Callaway 2010 Annual Report Download - page 46

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In connection with this purchase, the Company could be required to pay an additional purchase price not to
exceed $10.0 million based on a percentage of earnings generated from the sale of uPlay products over a period
of three years ending on December 31, 2011. Any such additional purchase price paid at the end of the three year
period will be recorded as goodwill. The preliminary allocation of the aggregate acquisition costs is as follows
(in millions):
Assets Acquired:
Cash ............................................................................ $ 0.2
Accounts receivable ................................................................ 0.7
Inventory ........................................................................ 0.3
Property, plant and equipment ........................................................ 0.2
Database and technology ............................................................ 7.9
Trademarks and trade names ......................................................... 0.5
Non-compete agreements ............................................................ 0.8
Other ............................................................................ 0.2
Goodwill ......................................................................... 0.6
Liabilities:
Current liabilities .................................................................. (1.3)
Total net assets acquired ........................................................ $10.1
The pro-forma effects of the uPlay, LLC asset acquisition would not have been material to our results of
operations for fiscal year 2008 and, therefore, is not presented.
Results of Operations
Overview of Business and Seasonality
The Company designs, manufactures and sells high quality golf clubs and golf balls and also sells golf and
lifestyle apparel, golf footwear, golf bags, gloves, eyewear and other golf-related accessories, including
uPro GPS on-course measurement devices. The Company designs its products to be technologically advanced
and in this regard invests a considerable amount in research and development each year. The Company’s golf
products are designed for golfers of all skill levels, both amateur and professional.
The Company has two operating segments that are organized on the basis of products, namely the golf clubs
segment and golf balls segment. The golf clubs segment consists primarily of Callaway Golf, Top-Flite and Ben
Hogan woods, hybrids, irons, wedges and putters as well as Odyssey putters. This segment also includes other
golf-related accessories described above and royalties from licensing of the Company’s trademarks and service
marks as well as sales of pre-owned golf clubs. The golf balls segment consists primarily of Callaway Golf and
Top-Flite golf balls. As discussed in Note 19 “Segment Information” to the Notes to Consolidated Financial
Statements, the Company’s operating segments exclude a significant amount of corporate general administrative
expenses and other income (expense) not utilized by management in determining segment profitability.
In most of the regions where the Company does business, the game of golf is played primarily on a seasonal
basis. Weather conditions generally restrict golf from being played year-round, except in a few markets, with
many of the Company’s on-course customers closing for the cold weather months. The Company’s business is
therefore also subject to seasonal fluctuations. In general, during the first quarter, the Company begins selling its
products into the golf retail channel for the new golf season. This initial sell-in generally continues into the
second quarter. The Company’s second quarter sales are also significantly affected by the amount of reorder
business of the products sold during the first quarter. The Company’s third quarter sales are generally dependent
on reorder business but are generally less than the second quarter as many retailers begin decreasing their
inventory levels in anticipation of the end of the golf season. The Company’s fourth quarter sales are generally
less than the other quarters due to the end of the golf season in many of the Company’s key markets. However,
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