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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 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 | | | 45-2644353 |
| (State or other jurisdiction of incorporation or organization) | | | (I.R.S. Employer Identification No.) |
| | | |
| 333 Bridge Street | Fairhaven, | Massachusetts | 02719 |
| (Address of principal executive offices) | | | (Zip Code) |
(800) 225-8500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
| | | | | | | | | | | | | | |
| Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
| Common Stock - $0.001 par value per share | | GOLF | | New York Stock Exchange |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
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 | ☐ |
| Non-accelerated filer | ☐
| Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The registrant had 60,802,949 shares of common stock outstanding as of November 1, 2024.
ACUSHNET HOLDINGS CORP.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2024
TABLE OF CONTENTS
In this Quarterly Report on Form 10‑Q, the terms “Acushnet,” “we,” “us,” “our” and the “Company” refer to Acushnet Holdings Corp. and its consolidated subsidiaries.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q 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 section entitled “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:
•a reduction in the number of rounds of golf played or in the number of golf participants;
•unfavorable weather conditions may impact the number of playable days and 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;
•demographic factors may affect the number of golf participants and related spending on our products;
•changes to the Rules of Golf with respect to equipment;
•a significant disruption in the operations of our manufacturing, assembly or distribution facilities;
•our ability to procure raw materials or components of our products;
•a disruption in the operations of our suppliers;
•the cost of raw materials and components;
•currency transaction and translation risk;
•our ability to successfully manage the frequent introduction of new products or satisfy changing consumer preferences, quality and regulatory standards;
•our reliance on technical innovation and high-quality products;
•our ability to adequately enforce and protect our intellectual property rights;
•our involvement in lawsuits to protect, defend or enforce our intellectual property rights;
•our ability to prevent infringement of intellectual property rights by others;
•changes to patent laws;
•intense competition and our ability to maintain a competitive advantage in each of our markets;
•limited opportunities for future growth in sales of certain of our products, including golf balls, golf shoes and golf gloves;
•our customers’ financial conditions, levels of business activity and ability to pay their trade obligations;
•a decrease in corporate spending on our custom logo golf balls;
•our ability to maintain and further develop our sales channels;
•consolidation of retailers or concentration of retail market share;
•our ability to maintain and enhance our brands;
•seasonal fluctuations of our business;
•fluctuations of our business based on the timing of new product introductions;
•risks associated with doing business globally;
•compliance with laws, regulations and policies, including the U.S. Foreign Corrupt Practices Act or other applicable anti-corruption legislation;
•our ability to secure professional golfers to endorse or use our products;
•negative publicity relating to us, the golfers who use our products or the golf industry in general;
•our ability to accurately forecast demand for our products;
•a disruption in the service, or a significant increase in the cost, of our primary delivery and shipping services or a significant disruption at shipping ports;
•our ability to maintain our information systems to adequately perform their functions;
•cybersecurity risks;
•our ability to comply with data privacy and security laws;
•the ability of our eCommerce systems to function effectively;
•impairment of goodwill and identifiable intangible assets;
•our ability to attract and/or retain management and other key employees and hire qualified management, technical and manufacturing personnel;
•our ability to prohibit sales of our products by unauthorized retailers or distributors;
•our ability to grow our presence in existing international markets and expand into additional international markets;
•tax uncertainties, including potential changes in tax laws, unanticipated tax liabilities and limitations on utilization of tax attributes after any change of control;
•adequate levels of coverage of our insurance policies;
•product liability, warranty and recall claims;
•litigation and other regulatory proceedings;
•compliance with environmental, health and safety laws and regulations;
•our ability to secure additional capital at all or on terms acceptable to us and potential dilution of holders of our common stock;
•lack of assurance of positive returns on capital investments;
•risks associated with acquisitions and investments;
•our estimates or judgments relating to our critical accounting estimates;
•terrorist activities and international political instability;
•occurrence of natural disasters or pandemic diseases;
•a high degree of leverage, ability to service our indebtedness, ability to incur more indebtedness and restrictions in the agreements governing our indebtedness;
•our use of derivative financial instruments;
•the ability of our controlling shareholder to control significant corporate activities, and that our controlling shareholder’s interests may conflict with yours;
•our status as a controlled company;
•the market price of shares of our common stock;
•the execution of our share repurchase program and effects thereof;
•our ability to maintain effective internal controls over financial reporting;
•our ability to pay dividends;
•our status as a holding company;
•dilution from future issuances or sales of our common stock;
•anti-takeover provisions in our organizational documents and Delaware law;
•reports from securities analysts; and
•other factors discussed under the heading "Risk Factors" in our most recent Annual Report on Form 10-K and in any other reports we file with the Securities and Exchange Commission (“SEC”), including this Quarterly Report on Form 10-Q.
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 pursue. 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.
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, 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. On our website, we post the following filings free of charge as soon as reasonably practicable after they are electronically filed with or furnished to the SEC: our annual reports on Form 10-K, our proxy statements, our quarterly reports on Form 10-Q, our current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. The contents of our website are not, however, a part of this report or intended to be incorporated by reference in any other report or document we file with the SEC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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| Unaudited Condensed Consolidated Financial Statements | |
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ACUSHNET HOLDINGS CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
| | | | | | | | | | | | | | |
| | September 30, | | December 31, |
| (in thousands, except share and per share amounts) | | 2024 | | 2023 |
| Assets | | | | |
| Current assets | | | | |
Cash, cash equivalents and restricted cash ($13,659 and $12,532 attributable to the variable interest entity ("VIE")) | | $ | 99,062 | | | $ | 65,435 | |
| Accounts receivable, net | | 367,519 | | | 201,352 | |
Inventories ($3,276 and $9,621 attributable to the VIE) | | 497,519 | | | 615,535 | |
| Prepaid and other assets | | 121,349 | | | 114,370 | |
| Total current assets | | 1,085,449 | | | 996,692 | |
Property, plant and equipment, net ($8,363 and $9,044 attributable to the VIE) | | 311,582 | | | 295,343 | |
Goodwill ($32,312 and $32,312 attributable to the VIE) | | 225,130 | | | 225,302 | |
| Intangible assets, net | | 526,856 | | | 537,407 | |
| Deferred income taxes | | 25,382 | | | 31,454 | |
Other assets ($1,916 and $1,972 attributable to the VIE) | | 106,349 | | | 110,479 | |
| Total assets | | $ | 2,280,748 | | | $ | 2,196,677 | |
| Liabilities, Redeemable Noncontrolling Interests and Shareholders' Equity | | | | |
| Current liabilities | | | | |
| Short-term debt | | $ | 21,165 | | | $ | 28,997 | |
| Current portion of long-term debt | | 788 | | | 351 | |
Accounts payable ($3,064 and $6,059 attributable to the VIE) | | 166,335 | | | 150,514 | |
| Accrued taxes | | 51,420 | | | 46,398 | |
Accrued compensation and benefits ($720 and $1,233 attributable to the VIE) | | 102,812 | | | 111,136 | |
Accrued expenses and other liabilities ($3,282 and $1,687 attributable to the VIE) | | 173,192 | | | 113,739 | |
| Total current liabilities | | 515,712 | | | 451,135 | |
| Long-term debt | | 708,043 | | | 671,819 | |
| Deferred income taxes | | 7,620 | | | 7,080 | |
| Accrued pension and other postretirement benefits | | 66,063 | | | 69,634 | |
| Other noncurrent liabilities | | 78,189 | | | 84,137 | |
| Total liabilities | | 1,375,627 | | | 1,283,805 | |
Commitments and contingencies (Note 15) | | | | |
| Redeemable noncontrolling interests | | 6,519 | | | 9,785 | |
| Shareholders' equity | | | | |
Common stock, $0.001 par value, 500,000,000 shares authorized; 61,655,989 and 63,429,243 shares issued | | 62 | | | 63 | |
| Additional paid-in capital | | 787,248 | | | 808,615 | |
| Accumulated other comprehensive loss, net of tax | | (108,099) | | | (104,349) | |
| Retained earnings | | 217,211 | | | 159,906 | |
Treasury stock, at cost; (493,040 of accrued share repurchases) (Note 10) | | (32,523) | | | — | |
| Total equity attributable to Acushnet Holdings Corp. | | 863,899 | | | 864,235 | |
| Noncontrolling interests | | 34,703 | | | 38,852 | |
| Total shareholders' equity | | 898,602 | | | 903,087 | |
| Total liabilities, redeemable noncontrolling interests and shareholders' equity | | $ | 2,280,748 | | | $ | 2,196,677 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ACUSHNET HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended September 30, | | Nine months ended September 30, |
| (in thousands, except share and per share amounts) | | 2024 | | 2023 | | 2024 | | 2023 |
| Net sales | | $ | 620,501 | | | $ | 593,381 | | | $ | 2,011,922 | | | $ | 1,969,034 | |
| Cost of goods sold | | 283,126 | | | 284,859 | | | 924,854 | | | 926,317 | |
| Gross profit | | 337,375 | | | 308,522 | | | 1,087,068 | | | 1,042,717 | |
| Operating expenses: | | | | | | | | |
| Selling, general and administrative | | 232,882 | | | 210,166 | | | 715,558 | | | 674,720 | |
| Research and development | | 18,923 | | | 16,239 | | | 51,516 | | | 47,286 | |
| Intangible amortization | | 3,503 | | | 3,512 | | | 10,523 | | | 10,712 | |
| | | | | | | | |
| Income from operations | | 82,067 | | | 78,605 | | | 309,471 | | | 309,999 | |
| Interest expense, net | | 13,187 | | | 9,389 | | | 40,367 | | | 30,234 | |
| Other expense, net | | 407 | | | 918 | | | 1,289 | | | 2,010 | |
| Income before income taxes | | 68,473 | | | 68,298 | | | 267,815 | | | 277,755 | |
| Income tax expense | | 13,198 | | | 11,252 | | | 57,817 | | | 52,726 | |
| Net income | | 55,275 | | | 57,046 | | | 209,998 | | | 225,029 | |
| Less: Net loss attributable to noncontrolling interests | | 949 | | | 261 | | | 5,416 | | | 208 | |
| Net income attributable to Acushnet Holdings Corp. | | $ | 56,224 | | | $ | 57,307 | | | $ | 215,414 | | | $ | 225,237 | |
| | | | | | | | |
| Net income per common share attributable to Acushnet Holdings Corp.: | | | | | | | | |
| Basic | | $ | 0.89 | | | $ | 0.86 | | | $ | 3.38 | | | $ | 3.32 | |
| Diluted | | 0.89 | | | 0.85 | | | 3.36 | | | 3.30 | |
| Weighted average number of common shares: | | | | | | | | |
| Basic | | 62,894,940 | | | 66,898,142 | | | 63,813,805 | | | 67,812,790 | |
| Diluted | | 63,171,736 | | | 67,343,260 | | | 64,070,500 | | | 68,208,022 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ACUSHNET HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| (in thousands) | 2024 | | 2023 | | 2024 | | 2023 |
| Net income | $ | 55,275 | | | $ | 57,046 | | | $ | 209,998 | | | $ | 225,029 | |
| Other comprehensive income (loss): | | | | | | | |
| Foreign currency translation adjustments | 20,619 | | | (10,991) | | | 1,559 | | | (12,919) | |
| Cash flow derivative instruments: | | | | | | | |
| Unrealized holding (losses) gains arising during period | (3,893) | | | 4,090 | | | 2,213 | | | 8,320 | |
| Reclassification adjustments included in net income | (3,296) | | | (923) | | | (9,216) | | | (7,404) | |
| Tax benefit (expense) | 2,158 | | | (807) | | | 2,269 | | | (269) | |
| Cash flow derivative instruments, net | (5,031) | | | 2,360 | | | (4,734) | | | 647 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Pension and other postretirement benefits: | | | | | | | |
| Pension and other postretirement benefits adjustments | (541) | | | 190 | | | (794) | | | (914) | |
| Tax benefit (expense) | 114 | | | (32) | | | 175 | | | 216 | |
| Pension and other postretirement benefits adjustments, net | (427) | | | 158 | | | (619) | | | (698) | |
| Total other comprehensive income (loss) | 15,161 | | | (8,473) | | | (3,794) | | | (12,970) | |
| Comprehensive income | 70,436 | | | 48,573 | | | 206,204 | | | 212,059 | |
| Less: Comprehensive loss attributable to noncontrolling interests | 727 | | | 309 | | | 5,460 | | | 76 | |
| Comprehensive income attributable to Acushnet Holdings Corp. | $ | 71,163 | | | $ | 48,882 | | | $ | 211,664 | | | $ | 212,135 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ACUSHNET HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
| | | | | | | | | | | |
| | Nine months ended September 30, |
| (in thousands) | 2024 | | 2023 |
| Cash flows from operating activities | | | |
| Net income | $ | 209,998 | | | $ | 225,029 | |
| Adjustments to reconcile net income to cash flows provided by operating activities | | | |
| Depreciation and amortization | 41,716 | | | 38,181 | |
| Unrealized foreign exchange loss (gain) | 159 | | | (2,495) | |
| Amortization of debt issuance costs | 1,307 | | | 501 | |
| Share-based compensation | 23,998 | | | 21,369 | |
| Loss (gain) on disposals of property, plant and equipment | 760 | | | (19) | |
| Deferred income taxes | 8,953 | | | 25,015 | |
| Changes in operating assets and liabilities | | | |
| Accounts receivable | (165,730) | | | (125,667) | |
| Inventories | 116,687 | | | 136,828 | |
| Accounts payable | 9,453 | | | (30,030) | |
| Accrued taxes | 4,582 | | | 5,798 | |
| Other assets and liabilities | (5,655) | | | 2,420 | |
| Cash flows provided by operating activities | 246,228 | | | 296,930 | |
| Cash flows from investing activities | | | |
| Additions to property, plant and equipment | (42,522) | | | (42,432) | |
Additions to intangible assets (Note 17) | — | | | (25,235) | |
| | | |
| Other, net | — | | | (887) | |
| Cash flows used in investing activities | (42,522) | | | (68,554) | |
| Cash flows from financing activities | | | |
Repayments of short-term borrowings, net (Note 5) | — | | | (3,121) | |
Proceeds from credit facilities (Note 5) | 951,480 | | | 1,039,443 | |
Repayments of credit facilities (Note 5) | (922,666) | | | (1,010,387) | |
| | | |
| | | |
| | | |
| Purchases of common stock | (142,343) | | | (204,656) | |
| | | |
| Dividends paid on common stock | (41,282) | | | (40,099) | |
| | | |
| Payment of employee restricted stock tax withholdings | (16,864) | | | (11,460) | |
| Other, net | — | | | 1,078 | |
| Cash flows used in financing activities | (171,675) | | | (229,202) | |
| Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash | 1,596 | | | (1,312) | |
| Net increase (decrease) in cash, cash equivalents and restricted cash | 33,627 | | | (2,138) | |
| Cash, cash equivalents and restricted cash, beginning of year | 65,435 | | | 58,904 | |
| Cash, cash equivalents and restricted cash, end of period | $ | 99,062 | | | $ | 56,766 | |
| Supplemental non-cash information | | | |
| | | |
| | | |
| Purchases of property, plant and equipment, accrued not paid | $ | 6,999 | | | $ | 6,007 | |
| Additions to right-of-use assets obtained in exchange for operating lease obligations | 7,651 | | | 50,813 | |
| Additions to right-of-use assets obtained in exchange for finance lease obligations | 434 | | | 711 | |
| | | |
| | | |
| Dividend equivalents rights ("DERs") declared not paid | 1,521 | | | 1,411 | |
| | | |
| | | |
| | | |
Share repurchase liability (Note 10) | 32,523 | | | 79,765 | |
| | | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ACUSHNET HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Common Stock | | Additional
Paid-in
Capital | | Accumulated
Other
Comprehensive
Loss,
Net of Tax | | Retained
Earnings | | Treasury Stock | | Total
Shareholders'
Equity
Attributable
to Acushnet
Holdings Corp. | | Noncontrolling
Interests | | Total
Shareholders'
Equity |
| (in thousands) | | | Shares | | Amount | | | | | | | |
| Balances as of June 30, 2023 | | | | 76,782 | | | $ | 77 | | | $ | 965,446 | | | $ | (114,345) | | | $ | 613,584 | | | $ | (447,543) | | | $ | 1,017,219 | | | $ | 37,998 | | | $ | 1,055,217 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Net income | | | | — | | | — | | | — | | | — | | | 57,307 | | | — | | | 57,307 | | | 282 | | | 57,589 | |
| Other comprehensive loss | | | | — | | | — | | | — | | | (8,425) | | | — | | | — | | | (8,425) | | | — | | | (8,425) | |
| Share-based compensation | | | | — | | | — | | | 5,141 | | | — | | | — | | | — | | | 5,141 | | | — | | | 5,141 | |
Vesting of restricted common stock, including impact of DERs, net of shares withheld for employee taxes (Note 11) | | | | 24 | | | — | | | 59 | | | — | | | — | | | — | | | 59 | | | — | | | 59 | |
Purchases of common stock (Note 10) | | | | — | | | — | | | — | | | — | | | — | | | (64,918) | | | (64,918) | | | — | | | (64,918) | |
Share repurchase liability (Note 10) | | | | — | | | — | | | — | | | — | | | — | | | (64,919) | | | (64,919) | | | — | | | (64,919) | |
| Dividends and dividend equivalents declared | | | | — | | | — | | | — | | | — | | | (13,098) | | | — | | | (13,098) | | | — | | | (13,098) | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Balances as of September 30, 2023 | | | | 76,806 | | | $ | 77 | | | $ | 970,646 | | | $ | (122,770) | | | $ | 657,793 | | | $ | (577,380) | | | $ | 928,366 | | | $ | 38,280 | | | $ | 966,646 | |
| | | | | | | | | | | | | | | | | | | | |
| Balances as of June 30, 2024 | | | | 62,729 | | | $ | 63 | | | $ | 792,559 | | | $ | (123,038) | | | $ | 231,608 | | | $ | (37,499) | | | $ | 863,693 | | | $ | 35,016 | | | $ | 898,709 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Net income (loss) | | | | — | | | — | | | — | | | — | | | 56,224 | | | — | | | 56,224 | | | (313) | | | 55,911 | |
| Other comprehensive income | | | | — | | | — | | | — | | | 14,939 | | | — | | | — | | | 14,939 | | | — | | | 14,939 | |
| Share-based compensation | | | | — | | | — | | | 8,883 | | | — | | | — | | | — | | | 8,883 | | | — | | | 8,883 | |
Vesting of restricted common stock, including impact of DERs, net of shares withheld for employee taxes (Note 11) | | | | 7 | | | — | | | (246) | | | — | | | — | | | — | | | (246) | | | — | | | (246) | |
| Purchases of common stock (Note 10) | | | | (1,080) | | | (1) | | | (13,948) | | | — | | | (56,834) | | | — | | | (70,783) | | | — | | | (70,783) | |
| Share repurchase liability (Note 10) | | | | — | | | — | | | — | | | — | | | — | | | 4,976 | | | 4,976 | | | — | | | 4,976 | |
| Dividends and dividend equivalents declared | | | | — | | | — | | | — | | | — | | | (13,787) | | | — | | | (13,787) | | | — | | | (13,787) | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Balances as of September 30, 2024 | | | | 61,656 | | | $ | 62 | | | $ | 787,248 | | | $ | (108,099) | | | $ | 217,211 | | | $ | (32,523) | | | $ | 863,899 | | | $ | 34,703 | | | $ | 898,602 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ACUSHNET HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Common Stock | | Additional
Paid-in
Capital | | Accumulated
Other
Comprehensive
Loss,
Net of Tax | | Retained
Earnings | | Treasury Stock | | Total
Shareholders'
Equity
Attributable
to Acushnet
Holdings Corp. | | Noncontrolling
Interests | | Total
Shareholders'
Equity |
| (in thousands) | | | Shares | | Amount | | | | | | | |
| Balances as of December 31, 2022 | | | | 76,322 | | | $ | 76 | | | $ | 960,685 | | | $ | (109,668) | | | $ | 473,130 | | | $ | (385,167) | | | $ | 939,056 | | | $ | 37,647 | | | $ | 976,703 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Sale of equity to noncontrolling interests (Note 1) | | | | — | | | — | | | 444 | | | — | | | (180) | | | — | | | 264 | | | — | | | 264 | |
| Net income | | | | — | | | — | | | — | | | — | | | 225,237 | | | — | | | 225,237 | | | 633 | | | 225,870 | |
| Other comprehensive loss | | | | — | | | — | | | — | | | (13,102) | | | — | | | — | | | (13,102) | | | — | | | (13,102) | |
| Share-based compensation | | | | — | | | — | | | 20,877 | | | — | | | — | | | — | | | 20,877 | | | — | | | 20,877 | |
Vesting of restricted common stock, including impact of DERs, net of shares withheld for employee taxes (Note 11) | | | | 484 | | | 1 | | | (11,360) | | | — | | | — | | | — | | | (11,359) | | | — | | | (11,359) | |
Purchases of common stock (Note 10) | | | | — | | | — | | | — | | | — | | | — | | | (112,448) | | | (112,448) | | | — | | | (112,448) | |
Share repurchase liability (Note 10) | | | | — | | | — | | | — | | | — | | | — | | | (79,765) | | | (79,765) | | | — | | | (79,765) | |
| | | | | | | | | | | | | | | | | | | | |
| Dividends and dividend equivalents declared | | | | — | | | — | | | — | | | — | | | (40,394) | | | — | | | (40,394) | | | — | | | (40,394) | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Balances as of September 30, 2023 | | | | 76,806 | | | $ | 77 | | | $ | 970,646 | | | $ | (122,770) | | | $ | 657,793 | | | $ | (577,380) | | | $ | 928,366 | | | $ | 38,280 | | | $ | 966,646 | |
| | | | | | | | | | | | | | | | | | | | |
| Balances as of December 31, 2023 | | | | 63,429 | | | $ | 63 | | | $ | 808,615 | | | $ | (104,349) | | | $ | 159,906 | | | $ | — | | | $ | 864,235 | | | $ | 38,852 | | | $ | 903,087 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Net income (loss) | | | | — | | | — | | | — | | | — | | | 215,414 | | | — | | | 215,414 | | | (4,149) | | | 211,265 | |
| Other comprehensive loss | | | | — | | | — | | | — | | | (3,750) | | | — | | | — | | | (3,750) | | | — | | | (3,750) | |
| Share-based compensation | | | | — | | | — | | | 23,522 | | | — | | | — | | | — | | | 23,522 | | | — | | | 23,522 | |
Vesting of restricted common stock, including impact of DERs, net of shares withheld for employee taxes (Note 11) | | | | 442 | | | | | (16,600) | | | — | | | — | | | — | | | (16,600) | | | — | | | (16,600) | |
Purchases of common stock (Note 10) | | | | (2,215) | | | (1) | | | (28,289) | | | — | | | (115,294) | | | — | | | (143,584) | | | — | | | (143,584) | |
Share repurchase liability (Note 10) | | | | — | | | — | | | — | | | — | | | — | | | (32,523) | | | (32,523) | | | — | | | (32,523) | |
| | | | | | | | | | | | | | | | | | | | |
| Dividends and dividend equivalents declared | | | | — | | | — | | | — | | | — | | | (41,815) | | | — | | | (41,815) | | | — | | | (41,815) | |
| | | | | | | | | | | | | | | | | | | | |
Redemption value adjustment (Note 1) | | | | — | | | — | | | — | | | — | | | (1,000) | | | — | | | (1,000) | | | — | | | (1,000) | |
| Balances as of September 30, 2024 | | | | 61,656 | | | $ | 62 | | | $ | 787,248 | | | $ | (108,099) | | | $ | 217,211 | | | $ | (32,523) | | | $ | 863,899 | | | $ | 34,703 | | | $ | 898,602 | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
ACUSHNET HOLDINGS CORP.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) and include the accounts of Acushnet Holdings Corp. (the “Company”), its wholly-owned subsidiaries and less than wholly-owned subsidiaries, including a variable interest entity (“VIE”) in which the Company is the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation.
Certain information in footnote disclosures normally included in annual financial statements has been condensed or omitted for the interim periods presented in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and U.S. GAAP. The year-end balance sheet data was derived from audited financial statements; however, the accompanying interim notes to the unaudited condensed consolidated financial statements do not include all disclosures required by U.S. GAAP. In the opinion of management, the financial statements contain all normal and recurring adjustments necessary to state fairly the financial position and results of operations of the Company. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of results to be expected for the full year ending December 31, 2024, nor were those of the comparable 2023 periods representative of those actually experienced for the full year ended December 31, 2023. These unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes for the fiscal year ended December 31, 2023 included in its Annual Report on Form 10-K filed with the SEC on February 29, 2024.
Use of Estimates
The preparation of the Company’s unaudited condensed consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and judgments that affect reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Variable Interest Entities
VIEs are entities that, by design, either (i) lack sufficient equity to permit the entity to finance its activities independently, or (ii) have equity holders that do not have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the entity’s expected losses, or the right to receive the entity’s expected residual returns. The Company consolidates a VIE when it is the primary beneficiary, which is the party that has both (i) the power to direct the activities that most significantly impact the VIE’s economic performance and (ii) through its interests in the VIE, the obligation to absorb expected losses or the right to receive expected benefits from the VIE that could potentially be significant to the VIE.
The Company consolidates the accounts of Acushnet Lionscore Limited (“Lionscore”), 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 unaudited condensed consolidated balance sheets, to the extent material, the assets of its consolidated VIE that can only be used to settle specific obligations of its consolidated VIE and the liabilities of its consolidated VIE for which creditors do not have recourse to its general credit. The general creditors of the VIE do not have recourse to the Company. Certain directors of the VIE have guaranteed the credit lines of the VIE, for which there were no outstanding borrowings as of September 30, 2024 and December 31, 2023. In addition, pursuant to the terms of the agreement governing the VIE, the Company is not required to provide financial support to the VIE.
Noncontrolling Interests and Redeemable Noncontrolling Interests
The ownership interests held by owners other than the Company in less than wholly-owned subsidiaries are classified as noncontrolling interests. The financial results and position of noncontrolling interests are included in the Company’s unaudited condensed consolidated financial statements. The value attributable to the noncontrolling interests is presented on the unaudited condensed consolidated balance sheets, separately from the equity attributable to the Company. Net income (loss) and comprehensive income (loss) attributable to noncontrolling interests are presented separately on the unaudited condensed consolidated statements of operations and unaudited condensed consolidated statements of comprehensive income, respectively.
Redeemable noncontrolling interests are those noncontrolling interests which are or may become redeemable at a fixed or determinable price on a fixed or determinable date, at the option of the holder, or upon occurrence of an event. The Company initially records the redeemable noncontrolling interest at its acquisition date fair value. The carrying amount of the redeemable noncontrolling interest is subsequently adjusted to the greater amount of either the initial carrying amount, increased or decreased for the redeemable noncontrolling interest's share of comprehensive income (loss) or the redemption value, assuming the noncontrolling interest is redeemable at the balance sheet date. This adjustment is recognized through retained earnings and is not reflected in net income (loss) or comprehensive income (loss). During the nine months ended September 30, 2024, the Company recorded a $1.0 million redemption value adjustment to increase the carrying amount of redeemable noncontrolling interests. The value attributable to redeemable noncontrolling interests and any related loans to minority shareholders, which are recorded as a reduction to redeemable noncontrolling interests, are presented in the unaudited condensed consolidated balance sheets as temporary equity between liabilities and shareholders’ equity. The amount of the loan to minority shareholders was $4.4 million as of both September 30, 2024 and December 31, 2023.
Cash, Cash Equivalents and Restricted Cash
Cash held in Company checking accounts is included in cash. Cash equivalents consist of short-term highly liquid investments with original maturities of three months or less which are readily convertible into cash. The Company classifies as restricted certain cash that is not available for use in its operations. As of both September 30, 2024 and December 31, 2023, the amount of restricted cash included in cash, cash equivalents and restricted cash on the unaudited condensed consolidated balance sheets was $1.7 million.
Foreign Currency Transactions
Foreign currency transaction losses included in selling, general and administrative expenses were less than $0.1 million and $0.9 million for the three months ended September 30, 2024 and 2023, respectively. Foreign currency transaction losses included in selling, general and administrative expenses were $1.0 million and $3.4 million for the nine months ended September 30, 2024 and 2023, respectively.
Recently Issued Accounting Standards
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, "Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures." The amendments in this update improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact this standard will have on its consolidated financial statements and related disclosures.
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740) - Improvements to Income Tax Disclosures." The amendments in this update provide more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact this standard will have on its consolidated financial statements and related disclosures.
2. Allowance for Doubtful Accounts
The Company estimates expected credit losses using a number of factors, including customer credit ratings, age of receivables, historical credit loss information and current and forecasted economic conditions, which could affect the collectability of the reported amounts. All these factors have been considered in the estimate of expected credit losses for the periods presented.
The activity related to the allowance for doubtful accounts was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| (in thousands) | | 2024 | | 2023 | | 2024 | | 2023 |
| Balance at beginning of period | | $ | 9,123 | | | $ | 9,008 | | | $ | 8,840 | | | $ | 8,258 | |
| Bad debt (recovery) expense | | (207) | | | 17 | | | 444 | | | 814 | |
| Amount of receivables written off | | (247) | | | (239) | | | (492) | | | (341) | |
| Foreign currency translation | | 246 | | | (124) | | | 123 | | | (69) | |
| Balance at end of period | | $ | 8,915 | | | $ | 8,662 | | | $ | 8,915 | | | $ | 8,662 | |
3. Inventories
The components of inventories were as follows:
| | | | | | | | | | | | | | |
| | September 30, | | December 31, |
| (in thousands) | | 2024 | | 2023 |
| Raw materials and supplies | | $ | 133,944 | | | $ | 157,455 | |
| Work-in-process | | 28,027 | | | 24,949 | |
| Finished goods | | 335,548 | | | 433,131 | |
| Inventories | | $ | 497,519 | | | $ | 615,535 | |
4. Product Warranty
The Company has defined warranties generally ranging from one to two years. Products covered by the defined warranty policies primarily include all Titleist golf products, FootJoy golf shoes and FootJoy golf outerwear. These product warranties generally obligate the Company to pay for the cost of replacement products, including the cost of shipping replacement products to its customers. The estimated cost of satisfying future warranty claims is accrued at the time the sale is recorded. In estimating future warranty obligations, the Company considers various factors, including its warranty policies and practices, the historical frequency of claims and the cost to replace or repair products under warranty.
The activity related to the Company’s warranty obligation for accrued warranty expense was as follows:
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| | | Three months ended September 30, | | Nine months ended September 30, |
| (in thousands) | | 2024 | | 2023 | | 2024 | | 2023 |
| Balance at beginning of period | | $ | 5,511 | | | $ | 5,049 | | | $ | 4,997 | | | $ | 3,951 | |
| Provision | | 1,325 | | | 1,568 | | | 5,123 | | | 5,313 | |
| Claims paid/costs incurred | | (1,511) | | | (1,685) | | | (4,708) | | | (4,337) | |
| Foreign currency translation | | 83 | | | (61) | | | (4) | | | (56) | |
| Balance at end of period | | $ | 5,408 | | | $ | 4,871 | | | $ | 5,408 | | | $ | 4,871 | |
5. Debt and Financing Arrangements
Credit Facility
The Company's credit agreement, dated as of December 23, 2019 (as subsequently amended on July 3, 2020 and August 2, 2022 (the "Credit Agreement")), provides for a $950.0 million multi-currency revolving credit facility, due to mature on August 2, 2027. On May 2, 2024, the Company entered into a third amendment (the “Third Amendment”) to its Credit Agreement (as so amended, the “Amended Credit Agreement”). On June 28, 2024, the Canadian Dollar Offered Rate (“CDOR”) ceased to be published (the “CORRA Transition Date”). Pursuant to the Third Amendment, for loans denominated in Canadian dollars borrowed or continued after the CORRA Transition Date, the Adjusted CDOR (as defined in the Credit Agreement) is replaced by adjusted term CORRA (the Canadian Overnight Repo Rate Average administered by Bank of Canada) plus a credit spread adjustment of 0.29547% (for a one-month Interest Period) or 0.32138% (for a three-month Interest Period) (“Adjusted Term CORRA”). The applicable margin for Adjusted Term CORRA loans remains 1.00% to 1.75%, depending on the Net Average Total Leverage Ratio (as defined in the Amended Credit Agreement).
The Amended Credit Agreement contains customary affirmative and restrictive covenants, including, among others, financial covenants based on the Company's leverage and interest coverage ratios. The Amended Credit Agreement also 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 September 30, 2024, the Company was in compliance with all covenants under its Amended Credit Agreement.
As of September 30, 2024 and December 31, 2023, there were $359.4 million and $325.2 million, respectively, in outstanding borrowings under the Company's multi-currency revolving credit facility with a weighted average interest rate of 6.16% and 6.57%, respectively. As of September 30, 2024, the Company had available borrowings under its multi-currency revolving credit facility of $586.7 million after giving effect to $3.9 million of outstanding letters of credit.
Senior Unsecured Notes
On October 3, 2023, Acushnet Company (the "Issuer"), a wholly owned subsidiary of the Company, completed the issuance and sale of $350.0 million in gross proceeds of the Issuer's 7.375% senior unsecured notes due 2028 (the “Notes”). The Notes were issued pursuant to an Indenture, dated October 3, 2023 (the “Indenture”), among the Issuer, U.S. Bank Trust Company, National Association, as trustee of the Notes, and the Company and certain subsidiaries of the Issuer as guarantors. The proceeds from the Notes offering were used to repay $345.6 million of the outstanding borrowings under the Company's multi-currency revolving credit facility, as well as to pay fees and expenses related to the Notes offering. In connection with the Notes offering, the Company incurred fees and expenses of approximately $6.4 million, of which approximately $6.3 million was capitalized as debt issuance costs within long-term debt on the unaudited condensed consolidated balance sheet and is being amortized to interest expense, net over the term of the Notes using the effective interest rate method. The fair value of the Notes, based on third-party quotes (Level 2), as of September 30, 2024 and December 31, 2023 was $366.6 million and $365.1 million, respectively.
The Notes bear interest at a stated interest rate of 7.375% (an effective interest rate of 7.813%) per year, with interest payable semi-annually on April 15 and October 15 of each year, beginning on April 15, 2024. Accrued interest related to the Notes of $12.0 million and $6.5 million was included within accrued expenses and other liabilities on the unaudited condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023, respectively.
The Indenture contains covenants that, among other things, limit the ability of the Company and its restricted subsidiaries to incur additional debt or issue certain preferred stock; pay dividends or repurchase or redeem capital stock; prepay, redeem or repurchase certain debt; make loans and investments; sell assets; incur liens; enter into certain types of transactions with the Company’s affiliates; and consolidate or merge with or into other companies. As of September 30, 2024, the Company was in compliance with all covenants under the Indenture.
Other Short-Term Borrowings
The Company has certain unsecured local credit facilities available through its subsidiaries. Amounts outstanding under other short-term borrowings are presented in short-term debt in the unaudited condensed consolidated balance sheets with the proceeds and repayments presented on a gross basis in the unaudited condensed consolidated statements of cash flows. There were $21.2 million and $29.0 million in outstanding borrowings under the Company's local credit facilities as of September 30, 2024 and December 31, 2023, respectively. The weighted average interest rate applicable to the outstanding borrowings was 0.59% and 0.45% as of September 30, 2024 and December 31, 2023, respectively. As of September 30, 2024, the Company had available borrowings remaining under these local credit facilities of $41.5 million.
Letters of Credit
As of September 30, 2024 and December 31, 2023, there were outstanding letters of credit related to agreements, including the Credit Agreement, totaling $7.0 million and $11.3 million, respectively, of which $3.9 million and $8.1 million, respectively, was secured. These agreements provided a maximum commitment for letters of credit of $58.4 million as of September 30, 2024.
6. Derivative Financial Instruments
The Company principally uses derivative financial instruments to reduce the impact of foreign currency fluctuations and interest rate variability on the Company's results of operations. The principal derivative financial instruments the Company enters into are foreign exchange forward contracts and interest rate swaps. The Company does not enter into derivative financial instrument contracts for trading or speculative purposes.
Foreign Exchange Derivative Instruments
Foreign exchange forward contracts are foreign exchange derivative instruments primarily used to reduce foreign currency risk related to transactions denominated in a currency other than functional currency. These instruments are designated as cash flow hedges. The periods of the foreign exchange forward contracts correspond to the periods of the hedged forecasted transactions, which do not exceed 24 months subsequent to the latest balance sheet date. The primary foreign exchange forward contracts pertain to the U.S. dollar, the Japanese yen, the British pound sterling, the Canadian dollar, the Korean won and the euro. The gross U.S. dollar equivalent notional amount outstanding of all foreign exchange forward contracts designated under hedge accounting as of September 30, 2024 and December 31, 2023 was $234.3 million and $209.6 million, respectively.
Interest Rate Derivative Instruments
From time to time, the Company enters into interest rate swap contracts to reduce interest rate risk related to floating rate debt. Under the contracts, the Company pays fixed and receives variable rate interest, in effect converting a portion of its floating rate debt to fixed rate debt. Interest rate swap contracts are accounted for as cash flow hedges. The notional value of the Company's outstanding interest rate swap contracts was $100.0 million as of September 30, 2024 and December 31, 2023.
Impact on Financial Statements
The fair value of hedge instruments recognized on the unaudited condensed consolidated balance sheets was as follows:
| | | | | | | | | | | | | | | | | | | | |
| (in thousands) | | | | September 30, | | December 31, |
| Balance Sheet Location | | Hedge Instrument Type | | 2024 | | 2023 |
| Prepaid and other assets | | Foreign exchange forward | | $ | 1,912 | | | $ | 4,378 | |
| | Interest rate swap | | 79 | | | 452 | |
| | | | | | |
| | | | | | |
| Accrued expenses and other liabilities | | Foreign exchange forward | | 5,246 | | | 1,931 | |
| | Interest rate swap | | 40 | | | 63 | |
| Other noncurrent liabilities | | Foreign exchange forward | | 19 | | | — | |
| | Interest rate swap | | — | | | 88 | |
The hedge instrument (losses) gains recognized in accumulated other comprehensive loss, net of tax was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| (in thousands) | | 2024 | | 2023 | | 2024 | | 2023 |
| Type of hedge | | | | | | | | |
| Foreign exchange forward | | $ | (3,635) | | | $ | 3,658 | | | $ | 1,702 | | | $ | 6,719 | |
| Interest rate swap | | (258) | | | 432 | | | 511 | | | 1,601 | |
| Total | | $ | (3,893) | | | $ | 4,090 | | | $ | 2,213 | | | $ | 8,320 | |
Gains and losses on derivative instruments designated as cash flow hedges are reclassified from accumulated other comprehensive loss, net of tax at the time the forecasted hedged transaction impacts the statements of operations or at the time the hedge is determined to be ineffective. Based on the current valuation, during the next 12 months the Company expects to reclassify a net gain of $0.3 million related to foreign exchange derivative instruments from accumulated other comprehensive loss, net of tax, into cost of goods sold and a net gain of less than $0.1 million related to interest rate derivative instruments from accumulated other comprehensive loss, net of tax, into interest expense, net. For further information related to amounts recognized in accumulated other comprehensive loss, net of tax, see Note 12.
The hedge instrument gains (losses) recognized on the unaudited condensed consolidated statements of operations were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| (in thousands) | | 2024 | | 2023 | | 2024 | | 2023 |
| Location of gains (losses) in statements of operations | | | | | | | | |
| Foreign exchange forward: | | | | | | | | |
| Cost of goods sold | | $ | 3,040 | | | $ | 682 | | | $ | 8,443 | | | $ | 6,975 | |
Selling, general and administrative (1) | | (1,634) | | | 1,106 | | | (253) | | | 1,463 | |
| Total | | $ | 1,406 | | | $ | 1,788 | | | $ | 8,190 | | | $ | 8,438 | |
| | | | | | | | |
| Interest Rate Swap: | | | | | | | | |
| Interest expense, net | | $ | 256 | | | $ | 241 | | | $ | 773 | | | $ | 429 | |
| Total | | $ | 256 | | | $ | 241 | | | $ | 773 | | | $ | 429 | |
_______________________________________________________________________________
(1) Relates to net (losses) gains on foreign exchange forward contracts derived from previously designated cash flow hedges.
Credit Risk
The Company enters into derivative contracts with major financial institutions with investment grade credit ratings and is exposed to credit losses in the event of non-performance by these financial institutions. This credit risk is generally limited to the unrealized gains in the derivative contracts. However, the Company monitors the credit quality of these financial institutions, as well as its own credit quality, and considers the risk of counterparty default to be minimal.
7. Fair Value Measurements
Certain assets and liabilities are carried at fair value under U.S. GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
Assets and liabilities measured at fair value on a recurring basis as of September 30, 2024 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements as of | | |
| | | September 30, 2024 using: | | |
| (in thousands) | | Level 1 | | Level 2 | | Level 3 | | Balance Sheet Location |
| Assets | | | | | | | | |
| Rabbi trust | | $ | 3,142 | | | $ | — | | | $ | — | | | Prepaid and other assets |
| Foreign exchange derivative instruments | | — | | | 1,912 | | | — | | | Prepaid and other assets |
| Interest rate derivative instruments | | — | | | 79 | | | — | | | Prepaid and other assets |
| | | | | | | | |
| Deferred compensation program assets | | 622 | | | — | | | — | | | Other assets |
| | | | | | | | |
| | | | | | | | |
| Total assets | | $ | 3,764 | | | $ | 1,991 | | | $ | — | | | |
| Liabilities | | | | | | | | |
| Foreign exchange derivative instruments | | $ | — | | | $ | 5,246 | | | $ | — | | | Accrued expenses and other liabilities |
| Interest rate derivative instruments | | — | | | 40 | | | — | | | Accrued expenses and other liabilities |
| Deferred compensation program liabilities | | 622 | | | — | | | — | | | Other noncurrent liabilities |
| Foreign exchange derivative instruments | | — | | | 19 | | | — | | | Other noncurrent liabilities |
| | | | | | | | |
| Total liabilities | | $ | 622 | | | $ | 5,305 | | | $ | — | | | |
Assets and liabilities measured at fair value on a recurring basis as of December 31, 2023 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Fair Value Measurements as of | | |
| | | December 31, 2023 using: | | |
| (in thousands) | | Level 1 | | Level 2 | | Level 3 | | Balance Sheet Location |
| Assets | | | | | | | | |
| Rabbi trust | | $ | 4,334 | | | $ | — | | | $ | — | | | Prepaid and other assets |
| Foreign exchange derivative instruments | | — | | | 4,378 | | | — | | | Prepaid and other assets |
| Interest rate derivative instruments | | — | | | 452 | | | — | | | Prepaid and other assets |
| | | | | | | | |
| Deferred compensation program assets | | 725 | | | — | | | — | | | Other assets |
| | | | | | | | |
| | | | | | | | |
| Total assets | | $ | 5,059 | | | $ | 4,830 | | | $ | — | | | |
| Liabilities | | | | | | | | |
| Foreign exchange derivative instruments | | $ | — | | | $ | 1,931 | | | $ | — | | | Accrued expenses and other liabilities |
| Interest rate derivative instruments | | — | | | 63 | | | — | | | Accrued expenses and other liabilities |
| Deferred compensation program liabilities | | 725 | | | — | | | — | | | Other noncurrent liabilities |
| | | | | | | | |
| Interest rate derivative instruments | | — | | | 88 | | | — | | | Other noncurrent liabilities |
| Total liabilities | | $ | 725 | | | $ | 2,082 | | | $ | — | | | |
Rabbi trust assets are used to fund certain retirement obligations of the Company. The assets underlying the Rabbi trust are equity and fixed income exchange-traded funds.
Deferred compensation program assets and liabilities represent a program where select employees could defer compensation until termination of employment. Effective July 29, 2011, this program was amended to cease all employee compensation deferrals and provided for the distribution of all previously deferred employee compensation. The program remains in effect with respect to the value attributable to the employer match contributed prior to July 29, 2011.
Foreign exchange derivative instruments are foreign exchange forward contracts primarily used to limit currency risk that would otherwise result from changes in foreign exchange rates (Note 6). The Company uses the mid-price of foreign exchange forward rates as of the close of business on the valuation date to value each foreign exchange forward contract at each reporting period.
Interest rate derivative instruments are interest rate swap contracts used to reduce interest rate risk related to the Company's floating rate debt (Note 6). The valuation for the interest rate swap is calculated as the net of the discounted future cash flows of the pay and receive legs of the swap. Mid-market interest rates on the valuation date are used to create the forward curve for floating legs and discount curve.
8. Pension and Other Postretirement Benefits
Components of net periodic benefit cost (credit) were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | Postretirement Benefits |
| | | Three months ended September 30, |
| (in thousands) | | 2024 | | 2023 | | 2024 | | 2023 |
| Components of net periodic benefit cost (credit) | | | | | | | | |
| Service cost | | $ | 1,327 | | | $ | 1,411 | | | $ | 84 | | | $ | 107 | |
| Interest cost | | 2,645 | | | 2,832 | | | 129 | | | 166 | |
| Expected return on plan assets | | (1,838) | | | (1,966) | | | — | | | — | |
| Settlements | | 142 | | | — | | | — | | | — | |
| | | | | | | | |
| Amortization of net loss (gain) | | 60 | | | 25 | | | (252) | | | (223) | |
| Amortization of prior service cost (credit) | | 24 | | | 45 | | | (35) | | | (35) | |
| Net periodic benefit cost (credit) | | $ | 2,360 | | | $ | 2,347 | | | $ | (74) | | | $ | 15 | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Pension Benefits | | Postretirement Benefits |
| | | Nine months ended September 30, |
| (in thousands) | | 2024 | | 2023 | | 2024 | | 2023 |
| Components of net periodic benefit cost (credit) | | | | | | | | |
| Service cost | | $ | 3,958 | | | $ | 4,261 | | | $ | 250 | | | $ | 322 | |
| Interest cost | | 8,033 | | | 8,491 | | | 389 | | | 497 | |
| Expected return on plan assets | | (5,510) | | | (5,894) | | | — | | | — | |
| Settlements | | 142 | | | (27) | | | — | | | — | |
| | | | | | | | |
| Amortization of net loss (gain) | | 177 | | | 70 | | |