Callaway 2009 Annual Report Download - page 108

A reconciliation of the effective tax rate is as follows:
Year Ended December 31,
2009 2008 2007
Statutory U.S. tax rate .............................................. 35.0% 35.0% 35.0%
State income taxes, net of U.S. tax benefit ............................... 1.4% 3.6% 3.7%
Federal and State tax credits, net of U.S. tax benefit ....................... 5.4% (0.9)% (1.4)%
Expenses with no tax benefit ......................................... (3.4)% 1.4% 1.4%
Domestic manufacturing tax benefits ................................... (0.7)% (0.3)% (0.8)%
Effect of foreign rate changes ........................................ — — 0.2%
Change in deferred tax valuation allowance ............................. (0.8)% (2.4)% 0.7%
Reversal of previously accrued taxes ................................... 1.5% (1.7)% (1.8)%
Accrual for interest and income taxes related to uncertain tax positions ........ 7.7% — 1.1%
Other ............................................................ 2.4% — 0.1%
Effective tax rate .................................................. 48.5% 34.7% 38.2%
In 2009, 2008 and 2007, the tax rate benefited from net favorable adjustments to previously estimated tax
liabilities in the amount of $457,000, $1,716,000 and $1,620,000, respectively. The most significant favorable
adjustments in each year related to adjustments resulting from the finalization of the Company’s prior year U.S.
and state income tax returns as well as agreements reached with the Internal Revenue Service (“IRS”) and other
major jurisdictions on certain issues necessitating a reassessment of the Company’s tax exposures for all open tax
years, with no individual year being significantly affected.
Effective January 1, 2007, the Company was required to adopt and implement the provisions of ASC Topic
740-25-6, which requires the Company to accrue for the estimated additional amount of taxes for uncertain tax
positions if it is more likely than not that the Company would be required to pay such additional taxes. An
uncertain income tax position will not be recognized if it has less than 50% likelihood of being sustained. As a
result of the adoption of ASC Topic 740-25-6 in 2007, 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):
2009 2008 2007
Balance at January 1 ................................................. $16,525 $16,850 $23,632
Additions based on tax positions related to the current year .............. 1,364 2,441 2,122
Additions for tax positions of prior years ............................ 866 1,588 666
Reductions for tax positions of prior years—Other ..................... (70) (156) (1,063)
Reductions for tax positions of prior years—Bilateral Advanced Pricing
Agreement between U.S. and Japan ............................... — — (8,239)
Settlements .................................................... (1,842) (2,327) (258)
Reductions due to lapsed statute of limitations ........................ (1,012) (1,871) (10)
Balance at December 31 .............................................. $15,831 $16,525 $16,850
As of December 31, 2009, the liability for income taxes associated with uncertain tax benefits was
$15,831,000 and can be reduced by $9,206,000 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
$941,000 of tax benefits associated with state income taxes and other timing adjustments which are recorded as
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