Bulletin
Investor Alert

New York Markets Open in:

June 3, 2020, 5:24 p.m. EDT

10-K: VISTA OUTDOOR INC.

new
Watchlist Relevance
LEARN MORE

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

or Cancel Already have a watchlist? Log In

(EDGAR Online via COMTEX) -- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with Part II, Item 6, "Selected Financial Data" and our Consolidated Financial Statements and related notes appearing elsewhere in this Annual Report. This section and other sections of this Annual Report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. See "Forward-Looking Statements" and Part I, Item 1A. "Risk Factors" included in this Annual Report. (Dollar amounts in thousands except share and per share data or unless otherwise indicated) Executive Summary Business Overview We serve the outdoor sports and recreation markets through a diverse portfolio of nearly 40 well-recognized brands that provide consumers with a wide range of performance-driven, high-quality and innovative products, including sporting ammunition, golf rangefinders, hydration products, outdoor accessories, outdoor cooking solutions, and protective equipment for certain action sports. 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 and distributors, such as Academy, Amazon, Bass Pro Shops/Cabela's, Big Rock Sports, Sports South, Sportsman's Warehouse, Target, and Walmart. We also sell certain of our products directly to consumers through the relevant brand's website. 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 consumers.

Organizational Structure

We conduct our operations through two operating segments which are defined based on the reporting and review process used by the chief operating decision maker, our Chief Executive Officer. As of March 31, 2020, Vista Outdoor's two segments were Outdoor Products and Shooting Sports:

Outdoor Products, which generated approximately 32% of our sales in fiscal 2020. Outdoor Products is comprised of sports protection, outdoor cooking, golf, and hydration product lines. Sports protection includes helmets, goggles, and accessories for cycling, snow sports, action sports and powersports. Outdoor cooking includes grills and stoves. Golf products include laser rangefinders and other golf technology products. Hydration products include hydration packs and water bottles. Our Eyewear brands were divested during the second quarter of fiscal year 2019.

Business Strategy

In fiscal year 2019, Vista Outdoor embarked on its multi-year strategic transformation plan to reposition the Company to be the leading designer, manufacturer, and marketer of consumer products in the outdoor sports and recreation markets. The primary goal of the transformation plan is to drive profitable growth by delivering innovative products and industry leading customer and online customer experiences. Cost savings are re-invested into improvements needed in capabilities, systems, innovation and growth opportunities. Vista Outdoor believes this plan will enable the Company to deliver long-term sustainable and profitable growth and create value for shareholders.

To achieve its multi-year strategic transformation goals, the Company is relentlessly focused on the following five strategic pillars, which define key priorities and investment focus areas:

Table of Contents

Optimize our Organizational Structure: Investing in talent while reducing costs and building a culture of agility, efficiency, and innovation.

Create Leading Centers of Excellence in Operational Excellence and E-Commerce: Leveraging our shared resources, expertise and scale to:







                     achieve operational excellence and improve margins across each of
                     our brands; and
                     accelerate and enhance e-commerce, direct-to-consumer and digital
                     marketing capabilities across all of our brands.
               Reducing Financial Leverage: Strengthening the Company's balance sheet,
               improving financial flexibility, and paying down debt though enhanced
               cash-flow generation and the divestiture of non-core businesses.
               Returning to Organic Growth: Identifying and capturing opportunities for
               organic growth and market share expansion by:
                     Allocating capital to our brands to aid in their development of new
                     and innovative products that serve the needs and preferences of
                     their core consumers; and
                     Leveraging and expanding our distribution channels to expand the
                     commercial presence of all of our brands and efficiently deliver
                     product to meet consumer demand and shopping behavior.
               Exploring Tuck-in Acquisitions: After reducing financial leverage, deploy
               a stronger balance sheet to acquire smaller, complimentary businesses
               that, through the help of our Centers of Excellence, we can take to the
               next level in terms of sales and profitability.
        


The first phase of our strategic transformation plan focused on stabilizing our business and building a strong foundation for the future by improving profitability, enhancing operational efficiency, and reducing financial leverage though enhanced cash-flow generation and the divestiture of non-core businesses. Vista Outdoor has made significant progress to date toward these goals by making key leadership changes, investing in digital and e-commerce platforms, addressing the Company's cost structure and strengthening the Company's balance sheet. Learnings from the last two years have been incorporated into the Company's forward-looking plans to continue to improve both financial and operational performance and accelerate value creation.

Beginning in fiscal year 2021, we intend to build on the capabilities developed during the first two years of our transformation, with an additional emphasis going forward on driving long-term, profitable organic sales growth. Vista Outdoor has plans in place under each of its five strategic pillars to deliver long-term, sustainable, profitable growth and improved cash generation, solidifying the Company's position as the outdoor sports and recreation market leader.

Gross profit was $358,766 and $415,688 for the fiscal years ended March 31, 2020 and 2019, respectively. The decrease in gross profit was primarily caused by the decreases in sales volumes discussed above as well as increased promotional activity. The decreases were partially offset by increases in operating efficiencies, lower commodity prices and the quality and mix of sales.

EBIT totaled $(132,236) and $(617,081) for the fiscal years ended March 31, 2020 and 2019, respectively. The decrease in loss is primarily due the reasons described above regarding sales and gross profit, and because of a decrease in goodwill and intangibles impairment, as well as impairments of held-for-sale assets, and for the reasons described in the Results of Operations section.

The increase in the current year tax rate to 9.3% from 3.8% in the prior year ended March 31, 2019 is primarily due to the release of uncertain tax positions in the current period and the impact of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

During the quarter ended March 31, 2020, Vista Outdoor recorded a $155.6 million impairment of goodwill and identifiable indefinite-lived intangible assets related to our Hunting and Shooting Accessories, Action Sports, Hydration and historical Outdoor Recreation reporting units.

Table of Contents

On July 5, 2019, Vista Outdoor Inc. and one of its subsidiaries, Vista Outdoor Operations LLC, sold our Firearms business, which was part of our historic Shooting Sports segment and comprised our Firearms reporting unit, for a total purchase price of $170,000. Prior to the sale we recorded impairment on assets held for sale of $9.4 million and $39.6 million during the fiscal years ended March 31, 2020 and 2019, respectively, and $80.6 million of impairment of held-for-sale goodwill during the fiscal year ended March 31, 2019. This divestiture was part of our transformation strategy to right-size our portfolio to focus on brands where we are, or can be, market leaders. The net proceeds were used to reduce our outstanding debt.

Outlook

Hunting and shooting-sports related products currently represent a majority of our sales. We design, source, manufacture, and sell ammunition and hunting and shooting related optics and accessories through our Federal, CCI, Speer, Bushnell and Primos brands, among others. Among these categories, we derive the largest portion of our sales from ammunition, which is a consumable, repeat purchase product.

Sales of hunting and shooting-sports related products, including ammunition, are heavily influenced by participation rates and the political environment. The market for shooting sports products softened dramatically following the 2016 United States presidential election, but began to recover in the fourth quarter of our fiscal year 2020. The extent and duration of this increase in demand for hunting and shooting-sports related products is uncertain. We expect that during our fiscal year 2021 demand for hunting and shooting-sports related products will be influenced by, among other things, the 2020 United States presidential election cycle and the impact of the ongoing COVID-19 pandemic on general economic and retail conditions, including store closures.

We believe that long-term trends support our expectation of increasing demand for hunting and shooting-sports related products. Participation rates have remained strong and we expect them to increase during the global recovery from the COVID-19 pandemic as consumers look to local outdoor activities as a substitute for travel and other competing pursuits. We believe we are well-positioned to succeed and capitalize on this long-term demand given our scale and global operating platform, which we believe is particularly difficult to replicate in the highly regulated and capital-intensive ammunition manufacturing sector.

Outdoor Recreation Industry

The outdoor recreation industry represents a large and growing focus area of our business. We design, source, manufacture, and sell outdoor recreation products through our Bell, Giro, CamelBak, Camp Chef and Bushnell Golf brands, among others. These brands operate in highly competitive and global markets serving cycling, snow sports, hiking, camping, outdoor cooking and golf enthusiasts.

During fiscal year 2020, our Outdoor Products brands experienced a challenging retail environment driven by a variety of factors, including the ongoing shift in consumer preferences to utilize online platforms, as well as other market pressures. Many of our brands have been able to respond and capitalize on the shift in consumer preferences to utilize on-line shopping platforms, including our brands' direct-to-consumer websites, but in some cases the shift away from traditional retail channels has resulted in a net decrease in sales. In our fiscal year 2021, we expect that the impact of the ongoing COVID-19 pandemic on general economic and retail conditions, including store closures, will continue to adversely affect the sales of the brands in our Outdoor Products segment.

We believe that long-term trends support our expectation of increasing demand for the innovative outdoor recreation-related products produced by our Outdoor Products brands. Participation rates have remained strong and we expect them to increase during the global recovery from the COVID-19 pandemic as consumers look to local outdoor activities as a substitute for travel and other competing pursuits. Our Outdoor Products brands hold a strong competitive position in the market-place, and we intend to further differentiate our brands through focused R&D and marketing investments including increased use of social media and other digital marketing. Following significant investments in our brands' e-commerce capabilities, both directly and through our E-Commerce Center of Excellence, our brands are also well-positioned to benefit from the ongoing shift in consumer shopping behavior to utilize on-line channels.

Table of Contents

Critical Accounting Estimates

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. In preparing the consolidated financial statements, we make estimates and judgments that affect the reported amounts of assets, liabilities, sales, expenses, and related disclosure of contingent assets and liabilities. We re-evaluate our estimates on an on-going basis. Our estimates are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We review our estimates on an ongoing basis to ensure the estimates appropriately reflect changes in our business and the most recent information available.

We believe the critical accounting policies discussed below affect our most significant estimates and judgments used in the preparation of our consolidated financial statements. For a complete discussion of all our significant accounting policies, see Note 1, Significant Accounting Policies, to the consolidated financial statements included in this Annual Report.

Revenue Recognition

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, firearms and ammunition excise tax and other similar taxes are excluded from revenue.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful receivables for estimated losses resulting from the inability of our customers to make required payments. We provide an allowance for specific customer accounts where collection is doubtful and also provide an allowance for customer deductions based on historical collection and write-off experience. Additional allowances would be required if the financial conditions of our customers deteriorated.

Inventories

Our inventories are valued at the lower of cost or net realizable value. We evaluate the quantities of inventory held against past and future demand and market conditions to determine excess or slow-moving inventory. For each product category, we estimate the market value of the inventory comprising that category based on current and projected selling prices. If the projected market value is less than cost, we provide an allowance to reflect the lower value of the inventory. This methodology recognizes projected inventory losses at the time such losses are evident rather than at the time goods are actually sold. The projected market value of the inventory may decrease due to consumer preferences, legislative changes, or loss of key contracts among other events.

Income Taxes

Table of Contents

Accounting for goodwill and indefinite-lived intangibles:

Goodwill-We test goodwill for impairment on the first day of our fourth fiscal quarter or upon the occurrence of events or changes in circumstances that indicate that the asset might be impaired. Goodwill is assigned to our reporting units, which are our operating segments, or components of an operating segment, that constitute a business for which discrete financial information is available, and for which segment management regularly reviews the operating results. Based on this analysis, we had five reporting units, as of the fiscal 2020 testing date.

During the annual impairment review process we have the option to first perform a qualitative assessment (commonly referred to as "step zero") over relative events and circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value or to perform a quantitative assessment ("step one") where we estimate the fair value of each reporting unit using both an income and market approach. We completed a step one assessment as of January 1, 2020, and recognized goodwill impairment charges of $121,329. See Note 11, Goodwill and Intangible Assets, to the consolidated financial statements included in this Annual Report for further discussion and details.

To assess the recoverability of our goodwill, we determine the estimated fair value of each reporting unit and compare it to the carrying value of the reporting unit, including goodwill. When fair value is less than the carrying value of the net assets and related goodwill, an impairment charge is recognized for the excess. The fair value of each reporting unit is determined using both an income and market approach. The value estimated using a discounted cash flow model is weighted equally against the estimated value derived from the guideline company market approach method. This market approach method estimates the price reasonably expected to be realized from the sale of the reporting unit based on comparable companies.

In developing the discounted cash flow analysis, our assumptions about future revenues and expenses, capital expenditures, and changes in working capital are based on our plan, as reviewed by the Board of Directors, and assume a terminal growth rate thereafter. A separate discount rate is determined for each reporting unit and these cash flows are then discounted to determine the fair value of the reporting unit. The discounted cash flow analysis is derived from valuation techniques in which one or more significant inputs are not observable (Level 3 fair value measures).

Indefinite Lived Intangible Assets-Indefinite lived intangibles are not amortized and are tested for impairment annually on the first day of the fourth fiscal quarter or upon the occurrence of events or changes in circumstances that indicate that the assets might be impaired.

Our identifiable intangibles with indefinite lives consist of certain trademarks and tradenames. The impairment test consists of a comparison of the estimated fair value of the specific intangible asset with its carrying value. The estimated fair value of these assets is measured using the relief-from-royalty method which assumes that the asset has value to the extent that the owner is relieved of the obligation to pay royalties for the benefits received from them.

This method requires that we estimate the future revenue for the related brands and technology, the appropriate royalty rate, and the weighted average cost of capital. We base our fair values and estimates on assumptions we believe to be reasonable, but which are unpredictable and inherently uncertain. If the carrying amount of an asset is higher than its fair value, an impairment exists and the asset would be recorded at the estimated fair value. Due to the results of our annual step one test, we recognized impairment charges related to our indefinite lived intangibles of $34,259. See Note 11, Goodwill and Intangible Assets, to the consolidated financial statements included in this Annual Report for discussion and details.

Our assumptions used to develop the discounted cash flow analysis require us to make significant estimates regarding future revenues and expenses, projected capital expenditures, changes in working capital, and the appropriate discount rate. The projections also take into account several factors including current and estimated economic trends and outlook, costs of raw materials and other factors that are beyond our control. If the current economic conditions were to deteriorate, or if we were to lose significant business, causing a reduction in estimated discounted cash flows, it is possible that the estimated fair value of certain reporting units or tradenames could fall below their carrying value resulting in the necessity to conduct additional impairment tests in future periods. We continually monitor the reporting units and tradenames for impairment indicators and update assumptions used in the most recent calculation of the estimated fair value of a reporting unit or tradenames as appropriate.

Table of Contents

Assets and Liabilities Held for Sale

Assets and liabilities held for sale represent components and businesses that meet accounting requirements to be classified as held for sale and are presented as single asset and liability amounts in our consolidated balances sheets at the lower of cost or fair value, less costs to sell. We assess all businesses and assets held for sale each reporting period it remains classified as held for sale to determine whether the existing carrying amounts are fully recoverable in comparison to estimated fair values. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets. The remeasurement of assets and liabilities held for sale is classified as a Level 3 fair value assessment as described in Note 2, Fair Value of Financial Instruments. During fiscal year 2020, we recorded impairment charges on held for sale assets of $9,429 related to our Firearms business that was sold during the second quarter of fiscal year 2020.

New Accounting Pronouncements

Results of Operations

Jun 03, 2020

Is there a problem with this press release? Contact the source provider Comtex at editorial@comtex.com. You can also contact MarketWatch Customer Service via our Customer Center.

(c) 1995-2020 Cybernet Data Systems, Inc. All Rights Reserved

This Story has 0 Comments
Be the first to comment

Story Conversation

Commenting FAQs »
Link to MarketWatch's Slice.