Quarterly report [Sections 13 or 15(d)]

ACQUISITION

v3.25.2
ACQUISITION
 6 Months Ended
Jun. 28, 2025
Business Combination, Asset Acquisition, Transaction between Entities under Common Control, and Joint Venture Formation [Abstract]  
ACQUISITION ACQUISITION
On February 18, 2025, the Company entered into a definitive agreement to acquire all of the issued and outstanding share capital of CTC Triangle B.V., a Netherlands private limited liability company, which is the parent of a group of companies that operates the Helly Hansen® and Musto® brands, collectively referred to as "Helly Hansen." During the first and second quarters of 2025, the Company entered into foreign currency exchange contracts totaling $1.3 billion Canadian dollars ("CAD") to hedge the purchase price of the acquisition.
The acquisition of Helly Hansen (the "Acquisition") was completed on May 31, 2025 (the "Closing Date"), with cash consideration paid of $1.3 billion CAD (approximately $960.0 million U.S. dollars), subject to adjustments for finalization of working capital and other closing adjustments. The purchase price was funded by indebtedness and cash on hand.
Helly Hansen® is a premium global outdoor and workwear brand, and Musto® is a premium sailing and outdoor brand. The Acquisition scales Kontoor's penetration in the large and growing outdoor and workwear markets globally, and diversifies Kontoor's portfolio across geographies, categories, consumers and points of distribution. The Company performed an analysis under Accounting Standards Codification ("ASC") 280, Segment Reporting, and concluded that the Helly Hansen® brand is a reportable segment. In addition, we determined that the Musto® brand does not meet the criteria to be considered a reportable segment and is reported in the "Other" category.
During the second quarter of 2025, the Acquisition contributed one month of results of operations. For the month of June 2025, net revenues from the Acquisition were $29.2 million and the net loss was $6.9 million, driven by seasonality of the business and the impact of purchase accounting adjustments.
The following table summarizes the preliminary purchase price allocation of the estimated fair values of assets acquired and liabilities assumed at the Closing Date of the Acquisition:
(In thousands) May 31, 2025
Cash and cash equivalents
 $ 33,467 
Accounts receivable, net
 82,275 
Inventories
 172,212 
Prepaid expenses and other current assets
 13,902 
Property, plant and equipment
 35,615 
Operating lease assets
 96,640 
Intangible assets
 440,000 
Deferred income tax assets
 14,085 
Other assets
 38,841 
Total assets acquired
 $ 927,037 
Accounts payable
 $ 53,763 
Accrued and other current liabilities
 70,137 
Operating lease liabilities, current
 15,463 
Operating lease liabilities, noncurrent
 81,527 
Deferred income tax liabilities
 79,443 
Other liabilities
 881 
Total liabilities assumed
 $ 301,214 
Net assets acquired
 $ 625,823 
Goodwill
 277,702 
Purchase price
 $ 903,525 
The Acquisition occurred late in the second quarter of 2025, and the Company is still in the process of finalizing working capital adjustments and valuing the assets acquired and liabilities assumed. These fair values were based on management's estimates and assumptions; however, the amounts indicated above are preliminary in nature and are subject to adjustment as additional information is obtained about the facts and circumstances that existed as of the Closing Date. Accordingly, adjustments may be made to the values of the assets acquired and liabilities assumed as additional information is obtained related to the finalization of working capital, income tax matters and other purchase price adjustments. The final determination of the purchase price allocation will be completed as soon as practicable, and within the measurement period of up to one year from the Closing Date.
Goodwill is attributable to the acquired workforce of Helly Hansen and the significant synergies expected to arise as a result of the Acquisition. Substantially all of the goodwill was assigned to the Helly Hansen segment, and is not deductible for tax purposes.
The Helly Hansen® and Musto® trademarks, which management believes to have indefinite lives, have been valued at $400.0 million and $4.0 million, respectively, using the relief-from-royalty method. Customer relationships have been valued at $36.0 million using the multi-period excess earnings method, and are being amortized using an accelerated method over a 12-year period. The relief-from-royalty and multi-period excess earnings methods are both forms of the income valuation approach.
The following table summarizes unaudited pro forma results of operations for the Company assuming that the Acquisition had occurred on December 31, 2023, which is the first day of fiscal year 2024:
Three Months Ended June
Six Months Ended June
(In thousands, except per share amounts)
2025 2024 2025 2024
Net revenues $ 736,090  $ 709,830  $ 1,510,283  $ 1,490,781 
Net income
 $ 46,591  $ 37,172  $ 129,853  $ 107,168 
Earnings per common share
Basic
 $ 0.84  $ 0.67  $ 2.34  $ 1.92 
Diluted
 $ 0.83  $ 0.66  $ 2.32  $ 1.89 
These pro forma results were based on estimates and assumptions which management believes are reasonable. They do not reflect the results that would have been realized had we been a combined company during the periods presented and are not necessarily indicative of our consolidated results of operations in future periods. The pro forma results include adjustments primarily related to interest expense from incremental borrowings and purchase accounting including depreciation and amortization. Acquisition costs and other non-recurring charges incurred are included in the earliest period presented. No assumptions have been applied to the pro forma results regarding potential operating cost savings or other business synergies expected to be achieved.
Joint Venture
On May 31, 2025, as part of the Acquisition, the Company acquired a 50% noncontrolling financial interest in a joint venture that was formed to develop and sell Helly Hansen® products in China. In addition, the Helly Hansen® brand entered into a licensing arrangement with the joint venture where it receives royalties based on a percentage of the licensed products’ net revenues. The Company has the ability to exercise significant influence, but not control, over the joint venture, and as such it is not consolidated. The Company accounts for the joint venture under the equity method of accounting, and recognizes 50% of the joint venture's profits and losses, which are reflected in the Company's statements of operations within "income from equity method investment." The Company initially recorded its investment in the joint venture at fair value, which is reflected in the Company's preliminary purchase price allocation within "other assets."