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Business Combinations (Notes) | 12 Months Ended
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Dec. 31, 2019
Business Combinations [Abstract] |
Business Combination Disclosure [Text Block] | Note 5. Business Combinations In 2017, the Company completed the acquisitions of OGIO and TravisMathew and in 2019, the Company completed the acquisition of Jack Wolfskin. The purchase price of each acquisition was allocated to the underlying assets acquired and liabilities assumed based upon their estimated fair values as of the date of acquisition in accordance with ASC Topic 820. The excess between the purchase price and the fair value of the net identifiable tangible and intangible assets acquired and liabilities assumed was allocated to goodwill. The Company determined the estimated fair values after review and consideration of relevant information, including discounted cash flows, quoted market prices and estimates made by management. Valuations of acquired intangible assets and inventory are subject to fair value measurements that were based primarily on significant inputs not observable in the market and thus represent Level 3 measurements (see Note 17). Acquisition of OGIO International, Inc. In January 2017, the Company acquired all of the outstanding shares of capital stock of OGIO, a leading manufacturer of high quality bags, accessories and apparel in the golf and lifestyle categories, in a cash transaction pursuant to the terms of a Share Purchase Agreement, by and among the Company, OGIO, and each of the shareholders and option holders of OGIO. The acquired furniture, fixtures, office equipment, leasehold improvements, computer equipment and warehouse equipment were all valued at their estimated replacement cost, which the Company determined approximated the net book value of the assets on the date of the acquisition. 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 profit on the disposal effort. The customer and distributor relationships were valued under the income approach based on the present value of future earnings. 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 7.5%, which is reflective of royalty rates paid in market transactions, and a discount rate of 14.0% on the future cash flows generated by the net after-tax savings. Goodwill arising from the acquisition consists largely of the synergies expected from combining the operations of the Company and OGIO. For segment reporting purposes, goodwill is reported in the Apparel, Gear, and Other operating segment. The OGIO acquisition was treated as an asset purchase for income tax purposes, therefore, the Company expects to deduct all of the intangible assets, including goodwill, from taxable income over time. The total purchase price was valued at $65,951,000. The Company incurred transaction costs of approximately $3,052,000, of which $1,805,000 was recognized in general and administrative expenses during the year ended December 31, 2017. The remainder was recognized in 2016. 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 11, 2017
Assets Acquired |  |
Cash |  | $ | 8,061 |
Accounts receivable |  | 7,696 |
Inventory |  | 7,092 |
Other current assets |  | 328 |
Property and equipment |  | 2,369 |
Intangibles - trade name |  | 49,700 |
Intangibles - customer & distributor relationships |  | 1,500 |
Intangibles - non-compete agreements |  | 150 |
Goodwill |  | 5,885 |
Total assets acquired |  | 82,781 |
Liabilities Assumed |  |
Accounts Payable and accrued liabilities |  | 16,830 |
Net assets acquired |  | $ | 65,951 |
Acquisition of TravisMathew, LLC In August 2017, the Company acquired TravisMathew, a golf and lifestyle apparel company in an all-cash transaction pursuant to the terms of an Agreement and Plan of Merger, by and among the Company, TravisMathew, OTP LLC, a California limited liability company and wholly-owned subsidiary of the Company (“Merger Sub”), and a representative of the equity holders of TravisMathew. The Company acquired TravisMathew by way of a merger of Merger Sub with and into TravisMathew, with TravisMathew surviving as a wholly-owned subsidiary of the Company. The primary reason for this acquisition was to enhance the Company's presence in golf while also providing a platform for future growth in the lifestyle category. The acquired furniture, fixtures, office equipment, leasehold improvements, computer equipment and warehouse equipment were all valued at their estimated replacement cost, which the Company determined approximated the net book value of the assets on the date of the acquisition. 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 profit on the disposal effort. The licensing agreement was valued under the income approach based on the projected royalty income from the distributors. The customer and distributor relationships were valued under the income approach based on the present value of future earnings. 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 8.0%, which is reflective of royalty rates paid in market transactions, and a discount rate of 11.0% on the future cash flows generated by the net after-tax savings. Goodwill associated with this acquisition is related to the operational synergies the Company expects to realize in future periods. For segment reporting purposes, goodwill is reported in the Apparel, Gear, and Other operating segment. The TravisMathew acquisition was treated as an asset purchase for income tax purposes, therefore, the Company expects to deduct all of the intangible assets, including goodwill, from taxable income over time. The total purchase price was valued at $124,578,000. In connection with the acquisition, during the year ended December 31, 2017, the Company recognized transaction costs of approximately $2,521,000 in general and administrative expenses. 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 August 17, 2017
Assets Acquired |  |
Cash |  | $ | 663 |
Accounts receivable |  | 9,715 |
Inventory |  | 11,909 |
Other current assets |  | 549 |
Property and equipment |  | 4,327 |
Other assets |  | 117 |
Intangibles - trade name |  | 78,400 |
Intangibles - licensing agreement |  | 1,100 |
Intangibles - customer & distributor relationships |  | 4,450 |
Intangibles - non-compete agreements |  | 600 |
Goodwill |  | 23,748 |
Total assets acquired |  | 135,578 |
Liabilities Assumed |  |
Accounts Payable and accrued liabilities |  | 11,000 |
Net assets acquired |  | $ | 124,578 |
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, gear and accessories 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 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 provides 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 Company allocated the purchase price to the net identifiable tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the date of acquisition. 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 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 allocation of the purchase price presented below was based on management's 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%, 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 $150,180,000 arising from the acquisition consists largely of the synergies expected from combining the operations of the Company and Jack Wolfskin. As of December 31, 2019, 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 the market analysis of the operating leases assumed, and the completion of the fair value assessment of the deferred taxes acquired. As a non-taxable stock acquisition, the value attributable to the acquired intangible assets and goodwill are not 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. In connection with the acquisition, during the year ended December 31, 2019, the Company recognized transaction costs of approximately $9,987,000, of which $6,326,000 was recognized in general and administrative expenses during the twelve months ended December 31, 2019. The remaining $3,661,000 was recognized in general and administrative expenses during 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 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 |  | 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 |  | 239,295 |
Intangibles - retail partners & distributor relationships |  | 38,743 |
Goodwill |  | 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 |
Supplemental Pro-Forma Information (Unaudited) The following table presents supplemental pro-forma information for the twelve months ended December 31, 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.
| December 31, 2019
| 2019 |  | 2018
| (in thousands)
Net sales | $ | 1,701,063 |  |  | $ | 1,622,053 |
Net income attributable to Callaway Golf Company | $ | 96,770 |  |  | $ | 63,983 |
Supplemental Information of Operating Results For the twelve months ended December 31, 2019, the Company's consolidated results of operations included net sales of $356,195,000 and a net loss of $15,505,000 attributable to Jack Wolfskin. The Jack Wolfskin results of operations include the recognition of $10,928,000 in cost of goods sold in the twelve months ended December 31, 2019 related to the fair value adjustment of the acquired inventory, combined with $4,134,000 recognized in general and administrative expenses related to the amortization of the intangible assets related to distributor relationships and leases. In addition, during the twelve months ended December 31, 2019, the Company recognized transition related costs of $4,728,000, of which $3,832,000 was recognized in general and administrative expense, $776,000 was recognized in cost of goods sold, and $120,000 was recognized in selling expenses.

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