Vista Outdoor Inc. expects to record a material, non-cash intangible asset impairment charge in its Hunting and Shooting Accessories reporting unit (archery/hunting accessories, golf, optics, shooting accessories and tactical products) in the third quarter ended December 31. The company does not expect the impairment charge to have any impact on future operations, affect its liquidity, affect cash flows from operating activities or affect compliance with the financial covenants set forth in its debt instruments.
In accordance with Accounting Standards Codification (ASC) 350 “Intangibles Goodwill and Other,” the company is required to test its goodwill and other indefinite-lived intangible assets for impairment annually or when a triggering event has occurred that would indicate that it is more likely than not that the fair value of the reporting unit is less than the book value, including goodwill and intangibles.
In Vista Outdoor’s assessment, a triggering event for the company’s Outdoor Products segment occurred during the third quarter of fiscal year 2017 due to an acceleration of the trends seen during the first and second quarters, which included a softening retail environment and increased promotional activity. These factors required the company to begin the impairment assessment for that segment’s reporting units at that time, rather than waiting for the normal process that would ordinarily be completed in conjunction with the preparation of the company’s fiscal year 2017 annual financial statements. Vista Outdoor’s Shooting Sports segment will be tested during the normal process, and management is confident there will not be an impairment in the segment’s Ammunition and Firearms reporting units.
Based on the initial assessment conducted using a measurement date of November 28, 2016, there was no indication of any impairment of Vista Outdoor’s intangible assets associated with either the company’s Outdoor Recreation (camping, hydration and watersports) or Sports Protection (cycling and winter sports accessories) reporting units; however, the assessment did indicate that the above-mentioned impairment may have occurred in the company’s Hunting and Shooting Accessories reporting unit. While the analysis to finalize the actual amount of the impairment charge has not yet been completed, Vista Outdoor believes that there is sufficient evidence for the company to conclude that this impairment occurred.
During the company’s fiscal year 2017 second-quarter earnings call and its subsequent 2016 Investor Day, Vista Outdoor disclosed it has experienced both revenue and gross margin declines that were driven by a variety of factors. These factors include a challenging retail environment that resulted in a deeper discounting of its accessories products, as well as a shift in the consumers’ share of wallet from hunting and shooting accessories products to certain firearms platforms outside the company’s firearms offerings. These sales and gross margin trends accelerated during the company’s recently completed third quarter to the point where this impairment charge is necessary to comply with accounting standards. Although Vista Outdoor is in the process of finalizing the actual amount of the impairment, the company’s preliminary analysis indicates the impairment charge will be in the range of $400 million to $450 million. The company expects that the analysis supporting the impairment will be completed in time to allow for its recording in the third quarter of fiscal year 2017.
“We believe this non-cash impairment charge is a result of challenging market conditions, which worsened as the third quarter progressed and required discounting of product for Vista Outdoor to remain competitive,” said Vista Outdoor Chief Financial Officer Stephen Nolan. “We still expect long-term growth in all of our reporting units, including Hunting and Shooting Accessories. We remain committed to, and confident in, our growth strategy and we are optimistic about our businesses and our future opportunities.”
Due to the ongoing analysis, management will be unable to provide further details on the impairment charge, the impact of current market conditions on business performance and annual guidance until the company’s regularly scheduled third-quarter earnings call on February 9, 2017.
The company’s brands include Federal Premium, CamelBak, Savage Arms, Bushnell, Primos, Blackhawk, Bollé, Bell and Giro.
Photo courtesy Federal Premium
