Callaway 2008 Annual Report Download - page 104

As of December 31, 2008, the liability for income taxes associated with uncertain tax benefits was
$16,525,000 and can be reduced by $6,160,000 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
$2,475,000 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 $7,890,000, 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 twelve 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, 2008 the Company recognized a benefit of approximately $195,000 related to
interest and penalties in the provision for income taxes. This benefit resulted from the reversal of interest
previously accrued on issues that were either settled or for which the statute of limitations lapsed during the year.
As of December 31, 2008 and 2007, the Company had accrued $1,329,000 and $1,524,000, respectively, (before
income tax benefit) for the payment of interest and penalties.
All issues that were pending before IRS Appeals on December 31, 2007 related to tax years 2001 through
2003 were settled during 2008. Resolution of the issues pending before Appeals resulted in a minor increase to
net earnings in 2008. The Company is currently under audit by the IRS for tax years 2005 through 2007 and the
examination is not expected to be concluded within the next twelve months.
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction and various
states and foreign jurisdictions. The Company is generally no longer subject to income tax examinations by tax
authorities in its major jurisdictions as follows:
Tax Jurisdiction Years No Longer Subject to Audit
U.S. federal 2004 and prior
California (U.S.) 2000 and prior
Massachusetts (U.S.) 2003 and prior
Australia 2003 and prior
Canada 2003 and prior
Japan 2003 and prior
Korea 2002 and prior
United Kingdom 2002 and prior
As of December 31, 2008, the Company did not provide for United States income taxes or foreign
withholding taxes on a cumulative total of $77,300,000 of undistributed earnings from certain non-U.S.
subsidiaries that will be permanently reinvested outside the United States. Upon remittance, certain foreign
countries impose withholding taxes that are then available, subject to certain limitations, for use as credits against
the Company’s U.S. tax liability, if any. It is not practicable to estimate the amount of the deferred tax liability on
such unremitted earnings. Should the Company repatriate foreign earnings, the Company would have to adjust
the income tax provision in the period management determined that the Company would repatriate earnings.
Note 15. Commitments and Contingencies
Legal Matters
In conjunction with the Company’s program of enforcing its proprietary rights, the Company has initiated or
may initiate actions against alleged infringers under the intellectual property laws of various countries, including,
for example, the U.S. Lanham Act, the U.S. Patent Act, and other pertinent laws. The Company is also active
internationally. For example, it has worked with other golf equipment manufacturers to encourage Chinese and
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