aobc-10q_20180731.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2018

Commission File No. 001-31552

 

American Outdoor Brands Corporation

(Exact name of registrant as specified in its charter)

 

 

Nevada

 

87-0543688

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

2100 Roosevelt Avenue

Springfield, Massachusetts

 

01104

(Address of principal executive offices)

 

(Zip Code)

(800) 331-0852

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

 

  

If an emerging growth company, indicate by check mark if the registrant has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

The registrant had 54,389,046 shares of common stock, par value $0.001, outstanding as of August 28, 2018.

 

 


AMERICAN OUTDOOR BRANDS CORPORATION

Quarterly Report on Form 10-Q

For the Three Months Ended July 31, 2018 and 2017

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION

  

 

 

Item 1. Financial Statements (Unaudited)

  

4

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

22

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

  

28

 

Item 4. Controls and Procedures

  

28

 

 

 

 

PART II - OTHER INFORMATION

  

 

 

Item 1. Legal Proceedings

  

29

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

29

 

Item 6. Exhibits

  

29

Signatures

  

31

EX-31.1

  

 

EX-31.2

  

 

EX-32.1

  

 

EX-32.2

  

 

 

Smith & Wesson®, S&W®, M&P®, M&P Shield®, Performance Center®, Bodyguard®, Governor®, SW22 Victory®, T/C ®, America’s Master Gunmaker ®, Compass®, Contender®, Dimension®, Encore®, Triumph®, Weather Shield®, Caldwell®, Delta Series®, Wheeler®, Tipton®, Frankford Arsenal®, Lockdown®, BOG-POD®, Golden Rod®, Mag Charger®, Hooyman®, Schrade®, Old Timer®, Uncle Henry®, Imperial®, Non-Typical Wildlife Solutions®, Crimson Trace®, Lasergrips®, Laserguard®, Rail Master®, Shockstop®, Key Gear®, U-Dig-It®, Bubba Blade®, One Cut and You’re Through®, Gemtech®, G-Core®, Halo®, Integra®, World Class Silencers®, LiNQ®, Stinky Bubba®, and Turkinator™ are some of the registered U.S. trademarks of our company or one of our subsidiaries. American Outdoor Brands CorporationSM, M2.0™, SDVE™, Thompson/Center Arms™, Impact!™, Strike™, Venture™, Defender Series™, Instinctive Activation™, Master Series™, UST™, Blast Jacket™, One™, The Professional’s Choice for Decades™, and World Class Ammunition™ are some of the unregistered trademarks of our company or one of our subsidiaries. This report also may contain trademarks and trade names of other companies.

 

 

 

 


Statement Regarding Forward-Looking Information

 

The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts contained or incorporated herein by reference in this Quarterly Report on Form 10-Q, including statements regarding our future operating results, future financial position, business strategy, objectives, goals, plans, prospects, markets, and plans and objectives for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “targets,” “contemplates,” “projects,” “predicts,” “may,” “might,” “plan,” “will,” “would,” “should,” “could,” “may,” “can,” “potential,” “continue,” “objective,” or the negative of those terms, or similar expressions intended to identify forward-looking statements. However, not all forward-looking statements contain these identifying words. Specific forward-looking statements in this Quarterly Report on Form 10-Q include statements regarding the impact, if any, of recently issued accounting standards on our consolidated financial statements; the expected performance of acquired businesses; our assessment of factors relating to the valuation of assets acquired and liabilities assumed in acquisitions, the timing for such evaluations, and the potential adjustment in such evaluations; assessments that we make about determining segments and reporting units; the features of our outstanding debt and our expectation that our interest rate swap will not have any material effect on our earnings or our consolidated financial statements within the next 12 months; estimated amortization expense of intangible assets for future periods; the potential for impairment charges; potential repurchases of our common stock; the outcome of the lawsuits to which we are subject and their effect on us; our belief that inventory levels, both internally and in the distribution channel, in excess of demand, may negatively impact future operating results; our belief that it is difficult to forecast the potential impact of distributor inventories on future revenue and income as demand is impacted by many factors, including seasonality, new product introductions, news events, political events,  and consumer tastes; our belief that inventory levels will continue to increase in the second quarter due to reduced manufacturing output as well as planned inventory build to reduce the risk of shipping complications at the time that our national logistics facility becomes operational; the impact of the Tax Cuts and Jobs Act, or Tax Reform, on our operating results, including our belief that Tax Reform will be a benefit to us and reduce our effective tax rate; the effects of acquisitions on our overall financial performance; our assessment of our acquisitions, including the quality and strength of their products; our assessment of consumer demand and factors that stimulate demand for our products; the effect on our business of various factors, including terrorism and the level of political pressures on firearm laws and regulations; future investments for capital expenditures; future products and product developments; the features, quality, and performance of our products; the success of particular product or marketing programs; our market share and factors that affect our market share; and liquidity and anticipated cash needs and availability. All forward-looking statements included herein are based on information available to us as of the date hereof and speak only as of such date. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. The forward-looking statements contained in or incorporated by reference into this Quarterly Report on Form 10-Q reflect our views as of the date of this Quarterly Report on Form 10-Q about future events and are subject to risks, uncertainties, assumptions, and changes in circumstances that may cause our actual results, performance, or achievements to differ significantly from those expressed or implied in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future events, results, performance, or achievements. A number of factors could cause actual results to differ materially from those indicated by the forward-looking statements, including the demand for our products; the costs and ultimate conclusion of certain legal matters; the state of the U.S. economy in general and the firearm industry in particular; general economic conditions and consumer spending patterns; the competitive environment; the supply, availability, and costs of raw materials and components; the potential for increased regulation of firearms and firearm-related products; speculation surrounding fears of terrorism and crime; our anticipated growth and growth opportunities; our ability to increase demand for our products in various markets, including consumer, law enforcement, and military channels, domestically and internationally; the position of our hunting products in the consumer discretionary marketplace and distribution channel; our penetration rates in new and existing markets; our strategies; our ability to maintain and enhance brand recognition and reputation; risks associated with the establishment of our new 632,000 square foot national logistics facility including the timing of completion and the expected benefits; our ability to introduce new products; the success of new products; our ability to expand our markets; our ability to integrate acquired businesses in a successful manner; the general growth of our outdoor products and accessories business; the potential for cancellation of orders from our backlog; and other factors detailed from time to time in our reports filed with the Securities and Exchange Commission, or the SEC, including our Annual Report on Form 10-K for the fiscal year ended April 30, 2018, filed with the SEC on June 20, 2018.


PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

AMERICAN OUTDOOR BRANDS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

As of:

 

 

July 31, 2018

 

 

April 30, 2018

 

 

(In thousands, except par value and share data)

 

ASSETS

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

25,238

 

 

$

48,860

 

Accounts receivable, net of allowance for doubtful accounts of $1,774 on

  July 31, 2018 and $1,824 on April 30, 2018

 

41,504

 

 

 

56,676

 

Inventories

 

166,891

 

 

 

153,353

 

Prepaid expenses and other current assets

 

9,250

 

 

 

6,893

 

Income tax receivable

 

1,034

 

 

 

4,582

 

Total current assets

 

243,917

 

 

 

270,364

 

Property, plant, and equipment, net

 

172,788

 

 

 

159,125

 

Intangibles, net

 

107,454

 

 

 

112,760

 

Goodwill

 

191,203

 

 

 

191,287

 

Other assets

 

11,483

 

 

 

11,524

 

 

$

726,845

 

 

$

745,060

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

31,622

 

 

$

33,617

 

Accrued expenses

 

37,524

 

 

 

41,632

 

Accrued payroll and incentives

 

9,861

 

 

 

10,514

 

Accrued income taxes

 

857

 

 

 

513

 

Accrued profit sharing

 

1,537

 

 

 

1,283

 

Accrued warranty

 

6,167

 

 

 

6,823

 

Current portion of notes and loans payable

 

6,300

 

 

 

6,300

 

Total current liabilities

 

93,868

 

 

 

100,682

 

Deferred income taxes

 

11,349

 

 

 

12,895

 

Notes and loans payable, net of current portion

 

153,837

 

 

 

180,304

 

Capital lease payable, net of current portion

 

34,206

 

 

 

22,143

 

Other non-current liabilities

 

6,905

 

 

 

6,888

 

Total liabilities

 

300,165

 

 

 

322,912

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock, $.001 par value, 20,000,000 shares authorized, no shares

   issued or outstanding

 

 

 

 

 

Common stock, $.001 par value, 100,000,000 shares authorized,

   72,550,428 shares issued and 54,383,566 shares outstanding on

   July 31, 2018 and 72,433,705 shares issued and 54,266,843 shares

   outstanding on April 30, 2018

 

73

 

 

 

72

 

Additional paid-in capital

 

255,189

 

 

 

253,616

 

Retained earnings

 

392,181

 

 

 

389,146

 

Accumulated other comprehensive income

 

1,612

 

 

 

1,689

 

Treasury stock, at cost (18,166,862 shares on July 31, 2018 and

   April 30, 2018)

 

(222,375

)

 

 

(222,375

)

Total stockholders’ equity

 

426,680

 

 

 

422,148

 

 

$

726,845

 

 

$

745,060

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


AMERICAN OUTDOOR BRANDS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

 

 

 

For the Three Months Ended July 31,

 

 

 

2018

 

 

2017

 

 

 

(In thousands, except per share data)

 

Net sales

 

$

138,833

 

 

$

129,021

 

Cost of sales

 

 

86,411

 

 

 

88,389

 

Gross profit

 

 

52,422

 

 

 

40,632

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

2,810

 

 

 

2,786

 

Selling and marketing

 

 

11,615

 

 

 

11,718

 

General and administrative

 

 

24,521

 

 

 

29,328

 

Total operating expenses

 

 

38,946

 

 

 

43,832

 

Operating income/(loss)

 

 

13,476

 

 

 

(3,200

)

Other (expense)/income, net:

 

 

 

 

 

 

 

 

Other (expense)/income, net

 

 

(18

)

 

 

1,298

 

Interest expense, net

 

 

(2,001

)

 

 

(2,391

)

Total other (expense)/income, net

 

 

(2,019

)

 

 

(1,093

)

Income/(loss) from operations before income taxes

 

 

11,457

 

 

 

(4,293

)

Income tax expense/(benefit)

 

 

3,812

 

 

 

(2,128

)

Net income/(loss)

 

 

7,645

 

 

 

(2,165

)

Comprehensive income/(loss):

 

 

 

 

 

 

 

 

Change in unrealized loss on interest rate

   swap

 

 

(104

)

 

 

(119

)

Other comprehensive loss, before income taxes

 

 

(104

)

 

 

(119

)

Income tax benefit on other comprehensive

   loss

 

 

27

 

 

 

40

 

Other comprehensive loss, net of tax

 

 

(77

)

 

 

(79

)

Comprehensive income/(loss):

 

$

7,568

 

 

$

(2,244

)

Net income/(loss) per share:

 

 

 

 

 

 

 

 

Basic

 

$

0.14

 

 

$

(0.04

)

Diluted

 

$

0.14

 

 

$

(0.04

)

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

54,345

 

 

 

53,905

 

Diluted

 

 

54,931

 

 

 

53,905

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5


AMERICAN OUTDOOR BRANDS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Additional

 

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Stock

 

 

Paid-In

 

 

Retained

 

 

Comprehensive

 

 

Treasury Stock

 

 

Stockholders’

 

(In thousands)

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Income/(Loss)

 

 

Shares

 

 

Amount

 

 

Equity

 

Balance at April 30, 2018

 

 

72,434

 

 

$

72

 

 

$

253,616

 

 

$

389,146

 

 

$

1,689

 

 

 

18,167

 

 

$

(222,375

)

 

$

422,148

 

Proceeds from exercise of

   employee stock options

 

 

17

 

 

 

 

 

 

139

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

139

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,990

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,990

 

Change in unrealized loss on

   interest rate swap, net of tax effect

 

 

 

 

 

 

 

 

 

 

 

(77

)

 

 

 

 

 

 

(77

)

Impact of adoption of accounting standard

   updates

 

 

 

 

 

 

 

 

(4,610

)

 

 

 

 

 

 

 

 

 

(4,610

)

Issuance of common stock under

   restricted stock unit awards, net

   of shares surrendered

 

 

100

 

 

 

1

 

 

 

(556

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(555

)

Net income

 

 

 

 

 

 

 

 

 

 

7,645

 

 

 

 

 

 

 

 

 

 

 

 

7,645

 

Balance at July 31, 2018

 

 

72,551

 

 

$

73

 

 

$

255,189

 

 

$

392,181

 

 

$

1,612

 

 

 

18,167

 

 

$

(222,375

)

 

$

426,680

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

6


AMERICAN OUTDOOR BRANDS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

For the Three Months Ended July 31,

 

 

 

2018

 

 

2017

 

 

 

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income/(loss)

 

$

7,645

 

 

$

(2,165

)

Adjustments to reconcile net income to net cash provided by operating

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

12,852

 

 

 

13,769

 

Loss on sale/disposition of assets

 

 

7

 

 

 

5

 

Provision for losses on notes and accounts receivable

 

 

55

 

 

 

227

 

Deferred income taxes

 

 

(1,520

)

 

 

 

Change in fair value of contingent consideration

 

 

 

 

 

(1,300

)

Stock-based compensation expense

 

 

1,990

 

 

 

1,888

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

15,208

 

 

 

15,470

 

Inventories

 

 

(13,538

)

 

 

(29,385

)

Prepaid expenses and other current assets

 

 

(2,363

)

 

 

(2,233

)

Income taxes

 

 

3,892

 

 

 

(2,107

)

Accounts payable

 

 

(3,921

)

 

 

(12,752

)

Accrued payroll and incentives

 

 

(653

)

 

 

(12,051

)

Accrued profit sharing

 

 

254

 

 

 

1,611

 

Accrued expenses

 

 

(8,568

)

 

 

(5,520

)

Accrued warranty

 

 

(656

)

 

 

(42

)

Other assets

 

 

(62

)

 

 

(217

)

Other non-current liabilities

 

 

17

 

 

 

310

 

Net cash provided by/(used in) operating activities

 

 

10,639

 

 

 

(34,492

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Payments to acquire patents and software

 

 

(190

)

 

 

(97

)

Proceeds from sale of property and equipment

 

 

1

 

 

 

 

Payments to acquire property and equipment

 

 

(6,919

)

 

 

(4,691

)

Net cash used in investing activities

 

 

(7,108

)

 

 

(4,788

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from loans and notes payable

 

 

 

 

 

25,000

 

Payments on capital lease obligation

 

 

(161

)

 

 

(161

)

Payments on notes and loans payable

 

 

(26,575

)

 

 

(1,575

)

Proceeds from exercise of options to acquire common stock

 

 

139

 

 

 

 

Payment of employee withholding tax related to restricted stock units

 

 

(556

)

 

 

(2,161

)

Net cash (used in)/provided by financing activities

 

 

(27,153

)

 

 

21,103

 

Net decrease in cash and cash equivalents

 

 

(23,622

)

 

 

(18,177

)

Cash and cash equivalents, beginning of period

 

 

48,860

 

 

 

61,549

 

Cash and cash equivalents, end of period

 

$

25,238

 

 

$

43,372

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

 

Interest

 

$

1,220

 

 

$

3,199

 

Income taxes

 

 

484

 

 

 

417

 

 

 

 

 

 

7


AMERICAN OUTDOOR BRANDS CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)

(Unaudited)

 

Supplemental Disclosure of Non-cash Investing and Financing Activities:

 

 

 

For the Three Months Ended July 31,

 

 

 

2018

 

 

2017

 

 

 

(In thousands)

 

Purchases of property and equipment included in accounts payable

 

$

4,332

 

 

$

1,815

 

Purchases of property and equipment funded by capital lease

 

 

12,074

 

 

 

 

Capital lease obligation

 

 

12,074

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

 

8


AMERICAN OUTDOORS BRANDS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three Months Ended July 31, 2018 and 2017

 

(1) Organization:

We are a leading manufacturer, designer, and provider of consumer products for the shooting, hunting, and rugged outdoor enthusiast. We are one of the largest manufacturers of handguns, modern sporting rifles, and handcuffs in the United States and an active participant in the hunting rifle and suppressor markets. We are also a leading provider of shooting, hunting, and rugged outdoor products and accessories, including knives and cutting tools, sighting lasers, shooting supplies, tree saws, and survival gear. We have two reporting segments: (1) Firearms (which includes the Firearms and Manufacturing Services divisions) and (2) Outdoor Products & Accessories (which includes the Outdoor Products & Accessories and Electro-Optics divisions).

In our Firearms segment, we manufacture a wide array of handguns (including revolvers and pistols), long guns (including modern sporting rifles, bolt action rifles, and muzzleloaders), handcuffs, suppressors, and other firearm-related products for sale to a wide variety of customers, including gun enthusiasts, collectors, hunters, sportsmen, competitive shooters, individuals desiring home and personal protection, law enforcement and security agencies and officers, and military agencies in the United States and throughout the world. We sell our firearm products under the Smith & Wesson, M&P, Performance Center, Gemtech, and Thompson/Center Arms brands. We manufacture our firearm products at our facilities in Springfield, Massachusetts; Houlton, Maine; and Deep River, Connecticut. We perform research and development activities for our suppressors and accessories products at our facility in Meridian, Idaho. We also sell our manufacturing services to other businesses under our Smith & Wesson and Smith & Wesson Precision Components brands.

In our Outdoor Products & Accessories segment, we design, source, distribute, and manufacture reloading, gunsmithing, and gun cleaning supplies; high-quality stainless steel cutting tools and accessories; flashlights; tree saws and related trimming accessories; shooting supplies, rests, and other related accessories; fishing accessories; apparel; vault accessories; laser grips and laser sights; and a full range of products for survival and emergency preparedness. We sell our products under the Caldwell, Wheeler, Tipton, Frankford Arsenal, Smith & Wesson, M&P, Thompson/Center, Lockdown, Hooyman, BOG-POD, Golden Rod, Non-Typical Wildlife Solutions, Crimson Trace, Imperial, Schrade, Old Timer, Bubba Blade, UST, and KeyGear brands. We develop and market our outdoor products and accessories at our facilities in Columbia, Missouri; Wilsonville, Oregon; and Jacksonville, Florida.

During fiscal 2018, we acquired substantially all of the net assets of Gemini Technologies, Incorporated, or Gemtech, as well as Bubba Blade branded products and other assets from Fish Tales, LLC, in two separate transactions, which we refer to collectively as the 2018 Acquisitions. See Note 4 – Acquisitions below for more information regarding these transactions.

 

(2) Basis of Presentation:

Interim Financial Information – The condensed consolidated balance sheet as of July 31, 2018, the condensed consolidated statements of income and comprehensive income for the three months ended July 31, 2018 and 2017, the condensed consolidated statement of changes in stockholders’ equity for the three months ended July 31, 2018, and the condensed consolidated statements of cash flows for the three months ended July 31, 2018 and 2017 have been prepared by us without audit. In our opinion, all adjustments, which include only normal recurring adjustments necessary to fairly present the financial position, results of operations, changes in stockholders’ equity, and cash flows at July 31, 2018 and for the periods presented, have been included. All intercompany transactions have been eliminated in consolidation. The consolidated balance sheet as of April 30, 2018 has been derived from our audited consolidated financial statements.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States, or GAAP, have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2018. The results of operations for the three months ended July 31, 2018 may not be indicative of the results that may be expected for the year ending April 30, 2019, or any other period.

Revenue Recognition - We recognize revenue in accordance with the provisions of Accounting Standard Update, Revenue from Contracts with Customers (Topic 606), which became effective for us on May 1, 2018. Generally all performance obligations are satisfied and revenue is recognized when the risks and rewards of ownership have transferred to the customer, which is generally upon shipment but could be delayed until the receipt of customer acceptance.

In some instances, sales include multiple performance obligations. The most common of these instances relates to sales promotion programs under which customers are entitled to receive free goods based upon their purchase of our products. The fulfillment of these free goods are our responsibility. In such instances, we allocate the revenue of the promotional sales based on the

9


AMERICAN OUTDOORS BRANDS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three Months Ended July 31, 2018 and 2017

 

estimated level of participation in the sales promotional program and the timing of the shipment of all of the products included in the promotional program, including the free goods. Revenue is recognized proportionally as each performance obligation is satisfied, based on the relative transaction price of each product. The net change in contract liabilities for a given period is reported as an increase or decrease to sales.

Our product sales are generally sold free on board, or FOB, shipping point and provide payment terms to most commercial customers ranging from 20 to 90 days of product shipment with a discount available to some customers for early payment. For contracts with discounted terms, the transaction price is determined upon establishment of the contract that contains the final terms of the sale, including the description, quantity, and price of each product purchased. We estimate variable consideration relative to the amount of cash discounts to which customers are likely to be entitled. In some instances, we provide longer payment terms, particularly as it relates to our hunting dating programs, which represent payment terms due in the fall for certain orders of hunting products received in the spring and summer. We do not consider these extended terms to be a significant financing component of the contract because the payment terms are less than one year. In all cases, we consider our costs related to shipping and handling to be a cost of fulfilling the contract with the customer.

 

Recently Issued Accounting Standards – In May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, Revenue from Contracts with Customers (Topic 606), or ASU 2014-09. The core principle of ASU 2014-09 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We adopted the new standard on May 1, 2018 utilizing the modified retrospective approach. See Note 3 – Revenue Recognition and Contracts with Customers below for more information.

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), or ASU 2016-02, which amends the existing guidance to require lessees to recognize lease assets and lease liabilities arising from operating leases in a classified balance sheet. The requirements of this ASU are effective for financial statements for annual periods beginning after December 15, 2018, and early adoption is permitted. We are in the process of implementing leasing software to assist us in the accounting and tracking of leases. Although we anticipate the effect of ASU 2016-02 will result in increasing our lease assets and lease liabilities on our condensed consolidated balance sheet, we are still evaluating the impact that it will have on our condensed consolidated financial statements. We plan to adopt ASU 2016-02 in our first quarter of fiscal 2020.

 

(3) Revenue Recognition and Contracts with Customers:

On May 1, 2018, we adopted ASU 2014-09 using the modified retrospective approach, and recorded a contract liability, included in accrued expenses in the condensed consolidated balance sheet, for outstanding performance obligations related to sales promotions. Under the modified retrospective approach, results for reporting periods after May 1, 2018 will be presented in accordance with ASU 2014-09, while prior period amounts will not be adjusted and will continue to be reported in accordance with the previous guidance, Accounting Standards Codification, or ASC, Topic 605, Revenue Recognition. When evaluating our performance obligations, we disaggregate revenue based on major product lines which correlate with our reportable segments disclosed in Note 14 — Segment Reporting. Also, domestic sales account for 95% of our total net sales. There are no significant judgments or estimates used in the determination of performance obligations and the transaction price for the performance obligations are allocated on a pro-rata basis. There are no other contract costs that need to be considered based on the nature of our performance obligations.

 

The following table outlines adjustments we recorded to our condensed consolidated balance sheet as a result of the adoption of ASU 2014-09 (in thousands):

 

 

 

Balance at

April 30, 2018

 

 

Accounting Standard Adjustments

 

 

Opening Balance May 1, 2018

 

Accrued expenses

 

$

41,632

 

 

$

(17,176

)

 

$

24,456

 

Deferred revenue from contracts with customers

 

 

 

 

23,305

 

 

 

23,305

 

Deferred taxes

 

 

12,895

 

 

 

(1,519

)

 

 

11,376

 

Retained earnings

 

 

389,146

 

 

 

(4,610

)

 

 

384,536

 

 

10


AMERICAN OUTDOORS BRANDS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three Months Ended July 31, 2018 and 2017

 

At April 30, 2018, we had accrued $17.2 million of sales promotions representing the cost of free goods earned but not yet shipped to our customers. On adoption of ASU 2014-09, we reversed this accrual and recorded deferred revenue of $23.3 million relating to these outstanding performance obligations, a deferred tax asset of $1.5 million, and a $4.6 million adjustment to reduce the opening balance of retained earnings at May 1, 2018. Deferred revenue is recorded in accrued expenses in the condensed consolidated balance sheet.

 

The following table outlines the impact of the adoption of ASU 2014-09 on revenue recognized during the three months ended July 31, 2018 (in thousands):

 

 

 

 

 

 

Outstanding performance obligations with customers as of May 1, 2018

 

$

23,305

 

Revenue recognized

 

 

(13,998

)

Revenue deferred

 

 

4,314

 

Outstanding performance obligations with customers as of July 31, 2018

 

$

13,621

 

 

During the three months ended July 31, 2018, we recognized $14.0 million of revenue previously deferred as the performance obligation relating to sales promotions was satisfied. This recognition of revenue was partially offset by $4.3 million of additional deferred revenue for outstanding performance obligations relating to sales promotions that have not been satisfied, which was recorded to accrued expenses in the condensed consolidated balance sheet. This resulted in a $9.7 million net increase of revenue during the three months ended July 31, 2018. We estimate that revenue from the outstanding performance obligations as of July 31, 2018 will be recognized during fiscal 2019. As a result of the adoption of ASU 2014-09, gross margin was decreased by 0.9% and earnings per share was increased by $0.03.

 

(4) Acquisitions:

 

2018 Acquisitions

 

In August 2017, in two separate transactions, we acquired (1) substantially all of the net assets of Gemtech and (2) Bubba Blade branded products and other assets from Fish Tales, LLC. The aggregate purchase price for the two acquisitions was $23.1 million, subject to certain adjustments, for which we utilized a combination of cash on hand and borrowings under our revolving line of credit. In connection with the Gemtech acquisition, additional consideration of up to a maximum of $17.1 million may be paid contingent upon the cumulative three year sales volume of Gemtech products. The valuation of this contingent consideration liability was established in accordance with ASC 805 — Business Combinations. Based on current forecasted revenue, we believe it is unlikely that the acquired business will achieve the performance metrics. Therefore, as of July 31, 2018, the contingent liability was recorded at a fair value of $100,000 in non-current liabilities. Gemtech, based in Meridian, Idaho, is a provider of quality suppressors and accessories for the consumer, law enforcement, and military markets. Fish Tales, LLC, based in Oro Valley, Arizona, was a provider of premium sportsmen knives and tools for fishing and hunting, including the premium knife brand Bubba Blade. The valuations of the assets acquired and liabilities assumed in the 2018 Acquisitions are substantially complete.

 

11


AMERICAN OUTDOORS BRANDS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three Months Ended July 31, 2018 and 2017

 

The following table summarizes the estimated preliminary allocation of the purchase price for the 2018 Acquisitions (in thousands):

 

 

 

2018 Acquisitions

 

 

Measurement

 

 

 

 

 

 

 

(As Initially

 

 

Period

 

 

2018 Acquisitions

 

 

 

Reported)

 

 

Adjustments

 

 

(As Adjusted)

 

Accounts receivable

 

$

846

 

 

 

(86

)

 

$

760

 

Inventories

 

 

4,683

 

 

 

17

 

 

 

4,700

 

Other current assets

 

 

145

 

 

 

(56

)

 

 

89

 

Property, plant, and equipment

 

 

506

 

 

 

13

 

 

 

519

 

Intangibles

 

 

6,400

 

 

 

 

 

 

6,400

 

Goodwill

 

 

11,846

 

 

 

90

 

 

 

11,936

 

Total assets acquired

 

 

24,426

 

 

 

(22

)

 

 

24,404

 

Accounts payable

 

 

1,261

 

 

 

(25

)

 

 

1,236

 

Accrued payroll

 

 

49

 

 

 

(1

)

 

48

 

Other long term liabilities

 

 

100

 

 

 

(100

)

 

 

 

Total liabilities assumed

 

 

1,410

 

 

 

(126

)

 

 

1,284

 

 

 

$

23,016

 

 

 

104

 

 

$

23,120

 

 

We amortize intangible assets in proportion to expected annual revenue generated from the intangibles that we acquire. The following are the identifiable intangible assets acquired (in thousands) in the 2018 Acquisitions and their respective weighted average lives:

 

 

 

 

 

Weighted Average

 

 

 

Amount

 

 

Life (In years)

 

Developed technology

 

$

1,700

 

 

 

5.9

 

Customer relationships

 

 

1,600

 

 

 

5.2

 

Trade names

 

 

3,100

 

 

 

5.6

 

 

 

$

6,400

 

 

 

 

 

 

Pro forma results of operations assuming that the 2018 Acquisitions had occurred as of May 1, 2016 are not required because of the immaterial impact on our consolidated financial statements for all periods presented.

 

(5) Goodwill:

 

The changes in the carrying amount of goodwill for the three months ended July 31, 2018 by reporting segment are as follows:

 

 

 

 

 

 

Outdoor

Products &

 

 

 

 

 

 

Firearms Segment

 

 

Accessories

Segment

 

 

Total Goodwill

 

Balance as of April 30, 2018

 

$

18,490

 

 

$

172,797

 

 

$

191,287

 

Adjustments

 

 

(84

)

 

 

 

 

 

(84

)

Balance as of July 31, 2018

 

$

18,406

 

 

$

172,797

 

 

$

191,203

 

 

Refer to Note 14 — Segment Reporting below for more detail.  

 

 

(6) Notes, Loans Payable, and Financing Arrangements:

Credit Facilities – On June 15, 2015, we and certain of our domestic subsidiaries entered into an unsecured credit facility, or the Credit Agreement, with TD Bank, N.A. and other lenders, or the Lenders, which included a $175.0 million revolving line of credit, or the Revolving Line, and a $105.0 million term loan, or the Term Loan, of which $86.1 million remained outstanding as of July 31, 2018. The Revolving Line provides for availability for general corporate purposes, with borrowings to bear interest at a variable rate equal to LIBOR or prime plus an applicable margin based on our consolidated leverage ratio, at our election. On October 27, 2016, we entered into a second amendment to our Credit Agreement, or the Second Amendment, which, among other things, increased the Revolving Line to $350.0 million, increased the option to expand the credit commitment to an additional $150.0 million, and extended

12


AMERICAN OUTDOORS BRANDS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three Months Ended July 31, 2018 and 2017

 

the maturity of the Revolving Line from June 15, 2020 to October 27, 2021. Other than the changes described in the Second Amendment, we otherwise remain subject to the terms of the Credit Agreement, as described below. We incurred $525,000 of debt issuance costs related to this amendment and have recorded these costs in notes and loans payable in the condensed consolidated balance sheet.

As of July 31, 2018, we had no borrowings outstanding on the Revolving Line. Had there been borrowings, they would have borne an interest rate of 5.00% per annum if we had selected the prime rate option and a range of 4.15% to 4.60% per annum if we had selected the LIBOR rate option. The Term Loan, which bears interest at a variable rate, requires principal payments of $6.3 million per annum plus interest, payable quarterly. Any remaining outstanding amount under the Term Loan on the maturity date of June 15, 2020 will be due in full.

We were required to obtain interest rate protection on the Term Loan covering not less than 75% of the aggregate outstanding principal balance of the Term Loan. Accordingly, on June 18, 2015, we entered into an interest rate swap agreement, which expires on June 15, 2020, that covered 100% of the $105.0 million of floating rate debt. On July 6, 2015, we executed an interest rate swap pursuant to such agreement, which requires us to pay interest at a defined rate of 1.56% while receiving interest at a defined variable rate equal to the one-month LIBOR rate. This swap, when combined with the applicable margin based on our consolidated leverage ratio, effectively fixed our interest rate on the Term Loan, which is subject to change based on changes in our consolidated leverage ratio. As of July 31, 2018, our interest rate on the Term Loan was 4.32%.

As of July 31, 2018, the interest rate swap was considered effective and had no effect on earnings. The fair value of the interest rate swap on July 31, 2018 was an asset of $2.0 million and was recorded in other assets on our condensed consolidated balance sheet. We do not expect the interest rate swap to have any material impact on earnings within the next 12 months.

2018 Senior Notes – During fiscal 2015, we issued an aggregate of $75.0 million of 5.000% Senior Notes due 2018, or the 2018 Senior Notes, to various institutional investors pursuant to the terms and conditions of an indenture and purchase agreements. The 2018 Senior Notes bear interest at a rate of 5.000% per annum payable on January 15 and July 15 of each year, beginning on January 15, 2015. We incurred $2.3 million of debt issuance costs related to the issuance of the 2018 Senior Notes. As discussed below, the 2018 Senior Notes were redeemed on March 8, 2018 with proceeds from the issuance of 5.000% Senior Notes due 2020, or the 2020 Senior Notes. As part of the redemption, in fiscal 2018, we wrote off $226,000 of debt issuance costs related to the 2018 Senior Notes.

2020 Senior Notes – On February 28, 2018, we issued an aggregate of $75.0 million of the 2020 Senior Notes to various institutional investors pursuant to the terms and conditions of an indenture, or the 2020 Senior Notes Indenture, and purchase agreements. The 2020 Senior Notes bear interest at a rate of 5.000% per annum payable on February 28 and August 28 of each year, beginning on August 28, 2018. We incurred $158,000 of debt issuance costs related to the issuance of the 2020 Senior Notes.

At any time prior to February 28, 2019, we may, at our option, upon not less than 30 nor more than 60 days’ prior notice, redeem all or a portion of the 2020 Senior Notes at a redemption price of 102.500% of the principal amount of the 2020 Senior Notes to be redeemed plus accrued and unpaid interest as of the applicable redemption date. On or after February 28, 2019, we may, at our option, upon not less than 30 nor more than 60 days’ prior notice, redeem all or a portion of the 2020 Senior Notes at a redemption price of 100.000% of the principal amount of the 2020 Senior Notes to be redeemed plus accrued and unpaid interest as of the applicable redemption date. Subject to certain restrictions and conditions, we may be required to make an offer to repurchase the 2020 Senior Notes from the holders of the 2020 Senior Notes in connection with a change of control or disposition of assets. If not redeemed by us or repaid pursuant to the holders’ right to require repurchase, the 2020 Senior Notes mature on August 28, 2020.

The 2020 Senior Notes are general, unsecured obligations of our company. The 2020 Senior Notes Indenture contains certain affirmative and negative covenants, including limitations on restricted payments (such as share repurchases, dividends, and early payment of indebtedness), limitations on indebtedness, limitations on the sale of assets, and limitations on liens. Payments that would otherwise be characterized as restricted payments are permitted under the 2020 Senior Notes Indenture in an amount not to exceed 50% of our consolidated net income for the period from the issue date to the date of the restricted payment, provided that at the time of making such payments, (a) no default has occurred or would result from the making of such payments, and (b) we are able to satisfy the debt incurrence test under the 2020 Senior Notes Indenture, or the 2020 Senior Notes Lifetime Aggregate Limit. In addition, the 2020 Senior Notes Indenture provides for other exceptions to the restricted payments covenant, each of which are independent of the 2020 Senior Notes Lifetime Aggregate Limit. Among such exceptions are (i) the ability to make share repurchases each fiscal year in an amount not to exceed the lesser of (A) $50.0 million in any fiscal year or (B) 75.0% of our consolidated net income for the previous

13


AMERICAN OUTDOORS BRANDS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three Months Ended July 31, 2018 and 2017

 

four consecutive published fiscal quarters prior to the date of the determination of such consolidated net income, and (ii) share repurchases over the life of the 2020 Senior Notes in an aggregate amount not to exceed $75.0 million.

The limitation on indebtedness in the 2020 Senior Notes Indenture is only applicable at such time that the consolidated coverage ratio (as set forth in the 2020 Senior Notes Indenture) for us and our restricted subsidiaries is less than 3.00 to 1.00. In general, as set forth in the 2020 Senior Notes Indenture, the consolidated coverage ratio is determined by comparing our prior four quarters’ consolidated EBITDA (earnings before interest, taxes, depreciation, and amortization) to our consolidated interest expense. The carrying value of our 2020 Senior Notes as of July 31, 2018 approximated the fair value in considering Level 2 inputs within the hierarchy.

The Credit Agreement for our credit facility contains financial covenants relating to maintaining maximum leverage and minimum debt service coverage. The 2020 Senior Notes Indenture contains a financial covenant relating to times interest earned.

Letters of Credit – At July 31, 2018, we had outstanding letters of credit aggregating $1.0 million.

(7) Fair Value Measurement:

We follow the provisions of ASC 820-10, Fair Value Measurements and Disclosures Topic, or ASC 820-10, for our financial assets and liabilities. ASC 820-10 provides a framework for measuring fair value under GAAP and requires expanded disclosures regarding fair value measurements. ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820-10 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value.

Financial assets and liabilities recorded on the accompanying condensed consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:

Level 1 — Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that we have the ability to access at the measurement date (examples include active exchange-traded equity securities, listed derivatives, and most U.S. Government and agency securities).

Our cash and cash equivalents, which are measured at fair value on a recurring basis, totaled $25.2 million and $48.9 million as of July 31, 2018 and April 30, 2018, respectively. We utilized Level 1 of the value hierarchy to determine the fair values of these assets.

Level 2 — Financial assets and liabilities whose values are based on quoted prices in markets in which trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets. Level 2 inputs include the following:

quoted prices for identical or similar assets or liabilities in non-active markets (such as corporate and municipal bonds which trade infrequently);

inputs other than quoted prices that are observable for substantially the full term of the asset or liability (such as interest rate and currency swaps); and

inputs that are derived principally from or corroborated by observable market data for substantially the full term of the asset or liability (such as certain securities and derivatives).

The carrying value of our Term Loan approximated the fair value as of July 31, 2018, in considering Level 2 inputs within the hierarchy. The carrying value of our 2020 Senior Notes as of July 31, 2018 approximated the fair value in considering Level 2 inputs within the hierarchy as our 2020 Senior Notes are not frequently traded. The fair value of our interest rate swap was estimated by a third party using inputs that are observable or that can be corroborated by observable market data, such as interest rate yield curves, and, therefore, is classified within Level 2 of the valuation hierarchy. For more information regarding the interest rate swap, refer to Note 5 — Notes, Loans Payable, and Financing Arrangements.

14


AMERICAN OUTDOORS BRANDS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three Months Ended July 31, 2018 and 2017

 

Level 3 — Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect our assumptions about the assumptions a market participant would use in pricing the asset or liability.

The acquisition-related contingent consideration liability represents the estimated fair value of additional future earn-outs payable for acquisitions of businesses that included earn-out clauses. The valuation of the contingent consideration will be evaluated on an ongoing basis and is based on management estimates and entity-specific assumptions which are considered Level 3 inputs.

In connection with our acquisition of substantially all the net assets of Ultimate Survival Technologies, Inc. in fiscal 2017, up to an additional $2.0 million may be paid by us over a period of two years, contingent upon the financial performance of the acquired business. The valuation of this contingent consideration liability was established in accordance with ASC 805 — Business Combinations. The initial fair value of this contingent consideration liability was $1.7 million. Based on the current forecasted revenue, during fiscal 2018, we recorded a $1.6 million reduction in the fair value of this contingent consideration liability because we do not expect that the acquired business will achieve the performance metrics. This reduction was recorded in other income on the condensed consolidated statements of income. As of July 31, 2018, the fair value of this contingent liability was $60,000, which was recorded as a non-current liability.

In connection with the Gemtech acquisition, up to a maximum of $17.1 million may be paid contingent upon the cumulative three year sales volume of the acquired business. The valuation of this contingent consideration liability was established in accordance with ASC 805 — Business Combinations. Based on current forecasted revenue, we believe it is unlikely that the acquired business will achieve the performance metrics. Therefore, as of July 31, 2018, the contingent liability was recorded at a fair value of $100,000 in non-current liabilities.

 

(8) Inventories:

The following table sets forth a summary of inventories, net of reserves, stated at lower of cost or net realizable value, as of July 31, 2018 and April 30, 2018 (in thousands):

 

 

 

July 31, 2018

 

 

April 30, 2018

 

Finished goods

 

$

107,916

 

 

$

91,480

 

Finished parts

 

 

39,577

 

 

 

42,075

 

Work in process

 

 

6,107

 

 

 

7,657

 

Raw material

 

 

13,291

 

 

 

12,141

 

Total inventories

 

$

166,891

 

 

$

153,353

 

 

(9) Intangible Assets:

 

The following table presents a summary of intangible assets as of July 31, 2018 and April 30, 2018 (in thousands):

 

 

 

July 31, 2018

 

 

April 30, 2018

 

 

 

Gross

 

 

 

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

 

 

 

 

Carrying

 

 

Accumulated

 

 

Net Carrying

 

 

Carrying

 

 

Accumulated

 

 

Net Carrying

 

 

 

Amount

 

 

Amortization

 

 

Amount

 

 

Amount

 

 

Amortization

 

 

Amount

 

Customer relationships

 

$

92,360

 

 

$

(30,719

)

 

$

61,641

 

 

$

92,360

 

 

$

(28,252

)

 

$

64,108

 

Developed technology

 

 

21,130

 

 

 

(9,461

)

 

 

11,669

 

 

 

21,130

 

 

 

(8,178

)

 

 

12,952

 

Patents, trademarks, and trade names

 

 

56,879

 

 

 

(23,840

)

 

 

33,039

 

 

 

56,718

 

 

 

(22,099

)

 

 

34,619

 

Backlog

 

 

1,150

 

 

 

(1,150

)

 

 

 

 

 

1,150

 

 

 

(1,150

)

 

 

 

 

 

 

171,519

 

 

 

(65,170

)

 

 

106,349

 

 

 

171,358

 

 

 

(59,679

)

 

 

111,679

 

Patents in progress

 

 

879

 

 

 

 

 

 

879

 

 

 

855

 

 

 

 

 

 

855

 

Total definite-lived intangible assets

 

 

172,398

 

 

 

(65,170

)

 

 

107,228

 

 

 

172,213

 

 

 

(59,679

)

 

 

112,534

 

Indefinite-lived intangible assets

 

 

226

 

 

 

 

 

 

226

 

 

 

226

 

 

 

 

 

 

226

 

Total intangible assets

 

$

172,624

 

 

$

(65,170

)

 

$

107,454

 

 

$

172,439

 

 

$

(59,679

)

 

$

112,760

 

 

15


AMERICAN OUTDOORS BRANDS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three Months Ended July 31, 2018 and 2017

 

We amortize intangible assets with determinable lives over a weighted-average period of approximately five years. The weighted-average periods of amortization by intangible asset class is approximately five years for customer relationships, six years for developed technology, and five years for patents, trademarks, and trade names. Amortization expense, excluding amortization of deferred financing costs, amounted to $5.4 million and $5.7 million for the three months ended July 31, 2018 and 2017, respectively.  

 

Estimated amortization expense of intangible assets for the remainder of fiscal 2019 and succeeding fiscal years is as follows:

 

Fiscal

 

Amount

 

2019

 

$

16,449

 

2020

 

 

19,114

 

2021

 

 

16,506

 

2022

 

 

14,125

 

2023

 

 

11,762

 

Thereafter

 

 

28,393

 

Total

 

$

106,349

 

 

On an annual basis, or more frequently if events or changes in circumstances indicate that the asset might be impaired, we evaluate the fair value of the definite and indefinite-lived intangible assets to determine if an impairment charge is required. We performed our most recent annual impairment review as of February 1, 2018. There were no events or changes in circumstances that would indicate the fair value of intangible assets was reduced below its carrying value during the three months ended July 31, 2018, and therefore intangible assets were not tested for impairment.

(10) Accrued Expenses:

The following table sets forth other accrued expenses as of July 31, 2018 and April 30, 2018 (in thousands):

 

 

July 31, 2018

 

 

April 30, 2018

 

Accrued rebates and promotions

$

 

17,073

 

 

$

 

21,339

 

Accrued employee benefits

 

 

6,079

 

 

 

 

5,741

 

Accrued professional fees

 

 

2,629

 

 

 

 

2,332

 

Accrued distributor incentives

 

 

2,080

 

 

 

 

1,502

 

Interest payable

 

 

1,707

 

 

 

 

930

 

Accrued taxes other than income

 

 

1,529

 

 

 

 

3,933

 

Accrued commissions

 

 

1,559

 

 

 

 

1,342

 

Current portion of capital lease obligation

 

 

288

 

 

 

 

431

 

Accrued other

 

 

4,580

 

 

 

 

4,082

 

Total accrued expenses

$

 

37,524

 

 

$

 

41,632

 

 

 

(11) Stockholders’ Equity:

Treasury Stock

During fiscal 2017, our board of directors authorized the repurchase of up to $50.0 million of our common stock, subject to certain conditions, in the open market or in privately negotiated transactions until March 28, 2019. As of July 31, 2018, there were no share repurchases under this stock repurchase program.

16


AMERICAN OUTDOORS BRANDS CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the Three Months Ended July 31, 2018 and 2017

 

Earnings per Share

 

The following table provides a reconciliation of the net income/(loss) amounts and weighted average number of common and common equivalent shares used to determine basic and diluted earnings/(loss) per share for the three months ended July 31, 2018 and 2017 (in thousands, except per share data):

 

 

For the Three Months Ended July 31,

 

 

2018

 

 

2017

 

 

Net

 

 

 

 

 

 

Per Share

 

 

Net

 

 

 

 

 

 

Per Share

 

 

Income

 

 

Shares

 

 

Amount

 

 

Income

 

 

Shares

 

 

Amount

 

Basic earnings

$

 

7,645

 

 

 

54,345

 

 

$