Callaway 2005 Annual Report Download - page 42

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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 financial 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 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 millions):
Assets Acquired:
Cash ............................................................................ $ 6.0
Accounts receivable ................................................................ 0.1
Inventory ........................................................................ 2.0
Other current assets ................................................................ 1.5
Property, plant and equipment ........................................................ 0.3
Internally developed software ........................................................ 1.2
Customer lists ..................................................................... 0.7
Goodwill ......................................................................... 9.1
Liabilities Assumed:
Current liabilities .................................................................. (5.6)
Long-term liabilities ................................................................ (0.1)
Total net assets acquired ........................................................ $15.2
Top-Flite Acquisition
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 settlement of the international assets was effective 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 Company’s results of operations include The Top-Flite Golf Company’s results in the
United States beginning September 15, 2003 and the results of the international operations beginning October 1,
2003.
The Top-Flite Acquisition provided a unique opportunity to significantly increase the size and profitability
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.
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