the Company recognized certain
tax benefits related to stock option plans in the amount of
$6,806,000, $2,377,000 and $3,068,000, respectively. Such bene-
fits were recorded as a reduction of income taxes payable and an
increase in additional paid-in capital.
Significant components of the Company’s deferred tax assets
and liabilities as of December 31, 2000 and 1999 are as follows:
(in thousands) December 31,
2000 1999
Deferred tax assets:
Reserves and allowances $22,365 $28,052
Depreciation and amortization 12,225 16,601
Compensation and benefits 7,208 7,010
Effect of inventory overhead adjustment 1,934 1,977
Compensatory stock options and rights 3,473 2,573
Foreign net operating loss carryforwards 107 798
Revenue recognition 1,320
Other 1,793 441
Restructuring charges
Long-lived asset impairment 1,738 1,740
Rental/lease arrangements 557
Capital loss carryforward 834 829
Tax credit carryforwards 3,200 2,827
Total deferred tax assets 56,197 63,405
Valuation allowance for deferred tax assets (1,354) (4,190)
Deferred tax assets, net of valuation allowance 54,843 59,215
Deferred tax liabilities:
State taxes, net of federal income tax benefit (2,157) (2,128)
Net deferred tax assets $52,686 $57,087
At December 31, 2000, the Company had tax credit carry-
forwards primarily relating to state investment tax credits which
have expiration dates beginning with December 31, 2006.
A valuation allowance has been established due to the uncer-
tainty of realizing certain tax credits, carryforwards, and a portion
of other deferred tax assets. The valuation allowance was
decreased by $2,836,000 during 2000, of which $2,373,000 was
attributable to state research and investment tax credits. Based
on management’s assessment, it is more likely than not that all
the net deferred tax assets will be realized through future earn-
ings or implementation of tax planning strategies.
A reconciliation of income taxes computed by applying the
statutory U.S. income tax rate to the Company’s income (loss)
before income taxes to the income tax provision (benefit) is as
follows:
(in thousands) Year Ended December 31,
2000 1999 1998
Amounts computed at
statutory U.S. tax rate $45,263 $29,924 $(13,615)
State income taxes, net of
U.S. tax benefit 4,112 3,046 (1,501)
State tax credits, net of
U.S. tax benefit (325) (2,075)
Nondeductible foreign losses 65 (476) 1,226
Expenses with no tax benefit 931 814 1,064
Nondeductible capital losses 130 588
Foreign sales corporation
tax benefits (1,487) (1,471) (236)
Nontaxable insurance proceeds (1,408)
Change in tax valuation
allowance (2,836) 2,431
Other 1,643 (740) 139
Income tax provision (benefit) $47,366 $30,175 $(12,335)
U.S. tax return examinations have been completed for the
years through 1994. Management believes adequate provisions for
income tax have been recorded for all years.
Note 13
COMMITMENTS AND CONTINGENCIES
On July 24, 2000, Bridgestone Sports Co., Ltd. (“Bridgestone”)
filed a complaint for patent infringement in the United States
District Court for the Northern District of Georgia, Civil Action
No. 100-CV-1871, against Callaway Golf Company, Callaway Golf
Ball Company (collectively “Callaway Golf”), and a golf retailer
located in Georgia (the “U.S. Action”). Bridgestone alleges in the
U.S. Action that the manufacture and sale of the Company’s
Rule 35® golf ball infringes four U.S. golf ball patents owned by
Bridgestone. Bridgestone is seeking unspecified damages and