ACUSHNET HOLDINGS CORP., 10-Q filed on 8/11/2017
Quarterly Report
Document and Entity Information
6 Months Ended
Jun. 30, 2017
Aug. 4, 2017
Document and Entity Information [Abstract]
 
 
Entity Registrant Name
Acushnet Holdings Corp. 
 
Entity Central Index Key
0001672013 
 
Document Type
10-Q 
 
Document Period End Date
Jun. 30, 2017 
 
Amendment Flag
false 
 
Current Fiscal Year End Date
--12-31 
 
Entity Current Reporting Status
Yes 
 
Entity Filer Category
Non-accelerated Filer 
 
Document Fiscal Year Focus
2017 
 
Document Fiscal Period Focus
Q2 
 
Common stock outstanding
 
74,451,977 
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (USD $)
In Thousands, unless otherwise specified
Jun. 30, 2017
Dec. 31, 2016
Current assets
 
 
Cash and restricted cash ($14,827 and $13,811 attributable to the variable interest entity ("VIE"))
$ 80,897 
$ 79,140 
Accounts receivable, net
264,866 
177,506 
Inventories ($12,170 and $14,633 attributable to the VIE)
294,936 
323,289 
Other assets
73,145 
84,596 
Total current assets
713,844 
664,531 
Property, plant and equipment, net ($10,245 and $10,709 attributable to the VIE)
232,663 
239,748 
Goodwill ($32,312 and $32,312 attributable to the VIE)
182,434 
179,241 
Intangible assets, net
485,616 
489,988 
Deferred income taxes
106,384 
130,416 
Other assets ($2,624 and $2,642 attributable to the VIE)
31,907 
32,247 
Total assets
1,752,848 
1,736,171 
Current liabilities
 
 
Short-term debt
75,622 
42,495 
Current portion of long-term debt
23,750 
18,750 
Accounts payable ($6,914 and $10,397 attributable to the VIE)
78,669 
87,608 
Accrued taxes
24,774 
41,962 
Accrued compensation and benefits ($360 and $780 attributable to the VIE)
58,896 
224,230 
Accrued expenses and other liabilities ($3,231 and $4,121 attributable to the VIE)
66,032 
47,063 
Total current liabilities
327,743 
462,108 
Long-term debt and capital lease obligations
431,498 
348,348 
Deferred income taxes
6,269 
7,452 
Accrued pension and other postretirement benefits ($1,723 and $1,946 attributable to the VIE)
139,892 
135,339 
Other noncurrent liabilities ($3,697 and $3,368 attributable to the VIE)
16,162 
14,101 
Total liabilities
921,564 
967,348 
Commitments and contingencies (Note 14)
   
   
Shareholders' Equity
 
 
Common stock, $0.001 par value, 500,000,000 shares authorized; 74,451,977 and 74,093,598 shares issued and outstanding
74 
74 
Additional paid-in capital
887,574 
880,576 
Accumulated other comprehensive loss, net of tax
(88,338)
(90,834)
Retained deficit
(1,122)
(53,951)
Total equity attributable to Acushnet Holdings Corp.
798,188 
735,865 
Noncontrolling interests
33,096 
32,958 
Total shareholders' equity
831,284 
768,823 
Total liabilities and shareholders' equity
$ 1,752,848 
$ 1,736,171 
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parentheticals) (USD $)
In Thousands, except Share data, unless otherwise specified
Jun. 30, 2017
Dec. 31, 2016
Cash and restricted cash ($14,827 and $13,811 attributable to the variable interest entity ("VIE"))
$ 80,897 
$ 79,140 
Inventories
294,936 
323,289 
Property, plant and equipment, net
232,663 
239,748 
Goodwill
182,434 
179,241 
Other assets
31,907 
32,247 
Accounts payable
78,669 
87,608 
Accrued compensation and benefits
58,896 
224,230 
Accrued expenses and other liabilities
66,032 
47,063 
Accrued pension and postretirement benefits
139,892 
135,339 
Other noncurrent liabilities
16,162 
14,101 
Common stock, par value (in dollars per share)
$ 0.001 
$ 0.001 
Common stock, shares authorized
500,000,000 
500,000,000 
Common stock, shares issued
74,451,977 
74,093,598 
Common stock, shares outstanding
74,451,977 
74,093,598 
VIE
 
 
Cash and restricted cash ($14,827 and $13,811 attributable to the variable interest entity ("VIE"))
14,827 
13,811 
Inventories
12,170 
14,633 
Property, plant and equipment, net
10,245 
10,709 
Goodwill
32,312 
32,312 
Other assets
2,624 
2,642 
Accounts payable
6,914 
10,397 
Accrued compensation and benefits
360 
780 
Accrued expenses and other liabilities
3,231 
4,121 
Accrued pension and postretirement benefits
1,723 
1,946 
Other noncurrent liabilities
$ 3,697 
$ 3,368 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (USD $)
In Thousands, except Share data, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 
 
 
 
Net sales
$ 427,988 
$ 463,261 
$ 861,603 
$ 903,196 
Cost of goods sold
205,079 
225,301 
412,279 
439,367 
Gross profit
222,909 
237,960 
449,324 
463,829 
Operating expenses:
 
 
 
 
Selling, general and administrative
151,808 
158,121 
299,806 
313,439 
Research and development
12,092 
11,693 
24,599 
22,823 
Intangible amortization
1,624 
1,654 
3,246 
3,303 
Restructuring charges
 
55 
 
642 
Income from operations
57,385 
66,437 
121,673 
123,622 
Interest expense, net
4,901 
14,563 
7,823 
28,404 
Other (income) expense, net
239 
2,455 
(510)
3,838 
Income before income taxes
52,245 
49,419 
114,360 
91,380 
Income tax expense
18,207 
21,941 
40,692 
38,710 
Net income
34,038 
27,478 
73,668 
52,670 
Less: Net income attributable to noncontrolling interests
(1,022)
(423)
(2,538)
(1,953)
Net income attributable to Acushnet Holdings Corp.
$ 33,016 
$ 27,055 
$ 71,130 
$ 50,717 
Net income per common share attributable to Acushnet Holdings Corp.:
 
 
 
 
Basic
$ 0.44 
$ 0.62 
$ 0.96 
$ 1.14 
Diluted
$ 0.44 
$ 0.39 
$ 0.96 
$ 0.74 
Cash dividends declared per common share:
$ 0.12 
 
$ 0.24 
 
Weighted average number of common shares:
 
 
 
 
Basic
74,451,977 
21,821,256 
74,337,013 
21,821,256 
Diluted
74,581,269 
54,450,380 
74,409,050 
54,447,260 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (USD $)
In Thousands, unless otherwise specified
3 Months Ended 6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Jun. 30, 2017
Jun. 30, 2016
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
 
 
 
 
Net income
$ 34,038 
$ 27,478 
$ 73,668 
$ 52,670 
Other comprehensive income (loss)
 
 
 
 
Foreign currency translation adjustments
1,218 
5,204 
12,798 
12,181 
Foreign exchange derivative instruments
 
 
 
 
Unrealized holding gains (losses) arising during period
425 
(12,136)
(11,320)
(23,625)
Reclassification adjustments included in net income
(1,284)
(2,846)
(3,095)
(7,757)
Tax benefit (expense)
701 
5,111 
3,898 
11,130 
Foreign exchange derivative instruments, net
(158)
(9,871)
(10,517)
(20,252)
Available-for-sale securities
 
 
 
 
Unrealized holding gains (losses) arising during period
129 
155 
24 
(148)
Tax benefit (expense)
(49)
(59)
(9)
56 
Available-for-sale securities, net
80 
96 
15 
(92)
Pension and other postretirement benefits
 
 
 
 
Pension and other postretirement benefits adjustments
340 
873 
158 
1,173 
Tax benefit (expense)
(21)
(185)
42 
(126)
Pension and other postretirement benefits adjustments, net
319 
688 
200 
1,047 
Total other comprehensive income (loss)
1,459 
(3,883)
2,496 
(7,116)
Comprehensive income
35,497 
23,595 
76,164 
45,554 
Less: Comprehensive income attributable to noncontrolling interests
(1,022)
(423)
(2,538)
(1,953)
Comprehensive income attributable to Acushnet Holdings Corp.
$ 34,475 
$ 23,172 
$ 73,626 
$ 43,601 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (USD $)
In Thousands, unless otherwise specified
6 Months Ended
Jun. 30, 2017
Jun. 30, 2016
Cash flows from operating activities
 
 
Net income
$ 73,668 
$ 52,670 
Adjustments to reconcile net income to cash provided by (used in) operating activities
 
 
Depreciation and amortization
20,453 
20,552 
Unrealized foreign exchange gain
(1,156)
(733)
Amortization of debt issuance costs
660 
2,512 
Amortization of discount on bonds payable
 
282 
Change in fair value of common stock warrants
 
6,112 
Share-based compensation
7,901 
964 
Loss on disposals of property, plant and equipment
454 
66 
Deferred income taxes
26,469 
29,088 
Changes in operating assets and liabilities
 
 
Accounts receivable
(80,999)
(95,997)
Inventories
34,216 
51,488 
Accounts payable
(11,079)
(5,598)
Accrued taxes
(18,621)
(1,816)
Accrued expenses and other liabilities
(150,091)
130,871 
Other assets
3,119 
(3,993)
Other noncurrent liabilities
5,141 
(145,828)
Interest due to related parties
 
14,847 
Cash flows provided by (used in) operating activities
(89,865)
55,487 
Cash flows from investing activities
 
 
Additions to property, plant and equipment
(8,823)
(8,116)
Cash flows used in investing activities
(8,823)
(8,116)
Cash flows from financing activities
 
 
Increase in short-term borrowings, net
31,615 
5,867 
Proceeds from delayed draw term loan A facility
100,000 
 
Repayment of term loan facilities
(11,875)
 
Repayment of senior term loan facility
 
(30,000)
Debt issuance costs
 
(663)
Dividends paid on common stock
(17,868)
 
Dividends paid to noncontrolling interests
(2,400)
(3,000)
Payment of employee restricted stock tax withholdings
(903)
 
Cash flows provided by (used in) financing activities
98,569 
(27,796)
Effect of foreign exchange rate changes on cash
1,876 
1,990 
Net increase in cash
1,757 
21,565 
Cash and restricted cash, beginning of year
79,140 
59,134 
Cash and restricted cash, end of period
80,897 
80,699 
Supplemental information
 
 
Non-cash additions to property, plant and equipment
1,265 
690 
Dividend equivalents declared not paid
$ 433 
 
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (UNAUDITED) (USD $)
In Thousands, unless otherwise specified
Parent
Common Stock
Additional Paid-in Capital
Accumulated Other Comprehensive Loss
Retained Deficit
Noncontrolling Interest
Total
Beginning balance at Dec. 31, 2016
$ 735,865 
$ 74 
$ 880,576 
$ (90,834)
$ (53,951)
$ 32,958 
$ 768,823 
Beginning balance (in shares) at Dec. 31, 2016
 
74,094 
 
 
 
 
 
Changes in stockholders' equity
 
 
 
 
 
 
 
Net income (Non controlling Interest)
71,130 
 
 
 
71,130 
2,538 
73,668 
Other comprehensive income
2,496 
 
 
2,496 
 
 
2,496 
Stock-based compensation expense
7,901 
 
7,901 
 
 
 
7,901 
Vesting of restricted common stock, net of shares withheld for employee taxes (in shares)
 
358 
 
 
 
 
 
Vesting of restricted common stock, net of shares withheld for employee taxes (in value)
(903)
 
(903)
 
 
 
(903)
Dividend and dividend equivalents declared
(18,301)
 
 
 
(18,301)
 
(18,301)
Dividends declared to noncontrolling interests
 
 
 
 
 
(2,400)
(2,400)
Ending balance at Jun. 30, 2017
$ 798,188 
$ 74 
$ 887,574 
$ (88,338)
$ (1,122)
$ 33,096 
$ 831,284 
Ending balance (in shares) at Jun. 30, 2017
 
74,452 
 
 
 
 
 
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) and include the accounts of Acushnet Holdings Corp. (the “Company”), its wholly owned subsidiaries and a variable interest entity (“VIE”) in which the Company is the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation.

Certain information in footnote disclosures normally included in annual financial statements has been condensed or omitted for the interim periods presented in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and U.S. GAAP. The year-end balance sheet data was derived from audited financial statements; however, the accompanying interim notes to the condensed consolidated financial statements do not include all disclosures required by U.S. GAAP. In the opinion of management, the financial statements contain all normal and recurring adjustments necessary to state fairly the financial position and results of operations of the Company.  The results of operations for the six months ended June 30, 2017 are not necessarily indicative of results to be expected for the full year ended December 31, 2017, nor were those of the comparable 2016 period representative of those actually experienced for the full year ended December 31, 2016.  These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the fiscal year ended December 31, 2016 included in its Annual Report on Form 10-K filed with the SEC on March 30, 2017.

Use of Estimates

The preparation of the Company’s unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and judgments that affect reported amounts of assets, liabilities, stockholders’ equity, net sales and expenses, and the disclosure of contingent assets and liabilities in its unaudited condensed consolidated financial statements. Actual results could differ from those estimates.

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”).

 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.

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 and Series A preferred stock. 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. 

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 Series A preferred stock conversion ratios.

Dividend Declarations 

On May 12, 2017, the board of directors declared a dividend of $0.12 per share to shareholders on record. The dividend was paid on June 16, 2017.  

On March 22, 2017, the board of directors declared a dividend of $0.12 per share to shareholders on record. The dividend was paid on April 19, 2017. 

Variable Interest Entities

VIEs are entities that, by design, either (i) lack sufficient equity to permit the entity to finance its activities independently, or (ii) have equity holders that do not have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the entity’s expected losses, or the right to receive the entity’s expected residual returns. The Company consolidates a VIE when it is the primary beneficiary, which is the party that has both (i) the power to direct the activities that most significantly impact the VIE’s economic performance and (ii) through its interests in the VIE, the obligation to absorb expected losses or the right to receive expected benefits from the VIE that could potentially be significant to the VIE.

The Company consolidates the accounts of Acushnet Lionscore Limited, a VIE which is 40% owned by the Company. The sole purpose of the VIE is to manufacture the Company’s golf footwear and as such, the Company is deemed to be the primary beneficiary. The Company has presented separately on its consolidated balance sheets, to the extent material, the assets of its consolidated VIE that can only be used to settle specific obligations of its consolidated VIE and the liabilities of its consolidated VIE for which creditors do not have recourse to its general credit. The general creditors of the VIE do not have recourse to the Company. Certain directors of the noncontrolling entities have guaranteed the credit lines of the VIE, for which there were no outstanding borrowings as of June 30, 2017 and December 31, 2016. 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. The Company classifies as restricted certain cash that is not available for use in its operations. As of June 30, 2017 and December 31, 2016, the amount of restricted cash included in cash and restricted cash on the balance sheet was $3.2 million and $3.1 million, respectively.

Accounts Receivable

As of June 30, 2017 and December 31, 2016, the allowance for doubtful accounts was $9.6 million and $12.3 million, respectively.

Foreign Currency Translation and Transactions

Foreign currency transaction gains included in selling, general and administrative expense were $1.0 million and $2.0 million for the three months ended June 30, 2017 and 2016, respectively. Foreign currency transaction gains included in selling, general and administrative expense were $3.3 million and $3.9 million for the six months ended June 30, 2017 and 2016, respectively.

Recently Adopted Accounting Standards

Consolidation — Interests Held Through Related Parties

In October 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 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. The Company adopted the provisions of this standard during the three months ended March 31, 2017. The adoption of this standard did not have an impact 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 Company adopted the provisions of this standard during the three months ended March 31, 2017. The adoption of this standard did not have a material impact on the consolidated financial statements.

Recently Issued Accounting Standards

Compensation—Stock Compensation—Scope of Modification Accounting

In May 2017, the FASB issued ASU 2017‑09, “Compensation—Stock Compensation: Scope of Modification Accounting.” The amendments in this update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718, CompensationStock Compensation. ASU 2017‑09 is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period for which financial statements have not been issued or made available for issuance. The adoption of this standard is not expected to have a material impact on the consolidated financial statements.

Compensation—Retirement Benefits

 In March 2017, the FASB issued ASU 2017‑07, “CompensationRetirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post Retirement Benefit Cost.” ASU 2017‑07 requires that an employer report the service cost component of net periodic pension and net periodic post retirement cost in the same line item as other compensation costs arising from services rendered by the employees during the period. It also requires the other components of net periodic pension and net periodic postretirement benefit cost to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. Additionally, only the service cost component is eligible for capitalization. ASU 2017‑07 is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted as of the beginning of an annual period for which financial statements have not been issued or made available for issuance.The adoption of this standard is not expected to have a material impact on the consolidated financial statements.

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 material impact on the consolidated financial statements.

Business Combinations—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 material impact 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. While the Company continues the process of evaluating the new standard against its existing accounting policies, the Company has identified customer incentives and expanded disclosures as the primary areas that would be affected by the new guidance. Based upon the terms of the Company’s agreements and the materiality of the transactions related to customer incentives, the Company does not expect the effect of adoption to have a material impact on the Company’s 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 adoption of this standard will have a material impact on its consolidated financial statements. 

Inventories
Inventories

2. 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 write downs for obsolete or slow-moving inventory.

The components of inventories were as follows:

 

 

 

 

 

 

 

 

 

(in thousands)

    

June 30, 

    

December 31, 

 

 

 

2017

 

2016

 

 

 

 

 

 

 

 

 

Raw materials and supplies

 

$

52,797

 

$

55,424

 

Work-in-process

 

 

24,638

 

 

21,558

 

Finished goods

 

 

217,501

 

 

246,307

 

Inventories

 

$

294,936

 

$

323,289

 

 

Product Warranty
Product Warranty

3. Product Warranty

The Company has defined warranties ranging from one to two years. Products covered by the defined warranty policies include certain Titleist golf products, FootJoy golf shoes and FootJoy golf outerwear. These product warranties generally obligate the Company to pay for the cost of replacement products, including the cost of shipping replacement products to its customers. The estimated cost of satisfying future warranty claims is accrued at the time the sale is recorded. In estimating future warranty obligations, the Company considers various factors, including its warranty policies and practices, the historical frequency of claims and the cost to replace or repair products under warranty.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three months ended

 

Six months ended

 

 

June 30, 

 

June 30, 

(in thousands)

    

2017

 

2016

    

2017

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

3,764

 

$

3,595

 

$

3,526

 

$

3,345

Provision

 

 

1,234

 

 

1,527

 

 

2,320

 

 

2,798

Claims paid/costs incurred

 

 

(1,226)

 

 

(1,344)

 

 

(2,127)

 

 

(2,374)

Foreign currency translation

 

 

 7

 

 

 6

 

 

60

 

 

15

Balance at end of period

 

$

3,779

 

$

3,784

 

$

3,779

 

$

3,784

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Related Party Transactions
Related Party Transactions

4. Related Party Transactions

Other assets includes receivables from related parties of $0.5 million and $0.9 million as of June 30, 2017 and December 31, 2016, respectively. Also, prior to its initial public offering, the Company had historically incurred interest expense payable to related parties on its outstanding convertible notes and bonds with common stock warrants. Related party interest expense totaled $7.6 million and $15.1 million for the three and six months ended June 30, 2016, respectively.

Debt and Financing Arrangements
Debt and Financing Arrangements

5. Debt and Financing Arrangements

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

 

 

 

 

 

 

 

 

 

 

    

June 30, 

    

December 31, 

 

(in thousands)

 

2017

 

2016

 

 

 

 

 

 

 

 

 

Term loan

 

$

360,938

 

$

370,313

 

Delayed draw term loan A facility

 

 

97,500

 

 

 -

 

Revolving credit facility

 

 

75,622

 

 

42,495

 

Capital lease obligations

 

 

111

 

 

491

 

Debt issuance costs

 

 

(3,301)

 

 

(3,706)

 

Total

 

 

530,870

 

 

409,593

 

Less: short-term debt and current portion of long-term debt

 

 

99,372

 

 

61,245

 

Total long-term debt and capital lease obligations

 

$

431,498

 

$

348,348

 

 

The debt issuance costs of $3.3 million and $3.7 million as of June 30, 2017 and December 31, 2016, respectively relate to the term loan and delayed draw term loan A facility.

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, initially 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. On August 9, 2017, the senior secured credit facilities agreement was amended to increase the letter of credit sublimit to $25.0 million, to increase the sublimit for Acushnet Canada Inc. to C$35.0 million and to increase the sublimit for Acushnet Europe Limited to £30.0 million. 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 the Canadian Dollar Offered Rate (“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 London Interbank Offered Rate (“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) the 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.  As of June 30, 2017, the Company was in compliance with all covenants under the credit agreement and anticipates compliance with all covenants under the credit agreement for the foreseeable future.

 

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 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 47.8% 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.

 

During the first quarter of 2017, the Company drew down $100.0 million on the delayed draw term loan A facility and $47.8 million under the revolving credit facility to substantially fund the equity appreciation rights plan (“EAR Plan”) payout (Note 10).

 

There were outstanding borrowings under the revolving credit facility of $75.6 million as of June 30, 2017 and the weighted average interest rate applicable to the outstanding borrowings was 2.73%.

Derivative Financial Instruments
Derivative Financial Instruments

6. Derivative Financial Instruments

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 are foreign exchange forward contracts. The Company does not enter into foreign exchange forward contracts for trading or speculative purposes.

Foreign exchange forward 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 forward contracts correspond to the periods of the forecasted transactions, which do not exceed 24 months subsequent to the latest balance sheet date. The primary foreign exchange forward contracts pertain to the U.S. dollar, the Japanese yen, the British pound sterling, the Canadian dollar, the Korean won and the Euro. The gross U.S. dollar equivalent notional amount outstanding of all foreign exchange forward contracts designated under hedge accounting as of June 30, 2017 and December 31, 2016 was $308.8 million and $371.2 million, respectively.

The counterparties to derivative contracts are major financial institutions. 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 hedges on the consolidated balance sheets were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance Sheet

 

June 30, 

 

December 31, 

 

(in thousands)

    

Location

    

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

Asset derivatives

 

Other current assets

 

$

3,582

 

$

11,357

 

 

 

Other noncurrent assets

 

 

1,680

 

 

5,286

 

Liability derivatives

 

Other current liabilities

 

 

3,742

 

 

1,106

 

 

 

Other noncurrent liabilities

 

 

687

 

 

32

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (Loss) Recognized in

 

 

 

Other Comprehensive Income (Loss)

 

 

 

Three months ended

Six months ended

 

 

June 30, 

 

June 30, 

 

(in thousands)

    

2017

    

2016

    

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Type of hedge

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow

 

$

425

 

$

(12,136)

 

$

(11,320)

 

$

(23,625)

 

 

 

$

425

 

$

(12,136)

 

$

(11,320)

 

$

(23,625)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (Loss) Recognized in

 

 

Statement of Operations

 

 

Three months ended

 

Six months ended

 

 

June 30, 

 

June 30, 

(in thousands)

    

2017

    

2016

    

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Location of gain (loss) in statement of operations

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

$

1,284

 

$

2,846

 

$

3,095

 

$

7,757

Selling, general and administrative expense

 

 

(30)

 

 

(952)

 

 

(1,616)

 

 

(2,707)

 

 

$

1,254

 

$

1,894

 

$

1,479

 

$

5,050

 

Gains and losses on derivatives designated as cash flow hedges are reclassified from other comprehensive income (loss) to cost of goods sold at the time that the forecasted transaction impacts the income statement. Based on the current valuation, the Company expects to reclassify a net loss of $1.3 million from accumulated other comprehensive income (loss) into cost of goods sold during the next 12 months.

Undesignated Foreign Exchange Derivative Instruments

The Company may elect to enter into foreign exchange forwards to mitigate the change in fair value of specific assets and liabilities which do not qualify as hedging instruments under U.S. GAAP. Accordingly, these undesignated instruments are recorded at fair value as a derivative asset or liability with the corresponding change in fair value recognized in selling, general and administrative expense, together with the re-measurement gain or loss from the hedged asset or liability. The gross U.S. dollar equivalent notional amount of all outstanding foreign exchange forward contracts not designated under hedge accounting was $1.7 million as of June 30, 2017. There were no outstanding foreign exchange forward contracts not designated under hedge accounting as of December 31, 2016.

Fair Value Measurements
Fair Value Measurements

7. Fair Value Measurements

Certain assets and liabilities are carried at fair value under U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements as of

 

 

 

 

June 30, 2017 using:

 

 

(in thousands)

    

Level 1

    

Level 2

    

Level 3

    

Balance Sheet Location

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Rabbi trust

 

$

6,994

 

$

-

 

$

-

 

Other current assets

Foreign exchange derivative instruments

 

 

-

 

 

3,582

 

 

-

 

Other current assets

Rabbi trust

 

 

5,408

 

 

-

 

 

-

 

Other noncurrent assets

Deferred compensation program assets

 

 

1,884

 

 

-

 

 

-

 

Other noncurrent assets

Foreign exchange derivative instruments

 

 

-

 

 

1,680

 

 

-

 

Other noncurrent assets

Total assets

 

$

14,286

 

$

5,262

 

$

-

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange derivative instruments

 

$

-

 

$

3,784

 

$

-

 

Other current liabilities

Deferred compensation program liabilities

 

 

1,884

 

 

-

 

 

-

 

Other noncurrent liabilities

Foreign exchange derivative instruments

 

 

-

 

 

687

 

 

-

 

Other noncurrent liabilities

Total liabilities

 

$

1,884

 

$

4,471

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

$

-

 

$

1,106

 

$

-

 

Other current liabilities

Deferred compensation program liabilities

 

 

1,846

 

 

-

 

 

-

 

Other noncurrent liabilities

Foreign exchange derivative instruments

 

 

-

 

 

32

 

 

-

 

Other noncurrent liabilities

Total liabilities

 

$

1,846

 

$

1,138

 

$

-

 

 

 

During the six months ended June 30, 2017 and the year ended December 31, 2016,  there were no transfers between Level 1,  Level 2 and Level 3.

Rabbi trust assets are used to fund certain retirement obligations of the Company. The assets underlying the Rabbi trust are equity and fixed income exchange‑traded funds.

Deferred compensation program assets and liabilities represent a program where select employees can defer compensation until termination of employment. Effective July 29, 2011, this program was amended to cease all employee compensation deferrals and provided for the distribution of all previously deferred employee compensation. The program remains in effect with respect to the value attributable to the employer match contributed prior to July 29, 2011.

Foreign exchange derivative instruments are foreign exchange forward contracts primarily used to hedge currency fluctuations for transactions denominated in a foreign currency (Note 6). The Company uses the mid‑price of foreign exchange forward rates as of the close of business on the valuation date to value each foreign exchange forward contract at each reporting period.

Pension and Other Postretirement Benefits
Pension and Other Postretirement Benefits

8. Pension and Other Postretirement Benefits

Components of net periodic benefit cost were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension Benefits

 

Postretirement Benefits

 

 

 

Three months ended June 30, 

 

(in thousands)

    

2017

    

2016

    

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Components of net periodic benefit cost

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

2,184

 

$

2,456

 

$

243

 

$

250

 

Interest cost

 

 

2,934

 

 

3,122

 

 

183

 

 

212

 

Expected return on plan assets

 

 

(2,934)

 

 

(3,067)

 

 

-

 

 

-

 

Settlement expense

 

 

185

 

 

-

 

 

-

 

 

-

 

Amortization of net (gain) loss

 

 

258

 

 

122

 

 

(135)

 

 

(174)

 

Amortization of prior service cost (credit)

 

 

43

 

 

43

 

 

(27)

 

 

(42)

 

Net periodic benefit cost

 

$

2,670

 

$

2,676

 

$

264

 

$

246

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension Benefits

 

Postretirement Benefits

 

 

 

Six months ended June 30, 

 

(in thousands)

    

2017

    

2016

    

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Components of net periodic benefit cost

 

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

4,521

 

$

4,909

 

$

478

 

$

500

 

Interest cost

 

 

5,952

 

 

6,293

 

 

357

 

 

423

 

Expected return on plan assets

 

 

(5,947)

 

 

(6,206)

 

 

-

 

 

-

 

Settlement expense

 

 

316

 

 

-

 

 

-

 

 

-

 

Amortization of net (gain) loss

 

 

297

 

 

247

 

 

(301)

 

 

(348)

 

Amortization of prior service cost (credit)

 

 

87

 

 

87

 

 

(68)

 

 

(84)

 

Net periodic benefit cost

 

$

5,226

 

$

5,330

 

$

466

 

$

491

 

 

Income Taxes
Income Taxes

9. Income Taxes

Income tax expense decreased by $3.7 million, to $18.2 million for the three months ended June 30, 2017 compared to $21.9 million for the three months ended June 30, 2016. The Company’s effective tax rate (“ETR”) was 34.9% for the three months ended June 30, 2017, compared to 44.4% for the three months ended June 30, 2016.  The decrease in ETR was primarily driven by a reduction in non-cash fair value losses on common stock warrants, which are not tax effected, a decrease in non-deductible transaction costs and changes to the geographic mix of earnings.  

Income tax expense increased by $2.0 million, to $40.7 million for the six months ended June 30, 2017 compared to $38.7 million for the six months ended June 30, 2016. The Company’s ETR was 35.6% for the six months ended June 30, 2017, compared to 42.4% for the six months ended June 30, 2016. The decrease in ETR was primarily driven by a reduction in non-cash fair value losses on common stock warrants, which are not tax effected, a decrease in non-deductible transaction costs, offset by incremental tax expense associated with the settlement of vested restricted stock units and changes to the geographic mix of earnings.

Equity Incentive Plans
Equity Incentive Plans

10. Equity Incentive Plans

Restricted Stock and Performance Stock Units

On January 22, 2016, the Company’s board of directors adopted the Acushnet Holdings Corp. 2015 Omnibus Incentive Plan (“2015 Plan”) pursuant to which the Company may grant stock options, stock appreciation rights, restricted shares of common stock, restricted stock units ("RSUs"), performance stock units ("PSUs") and other stock-based and cash-based awards to members of the board of directors, officers, employees, consultants and advisors of the Company. The 2015 Plan is administered by the compensation committee (the “Administrator”). The Administrator has the authority to establish the terms and conditions of any award issued or granted under the 2015 Plan. Each share issued with respect to RSUs and PSUs granted under the 2015 Plan reduces the number of shares available for grant. RSUs and PSUs forfeited and shares withheld to satisfy tax withholding obligations increase the number of shares available for grant. All RSUs and PSUs granted under the 2015 Plan have dividend equivalent rights (“DERs”), which entitle holders of RSUs and PSUs to the same dividend value per share as holders of common stock. DERs are subject to the same vesting and other terms and conditions as the corresponding unvested RSUs and PSUs. DERs are paid when the underlying shares vest. As of June 30, 2017, a total of 4,602,126 authorized shares of the Company’s common stock remain available for issuance under the 2015 Plan.

A summary of the Company’s RSUs and PSUs as of June 30, 2017 and changes during the six months then ended is presented below: 

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

Number

 

Average

 

 

of

 

Fair

 

    

RSUs and PSUs

    

Value

 

 

 

 

 

 

 

Outstanding at December 31, 2016

 

 

2,459,166

 

$

20.40

Granted

 

 

183,086

 

 

18.47

Vested

 

 

(409,846)

 

 

20.40

Forfeited

 

 

(194,070)

 

 

20.45

Outstanding at June 30,  2017

 

 

2,038,336

 

$

20.22

 

RSUs settled during the first quarter of 2017, resulted in the issuance of 409,846 shares of common stock, of which 51,467 shares of common stock were delivered to the Company as payment by employees in lieu of cash to satisfy tax withholding obligations. As of June 30, 2017 no PSUs have vested.

On June 12, 2017, the Company’s board of directors approved two grants of RSUs to members of the board of directors. The first grant vests on the one-year anniversary of the Company’s IPO, subject to continued service on the board of directors through  the vesting date. The initial fair value of the first grant was estimated at $0.5 million.The second grant vests on the earlier of June 12, 2018 or the next annual stockholders’ meeting, subject to continued service on the board of directors through the vesting date.  The initial fair value of the second grant was estimated at $0.8 million.

The compensation expense recorded for the six months ended June 30, 2017 related to the PSUs was based on the Company’s best estimate of the three-year cumulative Adjusted EBITDA forecast as of June 30, 2017. The Company reassesses the estimate of the three‑year cumulative Adjusted EBITDA forecast at the end of each reporting period. The Company recorded compensation expense for the RSUs and PSUs of $2.3 million and $1.8 million, respectively, during the three months ended June 30, 2017. The Company recorded compensation expense for the RSUs and PSUs of $0.6 million and $0.4 million, respectively, during the three months ended June 30, 2016. The Company recorded compensation expense for the RSUs and PSUs of $4.4 million and $3.5 million, respectively, during the six months ended June 30, 2017. The Company recorded compensation expense for the RSUs and PSUs of $0.6 million and $0.4 million, respectively, during the six months ended June 30, 2016.

The remaining unrecognized compensation expense related to non‑vested RSUs and non‑vested PSUs granted was $12.7 million and $10.3 million, respectively, as of June 30, 2017 and is expected to be recognized over the related weighted average period of 1.5 years.

Equity Appreciation Rights

During the first quarter of 2017, the Company’s outstanding equity appreciation rights (“EAR”) liability was settled in full by a cash payment to the participants. The Company’s liability related to the EAR Plan was $151.5 million as of December 31, 2016 and was recorded within accrued compensation and benefits on the consolidated balance sheet.

Accumulated Other Comprehensive Income (Loss), Net of Tax
Accumulated Other Comprehensive Income (Loss), Net of Tax

11. Accumulated Other Comprehensive Income (Loss), Net of Tax

Accumulated other comprehensive income (loss), net of tax consists of foreign currency translation adjustments, unrealized gains and losses from foreign exchange derivative instruments designated as cash flow hedges (Note 6), unrealized gains and losses from available‑for‑sale securities and pension and other postretirement adjustments (Note 8).

The components of and changes in accumulated other comprehensive income (loss), net of tax, were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign

 

Gains (Losses) on

 

Gains (Losses)

 

Pension and

 

Accumulated

 

 

 

Currency

 

Foreign Exchange

 

on Available-

 

Other

 

Other

 

 

 

Translation

 

Derivative

 

for-Sale

 

Postretirement

 

Comprehensive

 

(in thousands)

    

Adjustments

    

Instruments

    

Securities

    

Adjustments

    

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances at December 31, 2016

 

$

(84,675)

 

$

10,535

 

$

1,536

 

$

(18,230)

 

$

(90,834)

 

Other comprehensive income (loss) before reclassifications

 

 

12,798

 

 

(11,320)

 

 

24

 

 

(173)

 

 

1,329

 

Amounts reclassified from accumulated other comprehensive loss

 

 

-

 

 

(3,095)

 

 

-

 

 

331

 

 

(2,764)

 

Tax benefit (expense)

 

 

-

 

 

3,898

 

 

(9)

 

 

42

 

 

3,931

 

Balances at June 30, 2017

 

$

(71,877)

 

$

18

 

$

1,551

 

$

(18,030)

 

$

(88,338)

 

 

Net Income per Common Share
Net Income per Common Share

12. Net Income per Common Share

The following is a computation of basic and diluted net income per common share attributable to Acushnet Holdings Corp.:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

June 30, 

 

June 30, 

(in thousands, except share and per share amounts)

 

2017

    

2016

 

2017

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Acushnet Holdings Corp.

 

$

33,016

 

$

27,055

 

$

71,130

 

$

50,717

Less: dividends earned by preferred shareholders

 

 

-

 

 

(3,418)

 

 

-

 

 

(6,855)

Less: allocation of undistributed earnings to preferred shareholders

 

 

-

 

 

(10,192)

 

 

-

 

 

(18,913)

Net income attributable to common stockholders - basic

 

 

33,016

 

 

13,445

 

 

71,130

 

 

24,949

Adjustments to net income for dilutive securities

 

 

-

 

 

8,055

 

 

-

 

 

15,432

Net income attributable to common stockholders - diluted

 

$

33,016

 

$

21,500

 

$

71,130

 

$

40,381

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

74,451,977

 

 

21,821,256

 

 

74,337,013

 

 

21,821,256

Diluted

 

 

74,581,269

 

 

54,450,380

 

 

74,409,050

 

 

54,447,260

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

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.44

 

$

0.62

 

$

0.96

 

$

1.14

Diluted

 

$

0.44

 

$

0.39

 

$

0.96

 

$

0.74

 

Net income per common share attributable to Acushnet Holdings Corp. for the three and six months ended June 30, 2016 was calculated under the two-class method. For the three and six months ended June 30, 2017, there were no outstanding securities requiring use of the two-class method.

The Company’s potential dilutive securities for the three and six months ended June 30, 2017, include RSUs and PSUs. For the three and six months ended June 30, 2016, the Company’s potential dilutive securities included Series A preferred stock, warrants to purchase common stock and convertible notes.

For the six months ended June 30, 2017, there were no securities excluded from the calculation of diluted weighted‑average common shares outstanding. For the six months ended June 30, 2016, the following securities have been excluded from the calculation of diluted weighted‑average common shares outstanding as their impact was determined to be anti‑dilutive:

 

 

 

 

 

Series A preferred stock

 

 

16,542,243

Warrants to purchase common stock

 

 

3,105,279

 

Segment Information
Segment Information

13. Segment Information

The Company’s operating segments are based on how the Chief Operating Decision Maker (“CODM”) makes decisions about assessing performance and allocating resources. The Company has four reportable segments that are organized on the basis of product categories. These segments include Titleist golf balls, Titleist golf clubs, Titleist golf gear and FootJoy golf wear.

The CODM primarily evaluates performance using segment operating income. Segment operating income includes directly attributable expenses and certain shared costs of corporate administration that are allocated to the reportable segments, but excludes interest expense, net; gains and losses on the fair value of common stock warrants; transaction fees and other non‑operating gains and losses as the Company does not allocate these to the reportable segments. The CODM does not evaluate a measure of assets when assessing performance.

Results shown for the three and six months ended June 30, 2017 and 2016 are not necessarily those which would be achieved if each segment was an unaffiliated business enterprise. There are no intersegment transactions.

Information by reportable segment and a reconciliation to reported amounts are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

    

Three months ended June 30, 

    

Six months ended June 30, 

 

 

2017

 

2016

 

2017

 

2016

Net sales

 

 

 

 

 

 

 

 

 

 

 

 

Titleist golf balls

 

$

154,959

 

$

165,876

 

$

289,151

 

$

296,249

Titleist golf clubs

 

 

93,337

 

 

118,337

 

 

195,279

 

 

233,829

Titleist golf gear

 

 

47,300

 

 

44,782

 

 

89,690

 

 

84,334

FootJoy golf wear

 

 

112,499

 

 

119,400

 

 

254,740

 

 

264,030

Other

 

 

19,893

 

 

14,866

 

 

32,743

 

 

24,754

Total net sales

 

$

427,988

 

$

463,261

 

$

861,603

 

$

903,196

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment operating income

 

 

 

 

 

 

 

 

 

 

 

 

Titleist golf balls

 

$

30,972

 

$

36,854

 

$

52,052

 

$

52,353

Titleist golf clubs

 

 

4,638

 

 

15,827

 

 

16,002

 

 

35,409

Titleist golf gear

 

 

10,276

 

 

9,160

 

 

17,568

 

 

14,616

FootJoy golf wear

 

 

5,528

 

 

6,111

 

 

26,631

 

 

25,766

Other

 

 

5,115

 

 

2,666

 

 

7,942

 

 

3,849

Total segment operating income

 

 

56,529

 

 

70,618

 

 

120,195

 

 

131,993

Reconciling items:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(4,901)

 

 

(14,563)

 

 

(7,823)

 

 

(28,404)

Loss on fair value of common stock warrants

 

 

 -

 

 

(4,233)

 

 

 -

 

 

(6,112)

Transaction fees

 

 

(52)

 

 

(5,264)

 

 

(146)

 

 

(8,965)

Other

 

 

669

 

 

2,861

 

 

2,134

 

 

2,868

Total income before income tax

 

$

52,245

 

$

49,419

 

$

114,360

 

$

91,380

 

Commitments and Contingencies
Commitments and Contingencies

 

14. Commitments and Contingencies

Purchase Obligations

During the normal course of its business, the Company enters into agreements to purchase goods and services, including purchase commitments for production materials, finished goods inventory, capital expenditures and endorsement arrangements with professional golfers. The reported amounts exclude those liabilities included in accounts payable or accrued liabilities on the consolidated balance sheet as of June 30, 2017.

Purchase obligations by the Company as of June 30, 2017 were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments Due by Period

 

 

 

Remainder of

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

    

2017

    

2018

    

2019

    

2020

    

2021

    

Thereafter