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 July 3, 2016 | ||
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
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 Drive 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, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting 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 | |||
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 August 8, 2016, there were 60,334,620 shares of the registrant's voting common stock outstanding.
TABLE OF CONTENTS
PART I— FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VISTA OUTDOOR INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
Quarter ended | ||||||||
(Amounts in thousands except per share data) | July 3, 2016 | July 5, 2015 | ||||||
Sales, net | $ | 630,269 | $ | 514,497 | ||||
Cost of sales | 458,892 | 375,205 | ||||||
Gross profit | 171,377 | 139,292 | ||||||
Operating expenses: | ||||||||
Research and development | 7,831 | 2,355 | ||||||
Selling, general, and administrative | 104,444 | 77,954 | ||||||
Income before interest and income taxes | 59,102 | 58,983 | ||||||
Interest expense, net | (11,963 | ) | (2,569 | ) | ||||
Income before income taxes | 47,139 | 56,414 | ||||||
Income tax provision | 18,015 | 22,523 | ||||||
Net income | $ | 29,124 | $ | 33,891 | ||||
Earnings per common share: | ||||||||
Basic | $ | 0.48 | $ | 0.54 | ||||
Diluted | $ | 0.48 | $ | 0.53 | ||||
Weighted-average number of common shares outstanding: | ||||||||
Basic | 60,384 | 63,286 | ||||||
Diluted | 60,715 | 63,611 | ||||||
Net income (from above) | $ | 29,124 | $ | 33,891 | ||||
Other comprehensive (loss) income, 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 $162 and $158, respectively | (274 | ) | (267 | ) | ||||
Reclassification of net actuarial loss for pension and postretirement benefit plans recorded to net income, net of tax expense of $(734) and $(819), respectively | 1,236 | 1,381 | ||||||
Change in derivatives, net of tax benefit (expense) of $0 and $(54), respectively | — | 90 | ||||||
Change in cumulative translation adjustment, net of tax benefit of $0 and $0, respectively | (4,799 | ) | 2,670 | |||||
Total other comprehensive (loss) income | (3,837 | ) | 3,874 | |||||
Comprehensive income | $ | 25,287 | $ | 37,765 | ||||
See Notes to the Condensed Consolidated Financial Statements.
2
VISTA OUTDOOR INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Amounts in thousands except share data) | July 3, 2016 | March 31, 2016 | ||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 66,000 | $ | 151,692 | ||||
Net receivables | 519,762 | 428,398 | ||||||
Net inventories | 553,631 | 440,240 | ||||||
Other current assets | 36,337 | 29,334 | ||||||
Total current assets | 1,175,730 | 1,049,664 | ||||||
Net property, plant, and equipment | 238,282 | 203,485 | ||||||
Goodwill | 1,204,046 | 1,023,451 | ||||||
Net intangible assets | 794,720 | 650,472 | ||||||
Deferred charges and other non-current assets | 22,319 | 15,562 | ||||||
Total assets | $ | 3,435,097 | $ | 2,942,634 | ||||
LIABILITIES AND EQUITY | ||||||||
Current liabilities: | ||||||||
Current portion of long-term debt | $ | 122,000 | $ | 17,500 | ||||
Accounts payable | 139,642 | 147,738 | ||||||
Accrued compensation | 33,505 | 47,394 | ||||||
Accrued income taxes | 25,697 | 12,171 | ||||||
Federal excise tax | 28,386 | 27,701 | ||||||
Other current liabilities | 160,085 | 116,397 | ||||||
Total current liabilities | 509,315 | 368,901 | ||||||
Long-term debt | 936,299 | 652,787 | ||||||
Deferred income tax liabilities | 182,875 | 135,957 | ||||||
Accrued pension and postemployment liabilities | 72,548 | 73,503 | ||||||
Other long-term liabilities | 68,301 | 51,319 | ||||||
Total liabilities | 1,769,338 | 1,282,467 | ||||||
Commitments and contingencies (Notes 10 and 13) | ||||||||
Common stock—$.01 par value: | ||||||||
Authorized—500,000,000 shares | ||||||||
Issued and outstanding— 60,359,234 shares at July 3, 2016 and 60,825,914 shares at March 31, 2016 | 603 | 608 | ||||||
Additional paid-in capital | 1,746,469 | 1,743,371 | ||||||
Retained earnings | 195,545 | 166,421 | ||||||
Accumulated other comprehensive loss | (114,051 | ) | (110,214 | ) | ||||
Common stock in treasury, at cost— 3,605,205 shares held at July 3, 2016 and 3,138,525 shares held at March 31, 2016 | (162,807 | ) | (140,019 | ) | ||||
Total stockholders' equity | 1,665,759 | 1,660,167 | ||||||
Total liabilities and stockholders' equity | $ | 3,435,097 | $ | 2,942,634 | ||||
See Notes to the Condensed Consolidated Financial Statements.
3
VISTA OUTDOOR INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended | ||||||||
(Amounts in thousands) | July 3, 2016 | July 5, 2015 | ||||||
Operating Activities: | ||||||||
Net income | $ | 29,124 | $ | 33,891 | ||||
Adjustments to net income to arrive at cash provided by operating activities: | ||||||||
Depreciation | 13,676 | 9,255 | ||||||
Amortization of intangible assets | 10,106 | 7,302 | ||||||
Amortization of deferred financing costs | 2,172 | 538 | ||||||
Deferred income taxes | 52 | 1,005 | ||||||
Loss on disposal of property, plant, and equipment | 41 | 30 | ||||||
Stock-based compensation | 3,310 | 2,949 | ||||||
Excess tax benefits from share-based plans | — | (206 | ) | |||||
Changes in assets and liabilities, net of acquisition of businesses: | ||||||||
Net receivables | (12,908 | ) | (67,242 | ) | ||||
Net inventories | (57,697 | ) | (54,480 | ) | ||||
Accounts payable | (33,196 | ) | (728 | ) | ||||
Accrued compensation | (19,322 | ) | (4,531 | ) | ||||
Accrued income taxes | 14,396 | 13,849 | ||||||
Federal excise tax | 737 | 386 | ||||||
Pension and other postretirement benefits | 579 | 1,791 | ||||||
Other assets and liabilities | 26,772 | 14,272 | ||||||
Cash used for operating activities | (22,158 | ) | (41,919 | ) | ||||
Investing Activities: | ||||||||
Capital expenditures | (21,006 | ) | (10,557 | ) | ||||
Acquisition of businesses, net of cash acquired | (405,943 | ) | — | |||||
Proceeds from the disposition of property, plant, and equipment | 34 | 20 | ||||||
Cash used for investing activities | (426,915 | ) | (10,537 | ) | ||||
Financing Activities: | ||||||||
Borrowings on line of credit | 115,000 | — | ||||||
Payments on line of credit | (25,000 | ) | — | |||||
Proceeds from issuance of long-term debt | 307,500 | — | ||||||
Payments made on long-term debt | (8,000 | ) | (4,375 | ) | ||||
Payments made for debt issuance costs | (3,660 | ) | — | |||||
Purchase of treasury shares | (22,058 | ) | (23,743 | ) | ||||
Excess tax benefits from share-based plans | — | 206 | ||||||
Proceeds from employee stock compensation plans | — | 438 | ||||||
Cash provided by (used for) financing activities | 363,782 | (27,474 | ) | |||||
Effect of foreign exchange rate fluctuations on cash | (401 | ) | 254 | |||||
Decrease in cash and cash equivalents | (85,692 | ) | (79,676 | ) | ||||
Cash and cash equivalents at beginning of period | 151,692 | 263,951 | ||||||
Cash and cash equivalents at end of period | $ | 66,000 | $ | 184,275 | ||||
Supplemental Cash Flow Disclosures: | ||||||||
Noncash investing activity: | ||||||||
Capital expenditures included in accounts payable | $ | 2,065 | $ | 1,274 | ||||
Noncash financing activity: | ||||||||
Treasury Shares purchased included in other accrued liabilities | $ | 998 | $ | 941 | ||||
See Notes to the Condensed Consolidated Financial Statements.
4
VISTA OUTDOOR INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock $.01 Par Value | |||||||||||||||||||||||||||
(Amounts in thousands except share data) | Shares | Amount | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock | Total Equity | ||||||||||||||||||||
Balance, March 31, 2015 | 63,878,499 | $ | 639 | $ | 1,742,125 | $ | 19,384 | $ | (110,303 | ) | $ | (3,081 | ) | $ | 1,648,764 | ||||||||||||
Comprehensive income | — | — | — | 33,891 | 3,874 | — | 37,765 | ||||||||||||||||||||
Exercise of stock options | 20,078 | — | (426 | ) | — | — | 864 | 438 | |||||||||||||||||||
Restricted stock grants net of forfeitures | 44,050 | — | (1,880 | ) | — | — | 1,880 | — | |||||||||||||||||||
Share-based compensation | — | — | 2,944 | — | — | — | 2,944 | ||||||||||||||||||||
Restricted stock vested and shares withheld | (22,019 | ) | — | 955 | — | — | (955 | ) | — | ||||||||||||||||||
Treasury stock purchased | (511,814 | ) | — | — | — | — | (22,908 | ) | (22,908 | ) | |||||||||||||||||
Employee plans and other | — | — | — | — | — | (3 | ) | (3 | ) | ||||||||||||||||||
Tax benefit related to share based plans and other | — | (5 | ) | 206 | — | — | — | 201 | |||||||||||||||||||
Contributions from former parent | — | — | (785 | ) | — | — | — | (785 | ) | ||||||||||||||||||
Balance, July 5, 2015 | 63,408,794 | $ | 634 | $ | 1,743,139 | $ | 53,275 | $ | (106,429 | ) | $ | (24,203 | ) | $ | 1,666,416 | ||||||||||||
Balance, March 31, 2016 | 60,825,914 | $ | 608 | $ | 1,743,371 | $ | 166,421 | $ | (110,214 | ) | $ | (140,019 | ) | $ | 1,660,167 | ||||||||||||
Comprehensive income (loss) | — | — | — | 29,124 | (3,837 | ) | — | 25,287 | |||||||||||||||||||
Exercise of stock options | — | — | — | — | — | — | — | ||||||||||||||||||||
Restricted stock grants net of forfeitures | (11,344 | ) | — | (141 | ) | — | — | 37 | (104 | ) | |||||||||||||||||
Share-based compensation | — | — | 3,310 | — | — | — | 3,310 | ||||||||||||||||||||
Restricted stock vested and shares withheld | 912 | — | (71 | ) | — | — | (548 | ) | (619 | ) | |||||||||||||||||
Treasury stock purchased | (461,525 | ) | — | — | — | — | (22,277 | ) | (22,277 | ) | |||||||||||||||||
Contribution from former parent and other | 5,277 | (5 | ) | — | — | — | — | (5 | ) | ||||||||||||||||||
Balance, July 3, 2016 | 60,359,234 | $ | 603 | $ | 1,746,469 | $ | 195,545 | $ | (114,051 | ) | $ | (162,807 | ) | $ | 1,665,759 | ||||||||||||
See Notes to the Condensed Consolidated Financial Statements.
5
VISTA OUTDOOR INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Quarter ended July 3, 2016
(Amounts in thousands 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 growing 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, Europe, and New Zealand. 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 fiscal 2016 financial statements as filed on Form 8-K on August 10, 2016.
Basis of Presentation. Our unaudited condensed consolidated financial statements have been prepared in accordance with the requirements of the SEC for interim reporting. As permitted under those rules, certain disclosures and other financial information that are normally 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 the fiscal year ended March 31, 2016 (“fiscal 2016”). Management is responsible for the condensed consolidated financial statements included in this document, which are unaudited but, in the opinion of management, include all adjustments necessary for a fair presentation of our financial position as of July 3, 2016 and March 31, 2016, and our results of operations and cash flows for the quarters ended July 3, 2016 and July 5, 2015.
New Accounting Pronouncements.
On February 25, 2016, the FASB issued ASU 2016-02, Leases. The new guidance was issued to increase transparency and comparability among companies by requiring most leases be included on the balance sheet and by expanding disclosure requirements. Based on the current effective dates, the new guidance would first apply in the first quarter of our fiscal 2020. We are still in the process of evaluating the effect of adoption on our financial statements.
On March 30, 2016, the FASB issued Accounting Standard Update No. 2016-09 Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for employee share-based payment transactions including the accounting for income taxes, forfeitures and classification in the statement of cash flows. The standard allows for early adoption. As of March 31, 2016 we have elected to early adopt this standard and prospectively present the change to the financial statements given the immaterial nature of the prior period balances.
There are no other new accounting pronouncements that are expected to have a significant impact on our condensed 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 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.
6
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands unless otherwise indicated)
2. Fair Value of Financial Instruments (Continued)
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 long-term debt is based on market quotes for the outstanding notes. We have considered these to be Level 2 instruments.
Contingent Consideration—The acquisition-related contingent consideration liability represents the estimated fair value of additional future earn-outs payable for acquisitions of businesses that included earn-out clauses. The valuation of the contingent consideration will be evaluated on an ongoing basis and is based on management estimates and entity-specific assumptions which are considered Level 3 inputs. See Note 4 for further details.
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:
July 3, 2016 | March 31, 2016 | |||||||||||||||
Carrying amount | Fair value | Carrying amount | Fair value | |||||||||||||
Fixed-rate debt | $ | 350,000 | $ | 365,750 | $ | 350,000 | $ | 366,625 | ||||||||
Variable-rate debt | 722,000 | 722,000 | 332,500 | 332,500 | ||||||||||||
3. 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 July 3, 2016 and July 5, 2015, earnings, as reported for each respective period, is divided by (in thousands):
Quarter ended | ||||||
July 3, 2016 | July 5, 2015 | |||||
Basic EPS shares outstanding | 60,384 | 63,286 | ||||
Dilutive effect of stock-based awards | 331 | 325 | ||||
Diluted EPS shares outstanding | 60,715 | 63,611 | ||||
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 | 71 | 122 | ||||
Share Repurchases
On February 25, 2015, our Board of Directors authorized a new share repurchase program of up to $200,000 worth of shares of our common stock, executable over two years. The shares may 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 allows us to make repurchases under Rule 10b5-1 of the Securities Exchange Act of 1934. During the quarters ended July 3, 2016 and July 5, 2015, we repurchased 461,525 shares for $22,277 and 512,000 shares for $22,900, respectively. Since the inception of the program through July 3, 2016, we have repurchased 3,802,611 shares for $171,347.
Any additional repurchases would be subject to market conditions and our compliance with our debt covenants.
7
NOTES TO THE CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands unless otherwise indicated)
4. Acquisitions
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. The acquisition includes brands Bell, Giro, Blackburn, CoPilot, Krash, and Raskullz. Under the terms of the transaction, we paid $400,000 utilizing cash on hand and borrowings under our existing credit facilities, subject to customary working capital adjustments, and additional contingent consideration payable if 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 utilizing the Black Scholes option pricing model; the total amount paid may differ from this value. The option pricing model requires us to make assumptions including the risk-free rate, expected volatility, cash flows, and expected life. The risk-free rate is based on U.S. Treasury zero-coupon issues with a remaining term that approximates the expected life assumed at the date of 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 three years. The discounted cash flows are based on our estimates of future performance of the business.
Action Sports remains headquartered in Scotts Valley, California and operates facilities in the U.S., Canada, Europe and Asia. The acquisition of Action Sports includes more than 600 employees worldwide. The preliminary purchase price allocation is subject to further refinement and may require significant adjustments to arrive at the final purchase price allocation. A portion of the goodwill generated in this acquisition will be deductible for tax purposes.
Acquisition of CamelBak Products
On August 3, 2015, we completed the acquisition of CamelBak Products, LLC ("CamelBak") for total consideration of $412,500, subject to a customary working capital adjustment, utilizing cash on hand and borrowings under our existing credit facilities. CamelBak is the leading provider of personal hydration solutions for outdoor, recreation and military use. CamelBak’s products include hydration packs, reusable bottles and individual purification and filtration systems. The preliminary purchase price allocation is subject to further refinement and may require significant adjustments to arrive at the final purchase price allocation. A portion of the goodwill generated in this acquisition will be deductible for tax purposes.
Acquisition of Jimmy Styks
On July 20, 2015, we completed the acquisition of Jimmy Styks, LLC ("Jimmy Styks"), using $40,000 of cash on hand with additional contingent consideration payable if incremental profitability growth milestones are achieved over the next three years. We determined a value of the future contingent consideration as of the acquisition date of $4,471 utilizing the Black Scholes option pricing model; the total amount paid may differ from this value. The option pricing model requires us to make assumptions including the risk-free rate, expected volatility, cash flows, and expected life. The risk-free rate is based on U.S. Treasury zero-coupon issues with a remaining term that approximates the expected life assumed at the date of 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 three years. The discounted cash flows are based on our estimates of future performance of the business. As of July 3, 2016, the value of the future contingent consideration was $1,075. The reduction from the original estimate was primarily a result of not achieving the first growth milestone.
Jimmy Styks is a leading designer and marketer of stand up paddle boards and related accessories. Jimmy Styks’ stand up paddle board portfolio provides easy-to-use platforms for water sport enthusiasts engaging in activities ranging from personal fitness to fishing and will help us expand our Outdoor Products operating segment. Jimmy Styks offers nearly 30 SKUs in epoxy, inflatable, soft and thermoform boards, as well as accessories. The preliminary purchase price allocation is subject to further refinement and may require significant adjustments to arrive at the final purchase price allocation. The majority of the goodwill generated in this acquisition will be deductible for tax purposes. Jimmy Styks is an immaterial acquisition to our company.
Current quarter results for acquisitions
For the quarter ended July 3, 2016, Vista Outdoor recorded sales of approximately $134,070 and gross profit of approximately $42,329, associated with the operations of these acquired businesses and reflected in the Outdoor Products segment results.
8
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands unless otherwise indicated)
4. Acquisitions (Continued)
Preliminary Allocation of Consideration Transferred to Net Assets Acquired for Action Sports and CamelBak:
The following amounts represent the preliminary determination of the fair value of identifiable assets acquired and liabilities assumed from the Action Sports and CamelBak acquisitions. The final determination of the fair value of certain assets and liabilities will be completed within the required measurement period, which will be no later than 12 months from the date of acquisition. The size and breadth of the Action Sports and CamelBak acquisitions will necessitate the use of this measurement period to adequately analyze and assess a number of the factors used in establishing the asset and liability fair values as of the acquisition date, including the significant contractual and operational factors underlying the trade name and customer relationship intangible assets and the related tax impacts of any changes made. Any potential adjustments made could be material in relation to the preliminary values presented below:
Action Sports Preliminary Purchase Price Allocation:
April 1, 2016 | ||||||||
Purchase price net of cash acquired: | ||||||||
Cash paid | $ | 400,000 | ||||||
Estimated earnout value | 4,272 | |||||||
Cash paid for working capital | 1,671 | |||||||
Total purchase price | 405,943 | |||||||
Fair value of assets acquired: | ||||||||
Receivables | $ | 79,328 | ||||||
Inventories | 56,527 | |||||||
Tradename, customer relationship, and technology intangibles | 155,100 | |||||||
Property, plant, and equipment | 34,114 | |||||||
Other assets | 7,270 | |||||||
Total assets | 332,339 | |||||||
Fair value of liabilities assumed: | ||||||||
Accounts payable | 30,240 | |||||||
Deferred tax liabilities | 46,393 | |||||||
Other liabilities | 32,816 | |||||||
Total liabilities | 109,449 | |||||||
Net assets acquired | 222,890 | |||||||
Goodwill | $ | 183,053 | ||||||
9
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands unless otherwise indicated)
4. Acquisitions (Continued)
CamelBak Preliminary Purchase Price Allocation:
August 3, 2015 | ||||||||
Purchase price net of cash acquired: | ||||||||
Cash paid | $ | 412,500 | ||||||
Cash paid for working capital | 9,810 | |||||||
Total purchase price | 422,310 | |||||||
Fair value of assets acquired: | ||||||||
Receivables | $ | 30,093 | ||||||
Inventories | 30,916 | |||||||
Tradename, customer relationship, and technology intangibles | 133,800 | |||||||
Property, plant, and equipment | 7,985 | |||||||
Other assets | 6,902 | |||||||
Total assets | 209,696 | |||||||
Fair value of liabilities assumed: | ||||||||
Accounts payable | 8,219 | |||||||
Other liabilities | 8,024 | |||||||
Total liabilities | 16,243 | |||||||
Net assets acquired | 193,453 | |||||||
Goodwill | $ | 228,857 | ||||||
Intangible assets above include:
Value | Useful life (years) | ||||||
Action Sports | |||||||
Indefinite lived tradenames | $ | 76,700 | Indefinite | ||||
Definite lived tradenames | 1,400 | 15 | |||||
Customer relationships | 74,700 | 15-20 | |||||
Technology | 2,300 | 10 | |||||
CamelBak | |||||||
Indefinite lived tradename | $ | 79,400 | Indefinite | ||||
Customer relationships | 49,400 | 10-20 | |||||
Technology | 5,000 | 7-17 | |||||
10
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands unless otherwise indicated)
4. Acquisitions (Continued)
Supplemental Pro Forma Data for Action Sports and CamelBak:
We used the acquisition method of accounting to account for these acquisitions and, accordingly, the results of Action Sports and CamelBak are included in our consolidated financial statements for the period subsequent to the date of acquisition. The following unaudited supplemental pro forma data for the quarters ended July 3, 2016 and July 5, 2015 present consolidated information as if the CamelBak acquisition had been completed on April 1, 2014 and the Action Sports acquisition had been completed on April 1, 2015. The pro forma results were calculated by combining our results with the standalone results of Action Sports and CamelBak for the pre-acquisition periods, which were adjusted to account for certain costs which would have been incurred during this pre-acquisition period:
Quarter ended | ||||||||
(Amounts in thousands except per share data) | July 3, 2016 | July 5, 2015 | ||||||
Sales | $ | 630,269 | $ | 640,250 | ||||
Net income | 29,564 | 36,464 | ||||||
Basic earnings per common share | 0.49 | 0.58 | ||||||
Diluted earnings per common share | 0.49 | 0.57 | ||||||
The unaudited supplemental pro forma data above include the following significant non-recurring adjustments made to account for certain costs which would have been incurred if the CamelBak acquisition had been completed on April 1, 2014 and the Action Sports acquisition had been completed on April 1, 2015, as adjusted for the applicable tax impact:
Quarter ended | ||||||||
July 3, 2016 | July 5, 2015 | |||||||
Inventory step-up, net(1) | $ | (502 | ) | $ | 502 | |||
Fees for advisory, legal, accounting services(2) | (946 | ) | 946 | |||||
(1) Adjustment reflects the increased cost of goods sold expense resulting from the fair value step-up in inventory of $817 which was expensed over the first inventory cycle.
(2) We removed the fees that were incurred in connection with the acquisition of Action Sports from fiscal 2017 and considered those fees as incurred during the first quarter of fiscal 2016. Costs were recorded in Selling, general, and administrative expense. We have incurred total of $2,837 in fees in connection with the acquisition of Action Sports during fiscal 2016 and 2017.
5. Net Receivables
Net receivables are summarized as follows:
July 3, 2016 | March 31, 2016 | |||||||
Trade receivables | $ | 535,505 | $ | 446,032 | ||||
Other receivables | 2,315 | 1,778 | ||||||
Less allowance for doubtful accounts and discounts | (18,058 | ) | (19,412 | ) | ||||
Net receivables | $ | 519,762 | $ | 428,398 | ||||
One customer represented 16% and 13% of the total trade receivables balance as of July 3, 2016 and March 31, 2016, respectively.
11
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
6. Net Inventories
Net inventories consist of the following:
July 3, 2016 | March 31, 2016 | |||||||
Raw materials | $ | 103,504 | $ | 91,898 | ||||
Work in process | 60,618 | 61,864 | ||||||
Finished goods | 389,509 | 286,478 | ||||||
Net inventories | $ | 553,631 | $ | 440,240 | ||||
7. Accumulated Other Comprehensive Loss
The components of AOCL, net of income taxes, are as follows:
July 3, 2016 | March 31, 2016 | |||||||
Pension and other postretirement benefits | $ | (62,705 | ) | $ | (63,667 | ) | ||
Cumulative translation adjustment | (51,346 | ) | (46,547 | ) | ||||
Total AOCL | $ | (114,051 | ) | $ | (110,214 | ) | ||
The following table summarizes the changes in the balance of AOCL, net of income tax:
Quarter ended July 3, 2016 | |||||||||||
Pension and other postretirement benefits | Cumulative translation adjustment | Total | |||||||||
Beginning balance in AOCL | $ | (63,667 | ) | $ | (46,547 | ) | $ | (110,214 | ) | ||
Net actuarial losses reclassified from AOCL (1) | 1,236 | — | 1,236 | ||||||||
Prior service costs reclassified from AOCL (1) | (274 | ) | — | (274 | ) | ||||||
Net change in cumulative translation adjustment | — | (4,799 | ) | (4,799 | ) | ||||||
Ending balance in AOCL | $ | (62,705 | ) | $ | (51,346 | ) | $ | (114,051 | ) | ||
(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. |
Quarter ended July 5, 2015 | |||||||||||||||
Derivatives | Pension and other postretirement benefits | Cumulative translation adjustment | Total | ||||||||||||
Beginning balance in AOCL | $ | — | $ | (58,155 | ) | $ | (52,148 | ) | $ | (110,303 | ) | ||||
Net increase in fair value of derivatives | 97 | — | — | 97 | |||||||||||
Net losses reclassified from AOCL, offsetting the price paid to suppliers (1) | (7 | ) | — | — | (7 | ) | |||||||||
Net actuarial losses reclassified from AOCL (2) | — | 1,381 | — | 1,381 | |||||||||||
Prior service costs reclassified from AOCL (2) | — | (267 | ) | — | (267 | ) | |||||||||
Net change in cumulative translation adjustment | — | — | 2,670 | 2,670 | |||||||||||
Ending balance in AOCL | $ | 90 | $ | (57,041 | ) | $ | (49,478 | ) | $ | (106,429 | ) | ||||
(1) Amounts related to our derivative instruments that were reclassified from AOCL and recorded as a component of cost of sales.
(2) Amounts related to our pension and other postretirement benefits that were reclassified from AOCL were recorded as a component of net periodic benefit cost for each period presented.
12
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands unless otherwise indicated)
8. 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, 2016 | $ | 818,560 | $ | 204,891 | $ | 1,023,451 | ||||||
Acquisition | 183,053 | — | 183,053 | |||||||||
Effect of foreign currency exchange rates | (2,467 | ) | 9 | (2,458 | ) | |||||||
Balance, July 3, 2016 | $ | 999,146 | $ | 204,900 | $ | 1,204,046 | ||||||
The acquisition in Outdoor Products related to the preliminary purchase price allocation for Action Sports as previously discussed.
The goodwill recorded within Outdoor Products and Shooting Sports segments are presented net of $47,791 and $41,020 of accumulated impairment losses, respectively.
Net intangibles consisted of the following:
July 3, 2016 | March 31, 2016 | |||||||||||||||||||||||
Gross carrying amount | Accumulated amortization | Total | Gross carrying amount | Accumulated amortization | Total | |||||||||||||||||||
Trade names | $ | 186,562 | $ | (49,945 | ) | $ | 136,617 | $ | 185,162 | $ | (46,812 | ) | $ | 138,350 | ||||||||||
Patented technology | 30,200 | (10,406 | ) | 19,794 | 27,900 | (9,949 | ) | 17,951 | ||||||||||||||||
Customer relationships and other | 346,341 | (57,229 | ) | 289,112 | 272,431 | (50,757 | ) | 221,674 | ||||||||||||||||
Total | 563,103 | (117,580 | ) | 445,523 | 485,493 | (107,518 | ) | 377,975 | ||||||||||||||||
Non-amortizing trade names | 349,197 | — | 349,197 | 272,497 | — | 272,497 | ||||||||||||||||||
Net intangibles | $ | 912,300 | $ | (117,580 | ) | $ | 794,720 | $ | 757,990 | $ | (107,518 | ) | $ | 650,472 | ||||||||||
The gross amount of amortizable and non-amortizable intangible assets increased from March 31, 2016 due to the acquisition of Action Sports. The assets in the table above are being amortized using a straight-line method over a weighted average remaining period of approximately 12.5 years. Amortization expense for the quarters ended July 3, 2016 and July 5, 2015 was $10,106 and $7,302, respectively. We expect amortization expense related to these assets to be as follows:
Remainder of fiscal 2017 | $ | 30,561 | ||
Fiscal 2018 | 40,748 | |||
Fiscal 2019 | 38,004 | |||
Fiscal 2020 | 37,121 | |||
Fiscal 2021 | 37,054 | |||
Thereafter | 262,035 | |||
Total | $ | 445,523 | ||
13
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands unless otherwise indicated)
9. Other Current and Non-current Liabilities
Other current and non-current liabilities consisted of the following:
July 3, 2016 | March 31, 2016 | |||||||
Other current liabilities: | ||||||||
In-transit inventory and other | $ | 85,145 | $ | 40,242 | ||||
Rebate | 28,127 | 17,957 | ||||||
Employee benefits and insurance | 12,312 | 11,131 | ||||||
Accrued advertising | 12,140 | 10,315 | ||||||
Warranty | 8,036 | 8,611 | ||||||
Interest | 5,471 | 13,157 | ||||||
Freight accrual | 2,459 | 2,446 | ||||||
Customer obligations | 2,501 | 9,613 | ||||||
Product liability | 2,043 | 1,622 | ||||||
Accrued taxes | 1,851 | 1,303 | ||||||
Total other current liabilities | $ | 160,085 | $ | 116,397 | ||||
Other non-current liabilities: | ||||||||
Non-current portion of accrued income tax liability | $ | 26,225 | $ | 25,421 | ||||
Product liability | 5,525 | — | ||||||
Contingent consideration | 5,347 | 4,471 | ||||||
Management non-qualified deferred compensation plan | 2,949 | 2,668 | ||||||
Environmental remediation | 740 | 745 | ||||||
Other | 27,515 | 18,014 | ||||||
Total other non-current liabilities | $ | 68,301 | $ | 51,319 | ||||
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 a lifetime. The estimated costs of such product warranties are recorded at the time the sale is recorded based upon actual past experience, our current production environment as well as specific and identifiable warranties as applicable. The warranty liability recorded at each balance sheet date reflects the estimated liability for warranty coverage for products delivered based on historical information and current trends. The following is a reconciliation of the changes in our product warranty liability during the period presented:
Balance, March 31, 2016 | $ | 8,611 | |
Payments made | (571 | ) | |
Warranties issued | 146 | ||
Changes related to preexisting warranties | (150 | ) | |
Balance, July 3, 2016 | $ | 8,036 | |
14
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
10. Long-term Debt
Long-term debt, including the current portion, consisted of the following:
July 3, 2016 | March 31, 2016 | |||||||
Senior Credit Facility: | ||||||||
Term Loan | $ | 632,000 | $ | 332,500 | ||||
Revolving Credit Facility | 90,000 | — | ||||||
Total principal amount of Credit Agreement | 722,000 | 332,500 | ||||||
5.875% Senior Notes due 2023 | 350,000 | 350,000 | ||||||
Principal amount of long-term debt | 1,072,000 | 682,500 | ||||||
Less: Unamortized deferred financing costs | 13,701 | 12,213 | ||||||
Carrying amount of long-term debt | 1,058,299 | 670,287 | ||||||
Less: current portion | 122,000 | 17,500 | ||||||
Carrying amount of long-term debt, excluding current portion | $ | 936,299 | $ | 652,787 | ||||
Credit Agreement
On April 1, 2016, we entered into an Amended and Restated Credit Agreement (the “2016 Credit Agreement”), which replaced our 2014 Credit Agreement. The 2016 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. Borrowings under the 2016 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 2016 Credit Agreement. Based on the ratio in effect as of July 3, 2016, the base rate margin was 0.50% and the Eurodollar margin was 1.50%. The interest rate for the Term Loan as of July 3, 2016 was 1.96%. 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 0.25%. As of July 3, 2016, we had $90,000 in borrowings against our $400,000 Revolving Credit Facility and had outstanding letters of credit of $29,172, which reduced amounts available on the Revolving Credit Facility to $280,828.
With the exception of Action Sports and its subsidiaries, substantially all domestic tangible and intangible assets of Vista Outdoor and its subsidiaries and by Advanced Arrow S. de R.L. de C.V. and Hydrosport, S. de R.L. de C.V. are pledged as collateral under the 2016 Credit Agreement. The domestic tangible and intangible assets of Action Sports and its subsidiaries are expected to be pledged as collateral during fiscal 2017. Debt issuance costs of approximately $12,000 are being amortized over the term of the 2016 Credit Agreement.
In fiscal 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 in the quarter ended July 3, 2016.
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.
15
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
10. Long-term Debt (Continued)
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 with the exception of the Action Sports subsidiaries, and by Advanced Arrow S. de R.L. de C.V. and Hydrosport, S. de R.L. de C.V., as described above. Vista Outdoor (the parent company issuer) has no independent assets or operations. We own 100% of all of these guarantor subsidiaries. The 5.875% Notes are senior unsecured obligations and will rank equally in right of payment with any future senior unsecured indebtedness and senior in right of payment to any future subordinated indebtedness. The 5.875% Notes are fully and unconditionally guaranteed, jointly and severally, by our existing and future domestic subsidiaries that guarantee indebtedness under our Credit Agreement or that guarantee certain of our other indebtedness, or indebtedness of any subsidiary guarantor, in an aggregate principal amount in excess of $50,000. These guarantees are senior unsecured obligations of the applicable subsidiary guarantors. The guarantee by any subsidiary guarantor of our obligations in respect of the 5.875% Notes will be released in any of the following circumstances:
• | if, as a result of the sale of its capital stock, such subsidiary guarantor ceases to be a restricted subsidiary; |
• | if such subsidiary guarantor is designated as an “Unrestricted Subsidiary;” |
• | upon defeasance or satisfaction and discharge of the 5.875% Notes; or |
• | if such subsidiary guarantor has been released from its guarantees of indebtedness under the Credit Agreement and all capital markets debt securities. |
The guarantee by any subsidiary guarantor of our obligations in respect of the 2016 Credit Agreement
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 subsidiary; |
• | if such subsidiary guarantor ceases to be a Domestic Subsidiary; or |
• | upon repayment of all obligations under the Credit Agreement. |
Cash Paid for Interest on Debt
Cash paid for interest on debt, including commitment fees, for the quarters ended July 3, 2016 and July 5, 2015 totaled $17,236 and $2,407, respectively.
11. Employee Benefit Plans
The total expense for employee benefit plans for the quarters ended July 3, 2016 and July 5, 2015 was $1,690 and $1,825, respectively.
Employer Contributions. During the quarter ended July 3, 2016, we made the legally required minimum contribution of $1,100 directly to the pension trust, $12 directly to retirees under the non-qualified supplemental executive retirement plan and no contributions to our other postretirement benefit plans. During the quarter ended July 5, 2015, we made no contributions directly to the pension trust, to retirees under the non-qualified supplemental executive retirement plan, and to our other postretirement benefit plans. We also expect to contribute an additional $3,300 directly to the pension trust and distribute approximately $688 directly to retirees under our supplemental executive retirement plans, and to contribute approximately $174 to our other postretirement benefit plans during the remainder of fiscal 2017.
12. 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 July 3, 2016 and July 5, 2015 represent effective tax rates of 38.2% and 39.9%, respectively. The decrease in the rate from the prior year quarter is primarily caused by a one-time discrete revaluation of a deferred tax asset in the prior year partially offset by nondeductible acquisition costs in the current year.
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
16
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands unless otherwise indicated)
12. Income Taxes (Continued)
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 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 as 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 are filing 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 2009. The IRS has completed the audits of Orbital ATK through fiscal year 2012 and is currently auditing Orbital ATK's tax returns for fiscal years 2013 and 2014. 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 audit settlements are uncertain, it is reasonably possible that a $5,470 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 $4,624.
13. 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 also have been identified as a potentially responsible party (“PRP”), along with other parties, in a regulatory agency action associated with hazardous waste sites. As a PRP, we may be required to pay a share of the costs of the investigation and clean-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 $765 as of July 3, 2016 and March 31, 2016.
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.
14. 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 Vista Outdoor's domestic subsidiaries with the exception of the Action Sports 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. In conjunction with the registration of the 5.875% Notes the consolidating financial information of the guarantor and non-guarantor subsidiaries is presented on the following pages.
17
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands unless otherwise indicated)
14. Condensed Consolidating Financial Statements (Continued)
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. |
VISTA OUTDOOR INC.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(unaudited)
Quarter ended July 3, 2016 | ||||||||||||||||||||
(Amounts in thousands except per share data) | Parent Issuer | Guarantors | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||
Sales, net | $ | — | $ | 517,190 | $ | 136,718 | $ | (23,639 | ) | $ | 630,269 | |||||||||
Cost of sales | — | 385,115 | 97,176 | (23,399 | ) | 458,892 | ||||||||||||||
Gross profit | — | 132,075 | 39,542 | (240 | ) | 171,377 | ||||||||||||||
Operating expenses: | ||||||||||||||||||||
Research and development | — | 4,343 | 3,488 | — | 7,831 | |||||||||||||||
Selling, general, and administrative | — | 73,833 | 30,611 | — | 104,444 | |||||||||||||||
Income before interest and income taxes | — | 53,899 | 5,443 | (240 | ) | 59,102 | ||||||||||||||
Equity in income of subsidiaries | 36,601 | 3,837 | — | (40,438 | ) | — | ||||||||||||||
Interest expense, net | (11,963 | ) | — | — | — | (11,963 | ) | |||||||||||||
Income before income taxes | 24,638 | 57,736 | 5,443 | (40,678 | ) | 47,139 | ||||||||||||||
Income tax provision | (4,486 | ) | 21,135 | 1,449 | (83 | ) | 18,015 | |||||||||||||
Net income | $ | 29,124 | $ | 36,601 | $ | 3,994 | $ | (40,595 | ) | $ | 29,124 | |||||||||
Other comprehensive (loss) income, net of tax: | ||||||||||||||||||||
Net income (from above) | $ | 29,124 | $ | 36,601 | $ | 3,994 | $ | (40,595 | ) | $ | 29,124 | |||||||||
Total other comprehensive (loss) income | (3,837 | ) | (3,837 | ) | (4,799 | ) | 8,636 | (3,837 | ) | |||||||||||
Comprehensive (loss) income | $ | 25,287 | $ | 32,764 | $ | (805 | ) | $ | (31,959 | ) | $ | 25,287 | ||||||||
18
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands unless otherwise indicated)
14. Condensed Consolidating Financial Statements (Continued)
VISTA OUTDOOR INC.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(unaudited)
Quarter ended July 5, 2015 | ||||||||||||||||||||
(Amounts in thousands except per share data) | Parent Issuer | Guarantors | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||
Sales, net | $ | — | $ | 477,628 | $ | 60,626 | $ | (23,757 | ) | $ | 514,497 | |||||||||
Cost of sales | — | 359,532 | 39,725 | (24,052 | ) | 375,205 | ||||||||||||||
Gross profit | — | 118,096 | 20,901 | 295 | 139,292 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Research and development | — | 2,355 | — | — | 2,355 | |||||||||||||||
Selling, general, and administrative | — | 64,689 | 13,265 | — | 77,954 | |||||||||||||||
Income before interest and income taxes | — | 51,052 | 7,636 | 295 | 58,983 | |||||||||||||||
Equity in income of subsidiaries | 35,497 | 5,569 | — | (41,066 | ) | — | ||||||||||||||
Interest expense, net | (2,569 | ) | — | — | — | (2,569 | ) | |||||||||||||
Income before income taxes | 32,928 | 56,621 | 7,636 | (40,771 | ) | 56,414 | ||||||||||||||
Income tax provision | (963 | ) | 21,124 | 2,250 | 112 | 22,523 | ||||||||||||||
Net income | $ | 33,891 | $ | 35,497 | $ | 5,386 | $ | (40,883 | ) | $ | 33,891 | |||||||||
Other comprehensive income, net of tax: | ||||||||||||||||||||
Net income (from above) | $ | 33,891 | $ | 35,497 | $ | 5,386 | $ | (40,883 | ) | $ | 33,891 | |||||||||
Total other comprehensive income | 3,874 | 3,874 | 2,670 | (6,544 | ) | 3,874 | ||||||||||||||
Comprehensive income | $ | 37,765 | $ | 39,371 | $ | 8,056 | $ | (47,427 | ) | $ | 37,765 | |||||||||
19
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands unless otherwise indicated)
14. Condensed Consolidating Financial Statements (Continued)
VISTA OUTDOOR INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
July 3, 2016 | ||||||||||||||||||||
(Amounts in thousands except share data) | Parent Issuer | Guarantors | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 32,421 | $ | 33,579 | $ | — | $ | 66,000 | ||||||||||
Net receivables | — | 399,000 | 120,762 | — | 519,762 | |||||||||||||||
Due from affiliates, current | — | 17,240 | — | (17,240 | ) | — | ||||||||||||||
Net inventories | — | 439,091 | 119,074 | (4,534 | ) | 553,631 | ||||||||||||||
Other current assets | — | 28,352 | 7,985 | — | 36,337 | |||||||||||||||
Total current assets | — | 916,104 | 281,400 | (21,774 | ) | 1,175,730 | ||||||||||||||
Net property, plant, and equipment | — | 194,981 | 43,301 | 238,282 | ||||||||||||||||
Investment in subsidiaries | 2,963,535 | 45,541 | — | (3,009,076 | ) | — | ||||||||||||||
Goodwill | — | 911,715 | 292,331 | — | 1,204,046 | |||||||||||||||
Net intangible assets | — | 605,684 | 189,036 | — | 794,720 | |||||||||||||||
Long-term due from affiliates | — | 278,899 | — | (278,899 | ) | — | ||||||||||||||
Deferred charges and other non-current assets | — | 14,543 | 7,776 | — | 22,319 | |||||||||||||||
Total assets | $ | 2,963,535 | $ | 2,967,467 | $ | 813,844 | $ | (3,309,749 | ) | $ | 3,435,097 | |||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Current portion of long-term debt | $ | 122,000 | $ | — | $ | — | $ | — | $ | 122,000 | ||||||||||
Accounts payable | — | 93,035 | 46,607 | — | 139,642 | |||||||||||||||
Due to affiliates, current | — | — | 17,240 | (17,240 | ) | — | ||||||||||||||
Accrued compensation | — | 26,779 | 6,726 | — | 33,505 | |||||||||||||||
Accrued income taxes | — | 26,010 | (313 | ) | — | 25,697 | ||||||||||||||
Federal excise tax | — | 26,608 | 1,778 | — | 28,386 | |||||||||||||||
Other current liabilities | — | 134,774 | 25,311 | — | 160,085 | |||||||||||||||
Total current liabilities | 122,000 | 307,206 | 97,349 | (17,240 | ) | 509,315 | ||||||||||||||
Long-term debt | 936,299 | — | — | — | 936,299 | |||||||||||||||
Deferred income tax liabilities | — | 174,842 | 8,116 | (83 | ) | 182,875 | ||||||||||||||
Accrued pension and postemployment liabilities | — | 72,548 | — | — | 72,548 | |||||||||||||||
Long-term due to affiliates | 239,470 | — | 39,429 | (278,899 | ) | — | ||||||||||||||
Other long-term liabilities | — | 52,734 | 15,567 | — | 68,301 | |||||||||||||||
Total liabilities | 1,297,769 | 607,330 | 160,461 | (296,222 | ) | 1,769,338 | ||||||||||||||
Equity | ||||||||||||||||||||
Total stockholders' equity | 1,665,766 | 2,360,137 | 653,383 | (3,013,527 | ) | 1,665,759 | ||||||||||||||
Total liabilities and stockholders' equity | $ | 2,963,535 | $ | 2,967,467 | $ | 813,844 | $ | (3,309,749 | ) | $ | 3,435,097 | |||||||||
20
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands unless otherwise indicated)
14. Condensed Consolidating Financial Statements (Continued)
VISTA OUTDOOR INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
March 31, 2016 | ||||||||||||||||||||
(Amounts in thousands except share data) | Parent Issuer | Guarantors | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||
ASSETS | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 133,503 | $ | 18,189 | $ | — | $ | 151,692 | ||||||||||
Net receivables | — | 382,662 | 45,736 | — | 428,398 | |||||||||||||||
Due from affiliates, current | — | 19,912 | — | (19,912 | ) | — | ||||||||||||||
Net inventories | — | 379,658 | 64,867 | (4,285 | ) | 440,240 | ||||||||||||||
Other current assets | — | 26,517 | 2,817 | — | 29,334 | |||||||||||||||
Total current assets | — | 942,252 | 131,609 | (24,197 | ) | 1,049,664 | ||||||||||||||
Net property, plant, and equipment | — | 192,674 | 10,811 | — | 203,485 | |||||||||||||||
Investment in subsidiaries | 2,530,524 | 36,865 | — | (2,567,389 | ) | — | ||||||||||||||
Goodwill | — | 911,715 | 111,736 | — | 1,023,451 | |||||||||||||||
Net intangible assets | — | 613,869 | 36,603 | — | 650,472 | |||||||||||||||
Long-term due from affiliates | — | 241,598 | — | (241,598 | ) | — | ||||||||||||||
Deferred charges and other non-current assets | — | 11,833 | 3,729 | — | 15,562 | |||||||||||||||
Total assets | $ | 2,530,524 | $ | 2,950,806 | $ | 294,488 | $ | (2,833,184 | ) | $ | 2,942,634 | |||||||||
LIABILITIES AND EQUITY | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Current portion of long-term debt | $ | 17,500 | $ | — | $ | — | $ | — | $ | 17,500 | ||||||||||
Accounts payable | — | 134,334 | 13,404 | — | 147,738 | |||||||||||||||
Due to affiliates, current | — | — | ||||||||||||||||||