Callaway 2013 Annual Report Download - page 98

F-28
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:
Major Tax Jurisdiction Years No Longer Subject to Audit
U.S. federal..................................................................................................................... 2008 and prior
California (U.S.)............................................................................................................. 2008 and prior
Canada............................................................................................................................ 2007 and prior
Japan............................................................................................................................... 2007 and prior
South Korea.................................................................................................................... 2008 and prior
United Kingdom............................................................................................................. 2009 and prior
As of December 31, 2013, the Company did not provide for United States income taxes or foreign withholding
taxes on a cumulative total of $109,437,000 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. If
the foreign earnings were remitted, the Company does not anticipate any federal or state income taxes due to the valuation
allowance against the Company’s U.S. deferred tax assets offset. The Company estimates that it would have withholding
taxes of $1,200,000 upon remittance.
Note 13. 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 material 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.
Set forth is a description of certain litigation to which the Company is a party:
Cleveland Golf Litigation. On October 18, 2013, Dunlop Sports Co., Ltd., a Japanese Corporation, and its wholly-
owned subsidiary, Roger Cleveland Golf Company, Inc., which sells golf equipment under the Cleveland and Cleveland
Golf trademarks (“Cleveland Golf”), filed a complaint against Callaway Golf Company in the United States District Court
- Central District of California (Case 8:13-cv-01642). The Complaint alleges that Callaway’s use on its Callaway branded
Mack Daddy 2 Wedges of the phrase “Designed by Roger Cleveland” constitutes trademark infringement (and related
claims) of Cleveland Golf’s “Cleveland” trademark. The plaintiffs are seeking unspecified damages, including punitive
damages, costs and attorneys’ fees, as well as injunctive relief. Roger Cleveland has been an employee of Callaway since
1996 and has been designing golf clubs for Callaway for over 17 years.
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, including the Cleveland Golf litigation noted above. These matters, including the matter specifically
described above, are inherently unpredictable and the resolutions of these matters are subject to many uncertainties and