The following discussion contains management's discussion and analysis of our financial condition and results of operations and should be read together with our unaudited condensed consolidated financial statements and the notes thereto included elsewhere in this report. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including those described in "Part II, Item 1A. Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q and in our other filings with theSecurities and Exchange Commission ("SEC"). Actual results may differ materially from those contained in any forward-looking statements. You should carefully read "Special Note Regarding Forward-Looking Statements" following the Table of Contents. Unless otherwise noted, the figures in the following discussion are unaudited. 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 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 golferswho want to emulate the performance of the game's best players. Our net sales are diversified by both product category and mix as well as geography. Our product categories include golf balls, golf clubs, wedges and putters, golf shoes, golf gloves, golf gear and golf outerwear and apparel. Our product portfolio contains a favorable mix of consumable products, which we consider to be golf balls and golf gloves, and more durable products, which we consider to be golf clubs, golf shoes, golf gear and golf outerwear and apparel. Our net sales are also diversified by geography with a substantial majority of our net sales generated in five countries:the United States ,Japan ,Korea , theUnited Kingdom andCanada . We have the following reportable segments: Titleist golf balls; Titleist golf clubs; Titleist golf gear; and FootJoy golf wear. Impact of COVID-19 on our Business InMarch 2020 , theWorld Health Organization declared a pandemic related to the novel coronavirus ("COVID-19"). Through the end ofJune 2020 , our business was significantly disrupted by the COVID-19 pandemic. InAsia , our operations were impacted earlier in the year and were at varying stages of recovery at the end of June, withKorea nearly fully recovered whileJapan and other markets continued to progress. Inthe United States andEurope , as a result of government-ordered shutdowns, most on-course retail pro shops and off-course retail partner locations were closed for some portion of March, most of April and part ofMay 2020 . Also, as a result of these orders, we were forced to temporarily close or substantially limit our operations in our manufacturing facilities and distribution centers inthe United States andEurope from the end of March untilmid-May 2020 . During this period, we were largely unable to manufacture or ship products in these regions and took steps to strengthen our financial position and balance sheet, bolster our liquidity position and provide additional financial flexibility, including by reducing discretionary spending, reducing capital expenditures, suspending our share repurchase program, and amending our credit agreement. Our manufacturing facilities and distribution centers were re-opened inmid-May 2020 with protocols designed to promote the health and safety of our associates in accordance with state and local government re-opening guidance. The protocols include reconfiguring our manufacturing and distribution facilities to allow for social distancing, implementing stringent safety measures in all facilities, implementing work-from-home policies wherever possible and suspending non-critical business travel. By the end ofJune 2020 , substantially all of the golf courses, on-course retail pro shops and off-course retail partner locations inthe United States andEurope had re-opened. Rounds of play have been strong since golf courses have reopened, which resulted in increased demand for our products duringJune 2020 and even greater demand for our products through the third quarter of 2020 inthe United States andEurope . Rounds of play and demand for golf products inKorea have remained 27
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Table of Contents strong through the third quarter of 2020; however,Japan continued to be negatively impacted by COVID-19 with decreased rounds of play and lower demand for golf related products. The impact of the COVID-19 pandemic continues to evolve and remains highly uncertain, including the potential for a significant increase in the spread of the virus, additional government related shutdowns and a significant decrease in the current level of rounds of play and the related demand for golf related products. The COVID-19 pandemic has materially impacted our results of operations for the third quarter of 2020 and the first nine months of 2020 as described in more detail under "Results of Operations for the Three Months EndedSeptember 30, 2020 Compared to the Three Months EndedSeptember 30, 2019 " and "Results of Operations for the Nine Months EndedSeptember 30, 2020 Compared to the Nine Months EndedSeptember 30, 2019 " below. The impact of the COVID-19 pandemic continues to evolve, and both the full impact and duration of the COVID-19 pandemic remain highly uncertain. Accordingly, our business, results of operations, financial position and cash flows could continue to be materially impacted in ways that we cannot currently predict. 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 ofthe United States , 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 intoU.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 generally accepted accounting principles inthe United States ("U.S. 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. 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 attributable toAcushnet Holdings Corp. adjusted for interest expense, net, income tax expense (benefit), depreciation and amortization and other items defined in the agreement, including: share-based compensation expense; restructuring and transformation costs; certain transaction fees; extraordinary, unusual or non-recurring losses or charges; indemnification expense (income); certain pension settlement costs; certain other non-cash (gains) losses, net and the net income relating to noncontrolling interests. Adjusted EBITDA is not a measurement of financial performance underU.S. GAAP. It should not be considered an alternative to net income attributable toAcushnet Holdings Corp. as a measure of our operating performance or any other measure of performance derived in accordance withU.S. 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 underU.S. 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 toAcushnet 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 underU.S. GAAP. It should not be considered an alternative to any measure of performance derived in accordance withU.S. 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 underU.S. GAAP. Our definition and 28
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Table of Contents 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. 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; restructuring charges; the non-service cost component of net periodic benefit cost; transaction fees and other non-operating gains and losses as we do not allocate these to the reportable segments. Results of Operations The following table sets forth, for the periods indicated, our results of operations. Three months ended Nine months ended September 30, September 30, (in thousands) 2020 2019 2020 2019 Net sales$ 482,932 $ 417,166 $ 1,191,675 $ 1,313,086 Cost of goods sold 230,911 199,822 582,242 627,542 Gross profit 252,021 217,344 609,433 685,544 Operating expenses: Selling, general and administrative 153,724 158,857 436,982 484,506 Research and development 10,611 12,746 34,963 38,417 Intangible amortization 1,964 2,015 5,875 5,533 Restructuring charges 518 - 13,250 - Income from operations 85,204 43,726 118,363 157,088 Interest expense, net 3,831 4,504 12,356 14,600 Other expense, net 3,186 1,486 8,050 1,297 Income before income taxes 78,187 37,736 97,957 141,191 Income tax expense 14,141 7,730 21,183 36,244 Net income 64,046 30,006 76,774 104,947 Less: Net income attributable to noncontrolling interests (830) (209) (2,368) (1,736)
Net income attributable to
$ 29,797 $ 74,406 $ 103,211 Interest expense, net 3,831 4,504 12,356 14,600 Income tax expense 14,141 7,730 21,183 36,244 Depreciation and amortization 10,487 11,592 31,058 31,188 Share-based compensation 3,674 2,605 10,077 7,991 Restructuring & transformation costs (1) 643 - 13,710 - Transaction fees - 68 - 2,015 Other extraordinary, unusual or non-recurring items, net (2) 2,417 (738) 19,960 (1,338) Net income attributable to noncontrolling interests 830 209 2,368 1,736 Adjusted EBITDA$ 99,239 $ 55,767 $ 185,118 $ 195,647 Adjusted EBITDA margin 20.5 % 13.4 % 15.5 % 14.9 %
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(1)Relates to severance and other costs associated with management's approved restructuring program to refine the Company's business model and improve operational efficiencies. (2)Includes salaries and benefits paid for associateswho could not work due to government mandated shutdowns, fringe benefits paid for furloughed associates, spoiled raw materials, incremental costs to support remote work and the cost of additional health and safety equipment of$13.5 million during the nine months endedSeptember 30, 2020 . Additionally includes$1.2 million and$5.1 million of pension settlement costs related to lump-sum distributions to participants in our defined benefit plans as a result of the voluntary retirement plan as part of management's approved restructuring program during the three and nine months endedSeptember 30, 2020 , respectively. 29
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Table of Contents
Three Months Ended
Net sales by reportable segment is summarized as follows:
Three months ended Constant Currency September 30, Increase/(Decrease) Increase/(Decrease) (in millions) 2020 2019 $ change % change $ change % change Titleist golf balls$ 170.1 $ 120.9 $ 49.2 40.7 % $ 48.5 40.1 % Titleist golf clubs 120.8 126.8 (6.0) (4.7) % (6.6) (5.2) % Titleist golf gear 44.3 34.6 9.7 28.0 % 9.4 27.2 % FootJoy golf wear 116.0 102.6 13.4 13.1 % 12.5 12.2 %
Segment operating income by reportable segment is summarized as follows:
Three months ended (in millions) September 30, Increase/(Decrease) Segment operating income (loss) 2020 2019 $ change % change Titleist golf balls$ 47.7 $ 17.8 $ 29.9 168.0 % Titleist golf clubs 19.2 20.1 (0.9) (4.5) % Titleist golf gear 7.2 1.7 5.5 323.5 % FootJoy golf wear 6.5 0.7 5.8 828.6 %
Net sales information by region is summarized as follows:
Three months ended Constant Currency September 30, Increase/(Decrease) Increase/(Decrease)
(in millions) 2020 2019 $ change % change $ change % change United States$ 271.3 $ 215.7 $ 55.6 25.8 % $ 55.6 25.8 % EMEA (1) 65.4 55.7 9.7 17.4 % 7.6 13.6 % Japan 42.3 55.2 (12.9) (23.4) % (13.3) (24.1) % Korea 61.5 55.7 5.8 10.4 % 5.8 10.4 % Rest of world 42.4 34.9 7.5 21.5 % 7.5 21.5 % Total net sales$ 482.9 $ 417.2 $ 65.7 15.7 % $ 63.2 15.1 %
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(1)Europe , theMiddle East andAfrica ("EMEA") Net Sales Net sales increased by$65.7 million , or 15.7%, to$482.9 million for the three months endedSeptember 30, 2020 compared to$417.2 million for the three months endedSeptember 30, 2019 . On a constant currency basis, net sales increased by$63.2 million , or 15.1%, to$480.4 million . The increase in net sales on a constant currency basis was primarily driven by increased sales in Titleist golf balls, FootJoy golf wear and Titleist golf gear of$48.5 million ,$12.5 million and$9.4 million , respectively, driven by sales volume increases across all categories as a result of a significant increase in rounds of play and related demand for golf related products. This increase was partially offset by a decrease of$6.6 million in Titleist golf clubs primarily due to lower average selling prices and sales volumes of our TS metals, which were in their second model year, and lower sales volumes of hybrids and irons, partially offset by higher sales volumes of our SM8 wedges. Net sales inthe United States increased by$55.6 million , or 25.8%, to$271.3 million for the three months endedSeptember 30, 2020 compared to$215.7 million for the three months endedSeptember 30, 2019 . The increase in net sales inthe United States was primarily driven by an increase of$39.2 million in Titleist golf balls, an increase of$7.5 million in Titleist golf gear, an increase of$7.1 million in FootJoy golf wear and an increase of$1.9 million in Titleist golf clubs all driven by a significant increase in rounds of play and related demand for golf related products. 30
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Table of Contents Our sales in regions outside ofthe United States increased by$10.1 million , or 5.0%, to$211.6 million for the three months endedSeptember 30, 2020 compared to$201.5 million for the three months endedSeptember 30, 2019 . On a constant currency basis, net sales in regions outside ofthe United States increased by$7.6 million , or 3.8%, to$209.1 million . In EMEA, the increase in net sales was driven by increased sales across all segments. InKorea , the increase in net sales was primarily driven by increased sales in FootJoy golf wear, Titleist golf gear and Titleist golf balls. In Rest of world, the increase in net sales was primarily driven by increased sales of Titleist golf balls and Titleist golf clubs. Net sales decreased inJapan , primarily due to lower sales of Titleist golf clubs. Gross Profit Gross profit increased by$34.7 million to$252.0 million for the three months endedSeptember 30, 2020 compared to$217.3 million for the three months endedSeptember 30, 2019 . Gross margin increased to 52.2% for the three months endedSeptember 30, 2020 compared to 52.1% for the three months endedSeptember 30, 2019 . The increase in gross profit resulted from an increase of$30.9 million in Titleist golf balls, an increase of$5.8 million in FootJoy golf wear and an increase of$5.5 million in Titleist golf gear, partially offset by a decrease of$9.8 million in Titleist golf clubs, each primarily due to the sales volume changes discussed above. The increase in gross margin was primarily due to higher gross margins in Titleist golf balls due to a favorable product mix shift and in Titleist golf gear due to higher average selling prices, largely offset by a decrease in gross margin in Titleist golf clubs primarily as a result of lower gross margins on our TS metals, which were in their second model year, and higher inventory obsolescence. Selling, General and Administrative Expenses SG&A expenses decreased by$5.2 million to$153.7 million for the three months endedSeptember 30, 2020 compared to$158.9 million for the three months endedSeptember 30, 2019 . This decrease primarily resulted from a decrease of$5.9 million in advertising and promotional costs. Research and Development R&D expenses decreased by$2.1 million to$10.6 million for the three months endedSeptember 30, 2020 compared to$12.7 million for the three months endedSeptember 30, 2019 , primarily related to a reduction in employee related costs and experimental material expense. Income Tax Expense Income tax expense increased by$6.4 million to$14.1 million for the three months endedSeptember 30, 2020 compared to$7.7 million for the three months endedSeptember 30, 2019 . Our Effective Tax Rate ("ETR") was 18.1% for the three months endedSeptember 30, 2020 compared to 20.5% for the three months endedSeptember 30, 2019 . The change in the ETR was primarily driven by the impact of the COVID-19 pandemic on our jurisdictional mix of earnings, as well as a reduction of income tax expense related toU.S. taxation of foreign earnings. Net Income Attributable toAcushnet Holdings Corp. Net income attributable toAcushnet Holdings Corp. increased by$33.4 million to$63.2 million for the three months endedSeptember 30, 2020 compared to$29.8 million for the three months endedSeptember 30, 2019 , primarily as a result of an increase in income from operations, partially offset by an increase in income tax expense, as discussed above. Adjusted EBITDA Adjusted EBITDA increased by$43.4 million to$99.2 million for the three months endedSeptember 30, 2020 compared to$55.8 million for the three months endedSeptember 30, 2019 , primarily due to an increase in income from operations. Adjusted EBITDA margin increased to 20.5% for the three months endedSeptember 30, 2020 compared to 13.4% for the three months endedSeptember 30, 2019 . 31
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Table of Contents Segment Results Titleist Golf Balls Segment Net sales in our Titleist golf balls segment increased by$49.2 million , or 40.7%, to$170.1 million for the three months endedSeptember 30, 2020 compared to$120.9 million for the three months endedSeptember 30, 2019 . On a constant currency basis, net sales in our Titleist golf balls segment increased by$48.5 million , or 40.1%, to$169.4 million . This increase was driven by higher sales volumes across all models, attributed to a significant increase in rounds of play and related demand for golf related products. Titleist golf balls segment operating income increased by$29.9 million , or 168.0%, to$47.7 million for the three months endedSeptember 30, 2020 compared to$17.8 million for the three months endedSeptember 30, 2019 . The increase in operating income resulted from higher gross profit of$30.9 million , primarily due to the sales volume increase and favorable product mix shift. Titleist Golf Clubs Segment Net sales in our Titleist golf clubs segment decreased by$6.0 million , or 4.7%, to$120.8 million for the three months endedSeptember 30, 2020 compared to$126.8 million for the three months endedSeptember 30, 2019 . On a constant currency basis, net sales in our Titleist golf clubs segment decreased by$6.6 million , or 5.2%, to$120.2 million . This decrease was primarily due to lower sales of metals, hybrids and irons and was partially offset by higher sales volumes of our SM8 wedges introduced in the first quarter of 2020. Sales of metals were down as a result of lower average selling prices and sales volumes of our TS metals, which were in their second model year, and our decision to delay the launch of our new TSi metals based on market conditions as a result of the COVID-19 pandemic. Sales of hybrids and irons were down due to lower sales volumes in each category. Titleist golf clubs segment operating income decreased by$0.9 million , or 4.5%, to$19.2 million for the three months endedSeptember 30, 2020 compared to$20.1 million for the three months endedSeptember 30, 2019 . The decrease in operating income resulted from lower gross profit of$9.8 million , largely offset by lower operating expenses. The decrease in gross profit was primarily due to the sales volume decrease discussed above, lower gross profit on our TS metals, which were in their second model year, and higher inventory obsolescence. Operating expenses decreased as a result of a$7.0 million decrease in advertising and promotional costs and a$1.3 million decrease in selling expense. Titleist Golf Gear Segment Net sales in our Titleist golf gear segment increased by$9.7 million , or 28.0%, to$44.3 million for the three months endedSeptember 30, 2020 compared to$34.6 million for the three months endedSeptember 30, 2019 . On a constant currency basis, net sales in our Titleist golf gear segment increased by$9.4 million , or 27.2%, to$44.0 million . This increase was primarily driven by sales volume increases in our golf bags, golf gloves and headwear product categories. Titleist golf gear segment operating income increased by$5.5 million , or 323.5%, to$7.2 million for the three months endedSeptember 30, 2020 compared to$1.7 million for the three months endedSeptember 30, 2019 . The increase in operating income resulted from higher gross profit of$5.5 million due to higher sales volume and higher average selling prices across all product categories. FootJoy Golf Wear Segment Net sales in our FootJoy golf wear segment increased by$13.4 million , or 13.1%, to$116.0 million for the three months endedSeptember 30, 2020 compared to$102.6 million for the three months endedSeptember 30, 2019 . On a constant currency basis, net sales in our FootJoy golf wear segment increased by$12.5 million , or 12.2%, to$115.1 million . This increase was primarily driven by sales volume increases in our golf gloves and footwear product categories. FootJoy golf wear segment operating income increased by$5.8 million , to$6.5 million for the three months endedSeptember 30, 2020 compared to$0.7 million for the three months endedSeptember 30, 2019 . The increase in operating income resulted from higher gross profit of$5.8 million as a result of the sales volume increase discussed above. 32
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Table of Contents Nine Months EndedSeptember 30, 2020 Compared to the Nine Months EndedSeptember 30, 2019 Net sales by reportable segment is summarized as follows: Nine months ended
Constant Currency
September 30, Increase/(Decrease) Increase/(Decrease) (in millions) 2020 2019 $ change % change $ change % change Titleist golf balls$ 388.5 $ 435.9 $ (47.4) (10.9) % $ (45.5) (10.4) % Titleist golf clubs 286.4 325.1 (38.7) (11.9) % (37.7) (11.6) % Titleist golf gear 120.2 126.6 (6.4) (5.1) % (5.4) (4.3) % FootJoy golf wear 314.7 357.6 (42.9) (12.0) % (41.3) (11.5) %
Segment operating income by reportable segment is summarized as follows:
Nine months ended (in millions) September 30, Increase/(Decrease) Segment operating income 2020 2019 $ change % change Titleist golf balls$ 61.0 $ 75.5 $ (14.5) (19.2) % Titleist golf clubs 21.3 26.6 (5.3) (19.9) % Titleist golf gear 20.7 20.0 0.7 3.5 % FootJoy golf wear 18.9 25.0 (6.1) (24.4) %
Net sales information by region is summarized as follows:
Nine months ended Constant CurrencySeptember 30 , Increase/(Decrease)
Increase/(Decrease) (in millions) 2020 2019 $ change % change $ change % change United States$ 627.5 $ 702.3 $ (74.8) (10.7) % $ (74.8) (10.7) % EMEA 174.2 186.7 (12.5) (6.7) % (12.1) (6.5) % Japan 102.0 134.7 (32.7) (24.3) % (34.3) (25.5) % Korea 177.8 165.2 12.6 7.6 % 19.0 11.5 % Rest of world 110.2 124.2 (14.0) (11.3) % (12.0) (9.7) % Total net sales$ 1,191.7 $ 1,313.1 $ (121.4) (9.2) % $ (114.2) (8.7) % Net Sales Net sales decreased by$121.4 million , or 9.2%, to$1,191.7 million for the nine months endedSeptember 30, 2020 compared to$1,313.1 million for the nine months endedSeptember 30, 2019 . On a constant currency basis, net sales decreased by$114.2 million , or 8.7%, to$1,198.9 million . The decrease in net sales on a constant currency basis was due to decreases across all reportable segments primarily as a result of the impact of the COVID-19 pandemic as previously described. The decrease in net sales was partially offset by results from KJUS. Net sales inthe United States decreased by$74.8 million , or 10.7%, to$627.5 million for the nine months endedSeptember 30, 2020 compared to$702.3 million for the nine months endedSeptember 30, 2019 . Overall, sales inthe United States were lower as a result of the impact of the COVID-19 pandemic. Net sales were lower across all reportable segments, with Titleist golf balls sales down$28.9 million , Titleist golf clubs sales down$24.6 million , FootJoy golf wear sales down$24.1 million and Titleist golf gear sales down$2.3 million . The decrease in net sales was partially offset by results from KJUS. Net sales in regions outside ofthe United States were also impacted by the COVID-19 pandemic. Net sales in regions outside ofthe United States decreased by$46.6 million , or 7.6%, to$564.2 million for the nine months endedSeptember 30, 2020 compared to$610.8 million for the nine months endedSeptember 30, 2019 . On a constant currency basis, net sales in such regions decreased by$39.4 million , or 6.5%, to$571.4 million . This decrease in net sales was due to decreases in sales volumes across all reportable segments, primarily as a result of the impact of the COVID-19 pandemic in all regions exceptKorea .Korea net sales increased across all reportable segments. Additionally, results from KJUS partially offset declines in EMEA. 33
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Gross Profit Gross profit decreased by$76.1 million to$609.4 million for the nine months endedSeptember 30, 2020 compared to$685.5 million for the nine months endedSeptember 30, 2019 . Gross margin decreased to 51.1% for the nine months endedSeptember 30, 2020 compared to 52.2% for the nine months endedSeptember 30, 2019 . The decrease in gross profit resulted from a decrease of$38.7 million in Titleist golf balls, a decrease of$26.1 million in Titleist golf clubs, a decrease of$18.6 million in FootJoy golf wear and a decrease of$2.6 million in Titleist golf gear, each primarily due to the sales volume declines discussed above. The remaining change in gross profit was primarily due to results from KJUS. The decrease in gross margin was primarily driven by lower gross margins in Titleist golf balls and Titleist golf clubs. The Titleist golf ball segment experienced unfavorable manufacturing overhead absorption related to the temporary closure of ourUnited States -based golf ball manufacturing facilities during the second quarter of 2020 as a result of the COVID-19 pandemic. The decrease in Titleist golf clubs was primarily due to an unfavorable product mix shift as a result of our decision to delay the launch of our new metals based on market conditions as a result of the COVID-19 pandemic and higher inventory obsolescence. Selling, General and Administrative Expenses SG&A expenses decreased by$47.5 million to$437.0 million for the nine months endedSeptember 30, 2020 compared to$484.5 million for the nine months endedSeptember 30, 2019 . This decrease primarily resulted from a decrease of$39.3 million in advertising and promotional costs and a decrease of$8.8 million in selling expense as a result of the COVID-19 pandemic and expense reduction measures taken across all segments. Overall, SG&A included a$2.2 million favorable impact of changes in foreign currency exchange rates across all expense categories and segments. Research and Development R&D expenses decreased by$3.4 million to$35.0 million for the nine months endedSeptember 30, 2020 compared to$38.4 million for the nine months endedSeptember 30, 2019 primarily resulting from expense reduction measures taken in response to the COVID-19 pandemic and a reduction in experimental material expense. Intangible Amortization Intangible amortization expense increased by$0.4 million to$5.9 million for the nine months endedSeptember 30, 2020 compared to$5.5 million for the nine months endedSeptember 30, 2019 , primarily due to KJUS. Restructuring Charges During the nine months endedSeptember 30, 2020 , we recorded$11.2 million in severance and other benefits expense related to our voluntary retirement program, as well as$2.0 million in severance and other benefits related to involuntary headcount reductions both associated with our restructuring program approved in the first quarter of 2020. Interest Expense, net Interest expense, net decreased by$2.2 million to$12.4 million for the nine months endedSeptember 30, 2020 compared to$14.6 million for the nine months endedSeptember 30, 2019 . This decrease was primarily due to a decrease in interest rates and a decrease in borrowings for the nine months endedSeptember 30, 2020 , offset in part by an increase in interest rate swap loss. Other Expense, net Other expense, net increased by$6.8 million to$8.1 million for the nine months endedSeptember 30, 2020 compared to$1.3 million for the nine months endedSeptember 30, 2019 . This increase was primarily due to pension settlement costs of$5.1 million recorded during the nine months endedSeptember 30, 2020 related to lump-sum distributions to participants in our defined benefit plans as a result of the voluntary retirement program associated with management's approved restructuring program. Income Tax Expense Income tax expense decreased by$15.0 million to$21.2 million for the nine months endedSeptember 30, 2020 compared to$36.2 million for the nine months endedSeptember 30, 2019 . Our ETR was 21.6% for the nine months endedSeptember 30, 2020 compared to 25.7% for the nine months endedSeptember 30, 2019 . The change in the ETR was primarily 34
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Table of Contents driven by the impact of the COVID-19 pandemic on our jurisdictional mix of earnings, as well as discrete tax benefits related to both a reduction of foreign withholding taxes andU.S. taxation of foreign earnings, offset by a reduction in tax benefits related to share-based compensation expense. Net Income Attributable toAcushnet Holdings Corp. Net income attributable toAcushnet Holdings Corp. decreased by$28.8 million to$74.4 million for the nine months endedSeptember 30, 2020 compared to$103.2 million for the nine months endedSeptember 30, 2019 , primarily as a result of a decrease in income from operations, partially offset by a decrease in income tax expense, as discussed above. Adjusted EBITDA Adjusted EBITDA decreased by$10.5 million to$185.1 million for the nine months endedSeptember 30, 2020 compared to$195.6 million for the nine months endedSeptember 30, 2019 , primarily due to a decrease in income from operations. Adjusted EBITDA margin increased to 15.5% for the nine months endedSeptember 30, 2020 compared to 14.9% for the nine months endedSeptember 30, 2019 . Segment Results Titleist Golf Balls Segment Net sales in our Titleist golf balls segment decreased by$47.4 million , or 10.9%, to$388.5 million for the nine months endedSeptember 30, 2020 compared to$435.9 million for the nine months endedSeptember 30, 2019 . On a constant currency basis, net sales in our Titleist golf balls segment decreased by$45.5 million , or 10.4%, to$390.4 million . This decrease resulted from the impact of the COVID-19 pandemic on sales volumes across all models and regions, with the exception ofKorea . Titleist golf balls segment operating income decreased by$14.5 million , or 19.2%, to$61.0 million for the nine months endedSeptember 30, 2020 compared to$75.5 million for the nine months endedSeptember 30, 2019 . The decrease in operating income resulted from lower gross profit of$38.7 million , partially offset by lower operating expenses. The decrease in gross profit was primarily due to the sales decline discussed above and unfavorable manufacturing overhead absorption due to the closure of ourUnited States -based golf ball manufacturing facilities during the second quarter of 2020 as a result of the COVID-19 pandemic. Operating expenses decreased primarily as a result of a decrease in advertising and promotional costs of$16.3 million , a decrease in selling expense of$5.1 million and a decrease of$3.2 million in research and development costs. Titleist Golf Clubs Segment Net sales in our Titleist golf clubs segment decreased by$38.7 million , or 11.9%, to$286.4 million for the nine months endedSeptember 30, 2020 compared to$325.1 million for the nine months endedSeptember 30, 2019 . On a constant currency basis, net sales in our Titleist golf clubs segment decreased by$37.7 million , or 11.6%, to$287.4 million . This decrease resulted from the impact of the COVID-19 pandemic on sales volumes across all models, with the exception our SM8 wedges introduced in the first quarter of 2020, and all regions, with the exception ofKorea and Rest of world. Titleist golf clubs segment operating income decreased by$5.3 million , or 19.9%, to$21.3 million for the nine months endedSeptember 30, 2020 compared to$26.6 million for the nine months endedSeptember 30, 2019 . The decrease in operating income resulted from lower gross profit of$26.1 million as a result of the sales volume decrease discussed above, partially offset by lower operating expenses. Operating expenses decreased primarily as a result of a$13.3 million decrease in advertising and promotional costs and a$6.6 million decrease in selling expense. Titleist Golf Gear Segment Net sales in our Titleist golf gear segment decreased by$6.4 million , or 5.1%, to$120.2 million for the nine months endedSeptember 30, 2020 compared to$126.6 million for the nine months endedSeptember 30, 2019 . On a constant currency basis, net sales in our Titleist golf gear segment decreased by$5.4 million , or 4.3%, to$121.2 million . This decrease resulted from the impact of the COVID-19 pandemic on sales volumes primarily in our headwear and travel product categories, partially offset by higher average selling prices across all product categories.. Titleist golf gear segment operating income increased by$0.7 million , or 3.5%, to$20.7 million for the nine months endedSeptember 30, 2020 compared to$20.0 million for the nine months endedSeptember 30, 2019 . The increase in operating income resulted from lower operating expenses, partially offset by lower gross profit. Operating expenses decreased primarily as a result of a$1.9 million decrease in advertising and promotional costs and a$1.4 million decrease in selling expense. Gross profit was$2.6 million lower primarily as a result of the sales volume decrease discussed above. 35
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Table of Contents FootJoy Golf Wear Segment Net sales in our FootJoy golf wear segment decreased by$42.9 million , or 12.0%, to$314.7 million for the nine months endedSeptember 30, 2020 compared to$357.6 million for the nine months endedSeptember 30, 2019 . On a constant currency basis, net sales in our FootJoy golf wear segment decreased by$41.3 million , or 11.5%, to$316.3 million . This decrease resulted from the impact of the COVID-19 pandemic on sales volumes primarily in our footwear and apparel product categories and all regions, with the exception ofKorea . FootJoy golf wear segment operating income decreased by$6.1 million , or 24.4%, to$18.9 million for the nine months endedSeptember 30, 2020 compared to$25.0 million for the nine months endedSeptember 30, 2019 . The decrease in operating income resulted from lower gross profit of$18.6 million as a result of the sales volume decrease discussed above, partially offset by lower operating expenses. Operating expenses decreased primarily as a result of a$7.9 million decrease in advertising and promotional costs and a$3.5 million decrease in selling expense. 36
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Table of Contents Liquidity and Capital Resources Our primary cash needs relate to working capital, capital expenditures, servicing of our debt, paying dividends, pension contributions and repurchasing shares of our common stock. 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. Our liquidity is impacted by our level of working capital, which 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 during the first quarter and reorders in the second quarter. Both accounts receivable and inventory balances are impacted by the timing of new product launches. As ofSeptember 30, 2020 , we had$110.5 million of unrestricted cash (including$7.6 million attributable to our FootJoy golf shoe variable interest entity). As ofSeptember 30, 2020 , 83.2% 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 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 tothe 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. As noted previously, the COVID-19 pandemic has adversely impacted our results of operations for the first nine months of 2020. We have taken several steps to preserve our liquidity position and to manage cash flows on an ongoing basis. Subject to the length and severity of the COVID-19 pandemic, 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 facility and our local credit facilities (subject to customary borrowing conditions) will be sufficient to meet our liquidity requirements for at least the next 12 months. Our ability to generate sufficient cash flows from operations is, however, subject to many risks and uncertainties, including future economic trends and conditions, including the current COVID-19 pandemic, demand for our products, foreign currency exchange rates and other risks and uncertainties applicable to our business, as described in our Annual Report on Form 10-K for the year endedDecember 31, 2019 and further updated in "Risk Factors," Item 1A of Part II included elsewhere in this report. Debt and Financing Arrangements As ofSeptember 30, 2020 , we had$358.7 million of availability under our revolving credit facility after giving effect to$3.6 million of outstanding letters of credit. Additionally, we had$60.2 million available under our local credit facilities. Our credit agreement contains customary affirmative and restrictive covenants, including, among others, financial covenants based on our leverage and interest coverage ratios. OnJuly 3, 2020 , we amended our credit agreement to, among other things, provide debt covenant relief for each of the fiscal quarters ending betweenSeptember 30, 2020 andSeptember 30, 2021 . See "Notes to Consolidated Financial Statements-Note-4-Debt and Financing Arrangements," Item 1 of Part I included elsewhere in this report for a description of our amended credit agreement. The 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 ofSeptember 30, 2020 , we were in compliance with all covenants under the credit agreement. See "Notes to Consolidated Financial Statements-Note-10-Debt and Financing Arrangements" in our Annual Report on Form 10-K for the year endedDecember 31, 2019 for a further description of our credit facilities. Additionally, see "Risk Factors - Risks Related to Our Indebtedness" as described in our Annual Report on Form 10-K for the year endedDecember 31, 2019 and "Risk Factors," Item 1A of Part II included elsewhere in this report for further discussion surrounding the risks and uncertainties of our credit facilities. Capital Expenditures We made$15.4 million of capital expenditures during the nine months endedSeptember 30, 2020 primarily related to investments to support the manufacturing and distribution of products, our go to market activities and continued investments in information technology to support our global strategic initiatives. We reduced our capital expenditures in response to the COVID-19 pandemic and expect 2020 full year capital expenditures to be less than in 2019. 37
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Table of Contents Dividends and Share Repurchase Program The Board of Directors has authorized us to repurchase up to an aggregate of$100.0 million of our issued and outstanding common stock. Share repurchases may be effected from time to time in open market or privately negotiated transactions, including transactions with affiliates, with the timing of purchases and the amount of stock purchased generally determined at our discretion consistent with our general working capital needs and within the constraints of our credit agreement. This program will remain in effect until completed or until terminated by the Board of Directors. In connection with this share repurchase program, we entered into an agreement withMagnus Holdings Co., Ltd. ("Magnus"), a wholly owned subsidiary ofFila Holdings Co. , to purchase from Magnus an equal amount of our common stock as we purchase on the open market, up to an aggregate of$24.9 million , at the same weighted average per share price. InApril 2020 , we temporarily suspended stock repurchases under our share repurchase program in light of the COVID-19 pandemic. Prior to this, we repurchased 243,894 shares of common stock on the open market at an average price of$28.60 for an aggregate of$7.0 million during 2020. As a result of these purchases, we recorded an additional liability to repurchase additional shares of common stock from Magnus of$7.0 million (243,894 shares of common stock) bringing the total liability to$8.8 million (299,894 shares of common stock) as ofSeptember 30, 2020 . Excluding the impact of the share repurchase liability, as ofSeptember 30, 2020 , we had$63.7 million remaining under the current share repurchase program, including$11.1 million related to the Magnus share repurchase agreement. We have the ability to resume repurchases in our discretion. During the nine months endedSeptember 30, 2020 , we paid dividends on our common stock of$34.6 million to our shareholders. During the fourth quarter of 2020, our Board of Directors declared a dividend of$0.155 per share of common stock to shareholders of record as ofDecember 4, 2020 and payable onDecember 18, 2020 . Cash Flows The following table presents the major components of net cash flows provided by (used in) operating, investing and financing activities for the periods indicated:
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