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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 28, 2024
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 October 25, 2024 was 55,141,472.
KONTOOR BRANDS, INC.
Table of Contents
Kontoor Brands, Inc. Q3 FY24 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 2024 | | | December 2023 | | September 2023 |
| ASSETS | | | | | | | |
| Current assets | | | | | | | |
| Cash and cash equivalents | | $ | 269,427 | | | | $ | 215,050 | | | $ | 77,828 | |
| Accounts receivable, net | | 230,435 | | | | 217,673 | | | 236,816 | |
| Inventories | | 461,510 | | | | 500,353 | | | 605,234 | |
| Prepaid expenses and other current assets | | 104,855 | | | | 110,808 | | | 113,186 | |
| Total current assets | | 1,066,227 | | | | 1,043,884 | | | 1,033,064 | |
| Property, plant and equipment, net | | 106,842 | | | | 112,045 | | | 110,399 | |
| Operating lease assets | | 54,638 | | | | 54,812 | | | 63,114 | |
| Intangible assets, net | | 11,778 | | | | 12,497 | | | 12,553 | |
| Goodwill | | 209,843 | | | | 209,862 | | | 209,413 | |
| | | | | | | |
| Other assets | | 203,795 | | | | 212,339 | | | 197,387 | |
| TOTAL ASSETS | | $ | 1,653,123 | | | | $ | 1,645,439 | | | $ | 1,625,930 | |
| LIABILITIES AND EQUITY | | | | | | | |
| Current liabilities | | | | | | | |
| Short-term borrowings | | $ | — | | | | $ | — | | | $ | — | |
| Current portion of long-term debt | | — | | | | 20,000 | | | 17,500 | |
| Accounts payable | | 201,863 | | | | 180,220 | | | 182,448 | |
| Accrued and other current liabilities | | 204,375 | | | | 171,414 | | | 168,356 | |
| Operating lease liabilities, current | | 21,050 | | | | 21,003 | | | 20,975 | |
| Total current liabilities | | 427,288 | | | | 392,637 | | | 389,279 | |
| Operating lease liabilities, noncurrent | | 36,572 | | | | 36,753 | | | 41,348 | |
| | | | | | | |
| Other liabilities | | 87,350 | | | | 80,215 | | | 79,084 | |
| Long-term debt | | 744,986 | | | | 763,921 | | | 768,595 | |
| | | | | | | |
| Total liabilities | | 1,296,196 | | | | 1,273,526 | | | 1,278,306 | |
| Commitments and contingencies | | | | | | | |
| Equity | | | | | | | |
Preferred Stock, no par value; shares authorized, 90,000,000; no shares outstanding at September 2024, December 2023 and September 2023 | | — | | | | — | | | — | |
Common Stock, no par value; shares authorized, 600,000,000; shares outstanding of 55,134,865 at September 2024; 55,720,251 at December 2023 and 56,173,518 at September 2023 | | — | | | | — | | | — | |
| Additional paid-in capital | | 300,537 | | | | 273,197 | | | 261,966 | |
| Retained earnings | | 166,033 | | | | 166,567 | | | 156,491 | |
| Accumulated other comprehensive loss | | (109,643) | | | | (67,851) | | | (70,833) | |
Total equity | | 356,927 | | | | 371,913 | | | 347,624 | |
| TOTAL LIABILITIES AND EQUITY | | $ | 1,653,123 | | | | $ | 1,645,439 | | | $ | 1,625,930 | |
See accompanying notes to unaudited consolidated financial statements.
3 Kontoor Brands, Inc. Q3 FY24 Form 10-Q
KONTOOR BRANDS, INC.
Consolidated Statements of Operations
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September | | | Nine Months Ended September |
| | | | | | | | | | | |
| (In thousands, except per share amounts) | | 2024 | | | 2023 | | | 2024 | | | 2023 |
| Net revenues | | $ | 670,194 | | | | $ | 654,540 | | | | $ | 1,908,294 | | | | $ | 1,937,672 | |
| Costs and operating expenses | | | | | | | | | | | |
| Cost of goods sold | | 370,684 | | | | 383,075 | | | | 1,052,280 | | | | 1,129,245 | |
| Selling, general and administrative expenses | | 201,189 | | | | 185,983 | | | | 598,020 | | | | 564,599 | |
| | | | | | | | | | | |
| Total costs and operating expenses | | 571,873 | | | | 569,058 | | | | 1,650,300 | | | | 1,693,844 | |
| Operating income | | 98,321 | | | | 85,482 | | | | 257,994 | | | | 243,828 | |
| Interest expense | | (11,178) | | | | (10,454) | | | | (30,852) | | | | (30,390) | |
| Interest income | | 2,965 | | | | 964 | | | | 8,006 | | | | 2,074 | |
| Other expense, net | | (3,335) | | | | (3,764) | | | | (9,239) | | | | (9,142) | |
| Income before income taxes | | 86,773 | | | | 72,228 | | | | 225,909 | | | | 206,370 | |
| Income taxes | | 16,225 | | | | 12,697 | | | | 44,085 | | | | 44,147 | |
| Net income | | $ | 70,548 | | | | $ | 59,531 | | | | $ | 181,824 | | | | $ | 162,223 | |
| Earnings per common share | | | | | | | | | | | |
| Basic | | $ | 1.27 | | | | $ | 1.06 | | | | $ | 3.27 | | | | $ | 2.90 | |
| Diluted | | $ | 1.26 | | | | $ | 1.05 | | | | $ | 3.22 | | | | $ | 2.85 | |
| Weighted average shares outstanding | | | | | | | | | | | |
| Basic | | 55,421 | | | | 56,151 | | | | 55,655 | | | | 55,962 | |
| Diluted | | 56,054 | | | | 56,956 | | | | 56,416 | | | | 56,914 | |
See accompanying notes to unaudited consolidated financial statements.
Kontoor Brands, Inc. Q3 FY24 Form 10-Q 4
KONTOOR BRANDS, INC.
Consolidated Statements of Comprehensive Income
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September | | | Nine Months Ended September |
| | | | | | | | | | | |
| (In thousands) | | 2024 | | | 2023 | | | 2024 | | | 2023 |
| Net income | | $ | 70,548 | | | | $ | 59,531 | | | | $ | 181,824 | | | | $ | 162,223 | |
| Other comprehensive (loss) income | | | | | | | | | | | |
| Net change in foreign currency translation | | 1,730 | | | | (6,916) | | | | (9,939) | | | | 5,936 | |
| Net change in defined benefit pension plans | | (71) | | | | (37) | | | | (211) | | | | (107) | |
| Net change in derivative financial instruments | | (16,366) | | | | (3,787) | | | | (31,642) | | | | 3,003 | |
| Total other comprehensive (loss) income, net of related taxes | | (14,707) | | | | (10,740) | | | | (41,792) | | | | 8,832 | |
| Comprehensive income | | $ | 55,841 | | | | $ | 48,791 | | | | $ | 140,032 | | | | $ | 171,055 | |
See accompanying notes to unaudited consolidated financial statements.
5 Kontoor Brands, Inc. Q3 FY24 Form 10-Q
KONTOOR BRANDS, INC.
Consolidated Statements of Cash Flows
(Unaudited)
| | | | | | | | | | | | | | | | | |
| | | Nine Months Ended September |
| | | | | |
| (In thousands) | | 2024 | | | 2023 |
| OPERATING ACTIVITIES | | | | | |
| Net income | | $ | 181,824 | | | | $ | 162,223 | |
| Adjustments to reconcile net income to cash provided by operating activities: | | | | | |
| Depreciation and amortization | | 29,052 | | | | 27,405 | |
| Stock-based compensation | | 16,316 | | | | 9,017 | |
| Provision for doubtful accounts | | 951 | | | | 87 | |
| | | | | |
| Other | | 4,227 | | | | 10,331 | |
| Changes in operating assets and liabilities: | | | | | |
| Accounts receivable | | (16,012) | | | | (10,660) | |
| Inventories | | 35,270 | | | | (6,354) | |
| Accounts payable | | 22,502 | | | | (23,145) | |
| Income taxes | | 473 | | | | (24,064) | |
| Accrued and other current liabilities | | 28,108 | | | | (10,170) | |
| Other assets and liabilities | | (16,453) | | | | 12,856 | |
| Cash provided by operating activities | | 286,258 | | | | 147,526 | |
| INVESTING ACTIVITIES | | | | | |
| Property, plant and equipment expenditures | | (11,841) | | | | (21,553) | |
| Capitalized computer software | | (2,766) | | | | (8,940) | |
| | | | | |
| Other | | (1,858) | | | | (837) | |
| Cash used by investing activities | | (16,465) | | | | (31,330) | |
| FINANCING ACTIVITIES | | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Borrowings under revolving credit facility | | — | | | | 288,000 | |
Repayments under revolving credit facility | | — | | | | (288,000) | |
| Repayments of term loan | | (40,000) | | | | (7,500) | |
| | | | | |
| Repurchases of Common Stock | | (85,677) | | | | — | |
| Dividends paid | | (83,306) | | | | (80,719) | |
| Shares withheld for taxes, net of proceeds from issuance of Common Stock | | (1,769) | | | | (2,506) | |
| Other | | — | | | | (7,297) | |
| Cash used by financing activities | | (210,752) | | | | (98,022) | |
| Effect of foreign currency rate changes on cash and cash equivalents | | (4,664) | | | | 475 | |
| Net change in cash and cash equivalents | | 54,377 | | | | 18,649 | |
| Cash and cash equivalents – beginning of period | | 215,050 | | | | 59,179 | |
| Cash and cash equivalents – end of period | | $ | 269,427 | | | | $ | 77,828 | |
See accompanying notes to unaudited consolidated financial statements.
Kontoor Brands, Inc. Q3 FY24 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 2023 | | 55,720 | | | $ | — | | | $ | 273,197 | | | $ | 166,567 | | | $ | (67,851) | | | $ | 371,913 | | |
| Net income | | — | | | — | | | — | | | 59,507 | | | — | | | 59,507 | | |
| Stock-based compensation, net | | 309 | | | — | | | 11,209 | | | (7,106) | | | — | | | 4,103 | | |
| Other comprehensive loss | | — | | | — | | | — | | | — | | | (381) | | | (381) | | |
Dividends on Common Stock ($0.50 per share) | | — | | | — | | | — | | | (27,844) | | | — | | | (27,844) | | |
| Repurchases of Common Stock | | (337) | | | — | | | (105) | | | (20,000) | | | — | | | (20,105) | | |
| Balance, March 2024 | | 55,692 | | | $ | — | | | $ | 284,301 | | | $ | 171,124 | | | $ | (68,232) | | | $ | 387,193 | | |
| Net income | | — | | | — | | | — | | | 51,769 | | | — | | | 51,769 | | |
| Stock-based compensation, net | | 327 | | | — | | | 13,383 | | | (5,436) | | | — | | | 7,947 | | |
| Other comprehensive loss | | — | | | — | | | — | | | — | | | (26,704) | | | (26,704) | | |
Dividends on Common Stock ($0.50 per share) | | — | | | — | | | — | | | (27,888) | | | — | | | (27,888) | | |
| Repurchases of Common Stock | | (345) | | | — | | | (166) | | | (25,000) | | | — | | | (25,166) | | |
| Balance, June 2024 | | 55,674 | | | $ | — | | | $ | 297,518 | | | $ | 164,569 | | | $ | (94,936) | | | $ | 367,151 | | |
| Net income | | — | | | — | | | — | | | 70,548 | | | — | | | 70,548 | | |
| Stock-based compensation, net | | 26 | | | — | | | 3,405 | | | (1,490) | | | — | | | 1,915 | | |
| Other comprehensive loss | | — | | | — | | | — | | | — | | | (14,707) | | | (14,707) | | |
Dividends on Common Stock ($0.50 per share) | | — | | | — | | | — | | | (27,574) | | | — | | | (27,574) | | |
| Repurchases of Common Stock | | (565) | | | — | | | (386) | | | (40,020) | | | — | | | (40,406) | | |
| Balance, September 2024 | | 55,135 | | | $ | — | | | $ | 300,537 | | | $ | 166,033 | | | $ | (109,643) | | | $ | 356,927 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Equity | | |
| | | | | | |
| (In thousands, except per share amounts) | | Shares | | Amounts | | | | | |
| | | | | | | | | | | | | |
| Balance, December 2022 | | 55,517 | | | $ | — | | | $ | 243,696 | | | $ | 86,726 | | | $ | (79,665) | | | $ | 250,757 | | | |
| Net income | | — | | | — | | | — | | | 66,296 | | | — | | | 66,296 | | | |
| Stock-based compensation, net | | 417 | | | — | | | 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 2023 | | 55,934 | | | $ | — | | | $ | 251,108 | | | $ | 116,185 | | | $ | (68,005) | | | $ | 299,288 | | | |
| Net income | | — | | | — | | | — | | | 36,396 | | | — | | | 36,396 | | | |
| Stock-based compensation, net | | 176 | | | — | | | 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 2023 | | 56,110 | | | $ | — | | | $ | 258,349 | | | $ | 124,995 | | | $ | (60,093) | | | $ | 323,251 | | | |
| Net income | | — | | | — | | | — | | | 59,531 | | | — | | | 59,531 | | | |
| Stock-based compensation, net | | 64 | | | — | | | 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 2023 | | 56,174 | | | $ | — | | | $ | 261,966 | | | $ | 156,491 | | | $ | (70,833) | | | $ | 347,624 | | | |
See accompanying notes to unaudited consolidated financial statements.
7 Kontoor Brands, Inc. Q3 FY24 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, manufactures, procures, sells 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, department stores, company-operated stores and online, including digital marketplaces. The Company's products are also sold internationally, primarily in the Europe, Asia-Pacific and Non-U.S. Americas regions, through department, specialty, company-operated, concession retail and independently-operated partnership stores and online, including digital marketplaces.
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 28, 2024 ("fiscal 2024"), which is a 52-week fiscal year. For presentation purposes herein, all references to periods ended September 2024, December 2023 and September 2023 correspond to the fiscal periods ended September 28, 2024, December 30, 2023 and September 30, 2023, respectively.
Macroeconomic Environment and Other Recent Developments
Global macroeconomic conditions that continued to impact the Company include ongoing elevated interest rates, moderating inflation, fluctuating foreign currency exchange rates, supply chain issues and inconsistent consumer demand. These factors continue to contribute to uncertain global economic conditions and consumer spending patterns, which are impacting retailers' and the Company's operations. Additionally, the conflicts in Ukraine and the Middle East are causing disruption in the surrounding areas and greater uncertainty in the global economy. The Company considered the impact of these developments on the assumptions and estimates used when preparing these quarterly financial statements including, but not limited to, our allowance for doubtful accounts, inventory valuations, liabilities for variable consideration, deferred tax valuation allowances, fair value measurements including asset impairment evaluations, the effectiveness of the Company’s hedging instruments and expected compliance with all applicable financial covenants in our Credit Agreement (as defined in Note 7 to the Company's financial statements in this Form 10-Q). 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 2024 are not necessarily indicative of results that may be expected for any other interim period or for fiscal 2024. The unaudited financial statements should be read in conjunction with the audited consolidated financial statements included in the Company's 2023 Annual Report on Form 10-K for the fiscal year ended December 30, 2023, as filed with the Securities and Exchange Commission on February 28, 2024 ("2023 Annual Report on Form 10-K").
Out-of-Period Duty Expense Recorded in 2023
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 an underpayment of duties owed to U.S. Customs for the 2021 to 2023 periods. Accordingly, the Company recorded $13.1 million in adjustments in the third quarter of 2023 within "cost of goods sold" to accrue for this underpayment of duty expense. The out-of-period duty expense recorded in 2023 results in a lack of comparability between periods in the statements of operations, primarily in cost of goods sold.
Recently Adopted Accounting Standards
In September 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2022-04, "Disclosure of Supplier Finance Program Obligations," which requires entities that provide 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 sheets 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 an annual rollforward of obligations which is effective beginning in 2024 and will be disclosed in our 2024 annual report on Form 10-K. Refer to Note 6 to the Company's financial statements in this Form 10-Q for additional information related to our supply chain finance programs.
Kontoor Brands, Inc. Q3 FY24 Form 10-Q 8
KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Recently Issued Accounting Standards
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures," which requires enhanced disclosures about significant segment expenses. This guidance is effective for annual disclosures in fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. This guidance requires retrospective application to all prior periods presented in the financial statements. The Company is currently evaluating the impact that adoption of this guidance will have on its financial statements and disclosures.
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures," which requires disclosure of specific categories and greater disaggregation within the income tax rate reconciliation, and disclosure of disaggregated income taxes paid. This guidance is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact that adoption of this guidance will have on its financial statements and disclosures.
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 2024 | |
| | | | | | | | |
| (In thousands) | Wrangler | | Lee | | Other | | Total | |
| | | | | | | |
| Channel revenues | | | | | | | | |
| U.S. Wholesale | $ | 373,643 | | | $ | 105,342 | | | $ | 3,577 | | | $ | 482,562 | | |
| Non-U.S. Wholesale | 51,599 | | | 65,268 | | | — | | | 116,867 | | |
| Direct-to-Consumer | 38,865 | | | 31,733 | | | 167 | | | 70,765 | | |
| | | | | | | | |
| Total | $ | 464,107 | | | $ | 202,343 | | | $ | 3,744 | | | $ | 670,194 | | |
| | | | | | | | |
| Geographic revenues | | | | | | | | |
| U.S. | $ | 406,656 | | | $ | 119,254 | | | $ | 3,744 | | | $ | 529,654 | | |
| International | 57,451 | | | 83,089 | | | — | | | 140,540 | | |
| Total | $ | 464,107 | | | $ | 202,343 | | | $ | 3,744 | | | $ | 670,194 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 2023 | |
| | | | | | | | |
| (In thousands) | Wrangler | | Lee | | Other | | Total | |
| Channel revenues | | | | | | | | |
| U.S. Wholesale | $ | 355,608 | | | $ | 103,564 | | | $ | 1,799 | | | $ | 460,971 | | |
| Non-U.S. Wholesale | 53,644 | | | 71,433 | | | — | | | 125,077 | | |
| Direct-to-Consumer | 35,287 | | | 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 | | |
| International | 59,038 | | | 89,675 | | | — | | | 148,713 | | |
| Total | $ | 444,539 | | | $ | 208,027 | | | $ | 1,974 | | | $ | 654,540 | | |
| | | | | | | | |
9 Kontoor Brands, Inc. Q3 FY24 Form 10-Q
KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Nine Months Ended September 2024 | |
| | | | | | | | |
| (In thousands) | Wrangler | | Lee | | Other | | Total | |
| | | | | | | |
| Channel revenues | | | | | | | | |
| U.S. Wholesale | $ | 1,055,744 | | | $ | 321,102 | | | $ | 7,831 | | | $ | 1,384,677 | | |
| Non-U.S. Wholesale | 136,331 | | | 170,548 | | | — | | | 306,879 | | |
| Direct-to-Consumer | 110,771 | | | 105,435 | | | 532 | | | 216,738 | | |
| | | | | | | | |
| Total | $ | 1,302,846 | | | $ | 597,085 | | | $ | 8,363 | | | $ | 1,908,294 | | |
| | | | | | | | |
| Geographic revenues | | | | | | | | |
| U.S. | $ | 1,147,096 | | | $ | 362,436 | | | $ | 8,363 | | | $ | 1,517,895 | | |
| International | 155,750 | | | 234,649 | | | — | | | 390,399 | | |
| Total | $ | 1,302,846 | | | $ | 597,085 | | | $ | 8,363 | | | $ | 1,908,294 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| Nine Months Ended September 2023 | |
| | | | | | | | |
| (In thousands) | Wrangler | | Lee | | Other | | Total | |
| Channel revenues | | | | | | | | |
| U.S. Wholesale | $ | 1,048,491 | | | $ | 337,081 | | | $ | 7,393 | | | $ | 1,392,965 | | |
| Non-U.S. Wholesale | 143,667 | | | 188,670 | | | 10 | | | 332,347 | | |
| Direct-to-Consumer | 101,013 | | | 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 | | |
| International | 160,430 | | | 254,394 | | | 10 | | | 414,834 | | |
| Total | $ | 1,293,171 | | | $ | 636,684 | | | $ | 7,817 | | | $ | 1,937,672 | | |
Contract Balances and Performance Obligations
The following table presents information about contract balances recorded in the Company's balance sheets:
| | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | September 2024 | | | December 2023 | | September 2023 |
| Accounts receivable, net | | $ | 230,435 | | | | $ | 217,673 | | | $ | 236,816 | |
Contract assets (a) | | 9,729 | | | | 10,929 | | | 8,704 | |
Contract liabilities (b) | | 2,008 | | | | 1,713 | | | 1,348 | |
(a) Included within "prepaid expenses and other current assets" in the Company's balance sheets.
(b) Included within "accrued and other current liabilities" in the Company's balance sheets.
For the three and nine months ended September 2024 and September 2023, no significant revenue was recognized that was included in contract liabilities as of December 2023 and December 2022, respectively. For the three and nine months ended September 2024, no significant revenue was recognized from performance obligations satisfied, or partially satisfied, in prior periods. As of September 2024, the Company has contractual rights under its licensing agreements to receive $84.6 million of fixed consideration related to the future minimum guarantees through December 2029.
Kontoor Brands, Inc. Q3 FY24 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, footwear and accessories.
•Lee — Lee® branded denim, apparel, footwear and accessories.
The Company considers its chief executive officer to be its chief operating decision maker. The chief operating decision maker allocates resources and assesses performance based on the global brand operating results of Wrangler® and Lee®, which are the Company's operating and reportable segments.
In addition, we report an "Other" category to reconcile segment revenues and segment profit to the Company's operating results, but the Other category does not meet the criteria to be considered a reportable segment. Other includes sales and licensing of Rock & Republic®, other company-owned brands and private label apparel.
Accounting policies utilized for internal management reporting at the individual segments are consistent with those disclosed in the Company's 2023 Annual Report on Form 10-K. Corporate and other expenses, including certain restructuring and transformation costs, and interest income and expense are not controlled by segment management and therefore are excluded from the measurement of segment profit.
The following table presents financial information for the Company's reportable segments and income before income taxes:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended September | | | Nine Months Ended September |
| | | | | | | | | | | |
| (In thousands) | | 2024 | | | 2023 | | | 2024 | | | 2023 |
| Segment revenues: | | | | | | | | | | | |
| Wrangler | | $ | 464,107 | | | | $ | 444,539 | | | | $ | 1,302,846 | | | | $ | 1,293,171 | |
| Lee | | 202,343 | | | | 208,027 | | | | 597,085 | | | | 636,684 | |
| Total reportable segment revenues | | 666,450 | | | | 652,566 | | | | 1,899,931 | | | | 1,929,855 | |
| Other revenues | | 3,744 | | | | 1,974 | | | | 8,363 | | | | 7,817 | |
| Total net revenues | | $ | 670,194 | | | | $ | 654,540 | | | | $ | 1,908,294 | | | | $ | 1,937,672 | |
| Segment profit: | | | | | | | | | | | |
| Wrangler | | $ | 97,753 | | | | $ | 81,556 | | | | $ | 260,758 | | | | $ | 223,639 | |
| Lee | | 23,355 | | | | 20,735 | | | | 71,816 | | | | 77,473 | |
| Total reportable segment profit | | $ | 121,108 | | | | $ | 102,291 | | | | $ | 332,574 | | | | $ | 301,112 | |
| Corporate and other expenses | | (26,307) | | | | (20,091) | | | | (82,745) | | | | (65,815) | |
| Interest expense | | (11,178) | | | | (10,454) | | | | (30,852) | | | | (30,390) | |
| Interest income | | 2,965 | | | | 964 | | | | 8,006 | | | | 2,074 | |
| Profit (loss) related to other revenues | | 185 | | | | (482) | | | | (1,074) | | | | (611) | |
| Income before income taxes | | $ | 86,773 | | | | $ | 72,228 | | | | $ | 225,909 | | | | $ | 206,370 | |
11 Kontoor Brands, Inc. Q3 FY24 Form 10-Q
KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
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) | | 2024 | | | 2023 |
| | | | | |
| Balance, December | | $ | 7,215 | | | | $ | 9,918 | |
| Increase in provision for expected credit losses | | 951 | | | | 87 | |
| Accounts receivable balances written off | | (950) | | | | (1,247) | |
Other (1) | | 100 | | | | (105) | |
| Balance, September | | $ | 7,316 | | | | $ | 8,653 | |
(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 2024 and September 2023, the Company sold total trade accounts receivable of $1,016.8 million and $1,023.5 million, respectively. As of September 2024, December 2023 and September 2023, $243.1 million, $197.7 million and $216.2 million, respectively, of the sold trade accounts receivable were no longer reflected in 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 $3.2 million and $9.0 million for the three and nine months ended September 2024, respectively, and $3.0 million and $9.1 million for the three and nine months ended September 2023, 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) | | September 2024 | | | December 2023 | | September 2023 |
| Finished products | | $ | 389,181 | | | | $ | 421,051 | | | $ | 526,633 | |
| Work-in-process | | 33,789 | | | | 35,722 | | | 34,325 | |
| Raw materials | | 38,540 | | | | 43,580 | | | 44,276 | |
| Total inventories | | $ | 461,510 | | | | $ | 500,353 | | | $ | 605,234 | |
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. At September 2024, December 2023 and September 2023, accounts payable included total outstanding balances of $34.1 million, $19.7 million and $21.9 million, respectively, due to suppliers that participate in the SCF programs.
Kontoor Brands, Inc. Q3 FY24 Form 10-Q 12
KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 7 — SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term Borrowings
At September 2024, December 2023 and September 2023, the Company had $20.0 million, $24.1 million and $23.7 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 were no outstanding balances under these arrangements at September 2024, December 2023 and 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 2024 | | | December 2023 | | September 2023 |
| Revolving Credit Facility | | $ | — | | | | $ | — | | | $ | — | |
| Term Loan A | | 348,965 | | | | 388,481 | | | 390,849 | |
| | | | | | | |
4.125% Notes, due 2029 | | 396,021 | | | | 395,440 | | | 395,246 | |
| Total long-term debt | | 744,986 | | | | 783,921 | | | 786,095 | |
| Less: current portion | | — | | | | (20,000) | | | (17,500) | |
| Long-term debt, due beyond one year | | $ | 744,986 | | | | $ | 763,921 | | | $ | 768,595 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Credit Facilities
The Company is party to a senior secured Credit Agreement, as amended and restated on November 18, 2021 (the “Credit Agreement”), which provides for (i) a five-year $400.0 million term loan A facility (“Term Loan A”) and (ii) a five-year $500.0 million revolving credit facility (the “Revolving Credit Facility”), collectively referred to as “Credit Facilities,” with the lenders and agents party thereto.
Term Loan A requires quarterly repayments of $5.0 million through September 2026, and the remaining principal of $335.0 million is due at maturity in November 2026. During the nine months ended September 2024, the Company repaid a total of $40.0 million of the principal outstanding on Term Loan A, including $25.0 million of voluntary early repayments which reduced future required quarterly repayments. Term Loan A had an outstanding principal amount of $350.0 million, $390.0 million and $392.5 million at September 2024, December 2023 and September 2023, respectively, which is reported net of unamortized deferred financing costs. As of September 2024, interest expense on Term Loan A was being recorded at an effective annual interest rate of 6.0%, including the amortization of deferred financing costs and the impact of the Company's interest rate swap agreements.
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 2024, the Company had no outstanding borrowings under the Revolving Credit Facility and $6.5 million of outstanding standby letters of credit issued on behalf of the Company, leaving $493.5 million available for borrowing against this facility.
The interest rate per annum applicable to borrowings under the Credit Facilities is an interest rate benchmark elected by the Company based on 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 2024, 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.
13 Kontoor Brands, Inc. Q3 FY24 Form 10-Q
KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Senior Notes
On November 18, 2021, the Company entered into an indenture (the “Indenture”) by and among the Company and certain subsidiaries of the Company named as guarantors therein (the “Guarantors”), pursuant to which it issued $400.0 million of unsecured senior notes due November 2029 (the “Notes”) through a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and outside the United States to non-U.S. persons pursuant to Regulation S under the Securities Act. The Notes bear interest at a fixed rate of 4.125% per annum, payable in cash in arrears on May 15 and November 15 of each year.
The Notes had an outstanding principal amount of $400.0 million at September 2024, December 2023 and September 2023, which is reported net of unamortized deferred financing costs. As of September 2024, interest expense on the Notes was being recorded at an effective annual interest rate of 4.3%, including the amortization of deferred financing costs.
The Notes are guaranteed on a 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 2024, the Company was in compliance with the Indenture and expects to maintain compliance with the applicable non-financial covenants for at least one year from the issuance of these financial statements.
Refer to Note 11 in the Company's 2023 Annual Report on Form 10-K for additional information regarding the Company’s debt obligations.
Total cash paid for interest was $27.0 million and $23.5 million during the nine months ended September 2024 and September 2023, 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.
Kontoor Brands, Inc. Q3 FY24 Form 10-Q 14
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 Value | | Level 1 | | Level 2 | | Level 3 |
| | | | | | |
| September 2024 | | | | | | | |
| Financial assets: | | | | | | | |
| Cash equivalents: | | | | | | | |
| Money market funds | $ | 204,475 | | | $ | 204,475 | | | $ | — | | | $ | — | |
| | | | | | | |
| Time deposits | 2,508 | | | 2,508 | | | — | | | — | |
| Foreign currency exchange contracts | 627 | | | — | | | 627 | | | — | |
| | | | | | | |
| Investment securities | 49,556 | | | 49,556 | | | — | | | — | |
| Financial liabilities: | | | | | | | |
| Foreign currency exchange contracts | 13,024 | | | — | | | 13,024 | | | — | |
| Interest rate swap agreements | 203 | | | — | | | 203 | | | — | |
| Deferred compensation | 53,672 | | | — | | | 53,672 | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value Measurement Using |
| (In thousands) | Total Fair Value | | Level 1 | | Level 2 | | Level 3 |
| December 2023 | | | | | | | |
| Financial assets: | | | | | | | |
| Cash equivalents: | | | | | | | |
| Money market funds | $ | 145,554 | | | $ | 145,554 | | | $ | — | | | $ | — | |
| Time deposits | 2,283 | | | 2,283 | | | — | | | — | |
| Foreign currency exchange contracts | 16,504 | | | — | | | 16,504 | | | — | |
| Interest rate swap agreements | 3,253 | | | — | | | 3,253 | | | — | |
| Investment securities | 46,250 | | | 46,250 | | | — | | | — | |
| Financial liabilities: | | | | | | | |
| Foreign currency exchange contracts | 5,121 | | | — | | | 5,121 | | | — | |
| | | | | | | |
| Deferred compensation | 49,139 | | | — | | | 49,139 | | | — | |
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 2024, the carrying value of the Company's long-term debt was $745.0 million compared to a fair value of $725.3 million. At December 2023, the carrying value of the Company's long-term debt was $783.9 million compared to a fair value of $747.1 million. The fair value of long-term debt is a Level 2 estimate based on quoted market prices or values of comparable borrowings.
All other financial assets and financial liabilities are recorded in the 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 2024 and December 2023, their carrying values approximated fair value due to the short-term nature of these instruments.
15 Kontoor Brands, Inc. Q3 FY24 Form 10-Q
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 $317.0 million at September 2024, $348.8 million at December 2023 and $339.9 million at September 2023, 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.
The Company periodically enters into "floating to fixed" interest rate swap agreements to mitigate exposure to volatility in reference rates on the Company's future interest payments. Because these swap agreements meet the criteria for hedge accounting, all related gains and losses are deferred within accumulated other comprehensive loss ("AOCL") and are amortized through the swap maturity dates.
During 2019, the Company entered into "floating to fixed" interest rate swap agreements (the "2019 Swap Agreements") that matured on April 18, 2024. On September 9, 2024, the Company entered into new "floating to fixed" interest rate swap agreements (the "2024 Swap Agreements") that mature on August 18, 2029. The notional amount of the 2024 Swap Agreements was $150.0 million at September 2024. The notional amount of the 2019 Swap Agreements was $300.0 million at December 2023 and September 2023.
The Company's outstanding derivative financial instruments met the criteria for hedge accounting at the inception of the hedging relationship. At each reporting period, the Company assesses whether the hedging relationships continue to be highly effective in offsetting changes in cash flows of hedged items. If the Company determines that a specific hedging relationship has ceased to be highly effective, it discontinues hedge accounting. All designated hedging relationships were determined to be highly effective as of September 2024.
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 |
| | | | | | | | | | | | | | | |
| | September | | | December | | September | | | September | | | December | | September |
| (In thousands) | | 2024 | | | 2023 | | 2023 | | | 2024 | | | 2023 | | 2023 |
| | | | | | | | | | | | | | |
| Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | |
| Foreign currency exchange contracts | | $ | 627 | | | | $ | 16,490 | | | $ | 19,717 | | | | $ | (12,987) | | | | $ | (5,098) | | | $ | (1,737) | |
| Interest rate swap agreements | | — | | | | 3,253 | | | 6,067 | | | | (203) | | | | — | | | — | |
| Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | |
| Foreign currency exchange contracts | | — | | | | 14 | | | 14 | | | | (37) | | | | (23) | | | (37) | |
| Total derivatives | | $ | 627 | | | | $ | 19,757 | | | $ | 25,798 | | | | $ | (13,227) | | | | $ | (5,121) | | | $ | (1,774) | |
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 2024 | | | December 2023 | | September 2023 |
| | | | | | | | | | | | | |
| (In thousands) | | Derivative Asset | | Derivative Liability | | | Derivative Asset | | Derivative Liability | | Derivative Asset | | Derivative Liability |
| Gross amounts presented in the balance sheet | | $ | 627 | | | $ | (13,227) | | | | $ | 19,757 | | | $ | (5,121) | | | $ | 25,798 | | | $ | (1,774) | |
| Gross amounts not offset in the balance sheet | | (627) | | | 627 | | | | (894) | | | 894 | | | (1,774) | | | 1,774 | |
| Net amounts | | $ | — | | | $ | (12,600) | | | | $ | 18,863 | | | $ | (4,227) | | | $ | 24,024 | | | $ | — | |
Kontoor Brands, Inc. Q3 FY24 Form 10-Q 16
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 2024 | | | December 2023 | | September 2023 |
| Prepaid expenses and other current assets | | $ | 556 | | | | $ | 18,319 | | | $ | 24,220 | |
| Accrued and other current liabilities | | (10,686) | | | | (4,009) | | | (1,442) | |
| Other assets | | 71 | | | | 1,438 | | | 1,578 | |
| Other liabilities | | (2,541) | | | | (1,112) | | | (332) | |
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 September | | | Nine Months Ended September |
| | | | | | | | | | |
| Cash Flow Hedging Relationships | | 2024 | | | 2023 | | | 2024 | | | 2023 |
| Foreign currency exchange contracts | | $ | (12,592) | | | | $ | 5,700 | | | | $ | (13,780) | | | | $ | 23,829 | |
| Interest rate swap agreements | | (128) | | | | 202 | | | | (81) | | | | 1,910 | |
| Total | | $ | (12,720) | | | | $ | 5,902 | | | | $ | (13,861) | | | | $ | 25,739 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gain (Loss) Reclassified from AOCL into Income |
| (In thousands) | | Three Months Ended September | | | Nine Months Ended September |
| | | | | | | | | | |
| Location of Gain (Loss) | | 2024 | | | 2023 | | | 2024 | | | 2023 |
| Net revenues | | $ | (402) | | | | $ | (37) | | | | $ | (1,564) | | | | $ | (270) | |
| Cost of goods sold | | 4,635 | | | | 7,095 | | | | 16,216 | | | | 17,343 | |
| Other expense, net | | 71 | | | | 128 | | | | 238 | | | | 424 | |
| Interest expense | | 75 | | | | 2,664 | | | | 3,375 | | | | 7,200 | |
| Total | | $ | 4,379 | | | | $ | 9,850 | | | | $ | 18,265 | | | | $ | 24,697 | |
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 changes in the fair values of derivative contracts not designated as hedges or the ineffective portion of any hedging relationships during the three and nine months ended September 2024 and September 2023.
At September 2024, AOCL included $5.8 million of pre-tax net deferred losses 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 — CAPITAL AND ACCUMULATED OTHER COMPREHENSIVE LOSS
Common Stock
During the nine months ended September 2024, the Company repurchased 1.2 million shares of Common Stock for $85.0 million, including commissions, under its $300.0 million share repurchase program authorized by the Company's Board of Directors. All shares reacquired in connection with the repurchase program are treated as authorized and unissued shares upon repurchase.
17 Kontoor Brands, Inc. Q3 FY24 Form 10-Q
KONTOOR BRANDS, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Accumulated Other Comprehensive Loss
The following table presents deferred components of AOCL in equity, net of related taxes:
| | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | September 2024 | | | December 2023 | | September 2023 |
| Foreign currency translation | | $ | (100,996) | | | | $ | (91,057) | | | $ | (101,526) | |
| Defined benefit pension plans | |
