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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 30, 2023
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number: 001-38854
kontoorlogotmpurplea16.jpg
KONTOOR BRANDS, INC.
(Exact name of registrant as specified in its charter)
North Carolina83-2680248
(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 27, 2023 was 56,180,152.



KONTOOR BRANDS, INC.
Table of Contents
 Page

Kontoor Brands, Inc. Q3 FY23 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)September 2023December 2022September 2022
ASSETS
Current assets
Cash and cash equivalents$77,828 $59,179 $58,053 
Accounts receivable, net 236,816 225,858 234,569 
Inventories605,234 596,836 678,207 
Prepaid expenses and other current assets113,186 100,396 102,425 
Total current assets1,033,064 982,269 1,073,254 
Property, plant and equipment, net110,399 104,465 101,407 
Operating lease assets63,114 51,029 47,831 
Intangible assets, net12,553 13,361 13,242 
Goodwill209,413 209,627 209,012 
Other assets197,387 221,510 208,264 
TOTAL ASSETS$1,625,930 $1,582,261 $1,653,010 
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings$ $7,280 $7,093 
Current portion of long-term debt17,500 10,000 7,500 
Accounts payable182,448 206,262 306,278 
Accrued liabilities168,356 196,989 167,690 
Operating lease liabilities, current20,975 19,898 18,885 
Total current liabilities389,279 440,429 507,446 
Operating lease liabilities, noncurrent41,348 31,506 30,255 
Other liabilities79,084 76,950 82,417 
Long-term debt768,595 782,619 824,793 
Commitments and contingencies
Total liabilities1,278,306 1,331,504 1,444,911 
Equity
Preferred Stock, no par value; shares authorized, 90,000,000; no shares outstanding at September 2023, December 2022 and September 2022
   
Common Stock, no par value; shares authorized, 600,000,000; shares outstanding of 56,173,518 at September 2023; 55,516,872 at December 2022 and 55,464,569 at September 2022
   
Additional paid-in capital261,966 243,696 237,934 
Retained earnings156,491 86,726 62,448 
Accumulated other comprehensive loss(70,833)(79,665)(92,283)
Total equity
347,624 250,757 208,099 
TOTAL LIABILITIES AND EQUITY$1,625,930 $1,582,261 $1,653,010 
See accompanying notes to unaudited consolidated financial statements.

3 Kontoor Brands, Inc. Q3 FY23 Form 10-Q


KONTOOR BRANDS, INC.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended SeptemberNine Months Ended September
(In thousands, except per share amounts)2023202220232022
Net revenues $654,540 $606,521 $1,937,672 $1,899,836 
Costs and operating expenses
Cost of goods sold383,075 342,460 1,129,245 1,064,190 
Selling, general and administrative expenses185,983 188,995 564,599 563,614 
Total costs and operating expenses569,058 531,455 1,693,844 1,627,804 
Operating income85,482 75,066 243,828 272,032 
Interest expense(10,454)(8,858)(30,390)(25,115)
Interest income964 263 2,074 1,028 
Other expense, net(3,764)(2,219)(9,142)(5,187)
Income before income taxes72,228 64,252 206,370 242,758 
Income taxes12,697 13,169 44,147 48,870 
Net income$59,531 $51,083 $162,223 $193,888 
Earnings per common share
Basic$1.06 $0.92 $2.90 $3.47 
Diluted$1.05 $0.90 $2.85 $3.40 
Weighted average shares outstanding
Basic56,151 55,428 55,962 55,830 
Diluted56,956 56,550 56,914 57,060 
See accompanying notes to unaudited consolidated financial statements.



Kontoor Brands, Inc. Q3 FY23 Form 10-Q 4



KONTOOR BRANDS, INC.
Consolidated Statements of Comprehensive Income
(Unaudited)
 Three Months Ended SeptemberNine Months Ended September
(In thousands)2023202220232022
Net income$59,531 $51,083 $162,223 $193,888 
Other comprehensive (loss) income
Net change in foreign currency translation(6,916)(11,568)5,936 (28,457)
Net change in defined benefit pension plans(37)6 (107)17 
Net change in derivative financial instruments(3,787)11,236 3,003 28,913 
Total other comprehensive (loss) income, net of related taxes(10,740)(326)8,832 473 
Comprehensive income$48,791 $50,757 $171,055 $194,361 
See accompanying notes to unaudited consolidated financial statements.

5 Kontoor Brands, Inc. Q3 FY23 Form 10-Q


KONTOOR BRANDS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
 Nine Months Ended September
(In thousands)20232022
OPERATING ACTIVITIES
Net income$162,223 $193,888 
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization27,405 27,827 
Stock-based compensation9,017 17,758 
Provision for doubtful accounts87 2,202 
Other10,331 8,536 
Changes in operating assets and liabilities:
Accounts receivable(10,660)37,673 
Inventories(6,354)(323,449)
Accounts payable(23,145)98,556 
Income taxes(24,064)(11,682)
Accrued liabilities(10,170)(33,473)
Other assets and liabilities12,856 (5,107)
Cash provided by operating activities147,526 12,729 
INVESTING ACTIVITIES
Property, plant and equipment expenditures(21,553)(13,091)
Capitalized computer software(8,940)(7,633)
Other(837)(990)
Cash used by investing activities(31,330)(21,714)
FINANCING ACTIVITIES
Borrowings under revolving credit facility
288,000 76,000 
Repayments under revolving credit facility
(288,000)(36,000)
Repayments of term loan(7,500) 
Repurchases of Common Stock (62,494)
Dividends paid(80,719)(77,021)
Shares withheld for taxes, net of proceeds from issuance of Common Stock(2,506)(12,643)
Other(7,297)7,002 
Cash used by financing activities(98,022)(105,156)
Effect of foreign currency rate changes on cash and cash equivalents475 (13,128)
Net change in cash and cash equivalents 18,649 (127,269)
Cash and cash equivalents – beginning of period59,179 185,322 
Cash and cash equivalents – end of period$77,828 $58,053 
See accompanying notes to unaudited consolidated financial statements.

Kontoor Brands, Inc. Q3 FY23 Form 10-Q 6



KONTOOR BRANDS, INC.
Consolidated Statements of Equity
(Unaudited)
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Equity
 (In thousands, except per share amounts)SharesAmounts
Balance, December 202255,517 $ $243,696 $86,726 $(79,665)$250,757 
Net income— — — 66,296 — 66,296 
Stock-based compensation, net417 — 7,412 (10,029)— (2,617)
Other comprehensive income— — — — 11,660 11,660 
Dividends on Common Stock ($0.48 per share)
— — — (26,808)— (26,808)
Balance, March 202355,934 $ $251,108 $116,185 $(68,005)$299,288 
Net income— — — 36,396 — 36,396 
Stock-based compensation, net176 — 7,241 (638)— 6,603 
Other comprehensive income— — — — 7,912 7,912 
Dividends on Common Stock ($0.48 per share)
— — — (26,948)— (26,948)
Balance, June 202356,110 $ $258,349 $124,995 $(60,093)$323,251 
Net income— — — 59,531 — 59,531 
Stock-based compensation, net64 — 3,617 (1,072)— 2,545 
Other comprehensive loss— — — — (10,740)(10,740)
Dividends on Common Stock ($0.48 per share)
— — — (26,963)— (26,963)
Balance, September 202356,174 $ $261,966 $156,491 $(70,833)$347,624 
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other Comprehensive LossTotal Equity
 (In thousands, except per share amounts)SharesAmounts
Balance, December 202156,381 $ $218,259 $22,635 $(92,756)$148,138 
Net income— — — 80,810 — 80,810 
Stock-based compensation, net387 — 6,462 (11,833)— (5,371)
Other comprehensive income— — — — 9,059 9,059 
Dividends on Common Stock ($0.46 per share)
— — — (26,033)— (26,033)
Repurchases of Common Stock(492)— — (22,513)— (22,513)
Balance, March 202256,276 $ $224,721 $43,066 $(83,697)$184,090 
Net income— — — 61,995 — 61,995 
Stock-based compensation, net109 — 7,320 (500)— 6,820 
Other comprehensive loss— — — — (8,260)(8,260)
Dividends on Common Stock ($0.46 per share)
— — — (25,475)— (25,475)
Repurchases of Common Stock(1,003)— — (39,981)— (39,981)
Balance, June 202255,382 $ $232,041 $39,105 $(91,957)$179,189 
Net income— — — 51,083 — 51,083 
Stock-based compensation, net83 — 5,893 (2,227)— 3,666 
Other comprehensive loss— — — — (326)(326)
Dividends on Common Stock ($0.46 per share)
— — — (25,513)— (25,513)
Balance, September 202255,465 $ $237,934 $62,448 $(92,283)$208,099 
See accompanying notes to unaudited consolidated financial statements.

7 Kontoor Brands, Inc. Q3 FY23 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, distributes and licenses 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 third quarter of the Company's fiscal year ending December 30, 2023 ("fiscal 2023"), which is a 52-week fiscal year. For presentation purposes herein, all references to periods ended September 2023, December 2022 and September 2022 correspond to the fiscal periods ended September 30, 2023, December 31, 2022 and October 1, 2022, respectively.
Macroeconomic Environment and Other Recent Developments
Macroeconomic conditions, including inflation, rising interest rates, recessionary concerns, fluctuating foreign currency exchange rates and uncertainty in global credit and banking markets, as well as global supply chain issues, labor challenges and uneven economic recovery following the COVID-19 pandemic, especially in China, continue to adversely impact global economic conditions, as well as the Company's operations. Additionally, the conflict between Russia and Ukraine, as well as the conflict in Israel, are causing disruption in the surrounding areas and greater uncertainty in the global economy. The Company considered the impact of these developments on the assumptions and estimates used when preparing these quarterly financial statements including, but not limited to, our allowance for doubtful accounts, inventory valuations, liabilities for variable consideration, deferred tax valuation allowances, fair value measurements including asset impairment evaluations, the effectiveness of the Company’s hedging instruments and expected compliance with all applicable financial covenants in our Credit Agreement (as defined in Note 7 to the Company's financial statements). These assumptions and estimates may change as new events occur and additional information is obtained regarding the impact of the above conditions. Such future changes may have an adverse impact on the Company's results of operations, financial position and liquidity.
Basis of Presentation - Interim Financial Statements
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 nine months ended September 2023 are not necessarily indicative of results that may be expected for any other interim period or for fiscal 2023. The unaudited financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's 2022 Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the Securities and Exchange Commission on March 1, 2023 ("2022 Annual Report on Form 10-K").
Out-of-Period Adjustment
During the three months ended September 2023, management identified inaccuracies in processing certain transactions with U.S. Customs and Border Protection ("U.S. Customs") arising from the implementation of the Company's enterprise resource planning system, which resulted in underpayment of duties owed to U.S. Customs for the 2021 to 2023 periods. Accordingly, the Company recorded a $13.1 million adjustment in the current period within "cost of goods sold" for additional duty expense related to prior periods. The Company concluded that the out-of-period adjustment was not material to the consolidated financial statements for the current interim period or to any previously reported annual or interim periods.
Recently Adopted Accounting Standards
In September 2022, the Financial Accounting Standards Board issued Accounting Standards Update 2022-04, "Disclosure of Supplier Finance Program Obligations," which requires entities that use supplier finance programs in connection with the purchase of goods and services to disclose key terms of the programs, outstanding confirmed amounts as of period end, a description of where those obligations are presented in the balance sheet and an annual rollforward of obligations. This guidance was adopted by the Company during the first quarter of 2023, except for the requirement to include a rollforward of obligations which is effective beginning in 2024 with early adoption permitted. Refer to Note 6 to the Company's financial statements for additional information related to supplier finance program obligations.

Kontoor Brands, Inc. Q3 FY23 Form 10-Q 8



KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 2 — REVENUES
Disaggregation of Revenue
The following tables present revenues disaggregated by channel and geography. Revenues from licensing arrangements are 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 from company-operated Wrangler® and Lee® branded full-price and outlet stores, online and international concession arrangements.
Other includes sales and licensing of Rock & Republic®, other company-owned brands and private label apparel.
Three Months Ended September 2023
(In thousands)WranglerLeeOtherTotal
Channel revenues
U.S. Wholesale$355,608 $103,564 $1,799 $460,971 
Non-U.S. Wholesale53,644 71,433  125,077 
Direct-to-Consumer35,287 33,030 175 68,492 
Total$444,539 $208,027 $1,974 $654,540 
Geographic revenues
U.S.$385,501 $118,352 $1,974 $505,827 
International59,038 89,675  148,713 
Total$444,539 $208,027 $1,974 $654,540 
Three Months Ended September 2022
(In thousands)WranglerLeeOtherTotal
Channel revenues
U.S. Wholesale$324,564 $84,122 $1,771 $410,457 
Non-U.S. Wholesale50,448 81,682 28 132,158 
Direct-to-Consumer31,149 32,661 96 63,906 
Total$406,161 $198,465 $1,895 $606,521 
Geographic revenues
U.S.$351,624 $98,862 $1,867 $452,353 
International54,537 99,603 28 154,168 
Total$406,161 $198,465 $1,895 $606,521 
Nine Months Ended September 2023
(In thousands)WranglerLeeOtherTotal
Channel revenues
U.S. Wholesale$1,048,491 $337,081 $7,393 $1,392,965 
Non-U.S. Wholesale143,667 188,670 10 332,347 
Direct-to-Consumer101,013 110,933 414 212,360 
Total$1,293,171 $636,684 $7,817 $1,937,672 
Geographic revenues
U.S.$1,132,741 $382,290 $7,807 $1,522,838 
International160,430 254,394 10 414,834 
Total$1,293,171 $636,684 $7,817 $1,937,672 

9 Kontoor Brands, Inc. Q3 FY23 Form 10-Q


KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Nine Months Ended September 2022
(In thousands)WranglerLeeOtherTotal
Channel revenues
U.S. Wholesale$1,003,753 $341,125 $6,425 $1,351,303 
Non-U.S. Wholesale143,724 212,591 903 357,218 
Direct-to-Consumer89,051 102,022 242 191,315 
Total$1,236,528 $655,738 $7,570 $1,899,836 
Geographic revenues
U.S.$1,078,998 $384,035 $6,667 $1,469,700 
International157,530 271,703 903 430,136 
Total$1,236,528 $655,738 $7,570 $1,899,836 
Contract Balances and Performance Obligations
The following table presents information about contract balances recorded in the Company's balance sheets:
(In thousands)September 2023December 2022September 2022
Accounts receivable, net$236,816 $225,858 $234,569 
Contract assets (a)
8,704 5,050 6,599 
Contract liabilities (b)
1,348 1,057 919 
(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 2023 and September 2022, no significant revenue was recognized that was included in contract liabilities as of December 2022 and December 2021, respectively. For the three and nine months ended September 2023, no significant revenue was recognized from performance obligations satisfied, or partially satisfied, in prior periods. As of September 2023, the Company has contractual rights under its licensing agreements to receive $62.1 million of fixed consideration related to the future minimum guarantees through December 2028.

NOTE 3 — BUSINESS SEGMENT INFORMATION
The Company has two reportable segments:
Wrangler — Wrangler® branded denim, apparel, footwear and accessories.
Lee — Lee® branded denim, apparel, footwear and accessories.
The Company considers its chief executive officer to be its chief operating decision maker. The chief operating decision maker allocates resources and assesses performance based on the global brand operating results of Wrangler® and Lee®, which are the Company's operating and reportable segments.
In addition, we report an "Other" category to reconcile segment revenues and segment profit to the Company's operating results, but the Other category does not meet the criteria to be considered a reportable segment. Other includes sales and licensing of Rock & Republic®, other company-owned brands and private label apparel.
Accounting policies utilized for internal management reporting at the individual segments are consistent with those disclosed in the Company's 2022 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.

Kontoor Brands, Inc. Q3 FY23 Form 10-Q 10



KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
The following table presents financial information for the Company's reportable segments and income before income taxes:
 Three Months Ended SeptemberNine Months Ended September
(In thousands)2023202220232022
Segment revenues:
Wrangler$444,539 $406,161 $1,293,171 $1,236,528 
Lee208,027 198,465 636,684 655,738 
Total reportable segment revenues652,566 604,626 1,929,855 1,892,266 
Other revenues 1,974 1,895 7,817 7,570 
Total net revenues$654,540 $606,521 $1,937,672 $1,899,836 
Segment profit:
Wrangler$81,556 $75,597 $223,639 $226,049 
Lee20,735 26,703 77,473 101,837 
Total reportable segment profit$102,291 $102,300 $301,112 $327,886 
Corporate and other expenses(20,091)(28,775)(65,815)(60,774)
Interest expense(10,454)(8,858)(30,390)(25,115)
Interest income964 263 2,074 1,028 
Loss related to other revenues(482)(678)(611)(267)
Income before income taxes$72,228 $64,252 $206,370 $242,758 

NOTE 4 — ACCOUNTS RECEIVABLE
Allowance for Doubtful Accounts
The following table presents a rollforward of the allowance for doubtful accounts:
Nine Months Ended September
(In thousands)20232022
Balance, December$9,918 $11,705 
Increase in provision for expected credit losses87 2,116 
Accounts receivable balances written off(1,247)(1,069)
Other (1)
(105)(1,197)
Balance, September$8,653 $11,555 
(1) Other primarily includes the impact of foreign currency translation and recoveries of amounts previously written off, none of which were individually significant.
Sale of Trade Accounts Receivable
The Company is party to an agreement with a financial institution to sell selected trade accounts receivable on a 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 nine months ended September 2023 and September 2022, the Company sold total trade accounts receivable of $1,023.5 million and $1,016.0 million, respectively. As of September 2023, December 2022 and September 2022, $216.2 million, $246.0 million and $197.8 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, net" and were $3.0 million and $9.1 million for the three and nine months ended September 2023, respectively, and $1.4 million and $3.0 million for the three and nine months ended September 2022, respectively. Net proceeds of this program are reflected as operating activities in the Company's statements of cash flows.


11 Kontoor Brands, Inc. Q3 FY23 Form 10-Q


KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 5 — INVENTORIES
The following table presents components of "inventories" recorded in the Company's balance sheets:
(In thousands)September 2023December 2022September 2022
Finished products$526,633 $509,554 $584,480 
Work-in-process34,325 34,316 37,823 
Raw materials44,276 52,966 55,904 
Total inventories$605,234 $596,836 $678,207 

NOTE 6 — SUPPLY CHAIN FINANCING
The Company facilitates voluntary Supply Chain Finance ("SCF") programs with its financial institutions that allow certain suppliers the option to sell or assign their rights to receivables due from the Company, enabling the suppliers to receive payment from the financial institutions sooner than our negotiated payment terms. Participation in an SCF program is based on terms and conditions negotiated directly between the suppliers and the financial institutions. The Company agrees to commercial terms with suppliers independent of their participation in an SCF program, and thus their participation has no impact on our payment terms. The Company is not a party to the agreements between our suppliers and the financial institutions, and has no economic interest in our suppliers' decision to participate in an SCF program. Suppliers who participate in an SCF program have sole discretion to determine which invoices, if any, are to be sold to the financial institutions. All amounts payable to suppliers who participate in SCF programs are included within "accounts payable" in the Company's balance sheets, and the Company's associated payments are included in operating activities in the Company's statements of cash flows. At September 2023, December 2022 and September 2022, accounts payable included total outstanding balances of $21.9 million, $24.7 million and $21.0 million, respectively, due to suppliers that participate in the SCF programs.

NOTE 7 — SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term Borrowings
At September 2023, December 2022 and September 2022, the Company had $23.7 million, $24.8 million and $24.3 million, respectively, of 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 no outstanding balance under these arrangements at September 2023, and $7.1 million and $6.9 million of outstanding balances at December 2022 and September 2022, respectively. In addition, short-term borrowings included other debt of $0.2 million at both December 2022 and September 2022, with no balance remaining at September 2023.
Long-term Debt
The following table presents the components of "long-term debt" as recorded in the Company's balance sheets:
(In thousands)September 2023December 2022September 2022
Revolving Credit Facility$ $ $40,000 
Term Loan A390,849 397,954 397,822 
4.125% Notes, due 2029
395,246 394,665 394,471 
Total long-term debt786,095 792,619 832,293 
Less: current portion(17,500)(10,000)(7,500)
Long-term debt, due beyond one year$768,595 $782,619 $824,793 
Credit Facilities
On November 18, 2021, the Company completed a refinancing pursuant to which it issued $400.0 million of unsecured Notes (as defined below) and amended and restated its senior secured Credit Agreement (the “Credit Agreement”). The Credit Agreement provides for (i) a five-year $400.0 million term loan A facility (“Term Loan A”), with quarterly mandatory repayments which commenced in March 2023 and (ii) a five-year $500.0 million revolving credit facility (the “Revolving Credit Facility”) (collectively, the “Credit Facilities”) with the lenders and agents party thereto.

Kontoor Brands, Inc. Q3 FY23 Form 10-Q 12



KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Term Loan A had an outstanding principal amount of $392.5 million at September 2023, and $400.0 million at both December 2022 and September 2022, which is reported net of unamortized deferred financing costs. As of September 2023, interest expense on Term Loan A was being recorded at an effective annual interest rate of 4.4%, including the amortization of deferred financing costs and the impact of the Company’s interest rate swap.
The Revolving Credit Facility may be used to borrow funds in both U.S. dollar and certain non-U.S. dollar currencies, and has a $75.0 million letter of credit sublimit. As of September 2023, the Company had no outstanding borrowings under the Revolving Credit Facility and $11.7 million of outstanding standby letters of credit issued on behalf of the Company, leaving $488.3 million available for borrowing against this facility.
The interest rate per annum applicable to the Credit Agreement is an interest rate benchmark elected by the Company based on the currency and term of the borrowing plus an applicable margin, as defined therein.
The Credit Agreement contains certain affirmative and negative covenants customary for financings of this type as well as customary events of default. In addition, the Credit Agreement contains financial covenants which require compliance with (i) a total leverage ratio not to exceed 4.50 to 1.00 as of the last day of any test period, with an allowance for up to two elections to increase the limit to 5.00 to 1.00 in connection with certain material acquisitions, and (ii) a consolidated interest coverage ratio as of the last day of any test period to be no less than 3.00 to 1.00. As of September 2023, the Company was in compliance with all covenants and expects to maintain compliance with the applicable covenants for at least one year from the issuance of these financial statements.
Senior Notes
On November 18, 2021, the Company entered into an indenture (the “Indenture”) by and among the Company and certain subsidiaries of the Company named as guarantors therein (the “Guarantors”), pursuant to which it issued $400.0 million of unsecured senior notes due November 2029 (the “Notes”) through a private placement pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended. The Notes bear interest at a fixed rate of 4.125% per annum, payable in cash in arrears on May 15 and November 15 of each year.
The Notes had an outstanding principal amount of $400.0 million at September 2023, December 2022 and September 2022, which is reported net of unamortized deferred financing costs. As of September 2023, interest expense on the Notes was being recorded at an effective annual interest rate of 4.3%, including the amortization of deferred financing costs.
The Notes are guaranteed on a senior unsecured basis by the Company’s existing and future domestic subsidiaries (other than certain excluded subsidiaries) that are borrowers under or guarantors of the Credit Facilities or certain other indebtedness. The Indenture governing the Notes contains customary negative covenants for financings of this type. The Indenture does not contain any financial covenants. As of September 2023, the Company was in compliance with the Indenture and expects to maintain compliance with the applicable covenants for at least one year from the issuance of these financial statements.
Refer to Note 10 in the Company's 2022 Annual Report on Form 10-K for additional information regarding the Company’s debt obligations.
Total cash paid for interest was $23.5 million and $18.7 million during the nine months ended September 2023 and September 2022, respectively.

NOTE 8 — FAIR VALUE MEASUREMENTS
Certain assets and liabilities measured and reported at fair value are classified in a three-level hierarchy that prioritizes the inputs used in the valuation process. Categorization within the valuation hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The hierarchy is based on the observability and objectivity of the pricing inputs, as follows:
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Significant directly observable data (other than Level 1 quoted prices) or significant indirectly observable data through corroboration with observable market data. Inputs would normally be (i) quoted prices in active markets for similar assets or liabilities, (ii) quoted prices in inactive markets for identical or similar assets or liabilities or (iii) information derived from or corroborated by observable market data.
Level 3 — Prices or valuation techniques that require significant unobservable data inputs. These inputs would normally be the Company's own data and judgments about assumptions that market participants would use in pricing the asset or liability.


13 Kontoor Brands, Inc. Q3 FY23 Form 10-Q


KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Recurring Fair Value Measurements
The following tables present financial assets and financial liabilities that are measured and recorded in the Company's financial statements at fair value on a recurring basis:
 Fair Value Measurement Using
(In thousands)Total Fair ValueLevel 1Level 2Level 3
September 2023
Financial assets:
Cash equivalents:
Money market funds$53,655 $53,655 $ $ 
Time deposits2,286 2,286   
Foreign currency exchange contracts19,731  19,731  
Interest rate swap agreements6,067  6,067  
Investment securities44,841 44,841   
Financial liabilities:
Foreign currency exchange contracts1,774  1,774  
Deferred compensation46,799  46,799  
 Fair Value Measurement Using
(In thousands)Total Fair ValueLevel 1Level 2Level 3
December 2022
Financial assets:
Cash equivalents:
Money market funds$20,097 $20,097 $ $ 
Time deposits2,194 2,194   
Foreign currency exchange contracts15,565  15,565  
Interest rate swap agreements11,357  11,357  
Investment securities43,131 43,131   
Financial liabilities:
Foreign currency exchange contracts2,307  2,307  
Deferred compensation44,589  44,589  
The Company's cash equivalents include money market funds and short-term time deposits that approximate fair value based on Level 1 measurements. The fair value of derivative financial instruments, which consist of foreign currency exchange contracts and interest rate swap agreements, is determined based on observable market inputs (Level 2), including spot and forward exchange rates for foreign currencies and observable interest rate yield curves for interest rate swap agreements. Investment securities are held in the Company's deferred compensation plans as an economic hedge of the related deferred compensation liabilities and are comprised of mutual funds that are valued based on quoted prices in active markets (Level 1). Liabilities related to the Company's deferred compensation plans are recorded at amounts due to participants, based on the fair value of the participants’ selection of hypothetical investments (Level 2).
Additionally, at September 2023, the carrying value of the Company's long-term debt was $786.1 million compared to a fair value of $720.5 million. At December 2022, the carrying value of the Company's long-term debt was $792.6 million compared to a fair value of $718.0 million. The fair value of long-term debt is a Level 2 estimate based on quoted market prices or values of comparable borrowings.
All other financial assets and financial liabilities are recorded in the Company's financial statements at cost. These other financial assets and financial liabilities include cash held as demand deposits, accounts receivable, short-term borrowings, accounts payable, and accrued liabilities. At September 2023 and December 2022, their carrying values approximated fair value due to the short-term nature of these instruments.


Kontoor Brands, Inc. Q3 FY23 Form 10-Q 14



KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 9 — DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
Summary of Derivative Financial Instruments
The Company enters into derivative contracts with external counterparties to hedge certain foreign currency transactions. The notional amount of all outstanding foreign currency exchange contracts was $339.9 million at September 2023, $322.3 million at December 2022 and $292.8 million at September 2022, consisting primarily of contracts hedging exposures to the euro, Mexican peso, Canadian dollar, British pound, Polish zloty and Swedish krona. Foreign currency exchange contracts have maturities up to 20 months.
During 2019, the Company entered into "floating to fixed" interest rate swap agreements to mitigate exposure to volatility in reference rates on the Company's future interest payments. The notional amount of the interest rate swap agreements was $300.0 million at September 2023, December 2022 and September 2022. Because these interest rate swap agreements meet the criteria for hedge accounting, all related gains and losses are deferred within accumulated other comprehensive loss ("AOCL") and are being amortized through April 18, 2024.
The Company's outstanding derivative financial instruments met the criteria for hedge accounting at the inception of the hedging relationships. At each reporting period, the Company assesses whether the hedging relationships continue to be highly effective in offsetting changes in cash flows of hedged items. If the Company determines that a specific hedging relationship has ceased to be highly effective, it would discontinue hedge accounting for the hedging relationship. All designated hedging relationships were determined to be highly effective as of September 2023.
The following table presents the fair value of outstanding derivatives on an individual contract basis:
Fair Value of Derivatives
with Unrealized Gains
Fair Value of Derivatives
with Unrealized Losses
SeptemberDecemberSeptemberSeptemberDecemberSeptember
(In thousands)202320222022202320222022
Derivatives designated as hedging instruments:
Foreign currency exchange contracts$19,717 $15,565 $21,329 $(1,737)$(2,307)$(186)
Interest rate swap agreements6,067 11,357 11,494    
Derivatives not designated as hedging instruments:
Foreign currency exchange contracts14  30 (37)  
Total derivatives$25,798 $26,922 $32,853 $(1,774)$(2,307)$(186)
The Company records and presents the fair value of all derivative assets and liabilities in the Company's balance sheets on a gross basis, even though certain derivative contracts are subject to master netting agreements. If the Company were to offset and record the asset and liability balances of its derivative contracts on a net basis in accordance with the terms of its master netting agreements, the amounts presented in the Company's balance sheets would be adjusted from the current gross presentation to the net amounts.
The following table presents a reconciliation of gross to net amounts for derivative asset and liability balances:
September 2023December 2022September 2022
(In thousands)Derivative AssetDerivative LiabilityDerivative AssetDerivative LiabilityDerivative AssetDerivative Liability
Gross amounts presented in the balance sheet$25,798 $(1,774)$26,922 $(2,307)$32,853 $(186)
Gross amounts not offset in the balance sheet(1,774)1,774 (1,629)1,629 (186)186 
Net amounts$24,024 $ $25,293 $(678)$32,667 $ 

15 Kontoor Brands, Inc. Q3 FY23 Form 10-Q


KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
The following table presents the location of derivatives in the Company's balance sheets, with current or noncurrent classification based on maturity dates:
(In thousands)September 2023December 2022September 2022
Prepaid expenses and other current assets$24,220 $14,183 $18,523 
Accrued liabilities(1,442)(1,218)(134)
Other assets1,578 12,739 14,330 
Other liabilities(332)(1,089)(52)
Cash Flow Hedges
The following tables present the pre-tax effects of cash flow hedges included in the Company's statements of operations and statements of comprehensive income:
Gain (Loss) on Derivatives Recognized in AOCL
(In thousands)Three Months Ended SeptemberNine Months Ended September
Cash Flow Hedging Relationships2023202220232022
Foreign currency exchange contracts$5,700 $12,414 $23,829 $26,654 
Interest rate swap agreements202 5,327 1,910 15,881 
Total$5,902 $17,741 $25,739 $42,535 
Gain (Loss) Reclassified from AOCL into Income
(In thousands)Three Months Ended SeptemberNine Months Ended September
Location of Gain (Loss)2023202220232022
Net revenues$(37)$(401)$(270)$(794)
Cost of goods sold7,095 4,228 17,343 8,954 
Other expense, net128 168 424 67 
Interest expense2,664 346 7,200 (1,665)
Total$9,850 $4,341 $24,697 $6,562 
Other Derivative Information
Any contracts that are not designated as hedges are recorded at fair value in the Company's balance sheets. Changes in the fair values of derivative contracts not designated as hedges are recognized directly in earnings. There were no significant amounts recognized in earnings for the ineffective portion of any hedging relationships or changes in the fair values of derivative contracts not designated as hedges during the three and nine months ended September 2023 and September 2022.
At September 2023, AOCL included $27.1 million of pre-tax net deferred gains for foreign currency exchange contracts and interest rate swap agreements that are expected to be reclassified to earnings during the next 12 months. The amounts ultimately reclassified to earnings will depend on rates in effect when outstanding derivative contracts are settled.

NOTE 10 — ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table presents deferred components of AOCL in equity, net of related taxes:
(In thousands)September 2023December 2022September 2022