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EX-10.1 - EXHIBIT 10.1 - Vista Outdoor Inc.vsto10042015xexhibit101.htm
EX-32 - EXHIBIT 32 - Vista Outdoor Inc.vsto10042015xexhibit32.htm
EX-31.2 - EXHIBIT 31.2 - Vista Outdoor Inc.vsto10042015xexhibit312.htm
EX-31.1 - EXHIBIT 31.1 - Vista Outdoor Inc.vsto10042015xexhibit311.htm
 
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 October 4, 2015
 
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.)
938 University Park Boulevard, Suite 200
Clearfield, UT
 
84015
(Address of principal executive offices)
 
(Zip Code)
Registrant's telephone number, including area code: (801) 779-4600

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 o
 
Accelerated Filer o
 
Non-Accelerated Filer  ý
 (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 November 9, 2015, there were 62,306,423 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 AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
 
 
Quarter ended
 
Six months ended
(Amounts in thousands except per share data)
 
October 4, 2015
 
September 28, 2014
 
October 4, 2015
 
September 28, 2014
Sales, net
 
$
551,377

 
$
525,149

 
$
1,065,874

 
$
1,091,144

Cost of sales
 
402,353

 
396,554

 
777,558

 
819,098

Gross profit
 
149,024

 
128,595

 
288,316

 
272,046

Operating expenses:
 
 
 
 
 
 
 
 
Research and development
 
2,815

 
1,074

 
5,170

 
4,725

Selling, general, and administrative
 
85,466

 
68,154

 
163,420

 
133,294

Income before interest and income taxes
 
60,743

 
59,367

 
119,726

 
134,027

Interest expense
 
(6,563
)
 
(7,883
)
 
(9,132
)
 
(16,924
)
Income before income taxes
 
54,180

 
51,484

 
110,594

 
117,103

Income tax provision
 
21,505

 
17,730

 
44,029

 
42,313

Net income
 
$
32,675

 
$
33,754

 
$
66,565

 
$
74,790

Earnings per common share:
 
 
 
 
 
 
 
 
Basic
 
$
0.52

 
$
0.53

 
$
1.06

 
$
1.17

Diluted
 
$
0.52

 
$
0.53

 
$
1.05

 
$
1.17

Weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
62,816

 
63,875

 
63,064

 
63,875

Diluted
 
63,155

 
63,875

 
63,406

 
63,875

 
 


 


 
 
 
 
Net income (from above)
 
$
32,675

 
$
33,754

 
$
66,565

 
$
74,790

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 $158 and $0, respectively for the quarter ended and $316 and $0 respectively for the six months ended
 
(267
)
 

 
(534
)
 

Reclassification of net actuarial loss for pension and postretirement benefit plans recorded to net income, net of tax expense of $(819) and $0, respectively for the quarter ended and $(1,638) and $0 respectively for the six months ended
 
1,381

 

 
2,762

 

Change in derivatives, net of tax benefit (expense) of $2 and $(300), respectively for the quarter ended and $(54) and $(300) respectively for the six months ended
 
(4
)
 
478

 
86

 
478

Change in cumulative translation adjustment, net of tax benefit of $0 and $4,095, respectively for the quarter ended and $0 and $4,844 respectively for the six months ended
 
(6,719
)
 
(8,934
)
 
(4,049
)
 
(7,738
)
Total other comprehensive loss
 
(5,609
)
 
(8,456
)
 
(1,735
)
 
(7,260
)
Comprehensive income
 
$
27,066

 
$
25,298

 
$
64,830

 
$
67,530

See Notes to the Condensed Consolidated and Combined Financial Statements.

2


VISTA OUTDOOR INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(Amounts in thousands except share data)
 
October 4, 2015
 
March 31, 2015
ASSETS
 
 
 
 
Current assets:
 
 
 
 
Cash and cash equivalents
 
$
86,132

 
$
263,951

Net receivables
 
403,729

 
361,694

Net inventories
 
503,224

 
375,621

Deferred income taxes
 
51,905

 
50,343

Other current assets
 
21,391

 
13,452

Total current assets
 
1,066,381

 
1,065,061

Net property, plant, and equipment
 
191,051

 
190,607

Goodwill
 
1,019,352

 
782,163

Net intangible assets
 
667,673

 
517,482

Deferred charges and other non-current assets
 
19,411

 
17,811

Total assets
 
$
2,963,868

 
$
2,573,124

LIABILITIES AND EQUITY
 
 
 
 
Current liabilities:
 
 
 
 
Current portion of long-term debt
 
17,500

 
17,500

Accounts payable
 
130,424

 
134,432

Accrued compensation
 
35,467

 
27,146

Accrued income taxes
 
3,452

 
9,569

Federal excise tax
 
26,041

 
23,194

Other current liabilities
 
121,155

 
96,071

Total current liabilities
 
334,039

 
307,912

Long-term debt
 
673,750

 
332,500

Non-current deferred income tax liabilities
 
191,539

 
193,382

Accrued pension and postemployment liabilities
 
59,444

 
59,345

Other non-current liabilities
 
39,693

 
31,221

Total liabilities
 
1,298,465

 
924,360

Commitments and contingencies (Notes 11 and 14)
 

 

Common stock—$.01 par value:
 
 
 
 
Authorized—500,000,000 shares
 


 
 
Issued and outstanding— 62,710,652 shares at October 4, 2015 and 63,878,499 shares at March 31, 2015
 
627

 
639

Additional paid-in-capital
 
1,746,433

 
1,742,125

Retained earnings
 
85,949

 
19,384

Accumulated other comprehensive loss
 
(112,038
)
 
(110,303
)
Common stock in treasury, at cost— 1,253,787 shares held at October 4, 2015 and 85,940 shares held at March 31, 2015
 
(55,568
)
 
(3,081
)
Total stockholders' equity
 
1,665,403

 
1,648,764

Total liabilities and stockholders' equity
 
$
2,963,868

 
$
2,573,124

See Notes to the Condensed Consolidated and Combined Financial Statements.

3


VISTA OUTDOOR INC.
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
(unaudited)
 
 
Six months ended
(Amounts in thousands)
 
October 4, 2015
 
September 28, 2014
Operating Activities
 
 
 
 
Net income
 
$
66,565

 
$
74,790

Adjustments to net income to arrive at cash provided by (used for) operating activities:
 
 
 
 
Depreciation
 
18,784

 
15,548

Amortization of intangible assets
 
15,651

 
15,378

Amortization of deferred financing costs
 
1,156

 
1,398

Deferred income taxes
 
695

 
338

Loss on disposal of property
 
498

 
311

Stock-based compensation
 
6,137

 

Excess tax benefits from share-based plans
 
(206
)
 

Changes in assets and liabilities:
 
 
 
 
Net receivables
 
(10,907
)
 
(105,147
)
Net inventories
 
(95,550
)
 
(6,016
)
Accounts payable
 
(8,220
)
 
(42,655
)
Accrued compensation
 
1,134

 
(10,504
)
Accrued income taxes
 
(7,015
)
 
5,906

Federal excise tax
 
2,856

 
(1,485
)
Pension and other postretirement benefits
 
3,650

 

Other assets and liabilities
 
22,267

 
15,500

Cash provided by (used for) operating activities
 
17,495

 
(36,638
)
Investing Activities:
 
 
 
 
Capital expenditures
 
(17,216
)
 
(20,353
)
Acquisition of business, net of cash acquired
 
(462,182
)
 

Proceeds from the disposition of property, plant, and equipment
 
130

 
16

Cash used for investing activities
 
(479,268
)
 
(20,337
)
Financing Activities:
 
 
 
 
Borrowings on line of credit
 
360,000

 

Payments on line of credit
 
(360,000
)
 

Proceeds from issuance of long-term debt
 
350,000

 

Net transfers from parent
 

 
58,113

Payments made on long-term debt to parent
 

 
(6,364
)
Payments made on long-term debt
 
(8,750
)
 

Payments made for debt issuance costs
 
(4,379
)
 

Purchase of treasury shares
 
(53,009
)
 

Excess tax benefits from share-based plans
 
206

 

Proceeds from employee stock compensation plans
 
438

 

Cash provided by financing activities
 
284,506

 
51,749

Effect of foreign exchange rate fluctuations on cash
 
(552
)
 
(629
)
Decrease in cash and cash equivalents
 
(177,819
)
 
(5,855
)
Cash and cash equivalents at beginning of period
 
263,951

 
40,004

Cash and cash equivalents at end of period
 
$
86,132

 
$
34,149

 
 
 
 
 
Supplemental Cash Flow Disclosures:
 
 
 
 
Noncash investing activity:
 
 
 
 
Capital expenditures included in accounts payable
 
$
1,607

 
$
3,175

Noncash financing activity:
 
 
 
 
Treasury Shares purchased included in other accrued liabilities
 
$
2,782

 
$


   See Notes to the Condensed Consolidated and Combined Financial Statements.

4


VISTA OUTDOOR INC.
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS' AND PARENT COMPANY 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
 
Parent's Equity
 
Total
Equity
Balance, March 31, 2014
 

 
$

 
$

 
$

 
$
(1,505
)
 
$

 
$
872,236

 
$
870,731

Comprehensive income
 

 

 

 

 
(7,260
)
 

 
74,790

 
67,530

Net transfers from parent
 

 

 

 

 

 

 
58,113

 
58,113

Balance, September 28, 2014
 

 
$

 
$

 
$

 
$
(8,765
)
 
$

 
$
1,005,139

 
$
996,374

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, March 31, 2015
 
63,878,499

 
$
639

 
$
1,742,125

 
$
19,384

 
$
(110,303
)
 
$
(3,081
)
 
$

 
$
1,648,764

Comprehensive income
 

 

 

 
66,565

 
(1,735
)
 

 

 
64,830

Exercise of stock options
 
20,078

 

 
(426
)
 

 

 
864

 

 
438

Restricted stock grants net of forfeitures
 
35,737

 

 
(1,829
)
 

 

 
1,677

 

 
(152
)
Share-based compensation
 

 

 
6,137

 

 

 

 

 
6,137

Restricted stock vested and shares withheld
 
(21,955
)
 

 
955

 

 

 
(1,010
)
 

 
(55
)
Treasury stock purchased
 
(1,201,707
)
 

 

 

 

 
(54,018
)
 

 
(54,018
)
Tax benefit related to share based plans and other
 

 
(12
)
 
(529
)
 

 

 

 

 
(541
)
Balance, October 4, 2015
 
62,710,652

 
$
627

 
$
1,746,433

 
$
85,949

 
$
(112,038
)
 
$
(55,568
)
 
$

 
$
1,665,403

See Notes to the Condensed Consolidated and Combined Financial Statements.


5


VISTA OUTDOOR INC.
NOTES TO THE CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (unaudited)
Quarter and six months ended October 4, 2015
(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, Shooting Sports and Outdoor Products. Vista Outdoor is headquartered in Utah and has manufacturing operations and facilities in 10 U.S. States, Canada, Mexico and Puerto Rico along with international sales and sourcing operations in Asia, Australia, Canada, Europe, and New Zealand. Vista Outdoor was incorporated in Delaware in 2014. Prior to February 9, 2015, the business was operated as the Sporting Group reporting segment of Alliant Techsystems Inc. ("ATK"); subsequent to the Spin-Off (as defined below), ATK changed its name to Orbital ATK. On April 28, 2014, Orbital ATK entered into a Transaction Agreement (the “Transaction Agreement”) among Vista Outdoor, Vista Merger Sub Inc. (“Merger Sub”) and Orbital Sciences Corporation (“Orbital”), providing for, among other things, the transfer of the businesses comprising ATK’s Sporting Group reporting segment to Vista Outdoor (the “Sporting Transfers”), the distribution of all of the shares of Vista Outdoor Inc. common stock on a pro rata basis to the holders of ATK common stock (the “Spin-Off”), and the merger of Merger Sub with and into Orbital (the “ATK/Orbital Merger”), with Orbital surviving the ATK/Orbital Merger as a wholly owned subsidiary of Orbital ATK.

On February 9, 2015, Orbital ATK completed the Sporting Transfers and the Spin-Off, distributing to its stockholders of record as of February 2, 2015, two shares of Vista Outdoor Inc. common stock for every share of ATK common stock held. In connection with the Spin-Off, Vista Outdoor filed a Registration Statement on Form 10 (as amended, the “Form 10”) with the Securities and Exchange Commission (the “SEC”), which was declared effective on January 23, 2015. The Form 10 included an Information Statement (the “Information Statement”) describing the details of the Spin-Off and providing information as to our business and management.

Except where indicated, references below to transactions completed by Vista Outdoor prior to February 9, 2015, refer to transactions completed by or on behalf of the ATK Sporting Group reporting segment that are reflected on the consolidated and combined financial statements of Vista Outdoor.

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 2015 Annual Report on Form 10-K.

Basis of Presentation.    Our unaudited condensed consolidated and combined financial statements as set forth 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, 2015 (“fiscal 2015”). Management is responsible for the condensed consolidated and combined 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 October 4, 2015 and March 31, 2015, and our results of operations for the quarters and six month periods ended October 4, 2015 and September 28, 2014, and cash flows for the six month periods ended October 4, 2015 and September 28, 2014.

The accompanying unaudited condensed consolidated and combined financial statements reflect our consolidated operations as a separate stand-alone entity beginning on February 9, 2015. Periods presented prior to the Spin-Off have been prepared on a stand-alone basis and are derived from ATK’s consolidated financial statements and accounting records and are presented on a combined basis. Subsequent to the Spin-Off, the financial statements are presented on a consolidated basis. Prior to the Spin-Off, the unaudited condensed consolidated and combined financial statements represent our financial position, results of operations, and cash flows as our business was operated as part of ATK prior to the distribution, in conformity with U.S. generally accepted accounting principles.

Prior to the Spin-Off, the unaudited condensed consolidated and combined statements of operations include expense allocations for certain corporate functions historically provided to us by ATK, including, but not limited to, human resources, employee benefits administration, treasury, risk management, audit, finance, tax, legal, information technology support, and other shared services. These allocations are reflected in the unaudited condensed consolidated and combined statements of operations within the expense categories to which they relate. The allocations were made on a direct usage basis when

6


NOTES TO THE CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands unless otherwise indicated)
1. Basis of Presentation and Responsibility for Interim Financial Statements (Continued)


identifiable, with the remainder allocated on various bases that are further discussed in Note 15. We consider these allocations to be a reasonable reflection of the utilization of services by, or benefits provided to us. The allocations may not, however, reflect the expense we would have incurred as a stand-alone company. Following the Spin-Off, we perform these functions using our resources or purchased services. For an interim period, however, some of these functions will continue to be provided by Orbital ATK under transition services agreements and other commercial agreements.

Prior to the Spin-Off, Orbital ATK maintained a number of defined benefit plans at a corporate level which our employees participated in, and as such, we were charged a portion of the expenses associated with these plans. Subsequent to February 9, 2015, we established separate defined benefit plans and recorded the related liabilities attributable to our employees.  We also recorded our rights to the associated assets, which were maintained in the Orbital ATK plan asset pools.  The fair value of these assets was transferred to us in cash on July 1, 2015, and was immediately reinvested in accordance with our targeted asset allocation.

Transactions between Orbital ATK and us prior to the Spin-Off are reflected as effectively settled at the time of the transaction and are included in financing activities in the consolidated and combined statements of cash flows.

Our consolidated and combined financial statements may not be indicative of our future performance and do not necessarily reflect what the results of operations and cash flows would have been had we operated as a stand-alone company during the periods presented.
New Accounting Pronouncements. On May 28, 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09 Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Topic 605, Revenue Recognition, including most industry-specific revenue recognition guidance. This guidance is effective for periods beginning after December 15, 2017 and early application is permitted for periods beginning after December 15, 2016. We are in the process of evaluating the impact this standard will have on us.
There are no other new accounting pronouncements that are expected to have a significant impact on our condensed consolidated and combined 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.
The following section describes the valuation methodologies we used to measure our financial instruments at fair value.
Derivative financial instruments and hedging activities—In order to manage our exposure to foreign currency risk, we periodically utilize foreign currency derivatives, which are considered Level 2 instruments. Foreign currency derivatives are valued based on observable market transactions of spot currency rates and forward currency prices. During the six months ended October 4, 2015, we entered into various foreign currency forward contracts. See Note 3 for additional detail. There were no foreign currency derivatives outstanding as of March 31, 2015.

7

NOTES TO THE CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands unless otherwise indicated)
2. Fair Value of Financial Instruments (Continued)

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 each issuance. 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 closed after July 5, 2015. 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.
The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that are measured at fair value on a recurring basis:
 
 
October 4, 2015
 
 
Fair value measurements
using inputs considered as
 
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
Derivatives
 
$

 
$
140

 
$

Liabilities:
 
 
 
 
 
 
Derivatives
 
$

 
$

 
$

Contingent consideration
 
$

 
$

 
$
4,471

As of March 31, 2015, we had no financial assets and liabilities that are measured at fair value on a recurring basis outstanding.
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:
 
 
October 4, 2015
 
March 31, 2015
 
 
Carrying
amount
 
Fair
value
 
Carrying
amount
 
Fair
value
Fixed-rate debt
 
$
350,000

 
$
357,000

 
$

 
$

Variable-rate debt
 
341,250

 
341,250

 
350,000

 
350,000

3. Derivative Financial Instruments
We are exposed to market risks arising from adverse changes in:
commodity prices affecting the cost of raw materials,
interest rate, and
foreign exchange risks
In the normal course of business, these risks are managed through a variety of strategies, including the use of derivative instruments. Foreign currency exchange contracts are used to hedge forecasted transactions denominated in a foreign currency.
We entered into various foreign currency forward contracts during the six months ended October 4, 2015 and September 28, 2014. These contracts are used to hedge forecasted cash receipts from customers denominated in foreign currencies and are designated and qualify as effective cash flow hedges. Ineffectiveness with respect to forecasted customer cash receipts is calculated based on changes in the forward rate until the anticipated cash receipt occurs.
The fair value of the foreign currency forward contracts is recorded within other assets or liabilities, as appropriate, and the effective portion is reflected in accumulated other comprehensive loss ("AOCL") in the financial statements. The gains or losses on the foreign currency forward contracts are recorded in earnings when we settle the contracts with the counterparty with customer receipts.

8

NOTES TO THE CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands unless otherwise indicated)
3. Derivative Financial Instruments (continued)


As of October 4, 2015, we had outstanding foreign currency forward contracts in place for the following amounts:
 
Notional Amount of Currency
Sale of foreign currency:
 
Euro
6,586

Australian Dollar
2,227

The table below presents the fair value and location of our derivative instruments designated as hedging instruments in the unaudited condensed consolidated balance sheets.
 
 
 
 
Asset derivatives
fair value as of
 
 
Location
 
October 4, 2015
 
March 31, 2015
Foreign currency forward contracts
 
Other current assets
 
$
140

 
$

Total
 
 
 
$
140

 
$

For the periods presented below, the derivative gains and losses in the unaudited condensed consolidated and combined statements of operations related to foreign currency forward contracts were as follows:
 
 
Pretax gain
(loss) reclassified from
AOCI
 
Gain (loss) recognized
in income on derivative
(ineffective portion and
amount excluded from
effectiveness testing)
 
 
Location
 
Amount
 
Location
 
Amount
Quarter ended October 4, 2015
 
 
 
 
 
 
 
 
Foreign currency forward contracts
 
Cost of Sales
 
$
39

 
Cost of Sales
 
$

Quarter ended September 28, 2014
 
 
 
 
 
 
 
 
Foreign currency forward contracts
 
Cost of Sales
 
$

 
Cost of Sales
 
$

 
 
 
 
 
 
 
 
 
Six months ended October 4, 2015
 
 
 
 
 
 
 
 
Foreign currency forward contracts
 
Cost of Sales
 
$
52

 
Cost of Sales
 
$

Six months ended September 28, 2014
 
 
 
 
 
 
 
 
Foreign currency forward contracts
 
Cost of Sales
 
$

 
Cost of Sales
 
$


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. On February 9, 2015, 63,875 shares of our common stock were distributed to Orbital ATK shareholders of record to complete the Spin-Off from ATK. For comparative purposes, we have used weighted average shares of 63,875 to calculate basic and diluted EPS for all periods prior to the Spin-Off, as we had no outstanding common shares or dilutive stock-based awards.
In computing EPS for the quarters and six month periods ended October 4, 2015 and September 28, 2014, earnings, as reported for each respective period, is divided by:

9

NOTES TO THE CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands unless otherwise indicated)
4. Earnings Per Share (continued)


 
 
Quarter ended
 
Six months ended
 
 
October 4, 2015
 
September 28, 2014
 
October 4, 2015
 
September 28, 2014
Basic EPS shares outstanding
 
62,816

 
63,875

 
63,064

 
63,875

Dilutive effect of stock-based awards
 
339

 

 
342

 

Diluted EPS shares outstanding
 
63,155

 
63,875

 
63,406

 
63,875

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
 
68

 

 
68

 

5. Acquisitions
In accordance with the accounting standards regarding business combinations, the results of acquired businesses are included in our consolidated and combined financial statements from the date of acquisition. The purchase price for each acquisition is allocated to the acquired assets and liabilities based on fair value. The excess purchase price over estimated fair value of the net assets acquired is recorded as goodwill.
Acquisition of 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.

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.

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.

Current year results for acquisitions

Subsequent to the acquisition dates of these acquisitions, Vista Outdoor recorded sales of approximately $24,370 for the quarter and six months ended October 4, 2015 and gross profit of approximately $9,216 for the quarter and six months ended October 4, 2015, each associated with the operations of these acquired businesses and reflected in the Outdoor Products segment results.


10

NOTES TO THE CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands unless otherwise indicated)
5. Acquisitions (Continued)


Preliminary Allocation of Consideration Transferred to Net Assets Acquired for CamelBak:

The following amounts represent the preliminary determination of the fair value of identifiable assets acquired and liabilities assumed from the CamelBak acquisition. 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 CamelBak acquisition 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:
 
 
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)
 
 
 
 
 
Indefinite lived tradename
 
$
79,400

 
Indefinite
Customer relationships
 
49,400

 
10-20
Technology
 
5,000

 
7-17

11

NOTES TO THE CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands unless otherwise indicated)
5. Acquisitions (Continued)



Supplemental Pro Forma Data for CamelBak:

We used the acquisition method of accounting to account for this acquisition and, accordingly, the results of 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 quarter and six months ended October 4, 2015 and September 28, 2014 present consolidated and combined information as if the acquisition had been completed on April 1, 2014. The pro forma results were calculated by combining our results with the standalone results of 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
 
Six months ended
(Amounts in thousands except per share data)
 
October 4, 2015
 
September 28, 2014
 
October 4, 2015
 
September 28, 2014
Sales
 
$
568,400

 
$
558,645

 
$
1,125,471

 
$
1,165,519

Net income
 
37,838

 
34,999

 
74,149

 
74,896

Basic earnings per common share
 
0.60

 
0.55

 
1.18

 
1.17

Diluted earnings per common share
 
0.60

 
0.55

 
1.17

 
1.17


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 acquisition had been completed on April 1, 2014, as adjusted for the applicable tax impact:
 
 
Quarter ended
 
Six months ended
 
 
October 4, 2015
 
September 28, 2014
 
October 4, 2015
 
September 28, 2014
Inventory step-up, net1
 
$
(334
)
 
$
313

 
$
(334
)
 
$
647

Fees for advisory, legal, accounting services2
 
(3,940,100
)
 

 
(4,221,000
)
 
4,220,960


1. Adjustment reflects the increased cost of goods sold expense resulting from the fair value step-up in inventory of $1,043 which was expensed over the first inventory cycle.
2. We removed the fees that were incurred in connection with the acquisition of CamelBak from fiscal 2016 and considered those fees as incurred during the first quarter of fiscal 2015. Costs were recorded in Selling, general and administrative expense.
We made no acquisitions during fiscal 2015.
6. Net Receivables
Net receivables are summarized as follows:
 
 
October 4, 2015
 
March 31, 2015
Trade receivables
 
$
413,331

 
$
370,335

Other receivables
 
2,338

 
2,089

Less allowance for doubtful accounts and discounts
 
(11,940
)
 
(10,730
)
Net receivables
 
$
403,729

 
$
361,694

No customer represented more than 10% of the total trade receivable balance as of October 4, 2015 and March 31, 2015.

12


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

7. Net Inventories
Net inventories consist of the following:
 
 
October 4, 2015
 
March 31, 2015
Raw materials
 
$
125,998

 
$
107,848

Work in process
 
64,806

 
53,740

Finished goods
 
312,420

 
214,033

Net inventories
 
$
503,224

 
$
375,621

8. Accumulated Other Comprehensive Loss
The components of AOCL, net of income taxes, are as follows:
 
 
October 4, 2015
 
March 31, 2015
Derivatives
 
$
86

 
$

Pension and other postretirement benefits
 
(55,927
)
 
(58,155
)
Cumulative translation adjustment
 
(56,197
)
 
(52,148
)
Total AOCL
 
$
(112,038
)
 
$
(110,303
)
The following table summarizes the changes in the balance of AOCL, net of income tax:
 
Quarter ended October 4, 2015
 
Six months ended October 4, 2015
 
Derivatives
 
Pension and other postretirement benefits
 
Cumulative translation adjustment
 
Total
 
Derivatives
 
Pension and other postretirement benefits
 
Cumulative translation adjustment
 
Total
Beginning of period unrealized gain (loss) in AOCL
$
90

 
$
(57,041
)
 
$
(49,478
)
 
$
(106,429
)
 
$

 
$
(58,155
)
 
$
(52,148
)
 
$
(110,303
)
Net increase in fair value of derivatives
20

 

 

 
20

 
117

 

 

 
117

Net gain reclassified from AOCL, offsetting the price paid to suppliers (1)
(24
)
 

 

 
(24
)
 
(31
)
 

 

 
(31
)
Net actuarial losses reclassified from AOCL (2)

 
1,381

 

 
1,381

 

 
2,762

 

 
2,762

Prior service costs reclassified from AOCL (2)

 
(267
)
 

 
(267
)
 

 
(534
)
 

 
(534
)
Net change in cumulative translation adjustment

 

 
(6,719
)
 
(6,719
)
 

 

 
(4,049
)
 
(4,049
)
End of period unrealized gain (loss) in AOCL
$
86

 
$
(55,927
)
 
$
(56,197
)
 
$
(112,038
)
 
$
86

 
$
(55,927
)
 
$
(56,197
)
 
$
(112,038
)
(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.

 
Quarter ended September 28, 2014
 
Six months ended September 28, 2014
 
Derivatives
 
Cumulative translation adjustment
 
Total
 
Derivatives
 
Cumulative translation adjustment
 
Total
Beginning of period unrealized gain (loss) in AOCL
$

 
$
(309
)
 
$
(309
)
 
$

 
$
(1,505
)
 
$
(1,505
)
Net increase in fair value of derivatives
478

 

 
478

 
478

 

 
478

Net change in cumulative translation adjustment

 
(8,934
)
 
(8,934
)
 

 
(7,738
)
 
(7,738
)
End of period unrealized gain (loss) in AOCL
$
478

 
$
(9,243
)
 
$
(8,765
)
 
$
478

 
$
(9,243
)
 
$
(8,765
)


13


NOTES TO THE CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands unless otherwise indicated)


9. Goodwill, Net Intangibles, and Deferred Charges and Other Non-current Assets
The changes in the carrying amount of goodwill by segment were as follows:
 
 
Shooting Sports
 
Outdoor Products
 
Total
Balance, March 31, 2015
 
$
204,520

 
$
577,643

 
$
782,163

Acquisitions
 

 
239,219

 
239,219

Effect of foreign currency exchange rates
 
254

 
(2,284
)
 
(2,030
)
Balance, October 4, 2015
 
$
204,774

 
$
814,578

 
$
1,019,352


The acquisitions in Outdoor Products related to the preliminary purchase price allocation for CamelBak and Jimmy Styks as previously discussed.
The goodwill recorded within Shooting Sports and Outdoor Products segments are presented net of $41,020 and $47,791 of accumulated impairment losses, respectively.
Net intangibles includes non-amortizing assets consisting of tradenames that are not being amortized as their estimated useful lives are considered indefinite.

Net intangibles consisted of the following:

 
 
October 4, 2015
 
March 31, 2015
 
 
Gross
carrying
amount
 
Accumulated
amortization
 
Total
 
Gross
carrying
amount
 
Accumulated
amortization
 
Total
Trade names
 
$
185,162

 
$
(40,532
)
 
$
144,630

 
$
184,660

 
$
(34,260
)
 
$
150,400

Patented technology
 
27,900

 
(9,151
)
 
18,749

 
22,600

 
(8,488
)
 
14,112

Customer relationships and other
 
271,576

 
(39,780
)
 
231,796

 
190,936

 
(31,064
)
 
159,872

Total
 
484,638

 
(89,463
)
 
395,175

 
398,196

 
(73,812
)
 
324,384

Non-amortizing trade names
 
272,498

 

 
272,498

 
193,098

 

 
193,098

Net intangibles
 
$
757,136

 
$
(89,463
)
 
$
667,673

 
$
591,294

 
$
(73,812
)
 
$
517,482


The gross amount of amortizable and non-amortizable intangible assets increased from March 31, 2015 due to the acquisition of CamelBak and Jimmy Styks. The assets in the table above are being amortized using a straight-line method over a weighted average remaining period of approximately 12.4 years. Amortization expense for the quarters and six month periods ended October 4, 2015 and September 28, 2014 was $8,349 and $7,782, and $15,651 and $15,378, respectively. We expect amortization expense related to these assets to be as follows:

Remainder of fiscal 2016
 
$
18,108

Fiscal 2017
 
35,951

Fiscal 2018
 
35,951

Fiscal 2019
 
33,207

Fiscal 2020
 
32,324

Thereafter
 
239,634

Total
 
$
395,175


14

NOTES TO THE CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands unless otherwise indicated)
9. Goodwill, Net Intangibles, and Deferred Charges and Other Non-current Assets (Continued)

Deferred charges and other non-current assets consist of the following:
 
 
October 4, 2015
 
March 31, 2015
Debt issuance costs
 
$
15,070

 
$
10,691

Less accumulated amortization
 
(1,512
)
 
(356
)
Net debt issuance costs
 
13,558

 
10,335

Other
 
5,853

 
7,476

Total deferred charges and other non-current assets
 
$
19,411

 
$
17,811



15


NOTES TO THE CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands unless otherwise indicated)


10. Other Current and Non-current Liabilities
Other current and non-current liabilities consisted of the following:
 
 
October 4, 2015
 
March 31, 2015
Other current liabilities:
 
 
 
 
In-transit inventory and other
 
$
41,097

 
$
39,236

Rebate
 
35,655

 
14,889

Employee benefits and insurance
 
17,087

 
14,375

Accrued advertising
 
9,925

 
8,073

Warranty
 
9,589

 
7,429

Interest
 
3,234

 
393

Freight accrual
 
1,775

 
3,012

Product liability
 
1,514

 
1,534

Customer obligations
 
726

 
5,982

Accrued taxes
 
553

 
1,148

Total other current liabilities
 
$
121,155

 
$
96,071

 
 
 
 
 
Other non-current liabilities:
 
 
 
 
Non-current portion of accrued income tax liability
 
$
23,118

 
$
23,406

Contingent consideration
 
4,471

 

Management non-qualified deferred compensation plan
 
2,629

 
715

Environmental remediation
 
532

 
529

Performance share liability
 

 
641

Other
 
8,943

 
5,930

Total other non-current liabilities
 
$
39,693

 
$
31,221

We provide consumer warranties against manufacturing defects on certain products within the Shooting Sports and Outdoor Products segments with warranty periods ranging primarily 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, 2015
$
7,429

Payments made
(2,794
)
Warranties issued
4,276

Warranties assumed in acquisition
678

Balance, October 4, 2015
$
9,589


16

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


11. Long-term Debt
Long-term debt, including the current portion, consisted of the following:
 
 
October 4, 2015
 
March 31, 2015
Credit Agreement dated December 19, 2014:
 
 
 
 
Term Loan due 2020
 
$
341,250

 
$
350,000

Revolving Credit Facility due 2020
 

 

Total principal amount of Credit Agreement
 
341,250

 
350,000

5.875% Senior Notes due 2023
 
350,000

 

Principal amount of long-term debt
 
691,250

 
350,000

Less: Current portion
 
17,500

 
17,500

Carrying amount of long-term debt, excluding current portion
 
$
673,750

 
$
332,500


Credit Agreement

Borrowings under our Credit Agreement dated December 19, 2014 (the "Credit Agreement") bear interest at a rate equal to either the sum of a base rate plus a margin or the sum of a Eurodollar rate plus a margin. Each margin is based on our consolidated leverage ratio, as defined in the Credit Agreement, and based on the current ratio, the base rate margin is 0.75% and the Eurodollar margin is 1.75%. The interest rate for the Term Loan as of October 4, 2015 was 1.94%. 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 0.30%. As of October 4, 2015, we had no borrowings against our $400,000 Revolving Credit Facility and had outstanding letters of credit of $30,454, which reduced amounts available on the Revolving Credit Facility to $369,546.

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.

Rank and Guarantees

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 Credit Agreement obligations are guaranteed on a secured basis, jointly and severally and fully and unconditionally, by substantially all of our domestic subsidiaries. The parent company has no independent assets or operations. We own 100% of all of these guarantor subsidiaries. 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

17

NOTES TO THE CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands except share and per share data and unless otherwise indicated)
11. Long-term Debt (Continued)

if such subsidiary guarantor has been released from its guarantees of indebtedness under the Credit Agreement and all capital markets debt securities.

Cash Paid for Interest on Debt

Cash paid for interest on debt, including commitment fees for the six months ended October 4, 2015 totaled $4,683.
12. Employee Benefit Plans
The components of net periodic benefit cost are as follows:
 
 
Pension Benefits and PRB
 
 
Quarter ended
 
Six months ended
 
 
October 4, 2015
 
September 28, 2014
 
October 4, 2015
 
September 28, 2014
Components of net periodic benefit cost:
 
 
 
 
 
 
 
 
Service cost
 
$
750

 
$
316

 
$
1,500

 
$
1,408

Interest cost
 
2,125

 
1,779

 
4,250

 
5,275

Expected return on plan assets
 
(2,825
)
 
(2,257
)
 
(5,650
)
 
(6,525
)
Amortization of unrecognized net loss
 
2,200

 
1,623

 
4,400

 
5,909

Amortization of unrecognized prior service cost
 
(425
)
 
(332
)
 
(850
)
 
(850
)
Net periodic benefit cost
 
$
1,825

 
$
1,129

 
$
3,650

 
$
5,217


Employer Contributions. During the six months ended October 4, 2015, we made no contributions directly to the pension trust, to retirees under the non-qualified supplemental executive retirement plan, or to our other postretirement benefit plans. For the six months ended September 28, 2014, Orbital ATK contributed $220 directly to the pension trust, $64 directly to retirees under the non-qualified supplemental executive retirement plan, associated with our allocated portion of these plans and no contributions to our other postretirement benefit plans, associated with our allocated portion of these plans. We anticipate making contributions to the pension trust during the remainder of fiscal 2016. We are required to make contributions of $2,000 to meet our legally required minimum contributions for fiscal 2016. We also expect to distribute approximately $597 directly to retirees under our supplemental executive retirement plans, and contribute approximately $186 to our other postretirement benefit plans in fiscal 2016.
13. 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 October 4, 2015 and September 28, 2014 represent effective tax rates of 39.7% and 34.4%, respectively. The increase in the rate from the prior year quarter is primarily caused by the absence of the favorable true-up of prior year taxes recorded in the previous year and the nondeductible acquisition related costs in the current year.

The income tax provisions for the six months ended October 4, 2015 and September 28, 2014 represent effective tax rates of 39.8% and 36.1%, respectively. The increase in the rate from the prior year period is primarily caused by the absence of the favorable true-up of prior year taxes recorded in the previous year, a one-time discrete revaluation of a deferred tax asset and the nondeductible acquisition related 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 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

18

NOTES TO THE CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands unless otherwise indicated)
13. Income Taxes (Continued)

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 will be 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 2008. 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 $4,955 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 $4,545.
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 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 $558 as of October 4, 2015 and March 31, 2015, 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. Related Party Transactions
The unaudited condensed consolidated and combined financial statements have been prepared on a stand-alone basis. However, prior to February 9, 2015, they were derived from the consolidated financial statements and accounting records of Orbital ATK.

Allocation of General Corporate Expenses

Prior to February 9, 2015, the unaudited condensed consolidated and combined financial statements reflect an allocation of certain costs managed at the Orbital ATK level. These costs have historically been allocated to us. These costs generally fall into one of the following categories:

Orbital ATK management and support services – This category includes costs for functions such as acquisition transaction costs, human resources (talent acquisition/compensation), treasury, risk management, internal audit,

19

NOTES TO THE CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands unless otherwise indicated)
15. Related Parties (Continued)

finance, tax, legal, executive office, business development, government relations, and other administrative support. These costs were allocated to the Company based on a percentage of sales for all of Orbital ATK or as specifically identified. The unaudited condensed consolidated and combined financial statements include Orbital ATK management and support services allocations included within the general and administrative expense totaling $10,793 and $14,938 for the quarter and six months ended September 28, 2014, respectively.

Infrastructure costs – This category includes costs for functions such as information technology support, systems maintenance, and telecommunications. These costs were generally allocated to the Company using either sales, headcount, or fixed assets. The unaudited condensed consolidated and combined statement of operations reflects infrastructure costs allocations included within the general and administrative expense totaling $1,938 and $2,898 for the quarter and six months ended September 28, 2014, respectively.

Orbital ATK-provided benefits – This category includes costs for group medical, dental and vision insurance, 401(k) savings plan, pension and postretirement benefits, and other benefits. These costs were generally allocated to the Company based on specific identification of the benefits provided to Company employees participating in these benefit plans. Medical and dental, including the human resources and finance administration of those plans, are allocated to business units based upon their year-to-date enrolled medical headcount. Postretirement benefits, including the human resources and finance administration of those plans, were allocated based upon member headcount. Pension expense was actuarially determined for individual segments and is identified directly to those segments. The pension expense determined for composite pension segments was further allocated to individual segments using total payroll. The unaudited condensed consolidated and combined financial statements include Orbital ATK-provided benefits allocations totaling $14,577 and $29,610 for the quarter and six months ended September 28, 2014, respectively.

Management believes that the methods of allocating these costs were reasonable and consistent with past practices.

Related Party Sales and Cost of Sales

Historically, we purchased and sold certain products and services to/from Orbital ATK businesses. Prior to the Spin-Off, purchases of products and services from these affiliated entities, which were recorded at sales price, were $67,245 and $119,667 for the quarter and six months ended September 28, 2014, respectively. Sales of products and services to these entities were $2,455 and $5,037 for the quarter and six months ended September 28, 2014, respectively.

16. Operating Segment Information
We operate our business structure within two operating segments. These operating segments are defined based on the reporting and review process used by the chief operating decision maker, our chief executive officer.  Management reviews the operating segments based on net sales and gross profit. Certain significant selling, and general and administrative expenses are not allocated to the segments. In addition certain significant asset balances are not readily identifiable with individual segments and therefore cannot be allocated. Each segment is described below: 
Shooting Sports generated 63% of our external sales in the six months ended October 4, 2015. Shooting Sports product lines are ammunition and firearms. Ammunition products include centerfire, rimfire and shotshell ammunition and reloading components. Firearms products include centerfire rifles, rimfire rifles, shotguns and range systems.
Outdoor Products generated 37% of our external sales in the six months ended October 4, 2015. The Outdoor Products product lines are optics, shooting accessories, archery/hunting accessories, tactical products, eyewear, golf, water sports, and hydration products. Optics products include binoculars, riflescopes and telescopes. Shooting accessories products include reloading equipment, clay targets, and premium gun care products. Archery/hunting accessories include high-performance hunting arrows, game calls, hunting blinds, game cameras and waterfowl decoys. Tactical products include holsters, duty gear, bags and packs. Eyewear products include safety and protective eyewear, as well as fashion and sports eyewear. Golf products include laser rangefinders. Water sports products include stand up paddle boards. Hydration products include hydration packs, reusable bottles and individual purification and filtration systems.
For the six months ended October 4, 2015 one customer accounted for 11% of our sales and for the six months ended September 28, 2014 no single customer contributed more than 10% of our sales.

20

NOTES TO THE CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (unaudited) (Continued)
(Amounts in thousands unless otherwise indicated)
16. Operating Segment Information (Continued)


The following summarizes our results by segment:
 
 
Quarter ended
 
Six months ended
 
 
October 4, 2015
 
September 28, 2014
 
October 4, 2015
 
September 28, 2014
Sales to external customers:
 
 
 
 
 
 
 
 
Shooting Sports
 
$
338,400

 
$
342,904

 
$
670,302

 
$
730,511

Outdoor Products
 
212,977

 
182,245

 
395,572

 
360,633

Total sales to external customers
 
$
551,377

 
$
525,149

 
$
1,065,874

 
$
1,091,144

 
 
 
 
 
 
 
 
 
Gross Profit
 
 
 
 
 
 
 
 
Shooting Sports
 
$
91,740

 
$
79,327

 
$
178,279

 
$
173,150

Outdoor Products
 
57,314

 
49,166

 
110,279

 
98,700

Corporate
 
(30
)
 
102

 
(242
)
 
196

Total gross profit
 
$
149,024

 
$
128,595

 
$
288,316

 
$
272,046

The sales above exclude intercompany sales between Outdoor Products and Shooting Sports of $770 and $754 for the quarters ended October 4, 2015 and September 28, 2014, respectively.
The sales above exclude intercompany sales between Outdoor Products and Shooting Sports of $1,756 and $2,393 for the six months ended October 4, 2015 and September 28, 2014, respectively.

21


ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Dollar amounts in thousands unless otherwise indicated)
Forward-Looking Information is Subject to Risk and Uncertainty
Some of the statements made and information contained in this report, excluding historical information, are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements give our current expectations or forecasts of future events. Words such as "may," "expect," "intend," "estimate," "anticipate," "believe," "project," or "continue," and similar expressions are used to identify forward-looking statements. From time to time, we also may provide oral or written forward-looking statements in other materials released to the public. Any or all forward-looking statements in this report and in any public statements we make could be materially different. They can be affected by assumptions used or by known or unknown risks or uncertainties. Consequently, no forward-looking statements can be guaranteed. Actual results may vary materially. You are cautioned not to place undue reliance on any forward-looking statements. You should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties. Any change in the following factors may impact the achievement of results:

our ability to realize anticipated benefits and cost savings from acquisitions;
costs or difficulties related to the integration of acquired businesses;
general economic and business conditions in the United States and our other markets, including conditions affecting employment levels, consumer confidence and spending;
our ability to operate successfully as a stand-alone business;
our ability to retain and hire key personnel and maintain and grow our relationships with customers, suppliers and other business partners;
our ability to adapt our products to changes in technology, the marketplace and customer preferences;
our ability to maintain and enhance brand recognition and reputation;
reductions or unexpected changes in demand for ammunition, firearms or other outdoor sports and recreation products;
risks associated with our sales to significant retail customers, including unexpected cancellations, delays and other changes to purchase orders;
supplier capacity constraints, production disruptions or quality or price issues affecting our operating costs;
seasonality and weather conditions in our markets;
our competitive environment;
risks associated with compliance and diversification into international and commercial markets;
the supply, availability and costs of raw materials and components;
changes in commodity, energy and production costs;
changes in laws, rules and regulations relating to our business, such as federal and state firearms and ammunition regulations;
our ability to execute our long-term growth strategy;
our ability to take advantage of growth opportunities in international and commercial markets;
changes in interest rates or credit availability;
foreign currency exchange rates and fluctuations in those rates;
the outcome of contingencies, including with respect to litigation and other proceedings relating to intellectual property, product liability, warranty liability, personal injury and environmental remediation;
risks associated with cybersecurity and other industrial and physical security threats;
risks associated with pension asset returns and assumptions regarding future returns, discount rates and service costs;

22


capital market volatility and the availability of financing;
changes to accounting standards or policies; and
changes in tax rules or pronouncements.
This list of factors is not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that would impact our business. We undertake no obligation to update any forward-looking statements. A more detailed description of risk factors can be found in Part 1, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the fiscal year ended March 31, 2015. Additional information regarding these factors may be contained in our subsequent filings with the Securities and Exchange Commission, including Forms 10-Q and 8-K. All such risk factors are difficult to predict, contain material uncertainties that may affect actual results, and may be beyond our control.
Executive Summary
We are a leading global designer, manufacturer and marketer of consumer products in the growing outdoor sports and recreation markets. We serve these markets through the diverse portfolio of over 40 well-recognized brands that provide consumers with a range of affordable, performance-driven, high-quality and innovative products, including sporting ammunition and firearms, outdoor accessories, outdoor sports optics, golf rangefinders, performance eyewear, hydration products, and stand up paddle boards. We serve a broad range of end consumers, including outdoor enthusiasts, hunters and recreational shooters, athletes, as well as law enforcement and military professionals. Our products are sold through a wide variety of mass, specialty and independent retailers, such as Walmart, Cabela's, Gander Mountain, Bass Pro Shops, Dick's Sporting Goods, Sportsman's Warehouse, Recreational Equipment, Inc., and Target. We have a scalable, integrated portfolio of brands that allows us to leverage our deep customer knowledge, product development and innovation, supply chain and distribution, and sales and marketing functions across product categories to better serve our retail partners and end users.
We operate our business structure within two operating segments. Each segment is described below:
Shooting Sports generated 63% of our external sales in the six months ended October 4, 2015. Shooting Sports products include pistol, rifle, rimfire and shotshell ammunition and reloading components, centerfire rifles, rimfire rifles, shotguns and range systems.
Outdoor Products generated 37% of our external sales in the six months ended October 4, 2015. The Outdoor Products product lines are optics, shooting accessories, archery/hunting accessories, tactical products, eyewear, golf, water sports, and hydration products. Optics products include binoculars, riflescopes and telescopes. Shooting accessories products include reloading equipment, clay targets, and premium gun care products. Archery/hunting accessories include high-performance hunting arrows, game calls, hunting blinds, game cameras and waterfowl decoys. Tactical products include holsters, duty gear, bags and packs. Eyewear products include safety and protective eyewear, as well as fashion and sports eyewear. Golf products include laser rangefinders. Water sports products include stand up paddle boards. Hydration products include hydration packs and water bottles.
Financial Highlights and Notable Events
Certain notable events or activities affecting our fiscal 2016 financial results included the following:
Financial highlights for the quarter ended October 4, 2015
Quarterly sales of $551,377 and $525,149 for the quarters ended October 4, 2015 and September 28, 2014, respectively. The increase is due to the acquisition of CamelBak and Jimmy Styks.

Gross Profit was $149,024 and $128,595 for the quarters ended October 4, 2015 and September 28, 2014, respectively. The increase is due to higher firearms volume, raw material procurement favorability, a previously announced rimfire ammunition price increase, an increase in sales in the Outdoor Products segment, and the acquisition of CamelBak and Jimmy Styks. The increase in gross profit was partially offset by a decrease in gross profit in the Outdoor Products segment as a result of inventory related charges in the now closed Meridian, Idaho facility and a slightly lower margin product mix.

The increase in the current quarter's tax rate to 39.7% from 34.4% in the quarter ended September 28, 2014 was primarily caused by the absence of the favorable true-up of prior year taxes recorded in the previous year and the nondeductible acquisition related costs in the current year.


23


Other notable events affecting fiscal 2016

On July 20, 2015, we completed the Jimmy Styks Acquisition, using $40,000 of cash on hand with additional contingent consideration payable if incremental profitability growth milestones are achieved over the next three years.

On August 3, 2015, we completed the acquisition of CamelBak Products, LLC (the "CamelBak Acquisition") for total consideration of $412,500, subject to a customary working capital adjustment, utilizing cash on hand and borrowings under our existing credit facilities.

On August 11, 2015, we issued $350,000 aggregate principal amount of 5.875% senior notes (the “Notes”) that mature on October 1, 2023.

During the six months ended October 4, 2015, we repurchased approximately 1,202,000 shares for $54,018.

Outlook

Following the Spin-Off, our results of operations and cash flows may be subject to greater variability as a result of becoming a stand-alone, publicly-traded company. For example, we expect to incur one-time expenditures consisting primarily of employee-related costs, costs to start up certain stand-alone functions and information technology systems, and other one-time transaction-related costs. Recurring stand-alone costs include establishing the internal audit, treasury, investor relations, tax and corporate secretary functions as well as the annual expenses associated with running an independent publicly-traded company. As a stand-alone public company, we expect the recurring stand-alone corporate costs to be higher than the expenses historically allocated by Orbital ATK. For example, if the Spin-Off had occurred on April 1, 2014, we estimate that for the fiscal year ended March 31, 2015, we would have incurred approximately $15,000 of additional costs associated with such activities. We believe that our cash flow from operations will be sufficient to fund these corporate expenses.

In addition, following the Spin-Off, we procure certain products on arm's length commercial terms rather than the internal transfer pricing we experienced as part of Orbital ATK. For example, we rely on Orbital ATK for certain ammunition and gunpowder products pursuant to an arm's length supply agreement, and if the production capabilities of Orbital ATK (including its Lake City ammunition plant or Radford gunpowder plant) change such that Orbital ATK fails to maintain an adequate supply of ammunition and gunpowder products, we may need to procure such products from a third party, either of which would likely result in higher operating costs than we faced as part of Orbital ATK. These and other factors may lead to greater volatility in our results of operations and cash flows following the Spin-Off. For additional information, please see the section entitled "Risk Factors" in Item 1A of Part I of the Annual Report on Form 10-K.

Shooting Sports Market - There was a decline in the number of new long-gun background checks, as evidenced by The National Instant Criminal Background Check System, or NICS, over the last 24 months.  This decline indicated a reduction in the demand for guns, ammunition and related accessory categories, which we first experienced in calendar year 2014.  While there has been an increase in NICS checks in recent months, previous market declines have lasted 12-24 months, and it is difficult to predict the significance or length of the current market situation.

Critical Accounting Policies
Our critical accounting policies are described in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the fiscal year ended March 31, 2015. We believe our critical accounting policies are those related to:
revenue recognition,
allowance for doubtful accounts
inventories
employee benefit plans,
income taxes,
acquisitions, and
accounting for goodwill and indefinite lived intangibles.
The accounting policies used in preparing our interim fiscal 2016 consolidated financial statements are the same as those described in our Annual Report on Form 10-K.

24


Results of Operations
The following information should be read in conjunction with our condensed consolidated and combined financial statements. The key performance indicators that our management uses in managing the business are sales, gross profit, and cash flows.
Segment total net sales, cost of sales, and gross profit exclude intersegment sales and profit.
Acquisitions

We had no acquisitions during fiscal 2015. During the six months ended October 4, 2015, we had two acquisitions as follows:

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. 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.

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.
Sales
During the six months ended October 4, 2015 one customer accounted for 11% of our sales and for the six months ended September 28, 2014, no single customer contributed more than 10% of our sales.
The following is a summary of each operating segment's sales:
 
Quarter ended
 
Six months ended
 
October 4, 2015
 
September 28, 2014
 
$ Change
 
% Change
 
October 4, 2015
 
September 28, 2014
 
$ Change
 
% Change
Shooting Sports
$
338,400

 
$
342,904

 
$
(4,504
)
 
(1.3
)%
 
$
670,302

 
$
730,511

 
$
(60,209
)
 
(8.2
)%
Outdoor Products
212,977

 
182,245

 
30,732

 
16.9
 %
 
395,572

 
360,633

 
34,939

 
9.7
 %
Total external sales
$
551,377

 
$
525,149

 
$
26,228

 
5.0
 %
 
$
1,065,874

 
$
1,091,144

 
$
(25,270
)
 
(2.3
)%
The overall fluctuation in net sales was driven by the changes within the operating segments as described below.
Quarter ended
Shooting Sports.    The decrease in sales was primarily caused by reduced volume of centerfire and shotshell ammunition, partially offset by an increase in firearms and rimfire ammunition. These reductions in ammunition products were primarily caused by reduced demand as result of the market correction in shooting sports described in the Outlook section above.
Outdoor Products.    The increase in sales was driven by an increase of $24,370 from the acquisitions of CamelBak and Jimmy Styks, and increased volumes of optics, golf, and shooting accessories sales, partially offset by lower sales in tactical accessories and archery/hunting accessories and the effect of foreign currency exchange rate fluctuations.
Six months ended
Shooting Sports.    The decrease in sales was primarily caused by reduced volume of centerfire and shotshell ammunition and reloading components, partially offset by an increase in firearms and rimfire ammunition. These reductions in ammunition

25


products were primarily caused by reduced demand as result of the market correction in shooting sports described in the Outlook section above.
Outdoor Products.    The increase in sales was driven by an increase of $24,370 from the acquisitions of CamelBak and Jimmy Styks, and increased volumes of optics, golf, and shooting accessories sales, partially offset by lower sales in tactical accessories and archery/hunting accessories and the effect of foreign currency exchange rate fluctuations.
Cost of Sales and Gross Profit
The following is a summary of each operating segment's cost of sales and gross profit:
 
Quarter ended
 
Six months ended
Cost of Sales
October 4, 2015
 
September 28, 2014
 
$ Change
 
% Change
 
October 4, 2015
 
September 28, 2014
 
$ Change
 
% Change
Shooting Sports
$
246,659

 
$
263,577

 
$
(16,918
)
 
(6.4
)%
 
$
492,022

 
$
557,361

 
$
(65,339
)
 
(11.7
)%
Outdoor Products
155,664

 
133,079

 
22,585

 
17.0
 %
 
285,294

 
261,933

 
23,361

 
8.9
 %
Corporate/eliminations
30

 
(102
)
 
132

 
(129.4
)%
 
242

 
(196
)
 
438

 
(223.5
)%
Total cost of sales
$
402,353

 
$
396,554

 
$
5,799

 
1.5
 %
 
$
777,558

 
$
819,098

 
$
(41,540
)
 
(5.1
)%
 
Quarter ended
 
Six months ended
Gross Profit
October 4, 2015
 
September 28, 2014
 
$ Change
 
% Change
 
October 4, 2015
 
September 28, 2014
 
$ Change
 
% Change
Shooting Sports
$
91,740