Callaway 2011 Annual Report Download - page 92

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, 2011 December 31, 2010
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 $108,834 $ — $108,834 $114,247 $ — $114,247
Amortizing:
Patents ................. 2-16 36,459 28,908 7,551 36,459 26,405 10,054
Developed technology and
other ................. 1-9 12,387 6,837 5,550 12,387 5,361 7,026
Total intangible assets ......... $157,680 $35,745 $121,935 $163,093 $31,766 $131,327
Aggregate amortization expense on intangible assets was approximately $3,979,000, $4,181,000 and
$4,261,000 for the years ended December 31, 2011, 2010 and 2009, respectively. Amortization expense related
to intangible assets at December 31, 2011 in each of the next five fiscal years and beyond is expected to be
incurred as follows (in thousands):
2012 ..................................................................... $ 3,449
2013 ..................................................................... 2,560
2014 ..................................................................... 1,882
2015 ..................................................................... 1,844
2016 ..................................................................... 1,834
Thereafter ................................................................. 1,532
$13,101
Goodwill at December 31, 2011 and December 31, 2010 was $29,203,000 and $30,630,000. This decrease
was due to the write-off of $1,120,000 of goodwill related to the Company’s reporting unit in Australia as a result
of an impairment (see below), as well as $307,000 due to foreign currency fluctuations. Gross goodwill before
impairments at December 31, 2011 and 2011 was $30,323,000 and $30,630,000, respectively.
During the second quarter of 2011, the Company conducted an 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 fair value of the Company’s 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 management’s
best estimates relating to the Company’s intangible assets such as (i) forecasted sales, (ii) estimated royalty rates,
(iii) estimated long-term 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
continued negative impact of a trend in the golf industry where premium branded competitor golf balls are being
sold through the mass market channel as well as a recent increase of in-house brands being sold in the sporting
goods and mass market channels. This increase in premium branded and in-house balls in these retail channels
over the past two years as well as the fact that the Company’s business in the United States has not recovered and
returned to profitability as management had previously projected has negatively impacted sales of Top-Flite
branded golf balls more than previously estimated. Although management believed this competitive pressure in
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