Callaway 2011 Annual Report Download - page 111

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Note 18. Fair Value of Financial Instruments
The Company’s foreign currency exchange contracts are measured and reported on a fair value basis in
accordance with ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”). ASC 820 defines
fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting
principles, and expands disclosure about fair value measurements. ASC 820 enables the reader of the financial
statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the
quality and reliability of the information used to determine fair values. ASC 820 requires that assets and
liabilities carried at fair value will be classified and disclosed in one of the following three categories:
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 following table summarizes the valuation of the Company’s foreign currency exchange contracts by the
above pricing levels as of the valuation dates listed (in thousands):
December 31, 2011 December 31, 2010
Carrying
Value
Observable
market based
inputs
(Level 2)
Carrying
Value
Observable
market based
inputs
(Level 2)
Foreign currency derivative instruments—asset position ...... $2,514 $2,514 $ 1,786 $ 1,786
Foreign currency derivative instruments—liability position . . . 3,746 3,746 11,775 11,775
The fair value of the Company’s foreign currency exchange contracts is determined based on observable
inputs that are corroborated by market data. Foreign currency derivatives on the balance sheet are recorded at fair
value with changes in fair value recorded in the statement of operations.
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 years ended December 31, 2011 and 2010, certain non-amortizing intangible assets were written
down to their implied fair value, resulting in impairment charges of $5,413,000 and $7,547,000, respectively (see
Note 9). In addition, in 2011, the Company recognized an impairment charge of $1,120,000 related to goodwill
of its Australian reporting unit (see Note 9). The implied fair values of the non-amortizing intangibles and
goodwill were based on significant unobservable inputs, and as a result, the fair value measurements are
classified as Level 3.
Note 19. Segment Information
The Company’s operating segments are organized on the basis of products and include golf clubs and golf
balls. The golf clubs segment consists primarily of Callaway Golf and Top-Flite woods, hybrids, irons, wedges
and putters as well as Odyssey putters, pre-owned clubs, GPS on-course range finders, other golf-related
accessories and royalties from licensing of the Company’s trademarks and service marks. The golf balls segment
consists primarily of Callaway Golf and Top-Flite golf balls that are designed, manufactured and sold by the
Company. There are no significant intersegment transactions.
F-37