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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 2, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number: 001-38854
ktb-20220702_g1.jpg
KONTOOR BRANDS, INC.
(Exact name of registrant as specified in its charter)
North Carolina83-2680248
(State or other jurisdiction of incorporation or organization)(I.R.S. employer identification number)

400 N. Elm Street
Greensboro, North Carolina 27401
(Address of principal executive offices)

(336) 332-3400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, no par valueKTBNew York Stock Exchange
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 þ    No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes þ    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 filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not 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 þ 
The number of shares of Common Stock of the registrant outstanding as of July 29, 2022 was 55,385,024.



KONTOOR BRANDS, INC.
Table of Contents
 Page

Kontoor Brands, Inc. Q2 FY22 Form 10-Q 2



PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

KONTOOR BRANDS, INC.
Consolidated Balance Sheets
(Unaudited)
(In thousands, except share amounts)June 2022December 2021June 2021
ASSETS
Current assets
Cash and cash equivalents$145,296 $185,322 $175,628 
Accounts receivable, net 185,157 289,800 215,297 
Inventories537,900 362,957 403,249 
Prepaid expenses and other current assets89,171 72,579 82,127 
Total current assets957,524 910,658 876,301 
Property, plant and equipment, net101,994 105,155 109,487 
Operating lease assets44,271 54,950 63,036 
Intangible assets, net13,740 14,638 15,325 
Goodwill210,164 212,213 212,654 
Other assets215,455 235,410 241,042 
TOTAL ASSETS$1,543,148 $1,533,024 $1,517,845 
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings$4,848 $249 $918 
Current portion of long-term debt5,000  8,750 
Accounts payable281,391 214,204 198,697 
Accrued liabilities153,527 217,164 187,240 
Operating lease liabilities, current20,254 24,195 26,034 
Total current liabilities465,020 455,812 421,639 
Operating lease liabilities, noncurrent25,132 32,993 41,325 
Other liabilities86,839 104,764 118,733 
Long-term debt786,968 791,317 782,262 
Commitments and contingencies
Total liabilities1,363,959 1,384,886 1,363,959 
Equity
Preferred Stock, no par value; shares authorized, 90,000,000; no shares outstanding at June 2022, December 2021 and June 2021
   
Common Stock, no par value; shares authorized, 600,000,000; shares outstanding of 55,382,208 at June 2022; 56,381,466 at December 2021 and 57,631,974 at June 2021
   
Additional paid-in capital232,041 218,259 198,776 
Retained earnings39,105 22,635 44,079 
Accumulated other comprehensive loss(91,957)(92,756)(88,969)
Total equity
179,189 148,138 153,886 
TOTAL LIABILITIES AND EQUITY$1,543,148 $1,533,024 $1,517,845 
See accompanying notes to unaudited consolidated financial statements.

3 Kontoor Brands, Inc. Q2 FY22 Form 10-Q


KONTOOR BRANDS, INC.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended JuneSix Months Ended June
(In thousands, except per share amounts)2022202120222021
Net revenues $613,572 $490,765 $1,293,315 $1,142,527 
Costs and operating expenses
Cost of goods sold346,608 264,641 721,730 615,823 
Selling, general and administrative expenses178,219 190,947 374,619 398,351 
Total costs and operating expenses524,827 455,588 1,096,349 1,014,174 
Operating income88,745 35,177 196,966 128,353 
Interest expense(8,234)(7,641)(16,257)(19,432)
Interest income296 421 765 679 
Other (expense) income, net(2,746)45 (2,968)(397)
Income before income taxes78,061 28,002 178,506 109,203 
Income taxes16,066 4,365 35,701 21,103 
Net income$61,995 $23,637 $142,805 $88,100 
Earnings per common share
Basic$1.11 $0.41 $2.55 $1.53 
Diluted$1.09 $0.40 $2.49 $1.49 
Weighted average shares outstanding
Basic55,740 57,612 56,031 57,478 
Diluted56,711 59,356 57,315 59,129 
See accompanying notes to unaudited consolidated financial statements.



Kontoor Brands, Inc. Q2 FY22 Form 10-Q 4



KONTOOR BRANDS, INC.
Consolidated Statements of Comprehensive Income
(Unaudited)
 Three Months Ended JuneSix Months Ended June
(In thousands)2022202120222021
Net income$61,995 $23,637 $142,805 $88,100 
Other comprehensive (loss) income
Net change in foreign currency translation(13,274)4,068 (16,889)(3,014)
Net change in defined benefit pension plans5 (11)11 63 
Net change in derivative financial instruments5,009 3,671 17,677 8,789 
Total other comprehensive (loss) income, net of related taxes(8,260)7,728 799 5,838 
Comprehensive income$53,735 $31,365 $143,604 $93,938 
See accompanying notes to unaudited consolidated financial statements.

5 Kontoor Brands, Inc. Q2 FY22 Form 10-Q


KONTOOR BRANDS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
 Six Months Ended June
(In thousands)20222021
OPERATING ACTIVITIES
Net income$142,805 $88,100 
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization18,821 17,749 
Stock-based compensation12,474 20,660 
Provision for doubtful accounts308 783 
Other4,826 5,788 
Changes in operating assets and liabilities:
Accounts receivable95,340 14,315 
Inventories(179,019)(63,006)
Accounts payable70,974 31,822 
Income taxes(13,090)3,075 
Accrued liabilities(47,907)4,791 
Other assets and liabilities(6,144)(3,912)
Cash provided by operating activities99,388 120,165 
INVESTING ACTIVITIES
Property, plant and equipment expenditures(6,995)(3,320)
Capitalized computer software(4,493)(16,993)
Other(120)(902)
Cash used by investing activities(11,608)(21,215)
FINANCING ACTIVITIES
Repayments of term loans (125,000)
Repurchases of Common Stock(62,494) 
Dividends paid(51,508)(46,016)
Shares withheld for taxes, net of proceeds from issuance of Common Stock(11,024)663 
Other4,330 (176)
Cash used by financing activities(120,696)(170,529)
Effect of foreign currency rate changes on cash and cash equivalents(7,110)(931)
Net change in cash and cash equivalents (40,026)(72,510)
Cash and cash equivalents – beginning of period185,322 248,138 
Cash and cash equivalents – end of period$145,296 $175,628 
See accompanying notes to unaudited consolidated financial statements.

Kontoor Brands, Inc. Q2 FY22 Form 10-Q 6



KONTOOR BRANDS, INC.
Consolidated Statements of Equity
(Unaudited)
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Equity
 (In thousands, except per share amounts)SharesAmounts
Balance, December 202156,381 $ $218,259 $22,635 $(92,756)$148,138 
Net income— — — 80,810 — 80,810 
Stock-based compensation, net387 — 6,462 (11,833)— (5,371)
Other comprehensive income— — — — 9,059 9,059 
Dividends on Common Stock ($0.46 per share)
— — — (26,033)— (26,033)
Repurchases of Common Stock(492)— — (22,513)— (22,513)
Balance, March 202256,276 $ $224,721 $43,066 $(83,697)$184,090 
Net income— — — 61,995 — 61,995 
Stock-based compensation, net109 — 7,320 (500)— 6,820 
Other comprehensive loss— — — — (8,260)(8,260)
Dividends on Common Stock ($0.46 per share)
— — — (25,475)— (25,475)
Repurchases of Common Stock(1,003)— — (39,981)— (39,981)
Balance, June 202255,382 $ $232,041 $39,105 $(91,957)$179,189 
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Equity
 (In thousands, except per share amounts)SharesAmounts
Balance, December 202057,255 $ $172,297 $7,151 $(94,807)$84,641 
Net income— — — 64,463 — 64,463 
Stock-based compensation, net259 — 14,472 (4,458)— 10,014 
Other comprehensive loss— — — — (1,890)(1,890)
Dividends on Common Stock ($0.40 per share)
— — — (22,964)— (22,964)
Balance, March 202157,514 $ $186,769 $44,192 $(96,697)$134,264 
Net income— — — 23,637 — 23,637 
Stock-based compensation, net118 — 12,007 (698)— 11,309 
Other comprehensive income— — — — 7,728 7,728 
Dividends on Common Stock ($0.40 per share)
— — — (23,052)— (23,052)
Balance, June 202157,632 $ $198,776 $44,079 $(88,969)$153,886 
See accompanying notes to unaudited consolidated financial statements.

7 Kontoor Brands, Inc. Q2 FY22 Form 10-Q


KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)

NOTE 1 — BASIS OF PRESENTATION
Description of Business
Kontoor Brands, Inc. ("Kontoor," the "Company," "we," "us" or "our") is a global lifestyle apparel company headquartered in the United States ("U.S."). The Company designs, produces, procures, markets and distributes apparel, footwear and accessories, primarily under the brand names Wrangler® and Lee®. The Company's products are sold in the U.S. through mass merchants, specialty stores, mid-tier and traditional department stores, company-operated stores and online. The Company's products are also sold internationally, primarily in the Europe and Asia-Pacific regions, through department, specialty, company-operated, concession retail and independently-operated partnership stores and online.
Fiscal Year
The Company operates and reports using a 52/53-week fiscal year ending on the Saturday closest to December 31 of each year. Accordingly, this Form 10-Q presents the second quarter of the Company's fiscal year ending December 31, 2022 ("fiscal 2022"), which is a 52-week fiscal year. For presentation purposes herein, all references to periods ended June 2022, December 2021 and June 2021 correspond to the fiscal periods ended July 2, 2022, January 1, 2022 and July 3, 2021, respectively.
Impact of COVID-19 and Other Recent Developments
The novel coronavirus (“COVID-19”) pandemic and related supply chain and market disruptions continue to adversely impact global economic conditions, as well as the Company's operations. Additionally, although we do not have any significant operations within Russia or Ukraine, the conflict in these regions has caused disruption in the surrounding areas and greater uncertainty in the global economy. The Company considered the impact of these developments on the assumptions and estimates used when preparing these quarterly financial statements including, but not limited to, our allowance for doubtful accounts, inventory valuations, liabilities for variable consideration and contract termination, deferred tax valuation allowances, fair value measurements including asset impairment evaluations, the effectiveness of the Company’s hedging instruments, and expected compliance with all applicable financial covenants in our Credit Agreement (as defined in Note 6 to the Company's financial statements). These assumptions and estimates may change as new events occur and additional information is obtained regarding the impact of COVID-19 and the Russia-Ukraine conflict. Such future changes may have an adverse impact on the Company's results of operations, financial position and liquidity.
Basis of Presentation - Interim Financial Statements
The accompanying unaudited interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and do not include all of the information and notes required by generally accepted accounting principles in the U.S. ("GAAP") for complete financial statements. In the opinion of management, the accompanying financial statements contain all normal and recurring adjustments necessary to fairly state the financial position, results of operations and cash flows of the Company for the interim periods presented. Operating results for the three and six months ended June 2022 are not necessarily indicative of results that may be expected for any other interim period or for fiscal 2022. The unaudited financial statements should be read in conjunction with the audited consolidated and combined financial statements included in the Company's 2021 Annual Report on Form 10-K for the fiscal year ended January 1, 2022, as filed with the Securities and Exchange Commission on March 2, 2022 ("2021 Annual Report on Form 10-K").
Recently Issued Accounting Standard
In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which is intended to provide temporary optional expedients and exceptions for applying GAAP to contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. This guidance was effective upon issuance and the Company may adopt the guidance and apply it prospectively to contract modifications made or relationships entered into or evaluated any time from the issuance date through December 31, 2022. The Company will continue to evaluate the impact that adoption of this guidance would have on its financial statements and related disclosures, most notably the Company's credit facilities and interest rate swap agreements, which is not expected to be significant.


Kontoor Brands, Inc. Q2 FY22 Form 10-Q 8



KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 2 — REVENUES
Contract Balances and Performance Obligations
The following table presents information about contract balances recorded in the Company's balance sheets:
(In thousands)June 2022December 2021June 2021
Accounts receivable, net$185,157 $289,800 $215,297 
Contract assets (a)
5,648 3,093 4,694 
Contract liabilities (b)
3,227 2,258 674 
(a) Included within "prepaid expenses and other current assets" in the Company's balance sheets.
(b) Included within "accrued liabilities" in the Company's balance sheets.
For the three and six months ended June 2022 and June 2021, revenue recognized that was included in contract liabilities as of December 2021 and December 2020, respectively, was not significant.
As of June 2022, the Company has contractual rights under its licensing agreements to receive $41.4 million of fixed consideration related to the future minimum guarantees through December 2027. As of June 2022, there were no arrangements with any transaction price allocated to remaining performance obligations other than (i) contracts for which the Company has applied the practical expedients and (ii) fixed consideration related to future minimum guarantees. For the three and six months ended June 2022, revenue recognized from performance obligations satisfied, or partially satisfied, in prior periods was not significant. The variable consideration under these arrangements is not disclosed as a remaining performance obligation as the licensing arrangements qualify for the sales-based royalty exemption.
Disaggregation of Revenue
The following tables present revenues disaggregated by channel and geography. Revenues from licensing arrangements have been included within the U.S. or Non-U.S. Wholesale channels, based on the respective region where the licensee sells the product. Direct-to-Consumer revenues include sales at Wrangler® and Lee® branded full-price stores and company-operated outlet stores, digital sales at www.wrangler.com and www.lee.com and sales from international concession arrangements.
Other primarily includes other revenue sources, including sales and licensing of Rock & Republic® apparel. Other also included sales of third-party branded merchandise at company-owned outlet stores through the first quarter of 2021.
Three Months Ended June 2022
(In thousands)WranglerLeeOtherTotal
Channel revenues
U.S. Wholesale$348,537 $120,197 $2,127 $470,861 
Non-U.S. Wholesale40,457 39,858 374 80,689 
Direct-to-Consumer28,950 32,998 74 62,022 
Total$417,944 $193,053 $2,575 $613,572 
Geographic revenues
U.S.$372,981 $135,057 $2,201 $510,239 
International44,963 57,996 374 103,333 
Total$417,944 $193,053 $2,575 $613,572 


9 Kontoor Brands, Inc. Q2 FY22 Form 10-Q


KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Three Months Ended June 2021
(In thousands)WranglerLeeOtherTotal
Channel revenues
U.S. Wholesale$245,200 $79,312 $2,434 $326,946 
Non-U.S. Wholesale41,071 55,690 805 97,566 
Direct-to-Consumer25,030 41,012 8 66,050 
Other  203 203 
Total$311,301 $176,014 $3,450 $490,765 
Geographic revenues
U.S.$266,146 $96,179 $2,645 $364,970 
International45,155 79,835 805 125,795 
Total$311,301 $176,014 $3,450 $490,765 
Six Months Ended June 2022
(In thousands)WranglerLeeOtherTotal
Channel revenues
U.S. Wholesale$679,189 $257,003 $4,654 $940,846 
Non-U.S. Wholesale93,276 130,909 875 225,060 
Direct-to-Consumer57,902 69,361 146 127,409 
Total$830,367 $457,273 $5,675 $1,293,315 
Geographic revenues
U.S.$727,374 $285,173 $4,800 $1,017,347 
International102,993 172,100 875 275,968 
Total$830,367 $457,273 $5,675 $1,293,315 
Six Months Ended June 2021
(In thousands)WranglerLeeOtherTotal
Channel revenues
U.S. Wholesale$574,899 $203,894 $4,160 $782,953 
Non-U.S. Wholesale88,648 146,490 1,442 236,580 
Direct-to-Consumer46,576 75,778 13 122,367 
Other  627 627 
Total$710,123 $426,162 $6,242 $1,142,527 
Geographic revenues
U.S.$614,025 $234,411 $4,800 $853,236 
International96,098 191,751 1,442 289,291 
Total$710,123 $426,162 $6,242 $1,142,527 


Kontoor Brands, Inc. Q2 FY22 Form 10-Q 10



KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 3 — BUSINESS SEGMENT INFORMATION
The Company has two reportable segments:
Wrangler — Wrangler® branded denim, apparel and accessories.
Lee — Lee® branded denim, apparel and accessories.
The chief operating decision maker allocates resources and assesses performance based on a global brand view which determines the Company's operating segments. Operating segments are the basis for the Company's reportable segments.
In addition, we report an "Other" category in order to reconcile segment revenues and segment profit to the Company's operating results, but the Other category is not considered a reportable segment based on evaluation of aggregation criteria. Other primarily includes other revenue sources, including sales and licensing of Rock & Republic® apparel.
Accounting policies utilized for internal management reporting at the individual segments are consistent with those disclosed in the Company's 2021 Annual Report on Form 10-K. Corporate and other expenses and interest income and expense are not controlled by segment management and therefore are excluded from the measurement of segment profit.
The following table presents financial information for the Company's reportable segments and income before income taxes:
 Three Months Ended JuneSix Months Ended June
(In thousands)2022202120222021
Segment revenues:
Wrangler$417,944 $311,301 $830,367 $710,123 
Lee193,053 176,014 457,273 426,162 
Total reportable segment revenues610,997 487,315 1,287,640 1,136,285 
Other revenues 2,575 3,450 5,675 6,242 
Total net revenues$613,572 $490,765 $1,293,315 $1,142,527 
Segment profit:
Wrangler$75,064 $52,834 $150,452 $136,817 
Lee22,904 18,491 75,134 69,614 
Total reportable segment profit$97,968 $71,325 $225,586 $206,431 
Corporate and other expenses(12,017)(36,983)(31,999)(78,534)
Interest expense(8,234)(7,641)(16,257)(19,432)
Interest income296 421 765 679 
Profit related to other revenues48 880 411 59 
Income before income taxes$78,061 $28,002 $178,506 $109,203 


11 Kontoor Brands, Inc. Q2 FY22 Form 10-Q


KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 4 — ACCOUNTS RECEIVABLE
Allowance for Doubtful Accounts
The Company reviews the estimates used to calculate the allowance for doubtful accounts on a quarterly basis.
The following table presents a rollforward of the allowance for doubtful accounts:
Six Months Ended June
(In thousands)20222021
Balance, December$11,705 $19,143 
Provision for expected credit losses308 783 
Accounts receivable balances written off (1)
(576)(4,119)
Other (2)
(869)(325)
Balance, June$10,568 $15,482 
(1) Accounts receivable balances written off against the allowance were primarily due to the exit of our India business during 2021.
(2) Other primarily includes the impact of foreign currency translation and recoveries of amounts previously written off, none of which were individually significant.
Sale of Trade Accounts Receivable
The Company is party to an agreement with a financial institution to sell selected trade accounts receivable on a nonrecourse basis. Under this agreement, up to $377.5 million of the Company’s trade accounts receivable may be sold to the financial institution and remain outstanding at any point in time. The Company removes the sold balances from "accounts receivable, net" in its balance sheet at the time of sale. The Company does not retain any interests in the sold trade accounts receivable but continues to service and collect outstanding trade accounts receivable on behalf of the financial institution.
During the six months ended June 2022 and June 2021, the Company sold total trade accounts receivable of $732.9 million and $586.8 million, respectively. As of June 2022, December 2021 and June 2021, $212.8 million, $170.6 million and $183.0 million, respectively, of the sold trade accounts receivable had been removed from the Company's balance sheets but remained outstanding with the financial institution.
The funding fees charged by the financial institution for this program are reflected in the Company's statements of operations within "other (expense) income, net" and were $0.9 million and $1.5 million for the three and six months ended June 2022, respectively, and $0.3 million and $0.9 million for the three and six months ended June 2021, respectively. Net proceeds of this program are reflected as operating activities in the Company's statements of cash flows.

NOTE 5 — INVENTORIES
The following table presents components of "inventories" recorded in the Company's balance sheets:
(In thousands)June 2022December 2021June 2021
Finished products$444,976 $293,427 $342,276 
Work-in-process40,018 32,346 29,551 
Raw materials52,906 37,184 31,422 
Total inventories$537,900 $362,957 $403,249 

NOTE 6 — SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term Borrowings
At June 2022, December 2021 and June 2021, the Company had $25.6 million, $10.1 million and $36.0 million, respectively, of borrowing availability under international lines of credit with various banks, which are uncommitted and may be terminated at any time by either the Company or the banks. There was $4.6 million of outstanding balances under these arrangements at June 2022, and no outstanding balances at December 2021 and June 2021. In addition, short-term borrowings at June 2022, December 2021 and June 2021 included other debt of $0.2 million, $0.2 million and $0.9 million, respectively.

Kontoor Brands, Inc. Q2 FY22 Form 10-Q 12



KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Long-term Debt
The following table presents the components of long-term debt as recorded in the Company's balance sheets:
(In thousands)June 2022December 2021