Callaway 2012 Annual Report Download - page 98

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In March 2012, in an effort to simplify the Company’s operations and increase focus on the Company’s core
Callaway and Odyssey business, the Company sold certain assets related to the Top-Flite brand, including world-
wide trademarks and service marks for net cash proceeds of $19,900,000. In addition, in February 2012, the
Company completed the sale of the Ben Hogan brand including trademarks, service marks and certain other
intellectual property for net cash proceeds of $6,961,000. The net book value of the Top-Flite and Ben Hogan
assets totaled $20,244,000, which resulted in the recognition of a pre-tax net gain of $6,602,000 in general and
administrative expenses in the accompanying consolidated statement of operations in 2012. During the fourth
quarter of 2012, the Company determined that the sum of the future cash flows expected to result from the use of
its Top-Flite patents was less than their carrying amount and, as a result, the Company recognized an impairment
charge of $4,572,000 in cost of sales in the accompanying consolidated statement of operations to write-off the
net book value of these patents.
In December 2011, the Company conducted an impairment test on goodwill related to its reporting unit in
Australia. Due to the negative impact of significant flooding and inclement weather as well as a decline in
economic conditions in that region during 2011, the Company determined that the estimated fair value for this
unit was less than the unit’s net book value including goodwill. As a result, the Company recorded an impairment
charge of $1,120,000 to write-off the goodwill balance related to this reporting unit. This charge was recorded in
general and administrative expenses in the accompanying consolidated statements of operations for the year
ended December 31, 2011.
In 2011 and 2010, the Company recorded impairment charges of $5,413,000 and $7,547,000, respectively,
related to the trade names and trademarks included in non-amortizing intangibles that were associated with the
Top-Flite and Ben Hogan brands. These charges were recorded in general and administrative expenses in the
accompanying consolidated statements of operations for the years ended December 31, 2011 and 2010.
Goodwill at December 31, 2012 and 2011 was $29,034,000 and $29,203,000, respectively. The decrease in
goodwill was due to an impairment charge of $629,000 related to the Company’s uPlay, LLC acquisition (as
mentioned above), partially offset by $460,000 in foreign currency fluctuations. Gross goodwill before
impairments at December 31, 2012 and 2011 was $30,783,000 and $30,323,000, respectively.
Note 9. Investments
The Company owns $23,967,000 of preferred shares of TopGolf International, Inc. (“TopGolf”), the owner
and operator of TopGolf entertainment centers, of which $3,367,000 was invested during 2012. In connection
with this investment, the Company has a preferred partner agreement with TopGolf in which the Company has
preferred signage rights, rights as the preferred supplier of golf products used or offered for use at TopGolf
facilities at prices no less than those paid by the Company’s customers, preferred retail positioning in the
TopGolf retail stores, access to consumer information obtained by TopGolf, and other rights incidental to those
listed.
The Company’s ownership interest in TopGolf is less than 20%. In addition, the Company does not have the
ability to significantly influence the operating and financing activities and policies of TopGolf. Accordingly, the
Company’s investment in TopGolf is accounted for at cost in accordance with ASC Topic 325, “Investments—
Other,” and is included in other long-term assets in the accompanying consolidated balance sheets as of
December 31, 2012 and December 31, 2011.
Note 10. Non-Controlling Interests
The Company has a Golf Ball Manufacturing and Supply Agreement with Qingdao Suntech Sporting Goods
Limited Company (“Suntech”), in which Suntech manufactures and supplies certain golf balls solely for and to
the Company. In connection with the agreement, the Company provides Suntech with golf ball raw materials,
packing materials, molds, tooling, as well as manufacturing equipment in order to carry out the manufacturing
and supply obligations set forth in the agreement. Suntech provides the personnel as well as the facilities to
effectively perform these manufacturing and supply obligations. Due to the nature of the arrangement, as well as
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