Callaway 2014 Annual Report Download - page 105

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F-37
During 2012, in connection with the Cost Reduction Initiatives (see Note 3), the Company reached an agreement to sell
its golf ball manufacturing facility in Chicopee, Massachusetts and, in connection with this agreement, during the year ended
December 31, 2012, the Company designated this building as assets available for sale, and recorded a pre-tax charge of
$7,939,000 to write the building down to its estimated selling price, net of estimated commissions and fees (see Note 7). In
addition, in connection with the same initiatives, the Company transitioned its integrated device business to a third-party based
model and, as a result, the Company performed an impairment analysis that was based on a discounted cash flow model on
the net realizable value of its uPro assets. This analysis resulted in impairment charges of $5,156,000 to write-off amortizing
intangibles and goodwill (see Note 8), and $4,345,000 to write-off property, plant and equipment associated with uPro devices
(see Note 3).
Also in connection with the Cost Reduction Initiatives, 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 to write-off the net book value of these patents
(see Note 8).
Disclosures about the Fair Value of Financial Instruments
The carrying values of cash and cash equivalents at December 31, 2014 and 2013 are reasonable estimates of fair value
due to the short-term nature of these balances and are therefore classified as Level 1. The table below illustrates information
about fair value relating to the Company’s financial assets and liabilities that are recognized on the accompanying consolidated
balance sheets as of December 31, 2014 and 2013, as well as the fair value of contingent contracts that represent financial
instruments (in thousands):
December 31, 2014 December 31, 2013
Carrying
Value Fair Value
Carrying
Value Fair Value
Convertible notes(1)................................................................................ $ 108,574 $ 126,222 $ 107,835 $ 138,668
ABL Facility(2) ....................................................................................... $ 15,235 $ 15,235 $ 25,660 $ 25,660
Standby letters of credit(3)...................................................................... $ 1,142 $ 1,142 $ 1,297 $ 1,297
(1) The carrying value of the convertible notes at December 31, 2014 and 2013 is net of the unamortized discount of $3,926,000
and $4,665,000, respectively (see Note 4). The fair value of the convertible notes was determined based on secondary
quoted market prices, and as such is classified as Level 2 in the fair value hierarchy.
(2) The carrying value of amounts outstanding under the Company's ABL Facility approximates the fair value due to the short
term nature of this obligation. The fair value of this debt is categorized within Level 2 of the fair value hierarchy. See
Note 4 for information on the ABL Facility, including certain risks and uncertainties.
(3) The carrying value of the Company's standby letters of credit approximates the fair value as they represent the Company’s
contingent obligation to perform in accordance with the underlying contracts. There were no amounts outstanding under
these letters of credit at December 31, 2014 or 2013. The fair value of this contingent obligation is categorized within
Level 2 of the fair value hierarchy.
Note 18. Derivatives and Hedging
Foreign Currency Exchange Contracts
The Company accounts for its foreign currency exchange contracts in accordance with ASC Topic 815, “Derivatives
and Hedging” (“ASC 815”). ASC 815 requires the recognition of all derivatives as either assets or liabilities on the balance
sheet, the measurement of those instruments at fair value and the recognition of changes in the fair value of derivatives in
earnings in the period of change, unless the derivative qualifies as an effective hedge that offsets certain exposures. In addition,
it requires enhanced disclosures regarding derivative instruments and hedging activities to better convey the purpose of
derivative use in terms of the risks the Company is intending to manage, specifically about (a) how and why the Company
uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under ASC 815, and
(c) how derivative instruments and related hedged items affect the Company’s financial position, financial performance, and
cash flows.