EX-99.2 3 exhibit992q22017interimfs.htm EXHIBIT 99.2 Exhibit


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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS


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

 
July 2,
2017

 
January 1,
2017

Current assets:
 
 
 
Cash and cash equivalents
$
46,819

 
$
38,197

Trade accounts receivable
363,424

 
277,733

Income taxes receivable
1,145

 
—

Inventories (note 5)
922,657

 
954,876

Prepaid expenses, deposits and other current assets
61,357

 
69,719

Total current assets
1,395,402

 
1,340,525

Non-current assets:
 
 
 
Property, plant and equipment
1,052,273

 
1,076,883

Intangible assets
413,410

 
354,221

Goodwill
221,082

 
202,108

Deferred income taxes
—

 
1,500

Other non-current assets
8,199

 
14,907

Total non-current assets
1,694,964

 
1,649,619

Total assets
$
3,090,366

 
$
2,990,144

Current liabilities:
 
 
 
Accounts payable and accrued liabilities
$
251,273

 
$
234,062

Income taxes payable
—

 
1,866

Total current liabilities
251,273

 
235,928

Non-current liabilities:
 
 
 
Long-term debt (note 6)
705,000

 
600,000

Deferred income taxes
2,770

 
—

Other non-current liabilities
36,157

 
34,569

Total non-current liabilities
743,927

 
634,569

Total liabilities
995,200

 
870,497

Equity:
 
 
 
Share capital
151,653

 
152,313

Contributed surplus
29,794

 
23,198

Retained earnings
1,898,398

 
1,903,525

Accumulated other comprehensive income
15,321

 
40,611

Total equity attributable to shareholders of the Company
2,095,166

 
2,119,647

Total liabilities and equity
$
3,090,366

 
$
2,990,144


See accompanying notes to condensed interim consolidated financial statements.

 
QUARTERLY REPORT - Q2 2017 P.1


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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

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

 
Three months ended
 
 
Six months ended
 
 
July 2,
2017

 
July 3,
2016

 
July 2,
2017

 
July 3,
2016

Net sales
$
715,368

 
$
688,867

 
$
1,380,726

 
$
1,282,157

Cost of sales
502,102

 
499,835

 
978,714

 
936,755

Gross profit
213,266

 
189,032

 
402,012

 
345,402

Selling, general and administrative expenses
89,346

 
83,599

 
178,551

 
162,837

Restructuring and acquisition-related costs (note 7)
2,818

 
2,702

 
9,380

 
9,530

Operating income
121,102

 
102,731

 
214,081

 
173,035

Financial expenses, net (note 8(b))
7,559

 
3,006

 
12,283

 
7,876

Earnings before income taxes
113,543

 
99,725

 
201,798

 
165,159

Income tax expense
5,825

 
5,010

 
10,560

 
7,210

Net earnings
107,718

 
94,715

 
191,238

 
157,949

Other comprehensive income (loss), net of related income taxes (note 10):
 
 
 
 
 
 
 
Cash flow hedges
(19,950
)
 
23,866

 
(25,290
)
 
15,558

Comprehensive income
$
87,768

 
$
118,581

 
$
165,948

 
$
173,507

Earnings per share (note 11):
 
 
 
 
 
 
 
Basic
$
0.48

 
$
0.40

 
$
0.84

 
$
0.66

Diluted
$
0.48

 
$
0.40

 
$
0.84

 
$
0.66


See accompanying notes to condensed interim consolidated financial statements.


 
QUARTERLY REPORT - Q2 2017 P.2


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CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

GILDAN ACTIVEWEAR INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Six months ended July 2, 2017 and July 3, 2016
(in thousands or thousands of U.S. dollars) - unaudited

 
Share capital
 
Contributed
surplus

Accumulated
other
comprehensive
income (loss)
 
 
Retained
earnings

 
Total
equity

 
Number

Amount

 
 
 
Balance, January 1, 2017
230,218

$
152,313

 
$
23,198

 
$
40,611

 
$
1,903,525

 
$
2,119,647

Share-based compensation
—

—

 
7,972

 
—

 
—

 
7,972

Shares issued under employee share purchase plan
30

786

 
—

 
—

 
—

 
786

Shares issued pursuant to exercise of stock options
63

1,336

 
(467
)
 
—

 
—

 
869

Shares issued or distributed pursuant to vesting of restricted share units
84

1,136

 
(1,136
)
 
—

 
—

 
—

Shares repurchased for cancellation
(5,957
)
(3,918
)
 
—

 
—

 
(153,311
)
 
(157,229
)
Dividends declared
—

—

 
227

 
—

 
(43,054
)
 
(42,827
)
Transactions with shareholders of the Company recognized directly in equity
(5,780
)
(660
)
 
6,596

 
—

 
(196,365
)
 
(190,429
)
Cash flow hedges (note 10)
—

—

 
—

 
(25,290
)
 
—

 
(25,290
)
Net earnings
—

—

 
—

 
—

 
191,238

 
191,238

Comprehensive income (loss)
—

—

 
—

 
(25,290
)
 
191,238

 
165,948

Balance, July 2, 2017
224,438

$
151,653

 
$
29,794

 
$
15,321

 
$
1,898,398

 
$
2,095,166

Balance, January 3, 2016
243,572

$
150,497

 
$
14,007

 
$
1,093

 
$
2,022,846

 
$
2,188,443

Share-based compensation
—

—

 
7,822

 
—

 
—

 
7,822

Shares issued under employee share purchase plan
26

747

 
—

 
—

 
—

 
747

Shares issued pursuant to exercise of stock options
48

888

 
(315
)
 
—

 
—

 
573

Shares issued or distributed pursuant to vesting of restricted share units
29

548

 
(548
)
 
—

 
—

 
—

Shares repurchased for cancellation
(10,471
)
(6,506
)
 
—

 
—

 
(292,787
)
 
(299,293
)
Change in classification of non-Treasury RSUs to equity-settled
—

—

 
6,234

 
—

 
—

 
6,234

Dividends declared
—

—

 
186

 
—

 
(38,125
)
 
(37,939
)
Transactions with shareholders of the Company recognized directly in equity
(10,368
)
(4,323
)
 
13,379

 
—

 
(330,912
)
 
(321,856
)
Cash flow hedges (note 10)
—

—

 
—

 
15,558

 
—

 
15,558

Net earnings
—

—

 
—

 
—

 
157,949

 
157,949

Comprehensive income
—

—

 
—

 
15,558

 
157,949

 
173,507

Balance, July 3, 2016
233,204

$
146,174

 
$
27,386

 
$
16,651

 
$
1,849,883

 
$
2,040,094


See accompanying notes to condensed interim consolidated financial statements.


 
QUARTERLY REPORT - Q2 2017 P.3


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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
 
 
Six months ended
 
 
July 2,
2017

 
July 3,
2016

 
July 2,
2017

 
July 3,
2016

Cash flows from (used in) operating activities:
 
 
 
 
 
 
 
Net earnings
$
107,718

 
$
94,715

 
$
191,238

 
$
157,949

Adjustments to reconcile net earnings to cash flows from (used in) operating activities (note 12 (a))
48,317

 
49,493

 
91,324

 
90,997

 
156,035

 
144,208

 
282,562

 
248,946

Changes in non-cash working capital balances:
 
 
 
 
 
 
 
Trade accounts receivable
(2,315
)
 
(4,034
)
 
(81,787
)
 
(131,360
)
Income taxes
(5,849
)
 
(605
)
 
(2,768
)
 
205

Inventories
27,503

 
1,933

 
45,706

 
(8,612
)
Prepaid expenses, deposits and other current assets
(6,287
)
 
(4,492
)
 
(10,885
)
 
(6,101
)
Accounts payable and accrued liabilities
10,766

 
24,955

 
12,911

 
38,364

Cash flows from operating activities
179,853

 
161,965

 
245,739

 
141,442

 
 
 
 
 
 
 
 
Cash flows from (used in) investing activities:
 
 
 
 
 
 
 
Purchase of property, plant and equipment
(17,213
)
 
(31,286
)
 
(41,187
)
 
(63,115
)
Purchase of intangible assets
(574
)
 
(1,058
)
 
(1,344
)
 
(7,276
)
Business acquisitions (note 4)
(9,094
)
 
(109,478
)
 
(102,119
)
 
(109,478
)
Proceeds on disposal of property, plant and equipment
23

 
493

 
164

 
631

Cash flows used in investing activities
(26,858
)
 
(141,329
)
 
(144,486
)
 
(179,238
)
 
 
 
 
 
 
 
 
Cash flows from (used in) financing activities:
 
 
 
 
 
 
 
(Decrease) increase in amounts drawn under long-term bank credit facilities
(66,000
)
 
(146,010
)
 
105,000

 
63,000

Proceeds from term loan
—

 
300,000

 
—

 
300,000

Dividends paid
(21,277
)
 
(19,192
)
 
(42,827
)
 
(37,939
)
Proceeds from the issuance of shares
1,227

 
789

 
1,579

 
1,248

Repurchase and cancellation of shares
(78,606
)
 
(154,828
)
 
(157,229
)
 
(284,633
)
Cash flows from (used in) financing activities
(164,656
)
 
(19,241
)
 
(93,477
)
 
41,676

 
 
 
 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents denominated in foreign currencies
431

 
(274
)
 
846

 
16

(Decrease) increase in cash and cash equivalents during the period
(11,230
)
 
1,121

 
8,622

 
3,896

Cash and cash equivalents, beginning of period
58,049

 
53,450

 
38,197

 
50,675

Cash and cash equivalents, end of period
$
46,819

 
$
54,571

 
$
46,819

 
$
54,571

 
 
 
 
 
 
 
 
Cash paid during the period (included in cash flows from (used in) operating activities):
Interest
$
3,105

 
$
2,906

 
$
8,279

 
$
4,703

Income taxes, net of refunds
7,933

 
3,487

 
8,670

 
3,873


Supplemental disclosure of cash flow information (note 12)
See accompanying notes to condensed interim consolidated financial statements.

 
QUARTERLY REPORT - Q2 2017 P.4


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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the period ended July 2, 2017
(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, socks 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 condensed interim consolidated financial statements are as at and for the three and six months ended July 2, 2017 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 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”). The Company applied the same accounting policies in the preparation of these condensed interim consolidated financial statements as those disclosed in note 3 of its most recent annual consolidated financial statements. These condensed interim consolidated financial statements should be read in conjunction with the Company’s fiscal 2016 audited consolidated financial statements.

These condensed interim consolidated financial statements were authorized for issuance by the Board of Directors of the Company on August 2, 2017.

(b) Seasonality of the business:
The Company’s net sales are subject to seasonal variations within our operating segments. For our Printwear segment, net sales have historically been higher during the second quarter. For our Branded Apparel segment, net sales have historically been higher during the third and fourth quarters.

3. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET APPLIED:

Revenues from contracts with customers
In May 2014, the IASB released IFRS 15, Revenue from Contracts with Customers, which establishes principles for reporting and disclosing the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The core principle of IFRS 15 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods and services.

IFRS 15 provides a single model in order to depict the transfer of promised goods or services to customers, and supersedes IAS 11, Construction Contracts, IAS 18, Revenue, and a number of revenue-related interpretations (IFRIC 13, Customer Loyalty Programmes, IFRIC 15, Agreements for the Construction of Real Estate, IFRIC 18, Transfers of Assets from Customers, and SIC-31, Revenue - Barter Transactions Involving Advertising Services). IFRS 15 is effective for the Company’s fiscal year beginning on January 1, 2018, with earlier application permitted. The Company is currently evaluating the impact of the adoption of IFRS 15 on the consolidated financial statements, including the transition options. Based on a preliminary assessment, the Company does not expect that the adoption of IFRS 15 will have a material impact on its consolidated financial statements. The Company will finalize its assessment during fiscal 2017.









 
QUARTERLY REPORT - Q2 2017 P.5


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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


3. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET APPLIED (continued):

Financial Instruments
In July 2014, the IASB issued IFRS 9 (2014), Financial Instruments. IFRS 9 (2014) differs in some regards from IFRS 9 (2013) which the Company early adopted effective March 31, 2014. IFRS 9 (2014) includes updated guidance on the classification and measurement of financial assets. The final standard also amends the impairment model by introducing a new expected credit loss model for calculating impairment, and new general hedge accounting requirements. The mandatory effective date of IFRS 9 (2014) is for annual periods beginning on or after January 1, 2018 and must be applied retrospectively with some exemptions. Early adoption is permitted. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements. Based on a preliminary assessment, the Company does not expect that the adoption of IFRS 9 (2014) will have a material impact on its consolidated financial statements. The Company will finalize its assessment during fiscal 2017.

Leases
In January 2016, the IASB issued IFRS 16, Leases, which specifies how an entity will recognize, measure, present, and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless the lease term is twelve months or less, or the underlying asset has a low monetary value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17. IFRS 16 applies to annual reporting periods beginning on or after January 1, 2019, with earlier adoption permitted only if IFRS 15, Revenue from Contracts with Customers, has also been applied. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements, and expects that the majority of its operating leases will need to be recognized in its consolidated statement of financial position on initial adoption of IFRS 16.

Uncertain Income Tax Treatments
In June 2017, the IASB issued IFRIC 23, Uncertainty Over Income Tax Treatments, which clarifies how to apply the recognition and measurement requirements in IAS 12, Income Taxes, when there is uncertainty regarding income tax treatments. The Interpretation addresses whether an entity needs to consider uncertain tax treatments separately, the assumptions an entity should make about the examination of tax treatments by taxation authorities, how an entity should determine taxable profit and loss, tax bases, unused tax losses, unused tax credits and tax rates, and how an entity considers changes in facts and circumstances in such determinations. IFRIC 23 applies to annual reporting periods beginning on or after January 1, 2019, with earlier adoption permitted. The Company is currently evaluating the impact of the adoption of IFRIC 23 on the consolidated financial statements.

 
QUARTERLY REPORT - Q2 2017 P.6


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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


4. BUSINESS ACQUISITIONS:

American Apparel

On February 8, 2017, the Company acquired the American Apparel® brand and certain assets from American Apparel, LLC, (American Apparel), which filed for Chapter 11 bankruptcy protection on November 14, 2016. The acquisition was effected through a court supervised auction during which Gildan emerged as the successful bidder with a final cash bid of $88.0 million. In addition, the Company acquired inventory from American Apparel for $10.5 million. The total consideration transferred for this acquisition was therefore $98.5 million (of which $91.9 million was paid in fiscal 2017, and $6.6 million was paid in the fourth quarter of fiscal 2016). The acquisition was financed by the utilization of the Company's long-term bank credit facilities. The American Apparel® brand is a highly recognized brand among consumers and within the North American printwear channel, and is a strong complementary addition to Gildan’s growing brand portfolio. The acquisition provides the opportunity to grow American Apparel® sales by leveraging the Company’s extensive printwear distribution networks in North America and internationally to drive further market share penetration in the fashion basics category of these markets.

The Company accounted for this acquisition using the acquisition method in accordance with IFRS 3, Business Combinations. The Company has determined the fair value of the assets acquired based on management's preliminary best estimate of their fair values and taking into account all relevant information available at that time. The Company has not yet finalized the assessment of the estimated fair values of the assets acquired, which the Company expects to finalize by the end of fiscal 2017. Goodwill is attributable primarily to expected synergies, which were not recorded separately since they did not meet the recognition criteria for identifiable intangible assets. Goodwill recorded in connection with this acquisition is fully deductible for tax purposes. Results from the sale of products under the American Apparel® brand are included in the Printwear segment. The consolidated results of the Company for fiscal 2017 include net sales of $17.1 million and a net loss of $4.2 million (including restructuring and acquisition-related costs) relating to American Apparel since the date of acquisition.

The fair values attributed to the assets acquired were $10.5 million to inventories, $2.0 million to property, plant and equipment, $67.4 million to intangible assets, and $18.6 million to goodwill. The intangible assets acquired are comprised of trademarks in the amount of $51.4 million which are not being amortized as they are considered to be indefinite life intangible assets, and customer relationships in the amount of $16.0 million which are being amortized on a straight line basis over their estimated useful lives of ten years.
 
If the acquisition of American Apparel was accounted for on a pro forma basis as if it had occurred at the beginning of the Company’s fiscal year, the Company’s consolidated net sales and net earnings for the six months ended July 2, 2017 would have been $1,385.5 million and $190.2 million, respectively. These pro forma figures are based on estimated results of American Apparel's operations prior to being purchased by the Company, adjusted to reflect fair value adjustments which arose on the date of the acquisitions, as if the acquisition occurred on January 2, 2017, and should not be viewed as indicative of the Company’s future results.

Other

On April 4, 2017, the Company acquired a 100% interest in an Australian based activewear distributor for cash consideration of $6.0 million. The transaction also resulted in the effective settlement of $2.9 million of trade accounts receivable due to Gildan prior to the acquisition. On a preliminary basis, the fair values attributed to the assets acquired and liabilities assumed were $5.7 million to working capital and other assets, and $3.2 million to customer relationships which are being amortized on a straight line basis over their estimated useful lives. The net sales and net earnings attributable to this acquisition since April 4, 2017 are not significant.

5. INVENTORIES:
 
July 2,
2017

 
January 1,
2017

Raw materials and spare parts inventories
$
114,486

 
$
119,155

Work in progress
59,098

 
56,397

Finished goods
749,073

 
779,324

 
$
922,657

 
$
954,876



 
QUARTERLY REPORT - Q2 2017 P.7


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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


6. LONG-TERM DEBT:
 
Effective interest rate(1)
Principal amount
Maturity date
 
July 2,
2017

January 1,
2017

Revolving long-term bank credit facility, interest at variable U.S. LIBOR-based interest rate plus a spread ranging from 1% to 2%(2)
2.2%
$
9,000

$
—

April 2022
Revolving long-term bank credit facility, interest at variable U.S. LIBOR-based interest rate plus a spread ranging from 1% to 1.25%(3)
2.0%
96,000

—

March 2019
Term loan, interest at variable U.S. LIBOR-based interest rate plus a spread ranging from 1% to 2%(4)
2.1%
300,000

300,000

June 2021
Notes payable, interest at fixed rate of 2.70%, payable semi-annually(5)
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(5)
2.7%
50,000

50,000

August 2023
Notes payable, interest at fixed rate of 2.91%, payable semi-annually(5)
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(5)
2.9%
50,000

50,000

August 2026
 
 
$
705,000

$
600,000

 
(1)
Represents the effective interest rate for the six months ended July 2, 2017, 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 $14.0 million (January 1, 2017 - $19.0 million) has been committed against this facility to cover various letters of credit.
(3)
The Company's unsecured revolving long-term bank credit facility agreement of $300 million has a one year revolving period followed by a one year term-out period, and provides for an annual extension of the revolving period which is subject to the approval of the lenders. A fixed spread of 1.0% during the revolving period and 1.25% during the term-out period is added to the U.S. LIBOR-based variable interest rate.
(4)
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).
(5)
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 2017, the Company amended its unsecured revolving long-term bank credit facility of $1 billion to extend the maturity date from April 2021 to April 2022, and amended its unsecured revolving long-term bank credit facility agreement of $300 million to extend the maturity date from March 2018 to March 2019.

Under the terms of the revolving facilities, term loan facility, and notes, the Company is required to comply with certain covenants, including maintenance of financial ratios. The Company was in compliance with all covenants at July 2, 2017.

 
QUARTERLY REPORT - Q2 2017 P.8


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NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


7. RESTRUCTURING AND ACQUISITION-RELATED COSTS:
 
Three months ended
 
 
Six months ended
 
 
July 2,
2017

 
July 3,
2016

 
July 2,
2017

 
July 3,
2016

Employee termination and benefit costs
$
90

 
$
227

 
$
624

 
$
1,359

Exit, relocation and other costs
2,369

 
763

 
5,130

 
5,757

Loss on disposal of property, plant and equipment
—

 
5

 
—

 
623

Remeasurement of contingent consideration in connection with a business acquisition
—

 
221

 
—

 
305

Acquisition-related transaction costs
359

 
1,486

 
3,626

 
1,486

 
$
2,818

 
$
2,702

 
$
9,380

 
$
9,530


Restructuring and acquisition-related costs for the six months ended July 2, 2017 related primarily to transaction and integration costs incurred in connection with the American Apparel business acquisition, as well as costs for the completion of the integration of businesses acquired in previous years, involving consolidation of customer service, distribution, and administrative functions.

Restructuring and acquisition-related costs for the six months ended July 3, 2016 related primarily to costs incurred in connection with the rationalization of our retail store outlets as part of our overall direct-to-consumer channel strategy, and the completion of the integration of businesses acquired in previous years, involving consolidation of customer service, distribution, and administrative functions.

8. OTHER INFORMATION:

(a) Depreciation and amortization:
 
Three months ended
 
 
Six months ended
 
 
July 2,
2017

 
July 3,
2016

 
July 2,
2017

 
July 3,
2016

Depreciation of property, plant and equipment
$
33,591

 
$
30,050

 
$
67,675

 
$
59,892

Adjustment for the variation of depreciation of property, plant and equipment included in inventories at the beginning and end of the period
1,446

 
4,469

 
495

 
4,190

Depreciation of property, plant and equipment included in net earnings
35,037

 
34,519

 
68,170

 
64,082

Amortization of intangible assets, excluding software
5,315

 
4,366

 
10,329

 
8,709

Amortization of software
1,168

 
804

 
2,269

 
1,598

Depreciation and amortization included in net earnings
$
41,520

 
$
39,689

 
$
80,768

 
$
74,389


Property, plant and equipment includes $58.8 million (January 1, 2017 - $50.6 million) of assets under construction and/or not yet utilized in operations. Depreciation on these assets commences when the assets are available for use.


 
QUARTERLY REPORT - Q2 2017 P.9


image3.jpg
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


8. OTHER INFORMATION (continued):
(b) Financial expenses, net:
 
Three months ended
 
 
Six months ended
 
 
July 2,
2017

 
July 3,
2016

 
July 2,
2017

 
July 3,
2016

Interest expense on financial liabilities recorded at amortized cost(1)
$
4,721

 
$
2,971

 
$
8,380

 
$
4,837

Bank and other financial charges
1,912

 
1,098

 
3,845

 
2,096

Interest accretion on discounted provisions
77

 
84

 
154

 
167

Foreign exchange loss (gain)
849

 
(1,147
)
 
(96
)
 
776

 
$
7,559

 
$
3,006

 
$
12,283

 
$
7,876

(1) Net of capitalized borrowing costs of $0.3 million (2016 - nil) and $0.5 million (2016 - nil) respectively, for the three and six months ended July 2, 2017.

(c) Sales of trade accounts receivable:
As at July 2, 2017, trade accounts receivables being serviced under a receivables purchase agreement amounted to $97.0 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 26, 2018, 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 $0.4 million (2016 - $0.1 million) and $0.6 million (2016 - $0.1 million) respectively, for the three and six months ended July 2, 2017, and was recorded in bank and other financial charges.

9. FAIR VALUE MEASUREMENT:

Financial instruments – carrying amounts and fair values:
The carrying amounts and fair values of financial assets and liabilities included in the condensed interim consolidated statements of financial position are as follows:
 
July 2,
2017

 
January 1,
2017

Financial assets
 
 
 
Amortized cost:
 
 
 
Cash and cash equivalents
$
46,819

 
$
38,197

Trade accounts receivable
363,424

 
277,733

Financial assets included in prepaid expenses, deposits and other current assets
26,492

 
22,722

Long-term non-trade receivables included in other non-current assets
949

 
476

Derivative financial instruments designated as effective hedging instruments included in prepaid expenses, deposits and other current assets
13,261

 
32,572

Derivative financial instruments included in prepaid expenses, deposits and other current assets - total return swap
731

 
—

 
 
 
 
Financial liabilities
 
 
 
Amortized cost:
 
 
 
Accounts payable and accrued liabilities
$
245,697

 
$
231,927

Long-term debt - bearing interest at variable rates
505,000

 
400,000

Long-term debt - bearing interest at fixed rates(1)
200,000

 
200,000

Derivative financial instruments designated as effective hedging instruments included in accounts payable and accrued liabilities
5,576

 
1,515

Derivative financial instruments included in accounts payable and accrued liabilities
    - total return swap
—

 
620

(1)
The fair value of the long-term debt bearing interest at fixed rates was $196.8 million as at July 2, 2017.

 
QUARTERLY REPORT - Q2 2017 P.10


image3.jpg
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


9. 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.

Derivatives
The derivative financial instruments designated as effective hedging instruments consist of foreign exchange and commodity forward and 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 July 2, 2017, the notional amount of TRS outstanding was 245,854 shares.

The fair values of financial assets, financial liabilities, and derivative financial instruments were measured using Level 1 or 2 inputs in the fair value hierarchy. In determining the fair value of financial assets and financial liabilities, including derivative financial instruments, the Company takes into account its own credit risk and the credit risk of the counterparties.



 
QUARTERLY REPORT - Q2 2017 P.11


image3.jpg
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


10. OTHER COMPREHENSIVE INCOME (LOSS) (“OCI”):
Three months ended
 
 
Six months ended
 
 
July 2,
2017

 
July 3,
2016

 
July 2,
2017

 
July 3,
2016

Net (loss) gain on derivatives designated as cash flow hedges:
 
 
 
 
 
 
Foreign currency risk
$
(3,401
)
 
$
1,770

 
$
(2,365
)
 
$
(62
)
Commodity price risk
(815
)
 
21,817

 
7,483

 
15,696

Interest rate risk
(1,626
)
 
—

 
(1,236
)
 
—

 
 
 
 
 
 
 
 
Income taxes
34

 
(18
)
 
23

 
—

 
 
 
 
 
 
 
 
Amounts reclassified from OCI to inventory, related to commodity price risk
(15,078
)
 
162

 
(28,411
)
 
217

 
 
 
 
 
 
 
 
Amounts reclassified from OCI to net earnings, related to foreign currency risk, and included in:
 
 
 
 
 
 
 
Net sales
(329
)
 
1,289

 
(1,693
)
 
(113
)
Cost of sales
116

 
—

 
(75
)
 
—

Selling, general and administrative expenses
(259
)
 
(628
)
 
(607
)
 
(290
)
Financial expenses, net(1)
1,416

 
(525
)
 
1,582

 
107

Income taxes
(8
)
 
(1
)
 
9

 
3

Other comprehensive income (loss)
$
(19,950
)
 
$
23,866

 
$
(25,290
)
 
$
15,558

(1)
The amount reclassified from OCI to net earnings related to interest rate risk was not significant for the three and six months ended July 2, 2017.

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 and six months ended July 2, 2017.

The change in the forward element of derivatives designated as cash flow hedges to reduce foreign currency risk was not significant for the three and six months ended July 2, 2017.

No ineffectiveness has been recognized in net earnings for the three and six months ended July 2, 2017.

As at July 2, 2017, accumulated other comprehensive income of $15.3 million consisted of net deferred gains on commodity forward, option, and swap contracts of $5.0 million, net deferred gains on interest rate swap contracts of $10.4 million, and net deferred losses on forward foreign exchange contracts of $0.1 million. Approximately $5.4 million of net gains presented in accumulated other comprehensive income are expected to be reclassified to inventory or net earnings within the next twelve months.


 
QUARTERLY REPORT - Q2 2017 P.12


image3.jpg
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


11. EARNINGS PER SHARE:

Reconciliation between basic and diluted earnings per share is as follows:
 
Three months ended
 
 
Six months ended
 
 
July 2,
2017

 
July 3,
2016

 
July 2,
2017

 
July 3,
2016

Net earnings - basic and diluted
$
107,718

 
$
94,715

 
$
191,238

 
$
157,949

 
 
 
 
 
 
 
 
Basic earnings per share:
 
 
 
 
 
 
 
Basic weighted average number of common shares outstanding
225,331

 
235,496

 
227,528

 
239,067

Basic earnings per share
$
0.48

 
$
0.40

 
$
0.84

 
$
0.66

 
 
 
 
 
 
 
 
Diluted earnings per share:
 
 
 
 
 
 
 
Basic weighted average number of common shares outstanding
225,331

 
235,496

 
227,528

 
239,067

Plus dilutive impact of stock options, Treasury RSUs and common shares held in trust
530

 
776

 
492

 
747

Diluted weighted average number of common shares outstanding
225,861

 
236,272

 
228,020

 
239,814

Diluted earnings per share
$
0.48

 
$
0.40

 
$
0.84

 
$
0.66


Excluded from the above calculation for the three months ended July 2, 2017 are 858,153 stock options (2016 - 858,153) which were deemed to be anti-dilutive. Excluded from the above calculation for the six months ended July 2, 2017 are 1,572,273 stock options (2016 - 858,153) and nil Treasury RSUs (2016 - 61,919) which were deemed to be anti-dilutive.

12. SUPPLEMENTAL CASH FLOW DISCLOSURE:

(a) Adjustments to reconcile net earnings to cash flows from operating activities:
 
Three months ended
 
 
Six months ended
 
 
July 2,
2017

 
July 3,
2016

 
July 2,
2017

 
July 3,
2016

Depreciation and amortization (note 8(a))
$
41,520

 
$
39,689

 
$
80,768

 
$
74,389

Restructuring charges related to property, plant and equipment (note 7)
—

 
5

 
—

 
623

Loss on remeasurement of contingent consideration in connection with a business acquisition (note 7)
—

 
221

 
—

 
305

Loss on disposal of property, plant and equipment and intangible assets
19

 
1,679

 
231

 
1,749

Share-based compensation
3,886

 
3,932

 
8,048

 
7,894

Deferred income taxes
3,550

 
1,901

 
4,351

 
2,868

Unrealized net loss on foreign exchange and financial derivatives
923

 
1,379

 
40

 
1,474

Timing differences between settlement of financial derivatives and transfer of deferred gains and losses in accumulated OCI to net earnings
(1,189
)
 
3,213

 
(3,668
)
 
3,315

Other non-current assets
463

 
360

 
108

 
(1,293
)
Other non-current liabilities
(855
)
 
(2,886
)
 
1,446

 
(327
)
 
$
48,317

 
$
49,493

 
$
91,324

 
$
90,997




 
QUARTERLY REPORT - Q2 2017 P.13


image3.jpg
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


12. SUPPLEMENTAL CASH FLOW DISCLOSURE (continued):

(b) Variations in non-cash transactions:
 
Three months ended
 
 
Six months ended
 
 
July 2,
2017

 
July 3,
2016

 
July 2,
2017

 
July 3,
2016

Shares repurchased for cancellation
$
10,629

 
$
(4,356
)
 
$
—

 
$
(14,660
)
 Change in classification of non-Treasury RSUs to equity-settled
—

 
—

 
—

 
6,234

Additions to property, plant and equipment and intangible assets included in accounts payable and accrued liabilities
(154
)
 
2,217

 
275

 
(3,012
)
Proceeds on disposal of property, plant and equipment included in other current assets
—

 
(523
)
 
—

 
(523
)
Balance due on business acquisition
303

 
—

 
1,388

 
—

Non-cash ascribed value credited to contributed surplus for dividends attributed to Treasury RSUs
227

 
186

 
227

 
186

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
1,603

 
661

 
1,603

 
863


13. 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.

14. SEGMENT INFORMATION:

The Company manages and reports its business as two operating segments, Printwear and Branded Apparel, each of which is a reportable segment for financial reporting purposes. Each segment has its own management that is accountable and responsible for the segment’s operations, results and financial performance. These segments are principally organized by the major customer markets they serve. The following summary describes the operations of each of the Company’s operating segments:

Printwear: The Printwear segment, headquartered in Christ Church, Barbados, designs, manufactures, sources, markets, and distributes undecorated activewear products in large quantities primarily to wholesale distributors in printwear markets in over 55 countries across North America, Europe, Asia-Pacific, and Latin America.

Branded Apparel: The Branded Apparel segment, headquartered in Charleston, South Carolina, designs, manufactures, sources, markets, and distributes branded family apparel, including athletic, casual and dress socks, underwear, activewear, sheer hosiery, legwear, and shapewear products, primarily to retailers in the United States and Canada.

The chief operating decision-maker assesses segment performance based on segment operating income which is defined as operating income before corporate head office expenses, restructuring and acquisition-related costs, and amortization of intangible assets, excluding software. The accounting policies of the segments are the same as those described in note 3 of the Company’s 2016 audited annual consolidated financial statements.


 
QUARTERLY REPORT - Q2 2017 P.14


image3.jpg
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


14. SEGMENT INFORMATION (continued):

 
Three months ended
 
 
Six months ended
 
 
July 2,
2017

 
July 3,
2016

 
July 2,
2017

 
July 3,
2016

Segmented net sales:
 
 
 
 
 
 
 
Printwear
$
480,068

 
$
471,242

 
$
925,684

 
$
863,377

Branded Apparel
235,300

 
217,625

 
455,042

 
418,780

Total net sales
$
715,368

 
$
688,867

 
$
1,380,726

 
$
1,282,157

 
 
 
 
 
 
 
 
Segment operating income:
 
 
 
 
 
 
 
Printwear
$
122,073

 
$
110,965

 
$
227,995

 
$
196,127

Branded Apparel
25,950

 
17,078

 
44,511

 
31,938

Total segment operating income
$
148,023

 
$
128,043

 
$
272,506

 
$
228,065

 
 
 
 
 
 
 
 
Reconciliation to consolidated earnings before income taxes:
 
 
 
 
 
 
Total segment operating income
$
148,023

 
$
128,043

 
$
272,506

 
$
228,065

Amortization of intangible assets, excluding software
(5,315
)
 
(4,366
)
 
(10,329
)
 
(8,709
)
Corporate expenses
(18,788
)
 
(18,244
)
 
(38,716
)
 
(36,791
)
Restructuring and acquisition-related costs
(2,818
)
 
(2,702
)
 
(9,380
)
 
(9,530
)
Financial expenses, net
(7,559
)
 
(3,006
)
 
(12,283
)
 
(7,876
)
Earnings before income taxes
$
113,543

 
$
99,725

 
$
201,798

 
$
165,159


 
QUARTERLY REPORT - Q2 2017 P.15