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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 September 29, 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
400888629_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 October 28, 2019, there were 57,826,570 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)
 
September 29, 2019
 
March 31, 2019
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
22,811

 
$
21,935

Net receivables
 
363,113

 
344,249

Net inventories
 
364,146

 
344,491

Assets held for sale
 

 
207,607

Other current assets
 
23,350

 
21,180

Total current assets
 
773,420

 
939,462

Net property, plant, and equipment
 
197,550

 
215,592

Operating lease assets
 
69,105

 

Goodwill
 
204,496

 
204,496

Net intangible assets
 
350,725

 
360,520

Deferred charges and other non-current assets, net
 
33,899

 
17,953

Total assets
 
$
1,629,195

 
$
1,738,023

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

 
$
19,335

Accounts payable
 
110,572

 
99,283

Accrued compensation
 
34,911

 
36,456

Accrued income taxes
 
697

 
436

Federal excise tax
 
20,597

 
18,482

Liabilities held for sale
 

 
46,030

Other current liabilities
 
110,642

 
97,175

Total current liabilities
 
277,419

 
317,197

Long-term debt
 
578,281

 
684,670

Deferred income tax liabilities
 
17,210

 
17,757

Long-term operating lease liabilities
 
74,051

 

Accrued pension and postemployment benefits
 
43,038

 
46,083

Other long-term liabilities
 
50,695

 
63,276

Total liabilities
 
1,040,694

 
1,128,983

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

 

Common stock — $.01 par value:
 
 
 
 
Authorized — 500,000,000 shares
 
 
 
 
Issued and outstanding — 57,787,433 shares as of September 29, 2019 and 57,710,934 shares as of March 31, 2019
 
578

 
577

Additional paid-in capital
 
1,752,175

 
1,752,419

Accumulated deficit
 
(833,482
)
 
(804,969
)
Accumulated other comprehensive loss
 
(78,513
)
 
(82,967
)
Common stock in treasury, at cost — 6,177,006 shares held as of September 29, 2019 and 6,253,505 shares held as of March 31, 2019
 
(252,257
)
 
(256,020
)
Total stockholders' equity
 
588,501

 
609,040

Total liabilities and stockholders' equity
 
$
1,629,195

 
$
1,738,023

See Notes to the Condensed Consolidated Financial Statements.

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Table of Contents

VISTA OUTDOOR INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
 
 
Three months ended
 
Six months ended
(Amounts in thousands except per share data)
 
September 29, 2019
 
September 30, 2018
 
September 29, 2019
 
September 30, 2018
Sales, net
 
$
445,016

 
$
546,585

 
$
904,790

 
$
1,075,421

Cost of sales
 
354,752

 
437,828

 
719,448

 
853,326

Gross profit
 
90,264

 
108,757

 
185,342

 
222,095

Operating expenses:
 
 
 
 
 
 
 
 
Research and development
 
5,553

 
7,210

 
12,047

 
14,178

Selling, general, and administrative
 
82,971

 
97,282

 
166,880

 
198,336

Intangibles impairment
 

 
23,411

 

 
23,411

Impairment of held-for-sale assets (Note 7)
 

 

 
9,429

 
44,921

Income (loss) before interest, income taxes, and other
 
1,740

 
(19,146
)
 
(3,014
)
 
(58,751
)
Other income (expense), net (Note 7)
 
(433
)
 
(4,925
)
 
(433
)
 
(4,925
)
Interest expense, net
 
(12,314
)
 
(16,865
)
 
(23,438
)
 
(30,337
)
Income (loss) before income taxes
 
(11,007
)
 
(40,936
)
 
(26,885
)
 
(94,013
)
Income tax provision (benefit)
 
891

 
(8,118
)
 
1,628

 
(8,847
)
Net income (loss)
 
$
(11,898
)
 
$
(32,818
)
 
$
(28,513
)
 
$
(85,166
)
Earnings (loss) per common share:
 
 
 
 
 
 
 
 
Basic
 
$
(0.21
)
 
$
(0.57
)
 
$
(0.49
)
 
$
(1.48
)
Diluted
 
$
(0.21
)
 
$
(0.57
)
 
$
(0.49
)
 
$
(1.48
)
Weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
57,768

 
57,528

 
57,746

 
57,492

Diluted
 
57,768

 
57,528

 
57,746

 
57,492

 
 


 


 
 
 
 
Net income (loss) (from above)
 
$
(11,898
)
 
$
(32,818
)
 
$
(28,513
)
 
$
(85,166
)
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 for the three months ended, respectively, and $0 and $38 for the six months ended, respectively.
 
(78
)
 
(60
)
 
(156
)
 
(120
)
Reclassification of net actuarial loss for pension and postretirement benefit plans recorded to net income, net of tax expense of $0 and $(172) for the three months ended, respectively, and $0 and $(343) for the six months ended, respectively.
 
812

 
543

 
1,623

 
1,086

Change in derivatives, net of tax benefit (expense) of $0 and $210 for the three months ended, respectively, and $0 and $147 for the six months ended, respectively.
 
700

 
(664
)
 
(450
)
 
(464
)
Currency translation gains reclassified from accumulated other comprehensive loss
 
3,150

 

 
3,150

 

Change in cumulative translation adjustment.
 
(477
)
 
36,662

 
287

 
29,516

Total other comprehensive income (loss)
 
4,107

 
36,481

 
4,454

 
30,018

Comprehensive income (loss)
 
$
(7,791
)
 
$
3,663

 
$
(24,059
)
 
$
(55,148
)

See Notes to the Condensed Consolidated Financial Statements.

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VISTA OUTDOOR INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
 
Six months ended
(Amounts in thousands)
 
September 29, 2019
 
September 30, 2018
Operating Activities:
 
 
 
 
Net income (loss)
 
$
(28,513
)
 
$
(85,166
)
Adjustments to net income (loss) to arrive at cash (used for) provided by operating activities:
 
 
 
 
Depreciation
 
26,250

 
27,371

Amortization of intangible assets
 
9,782

 
13,620

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

 
44,921

Intangibles impairment
 

 
23,411

Amortization of deferred financing costs
 
3,890

 
5,033

Deferred income taxes
 
(200
)
 
(12,770
)
(Gain) loss on disposal of property, plant, and equipment
 
(57
)
 
1,602

Loss on divestitures (Note 7)
 
431

 
4,925

Stock-based compensation
 
3,574

 
3,880

Changes in assets and liabilities:
 
 
 
 
Net receivables
 
(5,089
)
 
8,272

Net inventories
 
(37,468
)
 
(56,511
)
Accounts payable
 
9,382

 
47,659

Accrued compensation
 
(2,290
)
 
262

Accrued income taxes
 
1,723

 
245

Federal excise tax
 
(350
)
 
1,105

Pension and other postretirement benefits
 
(1,435
)
 
(370
)
Other assets and liabilities
 
2,703

 
30,853

Cash (used for) provided by operating activities
 
(8,238
)
 
58,342

Investing Activities:
 
 
 
 
Capital expenditures
 
(17,720
)
 
(19,232
)
Proceeds from sale of our Firearms business and Eyewear brands (Note 7)
 
156,567

 
151,595

Proceeds from the disposition of property, plant, and equipment
 
260

 
335

Cash provided by investing activities
 
139,107

 
132,698

Financing Activities:
 
 
 
 
Borrowings on lines of credit
 
192,232

 
70,000

Payments on lines of credit
 
(197,234
)
 
(70,000
)
Payments made on long-term debt
 
(124,509
)
 
(176,000
)
Payments made for debt issuance costs
 
(103
)
 
(2,845
)
Settlement from former parent
 

 
13,047

Shares withheld for payroll taxes
 
(307
)
 
(846
)
Cash used for financing activities
 
(129,921
)
 
(166,644
)
Effect of foreign exchange rate fluctuations on cash
 
(72
)
 
(1,020
)
Increase in cash and cash equivalents
 
876

 
23,376

Cash and cash equivalents at beginning of period
 
21,935

 
22,870

Cash and cash equivalents at end of period
 
$
22,811

 
$
46,246

Supplemental Cash Flow Disclosures:
 
 
 
 
Non-cash investing activity:
 
 
 
 
Capital expenditures included in accounts payable
 
$
1,216

 
$
4,456

 
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, 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

Comprehensive income (loss)
 

 

 

 
(11,898
)
 
4,107

 

 
(7,791
)
Share-based compensation
 

 

 
1,384

 

 

 

 
1,384

Restricted stock vested and shares withheld
 
12,666

 

 
(859
)
 

 

 
818

 
(41
)
Other
 
29,022

 
1

 
(1,110
)
 

 

 
1,109

 

Balance, September 29, 2019
 
57,787,433

 
$
578

 
$
1,752,175

 
$
(833,482
)
 
$
(78,513
)
 
$
(252,257
)
 
$
588,501

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

Comprehensive income (loss)
 

 

 

 
(32,818
)
 
36,481

 

 
3,663

Share-based compensation
 

 

 
1,601

 

 

 
(90
)
 
1,511

Restricted stock vested and shares withheld
 
23,528

 

 
(455
)
 

 

 
440

 
(15
)
Employee stock purchase plan
 
5,842

 

 
(142
)
 

 

 
241

 
99

Other
 

 
1

 
(205
)
 

 

 
208

 
4

Balance, September 30, 2018
 
57,551,275

 
$
576

 
$
1,759,481

 
$
(241,692
)
 
$
(74,278
)
 
$
(264,888
)
 
$
1,179,199

See Notes to the Condensed Consolidated Financial Statements.

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VISTA OUTDOOR INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Three and six months ended September 29, 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 15 U.S. States, Canada, Mexico, and Puerto Rico along with international customer service, sales and sourcing operations in Asia and Europe. Vista Outdoor was incorporated in Delaware in 2014. The condensed 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 have been 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 September 29, 2019 and March 31, 2019, our results of operations for the three and six months ended September 29, 2019 and September 30, 2018, and our cash flows for the six months ended September 29, 2019 and September 30, 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 our leases. In addition, we elected the use of hindsight to determine the lease term of our leases and applied our incremental borrowing rate based on the remaining term of our 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 our 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

Table of Contents

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.

Note Receivable—In connection with the sale of our Firearms business we received a $12,000 interest-free, five-year pre-payable promissory note due June 2024. Based on the general market conditions and the credit quality of the buyer at the time of the sale, we discounted the Note Receivable at an effective interest rate of 10% and estimated fair value using a discounted cash flow approach. We consider this to be a Level 3 instrument. See Note 8, Receivables, 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 earned 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 after each milestone is achieved. The growth milestones for the first and second years have been met and therefore, we paid $3,371 during both fiscal 2019 and 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:
 
 
September 29, 2019
 
March 31, 2019
 
 
Carrying
amount
 
Fair
value
 
Carrying
amount
 
Fair
value
Fixed-rate debt
 
$
350,000

 
$
327,614

 
$
350,000

 
$
326,375

Variable-rate debt
 
235,000

 
235,000

 
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. 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
 
September 29, 2019
Assets:
 
 
 
 
Operating lease assets
 
Operating lease assets
 
$
69,105

 
 
 
 
 
Liabilities:
 
 
 
 
Current:
 
 
 
 
Operating lease liabilities
 
Other current liabilities
 
$
11,190

Long-term:
 
 
 
 
Operating lease liabilities
 
Long-term operating lease liabilities
 
74,051

Total lease liabilities
 
 
 
$
85,241


During the three months ended September 29, 2019, the Company recorded $1,069 of operating lease impairment charges related to the exit and sublease of certain real estate leases. The impairment charges were recorded within selling, general and administration expenses in the unaudited condensed consolidated statements of comprehensive income (loss).

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:
 
 
Three months ended September 29, 2019
 
Six months ended September 29, 2019
Fixed operating lease costs (1)
 
$
4,686

 
$
9,703

Variable operating lease costs
 
704

 
1,239

Sublease income
 
(192
)
 
(473
)
Net Lease costs
 
$
5,198

 
$
10,469

(1) Includes short-term leases, which are immaterial.
 
 
September 29, 2019
Weighted Average Remaining Lease Term (Years):
 
 
Operating leases
 
9.81

 
 
 
Weighted Average Discount Rate:
 
 
Operating leases
 
8.63
%


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The approximate future minimum lease payments under operating leases as of September 29, 2019 are as follows:
Remainder of fiscal 2020
 
$
9,593

Fiscal 2021
 
16,590

Fiscal 2022
 
13,275

Fiscal 2023
 
11,602

Fiscal 2024
 
10,315

Thereafter
 
69,489

Total lease payments
 
130,864

Less imputed interest
 
(45,623
)
Present value of lease liabilities
 
$
85,241


Supplemental cash flow information related to leases is as follows:
 
 
Six months ended September 29, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
 
Operating cash flows - operating leases
 
$
10,475

Right of use assets obtained in exchange for lease liabilities:
 
 
Operating leases
 
1,143


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 income (loss) 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 September 29, 2019, we had outstanding lead forward contracts on 9.4 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 six months ended September 29, 2019 were immaterial. The assets related to the lead forward contracts is immaterial and is recorded as part of other current assets.

9

Table of Contents

5. Revenue Recognition

The following tables disaggregate our net sales by major category:
 
 
Three months ended September 29, 2019
 
Three months ended September 30, 2018
 
 
Outdoor Products
 
Shooting Sports
 
Total
 
Outdoor Products
 
Shooting Sports
 
Total
Ammunition
 
$

 
$
210,172

 
$
210,172

 
$

 
$
224,481

 
$
224,481

Firearms
 

 
560

 
560

 

 
49,638

 
49,638

Hunting and Shooting Accessories
 
105,951

 

 
105,951

 
114,486

 

 
114,486

Action Sports
 
83,961

 

 
83,961

 
84,728

 

 
84,728

Outdoor Recreation
 
44,372

 

 
44,372

 
53,916

 

 
53,916

Eyewear
 

 

 

 
19,336

 

 
19,336

Total
 
$
234,284

 
$
210,732

 
$
445,016

 
$
272,466

 
$
274,119

 
$
546,585

 
 
 
 
 
 
 
 
 
 
 
 
 
Geographic Region
 
 
 
 
 
 
 
 
 
 
 
 
United States
 
$
179,211

 
$
193,258

 
$
372,469

 
$
190,687

 
$
237,228

 
$
427,915

Rest of the World
 
55,073

 
17,474

 
72,547

 
81,779

 
36,891

 
118,670

Total
 
$
234,284

 
$
210,732

 
$
445,016

 
$
272,466

 
$
274,119

 
$
546,585


 
 
Six months ended September 29, 2019
 
Six months ended September 30, 2018
 
 
Outdoor Products
 
Shooting Sports
 
Total
 
Outdoor Products
 
Shooting Sports
 
Total
Ammunition
 
$

 
$
423,982

 
$
423,982

 
$

 
$
441,603

 
$
441,603

Firearms
 

 
24,577

 
24,577

 

 
90,573

 
90,573

Hunting and Shooting Accessories
 
201,811

 

 
201,811

 
217,886

 

 
217,886

Action Sports
 
151,869

 

 
151,869

 
156,436

 

 
156,436

Outdoor Recreation
 
102,551

 

 
102,551

 
117,064

 

 
117,064

Eyewear
 

 

 

 
51,859

 

 
51,859

Total
 
$
456,231

 
$
448,559

 
$
904,790

 
$
543,245

 
$
532,176

 
$
1,075,421

 
 
 
 
 
 
 
 
 
 
 
 
 
Geographic Region
 
 
 
 
 
 
 
 
 
 
 
 
United States
 
$
351,006

 
$
402,619

 
$
753,625

 
$
387,445

 
$
469,122

 
$
856,567

Rest of the World
 
105,225

 
45,940

 
151,165

 
155,800

 
63,054

 
218,854

Total
 
$
456,231

 
$
448,559

 
$
904,790

 
$
543,245

 
$
532,176

 
$
1,075,421


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

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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.

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 three and six months ended September 29, 2019 and September 30, 2018, earnings, as reported for each respective period, is divided by the number of shares below:
 
 
Three months ended
 
Six months ended
(Amounts in thousands except per share data unless otherwise indicated)
 
September 29, 2019
 
September 30, 2018
 
September 29, 2019
 
September 30, 2018
Net income (loss)
 
$
(11,898
)
 
$
(32,818
)
 
$
(28,513
)
 
$
(85,166
)
Weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
 
   Basic EPS shares outstanding
 
57,768

 
57,528

 
57,746

 
57,492

   Dilutive effect of stock-based awards (1)
 

 

 

 

   Diluted EPS shares outstanding
 
57,768

 
57,528

 
57,746

 
57,492

Earnings (loss) per common share:
 
 

 
 

 
 
 
 
Basic
 
$
(0.21
)
 
$
(0.57
)
 
$
(0.49
)
 
$
(1.48
)
Diluted
 
$
(0.21
)
 
$
(0.57
)
 
$
(0.49
)
 
$
(1.48
)

(1) Due to the loss from continuing operations in the three and six months ended September 29, 2019 and September 30, 2018, there are no common shares added to calculate dilutive EPS because the effect would be antidilutive.

7. Divestitures and Held for Sale

On July 5, 2019, Vista Outdoor Inc. and one of its subsidiaries, Vista Outdoor Operations LLC, sold our Firearms business, which was part of our Shooting Sports segment and comprised our Firearms reporting unit, for a total purchase price of $170,000. We received cash proceeds net of transactions costs of $154,123 and $12,000 in the form of a sellers note due on July 5, 2024. See Notes 2, Fair Value of Financial Instruments and 8, Receivables for additional information. The proceeds from this sale were used to pay off the balance of our Term Loan and reduce our ABL Revolving Credit Facility.

During the three months ended September 29, 2019, we recognized a pretax loss on this divestiture of $433, which is included in other expense.

During the three months ended June 30, 2019 we recognized an impairment of $9,429 related to the expected loss on the sale of our Firearms business when it was held for sale.


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On August 31, 2018, we completed the sale of our Eyewear brands. The selling price was $158,000, subject to customary working capital adjustments. As a result of the sale, during fiscal 2019, we recorded a pretax loss of $4,925, which is included in other expense, primarily due to the final allocation of goodwill and fixed assets for the Eyewear brands. During the three months ended September 29, 2019, we received the final working capital adjustments from the buyer, and no material adjustments were made.

8. Receivables
Net receivables are summarized as follows:
 
 
September 29, 2019
 
March 31, 2019
Trade receivables
 
$
373,425

 
$
356,035

Other receivables
 
4,809

 
7,106

Less: allowance for doubtful accounts and discounts
 
(15,121
)
 
(18,892
)
Net receivables
 
$
363,113

 
$
344,249


Walmart represented 21% and 14% of the total trade receivables balance as of September 29, 2019 and March 31, 2019, respectively. No other customer represented more than 10% of our total trade receivables balance as of September 29, 2019 and March 31, 2019.
Note Receivable is summarized as follows:
 
 
September 29, 2019
 
March 31, 2019
Principal
 
$
12,000

 
$

Less: unamortized discount
 
(4,363
)
 

Note receivable, net, included within Deferred charges and other non-current assets
 
$
7,637

 
$



9. Inventories
Net inventories consist of the following:
 
 
September 29, 2019