Callaway 2005 Annual Report Download - page 83

CALLAWAY GOLF COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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 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
$9,122,000, 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 Acquired:
Cash .......................................................................... $ 5,971
Accounts receivable .............................................................. 85
Inventory ...................................................................... 1,962
Other current assets .............................................................. 1,475
Property, plant and equipment ...................................................... 258
Internally developed software ...................................................... 1,200
Customer lists ................................................................... 700
Goodwill (Note 6) ............................................................... 9,122
Liabilities:
Current liabilities ................................................................ (5,592)
Long-term liabilities .............................................................. (6)
Total net assets acquired ...................................................... $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
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 acquisition of the Top-Flite assets 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. 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.
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