Callaway 2014 Annual Report Download - page 82

F-14
Income Taxes
Current income tax expense or benefit is the amount of income taxes expected to be payable or receivable for the current
year. A deferred income tax asset or liability is established for the difference between the tax basis of an asset or liability
computed pursuant to ASC Topic 740 and its reported amount in the financial statements that will result in taxable or deductible
amounts in future years when the reported amount of the asset or liability is recovered or settled, respectively. The Company
maintains a valuation allowance for a deferred tax asset when it is deemed to be more likely than not that some or all of the
deferred tax asset will not be realized. In evaluating whether a valuation allowance is required under such rules, the Company
considers all available positive and negative evidence, including prior operating results, the nature and reason for any losses,
its forecast of future taxable income, and the dates on which any deferred tax assets are expected to expire. These assumptions
require a significant amount of judgment, including estimates of future taxable income. These estimates are based on the
Company’s best judgment at the time made based on current and projected circumstances and conditions. In 2011, as a result
of this evaluation, the Company recorded a valuation allowance against its U.S. deferred tax assets. At the end of each interim
and annual reporting period, as the U.S. deferred tax assets are adjusted upwards or downwards, the associated valuation
allowance and income tax expense are also adjusted. If sufficient positive evidence arises in the future, such as a sustained
return to profitability in the U.S. business, any existing valuation allowance could be reversed as appropriate, decreasing
income tax expense in the period that such conclusion is reached. The Company concluded that with respect to non-U.S.
entities, there is sufficient positive evidence to conclude that the realization of its deferred tax assets is deemed to be likely,
and no allowances have been established. For further information, see Note 12 “Income Taxes.”
Pursuant to ASC Topic 740-25-6, the Company is required to accrue for the estimated additional amount of taxes for
uncertain tax positions if it is deemed to be more likely than not that the Company would be required to pay such additional
taxes.
The Company is required to file federal and state income tax returns in the United States and various other income tax
returns in foreign jurisdictions. The preparation of these income tax returns requires the Company to interpret the applicable
tax laws and regulations in effect in such jurisdictions, which could affect the amount of tax paid by the Company. The
Company accrues an amount for its estimate of additional tax liability, including interest and penalties in income tax expense,
for any uncertain tax positions taken or expected to be taken in an income tax return. The Company reviews and updates the
accrual for uncertain tax positions as more definitive information becomes available. Historically, additional taxes paid as a
result of the resolution of the Company’s uncertain tax positions have not been materially different from the Company’s
expectations. The Company recognizes interest and/or penalties related to income tax matters in income tax expense. For
further information, see Note 12 “Income Taxes.”
Other Income (Expense), Net
Other income (expense), net primarily includes gains and losses on foreign currency exchange contracts and foreign
currency transactions. The components of other income (expense), net are as follows:
Years Ended December 31,
2014 2013 2012
(In thousands)
Foreign currency exchange contract gains/(losses), net ................................................. $ 6,356 $ 6,764 $ 6,591
Foreign currency transaction gains/(losses), net............................................................. (6,198)(821)(3,343)
Other ............................................................................................................................... (206)62(96)
$(48) $ 6,005 $ 3,152
Accumulated Other Comprehensive Income
Accumulated other comprehensive income includes the impact of foreign currency translation adjustments. Since the
Company has met the permanent reinvestment criteria, it does not accrue income taxes on foreign currency translation
adjustments. The total equity adjustment from foreign currency translation included in accumulated other comprehensive
income were losses of $12,973,000 and $2,593,000 as of December 31, 2014 and 2013, respectively.