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Fair Value of Financial Instruments

12 Months Ended

Dec. 31, 2021

Note 19. Fair Value of Financial Instruments

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or the price paid to transfer a liability (the exit price) in the principal and most advantageous market for the asset or liability in an orderly transaction between market participants. The Company measures and discloses the fair value of nonfinancial and financial assets and liabilities utilizing a hierarchy of valuation techniques based on whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of observable market data when available. The measurement of assets and liabilities at fair value are classified using the following three-tier hierarchy:

Level 1: Quoted market prices in active markets for identical assets or liabilities;

Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

Level 3: Fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

The Company measures fair value using a set of standardized procedures that are outlined herein for all assets and liabilities which are required to be measured at fair value. When available, the Company utilizes quoted market prices from an independent third-party source to determine fair value and classifies such items in Level 1. In some instances where a market price is available, but the instrument is in an inactive or over-the-counter market, the Company consistently applies the dealer (market maker) pricing estimate and uses a midpoint approach on bid and ask prices from financial institutions to

determine the reasonableness of these estimates. Assets and liabilities subject to this fair value valuation approach are typically classified as Level 2.

Items valued using internally-generated valuation techniques are classified according to the lowest level input that is significant to the fair value measurement. As a result, the asset or liability could be classified in either Level 2 or Level 3 even though there may be some significant inputs that are readily observable. The Company utilizes a discounted cash flow valuation model whenever applicable to derive a fair value measurement on long-lived assets and goodwill and intangible assets. 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. The Company also considers its counterparty’s and own credit risk on derivatives and other liabilities measured at their fair value.

The following table summarizes the valuation of the Company’s foreign currency forward contracts and interest rate hedge contracts that are measured at fair value on a recurring basis as of December 31, 2021 and 2020 (in thousands):


	Fair Value		Level 1		Level 2		Level 3
December 31, 2021
Foreign currency forward contracts—asset position(1)	$	339	$	—	$	339	$	—
Foreign currency forward contracts—liability position(1)	(216)		—		(216)		—





Interest rate hedge agreements—liability position(2)	(8,679)		—		(8,679)		—


	$	(8,556)	$	—	$	(8,556)	$	—
December 31, 2020
Foreign currency forward contracts—asset position(1)	$	90	$	—	$	90	$	—
Foreign currency forward contracts—liability position(1)	(1,553)		—		(1,553)		—




Interest rate hedge agreements—liability position(2)	(17,922)		—		(17,922)		—
	$	(19,385)	$	—	$	(19,385)	$	—

____________

(1)The fair value of the Company’s foreign currency forward contracts is based on observable inputs that are corroborated by market data. Observable inputs include broker quotes, daily market foreign currency rates and forward pricing curves. Remeasurement gains and losses on foreign currency forward contracts designated as cash flow hedges are recorded in accumulated other comprehensive income (loss) until recognized in earnings during the period that the hedged transactions take place (see Note 20).

(2)The fair value of interest rate hedge contracts is based on observable inputs that are corroborated by market data. Observable inputs include daily market foreign currency rates and interest rate curves. Remeasurement gains and losses are recorded in accumulated other comprehensive income (loss) until recognized in earnings as interest payments are made or received on the Company’s variable-rate debt. Remeasurement gains and losses on foreign currency forward contracts that are not-designated as cash flow hedges are recorded in other income (see Note 20).

Disclosures about the Fair Value of Financial Instruments

The carrying values of the Company's cash and cash equivalents, net accounts receivable, accounts payable and accrued expenses, and other current liabilities contained in the consolidated balance sheet at December 31, 2021 and December 31, 2020 approximate fair value due to the relatively short maturity of the respective instruments.

The table below illustrates information about fair value relating to the Company’s financial assets and liabilities that are recognized in the consolidated balance sheets as of December 31, 2021 and December 31, 2020 (in thousands):


	December 31, 2021				December 31, 2020
	Carrying Value		Fair Value		Carrying Value		Fair Value
Term Loan Facility(1)	$	436,800	$	437,499	$	441,600	$	443,243
Japan Term Loan Facility(2)	$	13,031	$	12,185	$	18,390	$	16,083
Convertible Notes(3)	$	258,750	$	444,351	$	258,750	$	414,191
U.S. Asset-Based Revolving Credit Facility(4)	$	9,096	$	9,096	$	22,130	$	22,130

Equipment Notes(5)	$	31,137	$	30,167	$	31,822	$	29,385

Mortgage Loans(6)	$	46,407	$	52,349	$	—	$	—
Topgolf Term Loan(7)	$	340,375	$	346,076	$	—	$	—

____________

(1)In January 2019, the Company entered into a Term Loan Facility. The fair value of this debt is based on quoted prices for similar instruments in active markets combined with quantitative pricing models and therefore is categorized within Level 2 of the fair value hierarchy. See Note 7 for further information.

(2)In August 2020, the Company entered into the Japan Term Loan Facility. The Company used discounted cash flows and market-based expectations for interest rates, credit risk, and the contractual terms of the debt to derive the fair value and therefore is categorized within Level 2 of the fair value hierarchy. See Note 7 for further information.

(3)In May 2020, the Company issued $258,750,000 of 2.75% Convertible Notes due in 2026. The fair value of this debt is based on quoted prices in secondary markets combined with quantitative pricing models and therefore is categorized within Level 2 of the fair value hierarchy. See Note 7 for further information.

(4)The carrying value of the amounts outstanding under the Company's ABL Facility approximates the fair value due to the short-term nature of these obligations. The fair value of this debt is based on the observable market borrowing rates and therefore is categorized within Level 2 of the fair value hierarchy. See Note 7 for further information.

(5)Between December 2017 and December 2021, the Company entered into the Equipment Notes that are secured by certain equipment at the Company's golf ball manufacturing facility. The Company used discounted cash flows and market-based expectations for interest rates, credit risk, and the contractual terms of the debt to derive the fair value of the notes and therefore the notes are categorized within Level 2 of the fair value hierarchy. See Note 7 for further information.

(6)The fair value of the mortgage loans is calculated based on the future payments under the mortgage agreement discounted at the incremental borrowing rate and therefore the fair value is categorized within Level 2 of the fair value hierarchy. See Note 7 for further information.

(7)The fair value of the Topgolf Term Loan is based on quoted market rate from the lender and therefore the fair value is categorized within Level 2 of the fair value hierarchy. See Note 7 for further information.

Nonrecurring Fair Value MeasurementsThe Company measures certain assets at fair value on a non-recurring basis using significant unobservable inputs (Level 3) at least annually or more frequently if certain indicators are present. These assets include long-lived assets, goodwill, non-amortizing intangible assets and investments that are written down to fair value when they are held for sale or determined to be impaired. During the second quarter of 2020, the Company considered the macroeconomic conditions related to the COVID-19 pandemic and its potential impact to sales and operating income, and determined that there were indicators of impairment and proceeded with a quantitative assessment of goodwill for all reporting units. As a result of the assessment, the Company determined that the fair value of one of its reporting units was less than its carrying value, and therefore recognized a goodwill impairment loss of $148,375,000 during 2020. In addition, the Company recognized an impairment loss of $25,894,000 on one of its trade names (see Note 9). There were no impairment losses recorded during the years ended December 31, 2021 and

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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