EX-99.2 3 exhibit992q32017interimfs.htm EXHIBIT 99.2

Exhibit

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

GILDAN ACTIVEWEAR INC.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in thousands of U.S. dollars) - unaudited

	October 1, 2017				January 1, 2017
Current assets:
Cash and cash equivalents	$	47,172			$	38,197
Trade accounts receivable	359,626				277,733
Inventories (note 5)	939,428				954,876
Prepaid expenses, deposits and other current assets	65,266				69,719
Total current assets	1,411,492				1,340,525
Non-current assets:
Property, plant and equipment	1,038,490				1,076,883
Intangible assets	406,846				354,221
Goodwill	225,704				202,108
Deferred income taxes	—				1,500
Other non-current assets	7,855				14,907
Total non-current assets	1,678,895				1,649,619
Total assets	$	3,090,387			$	2,990,144
Current liabilities:
Accounts payable and accrued liabilities	$	274,615			$	234,062
Income taxes payable	528				1,866
Total current liabilities	275,143				235,928
Non-current liabilities:
Long-term debt (note 6)	705,000				600,000
Deferred income taxes	2,095				—
Other non-current liabilities	38,947				34,569
Total non-current liabilities	746,042				634,569
Total liabilities	1,021,185				870,497
Equity:
Share capital	150,226				152,313
Contributed surplus	32,982				23,198
Retained earnings	1,876,201				1,903,525
Accumulated other comprehensive income	9,793				40,611
Total equity attributable to shareholders of the Company	2,069,202				2,119,647
Total liabilities and equity	$	3,090,387			$	2,990,144

See accompanying notes to condensed interim consolidated financial statements.

QUARTERLY REPORT - Q3 2017 P.1

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								Nine months ended
	October 1, 2017				October 2, 2016				October 1, 2017				October 2, 2016
Net sales	$	716,395			$	715,026			$	2,097,121			$	1,997,183
Cost of sales	494,159				497,587				1,472,873				1,434,342
Gross profit	222,236				217,439				624,248				562,841
Selling, general and administrative expenses	94,842				86,812				273,393				249,649
Restructuring and acquisition-related costs (note 7)	2,491				1,981				11,871				11,511
Operating income	124,903				128,646				338,984				301,681
Financial expenses, net (note 8(b))	6,015				5,962				18,298				13,838
Earnings before income taxes	118,888				122,684				320,686				287,843
Income tax expense	2,741				8,286				13,301				15,496
Net earnings	116,147				114,398				307,385				272,347
Other comprehensive income (loss), net of related income taxes (note 10):
Cash flow hedges	(5,528		)		8,186				(30,818		)		23,744
Comprehensive income	$	110,619			$	122,584			$	276,567			$	296,091
Earnings per share (note 11):
Basic	$	0.52			$	0.49			$	1.36			$	1.15
Diluted	$	0.52			$	0.49			$	1.36			$	1.15

See accompanying notes to condensed interim consolidated financial statements.

QUARTERLY REPORT - Q3 2017 P.2

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

GILDAN ACTIVEWEAR INC.

CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Nine months ended October 1, 2017 and October 2, 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	—		—				11,806				—				—				11,806
Shares issued under employee share purchase plan	45		1,234				—				—				—				1,234
Shares issued pursuant to exercise of stock options	63		1,336				(467		)		—				—				869
Shares issued or distributed pursuant to vesting of restricted share units	136		1,887				(1,887		)		—				—				—
Shares repurchased for cancellation	(9,830	)	(6,544		)		—				—				(270,012		)		(276,556		)
Dividends declared	—		—				332				—				(64,697		)		(64,365		)
Transactions with shareholders of the Company recognized directly in equity	(9,586	)	(2,087		)		9,784				—				(334,709		)		(327,012		)
Cash flow hedges (note 10)	—		—				—				(30,818		)		—				(30,818		)
Net earnings	—		—				—				—				307,385				307,385
Comprehensive income (loss)	—		—				—				(30,818		)		307,385				276,567
Balance, October 1, 2017	220,632		$	150,226			$	32,982			$	9,793			$	1,876,201			$	2,069,202
Balance, January 3, 2016	243,572		$	150,497			$	14,007			$	1,093			$	2,022,846			$	2,188,443
Share-based compensation	—		—				11,778				—				—				11,778
Shares issued under employee share purchase plan	40		1,161				—				—				—				1,161
Shares issued pursuant to exercise of stock options	66		1,098				(389		)		—				—				709
Shares issued or distributed pursuant to vesting of restricted share units	282		7,470				(12,023		)		—				(143		)		(4,696		)
Shares repurchased for cancellation	(12,193	)	(7,584		)		—				—				(344,051		)		(351,635		)
Change in classification of non-Treasury RSUs to equity-settled	—		—				6,234				—				—				6,234
Dividends declared	—		—				275				—				(56,266		)		(55,991		)
Transactions with shareholders of the Company recognized directly in equity	(11,805	)	2,145				5,875				—				(400,460		)		(392,440		)
Cash flow hedges (note 10)	—		—				—				23,744				—				23,744
Net earnings	—		—				—				—				272,347				272,347
Comprehensive income	—		—				—				23,744				272,347				296,091
Balance, October 2, 2016	231,767		$	152,642			$	19,882			$	24,837			$	1,894,733			$	2,092,094

See accompanying notes to condensed interim consolidated financial statements.

QUARTERLY REPORT - Q3 2017 P.3

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								Nine months ended
	October 1, 2017				October 2, 2016				October 1, 2017				October 2, 2016
Cash flows from (used in) operating activities:
Net earnings	$	116,147			$	114,398			$	307,385			$	272,347
Adjustments to reconcile net earnings to cash flows from (used in) operating activities (note 12 (a))	40,081				40,158				131,405				131,155
	156,228				154,556				438,790				403,502
Changes in non-cash working capital balances:
Trade accounts receivable	5,053				63,437				(76,734		)		(67,923		)
Income taxes	1,743				6,059				(1,025		)		6,264
Inventories	(12,354		)		770				33,352				(7,842		)
Prepaid expenses, deposits and other current assets	559				4,036				(10,326		)		(2,065		)
Accounts payable and accrued liabilities	17,258				(3,038		)		30,169				35,326
Cash flows from operating activities	168,487				225,820				414,226				367,262
Cash flows from (used in) investing activities:
Purchase of property, plant and equipment	(17,885		)		(39,716		)		(59,072		)		(102,831		)
Purchase of intangible assets	(770		)		(1,265		)		(2,114		)		(8,541		)
Business acquisitions (note 4)	(13,441		)		(47,357		)		(115,560		)		(156,835		)
Proceeds on disposal of property, plant and equipment	111				—				275				631
Cash flows used in investing activities	(31,985		)		(88,338		)		(176,471		)		(267,576		)
Cash flows from (used in) financing activities:
(Decrease) increase in amounts drawn under long-term bank credit facilities	—				(347,000		)		105,000				(284,000		)
Proceeds from term loan	—				—				—				300,000
Proceeds from issuance of notes	—				300,000				—				300,000
Dividends paid	(21,538		)		(18,052		)		(64,365		)		(55,991		)
Proceeds from the issuance of shares	405				509				1,984				1,757
Repurchase and cancellation of shares	(115,214		)		(67,002		)		(272,443		)		(351,635		)
Cash flows used in financing activities	(136,347		)		(131,545		)		(229,824		)		(89,869		)
Effect of exchange rate changes on cash and cash equivalents denominated in foreign currencies	198				(66		)		1,044				(50		)
Increase in cash and cash equivalents during the period	353				5,871				8,975				9,767
Cash and cash equivalents, beginning of period	46,819				54,571				38,197				50,675
Cash and cash equivalents, end of period	$	47,172			$	60,442			$	47,172			$	60,442
Cash paid during the period (included in cash flows from (used in) operating activities):
Interest	$	5,502			$	3,191			$	13,781			$	7,894
Income taxes, net of refunds	1,291				865				9,961				4,738

Supplemental disclosure of cash flow information (note 12)

See accompanying notes to condensed interim consolidated financial statements.

QUARTERLY REPORT - Q3 2017 P.4

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the period ended October 1, 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 nine months ended October 1, 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 November 1, 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). The standard prescribes a five-step approach to revenue recognition: (1) identify the contracts with the customer; (2) identify the separate performance obligations in the contracts; (3) determine the transaction price; (4) allocate the transaction price to separate performance obligations; and (5) recognize revenue when, or as, each performance obligation is satisfied. New disclosures about the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers are also required. IFRS 15 will be effective for the Company’s fiscal year beginning on January 1, 2018, and can be applied retrospectively to each prior reporting period presented (full retrospective method) or retrospectively with the cumulative effect of initially applying the standard recognized as an adjustment to opening retained earnings at the date of initial adoption (modified retrospective method). Upon transition, an entity can elect to apply IFRS 15 with or without certain practical expedients.

QUARTERLY REPORT - Q3 2017 P.5

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

Revenues from contracts with customers (continued)

The majority of the Company’s contracts with customers are contracts in which the sale of finished products is generally expected to be the only performance obligation. The Company expects the revenue recognition to occur at a point in time when control of the asset is transferred to the customer, generally upon shipment of products to customers, consistent with its current practice.

Some contracts with customers provide customer programs and incentive offerings, including discounts, promotions, advertising allowances, and other volume-based incentives. Currently, the Company recognizes revenue from the sale of goods measured at the fair value of the consideration received or receivable, net of provisions for customer incentives and for sales returns. Such provisions give rise to variable consideration under IFRS 15, which is also estimated at contract inception. The Company does not expect any significant changes to its revenue recognition practices from this guidance under IFRS 15.

The Company continues to review the new standard against its existing accounting policies and practices, including reviewing standard purchase orders, invoices, shipping terms, and contracts with customers within its significant revenue streams in order to assess any terms that can represent additional performance obligations and to evaluate transaction price considerations. While the Company’s final evaluation has not been completed, the Company does not expect the new guidance to have a material impact on recognition and amounts in its consolidated financial statements. The Company also continues to assess the overall impact on the Company’s disclosures and is addressing any system and process changes necessary to compile the information to meet the recognition and disclosure requirements of the new guidance. The Company expects to adopt the new standard in the first quarter of 2018 using the modified retrospective transition method.

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. The Company does not expect that the adoption of IFRS 9 (2014) will have a material impact on its consolidated financial statements.

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 upon 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 - Q3 2017 P.6

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. The Company also acquired inventory from American Apparel for approximately $11.0 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 primarily attributable 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 $32.5 million and a net loss of $3.7 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 $11.2 million to inventories, $2.0 million to property, plant and equipment, $67.4 million to intangible assets, and $17.9 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 nine months ended October 1, 2017 would have been $2,101.9 million and $306.3 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 acquisition, as if the acquisition occurred on January 2, 2017, and should not be viewed as indicative of the Company’s future results.

Other

On July 17, 2017, the Company acquired substantially all of the assets of a ring-spun yarn manufacturer with two facilities located in Columbus, Georgia for cash consideration of $13.5 million, including a balance due of $1.3 million to be paid within eighteen months of closing. The transaction also resulted in the effective settlement of $1.1 million of trade accounts payable owing by Gildan to the manufacturer prior to the acquisition. On a preliminary basis, the fair values attributed to the assets acquired and liabilities assumed were $4.2 million to working capital, $2.8 million to plant and equipment, and $5.4 million to goodwill. Goodwill is attributable primarily to the assembled workforce and was not recorded separately since it did not meet the recognition criteria for identifiable intangible assets. Goodwill recorded in connection with this acquisition is fully deductible for tax purposes. The net sales and net earnings attributable to this acquisition since July 17, 2017 were not significant.

On April 4, 2017, the Company acquired a 100% interest in an Australian based activewear distributor for cash consideration of $5.7 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 $5.6 million to working capital and other assets, and $3.0 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 were not significant.

QUARTERLY REPORT - Q3 2017 P.7

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

5. INVENTORIES:

	October 1, 2017				January 1, 2017
Raw materials and spare parts inventories	$	117,601			$	119,155
Work in progress	56,195				56,397
Finished goods	765,632				779,324
	$	939,428			$	954,876

6. LONG-TERM DEBT:

	Effective interest rate(1)	Principal amount						Maturity date
		October 1, 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%	$	11,000		$	—		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)	2.1%	94,000			—			March 2019
Term loan, interest at variable U.S. LIBOR-based interest rate plus a spread ranging from 1% to 2%(4)	2.2%	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 nine months ended October 1, 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 $13.8 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 October 1, 2017.

QUARTERLY REPORT - Q3 2017 P.8

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

7. RESTRUCTURING AND ACQUISITION-RELATED COSTS:

	Three months ended								Nine months ended
	October 1, 2017				October 2, 2016				October 1, 2017				October 2, 2016
Employee termination and benefit costs	$	64			$	514			$	688			$	1,873
Exit, relocation and other costs	2,230				32				7,360				5,789
Loss on disposal of property, plant and equipment	—				—				—				623
Remeasurement of contingent consideration in connection with a business acquisition	—				228				—				533
Acquisition-related transaction costs	197				1,207				3,823				2,693
	$	2,491			$	1,981			$	11,871			$	11,511

Restructuring and acquisition-related costs for the nine months ended October 1, 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 nine months ended October 2, 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, costs incurred in connection with the acquisitions of Alstyle and Peds, and costs for 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								Nine months ended
	October 1, 2017				October 2, 2016				October 1, 2017				October 2, 2016
Depreciation of property, plant and equipment	$	33,404			$	32,036			$	101,079			$	91,928
Adjustment for the variation of depreciation of property, plant and equipment included in inventories at the beginning and end of the period	281				(3,929		)		776				261
Depreciation of property, plant and equipment included in net earnings	33,685				28,107				101,855				92,189
Amortization of intangible assets, excluding software	5,421				4,684				15,750				13,393
Amortization of software	1,300				804				3,569				2,402
Depreciation and amortization included in net earnings	$	40,406			$	33,595			$	121,174			$	107,984

Property, plant and equipment includes $63.9 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 - Q3 2017 P.9

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

8. OTHER INFORMATION (continued):

(b) Financial expenses, net:

	Three months ended								Nine months ended
	October 1, 2017				October 2, 2016				October 1, 2017				October 2, 2016
Interest expense on financial liabilities recorded at amortized cost(1)	$	4,256			$	3,815			$	12,636			$	8,652
Bank and other financial charges	2,011				2,227				5,856				4,323
Interest accretion on discounted provisions	78				84				232				251
Foreign exchange loss (gain)	(330		)		(164		)		(426		)		612
	$	6,015			$	5,962			$	18,298			$	13,838

(1) Net of capitalized borrowing costs of $0.3 million (2016 - nil) and $0.8 million (2016 - nil) respectively, for the three and nine months ended October 1, 2017.

(c) Sales of trade accounts receivable:

As at October 1, 2017, trade accounts receivables being serviced under a receivables purchase agreement amounted to $101.5 million (January 1, 2017 - $80.5 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 $0.5 million (2016 - $0.2 million) and $1.1 million (2016 - $0.3 million), respectively, for the three and nine months ended October 1, 2017, and was recorded in bank and other financial charges.

(d) Amendment of normal course issuer bid:

On November 1, 2017, the Company obtained approval from the Toronto Stock Exchange ("TSX") to amend its current normal course issuer bid program ("NCIB") in order to increase the maximum number of common shares that may be repurchased from 11,512,267 common shares, or 5% of the Company’s issued and outstanding common shares as at February 17, 2017 (the reference date for the NCIB), to 16,117,175 common shares, representing approximately 7.2% of the public float (or 7% of the Company’s issued and outstanding common shares) as at February 17, 2017. No other terms of the NCIB have been amended.

QUARTERLY REPORT - Q3 2017 P.10

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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:

	October 1, 2017				January 1, 2017
Financial assets
Amortized cost:
Cash and cash equivalents	$	47,172			$	38,197
Trade accounts receivable	359,626				277,733
Financial assets included in prepaid expenses, deposits and other current assets	29,758				22,722
Long-term non-trade receivables included in other non-current assets	830				476
Derivative financial instruments designated as effective hedging instruments included in prepaid expenses, deposits and other current assets	13,722				32,572
Derivative financial instruments included in prepaid expenses, deposits and other current assets - total return swap	870				—
Financial liabilities
Amortized cost:
Accounts payable and accrued liabilities	$	269,168			$	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	5,447				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 $196.6 million as at October 1, 2017.

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, 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.

QUARTERLY REPORT - Q3 2017 P.11

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

9. FAIR VALUE MEASUREMENT (continued):

Derivatives (continued)

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 October 1, 2017, the notional amount of TRS outstanding was 248,216 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.

10. OTHER COMPREHENSIVE INCOME (LOSS) (“OCI”):

Three months ended									Nine months ended
	October 1, 2017				October 2, 2016				October 1, 2017				October 2, 2016
Net (loss) gain on derivatives designated as cash flow hedges:
Foreign currency risk	$	(3,014	)		$	204			$	(5,379	)		$	142
Commodity price risk	2,028				9,287				9,511				24,983
Interest rate risk	(119		)		626				(1,355		)		626
Income taxes	30				(2		)		53				(2		)
Amounts reclassified from OCI to inventory, related to commodity price risk	(5,105		)		(1,701		)		(33,516		)		(1,484		)
Amounts reclassified from OCI to net earnings, related to foreign currency risk, and included in:
Net sales	2,034				688				341				575
Cost of sales	(684		)		—				(759		)		—
Selling, general and administrative expenses	(842		)		(434		)		(1,449		)		(724		)
Financial expenses, net(1)	158				(484		)		1,740				(377		)
Income taxes	(14		)		2				(5		)		5
Other comprehensive income (loss)	$	(5,528	)		$	8,186			$	(30,818	)		$	23,744

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

No ineffectiveness has been recognized in net earnings for the three and nine months ended October 1, 2017.

As at October 1, 2017, accumulated other comprehensive income of $9.8 million consisted of net deferred gains on commodity forward, option, and swap contracts of $1.0 million, net deferred gains on interest rate swap contracts of $10.3 million, and net deferred losses on forward foreign exchange contracts of $1.5 million. Approximately $0.2 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 - Q3 2017 P.12

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								Nine months ended
	October 1, 2017				October 2, 2016				October 1, 2017				October 2, 2016
Net earnings - basic and diluted	$	116,147			$	114,398			$	307,385			$	272,347
Basic earnings per share:
Basic weighted average number of common shares outstanding	223,514				231,924				226,191				236,686
Basic earnings per share	$	0.52			$	0.49			$	1.36			$	1.15
Diluted earnings per share:
Basic weighted average number of common shares outstanding	223,514				231,924				226,191				236,686
Plus dilutive impact of stock options, Treasury RSUs and common shares held in trust	464				791				476				765
Diluted weighted average number of common shares outstanding	223,978				232,715				226,667				237,451
Diluted earnings per share	$	0.52			$	0.49			$	1.36			$	1.15

Excluded from the above calculation for the three months ended October 1, 2017 are 858,153 stock options (2016 - 858,153) and nil Treasury RSUs (2016 - 7,500) which were deemed to be anti-dilutive. Excluded from the above calculation for the nine months ended October 1, 2017 are 1,572,273 stock options (2016 - 858,153) and nil Treasury RSUs (2016 - 7,500) 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								Nine months ended
	October 1, 2017				October 2, 2016				October 1, 2017				October 2, 2016
Depreciation and amortization (note 8(a))	$	40,406			$	33,595			$	121,174			$	107,984
Restructuring charges related to property, plant and equipment (note 7)	—				—				—				623
Loss on remeasurement of contingent consideration in connection with a business acquisition (note 7)	—				228				—				533
Loss on disposal of property, plant and equipment and intangible assets	320				467				551				2,216
Share-based compensation	3,877				3,997				11,925				11,891
Deferred income taxes	(720		)		1,781				3,631				4,649
Unrealized net loss (gain) on foreign exchange and financial derivatives	(335		)		(146		)		(295		)		1,328
Timing differences between settlement of financial derivatives and transfer of deferred gains and losses in accumulated OCI to net earnings	(6,489		)		(128		)		(10,157		)		3,187
Other non-current assets	344				(1,301		)		452				(2,594		)
Other non-current liabilities	2,678				1,665				4,124				1,338
	$	40,081			$	40,158			$	131,405			$	131,155

QUARTERLY REPORT - Q3 2017 P.13

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

12. SUPPLEMENTAL CASH FLOW DISCLOSURE (continued):

(b) Variations in non-cash transactions:

	Three months ended								Nine months ended
	October 1, 2017				October 2, 2016				October 1, 2017				October 2, 2016
Shares repurchased for cancellation	$	(4,113	)		$	14,660			$	(4,113	)		$	—
Change in classification of non-Treasury RSUs to equity-settled	—				—				—				6,234
Withholding taxes payable pursuant to the settlement of non-Treasury RSUs	—				(4,696		)		—				(4,696		)
Additions to property, plant and equipment and intangible assets included in accounts payable and accrued liabilities	(1,080		)		(5,535		)		(805		)		(8,547		)
Proceeds on disposal of property, plant and equipment included in other current assets	36				(144		)		36				(667		)
Balance due on business acquisitions	1,312				(4,000		)		2,700				(4,000		)
Reclassification of contingent consideration from other non-current liabilities to accounts payable and accrued liabilities	—				(6,886		)		—				(6,886		)
Non-cash ascribed value credited to contributed surplus for dividends attributed to Treasury RSUs	105				89				332				275
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	751				6,996				2,354				7,859

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 - Q3 2017 P.14

NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

14. SEGMENT INFORMATION (continued):

	Three months ended								Nine months ended
	October 1, 2017				October 2, 2016				October 1, 2017				October 2, 2016
Segmented net sales:
Printwear	$	480,702			$	461,904			$	1,406,386			$	1,325,281
Branded Apparel	235,693				253,122				690,735				671,902
Total net sales	$	716,395			$	715,026			$	2,097,121			$	1,997,183
Segment operating income:
Printwear	$	127,473			$	123,356			$	355,468			$	319,483
Branded Apparel	25,268				29,548				69,779				61,486
Total segment operating income	$	152,741			$	152,904			$	425,247			$	380,969
Reconciliation to consolidated earnings before income taxes:
Total segment operating income	$	152,741			$	152,904			$	425,247			$	380,969
Amortization of intangible assets, excluding software	(5,421		)		(4,684		)		(15,750		)		(13,393		)
Corporate expenses	(19,926		)		(17,593		)		(58,642		)		(54,384		)
Restructuring and acquisition-related costs	(2,491		)		(1,981		)		(11,871		)		(11,511		)
Financial expenses, net	(6,015		)		(5,962		)		(18,298		)		(13,838		)
Earnings before income taxes	$	118,888			$	122,684			$	320,686			$	287,843

QUARTERLY REPORT - Q3 2017 P.15