Callaway 2004 Annual Report Download - page 80

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CALLAWAY GOLF COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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 $15,175,000, which included transaction costs of approximately $218,000, 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 $9,097,000, none of which is deductible for tax
purposes. The Company has recorded the fair values of FrogTrader's internally developed software and certain
customer information based on an assessment from an outside valuation company received during 2004. The
allocation of the aggregate acquisition costs is as follows (in thousands):
Assets:
Cash ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 5,971
Accounts receivable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 85
Inventory ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,962
Other current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,475
Property, plant and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 258
Internally developed software ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 1,200
Customer lists ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 700
GoodwillÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ 9,097
Liabilities:
Current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (5,567)
Long-term liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ (6)
Total net assets acquired ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $15,175
Top-Flite Asset Purchase
On September 15, 2003, the Company acquired through a court-approved sale substantially all of the
golf-related assets of TFGC Estate Inc. (f/k/a The Top-Flite Golf Company, f/k/a Spalding Sports
Worldwide, Inc.) and thereafter completed the valuation and settlement of certain additional assets related to
the international operations of TFGC Estate Inc. (the ""Top-Flite Acquisition''). The settlement of the
international assets was eÅective October 1, 2003. Assets located in the United States were acquired by the
Company's newly-formed, wholly-owned subsidiary, The Top-Flite Golf Company. Foreign assets were
acquired by the Company's existing wholly-owned subsidiaries in the relevant countries.
The acquisition of the Top-Flite assets provided a unique opportunity to signiÑcantly increase the size and
proÑtability of the Company's golf ball business and the Company was able to purchase the acquired assets at
less than their estimated fair value. The Company paid the cash purchase price for the Top-Flite Acquisition
from cash on hand. The Company intends to continue the U.S. and foreign operations of the acquired golf
assets, including the use of acquired assets in the manufacturing of golf balls and golf clubs and the
commercialization of the Top-Flite and Ben Hogan brands, patents and trademarks.
The Company's consolidated statements of operations include the Company's Top-Flite business results
of operations in the United States from September 15, 2003 forward and the Company's Top-Flite business
results of operations outside the United States from October 1, 2003 forward.
The Top-Flite Acquisition was accounted for as a purchase in accordance with SFAS No. 141 ""Business
Combinations.'' Under SFAS No. 141, the estimated aggregate cost of the acquired assets was $182,960,000,
which includes cash paid of $154,145,000, transaction costs of approximately $6,331,000, and assumed
liabilities of approximately $22,484,000. The estimated fair value of the net assets acquired exceeded the
estimated aggregate acquisition costs. As a result, the Company was required to reduce the carrying value of
F-15