Callaway 2005 Annual Report Download - page 79

CALLAWAY GOLF COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Goodwill and Intangible Assets
Goodwill and intangible assets consist of goodwill, trade name, trademark, trade dress, patents and other
intangible assets acquired during the acquisition of Odyssey Sports, Inc., the Top-Flite assets, FrogTrader, Inc.
and certain foreign distributors. See Note 3 for further discussion of the intangible assets acquired in connection
with the FrogTrader and Top-Flite Acquisitions.
In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” goodwill and intangible assets
with indefinite lives are not amortized but instead are measured for impairment at least annually, or when events
indicate that an impairment exists. The Company calculates impairment as the excess of the carrying value of its
indefinite-lived intangible assets over their estimated fair value. If the carrying value exceeds the estimate of fair
value a write-down is recorded.
Intangible assets that are determined to have definite lives are amortized over their useful lives and are
measured for impairment only when events or circumstances indicate the carrying value may be impaired in
accordance with SFAS No. 144 discussed above. See Note 6 for further discussion of the Company’s goodwill
and intangible assets.
Stock-Based Compensation
The Company has stock-based compensation plans, which are described in Note 10. The Company accounts
for its stock-based employee compensation plans using the recognition and measurement principles (intrinsic
value method) of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to
Employees,” and related interpretations. The Company accounts for its stock-based non-employee compensation
plans using SFAS No. 123, “Accounting for Stock-Based Compensation.” All employee stock option awards
were granted with an exercise price equal to the market value of the underlying Common Stock on the date of
grant and no compensation cost is reflected in net income for those awards. For the years ended December 31,
2005, 2004 and 2003, the Company recorded compensation expense of $6,527,000, $1,741,000 and $15,000,
respectively, in operating income as a result of restricted stock awards and certain options to purchase shares of
stock granted to employees, officers, professional endorsers and consultants of the Company. Pro forma
disclosures of net income (loss) and earnings (loss) per share, as if the fair value-based recognition provisions of
SFAS No. 123 had been applied in measuring stock-based employee compensation expense, are as follows:
Year Ended December 31,
2005 2004 2003
(In thousands, except
per share data)
Net income (loss), as reported ........................................ $13,284 $(10,103) $45,523
Add: Stock-based employee compensation expense included in reported net
income, net of related tax effects .................................... 379 84 10
Deduct: Total stock-based employee compensation expense determined under
fair value based method for all awards, net of related tax effects ........... (6,078) (6,605) (9,839)
Pro forma net income (loss) .......................................... $ 7,584 $(16,624) $35,694
Earnings (loss) per Common Share:
Basic—as reported ............................................. $ 0.19 $ (0.15) $ 0.69
Basic—pro forma .............................................. $ 0.11 $ (0.25) $ 0.54
Diluted—as reported ............................................ $ 0.19 $ (0.15) $ 0.68
Diluted—pro forma ............................................. $ 0.11 $ (0.25) $ 0.54
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