XML 23 R11.htm IDEA: XBRL DOCUMENT
v3.19.2

Business Combinations | 6 Months Ended
--- | ---
Jun. 30, 2019
Business Combinations [Abstract] |
Business Combinations | Note 4. Business Combinations Acquisition of JW Stargazer Holding GmbH In January 2019, the Company completed the acquisition of JW Stargazer Holding GmbH, the owner of the international, premium outdoor apparel, footwear and equipment brand, Jack Wolfskin, for €457,394,000 (including cash acquired of €50,984,000) or approximately $521,201,000 (including cash acquired of $58,096,000) (using the exchange rate in effect on the acquisition date), subject to working capital adjustments. The Company financed the acquisition with a Term Loan B facility in the aggregate principal amount of $480,000,000 (see Note 5). Jack Wolfskin designs premium outdoor apparel, footwear and equipment targeted at the active outdoor and urban outdoor customer categories. This acquisition is expected to further enhance the Company's lifestyle category and provide a platform for future growth in the active outdoor and urban outdoor categories, which the Company believes are complementary to its portfolio of brands and product capabilities. In addition, the Company anticipates it will realize synergies with respect to supply chain operations as well as warehousing and distribution activities. The purchase price of an acquisition is allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values as of the date of acquisition in accordance with Topic 820. To the extent the purchase price exceeds the fair value of the net identifiable tangible and intangible assets acquired and liabilities assumed, such excess is allocated to goodwill. The Company determines the estimated fair values after review and consideration of relevant information, including discounted cash flows, quoted market prices and estimates made by management. The Company may adjust the preliminary purchase price allocation as soon as practicable during the measurement period of up to one year after the acquisition closing date as it obtains more information as to facts and circumstances existing as of the acquisition date. The allocation of the purchase price presented below is based on management's estimate of the fair values using valuation techniques including income, cost and market approaches. In estimating the fair value of the acquired assets and assumed liabilities, the fair value estimates are based on, but not limited to, expected future revenue and cash flows, expected future growth rates and estimated discount rates. Current and noncurrent assets and current and other 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 will amortize 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%, which is reflective of royalty rates paid in market transactions, and a discount rate of 10.0% on the future cash flows generated by the net after-tax savings. The goodwill of $154,234,000 arising from the acquisition consists largely of the synergies expected from combining the operations of the Company and Jack Wolfskin. As of June 30, 2019, the Company has not completed its assessment of the fair value of the operating leases assumed in connection with the acquisition. The Company is also in the process of determining whether the terms of each of these operating leases are favorable or unfavorable compared with the market terms of leases of the same or similar items at the acquisition date. Upon the completion of its assessment, the Company will recognize an intangible asset if the terms of an operating lease are favorable relative to market terms and a liability if the terms are unfavorable relative to market terms. In addition, the Company will adjust the fair value of the deferred taxes acquired and recognized in connection with the acquisition should the Company make any changes to the preliminary purchase price allocation of the underlying acquired assets and liabilities. As a non-taxable stock acquisition, the Company does not expect the value attributable to the acquired intangibles and goodwill to be tax deductible. All of the goodwill was assigned to the Apparel, Gear and Other operating segment. In connection with the acquisition, the Company recognized transaction costs of approximately $9,987,000, of which $1,603,000 and $6,326,000 was recognized in general and administrative expenses during the three and six months ended June 30, 2019, respectively, and $3,661,000 was recognized in 2018. 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. In December 2018, the Company had recognized an unrealized gain of $4,409,000 in connection with this foreign currency forward contract. The following table summarizes the fair values of the assets acquired and liabilities assumed as of the acquisition date based on the purchase price allocation (in thousands):
| At January 4, 2019
Assets Acquired |  |
Cash |  | $ | 58,096 |
Accounts receivable |  | 36,521 |
Inventories |  | 90,849 |
Other current assets |  | 7,400 |
Property and equipment |  | 26,180 |
Deferred tax assets |  | 2,557 |
Other assets |  | 24 |
Intangibles - trade name |  | 239,295 |
Intangibles - franchisee & distributor relationships |  | 38,743 |
Goodwill |  | 154,234 |
Total assets acquired |  | 653,899 |
Liabilities Assumed |  |
Accounts Payable and accrued liabilities |  | 48,487 |
Deferred tax liabilities |  | 84,210 |
Net assets acquired |  | $ | 521,202 |
Supplemental Pro-Forma Information (Unaudited) The following table presents supplemental pro-forma information for the three and six months ended June 30, 2019 and 2018 as if the Jack Wolfskin acquisition had occurred on January 1, 2018. 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 costs associated with the acquisition, including the amortization of intangible assets and the step-up of inventory, as well as the tax effect on those costs, were recognized as of January 1, 2018. Pre-acquisition net sales and net income amounts for Jack Wolfskin were derived from the books and records of Jack Wolfskin prepared prior to the acquisition and are presented for informational purposes only and do not purport to be indicative of the results 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 June 30, |  | Six Months Ended June 30,
| 2019 |  | 2018 |  | 2019 |  | 2018
| (in thousands)
Net sales | $ | 446,708 |  |  | $ | 440,128 |  |  | $ | 962,905 |  |  | $ | 947,383 |
Net income attributable to Callaway Golf Company | $ | 33,684 |  |  | $ | 22,649 |  |  | $ | 92,261 |  |  | $ | 76,529 |
For the three months ended June 30, 2019, the Company's consolidated results of operations included net sales of $48,406,000 and a net loss of $22,503,000 attributable to Jack Wolfskin. For the six months ended June 30, 2019, the Company's consolidated results of operations included net sales of $141,115,000 and a net loss of $28,280,000 attributable to Jack Wolfskin. The Jack Wolfskin results for the three and six months ended June 30, 2019 include the recognition of amortization expense of $6,321,000 and $12,611,000, respectively, related to the fair value adjustment of the acquired inventory combined with the amortization of the intangible asset related to distributor relationships, as well as $1,066,000 and $1,947,000, respectively, in non-recurring acquisition and transition related costs. These results also reflect the seasonality of the Jack Wolfskin business as many of their product are geared toward the fall/winter season.

X
- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
Name: | us-gaap_BusinessCombinationDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration

X
- References No definition available. + Details
Name: | us-gaap_BusinessCombinationsAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration