Callaway 2005 Annual Report Download - page 95

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CALLAWAY GOLF COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The provision (benefit) for income taxes is as follows (in thousands):
Year Ended December 31,
2005 2004 2003
Current tax provision (benefit):
Federal ............................................ $(3,652) $(24,700) $21,452
State .............................................. (1,087) (270) 2,954
Foreign ............................................ 7,905 5,160 7,215
Deferred tax expense (benefit):
Federal ............................................ (1,789) 10,147 (8,323)
State .............................................. 459 (2,814) 120
Foreign ............................................ (583) (1,133) (1,058)
Income tax provision (benefit) ............................. $1,253 $(13,610) $22,360
During 2005, 2004, and 2003, tax benefits related to stock option exercises were $2,408,000, $2,161,000,
and $1,784,000, respectively. Such benefits were recorded as a reduction of income taxes payable and an
increase in additional paid-in capital.
Deferred tax assets and liabilities are classified as current or noncurrent according to the classification of the
related asset or liability. Significant components of the Company’s deferred tax assets and liabilities as of
December 31, 2005 and 2004 are as follows (in thousands):
December 31,
2005 2004
Deferred tax assets:
Reserves and allowances ........................................ $17,944 $16,414
Compensation and benefits ...................................... 6,854 6,765
Effect of inventory overhead adjustment ........................... 3,291 5,815
Compensatory stock options and rights ............................ 2,880 941
Revenue recognition ........................................... 9,621 9,177
Long-lived asset impairment ..................................... 635 635
Operating loss carryforward ..................................... 2,221 3,305
Tax credit carryforwards ........................................ 3,649 3,770
Energy derivative ............................................. 8,230 8,230
Other ....................................................... 1,115 1,280
Total deferred tax assets ............................................ 56,440 56,332
Valuation allowance for deferred tax assets ............................. (4,980) (4,706)
Deferred tax assets, net of valuation allowance .......................... 51,460 51,626
Deferred tax liabilities:
State taxes, net of federal income tax benefit ........................ (3,274) (3,374)
Prepaid expenses .............................................. (2,209) (2,405)
Depreciation and amortization ................................... (1,269) (3,051)
Net deferred tax assets .............................................. $44,708 $42,796
Of the total tax credit carryforwards of $3,649,000 at December 31, 2005, the Company has state investment
tax credits of $2,353,500 which expire at various dates through 2012 and $482,600 that generally do not
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