XML 25 R14.htm IDEA: XBRL DOCUMENT
v3.21.1

Business Combinations | 3 Months Ended
--- | ---
Mar. 31, 2021
Business Combinations [Abstract] |
Business Combinations | Note 6. Business Combinations Merger with Topgolf International, Inc. On March 8, 2021, the Company completed its previously announced merger with Topgolf, pursuant to the terms of 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 terms of the Merger Agreement, at the closing of the merger, the Company issued approximately 89,776,450 unrestricted and fully vested shares of its common stock to the stockholders of Topgolf (excluding approximately 12,329,721 shares of the Company’s common stock that would have been allocated to the Company in the merger based on the shares 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 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 included $33,051,000 in the consideration transferred in the merger for these replacement awards, which represents the fair value of the vested portion the replacement awards. The unvested portion of these replacement awards related to 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 converted 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 the 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 the merger, owned approximately 51.3% of the outstanding shares of the combined company, and 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. 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 2.5%, which is reflective of royalty rates paid in market transactions, and a discount rate of 8.5% on the future cash flows generated by the net after-tax savings. The fair value of the Topgolf 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 valued using the replacement cost method. The Company amortizes the fair value of the finite-lived intangibles, which include technology and customer relationships, over a period ranging between one and ten years. Additionally, the Company completed a 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 Company did not complete its assessment of the fair value of the investment in Swing Suite, the right-of-use assets of operating and deemed landlord financed leases, deferred 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 intangibles and goodwill to be tax deductible. In connection with the merger, during the quarter ended March 31, 2021, the Company recognized transaction costs of approximately $15,755,000, consisting primarily of advisor, legal, valuation and accounting fees. These transaction costs were recorded in selling, general & administrative expenses. There were no transaction costs incurred during the three months ended March 31, 2020. 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 March 8, 2021
Assets Acquired |  |
Cash |  | $ | 171,294 |
Accounts receivable |  | 11,277 |
Inventories |  | 14,661 |
Other current assets |  | 52,233 |
Property and equipment |  | 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 other business units |  | 563,220 |
Total purchase price and consideration transferred in the merger |  | $ | 3,048,850 |
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 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 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 for the period 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 accretion of the fair value adjustment on long-term debt, and transition-related costs of $400,000.

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