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Section 1: 8-K (8-K)

Document


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Date of Report (Date of earliest event reported):  August 11, 2016
 
 Vista Outdoor Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
1-36597
 
47-1016855
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(I.R.S. Employer Identification
No.)
 
262 N University Drive
Farmington, UT
 
84025
(Address of principal executive offices)
 
(Zip Code)
 
Registrant’s telephone number, including area code:  (801) 447-3000
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
o            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
o            Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
o            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
o            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 






Item 8.01    Other Events.

Supplemental Guarantor Financial Information
    
Vista Outdoor Inc. (“Vista Outdoor”) is filing with this Current Report on Form 8-K (this “Current Report”) the audited consolidated and combined financial statements of Vista Outdoor and its subsidiaries as of March 31, 2016 and 2015 and for each of the years in the three-year period ended March 31, 2016 to include additional guarantor information in Note 19, Condensed Consolidating Financial Statements. Vista Outdoor’s audited consolidated and combined financial statements and the notes thereto are filed as Exhibit 99.1 hereto and are incorporated herein by reference.

As previously disclosed, on August 11, 2015, Vista Outdoor completed its private offering of $350 million aggregate principal amount of unregistered 5.875% Senior Notes due 2023 (the “outstanding unregistered notes”). In connection with the private offering of the outstanding unregistered notes, Vista Outdoor entered into a registration rights agreement relating to the outstanding unregistered notes, pursuant to which Vista Outdoor is filing a Registration Statement on Form S-4 with the Securities and Exchange Commission to exchange the outstanding unregistered notes for new notes (the “exchange notes”, and such exchange, the “exchange offer”). The outstanding unregistered notes are, and the exchange notes will be, fully and unconditionally guaranteed, jointly and severally, by Advanced Arrow S.de R.L. de C.V. and Hydrosport, S. de R.L. de C.V., each a 100% owned subsidiary of Vista Outdoor, and by certain of Vista Outdoor’s 100% owned domestic subsidiaries (collectively, the “Subsidiary Guarantors”). The terms of the exchange notes will be identical in all material respects to the terms of the outstanding unregistered notes (except that the transfer restrictions, registration rights and payment of additional interest applicable to the outstanding unregistered notes will not apply to the exchange notes). In connection with the exchange offer, Vista Outdoor will be required, pursuant to Rule 3-10 of Regulation S-X, to include in its financial statements certain financial information with respect to Vista Outdoor, the Subsidiary Guarantors and non-guarantor subsidiaries of Vista Outdoor.

The audited consolidated and combined financial statements of Vista Outdoor and the notes related thereto have been updated solely to include in Note 19, Condensed Consolidating Financial Statements. All other information, including financial information, provided in Vista Outdoor’s Form 10-K for the fiscal year ended March 31, 2016 (the “Form 10-K”), remains unchanged and this Current Report does not modify or update the disclosures in the Form 10-K in any other way. This Current Report should be read in conjunction with the Form 10-K.

Bushnell Financial Statements

As previously disclosed, on November 1, 2013, Bushnell Group Holdings, Inc. was acquired by Alliant Techsystems Inc. (which operated the business of Vista Outdoor prior to February 9, 2015). Due to the significance of the acquisition the audited consolidated statements of operations, comprehensive loss and cash flows of Bushnell Group Holdings, Inc. for the ten months ended October 31, 2013, and the notes thereto, are filed as Exhibit 99.2 hereto and are incorporated herein by reference.

CamelBak Financial Statements

As previously disclosed, on August 3, 2015, CamelBak Products, LLC (“CamelBak”) was acquired by Vista Outdoor. Due to the significance of the acquisition the audited consolidated balance sheet of CamelBak as of December 31, 2014 and the audited consolidated statements of operations, comprehensive income and cash flows of CamelBak for the fiscal year ended December 31, 2014, and the notes thereto, are filed as Exhibit 99.3 hereto and are incorporated herein by reference.

The financial information relating to CamelBak as of and for the fiscal year ended December 31, 2014 included herein has been derived from the audited financial statements of CamelBak. Such financial statements were audited under the standards promulgated by the American Institute of Certified Public Accountants, but not the standards promulgated by the Public Company Accounting Oversight Board. We believe that this does not have a material impact on the understanding of CamelBak’s results of operations, financial condition, liquidity and related operating and financial trends.
The unaudited consolidated balance sheet of CamelBak as of June 30, 2015 and the unaudited consolidated statements of operations, comprehensive income and cash flows of CamelBak for the quarter and six months ended June 30, 2015 and 2014, and the notes thereto, are filed as Exhibit 99.4 hereto and are incorporated herein by reference.






Item 9.01    Financial Statements and Exhibits.

(a)
Exhibits

Exhibit No.
Description
23.1
Consent of Deloitte & Touche LLP relating to Vista Outdoor Inc.
23.2
Consent of Deloitte & Touche LLP relating to Bushnell Group Holdings, Inc.
23.3
Consent of Grant Thornton LLP relating to CamelBak Acquisition Corporation and Subsidiaries
99.1
Audited consolidated and combined financial statements of Vista Outdoor and subsidiaries as of March 31, 2016 and 2015 and for each of the years in the three-year period ended March 31, 2016, and the notes thereto.
99.2
Audited consolidated financial statements of Bushnell Group Holdings, Inc. for the ten months ended October 31, 2013, and the notes thereto.
99.3
Audited consolidated balance sheet of CamelBak Acquisition Corporation and Subsidiaries as of December 31, 2014 and audited consolidated statements of operations, comprehensive income and cash flows of CamelBak Acquisition Corporation and Subsidiaries for the fiscal year ended December 31, 2014, and the notes thereto.
99.4
Unaudited condensed consolidated balance sheet of CamelBak Acquisition Corporation and Subsidiaries as of June 30, 2015 and unaudited condensed consolidated statements of operations, comprehensive income and cash flows of CamelBak Acquisition Corporation and Subsidiaries for the three and six months ended June 30, 2015 and 2014
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document







SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
VISTA OUTDOOR INC.
 
 
 
 
 
 
By:
/s/ Stephen M. Nolan
 
 
Name:
Stephen M. Nolan
 
 
Title:
Senior Vice President and Chief Financial Officer
 
 
 
 
 
 
 
 
Date:
August 11, 2016
 
 






EXHIBIT INDEX

Exhibit No.
Description
23.1
Consent of Deloitte & Touche LLP relating to Vista Outdoor Inc.
23.2
Consent of Deloitte & Touche LLP relating to Bushnell Group Holdings, Inc.
23.3
Consent of Grant Thornton LLP relating to CamelBak Acquisition Corporation and Subsidiaries
99.1
Audited consolidated and combined financial statements of Vista Outdoor and subsidiaries as of March 31, 2016 and 2015 and for each of the years in the three-year period ended March 31, 2016, and the notes thereto.
99.2
Audited consolidated financial statements of Bushnell Group Holdings, Inc. for the ten months ended October 31, 2013, and the notes thereto.
99.3
Audited consolidated balance sheet of CamelBak Acquisition Corporation and Subsidiaries as of December 31, 2014 and audited consolidated statements of operations, comprehensive income and cash flows of CamelBak Acquisition Corporation and Subsidiaries for the fiscal year ended December 31, 2014, and the notes thereto.
99.4
Unaudited condensed consolidated balance sheet of CamelBak Acquisition Corporation and Subsidiaries as of June 30, 2015 and unaudited condensed consolidated statements of operations, comprehensive income and cash flows of CamelBak Acquisition Corporation and Subsidiaries for the three and six months ended June 30, 2015 and 2014
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document



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Section 2: EX-23.1 (EXHIBIT 23.1)

Exhibit
Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement 333-201957 on Form S-8 of our report dated May 27, 2016 (except for Note 19 as to which the date is August 11, 2016), relating to the financial statements of Vista Outdoor Inc. and subsidiaries (which report expresses an unqualified opinion and includes an explanatory paragraph relating to the financial statements being derived from the consolidated financial statements and accounting records of Alliant Techsystems Inc. and certain expense allocations from Alliant Techsystems Inc. corporate functions through February 8, 2015) appearing in this Current Report on Form 8-K of Vista Outdoor Inc.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
August 11, 2016




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Section 3: EX-23.2 (EXHIBIT 23.2)

Exhibit
Exhibit 23.2

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in Registration Statement No. 333-201957 on Form S-8 of Vista Outdoor Inc. of our report dated August 13, 2014, relating to the consolidated financial statements of Bushnell Group Holdings, Inc. and subsidiaries, appearing in this Current Report on Form 8-K of Vista Outdoor Inc..
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
August 11, 2016



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Section 4: EX-23.3 (EXHIBIT 23.3)

Exhibit


CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have issued our report dated March 12, 2015 with respect to the consolidated financial statements of CamelBak Acquisition Corporation and its subsidiaries for the year ended December 31, 2014 included in the Current Report of Vista Outdoor, Inc. on Form 8-K. We consent to the incorporation by reference of said report on Form S-8 (File No. 333-201957).

/s/ GRANT THORNTON LLP

San Fransisco, California
August 11, 2016



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Section 5: EX-99.1 (EXHIBIT 99.1)

Exhibit
Exhibit 99.1

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Vista Outdoor Inc.    
Farmington, Utah

We have audited the accompanying consolidated balance sheets of Vista Outdoor Inc. and subsidiaries (the "Company") as of March 31, 2016 and 2015, and the related consolidated and combined statements of comprehensive income, stockholders’ and parent company equity, and cash flows for each of the three years in the period ended March 31, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated and combined financial statements present fairly, in all material respects, the financial position of Vista Outdoor Inc. at March 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2016, in conformity with accounting principles generally accepted in the United States of America.

As described in Notes 1 and 15, prior to February 9, 2015 the accompanying combined financial statements were derived from the consolidated financial statements and accounting records of Alliant Techsystems Inc. The accompanying combined financial statements also include expense allocations for certain corporate functions historically provided by Alliant Techsystems Inc. and do not necessarily reflect the financial position, results of operations, and cash flows that would have existed if the Company had been a separate, stand-alone entity during the periods prior to February 9, 2015.
 
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of March 31, 2016, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated May 27, 2016 (not presented herein) expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ DELOITTE & TOUCHE, LLP

Minneapolis, Minnesota
May 27, 2016 (except for Note 19 as to which the date is August 11, 2016)

1



VISTA OUTDOOR INC.
CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME
 
 
Years Ended March 31
(Amounts in thousands except per share data)
 
2016
 
2015
 
2014
Sales, net
 
$
2,270,734

 
$
2,083,414

 
$
1,873,919

Cost of sales
 
1,651,289

 
1,554,493

 
1,406,616

Gross profit
 
619,445

 
528,921

 
467,303

Operating expenses:
 
 
 
 
 
 
Research and development
 
12,512

 
9,518

 
13,984

Selling, general, and administrative
 
344,175

 
283,029

 
219,512

Goodwill and tradename impairment
 

 
52,220

 

Income before interest and income taxes
 
262,758

 
184,154

 
233,807

Interest expense, net
 
(24,351
)
 
(30,108
)
 
(15,469
)
Income before income taxes
 
238,407

 
154,046

 
218,338

Income tax provision
 
91,370

 
74,518

 
85,081

Net income
 
$
147,037

 
$
79,528

 
$
133,257

Earnings per common share:
 
 
 
 
 
 
Basic
 
$
2.36

 
$
1.25

 
$
2.09

Diluted
 
$
2.35

 
$
1.25

 
$
2.09

Weighted-average number of common shares outstanding:
 
 
 
 
 
 
Basic
 
62,211

 
63,596

 
63,875

Diluted
 
62,568

 
63,857

 
63,875

 
 
 
 
 
 
 
Net income (from above)
 
$
147,037

 
$
79,528

 
$
133,257

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
Pension and other postretirement benefit liabilities:
 
 
 
 
 
 
Reclassification of prior service credits for pension and postretirement benefit plans recorded to net income, net of tax benefit of $632, $83, and $0
 
(1,068
)
 
(139
)
 

Reclassification of net actuarial loss for pension and postretirement benefit plans recorded to net income, net of tax expense of $(3,276), $(1,334), and $0
 
5,524

 
2,246

 

Valuation adjustment for pension and postretirement benefit plans, net of tax expense of $5,917, $0, and $0
 
(9,968
)
 

 

Change in fair value of derivatives, net of tax benefit of $0, $0, and $(251), respectively
 

 

 
401

Change in cumulative translation adjustment, net of tax (expense) benefit of $(41), $0, and $942
 
5,601

 
(50,643
)
 
(1,505
)
Total other comprehensive income (loss)
 
89

 
(48,536
)
 
(1,104
)
Comprehensive income
 
$
147,126

 
$
30,992

 
$
132,153

See Notes to the Consolidated and Combined Financial Statements.

2



VISTA OUTDOOR INC.
CONSOLIDATED BALANCE SHEETS
 
 
March 31
(Amounts in thousands except share data)
 
2016
 
2015
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
151,692

 
$
263,951

Net receivables
 
428,398

 
361,694

Net inventories
 
440,240

 
375,621

Other current assets
 
29,334

 
13,452

Total current assets
 
1,049,664

 
1,014,718

Net property, plant, and equipment
 
203,485

 
190,607

Goodwill
 
1,023,451

 
782,163

Net intangible assets
 
650,472

 
517,482

Deferred charges and other non-current assets
 
15,562

 
7,476

Total assets
 
$
2,942,634

 
$
2,512,446

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Current portion of long-term debt
 
$
17,500

 
$
17,500

Accounts payable
 
147,738

 
134,432

Accrued compensation
 
47,394

 
27,146

Accrued income taxes
 
12,171

 
9,569

Federal excise tax
 
27,701

 
23,194

Other accrued liabilities
 
116,397

 
96,071

Total current liabilities
 
368,901

 
307,912

Long-term debt
 
652,787

 
322,165

Deferred income tax liabilities
 
135,957

 
143,039

Accrued pension and postemployment liabilities
 
73,503

 
59,345

Other long-term liabilities
 
51,319

 
31,221

Total liabilities
 
1,282,467

 
863,682

Commitments and contingencies (Notes 11, 13 and 14)
 

 

Common stock—$.01 par value:
 
 
 
 
Authorized—500,000,000 shares
 
 
 
 
Issued and outstanding— 60,825,914 shares at March 31, 2016 and 63,873,222 shares at March 31, 2015
 
608

 
639

Additional paid-in-capital
 
1,743,371

 
1,742,125

Retained earnings
 
166,421

 
19,384

Accumulated other comprehensive loss
 
(110,214
)
 
(110,303
)
Common stock in treasury, at cost— 3,138,525 shares held at March 31, 2016 and 85,940 shares held at March 31, 2015
 
(140,019
)
 
(3,081
)
Total stockholders' equity
 
1,660,167

 
1,648,764

Total liabilities and equity
 
$
2,942,634

 
$
2,512,446

See Notes to the Consolidated and Combined Financial Statements.

3



VISTA OUTDOOR INC.
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
 
 
Years Ended March 31
(Amounts in thousands)
 
2016
 
2015
 
2014
Operating Activities
 
 
 
 
 
 
Net income
 
$
147,037

 
$
79,528

 
$
133,257

Adjustments to net income to arrive at cash provided by operating activities:
 
 
 
 
 
 
Depreciation
 
38,953

 
35,405

 
24,891

Amortization of intangible assets
 
33,661

 
31,146

 
20,011

Amortization of deferred financing costs
 
2,501

 
2,447

 
897

Goodwill and tradename impairment
 

 
52,220

 

Deferred income taxes
 
(457
)
 
(947
)
 
8,746

Loss (gain) on disposal of property
 
323

 
(136
)
 
7,668

Share-based compensation
 
12,279

 
3,012

 

Excess tax benefits from share-based plans
 

 
(120
)
 

Changes in assets and liabilities:
 
 
 
 
 
 
Net receivables
 
(33,596
)
 
(72,321
)
 
(357
)
Net inventories
 
(31,065
)
 
40,991

 
8,970

Accounts payable
 
3,398

 
(37,837
)
 
(32,277
)
Accrued compensation
 
8,006

 
(9,047
)
 
1,016

Accrued income taxes
 
(1,804
)
 
17,246

 
(1,182
)
Federal excise tax
 
4,535

 
6,935

 
9,042

Pension and other postretirement benefits
 
5,076

 
248

 

Other assets and liabilities
 
9,155

 
5,568

 
(8,372
)
Cash provided by operating activities
 
198,002

 
154,338

 
172,310

Investing Activities
 
 
 
 
 
 
Capital expenditures
 
(41,526
)
 
(43,189
)
 
(40,234
)
Acquisitions of businesses, net of cash acquired
 
(462,050
)
 

 
(1,301,687
)
Proceeds from the disposition of property, plant, and equipment
 
372

 
320

 
174

Cash used for investing activities
 
(503,204
)
 
(42,869
)
 
(1,341,747
)
Financing Activities
 
 
 
 
 
 
Borrowings on line of credit
 
360,000

 

 
200,000

Repayments of line of credit
 
(360,000
)
 

 
(200,000
)
Proceeds from issuance of long-term debt
 
350,000

 
350,000

 

Payments made on bank debt
 
(17,500
)
 

 

Net transfers from parent
 

 
16,181

 
206,678

Payment from former parent
 
6,500

 

 

Dividend paid to parent
 

 
(214,000
)
 

Payments made on long-term debt to parent
 

 
(20,087
)
 
(6,362
)
Proceeds from issuance of long-term debt to parent
 

 
50,000

 
1,021,273

Payments made to extinguish debt
 

 
(50,000
)
 

Payments made for debt issue costs
 
(4,379
)
 
(10,991
)
 
(12,273
)
Purchase of treasury shares
 
(143,194
)
 
(5,097
)
 

Excess tax benefits from share-based plans
 

 
120

 

Proceeds from employee stock compensation plans
 
1,173

 

 

Cash provided by financing activities
 
192,600

 
116,126

 
1,209,316

Effect of foreign currency exchange rate fluctuations on cash
 
343

 
(3,648
)
 
58

(Decrease) increase in cash and cash equivalents
 
(112,259
)
 
223,947

 
39,937

Cash and cash equivalents at beginning of year
 
263,951

 
40,004

 
67

Cash and cash equivalents at end of year
 
$
151,692

 
$
263,951

 
$
40,004

Supplemental Cash Flow Disclosures:
 
 
 
 
 
 
Noncash investing activity:
 
 
 
 
 
 
Capital expenditures included in accounts payable and other accrued liabilities
 
$
9,708

 
$
5,252

 
$
8,327

Noncash financing activity:
 
 
 
 
 
 
Treasury stock purchased included in other accrued liabilities
 
$
779

 
$
1,773

 
$

   See Notes to the Consolidated and Combined Financial Statements.

4



VISTA OUTDOOR INC.
CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS' AND PARENT COMPANY EQUITY
 
 
Common Stock $.01 Par Value
 
 
 
 
 
 
 
 
 
 
 
 
(Amounts in thousands except share data)
 
Shares
 
Amount
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Treasury
Stock
 
Parent's Equity
 
Total
Equity
Balance, March 31, 2013
 

 
$

 
$

 
$

 
$
(401
)
 
$

 
$
532,301

 
$
531,900

Comprehensive income
 

 

 

 

 
(1,104
)
 

 
133,257

 
132,153

Net transfer from parent
 

 

 

 

 

 

 
206,678

 
206,678

Balance, March 31, 2014
 

 

 

 

 
(1,505
)
 

 
872,236

 
870,731

Comprehensive income
 

 

 

 
19,384

 
(48,536
)
 

 
60,144

 
30,992

Issuance of common stock in connection with Spin-Off
 
63,875,472

 
639

 

 

 

 

 

 
639

Restricted stock grants
 
180,095

 

 
(7,299
)
 

 

 
7,299

 

 

Share-based compensation
 

 

 
3,012

 

 

 

 

 
3,012

Restricted stock units vested and issued
 
123,208

 

 
(5,280
)
 

 

 
2,979

 

 
(2,301
)
Treasury stock purchased
 
(162,000
)
 

 

 

 

 
(6,870
)
 

 
(6,870
)
Employee benefit plans and other
 
(138,276
)
 

 

 

 

 
(6,489
)
 

 
(6,489
)
Dividend paid to parent
 

 

 

 

 

 

 
(214,000
)
 
(214,000
)
Contribution from parent
 

 

 
1,751,692

 

 
(60,262
)
 

 
(734,561
)
 
956,869

Net transfer (to) from parent
 

 

 

 

 

 

 
16,181

 
16,181

Balance, March 31, 2015
 
63,878,499

 
639

 
1,742,125

 
19,384

 
(110,303
)
 
(3,081
)
 

 
1,648,764

Comprehensive income
 

 

 

 
147,037

 
89

 

 

 
147,126

Exercise of stock options
 
66,670

 

 
(1,748
)
 

 

 
2,921

 

 
1,173

Restricted stock grants net of forfeitures
 
41,721

 

 
(3,672
)
 

 

 
3,519

 

 
(153
)
Share-based compensation
 

 

 
12,279

 

 

 

 

 
12,279

Restricted stock vested and shares withheld
 
11,133

 

 
(2,677
)
 

 

 
(1,471
)
 

 
(4,148
)
Treasury stock purchased
 
(3,179,086
)
 
(32
)
 

 

 

 
(142,200
)
 

 
(142,232
)
Contribution from former parent and other
 
6,977

 
1

 
(2,936
)
 

 

 
293

 

 
(2,642
)
Balance, March 31, 2016
 
60,825,914

 
$
608

 
$
1,743,371

 
$
166,421

 
$
(110,214
)
 
$
(140,019
)
 
$

 
$
1,660,167

See Notes to the Consolidated and Combined Financial Statements.

5



NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(Amounts in thousands except share and per share data and unless otherwise indicated)
1. Summary of Significant Accounting Policies
Nature of Operations. Vista Outdoor Inc. (together with our subsidiaries, "we", "our", and "us") is a leading global designer, manufacturer and marketer of consumer products in the growing outdoor sports and recreation markets. We operate in two segments, Shooting Sports and Outdoor Products. Vista Outdoor is headquartered in Farmington, Utah and has manufacturing operations and facilities in 11 U.S. States, Canada, Mexico and Puerto Rico along with international sales and sourcing operations in Asia, Australia, Canada, Europe, and New Zealand. Vista Outdoor was incorporated in Delaware in 2014. Prior to February 9, 2015, the business was operated as the Sporting Group reporting segment of Alliant Techsystems Inc. (“ATK”). On April 28, 2014, Orbital ATK entered into a Transaction Agreement (the “Transaction Agreement”) among Vista Outdoor, Vista Merger Sub Inc. (“Merger Sub”) and Orbital Sciences Corporation (“Orbital”), providing for, among other things, the transfer of the businesses comprising ATK’s Sporting Group reporting segment to Vista Outdoor (the “Sporting Transfers”), the distribution of all of the shares of Vista Outdoor common stock on a pro rata basis to the holders of ATK common stock (the “Spin-Off”), and the merger of Merger Sub with and into Orbital (the “ATK/Orbital Merger”), with Orbital surviving the ATK/Orbital Merger as a wholly owned subsidiary of ATK.

On February 9, 2015, ATK completed the Sporting Transfers and the Spin-Off, distributing to its stockholders two shares of Vista Outdoor common stock for every share of ATK common stock held as of record on February 2, 2015. In connection with the Spin-Off, Vista Outdoor filed a Registration Statement on Form 10 (as amended, the “Form 10”) with the Securities and Exchange Commission (the “SEC”), which was declared effective on January 23, 2015. The Form 10 included an Information Statement describing the details of the Spin-Off and providing information as to our business and management.

Except where indicated, references below to transactions completed by Vista Outdoor prior to February 9, 2015, refer to transactions completed by or on behalf of the ATK Sporting Group reporting segment that are reflected on the consolidated and combined financial statements of Vista Outdoor.

Basis of Presentation. The consolidated and combined financial statements reflect our consolidated operations as a separate stand-alone entity beginning on February 9, 2015. Periods presented prior to the Spin-Off have been prepared on a stand-alone basis and are derived from the consolidated financial statements and accounting records of Orbital ATK and are presented on a combined basis. Subsequent to the Spin-Off, the financial statements are presented on a consolidated basis. The consolidated and combined financial statements reflect our financial position, results of operations and cash flows as our business was operated as part of Orbital ATK prior to the distribution, in conformity with U.S. generally accepted accounting principles.

Prior to February 9, 2015, the consolidated and combined statements of comprehensive income include expense allocations for certain corporate functions historically provided to us by Orbital ATK, including, but not limited to, human resources, employee benefits administration, treasury, risk management, audit, finance, tax, legal, information technology support, and other shared services. These allocations are reflected in the combined statements of operations within the expense categories to which they relate. The allocations were made on a direct usage basis when identifiable, with the remainder allocated on various bases that are further discussed in Note 15. Management of Vista Outdoor and Orbital ATK consider these allocations to be a reasonable reflection of the utilization of services by, or benefits provided to, us. The allocations may not, however, reflect the expense we would have incurred as a stand-alone company. Following our separation from Orbital ATK, we perform these functions using our resources or purchased services. For an interim period, however, some of these functions will continue to be provided by Orbital ATK under transition services agreements and other commercial agreements.

Prior to February 9, 2015, Orbital ATK maintained a number of defined benefit plans at a corporate level which our employees participated in, and as such, we were charged a portion of the expenses associated with these plans. Subsequent to February 9, 2015, we established separate defined benefit plans and the liabilities were transferred to us. The associated assets were transferred on July 1, 2016. See Note 10 for further detail.

Transactions between us and Orbital ATK prior to February 9, 2015 are reflected as effectively settled at the time of the transaction and are included in financing activities in the consolidated combined statements of cash flows.

Our consolidated and combined financial statements may not be indicative of our future performance and do not necessarily reflect what the results of operations and cash flows would have been had we operated as a stand-alone company during the periods presented prior to Spin-Off.

6



NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
1. Summary of Significant Accounting Policies (Continued)



Principles of Consolidation and Combination. The consolidated and combined financial statements include our net assets and results of operations as described above. All intercompany transactions and accounts within the businesses have been eliminated.

All transactions between Orbital ATK and Vista Outdoor have been included in these combined financial statements. Prior to February 9, 2015, transactions with Orbital ATK or its affiliates are reflected in the combined statements of cash flows as changes in Orbital ATK's net investment within financing activities. Subsequent to February 9, 2015, transactions with Orbital ATK or its affiliates are reflected within the consolidated statements in the appropriate line item.
Fiscal Year.    References in this report to a particular fiscal year refer to the year ended March 31 of that calendar year. Our interim quarterly periods are based on 13-week periods and end on Sundays.
Use of Estimates.    The preparation of consolidated and combined financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may differ from those estimates.
Revenue Recognition. Sales, net of estimates for discounts, returns, rebates, allowances, and excise taxes are recognized when persuasive evidence of an arrangement exists, the price is fixed and determinable, and all risks of ownership have been transferred, and payment is reasonably assured.
Cost of Sales. Cost of sales includes material, labor, and overhead costs associated with product manufacturing, including depreciation, amortization, purchasing and receiving, inspection, warehousing, product liability, warranty, and inbound and outbound shipping and handling costs.
Research and Development Costs. Research and development costs consist primarily of compensation and benefits and experimental work materials for our employees who are responsible for the development and enhancement of new and existing products. Research and development costs incurred to develop new products and to enhance existing products are charged to expense as incurred.
Selling, General, and Administrative Expense. Selling, General and Administrative expense includes, among other items, administrative salaries, benefits, commissions, advertising, insurance, and professional fees.
Advertising Costs. Advertising costs including print ads, commercials, catalogs, and brochures are expensed at time of first advertisement. Our co-op program is structured so that certain dealers are eligible for reimbursement of certain types of advertisements on qualifying product purchases and are accrued as purchases are made. Advertising costs totaled $65,775, $52,941, and $44,341 for the years ended March 31, 2016, 2015, and 2014, respectively.
Cash Equivalents. Cash equivalents are all highly liquid cash investments purchased with original maturities of three months or less.
Allowance for Doubtful Accounts. We maintain an allowance for doubtful receivables for estimated losses resulting from the inability of our trade customers to make required payments. We provide an allowance for specific customer accounts where collection is doubtful and also provide an allowance for customer deductions based on historical collection and write-off experience. Additional allowances would be required if the financial conditions of our customers deteriorated.
Inventories. Inventories are stated at the lower of cost, determined using the first-in, first-out ("FIFO") method, or market. Inventory costs associated with work in process inventory and finished goods include material, labor, and manufacturing overhead, while costs associated with raw materials and purchased finished goods include material and inbound freight costs. We provide inventory allowances for any excess and obsolete inventories and periodically write inventory amounts down to market when costs exceed market value.
Warranty Costs. We provide consumer warranties against manufacturing defects on certain products within the Shooting Sports and Outdoor Products segments with warranty periods ranging from one year to a lifetime. The estimated costs of such product warranties are recorded at the time the sale is recorded. Estimated future warranty costs are accrued at the time of sale based upon actual past experience, our current production environment as well as specific and identifiable warranties as applicable. See Note 8 for additional detail.

7



NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
1. Summary of Significant Accounting Policies (Continued)


Accounting for Goodwill and Identifiable Intangible Assets.
Goodwill—We test goodwill for impairment on the first day of our fourth fiscal quarter or upon the occurrence of events or changes in circumstances that indicate that an asset might be impaired. We have determined that the reporting units for our goodwill impairment review are our operating segments, or components of an operating segment, that constitute a business for which discrete financial information is available, and for which segment management regularly reviews the operating results. We then evaluate these components to determine if they are similar and should be aggregated into one reporting unit for testing purposes.
The impairment test is performed using a two-step process. In the first step, we determine the estimated fair value of each reporting unit and compare it to the carrying value of the reporting unit, including goodwill. If the carrying amount of a reporting unit is higher than its fair value, an indication of goodwill impairment exists and the second step must be performed in order to determine the amount of the goodwill impairment. In the second step, we must determine the implied fair value of the reporting unit's goodwill, by allocating the estimated fair value of the reporting unit in a manner similar to a purchase price allocation. The implied fair value is compared to the carrying amount and if the carrying amount of the reporting unit's goodwill exceeds the implied fair value of its goodwill, an impairment loss must be recognized for the excess.
Identifiable Intangible Assets—Our primary identifiable intangible assets include trademarks and trade names, patented technology, and customer relationships. Identifiable intangible assets with finite lives are amortized and evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Identifiable intangibles with indefinite lives are not amortized and are tested for impairment annually on the first day of our fourth fiscal quarter, or more frequently if events warrant.
Our identifiable intangibles with indefinite lives consist of certain trademarks and trade names. The impairment test consists of a comparison of the fair value of the specific intangible asset with its carrying value. The fair value of these assets is measured using the relief-from-royalty method which assumes that the asset has value to the extent that the owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires that we estimate the future revenue for the related brands and technology, the appropriate royalty rate, and the weighted average cost of capital. We base our fair values and estimates on assumptions we believe to be reasonable, but which are unpredictable and inherently uncertain. If the carrying amount of an asset is higher than its fair value, an impairment exists and the asset would be recorded at the fair value.
Stock-Based Compensation.    Our stock-based compensation plans, which are described more fully in Note 14, provide for the grant of various types of stock-based incentive awards, including performance awards, total stockholder return performance awards ("TSR awards"), restricted stock/restricted stock units, and options to purchase common stock. The types and mix of stock-based incentive awards are evaluated on an ongoing basis and may vary based on our overall strategy regarding compensation, including consideration of the impact of expensing stock awards on our results of operations.
Performance awards are valued at the fair value of our stock as of the grant date and expense is recognized based on the number of shares expected to vest under the terms of the award under which they are granted. We use an integrated Monte Carlo simulation model to determine the fair value of the TSR awards and the calculated fair value is expensed over the vesting period. Restricted stock issued vests over periods ranging from one to four years and is valued based on the market value of our stock on the grant date. The estimated grant date fair value of stock options is expensed on a straight-line basis over the requisite service period, generally one to three years. The estimated fair value of each option is calculated using the Black-Scholes option-pricing model. See Note 14 for further details.
Prior to February 9, 2015, all of our stock-based compensation expense was attributable to our participation in Orbital ATK long-term incentive plans. Expense recognized prior to February 9, 2015 was based on awards attributable to those plans.
Income Taxes.   Prior to the Spin-Off, our domestic operations were included in Orbital ATK's U.S. federal and state income tax returns and all income taxes have been paid by Orbital ATK. Our foreign operations have been included in our own tax filings and we have paid the taxes. Income tax expense and other income tax related information contained in these combined financial statements are presented on a separate tax return basis as if we filed our own tax returns. Prior to the Spin-Off, current domestic income tax liabilities are assumed to be immediately settled with Orbital ATK and are relieved through the Parent's equity in the statement of cash flows.
After the Spin-Off, we account for income taxes under the asset and liability method in accordance with the accounting standard for income taxes. The asset and liability method requires the recognition of deferred tax assets and liabilities for the

8



NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
1. Summary of Significant Accounting Policies (Continued)


expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities. Under this method, changes in tax rates and laws are recognized in income in the period such changes are enacted.
We record net deferred tax assets to the extent that we believe these assets will more likely than not be realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent results of operations. Significant estimates are required for this analysis. If we were to determine that the amount of deferred income tax assets we would be able to realize in the future had changed, we would make an adjustment to the valuation allowance which would decrease or increase the provision for income taxes.
The provision for federal, foreign, and state and local income taxes is calculated on income before income taxes based on current tax law and includes the cumulative effect of any changes in tax rates from those used previously in determining deferred tax assets and liabilities. Such provision differs from the amounts currently payable because certain items of income and expense are recognized in different reporting periods for financial reporting purposes than for income tax purposes.
We periodically assess our liabilities and contingencies for all periods that are currently open to examination or have not been effectively settled based on the most current available information. Where it is not more likely than not that our tax position will be sustained, we record the entire resulting tax liability and when it is more likely than not of being sustained, we record our best estimate of the resulting tax liability. To the extent our assessment of the tax outcome of these matters changes, such change in estimate will impact the income tax provision in the period of change. It is our policy to record interest and penalties related to income taxes as part of the income tax expense for financial reporting purposes.
Worker's Compensation. The liability for losses under our worker's compensation program has been actuarially determined and the portion of the worker's compensation liability that is related to our employees was $8,558 and $8,439 as of March 31, 2016 and 2015, respectively.
Translation of Foreign Currencies. Assets and liabilities of foreign subsidiaries are translated at current exchange rates and the effects of these translation adjustments are reported as a component of accumulated other comprehensive loss ("AOCL") in equity. Income and expenses in foreign currencies are translated at the average exchange rate during the period. Foreign exchange transaction gains and losses in fiscal years 2016, 2015, and 2014 were not material.
Earnings Per Share Data.    Basic earnings per share ("EPS") is computed based upon the weighted average number of common shares outstanding for each period. Diluted EPS is computed based on the weighted average number of common shares and common equivalent shares. Common equivalent shares represent the effect of stock-based awards (see Note 14) during each period presented, which, if exercised, earned, or converted, would have a dilutive effect on earnings per share. On February 9, 2015, 63,875,000 shares of our common stock were distributed to Orbital ATK shareholders of record to complete the Spin-Off from ATK. For comparative purposes we have used weighted average shares of 63,875,000 to calculate basic and diluted EPS for all periods prior to the Spin-Off, as we had no outstanding common shares or dilutive stock-based awards.
In computing EPS for the fiscal years presented, earnings, as reported for each respective period, is divided by (in thousands):
 
 
Year Ended March 31
 
 
2016
 
2015
 
2014
Basic EPS shares outstanding
 
62,211

 
63,596

 
63,875

Dilutive effect of stock-based awards
 
357

 
261

 

Diluted EPS shares outstanding
 
62,568

 
63,857

 
63,875

Shares excluded from the calculation of diluted EPS because the option exercise/threshold price was greater than the average market price of the common shares
 
139

 
122

 


9



NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
1. Summary of Significant Accounting Policies (Continued)


Comprehensive Loss.    
The components of AOCL, net of income taxes, are as follows:
 
 
March 31
 
 
2016
 
2015
Pension and other postretirement benefit liabilities
 
$
(63,667
)
 
$
(58,155
)
Cumulative translation adjustment
 
(46,547
)
 
(52,148
)
Total accumulated other comprehensive loss
 
$
(110,214
)
 
$
(110,303
)
The following table summarizes the changes in the balance of AOCL, net of income tax:
 
Year ended March 31, 2016
 
Year ended March 31, 2015
 
Derivatives
 
Pension and other Postretire-ment Benefits
 
Cumulative translation adjustment
 
Total
 
Derivatives
 
Pension and other Postretire-ment Benefits
 
Cumulative translation adjustment
 
Total
Beginning of period unrealized gain (loss) in AOCL
$

 
$
(58,155
)
 
$
(52,148
)
 
$
(110,303
)
 
$

 
$

 
$
(1,505
)
 
$
(1,505
)
Net decrease in fair value of derivatives
204

 

 

 
204

 
974

 

 

 
974

Net losses reclassified from AOCL, offsetting the price paid to suppliers (1)
(204
)
 

 

 
(204
)
 
(974
)
 

 

 
(974
)
Net actuarial losses reclassified from AOCL (2)

 
5,524

 

 
5,524

 

 
2,246

 

 
2,246

Prior service costs reclassified from AOCL (2)

 
(1,068
)
 

 
(1,068
)
 

 
(139
)
 

 
(139
)
Valuation adjustment for pension and postretirement benefit plans(2)

 
(9,968
)
 

 
(9,968
)
 

 

 

 

Adjustment due to Spin-Off (3)

 

 

 

 

 
(60,262
)
 

 
(60,262
)
Net change in cumulative translation adjustment

 

 
5,601

 
5,601

 

 

 
(50,643
)
 
(50,643
)
End of period unrealized gain (loss) in AOCL
$

 
$
(63,667
)
 
$
(46,547
)
 
$
(110,214
)
 
$

 
$
(58,155
)
 
$
(52,148
)
 
$
(110,303
)

(1) Amounts related to our derivative instruments that were reclassified from AOCL were recorded as a component of cost of sales for each period presented.
(2) Amounts related to our pension and other postretirement benefits that were reclassified from AOCL were recorded as a component of net periodic benefit cost for each period presented (Note 11).
(3) Adjustment represents the AOCL assumed upon the completion of the Spin-Off related to the pension plan and post-retirement and post-employment liabilities.
Fair Value of Nonfinancial Instruments.    The carrying amount of receivables, inventory, accounts payable and accrued liabilities approximates fair value because of the short maturity of these instruments. See Note 2 for additional disclosure regarding fair value of financial instruments.
New Accounting Pronouncements. On May 28, 2014, the FASB issued Accounting Standard Update No. 2014-09 Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance. This guidance is effective for periods beginning after December 15, 2017 and early application is permitted for periods beginning after December 15, 2016. We are in the process of evaluating the impact this standard will have on us.
On April 7, 2015, the FASB issued Accounting Standard Update No. 2015-03 Interest-Imputation of Interest (Subtopic 835-30), which simplified the presentation of debt issuance costs by requiring debt issuance costs be presented in the balance sheet as a direct deduction from the carrying amount of debt liability, consistent with debt discounts or premiums. The standard allows for early adoption. We have elected to early adopt this standard and retrospectively present the change to the financial

10



NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
1. Summary of Significant Accounting Policies (Continued)


statements. This resulted in a reclassification of $10,335 from Deferred charges and other non-current assets to Long-term debt in the fiscal year ended March 31, 2015.

On May 1, 2015, the FASB issued Accounting Standard Update No. 2015-07 Fair Value Measurement (Topic 820), which permits a reporting entity, as a practical expedient, to measure the fair value of certain investments using the net asset value per share of the investment. The standard allows for early adoption. We have elected to early adopt this standard and present the change to the financial statements. This resulted in a change to the disclosure of pension assets within Note 10 for the current year. The prior year did not change as these assets reflected our estimated allocated portion of the assets that were held in the Orbital ATK asset pool on our behalf and does not reflect the precise assets that were transferred to us. The adoption of the standard had no impact on the valuation of assets.

On November 20, 2015, the FASB issued Accounting Standard Update No. 2015-17 Income Taxes (Topic 740), which simplified the presentation of deferred taxes by requiring deferred tax assets and liabilities be classified as noncurrent in a classified statement of financial position. The standard allows for early adoption. We have elected to early adopt this standard and retrospectively present the change to the financial statements. This resulted in a reclassification of $50,343 from current deferred income tax assets to noncurrent deferred income tax liabilities in the fiscal year ended March 31, 2015.

On March 30, 2016, the FASB issued Accounting Standard Update No. 2016-09 Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures and classification in the statement of cash flows. The standard allows for early adoption. We have elected to early adopt this standard and prospectively present the change to the financial statements given the immaterial nature of the prior period balances.

There are no other new accounting pronouncements that are expected to have a significant impact on our consolidated and combined financial statements.
2. Fair Value of Financial Instruments
The current authoritative guidance on fair value clarifies the definition of fair value, prescribes a framework for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value, and expands disclosures about the use of fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

The valuation techniques required by the current authoritative literature are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy:
Level 1—Quoted prices for identical instruments in active markets.
Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3—Significant inputs to the valuation model are unobservable.
The following section describes the valuation methodologies we use to measure our financial instruments at fair value.
Long-term Debt—The fair value of the variable-rate long-term debt is calculated based on current market rates for debt of the same risk and maturities. The fair value of the fixed-rate debt is based on market quotes for each issuance. We consider these to be Level 2 instruments.
Contingent Consideration—The acquisition-related contingent consideration liability represents the estimated fair value of additional future earn-outs payable for acquisitions of businesses that had earn-out clauses. The valuation of the contingent consideration will be evaluated on an ongoing basis and is based on management estimates and entity-specific assumptions, which are considered Level 3 inputs.

11



NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
2. Fair Value of Financial Instruments (Continued)


There were no financial assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2016 and 2015.
The following table presents our financial assets and liabilities that are not measured at fair value on a recurring basis. The carrying values and estimated fair values were as follows:
 
 
As of March 31, 2016
 
As of March 31, 2015
 
 
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Fixed rate debt
 
$
350,000

 
$
366,625

 
$

 
$

Variable rate debt
 
$
332,500

 
$
332,500

 
$
350,000

 
$
350,000

3. Acquisitions
In accordance with the accounting standards regarding business combinations, the results of acquired businesses are included in our consolidated and combined financial statements from the date of acquisition. The purchase price for each acquisition is allocated to the acquired assets and liabilities based on fair value. The excess purchase price over estimated fair value of the net assets acquired is recorded as goodwill.
Savage Arms Acquisition

On June 21, 2013, we acquired Savage Arms, a leading manufacturer of sporting long guns. Operating under the brand names of Savage Arms, Stevens and Savage Range Systems, Savage Arms designs, manufactures and markets centerfire and rimfire rifles, shotguns and shooting range systems used for hunting as well as competitive and recreational target shooting. Savage Arms is included within the Shooting Sports segment. The purchase price was $315,000 net of cash acquired. We believe the acquisition complemented our growing portfolio of leading consumer brands and allowed us to build upon offerings with Savage Arms' prominent, respected brands known for accuracy, quality, innovation, value and craftsmanship. Savage Arms' sales distribution channels, new product development, and sophistication in manufacturing significantly increased our presence with a highly relevant product offering to distributors, retailers and consumers. Savage Arms employed approximately 400 employees at time of acquisition. The purchase price allocation was completed during the first quarter of fiscal year 2015. None of the goodwill generated in this acquisition will be deductible for tax purposes.

Bushnell Acquisition
    
On November 1, 2013, we acquired Bushnell. Bushnell is a leading global designer, marketer and distributor of branded sports optics, outdoor accessories and eyewear. Bushnell is included within the Outdoor Products segment. The purchase price was $985,000 net of cash acquired, subject to customary post-closing adjustments. We believe the acquisition broadened our existing capabilities in the commercial shooting sports market and expanded our portfolio of branded shooting sports products. In addition, this transaction enabled us to enter new sporting markets in golf and snow sports. We have leveraged Bushnell’s strong sourcing, marketing, branding and distribution capabilities and capitalized on Bushnell’s track record of successfully integrating acquisitions and delivering profitable growth. Bushnell employed approximately 1,100 employees at time of acquisition. The purchase price allocation was completed during the third quarter of fiscal year 2015. A portion of the goodwill generated in this acquisition will be deductible for tax purposes. The total amount of goodwill related to the acquisition deductible for tax purposes is $19,095.

Jimmy Styks Acquisition

On July 20, 2015, we completed the acquisition of Jimmy Styks, LLC ("Jimmy Styks"), using $40,000 of cash on hand with additional contingent consideration payable if incremental profitability growth milestones are achieved over the next three years. We determined a value of the future contingent consideration as of the acquisition date of $4,471 utilizing the Black Scholes option pricing model; the total amount paid may differ from this value. The option pricing model requires us to make assumptions including the risk-free rate, expected volatility, cash flows, and expected life. The risk-free rate is based on U.S. Treasury zero-coupon issues with a remaining term that approximates the expected life assumed at the date of acquisition. The expected option life is based on the contractual term of the agreement. Expected volatility is based on the average volatility of similar public companies' stock over the past three years. The discounted cash flows are based on our estimates of future performance of the business.

Jimmy Styks is a leading designer and marketer of stand up paddle boards and related accessories. Jimmy Styks’ stand up paddle board portfolio provides easy-to-use platforms for water sport enthusiasts engaging in activities ranging from personal fitness to fishing and will help us expand our Outdoor Products operating segment. Jimmy Styks offers nearly 30 SKUs in epoxy, inflatable, soft and thermoform boards, as well as accessories. The preliminary purchase price allocation is subject to further refinement and may require significant adjustments to arrive at the final purchase price allocation. The majority of the goodwill generated in this acquisition will be deductible for tax purposes. Jimmy Styks is an immaterial acquisition to our company.

CamelBak Products Acquisition

On August 3, 2015, we completed the acquisition of CamelBak Products, LLC ("CamelBak") for total consideration of $412,500, subject to a customary working capital adjustment, utilizing cash on hand and borrowings under our existing credit facilities. CamelBak is the leading provider of personal hydration solutions for outdoor, recreation and military use.

CamelBak’s products include hydration packs, reusable bottles and individual water purification and filtration systems. The preliminary purchase price allocation is subject to further refinement and may require significant adjustments to arrive at the final purchase price allocation. A portion of the goodwill generated in this acquisition will be deductible for tax purposes.

Current year results for acquisitions

Subsequent to the acquisition dates of the current year acquisitions, Vista Outdoor recorded sales of approximately $121,285 for the year ended March 31, 2016 and gross profit of approximately $47,929 for the year ended March 31, 2016, each associated with the operations of these acquired businesses and reflected in the Outdoor Products segment results.

Allocation of Consideration Transferred to Net Assets Acquired of Savage and Bushnell:

The purchase prices of Savage Arms and Bushnell were allocated based on the estimated fair value of net assets acquired and liabilities assumed at the date of the acquisitions. During fiscal year 2015, we recorded fair value adjustments to the preliminary purchase price allocation reported at March 31, 2014. Purchase price adjustments were applied retrospectively back to the date of the acquisitions. These adjustments did not have a material impact on net income (loss) in fiscal year 2014 and, therefore, we have not adjusted our net income (loss) for the year ended March 31, 2014.

12



NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
3. Acquisitions (Continued)


The following table summarizes the fair values of the assets acquired and liabilities assumed in the acquisitions as originally reported in our Form 10 for the year ended March 31, 2014 and as revised for adjustments made during fiscal year 2015:

Savage Arms Purchase Price Allocation
 
 
As Originally Reported
 
As Revised
Purchase price net of cash acquired:
 
 
 
 
Cash paid
 
$
315,000

 
$
315,000

Cash received for working capital
 
(2,498
)
 
(2,498
)
Total purchase price
 
312,502

 
312,502

Fair value of assets acquired:
 
 
 
 
Net receivables
 
$
39,374

 
$
39,374

Net inventories
 
36,499

 
36,499

Tradename, technology, and customer relationship intangibles
 
126,600

 
126,600

Net property, plant, and equipment
 
24,965

 
24,965

Other assets
 
4,972

 
5,423

Total assets
 
232,410

 
232,861

Fair value of liabilities assumed:
 
 
 
 
Accounts payable
 
14,461

 
14,461

Deferred tax liabilities
 
48,298

 
47,928

Other liabilities
 
22,314

 
21,733

Total liabilities
 
85,073

 
84,122

Net assets acquired
 
147,337

 
148,739

Goodwill
 
$
165,165

 
$
163,763



13



NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
3. Acquisitions (Continued)

Bushnell Purchase Price Allocation
 
 
As Originally Reported
 
As Revised
Purchase price net of cash acquired:
 
 
 
 
Cash paid
 
$
985,000

 
$
985,000

Cash paid for additional working capital
 
4,185

 
4,185

Total purchase price
 
989,185

 
989,185

Fair value of assets acquired:
 
 
 
 
Net receivables
 
$
108,434

 
$
109,429

Net inventories
 
160,793

 
157,184

Tradename, technology, and customer relationship intangibles
 
364,843

 
364,700

Net property, plant, and equipment
 
25,080

 
25,055

Other assets
 
10,938

 
7,765

Total assets
 
670,088

 
664,133

Fair value of liabilities assumed:
 
 
 
 
Accounts payable
 
80,092

 
80,099

Deferred income taxes
 
75,692

 
88,121

Other liabilities
 
30,025

 
30,932

Total liabilities
 
185,809

 
199,152

Net assets acquired
 
484,279

 
464,981

Goodwill
 
$
504,906

 
$
524,204


Intangible assets from above include:
 
 
Value
 
Useful life (years)
Savage Arms
 
 
 
 
Indefinite lived tradenames
 
$
70,200

 
Indefinite
Tradenames
 
12,900

 
5-20
Customer Relationships
 
43,500

 
5-10
Bushnell
 
 
 
 
Indefinite lived tradenames
 
$
95,100

 
Indefinite
Tradenames
 
105,700

 
15
Technology
 
15,900

 
6-20
Customer Relationships
 
148,000

 
15


14



NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
3. Acquisitions (Continued)

Preliminary Allocation of Consideration Transferred to Net Assets Acquired for CamelBak:

The following amounts represent the preliminary determination of the fair value of identifiable assets acquired and liabilities assumed from the CamelBak acquisition. The final determination of the fair value of certain assets and liabilities will be completed within the required measurement period, which will be no later than 12 months from the date of acquisition. The size and breadth of the CamelBak acquisition will necessitate the use of this measurement period to adequately analyze and assess a number of the factors used in establishing the asset and liability fair values as of the acquisition date, including the finalization of tax impacts. Any potential adjustments made could be material in relation to the preliminary values presented below:
 
 
August 3, 2015
Purchase price net of cash acquired:
 
 
 
 
Cash paid
 
 
 
$
412,500

Cash paid for working capital
 
 
 
9,810

Total purchase price
 
 
 
422,310

Fair value of assets acquired:
 
 
 
 
Net receivables
 
$
30,093

 
 
Net inventories
 
30,916

 
 
Tradename, technology, and customer relationship intangibles
 
133,800

 
 
Net property, plant, and equipment
 
7,985

 
 
Other assets
 
4,460

 
 
Total assets
 
207,254

 
 
Fair value of liabilities assumed:
 
 
 
 
Accounts payable
 
8,219

 
 
Other liabilities
 
5,497

 
 
Total liabilities
 
13,716

 
 
Net assets acquired
 
 
 
193,538

Goodwill
 
 
 
$
228,772


Intangible assets above include:
 
 
Value
 
Useful life (years)
 
 
 
 
 
Indefinite lived tradename
 
$
79,400

 
Indefinite
Customer relationships
 
49,400

 
10-20
Technology
 
5,000

 
7-17


15



NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
3. Acquisitions (Continued)

Supplemental Pro Forma Data for Savage, Bushnell, and CamelBak:

We used the acquisition method of accounting to account for these acquisitions and, accordingly, the results of Savage Arms, Bushnell, and CamelBak are included in our consolidated and combined financial statements for the period subsequent to the date of acquisition. The following unaudited supplemental pro forma data for the year ended March 31, 2014 present consolidated information as if the acquisition had been completed on April 1, 2012 for Savage and Bushnell. The following supplemental pro forma data for the years ended March 31, 2016 and 2015 present consolidated and combined information as if the acquisition had been completed on April 1, 2014 for CamelBak. The pro forma results were calculated by combining our results with the standalone results of Savage Arms, Bushnell, and CamelBak for the pre-acquisition periods, which were adjusted to account for certain costs which would have been incurred during this pre-acquisition period:
 
 
YEARS ENDED
(Amounts in thousands except per share data)
 
March 31, 2016
 
March 31, 2015
 
March 31, 2014
Sales, net
 
$
2,330,331

 
$
2,230,241

 
$
2,280,071

Net income
 
155,001

 
75,183

 
153,643

Basic earnings per common share
 
2.49

 
1.18

 
2.41

Diluted earnings per common share
 
2.48

 
1.18

 
2.41


The unaudited supplemental pro forma data above include the following significant non-recurring adjustments made to account for certain costs which would have been incurred if the Savage and Bushnell acquisitions had been completed on April 1, 2012, and the CamelBak acquisition had been completed April 1, 2014, as adjusted for the applicable tax impact:
 
 
YEARS ENDED
(Amounts in thousands)
 
March 31, 2016
 
March 31, 2015
 
March 31, 2014
Inventory step-up, net1
 
$
(647
)
 
$
647

 
$
(9,765
)
Fees for advisory, legal, accounting services2
 
(4,288
)
 
4,288

 
(12,475
)
1. Adjustment reflects the increased cost of goods sold expense which results from the fair value step-up in inventory which was expensed over the first inventory cycle.
2. We removed the fees that were incurred in connection with the acquisition of Savage and Bushnell from fiscal 2014, and considered those fees as incurred during the first quarter of fiscal 2013 and the costs incurred in connection with the acquisition of CamelBak in fiscal 2016 and considered those fees as incurred during the first quarter of fiscal 2015. Costs were recorded in General and administrative expense.
We made no acquisitions during fiscal 2015.
4. Receivables
Receivables, are summarized as follows:
 
 
March 31
 
 
2016
 
2015
Trade receivables
 
$
446,032

 
$
370,335

Other receivables
 
1,778

 
2,089

Less allowance for doubtful accounts
 
(19,412
)
 
(10,730
)
Net receivables
 
$
428,398

 
$
361,694


As of March 31, 2016, the largest individual customer account balance accounted for 13% of the total trade receivables balance. No other customer represented more than 10% of total trade receivables balance as of March 31, 2016. No customer represented more than 10% of the total trade receivables balance as of March 31, 2015.


16



NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
4. Receivables (Continued)


The following is a reconciliation of the changes in our allowance for doubtful accounts, discounts, and returns during fiscal year 2015 and 2016:
Balance at March 31, 2014
$
5,621

Expense
6,875

Write-offs
(1,010
)
Reversals and other adjustments
(756
)
Balance at March 31, 2015
10,730

Expense
8,302

Write-offs
(1,556
)
Reversals, discounts and other adjustments
1,936

Balance at March 31, 2016
$
19,412

5. Inventories
Inventories consist of the following:
 
 
March 31,
 
 
2016
 
2015
Raw materials
 
$
91,898

 
$
107,848

Work in process
 
61,864

 
53,740

Finished goods
 
286,478

 
214,033

Net inventories
 
$
440,240

 
$
375,621

6. Property, Plant, and Equipment
Property, plant, and equipment is stated at cost and depreciated over estimated useful lives using a straight-line method. Machinery and equipment are depreciated over 2 to 7 years and buildings and improvements are depreciated over 3 to 40 years. Depreciation expense was $38,953 in fiscal year 2016, $35,405 in fiscal year 2015, and $24,891 in fiscal year 2014.

We review property, plant, and equipment for impairment when indicators of potential impairment are present. When such impairment is identified, it is recorded as a loss in that period. Maintenance and repairs are charged to expense as incurred. Major improvements that extend useful lives are capitalized and depreciated. The cost and accumulated depreciation of property, plant, and equipment retired or otherwise disposed of are removed from the related accounts, and any residual values are charged or credited to income.

Property, plant, and equipment consists of the following:
 
 
March 31
 
 
2016
 
2015
Land
 
$
8,968

 
$
8,614

Buildings and improvements
 
56,022

 
47,752

Machinery and equipment
 
286,577

 
250,210

Property not yet in service
 
39,970

 
39,110

Gross property, plant, and equipment
 
391,537

 
345,686

Less accumulated depreciation
 
(188,052
)
 
(155,079
)
Net property, plant, and equipment
 
$
203,485

 
$
190,607


17



NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
7. Goodwill and Intangible Assets


The changes in the carrying amount of goodwill by segment were as follows:
 
 
Shooting Sports
 
Outdoor Products
 
Total
Balance at March 31, 2014
 
$
246,487

 
$
600,647

 
$
847,134

Impairment
 
(41,020
)
 

 
(41,020
)
Effect of foreign currency exchange rates
 
(947
)
 
(23,004
)
 
(23,951
)
Balance at March 31, 2015
 
204,520

 
577,643

 
782,163

Acquisitions
 

 
238,824

 
238,824

Effect of foreign currency exchange rates
 
371

 
2,093

 
2,464

Balance at March 31, 2016
 
$
204,891

 
$
818,560

 
$
1,023,451


The acquisitions in Outdoor Products related to the preliminary purchase price allocation for the previously discussed CamelBak and Jimmy Styks acquisitions.

As a result of the market correction in the prior year impacting demand for firearms and a decline in our near-term projected cash flows at the time in the Firearms reporting unit, during the quarter ended December 28, 2014 we determined a triggering event had occurred which indicated it was more likely than not that the fair value of the reporting unit was less than the book value. The fair value of the reporting unit is determined using both an income and market approach. The value estimated using a discounted cash flow model is weighted against the estimated value derived from the guideline company market approach method. This market approach method estimates the price reasonably expected to be realized from the sale of the company based on comparable companies.

The goodwill recorded within the Shooting Sports segment above is presented net of $41,020 of impairment losses. In addition, as a result of the market correction noted above we evaluated the fair value of the tradenames as well. We determined the fair value of the tradenames based on the relief of royalty method and used a royalty rate of 6% for the Savage Arms tradename based on public guideline royalty-based transactions and a discount rate of 16%. This analysis resulted in a $11,200 noncash impairment charge that was recorded within the Firearms reporting unit related to the non-amortizing Savage Arms tradename intangible. The remeasurement of goodwill and intangible assets is classified as a Level 3 fair value assessment as described in Note 2 due to the significance of unobservable inputs developed using company-specific information.
The goodwill recorded within Outdoor Products above is presented net of $47,791 of accumulated impairment losses recorded prior to April 1, 2014.
Net intangibles includes amortizing and non-amortizing assets consisting of trademarks, tradenames and brand names that are not being amortized as their estimated useful lives are considered indefinite.
Net intangibles consisted of the following:
 
 
March 31, 2016
 
March 31, 2015
 
 
Gross
carrying
amount
 
Accumulated
amortization
 
Total
 
Gross
carrying
amount
 
Accumulated
amortization
 
Total
Tradenames
 
$
185,162

 
$
(46,812
)
 
$
138,350

 
$
184,660

 
$
(34,260
)
 
$
150,400

Patented technologies
 
27,900

 
(9,949
)
 
17,951

 
22,600

 
(8,488
)
 
14,112

Customer relationships and other
 
272,431

 
(50,757
)
 
221,674

 
190,936

 
(31,064
)
 
159,872

Total
 
485,493

 
(107,518
)
 
377,975

 
398,196

 
(73,812
)
 
324,384

Non-amortizing trade names
 
272,497

 

 
272,497

 
193,098

 

 
193,098

Net intangibles
 
$
757,990

 
$
(107,518
)
 
$
650,472

 
$
591,294

 
$
(73,812
)
 
$
517,482


18



NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
7. Goodwill and Intangible Assets (Continued)


The acquisitions in Outdoor Products related to the preliminary purchase price allocation for the previously discussed CamelBak and Jimmy Styks acquisitions. The assets in the table above are being amortized using a straight-line method over a weighted average remaining period of approximately 11.9 years. Amortization expense related to these assets was $33,661 in fiscal 2016, $31,146 in fiscal 2015, and $20,011 in fiscal 2014, which is included within cost of sales. We expect amortization expense related to these assets to be as follows:
Fiscal 2017
 
$
35,951

Fiscal 2018
 
35,951

Fiscal 2019
 
33,207

Fiscal 2020
 
32,324

Fiscal 2021
 
32,258

Thereafter
 
208,284

Total
 
$
377,975




19



NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
8. Other Accrued Liabilities


The major categories of other current and long-term accrued liabilities are as follows:
 
 
March 31
 
 
2016
 
2015
In-transit inventory and other
 
$
40,242

 
$
39,236

Rebates
 
17,957

 
14,889

Interest
 
13,157

 
393

Employee benefits and insurance
 
11,131

 
14,375

Accrued advertising
 
10,315

 
8,073

Warranty
 
8,611

 
7,429

Customer obligations
 
9,613

 
5,982

Freight accrual
 
2,446

 
3,012

Product liability
 
1,622

 
1,534

Accrued taxes
 
1,303

 
1,148

Total other accrued liabilities—current
 
$
116,397

 
$
96,071

 
 
 
 
 
Non-current portion of accrued income tax liability
 
$
25,421

 
$
23,406

Contingent consideration
 
4,471

 

Management nonqualified deferred compensation plan
 
2,668

 
715

Environmental remediation
 
745

 
529

Performance share liability
 

 
641

Other
 
18,014

 
5,930

Total other long-term liabilities
 
$
51,319

 
$
31,221

We provide consumer warranties against manufacturing defects on certain products within the Shooting Sports and Outdoor Products segments with warranty periods ranging from one year to a lifetime. The estimated costs of such product warranties are recorded at the time the sale is recorded based upon actual past experience, our current production environment as well as specific and identifiable warranties as applicable. The warranty liability recorded at each balance sheet date reflects the estimated liability for warranty coverage for products delivered based on historical information and current trends. The following is a reconciliation of the changes in our product warranty liability during the periods presented:
 
 
Balance at March 31, 2014
$
8,158

Payments made
(3,699
)
Warranties issued
3,059

Changes related to preexisting warranties
(89
)
Balance at March 31, 2015
7,429

Payments made
(5,397
)
Warranties issued
5,879

Warranties assumed in acquisition
678

Changes related to preexisting warranties
22

Balance at March 31, 2016
$
8,611



20



NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
9. Long-term Debt


On April 1, 2016, we refinanced our existing credit facility. See Note 18 for details.
Long-term debt, including the current portion, consisted of the following:
 
 
March 31, 2016
 
March 31, 2015
Senior Credit Facility dated December 19, 2014:
 
 
 
 
Term Loan due 2020
 
$
332,500

 
$
350,000

Revolving Credit Facility due 2020
 

 

Total principal amount of Credit Agreement
 
332,500

 
350,000

5.875% Senior Notes due 2023
 
350,000

 

Principal amount of long-term debt
 
682,500

 
350,000

Less: unamortized deferred financing costs
 
12,213

 
10,335

Carrying amount of long-term debt
 
670,287

 
339,665

Less: current portion
 
17,500

 
17,500

Carrying amount of long-term debt, excluding current portion
 
$
652,787

 
$
322,165

Credit Agreement
On December 19, 2014, we entered into a credit agreement (the “2014 Credit Agreement”), which was comprised of a senior secured term loan of $350,000 (the “Term Loan”) and a senior secured revolving credit facility of $400,000 (the “Revolving Credit Facility”), both of which were to mature on February 9, 2020.
The Term Loan was subject to quarterly principal payments of $4,375 beginning in June 2015, with the remaining balance due on February 9, 2020. Substantially all domestic tangible and intangible assets of Vista Outdoor and our subsidiaries were pledged as collateral under the 2014 Credit Agreement. Borrowings under the 2014 Credit Agreement bore interest at a rate equal to either the sum of a base rate plus a margin or the sum of a Eurodollar rate plus a margin. Each margin was based on our consolidated leverage ratio, as defined in the 2014 Credit Agreement, and based on the ratio in effect as of March 31, 2016, the base rate margin was 0.75% and the Eurodollar margin was 1.75%. The interest rate for the Term Loan as of March 31, 2016 was 2.18%. We pay a commitment fee on the unused portion of the Revolving Credit Facility based on our consolidated leverage ratio, and based on the ratio in effect as of March 31, 2016, this fee was 0.30%. As of March 31, 2016, we had no borrowings against our $400,000 Revolving Credit Facility and had outstanding letters of credit of $30,222, which reduced amounts available on the Revolving Credit Facility to $369,778. Debt issuance costs totaling approximately $11,000 were being amortized over the term of the Term Loan.
5.875% Notes

On August 11, 2015, we issued $350,000 aggregate principal amount of 5.875% Senior Notes (the “5.875% Notes”) that mature on October 1, 2023. These notes are unsecured and senior obligations. Interest on these notes is payable semi-annually in arrears on April 1 and October 1 of each year, starting on April 1, 2016. We have the right to redeem some or all of these notes from time to time on or after October 1, 2018, at specified redemption prices. Prior to October 1, 2018, we may redeem some or all of these notes at a price equal to 100% of their principal amount plus accrued and unpaid interest to the date of redemption and a specified make-whole premium. In addition, prior to October 1, 2018, we may redeem up to 35% of the aggregate principal amount of these notes with the net cash proceeds of certain equity offerings, at a price equal to 105.875% of their principal amount plus accrued and unpaid interest to the date of redemption. Debt issuance costs of approximately $4,300 are being amortized to interest expense over 8 years, the term of the notes.

Rank and Guarantees

The Credit Agreement obligations are guaranteed on a secured basis, jointly and severally and fully and unconditionally, by substantially all of our domestic subsidiaries. Vista Outdoor (the parent company issuer) has no independent assets or operations. We own 100% of all of these guarantor subsidiaries. The 5.875% Notes are senior unsecured obligations and will rank equally in right of payment with any future senior unsecured indebtedness and senior in right of payment to any future

21



NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
9. Long-term Debt (Continued)


subordinated indebtedness. The 5.875% Notes are fully and unconditionally guaranteed, jointly and severally, by our existing and future domestic subsidiaries that guarantee indebtedness under our Credit Agreement or that guarantee certain of our other indebtedness, or indebtedness of any subsidiary guarantor, in an aggregate principal amount in excess of $50,000. These guarantees are senior unsecured obligations of the applicable subsidiary guarantors. The guarantee by any subsidiary guarantor of our obligations in respect of the 5.875% Notes will be released in any of the following circumstances:

if, as a result of the sale of its capital stock, such subsidiary guarantor ceases to be a restricted subsidiary;
if such subsidiary guarantor is designated as an “Unrestricted Subsidiary”;
upon defeasance or satisfaction and discharge of the 5.875% Notes; or
if such subsidiary guarantor has been released from its guarantees of indebtedness under the Credit Agreement and all capital markets debt securities.
Scheduled Minimum Loan Payments
The scheduled minimum loan payments on outstanding long-term debt were as follows as of March 31, 2016:
 
 
Fiscal 2017
$
17,500

Fiscal 2018
17,500

Fiscal 2019
17,500

Fiscal 2020
280,000

Fiscal 2021

Thereafter
350,000

Total
$
682,500

Covenants and Default Provisions
Our Credit Agreement imposes restrictions, including limitations on our ability to incur additional debt, enter into capital leases, grant liens, pay dividends and make certain other payments, sell assets, or merge or consolidate with or into another entity. In addition, the Credit Agreement limits our ability to enter into sale-and-leaseback transactions. The Credit Agreement allows us to make unlimited “restricted payments” (as defined in the Credit Agreement), which, among other items, would allow payments for future share repurchases, as long as we maintain a certain amount of liquidity and maintain certain senior debt limits, with a limit, when those senior debt limits are not met, of $150,000 plus proceeds of any equity issuances plus 50% of net income since February 9, 2015. The Credit Agreement also requires that we meet and maintain specified financial ratios, including a minimum interest coverage ratio and a maximum consolidated leverage ratio. Our ability to comply with these covenants and to meet and maintain the financial ratios may be affected by events beyond our control. Borrowings under the Credit Agreement are subject to compliance with these covenants. As of March 31, 2016, we were in compliance with the financial covenants.
A failure to comply with the covenants in the Credit Agreement could prevent us from drawing under the revolving credit facility and could result in an event of default under the Credit Agreement, which could allow the creditors to accelerate the related indebtedness and proceed against the collateral that secures the indebtedness. We may not have sufficient liquidity to repay the indebtedness in such circumstances.
The indenture governing the 5.875% Notes contains covenants that, among other things, limit our ability to incur or permit to exist certain liens, sell, transfer or otherwise dispose of assets, consolidate, amalgamate, merge or sell all or substantially all of our assets, enter into transactions with affiliates, enter into agreements restricting our subsidiaries’ ability to pay dividends, incur additional indebtedness, pay dividends or make other distributions or repurchase or redeem our capital stock, prepay, redeem or repurchase certain debt and make loans and investments. A failure to comply with the covenants in the indenture could result in an event of default, which could allow the holders of the 5.875% Notes to accelerate the 5.875% Notes. We may not have sufficient liquidity to repay the 5.875% Notes in such circumstances.
The Credit Agreement and the indenture governing the 5.875% Notes contain cross-default provisions so that non-compliance with the covenants within one debt agreement could cause a default under other debt agreements as well.

22



NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
9. Long-term Debt (Continued)


Cash Paid for Interest on Debt
Cash paid for interest totaled $8,808 in fiscal 2016 and $742 in fiscal 2015.
10. Employee Benefit Plans

Prior to February 9, 2015, our eligible U.S. employees and retirees participated in a defined benefit pension plan provided by Orbital ATK. Subsequent to February 9, 2015, we established a noncontributory defined benefit pension plan (the "Plan") which covers substantially all employees hired prior to January 1, 2007 and retained similar provisions as those that existed within the Orbital ATK plans. Eligible non-union employees hired on or after January 1, 2007 and certain union employees are not covered by a defined benefit plan, but substantially all of such employees receive an employer contribution through a defined contribution plan. On January 31, 2013, the Orbital ATK plans were amended to freeze the pension formula benefits effective June 30, 2013 and to implement a new cash balance formula applicable to pay and service starting July 1, 2013. In the current fiscal year there were no plan amendments or actuarial assumption changes that had a significant impact on benefit plan obligations. The total expense for these plans was $7,300, $4,732, and $5,936 for the fiscal years 2016, 2015, and 2014, respectively. The estimated expense for these plans for the fiscal year 2017 is $7,162.

The Company recognizes the funded status of its defined benefit pension plans and other postretirement benefit plans, measured as the difference between the fair value of the plan assets and the benefit obligation. Benefit obligation balances reflect the projected benefit obligation ("PBO") for our pension plans and accumulated PRB obligations ("APBO") or our other PRB plans. The weighted average discount rate used to determine the pension benefit obligation was 4.01% and 3.87% as of March 31, 2016 and 2015, respectively. The fair value of the plan assets was $148,168 and $164,967 as of March 31, 2016 and 2015, respectively. The benefit obligation was $221,645 and $225,095 as of March 31, 2016 and 2015, respectively, resulting in an unfunded liability of $73,477 and $60,128 as of March 31, 2016 and 2015, respectively, which is primarily recorded within Accrued pension and postemployment liabilities. As of March 31, 2015, $26,323, $89,584 and $49,060 of the pension plan investments were held in level 1, level 2, and level 3 instruments which reflects our estimated allocated portion of the assets that were held in the Orbital ATK asset pool on our behalf and does not reflect the precise assets that were transferred to us.

Our share of plan assets from Orbital ATK were transferred to us on July 1, 2015, and were subsequently directed into newly established investments at the designation of our Retirement Investment Committee.The plan assets are invested in a variety of financial funds which have investments in a variety of financial instruments including equities, fixed income, and hedge funds. Plan assets are invested in various asset classes that are expected to produce a sufficient level of diversification and investment return over the long term. The investment goals are (1) to meet or exceed the assumed actuarial rate of return of 6.75% and 7.25% over the long term within reasonable and prudent levels of risk as of March 31, 2016 and 2015, respectively, and (2) to preserve the real purchasing power of assets to meet future obligations.

Investments in financial funds are valued by multiplying the fund's net asset value ("NAV") per share with the number of units or shares owned as of the valuation date. NAV per share is determined by the fund's administrator or the Company's custodian by deducting from the value of the assets of the fund all its liabilities and the resulting number is divided by the outstanding number of shares or units. Investments held by the funds are valued on the basis of valuations furnished by a pricing service approved by the fund's investment manager, which determines valuations using methods based on market transactions for comparable securities and various relationships between securities which are generally recognized by institutional traders, or at fair value as determined in good faith by the fund's investment manager. For those assets that are invested within hedge funds there are certain restrictions on redemption of those assets including a one year lockup period from initial investment and thereafter a 65 day notice must be provided prior to redemption. There are no other significant restrictions on redemption of assets within other asset categories.

23



NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
10. Employee Benefit Plans (Continued)

The following benefit payments, which reflect expected future service, are expected to be paid in the years ending March 31. The pension benefits will be paid primarily out of the pension trust.
 
 
Pension
Benefits
2017
 
$
11,450

2018
 
12,252

2019
 
13,194

2020
 
14,818

2021
 
13,971

2022 through 2026
 
$
76,723


Defined Contribution Plan

The Company sponsors a defined contribution retirement plan, a 401(k) savings plan with an employee stock ownership ("ESOP") feature. The ESOP feature will be discontinued as of June 30, 2016. The plan is a tax-qualified retirement plan subject to the Employee Retirement Income Security Act of 1974 and covers most employees in the United States.

Total contributions in fiscal year 2016 were $14,914. Orbital ATK, on our behalf, contributed $12,936 in fiscal year 2015, and $10,057 in fiscal year 2014.
11. Income Taxes
Income before income taxes is as follows:
 
 
Years Ended March 31
 
 
2016
 
2015
 
2014
Current:
 
 
 
 
 
 
U.S.
 
$
220,685

 
$
133,027

 
$
217,673

Non-U.S.
 
17,722

 
21,019

 
665

Income before income taxes
 
$
238,407

 
$
154,046

 
$
218,338


Our income tax provision consists of:
 
 
Years Ended March 31
 
 
2016
 
2015
 
2014
Current:
 
 
 
 
 
 
Federal
 
$
78,116

 
$
61,202

 
$
64,163

State
 
8,377

 
4,866

 
9,197

Non-U.S.
 
5,179

 
9,052

 
2,845

Deferred:
 
 
 
 
 
 
Federal
 
(2,248
)
 
150

 
8,356

State
 
(308
)
 
410

 
(60
)
Non-U.S.
 
2,254

 
(1,162
)
 
580

Income tax provision
 
$
91,370

 
$
74,518

 
$
85,081


24



NOTES TO THE CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
11. Income Taxes (Continued)

The items responsible for the differences between the federal statutory rate and our effective rate are as follows:
 
 
Years Ended March 31
 
 
2016
 
2015
 
2014
Statutory federal income tax rate
 
35.0
 %
 
35.0
 %
 
35.0
 %
State income taxes, net of federal impact
 
3.2
 %
 
4.7
 %
 
4.2
 %
Domestic manufacturing deduction
 
(2.2
)%
 
(2.9
)%
 
(3.1
)%
Nondeductible transaction costs
 
0.5
 %
 
3.8
 %
 
1.0
 %
Nondeductible goodwill impairment
 
 %
 
9.3
 %
 
 %
Other
 
1.8
 %
 
(1.5
)%