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Income Taxes | 12 Months Ended
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Dec. 31, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | Note 13. Income Taxes The Company’s income before income tax provision was subject to taxes in the following jurisdictions for the following periods (in thousands):
| Years Ended December 31,
| 2020 |  | 2019 |  | 2018
United States | $ | 68,916 |  |  | $ | 55,352 |  |  | $ | 100,031 |
Foreign | (196,394) |  |  | 40,417 |  |  | 31,241 |
| $ | (127,478) |  |  | $ | 95,769 |  |  | $ | 131,272 |
The expense (benefit) for income taxes is comprised of (in thousands):
| Years Ended December 31,
| 2020 |  | 2019 |  | 2018
Current tax provision: |  |  |  |  |
Federal | $ | 1,665 |  |  | $ | 1,022 |  |  | $ | 736 |
State | 1,467 |  |  | 1,403 |  |  | 1,880 |
Foreign | 5,385 |  |  | 9,933 |  |  | 6,577 |
| 8,517 |  |  | 12,358 |  |  | 9,193 |
Deferred tax (benefit) expense: |  |  |  |  |
Federal | 8,579 |  |  | 10,185 |  |  | 14,844 |
State | 5,166 |  |  | 335 |  |  | 1,086 |
Foreign | (22,806) |  |  | (6,338) |  |  | 895 |
| (9,061) |  |  | 4,182 |  |  | 16,825 |
Income tax (benefit) provision | $ | (544) |  |  | $ | 16,540 |  |  | $ | 26,018 |
On January 4, 2019, the Company acquired Jack Wolfskin for approximately $521,201,000 (including cash acquired of $58,096,000) in a taxable stock acquisition. The Company recorded a deferred tax liability of $88,462,000 related to the intangibles upon acquisition in addition to $11,384,000 deferred tax assets acquired (see Note 6). 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 goodwill and trade name associated with Jack Wolfskin (see Note 9). The impaired goodwill was comprised of book basis with no corresponding deferred tax liability. The trade name impairment resulted in a tax benefit recorded for the reduction of approximately $7,900,000 of deferred tax liability previously recorded as part of acquisition accounting. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2020 and 2019 are as follows (in thousands):
| December 31,
| 2020 |  | 2019
Deferred tax assets: |  |  |
Reserves and allowances not currently deductible for tax purposes | $ | 26,026 |  |  | $ | 22,926 |
Basis difference related to fixed assets | 6,294 |  |  | 8,381 |
Compensation and benefits | 4,968 |  |  | 7,580 |
Basis difference for inventory valuation | 927 |  |  | 849 |
Compensatory stock options and rights | 2,586 |  |  | 3,404 |
Operating loss carryforwards | 19,889 |  |  | 9,080 |
Tax credit carryforwards | 49,525 |  |  | 55,001 |
ASC 842 lease liability | 52,785 |  |  | 44,768 |
Interest expense carryforward | 7,030 |  |  | 5,057 |
Basis difference related to intangible assets with a definite life | 4,370 |  |  | 354 |
Other | 7,992 |  |  | 2,790 |
Total deferred tax assets | 182,392 |  |  | 160,190 |
Valuation allowance for deferred tax assets | (21,032) |  |  | (14,469) |
Deferred tax assets, net of valuation allowance | $ | 161,360 |  |  | $ | 145,721 |
Deferred tax liabilities: |  |  |
Prepaid expenses | (1,323) |  |  | (1,685) |
Convertible debt | (8,958) |  |  | — |
Basis difference related to intangible assets with an indefinite life | (100,062) |  |  | (99,712) |
ASC 842 right-of-use assets | (49,910) |  |  | (43,859) |
Total deferred tax liabilities | (160,253) |  |  | (145,256) |
Net deferred tax assets | $ | 1,107 |  |  | $ | 465 |
Net deferred tax assets (liabilities) are shown on the accompanying consolidated balance sheets as follows: |  |  |
Non-current deferred tax assets | $ | 59,735 |  |  | $ | 73,948 |
Non-current deferred tax liabilities | (58,628) |  |  | (73,483) |
Net deferred tax assets | $ | 1,107 |  |  | $ | 465 |
The net change in net deferred taxes in 2020 of $642,000 is primarily comprised of the additional net operating losses recorded in the Jack Wolfskin group during the year and capitalized research and development expenses offset by additional valuation allowances recorded against state net operating losses and the tax impacts of issuing the convertible debt in 2020. Deferred tax assets and liabilities result from temporary differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are anticipated to be in effect at the time the differences are expected to reverse. The realization of the deferred tax assets, including loss and credit carry forwards, is subject to the Company generating sufficient taxable income during the periods in which the temporary differences become realizable. In accordance with the applicable accounting rules, 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 assets 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. The Company has evaluated all available positive and negative evidence and determined that the majority of its U.S. deferred tax assets were more likely than not to be realized. The valuation allowance on the Company's U.S. deferred tax assets as of December 31, 2020 and 2019 relate primarily to state net operating loss carryforwards and credits the Company estimates it may not be able to utilize in future periods. In the fourth quarter of 2020, based on expected future changes in the Company's state operations, the Company determined that approximately $3,600,000 of California net operating losses are likely to expire unused and recorded a valuation allowance accordingly. With respect to 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 no significant allowances have been established. With respect to the Jack Wolfskin acquisition, no significant valuation allowances were acquired at acquisition or established during 2020. At December 31, 2020, the Company had federal and state income tax credit carryforwards of $41,020,000 and $22,585,000, respectively, which will expire if unused at various dates beginning on December 31, 2027. Such credit carryforwards expire as follows (in thousands):
U.S. foreign tax credit | $ | 18,627 |  |  | 2027 - 2029
U.S. research tax credit | $ | 22,368 |  |  | 2031 - 2040
U.S. business tax credits | $ | 26 |  |  | 2031 - 2039
State investment tax credits | $ | 1,650 |  |  | Do not expire
State research tax credits | $ | 20,935 |  |  | 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 | $ | — |  |  | N/A
State loss carryforwards | $ | 95,552 |  |  | 2032 - 2038
The Company’s ability to utilize the losses and credits 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 for the period ended December 31, 2020. It is likely that each of the Company and Topgolf will experience an ownership change as a result of the Topgolf Merger. Therefore, the Company’s ability to utilize the losses and credits to offset future taxable income may be deferred or limited significantly. A reconciliation of the effective tax rate on income or loss and the statutory tax rate is as follows:
| Years Ended December 31,
| 2020 |  | 2019 |  | 2018
Statutory U.S. tax rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State income taxes, net of U.S. tax benefit | (4.1) | % |  | 1.6 | % |  | 1.8 | %
Foreign income taxed at other than U.S. statutory rate | 7.0 | % |  | (5.0) | % |  | 1.1 | %
Federal tax credits | 2.8 | % |  | (3.5) | % |  | (4.4) | %
Goodwill impairment | (24.5) | % |  | — | % |  | — | %
Other non-deductible expenses | (1.7) | % |  | 1.2 | % |  | 0.7 | %
Non-deductible compensation | (0.7) | % |  | 1.5 | % |  | 0.8 | %
Stock option compensation excess tax benefits | 1.4 | % |  | (1.5) | % |  | (1.0) | %
Intra-entity asset transfers | — | % |  | — | % |  | 0.8 | %
U.S. foreign tax inclusions | (0.4) | % |  | 0.1 | % |  | 1.1 | %
Foreign derived intangible income deduction | 1.1 | % |  | (3.2) | % |  | (2.7) | %
Impact of uncertain tax positions | (1.6) | % |  | 3.7 | % |  | 0.8 | %
Enactment of the Tax Cuts and Jobs Act | — | % |  | — | % |  | 0.3 | %
Change in deferred tax valuation allowance | (0.7) | % |  | 0.2 | % |  | — | %
Other | 0.8 | % |  | 1.2 | % |  | (0.5) | %
Effective tax rate | 0.4 | % |  | 17.3 | % |  | 19.8 | %
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
| 2020 |  | 2019 |  | 2018
Balance at January 1 | $ | 25,993 |  |  | $ | 11,832 |  |  | $ | 9,300 |
Additions based on tax positions related to the current year | 3,119 |  |  | 3,224 |  |  | 1,354 |
Additions for tax positions of prior years | 474 |  |  | 593 |  |  | 1,624 |
Reductions for tax positions of prior years | (186) |  |  | (174) |  |  | (148) |
Settlement of tax audits | — |  |  | (7) |  |  | — |
Current year acquisitions | — |  |  | 11,006 |  |  | — |
Reductions due to lapsed statute of limitations | (1,098) |  |  | (481) |  |  | (298) |
Balance at December 31 | $ | 28,302 |  |  | $ | 25,993 |  |  | $ | 11,832 |
As of December 31, 2020, the gross liability for income taxes associated with uncertain tax benefits was $28,302,000. This liability could be reduced by $471,000 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 $14,613,000 of deferred taxes. The net amount of $13,218,000, if recognized, would affect the Company’s financial statements and favorably affect the Company’s effective income tax rate. The Company does not expect changes to the unrecognized tax benefits in the next 12 months 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 a tax benefit of $437,000, and tax expense of $9,000 and $42,000, for the years ended December 31, 2020, 2019, and 2018, respectively. As of December 31, 2020 and 2019, the gross amount of accrued interest and penalties included in income taxes payable in the accompanying consolidated balance sheets was $1,232,000 and $1,669,000, respectively. 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 | 2010 and prior
California (U.S.) | 2008 and prior
Germany | 2013 and prior
Japan | 2013 and prior
South Korea | 2014 and prior
United Kingdom | 2016 and prior
As of December 31, 2020, the Company had $132,514,000 of undistributed foreign earnings and profits. Pursuant to the Tax Act, the Company’s undistributed foreign earnings and profits were deemed repatriated as of December 31, 2017 and subsequent foreign profits are not expected to be subject to U.S. income tax upon repatriation. The Company has not provided deferred tax liabilities for foreign withholding taxes and certain state income taxes on the undistributed earnings and profits from certain non-U.S. subsidiaries that will be permanently reinvested outside the United States, and expects the net impact of any future repatriations of permanently invested earnings on the Company’s overall tax liability to be insignificant. For jurisdictions in which the Company is not permanently reinvested, the Company has estimated and accrued approximately $2,000,000 for the net impact on the Company’s overall tax liability.

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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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