UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☑
þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 20192024
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
kontoorlogotmpurplea16.jpg
KONTOOR BRANDS, INC.
(Exact name of registrant as specified in its charter)
North Carolina83-2680248
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)

(Zip Code)
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 þ¨
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 filer☑¨Accelerated filer☐¨
Non-accelerated filer☐
þ
Smaller reporting company☐¨
Emerging 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 
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
The number of shares of common stock, no par value,Common Stock of the registrant outstanding as of May 23, 2019April 26, 2024 was 56,921,092.55,829,679.



KONTOOR BRANDS, INC.
Table of Contents
Page
Item 1 —1. Financial Statements (Unaudited)
3
CombinedConsolidated Balance Sheets: March 2019,2024, December 20182023 and March 20182023
3
CombinedConsolidated Statements of Income:Operations: Threemonths ended March 2024 and March 2019 and March 20182023
4
CombinedConsolidated Statements of Comprehensive Income: Three months ended March 20192024 and March 20182023
5
CombinedConsolidated Statements of Cash Flows: Threemonths ended March 20192024 and March 2018March 2023
6
CombinedConsolidated Statements of Equity: Three months ended March 20192024 and March 20182023
7
Notes to CombinedConsolidated Financial Statements
8
Item 2 —2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
2421
Item 3 —3. Quantitative and Qualitative Disclosures about Market Risk
3229
Item 4 —4. Controls and Procedures
3229
Item 1 —1. Legal Proceedings
3330
Item 1A —1A. Risk Factors
3330
Item 2 —2. Unregistered Sales of Equity Securities and Use of Proceeds
3330
Item 6 — Exhibits5. Other Information
3330
Item 6. Exhibits
31
3632


Kontoor Brands, Inc. Q1 FY19FY24 Form 10-Q 2


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

KONTOOR BRANDS, INC.
CombinedConsolidated Balance Sheets
(Unaudited)

(In thousands) March 2019  December 2018 March 2018
ASSETS       
Current assets       
Cash and equivalents $102,945
  $96,776
 $88,234
Accounts receivable, less allowance for doubtful accounts of $10,826 at March 2019, $10,549 at December 2018 and $8,121 at March 2018 299,328
  252,966
 318,480
Due from related parties, current 291,127
  547,690
 274,368
Related party notes receivable 517,940
  517,940
 546,740
Inventories 519,006
  473,812
 499,849
Other current assets 50,671
  52,014
 51,783
Total current assets 1,781,017
  1,941,198
 1,779,454
Due from related parties, noncurrent 370
  611
 1,576
Property, plant and equipment, net 138,972
  138,449
 142,958
Operating lease assets 77,305
  —


—
Intangible assets, net 51,913
  53,059
 56,638
Goodwill 213,623
  214,516
 220,233
Other assets 122,210
  110,632
 125,106
TOTAL ASSETS $2,385,410
  $2,458,465
 $2,325,965
LIABILITIES AND EQUITY       
Current liabilities       
Short-term borrowings $8,368
  $3,215
 $12,103
Accounts payable 147,403
  134,129
 131,667
Due to related parties, current 3,865
  16,140
 60,424
Related party notes payable 241,867
  269,112
 269,112
Accrued liabilities 206,517
  194,228
 171,501
Operating lease liabilities, current 29,156
  —


—
Total current liabilities 637,176
  616,824
 644,807
Operating lease liabilities, noncurrent 51,533
  —
—
—
Other liabilities 117,719
  118,189
 117,376
Commitments and contingencies 

  

 

Total liabilities 806,428
  735,013
 762,183
Equity       
Parent company investment 1,723,406
  1,868,634
 1,676,563
Accumulated other comprehensive loss (144,424)  (145,182) (112,781)
Total equity 1,578,982
  1,723,452
 1,563,782
TOTAL LIABILITIES AND EQUITY $2,385,410
  $2,458,465
 $2,325,965

(In thousands, except share amounts)March 2024December 2023March 2023
ASSETS
Current assets
Cash and cash equivalents$215,059 $215,050 $52,677 
Accounts receivable, net239,632 217,673 224,024 
Inventories501,341 500,353 660,089 
Prepaid expenses and other current assets104,208 110,808 102,757 
Total current assets1,060,240 1,043,884 1,039,547 
Property, plant and equipment, net110,304 112,045 104,999 
Operating lease assets56,268 54,812 55,116 
Intangible assets, net12,135 12,497 13,173 
Goodwill209,566 209,862 209,904 
Other assets212,924 212,339 220,831 
TOTAL ASSETS$1,661,437 $1,645,439 $1,643,570 
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings$— $— $7,255 
Current portion of long-term debt20,000 20,000 12,500 
Accounts payable187,200 180,220 163,871 
Accrued and other current liabilities163,251 171,414 197,203 
Operating lease liabilities, current22,187 21,003 21,241 
Total current liabilities392,638 392,637 402,070 
Operating lease liabilities, noncurrent37,016 36,753 32,472 
Other liabilities85,344 80,215 81,796 
Long-term debt759,246 763,921 827,944 
Total liabilities1,274,244 1,273,526 1,344,282 
Commitments and contingencies
Equity
Preferred Stock, no par value; shares authorized, 90,000,000; no shares outstanding at March 2024, December 2023 and March 2023— — — 
Common Stock, no par value; shares authorized, 600,000,000; shares outstanding of 55,691,516 at March 2024; 55,720,251 at December 2023 and 55,933,661 at March 2023— — — 
Additional paid-in capital284,301 273,197 251,108 
Retained earnings171,124 166,567 116,185 
Accumulated other comprehensive loss(68,232)(67,851)(68,005)
Total equity387,193 371,913 299,288 
TOTAL LIABILITIES AND EQUITY$1,661,437 $1,645,439 $1,643,570 
See accompanying notes to unaudited combinedconsolidated financial statements.


3 Kontoor Brands, Inc. Q1 FY19FY24 Form 10-Q

KONTOOR BRANDS, INC.
CombinedConsolidated Statements of IncomeOperations
(Unaudited)

 Three Months Ended March
Three Months Ended March
Three Months Ended March
Three Months Ended March
    
(In thousands, except per share amounts) 2019  2018
Net revenues (including sales to related parties of $10,611 and $13,479 for March 2019 and March 2018, respectively)
 $648,344
  $669,663
(In thousands, except per share amounts)
(In thousands, except per share amounts)
Net revenues
Net revenues
Net revenues
Costs and operating expenses     
Cost of goods sold (including purchases from related parties of $256 and $827 for March 2019 and March 2018, respectively) 401,025
  382,421
Costs and operating expenses
Costs and operating expenses
Cost of goods sold
Cost of goods sold
Cost of goods sold
Selling, general and administrative expenses 222,124
  194,834
Selling, general and administrative expenses
Selling, general and administrative expenses
Total costs and operating expenses
Total costs and operating expenses
Total costs and operating expenses 623,149
  577,255
Operating income 25,195
  92,408
Related party interest income, net 2,339
  1,651
Other interest income, net 1,325
  917
Operating income
Operating income
Interest expense
Interest expense
Interest expense
Interest income
Interest income
Interest income
Other expense, net
Other expense, net
Other expense, net (971)  (1,197)
Income before income taxes 27,888
  93,779
Income before income taxes
Income before income taxes
Income taxes
Income taxes
Income taxes 12,475
  14,083
Net income $15,413
  $79,696
Net income
Net income
Earnings per common share
Earnings per common share
Earnings per common share     
Basic $0.27
  $1.41
Basic
Basic
Diluted $0.27
  $1.41
Diluted
Diluted
Weighted average shares outstanding
Weighted average shares outstanding
Weighted average shares outstanding
Basic
Basic
Basic
Diluted
Diluted
Diluted
See accompanying notes to unaudited combinedconsolidated financial statements.











Kontoor Brands, Inc. Q1 FY19FY24 Form 10-Q 4



KONTOOR BRANDS, INC.
CombinedConsolidated Statements of Comprehensive Income
(Unaudited)

 Three Months Ended March
    
(In thousands) 2019  2018
(In thousands)
(In thousands)
Net income $15,413
  $79,696
Other comprehensive income 
  
Foreign currency translation, net of related taxes 758
  9,701
Total other comprehensive income 758
  9,701
Net income
Net income
Other comprehensive (loss) income
Other comprehensive (loss) income
Other comprehensive (loss) income
Net change in foreign currency translation
Net change in foreign currency translation
Net change in foreign currency translation
Net change in defined benefit pension plans
Net change in defined benefit pension plans
Net change in defined benefit pension plans
Net change in derivative financial instruments
Net change in derivative financial instruments
Net change in derivative financial instruments
Total other comprehensive (loss) income, net of related taxes
Total other comprehensive (loss) income, net of related taxes
Total other comprehensive (loss) income, net of related taxes
Comprehensive income $16,171
  $89,397
Comprehensive income
Comprehensive income
See accompanying notes to unaudited combinedconsolidated financial statements.
















5 Kontoor Brands, Inc. Q1 FY19FY24 Form 10-Q

KONTOOR BRANDS, INC.
CombinedConsolidated Statements of Cash Flows
(Unaudited)

  Three Months Ended March
      
(In thousands) 2019  2018
OPERATING ACTIVITIES     
Net income $15,413
  $79,696
Adjustments to reconcile net income to cash provided (used) by operating activities:     
Depreciation and amortization 7,703
  8,310
Stock-based compensation 7,685
  3,740
Provision for doubtful accounts 2,730
  (10)
Other (512)  (362)
Changes in operating assets and liabilities:     
Accounts receivable (48,473)  (60,849)
Inventories (44,926)  (61,146)
Due from related parties 256,803
  (54,329)
Accounts payable 12,935
  (43,613)
Income taxes 1,311
  (5,573)
Accrued liabilities 9,426
  18,353
Due to related parties (12,268)  22,412
Other assets and liabilities (1,340)  (20,994)
Cash provided (used) by operating activities 206,487
  (114,365)
INVESTING ACTIVITIES     
Capital expenditures (5,300)  (6,528)
Repayments received from related party notes receivable —
  1,000
Other, net (20)  6,428
Cash (used) provided by investing activities (5,320)  900
FINANCING ACTIVITIES     
Net increase in short-term borrowings 5,081
  7,565
Repayments of related party notes payable (27,245)  —
Net transfers (to) from parent (173,485)  109,705
Cash (used) provided by financing activities (195,649)  117,270
Effect of foreign currency rate changes on cash and cash equivalents 651
  3,618
Net change in cash and cash equivalents 6,169
  7,423
Cash and cash equivalents – beginning of period 96,776
  80,811
Cash and cash equivalents – end of period $102,945
  $88,234


 Three Months Ended March
(In thousands)20242023
OPERATING ACTIVITIES
Net income$59,507 $66,296 
Adjustments to reconcile net income to cash provided (used) by operating activities:
Depreciation and amortization9,505 9,127 
Stock-based compensation5,768 1,002 
Provision for doubtful accounts1,008 1,877 
Other1,614 2,642 
Changes in operating assets and liabilities:
Accounts receivable(24,620)2,851 
Inventories(1,441)(59,903)
Accounts payable7,807 (42,965)
Income taxes11,089 12,237 
Accrued and other current liabilities(11,869)(11,259)
Other assets and liabilities(1,900)5,473 
Cash provided (used) by operating activities56,468 (12,622)
INVESTING ACTIVITIES
Property, plant and equipment expenditures(4,491)(6,463)
Capitalized computer software(1,154)(5,483)
Other(787)149 
Cash used by investing activities(6,432)(11,797)
FINANCING ACTIVITIES
Borrowings under revolving credit facility— 178,000 
Repayments under revolving credit facility— (128,000)
Repayments of term loan(5,000)(2,500)
Repurchases of Common Stock(20,105)— 
Dividends paid(27,844)(26,808)
Shares withheld for taxes, net of proceeds from issuance of Common Stock(1,665)(3,619)
Other— (57)
Cash (used) provided by financing activities(54,614)17,016 
Effect of foreign currency rate changes on cash and cash equivalents4,587 901 
Net change in cash and cash equivalents9 (6,502)
Cash and cash equivalents – beginning of period215,050 59,179 
Cash and cash equivalents – end of period$215,059 $52,677 
See accompanying notes to unaudited combinedconsolidated financial statements.


Kontoor Brands, Inc. Q1 FY19FY24 Form 10-Q 6



KONTOOR BRANDS, INC.
CombinedConsolidated Statements of Equity
(Unaudited)

Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Equity
 (In thousands, except per share amounts)SharesAmounts
Balance, December 202355,720 $— $273,197 $166,567 $(67,851)$371,913 
Net income— — — 59,507 — 59,507 
Stock-based compensation, net309 — 11,209 (7,106)— 4,103 
Other comprehensive loss— — — — (381)(381)
Dividends on Common Stock ($0.50 per share)— — — (27,844)— (27,844)
Repurchases of Common Stock(337)— (105)(20,000)— (20,105)
Balance, March 202455,692 $— $284,301 $171,124 $(68,232)$387,193 

  Three Months Ended March 2019
  Parent Company Investment Accumulated Other Comprehensive Loss Total Equity
    
 (In thousands)   
Balance, December 2018 $1,868,634
 $(145,182) $1,723,452
Adoption of new accounting standard (ASU 2016-02) (2,713) —
 (2,713)
Net income 15,413
 —
 15,413
Foreign currency translation —
 758
 758
Net transfers to parent (157,928) —
 (157,928)
Balance, March 2019 $1,723,406
 $(144,424) $1,578,982

  Three Months Ended March 2018
  Parent Company Investment Accumulated Other Comprehensive Loss Total Equity
    
 (In thousands)   
Balance, December 2017 $1,480,375
 $(122,482) $1,357,893
Adoption of new accounting standard (ASU 2014-09) 3,047
 —
 3,047
Net income 79,696
 —
 79,696
Foreign currency translation —
 9,701
 9,701
Net transfers from parent 113,445
 —
 113,445
Balance, March 2018 $1,676,563
 $(112,781) $1,563,782

Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Equity
 (In thousands, except per share amounts)SharesAmounts
Balance, December 202255,517 $— $243,696 $86,726 $(79,665)$250,757 
Net income— — — 66,296 — 66,296 
Stock-based compensation, net417 — 7,412 (10,029)— (2,617)
Other comprehensive income— — — — 11,660 11,660 
Dividends on Common Stock ($0.48 per share)— — — (26,808)— (26,808)
Balance, March 202355,934 $— $251,108 $116,185 $(68,005)$299,288 
See accompanying notes to unaudited combinedconsolidated financial statements.













7 Kontoor Brands, Inc. Q1 FY19FY24 Form 10-Q

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



NOTE 1 — BASIS OF PRESENTATION

Background

Description of Business
On August 13, 2018, V.F. Corporation ("VF") announced its intention to spin-off its Jeanswear business into a separate publicly traded company (the "Separation"). The Jeanswear business includes the Wrangler®,Lee® and Rock & Republic® brands, as well as the VF Outlet™ business. The financial statements as of March 30, 2019 are prior to the Separation and thus are prepared on a "carve-out" basis as described below.
On May 22, 2019, VF completed the spin-off of Kontoor Brands, Inc. ("Kontoor," the "Company," "we," "us" or "our") through a pro-rata distribution of one share of Kontoor common stock for every seven shares of VF common stock held at the close of business on the record date of May 10, 2019. Kontoor began to trade as a separate public company (NYSE: KTB) on May 23, 2019. In connection with the Separation, Kontoor transferred approximately $1.0 billion to VF on May 17, 2019 from a newly structured third-party debt issuance.

Description of Business

The Company is a global denim and casuallifestyle apparel company headquartered in the United States ("U.S."). The Company designs, produces,manufactures, procures, marketssells and distributeslicenses 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.online, including digital marketplaces. The Company's products are also sold internationally, primarily in the Europe, Asia-Pacific and Asia,Non-U.S. Americas regions, through department, specialty, company-operated, concession retail and independently operatedindependently-operated partnership stores and online. VF Outlet™ stores carry Wrangler® and Lee®branded products, as well as merchandise that is specifically purchased for sale in these stores,online, including products from VF.digital marketplaces.

Fiscal Year

The Company operates and reports using a 52/53 week53-week fiscal year ending on the Saturday closest to December 31 of each year. Accordingly, the three-month period ended March 30, 2019 representsthis Form 10-Q presents the first quarter of the Company's fiscal year endedending December 28, 20192024 ("fiscal 2019"2024")., which is a 52-week fiscal year. For presentation purposes herein, all references to periods ended March 2019,2024, December 20182023 and March 20182023 correspond to the fiscal periods ended March 30, 2019,2024, December 29, 201830, 2023 and March 31, 2018,April 1, 2023, respectively.

Macroeconomic Environment and Other Recent Developments
Macroeconomic conditions impacting the Company include inflation, elevated interest rates, recessionary concerns and fluctuating foreign currency exchange rates, as well as continuing global supply chain issues and inconsistent economic results in China. These factors continue to contribute to uncertain global economic conditions and consumer spending patterns, which are impacting retailers' and the Company's operations. Additionally, the conflicts in Ukraine and the Middle East are causing 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, 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 7 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 the above conditions. 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

TheseThe accompanying unaudited combinedinterim financial statements reflect the historical financial position, results of operations and cash flows of the Company for the periods presented as historically managed within VF. The unaudited combined financial statements have been derived from the consolidated financial statements and accounting records of VF. They 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 United States of
AmericaU.S. ("GAAP") for complete financial statements. In the opinion of management, the accompanying combined financial statements contain all adjustments, consisting of only normal and recurring adjustments necessary to fairly state the combined financial position, results of operations and cash flows of the Company for the interim periods presented. The combined financial statements may not be indicative of the Company's future performance and do not necessarily reflect what the financial position, results of operations, and cash flows would have been had it operated as an independent company during the periods presented. Additionally, operatingOperating results for the three months ended March 20192024 are not necessarily indicative of results that may be expected for any other interim period or for fiscal 2019.2024. The unaudited combined financial statements should be read in conjunction with the audited combinedconsolidated financial statements included in the Company's 2023 Annual Report on Form 10-K for the fiscal year ended December 29, 2018 included in our Registration Statement on Form 10,30, 2023, as amended and filed with the Securities and Exchange Commission on April 30, 2019February 28, 2024 ("20182023 Annual Report on Form 10"10-K").

The combined statements of income include costs for certain centralized functions and programs provided and administered by VF that are charged directly to the Company. These centralized functions and programs include, but are not limited to, information technology, human resources, accounting shared services, supply chain, insurance, and the service cost component of net periodic pension benefit.

In addition, for purposes of preparing these combined financial statements on a "carve-out" basis under U.S. GAAP, a portion of VF's total corporate expenses are allocated to the Company. These expense allocations include the cost of corporate functions and resources provided by or administered by VF including, but not limited to, executive management, finance, accounting, legal, human resources, and related benefit costs associated with such functions, such as stock-based compensation and the non-service components of net periodic pension benefit. Allocations also include the cost of operating VF's corporate headquarters located in Greensboro, North Carolina.

Costs are allocated to the Company based on direct usage when identifiable or, when not directly identifiable, on the basis of proportional revenues, cost of goods sold or square footage, as applicable. Management considers the basis on which the expenses have been allocated to reasonably reflect the utilization of services provided to, or benefit received by, the Company during the periods presented. However, the allocations may not reflect the expenses that would have incurred if the Company had been a standalone company for the periods presented. Actual costs that may have been incurred if the Company had been a standalone company would depend on a number of factors, including the organizational structure, whether functions were outsourced or performed by employees, and strategic decisions made in areas such as information technology and infrastructure. Going forward, the Company will assess whether it performs these functions using its own resources or outsourced services. However, some of these functions will continue to be provided by VF under transition services agreements for a period following the Separation. Additionally, the Company will provide some services to VF under reverse transition services agreements. The Company has also


Kontoor Brands, Inc. Q1 FY19 Form 10-Q 8

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


entered into certain commercial arrangements with VF in connection with the Separation.

The combined financial statements include certain assets and liabilities that have historically been held at the VF corporate level but are specifically identifiable or otherwise attributable to the Company. VF's third-party long-term debt and the related interest expense have not been allocated to the Company for any of the periods presented as the Company was not the legal obligor of such debt.

All intracompany transactions are eliminated. All transactions between the Company and VF are included in these combined financial statements. For those transactions between the Company and VF that were historically settled in cash, the Company has reflected such balances in the combined balance sheets as "due from related parties" or "due to related parties". The aggregate net effect of transactions between the Company and VF that were not historically settled in cash are reflected in the combined balance sheets within "parent company investment" and in the combined statements of cash flows within "net transfers to parent".
NOTE 2 — RECENTLY ADOPTED AND ISSUED ACCOUNTING STANDARDS

Recently Adopted Accounting Standards
In February 2016,September 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”("ASU") 2016-02,2022-04, “Leases (Topic 842),”"Disclosure of Supplier Finance Program Obligations," an update thatwhich requires entities that provide supplier finance programs in connection with the purchase of goods and services to record most leased assets and liabilities ondisclose key terms of the programs, outstanding confirmed amounts as of period end, a description of where those obligations are presented in the balance sheet,sheets and also retains a dual model approach for assessing lease classification and recognizing expense. The FASB subsequently issued updates to provide clarification on specific topics, including adoption guidance, practical expedients and interim transition disclosure requirements.an annual rollforward of obligations. This guidance was adopted by the Company during the first quarter of fiscal 2019 utilizing the optional transition method, which resulted in a $2.7 million cumulative effect adjustment to beginning retained earnings2023, except for the period ended March 2019. The adoptionrequirement to include an annual rollforward of these standards did not have a significant impactobligations which is effective beginning in 2024 and will be disclosed in our 2024 annual report on the Company's combined statement of income and combined statement of cash flows.Form 10-K. Refer to Note 3 of6 to the combinedCompany's financial statements for additional information.
In August 2017, the FASB issued ASU 2017-12, "Derivatives and Hedging (Topic 815)": Targeted Improvementsinformation related to Accounting for Hedging Activities," our supply chain finance programs.an update that amends and simplifies certain aspects of hedge accounting rules to better portray the economic results of risk management activities in the financial statements. The FASB has subsequently issued updates to the standard to provide additional guidance on specific topics. This guidance was adopted by the Company during the first quarter of fiscal 2019 and did not have a significant impact on the combined financial statements.
In February 2018, the FASB issued ASU 2018-02, "Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," an update that addresses the effect of the change in the U.S. federal corporate income tax rate due to the enactment of the Tax Act on items within accumulated other comprehensive income (loss). This guidance was adopted by the Company during the first quarter of fiscal 2019 and did not have a significant impact on the combined financial statements.
In July 2018, the FASB issued ASU 2018-09, "Codification Improvements," an update that provides technical corrections, clarifications and other improvements across a variety of accounting topics. The transition and effective date guidance is
based on the facts and circumstances of each update; however, many of them became effective for the Company at the beginning of fiscal 2019. The adoption of this guidance did not have a significant impact on the combined financial statements.
Recently Issued Accounting Standards
In June 2016,November 2023, the FASB issued ASU 2016-13,2023-07, "Financial Instruments—Credit LossesSegment Reporting (Topic 326)280): Measurement of Credit Losses on Financial Instruments,Improvements to Reportable Segment Disclosures," which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables.requires enhanced disclosures about significant segment expenses. This guidance will beis effective for the Company beginningannual disclosures in fiscal 2020. Earlyyears beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption is permitted. This guidance requires retrospective application to all prior periods presented in the financial statements. The Company is currently evaluating the impact that adoption of this guidance will have on the combinedits financial statements. The adoption of this guidance is not expectedstatements and disclosures.

Kontoor Brands, Inc. Q1 FY24 Form 10-Q 8


KONTOOR BRANDS, INC.
Notes to have a significant impact on the combined financial statements.Consolidated Financial Statements
(Unaudited)
In August 2018,December 2023, the FASB issued ASU 2018-13,2023-09, "Fair Value Measurement"Income Taxes (Topic 820)740): Disclosure Framework—ChangesImprovements to the Disclosure Requirements for Fair Value Measurement,Income Tax Disclosures," an update that modifieswhich requires disclosure of specific categories and greater disaggregation within the income tax rate reconciliation, and disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures.of disaggregated income taxes paid. This guidance will beis effective for the Companyfiscal years beginning in fiscal 2020. Earlyafter December 15, 2024, with early adoption is permitted. The Company is currently evaluating the impact that adoption of this guidance will have on its financial statementstatements and disclosures. The adoption of this guidance is not expected to have a significant impact on the combined financial statements.
In August 2018, the FASB issued ASU 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20), Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans," an update that modifies the disclosure requirements for employers who sponsor defined benefit pension or other postretirement plans. This guidance will be effective for the Company beginning in fiscal 2020. Early adoption is permitted. The Company is currently evaluating the impact that adoption of this guidance will have on its financial statement disclosures. The adoption of this guidance is not expected to have a significant impact on the combined financial statements.


9 Kontoor Brands, Inc. Q1 FY19 Form 10-Q
KONTOOR BRANDS, INC.
Notes to Combined Financial Statements
(Unaudited)


In August 2018, the FASB issued ASU 2018-15, "Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," an update that aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This guidance will be effective for the Company beginning in fiscal 2020. Early adoption is permitted. The Company is currently evaluating the impact that adoption of this guidance will have on the combined financial statements. The adoption of this guidance is not expected to have a significant impact on the combined financial statements.

NOTE 3 — LEASES

The Company enters into operating leases for offices, operational facilities, retail locations, vehicles and other assets to facilitate its operations that expire at various dates through 2027. Leases for real estate typically have initial terms ranging from 3 to 15 years, generally with renewal options. Leases for equipment typically have initial terms ranging from 3 to 7 years. Most leases have fixed rentals, with many of the real estate leases requiring additional payments for real estate taxes and occupancy-related costs. These lease terms may include optional renewals, terminations or purchases, which are considered in the Company’s assessments when such options are reasonably certain to be exercised.

For retail real estate leases, the Company does not typically include renewal options in the underlying lease term. For non-retail real estate leases, when renewal options are reasonably certain to be exercised, the Company includes the renewal options in the underlying lease term, up to a maximum of ten years. Renewals for all other leases are determined on a lease-by-lease basis.

Upon adoption of ASU 2016-02, the Company elected the package of practical expedients permitted under the new lease standard, which allows the Company to not reassess whether a contract contains a lease, how the lease is classified, and if initial direct costs can be capitalized. The Company elected to combine non-lease components with the related lease components for real estate, vehicles and other significant asset arrangements. The Company treats the combined items as a single lease component for accounting purposes. Lastly, the Company elected not to recognize a right-of-use asset and related lease liability for leases with a lease term of 12 months or less for all classes of underlying assets.






Certain of the Company’s leases contain fixed, indexed, or market-based escalation clauses which impact future payments. Certain arrangements contain variable payment provisions, such as payments based on sales volumes or amounts and mileage, or excess mileage. The Company’s leases typically contain customary covenants and restrictions.

The Company determines whether a contract is a lease at inception. This typically requires more judgment in storage and service arrangements where the Company must determine whether its rights to specific physical or production capacity may represent substantially all of the available capacity.

The Company measures right-of-use assets and related lease liabilities based on the present value of remaining lease payments, including in-substance fixed payments, the current payment amount when payments depend on an index or rate (e.g., inflation adjustments, market renewals), and the amount the Company believes is probable to be paid to the lessor under residual value guarantees, when applicable. Lease contracts may include fixed payments for non-lease components, such as maintenance, which are included in the measurement of lease liabilities for certain asset classes based on the Company’s election to combine lease and non-lease components.

As applicable borrowing rates are not typically implied within our lease arrangements, the Company discounts lease payments based on its estimated incremental borrowing rate at lease commencement, or modification, which is based on the Company’s estimated credit rating, the lease term at commencement and the contract currency of the lease arrangement.


Kontoor Brands, Inc. Q1 FY19 Form 10-Q 10

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


The following table presents the lease-related assets and liabilities recorded in the combined balance sheet:
(in thousands) March 2019
Assets 
Operating lease assets, noncurrent $77,305
Total lease assets $77,305

 
Liabilities 
Operating lease liabilities, current $29,156
Operating lease liabilities, noncurrent 51,533
Total lease liabilities $80,689

 
Weighted-average remaining lease term (in years) 
Operating leases 3.69
Weighted-average discount rate 
Operating leases 3.27%


Lease costs
The following table presents certain information related to the lease costs for operating leases:
(in thousands)
Three Months Ended March 2019
Operating lease cost
$7,613
Short-term lease cost (excluding leases of one month or less)
491
Variable lease cost
2,816
Total lease costs
$10,920

Rent expense associated with operating leases for the three months ended March 2018 totaled approximately $10.6 million.

Other information
The following table presents supplemental cash flow information related to leases:
(in thousands)
Three Months Ended March 2019
Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows impact - operating leases
$10,641
Right-of-use assets obtained in exchange for new operating leases
$7,837




11 Kontoor Brands, Inc. Q1 FY19 Form 10-Q
KONTOOR BRANDS, INC.
Notes to Combined Financial Statements
(Unaudited)


The following table reconciles maturities of operating lease liabilities as of March 30, 2019 to the lease liabilities reflected in the combined balance sheet:
(in thousands)
Lease Obligations
2019 (excluding the three months ended March 2019)
$25,618
2020
26,388
2021
17,031
2022
7,922
2023
4,805
Thereafter
5,679
Total future minimum lease payments
87,443
Less: amounts related to imputed interest
(6,754)
Present value of future minimum lease payments
80,689
Less: operating lease liabilities, current
(29,156)
Operating lease liabilities, noncurrent
$51,533


As of March 30, 2019, the Company has entered into approximately $3.0 million of operating lease arrangements, on an undiscounted basis, that have not yet commenced. The Company continuously monitors and may negotiate contract amendments that include extensions or modifications to existing leases.

The following table presents the future minimum lease payments during the noncancelable lease terms as presented under ASC 840:
(in thousands)
December 2018
2019
$33,562
2020
29,246
2021
17,810
2022
7,932
2023
4,353
Thereafter
4,582
Total future minimum lease payments
$97,485

NOTE 42 — REVENUES

The Company recognizes revenue when performance obligations under the terms of a contract with the customer are satisfied based on the transfer of control of promised goods or services. The transfer of control typically occurs at a point in time based on consideration of when the customer has i) an obligation to pay for, ii) physical possession of, iii) legal title to, iv) risks and rewards of ownership of and v) accepted the goods or services. The timing of revenue recognition within the wholesale channels occurs either on shipment or delivery of goods based on contractual terms with the customer. The timing of revenue recognition in the direct-to-consumer channels generally occurs at the point of sale within Company-operated or concession retail stores and either on shipment or delivery of goods for e-commerce transactions based
on contractual terms with the customer. For finished products shipped directly to customers from our suppliers, the Company’s
promise to the customer is a performance obligation to provide the specified goods and the Company has discretion in establishing

pricing, and thus the Company is the principal in the arrangement and revenue is recognized on a gross basis at the transaction price.

The duration of contractual arrangements with our customers in the wholesale and direct-to-consumer channels is typically less than one year. Payment terms with customers are generally between 30 and 60 days. The Company does not adjust the promised amount of consideration for the effects of a significant financing component as it is expected, at contract inception, that the period between the transfer of the promised good or service to the customer and the customer payment for the good or service will be one year or less.

The amount of revenue recognized in the wholesale and direct-to-consumer channels reflects the expected consideration to be received for providing the goods or services to the customer, which includes estimates for variable consideration. Variable consideration includes allowances for trade terms, sales incentive programs, discounts, markdowns, chargebacks and product


Kontoor Brands, Inc. Q1 FY19 Form 10-Q 12

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


returns. Estimates of variable consideration are determined at contract inception and reassessed at each reporting date, at a minimum, to reflect any changes in facts and circumstances. The Company utilizes the expected value method in determining its estimates of variable consideration, based on evaluations of specific product and customer circumstances, historical and anticipated trends and current economic conditions.

Revenue from the sale of gift cards is deferred and recorded as a contract liability until the gift card is redeemed by the customer, factoring in breakage as appropriate, which considers whether the Company has a legal obligation to remit the value of the unredeemed gift card to any jurisdiction under unclaimed property regulations.

The VF Outlet™ stores maintain customer loyalty programs where customers earn rewards from qualifying purchases, which are redeemable for discounts on future purchases or other rewards. For its customer loyalty programs, the Company estimates the standalone selling price of the loyalty rewards and allocates a portion of the consideration for the sale of products to the loyalty points earned. The deferred amount is recorded as a contract liability, and is recognized as revenue when the points are redeemed or when the likelihood of redemption is remote.

The Company has elected to treat all shipping and handling activities as fulfillment costs and recognize the costs as "selling, general and administrative expenses" at the time the related revenue is recognized. Shipping and handling costs billed to customers are included in "net revenues". Sales taxes and value added taxes collected from customers and remitted directly to governmental authorities are excluded from the transaction price.

The Company has licensing agreements for its symbolic intellectual property, most of which include minimum guaranteed royalties. Royalty income is recognized as earned over the respective license term based on the greater of minimum guarantees or the licensees’ sales of licensed products at rates specified in the licensing contracts. Royalty income related to the minimum guarantees is recognized using a measure of progress with variable amounts recognized only when the cumulative earned royalty exceeds the minimum guarantees. As of March 2019, the Company expects to recognize $38.2 million of fixed consideration related to the future minimum guarantees in effect under its licensing agreements and expects such amounts to be recognized over time through March 2023. The variable consideration is not disclosed as a remaining performance obligation as the licensing arrangements qualify for the sales-based royalty exemption.
The Company has applied the practical expedient to recognize incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that otherwise would have been recognized is one year or less.
Performance Obligations
Disclosure is required for the aggregate transaction price allocated to performance obligations that are unsatisfied at the end of a reporting period, unless the optional practical expedients are applicable. The Company elected the practical expedients to not disclose the transaction price allocated to remaining performance obligations for i) variable consideration related to sales-based royalty arrangements and ii) contracts with an original expected duration of one year or less.
As of March 2019, there were no arrangements with transaction price allocated to remaining performance obligations other than (i) contracts for which the Company has applied the practical expedients discussed above and (ii) fixed consideration related to future minimum guarantees.
For the three months ended March 2019, revenue recognized from performance obligations satisfied, or partially satisfied, in prior periods was not material.
Contract Balances

Accounts receivable represent the Company's unconditional right to receive consideration from a customer and are recorded at net invoiced amounts, less an estimated allowance for doubtful accounts.
Contract assets are rights to consideration in exchange for goods or services that have been transferred to a customer when that right is conditional on something other than the passage of time. Once the Company has an unconditional right to consideration under a contract, amounts are invoiced and contract assets are reclassified to "accounts receivable". The Company's primary contract assets relate to sales-based royalty arrangements.
Contract liabilities are recorded when a customer pays consideration, or the Company has a right to an amount of consideration that is unconditional, before the transfer of a good or service to the customer, and thus represent the Company's obligation to transfer the good or service to the customer at a future date. The Company's primary contract liabilities relate to gift cards, loyalty programs and sales-based royalty arrangements.





13 Kontoor Brands, Inc. Q1 FY19 Form 10-Q
KONTOOR BRANDS, INC.
Notes to Combined Financial Statements
(Unaudited)


The following table provides information about accounts receivable, contract assets and contract liabilities recorded in the combined balance sheets:
(In thousands) March 2019  March 2018
Accounts receivable, net $299,328
  $318,480
Contract assets (a)
 1,930
  680
Contract liabilities (b)
 1,995
  2,292
(a)
Included in "other current assets" in the combined balance sheets.
(b)
Included in "accrued liabilities" in the combined balance sheets.
For the three months ended March 2019 and 2018, the Company recognized $1.3 million and $1.2 million, respectively, of revenue that was previously included in the contract liability balances. The changes in the contract asset and contract liability balances primarily result from the timing differences between the Company's satisfaction of performance obligations and the customer's payment.
Disaggregation of Revenue
The following tables disaggregate ourpresent revenues disaggregated by channel and geography, which provides a meaningful depiction of how the nature, timing and uncertainty of revenues are affected by economic factors.geography. Revenues from licensing arrangements have beenare included within the U.S. or Non-U.S. Wholesale channels, based on the respective region covered bywhere the agreement. Brandedlicensee sells the product. Direct-to-Consumer revenues include the distribution of our products via concession retail locations internationally,sales from company-operated Wrangler® and Lee® branded full-price stores globally and Company-owned outlet stores, globally. The Branded Direct-to-Consumer channel alsoonline and international concession arrangements.
Other includes our branded products sold in our U.S.-based VF Outlet™sales and licensing of storesRock & Republic®, other company-owned brands and our products that are marketed and distributed online via www.wrangler.com and www.lee.com. The Other channel includes (i) sales of VF-branded (other than private label apparel.
Three Months Ended March 2024
(In thousands)WranglerLeeOtherTotal
Channel revenues
U.S. Wholesale$328,725 $119,147 $2,092 $449,964 
Non-U.S. Wholesale44,438 63,618 — 108,056 
Direct-to-Consumer36,331 36,678 173 73,182 
Total$409,494 $219,443 $2,265 $631,202 
Geographic revenues
U.S.$357,463 $132,283 $2,265 $492,011 
International52,031 87,160 — 139,191 
Total$409,494 $219,443 $2,265 $631,202 
Three Months Ended March 2023
(In thousands)WranglerLeeOtherTotal
Channel revenues
U.S. Wholesale$337,676 $135,299 $3,228 $476,203 
Non-U.S. Wholesale51,919 66,005 10 117,934 
Direct-to-Consumer33,552 39,345 89 72,986 
Total$423,147 $240,649 $3,327 $667,123 
Geographic revenues
U.S.$365,129 $149,690 $3,317 $518,136 
International58,018 90,959 10 148,987 
Total$423,147 $240,649 $3,327 $667,123 
Wrangler
®9 and Lee®) and third-party branded merchandise in our VF Outlet™ stores, (ii) sales to VF for products manufactured in our plants and use of our transportation fleet and (iii) revenues from fulfilling a transition services agreement related to VF's sale of its Nautica® brand business in mid-2018.

Three Months Ended March 2019
(In thousands)Wrangler Lee Other Total
Channel revenues
 
 
 
U.S. Wholesale$276,825
 $100,859
 $6,725
 $384,409
Non-U.S. Wholesale68,655
 100,896
 —
 169,551
Branded Direct-To-Consumer24,455
 39,776
 —
 64,231
Other—
 —
 30,153
 30,153
Total$369,935
 $241,531
 $36,878
 $648,344
        
Geographic revenues
 
 
 
U.S.$293,869
 $119,120
 $36,878
 $449,867
International76,066
 122,411
 —
 198,477
Total$369,935
 $241,531
 $36,878
 $648,344


Kontoor Brands, Inc. Q1 FY19FY24 Form 10-Q14


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


Contract Balances and Performance Obligations
The following table presents information about contract balances recorded in the Company's balance sheets:
 Three Months Ended March 2018
(In thousands)Wrangler Lee Other Total
Channel revenues
 
 
 
U.S. Wholesale$263,786
 $110,259
 $7,564
 $381,609
Non-U.S. Wholesale76,006
 107,861
 —
 183,867
Branded Direct-To-Consumer25,191
 43,841
 —
 69,032
Other—
 —
 35,155
 35,155
Total$364,983
 $261,961
 $42,719
 $669,663
        
Geographic revenues
 
 
 
U.S.$279,640
 $128,964
 $42,719
 $451,323
International85,343
 132,997
 —
 218,340
Total$364,983
 $261,961
 $42,719
 $669,663
(In thousands)March 2024December 2023March 2023
Accounts receivable, net$239,632 $217,673 $224,024 
Contract assets (a)
6,311 10,929 5,317 
Contract liabilities (b)
1,522 1,713 1,392 
(a) Included within "prepaid expenses and other current assets" in the Company's balance sheets.
(b) Included within "accrued and other current liabilities" in the Company's balance sheets.
For the three months ended March 2024 and March 2023, no significant revenue was recognized that was included in contract liabilities as of December 2023 and December 2022, respectively. For the three months ended March 2024, no significant revenue was recognized from performance obligations satisfied, or partially satisfied, in prior periods. As of March 2024, the Company has contractual rights under its licensing agreements to receive $85.2 million of fixed consideration related to the future minimum guarantees through December 2029.

NOTE 53 — SALE OFBUSINESS SEGMENT INFORMATION
The Company has two reportable segments:
•Wrangler — Wrangler® branded denim, apparel, footwear and accessories.
•Lee — Lee® branded denim, apparel, footwear and accessories.
The Company considers its chief executive officer to be its chief operating decision maker. The chief operating decision maker allocates resources and assesses performance based on the global brand operating results of Wrangler® and Lee®, which are the Company's operating and reportable segments.
In addition, we report an "Other" category to reconcile segment revenues and segment profit to the Company's operating results, but the Other category does not meet the criteria to be considered a reportable segment. Other includes sales and licensing of Rock & Republic®, other company-owned brands and private label apparel.
Accounting policies utilized for internal management reporting at the individual segments are consistent with those disclosed in the Company's 2023 Annual Report on Form 10-K. Corporate and other expenses, including certain restructuring and other transformation costs, 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 March
(In thousands)20242023
Segment revenues:
Wrangler$409,494 $423,147 
Lee219,443 240,649 
Total reportable segment revenues628,937 663,796 
Other revenues2,265 3,327 
Total net revenues$631,202 $667,123 
Segment profit:
Wrangler$74,666 $71,107 
Lee35,094 39,573 
Total reportable segment profit$109,760 $110,680 
Corporate and other expenses(28,060)(18,064)
Interest expense(9,292)(10,273)
Interest income2,425 419 
(Loss) profit related to other revenues(153)107 
Income before income taxes$74,680 $82,869 

Kontoor Brands, Inc. Q1 FY24 Form 10-Q 10


KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 4 — ACCOUNTS RECEIVABLE

Allowance for Doubtful Accounts
VF hasThe following table presents a rollforward of the allowance for doubtful accounts:
Three Months Ended March
(In thousands)20242023
Balance, December$7,215 $9,918 
Increase in provision for expected credit losses1,008 1,877 
Accounts receivable balances written off(238)(560)
Other (1)
(108)233 
Balance, March$7,877 $11,468 
(1) 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 recurring, non-recoursenonrecourse basis. Under thethis agreement, up to $377.5 million of VF'sthe Company’s trade accounts receivable may be sold to the financial institution and remain outstanding at any point in time. Prior to the separation from VF, the Company had a separate agreement with VF, pursuant to which the Company's trade accounts receivable were sold as part of this program. The Company did not retain any interests in the sold accounts receivable but continued to service and collect outstanding accounts receivable on behalf of VF.

The Company removes the sold balances from "accounts receivable"receivable, net" in the combinedits balance sheet at the time of sale. The amount due from VF for these sales is separately reflectedCompany does not retain any interests in the combined balance sheets within "due from related parties", as VF periodically remits cashsold trade accounts receivable but continues to the Company for these transactions. Refer to Note 14service and collect outstanding trade accounts receivable on behalf of the combined financial statements for additional information.
institution.

During the three months ended March 20192024 and March 2018,2023, the Company sold total trade accounts receivable of $245.0$310.4 million
and $243.1$359.7 million, respectively, to VF.respectively. As of March 2019,2024, December 20182023 and March 2018, $286.82023, $223.9 million, $544.9$197.7 million and $266.1$256.3 million, respectively, of the sold trade accounts receivable had been removed from "accounts receivable" and reflected in the combinedCompany's balance sheet within "due from related parties".

sheets but remained outstanding with the financial institution.
The Company's portion of the funding feefees charged by the financial institution isfor this program are reflected in the combinedCompany's statements of incomeoperations within "other expense, net" and was $1.4were $2.9 million and $1.0$3.0 million for the three months ended March 20192024 and March 2018,2023, respectively. Net proceeds of this program are reflected as operating activities in the combinedCompany's statements of cash flows.

NOTE 5 — INVENTORIES
The following table presents components of "inventories" recorded in the Company's balance sheets:
(In thousands)March 2024December 2023March 2023
Finished products$430,133 $421,051 $577,143 
Work-in-process31,064 35,722 32,857 
Raw materials40,144 43,580 50,089 
Total inventories$501,341 $500,353 $660,089 

NOTE 6 — INVENTORIESSUPPLY CHAIN FINANCING
The Company facilitates voluntary Supply Chain Finance ("SCF") programs with its financial institutions that allow certain suppliers the option to sell or assign their rights to receivables due from the Company, enabling the suppliers to receive payment from the financial institutions sooner than our negotiated payment terms. At March 2024, December 2023 and March 2023, accounts payable included total outstanding balances of $28.7 million, $19.7 million and $23.9 million, respectively, due to suppliers that participate in the SCF programs.
(In thousands) March 2019  December 2018 March 2018
Finished products $454,763
  $396,345
 $439,020
Work-in-process 37,872
  37,466
 20,810
Raw materials 26,371
  40,001
 40,019
Total inventories $519,006
  $473,812
 $499,849




1511 Kontoor Brands, Inc. Q1 FY19FY24 Form 10-Q

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


NOTE 7 — PENSION PLANSSHORT-TERM BORROWINGS AND LONG-TERM DEBT
CertainShort-term Borrowings
At March 2024, December 2023 and March 2023, the Company employees participate in U.S.had $23.9 million, $24.1 million and $24.9 million, respectively, of international defined benefit pension plans sponsoredlines of credit with various banks, which are uncommitted and may be terminated at any time by VF (the "Shared Plans"), which include participantseither the Company or the banks. There were no outstanding balances under these arrangements at March 2024 and December 2023, and $7.1 million of outstanding balances at March 2023. In addition, short-term borrowings included other VF operations. debt of $0.2 million at March 2023, with no balance remaining at March 2024 and December 2023.
Long-term Debt
The Company accounts for its participationfollowing table presents the components of "long-term debt" as recorded in the Shared Plans as a multi-employer benefit plan. Accordingly, net periodic pension benefits specifically related to Company employees are reflected in the combined statements of income and the Company does not record an asset or liability in relation to the funded or unfunded status of the Shared Plans.Company's balance sheets:
(In thousands)March 2024December 2023March 2023
Revolving Credit Facility$— $— $50,000 
Term Loan A383,613 388,481 395,586 
4.125% Notes, due 2029395,633 395,440 394,858 
Total long-term debt779,246 783,921 840,444 
Less: current portion(20,000)(20,000)(12,500)
Long-term debt, due beyond one year$759,246 $763,921 $827,944 
Credit Facilities
The Company recognized the following net pension benefits for the Shared Plans:
  Three Months Ended
      
(In thousands) March 2019  March 2018
Service cost $336
  $1,366
Non-service components (965)  (2,095)
Net periodic pension benefit $(629)  $(729)


The service cost component of net periodic pension benefit is reflected in the combined statements of income within "cost of goods sold" and "selling, general and administrative expenses". The non-service components of net periodic pension benefit is reflected in the combined statements of income within "selling, general and administrative expenses."
NOTE 8 — ACCUMULATED OTHER COMPREHENSIVE LOSS


The Company's comprehensive income consists of net income and specified components of other comprehensive loss (“OCL”), which relateparty to changes in assets and liabilities that are not included in net income but are instead deferred and accumulated within a separate component of equity in the combined balance sheets. The Company's comprehensive income is presented in the combined statements of comprehensive income.
The changes in accumulated OCL, all of which relate to foreign currency translation, aresenior secured Credit Agreement, as follows:
(In thousands)Accumulated OCL
Balance, December 2018$(145,182)
Gains arising during period758
Income tax effect—
Balance, March 2019$(144,424)

(In thousands)Accumulated OCL
Balance, December 2017$(122,482)
Gains arising during period9,701
Income tax effect—
Balance, March 2018$(112,781)

NOTE 9 — STOCK-BASED COMPENSATION

Certain Company employees participate in the VF amended and restated 1996 Stock Compensation Plan. on November 18, 2021 (the “Credit Agreement”), which provides for (i) a five-year $400.0 million term loan A facility (“Term Loan A”) and (ii) a five-year $500.0 million revolving credit facility (the “Revolving Credit Facility”), collectively referred to as “Credit Facilities,” with the lenders and agents party thereto.
Term Loan A requires quarterly repayments of $5.0 million through September 2026, and the remaining principal of $335.0 million is due at maturity in November 2026. Term Loan A had an outstanding principal amount of $385.0 million, $390.0 million, and $397.5 million at March 2024, December 2023 and March 2023, respectively, which is reported net of unamortized deferred financing costs. As of March 2024, interest expense on Term Loan A was being recorded at an effective annual interest rate of 4.3%, including the amortization of deferred financing costs and the impact of the Company’s interest rate swap.
The following disclosuresRevolving Credit Facility may be used to borrow funds in both U.S. dollar and certain non-U.S. dollar currencies, and has a $75.0 million letter of stock-based compensation activity arecredit sublimit. As of March 2024, the Company had no outstanding borrowings under the Revolving Credit Facility and $6.7 million of outstanding standby letters of credit issued on behalf of the Company, leaving $493.3 million available for borrowing against this facility.
The interest rate per annum applicable to borrowings under the Credit Facilities is an interest rate benchmark elected by the Company based on grants related directlythe currency and term of the borrowing plus an applicable margin, as defined therein.
The Credit Agreement contains certain affirmative and negative covenants customary for financings of this type as well as customary events of default. In addition, the Credit Agreement contains financial covenants which require compliance with (i) a total leverage ratio not to exceed 4.50 to 1.00 as of the last day of any test period, with an allowance for up to two elections to increase the limit to 5.00 to 1.00 in connection with certain material acquisitions, and (ii) a consolidated interest coverage ratio as of the last day of any test period to be no less than 3.00 to 1.00. As of March 2024, the Company employees.

Duringwas in compliance with all covenants and expects to maintain compliance with the three months ended March 2019, VF granted stock options toapplicable covenants for at least one year from the Company's employees to purchase 4,036 sharesissuance of
these financial statements.
VF's common stock at a weighted average exercise price of $82.38 per share. The exercise price of each option granted was equal to the fair market value of VF's common stock on the date of grant. Employee stock options vest in equal annual installments over three years.



Kontoor Brands, Inc. Q1 FY19FY24 Form 10-Q 1612


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


Senior Notes
On November 18, 2021, the Company entered into an indenture (the “Indenture”) by and among the Company and certain subsidiaries of the Company named as guarantors therein (the “Guarantors”), pursuant to which it issued $400.0 million of unsecured senior notes due November 2029 (the “Notes”) through a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and outside the United States to non-U.S. persons pursuant to Regulation S under the Securities Act. The Notes bear interest at a fixed rate of 4.125% per annum, payable in cash in arrears on May 15 and November 15 of each year.
The grant date fair valueNotes had an outstanding principal amount of each option award$400.0 million at March 2024, December 2023 and March 2023, which is calculated usingreported net of unamortized deferred financing costs. As of March 2024, interest expense on the Notes was being recorded at an effective annual interest rate of 4.3%, including the amortization of deferred financing costs.
The Notes are guaranteed on a lattice option-pricing valuation model, which incorporatessenior unsecured basis by the following assumptionsCompany’s existing and future domestic subsidiaries (other than certain excluded subsidiaries) that are borrowers under or guarantors of the Credit Facilities or certain other indebtedness. The Indenture governing the Notes contains customary negative covenants for inputs:financings of this type. The Indenture does not contain any financial covenants. As of March 2024, the Company was in compliance with the Indenture and expects to maintain compliance with the applicable covenants for at least one year from the issuance of these financial statements.

Refer to Note 11 in the Company's 2023 Annual Report on Form 10-K for additional information regarding the Company’s debt obligations.
Three Months Ended March 2019
Expected volatility25% to 27%
Weighted average expected volatility26%
Expected term (in years)6.1 to 7.5
Weighted average dividend yield2.5%
Risk-free interest rate2.5% to 2.8%
Weighted average fair value at date of grant$18.13

NOTE 10 — INCOME TAXES
For purposes of the Company's combined financial statements, income taxes have been calculated as if the Company were filing income tax returns on a standalone basis. The Company's U.S. operations and certain of its non-U.S. operations historically have been included within the tax returns of VF, or VF's subsidiaries, that may not remain with the Company after the Separation. The Company believes the assumptions supporting its allocations and presentation of income taxes on a separate return basis are reasonable. However, the Company's tax results, as presented in the combined financial statements, may not be reflective of the results that the Company expects to generate in future periods.

On January 15, 2019, final regulations under Section 965 related to the transition tax were released. After analyzing these regulations during the three months ended March 2019, the Company recorded an additional net charge of $0.2 million, primarily comprised of $3.9 million of tax expense related to transition tax and a net tax benefit of $3.7 million related to a reduction in unrecognized tax benefits as a result of the final regulations.
The effective income tax rate for the three months ended March 2019 was 44.7% compared to 15.0% in the 2018 period. The three months ended March 2019 included a net discrete tax expense of $1.2 million, primarily comprised of $2.8 million of net tax expense related to unrecognized tax benefits and interest,$2.2 million of tax benefit related to stock compensation, and $0.2 million of tax expense related to adjustments of previously recorded amounts based on final regulations for the transition tax. The $1.2 million net discrete tax expense in the three months ended March 2019 increased the effective income tax rate by 4.4%.
The effective tax rate for the three months ended March 2018 included a net discrete tax benefit of $6.3 million, which included $5.5 million of net tax benefits related to the realization of previously
unrecognized tax benefits and interest and $0.8 million of tax benefit related to stock compensation. The $6.3 million net discrete tax benefit in the 2018 period decreased the effective income tax rate by 6.7%.
Without discrete items, the effective income tax rate for the three months ended March 2019 increased by 18.6% compared with the 2018 period primarily due to losses incurred in the current period for certain Central and South American jurisdictions for which no related tax benefit was recognized.
The Company is part of VF's consolidated U.S. federal income tax return, as well as separate and combined VF income tax returns in numerous state and international jurisdictions. In the U.S., the Internal Revenue Service examinations for VF's tax years through 2014 have been effectively settled. In addition, VF is currently subject to examination by various state and international tax authorities. Management regularly assesses the potential outcomes of both ongoing and future examinations for the current and prior years, and has concluded that the Company's provision for income taxes is adequate. The outcome of any one examination is not expected to have a material impact on the Company's combined financial statements. Management believes that some of these audits and negotiations will conclude during the next 12 months.
During the three months ended March 2019, the amount of net unrecognized tax benefits and associated interest decreased by $2.6 million to $48.7 million. Management believes that it is reasonably possible that the amount of unrecognized income tax benefits and interest may decrease during the next 12 months by approximately $6.3 million related to the completion of examinations and other settlements with tax authorities and the expiration of statutes of limitations, of which $6.1 million would reduce income tax expense.
NOTE 11 — REPORTABLE SEGMENT INFORMATION

The chief operating decision maker allocates resources and assesses performance based on a global brand view which determines the Company's operating segments. These operating segments are the basis for the Company's reportable segments, as described below:

•
Wrangler — Wrangler® branded denim, apparel and accessories.

•
Lee — Lee® branded denim, apparel and accessories.

In addition, we report an "Other" category for purposes of reconciliation of revenues and profit, but the Other category is not


17 Kontoor Brands, Inc. Q1 FY19 Form 10-Q
KONTOOR BRANDS, INC.
Notes to Combined Financial Statements
(Unaudited)


considered a reportable segment. Other includes sales (i) of VF-branded products (other than Wrangler® and Lee® branded products, which are reported in the respective segments above) and third-party branded merchandise at VF Outlet™ stores, (ii) of Rock and Republic® branded apparel, (iii) to VF for products manufactured in our plants and use of our transportation fleet and, (iv) from fulfillment of a transition services agreement associated with VF's sale of its Nautica® brand business in mid-2018.

Accounting policies utilized for internal management reporting at the individual segments are consistent with those included in Note 1 of the combined financial statements of our 2018 Form 10, except as noted below.

The Company's combined statements of income include costs for certain centralized functions and programs provided and administered by VF that are charged directly to VF's businesses, including the Company. These centralized functions and programs include, but are not limited to, information technology, human resources, accounting shared services, supply chain, insurance, and the service cost component of net periodic pension benefit. These historical allocations have been included in the measurement of segment profit below.

In addition, for purposes of preparing these combined financial statements on a "carve-out" basis, we have allocated a portion of VF's total corporate expenses to the Company. These expense allocations include the cost of corporate functions and resources provided by or administered by VF including, but not limited to, executive management, finance, accounting, legal, human resources, and related benefit costs associated with such functions, such as stock-based compensation and the non-service components of net periodic pension benefit. Allocations also include the cost of operating VF's corporate headquarters located in Greensboro, North Carolina. The Company has also been allocated the non-service components of net periodic pension benefit. These additional allocations are reported as corporate and other expenses in the table below.

Corporate and other expenses, net related party interest income, and net other interest income are not controlled by segment management and therefore are excluded from the measurement of segment profit.


Financial information for the Company's reportable segments is as follows:
  Three Months Ended
      
      
(In thousands) March 2019  March 2018
Segment revenues:     
Wrangler $369,935
  $364,983
Lee 241,531
  261,961
Other 36,878
  42,719
Total segment revenues $648,344
  $669,663
Segment profit:     
Wrangler $23,665
  $62,946
Lee 17,633
  35,989
Other (3,085)  (1,749)
Total segment profit $38,213
  $97,186
Corporate and other expenses (13,989)  (5,975)
Related party interest income, net 2,339
  1,651
Other interest income, net 1,325
  917
Income before income taxes $27,888
  $93,779

NOTE 128 — FAIR VALUE MEASUREMENTS
FinancialCertain assets and financial liabilities measured and reported at fair value are classified in a three-level hierarchy that prioritizes the inputs used in the valuation process. A financial instrument’s categorizationCategorization within the valuation hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The hierarchy is based on the observability and objectivity of the pricing inputs, as follows:
•Level 1 — Quoted prices in active markets for identical assets or liabilities.
•Level 2 — Significant directly observable data (other than Level 1 quoted prices) or significant indirectly observable data through corroboration with observable market data. Inputs would normally be (i) quoted prices in active markets for similar assets or liabilities, (ii) quoted prices in inactive markets for identical or similar assets or liabilities or (iii) information derived from or corroborated by observable market data.
•Level 3 — Prices or valuation techniques that require significant unobservable data inputs. These inputs would normally be the Company's own data and judgments about


Kontoor Brands, Inc. Q1 FY19 Form 10-Q 18

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


assumptions that market participants would use in pricing the asset or liability.

13 Kontoor Brands, Inc. Q1 FY24 Form 10-Q

KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Recurring Fair Value Measurements
The following table summarizestables present financial assets and financial liabilities that are measured and recorded in the combinedCompany's financial statements at fair value on a recurring basis:
 Fair Value Measurement Using
(In thousands)Total Fair ValueLevel 1Level 2Level 3
March 2024
Financial assets:
Cash equivalents:
Money market funds$143,318 $143,318 $— $— 
Time deposits2,279 2,279 — — 
Foreign currency exchange contracts18,553 — 18,553 — 
Interest rate swap agreements596 — 596 — 
Investment securities49,636 49,636 — — 
Financial liabilities:
Foreign currency exchange contracts1,782 — 1,782 — 
Deferred compensation52,474 — 52,474 — 
Total Fair  Value Fair Value Measurement Using Fair Value Measurement Using
(In thousands) Level 1 Level 2 Level 3(In thousands)Total Fair ValueLevel 1Level 2Level 3
March 2019       
December 2023
Financial assets:
Financial assets:
Financial assets:       
Cash equivalents:       
Cash equivalents:
Cash equivalents:
Money market funds
Money market funds
Money market funds$7,686
 $7,686
 $—
 $—
Time deposits3,691
 3,691
 —
 —
Foreign currency exchange contracts
Interest rate swap agreements
Investment securities50,782
 50,782
 —
 —
Financial liabilities:       
Foreign currency exchange contracts
Foreign currency exchange contracts
Foreign currency exchange contracts
Deferred compensation50,782
 —
 50,782
 —
Total Fair  Value Fair Value Measurement Using
(In thousands) Level 1 Level 2 Level 3
December 2018       
Financial assets:       
Cash equivalents:       
Money market funds$21,687
 $21,687
 $—
 $—
Time deposits2,518
 2,518
 —
 —
Investment securities46,666
 46,666
 —
 —
Financial liabilities:       
Deferred compensation46,666
 —
 46,666
 —
Deferred compensation

The Company's cash equivalents include money market funds and short-term time deposits that approximate fair value based on Level 1 measurements. The fair value of derivative financial instruments, which consist of foreign currency exchange contracts and interest rate swap agreements, is determined based on observable market inputs (Level 2), including spot and forward exchange rates for foreign currencies and observable interest rate yield curves for interest rate swap agreements. Investment securities are held in VF'sthe Company's deferred compensation plans as an economic hedge of the related deferred compensation liabilities. These investmentsliabilities and are comprised of mutual funds (Level 1) that are valued based on quoted prices in active markets.markets (Level 1). Liabilities related to VF'sthe Company's deferred compensation plans are recorded at amounts due to participants, based on the fair value of the participants’ selection of hypothetical investments.investments (Level 2).

Additionally, at March 2024, the carrying value of the Company's long-term debt was $779.2 million compared to a fair value of $740.1 million. At December 2023, the carrying value of the Company's long-term debt was $783.9 million compared to a fair value of $747.1 million. The fair value of long-term debt is a Level 2 estimate based on quoted market prices or values of comparable borrowings.
All other financial assets and financial liabilities are recorded in the combinedCompany's financial statements at cost. These other financial assets
and financial liabilities include cash held as demand deposits, accounts receivable, due from related parties, related party notes receivable, short-term borrowings, accounts payable, due to related parties, related party notes payable and accrued liabilities. At March 20192024 and December 2018,2023, their carrying valuevalues approximated fair value for the aforementioned financial assets and liabilities due to the short-term nature of these instruments.


Kontoor Brands, Inc. Q1 FY24 Form 10-Q 14


KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 9 — DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Summary of Derivative Financial Instruments
The Company did not transfer any assets or liabilities amongenters into derivative contracts with external counterparties to hedge certain foreign currency transactions. The notional amount of all outstanding foreign currency exchange contracts was $340.8 million at March 2024, $348.8 million at December 2023 and $321.3 million at March 2023, consisting primarily of contracts hedging exposures to the levelseuro, Mexican peso, Canadian dollar, British pound, Polish zloty and Swedish krona. Foreign currency exchange contracts have maturities up to 20 months.
During 2019, the Company entered into "floating to fixed" interest rate swap agreements to mitigate exposure to volatility in reference rates on the Company's future interest payments. The notional amount of the interest rate swap agreements was $300.0 million at March 2024, December 2023 and March 2023. Because these interest rate swap agreements meet the criteria for hedge accounting, all related gains and losses are deferred within accumulated other comprehensive loss ("AOCL") and are being amortized through the maturity date of April 18, 2024.
The Company's outstanding derivative financial instruments met the criteria for hedge accounting at the inception of the hedging relationship. At each reporting period, the Company assesses whether the hedging relationships continue to be highly effective in offsetting changes in cash flows of hedged items. If the Company determines that a specific hedging relationship has ceased to be highly effective, it discontinues hedge accounting. All designated hedging relationships were determined to be highly effective as of March 2024.
The following table presents the fair value hierarchyof outstanding derivatives on an individual contract basis:
Fair Value of Derivatives
with Unrealized Gains		Fair Value of Derivatives
with Unrealized Losses
MarchDecemberMarchMarchDecemberMarch
(In thousands)202420232023202420232023
Derivatives designated as hedging instruments:
Foreign currency exchange contracts$18,553 $16,490 $20,361 $(1,710)$(5,098)$(2,914)
Interest rate swap agreements596 3,253 8,946 — — — 
Derivatives not designated as hedging instruments:
Foreign currency exchange contracts— 14 16 (72)(23)(316)
Total derivatives$19,149 $19,757 $29,323 $(1,782)$(5,121)$(3,230)
The Company records and presents the fair value of all derivative assets and liabilities in the Company's balance sheets on a gross basis, even though certain derivative contracts are subject to master netting agreements. If the Company were to offset and record the asset and liability balances of its derivative contracts on a net basis in accordance with the terms of its master netting agreements, the amounts presented in the Company's balance sheets would be adjusted from the current gross presentation to the net amounts.
The following table presents a reconciliation of gross to net amounts for derivative asset and liability balances:
March 2024December 2023March 2023
(In thousands)Derivative AssetDerivative LiabilityDerivative AssetDerivative LiabilityDerivative AssetDerivative Liability
Gross amounts presented in the balance sheet$19,149 $(1,782)$19,757 $(5,121)$29,323 $(3,230)
Gross amounts not offset in the balance sheet(1,417)1,417 (894)894 (1,449)1,449 
Net amounts$17,732 $(365)$18,863 $(4,227)$27,874 $(1,781)

15 Kontoor Brands, Inc. Q1 FY24 Form 10-Q

KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
The following table presents the location of derivatives in the Company's balance sheets, with current or noncurrent classification based on maturity dates:
(In thousands)March 2024December 2023March 2023
Prepaid expenses and other current assets$17,016 $18,319 $18,046 
Accrued and other current liabilities(1,638)(4,009)(2,683)
Other assets2,133 1,438 11,277 
Other liabilities(144)(1,112)(547)
Cash Flow Hedges
The following tables present the pre-tax effects of cash flow hedges included in the Company's statements of operations and statements of comprehensive income:
Gain (Loss) on Derivatives Recognized in AOCL
(In thousands)Three Months Ended March
Cash Flow Hedging Relationships20242023
Foreign currency exchange contracts$10,146 $10,337 
Interest rate swap agreements74 (309)
Total$10,220 $10,028 
Gain (Loss) Reclassified from AOCL into Income
(In thousands)Three Months Ended March
Location of Gain (Loss)20242023
Net revenues$53 $(171)
Cost of goods sold5,291 5,992 
Other expense, net82 160 
Interest expense2,731 2,101 
Total$8,157 $8,082 
Other Derivative Information
Any contracts that are not designated as hedges are recorded at fair value in the Company's balance sheets. Changes in the fair values of derivative contracts not designated as hedges are recognized directly in earnings. There were no significant amounts recognized in earnings for the ineffective portion of any hedging relationships or changes in the fair values of derivative contracts not designated as hedges during the three months ended March 2019 or2024 and March 2023.
At March 2024, AOCL included $18.3 million of pre-tax net deferred gains for foreign currency exchange contracts and interest rate swap agreements that are expected to be reclassified to earnings during the fiscal yearnext 12 months. The amounts ultimately reclassified to earnings will depend on rates in effect when outstanding derivative contracts are settled.

NOTE 10 — CAPITAL AND ACCUMULATED OTHER COMPREHENSIVE LOSS
Common Stock
During the three months ended December 2018.March 2024, the Company repurchased 0.3 million shares of Common Stock for $20.0 million, including commissions, under its $300.0 million share repurchase program authorized by the Company's Board of Directors. All shares reacquired in connection with the repurchase program are treated as authorized and unissued shares upon repurchase.

Kontoor Brands, Inc. Q1 FY24 Form 10-Q 16


KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Accumulated Other Comprehensive Loss
The following table presents deferred components of AOCL in equity, net of related taxes:
(In thousands)March 2024December 2023March 2023
Foreign currency translation$(93,580)$(91,057)$(99,139)
Defined benefit pension plans2,831 2,913 2,208 
Derivative financial instruments22,517 20,293 28,926 
Accumulated other comprehensive loss$(68,232)$(67,851)$(68,005)
The following tables present changes in AOCL, net of related tax impact:
Three Months Ended March 2024
(In thousands)Foreign Currency TranslationDefined Benefit Pension PlansDerivative Financial InstrumentsTotal
Balance, December 2023$(91,057)$2,913 $20,293 $(67,851)
Other comprehensive income (loss) due to gains (losses) arising before reclassifications(2,523)— 9,688 7,165 
Reclassifications to net income of previously deferred (gains) losses— (82)(7,464)(7,546)
Net other comprehensive income (loss)(2,523)(82)2,224 (381)
Balance, March 2024$(93,580)$2,831 $22,517 $(68,232)
Three Months Ended March 2023
(In thousands)Foreign Currency TranslationDefined Benefit Pension PlansDerivative Financial InstrumentsTotal
Balance, December 2022$(107,462)$2,243 $25,554 $(79,665)
Other comprehensive income (loss) due to gains (losses) arising before reclassifications8,323 — 10,292 18,615 
Reclassifications to net income of previously deferred (gains) losses— (35)(6,920)(6,955)
Net other comprehensive income (loss)8,323 (35)3,372 11,660 
Balance, March 2023$(99,139)$2,208 $28,926 $(68,005)

17 Kontoor Brands, Inc. Q1 FY24 Form 10-Q

KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
The following table presents reclassifications out of AOCL:
(In thousands)Three Months Ended March
Details About Accumulated Other Comprehensive Loss ReclassificationsAffected Line Item in the Financial Statements
20242023
Defined benefit pension plans:
Net change in deferred gains (losses) during the periodSelling, general and administrative expenses$93 $46 
Total before tax93 46 
Income taxesIncome taxes(11)(11)
Net of tax82 35 
Gains (losses) on derivative financial instruments:
Foreign currency exchange contractsNet revenues$53 $(171)
Foreign currency exchange contractsCost of goods sold5,291 5,992 
Foreign currency exchange contractsOther expense, net82 160 
Interest rate swap agreementsInterest expense2,731 2,101 
Total before tax8,157 8,082 
Income taxesIncome taxes(693)(1,162)
Net of tax7,464 6,920 
Total reclassifications for the period, net of tax$7,546 $6,955 

NOTE 11 — INCOME TAXES
The effective income tax rate for the three months ended March 2024 was 20.3% compared to 20.0% in the 2023 period. The three months ended March 2024 and March 2023 included a net discrete tax benefit primarily related to stock-based compensation which decreased the effective income tax rate by 1.0% and 0.2%, respectively. The effective tax rate without discrete items for the three months ended March 2024 was 21.3% compared to 20.2% in the 2023 period. The increase was primarily due to changes in our jurisdictional mix of earnings.
During the three months ended March 2024, the amount of net unrecognized tax benefits and associated interest increased by $0.5 million to $14.1 million. Management believes that it is reasonably possible that the amount of unrecognized tax benefits may decrease by $2.2 million within the next 12 fiscal months due to expiration of statutes of limitations, which would reduce income tax expense.

NOTE 12 — EARNINGS PER SHARE
The calculations of basic and diluted earnings per share ("EPS") are based on net income divided by the basic weighted average number of common shares and diluted weighted average number of common shares outstanding, respectively.
The following table presents the calculations of basic and diluted EPS:
Three Months Ended March
(In thousands, except per share amounts)20242023
Net income$59,507 $66,296 
Basic weighted average shares outstanding55,735 55,646 
Dilutive effect of stock-based awards1,004 1,294 
Diluted weighted average shares outstanding56,739 56,940 
Earnings per share:
Basic earnings per share$1.07 $1.19 
Diluted earnings per share$1.05 $1.16 
For the three months ended March 2024 and March 2023, an immaterial number of shares were excluded from the dilutive earnings per share calculations because the effect of their inclusion would have been anti-dilutive.

Kontoor Brands, Inc. Q1 FY24 Form 10-Q 18


KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
For both the three months ended March 2024 and March 2023, a total of 0.6 million shares of performance-based restricted stock units ("PRSUs"), were excluded from the calculations of diluted earnings per share as the units were not considered to be contingent outstanding shares.

NOTE 13 — RESTRUCTURINGLEASES

The Company typically incursenters into operating leases for retail stores, operational facilities, vehicles and certain equipment, with terms expiring at various dates through 2033. Most leases have fixed rentals, with many of the real estate leases requiring additional payments for real estate taxes and occupancy-related costs.
The following table presents supplemental cash flow and non-cash information related to operating leases:
Three Months Ended March
(In thousands)20242023
Cash paid for amounts included in the measurement of lease liabilities - operating cash flows$8,006 $7,639 
Right-of-use operating lease assets obtained in exchange for new operating leases - non-cash activity$2,698 $1,406 

NOTE 14 — RESTRUCTURING
During the three months ended March 2024, the Company incurred restructuring charges related to costbusiness optimization of business activities. activities and actions to streamline and transfer select production within our internal manufacturing network.
Of the $22.8 $4.6 million of restructuring charges recognized during the three months ended March 2019, $12.02024, $1.6 million were reflected inwithin "selling, general and administrative expenses" and $10.8$3.0 million were reflected inwithin "cost of goods sold". Additionally, all of the $1.9 million ofsold." No restructuring charges were recognized during the three months ended March 2018 was reflected in "selling, general and administrative expenses."2023.

The Company did not incur significant incremental costs related to the previously approved initiatives during the three months ended March 2019. Of the $36.6$2.4 million total restructuring accrual reported in the combinedCompany's balance sheet at March 2019, $35.82024, $1.7 million is expected to be paid out within the next 12 months and iswas classified within "accrued liabilities". Theand other current liabilities," and the remaining $0.8$0.7 million is expected be paid out beyond the next 12 months and thus iswas classified within "other liabilities".liabilities." All of the $0.8 million restructuring accrual reported in the Company's balance sheet at December 2023 was classified within "accrued and other current liabilities."

The following table presents the components of restructuring charges:

Three Months Ended March
(In thousands)
20242023
Severance and employee-related benefits$1,981 $— 
Asset impairments168 — 
Inventory write-downs1,683 — 
Other779 — 
Total restructuring charges$4,611 $— 
The following table presents the restructuring costs by business segment:
Three Months Ended March
(In thousands)
20242023
Wrangler$3,249 $— 
Lee40 — 
Corporate and other1,322 — 
Total$4,611 $— 

19 Kontoor Brands, Inc. Q1 FY19FY24 Form 10-Q

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



The components of the restructuring charges are as follows:
  Three Months Ended
      
(in thousands) March 2019  March 2018
Severance and employee-related benefits $13,157
  $1,936
Asset impairments 1,596
  —
Inventory write-downs 4,403
  —
Other 3,660
  —
Total restructuring charges $22,816
  $1,936

Restructuring costs by business segment are as follows:
  Three Months Ended
      
(In thousands) March 2019  March 2018
Wrangler $16,422
  $826
Lee 6,224
  677
Other 170
  433
Total $22,816
  $1,936

Thefollowing table presents activity in the restructuring accrual for the three-month periodsperiod ended March 2019 and 2018 is as follows:2024:
(In thousands)Total
Accrual at December 2023$827
Charges2,760 
Cash payments(1,195)
Adjustments to accruals(16)
Currency translation(9)
Balance, March 2024$2,367
(In thousands)Severance Other Total
Accrual at December 2018$23,249
 $—
 $23,249
Charges13,157
 3,660
 16,817
Cash payments(3,046) —
 (3,046)
Adjustments to accruals(230) —
 (230)
Currency translation(17) (197) (214)
Accrual at March 2019$33,113
 $3,463
 $36,576


(in thousands)Severance
Other
Total
Accrual at December 2017$11,007

$—

$11,007
Charges1,936

—

1,936
Cash payments(837)
—

(837)
Adjustments to accruals(197)
—

(197)
Currency translation4

—

4
Accrual at March 2018$11,913

$—

$11,913

NOTE 1415 — RELATED PARTY TRANSACTIONSSUBSEQUENT EVENTS

On April 1, 2024, the Company made its annual grant of equity awards under the Kontoor Brands, Inc. 2019 Stock Compensation Plan, including approximately 200,000 shares of PRSUs to employees, approximately 150,000 shares of time-based restricted stock units ("RSUs") to employees, and approximately 20,000 shares of RSUs to nonemployee members of the Board of Directors.
On April 18, 2024, the Board of Directors declared a regular quarterly cash dividend of $0.50 per share of the Company's Common Stock. The cash dividend will be payable on June 20, 2024, to shareholders of record at the close of business on June 10, 2024.
The combined financial statements have been prepared on a standalone basis and are derived from the consolidated financial statements and accounting records of VF. The following discussion summarizes activity between the Company and VF (and its affiliates that were not part of the spin-off transaction) referred to hereafter as VF.

Allocation of General Corporate Expenses

The combined statements of income include expenses for certain centralized functions and other programs provided and administered by VF that were charged directly to the Company. In addition, for purposes of preparing these combined financial statements on a carve-out basis, we have allocated a portion of VF's total corporate expenses to the Company. See Note 1 in the 2018 Form 10 for a discussion of the methodology used to allocate corporate-related costs for purposes of preparing these financial statements on a carve-out basis.



Kontoor Brands, Inc. Q1 FY19FY24 Form 10-Q 20

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





Related Party Sales and Purchases

During thethree months endedMarch 2019and2018, the Company's sales to VF totaled $10.6 million and $13.5 million, respectively, which are included in "net revenues" in the combined statements of income. The Company's cost of goods sold includes items purchased from VF totaling $0.3 million and $0.8 million during the three months ended March 2019 and 2018, respectively. At March 2019, December 2018 and March 2018, the aggregate amount of inventories purchased from VF that remained on the Company's combined balance sheets were $1.2 million, $0.8 million and $1.9 million, respectively.

Related Party Notes

At March 2019, December 2018 and March 2018, the Company had related party notes receivable of $517.9 million, $517.9 million and $546.7 million, respectively, with VF as the counterparty. These notes are short-term and are recorded in the combined balance sheets in "related party notes receivable". The weighted-average interest rate for these notes was approximately 3.7%, 3.4% and 2.4% at March 2019, December 2018 and March 2018, respectively.

AtMarch 2019,December 2018andMarch 2018, the Company had related party notes payable of $241.9 million, $269.1 million and $269.1 million, respectively, with VF as the counterparty. These notes are short-term and are recorded within the combined balance



sheets in "related party notes payable". The weighted-average interest rate for these notes was approximately 3.7%, 3.4% and 2.3% at March 2019, December 2018 and March 2018, respectively.

The Company recorded net interest income related to these notes of $2.3 million and $1.7 million during the three months ended March 2019 and 2018, respectively, which is reflected in "related party interest income, net" within the combined statements of income.

Due To and From Related Parties

Balances in due to and from related parties are generated by (i) the sale of trade accounts receivable to VF, as discussed in Note 5 to the combined financial statements, (ii) hedging agreements with VF, and (iii) sourcing payable to VF.

During the periods presented, the Company did not enter into derivative contracts with external counterparties. However, VF entered into derivative contracts with external counterparties to hedge certain foreign currency transactions with exposure to the euro, Mexican peso, Polish zloty, Canadian dollar, and other currencies. The Company entered into offsetting internal contracts with VF with maturities up to 20 months, and cash settled with VF on any asset or liability that arose under these contracts.

Due from related parties, current consists of the following:

(in thousands) March 2019  December 2018 March 2018
Sale of trade accounts receivable $286,816
  $544,858
 $266,112
Hedging agreements with VF 4,266
  2,832
 8,256
Other 45
  —

—

 $291,127
  $547,690
 $274,368


As discussed in Note 5 to the combined financial statements, the Company sold certain of its trade accounts receivable to VF, who then sold them to a financial institution and periodically remitted cash back to the Company.

Due from related parties, noncurrent consists of the following:
(in thousands) March 2019  December 2018 March 2018
Hedging agreements with VF $370
  $611
 $1,576

Due to related parties, current consists of the following:
(in thousands) March 2019  December 2018 March 2018
Sourcing payable $3,865
  $16,140
 $60,424




21 Kontoor Brands, Inc. Q1 FY19 Form 10-Q
KONTOOR BRANDS, INC.
Notes to Combined Financial Statements
(Unaudited)


Net Transfers To and From VF

Net transfers to and from VF are included in "parent company investment" within the combined statements of equity. The components of the transfers to and from VF are as follows:
  Three Months Ended
      
(in thousands) March 2019  March 2018
General financing activities $(198,411)  $70,930
Corporate allocations 31,153
  33,849
Stock-based compensation expense 7,685
  3,740
Pension benefit (629)  (729)
Purchases from parent 700
  833
Sales to parent (10,611)  (13,479)
Other income tax 8,248
  18,301
Transition tax related to the Tax Act 3,937
  —
Total net transfer (to) from parent $(157,928)  $113,445

NOTE 15 — EARNINGS PER SHARE

Earnings per share was calculated based on the 56,647,561 shares of the Company's common stock distributed to VF shareholders on May 22, 2019. The same number of shares is being utilized for the calculation of basic and diluted earnings per share for all periods presented prior to the Separation.


Three Months Ended March
      
(In thousands, except per share amounts)
2019
 2018
Net income
$15,413

 $79,696




 
Per share data


 
Basic earnings per share
$0.27

 $1.41
Diluted earnings per share $0.27
  $1.41
Weighted average number of shares outstanding - basic and diluted
56,647,561

 56,647,561

NOTE 16 — SUBSEQUENT EVENTS
Credit Agreement

On May 17, 2019, the Company and its wholly-owned subsidiary Lee Wrangler International Sagl entered into a credit agreement (the “Credit Agreement”) with respect to $1.55 billion in senior secured credit facilities consisting of a senior secured five-year $750 million term loan A facility (the “Term Loan A Facility”), a senior secured seven-year $300 million term loan B facility (the “Term Loan B Facility”) and a five-year $500 million senior secured revolving credit facility (the “Revolving Credit Facility”) (collectively, the “Credit Facilities”) with the lenders and agents party thereto. The Credit Agreement is subject to certain affirmative and negative covenants customary for financings of this type.

On May 17, 2019, the Company incurred $1.05 billion of indebtedness under the Credit Facilities, the proceeds of which were used primarily to finance a cash transfer to a member of VF’s group in connection with the Separation. Following the Separation, we expect to utilize the borrowing capacity under
the Revolving Credit Facility from time to time to provide working capital and funds for general corporate purposes.
Tax Matter
On May 19, 2019, Switzerland voted to approve the Federal Act on Tax Reform and AHV Financing (“Swiss Tax Act”). The Company is currently evaluating the potential impact of the Swiss Tax Act on the Company's combined financial statements. The associated tax effects will be reflected in the Company's quarterly results in the period in which the Swiss Tax Act is enacted.
Distribution from VF

On May 22, 2019, the Separation was completed through VF's distribution (the "Distribution") of 100% of the shares of Kontoor Brands, Inc. to holders of VF common stock as of the close of business on the record date of May 10, 2019. As a result of the Distribution, VF stockholders of record received one share of the Company's common stock for every seven shares of VF common stock. Following the Distribution, Kontoor Brands, Inc. became an


Kontoor Brands, Inc. Q1 FY19 Form 10-Q 22

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


independent, publicly-traded company with no retained ownership by VF.


Sale of Accounts Receivable

On April 1, 2019, the Company entered into an agreement with a financial institution to sell selected trade accounts receivable on a recurring, nonrecourse basis. Under this agreement, which replaces the existing agreement between VF and a financial institution, 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.




23 Kontoor Brands, Inc. Q1 FY19 Form 10-Q

ITEM 2 —2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.OPERATIONS

Background

On August 13, 2018, V.F. Corporation ("VF") announced its intentionManagement's Discussion and Analysis of Financial Condition and Results of Operations is intended to spin-off its Jeanswear business intoprovide readers of our financial statements with a separate publicly traded company (the "Separation"). The Jeanswear business includes the Wrangler®,Lee® narrative from management's perspective on our financial condition, results of operations and Rock & Republic® brands, liquidity as well as certain other factors that may affect our future results. This section should be read in conjunction with the VF Outlet™ business. Consolidated Financial Statements and related Notes included in this Quarterly Report on Form 10-Q.
The financial conditionfollowing discussion and analysis includes forward-looking statements. These forward-looking statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from those expressed or implied by the forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed in “Cautionary Statement On Forward-Looking Statements” included later in Part I, Item 2 of operations asthis Quarterly Report on Form 10-Q and in Part I, Item 1A "Risk Factors" in our 2023 Annual Report on Form 10-K.
Description of March 30, 2019 are prior to the Separation and thus are prepared on a "carve-out" basis as further described in Note 1 of the combined financial statements.Business
On May 22, 2019, VF completed the spin-off of Kontoor Brands, Inc. ("Kontoor," the "Company," "we," "us" or "our") through a pro-rata distribution of one share of Kontoor common stock for every seven shares of VF common stock held at the close of business on the record date of May 10, 2019. Kontoor began to trade as a separate public company (NYSE: KTB) on May 23, 2019. In connection with the Separation, Kontoor transferred approximately $1.0 billion to VF on May 17, 2019 from a newly structured third-party debt issuance.

Description of Business

The Company is a global denim and casuallifestyle apparel company headquartered in the United States ("U.S."). The Company designs, produces,manufactures, procures, marketssells and distributeslicenses 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.online, including digital marketplaces. The Company's products are also sold internationally, primarily in the Europe, Middle East and Asia,Africa ("EMEA"), Asia-Pacific ("APAC") and Non-U.S. Americas regions, through department, specialty, company-operated, concession retail and independently operatedindependently-operated partnership stores and online. VF Outlet™ stores carry Wrangler® and Lee®branded products, as well as merchandise that is specifically purchased for sale in these stores,online, including products from VF.digital marketplaces.

Fiscal Year

 and Basis of Presentation
The Company operates and reports using a 52/53 week53-week fiscal year ending on the Saturday closest to December 31 of each year. Accordingly, the three-month period ended March 30, 2019 representsthis Form 10-Q presents the first quarter of the Company's fiscal year endedending December 28, 20192024 ("fiscal 2019"2024")., which is a 52-week fiscal year. For presentation purposes herein, all references to periods ended March 2019,2024, December 20182023 and March 20182023 correspond to the fiscal periods ended March 30, 2019,2024, December 29, 201830, 2023 and March 31, 2018,April 1, 2023, respectively.

Basis of Presentation

References to fiscal 20192024 foreign currency amounts herein reflect the impact of changes in foreign exchange rates from fiscal 2018the prior year comparable period and the corresponding impact on translating foreign currencies into U.S. dollars and on foreign currency-denominated transactions in countries with highly inflationary economies. Ourtransactions. The Company's most significant foreign currency translation exposure is typically driven by business conducted in euro-based countries.countries, the Chinese yuan and the Mexican peso. However, we conductthe Company conducts business in other developed and emerging markets around the world with exposure to other foreign currencies.

Amounts herein may not recalculate due to the use of unrounded numbers.

Macroeconomic Environment and Other Recent Developments
These accompanying unaudited combined financial statements reflect the historical financial position, results of operations and cash flows ofMacroeconomic conditions impacting the Company forinclude inflation, elevated interest rates, recessionary concerns and fluctuating foreign currency exchange rates, as well as continuing global supply chain issues and inconsistent economic results in China. These factors continue to contribute to uncertain global economic conditions and consumer spending patterns, which are impacting retailers' and the periods presented as historically managed within VF.  For purposes of preparingCompany's operations. Additionally, the conflicts in Ukraine and the Middle East are causing disruption in the surrounding areas and greater uncertainty in the global economy.
Inflationary pressures have moderated in recent quarters, and although these combined financial statements on a “carve-out" basis, the balance sheets and cash flows included only those assets and liabilities directly relatedpressures continue to impact us, current period results reflect favorability from lower product costs compared to the Jeanswearfirst quarter of 2023. However, the macroeconomic factors discussed above, primarily inflation, interest rates and VF OutletTMrecessionary concerns, continued to impact consumer spending patterns leading to retailer actions to proactively manage inventory levels, which impacted our results during the three months ended businesses,March 2024.
Recent disruptions to key trade routes, such as the Red Sea and the statements of income included the historically reported results of those businesses along with allocations of a portion of VF’s total corporate expenses. Accordingly, the balances in periods after the Separation may not be comparable to the balances presented in this Form 10-Q. Below are some considerations related to post-Separation presentation:

The assets and liabilities ultimately transferred to the Company at the time of Separation differed in some cases from those presented in the accompanying combined balance sheets.  For example, VF decidedPanama Canal, affected our global supply chain during the first quarter of 20192024 but did not have a significant impact on first quarter results. Although we continue to cease itsproactively manage our shipping carriers and routes to minimize costs and delays, our results of operations in Argentina, including those of thewill reflect higher freight costs during 2024.
The Company has responded to ongoing macroeconomic conditions by controlling expenses, adjusting pricing and agreed to retain all assets and liabilities of the Company’s operations in Argentina post-Separation.   Thus, the balancesproactively managing our global supply chain where possible. While we anticipate continued uncertainty related to the Jeanswear Argentina operations were reported as dedicated assetsmacroeconomic environment during 2024, we believe we are appropriately positioned to successfully manage through known operational challenges. We continue to closely monitor macroeconomic conditions, including consumer behavior and liabilities for carve-out purposes but will not be included in the Company’s balance sheet after the Separation.

Certain revenues and costs presented in the accompanying combined statementsimpact of income will not continue after the Separation.  For example, VF retained management of the U.S. pension plan at the time of Separation and a replacement plan was not established by the Company; thus, the statements of income after the Separation will only include pension costs related to international plans. Also, certain sales to VF will not continue after the Separation.

Additionally, costs presented in the statements of income after the Separation may differ from costs reported for carve-out purposes.  For example, allocations of VF’s stock compensation costs will be replaced by the actual expense related to equity instruments held by Company employees, and allocations of corporate overhead expenses will be replaced by the actual costs

these factors on consumer demand.

21Kontoor Brands, Inc. Q1 FY19FY24 Form 10-Q24



to run a standalone public company.   Actual costs incurred after the Separation will depend on many factors, including the organizational structure, the duration and cost of transition service agreements, the information technology infrastructure, and the level of cost-optimization initiatives. 

Related party balances were settled prior to or at the time of the Separation, and the Company began to report transactions for functions previously managed by VF, such as derivatives, sale of accounts receivables, debt financing and cash management.

Business Overview

The Company is focusedWe continue to execute on growing our threeHorizon 2 multi-year strategic channels, with higher levelsvision, "Catalyzing Growth," which outlines four growth catalysts: (i) expansion of growth anticipated in our Non-U.S.core U.S. Wholesale business, (ii) category extensions such as outdoor, workwear and Branded Direct-to-Consumer channels, as we pursue a broader sett-shirts, (iii) geographic expansion of product, channel and geographic opportunities for theour Wrangler®and Lee® brands. Ourbrands, and (iv) channel expansion focused on the digital platforms in our U.S. Wholesale channel will continue to receive full focus and commitment.

As part of a centralized approachDirect-to-Consumer channels. We are focused on driving brand growth and delivering long-term value to our global business,stakeholders including our management team willconsumers, customers, shareholders, suppliers and communities around the world.
In addition, our capital allocation strategy allows us the option to (i) pay down debt, (ii) provide global oversight for their respective business functions, including supply chain, digital, direct-to-consumera superior dividend payout, (iii) effectively manage our share repurchase authorization and strategy, while seeking to ensure(iv) act on strategic investment opportunities that we maintain our worldwide presencemay arise.
During the first quarter of 2024, the Company incurred total restructuring and regional approach. Focusing on our near- to medium-term business strategy, we have incurred incremental costs in recent periodsother transformation charges of $8.4 million related to business optimization activities and actions to streamline and transfer select production within our internal manufacturing network. In late 2023, we launched the planning phase of Project Jeanius, a comprehensive end-to-end business model changes,transformation focused on simplifying the organization and creating significant investment capacity to accelerate growth and increase profitability. Certain of the restructuring programs and transformation costs associated withincurred during the Separation, whichfirst quarter of 2024 related to Project Jeanius, and we expect will resultanticipate additional costs in a reduction of future operating costs. These initiatives have included exiting unprofitable markets in select European and South American countries including transitioning our Central America and South America ("CASA") regionperiods as we execute on this multi-year initiative. Refer to a distributor model, streamlining and right sizing supply chain operations includingNote 14 to the closure of three owned manufacturing facilities in Mexico; streamlining our global organizational structure including a redesign of our commercial organization in the U.S. and Asia, and relocating the Lee®brand’s North American headquartersCompany's financial statements for additional information related to Greensboro, North Carolina. We will continue to implement various operational initiatives to address inefficiencies throughout our organization along with cost savings programs that we expect to generate meaningful benefits on a global basis.restructuring charges.


HIGHLIGHTS OF THE FIRST QUARTER OF FISCAL 20192024 SUMMARY

•
•Net revenuesdecreased 5% to $631.2 millionevenues decreased 3% to $648.3 million compared to the three months endedMarch 2018, primarily due to a3% unfavorable impact from foreign currency, as increases in the Wrangler segment were offset by declines in the Lee segment.
U.S. Wholesale revenues increased 1% compared to the three months ended March 2018,2023.
•U.S. Wholesale revenues decreased 6% compared to the three months ended March 2023, and represent 59%represented 71% of total revenues in the current period.
•
International revenues decreased 9% compared to the three months endedMarch 2018, primarily due to declines in the Non-U.S. Wholesale channel driven by a 9% unfavorable impact from foreign currency. International revenues represent 31% of total revenues in the current period.
•
Branded Direct-to-Consumer revenues decreased7%compared to the three months ended March 2018, primarily due to a6% unfavorable impact from foreign currency. The Branded Direct-to-Consumer channel represents10%of total revenues in the current period.
•
Gross margin decreased 480 basis points to 38% compared to the three months ended March 2018, primarily due to business model changes, restructuring programs and transaction costs associated with the Separation, which negatively impacted the current period by approximately 380 basis points. The remaining decrease in gross margin during the current period was primarily due to an increase in distressed sales and adverse product cost factors.
•
Net income decreased 81% to $15.4 million compared to$79.7 millionfor the three months endedMarch 2018primarily due to the initiatives discussed above.


•Non-U.S. Wholesale revenues decreased 8% compared to the three months ended March 2023, and represented 17% of total revenues in the current period.

•Direct-to-Consumer revenues remained flat compared to the three months ended March 2023, and represented 12% of total revenues in the current period.

•Gross margin increased 220 basis points to 45.2% compared to the three months ended March 2023.

•Selling, general and administrative expenses as a percentage of net revenues increased to 31.8% compared to 28.7% for the three months ended March 2023.
•Net income decreased 10%to $59.5 million compared to the three months ended March 2023.
•Diluted earnings per share was $1.05 in the first quarter, compared to $1.16 in the same period last year.


25Kontoor Brands, Inc. Q1 FY19FY24 Form 10-Q22



ANALYSIS OF RESULTS OF OPERATIONS
CombinedConsolidated Statements of IncomeOperations
The following table presents components of the Company's statements of operations:

 Three Months Ended March
(Dollars in thousands)20242023
Net revenues$631,202 $667,123 
Gross margin (net revenues less cost of goods sold)$285,144 $286,701 
As a percentage of net revenues45.2 %43.0 %
Selling, general and administrative expenses$200,714 $191,752 
As a percentage of net revenues31.8 %28.7 %
Operating income$84,430 $94,949 
As a percentage of net revenues13.4 %14.2 %

TheAdditionally, the following table presents a summary of the changes in net revenues for the three months ended March 20192024 as compared to March 2023:
(In millions)Three Months Ended March
Net revenues — 2023$667.1 
Operations(37.9)
Impact of foreign currency1.9 
Net revenues — 2024$631.2 
Three Months Ended March 2024 Compared to the three months endedThree Months Ended March 2018:2023

(in millions)Three Months Ended March
Net revenues — 2018$669.7
Operations(2.8)
Impact of foreign currency(18.6)
Net revenues — 2019$648.3


Netrevenues decreased 5%, driven by a 6% decrease in U.S. Wholesale revenues primarily attributable to retailer inventory management actions and a decrease in revenue from seasonal product. Non-U.S. Wholesale revenues decreased 3% for the three months ended March 2019 as compared to the 2018 period,8%, primarily due todriven by a 3% unfavorabledecline in our EMEA wholesale business, partially offset by growth in our digital wholesale business and a 2% favorable impact from foreign currency, as increasescurrency. Global Direct-to-Consumer revenues remained flat with growth in the Wrangler segment weree-commerce sales offset by declines in the Lee segment.retail store sales.
Additional details on revenues are providedchanges in the section titled “information by reportable segment.”
The following table presents components of the combined statements of income as a percent of total revenues:
  Three Months Ended March
      
(in millions) 2019  2018
Gross margin (total net revenues less cost of goods sold) 38.1%  42.9%
Selling, general and administrative expenses 34.3%  29.1%
Operating income 3.9%  13.8%

Gross margin for the three months ended March 2019 decreased approximately 480 basis points compared to the 2018 period. The three months ended March 2019 includes business model changes, restructuring programs and transaction costs associated with the Separation, which negatively impacted the current period by approximately 380 basis points. The remaining decrease in gross margin during the current period was primarily due to an increase in distressed sales and adverse product cost factors.
Selling, general and administrative expenses as a percentage of totalnet revenues for the three months ended March 2019 increased approximately 520 basis points compared to the 2018 period. The three months ended March 2019 includes business model changes, restructuring programs and transaction costs associated with the Separation, which negatively impacted the current period by approximately 310 basis points. The remaining increase in the current period was primarily driven by higher bonus expense and advertising costs2024 as compared to March 2023 are provided in the section titled “Information by Business Segment.”
Gross margin increased 220 basis points, primarily related to 410 basis points from lower product costs and favorable channel mix. This increase was partially offset by 100 basis points from pricing adjustments and product mix and 50 basis points due to restructuring and other transformation charges in the first quarter of 2024.
Selling, general and administrative expenses as a percentage of net revenues increased to 31.8% compared to 28.7% in the prior period.period, driven by $5.4 million of restructuring and other transformation charges in the first quarter of 2024, a $2.3 million increase in investments in our direct-to-consumer business and information technology and a $1.7 million increase in demand creation costs. These increases were partially offset by a $1.8 million decrease in distribution and freight costs.
The effective income tax rate for the three months ended March 20192024 was 44.7%20.3% compared to 15.0%20.0% in the 20182023 period. The three months ended March 2019 included a net discrete tax expense of $1.2 million, primarily comprised of $2.8 million of net tax expense related to unrecognized tax benefits2024 and interest,$2.2 million of tax benefit related to stock compensation, and $0.2 million of tax expense related to adjustments of previously recorded amounts based on final regulations for the transition tax. The $1.2 million net discrete tax expense in the three months ended March 2019 increased the effective income tax rate by 4.4%. The effective tax rate for the three months ended March 20182023 included a net discrete tax benefit of $6.3 million, which included $5.5 million of net tax benefitsprimarily related to the realization of previously unrecognized tax benefits and interest and $0.8 million of tax benefit related to stock compensation. The $6.3 million net discrete tax benefit in the 2018 periodstock-based compensation which decreased the effective income tax rate by 6.7%. Without1.0% and 0.2%, respectively. The effective tax rate without discrete items the effective income tax rate for the three months ended March 2019 increased by 18.6%2024 was 21.3% compared withto 20.2% in the 2018 period2023 period. The increase was primarily due to losses incurredchanges in the current period for certain CASA jurisdictions for which no related tax benefit was recognized.our jurisdictional mix of earnings.

Information by Reportable Segment

Management at each of the brands has direct control over and responsibility for its revenues and operating income, hereinafter termed "segment revenues" and "segment profits," respectively. Our management evaluates operating performance and makes investment and other decisions based on segment revenues and segment profit. Common costs for certain centralized functions provided and administered by VF, such as information technology, human resources, accounting shared services, supply chain, insurance, and the


23Kontoor Brands, Inc. Q1 FY19FY24 Form 10-Q26



Information by Business Segment
service cost component of net periodic pension benefitThe Company's two reportable segments are allocatedWrangler® and Lee®.Refer to Note 3 to the segments based on appropriate metrics such as usage or proportion of revenues.

Company's financial statements for additional information.
The following tables present a summary of the changes in segment revenues and segment profit for the three months ended March 20192024 as compared to the 2018 period:three months ended March 2023:
Segment Revenues:
 Three Months Ended March
(in millions)Wrangler Lee Other Total
Segment revenues — 2018$365.0
 $262.0
 $42.7
 $669.7
Operations14.1
 (11.1) (5.8) (2.8)
Impact of foreign currency(9.2) (9.4) —
 (18.6)
Segment revenues — 2019$369.9
 $241.5
 $36.9
 $648.3

Three Months Ended March
(In millions)WranglerLeeTotal
Segment revenues — 2023$423.1 $240.6 $663.8 
Operations(15.2)(21.5)(36.8)
Impact of foreign currency1.6 0.3 1.9 
Segment revenues — 2024$409.5 $219.4 $628.9 
Segment Profit:
 Three Months Ended March
(in millions)Wrangler Lee Other Total
Segment profit — 2018$62.9
 $36.0
 $(1.7) $97.2
Operations(50.3) (18.7) (1.4) (70.4)
Impact of foreign currency11.1
 0.3
 —
 11.4
Segment profit — 2019$23.7
 $17.6
 $(3.1) $38.2
Three Months Ended March
(In millions)WranglerLeeTotal
Segment profit — 2023$71.1 $39.6 $110.7 
Operations3.1 (4.5)(1.4)
Impact of foreign currency0.5 — 0.5 
Segment profit — 2024$74.7 $35.1 $109.8 
The following sections discuss the changes in segment revenuerevenues and segment profit.
Wrangler
Three Months Ended March
(Dollars in millions)20242023Percent Change
Segment revenues$409.5 $423.1 (3.2)%
Segment profit$74.7 $71.1 5.0 %
Operating margin18.2 %16.8 %
 Three Months Ended March
        
(Dollars in millions) 2019  2018 Percent Change
Segment revenues $369.9
  $365.0
 1.4 %
Segment profit $23.7
  $62.9
 (62.4)%
Operating margin 6.4%  17.2% 

Three Months Ended March 2024 Compared to the Three Months Ended March 2023
Global revenues for the Wrangler® brand increased 1% fordecreased 3%, due to declines in the three months ended March 2019 as compared to the 2018 period, as growth in U.S. wholesale revenues wasWholesale and Non-U.S. Wholesale channels, partially offset by declines in non-U.S. wholesale and branded direct-to-consumer revenues.
Revenuesgrowth in the Americas region increased 4% for the three months ended March 2019 as compared to the 2018 period, primarily due to increases in U.S. wholesale revenues resulting from a shift in the timing of sales to a key customer along with growth in key western accounts. This increase is partially offset by declines in non-U.S. Americas wholesale revenues, which decreased 14% for the three months ended March 2019 as compared to the 2018 period, primarily due to a 20% unfavorable impact from foreign currency driven by the highly inflationary economy in Argentina, partially offset by strong growth in Mexico wholesale revenues driven by an increase in seasonal sales to key accounts. Revenues in the Asia-Pacific ("APAC") region decreased 9% for the three months ended March 2019 as compared to the 2018 period due to a 9% unfavorable impact from foreign currency. Revenues in the Europe, Middle East and Africa ("EMEA") region decreased 10% for the three months ended March 2019 as compared to the 2018 period, primarily due to an 8% unfavorable impact from foreign currency along with declines in wholesale and branded direct-to-consumer revenues despite a shift of spring/summer deliveries to the current period.

Operating margin decreased to 6.4% for the three months ended March 2019 as compared to 17.2% for the 2018 period, primarily due to higher restructuring charges and bonus expense in the current period.


Direct-to-Consumer channel.
27• Kontoor Brands, Inc. Q1 FY19 Form 10-Q

Lee
 Three Months Ended March
        
(Dollars in millions) 2019  2018 Percent Change
Segment revenues $241.5
  $262.0
 (7.8)%
Segment profit $17.6
  $36.0
 (51.0)%
Operating margin 7.3%  13.7% 


Global revenues for the Lee® brand decreased 8% for the three months ended March 2019 as compared to the 2018 period, driven by declines across all channels.

Revenues in the Americas region decreased 7% for the three months ended March 2019 as compared to the 2018 period,2%, primarily due to declinesa decline in U.S. wholesale revenues. Thethe U.S. wholesale channel revenues were negatively impacted, in part,driven by the bankruptcy of a key retail partner along with declining sales of our Lee® Riders® brand. Revenues in the non-U.S.retailer inventory management actions. Non-U.S. Americas region were flat for the three months ended March 2019 as compared to the 2018 period, as growth in wholesale revenues decreased 9%, driven by lower sales in Mexico wasCanada, partially offset by an 8% unfavorablea 3% favorable impact from foreign currency related primarily to the highly inflationary economy in Argentina. currency.
•Revenues in the APAC region decreased 1% for the three months ended March 2019 compared to the 2018 period, primarily due to8%, driven by a 6% unfavorable impact from foreign currency offset by increasesdecrease in wholesale revenues as the prior year period included elevated levels of product returns resulting from a strategic transition within a key market. our licensing business.
•Revenues in the EMEA region decreased 17%11%, resulting from a decline in our wholesale business, partially offset by growth in our direct-to-consumer business and a 3% favorable impact from foreign currency.
Operating margin increased to 18.2%, compared to 16.8% for the three months ended2023 period, driven by lower product costs, favorable channel mix and decreases in distribution and freight costs. These improvements were partially offset by restructuring and other transformation charges, increases in investments in our direct-to-consumer business and information technology and higher demand creation costs.

Kontoor Brands, Inc. Q1 FY24 Form 10-Q 24


Lee
Three Months Ended March
(Dollars in millions)20242023Percent Change
Segment revenues$219.4 $240.6 (8.8)%
Segment profit$35.1 $39.6 (11.3)%
Operating margin16.0 %16.4 %
Three Months Ended March 2019 as compared2024 Compared to the 2018 period, primarilyThree Months Ended March 2023
Global revenues for the Lee® brand decreased 9%, due to an 8%declines in all channels.
•Revenues in the Americas region decreased 10%, driven by a 12% decrease in the U.S. wholesale channel due to retailer inventory management actions and a decrease in revenue from seasonal product, partially offset by growth in our digital wholesale business.
•Revenues in the APAC region decreased 7%, primarily resulting from a decrease in our direct-to-consumer business due to lower retail store sales in China, a decrease in wholesale revenue and a 4% unfavorable impact from foreign currency during 2019,currency.
•Revenues in the bankruptcy ofEMEA region decreased 6%, attributable to a key retail partner,decrease in our wholesale business, partially offset by growth in our digital wholesale business and declines in wholesale and branded direct-to-consumer revenues despite a shift of spring/summer deliveries to the current period.2% favorable impact from foreign currency.

Operating margin decreased to 7.3%16.0%, compared to 16.4% for the three months ended March 2019 as compared to 13.7% for the 20182023 period, primarily dueattributable to higher restructuring chargesunfavorable product mix, pricing adjustments and bonus expenseincreases in the current period along with expense deleverage oninvestments in our direct-to-consumer business. These decreases were partially offset by lower revenues.product costs.

Other
In addition, we report an "Other" category for purposes of a reconciliation ofto reconcile segment revenues and segment profit to combinedthe Company's operating results, but the Other category isdoes not meet the criteria to be considered a reportable segment. Other includes sales and licensing of Rock & Republic®, other company-owned brands and private label apparel.
Three Months Ended March
(Dollars in millions)20242023Percent Change
Other revenues$2.3 $3.3 (31.9)%
(Loss) profit related to other revenues$(0.2)$0.1 (243.0)%
Operating margin(6.8)%3.2 %

Other
 Three Months Ended March
        
(Dollars in millions) 2019  2018 Percent Change
Revenues $36.9
  $42.7
 (13.7)%
Loss $(3.1)  $(1.7) (76.4)%
Operating margin (8.4)%  (4.1)% 


Other revenues decreased 14% for the three months ended March 2019 as compared to the 2018 period, primarily due to a 15% decline in VF Outlet™25 store revenues as a result of a decrease in comparable store sales along with decreased store counts and square footage as compared to 2018.

Total sales to VF included in other revenues are $10.6 million and $13.5 million for the three months ended March 2019 and 2018, respectively.


Kontoor Brands, Inc. Q1 FY19FY24 Form 10-Q28


Reconciliation of Segment Profit to Income Before Income Taxes

For purposes of preparing these combined financial statements on a "carve-out" basis, the Company has been allocated a portion of VF's total corporate expenses. These additional allocationsThe costs below are reported as corporate and other expenses in the table below. Refer to Note 1 of the combined financial statements for additional information on the Company's methodology for allocating these costs.

There are three types of costs necessary to reconcile total reportable segment profit to combined income before taxes. These costs are corporate and other expenses, related party interest income, net and other interest income, net. These costs are excluded from segment profit as they are managed centrally and are not under control of brand management.
 Three Months Ended March
        
(Dollars in millions) 2019  2018 Percent Change
Corporate and other expenses $14.0
  $6.0
 134.1%
Related party interest income, net 2.3
  1.7
 41.7%
Other interest income, net $1.3
  $0.9
 44.5%

Corporate and other expenses, increased 134% forincluding certain restructuring and other transformation costs, and interest income and expense are not controlled by segment management and therefore are excluded from the three months endedmeasurement of segment profit.
Three Months Ended March
(Dollars in millions)20242023Percent Change
Total reportable segment profit$109.8 $110.7 (0.8)%
Corporate and other expenses(28.1)(18.1)55.3 %
Interest expense(9.3)(10.3)(9.5)%
Interest income2.4 0.4 478.8 %
(Loss) profit related to other revenues(0.2)0.1 (243.0)%
Income before income taxes$74.7 $82.9 (9.9)%
Three Months Ended March 2019 as compared2024 Compared to the 2018 period,Three Months Ended March 2023
Corporate and other expenses increased $10.0 million, primarily due to an increase in general corporate allocations, driven by higher bonuscompensation-related expense and restructuring and other transformation charges in the current period along with $3.0first quarter of 2024.
Interest expense decreased $1.0 million of incremental costs attributabledue to lower average debt outstanding during the three months ended March 2024 compared to the Separation.


three months ended March 2023.
29 Kontoor Brands, Inc. Q1 FY19 Form 10-Q

ANALYSIS OF FINANCIAL CONDITION
Liquidity and Capital Resources
Historically, we have generated strong annual cash flows from operating activities. However, we have operated within VF's cash management structure, which uses a centralized approach to cash management and financing of our operations. A substantial portion of theThe Company's cash was transferred to VF, which is not reflective of the manner in which we would have been able to finance our operations had we been an independent, publicly traded company during the periods presented herein.

The cash and equivalents held by VF at the corporate level are not specifically identifiable to the Company and therefore have not been reflected within our combined balance sheets. VF's third-party long-term debt and the related interest expense have not been allocated to the Company for any of the periods presented herein as we were not the legal obligor of the respective debt obligations. Following the Separation, our capital structure and sources of liquidity will no longer be part of VF's capital structure as we will be a standalone public company and will no longer participate in VF's centralized cash management program.

Our ability to fund our operating needs will beis dependent upon our future ability to continue to generate positive long-term cash flow from operations and obtainmaintain our debt financing on acceptable terms. Based upon our history of generatingThe Company has historically generated strong positive cash flows from operations weand continues to take proactive measures to manage working capital. We believe that wecash flows from operations will be able to support our short-term liquidity needs. We believe that we will be able to sufficiently fund known and reasonably likelyneeds as well as any future liquidity and capital requirements, through thein combination of cash flows from operations,with available cash balances and borrowing capacity from our revolving credit facility.
The Company is party to a senior secured Credit Agreement, as amended and restated on November 18, 2021 (the “Credit Agreement”), which provides for (i) a five-year $400.0 million term loan A facility (“Term Loan A”) and (ii) a five-year $500.0 million revolving credit facility (the “Revolving Credit Facility”), collectively referred to as “Credit Facilities,” with the lenders and agents party thereto. Term Loan A requires quarterly repayments of $5.0 million through September 2026, and the remaining principal of $335.0 million is due at maturity in November 2026. Additionally, the Company has outstanding $400.0 million of unsecured 4.125% senior notes due 2029. Refer to Note 11 in the Company's 2023 Annual Report on Form 10-K and Note 7 to the Company's financial statements in this Form 10-Q for additional information regarding the Company’s debt obligations.
As of March 2024, the Company was in compliance with all applicable covenants under the Credit Agreement and expects to maintain compliance with the applicable covenants for at least one year from the issuance of third-party debt. Inthese financial statements. If economic conditions significantly deteriorate for a prolonged period, this could impact the event thatCompany’s operating results and cash flows and thus our ability to maintain compliance with the aforementionedapplicable covenants. As a result, the Company could be required to seek new amendments to the Credit Agreement or secure other sources of liquidity, need to be augmented, additional cash requirements would likely be financed throughsuch as refinancing of existing borrowings, the issuance of debt or equity securities; however,securities, or sales of assets. However, there can be no assurancesassurance that we willthe Company would be able to obtain such additional debt or equity financing on acceptablecommercially reasonable terms if required,or at all.
The Revolving Credit Facility may be used to borrow funds in future periods.both U.S. dollar and certain non-U.S. dollar currencies, and has a maximum borrowing capacity of $500.0 million with a $75.0 million letter of credit sublimit. There were no outstanding borrowings under the Revolving Credit Facility as of March 2024.

We anticipate utilizing cash flows from operations to support continued investments in our brands, talentKontoor Brands, Inc. Q1 FY24 Form 10-Q 26


The following table presents outstanding borrowings and capabilities, growth strategies, dividend payments to shareholders,available borrowing capacity under the Revolving Credit Facility and repayment of our debt obligations over time. Management believes that our cash and cash equivalents balances and funds provided by operating activities, along with expectedas of March 2024:
(In millions)March 2024
Outstanding borrowings under the Revolving Credit Facility$— 
Available borrowing capacity under the Revolving Credit Facility (1)
$493.3 
Cash and cash equivalents$215.1 
(1) Available borrowing capacity under the Revolving Credit Facility is net of $6.7 million of outstanding standby letters of credit issued on behalf of the Company under this facility.
At March 2024, the Company had $23.9 million of international lines of credit with various banks, which are uncommitted and access to capital markets, taken as a whole, provide (i) adequate liquidity to meet allmay be terminated at any time by either the Company or the banks. There were no outstanding balances under these arrangements at March 2024.
During the three months ended March 2024, the Company repurchased 0.3 million shares of our current and long-term obligations when due,Common Stock for $20.0 million, including third-party debt incurredcommissions, under its $300.0 million share repurchase program authorized by the Company's Board of Directors. All shares reacquired in connection with the Separation, (ii) adequate liquidityrepurchase program are treated as authorized and unissued shares upon repurchase. As of March 2024, $280.0 million remained available for repurchase under the program.
During the three months ended March 2024, the Company paid $27.8 million of dividends to fund capital expenditures and plannedits shareholders. On April 18, 2024, the Board of Directors declared a regular quarterly cash dividend payouts, and (iii) flexibilityof $0.50 per share of the Company's Common Stock. The cash dividend will be payable on June 20, 2024, to meet investments opportunities that may arise.

On May 17, 2019, we borrowed $1.05 billionshareholders of newly structured third-party debt, which we utilized primarily to finance a cash transfer to a memberrecord at the close of VF's group in connection with the Separation. This debt obligation may restrict our business strategies and may adversely impact our financial condition, results of operations or cash flows. Additionally, our separation from VF may increase our overall cost of debt funding and decrease the overall debt capacity and commercial credit available to the Company.

on June 10, 2024.
The Company intends to continue to pay cash dividends in future periods. The declaration and amount of any future dividends will be determined and subject to authorization by our Board of Directors and will be dependent upon multiple factors including our financial condition, earnings, cash flows, capital requirements, covenants associated with our debt obligations, legal requirements, regulatory constraints, industry practice and any other factors or considerations that our Board of Directors deems relevant.

OurWe anticipate that we will have sufficient cash flows werefrom operations, along with existing borrowing capacity, to support continued investments in our brands, infrastructure, talent and capabilities, dividend payments to shareholders, repayment of our current and long-term debt obligations when due and repurchases of Common Stock. In addition, we would use current liquidity as follows:well as access to capital markets to fund any strategic investment opportunities that may arise.
We currently expect capital expenditures to be approximately $40.0 million in 2024, primarily to support manufacturing, distribution, facility improvement, information technology, and owned retail store investments.

Three Months Ended March
      
(in millions) 2019 
2018
Cash provided (used) by operating activities $206.5
 
$(114.4)
Cash (used) provided by investing activities (5.3) 
0.9
Cash (used) provided by financing activities (195.6) 
117.3
The following table presents our cash flows during the periods:

Three Months Ended March
(In millions)20242023
Cash provided (used) by:
Operating activities$56.5 $(12.6)
Investing activities$(6.4)$(11.8)
Financing activities$(54.6)$17.0 
Cash Provided (Used) by Operating Activities

Cash flow provided by operating activities is dependent on the level of net income, adjustments to net income and changes in working capital.

Cash provided by operating activities increased $320.9 million forDuring the three months ended March 20192024, cash provided by operating activities was $56.5 million as compared to cash used by operating activities of $12.6 million in the prior year period. The increase was primarily due to favorable changes in inventory and accounts payable, partially offset by unfavorable changes in accounts receivable compared to the prior year period.
Investing Activities
During the three months ended March 2024, cash used by investing activities decreased $5.4 million as compared to the 2018prior year period, primarily due to a reductiondecrease in amounts due from related parties as a result of timing of settlement primarily related tocapitalized computer software expenditures in the Company's sale of accounts receivable arrangement.current year period.





Kontoor Brands, Inc. Q1 FY19 Form 10-Q 30


Cash (Used) Provided by InvestingFinancing Activities

Cash used by investing activities increased $6.2 million forDuring the three months ended March 2019 as compared to the 2018 period.
The Company had related party notes receivable, with VF as the counterparty, of $517.9 million at March 2019 and $546.7 million at March 2018. The notes outstanding at March 2019 were scheduled to mature during fiscal 2019, and were transferred to and retained by VF at the time of the Separation.

Cash (Used) Provided By Financing Activities

Cash2024, cash used by financing activities increased $312.9was $54.6 million as compared to cash provided by financing activities of $17.0 million in the prior year period. The change was primarily due to $50.0 million of net borrowings under the Revolving Credit Facility during the three months ended March 2019 primarily due to net transfers to parent.

The Company had related party notes payable, with VF as the counterparty, of $241.9 million2023 and $269.1 million at March 2019 and 2018, respectively. The notes outstanding at March 2019 were scheduled to mature during fiscal 2019, and were transferred to and retained by VF at the time of the Separation.

We have $36.1$20.0 million of international lines of credit with various banks, which are uncommitted and may be terminated at any timeCommon Stock repurchases made by either us or the banks. Total outstanding balances under these arrangements were $8.4 million at March 2019 and $12.1 million at March 2018. Borrowings under these arrangements include letters of credit which are non-interest bearing to the Company of $6.0 million atduring the three months ended March 20192024.

27 Kontoor Brands, Inc. Q1 FY24 Form 10-Q

Contractual Obligations and $8.6 million at March 2018.

Other Commercial Commitments
The section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations - Contractual Obligations" included in the Company's Registration Statement2023 Annual Report on Form 10, as amended and filed with the Securities and Exchange Commission ("SEC") on April 30, 2019 ("2018 Form 10")10-K provided a table summarizingsummary of our contractual obligations and commercial commitments at the end of 20182023 that would require the use of funds. As of March 2019,2024, there have been no material changes in the amounts disclosed in the 20182023 Annual Report on Form 10.

10-K.
Critical Accounting Policies and Estimates

We have chosen accounting policies that management believes are appropriate to accurately and fairly report our operating results and financial position in conformity with GAAP. We apply these accounting policies in a consistent manner. Significant accounting policies are summarized in Note 1 to the combinedconsolidated financial statements included in the 20182023 Annual Report on Form 10.10-K.

The application of these accounting policies requirerequires that we make estimates and assumptions about future events and apply judgments that affect the reported amounts of assets, liabilities, net revenues, expenses, contingent assets and liabilities and related disclosures. These estimates, assumptions and judgments are based on historical experience, current trends and other factors believed to be reasonable under the circumstances. Management evaluates these estimates and assumptions on an ongoing basis. Because our business cycle is relatively short (i.e., from the date that inventory is received until that inventory is sold and the trade accounts receivable is collected), actual results related to most estimates are known within a few months after any balance sheet date. In addition,Several of the estimates and assumptions we may retainare required to make relate to future events and are therefore inherently uncertain, especially as it relates to events outside specialists to assist in impairment testing of goodwill and intangible assets.our control. If actual results ultimately differ from previous estimates, the revisions are included in results of operations when the actual amounts become known.

 Refer to Note 1 to the Company's financial statements in this Form 10-Q for considerations related to the macroeconomic environment and other recent developments.
The accounting policies that involve the most significant estimates, assumptions and management judgments used in preparation of the combined financial statements, or are the most sensitive to change from outside factors, are discussed in Management'swithin "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates" in the 20182023 Annual Report on Form 10. Except as disclosed in Note 2 to our combined financial statements in this Form 10-Q, pertaining to adoption of new accounting pronouncements, there10-K. There have been no material changes in these polices.

policies disclosed in the 2023 Annual Report on Form 10-K.
Recently Issued and Adopted Accounting Standards

Refer to Note 21 to our combinedthe Company's financial statements in this Form 10-Q for additional information regarding recently issued and adopted accounting standards.
Cautionary Statement on Forward-looking Statements

From time to time, the Company may make oral or written statements, including statements in this quarterly report, that constitute “forward-looking statements” within the meaning of the federal securities laws. These include statements concerning plans, objectives, projections and expectations relating to the Company’s operations or economic performance and assumptions related thereto. Forward-looking statements are made based on management’s expectations and beliefs concerning future events impacting the Company and therefore


31 Kontoor Brands, Inc. Q1 FY19 Form 10-Q

involve a number of risks and uncertainties. Forward-looking statements are not guarantees, and actual results could differ materially from those expressed or implied in the forward-looking statements.

 In addition, the forward-looking statements in this report are made as of the date of this filing, and the Company does not undertake, and expressly disclaims any duty, to update such statements, whether as a result of new information, new developments, or otherwise, except to the extent that disclosure may be required by law.
Potential risks and uncertainties that could cause the actual results of operations or financial condition of the Company to differ materially from those expressed or implied by forward-looking statements in this releasereport include, but are not limited to: risks associated with the Company's spin-off from VF Corporation,macroeconomic conditions, including the risk of disruption to our business in connection with the spin-offinflation, elevated interest rates, recessionary concerns and that the Company could lose revenue as a result of such disruption; the risk that the Company does not realize all of the expected benefits of the spin-off; the risk that the spin-off will not be tax-free for U.S. federal income tax purposes; and the risk that there will be a loss of synergies from separating the businesses that could negatively impact the balance sheet, profit margins or earnings of the Company.  Other risks for Company includefluctuating foreign currency fluctuations;exchange rates, as well as continuing global supply chain issues and geopolitical events, continue to adversely impact global economic conditions and have had, and may continue to have, a negative impact on the Company’s business, results of operations, financial condition and cash flows (including future uncertain impacts); the level of consumer demand for apparel; disruption to distribution systems; reliance on a small number of large customers; supply chain and shipping disruptions, which could continue to result in shipping delays, an increase in transportation costs and increased product costs or lost sales; intense industry competition; the ability to accurately forecast demand for products; the Company’s ability to gauge consumer preferences and product trends, and to respond to constantly changing markets; the Company’s ability to maintain the images of its brands; increasing pressure on margins; e-commerce operations through the Company’s direct-to-consumer business; the financial strengthdifficulty experienced by the retail industry; possible goodwill and other asset impairment; the ability to implement the Company’s business strategy; the stability of customers;manufacturing facilities and foreign suppliers; fluctuations in wage rates and the price, availability and quality of raw materials and contracted products; disruptionthe reliance on a limited number of suppliers for raw material sourcing and volatility in the global capital and credit markets; response to changing fashion trends, evolving consumer preferences and changing patterns of consumer behavior, intense competition from online retailers, and manufacturing and product innovation; increasing pressure on margins; ability to implement its business strategy; abilityobtain raw materials on a timely basis or in sufficient quantity or quality; disruption to grow its international and direct-to-consumer businesses;distribution systems; seasonality; unseasonal or severe weather conditions; the companyCompany's and its vendors’ ability to maintain the strength and security of information technology systems; the risk that facilities and systems and those of third-party service providers may be vulnerable to and unable to anticipate or detect data security breaches and data or financial loss; ability to properly collect, use, manage and secure consumer and employee data; stability of manufacturing facilitiesforeign currency fluctuations; disruption and foreign suppliers; continued use by suppliers of ethical business practices;volatility in the global capital and credit markets and its impact on the Company's ability to accurately forecast demandobtain short-term or long-term financing on favorable terms; legal, regulatory, political and economic risks; changes to trade policy, including tariff and import/export regulations;

Kontoor Brands, Inc. Q1 FY24 Form 10-Q 28


the impact of climate change and related legislative and regulatory responses; compliance with anti-bribery, anti-corruption and anti-money laundering laws by the Company and third-party suppliers and manufacturers; changes in tax laws and liabilities; the costs of compliance with or the violation of national, state and local laws and regulations for products;environmental, consumer protection, employment, privacy, safety and other matters; continuity of members of management; labor relations; the ability to protect trademarks and other intellectual property rights; possible goodwillthe ability of the Company’s licensees to generate expected sales and other asset impairment; maintenance by licensees and distributors ofmaintain the value of the Company’s brands; the Company maintaining satisfactory credit ratings; restrictions on the Company’s business relating to its debt obligations; volatility in the price and trading volume of the Company’s common stock; anti-takeover provisions in the Company’s organizational documents; and fluctuations in the amount and frequency of our brands; ability to executeshare repurchases. Many of the foregoing risks and integrate acquisitions; changes in tax laws and liabilities; legal, regulatory, politicaluncertainties will be exacerbated by any worsening of the global business and economic risks; the risk of economic uncertainty associated with the pending exit of the United Kingdom from the European Union ("Brexit") or any other similar referendums that may be held; and adverse or unexpected weather conditions. environment.
More information on potential factors that could affect the Company's financial results will be included from time to timeare described in our publicdetail in the Company’s 2023 Annual Report on Form 10-K and in other reports filedand statements that the Company files with the SEC, including the Company's 2018 Form 10.Securities and Exchange Commission ("SEC").

ITEM 3 —3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in the Company's market risk exposures set forth under Item 27A in the 2018our 2023 Annual Report on Form 10.10-K.

ITEM 4 —4. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive and principal financial officers, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13(a)-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act")). Based on such evaluation, our principal executive and principal financial officers concluded that our disclosure controls and procedures were effective and operating to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and to provide reasonable assurance that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.
(b) Internal Control Over Financial Reporting.There have been no changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) during the period to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. As of March 30, 2019, we utilized the criteria established in
Internal Control-Integrated Framework (2013)
29 issued by the Committee of Sponsoring Organizations of the Treadway Commission.


Kontoor Brands, Inc. Q1 FY19FY24 Form 10-Q32



PART II — OTHER INFORMATION
ITEM 1 —1. LEGAL PROCEEDINGS
The Company is involved in various claims and lawsuits arising in the normal course of business, none of which, in the opinion of management, is expected to have a material adverse effect on our results of operations or financial condition.

ITEM 1A —1A. RISK FACTORS

You should carefully considerCareful consideration of the risk factors set forth under Part I, Item 1A, “Risk Factors,” in the 2018of our 2023 Annual Report on Form 10.10-K should be made. There have been no material changes to the risk factors from those describeddisclosed in the 2018Part I, Item 1A of our 2023 Annual Report on Form 1010-K.
.
ITEM 2 —2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
First quarter fiscal 2024Total number of shares purchasedWeighted average price paid per share
Total number of shares purchased as part of publicly announced program (1)
Dollar value of shares that may yet be purchased under the program
December 31 - January 27— $— — $300,000,000 
January 28 - February 24— — — 300,000,000 
February 25 - March 30336,882 59.37 336,882 280,000,012 
Total336,882 $59.37 336,882 
(1) The following table sets forth repurchasesCompany has a share repurchase program which authorizes the repurchase of our common stock duringup to $300.0 million of the first quarterCompany's outstanding Common Stock through open market or privately negotiated transactions. The program does not have an expiration date but may be suspended, modified or terminated at any time without prior notice.

ITEM 5. OTHER INFORMATION
(c) During the three months ended March 2024, no director or Section 16 officer of fiscal 2019:the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408(a) of Regulation S-K.


Kontoor Brands, Inc. Q1 FY24 Form 10-Q 30


First Quarter 2019
Total
Number of
Shares
Purchased
Weighted
Average
Price Paid
per Share
Total Number of
Shares Purchased
as Part of Publicly
Announced Programs
Dollar Value
of Shares that May
Yet be Purchased
Under the Program
December 30, 2018 - January 26, 2019—
$—
—
$—
January 27, 2019 - February 23, 2019—
—
—
—
February 24, 2019 - March 30, 2019—
—
—
—
Total—
$—
—
ITEM 6. EXHIBITS

ITEM 6 — EXHIBITS
2.13.1
Separation and Distribution Agreement dated May 22, 2019 (incorporated by reference to Exhibit 2.1 to the Form 8-K of Kontoor Brands, Inc. filed with the Commission on May 23, 2019 (File No. 001-38854))

3.1*

Amended and Restated Articles of Incorporation of Kontoor Brands, Inc. effective, as of May 7, 2019

amended through April 18, 2024 (incorporated by reference to Exhibit 3.1 to the Company's Form 8-K filed with the SEC on April 19, 2024)
3.2*10.1

Amended and Restated Bylaws of Kontoor Brands, Inc. effective as of May 7, 2019
10.1
Tax MattersSeparation Agreement dated May 22, 2019entered into April 2, 2024 (incorporated by reference to Exhibit 10.1 to the Company's Form 8-K of Kontoor Brands, Inc. filed with the CommissionSEC on May 23, 2019 (File No. 001-38854)).April 5, 2024)
10.231.1
Transition Services Agreement dated May 22, 2019 (incorporated by reference to Exhibit 10.2 to the Form 8-K of Kontoor Brands, Inc. filed with the Commission on May 23, 2019 (File No. 001-38854))

10.3
VF Intellectual Property License Agreement dated May 17, 2019 (incorporated by reference to Exhibit 10.3 to the Form 8-K of Kontoor Brands, Inc. filed with the Commission on May 23, 2019 (File No. 001-38854))

10.4
Kontoor Intellectual Property License Agreement dated May 17, 2019 (incorporated by reference to Exhibit 10.4 to the Form 8-K of Kontoor Brands, Inc. filed with the Commission on May 23, 2019 (File No. 001-38854))

10.5
Employee Matters Agreement dated May 22, 2019 (incorporated by reference to Exhibit 10.5 to the Form 8-K of Kontoor Brands, Inc. filed with the Commission on May 23, 2019 (File No. 001-38854))

10.6
Credit Agreement dated May 17, 2019, among Kontoor Brands, Inc., Lee Wrangler International Sagl, the Borrowing Subsidiaries and the lenders and agents party thereto (incorporated by reference to Exhibit 10.6 to the Form 8-K of Kontoor Brands, Inc. filed with the Commission on May 23, 2019 (File No. 001-38854))



10.7
Change in Control Agreement by and between Scott H. Baxter and Kontoor Brands, Inc. dated May 23, 2019 (incorporated by reference to Exhibit 10.7 to the Form 8-K of Kontoor Brands, Inc. filed with the Commission on May 23, 2019 (File No. 001-38854))



33 Kontoor Brands, Inc. Q1 FY19 Form 10-Q

10.8
Change in Control Agreement by and between Rustin Welton and Kontoor Brands, Inc. dated May 23, 2019 (incorporated by reference to Exhibit 10.8 to the Form 8-K of Kontoor Brands, Inc. filed with the Commission on May 23, 2019 (File No. 001-38854))

10.9
Change in Control Agreement by and between Thomas E. Waldron and Kontoor Brands, Inc. dated May 23, 2019 (incorporated by reference to Exhibit 10.9 to the Form 8-K of Kontoor Brands, Inc. filed with the Commission on May 23, 2019 (File No. 001-38854))
10.10
Change in Control Agreement by and between Christopher Waldeck and Kontoor Brands, Inc. dated May 23, 2019 (incorporated by reference to Exhibit 10.10 to the Form 8-K of Kontoor Brands, Inc. filed with the Commission on May 23, 2019 (File No. 001-38854))

10.11
Change in Control Agreement by and between Laurel Krueger and Kontoor Brands, Inc. dated May 23, 2019 (incorporated by reference to Exhibit 10.11 to the Form 8-K of Kontoor Brands, Inc. filed with the Commission on May 23, 2019 (File No. 001-38854))

10.12
Kontoor Brands, Inc. 2019 Stock Compensation Plan (incorporated by reference to Exhibit 10.6 to the Registration Statement on Form 10 filed with the Commission on April 1, 2019 (File No. 001-38854))

10.13
Kontoor Brands Executive Deferred Savings Plan (incorporated by reference to Exhibit 10.13 to the Registration Statement on Form 10 filed with the Commission on April 1, 2019 (File No. 001-38854))

10.14
Kontoor Brands Executive Deferred Savings Plan II (incorporated by reference to Exhibit 10.14 to the Registration Statement on Form 10 filed with the Commission on April 1, 2019 (File No. 001-38854))

10.15
Kontoor Brands 401(k) Savings Plan (incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8 filed with the Commission on May 20, 2019 (File No. 333-231627))

10.16
Form of Stock Compensation Plan Non-Qualified Stock Option Certificate (incorporated by reference to Exhibit 10.7 to the Registration Statement on Form 10 filed with the Commission on April 1, 2019 (File No. 001-38854))

10.17
Form of Stock Compensation Plan Non-Qualified Stock Option Certificate for Non-Employee Directors (incorporated by reference to Exhibit 10.8 to the Registration Statement on Form 10 filed with the Commission on April 1, 2019 (File No. 001-38854))

10.18
Form of Award Certificate for Performance-Based Restricted Stock Units (incorporated by reference to Exhibit 10.9 to the Registration Statement on Form 10 filed with the Commission on April 1, 2019 (File No. 001-38854))

10.19
Form of Award Certificate for Restricted Stock Units for Non-Employee Directors (incorporated by reference to Exhibit 10.10 to the Registration Statement on Form 10 filed with the Commission on April 1, 2019 (File No. 001-38854))



10.20
Form of Award Certificate for Restricted Stock Units (incorporated by reference to Exhibit 10.11 to the Registration Statement on Form 10 filed with the Commission on April 1, 2019 (File No. 001-38854))

10.21
Form of Award Certificate for Restricted Stock (incorporated by reference to Exhibit 10.12 to the Registration Statement on Form 10 filed with the Commission on April 1, 2019 (File No. 001-38854))

10.22
Form of Management Incentive Compensation Plan (incorporated by reference to Exhibit 10.16 to the Registration Statement on Form 10 filed with the Commission on April 1, 2019 (File No. 001-38854))

10.23
Form of Deferred Savings Plan for Non-Employee Directors (incorporated by reference to Exhibit 10.17 to the Registration Statement on Form 10 filed with the Commission on April 1, 2019 (File No. 001-38854))

10.24
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.18 to the Registration Statement on Form 10 of Kontoor Brands, Inc. filed with the Commission on April 1, 2019 (File No. 001-38854))

10.25
Form of Mid-Term Incentive Plan, a subplan under the Stock Compensation Plan (incorporated by reference to Exhibit 10.19 to the Registration Statement on Form 10 filed with the Commission on April 1, 2019 (File No. 001-38854))

31.1*
Certification of Scott H. Baxter, Chairman, President, and Chief Executive Officer and Chair of the Board, pursuant to 15 U.S.C. Section 10A, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*
Certification of Rustin Welton,Joseph A. Alkire, Executive Vice President and Chief Financial Officer, pursuant to 15 U.S.C. Section 10A, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**
Certification of Scott H. Baxter, Chairman, President, and Chief Executive Officer and Chair of the Board, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**
Certification of Rustin Welton,Joseph A. Alkire, Executive Vice President and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


Kontoor Brands, Inc. Q1 FY19 Form 10-Q 34


101.INS
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
*Filed herewith.
**Furnished herewith.

Our SEC file number for documents filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended, is 001-38854.

3531 Kontoor Brands, Inc. Q1 FY19FY24 Form 10-Q

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
KONTOOR BRANDS, INC.
(Registrant)
Date: May 2, 2024By:/s/ Rustin WeltonJoseph A. Alkire
Rustin WeltonJoseph A. Alkire
Executive Vice President and Chief Financial Officer

(Principal Financial Officer)
Date: June 20, 2019
By:By:/s/ Denise Sumner
Denise Sumner
Vice President and Chief Accounting Officer

(Principal Accounting Officer)


Kontoor Brands, Inc. Q1 FY19FY24 Form 10-Q 3632