Kontoor(KTB) - 2022 Q4 - Annual Report

Revenue Performance - Net revenues increased by 6% to $2.6 billion in fiscal 2022, driven by growth in U.S. Wholesale and Direct-to-Consumer channels, despite a 2$442.2 million in 2022[200] - Net income increased by 26% to $245.5 million, reflecting improved business results[181] Strategic Initiatives - The company is focused on a multi-year strategic vision "Catalyzing Growth," which includes expanding its core U.S. Wholesale business and geographic expansion, particularly in China[178] - The company incurred$13.7 million in severance and employee-related benefits due to the relocation of its European headquarters to Geneva, Switzerland[178] Expenses and Cost Management - Selling, general and administrative expenses as a percentage of revenues decreased to 29.6% from 33.3%, attributed to lower ERP implementation costs and reduced retail store expenses[181] - Cash provided by operating activities decreased by $200.3 million to$83.6 million in 2022 compared to 2021[218] Shareholder Returns - The Company paid $103.7 million in dividends to shareholders during 2022[212] - The Company repurchased 1.5 million shares for$62.5 million under the share repurchase program during 2022[211] Financial Position and Liquidity - As of December 2022, the Company had $487.9 million available borrowing capacity under the Amended Revolving Credit Facility[210] - As of December 2022, the Company had$59.2 million in cash and cash equivalents, with ongoing monitoring of credit ratings of financial institutions[252] Taxation and Deferred Tax Assets - The effective income tax rate for 2022 was 23.1%, up from 20.1% in 2021, influenced by a net discrete tax expense related to deferred tax valuation allowances[186] - The Company has $25.7 million of gross deferred income tax assets related to operating loss carryforwards, with$23.0 million in valuation allowances against those assets[247] - The Company is subject to income taxes in over 50 jurisdictions, with potential changes in tax rates impacting its financial position[244] Market and Currency Risks - Approximately 21% of the Company's net revenues in 2022 were generated in international markets, exposing it to foreign currency exchange rate risks[255] - The company hedges up to 80% of its foreign currency exposures using foreign exchange forward contracts for periods of up to 20 months[257] - A hypothetical 10% change in foreign currency exchange rates at the end of 2022 would result in a change in fair value of hedging contracts of approximately $23.7 million[258] - The company is exposed to market risks for the pricing of cotton, synthetics, and other materials, and negotiates prices in advance when possible to manage these risks[260] Risk Management - The company does not engage in off-balance sheet financial arrangements that could materially affect its financial condition[226] - The company has established counterparty credit guidelines and only enters into derivative transactions with financial institutions that have 'A minus/A3' investment grade credit ratings or better[259] - The company is self-insured for a significant portion of its employee medical and workers' compensation exposures, while purchasing coverage from highly-rated commercial carriers for other risks[251] - The company actively manages its net foreign currency market exposures and may enter into derivative contracts to hedge certain foreign currency accounts payable and receivable transactions[256] Impairment Testing - Management evaluates estimates and assumptions related to impairment testing of long-lived assets, which could lead to material impairments if actual results differ from estimates[234] - The Company utilizes both income-based and market-based valuation methods for goodwill impairment testing, assessing future cash flows and market multiples[238] - The Company has not made material changes in the methodology used to evaluate impairment of property, plant, and equipment during 2022[234]