Callaway 2004 Annual Report Download - page 28

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points for the year ended December 31, 2002. The change in methodology has been accounted for as a change
in accounting principle inseparable from a change in estimate.
In connection with Regulation G, the Company provides the following table which summarizes what net
income and earnings per share would have been had the warranty reserve adjustment, adjusted for taxes, been
excluded from reported results and reconciles such non-GAAP Ñnancial measures to the most directly
comparable GAAP Ñnancial measures (in millions, except per share data):
Year Ended
December 31,
2002
Reported net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 69.4
Non-cash warranty reserve adjustment, net of taxÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (10.5)
Pro forma net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 58.9
Basic earnings per share:
Reported net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1.04
Non-cash warranty reserve adjustment, net of taxÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (0.16)
Pro forma basic earnings per share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 0.88
Diluted earnings per share:
Reported net income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 1.03
Non-cash warranty reserve adjustment, net of taxÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (0.16)
Pro forma diluted earnings per shareÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 0.87
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is contained in Note 2 to the Consolidated
Financial Statements, which is incorporated herein by this reference.
FrogTrader Acquisition
On May 28, 2004, the Company acquired all of the issued and outstanding shares of stock of FrogTrader,
Inc (""FrogTrader''), an e-commerce company which subsequently changed its name to Callaway Golf
Interactive, Inc. The Company's consolidated statements of operations include the Ñnancial results of
FrogTrader for the period from the acquisition date of May 28, 2004. The Company acquired FrogTrader to
stimulate purchases of new clubs by growing the Trade In! Trade Up! program and to enable the Company to
better manage the distribution of pre-owned golf clubs and the Callaway Golf brand.
The FrogTrader acquisition was accounted for as a purchase in accordance with Statement of Financial
Accounting Standards (""SFAS'') No. 141, ""Business Combinations.'' Under SFAS No. 141, the aggregate
cost of the acquired stock was $15.2 million, which included transaction costs of approximately $0.2 million,
and was paid entirely in cash. The aggregate acquisition costs exceeded the estimated fair value of the net
assets acquired. As a result, the Company has recorded goodwill of $9.1 million, none of which is deductible
for tax purposes. The Company has recorded the fair values of FrogTrader's internally developed software and
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