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Section 1: 10-Q (10-Q)

Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2017
 
OR
 
 
 
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the transition period from                    to                  
Commission file number 1-36597
392114947_vistaoutdoora15.jpg
Vista Outdoor Inc.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
 
47-1016855
(I.R.S. Employer
Identification No.)
262 N University Avenue
Farmington, UT
 
84025
(Address of principal executive offices)
 
(Zip Code)
Registrant's telephone number, including area code: (801) 447-3000

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ý
 
Accelerated Filer o
 
Non-Accelerated Filer o
 (Do not check if a
smaller reporting company)
 
Smaller reporting company o
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý
As of February 5, 2018, there were 57,339,279 shares of the registrant's voting common stock outstanding.
 




TABLE OF CONTENTS
 
 
Page
PART I - Financial Information
 
PART II - Other Information
 


Table of Contents


PART I— FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS
VISTA OUTDOOR INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
 
 
Quarter ended
 
Nine months ended
(Amounts in thousands except per share data)
 
December 31, 2017
 
January 1, 2017
 
December 31, 2017
 
January 1, 2017
Sales, net
 
$
581,204

 
$
653,558

 
$
1,737,236

 
$
1,968,139

Cost of sales
 
455,099

 
484,952

 
1,325,596

 
1,442,747

Gross profit
 
126,105

 
168,606

 
411,640

 
525,392

Operating expenses:
 
 
 
 
 
 
 
 
Research and development
 
6,875

 
8,170

 
22,113

 
24,151

Selling, general, and administrative
 
100,224

 
95,893

 
306,036

 
303,060

Acquisition claim settlement gain, net
 

 

 

 
(30,027
)
Goodwill and intangibles impairment
 

 
449,199

 
152,320

 
449,199

Income (loss) before interest and income taxes
 
19,006

 
(384,656
)
 
(68,829
)
 
(220,991
)
Interest expense, net
 
(12,494
)
 
(10,551
)
 
(37,456
)
 
(32,657
)
Income (loss) before income taxes
 
6,512

 
(395,207
)
 
(106,285
)
 
(253,648
)
Income tax provision (benefit)
 
(47,231
)
 
(17,548
)
 
(61,975
)
 
21,663

Net income (loss)
 
$
53,743

 
$
(377,659
)
 
$
(44,310
)
 
$
(275,311
)
Earnings (loss) per common share:
 
 
 
 
 
 
 
 
Basic
 
$
0.94

 
$
(6.48
)
 
$
(0.78
)
 
$
(4.63
)
Diluted
 
$
0.94

 
$
(6.44
)
 
$
(0.78
)
 
$
(4.60
)
Weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
57,253

 
58,275

 
57,113

 
59,478

Diluted
 
57,294

 
58,634

 
57,113

 
59,819

 
 


 


 
 
 
 
Net income (loss) (from above)
 
$
53,743

 
$
(377,659
)
 
$
(44,310
)
 
$
(275,311
)
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 $29 and $162, respectively for the quarter ended, and $221 and $486, respectively, for the nine months ended.
 
(49
)
 
(274
)
 
(372
)
 
(822
)
Reclassification of net actuarial loss for pension and postretirement benefit plans recorded to net income, net of tax expense of $(281) and $(734), respectively, for the quarter ended, and $(1,240) and $(2,202), respectively, for the nine months ended.
 
472

 
1,236

 
2,087

 
3,708

Valuation adjustment for pension and postretirement benefit plans, net of tax benefit of $714 and $0, respectively, for the quarter ended, and $710 and $0, respectively, for the nine months ended.
 
(1,202
)
 

 
(1,197
)
 

Change in derivatives, net of tax expense of $(467) and $0, respectively, for the quarter ended, and $(481) and $0, respectively, for the nine months ended.
 
785

 

 
808

 

Change in cumulative translation adjustment.
 
791

 
(10,711
)
 
16,463

 
(15,255
)
Total other comprehensive income (loss)
 
797

 
(9,749
)
 
17,789

 
(12,369
)
Comprehensive income (loss)
 
$
54,540

 
$
(387,408
)
 
$
(26,521
)
 
$
(287,680
)

See Notes to the Condensed Consolidated Financial Statements.

2

Table of Contents

VISTA OUTDOOR INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Amounts in thousands except share data)
 
December 31, 2017
 
March 31, 2017
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
63,279

 
$
45,075

Net receivables
 
409,903

 
450,715

Net inventories
 
414,362

 
562,795

Income tax receivable
 

 
25,658

Assets held for sale
 
210,153

 

Other current assets
 
23,500

 
25,604

Total current assets
 
1,121,197

 
1,109,847

Net property, plant, and equipment
 
267,491

 
272,346

Goodwill
 
657,685

 
857,631

Net intangible assets
 
600,505

 
708,530

Deferred charges and other non-current assets
 
35,065

 
28,393

Total assets
 
$
2,681,943

 
$
2,976,747

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Current portion of long-term debt
 
$
32,000

 
$
32,000

Accounts payable
 
108,391

 
127,718

Accrued compensation
 
39,525

 
33,663

Accrued income taxes
 
787

 

Federal excise tax
 
24,113

 
30,082

Liabilities held for sale
 
42,286

 

Other current liabilities
 
111,146

 
122,926

Total current liabilities
 
358,248

 
346,389

Long-term debt
 
905,708

 
1,089,252

Deferred income tax liabilities
 
70,290

 
160,765

Accrued pension and postemployment benefits
 
45,791

 
64,230

Other long-term liabilities
 
71,629

 
71,046

Total liabilities
 
1,451,666

 
1,731,682

Commitments and contingencies (Notes 12 and 15)
 

 

Common stock — $.01 par value:
 
 
 
 
Authorized — 500,000,000 shares
 
 
 
 
Issued and outstanding — 57,289,539 shares as of December 31, 2017 and 57,014,319 shares as of March 31, 2017
 
573

 
571

Additional paid-in capital
 
1,752,858

 
1,752,903

Accumulated deficit
 
(152,343
)
 
(108,033
)
Accumulated other comprehensive loss
 
(95,203
)
 
(112,992
)
Common stock in treasury, at cost — 6,674,900 shares held as of December 31, 2017 and 6,950,120 shares held as of March 31, 2017
 
(275,608
)
 
(287,384
)
Total stockholders' equity
 
1,230,277

 
1,245,065

Total liabilities and stockholders' equity
 
$
2,681,943

 
$
2,976,747

See Notes to the Condensed Consolidated Financial Statements.

3

Table of Contents

VISTA OUTDOOR INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
 
Nine months ended
(Amounts in thousands)
 
December 31, 2017
 
January 1, 2017
Operating Activities:
 
 
 
 
Net income (loss)
 
$
(44,310
)
 
$
(275,311
)
Adjustments to net income (loss) to arrive at cash provided by operating activities:
 
 
 
 
Depreciation
 
41,412

 
40,805

Amortization of intangible assets
 
26,653

 
31,020

Goodwill and intangibles impairment
 
152,320

 
449,199

Amortization of deferred financing costs
 
2,260

 
3,474

Deferred income taxes
 
(76,173
)
 
(30,171
)
Loss on disposal of property, plant, and equipment
 
87

 
140

Stock-based compensation
 
7,868

 
9,603

Changes in assets and liabilities, net of acquisition of businesses:
 
 
 
 
Net receivables
 
12,254

 
(19,226
)
Net inventories
 
111,250

 
(85,162
)
Accounts payable
 
(8,456
)
 
(79,414
)
Accrued compensation
 
7,672

 
(18,871
)
Accrued income taxes
 
31,258

 
(15,863
)
Federal excise tax
 
(6,083
)
 
3,566

Pension and other postretirement benefits
 
(8,960
)
 
635

Other assets and liabilities
 
(5,945
)
 
43,467

Cash provided by operating activities
 
243,107

 
57,891

Investing Activities:
 
 
 
 
Capital expenditures
 
(43,561
)
 
(49,302
)
Acquisition of businesses, net of cash acquired
 

 
(458,149
)
Proceeds from the disposition of property, plant, and equipment
 
88

 
92

Cash used for investing activities
 
(43,473
)
 
(507,359
)
Financing Activities:
 
 
 
 
Borrowings on line of credit
 
250,000

 
445,000

Payments made on line of credit
 
(410,000
)
 
(255,000
)
Proceeds from issuance of long-term debt
 

 
307,500

Payments made on long-term debt
 
(24,000
)
 
(24,000
)
Payments made for debt issuance costs
 
(1,805
)
 
(3,660
)
Purchase of treasury shares
 

 
(122,860
)
Deferred payments for acquisitions
 
(1,348
)
 
(7,136
)
Proceeds from employee stock compensation plans
 
4,237

 
75

Cash (used for) provided by financing activities
 
(182,916
)
 
339,919

Effect of foreign exchange rate fluctuations on cash
 
1,486

 
(1,302
)
Increase (decrease) in cash and cash equivalents
 
18,204

 
(110,851
)
Cash and cash equivalents at beginning of period
 
45,075

 
151,692

Cash and cash equivalents at end of period
 
$
63,279

 
$
40,841

 
 
 
 
 
Supplemental Cash Flow Disclosures:
 
 
 
 
Non-cash investing activity:
 
 
 
 
Capital expenditures included in accounts payable
 
$
4,281

 
$
2,760

Non-cash financing activity:
 
 
 
 
Treasury shares purchased included in other accrued liabilities
 
$

 
$
4,479

 
  See Notes to the Condensed Consolidated Financial Statements.

4

Table of Contents

VISTA OUTDOOR INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(unaudited)
 
 
Common Stock $.01 Par Value
 
 
 
 
 
 
 
 
 
 
(Amounts in thousands except share data)
 
Shares
 
Amount
 
Additional
Paid-In
Capital
 
(Accumulated Deficit) Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Treasury
Stock
 
Total
Equity
Balance, March 31, 2016
 
60,825,914

 
$
608

 
$
1,743,371

 
$
166,421

 
$
(110,214
)
 
$
(140,019
)
 
$
1,660,167

Comprehensive income (loss)
 

 

 

 
(275,311
)
 
(12,369
)
 

 
(287,680
)
Exercise of stock options
 
4,892

 

 
(147
)
 

 

 
222

 
75

Restricted stock grants net of forfeitures
 
(22,289
)
 

 
(66
)
 

 

 
(365
)
 
(431
)
Share-based compensation
 

 

 
9,603

 

 

 

 
9,603

Restricted stock vested and shares withheld
 
4,881

 

 
(318
)
 

 

 
(440
)
 
(758
)
Treasury stock purchased
 
(3,095,952
)
 

 

 

 

 
(126,560
)
 
(126,560
)
Other
 
5,277

 
(31
)
 
3,299

 

 

 

 
3,268

Balance, January 1, 2017
 
57,722,723

 
$
577

 
$
1,755,742

 
$
(108,890
)
 
$
(122,583
)
 
$
(267,162
)
 
$
1,257,684

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, March 31, 2017
 
57,014,319

 
$
571

 
$
1,752,903

 
$
(108,033
)
 
$
(112,992
)
 
$
(287,384
)
 
$
1,245,065

Comprehensive income (loss)
 

 

 

 
(44,310
)
 
17,789

 

 
(26,521
)
Exercise of stock options
 
265,160

 

 
(6,734
)
 

 

 
10,971

 
4,237

Restricted stock grants net of forfeitures
 
(66,473
)
 

 
126

 

 

 
(1,756
)
 
(1,630
)
Share-based compensation
 

 

 
7,868

 

 

 

 
7,868

Restricted stock vested and shares withheld
 
51,307

 

 
(758
)
 

 

 
1,479

 
721

Employee stock purchase plan
 
20,670

 

 
(482
)
 

 

 
854

 
372

Other
 
4,556

 
2

 
(65
)
 

 

 
228

 
165

Balance, December 31, 2017
 
57,289,539

 
$
573

 
$
1,752,858

 
$
(152,343
)
 
$
(95,203
)
 
$
(275,608
)
 
$
1,230,277

See Notes to the Condensed Consolidated Financial Statements.

5

Table of Contents

VISTA OUTDOOR INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Three and nine months ended December 31, 2017
(Amounts in thousands except share and per share data unless otherwise indicated)
1. Basis of Presentation and Responsibility for Interim Financial Statements
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 outdoor sports and recreation markets. We operate in two segments, Outdoor Products and Shooting Sports. Vista Outdoor is headquartered in Farmington, Utah and has manufacturing operations and facilities in 13 U.S. States, Canada, Mexico, and Puerto Rico along with international customer service, sales, and sourcing operations in Asia, Australia, Canada, and Europe. Vista Outdoor was incorporated in Delaware in 2014.

This Quarterly Report on Form 10-Q should be read in conjunction with our consolidated and combined financial statements and notes included in our annual report on Form 10-K for the fiscal year ended March 31, 2017 (“fiscal 2017”).

Basis of Presentation—Our unaudited condensed consolidated financial statements have been prepared in accordance with the requirements of the Securities and Exchange Commission ("SEC") for interim reporting. As permitted under those rules, certain disclosures and other financial information that normally are required by accounting principles generally accepted in the United States can be condensed or omitted. Our accounting policies are described in the notes to the consolidated and combined financial statements in our Annual Report on Form 10-K for fiscal 2017. Management is responsible for the condensed consolidated financial statements included in this report, which are unaudited but, in the opinion of management, include all adjustments necessary for a fair presentation of our financial position as of December 31, 2017 and March 31, 2017, our results of operations for the three and nine months ended December 31, 2017 and January 1, 2017, and our cash flows for the nine months ended December 31, 2017 and January 1, 2017.

New Accounting Pronouncements—On May 28, 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes existing revenue recognition requirements. The new guidance will be effective for us in the first quarter of our fiscal 2019 (beginning April 1, 2018). We continue to assess the impact of the standard on our financial statements and related disclosures. We currently believe that the financial results from the majority of our businesses will not be impacted; although there could be immaterial changes to how we present sales returns reserves and related amounts in our financial statements. We plan to adopt this standard using the modified retrospective transition method. Under this method, we will recognize the cumulative effect of the changes in retained earnings at the date of adoption, but will not restate prior periods.

On February 25, 2016, the FASB issued ASU 2016-02, Leases. The new guidance was issued to increase transparency and comparability among companies by reporting most leases on the balance sheet and by expanding disclosure requirements. Based on the current effective dates, the new guidance would apply in the first quarter of our fiscal 2020. We are in the process of evaluating the effect of adoption of this new guidance on our financial statements.

Other than those noted above and in our fiscal 2017 financial statements, there are no other new accounting pronouncements that are expected to have a significant impact on our condensed consolidated financial statements.

2. Fair Value of Financial Instruments
The current authoritative guidance on fair value prescribes a framework for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value, and requires disclosures about the use of fair value measurements. Fair value is 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.

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Table of Contents
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
(Amounts in thousands except share and per share data unless otherwise indicated)

The following section describes the valuation methodologies we used to measure our financial instruments at fair value.
Long-term debt—The fair value of our outstanding 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 long-term debt is based on market quotes for the outstanding notes. We consider these to be Level 2 instruments.
Interest rate swaps—We periodically enter into floating-to-fixed interest rate swap agreements in order to hedge our forecasted interest payments on our outstanding variable-rate debt. The fair value of those swaps is determined using a pricing model based on observable inputs for similar instruments and other market assumptions. We consider these to be Level 2 instruments. See Note 12, Long-term Debt, for additional information.
Foreign currency derivatives—In order to manage our exposure to foreign currency risk, we periodically utilize foreign currency derivatives, which are considered Level 2 instruments. Foreign currency derivatives are valued based on observable market transactions of spot currency rates and forward currency prices. During the quarter ended October 1, 2017, we entered into various foreign currency forward contracts. See Note 3, Derivative Financial Instruments, for additional information. There were no foreign currency derivatives outstanding as of March 31, 2017.
Contingent consideration—The acquisition-related contingent consideration liability represents the estimated fair value of additional future earn-outs payable for acquisitions of businesses that included earn-out clauses. The valuation of the contingent consideration is evaluated on an ongoing basis and is based on management estimates and entity-specific assumptions which are considered Level 3 inputs. See Note 6, Acquisitions, for additional information.
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:
 
 
December 31, 2017
 
March 31, 2017
 
 
Carrying
amount
 
Fair
value
 
Carrying
amount
 
Fair
value
Fixed-rate debt
 
$
350,000

 
$
341,684

 
$
350,000

 
$
341,250

Variable-rate debt
 
599,000

 
599,000

 
783,000

 
783,000


3. Derivative Financial Instruments
We are exposed to market risks arising from adverse changes in:
commodity prices affecting the cost of raw materials,
interest rate, and
foreign exchange risks.
In the normal course of business, these risks are managed through a variety of strategies, including the use of derivative instruments. See Note 12, Long-term Debt, for additional information on our interest rate swaps. Foreign currency exchange contracts are used to hedge forecasted transactions denominated in a foreign currency.
We entered into various foreign currency forward contracts during the quarter ended October 1, 2017. These contracts are used to hedge forecasted cash receipts from customers denominated in foreign currencies and are designated and qualify as effective cash flow hedges. Ineffectiveness with respect to forecasted customer cash receipts is calculated based on changes in the forward rate until the anticipated cash receipt occurs.

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Table of Contents
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
(Amounts in thousands except share and per share data unless otherwise indicated)

The fair value of the foreign currency forward contracts is recorded within other assets or liabilities, as appropriate, and the effective portion is reflected in accumulated other comprehensive loss ("AOCL") in our financial statements. The gains or losses on the foreign currency forward contracts are recorded in earnings when we settle the contracts with the counterparty.
As of December 31, 2017, we had outstanding foreign currency forward contracts in place for the following amounts:
 
Notional Amount of Currency
Sale of foreign currency:
 
Euro
3,466

The derivative gains and losses in the unaudited condensed consolidated statements of comprehensive income related to foreign currency forward contracts were immaterial. The liability related to the foreign currency forward contracts is immaterial and is recorded as part of other current liabilities.
4. Earnings Per Share

The computation of earnings per share ("EPS") includes Basic EPS 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 during each period presented, which, if exercised or earned, would have a dilutive effect on EPS.

In computing EPS for the three and nine months ended December 31, 2017 and January 1, 2017, earnings, as reported for each respective period, is divided by the number of shares below:
 
 
Quarter ended
 
Nine months ended
(in thousands)
 
December 31, 2017
 
January 1, 2017
 
December 31, 2017
 
January 1, 2017
Basic EPS shares outstanding
 
57,253

 
58,275

 
57,113

 
59,478

Dilutive effect of stock-based awards
 
41

 
359

 

 
341

Diluted EPS shares outstanding
 
57,294

 
58,634

 
57,113

 
59,819

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
 
236

 
139

 
149

 
139

Share repurchases—In fiscal 2015, our Board of Directors authorized a share repurchase program of up to $200,000 worth of shares of our common stock, which was completed during fiscal 2017. In fiscal 2017, our Board of Directors authorized a new share repurchase program of up to $100,000 worth of our common stock, executable through March 31, 2018, which was completed during fiscal 2017. The purchase authorization allowed for the shares to be purchased from time to time in open market, block purchase, or negotiated transactions, subject to compliance with applicable laws and regulations. The repurchase authorization also allowed us to make repurchases under Rule 10b5-1 of the Securities Exchange Act of 1934. We had no repurchases of shares during the nine months ended December 31, 2017. During the three and nine months ended January 1, 2017, we repurchased an aggregate of 1,559,938 shares for $59,993 and 3,095,952 shares for $126,560, respectively under the two share repurchase programs.
5. Assets and Liabilities Held for Sale
In November 2017, we announced our intention to sell our eyewear business consisting of the Bollé, Serengeti, and Cébé brands, which are part of our Outdoor Products segment. The decision to sell this business reflects our ongoing review of our portfolio of brands to focus on assets that are core to our mission and strategy. The sale of these brands is expected to be completed in the next few quarters.
The operating results of this business do not qualify for reporting as discontinued operations. For the three months ended December 31, 2017 and January 1, 2017, the earnings before taxes for this business were approximately $4,409 and $2,431, respectively. For the nine months ended December 31, 2017 and January 1, 2017, the earnings before taxes were approximately $9,449 and $6,221, respectively. The earnings before taxes above include $697 and $2,076 of total depreciation and

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Table of Contents
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
(Amounts in thousands except share and per share data unless otherwise indicated)

amortization expense for the three months ended December 31, 2017 and January 1, 2017, respectively. The total depreciation and amortization expense for the nine months ended December 31, 2017 and January 1, 2017, was $4,883 and $6,228, respectively. The reported results and financial position of the business do not necessarily reflect the total value of the business that we expect to realize upon sale.
The following table presents information related to the assets and liabilities of the business that were classified as held for sale at December 31, 2017:
(Amounts in thousands except share data)
 
December 31, 2017
Assets
 
 
Net receivables
 
$
30,961

Net inventories
 
32,487

Income tax receivable
 
151

Other current assets
 
4,368

Net property, plant, and equipment
 
3,451

Goodwill
 
63,688

Net intangible assets
 
75,047

Total assets held for sale
 
$
210,153

 
 
 
Liabilities
 
 
Accounts payable
 
$
6,552

Accrued compensation
 
3,283

Deferred tax liabilities
 
15,667

Other accrued liabilities
 
16,784

Total liabilities held for sale
 
$
42,286

 
 
 
Net assets
 
$
167,867


6. Acquisitions

In accordance with the accounting standards for business combinations, the results of acquired businesses are included in our consolidated condensed 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.

Acquisition of Camp Chef—On September 1, 2016, we completed the acquisition of privately owned Logan Outdoor Products, LLC and Peak Trades, LLC ("Camp Chef"), a leading provider of outdoor cooking solutions. Under the terms of the transaction, we paid $60,000 subject to customary working capital adjustments, utilizing cash on hand and borrowings under our existing credit facility. An additional $4,000 was deferred and is payable in equal installments after the first, second and third anniversary of the closing date, and approximately $10,000 is payable over a three-year period from the closing date if certain incremental growth milestones are met and key members of Camp Chef management continue their employment with us through the respective milestone dates. The approximately $10,000 is being expensed over the three-year measurement period and is paid in equal installments as each milestone is achieved. The growth milestones were met for the first year and therefore we paid $3,371 during the quarter ended December 31, 2017. The purchase price allocation for this acquisition was finalized in the second quarter of fiscal 2018. A majority of the goodwill generated in this acquisition will be deductible for tax purposes. Camp Chef is an immaterial acquisition to our company.

Results for acquisitions—For the three and nine months ended December 31, 2017, we recorded sales of $0 and $32,752, respectively, and gross profit of $0 and $9,947, respectively, associated with the operations of Camp Chef for periods in which it was not part of Vista Outdoor in the comparable prior periods. For the three and nine months ended January 1, 2017, we

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
(Amounts in thousands except share and per share data unless otherwise indicated)

recorded sales of $12,151 and $15,751, and gross profit of $3,149 and $3,860, respectively, associated with the operations of Camp Chef. The results are reflected in the Outdoor Products segment results.

Acquisition of Action Sports—On April 1, 2016, we completed the acquisition of BRG Sports Inc.’s Action Sports division, operated by Bell Sports Corp. ("Action Sports"). The acquisition includes brands Bell, Giro, Blackburn, CoPilot, Krash, and Raskullz. Under the terms of the transaction, we paid $400,000, subject to customary working capital adjustments, utilizing cash on hand and borrowings under our existing credit facilities, and additional contingent consideration is payable if certain incremental profitability growth milestones within the Bell Powersports product line are achieved. We determined a value of the future contingent consideration as of the acquisition date of $4,272, using a risk-neutral Monte Carlo simulation in an option pricing framework; the total amount actually paid may differ from this value. The option pricing model requires us to make assumptions including the risk-free rate, expected volatility, profitability growth, 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 grant. 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 two years. The profitability growth is based on simulated estimates of future performance of the business using a geometric Brownian risk-neutral framework. As of December 31, 2017, the value of the future contingent consideration was $3,832. The decrease from the original estimate was primarily a result of reduced profitability forecasts over the remainder of the earn-out period. The purchase price allocation was finalized in the fourth quarter of fiscal 2017. A portion of the goodwill generated in this acquisition will be deductible for tax purposes.

The following amounts represent the final determination of the fair value of identifiable assets acquired and liabilities assumed for our acquisition of Action Sports. The purchase price allocation was completed during the quarter ended March 31, 2017.

Action Sports Final Purchase Price Allocation
 
 
April 1, 2016
Purchase price net of cash acquired:
 
 
 
 
Cash paid
 
 
 
$
400,000

Estimated earn-out value
 
 
 
4,272

Cash received for working capital
 
 
 
(1,289
)
Total purchase price
 
 
 
402,983

Fair value of assets acquired:
 
 
 
 
Receivables
 
$
78,090

 
 
Inventories
 
56,527

 
 
Tradename, customer relationship, and technology intangibles
 
155,100

 
 
Property, plant, and equipment
 
34,114

 
 
Other assets
 
6,425

 
 
Total assets
 
330,256

 
 
Fair value of liabilities assumed:
 
 
 
 
Accounts payable
 
30,240

 
 
Deferred tax liabilities
 
43,991

 
 
Other liabilities
 
33,168

 
 
Total liabilities
 
107,399

 
 
Net assets acquired
 
 
 
222,857

Goodwill
 
 
 
$
180,126



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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
(Amounts in thousands except share and per share data unless otherwise indicated)

7. Net Receivables
Net receivables are summarized as follows:
 
 
December 31, 2017
 
March 31, 2017
Trade receivables
 
$
433,049

 
$
472,233

Other receivables
 
1,537

 
3,136

Less: allowance for doubtful accounts and discounts
 
(24,683
)
 
(24,654
)
Net receivables
 
$
409,903

 
$
450,715

As of December 31, 2017 and March 31, 2017, Walmart represented 17% and 13%, respectively, of the total trade receivables balance. No other customer represented more than 10% of total trade receivables balance as of December 31, 2017 and March 31, 2017.
8. Net Inventories
Net inventories consist of the following:
 
 
December 31, 2017
 
March 31, 2017
Raw materials
 
$
101,254

 
$
101,635

Work in process
 
43,536

 
51,004

Finished goods
 
269,572

 
410,156

Net inventories
 
$
414,362

 
$
562,795


We consider inventories to be long-term if they are not expected to be sold within one year. Long-term inventories are presented on the balance sheet net of reserves within deferred charges and other non-current assets and totaled $32,067 and $23,504 as of December 31, 2017 and March 31, 2017, respectively.

9. Accumulated Other Comprehensive Loss
The components of AOCL, net of income taxes, are as follows:
 
December 31, 2017
 
March 31, 2017
Pension and other postretirement benefits
$
(56,411
)
 
$
(56,929
)
Derivatives
808

 

Cumulative translation adjustment
(39,600
)
 
(56,063
)
Total AOCL
$
(95,203
)
 
$
(112,992
)

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
(Amounts in thousands except share and per share data unless otherwise indicated)

The following tables summarize the changes in the balance of AOCL, net of income tax:
 
Quarter ended December 31, 2017
 
Nine months ended December 31, 2017
 
Derivatives
 
Pension and other postretirement benefits
 
Cumulative translation adjustment
 
Total
 
Derivatives
 
Pension and other postretirement benefits
 
Cumulative translation adjustment
 
Total
Beginning balance in AOCL
$
23

 
$
(55,632
)
 
$
(40,391
)
 
$
(96,000
)
 
$

 
$
(56,929
)
 
$
(56,063
)
 
$
(112,992
)
Net actuarial losses reclassified from AOCL (1)

 
472

 

 
472

 

 
2,087

 

 
2,087

Prior service costs reclassified from AOCL (1)

 
(49
)
 

 
(49
)
 

 
(372
)
 

 
(372
)
Valuation adjustment for pension and postretirement benefit plans(2)

 
(1,202
)
 

 
(1,202
)
 
 
 
(1,197
)
 

 
(1,197
)
Net increase in fair value of derivatives
785

 

 

 
785

 
808

 

 

 
808

Net change in cumulative translation adjustment

 

 
791

 
791

 

 

 
16,463

 
16,463

Ending balance in AOCL
$
808

 
$
(56,411
)
 
$
(39,600
)
 
$
(95,203
)
 
$
808

 
$
(56,411
)
 
$
(39,600
)
 
$
(95,203
)
(1)
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.
(2)
See Note 13, Employee Benefit Plans, for a description of the pension curtailment gain recognized in the quarter ended July 2, 2017.
 
Quarter ended January 1, 2017
 
Nine months ended January 1, 2017
 
Pension and other postretirement benefits
 
Cumulative translation adjustment
 
Total
 
Pension and other postretirement benefits
 
Cumulative translation adjustment
 
Total
Beginning balance in AOCL
$
(61,743
)
 
$
(51,091
)
 
$
(112,834
)
 
$
(63,667
)
 
$
(46,547
)
 
$
(110,214
)
Net actuarial losses reclassified from AOCL (1)
1,236

 

 
1,236

 
3,708

 

 
3,708

Prior service costs reclassified from AOCL (1)
(274
)
 

 
(274
)
 
(822
)
 

 
(822
)
Net change in cumulative translation adjustment

 
(10,711
)
 
(10,711
)
 

 
(15,255
)
 
(15,255
)
Ending balance in AOCL
$
(60,781
)
 
$
(61,802
)
 
$
(122,583
)
 
$
(60,781
)
 
$
(61,802
)
 
$
(122,583
)
(1)
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.

10. Goodwill and Net Intangible Assets
The changes in the carrying amount of goodwill by segment were as follows:
 
 
Outdoor Products
 
Shooting Sports
 
Total
Balance, March 31, 2017
 
$
652,896

 
$
204,735

 
$
857,631

Impairment
 
(143,400
)
 

 
(143,400
)
Effect of foreign currency exchange rates
 
6,815

 
327

 
7,142

Less: goodwill held for sale
 
(63,688
)
 

 
(63,688
)
Balance, December 31, 2017
 
$
452,623

 
$
205,062

 
$
657,685

During the quarter ended October 1, 2017, we recorded a $152,320 impairment of goodwill and identifiable intangible assets related to the Hunting and Shooting Accessories and Sports Protection reporting units. The company previously anticipated a return to sales growth in fiscal 2018 for these reporting units. However, during the quarter ended October 1, 2017, the company concluded that the return to growth for these reporting units would take longer than previously anticipated as a result of challenging market conditions that have persisted longer than expected.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
(Amounts in thousands except share and per share data unless otherwise indicated)

As a result, we reduced the projected cash flows for these reporting units to reflect the lower expected sales volume and profit margins. Given the reduction in our internal projections for these reporting units, we determined a triggering event had occurred, which indicated it was more likely than not that the fair values of these reporting units were less than the respective book values.
The fair value of both reporting units was determined using both an income and market approach. The value under the income approach is estimated using a discounted cash flow model that requires us to make significant estimates regarding future revenues and expenses, projected capital expenditures, changes in working capital, and the appropriate discount rate. The estimated value under the income approach is weighted equally against the estimated value under the market approach that reflects the price reasonably expected to be realized from the sale of the reporting unit based on transactions involving comparable companies.
The excess book value over fair value, and resulting goodwill impairment recorded during the quarter ended October 1, 2017, in our Hunting and Shooting Accessories reporting unit was $69,734. To determine the fair value under the income approach, we used a discount rate of 8% and a terminal growth rate of 3%. During the quarter ended October 1, 2017, we also performed an interim test for indefinite lived tradename impairment and we recorded a $7,220 impairment related to our Bushnell and Weaver tradenames. We determined the fair value of the indefinite lived tradenames using a royalty rate of 2%.
The excess book value over fair value, and resulting goodwill impairment recorded during the quarter ended October 1, 2017, in our Sports Protection reporting unit was $73,666. To determine the fair value under the income approach, we used a discount rate of 8% and a terminal growth rate of 3%. During the quarter ended October 1, 2017, we also performed an interim test for indefinite lived tradename impairment and we recorded a $1,700 impairment related to our Giro tradename. We determined the fair value of the indefinite lived tradename using a royalty rate of 3%.
We evaluated our other reporting units during the quarter ended October 1, 2017 and concluded that it was not more likely than not that the book values of the reporting units exceeded their fair values. However, we estimate that the excess of fair value over book value in our Outdoor Recreation and Firearms reporting units is less than 5%. Should the challenging retail environment last longer or be deeper than currently expected, if new product developments do not succeed, or if the discount rate were to increase, it is possible that the estimated fair value of these other reporting units could fall below their book value, which could necessitate further impairment of the goodwill and other intangible assets. We will continue to assess our reporting units for potential triggering events and will perform our annual impairment test as of the first day of the fourth quarter each year.
The goodwill recorded within the Outdoor Products segment is presented net of $545,106 of accumulated impairment losses, of which $47,791 was recorded prior to fiscal 2015 and $353,915 was recorded in fiscal 2017. The goodwill recorded within the Shooting Sports segment is presented net of $41,020 of accumulated impairment losses, which were recorded in fiscal 2015. The remeasurement of goodwill and intangible assets is classified as a Level 3 fair value assessment as described in Note 2, Fair Value of Financial Instruments, due to the significance of unobservable inputs developed using company-specific information.
Net intangible assets other than goodwill consisted of the following:
 
 
December 31, 2017
 
March 31, 2017
 
 
Gross
carrying
amount
 
Accumulated
amortization
 
Total
 
Gross
carrying
amount
 
Accumulated
amortization
 
Total
Trade names
 
$
62,659

 
$
(10,710
)
 
$
51,949

 
$
106,159

 
$
(17,048
)
 
$
89,111

Patented technology
 
16,466

 
(7,931
)
 
8,535

 
19,066

 
(7,703
)
 
11,363

Customer relationships and other
 
318,531

 
(84,557
)
 
233,974

 
371,099

 
(78,010
)
 
293,089

Total
 
397,656

 
(103,198
)
 
294,458

 
496,324

 
(102,761
)
 
393,563

Non-amortizing trade names
 
306,047

 

 
306,047

 
314,967

 

 
314,967

Net intangible assets
 
$
703,703

 
$
(103,198
)
 
$
600,505

 
$
811,291

 
$
(102,761
)
 
$
708,530


The amortizable assets in the table above are being amortized using a straight-line method over a weighted average remaining period of approximately 12.5 years. The amount of amortizing tradename and technology intangible assets for the Outdoor Products segment is presented net of a $61,054 impairment charge recorded in fiscal 2017. The amount of non-

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
(Amounts in thousands except share and per share data unless otherwise indicated)

amortizing tradename intangible assets in the Outdoor Products segment is presented net of $8,920 and $34,230 of impairment losses recorded in fiscal 2018 and fiscal 2017, respectively; and, the amount of non-amortizing tradename intangible assets in the Shooting Sports segment is presented net of $11,200 of impairment losses recorded in fiscal 2015. Amortization expense for the quarters ended December 31, 2017 and January 1, 2017 was $8,400 and $10,627, respectively, and for the nine months ended December 31, 2017 and January 1, 2017 was $26,653 and $31,020, respectively.

As of December 31, 2017, we expect amortization expense related to these assets to be as follows:
Remainder of fiscal 2018
 
$
7,531

Fiscal 2019
 
27,380

Fiscal 2020
 
26,553

Fiscal 2021
 
26,537

Fiscal 2022
 
26,530

Thereafter
 
179,927

Total
 
$
294,458


11. Other Current and Non-current Liabilities

Other current and non-current liabilities consisted of the following:
 
 
December 31, 2017
 
March 31, 2017
Other current liabilities:
 
 
 
 
Accrual for in-transit inventory
 
$
28,045

 
$
17,505

Rebate accrual
 
26,533

 
19,325

Other
 
56,568

 
86,096

Total other current liabilities
 
$
111,146

 
$
122,926

 
 
 
 
 
Other non-current liabilities:
 
 
 
 
Non-current portion of accrued income tax liability
 
$
37,720

 
$
32,842

Other
 
33,909

 
38,204

Total other non-current liabilities
 
$
71,629

 
$
71,046

We provide consumer warranties against manufacturing defects on certain products within the Outdoor Products and Shooting Sports segments with warranty periods ranging typically from one year to the lifetime of the product. 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 period presented:
Balance, March 31, 2017
$
10,014

Payments made
(3,832
)
Warranties issued
3,643

Changes related to preexisting warranties
170

Balance, December 31, 2017
$
9,995


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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
(Amounts in thousands except share and per share data unless otherwise indicated)

12. Long-term Debt
Long-term debt, including the current portion, consisted of the following:
 
 
December 31, 2017
 
March 31, 2017
Credit Agreement:
 
 
 
 
Term Loan
 
$
584,000

 
$
608,000

Revolving Credit Facility
 
15,000

 
175,000

Total principal amount of Credit Agreement
 
599,000

 
783,000

5.875% Senior Notes
 
350,000

 
350,000

Principal amount of long-term debt
 
949,000

 
1,133,000

Less: unamortized deferred financing costs
 
(11,292
)
 
(11,748
)
Carrying amount of long-term debt
 
937,708

 
1,121,252

Less: current portion
 
(32,000
)
 
(32,000
)
Carrying amount of long-term debt, excluding current portion
 
$
905,708

 
$
1,089,252


Credit Agreement—On April 1, 2016, we entered into an Amended and Restated Credit Agreement (the "Credit Agreement"), which replaced our 2014 Credit Agreement. The Credit Agreement is comprised of a Term A Loan of $640,000 and a $400,000 Revolving Credit Facility, both of which mature on April 1, 2021. The Term A Loan is subject to quarterly principal payments of $8,000, with the remaining balance due on April 1, 2021. Substantially all domestic tangible and intangible assets of Vista Outdoor and our subsidiaries, as well as the tangible and intangible assets of Advanced Arrow S. de R.L. de C.V. and Hydrosport, S. de R.L. de C.V., are pledged as collateral under the Credit Agreement. Borrowings under the Credit Agreement bear interest at a rate equal to either the sum of a base rate plus a specified margin or the sum of a Eurodollar rate plus a specified margin. Each margin is based on our consolidated leverage ratio, as defined in the Credit Agreement, and based on the ratio in effect as of December 31, 2017, the base rate margin was 1.25% and the Eurodollar margin was 2.25%. The weighted average interest rate for our borrowings under the Credit Agreement as of December 31, 2017 was 3.82%, excluding the impact of the interest rate swaps that are discussed below. We pay a commitment fee on the unused portion of the Revolving Credit Facility based on our consolidated leverage ratio, and based on the current ratio, this fee is 0.40%. As of December 31, 2017, we had $15,000 in borrowings against our $400,000 Revolving Credit Facility and had outstanding letters of credit of $26,824, which reduced amounts available on the Revolving Credit Facility to $358,176. Debt issuance costs of approximately $14,000 are being amortized over the term of the Credit Agreement.

In December 2014, we entered into a credit agreement (the "2014 Credit Agreement"), which was comprised of a Term A Loan of $350,000 and a Revolving Credit Facility of $400,000, both of which were to mature on February 9, 2020. During the quarter ended July 3, 2016, we refinanced this agreement as noted above. In connection with this transaction, we wrote off $1,521 of unamortized deferred debt issuance costs.

During the quarter ended July 2, 2017, we entered into an amendment to the Credit Agreement (the "Amendment") to amend, among other things, certain financial covenants. The Amendment provides that the Consolidated Leverage Ratio (as defined in the Credit Agreement) must not exceed 4.75 to 1.00 through the fiscal quarter ending December 30, 2018, 4.25 to 1.00 from the fiscal quarter ending March 31, 2019 through December 29, 2019; and 4.00 to 1.00 thereafter. The Amendment also provides that the Consolidated Senior Secured Leverage Ratio (as defined in the Credit Agreement) must not exceed 3.50 to 1.00 through the fiscal quarter ending December 30, 2018, and 3.00 to 1.00 thereafter. In addition, the limitation on Restricted Payments (as defined in the Credit Agreement) was amended. Also amended were the rates at which borrowings under the Revolving Credit Facility and Term A Loan bear interest and the commitment fee for unused commitments under the Revolving Credit Facility, all of which vary depending on our Consolidated Leverage Ratio. Debt issuance costs related to the Amendment of approximately $1,800 are being amortized over the remaining term of the Credit Agreement.

During the quarter ended December 31, 2017, we conducted a review of our outstanding debt instruments and initiated discussions with our banks regarding refinancing our current Credit Agreement with an asset-based loan (ABL) and a new term loan. We believe that this change could provide us with additional flexibility to operate efficiently in a challenging market environment. Subject to debt market conditions, we anticipate finalizing the refinancing in the next two quarters. In order to

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
(Amounts in thousands except share and per share data unless otherwise indicated)

allow us sufficient time to execute the refinancing, we have requested and received from our lenders a waiver of our Consolidated Leverage Ratio requirement for the quarter ending March 31, 2018.

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.

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 also cause a default under the other debt agreement. As of December 31, 2017, we were in compliance with the covenants of both debt agreements. However, we cannot provide assurance that we will be able to comply with such financial covenants in the future, or complete the refinancing activity mentioned above, because of various risks and uncertainties some of which may be beyond our control.

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 and by Advanced Arrow S. de R.L. de C.V. and Hydrosport, S. de R.L. de C.V. 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 of Vista Outdoor and will rank equally in right of payment with any future senior unsecured indebtedness and senior in right of payment to any future subordinated indebtedness of Vista Outdoor. 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.

Interest rate swaps—During the quarter ended July 2, 2017, we entered into floating-to-fixed interest rate swap agreements in order to hedge our forecasted interest payments on our outstanding variable-rate debt. As of December 31, 2017, we had the following cash flow hedge interest rate swaps in place:
 
 
Notional
 
Fair Value
 
Pay Fixed
 
Receive Floating
 
Maturity Date
Non-amortizing swap
 
$
100,000

 
$
529

 
1.519%
 
1.569%
 
June 2019
Non-amortizing swap
 
100,000

 
921

 
1.629%
 
1.569%
 
June 2020

The amount to be paid or received under these swaps is recorded as an adjustment to interest expense. The asset related to the swaps is recorded as part of other current assets.

Cash paid for interest on debt—Cash paid for interest on debt, including commitment fees, for the nine months ended December 31, 2017 and January 1, 2017 totaled $39,722 and $36,663, respectively.


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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
(Amounts in thousands except share and per share data unless otherwise indicated)

13. Employee Benefit Plans
During the quarter ended December 31, 2017, we recognized an aggregate net expense for employee defined benefit plans of $0 compared to $1,690 in the quarter ended January 1, 2017. The decrease was primarily due to lower amortization of previously unrecognized losses, and lower service costs due to the pension curtailment recognized in the quarter ended July 2, 2017, as discussed below.
For the nine months ended December 31, 2017 and January 1, 2017, we recognized an aggregate net expense for employee benefit plans of $1,506 and $5,072, respectively. The decrease was primarily due to the pension curtailment gain recognized in the quarter ended July 2, 2017, as discussed below, and lower service costs as a result of the curtailment. The decreases were offset by the additional expense during the quarter ended October 1, 2017 as a result of benefits for retiring executives as well as lower amortization of previously unrecognized losses.
Employer contributions and distributions—During the nine months ended December 31, 2017, we made the legally required contribution of $8,800 directly to the pension trust, made no contributions to our other postretirement benefit plans, and made no distributions directly to retirees under the non-qualified supplemental executive retirement plan. During the nine months ended January 1, 2017, we contributed $4,400 directly to the pension trust, made no contributions to our other postretirement benefit plans, and made distributions of $10 to retirees under the non-qualified supplemental executive retirement plan. We expect to make no additional contributions directly to the pension trust, and we expect to contribute approximately $159 to our other postretirement benefit plans, and to distribute approximately $11,125 directly to retirees under our non-qualified supplemental executive retirement plans during the remainder of fiscal 2018.
Pension curtailment—In June 2017, we announced changes to our qualified and non-qualified defined benefit pension plans. The benefits under the affected plans are determined by a cash balance formula that provides participating employees with an annual “pay credit” as a percentage of their eligible pay based on their age and eligible service. The curtailment was effective July 31, 2017, with employees receiving a pro-rated pay credit for 2017 and no future pay credits beginning in 2018.  However, a participating employee’s benefit will continue to grow based on annual interest credits applied to the employee’s cash balance account until commencement of the employee’s benefit. As a result of the changes, we recognized a one-time gain of $5,783 during the quarter ended July 2, 2017.

14. Income Taxes

Our provision for income taxes includes federal, foreign, and state income taxes. Income tax provisions for interim periods are based on estimated effective annual income tax rates.

The income tax provisions for the quarters ended December 31, 2017 and January 1, 2017 represent effective tax rates of (725.3)% and 4.4%, respectively. The decrease in the rate from the prior year quarter is primarily caused by the income tax effects of The Tax Cuts and Jobs Act (the "Tax Legislation"). The effective tax rates for the quarters ended December 31, 2017 and January 1, 2017 were lower than the statutory rates primarily because of the impact of the Tax Legislation in the current period and the goodwill impairment in the prior period, respectively.

The income tax provisions for the nine months ended December 31, 2017 and January 1, 2017 represent effective tax rates of 58.3% and (8.5)%, respectively. The increase in the rate from the prior year period is primarily caused by income tax effects of the Tax Legislation in the current quarter and nondeductible goodwill impairment charges in the current and prior years partially offset by the prior year nontaxable acquisition claim settlement gain. The effective tax rate for the nine months ended December 31, 2017 was higher than the statutory rate primarily because of the effects of the Tax Legislation in the current period. The effective tax rate for the nine months ended January 1, 2017 was lower than the statutory rate primarily because of the impact of the goodwill impairment in the prior period.


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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
(Amounts in thousands except share and per share data unless otherwise indicated)

On December 22, 2017, the Tax Legislation was enacted in the United States. The Tax Legislation significantly revises the corporate income tax by, among other things, lowering corporate income tax rates, limiting various deductions, repealing the domestic manufacturing deduction, implementing a territorial tax system, and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries.

We estimate the impact of the Tax Legislation, based on currently available information and interpretations of the law, to be a benefit to us of approximately $48 million which has been included in our current period tax benefit. The majority of the tax benefit is due to remeasurement of the U.S. deferred tax liabilities at lower enacted corporate tax rates, which did not have a cash impact on the current quarter. The actual impact of the Tax Legislation may differ from this estimate, possibly materially, due to, among other things, changes in interpretations and assumptions we have made, guidance that may be issued, and actions we may take as a result of the Tax Legislation.

On February 9, 2015, we entered into a Tax Matters Agreement with Orbital ATK that governs the respective rights, responsibilities and obligations of Vista Outdoor and Orbital ATK after the distribution of all of the shares of our common stock on a pro rata basis to the holders of Alliant Techsystems Inc. common stock (the “Spin-Off”) with respect to tax liabilities and benefits, tax attributes, tax contests and other tax sharing regarding U.S. federal, state, local and foreign income taxes, other tax matters and related tax returns. We have joint and several liability with Orbital ATK to the IRS for the consolidated U.S. federal income taxes of the Orbital ATK consolidated group relating to the taxable periods in which we were part of that group. However, the Tax Matters Agreement specifies the portion, if any, of this tax liability for which we bear responsibility, and Orbital ATK agrees to indemnify us against any amounts for which we are not responsible. The process under the Tax Matters Agreement for determining the final allocation of pre-Spin-Off tax liabilities between Vista Outdoor and Orbital ATK is ongoing. During the quarter ended December 31, 2017, we received Orbital ATK’s proposed allocation of these tax liabilities for the period from April 1, 2014 through the date of the Spin-Off. Given the complex nature of these tax matters, the final allocation of pre-Spin-Off tax liabilities between Vista Outdoor and Orbital ATK is highly uncertain. Though the resolution of these tax liabilities under the Tax Matters Agreement may have a significant impact on our cash position in a particular quarter, we do not expect this resolution to have a material impact on our business. The Tax Matters Agreement also provides special rules for allocating tax liabilities in the event that the Spin-Off is determined not to be tax-free. Though valid between the parties, the Tax Matters Agreement is not binding on the IRS.

Prior to the Spin-Off, Orbital ATK or one of its subsidiaries filed income tax returns in the U.S. federal and various U.S. state jurisdictions which included Vista Outdoor. In addition, certain of our subsidiaries filed income tax returns in foreign jurisdictions. After the Spin-Off we file income tax returns in the U.S. federal, foreign and various U.S. state jurisdictions. With a few exceptions, Orbital ATK and its subsidiaries and Vista are no longer subject to U.S. federal, state and local, or foreign income tax examinations by tax authorities prior to 2010. The IRS has completed the audits of Orbital ATK through fiscal 2014 and is currently auditing Orbital ATK's tax return for fiscal 2015. The IRS is also currently auditing our tax return for the period that begins after the Spin-Off (February 9, 2015) and ends on March 31, 2015. We believe appropriate provisions for all outstanding issues relating to our portion of these returns have been made for all remaining open years in all jurisdictions.
Although the timing and outcome of income tax audit settlements are uncertain, it is reasonably possible that a $4,165 reduction of the uncertain tax benefits will occur in the next 12 months. The settlement of these unrecognized tax benefits could result in earnings from $0 to $3,542.
15. Contingencies
Litigation—From time to time, we are subject to various legal proceedings, including lawsuits, which arise out of, and are incidental to, the conduct of our business. We do not consider any of such proceedings that are currently pending, individually or in the aggregate, to be material to our business or likely to result in a material adverse effect on our operating results, financial condition, or cash flows.
Environmental liabilities—Our operations and ownership or use of real property are subject to a number of federal, state, and local environmental laws and regulations, as well as applicable foreign laws and regulations, including those governing the discharge of hazardous materials, remediation of contaminated sites, and restoration of damage to the environment. We are obligated to conduct investigation and/or remediation activities at certain sites that we own or operate or formerly owned or operated.
We have been identified as a potentially responsible party (“PRP”), along with other parties, in regulatory agency actions associated with hazardous waste sites. As a PRP, we may be required to pay a share of the costs of the investigation and clean-

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
(Amounts in thousands except share and per share data unless otherwise indicated)

up of these sites. While uncertainties exist with respect to the amounts and timing of the ultimate environmental liabilities, based on currently available information, we have concluded that these matters, individually or in the aggregate, will not have a material adverse effect on our operating results, financial condition, or cash flows. We have recorded a liability for environmental remediation of $736 and $750 as of December 31, 2017 and March 31, 2017, respectively.
We could incur substantial additional costs, including cleanup costs, resource restoration, fines, and penalties or third-party property damage or personal injury claims, as a result of violations or liabilities under environmental laws or non-compliance with environmental permits. While environmental laws and regulations have not had a material adverse effect on our operating results, financial condition, or cash flows in the past, and we have environmental management programs in place to mitigate these risks, it is difficult to predict whether they will have a material impact in the future.
16. Condensed Consolidating Financial Statements

The 5.875% Notes are guaranteed on an unsecured basis, jointly and severally and fully and unconditionally by substantially all of our domestic subsidiaries and by Advanced Arrow S. de R.L. de C.V. and Hydrosport, S. de R.L. de C.V.

The parent company has no independent assets or operations. All of these guarantor subsidiaries are 100% owned by Vista Outdoor. These guarantees are senior or senior subordinated obligations, as applicable, of the applicable subsidiary guarantors. The consolidating financial information of the guarantor and non-guarantor subsidiaries is presented on the following pages.

Within the last four fiscal quarters, the domestic subsidiary included in our most recent acquisition (Camp Chef) was added to the list of guarantors of our 5.875% Notes. As a result, we revised the prior period guarantors and non-guarantors financial statements presented as if the new guarantor structure (as of the balance sheet date) existed for all periods presented.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
(Amounts in thousands except share and per share data unless otherwise indicated)

VISTA OUTDOOR INC.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(unaudited)
 
 
Quarter ended December 31, 2017
(Amounts in thousands)
 
Parent Issuer
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Sales, net
 
$

 
$
538,734

 
$
65,441

 
$
(22,971
)
 
$
581,204

Cost of sales
 

 
432,385

 
46,680

 
(23,966
)
 
455,099

Gross profit
 

 
106,349

 
18,761

 
995

 
126,105

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Research and development
 

 
6,875

 

 

 
6,875

Selling, general, and administrative
 

 
85,669

 
14,555

 

 
100,224

Income (loss) before interest and income taxes
 

 
13,805

 
4,206

 
995

 
19,006

Equity in income of subsidiaries
 
61,585

 
4,326

 

 
(65,911
)
 

Interest expense, net
 
(12,494
)
 

 

 

 
(12,494
)
Income (loss) before income taxes
 
49,091

 
18,131

 
4,206

 
(64,916
)
 
6,512

Income tax provision (benefit)
 
(4,652
)
 
(43,454
)
 
508

 
367

 
(47,231
)
Net income (loss)
 
$
53,743

 
$
61,585

 
$
3,698

 
$
(65,283
)
 
$
53,743

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
 
Net income (loss) (from above)
 
$
53,743

 
$
61,585

 
$
3,698

 
$
(65,283
)
 
$
53,743

Total other comprehensive income
 
797

 
797

 
791

 
(1,588
)
 
797

Comprehensive income (loss)
 
$
54,540

 
$
62,382

 
$
4,489

 
$
(66,871
)
 
$
54,540


 
 
Quarter ended January 1, 2017
(Amounts in thousands)
 
Parent Issuer
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Sales, net
 
$

 
$
631,292

 
$
57,352

 
$
(35,086
)
 
$
653,558

Cost of sales
 

 
478,603

 
40,801

 
(34,452
)
 
484,952

Gross profit
 

 
152,689

 
16,551

 
(634
)
 
168,606

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Research and development
 

 
8,170

 

 

 
8,170

Selling, general, and administrative
 

 
82,214

 
13,679

 

 
95,893

Goodwill and intangibles impairment
 

 
449,199

 

 

 
449,199

Income before interest and income taxes
 

 
(386,894
)
 
2,872

 
(634
)
 
(384,656
)
Equity in income of subsidiaries
 
(371,067
)
 
1,221

 

 
369,846

 

Interest expense, net
 
(10,551
)
 

 

 

 
(10,551
)
Income before income taxes
 
(381,618
)
 
(385,673
)
 
2,872

 
369,212

 
(395,207
)
Income tax provision (benefit)
 
(3,959
)
 
(14,606
)
 
1,263

 
(246
)
 
(17,548
)
Net income
 
$
(377,659
)
 
$
(371,067
)
 
$
1,609

 
$
369,458

 
$
(377,659
)
Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
 
 
Net income (from above)
 
$
(377,659
)
 
$
(371,067
)
 
$
1,609

 
$
369,458

 
$
(377,659
)
Total other comprehensive income
 
(9,749
)
 
(9,749
)
 
(10,711
)
 
20,460

 
(9,749
)
Comprehensive income
 
$
(387,408
)
 
$
(380,816
)
 
$
(9,102
)
 
$
389,918

 
$
(387,408
)



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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)
(Amounts in thousands except share and per share data unless otherwise indicated)

VISTA OUTDOOR INC.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(unaudited)
 
 
Nine months ended December 31, 2017
(Amounts in thousands)
 
Parent Issuer
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Sales, net
 
$

 
$
1,632,646

 
$
170,682

 
$
(66,092
)
 
$
1,737,236

Cost of sales
 

 
1,276,170

 
117,271

 
(67,845
)
 
1,325,596

Gross profit
 

 
356,476

 
53,411

 
1,753

 
411,640

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Research and development
 

 
22,113

 

 

 
22,113

Selling, general, and administrative
 

 
267,195

 
38,841

 

 
306,036

Goodwill and intangibles impairment
 

 
102,320

 
50,000

 

 
152,320

Income (loss) before interest and income taxes
 

 
(35,152
)
 
(35,430
)
 
1,753

 
(68,829
)
Equity in income of subsidiaries
 
(20,805
)
 
(38,847
)
 

 
59,652

 

Interest expense, net
 
(37,456
)
 

 

 

 
(37,456
)
Income (loss) before income taxes
 
(58,261
)
 
(73,999
)
 
(35,430
)
 
61,405

 
(106,285
)
Income tax provision (benefit)
 
(13,951
)
 
(53,194
)
 
4,549

 
621

 
(61,975
)
Net income (loss)
 
$
(44,310
)
 
$
(20,805
)
 
$
(39,979
)
 
$
60,784

 
$
(44,310
)
Other comprehensive (loss) income, net of tax:
 
 
 
 
 
 
 
 
 
 
Net income (loss) (from above)
 
$
(44,310
)
 
$
(20,805
)
 
$
(39,979
)
 
$
60,784

 
$
(44,310
)
Total other comprehensive income
 
17,789

 
17,789

 
16,463

 
(34,252
)
 
17,789

Comprehensive loss
 
$
(26,521
)
 
$
(3,016
)
 
$
(23,516
)
 
$
26,532

 
$
(26,521
)
 
 
Nine months ended January 1, 2017
(Amounts in thousands)
 
Parent Issuer
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Sales, net
 
$

 
$
1,888,699

 
$
169,012

 
$
(89,572
)
 
$
1,968,139

Cost of sales
 

 
1,419,712

 
111,710

 
(88,675
)
 
1,442,747

Gross profit
 

 
468,987

 
57,302

 
(897
)
 
525,392

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Research and development
 

 
24,202

 
(51
)
 

 
24,151

Selling, general, and administrative
 

 
260,205

 
42,855

 

 
303,060

Acquisition claim settlement gain, net
 
(30,027
)
 

 

 

 
(30,027
)
Goodwill and intangibles impairment
 

 
449,199

 

 

 
449,199

Income before interest and income taxes
 
30,027

 
(264,619
)
 
14,498

 
(897
)
 
(220,991
)
Equity in income of subsidiaries
 
(284,930
)
 
8,536

 

 
276,39