ACUSHNET HOLDINGS CORP., 10-Q filed on 5/7/2020
Quarterly Report
v3.20.1
Cover Page - shares
3 Months Ended
Mar. 31, 2020
May 01, 2020
Cover [Abstract]    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Mar. 31, 2020  
Document Transition Report false  
Entity File Number 001-37935  
Entity Registrant Name Acushnet Holdings Corp.  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 45-2644353  
Entity Address, Address Line One 333 Bridge Street  
Entity Address, City or Town Fairhaven,  
Entity Address, State or Province MA  
Entity Address, Postal Zip Code 02719  
City Area Code 800  
Local Phone Number 225‑8500  
Title of 12(b) Security Common Stock - $0.001 par value per share  
Trading Symbol GOLF  
Security Exchange Name NYSE  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   74,277,181
Entity Central Index Key 0001672013  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q1  
v3.20.1
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Current assets    
Cash and restricted cash ($15,724 and $8,514 attributable to the variable interest entity (VIE)) $ 55,924 $ 34,184
Accounts receivable, net 309,196 215,428
Inventories ($8,591 and $11,958 attributable to the VIE) 364,935 398,368
Prepaid and other assets 99,423 94,838
Total current assets 829,478 742,818
Property, plant and equipment, net ($11,096 and $11,374 attributable to the VIE) 226,085 231,575
Goodwill ($32,312 and $32,312 attributable to the VIE) 209,920 214,056
Intangible assets, net 478,579 480,794
Deferred income taxes 68,404 70,541
Other assets ($2,489 and $2,517 attributable to the VIE) 75,233 77,265
Total assets 1,887,699 1,817,049
Current liabilities    
Short-term debt 174,809 54,123
Current portion of long-term debt 17,500 17,500
Accounts payable ($9,989 and $8,360 attributable to the VIE) 96,013 102,335
Accrued taxes 32,747 36,032
Accrued compensation and benefits ($2,789 and $3,542 attributable to the VIE) 59,335 72,465
Accrued expenses and other liabilities ($3,591 and $4,468 attributable to the VIE) 85,983 76,663
Total current liabilities 466,387 359,118
Long-term debt 326,674 330,701
Deferred income taxes 4,010 4,837
Accrued pension and other postretirement benefits 119,705 118,852
Other noncurrent liabilities ($5,150 and $5,202 attributable to the VIE) 51,813 51,908
Total liabilities 968,589 865,416
Commitments and contingencies (Note 14)
Redeemable noncontrolling interest 546 807
Shareholders' equity    
Common stock, $0.001 par value, 500,000,000 shares authorized; 75,648,553 and 75,619,587 shares issued 76 76
Additional paid-in capital 912,162 910,507
Accumulated other comprehensive loss, net of tax (129,659) (112,028)
Retained earnings 148,181 151,039
Treasury stock, at cost; 1,671,754 shares and 1,183,966 shares (including 299,894 and 56,000 of accrued share repurchases) (Note 9) (45,106) (31,154)
Total equity attributable to Acushnet Holdings Corp. 885,654 918,440
Noncontrolling interests 32,910 32,386
Total shareholders' equity 918,564 950,826
Total liabilities, redeemable noncontrolling interest and shareholders' equity $ 1,887,699 $ 1,817,049
v3.20.1
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parenthetical) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Cash and restricted cash $ 55,924 $ 34,184
Inventories 364,935 398,368
Property, plant and equipment, net 226,085 231,575
Goodwill 209,920 214,056
Other assets 75,233 77,265
Accounts payable 96,013 102,335
Accrued compensation and benefits 59,335 72,465
Accrued expenses and other liabilities 85,983 76,663
Other noncurrent liabilities $ 51,813 $ 51,908
Common stock, par value (in dollars per share) $ 0.001 $ 0.001
Common stock, shares authorized (in shares) 500,000,000 500,000,000
Common stock, shares issued (in shares) 75,648,553 75,619,587
Treasury stock, at cost (in shares) 1,671,754 1,183,966
Accrued share repurchase (in shares) 299,894 56,000
VIE    
Cash and restricted cash $ 15,724 $ 8,514
Inventories 8,591 11,958
Property, plant and equipment, net 11,096 11,374
Goodwill 32,312 32,312
Other assets 2,489 2,517
Accounts payable 9,989 8,360
Accrued compensation and benefits 2,789 3,542
Accrued expenses and other liabilities 3,591 4,468
Other noncurrent liabilities $ 5,150 $ 5,202
v3.20.1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Income Statement [Abstract]    
Net sales $ 408,741 $ 433,702
Cost of goods sold 207,786 211,545
Gross profit 200,955 222,157
Operating expenses:    
Selling, general and administrative 152,723 155,426
Research and development 13,220 12,751
Intangible amortization 1,956 1,753
Restructuring charges 11,628 0
Income from operations 21,428 52,227
Interest expense, net 4,123 4,883
Other expense (income), net 690 (970)
Income before income taxes 16,615 48,314
Income tax expense 7,640 12,275
Net income 8,975 36,039
Less: Net income attributable to noncontrolling interests (98) (1,113)
Net income attributable to Acushnet Holdings Corp. $ 8,877 $ 34,926
Net income per common share attributable to Acushnet Holdings Corp.:    
Basic (in dollars per share) $ 0.12 $ 0.46
Diluted (in dollars per share) $ 0.12 $ 0.46
Weighted average number of common shares:    
Basic (in shares) 74,545,280 76,006,989
Diluted (in shares) 75,099,930 76,264,038
v3.20.1
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Statement of Comprehensive Income [Abstract]    
Net income $ 8,975 $ 36,039
Other comprehensive income (loss):    
Foreign currency translation adjustments (22,783) 3,842
Cash flow derivative instruments    
Unrealized holding gains arising during period 7,402 1,359
Reclassification adjustments included in net income (1,724) (1,449)
Tax expense (1,848) (70)
Cash flow derivative instruments, net 3,830 (160)
Pension and other postretirement benefits    
Pension and other postretirement benefits adjustments 1,690 (203)
Tax (expense) income (368) 57
Pension and other postretirement benefits adjustments, net 1,322 (146)
Total other comprehensive (loss) income (17,631) 3,536
Comprehensive (loss) income (8,656) 39,575
Less: Comprehensive income attributable to noncontrolling interests (118) (1,113)
Comprehensive (loss) income attributable to Acushnet Holdings Corp. $ (8,774) $ 38,462
v3.20.1
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Cash flows from operating activities    
Net income $ 8,975 $ 36,039
Adjustments to reconcile net income to cash used in operating activities    
Depreciation and amortization 10,269 9,797
Unrealized foreign exchange gains (200) (61)
Amortization of debt issuance costs 213 369
Share-based compensation 2,187 1,785
Gain on disposals of property, plant and equipment (2) 0
Deferred income taxes (1,194) 5,889
Changes in operating assets and liabilities    
Accounts receivable (102,181) (146,894)
Inventories 19,092 17,373
Accounts payable (2,652) 4,491
Accrued taxes (2,125) (7,941)
Other assets and liabilities (4,894) (10,912)
Cash flows used in operating activities (72,512) (90,065)
Cash flows from investing activities    
Additions to property, plant and equipment (5,741) (5,462)
Cash flows used in investing activities (5,741) (5,462)
Cash flows from financing activities    
Proceeds from short-term borrowings, net 125,133 140,778
Repayments of term loan facility (4,375) (7,031)
Repayments of delayed draw term loan A facility 0 (1,875)
Purchases of common stock (6,976) 0
Debt issuance costs (14) 0
Dividends paid on common stock (11,521) (11,872)
Payment of employee restricted stock tax withholdings (380) (10,924)
Cash flows provided by financing activities 101,867 109,076
Effect of foreign exchange rate changes on cash and restricted cash (1,874) 314
Net increase in cash and restricted cash 21,740 13,863
Cash and restricted cash, beginning of year 34,184 31,014
Cash and restricted cash, end of period 55,924 44,877
Supplemental information    
Non-cash additions to property, plant and equipment 1,161 222
Non-cash additions to right-of-use assets obtained in exchange for operating lease obligations 2,020 1,635
Non-cash additions to right-of-use assets obtained in exchange for finance lease obligations 357 0
Dividend equivalents rights (DERs) declared not paid 231 198
Share repurchase liability (Note 9) $ 6,976 $ 0
v3.20.1
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED) - USD ($)
shares in Thousands, $ in Thousands
Total
Total Shareholders' Equity Attributable to Acushnet Holdings Corp.
Common Stock
Additional Paid-in Capital
Accumulated Other Comprehensive Loss, Net of Tax
Retained Earnings
Treasury Stock
Noncontrolling Interests
Beginning balance (in shares) at Dec. 31, 2018     74,760          
Beginning balance at Dec. 31, 2018 $ 926,984 $ 894,872 $ 75 $ 910,890 $ (89,039) $ 72,946 $ 0 $ 32,112
Changes in stockholders' equity                
Net income 36,039 34,926       34,926   1,113
Other comprehensive income (loss) 3,536 3,536     3,536      
Share-based compensation 1,785 1,785   1,785        
Vesting of restricted common stock, including impact of DERs, net of shares withheld for employee taxes (Note 10) (in shares)     844          
Vesting of restricted common stock, including impact of DERs, net of shares withheld for employee taxes (Note 10) (10,925) (10,925) $ 1 (10,926)        
Share repurchase liability (Note 9) 0              
Dividends and dividend equivalents declared (10,782) (10,782)       (10,782)    
Ending balance (in shares) at Mar. 31, 2019     75,604          
Ending balance at Mar. 31, 2019 946,637 913,412 $ 76 901,749 (85,503) 97,090 0 33,225
Beginning balance (in shares) at Dec. 31, 2018     74,760          
Beginning balance at Dec. 31, 2018 926,984 894,872 $ 75 910,890 (89,039) 72,946 0 32,112
Changes in stockholders' equity                
Dividends and dividend equivalents declared (42,977)              
Ending balance (in shares) at Dec. 31, 2019     75,620          
Ending balance at Dec. 31, 2019 950,826 918,440 $ 76 910,507 (112,028) 151,039 (31,154) 32,386
Changes in stockholders' equity                
Net income 8,975              
Net income 9,401 8,877       8,877   524
Other comprehensive income (loss) (17,631) (17,631)     (17,631)      
Share-based compensation 2,023 2,023   2,023        
Vesting of restricted common stock, including impact of DERs, net of shares withheld for employee taxes (Note 10) (in shares)     29          
Vesting of restricted common stock, including impact of DERs, net of shares withheld for employee taxes (Note 10) (368) (368) $ 0 (368)        
Purchases of common stock (Note 9) (6,976) (6,976)         (6,976)  
Share repurchase liability (Note 9) (6,976) (6,976)         (6,976)  
Dividends and dividend equivalents declared (11,735) (11,735)       (11,735)    
Ending balance (in shares) at Mar. 31, 2020     75,649          
Ending balance at Mar. 31, 2020 $ 918,564 $ 885,654 $ 76 $ 912,162 $ (129,659) $ 148,181 $ (45,106) $ 32,910
v3.20.1
Summary of Significant Accounting Policies
3 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
Summary of Significant Accounting Policies Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) and include the accounts of Acushnet Holdings Corp. (the “Company”), its wholly-owned subsidiaries and less than wholly-owned subsidiaries, including a variable interest entity (“VIE”) in which the Company is the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation.
Certain information in footnote disclosures normally included in annual financial statements has been condensed or omitted for the interim periods presented in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and U.S. GAAP. The year-end balance sheet data was derived from audited financial statements; however, the accompanying interim notes to the unaudited condensed consolidated financial statements do not include all disclosures required by U.S. GAAP. In the opinion of management, the financial statements contain all normal and recurring adjustments necessary to state fairly the financial position and results of operations of the Company.  The results of operations for the three months ended March 31, 2020 are not necessarily indicative of results to be expected for the full year ending December 31, 2020, nor were those of the comparable 2019 period representative of those actually experienced for the full year ended December 31, 2019. 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, 2019 included in its Annual Report on Form 10-K filed with the SEC on February 27, 2020.
Risks and Uncertainties
In March 2020, the World Health Organization declared a pandemic related to the novel coronavirus (“COVID-19”) resulting in government-ordered shutdowns of non-essential businesses, travel restrictions and restrictions on public gatherings. This has led to reduced consumer demand for golf-related products, the temporary closure of golf courses, including on-course retail pro shops, the temporary closure of off-course retail partner locations and the cancellation of professional golf tour events. In response to the outbreak and to mitigate the spread of the COVID-19 pandemic, the Company has, consistent with related orders from federal, state and local governments, temporarily closed or limited operations in its North American manufacturing facilities, distribution centers and its corporate offices, with associates working remotely where possible. Outside of the U.S., many distribution centers, including those in Europe, are operating on a limited basis. The Company continues to monitor developments, including government requirements and recommendations at the national, state, and local level to evaluate possible extensions to all or part of such closures.
The Company has evaluated and continues to evaluate the potential impact of the COVID-19 pandemic on its consolidated financial statements, including: impairment of goodwill and indefinite-lived intangible assets; impairment of long lived assets, including property, plant and equipment; the fair value and collectability of receivables and other financial assets; the valuation of inventory; the effectiveness of foreign exchange forward contracts designated as cash flow hedges and the credit quality of the financial institutions with which the Company enters into derivative contracts; continuing compliance with debt covenants related to the Company's credit facility; and the probability of achievement of the performance metrics related to the Company's performance stock units (“PSUs”). The primary impacts to the Company’s consolidated financial statements as of March 31, 2020 include the hedge de-designation of certain foreign exchange forward contracts deemed ineffective (Note 5) and a decrease in share-based compensation expense related to the Company's PSUs (Note 10).
In addition, the Company has taken several steps to strengthen its financial position and balance sheet, bolster its liquidity position and to provide additional financial flexibility, including reducing payroll costs through associate furloughs and a temporary reduction in senior management compensation, reducing discretionary spending, reducing capital expenditures, suspending its share repurchase program, temporarily suspending cash retainers of its Board of Directors and drawing down $200.0 million on its revolving credit facility on April 1, 2020 (Note 4).
As the COVID-19 pandemic is complex and continues to evolve, the Company's plans as described above may change. At this point, the Company cannot reasonably estimate the duration and severity of this pandemic, which it expects will have a material impact on its business, results of operations, financial position and cash flows.
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 and liabilities and related disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company has also made estimates of the impact of COVID-19 within its unaudited condensed consolidated financial statements and there may be changes to those estimates in future periods. Actual results could differ from these estimates.
Variable Interest Entities
VIEs are entities that, by design, either (i) lack sufficient equity to permit the entity to finance its activities independently, or (ii) have equity holders that do not have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the entity’s expected losses, or the right to receive the entity’s expected residual returns. The Company consolidates a VIE when it is the primary beneficiary, which is the party that has both (i) the power to direct the activities that most significantly impact the VIE’s economic performance and (ii) through its interests in the VIE, the obligation to absorb expected losses or the right to receive expected benefits from the VIE that could potentially be significant to the VIE.
The Company consolidates the accounts of Acushnet Lionscore Limited, a VIE, which is 40% owned by the Company. The sole purpose of the VIE is to manufacture the Company’s golf footwear and as such, the Company is deemed to be the primary beneficiary. The Company has presented separately on its consolidated balance sheets, to the extent material, the assets of its consolidated VIE that can only be used to settle specific obligations of its consolidated VIE and the liabilities of its consolidated VIE for which creditors do not have recourse to its general credit. The general creditors of the VIE do not have recourse to the Company. Certain directors of the VIE have guaranteed the credit lines of the VIE, for which there were no outstanding borrowings as of March 31, 2020 and December 31, 2019. In addition, pursuant to the terms of the agreement governing the VIE, the Company is not required to provide financial support to the VIE.
Noncontrolling Interests and Redeemable Noncontrolling Interest
The ownership interests held by owners other than the Company in less than wholly-owned subsidiaries are classified as noncontrolling interests. Redeemable noncontrolling interests are those noncontrolling interests which are or may become redeemable at a fixed or determinable price on a fixed or determinable date, at the option of the holder, or upon occurrence of an event. The financial results and position of the noncontrolling interests are included in their entirety in the Company’s unaudited condensed consolidated statements of operations and unaudited condensed consolidated balance sheets. The value attributable to the noncontrolling interests is presented on the unaudited condensed consolidated balance sheets, separately from the equity attributable to the Company. The value attributable to the redeemable noncontrolling interest and the related loan to the minority shareholders, which is recorded as a reduction to redeemable noncontrolling interest, is presented in the unaudited condensed consolidated balance sheets as temporary equity between liabilities and shareholders’ equity. The amount of the loan to minority shareholders included in temporary equity on the unaudited condensed consolidated balance sheet was $4.4 million as of both March 31, 2020 and December 31, 2019. Net income (loss) and comprehensive income (loss) attributable to noncontrolling interests are presented separately on the unaudited condensed consolidated statements of operations and unaudited condensed consolidated statements of comprehensive income (loss), respectively.
Cash and Restricted Cash
Cash held in Company checking accounts is included in cash. Book overdrafts not subject to offset with other accounts with the same financial institution are classified as accounts payable. The Company classifies as restricted certain cash that is not available for use in its operations. As of both March 31, 2020 and December 31, 2019, the amount of restricted cash included in cash and restricted cash on the unaudited condensed consolidated balance sheets was $2.0 million.
Accounts Receivable
On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) 2016-13, "Financial Instruments -Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"), which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss ("CECL") methodology. The CECL methodology requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including trade receivables.
The only financial assets held by the Company which are subject to evaluation under the CECL model are trade receivables. The Company adopted ASU 2016-13 using the modified retrospective method. The adoption of this standard did not have an impact on the carrying value of trade receivables. Results for reporting periods beginning after January 1, 2020 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP.
The Company estimates expected credit losses using a number of factors, including customer credit ratings, age of receivables, historical credit loss information and current and forecasted economic conditions which affect the collectability of the reported amounts. The Company continues to monitor the impact of the COVID-19 pandemic on its expected credit losses, which has been considered in the estimate of expected credit losses as of March 31, 2020.
The activity related to the allowance for doubtful accounts was as follows:
(in thousands)
 
Three months ended March 31, 2020
Balance at beginning of period
 
$
5,338

Bad debt expense
 
916

Amount of receivables written off
 
(286
)
Foreign currency translation and other
 
(186
)
Balance at end of period
 
$
5,782


Foreign Currency Translation and Transactions
Foreign currency transaction gains (losses) included in selling, general and administrative expense were losses of $1.0 million and gains of $0.5 million for the three months ended March 31, 2020 and 2019, respectively.
Recently Adopted Accounting Standards
Intangibles —Goodwill and Other —Internal-Use Software
On January 1, 2020, the Company adopted ASU 2018-15, "Intangibles -Goodwill and Other -Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract" ("ASU 2018-15"). The amendments in this update aligned the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The adoption of this standard did not have a material impact on the consolidated financial statements.
Recently Issued Accounting Standards
Income Taxes
In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2019-12, "Income Taxes (Topic 740) -Simplifying the Accounting for Income Taxes ("ASU 2019-12"). The amendments in this update simplify the accounting for income taxes by removing certain exceptions to general principles in Topic 740. The amendments also improve consistent application and simplify U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
Defined Benefit Plans—Changes to the Disclosure Requirements for Defined Benefit Plans
In August 2018, the FASB issued ASU 2018-14, "Compensation —Retirement Benefits —Defined Benefit Plans —General (Subtopic 715-20) —Disclosure Framework —Changes to the Disclosure Requirements for Defined Benefit Plans" ("ASU 2018-14"). The amendments in this update remove defined benefit plan disclosures that are no longer considered cost-beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. ASU 2018-14 is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The adoption of this standard should be applied to all periods presented. The adoption of this standard will not have a material impact on the consolidated financial statements.
v3.20.1
Inventories
3 Months Ended
Mar. 31, 2020
Inventory Disclosure [Abstract]  
Inventories Inventories
The components of inventories were as follows:
 
 
 
March 31,
 
December 31,
(in thousands)
 
2020
 
2019
Raw materials and supplies
 
$
73,642

 
$
87,675

Work-in-process
 
27,848

 
22,024

Finished goods
 
263,445

 
288,669

Inventories
 
$
364,935


$
398,368


v3.20.1
Product Warranty
3 Months Ended
Mar. 31, 2020
Product Warranties Disclosures [Abstract]  
Product Warranty Product Warranty
The Company has defined warranties generally ranging from one to two years. Products covered by the defined warranty policies primarily include all Titleist golf products, FootJoy golf shoes and FootJoy golf outerwear. These product warranties generally obligate the Company to pay for the cost of replacement products, including the cost of shipping replacement products to its customers. The estimated cost of satisfying future warranty claims is accrued at the time the sale is recorded. In estimating future warranty obligations, the Company considers various factors, including its warranty policies and practices, the historical frequency of claims and the cost to replace or repair products under warranty.
The activity related to the Company’s warranty obligation for accrued warranty expense was as follows:
 
 
Three months ended March 31,
(in thousands)
 
2020
 
2019
Balance at beginning of period
 
$
4,048

 
$
3,331

Provision
 
1,209

 
1,074

Claims paid/costs incurred
 
(944
)
 
(876
)
Foreign currency translation and other
 
(164
)
 
19

Balance at end of period
 
$
4,149


$
3,548


v3.20.1
Debt and Financing Arrangements
3 Months Ended
Mar. 31, 2020
Debt Disclosure [Abstract]  
Debt and Financing Arrangements Debt and Financing Arrangements
Credit Facility
The credit facility includes a revolving credit facility and a term loan facility. There were outstanding borrowings under the revolving credit facility of $165.0 million and $50.3 million as of March 31, 2020 and December 31, 2019, respectively. The weighted average interest rate applicable to these outstanding borrowings was 2.25% and 3.54% as of March 31, 2020 and December 31, 2019, respectively.
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 March 31, 2020, the Company was in compliance with all covenants under the credit agreement.
As of March 31, 2020, the Company had available borrowings under its revolving credit facility of $225.3 million after giving effect to $9.7 million of outstanding letters of credit.
On April 1, 2020, the Company drew down $200.0 million under its revolving credit facility. Following the draw down, on April 1, 2020, the Company had approximately $367.5 million outstanding and $22.4 million of available borrowings under its revolving credit facility, after giving effect to $10.1 million of outstanding letters of credit. See Note 1 for further discussion on the Company's evaluation and response to the COVID-19 pandemic.
Other Short-Term Borrowings
The Company has certain unsecured local credit facilities available through its subsidiaries. There were outstanding borrowings under the Company's local credit facilities of $9.8 million and $3.8 million as of March 31, 2020 and December 31, 2019, respectively. The weighted average interest rate applicable to the outstanding borrowings was 2.09% and 2.29% as of March 31, 2020 and December 31, 2019, respectively. As of March 31, 2020, the Company had available borrowings remaining under these local credit facilities of $52.8 million.
Letters of Credit
As of March 31, 2020 and December 31, 2019, there were outstanding letters of credit related to agreements, including the Company's credit facility, totaling $13.3 million and $14.8 million, respectively, of which $10.2 million and $11.6 million, respectively, was secured. These agreements provided a maximum commitment for letters of credit of $59.7 million and $59.8 million as of March 31, 2020 and December 31, 2019, respectively.
v3.20.1
Derivative Financial Instruments
3 Months Ended
Mar. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments Derivative Financial Instruments
The Company principally uses derivative financial instruments to reduce the impact of foreign currency fluctuations and interest rate variability on the Company's results of operations. The principal derivative financial instruments the Company enters into are foreign exchange forward contracts and interest rate swaps. The Company does not enter into derivative financial instrument contracts for trading or speculative purposes.
Foreign Exchange Derivative Instruments
Foreign exchange forward contracts are foreign exchange derivative instruments primarily used to reduce foreign currency risk related to transactions denominated in a currency other than functional currency. These instruments are designated as cash flow hedges. The periods of the foreign exchange forward contracts correspond to the periods of the hedged forecasted transactions, which do not exceed 24 months subsequent to the latest balance sheet date. The primary foreign exchange forward contracts pertain to the U.S. dollar, the Japanese yen, the British pound sterling, the Canadian dollar, the Korean won and the euro. The gross U.S. dollar equivalent notional amount outstanding of all foreign exchange forward contracts designated under hedge accounting as of March 31, 2020 and December 31, 2019 was $276.4 million and $287.9 million, respectively.
As a result of the impact of the COVID-19 pandemic, the Company de-designated certain foreign exchange cash flow hedges deemed ineffective. The gross outstanding U.S. dollar equivalent notional amount of these foreign exchange forward contracts as of March 31, 2020 was $17.2 million, which is not included in the amounts above. See Note 1 for further discussion on the Company's evaluation and response to the COVID-19 pandemic.
The Company also enters into foreign exchange forward contracts, which do not qualify as hedging instruments under U.S. GAAP, to reduce foreign currency transaction risk related to certain intercompany assets and liabilities denominated in a currency other than functional currency. These undesignated instruments are recorded at fair value as a derivative asset or liability with the corresponding change in fair value recognized in selling, general and administrative expense. There were no outstanding foreign exchange forward contracts not designated under hedge accounting as of March 31, 2020 and December 31, 2019.
Interest Rate Derivative Instruments
The Company enters into interest rate swap contracts to reduce interest rate risk related to floating rate debt. Under the contracts, the Company pays fixed and receives variable rate interest, in effect converting a portion of its floating rate debt to fixed rate debt. The interest rate swap contracts are accounted for as cash flow hedges. As of both March 31, 2020 and December 31, 2019, the notional value of the Company's outstanding interest rate swap contracts was $160.0 million.
Impact on Financial Statements
The fair value of hedge instruments recognized on the unaudited condensed consolidated balance sheets was as follows:
(in thousands)
 
 
 
March 31,
 
December 31,
Balance Sheet Location
 
Hedge Instrument Type
 
2020
 
2019
Prepaid and other assets (1)
 
Foreign exchange forward
 
$
11,772

 
$
4,549

Other assets
 
Foreign exchange forward
 
3,443

 
1,109

Accrued expenses and other liabilities (2)
 
Foreign exchange forward
 
2,670

 
2,561

 
 
Interest rate swap
 
3,630

 
1,862

Other noncurrent liabilities
 
Foreign exchange forward
 
406

 
115

 
 
Interest rate swap
 
611

 
789


                                                                    
(1) Excludes $0.7 million related to hedges deemed ineffective as of March 31, 2020.
(2) Excludes $0.1 million related to hedges deemed ineffective as of March 31, 2020.
The hedge instrument gain (loss) recognized in accumulated other comprehensive loss, net of tax was as follows:
 
 
Three months ended
 
 
March 31,
(in thousands)
 
2020
 
2019
Type of hedge
 
 
 
 
Foreign exchange forward
 
$
9,467

 
$
2,087

Interest rate swap
 
(2,065
)
 
(728
)
 Total

$
7,402

 
$
1,359


Gains and losses on derivative instruments designated as cash flow hedges are reclassified from accumulated other comprehensive loss, net of tax at the time the forecasted hedged transaction impacts the statement of operations or at the time the hedge is determined to be ineffective. Based on the current valuation, during the next 12 months the Company expects to reclassify a net gain of $7.2 million related to foreign exchange derivative instruments from accumulated other comprehensive loss, net of tax, into cost of goods sold and a net loss of $3.6 million related to interest rate derivative instruments from accumulated other comprehensive loss, net of tax into interest expense, net. For further information related to amounts recognized in accumulated other comprehensive loss, net of tax, see Note 11.
The hedge instrument gain (loss) recognized on the unaudited condensed consolidated statements of operations was as follows:
 
 
Three months ended
 
 
March 31,
(in thousands)
 
2020
 
2019
Location of gain (loss) in statement of operations
 
 
 
 
Foreign exchange forward:
 
 
 
 
Cost of goods sold
 
$
1,542

 
$
1,606

Selling, general and administrative (1)(2)
 
1,534

 
(314
)
Total
 
$
3,076

 
$
1,292

 
 
 
 
 
Interest Rate Swap:
 
 
 
 
Interest expense, net
 
$
(478
)
 
$
(157
)
Total

$
(478
)
 
$
(157
)

_______________________________________________________________________________
(1)
Relates to net gains (losses) on foreign exchange forward contracts derived from previously designated cash flow hedges.
(2)
Excludes net gains of $0.7 million reclassified out of accumulated other comprehensive loss, net of tax related to hedges deemed ineffective during the three months ended March 31, 2020.

Credit Risk
The Company enters into derivative contracts with major financial institutions with investment grade credit ratings and is exposed to credit losses in the event of non-performance by these financial institutions. This credit risk is generally limited to the unrealized gains in the derivative contracts. However, the Company monitors the credit quality of these financial institutions, as well as its own credit quality, and considers the risk of counterparty default to be minimal.
v3.20.1
Fair Value Measurements
3 Months Ended
Mar. 31, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements
Certain assets and liabilities are carried at fair value under U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
Assets and liabilities measured at fair value on a recurring basis as of March 31, 2020 were as follows:
 
 
Fair Value Measurements as of
 
 
 
 
March 31, 2020 using:
 
 
(in thousands)
 
Level 1
 
Level 2
 
Level 3
 
Balance Sheet Location
Assets
 
 
 
 
 
 
 
 
Rabbi trust
 
$
5,620

 
$

 
$

 
Prepaid and other assets
Foreign exchange derivative instruments
 

 
12,521

 

 
Prepaid and other assets
Deferred compensation program assets
 
700

 

 

 
Other assets
Foreign exchange derivative instruments
 

 
3,443

 

 
Other assets
Total assets
 
$
6,320

 
$
15,964

 
$

 
 
Liabilities
 
 
 
 
 
 
 
 
Foreign exchange derivative instruments
 
$

 
$
2,819

 
$

 
Accrued expenses and other liabilities
Interest rate derivative instruments
 

 
3,630

 

 
Accrued expenses and other liabilities
Deferred compensation program liabilities
 
700

 

 

 
Other noncurrent liabilities
Foreign exchange derivative instruments
 

 
406

 

 
Other noncurrent liabilities
Interest rate derivative instruments
 

 
611

 

 
Other noncurrent liabilities
Total liabilities
 
$
700

 
$
7,466

 
$

 
 
 Assets and liabilities measured at fair value on a recurring basis as of December 31, 2019 were as follows:
 
 
Fair Value Measurements as of
 
 
 
 
December 31, 2019 using:
 
 
(in thousands)
 
Level 1
 
Level 2
 
Level 3
 
Balance Sheet Location
Assets
 
 
 
 
 
 
 
 
Rabbi trust
 
$
6,070

 
$

 
$

 
Prepaid and other assets
Foreign exchange derivative instruments
 

 
4,549

 

 
Prepaid and other assets
Deferred compensation program assets
 
870

 

 

 
Other assets
Foreign exchange derivative instruments
 

 
1,109

 

 
Other assets
Total assets
 
$
6,940

 
$
5,658

 
$

 
 
Liabilities
 
 
 
 
 
 
 
 
Foreign exchange derivative instruments
 
$

 
$
2,561

 
$

 
Accrued expenses and other liabilities
Interest rate derivative instruments
 

 
1,862

 

 
Accrued expenses and other liabilities
Deferred compensation program liabilities
 
870

 

 

 
Other noncurrent liabilities
Foreign exchange derivative instruments
 

 
115

 

 
Other noncurrent liabilities
Interest rate derivative instruments
 

 
789

 

 
Other noncurrent liabilities
Total liabilities
 
$
870

 
$
5,327

 
$

 
 

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 could defer compensation until termination of employment. Effective July 29, 2011, this program was amended to cease all employee compensation deferrals and provided for the distribution of all previously deferred employee compensation. The program remains in effect with respect to the value attributable to the employer match contributed prior to July 29, 2011.
Foreign exchange derivative instruments are foreign exchange forward contracts primarily used to limit currency risk that would otherwise result from changes in foreign exchange rates (Note 5). The Company uses the mid‑price of foreign
exchange forward rates as of the close of business on the valuation date to value each foreign exchange forward contract at each reporting period.
Interest rate derivative instruments are interest rate swap contracts used to hedge the interest rate fluctuations of the Company's floating rate debt (Note 5). The valuation for the interest rate swap is calculated as the net of the discounted future cash flows of the pay and receive legs of the swap. Mid-market interest rates on the valuation date are used to create the forward curve for floating legs and discount curve.
v3.20.1
Pension and Other Postretirement Benefits
3 Months Ended
Mar. 31, 2020
Retirement Benefits [Abstract]  
Pension and Other Postretirement Benefits Pension and Other Postretirement Benefits
Components of net periodic benefit cost (income) were as follows: 
 
 
Pension Benefits
 
Postretirement Benefits
 
 
Three months ended March 31,
(in thousands)
 
2020
 
2019
 
2020
 
2019
Components of net periodic benefit cost (income)
 
 
 
 
 
 
 
 
Service cost
 
$
2,316

 
$
2,242

 
$
171

 
$
161

Interest cost
 
2,512

 
2,980

 
112

 
138

Expected return on plan assets
 
(2,903
)
 
(3,299
)
 

 

Amortization of net loss (gain)
 
964

 
272

 
(214
)
 
(363
)
Amortization of prior service cost (credit)
 
70

 
44

 
(34
)
 
(34
)
Net periodic benefit cost (income)
 
$
2,959

 
$
2,239

 
$
35

 
$
(98
)

The non-service cost components of net periodic benefit cost (income) are included in other expense (income), net in the unaudited condensed consolidated statements of operations.
v3.20.1
Income Taxes
3 Months Ended
Mar. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
Income tax expense decreased by $4.7 million to $7.6 million for the three months ended March 31, 2020 compared to $12.3 million for the three months ended March 31, 2019. The Company’s effective tax rate ("ETR") was 46.0% for the three months ended March 31, 2020 compared to 25.4% for the three months ended March 31, 2019. The increase in the ETR was primarily driven by the impact of the COVID-19 pandemic on the Company's jurisdictional mix of earnings and the effect of foreign currency losses incurred in the quarter that cannot be benefited, as well as, a reduction in discrete tax benefits related to share-based compensation expense.
v3.20.1
Common Stock
3 Months Ended
Mar. 31, 2020
Equity [Abstract]  
Common Stock Common Stock
Dividends
The Company declared dividends per common share, including DERs (Note 10), during the periods presented as follows:

 
Dividends per Common Share
 
Amount
(in thousands)
2020:
 
 
 
 
First Quarter
 
$
0.155

 
$
11,735

Total dividends declared in 2020
 
$
0.155

 
$
11,735

 
 
 
 
 
2019:
 
 
 
 
Fourth Quarter
 
$
0.14

 
$
10,718

Third Quarter
 
0.14

 
10,726

Second Quarter
 
0.14

 
10,751

First Quarter
 
0.14

 
10,782

Total dividends declared in 2019
 
$
0.56

 
$
42,977


During the second quarter of 2020, the Company's Board of Directors declared a dividend of $0.155 per common share to shareholders of record as of June 5, 2020 and payable on June 19, 2020.
Share Repurchase Program
As of March 31, 2020, the Board of Directors had authorized the Company to repurchase up to an aggregate $100.0 million of its issued and outstanding common stock.
Share repurchases may be effected from time to time in open market or privately negotiated transactions, including transactions with affiliates, with the timing of purchases and the amount of stock purchased generally determined at the discretion of the Company consistent with the Company's general working capital needs and within the constraints of the Company’s credit agreement. As previously disclosed, in connection with this share repurchase program, the Company entered into an agreement with Magnus to purchase from Magnus an equal amount of its common stock as it purchases on the open market, up to an aggregate of $24.9 million, at the same weighted average per share price.
The Company's share repurchase activity was as follows:
 
 
Three Months Ended March 31,
(in thousands, except share and per share amounts)
 
2020
 
2019
Shares repurchased (1)
 
243,894

 

Average price
 
$
28.60

 
$

Aggregate value
 
$
6,976

 
$

_______________________________________________________________________________
(1) There were no shares repurchased from Magnus during the three months ended March 31, 2020 related to the Magnus share repurchase agreement.
In relation to the Magnus share repurchase agreement, the Company recorded a liability to repurchase additional shares of common stock from Magnus of $8.8 million (299,894 shares) and $1.8 million (56,000 shares), which was included in accrued expenses and other liabilities and treasury stock on the unaudited condensed consolidated balance sheets as of March 31, 2020 and December 31, 2019, respectively. Excluding the impact of the share repurchase liability, as of March 31, 2020 the Company had $63.7 million remaining under the current share repurchase authorization, including $11.1 million related to the Magnus share repurchase agreement.
In April 2020, the Company announced that it was suspending stock repurchases in light of the COVID-19 pandemic. The Company has the ability to resume repurchases if it deems circumstances warrant. See Note 1 for further discussion on the Company's evaluation and response to the COVID-19 pandemic.
v3.20.1
Equity Incentive Plans
3 Months Ended
Mar. 31, 2020
Share-based Payment Arrangement [Abstract]  
Equity Incentive Plans Equity Incentive Plans
Under the Acushnet Holdings Corp. 2015 Omnibus Incentive Plan (“2015 Plan”), the Company may grant stock options, stock appreciation rights, restricted shares of common stock, restricted stock units ("RSUs"), PSUs and other share-based and cash-based awards to members of the Board of Directors, officers, employees, consultants and advisors of the Company. As of March 31, 2020, the only awards granted under the 2015 Plan were RSUs and PSUs.
Restricted Stock and Performance Stock Units
RSUs granted to members of the Board of Directors vest immediately into shares of common stock. RSUs granted to Company officers generally vest over three years, with one-third of each grant vesting annually, subject to the recipient's continued employment with the Company. RSUs granted to other employees, consultants and advisors of the Company vest in accordance with the terms of the grants, generally over three years, subject to the recipient’s continued service to the Company. PSUs vest, subject to the recipient's continued employment with the Company, based upon the Company's performance against specified metrics which are generally over a three year performance period. At the end of the performance period, the number of shares of common stock that could be issued is fixed based upon the level of performance against these metrics. The number of shares that could be issued can range from 0% to 200% of the recipient's target award. Recipients of the awards granted under the 2015 Plan may elect to defer receipt of all or any portion of any shares of common stock issuable upon vesting to a future date elected by the recipient.
All RSUs and PSUs granted under the 2015 Plan have DERs, which entitle holders of RSUs and PSUs to the same dividend value per share as holders of common stock and can be paid in either cash or common stock. DERs are subject to the same vesting and other terms and conditions as the corresponding unvested RSUs and PSUs. DERs are paid when the underlying shares of common stock are delivered.
A summary of the Company’s RSUs and PSUs as of March 31, 2020 and changes during the three months then ended is presented below: 
 
 
 
 
Weighted-
 
 
 
Weighted-
 
 
Number
 
Average
 
Number
 
Average
 
 
of RSUs
 
Fair Value RSUs
 
of PSUs
 
Fair Value PSUs
Outstanding as of December 31, 2019
 
947,243

 
$
23.49

 
207,077

 
$
23.47

Granted
 
492,975

 
25.45

 
252,031

 
25.45

Vested (1)
 
(62,259
)
 
21.38

 

 

Outstanding as of March 31, 2020
 
1,377,959

 
$
24.28

 
459,108

 
$
24.55



_______________________________________________________________________________
(1) Included 52,386 shares of common stock related to RSUs and no shares of common stock related to PSUs that were not delivered as of March 31, 2020.
A summary of shares of common stock issued related to the 2015 Plan, including the impact of any DERs issued in common stock, is presented below:
 
 
Three months ended
 
Three months ended
 
 
March 31, 2020
 
March 31, 2019
 
 
RSUs
 
PSUs
 
RSUs
 
PSUs
Shares of common stock issued (1)
 
42,797

 

 
392,062

 
900,226

Shares of common stock withheld by the Company as payment by employees in lieu of cash to satisfy tax withholding obligations
 
(13,831
)
 

 
(123,013)

 
(325,246
)
Net shares of common stock issued
 
28,966

 

 
269,049

 
574,980

 
 
 
 
 
 
 
 
 
Cumulative undelivered shares of common stock
 
240,512

 

 
147,251

 

______________________________________________________________________________
(1) Shares of common stock issued related to PSUs represents PSUs that vested in 2018 but were delivered in common stock during the three months ended March 31, 2019.
Compensation expense recorded related to RSUs and PSUs in the consolidated statement of operations was as follows:
 
 
Three months ended
 
 
March 31,
(in thousands)
 
2020
 
2019
RSUs
 
$
2,478

 
$
1,570

PSUs
 
(455
)
 
215


The remaining unrecognized compensation expense related to unvested RSUs and unvested PSUs was $23.5 million and $4.6 million, respectively, as of March 31, 2020 and is expected to be recognized over the related weighted average period of 2.2 years and 2.5 years, respectively.
Compensation Expense
The allocation of share-based compensation expense in the unaudited condensed consolidated statements of operations was as follows:
 
 
Three months ended
 
 
March 31,
(in thousands)
 
2020
 
2019
Cost of goods sold
 
$
225

 
$
167

Selling, general and administrative
 
1,714

 
1,467

Research and development
 
248

 
151

Total compensation expense before income tax
 
2,187

 
1,785

Income tax benefit
 
463

 
390

Total compensation expense, net of income tax
 
$
1,724

 
$
1,395


v3.20.1
Accumulated Other Comprehensive Loss, Net of Tax
3 Months Ended
Mar. 31, 2020
Equity [Abstract]  
Accumulated Other Comprehensive Loss, Net of Tax Accumulated Other Comprehensive Loss, Net of Tax
Accumulated other comprehensive loss, net of tax consists of foreign currency translation adjustments, unrealized gains and losses from derivative instruments designated as cash flow hedges (Note 5) and pension and other postretirement adjustments (Note 7).
The components of and changes in accumulated other comprehensive loss, net of tax, were as follows:
 
 
Foreign
 
Gains (Losses) on
 
Gains (Losses) on
 
Pension and
 
Accumulated
 
 
Currency
 
Foreign Exchange
 
Interest Rate
 
Other
 
Other
 
 
Translation
 
Derivative
 
Swap Derivative
 
Postretirement
 
Comprehensive
(in thousands)
 
Adjustments
 
Instruments
 
Instruments
 
Adjustments
 
Loss, Net of Tax
Balance as of December 31, 2019
 
$
(71,187
)
 
$
2,901

 
$
(2,003
)
 
$
(41,739
)
 
$
(112,028
)
Other comprehensive income (loss) before reclassifications
 
(22,783
)
 
9,467

 
(2,065
)
 
904

 
(14,477
)
Amounts reclassified from accumulated other comprehensive loss, net of tax
 

 
(2,202
)
 
478

 
786

 
(938
)
Tax benefit (expense)
 

 
(2,233
)
 
385

 
(368
)
 
(2,216
)
Balance as of March 31, 2020
 
$
(93,970
)
 
$
7,933

 
$
(3,205
)
 
$
(40,417
)
 
$
(129,659
)

v3.20.1
Net Income per Common Share
3 Months Ended
Mar. 31, 2020
Earnings Per Share [Abstract]  
Net Income per Common Share Net Income per Common Share
The following is a computation of basic and diluted net income per common share attributable to Acushnet Holdings Corp.:
 
 
Three months ended
 
 
March 31,
(in thousands, except share and per share amounts)
 
2020
 
2019
 
 
 
 
 
Net income attributable to Acushnet Holdings Corp.
 
$
8,877

 
$
34,926

 
 
 
 
 
Weighted average number of common shares:
 
 
 
 
Basic
 
74,545,280

 
76,006,989

Diluted
 
75,099,930

 
76,264,038

 
 
 
 
 
Net income per common share attributable to Acushnet Holdings Corp.:
 
 
 
 
Basic
 
$
0.12

 
$
0.46

Diluted
 
$
0.12

 
$
0.46


Net income per common share attributable to Acushnet Holdings Corp. for the three months ended March 31, 2020 and 2019 was calculated using the treasury stock method.
The Company’s potential dilutive securities for the three months ended March 31, 2020 and 2019 include RSUs and PSUs. PSUs vest based upon achievement of performance targets and are excluded from the diluted shares outstanding unless the performance targets have been met as of the end of the applicable reporting period regardless of whether such performance targets are probable of achievement.
For the three months ended March 31, 2020 and 2019, the following securities have been excluded from the calculation of diluted weighted‑average common shares outstanding as their impact was determined to be anti‑dilutive:
 
 
Three months ended
 
 
March 31,
 
 
2020
 
2019
RSUs
 

 
4,050


v3.20.1
Segment Information
3 Months Ended
Mar. 31, 2020
Segment Reporting [Abstract]  
Segment Information Segment Information
The Company’s operating segments are based on how the Chief Operating Decision Maker (“CODM”) makes decisions about assessing performance and allocating resources. The Company has four reportable segments that are organized on the basis of product categories. These segments include Titleist golf balls, Titleist golf clubs, Titleist golf gear and FootJoy golf wear.
The CODM primarily evaluates performance using segment operating income (loss). Segment operating income (loss) includes directly attributable expenses and certain shared costs of corporate administration that are allocated to the reportable segments, but excludes interest expense, net, restructuring charges, the non-service cost component of net periodic benefit cost, transaction fees and other non‑operating gains and losses as the Company does not allocate these to the reportable segments. The CODM does not evaluate a measure of assets when assessing performance.
Results shown for the three months ended March 31, 2020 and 2019 are not necessarily those which would be achieved if each segment was an unaffiliated business enterprise. There are no intersegment transactions.
Information by reportable segment and a reconciliation to reported amounts are as follows:
 
 
Three months ended March 31,
(in thousands)
 
2020
 
2019
Net sales
 
 
 
 
Titleist golf balls
 
$
116,239

 
$
141,667

Titleist golf clubs
 
93,214

 
91,318

Titleist golf gear
 
43,525

 
45,181

FootJoy golf wear
 
130,387

 
140,981

Other
 
25,376

 
14,555

Total net sales

$
408,741

 
$
433,702

 
 
 
 
 
Segment operating income (loss)
 
 
 
 
Titleist golf balls
 
$
3,243

 
$
19,728

Titleist golf clubs
 
4,503

 
(405
)
Titleist golf gear
 
8,865

 
9,151

FootJoy golf wear
 
14,297

 
20,144

Other
 
1,080

 
3,440

Total segment operating income

31,988

 
52,058

Reconciling items:
 
 
 
 
Interest expense, net
 
(4,123
)
 
(4,883
)
Restructuring charges
 
(11,628
)
 

Non-service cost component of net periodic benefit cost
 
(507
)
 
262

Other
 
885

 
877

Total income before income tax

$
16,615

 
$
48,314


Information as to the Company’s operations in different geographical areas is presented below. Net sales are categorized based on the location in which the sale originates.
 
 
Three months ended March 31,
(in thousands)
 
2020
 
2019
United States
 
$
211,008

 
$
230,383

EMEA (1)
 
74,671

 
71,078

Japan
 
37,556

 
40,735

Korea
 
50,449

 
49,042

Rest of world
 
35,057

 
42,464

Total net sales
 
$
408,741

 
$
433,702


_______________________________________________________________________________
(1) Europe, the Middle East and Africa ("EMEA")
v3.20.1
Commitments and Contingencies
3 Months Ended
Mar. 31, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies Commitments and Contingencies
Purchase Obligations
During the normal course of its business, the Company enters into agreements to purchase goods and services, including purchase commitments for production materials, finished goods inventory, capital expenditures and endorsement arrangements with professional golfers.
The Company's purchase obligations as of March 31, 2020 were as follows:
 
 
Payments Due by Period
 
 
Remainder of
 
 
 
 
 
 
 
 
 
 
(in thousands)
 
2020
 
2021
 
2022
 
2023
 
2024
 
Thereafter
Purchase obligations (1)
 
$
139,355

 
$
17,955

 
$
4,065

 
$
649

 
$
467

 
$
1,603


_______________________________________________________________________________
(1)
The reported amounts exclude those liabilities included in accounts payable or accrued liabilities on the unaudited condensed consolidated balance sheet as of March 31, 2020.
Contingencies
In connection with the Company’s acquisition of Acushnet Company, Beam Suntory, Inc. indemnified the Company for certain tax related obligations that relate to periods during which Fortune Brands, Inc. owned Acushnet Company. As of March 31, 2020 and December 31, 2019, the Company’s estimate of its receivable for these indemnifications was $9.6 million and $9.5 million, respectively, which was recorded in other assets on the unaudited condensed consolidated balance sheets.
Litigation
The Company and its subsidiaries are defendants in lawsuits associated with the normal conduct of their businesses and operations. It is not possible to predict the outcome of the pending actions, and, as with any litigation, it is possible that some of these actions could be decided unfavorably. Consequently, the Company is unable to estimate the ultimate aggregate amount of monetary loss, amounts covered by insurance or the financial impact that will result from such matters and has not recorded a liability related to potential losses.
v3.20.1
Restructuring Charges
3 Months Ended
Mar. 31, 2020
Restructuring and Related Activities [Abstract]  
Restructuring Charges Restructuring Charges
During the first quarter of 2020, management approved a restructuring program to refine its business model and improve operational efficiencies. This program included both a voluntary retirement program and involuntary headcount reductions, which are discussed further below.
During the three months ended March 31, 2020, the Company announced a voluntary bridge to retirement ("VBR") program for certain eligible employees. The program is part of the Company's long-term strategic planning process and is designed to bridge eligible employees to retirement. As part of this program, employees were offered severance in the form of salary continuation, including benefits, as well as accrued bonus incentives. During the three months ended March 31, 2020, the Company recorded $11.2 million in severance and other benefits related to the VBR program, of which $7.5 million was included in accrued compensation and benefits and $3.7 million was included in other noncurrent liabilities on the unaudited condensed consolidated balance sheet as of March 31, 2020. There are no further costs expected to be incurred with this voluntary program.
During the three months ended March 31, 2020, the Company began involuntary headcount reductions and recorded $0.4 million in severance and other benefits.
Subject to the length and severity of the COVID-19 pandemic, the Company may implement additional restructuring programs in the future.
v3.20.1
Summary of Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
Basis of Presentation
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) and include the accounts of Acushnet Holdings Corp. (the “Company”), its wholly-owned subsidiaries and less than wholly-owned subsidiaries, including a variable interest entity (“VIE”) in which the Company is the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation.
Certain information in footnote disclosures normally included in annual financial statements has been condensed or omitted for the interim periods presented in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and U.S. GAAP. The year-end balance sheet data was derived from audited financial statements; however, the accompanying interim notes to the unaudited condensed consolidated financial statements do not include all disclosures required by U.S. GAAP. In the opinion of management, the financial statements contain all normal and recurring adjustments necessary to state fairly the financial position and results of operations of the Company.  The results of operations for the three months ended March 31, 2020 are not necessarily indicative of results to be expected for the full year ending December 31, 2020, nor were those of the comparable 2019 period representative of those actually experienced for the full year ended December 31, 2019. 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, 2019 included in its Annual Report on Form 10-K filed with the SEC on February 27, 2020.
Use of Estimates
Use of Estimates
The preparation of the Company’s unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and judgments that affect reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company has also made estimates of the impact of COVID-19 within its unaudited condensed consolidated financial statements and there may be changes to those estimates in future periods. Actual results could differ from these estimates.
Variable Interest Entities
Variable Interest Entities
VIEs are entities that, by design, either (i) lack sufficient equity to permit the entity to finance its activities independently, or (ii) have equity holders that do not have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the entity’s expected losses, or the right to receive the entity’s expected residual returns. The Company consolidates a VIE when it is the primary beneficiary, which is the party that has both (i) the power to direct the activities that most significantly impact the VIE’s economic performance and (ii) through its interests in the VIE, the obligation to absorb expected losses or the right to receive expected benefits from the VIE that could potentially be significant to the VIE.
The Company consolidates the accounts of Acushnet Lionscore Limited, a VIE, which is 40% owned by the Company. The sole purpose of the VIE is to manufacture the Company’s golf footwear and as such, the Company is deemed to be the primary beneficiary. The Company has presented separately on its consolidated balance sheets, to the extent material, the assets of its consolidated VIE that can only be used to settle specific obligations of its consolidated VIE and the liabilities of its consolidated VIE for which creditors do not have recourse to its general credit. The general creditors of the VIE do not have recourse to the Company. Certain directors of the VIE have guaranteed the credit lines of the VIE, for which there were no outstanding borrowings as of March 31, 2020 and December 31, 2019. In addition, pursuant to the terms of the agreement governing the VIE, the Company is not required to provide financial support to the VIE.
Noncontrolling Interests and Redeemable Noncontrolling Interest
Noncontrolling Interests and Redeemable Noncontrolling Interest
The ownership interests held by owners other than the Company in less than wholly-owned subsidiaries are classified as noncontrolling interests. Redeemable noncontrolling interests are those noncontrolling interests which are or may become redeemable at a fixed or determinable price on a fixed or determinable date, at the option of the holder, or upon occurrence of an event. The financial results and position of the noncontrolling interests are included in their entirety in the Company’s unaudited condensed consolidated statements of operations and unaudited condensed consolidated balance sheets. The value attributable to the noncontrolling interests is presented on the unaudited condensed consolidated balance sheets, separately from the equity attributable to the Company. The value attributable to the redeemable noncontrolling interest and the related loan to the minority shareholders, which is recorded as a reduction to redeemable noncontrolling interest, is presented in the unaudited condensed consolidated balance sheets as temporary equity between liabilities and shareholders’ equity. The amount of the loan to minority shareholders included in temporary equity on the unaudited condensed consolidated balance sheet was $4.4 million as of both March 31, 2020 and December 31, 2019. Net income (loss) and comprehensive income (loss) attributable to noncontrolling interests are presented separately on the unaudited condensed consolidated statements of operations and unaudited condensed consolidated statements of comprehensive income (loss), respectively.
Cash and Restricted Cash
Cash and Restricted Cash
Cash held in Company checking accounts is included in cash. Book overdrafts not subject to offset with other accounts with the same financial institution are classified as accounts payable. The Company classifies as restricted certain cash that is not available for use in its operations.
Accounts Receivable
Accounts Receivable
On January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) 2016-13, "Financial Instruments -Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"), which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss ("CECL") methodology. The CECL methodology requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including trade receivables.
The only financial assets held by the Company which are subject to evaluation under the CECL model are trade receivables. The Company adopted ASU 2016-13 using the modified retrospective method. The adoption of this standard did not have an impact on the carrying value of trade receivables. Results for reporting periods beginning after January 1, 2020 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP.
The Company estimates expected credit losses using a number of factors, including customer credit ratings, age of receivables, historical credit loss information and current and forecasted economic conditions which affect the collectability of the reported amounts. The Company continues to monitor the impact of the COVID-19 pandemic on its expected credit losses, which has been considered in the estimate of expected credit losses as of March 31, 2020.
Foreign Currency Translation and Transactions
Foreign Currency Translation and Transactions
Foreign currency transaction gains (losses) included in selling, general and administrative expense were losses of $1.0 million and gains of $0.5 million for the three months ended March 31, 2020 and 2019, respectively.
Recently Adopted Accounting Standards and Recently Issued Accounting Standards
Recently Adopted Accounting Standards
Intangibles —Goodwill and Other —Internal-Use Software
On January 1, 2020, the Company adopted ASU 2018-15, "Intangibles -Goodwill and Other -Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract" ("ASU 2018-15"). The amendments in this update aligned the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The adoption of this standard did not have a material impact on the consolidated financial statements.
Recently Issued Accounting Standards
Income Taxes
In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2019-12, "Income Taxes (Topic 740) -Simplifying the Accounting for Income Taxes ("ASU 2019-12"). The amendments in this update simplify the accounting for income taxes by removing certain exceptions to general principles in Topic 740. The amendments also improve consistent application and simplify U.S. GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact this standard will have on its consolidated financial statements.
Defined Benefit Plans—Changes to the Disclosure Requirements for Defined Benefit Plans
In August 2018, the FASB issued ASU 2018-14, "Compensation —Retirement Benefits —Defined Benefit Plans —General (Subtopic 715-20) —Disclosure Framework —Changes to the Disclosure Requirements for Defined Benefit Plans" ("ASU 2018-14"). The amendments in this update remove defined benefit plan disclosures that are no longer considered cost-beneficial, clarify the specific requirements of disclosures, and add disclosure requirements identified as relevant. ASU 2018-14 is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. The adoption of this standard should be applied to all periods presented. The adoption of this standard will not have a material impact on the consolidated financial statements.
v3.20.1
Summary of Significant Accounting Policies (Tables)
3 Months Ended
Mar. 31, 2020
Accounting Policies [Abstract]  
Activity related to the allowance for doubtful accounts
The activity related to the allowance for doubtful accounts was as follows:
(in thousands)
 
Three months ended March 31, 2020
Balance at beginning of period
 
$
5,338

Bad debt expense
 
916

Amount of receivables written off
 
(286
)
Foreign currency translation and other
 
(186
)
Balance at end of period
 
$
5,782


v3.20.1
Inventories (Tables)
3 Months Ended
Mar. 31, 2020
Inventory Disclosure [Abstract]  
Schedule of inventory
The components of inventories were as follows:
 
 
 
March 31,
 
December 31,
(in thousands)
 
2020
 
2019
Raw materials and supplies
 
$
73,642

 
$
87,675

Work-in-process
 
27,848

 
22,024

Finished goods
 
263,445

 
288,669

Inventories
 
$
364,935


$
398,368


v3.20.1
Product Warranty (Tables)
3 Months Ended
Mar. 31, 2020
Product Warranties Disclosures [Abstract]  
Schedule of warranty obligation for accrued warranty expense
The activity related to the Company’s warranty obligation for accrued warranty expense was as follows:
 
 
Three months ended March 31,
(in thousands)
 
2020
 
2019
Balance at beginning of period
 
$
4,048

 
$
3,331

Provision
 
1,209

 
1,074

Claims paid/costs incurred
 
(944
)
 
(876
)
Foreign currency translation and other
 
(164
)
 
19

Balance at end of period
 
$
4,149


$
3,548