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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 September 26, 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-20200926_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 October 23, 2020 was 57,205,370.



KONTOOR BRANDS, INC.
Table of Contents
 Page
3

Kontoor Brands, Inc. Q3 FY20 Form 10-Q 2



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

KONTOOR BRANDS, INC.
Consolidated Balance Sheets
(Unaudited)
(In thousands)September 2020December 2019September 2019
ASSETS
Current assets
Cash and equivalents$285,251 $106,808 $40,804 
Accounts receivable, net 221,971 228,459 302,582 
Inventories432,280 458,101 545,426 
Prepaid expenses and other current assets81,781 84,235 73,162 
Total current assets1,021,283 877,603 961,974 
Property, plant and equipment, net122,739 132,192 126,963 
Operating lease assets71,075 86,582 96,590 
Intangible assets, net16,458 17,293 17,530 
Goodwill212,637 212,836 212,834 
Other assets224,532 190,650 169,874 
TOTAL ASSETS$1,668,724 $1,517,156 $1,585,765 
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings$148 $1,070 $6,028 
Current portion of long-term debt15,625  7,500 
Accounts payable207,564 147,347 149,685 
Accrued liabilities206,521 194,744 190,353 
Operating lease liabilities, current33,065 35,389 35,992 
Total current liabilities462,923 378,550 389,558 
Operating lease liabilities, noncurrent43,023 54,746 64,328 
Other liabilities115,040 101,334 95,701 
Long-term debt1,021,710 913,269 980,607 
Commitments and contingencies
Total liabilities1,642,696 1,447,899 1,530,194 
Equity
Preferred Stock, no par value; shares authorized, 90,000,000; no shares outstanding at September 2020, December 2019 and September 2019
   
Common Stock, no par value; shares authorized, 600,000,000; shares outstanding of 57,070,368 at September 2020; 56,811,198 at December 2019 and 56,726,746 at September 2019
   
Additional paid-in capital161,297 150,673 142,340 
(Accumulated deficit) retained earnings(12,472)(1,718)2,066 
Accumulated other comprehensive loss(122,797)(79,698)(88,835)
Total equity
26,028 69,257 55,571 
TOTAL LIABILITIES AND EQUITY$1,668,724 $1,517,156 $1,585,765 

See accompanying notes to unaudited consolidated and combined financial statements.

3 Kontoor Brands, Inc. Q3 FY20 Form 10-Q


KONTOOR BRANDS, INC.
Consolidated and Combined Statements of Operations
(Unaudited)
Three Months Ended SeptemberNine Months Ended September
(In thousands, except per share amounts)2020201920202019
Net revenues $583,222 $638,138 $1,436,974 $1,896,228 
Costs and operating expenses
Cost of goods sold325,512 382,181 854,134 1,157,383 
Selling, general and administrative expenses174,846 192,293 521,935 596,466 
Non-cash impairment of intangible asset 32,636  32,636 
Total costs and operating expenses500,358 607,110 1,376,069 1,786,485 
Operating income82,864 31,028 60,905 109,743 
Interest income from former parent, net   3,762 
Interest expense(13,249)(14,140)(37,308)(21,876)
Interest income283 712 1,255 3,543 
Other expense, net(751)(1,456)(1,710)(3,797)
Income before income taxes69,147 16,144 23,142 91,375 
Income taxes8,362 1,642 (1,669)23,474 
Net income$60,785 $14,502 $24,811 $67,901 
Earnings per common share
Basic$1.07 $0.26 $0.44 $1.20 
Diluted$1.05 $0.25 $0.43 $1.19 
Weighted average shares outstanding
Basic57,007 56,694 56,938 56,663 
Diluted57,642 57,401 57,669 56,989 

See accompanying notes to unaudited consolidated and combined financial statements.



Kontoor Brands, Inc. Q3 FY20 Form 10-Q 4



KONTOOR BRANDS, INC.
Consolidated and Combined Statements of Comprehensive Income (Loss)
(Unaudited)
 Three Months Ended SeptemberNine Months Ended September
(In thousands)2020201920202019
Net income$60,785 $14,502 $24,811 $67,901 
Other comprehensive income (loss)
Foreign currency translation
Gains (losses) arising during the period7,072 (11,358)(16,939)(5,914)
Defined benefit pension plans
Net change in deferred (gains) losses during the period(67)297 (55)283 
Derivative financial instruments
Losses arising during the period
(469)(468)(24,944)(2,526)
Reclassification to net income for gains (losses) realized1,965 (3,618)(1,161)(3,980)
Total other comprehensive income (loss), net of related taxes8,501 (15,147)(43,099)(12,137)
Comprehensive income (loss)$69,286 $(645)$(18,288)$55,764 

See accompanying notes to unaudited consolidated and combined financial statements.


5 Kontoor Brands, Inc. Q3 FY20 Form 10-Q


KONTOOR BRANDS, INC.
Consolidated and Combined Statements of Cash Flows
(Unaudited)
 Nine Months Ended September
(In thousands)20202019
OPERATING ACTIVITIES
Net income$24,811 $67,901 
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization24,384 23,020 
Stock-based compensation9,738 17,798 
Provision for doubtful accounts19,642 5,386 
Non-cash impairment of intangible asset 32,636 
Other(17,337)(8,904)
Changes in operating assets and liabilities:
Accounts receivable(16,250)(52,525)
Inventories23,777 (79,534)
Due from former parent 548,301 
Accounts payable58,534 34,831 
Income taxes4,406 1,715 
Accrued liabilities3,330 14,278 
Due to former parent (16,065)
Other assets and liabilities(5,352)(10,457)
Cash provided by operating activities129,683 578,381 
INVESTING ACTIVITIES
Property, plant and equipment expenditures(16,481)(11,750)
Capitalized computer software(30,038)(898)
Collection of notes receivable from former parent 517,940 
Proceeds from sales of assets13,068 2,049 
Other(3,651)(422)
Cash (used) provided by investing activities(37,102)506,919 
FINANCING ACTIVITIES
Borrowings under revolving credit facility
512,500 30,000 
Repayments under revolving credit facility
(387,500)(30,000)
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)(31,763)
Proceeds from issuance of Common Stock, net of shares withheld for taxes(2,800)(514)
Other(885)(10,868)
Cash provided (used) by financing activities85,092 (1,139,932)
Effect of foreign currency rate changes on cash and cash equivalents770 (1,340)
Net change in cash and cash equivalents 178,443 (55,972)
Cash and cash equivalents – beginning of period106,808 96,776 
Cash and cash equivalents – end of period$285,251 $40,804 

See accompanying notes to unaudited consolidated and combined financial statements.

Kontoor Brands, Inc. Q3 FY20 Form 10-Q 6



KONTOOR BRANDS, INC.
Consolidated and Combined Statements of Equity
(Unaudited)
Common StockAdditional Paid-in CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Equity
(Deficit)
 (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)
Net income— — — 60,785 — 60,785 
Stock-based compensation, net139 — 2,637 (1,006)— 1,631 
Foreign currency translation— — — — 7,072 7,072 
Defined benefit pension plans— — — — (67)(67)
Derivative financial instruments— — — — 1,496 1,496 
Balance, September 202057,070 $ $161,297 $(12,472)$(122,797)$26,028 
Common StockAdditional Paid-in CapitalFormer Parent InvestmentRetained EarningsAccumulated Other Comprehensive LossTotal Equity
 (In thousands, except per share amounts)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 
Net income— — — — 14,502 — 14,502 
Stock-based compensation, net79 — 7,719 — (1,908)— 5,811 
Foreign currency translation— — — — — (11,358)(11,358)
Defined benefit pension plans— — — — — 297 297 
Derivative financial instruments— — — — — (4,086)(4,086)
Dividends on Common Stock ($0.56 per share)
— — — — (31,763)— (31,763)
Balance, September 201956,727 $ $142,340 $ $2,066 $(88,835)$55,571 

See accompanying notes to unaudited consolidated and combined financial statements.

7 Kontoor Brands, Inc. Q3 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 third 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 September 2020, December 2019 and September 2019 correspond to the fiscal periods ended September 26, 2020, December 28, 2019 and September 28, 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 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 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 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 in the second and third quarters of 2020, targeted reductions in operating expenses and capital expenditures, temporary reduction of certain 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 September 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 all 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 nine months ended September 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. Q3 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, insurance and related benefits associated with those functions.
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 statement 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 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. Q3 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 continues to engage 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 nine months ended September 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 September 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 nine months ended September 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. Q3 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)September 2020December 2019September 2019
Accounts receivable, net$221,971 $228,459 $302,582 
Contract assets (a)
4,385 10,679 3,429 
Contract liabilities (b)
1,229 1,775 2,514 
(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 nine months ended September 2020, the Company recognized revenue of $0.2 million and $1.4 million, respectively, that was included in contract liabilities as of December 2019. For the three and nine months ended September 2019, the Company recognized revenue of $0.2 million and $1.7 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 September 2020, the Company has contractual rights under its licensing agreements to receive $19.3 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.
The Other channel primarily includes sales of third-party branded merchandise at VF Outlet™ stores. Sales of Wrangler® and Lee® branded products at VF Outlet™ stores are not included in Other and are reported in the Branded Direct-to-Consumer channel discussed above. Prior to 2020, the Other channel also included transactions with VF for pre-Separation activities, none of which continued in 2020. These transactions 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.
Three Months Ended September 2020
(In thousands)WranglerLeeOtherTotal
Channel revenues
U.S. Wholesale$285,639 $105,757 $2,259 $393,655 
Non-U.S. Wholesale35,724 70,555 1,124 107,403 
Branded Direct-to-Consumer25,266 38,128 8 63,402 
Other  18,762 18,762 
Total$346,629 $214,440 $22,153 $583,222 
Geographic revenues
U.S.$307,512 $126,912 $21,029 $455,453 
International39,117 87,528 1,124 127,769 
Total$346,629 $214,440 $22,153 $583,222 


11 Kontoor Brands, Inc. Q3 FY20 Form 10-Q


KONTOOR BRANDS, INC.
Notes to Consolidated and Combined Financial Statements
(Unaudited)
Three Months Ended September 2019
(In thousands)WranglerLeeOtherTotal
Channel revenues
U.S. Wholesale$283,616 $93,931 $5,970 $383,517 
Non-U.S. Wholesale60,523 99,386 340 160,249 
Branded Direct-to-Consumer23,067 38,904 9 61,980 
Other  32,392 32,392 
Total$367,206 $232,221 $38,711 $638,138 
Geographic revenues
U.S.$302,819 $115,700 $38,263 $456,782 
International64,387 116,521 448 181,356 
Total$367,206 $232,221 $38,711 $638,138 
Nine Months Ended September 2020
(In thousands)WranglerLeeOtherTotal
Channel revenues
U.S. Wholesale$739,104 $231,529 $8,823 $979,456 
Non-U.S. Wholesale99,912 157,413 1,428 258,753 
Branded Direct-to-Consumer62,654 94,220 11 156,885 
Other  41,880 41,880 
Total$901,670 $483,162 $52,142 $1,436,974 
Geographic revenues
U.S.$792,662 $278,999 $50,714 $1,122,375 
International109,008 204,163 1,428 314,599 
Total$901,670 $483,162 $52,142 $1,436,974 

Nine Months Ended September 2019
(In thousands)WranglerLeeOtherTotal
Channel revenues
U.S. Wholesale$859,481 $303,547 $17,405 $1,180,433 
Non-U.S. Wholesale169,747