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Income Taxes | 9 Months Ended
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Sep. 30, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | Note 13. Income Taxes The Company calculates its interim income tax provision in accordance with ASC Topic 270, “Interim Reporting,” and ASC Topic 740, “Accounting for Income Taxes.” Historically, the Company calculated the provision for income taxes during the interim reporting periods by applying an estimate of the annual effective tax rate for the full fiscal year to “ordinary” income or loss (pretax income or loss excluding unusual or infrequently occurring discrete items) for the reporting period. The Company determined that since small changes in estimated “ordinary” income would result in significant changes in the estimated annual effective tax rate, the historical method would not provide a reliable estimate for the three- and nine-month periods ended September 30, 2020. Therefore, a discrete effective tax rate method was used to calculate taxes for the three- and nine-month periods ended September 30, 2020. In January 2019, the Company acquired Jack Wolfskin for approximately $521,201,000 (including cash acquired of $58,096,000). The Company recorded a deferred tax liability of $88,392,000 related to the intangibles upon acquisition in addition to $11,384,000 deferred tax assets acquired (see Note 5). In the second quarter of 2020, due to a decline in projected revenues caused by the COVID-19 pandemic, the Company recognized an impairment charge of $174,269,000 to write down the goodwill and trade name associated with Jack Wolfskin to its fair value (see Note 9). The impaired goodwill was comprised of book basis over tax basis with no corresponding deferred tax liability. The brand value impairment resulted in the reduction of approximately $7,900,000 of the deferred tax liability previously recorded as part of acquisition accounting. The realization of deferred tax assets, including loss and credit carryforwards, is subject to the Company generating sufficient taxable income during the periods in which the deferred tax assets become realizable. Due to the Company’s historical profitability, combined with future projections of profitability, the Company has determined that the majority of its U.S. deferred tax assets are more likely than not to be realized. The valuation allowance on the Company’s U.S. deferred tax assets as of September 30, 2020 primarily relates to state net operating loss carryforwards and credits that the Company estimates it may not be able to utilize in future periods. With respect to Jack Wolfskin and previously existing non-U.S. entities, there continues to be sufficient positive evidence to conclude that realization of its deferred tax assets is more likely than not under applicable accounting rules, and therefore no significant valuation allowances have been established. The Company has considered the business disruption impacts from the COVID-19 pandemic and determined that this has not impacted the realization of its deferred tax assets. As this is a dynamically evolving business disruption, the Company will continue to evaluate the COVID-19-related impacts on the realization of its deferred tax assets as new information becomes available. The Company recorded an income tax provision of $5,360,000 and $2,128,000 for the three months ended September 30, 2020 and 2019, respectively. This increase was primarily due to a significant increase in earnings for the third quarter of 2020 compared to the third quarter of 2019 combined with the calculation differences inherent in using a discrete effective rate for the period ended September 30, 2020. As a percentage of pre-tax income, the Company's effective tax rate increased to 9.3% in the third quarter of 2020 compared to 6.4% in the third quarter of 2019, primarily due to changes in the mix of U.S. and foreign earnings and due to calculation differences inherent in using a discrete effective rate for the period ended September 30, 2020. The Company recorded an income tax provision of $6,580,000 and $18,892,000 for the nine months ended September 30, 2020 and 2019, respectively. This decrease was primarily due to a reduction in earnings for the nine months ended September 30, 2020 compared to the same period in 2019. At September 30, 2020, the gross liability for income taxes associated with uncertain tax positions was $27,823,000. Of this amount, $11,640,000 would benefit the Company’s consolidated condensed financial statements and effective income tax rate if favorably settled. The unrecognized tax liabilities are expected to decrease by approximately $428,000 during the next 12 months. The gross liability for uncertain tax positions increased by $706,000 and $1,830,000 for the three and nine months ended September 30, 2020, respectively, primarily due to increases in tax positions taken during the current quarter. The Company recognizes interest and penalties related to income tax matters in income tax expense. For the three months ended September 30, 2020 and 2019, the Company's provision for income taxes includes an expense of $110,000 and $47,000, respectively, and an expense of $163,000 and a benefit of $142,000, for the nine months ended September 30, 2020 and 2019, respectively, related to the recognition of interest and/or penalties. As of September 30, 2020 and December 31, 2019, the gross amount of accrued interest and penalties included in income taxes payable in the accompanying consolidated condensed balance sheets was $1,833,000 and $1,669,000, respectively. The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is generally no longer subject to income tax examinations by tax authorities in the following major jurisdictions:
Tax Jurisdiction |  | Years No Longer Subject to Audit
U.S. federal |  | 2010 and prior
California (U.S.) |  | 2008 and prior
Germany |  | 2014 and prior
Japan |  | 2013 and prior
South Korea |  | 2014 and prior
United Kingdom |  | 2015 and prior
Pursuant to Section 382 of the Internal Revenue Code, use of the Company's net operating losses and credit carry-forwards may be limited significantly if the Company were to experience a cumulative change in ownership of the Company's stock by “5-percent shareholders” that exceeds 50% over a rolling three-year period. The Company does not believe there has been a cumulative change in ownership in excess of 50% during any rolling three-year period, and the Company continues to monitor changes in its ownership. If such a cumulative change did occur in any three-year period and the Company were limited in the amount of losses and credits it could use to offset its tax liabilities, the Company's results of operations and cash flows could be adversely impacted. As described in Note 5, on October 27, 2020 the Company entered into a Merger Agreement with Top golf. The Company is currently evaluating if this transaction will cause an ownership change under IRC 382. The Company cannot presently estimate the impact the merger will have on the realizability of its deferred tax assets as the Company lacks sufficient information to make a complete assessment at this time.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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