18APR201817524672
2017
Annual Report
Dear Valued Shareholder,
It’s my pleasure to share with you an overview of Acushnet Holdings Corp.’s recent performance
and provide insight into the steps we are taking to strengthen and advance our business for the future.
Year in Review
2017 was another year of market leadership for Acushnet. Titleist was again the #1 Ball in Golf,
as it has been since winning the U.S. Open Championship 69 years ago. Scotty Cameron putters and
Vokey Wedges were each the most played on the PGA Tour, and FootJoy once again cemented its
position as the #1 Shoe in Golf and #1 Glove in Golf.
Golf’s longest-running success story is built upon product performance, innovation, quality and
consistency.
The Vision
We remain committed to our founding vision which is to be the most authentic company in golf.
Our differentiated and proven operating model begins with our focus on, and understanding of, the
game’s dedicated golfer.
Our performance products, which help golfers play their best, are the result of both manufacturing
process excellence and a deep-rooted commitment to new product and technology innovation. These
products are validated by their broad-based usage and support by the game’s best players, both
professional and amateur. We rely on strong trade partnerships to connect with dedicated golfers, and
Acushnet’s vision is perpetuated by our passionate associates and an enduring culture.
The Golf Industry Opportunity
We believe the golf industry, and especially the dedicated golfer market, remains an attractive
investment opportunity. There are an estimated 50 million golfers in the world who play more than
800 million rounds of golf per year on the approximately 32,000 golf courses. These same golfers spend
an estimated $12 billion dollars annually on golf equipment and apparel at retail. The dedicated golfer
is responsible for the majority of this spending, and has proven to be resilient across economic cycles.
The dedicated golfer is Acushnet’s primary focus.
Financial Results
We continued to execute well in the face of the correcting U.S. market and unfavorable weather
which negatively impacted rounds of play and club fittings during the first half of 2017.
In 2017, we introduced many successful new products, including new Titleist Pro V1 and Pro V1x
golf balls and the new 718 family of Titleist irons and 818 hybrids. Several new Titleist gear products
were also introduced helping to fuel consistent growth across all gear categories. With our FootJoy
brand, we launched the new D.N.A. Helix golf shoes and Tour LTS Performance outerwear, while
continuing to support and grow our Pro/SL franchise of golf shoes, which became the #1 spikeless shoe
in golf in 2017.
The ongoing execution of our strategy and operating model reinforced our market leadership and
bolstered our operational performance. In 2017, Acushnet delivered revenues of $1.56 billion and
Adjusted EBITDA* of $223 million as we built product and financial momentum throughout the year.
Affirming our commitment to our supportive shareholders, we also initiated a quarterly dividend that
paid out a total of $35.7 million in cash for the year.
The Future
Each of Acushnet’s business segments is structured and oriented to incubate product innovation,
and our 2018 launch calendar is full with exciting new product introductions which bring enthusiasm to
golfers, our trade partners and our associates.
New Titleist Tour Soft, Velocity and AVX golf balls, Vokey Design SM7 Wedges, Scotty Cameron
Select Putters and the Titleist Players stand bag collection will be introduced in the first half of 2018.
From FootJoy, we are excited to launch our new Tour-S and ARC SL golf shoes and spring apparel
lines, also in the first half of the year.
Our recent acquisition of Links & Kings brings exceptional, golf-inspired leather goods and
creative design capabilities to Acushnet, and extends our portfolio of products targeted towards the
game’s dedicated golfer. We look forward to supporting and further developing the Links & Kings
opportunity.
We continue to make strategic investments in innovation, technology and automation to advance
the performance of tomorrow’s products. In support of these leading products, we constantly seek to
improve our manufacturing, supply chain and route-to-market capabilities and efficiencies.
Our Commitment
We believe Acushnet is well positioned to continue to satisfy dedicated golfers worldwide with golf
products that deliver performance and quality excellence. We are committed to providing exemplary
service to our loyal and supportive trade partners, while offering Acushnet associates opportunities to
grow and contribute to our enduring corporate culture.
We are resolute in our commitment to deliver a long-term, total return investment opportunity for
our supportive shareholders. This commitment is rooted in our ability to execute our proven operating
model and our disciplined approach to investing for the future.
On behalf of our Board of Directors and my fellow associates, I thank you for investing in
Acushnet.
Sincerely,
David Maher
President and Chief Executive Officer
18APR201817401270
*
For a reconciliation of Adjusted EBITDA to net income attributable to Acushnet Holdings Corp.
(the most directly comparable GAAP financial measure), see ‘‘Item 7—Management’s Discussion
and Analysis of Financial Condition and Results of Operations’’ in our 10-K included in this
Annual Report.
18APR201817524672
FOLLOWING IS THE COMPANY’S ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(cid:59)
(cid:134)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
For the fiscal year ended December 31, 2017
OR
1934 for the transition period from to
Commission File Number: 001-37935
Acushnet Holdings Corp.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
45-2644353
(I.R.S. Employer Identification No.)
333 Bridge Street
Fairhaven, Massachusetts 02719
(Address of principal executive offices)
(800) 225-8500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.001 per share
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:134) No (cid:59)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:134) No (cid:59)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days. Yes (cid:59) No (cid:134)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes (cid:59) No (cid:134)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10- K. (cid:59)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of
the Exchange Act.
Large accelerated filer
Accelerated filer
(cid:134)
(cid:59)
Non-accelerated filer
(cid:134)
Smaller reporting company
(Do not check if a smaller reporting company)
Emerging growth company
(cid:134)
(cid:134)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:134)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes (cid:134) No (cid:59)
As of the last business day of the registrant's most recently completed second fiscal quarter (June 30, 2017), the aggregate market value of the registrant's common stock
held by non-affiliates was approximately $667.6 million. The registrant's common stock trades on the New York Stock Exchange under the symbol “GOLF”.
The registrant had 74,744,536 shares of common stock outstanding as of March 2, 2018
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A relating to the Registrant’s Annual
General Meeting of Shareholders, to be held on June 11, 2018, will be incorporated by reference in this Form 10-K in response to Items 10, 11, 12, 13 and 14 of Part III.
The definitive proxy statement will be filed with the SEC not later than 120 days after the registrant’s fiscal year ended December 31, 2017.
TABLE OF CONTENTS
Page
Part I
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Item 2.
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Item 3.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Item 4. Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
46
Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . 49
Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Item 8.
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosures . . . . . . . . . . . 76
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Part III
Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stocholder Matters . . . . 79
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . . . . . . . 79
Item 14. Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Part IV
Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Item 16. 10-K Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81
In this Annual Report on Form 10-K, the terms “Acushnet,” “we,” “us,” “our” and the “Company” refer to
Acushnet Holdings Corp. and its consolidated subsidiaries.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of Section 21E of
the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created
by that section. These forward-looking statements are included throughout this report, including in the sections entitled
“Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and
relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future
operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating
information. We have used the words “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,”
“intend,” “may,” “plan,” “potential,” “predict,” “project,” “future,” “will,” “seek,” “foreseeable” and similar terms and
phrases to identify forward-looking statements in this report, although not all forward-looking statements use these
identifying words.
The forward-looking statements contained in this report are based on management’s current expectations and
are subject to uncertainty and changes in circumstances. We cannot assure you that future developments affecting us will
be those that we have anticipated. Actual results may differ materially from these expectations due to changes in global,
regional or local economic, business, competitive, market, regulatory and other factors, many of which are beyond our
control. We believe that these factors include, but are not limited to those identified in the section entitled “Risk
Factors.”
These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary
statements that are included in this report. Should one or more of these risks or uncertainties materialize, or should any
of our assumptions prove incorrect, our actual results may vary in material respects from those projected in these
forward-looking statements.
Any forward-looking statement made by us in this report speaks only as of the date of this report. Factors or
events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict
all of them. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking
statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements
do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, investments or other
strategic transactions we may make. We undertake no obligation to publicly update or review any forward-looking
statement, whether as a result of new information, future developments or otherwise, except as may be required by any
applicable securities laws.
INDUSTRY AND MARKET DATA
Within this Annual Report on Form 10-K, we reference information and statistics regarding the golf industry
and the golf equipment, wear and gear markets. We have obtained certain of this information and statistics from various
independent third-party sources, including independent industry publications, reports by market research firms and other
independent sources for the most recent available date. We believe that these external sources and estimates are reliable,
but have not independently verified them. Certain of this information and statistics are based on our good faith,
reasonable estimates, which are derived from our review of internal surveys and independent sources. In addition,
projections, assumptions and estimates of the future performance of the golf industry and our future performance are
necessarily subject to uncertainty and risk due to a variety of factors, including those described in “Risk Factors” and
“Forward-Looking Statements.” These and other factors could cause results to differ materially from those expressed in
the estimates made by the independent parties and by us.
WEBSITE DISCLOSURE
We use our website (www.acushnetholdingscorp.com) as a channel of distribution of company information.
The information we post through this channel may be material. Accordingly, investors should monitor this channel, in
addition to following our press releases, Securities and Exchange Commission (“SEC”) filings and public conference
calls and webcasts. In addition, you may automatically receive e-mail alerts and other information about Acushnet
Holdings Corp. when you enroll your e-mail address by visiting the “Resources” section of our website at
https://www.acushnetholdingscorp.com/investors/resources. The contents of our website are not, however, a part of this
report.
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TRADEMARKS, TRADE NAMES AND SERVICE MARKS
This Annual Report on Form 10-K includes trademarks, trade names and service marks that we either own or
license, such as “Titleist,” “FootJoy,” “Pro V1,” “Pro V1x,” “FJ,” “Pinnacle,” “Scotty Cameron,” and “Vokey Design”
which are protected under applicable intellectual property laws. Solely for convenience, trademarks, trade names and
service marks referred to in this report may appear without the ®, TM or SM symbols, but such references are not intended
to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the right of the
applicable licensor to these trademarks, trade names and service marks. This report may also contain trademarks, trade
names and service marks of other parties, and we do not intend our use or display of other parties’ trademarks, trade
names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or
endorsement or sponsorship of us by, these other parties.
iii
ITEM 1. BUSINESS
Overview
PART I
We are the global leader in the design, development, manufacture and distribution of performance-driven golf
products, which are widely recognized for their quality excellence. Our mission—to be the performance and quality
leader in every golf product category in which we compete—has remained consistent since we entered the golf ball
business in 1932. Today, we are the steward of two of the most revered brands in golf—Titleist, one of golf’s leading
performance equipment brands, and FootJoy, one of golf’s leading performance wear brands. Titleist has been the
#1 ball in professional golf for 69 years and FootJoy has been the #1 shoe on the PGA Tour for over six decades.
Our target market is dedicated golfers, who are the cornerstone of the worldwide golf industry. These dedicated
golfers are avid and skill-biased, prioritize performance and commit the time, effort and money to improve their game.
We believe our focus on innovation and process excellence yields golf products that represent superior performance and
consistent product quality, which are the key attributes sought after by dedicated golfers. Many of the game’s
professional players, who represent the most dedicated golfers, prefer our products thereby validating our performance
and quality promise, while also driving brand awareness. We seek to leverage a pyramid of influence product and
promotion strategy, whereby our products are the most played by the best players, creating aspirational appeal for a
broad range of golfers who want to emulate the performance of the game’s best players.
Dedicated golfers view premium golf shops, such as on-course golf shops and golf specialty retailers, as
preferred retail channels for golf products of superior performance and product quality. As a result, we have committed
to being one of the preferred and trusted partners to premium golf shops worldwide. We believe this commitment
provides us a retail environment where our product performance and quality advantage can most effectively be
communicated to dedicated golfers. In addition, we also service other qualified retailers that sell golf products to
consumers worldwide.
Our vision is to consistently be regarded by industry participants, from dedicated golfers to the golf shops that
serve them, as the best golf company in the world. We have established leadership positions across all major golf
equipment and golf wear categories under our globally recognized brands.
For the year ended December 31, 2017, we recorded net sales of $1,560.3 million, net income attributable to
Acushnet Holdings Corp. of $92.1 million and Adjusted EBITDA of $223.4 million. See “Item 7. – Management’s
Discussion and Analysis of Financial Condition and Results of Operations” for a reconciliation of Adjusted EBITDA to
net income attributable to Acushnet Holdings Corp., the most directly comparable GAAP financial measure.
Corporate History
Acushnet Company was originally founded as “Acushnet Process Company” in Acushnet, Massachusetts by
Phil “Skipper” Young in 1910 and our golf business was established in 1932. In 1976, Acushnet Company was acquired
by American Brands, Inc. (the predecessor company of Beam Suntory, Inc. (“Beam”)). We acquired FootJoy in 1985.
On July 29, 2011, Acushnet Holdings Corp. (at the time known as Alexandria Holdings Corp.), an entity owned by Fila
Korea and certain financial investors, acquired Acushnet Company from Beam. We completed an initial public offering
of our common stock in November 2016. See “Notes to Consolidated Financial Statements– Note 2– Summary of
Significant Accounting Policies,” for disclosures related to our initial public offering and other related transactions.
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Our Core Focus
Dedicated Golfers
Our target market is dedicated golfers, who are avid and skill-biased, prioritize performance and commit the
time, effort and money to improve their game. We believe that dedicated golfers are the most consistent purchasers of
golf products and account for an outsize share of golf equipment and gear spending outside the United States and
purchase a significant portion of golf wear products worldwide.
Product Platform
Leveraging the success of our golf ball and golf shoe businesses, while maintaining the core values of the
Titleist and FootJoy brands, we have strategically entered into product categories such as golf clubs, wedges, putters,
golf gloves, golf gear and golf wear with an objective of being the performance and quality leader.
Since the dedicated golfer views each performance product category on its own merits, we have approached
each category on its own terms by committing the necessary resources to become a performance and quality leader in
each product category where we participate. As a result, we have built an industry leading platform across all
performance product categories, driving a market-differentiating mix of consumable products, which we consider to be
golf balls and golf gloves, which collectively represented 40% of our net sales in 2017, and more durable products,
which we consider to be golf clubs, golf shoes, golf apparel and golf gear, which collectively represented 60% of our net
sales in 2017.
We operate under the following four reportable segments: Titleist golf balls; Titleist golf clubs; Titleist golf
gear; and FootJoy golf wear, which represented approximately 33%, 26%, 9% and 28%, respectively, of net sales in
2017. For further information surrounding the principal products of each reportable segment, see “Our Products” further
below. Financial information for our segments, including sales by geographic area, is included in “Item 7. –
Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in “Notes to
Consolidated Financial Statements – Note 20 – Segment Information.”
Pyramid of Influence
The game of golf is learned by observation and imitation, and golfers improve their own performance by
attempting to emulate highly skilled golfers. Golfers are influenced not only by how other golfers swing but also by what
they swing with and what they swing at. This is the essence of golf’s pyramid of influence, which is deeply ingrained in
the mindset of the dedicated golfer. At the top of the pyramid is the most dedicated golfer, who attempts to make a living
playing the game professionally. Adoption by most of the best golfers, whose professional success depends on their
performance, validates the quality, features and benefits of using the best performing products. This, in turn, creates
aspirational appeal for golfers who want to emulate the performance of the best players. Our primary marketing strategy
is for our products to be the most played by the best players, including both professional and amateur golfers. We
believe this strategy has proven to be enduring and effective in the long-term and is not dependent on the transient
success of a few elite players at any given point in time.
Innovation Leadership
We believe innovation is critical to dedicated golfers as they depend on the ability of new and innovative
products to drive improved performance. We currently employ an R&D team of approximately 180 scientists, chemists,
engineers and technicians. We also introduce new product innovations at a cadence that best aligns with the typical
dedicated golfer’s replacement cycle within each product category.
Operational Excellence
The requirements of the game lead the dedicated golfer to seek out products of maximum performance and
consistency. We own or control the design, sourcing, manufacturing, packaging and distribution of our products. In
doing so, we are able to exercise control over every step of the manufacturing process and supply chain operations,
2
thereby setting the standard for quality and consistency. We have developed and refined distinct and independently
managed supply chains for each of our product categories.
Route to Market Leadership
As one of the preferred partners to premium golf shops, we seek to ensure that the performance benefits derived
from using our products are showcased and our products are properly merchandised. As we see our retail partners as a
critical connection to dedicated golfers, we place great emphasis on building strong relationships and trust with them.
This is the reason our sales associates are expected not simply to be salespeople, but to function as golf experts and
enthusiasts in their respective territories, who advise and assist our retail partners to better serve their customers. We
help generate golfer demand and sell-through via in-shop merchandising, promotions and advertising, and also provide
product education to club professionals, coaches and instructors. Lastly, we place a strong focus on consumer
engagement, starting with fitting and trial initiatives across our balls, clubs and shoes categories. We offer custom
products across categories that we believe are better aligned with golfers’ personal styles, skill levels and preferences.
Market Overview and Opportunity
Market Overview
In 2016, there were over 50 million golfers worldwide playing over 800 million rounds annually on over 32,000
golf courses, and our addressable market, comprised of golf equipment, golf wear and golf gear, represented
approximately $12 billion in retail sales and approximately $8 billion in wholesale sales. The United States accounted
for over 40% of our addressable market, followed by Japan and Korea collectively accounting for over 30% of our
addressable market, each in 2016. We believe the number of rounds of golf played by our target market of dedicated
golfers has remained stable over the past few years.
We view emerging economies, such as the markets in Southeast Asia, as attractive long-term opportunities
based on our assessment of the five collectively necessary and sufficient conditions for a country to embrace golf:
(1) sizeable middle-class population; (2) educational infrastructure; (3) places to play and practice; (4) professional
success that inspires the local golfers; and (5) corporate support.
We believe the golf industry is mainly driven by golfer demographics, dedicated golfers, weather and economic
conditions.
Golfer Demographics. Golf is a recreational activity that requires time and money. The golf industry has been
principally driven by the age cohort of 30 and above, currently “gen-x” (age 30 to 49) and “baby boomers” (age 50 to
69), who have the time and money to engage in the sport. Since a significant number of baby boomers have yet to retire,
we anticipate growth in spending from this demographic as it has been demonstrated that rounds of play increase
significantly as those in this cohort reach retirement. Further, we also believe that the percentage of women golfers will
continue to grow, as a higher percentage of new golfers in recent years have been women. Beyond the gen-x and baby
boomer generation, another promising development in golf has been the generational shift with millennial golfers
making their marks at both professional and amateur levels.
Dedicated Golfers. Dedicated golfers are largely gen-x and baby boomers who have demonstrated the
propensity to pay a premium for products that help them perform better. We believe dedicated golfers, who comprise our
target market, will continue to be a key driver for the global golf industry.
Weather Conditions. Weather conditions determine the number of playable days in a year and thus influence
the amount of time people spend on golf. Weather conditions in most parts of the world, including our primary
geographic markets, generally restrict golf from being played year-round, with many of our on-course customers closed
during the cold weather months. Therefore, favorable weather conditions generally result in more playable days in a
given year and more golf rounds played, which generally results in increased demand for all golf products.
Economic Conditions. The state of the economy influences the amount of money people spend on golf. Golf
equipment, including clubs, balls and accessories, is recreational in nature and is therefore a discretionary purchase for
consumers. Consumers are generally more willing to make discretionary purchases of golf products when economic
conditions are favorable and when consumers are feeling confident and prosperous.
3
Our Growth Strategies
We plan to continue to pursue organic growth initiatives across all product categories, brands, geographies and
marketing channels.
Introduce New Products and Extend Market Share Leadership in Equipment Categories. We expect to
sustain our strong performance in our core categories of golf balls and golf clubs through several targeted strategies:
• Titleist Golf Balls. We continuously invest in design innovation and refining our sell-in and sell-through
route to market capabilities and effectiveness in the golf ball product category. We are currently focused on
improving our sales team training in product, merchandising, local promotion and selling skills, as well as
enhancing trade partnerships in those channels where dedicated golfers shop. To grow our custom golf ball
business, we have in place several new initiatives designed to develop strategic partnerships with
corporations heavily invested in golf and to drive growth with a particular focus on the areas of corporate,
country club, tournament and personalized sales. The 2016 launch of the “My Pro V1” online golf shop
allows golfers to create and purchase their own unique Titleist Pro V1 / Pro V1x golf balls with special
play numbers, logos or personalization.
• Titleist Clubs, Wedges and Putters. We intend to continue to launch innovative, high performance golf
clubs by further leveraging Titleist clubs’ R&D platform. We believe concept and specialty products and
premium quality digital content will further drive customer awareness and market share gains across all
premium club categories. To enhance trial and fitting, we plan to continue our consumer connection
initiatives, grow our fitting network in opportunistic markets and further promote the utilization of our
distinctive fitting operations. We are also executing several initiatives to further elevate Vokey Design
wedges and Scotty Cameron putters as golf’s leaders in short-game performance, technology,
craftsmanship and selection.
Increase Penetration in Golf Gear and Wear Categories. We intend to build on the brand loyalty that the
dedicated golfer has developed for our Titleist ball and club categories and FootJoy shoe and glove categories in order to
increase our penetration in the adjacent categories of golf gear and golf wear. We expect to continue to drive growth
across these categories by employing the following initiatives:
• Titleist Golf Gear. We are committed to providing dedicated golfers with golf gear—including golf bags,
headwear, gloves, travel gear, head covers and other accessories—of performance and quality excellence
that is faithful to the Titleist brand promise. We are making significant investments in design and
engineering resources and are leveraging dedicated player research methodologies and insights to drive
innovation in this product category. We also plan to expand our custom and limited edition product
offerings.
• FootJoy Women’s Apparel Initiative. We are currently building out a focused, performance-based FootJoy
women’s apparel line consistent with the brand’s successful positioning in men’s apparel. The women’s
apparel line, which launched in early 2016, pairs sophisticated performance fabrics and design with
layering technology pioneered by FootJoy to create comfort and protection from the elements.
• FootJoy eCommerce Launch. We launched eCommerce websites for FootJoy in the U.S. in 2016 and in
Canada and certain European markets in 2017. Over 6,000 SKUs are offered across all FootJoy categories,
including shoes, gloves and apparel. The eCommerce initiative is expected to yield incremental sales and
profitability, and enriched data on preferences and trends, as well as foster a deeper and more real time
connection with dedicated golfers.
4
Strategically Pursue Global Growth. The Titleist and FootJoy brands are both global brands. While we believe
that a majority of the near-term growth will be driven by the developed economies, emerging economies, such as the
markets in Southeast Asia, represent longer-term growth opportunities. To meet future demand, we are ensuring that
local capabilities and expertise in sales, customer service, merchandising, online presence, golf education and fitting
initiatives are in place to support our operations. We continue to hire local talent across all functions in order to better
position Titleist and FootJoy products in those markets where participation and popularity of the sport are expected to
increase.
Our Products
We design, manufacture and market a broad range of products under the Titleist and FootJoy brands. Both
brands are recognized as industry leaders in performance, quality, innovation and design. Our products include golf
balls, golf clubs, wedges and putters, golf shoes, golf gloves, golf gear and golf outerwear and apparel.
Titleist Golf Balls
Titleist Golf Clubs,
Wedges and Putters
Titleist Golf Gear
• Pro V1
• Pro V1x
• Tour Soft
• Velocity
• DT TruSoft
• Pinnacle
• Drivers
• Fairways
• Hybrids
•
Irons
• Vokey Design wedges
• Scotty Cameron putters
• Golf bags
• Headwear
• Golf gloves
• Travel gear
• Head covers
• Other golf gear
FootJoy Shoes
FootJoy Gloves
FootJoy Outerwear and Apparel
• Traditional
• Spikeless
• Athletic
• Casual
Titleist
• Leather construction
• Synthetic
• Leather/synthetic combination
• Specialty
• Performance outerwear
• Performance golf apparel
• Golfleisure women’s apparel
We design, manufacture and sell golf balls, golf clubs, wedges and putters and golf gear under the Titleist
brand. Net sales of Titleist products for the years ended December 31, 2017, 2016 and 2015 were $1,122.8 million,
$1,139.2 million, and $1,084.1 million, respectively, in each case approximately 72% of our total net sales.
Titleist Golf Balls
Titleist is the #1 ball in golf. The Titleist golf ball was founded with a purpose of designing and manufacturing
a performance oriented, high quality golf ball that was superior to all other products available in the market. We believe
the golf ball is the most important piece of equipment in the game, as it is the only piece of equipment used by every
player for every shot. The golf ball is also the most important category for us as it generates the largest portion of our
sales and profits. Since its introduction in 2000, the Titleist Pro V1 has been the best-selling golf ball globally and
continues to set the bar in terms of product design, quality and performance. We also design, manufacture and sell other
golf balls under the Titleist brand, such as Tour Soft, Velocity and DT TruSoft, as well as under the Pinnacle brand. We
have continually improved our golf balls through innovation in materials, construction and manufacturing processes,
which has enabled us to build the #1 golf ball franchise in the world.
Pro V1 and Pro V1x are designed to be the highest performing and highest quality golf balls for golfers at every
level of the game and best demonstrate Titleist’s design, innovation and technology leadership. The first Pro V1 golf ball
5
was introduced on the PGA Tour in October 2000 and launched to the consumer market in December 2000. It
represented the coalescence of three of Titleist’s industry leading technologies: large solid core; multi-component
construction; and high performance, thermoset cast urethane elastomer covers. In its first four months, the Pro V1 golf
ball became the best-selling golf ball and holds that position to this day. During this time, we also set out to create a ball
that produced lower driver spin and higher launch characteristics than the Pro V1 while retaining its high performance
scoring spin. With its four-piece, dual core design, the first Pro V1x golf ball was introduced in 2003. In 2017, we
launched new versions of the Pro V1 and Pro V1x. The New Pro V1 is designed to offer significantly longer distance
from faster ball speed and lower long game spin. Advancements in aerodynamics for both Pro V1 and Pro V1x are
designed to produce even more consistent flight. We believe these improvements, along with benefits such as our
renowned Drop-and-Stop control, soft feel and long lasting durability, make Pro V1 and Pro V1x golf balls the best
performance choice for all golfers. We also provide best-in-class performance with the Tour Soft, Velocity and DT
TruSoft models.
With two major models, Rush and Soft, Pinnacle golf balls are also available in different optic colors and play
numbers. Our Pinnacle Brand competes in the price market segment, which allows the Titleist brand to focus on the
premium performance and performance market segments and reduces the need to extend the Titleist brand to the price
market segment. This also helps to support the thousands of golf shops that choose to exclusively stock Titleist and
Pinnacle golf balls, allowing them to offer golf balls in each market segment which market segments we discussed and
defined below.
Titleist and Pinnacle golf balls accounted for $512.0 million, or 33%, $513.9 million, or 33%, and
$535.5 million, or 36%, of our total net sales for the years ended December 31, 2017, 2016 and 2015, respectively.
We are also a leader in custom imprinted golf balls. This includes printing high quality reproductions of
corporate logos, tournament logos, country club or resort logos, and personalization on Titleist and Pinnacle golf balls.
Our service includes design capabilities, special packaging options and fast turnaround times. The majority of custom
imprinting is done for corporate logos, as there has long been a strong connection between the business community and
golf. Custom imprinted golf balls represented over 30% of our global net golf ball sales for the year ended
December 31, 2017.
Titleist Golf Clubs, Wedges and Putters
We design, assemble and sell golf clubs (drivers, fairways, hybrids and irons) under the Titleist brand, wedges
under the Vokey Design brand and putters under the Scotty Cameron brand. The mission of our golf club business is to
design and develop the best performing golf clubs in the world for dedicated golfers. We believe dedicated golfers do
not buy brands across categories but seek out best-in-class products in each category. This is the reason we have
partnered with dedicated engineers and craftsmen such as Bob Vokey and Scotty Cameron, who understand the nuances,
subtleties and impact mechanics of their respective golf club categories. Titleist golf clubs, Vokey Design wedges and
Scotty Cameron putters are widely used by professional and competitive amateur players, which validates the products’
performance and quality excellence. We are also committed to a leading club fitting and trial platform to maximize
dedicated golfers’ performance experience.
We view and operate the Titleist golf club business in three distinct categories: clubs (which includes drivers,
fairways, hybrids and irons), wedges and putters. Our products are generally priced at or above the premium price points
in the marketplace, driven by higher-end technologies (including design, materials and processes) we employ to generate
superior quality and performance. We have different models within each category to address the distinct performance
needs of our dedicated golfer target audience. Titleist golf clubs, wedges and putters accounted for $398.0 million, or
26%, $431.0 million, or 27%, and $388.3 million, or 26%, of our total net sales for the years ended December 31, 2017,
2016 and 2015, respectively.
Titleist Clubs
Our current global club line consists of the 917 product line of drivers and fairways, the 818 product line of
hybrids and the 718 product line of irons. Every product in our club line features premium, tour-proven stock shafts and
grips, complemented by a broad range of custom options.
6
Titleist 917 drivers and fairways are designed to deliver superior performance through tour-proven technologies
that increase ball speed, decrease spin, and optimize flight without sacrificing forgiveness. We design our drivers and
fairways to deliver complete performance with tour-preferred looks, sound and feel, and we offer the ability to precisely
fit individual golfers’ needs.
Titleist 818 hybrids generate long game performance through advanced technology. The advanced features of
our hybrids aim to facilitate precision fitting and generate high ball speed, low spin and high launch for increased
distance and forgiveness.
Titleist 718 irons are innovative, technologically advanced products designed to deliver distance, forgiveness,
proper shot control and feel. While we offer stock set configurations for our iron sets, a significant portion of our
worldwide iron sales are custom fit to help deliver a better fit and performance.
Vokey Design Wedges
Bob Vokey champions the Titleist wedge effort by creating high performance wedges to meet the demands of
dedicated golfers and the best players in the world. The Vokey Design wedge product offering is a compilation of the
most popular wedges resulting from Bob Vokey’s hands-on work with golf’s best players to develop shapes and soles
that address varying techniques and course conditions. In total, we offer 23 unique loft, sole grind and bounce
combinations and three unique finishes to create golf’s most complete wedge product performance range. In addition,
Vokey’s online Wedgeworks program promotes limited edition models and allows golfers to customize and personalize
their wedges. Vokey Design wedges are the most played wedges by tour professionals.
Scotty Cameron Putters
Scotty Cameron Fine Milled Putters are developed through a specialized and iterative process that blends art
and science to create high performance putters. Scotty’s design inspiration begins with studying the best players in the
world and working with them to identify the consistent strengths and attributes of their putting. Scotty Cameron
encourages a selection process that identifies the putter length, toe flow and appearance to deliver proper balance, shaft
flex and feel to golfers and to encourage proper technique. Scotty Cameron putters consist of a range of products for
each of these key selection criteria.
Using the scottycameron.com website as an information and services hub, we offer the opportunity to connect
more closely with the Scotty Cameron brand. Golfers can customize and personalize their putter(s) in the online Scotty
Cameron Custom Shop. Through the popular “Club Cameron” loyalty program and Scotty’s online “Studio Store,”
brand fans can purchase unique Scotty Cameron accessories. In 2014, we also opened the Scotty Cameron Gallery in
Encinitas, California, and in 2016, we entered into a license agreement whereby a third party opened and operates a
similar facility in Tokyo, Japan. Each of these facilities is a premium retail boutique which offers consumers the ability
to experience the tour fitting process as well as purchase unique accessory items.
Titleist Golf Gear
We offer a diversified portfolio of Titleist-branded performance golf gear across the golf bags, headwear,
gloves, travel gear, head covers and other golf gear categories. Our golf gear is focused on superior performance and
quality excellence, which is the mission of any product bearing the Titleist brand name.
Titleist golf gear products are designed and engineered using premium materials, paying particular attention to
superior performance, function and style. We focus on the design and development of golf bags, headwear, gloves, travel
gear, head covers and other golf gear. We provide personalization and customization within each category of Titleist golf
gear, as well as certain licensed products, in order to meet the needs of the dedicated golfer and as part of our service to
our accounts. We believe the golf gear business represents a sizable but highly fragmented opportunity with numerous
competitors in each product category and geographical market. Titleist golf gear, which includes golf bags, headwear,
golf gloves, travel gear, head covers and other golf gear, accounted for $142.9 million, or 9%, $136.2 million, or 9%,
and $129.4 million, or 9%, of our net sales for the years ended December 31, 2017, 2016 and 2015, respectively.
7
FootJoy Golf Wear
FootJoy is one of golf’s leading performance wear brands, which consists collectively of golf shoes, gloves and
apparel. Net sales of FootJoy products for the years ended December 31, 2017, 2016 and 2015 were $437.5 million,
$433.1 million, and $418.9 million, respectively, in each case approximately 28% of our total net sales.
FootJoy Golf Shoes
FootJoy is the #1 shoe in golf and has been the #1 shoe on the PGA Tour for over six decades. With an
exclusive focus on golf, FootJoy shoes are designed, developed and manufactured for all golfers in all golf shoe
categories, including traditional, casual, athletic and spikeless.
The golf shoe category is one of the most demanding of all wearables, as golf shoes must perform in all weather
conditions, including extreme temperature and moisture exposure; be resistant to pesticides and fungicides; withstand
frequent usage and extensive rounds of play; and provide consistent comfort, support and protection to the golfer in an
average of over five miles in a walked round. Hence, golf shoes require extensive knowledge and expertise in foot
morphology, walking and swing biomechanics, material science and application and sophisticated manufacturing and
construction techniques.
Golf shoes are also a style and fashion driven category. FootJoy offers a large assortment of styles to suit the
needs and tastes of all golfers. The breadth and scope of the FootJoy product line is commensurate with its leading sales
position. To maintain and grow this leadership position in the category, new product launches and new styles comprise
over 50% of its offerings each year in all significant markets around the world.
In addition to its stock offerings, FootJoy is a leader in the customization of golf shoe styles and designs.
FootJoy’s MyJoys custom golf shoe portal provides individual choices for style, color, personal IDs and team logos that
are produced to order for golfers around the world. We believe it is the largest choice offering in the golf shoe category
and provides a service and personal expression capability that creates brand loyalty and repeat purchases.
FootJoy Gloves
FootJoy is the #1 glove in golf. FootJoy is the leader in sales for all sub-categories of the glove business,
including leather construction, synthetic, leather/synthetic combinations and all specialty gloves including rain and
winter specific offerings.
FootJoy Outerwear and Apparel
FootJoy’s most recent brand extensions have been the entry into the golf outerwear and golf apparel markets.
FootJoy’s goal for outerwear is to “make every day playable” and extend the golf season by providing products for rain,
wind and cold conditions. FootJoy entered the outerwear category in 1996 with innovative designs and materials,
became the leader in net sales in the United States by 2005 and still holds this position today.
FootJoy more broadly entered the U.S. women’s golf apparel market in early 2016 under the trademark
Golfleisure. The styling is appropriate for golf and inspired by the current athleisure segment of women’s apparel in
other categories and uses.
8
Product Launch Cycles
We maintain differentiated and disciplined product launch cycles across our portfolio, which we believe has
contributed to stable and resilient growth over the long-run. This approach gives our R&D teams a period of time we
believe is necessary to develop superior performing products versus the prior generation models. As a result, we are able
to manage our product transitions and inventory from one generation to the next more efficiently and effectively, both
internally and with our trade partners.
Product introductions generally stimulate net sales as the golf retail channel takes on inventory of new products.
Reorders of these new products then depend on the rate of sell-through. Announcements of new products can often cause
our customers to defer purchasing additional golf equipment until our new products are available. The varying product
introduction cycles may cause our results of operations to fluctuate as each product line has different volumes, prices and
margins.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Key Factors
Affecting our Results of Operations – Product Launch Cycles”, Item 7 of Part II to this report, for further information
surrounding our product launch cycles.
Manufacturing
Our manufacturing processes and management of supply chain operations ensure consistency of product
performance and quality. We own or control the design, sourcing, manufacturing, packaging and distribution of our
products.
Our manufacturing network is comprised of our owned facilities and partners around the globe. Our scale and
global reach are intended to enable us to maximize cost efficiency, reduce lead time, provide regional customization and
gain insights into local markets.
We have three company-owned and operated golf ball manufacturing facilities, two located in the United States
and one in Thailand, encompassing approximately 600,000 total square feet with sufficient production capacity to meet
anticipated growth. We also have local custom golf ball imprinting operations in the United States, Japan, Canada, the
United Kingdom (“U.K.”) (servicing the U.K., Ireland and continental Europe), Korea and China. We utilize local
vendors for imprinting capabilities in other geographic markets.
We assemble clubs at six global locations, allowing us to provide custom fitted golf clubs with regional
customization with efficient turnaround times. Each of our six custom manufacturing locations is responsible for supply
chain execution for golf clubs and wedges, from forecast generation to component procurement to club assembly and
distribution, allowing each region to respond to market specific needs or trends. Scotty Cameron putters are assembled
solely at our Carlsbad, California manufacturing facility.
We own and operate the largest golf glove manufacturing operation in the world in Chonburi, Thailand, where
we manufacture both FootJoy and Titleist golf gloves. The factory produces over 10 million FootJoy and Titleist gloves
annually.
All of our FootJoy golf shoes are manufactured in a 525,000 square foot facility in Fuzhou, China, owned by a
joint venture in which we have a 40% interest with the remaining 60% owned by our long-standing Taiwan supply
partners. In our consolidated financial statements, we consolidate the accounts of this joint venture, which is a variable
interest entity, or VIE. The joint venture was established in 1995 and has been in its current facility since 2000. The sole
purpose of the joint venture is to manufacture our golf shoes and as such we are deemed to be the primary beneficiary of
the VIE as defined by ASC 810. The multi-floor/multi-building complex owned by the joint venture is devoted
exclusively to FootJoy golf shoes, has production capacity of nearly five million pairs per annum. See “Notes to
Consolidated Financial Statements– Note 2– Summary of Significant Accounting Policies – Variable Interest Entities,”
Item 8 of Part II included elsewhere in this report, for a discussion of our FootJoy golf shoe joint venture and the
material terms of the agreement which governs such joint venture arrangement.
9
Sales and Distribution
Our accounts consist of premium golf shops, which include on-course golf shops and golf specialty retailers, as
well as other qualified retailers that sell golf products to consumers worldwide. We have a selective sales and
distribution strategy, differentiated by product line and geography, which focuses on effectively serving those accounts
that provide best access to our dedicated golfer target market in each geographic market.
We operate, and have our own field sales representation, in those countries that represent the substantial
majority of golf equipment and wearable sales, including the United States, Japan, Korea, the United Kingdom, Canada,
Germany, Sweden, France, Greater China, Australia, New Zealand, Thailand, Singapore and Malaysia. In other
countries in which we sell our products, we rely on select distributors in order to deepen our reach into those markets.
Each country administers its own in-country channel of distribution strategy given the unique characteristics of each
market.
Our sales and distribution takes a “category management” approach that encompasses all aspects of customer
service and fulfillment, including product selection; space and display planning; sales staff training; and inventory
control and replenishment. Each sales representative advises on topics such as shop layout, merchandise display
techniques and effective use of signage and product information and methods of improving inventory turns and sales
conversions through merchandising. Our sales force has been recognized worldwide for its professionalism and service
excellence.
We employ over 370 sales representatives worldwide, who are compensated through a combination of salary
and a performance bonus. We currently service nearly 30,000 direct accounts worldwide. In both our direct sales and
distributor markets, our trade partners are subject to our redistribution policy.
Supplementing our core field sales partnerships are certain Internet-based initiatives. In Canada and certain
European markets in 2017, we launched eCommerce websites for FootJoy. In the U.S. in 2016, we launched
eCommerce websites for FootJoy and the MyProV1.com online golf shop.
Marketing
Throughout our history, we believe our commitment to marketing has helped further elevate our brands and
strengthen our reputation for product performance and quality, with a particular focus on the perception of dedicated
golfers. Our strategy is to deliver equipment that is superior in performance and quality, validated by the pyramid of
influence. It is best-in-class performance and quality products that earn and maintain dedicated golfers’ loyalty and trust.
Our marketing strategy, developed and refined over many years, is to reinforce this loyalty and trust, driving
connectivity with our brands.
Seasonality
Weather conditions in most parts of the world, including our primary geographic markets, generally restrict golf
from being played year-round, with many of our on-course customers closed during the cold weather months. In general,
during the first quarter, we begin selling our products into the golf retail channel for the new golf season. This initial
sell-in generally continues into the second quarter. Our second-quarter sales are significantly affected by the amount of
sell-through, in particular the amount of higher value discretionary purchases made by customers, which drives the level
of reorders of the products sold during the first quarter. Our third-quarter sales are generally dependent on reorder
business, and are generally lower than the second quarter, as many retailers begin decreasing their inventory levels in
anticipation of the end of the golf season. Our fourth-quarter sales are generally less than the other quarters due to the
end of the golf season in many of our key markets, but can also be affected by key product launches, particularly golf
clubs. This seasonality, and therefore quarter to quarter fluctuations, can be affected by many factors, including the
timing of new product introductions as discussed in “Management’s Discussion and Analysis of Financial Condition and
Results of Operations - Key Factors Affecting our Results of Operations – Product Launch Cycles”, Item 7 of Part II to
this report, as well as weather conditions. This seasonality affects sales in each of our reportable segments differently. In
general, however, because of this seasonality, a majority of our sales and most of our profitability generally occurs
during the first half of the year.
10
Research and Product Development
Innovating within a highly regulated environment presents unique challenges and opportunities that require a
significant investment in people, facilities and financial resources, with separate dedicated R&D teams for each product
category. We have six R&D facilities and/or test centers supported by approximately 180 scientists, chemists, engineers
and technicians in aggregate. We are committed to continuous improvement and each R&D team is tasked to develop
technology that will deliver better quality and performance products in each generation.
For the years ended December 31, 2017, 2016 and 2015 we invested $48.1 million, $48.8 million and
$46.0 million, respectively, in R&D.
Patents, Trademarks and Licenses
We consider our patents and trademarks to be among our most valuable assets. We are dedicated to protecting
the innovations created by our R&D teams by developing broad and deep patent and trademark portfolios across all
product categories.
As a result, we have strong patent positions across our product categories and innovation spaces in which we
operate, and have become the leader in obtaining golf ball and golf club patents worldwide. In addition, we believe we
have more combined golf shoe and golf glove utility patents than all competitors combined. We have over 1,250 active
U.S. utility patents in golf balls, nearly 350 active U.S. utility patents in golf clubs, wedges and putters and
approximately 300 active patents (including ex-U.S. and design patents) in golf shoes and gloves.
The following charts show our percentage of golf ball and golf club patents obtained in the last five years
compared to our peers.
Utility Patents: 2013-2017
Golf Ball (957 Patents)
Golf Club (1,330 Patents)
Ta yl orMade
3%
Ca l laway
4%
Bri dgestone
13%
Nike
19%
Ka rs ten
25%
Acus hnet
41%
PXG
3%
Cobra 5%
Bridgestone
5%
Ca l laway
18%
Acus hnet
14%
Dunl op/SRI
20%
Ta yl orMade
14%
Dunlop/SRI
16%
We own or license a large portfolio of trademarks, including for Titleist, Pro V1, Pro V1x, Pinnacle, AP1,
AP2, Vokey Design, Scotty Cameron, FootJoy, FJ, DryJoys, StaSof and ProDry. We protect our trademarks by obtaining
registrations where appropriate and opposing or cancelling material infringements. We also have rights in several
common law marks.
11
Competition
There are unique aspects to the competitive dynamic in each of our product categories.
The golf ball business is highly competitive. There are a number of well-established and well-financed
competitors, including Callaway, SRI Sports Limited (Dunlop and Srixon brands) and Bridgestone (Bridgestone and
Precept brands).
The golf club, wedge and putters markets in which we compete are also highly competitive and are served by a
number of well-established and well-financed companies with recognized brand names, including Callaway,
TaylorMade and Ping.
For golf balls and golf clubs, wedges and putters, we generally compete on the basis of technology, quality,
performance and customer service.
In the golf gear market, there are numerous competitors in each product category and geographical market.
Titleist golf gear generally competes on the basis of quality, performance, styling and customer service.
FootJoy’s significant worldwide competitors in golf shoes include Nike, Adidas and Ecco. FootJoy’s primary
worldwide competitors in golf gloves include Callaway, Nike, TaylorMade and Adidas and a significant number of
smaller companies with regional offerings and specialized golf glove products. In the golf apparel category, FootJoy has
numerous competitors in each geographical market, including Nike, Adidas and Under Armour. FootJoy products
generally compete on the basis of quality, performance, styling and price.
Environmental Matters
Our operations are subject to federal, state and local environmental laws and regulations that impose limitations
on the discharge of pollutants into the environment and establish standards for the handling, generation, emission,
release, discharge, treatment, storage and disposal of certain materials, substances and wastes and the remediation of
environmental contaminants. In the ordinary course of our manufacturing processes, we use paints, chemical solvents
and other materials, and generate waste by-products that are subject to these environmental laws. We have incurred
expenses in connection with environmental compliance.
We are also involved in ongoing investigations with federal and state environmental protection agencies and
expect to incur future costs for past and current environmental issues relating to ongoing closure activities at certain
sites.
Regulation
The Rules of Golf
The Rules of Golf set forth the rules of play and the rules for equipment used in the game of golf. The first
documented rules of golf date to 1744 and the modern Rules of Golf have been in place for over 100 years. Dedicated
golfers respect the traditions of the game and play by the Rules of Golf. As a result, premium-positioned products are
designed and manufactured to conform to the Rules of Golf.
The United States Golf Association, or the USGA, is the governing body for golf in the United States and
Mexico. The USGA, in conjunction with the Royal and Ancient, or R&A, in St. Andrews, Scotland, writes, interprets
and maintains the Rules of Golf. The R&A is the governing body for golf in all jurisdictions outside of the United States
and Mexico. The R&A jointly writes, interprets and maintains the Rules of Golf with the USGA.
In addition to their role as rule makers, both the USGA and R&A conduct national championships and are
involved in other efforts to maintain the history of golf and promote the health of the game.
The Rules of Golf set the standards and establish limitations for the design and performance of all balls and
clubs. Many new regulations on golf balls and golf clubs have been introduced in the past 10 to 15 years, which we
believe was one of the most active periods for golf equipment regulation in the history of golf.
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Golf Balls
Historically, the USGA and R&A have regulated the size, weight, spherical symmetry, initial velocity and
overall distance performance of golf balls. The overall distance standard was last revised in 2004.
Golf Clubs
The USGA and R&A have also focused on golf club regulations. In 1998, a limitation was placed on the
spring-like effect of driver faces. In 2003, limits were placed on club head dimensions and volume, as well as shaft
length. In 2007, club head moment of inertia was limited. A rule change to allow greater adjustability in golf clubs went
into effect on January 1, 2008. In August 2008, the USGA and R&A adopted a rule change further restricting golf club
grooves by reducing the groove volume and limiting the groove edge angle allowable on irons and wedges. This
rule change will not apply to most golfers until January 1, 2024. It was implemented on professional tours beginning in
2010 and was implemented in elite amateur competitions beginning in 2014. All products manufactured after
December 31, 2010 must comply with the new groove specifications.
Our Position
In response to this regulatory dynamic, our senior management and R&D teams spend significant time and
effort in developing and maintaining relationships with the USGA and R&A. We are an active participant in discussions
with the ruling bodies regarding potential new rules and the rule making process. More importantly, our R&D teams are
driven to innovate and continuously improve product technology and performance within the Rules of Golf. The
development and protection of these innovations through aggressive patenting are essential to competing in the current
market. As a long-time industry participant and market leader, we are well-positioned to continue to outperform the
market in a rules constrained environment.
Employees
As of December 31, 2017, we employed 5,230 associates worldwide. The geographic concentration of
associates is as follows: 2,368 in the Americas, 459 in EMEA, and 2,403 employed in Asia Pacific. None of our
associates are represented by a union. We believe that relations with our associates are positive.
ITEM 1A. RISK FACTORS
You should carefully consider each of the following risk factors, as well as the other information in this report,
including our consolidated financial statements and the related notes and “Item 7. – Management’s Discussion and
Analysis of Financial Condition and Results of Operations.” If any of the following risks actually occurs, our business,
financial condition and results of operations could be materially adversely affected. In that event, the market price of our
common stock could decline significantly and you could lose all or part of your investment. The risks described below
are not the only risks we face. Additional risks we are not presently aware of or that we currently believe are immaterial
could also materially adversely affect our business, financial condition and results of operations.
Risks Related to Our Business and Industry
A reduction in the number of rounds of golf played or in the number of golf participants could materially adversely
affect our business, financial condition and results of operations.
We generate substantially all of our sales from the sale of golf-related products, including golf balls, golf clubs,
golf shoes, golf gloves, golf gear and golf apparel. The demand for golf-related products in general, and golf balls in
particular, is directly related to the number of golf participants and the number of rounds of golf being played by these
participants. The number of rounds of golf played in the United States declined from 2006 to 2014 and have been largely
flat since then. If golf participation or the number of rounds of golf played declines, sales of our products may be
adversely impacted, which could materially adversely affect our business, financial condition and results of operations.
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Unfavorable weather conditions may impact the number of playable days and rounds played in a given year.
Weather conditions in most parts of the world, including our primary geographic markets, generally restrict golf
from being played year-round, with many of our on-course customers closed during the cold weather months and, to a
lesser extent, during the hot weather months. Unfavorable weather conditions in our major markets, such as a
particularly long winter, a cold and wet spring, or an extremely hot summer, would impact the number of playable days
and rounds played in a given year, which would result in a decrease in the amount spent by golfers and golf retailers on
our products, particularly with respect to consumable products such as golf balls and golf gloves. In addition,
unfavorable weather conditions and natural disasters can adversely affect the number of custom club fitting and trial
events that we can perform during the key selling period. Unusual or severe weather conditions throughout the year,
such as storms or droughts or other water shortages, can negatively affect golf rounds played both during the events and
afterward, as weather damaged golf courses are repaired and golfers focus on repairing the damage to their homes,
businesses and communities. Consequently, sustained adverse weather conditions, especially during the warm
weather months, could impact our sales, which could materially adversely affect our business, financial condition and
results of operations. Adverse weather conditions may have a greater impact on us than other golf equipment companies
as we have a large percentage of consumable products in our product portfolio, and the purchase of consumable products
is generally more dependent on the number of rounds played in a given year.
Consumer spending habits and macroeconomic factors may affect the number of rounds of golf played and related
spending on golf products.
Our products are recreational in nature and are therefore discretionary purchases for consumers. Consumers are
generally more willing to spend their time and money to play golf and make discretionary purchases of golf products
when economic conditions are favorable and when consumers feel confident and prosperous. Discretionary spending on
golf and the golf products we sell is affected by consumer spending habits as well as by many macroeconomic factors,
including general business conditions, stock market prices and volatility, corporate spending, housing prices, interest
rates, the availability of consumer credit, taxes and consumer confidence in future economic conditions. Consumers may
reduce or postpone purchases of our products as a result of shifts in consumer spending habits as well as during periods
when economic uncertainty increases, disposable income is lower, or during periods of actual or perceived unfavorable
economic conditions. A future significant or prolonged decline in general economic conditions or uncertainties regarding
future economic prospects that adversely affects consumer discretionary spending, whether in the United States or in our
international markets, could result in reduced sales of our products, which could materially adversely affect our business,
financial condition and results of operations.
Demographic factors may affect the number of golf participants and related spending on our products.
Golf is a recreational activity that requires time and money and different generations and socioeconomic and
ethnic groups use their leisure time and discretionary funds in different ways. Golf participation among younger
generations and certain socioeconomic and ethnic groups may not prove to be as popular as it is among the current
“gen-x” (age 30 – 49) and “baby boomer” (age 50 – 69) generations. If golf participation or the number of rounds of golf
played declines, due to factors such as demographic changes in the United States and our international markets or lack of
interest in the sport among young people or certain socioeconomic and ethnic groups, sales of our products could be
negatively impacted, which could materially adversely affect our business, financial condition and results of operations.
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A significant disruption in the operations of our manufacturing, assembly or distribution facilities could materially
adversely affect our business, financial condition and results of operations.
We rely on our manufacturing facilities in the United States, Thailand and China and assembly and distribution
facilities in many of our major markets, certain of which constitute our sole manufacturing facility for a particular
product category, including our joint venture facility in China where substantially all of our golf shoes are manufactured
and our facility in Thailand where we manufacture the majority of our golf gloves. Because substantially all of our
products are manufactured and assembled in and distributed from a few locations, our operations could be interrupted by
events beyond our control, including:
•
•
•
•
•
•
•
•
power loss or network connectivity or telecommunications failure or downtime;
equipment failure;
human error or accidents;
sabotage or vandalism;
physical or electronic security breaches;
floods, fires, earthquakes, hurricanes, tornadoes, tsunamis or other natural disasters;
political unrest;
labor difficulties, including work stoppages or slowdowns;
• water damage or water shortage;
•
•
•
government orders and regulations;
pandemics and other health and safety issues; and
terrorism.
Our manufacturing, assembly and distribution capacity is also dependent on the performance of services by
third parties, including vendors, landlords and transportation providers. If we encounter problems with our
manufacturing, assembly and distribution facilities, our ability to meet customer expectations, manage inventory,
complete sales and achieve objectives for operating efficiencies could be harmed, which could materially adversely
affect our business, financial condition and results of operations. We maintain business interruption insurance, but it may
not adequately protect us from the adverse effects that could result from significant disruptions to our manufacturing,
assembly and distribution facilities, such as the long-term loss of customers or an erosion of our brand image.
Our manufacturing, assembly and distribution networks include computer processes, software and automated
equipment that may be subject to a number of risks related to security or computer viruses, the proper operation of
software and hardware, electronic or power interruptions or other system failures.
Many of our raw materials or components of our products are provided by a sole or limited number of third-party
suppliers and manufacturers.
We rely on a sole or limited number of third-party suppliers and manufacturers for many of our raw materials
and the components in our golf balls, golf clubs, golf gloves and certain of our other products. We also use specialized
sources for certain of the raw materials used to make our golf gloves and other products, and these sources are limited to
certain geographical locations. Furthermore, many of these materials are customized for us and some of our products
require specially developed manufacturing techniques and processes which make it difficult to identify and utilize
alternative suppliers quickly. If we were to experience any delay or interruption in such supplies, we may not be able to
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find adequate alternative suppliers at a reasonable cost or without significant disruption to our business, which could
materially adversely affect our business, financial condition and results of operations.
A disruption in the operations of our suppliers could materially adversely affect our business, financial condition and
results of operations.
Our ability to continue to select reliable suppliers who provide timely deliveries of quality materials and
components will impact our success in meeting customer demand for timely delivery of quality products. If we
experience significantly increased demand, or if, for any reason, we need to replace an existing manufacturer or supplier,
there can be no assurance that additional supplies of raw materials or additional manufacturing capacity will be available
when required on terms that are acceptable to us, or at all, or that any new supplier or manufacturer would allocate
sufficient capacity to us in order to meet our requirements. In addition, should we decide to transition existing
manufacturing between third-party manufacturers or should we decide to transition existing in-house manufacturing to
third-party manufacturers, the risk of such a problem could increase. Even if we are able to expand existing or find new
manufacturing sources, we may encounter delays in production and added costs as a result of the time it takes to train
our suppliers and manufacturers in our methods, products and quality control standards. Any material delays,
interruption or increased costs in the supply of raw materials or components of our products could impact our ability to
meet customer demand for our products, which could materially adversely affect our business, financial condition and
results of operations.
In addition, there can be no assurance that our suppliers and manufacturers will continue to provide raw
materials and components that are consistent with our standards and that comply with all applicable laws and
regulations. We have occasionally received, and may in the future receive, shipments of supplies or components that fail
to conform to our quality control standards. In that event, unless we are able to obtain replacement supplies or
components in a timely manner, we risk the loss of sales resulting from the inability to manufacture our products and
could incur related increased administrative and shipping costs, and there also could be a negative impact to our brands,
any of which could materially adversely affect our business, financial condition and results of operations.
While we do not control our suppliers or their labor practices, negative publicity regarding the management of
facilities, production methods of or materials used by any of our suppliers could adversely affect our reputation, which
could materially adversely affect our business, financial condition and results of operations and may force us to locate
alternative suppliers. In addition, our suppliers may not be well capitalized and they may not be able to fulfill their
obligations to us or go out of business. Furthermore, the ability of third-party suppliers to timely deliver raw materials or
components may be affected by events beyond their control, such as work stoppages or slowdowns, transportation
issues, changes in trade or tariff laws, or significant weather and health conditions.
The cost of raw materials and components could affect our operating results.
The materials and components used by us, our suppliers and our manufacturers involve raw materials, including
polybutadiene, urethane and Surlyn for the manufacturing of our golf balls, titanium and steel for the assembly of our
golf clubs, leather and synthetic fabrics for the manufacturing of our golf shoes, golf gloves, golf gear and golf apparel,
and resin and other petroleum-based materials for a number of our products. Significant price fluctuations or shortages in
such raw materials or components, including the costs to transport such materials or components of our products, the
uncertainty of currency fluctuations against the U.S. dollar, increases in labor rates, trade duties or tariffs, and/or the
introduction of new and expensive raw materials, could materially adversely affect our business, financial condition and
results of operations.
Our operations are conducted worldwide and our results of operations are subject to currency transaction risk and
currency translation risk that could materially adversely affect our business, financial condition and results of
operations.
For the year ended December 31, 2017, $770.4 million of our net sales were generated outside of the United
States by our non-U.S. subsidiaries. Sales by geographic area are included in “Item 7. – Management’s Discussion and
Analysis of Financial Condition and Results of Operations” and in “Notes to Consolidated Financial Statements –
Note 20 – Segment Information.” Substantially all of these net sales generated outside of the United States were
generated in the applicable local currency, which include, but are not limited to, the Japanese yen, the Korean won, the
British pound sterling, the euro and the Canadian dollar. In contrast, substantially all of the purchases of inventory, raw
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materials or components by our non-U.S. subsidiaries are made in U.S. dollars. For the year ended December 31, 2017,
approximately 88% of our cost of goods sold incurred by our non-U.S. subsidiaries were denominated in U.S. dollars.
Because our non-U.S. subsidiaries incur substantially all of their cost of goods sold in currencies that are different from
the currencies in which they generate substantially all of their sales, we are exposed to transaction risk attributable to
fluctuations in such exchange rates, which can impact the gross profit of our non-U.S. subsidiaries. If the U.S. dollar
strengthens against the applicable local currency, more local currency will be needed to purchase the same amount of
cost of goods sold denominated in U.S. dollars, which could materially adversely affect our business, financial condition
and results of operations.
We have entered and expect to continue to enter into various foreign currency exchange contracts in an effort to
protect against adverse changes in foreign exchange rates and attempt to minimize foreign currency transaction risk. Our
hedging activities can reduce, but will not eliminate, the effects of foreign currency transaction risk on our financial
results. The extent to which our hedging activities mitigate foreign currency transaction risks varies based upon many
factors, including the amount of transactions being hedged. Other factors that could affect the effectiveness of our
hedging activities include accuracy of sales forecasts, volatility of currency markets, the availability of hedging
instruments and limitations on the duration of such hedging instruments. Since the hedging activities are designed to
reduce volatility, they not only reduce the negative impact of a stronger U.S. dollar but could also reduce the positive
impact of a weaker U.S. dollar. We are also exposed to credit risk from the counterparties to our hedging activities and
market conditions could cause such counterparties to experience financial difficulties. As a result, our efforts to hedge
these exposures could prove unsuccessful and, furthermore, our ability to engage in additional hedging activities may
decrease or become more costly.
Because our consolidated accounts are reported in U.S. dollars, we are also exposed to currency translation risk
when we translate the financial results of our consolidated non-U.S. subsidiaries from their local currency into U.S.
dollars. For the year ended December 31, 2017, 49% of our sales were denominated in foreign currencies. In addition,
for the year ended December 31, 2017, 31% of our operating expenses were denominated in foreign currencies (which
amounts represent substantially all of the operating expenses incurred by our non-U.S. subsidiaries). Fluctuations in
foreign currency exchange rates may positively or negatively affect our reported financial results and can significantly
affect period-over-period comparisons. A strengthening of the U.S. dollar relative to our foreign currencies could
materially adversely affect our business, financial condition and results of operations. For example, our reported net
sales for the 2015 fiscal year were negatively affected by a strengthening U.S. dollar in 2015.
We may not successfully manage the frequent introduction of new products that satisfy changing consumer
preferences, quality and regulatory standards.
The golf equipment and golf wear industries are subject to constantly and rapidly changing consumer demands
based, in large part, on performance benefits. Our golf ball and golf club products generally have launch cycles of
two years, and our sales in a particular year are affected by when we launch such products. We generally introduce new
product offerings and styles in our golf wear and gear businesses each year and at different times during the year. Factors
driving these short product launch cycles include the rapid introduction of competitive products and consumer demands
for the latest technology, style or fashion. In this marketplace, a substantial portion of our annual sales are generated
each year by new products.
These marketplace conditions raise a number of issues that we must successfully manage. For example, we
must properly anticipate consumer preferences and design products that meet those preferences, while also complying
with significant restrictions imposed by the Rules of Golf (see further discussion of the Rules of Golf below under “–
Changes to the Rules of Golf with respect to equipment could materially adversely affect our business, financial
condition and results of operations”), or our new products will not achieve sufficient market success to compensate for
the usual decline in sales experienced by products already in the market. Second, our R&D and supply chain groups face
constant pressures to design, develop, source and supply new products—many of which incorporate new or otherwise
untested technology, suppliers or inputs—that perform better than their predecessors while maintaining quality control
and the authenticity of our brands. Third, for new products to generate equivalent or greater sales than their predecessors,
they must either maintain the same or higher sales levels with the same or higher pricing, or exceed the performance of
their predecessors in one or both of those areas. Fourth, the relatively short window of opportunity for launching and
selling new products requires great precision in forecasting demand and assuring that supplies are ready and delivered
during the critical selling periods. Finally, the rapid changeover in products creates a need to monitor and manage the
closeout of older products both at retail and in our own inventory. If we do not successfully manage the frequent
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introduction of new products that satisfy consumer demand, it could adversely affect our business, financial condition
and results of operations.
We rely on technical innovation and high-quality products to compete in the market for our products.
Technical innovation and quality control in the design and manufacturing process of our products is essential to
our commercial success. R&D plays a key role in technical innovation. We rely upon experts in various fields to develop
and test cutting edge performance products. While we strive to produce products that help to enhance performance and
maximize comfort, if we fail to introduce technical innovation in our products, consumer demand for our products could
decline, and if we experience problems with the quality of our products, we may incur substantial expense to remedy the
problems, any of which could materially adversely affect our business, financial condition and results of operations.
Changes to the Rules of Golf with respect to equipment could materially adversely affect our business, financial
condition and results of operations.
Golf’s most regulated categories are golf balls and golf clubs. We seek to have our new golf ball and golf club
products conform with the Rules of Golf published by the United States Golf Association, or the USGA, and The Royal
and Ancient Golf Club of St. Andrews, or The R&A, because these rules are generally followed by golfers, both
professional and amateur, within their respective jurisdictions. The USGA publishes rules that are generally followed in
the United States and Mexico, and The R&A publishes rules that are generally followed in most other countries
throughout the world. However, the Rules of Golf as published by The R&A and the USGA are virtually the same and
are intended to be so pursuant to a Joint Statement of Principles issued in 2001. The Rules of Golf set the guidelines and
establish limitations for the design and performance of all golf balls and golf clubs.
Many new regulations on golf balls and golf clubs have been introduced in the past 10 to 15 years, which we
believe was one of the most active periods for golf equipment regulation in the history of golf. The USGA and R&A
have historically regulated the size, weight and initial velocity of golf balls. More recently, the USGA and R&A have
specifically focused on regulating the overall distance of a golf ball. The USGA and R&A have also focused on golf club
regulations, including limiting the size and spring-like effect of driver faces and club head moment of inertia. In the
future, existing USGA and/or R&A rules may be altered in ways that adversely affect the sales of our current or future
products. If a change in rules was adopted and caused one or more of our current or future products to be
nonconforming, sales of such products would be impacted and we may not be able to adapt our products promptly to
such rule change, which could materially adversely affect our business, financial condition and results of operations. In
addition, changes in the Rules of Golf may result in an increase in the costs of materials that would need to be used to
develop new products as well as an increase in the costs to design new products that conform to such rules.
Failure to adequately enforce and protect our intellectual property rights could materially adversely affect our
business, financial condition and results of operations.
We own numerous patents, trademarks, trade secrets, copyrights and other intellectual property and hold
licenses to intellectual property owned by others, which in the aggregate are important to our business. We rely on a
combination of patent, trademark, copyright and trade secret laws in our core geographic markets and other jurisdictions,
to protect the innovations, brands, proprietary trade secrets and know-how related to certain aspects of our business.
Certain of our intellectual property rights, such as patents, are time-limited, and the technology underlying our patents
can be used by any third party, including competitors, once the applicable patent terms expire.
We seek to protect our confidential proprietary information, in part, by entering into confidentiality and
invention assignment agreements with our employees, consultants, contractors, suppliers and others. While these
agreements are designed to protect our proprietary information, we cannot be certain that such agreements have been
entered into with all relevant parties, and we cannot be certain that our trade secrets and other confidential proprietary
information will not be disclosed or that competitors will not otherwise gain access to our trade secrets or independently
develop substantially equivalent information and techniques. We also seek to preserve the integrity and confidentiality of
our proprietary information by maintaining physical security of our premises and physical and electronic security of our
information technology systems, but it is possible that these security measures could be breached. If we are unable to
prevent disclosure to third parties of our material proprietary and confidential know-how and trade secrets, our ability to
establish or maintain a competitive advantage in our markets may be adversely affected.
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We selectively and strategically pursue patent and trademark protection in our core geographic markets, but our
strategy has been to not perfect certain patent and trademark rights in some countries. For example, we focus primarily
on securing patent protection in those countries where the majority of our golf ball and golf club industry production
takes place. Accordingly, we may not be able to prevent others, including competitors, from practicing our patented
inventions, including by manufacturing and selling competing products, in those countries where we have not obtained
patent protection. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in
the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting,
enforcing and defending our intellectual property outside of the United States. In some foreign countries, where
intellectual property laws or law enforcement practices do not protect our intellectual property rights as fully as in the
United States, third-party manufacturers may be able to manufacture and sell imitation products and diminish the value
of our brands as well as infringe our rights, despite our efforts to prevent such activity.
The golf ball and golf club industries, in particular, have been characterized by widespread imitation of popular
ball and club designs. We have an active program of monitoring, investigating and enforcing our proprietary rights
against companies and individuals who market or manufacture counterfeits and “knockoff” products. We assert our
rights against infringers of our patents, trademarks, trade dress and copyrights. However, these efforts may be expensive,
time-consuming, divert management’s attention, and ultimately may not be successful in reducing sales of golf products
by these infringers. The failure to prevent or limit such infringers or imitators could adversely affect our reputation and
sales. Additionally, other golf ball and golf club manufacturers may be able to produce successful golf balls or golf clubs
which imitate our designs without infringing any of our patents, trademarks, trade dress or copyrights, which could limit
our ability to maintain a competitive advantage in our marketplace.
If we fail to obtain enforceable patents, trademarks and trade secrets, fail to maintain our existing patent,
trademark and trade secret rights, or fail to prevent substantial unauthorized use of our patents, trademarks and trade
secrets, we risk the loss of our intellectual property rights and competitive advantages we have developed, which may
result in lost sales. Accordingly, we devote substantial resources to the establishment and protection of our trademarks,
patents and trade secrets or know-how, and we continuously evaluate the utility of our existing intellectual property and
the new registration of additional trademarks and patents, as appropriate. However, we cannot guarantee that we will
have adequate resources to continue to effectively establish, maintain and enforce our intellectual property rights. We
also cannot guarantee that any of our pending applications will be approved by the applicable governmental authorities.
Moreover, even if the applications will be registered during the registration process, third parties may seek to oppose,
limit, or otherwise challenge these applications or registrations.
We may be involved in lawsuits to protect, defend or enforce our intellectual property rights, which could be
expensive, time consuming and unsuccessful.
Our success depends in part on our ability to protect our trademarks, patents and trade secrets from
unauthorized use by others. To counter infringement or unauthorized use, we may be required to file infringement or
misappropriation claims, which can be expensive and time-consuming and could materially adversely affect our
business, financial condition and results of operations, even if successful. Any claims that we assert against perceived
infringers could also provoke these parties to assert counterclaims against us alleging that we infringe or misappropriate
their intellectual property rights or that we have engaged in anti-competitive conduct. Moreover, our involvement in
litigation against third parties asserting infringement of our intellectual property rights presents some risk that our
intellectual property rights could be challenged and invalidated. In addition, in an infringement proceeding, whether
initiated by us or another party, a court may refuse to stop the other party in such infringement proceeding from using
the technology or mark at issue on the grounds that our patents do not cover the technology in question or misuse our
trade secrets or know-how. An adverse result in any litigation or defense proceedings, including proceedings at the
patent and trademark offices, could put one or more of our patents or trademarks at risk of being invalidated, held
unenforceable or interpreted narrowly, and could put any of our patent or trademark applications at risk of not being
issued as a registered patent or trademark, any of which could materially adversely affect our business, financial
condition and results of operations.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property
litigation, there is a risk that some of our confidential proprietary information could be compromised by disclosure
during this type of litigation. In addition, there could be public announcements of the results of hearings, motions or
other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it
could materially adversely affect the price of our common stock.
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Our products may infringe the intellectual property rights of others, which may cause us to incur unexpected costs or
prevent us from selling our products.
From time to time, third parties have challenged our patents, trademark rights and branding practices, or
asserted intellectual property rights that relate to our products and product features. We cannot assure you that our
actions taken to establish and protect our technology and brands will be adequate to prevent others from seeking to block
sales of our products or to obtain monetary damages, based on alleged violation of their patents, trademarks or other
proprietary rights. We may be required to defend such claims in the future, which, whether or not meritorious, could
result in substantial costs and diversion of resources and could materially adversely affect our business, financial
condition and results of operations.
If we are found to infringe a third party’s intellectual property rights, we could be forced, including by court
order, to cease developing, manufacturing or commercializing the infringing product. Alternatively, we may be required
to obtain a license from such a third party in order to use the infringing technology and continue developing,
manufacturing or marketing such technology. In such a case, license agreements may require us to pay royalties and
other fees that could be significant, or we may not be able to obtain any required license on commercially reasonable
terms or at all. Even if we were able to obtain a license, it could be non-exclusive, thereby giving our competitors access
to the same technologies licensed to us. A finding of infringement could prevent us from commercializing our products
or force us to cease some of our business operations, or to redesign or rename some of our products to avoid future
infringement liability. In addition, we could be found liable for monetary damages, including treble damages and
attorneys’ fees if we are found to have willfully infringed a patent. Claims that we have misappropriated the confidential
information or trade secrets of third parties could also materially adversely affect our business, financial condition and
results of operations. See also “—We may be involved in lawsuits to protect, defend or enforce our intellectual property
rights, which could be expensive, time consuming and unsuccessful.” Any of the foregoing could cause us to incur
significant costs and prevent us from manufacturing or selling certain of our products.
Recent changes to U.S. patent laws and proposed changes to the rules of the U.S. Patent and Trademark Office could
adversely affect our ability to protect our intellectual property.
The Leahy-Smith America Invents Act, or the Leahy-Smith Act, which was adopted in September 2011,
includes a number of significant changes to the U.S. patent laws, such as, among other things, changing from a “first to
invent” to a “first inventor to file” system, establishing new procedures for challenging patents and establishing different
methods for invalidating patents. The U.S. Patent and Trademark Office has recently implemented regulations relating to
these changes, and the courts have yet to address many of the new provisions of the Leahy-Smith Act. Some of these
changes or potential changes may not be advantageous to us, and it may become more difficult to obtain adequate patent
protection or to enforce our patents against third parties. While we cannot predict the impact of the Leahy-Smith Act at
this time, these changes or potential changes could increase the costs and uncertainties surrounding the prosecution of
our patent applications and adversely affect our ability to protect our intellectual property which could materially
adversely affect our business, financial condition and results of operations.
We face intense competition in each of our markets and if we are unable to maintain a competitive advantage, loss of
market share, sales or profitability may result.
The markets for golf balls, clubs, gear and wear are highly competitive and there may be low barriers to entry in
many of our markets. Pricing pressures, reduced profit margins or loss of market share or failure to grow in any of our
markets, due to competition or otherwise, could materially adversely affect our business, financial condition and results
of operations.
We compete against large-scale global sports equipment and apparel players, Japanese industrials, and more
specialized golf equipment and golf wear players, including Callaway, TaylorMade, Ping, Bridgestone, Nike, Adidas
and Under Armour. Many of our competitors have significant competitive strengths, including long operating histories, a
large and broad consumer base, established relationships with a broad set of suppliers and customers, an established
regional or local presence, strong brand recognition and greater financial, R&D, marketing, distribution and other
resources than we do. There are unique aspects to the competitive dynamic in each of our product categories and
markets. We are not the market leader with respect to certain categories or in certain markets.
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Golf Balls. The golf ball business is highly competitive. There are a number of well-established and
well-financed competitors. We and our competitors continue to incur significant costs in the areas of R&D, advertising,
marketing, tour and other promotional support to be competitive.
Golf Clubs. The golf club markets in which we compete are also highly competitive and are served by a number
of well-established and well-financed companies with recognized brand names. New product introductions, price
reductions, consignment sales, extended payment terms, “closeouts,” including closeouts of products that were recently
commercially successful, and significant tour and advertising spending by competitors continue to generate intense
market competition and create market disruptions. Our competitors in the golf club market have in the past and may
continue to introduce their products on an accelerated cycle which could lead to market disruption and impact sales of
our products.
Golf Gear. The golf gear market is fragmented and served by a number of well-established and well-financed
competitors as well as a number of smaller competitors. We face significant competition in every region with respect to
each of our golf gear product categories.
Golf Wear. In the golf wear markets, we compete with a number of well-established and well-financed
companies with recognized brand names. These competitors may have a large and broad consumer base, established
relationships with a broad set of suppliers and customers, strong brand recognition and significant financial, R&D,
marketing, distribution and other resources which may exceed our own.
Our competitors may be able to create and maintain brand awareness and market share more quickly and
effectively than we can. Our competitors may also be able to increase sales in new and existing markets faster than we
do by emphasizing different distribution channels or through other methods, and many of our competitors have
substantial resources to devote towards increasing sales. If we are unable to grow or maintain our competitive position in
any of our product categories, it could materially adversely affect our business, financial condition and results of
operations.
We may have limited opportunities for future growth in sales of golf balls, golf shoes and golf gloves.
We already have a significant share of worldwide sales of golf balls, golf shoes and golf gloves and the golf
industry is very competitive. As such, gaining incremental market share quickly or at all may be limited given the
competitive nature of the golf industry and other challenges to the golf industry. In the future, the overall dollar volume
of worldwide sales of golf equipment, wear and gear may not grow or may decline which could materially adversely
affect our business, financial condition and results of operations.
A severe or prolonged economic downturn could adversely affect our customers’ financial condition, their levels of
business activity and their ability to pay trade obligations.
We primarily sell our products to golf equipment retailers, such as on-course golf shops, golf specialty stores
and other qualified retailers, directly and to foreign distributors. We perform ongoing credit evaluations of our
customers’ financial condition and generally require no collateral from these customers. However, a severe or prolonged
downturn in the general economy could adversely affect the retail golf equipment market, which in turn would
negatively impact the liquidity and cash flows of our customers, including the ability of such customers to obtain credit
to finance purchases of our products and to pay their trade obligations. This could result in increased delinquent or
uncollectible accounts for our customers as well as a decrease in orders for our products by such customers. A failure by
our customers to pay a significant portion of outstanding accounts receivable balances on a timely basis or a decrease in
orders from such customers could materially adversely affect our business, financial condition and results of operations.
A decrease in corporate spending on our custom logo golf balls could materially adversely affect our business,
financial condition and results of operations.
Custom imprinted golf balls, a majority of which are purchased by corporate customers, represented over 30%
of our global net golf ball sales for the year ended December 31, 2017. There has long been a strong connection between
the business community and golf but corporate spending on custom logoed balls has remained at lower levels since the
2008 financial crisis. If such corporate spending decreases further, it could impact the sales of our custom imprinted golf
balls.
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We depend on retailers and distributors to market and sell our products, and our failure to maintain and further
develop our sales channels could materially adversely affect our business, financial condition and results of
operations.
We primarily sell our products through retailers and distributors and depend on these third parties to market and
sell our products to consumers. Any changes to our current mix of retailers and distributors could adversely affect our
sales and could negatively affect both our brand image and our reputation. Our sales depend, in part, on retailers
adequately displaying our products, including providing attractive space and merchandise displays in their stores, and
training their sales personnel to sell our products. If our retailers and distributors are not successful in selling our
products, our sales would decrease. Our retailers frequently offer products and services of our competitors in their stores.
In addition, our success in growing our presence in existing and expanding into new international markets will depend
on our ability to establish relationships with new retailers and distributors. If we do not maintain our relationship with
existing retailers and distributors or develop relationships with new retailers and distributors our ability to sell our
products would be negatively impacted.
On a consolidated basis, no one customer that sells or distributes our products accounted for more than 10% of
our consolidated net sales in the year ended December 31, 2017. However, our top ten customers accounted for 20% of
our consolidated net sales in the year ended December 31, 2017. Accordingly, the loss of a small number of our large
customers, or the reduction in business with one or more of these customers, could materially adversely affect our
business, financial condition and results of operations. We do not currently have minimum purchase agreements with
these large customers.
In September 2016, Golfsmith International Holdings LP, a specialty golf retailer and one of our largest
customers in recent years, announced bankruptcy proceedings. The Golfsmith bankruptcy resulted in a significant
disruption to our business in the second half of 2016, as well as the full year of 2017, with the reorganization activities
and store closures resulting in less product sell-in to retail.
We cannot predict the impact that the foregoing will have on us or the golf industry in general, and these
matters may materially adversely affect our business, financial condition and results of operations.
Consolidation of retailers or concentration of retail market share among a few retailers may increase and concentrate
our credit risk, put pressure on our margins and impair our ability to sell products.
The sporting goods and off-course golf equipment retail markets in some countries, including the United States,
are dominated by a few large retailers. Certain of these retailers have in the past increased their market share and may
continue to do so in the future by expanding through acquisitions and construction of additional stores. Industry
consolidation and correction has occurred in recent years and additional consolidation and correction is possible. These
situations may result in a concentration of our credit risk with respect to our sales to such retailers, and, if any of these
retailers were to experience a shortage of liquidity or other financial difficulties, or file for bankruptcy or receivership
protection, it would increase the risk that their outstanding payables to us may not be paid. This consolidation may also
result in larger retailers gaining increased leverage which may impact our margins. In addition, increasing market share
concentration among one or a few retailers in a particular country or region increases the risk that if any one of them
substantially reduces their purchases of our products, we may be unable to find a sufficient number of other retail outlets
for our products to sustain the same level of sales. Any reduction in sales by our retailers could materially adversely
affect our business, financial condition and results of operations.
Our business depends on strong brands, and if we are not able to maintain and enhance our brands we may be
unable to sell our products.
Our brands have worldwide recognition and our success depends on our ability to maintain and enhance our
brand image and reputation. In particular, we believe that maintaining and enhancing the Titleist and FootJoy brands is
critical to maintaining and expanding our customer base. Maintaining, promoting and enhancing our brands may require
us to make substantial investments in areas such as product innovation, product quality, intellectual property protection,
marketing and employee training, and these investments may not have the desired impact on our brand image and
reputation. Our business could be adversely impacted if we fail to achieve any of these objectives or if the reputation or
image of any of our brands is tarnished or receives negative publicity. In addition, adverse publicity about regulatory or
legal action against us could damage our reputation and brand image, undermine consumer confidence in us and reduce
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long-term demand for our products, even if the regulatory or legal action is unfounded or not material to our operations.
Also, as we seek to grow our presence in existing and expand into new geographic or product markets, consumers in
these markets may not accept our brand image and may not be willing to pay a premium to purchase our products as
compared to other brands. We anticipate that as our business continues to grow our presence in existing and expand into
new markets, maintaining and enhancing our brands may become increasingly difficult and expensive. If we are unable
to maintain or enhance the image of our brands, it could materially adversely affect our business, financial condition and
results of operations.
Our business operations are subject to seasonal fluctuations, which could result in fluctuations in our operating
results and stock price.
Our business is subject to seasonal fluctuations because golf is played primarily on a seasonal basis in most of
the regions where we do business. In general, during the first quarter, we begin selling our products into the golf retail
channel for the new golf season. This initial sell-in generally continues into the second quarter. Our second-quarter sales
are significantly affected by the amount of sell-through, in particular the amount of higher value discretionary purchases
made by customers, which drives the level of reorders of our products sold-in during the first quarter. Our third-quarter
sales are generally dependent on reorder business, and are generally less than the second quarter as many retailers begin
decreasing their inventory levels in anticipation of the end of the golf season. Our fourth-quarter sales are generally less
than the other quarters due to the end of the golf season in many of our key markets, but can also be affected by key
product launches, particularly golf clubs. Accordingly, our results of operations are likely to fluctuate significantly from
period to period. This seasonality affects sales in each of our reportable segments differently. In general, however,
because of this seasonality, a majority of our sales and most of our profitability generally occurs during the first half of
the year. Results of operations in any period should not be considered indicative of the results to be expected for any
future period. The seasonality of our business could be exacerbated by the adverse effects of unusual or severe weather
conditions as well as by severe weather conditions caused or exacerbated by climate change.
Our business and results of operations are also subject to fluctuations based on the timing of new product
introductions.
Our sales can also be affected by the launch timing of new products. Product introductions generally stimulate
sales as the golf retail channel takes on inventory of new products. Reorders of these new products then depend on the
rate of sell-through. Announcements of new products can often cause our customers to defer purchasing additional golf
equipment until our new products are available. Our varying product introduction cycles, which are described under
“Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations—Key Factors
Affecting Our Results of Operations – Cyclicality”, may cause our results of operations to fluctuate as each product line
has different volumes, prices and margins.
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We have significant international operations and are exposed to risks associated with doing business globally.
We sell and distribute our products directly in many key international markets in Europe, Asia, North America
and elsewhere around the world. These activities have resulted and will continue to result in investments in inventory,
accounts receivable, employees, corporate infrastructure and facilities. In addition, in the United States there are a
limited number of suppliers of certain raw materials and components for our products as well as finished goods that we
sell, and we have increasingly become more reliant on suppliers and vendors located outside of the United States. The
operation of foreign distribution in our international markets, as well as the management of relationships with
international suppliers and vendors, will continue to require the dedication of management and other resources. We also
manufacture certain of our products outside of the United States, including some of our golf balls and substantially all of
our golf gloves in Thailand and substantially all of our golf shoes through our joint venture in China.
The current U.S. administration has publicly supported certain potential tax and trade proposals, modifications
to international trade policy and other changes which may affect U.S. trade relations with other countries. In addition,
economic and political uncertainty arose out of the June 23, 2016 vote in the United Kingdom that resulted in the
decision to leave the European Union. It is possible that these or other changes, if enacted, may impact or require us to
modify our current business practices. At the present time, it is unclear as to the ultimate impact of these changes,
policies or proposals and, as such, we are unable to determine the effect, if any, that such changes, policies or proposals
would have on our business.
As a result of the aforementioned international business, we are exposed to increased risks inherent in
conducting business outside of the United States. In addition to the uncertainty and the foreign currency risks discussed
above under “—Our operations are conducted worldwide and our results of operations are subject to currency
transaction risk and currency translation risk that could materially adversely affect our business, financial condition and
results of operations,” these risks include:
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increased difficulty in protecting our intellectual property rights and trade secrets;
unexpected government action or changes in legal, trade, tax or regulatory requirements;
social, economic or political instability;
the effects of any anti-American sentiments on our brands or sales of our products;
increased difficulty in ensuring compliance by employees, agents and contractors with our policies as well
as with the laws of multiple jurisdictions, including but not limited to the U.S. Foreign Corrupt Practices
Act, or the FCPA, and similar anti-bribery and anti-corruption laws, local and international environmental,
health and safety laws, and increasingly complex regulations relating to the conduct of international
commerce;
increased difficulty in controlling and monitoring foreign operations from the United States, including
increased difficulty in identifying and recruiting qualified personnel for its foreign operations; and
increased exposure to interruptions in air carrier or ship services.
Any violation of our policies or any applicable laws and regulations by our suppliers or manufacturers could
interrupt or otherwise disrupt our sourcing, adversely affect our reputation or damage our brand image. While we do not
control these suppliers or manufacturers or their labor practices, negative publicity regarding the management of
facilities by, production methods of or materials used by any of our suppliers or manufacturers could adversely affect our
reputation and sales and force us to locate alternative suppliers or manufacturing sources, which could materially
adversely affect our business, financial condition and results of operations.
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Failure to comply with laws, regulations and policies, including the FCPA or other applicable anti-corruption
legislation, could result in fines and criminal penalties and materially adversely affect our business, financial
condition and results of operations.
A significant risk resulting from our global operations is compliance with a wide variety of U.S. federal and
state and non-U.S. laws, regulations and policies, including laws related to anti-corruption, export and import
compliance, anti-trust and money laundering. The FCPA, the U.K. Bribery Act of 2010 and similar anti-bribery laws in
other jurisdictions generally prohibit companies and their intermediaries from making improper payments to government
officials or other persons. There has been an increase in anti-bribery law enforcement activity in recent years, with more
frequent and aggressive investigations and enforcement proceedings by both the U.S. Department of Justice and the
SEC, increased enforcement activity by non-U.S. regulators, and increases in criminal and civil proceedings brought
against companies and individuals. We operate in parts of the world that are recognized as having governmental and
commercial corruption and in certain circumstances, strict compliance with anti-bribery laws may conflict with local
customs and practices. We cannot assure you that our internal control policies and procedures have protected or will
always protect us from improper conduct of our employees or business partners. To the extent that we learn that any of
our employees do not adhere to our internal control policies, we are committed to taking appropriate remedial action. In
the event that we believe or have reason to believe that our employees or agents have or may have violated applicable
laws, including anti-corruption laws, we may be required to investigate or have outside counsel investigate the relevant
facts and circumstances, and detecting, investigating and resolving actual or alleged violations can be expensive and
require significant time and attention from senior management. Any violation of U.S. federal and state and non-U.S.
laws, regulations and policies could result in substantial fines, sanctions, civil and/or criminal penalties, and curtailment
of operations in the U.S. or other applicable jurisdictions. In addition, actual or alleged violations could damage our
reputation and ability to do business. Any of the foregoing could materially adversely affect our business, financial
condition and results of operations.
Our business, financial condition and results of operations could be materially adversely affected if professional
golfers do not endorse or use our products.
We establish relationships with professional golfers in order to use, validate and promote Titleist and FootJoy
branded products. We have entered into endorsement arrangements with members of the various professional tours,
including the PGA Tour, the Champions Tour, the LPGA Tour, the European PGA Tour, the Japan Golf Tour and the
Korean PGA Tour. We believe that professional usage of our products validates the performance and quality of our
products and contributes to retail sales. We therefore spend a significant amount of money to secure professional usage
of our products. Many other companies, however, also aggressively seek the patronage of these professionals and offer
many inducements, including significant cash incentives and specially designed products. There is a great deal of
competition to secure the representation of tour professionals. As a result, it is expensive to attract and retain such tour
professionals and we may lose the endorsement of these individuals, even prior to the expiration of the applicable
contract term. The inducements offered by other companies could result in a decrease in usage of our products by
professional golfers or limit our ability to attract other tour professionals. A decline in the level of professional usage of
our products, or a significant increase in the cost to attract or retain endorsers, could materially adversely affect our
business, financial condition and results of operations.
The value of our brands and sales of our products could be diminished if we, the golfers who use our products or the
golf industry in general are associated with negative publicity.
We sponsor a variety of golfers and feature those golfers in our advertising and marketing materials. We
establish these relationships to develop, evaluate and promote our products, as well as establish product authenticity with
consumers. Actions taken by golfers or tours associated with our products that harm the reputations of those golfers
could also harm our brand image and impact our sales. We may also select golfers who may not perform at expected
levels or who are not sufficiently marketable. If we are unable in the future to secure prominent golfers and arrange
golfer endorsements of our products on terms we deem to be reasonable, we may be required to modify our marketing
platform and to rely more heavily on other forms of marketing and promotion, which may not prove to be as effective or
may result in additional costs.
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If we inaccurately forecast demand for our products, we may manufacture insufficient or excess quantities, which
could materially adversely affect our business, financial condition and results of operations.
To reduce purchasing costs and ensure supply, we place orders with our suppliers in advance of the time period
we expect to deliver our products. In addition, we plan our manufacturing capacity based upon the forecasted demand
for our products. Forecasting the demand for our products is very difficult given the number of SKUs we offer and the
amount of specification involved in each of our product categories. For example, in our golf shoe business, we offer a
large variety of models as well as different styles and sizes for each model, including over 2,400 SKUs available for men
in the United States alone. The nature of our business makes it difficult to adjust quickly our manufacturing capacity if
actual demand for our products exceeds or is less than forecasted demand. Factors that could affect our ability to
accurately forecast demand for our products include, among others:
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changes in consumer demand for our products or the products of our competitors;
new product introductions by us or our competitors;
failure to accurately forecast consumer acceptance of our products;
failure to anticipate consumer acceptance of new technologies;
inability to realize revenues from booking orders;
negative publicity associated with tours or golfers we endorse;
unanticipated changes in general market conditions or other factors, which may result in cancellations of
advance orders or a reduction or increase in the rate of reorders placed by retailers;
• weakening of economic conditions or consumer confidence in future economic conditions, which could
reduce demand for discretionary items, such as our products;
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terrorism or acts of war, or the threat thereof, which could adversely affect consumer confidence and
spending or interrupt production and distribution of products and raw materials;
abnormal weather patterns or extreme weather conditions including hurricanes, floods and droughts, among
others, which may disrupt economic activity; and
general economic conditions.
If actual demand for our products exceeds the forecasted demand, we may not be able to produce sufficient
quantities of new products in time to fulfill actual demand, which could limit our sales.
Any inventory levels in excess of consumer demand may result in inventory write-downs and/or the sale of
excess inventory at discounted prices.
We may experience a disruption in the service, or a significant increase in the cost, of our primary delivery and
shipping services for our products and component parts or a significant disruption at shipping ports.
We use FedEx Corporation, or FedEx, for substantially all ground shipments of products to our U.S. customers.
We use ocean shipping services and air carriers for most of our international shipments of products. In addition, many of
the components we use to manufacture and assemble our products are shipped to us via ocean shipping and air carrier. If
there are changes in trade or tariff laws which result in customs processing delays or any significant interruption in
service by such providers or at shipping ports or airports, we may be unable to engage alternative suppliers or to receive
or ship goods through alternate sites in order to deliver our products or components in a timely and cost-efficient
manner. As a result, we could experience manufacturing delays, increased manufacturing and shipping costs, and lost
sales as a result of missed delivery deadlines and product introduction and demand cycles. Any significant interruption
in FedEx services, ship services, at shipping ports or air carrier services could materially adversely affect our business,
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financial condition and results of operations. Furthermore, if the cost of delivery or shipping services were to increase
significantly and the additional costs could not be covered by product pricing it could materially adversely affect our
business, financial condition and results of operations.
We rely on complex information systems for management of our manufacturing, distribution, sales and other
functions. If our information systems fail to perform these functions adequately or if we experience an interruption in
our operations, including a breach in cybersecurity, our business, financial condition and results of operations could
be materially adversely affected.
All of our major operations, including manufacturing, distribution, sales and accounting, are dependent upon
our complex information systems. Our information systems are vulnerable to damage or interruption from:
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earthquake, fire, flood, hurricane and other natural disasters;
power loss, computer systems failure, Internet and telecommunications or data network failure; and
hackers, computer viruses, unauthorized access, software bugs or glitches.
Any damage or significant disruption in the operation of such systems or the failure of our information systems
to perform as expected would disrupt our business, which may result in decreased sales, increased overhead costs, excess
inventory or product shortages which could materially adversely affect our business, financial condition and results of
operations.
Cybersecurity risks could disrupt our operations and negatively impact our reputation.
There is growing concern over the security of personal and corporate information transmitted over the Internet,
consumer identity theft and user privacy due to increasingly diverse and sophisticated threats to network, systems and
data security. While we have implemented security measures, our computer systems may be susceptible to electronic or
physical computer break-ins, viruses and other disruptions and security breaches. Any perceived or actual unauthorized
or inadvertent disclosure of personally-identifiable information regarding visitors to our websites or otherwise or other
breach or theft of the information we control, whether through a breach of our network by an unauthorized party,
employee theft, misuse or error or otherwise, could harm our reputation, impair our ability to attract website visitors, or
subject us to claims or litigation and require us to repair damages suffered by consumers, and materially adversely affect
our business, financial condition and results of operations.
If the technology-based systems that give consumers the ability to shop with us online do not function effectively, our
ability to grow our eCommerce business globally could be adversely affected.
We are increasingly using websites and social media to interact with consumers and as a means to enhance their
experience with our products, including through Vokey.com and ScottyCameron.com. In Canada and certain European
markets, we launched eCommerce websites for FootJoy in 2017. In addition, in the U.S. we launched our FootJoy and
MyProV1.com eCommerce initiatives in 2016. In our eCommerce services, we process, store and transmit customer
data. We also collect consumer data through certain marketing activities. Failure to prevent or mitigate data loss or other
security breaches, including breaches of our vendors’ technology and systems, could expose us or consumers to a risk of
loss or misuse of such information, result in litigation or potential liability for us and otherwise materially adversely
affect our business, financial condition and results of operations. Further, our eCommerce business is subject to general
business regulations and laws, as well as regulations and laws specifically governing the Internet, eCommerce and
electronic devices. Existing and future laws and regulations, or new interpretations of these laws, may adversely affect
our ability to conduct our eCommerce business.
Any failure on our part to provide private, secure, attractive, effective, reliable, user-friendly eCommerce
platforms that offer a wide assortment of merchandise with rapid delivery options and that continually meet the changing
expectations of online shoppers could place us at a competitive disadvantage, result in the loss of eCommerce and other
sales, harm our reputation with consumers, have an adverse impact on the growth of our eCommerce business globally
and could materially adversely affect our business, financial condition and results of operations.
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Risks specific to our eCommerce business also include diversion of sales from our trade partners’ brick and
mortar stores, difficulty in recreating the in-store experience through direct channels and liability for online content. Our
failure to successfully respond to these risks might adversely affect sales in our eCommerce business, as well as damage
our reputation and brands.
Goodwill and identifiable intangible assets represent a significant portion of our total assets and any impairment of
these assets could negatively impact our results of operations and shareholders’ equity.
Our goodwill and identifiable intangible assets, which consist of goodwill from acquisitions, trademarks,
patents, completed technology, customer relationships, licensing fees, and other intangible assets, represented 38.6% of
our total assets as of December 31, 2017.
Accounting rules require the evaluation of our goodwill and intangible assets with indefinite lives for
impairment at least annually or whenever events or changes in circumstances indicate that the carrying value of such
assets may not be recoverable. Such indicators include a significant adverse change in customer demand or business
climate that could affect the value of an asset; general economic conditions, such as increasing Treasury rates or
unexpected changes in gross domestic product growth; a change in our market shares; budget-to-actual performance and
consistency of operations margins and capital expenditures; a product recall or an adverse action or assessment by a
regulator; or changes in management or key personnel.
Goodwill and identifiable intangible assets are deemed impaired when their carrying value exceeds their fair
value. If a significant amount of our goodwill and identifiable intangible assets were deemed to be impaired, our
business, financial condition and results of operations could be materially adversely affected.
Our current senior management team and other key employees are critical to our success and if we are unable to
attract and/or retain key employees and hire qualified management, technical and manufacturing personnel, our
ability to compete could be harmed.
Our ability to maintain our competitive position is dependent to a large degree on the efforts and skills of our
senior management team and our other key employees. Our executives are experienced and highly qualified with strong
reputations and relationships in the golf industry, and we believe that our management team enables us to pursue our
strategic goals. Our other key sales, marketing, R&D, manufacturing, intellectual property protection and support
personnel are also critical to the success of our business. The loss of the services of any of our senior management team
or other key employees could disrupt our operations and delay the development and introduction of our products which
could materially adversely affect our business, financial condition and results of operations. We do not have employment
agreements with any of the members of our senior management team, except for David Maher, our President and CEO.
In addition, we do not have “key person” life insurance policies covering any of our officers or other key employees.
Our future success depends upon our ability to attract and retain our executive officers and other key sales,
marketing, R&D, manufacturing, intellectual property protection and support personnel and any failure to do so could
materially adversely affect our business, financial condition and results of operations.
Additionally, we compete with many mature and prosperous companies that have far greater financial resources
than we do and thus can offer current or perspective employees more lucrative compensation packages than we can.
Sales of our products by unauthorized retailers or distributors could adversely affect our authorized distribution
channels and harm our reputation.
Some of our products find their way to unauthorized outlets or distribution channels. This “gray market” for our
products can undermine authorized retailers and foreign wholesale distributors who promote and support our products,
and can injure the image of our company in the minds of our customers and consumers. While we have taken some
lawful steps to limit commerce of our products in the “gray market” in both the United States and abroad, we have not
been successful in halting such commerce.
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We may not be successful in our efforts to grow our presence in existing international markets and expand into
additional international markets.
We intend to grow our presence in and continue to expand into select international markets where there are the
necessary and sufficient conditions in place to support such expansion. These growth and expansion plans will require
significant management attention and resources and may be unsuccessful. In addition, to achieve satisfactory
performance in international locations, it may be necessary to locate physical facilities, such as regional offices, in the
foreign market and to hire employees who are familiar with such foreign markets while also being qualified to market
our products. We may not be successful in growing our presence in or expanding into any such international markets or
in generating sales from such foreign operations.
We have historically grown our business by expanding into additional international markets, but such growth
does not always work out as anticipated and there is no assurance that we will be successful in the existing international
markets where we are currently seeking to grow our presence, including China, or the new international markets we plan
to enter. Our business, financial condition and results of operations could be materially adversely affected if we do not
achieve the international growth that we anticipate.
We are exposed to a number of different tax uncertainties, including potential changes in tax laws, unanticipated tax
liabilities and limitations on utilization of tax attributes after any change of control, which could materially adversely
affect our business, financial condition and results of operations.
We are subject to income taxes in the U.S. (federal and state) and numerous foreign jurisdictions. Tax laws,
regulations, and administrative practices in various jurisdictions may be subject to significant change, with or without
notice, due to economic, political, and other conditions, and significant judgment is required in evaluating and estimating
our provision and accruals for these taxes. Changes to or promulgation of new tax laws, interpretive regulations, other
tax or accounting guidance could significantly impact how we are taxed on both U.S. and foreign earnings. Transactions
that we have arranged in light of current tax rules could have adverse consequences if those tax rules change, and the
imposition of any new or increased tariffs, duties and taxes could materially adversely affect our business, financial
condition and results of operations.
Our effective tax rates in the future could be adversely affected by a number of factors, including changes in the
expected geographic mix of earnings in countries with differing statutory tax rates, changes in the valuation and
realizability of deferred tax assets and liabilities, changes to or issuance of new tax laws, interpretive regulations, notices
or other administrative practices, principles, or guidance, changes to or issuance of new accounting guidance, changes in
foreign currency exchange rates, entry into new businesses and geographies, changes to our existing businesses and
operations, acquisitions (including integrations) and investments and how they are financed, changes in our stock price,
and the outcome of income tax audits in various jurisdictions around the world. Finally, foreign governments may enact
tax laws in response to the recently enacted U.S. tax reform legislation, commonly referred to as the U.S. Tax Cuts and
Jobs Act of 2017 (the “2017 Tax Act”) that could result in further changes to global taxation and materially affect our
financial position and results of operations.
The 2017 Tax Act significantly changes how the U.S. taxes corporations. The 2017 Tax Act requires complex
computations to be performed that were not previously required in U.S. tax law, judgments to be made in interpretation
of the provisions of the 2017 Tax Act, estimates in calculations, and the preparation and analysis of information not
previously relevant or regularly produced. The U.S. Treasury Department, the Internal Revenue Service (“IRS”), and
other standard-setting bodies could interpret or issue guidance on how provisions of the 2017 Tax Act will be applied or
otherwise administered that is different from our interpretation. As we complete our analysis of the 2017 Tax Act,
collect and prepare necessary data, and interpret any additional guidance, we may make adjustments to provisional
amounts that we have recorded that may materially impact our provision for income taxes in the period in which the
adjustments are made.
Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, or the Code, if a corporation
undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and
other pre-change tax attributes, such as foreign tax credits and research tax credits, to offset its post-change income and
taxes may be limited. In general, an “ownership change” generally occurs if there is a cumulative change in the
Company’s ownership by “5-percent shareholders” that exceeds 50 percentage points over a rolling three-year period.
Similar rules apply under state tax laws. We may experience an ownership change from future transactions in our stock,
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some of which may be outside our control. As a result, if we earn net taxable income, our ability to use pre-change net
operating loss carryforwards or other pre-change tax attributes to offset U.S. federal and state taxable income and taxes
may be subject to incremental limitations.
We are engaged in a number of intercompany transactions across multiple tax jurisdictions. Although we
believe that these transactions reflect the accurate economic allocation of profit and that the proper transfer pricing
documentation is in place, the profit allocation and transfer pricing terms and conditions may be scrutinized by local tax
authorities during an audit and any resulting changes may impact our mix of earnings in countries with differing
statutory tax rates.
We are also subject to the audit or examination of our tax returns by the IRS and other tax authorities whereby
tax authorities could impose additional tariffs, duties, taxes, penalties and interest on us. The determination of our
worldwide provision for income taxes and other tax liabilities requires significant judgment, and there are many
transactions and calculations where the ultimate tax determination is uncertain. Although we believe our estimates are
reasonable and our tax provisions are adequate, the final determination of tax audits and any related disputes could be
materially different from our historical income tax provisions and accruals. The results of audits or related disputes could
have an adverse effect on our financial statements and our financial results for the period or periods for which the
applicable final determinations are made.
Portions of our operations are subject to a reduced tax rate or are free of tax under various tax holidays and
rulings that expire in whole or in part from time to time. These tax holidays and rulings may be extended when certain
conditions are met, or terminated if certain conditions are not met. If the tax holidays and rulings are not extended, or if
we fail to satisfy the conditions of the reduced tax rate, then our effective tax rate would increase in the future.
Changes to the overall international tax environment, as well as changes to some of the tax laws of the foreign
jurisdictions in which we operate, are expected as a result of the Base Erosion and Profit Shifting project (“BEPS”),
undertaken by the Organisation for Economic Co-operation and Development (“OECD”). The OECD, which represents
a coalition of member countries that encompass many of the jurisdictions in which we operate, has promulgated
recommended changes to numerous long standing international tax principles through its BEPS project. It is expected
that jurisdictions in which we do business may continue to react to the BEPS initiative by enacting tax legislation, and
our business could be materially impacted. Our transfer pricing arrangements and principles are reviewed annually;
changes may need to be incorporated as the BEPS principles are fully implemented on a global basis.
Our insurance policies may not provide adequate levels of coverage against all claims and we may incur losses that
are not covered by our insurance.
We maintain insurance of the type and in amounts that we believe is commercially reasonable and that is
available to businesses in our industry. We carry various types of insurance, including general liability, auto liability,
workers’ compensation, cyber and excess umbrella, from highly rated insurance carriers on all of our properties. We
believe that the policy specifications and insured limits are adequate for foreseeable losses with terms and conditions that
are reasonable and customary for similar businesses and are within industry standards. Nevertheless, market forces
beyond our control could limit the scope of the insurance coverage that we can obtain in the future or restrict our ability
to buy insurance coverage at reasonable rates. We cannot predict the level of the premiums that we may be required to
pay for subsequent insurance coverage, the level of any deductible and/or self-insurance retention applicable thereto, the
level of aggregate coverage available or the availability of coverage for specific risks.
In the event of a substantial loss, the insurance coverage that we carry may not be sufficient to compensate us
for the losses we incur or any costs for which we are responsible. In addition, there are types of losses we may incur that
cannot be insured against or that we believe are not commercially reasonable to insure. For example, we maintain
business interruption insurance, but there can be no assurance that the coverage for a severe or prolonged business
interruption would be adequate and the deductibles for such insurance may be high. These losses, if they occur, could
materially adversely affect our business, financial condition and results of operations.
30
We are subject to product liability, warranty and recall claims, and our insurance coverage may not cover such
claims.
Our products expose us to warranty claims and product liability claims if products we manufacture, sell or
design actually or allegedly fail to perform as expected, or the use of those products results, or is alleged to result, in
personal injury, death or property damage. Further, we or one or more of our suppliers might not adhere to product
safety requirements or quality control standards, and products may be shipped to retail partners before the issue is
identified. If this occurs, we may have to recall our products to address performance, compliance or other safety related
issues. The financial costs we may incur in connection with these recalls typically would include the cost of the product
being replaced or repaired and associated labor and administrative costs and, if applicable, governmental fines and/or
penalties.
Product recalls can harm our reputation and cause us to lose customers, particularly if those recalls cause
consumers to question the performance, quality, safety or reliability of our products. Substantial costs incurred or lost
sales caused by future product recalls could materially adversely affect our business, financial condition and results of
operations. Conversely, not issuing a recall or not issuing a recall on a timely basis can harm our reputation and cause us
to lose customers for the same reasons as expressed above. Product recalls, withdrawals, repairs or replacements may
also increase the amount of competition that we face.
We vigorously defend or attempt to settle all product liability cases brought against us. However, there is no
assurance that we can successfully defend or settle all such cases. We believe that we are not currently subject to any
material product liability claims not covered by insurance or vendor indemnity, although the ultimate outcome of these
and future claims cannot presently be determined. Because product liability claims are part of the ordinary course of our
business, we maintain product liability insurance which we currently believe is adequate. Our insurance policies provide
coverage against claims resulting from alleged injuries arising from our products sustained during the respective policy
periods, subject to policy terms and conditions. We believe the insurance will be renewed on substantially similar terms
upon its expiry but there can be no assurance that this coverage will be renewed or otherwise remain available in the
future, that our insurers will be financially viable when payment of a claim is required, that the cost of such insurance
will not increase, or that this insurance will ultimately prove to be adequate under our various policies. Furthermore,
future rate increases might make insurance uneconomical for us to maintain. These potential insurance problems or any
adverse outcome in any liability suit could create increased expenses which could harm our business. We are unable to
predict the nature of product liability claims that may be made against us in the future with respect to injuries, diseases
or other illnesses resulting from the use of our products or the materials incorporated in our products.
Our actual product warranty obligations could materially differ from historical rates, which would oblige us to
revise our estimated warranty liability accordingly. Adverse determinations of material product liability and warranty
claims made against us could materially adversely affect our business, financial condition and results of operations and
could harm the reputation of our brands.
We may be subject to litigation and other regulatory proceedings which may result in the expense of time and
resources and could materially adversely affect our business, financial condition and results of operations.
From time to time, we are involved in lawsuits and regulatory actions relating to our business, including those
relating to intellectual property, antitrust, commercial and employment matters. Due to the inherent uncertainties of
litigation and regulatory proceedings, we cannot accurately predict the likelihood of such lawsuits or regulatory
proceedings occurring or the ultimate outcome of any such proceedings. An unfavorable outcome could materially
adversely affect our business, financial condition and results of operations. In addition, any such proceeding, regardless
of its merits, could divert management’s attention from our operations and result in substantial legal fees.
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We are subject to environmental, health and safety laws and regulations, which could subject us to liabilities,
increase our costs or restrict our operations in the future.
Our properties and operations are subject to a number of environmental, health and safety laws and regulations
in each of the jurisdictions in which we operate. These laws and regulations govern, among other things, air emissions,
water discharges, handling and disposal of solid and hazardous substances and wastes, soil and groundwater
contamination and employee health and safety. Our failure to comply with such environmental, health and safety laws
and regulations could result in substantial civil or criminal fines or penalties or enforcement actions, including regulatory
or judicial orders enjoining or curtailing operations or requiring remedial or corrective measures, installation of pollution
control equipment or other actions.
We may also be subject to liability for environmental investigations and cleanups, including at properties that
we currently or previously owned or operated, even if such contamination was not caused by us, and we may face claims
alleging harm to health or property or natural resource damages arising out of contamination or exposure to hazardous
substances. We may also be subject to similar liabilities and claims in connection with locations at which hazardous
substances or wastes we have generated have been stored, treated, otherwise managed, or disposed.
We use certain substances and generate certain wastes that may be deemed hazardous or toxic under
environmental laws, and we from time to time have incurred, and in the future may incur, costs related to cleaning up
contamination resulting from historic uses of certain of our current or former properties or our treatment, storage or
disposal of wastes at facilities owned by others. The costs of investigation, remediation or removal of such materials
may be substantial, and the presence of those substances, or the failure to remediate a property properly, may impair our
ability to use, transfer or obtain financing regarding our property. Liability in many situations may be imposed not only
without regard to fault, but may also be joint and several, so that we may be held responsible for more than our share of
the contamination or other damages, or even for the entire amount.
Environmental conditions at or related to our current or former properties or operations, and/or the costs of
complying with current or future environmental, health and safety requirements (which have become more stringent and
complex over time) could materially adversely affect our business, financial condition and results of operations.
We may require additional capital in the future and we cannot give any assurance that such capital will be available
at all or available on terms acceptable to us and, if it is available, additional capital raised by us may dilute holders of
our common stock.
We may need to raise additional funds through public or private debt or equity financings in order to:
•
•
•
•
fund ongoing operations;
take advantage of opportunities, including expansion of our business or the acquisition of complementary
products, technologies or businesses;
develop new products; or
respond to competitive pressures.
Any additional capital raised through the sale of equity or securities convertible into equity will dilute
the percentage ownership of holders of our common stock. Capital raised through debt financing would require us to
make periodic interest payments and may impose restrictive covenants on the conduct of our business. Furthermore,
additional financings may not be available on terms favorable to us, or at all, especially during periods of adverse
economic conditions, which could make it more difficult or impossible for us to obtain funding for the operation of our
business, for making additional investments in product development and for repaying outstanding indebtedness. Our
failure to obtain additional funding could prevent us from making expenditures that may be required to grow our
business or maintain our operations.
32
If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our financial condition
and results of operations could be adversely affected.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We
base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the
circumstances, as discussed under “Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” Item 7 of Part II, included elsewhere in this report. The results of these estimates form the basis for making
judgments about the carrying values of assets, liabilities and equity, and the amount of revenue and expenses that are not
readily apparent from other sources. Significant assumptions and estimates used in preparing our consolidated financial
statements include those related to revenue recognition, allowance for doubtful accounts, inventory reserves, impairment
of goodwill, indefinite-lived and long-lived assets, pension and other post-retirement benefits, provisions for income
taxes, valuation allowances for deferred tax assets, share-based compensation and derivatives. Our financial condition
and results of operations may be adversely affected if our assumptions change or if actual circumstances differ from
those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts
and investors, resulting in a decline in the price of our common stock.
Terrorist activities and international political instability may decrease demand for our products and disrupt our
business.
Terrorist activities and armed conflicts could have an adverse effect upon the United States or worldwide
economy and could cause decreased demand for our products. If such events disrupt domestic or international air,
ground or sea shipments, or the operation of our suppliers or our manufacturing facilities, our ability to obtain the
materials necessary to manufacture products and to deliver customer orders would be harmed, which could materially
adversely affect our business, financial condition and results of operations. Such events can negatively impact tourism,
which could adversely affect our sales to retailers at resorts and other vacation destinations. In addition, the occurrence
of political instability and/or terrorist activities generally restricts travel to and from the affected areas, making it more
difficult in general to manage our global operations.
Our business could be harmed by the occurrence of natural disasters or pandemic diseases.
The occurrence of a natural disaster, such as an earthquake, tsunami, fire, flood or hurricane, or the outbreak of
a pandemic disease, could materially adversely affect our business, financial condition and results of operations. A
natural disaster or a pandemic disease could adversely affect both the demand for our products as well as the supply of
the raw materials or components used to make our products. Demand for golf products also could be negatively affected
if consumers in the affected regions restrict their recreational activities and discretionary spending and as tourism to
those areas declines. If our suppliers experience a significant disruption in their business as a result of a natural disaster
or pandemic disease, our ability to obtain the necessary raw materials or components to make products could be
materially adversely affected. In addition, the occurrence of a natural disaster or the outbreak of a pandemic disease
generally restricts travel to and from the affected areas, making it more difficult in general to manage our global
operations.
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Risks Related to Our Indebtedness
Our substantial leverage could adversely affect our ability to raise additional capital to fund our operations, limit our
ability to react to changes in the economy or in our industry, expose us to interest rate risk to the extent of our
variable rate debt, and prevent us from meeting our obligations under our indebtedness.
As of December 31, 2017, we had $466.9 million of indebtedness. In addition, as of December 31, 2017, we
had $254.8 million of availability under our revolving credit facility after giving effect to $10.2 million of outstanding
letters of credit and we had $53.8 million available under our local credit facilities. Our high degree of leverage could
have important consequences for us, including:
•
•
•
requiring us to utilize a substantial portion of our cash flows from operations to make payments on our
indebtedness, reducing the availability of our cash flows to fund working capital, capital expenditures,
product development, acquisitions, general corporate and other purposes;
increasing our vulnerability to adverse economic, industry, or competitive developments;
exposing us to the risk of increased interest rates because substantially all of our borrowings are at variable
rates of interest;
• making it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to
comply with the obligations of any of our debt instruments, including financial maintenance covenants and
restrictive covenants, could result in an event of default under the agreements governing our indebtedness;
•
•
•
restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;
limiting our ability to obtain additional financing for working capital, capital expenditures, product
development, debt service requirements, acquisitions, and general corporate or other purposes; and
limiting our flexibility in planning for, or reacting to, changes in our business or market conditions and
placing us at a competitive disadvantage compared to our competitors who are less highly leveraged and
who, therefore, may be able to take advantage of opportunities that our leverage prevents us from
exploiting.
Servicing our indebtedness will require a significant amount of cash. Our ability to generate sufficient cash depends
on many factors, some of which are not within our control.
Our ability to make payments on our indebtedness and to fund planned capital expenditures will depend on our
ability to generate cash in the future. To a certain extent, this is subject to general economic, financial, competitive,
legislative, regulatory, and other factors that are beyond our control. If we are unable to generate sufficient cash flows to
service our debt and meet our other commitments, we may need to restructure or refinance all or a portion of our debt,
sell material assets or operations, or raise additional debt or equity capital. We may not be able to effect any of these
actions on a timely basis, on commercially reasonable terms, or at all, and these actions may not be sufficient to meet our
capital requirements. In addition, any refinancing of our indebtedness could be at a higher interest rate, and the terms of
our existing or future debt arrangements may restrict us from affecting any of these alternatives. Our failure to make the
required interest and principal payments on our indebtedness would result in an event of default under the agreement
governing such indebtedness, which may result in the acceleration of some or all of our outstanding indebtedness.
Despite our high indebtedness level, we and our subsidiaries will still be able to incur significant additional amounts
of debt, which could further exacerbate the risks associated with our substantial indebtedness.
We and our subsidiaries may be able to incur substantial additional indebtedness in the future. Although the
agreements governing our indebtedness contain restrictions on the incurrence of additional indebtedness, these
restrictions are subject to a number of significant qualifications and exceptions and, under certain circumstances, the
amount of indebtedness that could be incurred in compliance with these restrictions could be substantial.
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Our credit agreements contain restrictions that limit our flexibility in operating our business.
The agreements governing our outstanding indebtedness contain various covenants that limit our ability to
engage in specified types of transactions. These covenants limit the ability of our subsidiaries to, among other things:
•
•
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;
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;
change our fiscal year or accounting practices; or
enter into a transaction or series of transactions that constitutes a change of control.
The covenants contained in the credit agreement governing our senior secured credit facilities (which we refer
to in this report as “our credit agreement”) also restrict the ability of Acushnet Holdings Corp. to engage in certain
mergers or consolidations or engage in any activities other than permitted activities. A breach of any of these covenants,
among others, could result in a default under one or more of these agreements, including as a result of cross default
provisions, and, in the case of our secured credit facility, following any applicable cure period, would permit the lenders
thereunder to, among other things, declare the principal, accrued interest and other obligations thereunder to be
immediately due and payable and declare the commitment of each lender thereunder to make loans and issue letters of
credit to be terminated.
We may utilize derivative financial instruments to reduce our exposure to market risks from changes in interest rates
on our variable rate indebtedness and we will be exposed to risks related to counterparty credit worthiness or
non-performance of these instruments.
We may enter into pay-fixed interest rate swaps to limit our exposure to changes in variable interest rates. Such
instruments may result in economic losses should interest rates decline to a point lower than our fixed rate commitments.
We will be exposed to credit-related losses, which could impact the results of operations in the event of fluctuations in
the fair value of the interest rate swaps due to a change in the credit worthiness or non-performance by the counterparties
to the interest rate swaps.
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Risks Related to the Magnus Term Loan
Fila Korea Co. Ltd. (“Fila Korea”) and Magnus Holdings Co., Ltd. (“Magnus”) have obligations under the New
Magnus Loans (as defined below), including the satisfaction of a Loan-to-Value covenant, and Fila Korea and/or
Magnus may have obligations under any equity or debt used to refinance the New Magnus Loans, that may be
satisfied by a sale, foreclosure, liquidation or other transfer of our common stock, which could materially decrease
the market value of our common stock and may result in a change of control of our 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.
The shares of our common stock owned by Magnus are its only assets.
Under the New Magnus Loan Agreement, Magnus is required to maintain a specified loan-to-value ratio (“LTV
Ratio”), which is tested monthly, based on (1) the amount outstanding under the New Magnus Loans on each applicable
calculation date divided by (2)(a) the trading-volume-weighted arithmetic mean of the closing price of shares of our
common stock on the New York Stock Exchange during the applicable calculation period multiplied by (b) the number
of shares of our common stock that are subject to the pledge multiplied by (c) the average exchange rate between U.S.
dollars and Korean Won announced by Seoul Money Brokerage during the applicable calculation period. If the LTV
Ratio as of any applicable calculation date exceeds 75%, which may occur due to fluctuations in the price of our
common stock and/or fluctuations in the exchange rate between U.S. dollars and Korean Won, either of which may be
due to events outside our control, Magnus will be in breach of the New Magnus Loan Agreement. Any such breach may,
subject to applicable grace periods and cure rights, result in an event of default that gives the New Magnus Lenders the
right to accelerate the maturity of the New Magnus Loans. See our Current Report on Form 8-K filed on September 22,
2017 for a description of the terms of the New Magnus Loans.
It is expected that a portion of the interest payments on the New Magnus Loans, and potential future dividend
or interest obligations under any equity or debt used to refinance the New Magnus Loans, will be funded using proceeds
from dividends, if any, received on our common stock. See “Item 5. – Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities – Dividend Policy.” There can be no assurance that we
will be able to make such dividend payments on our common stock. See “Risks Related to Ownership of Our Common
Stock— We cannot assure you that we will pay dividends on our common stock, and our indebtedness and other factors
could limit our ability to pay dividends on our common stock” below. There can be no assurance that Magnus will be
able to make the interest payments on the New Magnus Loans, or any potential future dividend or interest obligations
under any equity or debt used to refinance the New Magnus Loans. If Magnus is unable to pay interest on the New
Magnus Loans on an interest payment date, the principal and accrued interest on the New Magnus Loans becomes
automatically due and payable. At maturity (or an earlier date if subject to acceleration), Magnus will be required to raise
additional funds to pay the additional amounts of interest incurred, which it may be unable to do. There may be similar
obligations under any financing used to refinance the New Magnus Loans in the future.
If the LTV Ratio covenant or other applicable provisions of the New Magnus Loan Agreement are breached
and the New Magnus Loans are accelerated, or if Fila Korea or Magnus are unable to make payments on the New
Magnus Loans when due or are unable to raise the funds necessary to pay the amounts owed on the New Magnus Loans
at maturity (or an earlier date if subject to acceleration), or if Magnus otherwise fails to pay the amounts due on the New
Magnus Loans at maturity (or an earlier date if subject to acceleration), the New Magnus Lenders can foreclose on the
Magnus Shares. Any such foreclosure may be undertaken in accordance with Korean law and may result, under certain
circumstances, in the sale or other transfer of up to 52.6% of our common stock. See “The creditor and insolvency laws
of Korea are different from U.S. laws and the outcome of any foreclosure, liquidation, bankruptcy or other restructuring
proceeding may be unpredictable” below. Any such sale could have a significant impact on our shareholding structure
and our corporate governance and could materially decrease the market price of shares of our common stock. In
addition, the perception that such a sale could occur could materially depress the market price of shares of our common
stock. See “Risks Related to Ownership of Our Common Stock—Future sales, or the perception of future sales, by us or
36
our existing shareholders in the public market could cause the market price for our common stock to decline” below.
There may be similar obligations under any financing used to refinance the New Magnus Loans in the future and failure
to satisfy such obligations could result in the same consequences as discussed above.
In addition, prior to any foreclosure, Fila Korea may decide to sell or otherwise transfer all, or a significant
portion, of our common stock owned by Magnus in order to meet the obligations of Magnus under the New Magnus
Loans, including to satisfy the LTV Ratio covenant, or under any future financing used to refinance the New Magnus
Loans. Any such sale, or the perception that such a sale could occur, could have a significant impact on our shareholding
structure and our corporate governance and could materially decrease the market price of shares of our common stock. In
connection with our initial public offering, we entered into a registration rights agreement with Magnus and certain other
pre-IPO shareholders. The New Magnus Lenders will assume Magnus’ rights under the registration rights agreement in
the event of a foreclosure or other transfer of the pledged shares of our common stock pursuant to the New Magnus
Loans. See “Certain Relationships and Related Party Transactions—Registration Rights Agreement” in our Definitive
Proxy Statement on Schedule 14A filed on April 28, 2017.
Any of the potential sales, foreclosures, liquidations or other transfers of our common stock discussed above
may result in a change of control under certain outstanding agreements, including as a result of the acquisition of a
significant portion of our common stock by any individual, entity or group, which could result in a default under such
agreements. Under our credit agreement, it is a change of control if any person (other than certain permitted parties,
including Fila Korea) becomes the beneficial owner of 35% or more of our outstanding common stock. In the event of a
foreclosure on the pledged shares of our common stock under the New Magnus Loans, if, in the reasonable opinion of
the New Magnus Lenders, foreclosure of 35% of our outstanding common stock less one share of our common stock
(the “Foreclosure Threshold Amount”) will be sufficient to fully satisfy the principal and interest of the New Magnus
Loans, only the Foreclosure Threshold Amount will be permitted for such foreclosure. If the Foreclosure Threshold
Amount is insufficient to fully satisfy the principal and interest of the New Magnus Loans, there will be no limitation on
the amount of our pledged shares of common stock that may be foreclosed. As a result, if the New Magnus Lenders or a
third party were to acquire beneficial ownership of 35% or more of our outstanding common stock pursuant to an event
of default under the New Magnus Loans, it would result in a change of control under our credit agreement, which is an
event of default that could result in the acceleration of all outstanding indebtedness and the termination of all
commitments under our credit agreement and would allow the lenders under our credit agreement to enforce their rights
with respect to the collateral granted by us, including the stock of our subsidiary, Acushnet Company. Upon the exercise
of such rights, it is uncertain whether we and our subsidiary, Acushnet Company, would be able to refinance the
indebtedness and replace the commitments under our credit agreement on comparable terms or at all. If we are unable to
refinance our credit agreement, we may need to dispose of assets or operations or issue equity to obtain necessary funds
to repay the outstanding indebtedness under our credit agreement. The resulting impairment of our liquidity position
could also materially depress our stock price. In addition, a change of control under our outstanding equity award
agreements and other employment arrangements may result in the vesting of outstanding equity awards and the
acceleration of benefits or other payments under certain employment arrangements. A change of control may also result
in a default or other negative consequence under our other outstanding agreements or instruments. See “Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”
Magnus’ ability to pay the amounts owed on, or to refinance, the New Magnus Loans on or prior to maturity
may be affected by general economic, financial, competitive, legislative, regulatory, business, geopolitical and other
factors beyond its control. We cannot assure you that future borrowings or equity financing will be available for the
payment or refinancing of the New Magnus Loans by Magnus. If Magnus is unable to pay the amounts owed on, or to
refinance, the New Magnus Loans on or prior to maturity, it could have a material adverse effect on our business,
financial condition, results of operations and the market price of our common stock. In addition, any inability by Magnus
to take affirmative steps to refinance the New Magnus Loans as the maturity date nears could also have a material
adverse effect on our business, financial condition, results of operations and the market price of our common stock.
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The interests of Magnus, Fila Korea and the New Magnus Lenders may conflict with other holders of our common
stock.
Magnus, which is wholly-owned by Fila Korea, beneficially owns approximately 52.6% of our common stock.
Fila Korea is able to control the election and removal of our directors and thereby effectively determine, among other
things, the payment of dividends, our corporate and management policies, including potential mergers or acquisitions or
asset sales, amendment of our amended and restated certificate of incorporation or amended and restated bylaws, and
other significant corporate transactions for so long as Magnus retains significant ownership of us. So long as Magnus
continues to own a significant amount of our voting power, even if such amount is less than 50%, Fila Korea will
continue to be able to strongly influence or effectively control our decisions. The interests of Fila Korea and Magnus
may not coincide with the interests of other holders of our common stock.
By controlling the election and removal of our directors, Fila Korea is able to effectively determine the payment
of dividends on our common stock. In light of its interest obligations under the New Magnus Loans, and potential future
dividend or interest obligations under any equity or debt used to refinance the New Magnus Loans, Magnus may cause
us to pay dividends on our common stock at times or in amounts that may not be in the best interest of us or other
holders of our common stock. See “Risks Related to Ownership of our Common Stock—We cannot assure you that we
will pay dividends on our common stock, and our indebtedness and other factors could limit our ability to pay dividends
on our common stock” below.
In the ordinary course of its business activities, Fila Korea and its affiliates may engage in activities where their
interests conflict with our interests or those of our shareholders. Except as may be limited by applicable law, Fila Korea
and its affiliates will not have any duty to refrain from competing directly with us or engaging, directly or indirectly, in
the same business activities or similar business activities or lines of business in which we operate. Fila Korea and its
affiliates also may pursue acquisition opportunities that may be complementary to our business and, as a result, those
acquisition opportunities may not be available to us. In addition, Fila Korea and its affiliates may have an interest in us
pursuing acquisitions, divestitures and other transactions that, in its judgment, could enhance its investment, even though
such transactions might involve risks to you.
In addition, the concentration of our ownership held by Magnus may delay, deter or prevent possible changes in
control of the company or a change in the composition of our board of directors and could preclude any unsolicited
acquisition of us, which may reduce the value of an investment in our common stock.
Furthermore, the New Magnus Lenders, as lenders under the New Magnus Loans, and any potential future
lenders of debt used to refinance the New Magnus Loans, may also become direct owners of our common stock as a
result of their exercise of remedies or otherwise. The interests of the New Magnus Lenders, or such potential future
lenders, may not coincide with the interests of other holders of our common stock.
We and our board of directors will have no power to direct or influence the affairs of Magnus. In particular, we
will have no power with respect to the disposition of shares of our common stock by Fila Korea, Magnus or the New
Magnus Lenders (whether in connection with any exercise of remedies by the New Magnus Lenders or otherwise).
Fila Korea has in the past pledged the common stock of Magnus to its lenders and Fila Korea may pledge or borrow
against shares of the common stock of Magnus in the future.
In the past, in order to fund the operations of or otherwise provide financing for its own business, Fila Korea
has pledged its interest in the common stock of Magnus, and Fila Korea may pledge or borrow against shares of the
common stock of Magnus in the future. If Fila Korea defaults under any such pledge or borrowing and the lenders
foreclose on the pledged shares of Magnus common stock, they may seek to sell the pledged shares of Magnus common
stock, or seek to acquire and to sell a portion of our common stock owned by Magnus. Any such sale, or the perception
that such a sale could occur, could alter the voting power of Magnus directly and of us indirectly, and/or decrease the
market price of shares of our common stock. The interests of the secured parties who exercise foreclosure may differ
from those of other holders of our common stock.
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The creditor and insolvency laws of Korea are different from U.S. bankruptcy laws and the outcome of any
foreclosure, liquidation, bankruptcy or other restructuring proceeding may be unpredictable.
Fila Korea and Magnus are organized under the laws of the Republic of Korea. The creditor, bankruptcy,
insolvency and other relevant laws of Korea are materially different from those of the United States. Any foreclosure,
liquidation, bankruptcy or other restructuring proceeding involving Fila Korea or Magnus may be unpredictable and
would not involve the same timing or procedures, and may not result in the same outcome, as a proceeding under U.S.
law.
We are a “controlled company” within the meaning of the rules of the NYSE. As a result, we will qualify for
exemptions from certain corporate governance requirements that would otherwise provide protection to shareholders
of other companies.
Under the corporate governance standards of the NYSE rules, a company of which more than 50% of the voting
power is held by an individual, group, or another company is a “controlled company” and may elect not to comply with
certain corporate governance requirements, including:
•
•
•
•
the requirement that a majority of our board of directors consist of “independent directors” as defined
under the rules of the NYSE;
the requirement that we have a compensation committee that is composed entirely of independent directors
with a written charter addressing the committee’s purpose and responsibilities;
the requirement that we have a nominating and corporate governance committee that is composed entirely
of independent directors with a written charter addressing the committee’s purpose and responsibilities; and
the requirement for an annual performance evaluation of the compensation and nominating and corporate
governance committees.
Magnus, which is wholly-owned by Fila Korea, controls 39,345,151 shares, or approximately 52.6%, of our
common stock. As a result, we qualify as a “controlled company” within the meaning of the corporate governance
standards of the NYSE. Although we do not currently avail ourselves of exemptions available to controlled companies
and do not currently expect to avail ourselves of these exemptions, we may utilize one or more of these exemptions in
the future. As a result, we may not have a majority of independent directors, our nominating/corporate governance
committee and compensation committee may not consist entirely of independent directors, and such committees will not
be subject to annual performance evaluations. Accordingly, you may not have the same protections afforded to
shareholders of companies that are subject to all of the corporate governance requirements of the NYSE.
In addition, the NYSE adopted listing standards, which were approved by the SEC in 2013, that impose
additional requirements pertaining to compensation committee independence and the role and disclosure of
compensation consultants and other advisers to the compensation committee that require, among other things, that:
•
•
•
a compensation committee be composed of fully independent directors, as determined pursuant to new
independence requirements;
a compensation committee be explicitly charged with hiring and overseeing compensation consultants,
legal counsel, and other committee advisors; and
a compensation committee be required to consider, when engaging compensation consultants, legal
counsel, or other advisors, certain independence factors, including factors that examine the relationship
between the consultant or advisor’s employer and us.
Although we do not currently avail ourselves of the exemptions from these compensation committee
requirements or intend to do so, as a “controlled company,” we are not subject to these compensation committee
independence requirements.
39
Risks Related to Ownership of Our Common Stock
The market price of shares of our common stock may be volatile, which could cause the value of your investment to
decline.
The market price of our common stock may be highly volatile and could be subject to wide fluctuations.
Securities markets worldwide experience significant price and volume fluctuations. This market volatility, as well as
general economic, market or political conditions, could reduce the market price of shares of our common stock in spite
of our operating performance. In addition, our results of operations could be below the expectations of public market
analysts and investors due to a number of potential factors, including variations in our quarterly results of operations,
additions or departures of key management personnel, failure to meet analysts’ earnings estimates, publication of
research reports about our industry, litigation and government investigations, changes or proposed changes in laws or
regulations or differing interpretations or enforcement thereof affecting our business or the golf industry, adverse market
reaction to any indebtedness we may incur or securities we may issue in the future, changes in market valuations of
similar companies or speculation in the press or investment community, announcements by our competitors of
significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments, adverse
publicity about our industry in or individual scandals, and in response the market price of shares of our common stock
could decrease significantly.
In the past few years, stock markets have experienced significant price and volume fluctuations. In the past,
following periods of volatility in the overall market and the market price of a company’s securities, securities class
action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in
substantial costs and a diversion of our management’s attention and resources.
If we are unable to maintain effective internal controls over financial reporting, we may not be able to produce timely
and accurate financial statements, which could have a material adverse effect on our business and stock price.
As disclosed in “Controls and Procedures”, Item 9A of Part II to this report, in connection with the audit of our
consolidated financial statements for the years ended December 31, 2016, 2015 and 2014, we identified material
weaknesses in our internal control over financial reporting which resulted in several audit adjustments to our
consolidated financial statements for the years ended December 31, 2016, 2015 and 2014. A material weakness is a
deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the company’s annual or interim consolidated financial statements will not be
prevented or detected on a timely basis.
In response to the identified material weaknesses, we took a number of actions to improve our internal control
over financial reporting during the year ended December 31, 2017. Management believes that, as a result of the
implementation of these actions during the year ended December 31, 2017, our remediation efforts have been successful,
and that the previously identified material weaknesses in our internal controls have been remediated. However, while
these material weaknesses have been remediated, we continue to seek improvements to enhance our control environment
and to strengthen our internal controls to provide reasonable assurance that our financial statements continue to be fairly
stated in all material respects.
However, if we fail to maintain effective internal controls over financial reporting or if we identify additional
material weaknesses in our internal control over financial reporting, investors may lose confidence in the accuracy and
completeness of our financial statements which could cause the market price of our common stock to decline, and we
could become subject to sanctions or investigations by the stock exchange upon which our common stock is listed, the
SEC or other regulatory authorities, and we could be delayed in delivering financial statements, which could result in a
default under the agreements governing our indebtedness.
40
We cannot assure you that we will pay dividends on our common stock, and our indebtedness and other factors could
limit our ability to pay dividends on our common stock.
We intend to pay cash dividends on our common stock, subject to the discretion of our board of directors and
our compliance with applicable law, and depending on, among other things, our results of operations, capital
requirements, financial condition, contractual restrictions, restrictions in our debt agreements and in any equity
securities, business prospects and other factors that our board of directors may deem relevant. Because we are a holding
company and have no direct operations, we expect to pay dividends, if any, only from funds we receive from our
subsidiaries, which may further restrict our ability to pay dividends as a result of the laws of their jurisdiction of
organization, agreements of our subsidiaries or covenants under any existing and future outstanding indebtedness we or
our subsidiaries incur. Certain of our existing agreements governing indebtedness, including our credit agreement,
restrict our ability to pay dividends on our common stock. We expect that any future agreements governing indebtedness
will contain similar restrictions. For more information, see “Item 5. – Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities – Dividend Policy” and “Item 7. – Management’s
Discussion and Analysis of Financial Condition and Results of Operations— Liquidity and Capital Resources.”
Our dividend policy entails certain risks and limitations, particularly with respect to our liquidity. By paying
cash dividends rather than investing that cash in our business or repaying debt, we risk, among other things, slowing the
pace of our growth and having insufficient cash to fund our operations or unanticipated capital expenditures or limiting
our ability to incur additional borrowings.
Although we expect to pay dividends according to our dividend policy, we may not pay dividends according to
our policy, or at all, if, among other things, we do not have the cash necessary to pay our intended dividends.
The declaration and payment of dividends will be determined at the discretion of our board of directors, acting
in compliance with applicable law and contractual restrictions. However, our board of directors is determined by
Magnus, which is wholly-owned by Fila Korea, which controls a majority of the voting power of all outstanding shares
of our common stock. Accordingly, the decision to declare and pay dividends on our common stock in the future, as well
as the amount of each such dividend payment, may also depend on the amounts Magnus needs to fund the interest
payments on the Magnus Term Loan, other amounts due in connection with the Magnus Term Loan or any potential
future dividend or interest obligations under any equity or debt used to refinance the Magnus Term Loan.
Acushnet Holdings Corp. is a holding company with no operations of its own and, as such, it depends on its
subsidiaries for cash to fund all of its operations and expenses, including future dividend payments, if any.
Our operations are conducted almost entirely through our subsidiaries and our ability to generate cash to make
future dividend payments, if any, is highly dependent on the earnings and the receipt of funds from our subsidiaries via
dividends or intercompany loans, which may be restricted as a result of the laws of the jurisdiction of organization of our
subsidiaries, agreements of our subsidiaries or covenants under any existing and future outstanding indebtedness we or
our subsidiaries incur.
You may be diluted by the future issuance of additional common stock in connection with our incentive plans,
acquisitions or otherwise.
As of December 31, 2017, we had 425,520,681 shares of common stock authorized but unissued. Our amended
and restated certificate of incorporation authorizes us to issue these shares of common stock and securities convertible
into, exchangeable for, or exercisable into our common stock for the consideration and on the terms and conditions
established by our board of directors in its sole discretion, whether in connection with acquisitions or otherwise. We
have 7,804,279 shares reserved for issuance under our 2015 Incentive Plan. Any shares of common stock that we issue,
under our 2015 Incentive Plan or other equity incentive plans that we may adopt in the future, would dilute
the percentage ownership held by our existing shareholders.
Future sales, or the perception of future sales, by us or our existing shareholders in the public market could cause the
market price for our common stock to decline.
The sale of substantial amounts of shares of our common stock in the public market, or the perception that such
sales could occur, including sales by our existing shareholders, could harm the prevailing market price of shares of our
41
common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell
equity securities in the future at a time and at a price that we deem appropriate. These factors could also make it more
difficult for us to raise additional funds through future offerings of our shares of common stock or other securities.
Anti-takeover provisions in our organizational documents and Delaware law might discourage or delay acquisition
attempts for us that you might consider favorable.
Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that
may make the merger or acquisition of the Company more difficult without the approval of our board of directors.
Among other things:
•
•
•
•
•
•
although we do not have a stockholder rights plan, these provisions would allow us to authorize the
issuance of undesignated preferred stock in connection with a stockholder rights plan or otherwise, the
terms of which may be established and the shares of which may be issued without stockholder approval,
and which may include super voting, special approval, dividend, or other rights or preferences superior to
the rights of the holders of common stock;
these provisions provide for a classified Board of Directors with staggered three-year terms;
these provisions require advance notice for nominations of directors by stockholders and for stockholders
to include matters to be considered at our annual meetings;
these provisions prohibit stockholder action by written consent;
these provisions provide for the removal of directors only for cause and only upon affirmative vote of
holders of at least 66(cid:1152)% of the shares of common stock entitled to vote generally in the election of
directors if Magnus and its affiliates hold less than 50% of our outstanding shares of common stock; and
these provisions require the amendment of certain provisions only by the affirmative vote of at least 66(cid:1152)%
of the shares of common stock entitled to vote generally in the election of directors if Magnus and its
affiliates hold less than 50% of our outstanding shares of common stock.
Further, as a Delaware corporation, we are also subject to provisions of Delaware law, which may impair a
takeover attempt that our shareholders may find beneficial. These anti-takeover provisions and other provisions under
Delaware law could discourage, delay or prevent a transaction involving a change in control of the Company, including
actions that our shareholders may deem advantageous, or negatively affect the trading price of our common stock. These
provisions could also discourage proxy contests and make it more difficult for you and other shareholders to elect
directors of your choosing and to cause us to take other corporate actions you desire.
If securities analysts do not publish research or reports about our business or if they downgrade our stock or our
sector, our stock price and trading volume could decline.
The trading market for our common stock relies in part on the research and reports that industry or financial
analysts publish about us or our business or industry. We do not control these analysts. Furthermore, if one or more of
the analysts who do cover us downgrade our stock or our industry, or the stock of any of our competitors, or publish
inaccurate or unfavorable research about our business or industry, the price of our stock could decline. If one or more of
these analysts ceases coverage of us or fails to publish reports on us regularly, we could lose visibility in the market,
which in turn could cause our stock price or trading volume to decline.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
42
ITEM 2. PROPERTIES
Our material facilities are located worldwide as shown in the table below.
Location
Fairhaven, Massachusetts
Golf Balls
North Dartmouth, Massachusetts
New Bedford, Massachusetts
Amphur Pluakdaeng Rayong, Thailand
New Bedford, Massachusetts
Fairhaven, Massachusetts
New Bedford, Massachusetts
Golf Clubs, Wedges and Putters
Carlsbad, California
San Marcos, California
Encinitas, California
Tochigi, Japan
FootJoy
Fujian, China (40% owned joint venture)
Brockton, Massachusetts
Headquarters and Golf Ball R&D
222,720
Type
Facility Size(1)
Leased/Owned
Owned
Golf ball manufacturing
Golf ball manufacturing
Golf ball manufacturing
Golf ball customization and distribution
179,602
244,091
230,003
438,007
center
Golf ball packaging
Golf ball advanced engineering and ball
49,580
34,000
cavity manufacturing
Golf club assembly and R&D
Putter research
Putter fitting and sales
Golf club assembly
161,310
19,200
3,754
20,376
Golf shoe manufacturing and distribution
525,031
center
Golf shoe R&D, custom glove assembly,
146,000
apparel embroidery and distribution center
Owned
Owned
Owned
Owned
Owned
Leased
Leased
Leased
Leased
Leased
Building
Owned/Land
Leased
Owned
Sriracha Chonburi, Thailand
Golf glove manufacturing
112,847
Building
Sales Offices and Distribution Centers (used by multiple reportable segments)
East Coast distribution center
Fairhaven, Massachusetts
West Coast distribution center and golf bag
Vista, California
185,370
102,319
embroidery
Owned/Land
Leased
Owned
Leased
Cambridgeshire, United Kingdom
Sales office and distribution center, as well
156,326
Owned
Helmond, The Netherlands
Victoria, Australia
Sales office and distribution center
Sales office and distribution center, as well
69,965
37,027
Leased
Leased
as golf club assembly and golf ball
customization
Ontario, Canada
Shenzhen, China
as golf club assembly
Sales office and distribution center, as well
102,057
Leased
as golf ball customization
Distribution center and golf ball
73,194
Leased
customization
Randburg, South Africa
Sales office and distribution center, as well
25,060
Leased
as golf club assembly
Icheon-si, Korea
Distribution center, golf ball customization
155,151
Leased
Product Testing and Fitting Centers (Golf Balls and Golf Clubs)
Acushnet, Massachusetts
East Coast product testing and fitting for
golf balls and golf clubs
and golf club assembly
Oceanside, California
West Coast product testing and fitting for
golf balls and golf clubs
(Titleist Performance Institute)
Owned
Owned
22 acres total,
including
7,662 square
foot building
30 acres total,
including
20,539 square foot
building
(1) Facility size represents square footage of the building, unless otherwise noted.
We have additional sales offices and facilities in Hawaii, New Zealand, Malaysia, Singapore, Hong Kong,
Taiwan, Japan, Korea, Thailand, Sweden, France, Germany and Switzerland. In the opinion of the Company’s
management, the Company’s properties are adequate and suitable for its business as presently conducted and are
adequately maintained.
43
ITEM 3. LEGAL PROCEEDINGS
We are defendants in lawsuits associated with the normal conduct of our 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.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
Executive Officers
EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is information concerning the Company’s executive officers as of March 7, 2018.
Name
David Maher
Mary Lou Bohn
Steven Pelisek
John (Jay) Duke, Jr.
Christopher Lindner
William Burke
Dennis Doherty
Brendan Gibbons
Thomas Pacheco
Age Position
50 President and Chief Executive Officer
57 President, Titleist Golf Balls
57 President, Titleist Golf Clubs
49 President, Titleist Golf Gear
49 President, FootJoy
59 Executive Vice President, Chief Financial Officer and Treasurer
60 Executive Vice President, Chief Human Resources Officer
42 Executive Vice President, Chief Legal Officer and Corporate Secretary
49 Senior Vice President, Finance and Chief Accounting Officer
David Maher, 50, joined the company in 1991 and was appointed President and Chief Executive Officer of
Acushnet Company in 2018. Prior to that, Mr. Maher was Chief Operating Officer from June 2016 to December 2017,
Senior Vice President, Titleist Worldwide Sales and Global Operations from February 2016 to June 2016 and Vice
President, Titleist U.S. Sales from 2001 to January 2016.
Mary Lou Bohn, 57, joined the company in 1987 and was appointed President, Titleist Golf Balls in June 2016.
Prior to that, Ms. Bohn was Executive Vice President, Titleist Golf Balls and Titleist Communications from
February 2016 to June 2016, Vice President, Golf Ball Marketing and Titleist Communications from 2010 to
January 2016 and Vice President, Advertising and Communications from 2000 to 2010.
Steven Pelisek, 57, joined the company in 1993 and was appointed President, Titleist Golf Clubs in
March 2016. From 2008 to March 2016, he was General Manager, Titleist Golf Clubs. Prior to that, Mr. Pelisek served
as Vice President, Club Sales for both the Titleist and Cobra Club brands.
John (Jay) Duke, Jr., 49, joined the company in 2014 and was appointed President, Titleist Golf Gear in 2014.
Prior to that, Mr. Duke worked at Hasbro, Inc., a multinational toy and board game company, from 2012 to 2014 where
he was Vice President and Global Franchise Leader for Transformers Global Brand. Prior to Hasbro, Mr. Duke was
President of Karhu Holdings BV from 2008 to 2012 and prior to that he held senior general management and strategy
positions with Karhu Holdings BV and Converse Inc. (a subsidiary of NIKE, Inc.). Mr. Duke also spent time earlier in
his career working for Morgan Stanley’s Investment Banking Division and in general management positions with
Reebok International Ltd.
Christopher Lindner, 49, joined the company in August 2016 as President, FootJoy. Prior to that, Mr. Lindner
worked at Wolverine World Wide Inc., an American footwear manufacturer, from 2010 to August 2016 where he was
President of Keds from 2014 to August 2016, Chief Marketing Officer and Senior Vice President of Business
Development for Sperry in 2014 and Chief Marketing Officer and Senior Vice President of North America Sales for
Saucony from 2010 to 2014. Prior to 2010, Mr. Lindner held various positions with NIKE, including as Vice President
of Global Marketing for Converse and Vice President of Global Marketing for Bauer Hockey (both NIKE subsidiaries),
and leadership roles with 800.com, Electronic Arts and Rollerblade.
44
William Burke, 59, joined the company in 1997 and was appointed Executive Vice President, Chief Financial
Officer and Treasurer in April 2016 after serving as Senior Vice President and Chief Financial Officer of Acushnet
Company since 2003. Prior to that, he served as Vice President and Controller of Acushnet Company. Before joining the
company, Mr. Burke held various finance positions at predecessor parent companies Fortune Brands Inc. and American
Brands Inc.
Dennis Doherty, 60, joined the company in 1994 and was appointed Executive Vice President, Chief Human
Resources Officer in June 2016 after serving as Senior Vice President, Human Resources since 2000. Before joining
Acushnet Company, Mr. Doherty held human resource positions at American Brands Inc. and Revlon Health Care
Group.
Brendan Gibbons, 42, joined the company in December 2017 as Executive Vice President, Chief Legal Officer
and Corporate Secretary. Mr. Gibbons was Senior Vice President, General Counsel and Secretary of Wolverine World
Wide, Inc. from April 2014 to November 2017. Prior to that, Mr. Gibbons served as Senior Vice President of Legal and
Corporate Affairs, General Counsel and Secretary of Carter’s, Inc.
Thomas Pacheco, 49, joined the company in April 2017 as Senior Vice President, Finance and Chief
Accounting Officer. Prior to that, Mr. Pacheco was Senior Vice President, Finance and Chief Audit Executive of Dell
Technologies from September 2016 to March 2017. Prior to September 2016, Mr. Pacheco served as Senior Vice
President, Finance and Chief Accounting Officer at EMC until it was acquired by Dell Technologies. He joined EMC in
2005 and held several roles in Finance including Assistant Corporate Controller, CFO - Cloud Services Division and
Senior Director of Corporate Accounting and Reporting.
45
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock has been listed on the New York Stock Exchange (the “NYSE”) under the symbol “GOLF”
since October 28, 2016. Prior to that date, there was no public trading market for our common stock. Our initial public
offering was priced at $17.00 per share on October 27, 2016.
The following table sets forth for the periods indicated the high and low sales prices of our common stock as
reported on the NYSE:
Fiscal Year Ending December 31, 2017
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Fiscal Year Ending December 31, 2016
Fourth Quarter (from October 28, 2016)
Sales Price
High
Low
$ 21.48 $ 16.91
15.16
16.98
16.84
20.56
20.29
19.87
$ 22.31 $ 16.90
On March 2, 2018, the last reported sales price of our common stock on the NYSE was $21.06 per share and
there were four record holders of our common stock.
Performance Graph
Shareholder Return Comparison
125
120
115
110
105
100
95
90
85
80
75
Jan-17
Feb-17 Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Acushnet Holdings Corp.
S&P 500
S&P 500 Consumer Durables & Apparel
46
Recent Sales of Unregistered Securities
None.
Dividend Policy
We paid a total of $35.7 million in dividends on our common stock during the year ended December 31, 2017.
We expect to pay future quarterly cash dividends on our common stock, subject to the discretion of our board of
directors and our compliance with applicable law, and depending on, among other things, our results of operations,
capital requirements, financial condition, contractual restrictions, restrictions in our debt agreements and in any equity
securities, business prospects and other factors that our board of directors may deem relevant. Our dividend policy may
be changed or terminated in the future at any time without advance notice. For a description of the restrictions on our
ability to pay dividends under our senior secured credit facilities, see “Item 7. - Management’s Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital Resources” and “Notes to Consolidated
Financial Statements – Note 9 – Debt and Financing Arrangements– Senior Secured Credit Facility.”
We did not declare or pay any dividends on our common stock in 2016 or 2015.
Issuer Purchases of Equity Securities
None.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
You should read the selected consolidated financial data below together with the consolidated financial
statements and related notes thereto appearing elsewhere in this report, as well as “Item 7. – Management’s Discussion
and Analysis of Financial Condition and Results of Operations” and the other financial information included elsewhere
in this report.
47
We have derived the consolidated statement of operations data for the years ended December 31, 2017, 2016
and 2015 and the consolidated balance sheet data as of December 31, 2017 and 2016 presented below from our audited
consolidated financial statements included elsewhere in this report. We have derived the consolidated statement of
operations data for the years ended December 31, 2014 and 2013 and our consolidated balance sheet data as of
December 31, 2015, 2014 and 2013 presented below from our audited consolidated financial statements which are not
included in this report. Our historical audited results are not necessarily indicative of the results that should be expected
in any future period.
2017
Year ended December 31,
2015
(in thousands, except share and per share data)
2014
2016
2013
Consolidated Statements of Operations
Data:
Net sales
Income from operations
Net income
Less: Net income attributable to
noncontrolling interests
Net income (loss) attributable to Acushnet
Holdings Corp.
Dividends earned by preferred shareholders
Allocation of undistributed earnings to
preferred shareholders
Net income (loss) attributable to common
shareholders—basic
Net income (loss) attributable to common
shareholders—diluted(1)
Per Share Data:
Net income (loss) per common share
attributable to Acushnet Holdings Corp.—
basic(2)
Net income (loss) per common share
attributable to Acushnet Holdings Corp.—
diluted(3)
Weighted average number of common
shares—basic(2)
Weighted average number of common
shares—diluted(3)
Cash dividends declared per common share:
Balance Sheet Data:
Unrestricted Cash(4)
Current assets less current liabilities,
excluding the current portion of our long term
debt and EAR Plan liability
Total assets
Common stock warrant liability
Long term debt, net of discount, including
current portion, and capital lease
obligations(5)
EAR Plan liability, including current
portion(6)
Total liabilities
Convertible Preferred Stock
Total equity attributable to Acushnet Holdings
Corp.
Total shareholders' equity
$ 1,560,258 $ 1,572,275 $ 1,502,958 $ 1,537,610 $ 1,477,219
114,897
24,313
104,247
25,366
117,583
4,156
140,836
49,515
166,308
96,620
(4,506)
(4,503)
(5,122)
(3,809)
(4,677)
92,114
—
45,012
(11,576)
(966)
(13,785)
21,557
(13,785)
19,636
(13,785)
—
(10,247)
—
(3,866)
(3,225)
92,114
23,189
(14,751)
3,906
92,114
39,664
(14,751)
3,906
2,626
2,626
1.24 $
0.74 $
(0.74) $
0.23 $
0.19
$
1.23
0.62
(0.74)
0.23
0.19
74,399,836
31,247,643
19,939,293
16,716,825
13,471,308
74,590,999
0.48
64,323,742
—
19,939,293
—
16,716,825
—
13,471,308
—
$
45,411 $
76,058 $
54,409 $
47,667 $
49,257
407,012
1,727,324
—
372,684
1,736,171
—
345,114
1,758,973
22,884
339,301
1,762,703
1,818
319,445
1,745,038
3,705
443,689
367,098
797,151
873,542
929,590
—
879,932
—
814,728
847,392
151,511
967,348
—
169,566
1,434,431
131,036
122,013
1,442,747
131,036
69,927
1,438,708
131,036
735,865
768,823
160,251
193,506
156,587
188,920
143,171
175,295
(1) Reflects the impact to net income (loss) attributable to common shareholders of dilutive securities. Diluted net income (loss)
attributable to common shareholders for each of the years ended December 31, 2015, 2014, and 2013 does not include the effects
of (i) the conversion of our Series A 7.5% redeemable convertible preferred stock (the “Convertible Preferred Stock”) to
common shares, which Convertible Preferred Stock automatically converted into an aggregate of 16,542,243 shares of our
common stock prior to the closing of our initial public offering, (ii) the conversion of our 7.5% convertible notes due 2021 (the
48
“Convertible Notes”) to common shares, which Convertible Notes automatically converted into an aggregate of
32,624,820 shares of our common stock prior to the closing of our initial public offering, (iii) the exercise by Fila Korea of our
common stock warrants into an aggregate of 3,105,279 shares of our common stock which occurred in July 2016 or (iv) the
exercise of then outstanding stock options, as the inclusion of these instruments would have been anti-dilutive for each of
the years ended December 31, 2015, 2014, and 2013.
(2) Basic net income (loss) per common share attributable to Acushnet Holdings Corp. is computed by dividing (A) net income
(loss) attributable to Acushnet Holdings Corp. after adjusting for (i) dividends paid and accrued and (ii) allocations of
undistributed earnings to preferred shareholders, by (B) basic weighted average common shares outstanding.
(3) Diluted net income (loss) per common share attributable to Acushnet Holdings Corp. is computed by dividing (A) net income
(loss) attributable to Acushnet Holdings Corp. after adjusting for (i) dividends paid and accrued, (ii) allocations of undistributed
earnings to preferred shareholders and (iii) the impact to net income (loss) of any potentially dilutive securities, by (B) the diluted
weighted average common shares outstanding, which has been adjusted to include any potentially dilutive securities. Diluted net
income (loss) per common share attributable to Acushnet Holdings Corp. for the years ended December 31, 2017 and 2016
includes the potential dilutive securities associated with the Company’s restricted stock units (“RSUs”) and performance stock
units (“PSUs”). Diluted net income (loss) per common share attributable to Acushnet Holdings Corp. for each of the years ended
December 31, 2015, 2014, and 2013 does not include the effects of (i) the conversion of the Convertible Preferred Stock to
common shares, (ii) the conversion of the Convertible Notes to common shares, (iii) the exercise of our then outstanding
common stock warrants or (iv) the exercise of then outstanding stock options, as the inclusion of these instruments would have
been anti-dilutive for each of the years ended December 31, 2015, 2014, and 2013.
(4) Includes cash of $12.1 million, $13.0 million, $10.0 million, $7.7 million and $5.7 million as of December 31, 2017, 2016, 2015,
2014 and 2013, respectively, related to our FootJoy golf shoe joint venture. See “Notes to Consolidated Financial Statements –
Note 2 – Summary of Significant Accounting Policies” for further details on our FootJoy golf shoe joint venture.
(5) Long-term debt, net of discount, including current portion, and capital lease obligations consists of (i) long-term debt and capital
lease obligations and (ii) the portion of any long-term debt that is classified as a current liability on our balance sheet, in each
case net of any unamortized discount on such outstanding amounts.
(6) The Equity Appreciation Rights (“EARs”) as structured did not qualify for equity accounting treatment. As such, the liability was
re-measured at each reporting period based on our then-current projection of our Common Stock Equivalent (“CSE”) value. See
“Item 7. – Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting
Policies and Estimates—Share-Based Compensation.” The EAR Plan expired on December 31, 2016 and the outstanding EAR
liability of $151.5 million was settled in full by a cash payment to participants during the first quarter of 2017.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion contains management’s discussion and analysis of our financial condition and results
of operations and should be read together with “Item 1A – Risk Factors” and our audited consolidated financial
statements and the notes thereto included elsewhere in this Annual Report. This discussion contains forward-looking
statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including but not
limited to those described in the “Risk Factors” section of this report. Actual results may differ materially from those
contained in any forward-looking statements. You should carefully read “Forward-Looking Statements” following the
Table of Contents.
Overview
We are the global leader in the design, development, manufacture and distribution of performance-driven golf
products, which are widely recognized for their quality excellence. Today, we are the steward of two of the most revered
brands in golf—Titleist, one of golf’s leading performance equipment brands, and FootJoy, one of golf’s leading
performance wear brands. We own or control the design, sourcing, manufacturing, packaging and distribution of our
products. In doing so, we are able to exercise control over every step of the manufacturing process.
Our target market is dedicated golfers, who are the cornerstone of the worldwide golf industry. These dedicated
golfers are avid and skill-biased, prioritize performance and commit the time, effort and money to improve their game.
We believe our focus on innovation and process excellence yields golf products that represent superior performance and
consistent product quality, which are the key attributes sought after by dedicated golfers. Many of the game’s
professional players, who represent the most dedicated golfers, prefer our products thereby validating our performance
49
and quality promise, while also driving brand awareness. We seek to leverage a pyramid of influence product and
promotion strategy, whereby our products are the most played by the best players, creating aspirational appeal for a
broad range of golfers who want to emulate the performance of the game’s best players.
We have demonstrated resilient and stable revenue and Adjusted EBITDA over the past three years, despite
challenges related to demographic, macroeconomic, industry disruptions and weather related conditions. Our
differentiated focus on performance and quality excellence, enduring connections with dedicated golfers, and favorable
and market-differentiating mix of consumable and durable products have been the key drivers of our consistent financial
performance. We have the following reportable segments: Titleist golf balls; Titleist golf clubs; Titleist golf gear; and
FootJoy golf wear.
We were 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. We 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”). We
completed an initial public offering of our common stock in November 2016. See “Notes to Consolidated Financial
Statements– Note 2– Summary of Significant Accounting Policies,” Item 8 of Part II, included elsewhere in this report,
for disclosures related to our initial public offering and other related transactions.
Key Factors Affecting Our Results of Operations
Rounds of Play
We generate substantially all of our sales from the sale of golf-related products, including golf balls, golf clubs,
golf shoes, golf gloves, golf gear and golf apparel. The demand for golf-related products in general, and golf balls in
particular, is directly related to the number of golf participants and the number of rounds of golf being played by these
participants.
Weather Conditions
Weather conditions in most parts of the world, including our primary geographic markets, generally restrict golf
from being played year-round, with many of our on-course customers closed during the cold weather months and, to a
lesser extent, during the hot weather months. Unfavorable weather conditions in our major markets, such as a
particularly long winter, a cold and wet spring, or an extremely hot summer, would reduce the number of playable days
and rounds played in a given year, which would result in a decrease in the amount spent by golfers and golf retailers on
our products, particularly with respect to consumable products such as golf balls and golf gloves. In addition,
unfavorable weather conditions and natural disasters can adversely affect the number of custom club fitting and trial
events that we can perform during the key selling period. Unusual or severe weather conditions throughout the year,
such as storms or droughts or other water shortages, can negatively affect golf rounds played both during the events and
afterward, as weather damaged golf courses are repaired and golfers focus on repairing the damage to their homes,
businesses and communities. Consequently, sustained adverse weather conditions, especially during the warm
weather months, could impact our sales. Adverse weather conditions may have a greater impact on us than other golf
equipment companies as we have a large percentage of consumable products in our product portfolio, and the purchase
of consumable products are more dependent on the number of rounds played in a given year.
Economic Conditions
Our products are recreational in nature and are therefore discretionary purchases for consumers. Consumers are
generally more willing to spend their time and money to play golf and make discretionary purchases of golf products
when economic conditions are favorable and when consumers feel confident and prosperous. Discretionary spending on
golf and the golf products we sell is affected by consumer spending habits as well as by many macroeconomic factors,
including general business conditions, stock market prices and volatility, corporate spending, housing prices, interest
rates, the availability of consumer credit, taxes and consumer confidence in future economic conditions. Consumers may
reduce or postpone purchases of our products as a result of shifts in consumer spending habits as well as during periods
when economic uncertainty increases, disposable income is lower, or during periods of actual or perceived unfavorable
economic conditions.
50
Demographic Factors
Golf is a recreational activity that requires time and money. The golf industry has been principally driven by the
age cohort of 30 and above, currently “gen-x” (age 30 to 49) and “baby boomers” (age 50 to 69), who have the time and
money to engage in the sport. Since a significant number of baby boomers have yet to retire, we anticipate growth in
spending from this demographic as it has been demonstrated that rounds of play increase significantly as those in this
cohort reach retirement. Further, we also believe that the percentage of women golfers will continue to grow, as a higher
percentage of new golfers in recent years have been women. Beyond the gen-x and baby boomer generation, another
promising development in golf has been the generational shift with millennial golfers making their marks at both
professional and amateur levels.
Golf participation among younger generations and certain socioeconomic and ethnic groups may not prove to
be as popular as it is among the current gen-x and baby boomer generations. In such case, sales of our products could be
negatively impacted.
Seasonality
Weather conditions in most parts of the world, including our primary geographic markets, generally restrict golf
from being played year-round, with many of our on-course customers closed during the cold weather months. In general,
during the first quarter, we begin selling our products into the golf retail channel for the new golf season. This initial
sell-in generally continues into the second quarter. Our second-quarter sales are significantly affected by the amount of
sell-through, in particular the amount of higher value discretionary purchases made by customers, which drives the level
of reorders of our products sold-in during the first quarter. Our third-quarter sales are generally dependent on reorder
business, and are generally less than the second quarter as many retailers begin decreasing their inventory levels in
anticipation of the end of the golf season. Our fourth-quarter sales are generally less than the other quarters due to the
end of the golf season in many of our key markets, but can also be affected by key product launches, particularly golf
clubs. This seasonality, and therefore quarter to quarter fluctuations, can be affected by many factors, including weather
conditions as discussed above under “—Weather Conditions” and the timing of new product introductions as discussed
below under “—Cyclicality.” This seasonality affects sales in each of our reportable segments differently. In general,
however, because of this seasonality, a majority of our sales and most of our profitability generally occurs during the
first half of the year.
Cyclicality
Our sales can also be affected by the launch timing of new products. Product introductions generally stimulate
sales as the golf retail channel takes on inventory of new products. Reorders of these new products then depend on the
rate of sell-through. Announcements of new products can often cause our customers to defer purchasing additional golf
equipment until our new products are available. The varying product introduction cycles described below may cause our
results of operations to fluctuate as each product line has different volumes, prices and margins.
Product Life Cycles
Titleist Golf Balls Segment
We launch new Titleist golf ball models on a two-year cycle, with new product launches of Pro V1 and Pro
V1x, our premium performance models, generally occurring in the first quarter of odd-numbered years, with new
product launches of our performance models that include Tour Soft and Velocity, generally occurring in the first quarter
of even-numbered years, and with the introduction of DT TruSoft performance model occurring in the third quarter in
odd-numbered years. For new golf ball models, sales occur at a higher rate in the year of the initial launch than in the
second year. Given the Pro V1 franchise is our highest volume and our highest priced product in this product category,
we typically have higher net sales in our Titleist golf ball segment in odd-numbered years.
51
Titleist Golf Clubs Segment
We generally launch new Titleist golf club models on a two-year cycle. Since the fall of 2014, we have
generally used the following product launch cycle, and at present we anticipate continuing to use this product launch
cycle going forward because we believe it aligns our launches with the purchase habits of dedicated golfers. In general,
we launch:
•
•
drivers and fairways in the fourth quarter of even-numbered years, which typically results in an increase in
sales of drivers and fairways during such quarter because retailers take on initial supplies of these products
as stock inventory, with increased sales generated by such new products continuing the following spring
and summer of odd-numbered years;
irons and hybrids in the fourth quarter of odd-numbered years, with the majority of sales generated by such
new products occurring in the following spring and summer of even-numbered years because a
higher percentage of our new irons and hybrids as compared to our drivers and fairways are sold through
on a custom fit basis and the spring and summer is when golfers tend to make such custom fit purchases;
• Vokey Design wedges in the first quarter of even-numbered years, with the majority of sales generated by
such new products occurring in the spring and summer of such even-numbered years; and
• Scotty Cameron putters in the first quarter, with the Select models launched in even-numbered years and
the Futura models launched in odd-numbered years, with the majority of sales generated by such new
products occurring in the spring and summer of the year in which they are launched.
As a result of this product launch cycle, we generally expect to have higher net sales in our Titleist golf clubs
segment in even-numbered years due to the following factors:
•
•
•
•
the majority of sales generated by new irons and hybrids launched in the fourth quarter of
odd-numbered years is expected to occur in the spring and summer of the following even-numbered years;
the majority of sales generated by new Vokey Design wedges launched in the first quarter of
even-numbered years is expected to occur in such even-numbered years;
the majority of sales generated by new Scotty Cameron Select line of putters launched in the first quarter of
even-numbered years is expected to occur in such even-numbered years; and
the increase in sales of new drivers and fairways launched in the fourth quarter of even-numbered years due
to the initial sell-in of these products during such quarter.
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Titleist Golf Gear and FootJoy Golf Wear Segments
Our FootJoy golf wear and Titleist golf gear businesses are not subject to the same degree of cyclical
fluctuation as our golf ball and golf club businesses as new product offerings and styles are generally introduced
each year and at different times during the year.
53
Foreign Currency
For the years ended December 31, 2017, 2016 and 2015, 49%, 49% and 46% of our net sales were generated
outside of the United States by our non-U.S. subsidiaries. Substantially all of these net sales generated outside of the
United States were generated in the applicable local currency, which include, but are not limited to, the Japanese yen, the
Korean won, the British pound sterling, the euro and the Canadian dollar. In contrast, substantially all of the purchases of
inventory, raw materials or components by our non-U.S. subsidiaries are made in U.S. dollars. For the year ended
December 31, 2017, approximately 88% of our cost of goods sold incurred by our non-U.S. subsidiaries was
denominated in U.S. dollars. Because our non-U.S. subsidiaries incur substantially all of their cost of goods sold in
currencies that are different from the currencies in which they generate substantially all of their sales, we are exposed to
transaction risk attributable to fluctuations in such exchange rates, which can impact the gross profit of our non-U.S.
subsidiaries.
In an effort to protect against adverse fluctuations in foreign exchange rates and minimize foreign currency
transaction risk, we take an active approach to currency hedging, which includes among other things, entering into
various foreign currency exchange contracts, with the primary goal of providing earnings and cash flow stability. As a
result of our active approach to currency hedging, we are able to take a longer term view and more flexible approach
towards pricing our products and making cost-related decisions. In taking this active approach, we coordinate with the
management teams of our key non-U.S. subsidiaries on an ongoing basis to share our views on anticipated currency
movements and make decisions on securing foreign currency exchange contract positions that are incorporated into our
business planning and forecasting processes. Because our hedging activities are designed to reduce volatility, they
reduce not only the negative impact of a stronger U.S. dollar but could also reduce the positive impact of a weaker U.S.
dollar.
Because our consolidated accounts are reported in U.S. dollars, we are also exposed to currency translation risk
when we translate the financial results of our consolidated non-U.S. subsidiaries from their local currency into U.S.
dollars. For the year ended December 31, 2017, 49% of our sales were denominated in foreign currencies. In addition,
for the year ended December 31, 2017, 31% of our total operating expenses were denominated in foreign currencies
(which amounts represent substantially all of the operating expenses incurred by our non-U.S. subsidiaries). Fluctuations
in foreign currency exchange rates may positively or negatively affect our reported financial results and can significantly
affect period-over-period comparisons. A strengthening of the U.S. dollar relative to our foreign currencies could
materially adversely affect our business, financial condition and results of operations.
2016 Customer Event
In September 2016, Golfsmith International Holdings LP, a specialty golf retailer and one of our largest
customers in recent years, announced bankruptcy proceedings. The Golfsmith bankruptcy resulted in a significant
disruption to our business in the third and fourth quarters of 2016, with the reorganization activities and store closures
resulting in less product sell-in to retail. In addition, our 2017 sales were also impacted as a result of liquidation
activities and lower retail sell-in resulting from the reduced store count.
Key Performance Measures
We use various financial metrics to measure and evaluate our business, including, among others: (i) net sales on
a constant currency basis, (ii) Adjusted EBITDA on a consolidated basis, (iii) Adjusted EBITDA margin on a
consolidated basis and (iv) segment operating income.
Since a significant percentage of our net sales are generated outside of the United States (49%, 49% and 46%
for the years ended December 31, 2017, 2016 and 2015, respectively), we use net sales on a constant currency basis to
evaluate the sales performance of our business in period over period comparisons and for forecasting our business going
forward. Constant currency information allows us to estimate what our sales performance would have been without
changes in foreign currency exchange rates. This information is calculated by taking the current period local currency
sales and translating them into U.S. dollars based upon the foreign currency exchange rates for the applicable
comparable prior period. This constant currency information should not be considered in isolation or as a substitute for
any measure derived in accordance with GAAP. Our presentation of constant currency information may not be
consistent with the manner in which similar measures are derived or used by other companies.
54
We primarily use Adjusted EBITDA on a consolidated basis to evaluate the effectiveness of our business
strategies, assess our consolidated operating performance and make decisions regarding pricing of our products, go to
market execution and costs to incur across our business. We present Adjusted EBITDA as a supplemental measure of
our operating performance because it excludes the impact of certain items that we do not consider indicative of our
ongoing operating performance. We define Adjusted EBITDA in a manner consistent with the term “Consolidated
EBITDA” as it is defined in our credit agreement. Adjusted EBITDA represents net income (loss) attributable to
Acushnet Holdings Corp. plus interest expense, income tax expense, depreciation and amortization, the expenses relating
to the Acushnet Company Equity Appreciation Rights Plan, as amended (the “EAR Plan”), share-based compensation
expense, a one-time executive bonus, restructuring charges, certain transaction fees, indemnification expense (income)
from Beam, (gains) losses on the fair value of our common stock warrants, certain other non-cash (gains) losses, net and
the net income relating to noncontrolling interests in our FootJoy golf shoe joint venture. Adjusted EBITDA is not a
measurement of financial performance under GAAP. It should not be considered an alternative to net income (loss)
attributable to Acushnet Holdings Corp. as a measure of our operating performance or any other measure of performance
derived in accordance with GAAP. In addition, Adjusted EBITDA should not be construed as an inference that our
future results will be unaffected by unusual or non-recurring items, or affected by similar non-recurring items. Adjusted
EBITDA has limitations as an analytical tool, and you should not consider such measure either in isolation or as a
substitute for analyzing our results as reported under GAAP. Our definition and calculation of Adjusted EBITDA is not
necessarily comparable to other similarly titled measures used by other companies due to different methods of
calculation. For a reconciliation of Adjusted EBITDA to net income (loss) attributable to Acushnet Holdings Corp., see
“—Results of Operations” below.
We also use Adjusted EBITDA margin on a consolidated basis, which measures our Adjusted EBITDA as
a percentage of net sales, because our management uses it to evaluate the effectiveness of our business strategies, assess
our consolidated operating performance and make decisions regarding pricing of our products, go to market execution
and costs to incur across our business. We present Adjusted EBITDA margin as a supplemental measure of our operating
performance because it excludes the impact of certain items that we do not consider indicative of our ongoing operating
performance. Adjusted EBITDA margin is not a measurement of financial performance under GAAP. It should not be
considered an alternative to any measure of performance derived in accordance with GAAP. In addition, Adjusted
EBITDA margin should not be construed as an inference that our future results will be unaffected by unusual or
non-recurring items, or affected by similar non-recurring items. Adjusted EBITDA margin has limitations as an
analytical tool, and you should not consider such measure either in isolation or as a substitute for analyzing our results as
reported under GAAP. Our definition and calculation of Adjusted EBITDA margin is not necessarily comparable to
other similarly titled measures used by other companies due to different methods of calculation.
Lastly, we use segment operating income to evaluate and assess the performance of each of our reportable
segments and to make budgeting decisions.
55
Results of Operations
The following table sets forth, for the periods indicated, our results of operations.
Year ended December 31,
2016
2017
2015
Net sales
Cost of goods sold
Gross profit
Operating expenses:
Selling, general and administrative
Research and development
Intangible amortization
Restructuring charges
Income from operations
Interest expense, net
Other (income) expense, net
Income before income taxes
Income tax expense
Net income
Less: Net income attributable to noncontrolling interests
Net income (loss) attributable to Acushnet Holdings Corp.
Adjusted EBITDA:
Net income (loss) attributable to Acushnet Holdings Corp.
Income tax expense
Interest expense, net
Depreciation and amortization
EAR Plan(a)
Shared-based compensation(b)
One-time executive bonus(c)
Restructuring charges(d)
Transaction fees(e)
Beam indemnification expense (income)(f)
Losses on the fair value of our common stock warrants(g)
Other non-cash gains, net
Nonrecurring income(h)
Net income attributable to noncontrolling interests(i)
Adjusted EBITDA
Adjusted EBITDA margin
(in thousands)
$ 1,560,258 $ 1,572,275 $ 1,502,958
727,120
775,838
773,550
798,725
759,466
800,792
579,837
48,148
6,499
—
166,308
15,709
(1,077)
151,676
55,056
96,620
(4,506)
92,114 $
600,804
48,804
6,608
1,673
140,836
49,908
1,706
89,222
39,707
49,515
(4,503)
45,012 $
604,018
45,977
6,617
1,643
117,583
60,294
25,139
32,150
27,994
4,156
(5,122)
(966)
92,114 $
55,056
15,709
40,871
—
15,285
—
—
686
177
—
(1,036)
—
4,506
223,368 $
14.3 %
45,012 $
39,707
49,908
40,834
6,047
14,494
7,500
1,673
16,817
(2,174)
6,112
(592)
(1,467)
4,503
228,374 $
14.5 %
(966)
27,994
60,294
41,702
45,814
5,789
—
1,643
2,141
(3,007)
28,364
(169)
—
5,122
214,721
14.3 %
$
$
$
(a) Reflects expenses related to the EARs granted under our EAR Plan and the remeasurement of the liability at each
reporting period based on the then-current projection of our common stock equivalent value (as defined in the EAR
Plan). See “—Critical Accounting Policies and Estimates—Share-Based Compensation.” The EAR Plan expired on
December 31, 2016.
(b) For the years ended December 31, 2017 and December 31, 2016, reflects compensation expenses with respect to
equity-based grants under the Acushnet Holdings Corp. 2015 Omnibus Incentive Plan. For the year ended
December 31, 2015, reflects compensation expense associated with the exercise of substitute stock options by an
executive, which were granted in connection with the Acquisition. All such stock options have been exercised.
(c) In the first quarter of 2016, our then President and Chief Executive Officer was awarded a cash bonus in the amount
of $7.5 million as consideration for past performance.
56
(d) Reflects restructuring charges incurred in connection with the reorganization of certain of our operations in 2016
and 2015.
(e) Reflects certain fees and expenses we incurred in 2017, 2016 and 2015 in connection with our public offerings and
legal fees relating to a dispute arising from the indemnification obligations owed to us by Beam in connection with
the Acquisition.
(f) Reflects the non-cash charges related to the indemnification obligations owed to us by Beam that are included when
calculating net income (loss) attributable to Acushnet Holdings Corp.
(g) Fila Korea exercised all of our outstanding common stock warrants in July 2016 and we used the proceeds from
such exercise to redeem all of our outstanding 7.5% bonds due 2021.
(h) Reflects legal judgment in favor of us associated with the Beam value-added tax dispute recorded in other (income)
expense.
(i) Reflects the net income attributable to the interest that we do not own in our FootJoy golf shoe joint venture.
Year Ended December 31, 2017 Compared to the Year Ended December 31, 2016
Net Sales
Net sales decreased by $12.0 million, or 0.8%, to $1,560.3 million for the year ended December 31, 2017
compared to $1,572.3 million for the year ended December 31, 2016. On a constant currency basis, net sales would have
decreased by $3.1 million, or 0.2%, to $1,569.2 million. The decrease in net sales on a constant currency basis resulted
from a decrease of $29.8 million in net sales of Titleist golf clubs primarily resulting from lower sales volumes of drivers
and fairways, coupled with wedges which were in their second model year. These net sales decreases were partially
offset by an increase of $8.6 million in FootJoy golf wear driven by sales volume increases in FootJoy apparel and an
increase of $7.1 million in net sales of Titleist golf gear primarily due to higher average selling prices across all product
categories. The remaining change in net sales was primarily due to sales volume growth of products sold in regions
outside the United States and that are not allocated to one of our four reportable segments.
Net sales information by region is summarized as follows:
Year ended
December 31,
2017
2016
Increase/(Decrease)
$ change % change
(in thousands)
Constant Currency
Increase/(Decrease)
$ change % change
United States
EMEA
Japan
Korea
Rest of world
Total sales
$ 789,879 $ 804,516 $ (14,637)
(4,888)
(17,757)
24,438
827
$ 1,560,258 $ 1,572,275 $ (12,017)
210,088
219,021
175,956
162,694
205,200
201,264
200,394
163,521
(1.8)% $ (14,637)
(2.3)%
2,003
(8.1)% (10,007)
13.9 % 19,919
0.5 %
(410)
(0.8)% $ (3,132)
(1.8)%
1.0 %
(4.6)%
11.3 %
(0.3)%
(0.2)%
Net sales in the United States decreased by $14.6 million, or 1.8%, to $789.9 million for the year ended
December 31, 2017 compared to $804.5 million for the year ended December 31, 2016. This decrease in net sales in the
United States resulted from a decrease of $10.5 million in net sales of Titleist golf clubs and a decrease of $3.3 million in
net sales of Titleist golf balls. Net sales in the United States were impacted by a reduced store count as a result of the
continued impact of retail channel disruptions that occurred in 2016 as well as unfavorable weather conditions which
negatively impacted both rounds of play and golf club fitting and trial activities.
Our sales in regions outside of the United States increased by $2.6 million, or 0.3%, to $770.4 million for the
year ended December 31, 2017 compared to $767.8 million for the year ended December 31, 2016. On a constant
currency basis, net sales in such regions would have increased by $11.5 million, or 1.5%, to $779.3 million, driven by an
increase of $10.4 million in net sales of FootJoy golf wear, an increase of $6.2 million in net sales of Titleist golf gear,
and an increase of $3.0 million in net sales of Titleist golf balls, largely offset by a decrease of $19.3 million in net sales
57
of Titleist golf clubs. The remaining increase in net sales was due to sales volume growth of products that are sold in
regions outside the United States and that are not allocated to one of our four reportable segments.
More information on our net sales by reportable segment and by region can be found in “Notes to Consolidated
Financial Statements – Note 20—Segment Information.”
Gross Profit
Gross profit increased by $2.1 million to $800.8 million for the year ended December 31, 2017 compared to
$798.7 million for the year ended December 31, 2016. Gross margin increased to 51.3% for the year ended
December 31, 2017 compared to 50.8% for the year ended December 31, 2016. The increase in gross profit was largely
driven by an increase in gross profit from our products not allocated to one of our four reportable segments and a
$5.4 million increase in gross profit in FootJoy golf wear primarily due to sales volume increase in apparel. These
increases were largely offset by a decrease of $18.1 million in Titleist golf clubs primarily resulting from lower sales
volumes of drivers and fairways, coupled with wedges which were in their second model year. The increase in gross
margin was primarily driven by a gross margin increase in the FootJoy golf wear segment and from our products not
allocated to one of our four reportable segments.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased by $21.0 million to $579.8 million for the year ended
December 31, 2017 compared to $600.8 million for the year ended December 31, 2016. This decrease primarily resulted
from $16.8 million in transaction costs primarily related to our initial public offering recorded in the year ended
December 31, 2016, the absence of a $7.5 million one-time executive bonus recorded in the first quarter of 2016, a
$6.2 million reduction in bad debt expense and the absence of a $5.6 million expense associated with our EAR plan. This
was partially offset by an increase of $9.2 million driven by higher consulting, legal and administrative costs and an
increase of $6.2 million in selling expenses primarily due to our products not allocated to one of our four reportable
segments and from FootJoy golf wear.
Research and Development
R&D expenses decreased by $0.7 million to $48.1 million for the year ended December 31, 2017 compared to
$48.8 million for the year ended December 31, 2016. This decrease primarily resulted from the absence of a $0.3 million
expense associated with our EAR plan. As a percentage of consolidated net sales, R&D expenses were 3.1%, unchanged
from the year ended December 31, 2016.
Intangible Amortization
Intangible amortization expenses were $6.5 million for the year ended December 31, 2017, compared to
$6.6 million for the year ended December 31, 2016.
Restructuring Charges
There were no restructuring charges for the year ended December 31, 2017, compared to restructuring charges
of $1.7 million for the year ended December 31, 2016.
Interest Expense, net
Interest expense decreased by $34.2 million to $15.7 million for the year ended December 31, 2017 compared
to $49.9 million for the year ended December 31, 2016. This decrease primarily resulted from lower average outstanding
borrowings during the year ended December 31, 2017 as a result of the conversion of our 7.5% Convertible Notes to
common shares prior to the closing of our initial public offering and the redemption of $34.5 million of the principal of
our outstanding 7.5% bonds using the proceeds of the exercise of a portion of our outstanding common stock warrants in
July 2016. In addition, the average interest rate on outstanding borrowings was lower during the year ended December
31, 2017.
58
Other (Income) Expense, net
Other (income) expense, net increased by $2.8 million to other income of $1.1 million for the year ended
December 31, 2017 compared to other expense of $1.7 million for the year ended December 31, 2016. This change
primarily resulted from the recognition of a loss of $6.1 million on the fair value measurement of common stock
warrants during the year ended December 31, 2016. The warrants were fully exercised in July 2016 and no warrants
were outstanding during the year ended December 31, 2017. This was partially offset by a decrease in income recorded
of $2.4 million related to a change in income tax indemnifications and a $1.5 million decrease related to income
recorded during the year ended December 31, 2016 to recognize a favorable legal judgment.
Income Tax Expense
Income tax expense increased by $15.4 million to $55.1 million for the year ended December 31, 2017
compared to $39.7 million for the year ended December 31, 2016. Our ETR was 36.3% for the year ended December 31,
2017, compared to 44.5% for the year ended December 31, 2016. The decrease in ETR primarily resulted from decreases
in non-deductible transaction costs, non-cash fair value losses on common stock warrants which are not tax effected, and
indemnified tax obligations, offset by the impact due to the reduced US Federal tax rate on deferred tax assets and
liabilities and the impact of the US transition tax, both as provided for by the US Tax Cuts and Jobs Act of 2017 (the
“2017 Tax Act”) and changes to the geographical mix of earnings.
Net Income Attributable to Acushnet Holdings Corp.
Net income attributable to Acushnet Holdings Corp. increased by $47.1 million to $92.1 million for the year
ended December 31, 2017 compared to $45.0 million for the year ended December 31, 2016. This change was primarily
a result of lower interest expense and higher income from operations partially offset by higher income tax expense, as
discussed in more detail above.
Adjusted EBITDA
Adjusted EBITDA decreased by $5.0 million to $223.4 million for the year ended December 31, 2017
compared to $228.4 million for the year ended December 31, 2016. Adjusted EBITDA margin decreased to 14.3% for
the year ended December 31, 2017 compared to 14.5% for the year ended December 31, 2016.
59
Segment Results
Net sales by reportable segment is summarized as follows:
Titleist golf balls
Titleist golf clubs
Titleist golf gear
FootJoy golf wear
Year ended
December 31,
2017
2016
Increase/(Decrease)
$ change % change
(in thousands)
Constant Currency
Increase/(Decrease)
$ change % change
$ 512,041 $ 513,899 $ (1,858)
(32,979)
430,966
6,703
136,208
4,394
433,061
397,987
142,911
437,455
(0.4)% $
(310)
(7.7)% (29,805)
7,120
4.9 %
8,643
1.0 %
(0.1)%
(6.9)%
5.2 %
2.0 %
Segment operating income by reportable segment is summarized as follows:
Segment operating income(1)
Titleist golf balls
Titleist golf clubs
Titleist golf gear
FootJoy golf wear
Year ended
December 31,
Increase/(Decrease)
2017
2016
$ change
% change
(in thousands)
$
76,870 $
31,031
16,584
26,380
76,236 $
50,500
12,119
18,979
634
(19,469)
4,465
7,401
0.8 %
(38.6)%
36.8 %
39.0 %
(1) Expenses relating to the EAR Plan, transaction fees and restructuring charges and other non-operating gains and
losses, to the extent incurred in the applicable period, are not reflected in segment operating income.
More information on our net sales by reportable segment and segment operating income can be found in “Notes
to Consolidated Financial Statements – Note 20—Segment Information.”
Titleist Golf Balls Segment
Net sales in our Titleist golf balls segment decreased by $1.9 million, or 0.4%, to $512.0 million for the year
ended December 31, 2017 compared to $513.9 million for the year ended December 31, 2016. On a constant currency
basis, net sales in our Titleist golf balls segment would have decreased by $0.3 million, or 0.1%, to $513.6 million. This
decrease primarily resulted from a sales volume decline of our performance golf ball models which were in their second
year of the two-year product life cycle and was largely offset by a sales volume increase of our newly introduced Pro V1
and Pro V1x golf balls. In the United States, sales volumes were impacted by a reduced store count as a result of the
continued impact of retail channel disruptions that occurred in 2016, unfavorable weather conditions, which negatively
impacted rounds of play, as well as increased competitive promotional activity in the marketplace.
Titleist golf balls segment operating income increased by $0.7 million, or 0.8%, to $76.9 million for the year
ended December 31, 2017 compared to $76.2 million for the year ended December 31, 2016. Gross profit decreased by
$0.3 million primarily resulting from the decreased sales discussed above. Operating expenses decreased primarily
resulting from the absence of a $2.9 million expense related to the segment allocation of the one-time executive bonus
recorded in the first quarter of 2016 and a decrease of $2.4 million in bad debt expense, partially offset by an increase of
$3.2 million in the segment allocation of consulting, legal and administrative costs.
Titleist Golf Clubs Segment
Net sales in our Titleist golf clubs segment decreased by $33.0 million, or 7.7%, to $398.0 million for the year
ended December 31, 2017 compared to $431.0 million for the year ended December 31, 2016. On a constant currency
basis, net sales in our Titleist golf clubs segment would have decreased by $29.8 million, or 6.9%, to $401.2 million.
This decrease primarily resulted from lower sales volumes of drivers and fairways launched in 2016, coupled with
wedges which were in their second model year, partially offset by the launch of our new irons in September of 2017. In
the United States, sales volumes were impacted by a reduced store count as a result of the continued impact of retail
channel disruptions that occurred in 2016 as well as unfavorable weather conditions which negatively impacted golf club
60
fitting and trial activities. This decrease was partially offset by an increase in average selling prices across all product
categories.
Titleist golf clubs segment operating income decreased by $19.5 million, or 38.6%, to $31.0 million for the year
ended December 31, 2017 compared to $50.5 million for the year ended December 31, 2016. This decrease primarily
resulted from lower gross profit of $18.1 million primarily as a result from decreased sales volumes as discussed above.
Operating expenses were up, driven by an increase of $3.0 million in the segment allocation of consulting, legal and
administrative costs and an increase of $0.9 million in research and development costs, largely offset by the absence of a
$1.8 million expense related to the segment allocation of the one-time executive bonus recorded in the first quarter of
2016 and a decrease of $1.5 million in bad debt expense.
Titleist Golf Gear Segment
Net sales in our Titleist golf gear segment increased by $6.7 million, or 4.9%, to $142.9 million for the year
ended December 31, 2017 compared to $136.2 million for the year ended December 31, 2016. On a constant currency
basis, net sales in our Titleist golf gear segment would have increased by $7.1 million, or 5.2%, to $143.3 million. This
increase was primarily driven by higher average selling prices in all categories of the gear business and higher sales
volume growth in travel gear.
Titleist golf gear segment operating income increased by $4.5 million, or 36.8%, to $16.6 million for the year
ended December 31, 2017 compared to $12.1 million for the year ended December 31, 2016. This increase was driven
by higher gross profit on the increased sales as discussed above as well as higher gross margin resulting from higher
average selling prices, as discussed above.
FootJoy Golf Wear Segment
Net sales in our FootJoy golf wear segment increased by $4.4 million, or 1.0%, to $437.5 million for the year
ended December 31, 2017 compared to $433.1 million for the year ended December 31, 2016. On a constant currency
basis, net sales in our FootJoy golf wear segment would have increased by $8.6 million, or 2.0%, to $441.7 million. This
increase was primarily driven by sales volume increases in apparel, partially offset by a sales volume decline in
footwear.
FootJoy golf wear segment operating income increased by $7.4 million, or 39.0%, to $26.4 million for the year
ended December 31, 2017 compared to $19.0 million for the year ended December 31, 2016. This increase was driven
by higher gross profit and lower operating expenses. The higher gross profit was primarily driven by the increase in
apparel sales volumes discussed above coupled with higher average selling prices. Gross margin increased, primarily as
a result from lower product costs in apparel and our gloves categories and a favorable mix shift in the footwear category.
The decrease in operating expenses primarily resulted from a decrease of $2.6 million in advertising and promotion
costs, the absence of a $2.1 million expense related to the segment allocation of the one-time executive bonus recorded
in the first quarter of 2016, and a decrease of $1.8 million in bad debt expense, partially offset by an increase of
$2.1 million in the segment allocation of consulting, legal and administrative costs and an increase of $2.0 million in
selling expense.
61
Year Ended December 31, 2016 Compared to the Year Ended December 31, 2015
Net Sales
Net sales increased by $69.3 million, or 4.6%, to $1,572.3 million for the year ended December 31, 2016
compared to $1,503.0 million for the year ended December 31, 2015. On a constant currency basis, net sales would have
increased by $67.2 million, or 4.5%, to $1,570.2 million. This constant currency increase was primarily due to an
increase of $38.1 million in net sales of Titleist golf clubs driven by increases in average selling prices and sales volume
increases associated with our 2016 new product launches, an increase of $15.1 million in net sales of FootJoy golf wear
driven by sales volume increases in FootJoy apparel and FootJoy glove categories, and an increase of $7.1 million in net
sales of Titleist golf gear driven by sales volume growth in travel gear and Titleist gloves categories. These net sales
increases were offset partially by a decrease of $20.0 million in net sales of Titleist golf balls largely driven by off
course retail channel disruption in the United States. The remaining increase in net sales was attributable to an
accounting adjustment related to the commissions paid on certain retail sales in Korea and to sales volume growth, in
each case with respect to products that are sold in regions outside the United States and that are not allocated to one of
our four reportable segments.
Net sales information by region is summarized as follows:
Year ended
December 31,
Increase/(Decrease)
Constant Currency
Increase/(Decrease)
2016
2015
$ change % change $ change % change
(in thousands)
United States
EMEA
Japan
Korea
Rest of world
Total sales
$ 804,516 $ 805,470 $ (954)
8,982
36,858
31,000
(6,569)
$ 1,572,275 $ 1,502,958 $ 69,317
201,106
182,163
144,956
169,263
210,088
219,021
175,956
162,694
(0.1)% $ (954)
4.5 % 19,940
20.2 % 13,833
21.4 % 35,426
(3.9)% (1,017)
4.6 % $ 67,228
(0.1)%
9.9 %
7.6 %
24.4 %
(0.6)%
4.5 %
Net sales in the United States decreased by $1.0 million, or 0.1%, to $804.5 million for the year ended
December 31, 2016 compared to $805.5 million for the year ended December 31, 2015. This was due to a decrease of
$15.3 million in net sales of Titleist golf balls, partially offset by an increase of $16.2 million in net sales of Titleist golf
club sales and slight increases in net sales of Titleist golf gear and FootJoy golf wear. Net sales in the United States were
impacted by retail channel disruption caused by the bankruptcy of The Sports Authority, Inc. and the reorganization
efforts and ultimate bankruptcy of Golfsmith International Holdings LP.
Our sales in regions outside of the United States increased by $70.3 million, or 10.1%, to $767.8 million for
the year ended December 31, 2016 compared to $697.5 million for the year ended December 31, 2015. On a constant
currency basis, net sales in such regions would have increased by $68.2 million, or 9.8%, to $765.7 million, driven by an
increase of $21.9 million in net sales of Titleist golf clubs, an increase of $15.3 million in net sales of FootJoy golf wear,
and an increase of $8.7 million in net sales of Titleist golf gear, offset partially by a decrease of $4.7 million in net sales
of Titleist golf balls. The remaining increase in net sales for regions outside the United States was attributable to an
accounting adjustment related to the commissions paid on certain retail sales in Korea and to sales volume growth, in
each case with respect to products that are not allocated to one of our four reportable segments.
More information on our net sales by reportable segment and by region can be found in “Notes to Consolidated
Financial Statements – Note 20—Segment Information.”
Gross Profit
Gross profit increased by $22.9 million to $798.7 million for the year ended December 31, 2016 from
$775.8 million for the year ended December 31, 2015. Gross margin decreased to 50.8% for the year ended
December 31, 2016 compared to 51.6% for the year ended December 31, 2015. The increase in gross profit was driven
by a $23.1 million increase in gross profit in Titleist golf clubs due to increases in average selling prices and higher golf
club sales volumes and an increase in gross profit from our products not allocated to one of our four reportable segments
62
primarily as a result of an accounting adjustment related to the commissions paid on certain retail sales in Korea. These
increases in gross profit were offset in part by a $23.4 million decrease in gross profit in Titleist golf balls as a result of
lower sales volume. The decrease in gross margin was primarily due to lower gains on foreign currency exchange
contracts compared to the year ended December 31, 2015, partially offset by the accounting adjustment discussed above.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased by $3.2 million to $600.8 million for the year ended
December 31, 2016 from $604.0 million for the year ended December 31, 2015. Excluding the expense associated with
our EAR plan, selling, general and administrative expenses would have increased by $33.8 million to $595.2 million for
the year ended December 31, 2016 from $561.4 million for the year ended December 31, 2015. This increase was due to
a $35.3 million aggregate increase primarily attributable to an accounting adjustment related to the commissions paid on
certain retail sales in Korea, an increase of $14.7 million in transaction costs related to our initial public offering, a
$7.5 million one-time executive bonus, a $7.2 million increase in share based compensation and a $1.7 million increase
in bad debt expense primarily related to a large off-course retail account as well as additional marketing and promotional
costs related to our FootJoy eCommerce and women’s golf apparel initiatives and new golf club product launches. This
was partially offset by a decrease of $7.8 million in associate incentive compensation accruals, and a $6.0 million
decrease in professional tour costs as well as lower golf ball marketing and promotional costs. Changes in foreign
currency exchange rates had a favorable impact of $1.5 million.
Research and Development
R&D expenses increased by $2.8 million to $48.8 million for the year ended December 31, 2016 from
$46.0 million for the year ended December 31, 2015. Excluding the expense associated with our EAR Plan, R&D
expenses would have increased by $5.1 million to $48.5 million for the year ended December 31, 2016 from
$43.4 million for the year ended December 31, 2015. This increase was mainly attributable to employee related costs,
including share based compensation, and additional experimental costs to support new product introductions. As
a percentage of consolidated net sales, R&D expenses excluding expenses associated with our EAR Plan were 3.1% in
2016, up from 2.9% in 2015.
Intangible Amortization
Intangible amortization expenses were $6.6 million for the year ended December 31, 2016 and $6.6 million for
the year ended December 31, 2015.
Restructuring Charges
Restructuring charges were $1.7 million for the year ended December 31, 2016 compared to $1.6 million for
the year ended December 31, 2015.
Interest Expense, net
Interest expense decreased by $10.4 million to $49.9 million for the year ended December 31, 2016 compared
to $60.3 million for the year ended December 31, 2015. This decrease was primarily due to lower average outstanding
borrowings during the year ended December 31, 2016 as a result of the redemption of $34.5 million of the principal of
our outstanding 7.5% bonds due 2021 using the proceeds of the exercise of a portion of our outstanding common stock
warrants in July 2015, as well as a scheduled repayment of $50.0 million of the principal on our secured floating rate
notes in October 2015. In addition, the average interest rate on outstanding borrowings was lower during the year ended
December 31, 2016 as a result of the Refinancing which was completed in July 2016.
Other (Income) Expense, net
Other expense decreased by $23.4 million to $1.7 million for the year ended December 31, 2016 compared to
other expense of $25.1 million for the year ended December 31, 2015. This change was primarily due to a decrease in
the recognition of a loss of $6.1 million in 2016 on the fair value measurement of the common stock warrants compared
to the recognition of a loss of $28.4 million on the fair value measurement of the common stock warrants in 2015. The
loss on the fair value measurement of the common stock warrants in 2015 was due to a significant increase in our
63
business enterprise value during such year that was primarily driven by a decrease in our weighted average cost of
capital and an increase in our long-term growth expectation, which reflected a more favorable long-term market outlook,
and increases in the valuations realized by a number of the publicly-traded companies within our peer group. The
business enterprise value is a key input in the contingent claims analysis which is the methodology utilized to measure
the fair value of the common stock warrants. In addition, income of $1.5 million was recorded in 2016 to recognize the
legal judgment in favor of us associated with the Beam value-added tax dispute.
Income Tax Expense
Income tax expense increased by $11.7 million, or 41.8%, to $39.7 million for the year ended December 31,
2016, compared to $28.0 million for the year ended December 31, 2015. Our ETR was 44.5% for the year ended
December 31, 2016, compared to 87.1% for the year ended December 31, 2015. The decrease in ETR was primarily
driven by the reduction in non-cash fair value losses on the common stock warrants, which are not tax effected, offset by
an increase in non-deductible transaction costs.
Net Income (Loss) Attributable to Acushnet Holdings Corp.
Net income (loss) attributable to Acushnet Holdings Corp. increased by $46.0 million to net income attributable
to Acushnet Holdings Corp. of $45.0 million for the year ended December 31, 2016 compared to a net loss attributable
to Acushnet Holdings Corp. of $1.0 million for the year ended December 31, 2015. This change was primarily a result of
lower other expense, higher income from operations and lower interest expense, which were offset in part by higher
income tax expense, all of which are described above.
Adjusted EBITDA
Adjusted EBITDA increased by $13.7 million to $228.4 million for the year ended December 31, 2016
compared to $214.7 million for the year ended December 31, 2015. Adjusted EBITDA margin increased to 14.5% in
2016 from 14.3% in 2015.
64
Segment Results
Net sales by reportable segment is summarized as follows:
Titleist golf balls
Titleist golf clubs
Titleist golf gear
FootJoy golf wear
Year ended
December 31,
2016
2015
Increase/(Decrease)
$ change % change
(in thousands)
Constant Currency
Increase/(Decrease)
$ change % change
$ 513,899 $ 535,465 $ (21,566)
42,662
388,304
6,800
129,408
14,209
418,852
430,966
136,208
433,061
(4.0)% $ (19,956)
11.0 % 38,082
5.3 %
7,055
3.4 % 15,112
(3.7)%
9.8 %
5.5 %
3.6 %
Segment operating income by reportable segment is summarized as follows:
Segment operating income(1)
Titleist golf balls
Titleist golf clubs
Titleist golf gear
FootJoy golf wear
Year ended
December 31,
Increase/(Decrease)
2016
2015
$ change
% change
(in thousands)
$
76,236 $
50,500
12,119
18,979
92,507 $
33,593
12,170
26,056
(16,271)
16,907
(51)
(7,077)
(17.6)%
50.3 %
(0.4)%
(27.2)%
(1) Expenses relating to the EAR Plan, transaction fees and restructuring charges and other non-operating gains and
losses, to the extent incurred in the applicable period, are not reflected in segment operating income.
More information on our net sales by reportable segment and segment operating income can be found in “Notes
to Consolidated Financial Statements – Note 20—Segment Information.”
Titleist Golf Balls Segment
Net sales in our Titleist golf balls segment decreased by $21.6 million, or 4.0%, to $513.9 million for the year
ended December 31, 2016 compared to $535.5 million for the year ended December 31, 2015. On a constant currency
basis, net sales in our Titleist golf balls segment would have decreased by $20.0 million, or 3.7%, to $515.5 million. This
was driven by the U.S. retail channel disruption caused by the bankruptcy of The Sports Authority, Inc. and the
reorganization efforts and ultimate bankruptcy of Golfsmith International Holdings LP which contributed to a sales
volume decline of our 2015 model Pro V1 and Pro V1x golf balls, which were in their second model year, as well as a
sales volume decline in our Pinnacle models. The decrease was offset slightly by a sales volume increase of our newly
introduced performance golf ball models, which performance golf ball models have a lower average selling price than
our Pro V1 franchise.
Titleist golf balls segment operating income decreased by $16.3 million, or 17.6%, to $76.2 million for the year
ended December 31, 2016 compared to $92.5 million for the year ended December 31, 2015, primarily due to a decrease
in gross profit of $23.4 million which was partially offset by lower operating expenses. The decrease in gross profit was
due to a decline in sales volumes as discussed above, unfavorable manufacturing overhead absorption due to lower golf
ball production volume, and lower gains on foreign currency exchange contracts compared to the year ended
December 31, 2015. Lower operating expenses were primarily due to decreases of $5.8 million in golf ball marketing,
promotion and selling costs, $4.0 million in professional tour costs and $1.6 million in incentive and share based
compensation accruals, and were offset in part by a $2.9 million segment allocation of the one-time executive bonus and
an increase of $1.2 million bad debt expense.
Titleist Golf Clubs Segment
Net sales in our Titleist golf clubs segment increased by $42.7 million, or 11.0%, to $431.0 million for the year
ended December 31, 2016 compared to $388.3 million for the year ended December 31, 2015. On a constant currency
basis, net sales in our Titleist golf clubs segment would have increased by $38.1 million, or 9.8%, to $426.4 million. The
65
increase in net sales was primarily due to an increase in average selling prices on wedges, irons and putters and higher
sales volumes of our new Vokey Design wedges launched in the first quarter of 2016, our new drivers and fairways
launched during 2016, and our new Scotty Cameron Select putters launched in the first quarter of 2016. This increase
was partially offset by lower sales volumes of our hybrids.
Titleist golf clubs segment operating income increased by $16.9 million, or 50.3%, to $50.5 million for the year
ended December 31, 2016 compared to $33.6 million for the year ended December 31, 2015, primarily due to an
increase in gross profit of $23.1 million which was offset in part by higher operating expenses. The increase in gross
profit was primarily due to an increase in average selling prices on irons, wedges and putters and the increased sales
volumes as discussed above and was partially offset by lower gains on foreign currency exchange contracts compared to
the twelve months ended December 31, 2015. Operating expenses increased primarily due to an increase of $5.1 million
in marketing, promotional and research and development costs related to our new product launches and a $1.8 million
expense related to the segment allocation of the one-time executive bonus.
Titleist Golf Gear Segment
Net sales in our Titleist golf gear segment increased by $6.8 million, or 5.3%, to $136.2 million for the year
ended December 31, 2016 compared to $129.4 million for the year ended December 31, 2015. On a constant currency
basis, net sales in our Titleist golf gear segment would have increased by $7.1 million, or 5.5%, to $136.5 million. The
constant currency increase was primarily due to sales volume growth in travel gear and both volume growth and
increased average selling prices in Titleist gloves.
Titleist golf gear segment operating income declined slightly by $0.1 million, or 0.4%, to $12.1 million for
the year ended December 31, 2016 compared to $12.2 million for the year ended December 31, 2015. Gross profit
increased by $1.7 million on the increased sales discussed above. Gross margin was unfavorably impacted by lower
gains on foreign currency exchange contracts compared to the year ended December 31, 2015. Offsetting the increase in
gross profit were higher R&D and selling expenses in support of our golf gear initiatives.
FootJoy Golf Wear Segment
Net sales in our FootJoy golf wear segment increased by $14.2 million, or 3.4%, to $433.1 million for the year
ended December 31, 2016 compared to $418.9 million for the year ended December 31, 2015. On a constant currency
basis, net sales in our FootJoy golf wear segment would have increased by $15.1 million, or 3.6%, to $434.0 million.
This increase was due to sales volume growth in our apparel and glove categories.
FootJoy golf wear segment operating income decreased by $7.1 million, or 27.2 %, to $19.0 million for the year
ended December 31, 2016 compared to $26.1 million for the year ended December 31, 2015. Gross profit increased by
$1.1 million on the increased sales discussed above. Gross margin was lower primarily due to a decrease in gains on
foreign currency exchange contracts compared to the year ended December 31, 2015 and unfavorable manufacturing
overhead absorption due to lower footwear production volume. Operating expenses increased primarily due to an
increase of $4.3 million in costs related to our FootJoy eCommerce and women’s golf apparel initiatives, a $2.1 million
expense related to the segment allocation of the one-time executive bonus, and an increase of $1.2 million in incentive
and share based compensation accruals.
66
Liquidity and Capital Resources
Our primary cash needs relate to working capital, capital expenditures, servicing of our debt, paying dividends
and pension contributions. We expect to rely on cash flows from operations and borrowings under our revolving credit
facility and local credit facilities as our primary sources of liquidity.
We made $18.8 million of capital expenditures in the year ended December 31, 2017 primarily related to
maintenance projects. Capital expenditures for fiscal 2018 are expected to be approximately $34.0 million, although the
actual amount may vary depending upon a variety of factors, including the timing of implementation of certain capital
projects. We expect the majority of these capital expenditures in fiscal 2018 will be primarily maintenance related, but
we also plan to make additional investments in innovation and technology to drive continued market leadership and
future growth.
We made $151.5 million of payments related to outstanding EARs under our EAR Plan in the three months
ended March 31, 2017, which we funded from borrowings under our delayed draw term loan A facility and borrowings
under our revolving credit facilities. The EAR liability was settled in full and there were no outstanding EARs on
December 31, 2017.
On April 27, 2016, Acushnet Holdings Corp., Acushnet Company, Acushnet Canada Inc. and Acushnet Europe
Limited entered into a credit agreement with Wells Fargo Bank, National Association, as the administrative agent, L/C
issuer and swing line lender and each lender from time to time party thereto, which provides for (i) a $275.0 million
multi-currency revolving credit facility, including a $20.0 million letter of credit sub-facility, a swing line sublimit of
$25.0 million, a C$25.0 million sub-facility for borrowings by Acushnet Canada Inc., a £20.0 million sub-facility for
borrowings by Acushnet Europe Limited and an alternative currency sublimit of $100.0 million for borrowings in
Canadian dollars, euros, pounds sterling and Japanese yen, (ii) a $375.0 million term loan A facility and (iii) a
$100.0 million delayed draw term loan A facility, each of which matures 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. As of December 31, 2017 we had $254.8 million of availability under our revolving credit
facility after giving effect to $10.2 million of outstanding letters of credit and we had $53.8 million available under our
local credit facilities. See “Notes to Consolidated Financial Statements — Note 9 — Debt and Financing Arrangements”
for a description of our credit facilities.
Our credit agreement contains customary affirmative and restrictive covenants, including, among others,
financial covenants based on our 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, we were in compliance with all covenants under the credit agreement.
Our liquidity is cyclical as a result of the general seasonality of our business. Our accounts receivable balance is
generally at its highest starting at the end of the first quarter and continuing through the second quarter, and declines
during the third and fourth quarters as a result of both an increase in cash collections and lower sales. Our inventory
balance also fluctuates as a result of the seasonality of our business. Generally, our buildup of inventory starts during the
fourth quarter and continues through the first quarter and into the beginning of the second quarter in order to meet
demand for our initial sell-in in the first quarter and reorders in the second quarter. Both accounts receivable and
inventory balances are impacted by the timing of new product launches.
We believe that cash expected to be provided by operating activities, together with our cash on hand and the
availability of borrowings under our revolving credit facilities will be sufficient to meet our liquidity requirements for at
least the next 12 months, subject to customary borrowing conditions. Our ability to generate sufficient cash flows from
operations is, however, subject to many risks and uncertainties, including future economic trends and conditions,
demand for our products, foreign currency exchange rates and other risks and uncertainties applicable to our business, as
described under “Item 1A. – Risk Factors.”
As of December 31, 2017, we had $45.4 million of unrestricted cash (including $12.1 million attributable to our
FootJoy golf shoe joint venture). As of December 31, 2017, 93.9% of our total unrestricted cash was held at our
non-U.S. subsidiaries. We manage our worldwide cash requirements by monitoring the funds available among our
67
subsidiaries and determining the extent to which we can access those funds on a cost effective basis. We are not aware of
any restrictions on repatriation of these funds and, subject to foreign withholding taxes, those funds could be repatriated,
if necessary. We have repatriated, and intend to repatriate, funds to the United States from time to time to satisfy
domestic liquidity needs arising in the ordinary course of business, including liquidity needs related to debt service
requirements.
Cash Flows
The following table presents the major components of net cash flows used in and provided by operating,
investing and financing activities for the periods indicated:
2017
Year ended December 31,
2016
(in thousands)
2015
Cash flows provided by (used in):
Operating activities
Investing activities
Financing activities
Effect of foreign exchange rate changes on cash
Net increase (decrease) in cash
Cash Flows From Operating Activities
$ (27,037) $ 104,269 $
(18,845)
9,255
5,209
$ (31,418) $
(19,175)
(62,663)
(2,425)
20,006 $
91,830
(23,201)
(60,057)
(3,205)
5,367
Net cash used in operating activities was $27.0 million for the year ended December 31, 2017, compared to net
cash provided by operating activities of $104.3 million for the year ended December 31, 2016, an increase in cash used
in operating activities of $131.3 million. The increase in cash used in operating activities was primarily due to the
payment of the outstanding balance of the EAR Plan of $151.5 million during the year ended December 31, 2017, which
was offset in part by an increase in net income after adjustments for non-cash items.
Net cash provided by operating activities was $104.3 million for the year ended December 31, 2016, compared
to $91.8 million for the year ended December 31, 2015, an increase of $12.5 million. The increase in cash provided by
operating activities was primarily due to an increase in net income after adjustments for non-cash items, lower income
taxes paid and an increase related to change in our working capital, which were offset by increases in cash payments
related to our EAR Plan, our supplemental executive retirement plan and the payment of a one-time executive bonus.
Cash Flows From Investing Activities
Net cash used in investing activities was $18.8 million for the year ended December 31, 2017, compared to
$19.2 million for the year ended December 31, 2016, a decrease of $0.4 million.
Net cash used in investing activities was $19.2 million for the year ended December 31, 2016, compared to
$23.2 million for the year ended December 31, 2015, a decrease of $4.0 million.
Cash Flows From Financing Activities
Net cash provided by financing activities was $9.3 million for the year ended December 31, 2017, compared to
net cash used in financing activities of $62.7 million for the year ended December 31, 2016, an increase in cash
provided by financing activities of $72.0 million. The increase was due to a net increase in borrowings of $84.6 million
primarily due to borrowings under the delayed draw term loan A facility of $100.0 million which was used to fund the
payout of the EAR Plan. Also contributing to the increase was the repayment of the senior term loan facility during the
year ended December 31, 2016 which reduced net cash provided by financing activities in that period. The increase in
borrowings was offset in part by repayments of the term loan facilities and a net decrease in short term borrowings. The
increase in cash provided by financing activities was offset in part by an increase in dividends paid.
Net cash used in financing activities was $62.7 million for the year ended December 31, 2016, compared to
$60.1 million for the year ended December 31, 2015, an increase of $2.6 million. The increase in cash used in financing
activities was primarily due to the $30.0 million repayment of the senior term loan facility, the payment of debt issuance
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costs related to the term loan facilities, an increase in dividends paid on our Convertible Preferred Stock and a net
decrease in short term borrowings, offset by the repayment of $50.0 million of secured floating rate notes in 2015.
Contractual Obligations
The following table summarizes our outstanding contractual obligations as of December 31, 2017:
Payments Due by Period
Total
Less than
1 Year
1-3
Years
(in thousands)
4-5
Years
After
5 Years
Debt obligations(1)
Interest payments related to debt obligations(2)
Capital lease obligations
Pension and other postretirement benefit obligations
Purchase obligations(3)
Operating lease obligations(4)
Total
$ 446,563 $ 26,719 $ 74,219 $ 345,625 $
—
—
—
145,300
—
14,418
$ 985,803 $ 233,248 $ 178,767 $ 414,070 $ 159,718
27,450
22
44,418
13,925
18,733
15,392
486
37,254
141,278
12,119
49,851
508
277,526
155,610
55,745
7,009
—
50,554
407
10,475
(1) Long-term debt obligations consisted of the outstanding principal of the term loan and delayed draw term loan A
facility.
(2) Future interest payments are calculated based on the assumption all debt remains outstanding until maturity. Interest
on credit facility assumes the interest rate in effect at December 31, 2017 and includes unused commitment fees.
(3) During the normal course of our business, we enter 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 amounts reported in the table above exclude those liabilities included in
accounts payable or accrued liabilities on the consolidated balance sheet as of December 31, 2017.
(4) We lease certain warehouses, distribution and office facilities, vehicles and office equipment under operating leases.
Most lease arrangements provide us with the option to renew leases at defined terms. The future operating lease
obligations would change if we were to exercise these options or if we were to enter into additional operating leases.
Off-Balance Sheet Arrangements
As of December 31, 2017, we did not have any off-balance sheet arrangements that have, or are reasonably
likely to have, a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or
capital resources.
Critical Accounting Policies and Estimates
Our discussion and analysis of results of operations, financial condition and liquidity are based upon our
consolidated financial statements, which have been prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates
and judgments that affect the reported amounts of assets, liabilities, shareholders’ equity, net sales and expenses, and the
disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on
historical experience, known trends and events, and various other factors that we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources.
Management evaluated the development and selection of its critical accounting policies and estimates and
believes that the following involve a higher degree of judgment or complexity and are most significant to reporting our
results of operations and financial position, and are therefore discussed as critical. The following critical accounting
policies reflect the significant estimates and judgments used in the preparation of our consolidated financial statements.
With respect to critical accounting policies, even a relatively minor variance between actual and expected experience can
potentially have a materially favorable or unfavorable impact on subsequent results of operations. However, our
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historical results for the periods presented in our consolidated financial statements have not been materially impacted by
such variances. More information on all of our significant accounting policies can be found in “Notes to Consolidated
Financial Statements – Note 2—Summary of Significant Accounting Policies.”
Revenue Recognition
We recognize revenue upon shipment or upon receipt by the customer, depending on the country of sale and the
agreement with the customer, net of an allowance 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, we defer revenue until such event
occurs based on our estimate of the shipping time from our distribution centers to the customer using historical and
expected delivery times by geographic location. Delivery times vary by geographic location, but generally range from
the same day to four days. We review these estimates periodically to test their reasonableness as compared to actual
transactions. Historically, our actual shipping times have not been materially different from our estimates. Amounts
billed to customers for shipping and handling are included in net sales. Sales tax collected is not recognized as revenue
as it is ultimately remitted to governmental authorities.
We record an allowance for anticipated sales 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. If the
actual cost of sales returns are significantly different than the estimated allowance, our results of operations could be
materially affected.
We offer sales-based incentive programs to certain customers in exchange for certain benefits, including
prominent product placement and exclusive stocking by participating retailers. These programs typically provide
qualifying customers with rebates for achieving certain purchase goals. The rebates are accounted for as a reduction in
sales over the period in which the rebate is earned. Our estimate of the reduction of revenue requires the use of
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 our product life cycles.
Allowance for Doubtful Accounts
We make estimates related to our ability to collect our accounts receivable and maintain an allowance for
estimated losses resulting from the inability or unwillingness of our customers to make required payments. The
allowance includes amounts for certain customers where a risk of default has been specifically identified as well as a
provision for customer defaults on a formula basis when it is determined the risk of some default is probable and
estimable, but cannot yet be associated with specific customers. The assessment of the likelihood of customer defaults is
based on various factors, including credit risk assessments, length of time the receivables are past due, historical
experience, customer specific information available to us and existing economic conditions, all of which are subject to
change. If the actual uncollected amounts significantly exceed the estimated allowance, our results of operations could
be materially affected.
Allowance for Obsolete Inventory
Inventories, which include material, labor and manufacturing overhead costs, are recorded net of an allowance
for obsolete or slow moving inventory. The calculation of our allowance for obsolete or slow moving inventory requires
management to make assumptions and to apply judgment regarding the future demand and marketability of products, the
impact of new product introductions, inventory turn, product spoilage and specific identification of items, such as
product discontinuance, engineering/material changes, or regulatory-related changes. If estimates regarding consumer
demand are inaccurate or changes in technology affect demand for certain products in an unforeseen manner, we may
need to adjust our allowance for obsolete or slow moving inventory, which could have a material effect on our results of
operations.
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Impairment of Goodwill, Indefinite-Lived and Long-Lived Assets
Goodwill
We evaluate goodwill annually to determine whether it is impaired. Goodwill is also tested more frequently if
an event occurs or circumstances change that would indicate that the fair value of a reporting unit is less than its carrying
amount. Conditions that may indicate impairment include, but are not limited to, a significant adverse change in
customer demand or business climate that could affect the value of an asset; general economic conditions, such as
increasing Treasury rates or unexpected changes in gross domestic product growth; a change in our market shares;
budget-to-actual performance and consistency of operating margins and capital expenditures; a product recall or an
adverse action or assessment by a regulator; or loss in management or key personnel. If an impairment indicator exists,
we test goodwill for recoverability. We have identified five reporting units and selected the fourth fiscal quarter to
perform our annual goodwill impairment testing.
We may assess qualitative factors to determine if it is more likely than not (i.e., a likelihood of more than 50%)
that the fair value of a reporting unit is less than its carrying amount, including goodwill. The assessment of qualitative
factors is optional and at our discretion. We may bypass the qualitative assessment for any reporting unit in any period
and perform a quantitative goodwill impairment test. We may resume performing the qualitative assessment in any
subsequent period. If we determine 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, we determine that it is more
likely than not that the fair value of a reporting unit is less than its carrying amount, we perform the first step of a two-
step quantitative goodwill impairment test. In the first step, we compare 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 we are 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 we 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 we would record an impairment loss equal to the difference.
The fair value of our 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 most significant estimates and assumptions inherent in this
approach are the enterprise value based on the estimated present value of future net cash flows the business is expected
to generate over a forecasted period and an estimate of the present value of cash flows beyond that period, which is
referred to as the terminal value. The estimated present value is calculated using a discount rate known as the
weighted-average cost of capital, which accounts for the time value of money and the appropriate degree of risks
inherent in the business. We estimate future sales growth using a number of critical factors, including among others, our
nature and our history, financial and economic conditions affecting us, our industry and the general company, past
results and our current operations and future prospects. Forecasts of future operations are based, in part, on operating
results and our expectations as to future market conditions. We deem the discount rate used in our analysis to be
commensurate with the underlying uncertainties associated with achieving the estimated cash flows we project. This
analysis contains uncertainties because it requires us to make assumptions and to apply judgments to estimate industry
economic factors and the profitability of future business strategies. If actual results are not consistent with our estimates
and assumptions, we may be exposed to future impairment losses that could be material.
Our tests for impairment of goodwill resulted in a determination that the fair value of each reporting unit
exceeded the carrying value of our net assets for the years ended December 31, 2017, 2016 and 2015, respectively.
Indefinite-Lived Intangible Assets
Our trademarks have been assigned an indefinite life as we currently anticipate that these trademarks will
contribute cash flows to us indefinitely. We evaluate whether the trademarks continue to have an indefinite life on an
annual basis. Trademarks are reviewed for impairment annually in the fourth fiscal quarter and may be reviewed more
frequently if indicators of impairment are present. Conditions that may indicate impairment include, but are not limited
to, a significant adverse change in customer demand or business climate that could affect the value of an asset, a product
recall or an adverse action or assessment by a regulator.
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Impairment losses are recorded to the extent that the carrying value of the indefinite-lived intangible asset
exceeds its fair value. We measure the fair value of our trademarks using the relief-from-royalty method, which
estimates the present value of the royalty income that could be hypothetically earned by licensing the brand name to a
third party over the remaining useful life. The most significant estimates and assumptions inherent in this approach are
the growth rate of sales from the businesses that use the subject trademark, the net royalty saving rate and the discount
rate. No impairment charges for our trademarks were recorded for the years ended December 31, 2017, 2016 and 2015.
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.
Conditions that may indicate impairment include, but are not limited to, a significant adverse change in customer
demand or business climate that could affect the value of an asset, a product recall or an adverse action or assessment by
a regulator. When such events occur, we compare 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 this
comparison indicates that there is impairment, the amount of the impairment is calculated based on the excess of the
asset’s or the asset group’s carrying value over its fair value. Fair value is estimated primarily using discounted expected
future cash flows on a market-participant basis. No impairment charges for our long-lived assets were recorded for
the years ended December 31, 2017, 2016 and 2015.
Pension and Other Postretirement Benefit Plans
We provide U.S. and foreign defined benefit and defined contribution plans to our 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. Our actuarial assumptions are reviewed on an annual basis and modified when appropriate.
Approximately 82.7% of our employees are covered by defined benefit pension plans and approximately 25.6%
of our employees are covered by other postretirement benefit plans, in each case as of December 31, 2017. Pension plans
provide benefits based on plan-specific benefit formulas as defined by the applicable plan documents. Postretirement
benefit plans generally provide for the continuation of medical benefits for all eligible employees. Contributions to our
postretirement benefit plan are determined based upon amounts needed to cover postretirement benefits paid during the
period, net of contributions made by eligible employees. In general, our policy is to fund our pension benefit obligation
based on legal requirements, tax and liquidity considerations and local practices.
Our projected benefit obligations related to our pension and other postretirement benefit plans are valued using
a weighted-average discount rate of 3.62% and 3.61%, respectively, for the year ended December 31, 2017. 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. Changes in the
selected discount rate could have a material impact on our projected benefit obligations and the unfunded status of our
pension and other postretirement benefit plans. Decreasing the discount rate by 100 basis points would have increased
the projected benefit obligations of our pension and other postretirement benefit plans by approximately $63.0 million
and $1.8 million, respectively, for the year ended December 31, 2017.
Our net periodic pension benefit and other postretirement benefit cost is calculated using a variety of
assumptions, including a weighted average discount rate and expected return on plan assets. 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. Adjustments to our actuarial assumptions could have a material adverse impact on
72
our operating results. Decreasing the discount rate by 100 basis points would increase net periodic pension and other
postretirement benefit cost by approximately $6.3 million and $0.4 million, respectively, for the year ended
December 31, 2017. Decreasing the expected return on plan assets by 100 basis points would increase net periodic
pension benefit cost by approximately $1.5 million for the year ended December 31, 2017.
Income Taxes
Current income tax expense or benefit is the amount of income taxes expected to be payable or receivable for
the current year. Deferred income tax assets and liabilities represent the temporary differences between the tax basis and
financial reporting basis of our assets and liabilities and are determined using the tax rates and laws in effect for the
periods in which the differences are expected to reverse. We may record valuation allowances for deferred tax assets to
reduce our net deferred tax assets to the amount that is more-likely-than-not to be realized.
The 2017 Tax Act was signed into law on December 22, 2017. The 2017 Tax Act significantly revises the U.S.
corporate income tax by, among other things, lowering the statutory corporate tax rate from 35% to 21%, eliminating
certain deductions, imposing a mandatory one-time tax on accumulated earnings of foreign subsidiaries as of 2017,
introducing new tax regimes, and changing how foreign earnings are subject to U.S. tax. The 2017 Tax Act also
enhanced and extended through 2026 the option to claim accelerated depreciation deductions on qualified property. We
have not completed our determination of the accounting implications of the 2017 Tax Act on our tax accruals. However,
we have reasonably estimated the effects of the 2017 Tax Act and recorded provisional amounts in our financial
statements as of December 31, 2017. We recorded a provisional tax expense for the impact of the 2017 Tax Act of
approximately $14 million. This amount is primarily comprised of the remeasurement of federal net deferred tax assets
resulting from the permanent reduction in the U.S. statutory corporate tax rate to 21% from 35% of approximately
$10.2 million, the mandatory one-time tax on the accumulated earnings of our foreign subsidiaries of approximately
$8.6 million, offset by the release of the deferred tax liability previously recorded on our unremitted earnings of
$4.8 million. As we complete our analysis of the 2017 Tax Act, collect and prepare necessary data, and interpret any
additional guidance issued by the U.S. Treasury Department, the IRS, and other standard-setting bodies, we may make
adjustments to the provisional amounts. Those adjustments may materially impact our provision for income taxes in the
period in which the adjustments are made.
The determination of whether a deferred tax asset will be realized is made on both a jurisdictional basis and the
use of our estimate of the recoverability of the deferred tax asset. In evaluating whether a valuation allowance is required
under such rules, we consider all available positive and negative evidence, including our prior operating results, the
nature and reason for any losses, our forecast of future taxable income in each respective tax jurisdiction and the dates on
which any deferred tax assets are expected to expire. These assumptions require a significant amount of judgment,
including estimates of future taxable income. We determined that we would not be able to fully realize the benefits of all
our state deferred tax assets. As of December 31, 2017 and 2016, a cumulative valuation allowance of $25.9 million and
$21.7 million, respectively, was recorded.
Share-Based Compensation
We account for share-based compensation in accordance with accounting guidance that requires all share-based
compensation awards granted to employees and directors to be measured at fair value and recognized as an expense in
the financial statements.
In January 2016, our board of directors adopted the 2015 Plan pursuant to which the Company may grant stock
options, stock appreciation rights, restricted shares of common stock, 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. The 2015
Plan is administered by the compensation committee (the “Administrator”). The Administrator has the authority to
establish the terms and conditions of any award issued or granted under the 2015 Plan. Each share issued with respect to
RSUs and PSUs granted under the 2015 Plan reduces the number of shares available for grant. RSUs and PSUs forfeited
and shares withheld to satisfy tax withholding obligations increase the number of shares available for grant. All RSUs
and PSUs granted under the 2015 Plan have dividend equivalent rights (“DERs”), which entitle holders of RSUs and
PSUs to the same dividend value per share as holders of common stock. DERs are subject to the same vesting and other
terms and conditions as the corresponding unvested RSUs and PSUs. DERs are paid when the underlying shares vest.
73
We issue stock-based awards to employees with (i) service-based vesting conditions or (ii) service-based and
performance-based vesting conditions. We measure stock-based awards based on the deemed fair value on the date of
grant for accounting purposes, and recognize the corresponding compensation expense of those awards over the requisite
service period, which is generally the vesting period of the respective award. The Company accounts for forfeitures in
compensation expense when they occur. For awards with only service-based vesting conditions, compensation expense
is recorded using the straight-line method. 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.
Compensation expense for performance-based awards is recorded over the related service period when
achievement of the performance targets is deemed probable, which requires management judgment. For example, the
expense recorded during the year ended December 31, 2017 related to the performance-based stock units granted in 2017
was based on management’s best estimate of the three-year cumulative adjusted EBITDA forecast as of December 31,
2017. As a result, if factors change and we use different assumptions, our share-based compensation expense could be
materially different in the future. Refer to “Notes to Consolidated Financial Statements – Note 17 – Equity Incentive
Plans” for a further discussion on share-based compensation.
As of December 31, 2017, we had $17.9 million of unrecognized compensation expense expected to be
recognized over a weighted average period of 1.4 years. This unrecognized compensation expense reflects expense
related to the performance-based stock units based on the performance target multiplier deemed probable as
of December 31, 2017.
For the year ended December 31, 2015, we accounted for compensation expense related to our share-based
compensation awards, including EARs under our EAR Plan and stock options granted in connection with the
Acquisition, using the intrinsic value method, as permitted by ASC 718 for nonpublic entities, with changes to the value
of the share-based compensation awards recognized as compensation expense at each reporting date. Compensation
expense for the EAR Plan was based on CSE value as defined in the EAR Plan documents, which was the highest of
(1) an amount calculated by using a formula based on certain financial metrics of Acushnet Company as of and for
the year ended December 31, 2015, (2) an amount calculated by using a formula based on certain financial metrics of
Acushnet Company as of and for the year ending December 31, 2016 and (3) if an IPO has occurred, an amount
calculated based on the average per share closing price of the publicly traded common stock for the first three full
trading days following the pricing of common stock in the IPO. Based on the plan definition, the CSE value as of
December 31, 2016 was based on the amount calculated by using a formula based on certain financial metrics of
Acushnet Company as of and for the year ending December 31, 2016. We had the option to settle up to 50% of our
outstanding EARs using our common stock. However, we settled the entire amount due under the EARs in cash during
the first quarter of 2017, which payments were funded from borrowings under our delayed draw term loan A facility and
borrowings under our revolving credit facility.
Prior to our initial public offering, as there was no market for our common stock, the fair value of our common
stock was determined as of the date of each stock-award grant based on our most recently available third-party valuation
of common stock. From our Acquisition in 2011 until our initial public offering, we had a third-party valuation prepared
at the end of each quarter in connection with a valuation of the warrants to purchase our common stock needed for the
preparation of our consolidated financial statements. The third-party valuations used for the grants described below were
prepared using a combination of an income approach, which utilized a discounted cash flow model, and market
approach, which utilized a comparative market multiple model. The results from each of the models were then weighted
and combined into a single estimate of common stock fair value.
Following our initial public offering, the fair value of our common stock was determined based on the quoted
market price of our common stock.
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Derivatives
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.
Recently Issued Accounting Pronouncements
We have reviewed all recently issued standards and have determined that, other than as disclosed in “Notes to
Consolidated Financial Statements – Note 2 – Summary of Significant Accounting Policies”, Item 8 of Part II, included
elsewhere in this report, such standards will not have a significant impact on our consolidated financial statements or do
not otherwise apply to our operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to various market risks, which may result in potential losses arising from adverse changes in
market rates, such as interest rates, foreign exchange rates and commodity prices. We do not enter into derivatives or
other financial instruments for trading or speculative purposes and do not believe we are exposed to material market risk
with respect to our cash and cash equivalents.
Interest Rate Risk
We are exposed to interest rate risk under our various credit facilities which accrue interest at variable rates, as
described in “Notes to Consolidated Financial Statements – Note 9 - Debt and Financing Arrangements.” We currently
do not engage in any interest rate hedging activity but may enter into interest rate swaps or pursue other interest rate
hedging strategies in the future.
As of December 31, 2017 and 2016, we had $466.9 million and $412.8 million of outstanding indebtedness
(excluding unamortized debt issuance costs), at variable interest rates, respectively. A 1.00% increase in the interest rate
applied to these borrowings would have resulted in an increase of $5.3 million and $4.6 million in our annual pre-tax
interest expense as of December 31, 2017 and 2016, respectively.
Interest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies, U.S. and
international economic factors and other factors beyond our control. We are exposed to changes in the level of interest
rates and to changes in the relationship or spread between interest rates for our floating rate debt. Our floating rate debt
requires payments based on a variable interest rate index such as LIBOR. Therefore, increases in interest rates may
reduce our net income by increasing the cost of our debt.
Foreign Exchange Risk
In the normal course of business, we are exposed to gains and losses resulting from fluctuations in foreign
currency exchange rates relating to transactions outside the United States denominated in foreign currencies, which
include, but are not limited to, the Japanese yen, the Korean won, the British pound sterling, the euro and the Canadian
dollar. In addition, we are exposed to gains and losses resulting from the translation of the operating results of our
non-U.S. subsidiaries into U.S. dollars for financial reporting purposes.
We use financial instruments to reduce the impact of changes in foreign currency exchange rates. The principal
financial instruments we enter into on a routine basis are foreign exchange forward contracts. The primary foreign
exchange forward contracts pertain to the Japanese yen, the Korean won, the British pound sterling, the euro and the
Canadian dollar. Foreign exchange forward contracts are primarily used to hedge purchases denominated in select
foreign currencies. 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. We do not enter into foreign
exchange forward contracts for trading or speculative purposes.
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The gross U.S. dollar equivalent notional amount of all foreign currency forward contracts outstanding at
December 31, 2017 and 2016, was $278.9 million and $371.2 million, respectively, representing a net settlement liability
of $1.4 million and a net settlement asset of $15.5 million, respectively. Gains and losses on the foreign exchange
forward contracts that we account for as hedges offset losses and gains on these foreign currency purchases and reduce
the earnings and shareholders’ equity volatility relating to foreign exchange.
We performed a sensitivity analysis to assess potential changes in the fair value of our foreign exchange
forward contracts relating to a hypothetical movement in foreign currency exchange rates. The sensitivity analysis of
changes in the fair value of our foreign exchange forward contracts outstanding at December 31, 2017, while not
predictive in nature, indicated that if the U.S. dollar uniformly weakened by 10% against all currencies covered by our
contracts, the net settlement liability of $1.4 million would increase by $24.7 million resulting in a net settlement
liability of $26.1 million. The same sensitivity analysis of changes in the fair value of our foreign exchange forward
contracts outstanding at December 31, 2016 indicated that if the U.S. dollar uniformly weakened by 10% against all
currencies covered by our contracts, the net settlement asset of $15.5 million would have decreased by $33.2 million
resulting in a net settlement liability of $17.7 million.
The sensitivity analysis described above recalculates the fair value of the foreign exchange forward contracts
outstanding by replacing the actual foreign currency exchange rates and current month forward rates with foreign
currency exchange rates and forward rates that reflect a 10% weakening of the U.S. dollar against all currencies covered
by our contracts. All other factors are held constant. The sensitivity analysis disregards the possibility that currency
exchange rates can move in opposite directions and that gains from one currency may or may not be offset by losses
from another currency. The analysis also disregards the offsetting change in value of the underlying hedged transactions
and balances.
The financial markets and currency volatility may limit our ability to cost-effectively hedge these exposures.
The counterparties to derivative contracts are major financial institutions. We assess credit risk of the counterparties on
an ongoing basis.
Commodity Price Risk
We are exposed to commodity price risk with respect to certain materials and components used by us, our
suppliers and our manufacturers, including polybutadiene, urethane and Surlyn for the manufacturing of our golf balls,
titanium and steel for the assembly of our golf clubs, leather and synthetic fabrics for our golf shoes, golf gloves, golf
gear and golf apparel, and resin and other petroleum-based materials for a number of our products.
Impact of Inflation
Our results of operations and financial condition are presented based on historical cost. While it is difficult to
accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of
inflation, if any, on our results of operations and financial condition have been immaterial.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index to Consolidated Financial Statements and financial statements commencing on page F-1, which
are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
There were no changes in or disagreements with our accountants on accounting and financial disclosure
matters.
ITEM 9A. CONTROLS AND PROCEDURES
The required certifications of our chief executive officer and our principal financial officer are included as
Exhibit 31.1 and 31.2 to this Annual Report on Form 10-K. The disclosures set forth in this Item 9A contain information
concerning the evaluation of our disclosure controls and procedures, management's report on internal control over
76
financial reporting and changes in internal control over financial reporting referred to in those certifications. These
certifications should be read in conjunction with this Item 9A for a more complete understanding of the matters covered
by the certifications.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Exchange Act, that are designed to ensure that information required to be disclosed by a company in the reports that it
files or submits under the Securities Exchange Act, as amended, (the “ Exchange Act”) is recorded, processed,
summarized, and reported, within the time periods specified in the SEC’s rules and forms; and that such information is
accumulated and communicated to management, including our principal executive officer and principal financial officer,
as appropriate, to allow timely decisions regarding required disclosure. Our management, with the participation of our
principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and
procedures as of December 31, 2017, the last day of the period covered by this Annual Report. Based on this evaluation,
our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures
were effective as of December 31, 2017.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Exchange Act
as a process designed by, or under the supervision of, our principal executive and principal financial officers and
effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles and includes those policies and procedures that:
• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions
and dispositions of the assets of the company;
• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and expenditures
of the company are being made only in accordance with authorizations of management and directors of the
company; and
• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the company’s assets that could have a material effect on the financial statements
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
Our management assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2017. In making this assessment, our management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control – Integrated Framework (2013)”.
Based on our assessment, our management determined that, as of December 31, 2017, our internal control over
financial reporting is effective.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited the effectiveness
of our internal control over financial reporting as stated in their report which appears on page F-2 of this Annual Report
on Form 10-K.
77
Remediation of Previously-Identified Material Weaknesses in Internal Control over Financial Reporting
As we disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016, our management
previously identified material weaknesses in our internal control over financial reporting. A material weakness is a
deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable
possibility that a material misstatement of our annual or interim consolidated financial statements will not be prevented
or detected on a timely basis.
The material weaknesses identified related to our not having in place an effective control environment with a
sufficient number of accounting personnel with the appropriate technical training in, and experience with, U.S. GAAP to
allow for a detailed review of complex accounting transactions that would identify errors in a timely manner. Further, we
did not design effective control activities relating to formally documented and implemented accounting processes and
procedures across business cycles, including income taxes, derivatives, certain compensation and benefits, certain
revenue transactions, and functional currency, and internal communication protocols related to matters impacting income
tax and benefit accounts. We also did not maintain effective segregation of duties in our internal control over financial
reporting.
In response to the identified material weaknesses, we took a number of actions to improve our internal control
over financial reporting during the year ended December 31, 2017, including the following:
• We have hired a Chief Accounting Officer and additional financial reporting personnel with technical
accounting and financial reporting experience
• We have formalized our accounting policies and procedures, and enhanced our internal review
procedures during the financial statement close process
• We engaged an accounting firm to evaluate and document the design and operating effectiveness of our
internal controls and assist with the remediation and implementation of our internal controls as required
• We reviewed our financial accounting and reporting processes and have made changes where
appropriate to ensure we have adequate segregation of duties.
Management believes that, as a result of the implementation of these actions during the year ended December
31, 2017, our remediation efforts have been successful, and that the previously-identified material weaknesses in our
internal controls have been remediated.
Changes in Internal Control over Financial Reporting
As disclosed above under “Remediation of Previously-Identified Material Weaknesses in Internal Control over
Financial Reporting” we have remediated our previously reported material weaknesses. There have been no changes in
our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that
occurred during the quarter ended December 31, 2017 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
78
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The Information about our executive officers is contained in the discussion entitled “Executive Officers of the
Registrant” in Part I of this Form 10-K. The remaining information required by this Item will be included in our Proxy
Statement and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be included in our Proxy Statement and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The information required by this Item will be included in our Proxy Statement and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this Item will be included in our Proxy Statement and is incorporated herein by
reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this Item will be included in our Proxy Statement and is incorporated herein by
reference.
79
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)
The following documents are filed as a part of this report
PART IV
(1)
(2)
(3)
Financial Statements. See Index to Consolidated Financial Statements on page F-1 hereof.
Financial statement schedules are omitted because they are not applicable or the required
information is shown in the Consolidated Financial Statements or notes thereto.
Exhibits Index:
Exhibit
Number
Description
3.1 Amended and Restated Certificate of Incorporation of Acushnet Holdings Corp. (incorporated by reference
to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on November 2, 2016
(No. 001-37935)).
3.2 Amended and Restated Bylaws of Acushnet Holdings Corp. (incorporated by reference to Exhibit 3.2 to the
Registrant’s Current Report on Form 8-K filed on November 2, 2016 (No. 001-37935)).
10.1† Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement under the Acushnet
Holdings Corp. 2015 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.7 to the Registrant’s
Registration Statement on Form S-1 (No. 333-212116)).
10.2† Form of Performance Stock Unit Grant Notice and Performance Stock Unit Agreement under the Acushnet
Holdings Corp. 2015 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.8 to the Registrant’s
Registration Statement on Form S-1 (No. 333-212116)).
10.3† Acushnet Executive Severance Plan (as amended and restated effective April 29, 2016) (incorporated by
reference to Exhibit 10.9 to the Registrant’s Registration Statement on Form S-1 (No. 333-212116)).
10.4† Acushnet Company Supplemental Retirement Plan (as amended and restated effective December 31, 2015)
(incorporated by reference to Exhibit 10.10 to the Registrant’s Registration Statement on Form S-1
(No. 333-212116)).
10.5† Acushnet Company Amended and Restated Trust Agreement, dated as of August 31, 2016 (incorporated by
reference to Exhibit 10.11 to the Registrant’s Registration Statement on Form S-1 (No. 333-212116)).
10.6† Amended and Restated Change in Control Agreement between Acushnet Company and Walter R. Uihlein,
dated as of July 19, 2013, as amended April 29, 2016 (incorporated by reference to Exhibit 10.12 to the
Registrant’s Registration Statement on Form S-1 (No. 333-212116)).
10.7† Amended and Restated Severance Agreement between Acushnet Company and Walter R. Uihlein, dated as
of July 19, 2013, as amended April 29, 2016 (incorporated by reference to Exhibit 10.13 to the Registrant’s
Registration Statement on Form S-1 (No. 333-212116)).
10.8† Acushnet Company Walter R. Uihlein Trust Agreement dated as of January 1, 2003 (incorporated by
reference to Exhibit 10.14 to the Registrant’s Registration Statement on Form S-1 (No. 333-212116)).
10.9† Amended and Restated Acushnet Company Excess Deferral Plan II (effective July 29, 2011) (incorporated
by reference to Exhibit 10.16 to the Registrant’s Registration Statement on Form S-1 (No. 333-212116)).
10.10 Senior Secured Credit Agreement, dated as of April 27, 2016 among Acushnet Holdings Corp., Acushnet
Company, Acushnet Canada Inc., Acushnet Europe Limited, certain other subsidiaries party thereto, Wells
Fargo Bank, National Association as the administrative agent, swingline lender and issuing bank, Wells
Fargo Securities, LLC and PNC Capital Markets LLC as joint lead arrangers and joint bookrunners, PNC
Capital Markets LLC as syndication agent, and the lenders from time to time party thereto (incorporated by
reference to Exhibit 10.17 to the Registrant’s Registration Statement on Form S-1 (No. 333-212116)).
10.11 Joint Venture Agreement between Acushnet Cayman Limited and Myre Overseas Corporation, dated as of
June 1, 1995 (incorporated by reference to Exhibit 10.18 to the Registrant’s Registration Statement on
Form S-1 (No. 333-212116)).
10.12 Registration Rights Agreement, dated October 26, 2016, among the Company and the Holders (as defined
therein) (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on
November 1, 2016 (No. 001-37935)).
80
10.13† Form of Restricted Stock Unit Grant Notice and Restricted Stock Unit Agreement for Directors under the
Acushnet Holdings Corp. 2015 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.20 to the
Registrant’s Registration Statement on Form S-1 (No. 333-212116)).
10.14† Acushnet Holdings Corp. Independent Directors Deferral Plan (incorporated by reference to Exhibit 10.21
to the Registrant’s Registration Statement on Form S-1 (No. 333-212116)).
10.15† Acushnet Holdings Corp. 2015 Omnibus Incentive Plan (incorporated by reference to Exhibit 4.3 to the
Registrant’s Registration Statement on Form S-8 filed on October 27, 2016 (No. 001-37935)).
10.16† Letter Agreement between Acushnet Holdings Corp. and Joseph J. Nauman, dated as of April 18, 2017
(incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2017 (No. 001-37935)).
10.17† Employment Agreement between Acushnet Holdings Corp. and David E. Maher, dated as of December 22,
2017 (filed herewith).
10.18† Acushnet Holdings Corp. Employee Deferral Plan (filed herewith)
21.1 List of Subsidiaries (filed herewith).
23.1 Consent of PricewaterhouseCoopers LLP (filed herewith).
24.1 Power of Attorney (filed herewith).
31.1 Certification of Periodic Report by Chief Executive Officer Pursuant to Rule 13a–14(a) or 15d–14(a) of the
Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(filed herewith).
31.2 Certification of Periodic Report by Chief Financial Officer Pursuant to Rule 13a–14(a) or 15d–14(a) of the
Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(filed herewith).
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
101.INS XBRL Instance Document (filed herewith).
101.SCH XBRL Taxonomy Extension Schema (filed herewith).
101.CAL XBRL Taxonomy Extension Calculation Linkbase (filed herewith).
101.DEF XBRL Taxonomy Extension Definition Linkbase (filed herewith).
101.LAB XBRL Taxonomy Extension Label Linkbase (filed herewith).
101.PRE XBRL Taxonomy Extension Presentation Linkbase (filed herewith).
†
Identifies exhibits that consist of a management contract or compensatory plan or arrangement.
ITEM 16. FORM 10-K SUMMARY
None.
81
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 7, 2018
ACUSHNET HOLDINGS CORP.
By:/s/ David Maher
Name: David Maher
Title: President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/s/ David Maher
David Maher
/s/ William Burke
William Burke
/s/ Thomas Pacheco
Thomas Pacheco
President and Chief Executive Officer (Principal Executive Officer)
March 7, 2018
Capacity
Date
Executive Vice President, Chief Financial Officer and Treasurer (Principal
March 7, 2018
Financial Officer)
Senior Vice President, Finance and Chief Accounting Officer (Principal
March 7, 2018
Accounting Officer)
*
Yoon Soo (Gene) Yoon
Chairman
*
Jennifer Estabrook
Director
*
Gregory Hewett
Director
*
Christopher Metz
Director
*
Sean Sullivan
Director
*
Steven Tishman
Director
*
Walter Uihlein
Director
*
David Valcourt
Director
*
Norman Wesley
Director
*By:/s/ Brendan Gibbons
Name: Brendan Gibbons
Title: Attorney In Fact
82
March 7, 2018
March 7, 2018
March 7, 2018
March 7, 2018
March 7, 2018
March 7, 2018
March 7, 2018
March 7, 2018
March 7, 2018
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Audited Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Redeemable Convertible Preferred Stock and Equity . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Page(s)
F-2
F-4
F-5
F-6
F-7
F-8
F-9
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Acushnet Holdings Corp.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Acushnet Holdings Corp. and its
subsidiaries as of December 31, 2017 and 2016, and the related consolidated statements of operations, comprehensive
income (loss), redeemable convertible preferred stock and equity and cash flows for each of the three years in the period
ended December 31, 2017, including the related notes (collectively referred to as the “consolidated financial
statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2017,
based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2017 in conformity with accounting principles generally
accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining
effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over
financial reporting, included in Management's Report on Internal Control over Financial Reporting appearing under Item
9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's
internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to
the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was
maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of
material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. Our audit of internal control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
F-2
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls
may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
March 7, 2018
We have served as the Company’s, or its predecessors’, auditor since at least 1976, which includes periods
before the Company became subject to SEC reporting requirements. We have not determined the specific year we began
serving as auditor of the Company or a predecessor company.
F-3
ACUSHNET HOLDINGS CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
Assets
Current assets
December 31,
2017
December 31,
2016
Cash and restricted cash ($13,086 and $13,811 attributable to the variable interest entity ("VIE"))
Accounts receivable, net
Inventories ($13,692 and $14,633 attributable to the VIE)
Other assets
$
Total current assets
Property, plant and equipment, net ($10,240 and $10,709 attributable to the VIE)
Goodwill ($32,312 and $32,312 attributable to the VIE)
Intangible assets, net
Deferred income taxes
Other assets ($2,738 and $2,642 attributable to the VIE)
$
47,722
190,851
363,962
84,541
687,076
228,922
185,941
481,234
110,318
33,833
Total assets
$
1,727,324
$
$
Liabilities and Equity
Current liabilities
Short-term debt
Current portion of long-term debt
Accounts payable ($10,587 and $10,397 attributable to the VIE)
Accrued taxes
Accrued compensation and benefits ($780 and $780 attributable to the VIE)
Accrued expenses and other liabilities ($2,719 and $4,121 attributable to the VIE)
Total current liabilities
Long-term debt and capital lease obligations
Deferred income taxes
Accrued pension and other postretirement benefits ($1,908 and $1,946 attributable to the VIE)
Other noncurrent liabilities ($4,689 and $3,368 attributable to the VIE)
Total liabilities
Commitments and contingencies (Note 21)
Shareholders' Equity
Common stock, $0.001 par value, 500,000,000 shares authorized; 74,479,319 and 74,093,598 shares
issued and outstanding
Additional paid-in capital
Accumulated other comprehensive loss, net of tax
Retained earnings (deficit)
Total equity attributable to Acushnet Holdings Corp.
Noncontrolling interests
Total shareholders' equity
$
20,364
26,719
92,759
34,310
80,189
52,442
306,783
416,970
9,318
130,160
16,701
879,932
74
894,727
(81,691)
1,618
814,728
32,664
847,392
Total liabilities and shareholders' equity
$
1,727,324
$
The accompanying notes are an integral part of these consolidated financial statements.
79,140
177,506
323,289
84,596
664,531
239,748
179,241
489,988
130,416
32,247
1,736,171
42,495
18,750
87,608
41,962
224,230
47,063
462,108
348,348
7,452
135,339
14,101
967,348
74
880,576
(90,834)
(53,951)
735,865
32,958
768,823
1,736,171
F-4
ACUSHNET HOLDINGS CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
Year ended December 31,
2017
2016
2015
Net sales
Cost of goods sold
Gross profit
Operating expenses:
Selling, general and administrative
Research and development
Intangible amortization
Restructuring charges
Income from operations
Interest expense, net (Note 14)
Other (income) expense, net
Income before income taxes
Income tax expense
Net income
Less: Net income attributable to noncontrolling interests
Net income (loss) attributable to Acushnet Holdings Corp.
Dividends earned by preferred shareholders
Allocation of undistributed earnings to preferred shareholders
Net income (loss) attributable to common shareholders - basic
Adjustments to net income for dilutive securities
Net income (loss) attributable to common shareholders - diluted
Net income (loss) per common share attributable to Acushnet Holdings Corp.:
Basic
Diluted
Cash dividends declared per common share:
Weighted average number of common shares:
Basic
Diluted
$ 1,560,258 $ 1,572,275 $ 1,502,958
727,120
775,838
759,466
800,792
773,550
798,725
579,837
48,148
6,499
-
166,308
15,709
(1,077)
151,676
55,056
96,620
(4,506)
92,114
-
-
92,114
-
92,114 $
600,804
48,804
6,608
1,673
140,836
49,908
1,706
89,222
39,707
49,515
(4,503)
45,012
(11,576)
(10,247)
23,189
16,475
39,664 $
604,018
45,977
6,617
1,643
117,583
60,294
25,139
32,150
27,994
4,156
(5,122)
(966)
(13,785)
-
(14,751)
-
(14,751)
1.24 $
1.23
0.48
0.74
0.62
-
$ (0.74)
$ (0.74)
-
$
$
74,399,836
74,590,999
31,247,643
64,323,742
19,939,293
19,939,293
The accompanying notes are an integral part of these consolidated financial statements.
F-5
ACUSHNET HOLDINGS CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Net income
Other comprehensive income (loss)
Foreign currency translation adjustments
Foreign exchange derivative instruments
Unrealized holding gains (losses) arising during period
Reclassification adjustments included in net income
Tax benefit (expense)
Foreign exchange derivative instruments, net
Available-for-sale securities
Unrealized holding gains (losses) arising during period
Tax benefit (expense)
Available-for-sale securities, net
Pension and other postretirement benefits
Pension and other postretirement benefits adjustments
Tax benefit (expense)
Pension and other postretirement benefits adjustments, net
Year ended December 31,
2016
2015
2017
$
96,620 $
49,515 $
4,156
26,964
(14,656)
(19,042)
(15,558)
(1,329)
4,072
(12,815)
150
35
185
(6,889)
1,698
(5,191)
7,014
(5,194)
(451)
1,369
51
(19)
32
(16,072)
5,727
(10,345)
14,964
(26,805)
3,836
(8,005)
(673)
160
(513)
3,068
(1,684)
1,384
Total other comprehensive income (loss)
9,143
(23,600)
(26,176)
Comprehensive income (loss)
Less: Comprehensive income attributable to noncontrolling interests
Comprehensive income (loss) attributable to Acushnet Holdings Corp.
$
105,763
(4,524)
101,239 $
25,915
(4,563)
21,352 $
(22,020)
(5,017)
(27,037)
The accompanying notes are an integral part of these consolidated financial statements.
F-6
ACUSHNET HOLDINGS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities
Net income
Adjustments to reconcile net income to cash provided by (used in) operating activities
Depreciation and amortization
Unrealized foreign exchange (gain) loss
Amortization of debt issuance costs
Amortization of discount on bonds payable
Change in fair value of common stock warrants
Share-based compensation
Loss on disposals of property, plant and equipment
Deferred income taxes
Changes in operating assets and liabilities
Accounts receivable
Inventories
Accounts payable
Accrued taxes
Accrued expenses and other liabilities
Other assets
Other noncurrent liabilities
Interest due to related parties
Cash flows provided by (used in) operating activities
Cash flows from investing activities
Additions to property, plant and equipment
Cash flows used in investing activities
Cash flows from financing activities
Increase (decrease) in short-term borrowings, net
Proceeds from delayed draw term loan A facility
Repayment of delayed draw term loan A facility
Repayment of term loan facility
Repayment of senior term loan facility
Proceeds from term loan facility
Repayment of secured floating rate notes
Proceeds from exercise of common stock warrants
Repayment of bonds
Debt issuance costs
Dividends paid on common stock
Dividends paid on Series A redeemable convertible preferred stock
Dividends paid to noncontrolling interests
Payment of employee restricted stock tax withholdings
Cash flows provided by (used in) financing activities
Effect of foreign exchange rate changes on cash
Net increase (decrease) in cash
Cash and restricted cash, beginning of year
Cash and restricted cash, end of period
Supplemental information
Cash paid for interest to related parties
Cash paid for interest to third parties
Cash paid for income taxes
Non-cash additions to property, plant and equipment
Dividend equivalents declared not paid
Non-cash conversion of Series A redeemable convertible preferred stock
Non-cash conversion of convertible notes
Non-cash conversion of common stock warrants
Non-cash exercise of stock options
Year ended December 31,
2016
2015
2017
$
96,620 $
49,515 $
40,871
(4,028)
1,321
-
-
15,285
912
27,853
(2,592)
(28,372)
974
(10,283)
(145,837)
(8,477)
(11,284)
-
(27,037)
40,834
(2,347)
3,378
3,963
6,112
14,494
170
7,849
12,630
(2,377)
1,968
14,666
113,042
(6,960)
(140,098)
(12,570)
104,269
(18,845)
(18,845)
(19,175)
(19,175)
(25,548)
100,000
(5,000)
(18,750)
-
-
-
-
-
-
(35,744)
-
(4,800)
(903)
9,255
5,209
(31,418)
79,140
47,722 $
- $
15,488
35,949
2,876
801
-
-
-
-
747
-
-
(4,688)
(30,000)
375,000
(375,000)
34,503
(34,503)
(6,606)
-
(17,316)
(4,800)
-
(62,663)
(2,425)
20,006
59,134
79,140 $
36,753 $
27,165
16,589
1,170
-
131,036
362,489
28,996
-
$
$
4,156
41,702
2,933
5,157
4,142
28,364
2,033
401
2,188
(174)
(45,415)
(1,998)
540
35,364
1,165
12,278
(1,006)
91,830
(23,201)
(23,201)
7,890
-
-
-
-
-
(50,000)
34,503
(34,503)
-
-
(13,747)
(4,200)
-
(60,057)
(3,205)
5,367
53,767
59,134
32,274
20,571
19,724
1,913
-
-
-
7,298
2,752
The accompanying notes are an integral part of these consolidated financial statements.
F-7
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F-8
ACUSHNET HOLDINGS CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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
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(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.
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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
Machinery and equipment
Furniture, fixtures and computer hardware
Computer software
15 – 40 years
3 – 10 years
3 – 10 years
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
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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
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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.
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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.
F-14
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
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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
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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, Compensation—Stock
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, “Compensation—Retirement 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.
F-17
Intangibles—Goodwill and Other—Simplifying 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.
F-18
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.
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
Bad debt expense
Amount of receivables written off
Foreign currency translation
Balance at end of year
$
$
12,255 $
337
(3,300)
683
9,975 $
12,363 $
6,507
(6,315)
(300)
12,255 $
8,528
4,771
(634)
(302)
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.
4. Inventories
The components of inventories were as follows:
(in thousands)
Raw materials and supplies
Work-in-process
Finished goods
Inventories
December 31, December 31,
2017
2016
$
$
72,342 $
23,956
267,664
363,962 $
55,424
21,558
246,307
323,289
F-19
5. Property, Plant and Equipment, Net
The components of property, plant and equipment, net were as follows:
(in thousands)
Land
Buildings and improvements
Machinery and equipment
Furniture, computers and equipment
Computer software
Construction in progress
Property, plant and equipment, gross
Accumulated depreciation and amortization
Property, plant and equipment, net
December 31,
2017
December 31,
2016
$
$
14,618 $
138,570
148,999
32,783
60,736
13,586
409,292
(180,370)
228,922 $
14,500
133,844
143,784
29,326
58,462
11,196
391,112
(151,364)
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.
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:
(in thousands)
Balances at December 31, 2015
Foreign currency translation
Balances at December 31, 2016
Foreign currency translation
Balances at December 31, 2017
Titleist
Titleist
FootJoy
Titleist
Golf Balls Golf Clubs Golf Wear Golf Gear Other
Total
$ 106,561
(1,139)
105,422
3,941
181,179
2,303
(1,938)
(25)
179,241
2,278
6,700
85
$ 109,363 $ 53,113 $ 2,363 $ 12,879 $ 8,223 $ 185,941
12,549
(134)
12,415
464
51,753
(554)
51,199
1,914
8,013
(86)
7,927
296
The net carrying value by class of identifiable intangible assets was as follows:
(in thousands)
Indefinite-lived:
Trademarks
Amortizing:
Completed Technology
Customer Relationships
Licensing Fees and Other
Total intangible assets
Weighted
Average
Useful
Life (Years)
December 31, 2017
December 31, 2016
Gross
Accumulated Net Book
Amortization
Value
Gross
Accumulated
Amortization
Net Book
Value
N/A
$
428,100 $
- $ 428,100 $
428,100 $
- $
428,100
13
20
7
73,900
19,666
32,539
554,205 $
(35,486)
(6,309)
(31,176)
(72,971) $ 481,234 $
38,414
13,357
1,363
73,900
18,999
32,423
553,422 $
(29,956)
(5,146)
(28,332)
(63,434) $
43,944
13,853
4,091
489,988
$
F-20
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
2019
2020
2021
2022
Thereafter
Total
7. Product Warranty
$
$
7,878
6,269
5,926
5,926
5,926
21,209
53,134
The activity related to the Company’s warranty obligation for accrued warranty expense was as follows:
(in thousands)
Balance at beginning of period
Provision
Claims paid/costs incurred
Foreign currency translation
Balance at end of period
8. Related Party Transactions
Year ended
December 31,
2016
2015
2017
$
$
3,526 $
5,801
(5,653)
149
3,823 $
3,345 $
6,200
(5,940)
(79)
3,526 $
2,989
5,399
(4,929)
(114)
3,345
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.
F-21
9. Debt and Financing Arrangements
The Company’s debt and capital lease obligations were as follows:
(in thousands)
Term loan
Delayed draw term loan A facility
Revolving credit facility
Other short-term borrowings
Capital lease obligations
Debt issuance costs
Total
Less: short-term debt and current portion of long-term debt
Total long-term debt and capital lease obligations
December 31, December 31,
2017
2016
$
351,563 $
95,000
10,066
10,298
22
(2,896)
464,053
47,083
$
416,970 $
370,313
-
42,495
-
491
(3,706)
409,593
61,245
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.
F-22
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,
F-23
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%.
F-24
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
2019
2020
2021
2022
Thereafter
Total
10. Derivative Financial Instruments
Bonds with Common Stock Warrants
$
$
26,719
35,625
38,594
345,625
-
-
446,563
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.
F-25
The fair values of foreign exchange hedges on the consolidated balance sheets were as follows:
(in thousands)
Asset derivatives
Liability derivatives
Balance Sheet
Location
December 31,
2017
December 31,
2016
Other current assets
Other noncurrent assets
Other current liabilities
Other noncurrent liabilities
$
4,675 $
562
6,360
276
11,357
5,286
1,106
32
The effect of foreign exchange hedges on accumulated other comprehensive income (loss) and the consolidated
statements of operations was as follows:
(in thousands)
Type of hedge
Cash flow
(in thousands)
Location of gain (loss) in statement of operations
Cost of goods sold
Selling, general and administrative expense
Gain (Loss) Recognized in
Other Comprehensive Income (Loss)
Year ended
December 31,
2016
2017
2015
$
$
(15,558) $
(15,558) $
7,014 $
7,014 $
14,964
14,964
Gain (Loss) Recognized in
Statement of Operations
Year ended
December 31,
2016
2017
2015
$
$
1,329 $
(2,732)
(1,403) $
5,194 $
(917)
4,277 $
26,805
3,733
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.
11. Fair Value Measurements
Assets and liabilities measured at fair value on a recurring basis were as follows:
(in thousands)
Level 1 Level 2 Level 3 Balance Sheet Location
Fair Value Measurements as of
December 31, 2017 using:
Assets
Rabbi trust
Foreign exchange derivative instruments
Deferred compensation program assets
Foreign exchange derivative instruments
Total assets
Liabilities
Foreign exchange derivative instruments
Deferred compensation program liabilities
Foreign exchange derivative instruments
Total liabilities
$10,637 $
- $
-
1,866
-
4,675
-
562
$12,503 $ 5,237 $
-
-
-
-
-
Other current assets
Other current assets
Other noncurrent assets
Other noncurrent assets
$
- $ 6,360 $
1,866
-
-
276
$ 1,866 $ 6,636 $
Other current liabilities
-
- Other noncurrent liabilities
- Other noncurrent liabilities
-
F-26
(in thousands)
Level 1 Level 2 Level 3 Balance Sheet Location
Fair Value Measurements as of
December 31, 2016 using:
Assets
Rabbi trust
Foreign exchange derivative instruments
Rabbi trust
Deferred compensation program assets
Foreign exchange derivative instruments
Total assets
Liabilities
Foreign exchange derivative instruments
Deferred compensation program liabilities
Foreign exchange derivative instruments
Total liabilities
$ 6,994 $
- $
-
5,248
1,846
-
11,357
-
-
5,286
$ 14,088 $ 16,643 $
-
-
-
-
-
-
Other current assets
Other current assets
Other noncurrent assets
Other noncurrent assets
Other noncurrent assets
$
- $ 1,106 $
1,846
-
-
32
$ 1,846 $ 1,138 $
-
Other current liabilities
- Other noncurrent liabilities
- Other noncurrent liabilities
-
During the years ended December 31, 2017 and 2016, there were no transfers between Level 1, Level 2 and
Level 3.
Rabbi trust assets are used to fund certain retirement obligations of the Company. The assets underlying the
Rabbi trust are equity and fixed income exchange-traded funds.
Deferred compensation program assets and liabilities represent a program where select employees can defer
compensation until termination of employment. Effective July 29, 2011, this program was amended to cease all
employee compensation deferrals and provided for the distribution of all previously deferred employee compensation.
The program remains in effect with respect to the value attributable to the employer match contributed prior to July 29,
2011.
Foreign exchange derivative instruments are forward exchange forward contracts primarily used to hedge
currency fluctuations for transactions denominated in a foreign currency (Note 10). 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.
Prior to the exercise of the final tranche of common stock warrants in 2016, the Company categorized the
related derivative liability as Level 3 as there were significant unobservable inputs used in the underlying valuations.
The common stock warrants were valued using the contingent claims methodology. The change in the Level 3 fair value
measurements was as follows:
(in thousands)
Balance at beginning of year
Common stock warrant exercise
Total losses included in earnings
Balance at end of year
12. Pension and Other Postretirement Benefits
December 31,
2016
$
$
22,884
(28,996)
6,112
-
The Company has various pension and post-employment plans which provide for payment of retirement
benefits, mainly commencing between the ages of 50 and 65, and for payment of certain disability benefits. After
meeting certain qualifications, an employee acquires a vested right to future benefits. The benefits payable under the
plans are generally determined on the basis of an employee's length of service and/or earnings. Employer contributions
to the plans are made, as necessary, to ensure legal funding requirements are satisfied. The Company may make
contributions in excess of the legal funding requirements.
F-27
On November 13, 2015, the Company amended the US pension plan and supplemental executive retirement
plan (“SERP”) by closing the plans to newly-hired full-time employees who had not yet satisfied the one year service
requirement as of January 1, 2016, freezing the accrual of additional benefits on participants who have not attained age
50 with at least 10 years of vesting service, or whose age plus vesting service is less than 70, and shifting benefits for
participants who have continued to accrue benefits from the pension plan to the SERP once a cap of $150,000 has been
reached. The plans were re-measured in accordance with ASC 715 resulting in a curtailment gain of $2.4 million during
the year ended December 31, 2015.
The Company provides postretirement healthcare benefits to certain retirees. Many employees and retirees
outside of the United States are covered by government sponsored healthcare programs.
The following tables present the change in benefit obligation, change in plan assets, and funded status for the
Company's defined benefit and postretirement benefit plans for the years ended December 31, 2017 and 2016:
(in thousands)
Change in projected benefit obligation ("PBO")
Benefit obligation at December 31, 2016
Service cost
Interest cost
Actuarial (gain) loss
Settlements
Participants’ contributions
Benefit payments
Foreign currency translation
Adjustment for movement from underfunded to overfunded
Projected benefit obligation at December 31, 2017
Accumulated benefit obligation at December 31, 2017
Change in plan assets
Fair value of plan assets at December 31, 2016
Return on plan assets
Employer contributions
Participants’ contributions
Settlements
Benefit payments
Adjustment for movement from underfunded to overfunded
Foreign currency translation
Fair value of plan assets at December 31, 2017
Funded status (fair value of plan assets less PBO)
Pension
Benefits
Pension
Benefits
Postretirement
(Underfunded) (Overfunded) Benefits
$
$
284,104 $
9,217
10,783
34,557
(20,663)
-
(2,719)
1,435
168
316,882
277,067
161,088
23,757
21,280
-
(20,663)
(2,719)
194
156
183,093
(133,789) $
39,735 $
-
1,049
(2,000)
(5,172)
-
(635)
2,659
(168)
35,468
34,190
45,342
6,254
1,697
-
(5,172)
(635)
(194)
3,475
50,767
15,299 $
20,264
955
713
(5,075)
-
355
(1,160)
-
-
16,052
16,052
-
-
805
355
-
(1,160)
-
-
-
(16,052)
F-28
(in thousands)
Change in projected benefit obligation
Benefit obligation at December 31, 2015
Service cost
Interest cost
Actuarial (gain) loss
Settlements
Plan amendments
Participants’ contributions
Benefit payments
Foreign currency translation
Adjustment for movement from underfunded to overfunded
Projected benefit obligation at December 31, 2016
Accumulated benefit obligation at December 31, 2016
Change in plan assets
Fair value of plan assets at December 31, 2015
Return on plan assets
Employer contributions
Participants’ contributions
Settlements
Benefit payments
Foreign currency translation
Pension
Benefits
Pension
Benefits
(Underfunded) (Overfunded)
Postretirement
Benefits
$
271,462 $
9,787
11,077
14,095
(6,714)
-
-
(15,515)
122
(210)
284,104
247,009
157,729
7,203
18,335
-
(6,714)
(15,515)
50
161,088
(123,016) $
38,287 $
(24)
1,279
7,711
-
-
-
(796)
(6,932)
210
39,735
37,289
43,768
8,280
2,012
-
-
(796)
(7,922)
45,342
5,607 $
20,079
888
779
(572)
-
283
921
(2,114)
-
-
20,264
20,264
-
-
1,193
921
-
(2,114)
-
-
(20,264)
Fair value of plan assets at December 31, 2016
Funded status (fair value of plan assets less PBO)
$
The amount of pension and postretirement assets and liabilities recognized on the consolidated balance sheets
were as follows:
(in thousands)
Other noncurrent assets
Accrued compensation and benefits
Accrued pension and postretirement benefits
Net amount recognized
Pension Benefits
2017
2016
Postretirement Benefits
2017
2016
$
15,299 $
(18,933)
(114,856)
5,607 $
(7,149)
(115,867)
$ (118,490) $ (117,409) $
- $
(748)
(15,304)
(16,052) $
-
(784)
(19,480)
(20,264)
The amounts in accumulated other comprehensive income (loss) on the consolidated balance sheets that have
not yet been recognized as components of net periodic benefit cost were as follows:
(in thousands)
Net actuarial (gain) loss at beginning of year
Current year actuarial (gain) loss
Amortization of actuarial (gain) loss
Curtailment impact
Settlement impact
Prior service cost
Amortization of prior service cost (credit)
Foreign currency translation
Pension Benefits
Year ended December 31,
2017
2016
2015
Postretirement Benefits
Year ended December 31,
2016
2015
2017
$ 33,736 $ 18,374 $ 19,878 $
14,554
(804)
-
(2,740)
-
(175)
321
18,425
(485)
-
(1,124)
-
(175)
(1,279)
17,835
(1,152)
(19,146)
-
1,331
(22)
(350)
(8,055) $
(5,075)
601
-
-
-
137
-
(8,840) $
(573)
912
-
-
283
163
-
(7,270)
(2,228)
490
-
-
-
168
-
(8,840)
Net actuarial (gain) loss at end of year
$ 44,892 $ 33,736 $ 18,374 $ (12,392) $
(8,055) $
The expected prior service cost (credit) that will be amortized from accumulated other comprehensive income
(loss) into net periodic benefit cost in the next fiscal year is a cost of $0.2 million for the pension plans and a credit of
F-29
$0.1 million for the postretirement plans. The expected actuarial (gain) loss that will be amortized from accumulated
other comprehensive income (loss) into net periodic benefit cost in the next fiscal year is a loss of $2.1 million for the
pension plans and a gain of $1.4 million for the postretirement plans.
Components of net periodic benefit cost were as follows:
(in thousands)
Components of net periodic benefit cost
Service cost
Interest cost
Expected return on plan assets
Curtailment income
Settlement expense
Amortization of net (gain) loss
Amortization of prior service cost (credit)
Pension Benefits
Postretirement Benefits
Year ended December 31,
2017
2016
2015
2017
2016
2015
$
9,217 $
9,763 $ 15,683 $
11,832
(12,006)
-
2,740
804
175
12,356
(12,189)
-
1,148
471
175
12,338
(11,372)
(2,421)
-
1,152
22
955 $
713
-
-
-
(601)
(137)
888 $
779
-
-
-
(912)
(163)
1,060
787
-
-
-
(490)
(168)
1,189
Net periodic benefit cost
$ 12,762 $ 11,724 $ 15,402 $
930 $
592 $
The weighted average assumptions used to determine benefit obligations at December 31, 2017 and 2016 were
as follows:
Discount rate
Rate of compensation increase
Pension Benefits
Postretirement Benefits
2017
2016
2017
2016
3.62%
4.01%
4.17%
4.02%
3.61%
N/A
4.08%
N/A
The weighted average assumptions used to determine net periodic benefit cost for the years ended
December 31, 2017, 2016 and 2015 were as follows:
Pension Benefits
2016
2017
2015
Postretirement Benefits
2016
2017
2015
Discount rate
Expected long-term rate of return on plan assets
Rate of compensation increase
4.17%
5.77%
4.02%
4.16%
6.23%
4.07%
3.92%
6.15%
4.05%
4.08%
N/A
N/A
4.30%
N/A
N/A
3.90%
N/A
N/A
The assumed healthcare cost trend rates used to determine benefit obligations and net periodic benefit cost as of
and for the years ended December 31 2017, 2016 and 2015 were as follows:
Postretirement Benefits
Medical and Prescription Drug
2016
2017
2015
Healthcare cost trend rate assumed for next year
Rate that the cost trend rate is assumed to decline
(the ultimate trend rate)
Year that the rate reaches the ultimate trend rate
5.5%/8.5% 5.50%/9.00% 5.75/10.00%
4.50%
2024
4.50%
2024
4.50%
2024
Assumed healthcare cost trend rates have a significant effect on the amounts reported for the healthcare plans.
A one-percentage-point change in assumed healthcare cost trend rates would have the following effects:
(in thousands)
2017
2016
One-Percentage One-Percentage One-Percentage One-Percentage
Point Increase Point Decrease Point Increase Point Decrease
Effect on total of service and interest cost
Effect on postretirement benefit obligation
$
73 $
665
(65) $
(598)
104 $
894
(91)
(796)
F-30
Plan Assets
Pension assets by major category of plan assets and the type of fair value measurement as of December 31,
2017 were as follows:
(in thousands)
Asset category
Individual securities
Fixed income
Commingled funds
Measured at net asset value
Pension Benefits – Plan Assets
Quoted Prices in Significant
Significant
Active Markets for Observable Unobservable
Identical Assets
(Level 1)
Inputs
(Level 2)
Inputs
(Level 3)
Total
$
1,794
$
- $
1,794 $
232,066
$ 233,860 $
-
-
- $
1,794 $
-
-
-
Pension assets by major category of plan assets and the type of fair value measurement as of December 31,
2016 were as follows:
(in thousands)
Asset category
Individual securities
Fixed income
Commingled funds
Measured at net asset value
Pension Benefits – Plan Assets
Quoted Prices in Significant
Significant
Active Markets for Observable Unobservable
Identical Assets
(Level 1)
Inputs
(Level 2)
Inputs
(Level 3)
Total
$
1,628
$
- $
1,628 $
204,801
$ 206,429 $
-
-
- $
1,628 $
-
-
-
Pension assets include fixed income securities and commingled funds. Fixed income securities are valued at
daily closing prices or institutional mid-evaluation prices provided by independent industry-recognized pricing sources.
Commingled funds are not traded in active markets with quoted prices and as a result, are valued using the net asset
values provided by the administrator of the fund. The investments underlying the net asset values are based on quoted
prices traded in active markets. In accordance with ASU 2015-07, “Fair Value Measurement: Disclosures for
Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent)”, the Company has elected
the practical expedient to exclude assets measured at net asset value from the fair value hierarchy.
The Company's investment strategy is to optimize investment returns through a diversified portfolio of
investments, taking into consideration underlying plan liabilities and asset volatility. Asset allocations are based on the
underlying liability structure and local regulations. All retirement asset allocations are reviewed periodically to ensure
the allocation meets the needs of the liability structure.
Master trusts were established to hold the assets of the Company's U.S. defined benefit plans. During the years
ended December 31, 2017 and 2016, the U.S. defined benefit plan asset allocation of these trusts targeted a return-
seeking investment allocation of 64% to 76% and a liability-hedging investment allocation of 24% to 36%. Return-
seeking investments include equities, real estate, high yield bonds and other instruments. Liability-hedging investments
include assets such as corporate and government fixed income securities.
The Company's future expected blended long-term rate of return on plan assets of 5.77% is determined based
on long-term historical performance of plan assets, current asset allocation, and projected long-term rates of return.
F-31
Estimated Contributions
The Company expects to make pension contributions of approximately $40.9 million during 2018 based on
current assumptions as of December 31, 2017.
Estimated Future Retirement Benefit Payments
The following retirement benefit payments, which reflect expected future service, are expected to be paid as
follows:
(in thousands)
Year ending December 31,
2018
2019
2020
2021
2022
Thereafter
Pension
Benefits
Postretirement
Benefits
$
$
36,506 $
20,544
22,103
23,751
24,511
138,204
265,619 $
748
828
943
1,078
1,214
7,096
11,907
The estimated future retirement benefit payments noted above are estimates and could change significantly
based on differences between actuarial assumptions and actual events and decisions related to lump sum distribution
options that are available to participants in certain plans.
International Plans
Pension coverage for employees of the Company's international subsidiaries is provided, to the extent deemed
appropriate, through separate defined benefit plans. The international pension plans are included in the tables above. As
of December 31, 2017 and 2016, the defined benefit plans had total projected benefit obligations of $53.6 million and
$54.4 million, respectively, and fair values of plan assets of $53.6 million and $47.6 million, respectively. The majority
of the plan assets are invested in equity securities. The pension expense related to these plans was $0.9 million,
$1.0 million and $0.9 million for the years ended December 31, 2017, 2016 and 2015, respectively. The expected
actuarial loss that will be amortized from accumulated other comprehensive income (loss) into net periodic benefit cost
in the next fiscal year is less than $0.1 million.
Defined Contribution Plans
The Company sponsors a number of defined contribution plans. Contributions are determined under various
formulas. Cash contributions related to these plans amounted to $13.8 million, $13.0 million and $9.4 million for the
years ended December 31, 2017, 2016 and 2015, respectively.
13. Income Taxes
On December 22, 2017, the U.S. enacted tax reform legislation, commonly referred to as the U.S. Tax Cuts and
Jobs Act of 2017 (the “2017 Tax Act”). The 2017 Tax Act reduces the U.S. federal corporate tax rate from 35% to 21%,
requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax
deferred, and creates new taxes on certain foreign sourced earnings. On December 22, 2017, the Securities and
Exchange Commission issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications
of the Tax Cuts and Jobs Act (“SAB 118”) directing taxpayers to consider the impact of the U.S. legislation as
“provisional” when it does not have the necessary information available, prepared or analyzed (including computations)
in reasonable detail to complete its accounting for the change in tax law.
At December 31, 2017, the Company has not finalized the accounting for the Federal and State tax effects of
enactment of the Act; however, as described below, the Company has made a reasonable estimate of the effects on its
existing deferred tax balances and the one-time transition tax. The Company recognized a provisional amount of
F-32
$14.0 million as a reasonable estimate of the impact of the provisions of the 2017 Tax Act, which is included as a
component of income tax expense from continuing operations. In all cases, the Company will continue to make and
refine its calculations as additional analysis is completed. In addition, the estimates may also be affected as the Company
gains a more thorough understanding of the new tax law as incremental guidance becomes available.
Provisional amounts
Deferred tax assets and liabilities: The Company remeasured its U.S. deferred tax assets and liabilities based
upon the rates at which they are expected to reverse in the future, which is generally 21%. However, the Company is still
analyzing certain aspects of the 2017 Tax Act and refining its calculations, which could potentially affect the
measurement of these balances or potentially give rise to changes in deferred tax amounts. As the Company continues to
analyze the 2017 Tax Act and refine its calculations it could give rise to changes in the assessment of the realizability of
certain deferred tax assets, including foreign tax credit carryforwards. The provisional tax expense amount recorded
related to the remeasurement of the Company’s deferred tax balances was $10.2 million.
Foreign tax effects: The one-time transition tax is based on the Company’s total unremitted post-1986 earnings
and profits (E&P). The Company recorded a provisional increase to income tax expense of $8.6 million for the one-time
transition tax liability for its foreign subsidiaries. This increase included tax on foreign income of $23.8 million,
partially offset by a related benefit of foreign tax credits of $15.2 million. As the Company has sufficient existing tax
attributes available to fully offset the transition tax liability there will be no cash tax impact to the Company. The
Company has not yet completed its calculation of the total post-1986 E&P for its foreign subsidiaries or the tax pools of
the foreign subsidiaries. Further, the transition tax is based in part on the amount of those earnings held in cash and other
specified assets. This amount may change when the Company finalizes the calculation of post-1986 foreign E&P and
finalizes the amounts held in cash or other specified assets.
The Company has determined that its undistributed earnings for most of its foreign subsidiaries are not
permanently reinvested. The change in the tax law impacted the Company’s deferred taxes provided on unremitted
earnings. The Company had previously recorded a $4.8 million deferred tax liability on those unremitted foreign
earnings, which were taxed in the current year as part of the transition tax. The Company does not believe that any
additional outside basis differences exist as of December 31, 2017, however, determining the amount of unrecognized
deferred tax liability related to any remaining undistributed foreign earnings not subject to the transition tax (i.e., basis
difference in excess of that subject to the one-time transition tax) is not currently estimable. The Company has provided
for withholding taxes on all unremitted earnings, as required.
The components of income before income taxes were as follows:
(in thousands)
Domestic operations
Foreign operations
Income before income taxes
Year ended December 31,
2016
2017
2015
$
61,158 $
90,518
$
151,676 $
(3,995) $
93,217
89,222 $
(48,544)
80,694
32,150
Amounts reflected for 2016 and 2015 have been reclassified for consistency of presentation with 2017 amounts.
F-33
The following table represents a reconciliation of income taxes at the 35% federal statutory income tax rate to
income tax expense as reported:
(in thousands)
Income tax expense computed at federal statutory income tax rate
Foreign taxes, net of credits
Transition tax (net of federal tax credits generated)
US rate change related to the 2017 Tax Act
Net adjustments for uncertain tax positions
State and local taxes
Equity appreciation rights
Transaction costs
Indemnified taxes
Fair value adjustment for common stock warrants
Valuation allowance
Deferred charge
Tax credits
Miscellaneous other, net
Income tax expense as reported
Effective income tax rate
Year ended December 31,
2016
2017
2015
$
$
53,086 $
(15,545)
8,593
10,198
508
2,031
(765)
189
(115)
—
(219)
(1,295)
(3,240)
1,630
55,056 $
36.3 %
31,229 $
(1,804)
-
-
706
(525)
372
3,078
1,594
3,029
955
1,009
(704)
768
39,707
$
44.5 %
11,252
418
-
-
4,731
(1,108)
693
414
(1,106)
10,853
7,872
807
(7,003)
171
27,994
87.1 %
The Company's unrecognized tax benefits represent tax positions for which reserves have been established. The
following table represents a reconciliation of the activity related to the unrecognized tax benefits, excluding accrued
interest and penalties:
(in thousands)
2017
2016
2015
Unrecognized tax benefits at beginning of year
Gross additions - prior year tax positions
Gross additions - current year tax positions
Gross reductions - prior year tax positions
Gross reductions - Acquired tax positions settled with tax authorities
Impact of change in foreign exchange rates
Unrecognized tax benefits at end of year
$
$
11,347 $
-
1,159
(348)
(1,241)
132
11,049 $
13,120 $
1,960
747
(4,457)
-
(23)
11,347 $
8,845
3,045
1,605
(333)
-
(42)
13,120
As of December 31, 2017, 2016 and 2015, the unrecognized tax benefits of $11.0 million, $11.3 million and
$13.1 million, respectively, would affect the Company's future effective tax rate if recognized. The Company does not
anticipate a material change in unrecognized tax benefits within the next 12 months.
As of December 31, 2017, 2016 and 2015, the Company had unrecognized tax benefits included in the amounts
above of $4.9 million, $5.9 million and $4.2 million, respectively, related to periods prior to the Company's acquisition
of Acushnet Company and as such, are indemnified by Beam.
As of December 31, 2017, 2016 and 2015, the Company recognized a liability of $2.7 million, $2.3 million and
$1.9 million, respectively for interest and penalties, of which $2.7 million, $1.8 million and $1.6 million is indemnified
by Beam.
Prior to the Company's acquisition of Acushnet Company, Acushnet Company or its subsidiaries filed certain
combined tax returns with Beam. Those and other subsidiaries' income tax returns are periodically examined by various
tax authorities. Beam is responsible for managing United States tax audits related to periods prior to July 29, 2011.
Acushnet Company is obligated to support these audits and is responsible for managing all non-U.S. audits.
The Company and certain subsidiaries have tax years that remain open and are subject to examination by tax
authorities in the following major taxing jurisdictions: United States for years after July 29, 2011, Canada for years after
2012, Japan for years after 2011, Korea for years after 2016, and the United Kingdom for years after 2015. The
F-34
Company files income tax returns on a combined, unitary, or stand-alone basis in multiple state and local jurisdictions,
which generally have statute of limitations from three to four years. Various states and local income tax returns are
currently in the process of examination. These examinations are unlikely to result in any significant changes to the
amounts of unrecognized tax benefits on the consolidated balance sheet as of December 31, 2017.
The Company's income tax expense includes tax expense of $0.2 million, $2.2 million and $3.0 million for the
years ended December 31, 2017, 2016 and 2015, respectively, related to the tax obligations indemnified by Beam. There
is an offsetting amount included in other (income) expense, net for the related adjustment to the Beam indemnification
asset, resulting in no effect on net income.
Income tax expense was as follows:
(in thousands)
Current expense (benefit)
United States
Foreign
Current income tax expense (benefit)
Deferred expense (benefit)
United States
Foreign
Deferred income tax expense (benefit)
Total income tax expense
Year ended December 31,
2016
2017
2015
$
(906) $
3,702 $
28,109
27,203
27,770
83
27,853
55,056 $
$
28,156
31,858
9,489
(1,640)
7,849
39,707 $
5,455
20,351
25,806
(152)
2,340
2,188
27,994
The components of net deferred tax assets (liabilities) were as follows:
(in thousands)
Deferred tax assets
Compensation and benefits
Share-based compensation
Equity appreciation rights
Pension and other postretirement benefits
Inventories
Accounts receivable
Customer sales incentives
Transaction costs
Other reserves
Interest
Miscellaneous
Foreign exchange derivative instruments
Net operating loss and other tax carryforwards
Gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities
Property, plant and equipment
Identifiable intangible assets
Foreign exchange derivative instruments
Miscellaneous
Total deferred tax liabilities
Net deferred tax asset
December 31,
2017
2016
$
$
14,060 $
5,085
-
30,564
10,843
2,016
2,255
1,804
3,255
562
1,224
730
103,455
175,853
(25,887)
149,966
(11,325)
(36,687)
-
(954)
(48,966)
101,000 $
22,053
5,474
57,146
45,926
9,120
2,942
3,254
3,157
5,764
2,260
1,076
-
55,936
214,108
(21,726)
192,382
(17,496)
(46,701)
(4,076)
(1,145)
(69,418)
122,964
Under U.S. tax law and regulations, certain changes in the ownership of the Company’s shares can limit the
annual utilization of tax attributes (tax loss and tax credit carryforwards) that were generated prior to such ownership
F-35
changes. The annual limitation could affect the realizability of the Company’s deferred tax assets recorded in the
financial statement for its tax credit carryforwards because the carryforward periods have a finite duration. The 2016
Initial Public Offering, and associated share transfers, resulted in significant changes in the composition of the
ownership of the Company’s shares. Based on its analysis of the change of ownership tax rules in conjunction with the
estimated amount and source of its future earnings and related tax profile, the Company believes its existing tax
attributes will be utilized prior to their expiration.
As of December 31, 2017 and 2016, the Company had state net operating loss (“NOL”) carryforwards of
$192.0 million and $117.2 million, respectively. These NOL carryforwards expire between 2018 and 2035. As of
December 31, 2017 the Company had US Federal net operating loss (“NOL”) carryforwards of $26.4 million which will
expire in 2037. As of December 31, 2017 and 2016, the Company had foreign tax credit carryforwards of $72.8 million
and $46.0 million, respectively. These foreign tax credits will begin to expire in 2022.
Changes in the valuation allowance for deferred tax assets were as follows:
(in thousands)
Year ended December 31,
2016
2017
2015
Valuation allowance at beginning of year
Increases (decreases) recorded to income tax provision
Valuation allowance at end of year
$
21,726 $
4,161
$
25,887 $
20,771 $
955
21,726 $
13,850
6,921
20,771
The changes in the valuation allowance were related to the increase in the U.S. state deferred tax assets and
deferred tax assets in the Company’s Hong Kong subsidiary that the Company has determined are not more-likely-than-
not realizable. In assessing the realizability of these assets, the Company considered numerous factors including
historical profitability, the character and estimated future taxable income, prudent and feasible tax planning strategies,
and the industry in which it operates. The utilization of the Company's net U.S. state and Hong Kong deferred tax assets
is dependent on future taxable earnings, which cannot be projected with certainty at this time.
14. Interest Expense and Other (Income) Expense, Net
The components of interest expense, net were as follows:
(in thousands)
Interest expense - related party
Interest expense - third party
Interest income - third party
Total interest expense, net
The components of other (income) expense, net were as follows:
(in thousands)
Loss on fair value of common stock warrants
Indemnification (gains) losses
Other gains
Total other (income) expense, net
Year ended December 31,
2016
2017
2015
$
$
— $
16,907
(1,198)
15,709 $
28,146 $
23,113
(1,351)
49,908 $
35,420
26,567
(1,693)
60,294
Year ended December 31,
2016
2017
2015
$
$
— $
177
(1,254)
(1,077) $
6,112 $
(2,174)
(2,232)
1,706 $
28,364
(3,007)
(218)
25,139
F-36
15. Redeemable Convertible Preferred Stock
Prior to the initial public offering, the Company had outstanding 1,838,027 shares of $0.001 par value Series A
preferred stock. Given that certain redemption features of the Series A preferred stock were not solely within the control
of the Company, the Series A preferred stock was classified outside of stockholders' equity. All outstanding Series A
preferred stock were converted into common stock in conjunction with the Company’s initial public offering (Note 2).
Upon conversion, all accrued but unpaid dividends on the shares of the Series A preferred stock were paid to each holder
of the shares of the Series A preferred stock. The Company declared and paid dividends to the holders of the Series A
preferred stock of $17.3 million and $13.7 million during the years ended December 31, 2016 and 2015, respectively.
Shares of Series A preferred stock that are redeemed or converted were canceled and retired and cannot be reissued by
the Company.
16. Common Stock
As of December 31, 2017 and 2016, the Company's certificate of incorporation, as amended and restated,
authorized the Company to issue 500,000,000 shares of $0.001 par value common stock. Each share of common stock
entitles the holder to one vote on all matters submitted to a vote of the Company's shareholders. Common shareholders
are entitled to receive dividends whenever funds are legally available and when declared by the board of directors,
subject to the prior rights of holders of all classes of stock outstanding.
The Company declared dividends per share during the periods presented as follows:
2017:
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Total dividends declared
Dividends
per Share
Amounts
(in thousands)
$
$
0.12 $
0.12
0.12
0.12
0.48 $
9,098
9,146
9,149
9,152
36,545
During the first quarter of 2018, the board of directors declared a dividend of $0.13 per share to shareholders on
record as of March 19, 2018 and payable on March 29, 2018.
17. Equity Incentive Plans
Restricted Stock and Performance Stock Units
On January 22, 2016, the Company’s board of directors adopted the Acushnet Holdings Corp. 2015 Omnibus
Incentive Plan (“2015 Plan”) pursuant to which the Company may grant stock options, stock appreciation rights,
restricted shares of common stock, RSUs, performance stock units (“PSUs”) and other share-based and cash-based
awards to members of the board of directors, officers, employees, consultants and advisors of the Company. The 2015
Plan is administered by the compensation committee (the “Administrator”). The Administrator has the authority to
establish the terms and conditions of any award issued or granted under the 2015 Plan. Each share issued with respect to
RSUs and PSUs granted under the 2015 Plan reduces the number of shares available for grant. RSUs and PSUs forfeited
and shares withheld to satisfy tax withholding obligations increase the number of shares available for grant. All RSUs
and PSUs granted under the 2015 Plan have dividend equivalent rights (“DERs”), which entitle holders of RSUs and
PSUs to the same dividend value per share as holders of common stock. DERs are subject to the same vesting and other
terms and conditions as the corresponding unvested RSUs and PSUs. DERs are paid when the underlying shares vest. As
of December 31, 2017, there were 7,804,279 remaining shares of common stock reserved for issuance under the 2015
Plan of which 4,557,513 remain available for future grants.
F-37
A summary of the Company’s RSUs and PSUs as of December 31, 2017 and 2016 and changes during the years
then ended is presented below:
Outstanding at December 31, 2015
Granted
Outstanding at December 31, 2016
Granted
Vested
Forfeited
Outstanding at December 31, 2017
Number
of
RSUs and PSUs
Weighted-
Average
Fair
Value
—
2,459,166
2,459,166
238,196
(437,188)
(199,320)
2,060,854
$
$
$
—
20.40
20.40
18.82
20.33
20.45
20.23
During 2017, RSUs settled resulting in the issuance of 437,188 shares of common stock, of which
51,467 shares of common stock were delivered to the Company as payment by employees in lieu of cash to satisfy tax
withholding obligations. As of December 31, 2017 no PSUs have vested. The aggregate fair value of RSUs vesting
during the year ended December 31, 2017 was $7.7 million.
The Company’s board of directors in accordance with the 2015 Plan have granted RSUs and PSUs to certain
key members of management. RSUs vest in accordance with the terms of the grant subject to the employee’s continued
employment with the Company. The PSUs cliff-vest on December 31, 2018, subject to the employee’s continued
employment with the Company and the Company’s level of achievement of the applicable cumulative Adjusted
EBITDA performance metrics (as defined in the applicable award agreements) measured over the three-year
performance period. Each PSU reflects the right to receive between 0% and 200% of the target number of shares based
on the actual three-year cumulative Adjusted EBITDA. The determination of the target value gave consideration to
executive performance, potential future contributions and peer group analysis.
The Company’s board of directors in accordance with the 2015 Plan have approved grants of RSUs to members
of the board of directors. The remaining grants vest on the earlier of June 12, 2018 or the next annual stockholders’
meeting, subject to continued service on the board of directors through the vesting date.
In September of 2017, the Company announced its Chief Operating Officer (“COO”) would succeed the current
President and Chief Executive Officer effective January 1, 2018, and in conjunction with this succession, the current
COO received an equity grant. The equity grant has a grant date fair value of $3.0 million, which will vest one third on
each of the first three anniversaries of the grant date. The expense associated with this equity grant is being recorded
over the vesting period commencing on the date the grant was announced. Until the equity grant is awarded and the
terms of the equity grant are known, the related liability has been recorded to other non-current liabilities.
The compensation expense recorded for the year ended December 31, 2017 related to the PSUs was based on
the Company’s best estimate of the three-year cumulative Adjusted EBITDA forecast as of December 31, 2017. The
Company reassesses the estimate of the three-year cumulative Adjusted EBITDA forecast at the end of each reporting
period. The Company recorded compensation expense for the RSUs and PSUs of $9.3 million and $6.0 million,
respectively, during the year ended December 31, 2017. The Company recorded compensation expense for the RSUs and
PSUs of $8.4 million and $6.1 million, respectively, during the year ended December 31, 2016.
The remaining unrecognized compensation expense related to non-vested RSUs and non-vested PSUs granted
was $11.8 million and $6.1 million, respectively, as of December 31, 2017 and is expected to be recognized over the
related weighted average period of 1.4 years.
Equity Appreciation Rights
Effective January 1, 2012, the Company's board of directors adopted the equity appreciation rights plan (“EAR
Plan”) in order to compensate certain key employees. During the first quarter of 2017, the Company’s outstanding equity
appreciation rights (“EAR”) liability was settled in full by a cash payment to the participants. The Company’s liability
F-38
related to the EAR Plan was $151.5 million as of December 31, 2016 and was recorded within accrued compensation
and benefits on the consolidated balance sheet.
Prior to settlement, the EAR awards were re-measured using the intrinsic value method at each reporting period
based on a projection of the Company's future common stock equivalent value. The common stock equivalent value was
based on an estimate of the Company's EBITDA multiplied by a defined multiple, and divided by the expected number
of common shares outstanding. The intrinsic value was the calculated common stock equivalent value per share
compared to the per share exercise price. Effective October 17, 2014, the Company amended the EAR Plan such that
(i) payments for vested awards resulting from a qualified termination of the award recipient are generally determined
based on the Company's EBITDA for the fiscal year prior to such termination and (ii) payments for vested awards
resulting from an expiration of the award are determined based on the greater of the Company's EBITDA for the year
ended December 31, 2015, the Company's EBITDA for the year ending December 31, 2016, or the value of the
Company's publicly-traded common stock for the three trading days following the initial public offering.
The following table summarizes the Company's EAR activity since December 31, 2015:
(in thousands, except share and per share amounts)
Awards
Contractual Term Value
Number
of
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Aggregate
Intrinsic
Outstanding at December 31, 2015
Settled
Outstanding at December 31, 2016
Settled
Outstanding at December 31, 2017
9,180,000 $
(1,566,000)
7,614,000
(7,614,000)
—
11.40
11.12
19.90
(19.90)
—
1 year
$ 171,712
—
151,511
—
—
For the years ended December 31, 2016 and 2015, the Company recorded compensation expense of
$6.0 million and $45.8 million, respectively, related to outstanding EARs.
Compensation Expense
The allocation of compensation expense related to equity incentive plans in the consolidated statement of
operations was as follows:
(in thousands)
Cost of goods sold
Selling, general and administrative expense
Research and development
Total compensation expense before income tax
Income tax benefit
Total compensation expense, net of tax
Year ended December 31,
2016
2017
2015
$
$
408 $
13,687
1,190
15,285
3,158
12,127 $
434 $
18,622
1,485
20,541
6,481
14,060 $
670
48,377
2,556
51,603
17,821
33,782
F-39
18. Accumulated Other Comprehensive Income (Loss), Net of Tax
Accumulated other comprehensive income (loss), net of tax consists of foreign currency translation
adjustments, unrealized gains and losses from foreign exchange derivative instruments designated as cash flow hedges
(Note 10), unrealized gains and losses from available-for-sale securities and pension and other postretirement
adjustments (Note 12).
The components of and changes in accumulated other comprehensive income (loss), net of tax, were as follows:
(in thousands)
Balances at December 31, 2015
Other comprehensive income (loss) before
reclassifications
Amounts reclassified from accumulated other
comprehensive loss
Tax benefit (expense)
Balances at December 31, 2016
Other comprehensive income (loss) before
reclassifications
Amounts reclassified from accumulated other
comprehensive loss
Tax benefit
Foreign
Currency Foreign Exchange
Translation
Adjustments
Gains (Losses) on Gains (Losses)
on Available-
for-Sale
Securities
Derivative
Instruments
Pension and Accumulated
Other
Other
Postretirement Comprehensive
Adjustments
Loss
$
(70,019) $
9,166 $
1,504 $
(7,885) $
(14,656)
-
-
7,014
(5,194)
(451)
51
-
(19)
(16,781)
709
5,727
$
(84,675) $
10,535 $
1,536 $
(18,230) $
26,964
(15,558)
-
-
(1,329)
4,072
150
-
35
(9,870)
2,981
1,698
(67,234)
(24,372)
(4,485)
5,257
(90,834)
1,686
1,652
5,805
(81,691)
Balances at December 31, 2017
$
(57,711) $
(2,280) $
1,721 $
(23,421) $
19. Net Income per Common Share
The following is a computation of basic and diluted net income per common share attributable to Acushnet
Holdings Corp.:
(in thousands, except share and per share amounts)
Net income (loss) attributable to Acushnet Holdings Corp.
Less: dividends earned by preferred shareholders
Less: allocation of undistributed earnings to preferred shareholders
Net income (loss) attributable to common stockholders - basic
Adjustments to net income (loss) for dilutive securities
Net income (loss) attributable to common stockholders - diluted
Weighted average number of common shares:
Basic
Diluted
Net income (loss) per common share attributable to Acushnet Holdings Corp.:
Basic
Diluted
Year ended
December 31,
2016
2017
$
$
92,114 $
-
-
92,114
-
92,114 $
45,012 $
(11,576)
(10,247)
23,189
16,475
39,664 $
2015
(966)
(13,785)
-
(14,751)
-
(14,751)
74,399,836
74,590,999
31,247,643
64,323,742
19,939,293
19,939,293
$
$
1.24 $
1.23 $
0.74 $
0.62 $
(0.74)
(0.74)
For the year ended December 31, 2017, net income per common share attributable to Acushnet Holdings Corp.
was calculated under the treasury stock method. Net income per common share attributable to Acushnet Holdings Corp.
for the years ended December 31, 2016 and 2015 was calculated under the two-class method.
The Company’s potential dilutive securities for the year ended December 31, 2017 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 year ended December 31, 2016 the Company’s potential
dilutive securities include RSUs, PSUs, Series A preferred stock, warrants to purchase common stock and convertible
F-40
notes. For the year ended December 31, 2015 the Company’s potential dilutive securities include Series A preferred
stock, stock options, warrants to purchase common stock and convertible notes.
The following securities have been excluded from the calculation of diluted weighted-average common shares
outstanding as their impact was determined to be anti-dilutive:
Series A preferred stock
Stock options
Warrants to purchase common stock
Convertible notes
RSUs
20. Segment Information
Year ended
December 31,
2016
13,807,486
-
1,807,171
-
-
2017
-
-
-
-
360,659
2015
16,542,243
1,089
4,891,887
32,624,820
-
The Company’s operating segments are based on how the Chief Operating Decision Maker (“CODM”) makes
decisions about assessing performance and allocating resources. The Company has four reportable segments that are
organized on the basis of product categories. These segments include Titleist golf balls, Titleist golf clubs, Titleist golf
gear and FootJoy golf wear.
The CODM primarily evaluates performance using segment operating income. Segment operating income
includes directly attributable expenses and certain shared costs of corporate administration that are allocated to the
reportable segments, but excludes interest expense, net; EAR expense; losses on the fair value of common stock warrants
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 years ended December 31, 2017, 2016 and 2015 are not necessarily those which would
be achieved if each segment was an unaffiliated business enterprise. There are no intersegment transactions.
F-41
Information by reportable segment and a reconciliation to reported amounts are as follows:
(in thousands)
Net sales
Titleist golf balls
Titleist golf clubs
Titleist golf gear
FootJoy golf wear
Other
Total net sales
Segment operating income
Titleist golf balls
Titleist golf clubs
Titleist golf gear
FootJoy golf wear
Other
Total segment operating income
Reconciling items:
Interest expense, net
EAR expense
Loss on fair value of common stock warrants
Transaction fees
Other
Total income before income tax
Depreciation and amortization
Titleist golf balls
Titleist golf clubs
Titleist golf gear
FootJoy golf wear
Other
Total depreciation and amortization
Year ended December 31,
2016
2017
2015
$
512,041 $
397,987
142,911
437,455
69,864
535,465
388,304
129,408
418,852
30,929
$ 1,560,258 $ 1,572,275 $ 1,502,958
513,899 $
430,966
136,208
433,061
58,141
$
$
$
$
76,870 $
31,031
16,584
26,380
14,863
165,728
76,236 $
50,500
12,119
18,979
7,299
165,133
(15,709)
-
-
(686)
2,343
151,676 $
(49,908)
(6,047)
(6,112)
(16,817)
2,973
89,222 $
92,507
33,593
12,170
26,056
4,056
168,382
(60,294)
(45,814)
(28,364)
(2,141)
381
32,150
25,545 $
7,233
1,425
6,058
610
40,871 $
26,104 $
7,021
1,250
5,759
700
40,834 $
26,962
7,060
1,368
5,540
772
41,702
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.
Year ended December 31,
2016
2017
2015
$
789,879 $
205,200
201,264
200,394
163,521
805,470
201,106
182,163
144,956
169,263
$ 1,560,258 $ 1,572,275 $ 1,502,958
804,516 $
210,088
219,021
175,956
162,694
(in thousands)
Net sales
United States
EMEA (1)
Japan
Korea
Rest of world
Total net sales
(1) Europe, the Middle East and Africa (“EMEA”)
F-42
Long-lived assets (property, plant and equipment) are categorized based on their location of domicile.
(in thousands)
Long-lived assets
United States
EMEA
Japan
Korea
Rest of world (2)
Total long-lived assets
Year ended December 31,
2016
2017
$
$
148,678 $
9,669
770
3,782
66,023
228,922 $
157,884
8,619
628
1,811
70,806
239,748
(2) Includes manufacturing facilities in Thailand with long lived assets of $53.8 million and $57.8 million as of
December 31, 2017 and 2016, respectively.
21. Commitments and Contingencies
Purchase Obligations
During the normal course of its business, the Company enters into agreements to purchase goods and services,
including purchase commitments for production materials, finished goods inventory, capital expenditures and
endorsement arrangements with professional golfers. The reported amounts exclude those liabilities included in accounts
payable or accrued liabilities on the consolidated balance sheet as of December 31, 2017.
Purchase obligations by the Company as of December 31, 2017 were as follows:
(in thousands)
2018
2019
2020
2021
2022
Thereafter
Payments Due by Period
Purchase obligations
Lease Commitments
$ 141,278 $ 10,188 $ 3,737 $
405 $
2 $
—
The Company leases certain warehouses, distribution and office facilities, vehicles and office equipment under
operating leases.
The Company has an operating lease for certain vehicles that provides for a residual value guarantee. The lease
has a noncancelable lease term of one year and may be renewed annually over the subsequent five years. The Company
has the option to terminate the lease at the annual renewal date. Termination of the lease results in the sale of the
vehicles and the determination of the residual value. The residual value is calculated by comparing the net proceeds of
the vehicles sold to the depreciated value at the end of the renewal period. The Company is not responsible for any
deficiency resulting from the net proceeds being less than 20% of the original cost in the first year and 20% of the
depreciated value for all subsequent years. The Company believes that this guarantee will not have a significant impact
on the consolidated financial statements.
F-43
Future minimum rental payments under noncancelable operating leases as of December 31, 2017 were as
follows:
(in thousands)
Year ending December 31,
2018
2019
2020
2021
2022
Thereafter
Total minimum rental payments
$
$
12,119
10,286
8,447
6,247
4,228
14,418
55,745
The Company leases certain warehouses, distribution and office facilities, vehicles and office equipment under
operating leases. Most lease arrangements provide the Company with the option to renew leases at defined terms. The
future operating lease obligations would change if the Company were to exercise these options or if it were to enter into
additional operating leases.
Total rental expense for all operating leases amounted to $16.3 million, $16.5 million and $15.8 million for the
years ended December 31, 2017, 2016 and 2015, respectively.
Contingencies
In connection with the Company’s acquisition of Acushnet Company, Beam indemnified the Company for
certain tax related obligations that relate to periods during which Fortune Brands, Inc. owned Acushnet Company. As of
December 31, 2017, the Company’s estimate of its receivable for these indemnifications is $8.7 million, which is
recorded in other noncurrent assets on the consolidated balance sheet.
Litigation
Beam
A dispute recently concluded between Acushnet Company and Beam with respect to approximately
$16.6 million of value-added tax (“VAT”) trade receivables. These receivables were reflected on Acushnet Company’s
consolidated balance sheet at the time of the Company’s acquisition of Acushnet Company. Acushnet Company believed
that these VAT trade receivables were assets of the Company; Beam claimed that these are tax credits or refunds from
the period prior to the acquisition of Acushnet Company which were payable to Beam, pursuant to the terms of the Stock
Purchase Agreement that covers the sale of the stock of Acushnet Company. Beam has withheld payments in this
amount which the Company believed were payable to Acushnet Company in reimbursement of certain other tax
liabilities which existed prior to the acquisition of Acushnet Company. On March 27, 2012, Acushnet Company filed a
complaint seeking reimbursement of these funds in the Commonwealth of Massachusetts Superior Court Department,
Business Litigation Section. Each party filed Motions for Summary Judgment, which motions were denied by the Court
on July 29, 2015. Trial was conducted in early June, 2016. On June 21, 2016, the Court ruled that Beam had a
contractual right to the VAT trade receivables actually collected from Acushnet Company's customers prior to the
closing of the Company's acquisition of Acushnet Company, but that Beam should pay $972,288 plus pre-judgment
interest of $494,859 to the Company to compensate for amounts Beam withheld, but which were not collected from
Acushnet Company's customers. The Company recorded the total value of the judgment as other (income) expense, net
on the consolidated statement of operations for the year ended December 31, 2016. Acushnet filed a Notice of Appeal on
July 20, 2016. On February 2, 2018, the Appeals Court issued its decision affirming the lower Court's decision. The
Company did not appeal the Appeals Court ruling.
Other Litigation
In addition to the lawsuit described above, 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.
F-44
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. The Company believes that there are meritorious defenses to these actions and that these actions will not have a
material adverse effect on the consolidated financial statements.
22. Unaudited Quarterly Financial Data
The tables below summarize quarterly results for fiscal 2017 and 2016:
(in thousands)
2017
Net sales
Gross profit
Income from operations
Net income
Net income attributable to Acushnet Holdings Corp.
December 31, September 30, June 30, March 31,
Quarter ended (unaudited)
$
351,392 $
178,500
26,370
12,318
11,666
347,263 $ 427,988 $ 433,615
226,415
222,909
172,968
64,288
57,385
18,265
39,630
34,038
10,634
38,114
33,016
9,318
Net income per common share attributable to Acushnet Holdings Corp.:
Basic
Diluted
(in thousands)
2016
Net sales
Gross profit
Income from operations
Net income (loss)
Net income (loss) attributable to Acushnet Holdings Corp.
$ 0.16
$ 0.16
$ 0.13
$ 0.12
$ 0.44
$ 0.44
$ 0.51
$ 0.51
December 31, September 30, June 30, March 31,
Quarter ended (unaudited)
$
329,761 $
167,994
7,608
1,247
(179)
339,318 $ 463,261 $ 439,935
225,869
237,960
166,902
57,185
66,437
9,606
25,192
27,478
(4,402)
23,662
27,055
(5,526)
Net income (loss) per common share attributable to Acushnet Holdings
Corp.:
Basic
Diluted
$ (0.02)
$ (0.02)
$ (0.38)
$ (0.38)
$ 0.62
$ 0.39
$ 0.53
$ 0.35
F-45
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BOARD OF DIRECTORS
SENIOR CORPORATE OFFICERS
Jonathan Epstein
President, Fila USA, Inc.
David Maher
President and Chief Executive Officer
Jennifer Estabrook
Chief Operating Officer, Fila North America
Mary Lou Bohn
President, Titleist Golf Balls
Gregory Hewett
Principal, GH Consulting LLC
David Maher
President and Chief Executive Officer, Acushnet
Holdings Corp.
Sean Sullivan
Executive Vice President and Chief Financial
Officer, AMC Networks, Inc.
Steven Tishman
Managing Director, Houlihan Lokey
Walter Uihlein
Former President and Chief Executive Officer,
Acushnet Holdings Corp.
Norman Wesley
Former Chief Executive Officer and Chairman,
Fortune Brands, Inc.
Yoon Soo (Gene) Yoon
Chairman, Fila Korea Ltd.
Steven Pelisek
President, Titleist Golf Clubs
John Duke, Jr.
President, Titleist Golf Gear
Christopher Lindner
President, FootJoy
William Burke
Executive Vice President, Chief Financial Officer
and Treasurer
Dennis Doherty
Executive Vice President, Chief Human Resources
Officer
Brendan Gibbons
Executive Vice President, Chief Legal Officer and
Corporate Secretary
Thomas Pacheco
Senior Vice President, Finance and Chief
Accounting Officer
CORPORATE INFORMATION
Corporate Headquarters
333 Bridge Street
Fairhaven, MA 02719
Tel: 508-979-2000
www.acushnetholdingscorp.com
Transfer Agent
Computershare Trust Company, N.A.
P.O. Box 505000
Louisville, KY 40233
Stock Exchange Information
NYSE Ticker Symbol: GOLF
Investor Information
Individual shareholders, security analysts, portfolio
managers and other institutional investors seeking
information about the Company should contact
Acushnet Holdings Corp. Investor Relations by
email at IR@acushnetgolf.com.
Annual Meeting
The Annual Meeting of Shareholders will be held
on June 11, 2018.
18APR201817524672