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Financing Arrangements | 9 Months Ended
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Sep. 30, 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 U.S. 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 September 30, 2020, the Company had $30,235,000 outstanding under these facilities and $286,656,000 in cash and cash equivalents. As of September 30, 2020, 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 both facilities, after letters of credit and outstanding borrowings, was $636,891,000. As of September 30, 2019, the Company had $110,711,000 outstanding under these facilities, $1,014,000 in outstanding letters of credit, and $88,216,000 in cash and cash equivalents. As of September 30, 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 $340,186,000. U.S. 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. 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. In connection with entering into the Merger Agreement (see Note 5), on October 27, 2020, the Company amended the ABL Facility to, among other things, permit the consummation of the 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 nine months ended September 30, 2020, and the Company was in compliance with the fixed charge coverage ratio as of September 30, 2020. Had the Company not been in compliance with the fixed charge coverage ratio as of September 30, 2020, the maximum amount of additional indebtedness that could have been outstanding on September 30, 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 September 30, 2020 the Company’s trailing 12 month average interest rate applicable to its outstanding loans under the ABL Facility was 3.78%. Additionally, the ABL Facility provides for monthly fees of 0.25% of the unused portion of the ABL Facility. The fees incurred in connection with the origination and prior amendments of the ABL Facility totaled $3,615,000, which are amortized into interest expense over the term of the ABL Facility agreement. Unamortized origination fees at September 30, 2020 and December 31, 2019 were $1,834,000 and $2,115,000, respectively, of which $880,000 and $746,000, respectively, were included in other current assets and $954,000 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. $37,932,000, using the exchange rate in effect as of September 30, 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 150,000,000 Yen (or U.S. $1,422,000, using the exchange rate in effect as of September 30, 2020) in borrowings outstanding under the 2018 Japan ABL Facility as of September 30, 2020. 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, 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 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 In August 2020, the Company entered into two new long-term financing agreements (the "Equipment Notes") with Bank of America N.A. and other lenders in connection with the Company's investment initiatives at its North American Distribution Center in Roanoke, Texas, that are secured by certain equipment at this facility. Additionally, to improve its manufacturing capabilities at its golf ball manufacturing facility in Chicopee, Massachusetts, 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. As of September 30, 2020 and December 31, 2019, the Company had a combined $33,881,000 and $19,715,000 outstanding under these Equipment Notes, respectively, of which $8,727,000 and $5,107,000 was included in current liabilities, respectively, and $25,154,000 and $14,608,000 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, 2020, the Company recognized interest expense of $247,000 and $624,000, respectively, and during the three and nine months ended September 30, 2019, the Company recognized interest expense of $115,000 and $288,000, respectively. The Equipment Notes are subject to compliance with the financial covenants in the Company's ABL Facility. As of September 30, 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 September 30, 2020 and December 31, 2019, the Company had $442,800,000 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 September 30, 2020 was offset by unamortized debt issuance costs of $14,160,000, of which $2,697,000 was reflected in the short-term portion of the facility, and $11,463,000 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 September 30, 2020 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 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 17 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, the Company was in compliance with these covenants. In connection with the entry into the Merger Agreement (see Note 5), on October 27, 2020, the Company entered into a debt financing commitment letter (the "Debt Commitment Letter") and related fee letters 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. In the event the Company cannot obtain the aforementioned consents from the Term Lenders, the Commitment Parties committed to arrange and provide the Company with a secured term loan facility for $442,800,000 on terms substantially similar to the Term Loan Facility, as proposed to be modified by the Term Loan Amendment, and including certain other changes. 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 using the exchange rate in effect as of September 30, 2020). The 2020 Japan Term Loan Facility is due in August 2025. As of September 30, 2020, the Company had 2,000,000,000 Yen (or approximately U.S. $18,966,000 using the exchange rate in effect as of September 30, 2020) outstanding, of which 400,000,000 Yen (or approximately U.S. $3,793,000 using the exchange rate in effect as of September 30, 2020) is reflected in current liabilities in the accompanying consolidated balance sheet. Total interest expense recognized during the three months ended September 30, 2020 was 2,031,000 Yen (or approximately U.S. $19,000 using the exchange rate in effect as of September 30, 2020). Loans under the 2020 Japan Term Loan Facility are subject to a rate per annum to 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 using the exchange rate in effect as of September 30, 2020) are due quarterly and the facility imposes certain restrictions including covenants to certain financial performance obligations. As of September 30, 2020, 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 of September 30, 2020, the Company incurred $8,527,000 of cost associated with the issuance of the Convertible Notes, of which $6,005,000 was allocated to the liability component of the Convertible Notes, and $2,522,000 was allocated to the equity conversion feature. As of September 30, 2020, the net carrying amount of the liability component of the Convertible Notes was $180,458,000, net of unamortized debt issuance costs of $5,698,000 and debt discount of $72,594,000, which will be amortized over the remaining term of approximately 5.6 years. The conversion feature of $76,508,000 and the allocated debt issuance costs of $2,522,000 are recorded as components of shareholders' equity as of September 30, 2020. 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, the if-converted value of the Convertible Notes did no t exceed the principal amount. 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. 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, the average market price of the Company's common stock exceeded the conversion price and, 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 Notes over the next five years and thereafter as of September 30, 2020. Amounts payable under the Term Loan Facility included below represent the minimum principal repayment obligations. As of September 30, 2020, the Company does not anticipate excess cash flow repayments as defined by the Term Loan Facility.
|  | (in thousands)
Remainder of 2020 |  | $ | 4,312 |
2021 |  | 17,147 |
2022 |  | 17,437 |
2023 |  | 14,721 |
2024 |  | 13,432 |
Thereafter |  | 691,031 |
|  | $ | 758,080 |

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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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