Callaway 2010 Annual Report Download - page 99

Note 9. Goodwill and Intangible Assets
In accordance with ASC Topic 350, “Intangibles—Goodwill and Other,” the Company’s goodwill and
certain intangible assets are not amortized, but are subject to an annual impairment test. The following sets forth
the intangible assets by major asset class:
Useful
Life
(Years)
December 31, 2010 December 31, 2009
Gross
Accumulated
Amortization
Net Book
Value Gross
Accumulated
Amortization
Net Book
Value
(In thousands) (In thousands)
Indefinite-lived:
Trade name, trademark and
trade dress and other ..... NA $114,247 $ — $114,247 $121,794 $ — $121,794
Amortizing:
Patents .................. 2-16 36,459 26,405 10,054 36,459 23,827 12,632
Developed technology and
other ................. 1-9 12,387 5,361 7,026 12,236 3,758 8,478
Total intangible assets .......... $163,093 $31,766 $131,327 $170,489 $27,585 $142,904
The increase in other amortizing intangibles is related to the acquisition of amortizing trademarks.
Aggregate amortization expense on intangible assets was approximately $4,181,000, $4,261,000 and $3,203,000
for the years ended December 31, 2010, 2009 and 2008, respectively. Amortization expense related to intangible
assets at December 31, 2010 in each of the next five fiscal years and beyond is expected to be incurred as follows
(in thousands):
2011 ..................................................................... $ 3,983
2012 ..................................................................... 3,453
2013 ..................................................................... 2,562
2014 ..................................................................... 1,882
2015 ..................................................................... 1,844
Thereafter ................................................................. 3,356
$17,080
The Company performs an impairment analysis on its goodwill and intangible assets at least annually during
the fourth quarter and whenever events or changes in circumstances indicate that the carrying value of such
assets may not be fully recoverable. During the fourth quarter of 2010, the Company conducted its annual
impairment test on its goodwill and intangible assets, including the trade names, trademarks and other intangible
assets the Company acquired in 2003 as part of the Top-Flite acquisition.
The current fair value of the Company’s goodwill and intangible assets was calculated by taking the
expected future cash flows of those assets over their estimated useful lives and discounting the cash flows based
upon an appropriate discount rate. The discounted cash flow analysis was based upon reasonable assumptions
relating to the Company’s intangible assets such as (i) forecasted sales, (ii) estimated royalty rates, (iii) estimated
growth rates, and (iv) the discount rate. In calculating the expected future cash flows from the trade names and
trademarks acquired as part of the Top-Flite acquisition, the Company considered the negative impact of a recent
trend in the golf industry where premium branded competitor golf balls are now being sold through the sporting
goods and mass market channels. This increase in premium branded balls in these retail channels over the past
couple of years has negatively impacted sales of Top-Flite branded golf balls. Management thought this
competitive pressure in these retail channels would abate over time as the economy began to improve, but in the
Company’s analysis it appears that this practice is more permanent in nature, which has caused the Company to
reduce its estimates of the amount of future cash flows that will be generated from these intangible assets.
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