10-Q 1 vsto-0701201810q.htm 10-Q Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
ý
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 1, 2018
 
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
vistaoutdoora15.jpg
Vista Outdoor Inc.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
 
47-1016855
(I.R.S. Employer
Identification No.)
262 N University Avenue
Farmington, UT
 
84025
(Address of principal executive offices)
 
(Zip Code)
Registrant's telephone number, including area code: (801) 447-3000

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ý
 
Accelerated Filer o
 
Non-Accelerated Filer o
 (Do not check if a
smaller reporting company)
 
Smaller reporting company o
 
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o    No ý
As of July 30, 2018, there were 57,528,344 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 BALANCE SHEETS
(unaudited)
(Amounts in thousands except share data)
 
July 1, 2018
 
March 31, 2018
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
63,360

 
$
22,870

Net receivables
 
395,644

 
421,763

Net inventories
 
413,224

 
382,278

Income tax receivable
 
4,390

 
3,379

Assets held for sale
 
154,031

 
200,440

Other current assets
 
21,613

 
27,962

Total current assets
 
1,052,262

 
1,058,692

Net property, plant, and equipment
 
270,325

 
277,207

Goodwill
 
657,399

 
657,536

Net intangible assets
 
585,281

 
592,279

Deferred charges and other non-current assets
 
26,157

 
29,122

Total assets
 
$
2,591,424

 
$
2,614,836

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

 
$
32,000

Accounts payable
 
164,016

 
114,549

Accrued compensation
 
26,857

 
36,346

Federal excise tax
 
22,572

 
22,701

Liabilities held for sale
 
48,087

 
42,177

Other current liabilities
 
110,316

 
97,447

Total current liabilities
 
403,848

 
345,220

Long-term debt
 
848,908

 
883,399

Deferred income tax liabilities
 
62,815

 
66,196

Accrued pension and postemployment benefits
 
37,375

 
38,196

Other long-term liabilities
 
64,541

 
64,335

Total liabilities
 
1,417,487

 
1,397,346

Commitments and contingencies (Notes 11 and 14)
 

 

Common stock — $.01 par value:
 
 
 
 
Authorized — 500,000,000 shares
 
 
 
 
Issued and outstanding — 57,521,905 shares as of July 1, 2018 and 57,431,299 shares as of March 31, 2018
 
575

 
574

Additional paid-in capital
 
1,758,682

 
1,746,182

Accumulated deficit
 
(208,874
)
 
(156,526
)
Accumulated other comprehensive loss
 
(110,759
)
 
(104,296
)
Common stock in treasury, at cost — 6,442,534 shares held as of July 1, 2018 and 6,533,140 shares held as of March 31, 2018
 
(265,687
)
 
(268,444
)
Total stockholders' equity
 
1,173,937

 
1,217,490

Total liabilities and stockholders' equity
 
$
2,591,424

 
$
2,614,836

See Notes to the Condensed Consolidated Financial Statements.

2


VISTA OUTDOOR INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
 
 
Quarter ended
(Amounts in thousands except per share data)
 
July 1, 2018
 
July 2, 2017
Sales, net
 
$
528,836

 
$
568,749

Cost of sales
 
415,498

 
422,191

Gross profit
 
113,338

 
146,558

Operating expenses:
 
 
 
 
Research and development
 
6,968

 
7,791

Selling, general, and administrative
 
101,054

 
99,426

Impairment of held-for-sale assets (Note 5)
 
44,921

 

Income (loss) before interest and income taxes
 
(39,605
)
 
39,341

Interest expense, net
 
(13,472
)
 
(12,393
)
Income (loss) before income taxes
 
(53,077
)
 
26,948

Income tax provision (benefit)
 
(729
)
 
10,296

Net income (loss)
 
$
(52,348
)
 
$
16,652

Earnings (loss) per common share:
 
 
 
 
Basic
 
$
(0.91
)
 
$
0.29

Diluted
 
$
(0.91
)
 
$
0.29

Weighted-average number of common shares outstanding:
 
 
 
 
Basic
 
57,454

 
56,916

Diluted
 
57,454

 
56,957

 
 


 


Net income (loss) (from above)
 
$
(52,348
)
 
$
16,652

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 $19 and $163, respectively.
 
(60
)
 
(274
)
Reclassification of net actuarial loss for pension and postretirement benefit plans recorded to net income, net of tax expense of $(171) and $(666), respectively.
 
543

 
1,122

Valuation adjustment for pension and postretirement benefit plans, net of tax benefit of $0 and $2,154, respectively.
 

 
(3,628
)
Change in derivatives, net of tax expense of $(63) and $(14), respectively.
 
200

 
23

Change in cumulative translation adjustment.
 
(7,146
)
 
8,571

Total other comprehensive income (loss)
 
(6,463
)
 
5,814

Comprehensive income (loss)
 
$
(58,811
)
 
$
22,466


See Notes to the Condensed Consolidated Financial Statements.









3


VISTA OUTDOOR INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
 
 
Quarter ended
(Amounts in thousands)
 
July 1, 2018
 
July 2, 2017
Operating Activities:
 
 
 
 
Net income (loss)
 
$
(52,348
)
 
$
16,652

Adjustments to net income (loss) to arrive at cash provided by operating activities:
 
 
 
 
Depreciation
 
14,139

 
13,552

Amortization of intangible assets
 
6,842

 
9,110

Impairment of held-for-sale assets (Note 5)
 
44,921

 

Amortization of deferred financing costs
 
1,268

 
728

Deferred income taxes
 
(3,302
)
 
2

(Gain) loss on disposal of property, plant, and equipment
 
(50
)
 
77

Stock-based compensation
 
2,368

 
3,357

Changes in assets and liabilities:
 
 
 
 
Net receivables
 
26,935

 
(2,323
)
Net inventories
 
(36,620
)
 
17,550

Accounts payable
 
55,945

 
(20,953
)
Accrued compensation
 
(9,555
)
 
(178
)
Accrued income taxes
 
(617
)
 
8,423

Federal excise tax
 
(52
)
 
(4,036
)
Pension and other postretirement benefits
 
(184
)
 
(4,841
)
Other assets and liabilities
 
24,482

 
4,170

Cash provided by operating activities
 
74,172

 
41,290

Investing Activities:
 
 
 
 
Capital expenditures
 
(9,949
)
 
(16,430
)
Proceeds from the disposition of property, plant, and equipment
 
65

 
13

Cash used for investing activities
 
(9,884
)
 
(16,417
)
Financing Activities:
 
 
 
 
Borrowings on line of credit
 
40,000

 
145,000

Payments made on line of credit
 
(40,000
)
 
(150,000
)
Settlement from former parent
 
13,047

 

Payments made on long-term debt
 
(33,000
)
 
(8,000
)
Payments made for debt issuance costs
 
(2,759
)
 
(1,805
)
Shares withheld for payroll taxes
 
(830
)
 
(2,381
)
Proceeds from employee stock compensation plans
 

 
298

Cash used for financing activities
 
(23,542
)
 
(16,888
)
Effect of foreign exchange rate fluctuations on cash
 
(256
)
 
490

Increase in cash and cash equivalents
 
40,490

 
8,475

Cash and cash equivalents at beginning of period
 
22,870

 
45,075

Cash and cash equivalents at end of period
 
$
63,360

 
$
53,550

 
 
 
 
 
Supplemental Cash Flow Disclosures:
 
 
 
 
Non-cash investing activity:
 
 
 
 
Capital expenditures included in accounts payable
 
$
2,613

 
$
5,598

 
  See Notes to the Condensed Consolidated Financial Statements.

4


VISTA OUTDOOR INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(unaudited)
 
 
Common Stock $.01 Par Value
 
 
 
 
 
 
 
 
 
 
(Amounts in thousands except share data)
 
Shares
 
Amount
 
Additional
Paid-In
Capital
 
(Accumulated Deficit) Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Treasury
Stock
 
Total
Equity
Balance, March 31, 2017
 
57,014,319

 
$
571

 
$
1,752,903

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

Comprehensive income (loss)
 

 

 

 
16,652

 
5,814

 

 
22,466

Exercise of stock options
 
18,476

 

 
(465
)
 

 

 
763

 
298

Restricted stock grants net of forfeitures
 
(16,286
)
 

 
(89
)
 

 

 
(357
)
 
(446
)
Share-based compensation
 

 

 
3,357

 

 

 

 
3,357

Restricted stock vested and shares withheld
 
6,827

 

 
(423
)
 

 

 
177

 
(246
)
Employee stock purchase plan
 
6,510

 

 
(130
)
 

 

 
269

 
139

Other
 
688

 
(1
)
 
(34
)
 

 

 
35

 

Balance, July 2, 2017
 
57,030,534

 
$
570

 
$
1,755,119

 
$
(91,381
)
 
$
(107,178
)
 
$
(286,497
)
 
$
1,270,633

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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

See Notes to the Condensed Consolidated Financial Statements.

5


VISTA OUTDOOR INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Quarter ended July 1, 2018
(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 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 18 locations in the United States, Canada, Mexico, and Puerto Rico along with international customer service, sales and sourcing operations in Asia, Australia, Canada, and Europe. Vista Outdoor was incorporated in Delaware in 2014.

This Quarterly Report on Form 10-Q should be read in conjunction with our consolidated financial statements and notes included in our annual report on Form 10-K for the fiscal year ended March 31, 2018 (“fiscal 2018”).

Basis of Presentation—Our unaudited condensed consolidated financial statements have been prepared in accordance with the requirements of the Securities and Exchange Commission ("SEC") for interim reporting. As permitted under those rules, certain disclosures and other financial information that normally are required by accounting principles generally accepted in the United States can be condensed or omitted. Our accounting policies are described in the notes to the consolidated and combined financial statements in our Annual Report on Form 10-K for fiscal 2018. 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 July 1, 2018 and March 31, 2018, our results of operations for the quarters ended July 1, 2018 and July 2, 2017, and our cash flows for the quarters ended July 1, 2018 and July 2, 2017.

New Accounting Pronouncements—Effective April 1, 2018, we adopted Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes existing revenue recognition requirements. We adopted this standard effective April 1, 2018 using the modified retrospective transition method. The adoption of this standard did not have a material impact on our consolidated financial statements. See Note 3, Revenue Recognition, for our enhanced disclosures about revenue in accordance with the new standard.

On February 25, 2016, the FASB issued Accounting Standard Update ("ASU") 2016-02, Leases. The new guidance was issued to increase transparency and comparability among companies by requiring most leases to 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. Although we expect adoption of the standard to materially increase the assets and liabilities recorded on our balance sheet, we are still evaluating the overall impact on our financial statements.
 
Other than the standards noted above and in our fiscal 2018 financial statements, there are no other new accounting pronouncements that are expected to have a significant impact on our condensed consolidated financial statements.

2. Fair Value of Financial Instruments
The current authoritative guidance on fair value prescribes a framework for measuring fair value, establishes a fair value hierarchy based on the inputs used to measure fair value, and requires disclosures about the use of fair value measurements. Fair value is the price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
The valuation techniques required by the current authoritative literature are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect internal market assumptions. These two types of inputs create the following fair value hierarchy:
Level 1—Quoted prices for identical instruments in active markets.
Level 2—Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3—Significant inputs to the valuation model are unobservable.

6


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

The following section describes the valuation methodologies we used to measure our financial instruments at fair value.
Long-term debt—The fair value of our outstanding variable-rate long-term debt is calculated based on current market rates for debt of the same risk and maturities. The fair value of the fixed-rate long-term debt is based on market quotes for the outstanding notes. We consider these to be Level 2 instruments.
Interest rate swaps—We periodically enter into floating-to-fixed interest rate swap agreements in order to hedge our forecasted interest payments on our outstanding variable-rate debt. The fair value of those swaps is determined using a pricing model based on observable inputs for similar instruments and other market assumptions. We consider these to be Level 2 instruments. See Note 11, Long-term Debt, for additional information.
Contingent consideration—The acquisition-related contingent consideration liability represents the estimated fair value of additional future earn-outs payable for acquisitions of businesses that included earn-out clauses. The valuation of the contingent consideration is evaluated on an ongoing basis and is based on management estimates and entity-specific assumptions which are considered Level 3 inputs. On September 1, 2016, we completed the acquisition of privately owned Logan Outdoor Products, LLC and Peak Trades, LLC ("Camp Chef"), a leading provider of outdoor cooking solutions. Under the terms of the transaction, approximately $10,000 of the purchase price is payable over a three-year period from the closing date if certain incremental growth milestones are met and key members of Camp Chef management continue their employment with us through the respective milestone dates. The approximately $10,000 is being expensed over the three-year measurement period and is to be paid in three equal installments as each milestone is achieved. The growth milestones for the first year were met and, therefore, we paid $3,371 during the quarter ended December 31, 2017.
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 1, 2018
 
March 31, 2018
 
 
Carrying
amount
 
Fair
value
 
Carrying
amount
 
Fair
value
Fixed-rate debt
 
$
350,000

 
$
334,075

 
$
350,000

 
$
328,248

Variable-rate debt
 
543,000

 
543,000

 
576,000

 
576,000


3. Revenue Recognition

The following tables disaggregate our net sales by major category for the quarters ended July 1, 2018 and July 2, 2017:

 
 
Quarter ended July 1, 2018
 
Quarter ended July 2, 2017
 
 
Outdoor Products
 
Shooting Sports
 
Total
 
Outdoor Products
 
Shooting Sports
 
Total
Ammunition
 
$

 
$
217,122

 
$
217,122

 
$

 
$
240,926

 
$
240,926

Firearms
 

 
40,934

 
40,934

 

 
37,840

 
37,840

Hunting and Shooting Accessories
 
103,688

 

 
103,688

 
115,842

 

 
115,842

Action Sports
 
71,708

 

 
71,708

 
76,477

 

 
76,477

Outdoor Recreation
 
63,113

 

 
63,113

 
64,659

 

 
64,659

Eyewear
 
32,271

 

 
32,271

 
33,005

 

 
33,005

Total
 
$
270,780

 
$
258,056

 
$
528,836

 
$
289,983

 
$
278,766

 
$
568,749

 
 
 
 
 
 
 
 
 
 
 
 
 
Geographic Region
 
 
 
 
 
 
 
 
 
 
 
 
United States
 
$
196,649

 
$
231,894

 
$
428,543

 
$
209,006

 
$
249,445

 
$
458,451

Rest of the World
 
74,131

 
26,162

 
100,293

 
80,977

 
29,321

 
110,298

Total
 
$
270,780

 
$
258,056

 
$
528,836

 
$
289,983

 
$
278,766

 
$
568,749


7


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

Effective April 1, 2018, we implemented Accounting Standards Update No. 2014-09 Revenue from Contracts with Customers (Topic 606), using the modified retrospective method. The standard did not have a material effect on our financial statements.
The vast majority of our revenues are from the sale of consumer products in the outdoor recreation and shooting sports markets. Our customers consist primarily of retailers and distributors, as well as government, law enforcement, and military professionals. We also sell some of our products online directly to consumers. Our top customer is Walmart, representing 14% and 15% of our sales for the quarters ended July 1, 2018 and July 2, 2017, respectively. No other single customer contributed 10% or more of our sales for the quarters ended July 1, 2018 and July 2, 2017.
Typically, our contracts require customers to pay within 30-60 days of product delivery with a discount available to some customers for early payment. In some cases, we offer extended payment terms to customers. However, we do not consider these extended payment terms to be a significant financing component of the contract because the payment terms are less than a year.
We recognize revenue for our products at a point in time upon the transfer of control of the products to the customer, which typically occurs upon shipment and coincides with our right to payment, the transfer of legal title, and the transfer of the significant risks and rewards of ownership of the product.
In limited circumstances, our contract with a customer may have shipping terms that indicate a transfer of control of the products upon their arrival at the destination rather than upon shipment. In those cases, we recognize revenue only when the product reaches the customer destination, which may require us to estimate the timing of transfer of control based on the expected delivery date. In all cases, however, we consider our costs related to shipping and handling to be a cost of fulfilling the contract with the customer.
The total amount of revenue we recognize for the sale of our products reflects various sales adjustments for discounts, returns, refunds, allowances, rebates, and other customer incentives. These sales adjustments can vary based on market conditions, customer preferences, timing of customer payments, volume of products sold, and timing of new product launches. These adjustments require management to make reasonable estimates of the amount we expect to receive from the customer. 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.
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.

We did not recognize any revenue in the reporting period from performance obligations satisfied (or partially satisfied) in previous reporting periods.

4. Earnings Per Share

The computation of earnings per share ("EPS") includes Basic EPS computed based upon the weighted average number of common shares outstanding for each period. Diluted EPS is computed based on the weighted average number of common shares and common equivalent shares. Common equivalent shares represent the effect of stock-based awards during each period presented, which, if exercised or earned, would have a dilutive effect on EPS.


8


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

In computing EPS for the quarters ended July 1, 2018 and July 2, 2017, earnings, as reported for each respective period, is divided by the number of shares below:
 
 
Quarter ended
 
 
July 1, 2018
 
July 2, 2017
Net income (loss)
 
$
(52,348
)
 
$
16,652

Weighted-average number of common shares outstanding:
 
 
 
 
   Basic EPS shares outstanding
 
57,454

 
56,916

   Dilutive effect of stock-based awards (1)
 

 
41

   Diluted EPS shares outstanding
 
57,454

 
56,957

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
 
481

 
358

Earnings (loss) per common share:
 
 

 
 

Basic
 
$
(0.91
)
 
$
0.29

Diluted
 
$
(0.91
)
 
$
0.29

(1) Due to the loss from continuing operations in the quarter ended July 1, 2018, there are no common shares added to calculate dilutive EPS for that quarter because the effect would be antidilutive.

5. Assets and Liabilities Held for Sale
In November 2017, we announced our intention to sell our eyewear business consisting of the Bollé, Serengeti, and Cébé brands, which are part of our Outdoor Products segment. The decision to sell this business reflects our ongoing review of our portfolio of brands to focus on assets that are core to our mission and strategy. As of March 31, 2018, we had received multiple bids for the eyewear business with a wide range of potential purchase prices. When we performed our required held-for-sale impairment analysis for the quarter ended March 31, 2018, the fair value estimates at the time exceeded the eyewear book value. Negotiations progressed throughout the quarter ended July 1, 2018 and the range of estimated values narrowed. On July 9, 2018, we announced that we entered into a definitive agreement to sell the legal entities operating the Bollé, Cébé, and Serengeti brands to an entity controlled by a European private equity fund. The gross proceeds from the divestiture are expected to be approximately $158,000, subject to net working capital adjustments and transaction costs. The sale of these legal entities is expected to be completed in the quarter ended September 30, 2018. During the quarter ended July 1, 2018, we recognized an impairment of $44,921 related to an expected loss on the sale of our held-for-sale assets. The loss is attributable primarily to cumulative foreign currency translation adjustments for these entities that will be reclassified to earnings upon sale of the entities.
The operating results of this business do not qualify for reporting as discontinued operations. For the quarters ended July 1, 2018 and July 2, 2017, the earnings before taxes for this business were approximately $5,393 and $1,977, respectively. The earnings before taxes above include $0 and $2,093 of total depreciation and amortization expense for the quarters ended July 1, 2018 and July 2, 2017, respectively.

9


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

The following table presents information related to the assets and liabilities of the business that were classified as held for sale at July 1, 2018:
(Amounts in thousands)
 
July 1, 2018
Assets
 
 
Net receivables
 
$
23,245

Net inventories
 
33,682

Other current assets
 
2,309

Net property, plant, and equipment
 
3,877

Goodwill
 
61,599

Net intangible assets
 
74,240

Total assets held for sale
 
$
198,952

 
 
 
Liabilities
 
 
Accounts payable
 
$
12,202

Accrued compensation
 
2,284

Deferred tax liabilities
 
18,506

Other accrued liabilities
 
15,095

Total liabilities held for sale
 
$
48,087

 
 
 
Total net assets held for sale
 
$
150,865

The following table presents the calculation of our expected loss on sale as of July 1, 2018:
(Amounts in thousands)
 
July 1, 2018
Total net assets held for sale
 
$
150,865

Currency translation adjustment attributable to eyewear business
 
35,853

Total net assets including currency translation adjustment
 
186,718

Proceeds from sale, net of expected transaction costs and net working capital adjustments
 
(141,797
)
Impairment of held-for-sale assets
 
$
44,921


10


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

The following table presents the reconciliation of the eyewear gross held-for-sale assets above to our consolidated balance sheet as of July 1, 2018:
(Amounts in thousands)
 
July 1, 2018
Total assets held for sale
 
$
198,952

Impairment of held-for-sale assets
 
(44,921
)
Adjusted assets held for sale
 
$
154,031


6. Receivables
Net receivables are summarized as follows:
 
 
July 1, 2018
 
March 31, 2018
Trade receivables
 
$
410,269

 
$
453,939

Other receivables
 
3,835

 
4,017

Less: allowance for doubtful accounts and discounts
 
(18,460
)
 
(36,193
)
Net receivables
 
$
395,644

 
$
421,763

As of July 1, 2018 and March 31, 2018, Walmart represented 17% and 14%, respectively, of the total trade receivables balance. No other customer represented more than 10% of our total trade receivables balance as of July 1, 2018 and March 31, 2018.
7. Inventories
Net inventories consist of the following:
 
 
July 1, 2018
 
March 31, 2018
Raw materials
 
$
107,546

 
$
88,588

Work in process
 
42,385

 
40,812

Finished goods
 
263,293

 
252,878

Net inventories
 
$
413,224

 
$
382,278


We consider inventories to be long-term if they are not expected to be sold within one year. Long-term inventories are presented on the balance sheet net of reserves within deferred charges and other non-current assets and totaled $22,923 and $24,040 as of July 1, 2018 and March 31, 2018, respectively.

8. Accumulated Other Comprehensive Loss (AOCL)
The components of AOCL, net of income taxes, are as follows:
 
July 1, 2018
 
March 31, 2018
Pension and other postretirement benefits
$
(66,173
)
 
$
(66,656
)
Derivatives
2,104

 
1,904

Cumulative translation adjustment
(46,690
)
 
(39,544
)
Total AOCL
$
(110,759
)
 
$
(104,296
)

11


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

The following tables summarize the changes in the balance of AOCL, net of income tax:
 
Quarter ended July 1, 2018
 
Derivatives
 
Pension and other postretirement benefits
 
Cumulative translation adjustment
 
Total
Beginning balance in AOCL
$
1,904

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

 
543

 

 
543

Prior service costs reclassified from AOCL (1)

 
(60
)
 

 
(60
)
Net increase in fair value of derivatives
200

 

 

 
200

Net change in cumulative translation adjustment

 

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

 
$
(66,173
)
 
$
(46,690
)
 
$
(110,759
)
(1)
Amounts related to our pension and other postretirement benefits that were reclassified from AOCL were recorded as a component of net periodic benefit cost for each period presented.

 
Quarter ended July 2, 2017
 
Derivatives
 
Pension and other postretirement benefits
 
Cumulative translation adjustment
 
Total
Beginning balance in AOCL
$

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

 
1,122

 

 
1,122

Prior service costs reclassified from AOCL (1)

 
(274
)
 

 
(274
)
Valuation adjustment for pension and postretirement benefit plans (2)

 
(3,628
)
 

 
(3,628
)
Net increase in fair value of derivatives
23

 

 

 
23

Net change in cumulative translation adjustment

 

 
8,571

 
8,571

Ending balance in AOCL
$
23

 
$
(59,709
)
 
$
(47,492
)
 
$
(107,178
)
(1)
Amounts related to our pension and other postretirement benefits that were reclassified from AOCL were recorded as a component of net periodic benefit cost for each period presented.
(2)
See Note 12, Employee Benefit Plans, for a description of the pension curtailment gain recognized in the quarter ended July 2, 2017.

9. Goodwill and Intangible Assets
The changes in the carrying amount of goodwill by segment were as follows:
 
 
Outdoor Products
 
Shooting Sports
 
Total
Balance, March 31, 2018
 
$
452,627

 
$
204,909

 
$
657,536

Effect of foreign currency exchange rates
 

 
(137
)
 
(137
)
Balance, July 1, 2018
 
$
452,627

 
$
204,772

 
$
657,399

The goodwill recorded within the Outdoor Products segment is presented net of $545,106 of accumulated impairment losses, of which $401,706 was recorded prior to fiscal 2018 and $143,400 was recorded in fiscal 2018. The goodwill recorded within the Shooting Sports segment is presented net of $41,020 of accumulated impairment losses, which were recorded in fiscal 2015. The remeasurement of goodwill and intangible assets is classified as a Level 3 fair value assessment as described in Note 2, Fair Value of Financial Instruments, due to the significance of unobservable inputs developed using company-specific information.

12


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

Net intangible assets other than goodwill consisted of the following:
 
 
July 1, 2018
 
March 31, 2018
 
 
Gross
carrying
amount
 
Accumulated
amortization
 
Total
 
Gross
carrying
amount
 
Accumulated
amortization
 
Total
Trade names
 
$
62,657

 
$
(13,196
)
 
$
49,461

 
$
62,657

 
$
(11,993
)
 
$
50,664

Patented technology
 
16,466

 
(8,376
)
 
8,090

 
16,466

 
(8,157
)
 
8,309

Customer relationships and other
 
318,368

 
(96,561
)
 
221,807

 
318,476

 
(91,093
)
 
227,383

Total
 
397,491

 
(118,133
)
 
279,358

 
397,599

 
(111,243
)
 
286,356

Non-amortizing trade names
 
305,923

 

 
305,923

 
305,923

 

 
305,923

Net intangible assets
 
$
703,414

 
$
(118,133
)
 
$
585,281

 
$
703,522

 
$
(111,243
)
 
$
592,279


The amortizable assets in the table above are being amortized using a straight-line method over a weighted average remaining period of approximately 12.2 years. The amount of amortizing tradename and technology intangible assets for the Outdoor Products segment is presented net of a $61,054 impairment charge recorded in fiscal 2017. The amount of non-amortizing tradename intangible assets in the Outdoor Products segment is presented net of $8,920 and $34,230 of impairment losses recorded in fiscal 2018 and fiscal 2017, respectively; and, the amount of non-amortizing tradename intangible assets in the Shooting Sports segment is presented net of $11,200 of impairment losses recorded in fiscal 2015. Amortization expense for the quarters ended July 1, 2018 and July 2, 2017 was $6,842 and $9,110, respectively.

As of July 1, 2018, we expect amortization expense related to these assets to be as follows:
Remainder of fiscal 2019
 
$
20,538

Fiscal 2020
 
26,553

Fiscal 2021
 
26,537

Fiscal 2022
 
26,529

Fiscal 2023
 
26,414

Thereafter
 
152,787

Total
 
$
279,358


13


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


10. Other Current and Non-Current Liabilities

Other current and non-current liabilities consisted of the following:
 
 
July 1, 2018
 
March 31, 2018
Other current liabilities:
 
 
 
 
Accrual for in-transit inventory
 
$
31,397

 
$
29,200

Rebate accrual
 
18,056

 
14,827

Other
 
60,863

 
53,420

Total other current liabilities
 
$
110,316

 
$
97,447

 
 
 
 
 
Other non-current liabilities:
 
 
 
 
Non-current portion of accrued income tax liability
 
$
35,092

 
$
34,716

Other
 
29,449

 
29,619

Total other non-current liabilities
 
$
64,541

 
$
64,335

We provide consumer warranties against manufacturing defects on certain products within the Shooting Sports and Outdoor Products segments with warranty periods ranging from one year to the expected lifetime of the product. The estimated costs of such product warranties are recorded at the time the sale is recorded based upon our past experience. The warranty liability recorded at each balance sheet date reflects the estimated liability for warranty coverage for products delivered based on historical information and current trends. The following is a reconciliation of the changes in our product warranty liability during the periods presented:
Balance, March 31, 2018
$
10,247

Payments made
(654
)
Warranties issued
927

Changes related to preexisting warranties
(622
)
Balance, July 1, 2018
$
9,898

11. Long-term Debt
Long-term debt, including the current portion, consisted of the following:
 
 
July 1, 2018
 
March 31, 2018
Credit Agreement:
 
 
 
 
Term Loan
 
$
543,000

 
$
576,000

Revolving Credit Facility
 

 

Total principal amount of Credit Agreement
 
543,000

 
576,000

5.875% Senior Notes
 
350,000

 
350,000

Principal amount of long-term debt
 
893,000

 
926,000

Less: unamortized deferred financing costs
 
(12,092
)
 
(10,601
)
Carrying amount of long-term debt
 
880,908

 
915,399

Less: current portion
 
(32,000
)
 
(32,000
)
Carrying amount of long-term debt, excluding current portion
 
$
848,908

 
$
883,399



14


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

Credit Agreement—On April 1, 2016, we entered into an Amended and Restated Credit Agreement (the "Credit Agreement"), which replaced our 2014 Credit Agreement. The Credit Agreement is comprised of a Term A Loan of $640,000 and a $200,000 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. During the quarter ended July 1, 2018, we repaid an additional $25,000 of the Term A Loan. Substantially all domestic tangible and intangible assets of Vista Outdoor and our subsidiaries, as well as the tangible and intangible assets of Advanced Arrow S. de R.L. de C.V. and Hydrosport, S. de R.L. de C.V., are pledged as collateral under the Credit Agreement. Borrowings under the Credit Agreement bear interest at a rate equal to either the sum of a base rate plus a specified margin or the sum of a Eurodollar rate plus a specified margin. Each margin is based on our consolidated leverage ratio, as defined in the Credit Agreement, and based on the ratio in effect as of July 1, 2018, the base rate margin was 2.25% and the Eurodollar margin was 3.25%. The weighted average interest rate for our borrowings under the Credit Agreement as of July 1, 2018 was 5.34%, excluding the impact of the interest rate swaps that are discussed below. We pay a commitment fee on the unused portion of the Revolving Credit Facility based on our consolidated leverage ratio, and based on the current ratio, this fee is 0.50%. As of July 1, 2018, we had no borrowings against our $200,000 Revolving Credit Facility and had outstanding letters of credit of $23,288, which reduced amounts available on the Revolving Credit Facility to $176,712. Debt issuance costs of approximately $14,000 are being amortized over the term of the Credit Agreement.

During fiscal 2018, we conducted a review of our outstanding debt instruments and initiated discussions with our banks regarding refinancing our Credit Agreement with an asset-based loan ("ABL") and a new term loan. We believe that this change could provide us with additional flexibility to operate efficiently in a challenging market environment. Subject to debt market conditions, we anticipate finalizing the refinancing by the end of our second fiscal quarter. In order to allow us sufficient time to execute the refinancing, we received from our lenders a waiver of our Consolidated Leverage Ratio requirement for the quarter ended March 31, 2018 and, in May 2018, we executed an amendment to the Credit Agreement to amend, among other things, certain financial covenants during our fiscal 2019 (the "May 2018 Amendment"). The May 2018 Amendment provides for the following maximum ratios as defined in the Credit Agreement:
 
Maximum leverage ratios per the Credit Agreement
 
Q1 FY19
 
Q2 FY19
 
Q3 FY19
 
Q4 FY19
Consolidated Leverage Ratio
7.25

 
8.25

 
8.00

 
6.75

Consolidated Senior Secured Leverage Ratio
5.00

 
5.50

 
5.25

 
4.50


The May 2018 Amendment also provides that the Consolidated Interest Coverage Ratio (as defined in the Credit Agreement) must be greater than 2.00 to 1.00 through the fiscal quarter ended December 31, 2018, and 2.50 to 1.00 for the quarter ended March 31, 2019. In addition, the May 2018 Amendment reduces the Revolving Credit Facility from $400,000 to $200,000, amends the borrowing rates under the Revolving Credit Facility and Term A Loan and the fee for unused commitments under the Revolving Credit Facility, all of which vary depending on our Consolidated Leverage Ratio, and further restricts our ability to enter into certain transactions. Debt issuance costs related to the May 2018 Amendment of approximately $2,800 will be amortized over the term of the amendment.

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

The Credit Agreement and the indenture governing the 5.875% Notes contain cross-default provisions so that non-compliance with the covenants within one debt agreement could also cause a default under the other debt agreement. As of July 1, 2018, we were in compliance with the covenants of both debt agreements. However, we cannot provide assurance that we will be able to comply with such financial covenants in the future, or complete a refinancing of our Credit Agreement mentioned above, because of various risks and uncertainties some of which may be beyond our control.

15


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


Rank and guarantees—The Credit Agreement obligations are guaranteed on a secured basis, jointly and severally and fully and unconditionally by substantially all of our domestic subsidiaries and by Advanced Arrow S. de R.L. de C.V. and Hydrosport, S. de R.L. de C.V. Vista Outdoor (the parent company issuer) has no independent assets or operations. We own 100% of all of these guarantor subsidiaries. The 5.875% Notes are senior unsecured obligations of Vista Outdoor and will rank equally in right of payment with any future senior unsecured indebtedness and senior in right of payment to any future subordinated indebtedness of Vista Outdoor. The 5.875% Notes are fully and unconditionally guaranteed, jointly and severally, by our existing and future domestic subsidiaries that guarantee indebtedness under our Credit Agreement or that guarantee certain of our other indebtedness, or indebtedness of any subsidiary guarantor, in an aggregate principal amount in excess of $50,000. These guarantees are senior unsecured obligations of the applicable subsidiary guarantors. The guarantee by any subsidiary guarantor of our obligations in respect of the 5.875% Notes will be released in any of the following circumstances:

if, as a result of the sale of its capital stock, such subsidiary guarantor ceases to be a restricted subsidiary;
if such subsidiary guarantor is designated as an “Unrestricted Subsidiary”;
upon defeasance or satisfaction and discharge of the 5.875% Notes; or
if such subsidiary guarantor has been released from its guarantees of indebtedness under the Credit Agreement and all capital markets debt securities.

Interest rate swaps—During the quarter ended July 2, 2017, we entered into floating-to-fixed interest rate swap agreements in order to hedge our forecasted interest payments on our outstanding variable-rate debt. As of July 1, 2018, we had the following cash flow hedge interest rate swaps in place:
 
 
Notional
 
Fair Value
 
Pay Fixed
 
Receive Floating
 
Maturity Date
Non-amortizing swap
 
$
100,000

 
$
864

 
1.519%
 
2.094%
 
June 2019
Non-amortizing swap
 
100,000

 
1,909

 
1.629%
 
2.094%
 
June 2020

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

Cash paid for interest on debt—Cash paid for interest on debt, including commitment fees, for the quarters ended July 1, 2018 and July 2, 2017 totaled $7,073 and $16,197, respectively.

12. Employee Benefit Plans
During the quarter ended July 1, 2018, we recognized an aggregate net benefit for employee defined benefit plans of $186 compared to a net benefit of $4,352 during the quarter ended July 2, 2017. The decrease was primarily due to the pension curtailment recognized in the quarter ended July 2, 2017, as discussed below.
Employer contributions and distributions—During the quarter ended July 1, 2018, there were no required contributions to the pension trust, and we made no contributions to our other postretirement benefit plans, and no distributions to retirees under the non-qualified supplemental executive retirement plan. During the quarter ended July 2, 2017, we contributed $1,600 directly to the pension trust, made no contributions to our other postretirement benefit plans, and made no distributions to retirees under the non-qualified supplemental executive retirement plan. During the remainder of fiscal 2019, we do not expect to make additional contributions to the pension trust, to our other postretirement benefit plans, or directly to retirees under our non-qualified supplemental executive retirement plans.
Pension curtailment—In June 2017, we announced changes to our qualified and non-qualified defined benefit pension plans. The benefits under the affected plans are determined by a cash balance formula that provides participating employees with an annual “pay credit” as a percentage of their eligible pay based on their age and eligible service. The curtailment was effective July 31, 2017, with employees receiving a pro-rated pay credit for 2017 and no future pay credits beginning in 2018.  However, a participating employee’s benefit will continue to grow based on annual interest credits applied to the employee’s cash balance account until commencement of the employee’s benefit. As a result of the changes, we recognized a one-time gain of $5,783 during the quarter ended July 2, 2017.


16


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

13. Income Taxes

Our provision for income taxes includes federal, foreign, and state income taxes. Income tax provisions for interim periods are based on the year-to-date effective tax rate for the current year and on estimated effective annual income tax rate for the prior year.

The income tax provisions for the quarters ended July 1, 2018 and July 2, 2017 represent effective tax rates of 1.4% and 38.2%, respectively. The decrease in the rate from the prior year quarter is primarily caused by an impairment of held-for-sale assets and the income tax effects of The Tax Cuts and Jobs Act (the "Tax Legislation") including the decrease in the federal statutory tax rate, repeal of the domestic manufacturing deduction, and the implementation of a territorial tax system. The effective tax rate for the quarter ended July 1, 2018 was lower than the statutory rate primarily because of the loss in the first quarter, which caused the unfavorable tax adjustments to decrease the rate. The effective tax rate for the quarter ended July 2, 2017 was higher than the statutory rate, primarily because of state tax expense and unfavorable tax adjustments, partially offset by the domestic manufacturing deduction and tax credits.
On December 22, 2017, Tax Legislation was enacted in the United States. The Tax Legislation significantly revises the corporate income tax by, among other things, lowering corporate income tax rates, limiting various deductions, repealing the domestic manufacturing deduction, implementing a territorial tax system, and imposing a repatriation tax on deemed repatriated earnings of foreign subsidiaries.
We estimate the impact of the Tax Legislation, based on currently available information and interpretations of the law, to be a benefit to us of approximately $48 million, which was included in our prior period tax benefit. The majority of the tax benefit was due to remeasurement of the U.S. deferred tax liabilities at lower enacted corporate tax rates, which did not have a cash impact on the prior quarter. The actual impact of the Tax Legislation may differ from this estimate, possibly materially, due to, among other things, changes in interpretations and assumptions we have made, guidance that may be issued, and actions we may take as a result of the Tax Legislation.

On February 9, 2015, we entered into a Tax Matters Agreement with Orbital ATK that governs the respective rights, responsibilities and obligations of Vista Outdoor and Orbital ATK following the distribution of all of the shares of our common stock on a pro rata basis to the holders of Alliant Techsystems Inc. common stock (the “Spin-Off”) with respect to tax liabilities and benefits, tax attributes, tax contests and other tax sharing regarding U.S. federal, state, local and foreign income taxes, other tax matters and related tax returns. We have joint and several liability with Orbital ATK to the IRS for the consolidated U.S. federal income taxes of the Orbital ATK consolidated group relating to the taxable periods in which we were part of that group. However, the Tax Matters Agreement specifies the portion, if any, of this tax liability for which we bear responsibility, and Orbital ATK agrees to indemnify us against any amounts for which we are not responsible. The Tax Matters Agreement also provides special rules for allocating tax liabilities in the event that the Spin-Off is determined not to be tax-free. Though valid between the parties, the Tax Matters Agreement is not binding on the IRS.

The allocation of tax liabilities for the period from April 1, 2014 through the date of the Spin-Off was settled on June 15, 2018. Orbital ATK paid Vista $13,047 to settle this matter, which was reflected as an adjustment to the distribution from Vista to Orbital ATK at the time of the Spin-Off.

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 that included Vista Outdoor. In addition, certain of our subsidiaries filed income tax returns in foreign jurisdictions. Since the Spin-Off, we file income tax returns in the U.S. federal, foreign and various U.S. state jurisdictions. With a few exceptions, Orbital ATK and its subsidiaries and Vista are no longer subject to U.S. federal, state and local, or foreign income tax examinations by tax authorities prior to 2011. The IRS has completed the audits of Orbital ATK through fiscal 2014 and is currently auditing Orbital ATK's tax return for fiscal 2015. The IRS has also completed the audit of our tax return for the period that began after the Spin-Off (February 9, 2015) and ended on March 31, 2015. We believe appropriate provisions for all outstanding issues relating to our portion of these returns have been made for all remaining open years in all jurisdictions.
Although the timing and outcome of income tax audit settlements are uncertain, it is reasonably possible that a $4,557 reduction of the uncertain tax benefits will occur in the next 12 months. The settlement of these unrecognized tax benefits could result in earnings from $0 to $3,877.

17


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


14. Contingencies
Litigation—From time to time, we are subject to various legal proceedings, including lawsuits, which arise out of, and are incidental to, the conduct of our business. We do not consider any of such proceedings that are currently pending, individually or in the aggregate to be material to our business or likely to result in a material adverse effect on our operating results, financial condition, or cash flows.
Environmental liabilities—Our operations and ownership or use of real property are subject to a number of federal, state, and local environmental laws and regulations, as well as applicable foreign laws and regulations, including those governing the discharge of hazardous materials, remediation of contaminated sites, and restoration of damage to the environment. We are obligated to conduct investigation and/or remediation activities at certain sites that we own or operate or formerly owned or operated.
We have been identified as a potentially responsible party (“PRP”), along with other parties, in regulatory agency actions associated with hazardous waste sites. As a PRP, we may be required to pay a share of the costs of the investigation and clean-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 $729 and $731 as of July 1, 2018 and March 31, 2018, respectively.
We could incur substantial additional costs, including cleanup costs, resource restoration, fines, and penalties or third-party property damage or personal injury claims, as a result of violations or liabilities under environmental laws or non-compliance with environmental permits. While environmental laws and regulations have not had a material adverse effect on our operating results, financial condition, or cash flows in the past, and we have environmental management programs in place to mitigate these risks, it is difficult to predict whether they will have a material impact in the future.
15. Condensed Consolidating Financial Statements
In accordance with the provisions of the 5.875% Notes, the outstanding notes are guaranteed on an unsecured basis, jointly and severally and fully and unconditionally, by substantially all of Vista Outdoor domestic subsidiaries and by Advanced Arrow S. de R.L. de C.V. and Hydrosport, S. de R.L. de C.V. The parent company has no independent assets or operations. All of these guarantor subsidiaries are 100% owned by Vista Outdoor. These guarantees are senior or senior subordinated obligations, as applicable, of the applicable subsidiary guarantors. The consolidating financial information of the guarantor and non-guarantor subsidiaries is presented on the following pages.


18


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

VISTA OUTDOOR INC.
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited)
 
 
Quarter ended July 1, 2018
(Amounts in thousands)
 
Parent Issuer
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Sales, net
 
$

 
$
498,173

 
$
54,622

 
$
(23,959
)
 
$
528,836

Cost of sales
 

 
404,551

 
34,442

 
(23,495
)
 
415,498

Gross profit
 

 
93,622

 
20,180

 
(464
)
 
113,338

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Research and development
 

 
6,880

 
88

 

 
6,968

Selling, general, and administrative
 

 
88,447

 
12,607

 

 
101,054

Impairment of held-for-sale assets (Note 5)
 

 
44,921

 

 

 
44,921

Income (loss) before interest and income taxes
 

 
(46,626
)
 
7,485

 
(464
)
 
(39,605
)
Equity in income of subsidiaries
 
(42,075
)
 
4,771

 

 
37,304

 

Interest expense, net
 
(13,472
)
 

 

 


 
(13,472
)
Income (loss) before income taxes
 
(55,547
)
 
(41,855
)
 
7,485

 
36,840

 
(53,077
)
Income tax provision (benefit)
 
(3,199
)
 
220

 
2,360

 
(110
)
 
(729
)
Net income (loss)
 
$
(52,348
)
 
$
(42,075
)
 
$
5,125

 
$
36,950

 
$
(52,348
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
 
 
Net income (loss) (from above)
 
$
(52,348
)
 
$
(42,075
)
 
$
5,125

 
$
36,950

 
$
(52,348
)
Total other comprehensive income
 
(6,463
)
 
(6,463
)
 
(7,146
)
 
13,609

 
(6,463
)
Comprehensive income (loss)
 
$
(58,811
)
 
$
(48,538
)
 
$
(2,021
)
 
$
50,559

 
$
(58,811
)

 
 
Quarter ended July 2, 2017
(Amounts in thousands)
 
Parent Issuer
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
Sales, net
 
$

 
$
539,559

 
$
50,697

 
$
(21,507
)
 
$
568,749

Cost of sales
 

 
410,957

 
33,229

 
(21,995
)
 
422,191

Gross profit
 

 
128,602

 
17,468

 
488

 
146,558

Operating expenses:
 
 
 
 
 
 
 
 
 
 
Research and development
 

 
7,791

 

 

 
7,791

Selling, general, and administrative
 

 
87,296

 
12,130

 

 
99,426

Income before interest and income taxes
 

 
33,515

 
5,338

 
488

 
39,341

Equity in income of subsidiaries
 
24,399

 
3,965

 

 
(28,364
)
 

Interest expense, net
 
(12,393
)
 

 

 

 
(12,393
)
Income before income taxes
 
12,006

 
37,480

 
5,338

 
(27,876
)
 
26,948

Income tax provision (benefit)
 
(4,646
)
 
13,081

 
1,706

 
155

 
10,296

Net income
 
$
16,652

 
$
24,399

 
$
3,632

 
$
(28,031
)
 
$
16,652

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
 
 
 
Net income (from above)
 
$
16,652

 
$
24,399

 
$
3,632

 
$
(28,031
)
 
$
16,652

Total other comprehensive income
 
5,814

 
5,814

 
8,571

 
(14,385
)
 
5,814

Comprehensive income (loss)
 
$
22,466

 
$
30,213

 
$
12,203

 
$
(42,416
)
 
$
22,466


See the beginning of this footnote for additional information about our guarantor and non-guarantor subsidiaries.

19


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

VISTA OUTDOOR INC.
CONDENSED CONSOLIDATING BALANCE SHEET
(unaudited)
 
 
July 1, 2018
(Amounts in thousands)
 
Parent Issuer
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$

 
$
53,440

 
$
9,920

 
$

 
$
63,360

Net receivables
 

 
370,495

 
25,149

 

 
395,644

Due from affiliates, current
 

 

 
9,264

 
(9,264
)
 

Net inventories
 

 
393,813

 
22,389

 
(2,978
)
 
413,224

Income tax receivable
 

 
2,111

 
(1,014
)
 
3,293

 
4,390

Assets held for sale
 

 
35,003

 
119,028

 

 
154,031

Other current assets
 

 
21,788

 
(175
)
 

 
21,613

Total current assets
 

 
876,650

 
184,561

 
(8,949
)
 
1,052,262

Net property, plant, and equipment
 

 
262,968

 
7,357

 

 
270,325

Investment in subsidiaries
 
2,262,625

 
144,882

 

 
(2,407,507
)
 

Goodwill
 

 
652,266

 
5,133

 

 
657,399

Net intangible assets
 

 
577,732

 
7,549

 

 
585,281

Long-term due from affiliates
 

 
237,971

 

 
(237,971
)
 

Deferred charges and other non-current assets
 

 
20,811

 
5,346

 

 
26,157

Total assets
 
$
2,262,625

 
$
2,773,280

 
$
209,946

 
$
(2,654,427
)
 
$
2,591,424

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

 
$

 
$

 
$

 
$
32,000

Accounts payable
 

 
161,375

 
2,641

 

 
164,016

Due to affiliates, current
 

 
9,264

 

 
(9,264
)
 

Accrued compensation
 

 
26,045

 
812

 

 
26,857

Federal excise tax
 

 
21,423

 
1,149

 

 
22,572

Liabilities held for sale
 

 
24,762

 
23,325

 

 
48,087

Other current liabilities
 

 
104,742

 
5,574

 

 
110,316

Total current liabilities
 
32,000

 
347,611

 
33,501

 
(9,264
)
 
403,848

Long-term debt
 
848,908

 

 

 

 
848,908

Deferred income tax liabilities
 

 
60,945

 
(234
)
 
2,104

 
62,815

Accrued pension and postemployment benefits
 

 
37,375

 

 

 
37,375

Long-term due to affiliates
 
207,780

 

 
30,191

 
(237,971
)
 

Other long-term liabilities
 

 
63,645

 
896

 

 
64,541

Total liabilities
 
1,088,688

 
509,576

 
64,354

 
(245,131
)
 
1,417,487

EQUITY
 
 
 
 
 
 
 
 
 
 
Total stockholders' equity
 
1,173,937

 
2,263,704

 
145,592

 
(2,409,296
)
 
1,173,937

Total liabilities and stockholders' equity
 
$
2,262,625

 
$
2,773,280

 
$
209,946

 
$
(2,654,427
)
 
$
2,591,424


See the beginning of this footnote for additional information about our guarantor and non-guarantor subsidiaries.


20


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


VISTA OUTDOOR INC.
CONDENSED CONSOLIDATING BALANCE SHEET
(unaudited)
 
 
March 31, 2018
(Amounts in thousands)
 
Parent Issuer
 
Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
ASSETS
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$

 
$
3,359

 
$
19,511

 
$

 
$
22,870

Net receivables
 

 
395,054

 
26,709

 

 
421,763

Due from affiliates, current
 

 

 
2,490

 
(2,490
)
 

Net inventories
 

 
364,904

 
20,148

 
(2,774
)
 
382,278

Income tax receivable
 

 
974

 
(181
)
 
2,586

 
3,379

Assets held for sale
 

 
73,453

 
126,987

 

 
200,440

Other current assets
 

 
27,253

 
709

 

 
27,962

Total current assets
 

 
864,997

 
196,373

 
(2,678
)
 
1,058,692

Net property, plant, and equipment
 

 
269,403

 
7,804

 

 
277,207

Investment in subsidiaries
 
2,333,155

 
153,181

 

 
(2,486,336
)
 

Goodwill
 

 
652,266

 
5,270