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Financing Arrangements | 3 Months Ended
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Mar. 31, 2020
Debt Disclosure [Abstract] |
Financing Arrangements | Note 6. Financing Arrangements In addition to cash on hand, as well as cash generated from operations, the Company relies on its primary and Japan asset-based revolving credit facilities 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 March 31, 2020, the Company had $335,593,000 outstanding under these facilities, $1,375,000 in outstanding letters of credit, and $166,635,000 in cash and cash equivalents. As of March 31, 2020, the Company's available liquidity, which is comprised of cash on hand and amounts available under both facilities, after letters of credit and outstanding borrowings, was $259,428,000. As of March 31, 2019, the Company had $214,482,000 outstanding under these facilities, $1,228,000 in outstanding letters of credit, and $78,939,000 in cash and cash equivalents. As of March 31, 2019, the Company's available liquidity, which is comprised of cash on hand and amounts available under both facilities, after letters of credit and outstanding borrowings, was $223,402,000. Primary Asset-Based Revolving Credit Facility In May 2019, the Company amended and restated its primary credit facility (the 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, 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. In March 2020, the Company amended the ABL Facility to add a stretch loan sub-facility of up to $30,000,000 (the “Stretch Term Loan Facility”) and the loans thereunder (the “Stretch Term Loans”), which may be borrowed pursuant to one borrowing at any time prior to September 30, 2020. 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. As of March 31, 2020, the Company had $300,257,000 in borrowings outstanding under the ABL Facility and $1,375,000 in outstanding letters of credit. As of March 31, 2020, the Company had not yet utilized the Stretch Term Loan 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 three months ended March 31, 2020 were $204,236,000, and average amounts available under the ABL Facility during the three months ended March 31, 2020, after outstanding borrowings and letters of credit, was approximately $114,012,000. 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. On April 28, 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 outbreak. 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. These restrictions do not materially limit the Company's ability to pay future dividends at the current dividend rate. As of March 31, 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. Additionally, at any time the Stretch Term Loans are outstanding as of the end of any fiscal quarter, the Company is subject to compliance with a fixed charge coverage ratio of at least 1.1 to 1.0. The Company’s borrowing base availability was above $40,000,000 during the three months ended March 31, 2020, and the Company was in compliance with the fixed charge coverage ratio as of March 31, 2020. Had the Company not been in compliance with the fixed charge coverage ratio as of March 31, 2020, the maximum amount of additional indebtedness that could have been outstanding on March 31, 2020 would have been reduced by $40,000,000. 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 March 31, 2020 the Company’s trailing 12 month average interest rate applicable to its outstanding loans under the ABL Facility was 4.36%. Additionally, the ABL Facility provides for monthly fees of 0.25% of the unused portion of the ABL Facility and 0.50% of the Stretch Term Loan Facility until the earlier of the borrowing of the Stretch Term Loans and September 30, 2020. The fees incurred in connection with the origination and amendment of the ABL Facility totaled $3,315,000, which are amortized into interest expense over the term of the ABL Facility agreement. Unamortized origination fees at March 31, 2020 and December 31, 2019 were $1,945,000 and $2,115,000, respectively, of which $753,000 and $746,000, respectively, were included in other current assets and $1,192,000 and $1,369,000, respectively, were included in other long-term assets in the accompanying consolidated condensed balance sheets. Japan ABL Facilities In January 2018, 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. $37,196,000, using the exchange rate in effect as of March 31, 2020) 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 3,800,000,000 Yen (or U.S. $35,336,000, using the exchange rate in effect as of March 31, 2020) in borrowings outstanding under the 2018 Japan ABL Facility as of March 31, 2020. The 2018 Japan ABL Facility also includes certain restrictions including covenants related to certain pledged assets and financial performance metrics. As of March 31, 2020, the Company was in compliance with these covenants. The 2018 Japan ABL Facility is subject to an effective interest rate equal to the Tokyo Interbank Offered Rate (TIBOR) plus 0.80%. 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 new 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. $18,598,000 using the exchange rate in effect as of March 31, 2020) and had no borrowings outstanding under the 2019 Japan ABL Facility as of March 31, 2020. The amounts outstanding are secured by certain assets, including eligible inventory and eligible accounts receivable. The 2019 Japan ABL Facility is subject to an effective interest rate equal to the TIBOR plus 1.0%, and is subject to certain restrictions including covenants related to certain pledged assets and financial performance metrics. The average interest rate under the 2019 Japan ABL Facility during 2020 was 1.07%. Long-Term Debt Equipment Notes In December 2017, the Company entered into a long-term financing agreement (the "2017 Equipment Note") secured by certain equipment at the Company's golf ball manufacturing facility. As of March 31, 2020 and December 31, 2019, the Company had $6,775,000 and $7,357,000, respectively, outstanding under the 2017 Equipment Note, of which $2,467,000 and $2,455,000 were reported in current liabilities, respectively, and $4,308,000 and $4,902,000 were reported in long-term liabilities, respectively, in the accompanying consolidated condensed balance sheets. The Company's interest rate applicable to outstanding borrowings was 3.79%. Total interest expense related to the 2017 Equipment Note recognized during the three months ended March 31, 2020 was $68,000. The 2017 Equipment Note amortizes over a 5-year term. In August 2019, the Company entered into a second long-term financing agreement (the "2019 Equipment Note") secured by certain equipment at the Company's golf ball manufacturing facility. As of March 31, 2020 and December 31, 2019, the Company had $11,742,000 and $12,358,000, respectively, outstanding under the 2019 Equipment Note, of which $2,662,000 and $2,652,000 was reported in current liabilities, respectively, and $9,080,000 and $9,706,000 was reported in long-term liabilities, respectively, in the accompanying consolidated condensed balance sheets. The Company's interest rate applicable to outstanding borrowings was 3.21%. Total interest expense related to the 2019 Equipment Note recognized during the three months ended March 31, 2020 was $97,000. The 2019 Equipment Note amortizes over a 5-year term. In March 2020, the Company entered into a third long-term financing agreement (the "2020 Equipment Note") secured by certain equipment at the Company's golf ball manufacturing facility. As of March 31, 2020 the Company had $9,766,000 outstanding under the 2020 Equipment Note, of which $1,395,000 was reported in current liabilities and $8,371,000 was reported in long-term liabilities in the accompanying consolidated condensed balance sheet. The Company's interest rate applicable to outstanding borrowings was 2.36%. There was no interest expense related to the 2020 Equipment Note recognized during the three months ended March 31, 2020. The 2020 Equipment Note amortizes over a 7-year term. The 2017 Equipment Note, 2019 Equipment Note and the 2020 Equipment Note are subject to compliance with the financial covenants in the Company's ABL Facility. As of March 31, 2020, the Company was in compliance with these covenants. 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 March 31, 2020 and December 31, 2019, the Company had $445,200,000 and $446,400,000, respectively, outstanding under the Term Loan Facility, of which $4,800,000 is reflected in current liabilities. The amount outstanding as of March 31, 2020 was offset by unamortized debt issuance costs of $14,891,000, of which $2,590,000 was reflected in the short-term portion of the facility, and $12,301,000 was reflected in the long-term portion of the facility in the accompanying consolidated condensed balance sheet. Total interest and amortization expense recognized during the three months ended March 31, 2020 and 2019 was $7,413,000 and $8,780,000, 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. 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, the Term Loan Facility requires excess cash flow payments beginning after December 31, 2019. In order to mitigate the risk of interest rate fluctuations under the Term Loan Facility, the Company converted $200,357,000 of principal into €176,200,000, and entered into a cross-currency swap combined with an interest rate hedge with the lenders party to the Credit Agreement to swap the floating rate of LIBOR plus 4.50% to a fixed rate of 4.60%. As of March 31, 2020, the Company unwound the cross-currency swap and maintained the interest rate hedge. During the three months ended March 31, 2020 and 2019, the Company recognized interest income of $1,313,000 and $1,018,000, respectively, under the cross-currency swap to offset the interest expense recognized under the Term Loan Facility. 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 March 31, 2020, the Company was in compliance with these covenants. The following table presents the Company's combined aggregate amount of maturities for its 2017 Equipment Note, 2019 Equipment Note, 2020 Equipment Note and Term Loan Facility over the next five years and thereafter as of March 31, 2020. Amounts payable under the Term Loan Facility included below represent the minimum principal repayment obligations. As of March 31, 2020, the Company does not anticipate excess cash flow repayments as defined by the Term Loan Facility.
|  | (in thousands)
Remainder of 2020 |  | $ | 8,332 |
2021 |  | 11,297 |
2022 |  | 11,519 |
2023 |  | 9,107 |
2024 |  | 8,290 |
Thereafter |  | 428,835 |
|  | $ | 477,380 |
Convertible Senior Notes On May 4, 2020, the Company issued $258,750,000 of 2.75% Convertible Senior Notes (the “2026 Notes”). The 2026 Notes bear interest at a rate of 2.75% per annum on the principal amount thereof, payable semi-annually in arrears on May 1 and November 1 of each year, beginning on November 1, 2020. The 2026 Notes will mature on May 1, 2026, unless earlier redeemed or repurchased by the Company or converted. The 2026 Notes will be 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. In connection with the pricing of the 2026 Notes on April 29, 2020, the Company entered into privately negotiated capped call transactions with Goldman Sachs & Co. LLC, Bank of America, N.A. and Morgan Stanley & Co. LLC as well as with each of the Option Counterparties. The capped call transactions cover the aggregate number of shares of the Company’s common stock that initially underlie the 2026 Notes, and are expected generally to reduce the potential dilution to the Company’s common stock upon any conversion of the notes. The cap price of the capped call transactions is initially $27.10. The cost of the capped call transactions was approximately $31,800,000.

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- Definition The entire disclosure for debt and capital lease obligations can be reported. Information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. Also includes descriptions and amounts of capital leasing arrangements that consist of direct financing, sales type and leveraged leases. Disclosure may include the effect on the balance sheet and the income statement resulting from a change in lease classification for leases that at inception would have been classified differently had guidance been in effect at the inception of the original lease. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 840 -URI http://asc.fasb.org/topic&trid=2208923 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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