Acushnet Holdings Corp. (GOLF)

ITEM 7.              MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 forward‑looking 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 forward‑looking statements. You should carefully read the “Special Note Regarding Forward‑Looking Statements” section of this report following the Table of Contents.

Overview

We are the global leader in the design, development, manufacture and distribution of performance-driven golf products, and these products 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 wearable brands.

Our target market is dedicated golfers, who are the cornerstone of the worldwide golf industry. These dedicated golfers are avid and skill-biased, prioritize performance and commit the time, effort and money to improve their game. We 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.

We believe our differentiated focus on performance and quality excellence, enduring connections with dedicated golfers and favorable and market-differentiating mix of consumable and durable products have been the key drivers of our financial performance.

Basis of Presentation

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

During the fourth quarter of 2024, we changed our accounting principle related to the presentation of costs associated with operating our distribution centers and costs associated with shipping and handling activities from selling, general and administrative to cost of goods sold within our consolidated statements of operations. We also changed our reportable segments to combine the Titleist golf balls and Titleist golf clubs reportable segments into a Titleist golf equipment reportable segment, resulting in three reportable segments: Titleist golf equipment, FootJoy golf wear and Golf gear. As part of this change, certain other immaterial changes have been made within our reportable segments. Prior period amounts were updated to conform to the current year presentation for the change in accounting principle and reportable segments. See “Notes to Consolidated Financial Statements – Note 2 – Summary of Significant Accounting Policies,” Item 8 of Part II to this report, for additional detail.

Key Factors Affecting Our Results of Operations

Rounds of Play

We generate substantially all of our sales from the sale of golf-related products, including golf balls, golf clubs, golf shoes, golf gloves, golf gear and golf apparel. The demand for golf-related 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. While rounds of play had been relatively stable for years, the game experienced an approximate 8% global increase in rounds in both 2020 and 2021 as dedicated golfers took full advantage of favorable weather, hybrid work schedules and an increase in discretionary time due to the circumstances attendant to the COVID-19 pandemic. Golf remained in high demand in 2022 and 2023, with the number of rounds played in the U.S. approximately 16% and 20% higher, respectively, than the number of rounds played in 2019. In 2024, the number of rounds played in the U.S. grew approximately 2% compared to 2023, and were 22% higher compared to 2019. We anticipate that global rounds of golf played will remain resilient in 2025, driven by golfer demographics, dedicated golfers and continued participation.

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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 on golf and 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 and many macroeconomic factors, including general business conditions, stock market prices and volatility, corporate spending, housing prices, inflation, 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 years and above, primarily “gen x-ers,” “baby boomers,” “millennials” and, increasingly, “gen z” who have the time and money to engage in the sport. We 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 gen x and baby boomer generations, promising developments in golf include the generational shift resulting from millennial and gen z golfers making their marks at both professional and amateur levels and the increase in the number of juniors (ages 6-17) who play golf in recent years.

Golf participation among younger generations and certain socioeconomic and ethnic groups may not prove to be as popular as it is among older generations. In such case, sales of our products could be negatively impacted.

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 on‑course 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 and decrease 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 events throughout the year, such as storms or droughts or other water shortages, can negatively affect golf rounds played both during such events and afterward. 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.

Seasonality

In general, during the first quarter, we begin selling our products into the golf retail channel for the new golf season. This initial sell‑in generally continues into the second quarter. Our second‑quarter sales are significantly affected by the amount of sell‑through, in particular the amount of higher value discretionary purchases made by customers, which drives the level of reorders of the products sold during the first quarter. Our third‑quarter 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 fourth‑quarter 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 previously under “–Weather Conditions” and the timing of new product introductions as discussed below under “–Cyclicality” and “–Product Life Cycles.” This seasonality affects sales in each of our reportable segments differently. In general, however, because of this seasonality, a larger portion of our sales and profitability generally occurs during the first half of the year.

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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 sell‑through. 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 Equipment 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 in even-numbered years, we launch our premium performance AVX model and most performance models in the first and second quarters. 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 of Titleist golf balls in odd-numbered years.

We generally launch new Titleist golf club models on a two‑year 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 even‑numbered 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 odd‑numbered 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 odd‑numbered years;

•irons in the third or fourth quarter of odd‑numbered years, with the majority of sales generated by such new products occurring in the following spring and summer of even‑numbered 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 even‑numbered years, with the majority of sales generated by such new products occurring in the spring and summer of such even‑numbered years; and

•Scotty Cameron putters in the first quarter, with Super Select models launched in odd-numbered years and Phantom X models launched in even-numbered 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 of Titleist golf clubs in even‑numbered years.

FootJoy Golf Wear and Golf Gear Segments

Our FootJoy golf wear and Golf gear 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

Net sales generated in regions outside of the United States represented approximately 40-50% of our net sales in each of the three years ended December 31, 2024. Substantially all of these net sales 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 subsidiaries in these regions are made in U.S. dollars. For each of the three years ended December 31, 2024, approximately 80% of our cost of goods sold incurred by our subsidiaries in regions outside of the United States were denominated in U.S. dollars. Because these 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 these subsidiaries.

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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 exchange forward 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 more long-term view and more flexible approach towards pricing our products and making cost‑related decisions. In taking this active approach, we coordinate with the management teams of our key 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 stronger U.S. dollar but could also reduce the positive impact of a weaker U.S. dollar.

Because our consolidated accounts are reported in U.S. dollars, we are also exposed to currency translation risk when we translate the financial results of our consolidated subsidiaries from their local currency into U.S. dollars. In each of the three years ended December 31, 2024, over 40% of our net sales and approximately 30% of our total operating expenses (which amounts represent substantially all of the operating expenses incurred by our subsidiaries in regions outside of the United States) were denominated in foreign currencies. Fluctuations in foreign currency exchange rates may positively or negatively affect our reported financial results and can significantly affect period‑over‑period comparisons. A strengthening of the U.S. dollar relative to our foreign currencies could materially adversely affect our business, financial condition and results of operations.

Recent Developments

Distribution Optimization: In 2023, we opened a new customization and distribution center in Lakeville, Massachusetts. This facility is representative of our commitment to providing leading services and the highest quality distribution experience. In connection with this strategic investment in the optimization of our distribution and custom fulfillment capabilities, we incurred costs of $3.4 million and $10.3 million during the years ended December 31, 2024 and 2023, respectively.

Information Technology Optimization: During 2024, we began a multi-year implementation of a new global cloud-based ERP platform as part of our plans to integrate our operations and enhance our supply chain and finance capabilities. We expect that the new global ERP platform will enable further operating efficiencies and support the Company’s digital transformation. Additional implementation activities are expected to continue in phases by geographic region over the next three years. The global ERP platform implementation spending comprises both capitalized costs and operating expenses. The operating expenses associated with the deployment of the global ERP platform represent incremental transformation costs above the normal ongoing level of spending on information technology to support our operations. In connection with this strategic initiative, during the years ended December 31, 2024 and 2023, we incurred expenses of $11.0 million and $1.9 million, respectively. In addition, we invested $12.6 million for capitalized implementation costs associated with the integration, configuration and customization of this new global ERP platform during the year ended December 31, 2024. We anticipate spending approximately $30 million to $35 million in total during 2025 related to deployment of the new global ERP platform.

Supply Chain Optimization: We continue to progress towards our objective of establishing a more resilient supply chain for our FootJoy footwear. Until 2024, the majority of our FootJoy footwear was manufactured in a facility in Fuzhou, China, owned by a joint venture in which we have a 40% interest, with the remaining 60% owned by our long‑standing Taiwan-based supply partners. During 2024, FootJoy shifted footwear production volume from Fuzhou, China to a third-party facility located in Long An Province, Vietnam, which is operated by an affiliate of certain members of the same group of Taiwan-based supply partners. The joint venture ceased production at its Fuzhou, China facility in January 2025 and FootJoy currently contracts to manufacture substantially all of its footwear at the third-party owned Vietnam manufacturing facility. In relation to this initiative, we incurred restructuring charges of $18.0 million during the year ended December 31, 2024, as described in “Notes to Consolidated Financial Statements – Note 23 – Restructuring Costs,” Item 8 of Part II to this report.

Paid Time Off (“PTO”) Policy Change: As part of our continued efforts to attract and retain key talent, we modified our U.S. employee PTO policy during the fourth quarter of 2024 to more closely align with industry benchmarks. As a result of this change, we recognized a non-cash benefit of $17.7 million during the year ended December 31, 2024.

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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 (loss).

Since a significant percentage of our net sales are generated outside of the 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 to forecast 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 net sales and translating them into U.S. dollars based upon the foreign currency exchange rates for the applicable comparable prior period. This constant currency information should not be considered in isolation or as a substitute for any measure derived in accordance with U.S. GAAP. Our presentation of constant currency information may not be consistent with the manner in which similar measures are derived or used by other companies.

We primarily use Adjusted EBITDA on a consolidated basis to evaluate the effectiveness of our business strategies, assess our consolidated operating performance and make decisions regarding the 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 to Acushnet Holdings Corp. plus interest expense, net, income tax expense (benefit), depreciation and amortization and other items defined in our credit 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 (loss) relating to noncontrolling interests. Adjusted EBITDA is not a measurement of financial performance under U.S. GAAP. It should not be considered an alternative to net income (loss) attributable to Acushnet Holdings Corp. as a measure of our operating performance or any other measure of performance derived in accordance with U.S. GAAP. In addition, Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non‑recurring items, or affected by similar non‑recurring items. Adjusted EBITDA has limitations as an analytical tool, and you should not consider such measure either in isolation or as a substitute for analyzing our results as reported under U.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 to Acushnet 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 under U.S. GAAP. It should not be considered an alternative to any measure of performance derived in accordance with U.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 under U.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 (loss) to evaluate the effectiveness of business strategies, assess segment operating performance and make decisions regarding costs to incur across the business. Segment operating income includes directly attributable expenses and certain shared costs of corporate administration that are allocated to the reportable segments, but excludes certain other costs, such as interest expense, net; restructuring costs; the non-service cost component of net periodic benefit cost; transaction fees; as well as other items that are not allocated to the reportable segments.

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Results of Operations

The following table sets forth, for the periods indicated, our results of operations.

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(1) For the year ended December 31, 2024, includes $18.0 million related to our supply chain optimization.

(2) For the years ended December 31, 2024 and 2023, includes $11.0 million and $1.9 million related to our information technology optimization.

(3) For the years ended December 31, 2024 and 2023, includes $3.4 million and $10.3 million related to our distribution optimization.

(4) For the year ended December 31, 2024, includes the non-cash benefit of $17.7 million associated with the PTO Policy Change. In addition, the years ended December 31, 2024 and 2023, include other gains, losses or costs added back for purposes of calculating Adjusted EBITDA as defined in our credit agreement.

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Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023

Net sales by reportable segment is summarized as follows:

Net sales information by region is summarized as follows:

Segment operating income by reportable segment is summarized as follows:

Net Sales

For the year ended December 31, 2024, net sales increased 3.2%, or 3.9% on a constant currency basis, compared to the year ended December 31, 2023, primarily driven by higher sales volumes in Titleist golf equipment and Golf gear and higher average selling prices in FootJoy golf wear and Golf gear, partially offset by a sales volume decline in FootJoy golf wear. A decline in sales volume of products that are not allocated to one of our three reportable segments also contributed to the change in net sales.

The increase in net sales in the United States was primarily due to increases of $74.9 million in Titleist golf equipment, $13.5 million in Golf gear and $6.8 million in FootJoy golf wear. The increase in Titleist golf equipment was primarily driven by higher sales volumes of our SM10 wedges, GT drivers and fairways and Pro V1 and Pro V1x golf balls, partially offset by lower sales volumes of hybrids, which are in their second model year. The increase in Golf gear was primarily due to higher sales volumes in travel product categories. The increase in FootJoy golf wear was primarily due to higher sales volumes in footwear and higher average selling prices in apparel, partially offset by lower sales volumes in golf gloves.

Net sales in regions outside of the United States decreased 2.1%, or 0.3% on a constant currency basis, primarily due to a net sales decrease in Japan, partially offset by increases in all other regions. The decrease in Japan was due to lower net sales in FootJoy golf wear, primarily footwear, in products that are not allocated to one of our three reportable segments and in Golf gear. These decreases were partially offset by higher net sales in Titleist golf equipment, driven by golf clubs. In EMEA, the increase was due to higher net sales in Titleist golf equipment, partially offset by lower net sales in FootJoy golf wear, primarily footwear, and lower net sales of products that are not allocated to one of our three reportable segments. The increase in Rest of World was due to higher net sales in Titleist golf equipment, primarily golf clubs, partially offset by lower net sales

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in FootJoy golf wear, primarily footwear. In Korea, the increase was primarily due to higher net sales in Titleist golf equipment, primarily golf clubs, largely offset by lower net sales in FootJoy golf wear, primarily apparel.

Gross Profit

Gross profit increased $67.7 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. Gross margin increased to 48.3% for the year ended December 31, 2024 compared to 47.0% for the year ended December 31, 2023. The increase in gross profit primarily resulted from increases in Titleist golf equipment of $55.1 million, Golf gear of $10.6 million and FootJoy golf wear of $5.6 million. A decrease in gross profit of products not allocated to one of our three reportable segments also contributed to the change in gross profit. This increase in gross profit was primarily due to the sales volume changes discussed previously and increased gross margin, primarily driven by a favorable product mix shift. Gross profit includes a non-cash benefit of $6.6 million related to the PTO Policy Change.

Selling, General and Administrative Expenses

Selling, general and administrative ("SG&A") expenses increased $45.9 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase was primarily due to $18.0 million of restructuring costs related to our supply chain optimization and increases of $13.5 million in administrative expense, $10.9 million in advertising and promotional expenses and $4.4 million in selling expense. These increases include a non-cash benefit of $9.1 million related to the PTO Policy Change, as well as the favorable impact of changes in foreign currency exchange rates. The increase in administrative expense was primarily due to higher employee and information technology-related expenses. The increase in advertising and promotional expenses was primarily related to higher professional tour expenses and new product launches, largely in Titleist golf equipment. The increase in selling expense was primarily due to higher employee-related expenses, partially offset by lower retail commission expense in Korea. SG&A also includes a $9.1 million increase in expense related to our information technology optimization, offset in part by a $6.9 million decrease in expense related to our distribution optimization.

Research and Development

Research and Development ("R&D") expenses increased $3.0 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase was primarily the result of increases in employee-related expenses and additional costs to support product introductions, offset in part by a $2.0 million non-cash benefit related to the PTO Policy Change.

Interest Expense, net

Interest expense, net increased $11.3 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. This increase was primarily due to an increase in borrowings, as well as an increase in interest rates for the year ended December 31, 2024.

Income Tax Expense

Income tax expense increased $4.8 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. Our effective tax rate ("ETR") was 19.2% for the year ended December 31, 2024 compared to 17.8% for the year ended December 31, 2023. The increase in ETR was primarily driven by changes in our jurisdictional mix of earnings as well as changes in our valuation allowance.

Segment Results

Titleist Golf Equipment Segment

Net sales in our Titleist golf equipment segment increased 6.2%, or 6.9% on a constant currency basis, for the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase was primarily driven by higher sales volumes of our SM10 wedges launched in the first quarter of 2024 and our GT drivers and fairways launched in the third quarter of 2024, as well as higher sales volumes of Pro V1 and Pro V1x and our latest generation AVX, Tour Soft and TruFeel models launched in the first quarter of 2024. This increase was partially offset by lower sales volumes of hybrids and irons.

Operating income in our Titleist golf equipment segment increased $23.1 million, or 9.2%, compared to the prior year period. The increase in operating income resulted from higher gross profit of $55.1 million, partially offset by higher operating expenses of $32.4 million. The increase in gross profit was primarily due to the higher sales volumes discussed previously, as well as a non-cash benefit of $5.8 million related to the PTO Policy Change. Higher operating expenses were primarily a result of increases of $10.1 million in both advertising and promotional expenses and selling expense, as well as increases of $9.8

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million in administrative expense and $2.4 million in research and development expenses, primarily driven by new product launches and professional tour expenses, as well as higher employee and information technology related expenses. These operating expense changes include a non-cash benefit of $7.7 million related to the PTO Policy Change.

FootJoy Golf Wear Segment

Net sales in our FootJoy golf wear segment decreased 2.6%, or 2.0% on a constant currency basis, for the year ended December 31, 2024 compared to the year ended December 31, 2023. The decrease was primarily due to lower sales volumes across all product categories, partially offset by higher average selling prices in apparel and golf gloves.

Operating income in our FootJoy golf wear segment increased $7.2 million, or 40.4% compared to the prior year period. The increase in operating income resulted from higher gross profit of $5.6 million and lower operating expenses of $1.6 million. The increase in gross profit was primarily due to higher average selling prices in apparel and golf gloves and lower distribution expense, partially offset by lower sales volumes across all product categories and unfavorable manufacturing overhead absorption. Lower operating expenses were primarily the result of a decrease of $3.7 million in selling expense, largely due to lower retail commission expense in Korea, partially offset by an increase of $2.2 million in administrative expense. These operating expense changes include a non-cash benefit of $2.6 million related to the PTO Policy Change.

Golf Gear Segment

Net sales in our Golf gear segment increased 4.3%, or 5.1% on a constant currency basis, for the year ended December 31, 2024 compared to the year ended December 31, 2023. The increase was primarily driven by higher sales volumes in travel product categories and higher average selling prices across all product categories, partially offset by lower sales volumes in golf bags.

Operating income in our Golf gear segment increased $6.3 million, or 32.3%, compared to the prior year period. The increase in operating income resulted from higher gross profit of $10.6 million, partially offset by higher operating expenses of $4.1 million. The increase in gross profit was largely due to the higher net sales discussed previously and lower cost of customization, partially offset by higher distribution expense. Higher operating expenses were primarily a result of an increase of $1.3 million in selling expense, as well as increases of $1.2 million in both administrative expense and advertising and promotional expenses.

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Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

Net sales by reportable segment is summarized as follows:

Net sales information by region is summarized as follows:

Segment operating income by reportable segment is summarized as follows:

Net Sales

For the year ended December 31, 2023, net sales increased 4.9%, or 6.2% on a constant currency basis, compared to the year ended December 31, 2022. This increase was driven primarily by higher sales volumes in Titleist golf equipment and Golf gear and was partially offset by a sales volume decline in FootJoy golf wear, primarily in footwear. A decline in sales volume of products that are not allocated to one of our three reportable segments also contributed to the change in net sales.

The increase in net sales in the United States was primarily as a result of increases of $103.0 million in Titleist golf equipment, $8.2 million in FootJoy golf wear and $6.7 million in Golf gear. The increase in Titleist golf equipment was primarily driven by higher sales volumes and higher average selling prices of our latest generation Pro V1 and Pro V1x golf balls, T-Series irons and Scotty Cameron Super Select putters, as well as higher sales volumes associated with the launch of our TSR hybrids, partially offset by lower sales volumes of second model year SM9 wedges. The increase in FootJoy golf wear was primarily driven by higher sales volumes of apparel and higher average selling prices of apparel and footwear, largely offset by lower sales volumes of footwear. The increase in Golf gear was primarily driven by higher sales volumes of golf bags and higher average selling prices in travel.

Net sales in regions outside of the United States decreased 1.0%, or increased 1.9% on a constant currency basis. Net sales increased in Rest of World, partially offset by decreases in Korea and EMEA, on a constant currency basis. The increase in Rest of World was due to net sales increases across all reportable segments, primarily in Titleist golf equipment. In Korea, the decrease was due to lower sales volumes of products that are not allocated to one of our three reportable segments and lower sales volumes in FootJoy golf wear, partially offset by net sales increases in all other reportable segments. In EMEA, the decrease was due to lower sales volumes in FootJoy golf wear and lower sales volumes of products that are not allocated to one of our three reportable segments, partially offset by increases in all other reportable segments. In Japan, net sales were flat as

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increases in Golf gear and Titleist golf equipment, were offset by a net sales decrease in FootJoy golf wear.

Gross Profit

Gross profit increased $71.3 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. Gross margin increased to 47.0% for the year ended December 31, 2023 compared to 46.2% for the year ended December 31, 2022. The increase in gross profit primarily resulted from increases in Titleist golf equipment of $87.7 million and Golf gear of $16.1 million, partially offset by a decrease in FootJoy golf wear of $21.4 million. This increase in gross profit was primarily due to the higher sales volumes and higher average selling prices discussed above, lower inbound freight costs across all reportable segments and lower royalty expense in Titleist golf equipment. These increases were partially offset by the decline in FootJoy golf wear sales volumes discussed above. The remaining change in gross profit was due to lower sales volumes of products not allocated to one of our three reportable segments. The increase in gross margin was primarily due to the lower inbound freight costs.

Selling, General and Administrative Expenses

SG&A expenses increased $52.8 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. This increase was primarily due to an increase of $19.6 million in advertising and promotional expenses, an increase of $18.1 million in selling expense, $10.3 million of costs related to the optimization of our distribution and custom fulfillment capabilities, as well as an increase of $4.1 million in administrative expense and includes the favorable impact of changes in foreign currency exchange rates. The increase in advertising and promotional expenses was primarily related to new product launches and professional tour expenses. The increase in selling expense was primarily due to the higher sales volumes as discussed previously and higher employee-related expenses, partially offset by lower retail commission expense in Korea. The increase in administrative expense was due to increased employee-related expenses partially offset by lower information technology-related expenses. SG&A also includes a decrease of $7.9 million in foreign currency transaction losses, offset in part by a decrease in gains on foreign exchange forward contracts of $3.4 million.

Research and Development

R&D expenses increased $8.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily as a result of increases to support new product introductions and employee-related expenses.

Intangible Amortization

Intangible amortization expense increased $6.3 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily as a result of the acquisition of trademarks related to our Titleist golf club and Golf gear businesses in the fourth quarter of 2022 and the first quarter of 2023, respectively.

Interest Expense, net

Interest expense, net increased $28.0 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. This increase was primarily due to an increase in borrowings, as well as an increase in interest rates for the year ended December 31, 2023.

Other Expense, net

Other expense, net decreased $6.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to a decrease in the non-service cost component of net periodic benefit cost, as well as changes in the fair value of Rabbi trust assets.

Income Tax Expense

Income tax expense decreased $11.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. Our ETR was 17.8% for the year ended December 31, 2023 compared to 20.9% for the year ended December 31, 2022. The decrease in ETR was primarily driven by changes in our jurisdictional mix of earnings.

Segment Results

Titleist Golf Equipment Segment

Net sales in our Titleist golf equipment segment increased 10.2%, or 11.6% on a constant currency basis, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily driven by higher sales volumes and higher average selling prices of our latest generation Pro V1 and Pro V1x golf balls launched in the first quarter of

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2023, our T-series irons and our Scotty Cameron Super Select putters, as well as higher sales volumes of our TSR hybrids, all of which were launched in 2023. These increases were partially offset by lower sales volumes of second model year SM9 wedges.

Operating income in our Titleist golf equipment segment increased $37.1 million, or 17.4%, compared to the prior year period. The increase in operating income resulted from higher gross profit of $87.7 million, partially offset by higher operating expenses of $50.6 million. The increase in gross profit was primarily driven by higher sales volumes and higher average selling prices as discussed above, lower inbound freight costs and lower royalty expenses. Operating expenses increased primarily as a result of increases of $19.4 million in selling expense, $16.8 million in advertising and promotional expenses, $8.3 million in research and development expenses and $4.0 million in intangible amortization expense due to the acquisition of trademarks in the fourth quarter of 2022.

FootJoy Golf Wear Segment

Net sales in our FootJoy golf wear segment decreased 3.4%, or 2.0% on a constant currency basis, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The decrease was primarily due to a sales volume decrease in footwear partially offset by sales volume increase in apparel.

Operating income in our FootJoy golf wear segment decreased $21.9 million, or 55.2% compared to the prior year period. The decrease in operating income resulted from lower gross profit of $21.4 million. Gross profit decreased primarily as a result of the sales volume decrease, unfavorable manufacturing overhead absorption and increased promotional activity in footwear, partially offset by increased sales volumes in apparel and lower inbound freight costs. Operating expenses were largely flat as increased advertising and promotional expenses were offset by lower selling expenses.

Golf Gear Segment

Net sales in our Golf gear segment increased 5.0%, or 6.5% on a constant currency basis, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily driven by higher sales volumes across all product categories, except gloves, and higher average selling prices across all product categories.

Operating income in our Golf gear segment increased $10.5 million, or 116.7%, compared to the prior year period. The increase in operating income resulted from higher gross profit of $16.1 million, partially offset by higher operating expenses of $5.6 million. Gross profit increased primarily due to lower inbound freight costs, higher sales volumes and higher average selling prices. Operating expenses increased primarily due to an increase of $3.4 million in selling expense and higher intangible amortization expense of $2.3 million due to the acquisition of trademarks in the first quarter of 2023.

Liquidity and Capital Resources

Our primary cash needs relate to working capital, repurchasing shares of our common stock, capital expenditures, paying dividends, servicing our debt and pension contributions. Additionally, from time to time, we may make strategic acquisitions and investments to complement our products, technologies or businesses, which could impact our liquidity needs. We expect to rely on cash flows from operations and borrowings under our multi-currency revolving credit facility and local credit facilities as our primary sources of liquidity.

Our liquidity is impacted by our level of working capital, which is cyclical as a result of the general seasonality of our business. Our accounts receivable balance is generally at its highest starting at the end of the first quarter and continuing through the second quarter, and declines during the third and fourth quarters as a result of both an increase in cash collections and lower sales. Our inventory balance also fluctuates as a result of the seasonality of our business. Generally, our buildup of inventory starts during the fourth quarter and continues through the first quarter and into the beginning of the second quarter in order to meet demand for our initial sell-in during the first quarter and reorders in the second quarter. Both accounts receivable and inventory balances are impacted by the timing of new product launches.

As of December 31, 2024, we had $51.4 million of unrestricted cash and cash equivalents (including $9.9 million attributable to our FootJoy golf shoe VIE). As of December 31, 2024, approximately 95.0% of our total unrestricted cash and cash equivalents was held by subsidiaries in regions outside of the United States, including our FootJoy golf shoe VIE. 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 to the United States from time to time to satisfy domestic liquidity needs arising in the ordinary course of business.

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Macroeconomic factors could impact our results of operations in ways we cannot currently predict. Nonetheless, we believe that cash expected to be provided by operating activities, together with our cash on hand and the availability of borrowings under our multi-currency 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 current and future economic trends and conditions, demand for our products, availability and cost of our raw materials and components, foreign currency exchange rates and other risks and uncertainties applicable to our business, as described in "Risk Factors," Item 1A of Part I to this report.

Debt and Financing Arrangements

As of December 31, 2024, we had $542.4 million of availability under our multi-currency revolving credit facility after giving effect to $2.9 million of outstanding letters of credit. Additionally, we had $47.5 million available under certain local credit facilities of our subsidiaries.

The credit agreement governing our multi-currency revolving credit facility contains customary affirmative and restrictive covenants, including, among others, financial covenants based on our leverage and interest coverage ratios. This credit agreement also includes customary events of default, the occurrence of which, following any applicable cure period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations to be immediately due and payable. As of December 31, 2024, we were in compliance with all covenants under our credit agreement.

The indenture governing our senior unsecured notes contains covenants that, among other things, limit the ability of the Company and its restricted subsidiaries to incur additional debt or issue certain preferred stock; pay dividends or repurchase or redeem capital stock; prepay, redeem or repurchase certain debt; make loans and investments; sell assets; incur liens; enter into certain types of transactions with the Company’s affiliates; and consolidate or merge with or into other companies. As of December 31, 2024, we were in compliance with all covenants under the indenture.

See "Notes to Consolidated Financial Statements- Note 11- Debt and Financing Arrangements," Item 8 of Part II to this report, for a description of our debt and financing arrangements. Additionally, see "Risk Factors - Risks Related to Our Indebtedness", Item 1A of Part I to this report, for further discussion surrounding the risks and uncertainties related to our debt and financing arrangements.

Dividends and Share Repurchase Program

During the year ended December 31, 2024, we paid dividends on our common stock of $54.3 million to our shareholders. During the first quarter of 2025, our board of directors declared a dividend of $0.235 per share of common stock to shareholders of record as of March 7, 2025, which is payable on March 21, 2025.

As of December 31, 2024, our board of directors had authorized us to repurchase up to an aggregate of $1.0 billion of our issued and outstanding common stock.

On March 14, 2024, we entered into an agreement with Magnus Holdings Co., Ltd. ("Magnus") to purchase from Magnus an equal amount of our common stock as we purchase on the open market over the period of time from April 1, 2024 through June 28, 2024, up to an aggregate of $37.5 million, at the same weighted average per share price (the "March 2024 Agreement").

On June 14, 2024, we entered into an additional agreement with Magnus to purchase from Magnus an equal amount of our common stock as we purchase on the open market over the period of time from July 1, 2024 through December 31, 2024, up to an aggregate of $62.5 million, at the same weighted average per share price (the "June 2024 Agreement").

On December 17, 2024, we entered into a new agreement with Magnus to purchase from Magnus an equal amount of our common stock as we purchase on the open market over the period of time from January 2, 2025 through June 30, 2025, up to an aggregate of $62.5 million, at the same weighted average per share price (the "December 2024 Agreement").

During the year ended December 31, 2024, we repurchased 2,658,180 shares of common stock at an average price of $65.01 for an aggregate of $172.8 million. Included in this amount were 587,520 shares of common stock repurchased from Magnus for an aggregate of $37.5 million, in satisfaction of our obligation pursuant to the March 2024 Agreement. As of December 31, 2024, we recorded a liability of $62.5 million in relation to the June 2024 Agreement to purchase an additional 935,907 shares of common stock from Magnus.

As of December 31, 2024, we had $202.2 million remaining under the current share repurchase authorization, including $125.0 million, related to the June 2024 Agreement and December 2024 Agreement. On February 13, 2025, our board of directors authorized us to repurchase up to an additional $250.0 million of our issued and outstanding common stock, bringing the total authorization up to $1.25 billion since the share repurchase program was established in 2018.

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See “Notes to Consolidated Financial Statements-Note 16-Common Stock,” Item 8 of Part II to this report, for a description of our share repurchase program and Magnus share repurchase agreements.

Capital Expenditures and Other Investments

During the year ended December 31, 2024, we invested $74.6 million for capital expenditures. Capital expenditures in 2025 are expected to be approximately $85.0 million, although actual amounts may vary depending upon a variety of factors, including the timing of certain capital project implementations and receipt of capital purchases due to supply chain challenges. Capital expenditures generally relate to investments to support the manufacturing and distribution of products, our go to market activities, as well as investments in facilities to support our global strategic initiatives.

In addition, during the year ended December 31, 2024, we invested $12.6 million for capitalized implementation costs associated with the implementation of a new global cloud-based ERP platform as part of our plans to integrate our operations and enhance our supply chain and finance capabilities. In 2025, we expect to invest approximately $15.0 million to $20.0 million in capitalized implementation costs associated with this global ERP platform.

Cash Flows

The following table presents the major components of net cash flows from operating, investing and financing activities for the periods indicated:

Cash Flows from Operating Activities

The decrease in cash provided by operating activities for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was primarily related to changes in working capital, as well as a decrease in deferred income tax expense. 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.

Cash Flows from Investing Activities

The decrease in cash used in investing activities for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was primarily driven by cash paid for the acquisition of trademarks related to our gear business during the year ended December 31, 2023.

Cash Flows from Financing Activities

The decrease in cash used in financing activities for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was primarily driven by a decrease in purchases of common stock, offset in part by as a decrease in net proceeds from borrowings.

Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

A review of our cash flow activities for the year ended December 31, 2023 as compared to the year ended December 31, 2022 can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Annual Report for the year ended December 31, 2023, which was filed with the SEC on February 29, 2024, and is incorporated herein by reference.

Contractual Obligations

Our principal contractual obligations and commitments consist of long term debt obligations, interest on debt obligations (including unused commitment fees related to our multi-currency revolving credit facility), operating and finance lease obligations, purchase obligations and pension and other postretirement benefit obligations.

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See "Notes to Consolidated Financial Statements-Note 11-Debt and Financing Arrangements", "Note 4-Leases", "Note 22-Commitments and Contingencies" and "Note 14-Pension and Other Postretirement Benefits" in Item 8 of Part II of this Annual Report for more information on the nature and timing of obligations for debt, leases, purchase obligations and pension and postretirement benefit plans, respectively. The future amount of interest expense payments are expected to vary as discussed in "Interest Rate Risk," Item 7A of Part II, to this report.

Off‑Balance Sheet Arrangements

As of December 31, 2024, other than as discussed above, 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.

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.

Pension and Other Postretirement Benefit Plans

We provide various post-employment plans including defined benefit plans (or "pension plans") and other postretirement benefit plans which provide retiree welfare and other benefits to certain eligible U.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 weighted‑average discount rates of 5.57% and 5.54%, respectively, for the year ended December 31, 2024. Decreasing the discount rates by 100 basis points would have increased the projected benefit obligations of our pension and other postretirement benefit plan by approximately $30.2 million and $0.9 million, respectively, for the year ended December 31, 2024.

Our net periodic benefit cost related to our pension and other postretirement benefit plans is calculated using weighted average discount rates of 4.93% and 4.92%, respectively, for the year ended December 31, 2024. Decreasing the discount rate by 100 basis points would increase net periodic pension cost by approximately $0.8 million and increase other postretirement benefit cost by approximately $0.2 million for the year ended December 31, 2024. Additionally, our net periodic benefit cost related to our pension plans is calculated using an expected return on plan assets of 3.75% for the year ended December 31, 2024. Decreasing the expected return on plan assets by 100 basis points would increase net periodic pension benefit cost by approximately $1.8 million for the year ended December 31, 2024.

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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 of December 31, 2024, 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 of December 31, 2024 and 2023, the cumulative valuation allowance against deferred tax assets was $40.8 million and $34.0 million, respectively.

We are subject to income taxes in the U.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.

Recently Issued Accounting Standards

We have reviewed all recently issued accounting 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 to this report, such accounting standards will not have a significant impact on our consolidated financial statements or otherwise do not apply to our operations.

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ITEM 7.              MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 forward‑looking 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 forward‑looking statements. You should carefully read the “Special Note Regarding Forward‑Looking Statements” section of this report following the Table of Contents.

Overview

We are the global leader in the design, development, manufacture and distribution of performance-driven golf products, and these products 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 wearable brands.

Our target market is dedicated golfers, who are the cornerstone of the worldwide golf industry. These dedicated golfers are avid and skill-biased, prioritize performance and commit the time, effort and money to improve their game. We 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.

We believe our differentiated focus on performance and quality excellence, enduring connections with dedicated golfers, and favorable and market-differentiating mix of consumable and durable products have been the key drivers of our financial performance.

Basis of Presentation

The accompanying results 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"), 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 certain other costs, such as interest expense, net; restructuring costs; the non-service cost component of net periodic benefit cost; transaction fees; as well as other non-operating gains and losses that are not allocated 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 golf-related products, including golf balls, golf clubs, golf shoes, golf gloves, golf gear and golf apparel. The demand for golf-related 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. While rounds of play had been relatively stable for years, the game experienced an approximate 8% global increase in rounds in both 2020 and 2021 as dedicated golfers took full advantage of favorable weather, hybrid work schedules and an increase in discretionary time due to the circumstances attendant to the COVID-19 pandemic. Golf remained in high demand in 2022 and 2023, with the number of rounds played in the U.S. approximately 16% and 20% higher, respectively, than the number of rounds played in 2019. We anticipate that rounds of golf played will remain resilient in 2024, driven by golfer demographics, dedicated golfers, increased participation and economic conditions.

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, the rate of inflation, interest rates,

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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 years and above, primarily “gen‑xers,” “baby boomers” and, increasingly, "millennials" who have the time and money to engage in the sport. Since a 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 gen‑x and baby boomer generation, promising developments in golf include the generational shift with millennial golfers making their marks at both professional and amateur levels and the increase in the number of juniors (ages 6-17) who play golf in recent years.

Golf participation among younger generations and certain socioeconomic and ethnic groups may not prove to be as popular as it is among older "millennials" and the current gen‑x and baby boomer generations. In such case, sales of our products could be negatively impacted.

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 on‑course 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.

Seasonality

In general, during the first quarter, we begin selling our products into the golf retail channel for the new golf season. This initial sell‑in generally continues into the second quarter. Our second‑quarter sales are significantly affected by the amount of sell‑through, in particular the amount of higher value discretionary purchases made by customers, which drives the level of reorders of the products sold during the first quarter. Our third‑quarter 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 fourth‑quarter 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 previously 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 larger portion of our sales and profitability generally occurs during the first half of the year.

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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 sell‑through. 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 in even-numbered years, we launch our premium performance AVX model and most performance models in the first and second quarters. 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 two‑year 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 even‑numbered 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 odd‑numbered 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 odd‑numbered years;

•irons in the third or fourth quarter of odd‑numbered years, with the majority of sales generated by such new products occurring in the following spring and summer of even‑numbered 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 even‑numbered years, with the majority of sales generated by such new products occurring in the spring and summer of such even‑numbered years; and

•Scotty Cameron putters in the first quarter, with Super Select models launched in odd-numbered years and Phantom X models launched in even-numbered 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 even‑numbered years.

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

Net sales generated in regions outside of the United States represented nearly half of our net sales in each of the three years ended December 31, 2023. Substantially all of these net sales 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 subsidiaries in these regions are made in U.S. dollars. For each of the three years ended December 31, 2023, approximately 85% of our cost of goods sold incurred by our subsidiaries in regions outside of the United States were denominated in U.S. dollars. Because these subsidiaries incur substantially all of their cost of goods sold in currencies that are different from the currencies in which they

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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 these 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 exchange forward 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 cost‑related decisions. In taking this active approach, we coordinate with the management teams of our key 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 stronger U.S. dollar but could also reduce the positive impact of a weaker U.S. dollar.

Because our consolidated accounts are reported in U.S. dollars, we are also exposed to currency translation risk when we translate the financial results of our consolidated subsidiaries from their local currency into U.S. dollars. In each of the three years ended December 31, 2023, nearly one-half of our net sales and one-third of our total operating expenses (which amounts represent substantially all of the operating expenses incurred by our subsidiaries in regions outside of the United States) were denominated in foreign currencies. Fluctuations in foreign currency exchange rates may positively or negatively affect our reported financial results and can significantly affect period‑over‑period comparisons. A strengthening of the U.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 (loss).

Since a significant percentage of our net sales are generated outside of the 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 into U.S. dollars based upon the foreign currency exchange rates for the applicable comparable prior period. This constant currency information should not be considered in isolation or as a substitute for any measure derived in accordance with U.S. GAAP. Our presentation of constant currency information may not be consistent with the manner in which similar measures are derived or used by other companies.

We primarily use Adjusted EBITDA on a consolidated basis to evaluate the effectiveness of our business strategies, assess our consolidated operating performance and make decisions regarding pricing of our products, go to market execution and costs to incur across our business. We present Adjusted EBITDA as a supplemental measure of our operating performance because it excludes the impact of certain items that we do not consider indicative of our ongoing operating performance. We define Adjusted EBITDA in a manner consistent with the term “Consolidated EBITDA” as it is defined in our credit agreement. Adjusted EBITDA represents net income (loss) attributable to Acushnet Holdings Corp. plus interest expense, net, income tax expense (benefit), depreciation and amortization and other items defined in our 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 (loss) relating to noncontrolling interests. Adjusted EBITDA is not a measurement of financial performance under U.S. GAAP. It should not be considered an alternative to net income (loss) attributable to Acushnet Holdings Corp. as a measure of our operating performance or any other measure of performance derived in accordance with U.S. GAAP. In addition, Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non‑recurring items, or affected by similar non‑recurring items. Adjusted EBITDA has limitations as an analytical tool, and you should not consider such measure either in isolation or as a substitute for analyzing our results as reported under U.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 to Acushnet 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.

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Adjusted EBITDA margin is not a measurement of financial performance under U.S. GAAP. It should not be considered an alternative to any measure of performance derived in accordance with U.S. GAAP. In addition, Adjusted EBITDA margin should not be construed as an inference that our future results will be unaffected by unusual or non‑recurring items, or affected by similar non‑recurring items. Adjusted EBITDA margin has limitations as an analytical tool, and you should not consider such measure either in isolation or as a substitute for analyzing our results as reported under U.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 (loss) to evaluate and assess the performance of each of our reportable segments and to make budgeting decisions.

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Results of Operations

The following table sets forth, for the periods indicated, our results of operations.

___________________________________

(1)    The year ended December 31, 2023 includes costs associated with the optimization of our distribution and custom fulfillment capabilities.

(2) The year ended December 31, 2021 includes pension settlement costs of $2.1 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, as well as $2.4 million of severance and other costs associated with management's program to refine our business model and improve operational efficiencies.

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Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

Net sales by reportable segment is summarized as follows:

Net sales information by region is summarized as follows:

_______________________________________________________________________________

(1) Europe, the Middle East and Africa ("EMEA")

Segment operating income by reportable segment is summarized as follows:

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Net Sales

For the year ended December 31, 2023, net sales increased 4.9%, or 6.2% on a constant currency basis, compared to the year ended December 31, 2022. This increase was driven primarily by higher sales volumes in Titleist golf balls, Titleist golf clubs and Titleist golf gear. This increase was partially offset by a sales volume decline in FootJoy golf wear, primarily in footwear. A decline in sales volume of products that are not allocated to one of our four reportable segments also contributed to the change in net sales.

The increase in net sales in the United States was primarily as a result of increases of $62.0 million in Titleist golf balls, $41.0 million in Titleist golf clubs, $7.7 million in FootJoy golf wear and $7.3 million in Titleist golf gear. The increase in Titleist golf balls was primarily driven by higher sales volumes and higher average selling prices of our latest generation Pro V1 and Pro V1x golf balls. The increase in Titleist golf clubs was primarily driven by higher sales volumes and higher average selling prices associated with the launches of our T-Series irons and Scotty Cameron Super Select putters, as well as higher sales volumes associated with the launch of our TSR hybrids, partially offset by lower sales volumes of second model year SM9 wedges. The increase in FootJoy golf wear was primarily driven by higher sales volumes of apparel and higher average selling prices of apparel and footwear, largely offset by lower sales volumes of footwear. The increase in Titleist golf gear was primarily driven by higher sales volumes of golf bags and higher average selling prices in travel.

Net sales in regions outside of the United States decreased 1.0%, or increased 1.9% on a constant currency basis. Net sales increased in Rest of World, partially offset by decreases in Korea and EMEA, on a constant currency basis. The increase in Rest of World was due to net sales increases across all reportable segments, primarily in Titleist golf balls and Titleist golf clubs. In Korea, the decrease was due to lower sales volumes of products that are not allocated to one of our four reportable segments and lower sales volumes in FootJoy golf wear, partially offset by net sales increases in all other reportable segments. In EMEA, the decrease was due to lower sales volumes in FootJoy golf wear and lower sales volumes of products that are not allocated to one of our four reportable segments, partially offset by increases in all other reportable segments. In Japan, net sales were flat with increases in Titleist golf balls and Titleist golf gear offset by net sales decreases in Titleist golf clubs and FootJoy golf wear.

Gross Profit

Gross profit increased $73.3 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. Gross margin increased to 52.6% for the year ended December 31, 2023 compared to 51.9% for the year ended December 31, 2022. The increase in gross profit primarily resulted from increases in Titleist golf balls of $52.7 million, Titleist golf clubs of $37.8 million, and Titleist golf gear of $13.8 million, partially offset by a decrease in FootJoy golf wear of $20.3 million. This increase in gross profit was primarily due to the higher sales volumes and higher average selling prices discussed above, lower inbound freight costs across all reportable segments and lower royalty expense in Titleist golf clubs. These increases were partially offset by the decline in FootJoy golf wear sales volumes discussed above. The remaining change in gross profit was due to lower sales volumes of products not allocated to one of our four reportable segments. The increase in gross margin was primarily due to the lower inbound freight costs.

Selling, General and Administrative Expenses

Selling, general and administrative ("SG&A") expenses increased $54.7 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. This increase was primarily due to an increase of $19.6 million in advertising and promotional expenses, an increase of $20.0 million in selling expense, $10.4 million of costs related to the optimization of our distribution and custom fulfillment capabilities, as well as an increase of $4.1 million in administrative expense and includes the favorable impact of changes in foreign currency exchange rates. The increase in advertising and promotional expenses was primarily related to new product launches and professional tour expenses. The increase in selling expense was primarily due to the higher sales volumes as discussed previously and higher employee-related expenses, partially offset by lower retail commission expense in Korea. The increase in administrative expense was due to increased employee-related expenses partially offset by lower information technology-related expenses. SG&A also includes a decrease of $7.9 million in foreign currency transaction losses, offset in part by a decrease in gains on foreign exchange forward contracts of $3.4 million.

Research and Development

R&D expenses increased $8.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily as a result of increases to support new product introductions and employee-related expenses.

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Intangible Amortization

Intangible amortization expense increased $6.3 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily as a result of the acquisition of trademarks related to our Titleist golf club and Titleist golf gear businesses in the fourth quarter of 2022 and the first quarter of 2023, respectively.

Interest Expense, net

Interest expense, net increased $28.0 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. This increase was primarily due to an increase in borrowings, as well as an increase in interest rates for the year ended December 31, 2023.

Other Expense, net

Other expense, net decreased $6.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily due to a decrease in the non-service cost component of net periodic benefit cost, as well as changes in the fair value of Rabbi trust assets.

Income Tax Expense

Income tax expense decreased $11.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022. Our effective tax rate ("ETR") was 17.8% for the year ended December 31, 2023 compared to 20.9% for the year ended December 31, 2022. The decrease in ETR was primarily driven by changes in our jurisdictional mix of earnings.

Segment Results

Titleist Golf Balls Segment

Net sales in our Titleist golf balls segment increased 12.2%, or 13.5% on a constant currency basis, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily driven by higher sales volumes and higher average selling prices of our latest generation Pro V1 and Pro V1x golf balls launched in the first quarter of 2023.

Operating income in our Titleist golf balls segment increased $31.6 million, or 28.0%, compared to the prior year period. The increase in operating income resulted from higher gross profit of $52.7 million, partially offset by higher operating expenses of $20.8 million. The increase in gross profit was primarily driven by higher sales volumes and higher average selling prices as discussed above and lower inbound freight costs. Operating expenses increased primarily as a result of increases of $9.3 million, $8.0 million and $3.6 million in selling, advertising and promotional, and research and development expenses, respectively.

Titleist Golf Clubs Segment

Net sales in our Titleist golf clubs segment increased 8.0%, or 9.5% on a constant currency basis, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase in net sales was largely due to higher sales volumes and higher average selling prices of our T-Series irons launched in the third quarter of 2023 and Scotty Cameron Super Select putters launched in the first quarter of 2023, as well as higher sales volumes of our TSR hybrids launched in the first quarter of 2023, partially offset by lower sales volumes of second model year SM9 wedges.

Operating income in our Titleist golf clubs segment increased $5.6 million, or 5.6%, compared to the prior year period. The increase in operating income resulted from higher gross profit of $37.8 million, partially offset by higher operating expenses of $28.5 million and intangible amortization expense of $3.6 million. The increase in gross profit was primarily due to higher average selling prices, higher sales volumes, lower royalty expense and lower inbound freight costs. Operating expenses increased primarily as a result of increases of $12.7 million, $8.8 million and $4.7 million in selling, advertising and promotional, and research and development expenses, respectively. Intangible amortization expense increased due to the acquisition of trademarks in the fourth quarter of 2022.

Titleist Golf Gear Segment

Net sales in our Titleist golf gear segment increased 5.5%, or 7.0% on a constant currency basis, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The increase was primarily driven by higher sales volumes across all product categories, except gloves, and higher average selling prices across all product categories.

Operating income in our Titleist golf gear segment increased $9.5 million, or 81.2%, compared to the prior year period. The increase in operating income resulted from higher gross profit of $13.8 million, partially offset by higher operating

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expenses of $1.9 million and higher intangible amortization expense of $2.3 million. Gross profit increased primarily due to lower inbound freight costs, higher sales volumes and higher average selling prices. Operating expenses increased primarily due to an increase of $2.1 million in selling expense. Intangible amortization expense increased due to the acquisition of trademarks in the first quarter of 2023.

FootJoy Golf Wear Segment

Net sales in our FootJoy golf wear segment decreased 3.5%, or 2.1% on a constant currency basis, for the year ended December 31, 2023 compared to the year ended December 31, 2022. The decrease was primarily due to a sales volume decrease in footwear partially offset by sales volume increase in apparel.

Operating income in our FootJoy golf wear segment decreased $20.9 million, or 56.5% compared to the prior year period. The decrease in operating income resulted from lower gross profit of $20.3 million. Gross profit decreased primarily as a result of the sales volume decrease and unfavorable manufacturing absorption and increased promotional activity in footwear, partially offset by increased sales volumes in apparel and lower inbound freight costs. Operating expenses were largely flat as increased advertising and promotional expenses were offset by lower selling expenses.

Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021

A detailed review of our results of operations for the year ended December 31, 2022 as compared to the year ended December 31, 2021 can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Annual Report for the year ended December 31, 2022, which was filed with the SEC on March 1, 2023, and is incorporated herein by reference.

Liquidity and Capital Resources

Our primary cash needs relate to working capital, capital expenditures, servicing our debt, paying dividends, repurchasing shares of our common stock and pension contributions. Additionally, from time to time, we may make strategic acquisitions and investments to complement our products, technologies or businesses, which could impact our liquidity needs. We expect to rely on cash flows from operations and borrowings under our revolving credit facility and local credit facilities as our primary sources of liquidity.

Our liquidity is impacted by our level of working capital, which is cyclical as a result of the general seasonality of our business. Our accounts receivable balance is generally at its highest starting at the end of the first quarter and continuing through the second quarter, and declines during the third and fourth quarters as a result of both an increase in cash collections and lower sales. Our inventory balance also fluctuates as a result of the seasonality of our business. Generally, our buildup of inventory starts during the fourth quarter and continues through the first quarter and into the beginning of the second quarter in order to meet demand for our initial sell-in during the first quarter and reorders in the second quarter. Both accounts receivable and inventory balances are impacted by the timing of new product launches.

As of December 31, 2023, we had $63.7 million of unrestricted cash and cash equivalents (including $11.8 million attributable to our FootJoy golf shoe variable interest entity). As of December 31, 2023, 97.3% of our total unrestricted cash and cash equivalents was held by subsidiaries in regions outside of the United States, including our FootJoy golf shoe variable interest entity. 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 to the United States from time to time to satisfy domestic liquidity needs arising in the ordinary course of business.

Macroeconomic factors could impact our results of operations in ways we cannot currently predict. Nonetheless, 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 current and future economic trends and conditions, demand for our products, availability and cost of our raw materials and components, 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.

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Debt and Financing Arrangements

As of December 31, 2023, we had $616.7 million of availability under our multi-currency revolving credit facility after giving effect to $8.1 million of outstanding letters of credit. Additionally, we had $35.6 million available under certain local credit facilities of our subsidiaries.

Pursuant to an indenture dated October 3, 2023 (the "Indenture"), Acushnet Company (the "Issuer"), a wholly owned subsidiary of the Company, completed the issuance and sale of $350.0 million in gross proceeds of the Issuer's 7.375% senior unsecured notes due 2028 (the “Notes”). The proceeds from the Notes offering were used to repay $345.6 million of the outstanding borrowings under the Company's multi-currency revolving credit facility, as well as to pay fees and expenses related to the Notes offering.

Our credit agreements contain customary affirmative and restrictive covenants, including, among others, financial covenants based on our leverage and interest coverage ratios. Our credit agreements also include customary events of default, the occurrence of which, following any applicable cure period, would permit the lenders to, among other things, declare the principal, accrued interest and other obligations to be immediately due and payable. As of December 31, 2023, we were in compliance with all covenants under our credit agreements.

The Indenture contains customary affirmative and restrictive covenants. The Indenture also includes customary events of default, the occurrence of which could result in each holder of the Notes having the right to require the Issuer to purchase all or a portion of such holder's Notes at a purchase price equal to 101% of the principal amount of the Notes, plus accrued and unpaid interest. As of December 31, 2023, we were in compliance with all covenants under the Indenture.

See "Notes to Consolidated Financial Statements- Note 11- Debt and Financing Arrangements," Item 8 of Part II included elsewhere in this report, for a description of our debt and financing arrangements. 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 related to our debt and financing arrangements.

Dividends and Share Repurchase Program

During the year ended December 31, 2023, we paid dividends on our common stock of $52.5 million to our shareholders. During the first quarter of 2024, our Board of Directors declared a dividend of $0.215 per share of common stock to shareholders of record as of March 8, 2024, which is payable on March 22, 2024.

As of December 31, 2023, our Board of Directors had authorized us to repurchase up to an aggregate of $700.0 million of our issued and outstanding common stock.

On June 9, 2023, we entered into a new agreement with Magnus Holdings Co., Ltd. (“Magnus”), a wholly-owned subsidiary of Fila Holdings Corp., to purchase from Magnus an equal amount of our common stock as we purchase on the open market, over the period of time from June 12, 2023 through October 27, 2023, up to an aggregate of $100.0 million at the same weighted average per share price (the "2023 Agreement").

During 2023, we repurchased 6,486,405 shares of common stock at an average price of $51.25 for an aggregate of $332.4 million. Included in this amount were 3,993,522 shares of common stock repurchased from Magnus for an aggregate of $200.0 million, in satisfaction of our obligations pursuant to the 2023 Agreement, as well as our previously disclosed Magnus share repurchase agreement.

As of December 31, 2023, we had $75.0 million remaining under the current share repurchase authorization. On February 15, 2024, our Board of Directors authorized us to repurchase up to an additional $300.0 million of our issued and outstanding common stock, bringing the total authorization up to $1.0 billion since the share repurchase program was established in 2018.

See “Notes to Consolidated Financial Statements-Note 16-Common Stock,” Item 8 of Part II, included elsewhere in this report, for a description of our share repurchase program and Magnus share repurchase agreements.

Other Business Developments

In January 2023, we acquired certain trademarks from West Coast Trends, Inc., an industry leader specializing in Club Glove premium performance golf travel products, for $25.2 million. See “Notes to Consolidated Financial Statements-Note 9-Goodwill and Intangible Assets,” Item 8 of Part II, included elsewhere in this report, for additional information.

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Capital Expenditures

We made $75.4 million of capital expenditures during the year ended December 31, 2023. Capital expenditures in 2024 are expected to be approximately $85.0 million, although the actual amount may vary depending upon a variety of factors, including the timing of certain capital project implementations and receipt of capital purchases due to supply chain challenges. 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 and facilities to support our global strategic initiatives.

Cash Flows

The following table presents the major components of net cash flows from operating, investing and financing activities for the periods indicated:

Cash Flows from Operating Activities

The increase in cash provided by operating activities for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily related to changes in working capital, largely driven by inventory. These inventory changes were driven by improvements in our supply chain and overall year-end inventory position. 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.

Cash Flows from Investing Activities

The decrease in cash used in investing activities for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily driven by cash paid during the year ended December 31, 2022 for the acquisitions of trademarks related to our putter business, as well as cash paid for business acquisitions during the same period. This was offset in part by cash paid for the acquisition of trademarks related to our gear business during the year ended December 31, 2023 and an increase in capital expenditures for the same period, driven by investments in our manufacturing capacity, as well as investments in our office, fitting and testing facilities.

Cash Flows from Financing Activities

The increase in cash used in financing activities for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily driven by an increase in purchases of common stock, as well as a decrease in net proceeds from borrowings.

Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021

A review of our cash flow activities for the year ended December 31, 2022 as compared to the year ended December 31, 2021 can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Annual Report for the year ended December 31, 2022, which was filed with the SEC on March 1, 2023, and is incorporated herein by reference.

Contractual Obligations

Our principal contractual obligations and commitments consist of long term debt obligations, interest on debt obligations (including unused commitment fees related to our revolving credit facility), operating and finance lease obligations, purchase obligations and pension and other postretirement benefit obligations.

See "Notes to Consolidated Financial Statements-Note 11-Debt and Financing Arrangements", "Note 4-Leases", "Note 22-Commitments and Contingencies" and "Note 14-Pension and Other Postretirement Benefits" in Item 8 of Part II of this

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Annual Report for more information on the nature and timing of obligations for debt, leases, purchase obligations and pension and postretirement benefit plans, respectively. The future amount of interest expense payments are expected to vary as discussed in "Interest Rate Risk," Item 7A of Part II, included elsewhere in this Annual Report.

Off‑Balance Sheet Arrangements

As of December 31, 2023, other than as discussed above, 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.

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. There were no impairment losses recorded for the years ended December 31, 2023, 2022 and 2021.

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 eligible U.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 weighted‑average discount rates of 4.93% and 4.92%, respectively, for the year ended December 31, 2023. Decreasing the discount rates by 100 basis points would have increased the projected benefit obligations of our pension and other postretirement benefit plan by approximately $32.6 million and $1.0 million, respectively, for the year ended December 31, 2023.

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Our net periodic benefit cost related to our pension and other postretirement benefit plans is calculated using a weighted average discount rate of 5.16% and 5.10%, respectively, for the year ended December 31, 2023. Decreasing the discount rate by 100 basis points would increase net periodic pension cost by less than $0.1 million and increase other postretirement benefit cost by approximately $0.3 million for the year ended December 31, 2023. Additionally, our net periodic benefit cost related to our pension plans is calculated using an expected return on plan assets of 3.91% for the year ended December 31, 2023. Decreasing the expected return on plan assets by 100 basis points would increase net periodic pension benefit cost by approximately $2.0 million for the year ended December 31, 2023.

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 of December 31, 2023, 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 of December 31, 2023 and 2022, the cumulative valuation allowance against deferred tax assets was $34.0 million and $34.1 million, respectively.

We are subject to income taxes in the U.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.

Recently Issued Accounting Standards

We have reviewed all recently issued accounting 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 accounting standards will not have a significant impact on our consolidated financial statements or otherwise do not apply to our operations.

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ITEM 7.              MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 forward‑looking 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 forward‑looking statements. You should carefully read the “Special Note Regarding Forward‑Looking Statements” section of this report following the Table of Contents.

Overview

We are the global leader in the design, development, manufacture and distribution of performance‑driven golf products, which are widely recognized for their quality excellence. Today, we are the steward of two of the most revered brands in golf—Titleist, one of golf’s leading performance equipment brands, and FootJoy, one of golf’s leading performance wearable brands.

Our target market is dedicated golfers, who are the cornerstone of the worldwide golf industry. These dedicated golfers are avid and skill‑biased, prioritize performance and commit the time, effort and money to improve their game. We 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.

We believe our differentiated focus on performance and quality excellence, enduring connections with dedicated golfers, and favorable and market‑differentiating mix of consumable and durable products have been the key drivers of our solid financial performance.

Our financial results and operations continue to be impacted by the macroeconomic environment, including the ongoing COVID-19 pandemic. Global supply chain issues, the impact of inflation and the impact of changes in foreign currency exchange rates have resulted in constrained raw material, component and sourced product availability and increased raw material and other input costs, including higher freight expense. These increased costs negatively impacted cost of sales for the year ended December 31, 2022, resulting in a lower gross margin as compared to the year ended December 31, 2021. The impact of inflation, particularly in the form of higher raw material costs, as well as the impact of changes in foreign currency exchange rates, is expected to continue in 2023; however, to a lesser extent than experienced in 2022.

Basis of Presentation

The accompanying results 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"), 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 golf‑related products, including golf balls, golf clubs, golf shoes, golf gloves, golf gear and golf apparel. The demand for golf‑related 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. While rounds of play had been relatively stable for years, the game experienced an approximate 8% global increase in rounds in both 2021 and 2020 as dedicated golfers took full advantage of favorable weather, hybrid work schedules and an increase in discretionary time due to the circumstances attendant to the COVID-19 pandemic. The game of golf remained in high demand in 2022, with the number of rounds played approximately 16% higher than the number of rounds played in 2019. We anticipate that rounds of golf played will remain resilient in 2023, driven by golfer demographics, dedicated golfers and economic conditions.

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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, the rate of inflation, 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 years and above, primarily “gen‑xers,” “baby boomers” and, increasingly, "millennials" who have the time and money to engage in the sport. Since a 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 gen‑x and baby boomer generation, promising developments in golf include the generational shift with millennial golfers making their marks at both professional and amateur levels and, in 2022, accounting for 25% of golfers overall in the U.S., and the increase in the number of juniors (ages 6-17) who play golf in recent years.

Golf participation among younger generations and certain socioeconomic and ethnic groups may not prove to be as popular as it is among the current gen‑x and baby boomer generations. In such case, sales of our products could be negatively impacted.

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 on‑course 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.

Seasonality

In general, during the first quarter, we begin selling our products into the golf retail channel for the new golf season. This initial sell‑in generally continues into the second quarter. Our second‑quarter sales are significantly affected by the amount of sell‑through, in particular the amount of higher value discretionary purchases made by customers, which drives the level of reorders of the products sold during the first quarter. Our third‑quarter 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 fourth‑quarter 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. This seasonality, and therefore quarter to quarter fluctuations, can be affected by many factors, including weather conditions as discussed previously 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 larger portion of our sales and 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

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sell‑through. 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 in even-numbered years, we launch our premium performance AVX model and most performance models in the first and second quarters. 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 two‑year 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 even‑numbered 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 odd‑numbered 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 odd‑numbered years;

•irons in the third or fourth quarter of odd‑numbered years, with the majority of sales generated by such new products occurring in the following spring and summer of even‑numbered 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 even‑numbered years, with the majority of sales generated by such new products occurring in the spring and summer of such even‑numbered years; and

•Scotty Cameron putters in the first quarter, with the majority of sales generated by such new products occurring in the spring and summer of the year in which they are launched. Historically, Select models were launched in even‑numbered years and Phantom X models launched in odd‑numbered years, however, as a result of the market disruptions caused by the COVID-19 pandemic, we now launch Phantom X models in even-numbered years and Select models in odd-numbered years.

As a result of this product launch cycle, we generally expect to have higher net sales in our Titleist golf clubs segment in even‑numbered years.

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

Net sales generated outside of the United States by our non‑U.S. subsidiaries represent approximately 50% of our net sales in each of the three years ended December 31, 2022. Substantially all of these net sales generated outside of the 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 non‑U.S. subsidiaries are made in U.S. dollars. For each of the three years ended December 31, 2022, approximately 85% of our cost of goods sold incurred by our non‑U.S. subsidiaries was denominated in U.S. dollars. Because our non‑U.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 non‑U.S. subsidiaries.

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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 exchange forward 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 cost‑related decisions. In taking this active approach, we coordinate with the management teams of our key non‑U.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 stronger U.S. dollar but could also reduce the positive impact of a weaker U.S. dollar.

Because our consolidated accounts are reported in U.S. dollars, we are also exposed to currency translation risk when we translate the financial results of our consolidated non‑U.S. subsidiaries from their local currency into U.S. dollars. In each of the three years ended December 31, 2022, approximately one-half of our net sales and one-third of our total operating expenses (which amounts represent substantially all of the operating expenses incurred by our non‑U.S. subsidiaries) were denominated in foreign currencies. Fluctuations in foreign currency exchange rates may positively or negatively affect our reported financial results and can significantly affect period‑over‑period comparisons. A strengthening of the U.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 (loss).

Since a significant percentage of our net sales are generated outside of the 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 into U.S. dollars based upon the foreign currency exchange rates for the applicable comparable prior period. This constant currency information should not be considered in isolation or as a substitute for any measure derived in accordance with U.S. GAAP. Our presentation of constant currency information may not be consistent with the manner in which similar measures are derived or used by other companies.

We primarily use Adjusted EBITDA on a consolidated basis to evaluate the effectiveness of our business strategies, assess our consolidated operating performance and make decisions regarding pricing of our products, go to market execution and costs to incur across our business. We present Adjusted EBITDA as a supplemental measure of our operating performance because it excludes the impact of certain items that we do not consider indicative of our ongoing operating performance. We define Adjusted EBITDA in a manner consistent with the term “Consolidated EBITDA” as it is defined in our credit agreement. Adjusted EBITDA represents net income (loss) attributable to Acushnet 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 under U.S. GAAP. It should not be considered an alternative to net income (loss) attributable to Acushnet Holdings Corp. as a measure of our operating performance or any other measure of performance derived in accordance with U.S. GAAP. In addition, Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non‑recurring items, or affected by similar non‑recurring items. Adjusted EBITDA has limitations as an analytical tool, and you should not consider such measure either in isolation or as a substitute for analyzing our results as reported under U.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 to Acushnet 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 under U.S. GAAP. It should not be considered an alternative to any measure of performance derived in accordance with U.S. GAAP. In addition, Adjusted EBITDA margin should not be construed as an inference that our future results will be unaffected by unusual or non‑recurring items, or affected

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by similar non‑recurring items. Adjusted EBITDA margin has limitations as an analytical tool, and you should not consider such measure either in isolation or as a substitute for analyzing our results as reported under U.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 (loss) to evaluate and assess the performance of each of our reportable segments and to make budgeting decisions.

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Results of Operations

The following table sets forth, for the periods indicated, our results of operations.

___________________________________

(1)     The year ended December 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 program to refine our business model and improve operational efficiencies.

(3)    Includes non-cash indemnification expense related to tax audits for the periods in which we were owned by Beam Suntory, Inc. (“Beam”).

(4)    The year ended December 31, 2021 includes pension settlement costs of $2.1 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, as well as other immaterial unusual or non-recurring items, net.

(5)    The year ended December 31, 2020 includes 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. The year ended December 31, 2020 also includes 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, as well as other immaterial unusual or non-recurring items, net.

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Year Ended December 31, 2022 Compared to the Year Ended December 31, 2021

Net sales by reportable segment is summarized as follows:

Net sales information by region is summarized as follows:

_______________________________________________________________________________

(1) Europe, the Middle East and Africa ("EMEA")

Segment operating income by reportable segment is summarized as follows:

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Net Sales

For the year ended December 31, 2022, net sales increased 5.7%, or 11.2% on a constant currency basis, compared to the year ended December 31, 2021. The increase was driven by growth across all reportable segments primarily as a result of higher sales volumes and higher average selling prices.

The increase in net sales in the United States was primarily as a result of increases of $51.2 million in Titleist golf clubs, $20.6 million in Titleist golf balls, $13.8 million in FootJoy golf wear and $10.1 million in Titleist golf gear. The increase in Titleist golf clubs was primarily driven by higher sales volumes of SM9 wedges, Phantom X putters, T-Series irons and our newly introduced TSR drivers and fairways. The increase in Titleist golf balls was primarily due to higher average selling prices and higher sales volumes. The increase in FootJoy golf wear was primarily driven by higher average selling prices of footwear and higher sales volumes of apparel. The increase in Titleist golf gear was primarily driven by higher average selling prices across all product categories.

Net sales in regions outside of the United States increased 1.9%, or 13.5% on a constant currency basis. In EMEA, net sales increased across all reportable segments, with the first quarter of 2022 having the largest increase due to the adverse impact of government-ordered shutdowns in this region during the first quarter of 2021. In Korea and Rest of World, net sales increased across all reportable segments. In Japan, net sales increased in FootJoy golf wear and Titleist golf clubs.

Gross Profit

Gross profit increased $60.8 million for the year ended December 31, 2022 compared to the year ended December 31, 2021. Gross margin decreased to 51.9% for the year ended December 31, 2022 compared to 52.1% for the year ended December 31, 2021. The increase in gross profit primarily resulted from an increase of $35.8 million in Titleist golf clubs and an increase of $13.9 million in FootJoy golf wear, both primarily due to sales volume increases. These increases were partially offset by increased inbound freight costs and the unfavorable impact of changes in foreign currency exchange rates across all reportable segments. The decrease in gross margin was primarily due to increased inbound freight costs across all reportable segments.

Selling, General and Administrative Expenses

Selling, general and administrative ("SG&A") expenses increased $38.0 million for the year ended December 31, 2022 compared to the year ended December 31, 2021. This increase was primarily due to an increase of $26.5 million in selling expense due to higher sales volumes across all reportable segments and higher third party distribution expenses in FootJoy golf wear and Titleist golf gear, as well as an increase of $15.2 million in administrative expense primarily due to higher expenses related to information technology-related investments. These increases were partially offset by a decrease of $4.5 million in advertising and promotional expenses and a decrease in employee related expenses. SG&A also includes an increase of $8.5 million in foreign currency transaction losses, offset in part by an increase in gains on foreign exchange forward contracts of $2.5 million. Overall, SG&A included a favorable impact of changes in foreign currency exchange rates of $32.5 million across all expense categories and reportable segments.

Interest Expense, net

Interest expense, net increased $5.6 million for the year ended December 31, 2022 compared to the year ended December 31, 2021. This increase was primarily due to an increase in interest rates for the year ended December 31, 2022, as well as an increase in borrowings, offset in part by a decrease in losses from interest rate swaps.

Other Expense, net

Other expense, net increased $4.5 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily due to an increase in the non-service cost component of net periodic benefit expense, as well as changes in the fair value of Rabbi trust assets.

Income Tax Expense

Income tax expense decreased $9.2 million for the year ended December 31, 2022 compared to the year ended December 31, 2021. Our effective tax rate ("ETR") was 20.9% for the year ended December 31, 2022 compared to 25.7% for the year ended December 31, 2021. The decrease in ETR was primarily driven by changes in our jurisdictional mix of earnings.

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Segment Results

Titleist Golf Balls Segment

Net sales in our Titleist golf balls segment increased 1.7%, or 5.7% on a constant currency basis, for the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase was primarily driven by higher sales volumes and average selling prices. Sales volumes were negatively impacted by certain raw material availability.

Operating income in our Titleist golf balls segment increased $6.5 million, or 6.1%, compared to the prior year period. The increase in operating income resulted from higher gross profit of $9.0 million, partially offset by higher operating expenses of $2.4 million. The increase in gross profit was primarily driven by sales volume increases and higher average selling prices, partially offset by higher manufacturing costs and higher inbound freight costs. Operating expenses increased primarily as a result of increases of $3.5 million and $1.5 million in administrative and selling expenses, respectively, partially offset by a decrease of $2.4 million in advertising and promotional expenses.

Titleist Golf Clubs Segment

Net sales in our Titleist golf clubs segment increased 10.5%, or 16.3% on a constant currency basis, for the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase was largely due to higher sales volumes of our SM9 wedges launched in the first quarter of 2022, Phantom X putters launched in the second quarter of 2022, T-Series irons launched in the third quarter of 2021 and TSR drivers and fairways launched in the third quarter of 2022. This increase was partially offset by lower sales volumes of second model year hybrids.

Operating income in our Titleist golf clubs segment increased $25.5 million, or 33.8%, compared to the prior year period. The increase in operating income resulted from higher gross profit of $35.8 million, partially offset by higher operating expenses of $10.2 million. The increase in gross profit was primarily due to higher sales volumes, partially offset by increased inbound freight and component costs and the unfavorable impact of changes in foreign currency exchange rates. Higher operating expenses were primarily as a result of an increase of $7.0 million in selling expense primarily due to higher distribution expenses and an increase of $4.3 million in administrative expenses, partially offset by a decrease of $2.1 million in advertising and promotional expenses.

Titleist Golf Gear Segment

Net sales in our Titleist golf gear segment increased 6.4%, or 12.5% on a constant currency basis, for the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase was primarily due to higher average selling prices across all product categories.

Operating income in our Titleist golf gear segment decreased $3.0 million, or 20.4%, compared to the prior year period. The decrease in operating income resulted from higher operating expenses of $4.7 million, partially offset by higher gross profit of $1.7 million. Gross profit increased due to higher average selling prices, partially offset by increased inbound freight costs. Operating expenses increased primarily as a result of an increase of $2.9 million in selling expense due to higher third party distribution expenses.

FootJoy Golf Wear Segment

Net sales in our FootJoy golf wear segment increased 6.4%, or 12.2% on a constant currency basis, for the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase was primarily due to increased sales volumes across all product categories.

Operating income in our FootJoy golf wear segment decreased $7.2 million, or 16.3% compared to the prior year period. The decrease in operating income resulted from higher operating expenses of $21.2 million, partially offset by higher gross profit of $13.9 million. Gross profit increased primarily as a result of sales volume increases, partially offset by increased inbound freight costs and the unfavorable impact of changes in foreign currency exchange rates. Operating expenses increased primarily as a result of an increase of $16.4 million in selling expense due to higher sales volumes and higher third party distribution expenses, as well as an increase of $4.6 million in administrative expense.

Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020

A detailed review of our results of operations for the year ended December 31, 2021 as compared to the year ended December 31, 2020 can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Annual Report for the year ended December 31, 2021, which was filed with the SEC on March 1, 2022, and is incorporated herein by reference.

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Liquidity and Capital Resources

Our primary cash needs relate to working capital, capital expenditures, servicing our debt, paying dividends, pension contributions and repurchasing shares of our common stock. Additionally, from time to time, we may make strategic acquisitions and investments to complement our products, technologies or businesses, which could impact our liquidity needs. We expect to rely on cash flows from operations and borrowings under our revolving credit facility and local credit facilities as our primary sources of liquidity.

Our liquidity is impacted by our level of working capital, which is cyclical as a result of the general seasonality of our business. Our accounts receivable balance is generally at its highest starting at the end of the first quarter and continuing through the second quarter, and declines during the third and fourth quarters as a result of both an increase in cash collections and lower sales. Our inventory balance also fluctuates as a result of the seasonality of our business. Generally, our buildup of inventory starts during the fourth quarter and continues through the first quarter and into the beginning of the second quarter in order to meet demand for our initial sell-in during the first quarter and reorders in the second quarter. Both accounts receivable and inventory balances are impacted by the timing of new product launches.

As of December 31, 2022, we had $57.1 million of unrestricted cash and cash equivalents (including $13.7 million attributable to our FootJoy golf shoe variable interest entity). As of December 31, 2022, 96.1% of our total unrestricted cash and cash equivalents was held at our non‑U.S. subsidiaries, including our FootJoy golf shoe variable interest entity. 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 to the United States from time to time to satisfy domestic liquidity needs arising in the ordinary course of business.

As noted previously, the macroeconomic environment, including the ongoing COVID-19 pandemic, could impact our results of operations in ways we cannot currently predict. Nonetheless, 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 current and future economic trends and conditions, demand for our products, availability and cost of our raw materials and components, 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

On August 2, 2022, we amended our credit facility to, among other things, provide a $950.0 million multi-currency revolving credit facility and amend rates per annum at which borrowings in different denominations bear interest. On August 2, 2022, proceeds from borrowings under the multi-currency revolving credit facility were used to, among other things, prepay in full our outstanding term loans and refinance our outstanding borrowings under the revolving credit facility. Immediately prior to payment, the aggregate amounts outstanding related to the term loans and revolving credit facility were approximately $306.3 million and $72.6 million, respectively.

As of December 31, 2022, we had $416.8 million of availability under our revolving credit facility after giving effect to $6.9 million of outstanding letters of credit. Additionally, we had $25.6 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. 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 of December 31, 2022, we were in compliance with all covenants under our credit agreement.

See "Notes to Consolidated Financial Statements- Note 11- Debt and Financing Arrangements," Item 8 of Part II included elsewhere in this report, for a description of our credit facilities and related credit agreements. 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 related to our credit facilities.

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Dividends and Share Repurchase Program

During the year ended December 31, 2022, we paid dividends on our common stock of $52.2 million to our shareholders. During the first quarter of 2023, our Board of Directors declared a dividend of $0.195 per share of common stock to shareholders of record as of March 10, 2023, which is payable on March 24, 2023.

As of December 31, 2022, our Board of Directors had authorized us to repurchase up to an aggregate of $450.0 million of our issued and outstanding common stock. During 2022, we repurchased 4,114,863 shares of common stock at an average price of $46.36 for an aggregate of $190.8 million. Included in this amount were 699,819 shares of common stock repurchased on January 24, 2022 from Magnus Holdings Co., Ltd. (“Magnus”), a wholly-owned subsidiary of Fila Holdings Corp., for an aggregate of $37.5 million, in satisfaction of our obligations pursuant to our previously disclosed Magnus share repurchase agreement.

On June 16, 2022, we entered into a new agreement with Magnus to purchase from Magnus an equal amount of our common stock as we purchase on the open market, up to an aggregate of $75.0 million at the same weighted average per share price (the "2022 Agreement"). On August 30, 2022, we amended and restated the 2022 Agreement to increase the aggregate dollar amount of shares of our common stock that we will purchase from Magnus from $75.0 million to $100.0 million (the "Amended and Restated 2022 Agreement"). As a result of purchases made on the open market subsequent to entering into the 2022 Agreement, we recorded a liability of $92.6 million to repurchase an additional 2,000,839 shares of common stock from Magnus as of December 31, 2022.

As of December 31, 2022, we had $157.4 million remaining under the current share repurchase authorization, including $100.0 million related to the Amended and Restated 2022 Agreement. On February 9, 2023, our Board of Directors authorized us to repurchase up to an additional $250.0 million of our issued and outstanding common stock, bringing the total authorization up to $700.0 million since the share repurchase program was established in 2018.

Between January 1, 2023 and January 13, 2023, we purchased an additional 167,689 shares of our common stock on the open market for an aggregate of $7.4 million, bringing the cumulative total open market purchases since the inception of the 2022 Agreement to $100.0 million. As a result, on January 23, 2023, we purchased 2,168,528 shares of our common stock from Magnus for an aggregate of $100.0 million, in satisfaction of our obligation under the Amended and Restated 2022 Agreement.

See “Notes to Consolidated Financial Statements-Note 16-Common Stock,” Item 8 of Part II, included elsewhere in this report, for a description of our share repurchase program and Magnus share repurchase agreements.

Other Acquisitions

On April 1, 2022, we acquired the outstanding equity interest in PG Golf LLC for $5.0 million, including cash consideration of $3.6 million and contingent consideration of $1.4 million. On November 4, 2022, we completed the acquisition of an 80% interest in certain assets and liabilities of TPI EDU, LLC, Onbase University, LP and Racquetfit, LP for cash consideration of $18.4 million. In addition, on December 31, 2022, we separately acquired trademarks related to our putter business for $65.0 million.

In January 2023, we acquired certain trademarks, domains and products of an industry leader specializing in premium performance golf travel products for $25.0 million.

See “Notes to Consolidated Financial Statements-Note 2-Summary of Significant Accounting Policies, Note 8-Business Combinations and Note 9-Goodwill and Intangible Assets,” Item 8 of Part II, included elsewhere in this report, for additional information regarding our acquisitions during the year ended December 31, 2022.

Capital Expenditures

We made $61.4 million of capital expenditures during the year ended December 31, 2022. Capital expenditures in 2023 are expected to be approximately $75.0 million, although the actual amount may vary depending upon a variety of factors, including the timing of certain capital project implementations and receipt of capital purchases due to supply chain challenges. 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.

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Cash Flows

The following table presents the major components of net cash flows from operating, investing and financing activities for the periods indicated:

Cash Flows from Operating Activities

The change in cash flows from operating activities for the year ended December 31, 2022 compared to the year ended December 31, 2021 was driven by changes in working capital. 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. During the year ended December 31, 2022, changes in working capital were primarily related to changes in inventory driven by many factors including an increase in demand for our product, inventory build up in anticipation of 2023 product launches, and improved inventory position and supply chain as compared with 2021.

Cash Flows from Investing Activities

The increase in cash used in investing activities for the year ended December 31, 2022 as compared to the year ended December 31, 2021 was primarily driven by cash paid for business and trademark acquisitions during the year ended December 31, 2022, as well as increased capital expenditures for the same period.

Cash Flows from Financing Activities

The decrease in cash used in financing activities for the year ended December 31, 2022 as compared to the year ended December 31, 2021 was primarily due to an increase in borrowings, offset in part by an increase in purchases of our common stock.

Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020

A review of our cash flow activities for the year ended December 31, 2021 as compared to the year ended December 31, 2020 can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Annual Report for the year ended December 31, 2021, which was filed with the SEC on March 1, 2022, and is incorporated herein by reference.

Contractual Obligations

Our principal contractual obligations and commitments consist of long term debt obligations, interest on debt obligations (including unused commitment fees related to our revolving credit facility), operating and finance lease obligations, purchase obligations and pension and other postretirement benefit obligations.

See "Notes to Consolidated Financial Statements-Note 11-Debt and Financing Arrangements", "Note 4-Leases", "Note 22-Commitments and Contingencies" and "Note 14-Pension and Other Postretirement Benefits" in Item 8 of Part II of this Annual Report for more information on the nature and timing of obligations for debt, leases, purchase obligations and pension and postretirement benefit plans, respectively. The future amount of interest expense payments are expected to vary as discussed in "Interest Rate Risk," Item 7A of Part II, included elsewhere in this Annual Report.

Off‑Balance Sheet Arrangements

As of December 31, 2022, other than as discussed above, 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.

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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 ended December 31, 2020 related to KJUS. There were no other impairment losses recorded for the years ended December 31, 2022, 2021 and 2020.

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 eligible U.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 weighted‑average discount rate of 5.16% and 5.10%, respectively, for the year ended December 31, 2022. 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 $30.0 million and $1.2 million, respectively, for the year ended December 31, 2022.

Our net periodic benefit cost related to our pension and other postretirement benefit plans is calculated using a weighted average discount rate of 2.93% and 2.71%, respectively, for the year ended December 31, 2022. Decreasing the discount rate by 100 basis points would decrease net periodic pension cost by approximately $0.3 million and increase other postretirement benefit cost by approximately $0.2 million for the year ended December 31, 2022. Additionally, our net periodic benefit cost related to our pension plans is calculated using an expected return on plan assets of 3.44% for the year ended December 31, 2022. Decreasing the expected return on plan assets by 100 basis points would increase net periodic pension benefit cost by approximately $2.1 million for the year ended December 31, 2022.

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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 of December 31, 2022, 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 of December 31, 2022 and 2021, the cumulative valuation allowance against deferred tax assets was $34.1 million and $30.0 million, respectively.

We are subject to income taxes in the U.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.

Recently Issued Accounting Standards

We have reviewed all recently issued accounting 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 accounting standards will not have a significant impact on our consolidated financial statements or do not otherwise apply to our operations.

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ITEM 7.              MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 forward‑looking 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 forward‑looking statements. You should carefully read the “Special Note Regarding Forward‑Looking Statements” section of this report following the Table of Contents.

Overview

We are the global leader in the design, development, manufacture and distribution of performance‑driven golf products, which are widely recognized for their quality excellence. Today, we are the steward of two of the most revered brands in golf—Titleist, one of golf’s leading performance equipment brands, and FootJoy, one of golf’s leading performance wearable brands.

Our target market is dedicated golfers, who are the cornerstone of the worldwide golf industry. These dedicated golfers are avid and skill‑biased, prioritize performance and commit the time, effort and money to improve their game. We 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 market‑differentiating mix of consumable and durable products have been the key drivers of our solid financial performance.

Impact of COVID-19 on our Business

In March 2020, the World Health Organization declared a pandemic related to the novel coronavirus (“COVID-19”), which led to government-ordered shutdowns of non-essential businesses, travel restrictions and restrictions on public gatherings and, as a result, our results of operations for the first half of 2020 were negatively impacted. As restrictions were eased, the game of golf experienced a surge in rounds of play around the world, which resulted in increased demand for our products. On a Company-wide basis, we quickly began to experience demand pressures across all brands and product categories, which challenged our supply chain and our ability to service our trade partners and golfers.

During 2021, rounds of play remained high and we continued to see an increase in demand for our products, leading to increased sales volumes across all reportable segments. However, we also continued to experience supply chain disruptions causing shortages of various raw materials and increased freight charges. These issues are expected to continue in 2022.

While government-ordered shutdowns and restrictions have eased in most regions and mass vaccination programs are underway, the emergence of virus variants and resurgences of positive cases could lead to an increase in restrictions in certain regions, which could further disrupt our supply chain. Although we have seen increased rounds of play and demand for golf-related products, over the course of the pandemic, this could change as mass vaccination programs continue to advance and restrictions are further eased on other activities. Accordingly, our business, results of operations, financial position and cash flows could be materially impacted in ways that we cannot currently predict.

Basis of Presentation

The accompanying results 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"), 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.

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Key Factors Affecting Our Results of Operations

Rounds of Play

We generate substantially all of our sales from the sale of golf‑related products, including golf balls, golf clubs, golf shoes, golf gloves, golf gear and golf apparel. The demand for golf‑related 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. While rounds of play had been relatively stable for years, the game experienced an approximate 8% global increase in rounds in both 2021 and 2020. 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, contributing to the increase in rounds of play. In addition, the game of golf remained in high demand in 2021 as the COVID-19 pandemic continued due to its outdoor field of play and ease of social distancing. We anticipate that rounds of golf played will remain resilient and establish a new normal as vaccinations increase, workplaces evolve 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 on‑course 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 “gen‑x” and “baby boomers,” who have the time and money to engage in the sport. Since a 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 gen‑x and baby boomer generation, promising developments in golf include the generational shift with millennial golfers making their marks at both professional and amateur levels and, in 2021, accounting for 25% of golfers overall in the U.S., and the increase in the number of juniors (ages 6-17) who play golf in recent years.

Golf participation among younger generations and certain socioeconomic and ethnic groups may not prove to be as popular as it is among the current gen‑x and baby boomer generations. In such case, sales of our products could be negatively impacted.

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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 on‑course 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 sell‑in generally continues into the second quarter. Our second‑quarter sales are significantly affected by the amount of sell‑through, in particular the amount of higher value discretionary purchases made by customers, which drives the level of reorders of the products sold during the first quarter. Our third‑quarter 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 fourth‑quarter 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 previously 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 larger portion of our sales and 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 sell‑through. 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 two‑year 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 even‑numbered 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 odd‑numbered 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 odd‑numbered years;

•irons in the third or fourth quarter of odd‑numbered years, with the majority of sales generated by such new products occurring in the following spring and summer of even‑numbered 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 even‑numbered years, with the majority of sales generated by such new products occurring in the spring and summer of such even‑numbered years; and

•Scotty Cameron putters in the first quarter, with the majority of sales generated by such new products occurring in the spring and summer of the year in which they are launched. Historically, Select models were launched in even‑numbered years and Phantom X models launched in odd‑numbered years, however, as a result of the market disruptions caused by the COVID-19 pandemic, we plan on launching Phantom X models in even-numbered years and Select models in odd-numbered years going forward.

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As a result of this product launch cycle, we generally expect to have higher net sales in our Titleist golf clubs segment in even‑numbered years.

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

Net sales generated outside of the United States by our non‑U.S. subsidiaries represented approximately 48% of our net sales in each of the three years ended December 31, 2021. Substantially all of these net sales generated outside of the 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 non‑U.S. subsidiaries are made in U.S. dollars. For each of the three years ended December 31, 2021, approximately 85% of our cost of goods sold incurred by our non‑U.S. subsidiaries was denominated in U.S. dollars. Because our non‑U.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 non‑U.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 exchange forward 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 cost‑related decisions. In taking this active approach, we coordinate with the management teams of our key non‑U.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 stronger U.S. dollar but could also reduce the positive impact of a weaker U.S. dollar.

Because our consolidated accounts are reported in U.S. dollars, we are also exposed to currency translation risk when we translate the financial results of our consolidated non‑U.S. subsidiaries from their local currency into U.S. dollars. For the year ended December 31, 2021, 48% of our net sales were denominated in foreign currencies. In addition, for the year ended December 31, 2021, approximately 33% of our total operating expenses were denominated in foreign currencies (which amounts represent substantially all of the operating expenses incurred by our non‑U.S. subsidiaries). Fluctuations in foreign currency exchange rates may positively or negatively affect our reported financial results and can significantly affect period‑over‑period comparisons. A strengthening of the U.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 of the 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 into U.S. dollars based upon the foreign currency exchange rates for the applicable comparable prior period. This constant currency information should not be considered in isolation or as a substitute for any measure derived in accordance with U.S. GAAP. Our presentation of constant currency information may not be consistent with the manner in which similar measures are derived or used by other companies.

We primarily use Adjusted EBITDA on a consolidated basis to evaluate the effectiveness of our business strategies, assess our consolidated operating performance and make decisions regarding pricing of our products, go to market execution and costs to incur across our business. We present Adjusted EBITDA as a supplemental measure of our operating performance because it excludes the impact of certain items that we do not consider indicative of our ongoing operating performance. We define Adjusted EBITDA in a manner consistent with the term “Consolidated EBITDA” as it is defined in our credit agreement. Adjusted EBITDA represents net income (loss) attributable to Acushnet Holdings Corp. plus interest expense, net, income tax

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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 under U.S. GAAP. It should not be considered an alternative to net income (loss) attributable to Acushnet Holdings Corp. as a measure of our operating performance or any other measure of performance derived in accordance with U.S. GAAP. In addition, Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non‑recurring items, or affected by similar non‑recurring items. Adjusted EBITDA has limitations as an analytical tool, and you should not consider such measure either in isolation or as a substitute for analyzing our results as reported under U.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 to Acushnet 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 under U.S. GAAP. It should not be considered an alternative to any measure of performance derived in accordance with U.S. GAAP. In addition, Adjusted EBITDA margin should not be construed as an inference that our future results will be unaffected by unusual or non‑recurring items, or affected by similar non‑recurring items. Adjusted EBITDA margin has limitations as an analytical tool, and you should not consider such measure either in isolation or as a substitute for analyzing our results as reported under U.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.

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Results of Operations

The following table sets forth, for the periods indicated, our results of operations.

___________________________________

(1)     The year ended December 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 program to refine 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 by Beam Suntory, Inc. (“Beam”).

(4)    The year ended December 31, 2021 includes pension settlement costs of $2.1 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, as well as other immaterial unusual or non-recurring items, net.

(5)    The year ended December 31, 2020 includes 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. The year ended December 31, 2020 also includes 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, as well as other immaterial unusual or non-recurring items, net.

(6)     Items recorded during the year ended December 31, 2019 include transaction fees of $2.7 million, as well as other immaterial unusual or non-recurring     items, net.

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Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020

Net sales by reportable segment is summarized as follows:

Segment operating income by reportable segment is summarized as follows:

Net sales information by region is summarized as follows:

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(1) Europe, the Middle East and Africa ("EMEA")

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Net Sales

Net sales increased by $535.7 million, or 33.2%, to $2,147.9 million for the year ended December 31, 2021 compared to $1,612.2 million for the year ended December 31, 2020. On a constant currency basis, net sales increased by $493.4 million, or 30.6%, to $2,105.6 million. The increase in net sales on a constant currency basis was largely due to sales volume increases across all reportable segments, as rounds of play and consumer demand for golf-related products remained elevated during 2021, coupled with the adverse impact of government-ordered shutdowns in the second quarter of 2020. Sales volume growth of products that are not allocated to one of our four reportable segments also contributed to the increase in net sales.

The increase in net sales in the United States was driven by an increase of $104.8 million in Titleist golf balls, an increase of $76.4 million in Titleist golf clubs, an increase of $76.0 million in FootJoy golf wear and an increase of $21.3 million in Titleist golf gear, all driven by the same factors discussed previously.

Net sales in regions outside of the United States increased by $250.1 million, or 32.4%, to $1,022.9 million for the year ended December 31, 2021 compared to $772.8 million for the year ended December 31, 2020. On a constant currency basis, net sales in such regions increased by $207.8 million, or 26.9%, to $980.6 million. The increase in net sales in all regions was primarily driven by increased sales across all reportable segments, also driven by the same factors discussed previously.

Gross Profit

Gross profit increased by $288.6 million to $1,118.4 million for the year ended December 31, 2021 compared to $829.8 million for the year ended December 31, 2020. Gross margin increased to 52.1% for the year ended December 31, 2021 compared to 51.5% for the year ended December 31, 2020. The increase in gross profit primarily resulted from an increase of $88.3 million in Titleist golf balls, an increase of $83.4 million in Titleist golf clubs, an increase of $81.4 million in FootJoy golf wear and an increase of $14.9 million in Titleist golf gear, each primarily due to the sales volume increases discussed previously and higher average selling prices, partially offset by higher inbound freight costs across all reportable segments.

The increase in gross margin was primarily driven by higher gross margins in Titleist golf clubs, FootJoy golf wear and Titleist golf balls. The increases in Titleist golf clubs and Titleist golf balls were primarily due to favorable product mix shifts and higher average selling prices. The increase in FootJoy golf wear was primarily due to higher average selling prices and higher retail sales in Korea. Higher inbound freight costs across all reportable segments partially offset gross margin increases.

Selling, General and Administrative Expenses

Selling, general and administrative ("SG&A") expenses increased by $184.8 million to $795.4 million for the year ended December 31, 2021 compared to $610.6 million for the year ended December 31, 2020. This increase was largely driven by lower SG&A in 2020 due to expense reduction measures taken across all reportable segments as a result of the COVID-19 pandemic and also by higher expenditures in 2021 required to support the continued high levels of demand across all our reportable segments. This increase was comprised of an increase of $90.9 million in selling expense due to higher sales volumes as described above including higher retail commission expense in Korea, an increase of $54.3 million in advertising and promotional expenses and an increase of $36.4 million in administrative expense primarily due to higher employee-related costs and information technology related consulting expenses. Overall, SG&A included an unfavorable impact of changes in foreign currency exchange rates of $8.1 million across all expense categories and reportable segments.

Research and Development

Research and development ("R&D") expenses increased by $6.4 million to $55.3 million for the year ended December 31, 2021 compared to $48.9 million for the year ended December 31, 2020 primarily related to an increase in employee-related costs.

Intangible Amortization

Intangible amortization expense decreased $3.7 million to $7.9 million for the year ended December 31, 2021 compared to $11.6 million for the year ended December 31, 2020 primarily as a result of a goodwill impairment loss of $3.8 million recorded in 2020 related to KJUS.

Interest Expense, net

Interest expense, net decreased by $7.9 million to $7.7 million for the year ended December 31, 2021 compared to $15.6 million for the year ended December 31, 2020. This decrease was primarily due to decreases in interest rates and borrowings during the year ended December 31, 2021, as well as, a decrease in losses from interest rate swaps.

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Other Expense, net

Other expense, net decreased by $12.5 million to $4.3 million for the year ended December 31, 2021 compared to $16.8 million for the year ended December 31, 2020. This decrease was primarily due to expense recorded in 2020 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 ended December 31, 2020, and a $4.7 million decrease in the non-service cost component of net periodic benefit costs primarily driven by a decrease in settlement costs.

Income Tax Expense

Income tax expense increased by $50.6 million to $63.6 million for the year ended December 31, 2021 compared to $13.0 million for the year ended December 31, 2020. Our effective tax rate ("ETR") was 25.7% for the year ended December 31, 2021 compared to 11.5% for the year ended December 31, 2020. The increase in ETR was primarily driven by the impact of the COVID-19 pandemic on our geographic mix of earnings, as well as, the income tax benefits for the year ended December 31, 2020 pertaining to both a reduction of tax expense associated with the U.S. taxation of foreign earnings and our change in unrecognized tax benefits resulting from an audit settlement for the periods in which we were owned by Beam.

Segment Results

Titleist Golf Balls Segment

Net sales in our Titleist golf balls segment increased by $159.8 million, or 31.5%, to $667.6 million for the year ended December 31, 2021 compared to $507.8 million for the year ended December 31, 2020. On a constant currency basis, net sales in our Titleist golf balls segment increased by $148.2 million, or 29.2%, to $656.0 million. This increase was largely due to higher sales volumes of our latest generation Pro V1 and Pro V1x golf balls launched in the first quarter of 2021 combined with the adverse impact of government-ordered shutdowns in the second quarter of 2020.

Operating income in our Titleist golf balls segment increased by $34.4 million, or 47.9%, to $106.2 million for the year ended December 31, 2021 compared to $71.8 million for the year ended December 31, 2020. The increase in operating income resulted from higher gross profit of $88.3 million, partially offset by higher operating expenses. The increase in gross profit was primarily driven by the sales volume increase discussed previously, as well as higher average selling prices. This increase was partially offset by higher manufacturing costs and increased inbound freight costs. Operating expenses increased primarily as a result of increases of $20.9 million, $15.9 million and $14.0 million in advertising and promotional, selling and administrative expenses, respectively, as discussed previously.

Titleist Golf Clubs Segment

Net sales in our Titleist golf clubs segment increased by $133.1 million, or 31.8%, to $551.5 million for the year ended December 31, 2021 compared to $418.4 million for the year ended December 31, 2020. On a constant currency basis, net sales in our Titleist golf clubs segment increased by $124.0 million, or 29.6%, to $542.4 million. This increase was largely due to higher average selling prices across all product categories and higher sales volumes in all product categories except wedges. The decrease in sales volumes of wedges was primarily due to supply chain constraints. Also contributing to the increase was the adverse impact of government-ordered shutdowns in the second quarter of 2020.

Operating income in our Titleist golf clubs segment increased by $35.4 million, or 88.5%, to $75.4 million for the year ended December 31, 2021 compared to $40.0 million for the year ended December 31, 2020. The increase in operating income resulted from higher gross profit of $83.4 million driven by the sales volume increase and higher average selling prices discussed previously, partially offset by increased inbound freight costs and higher operating expenses. Higher operating expenses were primarily as a result of increases of $18.1 million, $17.0 million and $10.3 million in advertising and promotional, selling and administrative expenses, respectively, as discussed previously.

Titleist Golf Gear Segment

Net sales in our Titleist golf gear segment increased by $43.2 million, or 28.9%, to $192.6 million for the year ended December 31, 2021 compared to $149.4 million for the year ended December 31, 2020. On a constant currency basis, net sales in our Titleist golf gear segment increased by $38.6 million, or 25.8% to $188.0 million. This increase was largely due to sales volume increases across all product categories combined with the adverse impact of government-ordered shutdowns in the second quarter of 2020.

Operating income in our Titleist golf gear segment decreased by $5.3 million, or 26.5%, to $14.7 million for the year ended December 31, 2021 compared to $20.0 million for the year ended December 31, 2020. This decrease resulted from higher operating expenses, partially offset by higher gross profit of $14.9 million. The higher gross profit was driven by the

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sales volume increase discussed previously offset, in part, by increased inbound freight cost. Operating expenses increased primarily as a result of increases of $13.1 million, $4.0 million and $2.8 million in selling, administrative, and advertising and promotional expenses, respectively, as discussed previously.

FootJoy Golf Wear Segment

Net sales in our FootJoy golf wear segment increased by $165.3 million, or 39.8%, to $580.6 million for the year ended December 31, 2021 compared to $415.3 million for the year ended December 31, 2020. On a constant currency basis, net sales in our FootJoy golf wear segment increased by $152.0 million, or 36.6%, to $567.3 million. This increase was largely due to increased sales volumes and higher average selling prices across all product categories. Also contributing to the increase was the adverse impact of government-ordered shutdowns in the second quarter of 2020.

Operating income in our FootJoy golf wear segment increased by $25.9 million, or 141.5%, to $44.2 million for the year ended December 31, 2021 compared to $18.3 million for the year ended December 31, 2020. The increase in operating income resulted from higher gross profit of $81.4 million, partially offset by higher operating expenses. The increase in gross profit was primarily as a result of the sales volume increase and higher average selling prices discussed previously and a higher percentage of retail sales in Korea and global eCommerce sales, partially offset by increased inbound freight costs. Operating expenses increased primarily as a result of increases of $36.4 million in selling expense primarily due to higher sales volumes as discussed previously including higher Korea retail commission expense, as well as, $10.3 million and $7.7 million in advertising and promotional, and administrative expenses, respectively, as discussed previously.

Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019

A detailed review of our results of operations for the year ended December 31, 2020 as compared to the year ended December 31, 2019 can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of the Annual Report for the year ended December 31, 2020, which was filed with the SEC on February 25, 2021, and is incorporated herein by reference.

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Liquidity and Capital Resources

Our primary cash needs relate to working capital, capital expenditures, servicing of our debt, paying dividends, pension contributions and repurchasing shares of our common stock. We expect to rely on cash flows from operations and borrowings under our revolving credit facility and local credit facilities as our primary sources of liquidity.

Our liquidity is impacted by our level of working capital, which is cyclical as a result of the general seasonality of our business. Our accounts receivable balance is generally at its highest starting at the end of the first quarter and continuing through the second quarter, and declines during the third and fourth quarters as a result of both an increase in cash collections and lower sales. Our inventory balance also fluctuates as a result of the seasonality of our business. Generally, our buildup of inventory starts during the fourth quarter and continues through the first quarter and into the beginning of the second quarter in order to meet demand for our initial sell‑in during the first quarter and reorders in the second quarter. Both accounts receivable and inventory balances are impacted by the timing of new product launches.

As of December 31, 2021, we had $279.8 million of unrestricted cash and cash equivalents (including $14.9 million attributable to our FootJoy golf shoe variable interest entity). As of December 31, 2021, 23.5% of our total unrestricted cash and cash equivalents was held at our non‑U.S. subsidiaries. We manage our worldwide cash requirements by monitoring the funds available among our subsidiaries and determining the extent to which we can access those funds on a cost effective basis. We are not aware of any restrictions on repatriation of these funds and, subject to foreign withholding taxes, those funds could be repatriated, if necessary. We have repatriated, and intend to repatriate, funds to the 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 could impact our results of operations in ways we cannot currently predict. 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 (such as the current COVID-19 pandemic), demand for our products, availability and cost of our raw materials and components, 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 of December 31, 2021, we had $386.2 million of availability under our revolving credit facility after giving effect to $13.8 million of outstanding letters of credit. Additionally, we had $51.0 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. 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 of December 31, 2021, 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 description of our credit facilities and related credit agreement. 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 $37.6 million of capital expenditures during the year ended December 31, 2021. Capital expenditures in 2022 are expected to be approximately $60.0 million, although the actual amount may vary depending upon a variety of factors, including the timing of certain capital project implementations and receipt of capital purchases due to supply chain challenges. 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.

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Dividends and Share Repurchase Program

The Board of Directors has authorized us to repurchase up to an aggregate of $200.0 million of our issued and outstanding common stock. During 2021, we repurchased 1,404,863 shares of common stock at an average price of $46.62 for an aggregate of $65.5 million. Included in this amount were 355,341 shares of common stock repurchased from Magnus for an aggregate of $11.1 million on April 2, 2021, in satisfaction of our obligations pursuant to our previously disclosed Magnus share repurchase agreement.

On November 8, 2021, we entered into a new agreement with Magnus to purchase from Magnus an equal amount of our common stock as we purchase on the open market, up to an aggregate of $37.5 million (the "2021 Agreement"), at the same weighted average per share price. As a result of purchases made on the open market subsequent to entering into the 2021 Agreement, we recorded a liability of $29.2 million to repurchase an additional 537,839 shares of common stock from Magnus as of December 31, 2021.

Excluding the impact of the share repurchase liability, as of December 31, 2021, we had $98.2 million remaining under the current share repurchase program, including $37.5 million related to the 2021 Agreement.

Between January 1, 2022 and January 14, 2022, we repurchased an additional 161,980 shares of common stock on the open market for an aggregate of $8.3 million, bringing the cumulative total open market purchases since the execution of the 2021 agreement to $37.5 million. As a result, on January 24, 2022, we repurchased 699,819 shares of common stock for an aggregate of $37.5 million from Magnus, in satisfaction of the 2021 Agreement obligations. See “Notes to Consolidated Financial Statements-Note 15-Common Stock,” Item 8 of Part II, included elsewhere in this report, for disclosures related to our share repurchase program and the Magnus share repurchase liability.

During the year ended December 31, 2021, we paid dividends on our common stock of $49.2 million to our shareholders. During the first quarter of 2022, our Board of Directors declared a dividend of $0.18 per share of common stock to shareholders of record as of March 11, 2022 and payable on March 25, 2022.

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:

Cash Flows From Operating Activities

Net cash provided by operating activities increased $49.7 million to $314.1 million for the year ended December 31, 2021 as compared to $264.4 million for the year ended December 31, 2020. The increase in cash provided by operating activities was primarily driven by an increase in net income, offset in part by changes in working capital, both as a result of an increase in rounds of play and related consumer demand for golf-related products. 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 increased $130.1 million to $264.4 million for the year ended December 31, 2020 as compared to $134.3 million for the year ended December 31, 2019. 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.

Cash Flows From Investing Activities

Net cash used in investing activities increased $12.9 million to $37.6 million for the year ended December 31, 2021 as compared to $24.7 million for the year ended December 31, 2020, as a result of an increase in capital expenditures.

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Net cash used in investing activities decreased $36.4 million to $24.7 million for the year ended December 31, 2020 as compared to $61.1 million for the year ended December 31, 2019, primarily related to a decrease in cash used for business acquisitions, as well as a decrease in capital expenditures.

Cash Flows From Financing Activities

Net cash used in financing activities increased $11.7 million to $140.3 million for the year ended December 31, 2021 as compared to $128.6 million for the year ended December 31, 2020. This increase was primarily due to an increase in purchases of common stock, offset in part by a decrease in repayments of borrowings.

Net cash used in financing activities increased $58.3 million to $128.6 million for the year ended December 31, 2020 as compared to $70.3 million for the year ended December 31, 2019. This increase was primarily due to an increase in repayments of borrowings, offset in part by a decrease in purchases of common stock and payments for employee restricted stock tax withholdings.

Contractual Obligations

Our principal contractual obligations and commitments consist of long term debt obligations, interest on debt obligations (including unused commitment fees related to our revolving credit facility), operating and finance lease obligations, purchase obligations and pension and other postretirement benefit obligations.

See "Notes to Consolidated Financial Statements-Note 10-Debt and Financing Arrangements", "Note 4-Leases", "Note 22-Commitments and Contingencies" and "Note 13-Pension and Other Postretirement Benefits" in Item 8 of Part II of this Annual Report for more information on the nature and timing of obligations for debt, leases, purchase obligations and pension and postretirement benefit plans, respectively. The future amount of interest expense payments are expected to vary as discussed in "Interest Rate Risk," Item 7A of Part II, included elsewhere in this Annual Report.

Off‑Balance Sheet Arrangements

As of December 31, 2021, 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.

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.

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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 ended December 31, 2020 related to KJUS. There were no other impairment losses recorded for the years ended December 31, 2021, 2020 and 2019.

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 eligible U.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 weighted‑average discount rate of 2.93% and 2.71%, respectively, for the year ended December 31, 2021. 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 $58.8 million and $1.6 million, respectively, for the year ended December 31, 2021.

Our net periodic benefit cost related to our pension and other postretirement benefit plans is calculated using a weighted average discount rate of 2.66% and 2.34%, respectively, for the year ended December 31, 2021. Decreasing the discount rate by 100 basis points would increase net periodic pension and other postretirement benefit cost by approximately $4.8 million and $0.2 million, respectively, for the year ended December 31, 2021. Additionally, our net periodic benefit cost related to our pension plans is calculated using an expected return on plan assets of 4.28% for the year ended December 31, 2021. Decreasing the expected return on plan assets by 100 basis points would increase net periodic pension benefit cost by approximately $2.5 million for the year ended December 31, 2021.

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 of December 31, 2021, 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 of December 31, 2021 and 2020, the cumulative valuation allowance against deferred tax assets was $30.0 million and $20.4 million, respectively.

We are subject to income taxes in the U.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.

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.

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