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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 27, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number: 001-38854
ktb-20200627_g1.jpg
KONTOOR BRANDS, INC.
(Exact name of registrant as specified in its charter)
North Carolina83-2680248
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification Number)

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

(336) 332-3400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common Stock, no par valueKTBNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.     Yes þ    No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes þ    No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes    No þ 
The number of shares of Common Stock of the registrant outstanding as of July 24, 2020 was 57,107,495.



KONTOOR BRANDS, INC.
Table of Contents
 Page
3

Kontoor Brands, Inc. Q2 FY20 Form 10-Q 2



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

KONTOOR BRANDS, INC.
Consolidated Balance Sheets
(Unaudited)
(In thousands)June 2020December 2019June 2019
ASSETS
Current assets
Cash and equivalents$256,276  $106,808  $76,687  
Accounts receivable, net 153,302  228,459  254,049  
Inventories432,925  458,101  538,168  
Prepaid expenses and other current assets77,374  84,235  79,397  
Total current assets919,877  877,603  948,301  
Property, plant and equipment, net124,939  132,192  131,727  
Operating lease assets76,780  86,582  90,416  
Intangible assets, net16,629  17,293  50,953  
Goodwill211,781  212,836  213,761  
Other assets222,762  190,650  153,044  
TOTAL ASSETS$1,572,768  $1,517,156  $1,588,202  
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings$310  $1,070  $2,829  
Current portion of long-term debt6,250    7,500  
Accounts payable108,745  147,347  159,214  
Accrued liabilities180,324  194,744  177,582  
Operating lease liabilities, current35,144  35,389  34,439  
Total current liabilities330,773  378,550  381,564  
Operating lease liabilities, noncurrent46,526  54,746  58,594  
Other liabilities109,895  101,334  86,189  
Long-term debt1,130,463  913,269  979,687  
Commitments and contingencies
Total liabilities1,617,657  1,447,899  1,506,034  
Equity
Preferred Stock, no par value; shares authorized, 90,000,000; no shares outstanding at June 2020, December 2019 and June 2019
      
Common Stock, no par value; shares authorized, 600,000,000; shares outstanding of 56,930,737 at June 2020; 56,811,198 at December 2019 and 56,647,561 outstanding at June 2019
      
Additional paid-in capital158,660  150,673  134,621  
(Accumulated deficit) retained earnings(72,251) (1,718) 21,235  
Accumulated other comprehensive loss(131,298) (79,698) (73,688) 
Total (deficit) equity
(44,889) 69,257  82,168  
TOTAL LIABILITIES AND EQUITY$1,572,768  $1,517,156  $1,588,202  

See accompanying notes to unaudited consolidated and combined financial statements.

3 Kontoor Brands, Inc. Q2 FY20 Form 10-Q


KONTOOR BRANDS, INC.
Consolidated and Combined Statements of Operations
(Unaudited)
Three Months Ended JuneSix Months Ended June
(In thousands, except per share amounts)2020201920202019
Net revenues $349,254  $609,746  $853,752  $1,258,090  
Costs and operating expenses
Cost of goods sold214,888  374,177  528,622  775,202  
Selling, general and administrative expenses156,161  182,049  347,089  404,173  
Total costs and operating expenses371,049  556,226  875,711  1,179,375  
Operating (loss) income(21,795) 53,520  (21,959) 78,715  
Interest income from former parent, net  1,423    3,762  
Interest expense(13,120) (7,638) (24,059) (7,736) 
Interest income556  1,408  972  2,831  
Other expense, net(509) (1,370) (959) (2,341) 
(Loss) income before income taxes(34,868) 47,343  (46,005) 75,231  
Income taxes(1,606) 9,357  (10,031) 21,832  
Net (loss) income$(33,262) $37,986  $(35,974) $53,399  
(Loss) earnings per common share
Basic$(0.58) $0.67  $(0.63) $0.94  
Diluted$(0.58) $0.67  $(0.63) $0.94  
Weighted average shares outstanding
Basic56,931  56,648  56,903  56,648  
Diluted56,931  56,920  56,903  56,779  

See accompanying notes to unaudited consolidated and combined financial statements.



Kontoor Brands, Inc. Q2 FY20 Form 10-Q 4



KONTOOR BRANDS, INC.
Consolidated and Combined Statements of Comprehensive (Loss) Income
(Unaudited)
 Three Months Ended JuneSix Months Ended June
(In thousands)2020201920202019
Net (loss) income$(33,262) $37,986  $(35,974) $53,399  
Other comprehensive (loss) income
Foreign currency translation
Gains (losses) arising during the period3,199  4,686  (24,011) 5,444  
Defined benefit pension plans
Net change in deferred (gains) losses during the period(17) (14) 12  (14) 
Derivative financial instruments
Losses arising during the period
(820) (2,058) (24,475) (2,058) 
Reclassification to net (loss) income for gains realized
(198) (362) (3,126) (362) 
Total other comprehensive (loss) income, net of related taxes2,164  2,252  (51,600) 3,010  
Comprehensive (loss) income $(31,098) $40,238  $(87,574) $56,409  

See accompanying notes to unaudited consolidated and combined financial statements.


5 Kontoor Brands, Inc. Q2 FY20 Form 10-Q


KONTOOR BRANDS, INC.
Consolidated and Combined Statements of Cash Flows
(Unaudited)
 Six Months Ended June
(In thousands)20202019
OPERATING ACTIVITIES
Net (loss) income$(35,974) $53,399  
Adjustments to reconcile net (loss) income to cash provided by operating activities:
Depreciation and amortization15,219  16,025  
Stock-based compensation7,160  11,473  
Provision for doubtful accounts18,012  2,985  
Other(18,346) (1,068) 
Changes in operating assets and liabilities:
Accounts receivable50,319  4,355  
Inventories20,510  (69,655) 
Due from former parent  548,301  
Accounts payable(37,988) 43,331  
Income taxes(1,810) 5,692  
Accrued liabilities(9,760) 230  
Due to former parent  (16,065) 
Other assets and liabilities(2,915) (18,852) 
Cash provided by operating activities4,427  580,151  
INVESTING ACTIVITIES
Capital expenditures(11,895) (9,300) 
Software purchases(25,605)   
Collection of notes receivable from former parent  517,940  
Other(1,673) 1,081  
Cash (used) provided by investing activities(39,173) 509,721  
FINANCING ACTIVITIES
Borrowings under revolving credit facility
512,500    
Repayments under revolving credit facility
(287,500)   
Proceeds from issuance of term loans  1,050,000  
Payment of deferred financing costs(4,346) (12,993) 
Repayments of term loans  (50,000) 
Repayment of notes payable to former parent  (269,112) 
Net transfers to former parent  (1,814,682) 
Dividends paid(31,877)   
Proceeds from issuance of Common Stock, net of shares withheld for taxes(1,854)   
Other(718) (14,169) 
Cash provided (used) by financing activities186,205  (1,110,956) 
Effect of foreign currency rate changes on cash and cash equivalents(1,991) 995  
Net change in cash and cash equivalents 149,468  (20,089) 
Cash and cash equivalents – beginning of period106,808  96,776  
Cash and cash equivalents – end of period$256,276  $76,687  

See accompanying notes to unaudited consolidated and combined financial statements.

Kontoor Brands, Inc. Q2 FY20 Form 10-Q 6



KONTOOR BRANDS, INC.
Consolidated and Combined Statements of (Deficit) Equity
(Unaudited)
Common StockAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal (Deficit) Equity
 (In thousands, except per share amounts)SharesAmounts
Balance, December 201956,812  $  $150,673  $(1,718) $(79,698) $69,257  
Net loss—  —  —  (2,712) —  (2,712) 
Stock-based compensation, net119  —  3,293  (2,682) —  611  
Foreign currency translation—  —  —  —  (27,210) (27,210) 
Defined benefit pension plans—  —  —  —  29  29  
Derivative financial instruments—  —  —  —  (26,583) (26,583) 
Dividends on Common Stock ($0.56 per share)
—  —  —  (31,877) —  (31,877) 
Balance, March 202056,931  $  $153,966  $(38,989) $(133,462) $(18,485) 
Net loss—  —  —  (33,262) —  (33,262) 
Stock-based compensation, net—  —  4,694  —  —  4,694  
Foreign currency translation—  —  —  —  3,199  3,199  
Defined benefit pension plans—  —  —  —  (17) (17) 
Derivative financial instruments—  —  —  —  (1,018) (1,018) 
Balance, June 202056,931  $  $158,660  $(72,251) $(131,298) $(44,889) 
Common StockAdditional Paid-in CapitalFormer Parent InvestmentRetained EarningsAccumulated Other Comprehensive LossTotal Equity
 (In thousands)SharesAmounts
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 former parent—  —  —  (157,928) —  —  (157,928) 
Balance, March 2019  $  $  $1,723,406  $  $(144,424) $1,578,982  
Net income—  —  —  16,751  21,235  —  37,986  
Stock-based compensation, net—  —  1,879  —  —  —  1,879  
Foreign currency translation—  —  —  —  —  4,686  4,686  
Defined benefit pension plans—  —  —  —  —  (14) (14) 
Derivative financial instruments—  —  —  —  —  (2,420) (2,420) 
Net transfers to former parent—  —  —  (1,607,415) —  68,484  (1,538,931) 
Transfer of former parent investment to additional paid-in capital—  —  132,742  (132,742) —  —    
Issuance of Common Stock56,648  —  —  —  —  —    
Balance,  June 201956,648  $  $134,621  $  $21,235  $(73,688) $82,168  

See accompanying notes to unaudited consolidated and combined financial statements.

7 Kontoor Brands, Inc. Q2 FY20 Form 10-Q


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

NOTE 1 — BASIS OF PRESENTATION
Description of Business
Kontoor Brands, Inc. ("Kontoor," the "Company," "we," "us" or "our") is a global lifestyle apparel company headquartered in the United States ("U.S."). The Company designs, produces, procures, markets and distributes apparel primarily under the brand names Wrangler® and Lee®. The Company's products are sold in the U.S. through mass merchants, specialty stores, mid-tier and traditional department stores, company-operated stores and online. The Company's products are also sold internationally, primarily in Europe and Asia, through department, specialty, company-operated, concession retail and independently 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.
Fiscal Year
The Company operates and reports using a 52/53 week fiscal year ending on the Saturday closest to December 31 of each year. Accordingly, this Form 10-Q presents the second quarter of the Company's fiscal year ending January 2, 2021 ("fiscal 2020"), which is a 53-week fiscal year. For presentation purposes herein, all references to periods ended June 2020, December 2019 and June 2019 correspond to the fiscal periods ended June 27, 2020, December 28, 2019 and June 29, 2019, respectively.
Spin-Off Transaction
On May 22, 2019, VF Corporation ("VF" or "former parent") completed the spin-off of its Jeanswear business (the "Separation"), which included the Wrangler®, Lee® and Rock & Republic® brands, as well as the VF Outlet™ business. Kontoor began to trade as a standalone public company (NYSE: KTB) on May 23, 2019. Accordingly, the Company’s financial statements for periods through the Separation date of May 22, 2019 were combined financial statements prepared on a "carve-out" basis as discussed below, and the Company’s financial statements for periods from May 23, 2019 were consolidated financial statements based on the reported results of Kontoor Brands, Inc. as a standalone company. The Company’s unaudited consolidated and combined financial statements for all periods presented are referred to throughout this document as “financial statements.”
Impact of COVID-19
During the first and second quarter of 2020, the novel coronavirus (“COVID-19”) pandemic significantly impacted global economic conditions, as well as the Company's operations. Given the uncertainties of COVID-19 and the associated potential impact on future results of operations and liquidity, the Company implemented strategic actions to reduce expenses and enhance liquidity. These actions included draws on the Revolving Credit Facility (as defined in Note 6 to the Company's financial statements), temporary suspension of the payment of a dividend, targeted reductions in operating expenses and capital expenditures, temporary reduction of fees for the Board of Directors, reduction of payroll costs through restructuring, furloughs and temporary salary reductions, and focused management of working capital, including reduction in finished goods received from owned manufacturing and sourced vendors.
Additionally, on May 5, 2020, the Company entered into an amendment to the Credit Agreement (as defined in Note 6 to the Company's financial statements) to provide relief for potential financial covenant compliance issues during future reporting periods. As of June 2020, the Company was in compliance with all applicable financial covenants and expects to maintain compliance with the applicable financial covenants for at least one year from the issuance of these financial statements. See Note 6 to the Company's financial statements for additional information.
The Company considered the impact of COVID-19 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, asset impairment charges, the effectiveness of the Company’s hedging instruments, and expected compliance with applicable financial covenants in our Credit Agreement. These assumptions and estimates may change as new events occur and additional information is obtained regarding the impact of COVID-19. Such future changes may have an adverse impact on the Company's results of operations, financial position and liquidity.
Basis of Presentation - Interim Financial Statements
The accompanying unaudited interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and do not include all of the information and notes required by generally accepted accounting principles in the U.S. ("GAAP") for complete financial statements. In the opinion of management, the accompanying financial statements contain all normal and recurring adjustments necessary to fairly state the financial position, results of operations and cash flows of the Company for the interim periods presented. The 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 a standalone company for all periods presented. Additionally, operating results for the three and six months ended June 2020 are not necessarily indicative of results that may be expected for any other interim period or for fiscal 2020. The unaudited financial statements should be read in conjunction with the audited consolidated and combined financial statements for the fiscal year ended

Kontoor Brands, Inc. Q2 FY20 Form 10-Q 8



KONTOOR BRANDS, INC.
Notes to Consolidated and Combined Financial Statements
(Unaudited)
December 28, 2019 included in the Company's 2019 Annual Report on Form 10-K, as filed with the Securities and Exchange Commission ("SEC") on March 11, 2020 ("2019 Annual Report on Form 10-K").
Basis of Presentation - Carve Out Accounting
Through the Separation date in 2019, the Company's combined financial statements were prepared on a carve-out basis under GAAP, which reflected the historical financial position, results of operations and cash flows of the Company as historically managed within VF. The unaudited combined financial statements were derived from the consolidated financial statements and accounting records of VF.
The combined statements of operations included costs for certain centralized functions and programs provided and administered by VF that were charged directly to the Company. These centralized functions and programs included, but were not limited to, information technology, human resources, accounting shared services, supply chain and insurance.
In addition, for purposes of preparing these combined financial statements on a carve-out basis, a portion of VF's total corporate expenses were allocated to the Company. These expense allocations included 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 pension. Allocations also included the cost of operating VF's corporate headquarters located in Greensboro, North Carolina.
Costs were 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 considered the basis on which the expenses were 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 been incurred if the Company had been a standalone company for the periods presented.
All intracompany transactions were eliminated. All transactions between the Company and VF were included in the combined financial statements. For those transactions between the Company and VF that were historically settled in cash, the Company reflected such balances in the balance sheet within "due from former parent" or "due to former parent." All amounts due to and from former parent were settled in connection with the Separation. The aggregate net effect of transactions between the Company and VF that were not historically settled in cash were reflected in the balance sheet within "former parent investment" and in the statements of cash flows within "net transfers to former parent." Subsequent to the Separation, the Company continued to service commercial arrangements with VF, which included sales of VF-branded products at VF Outlet™ stores, as well as sales to VF for products manufactured in our plants, use of our transportation fleet and fulfillment of a transition services agreement related to VF’s sale of its Nautica® brand business in mid-2018. None of these arrangements with VF have continued in 2020.
Income Taxes Prior to the Separation, the Company's operations were included in VF’s U.S. federal consolidated and certain state income tax returns and certain foreign tax returns. For periods prior to the Separation, the income tax expense and deferred tax balances presented in the financial statements were calculated on a carve-out basis, which applied accounting guidance as if the Company filed its own tax returns in each jurisdiction and included tax losses and tax credits that may not reflect tax positions taken by VF. Certain tax attributes reported by the Company on a carve-out basis were not transferred to the Company as part of the Separation. These attributes primarily related to losses in certain Central America and South America jurisdictions.
Reclassifications
Certain prior year amounts in the Company's financial statements and related disclosures have been reclassified to conform with the current year presentation.
Recently Adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-13, "Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” and has since issued additional updates to provide further clarification. This guidance requires use of the current expected credit loss ("CECL") model, thus replacing the existing incurred credit loss model. The CECL model requires an entity to recognize an allowance for credit losses at each reporting period that reflects the entity’s current estimate of credit losses expected to be incurred over the life of the financial instrument. The Company determined this guidance primarily applied to trade accounts receivable from customers and licensees, and adopted it on the first day of fiscal 2020 using the modified retrospective approach. There was no cumulative-effect adjustment to (accumulated deficit) retained earnings required upon adoption. See Note 4 to the Company's financial statements for additional disclosures on credit losses.
In August 2018, the FASB issued ASU 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement," which modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. This guidance was adopted by the Company during the first quarter of 2020 using a prospective approach and did not have a significant impact on the Company's financial statement disclosures.


9 Kontoor Brands, Inc. Q2 FY20 Form 10-Q


KONTOOR BRANDS, INC.
Notes to Consolidated and Combined Financial Statements
(Unaudited)
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," which modifies the disclosure requirements for employers who sponsor defined benefit pension or other postretirement plans. This guidance was adopted by the Company during the first quarter of 2020 using a prospective approach and did not have a significant impact on the Company's financial statement disclosures.
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," which 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 was adopted by the Company during the first quarter of 2020 using a prospective approach and did not have a significant impact on the Company's financial statements as the new guidance is generally consistent with the Company's historical accounting policies.
In April 2020, the FASB provided interpretive guidance that simplifies accounting for rent concessions, including rent deferrals, that are a direct consequence of COVID-19. In response to temporary store closures related to COVID-19, the Company is engaged in discussions with landlords regarding potential rent deferrals and other rent concessions. The Company has elected to not evaluate whether a COVID-19 related rent concession constitutes a lease modification and will continue to account for rent deferrals or other rent concessions as lease modifications in accordance with existing Accounting Standards Codification ("ASC") 842 guidance. Lease modifications resulting from COVID-19 did not have a significant impact on the Company's financial statements for the three and six months ended June 2020.
Recently Issued Accounting Standards
In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes," which amends and simplifies the accounting for income taxes by removing certain exceptions in existing guidance and providing new guidance to reduce complexity in certain areas. This guidance is effective for the Company beginning in the first quarter of 2021 with early adoption permitted. The Company is currently evaluating the impact that adoption of this guidance will have on its financial statements and related disclosures, which is not expected to be significant.
In March 2020, the FASB issued ASU 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which is intended to provide temporary optional expedients and exceptions for applying GAAP to contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates. This guidance was effective upon issuance and can be applied anytime from the issuance date through December 31, 2022. The impact of this guidance on the Company's financial statements and related disclosures will continue to be evaluated by the Company through the application period, and is not expected to be significant.

NOTE 2 — 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.
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 that do not require disclosure of 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 June 2020, 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 and six months ended June 2020, revenue recognized from performance obligations satisfied, or partially satisfied, in prior periods was not significant.
Contract Balances
Accounts receivable represent the Company's unconditional right to receive consideration from a customer and are recorded at net invoiced amounts, less estimated allowances.
The Company's primary contract assets relate to sales-based royalty arrangements and the Company's primary contract liabilities relate to gift cards, loyalty programs and sales-based royalty arrangements.

Kontoor Brands, Inc. Q2 FY20 Form 10-Q 10



KONTOOR BRANDS, INC.
Notes to Consolidated and Combined Financial Statements
(Unaudited)
The following table presents information about contract balances recorded in the Company's balance sheets:
(In thousands)June 2020December 2019June 2019
Accounts receivable, net$153,302  $228,459  $254,049  
Contract assets (a)
3,113  10,679  2,529  
Contract liabilities (b)
1,688  1,775  2,787  
(a) Included within "prepaid expenses and other current assets" in the Company's balance sheets.
(b) Included within "accrued liabilities" in the Company's balance sheets.
For the three and six months ended June 2020, the Company recognized revenue of $0.1 million and $1.2 million, respectively, that was included in contract liabilities as of December 2019. For the three and six months ended June 2019, the Company recognized revenue of $0.2 million and $1.5 million, respectively, that was included in contract liabilities as of December 2018. The changes in the contract asset and contract liability balances primarily result from timing differences between the Company's satisfaction of performance obligations and the customer's payment.
Most of the Company's licensing agreements include minimum guarantees for sales-based royalties. As of June 2020, the Company has contractual rights under its licensing agreements to receive $19.2 million of fixed consideration related to the future minimum guarantees through December 2024. The variable consideration is not disclosed as a remaining performance obligation as the licensing arrangements qualify for the sales-based royalty exemption.
Disaggregation of Revenue
The following tables present revenues disaggregated by channel and geography, which provides a meaningful depiction of how the nature, timing and uncertainty of revenues are affected by economic factors. Revenues from licensing arrangements have been included within the U.S. or Non-U.S. Wholesale channels, based on the respective region covered by the agreement. Branded Direct-to-Consumer revenues include the distribution of our products via concession retail locations internationally, Wrangler® and Lee® branded full-price stores globally and Company-operated outlet stores globally. The Branded Direct-to-Consumer channel also includes sales of our branded products in U.S.-based VF Outlet™ stores and digital sales via www.wrangler.com and www.lee.com.