$2.9B
i n r e v e n u e
$429M
i n f r e e c a s h f l o w 1
(1) Please refer to “Definition and reconciliation of non-GAAP
financial measures” in the 2018 Management’s Discussion and
Analysis.
$462M
60
r e t u r n e d t o s h a r e h o l d e r s
m a r k e t s w o r l d w i d e
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* All numbers in this report are in U.S. dollars or otherwise indicated.
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a m e s s a g e f r o m t h e c h a i r m a n
a m e s s a g e f r o m t h e p r e s i d e n t a n d C E O
o u r g r o w t h d r i v e r s & b r a n d s
10
12
17
f i n a n c i a l h i g h l i g h t s
g e n u i n e r e s p o n s i b i l i t y T M
2 0 1 8 r e p o r t t o s h a r e h o l d e r s
a message from
THE CHAIRMAN
On behalf of the Board of Directors, I am
Gildan was able to continue to drive higher
pleased to introduce Gildan’s 2018 Annual
sales, while realizing meaningful cost savings
Report.
across the front end of its business. At the
same time, investments were made towards
The Company delivered strong financial
operational enhancements, not only from a
results this year, in a challenging environment,
manufacturing capacity perspective, given the
demonstrating the strength of Gildan’s
ramp up of production at its newest textile
position as a best-in-class low-cost, vertically-
facility Rio Nance 6, but also in areas related
integrated manufacturer of basic apparel.
to distribution and e-commerce, solidifying the
Navigating through unanticipated weather
Company’s positioning going forward.
impacts and supply chain challenges in 2018,
management demonstrated its resiliency
In addition to driving attractive growth in
and skill running a competitively-advantaged
imprintables, international markets, private
global supply chain, which allowed us to
label, Global Lifestyle Brands and through
continually meet our customer’s needs and to
e-commerce platforms, the Company remained
deliver shareholder value for the long term.
Gildan’s approach to investing capital in
manufacturing, enhancing its product offering,
leveraging its brands, strengthening its
customer relationships and capitalizing on
growth opportunities, has always been one
of the Company’s strongest attributes. In this
regard, in 2018 the Company consolidated its
business divisions into one unified structure
to take advantage of changes in the various
marketplaces that we serve. In doing so
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focused on achieving strong returns on
net assets (RONA)1 across the business, as
ultimately we know this maximizes shareholder
value over the long term. This year Gildan
generated RONA of 15.6%, up 70 basis points
over the prior year. This performance and
strong free cash flow positioned Gildan well to
return $462 million of capital to shareholders
in 2018, in the form of dividends and share buy
backs. Further, on February 21st, we renewed
our share repurchase program and approved
our seventh consecutive annual 20% increase
in our dividend.
GENUINE RESPONSIBILITY™
As a Company, we understand that our
continued growth and future success demands
that we remain committed to operating
responsibly and proactively implementing
sustainable solutions throughout our
operations. We were pleased again this year
to see continued progress with the Company’s
initiatives in the areas of Environmental,
Social and Governance (ESG) practices.
In the past year, the Board was pleased to
see the Company be included in the Dow
Jones Sustainability Index for the sixth
consecutive year, which further demonstrates
the strength of our industry-leading Genuine
Responsibility™ program.
One of the initiatives was the mapping of the
Company’s CSR strategies against specific
United Nations’ Sustainable Development
Goals (SDG’s). This mapping will ensure that
Gildan’s ESG efforts are not only targeted to
issues that are material to the Company and
relevant within the context of its operations
and overall business, but also on issues
that have been prioritized from a global
perspective to affect change for a more
sustainable future.
In 2018, Gildan published its Genuine
Responsibility™ 2017 report, the 14th
consecutive such report, and launched
www.genuineresponsibility.com, a new
dedicated Corporate Social Responsibility
(CSR) website. Leveraging the results from a
comprehensive materiality assessment, Gildan
reset its strategic CSR priorities with the main
areas of focus now captured under three
themes; Caring for our People, Conserving
the Environment and Creating Stronger
Communities.
I am particularly pleased with the progress that
the Company has made in the area of diversity
and inclusion, more specifically executing on
a number of programs aimed at delivering
development opportunities for women. The
Company’s goal is to inspire, engage and
support women in developing their leadership
skills in both their professional and personal
lives. Currently, women represent 47% of
Gildan’s work force and hold over 42% of
management positions. While progress is being
made, we recognize there is more to do.
ENVIRONMENTAL STEWARDSHIP
The Company remains focused as well
on ensuring that business strategies are
developed to include the risks and impacts
of climate change. In these efforts, we were
very pleased to see some of the environmental
metrics the Company reported this past year:
•
10% reduction in water intensity per unit
of output versus 2015 baseline
• 86% recycling or repurposing of total
Company waste
• 43% of total energy consumption
generated from renewable sources
(1) Please refer to “Definition and reconciliation of non-GAAP financial measures” in the 2018 Management’s Discussion and Analysis.
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better insights as we build on our strong culture
of Ethics and Compliance at Gildan.
CONTINUING BOARD STRENGTH
Elected at last year’s annual shareholders’
meeting, Maryse Bertrand, Marc Caira, Charles
M. Herington and Craig Leavitt have brought
strong diversity of experience and valuable
perspectives to our Board. At this year’s
annual meeting Gonzalo F. Valdes-Fauli and
George Heller will be retiring. On behalf of our
shareholders, I would like to thank Gonzalo
for his 15 years of service and George for his
contribution to the Board over the last ten
years.
LOOKING FORWARD
Finally, I would like to thank Glenn, his
leadership team and the over 50,000 employees
that come to work every day with commitment,
focus and passion to make Gildan one of the
world’s leading apparel companies. I also
thank you, our shareholders, for your trust and
confidence in Gildan. As your representatives,
the Board looks forward to working with Glenn
and his senior team in executing on a strategy
that delivers value for all stakeholders and we
remain confident in the long-term success of the
Company.
Sincerely,
William D. Anderson
Chairman
It is important to also acknowledge the
challenges that we face in the ongoing pursuit
of our 2020 goals. In the past year, we reported
a 9% increase in energy intensity per kg of
output versus a 10% decrease reported in the
previous year. This performance is a result of
several factors which the Company feels are
temporary and which are being addressed with
a range of initiatives currently in place.
ETHICS AND COMPLIANCE
Our ongoing commitment to leading
governance standards continues to frame the
Company’s actions and strategies in the area
of Ethics and Compliance. After updating
and refreshing its Code of Conduct and
Code of Ethics over the last couple of years,
the Company provided extensive training
throughout its global operations to ensure
widespread understanding of these codes and
delivered close to 40,000 man-hours of training
this past year.
In 2018, Gildan joined Ethisphere’s Business
Ethics Leadership Alliance, positioning the
Company alongside other leading companies
focused on making ethics a top priority and
giving us all an opportunity to learn from each
other. The Company also launched an Ethics and
Compliance portal supported by strong internal
communication initiatives. Going forward, we
have plans for a global ethics survey to gain
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a message from
THE PRESIDENT
AND CEO
I am proud of the performance we delivered
private label program wins in underwear
in 2018. We achieved the financial targets
and activewear, and the doubling of our
we set for the year and executed on the
e-commerce sales in 2018, we see our
initiatives related to the organizational
strategy unfolding well.
consolidation that we announced at the
beginning of 2018, from which we saw
Our brand positioning in fashion
meaningful cost benefits materialize.
basics together with the cost effective
Towards the latter part of the year, we
manufacturing capacity we have built over
started to execute on supply chain initiatives
the years is enabling us to continue to gain
as the next phase of our plan to drive
share within the fastest-growing segment in
further operational efficiencies across the
the imprintables market, where over the last
organization.
few years we have seen a shift in customer
preference towards lighter-weight, ring-spun
While 2018 was not without its challenges,
garments. This year marked a new milestone
whether it was weather-related impacts
with the launch of operations at our newest
or other supply-chain disruptions, the
textile facility, Rio Nance 6, which features
power of our people, the strength of
new equipment geared for more efficient
our manufacturing expertise and our
production of fashion basics. Combined
entrepreneurial spirit helped us move
with our past investments in ring-spun yarn
through these challenges and deliver on our
capabilities, we feel well positioned to
objectives, including overall sales growth
drive market leadership within this growing
of 6%, adjusted diluted EPS1 of $1.86, up 8%
product category.
over the prior year, and $429 million of free
cash flow1. We also made progress in driving
International sales were very strong this
higher returns on our net assets (RONA)1
year, growing close to 30% in 2018, further
which totalled 15.6% in 2018, up 70 basis
showing that our strategy is working. As
points from 2017 and up 160 basis points
we continue to increase capacity, we are
from 2016. Our efforts to continue to drive
expanding our product offering to these
this measure and to capitalize on the growth
markets and we are introducing additional
opportunities outlined in our strategy will
brands from our portfolio, such as American
position us well to deliver strong shareholder
Apparel® which we launched into Europe
value over the long term.
and Asia, as well as across our e-commerce
platform reaching consumers in over 220
DRIVING OUR STRATEGY
countries.
With further penetration in fashion basics,
strong double-digit growth in international
In 2018, sales to global lifestyle brand
and global lifestyle brand sales, new
customers also grew in the double-digit
(1) Please refer to “Definition and reconciliation of non-GAAP financial measures” in the 2018 Management’s Discussion and Analysis.
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OPTIMIZING OUR ORGANIZATIONAL
STRUCTURE
We were extremely pleased with the
progress we made in 2018 with the
organizational realignment that was
announced at the start of the year. We
successfully combined our two business
segments into one front-end organization
while streamlining various administrative,
marketing and merchandising functions. We
reconfigured our warehouse distribution
network with the opening of two new large
distribution centres and the consolidation of
a number of smaller warehouses. We also
made significant progress with common IT
platforms across our distribution system.
range as we continued to further solidify
These initiatives yielded an improvement of
our position as a strategic supplier for these
100 basis points in SG&A as a percentage of
brands who are increasingly seeking large-
sales for the full year, even after investing
scale, strategically-located suppliers in the
in certain distribution and e-commerce
Western hemisphere who meet their rigorous
capabilities during the first half of 2018.
quality and social compliance criteria.
While we made solid progress in this area in
2018, we plan to continue to build on this in
During 2018, the retail landscape continued
2019.
to evolve. Various market dynamics are
contributing to the resurgence of private
LEVERAGING OUR MANUFACTURING
label brands as traditional retailers focus on
SYSTEM AND DRIVING EFFICIENCIES
differentiating their offerings. Recognizing
Over the last 10 years, we have invested
this shift of focus to private label by certain
close to $1.5 billion into our vertically-
retailers, we quickly capitalized on this
integrated manufacturing system, which
opportunity. In 2018, we captured multiple
differentiates us from an efficiency,
new private label program wins, including
productivity and cost structure standpoint.
programs in the underwear and activewear
While we have a strong manufacturing
product categories.
Furthermore, during 2018 we secured
an additional large private label men’s
platform, we continue to invest in capacity
expansion, technological improvement and
sustainable solutions in manufacturing.
During 2018, we invested $125 million in
underwear program, that will ship in 2019,
capital expenditures which primarily went
with our largest mass retail customer.
This program will ultimately translate into
a 50% shelf space gain, anticipated to
towards textile and sewing expansion,
distribution, IT investments and several
initiatives that reduced our environmental
drive significant incremental volumes. We
footprint. As I mentioned earlier in my letter,
believe this private label trend represents a
towards the end of the second quarter of
meaningful opportunity for our Company to
2018, we started production at our newest
selectively pursue programs which best fit
textile facility, Rio Nance 6, with state-of-
with our core competencies, manufacturing
the art equipment that will give us more
capacity and meet financial return objectives
flexibility in manufacturing performance and
of both Gildan and our retail partners.
fashion products.
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We strongly believe that the combination
these initiatives are expected to support our
of the manufacturing expertise we have
growth while generating increased efficiency
developed from owning and running our own
in manufacturing and cost reductions, which
operations, and the investments we have
are expected to start flowing through late
made throughout the years is the backbone
in 2019 and continue to benefit our cost
of our success. That said, our entrepreneurial
structure in 2020.
spirit drives us to keep moving forward and
to seek opportunities that can enable us to
FUTURE OUTLOOK
drive revenue growth from our platforms and
As we look forward, we remain confident
further efficiency and cost reductions across
in our model and abilities to execute
our supply chain.
against our growth drivers. In February, we
announced our financial targets for 2019, and
During the fourth quarter in 2018, we began
we look forward to delivering another strong
implementing supply chain initiatives to
year. We are excited about our competitive
streamline some of our textile and sock
positioning and our plans to build on our
production capacity in an effort to drive
strengths and we will continue to work
increased operational efficiency across
hard toward the successful execution of our
our manufacturing base. We consolidated
strategy and the creation of value for you,
the textile production from our AKH
our shareholders.
facility, which was situated outside of our
large Rio Nance complex, where all of our
In closing, I would like to extend my deep
infrastructure investments create significant
appreciation to all the people who make this
operational efficiencies. This facility is where
Company successful, our employees for their
we were producing much of our fashion
hard work and dedication, our clients for
basics and performance textiles. Integrating
their loyalty and to our shareholders for their
this production into the new Rio Nance 6
trust and confidence. Our entrepreneurial
facility creates an opportunity to enhance
spirit drives us to keep reaching higher while
efficiency levels, improve quality and lower
ensuring we remain true to our vision of
costs.
Making Apparel Better.
Regarding our sock operations, we
Sincerely,
consolidated the majority of our sock
production in Honduras into one facility, the
Rio Nance 4 facility, where we are focusing
on high value-added, high-return products.
Glenn J. Chamandy
The Rio Nance 3 facility, which was our
President & CEO
other sock facility, is now largely focusing
on our garment dyeing operations. Overall,
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OUR GROWTH
DRIVERS
GROWING SHARE IN FASHION BASICS
Our investments in brands, technology, innovation and vertical integration position
the Company ideally to capture additional share in the fastest growing segment
of global imprintables markets. Our investments in manufacturing ring-spun
yarns and our new Rio Nance 6 textile facility create the perfect manufacturing
capabilities and scale for this key growth driver.
DRIVING INTERNATIONAL GROWTH
Gildan’s global imprintables distribution network, now servicing over 60 countries,
is a springboard for this key growth driver. Our strategic vision is to leverage our
leadership in these networks to introduce new brands, expand product offerings
and enter new markets, always harnessing the strength of our vertically-integrated
model.
CAPITALIZING ON MASS SHIFT TO PRIVATE LABEL
Retailers are focusing on their private label brands, which is creating tremendous
opportunity for Gildan. Our manufacturing expertise, operational efficiencies and
large scale position the Company perfectly to strategically capture private label
opportunities that fit our capacity, align with our capabilities and meet the long-
term financial return objectives of both Gildan and our retail partners.
GROWING WITH GLOBAL LIFESTYLE BRANDS
Gildan’s investments of close to $1.5B in CAPEX over the last 10 years have created
one of the world’s largest and most efficient textile and apparel manufacturing
systems. Coupled with our industry-leading Genuine Responsibility™ CSR programs
and proximity to critical North American markets, these investments make Gildan
an optimal partner for these large global lifestyle brands.
¨
¨
E-COMMERCE
The convergence of the global imprintables and consumer markets, enabled by
e-commerce platform growth, is creating a vehicle for Gildan’s strong portfolio
of brands to reach wider audiences. Our investments in expanded distribution
capabilities, enhanced IT platforms and systems integration are driving new
opportunities within this growing distribution channel.
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¨
FINANCIAL
HIGHLIGHTS
6
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.
.
S
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DILUTED
EARNINGS
PER SHARE
.
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9
.
1
8
(
4
1
0
2
ADJUSTED
EBITDA(1)
1.0x
1.0x
1.0x
2016
2017
2018
0.8x
2014
0.6x
2015
.
6
8
0
9
2
,
.
8
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5
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2
,
.
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4
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NET SALES
9
.
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.
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CAPITAL
EXPENDITURES
FREE CASH
FLOW(1)
NET DEBT TO
ADJUSTED EBITDA(1)
(1) Please refer to “Definition and reconciliation of non-GAAP financial measures” in the 2018 Management’s Discussion and Analysis.
Certain minor rounding variances exist between the consolidated financial statements and this summary.
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(In U.S.$ millions, except per share data and ratios)
2018
2017
2016
2015
2014
Results shown on a calendar year basis
STATEMENT OF EARNINGS
Net sales
Adjusted EBITDA(1)
Operating income
2,908.6
2,750.8
2,585.1
2,568.6
2,299.2
595.5
586.1
523.8
503.8
388.4
403.2
401.0
371.5
367.5
284.8
Adjusted operating income(1)
437.4
423.9
383.2
378.9
289.6
Net earnings
350.8
362.3
346.6
346.1
276.6
Diluted earnings per share
1.66
1.61
1.47
1.42
1.12
Adjusted net earnings(1)
393.1
386.9
356.3
355.4
281.0
Adjusted diluted earnings per share(1)
1.86
1.72
1.51
1.46
1.14
CASH FLOW
Cash flows from operating activities
538.5
613.4
537.9
384.4
244.6
Capital expenditures
Free cash flow(1)
FINANCIAL POSITION
Total assets
Net indebtedness(1)
Shareholders' equity
FINANCIAL RATIOS
(125.2)
(94.8)
(140.2)
(229.6)
(331.9)
428.9
519.2
398.4
158.9
(81.9)
3,004.6
2,980.7
2,990.1
2,834.3
2,648.3
622.3
577.2
561.8
324.3
313.9
1,936.1
2,051.4
2,119.6
2,188.4
1,882.2
Adjusted EBITDA margin(2)
20.5%
21.3%
20.3%
19.6%
16.9%
Operating margin(3)
13.9%
14.6%
14.4%
14.3%
12.4%
Adjusted operating margin(4)
15.0%
15.4%
14.8%
14.8%
12.6%
Adjusted net earnings margin(5)
13.5%
14.1%
13.8%
13.8%
12.2%
Return on net assets (RONA) (1)
15.6%
14.9%
14.0%
14.9%
14.2%
Net debt to adjusted EBITDA(1)
1.0x
1.0x
1.0x
0.6x
0.8x
(1)
Please refer to “Definition and reconciliation of non-GAAP financial measures” in the 2018 Management’s Discussion and Analysis.
(2)
Adjusted EBITDA divided by net sales
(3)
Operating income divided by net sales
(4)
Adjusted operating income divided by net sales
(5)
Adjusted net earnings divided by net sales
Certain minor rounding variances exist between the consolidated financial statements and this summary.
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GENUINE
RESPONSIBILITY
Our commitment to leading CSR practices is deeply embedded within our overall corporate strategy and
recognized as a key driver of our business success. We believe that our goals will be achieved by Caring for
our People, Conserving the Environment and Creating Stronger Communities through our labour practices,
sustainability programs and social initiatives.
OUR COMMITMENTS
CARING FOR
OUR PEOPLE
CONSERVING
THE ENVIRONMENT
CREATING STRONGER
COMMUNITIES
material topics
material topics
material topics
HUMAN AND LABOUR RIGHTS
OPERATIONAL WATER AND
HEALTH AND SAFETY
key focus areas
Offering fair wages
Respecting freedom
of association
WASTEWATER MANAGEMENT
CHEMICAL MANAGEMENT
CLIMATE CHANGE
key focus areas
Optimizing water use
Fostering a diverse and
inclusive workplace
Using, selecting and
managing chemicals safely
Ensuring safe and ergonomic
workplaces
Minimizing our impact
on climate change
BUSINESS IMPACT ON
THE COMMUNITY
key focus areas
Fostering local
economic development
Encouraging community
engagement, education
and active living
Last year, we mapped our material operational impacts against the United Nations’ Sustainable Development
Goals to better frame our strategies against the universal call to action to end poverty, protect the planet and
ensure that all people enjoy peace and prosperity. Our vertically-integrated business model and commitments to
Genuine Responsibility™ give us the ability to create positive change towards the following goals:
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CARING FOR
OUR PEOPLE
We recognize the important role our employees play in our current success and long-term growth.
We are committed to empowering them to succeed by creating healthy and safe work environments,
investing in their personal and professional development and never wavering on our commitment to
treat them with respect and dignity.
KEY HIGHLIGHTS
HUMAN AND LABOUR RIGHTS
HEALTH AND SAFETY
27,469
of our employees are
represented by an
independent trade
union
42%
of our management
positions are
occupied by women
38,500
181,075
Gildan employees
represented by formal
health and safety
committees
medical consulta-
tions provided free of
charge
25,354
employees benefited
from free transporta-
tion to and from work
$15.2M
distributed in
subsidized meals
to employees
$2.3M
spent to provide
medicine, vitamins
and vaccines to our
employees
238
complete social
compliance audits
conducted at our
owned and contractor
facilities
2.19M
man-hours of training
delivered to our
employees globally
Data above is for our 2017 fiscal year. 2018 data will be disclosed in June 2019.
Our work-related
injury rate decreased to
0.34
vs the OSHA
benchmark of 2.0*
* Latest available OSHA benchmark, 2016
28,746
hours of training
offered on our Code
of Conduct
T
R
O
P
E
R
L
A
U
N
N
A
8
1
0
2
14
CONSERVING
THE ENVIRONMENT
Our vertically-integrated business model and large scale have enabled investments in
innovative sustainable solutions at our manufacturing facilities, where we are optimizing our
use of natural resources, increasing our access to renewable energy, recycling our waste and
treating our wastewater naturally.
KEY HIGHLIGHTS
OPERATIONAL WATER
AND WASTEWATER
MANAGEMENT
CHEMICAL
MANAGEMENT
Close to
1 million m 3
of water saved while
increasing production
compared to the
previous year
10%
decrease in water intensity
since 2015
Using Biotop to naturally
treat wastewater with gravity,
bacteria and sunlight to return
clean water back to the
environment.
3,621
hours of training offered on
our Restricted Substances
Code of Practice (RSCP)
View Gildan’s Restricted
Substances List on
genuineresponsibility.com
24
EHS audits conducted at
company-owned facilities
under our Environmental
Management System based
on International standards
27
suppliers in Honduras
received training information
on RSCP
CLIMATE
CHANGE
43%
of our energy is supplied by
renewable resources
140,000
tons of steam generated
from wastewater through
heat recovery systems
86%
of total waste recycled
or repurposed
Data above is for our 2017 fiscal year. 2018 data will be disclosed in June 2019.
2
0
1
8
A
N
N
U
A
L
R
E
P
O
R
T
15
CREATING STRONGER
COMMUNITIES
Our responsibility is to have a positive impact in our communities. We do this by investing in local
economic development, advancing access to education and promoting healthy and active lifestyles,
creating stronger and more resilient communities.
KEY HIGHLIGHTS
FOSTERING
LOCAL
ECONOMIC
DEVELOPMENT
+$150M
worth of materials
and services were
purchased from local
suppliers in Central
America and the
Caribbean Basin
1,040
local suppliers
benefited from our
significant presence
in Honduras
86.5%
of managers world-
wide (director level
and above) were
recruited from
local markets
Data above is for our 2017 fiscal
year. 2018 data will be disclosed
in June 2019.
T
R
O
P
E
R
L
A
U
N
N
A
8
1
0
2
16
ENCOURAGING COMMUNITY ENGAGEMENT,
EDUCATION AND ACTIVE LIVING*
RIO NANCE MEGA
HEALTH FAIR
2,000 employees and their families
attended and were offered services in
general medicine, orthopedics, dentistry,
gynecology, ophthalmology, and
pediatrics, among others.
GLOW RUN
In Honduras, Nicaragua and
Dominican Republic employees
raised more than $100,000 in a
5k run and fundraising event that
united more than 12,000 Gildan
employees and their families.
PARK REFURBISHMENT
Gildan contributed $570,000 towards the
refurbishment of a major community park
in San Pedro Sula, Honduras, providing a
modern, multi-sport recreational space to
unite families and promote active lifestyle.
BLINDNESS PREVENTION
A program held in collaboration
with the Batey Relief Alliance,
for the communities of eastern
Dominican Republic, provided
540 patients free ophthalmological
consultations and prescription lenses.
* Examples of 2017-2018 community initiatives
2018
REPORT TO
SHAREHOLDERS
February 22, 2019
TABLE OF CONTENTS
MANAGEMENT’S DISCUSSION AND ANALYSIS
1.0
PREFACE
2.0
3.0
4.0
5.0
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
OUR BUSINESS
3.1 Overview
3.2 Operating segment reporting
3.3 Our operations
3.4 Competitive environment
STRATEGY AND OBJECTIVES
OPERATING RESULTS
5.1 Overview
5.2 Non-GAAP financial measures
5.3 Selected annual information
5.4 Consolidated operating review
5.5 Summary of quarterly results
5.6
Fourth quarter operating results
FINANCIAL CONDITION
CASH FLOWS
LIQUIDITY AND CAPITAL RESOURCES
LEGAL PROCEEDINGS
6.0
7.0
8.0
9.0
10.0 OUTLOOK
11.0
12.0 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
13.0 ACCOUNTING POLICIES AND NEW ACCOUNTING STANDARDS NOT YET APPLIED
14.0 DISCLOSURE CONTROLS AND PROCEDURES
15.0
16.0 RISKS AND UNCERTAINTIES
INTERNAL CONTROL OVER FINANCIAL REPORTING
FINANCIAL RISK MANAGEMENT
17.0 DEFINITION AND RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
AUDITED ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO AUDITED ANNUAL CONSOLIDATED FINANCIAL STATEMENTS
P. 3
P. 4
P. 5
P. 9
P. 10
P. 19
P. 21
P. 23
P. 25
P. 26
P. 26
P. 31
P. 33
P. 33
P. 34
P. 34
P. 43
P. 47
P. 51
P. 55
MANAGEMENT'S DISCUSSION AND ANALYSIS
1.0 PREFACE
In this Management’s Discussion and Analysis (MD&A), “Gildan”, the “Company”, or the words “we”, “us”, and “our” refer,
depending on the context, either to Gildan Activewear Inc. or to Gildan Activewear Inc. together with its subsidiaries.
This MD&A comments on our operations, financial performance and financial condition as at and for the years ended
December 30, 2018 and December 31, 2017. All amounts in this MD&A are in U.S. dollars, unless otherwise noted. For a
complete understanding of our business environment, trends, risks and uncertainties, and the effect of accounting estimates
on our results of operations and financial condition, this MD&A should be read in conjunction with Gildan’s audited annual
consolidated financial statements for the year ended December 30, 2018 and the related notes.
In preparing this MD&A, we have taken into account all information available to us up to February 21, 2019, the date of this
MD&A. The audited annual consolidated financial statements and this MD&A were reviewed by Gildan’s Audit and Finance
Committee and were approved and authorized for issuance by our Board of Directors on February 20, 2019.
All financial information contained in this MD&A and in the audited annual consolidated financial statements has been prepared
in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards
Board (IASB), except for certain information discussed in the section entitled “Definition and reconciliation of non-GAAP
financial measures” in this MD&A.
Additional information about Gildan, including our 2018 Annual Information Form, is available on our website at
www.gildancorp.com, on the SEDAR website at www.sedar.com, and on the EDGAR section of the U.S. Securities and
Exchange Commission website (which includes the Annual Report on Form 40-F) at www.sec.gov.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
2.0 CAUTION REGARDING FORWARD-LOOKING STATEMENTS
Certain statements included in this MD&A constitute “forward-looking statements” within the meaning of the U.S. Private
Securities Litigation Reform Act of 1995 and Canadian securities legislation and regulations and are subject to important
risks, uncertainties, and assumptions. This forward-looking information includes, amongst others, information with respect
to our objectives and the strategies to achieve these objectives, as well as information with respect to our beliefs, plans,
expectations, anticipations, estimates, and intentions. In particular, information appearing under the headings “Our business
- Our operations”, “Strategy and objectives”, "Operating results", “Liquidity and capital resources - Long-term debt and net
indebtedness”, and “Outlook” contain forward looking statements. Forward-looking statements generally can be identified
by the use of conditional or forward-looking terminology such as “may”, “will”, “expect”, “intend”, “estimate”, “project”, “assume”,
“anticipate”, “plan”, “foresee”, “believe”, or “continue”, or the negatives of these terms or variations of them or similar
terminology. We refer you to the Company’s filings with the Canadian securities regulatory authorities and the U.S. Securities
and Exchange Commission, as well as the risks described under the “Financial risk management”, “Critical accounting
estimates and judgments”, and “Risks and uncertainties” sections of this MD&A for a discussion of the various factors that
may affect the Company’s future results. Material factors and assumptions that were applied in drawing a conclusion or
making a forecast or projection are also set out throughout this document.
Forward-looking information is inherently uncertain and the results or events predicted in such forward-looking information
may differ materially from actual results or events. Material factors, which could cause actual results or events to differ
materially from a conclusion, forecast, or projection in such forward-looking information, include, but are not limited to:
•
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our ability to implement our growth strategies and plans;
our ability to successfully integrate acquisitions and realize expected benefits and synergies;
the intensity of competitive activity and our ability to compete effectively;
changes in general economic and financial conditions globally or in one or more of the markets we serve;
our reliance on a small number of significant customers;
the fact that our customers do not commit to minimum quantity purchases;
our ability to anticipate, identify, or react to changes in consumer preferences and trends;
our ability to manage production and inventory levels effectively in relation to changes in customer demand;
fluctuations and volatility in the price of raw materials used to manufacture our products, such as cotton, polyester
fibres, dyes and other chemicals;
our reliance on key suppliers and our ability to maintain an uninterrupted supply of raw materials and finished goods;
the impact of climate, political, social, and economic risks in the countries in which we operate or from which we
source production;
disruption to manufacturing and distribution activities due to such factors as operational issues, disruptions in
transportation logistic functions, labour disruptions, political or social instability, bad weather, natural disasters,
pandemics, and other unforeseen adverse events;
compliance with applicable trade, competition, taxation, environmental, health and safety, product liability,
employment, patent and trademark, corporate and securities, licensing and permits, data privacy, bankruptcy, anti-
corruption, and other laws and regulations in the jurisdictions in which we operate;
the imposition of trade remedies, or changes to duties and tariffs, international trade legislation, bilateral and
multilateral trade agreements and trade preference programs that the Company is currently relying on in conducting
its operations or the application of safeguards thereunder;
factors or circumstances that could increase our effective income tax rate, including the outcome of any tax audits or
changes to applicable tax laws or treaties;
changes to and failure to comply with consumer product safety laws and regulations;
changes in our relationship with our employees or changes to domestic and foreign employment laws and
regulations;
negative publicity as a result of actual, alleged, or perceived violations of labour and environmental laws or international
labour standards, or unethical labour or other business practices by the Company or one of its third-party contractors;
changes in third-party licensing arrangements and licensed brands;
our ability to protect our intellectual property rights;
operational problems with our information systems as a result of system failures, viruses, security and cyber security
breaches, disasters, and disruptions due to system upgrades or the integration of systems;
an actual or perceived breach of data security;
our reliance on key management and our ability to attract and/or retain key personnel;
changes in accounting policies and estimates; and
exposure to risks arising from financial instruments, including credit risk on trade accounts receivables and other financial
instruments, liquidity risk, foreign currency risk, and interest rate risk, as well as risks arising from commodity prices.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
These factors may cause the Company’s actual performance and financial results in future periods to differ materially from
any estimates or projections of future performance or results expressed or implied by such forward-looking statements.
Forward-looking statements do not take into account the effect that transactions or non-recurring or other special items
announced or occurring after the statements are made may have on the Company’s business. For example, they do not
include the effect of business dispositions, acquisitions, other business transactions, asset write-downs, asset impairment
losses, or other charges announced or occurring after forward-looking statements are made. The financial impact of such
transactions and non-recurring and other special items can be complex and necessarily depends on the facts particular to
each of them.
There can be no assurance that the expectations represented by our forward-looking statements will prove to be correct.
The purpose of the forward-looking statements is to provide the reader with a description of management’s expectations
regarding the Company’s future financial performance and may not be appropriate for other purposes. Furthermore, unless
otherwise stated, the forward-looking statements contained in this report are made as of the date hereof, and we do not
undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result
of new information, future events or otherwise unless required by applicable legislation or regulation. The forward-looking
statements contained in this report are expressly qualified by this cautionary statement.
3.0 OUR BUSINESS
3.1 Overview
Gildan is a leading manufacturer of everyday basic apparel, including activewear, underwear, socks, hosiery, and legwear
products sold in North America, Europe, Asia-Pacific, and Latin America to wholesale distributors, screenprinters or
embellishers, as well as to retailers in North America, and directly to consumers, primarily through our own e-commerce
platforms. Since its formation, the Company has made significant capital investments in developing its own large-scale, low-
cost vertically integrated supply chain, encompassing yarn production, textile and sock manufacturing, and sewing operations.
Gildan's manufacturing operations are located in Central America, the Caribbean Basin, North America, and Bangladesh.
We believe the skill set that we have developed in designing, constructing, and operating our own manufacturing facilities
combined with the significant capital investments made over the years in that respect, well above average industry capital
intensity levels, are strong factors that differentiate us from our competition. More than 90% of our sales are derived from
products we produce ourselves. Owning and operating the vast majority of our manufacturing facilities allows us to exercise
tighter control over our production processes and to ensure adherence to high standards for environmental and social
responsibility practices throughout our supply chain. In addition, running our own operations enables us to better control
operational efficiency, costs, and product quality, as well as provide a reliable supply chain with short production/delivery
cycle times.
3.2 Operating segment reporting
Effective January 1, 2018, the Company implemented executive leadership changes and consolidated its organizational
structure to better leverage its go-to-market strategy across its brand portfolio and drive greater operational efficiency across
the organization. The Company combined its Printwear and Branded Apparel operating businesses into one consolidated
divisional operating structure, reflecting how the business is managed and reviewed by the Company’s chief operating
decision maker. Consequently, starting in 2018 the Company began reporting under one reportable business segment.
3.3 Our Operations
3.3.1 Brands, Products, and Customers
The products we manufacture and sell are marketed under our Company-owned brands, including Gildan®, American
Apparel®, Comfort Colors®, Gildan® Hammer™, Gold Toe®, Anvil®, Alstyle®, Secret®, Silks®, Kushyfoot®, Secret Silky®,
Therapy Plus™, Peds® and MediPeds®. Through a sock licensing agreement providing exclusive distribution rights in the
United States and Canada, we also sell socks under the Under Armour® brand. In addition, we manufacture and supply
products to select leading global athletic and lifestyle brands, as well as to certain retail customers who market these products
under their own brands.
Our primary product categories include activewear, underwear and hosiery, the vast majority of which we manufacture. Some
of our brands also extend to other categories such as intimates, shapewear, denim, and peripheral or fringe products like
caps, totes, towels, and other accessories which are primarily sourced through third-party suppliers.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
We sell our activewear products primarily in “blank” or undecorated form, without imprints or embellishment. Activewear
products are primarily sold to wholesale distributors within the imprintables channel, who then sell the blanks to screenprinters/
embellishers who decorate the products with designs and logos, and in turn sell the embellished/imprinted activewear into
a highly diversified range of end-use markets. These include educational institutions, athletic dealers, event merchandisers,
promotional product distributors, charitable organizations, entertainment promoters, travel and tourism venues, and retailers.
In addition to socks and underwear for men, ladies, and kids, as well as other hosiery products such as pantyhose and
leggings, we also sell our activewear products to various retailers. These retailers include mass merchants, dollar stores,
department stores, national chains, sports specialty stores, craft stores, food and drug retailers, and price clubs, all of which
sell to consumers through their brick and mortar outlets. Consumers also buy our products through our retail customers’ e-
commerce platforms and our own websites. In addition to selling our products to retailers, we manufacture for and sell to
select leading global athletic and lifestyle consumer brand companies who distribute these products within the retail channel.
The following table summarizes our product and brand offerings:
Primary product
categories
Product-line details
Brands
Activewear
T-shirts, fleece tops and bottoms, and
sport shirts
Gildan®, Gildan Performance®, Gildan Platinum®(1), Gildan® Hammer™,
Comfort Colors®(2), American Apparel®, Anvil®, Alstyle®(2), Gold Toe®
Hosiery
Underwear
Intimates
Other
athletic, dress, casual and workwear
socks, liner socks, socks for therapeutic
purposes(4), sheer panty hose(5),
tights(5), and leggings(5)
Gildan®, Gildan Platinum®(1)
Under Armour®(3), Gold Toe®, PowerSox®,
,
GT a Gold Toe Brand®, Silver Toe®, Signature Gold by Goldtoe®, Peds®,
MediPeds®, Kushyfoot®(1), Therapy Plus®(1), All Pro®, Secret®(1),
Silks®(1), Secret Silky®, American Apparel®
men's and boys' underwear (tops and
bottoms) and ladies panties
ladies shapewear, intimates, and
accessories
Gildan®, Gildan Platinum®(1), American Apparel®
Secret®(1), American Apparel®, Secret Silky®
To round out our product offerings for certain brands, we also offer other products, including but not limited to denim,
jackets, sweaters, bodysuits, skirts, dresses, accessories, which are mainly sourced through third-party suppliers
(1) Gildan Platinum® and Kushyfoot® are registered trademarks in the U.S. Secret®, Silks®, and Therapy Plus® are registered trademarks in Canada.
(2) Comfort Colors® and Alstyle® are registered trademarks in the U.S.
(3) Under license agreement for socks only - with exclusive distribution rights in the U.S. and Canada.
(4) Applicable only to Therapy Plus® and MediPeds®.
(5) Applicable only to Secret®, Silks®, Secret Silky®, and Peds®.
3.3.2 Manufacturing
The vast majority of our products are manufactured in facilities that we own and operate. To a lesser extent, we also use
third-party contractors to supplement our requirements. Our vertically integrated manufacturing operations include capital-
intensive yarn-spinning, textile, sock, and sheer hosiery manufacturing facilities, as well as labour-intensive sewing facilities.
Our manufacturing operations are situated in five main hubs, including the United States, Central America, the Caribbean
Basin, Mexico, and Bangladesh. All of our yarn-spinning operations are located in the United States, while textile, sewing,
and sock manufacturing operations are situated in the other geographical hubs mentioned above, the largest of which is in
Central America, in Honduras.
In order to support further sales growth, we continue to expand our manufacturing capacity, including investments in technology
to enhance our capabilities in the production of fashion basics and performance garments.
Developments in 2018
During 2018, we consolidated and reduced some of our sock manufacturing capacity. In the third quarter of 2018, we closed
a smaller sock facility in North Carolina, U.S., which was acquired as part of the acquisition of Peds Legwear Inc. (Peds),
and transitioned the production to our Rio Nance 4 sock facility in Honduras. During the fourth quarter, we also began
consolidating our sock operations in Honduras into one facility by integrating the majority of our sock production into our Rio
Nance 4 facility. The Rio Nance 3 facility, previously our other sock facility, is now largely focusing on our garment dyeing
operations. In the fourth quarter of 2018, we also made the decision to close the AKH textile facility in Honduras, which was
acquired as part of the Anvil acquisition in 2012, operating in leased premises outside of our large manufacturing complex
GILDAN 2018 REPORT TO SHAREHOLDERS P. 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
in Rio Nance. Textile production from AKH was transitioned to our new state-of-the art Rio Nance 6 textile facility which began
operations towards the end of the second quarter of 2018. Rio Nance 6 is being ramped up with new equipment geared for
more efficient production of fashion basics. All textile production in Honduras will now be contained within our large Rio Nance
complex.
The following table provides a summary of our primary manufacturing operations by geographic area:
Canada
United States
Central America Caribbean Basin Mexico
Asia
Yarn-spinning
facilities:(1)
conversion of
cotton, polyester
and other fibres into
yarn
Textile facilities:
knitting yarn into
fabric, dyeing and
cutting fabric
Sewing facilities(2)
assembly and
sewing of cut goods
:
Garment-dyeing:(3)
pigment dyeing or
reactive dyeing
process
Hosiery
manufacturing
facilities:
conversion of yarn
into finished socks/
sheer hosiery
Clarkton, NC
Cedartown, GA
Columbus, GA
(2 facilities)
Salisbury, NC
(2 facilities)
Mocksville, NC
Honduras
(4 facilities)
Dominican
Republic
Dominican
Republic
(3 facilities)
Ensenada
Hermosillo
Agua Prieta
Honduras
(4 facilities)
Nicaragua
(3 facilities)
Honduras
(1 facility)
Honduras
(1 facility)
(1) While the majority of our yarn requirements are internally produced, we also use third-party yarn-spinning suppliers, primarily in the U.S., to satisfy the
remainder of our yarn needs.
(2) While we operate the majority of our sewing facilities, we also use the services of third-party sewing contractors, primarily in Haiti, Nicaragua and other
regions in Central America, as well as Mexico, to satisfy the remainder of our sewing requirements.
(3) Garment dyeing is a feature of our Comfort Colors® products only, which involves a different dyeing process than how we typically dye the majority of our
products. Our garment dyeing operations are located in our Rio Nance 3 facility in Honduras.
3.3.3 Genuine Responsibility™
Embedded in our long-term vision of 'Making Apparel Better', our commitment to operating responsibly and integrating
sustainability into our business practices is a key part of our business strategy and has been an important element of our
success. Over the past two decades, we have developed our Genuine Responsibility™ CSR program, incorporating industry-
leading guidelines to govern our business activities and operations, and to provide a framework for responsible labour
practices, sustainability programs, and social initiatives. Our program is centered around three fundamental priorities, namely
'Caring for our People', 'Conserving the Environment', and 'Creating Stronger Communities'.
We are committed to empowering our people through training and development programs and providing industry leading
working conditions and progressive compensation packages at each of our worldwide locations. Our efforts around conserving
the environment include the investment in and implementation of innovative solutions that reduce the environmental impact
of our operations throughout our supply chain, including responsibly managing water usage, wastewater, energy, carbon
emissions, and solid waste. We also strive to create stronger communities in all of the regions where we operate through
dedicated support for education, active living, entrepreneurship, and environmental stewardship initiatives.
Gildan recognizes that transparency is an important driver of our ongoing efforts, allowing closer engagement with a wide
array of stakeholders, and is proud to have published its fourteenth consecutive Sustainability Report in 2018. Reported
under the stringent GRI-Comprehensive guidelines, this report describes our progress, challenges, and future goals and
initiatives. We are proud of our accomplishments in the area of corporate social responsibility and the recognitions we've
earned, including our sixth consecutive inclusion in the Dow Jones Sustainability Index and our 10th FundaHRSE CSR seal.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
We remain committed to furthering our efforts in the areas of focus we have outlined as part of our Genuine Responsibility™
program. Please refer to www.genuineresponsibility.com for more information.
3.3.4 Sales, marketing, and distribution
Our global sales and marketing office is located in Christ Church, Barbados, out of which we have established customer-
related functions, including sales management, marketing, customer service, credit management, sales forecasting, and
production planning, as well as inventory control and logistics. We also maintain sales offices in the U.S. We have established
extensive distribution operations worldwide primarily through internally managed and operated distribution centres. We
distribute our products out of our Company-operated large distribution centres in the United States, in Eden, NC, Charleston,
SC, Jurupa Valley, CA, and Jacksonville, FL, and out of smaller facilities in the U.S. and Canada, as well as out of Company-
owned distribution facilities in Honduras and Mexico. To supplement some of our distribution needs, we use third-party
warehouses in the U.S., Canada, Mexico, Colombia, Europe, and Asia.
Developments in 2018
As part of our organization consolidation, effective January 1, 2018, which included the combination of our former Printwear
and Branded Apparel operating business into one consolidated divisional operating structure, we centralized marketing,
merchandising, sales, and administrative functions and streamlined our distribution network, including the closure of smaller
owned and leased warehouse facilities, as well as the start-up of new larger distribution centres in the west and east coasts
of the United States.
3.3.5 Employees and corporate office
We currently employ over 50,000 employees worldwide. Our corporate head office is located in Montreal, Canada.
3.4 Competitive environment
The basic apparel market for our products is highly competitive and continuously evolving. Changing market dynamics, such
as the growth of on-line shopping, declining store traffic trends, as well as retailer closures and consolidation, are intensifying
competition while at the same time presenting opportunities for various market participants. Competition is generally based
upon price, quality and consistency, comfort, fit, style, brand, and service. We compete on these factors by leveraging our
competitive strengths, including our strategically located manufacturing operations and supply chain, scale, cost structure,
global distribution, and our brand positioning in the markets we serve. We believe the skill set we have developed in owning
and operating manufacturing operations together with the significant capital investments we have made, which have been
above historical industry averages, are key competitive strengths.
We face competition from large and smaller U.S.-based and foreign manufacturers or suppliers of basic family apparel.
Among the larger competing North American-based manufacturers are Fruit of the Loom, Inc., a subsidiary of Berkshire
Hathaway Inc., which competes through its own brand offerings and those of its subsidiary, Russell Corporation, as well as
Hanesbrands Inc. (Hanesbrands). These companies manufacture out of similar geographies as Gildan and compete primarily
within the same basic apparel product categories in similar channels of distribution in North America and international markets.
In socks and underwear, our competitors also include Garan Incorporated, Renfro Corporation, Jockey International, Inc.,
Kayser Roth Corporation, and Spanx, Inc. In addition, we compete with smaller U.S.-based competitors selling to or operating
as wholesale distributors of imprintable activewear products, including Next Level Apparel, Bella + Canvas, Delta Apparel
Inc., and Color Image Apparel, Inc., as well as Central American and Mexican manufacturers. Competing brands also include
various private label brands controlled and sold by many of our customers, including wholesale distributors within the
imprintables channel and retailers. In recent years, we have seen an increase in private label offerings, particularly within
the mass retail channel, replacing branded offerings. While this trend creates additional competition for our brands, it also
provides opportunity for the Company to become a strategic supplier to these customers, given the Company’s scale and
manufacturing capabilities.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
4.0 STRATEGY AND OBJECTIVES
Our growth strategy is composed of the following strategic drivers:
4.1 Growing share in fashion basics
Within the imprintables channel, there are three main categories for activewear, namely “basics”, “fashion basics”, and
“performance basics”. The Company historically focused on the basics category and over the years gained significant market
share penetration with the Gildan® brand becoming the leading brand in this category in North America. In more recent
years, we have seen an acceleration of industry growth in the fashion basics and performance basics categories, due in part
to end users shifting preference to lighter weight and softer fabrics (fashion basics), or garments offering attributes featuring
moisture wicking and anti-microbial properties for long-lasting comfort and performance (performance basics). Fashion basics
products are produced with higher quality cotton ring-spun yarns and/or blended yarn fibres and may feature more fitted
silhouettes, side seam stitching, and stretch attributes, among other characteristics. Over the last few years we have started
to pursue gains in market share in these categories and have developed and acquired brands which are well positioned to
drive growth in these categories. Our opening price point offering is marketed under the Gildan® and Gildan® Hammer™
brands. Higher price point offerings include the Anvil® brand, the American Apparel® brand, which is positioned as a premium
brand in fashion basics, and the Comfort Colors® brand, also a premium brand, which features garment-dyed activewear
products. In the performance category, we market our products under our Gildan Performance® brand offering. We have
also invested in developing our own yarn-spinning manufacturing facilities, thereby securing our own cost-effective ring-spun
yarn supply. In addition, our newest textile facility Rio Nance 6, which began production during 2018, is being ramped up
with new equipment geared for more efficient production of fashion basics. With strong brand positioning in these categories
supported by cost-effective manufacturing operations, including yarn capabilities, we believe we are well positioned to drive
market leadership within imprintable fashion and performance basics.
4.2 Driving international growth
We are pursuing further growth within the imprintable channel of international markets, focusing in Europe, Asia-Pacific, and
Latin America, where we estimate the addressable market opportunity in aggregate to be large. Currently our sales outside
the United States and Canada represent approximately 10% of our total consolidated net sales. We are continuing to expand
our manufacturing capacity to support further penetration in these markets where our growth has been somewhat restricted
by capacity availability. We have been increasing capacity at our manufacturing hub in Asia, specifically in Bangladesh, which
is dedicated to supporting international markets. To support requirements for Europe, we also use supply from our Central
American hub, where we are also expanding capacity. We intend to continue to pursue further sales growth internationally
by leveraging the extensive breadth of our North American product line to further develop and broaden our international
product offering and enhance the profitability mix of our international sales. Our current sales base has been established
primarily through the sale of products marketed under the Gildan® brand. We are now leveraging additional brands from our
portfolio, such as the American Apparel® and Comfort Colors® brands, among others, across the international markets in
which we compete.
4.3 Capitalizing on retailer private label program opportunities that fit within our business model
The apparel market is evolving and various market dynamics are unfolding. E-commerce as a distribution platform is impacting
the retail landscape in various ways. On-line shopping facilitates price transparency and has led to brand proliferation due
to low barriers of entry given the lack of shelf space limitations as in the traditional brick and mortar outlets. We believe these
factors are contributing to the resurgence of private label brands by traditional retailers trying to differentiate their offerings
and enhance profitability.
While we continue to pursue sales growth with our own brands, in light of the rising trend of retailers shifting focus to proprietary
private label brands, particularly mass merchants, the Company is also pursuing opportunities to supply retailers with products
for their own private label programs. The mass tier within the retail channel represents the largest share of sales of basic
apparel products. While we have established relationships and a sales base with mass retailers, our overall basic apparel
market share within this channel for our own brands is small compared to the market share held by national brands. We
believe we are well positioned to support retailers who are seeking low-cost, large-scale manufacturers to support their
private label program requirements. The Company intends to pursue private label programs aligned to its operational and
financial criteria, including product and SKU complexity and size of program, financial return targets, duration or term of
expiry of the agreement, and working capital investment requirements, among other factors of consideration.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
4.4 Growing with global athletic and lifestyle brands
We have also developed strong relationships with, and are targeting to grow our sales as a supply chain partner to a small
number of select leading global athletic and lifestyle brands for which we manufacture products, but against which our brands
do not compete directly. We believe we are well positioned to service global brands that are increasingly looking to source
from manufacturers that meet rigorous quality and social compliance criteria, strategically located in the Western Hemisphere.
The majority of our sales to global lifestyle brands are primarily derived from the sale of activewear products. In recent years
we have also started to sell sock products to one of our global brand customers and we believe there is an opportunity to
leverage our relationships with these customers to continue to grow our sales in activewear and socks.
4.5 Pursuing e-commerce growth
We are targeting to grow our sales by leveraging our brand portfolio across our e-commerce infrastructure and the on-line
platforms of our customers. Accessibility to consumers and end-users through e-commerce is increasing, and “space” to
market products on-line is not a constraining factor for growth as in the traditional brick and mortar retailer channel.
Consequently, e-commerce is creating opportunities for our brands. The Company has been investing in building its e-
commerce capabilities, including the development of a strong operational e-commerce team and investments in enhancing
direct-to-consumer distribution capabilities.
4.6 Enhancing sales and earnings growth with acquisitions that complement our strategy
We believe we can enhance our sales and earnings growth by continuing to seek complementary strategic acquisition
opportunities. We intend to use our free cash flow and debt financing capacity to pursue acquisitions which meet our criteria.
Over the past decade, we have completed acquisitions which have added brands to our portfolio or expanded our product
offering, enhanced our manufacturing capabilities, or expanded our distribution or presence in geographical markets. The
three main considerations around which we have developed our criteria for evaluating acquisition opportunities include: (1)
strategic fit; (2) ease of integration; and (3) financial targets, including return on investment thresholds, based on our risk-
adjusted cost of capital.
5.0 OPERATING RESULTS
5.1 Overview
This MD&A comments on our operations, financial performance, and financial condition as at and for the fiscal year ended
December 30, 2018 (Fiscal 2018) and the fiscal year ended December 31, 2017 (Fiscal 2017).
5.2 Non-GAAP financial measures
We use non-GAAP financial measures (non-GAAP measures) to assess our operating performance. Securities regulations
require that companies caution readers that earnings and other measures adjusted to a basis other than IFRS do not have
standardized meanings and are unlikely to be comparable to similar measures used by other companies. Accordingly, they
should not be considered in isolation. We use non-GAAP measures including adjusted net earnings, adjusted diluted EPS,
adjusted operating income, adjusted operating margin, adjusted EBITDA, free cash flow, total indebtedness, net indebtedness
(total indebtedness net of cash and cash equivalents), net debt leverage ratio, and return on net assets (RONA) to measure
our performance and financial condition from one period to the next, which excludes the variation caused by certain
adjustments that could potentially distort the analysis of trends in our operating performance, and because we believe such
measures provide meaningful information on the Company’s financial condition and financial performance. In 2018, we began
reporting RONA as a non-GAAP financial measure.
We refer the reader to section 17.0 entitled “Definition and reconciliation of non-GAAP financial measures” in this MD&A for
the definition and complete reconciliation of all non-GAAP measures used and presented by the Company to the most directly
comparable IFRS measures.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
5.3 Selected annual information
(in $ millions, except per share amounts or
otherwise indicated)
Net sales
Gross profit
SG&A expenses
Restructuring and acquisition-related
costs
Operating income
Adjusted operating income(1)
Adjusted EBITDA(1)
Financial expenses
Income tax expense
Net earnings
Adjusted net earnings(1)
Basic EPS
Diluted EPS
Adjusted diluted EPS(1)
Gross margin
SG&A expenses as a percentage of sales
Operating margin
Adjusted operating margin (1)
Total assets
Total non-current financial liabilities
Net indebtedness(1)
Return on net assets (RONA)(1)
Annual cash dividends declared per
common share
Net debt leverage ratio(1)
n/a = not applicable
2018
2017
2016
2,908.6
806.0
368.5
2,750.8
801.2
377.3
2,585.1
719.7
336.4
34.2
403.2
437.4
595.5
31.0
21.4
350.8
393.1
1.66
1.66
1.86
22.9
401.0
423.9
586.1
24.2
14.5
362.3
386.9
1.62
1.61
1.72
11.7
371.5
383.2
523.8
19.7
5.2
346.6
356.3
1.47
1.47
1.51
27.7%
12.7%
13.9%
15.0%
29.1%
13.7%
14.6%
15.4%
27.8%
13.0%
14.4%
14.8%
3,004.6
669.0
622.3
2,980.7
630.0
577.2
2,990.1
600.0
561.8
15.6%
14.9%
14.0%
Variation 2018-2017 Variation 2017-2016
%
%
$
$
157.8
4.8
(8.8)
11.3
2.2
13.5
9.4
6.8
6.9
(11.5)
6.2
0.04
0.05
0.14
n/a
n/a
n/a
n/a
23.9
39.0
45.1
n/a
5.7 %
0.6 %
(2.3)%
49.3 %
0.5 %
3.2 %
1.6 %
28.1 %
47.6 %
(3.2)%
1.6 %
2.5 %
3.1 %
8.1 %
(1.4) pp
(1.0) pp
(0.7) pp
(0.4) pp
0.8 %
6.2 %
7.8 %
165.7
81.5
40.9
11.2
29.5
40.7
62.3
4.5
9.3
15.7
30.6
0.15
0.14
0.21
n/a
n/a
n/a
n/a
(9.4)
30.0
15.4
6.4 %
11.3 %
12.2 %
95.7 %
7.9 %
10.6 %
11.9 %
22.8 %
178.8 %
4.5 %
8.6 %
10.2 %
9.5 %
13.9 %
1.3 pp
0.7 pp
0.2 pp
0.6 pp
(0.3)%
5.0 %
2.7 %
0.7 pp
n/a
0.9 pp
0.448
0.374
1.0
1.0
0.312
1.0
0.074
19.8 %
0.062
19.9 %
n/a
n/a
n/a
n/a
(1) See section 17.0 "Definition and reconciliation of non-GAAP financial measures" in this MD&A.
Certain minor rounding variances exist between the consolidated financial statements and this summary.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
5.4 Consolidated operating review
5.4.1 Net sales
(in $ millions, or otherwise indicated)
2018
2017
2016
Variation 2018-2017 Variation 2017-2016
%
%
$
$
Activewear
Hosiery and underwear(1)
Total net sales
(1) Also includes intimates and other fringe products.
2,321.4
587.2
2,908.6
2,043.1
707.7
2,750.8
1,888.9
696.2
2,585.1
278.3
(120.5)
157.8
13.6 %
(17.0)%
5.7 %
154.2
11.5
165.7
8.2%
1.7%
6.4%
Certain minor rounding variances exist between the consolidated financial statements and this summary.
Fiscal 2018 compared to fiscal 2017
Net sales increased by $157.8 million for the year ended December 30, 2018 compared to last year. Sales growth for the
year reflected a 13.6% increase in activewear sales, partly offset by a 17.0% decline in the hosiery and underwear category.
The increase in activewear sales was driven by higher unit sales volume and net selling prices, more favourable product
mix, and positive foreign exchange impacts compared to the prior year. Activewear unit volume growth was mainly due to
higher shipments of imprintable products in the U.S., including fashion basics and fleece products, combined with strong
double digit unit sales volume growth in international markets and higher unit sales of global lifestyle brand products. The
decline in the hosiery and underwear category was mainly due to lower sock volumes in the mass market channel, particularly
as a result of the shift to private label brands by mass retailers, as well as declines in licensed and Gold Toe® brand sales.
Favourable product-mix was driven by higher sales of fleece and fashion basics and higher value sock sales. The Company's
net sales growth for 2018 of 5.7% was in line with its guidance of net sales growth in the mid-single digit range, and the
$120.5 million decline in the hosiery and underwear category was essentially in line with the Company's latest guidance
projecting a decline in the category of approximately $125 million.
Fiscal 2017 compared to fiscal 2016
The $165.7 million, or 6.4%, increase in net sales was due to an 8.2% increase in activewear sales and a 1.7% increase in
the hosiery and underwear category. Activewear sales growth in 2017 was mainly due to the incremental sales contribution
of approximately $94 million from the combined acquisitions of Alstyle and American Apparel, higher net selling prices, double-
digit organic unit sales volume growth in fashion basics, favourable product mix, and increased shipments in international
markets. These positive factors were partly offset by lower unit sales of activewear basics and unfavourable foreign exchange.
The sales increase in the Hosiery and underwear category was due to the incremental sales contribution of approximately
$39 million from the Peds acquisition and higher underwear sales, partly offset by lower sock sales and the impact from the
planned exit of private label programs.
5.4.2 Gross profit
(in $ millions, or otherwise indicated)
2018
2017
2016
719.7
Gross profit
27.8%
Gross margin
Certain minor rounding variances exist between the consolidated financial statements and this summary.
801.2
29.1%
806.0
27.7%
Variation
2018-2017
Variation
2017-2016
4.8
(1.4) pp
81.5
1.3 pp
Gross profit is the result of our net sales less cost of sales. Gross margin reflects gross profit as a percentage of sales. Our
cost of sales includes all raw material costs, manufacturing conversion costs, including manufacturing depreciation expense,
sourcing costs, inbound freight and inter-facility transportation costs, and outbound freight to customers. Cost of sales also
includes the costs of purchased finished goods, costs relating to purchasing, receiving and inspection activities, manufacturing
administration, third-party manufacturing services, sales-based royalty costs, insurance, inventory write-downs, and customs
and duties. Our reporting of gross profit and gross margin may not be comparable to these metrics as reported by other
companies, since some entities include warehousing and handling costs and/or exclude depreciation expense, outbound
freight to customers, and royalty costs from cost of sales.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 12
MANAGEMENT'S DISCUSSION AND ANALYSIS
Fiscal 2018 compared to fiscal 2017
The 140 basis point decline in gross margin in 2018 over the prior year was mainly due to higher raw material and other
input costs, as well as higher manufacturing costs primarily related to disruptions in our supply chain which occurred earlier
in the year, and costs related to the ramp up of activewear capacity, partly offset by higher net selling prices and the benefit
of a richer product-mix compared to last year.
Fiscal 2017 compared to fiscal 2016
Gross margin increased by 130 basis points in fiscal 2017 over the prior year, mainly due to higher net selling prices and
favourable product mix primarily driven by higher sales of fashion basics and fleece products, partly offset by lower sales of
higher margin socks products.
5.4.3 Selling, general and administrative expenses
(in $ millions, or otherwise indicated)
2018
2017
2016
336.4
SG&A expenses
13.0%
SG&A expenses as a percentage of sales
Certain minor rounding variances exist between the consolidated financial statements and this summary.
368.5
12.7%
377.3
13.7%
Variation
2018-2017
Variation
2017-2016
(8.8)
(1.0) pp
40.9
0.7 pp
Fiscal 2018 compared to fiscal 2017
The decline in selling, general and administrative expenses (SG&A) and the 100 basis point improvement in SG&A as a
percentage of sales in 2018 were mainly due to the benefit of cost reductions resulting from our organizational realignment
which we began to implement at the start of the year. We generated cost reductions from the consolidation of marketing,
sales, distribution, and administrative functions which more than offset investments related to e-commerce and distribution
capabilities primarily in the first half of the year. SG&A expenses as a percentage of sales for the second half of 2018 were
12.3%, down 220 basis points compared to 14.5% in the second half of 2017, and exceeded the Company's guidance calling
for SG&A expenses as a percentage of sales in the second half of the year to be lower by 100 to 200 basis points compared
to the prior year, due to better than anticipated cost management.
Fiscal 2017 compared to fiscal 2016
The increase in SG&A in 2017 compared to 2016 was mainly due to the impact of acquisitions and other expenses, including
distribution and e-commerce costs, as well as higher variable compensation expenses.
5.4.4 Restructuring and acquisition-related costs
(in $ millions)
Employee termination and benefit costs
Exit, relocation and other costs
Net loss on disposal of property, plant and
equipment related to exit activities
Loss on disposal or transfer of assets held for sale
Remeasurement of contingent consideration in
2018
7.8
13.6
12.4
—
2017
4.0
13.8
0.9
—
5.0
7.9
1.1
0.6
Variation
2018-2017
Variation
2017-2016
2016
3.8
(0.2)
11.5
—
—
(3.8)
11.3
(1.0)
5.9
(0.2)
(0.6)
6.2
0.9
11.2
connection with a business acquisition
(6.2)
3.3
Acquisition-related transaction costs
11.7
Restructuring and acquisition-related costs
Certain minor rounding variances exist between the consolidated financial statements and this summary.
—
0.4
34.2
—
4.2
22.9
Restructuring and acquisition-related costs are comprised of costs directly related to the closure of business locations or the
relocation of business activities, significant changes in management structure, as well as transaction, exit, and integration
costs incurred pursuant to business acquisitions.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
Restructuring and acquisition-related costs in fiscal 2018 related primarily to the following: $9.0 million for the closure of the
AKH textile manufacturing facility which was acquired as part of the Anvil acquisition; $9.0 million for the consolidation of the
Company's U.S. distribution centres pursuant to prior years' business acquisitions (net of a gain on disposal of $1.2 million
and the $5.0 million reversal of an environmental liability for a distribution facility sold in fiscal 2018); $7.3 million for the
Company's internal organizational realignment; $5.5 million for the consolidation of sock production manufacturing; and $3.4
million in other costs, including the consolidation of garment dyeing operations acquired in the Comfort Colors acquisition
and information systems integration for prior year acquisitions.
The Company had initially projected restructuring and acquisition-related costs for 2018 to be in the range of $15 to $20
million. The higher than previously anticipated restructuring and acquisition-related costs were largely associated with the
consolidation of textile manufacturing and sock production capacity, as well as the closure of an additional distribution facility
in North Carolina, which were not assumed in the Company's initial guidance.
Restructuring and acquisition-related costs in fiscal 2017 related primarily to the following: $7.9 million of transaction and
integration costs for the American Apparel business acquisition; $6.2 million for the rationalization of the Company's remaining
retail store outlets; $4.4 million for the integration of prior years' business acquisitions, primarily for the integration of Alstyle
and Peds; $2.7 million for the consolidation of the Company's West Coast distribution centres pursuant to the acquisitions
of American Apparel and Alstyle; and $1.7 million for the Company's internal organizational realignment.
Restructuring and acquisition-related costs in fiscal 2016 related primarily to the following: $8.4 million of transaction and
integration costs for the Alstyle and Peds acquisitions; $4.5 million for the integration of other businesses acquired in previous
years, involving consolidation of customer service, distribution, and administrative functions; $4.2 million for the rationalization
of our retail store outlets as part of our overall direct-to-consumer channel strategy; and other costs of $0.8 million, partially
offset by a gain of $6.2 million on the re-measurement of the fair value of contingent consideration in connection with the
Doris acquisition.
5.4.5 Operating income and adjusted operating income
(in $ millions, or otherwise indicated)
Operating income
Adjustment for:
Restructuring and acquisition-related costs
Adjusted operating income(1)
2018
403.2
34.2
437.4
2017
401.0
22.9
423.9
2016
371.5
11.7
383.2
Operating margin
Adjusted operating margin(1)
(1) See section 17.0 "Definition and reconciliation of non-GAAP financial measures" in this MD&A.
Certain minor rounding variances exist between the consolidated financial statements and this summary.
14.6%
15.4%
13.9%
15.0%
14.4%
14.8%
Variation
2018-2017
Variation
2017-2016
2.2
11.3
13.5
(0.7) pp
(0.4) pp
29.5
11.2
40.7
0.2 pp
0.6 pp
Fiscal 2018 compared to fiscal 2017
The increase in operating income in 2018 compared to 2017 reflected the increase in sales and lower SG&A expenses driven
by cost reductions primarily associated with the Company's organizational consolidation, which more than offset lower gross
profit and higher restructuring and acquisition-related costs. Excluding the impact of restructuring and acquisition-related
costs, adjusted operating margin in 2018 was in line with our guidance calling for a slight year over year decline. The slight
decline in adjusted operating margin was due to the gross margin decline which more than offset the benefit of lower SG&A
expenses as a percentage of sales.
Fiscal 2017 compared to fiscal 2016
The increase in operating income in 2017 compared to 2016 was mainly due to the increase in gross profit, partially offset
by higher SG&A expenses and higher restructuring and acquisition-related costs. Excluding the impact of restructuring and
acquisition-related costs, adjusted operating margin in 2017 was up 60 basis points driven by higher gross margin in the
year, partially offset by higher SG&A expenses as a percentage of sales.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 14
MANAGEMENT'S DISCUSSION AND ANALYSIS
5.4.6 Financial expenses, net
(in $ millions)
Interest expense on financial liabilities recorded at
2018
2017
2016
Variation
2018-2017
Variation
2017-2016
amortized cost
12.6
6.3
Bank and other financial charges
0.3
Interest accretion on discounted provisions
0.4
Foreign exchange loss (gain)
19.6
Financial expenses, net
Certain minor rounding variances exist between the consolidated financial statements and this summary.
24.8
7.5
0.3
(1.5)
31.1
17.1
8.0
0.3
(1.3)
24.1
7.7
(0.5)
—
(0.2)
7.0
4.5
1.7
—
(1.7)
4.5
Fiscal 2018 compared to fiscal 2017
The increase in net financial expenses in fiscal 2018 compared to fiscal 2017 was mainly due to higher interest expense as
a result of higher effective interest rates on our long-term debt bearing interest at variable rates as a result of higher U.S.
short-term interest rates, and higher average borrowing levels. Foreign exchange gains for fiscal 2018 and fiscal 2017 relate
primarily to the revaluation of net monetary assets denominated in foreign currencies.
Fiscal 2017 compared to fiscal 2016
The increase in net financial expenses in fiscal 2017 compared to fiscal 2016 was due to higher interest expense as a result
of slightly higher borrowing levels and higher effective interest rates on our long-term debt relating mainly to higher U.S.
short-term interest rates and the interest rates on the notes payable that were issued in August 2016. Bank and other financial
charges increased in fiscal 2017 compared to fiscal 2016 due to the amortization of financing fees incurred in connection
with the new debt issuances in fiscal 2016 and discount fees related to the sales of trade accounts receivables. Foreign
exchange gains for fiscal 2017 relate primarily to the revaluation of net monetary assets denominated in foreign currencies.
5.4.7 Income taxes
The Company’s average effective tax rate is calculated as follows:
(in $ millions, or otherwise indicated)
2018
2017
2016
351.8
Earnings before income taxes
5.2
Income tax expense
1.5%
Average effective income tax rate
Certain minor rounding variances exist between the consolidated financial statements and this summary.
376.8
14.5
3.8%
372.1
21.4
5.8%
Variation
2018-2017
Variation
2017-2016
(4.7)
6.9
2.0 pp
25.0
9.3
2.3 pp
Fiscal 2018 compared to fiscal 2017
The higher income tax expense and average effective tax rate compared to last year is mainly due to an increase in deferred
income tax expense adjustments relating to the Company’s internal organizational realignment, referred to in section 3.2 of
this annual MD&A, and the impact of income tax rate changes. In fiscal 2018, pursuant to additional phases to the internal
organizational realignment, the Company reassessed the recoverability of its deferred income tax assets in the respective
jurisdictions affected, resulting in an increase in deferred tax expense of $6.1 million for assets that were no longer probable
of being realized. In fiscal 2017, the initiation of the internal organizational realignment plan resulted in an increase to deferred
income tax expense of $3.3 million. The fiscal 2018 deferred income tax expense also included $2.0 million for the revaluation
of deferred income tax assets and liabilities due to changes in statutory income tax rates, compared to a deferred income
tax recovery of $1.6 million in fiscal 2017 for tax rate changes, primarily to reflect the changes in the U.S. statutory federal
corporate income tax rate impact that took effect at the beginning of 2018. Excluding the impact of the aforementioned
adjustments to deferred income tax expense in both years, and excluding the impact of restructuring and acquisition-related
costs described in section 5.4.4 of this MD&A, the average effective income tax rate for both years was approximately 3.3%,
slightly lower than the anticipated full year tax rate of approximately 4%.
Fiscal 2017 compared to fiscal 2016
The higher income tax expense and average effective tax rate in fiscal 2017 compared to fiscal 2016 were in part due to
higher operating profits earned in higher tax rate jurisdictions, lower income tax recoveries relating to prior taxation years,
and other adjustments. The fiscal 2017 income tax expense included $1.6 million of income tax recoveries relating to prior
GILDAN 2018 REPORT TO SHAREHOLDERS P. 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
taxation years, compared with $4.8 million of prior year income tax recoveries in fiscal 2016. In addition, as a result of the
internal organizational realignment referred to in section 3.2 of this MD&A, the Company revalued and reassessed the
deferred tax assets and deferred tax liabilities in the respective jurisdictions affected, resulting in an increase in net deferred
tax expense of $3.3 million. There was no corresponding amount for fiscal 2016. In addition, the Company revalued the
deferred tax assets and liabilities of its U.S. subsidiaries, to reflect the change in the statutory federal corporate income tax
rate that took effect at the beginning of 2018, resulting in an income tax recovery of $1.6 million. There was no similar
adjustment in fiscal 2016, although the fiscal 2016 tax expense reflected an income tax recovery on restructuring and
acquisition-related costs of $2.0 million.
5.4.8 Net earnings, adjusted net earnings, earnings per share measures, and other performance measures
(in $ millions, except per share amounts)
Net earnings
Adjustments for:
Restructuring and acquisition-related costs
Income tax expense relating to restructuring and
acquisition-related actions(1)
Income tax expense (recovery) related to the
revaluation of deferred income tax assets and
liabilities due to statutory income tax rate
changes(2)
2018
350.8
34.2
6.1
2017
362.3
22.9
3.3
2016
346.6
11.7
(2.0)
Variation
2018-2017
Variation
2017-2016
(11.5)
11.3
2.8
15.7
11.2
5.3
2.0
(1.6)
—
3.6
(1.6)
Adjusted net earnings(3)
Basic EPS
Diluted EPS
Adjusted diluted EPS(3)
(1) These income tax expenses relate to the Company’s internal organizational realignment. Pursuant to the initiation and completion of
this organizational realignment plan, the Company reassessed the recoverability of its deferred income tax assets and the valuation of
its deferred tax liabilities in the respective jurisdictions affected, resulting in an increase to deferred income tax expense in fiscal 2018
and 2017 of $6.1 million and $3.3 million, respectively.
0.15
0.14
0.21
1.66
1.66
1.86
0.04
0.05
0.14
1.62
1.61
1.72
1.47
1.47
1.51
393.1
386.9
356.3
30.6
6.2
(2) The income tax expense for the impact of income tax rate changes are primarily related to the impact of U.S. tax reform, reflecting
the reduction in the U.S. statutory federal tax rate that took effect in 2018.
(3) See section 17.0 "Definition and reconciliation of non-GAAP financial measures" in this MD&A.
Certain minor rounding variances exist between the consolidated financial statements and this summary.
Fiscal 2018 compared to fiscal 2017
Net earnings for 2018 were slightly down compared to the prior year due to the decline in operating margin and higher
financial expenses and income taxes, which more than offset the contribution of higher sales. The increase in adjusted net
earnings in 2018 was mainly due to the contribution of higher sales, which more than offset the decline in adjusted operating
margin and higher financial expenses. On a diluted per share basis, net earnings and adjusted net earnings for 2018 were
up over the prior year, including the benefit of a lower share count.
Adjusted EBITDA is a non-GAAP measure. Please refer to section 17.0 "Definition and reconciliation of non-GAAP financial
measures" in this MD&A. Adjusted EBITDA for 2018 amounted to $595.5 million, up $9.4 million compared to $586.1 million
in 2017, coming in just slightly under the low end of our guidance range.
Return on net assets (RONA) is a non-GAAP measure that the Company uses as a performance indicator to measure the
efficiency of its invested capital. Please refer to section 17.0 "Definition and reconciliation of non-GAAP financial measures"
in this MD&A. During 2018, as we executed on our growth drivers and drove increased efficiency across the organization,
RONA for 2018 improved to 15.6%, up 70 basis points from 14.9% in 2017.
Fiscal 2017 compared to fiscal 2016
The increase in net earnings and adjusted net earnings was due to higher operating income, partially offset by higher financial
expenses and a higher income tax expense. Additionally, diluted EPS and adjusted diluted EPS reflected the benefit of share
repurchases.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
5.5 Summary of quarterly results
The table below sets forth certain summarized unaudited quarterly financial data for the eight most recently completed
quarters. This quarterly information has been prepared in accordance with IFRS. The operating results for any quarter are not
necessarily indicative of the results to be expected for any future period.
For the three months ended
(in $ millions, except share and per share
amounts or otherwise indicated)
Dec 30,
2018
Sep 30,
2018
Jul 1,
2018
Apr 1,
2018
Dec 31,
2017
Oct 1,
2017
Jul 2,
2017
(1)
Apr 2,
2017
Net sales
Net earnings
Net earnings per share
Basic(2)
Diluted(2)
Weighted average number of shares
outstanding (in ‘000s)
742.7
59.6
0.29
0.29
754.4
114.3
0.55
0.55
764.2
109.0
0.51
0.51
647.3
67.9
0.31
0.31
653.7
54.9
0.25
0.25
716.4
116.1
0.52
0.52
715.4
107.7
0.48
0.48
665.4
83.5
0.36
0.36
Basic
Diluted
206,796
207,926
212,477
218,541
219,387
223,017
224,859
229,474
207,122
208,161
212,722
218,850
219,758
223,481
225,389
229,943
(1) Reflects the acquisition of American Apparel from February 8, 2017.
(2) Quarterly EPS may not add to year-to-date EPS due to rounding.
Certain minor rounding variances exist between the consolidated financial statements and this summary.
5.5.1 Seasonality and other factors affecting the variability of results and financial condition
Our results of operations for interim and annual periods are impacted by the variability of certain factors, including, but not
limited to, changes in end-use demand and customer demand, our customers’ decision to increase or decrease their inventory
levels, changes in our sales mix, and fluctuations in selling prices and raw material costs. While our products are sold on a
year-round basis, our business experiences seasonal changes in demand which result in quarterly fluctuations in operating
results. Although certain products have seasonal peak periods of demand, competitive dynamics may influence the timing
of customer purchases causing seasonal trends to vary somewhat from year to year. Historically, demand for T-shirts is
lowest in the fourth quarter and highest in the second quarter of the year, when distributors purchase inventory for the peak
summer selling season. Demand for fleece is typically highest in advance of the fall and winter seasons, in the second and
third quarters of the year. Sales of hosiery and underwear are higher during the second half of the year, during the back-to-
school period and the Christmas holiday selling season. These seasonal sales trends of our business also result in fluctuations
in our inventory levels throughout the year.
Our results are also impacted by fluctuations in the price of raw materials and other input costs. Cotton and polyester fibres
are the primary raw materials used in the manufacture of our products, and we also use chemicals, dyestuffs, and trims,
which we purchase from a variety of suppliers. Cotton prices are affected by consumer demand, global supply, which may
be impacted by weather conditions in any given year, speculation on the commodities market, the relative valuations and
fluctuations of the currencies of producer versus consumer countries, and other factors that are generally unpredictable.
While we enter into purchase contracts and derivative financial instruments in advance of delivery to establish firm prices
for the cotton component of our yarn requirements, our realized cotton costs can fluctuate significantly between interim and
annual reporting periods. Energy costs in our results of operations are also affected by fluctuations in crude oil, natural gas,
and petroleum prices, which can also influence transportation costs and the cost of related items used in our business, such
as polyester fibres, chemicals, dyestuffs, and trims. Changes in raw material costs are initially reflected in the cost of inventory
and only impact net earnings when the respective inventories are sold.
Business acquisitions may affect the comparability of results. As noted in the table under “Summary of quarterly results”, the
quarterly financial data reflect results of companies acquired from their effective date of acquisition. In addition, management
decisions to consolidate or reorganize operations, including the closure of facilities, may result in significant restructuring
costs in an interim or annual period. The effect of asset write-downs, including provisions for bad debts and slow moving
inventories, can also affect the variability of our results. Subsection 5.4.4 entitled “Restructuring and acquisition-related costs”
in this annual MD&A contains a discussion of costs related to the Company’s restructuring activities and business acquisitions.
Our reported amounts for net sales, cost of sales, SG&A expenses, and financial expenses/income are impacted by
fluctuations in certain currencies versus the U.S. dollar as described in section 11 entitled “Financial risk management” in
this annual MD&A. The Company periodically uses derivative financial instruments to manage risks related to fluctuations
in foreign exchange rates.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
5.6 Fourth quarter operating results
For the three months ended
(in $ millions, except per share amounts or otherwise indicated)
December 30,
2018
December
31, 2017
Variation $
Variation %
Net sales
Gross profit
SG&A expenses
Restructuring and acquisition-related costs
Operating income
Adjusted operating income(1)
Adjusted EBITDA(1)
Financial expenses
Income tax expense
Net earnings
Adjusted net earnings(1)
Basic EPS
Diluted EPS
Adjusted diluted EPS(1)
Gross margin
SG&A expenses as a percentage of sales
Operating margin
Adjusted operating margin(1)
n.m. = not meaningful
n/a - not applicable
742.7
195.4
95.5
21.7
78.2
99.9
138.0
8.7
10.0
59.6
88.9
0.29
0.29
0.43
26.3%
12.9%
10.5%
13.5%
653.7
177.0
103.9
11.0
62.0
73.0
114.0
5.9
1.2
54.9
67.6
0.25
0.25
0.31
27.1%
15.9%
9.5%
11.2%
89.0
18.4
(8.4)
10.7
16.2
26.9
24.0
2.8
8.8
4.7
21.3
0.04
0.04
0.12
n/a
n/a
n/a
n/a
13.6 %
10.4 %
(8.1)%
n.m.
26.1 %
36.8 %
21.1 %
47.5 %
n.m.
8.6 %
31.5 %
16.0 %
16.0 %
38.7 %
(0.8) pp
(3.0) pp
1.0 pp
2.3 pp
(1) See section 17.0 "Definition and reconciliation of non-GAAP financial measures" in this MD&A.
Certain minor rounding variances exist between the consolidated financial statements and this summary.
Net sales for the fourth quarter ended December 30, 2018 of $742.7 million were up 13.6% compared to the fourth quarter
of 2017 driven by a 22.3% increase in activewear sales, partly offset by a 7.9% sales decline in the hosiery and underwear
category, which was anticipated. The increase in the activewear category in the fourth quarter, where we generated $569
million in net sales, was mainly due to higher unit sales volumes, a better product-mix driven primarily by higher fleece
shipments, and higher net selling prices. Activewear volume growth reflected higher shipments of imprintable products in
North America and a 29% increase in international shipments, as well as higher sales to global lifestyle brands and retailers.
Sales in the hosiery and underwear category totaled $173 million, as anticipated, down $15 million from the fourth quarter
last year primarily due to lower Gildan® sock sales in mass and lower mass retailer replenishment of Gildan® underwear in
the quarter, partly offset by shipments under one of our new private label underwear programs in the fourth quarter.
Gross margin in the fourth quarter was down 80 basis points to 26.3% compared to the prior year quarter. The decrease was
mainly due to higher raw material and other input costs, activewear growth ramp up costs, and the flow through of the balance
of the costs related to supply chain disruptions which we incurred earlier in the year. These factors more than offset the
benefit from higher net selling prices and more favourable product-mix compared to the prior year quarter.
SG&A expenses for the fourth quarter of 2018 of $95.5 million were down over 8% compared to $103.9 million in the fourth
quarter of 2017. As a percentage of sales, SG&A expenses were 12.9%, down 300 basis points from 15.9% in the fourth
quarter last year primarily reflecting the benefit of cost reductions driven by our organizational consolidation and a higher
sales base. Operating margin and adjusted operating margin in the fourth quarter of 2018 were 10.5% and 13.5%, respectively,
better by 100 and 230 basis points, respectively, compared to the fourth quarter of 2017. The improvement was mainly due
to lower SG&A expenses as a percentage of sales, partly offset by a lower gross margin.
We incurred $21.7 million in restructuring and acquisition-related costs in the fourth quarter of 2018 primarily related to the
Company’s organizational realignment and the consolidation of textile, sock manufacturing, warehouse distribution, and
garment dyeing operations. With respect to textile manufacturing, during the fourth quarter of 2018, we made the decision
to close our AKH textile facility in Honduras, which was acquired as part of the Anvil acquisition in 2012, and was operating
GILDAN 2018 REPORT TO SHAREHOLDERS P. 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
in leased premises outside of our large manufacturing complex in Rio Nance. We transitioned this production that was largely
for fashion basics products to our new state-of-the art Rio Nance 6 textile facility, which we are ramping up with new equipment
geared for more efficient production of fashion basics. In addition, during the fourth quarter, we began the consolidation of
our sock operations, integrating the majority of our sock production in Honduras into our Rio Nance 4 facility, with our Rio
Nance 3 facility now largely focusing on our garment dyeing operations.
Income tax expense for the quarter was $10.0 million compared to $1.2 million in the fourth quarter of 2017. Income tax
expense in both periods included deferred income tax expense adjustments of $7.6 million and $1.7 million, respectively,
associated with restructuring and acquisition-related actions and the impact of tax rate changes.
Net earnings totaled $59.6 million or $0.29 per share on a diluted basis for the three months ended December 30, 2018,
compared with net earnings of $54.9 million or $0.25 per share for the three months ended December 31, 2017. Adjusted
net earnings of $88.9 million were up 31.5% from $67.6 million in the fourth quarter last year. We generated adjusted diluted
EPS for the fourth quarter of $0.43, up 38.7% compared to the fourth quarter last year mainly due to higher adjusted operating
income and the benefit of a lower share count compared to the prior year, partly offset by higher financial and income tax
expenses.
6.0 FINANCIAL CONDITION
6.1 Current assets and current liabilities
(in $ millions)
December 30,
2018
December 31,
2017
Variation
Cash and cash equivalents
Trade accounts receivable
Income taxes receivable
Inventories
Prepaid expenses, deposits and other current assets
Accounts payable and accrued liabilities
Total working capital
Certain minor rounding variances exist between the consolidated financial statements and this summary.
46.7
317.2
1.7
940.0
77.4
(347.0)
1,036.0
52.8
243.4
3.9
945.7
62.1
(258.5)
1,049.4
(6.1)
73.8
(2.2)
(5.7)
15.3
(88.5)
(13.4)
•
•
•
•
The increase in trade accounts receivable (which are net of accrued sales discounts) was mainly due to the impact of
higher sales in the fourth quarter of fiscal 2018 compared to the fourth quarter of fiscal 2017. The impact of higher days
sales outstanding (DSO), net of the impact of an increase in trade accounts receivables sold to a financial institution
under a receivables purchase agreement (as disclosed in note 7 of the audited consolidated financial statements for
the year ended December 30, 2018), was offset by higher accrued sales discounts mainly due to the higher sales in
fiscal 2018.
The slight decrease in inventories was mainly due to lower unit inventories of activewear, sock, and underwear, partially
offset by higher average unit costs resulting from a combination of higher raw material costs and other input costs, as
well as higher raw materials and work in progress inventories.
The increase in prepaid expenses, deposits and other current assets was mainly due to an increase in miscellaneous
receivables, including an increase in supplier rebates relating to raw material purchases and higher receivables for value
added taxes and duty drawbacks.
The increase in accounts payable and accrued liabilities was mainly due to higher payables related to higher raw material
costs, a higher derivative financial instrument liability, and the impact of an increase of days payable outstanding, including
the benefit of the new supply-chain financing program implemented during the fourth quarter of fiscal 2018.
• Working capital was $1,036.0 million as at December 30, 2018, compared to $1,049.4 million as at December 31, 2017.
The current ratio at the end of fiscal 2018 was 4.0, compared to 5.1 at the end of fiscal 2017, mainly due to the impact
of higher accounts payable and accrued liabilities.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
6.2 Property, plant and equipment, intangible assets and goodwill
(in $ millions)
Property, plant
and equipment
Intangible
assets
Balance, December 31, 2017
Net capital additions
Disposals
Additions through business acquisitions
Depreciation and amortization
Balance, December 30, 2018
Certain minor rounding variances exist between the consolidated financial statements and this summary.
1,035.8
110.7
(30.3)
—
(125.8)
990.4
401.6
19.5
(0.2)
—
(27.3)
393.6
Goodwill
226.6
0.1
—
0.7
—
227.4
•
•
Additions to property, plant and equipment were primarily for investments in textile and sewing capacity expansion, and
distribution, and were partially offset by the sale of the Company's corporate aircraft and the write-down of fixed assets
incurred in connection with restructuring activities.
Intangible assets are comprised of customer contracts and relationships, trademarks, license agreements, non-compete
agreements, and computer software. The decrease in intangible assets reflects amortization of $27.3 million, offset by
additions of $19.5 million for software expenditures and the renewal of a brand license agreement.
6.3 Other non-current assets and non-current liabilities
(in $ millions)
Other non-current assets
Long-term debt
Deferred income taxes
Other non-current liabilities
Certain minor rounding variances exist between the consolidated financial statements and this summary.
669.0
12.6
39.9
December 30,
2018
December 31,
2017
Variation
10.3
8.8
630.0
3.7
37.1
1.5
39.0
8.9
2.8
•
The increase in deferred tax liabilities relates to the deferred portion of the tax provision in fiscal 2018.
• Other non-current liabilities include provisions and employee benefit obligations. The increase is mainly due to the
statutory severance benefits earned by employees located in the Caribbean Basin and Central America during fiscal
2018, and a new lease exit provision for a U.S. distribution centre, partially offset by the reversal of the environmental
liability for a facility previously acquired through a business acquisition and sold in fiscal 2018.
•
See section 8.0 entitled “Liquidity and capital resources” in this MD&A for the discussion on long-term debt.
Total assets were $3,004.6 million as at December 30, 2018, compared to $2,980.7 million as at December 31, 2017.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
7.0 CASH FLOWS
7.1 Cash flows from (used in) operating activities
(in $ millions)
Net earnings
Adjustments to reconcile net earnings to cash flows from operating
activities(1)
Changes in non-cash working capital balances
Cash flows from operating activities
2018
350.8
202.3
(14.5)
538.6
2017
362.3
175.2
75.8
613.3
Variation
(11.5)
27.1
(90.3)
(74.7)
(1) Includes $ 158.1 million (2017 - $162.2 million) related to depreciation and amortization.
Certain minor rounding variances exist between the consolidated financial statements and this summary.
•
The year-over-year decrease in operating cash flows of $74.7 million was mainly due to an increase in non-cash working
capital in fiscal 2018 compared to a decrease in the prior year, as explained below.
• Non-cash working capital increased by $14.5 million during fiscal 2018, compared to a decrease of $75.8 million during
fiscal 2017, mainly due to an increase in trade accounts receivable during fiscal 2018 compared to a decrease in fiscal
2017, partially offset by a higher increase in accounts payable and accrued liabilities in fiscal 2018 compared to fiscal
2017.
7.2 Cash flows from (used in) investing activities
(in $ millions)
2018
2017
Variation
Purchase of property, plant and equipment
Purchase of intangible assets
Business acquisitions
Proceeds on disposal of property, plant and equipment
Cash flows used in investing activities
Certain minor rounding variances exist between the consolidated financial statements and this summary.
(107.7)
(17.6)
(1.3)
15.6
(111.0)
(92.0)
(2.8)
(115.8)
0.5
(210.1)
(15.7)
(14.8)
114.5
15.1
99.1
• Cash used in investing activities during fiscal 2018 was lower compared to fiscal 2017 primarily due to cash used in
fiscal 2017 for business acquisitions including American Apparel, and the sales of the Company's corporate aircraft and
a U.S. distribution facility in fiscal 2018, partially offset by higher capital spending in fiscal 2018.
• Capital expenditures during fiscal 2018 are described in section 6.2 of this MD&A, and our projected capital expenditures
for the next fiscal year are discussed in section 8.0 entitled “Liquidity and capital resources” in this MD&A.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 21
7.3 Free cash flow
(in $ millions)
2018
2017
Variation
MANAGEMENT'S DISCUSSION AND ANALYSIS
Cash flows from operating activities
Cash flows used in investing activities
Adjustment for:
Business acquisitions
Free cash flow(1)
(1) See section 17.0 "Definition and reconciliation of non-GAAP financial measures" in this MD&A.
538.5
(110.9)
1.3
428.9
613.4
(210.0)
115.8
519.2
(74.9)
99.1
(114.5)
(90.3)
Certain minor rounding variances exist between the consolidated financial statements and this summary.
•
For fiscal 2018, the year-over-year decrease in free cash flow of $90.3 million was mainly due to the decrease in operating
cash flows and increased capital spending excluding business acquisitions, as noted above.
7.4 Cash flows from (used in) financing activities
(in $ millions)
2018
2017
Variation
Increase in amounts drawn under revolving
long-term bank credit facilities
Dividends paid
Proceeds from the issuance of shares
Repurchase and cancellation of shares
Share repurchases for settlement of non-Treasury RSUs
Withholding taxes paid pursuant to the settlement of non-Treasury
RSUs
Cash flows used in financing activities
39.0
(94.6)
3.2
(367.5)
(7.2)
(6.1)
(433.2)
30.0
(84.8)
4.9
(328.6)
(6.3)
(4.5)
(389.3)
9.0
(9.8)
(1.7)
(38.9)
(0.9)
(1.6)
(43.9)
Certain minor rounding variances exist between the consolidated financial statements and this summary.
• Cash flows used in financing activities during fiscal 2018 and 2017 reflected the repurchase and cancellation of common
shares under NCIB programs as discussed in section 8.5 of this MD&A, and the payments of dividends, slightly offset
by cash inflows from funds drawn on our long-term bank credit facilities. The year-over year increase in cash flows used
in financing activities was mainly due to higher share repurchases and higher dividend payments as noted below. See
section 8.0 entitled “Liquidity and capital resources” in this MD&A for the discussion on long-term debt and share
repurchases under NCIB programs.
•
The Company paid $94.6 million of dividends during fiscal 2018 compared to $84.8 million of dividends during fiscal
2017. The year-over-year increase is due to the 20% increase in the amount of the quarterly dividend approved by the
Board of Directors on February 21, 2018, partially offset by the impact of lower common shares outstanding as a result
of the repurchase and cancellation of common shares executed since last year under NCIB programs.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
8.0 LIQUIDITY AND CAPITAL RESOURCES
8.1 Capital allocation framework
Our primary uses of funds are for working capital requirements, capital expenditures, business acquisitions, and payment
of dividends. We have also used funds for the repurchase of shares. We fund our requirements with cash generated from
operations and with funds drawn from our long-term debt facilities. We have established a capital allocation framework
intended to enhance sales and earnings growth as well as shareholder returns. After funding working capital needs, our first
priority of cash use is to fund our organic growth with the required capital investments. Beyond these requirements, we intend
to use our free cash flow and debt financing capacity to support our current dividend, and then seek to complete complementary
strategic acquisitions which meet our criteria. In addition, when appropriate, we intend to use excess cash to repurchase
shares under normal course issuer bid programs. The Company has set a net debt leverage target ratio of one to two times
pro-forma adjusted EBITDA for the trailing twelve months, which it believes will provide an efficient capital structure and a
framework within which it can execute on its capital allocation priorities.
8.2 Long-term debt and net indebtedness
The Company's long-term debt as at December 30, 2018 is described below.
(in $ millions, or otherwise indicated)
Effective
interest
rate (1)
Principal amount
December 30,
2018
December 31,
2017
Maturity
date
Revolving long-term bank credit facility, interest at variable U.S. LIBOR-
based interest rate plus a spread ranging from 1% to 2% (2)
3.4%
$
69 $
Term loan, interest at variable U.S. LIBOR-based interest rate plus a
spread ranging from 1% to 2% (3)
2.8%
Notes payable, interest at fixed rate of 2.70%, payable semi-annually (4)
2.7%
Notes payable, interest at variable U.S. LIBOR-based interest rate plus
a spread of 1.53% payable quarterly (4)
2.7%
Notes payable, interest at fixed rate of 2.91%, payable semi-annually (4)
2.9%
Notes payable, interest at variable U.S. LIBOR-based interest rate plus
a spread of 1.57% payable quarterly (4)
2.9%
300
100
50
100
50
30
300
April
2023
April
2023
100 August
2023
50 August
2023
100 August
2026
50 August
2026
$
669 $
630
(1) Represents the effective interest rate for the year ended December 30, 2018, including the cash impact of interest rate swaps, where
applicable.
(2) The Company’s committed 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 $13.4 million (December 31, 2017 -
$14.6 million) has been committed against this facility to cover various letters of credit.
(3) The unsecured term loan is non-revolving and can be prepaid in whole or in part at any time with no penalties. The spread added to
the U.S. LIBOR-based variable interest rate is a function of the total net debt to EBITDA ratio (as defined in the term loan agreement).
(4) The unsecured notes issued for a total aggregate principal amount of $300 million to accredited investors in the U.S. private placement
market can be prepaid in whole or in part at any time, subject to the payment of a prepayment penalty as provided for in the Note
Purchase Agreement.
In March 2018, the Company amended its unsecured revolving long-term bank credit facility of $1 billion to extend the maturity
date from April 2022 to April 2023, amended its unsecured term loan of $300 million to extend the maturity date from June
2021 to April 2023, and cancelled its unsecured revolving long-term bank credit facility of $300 million.
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 financial covenants at
December 30, 2018.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in $ millions)
December 30,
2018
December 31,
2017
Long-term debt and total indebtedness(1)
Cash and cash equivalents
Net indebtedness(1)
(1) See section 17.0 "Definition and reconciliation of non-GAAP financial measures" in this MD&A.
Certain minor rounding variances exist between the consolidated financial statements and this summary.
669.0
(46.7)
622.3
630.0
(52.8)
577.2
The primary measure used by the Company to monitor its financial leverage is its net debt leverage ratio as defined in section
17.0 "Definition and reconciliation of non-GAAP financial measures" in this MD&A. Gildan’s net debt leverage ratio as at
December 30, 2018 was 1.0 times (1.0 times as at December 31, 2017), which was at the lower end of its previously
communicated target net debt leverage ratio of one to two times pro-forma adjusted EBITDA for the trailing twelve months.
The Company’s net debt leverage ratio is calculated as follows:
(in $ millions, or otherwise indicated)
Adjusted EBITDA for the trailing twelve months
Adjustment for:
Business acquisitions
Pro-forma adjusted EBITDA for the trailing twelve months
Net indebtedness(1)
Net debt leverage ratio(1)
(1) See section 17.0 "Definition and reconciliation of non-GAAP financial measures" in this MD&A.
Certain minor rounding variances exist between the consolidated financial statements and this summary.
December 30,
2018
December 31,
2017
595.5
586.1
—
595.5
622.3
1.0
0.3
586.4
577.2
1.0
For fiscal 2019, the Company is projecting capital expenditures of approximately $125 million primarily for the continued
development of the Rio Nance 6 facility in Honduras, investments in existing textile facilities, sewing capacity expansion to
align with increases in textile capacity, as well as expenditures in information technology.
We expect that cash flows from operating activities and the unutilized financing capacity under our long-term debt facilities
will continue to provide us with sufficient liquidity for the foreseeable future to fund our organic growth strategy, including
anticipated working capital and capital expenditure requirements, to fund dividends to shareholders, as well as to provide
us with financing flexibility to take advantage of potential acquisition opportunities which complement our organic growth
strategy and to fund the NCIB discussed in section 8.5 below.
The Company, upon approval from its Board of Directors, may issue or repay long-term debt, issue or repurchase shares,
or undertake other activities as deemed appropriate under the specific circumstances.
8.3 Outstanding share data
Our common shares are listed on the New York Stock Exchange (NYSE) and the Toronto Stock Exchange (TSX) under the
symbol GIL. As at February 14, 2019, there were 206,740,357 common shares issued and outstanding along with 2,662,446
stock options and 105,573 dilutive restricted share units (Treasury RSUs) outstanding. Each stock option entitles the holder
to purchase one common share at the end of the vesting period at a pre-determined option price. Each Treasury RSU entitles
the holder to receive one common share from treasury at the end of the vesting period, without any monetary consideration
being paid to the Company. Treasury RSUs are used exclusively for one-time awards to attract candidates or for retention
purposes and their vesting conditions, including any performance objectives, are determined by the Board of Directors at
the time of grant.
8.4 Declaration of dividend
The Company paid dividends of $94.6 million during the year ended December 30, 2018. On February 20, 2019, the Board
of Directors approved a 20% increase in the amount of the quarterly dividend and declared a cash dividend of $0.134 per
share for an expected aggregate payment of $27.7 million which will be paid on April 1, 2019 on all of the issued and
GILDAN 2018 REPORT TO SHAREHOLDERS P. 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
outstanding common shares of the Company, rateably and proportionately to the holders of record on March 7, 2019. This
dividend is an “eligible dividend” for the purposes of the Income Tax Act (Canada) and any other applicable provincial legislation
pertaining to eligible dividends.
As part of the Company's capital allocation framework as described in section 8.1 of this MD&A, the Board of Directors
considers several factors when deciding to declare quarterly cash dividends, including the Company’s present and future
earnings, cash flows, capital requirements, and present and/or future regulatory and legal restrictions. There can be no
assurance as to the declaration of future quarterly cash dividends. Although the Company’s long-term debt agreements
require compliance with lending covenants in order to pay dividends, these covenants are not currently, and are not expected
to be, a constraint to the payment of dividends under the Company’s dividend policy.
8.5 Normal course issuer bid
On February 23, 2017, the Company announced the renewal of a normal course issuer bid (previous NCIB) beginning
February 27, 2017 and ending on February 26, 2018, to purchase for cancellation up to 11,512,267 common shares
(representing approximately 5% of the Company’s issued and outstanding common shares of the Company). On November
1, 2017, the Company obtained approval from the Toronto Stock Exchange (TSX) to amend its previous NCIB program in
order to increase the maximum number of common shares that may be repurchased from 11,512,267 common shares, to
16,117,175 common shares, representing approximately 7% of the Company’s issued and outstanding common shares. No
other terms of the previous NCIB were amended.
On February 21, 2018, the Board of Directors of the Company approved the initiation of a new NCIB commencing on February
27, 2018 to purchase for cancellation up to 10,960,391 common shares, representing approximately 5% of the Company’s
issued and outstanding common shares. On August 1, 2018, the Company obtained approval from the TSX to amend its
current NCIB program in order to increase the maximum number of common shares that may be repurchased from 10,960,391
common shares, or approximately 5% of the Company’s issued and outstanding common shares as at February 15, 2018
(the reference date for the NCIB), to 21,575,761 common shares, representing approximately 10% of the public float as at
February 15, 2018. No other terms of the NCIB were amended.
During the year ended December 30, 2018, the Company repurchased for cancellation a total of 12,634,693 common shares
under its NCIB through the facilities of the TSX and of the NYSE for a total cost of $367.5 million, of which a total of 175,732
common shares were repurchased under the previous NCIB. Of the total cost of $367.5 million, $9.2 million was charged to
share capital and the balance was charged to retained earnings.
Gildan received approval from the TSX to renew its NCIB commencing on February 27, 2019 to purchase for cancellation
up to 10,337,017 common shares, representing approximately 5% of the Gildan’s issued and outstanding common shares.
As of February 14, 2019, Gildan had 206,740,357 common shares issued and outstanding. Gildan is authorized to make
purchases under the NCIB until February 26, 2020 in accordance with the requirements of the TSX. Purchases will be made
by means of open market transactions on both the TSX and the New York Stock Exchange (NYSE), or alternative trading
systems, if eligible, or by such other means as a securities regulatory authority may permit, including by private agreements
under an issuer bid exemption order issued by securities regulatory authorities in Canada. Under the bid, Gildan may purchase
up to a maximum of 136,754 Common Shares daily through TSX facilities, which represents 25% of the average daily trading
volume on the TSX for the most recently completed six calendar months. The price to be paid by Gildan for any Common
Shares will be the market price at the time of the acquisition, plus brokerage fees, and purchases made under an issuer bid
exemption order will be at a discount to the prevailing market price in accordance with the terms of the order.
9.0 LEGAL PROCEEDINGS
9.1 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.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
10.0 OUTLOOK
A discussion of management’s expectations as to our outlook for fiscal 2019 is contained in our earnings results press release
dated February 21, 2019 under the section entitled “Outlook”. The press release is available on the SEDAR website at
www.sedar.com, on the EDGAR website at www.sec.gov, and on our website at www.gildancorp.com.
11.0 FINANCIAL RISK MANAGEMENT
The Company is exposed to risks arising from financial instruments, including credit risk, liquidity risk, foreign currency risk,
interest rate risk, commodity price risk, as well as risks arising from changes in the price of our common shares in connection
with our share-based compensation plans. The disclosures under this section, in conjunction with the information in note 14
to the 2018 audited annual consolidated financial statements, are designed to meet the requirements of IFRS 7, Financial
Instruments: Disclosures, and are therefore incorporated into, and are an integral part of, the 2018 audited annual consolidated
financial statements.
The Company may periodically use derivative financial instruments to manage risks related to fluctuations in foreign exchange
rates, commodity prices, interest rates, and the market price of its own common shares. The use of derivative financial
instruments is governed by the Company’s Financial Risk Management Policy approved by the Board of Directors and is
administered by the Financial Risk Management Committee. The Financial Risk Management Policy of the Company
stipulates that derivative financial instruments should only be used to hedge or mitigate an existing financial exposure that
constitutes a commercial risk to the Company, and if the derivatives are determined to be the most efficient and cost effective
means of mitigating the Company’s exposure to liquidity risk, foreign currency risk, and interest rate risk, as well as risks
arising from commodity prices. Hedging limits, as well as counterparty credit rating and exposure limitations are defined in
the Company’s Financial Risk Management Policy, depending on the type of risk that is being mitigated. Derivative financial
instruments are not used for speculative purposes.
At the inception of each designated hedging derivative contract, we formally designate and document the hedging relationship
and our risk management objective and strategy for undertaking the hedge. Documentation includes identification of the
hedging instrument, the hedged item, the nature of the risk being hedged, and how we will assess whether the hedging
relationship meets the hedge effectiveness requirements, including our analysis of the sources of hedge ineffectiveness and
how we determine the hedge ratio.
11.1 Credit risk
Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet its contractual
obligations and arises primarily from the Company’s trade accounts receivable. The Company may also have credit risk
relating to cash and cash equivalents and derivative financial instruments, which it manages by dealing only with highly rated
North American and European financial institutions. Our trade accounts receivable and credit exposure fluctuate throughout
the year based on the seasonality of our sales and other factors. The Company’s average trade accounts receivable and
credit exposure during an interim reporting period may be significantly higher than the balance at the end of that reporting
period. In addition, due to the seasonality of the Company’s net sales, the Company’s trade accounts receivable balance as
at the end of a calendar year will typically be lower than at the end of an interim reporting period.
Under the terms of a receivables purchase agreement, the Company may continuously sell trade accounts receivables of
certain designated customers to a third-party financial institution in exchange for a cash payment equal to the face value of
the sold trade accounts receivables, less an applicable discount. The Company retains servicing responsibilities, including
collection, for these trade accounts receivables but does not retain any credit risk with respect to any trade accounts receivables
that have been sold. All trade accounts receivables sold under the receivables purchase agreement are removed from the
consolidated statements of financial position, as the sale of the trade accounts receivables qualify for de-recognition. As at
December 30, 2018, trade accounts receivables being serviced under a receivables purchase agreement amounted to $117
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 24, 2019, subject to annual extensions.
The Company’s credit risk for trade accounts receivable is concentrated as the majority of its sales are to a relatively small
group of wholesale distributors and mass-market and other retailers. As at December 30, 2018, the Company’s ten largest
trade debtors accounted for 65% of trade accounts receivable; the largest of which accounted for 22%. The Company’s top
GILDAN 2018 REPORT TO SHAREHOLDERS P. 26
MANAGEMENT'S DISCUSSION AND ANALYSIS
ten trade debtors are all located in the U.S. The remaining trade accounts receivable balances are dispersed among a larger
number of debtors across many geographic areas including the U.S., Canada, Europe, Asia-Pacific, and Latin America.
Most of the Company’s customers have been transacting with the Company or its subsidiaries for several years. Many
wholesale distributors are highly leveraged with significant reliance on trade credit terms provided by a few major vendors,
including the Company, and third-party debt financing, including bank debt secured with trade accounts receivable and
inventory pledged as collateral. The financial leverage of these customers may limit or prevent their ability to refinance existing
indebtedness or to obtain additional financing and could affect their ability to comply with restrictive debt covenants and meet
other obligations. The profile and credit quality of the Company’s mass-market and other retailer customers varies significantly.
Adverse changes in a customer’s financial condition could cause us to limit or discontinue business with that customer,
require us to assume more credit risk relating to that customer’s future purchases, or result in uncollectible trade accounts
receivable from that customer. Future credit losses relating to any one of our top ten customers could be material and could
result in a material charge to earnings.
The Company’s extension of credit to customers involves considerable judgment and is based on an evaluation of each
customer’s financial condition and payment history. The Company has established various internal controls designed to
mitigate credit risk, including a dedicated credit function which recommends customer credit limits and payment terms that
are reviewed and approved on a quarterly basis by senior management at the Company’s primary sales offices in
Christ Church, Barbados. Where available, the Company’s credit departments periodically review external ratings and
customer financial statements and, in some cases, obtain bank and other references. New customers are subject to a specific
validation and pre-approval process. From time to time, where circumstances warrant, the Company will temporarily transact
with customers on a prepayment basis. While the Company’s credit controls and processes have been effective in mitigating
credit risk, these controls cannot eliminate credit risk in its entirety and there can be no assurance that these controls will
continue to be effective or that the Company’s low credit loss experience will continue.
The Company’s exposure to credit risk for trade accounts receivable by geographic area was as follows as at:
(in $ millions)
Trade accounts receivable by geographic area:
United States
Canada
Europe and other
Total trade accounts receivable
The aging of trade accounts receivable balances was as follows as at:
(in $ millions)
Not past due
Past due 0-30 days
Past due 31-60 days
Past due 61-120 days
Past due over 121 days
Trade accounts receivable
Less allowance for expected credit losses
Total trade accounts receivable
December 30,
2018
December 31,
2017
270.5
16.9
29.8
317.2
208.2
14.7
20.5
243.4
December 30,
2018
December 31,
2017
257.8
21.0
16.3
14.8
14.8
324.7
(7.5)
317.2
197.6
31.7
9.8
2.0
7.4
248.5
(5.1)
243.4
The increase in the past due amounts during fiscal 2018 is mainly attributable to one customer, for which the trade accounts
receivable balance was $21 million as at December 30, 2018. As a result of the past due amounts and other factors, we
have determined that there has been a significant increase in credit risk for this customer since initial recognition. Our
allowance for expected credit losses includes an amount for this customer that reflects the new expected credit loss model
pursuant to the new impairment guidance under IFRS 9. Our estimate of the potential loss is a probability-weighted amount
determined based on our evaluation of possible outcomes with respect to the collectability of these amounts, and reflects
GILDAN 2018 REPORT TO SHAREHOLDERS P. 27
MANAGEMENT'S DISCUSSION AND ANALYSIS
our assumption that this customer will succeed with its current efforts to secure the refinancing of its bank debt or sell its
business as a going concern. In the event that new information becomes available to us that would change our assessment
of the possible outcomes, the amount recorded in allowance for expected credit losses will be updated in the period in which
the additional information is received. There is no assurance that the customer will be successful with its current initiatives.
If this customer is unable to refinance its operations or execute on other strategic options, the trade account receivable
balance with this customer could become unrecoverable, which would require a corresponding charge to earnings in fiscal
2019.
11.2 Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. We rely on cash
resources, debt, and cash flows generated from operations to satisfy our financing requirements. We may also require access
to capital markets to support our operations as well as to achieve our strategic plans. Any impediments to our ability to
continue to meet the covenants and conditions contained in our long-term debt agreements as well as our ability to access
capital markets, the failure of a financial institution participating in our revolving long-term bank credit facilities, or an adverse
perception in capital markets of our financial condition or prospects could have a material impact on our financing capability.
In addition, our access to financing at reasonable interest rates could be influenced by the economic and credit market
environment.
We manage liquidity risk through the management of our capital structure and financial leverage, as outlined in note 24 to
the 2018 audited annual consolidated financial statements. In addition, we manage liquidity risk by continuously monitoring
actual and projected cash flows, taking into account the seasonality of our sales and cash receipts and the expected timing
of capital expenditures. The Board of Directors reviews and approves the Company’s operating and capital budgets, as well
as transactions such as the declaration of dividends, the initiation of share repurchase programs, mergers, acquisitions, and
other major investments or divestitures.
11.2.1 Off-balance sheet arrangements and maturity analysis of contractual obligations
In the normal course of business, we enter into contractual obligations that will require us to disburse cash over future periods.
All commitments have been reflected in our consolidated statements of financial position except for purchase
obligations, minimum annual lease payments under operating leases which are primarily for premises, and minimum royalty
payments, which are included in the table of contractual obligations that follows. The following table sets forth the maturity
of our contractual obligations by period for the following items as at December 30, 2018.
(in $ millions)
Accounts payable and accrued
liabilities
Long-term debt(1)
Purchase obligations
Operating leases and other obligations
Total contractual obligations
(1) Excluding interest
Carrying
amount
Contractual
cash flows
Less than 1
fiscal year
1 to 3
fiscal years fiscal years
4 to 5 More than 5
fiscal years
347.0
669.0
—
4.6
1,020.6
347.0
669.0
200.1
318.9
1,535.0
347.0
—
198.3
65.3
610.6
—
—
1.8
109.8
111.6
—
519.0
—
103.9
622.9
—
150.0
—
39.9
189.9
As disclosed in note 23 to our 2018 audited annual consolidated financial statements, we have granted financial guarantees,
irrevocable standby letters of credit, and surety bonds to third parties to indemnify them in the event the Company and some
of its subsidiaries do not perform their contractual obligations. As at December 30, 2018, the maximum potential liability
under these guarantees was $55.4 million, of which $11.1 million was for surety bonds and $44.3 million was for financial
guarantees and standby letters of credit.
11.3 Foreign currency risk
The majority of the Company’s cash flows and financial assets and liabilities are denominated in U.S. dollars, which is the
Company’s functional and reporting currency. Foreign currency risk is mainly limited to the portion of the Company’s business
transactions denominated in currencies other than U.S. dollars, primarily for sales and distribution expenses for customers
outside the U.S., certain equipment purchases, and head office expenses in Canada. The Company’s exposure relates
primarily to changes in the U.S. dollar versus the Canadian dollar, the Pound sterling, the Euro, the Australian dollar, the
Mexican peso, and the Chinese yuan. For the Company’s foreign currency transactions, fluctuations in the respective
exchange rates relative to the U.S. dollar will create volatility in the Company’s cash flows, in the reported amounts for sales
GILDAN 2018 REPORT TO SHAREHOLDERS P. 28
MANAGEMENT'S DISCUSSION AND ANALYSIS
and SG&A expenses in its consolidated statement of earnings and comprehensive income, and for property, plant and
equipment in its consolidated statement of financial position, both on a period-to-period basis and compared with operating
budgets and forecasts. Additional earnings variability arises from the translation of monetary assets and liabilities denominated
in currencies other than the U.S. dollar at the rates of exchange at each reporting dates, the impact of which is reported as
a foreign exchange gain or loss and included in financial expenses (net) in the statement of earnings and comprehensive
income.
The Company also incurs a portion of its manufacturing costs in foreign currencies, primarily payroll costs paid in Honduran
Lempiras, Dominican Pesos, Mexican Pesos, Nicaraguan Cordobas, and Bangladeshi Taka, as well as in Canadian dollars.
Significant changes in these currencies relative to the U.S. dollar exchange rate in the future, could have a significant impact
on our operating results.
The Company’s objective in managing its foreign currency risk is to minimize its net exposures to foreign currency cash flows,
by transacting with third parties in U.S. dollars to the maximum extent possible and practical and holding cash and cash
equivalents and incurring borrowings in U.S. dollars. The Company monitors and forecasts the values of net foreign currency
cash flows and, from time to time will authorize the use of derivative financial instruments, such as forward foreign exchange
contracts with maturities of up to three years, to economically hedge a portion of foreign currency cash flows. The Company
had forward foreign exchange contracts outstanding as at December 30, 2018, consisting primarily of contracts to sell and
buy Canadian dollars, sell Euros, sell Pounds sterling, sell Australian dollars, and buy Mexican pesos in exchange for U.S.
dollars. The outstanding contracts and other foreign exchange contracts that were settled during fiscal 2018 were designated
as cash flow hedges and qualified for hedge accounting. The underlying risk of the foreign exchange contracts is identical
to the hedged risk and, accordingly, we have established a ratio of 1:1 for all foreign exchange hedges. No ineffectiveness
was recognized in net earnings, as the change in value used for calculating the ineffectiveness of the hedging instruments
was the same as the change in value used for calculating the ineffectiveness of the hedged items. We refer the reader to
note 14 to the 2018 audited annual consolidated financial statements for details of these financial derivative contracts and
the impact of applying hedge accounting.
The following tables provide an indication of the Company’s significant foreign currency exposures included in the consolidated
statement of financial position as at December 30, 2018 arising from financial instruments:
(in U.S. $ millions)
CAD
EUR GBP MXN
CNY
December 30, 2018
COP
BDT
AUD
Cash and cash equivalents
Trade accounts receivable
Prepaid expenses, deposits and other current assets
Accounts payable and accrued liabilities
1.0
16.1
—
(14.6)
1.1
6.9
1.7
(6.5)
1.7
4.7
—
(0.5)
3.1
3.8
0.6
(4.6)
3.6
2.8
1.8
(1.3)
0.6
2.6
—
(0.1)
1.7
—
2.6
(2.3)
0.6
3.2
1.7
(0.2)
Based on the Company’s foreign currency exposures arising from financial instruments noted above, and the impact of
outstanding derivative financial instruments designated as effective hedging instruments, varying the foreign exchange rates
to reflect a 5 percent strengthening of the U.S. dollar would have increased (decreased) earnings and other comprehensive
income as follows, assuming that all other variables remained constant:
(in U.S. $ millions)
CAD
EUR GBP MXN
For the year ended December 30, 2018
COP
AUD
CNY
BDT
Impact on earnings before income taxes
Impact on other comprehensive income before
income taxes
(0.1)
(0.2)
(0.3)
(0.1)
(0.3)
(0.2)
(0.1)
(0.3)
(0.8)
1.5
1.7
(0.2)
—
0.3
—
—
An assumed 5 percent weakening of the U.S. dollar during the year ended December 30, 2018 would have had an equal
but opposite effect on the above currencies to the amounts shown above, assuming that all other variables remain constant.
11.4 Commodity risk
The Company is subject to the commodity risk of cotton prices and cotton price movements, as the majority of its products
are made of 100% cotton or blends of cotton and synthetic fibers. The Company is also subject to the risk of fluctuations in
the prices of crude oil and petrochemicals as they influence the cost of polyester fibers which are used in many of its products.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 29
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company purchases cotton from third-party merchants, cotton-based yarn from third-party yarn manufacturers, and
polyester fibers from third-party polyester manufacturers. The Company assumes the risk of price fluctuations for these
purchases. The Company enters into contracts, up to eighteen months in advance of future delivery dates, to establish fixed
prices for its cotton and cotton-based yarn purchases and polyester fibers purchases, in order to reduce the effects of
fluctuations in the cost of cotton, crude oil, and petrochemicals used in the manufacture of its products. These contracts are
not used for trading purposes and are not considered to be financial instruments that would need to be accounted for at fair
value in the Company’s consolidated financial statements. Without taking into account the impact of fixed price contracts, a
change of $0.01 per pound in the price of cotton or polyester fibers would affect the Company’s annual raw material costs
by approximately $6 million, based on current production levels.
In addition, fluctuations in crude oil or petroleum prices also affect our energy consumption costs and can influence
transportation costs and the cost of related items used in our business, including other raw materials we use to manufacture
our products such as chemicals, dyestuffs, and trims. We generally purchase these raw materials at market prices.
The Company has the ability to enter into derivative financial instruments, including futures and option contracts, to manage
its exposure to movements in commodity prices. Such contracts are accounted for at fair value in the consolidated financial
statements in accordance with the accounting standards applicable to financial instruments. During fiscal 2018, the Company
entered into commodity derivative contracts as described in note 14 to the 2018 audited annual consolidated financial
statements. The underlying risk of the commodity derivative contracts is identical to the hedged risk and accordingly, we
have established a ratio of 1:1 for all commodity derivative hedges. Due to a strong correlation between commodity future
contract prices and our purchased costs, we did not experience any significant ineffectiveness on our hedges. We refer the
reader to note 14 to the 2018 audited annual consolidated financial statements for details of these derivative contracts and
the impact of applying hedge accounting.
11.5 Interest rate risk
The Company is subject to interest rate risk arising from its $300 million term loan, $100 million of its unsecured notes
payable, and amounts drawn on its revolving long-term bank credit facilities, all of which bear interest at a variable U.S.
LIBOR-based interest rate, plus a spread.
The Company generally fixes the rates for LIBOR-based borrowings for periods of one to three months. The interest rates
on amounts drawn on debt agreements and on any future borrowings will vary and are unpredictable. Increases in interest
rates on new debt issuances may result in a material increase in financial charges.
The Company has the ability to enter into derivative financial instruments that would effectively fix its cost of current and
future borrowings for an extended period of time. The Company has floating-to-fixed interest rate swaps outstanding to hedge
up to $250 million of its floating interest rate exposure on a designated portion of certain long-term debt agreements. The
interest rate swap contracts are designated as cash flow hedges and qualify for hedge accounting.
As our floating rate debt has a variable rate of interest linked to LIBOR as a benchmark for establishing the rate, the anticipated
changes to the LIBOR after 2021 could impact the cost of our variable rate indebtedness. In July 2017, the United Kingdom’s
Financial Conduct Authority (FCA), which regulates LIBOR, announced that it intends to stop persuading or compelling banks
to submit rates for the calculation of LIBOR to the administrator of LIBOR after 2021. It is likely that banks will not continue
to provide submissions for the calculation of LIBOR after 2021 and possible that they may not provide submissions before
then. It is impossible to predict whether LIBOR will continue to be viewed as an acceptable market benchmark, what effects
any changes to LIBOR or the transition to alternative reference rates may have on variable rate indebtedness or on our
business, financial condition, or results of operations. The consequence of these developments cannot be entirely predicted
but could include an increase in the cost of our variable rate indebtedness. If LIBOR rates are no longer available or viewed
as an acceptable market benchmark, and our lenders are required, or exercise discretion, to implement substitute reference
rates for the calculation of interest rates under our floating rate debt, we may incur expenses in effecting the transition, and
may be subject to disputes or litigation with lenders over the appropriateness or comparability to LIBOR of the substitute
reference rates.
Based on the value of interest-bearing financial instruments during the year ended December 30, 2018, an assumed 0.5
percentage point increase in interest rates during such period would have decreased earnings before income taxes by
$1.9 million. An assumed 0.5 percentage point decrease in interest rates would have had an equal but opposite effect on
earnings before income taxes, assuming that all other variables remain constant.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 30
MANAGEMENT'S DISCUSSION AND ANALYSIS
12.0 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Our significant accounting policies are described in note 3 to our 2018 audited annual consolidated financial statements. The
preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that
affect the application of accounting policies and the reported amounts of assets, liabilities, income, and expenses. Actual
results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized
in the period in which the estimates are revised and in any future periods affected.
12.1 Critical judgments in applying accounting policies
The following are critical judgments that management has made in the process of applying accounting policies and that have
the most significant effect on the amounts recognized in the consolidated financial statements:
Determination of cash-generating units (CGUs)
The identification of CGUs and grouping of assets into the respective CGUs is based on currently available information about
actual utilization experience and expected future business plans. Management has taken into consideration various factors
in identifying its CGUs. These factors include how the Company manages and monitors its operations, the nature of each
CGU’s operations, and the major customer markets they serve. As such, the Company has identified its CGUs for purposes
of testing the recoverability and impairment of non-financial assets to be Textile & Sewing and Hosiery.
Income taxes
The Company’s income tax provisions and income tax assets and liabilities are based on interpretations of applicable tax
laws, including income tax treaties between various countries in which the Company operates, as well as underlying rules
and regulations with respect to transfer pricing. These interpretations involve judgments and estimates and may be challenged
through government taxation audits that the Company is regularly subject to. New information may become available that
causes the Company to change its judgment regarding the adequacy of existing income tax assets and liabilities; such
changes will impact net earnings in the period that such a determination is made.
12.2 Key sources of estimation uncertainty
Key sources of estimation uncertainty that have a significant risk of resulting in a material adjustment to the carrying amount
of assets and liabilities within the next financial year are as follows:
Allowance for expected credit losses
The Company makes an assessment of whether accounts receivable are collectable based on an expected credit loss model
which factors in changes in credit quality since the initial recognition of trade accounts receivable based on customer risk
categories. Credit quality is assessed by taking into account the financial condition and payment history of the Company's
customers, and other factors. Furthermore, these estimates must be continuously evaluated and updated. The Company is
not able to predict changes in the financial condition of its customers, and if circumstances related to its customers’ financial
condition deteriorate, the estimates of the recoverability of trade accounts receivable could be materially affected and the
Company could be required to record additional allowances. Alternatively, if the Company provides more allowances than
needed, a reversal of a portion of such allowances in future periods may be required based on actual collection experience.
Sales promotional programs
In the normal course of business, certain incentives, including discounts and rebates, are granted to our customers. At the
time of sale, estimates are made for customer price discounts and rebates based on the terms of existing programs. Accruals
required for new programs, which relate to prior sales, are recorded at the time the new program is introduced. Sales are
recorded net of these program costs and a provision for estimated sales returns, which is based on historical experience,
current trends and other known factors. If actual price discounts, rebates, or returns differ from estimates, significant
adjustments to net sales could be required in future periods.
Inventory valuation
The Company regularly reviews inventory quantities on hand and records a provision for those inventories no longer deemed
fully recoverable. The cost of inventories may no longer be recoverable if those inventories are slow moving, discontinued,
damaged, if they have become obsolete, or if their selling prices or estimated forecast of product demand decline. If actual
GILDAN 2018 REPORT TO SHAREHOLDERS P. 31
MANAGEMENT'S DISCUSSION AND ANALYSIS
market conditions are less favorable than previously projected or if liquidation of the inventory which is no longer deemed
fully recoverable is more difficult than anticipated, additional provisions may be required.
Business combinations
Business combinations are accounted for in accordance with the acquisition method. On the date that control is obtained,
the identifiable assets, liabilities, and contingent liabilities of the acquired company are measured at their fair value. Depending
on the complexity of determining these valuations, the Company uses appropriate valuation techniques which are generally
based on a forecast of the total expected future net discounted cash flows. These valuations are linked closely to the
assumptions made by management regarding the future performance of the related assets and the discount rate applied as
it would be assumed by a market participant.
Recoverability and impairment of non-financial assets
The calculation of fair value less costs of disposal or value in use for purposes of measuring the recoverable amount of non-
financial assets involves the use of significant assumptions and estimates with respect to a variety of factors, including
expected sales, gross margins, SG&A expenses, cash flows, capital expenditures, and the selection of an appropriate earnings
multiple or discount rate, all of which are subject to inherent uncertainties and subjectivity. The assumptions are based on
annual business plans and other forecasted results, earnings multiples obtained by using market comparables as references,
and discount rates which are used to reflect market-based estimates of the risks associated with the projected cash flows,
based on the best information available as of the date of the impairment test. Changes in circumstances, such as technological
advances, adverse changes in third-party licensing arrangements, changes to the Company’s business strategy, and changes
in economic and market conditions can result in actual useful lives and future cash flows that differ significantly from estimates
and could result in increased charges for amortization or impairment. Revisions to the estimated useful lives of finite-life non-
financial assets or future cash flows constitute a change in accounting estimate and are applied prospectively. There can be
no assurance that the estimates and assumptions used in the impairment tests will prove to be accurate predictions of the
future. If the future adversely differs from management’s best estimate of key economic assumptions and the associated
cash flows materially decrease, the Company may be required to record material impairment charges related to its non-
financial assets. Please refer to note 10 of the audited annual consolidated financial statements for the year ended
December 30, 2018 for additional details on the recoverability of the Company’s cash-generating units.
Valuation of statutory severance obligations and the related costs
The valuation of the statutory severance obligations and the related costs requires economic assumptions, including discount
rates and expected rates of compensation increases, and participant demographic assumptions. The actuarial assumptions
used may differ materially from year to year due to changing market and economic conditions, resulting in significant increases
or decreases in the obligations and related costs.
Measurement of the estimate of expected costs for decommissioning and site restoration
The measurement of the provision for decommissioning and site restoration costs requires assumptions including expected
timing of the event which would result in the outflow of resources, the range of possible methods of decommissioning and
site restoration, and the expected costs that would be incurred to settle any decommissioning and site restoration liabilities.
The Company has measured the provision using the present value of the expected costs, which requires an assumed discount
rate. Revisions to any of the assumptions and estimates used by management may result in changes to the expected
expenditures to settle the liability, which would require adjustments to the provision and which may have an impact on the
operating results of the Company in the period the change occurs.
Income taxes
The Company has unused available tax losses and deductible temporary differences in certain jurisdictions. The Company
recognizes deferred income tax assets for these unused tax losses and deductible temporary differences only to the extent
that, in management’s opinion, it is probable that future taxable profit will be available against which these available tax
losses and temporary differences can be utilized. The Company’s projections of future taxable profit involve the use of
significant assumptions and estimates with respect to a variety of factors, including future sales and operating expenses.
There can be no assurance that the estimates and assumptions used in our projections of future taxable income will prove
to be accurate predictions of the future, and in the event that our assessment of the recoverability of these deferred tax assets
changes in the future, a material reduction in the carrying value of these deferred tax assets could be required, with a
corresponding charge to net earnings.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 32
MANAGEMENT'S DISCUSSION AND ANALYSIS
13.0 ACCOUNTING POLICIES AND NEW ACCOUNTING STANDARDS NOT YET APPLIED
13.1 Accounting policies
The Company’s audited consolidated financial statements for fiscal 2018 were prepared in accordance with IFRS as issued
by the International Accounting Standards Board (IASB), using the same accounting policies as those applied in its fiscal
2017 audited annual consolidated financial statements.
13.2 New accounting standards and interpretations not yet applied
The following new accounting standards are not effective for the year ended December 30, 2018, and have not been applied
in preparing the audited annual 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 Company elects to exclude leases when 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 will adopt the new standard in the first quarter of fiscal 2019 using the modified retrospective
transition method. The Company expects that the initial adoption of IFRS 16 will result in approximately $80 million of right-
of-use assets and approximately $88 million of operating lease liabilities (primarily for the rental of premises) being recognized
in the consolidated statement of financial position. Provisions related to lease exit costs are expected to be reduced by
approximately $5 million, and deferred lease credits (relating to lease inducements) currently recorded in accounts payable
and accrued liabilities are expected to be reduced by approximately $2 million, as a result of the adoption of IFRS 16.
Accordingly, the Company expects to record an adjustment to reduce opening retained earnings by approximately $1 million
from the initial adoption of IFRS 16. The Company also expects a decrease of its operating lease costs, offset by an increase
of its depreciation and amortization and financial expenses resulting from the changes in the recognition, measurement, and
presentation requirements. However, no significant impact on net earnings is expected at this time. The Company is completing
the assessment of 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 starting in
the first quarter of fiscal 2019.
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 does not expect any significant impacts from the adoption of IFRIC 23 on its
consolidated financial statements.
14.0 DISCLOSURE CONTROLS AND PROCEDURES
As stated in the Canadian Securities Administrators’ National Instrument 52-109, Certification of Disclosure in Issuers’ Annual
and Interim Filings and Rules 13a-15(e) and 15d-15(e) under the U.S. Securities Exchange Act of 1934, disclosure controls
and procedures means controls and other procedures of an issuer that are designed to provide reasonable assurance that
information required to be disclosed by the issuer in its annual filings, interim filings, or other reports filed or submitted by it
under securities legislation is recorded, processed, summarized, and reported within the time periods specified in the securities
legislation and include controls and procedures designed to ensure that information required to be disclosed by an issuer in
its annual filings, interim filings, or other reports filed or submitted under securities legislation is accumulated and
communicated to the issuer’s management, including its certifying officers, as appropriate to allow timely decisions regarding
required disclosure.
An evaluation of the effectiveness of our disclosure controls and procedures as of December 30, 2018 was carried out under
the supervision of, and with the participation of, our management, including our Chief Executive Officer and our Chief Financial
Officer. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure
controls and procedures were effective as of December 30, 2018.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 33
MANAGEMENT'S DISCUSSION AND ANALYSIS
15.0 INTERNAL CONTROL OVER FINANCIAL REPORTING
15.1 Management’s annual report on internal control over financial reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Rules 13(a)-15(f) and 15(d)-15(f) under the U.S. Securities Exchange Act of 1934 and under National
Instrument 52-109.
Our internal control over financial reporting means a process designed by, or under the supervision of, an issuer’s certifying
officers, and effected by the issuer’s board of directors, management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with the issuer’s GAAP and includes those policies and procedures that: (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) are designed to provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with International Financial Reporting Standards, and that our receipts and expenditures are being made only in accordance
with authorization of our management and directors; and (3) are designed to provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect
on the annual financial statements or interim financial reports.
The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of certain
events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future
conditions, regardless of how remote. As a result, due to its inherent limitations, internal control over financial reporting may
not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the
risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
Under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, management
conducted an evaluation of the effectiveness of our internal control over financial reporting, as of December 30, 2018, based
on the framework set forth in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on that evaluation under this framework, our Chief Executive
Officer and our Chief Financial Officer concluded that our internal control over financial reporting was effective as of
December 30, 2018.
15.2 Attestation report of independent registered public accounting firm
KPMG LLP, an independent registered public accounting firm, which audited and reported on our financial statements in this
Report to Shareholders, has issued an unqualified report on the effectiveness of our internal control over financial reporting
as of December 30, 2018.
15.3 Changes in internal control over financial reporting
There have been no changes that occurred during the period beginning on October 1, 2018 and ended on December 30,
2018 in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
16.0 RISKS AND UNCERTAINTIES
In addition to the risks previously described under the sections “Financial risk management”, “Critical accounting estimates
and judgments”, and those described elsewhere in this MD&A, this section describes the principal risks that could have a
material and adverse effect on our financial condition, results of operations or business, cash flows, or the trading price of
our common shares, as well as cause actual results to differ materially from our expectations expressed in or implied by our
forward-looking statements. The risks listed below are not the only risks that could affect the Company. Additional risks and
uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our
financial condition, results of operations, cash flows, or business.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 34
MANAGEMENT'S DISCUSSION AND ANALYSIS
Our ability to implement our growth strategies and plans
The growth of our business depends on the successful execution of our key strategic initiatives, which are described in
section 4.0 of this MD&A. Although we are currently selling fashion basics in North America and we have been growing our
sales of imprintables in international markets, we may not be successful in further increasing our penetration in these markets,
as the required skill set, capabilities, and brand positioning to do so may be different than those the Company possesses or
has the ability to develop. Our sales growth opportunities may be limited or negatively impacted by customers, including
wholesale distributors and retailers pursuing growth of their own private label offerings that we do not supply and ultimately
compete against our own brands. With the rising trend of retailers shifting focus to proprietary private label offerings, our
growth prospects may be limited or negatively impacted if we are unsuccessful in securing these types of private label
programs. Our financial performance may be negatively impacted if new business that we secure in existing or new channels
of distribution has lower economic returns. As consumers increasingly migrate towards on-line shopping, our future sales
may be negatively impacted if we fail to continue to grow our sales with, and service, major retailers' e-commerce businesses
or fail to adequately develop our own capabilities to service consumers directly. From a manufacturing perspective, there
can be no assurance that we will successfully add new capacity or that we will not encounter operational issues that may
affect or disrupt our current production or supply chain or delay the ramp-up of new facilities required to support sales growth.
Our ability to generate cash flows from operations will depend on the success we have in executing our key strategic initiatives,
which in turn will ultimately impact our ability to pursue acquisition opportunities. Furthermore, we may be unable to identify
acquisition targets, successfully integrate a newly acquired business, or achieve expected benefits and synergies from such
integration.
Our ability to compete effectively
The markets for our products are highly competitive and evolving rapidly. Competition is generally based upon price, quality
and consistency, comfort, fit, style, brand, and service. Our competitive strengths include our expertise in building and
operating large-scale, vertically integrated manufacturing hubs which have allowed us to operate efficiently and reduce costs,
offer competitive pricing, and provide a reliable supply chain. There can be no assurance that we will be able to maintain our
low cost manufacturing and distribution structure and remain competitive. As discussed in section 3.4 of this MD&A, we
compete with domestic and international manufacturers, brands of well-established U.S. apparel and sportswear companies,
as well as our own customers, including retailers and wholesale distributors that are selling basic apparel products under
their own private label brands that compete directly with our brands. In addition, shopping trends are also evolving, on-line
shopping is growing rapidly, and e-commerce is further intensifying competition in the market as it facilitates competitive
entry and comparison shopping. Failure to compete effectively and respond to evolving trends in the market, including
intensifying competition from private label brands and e-commerce, and failure to adapt our operations to service the changing
needs of our customers could have a negative impact on our business and results of operations. Any changes in our ability
to compete effectively in the future may result in the loss of customers to competitors, reduction in customer orders or shelf
space, lower prices or the need for additional customer price incentives, and other forms of marketing support to our customers,
all of which could have a negative effect on our profitability if we are unable to offset such negative impacts with new business
or cost reductions.
Our ability to integrate acquisitions
The Company’s strategic opportunities include potential complementary acquisitions that could support, strengthen, or expand
our business. The integration of newly acquired businesses may prove to be more challenging, take more time than originally
anticipated, or result in significant additional costs and/or operational issues, all of which could negatively affect our financial
condition and results of operations. In addition, we may not be able to fully realize expected synergies and other benefits.
We may be negatively impacted by changes in general economic and financial conditions
General economic and financial conditions, globally or in one or more of the markets we serve, may negatively affect our
business. If there is a decline in economic growth and in consumer and commercial activity, and/or if adverse financial
conditions exist in the credit markets, as in the case of the global credit crisis in 2008 and 2009, this may lead to lower demand
for our products resulting in sales volume reductions and lower selling prices and may cause us to operate at levels below
our optimal production capacity, which would result in higher unit production costs, all of which could negatively affect our
profitability and reduce cash flows from operations. Weak economic and financial conditions could also negatively affect the
financial condition of our customers, which could result in lower sales volumes and increased credit risk. The nature and
extent of the Company’s credit risks are described under the section “Financial risk management” in this MD&A.
We rely on a small number of significant customers
We rely on a small number of customers for a significant portion of our total sales. In fiscal 2018, our top three customers
accounted for 19.0%, 10.0% and 7.6% (2017 - 16.5%, 7.6% and 11.9%) of total sales respectively, and our top ten customers
accounted for 56.5% (2017 - 58.3%) of total sales. We expect that these customers will continue to represent a significant
portion of our sales in the future.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 35
MANAGEMENT'S DISCUSSION AND ANALYSIS
Future sales volumes and profitability could be negatively affected should one or more of the following events occur:
•
•
•
•
a significant customer substantially reduces its purchases or ceases to buy from us, or we elect to reduce its volume
of business with or cease to sell to a significant customer, and we cannot replace that business with sales to other
customers on similar terms;
a large customer exercises its purchasing power to negotiate lower prices or higher price discounts or requires us
to incur additional service and other costs;
further industry consolidation leads to greater customer concentration and competition; and
a customer encounters financial difficulties and is unable to meet its financial obligations.
Our customers do not commit to purchase minimum quantities
Our contracts with our customers do not require them to purchase a minimum quantity of our products or commit to minimum
shelf space allocation for our products. If any of our customers experience a significant business downturn or fail to remain
committed to our products, they may reduce or discontinue purchases from us. Although we have maintained long-term
relationships with many of our wholesale distributor and retail customers, there can be no assurance that historic levels of
business from any of our customers will continue in the future.
Our ability to anticipate, identify, or react to changes in consumer preferences and trends
While we currently focus on basic products, the apparel industry, particularly within the retail channel, is subject to evolving
consumer preferences and trends. Our success may be negatively impacted by changes in consumer preferences which do
not fit with Gildan’s core competency of marketing and large-scale manufacturing of basic apparel products. If we are unable
to successfully anticipate, identify or react to changing styles or trends, or misjudge the market for our products, our sales
could be negatively impacted and we may be faced with unsold inventory which could negatively impact our profitability. In
addition, when introducing new products for our customers we may incur additional costs and transitional manufacturing
inefficiencies as we ramp-up production or upgrade manufacturing capabilities to support such customer programs, which
could negatively impact our profitability.
Our ability to manage production and inventory levels effectively in relation to changes in customer demand
Demand for our products may vary from year to year. We aim to appropriately balance our production and inventory with our
ability to meet market demand. Based on discussions with our customers and internally generated projections reflecting our
analysis of factors impacting industry demand, we produce and carry finished goods inventory to meet the expected demand
for delivery of specific product categories. If, after producing and carrying inventory in anticipation of deliveries, demand is
significantly less than expected, we may have to carry inventory for extended periods of time, or sell excess inventory at
reduced prices. In either case, our profits would be reduced. Excess inventory could also result in lower production levels,
resulting in lower plant and equipment utilization and lower absorption of fixed operating costs. Alternatively, we are also
exposed to loss of sales opportunities and market share if we produce insufficient inventory to satisfy our customers’ demand
for specific product categories as a result of underestimating market demand or not meeting production targets, in which
case our customers could seek to fulfill their product needs from competitors and reduce the amount of business they do
with us.
We may be negatively impacted by fluctuations and volatility in the price of raw materials used to manufacture our
products
Cotton and polyester fibers are the primary raw materials used in the manufacture of our products. We also use chemicals,
dyestuffs, and trims which we purchase from a variety of suppliers. The price of cotton fluctuates and is affected by consumer
demand, global supply, which may be impacted by weather conditions in any given year, speculation in the commodities
market, the relative valuations and fluctuations of the currencies of producer versus consumer countries, and other factors
that are generally unpredictable and beyond our control. In addition, fluctuations in crude oil or petroleum prices affect our
energy consumption costs and can also influence transportation costs and the cost of related items used in our business,
such as polyester fibers, chemicals, dyestuffs, and trims. As discussed under the heading entitled “Commodity risk” in the
“Financial risk management” section of this MD&A, the Company purchases cotton and polyester fibers through its yarn-
spinning facilities, and also purchases processed cotton yarn and blended yarn from outside vendors, at prices that are
correlated with the price of cotton and polyester fibers. The Company may enter into contracts up to eighteen months in
advance of future delivery dates to establish fixed prices for cotton, cotton-based yarn, and polyester fiber purchases and
reduce the effect of price fluctuations in the cost of cotton and polyester fibers used in the manufacture of its products. For
future delivery periods where such fixed price contracts have been entered into, the Company will be protected against cotton
and polyester fiber price increases but would not be able to benefit from cotton or polyester fiber price decreases. Conversely,
in the event that we have not entered into sufficient fixed priced contracts for cotton or polyester fibers, or have not made
other arrangements to lock in the price of cotton or polyester fibers in advance of delivery, we will not be protected against
price increases, but will be in a position to benefit from any price decreases. A significant increase in raw material costs,
particularly cotton and polyester fiber costs, could have an negative effect on our business, results of operations, and financial
condition, if the increase or part of the increase is not mitigated through additional manufacturing and distribution cost
GILDAN 2018 REPORT TO SHAREHOLDERS P. 36
MANAGEMENT'S DISCUSSION AND ANALYSIS
reductions and/or higher selling prices, or if resulting selling price increases negatively impact demand for the Company’s
products. In addition, when the Company fixes its cotton and polyester fiber costs for future delivery periods and the cost of
cotton or polyester fibers subsequently decreases significantly for that delivery period, the Company may need to reduce
selling prices, which could have a negative effect on our business, results of operations and financial condition.
We rely on key suppliers
Our ability to meet our customers’ needs depends on our ability to maintain an uninterrupted supply of raw materials and
finished goods from third-party suppliers. More specifically, we source cotton, cotton-based yarns, polyester fibers, chemicals,
dyestuffs, and trims primarily from a limited number of outside suppliers. In addition, a substantial portion of the products
sold under the Gold Toe® portfolio of brands and licensed brands are purchased from a number of third-party suppliers. Our
business, results of operations, and financial condition could be negatively affected if there is a significant change in our
relationship with any of our principal suppliers of raw materials or finished goods, or if any of these key suppliers have difficulty
sourcing cotton fibers and other raw materials, experience production disruptions, fail to maintain production quality, fail to
qualify under our social compliance program, experience transportation disruptions or encounter financial difficulties. These
events can result in lost sales, cancellation charges, or excessive markdowns, all of which can have a negative effect on our
business, results of operations, and financial condition.
We may be negatively impacted by climate, political, social, and economic risks in the countries in which we operate
or from which we source production
The majority of our products are manufactured in Central America, primarily in Honduras and Nicaragua, as well as the
Caribbean Basin, and to a lesser extent in Bangladesh, as described in the section entitled “Our operations” in this MD&A.
We also purchase significant volumes of socks from third-party suppliers in Asia. Some of the countries in which we operate
or source from have experienced political, social, and economic instability in the past, and we cannot be certain of their future
stability. In addition, most of our facilities are located in geographic regions that are exposed to the risk of, and have experienced
in the past, hurricanes, floods, and earthquakes. Any such events in the future could have a negative impact on our business.
The following conditions or events could disrupt our supply chain, interrupt production at our facilities or those of our suppliers,
increase our cost of sales and other operating expenses, result in a loss of sales, asset losses, or require additional capital
expenditures to be incurred:
•
•
•
•
fires, pandemics, extraordinary weather conditions, or natural disasters, such as hurricanes, tornadoes, floods,
tsunamis, typhoons, and earthquakes;
political instability, social and labour unrest, war, or terrorism;
disruptions in port activities, shipping and freight forwarding services; and
interruptions in the availability of basic services and infrastructure, including power and water shortages.
Our insurance programs do not cover every potential loss associated with our operations, including potential damage to
assets, lost profits, and liability that could result from the aforementioned conditions or events. In addition, our insurance
may not fully cover the consequences resulting from a loss event, due to insurance limits, sub-limits, or policy exclusions.
Any occurrence not fully covered by insurance could have a negative effect on our business.
Compliance with laws and regulations in the various countries in which we operate and the potential negative effects
of litigation and/or regulatory actions
Our business is subject to a wide variety of laws and regulations across all of the countries in which we do business, which
involves the risk of legal and regulatory actions regarding such matters as international trade, competition, taxation,
environmental, health and safety, product liability, employment practices, patent and trademark infringement, corporate and
securities legislation, licensing and permits, data privacy, bankruptcies, and other claims. Some of these compliance risks
are further described in this "Risks and uncertainties" section of the MD&A. In the event of non-compliance with such laws
and regulations, we may be subject to regulatory actions, claims and/or litigation which could result in fines, penalties, claim
settlement costs or damages awarded to plaintiffs, legal defense costs, product recalls and related costs, remediation costs,
incremental operating costs and capital expenditures to improve future/ongoing compliance, and damage to the Company’s
reputation. In addition, non-compliance with certain laws and regulations could result in regulatory actions that could
temporarily or permanently restrict or limit our ability to conduct operations as planned, potentially resulting in lost sales,
closure costs, and asset write-offs. Due to the inherent uncertainties of litigation or regulatory actions in both domestic and
foreign jurisdictions, we cannot accurately predict the ultimate outcome of any such proceedings.
Laws and regulations are constantly changing and are often complex, and future compliance cannot be assured. Changes
necessary to maintaining compliance with these laws and regulations may increase future compliance costs and have other
negative impacts on our business, results of operations, and financial condition.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 37
MANAGEMENT'S DISCUSSION AND ANALYSIS
As part of the regulatory and legal environments in which we operate, Gildan is subject to anti-bribery laws that prohibit
improper payments directly or indirectly to government officials, authorities, or persons defined in those anti-bribery laws in
order to obtain business or other improper advantages in the conduct of business. Failure by our employees, subcontractors,
suppliers, agents, and/or partners to comply with anti-bribery laws could impact Gildan in various ways that include, but are
not limited to, criminal, civil and administrative legal sanctions, negative publicity, and could have a negative effect on our
reputation as well as our business, results of operations, and financial condition.
We rely on certain international trade agreements and preference programs and are subject to evolving international
trade regulations
As a multinational corporation, we are affected by domestic tariffs, including the potential imposition of anti-dumping or
countervailing duties on our raw materials and finished goods, international trade legislation, bilateral and multilateral trade
agreements and trade preference programs in the countries in which we operate, source, and sell products. In order to remain
globally competitive, we have situated our manufacturing facilities in strategic locations to benefit from various free trade
agreements and trade preference programs. Furthermore, management continuously monitors new developments and
evaluates risks relating to duties including anti-dumping and countervailing duties, tariffs, and trade restrictions that could
impact our approach to global manufacturing and sourcing, and makes adjustments as needed. The Company relies on a
number of preferential trade programs which provide duty free access to the U.S. market for goods meeting specified rules
of origin, including the Caribbean Basin Trade Partnership Act (CBTPA), the Dominican Republic - Central America - United
States Free Trade Agreement (CAFTA-DR), the North American Free Trade Agreement (NAFTA) and the Haitian Hemispheric
Opportunity through Partnership Encouragement (HOPE), which allow qualifying textiles and apparel from participating
countries duty-free access to the U.S. market. The Company relies on similar arrangements to access the European Union,
Canada, and other markets. Changes to trade agreements or trade preference programs that the Company currently relies
on may negatively impact our global competitive position. The likelihood that the agreements and preference programs
around which we have built our manufacturing supply chain will be modified, repealed, or allowed to expire, and the extent
of the impact of such changes on our business, cannot be determined with certainty.
Recently there has been an increasing focus on U.S. domestic manufacturing that has drawn worldwide attention. The current
U.S. Administration is encouraging companies to manufacture in the U.S. While a significant proportion of our costs to
manufacture our products originate in the United States, the Company also has significant operations outside the U.S. There
can be no assurance that the recent and continuing focus in this area may not attract negative publicity on the Company and
its activities, lead to adverse changes in international trade agreements and preference programs that the Company currently
relies on, the implementation of anti-dumping or countervailing duties on the imports of our raw materials and finished goods
into the U.S. from other countries, or lead to further tax reform in the U.S. that could increase our effective income tax rate.
Furthermore, the imposition of non-tariff barriers by the countries into which we sell our products internationally may also
impact our ability to service such markets. Any of such outcomes could negatively impact our ability to compete effectively
and negatively affect our results of operations.
Most trade agreements provide for the application of special safeguards in the form of reinstatement of normal duties if
increased imports constitute a substantial cause of serious injury, or threat thereof, to a domestic industry. The likelihood
that a safeguard will be adopted and the extent of its impact on our business cannot be determined with certainty.
Furthermore, the imposition of any new domestic tariffs in any of the countries in which we operate may also negatively
impact our global competitive position. For example, United States domestic law provides for the application of anti-dumping
or countervailing duties on imports of products from certain countries into the United States should determinations be made
by the relevant agencies that such imported products have been subsidized and/or are being sold at less than “fair value”
and that such imports are causing a material injury to the domestic industry. The mechanism to implement anti-dumping and
countervailing duties is available to every World Trade Organization member country. The impact of the imposition of such
duties on products we import into the U.S. or other markets cannot be determined with certainty.
Following the United States’ January 2017 withdrawal from the Trans-Pacific Partnership Agreement (TPP), the remaining
countries participating in the TPP, namely, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru,
Singapore, and Vietnam negotiated and agreed to a revised trade agreement known as the Comprehensive Progressive
Trans-Pacific Partnership (CPTPP). CPTPP has been ratified by Australia, Canada, Japan, Mexico, New Zealand, Singapore,
and Vietnam and officially came in force on December 30, 2018. The remaining participating countries (Brunei, Chile, Malaysia,
and Peru) will not benefit or be bound by the agreement until they complete their ratification process. CPTPP may negatively
affect our competitive position in some of the countries in which we sell our products.
In 2018, the United States, Canada, and Mexico concluded a renegotiated agreement of NAFTA referred to as the United
States-Mexico-Canada Agreement (USMCA). The USMCA is expected to replace NAFTA once it has been ratified by each
of the member countries. The USMCA brings more closely into alignment the apparel rules of origin with those of CAFTA-
GILDAN 2018 REPORT TO SHAREHOLDERS P. 38
MANAGEMENT'S DISCUSSION AND ANALYSIS
DR. NAFTA will remain in effect until the USMCA is ratified by each member country. There is a risk that the United States
could withdraw from NAFTA if the USMCA is not ratified by U.S. Congress. The termination of NAFTA without the full
implementation of USMCA could adversely impact the overall competitiveness of products we ship to the U.S., Canada, and
Mexico from our Mexican and Canadian manufacturing supply chains, as applicable.
The European Union has an Association Agreement with Central America, including Honduras and Nicaragua, where we
have production operations. The European Union also has preferential trade arrangements with other countries. The
European Union maintains a Generalized System of Preferences (GSP) and the Everything But Arms programs (EBA). These
programs allow free or reduced duty entry into the European Union of qualifying articles, including apparel, from developing
countries and least developed countries where we have manufacturing operations, including Haiti and Bangladesh. The
European Union also affords preference to qualifying apparel from notable production venues including Vietnam, Myanmar
and Pakistan, which could negatively impact our competitive position in the European Union. Any changes to these
agreements, could have a negative impact on our operations.
On June 23, 2016, the United Kingdom voted to leave the European Union with a scheduled exit date of March 29, 2019
(Brexit). A proposed agreement between the United Kingdom and the European Union on the terms of the withdrawal and
the future relationship between the United Kingdom and the European Union was defeated in the U.K. Parliament and at
this time, the prospects of an alternative agreement are unclear, thus increasing the possibility of a “no-deal Brexit,” which,
absent any extension or, potential transition period that could ease the impact on trade between the parties, could result in
the loss of certain efficiencies in our European distribution network. With respect to trade between the United Kingdom and
third countries with which the European Union has trade agreements in effect, if the United Kingdom fails to timely implement
identical or similar agreements or programs to the ones in effect with the European Union, it could negatively impact the
competitiveness of our supply chain in servicing the United Kingdom market.
The People's Republic of China extends duty-free and quota-free trade benefits under the Asia-Pacific Trade Agreement to
qualifying apparel articles from Bangladesh, including certain chief-weight cotton apparel articles. Any changes to this
agreement could have a negative impact on our operations.
A segment of our goods from China have been subject to tariffs by the U.S. which are over-and-above the normal applicable
duty rates. Furthermore, the tariffs on these goods may further increase or additional goods may become subject to tariffs
in the absence of an agreement between the U.S. and China which could have a negative impact on our operations.
Overall, new agreements or arrangements that further liberalize access to our key country markets could negatively impact
our competitiveness in those markets. The likelihood that any such agreements, measures, or programs will be adopted, or
that the agreements and preference programs around which we have built our manufacturing supply chain will be modified,
repealed, or allowed to expire, and the extent of the impact of such changes on our business, cannot be determined with
certainty.
In addition, the Company is subject to customs audits as well as valuation and origin verifications in the various countries in
which it operates. Although we believe that our customs compliance programs are effective at ensuring the eligibility of all
goods manufactured for the preferential treatment claimed upon importation, we cannot predict the outcome of any
governmental audit or inquiry.
The Company operates a U.S. foreign trade zones (FTZ) at its distribution warehouse in North Carolina. FTZs enhance
efficiencies in the customs entry process and allow for the non-application of duty on certain goods distributed internationally.
FTZs are highly regulated operations and while the Company believes it has adequate systems and controls in place to
manage the regulatory requirements associated with its FTZ, we cannot predict the outcome of any governmental audit or
examination of its FTZ.
In recent years, governmental bodies have responded to the increased threat of terrorist activity by requiring greater levels
of inspection of imported goods and imposing security requirements on importers, carriers, and others in the global supply
chain. These added requirements can sometimes cause delays and increase costs in bringing imported goods to market.
We believe we have effectively addressed these requirements in order to maximize velocity in our supply chain, but changes
in security requirements or tightening of security procedures, for example, in the aftermath of a terrorist incident, could cause
delays in our goods reaching the markets in which we distribute our products.
Textile and apparel articles are generally not subject to specific export restrictions or licensing requirements in the countries
where we manufacture and distribute goods. However, the creation of export licensing requirements, imposition of restrictions
on export quantities, or specification of minimum export prices could potentially have a negative impact on our business. In
addition, unilateral and multilateral sanctions and restrictions on dealings with certain countries and persons are unpredictable,
GILDAN 2018 REPORT TO SHAREHOLDERS P. 39
MANAGEMENT'S DISCUSSION AND ANALYSIS
continue to emerge and evolve in response to international economic and political events, and could impact our trading
relationships with vendors or customers.
Factors or circumstances that could increase our effective income tax rate
The Company benefits from a low overall effective corporate tax rate as the majority of its profits are earned and the majority
of its sales, marketing, and manufacturing operations are carried out in low tax rate jurisdictions in Central America and the
Caribbean Basin. The Company’s income tax filing positions and income tax provisions are based on interpretations of
applicable tax laws in the jurisdictions in which it operates, including income tax treaties between various countries in which
the Company operates as well as underlying rules and regulations with respect to transfer pricing. These interpretations
involve judgments and estimates and may be challenged through government taxation audits that the Company is regularly
subject to. Although the Company believes its tax filing positions are sustainable, we cannot predict with certainty the outcome
of any audit undertaken by taxation authorities in any jurisdictions in which we operate, and the final result may vary compared
to the estimates and assumptions used by management in determining the Company’s consolidated income tax provision
and in valuing its income tax assets and liabilities. Depending on the ultimate outcome of any such audit, there may be a
negative impact on the Company’s financial condition, results of operations, and cash flows. In addition, if the Company were
to receive a tax reassessment by a taxation authority prior to the ultimate resolution of an audit, the Company could be
required to submit an advance deposit on the amount reassessed.
The Company’s overall effective income tax rate may also be adversely affected by the following: changes to current domestic
laws in the countries in which the Company operates; changes to or terminations of the income tax treaties the Company
currently relies on; an increase in income and withholding tax rates; changes to free trade and export processing zone rules
in certain countries where the Company is currently not subject to income tax; changes to guidance regarding the interpretation
and application of domestic laws, free trade and export processing zones, and income tax treaties; increases in the proportion
of the Company’s overall profits being earned in higher tax rate jurisdictions due to changes in the locations of the Company’s
operations; or other factors.
On December 22, 2017, the United States signed into law the Tax Cuts and Jobs Act (U.S. Tax Reform) which reduces the
federal corporate income tax rate from 35% to 21% effective January 1, 2018. In addition, other changes to U.S. corporate
tax laws resulting from the U.S. tax reform include the limitation on deductibility of interest expense paid by U.S. corporations
and the introduction of the base erosion anti-abuse tax that applies an additional tax under certain conditions related to
certain payments made by U.S. corporations to foreign related parties. Although we do not expect a significant adverse effect
to our tax rate resulting from the U.S. tax reform, any further significant changes to the current tax rules which govern the
manner in which sales and profits are taxed in the U.S. could materially increase the effective income tax rate of the Company.
We have not recognized a deferred income tax liability for the undistributed profits of our subsidiaries, as we currently have
no intention to repatriate these profits. If our expectations or intentions change in the future, we could be required to recognize
a charge to earnings for the tax liability relating to the undistributed profits of our subsidiaries, which would also result in a
corresponding cash outflow in the years in which the earnings would be repatriated. As at December 30, 2018, the estimated
income tax liability that would result in the event of a full repatriation of these undistributed profits is approximately $74 million.
Provisions for uncertain tax positions are measured at the best estimate of the amounts expected to be paid upon ultimate
resolution. The Company’s overall effective income tax rate is impacted by its assessment of uncertain tax positions and
whether additional taxes and interest may be due. The Company’s assessment of uncertain tax positions may be negatively
affected as a result of new information, a change in management’s assessment of the technical merits of its positions, changes
to tax laws, administrative guidance, and the conclusion of tax audits.
Compliance with environmental, health, and safety regulations
We are subject to various federal, state, local, and other environmental and occupational health and safety laws and regulations
in the different jurisdictions in which we operate, concerning, among other things, wastewater discharges, air emissions,
storm water flows, and solid waste disposal. Our manufacturing plants generate some quantities of hazardous waste, which
are recycled, repurposed, or disposed of by licensed waste management companies. Through our Corporate Environmental
Policy, Environmental Code of Practice and Environmental Management System, we seek not only to comply with all applicable
laws and regulations, but also to reduce our environmental footprint through waste prevention, recovery, and treatment.
Although we believe that we are currently in compliance in all material respects with the regulatory requirements of those
jurisdictions in which our facilities are located, the extent of our liability, if any, for past failures to comply with laws, regulations,
and permits applicable to our operations cannot be reasonably determined. In line with our commitment to the environment,
as well as to the health and safety of our employees, we incur capital and other expenditures each year that are aimed at
achieving compliance with current environmental standards. There can be no assurance that future changes in federal, state,
local, or other regulations, interpretations of existing regulations or the discovery of currently unknown problems or conditions
GILDAN 2018 REPORT TO SHAREHOLDERS P. 40
MANAGEMENT'S DISCUSSION AND ANALYSIS
will not require substantial additional environmental remediation expenditures or fines/penalties or result in a disruption to
our supply chain that could have an adverse effect on our business, results of operation, or financial condition.
During fiscal 2013, Gildan was notified that a Gold Toe subsidiary has been identified as one of numerous “potentially
responsible parties” at a certain waste disposal site undergoing an investigation by the Pennsylvania Department of
Environmental Protection under the Pennsylvania Hazardous Sites Cleanup Act and the Solid Waste Management Act. As
a result of activities alleged to have occurred during the 1980’s, Gildan could be liable to contribute to the costs of any
investigation or cleanup action which the site may require, although to date we have insufficient information from the authorities
as to the potential costs of the investigation and cleanup to reasonably estimate Gildan’s share of liability for any such costs,
if any.
Compliance with product safety regulation
We are subject to consumer product safety laws and regulations that could affect our business. In the United States, we are
subject to the Consumer Product Safety Act, as amended by the Consumer Product Safety Improvement Act of 2008, the
Federal Hazardous Substances Act, the Flammable Fabrics Act, the Toxic Substances Control Act, and rules and regulations
enacted pursuant to these statutes. Such laws provide for substantial penalties for non-compliance. These statutes and
regulations include requirements for testing and certification for flammability of wearing apparel, for lead content and lead in
surface coatings in children’s products, and for phthalate content in child care articles, including plasticized components of
children’s sleepwear. We are also subject to similar laws and regulations, and to additional warning and reporting requirements,
in the various individual states within the U.S. in which our products are sold.
In Canada, we are subject to similar laws and regulations, including the Hazardous Products Act and the Canada Consumer
Product Safety Act (the “CCPSA”), which apply to manufacturers, importers, distributors, advertisers, and retailers of consumer
products. In the European Union, we are also subject to product safety regulations, including those which are imposed
pursuant to the General Product Safety Directive. We are also subject to similar laws and regulations in the other jurisdictions
in which our products are sold.
Compliance with existing and future product safety laws and regulations and enforcement policies may require that we incur
capital and other costs, which may be significant. Non-compliance with applicable product safety laws and regulations may
result in substantial fines and penalties, costs related to the recall, replacement and disposal of non-compliant products, as
well as negative publicity which could harm our reputation and result in a loss of sales. Our customers may also require us
to meet existing and additional consumer safety requirements, which may result in our inability to provide the products in the
manner required. Although we believe that we are in compliance in all material respects with applicable product safety laws
and regulations in the jurisdictions in which we operate, the extent of our liability and risk of business interruption, if any, due
to failures to comply with laws, regulations, and permits applicable to our operations cannot be reasonably determined.
We may be negatively impacted by changes in our relationship with our employees or changes to domestic and
foreign employment regulations
We employ over 50,000 employees worldwide. As a result, changes in domestic and foreign laws governing our relationships
with our employees, including wage and human resources laws and regulations, fair labour standards, overtime pay,
unemployment tax rates, workers’ compensation rates, and payroll taxes, would likely have a direct impact on our operating
costs. The majority of our employees are employed outside Canada and the United States. A significant increase in wage
rates or the cost of benefit programs in the countries in which we operate could have a negative impact on our operating
costs.
The Company has historically been able to operate in a productive manner in all of its manufacturing facilities without
experiencing significant labour disruptions, such as strikes or work stoppages. Many of our employees are members of labour
organizations. The Company is party to collective bargaining agreements at its sewing operations in Nicaragua and Honduras.
In connection with its textile operations in the Dominican Republic, the Company was previously a party to a collective
bargaining agreement with a union registered with the Dominican Ministry of Labor, covering approximately 900 employees.
The collective bargaining agreement was terminated in February 2011 upon the mutual consent of the Company and the
union, although the union is still claiming to represent a majority of the factory workers. A second union is also claiming that
it represents the majority of the workers at the plant and the matter is now before the Dominican Republic Labor Court.
Notwithstanding the termination of the agreement, the Company is continuing to provide all of the benefits to the employees
covered by the original agreement. If labour relations were to change or deteriorate at any of our facilities or any of our third-
party contractors’ facilities, this could negatively affect the productivity and cost structure of the Company’s manufacturing
operations.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 41
MANAGEMENT'S DISCUSSION AND ANALYSIS
We may experience negative publicity as a result of actual, alleged, or perceived violations of labour laws or
international labour standards, unethical labour, and other business practices
We are committed to ensuring that all of our operations and contractor operations comply with our strict internal Code of
Conduct, local and international laws, and the codes and principles to which we subscribe, including those of the Fair Labor
Association (FLA) and the Worldwide Responsible Accredited Production (WRAP). While the majority of our manufacturing
operations are conducted through Company-owned facilities, we also utilize third-party contractors, which we do not control,
to complement our vertically integrated production. If one of our own manufacturing operations or one of our third-party
contractors or sub-contractors violates or is accused of violating local or international labour laws or other applicable
regulations, or engages in labour or other business practices that would be viewed, in any market in which our products are
sold, as unethical, we could experience negative publicity which could harm our reputation and result in a loss of sales.
We may be negatively impacted by changes in third-party licensing arrangements and licensed brands
A number of products are designed, manufactured, sourced, and sold under trademarks that we license from third parties,
under contractual licensing relationships that are subject to periodic renewal. Because we do not control the brands licensed
to us, our licensors could make changes to their brands or business models that could result in a significant downturn in a
brand’s business, negatively affecting our sales and results of operations. If any licensor fails to adequately maintain or
protect their trademarks, engages in behaviour with respect to the licensed marks that would cause us reputational harm,
or if any of the brands licensed to us violates the trademark rights of a third-party or are deemed to be invalid or unenforceable,
we could experience a significant downturn in that brand’s business, negatively affecting our sales and results of operations,
and we may be required to expend significant amounts on public relations, advertising, legal, and other related costs. In
addition, if any of these licensors choose to cease licensing these brands to us in the future, our sales and results of operations
would be negatively affected.
Our ability to protect our intellectual property rights
Our trademarks are important to our marketing efforts and have substantial value. We aggressively protect these trademarks
from infringement and dilution through appropriate measures including court actions and administrative proceedings; however,
the actions we have taken to establish and protect our trademarks and other intellectual property may not be adequate. We
cannot be certain that others will not imitate our products or infringe our intellectual property rights. Infringement or
counterfeiting of our products could diminish the value of our brands or otherwise negatively affect our business. In addition,
unilateral actions in the United States or other countries, such as changes to or the repeal of laws recognizing trademark or
other intellectual property rights, could have an impact on our ability to enforce those rights.
From time to time we are involved in opposition and cancellation proceedings with respect to our intellectual property, which
could affect its validity, enforceability, and use. The value of our intellectual property could diminish if others assert rights in,
or ownership of, or oppose our applications to register our trademarks and other intellectual property rights. In some cases,
there may be trademark owners who have prior rights to our trademarks or to similar trademarks, which could harm our ability
to sell products under or register such trademarks. In addition, we have registered trademarks in certain foreign jurisdictions
and the laws of foreign countries may not protect our intellectual property rights to the same extent as do the laws of the
United States or Canada. We do not own trademark rights to all of our brands in all jurisdictions, which may limit the future
sales growth of certain branded products in such jurisdictions. Furthermore, actions we have taken to protect our intellectual
property rights may not be adequate to prevent others from seeking to invalidate our trademarks or block sales of our products
as a violation of the trademarks and intellectual property rights of others.
In some cases, litigation may be necessary to protect our trademarks and other intellectual property rights, to enforce our
rights or defend against claims by third parties alleging that we infringe, dilute, misappropriate, or otherwise violate third-
party trademark or other intellectual property rights. Any litigation or claims brought by or against us, whether with or without
merit, and whether successful or not, could result in substantial costs and diversion of our resources, which could have a
negative effect on our business, financial condition, results of operation and cash flows. Any intellectual property litigation
claims against us could result in the loss or compromise of our intellectual property rights, could subject us to significant
liabilities, require us to seek licenses on unfavorable terms, if available at all, and/or require us to rebrand our products and
services, any of which could negatively affect our business, results of operations, financial condition, and cash flows.
We rely significantly on our information systems for our business operations
We place significant reliance on our information systems. Our information systems consist of a full range of supply chain and
financial systems. The systems include applications related to product development, planning, manufacturing, distribution,
sales, human resources, and financial reporting. We depend on our information systems to operate our business and make
key decisions. These activities include forecasting demand, purchasing raw materials and supplies, designing products,
scheduling and managing production, selling to our customers, responding to customer, supplier and other inquiries, managing
inventories, shipping goods on a timely basis, managing our employees, and summarizing results. There can be no assurance
that we will not experience operational problems with our information systems as a result of system failures, viruses, information
GILDAN 2018 REPORT TO SHAREHOLDERS P. 42
MANAGEMENT'S DISCUSSION AND ANALYSIS
security incidents, cyber security incidents, disasters or other causes, or in connection with upgrade to our systems or
implementation of new systems. In addition, there can be no assurance that we will be able to timely modify or adapt our
systems to meet evolving requirements for our business. Any material disruption or slowdown of our systems could cause
operational delays and other impacts that could negatively affect our business and results of operations.
We may be negatively impacted by data security and privacy breaches
Our business involves the regular collection and use of sensitive and confidential information regarding employees, customers,
business partners, vendors, and other third parties. These activities are highly regulated and privacy and information security
laws are complex and constantly changing. Non-compliance with these laws and regulations can lead to legal liability.
Furthermore, an information technology system failure or non-availability, cyber security incident, or breach of systems could
disrupt our operations, cause the loss of, corruption of, or unauthorized access to business information and data, compromise
confidential information, or expose us to regulatory investigation, litigation, or contractual penalties. Divergent technology
systems inherited through business acquisitions increase complexity and potential exposure. We seek to detect and
investigate all security incidents and to prevent their occurrence or recurrence. We continue to invest in and improve our
threat protection, detection and mitigation policies, procedures and controls, and work on increased awareness and enhanced
protections against cyber security threats. However, given the highly evolving nature and sophistication of these security
threats or disruptions and their increased frequency, the impact of any future incident cannot be easily predicted or mitigated,
and the costs related to such threats and disruptions may not be fully insured or indemnified by other means.
We depend on key management and our ability to attract and/or retain key personnel
Our success depends upon the continued contributions of our key management, some of whom have unique talents and
experience and would be difficult to replace in the short term. The loss or interruption of the services of a key executive could
have a negative effect on our business during the transitional period that would be required to restructure the organization
or for a successor to assume the responsibilities of the key management position. Our future success will also depend on
our ability to attract and retain key managers, sales people, and other personnel. We may not be able to attract or retain
these employees, which could negatively affect our business.
17.0 DEFINITION AND RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
We use non-GAAP measures to assess our operating performance and financial condition. The terms and definitions of the
non-GAAP measures used in this MD&A and a reconciliation of each non-GAAP measure to the most directly comparable
GAAP measure are provided below. The non-GAAP measures are presented on a consistent basis for all periods presented
in this MD&A. These non-GAAP measures do not have any standardized meanings prescribed by IFRS and are therefore
unlikely to be comparable to similar measures presented by other companies. Accordingly, they should not be considered
in isolation.
Adjusted net earnings and adjusted diluted EPS
Adjusted net earnings are calculated as net earnings before restructuring and acquisition-related costs, income taxes relating
to restructuring and acquisition-related actions, and income taxes relating to the revaluation of deferred income tax assets
and liabilities as a result of statutory income tax rate changes in the countries in which we operate. Adjusted diluted EPS is
calculated as adjusted net earnings divided by the diluted weighted average number of common shares outstanding. The
Company uses adjusted net earnings and adjusted diluted EPS to measure its performance from one period to the next,
without the variation caused by the impacts of the items described above. The Company excludes these items because they
affect the comparability of its financial results and could potentially distort the analysis of trends in its business performance.
Excluding these items does not imply they are necessarily non-recurring.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 43
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in $ millions, except per share amounts)
Net earnings
Adjustments for:
Restructuring and acquisition-related costs
Income tax expense relating to restructuring and
acquisition-related actions(1)
Income tax expense (recovery) related to the
revaluation of deferred income tax assets and
liabilities due to statutory income tax rate changes(2)
Adjusted net earnings
Basic EPS
Diluted EPS
Adjusted diluted EPS
Three months ended
Twelve months ended
December 30,
2018
December 31,
2017
December 30,
2018
December 31,
2017
59.6
21.7
6.6
1.0
88.9
0.29
0.29
0.43
54.9
11.0
3.3
(1.6)
67.6
0.25
0.25
0.31
350.8
362.3
34.2
6.1
2.0
393.1
1.66
1.66
1.86
22.9
3.3
(1.6)
386.9
1.62
1.61
1.72
(1) These income tax expenses relate to the Company’s internal organizational realignment. Pursuant to the initiation and completion of
this organizational realignment plan, the Company reassessed the recoverability of its deferred income tax assets and the valuation of
its deferred tax liabilities in the respective jurisdictions affected, resulting in an increase to deferred income tax expense in fiscal 2018
and 2017 of $6.1 million and $3.3 million, respectively.
(2) The income tax expense for the impact of income tax rate changes are primarily related to the impact of U.S. tax reform, reflecting
the reduction in the U.S. statutory federal tax rate that took effect in 2018.
Certain minor rounding variances exist between the consolidated financial statements and this summary.
Adjusted operating income and adjusted operating margin
Adjusted operating income is calculated as operating income before restructuring and acquisition-related costs. Adjusted
operating margin is calculated as adjusted operating income divided by net sales. Management uses adjusted operating
income and adjusted operating margin to measure its performance from one period to the next, without the variation caused
by the impacts of the items described above. The Company excludes these items because they affect the comparability of
its financial results and could potentially distort the analysis of trends in its business performance. Excluding these items
does not imply they are necessarily non-recurring.
(in $ millions, or otherwise indicated)
Operating income
Adjustment for:
Restructuring and acquisition-related costs
Adjusted operating income
Three months ended
Twelve months ended
December 30,
2018
December 31,
2017
December 30,
2018
December 31,
2017
78.2
21.7
99.9
62.0
11.0
73.0
403.2
401.0
34.2
437.4
13.9%
15.0%
22.9
423.9
14.6%
15.4%
Operating margin
Adjusted operating margin
Certain minor rounding variances exist between the consolidated financial statements and this summary.
10.5%
13.5%
9.5%
11.2%
Adjusted EBITDA
Adjusted EBITDA is calculated as earnings before financial expenses, income taxes, and depreciation and amortization, and
excludes the impact of restructuring and acquisition-related costs. The Company uses adjusted EBITDA, among other
measures, to assess the operating performance of its business. The Company also believes this measure is commonly used
by investors and analysts to measure a company’s ability to service debt and to meet other payment obligations, or as a
common valuation measurement. The Company excludes depreciation and amortization expenses, which are non-cash in
nature and can vary significantly depending upon accounting methods or non-operating factors. Excluding these items does
not imply they are necessarily non-recurring.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 44
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in $ millions)
Three months ended
Twelve months ended
December 30,
2018
December 31,
2017
December 30,
2018
December 31,
2017
Net earnings
Restructuring and acquisition-related costs
Depreciation and amortization
Financial expenses, net
Income tax expense
Adjusted EBITDA
Certain minor rounding variances exist between the consolidated financial statements and this summary.
54.9
11.0
41.0
5.9
1.2
114.0
59.6
21.7
38.0
8.7
10.0
138.0
350.8
34.2
158.1
31.0
21.4
595.5
362.3
22.9
162.2
24.2
14.5
586.1
Free cash flow
Free cash flow is defined as cash from operating activities, less cash flow used in investing activities excluding business
acquisitions. The Company considers free cash flow to be an important indicator of the financial strength and liquidity of its
business, and it is a key metric which indicates how much cash is available after capital expenditures to repay debt, to pursue
business acquisitions, and/or to redistribute to its shareholders. The Company believes this measure is commonly used by
investors and analysts when valuing a business and its underlying assets.
(in $ millions)
Cash flows from operating activities
Cash flows used in investing activities
Adjustment for:
Business acquisitions
Free cash flow
Certain minor rounding variances exist between the consolidated financial statements and this summary.
2018
538.5
(110.9)
1.3
428.9
2017
613.4
(210.0)
115.8
519.2
Total indebtedness and net indebtedness
Total indebtedness is defined as the total bank indebtedness and long-term debt (including any current portion), and net
indebtedness is calculated as total indebtedness net of cash and cash equivalents. The Company considers total indebtedness
and net indebtedness to be important indicators of the financial leverage of the Company.
(in $ millions)
Long-term debt and total indebtedness
Cash and cash equivalents
Net indebtedness
Certain minor rounding variances exist between the consolidated financial statements and this summary.
December 30,
2018
December 31,
2017
669.0
(46.7)
622.3
630.0
(52.8)
577.2
Net debt leverage ratio
The net debt leverage ratio is defined as the ratio of net indebtedness to pro-forma adjusted EBITDA for the trailing twelve
months. The pro-forma adjusted EBITDA for the trailing twelve months reflects business acquisitions made during the period,
as if they had occurred at the beginning of the trailing twelve month period. The Company has set a target net debt leverage
ratio of one to two times pro-forma adjusted EBITDA for the trailing twelve months. The Company uses, and believes that
certain investors and analysts use the net debt leverage ratio to measure the financial leverage of the Company.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 45
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 30,
2018
December 31,
2017
595.5
—
595.5
622.3
1.0
586.1
0.3
586.4
577.2
1.0
(in $ millions, or otherwise indicated)
Adjusted EBITDA for the trailing twelve months
Adjustment for:
Business acquisitions
Pro-forma adjusted EBITDA for the trailing twelve months
Net indebtedness
Net debt leverage ratio
Certain minor rounding variances exist between the consolidated financial statements and this summary.
Return on net assets
Return on net assets (RONA) is defined as the ratio of adjusted net earnings, excluding net financial expenses and the
amortization of intangible assets (excluding software) net of income tax recoveries, to average net assets for the last five
quarters. Net assets is defined as the sum of total assets, excluding cash and cash equivalents, deferred income taxes, and
the accumulated amortization of intangible assets (excluding software), less total current liabilities. The Company uses RONA
as a performance indicator to measure the efficiency of its invested capital.
(in $ millions)
Average total assets
Average cash and cash equivalents
Average deferred income taxes
Average accumulated amortization of intangible assets, excluding software
Average total current liabilities
Average net assets
(in $ millions, or otherwise indicated)
Adjusted net earnings
Financial expenses, net (nil income taxes in both years)
Amortization of intangible assets, excluding software (net of income tax recovery of nil
in 2018 and $5.0 million in 2017)
Return
December 30,
2018
December 31,
2017
3,084.0
(48.9)
—
138.6
(299.5)
2,874.2
2018
393.1
31.0
22.9
447.0
3,060.8
(48.6)
(0.5)
117.1
(254.7)
2,874.1
2017
386.9
24.2
15.8
426.9
RONA
15.6%
14.9%
GILDAN 2018 REPORT TO SHAREHOLDERS P. 46
CONSOLIDATED FINANCIAL STATEMENTS
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements have been prepared by management and approved by the Board of
Directors of the Company. The consolidated financial statements were prepared in accordance with International Financial
Reporting Standards as issued by the International Accounting Standards Board and, where appropriate, reflect
management’s best estimates and judgments. Where alternative accounting methods exist, management has chosen those
methods deemed most appropriate in the circumstances. Management is responsible for the accuracy, integrity and objectivity
of the consolidated financial statements within reasonable limits of materiality, and for maintaining a system of internal controls
over financial reporting as described in “Management’s annual report on internal control over financial reporting” included in
Management’s Discussion and Analysis for the fiscal year ended December 30, 2018. Management is also responsible for
the preparation and presentation of other financial information included in the 2018 Annual Report and its consistency with
the consolidated financial statements.
The Audit and Finance Committee, which is appointed annually by the Board of Directors and comprised exclusively of
independent directors, meets with management as well as with the independent auditors and internal auditors to satisfy itself
that management is properly discharging its financial reporting responsibilities and to review the consolidated financial
statements and the independent auditors’ report. The Audit and Finance Committee reports its findings to the Board of
Directors for consideration in approving the consolidated financial statements for presentation to the shareholders. The Audit
and Finance Committee considers, for review by the Board of Directors and approval by the shareholders, the engagement
or reappointment of the independent auditors.
The consolidated financial statements have been independently audited by KPMG LLP, on behalf of the shareholders, in
accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting
Oversight Board (United States). Their report outlines the nature of their audit and expresses their opinion on the consolidated
financial statements of the Company. In addition, our auditors have issued a report on the Company’s internal controls over
financial reporting as of December 30, 2018. KPMG LLP has direct access to the Audit and Finance Committee of the Board
of Directors.
(Signed: Glenn J. Chamandy)
(Signed: Rhodri J. Harries)
Glenn J. Chamandy
President and Chief Executive Officer
Rhodri J. Harries
Executive Vice-President,
Chief Financial and Administrative Officer
February 20, 2019
GILDAN 2018 REPORT TO SHAREHOLDERS P. 47
CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Gildan Activewear Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial position of Gildan Activewear Inc. ("the Company")
as of December 30, 2018 and December 31, 2017, the related consolidated statements of earnings and comprehensive
income, changes in equity, and cash flows for the years then ended, and the related notes (collectively, the "consolidated
financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company as of December 30, 2018 and December 31, 2017, and its financial performance and its cash flows
for the years ended December 30, 2018 and December 31, 2017, in conformity with International Financial Reporting
Standards as issued by the International Accounting Standards Board.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
("PCAOB"), the Company’s internal control over financial reporting as of December 30, 2018, based on criteria established
in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated February 20, 2019 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe
that our audits provide a reasonable basis for our opinion.
We have served as the Entity's auditor since fiscal 1996.
Montreal, Canada
February 20, 2019
*CPA auditor, CA, public accountancy permit No. A110592
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 48
CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Gildan Activewear Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Gildan Activewear Inc.’s ("the Company") internal control over financial reporting as of December 30, 2018,
based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 30, 2018, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
("PCAOB"), the consolidated statements of financial position of the Company as of December 30, 2018 and December 31,
2017, the consolidated statements of income and comprehensive income, changes in equity, and cash flows for the years
ended December 30, 2018 and December 31, 2017 and the related notes (collectively, the consolidated financial statements),
and our report dated February 20, 2019 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s
Annual Report on Internal Control over Financial Reporting” included in Management’s Discussion and Analysis for the year
ended December 30, 2018. Our responsibility is to express an opinion on the Company’s internal control over financial
reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in
all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary
to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s assets that could have a material effect on the financial statements.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 49
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
CONSOLIDATED FINANCIAL STATEMENTS
Montreal, Canada
February 20, 2019
*CPA auditor, CA, public accountancy permit No. A110592
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity. KPMG Canada provides services to KPMG LLP.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 50
CONSOLIDATED FINANCIAL STATEMENTS
GILDAN ACTIVEWEAR INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands of U.S. dollars)
Current assets:
Cash and cash equivalents (note 6)
Trade accounts receivable (note 7)
Income taxes receivable
Inventories (note 8)
Prepaid expenses, deposits and other current assets
Total current assets
Non-current assets:
Property, plant and equipment (note 9)
Intangible assets (note 10)
Goodwill (note 10)
Other non-current assets
Total non-current assets
Total assets
Current liabilities:
Accounts payable and accrued liabilities
Total current liabilities
Non-current liabilities:
Long-term debt (note 11)
Deferred income taxes (note 18)
Other non-current liabilities (note 12)
Total non-current liabilities
Total liabilities
Commitments, guarantees and contingent liabilities (note 23)
Equity (note 13):
Share capital
Contributed surplus
Retained earnings
Accumulated other comprehensive income
Total equity attributable to shareholders of the Company
December 30,
2018
December 31,
2017
$
$
$
46,657
317,159
1,689
940,029
77,377
1,382,911
990,475
393,573
227,362
10,275
1,621,685
3,004,596
346,985
346,985
669,000
12,623
39,916
721,539
1,068,524
159,858
32,490
1,740,342
3,382
1,936,072
$
$
$
52,795
243,365
3,891
945,738
62,092
1,307,881
1,035,818
401,605
226,571
8,830
1,672,824
2,980,705
258,476
258,476
630,000
3,713
37,141
670,854
929,330
159,170
25,208
1,853,457
13,540
2,051,375
Total liabilities and equity
$
3,004,596
$
2,980,705
See accompanying notes to consolidated financial statements.
On behalf of the Board of Directors:
(Signed: Glenn J. Chamandy)
Glenn J. Chamandy
Director
(Signed: Russell Goodman)
Russell Goodman
Director
GILDAN 2018 REPORT TO SHAREHOLDERS P. 51
GILDAN ACTIVEWEAR INC.
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
Fiscal years ended December 30, 2018 and December 31, 2017
(in thousands of U.S. dollars, except per share data)
CONSOLIDATED FINANCIAL STATEMENTS
Net sales (note 25)
Cost of sales
Gross profit
Selling, general and administrative expenses (note 16(a))
Restructuring and acquisition-related costs (note 17)
Operating income
Financial expenses, net (note 14(c))
Earnings before income taxes
Income tax expense (note 18)
Net earnings
Other comprehensive income (loss), net of related income taxes:
Cash flow hedges (note 14(d))
Actuarial loss on employee benefit obligations (note 12(a))
Comprehensive income
Earnings per share (note 19):
Basic
Diluted
See accompanying notes to consolidated financial statements.
2018
2017
$
2,908,565
2,102,612
$
2,750,816
1,949,597
805,953
368,546
34,228
403,179
31,045
372,134
21,360
350,774
(10,158)
(1,694)
(11,852)
338,922
1.66
1.66
$
$
$
801,219
377,323
22,894
401,002
24,186
376,816
14,482
362,334
(27,071)
(64)
(27,135)
335,199
1.62
1.61
$
$
$
GILDAN 2018 REPORT TO SHAREHOLDERS P. 52
CONSOLIDATED FINANCIAL STATEMENTS
GILDAN ACTIVEWEAR INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Fiscal years ended December 30, 2018 and December 31, 2017
(in thousands or thousands of U.S. dollars)
Share capital
Number
Amount
Contributed
surplus
Accumulated
other
comprehensive
income (loss)
Retained
earnings
Total
equity
Balance, January 1, 2017
230,218
$ 152,313
$
23,198
$
40,611
$ 1,903,525
$ 2,119,647
Share-based compensation
Shares issued under employee share
purchase plan
Shares issued pursuant to exercise of
stock options
Shares issued or distributed pursuant to
vesting of restricted share units
Shares repurchased for cancellation
(note 13(d))
Share repurchases for settlement of non-
Treasury RSUs (note 13(e))
Dividends declared
—
58
269
364
—
15,706
1,671
—
5,304
(1,914)
7,709
(12,229)
(11,512)
(7,692)
(198)
—
(135)
—
—
—
447
Transactions with shareholders of the
Company recognized directly in equity
(11,019)
6,857
2,010
—
—
—
—
—
—
—
—
—
—
—
—
15,706
1,671
3,390
(4,520)
(320,924)
(328,616)
(6,145)
(85,269)
(6,280)
(84,822)
(412,338)
(403,471)
Cash flow hedges (note 14(d))
Actuarial loss on employee benefit
obligations (note 12(a))
Net earnings
Comprehensive income
—
—
—
—
—
—
—
—
—
—
—
—
(27,071)
—
—
(27,071)
—
(64)
362,334
362,270
(27,071)
(64)
362,334
335,199
Balance, December 31, 2017
219,199
$ 159,170
$
25,208
$
13,540
$ 1,853,457
$ 2,051,375
Adjustments relating to adoption of new
accounting standards (note 2(d))
—
—
—
—
(1,515)
(1,515)
Adjusted balance, January 1, 2018
219,199
159,170
25,208
13,540
1,851,942
2,049,860
Share-based compensation
Shares issued under employee share
purchase plan
Shares issued pursuant to exercise of
stock options
Shares issued or distributed pursuant to
vesting of restricted share units
Shares repurchased for cancellation
(note 13(d))
Share repurchases for settlement of non-
Treasury RSUs (note 13(e))
Dividends declared
—
57
110
226
—
19,351
1,722
2,412
—
(729)
5,952
(12,094)
(12,635)
(9,231)
(225)
—
(167)
—
Transactions with shareholders of the
Company recognized directly in equity
(12,467)
688
Cash flow hedges (note 14(d))
Actuarial loss on employee benefit
obligations (note 12(a))
Net earnings
Comprehensive income
—
—
—
—
—
—
—
—
—
—
754
7,282
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
19,351
1,722
1,683
(6,142)
(358,298)
(367,529)
(7,062)
(95,320)
(7,229)
(94,566)
(460,680)
(452,710)
(10,158)
—
(10,158)
—
—
(10,158)
(1,694)
350,774
349,080
(1,694)
350,774
338,922
Balance, December 30, 2018
206,732
$ 159,858
$
32,490
$
3,382
$ 1,740,342
$ 1,936,072
See accompanying notes to consolidated financial statements.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 53
CONSOLIDATED FINANCIAL STATEMENTS
GILDAN ACTIVEWEAR INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal years ended December 30, 2018 and December 31, 2017
(in thousands of U.S. dollars)
Cash flows from (used in) operating activities:
Net earnings
Adjustments to reconcile net earnings to cash flows from operating activities
(note 21(a))
Changes in non-cash working capital balances:
Trade accounts receivable
Income taxes
Inventories
Prepaid expenses, deposits and other current assets
Accounts payable and accrued liabilities
Cash flows from operating activities
Cash flows from (used in) investing activities:
Purchase of property, plant and equipment
Purchase of intangible assets
Business acquisitions (note 5)
Proceeds on disposal of property, plant and equipment
Cash flows used in investing activities
Cash flows from (used in) financing activities:
Increase in amounts drawn under revolving long-term bank credit facility
Dividends paid
Proceeds from the issuance of shares
Repurchase and cancellation of shares (note 13(d))
Share repurchases for settlement of non-Treasury RSUs (note 13(e))
Withholding taxes paid pursuant to the settlement of non-Treasury RSUs
Cash flows used in financing activities
Effect of exchange rate changes on cash and cash equivalents denominated in
foreign currencies
Net increase (decrease) in cash and cash equivalents during the fiscal year
Cash and cash equivalents, beginning of fiscal year
Cash and cash equivalents, end of fiscal year
Cash paid (included in cash flows from operating activities):
Interest
Income taxes, net of refunds
Supplemental disclosure of cash flow information (note 21)
See accompanying notes to consolidated financial statements.
$
$
2018
2017
$
350,774
$
362,334
202,255
553,029
(79,707)
2,115
2,182
(13,807)
74,732
538,544
(107,654)
(17,566)
(1,303)
15,649
(110,874)
39,000
(94,566)
3,243
(367,529)
(7,229)
(6,142)
(433,223)
(585)
(6,138)
52,795
46,657
25,530
9,688
175,199
537,533
38,924
(5,424)
27,102
(5,227)
20,452
613,360
(91,951)
(2,845)
(115,776)
542
(210,030)
30,000
(84,822)
4,900
(328,616)
(6,280)
(4,520)
(389,338)
606
14,598
38,197
52,795
16,658
15,209
$
$
GILDAN 2018 REPORT TO SHAREHOLDERS P. 54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended December 30, 2018 and December 31, 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, hosiery and underwear. The
Company's fiscal year ends on the Sunday closest to December 31 of each year.
The address of the Company’s registered office is 600 de Maisonneuve Boulevard West, Suite 3300, Montreal, Quebec.
These consolidated financial statements are as at and for the fiscal years ended December 30, 2018 and December 31,
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 consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
These consolidated financial statements for the fiscal year ended December 30, 2018 were authorized for issuance by
the Board of Directors of the Company on February 20, 2019.
(b) Basis of measurement:
These consolidated financial statements have been prepared on the historical cost basis except for the following items
in the consolidated statements of financial position:
• Derivative financial instruments which are measured at fair value;
• Employee benefit obligations related to defined benefit plans which are measured at the present value of the defined
•
benefit obligations, net of advance payments made to employees thereon;
Liabilities for cash-settled share-based payment arrangements which are measured at fair value, and equity-
classified share-based payment arrangements which are measured at fair value at grant date pursuant to IFRS 2,
Share-based payment;
• Provisions for decommissioning, site restoration costs, and onerous contracts which are measured at the present
•
value of the expenditures expected to be required to settle the obligation; and
Identifiable assets acquired and liabilities assumed in connection with a business combination which are initially
measured at fair value.
These consolidated financial statements are presented in U.S. dollars, which is the Company's functional currency.
(c) Operating segments:
For the year ended December 31, 2017, the Company managed and reported its business under two operating segments,
Printwear and Branded Apparel, each of which was a reportable segment for financial reporting purposes with its own
management that was accountable and responsible for the segment’s operations, results, and financial performance.
These segments were principally organized by the major customer markets they served.
Effective January 1, 2018, the Company consolidated its organizational structure and implemented executive leadership
changes as part of an internal reorganization. The Company combined its Printwear and Branded Apparel operating
businesses into one consolidated divisional operating structure centralizing senior management, as well as marketing,
merchandising, sales, distribution, and administrative functions to better position the Company to capitalize on growth
opportunities within the evolving industry landscape. As a result, the Company has transitioned to a single reporting
segment.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. BASIS OF PREPARATION (continued):
(d) Initial application of new or amended accounting standards:
On January 1, 2018, the Company adopted the following new accounting standards:
Revenue from Contracts with Customers
IFRS 15, Revenue from Contracts with Customers, 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. 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 Company adopted the new standard on January 1, 2018 using the modified retrospective transition method, with
the effect of initially applying this standard being recognized at January 1, 2018. Results for the reporting periods beginning
after January 1, 2018 are presented in accordance with IFRS 15, while the information presented for 2017 has not been
restated and continues to be presented, as previously reported, in accordance with our historic accounting under IAS
18 and related interpretations.
As of January 1, 2018, the Company recorded a net reduction to opening retained earnings of $0.7 million, net of tax,
representing the gross margin on net sales of $2.1 million for which revenue recognition is delayed under the new
standard. The impact of applying IFRS 15 resulted in a reduction of net sales of $0.5 million and a reduction in gross
profit, operating income, and net earnings of $0.2 million for the fiscal year ended December 30, 2018. There were no
material impacts on the Company’s audited consolidated statements of financial position and cash flows as at and for
the fiscal year ended December 30, 2018.
Financial Instruments
IFRS 9 (2014), Financial Instruments, includes updated guidance on the classification, recognition, and measurement
of financial assets and liabilities. IFRS 9 (2014) differs in some regards from IFRS 9 (2013), which the Company early
adopted effective March 31, 2014. The final standard amends the impairment model by introducing a new expected
credit loss (ECL) model for calculating impairment on financial assets.
IFRS 9 (2014) requires the Company to record an allowance for ECLs for all loans and other debt financial assets not
held at fair value through profit and loss. ECLs are based on the difference between the contractual cash flows due in
accordance with the contract and all the cash flows that the Company expects to receive. The shortfall is then discounted
at an approximation of the asset’s original effective interest rate. For trade and other receivables, the Company has
applied the standard’s simplified approach and has calculated ECLs based on lifetime expected credit losses. The
Company has established a provision matrix that is based on the Company’s historical credit loss experience, adjusted
for forward-looking factors specific to the debtors and the economic environment.
The Company adopted the new standard on January 1, 2018 and recorded a net reduction to opening retained earnings
of $0.8 million, net of tax, reflecting additional allowance for expected credit losses from the new expected credit loss
model. The classification for the Company’s financial assets and financial liabilities remain unchanged.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SIGNIFICANT ACCOUNTING POLICIES:
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial
statements, unless otherwise indicated.
(a) Basis of consolidation:
(i) Business combinations:
Business combinations are accounted for using the acquisition method. Accordingly, the consideration transferred
for the acquisition of a business is the fair value of the assets transferred and any debt and equity interests issued
by the Company on the date control of the acquired company is obtained. The consideration transferred includes
the fair value of any asset or liability resulting from a contingent consideration arrangement. Contingent consideration
classified as an asset or a liability that is a financial instrument is subsequently remeasured at fair value, with any
resulting gain or loss recognized and included in restructuring and acquisition-related costs in the consolidated
statement of earnings and comprehensive income. Acquisition-related costs, other than those associated with the
issue of debt or equity securities, are expensed as incurred and are included in restructuring and acquisition-related
costs in the consolidated statement of earnings and comprehensive income. Identifiable assets acquired and
liabilities and contingent liabilities assumed in a business combination are generally measured initially at their fair
values at the acquisition date. The Company recognizes any non-controlling interest in an acquired company either
at fair value or at the non-controlling interest’s proportionate share of the acquired company’s net identifiable assets.
The excess of the consideration transferred over the fair value of the identifiable net assets acquired is recorded
as goodwill. If the total of consideration transferred and non-controlling interest recognized is less than the fair value
of the net assets of the business acquired, a purchase gain is recognized immediately in the consolidated statement
of earnings and comprehensive income.
(ii) Subsidiaries:
Subsidiaries are entities controlled by the Company. The financial statements of subsidiaries are included in the
consolidated financial statements from the date that control commences until the date that control ceases. The
accounting policies of subsidiaries are aligned with the policies adopted by the Company. Intragroup transactions,
balances and unrealized gains or losses on transactions between group companies are eliminated.
The Company’s principal subsidiaries, their jurisdiction of incorporation, and the Company’s percentage ownership
share of each are as follows:
Subsidiary
Gildan Activewear SRL
Gildan Yarns, LLC
Gildan Branded Apparel SRL
Gildan Honduras Properties, S. de R.L.
Gildan Apparel (Canada) LP
Gildan Activewear (UK) Limited
Gildan Textiles de Sula, S. de R.L.
G.A.B. Limited
Gildan Activewear Honduras Textile Company, S. de R.L.
Gildan Activewear (Eden) Inc.
Gildan Hosiery Rio Nance, S. de R.L.
Gildan Mayan Textiles, S. de R.L.
Jurisdiction of
Incorporation
Ownership
percentage
Barbados
Delaware
Barbados
Honduras
Ontario
United Kingdom
Honduras
Bangladesh
Honduras
North Carolina
Honduras
Honduras
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
The Company has no other subsidiaries representing individually more than 10% of the total consolidated assets
and 10% of the consolidated net sales of the Company, or in the aggregate more than 20% of the total consolidated
assets and the consolidated net sales of the Company as at and for the fiscal year ended December 30, 2018.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SIGNIFICANT ACCOUNTING POLICIES (continued):
(b) Foreign currency translation:
Monetary assets and liabilities of the Company’s Canadian and foreign operations denominated in currencies other than
the U.S. dollar are translated using exchange rates in effect at the reporting date. Non-monetary assets and liabilities
denominated in currencies other than U.S. dollars are translated at the rates prevailing at the respective transaction
dates. Income and expenses denominated in currencies other than U.S. dollars are translated at average rates prevailing
during the year. Gains or losses on foreign exchange are recorded in net earnings, and presented in the statement of
earnings and comprehensive income within financial expenses.
(c) Cash and cash equivalents:
The Company considers all liquid investments with maturities of three months or less from the date of purchase to be
cash equivalents.
(d) Trade accounts receivable:
Trade accounts receivable consist of amounts due from our normal business activities. An allowance for expected credit
losses is maintained to reflect an impairment risk for trade accounts receivable based on an expected credit loss model
which factors in changes in credit quality since the initial recognition of trade accounts receivable based on customer
risk categories. Bad debts are also provided for based on collection history and specific risks identified on a customer-
by-customer basis. Trade accounts receivable are recorded net of accrued sales discounts.
The Company may continuously sell trade accounts receivables of certain designated customers to a third-party financial
institution in exchange for a cash payment equal to the face value of the sold trade receivables less an applicable
discount. The Company retains servicing responsibilities, including collection, for these trade accounts receivables but
does not retain any credit risk with respect to any trade accounts receivables that have been sold. All trade accounts
receivables sold under the receivables purchase agreement are removed from the consolidated statements of financial
position, as the sale of the trade accounts receivables qualify for de-recognition. The net cash proceeds received by the
Company are included as cash flows from operating activities in the consolidated statements of cash flows. The difference
between the carrying amount of the trade accounts receivables sold under the agreement and the cash received at the
time of transfer is recorded in the statement of earnings and comprehensive income within financial expenses.
(e) Inventories:
Inventories are stated at the lower of cost and net realizable value. The cost of inventories is based on the first-in, first-
out principle. Inventory costs include the purchase price and other costs directly related to the acquisition of raw materials
and spare parts held for use in the manufacturing process, and the cost of purchased finished goods. Inventory costs
also include the costs directly related to the conversion of materials to finished goods, such as direct labour, and a
systematic allocation of fixed and variable production overhead, including manufacturing depreciation expense. The
allocation of fixed production overhead to the cost of inventories is based on the normal capacity of the production
facilities. Normal capacity is the average production expected to be achieved during the fiscal year, under normal
circumstances. Net realizable value is the estimated selling price of finished goods in the ordinary course of business,
less the estimated costs of completion and selling expenses. Raw materials, work in progress, and spare parts inventories
are not written down if the finished products in which they will be incorporated are expected to be sold at or above cost.
(f) Assets held for sale:
Non-current assets which are classified as assets held for sale are reported in current assets in the statement of financial
position, when their carrying amount is to be recovered principally through a sale transaction rather than through
continuing use, and a sale is considered highly probable. Assets held for sale are stated at the lower of their carrying
amount and fair value less costs to sell.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SIGNIFICANT ACCOUNTING POLICIES (continued):
(g) Property, plant and equipment:
Property, plant and equipment are initially recorded at cost and are subsequently carried at cost less any accumulated
depreciation and any accumulated impairment losses. The cost of an item of property, plant and equipment includes
expenditures that are directly attributable to the acquisition or construction of an asset. The cost of self-constructed
assets includes the cost of materials and direct labour, site preparation costs, initial delivery and handling costs, installation
and assembly costs, and any other costs directly attributable to bringing the assets to the location and condition necessary
for the assets to be capable of operating in the manner intended by management. The cost of property, plant and
equipment also includes, when applicable, the initial present value estimate of the costs of decommissioning or
dismantling and removing the asset and restoring the site on which it is located at the end of its useful life and any
applicable borrowing costs and is amortized over the remaining life of the underlying asset. Purchased software that is
integral to the functionality of the related equipment is capitalized as part of other equipment. Subsequent costs are
included in an asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that
future economic benefits are present and the cost of the item can be measured reliably. When property, plant and
equipment are replaced they are fully written down. Gains and losses on the disposal of an item of property, plant and
equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and
equipment and are recognized in the statement of earnings and comprehensive income.
Land is not depreciated. The cost of property, plant and equipment less its residual value, if any, is depreciated on a
straight-line basis over the following estimated useful lives:
Asset
Buildings and improvements
Manufacturing equipment
Other equipment
Useful life
5 to 40 years
2 to 10 years
3 to 10 years
Significant components of plant and equipment which are identified as having different useful lives are depreciated
separately over their respective useful lives. Depreciation methods, useful lives and residual values, if applicable, are
reviewed and adjusted, if appropriate, on a prospective basis at the end of each fiscal year.
Assets not yet utilized in operations include expenditures incurred to date for plant constructions or expansions which
are still in process and equipment not yet placed into service as at the reporting date. Depreciation on these assets
commences when the assets are available for use.
Borrowing costs
Borrowing costs that are directly attributable to the acquisition or construction of a qualifying asset are capitalized as
part of the cost of the asset. A qualifying asset is one that necessarily takes a substantial period of time to get ready for
its intended use. Capitalization of borrowing costs ceases when the asset is completed and available for use.
All other borrowing costs are recognized as financial expenses in the consolidated statement of earnings and
comprehensive income as incurred.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SIGNIFICANT ACCOUNTING POLICIES (continued):
(h) Intangible assets:
Definite life intangible assets are measured at cost less accumulated amortization and any accumulated impairment
losses. Intangible assets include identifiable intangible assets acquired and consist of customer contracts and customer
relationships, license agreements, and trademarks. Intangible assets also include computer software that is not an
integral part of the related hardware. Indefinite life intangible assets represent intangible assets which the Company
controls which have no contractual or legal expiration date and therefore are not amortized as there is no foreseeable
time limit to their useful economic life. An assessment of indefinite life intangible assets is performed annually to determine
whether events and circumstances continue to support an indefinite useful life and any change in the useful life
assessment from indefinite to finite is accounted for as a change in accounting estimate on a prospective basis. Intangible
assets with finite lives are amortized on a straight-line basis over the following estimated useful-lives:
Asset
Customer contracts and customer relationships
License agreements
Computer software
Trademarks with a finite life
Non-compete agreements
Useful life
7 to 20 years
3 to 10 years
4 to 7 years
5 years
2 years
Most of the Company's trademarks are not amortized as they are considered to be indefinite life intangible assets.
it is technically feasible to complete the software product so that it will be available for use;
The costs of information technology projects that are directly attributable to the design and testing of identifiable and
unique software products, including internally developed computer software, are recognized as intangible assets when
the following criteria are met:
•
• management intends to complete the software product and use it;
•
•
•
there is an ability to use the software product;
it can be demonstrated how the software product will generate probable future economic benefits;
adequate technical, financial, and other resources to complete the development and to use the software product
are available; and
the expenditures attributable to the software product during its development can be reliably measured.
•
Other development expenditures that do not meet these criteria are recognized as an expense in the consolidated
statement of earnings and comprehensive income as incurred.
(i) Goodwill:
Goodwill is measured at cost less accumulated impairment losses, if any. Goodwill arises on business combinations
and is measured as the excess of the consideration transferred and the recognized amount of the non-controlling interest
in the acquired business, if any, over the fair value of identifiable assets acquired and liabilities assumed of an acquired
business.
(j)
Impairment of non-financial assets:
Non-financial assets that have an indefinite useful life such as goodwill and trademarks are not subject to amortization
and are therefore tested annually for impairment or more frequently if events or changes in circumstances indicate that
the asset might be impaired. Assets that are subject to amortization are assessed at the end of each reporting period
as to whether there is any indication of impairment or whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the carrying amount
exceeds its recoverable amount. The recoverable amount is the higher of an asset’s value in use and fair value less
costs of disposal. The recoverable amount is determined for an individual asset, unless the asset does not generate
cash inflows that are largely independent of those from other assets or groups of assets, in which case assets are
grouped at the lowest levels for which there are separately identifiable cash inflows (i.e. cash-generating units or "CGUs").
GILDAN 2018 REPORT TO SHAREHOLDERS P. 60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SIGNIFICANT ACCOUNTING POLICIES (continued):
(j)
Impairment of non-financial assets (continued):
In assessing value in use, the estimated future cash flows expected to be derived from the asset or CGU by the Company
are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset and or the CGU. In assessing a CGU’s fair value less costs of disposal,
the Company uses the best information available to reflect the amount that the Company could obtain, at the time of
the impairment test, from the disposal of the asset or CGU in an arm’s length transaction between knowledgeable, willing
parties, after deducting the estimated costs of disposal.
For the purpose of testing goodwill for impairment, goodwill acquired in a business combination is allocated to a CGU
or a group of CGUs that is expected to benefit from the synergies of the combination, regardless of whether other assets
or liabilities of the acquired company are assigned to those CGUs. Impairment losses recognized are allocated first to
reduce the carrying amount of any goodwill allocated to the CGU and then to reduce the carrying amounts of the other
assets in the CGU on a pro rata basis. Impairment losses are recognized in the statement of earnings and comprehensive
income.
Reversal of impairment losses
A goodwill impairment loss is not reversed. Impairment losses on non-financial assets other than goodwill recognized
in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists.
An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount
that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
(k) Financial instruments:
The Company initially recognizes financial assets on the trade date at which the Company becomes a party to the
contractual provisions of the instrument. Financial assets are initially measured at fair value. If the financial asset is not
subsequently accounted for at fair value through profit or loss, then the initial measurement includes transaction costs
that are directly attributable to the asset’s acquisition or origination. On initial recognition, the Company classifies its
financial assets as subsequently measured at either amortized cost or fair value, depending on its business model for
managing the financial assets and the contractual cash flow characteristics of the financial assets.
Financial assets
Financial assets are classified into the following categories and depend on the purpose for which the financial assets
were acquired.
Financial assets measured at amortized cost
A financial asset is subsequently measured at amortized cost, using the effective interest method and net of any
impairment loss, if:
•
•
The asset is held within a business model whose objective is to hold assets in order to collect contractual
cash flows; and
The contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments
of principal and/or interest.
The Company currently classifies its cash and cash equivalents, trade accounts receivable, certain other current
assets (excluding derivative financial instruments designated as effective hedging instruments), and long-term non-
trade receivables as financial assets measured at amortized cost. The Company de-recognizes a financial asset
when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual
cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of
the financial asset are transferred.
Financial assets measured at fair value
These assets are measured at fair value and changes therein, including any interest or dividend income, are
recognized in profit or loss. However, for investments in equity instruments that are not held for trading, the Company
may elect at initial recognition to present gains and losses in other comprehensive income. For such investments
measured at fair value through other comprehensive income, gains and losses are never reclassified to profit or
loss, and no impairment is recognized in profit or loss. Dividends earned from such investments are recognized in
profit or loss, unless the dividend clearly represents a repayment of part of the cost of the investment. The Company
currently has no significant financial assets measured at fair value
GILDAN 2018 REPORT TO SHAREHOLDERS P. 61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SIGNIFICANT ACCOUNTING POLICIES (continued):
(k) Financial instruments (continued):
Fair value through other comprehensive income (FVOCI)
A debt investment is measured at FVOCI if it is not designated as at fair value through profit or loss, is held within
a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets,
and its contractual terms give rise to cash flows on specified dates that are solely payments of principal and interest
on the principal amount outstanding. These assets are subsequently measured at fair value. Interest income
calculated using the effective interest method, foreign exchange gains and losses and impairment are recognized
in profit or loss. Other net gains and losses are recognized in other comprehensive income (OCI). On derecognition,
gains and losses accumulated in OCI are reclassified to profit or loss. On initial recognition of an equity investment
that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investments
fair value in OCI. This election is made on an investment by investment basis. These assets are subsequently
measured at fair value. Dividends are recognized as income in profit or loss unless the dividend clearly represents
a recovery of part of the cost of the investment. Other net gains and losses are recognized in OCI and are never
reclassified to profit or loss. The Company currently has no financial assets measured at FVOCI.
Financial liabilities
Financial liabilities are classified into the following categories.
Financial liabilities measured at amortized cost
A financial liability is subsequently measured at amortized cost, using the effective interest method. The Company
currently classifies accounts payable and accrued liabilities (excluding derivative financial instruments designated
as effective hedging instruments), and long-term debt bearing interest at variable and fixed rates as financial liabilities
measured at amortized cost.
Financial liabilities measured at fair value
Financial liabilities at fair value are initially recognized at fair value and are remeasured at each reporting date with
any changes therein recognized in net earnings. The Company currently has no significant financial liabilities
measured at fair value.
The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled or expired.
Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and
only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realize
the asset and settle the liability simultaneously.
Fair value of financial instruments
Financial instruments measured at fair value use the following fair value hierarchy to prioritize the inputs used in measuring
fair value:
•
•
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3: inputs for the asset or liability that are not based on observable market data.
•
Impairment of financial assets
The Company recognizes loss allowances for expected credit losses on financial assets measured at amortized cost.
The Company recognizes impairment and measures expected credit losses as lifetime expected credit losses for trade
accounts receivable and other accounts receivable. The Company recognizes a loss allowance at an amount equal to
the lifetime expected credit losses if the credit risk on that financial instrument has increased significantly since initial
recognition. Otherwise, the loss allowance for that financial instrument corresponds to an amount equal to twelve-month
expected credit losses. The Company uses the simplified method to measure the loss allowance for trade receivables
at lifetime expected losses. The Company uses historical trends of default, the timing of recoveries and the amount of
loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that
the actual losses are likely to be greater or less than suggested by historical trends. Losses are recognized in the
consolidated statement of income and reflected in an allowance account against trade and other receivables.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SIGNIFICANT ACCOUNTING POLICIES (continued):
(l) Derivative financial instruments and hedging relationships:
The Company enters into derivative financial instruments to hedge its market risk exposures. On initial designation of
the hedge, the Company formally documents the relationship between the hedging instruments and hedged items,
including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods
that will be used to assess the effectiveness of the hedging relationship. The Company makes an assessment, both at
the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected
to be effective in offsetting the changes in the fair value or cash flows of the respective hedged items during the period
for which the hedge is designated. For a cash flow hedge of a forecasted transaction, the transaction should be highly
probable to occur and should present an exposure to variations in cash flows that could ultimately affect reported net
earnings.
Derivatives are recognized initially at fair value, and attributable transaction costs are recognized in net earnings as
incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted
for as described below.
Cash flow hedges
When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a
particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect
net earnings, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive
income and presented in accumulated other comprehensive income as part of equity. The amount recognized in other
comprehensive income is removed and included in net earnings under the same line item in the consolidated statement
of earnings and comprehensive income as the hedged item, in the same period that the hedged cash flows affect net
earnings. When a hedged forecasted transaction subsequently results in the recognition of a non-financial asset or
liability, the cash flow hedge reserve is removed from accumulated other comprehensive income and included in the
initial cost or carrying amount of the asset or liability. Any ineffective portion of changes in the fair value of the derivative
is recognized immediately in net earnings. If the hedging instrument no longer meets the criteria for hedge accounting,
expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued
prospectively. If the forecasted transaction is no longer expected to occur, then the balance in accumulated other
comprehensive income is recognized immediately in net earnings.
Fair value hedges
Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognized in net
earnings, together with any changes in the fair value of the hedged asset, liability or firm commitment that are attributable
to the hedged risk. The change in fair value of the hedging instrument and the change in the hedged item attributable
to the hedged risk are recognized in the statement of earnings and comprehensive income or in the statement of financial
position caption relating to the hedged item. If the hedging instrument no longer meets the criteria for hedge accounting,
expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued
prospectively.
Embedded derivatives
Embedded derivatives within a financial liability are separated from the host contract and accounted for separately if the
economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate
instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined
instrument is not measured at fair value through profit or loss.
Other derivatives
When a derivative financial instrument is not designated in a qualifying hedge relationship, all changes in its fair value
are recognized immediately in net earnings.
(m) Accounts payable and accrued liabilities:
Accounts payable and accrued liabilities are recognized initially at fair value and subsequently measured at amortized
cost using the effective interest method. Accounts payable and accrued liabilities are classified as current liabilities if
payment is due within one year, otherwise, they are presented as non-current liabilities.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SIGNIFICANT ACCOUNTING POLICIES (continued):
(n) Long-term debt:
Long-term debt is recognized initially at fair value, and is subsequently carried at amortized cost. Initial facility fees are
deferred and treated as an adjustment to the instrument's effective interest rate and recognized as an expense over the
instrument's estimated life if it is probable that the facility will be drawn down. However, if it is not probable that a facility
will be drawn down for its entire term, then the fees are considered service fees and are deferred and recognized as an
expense on a straight-line basis over the commitment period.
(o) Employee benefits:
Short-term employee benefits
Short-term employee benefits include wages, salaries, commissions, compensated absences and bonuses. Short-term
employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.
A liability is recognized for the amount expected to be paid under short-term cash bonus or profit sharing plans if the
Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the
employee, and the obligation can be estimated reliably. Short-term employee benefit obligations are included in accounts
payable and accrued liabilities.
Defined contribution plans
The Company offers group defined contribution plans to eligible employees whereby the Company matches employees'
contributions up to a fixed percentage of the employee's salary. Contributions by the Company to trustee-managed
investment portfolios or employee associations are expensed as incurred. Benefits are also provided to employees
through defined contribution plans administered by the governments in the countries in which the Company operates.
The Company’s contributions to these plans are recognized in the period when services are rendered.
Defined benefit plans
The Company maintains a liability for statutory severance obligations for active employees located in the Caribbean
Basin and Central America which is payable to the employees in a lump sum payment upon termination of employment.
The liability is based on management’s best estimates of the ultimate costs to be incurred to settle the liability and is
based on a number of assumptions and factors, including historical trends, actuarial assumptions and economic
conditions. Liabilities related to defined benefit plans are included in other non-current liabilities in the consolidated
statement of financial position. Service costs, interest costs, and costs related to the impact of program changes are
recognized in cost of sales in the consolidated statement of earnings. Actuarial gains and losses arising from experience
adjustments and changes in actuarial assumptions are recognized directly to other comprehensive income in the period
in which they arise, and are immediately transferred to retained earnings without reclassification to net earnings in a
subsequent period.
(p) Provisions:
Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events,
it is probable that an outflow of resources will be required to settle the obligation, and the amount has been reliably
estimated. Provisions are not recognized for future operating losses. Provisions are measured at the present value of
the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market
assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to
passage of time is recognized as financial expense. Provisions are included in other non-current liabilities in the
consolidated statement of financial position.
Decommissioning and site restoration costs
The Company recognizes decommissioning and site restoration obligations for future removal and site restoration costs
associated with the restoration of certain property and plant should it decide to discontinue some of its activities.
Onerous contracts
Provisions for onerous contracts are recognized if the unavoidable costs of meeting the obligations specified in a
contractual arrangement exceed the economic benefits expected to be received from the contract. Provisions for onerous
contracts are measured at the lower of the cost of fulfilling the contract and the expected cost of terminating the contract.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SIGNIFICANT ACCOUNTING POLICIES (continued):
(q) Share capital:
Common shares are classified as equity. Incremental costs directly attributable to the issuance of common shares and
stock options are recognized as a deduction from equity, net of any tax effects.
When the Company repurchases its own shares, the consideration paid, including any directly attributable incremental
costs (net of income taxes) is deducted from equity attributable to the Company’s equity holders until the shares are
cancelled or reissued. When the shares are cancelled, the excess of the consideration paid over the average stated
value of the shares purchased for cancellation is charged to retained earnings.
(r) Dividends declared:
Dividends declared to the Company’s shareholders are recognized as a liability in the consolidated statement of financial
position in the period in which the dividends are approved by the Company’s Board of Directors.
(s) Revenue recognition:
The Company derives revenue from the sale of finished goods, which include activewear, hosiery, and underwear. The
Company recognizes revenue at a point in time when it transfers control of the finished goods to a customer, which
generally occurs upon shipment of the finished goods from the Company’s facilities. In certain arrangements, control is
transferred and revenue is recognized upon delivery of the finished goods to the customer’s premises.
Some arrangements for the sale of finished goods provide for customer price discounts, rights of return and/or volume
rebates based on aggregate sales over a specified period, which gives rise to variable consideration. At the time of sale,
estimates are made for items giving rise to variable consideration based on the terms of the sales program or arrangement.
The variable consideration is estimated at contract inception using the most likely amount method and revenue is only
recognized to the extent that a significant reversal of revenue is not expected to occur. The estimate is based on historical
experience, current trends, and other known factors. New sales incentive programs which relate to sales made in a prior
period are recognized at the time the new program is introduced. Sales are recorded net of customer discounts, rebates,
and estimated sales returns, and exclude sales taxes. A refund liability is recognized for expected returns in relation to
sales made before the end of the reporting period.
Consideration payable to a customer that is not considered a distinct good or service from the customer, such as one-
time fees paid to customers for product placement or product introduction, is accounted for as a reduction of the transaction
price, and the Company recognizes the reduction of revenue at the later of when Company recognizes revenue for the
transfer of the related goods to the customer or when the Company pays or promises to pay the consideration.
(t) Cost of sales and gross profit:
Cost of sales includes all raw material costs, manufacturing conversion costs, including manufacturing depreciation
expense, sourcing costs, inbound freight and inter-facility transportation costs, and outbound freight to customers. Cost
of sales also includes the cost of purchased finished goods, costs relating to purchasing, receiving and inspection
activities, manufacturing administration, third-party manufacturing services, sales-based royalty costs, insurance,
inventory write-downs, and customs and duties. Gross profit is the result of net sales less cost of sales. The Company’s
gross profit may not be comparable to gross profit as reported by other companies, since some entities include
warehousing and handling costs, and/or exclude depreciation expense, outbound freight to customers and royalty costs
from cost of sales.
(u) Selling, general and administrative expenses:
Selling, general and administrative (“SG&A”) expenses include warehousing and handling costs, selling and
administrative personnel costs, advertising and marketing expenses, costs of leased non-manufacturing facilities and
equipment, professional fees, non-manufacturing depreciation expense, and other general and administrative expenses.
SG&A expenses also include bad debt expense and amortization of intangible assets.
(v) Restructuring and acquisition-related costs:
Restructuring and acquisition-related costs are expensed when incurred, or when a legal or constructive obligation exists.
Restructuring and acquisition-related costs are comprised of costs directly related to the closure of business locations
or the relocation of business activities, significant changes in management structure, as well as transaction and integration
costs incurred pursuant to business acquisitions. The nature of expenses included in restructuring and acquisition-related
costs may include: severance and termination benefits, including the termination of employee benefit plans; gains or
losses from the remeasurement and disposal of assets held for sale; facility exit and closure costs, including the costs
of physically transferring inventory and fixed assets to other facilities; costs of integrating the IT systems of an acquired
GILDAN 2018 REPORT TO SHAREHOLDERS P. 65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SIGNIFICANT ACCOUNTING POLICIES (continued):
(v) Restructuring and acquisition-related costs (continued):
business to Gildan’s existing IT systems; legal, accounting and other professional fees (excluding costs of issuing debt
or equity) directly incurred in connection with a business acquisition; purchase gains on business acquisitions; losses
on business acquisitions achieved in stages; contingent amounts payable to selling shareholders under their employment
agreements pursuant to a business acquisition; and the remeasurement of liabilities related to contingent consideration
incurred in connection with a business acquisition.
(w) Cotton and cotton-based yarn procurements:
The Company contracts to buy cotton and cotton-based yarn with future delivery dates at fixed prices in order to reduce
the effects of fluctuations in the prices of cotton used in the manufacture of its products. These contracts are not used
for trading purposes and are not considered to be financial instruments as they are entered into for purchase and receipt
in accordance with the Company’s expected usage requirements, and therefore are not measured at fair value. The
Company commits to fixed prices on a percentage of its cotton and cotton-based yarn requirements up to eighteen
months in the future. If the cost of committed prices for cotton and cotton-based yarn plus estimated costs to complete
production exceed current selling prices, a loss is recognized for the excess as a charge to cost of sales.
(x) Government assistance:
Government assistance is recognized only when there is reasonable assurance the Company will comply with all related
conditions for receipt of the assistance. Government assistance, including grants and tax credits, related to operating
expenses is accounted for as a reduction to the related expenses. Government assistance, including monetary and non-
monetary grants and tax credits related to the acquisition of property, plant and equipment, is accounted for as a reduction
of the cost of the related property, plant and equipment, and is recognized in net earnings using the same methods,
periods and rates as for the related property, plant and equipment.
(y) Financial expenses (income):
Financial expenses (income) include: interest expense on borrowings, including realized gains and/or losses on interest
rate swaps designated for hedge accounting; bank and other financial charges; amortization of debt facility fees, discount
on the sales of trade accounts receivable; interest income on funds invested; accretion of interest on discounted
provisions; net foreign currency losses and/or gains; and losses and/or gains on financial derivatives that do not meet
the criteria for effective hedge accounting.
(z) Income taxes:
Income tax expense is comprised of current and deferred income taxes, and is included in net earnings except to the
extent that it relates to a business acquisition, or items recognized directly in equity or in other comprehensive income.
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted
or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to be applied to temporary
differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting
date, for all temporary differences caused when the tax bases of assets and liabilities differ from those reported in the
financial statements. The Company recognizes deferred income tax assets for unused tax losses and deductible
temporary differences only to the extent that, in management’s opinion, it is probable that future taxable profit will be
available against which the temporary differences can be utilized. Deferred tax assets are reviewed at each reporting
date and are derecognized to the extent that it is no longer probable that the related tax benefit will be realized. Deferred
income tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a
transaction that is not a business combination and that affects neither accounting nor taxable profit or loss at the time
of the transaction; and, where the timing of the reversal of the temporary difference is controlled by the Company and
it is probable that the temporary difference will not reverse in the foreseeable future. In addition, deferred tax is not
recognized for taxable temporary differences arising on the initial recognition of goodwill.
In determining the amount of current and deferred income taxes, the Company takes into account the impact of uncertain
tax positions and whether additional taxes and interest may be due. Provisions for uncertain tax positions are measured
at the best estimate of the amounts expected to be paid upon ultimate resolution. The Company periodically reviews
and adjusts its estimates and assumptions of income tax assets and liabilities as circumstances warrant, such as changes
to tax laws, administrative guidance, change in management’s assessment of the technical merits of its positions due
to new information, and the resolution of uncertainties through either the conclusion of tax audits or expiration of prescribed
time limits within relevant statutes.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SIGNIFICANT ACCOUNTING POLICIES (continued):
(aa) Earnings per share:
Basic earnings per share are computed by dividing net earnings by the weighted average number of common shares
outstanding for the year. Diluted earnings per share are computed using the weighted average number of common
shares outstanding for the period adjusted to include the dilutive impact of stock options and restricted share units. The
number of additional shares is calculated by assuming that all common shares held in trust for the purpose of settling
non-treasury restricted share units have been delivered, all dilutive outstanding options are exercised and all dilutive
outstanding Treasury restricted share units have vested, and that the proceeds from such exercises, as well as the
amount of unrecognized share-based compensation which is considered to be assumed proceeds, are used to
repurchase common shares at the average share price for the period. For Treasury restricted share units, only the
unrecognized share-based compensation is considered assumed proceeds since there is no exercise price paid by the
holder.
(bb) Share based payments:
Stock options, Treasury, and non-Treasury restricted share units
Stock options, Treasury restricted share units, and non-Treasury restricted share units are equity settled share based
payments, which are measured at fair value at the grant date. For stock options, the compensation cost is measured
using the Black-Scholes option pricing model, and is expensed over the award's vesting period. For Treasury and non-
Treasury restricted share units, compensation cost is measured at the fair value of the underlying common share at the
grant date, and is expensed over the award's vesting period. Compensation expense is recognized in net earnings with
a corresponding increase in contributed surplus. Any consideration paid by plan participants on the exercise of stock
options is credited to share capital. Upon the exercise of stock options, the vesting of Treasury restricted share units,
and upon delivery of the common shares for settlement of vesting non-Treasury restricted share units, the corresponding
amounts previously credited to contributed surplus are transferred to share capital. The number of non-Treasury restricted
share units remitted to the participants upon settlement is equal to the number of non-Treasury restricted share units
awarded less units withheld to satisfy the participants' statutory withholding tax requirements. Stock options and Treasury
restricted share units that are dilutive and meet non-market performance conditions as at the reporting date are considered
in the calculation of diluted earnings per share, as per note 3(aa) to these consolidated financial statements.
Estimates for forfeitures and performance conditions
The measurement of compensation expense for stock options, Treasury restricted share units and non-Treasury restricted
share units is net of estimated forfeitures. For the portion of Treasury restricted share units and non-Treasury restricted
share units that are issuable based on non-market performance conditions, the amount recognized as an expense is
adjusted to reflect the number of awards for which the related service and performance conditions are expected to be
met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the
related service and non-market performance conditions at the vesting date.
Deferred share unit plan
The Company has a deferred share unit plan for independent members of the Company’s Board of Directors, who receive
a portion of their compensation in the form of deferred share units (“DSUs”). These DSUs are cash settled awards, and
are initially recognized in net earnings based on fair value at the grant date. The DSU obligation is included in accounts
payable and accrued liabilities and is remeasured at fair value, based on the market price of the Company’s common
shares, at each reporting date.
(bb) Share based payments (continued):
Employee share purchase plans
For employee share purchase plans, the Company's contribution, on the employee's behalf, is recognized as
compensation expense with an offset to share capital, and consideration paid by employees on purchase of common
shares is also recorded as an increase to share capital.
(cc) Leases:
Leases in which a significant portion of the risks and rewards of ownership are not assumed by the Company are classified
as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged
to net earnings on a straight-line basis over the lease term.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SIGNIFICANT ACCOUNTING POLICIES (continued):
(cc) Leases (continued):
Leases of property, plant and equipment where the Company has substantially all of the risks and rewards of ownership
are classified as finance leases. Finance leases are capitalized at the lease’s commencement at the lower of the fair
value of the leased property and the present value of the minimum lease payments. The property, plant and equipment
acquired under finance leases are depreciated over the shorter of the useful life of the asset and the lease term.
Determining whether an arrangement contains a lease
At inception of an arrangement where the Company receives the right to use an asset, the Company determines whether
such an arrangement is or contains a lease. A specific asset is the subject of a lease if fulfillment of the arrangement is
dependent on the use of that specified asset. An arrangement conveys the right to use the asset if the arrangement
conveys to the Company the right to control the use of the underlying asset.
(dd) Use of estimates and judgments:
The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions
that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses.
Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimates are revised and in any future periods affected.
Critical judgments in applying accounting policies:
The following are critical judgments that management has made in the process of applying accounting policies and that
have the most significant effect on the amounts recognized in the consolidated financial statements:
Determination of cash generating units ("CGUs")
The identification of CGUs and grouping of assets into the respective CGUs is based on currently available information
about actual utilization experience and expected future business plans. Management has taken into consideration various
factors in identifying its CGUs. These factors include how the Company manages and monitors its operations, the nature
of each CGU’s operations, and the major customer markets they serve. As such, the Company has identified its CGUs
for purposes of testing the recoverability and impairment of non-financial assets to be Textile & Sewing and Hosiery.
Income taxes
The Company’s income tax provisions and income tax assets and liabilities are based on interpretations of applicable
tax laws, including income tax treaties between various countries in which the Company operates, as well as underlying
rules and regulations with respect to transfer pricing. These interpretations involve judgments and estimates and may
be challenged through government taxation audits that the Company is regularly subject to. New information may become
available that causes the Company to change its judgment regarding the adequacy of existing income tax assets and
liabilities; such changes will impact net earnings in the period that such a determination is made.
Key sources of estimation uncertainty:
Key sources of estimation uncertainty that have a significant risk of resulting in a material adjustment to the carrying
amount of assets and liabilities within the next financial year are as follows:
Allowance for expected credit losses
The Company makes an assessment of whether accounts receivable are collectable, based on an expected credit loss
model which factors in changes in credit quality since the initial recognition of trade accounts receivable based on
customer risk categories. Credit quality is assessed by taking into account the financial condition and payment history
of the Company's customers, and other factors. Furthermore, these estimates must be continuously evaluated and
updated. The Company is not able to predict changes in the financial condition of its customers, and if circumstances
related to its customers’ financial condition deteriorate, the estimates of the recoverability of trade accounts receivable
could be materially affected and the Company could be required to record additional allowances. Alternatively, if the
Company provides more allowances than needed, a reversal of a portion of such allowances in future periods may be
required based on actual collection experience.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SIGNIFICANT ACCOUNTING POLICIES (continued):
(dd) Use of estimates and judgments (continued):
Sales promotional programs
In the normal course of business, certain incentives, including discounts and rebates, are granted to our customers. At
the time of sale, estimates are made for customer price discounts and rebates based on the terms of existing programs.
Accruals required for new programs, which relate to prior sales, are recorded at the time the new program is introduced.
Sales are recorded net of these program costs and a provision for estimated sales returns, which is based on historical
experience, current trends and other known factors. If actual price discounts, rebates, or returns differ from estimates,
significant adjustments to net sales could be required in future periods.
Inventory valuation
The Company regularly reviews inventory quantities on hand and records a provision for those inventories no longer
deemed fully recoverable. The cost of inventories may no longer be recoverable if those inventories are slow moving,
discontinued, damaged, if they have become obsolete, or if their selling prices or estimated forecast of product demand
decline. If actual market conditions are less favorable than previously projected or if liquidation of the inventory which
is no longer deemed fully recoverable is more difficult than anticipated, additional provisions may be required.
Business combinations
Business combinations are accounted for in accordance with the acquisition method. On the date that control is obtained,
the identifiable assets, liabilities, and contingent liabilities of the acquired company are measured at their fair value.
Depending on the complexity of determining these valuations, the Company uses appropriate valuation techniques
which are generally based on a forecast of the total expected future net discounted cash flows. These valuations are
linked closely to the assumptions made by management regarding the future performance of the related assets and the
discount rate applied as it would be assumed by a market participant.
Recoverability and impairment of non-financial assets
The calculation of fair value less costs of disposal or value in use for purposes of measuring the recoverable amount of
non-financial assets involves the use of significant assumptions and estimates with respect to a variety of factors,
including expected sales, gross margins, SG&A expenses, cash flows, capital expenditures, and the selection of an
appropriate earnings multiple or discount rate, all of which are subject to inherent uncertainties and subjectivity. The
assumptions are based on annual business plans and other forecasted results, earnings multiples obtained by using
market comparables as references, and discount rates which are used to reflect market-based estimates of the risks
associated with the projected cash flows, based on the best information available as of the date of the impairment test.
Changes in circumstances, such as technological advances, adverse changes in third-party licensing arrangements,
changes to the Company’s business strategy, and changes in economic and market conditions can result in actual useful
lives and future cash flows that differ significantly from estimates and could result in increased charges for amortization
or impairment. Revisions to the estimated useful lives of finite-life non-financial assets or future cash flows constitute a
change in accounting estimate and are applied prospectively. There can be no assurance that the estimates and
assumptions used in the impairment tests will prove to be accurate predictions of the future. If the future adversely differs
from management’s best estimate of key economic assumptions and the associated cash flows materially decrease,
the Company may be required to record material impairment charges related to its non-financial assets. Please refer to
note 10 of the audited annual consolidated financial statements for the year ended December 30, 2018 for additional
details on the recoverability of the Company’s cash-generating units.
Valuation of statutory severance obligations and the related costs
The valuation of the statutory severance obligations and the related costs requires economic assumptions, including
discount rates and expected rates of compensation increases, and participant demographic assumptions. The actuarial
assumptions used may differ materially from year to year due to changing market and economic conditions, resulting in
significant increases or decreases in the obligations and related costs.
Measurement of the estimate of expected costs for decommissioning and site restoration
The measurement of the provision for decommissioning and site restoration costs requires assumptions including
expected timing of the event which would result in the outflow of resources, the range of possible methods of
decommissioning and site restoration, and the expected costs that would be incurred to settle any decommissioning
and site restoration liabilities. The Company has measured the provision using the present value of the expected costs,
which requires an assumed discount rate. Revisions to any of the assumptions and estimates used by management
GILDAN 2018 REPORT TO SHAREHOLDERS P. 69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SIGNIFICANT ACCOUNTING POLICIES (continued):
(dd) Use of estimates and judgments (continued):
may result in changes to the expected expenditures to settle the liability, which would require adjustments to the provision
and which may have an impact on the operating results of the Company in the period the change occurs.
Income taxes
The Company has unused available tax losses and deductible temporary differences in certain jurisdictions. The Company
recognizes deferred income tax assets for these unused tax losses and deductible temporary differences only to the
extent that, in management’s opinion, it is probable that future taxable profit will be available against which these available
tax losses and temporary differences can be utilized. The Company’s projections of future taxable profit involve the use
of significant assumptions and estimates with respect to a variety of factors, including future sales and operating expenses.
There can be no assurance that the estimates and assumptions used in our projections of future taxable income will
prove to be accurate predictions of the future, and in the event that our assessment of the recoverability of these deferred
tax assets changes in the future, a material reduction in the carrying value of these deferred tax assets could be required,
with a corresponding charge to net earnings.
4. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET APPLIED:
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 Company elects to exclude leases when 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 will adopt the new standard in the first quarter of fiscal 2019 using the modified retrospective
transition method. The Company expects that the initial adoption of IFRS 16 will result in approximately $80 million of right-
of-use assets and approximately $88 million of operating lease liabilities (primarily for the rental of premises) being recognized
in the consolidated statement of financial position. Provisions related to lease exit costs are expected to be reduced by
approximately $5 million, and deferred lease credits (relating to lease inducements) currently recorded in accounts payable
and accrued liabilities are expected to be reduced by approximately $2 million, as a result of the adoption of IFRS 16.
Accordingly, the Company expects to record an adjustment to reduce opening retained earnings by approximately $1 million
from the initial adoption of IFRS 16. The Company also expects a decrease of its operating lease costs, offset by an increase
of its depreciation and amortization and financial expenses resulting from the changes in the recognition, measurement, and
presentation requirements. However, no significant impact on net earnings is expected at this time. The Company is completing
the assessment of 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 starting in
the first quarter of fiscal 2019.
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 does not expect any significant impacts from the adoption of IFRIC 23 on its
consolidated financial statements.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. BUSINESS ACQUISITIONS:
Fiscal 2018 Acquisitions:
There were no significant business acquisitions during fiscal 2018.
Fiscal 2017 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 $10.5 million. The total
consideration transferred for this acquisition was therefore $98.5 million (of which $91.9 million was paid in fiscal 2017 and
$6.6 million was paid in the fourth quarter of fiscal 2016). The acquisition was financed by the utilization of the Company's
long-term bank credit facilities. The American Apparel® brand is a highly recognized brand among consumers and within the
North American imprintables 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 imprintable
distribution networks in North America and internationally to drive further share in the fashion basics category of these markets.
Goodwill recorded in connection with this acquisition is fully deductible for tax purposes. Goodwill is primarily attributable to
expected synergies, which were not recorded separately since they did not meet the recognition criteria for identifiable
intangible assets.
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 $1.2 million of trade accounts payable
owed by Gildan to the manufacturer prior to the acquisition. Goodwill recorded in connection with this acquisition is fully
deductible for tax purposes. 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.
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.
The Company accounted for its acquisitions using the acquisition method in accordance with IFRS 3, Business Combinations.
The Company determined the fair value of the assets acquired based on management's best estimate of their fair values
and taking into account all relevant information available at that time.
The following table summarizes the amounts recognized for the assets acquired and liabilities assumed at the date of
acquisition for the fiscal 2017 acquisitions:
GILDAN 2018 REPORT TO SHAREHOLDERS P. 71
5. BUSINESS ACQUISITIONS (continued):
Assets acquired:
Trade accounts receivable
Income taxes receivable
Inventories
Prepaid expenses, deposits and other current assets
Property, plant and equipment
Intangible assets (1)
Liabilities assumed:
Accounts payable and accrued liabilities
Goodwill
Net assets acquired at fair value
Cash consideration paid at closing, net of cash acquired
Settlement of pre-existing relationships
Balance due
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
American
Apparel
Other
Total
$
$
— $
—
11,052
—
1,527
67,400
$
1,893
235
7,235
4,100
3,011
2,958
79,979
19,432
1,893
235
18,287
4,100
4,538
70,358
99,411
—
(3,822)
(3,822)
$
18,562
98,541
98,541
—
—
$
5,525
21,135
18,069
1,766
1,300
24,087
119,676
116,610
1,766
1,300
$
98,541
$
21,135
$
119,676
(1) The intangible assets acquired relating to American Apparel 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. The intangible assets acquired relating to
other acquisitions is comprised of customer relationships in the amount $3.0 million which are being amortized on a straight line basis over
their estimated useful lives of fifteen years.
6. CASH AND CASH EQUIVALENTS:
Cash and cash equivalents consisted entirely of bank balances as at December 30, 2018 and December 31, 2017.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 72
7. TRADE ACCOUNTS RECEIVABLE:
Trade accounts receivable
Allowance for expected credit losses
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 30,
2018
December 31,
2017
$
$
324,706
(7,547)
317,159
$
$
248,419
(5,054)
243,365
As at December 30, 2018, trade accounts receivables being serviced under a receivables purchase agreement amounted
to $117.0 million (December 31, 2017 - $92.8 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 24, 2019, subject to annual extensions.
The difference between the carrying amount of the receivables sold under the agreement and the cash received at the time
of transfer was $2.6 million for fiscal 2018 (2017 - $1.7 million), and was recorded in bank and other financial charges.
The movement in the allowance for expected credit losses in respect of trade receivables was as follows:
Balance, beginning of fiscal year
Adjustment relating to adoption of new accounting standard (note 2(d))
Adjusted balance, beginning of fiscal year
Bad debt expense
Write-off of trade accounts receivable
Balance, end of fiscal year
8. INVENTORIES:
Raw materials and spare parts inventories
Work in progress
Finished goods
December 30,
2018
December 31,
2017
$
$
(5,054) $
(791)
(5,845)
(3,634)
1,932
(7,547) $
(5,589)
—
(5,589)
(3,689)
4,224
(5,054)
December 30,
2018
December 31,
2017
$
$
151,600
67,903
720,526
940,029
$
$
128,414
60,743
756,581
945,738
The amount of inventories recognized as an expense and included in cost of sales was $2,029.5 million for fiscal 2018 (2017
- $1,884.8 million), which included an expense of $11.2 million (2017 - $18.0 million) related to the write-down of inventory
to net realizable value.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. PROPERTY, PLANT AND EQUIPMENT:
2018
Cost
Land
Buildings and
improvements
Manufacturing
equipment
Other
equipment
Assets not
yet utilized in
operations
Total
Balance, December 31, 2017
$
70,003
$
512,398
$ 1,039,974
$ 175,640
$
77,389
$ 1,875,404
Additions
Transfers
Disposals
1,051
—
(97)
9,650
33,932
(5,095)
49,560
31,735
3,065
1,498
47,406
(67,165)
110,732
—
(35,924)
(21,002)
—
(62,118)
Balance, December 30, 2018
$
70,957
$
550,885
$ 1,085,345
$ 159,201
$
57,630
$ 1,924,018
Accumulated depreciation
Balance, December 31, 2017
Depreciation
Disposals
Balance, December 30, 2018
Carrying amount, December 30, 2018
$
$
$
— $
157,040
$
571,847
$ 110,699
$
— $
839,586
—
—
24,781
—
— $
181,821
70,957
$
369,064
91,081
(22,510)
9,935
(9,330)
640,418
$ 111,304
444,927
$
47,897
$
$
$
$
—
—
125,797
(31,840)
— $
933,543
57,630
$
990,475
Land
Buildings and
improvements
Manufacturing
equipment
Other
equipment
Assets not
yet utilized in
operations
Total
2017
Cost
Balance, January 1, 2017
Additions
Additions through business acquisitions
Transfers
Disposals
$
69,373
$
504,186
$
997,993
$ 167,651
$
630
—
—
—
7,515
29
2,601
(1,933)
17,565
4,153
25,062
(4,799)
$ 1,039,974
10,852
356
1,195
(4,414)
50,607
55,640
—
(28,858)
—
$ 1,789,810
92,202
4,538
—
(11,146)
$ 1,875,404
Balance, December 31, 2017
$
70,003
$
512,398
$ 175,640
$
77,389
Accumulated depreciation
Balance, January 1, 2017
Depreciation
Disposals
Balance, December 31, 2017
Carrying amount, December 31, 2017
$
$
$
— $
132,976
$
483,742
$
96,209
$
— $
712,927
—
—
24,719
(655)
— $
157,040
70,003
$
355,358
92,904
(4,799)
18,610
(4,120)
571,847
$ 110,699
468,127
$
64,941
$
$
$
$
—
—
136,233
(9,574)
— $
839,586
77,389
$ 1,035,818
Assets not yet utilized in operations include expenditures incurred to date for plant expansions which are still in process and
equipment not yet placed into service as at the end of the reporting period.
As at December 30, 2018, there were contractual purchase obligations outstanding of approximately $24.8 million for the
acquisition of property, plant and equipment compared to $46.2 million as of December 31, 2017.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INTANGIBLE ASSETS AND GOODWILL:
Intangible assets:
2018
Cost
Balance, December 31, 2017
Additions
Disposals
Balance, December 30, 2018
Accumulated amortization
Balance, December 31, 2017
Amortization
Disposals
Balance, December 30, 2018
Carrying amount, December 30, 2018
Customer
contracts and
customer
relationships
Trademarks
License
agreements
Computer
software
Non-
compete
agreements
Total
$
224,489
$ 226,172
$
59,498
$
49,771
$
1,880
$
561,810
—
—
—
—
10,102
—
9,363
(879)
—
(90)
19,465
(969)
224,489
$ 226,172
$
69,600
$
58,255
$
1,790
$
580,306
75,472
$
13,592
—
1,108
700
—
89,064
$
1,808
135,425
$ 224,364
$
49,034
$
32,711
$
1,880
$
160,205
8,572
—
57,606
11,994
$
$
4,475
(721)
36,465
21,790
$
$
$
$
—
(90)
27,339
(811)
1,790
$
186,733
— $
393,573
$
$
$
$
Additions through business acquisitions
18,958
51,400
2017
Cost
Balance, January 1, 2017
Additions
Disposals
Balance, December 31, 2017
Accumulated amortization
Balance, January 1, 2017
Amortization
Disposals
Balance, December 31, 2017
Carrying amount, December 31, 2017
$
$
$
$
Customer
contracts and
customer
relationships
Trademarks
License
agreements
Computer
software
Non-
compete
agreements
$
205,531
$ 174,772
$
59,498
$
48,776
$
1,880
$
—
—
—
—
—
—
—
2,852
—
(1,857)
—
—
—
Total
490,457
2,852
70,358
(1,857)
224,489
$ 226,172
$
59,498
$
49,771
$
1,880
$
561,810
62,185
$
13,287
—
125
983
—
75,472
$
1,108
149,017
$ 225,064
$
42,586
$
29,528
$
1,812
$
136,236
6,448
—
49,034
10,464
$
$
4,808
(1,625)
32,711
17,060
$
$
$
$
68
—
25,594
(1,625)
1,880
$
160,205
— $
401,605
The carrying amount of internally-generated assets within computer software was $16.2 million as at December 30, 2018
and $11.7 million as at December 31, 2017. Included in computer software as at December 30, 2018 is $5.9 million
(December 31, 2017 - $5.1 million) of assets not yet utilized in operations.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 75
10. INTANGIBLE ASSETS AND GOODWILL (continued):
Goodwill:
Balance, beginning of fiscal year
Goodwill acquired
Other
Balance, end of fiscal year
Recoverability of cash-generating units:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 30,
2018
December 31,
2017
$
$
226,571
692
99
227,362
$
$
202,108
24,087
376
226,571
Goodwill acquired through business acquisitions and trademarks with indefinite useful lives have been allocated to the
Company's CGUs as follows:
Textile & Sewing:
Goodwill
Indefinite life intangible assets
Hosiery:
Goodwill
Indefinite life intangible assets
December 30,
2018
$
$
$
$
206,134
93,400
299,534
21,228
129,272
150,500
In assessing whether goodwill and indefinite life intangible assets are impaired, the carrying amounts of the CGUs (including
goodwill and indefinite life intangible assets) are compared to their recoverable amounts. The recoverable amounts of CGUs
are based on the higher of the value in use and fair value less costs of disposal. The Company performed the annual
impairment review for goodwill and indefinite life intangible assets during fiscal 2018, and the estimated recoverable amounts
exceeded the carrying amounts of the CGUs and as a result, there was no impairment identified.
Recoverable amount
The Company determined the recoverable amounts of the Textile & Sewing and Hosiery CGU’s based on the fair value less
costs of disposal method. The fair values of the Textile & Sewing and Hosiery CGU’s were based on a multiple applied to
forecasted adjusted EBITDA for the next year, which takes into account financial forecasts approved by senior management.
The key assumptions for the fair value less costs of disposal method include estimated sales volumes, selling prices, input
costs, and SG&A expenses in determining future forecasted adjusted EBITDA, as well as the multiple applied to forecasted
adjusted EBITDA. The adjusted EBITDA multiple was obtained by using market comparables as a reference. The values
assigned to the key assumptions represent management’s assessment of future trends and have been based on historical
data from external and internal sources. For the Textile & Sewing CGU, no reasonably possible change in the key assumptions
used in determining the recoverable amount would result in any impairment of goodwill or indefinite life intangible assets.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INTANGIBLE ASSETS AND GOODWILL (continued):
Hosiery CGU
The key assumptions used in the estimation of the recoverable amount for the Hosiery CGU are the risk adjusted forecasted
adjusted EBITDA for the next year and the adjusted EBITDA multiple of 11. The most significant assumptions that form part
of the risk adjusted forecasted adjusted EBITDA for the Hosiery CGU relate to continuing sales trends, expected gross
margins and the reduction in SG&A expenses arising from the internal organizational realignment initiated in December 2017.
Management has identified that a reasonably possible change in forecasted adjusted EBITDA or adjusted EBITDA multiple
could cause the carrying amount of the Hosiery CGU to exceed its recoverable amount. A decrease in the risk adjusted
forecasted adjusted EBITDA of 10% in the Hosiery CGU, combined with a decrease in the adjusted EBITDA multiple by a
factor of 2 would result in the estimated recoverable amount being equal to the carrying amount. A further decrease in the
risk adjusted forecasted adjusted EBITDA or the adjusted EBITDA multiple may result in the Company recording an impairment
charge relating to the Hosiery CGU.
11. LONG-TERM DEBT:
Effective
interest
rate (1)
Principal amount
December 30,
2018
December 31,
2017
Maturity
date
Revolving long-term bank credit facility, interest at variable U.S. LIBOR-
based interest rate plus a spread ranging from 1% to 2% (2)
3.4% $
69,000 $
30,000
April
2023
Term loan, interest at variable U.S. LIBOR-based interest rate plus a
spread ranging from 1% to 2%, payable monthly(3)
2.8%
300,000
Notes payable, interest at fixed rate of 2.70%, payable semi-annually (4)
2.7%
100,000
Notes payable, interest at variable U.S. LIBOR-based interest rate plus
a spread of 1.53% payable quarterly (4)
2.7%
50,000
Notes payable, interest at fixed rate of 2.91%, payable semi-annually (4)
2.9%
100,000
Notes payable, interest at variable U.S. LIBOR-based interest rate plus
a spread of 1.57% payable quarterly (4)
2.9%
50,000
300,000
April
2023
100,000 August
2023
50,000 August
2023
100,000 August
2026
50,000 August
2026
$
669,000 $
630,000
(1) Represents the annualized effective interest rate for the year ended December 30, 2018, 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 $13.4 million (December 31, 2017 - $14.6 million) has been
committed against this facility to cover various letters of credit.
(3) The unsecured term loan is non-revolving and can be prepaid in whole or in part at any time with no penalties. The spread added to
the U.S. LIBOR-based variable interest rate is a function of the total net debt to EBITDA ratio (as defined in the term loan agreement).
(4) The unsecured notes issued for a total aggregate principal amount of $300 million to accredited investors in the U.S. private placement
market can be prepaid in whole or in part at any time, subject to the payment of a prepayment penalty as provided for in the Note
Purchase Agreement.
In March 2018, the Company amended its unsecured revolving long-term bank credit facility of $1 billion to extend the maturity
date from April 2022 to April 2023, amended its unsecured term loan of $300 million to extend the maturity date from June
2021 to April 2023, and cancelled its unsecured revolving long-term bank credit facility of $300 million.
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 financial covenants at
December 30, 2018.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 77
12. OTHER NON-CURRENT LIABILITIES:
Employee benefit obligation - Statutory severance and pre-notice
Employee benefit obligation - Defined contribution plan
Provisions
(a) Statutory severance and pre-notice obligations:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 30,
2018
December 31,
2017
$
$
22,075
3,498
14,343
39,916
$
$
16,096
3,216
17,829
37,141
December 30,
2018
December 31,
2017
Obligation, beginning of fiscal year
Service cost
Interest cost
Actuarial loss(1)
Foreign exchange gain
Benefits paid
Obligation, end of fiscal year
(1) The actuarial loss is due to changes in the actuarial assumptions used to determine the statutory severance obligations.
16,096
13,500
6,478
1,694
(537)
(15,156)
22,075
$
$
$
$
14,579
12,424
6,171
64
(389)
(16,753)
16,096
Significant assumptions for the calculation of the statutory severance obligations included the use of a discount rate of
between 10.0% and 10.5% (2017 - between 9.2% and 9.7%) and rates of compensation increases between 6.5% and
10.0% (2017 - between 8% and 10.0%). A 1% increase in the discount rates would result in a corresponding decrease
in the statutory severance obligations of $4.1 million, and a 1% decrease in the discount rates would result in a
corresponding increase in the statutory severance obligations of $5.0 million. A 1% increase in the rates of compensation
increases used would result in a corresponding increase in the statutory severance obligations of $5.0 million, and a
1% decrease in the rates of compensation increases used would result in a corresponding decrease in the statutory
severance obligations of $4.3 million.
The cumulative amount of actuarial losses recognized in other comprehensive income as at December 30, 2018 was
$23.8 million (December 31, 2017 - $22.1 million) which have been reclassified to retained earnings in the period in
which they were recognized.
(b) Defined contribution plan:
During fiscal 2018, defined contribution expenses were $6.2 million (2017 - $6.3 million).
GILDAN 2018 REPORT TO SHAREHOLDERS P. 78
12. OTHER NON-CURRENT LIABILITIES (continued):
(c) Provisions:
Balance, December 31, 2017
Provisions made during the fiscal year
Changes in estimates made during the fiscal year
Provisions utilized during the fiscal year
Accretion of interest
Other(1) (note 17)
Balance, December 30, 2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Decommissioning
and site
restoration costs
Lease exit
costs
$
$
16,572
—
(2,147)
—
299
(5,000)
9,724
$
$
1,257
3,509
—
(147)
—
—
4,619
$
$
Total
17,829
3,509
(2,147)
(147)
299
(5,000)
14,343
(1) Related to the reversal of an environmental liability for a U.S. distribution facility previously acquired through a business acquisition
and sold in fiscal 2018.
Provisions include estimated future costs of decommissioning and site restoration for certain assets located at the
Company’s textile and sock facilities for which the timing of settlement is uncertain, but has been estimated to be in
excess of twenty years. The lease exit costs relate to a U.S. distribution center and an administrative office acquired in
connection with a prior year business acquisition.
13. EQUITY:
(a) Shareholder rights plan:
The Company has a shareholder rights plan which provides the Board of Directors and the shareholders with additional
time to assess any unsolicited take-over bid for the Company and, where appropriate, pursue other alternatives for
maximizing shareholder value.
(b) Accumulated other comprehensive income (“AOCI”):
Accumulated other comprehensive income includes the changes in the fair value of the effective portion of qualifying
cash flow hedging instruments outstanding at the end of the fiscal year.
(c) Share capital:
Authorized:
Common shares, authorized without limit as to number and without par value. First preferred shares, without limit as to
number and without par value, issuable in series and non-voting. Second preferred shares, without limit as to number
and without par value, issuable in series and non-voting. As at December 30, 2018 and December 31, 2017, none of
the first and second preferred shares were issued.
Issued:
As at December 30, 2018, there were 206,732,436 common shares (December 31, 2017 - 219,198,989) issued and
outstanding, which are net of 3,797 common shares (December 31, 2017 - 4,308) that have been purchased and are
held in trust as described in note 13(e).
(d) Normal course issuer bid:
On February 23, 2017, the Company announced the renewal of a normal course issuer bid (previous NCIB) beginning
February 27, 2017 and ending on February 26, 2018, to purchase for cancellation up to 11,512,267 common shares
(representing approximately 5% of the Company’s issued and outstanding common shares of the Company). On
November 1, 2017, the Company obtained approval from the Toronto Stock Exchange (TSX) to amend its previous
NCIB program in order to increase the maximum number of common shares that may be repurchased from 11,512,267
common shares, to 16,117,175 common shares, representing approximately 7% of the Company’s issued and
outstanding common shares. No other terms of the previous NCIB were amended.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. EQUITY (continued):
(d) Normal course issuer bid (continued):
During the fiscal year ended December 31, 2017, the Company repurchased for cancellation a total of 11,512,267
common shares under a previous NCIB for a total cost of $328.6 million, of which a total of 877,000 common shares
were repurchased by way of private agreements with arm’s length third-party sellers. Of the total cost of $328.6 million,
$7.7 million was charged to share capital and $320.9 million was charged to retained earnings.
On February 21, 2018, the Board of Directors of the Company approved the initiation of a new NCIB commencing on
February 27, 2018 and ending on February 26, 2019 to purchase for cancellation up to 10,960,391 common shares,
representing approximately 5% of the Company’s issued and outstanding common shares. On August 1, 2018, the
Company obtained approval from the TSX to amend its current NCIB program in order to increase the maximum number
of common shares that may be repurchased from 10,960,391 common shares, or approximately 5% of the Company’s
issued and outstanding common shares as at February 15, 2018 (the reference date for the NCIB), to 21,575,761 common
shares, representing approximately 10% of the public float as at February 15, 2018. No other terms of the NCIB were
amended.
the year ended December 30, 2018,
During
total of
12,634,693 common shares under its NCIB program for a total cost of $367.5 million, of which a total of 175,732 common
shares were repurchased under the previous NCIB. Of the total cost of $367.5 million, $9.2 million was charged to share
capital and $358.3 million was charged to retained earnings.
for cancellation a
the Company
repurchased
Gildan received approval from the TSX to renew its NCIB commencing on February 27, 2019 to purchase for cancellation
up to 10,337,017 common shares, representing approximately 5% of the Gildan’s issued and outstanding common
shares. As of February 14, 2019, Gildan had 206,740,357 common shares issued and outstanding. Gildan is authorized
to make purchases under the NCIB until February 26, 2020 in accordance with the requirements of the TSX. Purchases
will be made by means of open market transactions on both the TSX and the New York Stock Exchange, or alternative
trading systems, if eligible, or by such other means as a securities regulatory authority may permit, including by private
agreements under an issuer bid exemption order issued by securities regulatory authorities in Canada. Under the bid,
Gildan may purchase up to a maximum of 136,754 Common Shares daily through TSX facilities, which represents 25%
of the average daily trading volume on the TSX for the most recently completed six calendar months. The price to be
paid by Gildan for any Common Shares will be the market price at the time of the acquisition, plus brokerage fees, and
purchases made under an issuer bid exemption order will be at a discount to the prevailing market price in accordance
with the terms of the order.
(e) Common shares purchased as settlement for non-Treasury RSUs:
The Company has established a trust for the purpose of settling the vesting of non-Treasury RSUs. For non-Treasury
RSUs that are to be settled in common shares in lieu of cash, the Company directs the trustee to purchase common
shares of the Company on the open market to be held in trust for and on behalf of the holders of non-Treasury RSUs
until they are delivered for settlement, when the non-Treasury RSUs vest. For accounting purposes, the common shares
are considered as held in treasury, and recorded as a temporary reduction of outstanding common shares and share
capital. Upon delivery of the common shares for settlement of the non-Treasury RSUs, the number of common shares
outstanding is increased, and the amount in contributed surplus is transferred to share capital. As at December 30, 2018,
a total of 3,797 common shares purchased as settlement for non-Treasury RSUs were considered as held in treasury,
and recorded as a temporary reduction of outstanding common shares and share capital (December 31, 2017 - 4,308
common shares).
(f) Contributed surplus:
The contributed surplus account is used to record the accumulated compensation expense related to equity-settled
share based compensation transactions. Upon the exercise of stock options, the vesting of Treasury RSUs, and the
delivery of common shares for settlement of vesting non-Treasury RSUs, the corresponding amounts previously credited
to contributed surplus are transferred to share capital.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. FINANCIAL INSTRUMENTS:
Disclosures relating to the nature and extent of the Company’s exposure to risks arising from financial instruments, including
credit risk, liquidity risk, foreign currency risk and interest rate risk, as well as risks arising from commodity prices, and how
the Company manages those risks, are included in the section entitled “Financial risk management” of the Management’s
Discussion and Analysis of the Company’s operations, financial performance and financial position as at December 30, 2018
and December 31, 2017. Accordingly, these disclosures are incorporated into these consolidated financial statements by
cross-reference.
(a) Financial instruments - carrying amounts and fair values:
The carrying amounts and fair values of financial assets and liabilities included in the consolidated statements of financial
position are as follows:
Financial assets
Amortized cost:
Cash and cash equivalents
Trade accounts receivable
Financial assets included in prepaid expenses, deposits and other current
assets
Long-term non-trade receivables included in other non-current assets
Derivative financial assets included in prepaid expenses, deposits and other
current assets
Financial liabilities
Amortized cost:
Accounts payable and accrued liabilities (1)
Long-term debt - bearing interest at variable rates
Long-term debt - bearing interest at fixed rates (2)
Derivative financial liabilities included in accounts payable and accrued liabilities
December 30,
2018
December 31,
2017
$
$
46,657
317,159
$
52,795
243,365
39,789
2,771
17,792
28,711
2,781
16,920
$
332,543
469,000
200,000
14,442
255,832
430,000
200,000
2,644
(1) Accounts payable and accrued liabilities include balances payable of $33.0 million (December 31, 2017 - nil) under supply-chain
financing arrangements (reverse factoring) with a financial institution, whereby receivables due from the Company to certain suppliers
can be collected by the suppliers from a financial institution before their original due date. These balances are classified as accounts
payable and accrued liabilities and the related payments as cash flows from operating activities, given the principal business purpose
of the arrangement is to provide funding to the supplier and not the Company, the arrangement does not significantly extend the payment
terms beyond the normal terms agreed with other suppliers, and no additional deferral or special guarantees to secure the payments
are included in the arrangement.
(2) The fair value of the long-term debt bearing interest at fixed rates was $189.5 million as at December 30, 2018 (December 31,
2017 - $197.6 million).
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.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. FINANCIAL INSTRUMENTS (continued):
(a) Financial instruments - carrying amounts and fair values (continued):
Long-term debt bearing interest at fixed rates
The fair value of the long-term debt bearing interest at fixed rates is determined using the discounted future cash flows
method and at discount rates based on yield to maturities for similar issuances. The fair value of the long-term debt
bearing interest at fixed rates was measured using Level 2 inputs in the fair value hierarchy. In determining the fair value
of the long-term debt bearing interest at fixed rates, the Company takes into account its own credit risk and the credit
risk of the counterparties.
Derivatives
Derivative financial instruments (most of which are designated as effective hedging instruments) consist of foreign
exchange and commodity forward, option, and swap contracts, as well as floating-to-fixed interest rate swaps to fix the
variable interest rates on a designated portion of borrowings under the term loan and unsecured notes. The fair value
of the forward contracts is measured using a generally accepted valuation technique which is the discounted value of
the difference between the contract’s value at maturity based on the rate set out in the contract and the contract’s value
at maturity based on the rate that the counterparty would use if it were to renegotiate the same contract terms at the
measurement date under current conditions. The fair value of the option contracts is measured using option pricing
models that utilize a variety of inputs that are a combination of quoted prices and market-corroborated inputs, including
volatility estimates and option adjusted credit spreads. The fair value of the interest rate swaps is determined based on
market data, by measuring the difference between the fixed contracted rate and the forward curve for the applicable
floating interest rates.
The Company also has a total return swap (“TRS”) outstanding that is intended to reduce the variability of net earnings
associated with deferred share units, which are settled in cash. The TRS is not designated as a hedging instrument and,
therefore, the fair value adjustment at the end of each reporting period is recognized in selling, general and administrative
expenses. The fair value of the TRS is measured by reference to the market price of the Company’s common shares,
at each reporting date. The TRS has a one-year term, may be extended annually, and the contract allows for early
termination at the option of the Company. As at December 30, 2018, the notional amount of TRS outstanding was
259,897 shares.
Derivative financial instruments were measured using Level 2 inputs in the fair value hierarchy. In determining the fair
value of derivative financial instruments the Company takes into account its own credit risk and the credit risk of the
counterparties.
(b) Derivative financial instruments - hedge accounting:
During fiscal 2018, the Company entered into foreign exchange and commodity forward, option, and swap contracts in
order to minimize the exposure of forecasted cash inflows and outflows in currencies other than the U.S. dollar and to
manage its exposure to movements in commodity prices, 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 forward foreign exchange contracts were designated as cash flow hedges and qualified for hedge accounting. The
forward foreign exchange contracts outstanding as at December 30, 2018 consisted primarily of contracts to reduce the
exposure to fluctuations in Canadian dollars, Euros, Australian dollars, Pounds sterling, and Mexican pesos against the
U.S. dollar.
Most commodity forward, option, and swap contracts were designated as cash flow hedges and qualified for hedge
accounting. The commodity contracts outstanding as at December 30, 2018 consisted primarily of forward, collar, and
swap contracts to reduce the exposure to movements in commodity prices.
The floating-to-fixed interest rate swaps were designated as cash flow hedges and qualified for hedge accounting. The
floating-to-fixed interest rate swaps contracts outstanding as at December 30, 2018 served to fix the variable interest
rates on the designated interest payments of a portion of the Company's long term debt.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. FINANCIAL INSTRUMENTS (continued):
(b) Derivative financial instruments - hedge accounting (continued):
The following table summarizes the Company’s commitments to buy and sell foreign currencies as at
December 30, 2018:
Notional foreign
Average
Notional Prepaid expenses,
Accounts
currency amount
exchange
U.S. $
deposits and other
payable and
equivalent
rate
equivalent
current assets
accrued liabilities
0 to 12
months
Carrying and fair value
Maturity
Cash flow hedges:
Forward foreign exchange contracts:
Sell GBP/Buy USD
Sell EUR/Buy USD
Sell CAD/Buy USD
Buy CAD/Sell USD
Sell AUD/Buy USD
Buy MXN/Sell USD
28,510
31,578
33,114
62,921
7,941
79,275
1.3224
$
37,703
$
1.1892
0.7784
0.7583
0.7304
0.0475
37,551
25,776
47,712
5,800
3,766
1,366
1,004
1,369
—
198
162
$
— $
1,366
(19)
—
985
1,369
(1,180)
(1,180)
—
—
198
162
$ 158,308
$
4,099
$
(1,199)
$
2,900
The following table summarizes the Company's commodity contracts outstanding as at December 30, 2018:
Type of
commodity
Prepaid expenses,
Accounts
deposits and other
payable and
Notional amount (1)
current assets
accrued liabilities
0 to 12
months
Carrying and fair value
Maturity
Cash flow hedges:
Forward contracts
Cotton
76.0 million pounds
Swap contracts
Synthetic fibres
147.7 million pounds
Swap & option contracts
Energy
290,000 barrels
(1) Notional amounts are not in thousands.
$
$
336
—
145
481
$
$
(3,173)
$
(2,837)
(5,516)
(2,469)
(5,516)
(2,324)
(11,158)
$ (10,677)
The total notional amount of commodity contracts outstanding as at December 30, 2018 for which hedge accounting is
not applied is 81.2 million pounds. The carrying and fair value of these contracts are recorded as prepaid expenses,
deposits and other current assets ($0.3 million) and accounts payable and accrued liabilities ($1.0 million).
GILDAN 2018 REPORT TO SHAREHOLDERS P. 83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. FINANCIAL INSTRUMENTS (continued):
(b) Derivative financial instruments - hedge accounting (continued):
The following table summarizes the Company’s floating-to-fixed interest rate swap contracts outstanding as at
December 30, 2018:
Notional
amount of
borrowings
Cash flow hedges:
Maturity
date
Pay / Receive
Fixed
rate
Floating
rate
deposits and other
current assets
payable and
accrued liabilities
Carrying and fair value
Prepaid expenses,
Accounts
$
150,000
June 17,
2021
Pay fixed rate /
receive floating rate
75,000
April 30,
2023
Pay fixed rate /
receive floating rate
50,000
August 25,
2023
Pay fixed rate /
receive floating rate
50,000
August 25,
2026
Pay fixed rate /
receive floating rate
0.96%
2.85%
1.18%
1.34%
US
LIBOR
US
LIBOR
US
LIBOR
US
LIBOR
$
5,500
$
—
—
3,070
4,382
(521)
—
—
$
12,952
$
(521)
As the Company amended its unsecured term loan of $300 million to extend its maturity date from June 2021 to April
2023 in March 2018, it entered into new floating-to-fixed interest rate swap contracts which expire in April 30, 2023
relating to a $75 million portion of the notional borrowing, as an extension to the $150 million contract which matures
on June 17, 2021.
The following table summarizes the Company’s hedged items as at December 30, 2018:
Change in
Carrying amount of
value used for
Cash flow
the hedged item
calculating hedge
hedge reserve
Assets
Liabilities
ineffectiveness
(AOCI)
Cash flow hedges:
Foreign currency risk:
Forecast sales
Forecast expenses
Commodity risk:
Forecast purchases
Interest rate risk:
Forecast interest payments
$
— $
— $
—
—
—
—
—
—
2,752
$
(897)
(2,752)
897
(10,677)
10,677
$
— $
— $
3,382
$
12,204
(12,204)
(3,382)
No ineffectiveness was recognized in net earnings as the change in value of the hedging instrument used for calculating
ineffectiveness was the same or smaller as the change in value of the hedged items used for calculating the
ineffectiveness.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. FINANCIAL INSTRUMENTS (continued):
(c) Financial expenses, net:
Interest expense on financial liabilities recorded at amortized cost (1)
Bank and other financial charges
Interest accretion on discounted provisions
Foreign exchange gain
(1) Net of capitalized borrowing costs of $0.7 million (2017 - $1.2 million).
(d) Hedging components of other comprehensive income (“OCI”):
Net gain (loss) on derivatives designated as cash flow hedges:
Foreign currency risk
Commodity price risk
Interest rate risk
Income taxes
Amounts reclassified from OCI to inventory, related to commodity
price risk
Amounts reclassified from OCI to net earnings, related to foreign currency risk,
and included in:
Net sales
Cost of sales
Selling, general and administrative expenses
Financial expenses, net
Income taxes
Cash flow hedging loss
2018
2017
$
$
$
24,757
7,472
299
(1,483)
31,045
2018
6,740
698
102
(67)
17,126
8,025
311
(1,276)
24,186
2017
(6,076)
11,087
425
60
(13,303)
(33,294)
(1,864)
(307)
51
(2,224)
16
(10,158) $
1,626
(1,042)
(2,087)
2,234
(4)
(27,071)
$
$
$
$
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 years ended December 30, 2018 and
December 31, 2017.
The change in the forward element of derivatives designated as cash flow hedges to reduce foreign currency risk was
not significant for the years ended December 30, 2018 and December 31, 2017.
Approximately $1.4 million of net gains presented in accumulated other comprehensive income are expected to be
reclassified to inventory or net earnings within the next twelve months.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. SHARE-BASED COMPENSATION:
(a) Employee share purchase plans:
The Company has employee share purchase plans which allow eligible employees to authorize payroll deductions of
up to 10% of their salary to purchase from Treasury, common shares of the Company at a price of 90% of the then
current share price as defined in the plans. Employees purchasing shares under the plans subsequent to January 1, 2008
must hold the shares for a minimum of two years. The Company has reserved 5,000,000 common shares for issuance
under the plans. As at December 30, 2018, a total of 910,159 shares (December 31, 2017 - 852,255) were issued under
these plans. Included as compensation costs in selling, general and administrative expenses is $0.2 million (2017 -
$0.2 million) relating to the employee share purchase plans.
(b) Stock options and restricted share units:
The Company’s Long-Term Incentive Plan (the "LTIP") includes stock options and restricted share units. The LTIP allows
the Board of Directors to grant stock options, dilutive restricted share units ("Treasury RSUs") and non-dilutive restricted
share units ("non-Treasury RSUs") to officers and other key employees of the Company and its subsidiaries. The number
of common shares that are issuable pursuant to the exercise of stock options and the vesting of Treasury RSUs for the
LTIP is fixed at 12,000,632. As at December 30, 2018, 1,524,965 common shares remained authorized for future issuance
under this plan.
The exercise price payable for each common share covered by a stock option is determined by the Board of Directors
at the date of the grant, but may not be less than the closing price of the common shares of the Company on the trading
day immediately preceding the effective date of the grant. Stock options granted since fiscal 2007 vest equally beginning
on the second, third, fourth, and fifth anniversary of the grant date, with limited exceptions.
Holders of Treasury RSUs, non-Treasury RSUs and deferred share units are entitled to dividends declared by the
Company which are recognized in the form of additional equity awards equivalent in value to the dividends paid on
common shares. The vesting conditions of the additional equity awards are subject to the same performance objectives
and other terms and conditions as the underlying equity awards. The additional awards related to outstanding Treasury
RSUs and non-Treasury RSUs expected to be settled in common shares are credited to contributed surplus when the
dividends are declared.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 86
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. SHARE-BASED COMPENSATION (continued):
(b) Stock options and restricted share units (continued):
Outstanding stock options were as follows:
Stock options issued in Canadian dollars and to be exercised on the TSX:
Stock options outstanding, January 1, 2017
Changes in outstanding stock options:
Exercised
Stock options outstanding, December 31, 2017
Changes in outstanding stock options:
Exercised
Forfeited
Stock options outstanding, December 30, 2018
Stock options issued in U.S. dollars and to be exercised on the NYSE:
Stock options outstanding, January 1, 2017
Changes in outstanding stock options:
Granted
Stock options outstanding, December 31, 2017
Changes in outstanding stock options:
Forfeited
Stock options outstanding, December 30, 2018
Number
Weighted exercise
price (CA$)
2,532
$
31.18
(269)
2,263
(110)
(160)
1,993
$
16.43
32.94
19.98
33.58
33.60
Number
Weighted exercise
price (US$)
—
$
—
759
759
(90)
669
$
29.01
29.01
29.01
29.01
As at December 30, 2018, 915,628 outstanding options, all of which were issued in Canadian dollars and to be exercised
on the TSX, were exercisable at the weighted average exercise price of CA$30.22 (December 31, 2017 - 599,562 options
at CA$26.68). For stock options exercised during fiscal 2018, the weighted average share price at the date of exercise
was CA$39.79 (2017 - CA$39.23). Based on the Black-Scholes option pricing model, the grant date weighted average
fair value of options granted during fiscal 2017 was $5.15. There were no options granted during fiscal 2018. The following
table summarizes the assumptions used in the Black-Scholes option pricing model for the stock option grants for fiscal
2017:
Exercise price
Risk-free interest rate
Expected volatility
Expected life
Expected dividend yield
2017
US$29.01
1.90%
20.78%
4.63 years
1.29%
Expected volatilities are based on the historical volatility of Gildan’s share price. The risk-free rate used for stock options
issued in Canadian dollars and to be exercised on the TSX is equal to the yield available on Government of Canada
bonds at the date of grant with a term equal to the expected life of the options. The risk-free rate used for stock options
issued in U.S. dollars and to be exercised on the NYSE is equal to the yield available on U.S Department of Treasury
bonds at the date of grant with a term equal to the expected life of the options.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. SHARE-BASED COMPENSATION (continued):
(b) Stock options and restricted share units (continued):
The following table summarizes information about stock options issued and outstanding and exercisable at December 30,
2018:
Exercise prices
CA$15.59
CA$24.22
CA$30.46
CA$33.01
CA$38.01
CA$42.27
US$29.01
Options issued and outstanding
Remaining
contractual life (yrs)
Number
Options exercisable
Number
71
239
254
635
511
283
1,993
669
2,662
1
2
3
5
4
7
6
71
239
191
159
256
—
916
—
916
A Treasury RSU represents the right of an individual to receive one common share on the vesting date without any
monetary consideration being paid to the Company. All Treasury RSUs awarded to date vest within a five-year vesting
period. The vesting of at least 50% of each Treasury RSU grant is contingent on the achievement of performance
conditions that are based on the Company’s average return on assets performance for the period as compared to the
S&P/TSX Capped Consumer Discretionary Index, excluding income trusts.
Outstanding Treasury RSUs were as follows:
Treasury RSUs outstanding, January 1, 2017
Changes in outstanding Treasury RSUs:
Granted for dividends declared
Settled through the issuance of common shares
Treasury RSUs outstanding, December 31, 2017
Changes in outstanding Treasury RSUs:
Granted
Granted for dividends declared
Forfeited
Treasury RSUs outstanding, December 30, 2018
Number
Weighted average
fair value per unit
249
$
20.70
2
(149)
102
20
2
(18)
106
$
29.04
14.12
30.46
30.10
29.94
27.93
30.82
As at December 30, 2018 and December 31, 2017, none of the awarded and outstanding Treasury RSUs were vested.
The compensation expense included in operating income for fiscal 2018 was $2.9 million (2017 - $3.8 million) in respect
of the stock options and $0.5 million (2017 - $0.9 million) in respect of Treasury RSUs, and the counterpart has been
recorded as contributed surplus. When the underlying shares are issued to the employees, the amounts previously
credited to contributed surplus are transferred to share capital.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 88
15. SHARE-BASED COMPENSATION (continued):
(b) Stock options and restricted share units (continued):
Outstanding non-Treasury RSUs were as follows:
Non-Treasury RSUs outstanding, January 1, 2017
Changes in outstanding non-Treasury RSUs:
Granted
Granted for performance
Granted for dividends declared
Settled - common shares
Settled - payment of withholding taxes
Forfeited
Non-Treasury RSUs outstanding, December 31, 2017
Changes in outstanding non-Treasury RSUs:
Granted
Granted for performance
Granted for dividends declared
Settled - common shares
Settled - payment of withholding taxes
Forfeited
Non-Treasury RSUs outstanding, December 30, 2018
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Number
Weighted average
fair value per unit
1,047
$
27.18
471
88
13
(215)
(142)
(62)
1,200
573
109
24
(226)
(151)
(155)
1,374
$
29.38
28.42
29.86
28.34
28.42
27.66
27.79
29.82
28.46
29.81
28.47
28.47
27.99
28.52
Non-Treasury RSUs have the same features as Treasury RSUs, except that their vesting period is a maximum of three
years and they can be settled in cash based on the Company’s share price on the vesting date, or through the delivery
of common shares purchased on the open market, at the Company's option. Non-Treasury RSUs are settled in common
shares purchased on the open market, and to the extent that the Company has an obligation under tax laws to withhold
an amount for an employee’s tax obligation associated with the share-based payment the Company settles non-Treasury
RSUs on a net basis. 100% of the non-Treasury RSUs awarded to executive officers have vesting conditions that are
dependent upon the financial performance of the Company relative to a benchmark group of Canadian publicly listed
companies, or other performance metrics. In addition, up to two times the actual number of non-Treasury RSUs awarded
to executive officers can vest if exceptional financial performance is achieved. As at December 30, 2018 and
December 31, 2017, none of the outstanding non-Treasury RSUs were vested.
The compensation expense included in operating income, in respect of the non-Treasury RSUs, for fiscal 2018 was
$16.4 million (2017 - $11.2 million), and the counterpart has been recorded as contributed surplus. When the underlying
common shares are delivered to employees for settlement upon vesting, the amounts previously credited to contributed
surplus are transferred to share capital.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. SHARE-BASED COMPENSATION (continued):
(c) Deferred share unit plan:
The Company has a deferred share unit plan for independent members of the Company’s Board of Directors who must
receive at least 50% of their annual board retainers in the form of deferred share units ("DSUs"). The value of these
DSUs is based on the Company’s share price at the time of payment of the retainers or fees. DSUs granted under the
plan will be redeemable and the value thereof payable in cash only after the director ceases to act as a director of the
Company. As at December 30, 2018, there were 274,794 (December 31, 2017 - 292,873) DSUs outstanding at a value
of $8.3 million (December 31, 2017 - $9.5 million). This amount is included in accounts payable and accrued liabilities
based on a fair value per deferred share unit of $30.24 (December 31, 2017 - $32.30). The DSU obligation is adjusted
each quarter based on the market value of the Company’s common shares. The Company includes the cost of the DSU
plan in selling, general and administrative expenses, which for fiscal 2018 was $1.7 million (2017 - $1.1 million).
Changes in outstanding DSUs were as follows:
DSUs outstanding, beginning of fiscal year
Granted
Granted for dividends declared
Redeemed
DSUs outstanding, end of fiscal year
2018
2017
293
54
4
(76)
275
255
35
3
—
293
16. SUPPLEMENTARY INFORMATION RELATING TO THE NATURE OF EXPENSES:
(a) Selling, general and administrative expenses:
Selling expenses
Administrative expenses
Distribution expenses
(b) Employee benefit expenses:
Salaries, wages and other short-term employee benefits
Share-based payments
Post-employment benefits
2018
108,363
135,735
124,448
368,546
2018
541,769
19,974
31,922
593,665
$
$
$
$
2017
118,560
141,325
117,438
377,323
2017
504,366
16,065
30,376
550,807
$
$
$
$
GILDAN 2018 REPORT TO SHAREHOLDERS P. 90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. SUPPLEMENTARY INFORMATION RELATING TO THE NATURE OF EXPENSES (continued):
(c) Lease expenses:
During the year ended December 30, 2018 an amount of $35.8 million (including operating costs and short term leases)
was recognized in the consolidated statement of earnings and comprehensive income relating to operating leases (2017
- $35.7 million).
As at December 30, 2018, the future minimum lease payments under non-cancellable leases were as follows:
Within 1 year
Between 1 and 5 years
More than 5 years
(d) Government assistance:
$
$
21,795
51,723
39,769
113,287
During the year ended December 30, 2018 an amount of $10.1 million was recognized in the consolidated statement
of earnings and comprehensive income relating to government assistance for yarn production (2017 - $10.2 million).
17. RESTRUCTURING AND ACQUISITION-RELATED COSTS:
Restructuring and acquisition-related costs are presented in the following table, and are comprised of costs directly related
to the closure of business locations or the relocation of business activities, significant changes in management structure, as
well as transaction, exit, and integration costs incurred pursuant to business acquisitions.
Employee termination and benefit costs
Exit, relocation and other costs
Net loss on disposal of property, plant and equipment related to exit activities
Acquisition-related transaction costs
2018
7,767
13,620
12,394
447
34,228
$
$
2017
3,958
13,805
930
4,201
22,894
$
$
Restructuring and acquisition-related costs in fiscal 2018 related primarily to the following: $9.0 million for the closure of the
AKH textile manufacturing facility which was acquired as part of the Anvil acquisition; $9.0 million for the consolidation of the
Company's U.S. distribution centres pursuant to prior years' business acquisitions (net of a gain on disposal of $1.2 million
and the $5.0 million reversal of an environmental liability for a distribution facility sold in fiscal 2018); $7.3 million for the
Company's internal organizational realignment; $5.5 million for the consolidation of sock production manufacturing; and $3.4
million in other costs, including the consolidation of garment dyeing operations acquired in the Comfort Colors acquisition
and information systems integration for prior year acquisitions.
Restructuring and acquisition-related costs in fiscal 2017 related primarily to the following: $7.9 million of transaction and
integration costs for the American Apparel business acquisition; $6.2 million for the rationalization of the Company's remaining
retail store outlets; $4.4 million for the integration of prior years' business acquisitions, primarily for the integration of Alstyle
and Peds; $2.7 million for the consolidation of the Company's West Coast distribution centres pursuant to the acquisitions
of American Apparel and Alstyle; and $1.7 million for the Company's internal organizational realignment.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. INCOME TAXES:
The income tax provision differs from the amount computed by applying the combined Canadian federal and provincial tax
rates to earnings before income taxes. The reasons for the difference and the related tax effects are as follows:
Earnings before income taxes
Applicable tax rate
Income taxes at applicable statutory rate
(Decrease) increase in income taxes resulting from:
Effect of different tax rates on earnings of foreign subsidiaries
Income tax recovery and other adjustments related to prior taxation years
Effect of changes in tax rates
Effect of revaluation of deferred income taxes on intangible assets
Non-recognition of tax benefits related to tax losses and temporary differences
Effect of non-deductible expenses and other
Total income tax expense
Average effective tax rate
2018
2017
$
372,134
$
376,816
26.6%
98,913
26.8%
101,100
(96,013)
979
2,048
—
17,169
(1,736)
21,360
$
(89,722)
(1,676)
(1,633)
(62,228)
62,488
6,153
14,482
5.7%
3.8%
$
The Company’s applicable statutory tax rate is the Canadian combined rate applicable in the jurisdictions in which the
Company operates.
The details of income tax expense are as follows:
Current income taxes, includes an expense of $3,535
(2017 - recovery of $1,368) relating to prior taxation years
Deferred income taxes:
Changes in tax rates
Revaluation of deferred income taxes on intangible assets
Origination and reversal of temporary differences
Non-recognition of tax benefits related to tax losses and temporary differences
Recognition of tax benefits relating to prior taxation years
Total income tax expense
$
2018
2017
$
12,488
$
9,587
2,048
—
(7,789)
17,169
(2,556)
8,872
21,360
$
(1,633)
(62,228)
6,576
62,488
(308)
4,895
14,482
During fiscal 2017, the Company revalued the net deferred tax liability position in its U.S. subsidiaries, to reflect the change
in the statutory federal corporate income tax rate that took effect at the beginning of 2018, resulting in an income tax recovery
of $1.6 million. In addition, the Company incurred a net deferred tax expense of $3.3 million in fiscal 2017 relating to an
internal organizational realignment of its Branded Apparel business unit, consisting of a $56.5 million increase in the non-
recognition of deferred income tax assets and a $9.0 million reduction in deferred income tax assets relating to the reversal
of temporary differences, less a $62.2 million revaluation of deferred income tax liabilities. In fiscal 2018, pursuant to additional
phases to the internal reorganization, the Company reassessed the recoverability of its deferred income tax assets in the
respective jurisdictions affected, resulting in an increase in deferred tax expense of $6.1 million for assets that were no longer
probable of being realized. The fiscal 2018 deferred income tax expense also included $2.0 million for the revaluation of
deferred income tax assets and liabilities due to changes in statutory income tax rates.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. INCOME TAXES (continued):
Significant components of the Company’s deferred income tax assets and liabilities relate to the following temporary
differences and unused tax losses:
Deferred income tax assets:
Non-capital losses
Non-deductible reserves and accruals
Property, plant and equipment
Other items
Unrecognized deferred income tax assets
Deferred income tax assets
Deferred income tax liabilities:
Property, plant and equipment
Intangible assets
Deferred income tax liabilities
Deferred income taxes
December 30,
2018
December 31,
2017
$
$
$
$
$
85,800
11,395
9,227
6,039
112,461
(85,724)
26,737
$
$
(29,095) $
(10,265)
(39,360) $
75,433
5,712
9,629
6,609
97,383
(67,152)
30,231
(24,239)
(9,705)
(33,944)
(12,623) $
(3,713)
The details of changes to deferred income tax assets and liabilities were as follows:
Balance, beginning of fiscal year, net
Recognized in the statements of earnings:
Non-capital losses
Non-deductible reserves and accruals
Property, plant and equipment
Intangible assets
Other
Changes in tax rates
Unrecognized deferred income tax assets
2018
$
(3,713) $
10,367
5,683
(5,267)
94
(532)
(2,048)
(17,169)
(8,872)
Other
Balance, end of fiscal year, net
(38)
(12,623) $
$
2017
1,500
31,202
(41,052)
(3,062)
66,888
1,984
1,633
(62,488)
(4,895)
(318)
(3,713)
As at December 30, 2018, the Company has tax credits, capital and non-capital loss carryforwards, and other deductible
temporary differences available to reduce future taxable income for tax purposes representing a tax benefit of approximately
$85.7 million, for which no deferred tax asset has been recognized (December 31, 2017 - $67.2 million), because the criteria
for recognition of the tax asset was not met. The tax credits and capital and non-capital loss carryforwards expire between
2019 and 2038. The recognized deferred tax asset is supported by projections of future profitability of the Company.
The Company has not recognized a deferred income tax liability for the undistributed profits of subsidiaries operating in
foreign jurisdictions, as the Company currently has no intention to repatriate these profits. If expectations or intentions change
in the future, the Company may be subject to an additional tax liability upon distribution of these earnings in the form of
dividends or otherwise. As at December 30, 2018, a deferred income tax liability of approximately $74 million would result
from the recognition of the taxable temporary differences of approximately $343 million.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. EARNINGS PER SHARE:
Reconciliation between basic and diluted earnings per share is as follows:
Net earnings - basic and diluted
Basic earnings per share:
Basic weighted average number of common shares outstanding
Basic earnings per share
Diluted earnings per share:
Basic weighted average number of common shares outstanding
Plus dilutive impact of stock options, Treasury RSUs and common
shares held in trust
Diluted weighted average number of common shares outstanding
Diluted earnings per share
2018
2017
350,774
$
362,334
211,435
1.66
$
224,184
1.62
211,435
224,184
273
211,708
1.66
$
351
224,535
1.61
$
$
$
Excluded from the above calculation for the year ended December 30, 2018 are 1,462,933 stock options (2017 - 1,903,101)
and nil Treasury RSUs (2017 - nil) which were deemed to be anti-dilutive.
20. DEPRECIATION AND AMORTIZATION:
2018
2017
Depreciation of property, plant and equipment (note 9)
$
125,797
$
136,233
Adjustment for the variation of depreciation of property, plant and equipment included
in inventories at the beginning and end of the year
Depreciation of property, plant and equipment included in net earnings
Amortization of intangible assets, excluding software (note 10)
Amortization of software (note 10)
Depreciation and amortization included in net earnings
4,940
130,737
22,864
4,475
158,076
$
323
136,556
20,786
4,808
162,150
$
GILDAN 2018 REPORT TO SHAREHOLDERS P. 94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
21. SUPPLEMENTAL CASH FLOW DISCLOSURE:
(a) Adjustments to reconcile net earnings to cash flows from operating activities:
Depreciation and amortization (note 20)
Restructuring charges related to property, plant and equipment (note 17)
Loss on disposal of property, plant and equipment and intangible assets
Share-based compensation
Deferred income taxes (note 18)
Unrealized net (gain) loss on foreign exchange and financial derivatives
Timing differences between settlement of financial derivatives and transfer of
deferred gains and losses in accumulated OCI to inventory and net earnings
Other non-current assets
Other non-current liabilities
(b) Variations in non-cash transactions:
$
2018
158,076
12,394
1,124
19,513
8,872
882
—
(1,445)
2,839
202,255
$
2017
162,150
930
368
15,867
4,895
(863)
(10,070)
(523)
2,445
175,199
$
$
2018
2017
Additions to property, plant and equipment and intangible assets included in accounts
payable and accrued liabilities
$
4,977
$
258
Proceeds on disposal of property, plant and equipment included in other current
assets
Impact of adoption of new accounting standards (note 2(d))
Balance due on business acquisitions (note 5)
Non-cash ascribed value credited to contributed surplus for dividends attributed to
Treasury RSUs
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
(86)
(1,515)
—
754
6,681
36
—
2,700
447
9,623
GILDAN 2018 REPORT TO SHAREHOLDERS P. 95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22. RELATED PARTY TRANSACTIONS:
Key management personnel compensation:
Key management personnel includes those individuals that have authority and responsibility for planning, directing and
controlling the activities of the Company, directly or indirectly, and is comprised of the members of the executive management
team and the Board of Directors. The amount for compensation expense recognized in net earnings for key management
personnel was as follows:
Short-term employee benefits
Post-employment benefits
Share-based payments
2018
8,615
2,995
12,592
24,202
$
$
2017
9,446
205
10,932
20,583
$
$
The amounts in accounts payable and accrued liabilities for share-based compensation awards to key management personnel
were as follows:
DSUs
Other:
December 30,
2018
December 31,
2017
$
8,310
$
9,460
During fiscal 2018, the Company incurred expenses for airplane usage of $1.2 million (2017 - nil), with a company controlled
by the President and Chief Executive Officer of the Company. The payments made are in accordance with the terms of the
agreement established and agreed to by the related parties. The amount in accounts payable and accrued liabilities related
to the airplane usage was $0.3 million (December 31, 2017 - nil).
23. COMMITMENTS, GUARANTEES AND CONTINGENT LIABILITIES:
(a) 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.
(b) Guarantees
The Company, and some of its subsidiaries, have granted financial guarantees, irrevocable standby letters of credit,
and surety bonds to third parties to indemnify them in the event the Company and some of its subsidiaries do not perform
their contractual obligations. As at December 30, 2018, the maximum potential liability under these guarantees was
$55.4 million (December 31, 2017 - $50.6 million), of which $11.1 million was for surety bonds and $44.3 million was for
financial guarantees and standby letters of credit (December 31, 2017 - $12.5 million and $38.1 million, respectively).
As at December 30, 2018, the Company has recorded no liability with respect to these guarantees, as the Company
does not expect to make any payments for the aforementioned items.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
24. CAPITAL DISCLOSURES:
The Company’s objective in managing capital is to ensure sufficient liquidity to pursue its organic growth strategy and
undertake selective acquisitions, while maintaining a strong credit profile and a capital structure that reflects a target ratio of
financial leverage as noted below.
The Company’s capital is composed of net debt and shareholders’ equity. Net debt consists of interest-bearing debt less
cash and cash equivalents. The Company’s use of capital is to finance working capital requirements, capital expenditures,
business acquisition, payment of dividends, as well as share repurchases. The Company currently funds these requirements
out of its internally-generated cash flows and with funds drawn from its long-term debt facilities.
The primary measure used by the Company to monitor its financial leverage is its net debt leverage ratio. The Company’s
net debt leverage ratio is defined as the ratio of net debt to earnings before financial expenses, income taxes, depreciation
and amortization, and restructuring and acquisition-related costs (“adjusted EBITDA”) for the trailing twelve months, on a
pro-forma basis to reflect business acquisitions made during the trailing twelve month period, as if they had occurred at the
beginning of the trailing twelve month period. The Company has set a target net debt leverage ratio of one to two times
adjusted EBITDA. As at December 30, 2018, the Company’s net debt leverage ratio was 1.0 times.
In order to maintain or adjust its capital structure, the Company, upon approval from its Board of Directors, may issue or
repay long-term debt, issue shares, repurchase shares, pay dividends or undertake other activities as deemed appropriate
under the specific circumstances.
The Board of Directors will consider several factors when deciding to declare quarterly cash dividends, including the
Company’s present and future earnings, cash flows, capital requirements and present and/or future regulatory and legal
restrictions. There can be no assurance as to the declaration of future quarterly cash dividends. Although the Company’s
revolving facilities, term loan facility, and notes require compliance with lending covenants in order to pay dividends, these
covenants have not been and are not currently, a constraint to the payment of dividends under the Company’s dividend
policy.
The Company paid dividends of $94.6 million during the year ended December 30, 2018, representing dividends declared
per common share of $0.448. On February 20, 2019, the Board of Directors approved a 20% increase in the amount of the
current quarterly dividend and declared a cash dividend of $0.134 per share for an expected aggregate payment of
$27.7 million which will be paid on April 1, 2019 on all of the issued and outstanding common shares of the Company, rateably
and proportionately to the holders of record on March 7, 2019. This dividend is an “eligible dividend” for the purposes of the
Income Tax Act (Canada) and any other applicable provincial legislation pertaining to eligible dividends.
The Company is not subject to any capital requirements imposed by a regulator.
GILDAN 2018 REPORT TO SHAREHOLDERS P. 97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
25. DISAGGREGATION OF REVENUE:
Net sales by major product group were as follows:
Activewear
Hosiery and underwear
Net sales were derived from customers located in the following geographic areas:
United States
Canada
International
2018
2017
$
$
$
$
2,321,395
587,170
2,908,565
2018
2,484,877
120,764
302,924
2,908,565
$
$
$
$
2,043,147
707,669
2,750,816
2017
2,381,193
131,061
238,562
2,750,816
26. ENTITY-WIDE DISCLOSURES:
Property, plant and equipment, intangible assets, and goodwill, were allocated to geographic areas as follows:
United States
Canada
Honduras
Caribbean Basin
Other
December 30,
2018
December 31,
2017
$
$
455,491
132,045
387,301
544,282
92,291
1,611,410
$
$
487,228
141,820
386,348
559,422
89,176
1,663,994
Customers accounting for at least 10% of total net sales for the fiscal years ended December 30, 2018 and December 31,
2017 were as follows.
Customer A
Customer B
Customer C
2018
19.0%
10.0%
7.6%
2017
16.5%
7.6%
11.9%
GILDAN 2018 REPORT TO SHAREHOLDERS P. 98