Kontoor Brands Inc

For the period ended Dec 30, 2023. Filed Feb 28, 2024.

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FY2023 · Filed Feb 28, 2024

KTB$82.79+1.0%Stored close · as of Nov 10, 2026

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Contents

Income Taxes

NOTE 18 —INCOME TAXES

The following table presents income before income taxes used to calculate the provision for income taxes:

	Year Ended December
(In thousands)	2023	2022	2021
Domestic	$128,026	$153,936	$118,142
Foreign	143,873	165,200	126,458
Income before income taxes	$271,899	$319,136	$244,600

The following table presents components of the provision for income taxes:

	Year Ended December
(In thousands)	2023	2022	2021
Current:
Federal	$26,290	$53,990	$24,514
Foreign	16,950	12,397	15,877
State	1,415	7,129	5,149
Total current income taxes	44,655	73,516	45,540
Deferred:
Federal and state	6,848	(9,828)	2,951
Foreign	(10,598)	9,955	686
Total deferred income taxes	(3,750)	127	3,637
Total provision for income taxes	$40,905	$73,643	$49,177

76 Kontoor Brands, Inc. 2023 Form 10-K

The following table presents a reconciliation of the differences between income taxes computed by applying the statutory federal income tax rate and "income taxes" recorded in the Company's statements of operations:

	Year Ended December
(In thousands)	2023	2022	2021
Tax at federal statutory rate	$57,099	$67,019	$51,366
State income tax, net of federal tax benefit	2,614	4,542	5,167
Foreign rate differences	(20,354)	(9,849)	(13,698)
Employee compensation	1,216	2,121	940
Change in valuation allowance	(5,089)	4,881	2,010
Global intangible low-tax income ("GILTI")	5,518	3,586	2,852
Other	(99)	1,343	540
Income taxes	$40,905	$73,643	$49,177

Foreign rate differences include tax benefits of $5.4 million, $10.3 million and $5.5 million in 2023, 2022 and 2021, respectively, from statutorily exempt foreign income. As of December 2023, the Company does not have any active tax holidays from income taxes.

During the year ended December 2023, the Company was granted local income tax credits in a foreign jurisdiction totaling $65.5 million that will expire in 2031. A full valuation allowance was recorded against these tax credits in the Company's financial statements and has been presented net in the table above.

The following table presents the components of "deferred income tax assets" and "deferred income tax liabilities" recorded in the Company's balance sheets:

(In thousands)	December 2023	December 2022
Deferred income tax assets:
Inventories	$11,592	$15,448
Deferred compensation	10,290	10,454
Other employee benefits	7,989	6,903
Stock-based compensation	4,139	5,286
Other accrued expenses	16,741	12,887
Intangible assets	29,232	31,589
Leases	12,055	11,161
Operating loss carryforwards	30,871	25,817
Tax credit carryforwards	69,221	2,645
Gross deferred income tax assets	192,130	122,190
Less: valuation allowance	(86,213)	(25,799)
Net deferred income tax assets	105,917	96,391
Deferred income tax liabilities:
Leases	11,595	10,373
Depreciation	20,929	22,152
Taxes on unremitted earnings	3,923	3,503
Deferred income tax liabilities	36,447	36,028
Total net deferred income tax assets	$69,470	$60,363
Amounts included in the balance sheets:
Deferred income tax assets	$75,081	$67,282
Deferred income tax liabilities	(5,611)	(6,919)
	$69,470	$60,363

Kontoor Brands, Inc. 2023 Form 10-K 77

At the end of 2023, the Company is asserting indefinite reinvestment on foreign earnings totaling $92.2 million. The Company has determined the unrecorded deferred tax liability associated with the $92.2 million basis difference is approximately $0.7 million, primarily related to withholding taxes.

The Company has $65.5 million of local income tax credit carryforwards that will expire in 2031, $22.8 million of potential tax benefits for foreign operating loss carryforwards, $19.6 million of which will expire between 2024 and 2033, and foreign tax credit carryforwards of $3.5 million that will expire between 2030 and 2033. In addition, there are $8.2 million of potential tax benefits for state operating loss and credit carryforwards, $6.7 million of which will expire between 2024 and 2043.

A valuation allowance has been provided where it is more likely than not that deferred tax assets related to operating loss and tax credit carryforwards will not be realized. Valuation allowances totaled $65.5 million for tax credit carryforwards, $11.9 million for foreign operating loss carryforwards, $6.1 million for state operating loss and credit carryforwards, and $2.7 million for other foreign deferred income tax assets.

During 2023, the Company recorded a $65.5 million increase in valuation allowances related to tax credits granted in the current year. In addition, the Company recorded a tax benefit of $6.8 million due to a decrease in valuation allowances related to foreign operating losses as a result of committed tax planning actions, partially offset with a $2.1 million increase in valuation allowances related to current year foreign operating losses and other deferred income tax assets, inclusive of foreign currency effects. The Company also recorded a tax benefit due to a $0.4 million decrease in valuation allowances related to state operating loss and credit carryforwards as well as other state deferred income tax assets.

The following table presents a reconciliation of the change in the accrual for unrecognized income tax benefits:

(In thousands)	Unrecognized Income Tax Benefits	Accrued Interest and Penalties	Unrecognized Income Tax BenefitsIncluding Interestand Penalties
Balance, December 2020	$11,893	$4,864	$16,757
Additions for current year tax positions	154	—	154
Additions for prior year tax positions	18	525	543
Reductions for prior year tax positions	(348)	(340)	(688)
Balance, December 2021	11,717	5,049	16,766
Additions for current year tax positions	169	—	169
Additions for prior year tax positions	853	857	1,710
Reductions for prior year tax positions	—	(30)	(30)
Reductions due to statute expirations	(137)	(58)	(195)
Balance, December 2022	12,602	5,818	18,420
Additions for current year tax positions	248	—	248
Additions for prior year tax positions	79	931	1,010
Reductions for prior year tax positions	(345)	(140)	(485)
Reductions due to statute expirations	(2,249)	(296)	(2,545)
Balance, December 2023	$10,335	$6,313	$16,648

(In thousands)	December 2023	December 2022
Amounts included in the balance sheets:
Unrecognized income tax benefits, including interest and penalties	$16,648	$18,420
Less: deferred tax benefits	(3,035)	(3,445)
Total unrecognized tax benefits	$13,613	$14,975

The unrecognized tax benefits of $13.6 million at the end of 2023, if recognized, would reduce the annual effective tax rate.

The Company files a consolidated U.S. federal income tax return, as well as separate and combined income tax returns in numerous state and international jurisdictions. In the U.S., the Company’s 2020 through 2022 tax years remain open and are subject to examination by the Internal Revenue Service. In addition, the Company is currently subject to examination by various state and international tax authorities. Management regularly assesses the potential outcomes of both ongoing and future examinations for the current and prior years and has concluded that the Company’s provision for income taxes is adequate. The outcome of any one

78 Kontoor Brands, Inc. 2023 Form 10-K examination is not expected to have a material impact on the Company’s financial statements. Management also believes that it is reasonably possible that the amount of unrecognized tax benefits may decrease by $2.1 million within the next 12 months due to expiration of statutes of limitations, all of which would reduce income tax expense.

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