ACUSHNET HOLDINGS CORP., 10-Q filed on 5/8/2019
Quarterly Report
v3.19.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2019
May 03, 2019
Document And Entity Information [Abstract]    
Entity Registrant Name Acushnet Holdings Corp.  
Entity Central Index Key 0001672013  
Document Type 10-Q  
Document Period End Date Mar. 31, 2019  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Entity Current Reporting Status Yes  
Entity Filer Category Large Accelerated Filer  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q1  
Entity Emerging Growth Company false  
Entity Small Business false  
Entity Common Stock, Shares Outstanding   75,608,862
v3.19.1
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 31, 2018
Current assets    
Cash and restricted cash ($11,168 and $8,436 attributable to the variable interest entity (VIE)) $ 44,877 $ 31,014
Accounts receivable, net 333,929 186,114
Inventories ($6,756 and $9,658 attributable to the VIE) 346,399 361,207
Other assets 87,430 85,666
Total current assets 812,635 664,001
Property, plant and equipment, net ($11,335 and $11,615 attributable to the VIE) 223,824 228,388
Goodwill ($32,312 and $32,312 attributable to the VIE) 210,177 209,671
Intangible assets, net 476,556 478,257
Deferred income taxes 71,759 78,028
Other assets ($2,583 and $2,593 attributable to the VIE) 82,339 33,276
Total assets 1,877,290 1,691,621
Current liabilities    
Short-term debt 141,604 920
Current portion of long-term debt 35,625 35,625
Accounts payable ($4,731 and $6,882 attributable to the VIE) 88,730 86,045
Accrued taxes 30,275 38,268
Accrued compensation and benefits ($1,180 and $1,634 attributable to the VIE) 59,852 77,181
Accrued expenses and other liabilities ($2,804 and $3,462 attributable to the VIE) 73,917 56,828
Total current liabilities 430,003 294,867
Long-term debt and capital lease obligations 338,274 346,953
Deferred income taxes 4,611 4,635
Accrued pension and other postretirement benefits 104,226 102,077
Other noncurrent liabilities ($5,063 and $4,831 attributable to the VIE) 53,539 16,105
Total liabilities 930,653 764,637
Commitments and contingencies (Note 15)
Shareholders' equity    
Common stock, $0.001 par value, 500,000,000 shares authorized; 75,604,091 and 74,760,062 shares issued and outstanding 76 75
Additional paid-in capital 901,749 910,890
Accumulated other comprehensive loss, net of tax (85,503) (89,039)
Retained earnings 97,090 72,946
Total equity attributable to Acushnet Holdings Corp. 913,412 894,872
Noncontrolling interests 33,225 32,112
Total shareholders' equity 946,637 926,984
Total liabilities and shareholders' equity $ 1,877,290 $ 1,691,621
v3.19.1
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parentheticals) - USD ($)
$ in Thousands
Mar. 31, 2019
Dec. 31, 2018
Cash and restricted cash $ 44,877 $ 31,014
Inventories 346,399 361,207
Property, plant and equipment, net 223,824 228,388
Goodwill 210,177 209,671
Other assets 82,339 33,276
Accounts payable 88,730 86,045
Accrued compensation and benefits 59,852 77,181
Accrued expenses and other liabilities 73,917 56,828
Other noncurrent liabilities $ 53,539 $ 16,105
Common stock, par value (in dollars per share) $ 0.001 $ 0.001
Common stock, shares authorized (in shares) 500,000,000 500,000,000
Common stock, shares issued (in shares) 75,604,091 74,760,062
Common stock, shares outstanding (in shares) 75,604,091 74,760,062
VIE    
Cash and restricted cash $ 11,168 $ 8,436
Inventories 6,756 9,658
Property, plant and equipment, net 11,335 11,615
Goodwill 32,312 32,312
Other assets 2,583 2,593
Accounts payable 4,731 6,882
Accrued compensation and benefits 1,180 1,634
Accrued expenses and other liabilities 2,804 3,462
Other noncurrent liabilities $ 5,063 $ 4,831
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Income Statement [Abstract]    
Net sales $ 433,702 $ 441,801
Cost of goods sold 211,545 214,127
Gross profit 222,157 227,674
Operating expenses:    
Selling, general and administrative 155,426 151,368
Research and development 12,751 12,392
Intangible amortization 1,753 1,630
Income from operations 52,227 62,284
Interest expense, net 4,883 4,408
Other income, net (970) (434)
Income before income taxes 48,314 58,310
Income tax expense 12,275 15,220
Net income 36,039 43,090
Less: Net income attributable to noncontrolling interests (1,113) (1,606)
Net income attributable to Acushnet Holdings Corp. $ 34,926 $ 41,484
Net income per common share attributable to Acushnet Holdings Corp.:    
Basic (in dollars per share) $ 0.46 $ 0.56
Diluted (in dollars per share) $ 0.46 $ 0.55
Weighted average number of common shares:    
Basic (in shares) 76,006,989 74,650,237
Diluted (in shares) 76,264,038 74,793,823
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Statement of Comprehensive Income [Abstract]    
Net income $ 36,039 $ 43,090
Other comprehensive income (loss):    
Foreign currency translation adjustments 3,842 11,913
Cash flow derivative instruments    
Unrealized holding gains (losses) arising during period 1,359  
Unrealized holding gains (losses) arising during period   (7,081)
Reclassification adjustments included in net income (1,449)  
Reclassification adjustments included in net income   708
Tax (expense) benefit (70)  
Tax (expense) benefit   2,113
Cash flow derivative instruments, net (160)  
Cash flow derivative instruments, net   (4,260)
Pension and other postretirement benefits    
Pension and other postretirement benefits adjustments (203) 34
Tax benefit (expense) 57 (6)
Pension and other postretirement benefits adjustments, net (146) 28
Total other comprehensive income 3,536 7,681
Comprehensive income 39,575 50,771
Less: Comprehensive income attributable to noncontrolling interests (1,113) (1,606)
Comprehensive income attributable to Acushnet Holdings Corp. $ 38,462 $ 49,165
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2019
Mar. 31, 2018
Cash flows from operating activities    
Net income $ 36,039 $ 43,090
Adjustments to reconcile net income to cash used in operating activities    
Depreciation and amortization 9,797 10,325
Unrealized foreign exchange gain (61) (1,681)
Amortization of debt issuance costs 369 331
Share-based compensation 1,785 4,126
Deferred income taxes 5,889 6,369
Changes in operating assets and liabilities    
Accounts receivable (146,894) (152,626)
Inventories 17,373 7,457
Accounts payable 4,491 (765)
Accrued taxes (7,941) 2,084
Other assets and liabilities (10,912) (5,542)
Cash flows used in operating activities (90,065) (86,832)
Cash flows from investing activities    
Additions to property, plant and equipment (5,462) (5,887)
Business acquisitions, net of cash acquired 0 (2,496)
Cash flows used in investing activities (5,462) (8,383)
Cash flows from financing activities    
Proceeds from short-term borrowings, net 140,778 113,293
Repayments of delayed draw term loan A facility (1,875) (1,250)
Repayment of term loan facilities (7,031) (4,688)
Dividends paid on common stock (11,872) (9,898)
Payment of employee restricted stock tax withholdings (10,924) (2,634)
Cash flows provided by financing activities 109,076 94,823
Effect of foreign exchange rate changes on cash 314 1,040
Net increase in cash 13,863 648
Cash and restricted cash, beginning of year 31,014 47,722
Cash and restricted cash, end of period 44,877 48,370
Supplemental information    
Non-cash additions to property, plant and equipment 222 774
Dividends declared to noncontrolling interests but not paid 0 2,400
Dividend equivalents rights (DERs) declared not paid $ 198 $ 201
v3.19.1
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED) - USD ($)
shares in Thousands, $ in Thousands
Total
Total Shareholders' Equity Attributable to Acushnet Holdings Corp.
Common Stock
Additional Paid-in Capital
Accumulated Other Comprehensive Loss, Net of Tax
Retained Earnings
Noncontrolling Interests
Beginning balance at Dec. 31, 2017 $ 853,973 $ 821,309 $ 74 $ 894,727 $ (81,691) $ 8,199 $ 32,664
Beginning balance (in shares) at Dec. 31, 2017     74,479        
Changes in stockholders' equity              
Net income 43,090 41,484       41,484 1,606
Other comprehensive income 7,681 7,681     7,681    
Share-based compensation 4,357 4,357   4,357      
Vesting of restricted common stock, including impact of DERs, net of shares withheld for employee taxes (Note 11) (2,633) (2,633) $ 1 (2,634)      
Vesting of restricted common stock, including impact of DERs, net of shares withheld for employee taxes (Note 11) (in shares)     265        
Dividends and dividend equivalents declared (9,917) (9,917)       (9,917)  
Dividends declared to noncontrolling interests (2,400)           (2,400)
Ending balance at Mar. 31, 2018 892,650 860,780 $ 75 896,450 (80,142) 44,397 31,870
Ending balance (in shares) at Mar. 31, 2018     74,744        
Beginning balance at Dec. 31, 2017 853,973 821,309 $ 74 894,727 (81,691) 8,199 32,664
Beginning balance (in shares) at Dec. 31, 2017     74,479        
Changes in stockholders' equity              
Dividends and dividend equivalents declared (39,756)            
Ending balance at Dec. 31, 2018 926,984 894,872 $ 75 910,890 (89,039) 72,946 32,112
Ending balance (in shares) at Dec. 31, 2018     74,760        
Changes in stockholders' equity              
Net income 36,039 34,926       34,926 1,113
Other comprehensive income 3,536 3,536     3,536    
Share-based compensation 1,785 1,785   1,785      
Vesting of restricted common stock, including impact of DERs, net of shares withheld for employee taxes (Note 11) (10,925) (10,925) $ 1 (10,926)      
Vesting of restricted common stock, including impact of DERs, net of shares withheld for employee taxes (Note 11) (in shares)     844        
Dividends and dividend equivalents declared (10,782) (10,782)       (10,782)  
Ending balance at Mar. 31, 2019 $ 946,637 $ 913,412 $ 76 $ 901,749 $ (85,503) $ 97,090 $ 33,225
Ending balance (in shares) at Mar. 31, 2019     75,604        
v3.19.1
Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) and include the accounts of Acushnet Holdings Corp. (the “Company”), its wholly-owned subsidiaries and less than wholly-owned subsidiaries, including a variable interest entity (“VIE”) in which the Company is the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation.
Certain information in footnote disclosures normally included in annual financial statements has been condensed or omitted for the interim periods presented in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and U.S. GAAP. The year-end balance sheet data was derived from audited financial statements; however, the accompanying interim notes to the unaudited condensed consolidated financial statements do not include all disclosures required by U.S. GAAP. In the opinion of management, the financial statements contain all normal and recurring adjustments necessary to state fairly the financial position and results of operations of the Company.  The results of operations for the three months ended March 31, 2019 are not necessarily indicative of results to be expected for the full year ending December 31, 2019, nor were those of the comparable 2018 period representative of those actually experienced for the full year ended December 31, 2018. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the fiscal year ended December 31, 2018 included in its Annual Report on Form 10-K filed with the SEC on February 28, 2019.
Use of Estimates
The preparation of the Company’s unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and judgments that affect reported amounts of assets, liabilities, shareholders’ equity, net sales and expenses, and the disclosure of contingent assets and liabilities in its unaudited condensed consolidated financial statements. Actual results could differ from those estimates.
Variable Interest Entities
VIEs are entities that, by design, either (i) lack sufficient equity to permit the entity to finance its activities independently, or (ii) have equity holders that do not have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the entity’s expected losses, or the right to receive the entity’s expected residual returns. The Company consolidates a VIE when it is the primary beneficiary, which is the party that has both (i) the power to direct the activities that most significantly impact the VIE’s economic performance and (ii) through its interests in the VIE, the obligation to absorb expected losses or the right to receive expected benefits from the VIE that could potentially be significant to the VIE.
The Company consolidates the accounts of Acushnet Lionscore Limited, a VIE, which is 40% owned by the Company. The sole purpose of the VIE is to manufacture the Company’s golf footwear and as such, the Company is deemed to be the primary beneficiary. The Company has presented separately on its consolidated balance sheets, to the extent material, the assets of its consolidated VIE that can only be used to settle specific obligations of its consolidated VIE and the liabilities of its consolidated VIE for which creditors do not have recourse to its general credit. The general creditors of the VIE do not have recourse to the Company. Certain directors of the VIE have guaranteed the credit lines of the VIE, for which there were no outstanding borrowings as of March 31, 2019 and December 31, 2018. In addition, pursuant to the terms of the agreement governing the VIE, the Company is not required to provide financial support to the VIE.
Noncontrolling Interests
The ownership interest held by owners other than the Company in less than wholly-owned subsidiaries are classified as noncontrolling interests. The value attributable to the noncontrolling interests is presented on the unaudited condensed consolidated balance sheets within shareholders' equity, separately from the equity attributable to the Company. Net income (loss) and comprehensive income (loss) attributable to noncontrolling interests are presented separately on the unaudited condensed consolidated statements of operations and unaudited condensed consolidated statements of comprehensive income, respectively. The Company's less than wholly-owned subsidiaries include a VIE, as discussed above, and PG Professional Golf, which was acquired on October 1, 2018.
Cash and Restricted Cash
Cash held in Company checking accounts is included in cash. Book overdrafts not subject to offset with other accounts with the same financial institution are classified as accounts payable. The Company classifies as restricted certain cash that is not available for use in its operations. As of both March 31, 2019 and December 31, 2018, the amount of restricted cash included in cash and restricted cash on the balance sheet was $2.0 million.
Accounts Receivable
As of March 31, 2019 and December 31, 2018, the allowance for doubtful accounts was $8.1 million and $7.3 million, respectively.
Foreign Currency Translation and Transactions
Foreign currency transaction gains included in selling, general and administrative expense were $0.5 million and $2.0 million for the three months ended March 31, 2019 and 2018, respectively.
Recently Adopted Accounting Standards
Leases
On January 1, 2019, the Company adopted Accounting Standards Codification ("ASC") Topic 842, Leases ("ASC 842"), which requires the recognition of right-of-use assets and related operating and finance lease liabilities on the consolidated balance sheet. As permitted by ASC 842, the Company adopted ASC 842 using the optional transition approach, which allowed for a cumulative effect adjustment as of January 1, 2019, which is the date of initial application, and did not restate prior periods. As a result, the consolidated balance sheet prior to January 1, 2019 was not restated and continues to be reported under ASC Topic 840, Leases ("ASC 840"), which did not require the recognition of operating lease liabilities on the consolidated balance sheet, and is not comparative.
Under ASC 842, all leases are required to be recorded on the consolidated balance sheet and are classified as either operating or finance leases. A lease is classified as a finance lease if any one of the following criteria are met: the lease transfers ownership of the asset by the end of the lease term, the lease contains an option to purchase the asset that is reasonably certain to be exercised, the lease term is for a major part of the remaining useful life of the asset, the present value of the lease payments equals or exceeds substantially all of the fair value of the asset, or the leased asset is of a highly specialized nature. A lease is classified as an operating lease if it does not meet any one of these criteria.
The lease classification affects the expense recognition in the consolidated statement of operations. Operating lease expense consists of the lease payments plus any initial direct costs and is recognized on a straight-line basis over the lease term in the consolidated statement of operations. Finance lease charges are split, where amortization of the right-of-use asset is recorded as depreciation and amortization expense and an implied interest component is recorded in interest expense, net. The expense recognition for operating leases and finance leases under ASC 842 is consistent with ASC 840. As a result, there is no impact on the results of operations presented in the Company's unaudited condensed consolidated statements of operations and unaudited condensed consolidated statements of comprehensive income for the periods presented as a result of the adoption of ASC 842.
As permitted under ASC 842, the Company also elected to not reassess prior conclusions related to the identification, classification and accounting for initial direct costs for leases that commenced prior to January 1, 2019. As permitted under ASC 842, the Company elected to not use hindsight to determine lease terms and to not separate non-lease components within its lease portfolio. As permitted under ASC 842, the Company has also elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a term of 12 months or less. The effect of short-term leases on the Company's operating right-of-use assets and operating lease liabilities was not material.
Upon adoption of ASC 842, the Company recognized operating lease right-of-use assets and operating lease liabilities. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease. The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred less any lease incentives received. Lease payments included in the measurement of the lease liability comprise the following: the fixed non-cancelable lease payments, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early. The discount rate implicit within the Company's leases is generally not determinable and therefore the Company determines the discount rate based on its incremental collateralized borrowing rate applicable to the location where the lease is held. The incremental borrowing rate for each of the Company's leases is determined based on the lease term and currency in which such lease payments are made. Accordingly, upon adoption, the Company recorded an adjustment of $48.1 million to operating lease right-of-use assets and the related lease liabilities.
The Company leases office and warehouse space, machinery and equipment, and vehicles, among other items. Certain leases include one or more options to renew, with renewal terms that can extend the lease term up to 3 years. For contracts entered into on or after the effective date, at the inception of a contract the Company assesses whether the contract is, or contains, a lease. The Company's assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtained the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether the Company has the right to direct the use of the asset. See further discussion in Note 2.
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
On January 1, 2019, the Company adopted Accounting Standards Update ("ASU") 2017‑12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” ("ASU 2017-12"). The amendments in this update expand and refine hedge accounting guidance and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. ASU 2017-12 also simplified the application of hedge accounting guidance, hedge documentation requirements and the assessment of hedge effectiveness. The adoption of this standard did not have a material impact on the consolidated financial statements.
Changes to the Disclosure Requirements for Fair Value Measurement
On January 1, 2019, the Company adopted ASU 2018-13, "Fair Value Measurement (Topic 820) —Disclosure Framework —Changes to the Disclosure Requirements for Fair Value Measurement" ("ASU 2018-13"). The amendments in this update are meant to provide more relevant information regarding valuation techniques and inputs used to arrive at measures of fair value, uncertainty in the fair value measurements, and how changes in fair value measurements impact an entity's performance and cash flows. The adoption of this standard should be applied to all periods presented. The adoption of this standard did not have an impact on the consolidated financial statements or related disclosures.
Recently Issued Accounting Standards
Intangibles —Goodwill and Other —Internal-Use Software
In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-15, "Intangibles -Goodwill and Other -Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract" ("ASU 2018-15"). The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the consolidated financial statements.
Defined Benefit Plans—Changes to the Disclosure Requirements for Defined Benefit Plans
In August 2018, the FASB issued ASU 2018-14, "Compensation —Retirement Benefits —Defined Benefit Plans —General (Subtopic 715-20) —Disclosure Framework —Changes to the Disclosure Requirements for Defined Benefit Plans" ("ASU 2018-14"). The amendments in this update remove defined benefit plan disclosures that are no longer considered cost-beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. ASU 2018-14 is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The adoption of this standard should be applied to all periods presented. The adoption of this standard will not have a material impact on the consolidated financial statements.
v3.19.1
Leases
3 Months Ended
Mar. 31, 2019
Leases [Abstract]  
Leases
Leases
The Company's operating lease right-of-use assets and operating lease liabilities represent leases for office and warehouse space, machinery and equipment, and vehicles, among other items.
Operating lease costs recognized on the unaudited condensed consolidated statements of operations were as follows:
 
 
Three months ended
(in thousands)
 
March 31, 2019
Cost of goods sold
 
$
821

Selling, general and administrative
 
2,882

Research and development
 
199

 
 
$
3,902


Supplemental balance sheet information related to the Company's operating leases is as follows:
 
 
 
 
March 31,
(in thousands)
 
Balance Sheet Location
 
2019
 
 
 
 
 
Right-of-use assets
 
Other noncurrent assets
 
$
48,054

 
 
 
 
 
Current lease liabilities
 
Accrued expenses and other liabilities
 
$
11,649

Noncurrent lease liabilities
 
Other noncurrent liabilities
 
36,405

 
 
Total liabilities
 
$
48,054


The weighted average remaining lease term and the weighted average discount rate for operating leases as of March 31, 2019 was:
 
 
Operating Leases
Weighted average remaining lease term (years)
 
5.9

Weighted average discount rate
 
3.42
%

The following table reconciles the undiscounted cash flows for operating leases as of March 31, 2019 to operating lease liabilities recorded on the unaudited condensed consolidated balance sheet:
 
 
Operating
(in thousands)
 
Leases
Remainder of 2019
 
$
10,306

2020
 
11,720

2021
 
8,635

2022
 
5,845

2023
 
3,265

Thereafter
 
14,228

Total future lease payments
 
53,999

Less: Interest
 
(5,945
)
Present value of lease liabilities
 
$
48,054

 
 
 
Accrued expenses and other liabilities
 
$
11,649

Other noncurrent liabilities
 
36,405

Total lease liabilities
 
$
48,054


Future minimum rental payments under noncancelable operating leases as of December 31, 2018 were as follows:
(in thousands)
 
 
Year ending December 31,
 
 
2019
 
$
13,119

2020
 
11,053

2021
 
7,984

2022
 
5,345

2023
 
3,133

Thereafter
 
13,852

Total minimum rental payments
 
$
54,486


Supplemental cash flow information and non-cash activity related to the Company's operating leases are as follows:
 
 
Three months ended
(in thousands)
 
March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
Operating cash flows from operating leases
 
$
3,604

Non-cash right-of-use assets obtained in exchange for lease obligations:
 
 
Operating leases
 
1,635

v3.19.1
Inventories
3 Months Ended
Mar. 31, 2019
Inventory Disclosure [Abstract]  
Inventories
Inventories
The components of inventories were as follows:
 
 
 
March 31,
 
December 31,
(in thousands)
 
2019
 
2018
Raw materials and supplies
 
$
62,937

 
$
71,068

Work-in-process
 
26,161

 
21,763

Finished goods
 
257,301

 
268,376

Inventories
 
$
346,399


$
361,207

v3.19.1
Product Warranty
3 Months Ended
Mar. 31, 2019
Product Warranties Disclosures [Abstract]  
Product Warranty
Product Warranty
The Company has defined warranties ranging from one to two years. Products covered by the defined warranty policies include all Titleist golf products, FootJoy golf shoes and FootJoy golf outerwear. These product warranties generally obligate the Company to pay for the cost of replacement products, including the cost of shipping replacement products to its customers. The estimated cost of satisfying future warranty claims is accrued at the time the sale is recorded. In estimating future warranty obligations, the Company considers various factors, including its warranty policies and practices, the historical frequency of claims and the cost to replace or repair products under warranty.
The activity related to the Company’s warranty obligation for accrued warranty expense was as follows:
 
 
Three months ended March 31,
(in thousands)
 
2019
 
2018
Balance at beginning of period
 
$
3,331

 
$
3,823

Provision
 
1,074

 
1,195

Claims paid/costs incurred
 
(876
)
 
(913
)
Foreign currency translation
 
19

 
43

Balance at end of period

$
3,548


$
4,148

v3.19.1
Debt and Financing Arrangements
3 Months Ended
Mar. 31, 2019
Debt Disclosure [Abstract]  
Debt and Financing Arrangements
Debt and Financing Arrangements
Senior Secured Credit Facility
There were outstanding borrowings under the revolving credit facility of $129.0 million as of March 31, 2019. The weighted average interest rate applicable to the outstanding borrowings was 3.71% as of March 31, 2019. There were no outstanding borrowings under the revolving credit facility as of December 31, 2018.
The credit agreement contains a number of covenants that, among other things, restrict the ability of the U.S. borrower and its restricted subsidiaries to (subject to certain exceptions), incur, assume, or permit to exist additional indebtedness or guarantees; incur liens; make investments and loans; pay dividends, make payments, or redeem or repurchase capital stock or make prepayments, repurchases or redemptions of certain indebtedness; engage in mergers, liquidations, dissolutions, asset sales, and other dispositions (including sale leaseback transactions); amend or otherwise alter terms of certain indebtedness or certain other agreements; enter into agreements limiting subsidiary distributions or containing negative pledge clauses; engage in certain transactions with affiliates; alter the nature of the business that they conduct or change their fiscal year or accounting practices. Certain exceptions to these covenants are determined based on ratios that are calculated in part using the calculation of Adjusted EBITDA. The credit agreement also restricts the ability of Acushnet Holdings Corp. to engage in certain mergers or consolidations or engage in any activities other than permitted activities. The Company’s credit agreement contains certain customary affirmative and restrictive covenants, including, among others, financial covenants based on the Company’s leverage and interest coverage ratios. The credit agreement includes customary events of default, the occurrence of which, following any applicable cure period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations to be immediately due and payable. As of March 31, 2019, the Company was in compliance with all covenants under the credit agreement.
As of March 31, 2019, the Company had available borrowings under its revolving credit facility of $135.3 million after giving effect to $10.7 million of outstanding letters of credit.
Other Short-Term Borrowings
The Company has certain unsecured local credit facilities available through its subsidiaries. There were outstanding borrowings under the Company's local credit facilities of $12.6 million and $0.9 million as of March 31, 2019 and December 31, 2018, respectively. The weighted average interest rate applicable to the outstanding borrowings was 0.97% and 3.25% as of March 31, 2019 and December 31, 2018, respectively. As of March 31, 2019, the Company had available borrowings remaining under these local credit facilities of $51.3 million.
Letters of Credit
As of March 31, 2019 and December 31, 2018, there were outstanding letters of credit related to agreements, including the Company's senior secured credit facility, totaling $14.9 million and $15.5 million, respectively, of which $11.8 million and $12.4 million was secured. These agreements provided a maximum commitment for letters of credit of $29.2 million as of both March 31, 2019 and December 31, 2018.
v3.19.1
Derivative Financial Instruments
3 Months Ended
Mar. 31, 2019
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments
Derivative Financial Instruments
The Company principally uses derivative financial instruments to reduce the impact of changes in foreign currency exchange rates and interest rate fluctuations. The principal derivative financial instruments the Company enters into are foreign exchange forward contracts and interest rate swaps. The Company does not enter into derivative financial instruments contracts for trading or speculative purposes.
Foreign Exchange Derivative Instruments
Foreign exchange derivative instruments are foreign exchange forward contracts primarily used to hedge currency fluctuations related to inventory purchases not denominated in the functional currency of the non-U.S. subsidiary, thereby limiting currency risk that would otherwise result from changes in exchange rates. These instruments are considered cash flow hedges. The periods of the foreign exchange forward contracts correspond to the periods of the forecasted transactions, which do not exceed 24 months subsequent to the latest balance sheet date. The primary foreign exchange forward contracts pertain to the U.S. dollar, the Japanese yen, the British pound sterling, the Canadian dollar, the Korean won and the euro. The gross U.S. dollar equivalent notional amount outstanding of all foreign exchange forward contracts designated under hedge accounting as of March 31, 2019 and December 31, 2018 was $318.3 million and $312.8 million, respectively.
The Company also enters into foreign exchange forward contracts to mitigate the change in fair value of specific assets and liabilities which do not qualify as hedging instruments under U.S. GAAP. These undesignated instruments are recorded at fair value as a derivative asset or liability with the corresponding change in fair value recognized in selling, general and administrative expense. There were no outstanding foreign exchange forward contracts not designated under hedge accounting as of March 31, 2019 and December 31, 2018.
Interest Rate Derivative Instruments
The Company enters into interest rate swap contracts to reduce the impact of variability in interest rates. Under the contracts, the Company pays fixed and receives variable rate interest, in effect converting a portion of its variable rate debt to fixed rate debt. The interest rate swap contracts are accounted for as cash flow hedges. As of March 31, 2019 and December 31, 2018, the notional value of the Company's outstanding interest rate swap contracts was $185.0 million.
Impact on Financial Statements
The fair value of hedge instruments recognized on the unaudited condensed consolidated balance sheets was as follows:
(in thousands)
 
 
 
March 31,
 
December 31,
Balance Sheet Location
 
Hedge Instrument Type
 
2019
 
2018
Other current assets
 
Foreign exchange forward
 
$
5,880

 
$
6,116

Other noncurrent assets
 
Foreign exchange forward
 
1,119

 
1,015

Accrued expenses and other liabilities
 
Foreign exchange forward
 
691

 
578

 
 
Interest rate swap
 
773

 
526

Other noncurrent liabilities
 
Foreign exchange forward
 
132

 
161

 
 
Interest rate swap
 
1,254

 
925


The hedge instrument gain (loss) recognized in accumulated other comprehensive loss, net of tax was as follows:
 
 
Three months ended
 
 
March 31,
(in thousands)
 
2019
 
2018
Type of hedge
 
 
 
 
Foreign exchange forward
 
$
2,087

 
$
(7,081
)
Interest rate swap
 
(728
)
 

 

$
1,359

 
$
(7,081
)

Gains and losses on derivative instruments designated as cash flow hedges are reclassified from accumulated other comprehensive loss, net of tax at the time the forecasted transaction impacts the statement of operations. Based on the current valuation, the Company expects to reclassify a net gain of $6.2 million related to foreign exchange derivative instruments from accumulated other comprehensive loss, net of tax, into cost of goods sold and a net loss of $0.8 million related to interest rate derivative instruments from accumulated other comprehensive loss, net of tax into interest expense, net during the next 12 months. For further information related to amounts recognized in accumulated other comprehensive loss, net of tax, see Note 12.
The hedge instrument gain (loss) recognized on the unaudited condensed consolidated statements of operations was as follows:
 
 
Three months ended
 
 
March 31,
(in thousands)
 
2019
 
2018
Location of gain (loss) in statement of operations
 
 
 
 
Foreign exchange forward:
 
 
 
 
Cost of goods sold
 
$
1,606

 
$
(708
)
Selling, general and administrative (1)
 
(314
)
 
(668
)
Total
 
$
1,292

 
$
(1,376
)
 
 
 
 
 
Interest Rate Swap:
 
 
 
 
Interest expense, net
 
$
(157
)
 
$

Total

$
(157
)
 
$


_______________________________________________________________________________
(1) Relates to losses on foreign exchange forward contracts derived from previously designated cash flow hedges.
Credit Risk
The Company enters into derivative contracts with major financial institutions with investment grade credit ratings and is exposed to credit losses in the event of non-performance by these financial institutions. This credit risk is generally limited to the unrealized gains in the derivative contracts. However, the Company monitors the credit quality of these financial institutions and considers the risk of counterparty default to be minimal.
v3.19.1
Fair Value Measurements
3 Months Ended
Mar. 31, 2019
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements
Certain assets and liabilities are carried at fair value under U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
Assets and liabilities measured at fair value on a recurring basis as of March 31, 2019 were as follows:
 
 
Fair Value Measurements as of
 
 
 
 
March 31, 2019 using:
 
 
(in thousands)
 
Level 1
 
Level 2
 
Level 3
 
Balance Sheet Location
Assets
 
 
 
 
 
 
 
 
Rabbi trust
 
$
8,931

 
$

 
$

 
Other current assets
Foreign exchange derivative instruments
 

 
5,880

 

 
Other current assets
Deferred compensation program assets
 
1,183

 

 

 
Other noncurrent assets
Foreign exchange derivative instruments
 

 
1,119

 

 
Other noncurrent assets
Total assets
 
$
10,114

 
$
6,999

 
$

 
 
Liabilities
 
 
 
 
 
 
 
 
Foreign exchange derivative instruments
 
$

 
$
691

 
$

 
Accrued expenses and other liabilities
Interest rate derivative instruments
 

 
773

 

 
Accrued expenses and other liabilities
Deferred compensation program liabilities
 
1,183

 

 

 
Other noncurrent liabilities
Foreign exchange derivative instruments
 

 
132

 

 
Other noncurrent liabilities
Interest rate derivative instruments
 

 
1,254

 

 
Other noncurrent liabilities
Total liabilities
 
$
1,183

 
$
2,850

 
$

 
 
 

Assets and liabilities measured at fair value on a recurring basis as of December 31, 2018 were as follows:
 
 
Fair Value Measurements as of
 
 
 
 
December 31, 2018 using:
 
 
(in thousands)
 
Level 1
 
Level 2
 
Level 3
 
Balance Sheet Location
Assets
 
 
 
 
 
 
 
 
Rabbi trust
 
$
8,415

 
$

 
$

 
Other current assets
Foreign exchange derivative instruments
 

 
6,116

 

 
Other current assets
Deferred compensation program assets
 
1,222

 

 

 
Other noncurrent assets
Foreign exchange derivative instruments
 

 
1,015

 

 
Other noncurrent assets
Total assets
 
$
9,637

 
$
7,131

 
$

 
 
Liabilities
 
 
 
 
 
 
 
 
Foreign exchange derivative instruments
 
$

 
$
578

 
$

 
Accrued expenses and other liabilities
Interest rate derivative instruments
 

 
526

 

 
Accrued expenses and other liabilities
Deferred compensation program liabilities
 
1,222

 

 

 
Other noncurrent liabilities
Foreign exchange derivative instruments
 

 
161

 

 
Other noncurrent liabilities
Interest rate derivative instruments
 

 
925

 

 
Other noncurrent liabilities
Total liabilities
 
$
1,222

 
$
2,190

 
$

 
 

 
During the three months ended March 31, 2019 and the year ended December 31, 2018, there were no transfers between Level 1, Level 2 and Level 3 assets and liabilities.
Rabbi trust assets are used to fund certain retirement obligations of the Company. The assets underlying the Rabbi trust are equity and fixed income exchange‑traded funds.
Deferred compensation program assets and liabilities represent a program where select employees can defer compensation until termination of employment. Effective July 29, 2011, this program was amended to cease all employee compensation deferrals and provided for the distribution of all previously deferred employee compensation. The program remains in effect with respect to the value attributable to the employer match contributed prior to July 29, 2011.
Foreign exchange derivative instruments are foreign exchange forward contracts primarily used to limit currency risk that would otherwise result from changes in exchange rates (Note 6). The Company uses the mid‑price of foreign exchange forward rates as of the close of business on the valuation date to value each foreign exchange forward contract at each reporting period.
Interest rate derivative instruments are contracts used to hedge the interest rate fluctuations of the Company's variable rate debt (Note 6). The valuation for the interest rate swap is calculated as the net of the discounted future cash flows of the pay and receive legs of the swap. Mid-market interest rates on the valuation date are used to create the forward curve for floating legs and discount curve.
v3.19.1
Pension and Other Postretirement Benefits
3 Months Ended
Mar. 31, 2019
Retirement Benefits [Abstract]  
Pension and Other Postretirement Benefits
Pension and Other Postretirement Benefits
Components of net periodic benefit cost (income) were as follows: 
 
 
Pension Benefits
 
Postretirement Benefits
 
 
Three months ended March 31,
(in thousands)
 
2019
 
2018
 
2019
 
2018
Components of net periodic benefit cost (income)
 
 
 
 
 
 
 
 
Service cost
 
$
2,242

 
$
2,443

 
$
161

 
$
175

Interest cost
 
2,980

 
2,958

 
138

 
127

Expected return on plan assets
 
(3,299
)
 
(3,279
)
 

 

Settlement expense
 

 
8

 

 

Amortization of net loss (gain)
 
272

 
520

 
(363
)
 
(351
)
Amortization of prior service cost (credit)
 
44

 
44

 
(34
)
 
(34
)
Net periodic benefit cost (income)
 
$
2,239

 
$
2,694

 
$
(98
)
 
$
(83
)


The non-service cost components of net periodic benefit cost (income) are included in other income, net in the unaudited condensed consolidated statements of operations.
v3.19.1
Income Taxes
3 Months Ended
Mar. 31, 2019
Income Tax Disclosure [Abstract]  
Income Taxes
Income Taxes
Income tax expense decreased by $2.9 million to $12.3 million for the three months ended March 31, 2019 compared to $15.2 million for the three months ended March 31, 2018. The Company’s Effective Tax Rate ("ETR") was 25.4% for the three months ended March 31, 2019 compared to 26.1% for the three months ended March 31, 2018.  The decrease in ETR was primarily driven by the discrete tax benefit realized in the first quarter of 2019 related to share based compensation expense, offset by amounts related to the U.S. Tax Cuts and Jobs Act of 2017 and changes to the Company's geographic mix of earnings.
v3.19.1
Common Stock
3 Months Ended
Mar. 31, 2019
Equity [Abstract]  
Common Stock
Common Stock
The Company declared dividends per common share, including DERs (Note 11), during the periods presented as follows:
(in thousands, except per share amounts)
 
Dividends per Common Share
 
Amount
2019:
 
 
 
 
First Quarter
 
$
0.14

 
$
10,782

Total dividends declared in 2019
 
$
0.14

 
$
10,782

 
 
 
 
 
2018:
 
 
 
 
Fourth Quarter
 
$
0.13

 
$
9,968

Third Quarter
 
0.13

 
9,954

Second Quarter
 
0.13

 
9,917

First Quarter
 
0.13

 
9,917

Total dividends declared in 2018
 
$
0.52

 
$
39,756


During the second quarter of 2019, the Company's Board of Directors ("Board of Directors") declared a dividend of $0.14 per common share to shareholders on record as of May 31, 2019 and payable on June 14, 2019.
The Board of Directors has authorized the Company to repurchase up to an aggregate of $50.0 million of its issued and outstanding common stock from time to time. Share repurchases may be effected in open market or privately negotiated transactions, including transactions with affiliates, with the timing of purchases and the amount of stock purchased generally determined at the discretion of the Company within the constraints of the Company’s credit agreement and the Company’s general working capital needs. As of March 31, 2019, there were no share repurchases made under this program.
v3.19.1
Equity Incentive Plans
3 Months Ended
Mar. 31, 2019
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Equity Incentive Plans
Equity Incentive Plans
Under the Acushnet Holdings Corp. 2015 Omnibus Incentive Plan (“2015 Plan”), the Company may grant stock options, stock appreciation rights, restricted shares of common stock, restricted stock units ("RSUs"), performance stock units (“PSUs”) and other share-based and cash-based awards to members of the Board of Directors, officers, employees, consultants and advisors of the Company. As of March 31, 2019, the only awards granted under the 2015 Plan were RSUs and PSUs.
RSUs granted to members of the Board of Directors vest immediately into shares of common stock. RSUs granted to Company officers and employees vest ratably and in accordance with the terms of the grant, generally over one to four years subject to the recipient’s continued service to the Company. PSUs vest, subject to the recipient's continued employment with the Company, based upon achievement of the applicable performance metrics, generally over three years and as defined in the award agreements. Recipients of the awards granted under the 2015 Plan may elect to defer receipt of all or any portion of any shares of common stock issuable upon vesting to a future date elected by the recipient.
All RSUs and PSUs granted under the 2015 Plan have DERs, which entitle holders of RSUs and PSUs to the same dividend value per share as holders of common stock and can be paid in either cash or common stock. DERs are subject to the same vesting and other terms and conditions as the corresponding unvested RSUs and PSUs. DERs are paid when the underlying shares of common stock are delivered.
Restricted Stock and Performance Stock Units
A summary of the Company’s RSUs and PSUs as of March 31, 2019 and changes during the three months then ended is presented below: 
 
 
 
 
Weighted-
 
 
 
Weighted-
 
 
Number
 
Average
 
Number
 
Average
 
 
of RSUs
 
Fair Value RSUs
 
of PSUs
 
Fair Value PSUs
Outstanding as of December 31, 2018
 
881,832

 
$
21.75

 

 
$

Granted
 
609,245

 
23.47

 
207,077

 
23.47

Vested
 
(475,823
)
 
20.25

 

 

Forfeited
 
(1,933
)
 
24.57

 

 

Outstanding as of March 31, 2019
 
1,013,321

 
$
23.48

 
207,077

 
$
23.47

 
 
 
 
 
 
 
 
 
Undelivered (1)
 
83,761

 
 
 

 
 


_______________________________________________________________________________
(1) Shares of common stock related to vestings occurring in 2019 that were not delivered as of March 31, 2019.
A summary of shares of common stock issued related to the 2015 Plan, including the impact of any DERs issued in common stock, is presented below:
 
 
Three months ended
 
Three months ended
 
 
March 31, 2019
 
March 31, 2018
 
 
RSUs
 
PSUs
 
RSUs
 
PSUs
Shares of common stock issued (1)
 
392,062

 
900,226

 
388,012

 

Shares of common stock withheld by the Company as payment by employees in lieu of cash to satisfy tax withholding obligations
 
(123,013)

 
(325,246)

 
(122,795)

 

Net shares of common stock issued
 
269,049

 
574,980

 
265,217

 

 
 
 
 
 
 
 
 
 
Cumulative undelivered shares of common stock
 
147,251

 

 

 

______________________________________________________________________________
(1) Shares of common stock issued related to PSUs represents PSUs that vested in 2018 but were delivered in common stock during the three months ended March 31, 2019.
The remaining unrecognized compensation expense related to non-vested RSUs and non-vested PSUs granted was $20.3 million and $4.6 million, respectively, as of March 31, 2019 and is expected to be recognized over the related weighted average period of 2.5 years.
The allocation of compensation expense related to equity incentive plans in the unaudited condensed consolidated statements of operations was as follows:
 
 
Three months ended
 
 
March 31,
(in thousands)
 
2019
 
2018
Cost of goods sold
 
$
167

 
$
94

Selling, general and administrative
 
1,467

 
3,733

Research and development
 
151

 
299

Total compensation expense before income tax
 
1,785

 
4,126

Income tax benefit
 
390

 
853

Total compensation expense, net of income tax
 
$
1,395

 
$
3,273

v3.19.1
Accumulated Other Comprehensive Loss, Net of Tax
3 Months Ended
Mar. 31, 2019
Comprehensive Income (Loss), Net of Tax, Attributable to Parent [Abstract]  
Accumulated Other Comprehensive Loss, Net of Tax
Accumulated Other Comprehensive Loss, Net of Tax
Accumulated other comprehensive loss, net of tax consists of foreign currency translation adjustments, unrealized gains and losses from derivative instruments designated as cash flow hedges (Note 6) and pension and other postretirement adjustments (Note 8).
The components of and changes in accumulated other comprehensive loss, net of tax, were as follows:
 
 
 
Foreign
 
Gains (Losses) on
 
Gains (Losses) on
 
Pension and
 
Accumulated
 
 
Currency
 
Foreign Exchange
 
Interest Rate
 
Other
 
Other
 
 
Translation
 
Derivative
 
Swap Derivative
 
Postretirement
 
Comprehensive
(in thousands)
 
Adjustments
 
Instruments
 
Instruments
 
Adjustments
 
Loss, Net of Tax
Balance as of December 31, 2018
 
$
(71,853
)
 
$
5,258

 
$
(1,098
)
 
$
(21,346
)
 
$
(89,039
)
Other comprehensive income (loss) before reclassifications
 
3,842

 
2,087

 
(728
)
 
(122
)
 
5,079

Amounts reclassified from accumulated other comprehensive loss, net of tax
 

 
(1,606
)
 
157

 
(81
)
 
(1,530
)
Tax benefit (expense)
 

 
(209
)
 
139

 
57

 
(13
)
Balance as of March 31, 2019
 
$
(68,011
)
 
$
5,530

 
$
(1,530
)
 
$
(21,492
)
 
$
(85,503
)
v3.19.1
Net Income per Common Share
3 Months Ended
Mar. 31, 2019
Earnings Per Share [Abstract]  
Net Income per Common Share
Net Income per Common Share
The following is a computation of basic and diluted net income per common share attributable to Acushnet Holdings Corp.:
 
 
Three months ended
 
 
March 31,
(in thousands, except share and per share amounts)
 
2019
 
2018
 
 
 
 
 
Net income attributable to Acushnet Holdings Corp.
 
$
34,926

 
$
41,484

 
 
 
 
 
Weighted average number of common shares:
 
 
 
 
Basic
 
76,006,989

 
74,650,237

Diluted
 
76,264,038

 
74,793,823

 
 
 
 
 
Net income per common share attributable to Acushnet Holdings Corp.:
 
 
 
 
Basic
 
$
0.46

 
$
0.56

Diluted
 
$
0.46

 
$
0.55


Net income per common share attributable to Acushnet Holdings Corp. for the three months ended March 31, 2019 and 2018 was calculated using the treasury stock method.
The Company’s potential dilutive securities for the three months ended March 31, 2019 and 2018 include RSUs and PSUs. PSUs vest based upon achievement of performance targets and are excluded from the diluted shares outstanding unless the performance targets have been met as of the end of the applicable reporting period regardless of whether such performance targets are probable of achievement.
For the three months ended March 31, 2019 and 2018, the following securities have been excluded from the calculation of diluted weighted‑average common shares outstanding as their impact was determined to be anti‑dilutive:
 
 
Three months ended
 
 
March 31,
 
 
2019
 
2018
RSUs
 
4,050

 

v3.19.1
Segment Information
3 Months Ended
Mar. 31, 2019
Segment Reporting [Abstract]  
Segment Information
Segment Information
The Company’s operating segments are based on how the Chief Operating Decision Maker (“CODM”) makes decisions about assessing performance and allocating resources. The Company has four reportable segments that are organized on the basis of product categories. These segments include Titleist golf balls, Titleist golf clubs, Titleist golf gear and FootJoy golf wear.
The CODM primarily evaluates performance using segment operating income (loss). Segment operating income (loss) includes directly attributable expenses and certain shared costs of corporate administration that are allocated to the reportable segments, but excludes interest expense, net, the non-service cost component of net periodic benefit cost, transaction fees and other non‑operating gains and losses as the Company does not allocate these to the reportable segments. The CODM does not evaluate a measure of assets when assessing performance.
Results shown for the three months ended March 31, 2019 and 2018 are not necessarily those which would be achieved if each segment was an unaffiliated business enterprise. There are no intersegment transactions.
Information by reportable segment and a reconciliation to reported amounts are as follows:
 
 
Three months ended March 31,
(in thousands)
 
2019
 
2018
Net sales
 
 
 
 
Titleist golf balls
 
$
141,667

 
$
124,906

Titleist golf clubs
 
91,318

 
116,893

Titleist golf gear
 
45,181

 
44,345

FootJoy golf wear
 
140,981

 
140,706

Other
 
14,555

 
14,951

Total net sales

$
433,702

 
$
441,801

 
 
 
 
 
Segment operating income (loss)
 
 
 
 
Titleist golf balls
 
$
19,728

 
$
13,980

Titleist golf clubs
 
(405
)
 
16,383

Titleist golf gear
 
9,151

 
7,784

FootJoy golf wear
 
20,144

 
20,255

Other
 
3,440

 
2,547

Total segment operating income

52,058

 
60,949

Reconciling items:
 
 
 
 
Interest expense, net
 
(4,883
)
 
(4,408
)
Non-service cost component of net periodic benefit cost
 
262

 
7

Other
 
877

 
1,762

Total income before income tax

$
48,314

 
$
58,310


Information as to the Company’s operations in different geographical areas is presented below. Net sales are categorized based on the location in which the sale originates.
 
 
Three months ended March 31,
(in thousands)
 
2019
 
2018
United States
 
$
230,383

 
$
219,289

EMEA (1)
 
71,078

 
73,042

Japan
 
40,735

 
52,129

Korea
 
49,042

 
52,675

Rest of world
 
42,464

 
44,666

Total net sales
 
$
433,702

 
$
441,801


_______________________________________________________________________________
(1) Europe, the Middle East and Africa ("EMEA")
v3.19.1
Commitments and Contingencies
3 Months Ended
Mar. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
Commitments and Contingencies
Purchase Obligations
During the normal course of its business, the Company enters into agreements to purchase goods and services, including purchase commitments for production materials, finished goods inventory, capital expenditures and endorsement arrangements with professional golfers. The reported amounts exclude those liabilities included in accounts payable or accrued liabilities on the consolidated balance sheet as of March 31, 2019.
Purchase obligations by the Company as of March 31, 2019 were as follows:
 
 
Payments Due by Period
 
 
Remainder of
 
 
 
 
 
 
 
 
 
 
(in thousands)
 
2019
 
2020
 
2021
 
2022
 
2023
 
Thereafter
Purchase obligations
 
$
177,549

 
$
22,964

 
$
6,732

 
$
1,971

 
$
1,525

 
$
4,806


Contingencies
In connection with the Company’s acquisition of Acushnet Company, Beam Suntory, Inc indemnified the Company for certain tax related obligations that relate to periods during which Fortune Brands, Inc. owned Acushnet Company. As of March 31, 2019 and December 31, 2018, the Company’s estimate of its receivable for these indemnifications was $9.1 million and $8.9 million, respectively, which was recorded in other noncurrent assets on the unaudited condensed consolidated balance sheet.
Litigation
The Company and its subsidiaries are defendants in lawsuits associated with the normal conduct of their businesses and operations. It is not possible to predict the outcome of the pending actions, and, as with any litigation, it is possible that some of these actions could be decided unfavorably. Consequently, the Company is unable to estimate the ultimate aggregate amount of monetary loss, amounts covered by insurance or the financial impact that will result from such matters and has not recorded a liability related to potential losses.
v3.19.1
Summary of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2019
Accounting Policies [Abstract]  
Basis of Presentation
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) and include the accounts of Acushnet Holdings Corp. (the “Company”), its wholly-owned subsidiaries and less than wholly-owned subsidiaries, including a variable interest entity (“VIE”) in which the Company is the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation.
Certain information in footnote disclosures normally included in annual financial statements has been condensed or omitted for the interim periods presented in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and U.S. GAAP. The year-end balance sheet data was derived from audited financial statements; however, the accompanying interim notes to the unaudited condensed consolidated financial statements do not include all disclosures required by U.S. GAAP. In the opinion of management, the financial statements contain all normal and recurring adjustments necessary to state fairly the financial position and results of operations of the Company.  The results of operations for the three months ended March 31, 2019 are not necessarily indicative of results to be expected for the full year ending December 31, 2019, nor were those of the comparable 2018 period representative of those actually experienced for the full year ended December 31, 2018. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the fiscal year ended December 31, 2018 included in its Annual Report on Form 10-K filed with the SEC on February 28, 2019.
Use of Estimates
Use of Estimates
The preparation of the Company’s unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and judgments that affect reported amounts of assets, liabilities, shareholders’ equity, net sales and expenses, and the disclosure of contingent assets and liabilities in its unaudited condensed consolidated financial statements. Actual results could differ from those estimates.
Variable Interest Entities
Variable Interest Entities
VIEs are entities that, by design, either (i) lack sufficient equity to permit the entity to finance its activities independently, or (ii) have equity holders that do not have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the entity’s expected losses, or the right to receive the entity’s expected residual returns. The Company consolidates a VIE when it is the primary beneficiary, which is the party that has both (i) the power to direct the activities that most significantly impact the VIE’s economic performance and (ii) through its interests in the VIE, the obligation to absorb expected losses or the right to receive expected benefits from the VIE that could potentially be significant to the VIE.
The Company consolidates the accounts of Acushnet Lionscore Limited, a VIE, which is 40% owned by the Company. The sole purpose of the VIE is to manufacture the Company’s golf footwear and as such, the Company is deemed to be the primary beneficiary. The Company has presented separately on its consolidated balance sheets, to the extent material, the assets of its consolidated VIE that can only be used to settle specific obligations of its consolidated VIE and the liabilities of its consolidated VIE for which creditors do not have recourse to its general credit. The general creditors of the VIE do not have recourse to the Company. Certain directors of the VIE have guaranteed the credit lines of the VIE, for which there were no outstanding borrowings as of March 31, 2019 and December 31, 2018. In addition, pursuant to the terms of the agreement governing the VIE, the Company is not required to provide financial support to the VIE.
Noncontrolling Interests
Noncontrolling Interests
The ownership interest held by owners other than the Company in less than wholly-owned subsidiaries are classified as noncontrolling interests. The value attributable to the noncontrolling interests is presented on the unaudited condensed consolidated balance sheets within shareholders' equity, separately from the equity attributable to the Company. Net income (loss) and comprehensive income (loss) attributable to noncontrolling interests are presented separately on the unaudited condensed consolidated statements of operations and unaudited condensed consolidated statements of comprehensive income, respectively. The Company's less than wholly-owned subsidiaries include a VIE, as discussed above, and PG Professional Golf, which was acquired on October 1, 2018.
Cash
Cash and Restricted Cash
Cash held in Company checking accounts is included in cash. Book overdrafts not subject to offset with other accounts with the same financial institution are classified as accounts payable. The Company classifies as restricted certain cash that is not available for use in its operations. As of both March 31, 2019 and December 31, 2018, the amount of restricted cash included in cash and restricted cash on the balance sheet was $2.0 million.
Restricted Cash
Cash and Restricted Cash
Cash held in Company checking accounts is included in cash. Book overdrafts not subject to offset with other accounts with the same financial institution are classified as accounts payable. The Company classifies as restricted certain cash that is not available for use in its operations. As of both March 31, 2019 and December 31, 2018, the amount of restricted cash included in cash and restricted cash on the balance sheet was $2.0 million.
Accounts Receivable
Accounts Receivable
As of March 31, 2019 and December 31, 2018, the allowance for doubtful accounts was $8.1 million and $7.3 million, respectively.
Foreign Currency Translation and Transactions
Foreign Currency Translation and Transactions
Foreign currency transaction gains included in selling, general and administrative expense were $0.5 million and $2.0 million for the three months ended March 31, 2019 and 2018, respectively.
Recently Adopted Accounting Standards and Recently Issued Accounting Standards
Recently Adopted Accounting Standards
Leases
On January 1, 2019, the Company adopted Accounting Standards Codification ("ASC") Topic 842, Leases ("ASC 842"), which requires the recognition of right-of-use assets and related operating and finance lease liabilities on the consolidated balance sheet. As permitted by ASC 842, the Company adopted ASC 842 using the optional transition approach, which allowed for a cumulative effect adjustment as of January 1, 2019, which is the date of initial application, and did not restate prior periods. As a result, the consolidated balance sheet prior to January 1, 2019 was not restated and continues to be reported under ASC Topic 840, Leases ("ASC 840"), which did not require the recognition of operating lease liabilities on the consolidated balance sheet, and is not comparative.
Under ASC 842, all leases are required to be recorded on the consolidated balance sheet and are classified as either operating or finance leases. A lease is classified as a finance lease if any one of the following criteria are met: the lease transfers ownership of the asset by the end of the lease term, the lease contains an option to purchase the asset that is reasonably certain to be exercised, the lease term is for a major part of the remaining useful life of the asset, the present value of the lease payments equals or exceeds substantially all of the fair value of the asset, or the leased asset is of a highly specialized nature. A lease is classified as an operating lease if it does not meet any one of these criteria.
The lease classification affects the expense recognition in the consolidated statement of operations. Operating lease expense consists of the lease payments plus any initial direct costs and is recognized on a straight-line basis over the lease term in the consolidated statement of operations. Finance lease charges are split, where amortization of the right-of-use asset is recorded as depreciation and amortization expense and an implied interest component is recorded in interest expense, net. The expense recognition for operating leases and finance leases under ASC 842 is consistent with ASC 840. As a result, there is no impact on the results of operations presented in the Company's unaudited condensed consolidated statements of operations and unaudited condensed consolidated statements of comprehensive income for the periods presented as a result of the adoption of ASC 842.
As permitted under ASC 842, the Company also elected to not reassess prior conclusions related to the identification, classification and accounting for initial direct costs for leases that commenced prior to January 1, 2019. As permitted under ASC 842, the Company elected to not use hindsight to determine lease terms and to not separate non-lease components within its lease portfolio. As permitted under ASC 842, the Company has also elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a term of 12 months or less. The effect of short-term leases on the Company's operating right-of-use assets and operating lease liabilities was not material.
Upon adoption of ASC 842, the Company recognized operating lease right-of-use assets and operating lease liabilities. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease. The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred less any lease incentives received. Lease payments included in the measurement of the lease liability comprise the following: the fixed non-cancelable lease payments, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early. The discount rate implicit within the Company's leases is generally not determinable and therefore the Company determines the discount rate based on its incremental collateralized borrowing rate applicable to the location where the lease is held. The incremental borrowing rate for each of the Company's leases is determined based on the lease term and currency in which such lease payments are made. Accordingly, upon adoption, the Company recorded an adjustment of $48.1 million to operating lease right-of-use assets and the related lease liabilities.
The Company leases office and warehouse space, machinery and equipment, and vehicles, among other items. Certain leases include one or more options to renew, with renewal terms that can extend the lease term up to 3 years. For contracts entered into on or after the effective date, at the inception of a contract the Company assesses whether the contract is, or contains, a lease. The Company's assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtained the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether the Company has the right to direct the use of the asset. See further discussion in Note 2.
Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities
On January 1, 2019, the Company adopted Accounting Standards Update ("ASU") 2017‑12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” ("ASU 2017-12"). The amendments in this update expand and refine hedge accounting guidance and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. ASU 2017-12 also simplified the application of hedge accounting guidance, hedge documentation requirements and the assessment of hedge effectiveness. The adoption of this standard did not have a material impact on the consolidated financial statements.
Changes to the Disclosure Requirements for Fair Value Measurement
On January 1, 2019, the Company adopted ASU 2018-13, "Fair Value Measurement (Topic 820) —Disclosure Framework —Changes to the Disclosure Requirements for Fair Value Measurement" ("ASU 2018-13"). The amendments in this update are meant to provide more relevant information regarding valuation techniques and inputs used to arrive at measures of fair value, uncertainty in the fair value measurements, and how changes in fair value measurements impact an entity's performance and cash flows. The adoption of this standard should be applied to all periods presented. The adoption of this standard did not have an impact on the consolidated financial statements or related disclosures.
Recently Issued Accounting Standards
Intangibles —Goodwill and Other —Internal-Use Software
In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-15, "Intangibles -Goodwill and Other -Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract" ("ASU 2018-15"). The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the consolidated financial statements.
Defined Benefit Plans—Changes to the Disclosure Requirements for Defined Benefit Plans
In August 2018, the FASB issued ASU 2018-14, "Compensation —Retirement Benefits —Defined Benefit Plans —General (Subtopic 715-20) —Disclosure Framework —Changes to the Disclosure Requirements for Defined Benefit Plans" ("ASU 2018-14"). The amendments in this update remove defined benefit plan disclosures that are no longer considered cost-beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. ASU 2018-14 is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The adoption of this standard should be applied to all periods presented. The adoption of this standard will not have a material impact on the consolidated financial statements.