Canada Goose Holdings Inc.
Condensed Consolidated Interim Financial Statements
As at and for the first quarter ended
June 27, 2021 and June 28, 2020
(Unaudited)
Condensed Consolidated Interim Statements of Loss and Comprehensive Loss
(unaudited)
(in millions of Canadian dollars, except per share amounts)
First quarter ended | |||||||||||||||||
Notes | June 27, 2021 | June 28, 2020 | |||||||||||||||
$ | $ | ||||||||||||||||
Revenue | 3 | 56.3 | 26.1 | ||||||||||||||
Cost of sales | 6 | 25.6 | 21.3 | ||||||||||||||
Gross profit | 30.7 | 4.8 | |||||||||||||||
Selling, general & administrative expenses | 71.6 | 48.6 | |||||||||||||||
Depreciation and amortization | 19.8 | 15.5 | |||||||||||||||
Operating loss | (60.7) | (59.3) | |||||||||||||||
Net interest, finance and other costs | 10 | 16.5 | 6.7 | ||||||||||||||
Loss before income taxes | (77.2) | (66.0) | |||||||||||||||
Income tax recovery | (20.5) | (15.9) | |||||||||||||||
Net loss | (56.7) | (50.1) | |||||||||||||||
Other comprehensive (loss) income | |||||||||||||||||
Items that may be reclassified to earnings, net of tax: | |||||||||||||||||
Cumulative translation adjustment loss | (1.9) | (1.6) | |||||||||||||||
Net gain on derivatives designated as cash flow hedges | 15 | 0.1 | 0.1 | ||||||||||||||
Reclassification of net loss on cash flow hedges to income | 15 | 0.1 | 1.9 | ||||||||||||||
Net gain on derivatives designated as a net investment hedge | 15 | — | 1.6 | ||||||||||||||
Other comprehensive (loss) income | (1.7) | 2.0 | |||||||||||||||
Comprehensive loss | (58.4) | (48.1) | |||||||||||||||
Loss per share | |||||||||||||||||
Basic and diluted | 4 | $ | (0.51) | $ | (0.46) | ||||||||||||
The accompanying notes to the condensed consolidated interim financial statements are an integral part of these financial statements.
Canada Goose Holdings Inc. | Page 1 of 27 |
Condensed Consolidated Interim Statements of Financial Position
(unaudited)
(in millions of Canadian dollars)
Notes | June 27, 2021 | June 28, 2020 | March 28, 2021 | |||||||||||
Assets | $ | $ | $ | |||||||||||
Current assets | ||||||||||||||
Cash | 305.9 | 160.1 | 477.9 | |||||||||||
Trade receivables | 5 | 39.2 | 28.2 | 40.9 | ||||||||||
Inventories | 6 | 404.5 | 428.6 | 342.3 | ||||||||||
Income taxes receivable | 6.6 | 11.9 | 4.8 | |||||||||||
Other current assets | 14 | 34.4 | 40.6 | 31.0 | ||||||||||
Total current assets | 790.6 | 669.4 | 896.9 | |||||||||||
Deferred income taxes | 60.1 | 53.5 | 46.9 | |||||||||||
Property, plant and equipment | 119.9 | 115.0 | 116.5 | |||||||||||
Intangible assets | 155.5 | 159.5 | 155.0 | |||||||||||
Right-of-use assets | 7 | 240.8 | 211.7 | 233.7 | ||||||||||
Goodwill | 53.1 | 53.1 | 53.1 | |||||||||||
Other long-term assets | 14 | 4.4 | 2.2 | 5.1 | ||||||||||
Total assets | 1,424.4 | 1,264.4 | 1,507.2 | |||||||||||
Liabilities | ||||||||||||||
Current liabilities | ||||||||||||||
Accounts payable and accrued liabilities | 8, 14 | 149.6 | 134.8 | 177.8 | ||||||||||
Provisions | 9 | 13.4 | 10.8 | 20.0 | ||||||||||
Income taxes payable | 10.4 | 11.7 | 19.1 | |||||||||||
Short-term borrowings | 10 | 10.9 | 2.6 | — | ||||||||||
Current portion of lease liabilities | 7 | 49.6 | 37.8 | 45.2 | ||||||||||
Total current liabilities | 233.9 | 197.7 | 262.1 | |||||||||||
Provisions | 9 | 25.4 | 21.8 | 25.6 | ||||||||||
Deferred income taxes | 14.2 | 13.1 | 21.6 | |||||||||||
Revolving facility | 10 | — | 207.9 | — | ||||||||||
Term loan | 10 | 363.2 | 154.6 | 367.8 | ||||||||||
Lease liabilities | 7 | 214.7 | 190.9 | 209.6 | ||||||||||
Other long-term liabilities | 14 | 27.6 | 4.2 | 20.4 | ||||||||||
Total liabilities | 879.0 | 790.2 | 907.1 | |||||||||||
Shareholders' equity | 11 | 545.4 | 474.2 | 600.1 | ||||||||||
Total liabilities and shareholders' equity | 1,424.4 | 1,264.4 | 1,507.2 |
The accompanying notes to the condensed consolidated interim financial statements are an integral part of these financial statements.
Canada Goose Holdings Inc. | Page 2 of 27 |
Condensed Consolidated Interim Statements of Changes in Shareholders' Equity
(unaudited)
(in millions of Canadian dollars)
Share capital | Contributed surplus | Retained earnings | Accumulated other comprehensive income (loss) | Total | ||||||||||||||||||||||
Notes | Multiple voting shares | Subordinate voting shares | Total | |||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
Balance at March 28, 2021 | 1.4 | 119.1 | 120.5 | 25.2 | 459.6 | (5.2) | 600.1 | |||||||||||||||||||
Exercise of stock options | 11 | — | 2.7 | 2.7 | (1.5) | — | — | 1.2 | ||||||||||||||||||
Net loss | — | — | — | — | (56.7) | — | (56.7) | |||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (1.7) | (1.7) | |||||||||||||||||||
Share-based payment | 12 | — | — | — | 2.7 | — | — | 2.7 | ||||||||||||||||||
Deferred tax on share-based payment | — | — | — | (0.2) | — | — | (0.2) | |||||||||||||||||||
Balance at June 27, 2021 | 1.4 | 121.8 | 123.2 | 26.2 | 402.9 | (6.9) | 545.4 | |||||||||||||||||||
Balance at March 29, 2020 | 1.4 | 113.3 | 114.7 | 15.7 | 389.4 | 0.4 | 520.2 | |||||||||||||||||||
Exercise of stock options | 11 | — | 0.4 | 0.4 | (0.1) | — | — | 0.3 | ||||||||||||||||||
Net loss | — | — | — | — | (50.1) | — | (50.1) | |||||||||||||||||||
Other comprehensive income | — | — | — | — | — | 2.0 | 2.0 | |||||||||||||||||||
Share-based payment | 12 | — | — | — | 1.8 | — | — | 1.8 | ||||||||||||||||||
Balance at June 28, 2020 | 1.4 | 113.7 | 115.1 | 17.4 | 339.3 | 2.4 | 474.2 |
The accompanying notes to the condensed consolidated interim financial statements are an integral part of these financial statements.
Canada Goose Holdings Inc. | Page 3 of 27 |
Condensed Consolidated Interim Statements of Cash Flows
(unaudited)
(in millions of Canadian dollars)
First quarter ended | |||||||||||||||||
Notes | June 27, 2021 | June 28, 2020 | |||||||||||||||
$ | $ | ||||||||||||||||
Operating activities | |||||||||||||||||
Net loss | (56.7) | (50.1) | |||||||||||||||
Items not affecting cash: | |||||||||||||||||
Depreciation and amortization | 23.5 | 18.8 | |||||||||||||||
Income tax recovery | (20.5) | (15.9) | |||||||||||||||
Interest expense | 10 | 6.6 | 4.8 | ||||||||||||||
Foreign exchange loss | 5.5 | 0.9 | |||||||||||||||
Acceleration of unamortized costs on debt extinguishment | 10 | 9.5 | — | ||||||||||||||
Loss on disposal of assets | — | 0.1 | |||||||||||||||
Share-based payment | 12 | 2.7 | 1.8 | ||||||||||||||
(29.4) | (39.6) | ||||||||||||||||
Changes in non-cash operating items | 16 | (106.9) | (24.4) | ||||||||||||||
Income taxes paid | (11.1) | (1.4) | |||||||||||||||
Interest paid | (7.1) | (4.4) | |||||||||||||||
Net cash used in operating activities | (154.5) | (69.8) | |||||||||||||||
Investing activities | |||||||||||||||||
Purchase of property, plant and equipment | (6.0) | (4.0) | |||||||||||||||
Investment in intangible assets | (0.9) | (0.8) | |||||||||||||||
Initial direct costs of right-of-use assets | 7 | (0.4) | — | ||||||||||||||
Net cash used in investing activities | (7.3) | (4.8) | |||||||||||||||
Financing activities | |||||||||||||||||
Mainland China Facility borrowings | 10 | 7.2 | 2.6 | ||||||||||||||
Term loan repayments | 10 | (0.9) | — | ||||||||||||||
Revolving facility borrowings | 10 | — | 209.5 | ||||||||||||||
Transaction costs on financing activities | 10 | (1.0) | (0.3) | ||||||||||||||
Principal paid on lease liabilities | 7 | (9.9) | (8.6) | ||||||||||||||
Exercise of stock options | 12 | 1.2 | 0.3 | ||||||||||||||
Net cash (used in) from financing activities | (3.4) | 203.5 | |||||||||||||||
Effects of foreign currency exchange rate changes on cash | (6.8) | (0.5) | |||||||||||||||
(Decrease) increase in cash | (172.0) | 128.4 | |||||||||||||||
Cash, beginning of period | 477.9 | 31.7 | |||||||||||||||
Cash, end of period | 305.9 | 160.1 |
The accompanying notes to the condensed consolidated interim financial statements are an integral part of these financial statements.
Canada Goose Holdings Inc. | Page 4 of 27 |
Notes to the Condensed Consolidated Interim Financial Statements
(unaudited)
Note 1. The Company
Organization
Canada Goose Holdings Inc. and its subsidiaries (the “Company”) design, manufacture, and sell performance luxury apparel for men, women, youth, children, and babies. The Company’s apparel collections include various styles of parkas, lightweight down jackets, rainwear, windwear, knitwear, footwear, and accessories for the fall, winter, and spring seasons. The Company’s head office is located at 250 Bowie Avenue, Toronto, Canada M6E 4Y2. The use of the terms “Canada Goose”, “we”, and “our” throughout these notes to the condensed consolidated interim financial statements ("Interim Financial Statements") refer to the Company.
Canada Goose is a public company listed on the Toronto Stock Exchange and the New York Stock Exchange under the trading symbol “GOOS”. The principal shareholders of the Company are investment funds advised by Bain Capital LP and its affiliates (“Bain Capital”), and DTR LLC ("DTR"), an entity indirectly controlled by the President and Chief Executive Officer of the Company. The principal shareholders hold multiple voting shares representing 46.1% of the total shares outstanding as at June 27, 2021, or 89.5% of the combined voting power of the total voting shares outstanding. Subordinate voting shares that trade on public markets represent 53.9% of the total shares outstanding as at June 27, 2021, or 10.5% of the combined voting power of the total voting shares outstanding.
Statement of compliance
The Interim Financial Statements are prepared in accordance with International Accounting Standard (“IAS”) 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (“IASB”). Certain information, which is considered material to the understanding of the Interim Financial Statements and is normally included in the annual financial statements prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the IASB, is not provided in these notes. These Interim Financial Statements should be read in conjunction with the Company's Annual Financial Statements.
The Interim Financial Statements were authorized for issuance in accordance with a resolution of the Company’s Board of Directors on August 10, 2021.
Seasonality
Our business is seasonal, and we have historically realized a significant portion of our Wholesale revenue and operating income in the second and third quarters of the fiscal year and Direct-to-Consumer ("DTC") revenue and operating income in the third and fourth quarters of the fiscal year. Thus, lower-than-expected revenue in these periods could have an adverse impact on our annual operating results.
Cash flows from operating activities are typically highest in the third and fourth quarters of the fiscal year due to revenue from the DTC segment and the collection of trade receivables from Wholesale revenue earlier in the year. Working capital requirements typically increase as inventory builds. Borrowings have historically increased in the first and second quarters and been repaid in the third quarter of the fiscal year.
Canada Goose Holdings Inc. | Page 5 of 27 |
Notes to the Condensed Consolidated Interim Financial Statements
(unaudited)
Note 2. Significant accounting policies and critical accounting estimates and judgments
Basis of presentation
The significant accounting policies and critical accounting estimates and judgments as disclosed in the Company’s March 28, 2021 annual consolidated financial statements have been applied consistently in the preparation of these Interim Financial Statements except as noted below. The Interim Financial Statements are presented in Canadian dollars, the Company’s functional and presentation currency.
The Company's fiscal year is a 52 or 53-week reporting cycle with the fiscal year ending on the Sunday closest to March 31. Each fiscal quarter is 13 weeks. The additional week in a 53-week fiscal year is added to the third quarter. Fiscal 2022 is the first 53-week fiscal year, ending on April 3, 2022.
Certain comparative figures have been reclassified to conform with the current year presentation.
COVID-19 pandemic
Globally, public health officials have imposed restrictions and recommended precautions to mitigate the spread of the novel coronavirus pandemic ("COVID-19"), resulting in temporary closures of our retail locations as well as reduced traffic and store productivity, similarly impacting our wholesale partners. Across our global store network, approximately 20% of total trading days were lost to temporary closures in the first quarter of fiscal 2022, compared to approximately 60% in the comparative quarter. We have also experienced a significant reduction in the capacity of our network, including our manufacturing facilities, due to distancing measures. All our manufacturing facilities were operating as at June 27, 2021 at lower output levels than historically realized to ensure appropriate distancing measures were in place.
In March 2021, the IASB issued an amendment to IFRS 16, Leases to extend the period over which the practical expedient is available for use. This amendment exempts lessees from determining whether COVID-19 related rent concessions for lease payments originally due on or before June 30, 2022 are lease modifications. The amendment is effective for annual reporting periods beginning on or after April 1, 2021 and earlier application is permitted. In accordance with the guidance issued, the Company adopted the amendment effective March 29, 2021 and elected not to treat COVID-19 related rent concessions as lease modifications. Rent concessions of $0.2m were recognized in the statement of loss for the first quarter ended June 27, 2021 (first quarter ended June 28, 2020 - $0.7m), and the Company will consider seeking further rent concessions as it continues to monitor the impact of COVID-19.
As a result of the temporary store closures, net costs of $0.2m were recognized in selling, general & administrative (“SG&A”) expenses, depreciation and amortization, and interest during the first quarter ended June 27, 2021 (first quarter ended June 28, 2020 - $6.7m).
Management assessed whether indicators of impairment existed as at June 27, 2021 in accordance with IAS 36, Impairment of Assets, and no indicators were identified.
Principles of consolidation
The Interim Financial Statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated.
Canada Goose Holdings Inc. | Page 6 of 27 |
Notes to the Condensed Consolidated Interim Financial Statements
(unaudited)
Operating segments
The Company classifies its business in three operating and reportable segments: DTC, Wholesale, and Other. The DTC segment comprises sales through country-specific e-Commerce platforms and its Company-operated retail stores located in luxury shopping locations.
The Wholesale segment comprises sales made to a mix of retailers and international distributors, who are partners that have exclusive rights to an entire market.
The Other segment comprises sales and costs not directly allocated to the DTC or Wholesale channels, such as sales to employees and SG&A expenses. The Other segment includes the cost of marketing expenditures to build brand awareness across all segments, corporate costs in support of manufacturing operations, other corporate costs, and foreign exchange gains and losses not specifically associated with DTC or Wholesale segment operations.
Within the Other segment, comparative information also includes sales of personal protective equipment ("PPE") in response to COVID-19 along with costs incurred as a consequence of the COVID-19 pandemic including overhead costs resulting from the temporary closure of our manufacturing facilities.
Standards issued and not yet adopted
Certain new standards, amendments, and interpretations to existing IFRS standards have been published but are not yet effective and have not been adopted early by the Company. Management anticipates that pronouncements will be adopted in the Company’s accounting policy for the first period beginning after the effective date of the pronouncement. Information on new standards, amendments, and interpretations is provided below.
In January 2020, the IASB issued an amendment to IAS 1, Presentation of Financial Statements to clarify its requirements for the presentation of liabilities in the statement of financial position. The limited scope amendment affected only the presentation of liabilities in the statement of financial position and not the amount or timing of its recognition. The amendment clarified that the classification of liabilities as current or non-current is based on rights that are in existence at the end of the reporting period and specified that classification is unaffected by expectations about whether an entity will exercise its right to defer settlement of a liability. It also introduced a definition of ‘settlement’ to make clear that settlement refers to the transfer to the counterparty of cash, equity instruments, other assets or services. The amendment is effective for annual reporting periods beginning on or after January 1, 2023. Earlier application is permitted. The Company is assessing the potential impact of the amendment.
In August 2020, the IASB issued “Interest Rate Benchmark Reform – Phase II (amendments to IFRS 9, Financial Instruments; IFRS 7, Financial Instruments: Disclosures; IAS 39, Financial Instruments: Recognition and Measurement; IFRS 4, Insurance Contracts and IFRS 16, Leases)”, which addresses issues that affect financial reporting once an existing benchmark rate is replaced with an alternative rate and provides specific disclosure requirements. The amendment is effective for annual reporting periods beginning on or after January 1, 2021. Earlier application is permitted. The Company is assessing the potential impact of the amendment.
Canada Goose Holdings Inc. | Page 7 of 27 |
Notes to the Condensed Consolidated Interim Financial Statements
(unaudited)
Note 3. Segment information
The Company has three reportable operating segments: DTC, Wholesale, and Other. The Company measures each reportable operating segment’s performance based on revenue and segment operating (loss) income, which is the profit metric utilized by the Company's chief operating decision maker, the President and Chief Executive Officer, for assessing the performance of operating segments.
In the first quarter of fiscal 2022, a customer in the Wholesale segment represented 16.6% of total consolidated revenue (June 28, 2020 - 24.9%).
The Company does not report total assets or total liabilities based on its reportable operating segments.
First quarter ended June 27, 2021 | ||||||||||||||
(in millions of Canadian dollars) | DTC | Wholesale | Other | Total | ||||||||||
$ | $ | $ | $ | |||||||||||
Revenue | 29.4 | 25.8 | 1.1 | 56.3 | ||||||||||
Cost of sales | 8.0 | 16.7 | 0.9 | 25.6 | ||||||||||
Gross profit | 21.4 | 9.1 | 0.2 | 30.7 | ||||||||||
SG&A expenses | 15.3 | 7.9 | 48.4 | 71.6 | ||||||||||
Depreciation and amortization | 15.2 | 1.0 | 3.6 | 19.8 | ||||||||||
Operating (loss) income | (9.1) | 0.2 | (51.8) | (60.7) | ||||||||||
Net interest, finance and other costs | 16.5 | |||||||||||||
Loss before income taxes | (77.2) | |||||||||||||
First quarter ended June 28, 2020 | ||||||||||||||
(in millions of Canadian dollars) | DTC | Wholesale | Other | Total | ||||||||||
$ | $ | $ | $ | |||||||||||
Revenue | 10.4 | 8.7 | 7.0 | 26.1 | ||||||||||
Cost of sales | 1.8 | 7.2 | 12.3 | 21.3 | ||||||||||
Gross profit (loss) | 8.6 | 1.5 | (5.3) | 4.8 | ||||||||||
SG&A expenses | 9.6 | 7.8 | 31.2 | 48.6 | ||||||||||
Depreciation and amortization | 11.2 | 0.9 | 3.4 | 15.5 | ||||||||||
Operating loss | (12.2) | (7.2) | (39.9) | (59.3) | ||||||||||
Net interest, finance and other costs | 6.7 | |||||||||||||
Loss before income taxes | (66.0) |
Canada Goose Holdings Inc. | Page 8 of 27 |
Notes to the Condensed Consolidated Interim Financial Statements
(unaudited)
Geographic information
The Company determines the geographic location of revenue based on the location of its customers.
First quarter ended | ||||||||||||||
(in millions of Canadian dollars) | June 27, 2021 | June 28, 2020 | ||||||||||||
$ | $ | |||||||||||||
Canada | 10.4 | 11.6 | ||||||||||||
United States | 9.1 | 2.5 | ||||||||||||
Asia Pacific | 22.4 | 10.0 | ||||||||||||
EMEA(1) | 14.4 | 2.0 | ||||||||||||
Revenue | 56.3 | 26.1 |
(1)EMEA comprises Europe, the Middle East, Africa, and Latin America.
Note 4. Earnings per share
The following table presents details for the calculation of basic and diluted earnings per share:
First quarter ended | ||||||||||||||
(in millions of Canadian dollars, except share and per share amounts) | June 27, 2021 | June 28, 2020 | ||||||||||||
Net loss | $ | (56.7) | $ | (50.1) | ||||||||||
Weighted average number of multiple and subordinate voting shares outstanding(1) | 110,504,248 | 110,080,288 | ||||||||||||
Loss per share | ||||||||||||||
Basic and diluted | $ | (0.51) | $ | (0.46) | ||||||||||
(1) Subordinate voting shares issuable on exercise of stock options are not treated as dilutive if including them would decrease the loss per share. Accordingly, 967,328 potentially dilutive shares have been excluded from the calculation of diluted loss per share for the first quarter ended June 27, 2021 (first quarter ended June 28, 2020 - 712,699 shares).
Canada Goose Holdings Inc. | Page 9 of 27 |
Notes to the Condensed Consolidated Interim Financial Statements
(unaudited)
Note 5. Trade receivables
(in millions of Canadian dollars) | June 27, 2021 | June 28, 2020 | March 28, 2021 | ||||||||
$ | $ | $ | |||||||||
Trade accounts receivable | 17.4 | 14.5 | 21.9 | ||||||||
Credit card receivables | 1.8 | 0.1 | 2.1 | ||||||||
Government grant receivable | 0.1 | 3.3 | 4.4 | ||||||||
Other receivables | 21.0 | 11.8 | 14.3 | ||||||||
40.3 | 29.7 | 42.7 | |||||||||
Less: expected credit loss and sales allowances | (1.1) | (1.5) | (1.8) | ||||||||
Trade receivables, net | 39.2 | 28.2 | 40.9 |
Note 6. Inventories
(in millions of Canadian dollars) | June 27, 2021 | June 28, 2020 | March 28, 2021 | ||||||||
$ | $ | $ | |||||||||
Raw materials | 70.6 | 71.4 | 63.8 | ||||||||
Work in progress | 17.1 | 18.0 | 18.6 | ||||||||
Finished goods | 316.8 | 339.2 | 259.9 | ||||||||
Total inventories at the lower of cost and net realizable value | 404.5 | 428.6 | 342.3 |
Inventories are written down to net realizable value when the cost of inventories is estimated to be unrecoverable due to obsolescence, damage, or declining rate of sale. As at June 27, 2021, total write-downs amounted to $23.1m (June 28, 2020 - $19.2m, March 28, 2021 - $23.4m).
Amounts charged to cost of sales comprise the following:
First quarter ended | ||||||||||||||
(in millions of Canadian dollars) | June 27, 2021 | June 28, 2020 | ||||||||||||
$ | $ | |||||||||||||
Cost of goods manufactured | 21.9 | 18.0 | ||||||||||||
Depreciation and amortization | 3.7 | 3.3 | ||||||||||||
25.6 | 21.3 |
Canada Goose Holdings Inc. | Page 10 of 27 |
Notes to the Condensed Consolidated Interim Financial Statements
(unaudited)
Note 7. Leases
Right-of-use assets
The following table presents changes in the cost and the accumulated depreciation of the Company’s right-of-use assets:
(in millions of Canadian dollars) | Retail stores | Manufacturing facilities | Other | Total | ||||||||||
Cost | $ | $ | $ | $ | ||||||||||
March 28, 2021 | 253.3 | 36.7 | 18.4 | 308.4 | ||||||||||
Additions | 20.9 | — | 0.4 | 21.3 | ||||||||||
Lease modifications | 1.6 | — | — | 1.6 | ||||||||||
Impact of foreign currency translation | (3.5) | — | (0.2) | (3.7) | ||||||||||
June 27, 2021 | 272.3 | 36.7 | 18.6 | 327.6 | ||||||||||
March 29, 2020 | 191.5 | 36.6 | 18.0 | 246.1 | ||||||||||
Additions | 10.9 | — | 3.0 | 13.9 | ||||||||||
Lease modifications | — | — | (1.5) | (1.5) | ||||||||||
Impact of foreign currency translation | (3.2) | — | (0.3) | (3.5) | ||||||||||
June 28, 2020 | 199.2 | 36.6 | 19.2 | 255.0 |
(in millions of Canadian dollars) | Retail stores | Manufacturing facilities | Other | Total | ||||||||||
Accumulated depreciation | $ | $ | $ | $ | ||||||||||
March 28, 2021 | 58.8 | 9.9 | 6.0 | 74.7 | ||||||||||
Depreciation | 10.7 | 1.3 | 1.0 | 13.0 | ||||||||||
Impact of foreign currency translation | (0.8) | — | (0.1) | (0.9) | ||||||||||
June 27, 2021 | 68.7 | 11.2 | 6.9 | 86.8 | ||||||||||
March 29, 2020 | 26.8 | 4.8 | 2.7 | 34.3 | ||||||||||
Depreciation | 7.6 | 1.3 | 0.6 | 9.5 | ||||||||||
Impact of foreign currency translation | (0.5) | — | — | (0.5) | ||||||||||
June 28, 2020 | 33.9 | 6.1 | 3.3 | 43.3 | ||||||||||
Net book value | ||||||||||||||
June 27, 2021 | 203.6 | 25.5 | 11.7 | 240.8 | ||||||||||
June 28, 2020 | 165.3 | 30.5 | 15.9 | 211.7 | ||||||||||
March 28, 2021 | 194.5 | 26.8 | 12.4 | 233.7 |
Canada Goose Holdings Inc. | Page 11 of 27 |
Notes to the Condensed Consolidated Interim Financial Statements
(unaudited)
Lease liabilities
The following table presents the changes in the Company's lease liabilities:
(in millions of Canadian dollars) | Retail stores | Manufacturing facilities | Other | Total | ||||||||||
$ | $ | $ | $ | |||||||||||
March 28, 2021 | 211.0 | 29.9 | 13.9 | 254.8 | ||||||||||
Additions | 20.5 | — | 0.4 | 20.9 | ||||||||||
Lease modifications | 1.5 | — | — | 1.5 | ||||||||||
Principal payments | (7.6) | (1.3) | (1.0) | (9.9) | ||||||||||
Impact of foreign currency translation | (2.8) | — | (0.2) | (3.0) | ||||||||||
June 27, 2021 | 222.6 | 28.6 | 13.1 | 264.3 | ||||||||||
March 29, 2020 | 176.3 | 34.7 | 16.9 | 227.9 | ||||||||||
Additions | 10.9 | — | 3.0 | 13.9 | ||||||||||
Lease modifications | — | — | (1.3) | (1.3) | ||||||||||
Principal payments | (6.6) | (1.2) | (0.8) | (8.6) | ||||||||||
Impact of foreign currency translation | (2.8) | — | (0.4) | (3.2) | ||||||||||
June 28, 2020 | 177.8 | 33.5 | 17.4 | 228.7 |
Lease liabilities are classified as current and non-current liabilities as follows:
(in millions of Canadian dollars) | Retail stores | Manufacturing facilities | Other | Total | ||||||||||
$ | $ | $ | $ | |||||||||||
Current lease liabilities | 40.3 | 5.7 | 3.6 | 49.6 | ||||||||||
Non-current lease liabilities | 182.3 | 22.9 | 9.5 | 214.7 | ||||||||||
June 27, 2021 | 222.6 | 28.6 | 13.1 | 264.3 | ||||||||||
Current lease liabilities | 29.2 | 5.0 | 3.6 | 37.8 | ||||||||||
Non-current lease liabilities | 148.6 | 28.5 | 13.8 | 190.9 | ||||||||||
June 28, 2020 | 177.8 | 33.5 | 17.4 | 228.7 | ||||||||||
Current lease liabilities | 36.2 | 5.1 | 3.9 | 45.2 | ||||||||||
Non-current lease liabilities | 174.8 | 24.8 | 10.0 | 209.6 | ||||||||||
March 28, 2021 | 211.0 | 29.9 | 13.9 | 254.8 |
Leases of low-value assets and short-term leases are not included in the calculation of lease liabilities. These lease expenses are recognized in cost of sales or SG&A expenses on a straight-line or other systematic basis.
During the first quarter ended June 27, 2021, $0.5m (June 28, 2020 - $1.8m) of lease payments were not included in the measurement of lease liabilities. The majority of this balance related to short-term leases and variable rent payments.
Canada Goose Holdings Inc. | Page 12 of 27 |
Notes to the Condensed Consolidated Interim Financial Statements
(unaudited)
Note 8. Accounts payable and accrued liabilities
Accounts payable and accrued liabilities consist of the following:
(in millions of Canadian dollars) | June 27, 2021 | June 28, 2020 | March 28, 2021 | ||||||||
$ | $ | $ | |||||||||
Trade payables | 47.9 | 52.4 | 78.9 | ||||||||
Accrued liabilities | 56.4 | 47.0 | 49.9 | ||||||||
Employee benefits | 19.6 | 15.1 | 28.3 | ||||||||
Derivative financial instruments | 10.7 | 11.4 | 8.8 | ||||||||
Other payables | 15.0 | 8.9 | 11.9 | ||||||||
Accounts payable and accrued liabilities | 149.6 | 134.8 | 177.8 |
Note 9. Provisions
Provisions consist primarily of amounts recorded with respect to customer warranty obligations, terminations of sales agents and distributors, sales returns, and asset retirement obligations.
Provisions are classified as current and non-current liabilities based on management's expectations of the timing of settlement, as follows:
(in millions of Canadian dollars) | Warranty | Sales returns | Asset retirement obligations | Other | Total | ||||||||||||
$ | $ | $ | $ | $ | |||||||||||||
Current provisions | 6.0 | 7.4 | — | — | 13.4 | ||||||||||||
Non-current provisions | 18.8 | — | 6.6 | — | 25.4 | ||||||||||||
June 27, 2021 | 24.8 | 7.4 | 6.6 | — | 38.8 | ||||||||||||
Current provisions | 4.0 | 6.0 | — | 0.8 | 10.8 | ||||||||||||
Non-current provisions | 14.8 | — | 4.0 | 3.0 | 21.8 | ||||||||||||
June 28, 2020 | 18.8 | 6.0 | 4.0 | 3.8 | 32.6 | ||||||||||||
Current provisions | 6.3 | 13.7 | — | — | 20.0 | ||||||||||||
Non-current provisions | 20.1 | — | 5.5 | — | 25.6 | ||||||||||||
March 28, 2021 | 26.4 | 13.7 | 5.5 | — | 45.6 |
Note 10. Borrowings
Mainland China Facility
A subsidiary of the Company in Mainland China has an uncommitted loan facility in the amount of RMB 160.0m ("Mainland China Facility"). The Mainland China Facility includes a non-financial bank guarantee facility in the amount of RMB 10.0m. The term of each draw on the loan is one, three or six months or such other period as agreed upon and shall not exceed twelve months (including any extension or rollover). The interest rate is equal to 105% of the applicable People's Bank of China Benchmark Lending Rate and payable at one, three or six months, depending on the term of each draw. The Mainland China Facility is guaranteed by the
Canada Goose Holdings Inc. | Page 13 of 27 |
Notes to the Condensed Consolidated Interim Financial Statements
(unaudited)
Company and proceeds drawn on the facility will be used to support working capital requirements. As at June 27, 2021, the Company had $7.2m owing on the Mainland China Facility (June 28, 2020 - $2.6m, March 28, 2021 - $nil).
Revolving facility
The Company has an agreement with a syndicate of lenders for a senior secured asset-based credit facility consisting of a revolving credit facility in the amount of $467.5m, with an increase in commitments to $517.5m during the peak season (June 1 - November 30). The revolving facility matures on June 3, 2024. Amounts owing under the revolving facility may be borrowed, repaid and re-borrowed for general corporate purposes.
The revolving facility has multiple interest rate charge options that are based on the Canadian prime rate, Banker's Acceptance rate, the lenders' Alternate Base Rate, European Base Rate, LIBOR rate, or EURIBOR rate plus an applicable margin, with interest payable quarterly or at the end of the then current interest period (whichever is earlier). The Company has pledged substantially all of its assets as collateral for the revolving facility. The revolving facility contains financial and non-financial covenants which could impact the Company’s ability to draw funds.
As at June 27, 2021, the Company had repaid all amounts owing on the revolving facility (June 28, 2020 - $210.5m and March 28, 2021 - $nil) and related deferred financing charges in the amounts of $1.6m, $2.0m, and $1.7m, respectively, were included in other long-term liabilities. As at and during the first quarter ended June 27, 2021, the Company was in compliance with all covenants.
The Company had a first-in, last-out facility included in the revolving facility in the amount of $50.0m which matured on May 25, 2021. No amounts were outstanding at the time of maturity and the first-in, last-out facility has not been renewed.
The revolving credit commitment also includes a letter of credit commitment in the amount of $25.0m, with a $5.0m sub-commitment for letters of credit issued in a currency other than Canadian dollars, U.S. dollars, euros or British pounds sterling, and a swingline commitment for $25.0m. As at June 27, 2021, the Company had letters of credit outstanding under the revolving facility of $6.2m (June 28, 2020 - $6.5m, March 28, 2021 - $5.0m). The Company had unused borrowing capacity available under the revolving facility of $313.7m as at June 27, 2021 (June 28, 2020 - $169.3m, March 28, 2021 - $181.2m).
Canada Goose Holdings Inc. | Page 14 of 27 |
Notes to the Condensed Consolidated Interim Financial Statements
(unaudited)
Term loan
The Company has a senior secured loan agreement with a syndicate of lenders that is secured on a split collateral basis alongside the revolving facility. As a result of the Refinancing Amendment which took place on October 7, 2020, the aggregate principal amount owing increased to US$300.0m from US$113.8m.
On April 9, 2021, the Company entered into an agreement with its lenders to reprice its term loan, referred to as the Repricing Amendment and Fifth Amendment to Credit Agreement ("Repricing Amendment"). The Repricing Amendment decreases the interest to a rate of LIBOR plus an applicable margin of 3.50% from LIBOR plus an applicable margin of 4.25%, payable quarterly in arrears. The Company elected to account for the Repricing Amendment as a debt extinguishment and re-borrowing of the loan amount. As a result, the acceleration of unamortized costs of $9.5m was included in net interest, finance and other costs in the statement of loss. In connection with the Repricing Amendment, the Company incurred transaction costs of $1.0m which are being amortized using the effective interest rate method over the new term to maturity.
As a result of the Repricing Amendment, there were no changes to the following conditions from the existing term loan: a) the aggregate principal amount of US$300.0m; b) the maturity date of October 7, 2027; c) LIBOR may not be less than 0.75%, and d) US$0.75m on the principal amount is repayable quarterly. The Repricing Amendment had no impact on the existing derivative contracts entered into on October 30, 2020.
Voluntary prepayments of amounts owing under the term loan may be made at any time without premium or penalty but once repaid may not be reborrowed. The Company began quarterly repayments of US$0.75m on the principal amount during the first quarter ended June 27, 2021. The Company has pledged substantially all of its assets as collateral for the term loan. The term loan contains financial and non-financial covenants which could impact the Company’s ability to draw funds. As at and during the first quarter ended June 27, 2021, the Company was in compliance with all covenants.
As the term loan is denominated in U.S. dollars, the Company remeasures the outstanding balance plus accrued interest at each balance sheet date.
The amount outstanding with respect to the term loan is as follows:
(in millions of Canadian dollars) | June 27, 2021 | June 28, 2020 | March 28, 2021 | ||||||||
$ | $ | $ | |||||||||
Term loan | 367.9 | 155.7 | 377.3 | ||||||||
Unamortized portion of deferred transaction costs | (1.0) | (1.1) | (5.8) | ||||||||
Original issue discount | — | — | (3.7) | ||||||||
366.9 | 154.6 | 367.8 |
Canada Goose Holdings Inc. | Page 15 of 27 |
Notes to the Condensed Consolidated Interim Financial Statements
(unaudited)
Short-term Borrowings
The Company has short-term borrowings in the amount of $10.9m. Short-term borrowings include $7.2m owing on the Mainland China Facility and $3.7m for the quarterly principal repayments on the term loan. Short-term borrowings are all due within the next 12 months.
Net interest, finance and other costs consist of the following:
First quarter ended | ||||||||||||||
(in millions of Canadian dollars) | June 27, 2021 | June 28, 2020 | ||||||||||||
$ | $ | |||||||||||||
Interest expense | ||||||||||||||
Revolving facility | 0.2 | 0.8 | ||||||||||||
Term loan | 4.3 | 1.8 | ||||||||||||
Lease liabilities | 2.3 | 2.3 | ||||||||||||
Standby fees | 0.5 | 0.3 | ||||||||||||
Acceleration of unamortized costs on debt extinguishment | 9.5 | — | ||||||||||||
Interest income | (0.3) | (0.1) | ||||||||||||
Other costs | — | 1.6 | ||||||||||||
Net interest, finance and other costs | 16.5 | 6.7 |
Canada Goose Holdings Inc. | Page 16 of 27 |
Notes to the Condensed Consolidated Interim Financial Statements
(unaudited)
Note 11. Shareholders' equity
Share capital transactions for the first quarter ended June 27, 2021
The transactions affecting the issued and outstanding share capital of the Company are described below:
(in millions of Canadian dollars, except share and per share amounts) | Multiple voting shares | Subordinate voting shares | Total | |||||||||||||||||||||||
Number | $ | Number | $ | Number | $ | |||||||||||||||||||||
March 28, 2021 | 51,004,076 | 1.4 | 59,435,079 | 119.1 | 110,439,155 | 120.5 | ||||||||||||||||||||
Exercise of stock options | — | — | 41,203 | 2.7 | 41,203 | 2.7 | ||||||||||||||||||||
Settlement of RSUs | — | — | 48,558 | — | 48,558 | — | ||||||||||||||||||||
June 27, 2021 | 51,004,076 | 1.4 | 59,524,840 | 121.8 | 110,528,916 | 123.2 |
Share capital transactions for the first quarter ended June 28, 2020
The transactions affecting the issued and outstanding share capital of the Company are described below:
(in millions of Canadian dollars, except share and per share amounts) | Multiple voting shares | Subordinate voting shares | Total | |||||||||||||||||||||||
Number | $ | Number | $ | Number | $ | |||||||||||||||||||||
March 29, 2020 | 51,004,076 | 1.4 | 58,999,182 | 113.3 | 110,003,258 | 114.7 | ||||||||||||||||||||
Exercise of stock options | — | — | 127,564 | 0.4 | 127,564 | 0.4 | ||||||||||||||||||||
Settlement of RSUs | — | — | 10,619 | — | 10,619 | — | ||||||||||||||||||||
June 28, 2020 | 51,004,076 | 1.4 | 59,137,365 | 113.7 | 110,141,441 | 115.1 |
Note 12. Share-based payments
The Company has issued stock options to purchase subordinate voting shares under its incentive plans, prior to the public share offering on March 21, 2017, the Legacy Plan, and subsequently, the Omnibus Plan. All options are issued at an exercise price that is not less than market value at the time of grant and expire ten years after the grant date.
Canada Goose Holdings Inc. | Page 17 of 27 |
Notes to the Condensed Consolidated Interim Financial Statements
(unaudited)
Stock option transactions are as follows:
First quarter ended | |||||||||||||||||
June 27, 2021 | June 28, 2020 | ||||||||||||||||
(in millions of Canadian dollars, except share and per share amounts) | Weighted average exercise price | Number of shares | Weighted average exercise price | Number of shares | |||||||||||||
Options outstanding, beginning of period | $ | 38.32 | 2,498,973 | $ | 32.97 | 1,793,957 | |||||||||||
Granted to purchase shares | $ | 48.93 | 728,375 | $ | 37.19 | 1,244,975 | |||||||||||
Exercised | $ | 25.66 | (41,203) | $ | 2.28 | (127,564) | |||||||||||
Cancelled | $ | 33.97 | (1,414) | $ | 50.57 | (69,969) | |||||||||||
Expired | $ | — | — | $ | 57.58 | (6,831) | |||||||||||
Options outstanding, end of period | $ | 40.92 | 3,184,731 | $ | 35.69 | 2,834,568 |
Restricted share units
Under the Omnibus Plan, the Company has granted RSUs to employees of the Company. The RSUs are treated as equity instruments for accounting purposes. We expect that vested RSUs will be paid at settlement through the issuance of one subordinate voting share per RSU. The RSUs vest over a period of three years, a third on each anniversary of the date of grant.
RSUs transactions are as follows:
First quarter ended | |||||||||||
June 27, 2021 | June 28, 2020 | ||||||||||
Number | Number | ||||||||||
RSUs outstanding, beginning of period | 137,117 | 37,578 | |||||||||
Granted | 151,237 | 119,758 | |||||||||
Settled | (48,558) | (10,619) | |||||||||
Cancelled | (1,026) | (4,199) | |||||||||
RSUs outstanding, end of period | 238,770 | 142,518 |
Subordinate voting shares, to a maximum of 2,961,954 shares, have been reserved for issuance under equity incentive plans to select employees of the Company, with vesting contingent upon meeting the service, performance goals and other conditions of the Omnibus Plan.
Canada Goose Holdings Inc. | Page 18 of 27 |
Notes to the Condensed Consolidated Interim Financial Statements
(unaudited)
Accounting for share-based awards
In the first quarter ended June 27, 2021, the Company recorded $2.7m as contributed surplus and compensation expense for the vesting of stock options and RSUs (first quarter ended June 28, 2020 - $1.8m). Share-based compensation expense is included in SG&A expenses.
The assumptions used to measure the fair value of options granted under the Black-Scholes option pricing model at the grant date were as follows:
First quarter ended | ||||||||
(in millions of Canadian dollars, except share and per share amounts) | June 27, 2021 | June 28, 2020 | ||||||
Weighted average stock price valuation | $ | 48.93 | $ | 37.19 | ||||
Weighted average exercise price | $ | 48.93 | $ | 37.19 | ||||
Risk-free interest rate | 0.44 | % | 0.32 | % | ||||
Expected life in years | 5 | 5 | ||||||
Expected dividend yield | — | % | — | % | ||||
Volatility | 40 | % | 40 | % | ||||
Weighted average fair value of options issued | $ | 14.36 | $ | 9.90 |
Fair value for RSUs is determined based on the market value of the subordinate voting shares at the time of grant. As at June 27, 2021, the weighted average fair value of the RSUs issued was $48.93 (June 28, 2020 - $33.97).
Note 13. Related party transactions
The Company enters into transactions from time to time with its principal shareholders and organizations affiliated with members of the Board of Directors by incurring expenses for business services. During the first quarter ended June 27, 2021, the Company incurred expenses with related parties of $0.2m (first quarter ended June 28, 2020 - less than $0.1m) from companies related to certain shareholders. Balances owing to related parties as at June 27, 2021 were $0.2m (June 28, 2020 - $0.4m, March 28, 2021 - $0.3m).
A lease liability due to the controlling shareholder of the acquired Baffin Inc. business (the "Baffin Vendor") for leased premises was $4.4m as at June 27, 2021 (June 28, 2020 - $5.1m, March 28, 2021 - $4.6m). For the first quarter ended June 27, 2021, the Company paid principal and interest on the lease liability, net of rent concessions, and other operating costs to entities affiliated with the Baffin Vendor totaling $0.3m (first quarter ended June 28, 2020 - $0.3m). No amounts were owing to Baffin entities as at June 27, 2021, June 28, 2020, and March 28, 2021.
Canada Goose Holdings Inc. | Page 19 of 27 |
Notes to the Condensed Consolidated Interim Financial Statements
(unaudited)
Note 14. Financial instruments and fair value
The following table presents the fair values and fair value hierarchy of the Company’s financial instruments and excludes financial instruments carried at amortized cost that are short-term in nature:
June 27, 2021 | |||||||||||||||||
(in millions of Canadian dollars) | Level 1 | Level 2 | Level 3 | Carrying value | Fair value | ||||||||||||
$ | $ | $ | $ | $ | |||||||||||||
Financial assets | |||||||||||||||||
Cash | 305.9 | — | — | 305.9 | 305.9 | ||||||||||||
Derivatives included in other current assets | — | 8.5 | — | 8.5 | 8.5 | ||||||||||||
Derivatives included in other long-term assets | — | 4.4 | — | 4.4 | 4.4 | ||||||||||||
Financial liabilities | |||||||||||||||||
Derivatives included in accounts payable and accrued liabilities | — | 10.7 | — | 10.7 | 10.7 | ||||||||||||
Short-term borrowings | — | — | 7.2 | 7.2 | 7.2 | ||||||||||||
Derivatives included in other long-term liabilities | — | 26.8 | — | 26.8 | 26.8 | ||||||||||||
Term loan | — | 366.9 | — | 366.9 | 367.9 |
Canada Goose Holdings Inc. | Page 20 of 27 |
Notes to the Condensed Consolidated Interim Financial Statements
(unaudited)
June 28, 2020 | |||||||||||||||||
(in millions of Canadian dollars) | Level 1 | Level 2 | Level 3 | Carrying value | Fair value | ||||||||||||
$ | $ | $ | $ | $ | |||||||||||||
Financial assets | |||||||||||||||||
Cash | 160.1 | — | — | 160.1 | 160.1 | ||||||||||||
Derivatives included in other current assets | — | 7.1 | — | 7.1 | 7.1 | ||||||||||||
Derivatives included in other long-term assets | — | 2.2 | — | 2.2 | 2.2 | ||||||||||||
Financial liabilities | |||||||||||||||||
Derivatives included in accounts payable and accrued liabilities | — | 11.4 | — | 11.4 | 11.4 | ||||||||||||
Short-term borrowings | — | — | 2.6 | 2.6 | 2.6 | ||||||||||||
Derivatives included in other long-term liabilities | — | 1.3 | — | 1.3 | 1.3 | ||||||||||||
Revolving facility | — | — | 207.9 | 207.9 | 210.5 | ||||||||||||
Term loan | — | — | 154.6 | 154.6 | 155.7 |
March 28, 2021 | |||||||||||||||||
(in millions of Canadian dollars) | Level 1 | Level 2 | Level 3 | Carrying value | Fair value | ||||||||||||
$ | $ | $ | $ | $ | |||||||||||||
Financial assets | |||||||||||||||||
Cash | 477.9 | — | — | 477.9 | 477.9 | ||||||||||||
Derivatives included in other current assets | — | 5.9 | — | 5.9 | 5.9 | ||||||||||||
Derivatives included in other long-term assets | — | 5.1 | — | 5.1 | 5.1 | ||||||||||||
Financial liabilities | |||||||||||||||||
Derivatives included in accounts payable and accrued liabilities | — | 8.8 | — | 8.8 | 8.8 | ||||||||||||
Derivatives included in other long-term liabilities | — | 19.5 | — | 19.5 | 19.5 | ||||||||||||
Term loan | — | 367.8 | — | 367.8 | 377.3 |
There were no transfers between the levels of fair value hierarchy.
Canada Goose Holdings Inc. | Page 21 of 27 |
Notes to the Condensed Consolidated Interim Financial Statements
(unaudited)
Note 15. Financial risk management objectives and policies
The Company’s primary risk management objective is to protect the Company’s assets and cash flow, in order to increase the Company’s enterprise value.
The Company is exposed to capital management risk, liquidity risk, credit risk, market risk, foreign exchange risk, and interest rate risk. The Company’s senior management and Board of Directors oversee the management of these risks. The Board of Directors reviews and agrees upon policies for managing each of these risks which are summarized below.
Capital management
The Company manages its capital and capital structure with the objectives of safeguarding sufficient net working capital over the annual operating cycle and providing sufficient financial resources to grow operations to meet long-term consumer demand. The Board of Directors of the Company monitors the Company’s capital management on a regular basis. The Company will continually assess the adequacy of the Company’s capital structure and capacity and make adjustments within the context of the Company’s strategy, economic conditions, and risk characteristics of the business.
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to satisfy the requirements for business operations, capital expenditures, debt service and general corporate purposes, under normal and stressed conditions. The primary source of liquidity is funds generated by operating activities; the Company also relies on Mainland China Facility and the revolving facility as sources of funds for short term working capital needs. The Company continuously reviews both actual and forecasted cash flows to ensure that the Company has appropriate capital capacity.
The following table summarizes the amount of contractual undiscounted future cash flow requirements as at June 27, 2021:
Contractual obligations | Q2 to Q4 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | Thereafter | Total | ||||||||||||||||||
(in millions of Canadian dollars) | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Accounts payable and accrued liabilities | 149.6 | — | — | — | — | — | — | 149.6 | ||||||||||||||||||
Mainland China Facility | 7.2 | — | — | — | — | — | — | 7.2 | ||||||||||||||||||
Term loan | 2.8 | 3.7 | 3.7 | 3.7 | 3.7 | 3.7 | 346.6 | 367.9 | ||||||||||||||||||
Interest commitments relating to borrowings(1) | 12.0 | 15.6 | 15.6 | 15.6 | 15.6 | 15.6 | 23.5 | 113.5 | ||||||||||||||||||
Foreign exchange forward contracts | — | 2.2 | — | — | 22.4 | — | — | 24.6 | ||||||||||||||||||
Lease obligations | 43.8 | 60.5 | 50.2 | 45.4 | 34.3 | 27.9 | 43.6 | 305.7 | ||||||||||||||||||
Pension obligation | — | — | — | — | — | — | 2.1 | 2.1 | ||||||||||||||||||
Total contractual obligations | 215.4 | 82.0 | 69.5 | 64.7 | 76.0 | 47.2 | 415.8 | 970.6 |
(1) Interest commitments are calculated based on the loan balance and the interest rate payable on the Mainland China Facility and the term loan of 4.26% and 4.25%, respectively, as at June 27, 2021.
As at June 27, 2021, we had additional liabilities which included provisions for warranty, sales returns, asset retirement obligations, and deferred income tax liabilities. These liabilities have not been included in the table above as the timing and amount of future payments are uncertain.
Canada Goose Holdings Inc. | Page 22 of 27 |
Notes to the Condensed Consolidated Interim Financial Statements
(unaudited)
Letter of guarantee facility
On April 14, 2020, Canada Goose Inc. entered into a letter of guarantee facility in the amount of $10.0m. Letters of guarantee are available for terms of up to twelve months and will be charged a fee equal to 1.2% per annum calculated against the face amount and over the term of the guarantee. Amounts issued on the facility will be used to finance working capital requirements through letters of guarantee, standby letters of credit, performance bonds, counter guarantees, counter standby letters of credit, or similar credits. The Company immediately reimburses the issuing bank for amounts drawn on issued letters of guarantees. At June 27, 2021, the Company had $5.9m outstanding.
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss.
Credit risk arises from the possibility that certain parties will be unable to discharge their obligations. The Company manages its credit risk through a combination of third party credit insurance and internal house risk. Credit insurance is provided by a third party for customers and is subject to continuous monitoring of the credit worthiness of the Company's customers. Insurance covers a specific amount of revenue, which may be less than the Company's total revenue with a specific customer. As at June 27, 2021, accounts receivable totaling approximately $7.6m (June 28, 2020 - $4.7m, March 28, 2021 - $5.7m) were insured, under a maximum credit limit of $30.0m. Complementary to third party insurance, the Company establishes payment terms with customers to mitigate credit risk and continues to closely monitor its accounts receivable credit risk exposure.
Trade accounts receivable factoring program
A subsidiary of the Company in Europe has an agreement to factor, on a limited recourse basis, certain of its trade accounts receivable up to a limit of €20.0m in exchange for advanced funding equal to 100% of the principal value of the invoice.
For the first quarter ended June 27, 2021, the Company received cash proceeds from the sale of trade accounts receivable with carrying values of $0.9m which were derecognized from the Company's statement of financial position (first quarter ended June 28, 2020 - $nil). Fees of less than $0.1m were incurred during the first quarter ended June 27, 2021 (first quarter ended June 28, 2020 - $nil) and included in net interest, finance and other costs in the statement of loss. As at June 27, 2021, the outstanding amount of trade accounts receivable derecognized from the Company’s statement of financial position, but which the Company continued to service was $0.9m (June 28, 2020 - $nil, March 28, 2021 - $nil).
Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise foreign exchange risk and interest rate risk.
Canada Goose Holdings Inc. | Page 23 of 27 |
Notes to the Condensed Consolidated Interim Financial Statements
(unaudited)
Foreign exchange risk
Foreign exchange risk in operating cash flows
The Company’s Interim Financial Statements are expressed in Canadian dollars, but a substantial portion of the Company’s revenues, purchases and expenses are denominated in other currencies, principally U.S. dollars, euros, British pounds sterling, Swiss francs, Chinese yuan, and Hong Kong dollars. The Company has entered into forward foreign exchange contracts to reduce the foreign exchange risk associated with revenues, purchases, and expenses denominated in these currencies. Certain forward foreign exchange contracts were designated at inception and accounted for as cash flow hedges. On December 18, 2020, the Company initiated the operating hedge program for the fiscal year ending April 3, 2022.
Revenues and expenses of all foreign operations are translated into Canadian dollars at the foreign currency exchange rates that approximate the rates in effect at the dates when such items are recognized. Appreciating foreign currencies relative to the Canadian dollar, to the extent they are not hedged, will positively impact operating income and net income, while depreciating foreign currencies relative to the Canadian dollar will have the opposite impact.
Canada Goose Holdings Inc. | Page 24 of 27 |
Notes to the Condensed Consolidated Interim Financial Statements
(unaudited)
During the first quarter ended June 27, 2021, the Company re-assessed the operating hedge program for the fiscal year ending April 3, 2022 to protect the Company against adverse fluctuations in foreign exchange rates. Based on revenues, purchases and expenses incurred in the quarter, the re-assessment allows the Company to reduce its exposure to variability in the cash flow, resulting in a rebalancing of the operating hedge program for the year ending April 3, 2022. Due to the rebalancing, $0.2m was recognized as unrealized foreign exchange gains and losses.
The Company recognized the following unrealized gains in the fair value of derivatives designated as cash flow hedges in other comprehensive income:
First quarter ended | |||||||||||||||||||||||||||||||||||
June 27, 2021 | June 28, 2020 | ||||||||||||||||||||||||||||||||||
(in millions of Canadian dollars) | Net gain | Tax expense | Net gain | Tax expense | |||||||||||||||||||||||||||||||
$ | $ | $ | $ | ||||||||||||||||||||||||||||||||
Forward foreign exchange contracts designated as cash flow hedges | 0.7 | (0.2) | 2.3 | (0.8) |
For the first quarter ended June 27, 2021, gains of $0.1m (first quarter ended June 28, 2020 - $nil) were reclassified from other comprehensive income to SG&A expenses on derivatives designated as cash flow hedges. For the first quarter ended June 27, 2021, gains of $1.0m (first quarter ended June 28, 2020 - $nil) were reclassified from other comprehensive income to inventory on derivatives designated as cash flow hedges.
For the first quarter ended June 27, 2021, unrealized gains of $0.3m (first quarter ended June 28, 2020 - unrealized gain of $0.6m) on forward exchange contracts that were not treated as hedges were recognized in SG&A expenses in the statement of loss.
Foreign currency forward exchange contracts outstanding as at June 27, 2021 related to operating cash flows were:
(in millions) | Aggregate Amounts | Currency | ||||||
Forward contract to purchase Canadian dollars | US$ | 79.0 | U.S. dollars | |||||
€ | 89.1 | euros | ||||||
Forward contract to sell Canadian dollars | US$ | 59.0 | U.S. dollars | |||||
€ | 55.9 | euros | ||||||
Forward contract to purchase euros | CNY | 435.0 | Chinese yuan | |||||
£ | 28.2 | British pounds sterling | ||||||
HKD | 56.2 | Hong Kong dollars | ||||||
SEK | 0.1 | Swedish kronor | ||||||
Forward contract to sell euros | CHF | 0.2 | Swiss francs | |||||
CNY | 141.9 | Chinese yuan | ||||||
£ | 2.9 | British pounds sterling | ||||||
Canada Goose Holdings Inc. | Page 25 of 27 |
Notes to the Condensed Consolidated Interim Financial Statements
(unaudited)
Foreign exchange risk on borrowings
The Company enters into derivative transactions to hedge a portion of its exposure to interest rate risk and foreign currency exchange risk related to principal and interest payments on the term loan denominated in U.S. dollars (note 10). The Company also entered into a five-year forward exchange contract by selling $368.5m and receiving US$270.0m as measured on the trade date, to fix the foreign exchange risk on a portion of the term loan borrowings.
The Company recognized the following unrealized losses and gains in the fair value of derivatives designed as hedging instruments in other comprehensive income:
First quarter ended | |||||||||||||||||||||||||||||||||||
June 27, 2021 | June 28, 2020 | ||||||||||||||||||||||||||||||||||
(in millions of Canadian dollars) | Net loss | Tax recovery | Net (loss) gain | Tax recovery (expense) | |||||||||||||||||||||||||||||||
$ | $ | $ | $ | ||||||||||||||||||||||||||||||||
Swaps designated as cash flow hedges | (0.5) | 0.2 | (2.1) | 0.3 | |||||||||||||||||||||||||||||||
Euro-denominated cross-currency swap designated as a net investment hedge | — | — | 1.6 | (0.3) |
The Company reclassified the following losses from other comprehensive income on derivatives designated as hedging instruments to SG&A expenses:
First quarter ended | |||||||||||||||||
(in millions of Canadian dollars) | June 27, 2021 | June 28, 2020 | |||||||||||||||
Loss from other comprehensive income | $ | $ | |||||||||||||||
Swaps designated as cash flow hedges | 0.2 | 2.2 |
For the first quarter ended June 27, 2021, unrealized losses of $7.5m (first quarter ended June 28, 2020 - unrealized losses of $0.8m) in the fair value of the long-dated forward exchange contract related to a portion of the term loan balance were recognized in SG&A expenses in the statement of loss.
Interest rate risk
The Company is exposed to interest rate risk related to the effect of interest rate changes on borrowings outstanding under Mainland China Facility, the revolving facility, and the term loan. Based on the weighted average amount of outstanding borrowings on our Mainland China Facility during the first quarter ended June 27, 2021, a 1.00% increase in the average interest rate on our borrowings would have increased interest expense by less than $0.1m (first quarter ended June 28, 2020 - less than $0.1m). Correspondingly, a 1.00% increase in the average interest rate would have increased interest expense on the revolving facility and term loan by less than $0.1m and $0.9m, respectively (first quarter ended June 28, 2020 - $0.3m and $0.4m, respectively).
Canada Goose Holdings Inc. | Page 26 of 27 |
Notes to the Condensed Consolidated Interim Financial Statements
(unaudited)
The Company entered into five-year interest rate swaps by fixing the LIBOR component of its interest rate at 0.95% on notional debt of US$270.0m. The swaps terminate on December 31, 2025. Subsequent to the Repricing Amendment, the applicable interest rate on the interest rate swaps is 4.45%. The interest rate swaps were designated at inception and accounted for as cash flow hedges.
Interest rate risk on the term loan is partially mitigated by interest rate swap hedges. The impact on future interest expense as a result of future changes in interest rates will depend largely on the gross amount of borrowings at that time.
Note 16. Selected cash flow information
Changes in non-cash operating items
First quarter ended | ||||||||||||||||||||
(in millions of Canadian dollars) | June 27, 2021 | June 28, 2020 | ||||||||||||||||||
$ | $ | |||||||||||||||||||
Trade receivables | 1.4 | 3.8 | ||||||||||||||||||
Inventories | (63.2) | (16.6) | ||||||||||||||||||
Other current assets | (0.8) | (2.0) | ||||||||||||||||||
Accounts payable and accrued liabilities | (37.9) | (6.2) | ||||||||||||||||||
Provisions | (6.9) | (4.4) | ||||||||||||||||||
Other | 0.5 | 1.0 | ||||||||||||||||||
Change in non-cash operating items | (106.9) | (24.4) |
Canada Goose Holdings Inc. | Page 27 of 27 |