Callaway 2008 Annual Report Download - page 102

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, 2008 and 2007 are as follows (in thousands):
December 31,
2008 2007
Deferred tax assets:
Reserves and allowances ................................................ $18,924 $ 18,476
Depreciation .......................................................... 20,666 9,575
Compensation and benefits ............................................... 8,031 16,060
Effect of inventory overhead adjustment .................................... 4,675 4,398
Compensatory stock options and rights ..................................... 5,619 5,836
Deferred revenue and other .............................................. 1,804 2,080
Operating loss carryforwards ............................................. 1,410 1,705
Tax credit carryforwards ................................................ 2,780 3,633
Energy derivative ...................................................... — 8,305
Other ................................................................ 239 44
Total deferred tax assets ..................................................... 64,148 70,112
Valuation allowance for deferred tax assets ...................................... (2,277) (4,702)
Deferred tax assets, net of valuation allowance ................................... 61,871 65,410
Deferred tax liabilities:
State taxes, net of federal income tax benefit ................................. (1,846) (3,094)
Prepaid expenses ....................................................... (2,390) (1,707)
Amortization .......................................................... (24,290) (20,757)
Net deferred tax assets ...................................................... $33,345 $ 39,852
The Company identified a misclassification in the presentation of its long-term deferred taxes in 2007. The
Company had reported in its consolidated balance sheet long-term deferred tax assets and long-term deferred tax
liabilities as separate line items. In accordance with paragraph 42 of SFAS No. 109, “Accounting for Income
Taxes”, deferred tax assets and deferred tax liabilities should be offset and presented as a single amount when
they relate to a particular tax-paying component of an enterprise within the same tax jurisdiction. As such, the
Company’s 2007 consolidated balance sheet has been corrected to be consistent with the requirements of SFAS
No. 109 and the current presentation to report only the net amount of current and long-term deferred tax assets
and deferred tax liabilities when they relate to the same tax jurisdiction. This correction resulted in an
$18,885,000 decline in long-term deferred tax assets from $18,885,000 to zero as well as a corresponding decline
in long-term deferred tax liabilities from $21,252,000 to $2,367,000. Additionally, total assets decreased from
$856,963,000 to $838,078,000 as of December 31, 2007. This correction has no effect on the previously reported
shareholders’ equity, statement of cash flows or net income.
The current year change in net deferred taxes of $6,507,000 is comprised of a net deferred benefit of
$510,000 related to FIN 48 reserves offset by a net deferred expense of $7,017,000 recorded through current
income tax expense for the year ended December 31, 2008.
Of the total tax credit carryforwards of $2,780,000 at December 31, 2008, the Company has state investment
tax credits of $646,000, which expire in 2009 and $1,527,000 that generally do not expire and state research and
development credit carryforwards of $607,000 that generally do not expire. Of the $1,410,000 of operating loss
carryforwards, $845,000 relates to state loss carryforwards that expire in 2010, $346,000 relates to foreign loss
carryforwards that will expire in 2013 and $219,000 relates to loss carryforwards that do not expire.
The Company maintains a valuation allowance to reduce certain deferred tax assets to amounts that are not,
in management’s estimation, more likely than not to be realized. This allowance primarily relates to the
uncertainty of realizing certain state tax credit carryforwards and state operating loss carryforwards. Of the
$2,277,000 valuation allowance at December 31, 2008, $660,000 is related to certain Top-Flite deferred tax
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