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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

Form 10-Q

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016

or

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to            

Commission file number: 001-37935

Acushnet Holdings Corp.
(Exact name of registrant as specified in its charter)

(800) 225-8500
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o  No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨  No x

The registrant had 74,093,598 shares of common stock outstanding as of November 30, 2016.

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ACUSHNET HOLDINGS CORP.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2016
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by that section. These forward-looking statements are included throughout this report, including in the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and relate to matters such as our industry, business strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. We have used the words “anticipate,” “assume,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “future,” “will,” “seek,” “foreseeable” and similar terms and phrases to identify forward-looking statements in this report.

The forward-looking statements contained in this report are based on management’s current expectations and are subject to uncertainty and changes in circumstances. We cannot assure you that future developments affecting us will be those that we have anticipated. Actual results may differ materially from these expectations due to changes in global, regional or local economic, business, competitive, market, regulatory and other factors, many of which are beyond our control. We believe that these factors include, but are not limited to:

·                  a reduction in the number of rounds of golf played or in the number of golf participants;

·                  unfavorable weather conditions may impact the number of playable days and rounds played in a given year;

·                  macroeconomic factors may affect the number of rounds of golf played and related spending on golf products;

·                  demographic factors may affect the number of golf participants and related spending on our products;

·                  a significant disruption in the operations of our manufacturing, assembly or distribution facilities;

·                  our ability to procure raw materials or components of our products;

·                  a disruption in the operations of our suppliers;

·                  cost of raw materials and components;

·                  currency transaction and translation risk;

·                  our ability to successfully manage the frequent introduction of new products;

·                  our reliance on technical innovation and high-quality products;

·                  changes of the Rules of Golf with respect to equipment;

·                  our ability to adequately enforce and protect our intellectual property rights;

·                  involvement in lawsuits to protect, defend or enforce our intellectual property rights;

·                  our ability to prevent infringement of intellectual property rights by others;

·                  recent changes to U.S. patent laws and proposed changes to the rules of the U.S. Patent and Trademark Office;

·                  intense competition and our ability to maintain a competitive advantage in each of our markets;

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·                  limited opportunities for future growth in sales of golf balls, golf shoes and golf gloves;

·                  our customers’ financial condition, their levels of business activity and their ability to pay trade obligations;

·                  a decrease in corporate spending on our custom logo golf balls;

·                  our ability to maintain and further develop our sales channels;

·                  consolidation of retailers or concentration of retail market share;

·                  our ability to maintain and enhance our brands;

·                  seasonal fluctuations of our business;

·                  fluctuations of our business based on the timing of new product introductions;

·                  risks associated with doing business globally;

·                  compliance with laws, regulations and policies, including the U.S. Foreign Corrupt Practices Act or other applicable anti-corruption legislation;

·                  our ability to secure professional golfers to endorse or use our products;

·                  negative publicity relating to us or the golfers who use our products or the golf industry in general;

·                  our ability to accurately forecast demand for our products;

·                  a disruption in the service or increase in cost, of our primary delivery and shipping services or a significant disruption at shipping ports;

·                  our ability to maintain our information systems to adequately perform their functions;

·                  cybersecurity risks;

·                  the ability of our eCommerce systems to function effectively;

·                  occurrence of natural disasters or pandemic diseases;

·                  impairment of goodwill and identifiable intangible assets;

·                  our ability to attract and/or retain management and other key employees and hire qualified management, technical and manufacturing personnel;

·                  our ability to prohibit sales of our products by unauthorized retailers or distributors;

·                  international political instability and terrorist activities;

·                  our ability to grow our presence in existing international markets and expand into additional international markets;

·                  tax uncertainties, including potential changes in tax laws, unanticipated tax liabilities and limitations on utilization of tax attributes after any change of control;

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·                  adequate levels of coverage of our insurance policies;

·                  product liability, warranty and recall claims;

·                  litigation and other regulatory proceedings;

·                  compliance with environmental, health and safety laws and regulations;

·                  our ability to secure additional capital on terms acceptable to us and potential dilution of holders of our common stock;

·                  our estimates or judgments relating to our critical accounting policies;

·                  our substantial leverage, ability to service our indebtedness, ability to incur more indebtedness and restrictions in the agreements governing our indebtedness;

·                  a sale, foreclosure, liquidation or other transfer of the shares of our common stock owned by Magnus Holdings Co., Ltd. (“Magnus”) as a result of the term loan agreement entered into by Magnus to finance the purchase of shares of our common stock by Magnus in connection with our initial public offering;

·                  the ability of our controlling stockholder to control significant corporate activities, and our controlling stockholder’s interests may conflict with yours;

·                  the pledge by Fila Korea Co., Ltd. (“Fila Korea”) of the common stock of Magnus and any future pledges by Fila Korea of the common stock of Magnus;

·                  the insolvency laws of Korea are different from U.S. bankruptcy laws;

·                  our status as a controlled company;

·                  increased costs and regulatory requirements of being a public company;

·                  our ability to maintain effective internal controls over financial reporting;

·                  our ability to pay dividends;

·                  dilution from future issuances or sales of our common stock;

·                  anti-takeover provisions in our organizational documents; and

·                  reports from securities analysts.

These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this report. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, our actual results may vary in material respects from those projected in these forward-looking statements.

Any forward-looking statement made by us in this report speaks only as of the date of this report. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, investments or other strategic transactions we may make. We undertake no obligation to publicly update or

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review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by any applicable securities laws.

Website Disclosure

We use our website (www.acushnetholdingscorp.com) as a channel of distribution of company information. The information we post through this channel may be deemed material. Accordingly, investors should monitor this channel, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive e-mail alerts and other information about Acushnet Holdings Corp. when you enroll your e-mail address by visiting the “Resources” section of our website at https://www.acushnetholdingscorp.com/investors/resources/default.aspx. The contents of our website are not, however, a part of this report.

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PART I.                          FINANCIAL INFORMATION

ITEM 1.                             FINANCIAL STATEMENTS

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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ACUSHNET HOLDINGS CORP.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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ACUSHNET HOLDINGS CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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ACUSHNET HOLDINGS CORP.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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ACUSHNET HOLDINGS CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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ACUSHNET HOLDINGS CORP.

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND EQUITY (UNAUDITED)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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ACUSHNET HOLDINGS CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) and include the accounts of Acushnet Holdings Corp. (the “Company”), its wholly owned subsidiaries and a VIE in which the Company is the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation.

Certain information in footnote disclosures normally included in annual financial statements has been condensed or omitted for the interim periods presented in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and U.S. GAAP. In the opinion of management, the financial statements contain all normal and recurring adjustments necessary to state fairly the financial position and results of operations of the Company. The consolidated balance sheet as of December 31, 2015 is derived from the audited consolidated balance sheet for the year then ended. The results of operations for the nine months ended September 30, 2016 are not necessarily indicative of results to be expected for the full year ended December 31, 2016, nor were those of the comparable 2015 period representative of those actually experienced for the full year ended December 31, 2015. These unaudited interim consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes as of and for the year ended December 31, 2015 included in the Company’s prospectus, dated October 27, 2016, constituting part of the Company’s Registration Statement on Form S-1, as amended (Registration No. 333-212116), filed with the SEC on October 31, 2016.

Acquisition

Acushnet Holdings Corp. was incorporated in Delaware on May 9, 2011 as Alexandria Holdings Corp., an entity owned by Fila Korea Co., Ltd.(“Fila Korea”), a leading sport and leisure apparel and footwear company which is a public company listed on the Korea Exchange, and a consortium of investors (the “Financial Investors”) led by Mirae Asset Global Investments, a global investment management firm. Acushnet Holdings Corp. acquired Acushnet Company, our operating subsidiary, from Beam Suntory, Inc. (at the time known as Fortune Brands, Inc.) (“Beam”) on July 29, 2011 (the “Acquisition”).

Stock Split

On October 14, 2016, the Company effected a nine-for-one stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratios for its 7.5% convertible notes due 2021 (“convertible notes”), Series A redeemable convertible preferred stock (“Series A preferred stock”), and the exercise price for the common stock warrants and the strike price of stock-based compensation. Accordingly, all share and per share amounts for all periods presented in the accompanying financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this stock split and adjustment of the common stock warrant exercise price, and convertible notes and redeemable convertible preferred stock conversion ratios.

Initial Public Offering

On November 2, 2016, the Company completed an initial public offering of 19,333,333 shares of its common stock sold by selling stockholders at a public offering price of $17.00 per share. Upon the closing of the Company’s initial public offering, all remaining outstanding shares of the Company’s Series A preferred stock were automatically converted into 11,556,495 shares of the Company’s common stock and the Company’s convertible notes were automatically converted into 22,791,852 shares of the Company’s common stock. The underwriters of the Company’s initial public offering exercised their over-allotment option

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ACUSHNET HOLDINGS CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

to purchase an additional 2,899,999 shares of common stock from the selling stockholders at the initial public offering price of $17.00 per share.

Automatic Conversion

Following the pricing of the initial public offering, Magnus Holdings Co., Ltd. (“Magnus”), a wholly-owned subsidiary of Fila Korea, purchased from the Financial Investors on a pro rata basis 14,818,720 shares of the Company’s common stock, resulting in Magnus holding a controlling ownership interest of 53.1% of the Company’s outstanding common stock. The 14,818,720 shares of the Company’s common stock sold by the Financial Investors were received upon the automatic conversion of certain of the Company’s outstanding convertible notes (Note 5) and Series A preferred stock (Note 10). The remaining outstanding convertible notes and Series A preferred stock automatically converted into shares of the Company’s common stock prior to the closing of the initial public offering.

Unaudited Pro Forma Financial Information

The accompanying unaudited pro forma consolidated balance sheet as of September 30, 2016 has been prepared to give effect to the automatic conversion of all of the outstanding convertible notes into an aggregate of 32,624,820 shares of common stock, the payment in cash of accrued and unpaid interest of $4.5 million on the convertible notes and the automatic conversion of all of the outstanding shares of the Series A preferred stock into an aggregate of 16,542,243 shares of common stock as if the Company’s foregoing transactions had occurred on September 30, 2016.

Use of Estimates

The preparation of the Company’s consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and judgments that affect reported amounts of assets, liabilities, stockholders’ equity, net sales and expenses, and the disclosure of contingent assets and liabilities in its consolidated financial statements. Actual results could differ from those estimates.

Variable Interest Entities

VIEs are entities that, by design, either (i) lack sufficient equity to permit the entity to finance its activities independently, or (ii) have equity holders that do not have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the entity’s expected losses, or the right to receive the entity’s expected residual returns. The Company consolidates a VIE when it is the primary beneficiary, which is the party that has both (i) the power to direct the activities that most significantly impact the VIE’s economic performance and (ii) through its interests in the VIE, the obligation to absorb expected losses or the right to receive expected benefits from the VIE that could potentially be significant to the VIE.

The Company consolidates the accounts of Acushnet Lionscore Limited, a VIE which is 40% owned by the Company. The sole purpose of the VIE is to manufacture the Company’s golf footwear and as such, the Company is deemed to be the primary beneficiary as defined by Accounting Standards Codification (“ASC”) 810. The Company has presented separately on its consolidated balance sheets, to the extent material, the assets of its consolidated VIE that can only be used to settle specific obligations of its consolidated VIE and the liabilities of its consolidated VIE for which creditors do not have recourse to its general credit. The general creditors of the VIE do not have recourse to the Company. Certain directors of the noncontrolling entities have guaranteed the credit lines of the VIE, for which there were no outstanding borrowings as of September 30, 2016 and December 31,  2015. In addition, pursuant to the terms of the agreement governing the VIE, the Company is not required to provide financial support to the VIE.

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ACUSHNET HOLDINGS CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Accounts Receivable

As of September 30, 2016 and December 31, 2015, the allowance for doubtful accounts was $18.0 million and $12.4 million, respectively.

Recently Adopted Accounting Standards

Fair Value Measurement

In May 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-07, “Fair Value Measurement: Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent).” Under ASU 2015-07 investments for which fair value is measured at net asset value per share (or its equivalent) using the practical expedient should not be categorized in the fair value hierarchy. ASU 2015-07 is effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The Company adopted the provisions of this standard during the nine months ended September 30, 2016. The retrospective adoption of this standard did not have a significant impact on the consolidated financial statements.

Intangibles—Goodwill and Other—Internal-Use Software

In April 2015, the FASB issued ASU 2015-05, “Intangibles—Goodwill and Other—Internal-Use Software: Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.” ASU 2015-05 provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. ASU 2015-05 is effective for annual periods beginning after December 15, 2015, including interim periods within those fiscal years. The Company prospectively adopted the provisions of this standard during the nine months ended September 30, 2016. The adoption of this standard did not have a significant impact on the consolidated financial statements.

Consolidation: Amendments to the Consolidation Analysis

In February 2015, the FASB issued ASU 2015-02, “Consolidation: Amendments to Consolidation Analysis.” ASU 2015-02 places more emphasis on risk of loss when determining controlling interest, reduces the frequency of the application of related-party guidance when determining controlling financial interest in a VIE and changes consolidation conclusions for companies in several industries. ASU 2015-02 is effective for reporting periods beginning after December 15, 2015, with early adoption permitted. The Company retrospectively adopted the provisions of this standard during the nine months ended September 30, 2016. The retrospective adoption of this standard did not have a significant impact on the consolidated financial statements.

Recently Issued Accounting Standards

Statement of Cash Flows — Restricted Cash

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows: Restricted Cash.” ASU 2016-18 requires that amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years. Early application is permitted for annual or

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ACUSHNET HOLDINGS CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

interim reporting periods for which the financial statements have not previously been issued. The adoption of this standard is not expected to have a significant impact on the consolidated financial statements.

Consolidation — Interest Held Through Related Parties

In October 2016, the FASB issued ASU 2016-17, “Consolidation: Interests Held through Related Parties that are under Common Control.” ASU 2016-17 changes the evaluation of whether a reporting entity is the primary beneficiary of a VIE by changing how a reporting entity that is a single decision maker of a VIE treats indirect interests in the entity held through related parties that are under common control with the reporting entity. ASU 2016-17 is effective for annual periods beginning after December 15, 2016, and interim periods within those fiscal years. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The adoption of this standard is not expected to have a significant impact on the consolidated financial statements.

Income Taxes

In October 2016, the FASB issued ASU 2016-16, “Income Taxes: Intra-Entity Transfers of Assets other than Inventory.” ASU 2016-16 requires that entities recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating this standard to determine the impact of its adoption on the consolidated financial statements.

Statement of Cash Flows

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments” to address diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating this standard to determine the impact of its adoption on the consolidated financial statements.

Revenue from Contracts with Customers

In May 2016, the FASB issued ASU 2016-12, “Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients.” ASU 2016-12 addresses narrow-scope improvements to the guidance on collectability, noncash consideration and completed contracts at transition and provides a practical expedient for contract modifications and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers. In March 2016, the FASB issued ASU 2016-08, “Revenue from Contracts with Customers: Principal versus Agent Considerations” clarifying the implementation guidance on principal versus agent considerations. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers: Deferral of the Effective Date.” deferring the adoption of previously issued guidance published in May 2014, ASU 2014-09, “Revenue from Contracts with Customers.” ASU 2014-09 amends revenue recognition guidance and requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2016-08 and 2015-14 are effective for reporting periods beginning after December 15, 2017, including interim periods within those fiscal years. The new standard permits the use of either the retrospective or modified retrospective approach on adoption. The Company is currently evaluating this standard to determine the impact of its adoption on the consolidated financial statements.

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ACUSHNET HOLDINGS CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Compensation—Stock Compensation

In March 2016, the FASB issued ASU 2016-09, “Compensation—Stock Compensation: Improvements to Employee Share-Based Payment Accounting” to simplify accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2016, including interim periods within those fiscal years. The adoption of this standard is not expected to have a significant impact on the consolidated financial statements.

Leases

In February 2016, the FASB issued ASU 2016-02, “Leases”, which will require lessees to recognize right-of-use assets and lease liabilities for leases which were formerly classified as operating leases. The guidance is effective for financial statements issued for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently evaluating this standard to determine the impact of its adoption on the consolidated financial statements.

Presentation of Financial Statements—Going Concern

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements—Going Concern: Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” ASU 2014-15 requires management to evaluate whether there is substantial doubt about a company’s ability to continue as a going concern within one year from the date the financial statements are issued and to provide related footnote disclosures as appropriate. ASU 2014-15 is effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. The adoption of this standard is not expected to have a significant impact on the consolidated financial statements.

2. Inventories

Inventories are valued at the lower of cost and net realizable value. Cost is determined using the first-in, first-out inventory method. The inventory balance, which includes material, labor and manufacturing overhead costs, is recorded net of an estimated allowance for obsolete or slow moving inventory.

The components of inventories were as follows:

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ACUSHNET HOLDINGS CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

3. Product Warranty

The Company has defined warranties ranging from one to two years. Products covered by the defined warranty policies include all Titleist golf products, FootJoy golf shoes, and FootJoy golf outerwear. The estimated cost of satisfying future warranty claims is accrued at the time the sale is recorded. In estimating future warranty obligations, the Company considers various factors, including its warranty policies and practices, the historical frequency of claims, and the cost to replace or repair products under warranty.

The activity related to the Company’s warranty obligation for accrued warranty expense was as follows:

4. Related Party Transactions

The Company has historically incurred interest expense payable to related parties on its outstanding convertible notes and bonds with common stock warrants (Note 5). Related party interest expense totaled $10.8 million and $11.3 million for the three months ended September 30, 2016 and 2015 respectively and $25.9 million and $27.8 million for the nine months ended September 30, 2016 and 2015, respectively.

5. Debt and Financing Arrangements

The Company’s debt and capital lease obligations were as follows:

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ACUSHNET HOLDINGS CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

The term loan is net of debt issuance costs of $3.4 million as of September 30, 2016.The secured floating rate notes are net of debt issuance costs of $2.2 million as of December 31, 2015.

Senior Secured Credit Facility

On April 27, 2016, the Company entered into a senior secured credit facilities agreement arranged by Wells Fargo Bank, National Association which provides for (i) a $275.0 million multi-currency revolving credit facility, including a $20.0 million letter of credit sublimit, a $25.0 million swing line sublimit, a C$25.0 million sublimit for Acushnet Canada, Inc., a £20.0 million sublimit for Acushnet Europe Limited and an alternative currency sublimit of $100.0 million for borrowings in Canadian dollars, euros, pounds sterling and Japanese yen (“revolving credit facility”), (ii) a $375.0 million term loan A facility and (iii) a $100.0 million delayed draw term loan A facility. The revolving and term loan facilities mature on July 28, 2021 and the delayed draw term loan A facility expires on July 28, 2017 if not drawn. The credit agreement allows for the incurrence of additional term loans or increases in the revolving credit facility in an aggregate principal amount not to exceed (i) $200.0 million plus (ii) an unlimited amount so long as the net average secured leverage ratio (as defined in the credit agreement) does not exceed 2.00:1.00 on a pro forma basis. The applicable interest rate for the Canadian borrowings under the senior secured credit facility is based on CDOR plus a margin ranging from 1.25% to 2.00% depending on the Net Average Total Leverage Ratio as defined in the credit agreement. The applicable interest for the swing line sublimit is the highest of (a) Federal Funds Rate plus 0.50%, (b) the Prime Rate and (c) the one month LIBOR rate plus 1.00% plus a margin ranging from 0.25% to 1.00% depending on the Net Average Total Leverage Ratio as defined in the credit agreement. The applicable interest rate for all remaining borrowings under the senior secured credit facilities is LIBOR plus a margin ranging from 1.25% to 2.00% depending on the Net Average Total Leverage Ratio as defined in the credit agreement or the highest of (a) Federal Funds Rate plus 0.50%, (b) the Prime Rate and (c) the one month LIBOR rate plus 1.00% plus a margin ranging from 0.25% to 1.00% depending on the Net Average Total Leverage Ratio as defined in the credit agreement.

The credit agreement contains customary affirmative and restrictive covenants, including, among others, financial covenants based on the Company’s leverage and interest coverage ratios. The credit agreement includes customary events of default, the occurrence of which, following any applicable cure period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations to be immediately due and payable.

The credit agreement was signed and became effective on April 27, 2016 and initial funding under the credit agreement occurred on July 28, 2016. The proceeds of the $375.0 million term loan A facility, borrowings of C$4.0 million (equivalent to approximately $3.0 million) under the revolving credit facility and cash on hand of $23.6 million were used to repay all amounts outstanding under the secured floating rate notes and certain former working credit facilities. The secured floating rate notes, certain former working credit facilities and the former senior revolving credit facility were terminated. The Company recorded interest expense related to the term loan facility, including the amortization of debt issuance costs, of $1.9 million during the three and nine months ended September 30, 2016. The Company recorded interest expense related to the revolving credit facility of $0.4 million during the three and nine months ended September 30, 2016.

Convertible Notes

In 2011 and 2012, the Company issued convertible notes with an aggregate principal amount of $362.5 million to shareholders. The convertible notes bore interest at a rate of 7.5% per annum, which was payable in cash semi-annually in arrears on February 1 and August 1. The notes matured upon the earlier of July 29, 2021 or the election of the holder upon a change in control, as defined in the securities purchase agreements governing the notes. Amounts due under the convertible notes could only be repaid upon maturity or upon a change in control.

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ACUSHNET HOLDINGS CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)

On March 11, 2013, the Company received approval from the holders of the convertible notes to defer any interest payments due after August 1, 2013 and prior to February 1, 2016 pursuant to the covenants imposed by the secured floating rate notes and the senior revolving and term loan facilities.

The notes were convertible at the option of the holder at any time prior to maturity into a number of shares of the Company’s common stock determined by dividing the aggregate outstanding unpaid principal amount of the note by the conversion price of $11.11 per share. The conversion price was subject to adjustment if additional shares of common stock were sold subsequent to the issuance of the convertible notes at a price per common share that was lower than $11.11 per share or upon a subdivision of the outstanding shares of the Company’s common stock. Transfer of the notes to any party, including an affiliate of the noteholder, required prior written consent of the other noteholders and Fila Korea.

On May 6, 2016, the Company and each of the holders of the convertible notes entered into an agreement requiring the mandatory conversion of the convertible notes into fully paid and nonassessable shares of the Company’s common stock upon the closing of an initial public offering. This agreement was amended on September 5, 2016 to provide for the automatic conversion of a portion of the outstanding convertible notes in connection with the sale of shares of the Company’s common stock by the holders of the convertible notes to Magnus. The automatic conversion of all outstanding convertible notes occurred prior to the closing of the Company’s initial public offering. Upon conversion, all accrued but unpaid interest on the principal of the convertible notes was paid to each holder of the convertible notes.

The Company recorded interest expense related to the convertible notes of $6.9 million during the three months ended September 30, 2016 and 2015, respectively and $20.4 million and $20.3 million during the nine months ended September 30, 2016 and 2015, respectively.

Bonds with Common Stock Warrants

In 2011 and 2012, the Company issued bonds with an aggregate principal amount of $172.5 million to shareholders. The bonds bore interest at a rate of 7.5% per annum, which was payable in cash semi-annually in arrears on February 1 and August 1. The bonds matured upon the earlier of July 29, 2021 or the election of the holder upon a change of control, as defined in the securities purchase agreement governing the bonds. Amounts due under the bonds could only be repaid upon maturity, a change of control, a holder electing to exercise common stock warrants by net settling their bonds or an exercise of common stock warrants by Fila Korea.

In connection with the issuance of these bonds, the Company issued common stock warrants for the purchase of 15,526,431 shares of the Company’s common stock, at an exercise price of $11.11 per share. The exercise price was subject to adjustment if additional shares of common stock were sold subsequent to the issuance of the bonds at a price per common share that was lower than $11.11 per share or upon a subdivision of the outstanding shares of the Company’s common stock. The common stock warrant exercise price could be settled with cash or through tender of an aggregate outstanding principal amount of the bonds and accrued but unpaid interest equal to the exercise price of the common stock warrants.

The common stock warrants were detachable and transferrable by the holders only to Fila Korea or its designee at a price equal to the interest accrued on the underlying bonds at the rate of 4.0% per annum calculated on an annual compounded basis. The shareholders agreement provided Fila Korea with a call option to purchase all of the outstanding common stock warrants held by holders of the bonds in annual installments of 3,105,288 common stock warrants over a five year period beginning July 29, 2012. Fila Korea was required to exercise the common stock warrants within 10 days of the transfer. The exercise of the common stock warrants by Fila Korea triggered the Company to redeem a pro rata share of the bonds payable by using the proceeds received from the exercise of the common stock warrants by Fila Korea.

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In July 2016, Fila Korea exercised its final annual call option to purchase 3,105,279 common stock warrants held by the holders of the bonds and exercised such warrants at the exercise price of $11.11 per share. This resulted in proceeds to the Company of $34.5 million which the Company used to repay the outstanding indebtedness under the bonds of $34.5 million.

A discount of $19.9 million relating to the issuance-date fair value of the common stock warrants was recorded on the issuance date of the bonds and was accreted to interest expense until the maturity date of the bonds. The unamortized discount was $4.0 million as of December 31, 2015.

The Company recorded interest expense related to the bonds, including the amortization of the discount, of $3.9 million and $4.4 million during the three months ended September 30, 2016 and 2015, respectively. The Company recorded interest expense related to the bonds, including the amortization of the discount, of $5.5 million and $7.5 million during the nine months ended September 30, 2016 and 2015, respectively.

Secured Floating Rate Notes

In October 2011, the Company issued secured floating rate notes with Korea Development Bank in an aggregate principal amount of $500.0 million, which matured on July 29, 2016. The notes bore interest at a rate equal to three-month LIBOR plus a margin of 3.75%, which was required to be paid quarterly in arrears on January 31, April 30, July 31 and October 31. The notes were issued in separate classes with maturity dates ranging from October 2013 to July 2016. Pursuant to an amended and restated pledge and security agreement dated October 31, 2011, the secured floating rate notes were secured by certain assets, including inventory, accounts receivable, fixed assets and intangible assets of the Company, and a second priority security interest in the shares of certain Fila Korea entities, trademarks and bank accounts.

In October 2013, the Company issued secured floating rate notes with Korea Development Bank in an aggregate principal amount of $125.0 million, which matured on July 29, 2016. Proceeds from the issuance of the notes were used, along with existing cash on hand, to repay $150.0 million of the secured floating rate notes issued in October 2011. The notes bore interest at a rate equal to three-month LIBOR plus a margin of 3.75%, which was required to be paid quarterly in arrears on January 31, April 30, July 31 and October 31.

The Company incurred $13.2 million of issuance costs in connection with the original issuance of $500.0 million secured floating rate notes. In addition, the Company incurred $3.3 million of issuance costs in connection with the issuance of $125.0 million secured floating rate notes during the year ended December 31, 2013. Of the $3.3 million, $1.0 million was immediately recorded as interest expense and $2.3 million was capitalized as debt issuance costs.

On July 28, 2016, the outstanding borrowings under the secured floating rate notes were repaid in full using the proceeds from the senior secured credit facility and the secured floating rate notes were terminated.

The Company recorded interest expense related to the secured floating rate notes, including the amortization of debt issuance costs, of $2.1 million and $5.4 million during the three months ended September 30, 2016 and 2015, respectively. The Company recorded interest expense related to the secured floating rate notes, including the amortization of debt issuance costs, of $12.3 million and $15.8 million during the nine months ended September 30, 2016 and 2015, respectively.

Senior Revolving and Term Loan Facilities

In July 2011, the Company entered into a senior revolving facilities agreement with Korea Development Bank (“Senior Facility Agreement”), which provided for borrowings under a revolving credit facility of up to $50.0 million to be used for general corporate purposes (“Senior Revolving Facility”). The

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applicable interest rate for borrowings under the Senior Revolving Facility was LIBOR plus a margin of 3.25%. The Senior Facility Agreement required a commitment fee of 0.3% based on the average daily unused portion of the facility. On February 12, 2014, the Company amended its Senior Facility Agreement and simultaneously executed a joinder agreement with Wells Fargo N.A. to increase the borrowing capacity under the Senior Revolving Facility to $75.0 million.

On December 24, 2014, the Company further amended the Senior Facility Agreement to increase the borrowing capacity under the Senior Revolving Facility to $95.0 million, which matured on July 29, 2016. This amendment also provided for borrowings under a senior term loan agreement with Korea Development Bank of $30.0 million (“Senior Term Loan”), which matured on July 29, 2016. The applicable interest rate for borrowings under the Senior Term Loan was three-month LIBOR plus a margin of 2.63%, and was increased for any required withholding taxes. The Senior Facility Agreement required a commitment fee of 0.3% based on the average daily unused portion of the term loan. Upon entry into the amendment, the Company immediately borrowed the entire $30.0 million under the Senior Term Loan.

There were no outstanding borrowings under the Senior Revolving Facility as of December 31, 2015. The Company recorded interest expense related to the Senior Revolving Facility, including unused commitment fees, of $0.1 million during each of the three months ended September 30, 2016 and 2015.The Company recorded interest expense related to the Senior Revolving Facility, including unused commitment fees, of $0.8 million and $0.7 million during the nine months ended September 30, 2016 and 2015, respectively.

On June 30, 2016, the Company repaid all amounts outstanding under the Senior Term Loan facility and the facility was terminated. There were outstanding borrowings under the Senior Term Loan of $30.0 million as of December 31, 2015. As of December 31, 2015, the interest rate applicable to the outstanding borrowings under the Senior Term Loan facility was 3.26%. The Company recorded interest expense related to the Senior Term Loan of $0.4 million during the three months ended September 30, 2015. The Company recorded interest expense related to the Senior Term Loan of $0.7 million and $1.1 million during the nine months ended September 30, 2016 and 2015, respectively.

Line of Credit Facility

On February 5, 2016, the Company entered into a working capital facility agreement arranged by Wells Fargo Bank, National Association which provides for borrowings up to $30.0 million. The applicable interest rate for borrowings under the facility was daily one-month LIBOR plus a margin of 2.50%. The facility required a commitment fee equal to 0.35% of the unused portion of the facility as of the preceding fiscal quarter.

The working capital facility had an original maturity date of May 31, 2016, but was amended on May 18, 2016 to extend the maturity date to July 29, 2016.

Working Credit Facility (Canada)

In February 2013, the Company entered into a working credit facility agreement arranged by Wells Fargo N.A., Canadian Branch, which provided for borrowings of up to the lesser of (a) C$25 million or (b) the sum of 80% of eligible accounts receivable and 60% of eligible inventory. The working credit facility, as amended, matured on July 29, 2016. The applicable interest rate for borrowings under the facility for Canadian dollar borrowings was CDOR plus a margin of 2.0% or Canadian Prime Rate and for U.S. dollar borrowings was LIBOR plus a margin of 2.0% or U.S. Prime Rate. The facility required a commitment fee equal to 0.25% of the uncancelled and unutilized portion of the facility as of the preceding fiscal quarter.

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On July 28, 2016, the outstanding borrowings were repaid using the proceeds from the senior secured credit facility and cash on hand and the working credit facility (Canada) was terminated. There were no outstanding borrowings under the working credit facility (Canada) as of December 31, 2015.

The Company recorded interest expense related to the working credit facility (Canada), including unused commitment fees, of less than $0.1 million during the three months ended September 30, 2016 and $0.1 million during the three months ended September 30, 2015. The Company recorded interest expense related to the working credit facility (Canada), including unused commitment fees, of $0.2 million during each of the nine months ended September 30, 2016 and 2015.

Working Credit Facility (Europe)

In April 2012, the Company entered into a working credit facility agreement arranged by Wells Fargo Capital Finance (UK) Limited, which provided for borrowings of up to the lesser of (a) £30.0 million or (b) the sum of 85% of eligible accounts receivable and 65% of eligible inventory, of which £5.0 million can be used for letters of credit. The working credit facility had an original maturity date of April 4, 2017. The applicable interest rate for borrowings under the facility was LIBOR plus a margin of 3.0%. The facility included a commitment fee of 0.375% on the average daily unused portion of the facility. The working credit facility was secured by the accounts receivable, inventory and cash collections of Acushnet Europe Limited, a wholly owned subsidiary of the Company.

On July 28, 2016, the outstanding borrowings were repaid using cash on hand and the working credit facility (Europe) was terminated. There were no outstanding borrowings under the working credit facility (Europe) as of December 31, 2015.

The Company recorded interest expense related to the working credit facility (Europe), including unused commitment fees, of $0.1 million during the three months ended September 30, 2016 and 2015, respectively. The Company recorded interest expense related to the working credit facility (Europe), including unused commitment fees, of $0.5 million during the nine months ended September 30, 2016 and 2015, respectively.

6. Derivative Financial Instruments

Common Stock Warrants

The Company classifies warrants to purchase common stock as a liability on its consolidated balance sheet as the warrants are free-standing financial instruments that may result in the issuance of a variable number of the Company’s common shares. The warrants were initially recorded at fair value on grant date, and are subsequently re-measured to fair value at each reporting date. The Company will continue to adjust the liability until the earlier of exercise of the warrants or expiration of the warrants occurs. Common stock warrants are recorded at fair value (Note 7) and included in accrued expenses and other liabilities on the consolidated balance sheet. Changes in the fair value of the common stock warrants are recognized as other (income) expense, net on the consolidated statement of operations.

On July 29, 2011, the Company issued bonds in the aggregate principal amount of $168.0 million and common stock warrants to purchase an aggregate of 15,120,000 shares of the Company’s common stock. On January 20, 2012, the Company issued $4.5 million of additional bonds and common stock warrants to purchase 406,431 shares of the Company’s common stock (Note 5).

In July 2016, Fila Korea exercised its final annual call option to purchase 3,105,279 common stock warrants held by the holders of the bonds and exercised such warrants at the exercise price of $11.11 per

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share, or $34.5 million in the aggregate. The Company used the proceeds received from Fila Korea’s exercise of the common stock warrants to redeem the outstanding bonds payable.

Foreign Exchange Derivative Instruments

The Company principally uses financial instruments to reduce the impact of changes in foreign currency exchange rates. The principal derivative financial instruments the Company enters into on a routine basis are foreign exchange forward contracts. The Company does not enter into foreign exchange forward contracts for trading or speculative purposes.

Foreign exchange contracts are primarily used to hedge purchases denominated in select foreign currencies, thereby limiting currency risk that would otherwise result from changes in exchange rates. The periods of the foreign exchange contracts correspond to the periods of the forecasted transactions, which do not exceed 24 months subsequent to the latest balance sheet date. The effective portions of cash flow hedges are reported in accumulated other comprehensive income (loss) and recognized in the consolidated statement of operations when the hedged item affects earnings. Changes in fair value of all economic hedge transactions are immediately recognized in current period earnings. The primary foreign currency hedge contracts pertain to the U.S. dollar, the Japanese yen, the British pound sterling, the Canadian dollar, the Korean won and the Euro. The gross U.S. dollar equivalent notional amount of all foreign currency derivative hedges outstanding as of September 30, 2016 was $353.6 million.

The counterparties to derivative contracts are major financial institutions. The Company assesses credit risk of the counterparties on an ongoing basis.

The fair values of foreign exchange derivative instruments on the consolidated balance sheets were as follows:

The effect of foreign exchange derivative instruments on accumulated other comprehensive income (loss) and the consolidated statements of operations was as follows: