Callaway 2015 Annual Report Download - page 97

F-27
A reconciliation of the effective tax rate on income or loss and the statutory tax rate is as follows:
Years Ended December 31,
2015 2014 2013
Statutory U.S. tax rate..................................................................................................... 35.0 % 35.0 % 35.0 %
State income taxes, net of U.S. tax benefit ..................................................................... 3.5 % 1.9 % 0.9 %
Federal and State tax credits, net of U.S. tax benefit...................................................... (11.5)% (9.8)% 22.6 %
Foreign income taxed at other than U.S. statutory rate .................................................. (2.4)% (13.4)% (5.1)%
Effect of foreign rate changes......................................................................................... 0.9 % 1.3 % (4.2)%
Foreign tax credit............................................................................................................ (12.0)% (13.5)% 9.4 %
Basis differences of intangibles with an indefinite life................................................... 0.1 % 0.1 % (4.1)%
Change in deferred tax valuation allowance................................................................... 0.3 % 35.3 % (76.8)%
Accrual for interest and income taxes related to uncertain tax positions ....................... (0.3)% (7.3)% (0.1)%
Income (loss) from flowthrough entities ........................................................................ (2.0)% (1.9)% 1.3 %
Meals and entertainment................................................................................................. 3.4 % 3.3 % (7.2)%
Group loss relief ............................................................................................................. (3.7)% (2.6)% 4.9 %
Stock option compensation............................................................................................. (1.9)% 2.3 % (6.9)%
Foreign dividends and earnings inclusion ...................................................................... 7.1 % (0.9)% (6.8)%
Foreign tax withholding.................................................................................................. 1.4 % 2.4 % (1.5)%
Executive compensation limitation................................................................................. 4.3 % — % — %
Other ............................................................................................................................... 5.2 % (6.2)% (3.4)%
Effective tax rate........................................................................................................ 27.4 % 26.0 % (42.0)%
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
2015 2014 2013
Balance at January 1 ....................................................................................................... $ 6,559 $ 11,851 $ 7,064
Additions based on tax positions related to the current year................................... 1,120 638 4,853
Additions for tax positions of prior years................................................................ 132 121 545
Reductions for tax positions of prior years.............................................................. (255)(3,691)(538)
Settlement of tax audits ........................................................................................... — (258)—
Reductions due to lapsed statute of limitations ....................................................... (466)(2,102)(73)
Balance at December 31 ................................................................................................. $ 7,090 $ 6,559 $ 11,851
As of December 31, 2015, the gross liability for income taxes associated with uncertain tax benefits was $7,090,000.
This liability could be reduced by $1,368,000 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 $4,674,000 of deferred
taxes. The net amount of $1,048,000, 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. The Company
recognized tax benefits of approximately $2,000 and $101,000 for the years ended December 31, 2015 and 2014, respectively,
and a tax expense of approximately $229,000 for the year ended December 31, 2013, related to interest and penalties in the
provision for income taxes. As of December 31, 2015 and 2014, the gross amount of accrued interest and penalties included
in income taxes payable in the accompanying consolidated balance sheets was $1,060,000 and $1,062,000, respectively.