March 20, 2020
Dear Shareholders,
I’m writing to inform you of some important changes that have occurred since we sent our 2019 Annual
Report for printing. The unprecedented public health impact of COVID-19 on our communities and the
different measures implemented by governments worldwide have prompted us to adapt and implement
some changes with regards to Gildan’s Annual General Meeting of Shareholders. In light of this
situation, and to mitigate risks to the health and safety of our communities, shareholders, employees
and other stakeholders, we have decided to hold the meeting in a virtual only format this year, which
will be conducted via live audio webcast. All shareholders, regardless of their geographic location, will
have an equal opportunity to participate in the Meeting online and engage with directors and
management of the Company as well as with other shareholders. I invite you to read our Notice of
Meeting and Management Information Circular carefully, as it contains a description of the the business
to be conducted at the meeting as well as detailed instructions on how to participate in the meeting
online and vote your shares.
The Annual General Meeting is scheduled for 10:00 am (Eastern Time) on Thursday April 30th, 2020 and
the webcast information will be available on the Company’s website at
https://gildancorp.com/en/investors/events-and-presentations/
Your participation in the meeting is important to us and we value your input as shareholders. If you have
questions but are unable to attend the meeting online, you are always welcome to initiate
communications with the Board through our Shareholder Engagement Policy, which is available on the
Company’s website at www.gildancorp.com.
I would also like to add that in light of the current worldwide pandemic situation resulting from COVID-
19, the Board of Directors has asked Bill Anderson, and he has accepted, to defer his scheduled
retirement at the upcoming Annual General Meeting and continue his work as a Director through to
February 2021. Bill’s extensive experience will be invaluable to the Board of Directors and management
in these unprecedented times.
Finally, I would like to assure you that the Board of Directors and Gildan’s management team are closely
monitoring the status of COVID-19 and assessing ways to reduce risks to our employees and our
business. We are committed to making the necessary decisions to continue to operate responsibly by
implementing measures to protect our employees’ health and well-being, while safeguarding the long-
term health of our business.
Sincerely,
Donald C. Berg
Chairman of the Board
T A B L E
O F
C O N T E N T S
A MESSAGE FROM THE CHAIRMAN
A MESSAGE FROM THE PRESIDENT & CEO
FINANCIAL HIGHLIGHTS
GENUINE RESPONSIBILITY
OUR BRANDS
2019 REPORT TO SHAREHOLDERS
2
5
8
10
12
13
2019 ANNUAL REPORT2019 ANNUAL REPORT A MESSAGE FROM
THE
CHAIRMAN
It is an honour to have been appointed
this past May as Chairman of the Board of
tions. While rightsizing and continuing to
improve its production and distribution
Directors of Gildan Activewear, succeeding
footprint in the western hemisphere, the
Bill Anderson, our Chairman since 2012
Company also initiated plans to signifi-
and a member of our Board since
cantly expand its operations in the eastern
2006. Bill will be retiring at this year’s
hemisphere, with the start of development
Annual General Meeting of Shareholders
of a new major large-scale textile and sew-
and on behalf of the entire Board of
Directors, I would like to thank him for
his many years of service and invaluable
contributions to Gildan during this period
of growth and change for the Company.
2019 was a challenging year for our
Company with lower sales and earnings
than the previous year. Nonetheless,
despite this result, the Board was pleased
with the progress made on the Company’s
ing manufacturing complex in Bangladesh.
The Board fully supports
the Back to Basics strategy,
which is reinforcing the
Company’s core strengths
to drive top and bottom-line
growth opportunities.
GENUINE RESPONSIBILITY®
strategic positioning, which is aimed at
As one of the world’s largest vertical-
driving growth in our imprintables brands,
ly-integrated manufacturers of apparel,
retail brands and private brands of our
we understand that our continued com-
customers by leveraging the Company’s
mitment to operating responsibly and
world class, large scale, low cost vertically-
integrated manufacturing platform. With
its manufacturing competitive advantage,
proactively implementing sustainable
solutions throughout our operations is a
critical factor of our future success. We are
free cash flow generating capabilities,
pleased to see continued progress with the
strong balance sheet and effective
Company’s initiatives in the areas of Envi-
capital allocation strategy, we continue
ronmental, Social and Governance (ESG)
to be confident about Gildan’s prospects
practices and look forward to working with
for delivering growth and value to all
the management team in enhancing our
key stakeholders over the long-term.
programs in the coming year to continue
to create value for all of our stakeholders.
In 2019, Gildan returned $368 million of
capital to shareholders in the form of
In 2019, Gildan published its 2018 Genuine
dividends and share buy-backs. Given our
conviction in the Company’s long-term
outlook, in February of 2020 the Board
Responsibility® Sustainability report, the
Company’s 15th consecutive report present-
ing the Company’s results and progress
approved a 15% increase in the dividend,
related to its three core areas of focus – its
marking the eighth consecutive annual div-
people, the environment and communities.
idend increase. The Board also approved
the renewal of the Company’s normal
In the past year, the Board was pleased to
course issuer bid to repurchase up to 5% of
see Gildan’s labour compliance program,
its issued and outstanding common shares.
which aims to protect workers’ rights and
BACK TO BASICS STRATEGY
During 2019 management significantly
advanced its “Back to Basics” strategy,
executing on various initiatives to simplify
its product portfolio and optimize opera-
improve working conditions, be re-accred-
ited by the Fair Labor Association (FLA).
I am also delighted to say that the Com-
pany’s Genuine Responsibility® program
has been recognized by well-established
organizations in the past year, including
the Dow Jones Sustainability Index for the
.
s
i
s
y
l
a
n
A
d
n
a
n
o
i
s
s
u
c
s
i
D
s
’
t
n
e
m
e
g
a
n
a
M
9
1
0
2
e
h
t
n
i
”
s
e
r
u
s
a
e
m
l
a
i
c
n
a
n
i
f
P
A
A
G
-
n
o
n
f
o
n
o
i
t
a
i
l
i
c
n
o
c
e
r
d
n
a
n
o
i
t
i
n
i
f
e
D
“
o
t
r
e
f
e
r
e
s
a
e
l
P
)
1
(
.
0
2
0
2
f
o
r
e
m
m
u
S
e
h
t
g
n
i
r
u
d
d
e
h
s
i
l
b
u
p
e
b
l
l
i
w
s
r
e
b
m
u
n
G
S
E
9
1
0
2
e
h
T
.
r
a
e
y
l
a
c
s
i
f
8
1
0
2
s
’
n
a
d
l
i
G
r
o
f
e
r
a
s
r
e
b
m
u
n
e
h
T
*
2
seventh consecutive year. In January 2020,
of training and development* to its
that Gildan’s environmental footprint
Gildan was included in the leadership
employees and through numerous
is amongst the best in the industry.
band in CDP’s 2019 scores for corporate
programs, provided support back to
transparency and action on climate
the communities in which it operates.
Further, the Company continued to focus
change with an A- score. The Company
also received a Bronze Class Distinction
in the 2020 SAM Sustainability Yearbook.
This was Gildan’s eighth consecutive
inclusion in the Sustainability Yearbook.
conserving the environment
The Company continues to
be focused on the risks and
impacts of climate change
and on ensuring that business
strategies are developed
to address these risks. In
this regard, Gildan updated its Global
Environment and Energy Policy in 2019 to
cover the latest energy and environmental
challenges and opportunities, as well as in-
dustry best practices. This policy applies to
all manufacturing and distribution facilities
for Gildan-owned operations worldwide,
as well as to its employees at all levels of
the organization. The policy focuses on
strengthening Gildan’s environmental and
energy performance as one of its highest
on achieving its 2020 environmental goals
and is making progress despite challenging
targets particularly related to energy
consumption. In 2018, Gildan was able to
have 40% of its total energy use come
from renewable sources* and recycle or re-
purpose 89% of its non-hazardous waste*.
ETHICS AND COMPLIANCE
The Board’s ongoing
commitment to implementing
leading governance standards
and to foster a culture of
integrity, accountability and
transparency across the
organization continues to
frame the Company’s actions.
In this regard, a global ethics survey
priorities and embraces a proactive culture
was conducted at the beginning of
through the implementation of initiatives
the year to gain better insights from
that build on its practices and ensures
employees as the Company continues
caring for our people
and their communities
The Board of Directors is firmly committed
to ensuring that strong support for
human rights is well embedded across
Gildan’s supply chain and is proud of
the positive and sustainable economic
and social impact Gildan is having on its
employees and in the communities where
its facilities are located. The Company’s
approximately 53,000 employees are
its most important asset and it is their
skills and dedication that will continue
to drive the Company’s results.
Because we know that a highly engaged
and inclusive workforce can make the
difference in our long-term success,
the Company continues to
invest in programs related
to health and safety and
wellness, in addition to
emphasizing employees’
professional development.
Amongst its many contributions, Gildan
offered more than 5 million hours
3
2019 ANNUAL REPORT2019 ANNUAL REPORT
to develop its strong culture of ethics
most recently retired from the Canadian
and compliance. In 2019, the Company
National Railway Company, where he
also continued conducting extensive
served as President and Chief Executive
training throughout its global operations
Officer from 2016 to 2018 and as Executive
to ensure widespread understanding of
Vice-President and Chief Financial Officer
its Code of Conduct and Code of Ethics.
from 2009 to 2016. Prior to these roles,
A STRONG AND INVOLVED
BOARD OF DIRECTORS
With an underlying objective of ensuring
that all Directors have a solid understand-
ing of Gildan’s business model, in October
2019, Directors were provided with
opportunities to visit Gildan’s principal
manufacturing hub in Honduras and inter-
act with local management to gain a better
understanding of Gildan’s operations
first-hand.
All of the Company’s Directors also partic-
ipated in industry trade shows this past
year, which provided them with valuable
insights into the North American imprint-
ables industry as well as on Gildan’s key
customers and competitors in this channel.
I am pleased to announce that Luc Jobin
was appointed to the Board, effective
February 18, 2020, and joins us with ex-
tensive operational and financial expertise.
Luc held various executive level positions
in major corporations including Power
Corporation of Canada and Imperial
Tobacco. We are looking forward to Luc’s
contributions to the Board of Directors.
Finally, I would like to thank Glenn, his
leadership team and all of the Gildan
employees that come to work every day
with commitment, dedication 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
the Gildan senior management team, as
we move through the next phase of the
Company’s Back to Basics strategy, to
deliver strong value for all stakeholders.
Sincerely,
Luc has had a career as a business leader
Donald C. Berg
in Canada spanning over 30 years and
Chairman
A MESSAGE FROM THE
PRESIDENT
& CEO
Weaker imprintables market demand
in North America and softness in inter-
LOOKING BACK
To better understand where we stand
national imprintables markets hampered
today, I believe it is important to look back
our financial performance in 2019 and our
at the evolution of our business. Starting
ability to meet the initial targets we set
in the early 2000’s, during the first phase
at the beginning of the year. Although
of our growth, we made significant capital
we saw weak market conditions, this did
investments in Central America and the
not reflect a structural change in our
Caribbean Basin to position us as a large
business and we kept a strong focus on
scale, low cost, vertically-integrated
controllable areas of our operations. In
manufacturer. Our business model was
this regard, I am pleased with the overall
based on a few basic principles, which
progress we made on our Back to Basics
drove us to focus on producing high-vol-
strategy during 2019, staying focused
ume, basic apparel, limiting complexity
on the execution of several optimization
within our product line offering, and
initiatives to simplify our product portfolio
operating responsibly with sustainability
and remove complexity in manufacturing
well-integrated into our business practices.
and distribution operations. I believe these
This enabled us to provide better value
actions are strengthening our competitive
to our customers and led to a decade of
position and our ability to achieve our
strong organic growth, positioning us as
financial targets as we drive to deliver
the leading supplier in the imprintables
growth in our key brand areas focused on
channel. Our second phase of growth,
imprintables, retail and private brands.
from 2008 to 2013, was built on further
4
5
2019 ANNUAL REPORT2019 ANNUAL REPORT leveraging our business model into
support significant capacity expansion
adjacent markets, including expanding
plans in the country, which will not only
into international imprintables markets
better position us to execute on growth
and entering retail markets through
opportunities going forward but also
optimizing our distribution
network and infrastructure
We also continued to consolidate our
distribution network in 2019 with the
growing share with
imprintables brands
Historically, we have been very successful
and supplying our customers with high
though 2019 presented challenges, we did
quality products at attractive prices, while
not allow this to distract us from our plans
leveraging the reach and strength of our
to fundamentally strengthen our business.
within the North American imprintables
customers’ e-commerce infrastructure
I am proud of the progress we’ve made in
acquisitions in other basic categories,
diversify our manufacturing network.
closure of smaller warehouses which had
industry and have established a leading
and extensive distribution capabilities.
streamlining and optimizing the front and
specifically in the hosiery sector. Our third
phase, from 2013 to 2017, was geared
towards further broadening our brand
and product portfolio and investing in
ring-spun yarn-spinning operations,
both enabling us to gain market share
penetration in the fast-growing category
of higher-value ring-spun basic products in
imprintables, and in retail, to expand into
the underwear and activewear categories.
This brings us to our Back to Basics
strategy, which we started to implement
two years ago, with the goal of simplifying
our business and optimizing operations
by removing complexity that had built up
in our business over the years through
acquisitions. We started to execute on
our plans early in 2018 with the realign-
ment of our organizational structure
and business segments, streamlining
administrative, sales, marketing, and
merchandising functions and consolidating
certain warehouse distribution activities.
DRIVING OUR
BACK TO BASICS STRATEGY
During 2019, we expanded
our efforts and executed on
additional Back to Basics
initiatives aimed at leveraging
our core competencies and
focusing on what we do best.
The land is intended to be used as part of
been added to our system over the years
the construction and development of a
as we integrated various acquisitions. In
major multi-plant manufacturing complex,
this regard, our Back to Basics approach
which is currently expected to include two
in distribution is now to fully leverage our
large textile facilities and related sewing
customers’ extensive distribution networks
operations to service international markets
and capabilities, while we focus on what
and support other key sales growth drivers.
we do best: low-cost manufacturing
driving manufacturing cost advantage
Driving costs out of the business is a phi-
losophy that has always been rooted in the
Gildan culture and in 2019 we continued
to execute on manufacturing initiatives to
support this goal. We consolidated sheer
hosiery manufacturing in Canada within
our global supply chain and removed
some of our higher cost sewing capacity
by leveraging existing sewing operations
in other geographical regions. With
the slowdown in imprintables demand,
we also decided to accelerate plans to
simplifying our portfolio
At the end of the fourth quarter of 2019,
of high-volume replenishment-driven
apparel products. Exiting ship to-the
piece activities will clearly remove
we announced a significant reduction in
complexity in distribution and the higher
our imprintables product line stock-keep-
costs that come with fulfilling smaller
ing units (SKU) with the decision to exit all
orders directly to the end customer.
ship to-the-piece activities and discontinue
Further, working with a lower SKU base
overlapping and less productive styles and
will enable both us and our customers to
SKUs between brands. The ship to-the-
improve productivity and reduce space
piece business is a much more fragmented,
requirements previously allocated to
smaller volume business which does not fit
less productive SKUs within facilities.
with our high-volume, large-scale imprint-
ables franchise. Accordingly, our aim is
MARKET TRENDS SUPPORTING
simply to reduce complexity in manufac-
OUR GROWTH DRIVERS
relocate our higher cost textile and sewing
turing and drive production efficiencies,
operations in Mexico to our operations in
Central America and the Caribbean Basin.
Thinking longer-term, during 2019 we
also acquired land in Bangladesh to
remove higher distribution costs asso-
We are seeing several industry trends
ciated with shipping low-volume orders
unfold which we believe are contributing
and reduce working capital requirements,
positively to our key growth drivers
all of which will ultimately drive margin
in both the near and long-term.
expansion for our business going forward.
6
position in this channel. Still there are
areas, such as the ring-spun product
segment, where we have been growing
share penetration and where we continue
capitalizing on shift
to private brands
In recent years, we have seen a resurgence
to see further opportunity. In addition,
of private brands by traditional retailers
we are also seeing certain broader
focused on differentiating their product
market trends which we believe will
offerings. We feel we are well-positioned
contribute to expanding the addressable
to supply these retailers who are seeking
market opportunity within imprintables.
high quality, low-cost, large-scale reliable
These include the growing number of
manufacturers to support their private
online players offering custom printed
brand program requirements. In 2019,
products, making decorated apparel
we delivered strong double-digit sales
more accessible; advancements in digital
growth in our underwear sales, mainly
printing; accelerating demand for softer
due to our new private brand men’s
and lighter ring spun fabrics (fashion
underwear program with our largest mass
basics) and increasing fleece demand.
retail customer. This program rolled-out
earlier this year and gained additional
While we recognize the benefits associated
shelf space during the fourth quarter
with our decision to rationalize our North
of 2019 and will continue to contribute
American SKU base, on the international
to growth in 2020, as the mass retail
customer further expands the program.
Growing sales of private
brands is proving to be a
strong growth driver as
we move into 2020 and
we remain very focused
on executing on this core
area of our business.
LOOKING AHEAD
back end of our business, while in parallel
making strategic investments in capacity
expansion. These actions, which
are driving gross margin
and SG&A improvement,
combined with our prospects
for driving revenue growth
in imprintables, gaining
further penetration with our
retail brands, and growing
as a trusted supplier of
private brands to attractive
large customers, gives me
confidence in our ability to
deliver strong shareholder
value over the long-term.
Finally, I would like to take this opportunity
to thank our employees for their hard
work and dedication, our customers for
their loyalty, our Board for their support,
and you, our shareholders, for the
ongoing trust and confidence you place
in us as we move forward with our vision
of Making Apparel Better at Gildan.
Sincerely,
front, our SKU base has historically been
more limited. As such, we continue to
see the potential to leverage the breadth
of our North American product line to
broaden our international product offering
and enhance profitability. Further, as
I mentioned earlier, I am excited
about our plans for our
new Bangladesh complex,
which should enhance our
competitive positioning and
support our imprintables
growth internationally.
driving new opportunities
with our retail brands
Activewear sales to retailers under our
own brands grew double-digits during
2019, including good growth in the
craft channel. Moreover, sales of our
products through online channels were
also strong in 2019, with e-commerce
sales up more than 40% compared to
2018. We see opportunities to grow our
brand presence online with our Gildan®,
American Apparel®, Gold Toe® and other
brands, including Under Armour® licensed
sock products. During the year, we exited
direct-to-consumer fulfillment activities for
certain retail brands, such as our American
Apparel® brand, choosing to offer these
products through major online retailers like
Amazon. In doing so, we are focusing on
our core competencies of manufacturing
Looking ahead to 2020, we will remain
Glenn J. Chamandy
focused on executing on our strategy. Al-
President and CEO
7
2019 ANNUAL REPORT2019 ANNUAL REPORT
FINANCIAL HIGHLIGHTS
)
1
(
e
r
a
h
s
r
e
p
s
g
n
i
n
r
a
e
d
e
t
u
l
i
d
d
e
t
s
u
j
d
A
e
r
a
h
s
r
e
p
s
g
n
i
n
r
a
e
d
e
t
u
l
i
D
6
8
.
1
6
6
.
1
6
6
.
1
2
7
.
1
1
6
.
1
7
2
.
1
1
5
.
1
7
4
.
1
6
4
.
1
2
4
.
1
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
$
.
.
S
U
n
I
DILUTED
EARNINGS
PER SHARE
.
2
9
1
5
.
9
8
2
4
.
4
8
9
3
.
5
6
2
2
.
9
8
5
1
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
s
n
o
i
l
l
i
m
$
.
.
S
U
n
I
FREE CASH
FLOW(1)
1
.
6
8
8 5
3
2
5
.
1
.
5
9
5
1
.
8
4
5
.
8
3
0
5
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
s
n
o
i
l
l
i
m
$
.
.
S
U
n
I
ADJUSTED
EBITDA(1)
.
9
8
6
4
.
5
4
9
3
1
.
2
6
4
.
5
7
6
3
.
4
3
1
4
.
6
8
2
3
.
5
7
6
3
.
2
7
5
2
.
7
9
7
79.7 74.4 84.8 94.6 110.3
7
9
5
1
1
1
0
0
0
2
2
2
6
1
0
2
RETURN OF
CAPITAL
8
1
0
2
s
e
s
a
h
c
r
u
p
e
r
e
r
a
h
S
s
d
n
e
d
i
v
i
D
.
6
8
0
9
2
,
.
8
0
5
7
2
,
.
6
8
6
5
2
,
1
.
5
8
5
2
,
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
NET SALES
.
9
3
2
8
2
,
9
1
0
2
s
n
o
i
l
l
i
m
$
.
.
S
U
n
I
.
6
9
2
2
.
2
0
4
1
.
2
0
4
1
.
2
5
2
8 1
4
9
.
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
s
n
o
i
l
l
i
m
$
.
.
S
U
n
I
CAPITAL
EXPENDITURES
(1) Please refer to “Definition and reconciliation of non-GAAP financial measures” in the 2019 Management’s Discussion and Analysis.
Certain minor rounding variances exist between the consolidated financial statements and this summary.
(In U.S.$ millions, except per share data and ratios)
2019
2018
2017
2016
2015
Results shown on a calendar year basis
STATEMENT OF EARNINGS
Net sales
Adjusted EBITDA(1)
Gross Profit
Adjusted gross profit(1)
Operating income
2,823.9
2,908.6
2,750.8
2,585.1
2,568.6
548.1
595.5
586.1
523.8
503.8
704.5
806.0
801.2
719.7
687.3
759.5
806.0
801.2
719.7
687.3
289.0
403.2
401.0
371.5
367.5
Adjusted operating income(1)
391.3
437.4
423.9
383.2
378.9
Net earnings
259.8
350.8
362.3
346.6
346.1
Diluted earnings per share
1.27
1.66
1.61
1.47
1.42
Adjusted net earnings(1)
339.6
393.1
386.9
356.3
355.4
Adjusted diluted earnings per share(1)
1.66
1.86
1.72
1.51
1.46
CASH FLOW
Cash flows from operating activities
361.0
538.5
613.4
537.9
384.4
Capital expenditures
Free cash flow(1)
FINANCIAL POSITION
Total assets
Net indebtedness(1)
Shareholders' equity
FINANCIAL RATIOS
(140.2)
(125.2)
(94.8)
(140.2)
(229.6)
226.5
428.9
519.2
398.4
158.9
3,211.1
3,004.6
2,980.7
2,990.1
2,834.3
862.4
622.3
577.2
561.8
324.3
1,834.5
1,936.1
2,051.4
2,119.6
2,188.4
Adjusted EBITDA margin(2)
19.4%
20.5%
21.3%
20.3%
19.6%
Gross margin(3)
24.9%
27.7%
29.1%
27.8%
26.8%
Adjusted Gross margin(4)
26.7%
27.7%
29.1%
27.8%
26.8%
Operating margin(5)
10.2%
13.9%
14.6%
14.4%
14.3%
Adjusted operating margin(6)
13.8%
15.0%
15.4%
14.8%
14.8%
Adjusted net earnings margin(7)
12.0%
13.5%
14.1%
13.8%
13.8%
Return on net assets (RONA) (1)
13.3%
15.6%
14.9%
14.0%
14.9%
Net debt to adjusted EBITDA(1)
1.6x
1.0x
1.0x
1.0x
0.6x
(1) Please refer to “Definition and reconciliation of non-GAAP financial measures” in the 2019 Management’s Discussion and Analysis.
(2) Adjusted EBITDA divided by net sales.
(3) Gross profit divided by net sales.
(4) Adjusted gross profit divided by net sales. For 2019, adjusted gross margin is calculated as adjusted gross profit divided by net sales
excluding the sales return allowance for anticipated product returns related to discontinued SKUs as part of the strategic product line
initiative. Please refer to “Definition and reconciliation of non-GAAP financial measures” in the 2019 Management’s Discussion and Analysis.
(5) Operating income divided by net sales.
(6) Adjusted operating income divided by net sales. For 2019, adjusted operating margin is calculated as adjusted operating income
divided by net sales excluding the sales return allowance for anticipated product returns related to discontinued SKUs as part of the
strategic product line initiative. Please refer to “Definition and reconciliation of non-GAAP financial measures” in the 2019 Management’s
Discussionand Analysis.
(7) Adjusted net earnings divided by net sales.
Certain minor rounding variances exist between the consolidated financial statements and this summary.
s
n
o
i
l
l
i
m
$
.
.
S
U
n
I
8
9
2019 ANNUAL REPORT2019 ANNUAL REPORT2019 ANNUAL REPORT2019 ANNUAL REPORT
GENUINE RESPONSIBILITY®
Gildan’s ongoing commitment to Genuine Responsibility® is rooted in the Company’s business strategy and guides
how our apparel is designed, made and sold. Our framework was developed based on our unique vertically-integrated
business model and by focusing on matters that are most material to our stakeholders, and it is embedded in the
decisions we make, the actions we take and the future we envision for our Company across three central pillars:
CARING FOR
OUR PEOPLE
CONSERVING
THE ENVIRONMENT
CREATING STRONGER
COMMUNITIES
A commitment to maintaining
A commitment to the
A commitment to assisting
industry-leading working
development and implementation
our communities through
conditions and labour practices
of innovative solutions that
dedicated support for education,
at each of our worldwide
reduce the environmental
active living, entrepreneurship
locations and making
impact of our operations
and the environment.
investments that empower
throughout our supply chain.
our people to succeed.
UNITED NATION SUSTAINABLE DEVELOPMENT GOALS
Gildan is committed to leveraging its strengths in support
of the United Nation’s Sustainable Development Goals
(SDGs). We have targeted the following four specific
SDGs against which we believe we can create the most
positive impact.
Our commitments and actions are presented in our most recent Sustainability Report available at:
RE-ACCREDITATION BY THE FAIR LABOR ASSOCIATION
In 2019, Gildan’s social compliance program was re-accredited by the Fair
Labor Association after the Company demonstrated in a lengthy review
process that it continues to have strong policies and practices in place
to identify and remediate unfair labour practices throughout its global
supply chain. In 2007, Gildan became the first vertically-integrated apparel
manufacturer to have its social compliance program accredited by the FLA.
CHEMICAL MANAGEMENT
PRIORITIzING THE IMPLEMENTATION OF A ROBUST
CHEMICAL MANAGEMENT SYSTEM AND STRINGENT
STANDARDS wHICH ARE SET IN OUR RESTRICTED
SUBSTANCES CODE OF PRACTICE (RSCP).
ALL kEY SUPPLIERS HAvE RECEIvED
TRAINING ON GILDAN’S RSCP AND
CHEMICAL MANAGEMENT SYSTEM.
HUMAN &
LABOUR RIGHTS
PRIORITIzING THE STRICT IMPLEMENTATION OF CODES
AND POLICIES DESIGNED TO PROTECT THE RIGHTS OF
EMPLOYEES AT ALL OF OUR OPERATIONS AND
THROUGHOUT OUR SUPPLY CHAIN BASED ON THE
UNITED NATION’S INTERNATIONAL BILL OF HUMAN RIGHTS.
ENERGY &
EMISSIONS MANAGEMENT
PRIORITIzING INvESTMENTS IN TECHNOLOGIES AND
INITIATIvES TO REDUCE OUR ENERGY
CONSUMPTION, INCREASE RENEwABLE
ENERGY GENERATION AND OPTIMIzE ENERGY
EFFICIENCY THROUGHOUT OUR OPERATIONS.
MORE THAN 50% OF
OUR EMPLOYEES ARE COvERED BY A
COLLECTIvE BARGAINING AGREEMENT.
40% OF OUR TOTAL
ENERGY IS POwERED
FROM RENEwABLE SOURCES*.
OCCUPATIONAL
HEALTH & SAFETY
PRIORITIzING THE IMPLEMENTATION OF STRONG
STRUCTURES AND PROCESSES TO ENSURE THE
SAFETY AND wELL-BEING OF OUR EMPLOYEES.
OCCUPATIONAL WATER &
WASTEWATER MANAGEMENT
PRIORITIzING THE EFFICIENT USE OF wATER AND THE
RESPONSIBLE MANAGEMENT OF wASTEwATER THROUGH
INNOvATIvE TECHNOLOGY AND PROCESSES.
OvER THE PAST TEN YEARS, OUR
wORk-RELATED INjURY RATE HAS DECREASED
BY 50% AND OUR SEvERITY RATE BY 67%.
THE vAST MAjORITY OF OUR wASTEwATER IS
TREATED BIOLOGICALLY BY OUR NATURAL BIOTOP
SYSTEM OR OUR BIOLOGICAL REACTORS.
GILDAN IS RECOGNIZED AS A GLOBAL RESPONSIBILITY LEADER
IN 2019, GILDAN’S PROGRAMS WERE RECOGNIZED BY THE FOLLOWING KEY RATING ORGANIZATIONS:
7 CONSECUTIVE YEARS
LEADERSHIP BAND
BRONZE CATEGORY
CORPORATE TRANSPARENCY AND
ACTION ON CLIMATE CHANGE
10
* The numbers are for Gildan’s 2018 fiscal year. The 2019 ESG numbers will be published during the Summer of 2020.
11
2019 ANNUAL REPORT2019 ANNUAL REPORTOUR TOP5 AREASOF FOCUS OUR BRANDS
¨
12
2019 ANNUAL REPORT2019 ANNUAL REPORT 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 Our operations
3.3 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. 3
P. 4
P. 8
P. 10
P. 20
P. 22
P. 24
P. 26
P. 27
P. 27
P. 31
P. 33
P. 34
P. 34
P. 35
P. 45
P. 50
P. 56
P. 60
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 29, 2019 and December 30, 2018. 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 29, 2019 and the related notes.
In preparing this MD&A, we have taken into account all information available to us up to February 21, 2020, 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 19, 2020.
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 2019 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.
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:
•
•
•
•
•
•
•
•
•
•
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;
GILDAN 2019 REPORT TO SHAREHOLDERS P. 3
MANAGEMENT'S DISCUSSION AND ANALYSIS
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the impact of climate, political, social, and economic risks, natural disasters, and pandemics in the countries in which
we operate or sell to, 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, such as the coronavirus, 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 manufacturing 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.
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, including mass merchants, department stores, national chains, specialty
retailers, craft stores, and pure-play online retailers that sell directly to consumers through their physical stores and/or e-
commerce platforms, and to global lifestyle brand companies. 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, which have been above industry
GILDAN 2019 REPORT TO SHAREHOLDERS P. 4
MANAGEMENT'S DISCUSSION AND ANALYSIS
average capital intensity levels, are factors that differentiate us from our competition. More than 90% of our sales are derived
from products we manufacture ourselves. Owning and operating the vast majority of our manufacturing facilities allows us
to exercise tighter control over our production processes, efficiency levels, costs and product quality, as well as to provide
reliable service with short production/delivery cycle times. In addition, running our own operations allows us to ensure
adherence to high standards for environmental and social responsibility practices throughout our supply chain.
3.2 Our Operations
3.2.1 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™, Prim + Preux®, GoldToe®, Anvil® by Gildan®, Alstyle®, Secret®, Silks®,
Kushyfoot®, Secret Silky®, Therapy Plus®, Peds® and MediPeds®. Through a sock licensing agreement providing us
exclusive distribution rights in the United States and Canada, we also sell socks under the Under Armour® brand. In addition,
we manufacture for 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 tops and bottoms, hosiery, and underwear, the vast majority of which we
manufacture. Some of our brands also extend to other categories such as intimates, sheer hosiery and shapewear, which
are primarily sourced through third-party suppliers.
We sell our activewear products primarily in “blank” or undecorated form, without imprints or embellishment. These 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.
The activewear products have diverse applications, such as serving as work or school uniforms or athletic team wear or
simply conveying individual, group, and team identity. We also sell activewear products to various retailers, in addition to
underwear and socks for men, ladies, and kids, as well as other hosiery products such as pantyhose and leggings. These
retailers include mass merchants, department stores, national chains, sports specialty stores, craft stores, food and drug
retailers, dollar stores and price clubs, all of which sell to consumers through their brick and mortar outlets. Consumers also
buy our products online through e-commerce platforms, including pure-play online retailers and brick and mortar retail
customers’ e-commerce platforms. 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® by
Gildan®, Alstyle®(2), Prim + Preux®, GoldToe®
Hosiery
Underwear
Intimates
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)
PowerSox®, GT a GoldToe Brand®, Silver Toe®, Signature Gold by
Goldtoe®, Peds®, MediPeds®, Kushyfoot®(1), Therapy Plus®(1), All
Pro®, Secret®(1), Silks®(1), Secret Silky®, American Apparel®
Under Armour®(3), GoldToe®,
,
men's and boys' underwear (tops and
bottoms) and ladies panties
Gildan®, Gildan Platinum®(1)
ladies' shapewear, intimates, and
accessories
Secret®(1), Secret Silky®
(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®.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 5
MANAGEMENT'S DISCUSSION AND ANALYSIS
3.2.2 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 and sock manufacturing facilities, as well as labour-intensive sewing facilities. Our
manufacturing operations are situated in four main hubs, specifically in the United States, Central America, the Caribbean
Basin 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 are continuing to expand our manufacturing capacity in Central America and
Bangladesh and are also making investments in technology to enhance our capabilities in the production of fashion basics
and performance garments.
Developments in 2019
During the latter part of 2018 and during 2019, we began to consolidate some of our textile, sock, and sewing operations as
part of our efforts to optimize our global manufacturing system and we announced plans to expand capacity in certain regions.
i. We began operations towards the end of the second quarter of 2018 at our newest textile facility, Rio Nance 6 in
Honduras, that is equipped to manufacture open-width and tubular fabric production. We have been ramping up
production at Rio Nance 6 throughout 2019.
ii. During the second quarter of 2019, we completed the purchase of land, in close proximity to our existing facility in
Bangladesh. The land is intended to be used as part of the construction and development of a large multi-plant
manufacturing complex, which is currently expected to include two large textile facilities and related sewing operations,
to service international markets and support other key sales growth drivers.
iii. During the third quarter of 2019, we consolidated sheer hosiery manufacturing within our global supply chain through
the closure of our sheer hosiery facility in Canada.
iv. During the fourth quarter of 2019, we began to execute on plans for the closure of our textile and sewing operations
in Mexico and began to ramp down production and relocate the equipment at these facilities to our operations in
Central America and the Caribbean Basin. Operations in Mexico are expected to cease at the end of the first quarter
of 2020.
The following table provides a summary of our primary manufacturing operations by geographic area:
United States
Central America Caribbean Basin Mexico
Asia
Yarn-spinning facilities(1):
conversion of cotton, polyester and
other fibres into yarn
Clarkton, NC
Cedartown, GA
Columbus, GA
Salisbury, NC
(2 facilities)
Mocksville, NC
Eden, NC
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
Honduras
(4 facilities)
Dominican
Republic
Agua
Prieta(4)
Dominican
Republic
(3 facilities)
Hermosillo(4)
Honduras
(3 facilities)
Nicaragua
(3 facilities)
Honduras
Honduras
(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) Although the majority of our sewing facilities are Company-operated, we also use the services of third-party sewing contractors, primarily in Haiti, Nicaragua
and other regions in Central America, 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.
(4) See subsection 3.2.2. entitled Manufacturing "Developments in 2019" - (iv).
GILDAN 2019 REPORT TO SHAREHOLDERS P. 6
MANAGEMENT'S DISCUSSION AND ANALYSIS
3.2.3 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™ Corporate Responsibility 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 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 fifteenth consecutive Sustainability Report in 2019. 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 have earned,
including our seventh consecutive inclusion in the Dow Jones Sustainability Index and our 12th FundaHRSE CSR seal. 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.
3.2.4 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 support offices in the U.S. We have
established extensive distribution operations primarily through internally managed and operated distribution centres. We
distribute our products primarily out of large Company-operated distribution centres and smaller facilities in the U.S., as well
as out of our Company-owned distribution facility in Honduras. To supplement some of our distribution needs, we also use
third-party warehouses in North America, Europe, and Asia.
3.2.5 Employees and corporate office
We currently employ approximately 53,000 employees worldwide. Our corporate head office is located in Montreal, Canada.
3.3 Competitive environment
The basic apparel market for our products is highly competitive and continuously evolving. Changing market dynamics, such
as the growth of online shopping, declining store traffic trends, as well as retailer closures and consolidation, are intensifying
competition. 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. Not all of our
competitors manufacture their own products and among those competitors that do, we believe we are more vertically-
integrated. More specifically, our vertical integration begins with owning and operating large-scale yarn-spinning facilities,
where we produce yarn, which is then used to produce textile in our textile operations, before being cut and assembled in
our Company-operated sewing facilities. We believe our manufacturing skill set together with the significant supply chain
infrastructure that we have developed, and in which we have made significant capital investments over time, 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. These companies manufacture out of some of the same 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 Renfro Corporation, Jockey International, Inc., and Kayser Roth
Corporation. In addition, we compete with smaller U.S.-based companies selling to or operating as wholesale distributors of
imprintable activewear products, including Next Level Apparel, Color Image Apparel, Inc. (owner of the Bella + Canvas brand),
and Delta Apparel Inc., as well as Central American and Mexican manufacturers that supply products into this channel.
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,
GILDAN 2019 REPORT TO SHAREHOLDERS P. 7
MANAGEMENT'S DISCUSSION AND ANALYSIS
particularly within the mass retail channel, replacing branded offerings. While private brands may compete against our own
brands, the shift to private brand offerings by retailers is also presenting the Company with revenue-generating opportunities,
as these retailers seek strategic suppliers with the type of manufacturing capabilities that we can provide to support their
offerings.
4.0 STRATEGY AND OBJECTIVES
We execute our strategy by leveraging our competitive strengths, including our manufacturing excellence, our large-scale,
low-cost vertically-integrated supply chain, our reputation for leading sustainable and ethical practices, our strong brands
and long-standing customer relationships, as well as the talent of our people.
Back to Basics
Two years ago, we embarked on our “Back to Basics” plan to simplify our business and optimize operations by removing
some of the complexity that had built up into our business over the years through acquisitions. We started to execute on our
plans early in 2018 when we realigned our organizational structure and consolidated our business segments into one front-
end organization, streamlining administrative, marketing, and merchandising functions and consolidating certain warehouse
distribution activities. During 2019, we expanded on various optimization initiatives. We are focusing on the following main
areas: i) simplifying our product portfolio and rationalizing less productive styles or stock-keeping-units (SKUs), while
introducing new products in under-penetrated North American and international growth areas; ii) driving manufacturing cost
advantage and flexibility by enhancing our production capabilities through new capacity expansion in Central America and
Bangladesh and consolidating higher-cost textile, sock, and sewing facilities within our existing manufacturing base; and iii)
optimizing our distribution network and infrastructure by leveraging our imprintables distributor network, including exiting
ship-to-the-piece activities, as well as leveraging the distribution capabilities of our retail and e-commerce partners. Charges
taken by the Company during fiscal 2019 relating to a major initiative in the implementation of our Back to Basics strategy,
are described under the heading "Recent Developments" in subsection 5.3.1. Our Back to Basics approach is to focus on
what we do best and remain close to the roots of our success, of being a world-class manufacturer of basic apparel and
leveraging our core competencies to drive our four main strategic growth drivers.
4.1 Growing share with imprintable brands
Several trends in imprintables are contributing positively to overall growth prospects, including the arrival of online players
offering custom printed products and making decorated apparel more accessible to individuals and small businesses.
Furthermore, advancements in digital printing, in terms of speed, affordability and quality, as well as reducing the barriers to
entry with lower set-up costs compared to traditional screen printing, have created new opportunities for decorators and
online players.
4.1.1. Driving market share growth in higher value ring-spun products
In the North American imprintables channel, the Company historically focused on the basics category of activewear products,
manufactured primarily from open-end cotton yarn and tubular manufacturing production, and over the years gained significant
market share with the Gildan® brand becoming the leader in this category. In more recent years, we have seen an acceleration
of demand for softer and lighter fabrics, often referred to as fashion basics products. These 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 started to position ourselves to compete and gain
market share in this category of imprintables. We developed and acquired brands which we believe are well positioned to
drive growth in fashion basics. We 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. Our portfolio of
fashion brands under the Gildan® brand umbrella for the value-oriented customer includes the Gildan® Softstyle®, Gildan®
Hammer™, and Anvil® by Gildan® brands. In addition, under the Gildan Performance® line we market products featuring
moisture wicking and anti-microbial properties for long-lasting comfort and performance. Our higher price point fashion
offerings include the American Apparel® brand positioned as a premium brand in fashion basics, and the Comfort Colors®
brand, also a premium brand, which features garment-dyed activewear products. More recently, we introduced a new line
of fashionable sport shirts under the Prim + Preux® brand. With a comprehensive portfolio, covering a wide range of
fabrications, weights, and styles at different price points, supported by cost-effective manufacturing operations, including
yarn capabilities, we believe we are well positioned to drive market leadership for higher value ring-spun products, reinforce
our core brands, and grow in under-penetrated categories.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 8
MANAGEMENT'S DISCUSSION AND ANALYSIS
4.1.2 Driving international growth
We are also pursuing further growth within the imprintables channel of international markets, focusing on 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 are just over 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 smaller manufacturing facility in Bangladesh,
which is dedicated to supporting international markets. In addition, during the second quarter of 2019, we purchased a large
parcel of land in Bangladesh and announced plans to significantly expand our manufacturing capabilities there with the
construction and development of a large multi-plant manufacturing complex which the Company believes will enhance its
positioning to service international markets and support other key sales growth drivers. The planned incremental capacity
from Bangladesh is expected to allow us to fully service the European and Asian markets from Bangladesh and free up
capacity in Central America, which is currently used to support some of our requirements for the European market. Freed
up capacity in Central America is expected to be used to support incremental sales growth in North America and Latin America.
Further to expanding manufacturing capacity in support of driving international imprintables growth, we also intend to leverage
the breadth of our core North American product line to further develop and broaden our international product offering and
enhance the profitability mix of our international sales.
4.2 Driving new opportunities with our retail brands
Gildan's retail brands, including Gildan®, American Apparel®, GoldToe®, Peds®, Secret® and related brand extensions, as
well as Under Armour®, a licensed brand for socks, are well established within the retail channel, with presence in both brick
and mortar stores and online platforms. E-commerce is increasingly gaining share in the retail industry and we recognize
that there is opportunity to grow our brand presence online. We are targeting to grow the sales of our brands with retailers,
focusing on customers with omni-channel presence. Under our Back to Basics strategy we are focusing on our core
competencies, offering our customers large-scale reliable manufacturing for high quality products at attractive prices while
we seek to leverage the reach and strength of our customers' e-commerce infrastructure and extensive distribution capabilities.
4.3 Capitalizing on shift to private brands
In recent years, we have seen a resurgence of private label brands by traditional retailers trying to differentiate their offering
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 recognizes its strong positioning
to supply retailers who are seeking low-cost, large-scale reliable 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. We have also developed strong relationships
with, and are targeting to grow our sales as a supply chain partner to, select leading global athletic and lifestyle brands for
which we manufacture products, but against which our brands do not compete directly. These customers market their brands
through their own retail stores, online and/or in other retailer outlets. 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
and are strategically located in the Western Hemisphere. Additionally, the majority of our sales to global lifestyle brands is
primarily derived from the sale of activewear products. In recent years, we have also been selling sock products to one of
our global brand customers. We believe there is an opportunity to leverage our relationships with these customers to continue
to grow our sales in activewear and expand into the other product categories we manufacture, such as socks and underwear.
4.4 Enhancing sales and earnings growth with acquisitions that complement our strategy
We believe we can enhance our sales and earnings growth with complementary strategic acquisitions, and we have available
free cash flow and debt financing capacity to pursue opportunities 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.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 29, 2019 (fiscal 2019) and the fiscal year ended December 30, 2018 (fiscal 2018).
Following an internal reorganization which took effect on January 1, 2018 and resulted in the consolidation of the Company’s
divisional organizational structure, the Company manages its business on the basis of one reportable operating segment.
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. In this MD&A, we use non-GAAP measures including adjusted net earnings, adjusted
diluted EPS, adjusted gross profit, adjusted gross margin, adjusted operating income, adjusted operating margin, adjusted
EBITDA, free cash flow, total indebtedness and net indebtedness, 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.
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 2019 REPORT TO SHAREHOLDERS P. 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
Variation 2019-2018 Variation 2018-2017
%
%
$
$
2019
2018
2017
2,823.9
704.5
759.5
340.5
27.7
2,908.6
806.0
806.0
364.9
3.6
2,750.8
801.2
801.2
373.6
3.7
47.3
289.0
391.3
548.1
39.2
(10.0)
259.8
339.6
1.27
1.27
1.66
24.9%
26.7%
12.1%
10.2%
13.8%
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
27.7%
27.7%
12.5%
13.9%
15.0%
29.1%
29.1%
13.6%
14.6%
15.4%
3,211.1
845.0
862.4
3,004.6
669.0
622.3
2,980.7
630.0
577.2
(84.7)
(101.5)
(46.5)
(24.4)
24.1
(2.9)%
(12.6)%
(5.8)%
(6.7)%
n.m.
13.1
(114.2)
38.3 %
(28.3)%
(46.1)
(10.5)%
(47.4)
8.2
(31.4)
(91.0)
(53.5)
(0.39)
(0.39)
(0.20)
n/a
n/a
n/a
n/a
n/a
206.5
176.0
240.1
(8.0)%
26.5 %
n.m.
(25.9)%
(13.6)%
(23.5)%
(23.5)%
(10.8)%
(2.8) pp
(1.0) pp
(0.4) pp
(3.7) pp
(1.2) pp
6.9 %
26.3 %
38.6 %
157.8
4.8
4.8
(8.7)
(0.1)
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
n/a
23.9
39.0
45.1
n/a
5.7 %
0.6 %
0.6 %
(2.3)%
(2.7)%
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
(1.4) pp
(1.1) pp
(0.7) pp
(0.4) pp
0.8 %
6.2 %
7.8 %
0.7 pp
13.3%
15.6%
14.9%
n/a
(2.3) pp
0.536
0.448
1.6
1.0
0.374
1.0
0.088
19.6 %
0.074
19.8 %
n/a
n/a
n/a
n/a
5.3 Selected annual information
(in $ millions, except per share amounts or
otherwise indicated)
Net sales
Gross profit
Adjusted gross profit(1)
SG&A expenses
Impairment of trade accounts receivable
Restructuring and acquisition-related
costs
Operating income
Adjusted operating income(1)
Adjusted EBITDA(1)
Financial expenses
Income tax (recovery) expense
Net earnings
Adjusted net earnings(1)
Basic EPS
Diluted EPS
Adjusted diluted EPS(1)
Gross margin
Adjusted gross margin(1)
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.m. = not meaningful
n/a = not applicable
(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.
5.3.1 Recent developments
At the end of the fourth quarter of 2019, we decided to significantly reduce our imprintables product line stock-keeping unit
(SKUs) count by exiting all ship to-the-piece activities and discontinuing overlapping and less productive styles and SKUs
between brands, a major initiative which we had communicated we were considering at the end of the third quarter of 2019.
This strategic product line initiative is an important part of our “Back to Basics” strategy, with the goal of simplifying our product
portfolio and reducing complexity in our manufacturing and warehouse distribution activities. Consequently, in connection
with this initiative, we recorded charges of $55 million in the fourth quarter of 2019 consisting of inventory write-downs of
approximately $48 million, and a net $7 million reversal of gross profit relating to anticipated product returns of discontinued
SKUs which reduced sales by $19 million and cost of sales by $12 million.
GILDAN 2019 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)
2019
2018
2017
Variation 2019-2018 Variation 2018-2017
%
%
$
$
Activewear
Hosiery and underwear(1)
Total net sales
(1) Also includes intimates and other fringe products.
2,261.9
562.0
2,823.9
2,321.4
587.2
2,908.6
2,043.1
707.7
2,750.8
(59.5)
(25.2)
(84.7)
278.3
(2.6)%
(4.3)% (120.5)
157.8
(2.9)%
13.6 %
(17.0)%
5.7 %
Certain minor rounding variances exist between the consolidated financial statements and this summary.
Fiscal 2019 compared to fiscal 2018
The 2.9% net sales decline for the year ended December 29, 2019 was due to a 2.6% decrease in activewear sales and a
4.3% decline in the hosiery and underwear category compared to last year. Overall sales were in line with our most recent
full year guidance calling for a decrease in total net sales in the low-single digit range. The decrease in activewear sales for
the year was mainly driven by lower unit sales volumes in the imprintables channel both in North America and internationally,
partly offset by higher sales of activewear in the retail channel, including private brands and strong sales in the craft channel,
as well as favourable product-mix and higher net selling prices. Sales in the hosiery and underwear category were down
$25.2 million over the prior year, as strong double-digit underwear sales growth driven by our new private brand men’s
underwear program in mass, which also contributed to a favourable product-mix, was more than offset by lower unit sales
of socks, including the impact of the exit of a sock program in the dollar channel.
Fiscal 2018 compared to fiscal 2017
The net sales increase for the year ended December 30, 2018 of $157.8 million or 5.7% over 2017 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 fiscal 2017. 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.
5.4.2 Gross profit and adjusted gross profit
(in $ millions, or otherwise indicated)
2019
2018
2017
704.5
Gross profit
Adjustment for:
Impact of strategic product line initiative
Adjusted gross profit(1)
Gross margin
Adjusted gross 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.
27.7%
27.7%
24.9%
26.7%
—
801.2
—
806.0
55.0
759.5
806.0
801.2
29.1%
29.1%
Variation
2019-2018
Variation
2018-2017
(101.5)
4.8
55.0
(46.5)
(2.8) pp
(1.0) pp
—
4.8
(1.4) pp
(1.4) 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 2019 REPORT TO SHAREHOLDERS P. 12
MANAGEMENT'S DISCUSSION AND ANALYSIS
Fiscal 2019 compared to fiscal 2018
The 280-basis point decrease in gross margin in fiscal 2019 over the prior year was mainly due to charges taken in connection
with the Company’s strategic product line initiative as described under Section 5.3.1 "Recent Developments". Excluding
these charges, adjusted gross margin for 2019 was 26.7%, down 100 basis points from the same period last year, mainly
due to higher manufacturing costs, including higher raw material costs and inflationary pressures on other input costs, as
well as unfavourable foreign exchange, which more than offset the benefit of higher net selling prices and more favourable
product-mix.
Fiscal 2018 compared to fiscal 2017
The 140-basis point decline in gross margin in fiscal 2018 over fiscal 2017 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 2018, 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 2017.
5.4.3 Selling, general and administrative expenses
(in $ millions, or otherwise indicated)
2019
2018
2017
373.6
SG&A expenses
13.6%
SG&A expenses as a percentage of sales
Certain minor rounding variances exist between the consolidated financial statements and this summary.
340.5
12.1%
364.9
12.5%
Variation
2019-2018
Variation
2018-2017
(24.4)
(0.4) pp
(8.7)
(1.1) pp
Fiscal 2019 compared to fiscal 2018
The $24.4 million decrease in selling, general and administrative (SG&A) expenses for fiscal 2019 and the 40-basis point
improvement in SG&A as a percentage of sales compared to fiscal 2018 was primarily due to lower compensation expenses
and the Company's continued focus on SG&A cost containment, including benefits stemming from distribution network
consolidation. The Company's guidance for fiscal 2019 called for improvement in SG&A expenses as a percentage of sales.
Fiscal 2018 compared to fiscal 2017
The $8.7 million decline in SG&A expenses and the 110-basis point improvement in SG&A as a percentage of sales in fiscal
2018 were mainly due to the benefit of cost reductions resulting from our organizational realignment which we began to
implement at the start of fiscal 2018. 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 made
in the first half of 2018.
5.4.4 Impairment of trade accounts receivable
Impairment of trade accounts receivable was $27.7 million in fiscal 2019 (2018 - $3.6 million, 2017 - $3.7 million) relating
primarily to the aggregate impact of approximately $24 million from the receivership and liquidation of one of the Company's
U.S. distributor customers and the bankruptcy of a retail customer.
5.4.5 Restructuring and acquisition-related costs
(in $ millions)
Employee termination and benefit costs
Exit, relocation and other costs
2019
17.1
17.2
2018
7.8
13.6
2017
4.0
13.8
Net loss on disposal and write-downs of property,
plant and equipment, right-of-use assets, and
0.9
software related to exit activities
4.2
Acquisition-related transaction costs
22.9
Restructuring and acquisition-related costs
Certain minor rounding variances exist between the consolidated financial statements and this summary.
13.1
—
47.4
12.4
0.4
34.2
Variation
2019-2018
Variation
2018-2017
9.3
3.6
0.7
(0.4)
13.2
3.8
(0.2)
11.5
(3.8)
11.3
Restructuring and acquisition-related costs are comprised of costs directly related to significant exit activities, including 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 2019 REPORT TO SHAREHOLDERS P. 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
Restructuring and acquisition-related costs in fiscal 2019 related to the following: $14.2 million for the closure of textile
manufacturing and sewing operations in Mexico; $7.3 million for the consolidation of sewing activities in Honduras; $7.0
million for the closure of a hosiery manufacturing plant in Canada; $9.9 million for the exit of yarn-recycling activities (planned
disposal of yarn recycling equipment) and the closure of a yarn-spinning plant in the U.S.; $4.8 million for the exit of ship-to-
the-piece activities; and $4.1 million to complete restructuring activities that were initiated in fiscal 2018, including the closure
of the AKH textile manufacturing facility and the consolidation of U.S. distribution centres.
Restructuring and acquisition-related costs for fiscal 2019 were in line with the Company's most recent guidance of after-tax
restructuring and acquisition-related costs of approximately $45 million.
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 from the acquisition of Gold Toe; $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.
5.4.6 Operating income and adjusted operating income
(in $ millions, or otherwise indicated)
2019
2018
2017
Variation
2019-2018
Variation
2018-2017
Operating income
Adjustment for:
Restructuring and acquisition-related costs
Impact of strategic product line initiative
Adjusted operating income(1)
289.0
403.2
401.0
(114.2)
47.3
55.0
391.3
34.2
—
437.4
22.9
—
423.9
13.1
55.0
(46.1)
2.2
11.3
—
13.5
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.
10.2%
13.8%
13.9%
15.0%
14.6%
15.4%
(3.7) pp
(1.2) pp
(0.7) pp
(0.4) pp
Fiscal 2019 compared to fiscal 2018
The $114.2 million decrease in operating income for fiscal 2019 was primarily due to the impact of lower net sales, lower
gross margins, the $24 million increase in impairment of trade accounts receivable, as well as higher restructuring and
acquisition-related costs associated with the Company's manufacturing and warehouse consolidation initiatives, offset in part
by lower SG&A expenses. The $46.1 million decrease in adjusted operating income was due to the same factors excluding
restructuring and acquisition-related costs. The decline in operating margins and adjusted operating margin in fiscal 2019
was mainly due to lower gross margin and adjusted gross margin, as well as the higher trade receivable impairment charges
in fiscal 2019.
Fiscal 2018 compared to fiscal 2017
The increase in operating income in fiscal 2018 compared to fiscal 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. The slight decline in operating margins was
due to the gross margin decline which more than offset the benefit of lower SG&A expenses as a percentage of sales.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 14
MANAGEMENT'S DISCUSSION AND ANALYSIS
5.4.7 Financial expenses, net
(in $ millions)
Interest expense on financial liabilities recorded at
2019
2018
2017
Variation
2019-2018
Variation
2018-2017
amortized cost
17.1
8.0
Bank and other financial charges
—
Interest accretion on lease obligation
0.3
Interest accretion on discounted provisions
(1.3)
Foreign exchange gain
24.1
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
28.7
8.0
3.1
0.3
(0.9)
39.2
3.9
0.5
3.1
—
0.6
8.1
7.7
(0.5)
—
—
(0.2)
7.0
Fiscal 2019 compared to fiscal 2018
The increase in net financial expenses in fiscal 2019 compared to fiscal 2018 was mainly due to higher interest expense as
a result of a slightly higher effective interest rates on our long-term debt bearing interest at variable rates, higher average
borrowing levels, and the impact of interest accretion on discounted lease obligations recorded as a result of the initial
adoption of IFRS 16, Leases as described in note 2(c) to the audited consolidated financial statements as at and for the year
ended December 29, 2019. Foreign exchange gains for fiscal 2019 and fiscal 2018 relate primarily to the revaluation of net
monetary assets denominated in foreign currencies.
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.
5.4.8 Income taxes
The Company’s average effective tax rate is calculated as follows:
(in $ millions, or otherwise indicated)
Earnings before income taxes
Income tax (recovery) expense
Average effective income tax rate
2019
249.8
(10.0)
n.m.
2018
372.1
21.4
5.8%
2017
376.8
14.5
3.8%
Variation
2019-2018
Variation
2018-2017
(122.3)
(31.4)
n.m
(4.7)
6.9
2.0 pp
n.m. = not meaningful
Certain minor rounding variances exist between the consolidated financial statements and this summary.
Fiscal 2019 compared to fiscal 2018
The income tax recovery of $10.0 million in fiscal 2019 compared to an income tax expense of $21.4 million in fiscal 2018
was mainly due to deferred tax adjustments in both years as well as recoveries related to restructuring and acquisition-related
costs. In fiscal 2019, the Company reassessed the recoverability of its deferred income tax assets in the U.S., resulting in a
recovery of $19.2 million from the re-recognition of previously de-recognized deferred income tax assets that we expect to
recover. The fiscal 2018 income tax expense included a $6.1 million deferred tax expense for a portion of the same deferred
tax assets that were no longer probable of being realized at that time, and $2.0 million for the revaluation of deferred income
tax assets and liabilities due to changes in statutory income tax rates primarily to reflect the impact of the changes in the
U.S. statutory federal corporate income tax rate that took effect at the beginning of 2018. Tax recoveries related to restructuring
and acquisition-related costs and the charges for the strategic product line initiative were $3.3 million in fiscal 2019, compared
to tax recoveries of $0.1 million in fiscal 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 and the charges for the
strategic product line initiative, the average effective income tax rate for fiscal 2019 was 3.5% as compared to 3.3% in fiscal
2018, and slightly lower than the anticipated full year tax rate of approximately 4%.
Fiscal 2018 compared to fiscal 2017
The higher income tax expense and average effective tax rate in fiscal 2018 compared to fiscal 2017 was mainly due to an
increase in deferred income tax expense adjustments relating to the Company’s internal organizational realignment and the
impact of income tax rate changes. In fiscal 2018, pursuant to additional phases to the internal organizational realignment,
GILDAN 2019 REPORT TO SHAREHOLDERS P. 15
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 impact of the changes in the U.S. statutory federal corporate income
tax rate 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 subsection
5.4.5 of this MD&A, the average effective income tax rate for both years was approximately 3.3%.
5.4.9 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
Impact of strategic product line initiative(1)
Income tax (recovery) expense relating to the
above-noted adjustments
Income tax (recovery) expense related to the
revaluation of deferred income tax assets and
liabilities(2)
2019
259.8
47.3
55.0
(3.3)
2018
350.8
34.2
—
—
2017
362.3
22.9
—
3.3
Variation
2019-2018
Variation
2018-2017
(91.0)
(11.5)
13.1
55.0
11.3
—
(3.3)
(3.3)
(19.2)
8.1
(1.6)
(27.3)
9.7
6.2
386.9
393.1
339.6
(53.5)
1.27
1.27
1.66
1.66
1.66
1.86
Adjusted net earnings(3)
Basic EPS
Diluted EPS
Adjusted diluted EPS(3)
(1) Includes $47.6 million of inventory write-downs included in cost of sales and the $7.4 million gross profit impact of a sales return
allowance for anticipated product returns related to discontinued SKUs (which reduced net sales by $19.0 million and cost of sales by $11.6
million).
(2) For fiscal 2019, the amount includes an income tax recovery of $19.2 million pursuant to the recognition of previously de-recognized (in
fiscal 2018 and fiscal 2017 pursuant to the organizational realignment plan) deferred income tax assets as a result of a re-assessment of
the probability of realization of such deferred income tax assets. For fiscal 2018, the amount includes an increase to deferred income tax
expense of $6.1 million pursuant to the Company's organizational realignment plan in which it reassessed the recoverability of its deferred
income tax assets in the respective jurisdictions affected, and an increase to deferred income tax expense of $2.0 million related to the
impact of statutory income tax rate changes 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 fiscal 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.
(0.39)
(0.39)
(0.20)
1.62
1.61
1.72
0.04
0.05
0.14
Fiscal 2019 compared to fiscal 2018
The decline in net earnings and diluted EPS for 2019 was due to the lower operating income and higher financial expenses,
partly offset by lower income taxes resulting from the tax recoveries described in subsection 5.4.8 entitled "Income taxes"
in this MD&A. Adjusted net earnings for 2019 were $339.6 million or $1.66 per diluted share, within the Company’s adjusted
diluted EPS guidance range of $1.65 to $1.70, and down 13.6% and 10.8%, respectively, compared to 2018 due to the
decrease in adjusted operating income and higher financial expenses. The declines in diluted EPS and adjusted diluted EPS
were partially offset by the benefit of a lower year-over-year share count from Company repurchases of shares under its
share repurchase program. Adjusted EBITDA for the year totaled $548.1 million and was within the Company’s most recent
guidance range of $545 to $555 million.
Fiscal 2018 compared to fiscal 2017
Net earnings for 2018 were slightly down compared to fiscal 2017 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 fiscal 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 fiscal 2018
were up over fiscal 2017, including the benefit of a lower share count.
GILDAN 2019 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 29,
2019
Sep 29,
2019
Jun 30,
2019
Mar 31,
2019
Dec 30,
2018
Sep 30,
2018
Jul 1,
2018
Apr 1,
2018
Net sales
Net earnings
Net earnings per share
Basic(1)
Diluted(1)
Weighted average number of shares
outstanding (in ‘000s)
Basic
Diluted
658.7
32.5
739.7
104.9
801.6
99.7
623.9
22.7
742.7
59.6
754.4
114.3
764.2
109.0
647.3
67.9
0.16
0.16
0.51
0.51
0.49
0.49
0.11
0.11
0.29
0.29
0.55
0.55
0.51
0.51
0.31
0.31
201,407
203,684
204,960
206,595
206,796
207,926
212,477
218,541
201,593
204,263
205,520
207,057
207,122
208,161
212,722
218,850
(1) 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. There have not been any significant business acquisitions
during the last eight quarters. 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. Subsection 5.4.5 entitled
“Restructuring and acquisition-related costs” in this MD&A contains a discussion of costs related to the Company’s
restructuring actions and business acquisitions. The effect of asset write-downs, including allowances for expected credit
losses, provisions for discontinued inventories, and impairments of long-lived assets can also affect the variability of our
results. Subsection 5.3.1 entitled "Recent developments" in this MD&A describes the Company's strategic initiative to
significantly reduce its imprintable product line SKU count which resulted in $55 million of charges that affected net earnings
in the fourth quarter of fiscal 2019. Subsection 5.4.4 entitled "Impairment of trade accounts receivable" in this MD&A contains
a discussion of allowances for expected credit losses, including a $24 million increase in the impairment of trade accounts
receivable that was recorded in the first quarter of fiscal 2019.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
Our reported amounts for net sales, cost of sales, SG&A expenses, and financial expenses/income are impacted by
fluctuations in certain foreign 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.
5.6 Fourth quarter operating results
For the three months ended
(in $ millions, except per share amounts or otherwise indicated)
December 29,
2019
December 30,
2018
Variation $ Variation %
Net sales
Gross profit
Adjusted gross profit(1)
SG&A expenses
Impairment of trade accounts receivable
Restructuring and acquisition-related costs
Operating income
Adjusted operating income(1)
Adjusted EBITDA(1)
Financial expenses
Income tax (recovery) expense
Net earnings
Adjusted net earnings(1)
Basic EPS
Diluted EPS
Adjusted diluted EPS(1)
Gross margin
Adjusted gross margin(1)
SG&A expenses as a percentage of sales
Operating margin
Adjusted operating margin(1)
n.m. = not meaningful
n/a - not applicable
658.7
118.2
173.2
76.5
1.4
16.0
24.3
95.3
128.2
9.5
(17.8)
32.5
83.4
0.16
0.16
0.41
17.9%
25.6%
11.6%
3.7%
14.1%
742.7
195.4
195.4
91.9
3.6
21.7
78.2
99.9
138.0
8.7
10.0
59.6
88.9
0.29
0.29
0.43
26.3%
26.3%
12.4%
10.5%
13.5%
(84.0)
(77.2)
(22.2)
(15.4)
(2.2)
(5.7)
(53.9)
(4.6)
(9.8)
0.8
(27.8)
(27.1)
(5.5)
(0.13)
(0.13)
(0.02)
n/a
n/a
n/a
n/a
n/a
(11.3)%
(39.5)%
(11.4)%
(16.8)%
(61.1)%
(26.3)%
(68.9)%
(4.6)%
(7.1)%
9.2 %
n.m.
(45.5)%
(6.2)%
(44.8)%
(44.8)%
(4.7)%
(8.4) pp
(0.7) pp
(0.8) pp
(6.8) pp
0.6 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 29, 2019 of $658.7 million were down 11.3% compared to the fourth quarter
of 2018 due primarily to a 15.1% decline in activewear sales, slightly offset by a 1.0% sales increase in the hosiery and
underwear category. The decline in overall net sales in the quarter was mainly the result of lower unit sales volumes and the
negative impact of the sales return allowance of $19 million recorded in the fourth quarter. Before accounting for the sales
return allowance, total net sales in the fourth quarter were essentially in line with our expectations as the positive benefit on
sales from lower than anticipated levels of U.S. distributor inventory de-stocking of imprintables was offset by the negative
impact of weaker than expected market demand in retail, particularly in hosiery.
In activewear, we generated sales of $483.5 million in the fourth quarter, down $85.8 million compared to the same quarter
in the prior year, due primarily to lower unit sales volumes stemming from the combined impact of lower POS from distributors
to screenprinters and distributor inventory de-stocking, as well as the impact of the sales return allowance. The sales volume
decline was mainly due to lower imprintable volumes in North America, partly offset by higher activewear sales in retail and
modest growth in international shipments of imprintable activewear. Sales in the hosiery and underwear category for the
fourth quarter totaled $175.1 million, up $1.7 million over the fourth quarter in 2018, as strong double-digit sales volume
growth of underwear, which also drove more favourable product-mix, was largely offset by lower socks sales. While industry
demand for men’s underwear was down in the quarter, as reported by NPD Retail Tracking service, our underwear sales
were strong. The large increase in underwear sales was due to our new private label men’s underwear program with our
largest mass retail customer, which rolled out earlier this year and gained additional shelf space during the fourth quarter as
GILDAN 2019 REPORT TO SHAREHOLDERS P. 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
the program offering was expanded. The decline in sock sales during the quarter reflected overall weaker industry demand
and stemmed mainly from declines in mass and other channels, including the exit of a sock program in the dollar channel.
Our reported gross margin in the fourth quarter was 17.9% compared to gross margin of 26.3% in the fourth quarter last
year. Excluding the $55 million charge related to our Back to Basics strategy, adjusted gross margin was 25.6% compared
to 26.3% last year, down 70 basis points. The decline was largely due to higher royalty expense in the quarter related to
licensed brand sock sales, which impacted adjusted gross margin by approximately 50 basis points, as well as higher
manufacturing input costs. The negative impact of these factors more than offset the benefit of cost savings from the Company’s
manufacturing optimization initiatives and favourable product-mix from higher-margin underwear sales.
SG&A expenses for the fourth quarter of 2019 of $76.5 million were down 16.8% compared to $91.9 million in the fourth
quarter of 2018. As a percentage of sales, SG&A expenses were 11.6%, down 80 basis points from 12.4% in the fourth
quarter last year. The improvement was mainly attributable to lower compensation expenses and cost benefits from the
Company's ongoing focus on SG&A rationalization.
Operating income for the fourth quarter of 2019 totaled $24.3 million, or 3.7% of sales, down from $78.2 million, or 10.5%
of sales, in the fourth quarter of 2018. After excluding restructuring and acquisition-related costs and the $55 million charge
related to our strategic product line initiative, adjusted operating income for the quarter amounted to $95.3 million, down from
$99.9 million in the fourth quarter last year. Adjusted operating income was 14.1% of sales, compared to adjusted operating
margin of 13.5% last year. The 60 basis-point improvement was mainly driven by the decline in SG&A expenses, partly offset
by lower adjusted gross margin.
We incurred $16.0 million of restructuring and acquisition-related costs in the fourth quarter and $47.3 million for the full year
of 2019. These costs primarily related to previously announced manufacturing optimization initiatives, in connection with the
consolidation of textile, hosiery, sewing and yarn operations, including estimated costs related to the decision we made at
the end of October 2019 to relocate our Mexican operations to Central America and the Caribbean Basin, as well as other
consolidation initiatives related to sales and marketing activities.
We reported an income tax recovery for the quarter of $17.8 million compared to an income tax expense of $10.0 million in
the fourth quarter of 2018. The $27.8 million reduction in income tax expense compared to last year was mainly due to
deferred tax adjustments in both periods. Specifically, we recognized a deferred income tax recovery of $19.2 million in the
fourth quarter of 2019 related to the recognition of previously de-recognized deferred income tax assets, while the tax expense
for the fourth quarter of 2018 included a deferred income tax charge of $7.1 million relating to the de-recognition of a portion
of the same deferred tax assets.
Net earnings totaled $32.5 million or $0.16 per share on a diluted basis for the three months ended December 29, 2019,
compared with net earnings of $59.6 million, or $0.29 per share on a diluted basis, for the three months ended December 30,
2018. Adjusted net earnings totaled $83.4 million, or $0.41 per share on a diluted basis, in the quarter, down from adjusted
net earnings of $88.9 million, or $0.43 per share on a diluted basis, in the fourth quarter last year. The decline in net earnings
and diluted EPS was mainly due to lower sales, and a lower operating margin including the impact of the product line initiative
charge, partly offset lower income taxes. The 4.7% decline in adjusted diluted EPS was mainly due to lower sales in the
quarter and the decrease in adjusted gross margin, partly offset by lower SG&A expenses.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
6.0 FINANCIAL CONDITION
6.1 Current assets and current liabilities
(in $ millions)
December 29,
2019
December 30,
2018
Variation
Cash and cash equivalents
Trade accounts receivable
Income taxes receivable
Inventories
Prepaid expenses, deposits and other current assets
Accounts payable and accrued liabilities
Current portion of lease obligations
Income taxes payable
Total working capital
Certain minor rounding variances exist between the consolidated financial statements and this summary.
64.1
320.9
—
1,052.1
77.1
(406.6)
(14.5)
(1.3)
1,091.8
46.7
317.2
1.7
940.0
77.4
(347.0)
—
—
1,036.0
17.4
3.7
(1.7)
112.1
(0.3)
(59.6)
(14.5)
(1.3)
55.8
•
•
•
•
The slight increase in trade accounts receivable (which are net of accrued sales discounts and other allowances) was
due to the impact of higher days sales outstanding (DSO), which was mainly due to longer payment terms, partially
offset by the impact of lower sales in the fourth quarter of fiscal 2019 compared to the fourth quarter of fiscal 2018, and
higher accrued sales allowances. The higher DSO is net of the impact of a $24 million increase in the amount of trade
accounts receivables sold to a financial institution under a receivables purchase agreement as disclosed in note 6 of
the audited consolidated financial statements for the year ended December 29, 2019.
The increase in inventories was mainly due to an increase in unit volumes, partially offset by the write-down of inventory
resulting from the Company’s decision in the fourth quarter of fiscal 2019 to move forward with the strategic product line
initiative described under subsection 5.3.1 "Recent developments" in this MD&A. The increase in inventory unit volumes
resulted from a decision to increase activewear inventory levels to more optimal levels, as well as the impact of lower
than expected sales in the second half of fiscal 2019.
The increase in accounts payable and accrued liabilities was mainly due to higher days payable outstanding, including
the benefit of the new supply-chain financing program partially implemented at the end of the fourth quarter of fiscal
2018, and higher payables related to capital expenditures, including an $8 million holdback for the purchase of land in
Bangladesh, partially offset by lower accruals for variable compensation.
The current portion of lease obligations results from the initial adoption of IFRS 16, Leases as described in note 2(c) to
the audited consolidated financial statements for the fiscal year ended December 29, 2019.
• Working capital was $1,091.8 million as at December 29, 2019, compared to $1,036.0 million as at December 30, 2018.
The current ratio at the end of fiscal 2019 was 3.6, compared to 4.0 at the end of fiscal 2018.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 20
MANAGEMENT'S DISCUSSION AND ANALYSIS
6.2 Property, plant and equipment, right-of-use assets, intangible assets, and goodwill
(in $ millions)
Property, plant
and equipment
Right-of-use
assets
Intangible
assets
Goodwill
Balance, December 30, 2018
Initial adoption of IFRS 16
Net capital additions
Depreciation and amortization
Disposals
Write-downs and impairments
Balance, December 29, 2019
Certain minor rounding variances exist between the consolidated financial statements and this summary.
990.5
—
142.9
(117.9)
(10.9)
(9.6)
995.0
—
78.1
10.3
(13.3)
(1.6)
—
73.5
393.6
—
14.2
(22.5)
(0.1)
(1.3)
383.9
227.4
—
0.5
—
—
—
227.9
•
Additions to property, plant and equipment were primarily for the acquisition of land in Bangladesh, the acquisition of a
yarn-spinning facility and equipment in North Carolina, and expenditures related to manufacturing capacity expansion
initiatives. Disposals and write-downs and impairments related to the closure of facilities as described in subsection
5.4.5 entitled "Restructuring and acquisition-related costs" in this MD&A.
• Right-of-use assets reflect the initial adoption of IFRS 16, Leases as described in note 2(c) to the audited consolidated
financial statements for the fiscal year ended December 29, 2019.
•
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 $22.5 million, partially
offset by additions of $14.2 million primarily for computer software.
6.3 Other non-current assets and non-current liabilities
(in $ millions)
Deferred income tax assets
Other non-current assets
December 29,
2019
December 30,
2018
Variation
9.9
6.7
—
10.3
(669.0)
—
(12.6)
(39.9)
9.9
(3.6)
(176.0)
(67.0)
12.6
(2.3)
Long-term debt
Lease obligations
Deferred income tax liabilities
Other non-current liabilities
Certain minor rounding variances exist between the consolidated financial statements and this summary.
(845.0)
(67.0)
—
(42.2)
•
•
•
See section 8.0 entitled “Liquidity and capital resources” in this MD&A for the discussion on long-term debt.
The combined increase in deferred tax assets and decrease in deferred income tax liabilities mainly results from the
recognition of $19.2 million of previously de-recognized deferred income tax assets in fiscal 2019, as described in
subsection 5.4.8 entitled "Income taxes" in this MD&A.
Lease obligations result from the initial adoption of IFRS 16, Leases as described in note 2(c) to the audited consolidated
financial statements for the fiscal year ended December 29, 2019.
• Other non-current liabilities include provisions and employee benefit obligations. The decrease results mainly from a
reduction in provisions for onerous leases as part of the initial adoption of IFRS 16, partially offset by statutory severance
benefits earned by employees primarily located in the Caribbean Basin and Central America during fiscal 2019.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 21
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
2019
259.8
175.5
(74.3)
361.0
2018
350.8
202.3
(14.5)
538.6
Variation
(91.0)
(26.8)
(59.8)
(177.6)
(1) Includes $156.8 million (2018 - $158.1 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 $177.6 million was mainly due to lower net earnings and a higher
increase in non-cash working capital in fiscal 2019 compared to the prior year as explained below.
• Non-cash working capital increased by $74.3 million during fiscal 2019, compared to an increase of $14.5 million during
fiscal 2018, mainly due to an increase in inventory during fiscal 2019 compared to a slight decrease in fiscal 2018, as
well as lower increases in accounts payable and accrued liabilities, partially offset by lower increases in trade accounts
receivable in fiscal 2019 compared to fiscal 2018. The reduction in non-cash working capital includes the benefits of
various arrangements with customers, suppliers, and financial institutions that the Company has entered into including
the receivables purchase agreement, supply-chain financing arrangements (reverse factoring), and other early payment
arrangements. As a result of the adoption of IFRS 16, Leases, beginning in fiscal 2019, payments of lease obligations
of $13.5 million, which were previously classified as operating activities in the consolidated statement of cash flows, are
now classified as financing activities.
7.2 Cash flows from (used in) investing activities
(in $ millions)
2019
2018
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.
(128.7)
(11.6)
(1.3)
5.8
(135.8)
(107.7)
(17.6)
(1.3)
15.6
(111.0)
(21.0)
6.0
—
(9.8)
(24.8)
• Cash used in investing activities during fiscal 2019 was higher compared to fiscal 2018 mainly due to higher capital
spending in fiscal 2019, including the purchase of land in Bangladesh.
• Capital expenditures during fiscal 2019 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 2019 REPORT TO SHAREHOLDERS P. 22
7.3 Free cash flow
(in $ millions)
2019
2018
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.
361.0
(135.8)
1.3
226.5
538.5
(110.9)
1.3
428.9
(177.5)
(24.9)
—
(202.4)
Certain minor rounding variances exist between the consolidated financial statements and this summary.
•
For fiscal 2019, the year-over-year decrease in free cash flow of $202.4 million was mainly due to the decrease in
operating cash flows and increased capital spending, as noted above.
•
Free cash flow for fiscal 2019 was in line with the Company's most recent guidance range of $200 to $250 million.
7.4 Cash flows from (used in) financing activities
(in $ millions)
2019
2018
Variation
Increase in amounts drawn under revolving
long-term bank credit facilities
Payment of lease obligations
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
176.0
(13.5)
(110.3)
10.3
(257.2)
(7.0)
(6.0)
(207.7)
39.0
—
(94.6)
3.2
(367.5)
(7.2)
(6.1)
(433.2)
137.0
(13.5)
(15.7)
7.1
110.3
0.2
0.1
225.5
Certain minor rounding variances exist between the consolidated financial statements and this summary.
• Cash flows used in financing activities during fiscal 2019 and 2018 mainly 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, less
cash inflows from funds drawn on our long-term bank credit facilities. As a result of the adoption of IFRS 16, Leases,
beginning in fiscal 2019, payments of lease obligations are classified as financing activities in the consolidated statement
of cash flows. Payments of lease obligations were previously classified as operating activities in the consolidated
statement of cash flows.
•
The Company paid $110.3 million of dividends during fiscal 2019 compared to $94.6 million of dividends during fiscal
2018. 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 20, 2019, partially offset by the impact of lower common shares outstanding as a result
of the repurchase and cancellation of common shares executed since fiscal 2018 under NCIB programs.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 23
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 fiscal year end net debt leverage target ratio of
one to two times pro-forma adjusted EBITDA, 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 29, 2019 is described below.
(in $ millions, or otherwise indicated)
Revolving long-term bank credit facility, interest at variable U.S. LIBOR-
based interest rate plus a spread ranging from 1% to 2% (2)
Term loan, interest at variable U.S. LIBOR-based interest rate plus a
spread ranging from 1% to 2%, payable monthly (3)
Effective
interest
rate (1)
3.5%
2.9%
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%
Principal amount
December 29,
2019
December 30,
2018
Maturity
date
245
300
100
50
100
50
845
69
300
April
2024
April
2024
100 August
2023
50 August
2023
100 August
2026
50 August
2026
669
(1) Represents the effective interest rate for the year ended December 29, 2019, 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 $22.5 million (December 30, 2018 -
$13.4 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 2019, the Company amended its unsecured revolving long-term bank credit facility of $1 billion and its unsecured
term loan of $300 million, to extend the maturity dates from April 2023 to April 2024.
Under the terms of the revolving facility, term loan facility, and notes, the Company is required to comply with certain covenants,
including maintenance of financial ratios. The Company was in compliance with all covenants at December 29, 2019.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 24
(in $ millions)
Long-term debt and bank total indebtedness
Lease obligations
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS
December 29,
2019
December 30,
2018
845.0
81.5
926.5
(64.1)
862.4
669.0
—
669.0
(46.7)
622.3
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 29, 2019 was 1.6 times (December 30, 2018 - 1.0 times), which was within the range of its previously communicated
target net debt leverage ratio range 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 29,
2019
December 30,
2018
548.1
595.5
—
548.1
862.4
1.6
—
595.5
622.3
1.0
For fiscal 2020, the Company is projecting capital expenditures of approximately $125 million, primarily for investments in
manufacturing capacity expansion.
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, 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 13, 2020, there were 198,783,090 common shares issued and outstanding along with 2,219,128
stock options and 114,127 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.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
8.4 Declaration of dividend
The Company paid dividends of $110.3 million during the year ended December 29, 2019. On February 19, 2020, the Board
of Directors approved a 15% increase in the amount of the quarterly dividend and declared a cash dividend of $0.154 per
share for an expected aggregate payment of $30.7 million which will be paid on April 6, 2020 on all of the issued and
outstanding common shares of the Company, rateably and proportionately to the holders of record on March 12, 2020. 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 (NCIB)
On February 21, 2018, the Board of Directors of the Company approved the initiation of an 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 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 previous 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.
On February 20, 2019, 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.
During the year ended December 29, 2019, the Company repurchased for cancellation a total of 8,217,715 common shares
under its NCIB program for a total cost of $257.2 million. Of the total cost of $257.2 million, $6.7 million was charged to share
capital and $250.5 million was charged to retained earnings. For the period beginning December 30, 2019 and ended
February 13, 2020, the Company repurchased 242,500 common shares under its NCIB program.
On February 19, 2020, the Company received approval from the TSX to renew its NCIB to purchase for cancellation a
maximum of 9,939,154 common shares, representing approximately 5% of the Company’s issued and outstanding common
shares. The Company is authorized to make purchases under the bid during the period from February 27, 2020 to February
26, 2021 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 may be permitted by securities regulatory authorities, including pre-arranged crosses, exempt offers, private agreements
under an issuer bid exemption order issued by securities regulatory authorities, and block purchases of common shares.
The average daily trading volume (ADTV) of common shares on the TSX for the six-month period ended January 31, 2020
was 598,411. Consequently, and in accordance with the requirements of the TSX, Gildan may purchase up to a maximum
of 149,602 common shares daily through TSX facilities, which represents 25% of the ADTV of common shares on the TSX
for the most recently completed six calendar months.
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 2019 REPORT TO SHAREHOLDERS P. 26
MANAGEMENT'S DISCUSSION AND ANALYSIS
10.0 OUTLOOK
References related to management’s expectations as to our outlook for fiscal 2020 is contained in our earnings results press
release dated February 20, 2020 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 under our
share-based compensation plans. The disclosures under this section, in conjunction with the information in note 14 to the
2019 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 2019 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. The Company's credit risk may also be exacerbated during periods of
weak general economic and financial conditions. 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 29, 2019, trade accounts receivables being serviced under a receivables purchase agreement amounted to $141
million. The receivables purchase agreement, which allows for the sale of a maximum of $175 million of accounts receivables
at any one time, expires on June 22, 2020, subject to annual extensions.
The Company’s credit risk for trade accounts receivables 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 29, 2019, the Company’s ten largest
trade debtors accounted for 68% of trade accounts receivable; the largest of which accounted for 26%. The Company’s main
trade debtors are 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.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 27
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 vary 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
11.2 Liquidity risk
December 29,
2019
December 30,
2018
263.8
20.9
36.2
320.9
270.5
16.9
29.8
317.2
December 29,
2019
December 30,
2018
301.2
7.6
5.3
3.3
10.7
328.1
(7.2)
320.9
257.8
21.0
16.3
14.8
14.8
324.7
(7.5)
317.2
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.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 28
MANAGEMENT'S DISCUSSION AND ANALYSIS
We manage liquidity risk through the management of our capital structure and financial leverage, as outlined in note 24 to
the 2019 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, as
well as minimum royalty payments, which are included in the table of contractual obligations below. The following table sets
forth the maturity of our contractual obligations by period as at December 29, 2019.
(in $ millions)
Carrying Contractual
cash flows
amount
Less than 1
fiscal year
1 to 3
fiscal years fiscal years
4 to 5 More than 5
fiscal years
Accounts payable and accrued liabilities
Long-term debt(1)
Purchase and other obligations
Lease obligations
Total contractual obligations
(1) Excluding interest
406.6
845.0
—
81.5
1,333.1
406.6
845.0
378.8
104.2
1,734.6
406.6
—
267.0
20.0
693.6
—
—
77.9
29.5
107.4
—
695.0
33.8
17.1
745.9
—
150.0
0.1
37.6
187.7
As disclosed in note 23 to our 2019 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 29, 2019, the maximum potential liability
under these guarantees was $72.6 million, of which $9.3 million was for surety bonds and $63.3 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
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 29, 2019, consisting primarily of contracts to sell and
buy Canadian dollars, sell Euros, sell Pounds sterling, sell Australian dollars, and sell Mexican pesos in exchange for U.S.
dollars. The outstanding contracts and other foreign exchange contracts that were settled during fiscal 2019 were designated
as cash flow hedges and qualified for hedge accounting. The underlying risk of the foreign exchange contracts is identical
GILDAN 2019 REPORT TO SHAREHOLDERS P. 29
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 2019 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 29, 2019 arising from financial instruments:
(in U.S. $ millions)
Cash and cash equivalents
Trade accounts receivable
CAD GBP EUR AUD MXN CNY BDT COP
December 29, 2019
JPY
2.3
20.3
1.5
1.6
0.7
7.6
0.9
2.1
6.6
4.6
1.8
11.6
3.5
—
1.4
2.5
0.6
0.5
Prepaid expenses, deposits and other current
assets
Accounts payable and accrued liabilities
—
(13.4)
—
(0.7)
0.4
(5.2)
—
(0.3)
—
(3.2)
0.4
(5.0)
1.4
(1.8)
1.6
(0.1)
—
(0.3)
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)
Impact on earnings before income taxes
Impact on other comprehensive income before
income taxes
CAD GBP EUR AUD MXN CNY BDT COP
For the year ended December 29, 2019
JPY
(0.5)
(0.1)
(0.2)
(0.1)
(0.4)
(0.4)
(0.2)
(0.3)
1.0
2.0
1.8
0.2
0.6
—
—
—
—
—
An assumed 5 percent weakening of the U.S. dollar during the year ended December 29, 2019 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.
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 also 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 2019, the
Company entered into commodity derivative contracts as described in note 14 to the 2019 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
GILDAN 2019 REPORT TO SHAREHOLDERS P. 30
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 2019 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 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 we and our lenders negotiate the substitution of reference rates in our debt
agreements (such as a new widely recognized benchmark rates for newly originated loans) 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 29, 2019, an assumed 0.5
percentage point increase in interest rates during such period would have decreased earnings before income taxes by
$2.4 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.
12.0 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Our significant accounting policies are described in note 3 to our 2019 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.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 31
MANAGEMENT'S DISCUSSION AND ANALYSIS
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.
Inventory valuation
The cost of inventories may no longer be recoverable if inventories are discontinued, damaged, in excess quantities, or if
their selling prices or estimated forecast of product demand decline. Discontinued, damaged, and excess inventories are
carried at the net realizable value, as those inventories are sold below cost in liquidation channels. In determining the net
realizable value of finished goods, the Company considers recent recovery rates and current market conditions in these
channels. The Company regularly reviews inventory quantities on hand, current production plans, and forecasted future
sales, and inventories are written-down to net realizable value when it is determined that they are no longer fully recoverable.
There is estimation uncertainty in relation to the identification of excess inventories and in the expected selling prices used
in establishing the net realizable value. For inventories subject to the strategic product line initiative (refer to note 7 of the
2019 audited annual consolidated financial statements), there is also estimation uncertainty in relation to the quantities that
the Company will be able to sell through its normal (non-liquidation) distribution channels at a selling price above cost. As
at December 29, 2019, a 10% decrease or increase in the expected selling prices used to establish the net realizable value
of inventories subject to the strategic product line initiative would result in either a decrease or an increase in inventories of
approximately $3.5 million, with a corresponding adjustment to cost of sales. 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 write-downs may be required.
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 29, 2019 for additional details on the recoverability of the Company’s cash-generating units.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 32
MANAGEMENT'S DISCUSSION AND ANALYSIS
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.
13.0 ACCOUNTING POLICIES AND NEW ACCOUNTING STANDARDS NOT YET APPLIED
13.1 Accounting policies
The Company’s audited consolidated financial statements for fiscal 2019 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
2018 audited annual consolidated financial statements, except as described below.
Leases
IFRS 16, Leases, specifies how to recognize, measure, present, and disclose leases. The standard provides a single lessee
accounting model, requiring lessees to recognize a right-of-use asset representing its right to use the underlying asset and
a lease liability representing its obligation to make lease payments (lease obligation), 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. Please refer to note 2(c) to the audited consolidated financial statements for the
year ended December 29, 2019 for a detailed description of the impact of adoption of IFRS 16 and note 3(cc) for the Company's
updated lease accounting policy.
Uncertain Income Tax Treatments
IFRIC 23, Uncertainty Over Income Tax Treatments, 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.
The Company adopted IFRIC 23 on December 31, 2018, and its adoption did not have an impact on the Company’s
consolidated financial statements.
Amendments to Hedge Accounting Requirements
On September 26, 2019, the IASB published "Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS
7)" as a first reaction to the potential effects the IBOR reform could have on financial reporting. Interbank offered rates
("IBORs") are interest reference rates, such as LIBOR, EURIBOR and TIBOR, that represent the cost of obtaining unsecured
funding, in a particular combination of currency and maturity, and in a particular interbank term lending market. Recent market
developments have brought into question the long-term viability of those benchmarks. The amendments, which address
issues affecting financial reporting in the period leading up to IBOR reform, are mandatory and apply to all hedging relationships
directly affected by uncertainties related to IBOR reform. The amendments modify specific hedge accounting requirements
so that entities would apply those hedge accounting requirements assuming that the interest rate benchmark on which the
hedged cash flows and cash flows from the hedging instrument are based will not be altered as a result of interest rate
benchmark reform and require specific disclosures about the extent to which the entities' hedging relationships are affected
by the amendments. The amendments are effective for annual periods beginning on or after January 1, 2020, early adoption
is permitted, and must be applied retrospectively. The Company has floating rate debt with a variable rate of interest linked
to LIBOR as a benchmark for establishing the rate, a portion of which is hedged with $250 million of floating-to-fixed interest
rate swaps that are designated as cash flow hedges as described in note 14(b) to the audited consolidated financial statements
for the year ended December 29, 2019. As the amendments allow the Company to continue hedge accounting, the Company
early adopted the amendments effective September 30, 2019 (first day of the fourth quarter of fiscal 2019). The amounts
included in other comprehensive income in relation to floating-to-fixed interest rate swaps that are designated as cash flow
hedges and that are mostly affected by the IBOR reform were not significant.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 33
MANAGEMENT'S DISCUSSION AND ANALYSIS
13.2 New accounting standards and interpretations not yet applied
The following new accounting standards are not effective for the year ended December 29, 2019 and have not been applied
in preparing the audited annual consolidated financial statements.
Amendments to IFRS 3, Business combinations
In October 2018, the IASB issued amendments to IFRS 3, Business combinations. The amendments clarify the definition of
a business, with the objective of assisting entities in determining whether a transaction should be accounted for as a business
combination or as an asset acquisition. The amendments are effective for business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2020 and apply
prospectively. Given the prospective application of the amendment, at this time the Company does not expect any significant
impacts as a result of its adoption.
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, as amended,
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 29, 2019 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 29, 2019.
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 29, 2019, 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
GILDAN 2019 REPORT TO SHAREHOLDERS P. 34
MANAGEMENT'S DISCUSSION AND ANALYSIS
Officer and our Chief Financial Officer concluded that our internal control over financial reporting was effective as of
December 29, 2019.
15.2 Attestation report of independent registered public accounting firm
KPMG LLP, an independent registered public accounting firm, which audited and reported on our consolidated financial
statements, has issued an unqualified report on the effectiveness of our internal control over financial reporting as of
December 29, 2019.
15.3 Changes in internal control over financial reporting
There have been no changes that occurred during the period beginning on September 30, 2019 and ended on December 29,
2019 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 and adversely affect
our financial condition, results of operations, cash flows, or business.
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 which 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.
From a manufacturing perspective, there can be no assurance that we will successfully add new capacity in Bangladesh or
other regions, 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 3.3 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,
GILDAN 2019 REPORT TO SHAREHOLDERS P. 35
MANAGEMENT'S DISCUSSION AND ANALYSIS
all of which could have a negative effect on our sales volumes or 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 2019, our top two customers
accounted for 18.6% and 13.8% (2018 - 19.0% and 10.0%) of total sales respectively, and our top ten customers accounted
for 59.4% (2018 - 56.5%) of total sales. We expect that these customers will continue to represent a significant portion of
our sales in the future.
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 the 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;
a customer experiences operational disruptions due to fires, extreme weather conditions, natural disasters or
pandemics, information system failures or incidents, and other factors;
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.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 36
MANAGEMENT'S DISCUSSION AND ANALYSIS
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. Fluctuations in energy prices are partly influenced by government
policies to address climate change, which could increase our energy costs beyond our current expectations. 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 a 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 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.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 37
MANAGEMENT'S DISCUSSION AND ANALYSIS
We may be negatively impacted by climate, political, social, and economic risks, natural disasters and pandemics
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 and those of our key suppliers are located in geographic regions that are exposed
to the risk of, and have experienced in the past, hurricanes, floods, earthquakes, and pandemics. 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 operations at our facilities or those of our suppliers
and customers, 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, extraordinary weather conditions, or natural disasters, such as hurricanes, tornadoes, floods, extreme heat,
droughts, tsunamis, typhoons, and earthquakes;
pandemics, such as the strain of coronavirus that surfaced in December 2019 in Wuhan, China, and which has
spread to other countries, with reports of confirmed cases in the U.S. and Canada. At this point, the extent to which
the coronavirus may impact our results is uncertain;
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.
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.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 38
MANAGEMENT'S DISCUSSION AND ANALYSIS
We rely on certain international trade (including multilateral and bilateral) 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, as well as 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 Dominican Republic - Central America - United States Free Trade Agreement (CAFTA-DR), the
Caribbean Basin Trade Partnership Act (CBTPA), the Haitian Hemispheric Opportunity through Partnership Encouragement
Act (HOPE), and the North American Free Trade Agreement (NAFTA), which is now expected to be replaced by the United
States-Mexico-Canada Agreement (USMCA) all of 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 or additional tariffs 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 USMCA.
The USMCA is expected to replace NAFTA once it has been ratified by each of the member countries. The USMCA has been
ratified by both Mexico and the U.S., and Canada is expected to do so in 2020. The USMCA brings more closely into alignment
the apparel rules of origin with those of CAFTA-DR. NAFTA will remain in effect until the USMCA is ratified by each member
country.
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
GILDAN 2019 REPORT TO SHAREHOLDERS P. 39
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 (Brexit). On January 24, 2020, the Withdrawal
Agreement covering the withdrawal of the United Kingdom from the European Union was signed by the Prime Minister of
the United Kingdom, the European Commission, and the President of the Council of the European Union. On January 25,
2020, the European Parliament ratified the Withdrawal Agreement which represented the final legal step in the Brexit process
and the United Kingdom left the European Union at 11 PM GMT on January 31, 2020. From this date, the United Kingdom
will enter a transition period lasting until December 31, 2020 during which it will need to comply with European Union rules
and laws, unless otherwise provided in the Withdrawal Agreement. The relationship that the European Union and United
Kingdom will have following the end of the transition period remains subject to negotiation with both sides expected to publish
their negotiating positions early in 2020. Should an agreement not be reached between the two parties by the end of 2020,
there could be a significant adverse impact on our operations. With respect to trade between the United Kingdom and other
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 also negatively impact
the competitiveness of our supply chain in servicing those respective markets.
The People's Republic of China extends duty-free and quota-free trade benefits under the Asia-Pacific Trade Agreement and
under a special preferential tariff program for Least Developed Countries to qualifying apparel articles from Bangladesh,
including certain chief-weight cotton apparel articles. Any changes to this agreement or preference program 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. On January 15, 2020 a non-comprehensive Phase 1 deal was signed between the U.S. and China resulting in,
among other things, the elimination of proposed tariffs on U.S. imports of certain Chinese products (List 4B) and a reduction
in tariffs on certain Chinese products from 15% to 7.5% (List 4A) effective February 15, 2020. If China does not follow through
on its commitments with respect to the Phase 1 deal, the proposed tariff elimination and the tariff reduction could be repealed.
Furthermore, the tariffs on Chinese goods may further increase or additional goods may become subject to tariffs in the
absence of a comprehensive agreement between the U.S. and China which could have a negative impact on our operations.
Overall, changes to trade agreements or trade preference programs that the Company currently relies on for our key country
markets, or 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, suspended, terminated, 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 zone (FTZ) at one of its distribution warehouses 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.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 40
MANAGEMENT'S DISCUSSION AND ANALYSIS
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,
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 reduced 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 included 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 29, 2019, the estimated
income tax liability that would result in the event of a full repatriation of these undistributed profits is approximately $57 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 and 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 waste disposal. Our manufacturing plants generate some quantities of waste, which are recycled,
repurposed, or disposed of by licensed waste management companies, in cases of hazardous waste. Through our Global
Environment & Energy Policy, Restricted Substance 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 an efficient
use of resources, landfill reduction and the prioritization of recycling. 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
GILDAN 2019 REPORT TO SHAREHOLDERS P. 41
MANAGEMENT'S DISCUSSION AND ANALYSIS
of our liability, if any, for 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, not only at achieving compliance with current environmental
standards, but also to proactively improve our sustainable performance. 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 will not require substantial additional environmental operating and 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.
Global climate change could have an adverse impact on our business
Global climate change could exacerbate certain of the threats facing our business, including the frequency and severity of
acute weather-related events referred to in some of the risks in this section of the MD&A. In addition, longer-term chronic
shifts in weather patterns may result in rising sea levels, or declining fresh water availability and quality, which could restrict
the capacity and cost effectiveness of our textile operations and impact the cost and availability of our core raw materials
such as cotton. The imposition of new laws and regulations regarding climate change can also impact our business, including
an increase in environmental compliance costs and the cost of energy and transportation in our operations. We may be
unable to recover higher operating costs resulting from global climate change through higher selling prices. Overall, the short-
term and longer-term impacts of global climate change are uncertain, and could have an adverse effect on our business,
results of operation, or financial condition.
Compliance with product safety regulations
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, 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 and the Registration, Evaluation, Authorisation and Restriction of Chemicals, which places
responsibility on all manufacturers to identify and manage the risks that chemical substances may pose to human health
and to the environment. 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.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 42
MANAGEMENT'S DISCUSSION AND ANALYSIS
We may be negatively impacted by changes in our relationship with our employees or changes to domestic and
foreign employment regulations
We employ approximately 53,000 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, and the Company is party to a number of collective bargaining agreements, primarily relating to its sewing
operations in Nicaragua and Honduras. 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.
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.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 43
MANAGEMENT'S DISCUSSION AND ANALYSIS
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
security incidents, cyber security incidents, disasters or other causes, or in connection with upgrades 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.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 44
MANAGEMENT'S DISCUSSION AND ANALYSIS
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, except for those measures impacted by the initial adoption of IFRS 16, Leases, as discussed below. 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, income taxes related to the re-assessment of the probability of realization of
previously recognized or de-recognized deferred income tax assets, 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
net earnings also excludes the impact of the Company’s decision in the fourth quarter of fiscal 2019 to implement a strategic
initiative to significantly reduce its imprintable product line stock-keeping unit (SKU) count, by exiting all ship to-the-piece
activities and discontinuing overlapping and less productive styles and SKUs between brands. This initiative is aimed at
simplifying the Company's product portfolio and reducing complexity in its manufacturing and warehouse distribution activities.
The impact of this strategic initiative includes inventory write-downs and a sales return allowance for anticipated product
returns related to discontinued SKUs. 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.
(in $ millions, except per share amounts)
Net earnings
Adjustments for:
Restructuring and acquisition-related costs
Impact of strategic product line initiative(1)
Income tax (recovery) expense relating to the above-
noted adjustments
Income tax (recovery) expense related to the
revaluation of deferred income tax assets and
liabilities(2)
Adjusted net earnings
Basic EPS
Diluted EPS
Adjusted diluted EPS
Three months ended
Twelve months ended
December 29,
2019
December 30,
2018
December 29,
2019
December 30,
2018
32.5
16.0
55.0
(0.9)
(19.2)
83.4
0.16
0.16
0.41
59.6
21.7
—
0.5
7.1
88.9
0.29
0.29
0.43
259.8
350.8
47.3
55.0
(3.3)
(19.2)
339.6
1.27
1.27
1.66
34.2
—
—
8.1
393.1
1.66
1.66
1.86
(1) Includes $47.6 million of inventory write-downs included in cost of sales and the $7.4 million gross profit impact of a sales return
allowance for anticipated product returns related to discontinued SKUs (which reduced net sales by $19.0 million and cost of sales by $11.6
million).
(2) For fiscal 2019, the amount includes an income tax recovery of $19.2 million pursuant to the recognition of previously de-recognized (in
fiscal 2018 and fiscal 2017 pursuant to the organizational realignment plan) deferred income tax assets as a result of a re-assessment of
the probability of realization of such deferred income tax assets. For fiscal 2018, the amount includes an increase to deferred income tax
expense of $6.1 million pursuant to the Company's organizational realignment plan in which it reassessed the recoverability of its deferred
income tax assets in the respective jurisdictions affected, and an increase to deferred income tax expense of $2.0 million related to the
impact of statutory income tax rate changes 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 fiscal 2018.
Certain minor rounding variances exist between the consolidated financial statements and this summary.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 45
MANAGEMENT'S DISCUSSION AND ANALYSIS
Adjusted gross profit and adjusted gross margin
Adjusted gross profit is presented for the first time and is calculated as gross profit excluding the impact of the Company’s
decision in the fourth quarter of fiscal 2019 to implement a strategic initiative to significantly reduce its imprintable product
line stock-keeping unit (SKU) count, by exiting all ship to-the-piece activities and discontinuing overlapping and less
productive styles and SKUs between brands. This initiative is aimed at simplifying the Company's product portfolio and
reducing complexity in its manufacturing and warehouse distribution activities. The impact of this strategic initiative includes
inventory write-downs and a sales return allowance for anticipated product returns related to discontinued SKUs. Adjusted
gross margin is calculated as adjusted gross profit divided by net sales excluding the sales return allowance for
anticipated product returns related to discontinued SKUs. The Company uses adjusted gross profit and adjusted gross 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)
Gross profit(1)
Adjustment for:
Impact of strategic product line initiative(2)
Adjusted gross profit(1)
Three months ended
Twelve months ended
December 29,
2019
December 30,
2018
December 29,
2019
December 30,
2018
118.2
55.0
173.2
195.4
—
195.4
704.5
55.0
759.5
806.0
—
806.0
17.9%
25.6%
27.7%
Gross margin
Adjusted gross margin(3)
27.7%
(1) Gross profit and adjusted gross profit for the three and twelve months ended December 29, 2019 were positively impacted by $0.3 million
and $1.2 million, respectively, due to the initial adoption of IFRS 16, Leases as described in note 2(c) to the audited consolidated financial
statements as at and for the fiscal year ended December 29, 2019. Prior year gross profit and adjusted gross profit were not impacted.
(2) Includes $47.6 million of inventory write-downs included in cost of sales and the $7.4 million gross profit impact of a sales return
allowance for anticipated product returns related to discontinued SKUs (which reduced net sales by $19.0 million and cost of sales by $11.6
million).
(3) Calculated as adjusted gross profit divided by net sales excluding the sales return allowance for anticipated product returns related
to discontinued SKUs.
Certain minor rounding variances exist between the consolidated financial statements and this summary.
26.3%
26.3%
24.9%
26.7%
Adjusted operating income and adjusted operating margin
Adjusted operating income is calculated as operating income before restructuring and acquisition-related costs. Adjusted
operating income also excludes the impact of the Company’s decision in the fourth quarter of fiscal 2019 to implement a
strategic initiative to significantly reduce its imprintable product line stock-keeping unit (SKU) count, by exiting all ship to-the-
piece activities and discontinuing overlapping and less productive styles and SKUs between brands. This initiative is aimed
at simplifying the Company's product portfolio and reducing complexity in its manufacturing and warehouse distribution
activities. The impact of this strategic initiative includes inventory write-downs and a sales return allowance for
anticipated product returns related to discontinued SKUs. Adjusted operating margin is calculated as adjusted operating
income divided by net sales excluding the sales return allowance for anticipated product returns related to discontinued
SKUs. 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.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 46
MANAGEMENT'S DISCUSSION AND ANALYSIS
(in $ millions, or otherwise indicated)
Operating income(1)
Adjustment for:
Restructuring and acquisition-related costs
Impact of strategic product line initiative(2)
Adjusted operating income(1)
Operating margin
Adjusted operating margin(3)
Three months ended
Twelve months ended
December 29,
2019
December 30,
2018
December 29,
2019
December 30,
2018
24.3
16.0
55.0
95.3
3.7%
14.1%
78.2
21.7
—
99.9
10.5%
13.5%
289.0
47.3
55.0
391.3
10.2%
13.8%
403.2
34.2
—
437.4
13.9%
15.0%
(1) Operating income and adjusted operating income for the three and twelve months ended December 29, 2019 were positively impacted
by $0.7 million and $3.1 million, respectively, due to the initial adoption of IFRS 16, Leases as described in note 2(c) to the audited consolidated
financial statements as at and for the fiscal year ended December 29, 2019. Prior year operating income and adjusted operating income
were not impacted.
(2) Includes $47.6 million of inventory write-downs included in cost of sales and the $7.4 million gross profit impact of a sales return
allowance for anticipated product returns related to discontinued SKUs (which reduced net sales by $19.0 million and cost of sales by
$11.6 million).
(3) Calculated as adjusted operating income divided by net sales excluding the sales return allowance for anticipated product returns related
to discontinued SKUs.
Certain minor rounding variances exist between the consolidated financial statements and this summary.
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. Adjusted EBITDA also excludes the impact of the
Company’s decision in the fourth quarter of fiscal 2019 to implement a strategic initiative to significantly reduce its imprintable
product line stock-keeping unit (SKU) count, by exiting all ship to-the-piece activities and discontinuing overlapping and less
productive styles and SKUs between brands. This initiative is aimed at simplifying the Company's product portfolio and
reducing complexity in its manufacturing and warehouse distribution activities. The impact of this strategic initiative includes
inventory write-downs and a sales return allowance for anticipated product returns related to discontinued SKUs. 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.
(in $ millions)
Net earnings
Restructuring and acquisition-related costs
Impact of strategic product line initiative(1)
Depreciation and amortization
Financial expenses, net
Income tax (recovery) expense
Adjusted EBITDA(2)
Three months ended
Twelve months ended
December 29,
2019
December 30,
2018
December 29,
2019
December 30,
2018
32.5
16.0
55.0
33.0
9.5
(17.8)
128.2
59.6
21.7
—
38.0
8.7
10.0
138.0
259.8
47.3
55.0
156.8
39.2
(10.0)
548.1
350.8
34.2
—
158.1
31.0
21.4
595.5
(1) Includes $47.6 million of inventory write-downs included in cost of sales and the $7.4 million gross profit impact of a sales return
allowance for anticipated product returns related to discontinued SKUs (which reduced net sales by $19.0 million and cost of sales by $11.6
million).
(2) Adjusted EBITDA for the three and twelve months ended December 29, 2019 was positively impacted by $4.3 million and $16.4 million
(consisting of depreciation of right-of-use assets and interest accretion on discounted lease obligations), respectively, due to the initial
adoption of IFRS 16, Leases as described in note 2(c) to the audited consolidated financial statements as at and for the fiscal year ended
December 29, 2019. Prior year adjusted EBITDA was not impacted.
Certain minor rounding variances exist between the consolidated financial statements and this summary.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 47
MANAGEMENT'S DISCUSSION AND ANALYSIS
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(1)
2019
361.0
(135.8)
1.3
226.5
2018
538.5
(110.9)
1.3
428.9
(1) Free cash flow for the year ended December 29, 2019 increased by $13.5 million, due to the initial adoption of IFRS 16, Leases as
described in note 2(c) to the audited consolidated financial statements as at and for the fiscal year ended December 29, 2019. Prior year
free cash flow was not impacted.
Certain minor rounding variances exist between the consolidated financial statements and this summary.
Total indebtedness and net indebtedness
Total indebtedness is defined as the total bank indebtedness, long-term debt (including any current portion), and lease
obligations (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. The Company has included lease obligations in total indebtedness and net indebtedness beginning
in fiscal 2019, consistent with the adoption of IFRS 16, Leases as described in note 2(c) to the audited consolidated financial
statements as at and for the year ended December 29, 2019. Comparative periods have not been revised and therefore may
not be directly comparable.
(in $ millions)
Long-term debt and total bank indebtedness
Lease obligations
Total indebtedness
Cash and cash equivalents
Net indebtedness
Certain minor rounding variances exist between the consolidated financial statements and this summary.
December 29,
2019
December 30,
2018
845.0
81.5
926.5
(64.1)
862.4
669.0
—
669.0
(46.7)
622.3
GILDAN 2019 REPORT TO SHAREHOLDERS P. 48
MANAGEMENT'S DISCUSSION AND ANALYSIS
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 fiscal year end net debt
leverage target ratio of one to two times pro-forma adjusted EBITDA. The Company uses and believes that certain investors
and analysts use the net debt leverage ratio to measure the financial leverage of the Company.
(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(1)
December 29,
2019
December 30,
2018
548.1
—
548.1
862.4
1.6
595.5
—
595.5
622.3
1.0
(1) The net debt leverage ratio as at December 29, 2019 increased by approximately 0.1 due to the initial adoption of IFRS 16, Leases as
described in note 2(c) to the audited consolidated financial statements as at and for the fiscal year ended December 29, 2019. The prior
year net debt leverage ratio was not impacted.
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 related thereto, to average net assets
for the last five quarters. Net assets are defined as the sum of total assets, excluding cash and cash equivalents, net
deferred income taxes, and the accumulated amortization of intangible assets (excluding software), less total current
liabilities excluding the current portion of lease obligations. 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 net deferred income taxes
Average accumulated amortization of intangible assets, excluding software
Average total current liabilities, excluding the current portion of lease obligations
Average net assets
(in $ millions, or otherwise indicated)
Adjusted net earnings
Financial expenses, net (nil income taxes in both years)
December 29,
2019
December 30,
2018
3,254.1
(59.6)
(2.0)
159.4
(364.0)
2,987.9
2019
339.6
39.2
3,084.0
(48.9)
—
138.6
(299.5)
2,874.2
2018
393.1
31.0
Amortization of intangible assets, excluding software (net of nil income taxes in both
years)
Return
RONA(1)
(1) The RONA as at December 29, 2019 decreased by approximately 0.2% due to the initial adoption of IFRS 16, Leases as described in
note 2(c) to the audited consolidated financial statements as at and for the fiscal year ended December 29, 2019. The prior year RONA was
not impacted.
22.9
447.0
17.3
396.1
15.6%
13.3%
GILDAN 2019 REPORT TO SHAREHOLDERS P. 49
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 29, 2019. Management is also responsible for
the preparation and presentation of other financial information included in the 2019 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 29, 2019. 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 19, 2020
GILDAN 2019 REPORT TO SHAREHOLDERS P. 50
CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
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 29, 2019 and December 30, 2018, the related consolidated statements of earnings and comprehensive
income, changes in equity, and cash flows for the years ended December 29, 2019 and December 30, 2018, 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 29, 2019, and December 30, 2018 and the
financial performance and its cash flows for the years ended December 29, 2019 and December 30, 2018, 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 29, 2019, 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 19, 2020 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2(c) to the consolidated financial statements, the Company has changed its method of accounting for
leases as of December 31, 2018, due to the adoption of IFRS 16, Leases using a modified retrospective transition approach.
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.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial
statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts
or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective,
or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Assessment and allocation of inventories costs
As discussed in Notes 3(e) and 7 to the consolidated financial statements, the inventories balance as of December
29, 2019 was $1,052 million, of which work in process and finished goods represented $899 million. Inventories
are stated at the lower of cost, determined on a first-in first-out basis, and net realizable value. As the Company
manages its day-to-day production costs and inventories using a standard costing system, variances arise between
these standard costs and the actual manufacturing costs. Adjustments are therefore required at period end to
GILDAN 2019 REPORT TO SHAREHOLDERS P. 51
CONSOLIDATED FINANCIAL STATEMENTS
measure inventories at their actual cost. This involves accumulating manufacturing variances at each stage of the
Company’s vertically-integrated manufacturing process and identifying abnormal costs that need to be expensed
immediately. The Company then applies a variance deferral factor, based primarily on the number of days of
inventories on hand, to estimate the variances to be included in ending inventories. The determination of the variance
deferral factor involves estimation. The combination of automated and non-automated systems and processes using
data obtained from different geographical locations results in complexity in accumulation of manufacturing costs
and in the identification of abnormal costs.
We identified the assessment of costs directly related to the conversion of raw materials to finished goods and the
allocation of manufacturing variances to the carrying value of inventories as a critical audit matter. A higher degree
of auditor judgment and audit effort was required in testing the costs included in the carrying value of inventories
and evaluating the variance deferral factor used in allocating the manufacturing variances given the complexity of
the process.
The primary procedures we performed to address this critical audit matter included the following. We tested certain
internal controls over the Company’s inventory costing process, including controls related to: (1) identifying costs,
including abnormal costs, that do not directly relate to the conversion of raw materials to finished goods; and (2)
establishing the variance deferral factor. We tested the eligibility of costs for recognition in inventories by: (1)
assessing the nature of costs included in inventories by inspecting a sample of transactions recorded as
manufacturing costs and tracing them to underlying documentation; (2) analysing the quarterly manufacturing
variances and the trend in the monthly manufacturing costs to identify variations from pre-determined expectations
that may indicate the existence of non-manufacturing or abnormal costs; and (3) assessing changes in production
activity to identify abnormal costs. We assessed the variance deferral factor based on days of inventory on hand,
which included testing a selection of the inputs to the calculation.
Evaluation of net realizable value of finished goods inventories
As discussed in Notes 3(e), 3(dd) and 7 to the consolidated financial statements, the inventories balance as of
December 29, 2019 was $1,052 million of which $824 million relates to finished goods inventories. Inventories are
stated at the lower of cost and net realizable value. Net realizable value is the estimated selling price of finished
goods in normal sales channels, or where applicable, liquidation channels, less estimated costs of completion and
selling expenses. Discontinued, including inventories affected by the strategic product line initiative, damaged, and
excess finished goods inventories are carried at the net realizable value, as those inventories are sold below cost
in liquidation channels. In determining net realizable value of finished goods, the Company considers recent recovery
rates and current market conditions in these channels. There is estimation uncertainty in relation to the identification
of excess finished goods inventories which are based on certain criteria, and in the expected selling prices used in
establishing net realizable values for the excess and discontinued finished goods. For inventories subject to the
strategic product line initiative, there is also estimation uncertainty in relation to the quantities that the Company
will be able to sell through its normal sales channels at a selling price above cost.
We identified the evaluation of net realizable value of finished goods inventories to be a critical audit matter. A higher
degree of auditor judgment was required to evaluate the determination of the (1) excess finished goods inventories,
(2) the expected selling prices used in the establishing net realizable value for excess and discontinued finished
goods, and (3) for inventories subject to the strategic product line initiative, the quantities expected to be sold through
normal sales channels.
The primary procedures we performed to address this critical audit matter included the following. We tested certain
internal controls over the Company’s inventory valuation process, including controls related to the determination of
the (1) excess finished goods inventories, (2) expected selling prices and (3) inventory quantities affected by the
strategic product line initiative expected to be sold through normal sales channels. We evaluated the criteria used
by the Company to identify excess finished goods inventories by assessing the consistent application of the criteria
as compared to prior years and in relation to current market conditions and business plans. We also determined
whether inventory that met these criteria had been identified by the Company as excess. We compared the
Company’s estimate of the expected selling price used in establishing net realizable value for excess and
discontinued finished goods to historical selling prices. We evaluated the Company’s ability to accurately forecast
customer demand and expected selling prices used in the determination of net realizable value of finished goods
inventories by: (1) examining the write-downs of finished goods inventories which were not stated at net realizable
value at the end of the preceding year; and (2) comparing each product’s expected selling price used in the prior
year determination of net realizable value to the current year’s actual average selling price. In addition, for a selection
of finished goods inventory items, we inspected recent sales transactions to assess whether the selling price, net
of selling costs, was greater than the carrying amount of the finished goods sold. For inventories subject to the
GILDAN 2019 REPORT TO SHAREHOLDERS P. 52
CONSOLIDATED FINANCIAL STATEMENTS
strategic product line initiative, we compared the Company’s estimate of quantities expected to be sold through
normal sales channels to historical quantities sold for those inventories.
Assessment of the carrying value of goodwill and indefinite life intangible assets in the Hosiery cash generating unit
(“CGU”)
As discussed in Notes 3(dd) and 10 to the consolidated financial statements, the goodwill and indefinite life intangible
asset balances as of December 29, 2019 were in total $451 million, of which $151 million related to the Hosiery
CGU. The Company performs impairment testing on an annual basis or whenever events or changes in
circumstances indicate that the carrying value of a reporting unit might exceed its recoverable amount, which is
determined using the fair value less costs of disposal method. The Company`s assessment of the recoverable
amount incorporates assumptions including estimated sales volumes, selling prices, input costs and selling, general
and administrative (“SG&A”) expenses in determining forecasted earnings before financial expenses, income taxes,
depreciation and amortization, and restructuring and acquisition-related costs (“adjusted EBITDA”) and the multiple
applied to the forecasted adjusted EBITDA (“adjusted EBITDA multiple”).
We identified the assessment of the carrying value of goodwill and indefinite life intangible assets in the Hosiery
CGU as a critical audit matter. There was a higher degree of auditor judgment required to evaluate the above noted
assumptions used in determining the recoverable amount. The sensitivity of reasonably possible changes to those
assumptions could have a significant impact on the determination of the recoverable amount of the Hosiery CGU
and the Company`s assessment of impairment.
The primary procedures we performed to address this critical audit matter included the following. We tested certain
internal controls over the Company’s impairment assessment process, including controls related to (1) determining
the forecasted adjusted EBITDA and the assumptions underlying its determination; and (2) identifying comparable
peer companies and determining the forecasted adjusted EBITDA multiple. We evaluated the forecasted adjusted
EBITDA for the Hosiery CGU by comparing the Company’s historical adjusted EBITDA forecasts to actual results
and by examining the historical trend analysis of both increases and decreases in actual revenue, gross margin
and SG&A expenses as compared to the forecasted amounts.
We involved valuation professionals with specialized skills and knowledge, who assisted in:
•
•
evaluating the adjusted EBITDA multiple used by the Company by comparing to publicly available EBITDA
multiples for comparable entities; and
assessing the recoverable amount by developing a range of recoverable amounts for the Hosiery CGU
using possible forecasted adjusted EBITDA amounts and adjusted EBITDA multiples, and comparing to the
recoverable amount determined by the Company.
We have served as the Company's auditor since fiscal 1996.
Montreal, Canada
February 19, 2020
*CPA auditor, CA, public accountancy permit No. A120220
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 2019 REPORT TO SHAREHOLDERS P. 53
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED FINANCIAL STATEMENTS
To the Shareholders and Board of Directors
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 29, 2019,
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 29, 2019, 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 29, 2019 and December 30,
2018, the related consolidated statements of earnings and comprehensive income, changes in equity, and cash flows for the
years ended December 29, 2019 and December 30, 2018 and the related notes (collectively, the consolidated financial
statements), and our report dated February 19, 2020 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 29, 2019. 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 2019 REPORT TO SHAREHOLDERS P. 54
CONSOLIDATED FINANCIAL STATEMENTS
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.
Montreal, Canada
February 19, 2020
*CPA auditor, CA, public accountancy permit No. A120220
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 2019 REPORT TO SHAREHOLDERS P. 55
CONSOLIDATED FINANCIAL STATEMENTS
GILDAN ACTIVEWEAR INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands of U.S. dollars)
Current assets:
Cash and cash equivalents (note 5)
Trade accounts receivable (note 6)
Income taxes receivable
Inventories (note 7)
Prepaid expenses, deposits and other current assets
Total current assets
Non-current assets:
Property, plant and equipment (note 8)
Right-of-use assets (note 9(a))
Intangible assets (note 10)
Goodwill (note 10)
Deferred income taxes (note 18)
Other non-current assets
Total non-current assets
Total assets
Current liabilities:
Accounts payable and accrued liabilities
Income taxes payable
Current portion of lease obligations (note 9(b))
Total current liabilities
Non-current liabilities:
Long-term debt (note 11)
Lease obligations (note 9(b))
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 29,
2019
December 30,
2018
$
$
$
64,126
320,931
—
1,052,052
77,064
1,514,173
994,980
73,539
383,864
227,865
9,917
6,732
1,696,897
3,211,070
406,631
1,255
14,518
422,404
845,000
66,982
—
42,190
954,172
$
$
$
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
1,376,576
1,068,524
174,218
32,769
1,628,042
(535)
1,834,494
159,858
32,490
1,740,342
3,382
1,936,072
Total liabilities and equity
$
3,211,070
$
3,004,596
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 2019 REPORT TO SHAREHOLDERS P. 56
GILDAN ACTIVEWEAR INC.
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
Fiscal years ended December 29, 2019 and December 30, 2018
(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))
Impairment of trade accounts receivable (note 6)
Restructuring and acquisition-related costs (note 17)
Operating income
Financial expenses, net (note 14(c))
Earnings before income taxes
Income tax (recovery) 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.
2019
2018
$
2,823,901
2,119,440
$
2,908,565
2,102,612
704,461
340,487
27,652
47,329
288,993
39,168
249,825
(9,984)
259,809
(3,917)
(1,296)
(5,213)
254,596
1.27
1.27
$
$
$
805,953
364,912
3,634
34,228
403,179
31,045
372,134
21,360
350,774
(10,158)
(1,694)
(11,852)
338,922
1.66
1.66
$
$
$
GILDAN 2019 REPORT TO SHAREHOLDERS P. 57
CONSOLIDATED FINANCIAL STATEMENTS
GILDAN ACTIVEWEAR INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Fiscal years ended December 29, 2019 and December 30, 2018
(in thousands or thousands of U.S. dollars)
Balance, December 31, 2017
219,199
$ 159,170
$
25,208
$
13,540
$ 1,853,457
$ 2,051,375
Share capital
Number
Amount
Contributed
surplus
Accumulated
other
comprehensive
income (loss)
Retained
earnings
Total
equity
Adjustments relating to initial adoption of new
accounting standards (note 2(c))
—
—
Adjusted balance, January 1, 2018
219,199
159,170
Balance, December 30, 2018
206,732
$ 159,858
$
32,490
$
3,382
$ 1,740,342
$ 1,936,072
Adjustments relating to initial adoption of new
accounting standards (note 2(c))
—
—
Adjusted balance, December 31, 2018
206,732
159,858
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
Transactions with shareholders of the
Company recognized directly in equity
Cash flow hedges (note 14(d))
Actuarial loss on employee benefit
obligations (note 12(a))
Net earnings
Comprehensive income
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
—
50
443
267
—
25,208
19,351
—
(729)
—
1,722
2,412
5,952
(12,094)
(12,635)
(9,231)
(225)
—
(167)
—
—
—
754
(12,467)
688
7,282
—
(1,515)
(1,515)
13,540
1,851,942
2,049,860
—
—
—
—
—
—
—
—
—
—
—
—
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)
(1,694)
350,774
349,080
350,774
338,922
—
32,490
16,115
—
—
1,651
12,198
(3,374)
7,415
(13,416)
(8,218)
(6,738)
(262)
—
(166)
—
—
—
954
279
—
—
—
—
—
(2,176)
(2,176)
3,382
1,738,166
1,933,896
—
—
—
—
—
—
—
—
—
—
—
—
16,115
1,651
8,824
(6,001)
(250,495)
(257,233)
(6,842)
(7,008)
(111,300)
(110,346)
(368,637)
(353,998)
(3,917)
—
(3,917)
—
—
(3,917)
(1,296)
(1,296)
259,809
258,513
259,809
254,596
Transactions with shareholders of the
Company recognized directly in equity
(7,720)
14,360
Cash flow hedges (note 14(d))
Actuarial loss on employee benefit
obligations (note 12(a))
Net earnings
Comprehensive income
—
—
—
—
—
—
—
—
Balance, December 29, 2019
199,012
$ 174,218
$
32,769
$
(535)
$ 1,628,042
$ 1,834,494
See accompanying notes to consolidated financial statements.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 58
CONSOLIDATED FINANCIAL STATEMENTS
GILDAN ACTIVEWEAR INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal years ended December 29, 2019 and December 30, 2018
(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
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
Payment of lease obligations
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.
$
$
2019
2018
$
259,809
$
350,774
175,548
435,357
(3,515)
2,969
(115,082)
(8,320)
49,621
361,030
(128,676)
(11,558)
(1,300)
5,783
(135,751)
176,000
(13,534)
(110,346)
10,318
(257,233)
(7,008)
(6,001)
(207,804)
(6)
17,469
46,657
64,126
33,149
10,796
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
$
$
GILDAN 2019 REPORT TO SHAREHOLDERS P. 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fiscal years ended December 29, 2019 and December 30, 2018
(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 29, 2019 and
December 30, 2018 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 29, 2019 were authorized for issuance by
the Board of Directors of the Company on February 19, 2020.
(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;
• Discontinued, damaged, and excess finished inventories which are carried at the net realizable value;
• 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.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. BASIS OF PREPARATION (continued):
(c) Initial application of new or amended accounting standards:
During the year ended December 29, 2019, the Company adopted the following new or amended accounting standards:
Leases
IFRS 16, Leases, specifies how to recognize, measure, present, and disclose leases. The standard provides a single
lessee accounting model, requiring lessees to recognize a right-of-use ("ROU") asset representing its right to use the
underlying asset and a liability representing its obligation to make lease payments ("lease obligation"), 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.
Effective December 31, 2018 (date of initial application), the Company adopted IFRS 16 using the modified retrospective
transition approach. Accordingly, comparative figures as at and for the year ended December 30, 2018 have not been
restated and continue to be reported under IAS 17 and IFRIC 4. Please refer to note 3 (cc) for the Company's updated
accounting policy for leases.
The Company has elected to apply the practical expedient to grandfather the assessment of which transactions are leases
on the date of initial application, as previously assessed under IAS 17 and IFRIC 4. The Company applied the definition
of a lease under IFRS 16 to contracts entered into or modified on or after December 31, 2018.
At transition, the Company used the following practical expedients when applying IFRS 16 to leases previously classified
as operating leases under IAS 17: applied a single discount rate to a portfolio of leases with similar characteristics; applied
the exemption not to recognize ROU assets and liabilities for leases with a remaining lease term less than 12 months;
used hindsight when determining the lease term if the contract contained options to extend or terminate the lease; and
relied on previous assessments of whether leases are onerous in accordance with IAS 37 Provisions, Contingent Liabilities
and Contingent Assets immediately before the date of initial application, as an alternative to performing an impairment
review.
When applying the modified retrospective transition approach, for leases previously classified as operating leases under
IAS 17 and IFRIC 4, on initial application, a lessee is permitted to measure the ROU asset, on a lease-by-lease basis,
using one of two methods: (1) as if IFRS 16 had always been applied, using the incremental borrowing rate at the date
of initial application; or (2) at an amount equal to the lease liability (subject to certain adjustments). The Company applied
the first option to certain leases, which resulted in a lower carrying amount of the ROU asset at the date of initial application
as compared to the lease liability, for those leases. For the remainder of the leases, the Company recognized the ROU
assets based on the corresponding lease liability. In addition, $1.9 million of deferred lease credits (relating to lease
inducements) that were recorded in accounts payable and accrued liabilities were derecognized with a corresponding
transition adjustment to retained earnings on transition date, as a result of the adoption of IFRS 16, and $1.2 million of
prepaid rent that was recorded in prepaid expenses, deposits and other current assets on the consolidated statement of
financial position as at December 30, 2018 was transferred to the recognized ROU asset.
As a result of relying on a previous assessment of whether leases are onerous in accordance with IAS 37 Provisions,
Contingent Liabilities and Contingent Assets, immediately before the date of initial application as an alternative to
performing an impairment review, a lessee adjusts the carrying amount of the ROU asset at the date of initial application
by the carrying amount of the provision for onerous leases recognized in the statement of financial position immediately
before the date of initial application. The Company applied this practical expedient at the date of initial application, resulting
in a reduction of the provisions for onerous leases (previously recorded in other non-current liabilities) of $4.6 million and
a corresponding reduction of the carrying amount of the ROU asset for the related leases.
As such, as at December 31, 2018, the Company recorded lease obligations of $87.9 million, ROU assets of $78.1 million,
a net investment in a sublease of $2.4 million (recorded in other assets), and a net reduction of $2.2 million on opening
retained earnings. When measuring lease liabilities, the Company discounted future lease payments using its incremental
borrowing rate as at December 31, 2018. The weighted-average rate applied was 3.89%.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. BASIS OF PREPARATION (continued):
(c) Initial application of new or amended accounting standards (continued):
The following table reconciles the Company’s operating lease commitments as at December 30, 2018, as previously
disclosed in the Company’s annual audited consolidated financial statements, to the lease obligations recognized on
initial application of IFRS 16 on December 31, 2018:
Undiscounted operating lease commitments as at December 30, 2018
$
113,287
Recognition exemption for short term leases
Termination and renewal options reasonably certain to be exercised, net
Other
Impact of discounting using the incremental borrowing rate at December 31, 2018
Lease obligations recognized as at December 31, 2018
$
(6,930)
(1,888)
(460)
(16,129)
87,880
Uncertain Income Tax Treatments
IFRIC 23, Uncertainty Over Income Tax Treatments, 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. The Company adopted IFRIC 23 effective December 31, 2018, and its adoption did not have an
impact on the Company’s consolidated financial statements.
Amendments to Hedge Accounting Requirements
On September 26, 2019, the IASB published "Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and
IFRS 7)" as a first reaction to the potential effects the IBOR reform could have on financial reporting. Interbank offered
rates ("IBORs") are interest reference rates, such as LIBOR, EURIBOR and TIBOR, that represent the cost of obtaining
unsecured funding, in a particular combination of currency and maturity, and in a particular interbank term lending market.
Recent market developments have brought into question the long-term viability of those benchmarks. The amendments,
which address issues affecting financial reporting in the period leading up to IBOR reform, are mandatory and apply to
all hedging relationships directly affected by uncertainties related to IBOR reform. The amendments modify specific hedge
accounting requirements so that entities would apply those hedge accounting requirements assuming that the interest
rate benchmark on which the hedged cash flows and cash flows from the hedging instrument are based will not be altered
as a result of interest rate benchmark reform and require specific disclosures about the extent to which the entities' hedging
relationships are affected by the amendments. The amendments are effective for annual periods beginning on or after
January 1, 2020, early adoption is permitted, and must be applied retrospectively. The Company has floating rate debt
with a variable rate of interest linked to LIBOR as a benchmark for establishing the rate, a portion of which is hedged with
$250 million of floating-to-fixed interest rate swaps that are designated as cash flow hedges as described in note 14(b).
As the amendments allow the Company to continue hedge accounting, the Company early adopted the amendments
effective September 30, 2019 (first day of the fourth quarter of fiscal 2019). The amounts included in other comprehensive
income in relation to floating-to-fixed interest rate swaps that are designated as cash flow hedges and that are mostly
affected by the IBOR reform were not significant.
During the year ended December 30, 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. 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. 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.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. BASIS OF PREPARATION (continued):
(c) Initial application of new or amended accounting standards (continued):
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. IFRS 9 (2014) requires the Company to record an allowance for expected credit losses
("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 applied the standard’s simplified approach and has calculated ECLs based
on lifetime expected credit losses. The Company 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 remained unchanged.
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 and applied as a reduction of restructuring and acquisition-related costs.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SIGNIFICANT ACCOUNTING POLICIES (continued):
(a) Basis of consolidation (continued):
(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.
Gildan Charleston Inc.
Gildan Activewear Dominican Republic Textile Company Inc.
Gildan Honduras Trading, S. de R. L.
Jurisdiction of
incorporation
Ownership
percentage
Barbados
Delaware
Barbados
Honduras
Ontario
United Kingdom
Honduras
Bangladesh
Honduras
North Carolina
Honduras
Honduras
Delaware
Barbados
Honduras
100%
100%
100%
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 29, 2019.
(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.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SIGNIFICANT ACCOUNTING POLICIES (continued):
(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. Expected credit losses are also provided for based on collection history and specific risks identified on
a customer-by-customer basis. Trade accounts receivable are presented net of allowances for expected credit losses,
sales discounts, and sales returns when the Company has a right to offset the amounts.
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, and reflect the various stages of production that inventories have reached at period-end. 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. Additional costs incurred
as a result of operating below the normal capacity of the production facilities are excluded from the carrying value of
inventories and charged directly to cost of sales. Normal capacity is the average production expected to be achieved
during the fiscal year, under normal circumstances. The Company manages its day-to-day production costs and
inventories using a standard inventory costing system whereby the cost of a product is determined using pre-established
rates for materials, labour and production overhead expenses based on the manufacturing specifications of the product.
At period end, the Company assesses whether the variances between the standard costs and the actual costs incurred
relate to the conversion of materials to finished goods, or if they represent abnormal costs that should be charged directly
to cost of sales. The carrying value of inventories is then adjusted to record the manufacturing variances related to
inventories still on hand and manufacturing variances related to inventories that have been sold are charged to cost of
sales, through an allocation method which uses an estimated variance deferral factor based on the number of days of
inventory on hand based on the most recent past production. The Company's inventory costing process involves a
combination of automated and non-automated systems and processes using data obtained from different geographical
locations. Net realizable value is the estimated selling price of finished goods in normal sales channels, or where
applicable, liquidation channels, 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 2019 REPORT TO SHAREHOLDERS P. 65
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, borrowing costs, as well as 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 which 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 20 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 2019 REPORT TO SHAREHOLDERS P. 66
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, trademarks, and non-compete agreements. 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 2019 REPORT TO SHAREHOLDERS P. 67
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 other than derivative financial instruments.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 68
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 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 2019 REPORT TO SHAREHOLDERS P. 69
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 2019 REPORT TO SHAREHOLDERS P. 70
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 primarily 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 can be 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 2019 REPORT TO SHAREHOLDERS P. 71
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 and charged to retained earnings 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 amortization of intangible assets.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SIGNIFICANT ACCOUNTING POLICIES (continued):
(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 significant exit activities, including
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; write-downs
of property, plant and equipment, right-of-use assets, and software related to exit activities; 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 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 a 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.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SIGNIFICANT ACCOUNTING POLICIES (continued):
(z)
Income taxes (continued):
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.
(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.
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.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SIGNIFICANT ACCOUNTING POLICIES (continued):
(cc) Leases:
Policy applicable effective December 31, 2018
At inception of a contract, the Company assesses whether a contract is, or contains, a lease based on whether the
contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
The Company recognizes a right-of-use ("ROU") asset and a lease liability at the lease commencement date. The ROU
asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments
made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle
and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease
incentives received. The ROU asset is subsequently depreciated using the straight-line method from the commencement
date to the earlier of the end of the useful life of the ROU asset or the lease term. The lease term includes consideration
of an option to renew or to terminate if the Company is reasonably certain to exercise that option. Lease terms range
from 1 to 15 years for manufacturing, sales, distribution, and administrative facilities. In addition, the ROU asset is
periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement
date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s
incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rate. Lease
payments mainly include fixed, or in substance fixed, payments and variable lease payments that depend on an index
or a rate. Variable lease payments that do not depend on an index or rate are not included in the measurement of the
lease liability. The lease liability is measured at amortized cost using the effective interest method. It is remeasured when
there is a change in future lease payments arising from a change in an index or rate, or if the Company changes its
assessment of whether it will exercise a purchase, extension, or termination option. When the lease liability is remeasured
in this way, a corresponding adjustment is made to the carrying amount of the ROU asset, or is recorded in profit or loss
if the carrying amount of the ROU asset has been reduced to zero.
The Company has elected to apply the practical expedient not to recognize ROU assets and lease liabilities for short-
term leases that have a lease term of 12 months or less and leases of low-value assets. The lease payments associated
with these leases are recognized as an expense on a straight-line basis over the lease term.
Policy applicable before December 31, 2018
Under IAS 17, Leases, and IFRIC 4, Determining whether an arrangement contains a lease, the Company's accounting
policy was as follows:
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.
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.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SIGNIFICANT ACCOUNTING POLICIES (continued):
(dd) Use of estimates and judgments (continued):
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.
Inventory valuation
The cost of inventories may no longer be recoverable if inventories are discontinued, damaged, in excess quantities, or
if their selling prices or estimated forecast of product demand decline. Discontinued, damaged, and excess inventories
are carried at the net realizable value, as those inventories are sold below cost in liquidation channels. In determining
the net realizable value of finished goods, the Company considers recent recovery rates and current market conditions
in these channels. The Company regularly reviews inventory quantities on hand, current production plans, and forecasted
future sales, and inventories are written-down to net realizable value when it is determined that they are no longer fully
recoverable. There is estimation uncertainty in relation to the identification of excess inventories and in the expected
selling prices used in establishing the net realizable value. For inventories subject to the strategic product line initiative
(refer to note 7), there is also estimation uncertainty in relation to the quantities that the Company will be able to sell
through its normal (non-liquidation) distribution channels at a selling price above cost. As at December 29, 2019, a 10%
decrease or increase in the expected selling prices used to establish the net realizable value of inventories subject to
the strategic product line initiative would result in either a decrease or an increase in inventories of approximately $3.5
million, with a corresponding adjustment to cost of sales. 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 write-downs may be required.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. SIGNIFICANT ACCOUNTING POLICIES (continued):
(dd) Use of estimates and judgments (continued):
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 29, 2019 for additional
details on the recoverability of the Company’s cash-generating units.
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:
Amendments to IFRS 3, Business combinations
In October 2018, the IASB issued amendments to IFRS 3, Business combinations. The amendments clarify the definition of
a business, with the objective of assisting entities in determining whether a transaction should be accounted for as a business
combination or as an asset acquisition. The amendments are effective for business combinations for which the acquisition
date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2020 and apply
prospectively. Given the prospective application of the amendment, at this time the Company does not expect any significant
impacts as a result of its adoption.
5. CASH AND CASH EQUIVALENTS:
Cash and cash equivalents consisted entirely of bank balances as at December 29, 2019 and December 30, 2018.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 77
6. TRADE ACCOUNTS RECEIVABLE:
Trade accounts receivable
Allowance for expected credit losses
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 29,
2019
December 30,
2018
$
$
328,115
(7,184)
320,931
$
$
324,706
(7,547)
317,159
As at December 29, 2019, trade accounts receivables being serviced under a receivables purchase agreement amounted
to $141.0 million (December 30, 2018 - $117.0 million). The receivables purchase agreement, which allows for the sale of a
maximum of $175 million of accounts receivables at any one time, expires on June 22, 2020, subject to annual extensions.
The Company retains servicing responsibilities, including collection, for these trade receivables but has not retained any
credit risk with respect to any trade receivables that have been sold. The difference between the carrying amount of the
receivables sold under the agreement and the cash received at the time of transfer was $3.2 million for fiscal 2019 (2018 -
$2.6 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 initial adoption of IFRS 9 (note 2(c))
Adjusted balance, beginning of fiscal year
Impairment of trade accounts receivable
Write-off of trade accounts receivable
Balance, end of fiscal year
2019
(7,547) $
—
(7,547)
(27,652)
28,015
(7,184) $
$
$
2018
(5,054)
(791)
(5,845)
(3,634)
1,932
(7,547)
The impairment of trade accounts receivable for fiscal 2019 consisted primarily of a $22.3 million charge relating to the
receivership and liquidation of one of the Company's U.S. distributor customers. Beginning in fiscal 2019, impairment of trade
accounts receivable has been presented separately on the statement of earnings (was previously included in selling, general
and administrative expenses), and comparative periods have been reclassified to conform to this presentation.
7. INVENTORIES:
Raw materials and spare parts inventories
Work in progress
Finished goods
December 29,
2019
December 30,
2018
$
$
152,584
75,535
823,933
1,052,052
$
$
151,600
67,903
720,526
940,029
The amount of inventories recognized as an expense and included in cost of sales was $2,044.9 million for fiscal 2019 (2018
- $2,029.5 million), which included an expense of $62.9 million (2018 - $11.2 million) related to the write-down of inventory
to net realizable value. Write-downs of inventory to net realizable value includes $47.6 million for the impact of the Company’s
decision in the fourth quarter of fiscal 2019 to implement a strategic initiative to significantly reduce its imprintable product
line stock-keeping unit (SKU) count by exiting all ship to-the-piece activities and discontinuing overlapping and less
productive styles and SKUs between brands.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. PROPERTY, PLANT AND EQUIPMENT:
2019
Cost
Land
Buildings and
improvements
Manufacturing
equipment
Other
equipment
Assets not
yet utilized in
operations
Total
Balance, December 30, 2018
$
70,957
$
550,885
$ 1,085,345
$ 159,201
$
57,630
$ 1,924,018
Additions
Transfers
Disposals
49,791
—
(270)
10,585
5,169
(7,792)
37,461
43,564
7,663
8,660
37,433
(57,393)
142,933
—
(16,533)
(4,163)
—
(28,758)
Balance, December 29, 2019
$ 120,478
$
558,847
$ 1,149,837
$ 171,361
$
37,670
$ 2,038,193
Accumulated depreciation
Balance, December 30, 2018
Depreciation
Disposals
Write-downs and impairments
Balance, December 29, 2019
$
$
Carrying amount, December 29, 2019
$ 120,478
$
353,013
— $
181,821
$
640,418
$ 111,304
$
— $
933,543
—
—
—
25,037
(2,899)
1,875
— $
205,834
79,335
(11,932)
6,657
13,573
(3,001)
1,025
714,478
$ 122,901
435,359
$
48,460
$
$
$
$
—
—
—
117,945
(17,832)
9,557
— $ 1,043,213
37,670
$
994,980
Land
Buildings and
improvements
Manufacturing
equipment
Other
equipment
Assets not
yet utilized in
operations
Total
2018
Cost
Balance, December 31, 2017
Additions
Transfers
Disposals
Balance, December 30, 2018
$
70,957
$
550,885
$
70,003
1,051
—
(97)
$
512,398
9,650
33,932
(5,095)
$ 1,039,974
49,560
31,735
(35,924)
$ 1,085,345
$ 175,640
$
3,065
1,498
(21,002)
77,389
47,406
(67,165)
—
$ 159,201
$
57,630
$ 1,875,404
110,732
—
(62,118)
$ 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
Effective July 1, 2019, the Company revised the estimated useful lives of its yarn-spinning manufacturing equipment based
on a re-assessment of their expected use to the Company and recent experience of their economic lives. These assets,
which were previously being depreciated on a straight-line basis over 10 years, are now depreciated on a straight-line basis
over 15 to 20 years depending on the nature of the equipment. The change in estimate was made on a prospective basis
and resulted in a reduction of depreciation of approximately $8.5 million, of which approximately $1 million was included in
cost of sales for the year ended December 29, 2019 as depreciation related to manufacturing equipment is initially included
in the cost of inventories, and is charged to cost of sales when the related inventories have been sold. For fiscal 2020, the
change in estimate is expected to result in a reduction of depreciation included in net earnings of approximately $17 million.
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 29, 2019, there were contractual purchase obligations outstanding of approximately $21.2 million for the
acquisition of property, plant and equipment compared to $24.8 million as of December 30, 2018.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. RIGHT-OF-USE ASSETS AND LEASE OBLIGATIONS:
(a) Right-of-use assets:
The following table presents the right-of-use assets for the Company:
Balance, December 30, 2018
Impact of initial adoption of IFRS 16 (note 2(c))
Additions
Terminations
Depreciation
Balance, December 29, 2019
2019
—
78,119
10,342
(1,627)
(13,295)
73,539
$
$
(b) Lease obligations:
The Company’s leases are primarily for manufacturing, sales, distribution, and administrative facilities.
The following table presents lease obligations recorded in the statement of financial position as at December 29, 2019:
Current
Non-current
December 29,
2019
$
$
14,518
66,982
81,500
Leases of certain facilities contain extension or termination options exercisable by the Company before the end of the
non-cancellable contract period. The Company has applied judgment to determine the lease term for the contracts with
renewal and termination options and has included renewal and termination options in the measurement of lease
obligations when it is reasonably certain to exercise the options. The Company reassesses whether it is reasonably
certain to exercise the options if there is a significant event or a significant change in circumstances within its control
which impacts the original assessments made. As at December 29, 2019, potential undiscounted future lease payments
related to renewal options not included in the measurement of lease obligations are $57.5 million.
The following table presents the undiscounted future minimum lease payments under non-cancellable leases (including
short term leases) as at December 29, 2019:
Less than one year
One to five years
More than five years
December 29,
2019
$
$
19,992
46,669
37,645
104,306
For the year ended December 29, 2019, expenses relating to short-term leases and leases of low-value assets were
$3.4 million.
For the year ended December 29, 2019, the total cash outflow for recognized lease obligations (including interest) was
$16.6 million, of which $13.5 million was included as part of cash outflows from financing activities.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INTANGIBLE ASSETS AND GOODWILL:
Intangible assets:
2019
Cost
Balance, December 30, 2018
Additions
Disposals
Balance, December 29, 2019
Accumulated amortization
Balance, December 30, 2018
Amortization
Disposals
Write-downs and impairments
Balance, December 29, 2019
Carrying amount, December 29, 2019
Customer
contracts and
customer
relationships
Trademarks
License
agreements
Computer
software
Non-
compete
agreements
Total
$
224,489
$ 226,172
$
69,600
$
58,255
$
1,790
$
580,306
—
—
—
—
3,150
—
11,074
(206)
—
—
14,224
(206)
224,489
$ 226,172
$
72,750
$
69,123
$
1,790
$
594,324
89,064
$
12,780
—
—
1,808
700
—
—
101,844
$
2,508
122,645
$ 223,664
$
57,606
$
36,465
$
1,790
$
186,733
3,809
—
—
$
$
61,415
11,335
$
$
5,206
(18)
1,250
42,903
26,220
$
$
—
—
—
22,495
(18)
1,250
1,790
$
210,460
— $
383,864
$
$
$
$
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)
224,489
$ 226,172
$
69,600
$
58,255
$
—
(90)
1,790
$
19,465
(969)
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)
1,790
$
27,339
(811)
186,733
— $
393,573
The carrying amount of internally-generated assets within computer software was $21.8 million as at December 29, 2019
(December 30, 2018 - $16.2 million). Included in computer software as at December 29, 2019 is $9.9 million (December 30,
2018 - $5.9 million) of assets not yet utilized in operations.
Goodwill:
Balance, beginning of fiscal year
Goodwill acquired
Other
Balance, end of fiscal year
2019
227,362
—
503
227,865
$
$
2018
226,571
692
99
227,362
$
$
GILDAN 2019 REPORT TO SHAREHOLDERS P. 81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. INTANGIBLE ASSETS AND GOODWILL (continued):
Recoverability of cash-generating units:
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 29,
2019
$
$
$
$
206,637
93,400
300,037
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 as at December 29, 2019, 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 CGUs based on the fair value less
costs of disposal method. The fair values of the Textile & Sewing and Hosiery CGUs were based on a multiple applied to
forecasted earnings before financial expenses, income taxes, depreciation and amortization, and restructuring and
acquisition-related costs ("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.
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 and expected gross
margins and SG&A expenses. 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 1 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.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 82
11. LONG-TERM DEBT:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Effective
interest
rate (1)
Principal amount
December 29,
2019
December 30,
2018
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)
3.5% $
245,000 $
69,000
April
2024
Term loan, interest at variable U.S. LIBOR-based interest rate plus a
spread ranging from 1% to 2%, payable monthly(3)
2.9%
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
2024
100,000 August
2023
50,000 August
2023
100,000 August
2026
50,000 August
2026
$
845,000 $
669,000
(1) Represents the annualized effective interest rate for the year ended December 29, 2019, 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 $22.5 million (December 30, 2018 - $13.4 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 2019, the Company amended its unsecured revolving long-term bank credit facility of $1 billion and its unsecured
term loan of $300 million to extend the maturity dates from April 2023 to April 2024.
Under the terms of the revolving facility, 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 29,
2019.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 83
12. OTHER NON-CURRENT LIABILITIES:
Employee benefit obligation - Statutory severance and pre-notice (a)
Employee benefit obligation - Defined contribution plan (b)
Provisions (c)
(a) Statutory severance and pre-notice obligations:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 29,
2019
December 30,
2018
$
$
27,767
3,633
10,790
42,190
$
$
22,075
3,498
14,343
39,916
2019
2018
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.
22,075
14,226
6,798
1,296
(584)
(16,044)
27,767
$
$
$
$
16,096
13,500
6,478
1,694
(537)
(15,156)
22,075
Significant assumptions for the calculation of the statutory severance obligations included the use of a discount rate
ranging between 9.3% and 10.0% (2018 - between 10.0% and 10.5%) and rates of compensation increases between
7.5% and 9.0% (2018 - between 6.5% and 10.0%). A 1% increase in the discount rates would result in a corresponding
decrease in the statutory severance obligations of $3.9 million, and a 1% decrease in the discount rates would result in
a corresponding increase in the statutory severance obligations of $4.6 million. A 1% increase in the rates of compensation
increases used would result in a corresponding increase in the statutory severance obligations of $4.9 million, and a
1% decrease in the rates of compensation increases used would result in a corresponding decrease in the statutory
severance obligations of $4.2 million.
The cumulative amount of actuarial losses recognized in other comprehensive income as at December 29, 2019 was
$25.1 million (December 30, 2018 - $23.8 million) which have been reclassified to retained earnings in the period in
which they were recognized.
(b) Defined contribution plan:
During fiscal 2019, defined contribution expenses were $6.6 million (2018 - $6.2 million).
(c) Provisions:
Decommissioning and
site restoration costs
Lease exit
costs
Balance, December 30, 2018
Impact of initial adoption of IFRS 16 (note 2(c))
Changes in estimates made during the fiscal year
Accretion of interest
Balance, December 29, 2019
$
$
9,724
—
779
287
10,790
$
$
$
4,619
(4,619)
—
—
— $
Total
14,343
(4,619)
779
287
10,790
Provisions as at December 29, 2019 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.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 29, 2019 and December 30, 2018, none of
the first and second preferred shares were issued.
Issued:
As at December 29, 2019, there were 199,012,156 common shares (December 30, 2018 - 206,732,436) issued and
outstanding, which are net of 9,206 common shares (December 30, 2018 - 3,797) that have been purchased and are
held in trust as described in note 13(e).
(d) Normal course issuer bid ("NCIB"):
On February 21, 2018, the Board of Directors of the Company approved the initiation of an 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 21,575,671 common shares, representing
approximately 10% of the public float as at February 15, 2018. No other terms of the NCIB were amended. During the
fiscal year ended December 30, 2018, the Company repurchased for cancellation a total of 12,634,693 common shares
under its NCIB programs for a total cost of $367.5 million. 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.
On February 20, 2019, the Company 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 Company’s
issued and outstanding common shares.
the year ended December 29, 2019,
total of
During
8,217,715 common shares under its NCIB programs for a total cost of $257.2 million. Of the total cost of $257.2 million,
$6.7 million was charged to share capital and $250.5 million was charged to retained earnings.
for cancellation a
the Company
repurchased
On February 19, 2020, the Company received approval from the TSX to renew its NCIB to purchase for cancellation a
maximum of 9,939,154 common shares, representing approximately 5% of the Company’s issued and outstanding
common shares. The Company is authorized to make purchases under the bid during the period from February 27, 2020
to February 26, 2021 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 may be permitted by securities regulatory authorities, including pre-arranged crosses, exempt
offers, private agreements under an issuer bid exemption order issued by securities regulatory authorities, and block
purchases of common shares. The average daily trading volume ("ADTV") of common shares on the TSX for the six-
month period ended January 31, 2020 was 598,411. Consequently, and in accordance with the requirements of the TSX,
Gildan may purchase up to a maximum of 149,602 common shares daily through TSX facilities, which represents 25%
of the ADTV of common shares on the TSX for the most recently completed six calendar months.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. EQUITY (continued):
(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 29, 2019,
a total of 9,206 common shares representing $0.2 million 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 30, 2018 - 3,797 common shares representing $0.1 million).
(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, except for the portion of the share-based payment that the Company
settles on a net basis when the Company has an obligation under tax laws to withhold an amount for an employee’s tax
obligation, in which case the corresponding amounts previously credited to contributed surplus are transferred to accounts
payable and accrued liabilities.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 86
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 29, 2019
and December 30, 2018. 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 29,
2019
December 30,
2018
$
$
64,126
320,931
$
46,657
317,159
45,950
2,933
9,816
39,789
2,771
17,792
$
395,564
645,000
200,000
11,067
332,543
469,000
200,000
14,442
(1) Accounts payable and accrued liabilities include balances payable of $39.6 million (December 30, 2018 - $33.0 million) under
supply-chain financing arrangements (reverse factoring) with a financial institution, whereby receivables due from the Company to
certain suppliers can be collected by the suppliers from a financial institution before their original due date. These balances are classified
as accounts payable and accrued liabilities and the related payments as cash flows from operating activities, given the principal business
purpose of the arrangement is to provide funding to the supplier and not the Company, the arrangement does not significantly extend
the payment terms beyond the normal terms agreed with other suppliers, and no additional deferral or special guarantees to secure
the payments are included in the arrangement.
(2) The fair value of the long-term debt bearing interest at fixed rates was $206.4 million as at December 29, 2019 (December 30,
2018 - $189.5 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 2019 REPORT TO SHAREHOLDERS P. 87
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 are designated as effective hedging instruments and 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 29, 2019, the notional amount of TRS outstanding was
216,727 shares (December 30, 2018 - 259,897 shares) and the carrying amount and fair value included in prepaid
expenses, deposits and other current assets was $0.3 million (December 30, 2018 - $0.6 million included in accounts
payable and accrued liabilities).
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 2019 and 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 29, 2019 and 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.
The commodity forward, option, and swap contracts were designated as cash flow hedges and qualified for hedge
accounting. The commodity contracts outstanding as at December 29, 2019 and 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 29, 2019 and 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 2019 REPORT TO SHAREHOLDERS P. 88
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 (cash flow hedges) as
at December 29, 2019:
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
Forward foreign exchange contracts:
Sell GBP/Buy USD
Sell EUR/Buy USD
Sell CAD/Buy USD
Buy CAD/Sell USD
Sell AUD/Buy USD
Sell MXN/Buy USD
32,737
35,236
58,212
31,287
7,691
272,914
1.2750
$
41,739
$
1.1341
0.7612
0.7514
0.6974
0.0504
39,960
44,309
23,510
5,364
13,761
187
502
49
342
38
—
$
(1,169)
$
(982)
(78)
(130)
—
(32)
(356)
424
(81)
342
6
(356)
(647)
$ 168,643
$
1,118
$
(1,765)
$
The following table summarizes the Company’s commitments to buy and sell foreign currencies (cash flow hedges) 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
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
GILDAN 2019 REPORT TO SHAREHOLDERS P. 89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. FINANCIAL INSTRUMENTS (continued):
(b) Derivative financial instruments - hedge accounting (continued):
The following table summarizes the Company's commodity contracts outstanding (cash flow hedges) as at
December 29, 2019:
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
Forward contracts
Cotton
133.7 million pounds
Swap contracts
Synthetic fibres
60.6 million pounds
Swap & option contracts
Energy
202,400 barrels
$
$
3,494
—
1,185
4,679
$
$
(198)
$
3,296
(6,859)
(186)
(6,859)
999
(7,243)
$
(2,564)
(1) Notional amounts are not in thousands.
The following table summarizes the Company's commodity contracts outstanding (cash flow hedges) 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
Forward contracts
Cotton
76.0 million pounds
Swap contracts
Synthetic fibres
147.7 million pounds
Swap & option contracts
Energy
290,000 barrels
$
$
336
—
145
481
$
$
(3,173)
$
(2,837)
(5,516)
(2,469)
(5,516)
(2,324)
(11,158)
$ (10,677)
(1) Notional amounts are not in thousands.
The total notional amount of commodity contracts outstanding as at December 30, 2018 for which hedge accounting
was 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 2019 REPORT TO SHAREHOLDERS P. 90
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 (cash flow
hedges) as at December 29, 2019:
Notional
amount of
borrowings
Term Loan(1)
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
50,000
April 30,
2023
April 30,
2024
Pay fixed rate /
receive floating rate
Pay fixed rate /
receive floating rate
Unsecured Notes
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%
1.51%
1.18%
1.34%
US
LIBOR
US
LIBOR
US
LIBOR
US
LIBOR
US
LIBOR
$
1,379
$
—
—
252
866
1,179
3,676
$
(1,817)
(242)
—
—
$
(2,059)
(1) The notional amounts for the interest rate swap contracts maturing on April 30, 2023 and April 30, 2024 are extensions to the $150
million interest rate swap contracts originally entered into related to the term loan and maturing on June 17, 2021.
The following table summarizes the Company’s floating-to-fixed interest rate swap contracts outstanding (cash flow
hedges) as at December 30, 2018:
Notional
amount of
borrowings
Term Loan(1)
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
Unsecured Notes
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
$
—
—
(521)
3,070
4,382
—
—
$
12,952
$
(521)
(1) The notional amounts for the interest rate swap contracts maturing on April 30, 2023 are extensions to the $150 million interest rate
swap contracts originally entered into related to the term loan and maturing on June 17, 2021.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. FINANCIAL INSTRUMENTS (continued):
(b) Derivative financial instruments - hedge accounting (continued):
The following table summarizes the Company’s hedged items as at December 29, 2019:
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
$
— $
— $
—
—
—
—
—
—
(972)
$
342
972
(342)
(1,416)
1,416
$
— $
— $
(535)
$
1,511
(1,511)
535
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.
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 2019 REPORT TO SHAREHOLDERS P. 92
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 lease obligations
Interest accretion on discounted provisions
Foreign exchange gain
(1) Net of capitalized borrowing costs of $1.3 million (2018 - $0.7 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 interest rate risk, and included in:
Net sales
Cost of sales
Selling, general and administrative expenses
Financial expenses, net
Income taxes
Cash flow hedging loss
2019
2018
28,659
8,010
3,141
287
(929)
39,168
$
$
24,757
7,472
—
299
(1,483)
31,045
2019
2018
$
4,566
(8,213)
(10,588)
(46)
6,740
698
102
(67)
16,656
(13,303)
(5,667)
(350)
417
(752)
60
(3,917) $
(1,864)
(307)
51
(2,224)
16
(10,158)
$
$
$
$
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 29, 2019 and
December 30, 2018.
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 29, 2019 and December 30, 2018.
Approximately $1.5 million of net losses presented in accumulated other comprehensive income are expected to be
reclassified to inventory or net earnings within the next twelve months.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 93
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 29, 2019, 4,593,883 common shares remained authorized for future issuance under
the plans. Included as compensation costs in selling, general and administrative expenses is $0.2 million (2018 -
$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 29, 2019, 1,505,829 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 2019 REPORT TO SHAREHOLDERS P. 94
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, December 31, 2017
Changes in outstanding stock options:
Exercised
Forfeited
Stock options outstanding, December 30, 2018
Changes in outstanding stock options:
Exercised
Stock options outstanding, December 29, 2019
Stock options issued in U.S. dollars and to be exercised on the NYSE:
Stock options outstanding, December 31, 2017
Changes in outstanding stock options:
Forfeited in fiscal 2018
Stock options outstanding, December 30, 2018 and December 29, 2019
Number
Weighted exercise
price (CA$)
2,263
$
32.94
(110)
(160)
1,993
(443)
1,550
$
19.98
33.58
33.60
26.45
35.65
Number
Weighted exercise
price (US$)
759
(90)
669
$
$
29.01
29.01
29.01
As at December 29, 2019, 822,394 outstanding options issued in Canadian dollars to be exercised on the TSX were
exercisable at the weighted average exercise price of CA$34.02 (December 30, 2018 - 915,628 options at CA$30.22),
and 167,224 outstanding options issued in U.S. dollars and to be exercised on the NYSE, were exercisable at the
weighted average exercise price of US$29.01 (December 30, 2018 - nil options). For stock options exercised during
fiscal 2019, the weighted average share price at the date of exercise was CA$47.24 (2018 - CA$39.79). There were no
options granted during fiscal 2019 or 2018.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 95
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 29,
2019:
Exercise prices
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
87
126
543
511
283
1,550
669
2,219
1
2
4
3
6
5
87
126
226
384
—
823
167
990
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, December 31, 2017
Changes in outstanding Treasury RSUs:
Granted
Granted for dividends declared
Forfeited
Treasury RSUs outstanding, December 30, 2018
Changes in outstanding Treasury RSUs:
Granted
Granted for dividends declared
Settled through the issuance of common shares
Treasury RSUs outstanding, December 29, 2019
Number
Weighted average
fair value per unit
102
$
30.46
20
2
(18)
106
18
1
(11)
114
$
30.10
29.94
27.93
30.82
31.51
34.14
25.97
31.42
As at December 29, 2019 and December 30, 2018, none of the outstanding Treasury RSUs were vested.
The compensation expense included in operating income for fiscal 2019 was $2.6 million (2018 - $2.9 million) in respect
of the stock options and $0.6 million (2018 - $0.5 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 2019 REPORT TO SHAREHOLDERS P. 96
15. SHARE-BASED COMPENSATION (continued):
(b) Stock options and restricted share units (continued):
Outstanding non-Treasury RSUs were as follows:
Non-Treasury RSUs outstanding, December 31, 2017
Changes in outstanding non-Treasury RSUs:
Granted
Granted for additional performance conditions
Granted for dividends declared
Settled - common shares
Settled - payment of withholding taxes
Forfeited
Non-Treasury RSUs outstanding, December 30, 2018
Changes in outstanding non-Treasury RSUs:
Granted
Granted for additional performance conditions
Granted for dividends declared
Settled - common shares
Settled - payment of withholding taxes
Forfeited
Non-Treasury RSUs outstanding, December 29, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Number
Weighted average
fair value per unit
1,200
$
27.79
573
109
24
(226)
(151)
(155)
1,374
509
93
26
(256)
(170)
(154)
1,422
$
29.82
28.46
29.81
28.47
28.47
27.99
28.52
34.89
25.57
29.21
25.59
25.59
29.24
31.42
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 strategic performance objectives, which are set based on the Company’s long-term strategic plan. In
addition, up to two times the actual number of non-Treasury RSUs awarded can vest if exceptional financial performance
is achieved. As at December 29, 2019 and December 30, 2018, 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 2019 was
$12.9 million (2018 - $16.4 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 2019 REPORT TO SHAREHOLDERS P. 97
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 29, 2019, there were 234,827 (December 30, 2018 - 274,794) DSUs outstanding at a value
of $6.9 million (December 30, 2018 - $8.3 million). This amount is included in accounts payable and accrued liabilities
based on a fair value per deferred share unit of $29.55 (December 30, 2018 - $30.24). 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 2019 was $1.8 million (2018 - $1.7 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
2019
2018
275
48
3
(91)
235
293
54
4
(76)
275
16. SUPPLEMENTARY INFORMATION RELATING TO THE NATURE OF EXPENSES:
(a) Selling, general and administrative expenses:
Selling expenses
Administrative expenses(1)
Distribution expenses
2019
99,419
121,273
119,795
340,487
$
$
2018
108,363
132,101
124,448
364,912
$
$
(1) Impairment of trade accounts receivable has been presented separately on the statement of earnings (was previously included in
administrative expenses), and comparative periods have been reclassified to conform to this presentation.
(b) Employee benefit expenses:
Salaries, wages and other short-term employee benefits
Share-based payments
Post-employment benefits
2019
534,222
16,272
41,864
592,358
$
$
2018
541,769
19,974
31,922
593,665
$
$
(c) Government assistance:
During the year ended December 29, 2019 an amount of $14.0 million (2018 - $14.5 million) was recognized in the
consolidated statement of earnings and comprehensive income relating to government assistance for production costs.
(d) Other:
During the year ended December 30, 2018 an amount of $35.8 million was recognized in the consolidated statement
of earnings and comprehensive income relating to operating leases (including operating costs, short term leases, and
leases of low-value assets).
GILDAN 2019 REPORT TO SHAREHOLDERS P. 98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 significant exit activities, including 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 and write-downs of property, plant and equipment, right-of-use
assets and software related to exit activities
Acquisition-related transaction costs
2019
17,064
17,190
13,061
14
47,329
$
$
2018
7,767
13,620
12,394
447
34,228
$
$
Restructuring and acquisition-related costs in fiscal 2019 related to the following: $14.2 million for the closure of textile
manufacturing and sewing operations in Mexico; $7.3 million for the consolidation of sewing activities in Honduras; $7.0
million for the closure of a hosiery manufacturing plant in Canada; $9.9 million for the exit of yarn-recycling activities (planned
disposal of yarn recycling equipment) and the closure of a yarn-spinning plant in the U.S.; $4.8 million for the exit of ship-to-
the-piece activities; and $4.1 million to complete restructuring activities that were initiated in fiscal 2018, including the closure
of the AKH textile manufacturing facility and the consolidation of U.S. distribution centres.
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.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 99
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 statutory 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
Recognition of previously de-recognized tax benefits related to tax losses and
temporary differences
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
2019
2018
$
249,825
$
372,134
26.6 %
66,404
26.6%
98,913
(79,229)
197
—
(19,211)
16,877
4,978
(9,984)
$
(96,013)
979
2,048
—
17,169
(1,736)
21,360
(4.0)%
5.7%
$
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 $99
(2018 - $3,535) relating to prior taxation years
Deferred income taxes:
2019
2018
$
13,639
$
12,488
Changes in tax rates
Origination and reversal of temporary differences
Recognition of previously de-recognized tax benefits related to tax losses and
temporary differences
Non-recognition of tax benefits related to tax losses and temporary differences
Adjustments relating to prior taxation years
—
(21,387)
(19,211)
16,877
98
(23,623)
Total income tax expense
$
(9,984) $
2,048
(7,789)
—
17,169
(2,556)
8,872
21,360
In fiscal 2019, the Company re-recognized $19.2 million of previously de-recognized deferred income tax assets in the U.S.
relating to deferred income tax assets that are more likely than not to be recovered. In fiscal 2018, pursuant to additional
phases to the internal reorganization it began in fiscal 2017, 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 2019 REPORT TO SHAREHOLDERS P. 100
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
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
Business acquisitions
Other
Balance, end of fiscal year, net
December 29,
2019
December 30,
2018
$
$
$
$
$
99,504
12,502
12,439
8,259
132,704
(83,390)
49,314
$
$
(30,165) $
(9,232)
(39,397) $
85,800
11,395
9,227
6,039
112,461
(85,724)
26,737
(29,095)
(10,265)
(39,360)
9,917
$
(12,623)
2019
2018
$
(12,623) $
(3,713)
14,804
1,107
2,142
1,033
2,203
—
2,334
23,623
(1,100)
17
9,917
$
$
10,367
5,683
(5,267)
94
(532)
(2,048)
(17,169)
(8,872)
—
(38)
(12,623)
As at December 29, 2019, 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
$83.3 million, for which no deferred tax asset has been recognized (December 30, 2018 - $85.7 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
2020 and 2039. The recognized deferred tax asset related to loss carryforwards 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 29, 2019, a deferred income tax liability of approximately $57 million would result
from the recognition of the taxable temporary differences of approximately $274 million.
GILDAN 2019 REPORT TO SHAREHOLDERS P. 101
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
2019
2018
259,809
$
350,774
204,161
1.27
$
211,435
1.66
204,161
211,435
448
204,609
1.27
$
273
211,708
1.66
$
$
$
Excluded from the above calculation for the year ended December 29, 2019 are 282,737 stock options (2018 - 1,462,933)
and 7,500 Treasury RSUs (2018 - nil) which were deemed to be anti-dilutive.
20. DEPRECIATION AND AMORTIZATION:
Depreciation of property, plant and equipment (note 8)
Depreciation of right-of-use assets (note 9)
Adjustment for the variation of depreciation included in inventories at the beginning
and end of the year
Amortization of intangible assets, excluding software (note 10)
Amortization of software (note 10)
Depreciation and amortization included in net earnings
2019
117,945
13,295
$
3,059
17,289
5,206
156,794
$
2018
125,797
—
4,940
22,864
4,475
158,076
$
$
GILDAN 2019 REPORT TO SHAREHOLDERS P. 102
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, right-of-use assets,
and software (note 17)
Loss on disposal of property, plant and equipment and software
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:
2019
2018
$
156,794
$
158,076
13,061
1,399
16,272
(23,623)
(330)
907
5,971
5,097
175,548
$
$
12,394
1,124
19,513
8,872
882
—
(1,445)
2,839
202,255
2019
2018
Additions to property, plant and equipment and intangible assets included in accounts
payable and accrued liabilities
$
16,144
$
4,977
Proceeds on disposal of property, plant and equipment included in other current
assets
Additions to right-of-use assets included in lease obligations
Impact of initial adoption of new accounting standards (note 2(c))
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
(9)
7,753
(2,176)
954
10,789
(86)
—
(1,515)
754
6,681
GILDAN 2019 REPORT TO SHAREHOLDERS P. 103
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
2019
5,338
204
11,066
16,608
$
$
2018
8,615
2,995
12,592
24,202
$
$
The amounts included in accounts payable and accrued liabilities for share-based compensation awards to key management
personnel were as follows:
DSUs
Other:
December 29,
2019
December 30,
2018
$
6,939
$
8,310
During fiscal 2019, the Company incurred expenses for airplane usage of $1.4 million (2018 - $1.2 million), with a company
controlled by the President and Chief Executive Officer of the Company. The payments made are in accordance with the
terms of the agreement established and agreed to by the related parties. As at December 29, 2019, the amount in accounts
payable and accrued liabilities related to the airplane usage was $0.7 million (December 30, 2018 - $0.3 million).
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 29, 2019, the maximum potential liability under these guarantees was
$72.6 million (December 30, 2018 - $55.4 million), of which $9.3 million was for surety bonds and $63.3 million was for
financial guarantees and standby letters of credit (December 30, 2018 - $11.1 million and $44.3 million, respectively).
As at December 29, 2019, 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 2019 REPORT TO SHAREHOLDERS P. 104
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 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. Adjusted EBITDA also excludes the impact of the Company’s decision in the fourth quarter
of fiscal 2019 to implement a strategic initiative to significantly reduce its imprintable product line stock-keeping unit (SKU)
count by exiting all ship to-the-piece activities and discontinuing overlapping and less productive styles and SKUs between
brands. This initiative is aimed at simplifying the Company's product portfolio and reducing complexity in its manufacturing
and warehouse distribution activities. The impact of this strategic initiative includes inventory write-downs and a sales return
allowance for anticipated product returns related to discontinued SKUs. The Company has set a fiscal year end net debt
leverage target ratio of one to two times adjusted EBITDA. As at December 29, 2019, the Company’s net debt leverage ratio
was 1.6 times (December 30, 2018 - 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 $110.3 million during the year ended December 29, 2019, representing dividends declared
per common share of $0.536. On February 19, 2020, the Board of Directors approved a 15% increase in the amount of the
current quarterly dividend and declared a cash dividend of $0.154 per share for an expected aggregate payment of
$30.7 million which is scheduled to be paid on April 6, 2020 on all of the issued and outstanding common shares of the
Company, rateably and proportionately to the holders of record on March 12, 2020. 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 2019 REPORT TO SHAREHOLDERS P. 105
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
26. ENTITY-WIDE DISCLOSURES:
2019
2018
$
$
$
$
2,261,881
562,020
2,823,901
2019
2,399,239
114,815
309,847
2,823,901
$
$
$
$
2,321,395
587,170
2,908,565
2018
2,484,877
120,764
302,924
2,908,565
Following an internal reorganization which took effect on January 1, 2018 and resulted in the consolidation of the Company’s
divisional organizational structure, the Company manages its business on the basis of one reportable operating segment.
Property, plant and equipment, right-of-use-assets, intangible assets, and goodwill, are allocated to geographic areas as
follows:
United States
Canada
Honduras
Caribbean Basin
Asia-Pacific
Other
December 29,
2019
December 30,
2018
$
$
478,620
129,189
385,209
532,698
107,482
47,050
1,680,248
$
$
455,491
132,045
387,301
544,282
44,438
47,853
1,611,410
Customers accounting for at least 10% of total net sales for the fiscal years ended December 29, 2019 and December 30,
2018 were as follows:
Customer A
Customer B
2019
18.6%
13.8%
2018
19.0%
10.0%
GILDAN 2019 REPORT TO SHAREHOLDERS P. 106
®
T
R
O
P
E
R
L
A
U
N
N
A
9
1
0
2
2019 ANNUAL REPORT