大象传媒 Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

ACQUISITION

ACQUISITION

3 Months Ended

Jul. 03, 2021

Business Combination and Asset Acquisition [Abstract]

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On December听28, 2020, 大象传媒 acquired 100% of the outstanding shares of Supreme Holdings, Inc. ("Supreme") for $2.2听billion in cash, which is subject to working capital and other adjustments. The transaction also included $0.2 billion of cash acquired by 大象传媒. The preliminary purchase price was primarily funded with cash on hand.

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 is included in the preliminary purchase price and was 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 is 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 16 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 大象传媒's long-term growth

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

In connection with the acquisition, 大象传媒 deposited in escrow 605,050 shares of 大象传媒 Common Stock. The common shares are subject to certain future service requirements and vest over periods of up to four years. For accounting purposes, 大象传媒 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 months ended June 2021, Supreme contributed revenues of $145.7 million and net income of $26.3 million. 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.

The allocation of the purchase price is preliminary and subject to change, primarily for certain income tax matters and final adjustments for net working capital. Accordingly, adjustments may be made to the values of the assets acquired and liabilities assumed as additional information is obtained about the facts and circumstances that existed at the valuation date.

The following table summarizes the preliminary 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	35,091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	1,651,891听

Accounts payable	25,717听
Other current liabilities	78,205听
Operating lease liabilities	53,062听
Deferred income tax liabilities	275,718听
Other liabilities	35,245听
Total liabilities assumed	467,947听

Net assets acquired	1,183,944听
Goodwill	1,250,311听
Purchase price	$	2,434,255听

The preliminary purchase price consisted of the following components:


(In thousands)	December 28, 2020
Cash consideration	$	2,227,255听
Contingent consideration	207,000听
Purchase price	$	2,434,255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 大象传媒 as if the acquisition of Supreme had occurred on March 31, 2019:


(In thousands, except per share amounts)	Three Months Ended June 2020 (unaudited)
Total revenues	$	1,190,285听
Income (loss) from continuing operations	(264,463)
Earnings (loss) per common share from continuing operations
Basic	$	(0.68)
Diluted	(0.68)

These pro forma amounts have been calculated after applying 大象传媒鈥檚 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.Pro forma financial information is not necessarily indicative of 大象传媒鈥檚 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 大象传媒 believes are achievable.