Callaway 2011 Annual Report Download - page 107

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consolidated financial statements as of December 31, 2010 and in certain prior periods. This understatement
relates to the tax treatment of certain intangible assets, certain depreciable assets, deductible stock options and
deferred revenue related to gift cards, all of which relate to periods prior to 2008. Accordingly, the Company
recorded a prior period adjustment as of December 31, 2008, which resulted in a decrease to retained earnings of
$9,428,000 and an increase to additional paid-in capital of $461,000, with corresponding decreases of $879,000
and $8,088,000 to short-term and long-term deferred tax assets. These corrections do not impact the Company’s
consolidated statements of operations previously reported in the Company’s consolidated financial statements for
each of the three years in the period ended December 31, 2010. The Company does not believe the foregoing
corrections are material to such financial statements. The effects of these corrections on the Company’s
December 31, 2010 consolidated financial statements are summarized as follows (in thousands):
December 31, 2010
As Previously
Reported As Corrected
Deferred tax assets, net (current) .......................................... $ 24,393 $ 23,514
Deferred tax assets, net (non-current) ...................................... $ 11,874 $ 3,786
Additional paid-in capital ................................................ $263,774 $264,235
Retained earnings ...................................................... $442,405 $432,977
Note 17. Commitments and Contingencies
Legal Matters
The Company is subject to routine legal claims, proceedings, and investigations incident to its business
activities, including claims, proceedings, and investigations relating to commercial disputes and employment
matters. The Company also receives from time to time information claiming that products sold by the Company
infringe or may infringe patent, trademark, or other intellectual property rights of third parties. One or more such
claims of potential infringement could lead to litigation, the need to obtain licenses, the need to alter a product to
avoid infringement, a settlement or judgment, or some other action or material loss by the Company, which also
could adversely affect the Company’s overall ability to protect its product designs and ultimately limit its future
success in the marketplace. In addition, the Company is occasionally subject to non-routine claims, proceedings,
or investigations.
The Company regularly assesses such matters to determine the degree of probability that the Company will
incur a loss as a result of such matters as well as the range of possible loss. An estimated loss contingency is
accrued in the Company’s financial statements if it is probable the Company will incur a loss and the amount of
the loss can be reasonably estimated. The Company reviews all claims, proceedings, and investigations at least
quarterly and establishes or adjusts any accruals for such matters to reflect the impact of negotiations,
settlements, advice of legal counsel, and other information and events pertaining to a particular matter. All legal
costs associated with such matters are expensed as incurred.
Historically, the claims, proceedings and investigations brought against the Company, individually, and in
the aggregate, have not had a material adverse effect upon the consolidated results of operations, cash flows, or
financial position of the Company. The Company believes that it has valid legal defenses to the matters currently
pending against the Company. These matters, including the matters specifically described below, are inherently
unpredictable and the resolutions of those matters are subject to many uncertainties and the outcomes are not
predictable with assurance. Consequently, management is unable to estimate the ultimate aggregate amount of
monetary loss, amounts covered by insurance, or the financial impact that will result from such matters.
Management believes that the final resolution of the current matters pending against the Company, individually
and in the aggregate, will not have a material adverse effect upon the Company’s consolidated financial position.
It is possible, however, that the Company’s results of operations or cash flows could be materially affected in any
particular period by the unfavorable resolution of one or more of these contingencies.
F-33