Quarterly report pursuant to Section 13 or 15(d)

Intangible Assets, Net and Goodwill

Intangible Assets, Net and Goodwill

9 Months Ended

Feb. 29, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets, Net and Goodwill

INTANGIBLE ASSETS, NET AND GOODWILL

Intangible assets

Intangible assets, net consisted of the following:



	February 29, 2016							May 31, 2015
	Gross Amount		Accumulated Amortization			Carrying Value		Gross Amount		Accumulated Amortization			Carrying Value
Trade names and trademarks	$	149,976	$	—		$	149,976	$	199,481	$	—		$	199,481
Purchased technology	23,924		(5,839		)	18,085		21,413		(7,135		)	14,278
Customer relationships	31,614		(15,953		)	15,661		86,513		(23,518		)	62,995
Leases	2,150		(172		)	1,978		—		—			—
Total	$	207,664	$	(21,964	)	$	185,700	$	307,407	$	(30,653	)	$	276,754

In October 2015, the Company acquired certain licensing rights in technology assets (“Q30 Technology”) on an exclusive and perpetual basis for the amount of $7,000 from Q30 Sports, LLC, a privately held entity. Q30 Sports, LLC and its parent company, Q30 Sports Science, LLC, have acquired and developed, and are currently testing, proprietary technology that has the potential to reduce indicators of mild traumatic brain injury. The Company paid $3,000 in cash on October 15, 2015, and the balance of $4,000 was paid on January 4, 2016. The Company maintained restricted cash balances of $4,000 through January 4, 2016 at which time, the amount decreased to $2,000. Future licensing payments of up to $18,000 are conditional upon the achievement of certain product development and sales milestones. These milestones have not yet been achieved. In addition, the Company purchased a $1,000 non-controlling interest in Q30 Sports Science, LLC, also a privately held entity. Refer to Note 7 - Other Non-Current Assets for details on the Company’s investment in Q30 Sports Science, LLC.

Goodwill

Goodwill consisted of the following:



	Hockey		Baseball/Softball			Other Sports			Total
Balance as of May 31, 2015	$	43,840	$	55,374		$	3,541		$	102,755
Impairment	—		(55,374		)	(382		)	(55,756		)
Exchange differences	—		—			(49		)	(49		)
Balance as of February 29, 2016	$	43,840	$	—		$	3,110		$	46,950

Impairment

The Company recorded impairment on goodwill and intangible assets as follows:



	Three Months Ended February 29 and 28,				Nine Months Ended February 29 and 28,
	2016		2015		2016		2015
Trade names and trademarks	$	46,940	$	—	$	46,940	$	—
Purchased technology	1,894		—		1,894		—
Customer relationships	40,522		—		40,522		—
Goodwill	55,756		—		55,756		—
Total impairment of goodwill and intangible assets	$	145,112	$	—	$	145,112	$	—

The Company assesses potential impairments of its long-lived assets, including definite-lived intangible assets whenever events or changes in circumstances indicate that the asset’s carrying value may not be recoverable. The Company performs, on an annual basis, an impairment test of goodwill as of March 1 and indefinite-lived intangible assets as of May 31 unless an event occurs that triggers additional interim testing. The Company’s third quarter financial performance, combined with revised outlook for the Company for fiscal 2016 and a decline in its market capitalization during the quarter, triggered the requirement for an interim impairment test for its indefinite-lived and definite-lived assets in all reporting units during the three months ended February 29, 2016. The Company tested the intangible assets and goodwill at the same time, however, the tests were performed in the appropriate order.

The Company tested the indefinite-lived intangibles (i.e. trade names and trademarks) for impairment as of February 29, 2016. The test involved the assessment of the fair value of the trade names and trademarks based on Level 3 unobservable inputs, using a relief-from-royalty method. The result of the impairment test indicated that the carrying value of the Easton Baseball/Softball trade names and trademarks exceeded their fair value and the Company recorded a preliminary and best estimate non-cash impairment of $46,940, and a related tax benefit of $4,348.

In conjunction with the second step of the analysis of goodwill for the Baseball/Softball reporting unit (discussed below), the Company tested the Baseball/Softball long-lived assets, including definite-lived intangible assets for impairment. The test involved assessing whether the carrying value of the long-lived assets may not be recoverable. The carrying amount of the long-lived assets is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. If the carrying amount is not recoverable, an impairment charge would be recognized when the carrying amount of the long-lived assets exceeds its fair value. The Baseball/Softball purchased technology was valued using a relief-from-royalty method, based on Level 3 unobservable inputs. The Baseball/Softball customer relationships were valued using the excess earnings method, based on Level 3 unobservable inputs. The result of the impairment test indicated that the carrying value of the Baseball/Softball purchased technology and customer relationships exceeded their fair value and the Company recorded a preliminary and best estimate non-cash impairment of $1,894 and $40,522, respectively.

The first step of the goodwill impairment test indicated that there may be goodwill impairment in each of the Baseball/Softball and Soccer reporting units. The goodwill associated with each of the Hockey and Lacrosse reporting units was deemed not to be impaired. The Company estimated the fair value of the reporting units utilizing a combination of the market and income approach. The inputs used to calculate the fair value included a number of subjective factors, such as estimates of future cash flows, estimates of our future cost structure, discount rates for our estimated cash flows, required level of working capital, assumed terminal value, and time horizon of cash flow forecasts, all Level 3 unobservable inputs.

The second step of the goodwill test for each of the Baseball/Softball and Soccer reporting units was performed preliminarily during the preparation of the third fiscal quarter consolidated financial statements. Assessing the fair value of goodwill includes making assumptions about future cash flows, discount rates and asset lives using then best available information, all Level 3 unobservable inputs. These assumptions are subject to a high degree of complexity and judgment. Due to the complexity and effort required to estimate the fair value of each of the Baseball/Softball and Soccer reporting units in the second step of the analysis, the fair value estimates were based on preliminary analyses and assumptions that are subject to change. The Company’s preliminary step two analysis and best estimate resulted in a non-cash goodwill impairment of the entire amount of the Baseball/Softball reporting unit goodwill of $55,374 due to a decline in the sales and gross profit of the Easton brand and the bankruptcy of certain key customers. A tax benefit of $1,747 was recognized for this impairment charge. The Company’s preliminary step two analysis and best estimate also resulted in a non-cash goodwill impairment of $382 in the Soccer reporting unit was due to, among other things, higher operating costs. The second step of the goodwill test will be completed in the fourth fiscal quarter and any adjustment to the amount recorded, which could differ materially, will be recorded in the fourth fiscal quarter of fiscal 2016.