Callaway 2010 Annual Report Download - page 113

A reconciliation of the effective tax rate on income or loss and the statutory tax rate is as follows:
Year Ended December 31,
2010 2009 2008
Statutory U.S. tax rate ..................................................... 35.0% 35.0% 35.0%
State income taxes, net of U.S. tax benefit ..................................... 1.5% 1.4% 3.6%
Federal and State tax credits, net of U.S. tax benefit ............................. 2.6% 5.4% (0.9)%
Expenses with no tax benefit ................................................ (2.4)% (3.4)% 1.4%
Domestic manufacturing tax benefits ......................................... — (0.7)% (0.3)%
Change in deferred tax valuation allowance .................................... 2.2% (0.8)% (2.4)%
Reversal of previously accrued taxes ......................................... 1.4% 1.5% (1.7)%
Accrual for interest and income taxes related to uncertain tax positions .............. 5.2% 7.7% —
Other .................................................................. 1.6% 2.4% —
Effective tax rate ......................................................... 47.1% 48.5% 34.7%
In 2010, 2009 and 2008, the tax rate benefited from net favorable adjustments to previously estimated tax
liabilities in the amount of $515,000, $457,000 and $1,716,000, 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.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in
thousands):
2010 2009 2008
Balance at January 1 ................................................. $15,831 $16,525 $16,850
Additions based on tax positions related to the current year .............. 1,825 1,364 2,441
Additions for tax positions of prior years ............................ 110 866 1,588
Reductions for tax positions of prior years—Other ..................... (1,832) (70) (156)
Settlement of tax audits .......................................... (4,157) (1,842) (2,327)
Reductions due to lapsed statute of limitations ........................ (2,656) (1,012) (1,871)
Balance at December 31 .............................................. $ 9,121 $15,831 $16,525
As of December 31, 2010, the liability for income taxes associated with uncertain tax benefits was
$9,121,000 and can be reduced by $4,110,000 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
$978,000 of tax benefits associated with state income taxes and other timing adjustments which are recorded as
deferred income taxes pursuant to ASC Topic 740-25-6. The net amount of $4,033,000, 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 changes 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 years ended December 31, 2010, 2009 and 2008, the Company recognized a net benefit of approximately
$490,000, $190,000 and $195,000, respectively, related to interest and penalties in the provision for income
taxes. As of December 31, 2010 and 2009, the Company had accrued $648,000 and $1,139,000, respectively,
(before income tax benefit) for the payment of interest and penalties.
During 2010 the Company concluded an audit by the IRS for tax years 2005 through 2007. The results of
the examination did not have a material effect on the financial statements.
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