KONTOOR BRANDS, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS. (Form 10-K)

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Management's Discussion and Analysis of Financial Condition and Results of
Operations is intended to provide a reader of our financial statements with a
narrative from the perspective of our management on our financial condition,
results of operations, liquidity and certain other factors that may affect our
future results. 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.   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. 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. 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.

Company Description

Kontoor Brands, Inc. ("Kontoor," the "Company," "we," "us" or "our") is a global
lifestyle apparel company headquartered in the United States ("U.S."). 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®. 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.

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. 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.

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. 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.

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. 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. 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. 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.

presentation basis

The Company's financial statements from May 23, 2019 were consolidated financial
statements based on the reported results of Kontoor Brands, Inc. as a standalone
company. The Company's financial statements through the Separation date of May
22, 2019 were combined financial statements prepared on a "carve-out" basis of
accounting, which reflected the business as historically managed within VF. The
balance sheet and cash flows included only those assets and liabilities directly
related to the Jeanswear and VF Outlet businesses, and the statement of
operations included the historically reported results of those businesses along
with allocations of a portion of VF's total corporate expenses. Refer to   Note
1   to the Company's financial statements in this Form 10-K for additional
information on the carve-out basis of accounting.


                                          25 Kontoor Brands, Inc. 2021 Form 

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Contents

The basis of accounting differences before and after the Separation from VF
results in a lack of comparability between periods in the statements of
operations, primarily in selling, general and administrative expenses. Effective
with the Separation, the Company also implemented business model changes, which
included the exit of unprofitable markets in Europe and South America, the
transition of our former Central and South America ("CASA") region to a licensed
model and the discontinuation of certain transactions with VF. 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. The
Company's most significant foreign currency translation exposure is typically
driven by business conducted in euro-based countries, the Chinese yuan and the
Mexican peso. However, the Company conducts business in other developed and
emerging markets around the world with exposure to other foreign currencies.

Amounts shown here may not be recalculated due to the use of unrounded numbers.

Company overview

We have undergone transformational change to improve operational performance,
address internal and external factors and set the stage for long-term profitable
growth. We have launched significant initiatives to refine a global go-to-market
approach that will sustain our long-term commitment to total shareholder return,
some of which were accelerated due to the COVID-19 environment.

We have continued to implement proactive strategic programs to improve
quality-of-sales, including two key initiatives related to our business in India
and our VF Outlet stores in the U.S. We decided in 2020 to transition our India
business to a licensed model and completed this transition in 2021. Also during
2020, we performed a strategic review of the VF Outlet store fleet, and decided
to exit certain VF Outlet stores, discontinue the sale of third party branded
merchandise at all locations, and convert the remaining locations to Lee
Wrangler OutletTM and Lee Wrangler Clearance CenterTM retail stores.

We have made significant investments to support the design and implementation of
a global enterprise resource planning ("ERP") system and information technology
infrastructure build-out. Following the implementation in the EMEA region during
the third quarter of 2021, we have now implemented our ERP system in all regions
and exited the last of our transition service agreements with VF.

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. 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. 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.
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.


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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. Net revenues in 2020
included an approximate 1% benefit due to sales attributable to a 53rd week.

•U.S. Wholesale revenues increased 19% compared to the year ended December 2020,
primarily due to the less significant impact of COVID-19 compared with the prior
year, new business growth and growth in our U.S. digital wholesale business.
U.S. 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. Non-U.S. wholesale
revenues included a 6% favorable impact from foreign currency and represented
20% of total revenues in the current year.

•Direct-to-Consumer revenues increased 12% on a global basis compared to the
year ended December 2020, primarily due to growth in our owned e-commerce sites
and the less significant impact of COVID-19 compared with the prior year,
partially offset by lower retail sales in 2021 resulting from the exit of
certain underperforming VF Outlet stores in the fourth quarter of 2020.
Direct-to-Consumer revenues included a 2% favorable impact from foreign currency
and represented 11% of total revenues in the current year.

•Gross margin increased 350 basis points to 44.7% compared to the year ended
December 2020, primarily driven by leverage of fixed manufacturing costs on
higher production, favorable customer, product and channel mix, benefits from
product cost and lower provisions for inventory losses in 2021. These increases
were partially offset by higher transitory costs, including air freight to
expedite shipments to meet customer demand.

•Selling, general and administrative expenses as a percentage of 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. These benefits
were partially offset by increases in demand creation and digital spending,
distribution costs and compensation expense. Prior year comparisons were also
affected by reduced spending in 2020 in light of COVID uncertainty.

• Net income increased by 188% to reach $195.4 million compared to the year ended December 2020mainly due to the business results mentioned above.

                       ANALYSIS OF RESULTS OF OPERATIONS


              Consolidated and Combined Statements of Operations

The following table presents a summary of the evolution of net income for the years ended December 2021 and December 2020:

(In millions)                     2021 Compared to 2020          2020 Compared to 2019
Net revenues - prior year        $              2,097.8         $              2,548.8
Operations                                        349.9                         (452.4)
Impact of foreign currency                         28.2                            1.4
Net revenues - current year      $              2,475.9         $              2,097.8


2021 Compared to 2020

Net revenues increased 18% due to growth in the Wrangler and Lee segments across
all channels. This revenue increase was attributable to the less significant
impact of COVID-19 compared with the prior year, growth in our U.S. and EMEA
digital wholesale businesses, new business growth in the U.S. and growth in our
owned e-commerce sites. These increases were partially offset by lower VF Outlet
retail sales in the current period resulting from the discontinued sale of
third-party branded merchandise and the exit of certain underperforming stores
as well as the transition of our India business to a licensed model.

Additional details on 2021 and 2020 revenues are provided in the section titled “Information by Line of Business”.



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The following table presents the components of the Company’s income statements as a percentage of net revenues:

(Dollars in thousands)                                      2021                       2020                 2019
Net revenues                                           $ 2,475,916                $ 2,097,839          $ 2,548,839
Gross margin (net revenues less cost of goods
sold)                                                  $ 1,107,726                $   863,689          $ 1,004,374
As a percentage of net revenues                               44.7  %                    41.2  %              39.4  %
Selling, general and administrative expenses           $   824,747                $   739,855          $   803,448
As a percentage of net revenues                               33.3  %                    35.3  %              31.5  %
Non-cash impairment of intangible asset                $         -                $         -          $    32,636
As a percentage of net revenues                                  -  %                       -  %               1.3  %
Operating income                                       $   282,979                $   123,834          $   168,290
As a percentage of net revenues                               11.4  %                     5.9  %               6.6  %


2021 Compared to 2020

Gross margin increased 350 basis points primarily driven by leverage of fixed
manufacturing costs on higher production, favorable customer, product and
channel mix, benefits from lower product cost and lower provisions for inventory
losses in the current period. These increases were partially offset by higher
transitory costs, including air freight to expedite shipments to meet customer
demand.

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. These benefits
were partially offset by higher demand creation and digital spending,
distribution costs and compensation expense. Prior year comparisons were also
affected by reduced spending in 2020 in light of COVID uncertainty. During the
years ended December 2021 and 2020, costs related to the Company's global ERP
implementation and information technology infrastructure build-out were 3.0% and
3.8%, respectively, of total net revenues.

The effective income tax rate was 20.1% for the year ended December 2021
compared to 6.9% for the year ended December 2020. 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 $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. Our effective income tax rate for foreign operations was 10.4% and
12.5% for the years ended December 2021 and December 2020, respectively.

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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 management evaluates operating
performance and makes investment and other decisions based on segment revenues
and segment profit. Common costs for certain centralized functions are allocated
to the segments as discussed in   Note 3   to the Company's financial
statements.

The following tables present a summary of the changes in segment revenue 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




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  Table of Contents
The following sections discuss the changes in segment revenues and segment
profit.

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

Wrangler® brand worldwide revenue increased 17%, driven by growth across all channels.

•Revenues in the Americas region increased 16%, primarily due to a 15% increase
in the U.S. Wholesale channel, as well as growth in our owned e-commerce sites.
Increases in the U.S. Wholesale channel were driven by the less significant
impact of COVID-19 compared with the prior year, growth in the U.S. digital
wholesale business and strength in our core U.S. wholesale and Western
businesses and new product categories. These increases were partially offset by
lower retail sales in the current year resulting from the exit of certain
underperforming VF Outlet stores in the fourth quarter of 2020. Non-U.S.
Americas wholesale revenues increased 31%, primarily due to the less significant
impact of COVID-19 compared with the prior year and a 7% favorable impact from
foreign currency.

•Revenues in the APAC region increased by 15%, mainly due to the growth of our own e-commerce sites and a favorable impact of 3% from foreign currencies.

• Revenue in the EMEA region increased by 27%, mainly due to the lower impact of COVID-19 compared to the previous year, the growth of the digital wholesale activity and our own e-commerce sites and a favorable impact of 5% from foreign currencies.

Operating margin increased to 18.7% compared to 18.1% for 2020, primarily due to
favorable customer, product and channel mix, leverage of fixed costs on higher
revenues, lower provisions for inventory losses in the current year and lower
retail store expenses resulting from the exit of certain underperforming VF
Outlet stores in the fourth quarter of 2020. These benefits were partially
offset by transitory expenses in the current year, including air freight to
expedite shipments to meet customer demand, as well as higher demand creation
and digital spending, distribution costs and compensation expense. Prior year
comparisons were also affected by reduced spending in 2020 in light of COVID
uncertainty. During 2021 and 2020, operating margin was negatively impacted by
30 basis points and 60 basis points, respectively, due to restructuring and
Separation costs.


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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 Lee® brand revenue increased 29%, driven by growth across all channels, as well as a favorable 3% foreign currency impact.

•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.
Increases in the U.S. Wholesale channel were driven by the less significant
impact of COVID-19 compared with the prior year, new business growth and growth
in the U.S. digital wholesale business. These increases were partially offset by
lower retail sales in the current year resulting from the exit of certain
underperforming VF Outlet stores in the fourth quarter of 2020. Non-U.S.
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.

• EMEA revenue increased 39%, primarily due to lower impact of COVID-19 compared to prior year, wholesale revenue growth and direct-to-consumer sales, including including growth in the digital wholesale business, and a 5% growth favorable foreign exchange effect.

Operating margin increased to 14.5% compared to 5.5% for 2020, primarily driven
by favorable customer, product and channel mix, leverage of fixed costs on
higher revenues, lower retail store expenses resulting from the exit of certain
underperforming VF Outlet stores in the fourth quarter of 2020 and lower bad
debt expense in 2021. These increases were partially offset by transitory
expenses in the current year, including air freight to expedite shipments to
meet customer demand, as well as higher demand creation and digital spending,
distribution costs and compensation expense. Prior year comparisons were also
affected by reduced spending in 2020 in light of COVID uncertainty. During 2021
and 2020, operating margin was negatively impacted by 30 basis points and 150
basis points, respectively, due to restructuring and Separation costs.

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. Other also included sales of
third-party branded merchandise at VF Outlet stores through the first quarter of
2021. During 2020, the Company discontinued the sale of third-party branded
merchandise in all VF Outlet stores, exited certain VF Outlet stores and
converted all remaining locations to Lee Wrangler OutletTM and Lee Wrangler
Clearance CenterTM retail stores. Prior to 2020, the Other category also
included transactions with VF for pre-Separation activities, which included
sales of VF-branded products at VF Outlet stores, as well as sales to VF for
products manufactured in our plants, use of our transportation fleet and
fulfillment of a transition services agreement related to VF's sale of its
Nautica® brand business in mid-2018.

                                    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.



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Reconciliation of segment profit to profit before income taxes


The Company has incurred corporate and other expenses as a standalone public
company since May 23, 2019. For purposes of preparing financial statements on a
carve-out basis for periods through the Separation date of May 22, 2019,
corporate and other expenses included the Company's allocation of a portion of
VF's total corporate expenses. Refer to   Note 3   to the Company's financial
statements for additional information on the Company's methodology for
allocating these costs.

The costs below are necessary to reconcile total reportable segment profit to
income before taxes. These costs are excluded from segment profit as they are
managed centrally and are not under control of brand management.

                                                             Year Ended December                                             Percent Change

(Dollars in millions)                               2021                   2020             2019                    2021                       2020
Total reportable segment profit                  $ 422.5                $ 282.8          $ 283.2                      49.4  %                    (0.1) %
Non-cash impairment of intangible asset                -                      -            (32.6)                        0  %                  (100.0) %
(1)
Corporate and other expenses                      (141.0)                (143.1)           (90.1)                     (1.5) %                    58.8  %
Interest income from former parent, net                -                      -              3.8                         0  %                  (100.0) %
Interest expense                                   (38.9)                 (50.0)           (35.8)                    (22.2) %                    39.7  %
Interest income                                      1.5                    1.6              3.9                      (8.0) %                   (59.0) %
Profit (loss) related to other revenues              0.5                  (18.4)             2.8                   102.8%                    (753.4)%
Income before income taxes                       $ 244.6                $  72.9          $ 135.2                     235.4  %                   (46.1) %

(1) Represents an impairment loss recorded during the third quarter of 2019 related to the Rock & Republic® brand. See Note 7 to the Company’s financial statements.

2021 Compared to 2020

Corporate and other expenses decreased $2.1 million, driven by the exit of our
transition service agreements with our former parent in August 2021, offset by
higher compensation expense and an increase in expenses related to the Company's
global ERP implementation and information technology infrastructure build-out
during 2021.

Interest expense decreased $11.1 million, primarily due to favorable interest
rates and lower average borrowings under the Credit Facilities as compared to
the prior year, partially offset by $6.6 million due to accelerated amortization
of the original issue discount and debt issuance costs associated with
refinancing and early repayments on our Credit Facilities.

                       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. 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.

In May 2019the Company entered into a $1.55 billion senior secured credit facility (the “Credit Agreement”). Initially, this facility consisted of a period of five years $750.0 million Term Loan Facility A (“Term Loan A”), a term of seven years
$300.0 million term loan facility B (“term loan B”) and a $500.0 million revolving credit facility (the “Revolving Credit Facility”) (collectively, the “Credit Facilities”) with the lenders and agents thereto.

On November 18, 2021, the Company completed a refinancing pursuant to which it
issued $400.0 million of unsecured senior notes bearing interest at a rate of
4.125% per annum (the "Notes") and amended and restated its Credit Agreement
(the "Amended Credit Agreement"). The net proceeds from the offering of the
Notes, together with $7.6 million of cash on hand, were used to repay
$265.0 million of the principal amount outstanding under Term Loan A, and all of
the $133.0 million principal amount outstanding under Term Loan B. 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
Amended Term Loan A is scheduled to be repaid in quarterly installments
beginning in March 2023.


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These debt obligations could restrict our future business strategies and could
adversely impact our future results of operations, financial conditions or cash
flows. 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.

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.
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. 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. 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 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.

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. 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.
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. Management believes that our cash balances and
funds provided by operating activities, along with existing borrowing capacity
and access to capital markets, taken as a whole, provide (i) adequate liquidity
to meet all of our current and long-term obligations when due, (ii) adequate
liquidity to fund capital expenditures and planned dividend payouts and (iii)
flexibility to repurchase Common Stock and meet investment opportunities that
may arise.

The following table sets forth outstanding borrowings and available borrowing capacity under the Amended Revolving Credit Facility and our cash and cash equivalent balances as of December 2021:

(In millions)                                                               

December 2021

Borrowings outstanding 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.

Refer to Note 10 of the Company’s financial statements in this Form 10-K for additional information regarding the Company’s amended credit facilities, including financial covenants and resulting interest rates at December 2021.

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. There were no outstanding balances
under these arrangements at December 2021, and $0.2 million at December 2020,
which primarily consisted of letters of credit that are non-interest bearing to
the Company. In addition, short-term borrowings at December 2021 and December
2020 included other debt of $0.2 million and $0.9 million, respectively.

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.

The Company intends to continue to pay cash dividends in future periods. The
declaration and amount of any future dividends will be dependent upon multiple
factors including our financial condition, earnings, cash flows, capital
requirements, covenants associated with our debt obligations, legal
requirements, regulatory constraints, industry practice and any other factors or
considerations that our Board of Directors deems relevant.

We currently expect capital expenditures to be between $35.0 million for $40.0 million in 2022, primarily to support manufacturing, distribution and information technology.



                                          33 Kontoor Brands, Inc. 2021 Form 

10-K

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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. 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.

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.

Fundraising activities

During 2021, cash used by financing activities increased $246.4 million as
compared to 2020. This increase was primarily due to our debt refinancing in
2021 where we repaid $523.0 million of term loans, partially offset by $400.0
million of proceeds from the issuance of the Notes. 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. 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. 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. 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.

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 committed under non-cancellable operating leases. Refer to Note 19 of the company’s financial statements in this Form 10-K for additional information about future lease payments.

The Company has unrecognized commitments consisting of inventory obligations, minimum royalty payments and other obligations. Other obligations represent other binding commitments for the expenditure of funds, including (i) amounts related to contracts not involving the purchase of inventory, such as the non-cancellable portion of service or maintenance contracts for management information systems, (ii) capital expenditures and (iii) advertising. Refer to

Note 20 to the Company’s financial statements in this Form 10-K for more information.

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
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  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. 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.

The application of these accounting policies requires that we make estimates and
assumptions about future events and apply judgments that affect the reported
amounts of assets, liabilities, net revenues, expenses, contingent assets and
liabilities and related disclosures. These estimates, assumptions and judgments
are based on historical experience, current trends and other factors believed to
be reasonable under the circumstances. Management evaluates these estimates and
assumptions on an ongoing basis. Because our business cycle is relatively short
(i.e., from the date that inventory is received until that inventory is sold and
the trade accounts receivable is collected), actual results related to most
estimates are known within a few months after any balance sheet date. In
addition, we may retain outside specialists to assist in impairment testing of
goodwill and intangible assets. Several of the estimates and assumptions we are
required to make relate to future events and are therefore, inherently
uncertain, especially as it relates to events outside of our control. If actual
results ultimately differ from previous estimates, the revisions are included in
results of operations when the actual amounts become known.

We believe the following accounting policies involve the most significant
management estimates, assumptions and judgments used in preparation of the
financial statements or are the most sensitive to change from outside factors.
The selection and application of the Company's critical accounting policies and
estimates are periodically discussed with the Audit Committee of the Board of
Directors.

Testing of long-lived assets, including intangible assets and Good will for deficiency

Long-lived assets – Property, plant and equipment and operating lease assets

The 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. We
test for potential impairment at the asset or asset group level, which is the
lowest level for which there are identifiable cash flows that are largely
independent, by comparing the carrying value to the estimated undiscounted cash
flows expected to be generated by the asset. If the forecasted undiscounted cash
flows to be generated by the asset are not expected to be adequate to recover
the asset's carrying value, a fair value analysis must be performed, and an
impairment charge is recorded if there is an excess of the asset's carrying
value over its estimated fair value.

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. Assumptions are also made
for varying terminal growth rates for years beyond the forecast period.
Generally, we utilize operating margin assumptions based on future expectations,
operating margins historically realized in the reporting units' industries and
industry marketplace valuation multiples.

The estimated undiscounted cash flows of the asset or asset group through the
end of its useful life are compared to its carrying value. If the undiscounted
cash flows of the asset or asset group exceed its carrying value, there is no
impairment charge. If the undiscounted cash flows of the asset or asset group
are less than its carrying value, the estimated fair value of the asset or asset
group is calculated based on the discounted cash flows using the reporting
unit's weighted average cost of capital ("WACC"), and an impairment charge is
recognized for the difference between the estimated fair value of the asset or
asset group and its carrying value.

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.
We do not believe there is a reasonable likelihood there will be a material
change in the estimates or assumptions used to calculate impairments, useful
lives of property, plant and equipment or term length of leases. However, if
actual results are not consistent with our estimates and assumptions used to
calculate estimated future cash flows, we may be exposed to potentially material
impairments. 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

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Contents

Intangible assets with an indefinite useful life and Good will

The 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 part of our annual impairment
testing, we may elect to assess qualitative factors as a basis for determining
whether it is necessary to perform quantitative impairment testing. 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.

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. Under this method, forecasted net
revenues for products sold with the trademark are assigned a royalty rate that
would be charged to license the trademark (in lieu of ownership), and the
estimated fair value is calculated as the present value of those forecasted
royalties avoided by owning the trademark. The discount rate is based on the
reporting unit's WACC that considers market participant assumptions, plus a
spread that factors in the risk of the intangible asset. The royalty rate is
selected based on consideration of (i) royalty rates included in active license
agreements, if applicable, (ii) royalty rates received by market participants in
the apparel industry and (iii) the current performance of the reporting unit. If
the estimated fair value of the trademark intangible asset exceeds its carrying
value, there is no impairment charge. If the estimated fair value of the
trademark is less than its carrying value, an impairment charge would be
recognized for the difference.

Goodwill is quantitatively evaluated for possible impairment by comparing the
estimated fair value of a reporting unit to its carrying value. Reporting units
are businesses with discrete financial information that is available and
reviewed by segment management.

For goodwill impairment testing, we estimate the fair value of a reporting unit
using both income-based and market-based valuation methods. The income-based
approach is based on the reporting unit's forecasted future cash flows that are
discounted to present value using the reporting unit's WACC as discussed above.
For the market-based approach, management uses both the guideline company and
similar transaction methods. The guideline company method analyzes market
multiples of net revenues and earnings before interest, taxes, depreciation and
amortization ("EBITDA") for a group of comparable public companies. The market
multiples used in the valuation are based on the relative strengths and
weaknesses of the reporting unit compared to the selected guideline companies.
Under the similar transactions method, valuation multiples are calculated
utilizing actual transaction prices and net revenue / EBITDA data from target
companies deemed similar to the reporting unit.

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. However,
if the estimated fair value of the reporting unit is less than its carrying
value, we calculate the impairment loss as the difference between the carrying
value of the reporting unit and the estimated fair value.

The income-based fair value methodology requires management's assumptions and
judgments regarding economic conditions in the markets in which we operate and
conditions in the capital markets, many of which are outside of management's
control. At the reporting unit level, fair value estimation requires
management's assumptions and judgments regarding the effects of overall economic
conditions on the specific reporting unit, along with assessment of the
reporting unit's strategies and forecasts of future cash flows. Forecasts of
individual reporting unit cash flows involve management's estimates and
assumptions regarding:

•Annual cash flows, on a debt-free basis, arising from future net revenues and
profitability, changes in working capital, capital spending and income taxes for
at least a ten-year forecast period.

• A terminal growth rate for years beyond the forecast period. The terminal growth rate is selected taking into account the growth rates used during the forecast period, the historical performance of the reporting unit and economic conditions.

•A discount rate that reflects the risks inherent in realizing the forecasted
cash flows. A discount rate considers the risk-free rate of return on long-term
treasury securities, the risk premium associated with investing in equity
securities of comparable companies, the beta obtained from comparable companies
and the cost of debt for investment grade issuers. In addition, the discount
rate may consider any company-specific risk in achieving the prospective
financial information.

Under the market-based fair value methodology, judgment is required in
evaluating market multiples and recent transactions. Management believes that
the assumptions used for its impairment tests are representative of those that
would be used by market participants performing similar valuations of our
reporting units.

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. It is possible that our
conclusions regarding impairment or recoverability of goodwill or intangible
assets in any reporting unit could change in future periods. 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
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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. 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 impact on our financial condition and results of operations.

Income taxes

The 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. 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 makes an ongoing assessment to identify any significant exposure related
to increases in tax rates in the jurisdictions in which the Company operates.

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 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. 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
and interpretation of tax laws and regulations. Income tax expense could be
materially affected to the extent the Company prevails in a tax position or when
the statute of limitations expires for a tax position for which a liability for
unrecognized tax benefits or valuation allowances have been established, or to
the extent the Company is required to pay amounts greater than the established
liability for unrecognized tax benefits. 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. 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. If management believes that the Company will not be able to generate
sufficient taxable income to offset losses during the carryforward periods, the
Company records valuation allowances to reduce those deferred tax assets to
amounts expected to be ultimately realized. If in a future period management
determines that the amount of deferred tax assets to be realized differs from
the net recorded amount, the Company would record an adjustment to income tax
expense in that future period.

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

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Contents

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