Callaway 2007 Annual Report Download - page 98

tax position will not be recognized if it has less than 50% likelihood of being sustained. As a result of the
adoption of FIN 48, the Company recognized an increase in the liability for its uncertain tax positions of
$437,000, of which the entire charge was accounted for as a decrease to the beginning balance of retained
earnings. The accrual for uncertain tax positions can result in a difference between the estimated benefit recorded
in the Company’s financial statements and the benefit taken or expected to be taken in the Company’s income tax
returns. This difference is generally referred to as an “unrecognized tax benefit.”
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in
thousands):
Balance at January 1, 2007 ............................................................ $23,632
Additions based on tax positions related to the current year .............................. 2,122
Additions for tax positions of prior years ............................................. 666
Reductions for tax positions of prior years—Other ..................................... (1,063)
Reductions for tax positions of prior years—Bilateral Advanced Pricing Agreement between US
and Japan .................................................................... (8,239)
Settlements .................................................................... (258)
Expiration of the statute of limitations for the assessment of taxes ......................... (10)
Balance at December 31, 2007 ......................................................... $16,850
As of December 31, 2007, the liability for income taxes associated with uncertain tax benefits was
$16,850,000 and can be reduced by $8,143,000 of offsetting tax benefits associated with the correlative effects of
potential transfer pricing adjustments which was recorded as a long-term income tax receivable as well as
$884,000 of tax benefits associated with state income taxes and other timing adjustments which are recorded as
deferred income taxes pursuant to FIN 48. The net amount of $7,823,000, if recognized, would affect the
Company’s financial statements and favorably affect the Company’s effective income tax rate.
The Company does expect changes in the amount of unrecognized tax benefits in the next 12 months;
however, the Company does not expect the change to have a material impact on its results of operations or its
financial position.
The Company recognizes interest and/or penalties related to income tax matters in income tax expense. For
the year ended December 31, 2007 the Company recognized approximately $474,000 of interest and penalties in
the provision for income taxes. As of December 31, 2007, and 2006, the Company had accrued $1,524,000 and
$1,050,000, respectively, (before income tax benefit) for the payment of interest and penalties.
The Internal Revenue Service field examination of tax years 2001 through 2003 is complete and certain
issues are pending before IRS Appeals. It is reasonably possible that resolution can be reached by December 31,
2008. Any possible settlement could increase/(decrease) earnings but is not expected to be significant. Audit
outcomes and the timing of audit settlements are subject to significant uncertainty.
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