Callaway 2013 Annual Report Download - page 97

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occur if there is a cumulative increase in ownership of the Company’s stock by “5-percent shareholders” (as defined in
the Code) that exceeds 50 percentage points over a rolling three-year period. The Company determined that no ownership
change has occurred for purposes of Section 382 as of December 31, 2013.
A reconciliation of the effective tax rate on income or loss and the statutory tax rate is as follows:
Years Ended December 31,
2013 2012 2011
Statutory U.S. tax rate ................................................................................................... 35.0 % 35.0 % 35.0 %
State income taxes, net of U.S. tax benefit.................................................................... 0.9 % (0.8)% (0.8)%
Federal and State tax credits, net of U.S. tax benefit .................................................... 22.6 % — % — %
Expenses with no tax benefit......................................................................................... (15.3)% (0.9)% 0.2 %
Foreign income taxed at other than U.S. statutory rate ................................................. (5.1)% 2.0 % (1.0)%
Effect of foreign rate changes........................................................................................ (4.2)% — % (0.5)%
Foreign tax credit........................................................................................................... 9.4 % (1.2)% — %
Basis differences of intangibles with an indefinite life ................................................. (4.1)% 1.3 % (1.0)%
Release of prepaid taxes on intercompany profit .......................................................... — % — % (24.0)%
Change in deferred tax valuation allowance ................................................................. (76.8)% (37.7)% (98.6)%
Reversal of previously accrued taxes ............................................................................ — % 0.1 % — %
Accrual for interest and income taxes related to uncertain tax positions ...................... (0.1)% 0.8 % (0.6)%
Other .............................................................................................................................. (4.3)% (2.8)% 0.9 %
Effective tax rate....................................................................................................... (42.0)% (4.2)% (90.4)%
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
2013 2012 2011
Balance at January 1...................................................................................................... $ 7,064 $ 9,875 $ 9,121
Additions based on tax positions related to the current year.................................. 4,853 432 830
Additions for tax positions of prior years............................................................... 545 96 370
Reductions for tax positions of prior years ............................................................ (538)(24)(39)
Settlement of tax audits .......................................................................................... — (768)—
Reductions due to lapsed statute of limitations...................................................... (73)(2,547)(407)
Balance at December 31................................................................................................ $ 11,851 $ 7,064 $ 9,875
As of December 31, 2013, the liability for income taxes associated with uncertain tax benefits was $11,851,000 and
can be reduced by $2,773,000 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 $6,496,000 of deferred taxes. The net
amount of $2,582,000, if recognized, would affect the Company’s financial statements and favorably affect the Company’s
effective income tax rate.
The Company does expect changes to the unrecognized tax benefits in the next 12 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, 2013, 2012 and 2011, the Company recognized tax expense of approximately $229,000,
$44,000 and $242,000, respectively, related to interest and penalties in the provision for income taxes. As of December 31,
2013 and 2012, the gross amount of accrued interest and penalties included in income taxes payable in the accompanying
consolidated balance sheets was $1,163,000 and $934,000, respectively.