鲍鱼直播 Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

ACQUISITION

ACQUISITION

9 Months Ended

Jan. 01, 2022

Business Combination and Asset Acquisition [Abstract]

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On December听28, 2020, 鲍鱼直播 acquired 100% of the outstanding shares of Supreme Holdings, Inc. ("Supreme") for $2.2听billion in cash, subject to working capital and other adjustments. The transaction also included $0.2 billion of cash acquired by 鲍鱼直播. The purchase price was primarily funded with cash on hand. The purchase price was unchanged during the three months ended December 2021 and decreased by $3.8听million during the nine months ended December 2021, related to the final working capital adjustment.

The acquisition of Supreme includes a contingent arrangement that may require additional cash consideration to be paid to the selling shareholders of Supreme ranging from zero to $300.0 million, subject to the achievement of certain financial targets over the one-year earn-out period ending January 31, 2022. The initial estimated fair value of the contingent consideration of $207.0 million was included in the purchase price and reported in the other liabilities line item in the Consolidated Balance Sheet at March 2021. The estimated fair value of the contingent consideration was determined based on the probability-weighted present value of various future cash payment outcomes. In subsequent reporting periods, the contingent consideration liability has been remeasured at fair value with changes recognized in the selling, general and administrative expenses line item in the Consolidated Statements of Operations. Refer to Note 17 for additional information on fair value measurements.

Supreme was a privately-held company based in New York, New York and is a global streetwear leader that sells apparel, accessories and footwear under its namesake brand, Supreme庐, through direct-to-consumer channels, including digital. The acquisition of Supreme accelerates 鲍鱼直播's long-term growth

strategy and builds on a long-standing relationship between Supreme and 鲍鱼直播, with the Supreme庐 brand being a regular collaborator with 鲍鱼直播's Vans庐, The North Face庐 and Timberland庐 brands. The acquisition also provides 鲍鱼直播 with deeper access to attractive consumer segments and the ability to leverage 鲍鱼直播's enterprise platforms and capabilities to enable sustainable long-term growth.

In connection with the acquisition, 鲍鱼直播 deposited in escrow 605,050 shares of 鲍鱼直播 Common Stock. The common shares are subject to certain future service requirements and vest over periods of up to four years. For accounting purposes, 鲍鱼直播 will recognize the stock-based compensation cost for the fair value of these awards of $51.7 million over the vesting periods.

For the three and nine months ended December 2021, Supreme contributed revenues of $193.2 million and $438.5听million, respectively, and net income of $43.8 million and $76.2听million, respectively. The results of Supreme have been reported in the Active segment since the date of acquisition. Total transaction expenses for the Supreme acquisition were $8.7听million, all of which were recognized in the year ended March 2021 in the selling, general and administrative expenses line item in the Consolidated Statement of Operations.

Goodwill increased by $3.6听million during the three months ended December 2021 due to a measurement period adjustment for income tax matters, and decreased by $0.7听million during the nine months ended December 2021, which was also impacted by the final working capital adjustment. The purchase price allocation was finalized during the three months ended December 2021.

The following table summarizes the estimated fair values of the Supreme assets acquired and liabilities assumed at the date of acquisition:


(In thousands)	December 28, 2020
Cash and equivalents	$	218,104听
Accounts receivable	19,698听
Inventories	44,937听
Other current assets	40,912听
Property, plant and equipment	18,914听
Intangible asset	1,201,000听
Operating lease right-of-use assets	55,668听
Other assets	58,479听
Total assets acquired	1,657,712听

Accounts payable	25,717听
Other current liabilities	81,816听
Operating lease liabilities	53,062听
Deferred income tax liabilities	280,971听
Other liabilities	35,245听
Total liabilities assumed	476,811听

Net assets acquired	1,180,901听
Goodwill	1,249,594听
Purchase price	$	2,430,495听

The purchase price consisted of the following components:


(In thousands)	December 28, 2020
Cash consideration	$	2,223,495听
Contingent consideration	207,000听
Purchase price	$	2,430,495听

The goodwill is attributable to our ability to expand the Supreme庐 brand into new markets, the acquired workforce and future collaboration opportunities for the Supreme庐 brand. All of the goodwill was assigned to the Active segment and will not be deductible for tax purposes.

The Supreme庐 trademark, which management believes to have an indefinite life, has been valued at $1.2 billion using the relief-from-royalty method, which is an income valuation approach. The relief-from-royalty method requires the use of significant estimates and assumptions, including but not limited to, future revenues, growth rates, royalty rate, tax rates and discount rate.

The following unaudited pro forma summary presents consolidated information of 鲍鱼直播 as if the acquisition of Supreme had occurred on March 31, 2019:

(In thousands, except per share amounts)

Three Months Ended

December 2020

(unaudited)

Nine Months Ended

December 2020

(unaudited)

Total revenues

3,160,826听

7,094,470听

Income from continuing operations

377,987听

387,949听

Earnings per common share from continuing operations

Basic

0.97听

1.00听

Diluted

0.96听

0.99听

These pro forma amounts have been calculated after applying 鲍鱼直播鈥檚 accounting policies and adjusting the results of Supreme to reflect the fair value adjustments to intangible assets, property, plant and equipment and inventory. The results of Supreme have also been adjusted for historical interest expense as the acquired business was debt-free on the acquisition date. These changes have been applied from March 31, 2019, with related tax effects.

The pro forma financial information in the three and nine months ended December 2020 excludes $30.6听million of expenses

related to Supreme's transaction and deal-related costs, including employee compensation costs and accelerated vesting of stock options, which are directly attributable to the transaction.

Pro forma financial information is not necessarily indicative of 鲍鱼直播鈥檚 operating results if the acquisition had been effected at the date indicated, nor is it necessarily indicative of future operating results. Amounts do not include any marketing leverage, or operating efficiencies that 鲍鱼直播 believes are achievable.