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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| | | | | |
☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended July 2, 2022
or
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to ________
Commission file number: 001-38854
KONTOOR BRANDS, INC.
(Exact name of registrant as specified in its charter)
| | | | | |
North Carolina | 83-2680248 |
(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 class | Trading symbol(s) | Name of each exchange on which registered |
Common Stock, no par value | KTB | New 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 filer | ☑ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | 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
The number of shares of Common Stock of the registrant outstanding as of July 29, 2022 was 55,385,024.
KONTOOR BRANDS, INC.
Table of Contents
Kontoor Brands, Inc. Q2 FY22 Form 10-Q 2
PART I — FINANCIAL INFORMATION
| | | | | | | | |
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) |
KONTOOR BRANDS, INC.
Consolidated Balance Sheets
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except share amounts) | | June 2022 | | | December 2021 | | June 2021 |
ASSETS | | | | | | | |
Current assets | | | | | | | |
Cash and cash equivalents | | $ | 145,296 | | | | $ | 185,322 | | | $ | 175,628 | |
Accounts receivable, net | | 185,157 | | | | 289,800 | | | 215,297 | |
Inventories | | 537,900 | | | | 362,957 | | | 403,249 | |
Prepaid expenses and other current assets | | 89,171 | | | | 72,579 | | | 82,127 | |
Total current assets | | 957,524 | | | | 910,658 | | | 876,301 | |
Property, plant and equipment, net | | 101,994 | | | | 105,155 | | | 109,487 | |
Operating lease assets | | 44,271 | | | | 54,950 | | | 63,036 | |
Intangible assets, net | | 13,740 | | | | 14,638 | | | 15,325 | |
Goodwill | | 210,164 | | | | 212,213 | | | 212,654 | |
| | | | | | | |
Other assets | | 215,455 | | | | 235,410 | | | 241,042 | |
TOTAL ASSETS | | $ | 1,543,148 | | | | $ | 1,533,024 | | | $ | 1,517,845 | |
LIABILITIES AND EQUITY | | | | | | | |
Current liabilities | | | | | | | |
Short-term borrowings | | $ | 4,848 | | | | $ | 249 | | | $ | 918 | |
Current portion of long-term debt | | 5,000 | | | | — | | | 8,750 | |
Accounts payable | | 281,391 | | | | 214,204 | | | 198,697 | |
Accrued liabilities | | 153,527 | | | | 217,164 | | | 187,240 | |
Operating lease liabilities, current | | 20,254 | | | | 24,195 | | | 26,034 | |
Total current liabilities | | 465,020 | | | | 455,812 | | | 421,639 | |
Operating lease liabilities, noncurrent | | 25,132 | | | | 32,993 | | | 41,325 | |
| | | | | | | |
Other liabilities | | 86,839 | | | | 104,764 | | | 118,733 | |
Long-term debt | | 786,968 | | | | 791,317 | | | 782,262 | |
Commitments and contingencies | | | | | | | |
Total liabilities | | 1,363,959 | | | | 1,384,886 | | | 1,363,959 | |
Equity | | | | | | | |
Preferred Stock, no par value; shares authorized, 90,000,000; no shares outstanding at June 2022, December 2021 and June 2021 | | — | | | | — | | | — | |
Common Stock, no par value; shares authorized, 600,000,000; shares outstanding of 55,382,208 at June 2022; 56,381,466 at December 2021 and 57,631,974 at June 2021 | | — | | | | — | | | — | |
Additional paid-in capital | | 232,041 | | | | 218,259 | | | 198,776 | |
Retained earnings | | 39,105 | | | | 22,635 | | | 44,079 | |
Accumulated other comprehensive loss | | (91,957) | | | | (92,756) | | | (88,969) | |
Total equity | | 179,189 | | | | 148,138 | | | 153,886 | |
TOTAL LIABILITIES AND EQUITY | | $ | 1,543,148 | | | | $ | 1,533,024 | | | $ | 1,517,845 | |
See accompanying notes to unaudited consolidated financial statements.
3 Kontoor Brands, Inc. Q2 FY22 Form 10-Q
KONTOOR BRANDS, INC.
Consolidated Statements of Operations
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June | | Six Months Ended June |
| | | | | | | | | | | |
(In thousands, except per share amounts) | | 2022 | | | 2021 | | | 2022 | | | 2021 |
Net revenues | | $ | 613,572 | | | | $ | 490,765 | | | | $ | 1,293,315 | | | | $ | 1,142,527 | |
Costs and operating expenses | | | | | | | | | | | |
Cost of goods sold | | 346,608 | | | | 264,641 | | | | 721,730 | | | | 615,823 | |
Selling, general and administrative expenses | | 178,219 | | | | 190,947 | | | | 374,619 | | | | 398,351 | |
| | | | | | | | | | | |
Total costs and operating expenses | | 524,827 | | | | 455,588 | | | | 1,096,349 | | | | 1,014,174 | |
Operating income | | 88,745 | | | | 35,177 | | | | 196,966 | | | | 128,353 | |
Interest expense | | (8,234) | | | | (7,641) | | | | (16,257) | | | | (19,432) | |
Interest income | | 296 | | | | 421 | | | | 765 | | | | 679 | |
Other (expense) income, net | | (2,746) | | | | 45 | | | | (2,968) | | | | (397) | |
Income before income taxes | | 78,061 | | | | 28,002 | | | | 178,506 | | | | 109,203 | |
Income taxes | | 16,066 | | | | 4,365 | | | | 35,701 | | | | 21,103 | |
Net income | | $ | 61,995 | | | | $ | 23,637 | | | | $ | 142,805 | | | | $ | 88,100 | |
Earnings per common share | | | | | | | | | | | |
Basic | | $ | 1.11 | | | | $ | 0.41 | | | | $ | 2.55 | | | | $ | 1.53 | |
Diluted | | $ | 1.09 | | | | $ | 0.40 | | | | $ | 2.49 | | | | $ | 1.49 | |
Weighted average shares outstanding | | | | | | | | | | | |
Basic | | 55,740 | | | | 57,612 | | | | 56,031 | | | | 57,478 | |
Diluted | | 56,711 | | | | 59,356 | | | | 57,315 | | | | 59,129 | |
See accompanying notes to unaudited consolidated financial statements.
Kontoor Brands, Inc. Q2 FY22 Form 10-Q 4
KONTOOR BRANDS, INC.
Consolidated Statements of Comprehensive Income
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June | | Six Months Ended June |
| | | | | | | | | | | |
(In thousands) | | 2022 | | | 2021 | | | 2022 | | | 2021 |
Net income | | $ | 61,995 | | | | $ | 23,637 | | | | $ | 142,805 | | | | $ | 88,100 | |
Other comprehensive (loss) income | | | | | | | | | | | |
Net change in foreign currency translation | | (13,274) | | | | 4,068 | | | | (16,889) | | | | (3,014) | |
Net change in defined benefit pension plans | | 5 | | | | (11) | | | | 11 | | | | 63 | |
Net change in derivative financial instruments | | 5,009 | | | | 3,671 | | | | 17,677 | | | | 8,789 | |
Total other comprehensive (loss) income, net of related taxes | | (8,260) | | | | 7,728 | | | | 799 | | | | 5,838 | |
Comprehensive income | | $ | 53,735 | | | | $ | 31,365 | | | | $ | 143,604 | | | | $ | 93,938 | |
See accompanying notes to unaudited consolidated financial statements.
5 Kontoor Brands, Inc. Q2 FY22 Form 10-Q
KONTOOR BRANDS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
| | | | | | | | | | | | | | | | | |
| | Six Months Ended June |
| | | | | |
(In thousands) | | 2022 | | | 2021 |
OPERATING ACTIVITIES | | | | | |
Net income | | $ | 142,805 | | | | $ | 88,100 | |
Adjustments to reconcile net income to cash provided by operating activities: | | | | | |
Depreciation and amortization | | 18,821 | | | | 17,749 | |
Stock-based compensation | | 12,474 | | | | 20,660 | |
Provision for doubtful accounts | | 308 | | | | 783 | |
| | | | | |
Other | | 4,826 | | | | 5,788 | |
Changes in operating assets and liabilities: | | | | | |
Accounts receivable | | 95,340 | | | | 14,315 | |
Inventories | | (179,019) | | | | (63,006) | |
Accounts payable | | 70,974 | | | | 31,822 | |
Income taxes | | (13,090) | | | | 3,075 | |
Accrued liabilities | | (47,907) | | | | 4,791 | |
Other assets and liabilities | | (6,144) | | | | (3,912) | |
Cash provided by operating activities | | 99,388 | | | | 120,165 | |
INVESTING ACTIVITIES | | | | | |
Property, plant and equipment expenditures | | (6,995) | | | | (3,320) | |
Capitalized computer software | | (4,493) | | | | (16,993) | |
| | | | | |
Other | | (120) | | | | (902) | |
Cash used by investing activities | | (11,608) | | | | (21,215) | |
FINANCING ACTIVITIES | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Repayments of term loans | | — | | | | (125,000) | |
Repurchases of Common Stock | | (62,494) | | | | — | |
Dividends paid | | (51,508) | | | | (46,016) | |
Shares withheld for taxes, net of proceeds from issuance of Common Stock | | (11,024) | | | | 663 | |
Other | | 4,330 | | | | (176) | |
Cash used by financing activities | | (120,696) | | | | (170,529) | |
Effect of foreign currency rate changes on cash and cash equivalents | | (7,110) | | | | (931) | |
Net change in cash and cash equivalents | | (40,026) | | | | (72,510) | |
Cash and cash equivalents – beginning of period | | 185,322 | | | | 248,138 | |
Cash and cash equivalents – end of period | | $ | 145,296 | | | | $ | 175,628 | |
See accompanying notes to unaudited consolidated financial statements.
Kontoor Brands, Inc. Q2 FY22 Form 10-Q 6
KONTOOR BRANDS, INC.
Consolidated Statements of Equity
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Equity | |
(In thousands, except per share amounts) | | Shares | | Amounts | | | | | |
| | | | | | | | | | | | |
Balance, December 2021 | | 56,381 | | | $ | — | | | $ | 218,259 | | | $ | 22,635 | | | $ | (92,756) | | | $ | 148,138 | | |
Net income | | — | | | — | | | — | | | 80,810 | | | — | | | 80,810 | | |
Stock-based compensation, net | | 387 | | | — | | | 6,462 | | | (11,833) | | | — | | | (5,371) | | |
Other comprehensive income | | — | | | — | | | — | | | — | | | 9,059 | | | 9,059 | | |
Dividends on Common Stock ($0.46 per share) | | — | | | — | | | — | | | (26,033) | | | — | | | (26,033) | | |
Repurchases of Common Stock | | (492) | | | — | | | — | | | (22,513) | | | — | | | (22,513) | | |
Balance, March 2022 | | 56,276 | | | $ | — | | | $ | 224,721 | | | $ | 43,066 | | | $ | (83,697) | | | $ | 184,090 | | |
Net income | | — | | | — | | | — | | | 61,995 | | | — | | | 61,995 | | |
Stock-based compensation, net | | 109 | | | — | | | 7,320 | | | (500) | | | — | | | 6,820 | | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | (8,260) | | | (8,260) | | |
Dividends on Common Stock ($0.46 per share) | | — | | | — | | | — | | | (25,475) | | | — | | | (25,475) | | |
Repurchases of Common Stock | | (1,003) | | | — | | | — | | | (39,981) | | | — | | | (39,981) | | |
Balance, June 2022 | | 55,382 | | | $ | — | | | $ | 232,041 | | | $ | 39,105 | | | $ | (91,957) | | | $ | 179,189 | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Equity | | |
| | | | | | |
(In thousands, except per share amounts) | | Shares | | Amounts | | | | | |
| | | | | | | | | | | | | |
Balance, December 2020 | | 57,255 | | | $ | — | | | $ | 172,297 | | | $ | 7,151 | | | $ | (94,807) | | | $ | 84,641 | | | |
Net income | | — | | | — | | | — | | | 64,463 | | | — | | | 64,463 | | | |
Stock-based compensation, net | | 259 | | | — | | | 14,472 | | | (4,458) | | | — | | | 10,014 | | | |
Other comprehensive loss | | — | | | — | | | — | | | — | | | (1,890) | | | (1,890) | | | |
Dividends on Common Stock ($0.40 per share) | | — | | | — | | | — | | | (22,964) | | | — | | | (22,964) | | | |
Balance, March 2021 | | 57,514 | | | $ | — | | | $ | 186,769 | | | $ | 44,192 | | | $ | (96,697) | | | $ | 134,264 | | | |
Net income | | — | | | — | | | — | | | 23,637 | | | — | | | 23,637 | | | |
Stock-based compensation, net | | 118 | | | — | | | 12,007 | | | (698) | | | — | | | 11,309 | | | |
Other comprehensive income | | — | | | — | | | — | | | — | | | 7,728 | | | 7,728 | | | |
Dividends on Common Stock ($0.40 per share) | | — | | | — | | | — | | | (23,052) | | | — | | | (23,052) | | | |
Balance, June 2021 | | 57,632 | | | $ | — | | | $ | 198,776 | | | $ | 44,079 | | | $ | (88,969) | | | $ | 153,886 | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
See accompanying notes to unaudited consolidated financial statements.
7 Kontoor Brands, Inc. Q2 FY22 Form 10-Q
KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 — BASIS OF PRESENTATION
Description of Business
Kontoor Brands, Inc. ("Kontoor," the "Company," "we," "us" or "our") is a global lifestyle apparel company headquartered in the United States ("U.S."). The Company designs, produces, procures, markets and distributes apparel, footwear and accessories, primarily under the brand names Wrangler® and Lee®. The Company's products are sold in the U.S. through mass merchants, specialty stores, mid-tier and traditional department stores, company-operated stores and online. The Company's products are also sold internationally, primarily in the Europe and Asia-Pacific regions, through department, specialty, company-operated, concession retail and independently-operated partnership stores and online.
Fiscal Year
The Company operates and reports using a 52/53-week fiscal year ending on the Saturday closest to December 31 of each year. Accordingly, this Form 10-Q presents the second quarter of the Company's fiscal year ending December 31, 2022 ("fiscal 2022"), which is a 52-week fiscal year. For presentation purposes herein, all references to periods ended June 2022, December 2021 and June 2021 correspond to the fiscal periods ended July 2, 2022, January 1, 2022 and July 3, 2021, respectively.
Impact of COVID-19 and Other Recent Developments
The novel coronavirus (“COVID-19”) pandemic and related supply chain and market disruptions continue to adversely impact global economic conditions, as well as the Company's operations. Additionally, although we do not have any significant operations within Russia or Ukraine, the conflict in these regions has caused disruption in the surrounding areas and greater uncertainty in the global economy. The Company considered the impact of these developments on the assumptions and estimates used when preparing these quarterly financial statements including, but not limited to, our allowance for doubtful accounts, inventory valuations, liabilities for variable consideration and contract termination, deferred tax valuation allowances, fair value measurements including asset impairment evaluations, the effectiveness of the Company’s hedging instruments, and expected compliance with all applicable financial covenants in our Credit Agreement (as defined in Note 6 to the Company's financial statements). These assumptions and estimates may change as new events occur and additional information is obtained regarding the impact of COVID-19 and the Russia-Ukraine conflict. Such future changes may have an adverse impact on the Company's results of operations, financial position and liquidity.
Basis of Presentation - Interim Financial Statements
The accompanying unaudited interim financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and do not include all of the information and notes required by generally accepted accounting principles in the U.S. ("GAAP") for complete financial statements. In the opinion of management, the accompanying financial statements contain all normal and recurring adjustments necessary to fairly state the financial position, results of operations and cash flows of the Company for the interim periods presented. Operating results for the three and six months ended June 2022 are not necessarily indicative of results that may be expected for any other interim period or for fiscal 2022. The unaudited financial statements should be read in conjunction with the audited consolidated and combined financial statements included in the Company's 2021 Annual Report on Form 10-K for the fiscal year ended January 1, 2022, as filed with the Securities and Exchange Commission on March 2, 2022 ("2021 Annual Report on Form 10-K").
Recently Issued Accounting Standard
In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update 2020-04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting,” which is intended to provide temporary optional expedients and exceptions for applying GAAP to contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. This guidance was effective upon issuance and the Company may adopt the guidance and apply it prospectively to contract modifications made or relationships entered into or evaluated any time from the issuance date through December 31, 2022. The Company will continue to evaluate the impact that adoption of this guidance would have on its financial statements and related disclosures, most notably the Company's credit facilities and interest rate swap agreements, which is not expected to be significant.
Kontoor Brands, Inc. Q2 FY22 Form 10-Q 8
KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 2 — REVENUES
Contract Balances and Performance Obligations
The following table presents information about contract balances recorded in the Company's balance sheets:
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | June 2022 | | | December 2021 | | June 2021 |
Accounts receivable, net | | $ | 185,157 | | | | $ | 289,800 | | | $ | 215,297 | |
Contract assets (a) | | 5,648 | | | | 3,093 | | | 4,694 | |
Contract liabilities (b) | | 3,227 | | | | 2,258 | | | 674 | |
(a) Included within "prepaid expenses and other current assets" in the Company's balance sheets.
(b) Included within "accrued liabilities" in the Company's balance sheets.
For the three and six months ended June 2022 and June 2021, revenue recognized that was included in contract liabilities as of December 2021 and December 2020, respectively, was not significant.
As of June 2022, the Company has contractual rights under its licensing agreements to receive $41.4 million of fixed consideration related to the future minimum guarantees through December 2027. As of June 2022, there were no arrangements with any transaction price allocated to remaining performance obligations other than (i) contracts for which the Company has applied the practical expedients and (ii) fixed consideration related to future minimum guarantees. For the three and six months ended June 2022, revenue recognized from performance obligations satisfied, or partially satisfied, in prior periods was not significant. The variable consideration under these arrangements is not disclosed as a remaining performance obligation as the licensing arrangements qualify for the sales-based royalty exemption.
Disaggregation of Revenue
The following tables present revenues disaggregated by channel and geography. Revenues from licensing arrangements have been included within the U.S. or Non-U.S. Wholesale channels, based on the respective region where the licensee sells the product. Direct-to-Consumer revenues include sales at Wrangler® and Lee® branded full-price stores and company-operated outlet stores, digital sales at www.wrangler.com and www.lee.com and sales from international concession arrangements.
Other primarily includes other revenue sources, including sales and licensing of Rock & Republic® apparel. Other also included sales of third-party branded merchandise at company-owned outlet stores through the first quarter of 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 2022 | |
| | | | | | | | |
(In thousands) | Wrangler | | Lee | | Other | | Total | |
| | | | | | | |
Channel revenues | | | | | | | | |
U.S. Wholesale | $ | 348,537 | | | $ | 120,197 | | | $ | 2,127 | | | $ | 470,861 | | |
Non-U.S. Wholesale | 40,457 | | | 39,858 | | | 374 | | | 80,689 | | |
Direct-to-Consumer | 28,950 | | | 32,998 | | | 74 | | | 62,022 | | |
| | | | | | | | |
Total | $ | 417,944 | | | $ | 193,053 | | | $ | 2,575 | | | $ | 613,572 | | |
| | | | | | | | |
Geographic revenues | | | | | | | | |
U.S. | $ | 372,981 | | | $ | 135,057 | | | $ | 2,201 | | | $ | 510,239 | | |
International | 44,963 | | | 57,996 | | | 374 | | | 103,333 | | |
Total | $ | 417,944 | | | $ | 193,053 | | | $ | 2,575 | | | $ | 613,572 | | |
9 Kontoor Brands, Inc. Q2 FY22 Form 10-Q
KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 2021 | |
| | | | | | | | |
(In thousands) | Wrangler | | Lee | | Other | | Total | |
Channel revenues | | | | | | | | |
U.S. Wholesale | $ | 245,200 | | | $ | 79,312 | | | $ | 2,434 | | | $ | 326,946 | | |
Non-U.S. Wholesale | 41,071 | | | 55,690 | | | 805 | | | 97,566 | | |
Direct-to-Consumer | 25,030 | | | 41,012 | | | 8 | | | 66,050 | | |
Other | — | | | — | | | 203 | | | 203 | | |
Total | $ | 311,301 | | | $ | 176,014 | | | $ | 3,450 | | | $ | 490,765 | | |
| | | | | | | | |
Geographic revenues | | | | | | | | |
U.S. | $ | 266,146 | | | $ | 96,179 | | | $ | 2,645 | | | $ | 364,970 | | |
International | 45,155 | | | 79,835 | | | 805 | | | 125,795 | | |
Total | $ | 311,301 | | | $ | 176,014 | | | $ | 3,450 | | | $ | 490,765 | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Six Months Ended June 2022 | |
| | | | | | | | |
(In thousands) | Wrangler | | Lee | | Other | | Total | |
| | | | | | | |
Channel revenues | | | | | | | | |
U.S. Wholesale | $ | 679,189 | | | $ | 257,003 | | | $ | 4,654 | | | $ | 940,846 | | |
Non-U.S. Wholesale | 93,276 | | | 130,909 | | | 875 | | | 225,060 | | |
Direct-to-Consumer | 57,902 | | | 69,361 | | | 146 | | | 127,409 | | |
| | | | | | | | |
Total | $ | 830,367 | | | $ | 457,273 | | | $ | 5,675 | | | $ | 1,293,315 | | |
| | | | | | | | |
Geographic revenues | | | | | | | | |
U.S. | $ | 727,374 | | | $ | 285,173 | | | $ | 4,800 | | | $ | 1,017,347 | | |
International | 102,993 | | | 172,100 | | | 875 | | | 275,968 | | |
Total | $ | 830,367 | | | $ | 457,273 | | | $ | 5,675 | | | $ | 1,293,315 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Six Months Ended June 2021 | |
| | | | | | | | |
(In thousands) | Wrangler | | Lee | | Other | | Total | |
Channel revenues | | | | | | | | |
U.S. Wholesale | $ | 574,899 | | | $ | 203,894 | | | $ | 4,160 | | | $ | 782,953 | | |
Non-U.S. Wholesale | 88,648 | | | 146,490 | | | 1,442 | | | 236,580 | | |
Direct-to-Consumer | 46,576 | | | 75,778 | | | 13 | | | 122,367 | | |
Other | — | | | — | | | 627 | | | 627 | | |
Total | $ | 710,123 | | | $ | 426,162 | | | $ | 6,242 | | | $ | 1,142,527 | | |
| | | | | | | | |
Geographic revenues | | | | | | | | |
U.S. | $ | 614,025 | | | $ | 234,411 | | | $ | 4,800 | | | $ | 853,236 | | |
International | 96,098 | | | 191,751 | | | 1,442 | | | 289,291 | | |
Total | $ | 710,123 | | | $ | 426,162 | | | $ | 6,242 | | | $ | 1,142,527 | | |
Kontoor Brands, Inc. Q2 FY22 Form 10-Q 10
KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 3 — BUSINESS SEGMENT INFORMATION
The Company has two reportable segments:
•Wrangler — Wrangler® branded denim, apparel and accessories.
•Lee — Lee® branded denim, apparel and accessories.
The chief operating decision maker allocates resources and assesses performance based on a global brand view which determines the Company's operating segments. Operating segments are the basis for the Company's reportable segments.
In addition, we report an "Other" category in order to reconcile segment revenues and segment profit to the Company's operating results, but the Other category is not considered a reportable segment based on evaluation of aggregation criteria. Other primarily includes other revenue sources, including sales and licensing of Rock & Republic® apparel.
Accounting policies utilized for internal management reporting at the individual segments are consistent with those disclosed in the Company's 2021 Annual Report on Form 10-K. Corporate and other expenses and interest income and expense are not controlled by segment management and therefore are excluded from the measurement of segment profit.
The following table presents financial information for the Company's reportable segments and income before income taxes:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June | | Six Months Ended June |
| | | | | | | | | | | |
(In thousands) | | 2022 | | | 2021 | | | 2022 | | | 2021 |
Segment revenues: | | | | | | | | | | | |
Wrangler | | $ | 417,944 | | | | $ | 311,301 | | | | $ | 830,367 | | | | $ | 710,123 | |
Lee | | 193,053 | | | | 176,014 | | | | 457,273 | | | | 426,162 | |
Total reportable segment revenues | | 610,997 | | | | 487,315 | | | | 1,287,640 | | | | 1,136,285 | |
Other revenues | | 2,575 | | | | 3,450 | | | | 5,675 | | | | 6,242 | |
Total net revenues | | $ | 613,572 | | | | $ | 490,765 | | | | $ | 1,293,315 | | | | $ | 1,142,527 | |
Segment profit: | | | | | | | | | | | |
Wrangler | | $ | 75,064 | | | | $ | 52,834 | | | | $ | 150,452 | | | | $ | 136,817 | |
Lee | | 22,904 | | | | 18,491 | | | | 75,134 | | | | 69,614 | |
Total reportable segment profit | | $ | 97,968 | | | | $ | 71,325 | | | | $ | 225,586 | | | | $ | 206,431 | |
Corporate and other expenses | | (12,017) | | | | (36,983) | | | | (31,999) | | | | (78,534) | |
Interest expense | | (8,234) | | | | (7,641) | | | | (16,257) | | | | (19,432) | |
Interest income | | 296 | | | | 421 | | | | 765 | | | | 679 | |
Profit related to other revenues | | 48 | | | | 880 | | | | 411 | | | | 59 | |
Income before income taxes | | $ | 78,061 | | | | $ | 28,002 | | | | $ | 178,506 | | | | $ | 109,203 | |
11 Kontoor Brands, Inc. Q2 FY22 Form 10-Q
KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 4 — ACCOUNTS RECEIVABLE
Allowance for Doubtful Accounts
The Company reviews the estimates used to calculate the allowance for doubtful accounts on a quarterly basis.
The following table presents a rollforward of the allowance for doubtful accounts:
| | | | | | | | | | | | | | | | | |
| Six Months Ended June |
| | | | | |
(In thousands) | | 2022 | | | 2021 |
| | | | | |
Balance, December | | $ | 11,705 | | | | $ | 19,143 | |
Provision for expected credit losses | | 308 | | | | 783 | |
Accounts receivable balances written off (1) | | (576) | | | | (4,119) | |
Other (2) | | (869) | | | | (325) | |
Balance, June | | $ | 10,568 | | | | $ | 15,482 | |
(1) Accounts receivable balances written off against the allowance were primarily due to the exit of our India business during 2021.
(2) Other primarily includes the impact of foreign currency translation and recoveries of amounts previously written off, none of which were individually significant.
Sale of Trade Accounts Receivable
The Company is party to an agreement with a financial institution to sell selected trade accounts receivable on a nonrecourse basis. Under this agreement, up to $377.5 million of the Company’s trade accounts receivable may be sold to the financial institution and remain outstanding at any point in time. The Company removes the sold balances from "accounts receivable, net" in its balance sheet at the time of sale. The Company does not retain any interests in the sold trade accounts receivable but continues to service and collect outstanding trade accounts receivable on behalf of the financial institution.
During the six months ended June 2022 and June 2021, the Company sold total trade accounts receivable of $732.9 million and $586.8 million, respectively. As of June 2022, December 2021 and June 2021, $212.8 million, $170.6 million and $183.0 million, respectively, of the sold trade accounts receivable had been removed from the Company's balance sheets but remained outstanding with the financial institution.
The funding fees charged by the financial institution for this program are reflected in the Company's statements of operations within "other (expense) income, net" and were $0.9 million and $1.5 million for the three and six months ended June 2022, respectively, and $0.3 million and $0.9 million for the three and six months ended June 2021, respectively. Net proceeds of this program are reflected as operating activities in the Company's statements of cash flows.
NOTE 5 — INVENTORIES
The following table presents components of "inventories" recorded in the Company's balance sheets:
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | June 2022 | | | December 2021 | | June 2021 |
Finished products | | $ | 444,976 | | | | $ | 293,427 | | | $ | 342,276 | |
Work-in-process | | 40,018 | | | | 32,346 | | | 29,551 | |
Raw materials | | 52,906 | | | | 37,184 | | | 31,422 | |
Total inventories | | $ | 537,900 | | | | $ | 362,957 | | | $ | 403,249 | |
NOTE 6 — SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term Borrowings
At June 2022, December 2021 and June 2021, the Company had $25.6 million, $10.1 million and $36.0 million, respectively, of borrowing availability under international lines of credit with various banks, which are uncommitted and may be terminated at any time by either the Company or the banks. There was $4.6 million of outstanding balances under these arrangements at June 2022, and no outstanding balances at December 2021 and June 2021. In addition, short-term borrowings at June 2022, December 2021 and June 2021 included other debt of $0.2 million, $0.2 million and $0.9 million, respectively.
Kontoor Brands, Inc. Q2 FY22 Form 10-Q 12
KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Long-term Debt
The following table presents the components of long-term debt as recorded in the Company's balance sheets:
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands) | | June 2022 | | | December 2021 | | June 2021 |
Revolving Credit Facility | | $ | — | | | | $ | — | | | $ | — | |
Term Loan A | | 397,691 | | | | 397,427 | | | 660,334 | |
Term Loan B | | — | | | | — | | | 130,678 | |
4.125% Notes, due 2029 | | |