Callaway 2012 Annual Report Download - page 43

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Long-Lived Assets, Goodwill and Non-Amortizing Intangible Assets
In the normal course of business, the Company acquires tangible and intangible assets. The Company
periodically evaluates the recoverability of the carrying amount of its long-lived assets, including property, plant
and equipment and amortizing intangible assets, and investments whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be fully recoverable or exceeds its fair value. The
Company evaluates the recoverability of its goodwill and non-amortizing intangible assets at least annually or
whenever indicators that the carrying amounts of these assets may not be fully recoverable are present.
Determining whether an impairment has occurred typically requires various estimates and assumptions, including
determining the amount of undiscounted cash flows directly related to the potentially impaired asset, the useful
life over which cash flows will occur, the timing of the impairment test, and the asset’s residual value, if any.
To determine fair value, the Company uses its internal cash flow estimates discounted at an appropriate rate,
quoted market prices, royalty rates when available and independent appraisals as appropriate. Any required
impairment loss is measured as the amount by which the carrying amount of the asset exceeds its fair value and is
recorded as a reduction in the carrying value of the asset and a charge to earnings.
The Company uses its best judgment based on current facts and circumstances related to its business when
making these estimates. However, if actual results are not consistent with the Company’s estimates and
assumptions used in calculating future cash flows and asset fair values, the Company may be exposed to losses
that could be material. As of December 31, 2012, the estimated fair values of the Company’s reporting units in
the U.S., United Kingdom, Canada and Korea, as well as the estimated fair values of certain trade names and
trademarks, exceeded their carrying values.
In September 2012, in connection with the Company’s Cost Reduction Initiatives that were announced in
July 2012, the Company committed to a plan to transition its integrated device business to a third party based
model. As a result, the Company performed an impairment analysis and determined that the estimated discounted
cash flows from the sales of uPro GPS devices were less than the carrying values of the intangible assets and
goodwill associated with the uPlay, LLC acquisition, which was completed as of December 31, 2008. This
analysis resulted in the recognition of impairment charges of $5.1 million to write-off amortizing intangible
assets and goodwill associated with the uPlay, LLC acquisition, in addition to charges of $4.0 million to write-off
property, plant and equipment related to uPro GPS devices. See Note 8 to the Notes to Consolidated Financial
Statements—“Goodwill and Intangible Assets” in this Form 10-K.
In the years ended December 31, 2012, 2011 and 2010, the Company recognized impairment charges of
$4.6 million, $5.4 million and $7.5 million, respectively, in connection with the trade names, trademarks and
other intangible assets related to the Top-Flite and Ben Hogan brands. The Company determined that the carrying
values of these trade names, trademarks and other intangible assets exceeded the estimated discounted future
cash flows that would be generated from the use of these assets. In the first quarter of 2012, in an effort to
simplify the Company’s operations and increase focus on the Company’s core Callaway and Odyssey brands, the
Company sold the Top-Flite and Ben Hogan brands for net cash proceeds of $26.9 million. See Note 8 to the
Notes to Consolidated Financial Statements—“Goodwill and Intangible Assets” in this Form 10-K.
In 2011, the Company performed an impairment analysis on goodwill related to its reporting unit in
Australia. In completing this analysis, the Company determined that the carrying value of this reporting unit
including goodwill exceeded the estimated discounted future cash flows that would be generated from this unit
and as a result, the Company recognized an impairment charge of $1.1 million to write-off goodwill related to
this reporting unit. See Note 8 to the Notes to Consolidated Financial Statements—“Goodwill and Intangible
Assets” in this Form 10-K.
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