ACUSHNET HOLDINGS CORP., 10-K filed on 3/7/2018
Annual Report
Document and Entity Information (USD $)
In Millions, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Mar. 2, 2018
Jun. 30, 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, 2017 
 
 
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
Accelerated Filer 
 
 
Entity Public Float
 
 
$ 667.6 
Document Fiscal Year Focus
2017 
 
 
Document Fiscal Period Focus
FY 
 
 
Common stock outstanding
 
74,744,536 
 
CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2017
Dec. 31, 2016
Current assets
 
 
Cash and restricted cash ($13,086 and $13,811 attributable to the variable interest entity ("VIE"))
$ 47,722 
$ 79,140 
Accounts receivable, net
190,851 
177,506 
Inventories ($13,692 and $14,633 attributable to the VIE)
363,962 
323,289 
Other assets
84,541 
84,596 
Total current assets
687,076 
664,531 
Property, plant and equipment, net ($10,240 and $10,709 attributable to the VIE)
228,922 
239,748 
Goodwill ($32,312 and $32,312 attributable to the VIE)
185,941 
179,241 
Intangible assets, net
481,234 
489,988 
Deferred income taxes
110,318 
130,416 
Other assets ($2,738 and $2,642 attributable to the VIE)
33,833 
32,247 
Total assets
1,727,324 
1,736,171 
Current liabilities
 
 
Short-term debt
20,364 
42,495 
Current portion of long-term debt
26,719 
18,750 
Accounts payable ($10,587 and $10,397 attributable to the VIE)
92,759 
87,608 
Accrued taxes
34,310 
41,962 
Accrued compensation and benefits ($780 and $780 attributable to the VIE)
80,189 
224,230 
Accrued expenses and other liabilities ($2,719 and $4,121 attributable to the VIE)
52,442 
47,063 
Total current liabilities
306,783 
462,108 
Long-term debt and capital lease obligations
416,970 
348,348 
Deferred income taxes
9,318 
7,452 
Accrued pension and other postretirement benefits ($1,908 and $1,946 attributable to the VIE)
130,160 
135,339 
Other noncurrent liabilities ($4,689 and $3,368 attributable to the VIE)
16,701 
14,101 
Total liabilities
879,932 
967,348 
Shareholders' Equity
 
 
Common stock, $0.001 par value, 500,000,000 shares authorized; 74,479,319 and 74,093,598 shares issued and outstanding
74 
74 
Additional paid-in capital
894,727 
880,576 
Accumulated other comprehensive loss, net of tax
(81,691)
(90,834)
Retained earnings (deficit)
1,618 
(53,951)
Total equity attributable to Acushnet Holdings Corp.
814,728 
735,865 
Noncontrolling interests
32,664 
32,958 
Total shareholders' equity
847,392 
768,823 
Total liabilities and shareholders' equity
$ 1,727,324 
$ 1,736,171 
CONSOLIDATED BALANCE SHEETS (Parentheticals) (USD $)
In Thousands, except Share data, unless otherwise specified
Dec. 31, 2017
Dec. 31, 2016
Cash and restricted cash
$ 47,722 
$ 79,140 
Inventories
363,962 
323,289 
Property, plant and equipment, net
228,922 
239,748 
Goodwill
185,941 
179,241 
Other assets
33,833 
32,247 
Accounts payable
92,759 
87,608 
Accrued compensation and benefits
80,189 
224,230 
Accrued expenses and other liabilities
52,442 
47,063 
Accrued pension and other postretirement benefits
130,160 
135,339 
Other noncurrent liabilities
16,701 
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
74,479,319 
74,093,598 
Common stock, shares outstanding
74,479,319 
74,093,598 
VIE
 
 
Cash and restricted cash
13,086 
13,811 
Inventories
13,692 
14,633 
Property, plant and equipment, net
10,240 
10,709 
Goodwill
32,312 
32,312 
Other assets
2,738 
2,642 
Accounts payable
10,587 
10,397 
Accrued compensation and benefits
780 
780 
Accrued expenses and other liabilities
2,719 
4,121 
Accrued pension and other postretirement benefits
1,908 
1,946 
Other noncurrent liabilities
$ 4,689 
$ 3,368 
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
 
Net sales
$ 1,560,258 
$ 1,572,275 
$ 1,502,958 
Cost of goods sold
759,466 
773,550 
727,120 
Gross profit
800,792 
798,725 
775,838 
Operating expenses:
 
 
 
Selling, general and administrative
579,837 
600,804 
604,018 
Research and development
48,148 
48,804 
45,977 
Intangible amortization
6,499 
6,608 
6,617 
Restructuring charges
 
1,673 
1,643 
Income from operations
166,308 
140,836 
117,583 
Interest expense, net (Note 14)
15,709 
49,908 
60,294 
Other (income) expense, net
(1,077)
1,706 
25,139 
Income before income taxes
151,676 
89,222 
32,150 
Income tax expense
55,056 
39,707 
27,994 
Net income
96,620 
49,515 
4,156 
Less: Net income attributable to noncontrolling interests
(4,506)
(4,503)
(5,122)
Net income (loss) attributable to Acushnet Holdings Corp.
92,114 
45,012 
(966)
Dividends earned by preferred shareholders
 
(11,576)
(13,785)
Allocation of undistributed earnings to preferred shareholders
 
(10,247)
 
Net income (loss) attributable to common stockholders - basic
92,114 
23,189 
(14,751)
Adjustments to net income for dilutive securities
 
16,475 
 
Net income (loss) attributable to common stockholders - diluted
$ 92,114 
$ 39,664 
$ (14,751)
Net income (loss) per common share attributable to Acushnet Holdings Corp.:
 
 
 
Basic
$ 1.24 
$ 0.74 
$ (0.74)
Net income (loss) per common share attributable to Acushnet Holdings Corp. - diluted
 
 
 
Diluted
$ 1.23 
$ 0.62 
$ (0.74)
Cash dividends declared per common share:
$ 0.48 
 
 
Weighted average number of common shares:
 
 
 
Basic
74,399,836 
31,247,643 
19,939,293 
Diluted
74,590,999 
64,323,742 
19,939,293 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
 
 
Net income
$ 96,620 
$ 49,515 
$ 4,156 
Other comprehensive income (loss)
 
 
 
Foreign currency translation adjustments
26,964 
(14,656)
(19,042)
Foreign exchange derivative instruments
 
 
 
Unrealized holding gains (losses) arising during period
(15,558)
7,014 
14,964 
Reclassification adjustments included in net income
(1,329)
(5,194)
(26,805)
Tax benefit (expense)
4,072 
(451)
3,836 
Foreign exchange derivative instruments, net
(12,815)
1,369 
(8,005)
Available-for-sale securities
 
 
 
Unrealized holding gains (losses) arising during period
150 
51 
(673)
Tax benefit (expense)
35 
(19)
160 
Available-for-sale securities, net
185 
32 
(513)
Pension and other postretirement benefits
 
 
 
Pension and other postretirement benefits adjustments
(6,889)
(16,072)
3,068 
Tax benefit (expense)
1,698 
5,727 
(1,684)
Pension and other postretirement benefits adjustments, net
(5,191)
(10,345)
1,384 
Total other comprehensive income (loss)
9,143 
(23,600)
(26,176)
Comprehensive income (loss)
105,763 
25,915 
(22,020)
Less: Comprehensive income attributable to noncontrolling interests
(4,524)
(4,563)
(5,017)
Comprehensive income (loss) attributable to Acushnet Holdings Corp.
$ 101,239 
$ 21,352 
$ (27,037)
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Cash flows from operating activities
 
 
 
Net income
$ 96,620 
$ 49,515 
$ 4,156 
Adjustments to reconcile net income to cash provided by (used in) operating activities
 
 
 
Depreciation and amortization
40,871 
40,834 
41,702 
Unrealized foreign exchange (gain) loss
(4,028)
(2,347)
2,933 
Amortization of debt issuance costs
1,321 
3,378 
5,157 
Amortization of discount on bonds payable
 
3,963 
4,142 
Change in fair value of common stock warrants
 
6,112 
28,364 
Share-based compensation
15,285 
14,494 
2,033 
Loss on disposals of property, plant and equipment
912 
170 
401 
Deferred income taxes
27,853 
7,849 
2,188 
Changes in operating assets and liabilities
 
 
 
Accounts receivable
(2,592)
12,630 
(174)
Inventories
(28,372)
(2,377)
(45,415)
Accounts payable
974 
1,968 
(1,998)
Accrued taxes
(10,283)
14,666 
540 
Accrued expenses and other liabilities
(145,837)
113,042 
35,364 
Other assets
(8,477)
(6,960)
1,165 
Other noncurrent liabilities
(11,284)
(140,098)
12,278 
Interest due to related parties
 
(12,570)
(1,006)
Cash flows provided by (used in) operating activities
(27,037)
104,269 
91,830 
Cash flows from investing activities
 
 
 
Additions to property, plant and equipment
(18,845)
(19,175)
(23,201)
Cash flows used in investing activities
(18,845)
(19,175)
(23,201)
Cash flows from financing activities
 
 
 
Increase (decrease) in short-term borrowings, net
(25,548)
747 
7,890 
Proceeds from delayed draw term loan A facility
100,000 
 
 
Repayment of delayed draw term loan A facility
(5,000)
 
 
Repayment of term loan facilities
(18,750)
(4,688)
 
Repayment of senior term loan facility
 
(30,000)
 
Proceeds from term loan facility
 
375,000 
 
Repayment of secured floating rate notes
 
(375,000)
(50,000)
Proceeds from exercise of common stock warrants
 
34,503 
34,503 
Repayment of bonds
 
(34,503)
(34,503)
Debt issuance costs
 
(6,606)
 
Dividends paid on common stock
(35,744)
 
 
Dividends paid on Series A redeemable convertible preferred stock
 
(17,316)
(13,747)
Dividends paid to noncontrolling interests
(4,800)
(4,800)
(4,200)
Payment of employee restricted stock tax withholdings
(903)
 
 
Cash flows provided by (used in) financing activities
9,255 
(62,663)
(60,057)
Effect of foreign exchange rate changes on cash
5,209 
(2,425)
(3,205)
Net increase (decrease) in cash
(31,418)
20,006 
5,367 
Cash and restricted cash, beginning of year
79,140 
59,134 
53,767 
Cash and restricted cash, end of period
47,722 
79,140 
59,134 
Supplemental information
 
 
 
Cash paid for interest to related parties
 
36,753 
32,274 
Cash paid for interest to third parties
15,488 
27,165 
20,571 
Cash paid for income taxes
35,949 
16,589 
19,724 
Non-cash additions to property, plant and equipment
2,876 
1,170 
1,913 
Dividend equivalents declared not paid
801 
 
 
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 
CONSOLIDATED STATEMENT OF REEDEMABLE CONVERTIBLE PREFERRED STOCK AND EQUITY (USD $)
In Thousands, except Share data, unless otherwise specified
Parent
Common Stock
Additional Paid-in Capital
Accumulated Other Comprehensive Loss
Retained Earnings (Deficit)
Noncontrolling Interest
Redeemable Convertible Preferred Stock
Total
Beginning balance at Dec. 31, 2014
$ 156,587 
$ 18 
$ 264,561 
$ (41,058)
$ (66,934)
$ 32,333 
$ 131,036 
$ 188,920 
Beginning balance (in shares) at Dec. 31, 2014
 
18,552 
 
 
 
 
1,838 
 
Changes in stockholders' equity
 
 
 
 
 
 
 
 
Net income
(966)
 
 
 
(966)
5,122 
 
4,156 
Issuance of common stock (in shares)
 
3,105 
 
 
 
 
 
 
Issuance of common stock
41,801 
41,798 
 
 
 
 
41,801 
Exercise of common stock options (in shares)
 
164 
 
 
 
 
 
 
Exercise of common stock options (in value)
2,752 
2,751 
 
 
 
 
2,752 
Other comprehensive income (loss)
(26,176)
 
 
(26,176)
 
 
 
(26,176)
Dividends paid on Series A redeemable convertible preferred stock
(13,747)
 
 
 
(13,747)
 
 
(13,747)
Dividends declared to noncontrolling interests
 
 
 
 
 
(4,200)
 
(4,200)
Ending balance at Dec. 31, 2015
160,251 
22 
309,110 
(67,234)
(81,647)
33,255 
131,036 
193,506 
Ending balance (in shares) at Dec. 31, 2015
 
21,821 
 
 
 
 
1,838 
 
Changes in stockholders' equity
 
 
 
 
 
 
 
 
Net income
45,012 
 
 
 
45,012 
4,503 
 
49,515 
Issuance of common stock (in shares)
 
3,105 
 
 
 
 
 
 
Issuance of common stock
63,499 
63,496 
 
 
 
 
63,499 
Conversion of redeemable convertible preferred stock (in shares)
 
16,542 
 
 
 
 
(1,838)
 
Conversion of redeemable convertible preferred stock (in Value)
131,036 
16 
131,020 
 
 
 
(131,036)
131,036 
Conversion of convertible notes
362,489 
33 
362,456 
 
 
 
 
362,489 
Conversion of convertible notes (in shares)
 
32,626 
 
 
 
 
 
 
Other comprehensive income (loss)
(23,600)
 
 
(23,600)
 
 
 
(23,600)
Share-based compensation
14,494 
 
14,494 
 
 
 
 
14,494 
Dividends paid on Series A redeemable convertible preferred stock
(17,316)
 
 
 
(17,316)
 
(13,700)
(17,316)
Dividends declared to noncontrolling interests
 
 
 
 
 
(4,800)
 
(4,800)
Ending balance at Dec. 31, 2016
735,865 
74 
880,576 
(90,834)
(53,951)
32,958 
 
768,823 
Ending balance (in shares) at Dec. 31, 2016
 
74,094 
 
 
 
 
 
 
Changes in stockholders' equity
 
 
 
 
 
 
 
 
Net income
92,114 
 
 
 
92,114 
4,506 
 
96,620 
Other comprehensive income (loss)
9,143 
 
 
9,143 
 
 
 
9,143 
Share-based compensation
15,054 
 
15,054 
 
 
 
 
15,054 
Vesting of restricted common stock, net of shares withheld for employee taxes (in shares)
 
385 
 
 
 
 
 
 
Vesting of restricted common stock, net of shares withheld for employee taxes (in value)
(903)
 
(903)
 
 
 
 
(903)
Dividends and dividend equivalents declared
(36,545)
 
 
 
(36,545)
 
 
(36,545)
Dividends paid on Series A redeemable convertible preferred stock
 
 
 
 
 
 
(17,300)
 
Dividends declared to noncontrolling interests
 
 
 
 
 
(4,800)
 
(4,800)
Ending balance at Dec. 31, 2017
$ 814,728 
$ 74 
$ 894,727 
$ (81,691)
$ 1,618 
$ 32,664 
 
$ 847,392 
Ending balance (in shares) at Dec. 31, 2017
 
74,479 
 
 
 
 
 
 
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. 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 variable interest entity (“VIE”) in which the Company is the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation. Certain prior period amounts have been reclassified to conform to current year presentation.

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.

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 redeemable convertible preferred stock (“Series A preferred stock”) were automatically converted into 11,556,495 shares of the Company’s common stock and the Company’s 7.5% convertible notes due 2021 (“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 in 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. 

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 convertible notes, 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 consolidated 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.

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 December 31, 2017 and 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. As of December 31, 2017 and 2016, book overdrafts in the amount of $2.9 million and $3.6 million, respectively, were recorded in accounts payable. The Company classifies as restricted certain cash that is not available for use in its operations. As of December 31, 2017 and 2016, the amount of restricted cash included in cash and restricted cash on the consolidated balance sheet was $2.3 million and $3.1 million, respectively.

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 $13.5 million and $9.8 million as of December 31, 2017 and 2016, 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, 2017 and 2016, the Company had $44.7 million and $75.6 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

 

1

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.

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.

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 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, 2017, no impairment of goodwill was identified and the fair value of each reporting unit 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. As of December 31, 2017, no impairment of trademarks was identified. 

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 assets and deferred financing costs associated with all other indebtedness are netted against debt on the consolidated balance sheet.

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 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.

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. 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 applied 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 amounts and tax basis amounts 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 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 primarily 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 $192.7 million, $196.0 million and $203.3 million for the years ended December 31, 2017,  2016 and 2015, 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 $32.5 million, $32.4 million and $32.6 million for the years ended December 31, 2017,  2016 and 2015, 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. Foreign currency transaction gain (loss) included in selling, general and administrative expense was a gain of $4.1 million, a gain of $1.2 million and a loss of $4.7 million for the years ended December 31, 2017, 2016 and 2015, 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.

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. There were no outstanding foreign exchange forward contracts not designated under hedge accounting as of December 31, 2017 and 2016.

Share-based Compensation

The Company has a share-based compensation plan for employees and non-employee members of the Company's Board of Directors. All awards granted under the plan are measured at fair value at the date of the grant and amortized as expense over the requisite service period of the award, which is generally the vesting period of the respective award. The Company accounts for forfeitures in compensation expense when they occur. The Company issues share-based awards with service-based vesting conditions and performance-based vesting conditions. For awards with performance-based vesting conditions, the measurement of the expense is based on the Company’s level of achievement of the applicable cumulative Adjusted EBITDA performance metrics.

Equity Appreciation Rights Plan

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

Net Income (Loss) Per Common Share

Net income (loss) per common share attributable to Acushnet Holdings Corp. is calculated under the treasury stock method. Prior to the conversion of the redeemable convertible preferred shares to common stock in connection with the Company’s initial public offering in 2016, 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 years ended December 31, 2017 and 2016 reflects the potential dilution that would occur if the Restricted Stock Units (“RSUs”) 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 year ended December 31, 2015 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

Consolidation— Interests Held Through Related Parties

In October 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 prospectively 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

Income Statement—Reporting Comprehensive Income

In February 2018, the FASB issued ASU 2018‑02, “Income Statement—Reporting Comprehensive Income (Topic 220) —Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income.” The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. ASU 2018‑02 is effective for annual periods beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is still analyzing the complete impact this standard will have on its consolidated financial statements.

Derivatives and Hedging (Topic 815) —Targeted Improvements to Accounting for Hedging Activities 

In August 2017, the FASB issued ASU 2017‑12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.” The amendments in this update expand and refine hedge accounting guidance and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. ASU 2017-12 also simplifies the application of hedge accounting guidance, hedge documentation requirements and the assessment of hedge effectiveness. ASU 2017‑12 is effective for annual periods beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The effect of adoption should be reflected as of the beginning of the fiscal year of adoption. The adoption of this standard is not expected to have a material impact on the consolidated financial statements.

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. 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 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 material 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 adoption of this standard is not expected to have a material impact 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 adoption of this standard is not expected to have a material impact on the consolidated financial statements.

Revenue from Contracts with Customers

In May 2014, the FASB issued 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. 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 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. 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 adopted the standard on January 1, 2018 using a modified retrospective approach with the cumulative effect of initially applying the new standard recognized in retained earnings at the date of adoption.  The Company has identified customer incentives and expanded disclosures as the primary areas that will 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 analyzing 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.

 

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)

    

 

2017

 

 

2016

    

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of year

 

$

12,255

 

$

12,363

 

$

8,528

 

Bad debt expense

 

 

337

 

 

6,507

 

 

4,771

 

Amount of receivables written off

 

 

(3,300)

 

 

(6,315)

 

 

(634)

 

Foreign currency translation

 

 

683

 

 

(300)

 

 

(302)

 

Balance at end of year

 

$

9,975

 

$

12,255

 

$

12,363

 

 

On September 14, 2016 Golfsmith International Holdings LP, one of the Company’s largest customers in the years ended December 31, 2016 and 2015, 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, 

 

 

 

2017

 

2016

 

 

 

 

 

 

 

 

 

Raw materials and supplies

 

$

72,342

 

$

55,424

 

Work-in-process

 

 

23,956

 

 

21,558

 

Finished goods

 

 

267,664

 

 

246,307

 

Inventories

 

$

363,962

 

$

323,289

 

 

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)

    

2017

 

2016

 

 

 

 

 

 

 

 

 

Land

 

$

14,618

 

$

14,500

 

Buildings and improvements

 

 

138,570

 

 

133,844

 

Machinery and equipment

 

 

148,999

 

 

143,784

 

Furniture, computers and equipment

 

 

32,783

 

 

29,326

 

Computer software

 

 

60,736

 

 

58,462

 

Construction in progress

 

 

13,586

 

 

11,196

 

Property, plant and equipment, gross

 

 

409,292

 

 

391,112

 

Accumulated depreciation and amortization

 

 

(180,370)

 

 

(151,364)

 

Property, plant and equipment, net

 

$

228,922

 

$

239,748

 

 

During the years ended December 31, 2017,  2016 and 2015, software development costs of $3.1 million, $8.2 million and $43.0 million were capitalized, consisting of software placed into service of $2.4 million, $7.4 million and $40.6 million and amounts recorded in construction in progress of $0.7 million, $0.8 million and $2.4 million, respectively. Amortization expense on capitalized software development costs was $6.4 million, $5.8 million and $5.5 million for the years ended December 31, 2017,  2016 and 2015, respectively.

Total depreciation and amortization expense related to property, plant and equipment was $31.6 million, $31.5 million and $32.5 million for the years ended December 31, 2017,  2016 and 2015, respectively. 

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

6. Goodwill and Identifiable Intangible Assets, Net

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, 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

 

Foreign currency translation

 

 

3,941

 

 

1,914

 

 

85

 

 

464

 

 

296

 

 

6,700

 

Balances at December 31, 2017

 

$

109,363

 

$

53,113

 

$

2,363

 

$

12,879

 

$

8,223

 

$

185,941

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

December 31, 2017

 

December 31, 2016

 

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

 

 

(35,486)

 

 

38,414

 

 

73,900

 

 

(29,956)

 

 

43,944

Customer Relationships

 

20

 

 

19,666

 

 

(6,309)

 

 

13,357

 

 

18,999

 

 

(5,146)

 

 

13,853

Licensing Fees and Other

 

7

 

 

32,539

 

 

(31,176)

 

 

1,363

 

 

32,423

 

 

(28,332)

 

 

4,091

Total intangible assets

 

 

 

$

554,205

 

$

(72,971)

 

$

481,234

 

$

553,422

 

$

(63,434)

 

$

489,988

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

During the years ended December 31, 2017, 2016 and 2015, no impairment charges were recorded to goodwill or indefinite-lived intangible assets.

Amortization expense on identifiable intangible assets was $9.3 million, $9.3 million and $9.3 million for the years ended December 31, 2017,  2016 and 2015, 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, 2017 for each of the next five fiscal years and beyond is expected to be as follows:

 

 

 

 

 

(in thousands)

    

 

 

 

 

 

 

 

 

Year ending December 31,

 

 

 

 

2018

 

$

7,878

 

2019

 

 

6,269

 

2020

 

 

5,926

 

2021

 

 

5,926

 

2022

 

 

5,926

 

Thereafter

 

 

21,209

 

Total

 

$

53,134

 

 

Product Warranty
Product Warranty

 

7. Product Warranty

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

 

 

 

 

 

 

 

 

 

 

 

 

    

Year ended

 

 

 

December 31, 

 

(in thousands)

    

2017

 

2016

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

3,526

 

$

3,345

 

$

2,989

 

Provision

 

 

5,801

 

 

6,200

 

 

5,399

 

Claims paid/costs incurred

 

 

(5,653)

 

 

(5,940)

 

 

(4,929)

 

Foreign currency translation

 

 

149

 

 

(79)

 

 

(114)

 

Balance at end of period

 

$

3,823

 

$

3,526

 

$

3,345

 

 

 

 

 

 

 

 

 

 

 

 

 

Related Party Transactions
Related Party Transactions

8. Related Party Transactions

Other current assets includes receivables from related parties of $0.5 million and $0.9 million as of December 31, 2017 and 2016, respectively. Prior to its initial public offering, the Company incurred interest expense payable to related parties on its outstanding convertible notes (Note 9) and bonds with common stock warrants (Note 10). The related party interest expense totaled $28.1 million and $35.4 million for the years ended December 31, 2016 and 2015, respectively. 

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)

 

2017

 

2016

 

 

 

 

 

 

 

 

 

Term loan

 

$

351,563

 

$

370,313

 

Delayed draw term loan A facility

 

 

95,000

 

 

 -

 

Revolving credit facility

 

 

10,066

 

 

42,495

 

Other short-term borrowings

 

 

10,298

 

 

 -

 

Capital lease obligations

 

 

22

 

 

491

 

Debt issuance costs

 

 

(2,896)

 

 

(3,706)

 

Total

 

 

464,053

 

 

409,593

 

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

 

 

47,083

 

 

61,245

 

Total long-term debt and capital lease obligations

 

$

416,970

 

$

348,348

 

 

The debt issuance costs of $2.9 million and $3.7 million as of December 31, 2017 and 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 senior secured credit facilities are secured by certain assets, including inventory, accounts receivable, fixed assets and intangible assets of the Company.

Interest on borrowings under the credit agreement is payable (1) on the last day of any interest period with respect to Eurodollar borrowings with an applicable interest period of three months or less, (2) every three months with respect to Eurodollar borrowings with an interest period of greater than three months or (3) on the last business day of each March, June, September and December with respect to base rate borrowings and swing line borrowings. In addition, beginning with the date of the initial funding under the credit agreement, the Company is required to pay a commitment fee on any unutilized commitments under the revolving credit facility and the new delayed draw term loan A facility. The initial commitment fee rate is 0.30% per annum and ranges from 0.20% to 0.35% based upon a leverage‑based pricing grid. The Company is also required to pay customary letter of credit fees.

The credit agreement requires the Company to prepay outstanding term loans, subject to certain exceptions, with:

·

100% of the net cash proceeds of all non‑ordinary course asset sales or other dispositions of property by the Company and its restricted subsidiaries (including insurance and condemnation proceeds, subject to de minimis thresholds), (1) if the Company does not reinvest those net cash proceeds in assets to be used in its business or to make certain other permitted investments, within 12 months of the receipt of such net cash proceeds or (2) if the Company commits to reinvest such net cash proceeds within 12 months of the receipt thereof, but does not reinvest such net cash proceeds within 18 months of the receipt thereof; and

·

100% of the net proceeds of any issuance or incurrence of debt by the Company or any of its restricted subsidiaries, other than debt permitted under the credit agreement.

The foregoing mandatory prepayments are used to reduce the installments of principal in such order: first, to prepay outstanding loans under the term loan A facility, the delayed draw term loan A facility and any incremental term loans on a pro rata basis in direct order of maturity and second, to prepay outstanding loans under the revolving credit facility.

The Company may voluntarily repay outstanding loans under the credit agreement at any time without premium or penalty, other than customary “breakage” costs with respect to Eurodollar loans. Any optional prepayment of term loans will be applied as directed by the Company.

The Company is required to make principal payments on the loans under the term loan facilities in quarterly installments in aggregate annual amounts equal to (i) 5.00% of the original principal amount for the first and second year after July 28, 2016, (ii) 7.50% of the original principal amount for the third and fourth year after July 28, 2016 and (iii) 10.0% of the original principal amount for the fifth year after July 28, 2016. The remaining outstanding amount is payable on July 28, 2021, the maturity date for the term loan facilities. Principal amounts outstanding under the revolving credit facility will be due and payable in full on July 28, 2021, the maturity date for the revolving credit facility.

The Company’s 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 17).

The interest rate applicable to the term loan and delayed draw term loan A facility as of December 31, 2017 was 3.32% and the interest rate applicable to the term loan as of December 31, 2016 was 2.27 %.

There were outstanding borrowings under the revolving credit facility of $10.1 million and $42.5 million as of December 31, 2017 and 2016, respectively. The weighted average interest rate applicable to the outstanding borrowings was 4.44% and 2.48 % as of December 31, 2017 and 2016, respectively.

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 September 22, 2017, Magnus entered into a loan agreement (the “New Magnus Loan Agreement”) with certain Korean financial institutions (the “New Magnus Lenders”) which provides for (i) three year term loans in an aggregate amount of Korean Won 399.2 billion (equivalent to approximately $373.7 million, using an exchange rate of $1.00 = Korean Won 1,068.27 as of December 31, 2017) (the “New Magnus Term Loans”) and (ii) a revolving credit loan of Korean Won 10.0 billion (equivalent to approximately $9.4 million, using an exchange rate of $1.00 = Korean Won 1,068.27 as of December 31, 2017) (the “New Magnus Revolving Loan” and, together with the New Magnus Term Loans, the “New Magnus Loans”). The New Magnus Loans are secured by a pledge on all of our common stock owned by Magnus, which consists of 39,345,151 shares (the “Magnus Shares”), or 52.6% of our outstanding common stock.  Under the New Magnus Loan Agreement, Magnus is required to maintain a specified Loan-to-Value ratio (“LTV Ratio”).  If the LTV Ratio exceeds 75%, Magnus will be in breach of the New Magnus Loan agreement. If Magnus does not cure the breach in 60 days, the lenders will have a right to accelerate the maturity of the New Magnus Loan.  If Magnus fails to pay the amount due on the New Magnus Loan at maturity or upon acceleration, the lenders can foreclose on the pledged shares of the Company’s common stock, which may result in the sale of up to 52.6% of the Company’s common stock. 

The credit agreement contains a number of covenants that, among other things, restrict the ability of the U.S. Borrower and its restricted subsidiaries to (subject to certain exceptions), incur, assume, or permit to exist additional indebtedness or guarantees; incur liens; make investments and loans; pay dividends, make payments, or redeem or repurchase capital stock or make prepayments, repurchases or redemptions of certain indebtedness; engage in mergers, liquidations, dissolutions, asset sales, and other dispositions (including sale leaseback transactions); amend or otherwise alter terms of certain indebtedness or certain other agreements; enter into agreements limiting subsidiary distributions or containing negative pledge clauses; engage in certain transactions with affiliates; alter the nature of the business that we conduct or change our fiscal year or accounting practices. Certain exceptions to these covenants are determined based on ratios that are calculated in part using the calculation of Adjusted EBITDA. The credit agreement covenants also restrict the ability of Acushnet Holdings Corp. to engage in certain mergers or consolidations or engage in any activities other than permitted activities. The Company’s credit agreement contains certain customary affirmative and restrictive covenants, including, among others, financial covenants based on the Company’s leverage and interest coverage ratios. The credit agreement includes customary events of default, the occurrence of which, following any applicable cure period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations to be immediately due and payable. As of December 31, 2017, the Company was in compliance with all covenants under the credit agreement.

As of December 31, 2017, the Company had available borrowings under its revolving credit facility of $254.8 million after giving effect to $10.2 million of outstanding letters of credit.

Convertible Notes

Prior to the initial public offering, the Company had outstanding convertible notes with an aggregate principal amount of $362.5 million.  All outstanding convertible notes were converted into common stock in conjunction with the Company’s initial public offering (Note 2). 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 and $27.2 million during the year ended December 31, 2016 and 2015, respectively. 

Secured Floating Rate Notes

On July 28, 2016, outstanding borrowings under the secured floating rate notes of $375.0 million were repaid in full using the proceeds from the senior secured credit facility and the secured floating rate notes were terminated.

Senior Revolving and Term Loan Facilities

As of June 30, 2016, the Company had repaid all amounts outstanding under the senior revolving and term loan facilities and the facilities were terminated.

Other Short-Term Borrowings

 

The Company has certain unsecured facilities available through its subsidiary locations. As of December 31, 2017, the Company had available borrowings under its unsecured facilities of $53.8 million after giving effect to $10.3 million of outstanding borrowings. The weighted average interest rate applicable to the outstanding borrowings was 0.73%.  

Letters of Credit

As of December 31, 2017 and 2016, there were outstanding letters of credit totaling $14.3 million and $11.6 million, respectively, of which $11.2 million and $8.6 million was secured, respectively, related to agreements which provided a maximum commitment for letters of credit of $29.2 million and $24.0 million, respectively.

Payments of Debt Obligations due by Period

As of December 31, 2017, principal payments due on outstanding long-term debt obligations, excluding capital leases, were as follows:

 

 

 

 

 

(in thousands)

    

 

 

 

 

 

 

 

 

Year ending December 31,

 

 

 

 

2018

 

$

26,719

 

2019

 

 

35,625

 

2020

 

 

38,594

 

2021

 

 

345,625

 

2022

 

 

-  

 

Thereafter

 

 

-  

 

Total

 

$

446,563

 

 

Derivative Financial Instruments
Derivative Financial Instruments

10. Derivative Financial Instruments

Bonds with Common Stock Warrants

Prior to the exercise of the final annual call option by Fila Korea in July 2016, the Company had outstanding bonds with common stock warrants for the purchase of the Company’s common stock at an exercise price of $11.11 per share. The Company classified the 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 (Note 11). Changes in the fair value of the common stock warrants were recognized as other (income) expense, net on the consolidated statement of operations (Note 14).

In July 2016 and 2015, Fila Korea exercised its annual call option to purchase 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 in each year. 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 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 December 31, 2017 and 2016 was $278.9 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

 

December 31, 

 

December 31, 

 

(in thousands)

    

Location

    

2017

    

2016

 

 

 

 

 

 

 

 

 

 

 

Asset derivatives

 

Other current assets

 

$

4,675

 

$

11,357

 

 

 

Other noncurrent assets

 

 

562

 

 

5,286

 

Liability derivatives

 

Other current liabilities

 

 

6,360

 

 

1,106

 

 

 

Other noncurrent liabilities

 

 

276

 

 

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)

 

 

 

Year ended

 

 

 

December 31, 

 

(in thousands)

    

2017

    

2016

    

2015

 

 

 

 

 

 

 

 

 

 

 

 

Type of hedge

 

 

 

 

 

 

 

 

 

 

Cash flow

 

$

(15,558)

 

$

7,014

 

$

14,964

 

 

 

$

(15,558)

 

$

7,014

 

$

14,964

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (Loss) Recognized in

 

 

Statement of Operations

 

 

Year ended

 

 

December 31, 

(in thousands)

    

2017

    

2016

    

2015

 

 

 

 

 

 

 

 

 

 

Location of gain (loss) in statement of operations

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

$

1,329

 

$

5,194

 

$

26,805

Selling, general and administrative expense

 

 

(2,732)

 

 

(917)

 

 

3,733

 

 

$

(1,403)

 

$

4,277

 

$

30,538

 

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 $2.1 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, 2017 using:

 

 

(in thousands)

    

Level 1

    

Level 2

    

Level 3

    

Balance Sheet Location

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

Rabbi trust

 

$

10,637

 

$

-  

 

$

-  

 

Other current assets

Foreign exchange derivative instruments

 

 

-  

 

 

4,675

 

 

-  

 

Other current assets

Deferred compensation program assets

 

 

1,866

 

 

-  

 

 

-  

 

Other noncurrent assets

Foreign exchange derivative instruments

 

 

-  

 

 

562

 

 

-  

 

Other noncurrent assets

Total assets

 

$

12,503

 

$

5,237

 

$

-  

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange derivative instruments

 

$

-  

 

$

6,360

 

$

-  

 

Other current liabilities

Deferred compensation program liabilities

 

 

1,866

 

 

-  

 

 

-  

 

Other noncurrent liabilities

Foreign exchange derivative instruments

 

 

-  

 

 

276

 

 

-  

 

Other noncurrent liabilities

Total liabilities

 

$

1,866

 

$

6,636

 

$

-  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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