Acushnet Holdings Corp. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing was signed February 25, 2021. Acushnet designs, manufactures and distributes golf products under brands including Titleist, FootJoy and KJUS. This is an annual report, not a standalone fourth-quarter filing; quarterly Q4 figures are noted below.
Financial performance
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Net sales | $1,612.2 million | $1,681.4 million | Down 4.1% |
| Gross profit / margin | $829.8 million / 51.5% | $872.2 million / 51.9% | Profit down $42.4 million; margin down 0.4 percentage points |
| Income from operations | $145.5 million | $185.7 million | Down 21.6% |
| Net income attributable to Acushnet | $96.0 million | $121.1 million | Down 20.7% |
| Diluted EPS | $1.28 | $1.60 | Down $0.32 |
| Adjusted EBITDA and margin | $233.2 million / 14.5% | $240.1 million / 14.3% | EBITDA down $6.9 million; margin up 0.2 percentage points |
| Operating cash flow | $264.4 million | $134.3 million | Up $130.1 million |
| Capital expenditures | $24.7 million | $33.0 million | Down $8.3 million |
Q4 2020 net sales were $420.5 million, versus $368.3 million in Q4 2019. Net income attributable to Acushnet was $21.6 million, versus $17.9 million.
Segments and geographic trends
- Titleist golf balls: sales of $507.8 million, down 7.9%; segment operating income of $71.8 million, down 23.0%. Lower volume and manufacturing overhead under-absorption during U.S. factory closures weighed on results.
- Titleist golf clubs: sales of $418.4 million, down 3.7%; operating income increased 3.1% to $40.0 million, as lower expenses more than offset lower gross profit. SM8 wedges and TSi metals partially supported sales.
- Titleist golf gear: sales of $149.4 million, down 0.4%; operating income rose 15.6% to $20.0 million, supported by lower expenses and higher average selling prices.
- FootJoy golf wear: sales of $415.3 million, down 6.0%; operating income fell 25.0% to $18.3 million.
- By region, U.S. sales fell 5.1% to $839.4 million; Japan fell 16.9% to $151.8 million; EMEA fell 5.0% to $219.0 million. Korea increased 10.2% to $246.2 million.
Liquidity, debt and capital allocation
- Year-end unrestricted cash was $149.4 million. Balance-sheet cash, cash equivalents and restricted cash totaled $151.5 million, including $2.0 million restricted cash.
- Debt was reported as $335.8 million, excluding debt issuance costs. The term loan principal was $332.5 million; there were no revolving-credit borrowings at year-end. Available capacity was $392.2 million under the revolver, after letters of credit, and $58.7 million under local facilities.
- The company reported compliance with its debt covenants at year-end. A July 2020 amendment provided temporary leverage-covenant relief through the quarter ending September 30, 2021; the prior maximum leverage ratio resumes for the quarter ending December 31, 2021.
- Operating cash flow benefited from collections, reduced inventory and other working-capital movements. Financing cash outflow was $128.6 million, including $46.1 million of dividends. Share repurchases were suspended in April 2020; $7.0 million of open-market repurchases had occurred before suspension.
- Management expected approximately $50 million of 2021 capital expenditures, principally strategic investment in golf-ball operations and precision manufacturing. It stated available cash, operating cash flow and borrowing capacity were expected to cover liquidity needs for at least 12 months, subject to pandemic-related uncertainties.
Changes, outlook and notable items
- COVID-19 disrupted sales, retail channels, manufacturing and distribution, especially in the first half of 2020. Many facilities and stores reopened by mid-year, and demand strengthened in the U.S. and Europe in the second half. Full-year U.S. rounds increased 14% and global rounds 7%, according to management; management expected rounds to stabilize toward pre-pandemic levels as activity normalized.
- Revenue fell despite stronger second-half demand, reflecting shutdown-related weakness earlier in the year and lower sales across most segments. Korea was the main regional exception to declines.
- Lower SG&A, including $31.4 million less advertising and promotional expense, and lower interest expense partly cushioned the sales decline. The effective tax rate fell to 11.5% from 24.6%, helping moderate the decline in net income; management cited geographic earnings mix and tax-related items.
- Unusual charges included $13.2 million of restructuring costs, a $3.8 million KJUS goodwill impairment, and $7.2 million of pension settlement costs. Other expense included a $9.9 million indemnification loss related to legacy tax matters. Adjusted EBITDA excludes specified restructuring and unusual items and is a non-GAAP measure.
- Management identified pandemic duration and severity, demand and rounds of play, supply continuity, weather, currency movements, product launches and golf-equipment rule changes as important uncertainties. The USGA and R&A issued an equipment Areas of Interest notice in February 2021; any eventual rule changes and their effects were uncertain.
- Other material risks include reliance on select suppliers and concentrated manufacturing locations, foreign-exchange exposure, variable-rate debt and restrictive covenants, and the seasonal and discretionary nature of golf spending. Magnus, a Fila subsidiary, held approximately 52.2% of the common stock at year-end; Acushnet relied on certain NYSE controlled-company governance exemptions.
- The company reported ordinary-course litigation but said it could not estimate an aggregate loss; no liability for potential losses was recorded. It also disclosed ongoing environmental-agency investigations and did not expect material future costs for past or current environmental matters.
Key facts for investors to verify
- Whether elevated 2020 golf participation and demand persist or revert toward pre-pandemic levels, and whether continued demand can offset the first-half disruption.
- Segment-level recovery in golf balls and FootJoy, including margins and the effect of production capacity, product launches and sales mix.
- Debt covenant terms, leverage and liquidity headroom after temporary covenant relief ends, as well as planned 2021 capital spending and dividend capacity.
- The assumptions behind the KJUS goodwill valuation, pension obligations and the unusually low 2020 effective tax rate.
- Exposure to foreign exchange, supplier and manufacturing concentration, and potential equipment-rule changes; also monitor any developments in litigation or environmental matters.