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What changed in Kontoor Brands, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Kontoor Brands, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+345 added−378 removedSource: 10-K (2024-02-28) vs 10-K (2022-03-02)

Top changes in Kontoor Brands, Inc.'s 2023 10-K

345 paragraphs added · 378 removed · 258 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

74 edited+27 added−33 removed26 unchanged
Biggest changeIn support of these long-term growth opportunities, we are stepping up our investment in accretive enablers: • Product & design - transforming the brands in the marketplace with elevated global designs • Innovation - exploring next-generation technologies to continue to propel the Wrangler ® and Lee ® brands • Supply chain - driving future productivity gains and improved service and agility with supply partners • Talent & culture - promoting an inclusive, growth-minded, high-performing culture • Demand creation - activating the brands through new marketing and creative expressions Our Business Segment Information Our two reportable segments are Wrangler ® and Lee ® , which primarily include sales of branded products, along with various sub-brands and collections as discussed under each brand below.
Biggest changeIn addition, we are stepping up our investment in accretive enablers, such as product and design, innovation, supply chain, talent and culture and demand creation. Our Business Segment Information Our two reportable segments are Wrangler ® and Lee ® , which primarily include sales of branded products, along with various sub-brands and collections.
We foster close and long-standing relationships with our wholesale customers, having partnered with each of our top three brick & mortar wholesale customers for over 30 years and with Amazon for over 15 years. Our rich global heritage across both the Wrangler ® and Lee ® brands also supports strong positions in growing markets, such as in the U.S.
We foster close and long-standing relationships with our wholesale customers, having partnered with each of our top three brick-and-mortar wholesale customers for over 30 years and with Amazon for over 15 years. Our rich global heritage across both the Wrangler ® and Lee ® brands also supports strong positions in growing markets, such as in the U.S.
We foster close and longstanding relationships with our wholesale customers, having partnered with each of our top three brick & mortar wholesale customers for over 30 years. In addition, we engage in an active dialogue with many of our key wholesale customers and receive proprietary insights about how our products are performing on a timely basis. Our brands’ top U.S.
We foster close and longstanding relationships with our wholesale customers, having partnered with each of our top three brick-and-mortar wholesale customers for over 30 years. In addition, we engage in an active dialogue with many of our key wholesale customers and receive proprietary insights about how our products are performing on a timely basis. Our brands’ top U.S.
We strive to maximize our consumer reach by leveraging each brand’s best practices to drive growth across product categories and expand our overall net revenues and earnings profile. • Deep Relationships With Leading Global Brick & Mortar and E-Commerce Retailers We have developed long-term relationships with many leading global brick & mortar and e-commerce retailers, including Amazon, Kohl’s, Target and Walmart, whom we believe rely on our iconic brands, leading product quality and value, and innovation to address evolving consumer needs in our product categories.
We strive to maximize our consumer reach by leveraging each brand’s best practices to drive growth across product categories and expand our overall net revenues and earnings profile. • Deep Relationships With Leading Brick-and-Mortar and E-Commerce Retailers We have developed long-term relationships with many leading brick-and-mortar and e-commerce retailers, including Amazon, Kohl’s, Target and Walmart, whom we believe rely on our iconic brands, leading product quality and value, and innovation to address evolving consumer needs in our product categories.
Within our largest market and channel, we are pursuing strategies to support and grow market share in existing distribution with leading retailers, drive business opportunities in new channels, such as premium, specialty and sporting goods, as well as accelerate complementary categories. • Diversify Our Product Mix Through Category Extensions, Including Outdoor, Workwear and T-shirts We continue to enhance our existing product assortment, broaden our product offering and expand into adjacent product categories, with a focus on outdoor, workwear and t-shirts.
Within our largest market and channel, we are pursuing strategies to support and grow market share in existing distribution with leading retailers, drive business opportunities in new channels, such as premium, specialty and sporting goods, as well as accelerate complementary categories. • Diversify Our Product Mix Through Category Extensions We continue to enhance our existing product assortment, broaden our product offering and expand into adjacent product categories, with a focus on outdoor, workwear and t-shirts.
We are focused on creating globally unified brand messages with appropriate regional nuances in order to maximize our brand recognition, and drive brand demand from initial end consumer awareness to long-term loyalty. By utilizing global heads of marketing, we will continue to develop integrated, multi-channel marketing strategies designed to effectively reach the target consumers of each of our brands.
We are focused on creating globally unified brand messages with appropriate regional nuances in order to maximize our brand recognition, and drive brand demand from initial end consumer awareness to long-term loyalty. By utilizing global heads of marketing, we continue to develop integrated, multi-channel marketing strategies designed to effectively reach the target consumers of each of our brands.
Governmental Regulations We are subject to U.S. federal, state and local laws and regulations that could affect our business, including those promulgated under the Occupational Safety and Health Act, the Consumer Product Safety Act, the Flammable Fabrics Act, the Textile Fiber Product Identification Act, the rules and regulations of the Consumer Products Safety Commission and various environmental laws and regulations, including laws and regulations relating to generating emissions, water discharges, waste, product and packaging content and workplace safety.
Governmental Regulations We are subject to U.S. federal, state and local laws and regulations that could affect our business, including those promulgated under the Federal Trade Commission Act, the Occupational Safety and Health Act, the Consumer Product Safety Act, the Flammable Fabrics Act, the Textile Fiber Product Identification Act, the rules and regulations of the Consumer Products Safety Commission and various environmental laws and regulations, including laws and regulations relating to generating emissions, water discharges, waste, product and packaging content and workplace safety.
Additionally, we see a large and growing offering from private label apparel created for retailers such as Amazon, Target and Walmart. Intellectual Property Trademarks, trade names, patents and domain names, as well as related logos, designs and graphics, provide substantial value in the development and marketing of our products, and are important to our continued success.
Additionally, we see a large and growing offering from private label apparel created for retailers such as Amazon, Target, Walmart and Kohl's. Intellectual Property Trademarks, trade names, patents and domain names, as well as related logos, designs and graphics, provide substantial value in the development and marketing of our products, and are important to our continued success.
Our licensing partners leverage the strength of our brands and our customer relationships to sell products in their licensed categories and geographic regions. We currently have licensing agreements in categories including jeanswear, casual apparel, belts, footwear, small leather goods, headwear, socks, home décor, luggage, bags, watches, eyewear and cold weather accessories.
Our licensing partners leverage the strength of our brands and our customer relationships to sell products in their licensed categories and geographic regions. We currently have licensing agreements in categories including jeanswear, casual apparel, workwear, belts, footwear, small leather goods, headwear, socks, home décor, luggage, bags, watches, eyewear and cold weather accessories.
Our primary branded competitors are large, globally focused apparel companies that also participate in a variety of categories, including, but not limited to, athletic wear, denim, exclusive or private labels, casual lifestyle apparel, outerwear and workwear. A select list of key competitors includes Calvin Klein, Carhartt, Diesel, Guess, Levi’s, Tommy Hilfiger and Uniqlo.
Our primary branded competitors are large, globally focused apparel companies that also participate in a variety of categories, including, but not limited to, athletic wear, denim, exclusive or private labels, casual lifestyle apparel, outerwear and workwear. A select list of key competitors includes Calvin Klein, Carhartt, Columbia, Diesel, Guess, Levi’s and Tommy Hilfiger.
We also participate in cooperative advertising on a shared cost basis with major retailers in print and digital media, radio and television. We generally provide advertising support to our wholesale customers in the form of point-of-sale fixtures and signage to enhance the presentation and brand image of our products.
We also participate in cooperative advertising on a shared cost basis with major retailers in print and digital media, radio and television. We generally provide our wholesale customers with point-of-sale fixtures and signage to enhance the presentation and brand image of our products.
We leverage marketing analytics to optimize the impact of advertising and promotional spending, and to identify the types of spending that provide the greatest return on our marketing investments. Our strategy also includes collaborating with new brands and developing new advertising campaigns that drive consumer awareness and brand equity.
We leverage marketing analytics to optimize the impact of advertising and promotional spending, and to identify the types of spending that provide the greatest return on our marketing investments. Our strategy also includes collaborating with other influential brands and developing new advertising campaigns that drive consumer awareness and brand equity.
We pursue this strategy through our use of a variety of media channels and other public endorsements, including traditional media such as television, print and radio, as well as digital media channels such as display, online video, social media, live streaming, paid search and influencers.
We pursue this strategy through our use of a variety of media channels and other public endorsements, including traditional media such as television, print and radio, as well as digital media channels such as display, online video, social media, live streaming, paid search, influencers and brand ambassadors.
We have two primary selling seasons, Spring/Summer and Fall/Winter, although some product lines are offered more frequently. In addition to our global design and product development functions, we operate an innovation center in Greensboro, North Carolina. Research for advanced fiber and fabric technology takes place in our dedicated material science lab.
We have two primary selling seasons, Spring/Summer and Fall/Winter, although some product lines are offered more frequently. In addition to our global design and product development functions, we operate an innovation center in Greensboro, North Carolina. Research for advanced product technology takes place in our material science lab.
We also have established global third-party sourcing and distribution networks that we leverage across product categories and various regions. We currently have three sample development centers located in North Carolina, South China and Bangladesh. We believe our flexible and balanced approach to manufacturing and distribution allows us to better manage our production needs and to support expanded digital distribution.
We also have established global third-party sourcing and distribution networks that we leverage across product categories and various regions. We currently have three technical service centers located in North Carolina, South China and Bangladesh. We believe our flexible and balanced approach to manufacturing and distribution allows us to better manage our production needs and to support expanded digital distribution.
We focus on continuously improving the most important elements of our products, which include fit, fabric, finish and overall construction, while continuing to provide our products to consumers at attractive price points. We leverage innovation and design advancements as well as our unique brand heritages to create products that meet our consumers' needs.
We focus on continuously improving the most important elements of our products, which include fit, fabric, finish and overall construction, while continuing to provide our products to consumers at attractive price points. We leverage innovation and design advancements as well as the unique heritage of our brands to create products that meet our consumers' needs.
We operate global sourcing hubs, which are responsible for managing contract manufacturing and procurement of product, including supplier oversight, product quality assurance, sustainability within the supply chain, responsible sourcing, and transportation and shipping functions. We operate ten manufacturing facilities, comprised of seven owned facilities in Mexico and three leased facilities in Nicaragua.
We operate global sourcing hubs, which are responsible for managing contract manufacturing and procurement of product, including supplier oversight, product quality assurance, sustainability within the supply chain, responsible sourcing, and transportation and shipping functions. We operate nine manufacturing facilities, comprised of seven owned facilities in Mexico and two leased facilities in Nicaragua.
We have registered our intellectual property in the U.S. and in other countries where our products are manufactured and/or sold. In particular, our trademark portfolio consists of over 7,500 trademark registrations and applications in the U.S. and other countries around the world, including U.S. and foreign trademark registrations for our two key brands, Wrangler ® and Lee ® .
We have registered our intellectual property in the U.S. and in other countries where our products are manufactured and/or sold. In particular, our trademark portfolio consists of over 8,100 trademark registrations and applications in the U.S. and other countries around the world, including U.S. and foreign trademark registrations for our two key brands, Wrangler ® and Lee ® .
We offer multiple sub-brands and collections within the Wrangler ® brand to target specific consumer demographics and consumer end-users, including: 20X ® , Aura from the Women at Wrangler ® , Cowboy Cut ® , Premium Patch ® , Riggs Workwear ® , Rock 47 ® , Rustler ® , W1947 ® , Wrangler Retro ® , Wrangler Rugged Wear ® , All Terrain Gear by Wrangler TM . and Wrangler ® Angler TM . • Lee Lee ® is an iconic American denim and apparel brand, with 133 years of heritage and authenticity.
We offer multiple sub-brands and collections within the Wrangler ® brand to target specific consumer demographics and consumer end-users, including: 20X ® , Aura from the Women at Wrangler ® , Cowboy Cut ® , Premium Patch ® , Riggs Workwear ® , Rock 47 ® , Rustler ® , Wrangler Retro ® , Wrangler Rugged Wear ® and Wrangler All Terrain Gear . • Lee Lee ® is an iconic American denim and apparel brand, with 135 years of heritage and authenticity.
Drawing on the management team’s deep industry knowledge and diverse perspectives, they have helped navigate our business through unprecedented challenges spurred by a global pandemic, while simultaneously evolving our purpose-led strategies with agility and flexibility.
Drawing on deep industry knowledge and diverse perspectives, they have helped navigate our business through unprecedented challenges spurred by a global pandemic, while simultaneously evolving our strategies with agility and flexibility.
Lee ® collections include a uniquely styled range of jeans, pants, shirts, shorts and jackets for men, women, boys and girls. The Lee ® brand delivers trend-forward styles with exceptional fit and comfort through innovative fabric solutions and advanced design technology.
Lee ® collections include a uniquely styled range of jeans, pants, shirts, shorts and jackets for adults and children. The Lee ® brand delivers trend-forward styles with exceptional fit and comfort through innovative fabric solutions and advanced design technology.
Our supply chain is built to support large volumes and to meet customer needs while balancing cost and operational requirements. Our internal manufacturing facilities are all located in the Western Hemisphere where their proximity to our primary markets enables us to deliver inventory in a consistent and timely manner.
Our supply chain is built to support large volumes and to meet customer needs while balancing cost and operational requirements across our U.S. Wholesale, Non-U.S. Wholesale and Direct-to-Consumer channels. Our internal manufacturing facilities are all located in the Western Hemisphere where their proximity to our primary markets enables us to deliver inventory in a consistent and timely manner.
Additionally, we expect that our investment and implementation of a new global enterprise resource planning (“ERP”) system, completed in mid-2021, will deliver global cost savings, reduce complexity in our supply chain, create better inventory management and improve our speed in the market. • Highly Experienced Management Team and Board of Directors We have a highly experienced senior management team that continuously demonstrates an unwavering commitment to our employees, our shareholders and our business.
Additionally, we expect to further leverage our global enterprise resource planning (“ERP”) system to deliver global cost savings, reduce complexity in our supply chain, create better inventory management and improve our speed in the market. • Highly Experienced Management Team and Board of Directors We have a highly experienced senior management team and Board of Directors that continuously demonstrates an unwavering commitment to our employees, our shareholders and our business.
Wrangler ® , which is currently approximately 90% U.S. domestic, has many international growth opportunities, particularly in China and Europe. • Elevate Our Direct Connection With Consumers Through Channel Expansion, Focused on Evolving the Company’s Direct-to-consumer and Digital Ecosystem We expect to leverage our leading brand positions to increase our digital penetration with our own e‑commerce websites as well as major global retail partners, as we continue to evolve our digital ecosystem.
Wrangler ® , which is currently approximately 90% U.S. domestic, has many international growth opportunities, particularly in China and Europe. • Elevate Our Direct Connection With Consumers Through Channel Expansion We are leveraging our leading brand positions to increase our digital penetration with our own e‑commerce websites as well as major global retail partners, as we continue to evolve our digital ecosystem.
Our innovation network is integral to our design approach and our long-term growth as it allows us to deliver products and experiences to meet our consumer needs. Manufacturing, Sourcing and Distribution Our global supply chain organization is responsible for the operational planning, manufacturing, sourcing and distribution of products to our customers.
Our innovation network is integral to our design approach and long-term growth, allowing us to evolve and deliver product experiences that meet our consumer needs. Manufacturing, Sourcing and Distribution Our global supply chain organization is responsible for the operational planning, manufacturing, sourcing and distribution of products to our customers.
During Horizon 1, or the first 18-24 months as a standalone public company, we established a healthier foundation for profitable growth. This was supported by streamlining our global operations, migrating to a new technology platform, enhancing gross margin through improving quality of sales and de-levering our balance sheet.
Kontoor Brands, Inc. 2023 Form 10-K 3 Table of Contents During Horizon 1, or the first 18-24 months as a standalone public company, we established a healthier foundation for profitable growth. This was supported by streamlining our global operations, migrating to a new technology platform, enhancing gross margin through improving quality of sales and de-levering our balance sheet.
Our inventory strategy is focused on continuing to meet consumer demand, while improving our inventory efficiency over the long-term through the recent implementation of the Company's global enterprise resource planning (“ERP”) system and inventory optimization tools. Advertising and Customer Support Our advertising and marketing efforts focus on differentiating our brands’ positioning and highlighting our product qualities.
Our inventory strategy is focused on continuing to meet consumer demand, while improving our inventory efficiency over the long-term through the Company's global ERP system and inventory optimization tools. Advertising and Customer Support Our advertising and marketing efforts focus on differentiating our brands’ positioning and highlighting our product qualities.
See below for additional information on the brands, channels of distribution and geographies included in each segment. • Wrangler Wrangler ® is an iconic American heritage brand rooted in the western lifestyle, with 75 years of history offering denim, apparel, and accessories for men, women, boys and girls.
See below for additional information on the brands, channels of distribution and geographies included in each segment. • Wrangler Wrangler ® is an iconic American heritage brand rooted in the western lifestyle, with 77 years of history offering denim, apparel and accessories for adults and children.
We also endeavor to provide sophisticated logistics, planning, and merchandising expertise to support our customers, which we believe enables a level of insight that builds more integrated customer relationships. 2 Kontoor Brands, Inc 2021 Form 10-K Table of Contents • Integrated Supply Chain Built to Support Volume and Replenishment We are continually refining our supply chain to maximize efficiency and reinforce our reputation of reliability with our customers.
We also endeavor to provide sophisticated logistics, planning and merchandising expertise to support our customers, which we believe enables a level of insight that builds more integrated customer relationships. • Integrated Supply Chain Built to Support Volume and Replenishment We are continually refining our supply chain to maximize efficiency and reinforce our reputation of reliability with our customers.
While we believe that we are in compliance in all material respects with all applicable governmental regulations, including environmental regulations, these regulations may change or become more stringent or unforeseen events may occur, any of which could have a material adverse effect on our financial position or results of operations. 9 Kontoor Brands, Inc. 2021 Form 10-K Table of Contents
While we believe that we are in compliance in all material respects with all applicable governmental regulations, including environmental regulations, these regulations may change or become more stringent or unforeseen events may occur, any of which could have a material adverse effect on our financial position or results of operations.
We also had 55 Company-operated outlet and clearance centers as of January 1, 2022, primarily our Lee Wrangler Outlet TM and Lee Wrangler Clearance Center TM retail stores located in the U.S., as well as locations in Europe, Mexico and Asia. As of January 1, 2022, we had 217 concession retail stores in Europe and Asia.
We also had 55 Company-operated premium outlet and clearance centers as of December 30, 2023, primarily our Lee Wrangler Outlet TM and Lee Wrangler Clearance Center TM retail stores located in the U.S., as well as locations in Europe and Mexico. As of December 30, 2023, we had 182 concession retail and outlet stores in Europe and Asia.
In Canada and Mexico, our products are marketed through mass merchants, department stores and specialty stores. Additionally, our Non-U.S. Wholesale channel includes non-U.S. sales on digital platforms operated by our wholesale customers, as well as sales in partnership stores located across EMEA, APAC and South America. Partnership stores are owned and operated by our licensees, distributors and other independent parties.
Wholesale channel includes non-U.S. sales on digital platforms operated by our wholesale customers, as well as sales in partnership stores located across EMEA, APAC and South America. Partnership stores are owned and operated by our licensees, distributors and other independent parties.
We also source products from approximately 200 contract manufacturing facilities in 19 countries. During 2021, approximately 35% of our units were manufactured in our internal manufacturing facilities, and approximately 65% were sourced from contract manufacturers. Products obtained from contractors in the Western Hemisphere frequently have a higher cost than products obtained from contractors in Asia.
We also source products from approximately 185 contract manufacturing facilities in 18 countries. During 2023, approximately 33% of our units were manufactured in our internal manufacturing facilities, and approximately 67% were sourced from contract manufacturers. Products obtained from contractors in the Western Hemisphere frequently have a higher cost than products obtained from contractors in Asia.
We believe we have developed a high degree of expertise in managing the complexities associated with a global supply chain that produced or sourced approximately 151 million units of apparel in 2021. Our supply chain employs a centralized leadership model with localized regional expertise.
We believe we have developed a high degree of expertise in managing the complexities associated with a global supply chain. During 2023, we manufactured or sourced approximately 141 million units of finished goods inventory. Our supply chain employs a centralized leadership model with localized regional expertise.
Most of the agreements provide for a minimum royalty requirement. See “Licensing Arrangements” herein for more information. • Non-U.S. Wholesale The Non-U.S. Wholesale channel represents the majority of our international business and accounted for approximately 20% of our net revenues in 2021.
See “Licensing Arrangements” herein for more information. • Non-U.S. Wholesale The Non-U.S. Wholesale channel represents the majority of our international business and accounted for approximately 16% of our net revenues in 2023.
As we embark on a transformational period focused on catalyzing growth for our global brands, we believe our management team and Board of Directors will continue to drive the success of our company. • Resilient Business Model That Delivers Consistent Results Although COVID-19 had a meaningful negative impact on our business, cash flows and results of operations in 2020, and continues to impact global economic conditions, our business has historically generated consistent margins and strong cash flows due to our global reach, leading market positions, deep customer relationships, and the vertical integration of our supply chain.
As we continue our focus on catalyzing growth for our global brands, we believe our management team and Board of Directors will continue to drive the success of our company. • Resilient Business Model That Delivers Consistent Results Our business has historically generated consistent margins, strong cash flows and high returns on capital due to our global reach, leading market positions, deep customer relationships, and the vertical integration of our supply chain.
Our mid-tier and traditional department store customers include national retailers such as Kohl’s and Nordstrom as well as other retail partners. The specialty store channel, which includes revenue from Wrangler ® Riggs Workwear ® and Wrangler ® Western branded products, consists primarily of national accounts such as Boot Barn and Tractor Supply Company as well as upscale modern specialty stores.
The specialty store channel, which includes revenue from Wrangler ® Riggs Workwear ® and Wrangler ® Western branded products, consists primarily of national accounts such as Boot Barn, Cavender's and Tractor Supply Company as well as upscale modern specialty stores.
Successful execution of our product expansion strategies should broaden the appeal of our brands and products to new consumers and ultimately drive the overall net revenues of the business. 3 Kontoor Brands, Inc. 2021 Form 10-K Table of Contents • Expand Our Reach Around the Globe, Prioritizing Opportunities Within the China and Europe Regions We continue to pursue opportunities to expand the distribution of our products with new and existing customers internationally.
Successful execution of our product expansion strategies should broaden the appeal of our brands and products to new consumers and ultimately drive the overall net revenues of the business. • Expand Our Reach Around the Globe We continue to pursue opportunities to expand the international distribution of our products with new and existing customers.
Our website is www.kontoorbrands.com. Our website and the information contained therein or connected thereto is not incorporated in this Annual Report on Form 10-K.
We articulate our corporate sustainability and social responsibility commitments in our Code of Conduct on our website at www.kontoorbrands.com. Our website and the information contained therein or connected thereto is not incorporated in this Annual Report on Form 10-K.
Wrangler ® branded products are available in the U.S., Canada and Mexico, the United Kingdom and continental Europe, the Middle East, China, and through licensees across Australia, Asia, Africa, Central and South America, Europe and most recently, India, where the Company has recently transitioned to a licensed model.
Wrangler ® and Lee ® branded products are available in Canada and Mexico, the United Kingdom and continental Europe, the Middle East, China, and through licensees across Australia, Asia, Africa, Mexico, Central and South America, Europe and India.
Wholesale net revenue is attributable to digital sales from our wholesale partners’ websites, third-party e-commerce platforms such as Amazon, and other pure-play digital retailers. Third-party e-commerce platforms and pure-play digital retailers are a growing and important portion of this channel. Our mass merchant customers include national retailers such as Target and Walmart, as well as various regional retail partners.
Third-party e-commerce platforms and pure-play digital retailers are a growing and important portion of this channel. Our mass merchant customers include national retailers such as Target and Walmart, as well as various regional retail partners. Our mid-tier and traditional department store customers include national retailers such as Kohl’s as well as other retail partners.
We operate a multi-site approach for design and product development, with supporting functions in the U.S., Belgium and Hong Kong. These creative teams collaborate globally with the merchandising, marketing, planning, consumer insights and executive teams to ensure product delivers against brand positioning, consumer needs and cost requirements.
We design and develop products globally, with key functions in the U.S. and Hong Kong. These creative teams collaborate with the merchandising, marketing, planning, consumer insights and executive teams to ensure the product delivers against brand positioning, value, customer and consumer needs and sustainability requirements.
The Lee ® brand offers multiple sub-brands and collections, making it attractive for a broader consumer base, including: Body Optix ® , Lee101 TM , Lee ® Riders ® , Performance Series TM , Shape Illusions ® and Vintage Modern TM . 4 Kontoor Brands, Inc 2021 Form 10-K Table of Contents • Other Other primarily includes other revenue sources, including sales and licensing of Rock & Republic ® apparel.
The Lee ® brand offers multiple sub-brands and collections, making it attractive for a broader consumer base, including: Lee101 TM , Riders ® by Lee ® Indigo and Chic by Lee TM . 4 Kontoor Brands, Inc 2023 Form 10-K Table of Contents • Other Other includes sales and licensing of Rock & Republic ® , other company-owned brands and private label apparel.
We directly operate our domestic distribution centers and we carefully select third-party logistic providers as needed in certain regions. All of our distribution centers are strategically located to provide speed and service to our consumers at the most efficient cost possible. Additionally, our established long-term third-party distribution relationships ensure maximum capacity, connectivity, responsiveness and overall service coverage around the globe.
We directly operate our domestic distribution centers and we carefully select third-party logistic providers to partner with as needed in certain regions, primarily in EMEA and APAC. All of our distribution centers are strategically located to provide speed and service to our consumers at the most efficient cost possible.
Within this channel, our Wrangler ® and Lee ® branded products are marketed and sold by mass and mid-tier retailers, specialty stores including western specialty retail, department stores and retailer-owned and third-party e-commerce sites. This channel also includes revenues related to Rock & Republic ® products sold in the U.S. A portion of our U.S.
Wholesale The U.S. Wholesale channel is our largest distribution channel and accounted for approximately 72% of our net revenues in 2023. Within this channel, our Wrangler ® and Lee ® branded products are marketed and sold by mass and mid-tier retailers, specialty stores including western specialty retail, department stores, retailer-owned and third-party e-commerce sites and through licensees.
Wholesale customers include Amazon, Kohl’s, Target and Walmart. Sales to Walmart as a percentage of total revenues were approximately 34% in 2021, 38% in 2020 and 34% in 2019. In addition, a small portion of sales in our U.S. Wholesale channel are from domestic licensing arrangements where we receive royalties based on a percentage of the licensed products’ net revenues.
Wholesale customers include Amazon, Boot Barn, Cavender's, Kohl’s, Target and Walmart. In addition, a small portion of sales in our U.S. Wholesale channel are from domestic licensing arrangements where we receive royalties based on a percentage of the licensed products’ net revenues. Most of the agreements provide for a minimum royalty requirement.
The majority of the Wrangler ® and Lee ® international product business is located in EMEA and APAC, where we sell our products directly to our department store and specialty store wholesale customers, and indirectly through our distribution and license relationships. This channel also includes revenues related to Rock & Republic ® products sold in Canada.
The majority of the Wrangler ® and Lee ® international product business is located in EMEA and APAC, where we sell our products directly to our department store and specialty store wholesale customers, and indirectly through our distribution and license relationships. In Canada and Mexico, our products are marketed through mass merchants, department stores and specialty stores. Additionally, our Non-U.S.
Social Responsibility, Community Outreach and Sustainability We are a purpose-led organization and are committed to environmental sustainability, labor welfare and community development, not only because today’s consumers demand the highest standards from the brands they utilize, but because we believe these values are consistent with what our brands represent and are the right thing to do to enhance global welfare.
Social Responsibility, Community Outreach and Sustainability We are a purpose-led organization committed to protecting the environment, sourcing products and materials from companies that share our values and operating with the highest standards of ethics. We believe these values are consistent with what our brands represent and are the right thing to do to enhance global welfare.
In international markets where we do not have brick & mortar or wholesale operations, our products are marketed through our distributors, as well as agents, licensees and branded partnership stores. Inventory Management Inventory management is key to the cash flows and operating results of our business.
Additionally, our established long-term third-party distribution relationships ensure maximum capacity, connectivity, responsiveness and overall service coverage around the globe. In international markets where we do not have brick-and-mortar or wholesale operations, our products are often marketed through our distributors, agents and licensees. Inventory Management Inventory management is key to the cash flows and operating results of our business.
At our Investor Day in 2021, we introduced our Horizon 2 multi-year strategic vision, Catalyzing Growth. Over the next three years, we will be sharply focused on driving brand growth and delivering long-term value to our stakeholders including our consumers, customers, shareholders, suppliers and the communities where we do business around the world.
We are now in Horizon 2, which is focused on driving brand growth and delivering long-term value to our stakeholders including our consumers, customers, shareholders, suppliers and the communities where we do business around the world.
Within outdoor, we are bringing to market new product innovation platforms such as the Wrangler ® outdoor collection, All Terrain Gear TM , as well as the recently announced Wrangler ® Angler TM collection. Within workwear, we are leveraging our strong brand equity and innovation platforms to enter new markets and categories.
Within outdoor, we are bringing to market new product innovation platforms such as collections from Wrangler All Terrain Gear . Within workwear, we are leveraging our strong brand equity and innovation platforms to enter new markets and categories. And in t‑shirts, we are focusing our efforts across logo, lifestyle and licensed/collaboration content.
Licensing net revenue was $26.6 million in 2021. Design, Product Development and Innovation Our devotion to creative excellence in design, product development and innovation is the foundation of our product strategy. We focus our extensive experience and know-how to create the unique combination of world-class value, quality and styling for our consumers.
Licensing net revenue was $37.1 million in 2023. Design, Product Development and Innovation The design, technical design, product development, sustainability and innovation teams work together to deliver our brands' product strategy, combining extensive experience and know-how to create a unique product combination of world-class value, quality and styling for our customers and consumers.
Corporate sustainability and responsibility is an important priority for the Company and the Board of Directors. The Board of Directors is responsible for promoting the exercise of responsible corporate citizenship and monitoring adherence to Kontoor’s standards.
Corporate sustainability and social responsibility are essential priorities for the Company and the Board of Directors. The Board of Directors promotes responsible corporate citizenship and monitors adherence to Kontoor’s standards.
We are making progress towards these objectives through amplified investments in advanced data analytics capabilities and unlocking new value through our global ERP infrastructure.
In Europe, we are refining our brick-and-mortar strategy by leveraging best practices from our Asia market and continuing to invest in our digital platform. We are making progress towards these objectives through investments in advanced data analytics capabilities and unlocking new value through our global ERP infrastructure.
For presentation purposes herein, all references to periods ended December 2021, December 2020 and December 2019 correspond to the 52-week fiscal year ended January 1, 2022, the 53-week fiscal year ended January 2, 2021 and the 52-week fiscal year ended December 28, 2019, respectively.
The Company operates and reports using a 52/53-week fiscal year ending on the Saturday closest to December 31 of each year. For presentation purposes herein, all references to periods ended December 2023, December 2022 and December 2021 correspond to the 52-week fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022, respectively.
This limited variation results primarily from the differences in seasonal influences on revenues between our Wrangler ® and Lee ® segments. With changes in our mix of business and the growth of our direct-to-consumer operations, historical quarterly revenue and profit trends may not be indicative of future trends. Working capital requirements vary throughout the year.
With changes in our mix of business and the growth of our direct-to-consumer operations, historical quarterly revenue and profit trends may not be indicative of future trends. Working capital Kontoor Brands, Inc. 2023 Form 10-K 7 Table of Contents requirements vary throughout the year.
We believe this manufacturing and sourcing approach, coupled with strategic inventory and retail floor space management programs with many of our major retail customers, gives us operational flexibility as we continue to expand our distribution. 6 Kontoor Brands, Inc 2021 Form 10-K Table of Contents We continue to experience delays in product and raw material availability due largely to global supply chain disruptions, driven in part by port congestion and transportation delays.
We believe this manufacturing and sourcing approach, coupled with strategic inventory and retail floor space management programs with many of our major retail customers, gives us operational flexibility as we continue to expand our distribution. 6 Kontoor Brands, Inc 2023 Form 10-K Table of Contents • Sourcing and Manufacturing We believe the combination of our internal manufacturing and contract manufacturing across different geographic regions provides a well-balanced, flexible approach to product procurement.
The Company’s products are sold in the United States (“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, Middle East and Africa (“EMEA”) and Asia-Pacific (“APAC”) regions, through department, specialty, company-operated, concession retail and independently-operated partnership stores and online.
The Company’s products are also sold internationally, primarily in the Europe, Middle East and Africa ("EMEA"), Asia-Pacific (“APAC”) and Non-U.S. Americas regions, through department, specialty, company-operated, concession retail and independently-operated partnership stores and online, including digital marketplaces. Kontoor is headquartered in the U.S. with a presence in over 70 countries.
Our Competitive Strengths • Iconic Brands With Significant Global Scale The Wrangler ® and Lee ® brands are steeped in rich heritage and authenticity, with 75 years and 133 years of history, respectively, and have an established global presence in the apparel market.
Our website and the information contained therein or connected thereto is not incorporated in this Annual Report on Form 10-K. 2 Kontoor Brands, Inc. 2023 Form 10-K Table of Contents Our Competitive Strengths • Iconic Brands With Significant Global Scale The Wrangler ® and Lee ® brands are steeped in rich heritage and authenticity, with 77 years and 135 years of history, respectively, and have an established global presence in the apparel market.
Rock & Republic ® is a premium apparel brand and is marketed to consumers as a modern and active lifestyle brand. We distribute the brand in the U.S. and Canada by leveraging our retail and e-commerce relationships. Other also included sales of third-party branded merchandise at VF Outlet stores through the first quarter of 2021.
Rock & Republic ® is a premium apparel brand and is marketed to consumers as a modern and active lifestyle brand. We distribute the brand in the U.S. by leveraging our retail and e-commerce relationships, as well as through our Company-operated website at rockandrepublic.com. Distribution Channels and Customers Our distribution channels include U.S. Wholesale, Non-U.S. Wholesale and Direct-to-Consumer. • U.S.
We continue to prioritize serving our customers through digital platforms that enhance the user experience and drive customer interaction in digital and physical environments. Digitally-enabled transactions generated from our own websites represent a growing portion of our net revenues, and help elevate the connection consumers have with our brands.
Digitally-enabled transactions generated from our own websites represent a growing portion of our net revenues, and help elevate the connection consumers have with our brands. Wrangler ® and Lee ® branded products are currently available through our own websites in 15 countries.
As of January 1, 2022, we had approximately 14,000 employees worldwide. Geographically, approximately 1,000 employees are located in APAC, approximately 600 are located in EMEA, approximately 9,900 are located in Latin America and Mexico, and approximately 2,800 are located in the U.S. In international markets, a significant percentage of employees are covered by trade sponsored or governmental bargaining arrangements.
As of December 30, 2023, we had approximately 13,700 employees worldwide. Geographically, approximately 1,000 employees are located in APAC, approximately 600 are located in EMEA, approximately 9,300 are located in Latin America and Mexico, primarily supporting our manufacturing facilities, and approximately 2,800 are located in the U.S.
We believe our consistent financial results will provide us with the opportunity to consistently invest in our business and deploy a multi-faceted capital allocation strategy. Our Strategies Our management team continues to focus on the long-term strategic initiatives we introduced after separation as a standalone public company.
We believe our consistent financial results will provide us with the opportunity to invest in our business and deploy a multi-faceted capital allocation strategy. Despite the macroeconomic pressures faced by the Company in recent years, we have been resilient.
As of January 1, 2022, we had 25 Company-operated full-price Wrangler ® and Lee ® branded retail stores, which are located in Asia, Europe and the U.S. They include both mono-brand stores, which exclusively carry either Wrangler ® or Lee ® branded products, and dual-brand stores, which carry both Wrangler ® and Lee ® branded products.
Kontoor Brands, Inc. 2023 Form 10-K 5 Table of Contents As of December 30, 2023, we had 25 Company-operated full-price Wrangler ® and Lee ® branded retail stores, which are located in Asia, Europe and the U.S.
Under a typical concession arrangement, we have a dedicated sales area and pay a concession fee for use of the space based on a percentage of retail sales. The concession model provides dedicated sales areas for our brands and helps differentiate and enhance the presentation of our products, generally without incurring the full overhead of opening a separate store.
Under a typical concession arrangement, we have a dedicated sales area, pay a concession fee for use of the space based on a percentage of retail sales and, in many cases, manage staffing for operation of the sales area.
Our websites, www.wrangler.com, www.lee.com and corresponding regional websites, enhance consumer understanding of our brands and help consumers find and buy our products.
Our websites, www.wrangler.com, www.lee.com and corresponding regional websites, enhance consumer understanding of our brands and help consumers find and buy our products. We employ a support team for each brand that is responsible for customer service at the consumer level as well as a sales force that manages our customer relationships.
Research and development for garment construction, laser processing and wash finishing advancement takes place in our design center. These locations are staffed with dedicated scientists, engineers and designers who leverage our consumer insights to create new designs and manufacturing and material technologies.
The research focus includes raw materials, garment construction, laser processing and wash-finishing advancements. This location is staffed with dedicated scientists and engineers who leverage consumer insights to create new products and material technologies, enhance attributes of existing products and improve manufacturing techniques.
In Europe, we intend to refine our strategy to become more consumer-centric in addressing how and where our customers want to purchase our products, beginning with our new e-commerce sites launched in 2020, as well as numerous opportunities to expand points of distribution.
We are leveraging relationships with licensees to broaden our distribution, such as opening Wrangler ® and Lee ® branded flagship stores in India. In Europe, we are refining our strategy to become more consumer-centric in addressing how and where our customers want to purchase our products.
See “Licensing Arrangements” herein for more information. • Direct-to-Consumer Our Direct-to-Consumer channel accounted for approximately 11% of our net revenues in 2021 and represents the distribution of our products via our Wrangler ® and Lee ® branded full-price stores and Company-operated outlet stores globally, as well as digital sales generated globally from our own websites, including www.wrangler.com and www.lee.com, and concession retail locations internationally. 5 Kontoor Brands, Inc. 2021 Form 10-K Table of Contents The Direct-to-Consumer channel allows us to achieve the fullest expression of our brands by displaying our product lines in a manner that supports the brands’ positioning, providing an in-store and online user experience that enables us to address the needs and preferences of our consumers.
The Direct-to-Consumer channel allows us to achieve the fullest expression of our brands by displaying our product lines in a manner that supports the brands’ positioning, providing an in-store and online user experience that enables us to address the needs and preferences of our consumers.
Together, they are dedicated to creating quality apparel that is woven with care, style and sensitivity to our planet. This dedicated collaboration is at the core foundation of trust that drives our company’s high-performance culture and our business success. • Growth Culture We are dedicated to putting our purpose, mission and values at the forefront of everything we do.
With pride in our rich heritage and an eye toward ongoing business success, we continue to develop a high-performance culture that makes Kontoor an employer of choice in the apparel industry. We are dedicated to putting our purpose, mission and values at the forefront of everything we do.
We sit at the center of cultural moments and cater broadly to customers through our licensed collaborations, such as Yellowstone, Billabong, Pendleton, Forbidden City, The Hundreds, Keith Haring, Bob Marley, Stranger Things and Rick and Morty, among others.
We sit at the center of cultural moments and cater broadly to customers through our global and regional licensed collaborations, such as Sandro, STAUD, Mini Rodini, Barbie, Buffalo Trace, ROARINGWILD and Daydreamer, among others, as well as becoming the official jeans of the Dallas Cowboys.
The Nominating and Governance Committee reviews and evaluates our strategies, programs, policies and practices relating to environmental, social and governance issues and impacts to support the sustainable and responsible growth of our business. Kontoor believes that in order to grow as a Company, it has a responsibility to help improve the well-being of its communities.
We announced our Global Design Standards, a system created to lower our products' environmental and social impacts, and we continued expanding our award-winning Indigood ® program, reaching over 30 denim mills. Kontoor believes that to grow as a company, it has a responsibility to help improve the well-being of its communities.
While we anticipate the potential for additional periods of disruption and volatility during 2022, we believe that we are appropriately positioned to successfully manage through any associated operational challenges resulting from a prolonged COVID-19 operating environment. Corporate Information Our principal executive offices are located at 400 N. Elm Street, Greensboro, North Carolina 27401 and our telephone number is 336-332-3400.
While we anticipate continued uncertainty related to the macroeconomic environment during 2024, we believe we are appropriately positioned to successfully manage through known operational challenges. We continue to closely monitor macroeconomic conditions, including consumer behavior and the impact of these factors on consumer demand. Corporate Information Our principal executive offices are located at 400 N.
We sell our products primarily through our established wholesale and expanding digital ecosystems, supplemented through our branded brick & mortar locations. We benefit from strong relationships with many of our customers who we believe depend on our ability to reliably and timely replenish our high-volume products.
Our primary brands, Wrangler ® and Lee ® , have a combined heritage that spans over 200 years. During 2023, we sold approximately 149 million units of apparel across all brands. We benefit from long-standing relationships with many of our customers who we believe depend on our ability to reliably and timely replenish our high-volume products.
Removed
We completed a spin-off transaction from VF Corporation ("VF" or "former parent") on May 22, 2019 (the "Separation") and began to trade as a standalone public company (NYSE: KTB) on May 23, 2019. The Company designs, produces, procures, markets and distributes apparel primarily under the brand names Wrangler ® and Lee ® .
Added
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 United States (“U.S.”) through mass merchants, specialty stores, mid-tier and traditional department stores, company-operated stores and online, including digital marketplaces.
Removed
Kontoor is headquartered in the U.S. with a presence in over 70 countries. Our primary brands, Wrangler ® and Lee ® , benefit from heritages spanning over 200 combined years and together with our other brands accounted for approximately 152 million units of apparel sold in 2021.
Added
Macroeconomic Environment and Other Recent Developments Macroeconomic conditions, including inflation, elevated interest rates, recessionary concerns and fluctuating foreign currency exchange rates, as well as continuing global supply chain issues and uneven post-pandemic economic recovery in China, continue to adversely impact global economic conditions, as well as the Company's operations.
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Kontoor Brands, Inc. 2021 Form 10-K 1 Table of Contents The Company operates and reports using a 52/53 week fiscal year ending on the Saturday closest to December 31 of each year.
Added
Additionally, the conflicts in the Ukraine and Middle East are causing disruption in the surrounding areas and greater uncertainty in the global economy. Inflationary pressures have moderated throughout 2023, but continued to impact us in most jurisdictions where we operate. Additionally, global interest rates increased in the first half of 2023 and remained elevated through the end of the year.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThe current global economic environment is unpredictable, and adverse economic trends or other factors could negatively impact the level of consumer spending, which could have a material adverse impact on us. 10 Kontoor Brands, Inc 2021 Form 10-K Table of Contents Supply chain and shipping disruptions have resulted in shipping delays, a significant increase in transportation costs, and could increase product costs and result in lost sales, which may have a material adverse effect on our business, operating results and financial condition.
Biggest changeKontoor Brands, Inc. 2023 Form 10-K 9 Table of Contents The current global economic environment is unpredictable, and adverse economic trends or other factors could negatively impact the level of consumer spending, which could have a material adverse impact on us. A significant portion of our revenues and gross profit is derived from a small number of large customers.
Our business, prospects, results of operations, financial condition or cash flows could be materially and adversely affected by any of these risks, and, as a result, the trading price of our common stock could decline.
Our business, prospects, results of operations, cash flows or financial condition could be materially and adversely affected by any of these risks, and, as a result, the trading price of our common stock could decline.
Further, the global economy periodically experiences recessionary conditions with rising unemployment, reduced availability of credit, increased savings rates and declines in real estate and securities values. These recessionary conditions could have a negative impact on retail sales of apparel.
Further, the global economy periodically experiences recessionary conditions with reduced availability of credit, increased savings rates, declines in real estate and securities values and rising unemployment. These recessionary conditions could have a negative impact on retail sales of apparel.
As a result, the costs of these products are affected by changes in the value of the relevant currencies. Furthermore, much of our licensing net revenue is derived from sales in foreign currencies. Changes in foreign currency exchange rates could have an adverse impact on our financial condition, results of operations and cash flows.
As a result, the costs of these products are affected by changes in the value of the relevant currencies. Furthermore, much of our licensing net revenue is derived from sales in foreign currencies. Changes in foreign currency exchange rates could have an adverse impact on our results of operations, cash flows and financial condition.
Although we only enter into hedging contracts with counterparties having investment grade credit ratings, it is possible that the credit quality of a counterparty could be downgraded or a counterparty could default on its obligations, which could have a material adverse impact on our financial condition, results of operations and cash flows. Our balance sheet includes intangible assets and goodwill.
Although we only enter into hedging contracts with counterparties having investment grade credit ratings, it is possible that the credit quality of a counterparty could be downgraded or a counterparty could default on its obligations, which could have a material adverse impact on our results of operations, cash flows and financial condition. Our balance sheet includes goodwill and intangible assets.
A decline in the fair value of an intangible asset or of a business unit could result in an asset impairment charge, which would be recorded as an operating expense in our statement of operations.
A decline in the fair value of a business unit or of an intangible asset could result in an asset impairment charge, which would be recorded as an operating expense in our statement of operations.
Our policy is to evaluate indefinite-lived intangible assets and goodwill for possible impairment as of the beginning of the fourth quarter of each year, or whenever events or changes in circumstances indicate that the fair value of such assets may be below their carrying amount.
Our policy is to evaluate goodwill and indefinite-lived intangible assets for possible impairment as of the beginning of the fourth quarter of each year, or whenever events or changes in circumstances indicate that the fair value of such assets may be below their carrying amount.
We have debt obligations, including our senior notes, that could restrict our business and adversely impact our results of operations, financial condition or cash flows.
We have debt obligations, including our senior notes, that could restrict our business and adversely impact our results of operations, cash flows or financial condition.
In the event our lenders or noteholders accelerate the repayment of our borrowings, this could restrict our future business strategies and could adversely impact our future results of operations, financial condition or cash flows and we and our subsidiaries may not have sufficient assets to repay that indebtedness.
In the event our lenders or noteholders accelerate the repayment of our borrowings, this could restrict our future business strategies and could adversely impact our future results of operations, cash flows or financial condition and we and our subsidiaries may not have sufficient assets to repay that indebtedness.
The Indenture and the Amended Credit Agreement contain a number of restrictive covenants customary for these types of financings that impose restrictions on us and may limit our ability to operate our business and may limit our ability to react to market conditions or take advantage of potential business opportunities that may arise, including restrictions on our ability to: • incur additional indebtedness and guarantee indebtedness; • pay dividends or make other distributions or repurchase or redeem capital stock; • prepay, redeem or repurchase certain debt; • issue certain preferred stock or similar equity securities; • make loans and investments; • sell assets; • incur liens on assets; • enter into transactions with affiliates; • alter the businesses we conduct; • enter into agreements restricting our subsidiaries’ ability to pay dividends; and • consolidate, merge or sell all or substantially all of our assets.
The Indenture and the Credit Agreement contain a number of restrictive covenants customary for these types of financings that impose restrictions on us and may limit our ability to operate our business and may limit our ability to react to market conditions or take advantage of potential business opportunities that may arise, including restrictions on our ability to: • incur additional indebtedness and guarantee indebtedness; • pay dividends or make other distributions or repurchase or redeem capital stock; • prepay, redeem or repurchase certain debt; • issue certain preferred stock or similar equity securities; • make loans and investments; • sell assets; • incur liens on assets; • enter into transactions with affiliates; • alter the businesses we conduct; • enter into agreements restricting our subsidiaries’ ability to pay dividends; and • consolidate, merge or sell all or substantially all of our assets.
Pursuant to our amended and restated articles of incorporation, to the fullest extent permitted by law, and unless we consent in writing to the selection of an alternative forum, the North Carolina Business Court (or another state or federal court located in North Carolina, if a dispute does not qualify for designation to the North Carolina Business Court or the North Carolina Business Court otherwise lacks jurisdiction) shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors or officers or other employees to us or our shareholders; (iii) any action asserting a claim against us or any director or officer or other employee of ours arising pursuant to any provision of North Carolina law or our amended and restated articles of incorporation or our amended and restated bylaws; or (iv) any action asserting a claim against us or any director or officer or other employee of ours relating to the internal affairs doctrine.
Pursuant to our articles of incorporation, to the fullest extent permitted by law, and unless we consent in writing to the selection of an alternative forum, the North Carolina Business Court (or another state or federal court located in North Carolina, if a dispute does not qualify for designation to the North Carolina Business Court or the North Carolina Business Court otherwise lacks jurisdiction) shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors or officers or other employees to us or our shareholders; (iii) any action asserting a claim against us or any director or officer or other employee of ours arising pursuant to any provision of North Carolina law or our articles of incorporation or our bylaws; or (iv) any action asserting a claim against us or any director or officer or other employee of ours relating to the internal affairs doctrine.
These include proximity to countries in turmoil, shifts in local societal/cultural climates, change in local perceptions of foreign operators and uncertainty ahead of elections or regime changes, the burdens of complying with U.S. and international laws and regulations, unexpected changes in regulatory requirements and the economic uncertainty associated with political developments.
These include proximity to countries in turmoil, shifts in local societal/cultural climates, change in local perceptions of foreign operators and uncertainty ahead of elections or regime changes, the burdens of complying with U.S. and international laws and regulations, changes in regulatory requirements and the economic uncertainty associated with political developments.
If the Company fails to comply with any covenants or restrictions under the Indenture or the Amended Credit Agreement, it could result in an event of default under the applicable indebtedness, which may allow the creditors to accelerate the related debt, and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies.
If the Company fails to comply with any covenants or restrictions under the Indenture or the Credit Agreement, it could result in an event of default under the applicable indebtedness, which may allow the creditors to accelerate the related debt, and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies.
Any such reduction in our categories of apparel selling space could result in lower sales, and our business, results of operations, financial condition and cash flows may be adversely affected. Additionally, from time to time certain customers have experienced financial and operational difficulties.
Any such reduction in our categories of apparel selling space could result in lower sales, and our results of operations, cash flows and financial condition may be adversely affected. Additionally, from time to time certain customers have experienced financial and operational difficulties.
Our amended and restated articles of incorporation further provide that if an action described in the preceding sentence is filed in a court other than as specified above in the name of any shareholder, such shareholder is deemed to have consented to (i) personal jurisdiction before any state or federal court located in North Carolina, as appropriate, in connection with any action brought in any such court to enforce our amended and restated articles of incorporation and (ii) having service of process made upon such shareholder in any such action by service upon such shareholder’s counsel in the action as agent for such shareholder.
Our articles of incorporation further provide that if an action described in the preceding sentence is filed in a court other than as specified above in the name of any shareholder, such shareholder is deemed to have consented to (i) personal jurisdiction before any state or federal court located in North Carolina, as appropriate, in connection with any action brought in any such court to enforce our articles of incorporation and (ii) having service of process made upon such shareholder in any such action by service upon such shareholder’s counsel in the action as agent for such shareholder.
We seek to grow organically and potentially, in the future, through acquisitions. We seek to grow by expanding our share with winning customers; stretching brands to new regions, channels, and categories; managing costs; leveraging our supply chain across Kontoor Brands; and expanding our direct-to-consumer business with emphasis on our e-commerce business.
We seek to grow organically and potentially, in the future, through acquisitions. We seek to grow by expanding our share with winning customers; stretching brands to new regions, channels, and categories; managing costs; leveraging our supply chain across the Company; and expanding our direct-to-consumer business with emphasis on our e-commerce business.
Despite the security measures we currently have in place and our commitment to risk management practices, our facilities and systems and those of our third-party service providers may be vulnerable to, and unable to anticipate, detect or mitigate, data security breaches and other cyber incidents.
Despite the security measures we currently have in place and our commitment to risk management practices, our facilities and systems and those of our third-party service providers may be vulnerable to, and unable to anticipate, detect or mitigate, data security breaches and other cybersecurity incidents.
A decision by any of our major wholesale customers to significantly decrease the volume of products purchased from us, cease its purchases from us, cancel its orders, reduce its advertising for our products or change its manner of doing business with us, whether motivated by economic conditions, financial difficulties, competitive conditions, or otherwise, could substantially reduce net revenues and have a material adverse effect on our financial condition and results of operations.
A decision by any of our major wholesale customers to significantly decrease the volume of products purchased from us, cease purchases from us, cancel orders, reduce advertising for our products or change the manner of doing business with us, whether motivated by economic conditions, financial difficulties, competitive conditions, or otherwise, could substantially reduce net revenues and have a material adverse effect on our results of operations, cash flows and financial condition.
Customers may increasingly seek markdown allowances, incentives and other forms of economic support. If these factors cause us to reduce our sales prices to retailers and consumers, and we fail to sufficiently reduce our product costs or operating expenses, our profitability will decline. This could have a material adverse effect on our results of operations, liquidity and financial condition.
Customers may increasingly seek markdown allowances, incentives and other forms of economic support. If these factors cause us to reduce our sales prices to retailers and consumers, and we fail to sufficiently reduce our product costs or operating expenses, our profitability will decline. This could have a material adverse effect on our results of operations, cash flows and financial condition.
On November 18, 2021, we entered into an indenture (the “Indenture”) pursuant to which we issued and sold $400.0 million aggregate principal amount of unsecured senior notes bearing interest at a rate of 4.125% per annum (the “Notes”) and concurrently entered into an amended and restated credit agreement (the “Amended Credit Agreement”), which provides for (i) a five-year $400.0 million term loan A facility (the “Amended Term Loan A”) and (ii) a five-year $500.0 million revolving credit facility (the “Amended Revolving Credit Facility”) (collectively, the “Amended Credit Facilities”), with the lenders and agents party thereto.
On November 18, 2021, we entered into an indenture (the “Indenture”) pursuant to which we issued and sold $400.0 million aggregate principal amount of unsecured senior notes bearing interest at a rate of 4.125% per annum (the “Notes”) and concurrently entered into an amended and restated credit agreement (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, the “Credit Facilities”), with the lenders and agents party thereto.
Unfavorable audit findings and tax rulings may result in payment of taxes, fines and penalties for prior periods and higher tax rates in future periods, which may have a material adverse effect on our financial condition, results of operations or cash flows. 17 Kontoor Brands, Inc. 2021 Form 10-K Table of Contents Our business is subject to national, state and local laws and regulations for environmental, consumer protection, employment, data protection, privacy, safety and other matters.
Unfavorable audit findings and tax rulings may result in payment of taxes, fines and penalties for prior periods and higher tax rates in future periods, which may have a material adverse effect on our results of operations, cash flows or financial condition. 16 Kontoor Brands, Inc 2023 Form 10-K Table of Contents Our business is subject to national, state and local laws and regulations for environmental, consumer protection, employment, data protection, privacy, safety and other matters.
While enactment of any such change is not certain, if such changes were adopted, our costs could increase, which would reduce our earnings. Changes to trade policy, including tariff and import/export regulations, may have a material adverse effect on our business, financial condition and results of operations.
While enactment of any such change is not certain, if such changes were adopted, our costs could increase, which would reduce our earnings. Changes to trade policy, including tariff and import/export regulations, may have a material adverse effect on our results of operations, cash flows and financial condition.
Our ability to compete within the apparel industry depends on our ability to: • anticipate and respond to changing consumer preferences and product trends in a timely manner; • develop attractive, innovative and high-quality products that meet consumer needs; • maintain strong brand recognition; • price products appropriately; • provide best-in-class marketing support and intelligence; • ensure product availability and optimize supply chain efficiencies; • adapt to a more digitally driven consumer landscape; • respond to the effects of the COVID-19 pandemic; • produce or procure quality products on a consistent basis; and • obtain sufficient retail store space and effectively present our products at retail.
Our ability to compete within the apparel industry depends on our ability to: • anticipate and respond to changing consumer preferences and product trends in a timely manner; • develop attractive, innovative and high-quality products that meet consumer needs; • maintain strong brand recognition; • price products appropriately; • provide best-in-class marketing support and intelligence; • ensure product availability and optimize supply chain efficiencies; • adapt to a more digitally driven consumer landscape; • produce or procure quality products on a consistent basis; and • obtain sufficient retail store space and effectively present our products at retail.
Any of the following could impact our ability to produce or deliver our products or our cost of producing or delivering products and, as a result, our profitability: • political or labor instability in countries where our facilities, contractors and suppliers are located; • changes in local economic conditions, including as a result of the COVID-19 pandemic, in countries where our facilities, contractors and suppliers are located; • political or military conflict could cause a delay in the transportation of raw materials and products to us and an increase in transportation costs; • disruption at domestic and foreign ports of entry could cause delays in product availability and increase transportation times and costs; • heightened terrorism or security concerns could subject imported or exported goods to additional, more frequent or lengthier inspections, leading to delays in deliveries or impoundment of goods for extended periods; • decreased scrutiny by customs officials for counterfeit goods, leading to more counterfeit goods and reduced sales of our products, increased costs for our anti-counterfeiting measures and damage to the reputation of our brands; • disruptions at suppliers and manufacturing or distribution facilities caused by natural and man-made disasters; • disease epidemics and health-related concerns, including as a result of the COVID-19 pandemic, have resulted and could in the future result in closed factories, reduced workforces, scarcity of raw materials and scrutiny or embargo of our goods produced in infected areas; • imposition of regulations and quotas relating to imports and our ability to adjust timely to changes in trade regulations could limit our ability to produce products in cost-effective countries that have the required labor and expertise; • imposition of duties, taxes and other charges on imports; and • imposition or the repeal of laws that affect intellectual property rights.
Any of the following could impact our ability to produce or deliver our products or our cost of producing or delivering products and, as a result, our profitability: • political or labor instability in countries where our facilities, contractors and suppliers are located; • changes in local economic conditions, including as a result of macroeconomic pressures or geopolitical events, in countries where our facilities, contractors and suppliers are located; • political or military conflict could cause a delay in the transportation of raw materials and products to us and an increase in transportation costs; • disruption at domestic and foreign ports of entry could cause delays in product availability and increase transportation times and costs; • heightened terrorism or security concerns could subject imported or exported goods to additional, more frequent or lengthier inspections, leading to delays in deliveries or impoundment of goods for extended periods; • decreased scrutiny by customs officials for counterfeit goods, leading to more counterfeit goods and reduced sales of our products, increased costs for our anti-counterfeiting measures and damage to the reputation of our brands; • disruptions at suppliers and manufacturing or distribution facilities caused by natural and man-made disasters; • epidemics or other public health crises have resulted and could in the future result in closed factories, reduced workforces, scarcity of raw materials and scrutiny or embargo of our goods produced in infected areas; • imposition of regulations and quotas relating to imports and our ability to adjust timely to changes in trade regulations could limit our ability to produce products in cost-effective countries that have the required labor and expertise; • imposition of duties, taxes and other charges on imports; and • imposition or the repeal of laws that affect intellectual property rights.
For example: • we may not be able to transform our model to be more consumer- and retail-centric; • we may not be able to expand our market share with winning customers, or our wholesale customers may encounter financial difficulties and thus reduce their purchases of our products; • we may not be able to expand our brands in Asia or other geographies, transform our business in certain regions or achieve the expected results from our supply chain initiatives; • we may not be able to successfully achieve the expected growth or cost savings of our Wrangler ® and Lee ® brand platforms; • we may have difficulty recruiting, developing or retaining qualified employees; • we may not be able to achieve our direct-to-consumer expansion goals and manage our growth effectively; • we may not be able to offset rising commodity or conversion costs in our product costs with pricing actions or efficiency improvements; • we may have difficulty completing potential acquisitions or dispositions, and we may not be able to successfully integrate a newly acquired business or achieve the expected growth, cost savings or synergies from such integration; and • failure to implement our strategic objectives may have a material adverse effect on our business.
For example: • we may not be able to transform our model to be more consumer- and retail-centric; • we may not be able to expand our market share with winning customers, or our wholesale customers may encounter financial difficulties and thus reduce their purchases of our products; • we may not be able to expand our brands in Asia or other geographies, transform our business in certain regions or achieve the expected results from our supply chain initiatives; • we may not be able to successfully achieve the expected growth or cost savings of our Wrangler ® and Lee ® brand platforms; • we may have difficulty recruiting, developing or retaining qualified employees; • we may not be able to achieve our direct-to-consumer expansion goals and manage our growth effectively; • we may not be able to offset rising commodity or conversion costs in our product costs with pricing actions or efficiency improvements; and • we may have difficulty completing potential acquisitions or dispositions, and we may not be able to successfully integrate a newly acquired business or achieve the expected growth, cost savings or synergies from such integration.
It is possible that we could have an impairment charge for goodwill or trademark and trade name intangible assets in future periods if (i) overall economic conditions in future years vary from our current assumptions, (ii) business conditions or our strategies for a specific business unit or brand change from our current assumptions, (iii) investors require higher rates of return on equity investments in the marketplace or (iv) enterprise values of comparable publicly traded companies, or of actual sales transactions of comparable companies, were to decline, resulting in lower comparable multiples of net revenues and earnings before interest, taxes, depreciation and amortization and, accordingly, lower implied values of goodwill and intangible assets.
It is possible that we could have an impairment charge for goodwill or trademark and trade name intangible assets in future periods if (i) macroeconomic conditions and/or geopolitical events in future years worsen from our current assumptions, (ii) business conditions or our strategies for a specific business unit or brand change from our current assumptions, (iii) investors require higher rates of return on equity investments in the marketplace or (iv) enterprise values of comparable publicly traded companies, or of actual sales transactions of comparable companies, were to decline, resulting in lower comparable multiples of net revenues and earnings before interest, taxes, depreciation and amortization and, accordingly, lower implied values of goodwill and intangible assets.
The existence of certain provisions of our amended and restated articles of incorporation and amended and restated bylaws and North Carolina law could discourage, delay or prevent a change in control of Kontoor Brands that a shareholder may consider favorable.
The existence of certain provisions of our articles of incorporation and bylaws and North Carolina law could discourage, delay or prevent a change in control of Kontoor that a shareholder may consider favorable.
The market price of our Common Stock has fluctuated significantly, and may continue to fluctuate significantly, due to a number of factors, many of which are beyond our control, including: • Fluctuations in our quarterly or annual earnings results or those of other companies in our industry; • Failures of our operating results to meet the estimates of securities analysts or the expectations of our shareholders, or changes by securities analysts in their estimates of our future earnings; • Significant changes announced by our customers, suppliers or competitors; • Changes in market valuations or earnings of other companies in our industry; • Changes in laws or regulations which adversely affect our industry or us; • General economic, industry and stock market conditions, including as a result of the COVID-19 pandemic; • Future significant sales of our common stock by our shareholders or the perception in the market of such sales; • Future issuances of our common stock by us; and • The other factors described in these “Risk Factors” and elsewhere in this Annual Report on Form 10-K.
The market price of our common stock has fluctuated significantly, and may continue to fluctuate significantly, due to a number of factors, many of which are beyond our control, including: • Fluctuations in our quarterly or annual earnings results or those of other companies in our industry; • Failures of our operating results to meet the estimates of securities analysts or the expectations of our shareholders, or changes by securities analysts in their estimates of our future earnings; • Significant changes announced by our customers, suppliers or competitors; • Changes in market valuations or earnings of other companies in our industry; • Changes in laws or regulations which adversely affect our industry or us; • General economic, industry and stock market conditions, including inflation, rising interest rates and recessionary concerns; • Future significant sales of our common stock by our shareholders or the perception in the market of such sales; • Future issuances of our common stock by us; and • The other factors described in these “Risk Factors” and elsewhere in this Annual Report on Form 10-K.
Our hedging strategies may not be effective in mitigating those risks. Approximately 25% of our total net revenues in 2021 are derived from markets outside the U.S. Our international businesses operate in functional currencies other than the U.S. dollar.
Our hedging strategies may not be effective in mitigating those risks. Approximately 21% of our total net revenues in 2023 are derived from markets outside the U.S. Most of our international businesses operate in functional currencies other than the U.S. dollar.
Although a charge would be non-cash, a future impairment charge for goodwill or intangible assets could have a material effect on our consolidated financial position or results of operations. 19 Kontoor Brands, Inc. 2021 Form 10-K Table of Contents Our ability to obtain short-term or long-term financing on favorable terms, if needed, could be adversely affected by geopolitical risk and volatility in the capital markets.
Although a charge would be non-cash, a future impairment charge for goodwill or intangible assets could have a material effect on our results of operations or financial condition. 18 Kontoor Brands, Inc 2023 Form 10-K Table of Contents Our ability to obtain short-term or long-term financing on favorable terms, if needed, could be adversely affected by geopolitical events and volatility in the capital markets.
The prices we pay depend on demand and market prices for the raw materials used to produce them. The price and availability of such raw materials may fluctuate significantly, depending on many factors, including general economic conditions and demand, the effects of the COVID-19 pandemic, crop yields, energy prices, weather patterns, freight rates and speculation in the commodities markets.
The prices we pay depend on demand and market prices for the raw materials used to produce them. The price and availability of such raw materials may fluctuate significantly, depending on many factors, including general economic conditions and demand, supply chain disruptions, crop yields, energy prices, weather patterns, freight rates and speculation in the commodities markets.
These include provisions: • Providing for a classified Board of Directors until our annual meeting of shareholders held in 2023; • Providing that our directors may be removed by our shareholders only for cause while our Board is classified; • Providing that the removal of our directors with or without cause after our Board is de-classified must be approved by the holders of at least 80% of the voting power of Kontoor Brands; • Providing the right to our Board of Directors to issue one or more classes or series of preferred stock without shareholder approval; • Authorizing a large number of shares of stock that are not yet issued, which would allow our Board of Directors to issue shares to persons friendly to current management, thereby protecting the continuity of our management, or which could be used to dilute the stock ownership of persons seeking to obtain control of us; • Prohibiting shareholders from calling special meetings of shareholders or taking action by written consent; • Establishing advance notice and other requirements for nominations of candidates for election to our Board of Directors or for proposing matters that can be acted on by shareholders at our annual shareholder meetings; and • Requiring the affirmative vote of the holders of at least 80% of the voting power of Kontoor Brands to approve certain business combinations.
These include provisions: • Providing that the removal of our directors with or without cause must be approved by the holders of at least 80% of the voting power; • Providing the right to our Board of Directors to issue one or more classes or series of preferred stock without shareholder approval; • Authorizing a large number of shares of stock that are not yet issued, which would allow our Board of Directors to issue shares to persons friendly to current management, thereby protecting the continuity of our management, or which could be used to dilute the stock ownership of persons seeking to obtain control of us; • Prohibiting shareholders from calling special meetings of shareholders and requiring unanimous shareholder action by written consent; • Establishing advance notice and other requirements for nominations of candidates for election to our Board of Directors or for proposing matters that can be acted on by shareholders at our annual shareholder meetings; and • Requiring the affirmative vote of the holders of at least 80% of the voting power to approve certain business combinations.
This, along with the damage to our reputation, could have a material adverse effect on our net revenues and, consequently, our results of operations.
This, along with the damage to our reputation, could have a material adverse effect on our net revenues and, consequently, our results of operations, cash flows and financial condition.
Failure to compete effectively or to keep pace with rapidly changing consumer preferences, markets and product trends could have a material adverse effect on our business, financial condition and results of operations. Moreover, there are significant shifts underway in the wholesale and retail (e-commerce and retail store) channels.
Failure to compete effectively or to keep pace with rapidly changing consumer preferences, markets and product trends could have a material adverse effect on our results of operations, cash flows and financial condition. Moreover, there have been, and continue to be, significant shifts in the wholesale and retail (e-commerce and retail store) channels.
Any failure to pay dividends or repurchase shares, or pay dividends or conduct share repurchases at expected levels, may negatively impact our reputation, investor confidence in us and negatively impact the price of our Common Stock.
Any failure to pay dividends or repurchase shares, or pay dividends or conduct share repurchases at expected levels, may negatively impact our reputation, investor confidence in us and negatively impact the price of our Common Stock. ITEM 1B. UNRESOLVED STAFF COMMENTS. None.
Our operations and earnings may be affected by legal, regulatory, political and economic risks. Our ability to maintain the current level of operations in our existing markets and to capitalize on growth in existing and new markets is subject to legal, regulatory, political and economic risks.
Our ability to maintain the current level of operations in our existing markets and to capitalize on growth in existing and new markets is subject to legal, regulatory, political and economic risks.
The apparel industry is subject to significant pricing pressure caused by many factors, including intense competition, consolidation in the retail industry, rising commodity and conversion costs, pressure from retailers to reduce the costs of products, the impact of the COVID-19 pandemic, changes in consumer demand and shifts to online shopping and purchasing.
The apparel industry is subject to significant pricing pressure caused by many factors, including intense competition, consolidation in the retail industry, rising commodity and conversion costs, pressure from retailers to reduce the costs of products, the impact of inflation, rising interest rates and recessionary concerns, changes in consumer demand and shifts to online shopping and purchasing.
If we, our suppliers or our contract manufacturers are required to comply with these laws and regulations, or if we choose to take voluntary steps to reduce or mitigate our impact on climate change, we may experience transition risks such as increases in energy, production, transportation and raw material costs, capital expenditures or insurance premiums and 16 Kontoor Brands, Inc 2021 Form 10-K Table of Contents deductibles, which could adversely impact our operations.
If we, our suppliers or our contract manufacturers are required to comply with these laws and regulations, or if we choose to take voluntary steps to reduce or mitigate our impact on climate change, we may experience transition risks such as increases in energy, production, transportation and raw material costs, capital expenditures or insurance premiums and deductibles, which could adversely impact our operations.
Because substantially all of our products are distributed from a relatively small number of locations, our operations could also be interrupted by earthquakes, floods, fires or other natural disasters affecting our distribution centers.
Because substantially all of our products are distributed from a relatively small number of locations, our operations could also be interrupted by public health crises or natural or man-made disasters like earthquakes, floods or fires affecting our distribution centers.
During 2021, approximately 65% of our units were purchased from independent manufacturers primarily located in Asia, with substantially all of the remainder produced by Kontoor Brands-owned and -operated manufacturing facilities located in Mexico and Nicaragua.
During 2023, approximately 67% of our units were purchased from independent manufacturers primarily located in Asia, with substantially all of the remainder produced by company-owned and -operated manufacturing facilities located in Mexico and Nicaragua.
Such changes have the potential to adversely impact the U.S. economy or certain sectors thereof, our industry and the global demand for our products, and as a result, could have a material adverse effect on our business, financial condition and results of operations.
Such changes have the potential to adversely impact the U.S. economy or certain sectors thereof, our industry and the global demand for our products, and as a result, could have a material adverse effect on our results of operations, cash flows and financial condition. Climate change, and related legislative and regulatory responses to climate change, may adversely impact our business.
The success of our business depends on consumer spending on apparel, and there are a number of factors that influence consumer spending, including actual and perceived economic conditions, disposable consumer income, the impact of the COVID-19 pandemic, interest rates, inflation, consumer credit availability, unemployment, stock market performance, weather conditions, energy prices, consumer discretionary spending patterns and tax rates in the international, national, regional and local markets where our products are sold.
The success of our business depends on consumer spending on apparel, and there are a number of factors that influence consumer spending, including actual and perceived economic conditions, disposable consumer income, consumer discretionary spending patterns, interest rates, inflation, recessionary concerns, the uneven economic recovery following the COVID-19 pandemic in China, consumer credit availability and consumer debt levels, fuel and other energy costs, unemployment, stock market performance, weather conditions and tax rates in the international, national, regional and local markets where our products are sold.
Our larger customers generally have the scale to develop supply chains that enable them to change their buying patterns, or develop and market their own private label and other 12 Kontoor Brands, Inc 2021 Form 10-K Table of Contents economy brands that compete with some of our products.
Our larger customers generally have the scale to develop supply chains that enable them to change their buying patterns, or develop and market their own private label and other economy brands that compete with some of our products.
Although we attempt to protect our brands through contractual approval rights over design, production processes, quality, packaging, merchandising, distribution, advertising and 13 Kontoor Brands, Inc. 2021 Form 10-K Table of Contents promotion of our licensed products, we cannot completely control the use of our licensed brands by our licensees.
Although we attempt to protect our brands through contractual approval rights over design, production processes, quality, packaging, merchandising, distribution, advertising and promotion of our licensed products, we cannot completely control the use of our licensed brands by our licensees.
The misuse of a brand by a licensee, including through the marketing of products under one of our brand names that do not meet our quality standards, could have a material adverse effect on that brand and on us. Our revenues and cash requirements are affected by seasonality.
The misuse of a 12 Kontoor Brands, Inc 2023 Form 10-K Table of Contents brand by a licensee, including through the marketing of products under one of our brand names that do not meet our quality standards, could have a material adverse effect on that brand and on us. Our revenues and cash requirements are affected by seasonality.
We are susceptible to others copying our products and infringing, misappropriating or otherwise violating our intellectual property rights, especially with the shift in product mix to higher-priced brands and innovative new products in recent years.
Our trademarks, trade names, patents and other intellectual property rights are important to our success and our competitive position. We are susceptible to others copying our products and infringing, misappropriating or otherwise violating our intellectual property rights, especially with the shift in product mix to higher-priced brands and innovative new products in recent years.
If we encounter problems with our distribution system, our ability to meet customer expectations, manage inventory, complete sales and achieve operating efficiencies could be materially adversely affected. We may be adversely affected by unseasonal or severe weather conditions. Our business may be adversely affected by unseasonal or severe weather conditions.
If we encounter problems with our distribution system, our ability to meet customer expectations, manage inventory, complete sales and achieve operating efficiencies could be materially adversely affected.
Failure to comply with anti-bribery, anti-corruption and anti-money laundering laws could subject us to penalties and other adverse consequences. We are subject to the United States Foreign Corrupt Practices Act, in addition to the anti-bribery, anti-corruption, and anti-money laundering laws of the foreign jurisdictions in which we operate, such as the U.K. Bribery Act.
We are subject to the United States Foreign Corrupt Practices Act, in addition to the anti-bribery, anti-corruption, and anti-money laundering laws of the foreign jurisdictions in which we operate, such as the U.K. Bribery Act.
Recently there have been consolidations, reorganizations, restructurings, bankruptcies and ownership changes in the retail industry, much of which is a result of the COVID-19 pandemic. These events individually, and together, could have a material adverse effect on our business. These changes could impact our opportunities in the market and increase our reliance on a smaller number of large customers.
Historically, there have been consolidations, reorganizations, restructurings, bankruptcies and ownership changes in the retail industry. These events could have a material adverse effect on our business. These changes could impact our opportunities in the market and increase our reliance on a smaller number of large customers.
Damage to our reputation or loss of consumer confidence for any of these or other reasons could have a material adverse effect on our results of operations, financial condition and cash flows, as well as require additional resources to rebuild our reputation.
Damage to our reputation or loss of consumer confidence for any of these or other reasons could have a material adverse effect on our results of operations, cash flows and financial condition, as well as require additional resources to rebuild our reputation. We may be unable to protect, enforce or defend our trademarks and other intellectual property rights.
Our failure to successfully respond to these risks might adversely affect sales in our e-commerce business, as well as damage our reputation and brands. The retail industry has experienced financial difficulty that could adversely affect our business.
Our failure to successfully respond to these risks might adversely affect sales in our e-commerce business, as well as damage our reputation and brands. Kontoor Brands, Inc. 2023 Form 10-K 11 Table of Contents The retail industry has experienced financial difficulty that could adversely affect our business.
These disruptions have impacted our ability to receive materials or products from our third-party manufacturing partners and suppliers, to distribute our products to our customers in a cost-effective and timely manner and to meet customer demand, all of which could have an adverse effect on our financial condition and results of operations.
These disruptions impacted, and may continue to impact, our ability to receive materials or products from our third-party manufacturing partners and suppliers, and to distribute our products to our customers in a cost-effective and timely manner, increased, and may continue to increase, production lead times and raw material and product costs, and impacted, and may continue to impact, our ability to meet customer demand, all of which could have an adverse effect on our results of operations, cash flows and financial condition.
Any disruptions, delays or deficiencies related to our new ERP software system could materially impact our operations and adversely affect our ability to process orders, manage our inventory, ship products, provide customer support, fulfill contractual obligations or otherwise operate our business.
Any disruptions, delays or deficiencies related to our new ERP software system could materially impact our operations and adversely affect our ability to process orders, manage our inventory, ship products, provide customer support, fulfill contractual obligations or otherwise operate our business. LEGAL, COMPLIANCE, AND SUSTAINABILITY RISKS Our operations and earnings may be affected by legal, regulatory, political and economic risks.
Tariffs and other changes in U.S. trade policy have in the past and could continue to trigger retaliatory actions by affected countries, and certain foreign governments have instituted or are considering imposing retaliatory measures on certain U.S. goods.
Kontoor Brands, Inc. 2023 Form 10-K 15 Table of Contents Tariffs and other changes in U.S. trade policy have in the past and could continue to trigger retaliatory actions by affected countries, and certain foreign governments have instituted or are considering imposing retaliatory measures on certain U.S. goods.
The failure of these systems to operate effectively, improper design or configuration, problems with transitioning to upgraded or replacement systems, difficulty in integrating new systems or systems of acquired businesses or a breach in security of these systems could adversely impact the operations of our business, including management of inventory, ordering and replenishment of products, manufacturing and distribution of products, e-commerce operations, retail business credit card transaction authorization and processing, tracking and recording of accounting transactions, corporate email communications and our interaction with the public on social media.
The failure of these systems to operate effectively, improper design or configuration, problems with transitioning to upgraded or replacement systems, difficulty in integrating new systems or systems of acquired businesses or a breach in security of these systems could adversely impact the operations of our business, including management of inventory, ordering and replenishment of products, manufacturing and distribution of products, e-commerce operations, retail business credit card transaction authorization and processing, tracking and recording of accounting transactions, corporate email communications and our interaction with the public on social media. 14 Kontoor Brands, Inc 2023 Form 10-K Table of Contents We are subject to data security and privacy risks that could negatively affect our business operations, results of operations or reputation.
Physical risks from climate change may result in these weather events occurring more often and more acutely. Any of these conditions could result in negative point-of-sale trends for our merchandise and reduced replenishment shipments to our wholesale customers.
In addition, severe weather events such as snowstorms or hurricanes typically lead to temporarily reduced retail traffic. Physical risks from climate change may result in these weather events occurring more often and more acutely. Any of these conditions could result in negative point-of-sale trends for our merchandise and reduced replenishment shipments to our wholesale customers.
If we encounter problems with our distribution system, our ability to deliver our products to the market could be adversely affected. We rely on owned or independently operated distribution facilities to warehouse and ship product to our customers.
Kontoor Brands, Inc. 2023 Form 10-K 13 Table of Contents If we encounter problems with our distribution system, our ability to deliver our products to the market could be adversely affected. We rely on owned or independently-operated distribution facilities to warehouse and ship product to our customers.
To the extent one or more of our largest customers experience significant financial difficulty, bankruptcy, insolvency or cease operations, this could have a material adverse effect on our sales, our ability to collect on receivables and our financial condition and results of operations. We may not succeed in our business strategy. One of our key strategic objectives is growth.
To the extent one or more of our largest customers experience significant financial difficulty, bankruptcy, insolvency or cease operations, this could have a material adverse effect on our sales, our ability to collect on receivables and our results of operations, cash flows and financial condition.
Our wholesale customers have experienced significant business disruptions as a result of the COVID-19 pandemic, including declines in retail traffic, inflationary pressures, temporary store closures, and other operational restrictions. There can be no assurance that our wholesale customers have adequate financial resources and/or access to additional capital to withstand prolonged periods of such adverse economic conditions.
For example, our wholesale customers experienced significant business disruptions as a result of the COVID-19 pandemic and the macroeconomic pressures that resulted from the pandemic. There can be no assurance that our wholesale or other customers have adequate financial resources and/or access to additional capital to withstand prolonged periods of adverse economic conditions.
We have recently implemented a company-wide ERP software system and the related infrastructure to support future growth and to integrate our processes. The continued optimization and change management related to the ERP software system may prove to be more difficult, costly or time-consuming than expected, and it is possible that the system will not yield the benefits anticipated.
The continued optimization and change management related to the ERP software system may prove to be more difficult, costly or time-consuming than expected, and it is possible that the system will not yield the benefits anticipated.
We are also dependent on information technology, including the internet, for our direct-to-consumer sales, including our e-commerce operations and retail business credit card transaction authorizations.
We rely heavily on information technology to track sales and inventory, manage our supply chain and support our accounting and financial reporting processes. We are also dependent on information technology, including the internet, for our direct-to-consumer sales, including our e-commerce operations and retail business credit card transaction authorizations.
FINANCIAL RISKS Fluctuations in wage rates and the price, availability and quality of raw materials, including commodity costs and finished goods, could increase costs.
Kontoor Brands, Inc. 2023 Form 10-K 17 Table of Contents FINANCIAL RISKS Fluctuations in wage rates and the price, availability and quality of raw materials, including commodity costs and finished goods, could increase costs.
Any such violation, or allegations of such violation, could result in sanctions or other penalties and have an adverse effect on our business, reputation and operating results. Changes in tax laws could increase our worldwide tax rate and materially affect our financial position and results of operations.
Any such violation, or allegations of such violation, could result in sanctions or other penalties and have an adverse effect on our business, reputation and operating results.
We may also incur substantial additional indebtedness in the future. 20 Kontoor Brands, Inc 2021 Form 10-K Table of Contents RISKS RELATING TO OUR COMMON STOCK The price of our Common Stock has fluctuated significantly and may continue to fluctuate significantly.
Kontoor Brands, Inc. 2023 Form 10-K 19 Table of Contents RISKS RELATING TO OUR COMMON STOCK The price of our common stock has fluctuated significantly and may continue to fluctuate significantly.
We believe these provisions will protect our shareholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our Board of Directors and by providing our Board of Directors with more time to assess any acquisition 21 Kontoor Brands, Inc. 2021 Form 10-K Table of Contents proposal.
We believe these provisions will protect our shareholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our Board of Directors and by providing our Board of Directors with more time to assess any acquisition proposal. These provisions are not intended to make us immune from takeovers.
An inability to access capital and credit markets may have a material adverse effect on our business, results of operations, financial condition and cash flows. Our failure to maintain satisfactory credit ratings could adversely affect our liquidity, capital position, borrowing costs and access to capital markets.
This could adversely affect our liquidity and funding resources and/or significantly increase our cost of capital. An inability to access capital and credit markets may have a material adverse effect on our results of operations, cash flows and financial condition.
Any downgrades in our credit ratings by the major independent rating agencies could increase the cost of borrowing under any indebtedness we may incur.
Our failure to maintain satisfactory credit ratings could adversely affect our liquidity, capital position, borrowing costs and access to capital markets. Any downgrades in our credit ratings by the major independent rating agencies could increase the cost of borrowing under any indebtedness we may incur.
In addition, although we audit our third-party material suppliers and contracted manufacturing facilities and set strict compliance standards, actions by a third-party supplier or manufacturer that fail to comply could expose us to claims for damages, financial penalties and reputational harm, any of which could have a material adverse effect on our business and operations. 14 Kontoor Brands, Inc 2021 Form 10-K Table of Contents We rely on a limited number of North American mills for raw material sourcing, and we may not be able to obtain raw materials on a timely basis or in sufficient quantity or quality.
In addition, although we audit our third-party material suppliers and contracted manufacturing facilities and set strict compliance standards, actions by a third-party supplier or manufacturer that fail to comply could expose us to claims for damages, financial penalties and reputational harm, any of which could have a material adverse effect on our business and operations.
As a global business, we are subject to taxation in the U.S. and numerous foreign jurisdictions. Many jurisdictions in which we operate are discussing potential changes to their respective taxation regimes or adopting additional regulations. Specifically, countries in the European Union and around the globe have adopted and/or proposed changes to current tax laws.
Changes in tax laws could increase our worldwide tax rate and materially affect our financial position and results of operations. As a global business, we are subject to taxation in the U.S. and numerous foreign jurisdictions. Many jurisdictions in which we operate are discussing potential changes to their respective taxation regimes, have issued proposed regulations or are adopting additional regulations.
Any of the above-listed factors could have a material adverse effect on our business, financial condition and results of operations.
Any of the above-listed factors could have a material adverse effect on our results of operations, cash flows and financial condition. We may also incur substantial additional indebtedness in the future.
Some of our competitors are larger and have more resources than us in certain product categories and regions. In addition, we compete directly with the private label brands of our wholesale customers.
We compete with numerous apparel brands and manufacturers. Competition is generally based upon brand name recognition, price, design, product quality, selection, service and purchasing convenience. Some of our competitors are larger and have more resources than us in certain product categories and regions. In addition, we compete directly with the private label brands of our wholesale customers.
We rely on a limited number of North American third-party suppliers for raw materials. Such products may be available, in the short-term, from only one or a very limited number of sources. In 2021, approximately 52% of our raw materials were provided by our top three suppliers in North America.
Such products may be available, in the short-term, from only one or a very limited number of sources. In 2023, approximately 49% of our raw materials were provided by our top three suppliers in North America. We have no long-term contracts with our suppliers or manufacturing sources, and we compete with other companies for raw materials, production and quota capacity.
Moreover, if one or more of the analysts who cover us downgrade our stock, or if our results of operations do not meet their expectations, our stock price could decline.
Moreover, if one or more of the analysts who cover us downgrade our stock, or if our results of operations do not meet their expectations, our stock price could decline. Provisions in our articles of incorporation and bylaws and certain provisions of North Carolina law could delay or prevent a change in control of Kontoor.
These events could also compound adverse economic conditions and impact consumer confidence and discretionary spending. As a result, the physical effects of climate change could have a long-term adverse impact on our business and results of operations. In many countries, governmental bodies are enacting new or additional legislation and regulations to reduce or mitigate the potential impacts of climate change.
These events could also compound adverse economic conditions and impact consumer confidence and discretionary spending. As a result, the physical effects of climate change could have a long-term adverse impact on our business, results of operations, cash flows and financial condition.
These determinations are the subject of periodic U.S. and international tax audits. Although we accrue for uncertain tax positions, our accrual may be insufficient to satisfy unfavorable findings.
This analysis requires a significant amount of judgment and estimation and is often based on various assumptions about the future actions of the local tax authorities. These determinations are the subject of periodic U.S. and international tax audits. Although we accrue for uncertain tax positions, our accrual may be insufficient to satisfy unfavorable findings.
Our success to date has been due in large part to the growth of our brands’ images and our customers’ connection to our brands. If we are unable to timely and appropriately respond to changing consumer demand, including customers’ desire for sustainable products, the names and images of our brands may be impaired.
Our business and the success of our products could be harmed if we are unable to maintain the images of our brands. Our success to date has been due in large part to the growth of our brands’ images and our customers’ connection to our brands.
We may not be able to manage our brands within and across channels sufficiently, which could have a material adverse effect on our business, financial condition and results of operations. Our results of operations could be materially harmed if we are unable to accurately forecast demand for our products.
We may not be able to manage our brands within and across channels sufficiently, which could have a material adverse effect on our results of operations, cash flows and financial condition. Our profitability may decline as a result of increasing pressure on margins.
We are subject to data security and privacy risks that could negatively affect our business operations, results of operations or reputation. In the normal course of business, we collect, store, use, process, disclose and transmit (“Process”) certain sensitive, personal, regulated and/or confidential employee and customer information, including credit card information, over public networks.
In the normal course of business, we collect, store, use, process, disclose and transmit (“Process”) certain sensitive, personal, regulated and/or confidential employee and customer information, including credit card information, over public networks. There is a significant concern by consumers and employees over the security of personal information, including with respect to identity theft and user privacy.
Sales to our wholesale customers are generally on a purchase order basis and not subject to long-term agreements.
We expect that these customers will continue to represent a significant portion of our net sales in the future. Sales to our wholesale customers are generally on a purchase order basis and not subject to long-term agreements.
If these developments occur, our inability to shift sales to other customers or to collect on our trade accounts receivable could have a material adverse effect on our financial condition and results of operations. A significant portion of our revenues and gross profit is derived from a small number of large customers.
If these developments occur, our inability to shift sales to other customers or to collect on our trade accounts receivable could have a material adverse effect on our results of operations, cash flows and financial condition. We may not succeed in our business strategy. One of our key strategic objectives is growth.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe following table presents our principal properties as of January 1, 2022: Location Approximate Square Feet Use Owned or Leased Greensboro, North Carolina 140,000 Global Headquarters Owned Greensboro, North Carolina 47,000 Office Leased Antwerp, Belgium 38,000 Office Leased Shanghai, China 16,000 Office Leased Mexico City, Mexico 13,000 Office Leased Hong Kong, China 44,000 Office/Sourcing Hub Leased Panama City, Panama 5,000 Sourcing Hub Leased Foshan, China 48,000 Technical Service Center Leased Greensboro, North Carolina 10,000 Innovation Center Leased Greensboro, North Carolina 173,000 Technical Service Center Owned Mocksville, North Carolina 503,000 Distribution Center Owned Hackleburg, Alabama 443,000 Distribution Center Owned Seminole, Oklahoma 394,000 Distribution Center Owned El Paso, Texas 385,000 Distribution Center Leased Luray, Virginia 435,000 Distribution Center Owned Mexico City, Mexico 162,000 Distribution Center Leased Acanceh, Mexico 306,000 Manufacturing Facility Owned Torreon, Mexico 304,000 Manufacturing Facility Owned Izamal, Mexico 93,000 Manufacturing Facility Owned Tekax, Mexico 92,000 Manufacturing Facility Owned LaRosita, Mexico 90,000 Manufacturing Facility Owned San Pedro, Mexico 88,000 Manufacturing Facility Owned San Antonio del Coyote, Mexico 88,000 Manufacturing Facility Owned Managua, Nicaragua 126,000 Manufacturing Facility Leased San Marcos, Nicaragua 115,000 Manufacturing Facility Leased Masatepe City, Nicaragua 108,000 Manufacturing Facility Leased As of January 1, 2022, we operated 80 retail stores across the Americas, EMEA and APAC regions.
Biggest changeThe following table presents our principal properties as of December 30, 2023: Location Approximate Square Feet Use Owned or Leased Greensboro, North Carolina 140,000 Global Headquarters Owned Greensboro, North Carolina 47,000 Office Leased Antwerp, Belgium 11,000 Office Leased Geneva, Switzerland 19,000 Office Leased Shanghai, China 16,000 Office Leased Mexico City, Mexico 13,000 Office Leased Dhaka, Bangladesh 10,500 Office and Technical Service Center Leased Hong Kong, China 44,000 Office and Sourcing Hub Leased Panama City, Panama 5,000 Office and Sourcing Hub Leased Foshan, China 48,000 Technical Service Center Leased Greensboro, North Carolina 173,000 Technical Service and Innovation Center Owned Mocksville, North Carolina 503,000 Distribution Center Owned Hackleburg, Alabama 443,000 Distribution Center Owned Seminole, Oklahoma 394,000 Distribution Center Owned El Paso, Texas 385,000 Distribution Center Leased Luray, Virginia 435,000 Distribution Center Owned Mexico City, Mexico 162,000 Distribution Center Leased Acanceh, Mexico 306,000 Manufacturing Facility Owned Torreon, Mexico 304,000 Manufacturing Facility Owned Izamal, Mexico 93,000 Manufacturing Facility Owned Tekax, Mexico 92,000 Manufacturing Facility Owned La Rosita, Mexico 90,000 Manufacturing Facility Owned San Pedro, Mexico 88,000 Manufacturing Facility Owned San Antonio del Coyote, Mexico 88,000 Manufacturing Facility Owned Managua, Nicaragua 129,000 Manufacturing Facility Leased San Marcos, Nicaragua 145,000 Manufacturing Facility Leased As of December 30, 2023, we operated 80 retail stores across the Americas, EMEA and APAC regions.
Retail stores are typically leased under operating leases and include renewal options. We believe that all of our facilities, whether owned or leased, are well maintained and in good operating condition and expect they will accommodate our ongoing and foreseeable business needs.
Retail stores are typically leased under operating leases and include renewal options. We believe that all of our facilities, whether owned or leased, are well maintained and in good operating condition and expect they will accommodate our ongoing and foreseeable business needs. Kontoor Brands, Inc. 2023 Form 10-K 23 Table of Contents
ITEM 2. PROPERTIES. We conduct manufacturing, distribution and administrative activities in owned and leased facilities. We operate ten manufacturing-related facilities and six distribution centers around the world. Our global headquarters are located in Greensboro, North Carolina, and house our various sales, marketing and corporate business functions.
Our global headquarters are located in Greensboro, North Carolina, and house our various sales, marketing and corporate business functions.
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ITEM 2. PROPERTIES. We conduct manufacturing, distribution and administrative activities in owned and leased facilities. We operate nine manufacturing-related facilities and six distribution centers around the world. To manage distribution in our APAC and EMEA regions, we partner with third-party logistics providers primarily in Shanghai, China and Prague, Czech Republic.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe program does not have an expiration date but may be suspended, modified or terminated at any time without prior notice.
Biggest changeThe 2023 Repurchase Program does not have an expiration date but may be suspended, modified or terminated at any time without prior notice. As of December 30, 2023, the Company had not made any share repurchases under the 2023 Repurchase Program. Kontoor Brands, Inc. 2023 Form 10-K 25 Table of Contents ITEM 6. RESERVED. Not applicable.
(2) On August 5, 2021, the Company announced that its Board of Directors approved a share repurchase program (the "Repurchase Program"). The Repurchase Program authorizes the repurchase of up to $200.0 million of the Company's outstanding Common Stock through open market or privately negotiated transactions.
(2) On August 5, 2021, the Company announced that its Board of Directors approved a share repurchase program (the "2021 Repurchase Program"). The 2021 Repurchase Program authorized the repurchase of up to $200.0 million of the Company's outstanding Common Stock through open market or privately negotiated transactions.
ITEM 5. MARKET FOR KONTOOR’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market for Common Stock Kontoor’s Common Stock is listed on the NYSE under the symbol “KTB”. Kontoor began to trade as a standalone public company on May 23, 2019. As of February 25, 2022, there were 2,658 holders of record of our Common Stock.
ITEM 5. MARKET FOR KONTOOR’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market for Common Stock Kontoor’s Common Stock is listed on the NYSE under the symbol “KTB”. Kontoor began to trade as a standalone public company on May 23, 2019. As of February 23, 2024, there were 2,406 holders of record of our Common Stock.
Stock Performance Graph The following graph compares the cumulative total shareholder return of Kontoor's Common Stock with that of the S&P 500 Index and the S&P 1500 Apparel Retail Index for the period from May 7, 2019 (the effective date of the registration of KTB Common Stock) to January 1, 2022.
Stock Performance Graph The following graph compares the cumulative total shareholder return of Kontoor's Common Stock with that of the S&P 500 Index and the S&P 1500 Apparel Retail Index for the period from May 7, 2019 (the effective date of the registration of KTB Common Stock) to December 30, 2023.
Issuer Purchases of Equity Securities Fourth quarter fiscal 2021 Total number of shares purchased (1) Weighted average price paid per share Total number of shares purchased as part of publicly announced program (2) Dollar value of shares that may yet be purchased under the program October 3 - October 30 235,614 $ 50.62 235,614 $ 178,067,453 October 31 - November 27 347,245 58.85 347,245 157,633,127 November 28 - January 1 610,193 54.24 610,193 124,538,443 Total 1,193,052 $ 54.87 1,193,052 (1) The total number of shares repurchased excludes shares withheld upon the vesting of share-based awards.
Issuer Purchases of Equity Securities Fourth quarter fiscal 2023 Total number of shares purchased (1) Weighted average price paid per share Total number of shares purchased as part of publicly announced program (2) (3) Dollar value of shares that may yet be purchased under the program October 1 - October 28 — $ — — $ 62,044,756 October 29 - November 25 459,805 51.28 459,805 38,465,466 November 26 - December 30 119,037 53.94 119,037 300,000,000 Total 578,842 $ 51.83 578,842 (1) The total number of shares repurchased excludes shares withheld upon the vesting of share-based awards.
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(3) On December 11, 2023, the Company announced that its Board of Directors approved a new share repurchase program (the "2023 Repurchase Program") which replaced all remaining shares under the 2021 Repurchase Program. The 2023 Repurchase Program authorizes the repurchase of up to $300.0 million of the Company's outstanding Common Stock through open market or privately negotiated transactions.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeDuring 2021 and 2020, operating margin was negatively impacted by 30 basis points and 60 basis points, respectively, due to restructuring and Separation costs. 30 Kontoor Brands, Inc 2021 Form 10-K Table of Contents Lee Year Ended December Percent Change (Dollars in millions) 2021 2020 2019 2021 2020 Segment revenues $ 887.1 $ 687.6 $ 882.3 29.0 % (22.1) % Segment profit $ 128.3 $ 37.9 $ 68.2 238.4 % (44.4) % Operating margin 14.5 % 5.5 % 7.7 % 2021 Compared to 2020 Global revenues for the Lee ® brand increased 29%, driven by growth in all channels, as well as a 3% favorable impact from foreign currency. • Revenues in the Americas region increased 25%, primarily due to a 32% increase in the U.S. wholesale channel, as well as growth in our owned e-commerce sites.
Biggest changeKontoor Brands, Inc. 2023 Form 10-K 29 Table of Contents Lee Year Ended December (Dollars in millions) 2023 2022 Percent Change Segment revenues $ 842.5 $ 874.4 (3.6) % Segment profit $ 98.1 $ 121.1 (18.9) % Operating margin 11.6 % 13.8 % 2023 Compared to 2022 Global revenues for the Lee ® brand decreased 4%, due to declines in the U.S.
Testing of Long-Lived Assets, Including Intangible Assets and Goodwill for Impairment Long Lived Assets — Property, Plant and Equipment and Operating Lease Assets Description Our policy is to review property, plant and equipment and operating lease assets for potential impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable.
Impairment Testing of Long-Lived Assets, Including Intangible Assets and Goodwill Long Lived Assets — Property, Plant and Equipment and Operating Lease Assets Description Our policy is to review property, plant and equipment and operating lease assets for potential impairment whenever events or changes in circumstances indicate that the carrying value of an asset or asset group may not be recoverable.
Based on the range of estimated fair values developed from the income and market-based methods, we determine the estimated fair value for the reporting unit. If the estimated fair value of the reporting unit exceeds its carrying value, the goodwill is not impaired and no further review is required.
Based on the range of estimated fair values developed from the income and market-based methods, we determine the estimated fair value of the reporting unit. If the estimated fair value of the reporting unit exceeds its carrying value, the goodwill is not impaired and no further review is required.
As a result, the Company could be required to seek new amendments to the Amended Credit Agreement or secure other sources of liquidity, such as refinancing of existing borrowings, the issuance of debt or equity securities, or sales of assets.
As a result, the Company could be required to seek new amendments to the Credit Agreement or secure other sources of liquidity, such as refinancing of existing borrowings, the issuance of debt or equity securities, or sales of assets.
Realization of deferred tax assets related to operating loss carryforwards is dependent on future taxable income in specific jurisdictions, the amount and timing of which are uncertain, and on possible changes in tax laws.
Realization of deferred tax assets related to income tax credit and operating loss carryforwards is dependent on future taxable income in specific jurisdictions, the amount and timing of which are uncertain, and on possible changes in tax laws.
This section should be read in conjunction with the Consolidated and Combined Financial Statements and related Notes included in Part IV of this Annual Report on Form 10-K.
This section should be read in conjunction with the Consolidated Financial Statements and related Notes included in Part IV of this Annual Report on Form 10-K.
There can be no assurance that the estimates and assumptions used in our goodwill and intangible asset impairment testing will prove to be accurate 36 Kontoor Brands, Inc 2021 Form 10-K Table of Contents predictions of the future, if, for example, (i) the businesses do not perform as projected, (ii) overall economic conditions in future years vary from current assumptions (including changes in discount rates), (iii) business conditions or strategies for a specific reporting unit change from current assumptions, including loss of major customers, (iv) investors require higher rates of return on equity investments in the marketplace or (v) enterprise values of comparable publicly traded companies, or actual sales transactions of comparable companies, were to decline, resulting in lower multiples of net revenues and EBITDA.
There can be no Kontoor Brands, Inc. 2023 Form 10-K 35 Table of Contents assurance that the estimates and assumptions used in our goodwill and intangible asset impairment testing will prove to be accurate predictions of the future, if, for example, (i) the businesses do not perform as projected, (ii) overall economic conditions in future years vary from current assumptions (including changes in discount rates), (iii) business conditions or strategies for a specific reporting unit change from current assumptions, including loss of major customers, (iv) investors require higher rates of return on equity investments in the marketplace or (v) enterprise values of comparable publicly traded companies, or actual sales transactions of comparable companies, were to decline, resulting in lower multiples of net revenues and EBITDA.
Judgements and Uncertainties When testing property, plant and equipment or operating lease assets for potential impairment, management uses the income-based discounted cash flow method using the estimated cash flows of the respective asset or asset group. We include assumptions about sales growth and operating margins, considered against our budgets, business plans and economic projections.
Judgments and Uncertainties When testing property, plant and equipment or operating lease assets for potential impairment, management uses the income-based discounted cash flow method using the estimated cash flows of the respective asset or asset group. We include assumptions about sales growth and operating margins, considered against our budgets, business plans and economic projections.
As of December 2021, the effect of a hypothetical 10% change in the aforementioned key assumptions would not have a material effect on reported results. A future impairment charge for goodwill or intangible assets could have a material effect on our financial position and results of operations.
A future impairment charge for goodwill or intangible assets could have a material effect on our financial position and results of operations. As of December 2023, the effect of a hypothetical 10% change in the aforementioned key assumptions would not have a material effect on reported results.
Effect if Actual Results Differ From Assumptions Management made its estimates based on information available as of the date of our assessment, using assumptions we believe market participants would use in performing an independent valuation of the business.
Effect if Actual Results Differ From Assumptions Management makes its estimates based on information available as of the date of our assessment, using assumptions we believe market participants would use in performing an independent valuation of the business.
Other obligations represent other binding commitments for the expenditure of funds, including (i) amounts related to contracts not involving the purchase of inventories, such as the noncancelable portion of service or maintenance agreements for management information systems, (ii) capital spending and (iii) advertising. Refer to Note 20 to the Company's financial statements in this Form 10-K for additional information.
Other obligations represent other binding commitments for the expenditure of funds, including (i) amounts related to contracts not involving the purchase of inventories, such as the noncancelable portion of service or maintenance agreements for management information systems, (ii) capital spending and (iii) advertising. Refer to Note 2 1 to the Company's financial statements in this Form 10-K for additional information.
As of December 2021, the effect of a hypothetical 10% change in the aforementioned key assumptions would not have a material effect on reported results. 35 Kontoor Brands, Inc. 2021 Form 10-K Table of Contents Indefinite-Lived Intangible Assets and Goodwill Description Our policy is to evaluate indefinite-lived intangible assets and goodwill for possible impairment as of the beginning of the fourth quarter of each year, or whenever events or changes in circumstances indicate that the fair value of such assets may be below their carrying amount.
As of December 2023, the effect of a hypothetical 10% change in the aforementioned key assumptions would not have a material effect on reported results. 34 Kontoor Brands, Inc 2023 Form 10-K Table of Contents Indefinite-Lived Intangible Assets and Goodwill Description Our policy is to evaluate indefinite-lived intangible assets and goodwill for possible impairment as of the beginning of the fourth quarter of each year, or whenever events or changes in circumstances indicate that the fair value of such assets may be below their carrying amount.
Refer to Note 19 to the Company's financial statements in this Form 10-K for additional information related to future lease payments. The Company has unrecorded commitments consisting of inventory obligations, minimum royalty payments and other obligations.
Refer to Note 20 to the Company's financial statements in this Form 10-K for additional information related to future lease payments. The Company has unrecorded commitments consisting of inventory obligations, minimum royalty payments and other obligations.
Effect if Actual Results Differ From Assumptions We have not made any material changes in the methodology used to evaluate the impairment of property, plant and equipment operating lease assets during 2021.
Effect if Actual Results Differ From Assumptions We have not made any material changes in the methodology used to evaluate the impairment of property, plant and equipment and operating lease assets during 2023.
The Company has future payments related to "other liabilities" recorded in the balance sheets, which primarily represent long-term liabilities for deferred compensation and other employee-related benefits. Refer to Note 1 1 and Note 12 to the Company's financial statements in this Form 10-K for additional information. The Company is obligated under noncancelable operating leases.
The Company has future payments related to "other liabilities" recorded in the balance sheets, which primarily represent long-term liabilities for deferred compensation and other employee-related benefits. Refer to Note 1 2 and Note 1 3 to the Company's financial statements in this Form 10-K for additional information. The Company is obligated under noncancelable operating leases.
Refer to Note 10 to the Company's financial statements in this Form 10-K for additional information regarding the Company's Notes and credit facilities, including financial covenants and interest rates thereunder, and borrowing limits and availability as of December 2021.
Refer to Note 1 1 to the Company's financial statements in this Form 10-K for additional information regarding the Company's Notes and Credit Facilities, including covenants and interest rates thereunder, and borrowing limits and availability as of December 2023.
The Company's estimated contractual obligations and other commercial commitments at December 2021, and the future periods in which such obligations are expected to be settled in cash are described below. Contractual commitments on the Company's balance sheets include obligations to make principal payments on $800 million of long-term debt based on the defined terms of our debt agreements.
The Company's estimated contractual obligations and other commercial commitments at December 2023 and the future periods in which such obligations are expected to be settled in cash are described below. Contractual commitments on the Company's balance sheets include obligations to make principal payments on $790.0 million of long-term debt based on the defined terms of our debt agreements.
Refer to Note 10 to the Company's financial statements in this Form 10-K for additional information. These debt agreements also require periodic interest payments on floating and fixed rate terms.
Refer to N ote 1 1 to the Company's financial statements in this Form 10-K for additional information. These debt agreements also require periodic interest payments on floating and fixed rate terms.
These forward-looking statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from those expressed or implied by the forward-looking statements.
The following discussion and analysis includes forward-looking statements. These forward-looking statements are subject to risks, uncertainties and other factors that could cause our actual results to differ materially from those expressed or implied by the forward-looking statements.
If economic conditions caused by COVID-19 significantly deteriorate for a prolonged period, this could impact the Company's operating results and cash flows and thus our ability to maintain compliance with the applicable financial covenants.
If economic conditions significantly deteriorate for a prolonged period, this could impact the Company's operating results and cash flows and thus our ability to maintain compliance with the applicable covenants.
As of December 2021, the Company was in compliance with all applicable financial covenants and expects to maintain compliance with the applicable financial covenants for at least one year from the issuance of these financial statements.
As of December 2023, the Company was in compliance with all applicable covenants under the Credit Agreement and expects to maintain compliance with the applicable covenants for at least one year from the issuance of these financial statements.
We apply these accounting policies in a consistent manner. Significant accounting policies are summarized in Note 1 to the Company's financial statements included in Part IV of this Annual Report on Form 10-K.
Significant accounting policies are summarized in Note 1 to the Company's financial statements included in Part IV of this Annual Report on Form 10-K.
Recently Issued and Adopted Accounting Standards Refer to Note 1 to the Company's financial statements included elsewhere in this Annual Report on Form 10-K for discussion of recently issued and adopted accounting standards. 37 Kontoor Brands, Inc. 2021 Form 10-K Table of Contents
Recently Issued and Adopted Accounting Standards Refer to Note 1 to the Company's financial statements included elsewhere in this Annual Report on Form 10-K for discussion of recently issued and adopted accounting standards.
Wholesale business, ii) category extensions such as outdoor, tees and work, iii) geographic expansion of our Wrangler ® and Lee ® brand, most notably in China, and iv) channel expansion focused on the digital platforms in our U.S. Wholesale and Direct-to-Consumer channels.
Wholesale business, (ii) category extensions such as outdoor, workwear and t-shirts, (iii) geographic expansion of our Wrangler ® and Lee ® brands, most notably in the APAC region, and (iv) channel expansion focused on the digital platforms in our U.S. Wholesale and Direct-to-Consumer channels.
During 2021, the Company paid $95.1 million of dividends to its shareholders. On February 22, 2022, the Board of Directors declared a regular quarterly cash dividend of $0.46 per share of the Company's Common Stock. The cash dividend will be payable on March 18, 2022, to shareholders of record at the close of business on March 8, 2022.
During 2023, the Company paid $108.6 million of dividends to its shareholders. On February 15, 2024, the Board of Directors declared a regular quarterly cash dividend of $0.50 per share of the Company's Common Stock. The cash dividend will be payable on March 18, 2024, to shareholders of record at the close of business on March 8, 2024.
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, Middle East and Africa ("EMEA") and Asia-Pacific ("APAC") regions, through department, specialty, company-operated, concession retail and independently operated partnership stores and online.
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, including digital marketplaces. The Company’s products are also sold internationally, primarily in the Europe, Middle East and Africa ("EMEA"), Asia-Pacific (“APAC”) and Non-U.S.
Judgements and Uncertainties An indefinite-lived intangible asset is quantitatively tested for possible impairment by comparing the estimated fair value of the asset to its carrying value. Fair value of an indefinite-lived trademark is based on an income approach using the relief-from-royalty method.
Alternatively, the Company may elect to bypass a qualitative analysis and perform a quantitative analysis. Judgments and Uncertainties An indefinite-lived intangible asset is quantitatively tested for possible impairment by comparing the estimated fair value of the asset to its carrying value. Fair value of an indefinite-lived trademark is based on an income approach using the relief-from-royalty method.
On August 5, 2021, the Company announced that its Board of Directors approved a share repurchase program (the "Repurchase Program"). The Repurchase Program authorizes the repurchase of up to $200.0 million of the Company's outstanding Common Stock through open market or privately negotiated transactions.
On December 11, 2023, the Company announced that its Board of Directors approved a new share repurchase program ("the 2023 Repurchase Program") which authorized the repurchase of up to $300.0 million of the Company's outstanding Common Stock through open market or privately negotiated transactions.
Refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Form 10-K for the fiscal year ended January 2, 2021 , for discussion of the results of operations for the year ended January 2, 2021 , compared to the year ended December 28, 2019 . The following discussion and analysis includes forward-looking statements.
Refer to Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, in our Form 10-K for the fiscal year ended December 31 , 2022, for discussion of the results of operations for the year ended December 31 , 2022, compared to the year ended January 1 , 202 2 .
For presentation purposes herein, all references to periods ended December 2021, December 2020 and December 2019 correspond to the 52-week fiscal year ended January 1, 2022, the 53-week fiscal year ended January 2, 2021 and the 52-week fiscal year ended December 28, 2019, respectively.
For presentation purposes herein, all references to periods ended December 2023, December 2022 and December 2021 correspond to the 52-week fiscal years ended December 30, 2023, December 31, 2022 and January 1, 2022, respectively.
Factors that could cause or contribute to these differences include, but are not limited to, those discussed in “Special Note On Forward-Looking Statements” included in Part I of this Annual Report on Form 10-K. 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.").
Factors that could cause or contribute to these differences include, but are not limited to, those discussed in “Special Note On Forward-Looking Statements” included in Part I of this Annual Report on Form 10-K and in Part I, Item 1A "Risk Factors" in this Annual Report on Form 10-K. Description of Business Kontoor Brands, Inc.
If management’s assessment of these qualitative factors indicates that it is not more likely than not that the fair value of the intangible asset or reporting unit is less than its carrying value, then no further testing is required. Otherwise, the intangible asset or reporting unit must be quantitatively tested for impairment.
If the Company elects to perform a qualitative analysis and determines that it is not more likely than not that the fair value of an asset or reporting unit is less than its carrying value, then no further testing is required. Otherwise, the assets must be quantitatively tested for possible impairment.
The following table presents outstanding borrowings and available borrowing capacity under the Amended Revolving Credit Facility and our cash and cash equivalents balances as of December 2021: (In millions) December 2021 Outstanding borrowings under the Amended Revolving Credit Facility $ — Available borrowing capacity under the Amended Revolving Credit Facility (1) $ 486.9 Cash and cash equivalents $ 185.3 (1 ) Available borrowing capacity under the Amended Revolving Credit Facility is net of $13.1 million of outstanding standby letters of credit issued on behalf of the Company under this facility.
Kontoor Brands, Inc. 2023 Form 10-K 31 Table of Contents The following table presents outstanding borrowings and available borrowing capacity under the Revolving Credit Facility and our cash and cash equivalents balances as of December 2023: (In millions) December 2023 Outstanding borrowings under the Revolving Credit Facility $ — Available borrowing capacity under the Revolving Credit Facility (1) $ 493.3 Cash and cash equivalents $ 215.1 (1) Available borrowing capacity under the Revolving Credit Facility is net of $6.7 million of outstanding standby letters of credit issued on behalf of the Company under this facility.
Accordingly, certain revenues and costs presented in the carve-out statement of operations did not continue after the Separation. References to fiscal 2021 and 2020 foreign currency amounts herein reflect the impact of changes in foreign exchange rates from fiscal 2020 and 2019, respectively, and the corresponding impact on translating foreign currencies into U.S. dollars and on foreign currency-denominated transactions.
References to fiscal 2023 and 2022 foreign currency amounts herein reflect the impact of changes in foreign exchange rates from fiscal 2022 and 2021, respectively, and the corresponding impact on translating foreign currencies into U.S. dollars and on foreign currency-denominated transactions.
At December 2021 and December 2020, the Company had $10.1 million and $35.9 million, respectively, of borrowing availability under international lines of credit with various banks, which are uncommitted and may be terminated at any time by either the Company or the banks.
At December 2023 and December 2022, the Company had $24.1 million and $24.8 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 December 2023, and $7.1 million of outstanding balances at December 2022.
ANALYSIS OF FINANCIAL CONDITION Liquidity and Capital Resources The Company's ability to fund our operating needs is dependent upon our ability to generate positive long-term cash flow from operations and maintain our debt financing on acceptable terms. During 2021, the Company generated increased cash flows from operations and restructured its borrowing arrangements under more favorable terms, as discussed below.
Interest expense increased $5.5 million, primarily due to higher borrowing rates for long-term debt during 2023 compared to 2022. ANALYSIS OF FINANCIAL CONDITION Liquidity and Capital Resources The Company's ability to fund our operating needs is dependent upon our ability to generate positive long-term cash flow from operations and maintain our debt financing on acceptable terms.
The Company does not currently anticipate any material impact on earnings from the ultimate resolution of income tax uncertainties. There are no accruals for general or unknown tax expenses. The Company has $27.8 million of gross deferred income tax assets related to operating loss carryforwards, and $19.9 million of valuation allowances against those assets.
The Company does not currently anticipate any material impact on earnings from the ultimate resolution of income tax uncertainties. There are no accruals for general or unknown tax expenses.
The Amended Credit Agreement provides for (i) a five-year $400.0 million term loan A facility (“Amended Term Loan A”) and (ii) a five-year $500.0 million revolving credit facility (the “Amended Revolving Credit Facility”) (collectively, the “Amended Credit Facilities”) with the lenders and agents party thereto.
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.
Future estimated interest payments under these agreements, based on interest rates in effect as of December 2021 and the remaining terms of the debt arrangements, are $30.2 million, $30.1 million, $29.6 million, $29.0 million and $26.9 million for 2022 through 2026, respectively, and $49.5 million thereafter.
Future estimated interest payments under these agreements, based on interest rates in effect as of December 2023 and the remaining terms of the debt arrangements, are $43.9 million, $42.5 million, $38.3 million, $16.5 million, $16.5 million and $16.5 million for 2024 through 2029, respectively, with no remaining payments thereafter.
As we continue to normalize operations in a post-COVID environment and generate strong positive cash flows from operations, we believe that we will be able to support our short-term liquidity needs as well as any future liquidity and capital requirements through the combination of cash flows from operations, available cash balances and borrowing capacity from our amended revolving credit facility.
The Company has historically generated strong positive cash flows from operations and continues to take proactive measures to manage working capital. We believe cash flows from operations will support our short-term liquidity needs as well as any future liquidity and capital requirements, in combination with available cash balances and borrowing capacity from our revolving credit facility.
Due to economic and political conditions, tax rates in various jurisdictions may be subject to significant change. The Company could be subject to changes in its tax rates, the adoption of new U.S. or international tax legislation or exposure to additional tax liabilities.
The Company could be subject to changes in its tax rates, the adoption of new U.S. or international tax legislation or exposure to additional tax liabilities. The Company makes an ongoing assessment to identify any significant exposure related to increases in tax rates in the jurisdictions in which the Company operates.
The $0.3 million of net discrete tax benefit in 2021 decreased the effective income tax rate by 0.1% compared to a decrease of 16.8% for discrete items in 2020. Without discrete items, the effective income tax rate for the year ended December 2021 decreased 3.5%, primarily due to changes in our jurisdictional mix of earnings.
The effective tax rate without discrete items for the year ended December 2023 was 19.1% compared to 19.7% for the year ended December 2022. The decrease was primarily due to changes in our jurisdictional mix of earnings.
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.
Americas regions, through department, specialty, company-operated, concession retail and independently-operated partnership stores and online, including digital marketplaces. Fiscal Year and Basis of Presentation The Company operates and reports using a 52/53-week fiscal year ending on the Saturday closest to December 31 of each year.
Off-Balance Sheet Arrangements We do not engage in any off-balance sheet financial arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources. 34 Kontoor Brands, Inc 2021 Form 10-K Table of Contents Critical Accounting Policies and Estimates We have chosen accounting policies that management believes are appropriate to accurately and fairly report our operating results and financial position in conformity with GAAP.
Off-Balance Sheet Arrangements We do not engage in any off-balance sheet financial arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, results of operations, liquidity, capital expenditures or capital resources.
Effect if Actual Results Differ From Assumptions Such judgments and estimates may change based on audit settlements, court cases and interpretation of tax laws and regulations.
A tax position is recognized if it meets this standard and is measured at the largest amount of benefit that has a greater than 50% likelihood of being realized. Effect if Actual Results Differ From Assumptions Such judgments and estimates may change based on audit settlements, court cases, proposed tax regulations and interpretation of tax laws and regulations.
We currently expect capital expenditures to range from $35.0 million to $40.0 million in 2022, primarily to support manufacturing, distribution and information technology. 33 Kontoor Brands, Inc. 2021 Form 10-K Table of Contents The following table presents our cash flows during the periods: (In millions) Year Ended December Cash provided (used) by: 2021 2020 2019 Operating activities $ 283.9 $ 242.0 $ 777.8 Investing activities $ (39.4) $ (49.1) $ 483.9 Financing activities $ (304.1) $ (57.7) $ (1,252.1) Operating Activities Cash provided by operating activities is dependent on the level of our net income, adjustments to net income and changes in working capital.
We currently expect capital expenditures to be approximately $40.0 million in 2024, primarily to support manufacturing, distribution, facility improvement, information technology and owned retail store investments. 32 Kontoor Brands, Inc 2023 Form 10-K Table of Contents The following table presents our cash flows during the periods: (In millions) Year Ended December Cash provided (used) by: 2023 2022 Operating activities $ 356.5 $ 83.6 Investing activities $ (39.1) $ (30.1) Financing activities $ (155.7) $ (170.9) Operating Activities During 2023, cash provided by operating activities increased $273.0 million as compared to 2022.
The options in our capital allocation strategy are to (i) pay-down debt; (ii) provide for a superior dividend payout; (iii) effectively manage our share repurchase authorization and (iv) act on strategic investment opportunities that may arise. 26 Kontoor Brands, Inc 2021 Form 10-K Table of Contents HIGHLIGHTS OF THE YEAR ENDED DECEMBER 2021 • Net revenues increased 18% to $2.5 billion compared to the year ended December 2020, driven by growth in all channels as discussed below.
In addition to continued organic investments in our brands and capabilities, the options in our capital allocation strategy are to (i) pay down debt, (ii) provide for a superior dividend payout, (iii) effectively manage our share repurchase authorization and (iv) act on strategic investment opportunities that may arise.
The Amended Revolving Credit Facility may be used to borrow funds in both U.S. dollar and certain non-U.S. dollar currencies, and has a maximum borrowing capacity of $500.0 million and a $75.0 million letter of credit sublimit. We expect to have availability under the Amended Revolving Credit Facility through its maturity in 2026.
However, there can be no assurance that the Company would be able to obtain such additional financing on commercially reasonable terms or at all. 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 maximum borrowing capacity of $500.0 million with a $75.0 million letter of credit sublimit.
During 2021, cash provided by operating activities increased $41.9 million as compared to 2020. The increase was primarily due to higher net income, partially offset by changes in working capital accounts as compared to the prior year period, primarily related to increases in inventory and accounts receivable.
The increase was primarily due to favorable changes in inventory, partially offset by unfavorable changes in accounts receivable and income taxes compared to the prior year period.
Income Taxes Description As a global company, Kontoor is subject to income taxes and files income tax returns in over 50 U.S. and foreign jurisdictions each year. The Company’s U.S. operations and certain of its non-U.S. operations historically have been included in the tax returns of VF or its subsidiaries that may not have been part of the spin-off transaction.
Income Taxes Description As a global company, Kontoor is subject to income taxes and files income tax returns in over 50 U.S. and foreign jurisdictions each year. Due to economic and political conditions, tax rates in various jurisdictions may be subject to significant change.
The timing and amount of repurchases are determined by the Company's management based on its evaluation of market conditions, share price, legal requirements and other factors. The Repurchase Program does not have an expiration date but may be suspended, modified or terminated at any time without prior notice.
The 2023 Repurchase Program replaced all remaining shares under the 2021 Repurchase Program and does not have an expiration date but may be suspended, modified or terminated at any time without prior notice.
Our effective income tax rate for foreign operations was 10.4% and 12.5% for the years ended December 2021 and December 2020, respectively. 28 Kontoor Brands, Inc 2021 Form 10-K Table of Contents Information by Business Segment Management at each of the segments has direct control over and responsibility for corresponding net revenues and operating income, hereinafter termed "segment revenues" and "segment profit," respectively.
Our effective income tax rate for foreign operations was 9.2% and 8.3% for the years ended December 2023 and December 2022, respectively. 28 Kontoor Brands, Inc 2023 Form 10-K Table of Contents Information by Business Segment The Company's two reportable segments are Wrangler ® and Lee ® . Refer to Note 3 to the Company's financial statements for additional information.
Wholesale revenues represented 69% of total revenues in the current year. • Non-U.S. Wholesale revenues increased 35% compared to the year ended December 2020, driven by growth in our China and EMEA wholesale businesses and the less significant impact of COVID-19 compared with the prior year.
Wholesale revenues decreased 1% compared to the year ended December 2022, and represented 72% of total revenues in the current year. • Non-U.S.
The Company makes an ongoing assessment to identify any significant exposure related to increases in tax rates in the jurisdictions in which the Company operates. Judgements and Uncertainties The calculation of income tax liabilities involves uncertainties in the application of complex tax laws and regulations, which are subject to legal interpretation and significant management judgment.
Judgments and Uncertainties The calculation of income tax liabilities involves uncertainties in the application of complex tax laws and regulations, which are subject to legal interpretation and significant management judgment. The Company’s income tax returns are regularly examined by federal, state and foreign tax authorities, and those audits may result in proposed adjustments.
The Amended Term Loan A is scheduled to be repaid in quarterly installments beginning in March 2023. 32 Kontoor Brands, Inc 2021 Form 10-K Table of Contents These debt obligations could restrict our future business strategies and could adversely impact our future results of operations, financial conditions or cash flows.
Term Loan A requires quarterly repayments which commenced in March 2023, and the remaining principal is due at maturity. Additionally, the Company has outstanding $400.0 million of unsecured 4.125% senior notes due 2029. These debt obligations could restrict our future business strategies and could adversely impact our future results of operations, financial conditions or cash flows.
The 2021 effective income tax rate included a net discrete tax benefit of $0.3 million, primarily comprised of $1.9 million of tax benefit related to stock compensation, $1.3 million of tax expense related to changes in valuation allowances and $0.4 million of tax expense related to the finalization of U.S. federal and state tax return filings.
The year ended December 2022 included a net discrete tax expense primarily related to changes in deferred tax valuation allowances. The net discrete tax expense for the year ended December 2022 increased the effective income tax rate by 3.4%.
Other In addition, we report an "Other" category in order to reconcile segment revenues and segment profit to the Company's operating results, but the Other category is not considered a reportable segment based on evaluation of aggregation criteria. Other primarily includes other revenue sources, including sales and licensing of Rock & Republic ® apparel.
These decreases in operating margin were partially offset by benefits from pricing adjustments and reduced use of air freight. Other 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.
At our Investor Day in 2021, we introduced our Horizon 2 multi-year strategic vision, "Catalyzing Growth" which outlined four growth catalysts: i) expansion of our core U.S.
We continue to closely monitor macroeconomic conditions, including consumer behavior and the impact of these factors on consumer demand. Business Overview We continue to execute on our Horizon 2 multi-year strategic vision, "Catalyzing Growth," which outlines four growth catalysts: (i) expansion of our core U.S.
Year Ended December Percent Change (Dollars in millions) 2021 2020 2019 2021 2020 Revenues $ 13.6 $ 60.8 $ 148.5 (77.6)% (59.0)% Profit (loss) $ 0.5 $ (18.4) $ 2.8 102.8% (753.4)% Operating margin 3.8 % (30.3) % 1.9 % 2021 Compared to 2020 Other revenues decreased and operating margin increased primarily as a result of the Company's discontinued sales of third-party branded merchandise in VF Outlet stores. 31 Kontoor Brands, Inc. 2021 Form 10-K Table of Contents Reconciliation of Segment Profit to Income Before Income Taxes The Company has incurred corporate and other expenses as a standalone public company since May 23, 2019.
Year Ended December (Dollars in millions) 2023 2022 Percent Change Other revenues $ 10.8 $ 11.3 (4.0)% (Loss) profit related to other revenues $ (1.1) $ (0.6) 81.5% Operating margin (10.0) % (5.3) % 30 Kontoor Brands, Inc 2023 Form 10-K Table of Contents Reconciliation of Segment Profit to Income Before Income Taxes The costs below are necessary to reconcile total reportable segment profit to income before taxes.
Investing Activities During 2021, cash used by investing activities decreased $9.7 million as compared to 2020, primarily due to declines in capitalized computer software and property, plant and equipment expenditures in 2021, partially offset by higher proceeds from sales of assets during 2020. Financing Activities During 2021, cash used by financing activities increased $246.4 million as compared to 2020.
Investing Activities During 2023, cash used by investing activities increased $9.0 million as compared to 2022, primarily due to increases in property, plant and equipment expenditures to support investments in information technology, manufacturing, distribution and owned retail stores. Financing Activities During 2023, cash used by financing activities decreased $15.2 million as compared to 2022.
Wrangler Year Ended December Percent Change (Dollars in millions) 2021 2020 2019 2021 2020 Segment revenues $ 1,575.2 $ 1,349.4 $ 1,518.1 16.7 % (11.1) % Segment profit $ 294.2 $ 244.9 $ 215.0 20.1 % 13.9 % Operating margin 18.7 % 18.1 % 14.2 % 2021 Compared to 2020 Global revenues for the Wrangler ® brand increased 17%, driven by growth in all channels. • Revenues in the Americas region increased 16%, primarily due to a 15% increase in the U.S.
Wrangler Year Ended December (Dollars in millions) 2023 2022 Percent Change Segment revenues $ 1,754.1 $ 1,745.8 0.5 % Segment profit $ 307.5 $ 321.2 (4.3) % Operating margin 17.5 % 18.4 % 2023 Compared to 2022 Global revenues for the Wrangler ® brand were flat, with growth in the Direct-to-Consumer channel offset by declines in the U.S.
Additionally, we repurchased $75.5 million of Common Stock during 2021 and paid higher dividends in 2021 as a result of the Company suspending dividends during the second and third quarter of 2020. Contractual Obligations The Company believes it has sufficient liquidity to fund its operations and meet its short-term and long-term obligations.
This decrease was primarily due to lower repurchases of Common Stock compared to the prior year period. Contractual Obligations The Company believes it has sufficient liquidity to fund its operations and meet its short-term and long-term obligations.
The Company’s income tax returns are regularly examined by federal, state and foreign tax authorities, and those audits may result in proposed adjustments. The Company has reviewed all issues raised upon examination, as well as any exposure for issues that may be raised in future examinations.
The Company has reviewed all issues raised upon examination, as well as any exposure for issues that may be raised in future examinations. The Company has evaluated these potential issues under the “more-likely-than-not” standard of the accounting literature.
During the year ended December 2021, the Company repurchased 1.4 million shares of Common Stock for $75.5 million, including commissions, under the Repurchase Program. We anticipate utilizing cash flows from operations to support continued investments in our brands, talent and capabilities, growth strategies, dividend payments to shareholders, repayment of our debt obligations over time and repurchases of Common Stock.
We anticipate that we will have sufficient cash flows from operations, along with existing borrowing capacity, to support continued investments in our brands, infrastructure, talent and capabilities, dividend payments to shareholders, repayment of our current and long-term debt obligations when due and repurchases of Common Stock.
Selling, general and administrative expenses as a percentage of net revenues decreased to 33.3% compared to 35.3% for the year ended December 2020, primarily due to leverage of fixed costs on higher revenues, lower bad debt expense in 2021 and lower retail store expenses resulting from the exit of certain underperforming VF Outlet stores in the fourth quarter of 2020.
Selling, general and administrative expenses as a percentage of net revenues decreased to 29.5% compared to 29.6% for the year ended December 2022, primarily due to lower restructuring charges of $7.1 million and a $9.3 million reduction in discretionary costs including demand creation, product development and selling costs.
The following tables present a summary of the changes in segment revenues and segment profit for the years ended December 2021 and December 2020: Segment Revenues (In millions) Wrangler Lee Total Segment revenues — 2019 $ 1,518.1 $ 882.3 $ 2,400.4 Operations (169.4) (195.4) (364.8) Impact of foreign currency 0.7 0.7 1.4 Segment revenues — 2020 $ 1,349.4 $ 687.6 $ 2,037.0 Operations 217.6 179.7 397.3 Impact of foreign currency 8.2 19.8 28.0 Segment revenues — 2021 $ 1,575.2 $ 887.1 $ 2,462.3 Segment Profit (In millions) Wrangler Lee Total Segment profit — 2019 $ 215.0 $ 68.2 $ 283.2 Operations 29.3 (31.5) (2.2) Impact of foreign currency 0.6 1.2 1.8 Segment profit — 2020 $ 244.9 $ 37.9 $ 282.8 Operations 48.8 85.7 134.5 Impact of foreign currency 0.5 4.7 5.2 Segment profit — 2021 $ 294.2 $ 128.3 $ 422.5 29 Kontoor Brands, Inc. 2021 Form 10-K Table of Contents The following sections discuss the changes in segment revenues and segment profit.
The following tables present a summary of the changes in segment revenues and segment profit for the years ended December 2023 and December 2022: Segment Revenues: (In millions) Wrangler Lee Total Segment revenues — 2022 $ 1,745.8 $ 874.4 $ 2,620.2 Operations 5.2 (33.8) (28.5) Impact of foreign currency 3.1 1.9 5.0 Segment revenues — 2023 $ 1,754.1 $ 842.5 $ 2,596.7 Segment Profit: (In millions) Wrangler Lee Total Segment profit — 2022 $ 321.2 $ 121.1 $ 442.2 Operations (14.0) (21.5) (35.3) Impact of foreign currency 0.3 (1.5) (1.2) Segment profit — 2023 $ 307.5 $ 98.1 $ 405.7 The following sections discuss the changes in segment revenues and segment profit.
Americas wholesale revenues increased 37%, primarily due to the less significant impact of COVID-19 compared with the prior year and a 6% favorable impact from foreign currency. • Revenues in the APAC region increased 34%, primarily due to the less significant impact of COVID-19 compared with the prior year, growth in wholesale and direct-to-consumer revenues, including growth in our owned e-commerce sites, and an 8% favorable impact from foreign currency. • Revenues in the EMEA region increased 39%, primarily due to the less significant impact of COVID-19 compared with the prior year, growth in wholesale and direct-to-consumer revenues, including growth in the digital wholesale business, and a 5% favorable impact from foreign currency.
The U.S. direct-to-consumer business decreased 1%, resulting from a decline in retail store sales, partially offset by growth in e-commerce sales. • Revenues in the APAC region decreased 6%, driven by declines in wholesale revenues due to lower wholesale shipments resulting from retailer actions to manage elevated inventory levels, and a 4% unfavorable impact from foreign currency, partially offset by growth in retail store sales. • Revenues in the EMEA region decreased 1%, driven by a decline in our digital wholesale business, partially offset by an increase in retail store sales and a 2% favorable impact from foreign currency.
We are sharply focused on driving brand growth and delivering long-term value to our stakeholders including our consumers, customers, shareholders, suppliers and the communities where we do business around the world. We continue to be focused on accelerating revenue generation, expanding margin and generating cash flow to fuel and sustain long-term performance and our competitive advantage around the world.
We are focused on driving brand growth and delivering long-term value to our stakeholders including our consumers, customers, shareholders, suppliers and communities around the world. We incurred costs in 2023 to drive efficiencies in our operations, which included reducing our global workforce, streamlining and transferring select production within our internal manufacturing network and optimizing and globalizing our operating model.
Removed
We completed a spin-off transaction from VF Corporation ("VF" or "former parent") on May 22, 2019 (the "Separation") and began to trade as a standalone public company (NYSE: KTB) on May 23, 2019. The Company designs, produces, procures, markets and distributes apparel primarily under the brand names Wrangler ® and Lee ® .
Added
("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 ® .
Removed
Impact of COVID-19 and Other Recent Developments The novel coronavirus (“COVID-19”) pandemic continues to impact global economic conditions, as well as the Company's operations. COVID-19 had a meaningful negative impact on our financial condition, cash flows and results of operations during 2020, as revenues declined and we reduced spending in light of COVID-19 uncertainty.
Added
Macroeconomic Environment and Other Recent Developments Macroeconomic conditions, including inflation, elevated interest rates, recessionary concerns and fluctuating foreign currency exchange rates, as well as continuing global supply chain issues and uneven post-pandemic economic recovery in China, continue to adversely impact global economic conditions, as well as the Company's operations.
Removed
Although we continued to experience disruption and volatility, our revenues nearly returned to pre-pandemic levels in 2021, reflecting the lesser impact of COVID-19 and the strength and resiliency of our customers and brands. Accordingly, our comparisons between 2021 and 2020 were significantly impacted by the lower revenues and expenses in 2020.
Added
Additionally, the conflicts in the Ukraine and Middle East are causing disruption in the surrounding areas and greater uncertainty in the global economy. Inflationary pressures have moderated throughout 2023, but continued to impact us in most jurisdictions where we operate. Additionally, global interest rates increased in the first half of 2023 and remained elevated through the end of the year.
Removed
We continue to monitor safety protocols and health precautions as we operate our facilities. The Company’s offices are open where permitted by local restrictions and deemed appropriate by management, but many associates continue to work remotely.
Added
These macroeconomic factors contributed to uncertain consumer spending patterns leading to retailer actions to tightly manage inventory levels, which impacted our results during 2023.
Removed
The Company’s manufacturing plants and distribution centers around the world are currently operating, and we have continued to experience retail store closures and reduced traffic in various countries during 2021. We continue to experience delays in product and raw material availability due largely to global supply chain disruptions, driven in part by port congestion and transportation delays.
Added
Many of the global supply chain disruptions seen in 2022 were less prevalent during 2023, although recent disruptions to key trade routes, such as the Suez and Panama canals, are expected to have an impact on 2024 operations. In 2023, we were able to minimize usage and higher costs associated with air freight.
Removed
We are working with our customers to minimize any impact, and have incurred transitory costs, including air freight to expedite shipments to meet customer demand, primarily during the second half of 2021. The ultimate economic impact of the pandemic remains fluid, and there continue to be periods of COVID-19 resurgence in various parts of the world.
Added
However, inflation in product and input costs, such as cotton and labor, which began in 2022 and moderated in 2023, continued to impact our 2023 financial results as we sold through the higher cost products.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

11 edited+1 added−2 removed7 unchanged
Biggest changeDeferred Compensation and Related Investment Security Risks The Company sponsors a nonqualified retirement savings plan for employees whose contributions to a 401(k) plan would be limited by provisions of the Internal Revenue Code. This plan allows participants to defer a portion of their compensation and to receive matching contributions for a portion of the deferred amounts.
Biggest changeManagement continually monitors the credit ratings of the financial institutions with whom we conduct business. Similarly, management monitors the credit quality of cash equivalents. Deferred Compensation and Related Investment Security Risks The Company sponsors a nonqualified retirement savings plan for employees whose contributions to a 401(k) plan would be limited by provisions of the Internal Revenue Code.
Based on balances of outstanding debt, sold trade accounts receivable and cash equivalents as of December 2021, the effect of a hypothetical 1% increase in interest rates would be a decrease in reported net income of approximately $0.6 million. Foreign Currency Exchange Rate Risks We are a global enterprise subject to the risk of foreign currency fluctuations.
Based on balances of outstanding debt, sold trade accounts receivable and cash equivalents as of December 2023, the effect of a hypothetical 1% increase in interest rates would be a decrease in reported net income of approximately $0.9 million. Foreign Currency Exchange Rate Risks We are a global enterprise subject to the risk of foreign currency fluctuations.
The reported values of assets and liabilities in these foreign businesses are subject to fluctuations in foreign currency exchange rates. The Company monitors net foreign currency market exposures and enters into derivative contracts with external counterparties to hedge certain foreign currency accounts payable and accounts receivable transactions.
The reported values of assets and liabilities in these foreign businesses are subject to fluctuations in foreign currency exchange rates. The Company monitors and actively manages its net foreign currency market exposures and may enter into derivative contracts with external counterparties to hedge certain foreign currency accounts payable and accounts receivable transactions.
Approximately 25% of our net revenues in 2021 were generated in international markets. Most of our foreign businesses operate in functional currencies other than the U.S. dollar.
Approximately 21% of our net revenues in 2023 were generated in international markets. Most of our foreign businesses operate in functional currencies other than the U.S. dollar.
For cash flow hedging contracts outstanding at December 2021, if there were a hypothetical 10% change in foreign currency exchange rates compared to rates at the end of 2021, it would result in a change in fair value of those contracts of approximately $20.8 million.
For cash flow hedging contracts outstanding at December 2023, if there were a hypothetical 10% change in foreign currency exchange rates compared to rates at the end of 2023, it would result in a change in fair value of those contracts of approximately $22.7 million.
However, any change in the fair value of the hedging contracts would be substantially offset by a change in the fair value of the underlying hedged exposure impacted by the currency rate changes. 38 Kontoor Brands, Inc 2021 Form 10-K Table of Contents Counterparty Risks We are exposed to credit-related losses in the event of nonperformance by counterparties to derivative hedging instruments.
However, any change in the fair value of the hedging contracts would be substantially offset by a change in the fair value of the underlying hedged exposure impacted by the currency rate changes. Counterparty Risks We are exposed to credit-related losses in the event of nonperformance by counterparties to derivative hedging instruments.
Interest Rate Risks The Company's debt outstanding under the Amended Credit Facilities, as defined in Note 10 to the Company's financial statements, bears interest at variable interest rates plus applicable spreads. In addition, the funding fees charged by the financial institution for the trade accounts receivable sale program are based on underlying variable interest rates.
Interest Rate Risks The Company's debt outstanding under the Credit Facilities bears interest at variable interest rates plus applicable spreads. In addition, the funding fees charged by the financial institution for the trade accounts receivable sale program are based on underlying variable interest rates and customer credit risk.
The increases and decreases in deferred compensation liabilities are offset by corresponding increases and decreases in the market value of these investments, resulting in an insignificant net exposure to operating results and financial position.
Changes in the fair value of the participants’ hypothetical investments are recorded as an adjustment to deferred compensation liabilities. The increases and decreases in deferred compensation liabilities are offset by corresponding increases and decreases in the market value of the mutual funds purchased by the Company, resulting in an insignificant net exposure to operating results and financial position.
Insured Risks The Company is self-insured for a significant portion of its employee medical, workers’ compensation, property and general liability exposures, and purchases from highly-rated commercial carriers to cover other risks, including property, casualty and umbrella, and to establish stop-loss limits on self-insurance arrangements.
Insured Risks The Company is self-insured for a significant portion of its employee medical, workers’ compensation, property and general liability exposures, and purchases from highly-rated commercial carriers to cover other risks, including property, casualty and umbrella, and to establish stop-loss limits on self-insurance arrangements. 36 Kontoor Brands, Inc 2023 Form 10-K Table of Contents Cash and Cash Equivalents Risks We had $215.1 million of cash and cash equivalents at the end of 2023.
Certain of the Company’s employees participate in this plan. The Company has purchased publicly traded mutual funds in the same amounts as the participant-directed hypothetical investments underlying the employee deferred compensation liabilities. Changes in the fair value of the participants’ hypothetical investments are recorded as an adjustment to deferred compensation liabilities.
This plan allows participants to defer a portion of their compensation and to receive matching contributions for a portion of the deferred amounts. Certain of the Company’s employees participate in this plan. The Company has purchased publicly traded mutual funds in the same amounts as the participant-directed hypothetical investments underlying the employee deferred compensation liabilities.
To manage risks of commodity price changes, management negotiates prices in advance when possible. We have not historically managed commodity price exposures by using derivative instruments.
To manage risks of commodity price changes, management negotiates prices in advance when possible. We have not historically managed commodity price exposures by using derivative instruments. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See “Item 15. Exhibits and Financial Statement Schedules” of this Annual Report on Form 10-K for information required by this Item 8.
Removed
Cash and Cash Equivalents Risks We had $185.3 million of cash and cash equivalents at the end of 2021. Management continually monitors the credit ratings of the financial institutions with whom we conduct business. Similarly, management monitors the credit quality of cash equivalents.
Added
Kontoor Brands, Inc. 2023 Form 10-K 37 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable.
Removed
Additionally, any changes in regulatory standards or industry practices, such as the transition away from the London Interbank Offered Rate ("LIBOR"), may result in higher reference interest rates for our variable-rate debt.

Other KTB 10-K year-over-year comparisons