EX-99.2 3 exhibit992q12020fs.htm EX-99.2 Document


newheaderlogoeng1.jpg
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

GILDAN ACTIVEWEAR INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands of U.S. dollars) - unaudited

March 29,
2020		December 29,
2019
Current assets:
Cash and cash equivalents$505,085  $64,126  
Trade accounts receivable (note 4)344,601  320,931  
Inventories (note 5)1,188,209  1,052,052  
Prepaid expenses, deposits and other current assets65,926  77,064  
Total current assets2,103,821  1,514,173  
Non-current assets:
Property, plant and equipment981,141  994,980  
Right-of-use assets80,403  73,539  
Intangible assets (note 6)304,881  383,864  
Goodwill (note 6)206,636  227,865  
Deferred income taxes11,135  9,917  
Other non-current assets6,887  6,732  
Total non-current assets1,591,083  1,696,897  
Total assets$3,694,904  $3,211,070  
Current liabilities:
Accounts payable and accrued liabilities$342,602  $406,631  
Income taxes payable367  1,255  
Current portion of lease obligations (note 9(d))
15,844  14,518  
Dividends payable30,251  —  
Total current liabilities389,064  422,404  
Non-current liabilities:
Long-term debt (note 7)1,550,000  845,000  
Lease obligations (note 9(d))
72,478  66,982  
Other non-current liabilities40,608  42,190  
Total non-current liabilities1,663,086  954,172  
Total liabilities2,052,150  1,376,576  
Equity:
Share capital173,849  174,218  
Contributed surplus29,831  32,769  
Retained earnings1,475,754  1,628,042  
Accumulated other comprehensive income (loss)(36,680) (535) 
Total equity attributable to shareholders of the Company1,642,754  1,834,494  
Total liabilities and equity$3,694,904  $3,211,070  

See accompanying notes to unaudited condensed interim consolidated financial statements.

QUARTERLY REPORT - Q1 2020 38


newheaderlogoeng1.jpg
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
GILDAN ACTIVEWEAR INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
AND COMPREHENSIVE INCOME (LOSS)
(in thousands of U.S. dollars, except per share data) - unaudited

Three months ended
March 29,
2020		March 31,
2019
Net sales (note 15)$459,103  $623,935  
Cost of sales352,557  463,195  
Gross profit106,546  160,740  
Selling, general and administrative expenses73,948  92,989  
Impairment of trade accounts receivable (note 4)
20,752  24,423  
Restructuring and acquisition-related costs (note 8)
10,185  10,600  
Impairment of goodwill and intangible assets (note 6)93,989  —  
Operating income (loss)(92,328) 32,728  
Financial expenses, net (note 9(b))
7,859  9,132  
Earnings (loss) before income taxes (100,187) 23,596  
Income tax expense (recovery)(892) 868  
Net earnings (loss)(99,295) 22,728  
Other comprehensive income (loss), net of related income taxes (note 11):
Cash flow hedges(36,145) 5,805  
Comprehensive income (loss)$(135,440) $28,533  
Earnings (loss) per share (note 12):
Basic$(0.50) $0.11  
Diluted$(0.50) $0.11  

See accompanying notes to unaudited condensed interim consolidated financial statements.

QUARTERLY REPORT - Q1 2020 39


newheaderlogoeng1.jpg
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
GILDAN ACTIVEWEAR INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Three months ended March 29, 2020 and March 31, 2019
(in thousands or thousands of U.S. dollars) - unaudited

Share capitalContributed
surplus		Accumulated
other
comprehensive
income (loss)		Retained
earnings		Total
equity
NumberAmount
Balance, December 29, 2019199,012  $174,218  $32,769  $(535) $1,628,042  $1,834,494  
Share-based compensation—  —  (2,938) —  —  (2,938) 
Shares issued under employee share purchase plan
14  375  —  —  —  375  
Shares repurchased for cancellation(843) (744) —  —  (22,472) (23,216) 
Dividends declared—  —  —  —  (30,521) (30,521) 
Transactions with shareholders of the Company recognized directly in equity
(829) (369) (2,938) —  (52,993) (56,300) 
Cash flow hedges (note 11)—  —  —  (36,145) —  (36,145) 
Net earnings (loss)—  —  —  —  (99,295) (99,295) 
Comprehensive income (loss)—  —  —  (36,145) (99,295) (135,440) 
Balance, March 29, 2020198,183  $173,849  $29,831  $(36,680) $1,475,754  $1,642,754  
Balance, December 30, 2018206,732  $159,858  $32,490  $3,382  $1,740,342  $1,936,072  
Adjustments relating to the adoption of new accounting standards
—  —  —  —  (1,155) (1,155) 
Adjusted balance, December 31, 2018206,732  159,858  32,490  3,382  1,739,187  1,934,917  
Share-based compensation—  —  4,639  —  —  4,639  
Shares issued under employee share purchase plan
11  374  —  —  —  374  
Shares issued pursuant to exercise of stock options
315  8,936  (2,855) —  —  6,081  
Shares repurchased for cancellation
(876) (676) —  —  (30,361) (31,037) 
Dividends declared—  —  —  —  (27,859) (27,859) 
Transactions with shareholders of the Company recognized directly in equity
(550) 8,634  1,784  —  (58,220) (47,802) 
Cash flow hedges (note 11)—  —  —  5,805  —  5,805  
Net earnings—  —  —  —  22,728  22,728  
Comprehensive income—  —  —  5,805  22,728  28,533  
Balance, March 31, 2019206,182  $168,492  $34,274  $9,187  $1,703,695  $1,915,648  

See accompanying notes to unaudited condensed interim consolidated financial statements.

QUARTERLY REPORT - Q1 2020 40


newheaderlogoeng1.jpg
CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
GILDAN ACTIVEWEAR INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars) - unaudited

Three months ended
March 29,
2020		March 31,
2019
Cash flows from (used in) operating activities:
Net earnings (loss)$(99,295) $22,728  
Adjustments to reconcile net earnings to cash flows from (used in) operating activities (note 13(a))
121,369  46,277  
22,074  69,005  
Changes in non-cash working capital balances:
Trade accounts receivable(26,146) (76,951) 
Income taxes(922) (442) 
Inventories(128,882) (67,160) 
Prepaid expenses, deposits and other current assets
13,890  (761) 
Accounts payable and accrued liabilities(89,444) (28,888) 
Cash flows used in operating activities(209,430) (105,197) 
Cash flows from (used in) investing activities:
Purchase of property, plant and equipment(20,715) (19,789) 
Purchase of intangible assets(4,923) (3,042) 
Business acquisitions—  (1,300) 
Proceeds on disposal of property, plant and equipment
61  269  
Cash flows used in investing activities(25,577) (23,862) 
Cash flows from (used in) financing activities:
Increase in amounts drawn under long-term bank credit facilities
705,000  219,000  
Payment of lease obligations(4,188) (3,239) 
Dividends paid—  (27,859) 
Proceeds from the issuance of shares338  6,418  
Repurchase and cancellation of shares
(23,216) (31,037) 
Cash flows from financing activities677,934  163,283  
Effect of exchange rate changes on cash and cash equivalents denominated in foreign currencies
(1,968) 99  
Increase in cash and cash equivalents during the period
440,959  34,323  
Cash and cash equivalents, beginning of period64,126  46,657  
Cash and cash equivalents, end of period$505,085  $80,980  
Cash paid during the period (included in cash flows from (used in) operating activities):
Interest$8,934  $8,798  
Income taxes, net of refunds1,384  1,523  
Supplemental disclosure of cash flow information (note 13).
See accompanying notes to unaudited condensed interim consolidated financial statements.
QUARTERLY REPORT - Q1 2020 41


image21.jpg
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the period ended March 29, 2020
(Tabular amounts in thousands or thousands of U.S. dollars except per share data, unless otherwise indicated)

1. REPORTING ENTITY:

Gildan Activewear Inc. (the "Company" or "Gildan") is domiciled in Canada and is incorporated under the Canada Business Corporations Act. Its principal business activity is the manufacture and sale of activewear, hosiery, and underwear. The Company’s fiscal year ends on the Sunday closest to December 31 of each year.

The address of the Company’s registered office is 600 de Maisonneuve Boulevard West, Suite 3300, Montreal, Quebec. These unaudited condensed interim consolidated financial statements are as at and for the three months ended March 29, 2020 and include the accounts of the Company and its subsidiaries. The Company is a publicly listed entity and its shares are traded on the Toronto Stock Exchange and New York Stock Exchange under the symbol GIL.

2. BASIS OF PREPARATION:

(a) Statement of compliance:
These unaudited condensed interim consolidated financial statements have been prepared in accordance with International Accounting Standard (“IAS”) 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (“IASB”). These unaudited condensed interim consolidated financial statements should be read in conjunction with the Company’s fiscal 2019 audited consolidated financial statements. The Company applied the same accounting policies in the preparation of these unaudited condensed interim consolidated financial statements as those disclosed in note 3 of its most recent annual consolidated financial statements, except for the adoption of new standards effective as of December 30, 2019 as described below in note 2(d).

These unaudited condensed interim consolidated financial statements were authorized for issuance by the Board of Directors of the Company on April 29, 2020.

(b) Seasonality of the business:
The Company’s net sales are subject to seasonal variations. Net sales have historically been higher during the second and third quarters, however for fiscal 2020 net sales are not expected to follow historical patterns due to the impact of the coronavirus ("COVID-19") pandemic.

(c) Operating segments:
The Company manages its business on the basis of one reportable operating segment.

(d) Initial application of new accounting standards and interpretations in the reporting period:
On December 30, 2019, the Company adopted the following new amendment:

Amendments to IFRS 3, Business combinations
In October 2018, the IASB issued amendments to IFRS 3, Business combinations. The amendments clarify the definition of a business, with the objective of assisting entities in determining whether a transaction should be accounted for as a business combination or as an asset acquisition. The amendments are effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2020 and apply prospectively. Given the prospective application of the amendment, its adoption did not have an impact on the Company’s consolidated financial statements.
QUARTERLY REPORT - Q1 2020 42


image41.jpg
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET APPLIED:

Amendments to IAS 1, Presentation of Financial Statements
On January 23, 2020, the IASB issued narrow-scope amendments to IAS 1, Presentation of Financial Statements, to clarify how to classify debt and other liabilities as current or non-current. The amendments (which affect only the presentation of liabilities in the statement of financial position) clarify that the classification of liabilities as current or non-current should be based on rights that are in existence at the end of the reporting period to defer settlement by at least twelve months and make explicit that only rights in place at the end of the reporting period should affect the classification of a liability; clarify that classification is unaffected by expectations about whether an entity will exercise its right to defer settlement of a liability; and make clear that settlement refers to the transfer to the counterparty of cash, equity instruments, other assets, or services. The amendments are effective for annual reporting periods beginning on or after January 1, 2022 and are to be applied retrospectively. Earlier application is permitted. The Company is currently evaluating the impact of the amendment on its consolidated financial statements.


4. TRADE ACCOUNTS RECEIVABLE:
March 29,
2020		December 29,
2019
Trade accounts receivable$372,453  $328,115  
Allowance for expected credit losses(27,852) (7,184) 
$344,601  $320,931  

As at March 29, 2020, trade accounts receivables being serviced under a receivables purchase agreement amounted to $77.3 million (December 29, 2019 - $141.0 million). The receivables purchase agreement, which allows for the sale of a maximum of $175 million of accounts receivables at any one time, expires on June 22, 2020, subject to annual extensions. The Company retains servicing responsibilities, including collection, for these trade receivables but has not retained any credit risk with respect to any trade receivables that have been sold. The difference between the carrying amount of the receivables sold under the agreement and the cash received at the time of transfer was $0.5 million (2019 - $0.7 million) for the three months ended March 29, 2020, and was recorded in bank and other financial charges.

The movement in the allowance for expected credit losses in respect of trade receivables was as follows:

Three months ended
March 29,
2020		March 31,
2019
Allowance for expected credit losses, beginning of period$(7,184) $(7,547) 
Impairment of trade accounts receivable(20,752) (24,423) 
Write-off of trade accounts receivable84  2  
Allowance for expected credit losses, end of period$(27,852) $(31,968) 

Impairment of trade accounts receivable
The impairment of trade accounts receivable for the three months ended March 29, 2020 was mainly related to an increase in the estimate of expected credit losses (ECLs) attributable to the deteriorating economic environment caused by the COVID-19 pandemic. The impairment of trade accounts receivable for the three months ended March 31, 2019 consisted primarily of a $21.7 million charge relating to the receivership and liquidation of one of the Company's U.S. distributor customers.






QUARTERLY REPORT - Q1 2020 43


image41.jpg
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4. TRADE ACCOUNTS RECEIVABLE (continued):

In determining its allowance for expected credit losses the Company applies the simplified approach per IFRS 9, Financial Instruments, and calculates expected credit losses based on lifetime expected credit losses. The Company has established a provision matrix, which segregates its customers by their economic characteristics and allocates expected credit loss rates based on days past due of its trade receivables. Expected credit loss rates are based on the Company’s historical credit loss experience, adjusted for forward-looking factors of the economic environment. In light of the COVID-19 pandemic, the Company’s provision matrix was adjusted, as its historical experience was not reflective of the current market conditions, including the uncertainties present in the current economic environment, such as the financial viability of its debtors and the various levels of government support that have been announced. Many of our customers have seen a major reduction in their sales and operations during this period and are taking specific measures to minimize operating losses and preserve liquidity, including requests to extend payment terms on the Company’s previously invoiced shipments. As a result, previously determined loss rates for the individual days past due categories included in the provision matrix are not reflective of expected losses at this time. Therefore, the Company has applied loss rates to individually significant receivables, or sub-categories of individually significant receivables, based on its evaluation of possible outcomes with respect to the collectability of these amounts at the measurement date. The Company has increased its expected credit loss rates by reference to projected macroeconomic loss factors (such as projected GDP decreases or projected market default rates) to reflect the additional risk of loss that the current economic conditions would indicate. For customers in good standing who have not requested extended payment terms on the Company’s previously invoiced shipments, the expected credit loss rates have not been modified. For customers who have requested extended payment terms on the Company’s previously invoiced shipments, an expected loss rate ranging between 3% and 10% has been determined using macroeconomic factors, and depending on the customer's historical payment history, the nature of its operations, and its geographic location. For customers previously in default, a significant loss rate has been determined. A 10% increase in the expected loss rate for all customers with a balance due as at March 29, 2020 would result in a $37 million increase in the allowance for expected credit losses. In the event that new information becomes available to us that would change the Company's assessment of expected loss, the amounts recorded in allowance for expected credit losses will be updated in the period in which the additional information is received. There is no assurance that our current estimates of recoverability will not change significantly as the COVID-19 pandemic and its related business and societal impacts evolve, which may either require a charge to earnings or a reversal of such allowances in subsequent periods based on revised estimates or actual collection experience.


5. INVENTORIES:
March 29,
2020		December 29,
2019
Raw materials and spare parts inventories$155,503  $152,584  
Work in progress61,574  75,535  
Finished goods971,132  823,933  
$1,188,209  $1,052,052  

For the three months ended March 29, 2020, cost of sales includes write-downs of inventory to net realizable value of $9.0 million, including $5.2 million for a change in estimate that increased inventory reserves related to the Company’s strategic initiative to significantly reduce its imprintables product line stock-keeping unit (SKU) count by exiting all ship to-the-piece activities and discontinuing overlapping and less productive styles and SKUs between brands. The Company began implementing this initiative in the fourth quarter of fiscal 2019, which initially resulted in inventory write-downs to net realizable value of $47.6 million.










QUARTERLY REPORT - Q1 2020 44


image41.jpg
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


6. INTANGIBLE ASSETS AND GOODWILL:

Goodwill and intangible assets acquired through business acquisitions have been allocated to the Company's cash-generating units ("CGUs") as follows:

March 29,
2020		December 29,
2019
Textile & Sewing:
Goodwill$206,636  $206,637  
Definite life intangible assets (excluding computer software)31,773  33,066  
Indefinite life intangible assets93,400  93,400  
$331,809  $333,103  
Hosiery:
Goodwill$—  $21,228  
Definite life intangible assets (excluding computer software)69,515  101,906  
Indefinite life intangible assets86,129  129,272  
$155,644  $252,406  

In assessing whether goodwill and indefinite life intangible assets are impaired, the carrying amounts of the CGUs (including goodwill and long-lived assets) are compared to their recoverable amounts. The recoverable amounts of CGUs are based on the higher of the value in use and fair value less costs of disposal. The Company performed the annual impairment review for goodwill and indefinite life intangible assets as at December 29, 2019, and the estimated recoverable amounts exceeded the carrying amounts of its CGUs and as a result, there was no impairment identified. However, for the Hosiery CGU, management had identified that a decrease in the risk adjusted forecasted adjusted EBITDA of 10%, combined with a decrease in the adjusted EBITDA multiple by a factor of 1 would result in the estimated recoverable amount being equal to the carrying amount.

Hosiery CGU
The outbreak of the COVID-19, which was declared a pandemic on March 11, 2020 by the World Health Organization led to a rapid deterioration in the global economic environment and triggered a sharp fall in stock markets and enterprise values worldwide. In addition, the Company’s market capitalization declined significantly between March 11, 2020 and March 29, 2020. The measures adopted by the various levels of government across key markets in order to mitigate the spread of the COVID-19 pandemic have significantly affected economic activity and sentiment, disrupting the business operations of companies worldwide, and have required many of the Company’s customers to which it sells hosiery products to close all of their retail locations across the U.S. effective mid to late-March and until further notice. Therefore, as a result of the adverse impact of the COVID-19 pandemic on the global economic environment and on the Company's market capitalization and considering that the fair value of the Hosiery CGU as at December 29, 2019 was only 20% higher than its carrying value, the Company performed an impairment review of the Hosiery CGU as at March 29, 2020.

Based on the results of its impairment review of the Hosiery CGU, the Company recorded an impairment charge of $94.0 million in the first quarter of fiscal 2020, relating to goodwill and intangible assets (both definite and indefinite life) acquired in previous business acquisitions. The non-cash write-down of goodwill and intangible assets is expected to have no impact on the Company’s liquidity, cash flows from operating activities, or its compliance with debt covenants. The primary cause for the impairment charge is the deterioration in the global economic environment and the resulting decline in the Company’s share price, market capitalization, and forecasted earnings.

The Company determined the recoverable amounts of the Hosiery CGU based on the fair value less costs of disposal method. The fair value of the Hosiery CGU was based on a multiple applied to forecasted recurring earnings before financial expenses, income taxes, depreciation and amortization, and restructuring and acquisition-related costs ("adjusted EBITDA"), which considers financial forecasts approved by senior management. The adjusted EBITDA multiple was obtained by using market comparables as a reference. The key assumptions used in the estimation of the recoverable amount for the Hosiery CGU are the risk adjusted forecasted recurring adjusted EBITDA and the adjusted EBITDA multiple of 7 (adjusted EBITDA multiple of 11 in 2019). The most significant assumptions that form part of the risk adjusted forecasted recurring adjusted EBITDA relate to estimated sales volumes, selling prices, input
QUARTERLY REPORT - Q1 2020 45


image41.jpg
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
6. INTANGIBLE ASSETS AND GOODWILL (continued):

costs, and SG&A expenses. A decrease in the risk adjusted forecasted adjusted EBITDA of 10%, combined with a decrease in the adjusted EBITDA multiple by a factor of 1 would result in an additional impairment of approximately $90 million. The values assigned to the key assumptions represent management’s assessment of future trends and have been based on historical data from external and internal sources.

Textile & Sewing CGU
Based on the annual impairment review for goodwill and indefinite life intangible assets performed as at December 29, 2019, the excess of the recoverable amount over the carrying value for the Textile & Sewing CGU was significant. However, given the current global economic environment and its impact on the Company's market capitalization, the Company also performed an impairment review of the Textile & Sewing CGU as at March 29, 2020 using the fair value less costs of disposal method, and concluded that no impairment was required and that that no reasonably possible change in the key assumptions used in determining the recoverable amount would result in any impairment of goodwill or indefinite life intangible assets for this CGU.


7. LONG-TERM DEBT:
Effective interest rate(1)
Principal amountMaturity date
March 29,
2020		December 29,
2019
Revolving long-term bank credit facility, interest at variable U.S. LIBOR-based interest rate plus a spread ranging from 1% to 2%(2)
2.8%$950,000  $245,000  April 2025
Term loan, interest at variable U.S. LIBOR-based interest rate plus a spread ranging from 1% to 2%, payable monthly(3)
2.5%300,000  300,000  April 2025
Notes payable, interest at fixed rate of 2.70%, payable semi-annually(4)
2.7%100,000  100,000  August 2023
Notes payable, interest at variable U.S. LIBOR-based interest rate plus a spread of 1.53%, payable quarterly(4)
2.7%50,000  50,000  August 2023
Notes payable, interest at fixed rate of 2.91%, payable semi-annually(4)
2.9%100,000  100,000  August 2026
Notes payable, interest at variable U.S. LIBOR-based interest rate plus a spread of 1.57%, payable quarterly(4)
2.9%50,000  50,000  August 2026
$1,550,000  $845,000  
(1)Represents the annualized effective interest rate for the three months ended March 29, 2020, including the cash impact of interest rate swaps, where applicable.
(2)The Company’s unsecured revolving long-term bank credit facility of $1 billion provides for an annual extension which is subject to the approval of the lenders. The spread added to the U.S. LIBOR-based variable interest rate is a function of the total net debt to EBITDA ratio (as defined in the credit facility agreement). In addition, an amount of $24.1 million (December 29, 2019 - $22.5 million) has been committed against this facility to cover various letters of credit.
(3)The unsecured term loan is non-revolving and can be prepaid in whole or in part at any time with no penalties. The spread added to the U.S. LIBOR-based variable interest rate is a function of the total net debt to EBITDA ratio (as defined in the term loan agreement).
(4)The unsecured notes issued for a total aggregate principal amount of $300 million to accredited investors in the U.S. private placement market can be prepaid in whole or in part at any time subject to the payment of a prepayment penalty as provided for in the Note Purchase Agreement.

In March 2020, the Company amended its unsecured revolving long-term bank credit facility of $1 billion and its unsecured term loan of $300 million, in each case to extend the maturity dates from April 2024 to April 2025. On April 6, 2020, the Company entered into a new unsecured two-year term loan agreement for a total principal amount of $400 million. Interest is payable monthly at variable U.S. LIBOR-based interest rate plus a spread ranging from 1.70% to 2.50%. The new term loan is non-revolving and can be prepaid in whole or in part at any time with no penalties. The spread added to the U.S. LIBOR-based variable interest rate is a function of the total net debt to EBITDA ratio (as defined in the term loan agreement). Under the terms of the revolving long-term bank credit facility, both term loan facilities, and notes, the Company is required to comply with certain covenants, including maintenance of financial ratios.


QUARTERLY REPORT - Q1 2020 46


image41.jpg
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
7. LONG-TERM DEBT (continued):

The revolving long-term bank credit facility and both term loan facilities require that the Company maintain a minimum interest coverage ratio and a maximum total debt to EBITDA ratio (as such ratios are defined in the loan agreements). The interest coverage ratio covenant requires that the ratio of the Company’s EBITDA for the preceding four fiscal quarters to its consolidated total interest expense for such period shall not be less than 3.50 to 1.00 for each fiscal quarter. The total debt to EBITDA ratio covenant requires that the ratio of the Company’s total debt to EBITDA for the preceding four fiscal quarters will not be more than 3.25 to 1.00 for each fiscal quarter provided that following an acquisition for which the consideration is at least $75 million, such maximum total debt to EBITDA covenant shall be increased to 3.75 to 1.00 for four consecutive fiscal quarters following such acquisition.

The notes issued to accredited investors in the U.S. private placement market require that the Company maintain a minimum interest coverage ratio and a maximum indebtedness to EBITDA ratio (as such ratios are defined in the agreements governing the notes). The interest coverage ratio covenant requires that the ratio of the Company’s EBITDA for the preceding four fiscal quarters to its consolidated total interest expense for such period shall not be less than 3.00 to 1.00 for each fiscal quarter. The indebtedness to EBITDA ratio covenant requires that the ratio of the Company’s indebtedness to EBITDA for the preceding four fiscal quarters will not be more than 3.50 to 1.00 for each fiscal quarter provided that upon notice of the Company to holders of the notes, as of the last day of each of the four consecutive fiscal quarters immediately following a qualified acquisition, such ratio may be greater than 3.50 to 1.00, but in no event greater than 4.00 to 1.00.

The Company was in compliance with all covenants at March 29, 2020.

8. RESTRUCTURING AND ACQUISITION-RELATED COSTS:
Three months ended
March 29,
2020		March 31,
2019
Employee termination and benefit costs$3,042  $1,396  
Exit, relocation and other costs5,081  2,839  
Net loss on disposal and write-downs of property, plant and equipment, right-of-use assets and computer software related to exit activities
2,062  6,365  
$10,185  $10,600  

Restructuring and acquisition-related costs for the three months ended March 29, 2020 related to the following: $4.8 million for the closure of textile manufacturing and sewing operations in Mexico; $4.4 million for the exit of ship-to-the-piece activities, including computer software write-downs and warehouse consolidation costs; and $1.0 million to complete other restructuring activities that were initiated in fiscal 2019.

Restructuring and acquisition-related costs for the three months ended March 31, 2019 related to the following: $6.0 million for the exit of yarn recycling activities, including the planned disposal of yarn recycling equipment; $0.9 million for the closure of an administrative office in the U.S.; $0.8 million for the consolidation of sewing activities in Mexico; and $2.9 million in other costs to complete restructuring activities that were initiated in fiscal 2018, including the closure of the AKH textile manufacturing facility and the consolidation of U.S. distribution centres.


QUARTERLY REPORT - Q1 2020 47


image41.jpg
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

9. OTHER INFORMATION:

(a) Depreciation and amortization:
Three months ended
March 29,
2020		March 31,
2019
Depreciation of property, plant and equipment$28,033  $31,091  
Depreciation of right-of-use assets
3,679  3,322  
Adjustment for the variation of depreciation included in inventories at the beginning and end of the period
(7,275) (1,086) 
Amortization of intangible assets, excluding computer software
4,112  5,517  
Amortization of computer software1,736  1,221  
Depreciation and amortization included in net earnings
$30,285  $40,065  

Included in property, plant and equipment as at March 29, 2020 is $16.0 million (December 29, 2019 - $37.7 million) of buildings and equipment not yet available for use in operations. Included in intangible assets as at March 29, 2020 is $2.8 million (December 29, 2019 - $9.9 million) of software not yet available for use in operations. Depreciation and amortization on these assets commences when the assets are available for use.

Effective July 1, 2019, the Company revised the estimated useful lives of its yarn-spinning manufacturing equipment based on a re-assessment of their expected use to the Company and recent experience of their economic lives. These assets, which were previously being depreciated on a straight-line basis over 10 years, are now depreciated on a straight-line basis over 15 to 20 years depending on the nature of the equipment. For fiscal 2020, the change in estimate resulted in a reduction in depreciation included in net earnings of approximately $4 million for the three months ended March 29, 2020, and is expected to result in a reduction of depreciation included in net earnings of approximately $13 million for the remainder of the fiscal year.


(b) Financial expenses, net:
Three months ended
March 29,
2020		March 31,
2019
Interest expense on financial liabilities recorded at amortized cost(1)
$7,057  $6,894  
Bank and other financial charges1,281  1,866  
Interest accretion on discounted lease obligations
825  831  
Interest accretion on discounted provisions58  71  
Foreign exchange gain(1,362) (530) 
$7,859  $9,132  
(1) Net of capitalized borrowing costs of $0.4 million (2019 - $0.1 million) for the three months ended March 29, 2020.


(c) Related party transaction:
The Company incurred expenses for airplane usage of $0.5 million (2019 - $0.4 million) for the three months ended March 29, 2020, with a company controlled by the President and Chief Executive Officer of the Company. The payments made are in accordance with the terms of the agreement established and agreed to by the related parties. As at March 29, 2020, the amount in accounts payable and accrued liabilities related to the airplane usage was $0.9 million (December 29, 2019 - $0.7 million).

QUARTERLY REPORT - Q1 2020 48


image41.jpg
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

9. OTHER INFORMATION (continued):

(d) Lease obligations:
The Company’s leases are primarily for manufacturing, sales, distribution, and administrative facilities.

The following table presents lease obligations recorded in the statement of financial position as at March 29, 2020:
March 29,
2020
Current$15,844  
Non-current72,478  
$88,322  

The following table presents the future minimum lease payments under non-cancellable leases (including short term leases) as at March 29, 2020:
March 29,
2020
Less than one year$21,987  
One to five years48,350  
More than five years35,548  
$105,885  

For the three months ended March 29, 2020 the total cash outflow for recognized lease obligations (including interest) was $5.0 million, of which $4.2 million was included as part of cash outflows from financing activities.

QUARTERLY REPORT - Q1 2020 49


image41.jpg
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
10. FAIR VALUE MEASUREMENT:

Disclosures relating to the nature and extent of the Company’s exposure to risks arising from financial instruments, including credit risk, liquidity risk, foreign currency risk and interest rate risk, as well as risks arising from commodity prices, and how the Company manages those risks, are included in the section entitled “Financial risk management” of the Management’s Discussion and Analysis of the Company’s operations, financial performance and financial position as at December 29, 2019 and December 30, 2018. Updates to changes in our credit and liquidity risks are described in the section entitled “Financial risk management” of the Management’s Discussion and Analysis of the Company’s operations, financial performance and financial position as at March 29, 2020. Accordingly, these disclosures are incorporated into these condensed interim consolidated financial statements by cross-reference.

Financial instruments – carrying amounts and fair values:
The carrying amounts and fair values of financial assets and liabilities included in the unaudited condensed interim consolidated statements of financial position are as follows:
March 29,
2020		December 29,
2019
Financial assets
Amortized cost:
Cash and cash equivalents$505,085  $64,126  
Trade accounts receivable344,601  320,931  
Financial assets included in prepaid expenses, deposits and other current assets
34,097  45,950  
Long-term non-trade receivables included in other non-current assets3,380  2,933  
Derivative financial assets included in prepaid expenses, deposits and other current assets
11,837  9,816  
Financial liabilities
Amortized cost:
Accounts payable and accrued liabilities(1)
291,308  395,564  
Dividend payable30,251  —  
Long-term debt - bearing interest at variable rates1,350,000  645,000  
Long-term debt - bearing interest at fixed rates(2)
200,000  200,000  
Derivative financial liabilities included in accounts payable and accrued liabilities
51,294  11,067  
(1) Accounts payable and accrued liabilities include balances payable of $46.7 million (December 29, 2019 - $39.6 million) under supply-chain financing arrangements (reverse factoring) with a financial institution, whereby receivables due from the Company to certain suppliers can be collected by the suppliers from a financial institution before their original due date. These balances are classified as accounts payable and accrued liabilities and the related payments as cash flows from operating activities, given the principal business purpose of the arrangement is to provide funding to the supplier and not the Company, the arrangement does not significantly extend the payment terms beyond the normal terms agreed with other suppliers, and no additional deferral or special guarantees to secure the payments are included in the arrangement.
(2) The fair value of the long-term debt bearing interest at fixed rates was $222.9 million as at March 29, 2020 (December 29, 2019 - $206.4 million).


QUARTERLY REPORT - Q1 2020 50


image41.jpg
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
10. FAIR VALUE MEASUREMENT (continued):

Short-term financial assets and liabilities
The Company has determined that the fair value of its short-term financial assets and liabilities approximates their respective carrying amounts as at the reporting dates due to the short-term maturities of these instruments, as they bear variable interest-rates, or because the terms and conditions are comparable to current market terms and conditions for similar items.

Non-current assets and long-term debt bearing interest at variable rates
The fair values of the long-term non-trade receivables included in other non-current assets and the Company’s long-term debt bearing interest at variable rates also approximate their respective carrying amounts because the interest rates applied to measure their carrying amounts approximate current market interest rates.

Long-term debt bearing interest at fixed rates
The fair value of the long-term debt bearing interest at fixed rates is determined using the discounted future cash flows method and at discount rates based on yield to maturities for similar issuances. The fair value of the long-term debt bearing interest at fixed rates was measured using Level 2 inputs in the fair value hierarchy. In determining the fair value of the long-term debt bearing interest at fixed rates, the Company takes into account its own credit risk and the credit risk of the counterparties.

Derivatives
Derivative financial instruments (most of which are designated as effective hedging instruments) consist of foreign exchange and commodity forward, option, and swap contracts, as well as floating-to-fixed interest rate swaps to fix the variable interest rates on a designated portion of borrowings under the term loan and unsecured notes. The fair value of the forward contracts is measured using a generally accepted valuation technique which is the discounted value of the difference between the contract’s value at maturity based on the rate set out in the contract and the contract’s value at maturity based on the rate that the counterparty would use if it were to renegotiate the same contract terms at the measurement date under current conditions. The fair value of the option contracts is measured using option pricing models that utilize a variety of inputs that are a combination of quoted prices and market-corroborated inputs, including volatility estimates and option adjusted credit spreads. The fair value of the interest rate swaps is determined based on market data, by measuring the difference between the fixed contracted rate and the forward curve for the applicable floating interest rates.

The Company also has a total return swap (“TRS”) outstanding that is intended to reduce the variability of net earnings associated with deferred share units, which are settled in cash. The TRS is not designated as a hedging instrument and, therefore, the fair value adjustment at the end of each reporting period is recognized in selling, general and administrative expenses. The fair value of the TRS is measured by reference to the market price of the Company’s common shares, at each reporting date. The TRS has a one-year term, may be extended annually, and the contract allows for early termination at the option of the Company. As at March 29, 2020, the notional amount of TRS outstanding was 216,727 shares.

Derivative financial instruments were measured using Level 2 inputs in the fair value hierarchy. In determining the fair value of derivative financial instruments the Company takes into account its own credit risk and the credit risk of the counterparties.


QUARTERLY REPORT - Q1 2020 51


image41.jpg
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
11. OTHER COMPREHENSIVE INCOME (LOSS) (“OCI”):
Three months ended
March 29,
2020		March 31,
2019
Net gain (loss) on derivatives designated as cash flow hedges:
Foreign currency risk$7,185  $2,266  
Commodity price risk(31,038) 6,226  
Interest rate risk(12,227) (3,702) 
Income taxes(72) (23) 
Amounts reclassified from OCI to inventory, related to commodity price risk
4,039  2,152  
Amounts reclassified from OCI to net earnings, related to foreign currency risk, interest rate risk, and commodity risk, and included in:
Net sales(242) (1,083) 
Cost of sales—  (28) 
Selling, general and administrative expenses
(110) 161  
Financial expenses, net(3,721) (175) 
Income taxes41  11  
Other comprehensive income (loss)$(36,145) $5,805  

As at March 29, 2020, the Company determined that it no longer met the criteria for hedge accounting for certain commodity forward, option, and swap contracts and certain forward foreign exchange contracts (collectively the "hedging instruments") as the commodity purchases and foreign currency sales which the hedging instruments were respectively hedging, were no longer expected to occur due to current economic conditions resulting from the COVID-19 pandemic. As a result, changes in the fair value of such commodity forward, option, and swap contracts (loss of $2.5 million) and forward foreign exchange contracts (gain of $2.9 million) were transferred out of accumulated other comprehensive income and recognized immediately in net earnings within bank and other financial charges as part of the financial expenses caption.

The change in the time value element of option and swap contracts designated as cash flow hedges to reduce the exposure in movements of commodity prices was not significant for the three months ended March 29, 2020 and for the three months ended March 31, 2019. The change in the forward element of derivatives designated as cash flow hedges to reduce foreign currency risk was not significant for the three months ended March 29, 2020 and for the three months ended March 31, 2019. No ineffectiveness has been recognized in net earnings for the three months ended March 29, 2020 and for the three months ended March 31, 2019.

As at March 29, 2020, accumulated other comprehensive loss of $36.7 million consisted of net deferred losses on commodity forward, option, and swap contracts of $28.4 million, net deferred losses on interest rate swap contracts of $10.7 million, and net deferred gains on forward foreign exchange contracts of $2.4 million. Approximately $23.2 million of net losses presented in accumulated other comprehensive income (loss) are expected to be reclassified to inventory or net earnings within the next twelve months.


QUARTERLY REPORT - Q1 2020 52


image41.jpg
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
12. EARNINGS (LOSS) PER SHARE:

Reconciliation between basic and diluted earnings (loss) per share is as follows:
Three months ended
March 29,
2020		March 31,
2019
Net earnings (loss) - basic and diluted$(99,295) $22,728  
Basic earnings (loss) per share:
Basic weighted average number of common shares outstanding
198,624  206,595  
Basic earnings (loss) per share$(0.50) $0.11  
Diluted earnings (loss) per share:
Basic weighted average number of common shares outstanding
198,624  206,595  
Plus dilutive impact of stock options, Treasury RSUs and common shares held in trust
—  462  
Diluted weighted average number of common shares outstanding
198,624  207,057  
Diluted earnings (loss) per share$(0.50) $0.11  

Excluded from the above calculation for the three months ended March 29, 2020 are 2,219,128 stock options (2019 - 282,737) and 114,127 Treasury RSUs (2019 - nil) which were deemed to be anti-dilutive.

QUARTERLY REPORT - Q1 2020 53


image41.jpg
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
13. SUPPLEMENTAL CASH FLOW DISCLOSURE:

(a) Adjustments to reconcile net earnings to cash flows from (used in) operating activities:
Three months ended
March 29,
2020		March 31,
2019
Depreciation and amortization (note 9(a))$30,285  $40,065  
Restructuring charges related to property, plant and equipment, right-of-use assets, and computer software (note 8)
2,062  6,365  
Impairment of goodwill and intangible assets
93,989  —  
Loss on disposal of property, plant and equipment and computer software
417  412  
Share-based compensation(1)
(2,901) 4,676  
Deferred income taxes(1,410) (260) 
Unrealized net gain on foreign exchange and financial derivatives
(1,762) (1,646) 
Timing differences between settlement of financial derivatives and transfer of deferred gains and losses in accumulated OCI to inventory and net earnings
2,655  (133) 
Other non-current assets680  (1,891) 
Other non-current liabilities(2,646) (1,311) 
$121,369  $46,277  
(1) During the three months ended March 29, 2020, the Company revised its estimate for the achievement of performance factors relating to Non-Treasury RSUs to be settled in common shares purchased on the open market, resulting in a reduction of share-based compensation expense of $6.3 million for the three months ended March 29, 2020.


(b) Variations in non-cash transactions:
Three months ended
March 29,
2020		March 31,
2019
Dividend payable
$30,521  $—  
Additions to property, plant and equipment and intangible assets included in accounts payable and accrued liabilities
(9,992) (1,652) 
Proceeds on disposal of property, plant and equipment and computer software included in other current assets
(835) (440) 
Additions to right-of-use assets included in lease obligations
11,661  —  
Impact of adoption of new accounting standards
—  (1,155) 
Non-cash ascribed value credited to share capital from shares issued or distributed pursuant to vesting of restricted share units and exercise of stock options
—  2,855  

14. CONTINGENT LIABILITIES:

Claims and litigation
The Company is a party to claims and litigation arising in the normal course of operations. The Company does not expect the resolution of these matters to have a material adverse effect on the financial position or results of operations of the Company.
QUARTERLY REPORT - Q1 2020 54


image41.jpg
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
15. DISAGGREGATION OF REVENUE:

Net sales by major product group were as follows:
Three months ended
March 29,
2020		March 31,
2019
Activewear$372,580  $493,567  
Hosiery and underwear86,523  130,368  
$459,103  $623,935  
Net sales were derived from customers located in the following geographic areas:
Three months ended
March 29,
2020		March 31,
2019
United States$389,348  $530,846  
Canada16,329  25,778  
International53,426  67,311  
$459,103  $623,935  

QUARTERLY REPORT - Q1 2020 55