The following discussion contains management's discussion and analysis of our financial condition and results of operations and should be read together with "Item 1A - Risk Factors" and our audited consolidated financial statements and the notes thereto included elsewhere in this Annual Report. This discussion contains forwardlooking statements that reflect our plans, estimates and beliefs and involve numerous risks and uncertainties, including but not limited to those described in the "Risk Factors" section of this report. Actual results may differ materially from those contained in any forwardlooking statements. You should carefully read the "Special Note Regarding ForwardLooking Statements" section of this report following the Table of Contents. Overview We are the global leader in the design, development, manufacture and distribution of performancedriven 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. Our target market is dedicated golfers, who are the cornerstone of the worldwide golf industry. These dedicated golfers are avid and skillbiased, prioritize performance and commit the time, effort and money to improve their game. We seek to leverage a pyramid of influence product and promotion strategy, whereby our products are the most played by the world's best players, creating aspirational appeal for a broad range of golfers who want to emulate the performance of the game's best players. Our differentiated focus on performance and quality excellence, enduring connections with dedicated golfers, and favorable and marketdifferentiating mix of consumable and durable products have been the key drivers of our solid financial performance, despite challenges related to demographic, macroeconomic, industry disruptions and weather related conditions. 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 included 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 during the second half of 2020 inthe United States andEurope . Rounds of play and demand for golf products inKorea remained strong through the end of 2020; however,Japan continued to be negatively impacted by the COVID-19 pandemic 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 duration and severity of the pandemic, 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 materially impacted our results of operations for the year endedDecember 31, 2020 as described in more detail under "Results of Operations for the Year EndedDecember 31, 2020 Compared to the Year EndedDecember 31, 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. 44 -------------------------------------------------------------------------------- Table of Contents Basis of Presentation The accompanying results have been prepared in conformity with accounting principles generally accepted inthe United States ("U.S. GAAP") and include the accounts ofAcushnet Holdings Corp. ("the Company"), our wholly-owned subsidiaries and less than wholly-owned subsidiaries, including a variable interest entity ("VIE") in which we are the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation. We have four reportable segments. These segments include Titleist golf balls, Titleist golf clubs, Titleist golf gear and FootJoy golf wear. 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. Key Factors Affecting Our Results of Operations Rounds of Play We generate substantially all of our sales from the sale of golfrelated products, including golf balls, golf clubs, golf shoes, golf gloves, golf gear and golf apparel. The demand for golfrelated products in general, and golf balls in particular, is directly related to the number of golf participants and the number of rounds of golf being played by these participants. We believe the number of rounds of golf played by our target market of dedicated golfers has remained stable over the past few years. Notwithstanding the foregoing, rounds of play in theU.S. experienced double digit growth (+14%) and global rounds of play increased by seven percent for the year endedDecember 31, 2020 as many dedicated golfers took full advantage of favorable weather, an increase in discretionary time due to the circumstances attendant to the COVID-19 pandemic, including limited personal and professional travel and increased flexibility of schedules due to the remote work policies adopted by many companies, and limited other entertainment options. In addition, the game of golf was in high demand in 2020 due to its outdoor field of play and ease of social distancing. We anticipate that rounds of golf played will likely stabilize back to pre-COVID-19 pandemic levels as vaccines become more widely available and businesses and other entertainment activities resume a more normal cadence. Weather Conditions Weather conditions in most parts of the world, including our primary geographic markets, generally restrict golf from being played year-round, with many of our oncourse retail customers closed during the cold weather months and, to a lesser extent, during the hot weather months. Unfavorable weather conditions in our major markets, such as a particularly long winter, a cold and wet spring, or an extremely hot summer, would reduce the number of playable days and rounds played in a given year, which would result in a decrease in the amount spent by golfers and golf retailers on our products, particularly with respect to consumable products such as golf balls and golf gloves. In addition, unfavorable weather conditions and natural disasters can adversely affect the number of custom club fitting and trial events that we can perform during the key selling period. Unusual or severe weather conditions throughout the year, such as storms or droughts or other water shortages, can negatively affect golf rounds played both during the events and afterward, as weather damaged golf courses are repaired and golfers focus on repairing the damage to their homes, businesses and communities. Consequently, sustained adverse weather conditions, especially during the warm weather months, could impact our sales. Adverse weather conditions may have a greater impact on us than other golf equipment companies as we have a large percentage of consumable products in our product portfolio, and the purchase of consumable products are more dependent on the number of rounds played in a given year. Economic Conditions Our products are recreational in nature and are therefore discretionary purchases for consumers. Consumers are generally more willing to spend their time and money to play golf and make discretionary purchases of golf products when economic conditions are favorable and when consumers feel confident and prosperous. Discretionary spending on golf and the golf products we sell is affected by consumer spending habits as well as by many macroeconomic factors, including general business conditions, stock market prices and volatility, corporate spending, housing prices, interest rates, the availability of consumer credit, taxes and consumer confidence in future economic conditions. Consumers may reduce or postpone purchases of our products as a result of shifts in consumer spending habits as well as during periods when economic uncertainty increases, disposable income is lower, or during periods of actual or perceived unfavorable economic conditions. Demographic Factors Golf is a recreational activity that requires time and money. The golf industry has been principally driven by the age cohort of 30 and above, primarily "genx" and "baby boomers", who have the time and money to engage in the sport. Since a 45 -------------------------------------------------------------------------------- Table of Contents significant number of baby boomers have yet to retire, we anticipate growth in spending from this demographic as it has been demonstrated that rounds of play increase significantly as those in this cohort reach retirement. Further, we also believe that the percentage of women golfers will continue to grow, as a higher percentage of new golfers in recent years have been women. Beyond the genx and baby boomer generation, another promising development in golf has been the generational shift with millennial golfers making their marks at both professional and amateur levels and, in 2020, accounting for 25% of golfers overall in theU.S. Golf participation among younger generations and certain socioeconomic and ethnic groups may not prove to be as popular as it is among the current genx and baby boomer generations. In such case, sales of our products could be negatively impacted. Seasonality Weather conditions in most parts of the world, including our primary geographic markets, generally restrict golf from being played year-round, with many of our oncourse customers closed during the cold weather months. In general, during the first quarter, we begin selling our products into the golf retail channel for the new golf season. This initial sellin generally continues into the second quarter. Our secondquarter sales are significantly affected by the amount of sellthrough, in particular the amount of higher value discretionary purchases made by customers, which drives the level of reorders of our products soldin during the first quarter. Our thirdquarter sales are generally dependent on reorder business, and are generally lower than the second quarter as many retailers begin decreasing their inventory levels in anticipation of the end of the golf season. Our fourthquarter sales are generally less than the other quarters due to the end of the golf season in many of our key markets, but can also be affected by key product launches, particularly golf clubs. This seasonality, and therefore quarter to quarter fluctuations, can be affected by many factors, including weather conditions as discussed above under "-Weather Conditions" and the timing of new product introductions as discussed below under "-Cyclicality." This seasonality affects sales in each of our reportable segments differently. In general, however, because of this seasonality, a majority of our sales and most of our profitability generally occurs during the first half of the year. Cyclicality Our sales can also be affected by the launch timing of new products. Product introductions generally stimulate sales as the golf retail channel takes on inventory of new products. Reorders of these new products then depend on the rate of sellthrough. Announcements of new products can often cause our customers to defer purchasing additional golf equipment until our new products are available. The varying product introduction cycles described below may cause our results of operations to fluctuate as each product line has different volumes, prices and margins. Product Life Cycles Titleist Golf Balls Segment We generally launch new Titleist golf ball models on a two-year cycle. In general, in odd-numbered years, we launch our premium performance models, Pro V1 and Pro V1x, in the first quarter and our TruFeel performance model in the fourth quarter. In even-numbered years, we launch our premium performance AVX model and Velocity performance model in the first quarter and performance models Tour Speed and Tour Soft in the second quarter. For new golf ball models, sales occur at a higher rate in the year of the initial launch than in the second year. Given the Pro V1 franchise is our highest volume and our highest priced product in this product category, we typically have higher net sales in our Titleist golf ball segment in odd-numbered years. Titleist Golf Clubs Segment We generally launch new Titleist golf club models on a twoyear cycle using the following product launch cycle. At present, we anticipate continuing to use this product launch cycle going forward because we believe it aligns our launches with the purchase habits of dedicated golfers. In general, we launch: •drivers and fairways in the third or fourth quarter of evennumbered years, which typically results in an increase in sales of drivers and fairways during such quarters because retailers take on initial supplies of these products as stock inventory, with increased sales generated by such new products continuing the following spring and summer of oddnumbered years; •hybrids in the first or second quarter of odd-numbered years, with the majority of sales generated by such new products occurring in the spring, summer and fall of oddnumbered years; 46 -------------------------------------------------------------------------------- Table of Contents •irons in the third or fourth quarter of oddnumbered years, with the majority of sales generated by such new products occurring in the following spring and summer of evennumbered years because a higher percentage of our new irons as compared to our drivers and fairways are sold through on a custom fit basis and the spring and summer is when golfers tend to make such custom fit purchases; •Vokey Design wedges in the first quarter of evennumbered years, with the majority of sales generated by such new products occurring in the spring and summer of such evennumbered years; and •Scotty Cameron putters in the first quarter, with the Select models launched in evennumbered years and the Phantom X models launched in oddnumbered years, with the majority of sales generated by such new products occurring in the spring and summer of the year in which they are launched. As a result of this product launch cycle, we generally expect to have higher net sales in our Titleist golf clubs segment in evennumbered years due to the following factors: •the majority of sales generated by new irons launched in the third or fourth quarter of oddnumbered years is expected to occur in the spring and summer of the following evennumbered years; •the majority of sales generated by new Vokey Design wedges launched in the first quarter of evennumbered years is expected to occur in such evennumbered years; •the majority of sales generated by new Scotty Cameron Select line of putters launched in the first quarter of evennumbered years is expected to occur in such evennumbered years; and •the increase in sales of new drivers and fairways launched in the third or fourth quarter of evennumbered years due to the initial sellin of these products during such quarters. Titleist Golf Gear and FootJoy Golf Wear Segments Our Titleist golf gear and FootJoy golf wear businesses are not subject to the same degree of cyclical fluctuation as our golf ball and golf club businesses as new product offerings and styles are generally introduced each year and at different times during the year. Foreign Currency For the years endedDecember 31, 2020 , 2019 and 2018, 48%, 47% and 49%, respectively, of our net sales were generated outside ofthe United States by our nonU.S. subsidiaries. Substantially all of these net sales generated outside ofthe United States were generated in the applicable local currency, which include, but are not limited to, the Japanese yen, the Korean won, the British pound sterling, the euro and the Canadian dollar. In contrast, substantially all of the purchases of inventory, raw materials or components by our nonU.S. subsidiaries are made inU.S. dollars. For the years endedDecember 31, 2020 , 2019 and 2018 approximately 85% of our cost of goods sold incurred by our nonU.S. subsidiaries was denominated inU.S. dollars. Because our nonU.S. subsidiaries incur substantially all of their cost of goods sold in currencies that are different from the currencies in which they generate substantially all of their sales, we are exposed to transaction risk attributable to fluctuations in such exchange rates, which can impact the gross profit of our nonU.S. subsidiaries. In an effort to protect against adverse fluctuations in foreign exchange rates and minimize foreign currency transaction risk, we take an active approach to currency hedging, which includes among other things, entering into various foreign currency exchange contracts, with the primary goal of providing earnings and cash flow stability. As a result of our active approach to currency hedging, we are able to take a longer term view and more flexible approach towards pricing our products and making costrelated decisions. In taking this active approach, we coordinate with the management teams of our key nonU.S. subsidiaries on an ongoing basis to share our views on anticipated currency movements and make decisions on securing foreign currency exchange contract positions that are incorporated into our business planning and forecasting processes. Because our hedging activities are designed to reduce volatility, they reduce not only the negative impact of a strongerU.S. dollar but could also reduce the positive impact of a weakerU.S. dollar. Because our consolidated accounts are reported inU.S. dollars, we are also exposed to currency translation risk when we translate the financial results of our consolidated nonU.S. subsidiaries from their local currency intoU.S. dollars. For the year endedDecember 31, 2020 , 48% of our sales were denominated in foreign currencies. In addition, for the year endedDecember 31, 2020 , approximately 34% of our total operating expenses were denominated in foreign currencies (which amounts represent substantially all of the operating expenses incurred by our nonU.S. subsidiaries). Fluctuations in foreign currency exchange rates may positively or negatively affect our reported financial results and can significantly affect 47 -------------------------------------------------------------------------------- Table of Contents periodoverperiod comparisons. A strengthening of theU.S. dollar relative to our foreign currencies could materially adversely affect our business, financial condition and results of operations. 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 withU.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 (loss) attributable toAcushnet Holdings Corp. plus 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 (loss) 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 nonrecurring items, or affected by similar nonrecurring 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 nonrecurring items, or affected by similar nonrecurring 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 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. 48 -------------------------------------------------------------------------------- Table of Contents Results of Operations The following table sets forth, for the periods indicated, our results of operations. Year ended December 31, (in thousands) 2020 2019 2018 Net sales$ 1,612,169 $ 1,681,357 $ 1,633,721 Cost of goods sold 782,333 809,122 791,370 Gross profit 829,836 872,235 842,351 Operating expenses: Selling, general and administrative 610,603 627,503 611,883 Research and development 48,942 51,601 51,489 Intangible amortization(1) 11,629 7,478 6,644 Restructuring charges 13,207 - - Income from operations 145,455 185,653 172,335 Interest expense, net 15,630 19,613 18,402 Other expense, net 16,776 875 3,629 Income before income taxes 113,049 165,165 150,304 Income tax expense 13,038 40,600 47,232 Net income 100,011 124,565 103,072 Less: Net income attributable to noncontrolling interests (4,005) (3,495) (3,200) Net income attributable to Acushnet Holdings Corp.$ 96,006 $ 121,070 $ 99,872 Adjusted EBITDA: Net income attributable to Acushnet Holdings Corp.$ 96,006 $ 121,070 $ 99,872 Interest expense, net 15,630 19,613 18,402 Income tax expense 13,038 40,600 47,232 Depreciation and amortization (1) 45,429 43,002 40,496 Share-based compensation 16,016 10,975 18,563 Restructuring and transformation costs(2) 15,589 - - Beam indemnification expense (income) (3) 9,871 (498) (258)
Other extraordinary, unusual or non-recurring items, net (4) 17,600
1,869 3,319 Net income attributable to noncontrolling interests 4,005 3,495 3,200 Adjusted EBITDA$ 233,184 $ 240,126 $ 230,826 Adjusted EBITDA margin 14.5 % 14.3 % 14.1 %
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(1) For the year endedDecember 31, 2020 , includes a goodwill impairment loss of$3.8 million related to KJUS. (2) Relates to severance and other costs associated with management's approved restructuring program and other expenses to refine and transform our business model and improve operational efficiencies. (3) Includes non-cash indemnification expense (income) related to tax audits for the periods in which we were owned byBeam Suntory, Inc. ("Beam"). (4) Items recorded during the year endedDecember 31, 2020 include salaries and benefits paid for associates who 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 and pension settlement costs of$7.2 million related to lump-sum distributions to participants in our defined benefit plans as a result of the voluntary retirement program as part of management's approved restructuring program. Items recorded during the year endedDecember 31, 2019 include transaction fees of$2.7 million . Items recorded during the year endedDecember 31, 2018 include a non-cash settlement expense of$2.5 million related to benefit payments received by our former CEO in connection with his retirement. Includes other immaterial unusual or non-recurring items, net for the years endedDecember 31, 2020 , 2019 and 2018. 49 --------------------------------------------------------------------------------
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Year Ended
Year ended Constant
Currency
December 31, Increase/(Decrease) Increase/(Decrease) (in millions) 2020 2019 $ change % change $ change % change Titleist golf balls$ 507.8 $ 551.6 $ (43.8) (7.9) % $ (43.9) (8.0) % Titleist golf clubs 418.4 434.4 (16.0) (3.7) % (17.5) (4.0) % Titleist golf gear 149.4 150.0 (0.6) (0.4) % - - % FootJoy golf wear 415.3 441.9 (26.6) (6.0) % (27.0) (6.1) %
Segment operating income by reportable segment is summarized as follows:
Year ended December 31, Increase/(Decrease) (in millions) 2020 2019 $ change % change Titleist golf balls$ 71.8 $ 93.3 $ (21.5) (23.0) % Titleist golf clubs 40.0 38.8 1.2 3.1 % Titleist golf gear 20.0 17.3 2.7 15.6 % FootJoy golf wear 18.3 24.4 (6.1) (25.0) %
Net sales information by region is summarized as follows:
Year ended Constant
Currency
December 31, Increase/(Decrease) Increase/(Decrease) (in millions) 2020 2019 $ change % change $ change % change United States$ 839.4 $ 884.8 $ (45.4) (5.1) % $ (45.4) (5.1) % EMEA(1) 219.0 230.5 (11.5) (5.0) % (12.6) (5.5) % Japan 151.8 182.7 (30.9) (16.9) % (34.3) (18.8) % Korea 246.2 223.4 22.8 10.2 % 26.4 11.8 % Rest of world 155.8 160.0 (4.2) (2.6) % (4.3) (2.7) % Total net sales$ 1,612.2 $ 1,681.4 $ (69.2) (4.1) % $ (70.2) (4.2) %
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(1)
50 -------------------------------------------------------------------------------- Table of Contents Net Sales Net sales decreased by$69.2 million , or 4.1%, to$1,612.2 million for the year endedDecember 31, 2020 compared to$1,681.4 million for the year endedDecember 31, 2019 . On a constant currency basis, net sales decreased by$70.2 million , or 4.2%, to$1,611.2 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 and related government-ordered shutdowns primarily during the first and second quarters of 2020. Partially offsetting this was higher demand around golf and golf-related products in the third and fourth quarters as golf courses and on and off-course retail partner locations re-opened, as well as a full year of sales from KJUS, which we acquired in the third quarter of 2019. Net sales inthe United States decreased by$45.4 million , or 5.1%, to$839.4 million for the year endedDecember 31, 2020 compared to$884.8 million for the year endedDecember 31, 2019 . Overall, sales inthe United States were lower as a result of the impact of the COVID-19 pandemic. The decrease in net sales primarily resulted from a decrease of$27.3 million in Titleist golf balls, a decrease of$15.3 million in FootJoy golf wear and a decrease of$10.6 million in Titleist golf clubs. The decrease in net sales was partially offset by an increase of$3.0 million in Titleist golf gear and a full year of sales 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$23.8 million , or 3.0%, to$772.8 million for the year endedDecember 31, 2020 compared to$796.6 million for the year endedDecember 31, 2019 . On a constant currency basis, net sales in such regions decreased by$24.8 million , or 3.1%, to$771.8 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 , which saw net sales increases across all reportable segments except Titleist golf clubs. A full year of sales from KJUS partially offset declines in EMEA. Gross Profit Gross profit decreased by$42.4 million to$829.8 million for the year endedDecember 31, 2020 compared to$872.2 million for the year endedDecember 31, 2019 . Gross margin decreased to 51.5% for the year endedDecember 31, 2020 compared to 51.9% for the year endedDecember 31, 2019 . The decrease in gross profit primarily resulted from a decrease of$37.7 million in Titleist golf balls, a decrease of$10.5 million in Titleist golf clubs and a decrease of$9.3 million in FootJoy golf wear, each primarily due to the sales volume declines discussed above. The remaining change in gross profit was primarily due to sales volume growth of products that are not allocated to one of our reportable segments. The decrease in gross margin was primarily driven by lower gross margin in Titleist golf balls. The Titleist golf balls 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. Selling, General and Administrative Expenses Selling, general and administrative ("SG&A") expenses decreased by$16.9 million to$610.6 million for the year endedDecember 31, 2020 compared to$627.5 million for the year endedDecember 31, 2019 . SG&A decreased primarily as a result of expense reduction measures taken across all segments in the first and second quarters of 2020 as a result of the COVID-19 pandemic, partially offset by increased spending in the fourth quarter related to higher net sales as described above and increased employee related expenses. The decrease in SG&A primarily resulted from a decrease of$31.4 million in advertising and promotional costs, partially offset by an increase of$10.1 million in administrative expense primarily due to employee related expenses and an increase of$6.6 million in selling expense primarily related to a full year of KJUS. Research and Development Research and development ("R&D") expenses decreased by$2.7 million to$48.9 million for the year endedDecember 31, 2020 compared to$51.6 million for the year endedDecember 31, 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$4.1 million to$11.6 million for the year endedDecember 31, 2020 , compared to$7.5 million for the year endedDecember 31, 2019 , primarily related to a goodwill impairment loss of$3.8 million related to KJUS. 51 -------------------------------------------------------------------------------- Table of Contents Restructuring Charges During the year endedDecember 31, 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$4.0 million to$15.6 million for the year endedDecember 31, 2020 compared to$19.6 million for the year endedDecember 31, 2019 . This decrease was primarily due to a decrease in interest rates and a decrease in borrowings during the year endedDecember 31, 2020 , offset in part by an increase in interest rate swap loss. Other Expense, net Other expense, net increased by$15.9 million to$16.8 million for the year endedDecember 31, 2020 compared to$0.9 million for the year endedDecember 31, 2019 . This increase was primarily due to expense resulting from the reversal of an indemnification receivable of$10.4 million related to income taxes indemnified by Beam, for which there was a corresponding tax benefit recognized during the year endedDecember 31, 2020 , and a$7.5 million increase in the non-service cost component of net periodic benefit costs related to both an increase in the amortization of actuarial losses and an increase in settlement costs as a result of our voluntary retirement program. Income Tax Expense Income tax expense decreased by$27.6 million to$13.0 million for the year endedDecember 31, 2020 compared to$40.6 million for the year endedDecember 31, 2019 . Our effective tax rate ("ETR") was 11.5% for the year endedDecember 31, 2020 , compared to 24.6% for the year endedDecember 31, 2019 . The decrease in ETR was primarily driven by the impact of the COVID-19 pandemic on our geographic mix of earnings as well as the reduction of tax expense associated with theU.S. tax of foreign earnings and the income tax benefit pertaining to our change in unrecognized tax benefits resulting from an audit settlement for the periods in which we were owned by Beam. Net Income Attributable toAcushnet Holdings Corp. Net income attributable toAcushnet Holdings Corp. decreased by$25.1 million to$96.0 million for the year endedDecember 31, 2020 compared to$121.1 million for the year endedDecember 31, 2019 , primarily as a result of the factors discussed above. Adjusted EBITDA Adjusted EBITDA decreased by$6.9 million to$233.2 million for the year endedDecember 31, 2020 compared to$240.1 million for the year endedDecember 31, 2019 due to a decrease in income from operations partially offset by adjustments to net income attributable toAcushnet Holdings Corp. related to restructuring and transformation costs and other extraordinary, unusual or non-recurring items, net (see Results of Operations table). Adjusted EBITDA margin increased to 14.5% for the year endedDecember 31, 2020 compared to 14.3% for the year endedDecember 31, 2019 . Segment Results Titleist Golf Balls Segment Net sales in our Titleist golf balls segment decreased by$43.8 million , or 7.9%, to$507.8 million for the year endedDecember 31, 2020 compared to$551.6 million for the year endedDecember 31, 2019 . On a constant currency basis, net sales in our Titleist golf balls segment decreased by$43.9 million , or 8.0%, to$507.7 million . This decrease resulted from the impact of the COVID-19 pandemic on sales volumes as discussed above across all models and regions, with the exception ofKorea . Operating income in our Titleist golf balls segment decreased by$21.5 million , or 23.0%, to$71.8 million for the year endedDecember 31, 2020 compared to$93.3 million for the year endedDecember 31, 2019 . The decrease in operating income was due to a decrease of$37.7 million in gross profit partially offset by a decrease in 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 due to a decrease of$14.4 million in advertising and promotional costs and a decrease of$3.1 million in R&D costs primarily as a result of the expense reduction measures taken in response to the COVID-19 pandemic, partially offset by an increase of$3.0 million in allocated administration expense primarily due to employee related expenses. 52 -------------------------------------------------------------------------------- Table of Contents Titleist Golf Clubs Segment Net sales in our Titleist golf clubs segment decreased by$16.0 million , or 3.7%, to$418.4 million for the year endedDecember 31, 2020 compared to$434.4 million for the year endedDecember 31, 2019 . On a constant currency basis, net sales in our Titleist golf clubs segment decreased by$17.5 million , or 4.0%, to$416.9 million . This decrease resulted from the impact of the COVID-19 pandemic on sales volumes as discussed above across all models, partially offset by our SM8 wedges introduced in the first quarter of 2020 and our TSi metals introduced in the fourth quarter of 2020. Operating income in our Titleist golf clubs segment increased by$1.2 million , or 3.1%, to$40.0 million for the year endedDecember 31, 2020 compared to$38.8 million for the year endedDecember 31, 2019 . The increase in operating income resulted from lower operating expenses, largely offset by lower gross profit. Operating expenses decreased primarily due to a decrease of$10.0 million in advertising and promotional costs and a decrease of$3.6 million in selling expense primarily as a result of the expense reduction measures taken in response to the COVID-19 pandemic, partially offset by an increase of$2.1 million in allocated administration expense primarily due to employee related expenses. Gross profit was$10.5 million lower primarily as a result of the sales volume decrease discussed above. Titleist Golf Gear Segment Net sales in our Titleist golf gear segment decreased by$0.6 million , or 0.4%, to$149.4 million for the year endedDecember 31, 2020 compared to$150.0 million for the year endedDecember 31, 2019 . On a constant currency basis, net sales in our Titleist golf gear segment was unchanged. Sales volumes were impacted by the COVID-19 pandemic as discussed above primarily in our headwear and travel product categories, offset by higher average selling prices across all product categories. Operating income in our Titleist golf gear segment increased by$2.7 million , or 15.6%, to$20.0 million for the year endedDecember 31, 2020 compared to$17.3 million for the year endedDecember 31, 2019 . The increase in operating income resulted from lower operating expenses and higher gross profit. Operating expenses decreased primarily due to a decrease of$1.9 million in advertising and promotional costs primarily as a result of the expense reduction measures taken in response to the COVID-19 pandemic. Gross profit increased$1.3 million primarily due to higher average selling prices across all product categories. FootJoy Golf Wear Segment Net sales in our FootJoy golf wear segment decreased by$26.6 million , or 6.0%, to$415.3 million for the year endedDecember 31, 2020 compared to$441.9 million for the year endedDecember 31, 2019 . On a constant currency basis, net sales in our FootJoy golf wear segment decreased by$27.0 million , or 6.1%, to$414.9 million . This decrease resulted from the impact of the COVID-19 pandemic on sales volumes as discussed above primarily in our footwear and apparel product categories and all regions, with the exception ofKorea . Operating income in our FootJoy golf wear segment decreased by$6.1 million , or 25.0%, to$18.3 million for the year endedDecember 31, 2020 compared to$24.4 million for the year endedDecember 31, 2019 . The decrease in operating income resulted from a decrease of$9.3 million in gross profit primarily as a result of the sales volume decrease discussed above, partially offset by lower operating expenses. Operating expenses decreased primarily due to a decrease of$6.3 million in advertising and promotional costs primarily as a result of the expense reduction measures taken in response to the COVID-19 pandemic, partially offset by an increase of$2.6 million in selling expense. Year EndedDecember 31, 2019 Compared to the Year EndedDecember 31, 2018 A detailed review of our results of operations for the year endedDecember 31, 2019 as compared to the year endedDecember 31, 2018 can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Company's Form 10-K for the year endedDecember 31, 2019 , which was filed with theSEC onFebruary 27, 2020 , and is incorporated herein by reference. 53 -------------------------------------------------------------------------------- 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 sellin 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 ofDecember 31, 2020 , we had$149.4 million of unrestricted cash (including cash equivalents) (including$6.1 million attributable to our FootJoy golf shoe variable interest entity). As ofDecember 31, 2020 , 56.1% of our total unrestricted cash (including cash equivalents) was held at our nonU.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 year endedDecember 31, 2020 . At the onset of the pandemic, we took 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 "Risk Factors," Item 1A of Part I included elsewhere in this report. Debt and Financing Arrangements As ofDecember 31, 2020 , we had$392.2 million of availability under our revolving credit facility after giving effect to$7.8 million of outstanding letters of credit. Additionally, we had$58.7 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 10- Debt and Financing Arrangements," Item 8 of Part II 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 ofDecember 31, 2020 , we were in compliance with all covenants under the credit agreement. See "Notes to Consolidated Financial Statements- Note 10- Debt and Financing Arrangements," Item 8 of Part II included elsewhere in this report, for a further description of our credit facilities. Additionally, see "Risk Factors - Risks Related to Our Indebtedness" Item 1A of Part I included elsewhere in this report for further discussion surrounding the risks and uncertainties of our credit facilities. Capital Expenditures We made$24.7 million of capital expenditures during the year endedDecember 31, 2020 . We reduced our capital expenditures in response to the COVID-19 pandemic resulting in lower full year capital expenditures in 2020 than in 2019. Capital expenditures in 2021 are expected to be approximately$50.0 million , although the actual amount may vary depending upon a variety of factors, including the timing of implementation of certain capital projects. Capital expenditures generally relate 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. The increase in anticipated capital 54 -------------------------------------------------------------------------------- Table of Contents expenditures in 2021 is primarily related to key strategic investments in our golf ball operations and precision manufacturing capabilities. 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 Corp. , 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 ofDecember 31, 2020 . Excluding the impact of the share repurchase liability, as ofDecember 31, 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. See "Notes to Consolidated Financial Statements-Note 15-Common Stock," Item 8 of Part II, included elsewhere in this report, for disclosures related to the Magnus share repurchase liability. During the year endedDecember 31, 2020 , we paid dividends on our common stock of$46.1 million to our shareholders. During the first quarter of 2021, our Board of Directors declared a dividend of$0.165 per share of common stock to shareholders of record as ofMarch 12, 2021 and payable onMarch 26, 2021 . Cash Flows The following table presents the major components of net cash flows provided by and used in operating, investing and financing activities for the periods indicated: Year ended December 31, (in thousands) 2020 2019 2018 Cash flows provided by (used in): Operating activities$ 264,425 $ 134,283 $ 163,733 Investing activities (24,675) (61,060) (49,703) Financing activities (128,587) (70,328) (128,883)
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash
6,105 275 (1,855)
Net increase (decrease) in cash, cash equivalents and restricted cash
$
117,268
Cash Flows From Operating Activities Net cash provided by operating activities was$264.4 million for the year endedDecember 31, 2020 compared to$134.3 million for the year endedDecember 31, 2019 , an increase in cash provided by operating activities of$130.1 million . The increase in cash provided by operating activities was primarily driven by higher cash collections, lower inventory levels due to government-ordered shutdowns and the subsequent increase in demand for golf and golf-related products, and other changes in working capital, partially offset by lower net income. Working capital at any specific point in time is subject to many variables, including seasonality and inventory management, the timing of cash receipts and payments, vendor payment terms, and fluctuations in foreign exchange rates. Net cash provided by operating activities was$134.3 million for the year endedDecember 31, 2019 compared to$163.7 million for the year endedDecember 31, 2018 , a decrease in cash provided by operating activities of$29.4 million . The decrease in cash provided by operating activities was primarily driven by changes in working capital. 55 -------------------------------------------------------------------------------- Table of Contents Cash Flows From Investing Activities Net cash used in investing activities was$24.7 million for the year endedDecember 31, 2020 compared to$61.1 million for the year endedDecember 31, 2019 , a decrease of$36.4 million , primarily related to a decrease in cash used for business acquisitions, as well as a decrease in capital expenditures. Net cash used in investing activities was$61.1 million for the year endedDecember 31, 2019 compared to$49.7 million for the year endedDecember 31, 2018 , an increase of$11.4 million , related to an increase in cash used for business acquisitions. Cash Flows From Financing Activities Net cash used in financing activities was$128.6 million for the year endedDecember 31, 2020 compared to$70.3 million for the year endedDecember 31, 2019 , an increase in cash used in financing activities of$58.3 million . This increase was primarily due to an increase in borrowing repayments, offset in part by a decrease in purchases of common stock and payments for employee restricted stock tax withholdings. Net cash used in financing activities was$70.3 million for the year endedDecember 31, 2019 compared to$128.9 million for the year endedDecember 31, 2018 , a decrease in cash used in financing activities of$58.6 million . This decrease was primarily due to an increase in net proceeds from borrowings, partially offset by an increase in payments related to purchases of common stock and employee restricted stock tax withholdings during the year endedDecember 31, 2019 . Contractual Obligations The following table summarizes our outstanding contractual obligations as ofDecember 31, 2020 : Payments Due by Period Less than 1-3 4-5 After (in thousands) Total 1 Year Years Years 5 Years Long-term debt obligations (1)$ 332,500 $
17,500
7,324 13,588 6,153 - Pension and other postretirement benefit obligations 276,744 23,701 51,659 59,198 142,186 Purchase obligations (3) 175,261 162,839 10,310 913 1,199 Lease obligations (4) 61,298 15,402 19,154 12,759 13,983 Total$ 872,868 $ 226,766 $ 129,711 $ 359,023 $ 157,368
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(1)Longterm debt obligations consist of the outstanding principal of our term loan facility. (2)Interest payments related to debt obligations assumes that all debt outstanding as ofDecember 31, 2020 remains outstanding until maturity and is calculated based on interest rates in effect as ofDecember 31, 2020 . Unused commitment fees related to our revolving credit facility have also been included in this calculation. (3)During the normal course of our business, we enter into agreements to purchase goods and services, including purchase commitments for production materials, finished goods inventory, capital expenditures and endorsement arrangements with professional golfers. The amounts reported in the table above exclude those liabilities included in accounts payable or accrued liabilities on the consolidated balance sheet as ofDecember 31, 2020 . (4)We lease certain warehouses, distribution and office facilities, vehicles and equipment under finance and operating leases. Lease obligations represent the future undiscounted cash flows on these leases. Certain leases include one or more options to renew, with renewal terms that can extend the lease term up to three years. The future lease obligations would change if we were to exercise these options or if we were to enter into additional leases. See "Notes to Consolidated Financial Statements-Note 4-Leases," Item 8 of Part II, included elsewhere in this report, for disclosures related to these lease obligations. OffBalance Sheet Arrangements As ofDecember 31, 2020 , we did not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources. 56 -------------------------------------------------------------------------------- Table of Contents Critical Accounting Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. A summary of significant accounting policies is included in Note 2, "Summary of Significant Accounting Policies," to the Consolidated Financial Statements in Item 8 of Part II, which is incorporated herein by reference. An accounting policy is deemed to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate that are reasonably possible could materially impact the financial statements. We believe the following judgments and estimates are critical in the preparation of our consolidated financial statements.Goodwill We evaluate goodwill for impairment annually and whenever events or circumstances indicate that the carrying amount of this asset may not be recoverable. We test goodwill for impairment by comparing the fair value of the reporting unit to its carrying value. The fair value of our reporting units is determined using the income approach. Under the income approach, we estimate the fair value of a reporting unit based on the present value of estimated future cash flows. Cash flow projections are based on management's estimates of revenue growth rates, taking into consideration industry and market conditions. The discount rate is the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the reporting unit's ability to execute on the projected cash flows. This analysis contains uncertainties related to estimating revenue growth as it requires us to make assumptions and apply judgments to estimate industry economic factors and the profitability of future business strategies. If actual results are not consistent with our estimates and assumptions, we may be exposed to future impairment losses that could be material. If the fair value of a reporting unit exceeds the carrying value of the net assets assigned to that reporting unit, goodwill is not impaired. If the carrying value of the net assets assigned to the reporting unit exceeds the fair value of the reporting unit, then we would record an impairment loss equal to the difference, not to exceed the total amount of goodwill allocated to the reporting unit. We perform our annual impairment test of goodwill during the fourth quarter of our fiscal year. We recorded a goodwill impairment loss of$3.8 million for the year endedDecember 31, 2020 related to KJUS. There were no other impairment losses recorded for the years endedDecember 31, 2020 , 2019 and 2018. Pension and Other Postretirement Benefit Plans We provide various post-employment plans including defined benefit plans (or "pension plans") and postretirement benefit plans which provide benefits to certain eligibleU.S. and foreign employees. Projected benefit obligations are measured using various actuarial assumptions, such as discount rate, rate of compensation increase, mortality rate, turnover rate and health care cost trend rates, as determined at each year end measurement date. The measurement of net periodic benefit cost is based on various actuarial assumptions, including discount rate, expected return on plan assets and rate of compensation increase, which are determined as of the prior year measurement date. Our actuarial assumptions are reviewed on an annual basis and modified when appropriate. Our projected benefit obligations related to our pension and other postretirement benefit plans are valued using a weightedaverage discount rate of 2.66% and 2.34%, respectively, for the year endedDecember 31, 2020 . Decreasing the discount rate by 100 basis points would have increased the projected benefit obligations of our pension and other postretirement benefit plan by approximately$61.5 million and$2.0 million , respectively, for the year endedDecember 31, 2020 . Our net periodic benefit cost related to our pension and other postretirement benefit plans is calculated using a weighted average discount rate of 3.24% and 3.12%, respectively, for the year endedDecember 31, 2020 . Decreasing the discount rate by 100 basis points would increase net periodic pension and other postretirement benefit cost by approximately$4.9 million and$0.2 million , respectively, for the year endedDecember 31, 2020 . Additionally, our net periodic benefit cost related to our pension plans is calculated using an expected return on plan assets of 5.01% for the year endedDecember 31, 2020 . Decreasing the expected return on plan assets by 100 basis points would increase net periodic pension benefit cost by approximately$2.4 million for the year endedDecember 31, 2020 . 57 -------------------------------------------------------------------------------- Table of Contents Income Taxes Deferred tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax basis of assets and liabilities, as well as from net operating losses and tax credit carryforwards. We evaluate the recoverability of these future tax deductions and credits by assessing the adequacy of future expected taxable income from all sources, including reversal of temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income rely heavily on estimates that are based on a number of factors, including historical experience and short-range and long-range business forecasts. As ofDecember 31, 2020 , we had a valuation allowance on certain net operating loss and tax credit carryforwards based on our assessment that it is more likely than not that the deferred tax assets will not be recognized. As ofDecember 31, 2020 and 2019, the cumulative valuation allowance against deferred tax assets was$20.4 million and$18.4 million , respectively. We are subject to income taxes in theU.S. and foreign jurisdictions. We account for uncertain tax positions using a more likely than not threshold for recognizing and resolving uncertain tax matters. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. Although we believe we have adequately reserved for our uncertain tax positions, no assurance can be given that the outcome of these matters will not be different. We adjust these reserves in light of changing facts and circumstances, such as the closing of tax audits or refinement of an estimate. To the extent the outcome of these matters is different than the amounts recorded, such differences will affect the provision for income taxes and the effective tax rate in the period in which the determination is made. The 2017 Tax Act was signed into law onDecember 22, 2017 and significantly changed how corporations are taxed. TheU.S. Tax Act requires complex computations to be performed that were not previously requiredU.S. tax law, significant judgments to be made in interpretation of the provisions of theU.S. Tax Act, significant estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced.The U.S. Treasury Department , theIRS , and other standard-setting bodies will continue to interpret or issue guidance on how provisions of theU.S. Tax Act will be applied or otherwise administered. As future guidance is issued, we may adjust amounts that we have previously recorded that may materially impact our provision for income taxes in the period in which the adjustments are made. Recently Issued Accounting Pronouncements We have reviewed all recently issued standards and have determined that, other than as disclosed in "Notes to Consolidated Financial Statements - Note 2 - Summary of Significant Accounting Policies", Item 8 of Part II, included elsewhere in this report, such standards will not have a significant impact on our consolidated financial statements or do not otherwise apply to our operations. 58 --------------------------------------------------------------------------------
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