Kontoor Brands, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

TRANSACTIONS WITH FORMER PARENT

TRANSACTIONS WITH FORMER PARENT

12 Months Ended

Jan. 01, 2022

In connection with the Separation, the Company entered into several agreements with VF that governed the relationship of the parties following the Separation, including the Separation and Distribution Agreement, the Tax Matters Agreement, the Transition Services Agreement, the Kontoor Intellectual Property License Agreement, the VF Intellectual Property License Agreement and the Employee Matters Agreement. Under the terms of the Transition Services Agreement, the Company and VF agreed to provide each other certain transitional services including information technology, information management, human resources, employee benefits administration, supply chain, facilities and other limited finance and accounting-related services, all of which were terminated by August 2021. The Company also entered into certain commercial arrangements with VF. Revenues, expenses and operating expense reimbursements under these agreements were recorded within the reportable segments or within the "corporate and other expenses" line item in the reconciliation of segment profit in Note 3 to the Company's financial statements, based on the nature of the arrangements.

Prior to the Separation, the Company's financial statements were prepared on a carve-out basis and were derived from the consolidated financial statements and accounting records of VF. Refer to Note 1 to the Company's financial statements for a discussion of the methodology used to allocate corporate-related costs for purposes of preparing these financial statements on a carve-out basis. The following discussion summarizes activity between the Company and VF through the Separation date.

Sales and Purchases To and From Former Parent

The Company's sales to VF through the Separation date were $14.1 million in 2019, which were included within "net revenues" in the Company's statement of operations. The Company's cost of goods sold includes items purchased from VF totaling $0.5 million through the Separation date in 2019. At December 2019, the aggregate amount of inventories purchased from VF that remained on the Company's balance sheet was approximately $0.4 million, substantially all of which was sold during 2020.

Notes To and From Former Parent

All notes to and from former parent were settled in connection with the Separation and there were no remaining balances as of December 2019.

The Company recorded net interest income related to these notes of $3.8 million through the Separation date in 2019 which was included within "interest income from former parent, net" in the Company's statement of operations.

Due To and From Former Parent

All amounts due to and from former parent were settled in connection with the Separation and there were no remaining balances as of December 2019.

Net Transfers To and From VF

Net transfers to and from VF are included within "former parent investment" in the statements of equity.

The following table presents components of the transfers to and from VF:


(In thousands)	December 2019 (a)
General financing activities	$	(723,155)
Corporate allocations	47,903
Stock-based compensation expense	9,582
Pension (benefit) costs	(2,246)
Purchases from parent	3,193
Sales to parent	(13,988)
Other income tax	10,863
Transition tax related to the Tax Act	3,937
Cash dividend to former parent	(1,032,948)
Total net transfers to former parent	$	(1,696,859)

(a) Activity reflected through the Separation date.