ACUSHNET HOLDINGS CORP., 10-K filed on 3/30/2017
Annual Report
Document and Entity Information (USD $)
In Millions, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Mar. 24, 2017
Document and Entity Information [Abstract]
 
 
Entity Registrant Name
Acushnet Holdings Corp. 
 
Entity Central Index Key
0001672013 
 
Document Type
10-K 
 
Document Period End Date
Dec. 31, 2016 
 
Amendment Flag
false 
 
Current Fiscal Year End Date
--12-31 
 
Entity Well-known Seasoned Issuer
No 
 
Entity Voluntary Filers
No 
 
Entity Current Reporting Status
Yes 
 
Entity Filer Category
Non-accelerated Filer 
 
Entity Public Float
 
$ 623.5 
Document Fiscal Year Focus
2016 
 
Document Fiscal Period Focus
FY 
 
Common stock outstanding
 
74,451,977 
CONSOLIDATED BALANCE SHEETS (UNAUDITED) (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2016
Dec. 31, 2015
Assets
 
 
Cash ($12,796 and $10,029 attributable to the variable interest entity ("VIE"))
$ 76,058 
$ 54,409 
Restricted cash
3,082 
4,725 
Accounts receivable, net
177,506 
192,384 
Inventories ($14,633 and $15,755 attributable to the VIE)
323,289 
326,359 
Other assets
84,596 
93,646 
Total current assets
664,531 
671,523 
Property, plant and equipment, net ($10,749 and $11,147 attributable to the VIE)
239,748 
254,894 
Goodwill ($32,312 and $32,312 attributable to the VIE)
179,241 
181,179 
Identifiable intangible assets, net
489,988 
499,494 
Deferred income taxes
130,416 
132,265 
Other assets ($2,704 and $2,738 attributable to the VIE)
32,247 
19,618 
Total assets
1,736,171 
1,758,973 
Liabilities and equity
 
 
Short-term Debt
42,495 
39,064 
Current portion of long-term debt
18,750 
402,640 
Accounts payable ($10,397 and $10,250 attributable to the VIE)
87,608 
89,869 
Payables to related parties
 
12,570 
Accrued taxes
41,962 
29,432 
Accrued compensation and benefits ($780 and $1,035 attributable to the VIE)
224,230 
111,390 
Accrued expenses and other liabilities ($4,121 and $4,516 attributable to the VIE)
47,063 
70,626 
Total current liabilities
462,108 
755,591 
Long-term debt and capital lease obligations
348,348 
394,511 
Deferred income taxes
7,452 
7,112 
Accrued pension and other postretirement benefits ($1,946 and $2,303 attributable to the VIE)
135,339 
119,549 
Accrued equity appreciation rights
 
145,384 
Other noncurrent liabilities ($3,368 and $2,841 attributable to the VIE)
14,101 
12,284 
Total liabilities
967,348 
1,434,431 
Series A redeemable convertible preferred stock, $.001 par value, 1,838,027 shares authorized at September 30, 2016 and December 31, 2015; 1,838,027 shares issued and outstanding at September 30, 2016 and December 31, 2015 actual; liquidation preference of $187,277,326 at September 30, 2016; no shares issued or outstanding, pro forma as of September 30, 2016
 
131,036 
Equity
 
 
Common stock, $.001 par value,500,000,000 shares authorized at December 31, 2016 and 78,193,494 shares authorized at December 31, 2015; 74,093,598 shares issued and outstanding at December 31, 2016 and 21,821,256 shares issued and outstanding at December 31, 2015
74 
22 
Additional paid-in capital
880,576 
309,110 
Accumulated other comprehensive loss, net of tax
(90,834)
(67,234)
Retained deficit
(53,951)
(81,647)
Total equity attributable to Acushnet Holdings Corp.
735,865 
160,251 
Noncontrolling interests
32,958 
33,255 
Total equity
768,823 
193,506 
Total liabilities and equity
$ 1,736,171 
$ 1,758,973 
CONSOLIDATED BALANCE SHEETS (Unaudited) (Parentheticals) (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2016
Dec. 31, 2015
Cash and cash equivalents
$ 76,058 
$ 54,409 
Inventories
323,289 
326,359 
Property, plant and equipment, net
239,748 
254,894 
Goodwill
179,241 
181,179 
Accounts payable
87,608 
89,869 
Accrued compensation and benefits
224,230 
111,390 
Accrued expenses and other liabilities
47,063 
70,626 
Accrued pension and other postretirement benefits ($1,946 and $2,303 attributable to the VIE)
135,339 
119,549 
Other noncurrent liabilities
14,101 
12,284 
Series A Redeemable convertible preferred stock, par value (in dollars per share)
$ 0.001 
$ 0.001 
Series A Redeemable common stock, shares authorized
1,838,027 
Series A Redeemable convertible preferred stock, shares issued
 
1,838,027 
Series A Redeemable convertible preferred stock, shares outstanding
 
Common stock, par value (in dollars per share)
$ 0.001 
$ 0.001 
Common stock, shares authorized
500,000,000 
78,193,494 
Common stock, shares issued
74,093,598 
21,821,256 
Common stock, shares outstanding
74,093,598 
21,821,256 
VIE
 
 
Cash and cash equivalents
12,958 
10,029 
Inventories
14,633 
15,755 
Property, plant and equipment, net
10,709 
11,147 
Goodwill
32,312 
32,312 
Other assets
2,642 
2,738 
Accounts payable
10,397 
10,250 
Accrued compensation and benefits
780 
1,035 
Accrued expenses and other liabilities
4,121 
4,516 
Accrued pension and other postretirement benefits ($1,946 and $2,303 attributable to the VIE)
1,946 
2,303 
Other noncurrent liabilities
$ 3,368 
$ 2,841 
Series A Redeemable convertible preferred stock, shares issued
 
1,838,027 
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
 
 
 
Net sales
$ 1,572,275 
$ 1,502,958 
$ 1,537,610 
Cost of goods sold
773,550 
727,120 
779,678 
Gross profit
798,725 
775,838 
757,932 
Operating expenses
 
 
 
Selling, general and administrative
600,804 
604,018 
602,755 
Research and development
48,804 
45,977 
44,243 
Intangible amortization
6,608 
6,617 
6,687 
Restructuring charges
1,673 
1,643 
 
Income from operations
140,836 
117,583 
104,247 
Interest expense, net
49,908 
60,294 
63,529 
Other (income) expense, net
1,706 
25,139 
(1,348)
Income before income taxes
89,222 
32,150 
42,066 
Income tax expense
39,707 
27,994 
16,700 
Net income
49,515 
4,156 
25,366 
Less: Net income attributable to noncontrolling interests
(4,503)
(5,122)
(3,809)
Net income (loss) attributable to Acushnet Holdings Corp.
45,012 
(966)
21,557 
Dividends earned by preferred shareholders
(11,576)
(13,785)
(13,785)
Allocation of undistributed earnings to preferred shareholders
(10,247)
 
(3,866)
Net income (loss) attributable to common shareholders - basic
23,189 
(14,751)
3,906 
Adjustments to net income for dilutive securities
16,475 
 
 
Net income (loss) attributable to common shareholders - diluted
$ 39,664 
$ (14,751)
$ 3,906 
Net income (loss) per common share attributable to Acushnet Holdings Corp.:
 
 
 
Basic
$ 0.74 
$ (0.74)
$ 0.23 
Diluted
$ 0.62 
$ (0.74)
$ 0.23 
Weighted average number of common shares:
 
 
 
Basic
31,247,643 
19,939,293 
16,716,825 
Diluted
64,323,742 
19,939,293 
16,716,825 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME
 
 
 
Net income
$ 49,515 
$ 4,156 
$ 25,366 
Other comprehensive income (loss)
 
 
 
Foreign currency translation adjustments
(14,656)
(19,042)
(23,106)
Foreign exchange derivative instruments
 
 
 
Unrealized holding gains arising during period
7,014 
14,964 
20,619 
Reclassification adjustments included in net income
(5,194)
(26,805)
(9,916)
Tax benefit (expense)
(451)
3,836 
(1,610)
Foreign exchange derivative instruments, net
1,369 
(8,005)
9,093 
Available-for-sale securities
 
 
 
Unrealized holding gains (losses) arising during period
51 
(673)
703 
Tax benefit (expense)
(19)
160 
(248)
Available-for-sale securities, net
32 
(513)
455 
Pension and other postretirement benefits adjustments
 
 
 
Net gain (loss) arising during period
(16,072)
3,068 
(23,769)
Tax benefit (expense)
5,727 
(1,684)
7,583 
Pension and other postretirement benefits adjustments, net
(10,345)
1,384 
(16,186)
Total other comprehensive loss
(23,600)
(26,176)
(29,744)
Comprehensive income (loss)
25,915 
(22,020)
(4,378)
Less: Comprehensive income attributable to noncontrolling interests
(4,563)
(5,017)
(3,774)
Comprehensive income (loss) attributable to Acushnet Holdings Corp.
$ 21,352 
$ (27,037)
$ (8,152)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2016
Dec. 31, 2015
Dec. 31, 2014
Cash flows from operating activities
 
 
 
Net income
$ 49,515 
$ 4,156 
$ 25,366 
Adjustments to reconcile net income to cash provided by operating activities
 
 
 
Depreciation and amortization
40,834 
41,702 
43,159 
Unrealized foreign exchange gain (loss)
(2,347)
2,933 
133 
Amortization of debt issuance costs
3,378 
5,157 
3,752 
Amortization of discount on bonds payable
3,963 
4,142 
4,093 
Change in fair value of common stock warrants
6,112 
28,364 
(1,887)
Share-based compensation
14,494 
2,033 
632 
Loss on disposals of property, plant and equipment
170 
401 
690 
Deferred income taxes
7,849 
2,188 
(11,293)
Changes in operating assets and liabilities
 
 
 
Accounts receivable
12,630 
(174)
(35,594)
Inventories
(2,377)
(45,415)
(16,192)
Accounts payable
1,968 
(1,998)
(2,585)
Accrued taxes
14,666 
540 
(881)
Accrued expenses and other liabilities
113,042 
35,364 
3,442 
Other assets
(6,041)
1,165 
(11,376)
Other noncurrent liabilities
(140,098)
12,278 
53,739 
Interest due to related parties
(12,570)
(1,006)
(1,085)
Cash flows provided by operating activities
105,188 
91,830 
54,113 
Cash flows from investing activities
 
 
 
Additions to property, plant and equipment
(19,175)
(23,201)
(23,527)
Receivables from related parties
(919)
 
 
Cash flows used in investing activities
(20,094)
(23,201)
(23,527)
Cash flows from financing activities
 
 
 
Increase (decrease) in short-term borrowings, net
(3,941)
7,890 
8,177 
Repayment of senior term loan facility
(30,000)
 
 
Proceeds from senior term loan facility
 
 
30,000 
Proceeds from term loan facility
375,000 
 
 
Repayment of secured floating rate notes
(375,000)
(50,000)
(50,000)
Proceeds from exercise of stock options
 
 
100 
Proceeds from exercise of common stock warrants
34,503 
34,503 
34,503 
Repayment of bonds
(34,503)
(34,503)
(34,503)
Debt issuance costs
(6,606)
 
(1,045)
Dividends paid on Series A redeemable convertible preferred stock
(17,316)
(13,747)
(13,786)
Dividends paid to noncontrolling interests
(4,800)
(4,200)
(3,600)
Cash flows used in financing activities
(62,663)
(60,057)
(30,154)
Effect of foreign exchange rate changes on cash
(2,425)
(3,205)
(2,522)
Net increase (decrease) in cash
20,006 
5,367 
(2,090)
Cash, cash equivalents, restricted cash and restricted cash equivalents, beginning of year
59,134 
53,767 
55,857 
Cash, cash equivalents, restricted cash and restricted cash equivalents, end of year
79,140 
59,134 
53,767 
Supplemental information
 
 
 
Cash paid for interest to related parties
36,753 
32,274 
34,951 
Cash paid for interest to third parties
27,165 
20,571 
21,656 
Cash paid for income taxes
16,589 
19,724 
27,987 
Non-cash additions to property, plant and equipment
1,170 
1,913 
2,577 
Non-cash conversion of Series A redeemable convertible preferred stock
131,036 
 
 
Non-cash conversion of convertible notes
362,489 
 
 
Non-cash conversion of common stock warrants
28,996 
7,298 
 
Non-cash exercise of stock options
 
$ 2,752 
$ 793 
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND EQUITY (UNAUDITED) (USD $)
In Thousands, except Share data, unless otherwise specified
Common Stock
Additional Paid-in Capital
Accumulated Other Comprehensive Loss
Retained Deficit
Noncontrolling Interest
Redeemable Convertible Preferred Stock
Total
Balances at Beginning at Dec. 31, 2013
 
 
 
 
$ 32,124 
 
 
Balances at noncontrolling Beginning at Dec. 31, 2013
 
 
 
 
 
 
175,288 
Balances at Beginning at Dec. 31, 2013
15 
229,168 
(11,314)
(74,705)
 
 
143,164 
Balances at Beginning at Dec. 31, 2013
 
 
 
 
 
131,036 
 
Balances at Beginning (in shares) at Dec. 31, 2013
15,360 
 
 
 
 
 
 
Balances at Beginning (in shares) at Dec. 31, 2013
 
 
 
 
 
1,838 
 
Changes in stockholders' equity
 
 
 
 
 
 
 
Net income attributable to Acushnet Holdings Corp.
 
 
 
21,557 
 
 
21,557 
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest
 
 
 
 
3,809 
 
25,366 
Other comprehensive loss
 
 
(29,744)
 
 
 
(29,744)
Exercise of common stock (in shares)
87 
 
 
 
 
 
 
Exercise of common stock (in value)
 
893 
 
 
 
 
893 
Issuance of common stock
34,500 
 
 
 
 
34,503 
Issuance of common stock (in shares)
3,105 
 
 
 
 
 
 
Dividends paid on Series A redeemable convertible preferred stock
 
 
 
(13,786)
 
 
(13,786)
Dividends paid to noncontrolling interests
 
 
 
 
(3,600)
 
(3,600)
Balances at Ending at Dec. 31, 2014
 
 
 
 
32,333 
 
 
Balances at noncontrolling Ending at Dec. 31, 2014
 
 
 
 
 
 
188,920 
Balances at Ending at Dec. 31, 2014
18 
264,561 
(41,058)
(66,934)
 
 
156,587 
Balances at Ending at Dec. 31, 2014
 
 
 
 
 
131,036 
 
Balances at Ending (in shares) at Dec. 31, 2014
18,552 
 
 
 
 
 
 
Balances at Ending (in shares) at Dec. 31, 2014
 
 
 
 
 
1,838 
 
Changes in stockholders' equity
 
 
 
 
 
 
 
Net income attributable to Acushnet Holdings Corp.
 
 
 
(966)
 
 
(966)
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest
 
 
 
 
5,122 
 
4,156 
Other comprehensive loss
 
 
(26,176)
 
 
 
(26,176)
Exercise of common stock (in shares)
164 
 
 
 
 
 
 
Exercise of common stock (in value)
2,751 
 
 
 
 
2,752 
Issuance of common stock
41,798 
 
 
 
 
41,801 
Issuance of common stock (in shares)
3,105 
 
 
 
 
 
 
Dividends paid on Series A redeemable convertible preferred stock
 
 
 
(13,747)
 
 
(13,747)
Dividends paid to noncontrolling interests
 
 
 
 
(4,200)
 
(4,200)
Balances at Ending at Dec. 31, 2015
 
 
 
 
33,255 
 
33,255 
Balances at noncontrolling Ending at Dec. 31, 2015
 
 
 
 
 
 
193,506 
Balances at Ending at Dec. 31, 2015
22 
309,110 
(67,234)
(81,647)
 
 
160,251 
Balances at Ending (in shares) at Dec. 31, 2015
21,821 
 
 
 
 
 
 
Balances at Beginning at Dec. 31, 2015
 
 
 
 
 
131,036 
 
Balances at Beginning (in shares) at Dec. 31, 2015
 
 
 
 
 
1,838 
 
Changes in stockholders' equity
 
 
 
 
 
 
 
Net income attributable to Acushnet Holdings Corp.
 
 
 
45,012 
 
 
45,012 
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest
 
 
 
 
4,503 
 
49,515 
Other comprehensive loss
 
 
(23,600)
 
 
 
(23,600)
Stock-based compensation expense
 
14,494 
 
 
 
 
14,494 
Issuance of common stock
63,496 
 
 
 
 
63,499 
Issuance of common stock (in shares)
3,105 
 
 
 
 
 
 
Conversion of redeemable convertible preferred stock (in shares)
 
 
 
 
 
(1,838)
 
Conversion of redeemable convertible preferred stock (in Value)
 
 
 
 
 
(131,036)
131,036 
Conversion of redeemable convertible preferred stock (in shares)
16,542 
 
 
 
 
 
 
Conversion of redeemable convertible preferred stock (in Value)
16 
131,020 
 
 
 
 
131,036 
Conversion of convertible notes (in shares)
32,626 
 
 
 
 
 
 
Conversion of convertible notes
33 
362,456 
 
 
 
 
362,489 
Dividends paid on Series A redeemable convertible preferred stock
 
 
 
(17,316)
 
 
(17,316)
Dividends paid to noncontrolling interests
 
 
 
 
(4,800)
 
(4,800)
Balances at Ending at Dec. 31, 2016
 
 
 
 
32,958 
 
32,958 
Balances at Ending at Dec. 31, 2016
74 
880,576 
(90,834)
(53,951)
 
 
735,865 
Balances at noncontrolling Ending at Dec. 31, 2016
 
 
 
 
 
 
$ 768,823 
Balances at Ending (in shares) at Dec. 31, 2016
 
 
 
 
 
 
Balances at Ending (in shares) at Dec. 31, 2016
74,094 
 
 
 
 
 
 
Description of Business
Description of Business

1. Description of Business

Acushnet Holdings Corp. (the “Company”), headquartered in Fairhaven, Massachusetts, is the global leader in the design, development, manufacture and distribution of performance-driven golf products. The Company has established positions across all major golf equipment and golf wear categories under its globally recognized brands of Titleist, FootJoy, Scotty Cameron and Vokey Design wedges. Acushnet products are sold primarily to on-course golf pro shops and selected off-course golf specialty stores, sporting goods stores and other qualified retailers. The Company sells products primarily in the United States, Europe (primarily the United Kingdom, Germany, France and Sweden), Asia (primarily Japan, Korea, China and Singapore), Canada and Australia. Acushnet manufactures and sources its products principally in the United States, China, Thailand, the United Kingdom, and Japan.

Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying 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 the Company, its wholly- owned subsidiaries and a VIE in which the Company is the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation.

Acquisition

Acushnet Holdings Corp. was incorporated in Delaware on May 9, 2011 as Alexandria Holdings Corp., an entity owned by Fila Korea Co., Ltd. (“Fila Korea”), a leading sport and leisure apparel and footwear company which is a public company listed on the Korea Exchange, and a consortium of investors (the “Financial Investors”) led by Mirae Asset Global Investments, a global investment management firm. Acushnet Holdings Corp. acquired Acushnet Company, our operating subsidiary, from Beam Suntory, Inc. (at the time known as Fortune Brands, Inc.) (“Beam”) on July 29, 2011 (the “Acquisition”).

Stock Split

On October 14, 2016, the Company effected a nine-for-one stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for its 7.5% convertible notes due 2021 (“convertible notes”), Series A redeemable convertible preferred stock (“Series A preferred stock”), and the exercise price for the common stock warrants and the strike price of stock-based compensation. Accordingly, all share and per share amounts for all periods presented in the accompanying financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this stock split and adjustment of the common stock warrant exercise price, and convertible notes and redeemable convertible preferred stock conversion ratios.

Initial Public Offering

On November 2, 2016, the Company completed an initial public offering of 19,333,333 shares of its common stock sold by selling stockholders at a public offering price of $17.00 per share. Upon the closing of the Company’s initial public offering, all remaining outstanding shares of the Company’s Series A preferred stock were automatically converted into 11,556,495 shares of the Company’s common stock and the Company’s convertible notes were automatically converted into 22,791,852 shares of the Company’s common stock. The underwriters of the Company’s initial public offering exercised their over-allotment option to purchase an additional 2,899,999 shares of common stock from the selling stockholders at the initial public offering price of $17.00 per share.

Automatic Conversion

Following the pricing of the initial public offering, Magnus Holdings Co., Ltd. (“Magnus”), a wholly-owned subsidiary of Fila Korea, purchased from the Financial Investors on a pro rata basis 14,818,720 shares of the Company’s common stock, resulting in Magnus holding a controlling ownership interest of 53.1% of the Company’s outstanding common stock. The 14,818,720 shares of the Company’s common stock sold by the Financial Investors were received upon the automatic conversion of certain of the Company’s outstanding convertible notes (Note 9) and Series A preferred stock (Note 15). The remaining outstanding convertible notes and Series A preferred stock automatically converted into shares of the Company’s common stock prior to the closing of the initial public offering. 

Use of Estimates

The preparation of the Company’s consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and judgments that affect reported amounts of assets, liabilities, stockholders’ equity, net sales and expenses, and the disclosure of contingent assets and liabilities in its 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 as defined by Accounting Standards Codification (“ASC”) 810. 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 noncontrolling entities have guaranteed the credit lines of the VIE, for which there were no outstanding borrowings as of December 31, 2016 and 2015. In addition, pursuant to the terms of the agreement governing the VIE, the Company is not required to provide financial support to the VIE.

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. As of December 31, 2016 and 2015, book overdrafts in the amount of $3.6 million and $1.7 million, respectively, were recorded in accounts payable. The Company classifies as restricted certain cash that is not available for use in its operations. Restricted cash is primarily related to a standby letter of credit used for insurance purposes.

Accounts Receivable

 Accounts receivable are presented net of an allowance for doubtful accounts. The allowance for doubtful accounts is assessed each reporting period by the Company for estimated losses resulting from the inability or unwillingness of its customers to make required payments. The allowance is based on various factors, including credit risk assessments, length of time the receivables are past due, historical experience, customer specific information available to the Company and existing economic conditions.

Allowance for Sales Returns

 A sales returns allowance is recorded for anticipated returns through a reduction of sales and cost of goods sold in the period that the related sales are recorded. Sales returns are estimated based upon historical rates of product returns, current economic trends and changes in customer demands as well as specific identification of outstanding returns. In accordance with this policy, the allowance for sales returns was $9.8 million and $5.2 million as of December 31, 2016 and 2015, respectively.

Concentration of Credit Risk and of Significant Customers

 Financial instruments that potentially expose the Company to concentration of credit risk are cash and accounts receivable. Substantially all of the Company's cash deposits are maintained at large, creditworthy financial institutions. The Company's deposits, at times, may exceed federally insured limits. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. As part of its ongoing procedures, the Company monitors its concentration of deposits with various financial institutions in order to avoid any undue exposure. As of December 31, 2016 and 2015, the Company had $75.6 million and $54.1 million, respectively, in banks located outside the United States. The risk with respect to the Company's accounts receivable is managed by the Company through its policy of monitoring the creditworthiness of its customers to which it grants credit terms in the normal course of business.

Inventories

Inventories are valued at the lower of cost and net realizable value. Cost is determined using the first-in, first-out inventory method. The inventory balance, which includes material, labor and manufacturing overhead costs, is recorded net of an allowance for obsolete or slow moving inventory. The Company's allowance for obsolete or slow moving inventory contains estimates regarding uncertainties. Such estimates are updated each reporting period and require the Company to make assumptions and to apply judgment regarding a number of factors, including market conditions, selling environment, historical results and current inventory trends.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost less accumulated depreciation and amortization. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets. Gains or losses resulting from disposals are included in income from operations. Betterments and renewals, which improve and extend the life of an asset, are capitalized. Maintenance and repair costs are expensed as incurred.

Estimated useful lives of property, plant and equipment asset categories were as follows:

 

 

 

 

 

 

Buildings and improvements

    

15

40 years

 

Machinery and equipment

 

3

10 years

 

Furniture, fixtures and computer hardware

 

3

10 years

 

Computer software

 

3

10 years

 

 

Leasehold and tenant improvements are amortized over the shorter of the lease term or the estimated useful lives of the assets.

Certain costs incurred in connection with the development of the Company's internal-use software are capitalized. Software development costs are primarily related to the Company's enterprise resource planning system. Costs incurred in the preliminary stages of development are expensed as incurred. Internal and external costs incurred in the application development phase, if direct and incremental, are capitalized until the software is substantially complete and ready for its intended use. Capitalization ceases upon completion of all substantial testing performed to ensure the product is ready for its intended use. Costs such as maintenance and training are expensed as incurred. The capitalized internal-use software costs are included in property, plant and equipment and once the software is placed into service are amortized over the estimated useful life which ranges from three to ten years.

Long-Lived Assets

 A long-lived asset (including amortizable identifiable intangible assets) or asset group is tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. When such events occur, the Company compares the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group to the carrying amount of the long-lived asset or asset group. The cash flows are based on the best estimate of future cash flows derived from the most recent business projections. If the carrying value exceeds the sum of the undiscounted cash flows, an impairment loss is recognized based on the excess of the asset's or asset group's carrying value over its fair value. Fair value is determined based on discounted expected future cash flows on a market participant basis. Any impairment charge would be recognized within operating expenses as a selling, general and administrative expense.

Goodwill and Indefinite-Lived Intangible Assets

Goodwill and indefinite-lived intangible assets are not amortized but instead are measured for impairment at least annually, or more frequently when events or changes in circumstances indicate that the carrying amount of the asset may be impaired.

Goodwill is assigned to reporting units for purposes of impairment testing. A reporting unit may be the same as an operating segment or one level below an operating segment. For purposes of assessing potential impairment, the Company may assess qualitative factors to determine if it is more likely than not (i.e., a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount, including goodwill. If the Company determines based on the qualitative factors that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, no further testing is necessary. If, however, the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the Company performs the first step of a two-step quantitative goodwill impairment test. In the first step, the Company compares the fair value of the reporting unit to its carrying value. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is considered not impaired and the Company is not required to perform further testing. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then the Company must perform the second step of the impairment test in order to determine the implied fair value of the reporting unit's goodwill. If the carrying value of a reporting unit's goodwill exceeds its implied fair value, then the Company would record an impairment loss equal to the difference. The fair value of the reporting units is determined using the income approach. The income approach uses a discounted cash flow analysis which involves applying appropriate discount rates to estimated future cash flows based on forecasts of sales, costs and capital requirements.

The Company performs its annual impairment tests in the fourth quarter of each fiscal year. As of December 31, 2016, no impairment of goodwill was identified and the fair value of each reporting unit substantially exceeded its carrying value.

Purchased intangible assets other than goodwill are amortized over their useful lives unless those lives are determined to be indefinite. The Company's trademarks have been assigned an indefinite life as the Company currently anticipates that these trademarks will contribute to its cash flows indefinitely. Trademarks are reviewed for impairment annually and may be reviewed more frequently if indicators of impairment are present. Impairment losses are recorded to the extent that the carrying value of the indefinite-lived intangible asset exceeds its fair value. The Company measures the fair value of its trademarks using the relief-from-royalty method, which estimates the present value of royalty income that could be hypothetically earned by licensing the brand name to a third party over the remaining useful life.

The Company continually evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets may warrant revision or that the remaining balance may not be recoverable. These factors may include a significant deterioration of operating results, changes in business plans, or changes in anticipated cash flows. When factors indicate that an asset should be evaluated for possible impairment, the Company reviews long-lived assets to assess recoverability from future operations using undiscounted cash flows. If future undiscounted cash flows are less than the carrying value, an impairment is recognized in earnings to the extent that the carrying value exceeds fair value.

Deferred Financing Costs

The Company defers costs directly associated with acquiring third-party financing. These deferred costs are amortized as interest expense over the term of the related indebtedness. Deferred financing costs associated with the revolving credit facilities are included in other current and noncurrent asset and deferred financing costs associated with all other indebtedness are netted against debt on the consolidated balance sheets.

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. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

·

Level 1—Quoted prices in active markets for identical assets or liabilities.

·

Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

·

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

Prior to the final exercise of the Company's outstanding warrants to purchase the Company’s common stock, the common stock warrants liability was carried at fair value. The Company’s foreign exchange derivative assets and liabilities are carried at fair value determined according to the fair value hierarchy described above (Note 11). The carrying value of accounts receivable, accounts payable and accrued expenses approximates fair value due to the short-term nature of these assets and liabilities. As permitted under ASC 820, the Company adopted the fair value measurement disclosures for nonfinancial assets and liabilities, such as goodwill and indefinite-lived intangible assets.

In some instances where a market price is available, but the instrument is in an inactive or over-the-counter market, the Company consistently applies the dealer (market maker) pricing estimate and uses a midpoint approach on bid and ask prices from financial institutions to determine the reasonableness of these estimates. Assets and liabilities subject to this fair value valuation approach are typically classified as Level 2.

Pension and Other Postretirement Benefit Plans

The Company provides U.S. and foreign defined benefit and defined contribution plans to eligible employees and postretirement benefits to certain retirees, including pensions, postretirement healthcare benefits and other postretirement benefits.

Plan assets and obligations are measured using various actuarial assumptions, such as discount rates, rate of compensation increase, mortality rates, turnover rates and health care cost trend rates, as determined at each year end measurement date. The measurement of net periodic benefit cost is based on various actuarial assumptions, including discount rates, expected return on plan assets and rate of compensation increase, which are determined as of the prior year measurement date. The determination of the discount rate is generally based on an index created from a hypothetical bond portfolio consisting of high-quality fixed income securities with durations that match the timing of expected benefit payments. The expected return on plan assets is determined based on several factors, including adjusted historical returns, historical risk premiums for various asset classes and target asset allocations within the portfolio. Adjustments made to the historical returns are based on recent return experience in the equity and fixed income markets and the belief that deviations from historical returns are likely over the relevant investment horizon. Actual cost is also dependent on various other factors related to the employees covered by these plans. The effects of actuarial deviations from assumptions are generally accumulated and, if over a specified corridor, amortized over the remaining service period of the employees. The cost or benefit of plan changes, such as increasing or decreasing benefits for prior employee service (prior service cost), is deferred and included in expense on a straight-line basis over the average remaining service period of the related employees. The Company's actuarial assumptions are reviewed on an annual basis and modified when appropriate.

To calculate the U.S. pension and postretirement benefit plan expense in 2017, the Company will apply the individual spot rates along the yield curve that correspond with the timing of each future cash outflow for the benefit payments in order to calculate interest cost and service cost.  Prior to 2017, the service cost and interest cost components were determined using a single weighted-average discount rate. The change does not affect the measurement of the total benefit plan obligations, as the change in the service cost and interest cost offsets in the actuarial gains and losses recorded in other comprehensive income. The Company changed to the new method to provide a more precise measure of service and interest cost by improving the correlation between the projected benefit cash flows and the discrete spot yield curve rates. The Company accounted for this change as a change in estimate prospectively beginning in 2017.  

Income Taxes

The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between consolidated financial statement carrying amount and tax basis and using enacted tax rates expected to be in effect when the temporary differences reverse. A valuation allowance is recorded to reduce deferred income tax assets when it is more-likely-than-not that such assets will not be realized. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies.

The Company provides deferred income taxes on undistributed earnings of foreign subsidiaries that it does not expect to permanently reinvest.

The Company records liabilities for uncertain income tax positions based on the two step process. The first step is recognition, where an individual tax position is evaluated as to whether it has a likelihood of greater than 50% of being sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation processes. For tax positions that are currently estimated to have a less than 50% likelihood of being sustained, no tax benefit is recorded. For tax positions that have met the recognition threshold in the first step, the Company performs the second step of measuring the benefit to be recorded. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized on ultimate settlement. The actual benefits ultimately realized may differ from the estimates. In future periods, changes in facts, circumstances, and new information may require the Company to change the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and measurement estimates are recorded in income tax expense and liability in the period in which such changes occur. The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes on the consolidated statements of income.

Beam has indemnified certain tax obligations that relate to periods during which Fortune Brands, Inc. owned Acushnet Company (Note 13). These estimated tax obligations are recorded in accrued taxes and other noncurrent liabilities, and the related indemnification receivable is recorded in other current and noncurrent assets on the consolidated balance sheet. Any changes in the value of these specifically identified tax obligations are recorded in the period identified in income tax expense and the related change in the indemnification asset is recorded in other (income) expense, net on the consolidated statement of operations.

Revenue Recognition

Revenue is recognized upon shipment or upon receipt by the customer depending on the country of the sale and the agreement with the customer, net of allowances for discounts, sales returns, customer sales incentives and cooperative advertising. The criteria for recognition of revenue is met when persuasive evidence that an arrangement exists, both title and risk of loss have passed to the customer, the price is fixed or determinable and collectability is reasonably assured. In circumstances where either title or risk of loss pass upon receipt by the customer, revenue is deferred until such event occurs based on an estimate of the shipping time from the Company's distribution centers to the customer using historical and expected delivery times by geographic location. Amounts billed to customers for shipping and handling are included in net sales.

Customer Sales Incentives

The Company offers customer sales incentives, including off-invoice discounts and sales-based rebate programs, to its customers which are accounted for as a reduction in sales at the time the revenue is recognized. Sales-based rebates are estimated using assumptions related to the percentage of customers who will achieve qualifying purchase goals and the level of achievement. These assumptions are based on historical experience, current year program design, current marketplace conditions and sales forecasts, including considerations of product life cycles.

Cost of Goods Sold

Cost of goods sold includes all costs to make products saleable, such as inbound freight, purchasing and receiving costs, inspection costs and transfer costs. In addition, all depreciation expense associated with assets used to manufacture products and make them saleable is included in cost of goods sold.

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.

Advertising and Promotion

Advertising and promotional costs are included in selling, general and administrative expense on the consolidated statement of operations and include product endorsement arrangements with members of the various professional golf tours, media placement and production costs (television, print and internet), tour support expenses and point-of-sale materials. Advertising production costs are expensed as incurred. Media placement costs are expensed in the month the advertising appears. Product endorsement arrangements are expensed based upon the specific provisions of player contracts. Advertising and promotional expense was $196.0 million, $203.3 million and $201.6 million for the years ended December 31, 2016,  2015 and 2014, respectively.

Selling

Selling expenses including field sales, sales administration and shipping and handling costs are included in selling, general and administrative expense on the consolidated statement of operations. Shipping and handling costs included in selling expenses were $32.4 million, $32.6 million and $30.5 million for the years ended December 31, 2016,  2015 and 2014, respectively.

Research and Development

Research and development expenses include product development, product improvement, product engineering, and process improvement costs and are expensed as incurred.

Foreign Currency Translation and Transactions

Assets and liabilities denominated in foreign currency are translated into U.S. dollars at the actual rates of exchange at the balance sheet date. Revenues and expenses are translated at the average rates of exchange for the reporting period. The related translation adjustments are recorded as a component of accumulated other comprehensive income (loss). Transactions denominated in a currency other than the functional currency are re-measured into functional currency with resulting transaction gains or losses recorded as selling, general and administrative expense on the consolidated statement of operations. Transaction gain (loss) included in selling, general and administrative expense was a gain of $1.2 million, a loss of $4.7 million and a loss of $4.2 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Derivative Financial Instruments

All derivatives are recognized as either assets or liabilities on the consolidated balance sheet and measurement of these instruments is at fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings in the same period. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded as a component of accumulated other comprehensive income (loss) and are recognized in the consolidated statement of operations when the hedged item affects earnings. Any portion of the change in fair value that is determined to be ineffective is immediately recognized in earnings as cost of goods sold.

Valuation of Common Stock Warrants

Prior to July 2016, the Company had outstanding warrants to purchase its common stock, which the Company classified as a liability on its consolidated balance sheet as the warrants were free-standing financial instruments that could result in the issuance of a variable number of the Company's common shares. The warrants were initially recorded at fair value on the date of grant, and were subsequently re-measured to fair value at each reporting date. The change in the fair value of the common stock warrants was recognized as a component of other (income) expense, net on the consolidated statement of operations.

The Company performed a two-step process to determine the fair value of the warrants to purchase common stock. The first step was to estimate the aggregate fair value of the Company (Business Enterprise Value, or BEV), which was then allocated to each element of the Company's capital structure under the contingent claims methodology. In determining the fair value of its BEV, the Company used a combination of the income approach and the market approach to estimate its aggregate BEV at each reporting date. The income approach uses a discounted cash flow analysis, which involves applying appropriate discount rates to estimated future cash flows based on forecasts of sales, costs and capital requirements. The market approach employs the guideline public company method, which uses the fair value of a peer group of publicly-traded companies. In the second step, the Company's estimated aggregate fair value was allocated to shares of common stock, shares of redeemable convertible preferred stock, convertible notes, bonds, employee stock options and warrants to purchase common stock using the contingent claims methodology. Under this model, each component of the Company's capital structure is treated as a call option with unique claim on the Company's assets as determined by the characteristics of each security's class. The resulting option claims are then valued using an option pricing model.

The Company historically had been a private company and lacked company-specific historical and implied volatility information of its stock. Therefore, it estimated its expected stock volatility based on the historical volatility of publicly-traded peer companies for a term equal to the remaining expected term of the warrants. The risk-free interest rate was determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the remaining time to purchase for each of the tranches of warrants.

Share-based Compensation

The Company measures stock‑based awards granted to employees based on the fair value on the date of the grant and recognizes the corresponding compensation expense of those awards, net of estimated forfeitures, over the requisite service period, which is generally the vesting period of the respective award. The Company issues stock‑based awards to employees with service‑based vesting conditions and performance‑based vesting conditions. Compensation expense for awards with only service‑based vesting conditions is recorded using the straight‑line method. Compensation expense for awards with service‑based and performance‑based vesting conditions is recorded on a straight‑line method once the Company has determined that the likelihood of meeting the performance conditions is probable, which requires management judgment.

The Company recognizes compensation expense for only the portion of awards that are expected to vest. In developing a forfeiture rate estimate, the Company has considered its historical experience to estimate pre‑vesting forfeitures for service‑based and performance‑based awards. The impact of a forfeiture rate adjustment will be recognized in full in the period of adjustment, and if the actual forfeiture rate is materially different from the Company’s estimate, the Company may be required to record adjustments to stock‑based compensation expense in future periods.

Equity Appreciation Rights Plan

Awards granted under the Company's Equity Appreciation Rights (“EAR”) plan are accounted for as liability-classified awards because it is a cash settled plan. The Company elected the intrinsic value method to measure its liability-classified awards and amortizes share-based compensation expense for those awards expected to vest on a straight-line basis over the requisite service period. The Company re-measures the intrinsic value of the awards at the end of each reporting period.

Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income and other comprehensive income (loss). Other comprehensive income (loss) consists of foreign currency translation adjustments, unrealized gains and losses from derivative instruments designated as cash flow hedges, unrealized gains and losses from available-for-sale securities and pension and other postretirement adjustments.

Net Income (Loss) Per Common Share

Prior to the conversion of the redeemable convertible preferred shares to common stock in connection with the Company’s initial public offering, the Company applied the two-class method to calculate its basic and diluted net income (loss) per common share attributable to Acushnet Holdings Corp., as its redeemable convertible preferred shares were participating securities. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to common stockholders. Net income (loss) per common share available to Acushnet Holdings Corp. was determined by allocating undistributed earnings between holders of common shares and redeemable convertible preferred shares, based on the participation rights of the preferred shares. Basic net income (loss) per share attributable to Acushnet Holdings Corp. was computed by dividing the net income (loss) available to Acushnet Holdings Corp. by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per common share attributable to Acushnet Holdings Corp. was computed by dividing the net income (loss) available to Acushnet Holdings Corp. after giving effect to the diluted securities by the weighted-average number of dilutive shares outstanding during the period.

Diluted net income (loss) per common share attributable to Acushnet Holdings Corp. for the year ended December 31, 2016 reflects the potential dilution that would occur if the restricted stock units were converted into common shares. The restricted stock units are included as potential dilutive securities to the extent they are dilutive under the treasury stock method for the applicable periods.

Diluted net income (loss) per common share attributable to Acushnet Holdings Corp. for the years ended December 31, 2015 and 2014 reflects the potential dilution that would occur if common stock warrants, convertible notes, redeemable convertible preferred stock, stock options or any other dilutive equity instruments were exercised or converted into common shares. The common stock warrants and stock options are included as potential dilutive securities to the extent they are dilutive under the treasury stock method for the applicable periods. The convertible notes and redeemable convertible preferred stock are included as potential dilutive securities to the extent they are dilutive under the if-converted method for the applicable periods.

Recently Adopted Accounting Standards

Statement of Cash Flows—Restricted Cash

In November 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016‑18, “Statement of Cash Flows: Restricted Cash.” ASU 2016‑18 requires that amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016‑18 is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted the provisions of this standard during the year ended December 31, 2016. The retrospective adoption of this standard did not have a significant impact on the consolidated financial statements.

Fair Value Measurement

In May 2015, the FASB issued ASU 2015‑07, “Fair Value Measurement: Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent).” Under ASU 2015‑07 investments for which fair value is measured at net asset value per share (or its equivalent) using the practical expedient should not be categorized in the fair value hierarchy. ASU 2015‑07 is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The Company adopted the provisions of this standard during the year ended December 31, 2016. The retrospective adoption of this standard did not have a significant impact on the consolidated financial statements.

Intangibles—Goodwill and Other—Internal‑Use Software

In April 2015, the FASB issued ASU 2015‑05, “Intangibles—Goodwill and Other—Internal‑Use Software: Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” ASU 2015‑05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. ASU 2015‑05 is effective for annual periods beginning after December 15, 2015, including interim periods within those fiscal years. The Company prospectively adopted the provisions of this standard during the year ended December 31, 2016. The adoption of this standard did not have a significant impact on the consolidated financial statements.

Consolidation: Amendments to the Consolidation Analysis

In February 2015, the FASB issued ASU 2015‑02, “Consolidation: Amendments to Consolidation Analysis.” ASU 2015‑02 places more emphasis on risk of loss when determining controlling interest, reduces the frequency of the application of related‑party guidance when determining controlling financial interest in a VIE and changes consolidation conclusions for companies in several industries. ASU 2015‑02 is effective for reporting periods beginning after December 15, 2015, with early adoption permitted. The Company retrospectively adopted the provisions of this standard during the year ended December 31, 2016. The retrospective adoption of this standard did not have a significant impact on the consolidated financial statements.

Presentation of Financial Statements—Going Concern

In August 2014, the FASB issued ASU 2014‑15, “Presentation of Financial Statements—Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” ASU 2014‑15 requires management to evaluate whether there is substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued and to provide related footnote disclosures as appropriate. ASU 2014‑15 is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The adoption of this standard did not have an impact on the consolidated financial statements.

Recently Issued Accounting Standards

Intangibles—Goodwill and OtherSimplifying the Test for Goodwill Impairment

 In January 2017, the FASB issued ASU 2017‑04, “Intangibles—Goodwill and Other:  Simplifying the Test for Goodwill Impairment.” ASU 2017‑04 removes the second step of the goodwill impairment test. Instead an entity will perform a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. ASU 2017‑04 is effective for annual periods beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The adoption of this standard is not expected to have a significant impact on the consolidated financial statements.

Business Combination—Clarifying the Definition of a Business

 In January 2017, the FASB issued ASU 2017‑01, “Business Combinations: Clarifying the Definition of a Business.” ASU 2017‑01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses. ASU 2017‑01 is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years. Early application is permitted for transactions for which the acquisition date occurs before the issuance date or effective date of the amendments, only when the transaction has not been reported in financial statements that have been issued or made available for issuance. The adoption of this standard is not expected to have a significant impact on the consolidated financial statements.

Consolidation—Interest Held Through Related Parties

In October 2016, the FASB issued ASU 2016‑17, “Consolidation: Interests Held through Related Parties that are under Common Control.” ASU 2016‑17 changes the evaluation of whether a reporting entity is the primary beneficiary of a VIE by changing how a reporting entity that is a single decision maker of a VIE treats indirect interests in the entity held through related parties that are under common control with the reporting entity. ASU 2016‑17 is effective for annual periods beginning after December 15, 2016, and interim periods within those fiscal years. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The adoption of this standard is not expected to have a significant impact on the consolidated financial statements.

Income Taxes

In October 2016, the FASB issued ASU 2016‑16, “Income Taxes: Intra-Entity Transfers of Assets other than Inventory.” ASU 2016-16 requires that entities recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating this standard to determine the impact of its adoption on the consolidated financial statements.

Statement of Cash Flows

In August 2016, the FASB issued ASU 2016‑15, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments” to address diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating this standard to determine the impact of its adoption on the consolidated financial statements.

Revenue from Contracts with Customers

In May 2016, the FASB issued ASU 2016‑12, “Revenue from Contracts with Customers: Narrow‑Scope Improvements and Practical Expedients.” ASU 2016‑12 addresses narrow‑scope improvements to the guidance on collectability, noncash consideration and completed contracts at transition and provides a practical expedient for contract modifications and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers. In March 2016, the FASB issued ASU 2016‑08, “Revenue from Contracts with Customers: Principal versus Agent Considerations” clarifying the implementation guidance on principal versus agent considerations. In August 2015, the FASB issued ASU 2015‑14, “Revenue from Contracts with Customers: Deferral of the Effective Date.” deferring the adoption of previously issued guidance published in May 2014, ASU 2014‑09, “Revenue from Contracts with Customers.” ASU 2014‑09 amends revenue recognition guidance and requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2016‑08 and 2015‑14 are effective for reporting periods beginning after December 15, 2017, including interim periods within those fiscal years. The new standard permits the use of either the retrospective or modified retrospective approach on adoption. The Company has contracted with an outside firm to assist in the evaluation of this standard to determine the impact of its adoption on the consolidated financial statements.  

Compensation—Stock Compensation

In March 2016, the FASB issued ASU 2016‑09, “Compensation—Stock Compensation: Improvements to Employee Share‑Based Payment Accounting” to simplify accounting for employee share‑based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2016, including interim periods within those fiscal years. The adoption of this standard is not expected to have a significant impact on the consolidated financial statements.

Leases

In February 2016, the FASB issued ASU 2016‑02, “Leases,” which will require lessees to recognize right‑of‑use assets and lease liabilities for leases which were formerly classified as operating leases. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. While the Company is still in the process of completing its analysis on the complete impact this ASU will have on its consolidated financial statements and related disclosures, it does expect the ASU to have a material impact on its consolidated balance sheet for recognition of lease-related assets and liabilities.

Allowance for Doubtful Accounts
Allowance for Doubtful Accounts

3. Allowance for Doubtful Accounts

The change to the allowance for doubtful accounts was as follows:

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

    

 

2016

 

 

2015

    

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of year

 

$

12,363

 

$

8,528

 

$

8,876

 

Bad debt expense

 

 

6,507

 

 

4,771

 

 

2,545

 

Amount of receivables written off

 

 

(6,315)

 

 

(634)

 

 

(2,485)

 

Foreign currency translation

 

 

(300)

 

 

(302)

 

 

(408)

 

Balance at end of year

 

$

12,255

 

$

12,363

 

$

8,528

 

 

On September 14, 2016, Golfsmith International Holdings LP, one of the Company’s largest customers in the years ended December 31, 2016, 2015, and 2014, announced that its U.S.‑based business, Golfsmith International Holdings, Inc., (Golfsmith) commenced a Chapter 11 case under Title 11 of the United States Code in the United States Bankruptcy Court for the District of Delaware, and its Canada‑based business, Golf Town Canada Inc., (Golf Town) commenced creditor protection proceedings under the Companies’ Creditors Arrangement Act in the Ontario Superior Court of Justice (Commercial List). The Company’s outstanding receivable related to Golfsmith and Golf Town was reserved for in full by the time of the bankruptcy filing and as of December 31, 2016 the portion related to Golfsmith had been written off.

Inventories
Inventories

4. Inventories

The components of inventories were as follows:

 

 

 

 

 

 

 

 

(in thousands)

    

December 31,

    

December 31, 

 

 

 

2016

 

2015

 

 

 

 

 

 

 

 

 

Raw materials and supplies

 

$

55,424

 

$

63,119

 

Work-in-process

 

 

21,558

 

 

18,210

 

Finished goods

 

 

246,307

 

 

245,030

 

Inventories

 

$

323,289

 

$

326,359

 

 

The change to the inventory reserve was as follows:

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

    

2016

    

2015

    

2014

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of year

 

$

(9,470)

 

$

(5,697)

 

$

(7,112)

 

Charged to costs and expenses

 

 

(8,147)

 

 

(7,468)

 

 

(4,197)

 

Deduction for reserved inventory disposed or sold

 

 

3,542

 

 

3,153

 

 

4,860

 

Foreign currency translation

 

 

603

 

 

542

 

 

752

 

Balance at end of year

 

$

(13,472)

 

$

(9,470)

 

$

(5,697)

 

 

 

The Company identified an immaterial error in the disclosure of the inventory reserve table as presented in the prior year financial statements. The error was limited to the presentation in the footnote and had no impact on the consolidated financial statements. The Company has revised prior period amounts to correct for these errors.The revision of the 2015 disclosure resulted in a decrease in the balance at end of year of $1.0 million made up of a decrease in the beginning reserve of $2.6 million, an increase in charged to cost and expenses of $2.2 million, an increase in deduction for reserved inventory disposed or sold of $0.4 million and an increase in foreign currency translation of $0.2 million. The revision of the 2014 disclosure resulted in a decrease in the balance at end of year of $2.6 million made up of a decrease in the beginning reserve of $1.9 million, a decrease in charged to cost and expenses of $2.5 million, a decrease in deduction for reserved inventory disposed or sold of $2.3 million and an increase in foreign currency translation of  $0.5 million. 

Property, Plant and Equipment, Net
Property, Plant and Equipment, Net

5. Property, Plant and Equipment, Net

The components of property, plant and equipment, net were as follows:

 

 

 

 

 

 

 

 

 

 

December 31,

 

December 31,

 

(in thousands)

    

2016

 

2015

 

 

 

 

 

 

 

 

 

Land

 

$

14,500

 

$

14,804

 

Buildings and improvements

 

 

133,844

 

 

131,231

 

Machinery and equipment

 

 

143,784

 

 

140,042

 

Furniture, computers and equipment

 

 

29,326

 

 

24,489

 

Computer software

 

 

58,462

 

 

51,042

 

Construction in progress

 

 

11,196

 

 

17,554

 

Property, plant and equipment, gross

 

 

391,112

 

 

379,162

 

Accumulated depreciation and amortization

 

 

(151,364)

 

 

(124,268)

 

Property, plant and equipment, net

 

$

239,748

 

$

254,894

 

 

During the years ended December 31, 2016,  2015 and 2014, software development costs of $8.2 million, $43.0 million and $9.4 million were capitalized, consisting of software placed into service of $7.4 million, $40.6 million and $0.8 million and amounts recorded in construction in progress of $0.8 million, $2.4 million and $8.6 million, respectively. Amortization expense on capitalized software development costs was $5.8 million, $5.5 million and $2.8 million for the years ended December 31, 2016,  2015 and 2014, respectively.

Total depreciation and amortization expense related to property, plant and equipment was $31.5 million, $32.5 million and $33.2 million for the years ended December 31, 2016,  2015 and 2014, respectively. 

Goodwill and Identifiable Intangible Assets, Net
Goodwill and Identifiable Intangible Assets, Net

6. Goodwill and Identifiable Intangible Assets, Net

The change in the net carrying value of goodwill was as follows:

 

 

 

 

 

 

 

 

 

(in thousands)

    

 

2016

    

 

2015

    

 

 

 

 

 

 

 

 

 

 

Balances at beginning of year

 

$

181,179

 

$

187,580

 

 

Foreign currency translation

 

 

(1,938)

 

 

(6,401)

 

 

Balances at end of year

 

$

179,241

 

$

181,179

 

 

 

Goodwill allocated to the Company's reportable segments and changes in the carrying amount of goodwill were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Titleist

 

Titleist

 

FootJoy

 

Titleist

 

 

 

 

 

 

(in thousands)

    

Golf Balls

    

Golf Clubs

    

Golf Wear

    

Golf Gear

    

Other

    

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31,2014

 

$

109,921

 

$

54,319

 

$

1,760

 

$

13,168

 

$

8,412

 

$

187,580

 

Foreign currency translation

 

 

(3,360)

 

 

(2,566)

 

 

543

 

 

(619)

 

 

(399)

 

 

(6,401)

 

Balances at December 31,2015

 

 

106,561

 

 

51,753

 

 

2,303

 

 

12,549

 

 

8,013

 

 

181,179

 

Foreign currency translation

 

 

(1,139)

 

 

(554)

 

 

(25)

 

 

(134)

 

 

(86)

 

 

(1,938)

 

Balances at December 31,2016

 

$

105,422

 

$

51,199

 

$

2,278

 

$

12,415

 

$

7,927

 

$

179,241

 

 

The net carrying value by class of identifiable intangible assets was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

December 31,2016

 

December 31,2015

 

Average

 

 

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

Useful

 

 

 

 

Accumulated

 

Net Book

 

 

 

 

Accumulated

 

Net Book

(in thousands)

Life (Years)

 

Gross

 

Amortization

 

Value

 

Gross

 

Amortization

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Indefinite-lived:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trademarks

 

N/A

 

$

428,100

 

$

-

 

$

428,100

 

$

428,100

 

$

-

 

$

428,100

Amortizing:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Completed Technology

 

13

 

 

73,900

 

 

(29,956)

 

 

43,944

 

 

73,900

 

 

(24,426)

 

 

49,474

Customer Relationships

 

20

 

 

18,999

 

 

(5,146)

 

 

13,853

 

 

19,253

 

 

(4,252)

 

 

15,001

Licensing Fees and Other

 

7

 

 

32,423

 

 

(28,332)

 

 

4,091

 

 

32,352

 

 

(25,433)

 

 

6,919

Total intangible assets

 

 

 

$

553,422

 

$

(63,434)

 

$

489,988

 

$

553,605

 

$

(54,111)

 

$

499,494

 

During the years ended December 31, 2016 and 2015, no impairment charges were recorded to goodwill or indefinite-lived intangible assets. During the year ended December 31, 2014, the Company recorded an impairment charge of $0.8 million related to its Pinnacle trademarks. The Company did not record an impairment charge to goodwill during the year ended December 31, 2014.

Amortization expense on identifiable intangible assets was $9.3 million, $9.3 million and $9.4 million for the years ended December 31, 2016,  2015 and 2014, respectively, of which $2.7 million associated with certain licensing fees was included in cost of goods sold in each year.

Amortization expense related to intangible assets as of December 31, 2016 for each of the next five fiscal years and beyond is expected to be as follows:

 

 

 

 

 

(in thousands)

    

 

 

 

 

 

 

 

 

Year ending December 31,

 

 

 

 

2017

 

$

9,208

 

2018

 

 

7,844

 

2019

 

 

6,236

 

2020

 

 

5,893

 

2021

 

 

5,893

 

Thereafter

 

 

26,814

 

Total

 

$

61,888

 

 

Product Warranty
Product Warranty

7. Product Warranty

The activity related to the Company’s warranty obligation for accrued warranty expense was as follows:

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

    

2016

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of year

 

$

3,345

 

$

2,989

 

$

2,924

 

Provision

 

 

6,200

 

 

5,399

 

 

4,959

 

Claims paid/costs incurred

 

 

(5,940)

 

 

(4,929)

 

 

(4,700)

 

Foreign currency translation

 

 

(79)

 

 

(114)

 

 

(194)

 

Balance at end of year

 

$

3,526

 

$

3,345

 

$

2,989

 

 

 

 

 

 

 

 

 

 

 

 

 

Related Party Transactions
Related Party Transactions

8. Related Party Transactions

The Company has historically incurred interest expense payable to related parties on its outstanding convertible notes and bonds with common stock warrants (Note 9). Related party interest expense totaled $28.1 million, $35.4 million and $38.0 million for the years ended December 31, 2016, 2015 and 2014, respectively. In addition, other assets includes receivables from related parties of $0.9 million as of December 31, 2016. 

Debt and Financing Arrangements
Debt and Financing Arrangements

9. Debt and Financing Arrangements

The Company’s debt and capital lease obligations were as follows:

 

 

 

 

 

 

 

 

 

    

December 31,

    

December 31, 

 

(in thousands)

 

2016

 

2015

 

 

 

 

 

 

 

 

 

Term loan

 

$

366,607

 

$

 -

 

Secured floating rate notes

 

 

 -

 

 

372,804

 

Convertible notes

 

 

 -

 

 

362,490

 

Bonds with common stock warrants

 

 

 -

 

 

30,540

 

Senior term loan facility

 

 

 -

 

 

29,836

 

Revolving credit facility

 

 

42,495

 

 

24,000

 

Other short-term borrowings

 

 

 -

 

 

15,064

 

Capital lease obligations

 

 

491

 

 

1,481

 

Total

 

 

409,593

 

 

836,215

 

Less: Short-term debt

 

 

61,245

 

 

441,704

 

Total long-term debt and capital lease obligations

 

$

348,348

 

$

394,511

 

 

The term loan is net of debt issuance costs of $3.7 million as of December 31, 2016. The secured floating rate notes are net of debt issuance costs of $2.2 million as of December 31, 2015.

Senior Secured Credit Facility

On April 27, 2016, the Company entered into a senior secured credit facilities agreement arranged by Wells Fargo Bank, National Association which provides for (i) a $275.0 million multi‑currency revolving credit facility, including a $20.0 million letter of credit sublimit, a $25.0 million swing line sublimit, a C$25.0 million sublimit for Acushnet Canada, Inc., a £20.0 million sublimit for Acushnet Europe Limited and an alternative currency sublimit of $100.0 million for borrowings in Canadian dollars, euros, pounds sterling and Japanese yen (“revolving credit facility”), (ii) a $375.0 million term loan A facility and (iii) a $100.0 million delayed draw term loan A facility. The revolving and term loan facilities mature on July 28, 2021 and the delayed draw term loan A facility expires on July 28, 2017 if not drawn. The credit agreement allows for the incurrence of additional term loans or increases in the revolving credit facility in an aggregate principal amount not to exceed (i) $200.0 million plus (ii) an unlimited amount so long as the net average secured leverage ratio (as defined in the credit agreement) does not exceed 2.00:1.00 on a pro forma basis. The applicable interest rate for the Canadian borrowings under the senior secured credit facility is based on CDOR plus a margin ranging from 1.25% to 2.00% depending on the Net Average Total Leverage Ratio as defined in the credit agreement. The applicable interest for the swing line sublimit is the highest of (a) Federal Funds Rate plus 0.50%, (b) the Prime Rate and (c) the one month LIBOR rate plus 1.00% plus a margin ranging from 0.25% to 1.00% depending on the Net Average Total Leverage Ratio as defined in the credit agreement. The applicable interest rate for all remaining borrowings under the senior secured credit facilities is LIBOR plus a margin ranging from 1.25% to 2.00% depending on the Net Average Total Leverage Ratio as defined in the credit agreement or the highest of (a) Federal Funds Rate plus 0.50%, (b) the Prime Rate and (c) the one month LIBOR rate plus 1.00% plus a margin ranging from 0.25%.to 1.00% depending on the Net Average Total Leverage Ratio as defined in the credit agreement.

The credit agreement contains 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. A change of control is an event of default under the credit agreement which could result in the acceleration of all outstanding indebtedness and the termination of all commitments under the credit agreement and would allow the lenders under the credit agreement to enforce their rights with respect to the collateral granted. A change of control occurs if any person (other than certain permitted parties, including Fila Korea) becomes the beneficial owner of 35% or more of the outstanding common stock of the Company. On October 28, 2016, Magnus Holdings Co., Ltd. (“Magnus”), a wholly owned subsidiary of Fila Korea, entered into a one-year term loan which is secured by a pledge on all of the Company’s common stock owned by Magnus, except for 5% of the Company’s outstanding common stock owned by Magnus that is subject to a negative pledge under Fila Korea’s credit facility, which equals 48.1% of the Company’s outstanding common stock. If Fila Korea or Magnus are unable to repay the amounts due on the term loan at maturity, the lenders of such debt can foreclose on the pledged shares of the Company’s common stock.

The credit agreement was signed and became effective on April 27, 2016 and initial funding under the credit agreement occurred on July 28, 2016. The proceeds of the $375.0 million term loan A facility, borrowings of C$4.0 million (equivalent to approximately $3.0 million) under the revolving credit facility and cash on hand of $23.6 million were used to repay all amounts outstanding under the secured floating rate notes and certain former working credit facilities. The secured floating rate notes, certain former working credit facilities and the former senior revolving credit facility were terminated. The Company recorded interest expense related to the term loan facility, including the amortization of debt issuance costs, of $4.5 million during the year ended December 31, 2016. The Company recorded interest expense related to the revolving credit facility of $0.9 million during the year ended December 31, 2016.  

Convertible Notes

In 2011 and 2012, the Company issued convertible notes with an aggregate principal amount of $362.5 million to shareholders. The convertible notes bore interest at a rate of 7.5% per annum, which was payable in cash semi‑annually in arrears on February 1 and August 1. The notes matured upon the earlier of July 29, 2021 or the election of the holder upon a change in control, as defined in the securities purchase agreements governing the notes. Amounts due under the convertible notes could only be repaid upon maturity or upon a change in control.

On March 11, 2013, the Company received approval from the holders of the convertible notes to defer any interest payments due after August 1, 2013 and prior to February 1, 2016 pursuant to the covenants imposed by the secured floating rate notes and the senior revolving and term loan facilities.

The notes were convertible at the option of the holder at any time prior to maturity into a number of shares of the Company’s common stock determined by dividing the aggregate outstanding unpaid principal amount of the note by the conversion price of $11.11 per share. The conversion price was subject to adjustment if additional shares of common stock were sold subsequent to the issuance of the convertible notes at a price per common share that was lower than $11.11 per share or upon a subdivision of the outstanding shares of the Company’s common stock. Transfer of the notes to any party, including an affiliate of the noteholder, required prior written consent of the other noteholders and Fila Korea.

On May 6, 2016, the Company and each of the holders of the convertible notes entered into an agreement requiring the mandatory conversion of the convertible notes into fully paid and nonassessable shares of the Company’s common stock upon the closing of an initial public offering. This agreement was amended on September 5, 2016 to provide for the automatic conversion of a portion of the outstanding convertible notes in connection with the sale of shares of the Company’s common stock by the holders of the convertible notes to Magnus. The automatic conversion of all outstanding convertible notes occurred prior to the closing of the Company’s initial public offering. Upon conversion, all accrued but unpaid interest on the principal of the convertible notes was paid to each holder of the convertible notes.

The Company recorded interest expense related to the convertible notes of $22.6 million, $27.2 million and $27.2 million during the years ended December 31, 2016, 2015 and 2014 respectively.

Bonds with Common Stock Warrants

In 2011 and 2012, the Company issued bonds with an aggregate principal amount of $172.5 million to shareholders. The bonds bore interest at a rate of 7.5% per annum, which was payable in cash semi‑annually in arrears on February 1 and August 1. The bonds matured upon the earlier of July 29, 2021 or the election of the holder upon a change of control, as defined in the securities purchase agreement governing the bonds. Amounts due under the bonds could only be repaid upon maturity, a change of control, a holder electing to exercise common stock warrants by net settling their bonds or an exercise of common stock warrants by Fila Korea.

In connection with the issuance of these bonds, the Company issued common stock warrants for the purchase of 15,526,431 shares of the Company’s common stock, at an exercise price of $11.11 per share. The exercise price was subject to adjustment if additional shares of common stock were sold subsequent to the issuance of the bonds at a price per common share that was lower than $11.11 per share or upon a subdivision of the outstanding shares of the Company’s common stock. The common stock warrant exercise price could be settled with cash or through tender of an aggregate outstanding principal amount of the bonds and accrued but unpaid interest equal to the exercise price of the common stock warrants.

The common stock warrants were detachable and transferrable by the holders only to Fila Korea or its designee at a price equal to the interest accrued on the underlying bonds at the rate of 4.0% per annum calculated on an annual compounded basis. The shareholders agreement provided Fila Korea with a call option to purchase all of the outstanding common stock warrants held by holders of the bonds in annual installments of 3,105,288 common stock warrants over a five year period beginning July 29, 2012. Fila Korea was required to exercise the common stock warrants within 10 days of the transfer. The exercise of the common stock warrants by Fila Korea triggered the Company to redeem a pro rata share of the bonds payable by using the proceeds received from the exercise of the common stock warrants by Fila Korea.

In July 2016, Fila Korea exercised its final annual call option to purchase 3,105,279 common stock warrants held by the holders of the bonds and exercised such warrants at the exercise price of $11.11 per share. This resulted in proceeds to the Company of $34.5 million which the Company used to repay the outstanding indebtedness under the bonds of $34.5 million.

A discount of $19.9 million relating to the issuance‑date fair value of the common stock warrants was recorded on the issuance date of the bonds and was accreted to interest expense until the maturity date of the bonds. The unamortized discount was $4.0 million as of December 31, 2015.

The Company recorded interest expense related to the bonds, including the amortization of the discount, of $5.5 million, $8.2 million and $10.8 million during the years ended December 31, 2016, 2015 and 2014, respectively.

Secured Floating Rate Notes

In October 2011, the Company issued secured floating rate notes with Korea Development Bank in an aggregate principal amount of $500.0 million, which matured on July 29, 2016. The notes bore interest at a rate equal to three‑month LIBOR plus a margin of 3.75%, which was required to be paid quarterly in arrears on January 31, April 30, July 31 and October 31. The notes were issued in separate classes with maturity dates ranging from October 2013 to July 2016. Pursuant to an amended and restated pledge and security agreement dated October 31, 2011, the secured floating rate notes were secured by certain assets, including inventory, accounts receivable, fixed assets and intangible assets of the Company, and a second priority security interest in the shares of certain Fila Korea entities, trademarks and bank accounts.

In October 2013, the Company issued secured floating rate notes with Korea Development Bank in an aggregate principal amount of $125.0 million, which matured on July 29, 2016. Proceeds from the issuance of the notes were used, along with existing cash on hand, to repay $150.0 million of the secured floating rate notes issued in October 2011. The notes bore interest at a rate equal to three‑month LIBOR plus a margin of 3.75%, which was required to be paid quarterly in arrears on January 31, April 30, July 31 and October 31.

The Company incurred $13.2 million of issuance costs in connection with the original issuance of $500.0 million secured floating rate notes. In addition, the Company incurred $3.3 million of issuance costs in connection with the issuance of $125.0 million secured floating rate notes during the year ended December 31, 2013. Of the $3.3 million, $1.0 million was immediately recorded as interest expense and $2.3 million was capitalized as debt issuance costs.

On July 28, 2016, the outstanding borrowings under the secured floating rate notes were repaid in full using the proceeds from the senior secured credit facility and the secured floating rate notes were terminated.

There were outstanding borrowings under the secured floating rate notes of $375.0 million as of December 31, 2015. As of December 31, 2015, the interest rate applicable to the outstanding borrowings under the secured floating rate notes was 4.07%. The Company recorded interest expense related to the secured floating rate notes, including the amortization of debt issuance costs, of $12.3 million, $20.8 million and $22.4 million during the years ended December 31, 2016, 2015 and 2014, respectively.

Senior Revolving and Term Loan Facilities

In July 2011, the Company entered into a senior revolving facilities agreement with Korea Development Bank (“Senior Facility Agreement”), which provided for borrowings under a revolving credit facility of up to $50.0 million to be used for general corporate purposes (“Senior Revolving Facility”). The applicable interest rate for borrowings under the Senior Revolving Facility was LIBOR plus a margin of 3.25%. The Senior Facility Agreement required a commitment fee of 0.3% based on the average daily unused portion of the facility. On February 12, 2014, the Company amended its Senior Facility Agreement and simultaneously executed a joinder agreement with Wells Fargo N.A. to increase the borrowing capacity under the Senior Revolving Facility to $75.0 million.

On December 24, 2014, the Company further amended the Senior Facility Agreement to increase the borrowing capacity under the Senior Revolving Facility to $95.0 million, which matured on July 29, 2016. This amendment also provided for borrowings under a senior term loan agreement with Korea Development Bank of $30.0 million (“Senior Term Loan”), which matured on July 29, 2016. The applicable interest rate for borrowings under the Senior Term Loan was three‑month LIBOR plus a margin of 2.63%, and was increased for any required withholding taxes. The Senior Facility Agreement required a commitment fee of 0.3% based on the average daily unused portion of the term loan. Upon entry into the amendment, the Company immediately borrowed the entire $30.0 million under the Senior Term Loan.

There were no outstanding borrowings under the Senior Revolving Facility as of December 31, 2015. The Company recorded interest expense related to the Senior Revolving Facility, including unused commitment fees, of $0.8 million, $0.8 million and $0.9 million during the years ended December 31, 2016, 2015 and 2014, respectively.

On June 30, 2016, the Company repaid all amounts outstanding under the Senior Term Loan facility and the facility was terminated. There were outstanding borrowings under the Senior Term Loan of $30.0 million as of December 31, 2015.  

As of December 31, 2015, the interest rate applicable to the outstanding borrowings under the Senior Term Loan facility was 3.26%. The Company recorded interest expense related to the Senior Term Loan of $0.7 million, $1.3 million and less than $0.1 million during the years ended December 31, 2016, 2015 and 2014, respectively.

Line of Credit Facility

On February 5, 2016, the Company entered into a working capital facility agreement arranged by Wells Fargo Bank, National Association which provided for borrowings up to $30.0 million. The applicable interest rate for borrowings under the facility was daily one‑month LIBOR plus a margin of 2.50%. The facility required a commitment fee equal to 0.35% of the unused portion of the facility as of the preceding fiscal quarter.

The working capital facility had an original maturity date of May 31, 2016, but was amended on May 18, 2016 to extend the maturity date to July 29, 2016. 

The Company recorded interest expense related to the line of credit facility of $0.3 million during the year ended December 31, 2016.

Working Credit Facility (Canada)

In February 2013, the Company entered into a working credit facility agreement arranged by Wells Fargo N.A., Canadian Branch, which provided for borrowings of up to the lesser of (a) C$25 million or (b) the sum of 80% of eligible accounts receivable and 60% of eligible inventory. The working credit facility, as amended, matured on July 29, 2016. The applicable interest rate for borrowings under the facility for Canadian dollar borrowings was CDOR plus a margin of 2.0% or Canadian Prime Rate and for U.S. dollar borrowings was LIBOR plus a margin of 2.0% or U.S. Prime Rate. The facility required a commitment fee equal to 0.25% of the uncancelled and unutilized portion of the facility as of the preceding fiscal quarter.

On July 28, 2016, the outstanding borrowings were repaid using the proceeds from the senior secured credit facility and cash on hand and the working credit facility (Canada) was terminated. There were no outstanding borrowings under the working credit facility (Canada) as of December 31, 2015.

The Company recorded interest expense related to the working credit facility (Canada), including unused commitment fees, of $0.2 million, $0.3 million and $0.3 million during the years ended December 31, 2016, 2015 and 2014, respectively.  

Working Credit Facility (Europe)

In April 2012, the Company entered into a working credit facility agreement arranged by Wells Fargo Capital Finance (UK) Limited, which provided for borrowings of up to the lesser of (a) £30.0 million or (b) the sum of 85% of eligible accounts receivable and 65% of eligible inventory, of which £5.0 million can be used for letters of credit. The working credit facility had an original maturity date of April 4, 2017. The applicable interest rate for borrowings under the facility was LIBOR plus a margin of 3.0%. The facility included a commitment fee of 0.375% on the average daily unused portion of the facility. The working credit facility was secured by the accounts receivable, inventory and cash collections of Acushnet Europe Limited, a wholly-owned subsidiary of the Company.

On July 28, 2016, the outstanding borrowings were repaid using cash on hand and the working credit facility (Europe) was terminated. There were no outstanding borrowings under the working credit facility (Europe) as of December 31, 2015.  

The Company recorded interest expense related to the working credit facility (Europe), including unused commitment fees, of $0.5 million, $0.6 million and $0.7 million during the years ended December 31, 2016, 2015 and 2014, respectively.

Letters of Credit

As of December 31, 2016 and 2015, there were outstanding letters of credit totaling $11.6 million and $14.4 million, respectively, of which $8.6 million and $4.0 million was secured, respectively, related to agreements which provided a maximum commitment for letters of credit of $24.0 million.

Available Borrowings

As of December 31, 2016, the Company had available borrowings under its revolving credit facilities, including the revolving credit facility, Senior Revolving Facility and Canadian and European working credit facilities, of $224.9 million after giving effect to $7.6 million of outstanding letters of credit.

Payments of Debt Obligations due by Period

As of December 31, 2016, principal payments on outstanding long-term debt obligations were as follows:

 

 

 

 

 

(in thousands)

    

 

 

 

Year ending December 31,

 

 

 

 

2017

 

$

18,750

 

2018

 

 

21,094

 

2019

 

 

28,125

 

2020

 

 

30,470

 

2021

 

 

271,874

 

Thereafter

 

 

-

 

Total

 

$

370,313

 

 

Derivative Financial Instruments
Derivative Financial Instruments

10. Derivative Financial Instruments

Common Stock Warrants

Prior to the exercise of the final tranche of common stock warrants by Fila Korea during July 2016, the Company classified warrants to purchase common stock as a liability on its consolidated balance sheet as the warrants were free‑standing financial instruments that could result in the issuance of a variable number of the Company’s common shares. The warrants were initially recorded at fair value on grant date, and were subsequently re‑measured to fair value at each reporting date. Common stock warrants were recorded at fair value (Note 11) and included in accrued expenses and other liabilities on the consolidated balance sheet as of December 31, 2015. Changes in the fair value of the common stock warrants were recognized as other (income) expense, net on the consolidated statement of operations.

On July 29, 2011, the Company issued bonds in the aggregate principal amount of $168.0 million and common stock warrants to purchase an aggregate of 15,120,000 shares of the Company’s common stock. On January 20, 2012, the Company issued $4.5 million of additional bonds and common stock warrants to purchase 406,431 shares of the Company’s common stock (Note 9).

In July 2016, Fila Korea exercised its final annual call option to purchase 3,105,279 common stock warrants held by the holders of the bonds and exercised such warrants at the exercise price of $11.11 per share, or $34.5 million in the aggregate. The Company used the proceeds received from Fila Korea’s exercise of the common stock warrants to redeem the outstanding bonds payable.

Foreign Exchange Derivative Instruments

The Company principally uses financial instruments to reduce the impact of changes in foreign currency exchange rates. The principal derivative financial instruments the Company enters into on a routine basis are foreign exchange forward contracts. The Company does not enter into foreign exchange forward contracts for trading or speculative purposes.

Foreign exchange contracts are primarily used to hedge purchases denominated in select foreign currencies, thereby limiting currency risk that would otherwise result from changes in exchange rates. The periods of the foreign exchange 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 currency hedge 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 of all foreign currency derivative hedges outstanding as of December 31, 2016 was $371.2 million.

The counterparties to derivative contracts are major financial institutions. The Company assesses credit risk of the counterparties on an ongoing basis. The credit risk of counterparties does not have a significant impact on the valuation of the Company’s derivative instruments.

The fair values of foreign exchange derivative instruments on the consolidated balance sheets were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet

 

December 31,

 

December 31, 

 

(in thousands)

    

Location

    

2016

    

2015

 

 

 

 

 

 

 

 

 

 

 

Asset derivatives

 

Other current assets

 

$

11,357

 

$

13,824

 

 

 

Other noncurrent assets

 

 

5,286

 

 

790

 

Liability derivatives

 

Other current liabilities

 

 

1,106

 

 

1,265

 

 

 

Other noncurrent liabilities

 

 

32

 

 

331

 

 

The effect of foreign exchange derivative instruments on accumulated other comprehensive income (loss) and the consolidated statements of operations was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

Gain (Loss) Recognized in OCI

 

Year ended

 

December 31,

(in thousands)

    

2016

    

2015

    

2014

 

Type of hedge

 

 

 

 

 

 

 

 

 

 

Cash flow

 

$

7,014

 

$

14,964

 

$

20,619

 

 

 

$

7,014

 

$

14,964

 

$

20,619

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (Loss) Recognized in

 

 

Statement of Operations

 

 

Year ended

 

 

December 31,

(in thousands)

    

2016

    

2015

    

2014

 

 

 

 

 

 

 

 

 

 

Location of gain (loss) in statement of operations

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

$

5,194

 

$

26,805

 

$

9,916

Selling, general and administrative expense

 

 

(995)

 

 

3,841

 

 

3,271

 

 

$

4,199

 

$

30,646

 

$

13,187

 

Based on the current valuation, the Company expects to reclassify a net gain of $9.3 million from accumulated other comprehensive income (loss) into cost of goods sold during the next 12 months.

Fair Value Measurements
Fair Value Measurements

11. Fair Value Measurements

Assets and liabilities measured at fair value on a recurring basis were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements as of

 

 

 

 

December 31, 2016 using:

 

 

(in thousands)

    

Level 1

    

Level 2

    

Level 3

    

Balance Sheet Location

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Rabbi trust

 

$

6,994

 

$

-

 

$

-

 

Other current assets

Foreign exchange derivative instruments

 

 

-

 

 

11,357

 

 

-

 

Other current assets

Rabbi trust

 

 

5,248

 

 

-

 

 

-

 

Other noncurrent assets

Deferred compensation program assets

 

 

1,846

 

 

-

 

 

-

 

Other noncurrent assets

Foreign exchange derivative instruments

 

 

-

 

 

5,286

 

 

-

 

Other noncurrent assets

Total assets

 

$

14,088

 

$

16,643

 

$

-

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange derivative instruments