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Section 1: 10-Q (10-Q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
 
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
399117076_vistaoutdoora15.jpg
Vista Outdoor Inc.
(Exact name of Registrant as specified in its charter)
Delaware
 
47-1016855
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
1 Vista Way
Anoka
MN
55303
(Address of Principal Executive Offices)
 
(Zip Code)
Registrant's telephone number, including area code: (763) 433-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, par value $.01
 
VSTO
 
New York Stock Exchange
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     No 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes     No 
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
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
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. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes     No 
As of July 29, 2019, there were 57,753,803 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 BALANCE SHEETS
(unaudited)
(Amounts in thousands except share data)
 
June 30, 2019
 
March 31, 2019
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
31,595

 
$
21,935

Net receivables
 
363,364

 
344,249

Net inventories
 
387,676

 
344,491

Assets held for sale
 
195,938

 
207,607

Other current assets
 
23,678

 
21,180

Total current assets
 
1,002,251

 
939,462

Net property, plant, and equipment
 
207,416

 
215,592

Operating lease assets
 
72,349

 

Goodwill
 
204,496

 
204,496

Net intangible assets
 
355,699

 
360,520

Deferred charges and other non-current assets
 
19,090

 
17,953

Total assets
 
$
1,861,301

 
$
1,738,023

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Current portion of long-term debt
 
$
19,335

 
$
19,335

Accounts payable
 
128,670

 
99,283

Accrued compensation
 
25,421

 
36,456

Accrued income taxes
 
845

 
436

Federal excise tax
 
20,128

 
18,482

Liabilities held for sale
 
38,733

 
46,030

Other current liabilities
 
105,061

 
97,175

Total current liabilities
 
338,193

 
317,197

Long-term debt
 
740,312

 
684,670

Deferred income tax liabilities
 
17,214

 
17,757

Long-term operating lease liabilities
 
75,799

 

Accrued pension and postemployment benefits
 
45,423

 
46,083

Other long-term liabilities
 
49,411

 
63,276

Total liabilities
 
1,266,352

 
1,128,983

Commitments and contingencies (Notes 3, 13, and 16)
 

 

Common stock — $.01 par value:
 
 
 
 
Authorized — 500,000,000 shares
 
 
 
 
Issued and outstanding — 57,745,745 shares as of June 30, 2019 and 57,710,934 shares as of March 31, 2019
 
577

 
577

Additional paid-in capital
 
1,752,760

 
1,752,419

Accumulated deficit
 
(821,584
)
 
(804,969
)
Accumulated other comprehensive loss
 
(82,620
)
 
(82,967
)
Common stock in treasury, at cost — 6,218,694 shares held as of June 30, 2019 and 6,253,505 shares held as of March 31, 2019
 
(254,184
)
 
(256,020
)
Total stockholders' equity
 
594,949

 
609,040

Total liabilities and stockholders' equity
 
$
1,861,301

 
$
1,738,023

See Notes to the Condensed Consolidated Financial Statements.

2

Table of Contents

VISTA OUTDOOR INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
 
 
3 months ended
(Amounts in thousands except per share data)
 
June 30, 2019
 
July 1, 2018
Sales, net
 
$
459,774

 
$
528,836

Cost of sales
 
364,696

 
415,498

Gross profit
 
95,078

 
113,338

Operating expenses:
 
 
 
 
Research and development
 
6,494

 
6,968

Selling, general, and administrative
 
83,909

 
101,054

Impairment of held-for-sale assets (Note 7)
 
9,429

 
44,921

Income (loss) before interest and income taxes
 
(4,754
)
 
(39,605
)
Interest expense, net
 
(11,124
)
 
(13,472
)
Income (loss) before income taxes
 
(15,878
)
 
(53,077
)
Income tax provision (benefit)
 
737

 
(729
)
Net income (loss)
 
$
(16,615
)
 
$
(52,348
)
Earnings (loss) per common share:
 
 
 
 
Basic
 
$
(0.29
)
 
$
(0.91
)
Diluted
 
$
(0.29
)
 
$
(0.91
)
Weighted-average number of common shares outstanding:
 
 
 
 
Basic
 
57,722

 
57,454

Diluted
 
57,722

 
57,454

 
 


 


Net income (loss) (from above)
 
$
(16,615
)
 
$
(52,348
)
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 $0 and $19, respectively.
 
(78
)
 
(60
)
Reclassification of net actuarial loss for pension and postretirement benefit plans recorded to net income, net of tax expense of $0 and $(171), respectively.
 
811

 
543

Change in derivatives, net of tax expense of $0 and $(63), respectively.
 
(1,150
)
 
200

Change in cumulative translation adjustment.
 
764

 
(7,146
)
Total other comprehensive income (loss)
 
347

 
(6,463
)
Comprehensive income (loss)
 
$
(16,268
)
 
$
(58,811
)

See Notes to the Condensed Consolidated Financial Statements.

3

Table of Contents

VISTA OUTDOOR INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
 
3 months ended
(Amounts in thousands)
 
June 30, 2019
 
July 1, 2018
Operating Activities:
 
 
 
 
Net income (loss)
 
$
(16,615
)
 
$
(52,348
)
Adjustments to net income (loss) to arrive at cash (used for) provided by operating activities:
 
 
 
 
Depreciation
 
11,290

 
14,139

Amortization of intangible assets
 
5,097

 
6,842

Impairment of held-for-sale assets (Note 7)
 
9,429

 
44,921

Amortization of deferred financing costs
 
580

 
1,268

Deferred income taxes
 
(168
)
 
(3,302
)
Loss on disposal of property, plant, and equipment
 

 
(50
)
Stock-based compensation
 
2,190

 
2,368

Changes in assets and liabilities:
 
 
 
 
Net receivables
 
(4,749
)
 
26,935

Net inventories
 
(53,811
)
 
(36,620
)
Accounts payable
 
29,098

 
55,945

Accrued compensation
 
(11,026
)
 
(9,555
)
Accrued income taxes
 
992

 
(617
)
Federal excise tax
 
(881
)
 
(52
)
Pension and other postretirement benefits
 
101

 
(184
)
Other assets and liabilities
 
(7,695
)
 
24,482

Cash (used for) provided by operating activities
 
(36,168
)
 
74,172

Investing Activities:
 
 
 
 
Capital expenditures
 
(9,212
)
 
(9,949
)
Proceeds from the disposition of property, plant, and equipment
 
85

 
65

Cash used for investing activities
 
(9,127
)
 
(9,884
)
Financing Activities:
 
 
 
 
Borrowings on lines of credit
 
120,239

 
40,000

Payments on lines of credit
 
(60,240
)
 
(40,000
)
Payments made on long-term debt
 
(4,834
)
 
(33,000
)
Payments made for debt issuance costs
 
(103
)
 
(2,759
)
Settlement from former parent
 

 
13,047

Shares withheld for payroll taxes
 
(297
)
 
(830
)
Cash provided by (used for) financing activities
 
54,765

 
(23,542
)
Effect of foreign exchange rate fluctuations on cash
 
190

 
(256
)
Increase in cash and cash equivalents
 
9,660

 
40,490

Cash and cash equivalents at beginning of period
 
21,935

 
22,870

Cash and cash equivalents at end of period
 
$
31,595

 
$
63,360

Supplemental Cash Flow Disclosures:
 
 
 
 
Non-cash investing activity:
 
 
 
 
Capital expenditures included in accounts payable
 
$
2,531

 
$
2,613

 
See Notes to the Condensed Consolidated Financial Statements.

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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
 
Accumulated
Other
Comprehensive
Loss
 
Treasury
Stock
 
Total
Equity
Balance, March 31, 2018
 
57,431,299

 
$
574

 
$
1,746,182

 
$
(156,526
)
 
$
(104,296
)
 
$
(268,444
)
 
$
1,217,490

Comprehensive income (loss)
 

 

 

 
(52,348
)
 
(6,463
)
 

 
(58,811
)
Share-based compensation
 

 

 
2,380

 

 

 
(12
)
 
2,368

Restricted stock vested and shares withheld
 
24,430

 

 
(1,755
)
 

 

 
1,486

 
(269
)
Employee stock purchase plan
 
7,241

 

 
(192
)
 

 

 
299

 
107

Settlement from former parent
 

 

 
13,047

 

 

 

 
13,047

Other
 
58,935

 
1

 
(980
)
 

 

 
984

 
5

Balance, July 1, 2018
 
57,521,905

 
$
575

 
$
1,758,682

 
$
(208,874
)
 
$
(110,759
)
 
$
(265,687
)
 
$
1,173,937

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, March 31, 2019
 
57,710,934

 
$
577

 
$
1,752,419

 
$
(804,969
)
 
$
(82,967
)
 
$
(256,020
)
 
$
609,040

Comprehensive income (loss)
 

 

 

 
(16,615
)
 
347

 

 
(16,268
)
Share-based compensation
 

 

 
2,190

 

 

 

 
2,190

Restricted stock vested and shares withheld
 
23,059

 

 
(1,534
)
 

 

 
1,428

 
(106
)
Employee stock purchase plan
 
11,028

 

 
(358
)
 

 

 
451

 
93

Other
 
724

 

 
43

 

 

 
(43
)
 

Balance, June 30, 2019
 
57,745,745

 
$
577

 
$
1,752,760

 
$
(821,584
)
 
$
(82,620
)
 
$
(254,184
)
 
$
594,949

See Notes to the Condensed Consolidated Financial Statements.

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VISTA OUTDOOR INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
3 months ended June 30, 2019
(Amounts in thousands except share and per share data unless otherwise indicated)
1. Significant Accounting Policies
Nature of Operations—Vista Outdoor Inc. (together with our subsidiaries, "Vista Outdoor", "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 Anoka, Minnesota and has manufacturing and distribution facilities in 18 U.S. States, Canada, Mexico, and Puerto Rico along with international customer service, sales and sourcing operations in Asia, Canada, and Europe. Vista Outdoor was incorporated in Delaware in 2014. The consolidated financial statements reflect our financial position, results of operations, and cash flows in conformity with U.S. generally accepted accounting principles.

This Quarterly Report on Form 10-Q should be read in conjunction with our consolidated financial statements and notes included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2019 (“fiscal 2019”).

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 financial statements in our Annual Report on Form 10-K for fiscal 2019. 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 June 30, 2019 and March 31, 2019, our results of operations for the quarters ended June 30, 2019 and July 1, 2018, and our cash flows for the quarters ended June 30, 2019 and July 1, 2018.

New Accounting Pronouncements

Our accounting policies are described in Note 1 of the Notes to Consolidated Financial Statements included in our fiscal year 2019 Annual Report on Form 10-K. Such significant accounting policies are applicable for periods prior to the adoption of the following new accounting standards.

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards update ("ASU") 2016-02, “Leases" (Topic 842), which requires lessees to recognize a right-of-use asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on classification as a finance or operating lease. We adopted ASU 2016-02 prospectively starting on April 1, 2019. As part of the adoption, we elected the package of practical expedients which permits us under the new standard not to reassess historical lease classification, not to recognize short-term leases on our balance sheet, and not to separate lease and non-lease components for all its leases. In addition, we elected the use of hindsight to determine the lease term of its leases and applied its incremental borrowing rate based on the remaining term of its leases as of the adoption date. The impact upon adoption, on April 1, 2019, resulted in the recognition of right-of-use assets of approximately $75,749, and lease liabilities of approximately $91,604 on our unaudited condensed consolidated balance sheet. See Note 3, Leases, for additional information.

In August 2018, the FASB issued ASU 2018-15, “Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” ASU 2018-15 clarifies the accounting treatment for fees paid by a customer in a cloud computing arrangement (hosting arrangement) by providing guidance for determining when the arrangement includes a software license. ASU 2018-15 is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2019, with early adoption permitted. ASU 2018-15 may be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. We are currently assessing the impact that adoption of ASU 2018-15 will have on the consolidated 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

6

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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 used 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.
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 13, Long-term Debt, for additional information.
Commodity Price Hedging Instruments—We periodically enter into commodity forward contracts to hedge our exposure to price fluctuations on certain commodities we use for raw material components in our manufacturing process. When actual commodity prices exceed the fixed price provided by these contracts, we receive this difference from the counterparty, and when actual commodity prices are below the contractually provided fixed price, we pay this difference to the counterparty. We consider these to be Level 2 instruments. See Note 4, Derivative Financial Instruments, for additional information.
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. 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, approximately $10,000 of the purchase price 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 to be paid in three equal installments as each milestone is achieved. The growth milestones for the second year have been met and, therefore, we paid $3,371 during the quarter ended December 30, 2018. The third installment is expected to be paid during the third quarter of fiscal 2020.
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:
 
 
June 30, 2019
 
March 31, 2019
 
 
Carrying
amount
 
Fair
value
 
Carrying
amount
 
Fair
value
Fixed-rate debt
 
$
350,000

 
$
341,555

 
$
350,000

 
$
326,375

Variable-rate debt
 
419,676

 
419,676

 
364,509

 
364,509




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3. Leases
We lease certain warehouse and distribution space, manufacturing space, office space, retail locations, equipment and vehicles. All of these leases are classified as operating leases. Operating lease assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. These rates are assessed on a quarterly basis. The operating lease assets also include any lease payments made less lease incentives. Leases with an initial term of 12 months or less are not recorded on the balance sheet. For operating leases, expense is recognized on a straight-line basis over the lease term. Variable lease payments associated with the Company's leases are recognized upon occurrence of the event, activity, or circumstance in the lease agreement on which those payments are assessed. Tenant improvement allowances were recorded as leasehold improvements with an offsetting adjustment included in the Company’s calculation of its right-of-use asset.
Many leases include one or more options to renew, with renewal terms that can extend the lease term for three years or more. The exercise of lease renewal options is at our sole discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease term.
The amounts of assets and liabilities related to our operating leases follow.
 
 
Balance Sheet Caption
 
June 30, 2019
Assets:
 
 
 
 
Operating lease assets
 
Operating lease assets
 
$
72,349

 
 
 
 
 
Liabilities:
 
 
 
 
Current:
 
 
 
 
Operating lease liabilities
 
Other current liabilities
 
$
12,196

Long-term:
 
 
 
 
Operating lease liabilities
 
Long-term operating lease liabilities
 
75,799

Total lease liabilities
 
 
 
$
87,995


The components of lease expense are recorded to cost of sales, and selling, general and administration expenses in the unaudited condensed consolidated statements of comprehensive income (loss). The components of lease expense were as follows:
 
 
3 months ended June 30, 2019
Fixed operating lease costs
 
$
5,017

Variable operating lease costs
 
535

Sublease income
 
(281
)
Net Lease costs
 
$
5,271

 
 
June 30, 2019
Weighted Average Remaining Lease Term (Years):
 
 
Operating leases
 
9.89

 
 
 
Weighted Average Discount Rate:
 
 
Operating leases
 
8.61
%


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The approximate future minimum lease payments under operating leases at June 30, 2019 follow.
Remainder of fiscal 2020
 
$
14,570

Fiscal 2021
 
16,560

Fiscal 2022
 
13,265

Fiscal 2023
 
11,574

Fiscal 2024
 
10,242

Thereafter
 
69,804

Total lease payments
 
136,015

Less imputed interest
 
(48,020
)
Present value of lease liabilities
 
$
87,995


Supplemental cash flow information related to leases is as follows:
 
 
3 months ended June 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
Operating cash flows - operating leases
 
$
5,205

Right of use assets obtained in exchange for lease liabilities:
 
 
Operating leases
 
701


4. Derivative Financial Instruments
We are exposed to market risks arising from adverse changes in:
commodity prices affecting the cost of raw materials,
interest rates, 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 13, Long-term Debt, for additional information on our interest rate swaps.
We entered into various commodity forward contracts during fiscal 2020 and 2019. These contracts are used to hedge our exposure to price fluctuations on lead we purchase for raw material components in our ammunition manufacturing process and are designated and qualify as effective cash flow hedges. The effectiveness of cash flow hedges is assessed at inception and quarterly thereafter. Hedge accounting would cease if it became probable that the originally-forecasted hedged transaction will not occur. The related change in fair value of the ineffective portion of the derivative instrument would be reclassified from accumulated other comprehensive income (loss) and recognized in earnings.
The fair value of the lead 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 lead forward contracts are recorded in inventory as the commodities are purchased and in cost of sales when the related inventory is sold. As of June 30, 2019, we had outstanding lead forward contracts on 13.4 million pounds of lead.
The derivative gains or losses in the unaudited condensed consolidated statements of comprehensive income (loss) related to lead forward contracts during the quarter ended June 30, 2019 were immaterial. The liability related to the lead forward contracts is immaterial and is recorded as part of other current liabilities.

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5. Revenue Recognition

The following tables disaggregate our net sales by major category:
 
 
3 months ended June 30, 2019
 
3 months ended July 1, 2018
 
 
Outdoor Products
 
Shooting Sports
 
Total
 
Outdoor Products
 
Shooting Sports
 
Total
Ammunition
 
$

 
$
213,810

 
$
213,810

 
$

 
$
217,122

 
$
217,122

Firearms
 

 
24,017

 
24,017

 

 
40,934

 
40,934

Hunting and Shooting Accessories
 
95,861

 

 
95,861

 
103,688

 

 
103,688

Action Sports
 
67,909

 

 
67,909

 
71,708

 

 
71,708

Outdoor Recreation
 
58,177

 

 
58,177

 
63,113

 

 
63,113

Eyewear
 

 

 

 
32,271

 

 
32,271

Total
 
$
221,947

 
$
237,827

 
$
459,774

 
$
270,780

 
$
258,056

 
$
528,836

 
 
 
 
 
 
 
 
 
 
 
 
 
Geographic Region
 
 
 
 
 
 
 
 
 
 
 
 
United States
 
$
171,795

 
$
209,361

 
$
381,156

 
$
196,649

 
$
231,894

 
$
428,543

Rest of the World
 
50,152

 
28,466

 
78,618

 
74,131

 
26,162

 
100,293

Total
 
$
221,947

 
$
237,827

 
$
459,774

 
$
270,780

 
$
258,056

 
$
528,836


Typically, our contracts require customers to pay within 30-60 days of product delivery with a discount available to some customers for early payment. In some cases, we offer extended payment terms to customers. However, we do not consider these extended payment terms to be a significant financing component of the contract because the payment terms are less than a year.
We recognize revenue for our products at a point in time upon the transfer of control of the products to the customer, which typically occurs upon shipment and coincides with our right to payment, the transfer of legal title, and the transfer of the significant risks and rewards of ownership of the product.
In limited circumstances, our contract with a customer may have shipping terms that indicate a transfer of control of the products upon their arrival at the destination rather than upon shipment. In those cases, we recognize revenue only when the product reaches the customer destination, which may require us to estimate the timing of transfer of control based on the expected delivery date. In all cases, however, we consider our costs related to shipping and handling to be a cost of fulfilling the contract with the customer.
The total amount of revenue we recognize for the sale of our products reflects various sales adjustments for discounts, returns, refunds, allowances, rebates, and other customer incentives. These sales adjustments can vary based on market conditions, customer preferences, timing of customer payments, volume of products sold, and timing of new product launches. These adjustments require management to make reasonable estimates of the amount we expect to receive from the customer.
The total amount of revenue we recognize for the sale of our products reflects various sales adjustments for discounts, returns, refunds, allowances, rebates, and other customer incentives. These sales adjustments can vary based on market conditions, customer preferences, timing of customer payments, volume of products sold, and timing of new product launches. These adjustments require management to make reasonable estimates of the amount we expect to receive from the customer. We estimate sales adjustments by customer or by product category on the basis of our historical experience with similar contracts with customers, adjusted as necessary to reflect current facts and circumstances and our expectations for the future. Sales taxes, firearms and ammunition excise tax and other similar taxes are excluded from revenue.
Incentives in the form of cash paid to the customer (or a reduction of a customer cash payment to us) typically are recognized as a reduction of sales unless the incentive is for a distinct benefit that we receive from the customer (e.g., advertising or marketing).
We provide consumer warranties against manufacturing defects on certain products within the Shooting Sports and Outdoor Products segments. Our warranty periods typically range from one year to the lifetime of the product. The costs of such product warranties are recognized upon delivery of the product at the time the sale is recorded, and are estimated based on our past experience.

We pay commissions to some of our employees based on agreed-upon sales targets. We recognize the incremental costs of obtaining a contract as an expense when incurred because our sales contracts with commissions are a year or less.

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6. 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 quarters ended June 30, 2019 and July 1, 2018, earnings, as reported for each respective period, is divided by the number of shares below:
 
 
3 months ended
 
 
June 30, 2019
 
July 1, 2018
Net income (loss)
 
$
(16,615
)
 
$
(52,348
)
Weighted-average number of common shares outstanding:
 
 
 
 
   Basic EPS shares outstanding
 
57,722

 
57,454

   Dilutive effect of stock-based awards (1)
 

 

   Diluted EPS shares outstanding
 
57,722

 
57,454

Earnings (loss) per common share:
 
 

 
 

Basic
 
$
(0.29
)
 
$
(0.91
)
Diluted
 
$
(0.29
)
 
$
(0.91
)

(1) Due to the loss from continuing operations in the quarters ended June 30, 2019 and July 1, 2018, there are no common shares added to calculate dilutive EPS because the effect would be antidilutive.

7. Assets and Liabilities Held for Sale
Subsequent to quarter-end we entered into a purchase agreement for the sale of the legal entities comprising our firearms business, which is part of our Shooting Sports segment and comprises our Firearms reporting unit. See Note 19, Subsequent Events. The decision to sell this business reflects our ongoing review of our portfolio of brands to focus our attention on assets that are core to our mission and strategy.

The gross proceeds from the divestiture will be approximately $170,000, subject to reductions for fair value, net working capital adjustments and transaction costs. We measured this business at the lower of its carrying value or fair value less any costs to sell, and subsequently recognized additional impairment of $9,429 during the quarter. Impairment of $120,238 was recognized during fiscal 2019.
The operating results of this business do not qualify for reporting as discontinued operations. For the quarters ended June 30, 2019 and July 1, 2018, the earnings before interest and taxes for this business were $1,230 and $2,962, respectively.

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The following table presents information related to the assets and liabilities of the firearms business that was classified as held for sale at June 30, 2019:
Assets and Liabilities Held for Sale
 
 
 
 
 
 
 
June 30, 2019
Assets
 
 
Net receivables
 
$
37,047

Net inventories
 
45,446

Other current assets
 
1,476

Net property, plant, and equipment
 
37,976

Goodwill
 
121,666

Net intangible assets
 
79,809

Deferred charges and other non-current assets
 
2,184

Total assets held for sale
 
$
325,604

 
 
 
Liabilities
 
 
Accounts payable
 
$
10,698

Accrued compensation
 
1,640

Accrued income taxes
 
282

Federal excise tax
 
2,039

Other current liabilities
 
1,574

Other long-term liabilities
 
522

Deferred tax liabilities
 
21,978

Total liabilities held for sale
 
$
38,733

 
 
 
Total net assets held for sale
 
$
286,871

 
 
 
Total net assets held for sale
 
$
286,871

Currency translation adjustment attributable to firearms business
 
3,045

Total net assets including currency translation adjustment
 
289,916

Estimated fair value less costs to sell
 
160,250

Impairment of held-for-sale goodwill and assets
 
$
129,666

 
 
 
Total assets held for sale
 
$
325,604

Impairment of held-for-sale goodwill and assets
 
(129,666
)
Adjusted assets held for sale
 
$
195,938


During the quarter ended July 1, 2018, we recognized an impairment of $44,921 related to an expected loss on the sale of our held-for-sale assets of our Eyewear business.


12

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8. Receivables
Net receivables are summarized as follows:
 
 
June 30, 2019
 
March 31, 2019
Trade receivables
 
$
370,914

 
$
356,035

Other receivables
 
11,722

 
7,106

Less: allowance for doubtful accounts and discounts
 
(19,272
)
 
(18,892
)
Net receivables
 
$
363,364

 
$
344,249


Walmart represented 16% and 14% of the total trade receivables balance as June 30, 2019 and March 31, 2019, respectively. No other customer represented more than 10% of our total trade receivables balance as of June 30, 2019 and March 31, 2019.
9. Inventories
Net inventories consist of the following:
 
 
June 30, 2019
 
March 31, 2019
Raw materials
 
$
95,463

 
$
65,240

Work in process
 
32,285

 
32,213

Finished goods
 
259,928

 
247,038

Net inventories
 
$
387,676

 
$
344,491



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 $17,615 and $16,227 as of June 30, 2019 and March 31, 2019, respectively.

10. Accumulated Other Comprehensive Loss (AOCL)
The components of AOCL, net of income taxes, are as follows:
 
June 30, 2019
 
March 31, 2019
Pension and other postretirement benefits
$
(73,937
)
 
$
(74,670
)
Derivatives
(415
)
 
735

Cumulative translation adjustment
(8,268
)
 
(9,032
)
Total AOCL
$
(82,620
)
 
$
(82,967
)


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The following tables summarize the changes in the balance of AOCL, net of income tax:
 
3 months ended June 30, 2019
 
Derivatives
 
Pension and other postretirement benefits
 
Cumulative translation adjustment
 
Total
Beginning balance in AOCL
$
735

 
$
(74,670
)
 
$
(9,032
)
 
$
(82,967
)
Net actuarial losses reclassified from AOCL (1)

 
811

 

 
811

Prior service costs reclassified from AOCL (1)

 
(78
)
 

 
(78
)
Net decrease in fair value of derivatives
(1,150
)
 

 

 
(1,150
)
Net change in cumulative translation adjustment

 

 
764

 
764

Ending balance in AOCL
$
(415
)
 
$
(73,937
)
 
$
(8,268
)
 
$
(82,620
)
(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.

 
3 months ended July 1, 2018
 
Derivatives
 
Pension and other postretirement benefits
 
Cumulative translation adjustment
 
Total
Beginning balance in AOCL
$
1,904

 
$
(66,656
)
 
$
(39,544
)
 
$
(104,296
)
Net actuarial losses reclassified from AOCL (1)

 
543

 

 
543

Prior service costs reclassified from AOCL (1)

 
(60
)
 

 
(60
)
Net increase in fair value of derivatives
200

 

 

 
200

Net change in cumulative translation adjustment

 

 
(7,146
)
 
(7,146
)
Ending balance in AOCL
$
2,104

 
$
(66,173
)
 
$
(46,690
)
 
$
(110,759
)

(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.

11. Goodwill and Intangible Assets
There were no changes in the carrying amount of goodwill during the quarter ended June 30, 2019. The carrying amounts of goodwill for our Outdoor Products and Shooting Sports segments as of June 30, 2019 were $121,329 and $83,167, respectively, for a consolidated balance of $204,496.

Net intangible assets other than goodwill consisted of the following:
 
 
June 30, 2019
 
March 31, 2019
 
 
Gross
carrying
amount
 
Accumulated
amortization
 
Total
 
Gross
carrying
amount
 
Accumulated
amortization
 
Total
Trade names
 
$
48,360

 
$
(11,628
)
 
$
36,732

 
$
48,360

 
$
(10,694
)
 
$
37,666

Patented technology
 
16,684

 
(9,828
)
 
6,856

 
16,684

 
(9,604
)
 
7,080

Customer relationships and other
 
238,742

 
(71,995
)
 
166,747

 
238,595

 
(68,185
)
 
170,410

Total
 
303,786

 
(93,451
)
 
210,335

 
303,639

 
(88,483
)
 
215,156

Non-amortizing trade names
 
145,364

 

 
145,364

 
145,364

 

 
145,364

Net intangible assets
 
$
449,150

 
$
(93,451
)
 
$
355,699

 
$
449,003

 
$
(88,483
)
 
$
360,520




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Amortization expense for the quarters ended June 30, 2019 and July 1, 2018 was $5,097 and $6,842, respectively.

As of June 30, 2019, we expect amortization expense related to these assets to be as follows:
Remainder of fiscal 2020
 
$
14,931

Fiscal 2021
 
19,886

Fiscal 2022
 
19,831

Fiscal 2023
 
19,715

Fiscal 2024
 
19,663

Thereafter
 
116,309

Total
 
$
210,335



12. Other Current and Non-Current Liabilities

Other current and non-current liabilities consisted of the following:
 
 
June 30, 2019
 
March 31, 2019
Other current liabilities:
 
 
 
 
Accrual for in-transit inventory
 
$
23,568

 
$
11,275

Rebate accrual
 
10,387

 
13,911

Other
 
71,106

 
71,989

Total other current liabilities
 
$
105,061

 
$
97,175

 
 
 
 
 
Other non-current liabilities:
 
 
 
 
Non-current portion of accrued income tax liability
 
$
34,730

 
$
34,118

Other
 
14,681

 
29,158

Total other non-current liabilities
 
$
49,411

 
$
63,276


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 the expected 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 periods presented:
Balance, March 31, 2019
 
$
8,144

Payments made
 
(364
)
Warranties issued
 
479

Other adjustments
 
74

Changes related to pre-existing warranties
 
(33
)
Balance, June 30, 2019
 
$
8,300




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13. Long-term Debt
Long-term debt, including the current portion, consisted of the following:
 
 
June 30, 2019
 
March 31, 2019
Credit Agreements:
 
 
 
 
ABL Revolving Credit Facility
 
$
280,000

 
$
220,000

Term Loan
 
99,676

 
104,509

Junior Term Loan
 
40,000

 
40,000

Total principal amount of Credit Agreements
 
419,676

 
364,509

5.875% Senior Notes
 
350,000

 
350,000

Principal amount of long-term debt
 
769,676

 
714,509

Less: unamortized deferred financing costs
 
(10,029
)
 
(10,504
)
Carrying amount of long-term debt
 
759,647

 
704,005

Less: current portion
 
(19,335
)
 
(19,335
)
Carrying amount of long-term debt, excluding current portion
 
$
740,312

 
$
684,670



Credit Agreements—In fiscal 2019, we refinanced our Amended and Restated Credit Agreement dated April 1, 2016, by entering into the New Credit Facilities, which provide for (a) a $450,000 senior secured asset-based revolving credit facility (the “ABL Revolving Credit Facility”), comprised of $20,000 in first-in, last-out (“FILO”) revolving credit commitments and $430,000 in non-FILO revolving credit commitments, (b) a $109,343 senior secured asset-based term loan facility (the “Term Loan”) and (c) the $40,000 Junior Term Loan. The amount available under the ABL Revolving Credit Facility is the lesser of the total commitment of $450,000 or a borrowing base based on percentages of eligible receivables, inventory, and cash, minus certain reserves. As of June 30, 2019, based on the borrowing base less outstanding borrowings of $280,000 and outstanding letters of credit of $24,974, the amount available to us under the ABL Revolving Credit Facility was $77,223.

The New Credit Facilities each mature on November 19, 2023 (the “Maturity Date”), subject to a customary springing maturity in respect of the 5.875% Notes due 2023. The loans under the Term Loan are subject to quarterly principal repayments of $4,834 on the first business day of each January, April, July, and October, with the remaining balance due on the Maturity Date. The FILO commitments under the ABL Revolving Credit Facility are subject to reductions of $1,667 on the first business day of each fiscal quarter beginning on April 1, 2019. The balance of the FILO revolving credit commitment as of June 30, 2019 was $18,333. Any outstanding revolving loans under the ABL Revolving Credit Facility will be payable in full on the Maturity Date. There are no scheduled principal payments under the Junior Term Loan, which will be payable in full on the Maturity Date.

Borrowings under the ABL Revolving Credit Facility bear interest at a rate equal to, in the case of (a) non-FILO revolving credit loans, either the sum of a base rate plus a margin ranging from 0.75% to 1.25% or the sum of a LIBO rate plus a margin ranging from 1.75% to 2.25%, and (b) FILO revolving credit loans, a rate that is 1.00% higher than the rate paid on the non-FILO revolving credit loans. All such rates vary based on our Average Excess Availability under the ABL Revolving Credit Facility. As of June 30, 2019, the margin under the (1) ABL Revolving Credit Facility was, in the case of (a) non-FILO revolving credit loans, 1.25% for base rate loans and 2.25% for LIBO rate loans and (b) FILO revolving credit loans, 2.25% for base rate loans and 3.25% for LIBO rate loans, (2) Term Loan was 2.75% for base rate loans and 3.75% for LIBO rate loans, and (3) Junior Term Loan was 8.00% for base rate loans and 9.00% for LIBO rate loans. The weighted average interest rate for our borrowings under the New Credit Facilities as of June 30, 2019 was 5.84%, excluding the impact of the interest rate swaps that are discussed below. We pay a commitment fee on the unused commitments under the ABL Revolving Credit Facility of 0.25% per annum.

Substantially all domestic tangible and intangible assets of Vista Outdoor and our domestic 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 New Credit Facilities.

Debt issuance costs related to the New Credit Facilities, including a portion of the existing unamortized debt issuance costs, totaling approximately $12,100 are being amortized over the term of the New Credit Facilities.

5.875% Notes—In fiscal 2016, 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 the notes is payable semi-

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annually in arrears on April 1 and October 1 of each year. We have the right to redeem some or all of these notes from time to time at specified redemption prices. 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 New Credit Facilities' 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 New Credit Facilities 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
if such subsidiary guarantor has been released from its guarantees of indebtedness under the New Credit Facilities and all capital markets debt securities

Interest rate swaps—During fiscal 2018, 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 June 30, 2019, we had the following cash flow hedge interest rate swap in place:
 
 
Notional
 
Fair Value
 
Pay Fixed
 
Receive Floating
 
Maturity Date
Non-amortizing swap
 
100,000

 
219

 
1.629%
 
2.402%
 
June 2020


The amount 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.

Covenants

New Credit Facilities—Our New Credit Facilities impose restrictions on us, including limitations on our ability to pay
cash dividends, incur debt or liens, redeem or repurchase Vista Outdoor stock, enter into transactions with affiliates, make
investments, merge or consolidate with others or dispose of assets. In addition, the New Credit Facilities contain financial
covenants requiring us to (a) maintain Excess Availability under the ABL Revolving Credit Facility of $45,000 at all times before all amounts owing under the Term Loan Facility and the Junior Term Loan Facility have been paid in full, (b) maintain a Consolidated Fixed Charge Coverage Ratio ("FCCR"), as defined below, of not less than 1.15:1.00 for any fiscal quarter beginning with the fiscal quarter ending on March 31, 2019 until the fiscal quarter ending immediately prior to the date the Term Loan Facility and the Junior Term Loan Facility have been paid in full, and (c) maintain a FCCR of not less than
1.00:1.00 for any fiscal quarter ending after the Term Loan Facility and the Junior Term Loan Facility have been paid in full if Excess Availability falls below certain levels. If we do not comply with the covenants in any of the New Credit Facilities, the lenders may, subject to customary cure rights, require the immediate payment of all amounts outstanding under each of the New Credit Facilities.

The FCCR is Covenant EBITDA (which includes adjustments for items such as non-recurring or extraordinary items,
non-cash charges related to stock-based compensation, and intangible asset impairment charges, as well as adjustments for
acquired or divested business units on a pro forma basis) less capital expenditures (subject to certain adjustments) for the past
four fiscal quarters, divided by fixed charges (which includes debt principal and interest payments made since October 28, 2018, annualized; plus income tax payments and restricted payments over the past four fiscal quarters). As of June 30, 2019, our FCCR was 1.37.

5.875% Notes—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

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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.

The New Credit Facilities and the indenture governing the 5.875% Notes contain cross-default provisions so that noncompliance with the covenants within one debt agreement could also cause a default under the other debt agreements. As of
June 30, 2019, we were in compliance with the covenants of all of the debt agreements. However, we cannot provide
assurance that we will be able to comply with such financial covenants in the future because of various risks and uncertainties
some of which may be beyond our control. Any failure to comply with the restrictions in the New Credit Facilities may prevent
us from drawing under the ABL Revolving Credit Facility and may result in an event of default under the New Credit Facilities,
which default may allow the creditors to accelerate the related indebtedness and the indebtedness under our 5.875% Notes and proceed against the collat