The accompanying notes are an integral part of these financial statements.
CALLAWAY GOLF COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands)
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
Net income | | | | | $ | 272,461 | | | $ | 28,894 | |
Other comprehensive income: | | | | | | | |
Change in derivative instruments | | | | | 6,314 | | | (589) | |
Foreign currency translation adjustments | | | | | (16,243) | | | (14,936) | |
Comprehensive income, before income tax on other comprehensive income items | | | | | 262,532 | | | 13,369 | |
Income tax provision (benefit) on derivative instruments | | | | | 971 | | | (430) | |
Comprehensive income | | | | | $ | 261,561 | | | $ | 13,799 | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Net income (loss) | $ | 52,432 |
| | $ | 31,048 |
| | $ | (86,358 | ) | | $ | 108,447 |
|
Other comprehensive income: | | | | | | | |
Change in derivative instruments | (593 | ) | | 661 |
| | (14,635 | ) | | (8,080 | ) |
Foreign currency translation adjustments | 9,128 |
| | (17,083 | ) | | 2,347 |
| | (18,740 | ) |
Comprehensive income (loss), before income tax on other comprehensive income items | 60,967 |
| | 14,626 |
| | (98,646 | ) | | 81,627 |
|
Income tax (provision) benefit on derivative instruments | (66 | ) | | (666 | ) | | 3,387 |
| | 822 |
|
Comprehensive income (loss) | 60,901 |
| | 13,960 |
| | (95,259 | ) | | 82,449 |
|
Less: Comprehensive loss attributable to non-controlling interests | 0 |
| | 0 |
| | 0 |
| | (339 | ) |
Comprehensive income (loss) attributable to Callaway Golf Company | $ | 60,901 |
| | $ | 13,960 |
| | $ | (95,259 | ) | | $ | 82,788 |
|
The accompanying notes are an integral part of these financial statements.
CALLAWAY GOLF COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands) | | | | | | | | | | | |
| Three Months Ended March 31, |
| 2021 | | 2020 |
Cash flows from operating activities: | | | |
Net income | $ | 272,461 | | | $ | 28,894 | |
Adjustments to reconcile net income to net cash used in operating activities: | | | |
Depreciation and amortization | 20,272 | | | 8,997 | |
Lease amortization expense | 10,784 | | | 8,517 | |
Amortization of debt issuance costs | 1,199 | | | 835 | |
Debt discount amortization | 2,866 | | | 0 | |
| | | |
| | | |
Deferred taxes, net | 46,401 | | | 12,409 | |
Non-cash share-based compensation | 4,609 | | | 1,861 | |
Loss on disposal of long-lived assets | 0 | | | 51 | |
Gain on Topgolf investment | (252,531) | | | 0 | |
Unrealized net (gains) losses on hedging instruments and foreign currency | (6,146) | | | 767 | |
| | | |
| | | |
Acquisition costs | (15,755) | | | 0 | |
| | | |
Change in assets and liabilities, net of effect from acquisitions: | | | |
Accounts receivable, net | (183,835) | | | (120,075) | |
Inventories | 25,415 | | | 36,982 | |
Leasing Receivables | (2,903) | | | 0 | |
Other assets | (18,988) | | | 19,349 | |
Accounts payable and accrued expenses | 6,091 | | | (58,288) | |
Deferred Revenue | 3,921 | | | 151 | |
Accrued employee compensation and benefits | 17,573 | | | (16,680) | |
| | | |
Change in operating leases, net | (9,245) | | | (7,041) | |
Income taxes receivable/payable, net | (2,649) | | | (11,356) | |
Other liabilities | 1,844 | | | 945 | |
| | | |
| | | |
Net cash used in operating activities | (78,616) | | | (93,682) | |
Cash flows from investing activities: | | | |
Capital expenditures | (28,821) | | | (16,953) | |
| | | |
| | | |
Cash acquired in merger | 171,294 | | | 0 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Net cash provided by (used in) investing activities | 142,473 | | | (16,953) | |
Cash flows from financing activities: | | | |
| | | |
Proceeds from issuance of long-term debt | 0 | | | 9,766 | |
| | | |
Debt issuance cost | (5,441) | | | 0 | |
(Repayments of) proceeds from credit facilities, net | (6,851) | | | 191,013 | |
Repayments of long-term debt | (5,267) | | | (3,143) | |
Payment on contingent earn-out obligation | (3,577) | | | 0 | |
Repayments of financing leases | (95) | | | (109) | |
Proceeds from lease financing | 3,127 | | | 0 | |
Exercise of stock options | 257 | | | 130 | |
Dividends paid | (3) | | | (949) | |
Acquisition of treasury stock | (12,501) | | | (21,938) | |
| | | |
| | | |
| | | |
| | | |
| | | |
Net cash (used in) provided by financing activities | (30,351) | | | 174,770 | |
Effect of exchange rate changes on cash and cash equivalents | (2,336) | | | (4,166) | |
Net increase in cash and cash equivalents | 31,170 | | | 59,969 | |
Cash and cash equivalents at beginning of period | 366,119 | | | 106,666 | |
Cash and cash equivalents at end of period | $ | 397,289 | | | $ | 166,635 | |
Supplemental disclosures: | | | |
Cash paid for income taxes, net | $ | 3,145 | | | $ | 3,983 | |
Cash paid for interest and fees | $ | 15,449 | | | $ | 7,165 | |
Non-cash investing and financing activities: | | | |
| | | |
| | | |
| | | |
Issuance of treasury stock and common stock for compensatory stock awards released from restriction | $ | 16,565 | | | $ | 18,129 | |
| | | |
Accrued capital expenditures at period-end | $ | 14,402 | | | $ | 4,055 | |
Financed additions of capital expenditures | $ | 9,827 | | | $ | 0 | |
Issuance of common stock in Topgolf merger | $ | 2,650,201 | | | $ | 0 | |
|
| | | | | | | |
| Nine Months Ended September 30, |
| 2020 | | 2019 |
Cash flows from operating activities: | | | |
Net income (loss) | $ | (86,358 | ) | | $ | 108,447 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Depreciation and amortization | 28,668 |
| | 25,471 |
|
Lease amortization expense | 24,293 |
| | 23,615 |
|
Amortization of debt issuance costs | 3,024 |
| | 2,428 |
|
Debt discount amortization | 3,857 |
| | 0 |
|
Inventory step-up on acquisition | 0 |
| | 10,703 |
|
Impairment loss | 174,269 |
| | 0 |
|
Deferred taxes, net | (117 | ) | | 8,407 |
|
Non-cash share-based compensation | 8,066 |
| | 9,476 |
|
Loss on disposal of long-lived assets | 297 |
| | 649 |
|
Gain on conversion of note receivable | (1,252 | ) | | 0 |
|
Unrealized net (gains) losses on hedging instruments | (8,899 | ) | | 999 |
|
Change in assets and liabilities, net of effect from acquisitions: | | | |
Accounts receivable, net | (96,344 | ) | | (123,560 | ) |
Inventories | 135,976 |
| | 71,246 |
|
Other assets | 11,097 |
| | 3,547 |
|
Accounts payable and accrued expenses | (40,042 | ) | | (37,392 | ) |
Accrued employee compensation and benefits | (13,252 | ) | | (5,558 | ) |
Accrued warranty expense | 4 |
| | 412 |
|
Change in operating leases, net | (21,181 | ) | | (22,463 | ) |
Income taxes receivable/payable, net | 43 |
| | (11,573 | ) |
Other liabilities | 402 |
| | (1,001 | ) |
Net cash provided by operating activities | 122,551 |
| | 63,853 |
|
Cash flows from investing activities: | | | |
Capital expenditures | (30,911 | ) | | (36,843 | ) |
Investments in golf related ventures | (19,999 | ) | | 0 |
|
Acquisitions, net of cash acquired | 0 |
| | (463,105 | ) |
Proceeds from sales of property and equipment | 8 |
| | 43 |
|
Net cash used in investing activities | (50,902 | ) | | (499,905 | ) |
Cash flows from financing activities: | | | |
Proceeds from issuance of convertible notes | 258,750 |
| | 0 |
|
Proceeds from issuance of long-term debt | 37,728 |
| | 493,167 |
|
Premium paid for capped call confirmations | (31,775 | ) | | 0 |
|
Debt issuance cost | (9,143 | ) | | (19,088 | ) |
(Repayments of) proceeds from credit facilities, net | (114,345 | ) | | 70,411 |
|
Repayments of long-term debt | (8,203 | ) | | (34,298 | ) |
Repayments of financing leases | (530 | ) | | (583 | ) |
Exercise of stock options | 130 |
| | 0 |
|
Dividends paid, net | (1,891 | ) | | (2,834 | ) |
Acquisition of treasury stock | (22,143 | ) | | (27,505 | ) |
Purchase of non-controlling interest | 0 |
| | (18,538 | ) |
Net cash provided by financing activities | 108,578 |
| | 460,732 |
|
Effect of exchange rate changes on cash and cash equivalents | (237 | ) | | (445 | ) |
Net increase in cash and cash equivalents | 179,990 |
| | 24,235 |
|
Cash and cash equivalents at beginning of period | 106,666 |
| | 63,981 |
|
Cash and cash equivalents at end of period | $ | 286,656 |
| | $ | 88,216 |
|
Supplemental disclosures: | | | |
Cash paid for income taxes, net | $ | 2,935 |
| | $ | 14,874 |
|
Cash paid for interest and fees | $ | 23,704 |
| | $ | 25,184 |
|
Non-cash investing and financing activities: | | | |
Issuance of treasury stock and common stock for compensatory stock awards released from restriction | $ | 19,609 |
| | $ | 19,613 |
|
Accrued capital expenditures at period-end | $ | 777 |
| | $ | 2,283 |
|
The accompanying notes are an integral part of these financial statements.
CALLAWAY GOLF COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
(In thousands)
| | | | | | | | | | | | | | | | | | | | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Shareholders' Equity | |
| Shareholders' Equity Callaway Golf Company | | Shares | | Amount | | Shares | | Amount | | |
Balance at December 31, 2020 | | Balance at December 31, 2020 | 95,649 | | | $ | 956 | | | $ | 346,945 | | | $ | 360,228 | | | | $ | (6,546) | | | | (1,446) | | | $ | (25,939) | | | | $ | 675,644 | | |
Common stock issued in Topgolf merger | | Common stock issued in Topgolf merger | 89,776 | | | 898 | | | 2,649,303 | | | — | | | — | | | — | | | — | | | | 2,650,201 | | |
Fair value of replacement awards converted in Topgolf merger | | Fair value of replacement awards converted in Topgolf merger | — | | | — | | | 33,051 | | | — | | | — | | | — | | | — | | | 33,051 | | |
Common stock issued for replacement restricted stock awards | | Common stock issued for replacement restricted stock awards | 188 | | | 2 | | | (2) | | | — | | | — | | | — | | | — | | | 0 | | |
Acquisition of treasury stock | | Acquisition of treasury stock | — | | | — | | | — | | | — | | | — | | | (400) | | | (12,501) | | | (12,501) | | |
Exercise of stock options | | Exercise of stock options | — | | | — | | | (452) | | | — | | | — | | | 40 | | | 709 | | | 257 | | |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Callaway Golf Company Shareholders' Equity | |
| Shares | | Amount | | Shares | | Amount | | |
Balance at June 30, 2020 | 95,649 |
| | $ | 956 |
| | $ | 341,615 |
| | $ | 348,376 |
| | | $ | (39,792 | ) | | | (1,485 | ) | | $ | (26,607 | ) | | | $ | 624,548 |
| | |
Acquisition of treasury stock | — |
| | — |
| | — |
| | — |
| | — |
| | (10 | ) | | (190 | ) | | (190 | ) | | |
Compensatory awards released from restriction | — |
| | — |
| | (466 | ) | | — |
| | — |
| | 26 |
| | 466 |
| | — |
| | Compensatory awards released from restriction | — | | | — | | | (16,565) | | | — | | | — | | | 864 | | | 16,565 | | | 0 | | |
Share-based compensation | — |
| | — |
| | 3,272 |
| | — |
| | — |
| | — |
| | — |
| | 3,272 |
| | Share-based compensation | — | | | — | | | 4,609 | | | — | | | — | | | — | | | — | | | 4,609 | | |
Stock dividends | — |
| | — |
| | 1 |
| | (3 | ) | | — |
| | — |
| | 2 |
| | — |
| | Stock dividends | — | | | — | | | 13 | | | (36) | | | — | | | 1 | | | 23 | | | 0 | | |
Cash dividends ($0.01 per share) | | Cash dividends ($0.01 per share) | — | | | — | | | — | | | (3) | | | — | | | — | | | — | | | (3) | | |
Equity adjustment from foreign currency translation | — |
| | — |
| | — |
| | — |
| | 9,128 |
| | — |
| | — |
| | 9,128 |
| | Equity adjustment from foreign currency translation | — | | | — | | | — | | | — | | | (16,243) | | | — | | | — | | | (16,243) | | |
Change in fair value of derivative instruments, net of tax | — |
| | — |
| | — |
| | — |
| | (659 | ) | | — |
| | — |
| | (659 | ) | | Change in fair value of derivative instruments, net of tax | — | | | — | | | — | | | — | | | 5,343 | | | — | | | — | | | 5,343 | | |
Equity component of convertible notes, net of issuance costs and tax | — |
| | — |
| | 3 |
| | — |
| | — |
| | — |
| | — |
| | 3 |
| | |
Net income | — |
| | — |
| | — |
| | 52,432 |
| | — |
| | — |
| | — |
| | 52,432 |
| | |
Balance at September 30, 2020 | 95,649 |
| | $ | 956 |
| | $ | 344,425 |
| | $ | 400,805 |
| | $ | (31,323 | ) | | (1,469 | ) | | $ | (26,329 | ) | | $ | 688,534 |
| | |
| Net Income | | Net Income | — | | | — | | | — | | | 272,461 | | | — | | | — | | | — | | | 272,461 | | |
Balance at March 31, 2021 | | Balance at March 31, 2021 | 185,613 | | | $ | 1,856 | | | $ | 3,016,902 | | | $ | 632,650 | | | $ | (17,446) | | | (941) | | | $ | (21,143) | | | $ | 3,612,819 | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shareholders' Equity Callaway Golf Company |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Callaway Golf Company Shareholders' Equity |
| Shares | | Amount | | | | | Shares | | Amount | |
Balance at December 31, 2019 | 95,649 |
| | $ | 956 |
| | $ | 323,600 |
| | $ | 489,382 |
| | | $ | (22,422 | ) | | | (1,451 | ) | | $ | (24,163 | ) | | | $ | 767,353 |
| |
Adoption of accounting standard | — |
| | — |
| | — |
| | (289 | ) | | | — |
| | | — |
| | — |
| | | (289 | ) | |
Acquisition of treasury stock | — |
| | — |
| | — |
| | — |
| | | — |
| | | (1,178 | ) | | (22,143 | ) | | | (22,143 | ) | |
Exercise of stock options | — |
| | — |
| | (203 | ) | | — |
| | | — |
| | | 20 |
| | 333 |
| | | 130 |
| |
Compensatory awards released from restriction | — |
| | — |
| | (19,609 | ) | | — |
| | | — |
| | | 1,138 |
| | 19,609 |
| | | — |
| |
Share-based compensation | — |
| | — |
| | 8,066 |
| | — |
| | | — |
| | | — |
| | — |
| | | 8,066 |
| |
Stock dividends | — |
| | — |
| | 4 |
| | (39 | ) | | | — |
| | | 2 |
| | 35 |
| | | — |
| |
Cash dividends ($0.01 per share) | — |
| | — |
| | — |
| | (1,891 | ) | | | — |
| | | — |
| | — |
| | | (1,891 | ) | |
Equity adjustment from foreign currency translation | — |
| | — |
| | — |
| | — |
| | | 2,347 |
| | | — |
| | — |
| | | 2,347 |
| |
Change in fair value of derivative instruments, net of tax | — |
| | — |
| | — |
| | — |
| | | (11,248 | ) | | | — |
| | — |
| | | (11,248 | ) | |
Equity component of convertible notes, net of issuance costs and tax | — |
| | — |
| | 57,080 |
| | — |
| | | — |
| | | — |
| | — |
| | | 57,080 |
| |
Premiums paid for capped call transactions, net of tax | — |
| | — |
| | (24,513 | ) | | — |
| | | — |
| | | — |
| | — |
| | | (24,513 | ) | |
Net loss | — |
| | — |
| | — |
| | (86,358 | ) | | | — |
| | | — |
| | — |
| | | (86,358 | ) | |
Balance at September 30, 2020 | 95,649 |
| | $ | 956 |
| | $ | 344,425 |
| | $ | 400,805 |
| | | $ | (31,323 | ) | | | (1,469 | ) | | $ | (26,329 | ) | | | $ | 688,534 |
| |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Shareholders' Equity | | | | |
| Shares | | Amount | | | | | Shares | | Amount | | | | |
Balance, December 31, 2019 | 95,649 | | | $ | 956 | | | $ | 323,600 | | | $ | 489,382 | | | | $ | (22,422) | | | | (1,451) | | | $ | (24,163) | | | | $ | 767,353 | | | | | | |
Adoption of accounting standard ASU Topic 326 (Note 5) | — | | | — | | | — | | | (289) | | | | — | | | | — | | | — | | | | (289) | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Acquisition of treasury stock | — | | | — | | | — | | | — | | | | — | | | | (1,167) | | | (21,938) | | | | (21,938) | | | | | | |
Exercise of stock options | — | | | — | | | (203) | | | — | | | | — | | | | 20 | | | 333 | | | | 130 | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Compensatory awards released from restriction | — | | | — | | | (18,129) | | | — | | | | — | | | | 1,055 | | | 18,129 | | | | 0 | | | | | | |
Share-based compensation | — | | | — | | | 1,861 | | | — | | | | — | | | | — | | | — | | | | 1,861 | | | | | | |
Stock dividends | 0 | | — | | | 4 | | | (34) | | | | — | | | | 2 | | | 30 | | | | 0 | | | | | | |
Cash dividends ($0.01 per share) | — | | | — | | | — | | | (949) | | | | — | | | | — | | | — | | | | (949) | | | | | | |
Equity adjustment from foreign currency translation | — | | | — | | | — | | | — | | | | (14,936) | | | | — | | | — | | | | (14,936) | | | | | | |
Change in fair value of derivative instruments, net of tax | — | | | — | | | — | | | — | | | | (159) | | | | — | | | — | | | | (159) | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Net Income | — | | | — | | | — | | | 28,894 | | | | — | | | | — | | | — | | | | 28,894 | | | | | | |
Balance, March 31, 2020 | 95,649 | | | $ | 956 | | | $ | 307,133 | | | $ | 517,004 | | | | $ | (37,517) | | | | (1,541) | | | $ | (27,609) | | | | $ | 759,967 | | | | | | |
The accompanying notes are an integral part of these financial statements.
CALLAWAY GOLF COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)
(In thousands)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Shareholders' Equity Callaway Golf Company |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Callaway Golf Company Shareholders' Equity |
| Shares | | Amount | | | | | Shares | | Amount | |
Balance at June 30, 2019 | 95,649 |
| | $ | 956 |
| | $ | 319,579 |
| | $ | 489,445 |
| | | $ | (22,271 | ) | | | (1,555 | ) | | $ | (25,773 | ) | | | $ | 761,936 |
| |
Acquisition of treasury stock | — |
| | — |
| | — |
| | — |
| | | — |
| | | (7 | ) | | (111 | ) | | | (111 | ) | |
Compensatory awards released from restriction | — |
| | — |
| | (309 | ) | | — |
| | | — |
| | | 19 |
| | 309 |
| | | — |
| |
Share-based compensation | — |
| | — |
| | 2,512 |
| | — |
| | | — |
| | | — |
| | — |
| | | 2,512 |
| |
Stock dividends | — |
| | — |
| | — |
| | (1 | ) | | | — |
| | | — |
| | 1 |
| | | — |
| |
Cash dividends ($0.01 per share) | — |
| | — |
| | — |
| | (941 | ) | | | — |
| | | — |
| | — |
| | | (941 | ) | |
Equity adjustment from foreign currency translation | — |
| | — |
| | — |
| | — |
| | | (17,083 | ) | | | — |
| | — |
| | | (17,083 | ) | |
Change in fair value of derivative instruments | — |
| | — |
| | — |
| | — |
| | | (5 | ) | | | — |
| | — |
| | | (5 | ) | |
Net Income | — |
| | — |
| | — |
| | 31,048 |
| | | — |
| | | — |
| | — |
| | | 31,048 |
| |
Balance at September 30, 2019 | 95,649 |
| | $ | 956 |
| | $ | 321,782 |
| | $ | 519,551 |
| | | $ | (39,359 | ) | | | (1,543 | ) | | $ | (25,574 | ) | | | $ | 777,356 |
| |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shareholders' Equity Callaway Golf Company |
| Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Callaway Golf Company Shareholders' Equity | | Non- Controlling Interest | | |
|
| Shares | | Amount | | | | | Shares | | Amount | | | | Total |
Balance at December 31, 2018 | 95,649 |
| | $ | 956 |
| | $ | 341,241 |
| | $ | 413,799 |
| | | $ | (13,700 | ) | | | (1,138 | ) | | $ | (17,722 | ) | | | $ | 724,574 |
| | | $ | 9,734 |
| | $ | 734,308 |
|
Acquisition of treasury stock | — |
| | — |
| | — |
| | — |
| | | — |
| | | (1,662 | ) | | (27,505 | ) | | | (27,505 | ) | | | — |
| | (27,505 | ) |
Compensatory awards released from restriction | — |
| | — |
| | (19,613 | ) | | — |
| | | — |
| | | 872 |
| | 19,613 |
| | | — |
| | | — |
| | 0 |
|
Share-based compensation | — |
| | — |
| | 9,476 |
| | — |
| | | — |
| | | — |
| | — |
| | | 9,476 |
| | | — |
| | 9,476 |
|
Stock dividends | | | — |
| | 0 |
| | (40 | ) | | | — |
| | | 385 |
| | 40 |
| | | — |
| | | — |
| | 0 |
|
Cash dividends ($0.01 per share) | — |
| | — |
| | — |
| | (2,834 | ) | | | — |
| | | — |
| | — |
| | | (2,834 | ) | | | — |
| | (2,834 | ) |
Equity adjustment from foreign currency translation | — |
| | — |
| | — |
| | — |
| | | (18,401 | ) | | | — |
| | — |
| | | (18,401 | ) | | | (339 | ) | | (18,740 | ) |
Change in fair value of derivative instruments | — |
| | — |
| | — |
| | — |
| | | (7,258 | ) | | | — |
| | — |
| | | (7,258 | ) | | | — |
| | (7,258 | ) |
Acquisition of non-controlling interest | — |
| | — |
| | (9,322 | ) | | — |
| | | — |
| | | — |
| | — |
| | | (9,322 | ) | | | (9,216 | ) | | (18,538 | ) |
Net Income | — |
| | — |
| | — |
| | 108,626 |
| | | — |
| | | — |
| | — |
| | | 108,626 |
| | | (179 | ) | | 108,447 |
|
Balance at September 30, 2019 | 95,649 |
| | $ | 956 |
| | $ | 321,782 |
| | $ | 519,551 |
| | | $ | (39,359 | ) | | | (1,543 | ) | | $ | (25,574 | ) | | | $ | 777,356 |
| | | $ | 0 |
| | $ | 777,356 |
|
The accompanying notes are an integral part of these financial statements.
CALLAWAY GOLF COMPANY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis of Presentation
The accompanying unaudited consolidated condensed financial statements have been prepared by Callaway Golf Company (the “Company” or “Callaway Golf”) pursuant to the rules and regulations of the Securities and Exchange Commission (the “Commission”). Accordingly, certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted. These consolidated condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20192020 filed with the Commission. These consolidated condensed financial statements, in the opinion of management, include all the normal and recurring adjustments necessary for the fair presentation of the financial position, results of operations and cash flows for the periods and dates presented. Interim operating results are not necessarily indicative of operating results for the full year.
On March 8, 2021, the Company completed the merger with Topgolf International, Inc. ("Topgolf") and has included the results of operations of Topgolf in it's consolidated condensed statement of operations from that date forward. The Company’s Topgolf subsidiary operates on a 52- or 53-week fiscal year ending on the Sunday closest to December 31. As such, the Topgolf financial information included in the Company’s condensed consolidated financial statements for the quarter ended March 31, 2021, is for the period beginning March 8, 2021 (merger date) through April 4, 2021. Additionally, based on the Company's assessment of the combined business, the Company modified the presentation of its consolidated condensed statement of operations for the three months ended March 31, 2021 and 2020. For further information about the merger with Topgolf, see Note 6. In connection with the merger, the Company reassessed its operating segments by evaluating its global business platform, including its management structure after the addition of Topgolf, and determined that as of March 31, 2021, the Company has 3 operating segments, namely, Golf Equipment, Apparel, Gear and Other, and Topgolf. For further information about the Company's operating segments, see Note 19.
Note 2. Summary of Significant Accounting Policies
The following reflects updates to the Company’s significant accounting policies disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Commission.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Examples of such estimates include determining the nature and timing of satisfaction of performance obligations as it relates to revenue recognition, the valuation of share-based awards, recoverability of long-lived assets, assessing intangible assets and goodwill for impairment, determining the incremental borrowing rate for operating leases, in addition to provisions for warranty, uncollectible accounts receivable, inventory obsolescence, sales returns, future price concessions and tax contingencies and estimates related to the Tax Act enacted in December 2017, and estimates on the valuation of share-based awards and recoverability of long-lived assets and investments.allowances. Actual results may materially differ from these estimates. On an ongoing basis, the Company reviews its estimates to ensure that these estimates appropriately reflect changes in its business or as new information becomes available.
Recent Accounting Standards
In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2020-06, "Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity." This ASU simplifies the accounting for convertible instruments removes certain settlement conditionsby removing the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost. These
changes will reduce reported interest expense and increase reported net income for entities that are requiredhave issued a convertible instrument that was bifurcated according to previously existing rules. Also, this ASU requires the application of the if-converted method for equity contracts to qualify for the derivative scope exception, and also simplifies thecalculating diluted earnings per share (EPS) calculation in certain areas. This ASUand the treasury stock method will be no longer available. The new guidance is effective for public filers for fiscal years, and interim periods within those fiscal years beginning after December 15, 2021. Early2021, with early adoption is permitted.permitted no earlier than fiscal years beginning after December 15, 2020. Entities may adopt the guidance through either a modified retrospective method of transition or a fully retrospective method of transition. In applying the modified retrospective method, entities should apply the guidance to transactions outstanding as of the beginning of the fiscal year in which the amendments are adopted. The Company is currently evaluatingcompleted a preliminary assessment of this ASU, and it anticipates adopting the modified retrospective approach, which will result in a significant increase in its dilutive share-count as the result of calculating the impact of dilution from its convertible notes using the if-converted method. The Company also anticipates a decrease in interest expense resulting from the elimination of the original issuance discount. Under the modified retrospective approach, the Company anticipates recognizing the difference between the removal of the equity component of the convertible notes and the unamortized original issuance discount as an adjustment to beginning retained earnings when it adopts this ASU will havenew standard on its consolidated condensed financial statements and disclosures.January 1, 2022.
In March 2020, the FASB issuedAdoption of New Accounting Standards
The Company adopted ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." This ASU provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBORthe London Inter-bank Offered Rate ("LIBOR") or another reference rate expected to be discontinued. This ASU is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is currently evaluatinghas elected to apply the impacthedge accounting expedients related to the probability and the assessments of effectiveness of LIBOR-indexed cash flow hedges upon a change in the critical terms of the derivative or the hedged transactions, and upon the end of relief under Topic 848. The Company has elected to continue the method of assessing effectiveness as documented in the original hedge documentation and elects to apply the expedient in ASC 848-50-35-17 (through 35-18) which allows the reference rate on the hypothetical derivative to match the reference rate on the hedging instrument. The adoption of this ASU willdid not have a material impact on itsthe Company's consolidated condensed financial statements and disclosures.
In December 2019, the FASB issuedThe Company adopted ASU No. 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." This ASU removes specific exceptions to the general principles in Accounting Standards Codification ("ASC") Topic 740, "Accounting for Income Taxes" ("Topic 740") and simplifies certain U.S. GAAP requirements. ASU 2019-12 is effective for public filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact this ASU will have on its consolidated condensed financial statements and disclosures.
Adoption of New Accounting Standards
On January 1, 2020, the Company adopted ASU No. 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ("Topic 326") utilizing the modified retrospective approach. This new standard is intended to improve financial reporting by requiring timelier recording of credit losses on the Company's trade account receivable and requires the measurement of all expected credit losses based on historical experience, current
conditions, and reasonable and supportable forecasts. Upon the completion of the Company's assessment of Topic 326, the Company concluded that its prior methodology of estimating credit losses on its trade accounts receivable closely aligns with the requirements of the new standard, and therefore, the adoption of this ASU did not have a material impact on the Company consolidated condensed financial statements. For further information, see Note 4. Upon adoption of Topic 326, the Company recorded a cumulative adjustment to beginning retained earnings of $289,000, which reflected an increase to the allowance for doubtful accounts. As the impact to the Company's consolidated condensed financial statements in the first quarter of 2020 was not material, prior period information that is presented for comparative purposes has not been restated and continues to be reported under the accounting standards that were in effect during those periods.
On January 1, 2020, the Company adopted ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement." The amendments in this ASU removed, modified or added to the disclosure requirements for fair value measurements in ASC Topic 820, "Fair Value Measurement." The adoption of this ASU did not have a material impact on the Company's consolidated condensed financial statements andor disclosures.
Significant Accounting PoliciesNote 2. Leases
The Company leases office space, manufacturing plants, warehouses, distribution centers, andCompany-operated Topgolf venues, vehicles, and equipment, as well as retail and/or outlet locations related to the TravisMathew and Jack Wolfskin businesses and the apparel business in Japan. Certain real estate leases include one or more options to extend the lease term, or options to purchase the leased property at the Company's sole discretion.discretion or escalation clauses that increase the rent payments over the lease term. When deemed reasonably certain of exercise, the renewal and purchase options are included in the determination of the lease term and lease payment obligation, respectively. The depreciable life of assets and leasehold improvements are limited by the expected lease term unless there is a transfer of title or purchase option reasonably certain of exercise. Certain leases may require an additional contingent rent payment based on a percentage of sales greater than certain specified threshold amounts. The Company recognizes contingent rent expense when it is probable that sales thresholds will be reached during the fiscal year. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Right-of-use ("ROU") assets represent the right to use an underlying asset during the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the commencement date of the lease based on the present value of lease payments over the lease term. When readily determinable, the Company uses the rate implicit in the lease agreement in determining the present value of minimum lease payments. If the implicit rate is not provided, the Company uses its incremental borrowing rate based on information available at the lease commencement date, including the lease term. At the commencement of a lease, the ROU asset for operating leases is measured by taking the sum of the present value of the lease liability, initial direct costs (if any) and prepaid lease payments (if any), and deducting lease incentives (if any). After the lease commencement date
and over the lease term, lease expense is recognized as a single lease cost on a straight-line basis. Lease agreements related to properties are generally comprised of lease components and non-lease components. Non-lease components, such as common area maintenance charges, property taxes and insurance, are expensed as incurred and recognized separately from the straight-line lease expense. Variable lease payments that do not depend on an index or rate, such as rental payments based on a percentage of retail sales over contractual levels, are expensed separately as incurred, and are not included in the measurement of the ROU asset and lease liability. Variable lease payments that depend on an index or rate, such as payments that are adjusted periodically for inflation, are included in the measurement of the ROU asset and lease liability and are recognized on a straight-line basis over the lease term.
In certain venue leasing arrangements, due to the Company’s involvement in the construction of leased assets, the Company is considered the owner of the leased assets for accounting purposes. In such cases, in addition to capitalizing the Company’s construction costs, the Company capitalizes the construction costs funded by the landlord related to its leased premises and recognizes a corresponding liability for those costs as construction advances during the construction period. At the end of the construction period, the Company applies sale and leaseback guidance to determine whether the underlying asset should be derecognized. When the application of the sale and leaseback guidance results in a sale, the asset and liability on the Company’s balance sheet are derecognized. When the application of the sale and leaseback guidance results in a failed sale, the asset remains on the Company’s balance sheet and is depreciated over its respective useful life or the lease term, whichever is shorter, and the liability is accounted for as a deemed landlord financing obligation. These deemed landlord financing obligations are generally non-cancelable leases with initial terms of 20 years containing various renewal options following the initial term and escalation clauses that increase the payments over the lease term.
With respect to the Company’s Toptracer operations, the Company enters into non-cancelable license agreements that provide software and hardware to driving ranges and hospitality and entertainment venues. These license agreements provide the customer the right to use Company-owned software and hardware products for a specified period generally ranging from three to five years. The software and hardware are a distinct bundle of goods that are highly interrelated. At the inception of the arrangement, lease classification is assessed which generally results in the license agreements being classified as sales-type leases. Upon lease commencement for sales-type leases, revenue is recognized consisting of initial payments received and the present value of payments over the non-cancellable term.
Revenue Recognition
The Company accounts for revenue recognition of products and services in accordance with Accounting Standards Codification (“ASC”) Topic 606, "Revenue from Contracts with Customers." See Note 4.
Product Revenue
The Company recognizes revenue from the sale of its golf clubs, golf balls, lifestyle and outdoor apparel, gear and accessories and golf apparel and accessories when it satisfies the terms of a sales order from a customer, and transfers control of the products ordered to the customer. Control transfers when products are shipped, and in certain cases, when products are received by customers under certain contract terms. In addition, the Company recognizes revenue at the point of sale on transactions with consumers at its retail locations and retail shops at Topgolf locations. Sales taxes, value added taxes and other taxes that are collected in connection with revenue transactions are withheld and remitted to the respective taxing authorities. As such, these taxes are excluded from revenue. The Company elected to account for shipping and handling as activities to fulfill the promise to transfer the good. Therefore, shipping and handling fees that are billed to customers are recognized in revenue and the associated shipping and handling costs are recognized in cost of products as soon as control of the goods transfers to the customer.
The Company, in exchange for a royalty fee, licenses its trademarks and service marks to third parties for use on products such as golf apparel and footwear, practice aids and other golf accessories. Royalty income is recognized over time as underlying product sales occur, subject to certain minimum royalties, in accordance with the related licensing arrangements. Royalty income is included in the Company's Apparel, Gear and Other operating segment.
Revenues from gift cards are deferred and recognized when the cards are redeemed. The Company’s gift cards have no expiration date. The Company recognizes revenue from unredeemed gift cards, otherwise known as breakage, when the likelihood of redemption becomes remote and under circumstances that comply with any applicable state escheatment laws. To determine when redemption is remote, the Company analyzes an aging of unredeemed cards (based on the date the card was last used or the activation date if the card has never been used) and compares that information with historical
redemption trends. The Company uses this historical redemption rate to recognize breakage on unredeemed gift cards over the redemption period. The Company does not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to determine the timing of recognition of gift card revenues.
Variable Consideration
The amount of revenue the Company recognizes is based on the amount of consideration it expects to receive from customers. The amount of consideration is the sales price adjusted for estimates of variable consideration, including sales returns, discounts, and allowances as well as sales programs, sales promotions and price concessions that are offered by the Company as described below. These estimates are based on the amounts earned or to be claimed by customers on the related sales and are therefore recorded as reductions to sales and trade accounts receivable.
The Company’s primary sales program, the “Preferred Retailer Program,” offers potential rebates and discounts for participating retailers in exchange for providing certain benefits to the Company, including the maintenance of agreed upon inventory levels, prime product placement and retailer staff training. Under this program, qualifying retailers can earn either discounts or rebates based upon the amount of product purchased. Discounts are applied and recorded at the time of sale. For rebates, the Company estimates the amount of variable consideration related to the rebate at the time of sale based on the customer’s estimated qualifying current year product purchases. The estimate is based on the historical level of purchases, adjusted for any factors expected to affect the current year purchase levels. The estimated year-end rebate is adjusted quarterly based on actual purchase levels, as necessary. The Preferred Retailer Program is generally short-term in nature and the actual amount of rebate to be paid under this program is known as of the end of the year and paid to customers shortly after year-end. Historically, the Company's actual amount of variable consideration related to its Preferred Retailer Program has not been materially different from its estimates.
The Company also offers short-term sales program incentives, which include sell-through promotions and price concessions or price reductions. Sell-through promotions are generally offered throughout the product's life cycle of approximately two years, and price concessions or price reductions are generally offered at the end of the product's life cycle. The estimated variable consideration related to these programs is based on a rate that includes historical and forecasted data. The Company records a reduction to net revenues using this rate at the time of the sale. The Company monitors this rate against actual results and forecasted estimates and adjusts the rate as deemed necessary to reflect the amount of consideration it expects to receive from its customers. There were no material changes to the rate during the three months ended March 31, 2021 and 2020. Historically, the Company's actual amount of variable consideration related to these sales programs has not been materially different from its estimates.
The Company records an estimate for anticipated returns as a reduction of sales and cost of sales, and accounts receivable, in the period that the related sales are recorded. Sales returns are estimated based upon historical returns, current economic trends, changes in customer demands and sell-through of products. The Company also offers certain customers sales programs that allow for specific returns. The Company records a return liability as an offset to accounts receivable for anticipated returns related to these sales programs at the time of the sale based on the terms of the sales program. The cost recovery of inventory associated with this reserve is accounted for in other current assets. Historically, the Company’s actual sales returns have not been materially different from management’s original estimates.
Services Revenue
The Company recognizes revenue from the operation of its Topgolf venues consisting primarily of food and beverage sales, event deposits, fees charged for gameplay, purchases of game credits and membership fees. In addition, services sales are recognized through the redemption of gift cards, sponsorship contracts, franchise fees, leasing revenue, the Company’s World Golf Tour ("WGT") digital golf game and non-refundable deposits for venue reservations.
The Company's food and beverage revenue is recognized at the time of sale. Event deposits received from guests attributable to food and beverage purchases are deferred and recognized as revenue when the event is held. Food and beverage revenues are presented net of discounts. All sales taxes collected from guests are excluded from revenue in the consolidated condensed statements of operations and the obligation is included in accrued expenses on the Company’s consolidated condensed balance sheets until the taxes are remitted to the appropriate taxing authorities.
Fees charged for gameplay are recognized at the time of purchase. Event deposits received from guests attributable to gameplay purchases are deferred and recognized as revenue when the event is held. Purchases of game credits are deferred and recognized as revenue when: (i) the game credits are redeemed by the guest; or (ii) the likelihood of the game credits
being redeemed by the guest is remote (“game credit breakage”). The Company uses historic game credit redemption patterns to determine the likelihood of game credit redemption. Game credit breakage is recorded consistent with the historic redemption pattern.
Membership fees received from guests are deferred and recognized as revenue over the estimated life of the associated membership.
Revenues from gift cards to purchase for food and beverage or gameplay at Topgolf locations are deferred and recognized when the cards are redeemed, consistent with the gift card policy on product revenues.
The Company enters into sponsorship contracts that provide advertising opportunities to market to Topgolf guests in the form of custom displays, lobby displays, digital and print posters and other advertising at Topgolf venues and on Topgolf websites. Sponsorship contracts are typically for a fixed price over a specified length of time and revenue is generally recognized ratably over the contract period unless there is a different predominate pattern of performance.
The Company enters into international development agreements that grant franchise partners the right to develop, open and operate a certain number of venues within a particular geographic area. The franchise partner may be required to pay a territory fee upon entering into a development agreement and a franchise fee for each developed venue. The franchisee will also pay ongoing royalty fees based upon a percentage of sales. The initial franchise term provided for each venue generally ranges from 15 to 20 years and provides the option for renewal. The franchise of each individual venue within an arrangement represents a single performance obligation. Therefore, territory fees and franchise fees for each arrangement are allocated to each individual venue and recognized over the term of the respective franchise agreement, including renewal options. Revenue from sales-based royalties is recognized as the related sales occur. The franchisee may also purchase Topgolf-specific equipment and supplies from the Company to be used at the licensed venue. The Company has determined that it is the principal in these transactions and record the related revenue and cost of services on a gross basis.
Leasing revenue results from non-cancelable sales-type lease agreements that provide Toptracer software and hardware to driving ranges and hospitality and entertainment venues. See discussion above on sales-type leases.
The Company’s WGT digital golf game is a live service that allows players to play for free via web and mobile gaming platforms. Within the WGT digital golf game, players can purchase virtual currency to obtain virtual goods to enhance their game-playing experience. Revenues from purchases of virtual currency are deferred at the point of purchase and recognized as revenue over the average life of a player, determined using historic gameplay activity patterns.
Non-refundable deposits received for venue reservations are recognized at the time of purchase.
Cost of Products
The Company’s cost of products is comprised primarily of variable costs that fluctuate with sales volumes, including raw materials and component costs, merchandise from third parties, conversion costs including direct labor and manufacturing overhead, and inbound freight, duties, and shipping charges. In addition, cost of products include hardware costs with respect to Topgolf's Toptracer license agreements classified as sales-type leases, and retail merchandise costs for products sold in retail shops within Topgolf venue facilities. Fixed overhead expenses include warehousing costs, indirect labor, and supplies, as well as depreciation expense associated with assets used to manufacture and distribute products. In addition, cost of products includes adjustments to reflect inventory at its net realizable value, as well as adjustments for obsolescence and product warranties.
Cost of Services
The Company’s cost of services primarily consists of food and beverage costs and transaction fees with respect to in-app purchases within the Company’s WGT digital golf game. Food and beverage costs are variable by nature, change with sales volume, and are impacted by product mix and commodity pricing. Cost of services excludes employee costs as well as depreciation and amortization.
Other Venue Expenses
Other venue expenses consists of salaries and wages, bonuses, commissions, payroll taxes, and other employee costs that directly support venue operations, in addition to rent and occupancy costs, property taxes, depreciation associated with
venues, supplies, credit card fees and marketing expenses. Other venue expenses include both fixed and variable components and are therefore not directly correlated with revenue.
Venue Pre-Opening Costs
Pre-opening costs primarily include costs associated with activities prior to the opening of a new company-operated venue, as well as other costs that are not considered in the evaluation of ongoing performance. Pre-opening costs fluctuate based on the timing, size and location of new company-operated venues.
Selling, General and Administrative Expenses (SG&A)
SG&A expenses are comprised primarily of employee costs, advertising and promotional costs, tour expenses, legal and professional fees, travel expenses, building and rent expenses, depreciation charges (excluding those related to manufacturing and distribution operations), amortization of intangible assets, and other miscellaneous expenses.
Research and Development
Research and development expenses are comprised of costs to develop or significantly improve the Company's products and technology, which primarily include the salaries and wages of personnel engaged in research and development activities, research costs and depreciation expense. Other than software development costs qualifying for capitalization, research and development costs are expensed as incurred.
Inventories
Unless otherwise stated below, the Company's inventory is recorded at the lower of cost or net realizable value, which includes a reserve for excess, obsolete and/or unmarketable inventory. This reserve is regularly assessed based on current inventory levels, sales trends, and historical experience, as well as management’s estimates of market conditions and forecasts of future product demand, all of which are subject to change. The Company utilizes the standard costing method, determined on the first-in, first-out basis, for its golf equipment inventory and soft goods inventory sold under the TravisMathew, OGIO and Callaway brands, and the weighted average costing method for soft goods inventory sold under the Jack Wolfskin brand. Golf equipment inventory, which is directly manufactured by the Company, includes finished goods, raw materials, labor and manufacturing overhead costs and work in process. The Company's soft goods product lines, which are manufactured by third-party contractors, primarily include finished good products. Toptracer hardware and software, food and beverage products and Topgolf-specific retail merchandise inventories are stated at weighted average cost.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives generally as follows:
| | | | | |
Buildings and improvements | 10-40 years |
Machinery and equipment | 5-10 years |
Furniture, computers and equipment | 3-5 years |
Internal-use software | 3-5 years |
Production molds | 2-5 years |
Buildings capitalized in conjunction with deemed landlord financing where the Company is deemed to be the accounting owner are depreciated, less residual value, over the shorter of 20 years or the lease term.
Normal repairs and maintenance costs are expensed as incurred. Expenditures that materially increase values, change capacities, or extend useful lives are capitalized. The related costs and accumulated depreciation of disposed assets are eliminated and any resulting gain or loss on disposition is recognized in earnings. Construction in-process consists primarily of costs associated with building improvements, machinery and equipment and venues under construction that have not yet been placed into service, unfinished molds as well as in-process internal-use software.
In accordance with ASC Topic 350-40, “Internal-Use Software,” the Company capitalizes certain costs incurred in connection with developing or obtaining internal use software. Costs incurred in the preliminary project stage are expensed. All direct external costs incurred to develop internal-use software during the development stage are capitalized and depreciated using the straight-line method over the remaining estimated useful lives. Costs such as maintenance and training are expensed as incurred.
Goodwill and Intangible Assets
The Company's intangible assets, which are comprised of goodwill, trade names, trademarks, service marks, trade dress, customer and distributor relationships, developed technology, non-competes and patents were acquired in connection with the acquisitions of Odyssey Sports, Inc., FrogTrader, Inc., OGIO, TravisMathew, Jack Wolfskin, certain foreign distributors and the recently completed merger with Topgolf on March 8, 2021.
In accordance with ASC Topic 350, “Intangibles—Goodwill and Other,” goodwill and intangible assets with indefinite lives are not amortized but instead are measured for impairment at least annually or more frequently when events indicate that an impairment exists. The Company calculates impairment as the excess of the carrying value of goodwill and other indefinite-lived intangible assets over their estimated fair value. If the carrying value exceeds the estimate of fair value a write-down is recorded. To determine fair value, the Company uses discounted cash flow estimates, quoted market prices, royalty rates when available and independent appraisals when appropriate.
During the second quarter of 2020, due to the significant disruptions caused by the COVID-19 pandemic on the Company's operations, the Company performed a qualitative assessment considering the macroeconomic conditions caused by the COVID-19 pandemic, and the potential impact on the Company's revenue and operating income for the remainder of fiscal 2020 and potentially beyond. As a result, the Company determined that there were indicators of impairment, and proceeded with a quantitative assessment to test the recoverability of goodwill for all its reporting units, in addition to the recoverability of indefinite-lived intangible assets, consisting primarily of the trade names and trademarks associated with the Company's brands. Based on this assessment, the Company determined that the fair values of the Jack Wolfskin reporting unit and the Jack Wolfskin trade name were less than their carrying values. As a result, during the second quarter of 2020, the Company recognized impairment losses to write-off the goodwill associated with the Jack Wolfskin reporting unit and write-down the trade name associated with the Jack Wolfskin brand name to its new estimated fair value. There were no further impairments recognized over the remainder of 2020. For further discussion, see Note 9.
Intangible assets that are determined to have definite lives are amortized over their estimated useful lives and are measured for impairment in accordance with ASC Topic 360-10-35, “Impairment or Disposal of Long-Lived Assets” as discussed above, only when events or circumstances indicate the carrying value may be impaired. See Note 9 for further discussion of the Company’s intangible assets.
Costs related to the development, maintenance, or renewal of internally developed intangible assets that are inherent in the Company's continuing business and relate to the Company as a whole, that were not acquired as a part of a business combination or asset acquisition, are expensed as incurred.
Note 3. Leases
The Company leases office space, manufacturing plants, warehouses, distribution centers, Company-operated Topgolf venues, vehicles, and equipment, as well as retail and/or outlet locations related to the TravisMathew and Jack Wolfskin businesses and the apparel business in Japan. The Company also enters into non-cancellable agreements with driving ranges and hospitality and entertainment venues to license Toptracer software and hardware, which are classified as sales-type leases.
Deemed Landlord Financing Leases
As of March 31, 2021, the Company accounted for 2 deemed landlord financing leases that did not meet the sale-leaseback criteria upon the completion of construction in accordance with ASC 842. As of March 31, 2021, the Company was the accounting owner of 10 landlord buildings under deemed landlord financing contracts. As of March 31, 2021, the net book value included in property, plant and equipment related to these buildings on the consolidated condensed balance sheet totaled $280,864,000. The Company depreciates these properties over the initial lease term of 20 years or over their estimated useful life, whichever is shorter.
Sales-Type Leases
Leasing revenue attributed to sales-type leases was $3,893,000 for the three months ended March 31, 2021, which was included in services revenues within the consolidated condensed statement of operations. Leasing receivables related to the Company’s net investment in sales-type leases are as follows (in thousands):
| | | | | | | | | | | |
| Balance Sheet Location | | March 31, 2021 |
Leasing receivables, net - current | Other current assets | | $ | 8,957 | |
Leasing receivables - long-term | Other assets | | 29,903 | |
| | | $ | 38,860 | |
Operating Leases
In response to the COVID-19 pandemic, the Company received certain rent concessions in the form of deferments and abatementsabatement on a few of its operating leases. The Company opted to not modify these leases in accordance with the FASB Staff Q&A-Topic 842 and Topic 840: "Accounting For Lease Concessions Related to the Effects of the COVID-19 Pandemic" issued in April 2020, and account for these concessions as if they were made under the enforceable rights included in the original agreement. Rent deferments were recorded as a payable and paid at a later negotiated date. Rent abatements were recognized as reductions in rent expense over the periods covered by the abatement period. TheAs of March 31, 2021 and December 31, 2020 the Company receivedrecorded rent deferments of $3,425,000 and $687,000, respectively, which were recorded in accounts payable and accrued expenses, and $9,345,000 other long-term liabilities in the Consolidated Condensed Balance Sheetconsolidated condensed balance sheets as of September 30, 2020, andMarch 31, 2021. Of the rent deferments recorded as of March 31, 2021, $12,770,000 was recorded in connection with the Topgolf merger in March 2021. There were 0 rent abatements of $120,000 and $1,431,000, which were recorded as reductions in rent expense in the Consolidated Condensed Statements of Operations for the three and nine months ended September 30, 2020, respectively.
March 31, 2021 or 2020.
Supplemental balance sheet information related to leases is as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Balance Sheet Location | | March 31, 2021 | | December 31, 2020 |
Operating Leases | | | | | |
ROU assets, net | Operating lease ROU assets, net | | $ | 1,041,395 | | | $ | 194,776 | |
Lease liabilities, short-term | Operating lease liabilities, short-term | | $ | 51,510 | | | $ | 29,579 | |
Lease liabilities, long-term | Operating lease liabilities, long-term | | $ | 1,155,551 | | | $ | 177,996 | |
| | | | | |
Deemed Landlord Financing | | | | | |
Lease liabilities, short-term | Accrued expenses | | $ | 1,567 | | | $ | 0 | |
Lease liabilities, long-term | Deemed landlord financing, long-term | | $ | 221,618 | | | $ | 0 | |
| | | | | |
Finance Leases | | | | | |
ROU assets, net, | Other assets | | $ | 2,761 | | | $ | 1,003 | |
Lease liabilities, short-term | Accrued expenses | | $ | 1,090 | | | $ | 252 | |
Lease liabilities, long-term | Long-term other | | $ | 1,903 | | | $ | 447 | |
|
| | | | | | | | | |
| Balance Sheet Location | | September 30, 2020 | | December 31, 2019 |
Operating leases | | |
| | |
ROU assets, net | Operating lease ROU assets, net | | $ | 186,721 |
| | $ | 160,098 |
|
Lease liabilities, short-term | Operating lease liabilities, short-term | | $ | 28,011 |
| | $ | 26,418 |
|
Lease liabilities, long-term | Operating lease liabilities, long-term | | $ | 170,732 |
| | $ | 137,696 |
|
| | | | | |
Finance Leases | | |
| | |
ROU assets, net, | Other assets | | $ | 930 |
| | $ | 1,263 |
|
Lease liabilities, short-term | Accounts payable and accrued expenses | | $ | 271 |
| | $ | 589 |
|
Lease liabilities, long-term | Long-term other | | $ | 493 |
| | $ | 558 |
|
The components of lease expense are as follows (in thousands): | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
Operating lease costs | | | | | $ | 20,497 | | | $ | 11,022 | |
Financing lease costs: | | | | | | | |
Amortization of right-of-use assets | | | | | 322 | | | 167 | |
Interest on lease liabilities | | | | | 20 | | | 11 | |
Total financing lease costs | | | | | 342 | | | 178 | |
Variable lease costs | | | | | 579 | | | 1,296 | |
Total lease costs | | | | | $ | 21,418 | | | $ | 12,496 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Operating lease costs | $ | 10,458 |
| | $ | 8,758 |
| | $ | 31,759 |
| | $ | 28,357 |
|
Financing lease costs: | | | | | | | |
Amortization of right-of-use assets | 185 |
| | 180 |
| | 505 |
| | 657 |
|
Interest on lease liabilities | 9 |
| | 14 |
| | 31 |
| | 69 |
|
Total financing lease costs | 194 |
| | 194 |
| | 536 |
| | 726 |
|
Variable lease costs | 590 |
| | 1,091 |
| | 2,473 |
| | 3,277 |
|
Total lease costs | $ | 11,242 |
| | $ | 10,043 |
| | $ | 34,768 |
| | $ | 32,360 |
|
Other information related to leases was as follows (in thousands): |
| | | | | | | | |
| | Nine Months Ended September 30, |
Supplemental Cash Flows Information | | 2020 | | 2019 |
Cash paid for amounts included in the measurement of lease liabilities: | | | | |
Operating cash flows from operating leases | | $ | 29,122 |
| | $ | 29,783 |
|
Operating cash flows from finance leases | | $ | 31 |
| | $ | 69 |
|
Financing cash flows from finance leases | | $ | 530 |
| | $ | 583 |
|
| | | | |
Lease liabilities arising from new ROU assets: | | | | |
Operating leases | | $ | 54,678 |
| | $ | 8,819 |
|
Finance leases | | $ | 131 |
| | $ | 172 |
|
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
Supplemental Cash Flows Information | | 2021 | | 2020 |
Cash paid for amounts included in the measurement of lease liabilities: | | | | |
Operating cash flows from operating leases | | $ | 18,852 | | | $ | 9,331 | |
Operating cash flows from finance leases | | $ | 9 | | | $ | 11 | |
Financing cash flows from finance leases | | $ | 95 | | | $ | 109 | |
| | | | |
Lease liabilities arising from new ROU assets: | | | | |
Operating leases | | $ | 28,419 | | | $ | 51,851 | |
Finance leases | | $ | 29 | | | $ | 22 | |
|
| | | | | |
| September 30, 2020 | | December 31, 2019 |
Weighted average remaining lease term (years): | | | |
Operating leases | 10.0 |
| | 10.4 |
|
Finance leases | 3.1 |
| | 2.8 |
|
| | | |
Weighted average discount rate: | | | |
Operating leases | 5.4 | % | | 5.7 | % |
Finance leases | 3.5 | % | | 4.2 | % |
| | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
Weighted average remaining lease term (years): | | | |
Operating leases | 14.6 | | 9.8 |
Finance leases | 2.8 | | 3.0 |
| | | |
Weighted average discount rate: | | | |
Operating leases | 8.2 | % | | 5.3 | % |
Finance leases | 5.3 | % | | 3.9 | % |
Future minimum lease obligations as of September 30, 2020March 31, 2021 were as follows (in thousands):
|
| | | | | | | |
| Operating Leases | | Finance Leases |
Remainder of 2020 | $ | 10,644 |
| | $ | 89 |
|
2021 | 36,073 |
| | 274 |
|
2022 | 31,426 |
| | 234 |
|
2023 | 27,259 |
| | 124 |
|
2024 | 23,591 |
| | 51 |
|
Thereafter | 130,615 |
| | 31 |
|
Total future lease payments | 259,608 |
| | 803 |
|
Less: imputed interest | 60,865 |
| | 39 |
|
Total | $ | 198,743 |
| | $ | 764 |
|
| | | | | | | | | | | | | | | | | |
| Operating Leases | | DLF Leases | | Finance Leases |
Remainder of 2021 | $ | 111,570 | | | $ | 13,253 | | | $ | 902 | |
2022 | 146,151 | | | 20,026 | | | 1,171 | |
2023 | 143,834 | | | 19,862 | | | 736 | |
2024 | 141,171 | | | 20,054 | | | 352 | |
2025 | 139,169 | | | 20,380 | | | 26 | |
Thereafter | 1,464,450 | | | 355,973 | | | 9 | |
Total future lease payments | 2,146,345 | | | 449,548 | | | 3,196 | |
Less: imputed interest | 939,284 | | | 226,363 | | | 203 | |
Total | $ | 1,207,061 | | | $ | 223,185 | | | $ | 2,993 | |
Lease payments exclude $828,530,000 related to 14 non-cancellable leases that have been signed as of March 31, 2021 but have not yet commenced. Of the 14 leases, 5 are scheduled to commence in 2021. The Company's minimum capital commitment related to these leases was approximately $75,000,000 as of March 31, 2021. As the Company is actively involved in the construction of these properties, the Company recorded $58,103,000 in construction costs within property, plant and equipment as of March 31, 2021. In addition, the Company recorded $54,874,000 in advances from the landlord in connection with properties under construction as of March 31, 2021. The Company will determine the lease classification for properties currently under construction at the end of the construction period. The initial base term upon the commencement of these leases is generally 20 years. Note 3.4. Revenue Recognition
The Company primarily recognizes revenue from the sale of its products whichand operation of its venues. Revenue from product sales include golf clubs, golf balls, lifestyle and outdoor apparel, gear and accessories in addition toand golf apparel and accessories. The Company sells its products to customers, which include on- and off-course golf shops and national retail stores, as well as to consumers through its e-commerce business and at its apparel retail and venue locations. In addition, the Company recognizesThe Company's product revenues also includes royalty income from third parties from the licensing of certain soft goods products,products. Revenue from services primarily includes venue sales of food and beverage and fees charged for gameplay, and the sale of game credits to guests. Service Revenues also include franchise fees from franchised international venues, as
well as revenue from gift cards.cards, sponsorship contracts, franchise fees, leasing revenue and non-refundable deposits received for venue reservations. In addition, the Company recognizes service revenues through its online multiplayer WGT digital golf game.
The Company's contracts with customers for its products are generally in the form of a purchase order. In certain cases, the Company enters into sales agreements containing specific terms, discounts and allowances. In addition, theThe Company enters into licensing agreements with certain distributors.distributors and, with respect to the Company's Toptracer operations, driving ranges and hospitality and entertainment venues.
The Company has two3 operating and reportable segments, namely the Golf Equipment operating segment, and the Apparel, Gear and Other operating segment, and the Topgolf operating segment. Revenue attributable to the Topgolf operating segment is for the period beginning March 8, 2021 (merger date) through April 4, 2021. The following table presents the Company's revenue disaggregated by major product category and operating and reportable segment (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating and Reportable Segments |
| Three Months Ended March 31, 2021 | | Three Months Ended March 31, 2020 |
| Golf Equipment | | Apparel, Gear & Other | | Topgolf | | Total | | Golf Equipment | | Apparel, Gear & Other | | | | Total |
Major revenue categories: | | | | | | | | | |
Golf clubs | $ | 316,353 | | | $ | — | | | $ | — | | | $ | 316,353 | | | $ | 251,224 | | | $ | — | | | | | $ | 251,224 | |
Golf balls | 60,529 | | | — | | | — | | | 60,529 | | | 40,437 | | | — | | | | | 40,437 | |
Apparel | — | | | 95,289 | | | — | | | 95,289 | | | — | | | 77,290 | | | | | 77,290 | |
Gear, accessories & other | — | | | 86,813 | | | — | | | 86,813 | | | — | | | 73,325 | | | | | 73,325 | |
Venues | — | | | — | | | 85,170 | | | 85,170 | | | — | | | — | | | | | — | |
Other business lines | — | | | — | | | 7,467 | | | 7,467 | | | — | | | — | | | | | — | |
| $ | 376,882 | | | $ | 182,102 | | | $ | 92,637 | | | $ | 651,621 | | | $ | 291,661 | | | $ | 150,615 | | | | | $ | 442,276 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Operating and Reportable Segments |
| Three Months Ended September 30, 2020 | | Three Months Ended September 30, 2019 |
| Golf Equipment | | Apparel, Gear & Other | | Total | | Golf Equipment | | Apparel, Gear & Other | | Total |
Major product category: | | | | | | | |
Golf Clubs | $ | 209,356 |
| | $ | 0 |
| | $ | 209,356 |
| | $ | 168,005 |
| | $ | 0 |
| | $ | 168,005 |
|
Golf Balls | 57,921 |
| | 0 |
| | 57,921 |
| | 42,497 |
| | 0 |
| | 42,497 |
|
Apparel | 0 |
| | 125,609 |
| | 125,609 |
| | 0 |
| | 139,998 |
| | 139,998 |
|
Gear, Accessories & Other | 0 |
| | 82,673 |
| | 82,673 |
| | 0 |
| | 75,717 |
| | 75,717 |
|
| $ | 267,277 |
| | $ | 208,282 |
| | $ | 475,559 |
| | $ | 210,502 |
| | $ | 215,715 |
| | $ | 426,217 |
|
The Topgolf segment includes an immaterial amount of golf clubs, golf balls, and apparel sales, which are reflected within product sales within the consolidated condensed statement of operations for the three months ended March 31, 2021. |
| | | | | | | | | | | | | | | | | | | | | | | |
| Operating and Reportable Segments |
| Nine Months Ended September 30, 2020 | | Nine Months Ended September 30, 2019 |
| Golf Equipment | | Apparel, Gear & Other | | Total | | Golf Equipment | | Apparel, Gear & Other | | Total |
Major product category: | | | | | | | |
Golf Clubs | $ | 616,620 |
| | $ | 0 |
| | $ | 616,620 |
| | $ | 653,531 |
| | $ | 0 |
| | $ | 653,531 |
|
Golf Balls | 152,261 |
| | 0 |
| | 152,261 |
| | 172,943 |
| | 0 |
| | 172,943 |
|
Apparel | 0 |
| | 239,201 |
| | 239,201 |
| | 0 |
| | 309,439 |
| | 309,439 |
|
Gear, Accessories & Other | 0 |
| | 206,749 |
| | 206,749 |
| | 0 |
| | 253,209 |
| | 253,209 |
|
| $ | 768,881 |
| | $ | 445,950 |
| | $ | 1,214,831 |
| | $ | 826,474 |
| | $ | 562,648 |
| | $ | 1,389,122 |
|
The Apparel, Gear and Other and Topgolf segments include royalty income from licensing agreements of $10,868,000 and $5,545,000 for the three months ended March 31, 2021 and 2020, respectively.
As of March 31, 2021 and December 31, 2020, the Company's deferred revenue liability was $70,946,000 and $2,546,000, respectively. The balance as of March 31, 2021 included a deferred revenue liability of $68,093,000 in the Topgolf segment related to gift cards, event deposits, lifetime memberships, prepaid sponsorship, premium membership, the WGT digital golf game, and game credits. Revenue from redeemed gift cards and gift card breakage was $3,306,000 and $525,000 for the three months ended March 31, 2021 and 2020, respectively. Deferred revenue from redeemed event deposits, lifetime memberships, prepaid sponsorship, premium membership, WGT digital golf game, game credits, and the corresponding breakage was $24,740,000 for the three months ended March 31, 2021.
The following table summarizes revenue by geographical areas in which the Company operates (in thousands):
15
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
Revenue by Major Geographic Region: | | | | | | | |
United States | | | | | $ | 388,222 | | | $ | 217,503 | |
Europe | | | | | 108,345 | | | 96,719 | |
Japan | | | | | 71,886 | | | 77,347 | |
Rest of World | | | | | 83,168 | | | 50,707 | |
| | | | | $ | 651,621 | | | $ | 442,276 | |
The Company sells its golf equipment products and apparel, gear and accessories in the United States and internationally, with its principal international regions being Japan and Europe. On a regional basis, sales of golf equipment products
are generally higher than sales of apparel gear and other products, with the exceptionin most regions other than Europe, which has a higher concentration of Europeapparel, gear and other sales as a result of the Jack Wolfskin, acquisition completedwhich is headquartered in January 2019.
The following table presents information about the geographical areas in which the Company operates. Revenues are attributed to the location to which the product was shipped (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Major Geographic Region: | | | | | | | |
United States | $ | 214,619 |
| | $ | 161,631 |
| | $ | 603,836 |
| | $ | 658,051 |
|
Europe | 134,680 |
| | 133,351 |
| | 281,473 |
| | 341,594 |
|
Japan | 56,530 |
| | 64,176 |
| | 158,517 |
| | 193,080 |
|
Rest of World | 69,730 |
| | 67,059 |
| | 171,005 |
| | 196,397 |
|
| $ | 475,559 |
| | $ | 426,217 |
| | $ | 1,214,831 |
| | $ | 1,389,122 |
|
Product Sales
The Company recognizesGermany. Venues revenue from the sale of its products when it satisfies the terms of a sales order from a customer, and transfers control of the products ordered to the customer. Control transfers when products are shipped, and in certain cases, when products are received by customers. In addition, the Company recognizes revenue at the point of sale on transactions with consumers at its retail locations. Sales taxes, value added taxes and other taxes that are collected in connection with revenue transactions are withheld and remitted to the respective taxing authorities. As such, these taxes are excluded from revenue. The Company elected to account for shipping and handling as activities to fulfill the promise to transfer the good. Therefore, shipping and handling fees that are billed to customers are recognized in revenue and the associated shipping and handling costs are recognized in cost of goods sold as soon as control of the goods transfers to the customer.
Royalty Income
Royalty income is recognized over time in net sales as underlying product sales occur, subject to certain minimum royalties, in accordance with the related licensing arrangements. Royalty income is includedhigher in the Company's Apparel, Gear and Other operating segment. Total royalty income for the three months ended September 30, 2020 and 2019 was $5,849,000 and $5,466,000, respectively, and $14,946,000 and $15,611,000 for the nine months ended September 30, 2020 and 2019, respectively.
Gift Cards
Revenues from gift cards are deferred and recognized when the cards are redeemed. The Company’s gift cards have no expiration date. The Company recognizes revenue from unredeemed gift cards, otherwise knownUnited States, as breakage, when the likelihood of redemption becomes remote and under circumstances that comply with any applicable state escheatment laws. To determine when redemption is remote, the Company analyzes an aging of unredeemed cards (based on the date the card was last used or the activation date if the cardTopgolf has never been used) and compares that information with historical redemption trends. The Company uses this historical redemption rate to recognize breakage on unredeemed gift cards over the redemption period. The Company does not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions used to determine the timing of recognition of gift card revenues. As of September 30, 2020 and December 31, 2019, the Company's deferred revenue liability for gift cards was $2,046,000 and $2,190,000, respectively. During the three months ended September 30, 2020 and 2019, the Company recognized $795,000 and $528,000 of deferred gift card revenue, respectively, and $1,825,000 and $1,515,000 during the nine months ended September 30, 2020 and 2019, respectively.
Variable Consideration
The amount of revenue the Company recognizes is based on the amount of consideration it expects to receive from customers. The amount of consideration is the sales price adjusted for estimates of variable consideration, including sales returns, discounts and allowances as well as sales programs, sales promotions and price concessions that are offered by the Company as described below. These estimates are based on the amounts earned or to be claimed by customers on the related sales, and are therefore recorded as reductions to sales and trade accounts receivable.
The Company’s primary sales program, the “Preferred Retailer Program,” offers potential rebates and discounts for participating retailers in exchange for providing certain benefits to the Company, including the maintenance of agreed upon inventory levels, prime product placement and retailer staff training. Under this program, qualifying retailers can earn either discounts or rebates based upon the amount of product purchased. Discounts are applied and recorded at the time of sale. For
rebates, the Company estimates the amount of variable consideration related to the rebate at the time of sale based on the customer’s estimated qualifying current year product purchases. The estimate is based on the historical level of purchases, adjusted for any factors expected to affect the current year purchase levels. The estimated year-end rebate is adjusted quarterly based on actual purchase levels, as necessary. The Preferred Retailer Program is generally short-term in nature and the actual amount of rebate to be paid under this program is known as of the end of the year and paid to customers shortly after year-end. Historically, the Company's actual amount of variable consideration related to its Preferred Retailer Program has not been materially different from its estimates.
The Company also offers short-term sales program incentives, which include sell-through promotions and price concessions or price reductions. Sell-through promotions are generally offered throughout the product's life cycle of approximately two years, and price concessions or price reductions are generally offered at the end of the product's life cycle. The estimated variable consideration related to these programs is based on a rate that includes historical and forecasted data. The Company records a reduction to net sales using this rate at the time of the sale. The Company monitors this rate against actual results and forecasted estimates and adjusts the rate as deemed necessary in order to reflect the amount of consideration it expects to receive from its customers. There were no material changes to the rate during the three and nine months ended September 30, 2020 and 2019. Historically, the Company's actual amount of variable consideration related to these sales programs has not been materially different from its estimates.more domestic venues than international.
The Company records an estimate for anticipated returns as a reduction of salesproduct revenues and cost of sales,products, and accounts receivable, in the period that the related sales are recorded. Sales returns are estimated based upon historical returns, current economic trends, changes in customer demands and sell-through of products. The Company also offers certain customers sales programs that allow for specific returns. The Company records a return liability as an offset to accounts receivable for anticipated returns related to these sales programs at the time of the sale based on the terms of the sales program. The cost recovery of inventory associated with this reserve is accounted for in other current assets. The Company's provision for sales returns will fluctuate with the seasonality of the business, while actual sales returns are generally more heavily weighted toward the back half of the year as the golf season comes to an end. Historically, the Company’s actual sales returns have not been materially different from management’s original estimates.
The following table provides a reconciliation of the activity related to the Company’s sales return reserve (in thousands): | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
Beginning balance | | | | | $ | 43,986 | | | $ | 34,314 | |
Provision | | | | | 35,890 | | | 35,636 | |
Sales returns | | | | | (19,092) | | | (18,958) | |
Ending balance | | | | | $ | 60,784 | | | $ | 50,992 | |
Note 4.5. Estimated Credit Losses
The Company's trade accounts receivable are recorded at net realizable value, which includes an appropriate allowance for estimated credit losses, as well as reserves related to product returns and sales programs as described in Note 3.4. Under ASC Topic 326, the “expected credit loss” model replaces the “incurred loss” model and requires consideration of a broader range of information to estimate expected credit losses over the life of the asset. The Company's prior methodology for estimating credit losses on trade accounts receivable did not differ significantly from the new requirements of ASC 326. Specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. An estimate of credit losses for the remaining customers in the aggregate is based upon historical bad debts, current customer receivable balances, age of customer receivable balances, the customers' financial condition, all of which are subject to change. Additionally, the Company’s monitoring activities now consider future reasonable and supportable forecasts of economic conditions to adjust all general reserve percentages as necessary. Balances are written off when determined to be uncollectible. The Company considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and determined, based on current information, that the estimate of credit losses as of September 30, 2020March 31, 2021 was not significantly impacted.
Actual uncollected amounts have historically been consistent with the Company’s expectations. The Company's payment terms on its receivables from customers are generally 60 days or less.
The following table provides a reconciliation of the activity related to the Company’s allowance for estimated credit losses (in thousands):
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2021 | | 2020 |
Beginning balance | | | | | $ | 8,841 | | | $ | 5,992 | |
Adjustment due to the adoption of Topic 326 | | | | | 0 | | | 289 | |
(Recovery)/provision for credit losses | | | | | (378) | | | 13 | |
Write-off of uncollectible amounts, net of recoveries | | | | | (1,662) | | | (154) | |
| | | | | | | |
Ending balance | | | | | $ | 6,801 | | | $ | 6,140 | |
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Beginning balance | $ | 8,944 |
| | $ | 5,499 |
| | $ | 5,992 |
| | $ | 5,610 |
|
Adjustment due to the adoption of Topic 326 | — |
| | — |
| | 289 |
| | — |
|
Provision for credit losses | (1,340 | ) | | 778 |
| | 2,292 |
| | 920 |
|
Write-off of uncollectible amounts, net of recoveries | (258 | ) | | (155 | ) | | (1,227 | ) | | (408 | ) |
Ending balance | $ | 7,346 |
| | $ | 6,122 |
| | $ | 7,346 |
| | $ | 6,122 |
|
Note 5.6. Business Combinations
Merger with Topgolf International, Inc.
Acquisition of JW Stargazer Holding GmbH
In January 2019,On March 8, 2021, the Company completed its previously announced merger with Topgolf, pursuant to the acquisitionterms of JW Stargazer Holding GmbH,an Agreement and Plan of Merger, dated as of October 27, 2020 (the “Merger Agreement”). Topgolf is a leading tech-enabled golf entertainment business, with an innovative platform that comprises its state-of-the-art open-air golf and entertainment venues, revolutionary Toptracer ball-tracking technology and innovative media platform with a differentiated position in eSports. The combined company will benefit from a compelling family of brands with reach across multiple channels including retail, venues, e-commerce and digital communities.
Pursuant to the ownerterms of the international, premium outdoor apparel, gearMerger Agreement, at the closing of the merger, the Company issued approximately 89,776,450 unrestricted and accessories brand, Jack Wolfskin, for €457,394,000 (including cash acquiredfully vested shares of €50,984,000) orits common stock to the stockholders of Topgolf (excluding approximately $521,201,000 (including cash acquired12,329,721 shares of $58,096,000) (using the exchange rateCompany’s common stock that would have been allocated to the Company in effectthe merger based on the acquisition date), subjectshares of Topgolf held by the Company) for 100% of the outstanding equity of Topgolf, at an exchange ratio based on an equity value of Topgolf of $1,987,000,000 (or $1,748,000,000 excluding Topgolf shares that were held by the Company) and a price per share of the Company's common stock fixed at $19.40 per share (the “Callaway Share Price”). The actual purchase consideration upon the closing of the merger of $3,014,174,000 (or $2,650,201,000 excluding Topgolf shares that were held by the Company) was based on the number of shares of the Company’s common stock issued, multiplied by the closing price of $29.52 of the Company's common stock on March 8, 2021. Additionally, the Company converted certain stock options previously held by former equity holders of Topgolf into options to working capital adjustments.purchase a number of shares of Callaway common stock, and certain outstanding restricted stock awards of Topgolf, into 187,568 shares of Callaway common stock (together, the "replacement awards"). The Company financed the acquisition with a Term Loan B facilityincluded $33,051,000 in the aggregate principal amount of $480,000,000 (see Note 6). Jack Wolfskin designs premium outdoor apparel, gear and accessories targeted at the active outdoor and urban outdoor customer categories. This acquisition further enhanced the Company's lifestyle category and provided a platform for future growthconsideration transferred in the active outdoor and urban outdoor categories,merger for these replacement awards, which represents the Company believes are complementaryfair value of the vested portion the replacement awards. The unvested portion of these replacement awards related to its portfolio of brands and product capabilities.future services that will be rendered in the post-combination period will be recognized as compensation expense over the remaining vesting period. In addition, the Company realized synergiesconverted issued and outstanding warrants to purchase certain preferred shares of Topgolf into a warrant to purchase a number of shares of Callaway common stock. The fair value of the consideration transferred in the merger related to these warrants totaled $1,625,000. The purchase consideration, together with respectthe fair value of the consideration transferred for outstanding stock awards and warrants totaled $3,048,850,000.
The Company previously held approximately 14.3% of Topgolf's outstanding shares. Immediately following the closing of the merger, the Company's stockholders, as of immediately prior to supply chain operations as well as warehousingthe merger, owned approximately 51.3% of the outstanding shares of the combined company, and distribution activities.former Topgolf stockholders, other than Callaway, owned approximately 48.7% of the outstanding shares of the combined company.
The Company allocated the purchase price to the net identifiable tangible and intangible assets acquired and liabilities assumed based on their preliminary estimated fair values as of the date of acquisition. Identifiable intangible assets include the Topgolf trade name, developed technology, Topgolf's investment in Swing Suite golf and multi-sport simulator, customer relationships and liquor licenses. The excess of the purchase price over the estimated fair value of the net assets and liabilities was allocated to goodwill. The Company determined the preliminary estimated fair values after review and consideration of relevant information as of the acquisition date, including discounted cash flows, quoted market prices and estimates made by management. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are preliminary based on management's estimates and assumptions and may be subject to change as additional information is received and certain tax returns are finalized. We expect to finalize the valuation as soon as practicable, but not later than one year from the acquisition date.
The allocation of the purchase price presented below was based on management's preliminary estimate of the fair values of the acquired assets and assumed liabilities using valuation techniques including income, cost and market approaches. These valuation techniques incorporate the use of expected future revenues, cash flows and growth rates as well as estimated discount rates. Current and noncurrent assets and liabilities are valued at historical carrying values, which approximates fair value. Inventory was valued using the net realizable value approach, which was based on the estimated selling price in the ordinary course of business less reasonable disposal costs and a profit on the disposal efforts. The customer and distributor relationships were valued under the income approach based on the present value of future earnings. The Company amortizes the fair value of these relationships over a 10-year period. The trade name was valued under the royalty savings income approach method, which is equal to the present value of the after-tax royalty savings attributable to owning the trade name as opposed to paying a third party for its use. For this valuation the Company used a royalty rate of 5.0%2.5%, which is reflective of royalty rates paid in market transactions, and a discount rate of 10.0%8.5% on the future cash flows generated by the net after-tax savings. The goodwill of $150,180,000 arising from the acquisition consists largelyfair value of the synergies thatTopgolf hitting bays, Toptracer ball-tracking technology and the WGT digital game was based on a combination of
valuation methodologies, including the residual net income approach, royalty savings income approach and the cost approach. Customer relationships and liquor licenses were expected from combiningvalued using the operationsreplacement cost method. The Company amortizes the fair value of the Companyfinite-lived intangibles, which include technology and Jack Wolfskin. Due to the recent significant business disruptionscustomer relationships, over a period ranging between one and challenges caused by the COVID-19 pandemic, the Company performed a quantitative assessment of goodwill and determined that the goodwill associated with its Jack Wolfskin reporting unit was impaired. As a result, the Company recorded an impairment charge of $148,375,000 in the second quarter of 2020, in addition to an impairment charge of $25,894,000 related to the Jack Wolfskin trade name (see Note 9).
As of December 31, 2019,ten years. Additionally, the Company completed its evaluation of information that existed as of the acquisition date and finalized the purchase price allocation of the underlying acquired assets and liabilities. The resulting adjustments were offset against goodwill. The final assessment included the completion of thea market analysis of the assumed operating and deemed landlord financed leases to determine if the terms of these leases are favorable or unfavorable relative to market terms. The analysis resulted in a net unfavorable adjustment in the underlying value of the right-of-use asset of each lease. The Company also completed a replacement cost analysis of property, plant and equipment, which resulted in an overall step-up in value. The Company based the estimated fair value of the debt assumed on an a market credit rating, current interest rates and repayment terms, which resulted in an overall decrease in value. As of March 31, 2021, the completionCompany did not complete its assessment of the fair value assessment of the investment in Swing Suite, the right-of-use assets of operating and deemed landlord financed leases, deferred taxes acquired.revenue and deferred taxes. Additionally the Company is still in the process of reviewing and evaluating fair value estimates as included herein. Upon the completion of these assessments, the Company will adjust the preliminary purchase price allocation accordingly. After assessing the preliminary fair value of the net assets acquired and liabilities assumed, the Company recorded goodwill of $1,975,581,000, of which the Company attributed $1,412,361,000 to the future revenues and growth potential of the Topgolf business, and $563,220,000 to the synergies the Company anticipates from leveraging the Topgolf business to expand its golf equipment and apparel businesses. For the operating segment allocation of goodwill, see Note 9. As a non-taxable stock acquisition, the Company does not expect the value attributable to the acquired intangible assetsintangibles and goodwill are notto be tax deductible, accordingly, the Company recognized a net deferred tax liability of $77,079,000, including a valuation reserve of $8,281,000 on certain deferred tax assets. In addition, the Company recognized certain adjustments on income taxes receivable and long-term income taxes payable. The Company's final assessment also included adjustments related to certain sales returns reserves and inventory obsolescence reserves, and adjustments to the useful lives of certain property, plant and equipment. All of the goodwill was assigned to the Apparel, Gear and Other operating segment.deductible.
In connection with the acquisition,merger, during the yearquarter ended DecemberMarch 31, 2019,2021, the Company recognized transaction costs of approximately $9,987,000,$15,755,000, consisting primarily of which $6,326,000 was recognizedadvisor, legal, valuation and accounting fees. These transaction costs were recorded in selling, general and& administrative expenses during the nine months ended September 30, 2019.expenses. There were 0 transaction costs incurred during the three months ended September 30, 2019, or in the three and nine months ended September 30,March 31, 2020. In addition, the Company recorded a loss of $3,215,000 in other income (expense) in the first quarter of 2019 upon the settlement of a foreign currency forward contract to mitigate the risk of foreign currency fluctuations on the purchase price, which was denominated in Euros (EUR).
The following table summarizes the fair values of the assets acquired and liabilities assumed as of the acquisition date based on the preliminary purchase price allocation (in thousands):
|
| | | | |
| At January 4, 2019 |
Assets Acquired | | |
Cash | | $ | 58,096 |
|
Accounts receivable | | 26,637 |
|
Inventories | | 94,504 |
|
Income tax receivable | | 6,588 |
|
Other current assets | | 11,483 |
|
Property and equipment | | 20,930 |
|
Operating lease right-of-use assets | | 120,865 |
|
Deferred tax assets | | 2,930 |
|
Other assets | | 23 |
|
Intangibles - trade name(1) | | 239,295 |
|
Intangibles - retail partners & distributor relationships | | 38,743 |
|
Goodwill(1) | | 150,180 |
|
Total assets acquired | | 770,274 |
|
Liabilities Assumed | | |
Accounts Payable and accrued liabilities | | 46,124 |
|
Income taxes payable, long-term | | 2,416 |
|
Operating lease liabilities | | 120,524 |
|
Deferred tax liabilities | | 80,009 |
|
Net assets acquired | | $ | 521,201 |
|
| | | | | |
(1) | In the second quarter of 2020, the Company wrote down goodwillAt March 8, 2021 |
Assets Acquired | | |
Cash | | $ | 171,294 | |
Accounts receivable | | 11,277 | |
Inventories | | 14,661 | |
Other current assets | | 52,233 | |
Property and the Jack Wolfskinequipment | | 1,018,647 | |
Operating lease right-of-use assets | | 833,812 | |
Investments | | 7,673 | |
Other assets | | 33,664 | |
Intangibles - trade name | | 994,200 | |
Intangibles - technology & customer relationships | | 91,928 | |
Goodwill | | 1,412,361 | |
Total assets acquired | | 4,641,750 | |
Liabilities Assumed | | |
Accounts Payable and accrued liabilities | | 89,428 | |
Accrued employee costs | | 36,992 | |
Construction advances | | 60,333 | |
Deferred revenue | | 66,232 | |
Other current liabilities | | 7,821 | |
Long-term debt | | 535,096 | |
Deemed landlord financing | | 179,840 | |
Operating lease liabilities | | 1,023,338 | |
Other long-term liabilities | | 23,538 | |
Deferred tax liabilities | | 133,502 | |
Net assets acquired | | $ | 2,485,630 | |
Goodwill allocated to their fair values, which resultedother business units | | 563,220 | |
Total purchase price and consideration transferred in impairment charges of $148,375,000 and $25,894,000, respectively (see Note 9).the merger | | $ | 3,048,850 | |
Proposed Acquisition
Supplemental Pro-Forma Information (Unaudited)
The following table presents supplemental pro-forma information for the three months ended March 31, 2021 and 2020 as if the merger with Topgolf had occurred on January 1, 2020. These amounts have been calculated after applying the Company's accounting policies and are based upon currently available information. For this analysis, the Company assumed that gains and costs associated with the merger, including a gain of $252,531,000 recognized on the Company's pre-acquisition investment in Topgolf, acquisition costs of $15,755,000 and a valuation allowance of $38,927,000 against certain net operating losses and tax credit carryforwards, in addition to the amortization of estimated intangible assets and other fair value adjustments, as well as the tax effect on those costs, were recognized as of January 1, 2020. Pre-acquisition net sales and net income amounts for Topgolf were derived from the books and records of Topgolf International, Inc.
On October 27, 2020, the Company entered into a definitive agreement to acquire Topgolf in an all-stock transaction, pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) by and among the Company, Topgolf and 51 Steps, Inc., a Delaware corporation and wholly-owned subsidiary of Callaway (“Merger Sub”). The Merger Agreement provides that, among other matters, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, the Company will acquire Topgolf by way of a merger of Merger Sub with and into Topgolf, with Topgolf surviving as a wholly-owned subsidiary of Callaway (the “Merger”).
The Company currently estimates that it will issue approximately 90,000,000 shares of its common stock to the stockholders of Topgolf (excluding the Company) for 100% of the outstanding equity of Topgolf, using an exchange ratio based on an equity value of Topgolf of approximately $1,986,000,000 (or approximately $1,745,000,000 excluding Topgolf shares currently held by the Company) and a price per share of the Company’s common stock fixed at $19.40 per share. The Company currently holds approximately 14.3% of Topgolf's outstanding shares. Upon completion of the Merger, the former Topgolf stockholders (other than the Company) are expected to own approximately 48.5% of the combined company on a fully diluted basis. The Company will also assume certain outstanding Topgolf stock options, which will be converted into options to purchase the Company’s common stock, generally using the same exchange ratio. The Merger Agreement further provides that, upon termination of the Merger Agreement under specified circumstances, either party may be required to pay the other party a termination fee of $75,000,000. The Merger is expected to close in the first quarter of 2021, subject to shareholder approval and other customary conditions.
In connection with the Merger, the Company will prepare and file a registration statement on Form S-4, in which a proxy statement will be included as a prospectus, to register the Company’s common stock to be issued to Topgolf stockholders in connection with the Merger and solicit the approval of the Company’s stockholders of the issuance of the Company’s common stock that represents more than 20% of the shares of the Company’s common stock outstanding immediatelyprepared prior to the closingacquisition and are presented for informational purposes only and do not purport to be indicative of the Mergerresults of future operations or of the results that would have occurred had the acquisition taken place as of the dates noted below.
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2021 | | 2020 |
| (in thousands) |
Net revenues | $ | 794,565 | | | $ | 666,134 | |
Net income | $ | 44,216 | | | $ | 165,749 | |
Supplemental Information of Operating Results
For the three months ended March 31, 2021, the Company's consolidated condensed results of operations included net revenues of $92,637,000 and a net loss of $3,057,000 attributable to Topgolf stockholders in connection withfor the Merger, pursuantperiod beginning March 8, 2021 (merger date) through April 4, 2021. The Topgolf results of operations include depreciation and amortization of $10,831,000, interest expense of $293,000 related to the rules and regulationsaccretion of the New York Stock Exchange.fair value adjustment on long-term debt, and transition-related costs of $400,000.
Topgolf is a leading tech-enabled golf entertainment business, with an innovative platform that comprises its state-of-the-art open-air golf and entertainment venues, revolutionary Toptracer ball-tracking technology and innovative media platform with a differentiated position in eSports. The combined company will benefit from a compelling family of brands with reach across multiple channels including retail, venues, e-commerce and digital communities.
Note 6.7. Financing Arrangements
The Company's long-term debt obligations are summarized as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2021 | | December 31, 2020 |
| Interest Rate | | Unamortized Original Issuance Discount and Debt Issuance Costs | | Carrying Value, net | | Carrying Value, net |
Short-Term Credit Facilities | | | | | | | |
U.S. Asset-Based Revolving Credit Facility | 3.25 | % | | $ | 1,652 | | | $ | 15,279 | | | $ | 22,130 | |
Japan ABL Facility | 1.28 | % | | 0 | | | 0 | | | 0 | |
| | | | | | | |
Long-Term Debt and Credit Facility | | | | | | | |
Japan Term Loan Facility payable through August 2025 | 0.86 | % | | $ | 0 | | | $ | 16,257 | | | $ | 18,390 | |
Term Loan Facility payable through January 2026 | 4.61 | % | | 18,125 | | | 422,275 | | | 428,175 | |
Topgolf Term Loan payable through February 2026 | 7.00 | % | | 7,415 | | | 335,585 | | | 0 | |
Topgolf Revolving Credit Facility | 4.25 | % | | 7,810 | | | 152,190 | | | 0 | |
2.75% Convertible Notes due May 2026 | 2.75 | % | | 72,889 | | | 185,861 | | | 183,126 | |
Equipment Notes payable through March 2027 | 2.36% - 3.79% | | 0 | | | 29,747 | | | 31,822 | |
Mortgage loans payable through July 2036 | 9.75% - 11.31% | | 0 | | | 46,743 | | | 0 | |
Financed Tenant Improvements | 8.00 | % | | 0 | | | 3,764 | | | 3,650 | |
| | | $ | 106,239 | | | $ | 1,192,422 | | | $ | 665,163 | |
Balance Sheet Location | | | | | | | |
Accrued expenses | | | $ | 3,816 | | | $ | 17,432 | | | $ | 14,599 | |
Long-term debt | | | 102,423 | | | 1,174,990 | | | 650,564 | |
| | | $ | 106,239 | | | $ | 1,192,422 | | | $ | 665,163 | |
Revolving Credit Facilities and Available Liquidity
In addition to cash on hand, as well as cash generated from operations, the Company relies on its U.S. and Japan asset-based revolving credit facilities, as well as on the Topgolf revolving credit facility, to manage seasonal fluctuations in liquidity and to provide additional liquidity when the Company’s operating cash flows are not sufficient to fund the Company’s requirements. As of September 30, 2020,March 31, 2021, the Company had $30,235,000175,279,000 outstanding under these facilities and $286,656,000$397,289,000 in cash and cash equivalents. As of September 30, 2020,March 31, 2021, the Company's available liquidity, which is comprised of cash on hand, including cash received from the issuance of Convertible Senior Notes in May 2020, and amounts available under boththe Company's its revolving credit facilities, after letters of credit and outstanding borrowings, was $636,891,000.$713,067,000. As of September 30, 2019,March 31, 2020, the Company had $110,711,000$335,593,000 outstanding under theseits U.S. and Japan facilities, $1,014,000 in outstanding letters of credit, and $88,216,000$166,635,000 in cash and cash equivalents. As of September 30, 2019,March 31, 2020, the Company's available liquidity, which is comprised of cash on hand and amounts available under bothits U.S. and Japan facilities, after letters of credit and outstanding borrowings, was $340,186,000.$259,428,000.
U.S. Asset-Based Revolving Credit Facility
In May 2019, the Company amended and restated its primary credit facility (theentered into a Fourth Amended and Restated Loan and Security Agreement as amended in August 2019, March 2020 and April 2020) with Bank of America N.A. and other lenders, (the “ABL Facility”), which provides a senior secured asset-based revolving credit facility of up to $400,000,000 (the "ABL Facility"), comprised of a $260,000,000 U.S. facility, a $70,000,000 German facility, a $25,000,000 Canadian facility and a $45,000,000 United Kingdom facility, in each case subject to borrowing base availability under the applicable facility. The amounts outstanding under the ABL Facility are secured by certain assets, including cash (to the extent pledged by the Company), certain intellectual property, certain eligible real estate, inventory and accounts receivable of the Company’s subsidiaries in the United States, Germany, Canada and the United Kingdom. The real estate and intellectual property components of the borrowing base under the ABL Facility are both amortizing. The amount available for the real estate portion is reduced quarterly over a 15-year period, and the amount available for the intellectual property portion is reduced quarterly over a 3-year period.
Amounts available under the ABL Facility increase and decrease with changes in the Company’s inventory and accounts receivable balances. Average outstanding borrowings during the three months ended March 31, 2021 were $17,090,000, and average amounts available under the ABL Facility during the three months ended March 31, 2021, after outstanding borrowings and letters of credit, was approximately $246,984,000. Amounts borrowed under the ABL Facility may be repaid and borrowed as needed. The entire outstanding principal amount (if any) is due and payable in May 2024.
In April 2020, the Company amended the ABL Facility to permit a customary capped call transaction (see "Convertible Senior Notes" below) in connection with entering into the Merger Agreementissuance of convertible debt securities by the Company and to permit the Company to incur loans or financial assistance of up to $50,000,000 pursuant to governmental programs enacted due to the COVID-19 pandemic. As of March 31, 2021, the Company had not drawn on these funds. In addition, the ABL Facility imposes restrictions on the amount the Company could pay in annual cash dividends, including certain restrictions on the amount of additional indebtedness and requirements to maintain a certain fixed charge coverage ratio under certain circumstances. In addition, in connection with the merger with Topgolf (see Note 5)6), on October 27, 2020, the Company amended the ABL Facility to, among other things, permit the consummation of the Merger,merger, designate Topgolf and its subsidiaries as excluded subsidiaries under the ABL Facility and amend certain covenants and other provisions to allow the Company to make certain investments in, and enter into certain transactions with Topgolf. Fees in connection with this amendment will be combined with existing debt origination and amendment fees and amortized over the remaining term of the ABL Facility.
As of September 30, 2020, the Company had $28,813,000 in borrowings outstanding under the ABL Facility. Amounts available under the ABL Facility fluctuate with the general seasonality of the business and increase and decrease with changes in the Company’s inventory and accounts receivable balances. With respect to the Company's Golf Equipment business, inventory balances are generally higher in the fourth and first quarters, primarily to meet demand during the height of the golf season, and accounts receivable are generally higher during the first half of the year when sales are higher. Average outstanding borrowings during the nine months ended September 30, 2020 were $134,838,000, and average amounts available under the ABL Facility during the nine months ended September 30, 2020, after outstanding borrowings and letters of credit, was approximately $208,055,000. Amounts borrowed under the ABL Facility may be repaid and borrowed as needed. The entire outstanding principal amount (if any) is due and payable in May 2024.
The ABL Facility includes certain restrictions including, among other things, restrictions on the incurrence of additional debt, liens, stock repurchases and other restricted payments, asset sales, investments, mergers, acquisitions and affiliate transactions. In April 2020, the Company amended the ABL Facility to permit a customary capped call transaction (see "Convertible Senior Notes" below) in connection with the issuance of convertible debt securities by the Company and to permit the Company to incur loans or financial assistance of up to $50,000,000 pursuant to governmental programs enacted due to the COVID-19 pandemic. As of September 30, 2020, the Company had not drawn on these funds. In addition, the ABL Facility imposes restrictions on the amount the Company could pay in annual cash dividends, including certain restrictions on the amount of additional indebtedness and requirements to maintain a certain fixed charge coverage ratio under certain circumstances.
As of September 30, 2020, the Company was in compliance with all financial covenants of the ABL Facility. Additionally, the Company is subject to compliance with a fixed charge coverage ratio covenant of at least 1.0 to 1.0 during, and continuing 30 days after, any period in which the Company’s borrowing base availability, as amended, falls below 10% of the maximum facility amount or $40,000,000. The Company’s borrowing base availability was above $40,000,000 during the ninethree months ended September 30, 2020,March 31, 2021, and the Company was in compliance with the fixed charge coverage ratio as of September 30, 2020.March 31, 2021. Had the Company not been in compliance with the fixed charge coverage ratio as of September 30, 2020,March 31, 2021, the maximum amount of additional indebtedness that could have been outstanding on September 30, 2020March 31, 2021 would have been reduced by $40,000,000. As of March 31, 2021, in addition to the fixed charge coverage ratio covenant, the Company was in compliance with all other financial covenants of the ABL Facility.
The interest rate applicable to outstanding loans under the ABL Facility fluctuates depending on the Company’s “availability ratio," which is expressed as a percentage of (i) the average daily availability under the ABL Facility to (ii) the sum of the Canadian, the German, the U.K. and the U.S. borrowing bases, as adjusted. At September 30, 2020March 31, 2021 the Company’s trailing 12 month12-month average interest rate applicable to its outstanding loans under the ABL Facility was 3.78%3.43%. Additionally, the ABL Facility provides for monthly fees of 0.25% of the unused portion of the ABL Facility.
The fees incurredFees in connection with the origination and prior amendments of the ABL Facility totaled $3,615,000, whichand prior amendments are amortized intoin interest expense over the term of the ABL Facility agreement.facility. Unamortized origination fees at September 30, 2020March 31, 2021 and December 31, 20192020 were $1,834,000$1,652,000 and $2,115,000,$1,891,000, respectively, of which $880,000$1,043,000 and $746,000,$1,031,000, respectively, were included in other current assets and $954,000$609,000 and $1,369,000,$859,000, respectively, were included in other long-term assets in the accompanying consolidated condensed balance sheets.
Japan ABL FacilitiesFacility
In January 2018,2021, the Company refinanced the asset-based loan agreement between its subsidiary in Japan and The Bank of Tokyo-Mitsubishi UFJ, Ltd (the "2018 Japan ABL Facility"), which provides a credit facility of up to
4,000,000,000 Yen (or U.S. $37,932,000,$36,128,000, using the exchange rate in effect as of September 30, 2020)March 31, 2021) over a three-year term, subject to borrowing base availability under the 2018 Japan ABL Facility. The amounts outstanding are secured by certain assets, including eligible inventory and eligible accounts receivable. The Company had 150,000,000 Yen (or U.S. $1,422,000, using the exchange rate in effect as of September 30, 2020) in0 borrowings outstanding under the 2018 Japan ABL Facility as of September 30, 2020.March 31, 2021. The 2018 Japan ABL Facility also includes certain restrictions including covenants related to certain pledged assets and financial performance metrics. As of September 30, 2020,March 31, 2021, the Company was in compliance with these covenants.
The 2018 Japan ABL Facility expires in January 2022. The 2018 Japan ABL Facility is subject to an effective interest rate equal to the Tokyo Interbank Offered Rate ("TIBOR") plus 0.80%1.20%. The average interest rate under the 2018 Japan ABL Facility during 2020 was 0.87%. The 2018 Japan ABL Facility expires in January 2021.
On July 31, 2019, the Company entered into a one-year asset-based loan facility ("2019 Japan ABL Facility" and collectively with the 2018 Japan ABL Facility, the "Japan ABL Facility") between its subsidiary in Japan and MUFG Bank, Ltd. for 2,000,000,000 Yen, (or approximately U.S. $18,966,000 using the exchange rate in effect as of September 30, 2020). This facility expired on July 30, 2020.
Long-Term Debt
Equipment Notes
InBetween December 2017 and August 2020, the Company entered into two new4 long-term financing agreements (the "Equipment Notes") with Bank of America N.A. and other lenders to invest in connection with the Company's investment initiatives atits golf ball manufacturing facility in Chicopee, Massachusetts, its North American Distribution Center in Roanoke, Texas, thatand in corporate IT equipment. The loans are secured by certainthe underlying equipment at this facility. Additionally, to improve its manufacturing capabilities at its golf ball manufacturingeach facility in Chicopee, Massachusetts,and the Company entered into a series of long-term financing agreements between December 2017 and March 2020, that are secured by certain equipment at these facilities.IT equipment.
As of September 30, 2020March 31, 2021 and December 31, 2019,2020, the Company had a combined $33,881,000$29,747,000 and $19,715,000$31,822,000 outstanding under these Equipment Notes, respectively, of which $8,727,000$8,797,000 and $5,107,000$8,761,000 was included in current liabilities, respectively, and $25,154,000$20,950,000 and $14,608,000$23,061,000 was included in long-term debt, respectively, in the accompanying Consolidated Condensed Balance Sheets. The Equipment Notes accrue interest in the range of 2.36% and 3.79%, and have maturity dates between December 2022 and March 2027.
During the three and nine months ended September 30,March 31, 2021 and 2020, the Company recognized interest expense of $247,000$239,000 and $624,000,$165,000, respectively, and during the three and nine months ended September 30, 2019, the Company recognized interest expense of $115,000 and $288,000, respectively.related to these Equipment Notes.
The Equipment Notes are subject to compliance with the financial covenants in the Company's ABL Facility. As of September 30, 2020,March 31, 2021, the Company was in compliance with these covenants.
Mortgage Loans
In connection with the merger with Topgolf on March 8, 2021, the Company assumed 3 mortgage loans related to the construction of 3 venues. The loans bear annual interest rates ranging from 9.75% to 11.31% and require either monthly (i) principal and interest payments or (ii) interest only payments until their maturity dates, which range from July 2033 to July 2036. For loans requiring monthly interest only payments, the entire unpaid principal balance and any unpaid accrued interest is due on the maturity date. The mortgage loans are secured by the assets of each respective venue.
Term Loan B Facility
In January 2019, to fund the purchase price of the Jack Wolfskin acquisition, the Company entered into a Credit Agreement (the “Credit Agreement”) with Bank of America, N.A and other lenders party to the Credit Agreement (the "Term Lenders"). The Credit Agreement provides for a Term Loan B facility (the “Term Loan Facility”) in an aggregate principal of $480,000,000, which was issued less $9,600,000 in original issue discount and other transaction fees. Such principal amount may be increased pursuant to incremental facilities in the form of additional tranches of term loans or new commitments, up to a maximum incremental amount of $225,000,000, or an unlimited amount subject to compliance with a first lien net leverage ratio of 2.25 to 1.00. The Term Loan Facility is due in January 2026.
As of September 30, 2020March 31, 2021 and December 31, 2019,2020, the Company had $442,800,000$440,400,000 and $446,400,000,$441,600,000, respectively, outstanding under the Term Loan Facility, of which $4,800,000 is reflected in current liabilities. The amount outstanding as of September 30, 2020March 31, 2021 was offset by unamortized debt issuance costs of $14,160,000,$18,125,000, of which $2,697,000$3,816,000 was reflected in the short-term portion of the facility, and $11,463,000$14,309,000 was reflected in the long-term portion of the facility in the accompanying consolidated condensed balance sheet.sheets. Total interest and amortization expense recognized during the three months ended September 30,March 31, 2021 and 2020 was $5,847,000 and 2019 was $5,986,000 and $7,902,000, respectively, and $19,681,000 and $24,449,000 during the nine months ended September 30, 2020 and 2019$7,413,000, respectively.
Loans under the Term Loan Facility are subject to interest at a rate per annum equal to either, at the Company's option, the LIBOR rate or the base rate, plus 4.50% or 3.50%, respectively. The Company utilizes an interest rate hedge in order to mitigate the risk of interest rate fluctuations on this facility. See Note 1716 for further information on this hedging contract. Principal payments of $1,200,000 are due quarterly, however the Company has the option to prepay any
outstanding loan balance in whole or in part without premium or penalty. In addition, as of December 31, 2019, the Term Loan Facility requires excess cash flow payments.
Loans outstanding under this facility are guaranteed by the Company's domestic subsidiaries. The loans and guaranties are secured by substantially all the assets of the Company and guarantors.
The Credit Agreement contains a cross-default provision with respect to any indebtedness of the Company as defined in the Credit Agreement, as well as customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on incurrence of additional debt, liens, dividends and other restricted payments, asset sales, investments, mergers, acquisitions and affiliate transactions. Events of default permitting acceleration under the Credit Agreement include, among others, nonpayment of principal or interest, covenant defaults, material breaches of representations and warranties, bankruptcy and insolvency events, certain cross defaults or a change of control. As of September 30, 2020,March 31, 2021, the Company was in compliance with these covenants.
In connection with the entry into the Merger Agreementmerger with Topgolf (see Note 5), on October 27, 20206), the Company entered into a debt financing commitment letter (the "Debt Commitment Letter") and related fee lettersamended the Term Loan Facility with Bank of America, N.A. and other lenders party to the Debt Commitment Letter (the "Commitment Parties"), to arrange and solicit consents from the Term Lenders to amend the Term Loan Facility to, among other things, permit the consummation of the Merger and certain other transactions contemplated in the Merger Agreement, designate Topgolf and its subsidiaries as unrestricted subsidiaries under the Term Loan Facility, which excludes them from certain requirements, covenants and representations, and amend certain covenants and other provisions to allow the Company to make certain investments in, and enter into certain transactions with Topgolf.
Topgolf Credit Facilities
In connection with the eventmerger with Topgolf on March 8, 2021, the Company cannot obtain the aforementioned consents from the Term Lenders, the Commitment Parties committed to arrange and provide the Company withassumed a secured$350,000,000 term loan facility for $442,800,000 on terms substantially similar(the “Topgolf Term Loan”), and a $175,000,000 revolving credit facility with JPMorgan Chase Bank, N.A (the “Topgolf Revolving Credit Facility”), with JPMorgan Chase Bank, N.A., as Administrative Agent, Swingline Lender and Issuing Bank, RBC Capital Markets, as Syndication Agent, and the other agents, arrangers and lenders party thereto (together, the "Topgolf Credit Facilities"). At March 31, 2021, the outstanding balances under the Topgolf Term Loan and Topgolf Revolving Credit Facility were $343,000,000 and $160,000,000, respectively.
Borrowings under the Topgolf Term Loan accrue interest at a rate per annum equal to, at the Company's option, either (i) an alternate base rate determined by reference to the highest of (a) the prime rate of JPMorgan Chase Bank, N.A. (the administrative agent), (b) the federal funds effective rate plus 0.50%, (c) the adjusted one-month LIBOR rate plus 1.00%, and (d) 1.75%, or (ii) an adjusted LIBOR rate (for a period equal to the relevant interest period) (which shall not be less than 0.75%), in each case plus an applicable margin. The applicable margin for loans under the Topgolf Term Loan Facility, as proposedis 5.25% with respect to be modified byalternate base rate borrowings and 6.25% with respect to LIBOR borrowings. As of March 31, 2021, the interest rate on the outstanding borrowings pursuant to the Topgolf Term Loan Amendment,was 7.00%.
Borrowings under the Topgolf Revolving Credit Facility accrue interest at a rate per annum equal to, at the Company's option, either (i) an alternate base rate determined by reference to the highest of (a) the prime rate of JPMorgan Chase Bank, N.A. (the administrative agent), (b) the federal funds effective rate plus 0.50%, (c) the adjusted one-month LIBOR rate plus 1.00%, and including(d) 1.75%, or (ii) an adjusted LIBOR rate (for a period equal to the relevant interest period) (which shall not be less than 0.75%), in each case plus an applicable margin. The applicable rate for the Topgolf Revolving Credit Facility loans is 3.00% with respect to alternate base rate borrowings and 4.00% with respect to LIBOR borrowings subject to 2 stepdowns of 0.25% per annum upon achievement of specified first lien leverage ratio levels. As of March 31, 2021 the weighted-average interest rate on the outstanding borrowings pursuant to the Topgolf Revolving Credit Facility was 4.25%. In addition, the Company is required to pay a commitment fee under the Topgolf Revolving Credit Facility based upon the first lien leverage ratio (as defined in the Amended Credit Agreement) at a rate of up to 0.50% per annum, subject to 2 stepdowns of 0.13% per annum upon achievement of specified first lien leverage ratio levels. The Company must also pay customary letter of credit fees and agency fees.
The Topgolf Term Loan is payable in quarterly installments of 0.25% of the principal amount per quarter. The remaining unpaid balance on the Topgolf Term Loan, together with all accrued and unpaid interest thereon, is due and payable on February 8, 2026. Outstanding borrowings under the Topgolf Revolving Credit Facility do not amortize and are due and payable on February 8, 2024.
The terms of the Topgolf Credit Facilities requires the Company to maintain on a quarterly basis a total leverage ratio (measured on a trailing four-quarter basis) less than or equal to 5.50:1.00. On September 17, 2020, prior to the completion of the merger, Topgolf entered into an amendment to the Credit Agreement (the “Amended Credit Agreement”) to modify
the financial covenants and make certain other changes. The Amended Credit Agreement (i) suspends the total leverage ratio financial covenant through and including the fiscal quarter ending on or about March 31, 2022 and (ii) provides for an increased level of 7.75:1.00 for the fiscal quarter ending on or about June 30, 2022, in each caseunless the Company elects to restore the 5.50:1.00 total leverage ratio test (and eliminate the restrictions in the Amended Credit Agreement that apply during the period of relief) at an earlier date. Until the Company demonstrates compliance with the 5.50:1.00 total leverage ratio test for the period ending on or about September 30, 2022 (or terminate the period of relief at an earlier date after demonstrating compliance with the 5.50:1.00 total leverage ratio test), the Company is required to maintain unrestricted cash on hand and/or availability under the Topgolf Credit Facilities of not less than $30,000,000.
The Topgolf Credit Facilities also contains certain customary representations and warranties and affirmative covenants, and certain reporting obligations. The Topgolf Term Loan also contains certain customary representations and warranties and affirmative covenants, and certain reporting obligations.
Japan Term Loan Facility
In August 2020, the Company entered into a new five-year Term Loan facility (the "2020 Japan Term Loan Facility") between its subsidiary in Japan and Sumitomo Mitsui Banking Corporation (“SMBC”) for 2,000,000,000 Yen (or approximately U.S. $18,966,000$18,064,000 using the exchange rate in effect as of September 30, 2020)March 31, 2021). The 2020 Japan Term Loan Facility is due in August 2025.
As of September 30, 2020,March 31, 2021, the Company had 2,000,000,0001,800,000,000 Yen (or approximately U.S. $18,966,000$16,257,000 using the exchange rate in effect as of September 30, 2020)March 31, 2021) outstanding, of which 400,000,000 Yen (or approximately U.S. $3,793,000$3,612,800 using the exchange rate in effect as of September 30, 2020)March 31, 2021) is reflected in current liabilities in the accompanying consolidated condensed balance sheet.sheets. Total interest expense recognized during the three months ended September 30, 2020March 31, 2021 was 2,031,0003,891,000 Yen (or approximately U.S. $19,000$37,000 using the exchange rate in effect as of September 30, 2020)March 31, 2021).
Loans under the 2020 Japan Term Loan Facility are subject to a rate per annum toof either, at the Company’s option, SMBC TIBOR or TIBOR plus 80 basis points. Principal payments of 100,000,000 Yen (or approximately U.S. $948,000$903,000 using the exchange rate in effect as of September 30, 2020)March 31, 2021) are due quarterly and the facility imposes certain restrictions including covenants to certain financial performance obligations. As of September 30, 2020,March 31, 2021, the Company was in compliance with these covenants.
Convertible Senior Notes
On May 4, 2020, the Company issued $258,750,000 of 2.75% Convertible Senior Notes (the “Convertible Notes”). The Convertible Notes bear interest at a rate of 2.75% per annum on the principal amount, payable semi-annually in arrears on May 1 and November 1 of each year, beginning on November 1, 2020. The Convertible Notes will mature on May 1, 2026, unless earlier redeemed or repurchased by the Company or converted. The Convertible Notes are structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent the Company is not a holder thereof) preferred equity, if any, of the Company’s subsidiaries. As
The Company may settle the Convertible Notes through cash settlement, physical settlement, or combination settlement at its election. Therefore, the Convertible Notes were separated into a liability component and an equity component in a manner that reflects the interest cost of September 30, 2020,a similar nonconvertible debt instrument. The carrying amount of the liability component totaling $185,861,000, as of March 31, 2021, was determined by measuring the fair value of a similar liability that does not have an associated equity component. The carrying amount of the equity component (the conversion feature) and discount on the Convertible Notes, totaling of $67,584,000, is amortized over the remaining term of approximately 5.1 years. The conversion feature of $76,508,000 was determined by deducting the fair value of the liability component from the initial proceeds ascribed to the Convertible Notes.
The Company incurred $8,527,000 of cost associated with the issuance of the Convertible Notes,Notes. These debt issuance costs were allocated between the debt and equity components in proportion to the allocation of whichthe proceeds to those components. As such, $6,005,000 was allocated to the liability component of the Convertible Notes, and $2,522,000 was allocated to the equity conversion feature. Unamortized debt issuance costs at March 31, 2021 and December 31, 2020 were $5,305,000 and $5,504,000, respectively.
As of September 30, 2020,The discount on the net carrying amount ofConvertible Notes as wells as the debt issuance costs allocated to the liability component are amortized over the term of the Convertible Notes was $180,458,000, netusing the effective interest rate method.
All or any portion of unamortized debt issuance coststhe Convertible Notes may be converted at the conversion rate and at the holders' option on or after February 1, 2026 until the close of $5,698,000 and debt discountbusiness on the second trading day immediately prior to the maturity date. Additionally, all or any portion of $72,594,000, which willthe Convertible Note may be amortized overconverted at the remaining termconversion rate at the holders' option upon the occurrence of approximately 5.6 years. Thecertain contingent conversion featureevents, including (i) if the price of $76,508,000 and the allocated debt issuance costsCompany’s common stock is more than 130% of $2,522,000 are recorded as componentsthe conversion price of shareholders' equity asthe Convertible Notes for any 20 of 30 consecutive trading days ending on the last trading day of the calendar quarter, subsequent to the quarter ending September 30, 2020. 2020; (ii) if the trading price of the Convertible Notes, after a consecutive ten trading day period, is less than 98% of the closing price per share of the Company’s common stock multiplied by the conversion rate in effect (iii) upon the occurrence of certain corporate events or distributions on the Company’s common stock, as described in the Indenture; or (iv) if the Company calls the Convertible Notes for redemption.
Upon conversion, the Company has the option to settle the conversion obligation in any combination of cash and shares. The initial conversion rate is 56.7698 shares of the Company's common stock per $1,000 principal amount of Convertible Notes, which is equal to an initial conversion price of $17.62 per share. At September 30, 2020,March 31, 2021, the price of the Company's common stock was higher than the initial conversion price. Therefore, the if-converted value of the Convertible Notes did 0t exceedexceeded the principal amount.
The Company may redeem all or part of the Convertible Notes (i) on or after May 6, 2023, but before the 40th trading day prior to the maturity date if the last reported sale price of the Company’s common stock exceeds 130% of the conversion price for any 20 of 30 consecutive trading days; (ii) upon a Fundamental Change (where holders can require settlement entirely in cash); or (iii) upon an Event of Default. The Company will also be required to pay additional interest upon (i) failure to timely file with the SEC, (ii) failure to allow the Notes to be freely tradable, or (iii) upon an Event of Default solely related to failure to timely file with the Trustee.
In connection with the pricing of the Convertible Notes on April 29, 2020, the Company paid $31,775,000 to enter into privately negotiated capped call transactions ("Capped Calls") with Goldman Sachs & Co. LLC, Bank of America, N.A. and Morgan Stanley & Co. LLC as well as with each of the Option Counterparties.option counterparties. The Capped Calls cover the aggregate number of shares of the Company’s common stock that initially underlie the Convertible Notes, and are expected generally to reduce the potential dilution to the Company’s common stock upon any conversion of the Convertible Notes, and/or offset any cash payments the Company is required to make in excess of the principal amount of converted Convertible Notes, with such reduction and/or offset subject to a cap based on the cap price. The cap price of the Capped Calls is initially $27.10. The Capped Calls are recorded as a reduction to additional paid-in capital and are not accounted for as derivatives.
The Convertible Notes will have an impact on the Company’s diluted earnings per share when the average market price of its common stock exceeds the conversion price of $17.62 per share, as the Company intends to settle the principal amount of the Convertible Notes in cash upon conversion. As of September 30, 2020,March 31, 2021, the average market price of the Company's common stock was $27.74, which exceeded the conversion price and, asprice. As such, the Company used the treasury stock method to compute the dilutive shares of common stock related to the Convertible Notes for periods the Company reported net income. Upon conversion, there will be no economic dilution from the Convertible Notes until the average market price of the Company’s common stock exceeds the cap price of $27.10 per share, as exercise of the Capped Calls offsets any dilution from the Convertible Notes from the conversion price up to the cap price. Capped Calls are excluded from the calculation of diluted earnings per share, as they would be anti-dilutive under the treasury stock method.
The following table presents the Company's combined aggregate amount of maturities for its Equipment Notes, Term Loan Facility, the 2020 Japan Term Loan Facility, and the Convertible NotesCompany's long-term debt over the next five years and thereafter as of September 30, 2020.March 31, 2021. Amounts payable under the Term Loan Facility included below represent the minimum principal repayment obligations. As of September 30, 2020,March 31, 2021, the Company does not anticipate excess cash flow repayments as defined by the Term Loan Facility.
| | | | | | | | |
| | (in thousands) |
Remainder of 2021 | | $ | 20,657 | |
2022 | | 20,680 | |
2023 | | 18,426 | |
2024 | | 176,702 | |
2025 | | 11,745 | |
| | |
Thereafter | | 1,050,451 | |
| | $ | 1,298,661 | |
|
| | | | |
| | (in thousands) |
Remainder of 2020 | | $ | 4,312 |
|
2021 | | 17,147 |
|
2022 | | 17,437 |
|
2023 | | 14,721 |
|
2024 | | 13,432 |
|
Thereafter | | 691,031 |
|
| | $ | 758,080 |
|
Basic earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding for the period.
Diluted earnings per common share takes into account the potential dilution that could occur if outstanding securities were exercised. Dilutive securities are included in the calculation of diluted earnings per common share using the treasury stock method in accordance with ASC Topic 260, “Earnings per Share.” Dilutive securities include outstanding stock options, restricted stock units and performance share units granted to employees and non-employee directors (see Note 15), as well as common shares underlying convertible notes (see Note 6)7).
The following table summarizes the computation of basic and diluted earnings per share (in thousands, except per share data):
In May 2020, the Company issued $258,750,000 of 2.75% Convertible Notes. The Convertible Notes will have an impact on the Company’s diluted earnings per share when the average market price of its common stock exceeds the conversion price of $17.62 per share, as the Company intends to settle the principal amount of the Convertible Notes in cash upon conversion. The Company is required under the treasury stock method to compute the potentially dilutive shares of common stock related to the Convertible Notes for periods the Company reports net income. As of September 30, 2020,March 31, 2021, the average market price of its common stock exceeded this conversion price per share and as such, the common shares underlying convertible notes were included in the diluted calculation for the three months ended September 30, 2020. For the nine months