Callaway 2015 Annual Report Download - page 85

F-15
The Company records compensation expense for restricted stock awards and restricted stock units (collectively “restricted
stock”) based on the estimated fair value of the award on the date of grant. The estimated fair value is determined based on
the closing price of the Company’s common stock on the award date multiplied by the number of shares underlying the
restricted stock awarded. Total compensation expense is recognized on a straight-line basis over the vesting period.
Phantom stock units are a form of share-based awards that are indexed to the Company’s stock and are settled in cash.
Compensation expense is recognized on a straight-line basis over the vesting period based on the award’s estimated fair value.
Fair value is remeasured at the end of each interim reporting period through the award’s settlement date and is based on the
closing price of the Company’s stock.
Income Taxes
Current income tax expense or benefit is the amount of income taxes expected to be payable or receivable for the current
year. A deferred income tax asset or liability is established for the difference between the tax basis of an asset or liability
computed pursuant to ASC Topic 740 and its reported amount in the financial statements that will result in taxable or deductible
amounts in future years when the reported amount of the asset or liability is recovered or settled, respectively. The Company
maintains a valuation allowance for a deferred tax asset when it is deemed to be more likely than not that some or all of the
deferred tax asset will not be realized. In evaluating whether a valuation allowance is required under such rules, the Company
considers all available positive and negative evidence, including prior operating results, the nature and reason for any losses,
its forecast of future taxable income, and the dates on which any deferred tax assets are expected to expire. These assumptions
require a significant amount of judgment, including estimates of future taxable income. These estimates are based on the
Company’s best judgment at the time made based on current and projected circumstances and conditions. In 2011, as a result
of this evaluation, the Company recorded a valuation allowance against its U.S. deferred tax assets due to losses generated in
the United States. At the end of each interim and annual reporting period, as the U.S. deferred tax assets are adjusted upwards
or downwards, the associated valuation allowance and income tax expense are also adjusted. If sufficient positive evidence
arises in the future, such as a sustained return to profitability in the U.S. business, any existing valuation allowance could be
reversed as appropriate, decreasing income tax expense and creating a significant one-time non-cash tax benefit in the period
that such conclusion is reached. Prospectively, the Company would then report an effective U.S. income tax rate that is closer
to statutory rates. The Company concluded that with respect to non-U.S. entities, there is sufficient positive evidence to
conclude that the realization of its deferred tax assets is deemed to be likely, and no significant allowances have been established.
For further information, see Note 9 “Income Taxes.”
Pursuant to ASC Topic 740-25-6, the Company is required to accrue for the estimated additional amount of taxes for
uncertain tax positions if it is deemed to be more likely than not that the Company would be required to pay such additional
taxes.
The Company is required to file federal and state income tax returns in the United States and various other income tax
returns in foreign jurisdictions. The preparation of these income tax returns requires the Company to interpret the applicable
tax laws and regulations in effect in such jurisdictions, which could affect the amount of tax paid by the Company. The
Company accrues an amount for its estimate of additional tax liability, including interest and penalties in income tax expense,
for any uncertain tax positions taken or expected to be taken in an income tax return. The Company reviews and updates the
accrual for uncertain tax positions as more definitive information becomes available. Historically, additional taxes paid as a
result of the resolution of the Company’s uncertain tax positions have not been materially different from the Company’s
expectations. The Company recognizes interest and/or penalties related to income tax matters in income tax expense. For
further information, see Note 9 “Income Taxes.”