NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Six Months Ended September 25, 2022
(Amounts in thousands except per share data and unless otherwise indicated)
1. The Company and Basis of Presentation
Nature of Operations—Vista Outdoor Inc. (together with our subsidiaries, "Vista Outdoor", "we", "our", and "us", unless the context otherwise requires) is a leading global designer, manufacturer, and marketer of outdoor recreation and shooting sports products. We operate through two reportable segments, Sporting Products and Outdoor Products. We are headquartered in Anoka, Minnesota and have manufacturing and distribution facilities in the U.S., Canada, Mexico, Spain, the Netherlands and Puerto Rico along with international customer service, sales and sourcing operations in Asia and Europe. We have a robust global distribution network serving customers in over 100 countries. Vista Outdoor was incorporated in Delaware in 2014.
Basis of Presentation—Our unaudited condensed consolidated financial statements have been prepared in accordance with the requirements of the Securities and Exchange Commission ("SEC") for interim reporting. As permitted under those rules, certain disclosures and other financial information that normally are required by accounting principles generally accepted in the United States have been condensed or omitted. Management is responsible for the unaudited condensed consolidated financial statements included in this report, which in the opinion of management, include all adjustments necessary for a fair presentation of our financial position, results of operations, and cash flows for the periods and dates presented. These unaudited condensed consolidated financial statements 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, 2022 (“fiscal year 2022”), which was filed with the SEC on May 24, 2022.
Significant Accounting Policies—Our accounting policies are described in Note 1 of the notes to the audited consolidated financial statements in our Annual Report on Form 10-K for fiscal year 2022, , which was filed with the SEC on May 24, 2022.
2. Fair Value of Financial Instruments
We measure and disclose our financial assets and liabilities at fair value on a recurring and nonrecurring basis. Fair value is defined as the price that would be received to sell an asset or the price paid to transfer a liability (the exit price) in the principal and most advantageous market for the asset or liability in an orderly transaction between market participants. Assets and liabilities carried at fair value are classified using the three-tier 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 use to measure our financial instruments at fair value on a recurring basis:
Derivatives
We periodically enter into commodity forward contracts to hedge our exposure to price fluctuations on certain commodities we use for raw material components in our manufacturing process and to reduce the variability associated with exchange rate fluctuations. When actual commodity prices or foreign exchange rates exceed the fixed price provided by these contracts, we receive this difference from the counterparty, and when actual commodity prices or foreign exchange rates are below the contractually provided fixed price, we pay this difference to the counterparty. We consider these to be Level 2 instruments. See Note 5, Derivative Financial Instruments, for additional information.
Note Receivable
In connection with the sale of our Firearms business in July 2019, we received a $12,000 interest-free, five-year pre-payable promissory note due June 2024. Based on the general market conditions and the credit quality of the buyer at the time of the sale, we discounted the Note Receivable at an effective interest rate of 10% and estimated fair value using a discounted cash flow approach. We consider this to be a Level 3 instrument. See Note 8, Receivables, for additional information.
Contingent Consideration
In connection with some of our acquisitions, we recorded contingent consideration liabilities that can be earned by the sellers upon achievement of certain milestones. The liabilities are measured on a recurring basis and recorded at fair value, using a discounted cash flow analysis or a Monte Carlo simulation analysis in a risk-neutral framework with assumptions for volatility, market price of risk adjustment, risk-free rate, and cost of debt, utilizing revenue projections for the respective earn-out period, corresponding targets and approximate timing of payments as outlined in the purchase agreements. The inputs used to calculate the fair value of the contingent consideration liabilities are considered to be Level 3 inputs due to the lack of relevant market activity and significant management judgment. Changes in the fair value of the contingent consideration obligation results from changes in discount periods and rates, and changes in probability assumptions with respect to the likelihood of achieving the performance targets. The fair value adjustments are recorded in selling, general, and administrative in the condensed consolidated statement of comprehensive income. As of September 25, 2022, the estimated fair values of contingent consideration payable related to our acquisitions of QuietKat, Fox Racing, Fiber Energy, Stone Glacier, and HEVI-Shot are $11,824, $11,400, $3,625, $9,939 and $277, respectively. See Note 4, Acquisitions, for additional information.
Contingent consideration liabilities are reported under the following captions in the condensed consolidated balance sheets:
| | | | | | | | | | | | | | |
| | September 25, 2022 | | March 31, 2022 |
Other current liabilities | | $ | 21,837 | | | $ | 96 | |
Other long-term liabilities | | 15,228 | | | 36,994 | |
Total | | $ | 37,065 | | | $ | 37,090 | |
Following is a summary of our contingent consideration liability Level 3 activity during fiscal year 2023:
| | | | | | | | |
Balance, March 31, 2022 | | $ | 37,090 | |
Acquisition of Fox Racing | | 11,400 | |
Decrease in fair value | | (11,425) | |
Balance, September 25, 2022 | | $ | 37,065 | |
Disclosures about the Fair Value of Financial Instruments
The carrying amount of our receivables, inventory, accounts payable, and accrued liabilities as of September 25, 2022 and March 31, 2022 approximates fair value because of the short maturity of these instruments. The carrying values of cash and cash equivalents as of September 25, 2022 and March 31, 2022 are categorized within Level 1 of the fair value hierarchy.
The table below discloses information about carrying values and estimated fair value relating to our financial assets and liabilities:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 25, 2022 | | March 31, 2022 |
| | Carrying amount | | Fair value | | Carrying amount | | Fair value |
Fixed-rate debt (1) | | $ | 500,000 | | | $ | 366,500 | | | $ | 500,000 | | | $ | 460,000 | |
Variable-rate debt (2) | | 820,000 | | | 820,000 | | | 170,000 | | | 170,000 | |
(1) Fixed rate debt —In fiscal year 2021, we issued $500,000 aggregate principal amount of 4.5% Senior Notes which will mature on March 15, 2029. These notes are unsecured and senior obligations. The fair value of the fixed-rate debt is based on market quotes for each issuance. We consider these to be Level 2 instruments. See Note 13, Long-term Debt, for additional information on long-term debt, including certain risks and uncertainties.
(2) Variable rate debt— The carrying value of the amounts outstanding under our 2022 ABL Revolving Credit Facility and 2022 Term Loan approximates the fair value because the interest rates are variable and reflective of market rates as of September 25, 2022. The fair value of this debt is categorized within Level 2 of the fair value hierarchy based on the observable market borrowing rates. See Note 13, Long-term Debt, for additional information on our credit facilities, including certain risks and uncertainties.
We measure certain nonfinancial assets at fair value on a nonrecurring basis if certain indicators are present. These assets include long-lived assets that are written down to fair value when they are held for sale or determined to be impaired.
3. Leases
We lease certain warehouse and distribution space, manufacturing space, office space, retail locations, equipment, and vehicles. All of these leases are classified as operating leases. Operating lease assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. We use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. These rates are assessed on a quarterly basis. The operating lease assets also include any lease payments made less lease incentives. Leases with an initial term of twelve months or less are not recorded on the balance sheet. For operating leases, expense is recognized on a straight-line basis over the lease term. Variable lease payments associated with our leases are recognized upon occurrence of the event, activity, or circumstance in the lease agreement on which those payments are assessed. Tenant improvement allowances are recorded as leasehold improvements with an offsetting adjustment included in our calculation of its right-of-use asset.
Many leases include one or more options to renew, with renewal terms that can extend the lease term up to five years. The exercise of lease renewal options is at our sole discretion. The depreciable life of assets and leasehold improvements are limited by the expected lease term.
The amounts of assets and liabilities related to our operating leases were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Balance Sheet Caption | | September 25, 2022 | | March 31, 2022 |
Assets: | | | | | | |
Operating lease assets | | Operating lease assets | | $ | 101,942 | | | $ | 78,252 | |
| | | | | | |
Liabilities: | | | | | | |
Current: | | | | | | |
Operating lease liabilities | | Other current liabilities | | $ | 15,980 | | | $ | 11,804 | |
Long-term: | | | | | | |
Operating lease liabilities | | Long-term operating lease liabilities | | 96,663 | | | 80,083 | |
Total lease liabilities | | | | $ | 112,643 | | | $ | 91,887 | |
The components of lease expense are recorded to cost of sales and selling, general, and administration expenses in the condensed consolidated statements of comprehensive income. The components of lease expense were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
| | September 25, 2022 | | September 26, 2021 | | September 25, 2022 | | September 26, 2021 |
Fixed operating lease costs (1) | | $ | 7,089 | | | $ | 5,386 | | | $ | 12,894 | | | $ | 10,502 | |
Variable operating lease costs | | 995 | | | 914 | | | 1,458 | | | 1,583 | |
Operating and sub-lease income | | (156) | | | (107) | | | (307) | | | (151) | |
Net Lease costs | | $ | 7,928 | | | $ | 6,193 | | | $ | 14,045 | | | $ | 11,934 | |
(1) Includes short-term leases
| | | | | | | | | | | | | | |
| | September 25, 2022 | | March 31, 2022 |
Weighted Average Remaining Lease Term (Years): | | | | |
Operating leases | | 8.61 | | 8.65 |
| | | | |
Weighted Average Discount Rate: | | | | |
Operating leases | | 8.28 | % | | 7.99 | % |
The approximate minimum lease payments under non-cancelable operating leases as of September 25, 2022 are as follows:
| | | | | | | | |
Remainder of fiscal year 2023 | | $ | 12,060 | |
Fiscal year 2024 | | 24,320 | |
Fiscal year 2025 | | 18,617 | |
Fiscal year 2026 | | 16,940 | |
Fiscal year 2027 | | 16,012 | |
Thereafter | | 75,219 | |
Total lease payments | | 163,168 | |
Less imputed interest | | (50,525) | |
Present value of lease liabilities | | $ | 112,643 | |
Supplemental cash flow information related to leases is as follows: | | | | | | | | | | | | | | |
| | Six months ended |
| | September 25, 2022 | | September 26, 2021 |
Cash paid for amounts included in the measurement of lease liabilities: | | | | |
Operating cash flows - operating leases | | $ | 10,409 | | | $ | 8,966 | |
Operating lease assets obtained in exchange for lease liabilities: | | | | |
Operating leases | | 30,378 | | | 5,785 | |
4. Acquisitions
Simms Fishing
During the second quarter of fiscal year 2023, we acquired Simms Fishing Products (Simms), a premium fishing brand and leading manufacturer of waders, outerwear, footwear and technical apparel. The results of this business are reported within the Outdoor Products segment. We accounted for the acquisition as a business combination using the acquisition method of accounting, and performed a preliminary allocation of the purchase price to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The preliminary fair values of acquired assets and liabilities assumed represent management’s estimate of fair value and are subject to change if additional information, such as post-close working capital adjustments becomes available. We expect to finalize the purchase price allocation as soon as practicable within the measurement period, but not later than one year following the acquisition date. The excess of the consideration transferred over the estimated fair value of the net assets received has been recorded as goodwill. The factors that contributed to the recognition of goodwill primarily relate to acquisition-driven anticipated cost savings and synergies. Assembled workforce is not recognized separate and apart from goodwill as it is neither separable nor contractual in nature. The acquisition is not significant to our consolidated financial statements and as such we have not included disclosures of the allocation of the purchase price or any pro forma information.
Fox Racing
During the second quarter of fiscal year 2023, we acquired Fox (Parent) Holdings, Inc. (“Fox Racing”), for a base purchase price of $540,000, subject to certain customary adjustments for cash and debt, transaction expenses, and working capital. In connection with the acquisition, we refinanced our 2021 ABL Revolving Credit Facility by entering into the 2022 ABL Revolving Credit Facility, which provides for a $600,000 senior secured asset-based revolving credit facility, and a $350,000 term loan facility (the “2022 Term Loan”). The proceeds of the Term Facility, together with the proceeds of a borrowing under the ABL Credit Facility, were used to finance the acquisition and to pay related fees and expenses. See Note 13, Long-term Debt, for additional information. The agreement includes up to an additional $50,000 of contingent consideration payable to Seller and certain individuals during the second quarter of fiscal year 2024 if Fox Racing achieves certain adjusted Earnings Before Interest, Tax, Depreciation, and Amortization ("EBITDA") targets during the period beginning on January 1, 2022 and ending on December 31, 2022. The initial fair value of the contingent consideration was $11,400, and is included in the total purchase consideration below. See Note 2, Fair Value of Financial Instruments, for additional information related to the fair value calculation of contingent consideration.
The results of this business are reported within the Sports Protection operating segment and the Outdoor Products reportable segment. We accounted for the acquisition as a business combination using the acquisition method of accounting, and performed a preliminary allocation of the purchase price to the tangible and intangible assets acquired and liabilities
assumed based on their estimated fair values as of the acquisition date. The preliminary fair values of acquired assets and liabilities assumed represent management’s estimate of fair value and are subject to change if additional information, such as post-close working capital adjustments becomes available. We expect to finalize the purchase price allocation as soon as practicable within the measurement period, but not later than one year following the acquisition date. The excess of the consideration transferred over the estimated fair value of the net assets received has been recorded as goodwill. The factors that contributed to the recognition of goodwill primarily relate to acquisition-driven anticipated cost savings and synergies. Assembled workforce is not recognized separate and apart from goodwill as it is neither separable nor contractual in nature.
Fox Racing preliminary purchase price allocation:
| | | | | | | | |
| | August 5, 2022 |
Cash consideration to the Seller | | $ | 559,782 | |
Cash held in escrow to cover purchase price adjustments | | 5,000 | |
Estimated working capital true-up | | 6,216 | |
Fair value of contingent consideration payable | | 11,400 | |
Total estimated purchase consideration | | $ | 582,398 | |
Fair value of assets acquired: | | |
Accounts receivable | | $ | 39,140 | |
Inventories | | 95,759 | |
Intangible assets | | 253,600 | |
Property, plant, and equipment | | 29,060 | |
Operating lease assets | | 16,078 | |
Other current assets | | 16,743 | |
Other long-term assets | | 5,347 | |
Total assets | | 455,727 | |
Fair value of liabilities assumed: | | |
Accounts payable | | 18,584 | |
Long-term operating lease liabilities | | 11,971 | |
Deferred income taxes | | 59,986 | |
Other liabilities | | 38,998 | |
Other long-term liabilities | | 41 | |
Total liabilities | | 129,580 | |
Net assets acquired | | 326,147 | |
Goodwill | | $ | 256,251 | |
Fox Racing intangible assets above include:
| | | | | | | | | | | | | | |
| | Value | | Useful life (years) |
Tradenames | | $ | 106,200 | | | Indefinite |
Customer relationships | | 147,400 | | | 5 to 15 |
Fox Racing supplemental pro forma data:
Fox's net sales of $57,379 and net income of $4,805 since the acquisition date, August 5, 2022, were included in our consolidated results for the three months ended September 25, 2022, and are reflected in the Outdoor Products reportable segment.
The following unaudited pro forma financial information presents our results as if the Fox Racing acquisition had occurred on April 1, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
| | September 25, 2022 | | September 26, 2021 | | September 25, 2022 | | September 26, 2021 |
Sales, net | | $ | 809,357 | | | $ | 866,547 | | | $ | 1,690,145 | | | $ | 1,597,835 | |
Net income | | 94,611 | | | 139,541 | | | 218,657 | | | 233,704 | |
The unaudited supplemental pro forma data above includes the following significant non-recurring adjustments to net income to account for certain costs which would have been incurred if the Fox Racing acquisition had been completed on April 1, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
| | September 25, 2022 | | September 26, 2021 | | September 25, 2022 | | September 26, 2021 |
Fees for advisory, legal, and accounting services (1) | | $ | (4,051) | | | $ | — | | | $ | (5,965) | | | $ | 5,965 | |
Inventory step-up, net (2) | | (2,515) | | | 3,772 | | | (2,515) | | | $7,544 |
Interest (3) | | 3,197 | | | 7,605 | | | 10,627 | | | 15,440 |
Depreciation (4) | | 180 | | | 367 | | | 719 | | | 699 |
Amortization (5) | | 1,176 | | | 3,064 | | | 4,245 | | | 6,126 |
Management Fees (6) | | (133) | | | (353) | | | (530) | | | (707) | |
Income tax provision (benefit) (7) | | 39 | | | (3,614) | | | (2,142) | | | (8,270) | |
(1) During the three months and six months ended September 25, 2022, we incurred a total of $4,051 and $5,965 in acquisition related costs, including legal and other professional fees, all of which were reported in selling, general, and administrative expense in the condensed consolidated statements of comprehensive income. This adjustment is to show the results as if those fees were incurred during the first quarter of fiscal year 2022.
(2) Adjustment reflects the increased cost of goods sold expense resulting from the fair value step-up in inventory, which was expensed over inventory turns.
(3) Adjustment for the estimated interest expense and debt issuance amortization expense on $580,000 in borrowings from Vista's 2022 ABL Revolving Credit Facility and 2022 Term Loan, used to finance the acquisition of Fox Racing. The interest rate assumed for purposes of preparing this pro forma financial information is 5.58%. This rate is the weighted average interest rate for our borrowings under the 2022 ABL Revolving Credit Facility and 2022 Term Loan as of September 25, 2022.
(4) Adjustment for depreciation related to the revised fair-value basis of the acquired property, plant and equipment and change in estimated useful lives.
(5) Adjustment for amortization of acquired intangible assets.
(6) Represents an adjustment for management fees historically charged by the previous owner of Fox Racing under the terms of their management agreement.
(7) Income tax effect of the adjustments made at a blended federal, state, and international statutory rate adjusted for any non-deductible acquisition costs.
Stone Glacier
During the fourth quarter of fiscal year 2022, we acquired Stone Glacier, a premium brand focused on ultralightweight, performance hunting gear designed for backcountry use. The addition of Stone Glacier allows us to enter the packs, camping equipment, and technical apparel categories with a fast-growing brand and provide a foundation for us to leverage camping category synergies. The results of this business are reported within the Outdoor Products segment. Contingent consideration with an initial fair value of $9,939 was included in the purchase price. See Note 2, Fair Value of Financial Instruments, for additional information related to the fair value calculation. We accounted for the acquisition as a business combination using the acquisition method of accounting, and performed a preliminary allocation of the purchase price to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The preliminary
fair values of acquired assets and liabilities assumed represent management’s estimate of fair value and are subject to change if additional information, such as post-close working capital adjustments becomes available. We expect to finalize the purchase price allocation as soon as practicable within the measurement period, but not later than one year following the acquisition date. The acquisition is not significant to our consolidated financial statements and as such we have not included disclosures of the allocation of the purchase price or any pro forma information.
Foresight Sports
During the third quarter of fiscal year 2022, we acquired Foresight Sports ("Foresight"), a leading designer and manufacturer of golf performance analysis, entertainment, and game enhancement technologies for approximately $470,772. The purchase agreement includes $5,599 related to employee retention payments, which will be accounted for separately from the business combination as post combination compensation expense. Contingent payments of up to $25,000 if certain net sales targets are met will also be accounted for separately from the business combination as post combination compensation expense. We used cash on hand and available liquidity under our 2021 ABL Revolving Credit Facility to complete the transaction. The results of this business are reported within the Outdoor Products segment.
We accounted for the acquisition as a business combination using the acquisition method of accounting. The purchase price allocation below was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The fair values of acquired assets and liabilities assumed represent management’s estimate of fair value and are subject to change if additional information becomes available. We expect to finalize the purchase price allocation as soon as practicable within the measurement period, but not later than one year following the acquisition date. The excess of the consideration transferred over the estimated fair value of the net assets received has been recorded as goodwill. The factors that contributed to the recognition of goodwill primarily relate to acquisition-driven anticipated cost savings and synergies. Assembled workforce is not recognized separate and apart from goodwill as it is neither separable nor contractual in nature. The goodwill is deductible for tax purposes.
Foresight preliminary purchase price allocation:
| | | | | | | | | | | | | | |
| | September 28, 2021 |
Total consideration transferred | | | | $ | 470,772 | |
Fair value of assets acquired: | | | | |
Accounts receivable | | $ | 2,806 | | | |
Inventories | | 10,780 | | | |
Intangible assets | | 131,500 | | | |
Property, plant, and equipment | | 1,870 | | | |
Operating lease assets | | 6,506 | | | |
Other long-term assets | | 2,006 | | | |
Total assets | | 155,468 | | | |
Fair value of liabilities assumed: | | | | |
Accounts payable | | 6,177 | | | |
Customer deposits | | 2,084 | | | |
Long-term operating lease liabilities | | 5,961 | | | |
Contract liabilities | | 2,992 | | | |
Other liabilities | | 1,729 | | | |
Other long-term liabilities | | 9,182 | | | |
Total liabilities | | 28,125 | | | |
Net assets acquired | | | | 127,343 | |
Goodwill | | | | $ | 343,429 | |
Foresight intangible assets above include:
| | | | | | | | | | | | | | |
| | Value | | Useful life (years) |
Tradenames | | $ | 42,500 | | | 20 |
Patented technology | | 19,900 | | | 5 to 10 |
Customer relationships | | 69,100 | | | 5 to 15 |
5. Derivative Financial Instruments
Commodity Price Risk
We entered into various commodity forward contracts during fiscal year 2023. These contracts are used to hedge our exposure to price fluctuations on lead we purchase for raw material components in our ammunition manufacturing process and are designated and qualify as effective cash flow hedges. The effectiveness of cash flow hedge contracts is assessed quantitatively at inception and qualitatively thereafter considering the transactions critical terms and counterparty credit quality.
The gains and losses on these hedges are included in accumulated other comprehensive loss and are reclassified into earnings at the time the forecasted revenue or expense is recognized. The gains or losses on the lead forward contracts are recorded in inventory as the commodities are purchased and in cost of sales when the related inventory is sold. As of September 25, 2022, we had outstanding lead forward contracts on approximately 10.1 million pounds of lead. In the event the underlying forecasted transaction does not occur, or it becomes probable that it will not occur, the related change in fair value of the derivative instrument would be reclassified from accumulated other comprehensive loss and recognized in earnings. The liability related to the lead forward contracts is immaterial and is recorded as part of other current liabilities and other long-term liabilities.
Foreign Exchange Risk
To manage our foreign exchange risk, we entered into forward contracts to reduce the variability associated with exchange rate fluctuations. We hedge a portion of our foreign subsidiaries inventory purchases and intercompany transactions executed in U.S. dollars, which is different than their functional currency. Certain U.S. subsidiaries also hedge a portion of their future sales in Canadian Dollars. These forward contracts are not designated as hedging instruments.
All unrealized gains and losses as shown as of September 25, 2022 will be recognized in the consolidated statements of comprehensive income in other income, net within the next twelve months at then-current value. Realized gains and losses are recognized in the condensed consolidated statement of comprehensive income, and is recorded as part of other income, net. The fair value of the foreign exchange forward contracts is immaterial and is recorded as part of other current assets. As of September 25, 2022, we had outstanding foreign currency forward contracts in place to purchase U.S. Dollars and sell foreign currencies in the following amounts: | | | | | | | | |
| | Notional amount of currency |
Foreign currency: | | |
Euro | | $ | 4,670 | |
British Pounds | | 2,693 | |
Canadian Dollars | | 6,724 | |
Total | | $ | 14,087 | |
6. Revenue Recognition
The following tables disaggregate our net sales by major product category:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended |
| | September 25, 2022 | | September 26, 2021 (5) |
| | Sporting Products | | Outdoor Products | | Total | | Sporting Products | | Outdoor Products | | Total |
Sporting Products (1) | | $ | 432,489 | | | $ | — | | | $ | 432,489 | | | $ | 450,193 | | | $ | — | | | $ | 450,193 | |
Outdoor Accessories (2) | | — | | | 73,995 | | | 73,995 | | | — | | | 116,156 | | | 116,156 | |
Action Sports (3) | | — | | | 150,761 | | | 150,761 | | | — | | | 104,645 | | | 104,645 | |
Outdoor Recreation (4) | | — | | | 124,433 | | | 124,433 | | | — | | | 107,466 | | | 107,466 | |
Total | | $ | 432,489 | | | $ | 349,189 | | | $ | 781,678 | | | $ | 450,193 | | | $ | 328,267 | | | $ | 778,460 | |
| | | | | | | | | | | | |
Geographic Region: | | | | | | | | | | | | |
United States | | $ | 396,302 | | | $ | 229,657 | | | $ | 625,959 | | | $ | 431,704 | | | $ | 245,502 | | | $ | 677,206 | |
Rest of the World | | 36,187 | | | 119,532 | | | 155,719 | | | 18,489 | | | 82,765 | | | 101,254 | |
Total | | $ | 432,489 | | | $ | 349,189 | | | $ | 781,678 | | | $ | 450,193 | | | $ | 328,267 | | | $ | 778,460 | |
| | | | | | | | | | | | |
| | Six months ended |
| | September 25, 2022 | | September 26, 2021 (5) |
| | Sporting Products | | Outdoor Products | | Total | | Sporting Products | | Outdoor Products | | Total |
Sporting Products (1) | | $ | 943,116 | | | $ | — | | | $ | 943,116 | | | $ | 814,481 | | | $ | — | | | $ | 814,481 | |
Outdoor Accessories (2) | | — | | | 142,080 | | | 142,080 | | | — | | | 215,187 | | | 215,187 | |
Action Sports (3) | | — | | | 240,818 | | | 240,818 | | | — | | | 196,787 | | | 196,787 | |
Outdoor Recreation (4) | | — | | | 258,276 | | | 258,276 | | | — | | | 214,917 | | | 214,917 | |
Total | | $ | 943,116 | | | $ | 641,174 | | | $ | 1,584,290 | | | $ | 814,481 | | | $ | 626,891 | | | $ | 1,441,372 | |
| | | | | | | | | | | | |
Geographic Region: | | | | | | | | | | | | |
United States | | $ | 877,381 | | | $ | 432,112 | | | $ | 1,309,493 | | | $ | 761,982 | | | $ | 473,178 | | | $ | 1,235,160 | |
Rest of the World | | 65,735 | | | 209,062 | | | 274,797 | | | 52,499 | | | 153,713 | | | 206,212 | |
Total | | $ | 943,116 | | | $ | 641,174 | | | $ | 1,584,290 | | | $ | 814,481 | | | $ | 626,891 | | | $ | 1,441,372 | |
(1) Sporting Products includes the Ammunition operating segment.
(2) Outdoor Accessories includes the Outdoor Accessories operating segment.
(3) Action Sports includes the operating segments: Sports Protection and Cycling.
(4) Outdoor Recreation includes the operating segments: Hydration, Outdoor Cooking, Golf, Fishing and our Stone Glacier businesses.
(5) During the third quarter of fiscal year 2022, we modified and renamed our reportable segments. Accordingly, prior comparative periods have been restated to conform to the change.
For the majority of our contracts with customers, 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. For our contracts that include bundled hardware and software sales, revenue related to delivered hardware and bundled software is recognized when control has transferred to the customer, which typically occurs upon shipment. Revenue allocated to unspecified software update rights is deferred and recognized on a straight-line basis over the estimated period they are expected to be provided.
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.
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. Sales taxes, federal excise taxes, and other similar taxes are excluded from revenue.
For the immaterial amount of our contracts that have multiple performance obligations, which represent promises within an arrangement that are distinct, we allocate revenue to all distinct performance obligations based on their relative stand-alone selling prices (“SSPs”). When available, we use observable prices to determine SSPs. When observable prices are not available, SSPs are established that reflect our best estimates of what the selling prices of the performance obligations would be if they were sold regularly on a stand-alone basis. We allocate revenue and any related discounts to these performance obligations based on their relative SSPs.
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 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.
7. Earnings Per Share
The computation of basic earnings per share ("EPS") is based on the weighted average number of shares that were outstanding during the period. The computation of diluted EPS is based on the number of basic weighted average shares outstanding plus the number of common shares that would be issued assuming the exercise of all potentially dilutive common shares, such as common stock to be issued upon exercise of options, contingently issuable shares and restricted stock units, using the treasury stock method.
In computing EPS for the periods presented, earnings, as reported for each respective period, is divided by the number of shares below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Six months ended |
(Amounts in thousands except per share data) | | September 25, 2022 | | September 26, 2021 | | September 25, 2022 | | September 26, 2021 |
Numerator: | | | | | | | | |
Net income | | $ | 93,455 | | | $ | 139,540 | | | $ | 219,470 | | | $ | 242,265 | |
Denominator: | | | | | | | | |
Weighted-average number of common shares outstanding basic: | | 56,553 | | | 57,353 | | | 56,520 | | | 57,732 | |
Dilutive effect of share-based awards (1) | | 1,261 | | | 1,863 | | | 1,578 | | | 1,845 | |
Diluted shares | | 57,814 | | | 59,216 | | | 58,098 | | | 59,577 | |
Earnings per common share: | | | | | | | | |
Basic | | $ | 1.65 | | | $ | 2.43 | | | $ | 3.88 | | | $ | 4.20 | |
Diluted | | $ | 1.62 | | | $ | 2.36 | | | $ | 3.78 | | | $ | 4.07 | |
(1) Potentially dilutive securities, which were not included in the computation of diluted earnings per share, because either the effect would have been anti-dilutive, or the options’ exercise prices were greater than the average market price of the
common stock, were 290 and 293 for the three and six months ended September 25, 2022, respectively, and 0 and 527 for the three and six months ended September 26, 2021, respectively.
8. Receivables
Our trade account receivables are recorded at net realizable value, which includes an appropriate allowance for estimated credit losses under the expected credit loss model. We maintain an allowance for credit losses related to accounts receivable for future expected credit losses resulting from the inability or unwillingness of our customers to make required payments. We estimate the allowance based upon historical bad debts, current customer receivable balances, age of customer receivable balances and the customers' financial condition, and in relation to a representative pool of assets consisting of a large number of customers with similar risk characteristics. The allowance is adjusted as appropriate to reflect differences in current conditions as well as changes in forecasted macroeconomic conditions. Receivables that do not share risk characteristics are evaluated on an individual basis, including those associated with customers that have a higher probability of default.
Net receivables are summarized as follows:
| | | | | | | | | | | | | | |
| | September 25, 2022 | | March 31, 2022 |
Trade receivables | | $ | 441,425 | | | $ | 357,584 | |
Other receivables | | 9,248 | | | 13,699 | |
Less: allowance for estimated credit losses and discounts | | (18,970) | | | (14,510) | |
Net receivables | | $ | 431,703 | | | $ | 356,773 | |
No customers represented more than 10% of our total trade receivables balance as of September 25, 2022. Walmart represented 14% of our total trade receivables balance as of March 31, 2022.
The following provides a reconciliation of the activity related to the allowance for estimated credit losses for the six months ended September 25, 2022:
| | | | | | | | |
Balance, March 31, 2022 | | $ | 14,510 | |
Provision for credit losses | | 2,178 | |
Write-off of uncollectible amounts, net of recoveries | | (128) | |
Purchase accounting (Note 4) | | 2,410 | |
Balance, September 25, 2022 | | $ | 18,970 | |
Note Receivable is summarized as follows:
| | | | | | | | | | | | | | |
| | September 25, 2022 | | March 31, 2022 |
Principal | | $ | 12,000 | | | $ | 12,000 | |
Less: unamortized discount | | (1,835) | | | (2,308) | |
Note receivable, net, included within Deferred charges and other non-current assets | | $ | 10,165 | | | $ | 9,692 | |
9. Inventories
Current net inventories consist of the following:
| | | | | | | | | | | | | | |
| | September 25, 2022 | | March 31, 2022 |
Raw materials | | $ | 245,851 | | | $ | 220,425 | |
Work in process | | 67,067 | | | 60,390 | |
Finished goods | | 465,056 | | | 362,161 | |
Net inventories | | $ | 777,974 | | | $ | 642,976 | |
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 $32,532 and $14,662 as of September 25, 2022 and March 31, 2022, respectively.
10. Accumulated Other Comprehensive Loss (AOCL)
The components of AOCL, net of income taxes, are as follows:
| | | | | | | | | | | | | | |
| | September 25, 2022 | | March 31, 2022 |
Derivatives | | $ | (634) | | | $ | (356) | |
Pension and other postretirement benefits liabilities | | (69,687) | | | (71,075) | |
Cumulative translation adjustment | | (7,119) | | | (5,248) | |
Total AOCL | | $ | (77,440) | | | $ | (76,679) | |
The following tables detail the amounts reclassified from AOCL to earnings as well as the changes in derivatives, pension and other postretirement benefits, and foreign currency translation, net of income tax:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 25, 2022 | | Six months ended September 25, 2022 |
| | Derivatives | | Pension and other postretirement benefits liabilities | | Cumulative translation adjustment | | Total | | Derivatives | | Pension and other postretirement benefits liabilities | | Cumulative translation adjustment | | Total |
Beginning balance in AOCL | | $ | (347) | | | $ | (70,381) | | | $ | (5,721) | | | $ | (76,449) | | | $ | (356) | | | $ | (71,075) | | | $ | (5,248) | | | $ | (76,679) | |
Change in fair value of derivatives | | (324) | | | — | | | — | | | (324) | | | (249) | | | — | | | — | | | (249) | |
Net losses (gains) reclassified from AOCL | | 37 | | | — | | | — | | | 37 | | | (29) | | | — | | | — | | | (29) | |
Net actuarial losses reclassified from AOCL (1) | | — | | | 694 | | | — | | | 694 | | | — | | | 1,388 | | | — | | | 1,388 | |
Net change in cumulative translation adjustment | | — | | | — | | | (1,398) | | | (1,398) | | | — | | | — | | | (1,871) | | | (1,871) | |
Ending balance in AOCL | | $ | (634) | | | $ | (69,687) | | | $ | (7,119) | | | $ | (77,440) | | | $ | (634) | | | $ | (69,687) | | | $ | (7,119) | | | $ | (77,440) | |
(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.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 26, 2021 | | Six months ended September 26, 2021 |
| | Derivatives | | Pension and other postretirement benefits liabilities | | Cumulative translation adjustment | | Total | | Derivatives | | Pension and other postretirement benefits liabilities | | Cumulative translation adjustment | | Total |
Beginning balance in AOCL | | $ | 224 | | | $ | (77,440) | | | $ | (4,984) | | | $ | (82,200) | | | $ | 161 | | | $ | (78,166) | | | $ | (5,190) | | | $ | (83,195) | |
Change in fair value of derivatives | | 118 | | | — | | | — | | | 118 | | | 767 | | | — | | | — | | | 767 | |
Net (gains) reclassified from AOCL | | (554) | | | — | | | — | | | (554) | | | (1,140) | | | — | | | — | | | (1,140) | |
Net actuarial losses reclassified from AOCL (1) | | — | | | 801 | | | — | | | 801 | | | — | | | 1,599 | | | — | | | 1,599 | |
Prior service costs reclassified from AOCL (1) | | — | | | (95) | | | — | | | (95) | | | — | | | (167) | | | — | | | (167) | |
Net change in cumulative translation adjustment | | — | | | — | | | (337) | | | (337) | | | — | | | — | | | (131) | | | (131) | |
Ending balance in AOCL | | $ | (212) | | | $ | (76,734) | | | $ | (5,321) | | | $ | (82,267) | | | $ | (212) | | | $ | (76,734) | | | $ | (5,321) | | | $ | (82,267) | |
(1) Amounts related to our pension and other postretirement benefits that were reclassified from AOCL were recorded as a component of net periodic benefit cost for each period presented.
11. Goodwill and Intangible Assets
The carrying value of goodwill by reportable segment was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Sporting Products | | Outdoor Products | | Total |
Balance, March 31, 2022 | | $ | 86,105 | | | $ | 395,752 | | | $ | 481,857 | |
Acquisitions | | — | | | 322,963 | | | 322,963 | |
| | | | | | |
Balance, September 25, 2022 | | $ | 86,105 | | | $ | 718,715 | | | $ | 804,820 | |
See Note 4, Acquisitions, for additional information on business combinations that occurred during the second fiscal quarter of fiscal year 2023.
Intangible assets by major asset class consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 25, 2022 | | March 31, 2022 |
| | Gross carrying amount | | Accumulated amortization | | Total | | Gross carrying amount | | Accumulated amortization | | Total |
Trade names | | $ | 113,915 | | | $ | (27,302) | | | $ | 86,613 | | | $ | 113,915 | | | $ | (23,756) | | | $ | 90,159 | |
Patented technology | | 36,854 | | | (14,845) | | | 22,009 | | | 36,854 | | | (13,324) | | | 23,530 | |
Customer relationships and other | | 528,657 | | | (131,282) | | | 397,375 | | | 328,168 | | | (117,664) | | | 210,504 | |
Total | | 679,426 | | | (173,429) | | | 505,997 | | | 478,937 | | | (154,744) | | | 324,193 | |
Non-amortizing trade names | | 292,203 | | | — | | | 292,203 | | | 135,602 | | | — | | | 135,602 | |
Net intangible assets | | $ | 971,629 | | | $ | (173,429) | | | $ | 798,200 | | | $ | 614,539 | | | $ | (154,744) | | | $ | 459,795 | |
Amortization expense was $10,947 and $5,419 for the three months ended September 25, 2022 and September 26, 2021, respectively, and $18,983 and $10,417 for the six months ended September 25, 2022 and September 26, 2021, respectively.
As of September 25, 2022, we expect amortization expense related to these assets to be as follows:
| | | | | | | | |
Remainder of fiscal year 2023 | | $ | 25,242 | |
Fiscal year 2024 | | 50,484 | |
Fiscal year 2025 | | 50,466 | |
Fiscal year 2026 | | 47,457 | |
Fiscal year 2027 | | 46,007 | |
Thereafter | | 286,341 | |
Total | | $ | 505,997 | |
12. Other Current Liabilities
The major categories over 5% of current liabilities are as follows:
| | | | | | | | | | | | | | |
| | September 25, 2022 | | March 31, 2022 |
Accrual for in-transit inventory | | $ | 24,621 | | | $ | 11,620 | |
Other | | 169,381 | | | 115,560 | |
Total other current liabilities | | $ | 194,002 | | | $ | 127,180 | |
We provide consumer warranties against manufacturing defects on certain products with warranty periods ranging from one year to the expected lifetime of the product. The estimated costs of such product warranties are recorded at the time the sale is recorded based upon actual past experience, our current production environment as well as specific and identifiable warranties as applicable. The warranty liability recorded at each balance sheet date reflects the estimated liability for warranty coverage for products delivered based on historical information and current trends.
The following is a reconciliation of the changes in our product warranty liability during the periods presented:
| | | | | | | | |
Balance, March 31, 2022 | | $ | 9,073 | |
Payments made | | (1,633) | |
Warranties issued | | 1,680 | |
Changes related to pre-existing warranties and other adjustments | | 376 | |
Balance, September 25, 2022 | | $ | 9,496 | |
13. Long-term Debt
| | | | | | | | | | | | | | |
Long-term debt consisted of the following: | | September 25, 2022 | | March 31, 2022 |
2021 ABL Revolving Credit Facility | | $ | — | | | $ | 170,000 | |
2022 ABL Revolving Credit Facility | | 470,000 | | | — | |
2022 Term Loan | | 350,000 | | | — | |
Total Principal Amount of Credit Agreements | | 820,000 | | | 170,000 | |
4.5% Senior Notes | | 500,000 | | | 500,000 | |
Less: unamortized deferred financing costs | | (12,738) | | | (3,886) | |
Carrying amount of long-term debt | | 1,307,262 | | | 666,114 | |
Less: current portion | | (140,000) | | | — | |
Carrying amount of long-term debt, excluding current portion | | $ | 1,167,262 | | | $ | 666,114 | |
Credit Agreements—On August 5, 2022, we refinanced our 2021 ABL Revolving Credit Facility by entering into the 2022 ABL Revolving Credit Facility, which provides for a $600,000 senior secured asset-based revolving credit facility. The amount available under the 2022 ABL Revolving Credit Facility is the lesser of the total commitment of $600,000 or a borrowing base based on percentages of eligible receivables, inventory, and cash, minus certain reserves, but, in each case, subject to the excess availability financial covenant under the 2022 ABL Revolving Credit Facility described below. As of September 25, 2022, the Excess Availability, or the amount available to borrow under the 2022 ABL Revolving Credit Facility, based on the borrowing base less outstanding borrowings of $470,000 and outstanding letters of credit of $15,445, less the minimum required borrowing base of $60,000 , was $54,555. The 2022 ABL Revolving Credit Facility matures on March 31, 2026 (the “Maturity Date”), subject to a customary springing maturity in respect of the 4.5% Notes due 2029 (described below) and the 2022 Term Loan (described below). Any outstanding revolving loans under the 2022 ABL Revolving Credit Facility will be payable in full on the Maturity Date.
Concurrently with the effectiveness of the 2022 ABL Revolving Credit Facility, we also obtained a $350,000 senior secured asset-based term loan facility (the “2022 Term Loan”). The 2022 Term Loan matures on August 5, 2024 (the "Term Maturity Date") and is subject to quarterly principal payments, commencing with the fiscal quarter ending December 23, 2022, in an amount equal to (i) 12.5% of the original principal amount of the 2022 Term Loan if the aggregate outstanding principal balance of the 2022 Term Loan exceeds the Term Loan Formula Threshold described below, or (ii) 10.0% of the original principal amount of the 2022 Term Loan if the aggregate outstanding principal balance of the 2022 Term Loan is equal to or less than the Term Loan Formula Threshold described below. As of September 25, 2022, our quarterly principal payments are equal to 10.0% of the original principal amount of the 2022 Term Loan, subject to the delivery of our Formula Certificate due on October 15, 2022. The 2022 Term Loan is also subject to certain mandatory prepayment requirements, including with respect to the net cash proceeds from the sale of certain collateral, subject to our rights to reinvest such proceeds, and a percentage of our excess cash flow, to be calculated annually. The Term Loan Formula Threshold is based on a percentage of the appraisal value of eligible intellectual property, eligible machinery and equipment, and the fair market value of eligible real property minus certain reserves. Any outstanding term loans under the 2022 Term Loan will be payable in full on the Term Maturity Date.
Borrowings under the 2022 ABL Revolving Credit Facility bear interest at a rate equal to either the sum of a base rate plus a margin ranging from 0.25% to 0.75% or the sum of a Term Secured Overnight Financing Rate ("Term SOFR") plus a credit spread adjustment of 0.10%, plus a margin ranging from 1.25% to 1.75%. The margins vary based on our Average Excess Availability under the 2022 ABL Revolving Credit Facility. As of September 25, 2022, the margin under the 2022 ABL Revolving Credit Facility was 0.5% for base rate loans and 1.5% for Term SOFR loans. We pay a commitment fee on the unused commitments under the 2022 ABL Revolving Credit Facility of 0.175% per annum.
Borrowings under the 2022 Term Loan bear interest at a rate equal to either the sum of a base rate plus a margin ranging from 2.50% to 3.00% or the sum of Term SOFR plus a credit spread adjustment of 0.10%, plus a margin ranging from 3.50% to 4.00%. The margins vary based on our Term Loan Formula Threshold under the 2022 Term Loan. As of September 25, 2022, the margin under the 2022 Term Loan was 3.00% for base rate loans and 4.00% for Term SOFR loans.
As of September 25, 2022, the weighted average interest rate for our borrowings under the 2022 ABL Revolving Credit Facility and 2022 Term Loan was 5.58%.
We incurred debt issuance costs related to the 2022 ABL Revolving Credit Facility of approximately $6,646 and unamortized debt issuance costs of $785 related to the 2021 ABL Credit Facility were written off during fiscal year 2023. This expense is included in interest expense in the condensed consolidated statements of comprehensive income. The remaining unamortized debt issuance costs of approximately $11,133, including remaining unamortized debt issuance costs related to the 2021 ABL Credit Facility, are being amortized over the term of the 2022 ABL Revolving Credit Facility. The debt issuance costs associated with the 2022 ABL Revolving Credit Facility are included within other current and non-current assets.
We incurred debt issuance costs related to the 2022 Term Loan of approximately $9,894. The debt issuance costs associated with the 2022 Term Loan are being amortized to interest expense over 2 years.
Substantially all domestic tangible and intangible assets of Vista Outdoor and our domestic subsidiaries are pledged as collateral under the 2022 ABL Revolving Credit Facility and 2022 Term Loan.
4.5% Notes—In fiscal year 2021, we issued $500,000 aggregate principal amount of 4.5% Notes that mature on March 15, 2029. These notes are unsecured and senior obligations. Interest on the notes is payable semi-annually in arrears on March 15 and September 15 of each year. We have the right to redeem some or all of these notes on or after March 15, 2024 at specified redemption prices. Prior to March 15, 2024, 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 March 15, 2024, we may redeem up to 40% of the aggregate principal amount of these notes with the net cash proceeds of certain equity offerings, at a price equal to 104.5% of their principal amount plus accrued and unpaid interest to the date of redemption. Debt issuance costs of approximately $4,491 are being amortized to interest expense over eight years, the term of the notes.
Rank and guarantees—The 2022 ABL Revolving Credit Facility and 2022 Term Loan obligations are guaranteed on a secured basis, jointly and severally and fully and unconditionally by substantially all of our domestic subsidiaries. Vista Outdoor (the parent company issuer) has no independent assets or operations. We own 100% of all of these guarantor subsidiaries. The 4.5% 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 4.5% Notes are fully and unconditionally guaranteed, jointly and severally, by our existing and future domestic subsidiaries that guarantee indebtedness under our 2022 ABL Revolving Credit Facility and 2022 Term Loan or that incur or guarantee certain of our other indebtedness, or indebtedness of any subsidiary guarantor, in an aggregate principal amount in excess of $75,000. These guarantees are senior unsecured obligations of the applicable subsidiary guarantors. The guarantee by any subsidiary guarantor of our obligations in respect of the 4.5% 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 4.5% Notes
•if such subsidiary guarantor has been released from its guarantees of indebtedness under the 2022 ABL Revolving Credit Facility and 2022 Term Loan and all capital markets debt securities
Covenants
2022 ABL Revolving Credit Facility—Our 2022 ABL Revolving Credit Facility and 2022 Term Loan impose restrictions on us, including limitations on our ability to pay cash dividends, incur debt or liens, redeem or repurchase Vista Outdoor stock, enter into transactions with affiliates, make investments, merge or consolidate with others or dispose of assets. Each of the 2022 ABL Revolving Credit Facility and 2022 Term Loan contains a financial covenant which requires that Excess Availability under the 2022 ABL Revolving Credit Facility cannot fall below the greater of (a) 10% of the line cap or (b) $57,000. As a result of this financial covenant, we must maintain Excess Availability of at least the greater of 10% of the line cap or $57,000 at all times in order to satisfy the financial covenant. In addition, as long as the 2022 Term Loan remains outstanding, we also must maintain a maximum consolidated leverage ratio (as defined in the credit agreement) of 3.00:1.00 as of the end of each fiscal quarter. Each of the 2022 ABL Revolving Credit Facility and the 2022 Term Loan includes a covenant that prohibits the spin-off of any line of business of Vista Outdoor or certain of its subsidiaries, including the expected separation of our Outdoor Products segment (the “Planned Separation”), and amendment of each such covenant will require the consent of all lenders under the applicable credit facility in order to permit the Planned Separation. Vista Outdoor anticipates that each of the 2022 ABL Revolving Credit Facility and the 2022 Term Loan will be repaid or refinanced in full prior to or upon the consummation of the Planned Separation. If we do not comply with the covenants in the 2022 ABL Revolving Credit Facility or 2022 Term Loan, the lenders under the applicable facility may, subject to customary cure rights, require the immediate payment of all amounts outstanding under such facility. As noted above, the Excess Availability less the minimum required borrowing base under the 2022 ABL Revolving Credit Facility was $54,555 as of September 25, 2022. Vista Outdoor has the option to increase the amount of the 2022 ABL Revolving Credit Facility in an aggregate principal amount not to exceed $150,000, to the extent that any one or more lenders, whether or not currently party to the 2022 ABL Revolving Credit Facility, commits to be a lender for such amount.
4.5% Notes—The indenture governing the 4.5% Notes contains covenants that, among other things, limit our ability to incur or permit to exist certain liens, sell, transfer or otherwise dispose of assets, consolidate, amalgamate, merge or sell all or substantially all of our assets, enter into transactions with affiliates, enter into agreements restricting our subsidiaries’ ability to pay dividends, incur additional indebtedness, pay dividends or make other distributions or repurchase or redeem our capital stock, prepay, redeem or repurchase certain debt and make loans and investments.
The 2022 ABL Revolving Credit Facility, the 2022 Term Loan, and the indenture governing the 4.5% Notes contain cross-default provisions so that noncompliance with the covenants within one debt agreement could also cause a default under the other debt agreement. As of September 25, 2022, we were in compliance with the covenants of all of our debt agreements. However, we cannot provide assurance that we will be able to comply with such financial covenants in the future due to various risks and uncertainties, some of which may be beyond our control. Any failure to comply with the restrictions in the 2022 ABL Revolving Credit Facility and 2022 Term Loan may prevent us from drawing under these loans and may result in an event of default under the 2022 ABL Revolving Credit Facility and 2022 Term Loan, which default may allow the creditors to accelerate the related indebtedness and the indebtedness under our 4.5% Notes and proceed against the collateral that secures such indebtedness. We may not have sufficient liquidity to repay the indebtedness in such circumstances.
Cash paid for interest on debt, for the three months ended September 25, 2022 and September 26, 2021 totaled $12,120 and $12,200, respectively. Cash paid for interest on debt, for the six months ended September 25, 2022 and September 26, 2021 totaled $13,211 and $12,200, respectively.
14. Employee Benefit Plans
We recognized an aggregate net loss of $381 and $3 for employee defined benefit plans during the three months ended September 25, 2022 and September 26, 2021, respectively.
We recognized an aggregate net loss of $762 and $38 for employee defined benefit plans during the six months ended September 25, 2022 and September 26, 2021, respectively.
Employer contributions and distributions—We made contributions of $0 and $1,300 to our pension trust during the six months ended September 25, 2022 and September 26, 2021, respectively. No additional contributions are required and we are not expecting to make any contributions to our pension trust for the remainder of fiscal year 2023.
For those same periods, we made no contributions to our other postretirement benefit plans, and we made no distributions to retirees under our non-qualified supplemental executive retirement plan. No additional contributions are required, and we are not expecting to make any contributions to our other postretirement benefit plans, or directly to retirees under our non-qualified supplemental executive retirement plans for the remainder of fiscal year 2023.
15. Income Taxes
Our provision for income taxes includes federal, foreign, and state income taxes. Income tax provisions for interim periods are based on the estimated effective annual income tax rates for the current year and the prior year.
The income tax provisions for the three months ended September 25, 2022 and September 26, 2021 represent effective tax rates of 20.8% and 24.5%, respectively. The decrease in the effective tax rate from the prior year quarter is primarily driven by the non-taxable contingent consideration income in the current quarter and the impact of beneficial state tax law changes.
The income tax provisions for the six months ended September 25, 2022 and September 26, 2021 represent effective tax rates of 22.7% and 24.9%, respectively. The decrease in the effective tax rate from the prior year period is primarily driven by the non-taxable contingent consideration income in the current period and the impact of beneficial state tax law changes.
The effective tax rate for the three and six months ended September 25, 2022 and September 26, 2021 is reflective of the federal statutory rate of 21% increased by the state taxes and reserves for uncertain tax positions.
Income taxes paid, net of refunds, totaled $60,068 and $47,697 for the six months ended September 25, 2022 and September 26, 2021, respectively.
We have filed amended income tax returns requesting total refunds of $42,193, which are reflected in our income tax receivable of $49,010.
We have classified uncertain tax positions as non-current income tax liabilities unless expected to be paid within one year. The amount of unrecognized tax benefits, including interest and penalties, amounted to $29,000 and $24,719 as of September 25, 2022 and March 31, 2022, respectively. Although the timing and outcome of income tax audit settlements are uncertain, it is expected that a $3,532 reduction of the liability for uncertain tax benefits will occur in the next 12 months. The settlement of these unrecognized tax benefits could result in earnings from $0 to $2,838.
16. 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.
Certain of our former subsidiaries have been identified as potentially responsible parties ("PRPs"), along with other parties, in regulatory agency actions associated with hazardous waste sites. As a PRP, those former subsidiaries may be required to pay a share of the costs of the investigation and clean-up of these sites. In that event, we would be obligated to indemnify those subsidiaries for those costs. 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 $694 and $697 as of September 25, 2022 and March 31, 2022, 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.
17. Operating Segment Information
Our business is comprised of eight operating segments, which have been aggregated into two reportable segments, Sporting Products and Outdoor Products. This is consistent with how our chief operating decision maker (CODM), our Chief Executive Officer, allocates resources and makes decisions. Our Ammunition operating segment is in its own reportable segment which has been renamed Sporting Products. We aggregate our Outdoor Accessories, Sports Protection, Outdoor
Cooking, Hydration, Golf, Fishing, and Cycling operating segments into the Outdoor Products reportable segment. The operating segments comprising our respective reportable segments share numerous commonalities, including similar core consumers, distribution channels, and supply chains.
Our CODM relies on internal management reporting that analyzes consolidated results to the net income level and our operating segment's EBIT, which is defined as earnings before interest and income taxes. Certain corporate-related costs and other non-recurring costs are not allocated to the segments in order to present comparable results from period to period and are not utilized by management in determining segment profitability.
Our Sporting Products and Outdoor Products reportable segments generated approximately 60% and 40%, respectively, of our external sales in the six months ended September 25, 2022.
No single customer contributed 10% or more of our sales in the six months ended September 25, 2022 and September 26, 2021.
The following tables contain information utilized by management to evaluate our operating segments for the interim periods presented:
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| | Three months ended September 25, 2022 | | Six months ended September 25, 2022 |
| | Sporting Products | | Outdoor Products | | (a) Corporate and other reconciling items | | Total | | Sporting Products | | Outdoor Products | | (a) Corporate and other reconciling items | | Total |
Sales, net | | $ | 432,489 | | | $ | 349,189 | | | $ | — | | | $ | 781,678 | | | $ | 943,116 | | | $ | 641,174 | | | $ | — | | | $ | 1,584,290 | |
Gross Profit | | 159,138 | | | 106,771 | | | (3,035) | | | 262,874 | | | 360,100 | | | 199,279 | | | (3,035) | | | 556,344 | |
EBIT | | 133,552 | | | 30,471 | | | (32,115) | | | 131,908 | | | 309,638 | | | 58,157 | | | (63,462) | | | 304,333 | |
Depreciation and amortization | | 6,398 | | | 15,543 | | | 1,043 | | | 22,984 | | | 12,780 | | | 27,350 | | | 2,170 | | | 42,300 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended September 26, 2021 | | Six months ended September 26, 2021 |
| | (b) Sporting Products | | (b) Outdoor Products | | (a) Corporate and other reconciling items | | Total | | (b) Sporting Products | | (b) Outdoor Products | | (a) Corporate and other reconciling items | | Total |
Sales, net | | $ | 450,193 | | | $ | 328,267 | | | $ | — | | | $ | 778,460 | | | $ | 814,481 | | | $ | 626,891 | | | $ | — | | | $ | 1,441,372 | |
Gross Profit | | 202,601 | | | 96,320 | | | — | | | 298,921 | | | 351,597 | | | 189,135 | | | (384) | | | 540,348 | |
EBIT | | 175,519 | | | 42,724 | | | (27,504) | | | 190,739 | | | 300,224 | | | 85,669 | | | (51,498) | | | 334,395 | |
Depreciation and amortization | | 6,368 | | | 9,128 | | | 943 | | | 16,439 | | | 12,874 | | | 17,896 | | | 1,914 | | | 32,684 | |
(a) Reconciling items for the three and six months ended September 25, 2022 included post-acquisition compensation expense of $3,269 and $7,600, inventory fair value step-up expenses related to acquisitions the Fox Racing and Simms acquisitions of $3,036 and $3,036, and contingent consideration fair value adjustment of $(11,313) and $(11,425), respectively. Reconciling items for the three and six months ended September 26, 2021 included a fair value step-up in inventory allocated from the HEVI-Shot acquisition of $0 and $384 and post-acquisition compensation expense of $1,245 and $1,792, respectively.
(b) During the third quarter of fiscal year 2022, we modified and renamed our reportable segments. Accordingly, prior comparative periods have been restated to conform to the change.
Sales, net exclude all intercompany sales between Sporting Products and Outdoor Products which were not material for the three and six months ended September 25, 2022 and September 26, 2021.