Callaway 2009 Annual Report Download - page 45

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The Company records compensation expense for Restricted Stock Awards and Restricted Stock Units
(collectively “restricted stock”) based on the estimated fair value of the award on the date of grant. The estimated
fair value is determined based on the closing price of the Company’s common stock on the award date multiplied
by the number of shares underlying the restricted stock awarded. Compensation expense related to unvested
shares is recognized on a straight-line basis over the vesting period, reduced by an estimated forfeiture rate.
Phantom Stock Units are a form of share-based awards that are indexed to the Company’s stock and are
settled in cash. They are accounted for as liabilities, which are initially measured based on the estimated fair
value of the awards on the date of grant. The estimated fair value is determined based on the closing price of the
Company’s common stock on the award date multiplied by the number of shares underlying the phantom stock
awarded. The liabilities are subsequently remeasured based on the fair value of the awards at the end of each
interim reporting period through the settlement date of the awards. Total compensation expense is recognized on
a straight-line basis over the vesting period, reduced by an estimated forfeiture rate.
From time to time the Company may grant Performance Share Units to certain employees, which are a form
of share-based award in which the number of shares ultimately received depends on the Company’s performance
against specified performance targets over a three-year period from the date of grant. The estimated fair value of
the Performance Share Units is determined based on the closing price of the Company’s common stock on the
award date multiplied by the estimated number of shares to be issued at the end of the performance period. Total
compensation expense is recognized on a straight-line basis over the performance period, reduced by an
estimated forfeiture rate. The Company uses forecasted performance metrics to estimate the number of
Performance Share Units to be issued as well as approval from the Compensation and Management Succession
Committee of the Board of Directors. The Company’s performance against the specified performance targets is
reviewed quarterly and expense is adjusted as the Company’s actual and forecasted performance changes.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is contained in Note 2 “Significant Accounting
Policies” to the Notes to Consolidated Financial Statements, which is incorporated herein by this reference.
uPlay Asset Acquisition
On December 31, 2008, the Company acquired certain assets and liabilities of uPlay, LLC (“uPlay”), a
developer and marketer of GPS devices that provide accurate on-course measurements utilizing aerial imagery of
each golf hole. The Company acquired uPlay in order to form synergies from co-branding these products with the
Callaway Golf brand, promote the global distribution of these products through the Company’s existing sales
force and create incremental new business opportunities.
The uPlay 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 $11.4 million,
which includes cash paid of $9.9 million, transaction costs of approximately $0.2 million, and assumed liabilities
of approximately $1.3 million. The aggregate acquisition costs exceeded the estimated fair value of the net assets
acquired. As a result, the Company has recorded goodwill of $0.6 million, none of which is deductible for tax
purposes. The Company has recorded the fair values of uPlay’s database and technology, trademarks and trade
names, and non-compete agreements in the amounts of $7.9 million, $0.5 million and $0.8 million, respectively,
using an income valuation approach. This valuation technique provides an estimate of the fair value of an asset
based on the cash flows that the asset can be expected to generate over its remaining useful life. These intangible
assets are amortized using the straight-line method over their estimated useful lives, which range from 4 to 8
years.
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