Callaway 2009 Annual Report Download - page 107

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, 2009 and 2008 are as follows (in thousands):
December 31,
2009 2008
Deferred tax assets:
Reserves and allowances ................................................ $16,611 $ 18,924
Depreciation .......................................................... 21,480 20,666
Compensation and benefits ............................................... 4,453 8,031
Effect of inventory overhead adjustment .................................... 3,700 4,675
Compensatory stock options and rights ..................................... 6,169 5,619
Deferred revenue and other .............................................. 2,777 1,804
Operating loss carryforwards ............................................. 3,399 1,410
Tax credit carryforwards ................................................ 4,772 2,780
Other ................................................................ 76 239
Total deferred tax assets ..................................................... 63,437 64,148
Valuation allowance for deferred tax assets ...................................... (2,504) (2,277)
Deferred tax assets, net of valuation allowance ................................... 60,933 61,871
Deferred tax liabilities:
State taxes, net of federal income tax benefit ................................. (2,253) (1,846)
Prepaid expenses ....................................................... (2,174) (2,390)
Amortization .......................................................... (26,010) (24,290)
Net deferred tax assets ...................................................... $30,496 $ 33,345
The current year change in net deferred taxes of $2,849,000 is comprised of a net deferred benefit of
$20,000 related to ASC Topic 740-25-6 reserves offset by a net deferred expense of $2,869,000 recorded through
current income tax expense for the year ended December 31, 2009.
Of the total tax credit carryforwards of $4,772,000 at December 31, 2009, the Company has state investment
tax credits of $548,000 which expire prior to 2012, $1,560,000 of state investment tax credits that generally do
not expire and state research and development credits of $2,664,000 that generally do not expire. Of the
$3,399,000 of operating loss carryforwards, $2,710,000 relates to state loss carryforwards which expire prior to
2015 and $420,000 relates to state loss carryforwards that expire at various times between 2015 and 2029. The
remaining balance of $269,000 relates to foreign loss carryforwards that do not expire.
The Company maintains a valuation allowance to reduce certain deferred tax assets to amounts that are, in
management’s estimation, more likely than not to be realized. Of the $2,504,000 valuation allowance at
December 31, 2009, $836,000 is related to certain state net operating loss carryforwards, $1,008,000 is related to
state tax credit carryforwards, and $660,000 is related to certain Top-Flite deferred tax assets existing at the time
of the acquisition. In the future, if the Company determines that the realization of the Top-Flite deferred tax
assets is more likely than not, the reversal of the related valuation allowance will reduce the provision for income
taxes. The change in the valuation allowance during 2009 resulted primarily from the establishment of an
allowance on certain state net operating losses that will expire unutilized offset by the reversal of the allowance
related to certain foreign net operating losses that will be utilized in future years. Based on management’s
assessment, it is more likely than not that the net deferred tax assets will be realized through future earnings.
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