Callaway 2014 Annual Report Download - page 95

F-27
In 2011, the Company established a valuation allowance against its U.S. deferred tax assets and discontinued recognizing
income tax benefits related to its U.S. net operating losses. At December 31, 2014 and 2013, the valuation allowance against
the Company’s U.S. deferred tax assets was $165,427,000 and $158,747,000, respectively. If sufficient positive evidence
arises in the future, such as a sustained return to profitability, any existing valuation allowance could be reversed as appropriate,
decreasing income tax expense in the period that such conclusion is reached. The Company has concluded that with respect
to non-U.S. entities, there is sufficient positive evidence to conclude that realization of its deferred tax assets is more likely
than not under applicable accounting rules, and no allowances have been established.
The Company's valuation allowance does not preclude the Company from using loss carry forwards or other deferred
tax assets in the future, except as described below. Until the Company re-establishes a pattern of continuing profitability, in
accordance with the applicable accounting guidance, U.S. income tax expense or benefit related to the recognition of deferred
tax assets in the consolidated statement of operations for future periods will be offset by decreases or increases in the valuation
allowance with no net effect on the consolidated statement of operations.
At December 31, 2014, the Company had federal and state income tax credit carryforwards of $12,174,000 and
$10,680,000, respectively, which will expire at various dates beginning in 2020. Such credit carryforwards expire as follows
(in thousands):
U.S. foreign tax credit................................................................................................................ $ 7,365 2020 - 2023
U.S. research tax credit .............................................................................................................. $ 4,793 2030 - 2033
U.S. business tax credits ............................................................................................................ $ 16 2030 - 2033
State investment tax credits ....................................................................................................... $ 757 Do not expire
State research tax credits............................................................................................................ $ 9,923 Do not expire
The Company has recorded a deferred tax asset reflecting the benefit of operating loss carryforwards. The net operating
losses expire as follows (in thousands):
U.S. loss carryforwards.............................................................................................................. $ 257,037 2031 - 2033
State loss carryforwards............................................................................................................. $ 174,385 2015 - 2033
Although the Company has set up a valuation allowance against the majority of its U.S. federal and state deferred tax
assets, which include net operating loss carry forwards and other losses, such allowance does not preclude the Company from
using the deferred tax assets in the future. However, the Company’s ability to utilize the losses to offset future taxable income
may be deferred or limited significantly if the Company were to experience an “ownership change” as defined in section 382
of the Internal Revenue Code of 1986, as amended (the “Code”). In general, an ownership change will occur if there is a
cumulative change 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, 2014.