Annual report [Section 13 and 15(d), not S-K Item 405]

ACQUISITION

v3.25.4
ACQUISITION
 12 Months Ended
Jan. 03, 2026
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 operate the Helly Hansen® and Musto® brands. 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 was completed on May 31, 2025 (the "Closing Date"), with cash consideration paid of $1.3 billion CAD, equivalent to $957.5 million U.S. dollars. The purchase price was funded by indebtedness and cash on hand.
The following table summarizes the preliminary purchase price based on the Company's current estimates as of December 2025:
(In thousands)
 May 31, 2025
Cash consideration paid to seller
 $ 957,470 
Less: Working capital and other closing adjustments (22,781)
Purchase price
 $ 934,689 
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 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.
The results of operations of the Acquisition have been included in the Company's consolidated financial statements since the Closing Date. For the twelve months ended December 2025, net revenues attributable to the Acquisition were $475.5 million. For the twelve months ended December 2025, net income attributable to the Acquisition was $12.6 million.
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
 79,509 
Inventories
 171,940 
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
 36,061 
Total assets acquired
 $ 921,219 
Accounts payable
 $ 50,997 
Accrued and other current liabilities
 71,922 
Operating lease liabilities, current
 15,463 
Operating lease liabilities, noncurrent
 81,527 
Deferred income tax liabilities
 81,943 
Other liabilities
 5,407 
Total liabilities assumed
 $ 307,259 
Net assets acquired
 $ 613,960 
Goodwill
 320,729 
Purchase price
 $ 934,689 
The Company is continuing to value the assets acquired and liabilities assumed. These fair values were based on management's estimates and assumptions. Accordingly, 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.
During the measurement period, adjustments may be made to the values of the assets acquired and liabilities assumed as additional information is obtained related to the finalization of income tax matters and assumed liabilities. Since the Closing Date, the Company has recorded measurement period adjustments resulting in an increase to goodwill of $43.0 million, primarily related to working capital, inventory and deferred income taxes. These measurement period adjustments did not have a material impact on the consolidated statements of operations. 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 reportable 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. Customer relationship assets have been valued at $36.0 million and are being amortized using an accelerated method over a 12-year period.
The following table summarizes the 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:
Year Ended December
(In thousands, except per share amounts)
2025 2024
Net revenues $ 3,381,579  $ 3,258,239 
Net income $ 204,583  $ 248,917 
Earnings per common share
Basic $ 3.69  $ 4.48 
Diluted $ 3.65  $ 4.42 
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 distributes Helly Hansen® products in China. The Helly Hansen® brand has a licensing arrangement with the joint venture where it receives royalties based on a percentage of the joint venture's 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. The Company reports its 50% of the joint venture's profits and losses as "Income from equity method investment", a separate component of net income within the statements of operations. 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."