Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2012

Fair Value of Financial Instruments

15. Fair Value of Financial Instruments

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 on the measurement date. Assets and liabilities carried at fair value are classified using a three-tier hierarchy based upon observable and unobservable inputs as follows:

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

Level 2: Observable market based inputs that are corroborated by market data

Level 3: Unobservable inputs that are not corroborated by market data

The carrying values of cash and cash equivalents, trade accounts receivable and trade accounts payable and accrued expenses are reasonable estimates of fair value due to the short-term maturities of these instruments.

The following table summarizes the valuation of the Company’s financial instruments by the above pricing levels as of the valuation dates listed (in thousands):

	September 30, 2012				December 31, 2011
	Carrying Value		Fair Value		Carrying Value		Fair Value
Foreign currency derivative instruments—asset position(1)	$	569	$	569	$	2,514	$	2,514
Foreign currency derivative instruments—liability position(1)		1,529		1,529		3,746		3,746
Convertible senior notes(2)		106,925		116,865		—		—

(1) Based on Level 2 observable inputs that are corroborated by market data.

(2) Based on Level 2 secondary market quoted prices.

Foreign currency derivatives on the balance sheet are recorded at fair value with changes in fair value recorded in the statement of operations (Note 16). Convertible senior notes are recorded at the carrying value on the balance sheet (Note 3).

Nonrecurring Fair Value Measurements

The Company measures certain assets at fair value on a nonrecurring basis at least annually or when certain indicators are present. These assets include property, plant and equipment, goodwill and non-amortizing intangible assets that are written down to fair value when they are held for sale or determined to be impaired. During the three and nine months ended September 30, 2012, in connection with the Cost Reduction Initiatives (Note 2), the Company committed to a plan to sell its golf ball manufacturing facility in Chicopee, Massachusetts and lease back a reduced portion of the square footage to accommodate lower ball inventory volumes manufactured at that location. In connection with designating this building as available for sale, the Company recorded a charge of $7,939,000 to write the building down to its estimated selling price, net of estimated commissions and fees (Note 7). This implied fair market value was based on significant unobservable inputs, and as a result, the fair value measurement was classified as Level 3. In addition, in connection with the same initiatives, 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 on the net realizable value of its uPro assets, which resulted in charges of $5,156,000 to write-off amortizing intangibles and goodwill (Note 8), in addition to charges of $11,317,000 to write-off property, plant and equipment as well as inventory associated with these devices. The impairment analysis was based on a discounted cash flow model that incorporated significant unobservable inputs, and as such, the write-off of these assets was classified as Level 3.

During the nine months ended September 30, 2011, certain non-amortizing intangible assets related to the Top-Flite acquisition were written down to their implied fair value, resulting in an impairment charge of $5,413,000 (Note 8). The fair value measurement was classified as Level 3.