A N N UA L RE P O RT FO R TH E
52-W E E K PE RI O D E N D E D
MARCH 28, 202 0
The Indigo Mission
To provide our customers with the most inspiring
retail and digital environments in the world for books
and life-enriching products and experiences.
Indigo operates under the following banners: Indigo Books & Music,
Chapters, Coles, Indigospirit, The Book Company, and indigo.ca.
The Company employs approximately 6,000 people across the country.
!ndigo Enrich Your Life, Chapters, !ndigo, Coles and indigo.ca are registered trade marks of Indigo Books & Music Inc.
Table of Contents
3. Management’s Responsibility for Financial Reporting
4. Management’s Discussion and Analysis
33. Independent Auditor’s Report
35. Consolidated Financial Statements and Notes
68. Corporate Governance Policies
69. Executive Management and Board of Directors
70. Five-Year Summary of Financial Information
71. Investor Information
72. Indigo’s Commitment to Communities Across Canada
Management’s Responsibility for
Financial Reporting
Management of Indigo Books & Music Inc. (the “Company”) is responsible for the preparation and integrity of the consoli-
dated financial statements as well as the information contained in this report. The following consolidated financial statements
of the Company have been prepared in accordance with International Financial Reporting Standards, which involve manage-
ment’s best judgments and estimates based on available information.
The Company’s accounting procedures and related systems of internal control are designed to provide reasonable assur-
ance that its assets are safeguarded and its financial records are reliable. In recognizing that the Company is responsible for
both the integrity and objectivity of the consolidated financial statements, management is satisfied that the consolidated finan-
cial statements have been prepared according to and within reasonable limits of materiality and that the financial information
throughout this report is consistent. The Board of Directors, along with the Company’s management team, have reviewed and
approved the consolidated financial statements and information contained within this report.
The Board of Directors monitors management’s internal control and financial reporting responsibilities through an Audit
Committee composed entirely of independent directors. This Committee meets regularly with senior management and the
Company’s internal and independent external auditors to discuss internal control, financial reporting, and audit matters. The
Audit Committee also meets with the external auditors without the presence of management to discuss audit results.
Ernst & Young LLP, whose report follows, were appointed as independent auditors by a vote of the Company’s shareholders
to audit the consolidated financial statements.
Heather Reisman Craig Loudon
Chair and Chief Executive Officer Chief Financial Officer and
Executive Vice President, Supply Chain
Annual Report 2020 3
Management’s Discussion and Analysis
The following Management’s Discussion and Analysis (“MD&A”) is prepared as at June 23, 2020 and is based primarily on the
consolidated financial statements of Indigo Books & Music Inc. (the “Company” or “Indigo”) for the 52-week periods ended
March 28, 2020 and March 30, 2019.The Company’s consolidated financial statements and accompanying notes are reported
in Canadian dollars and have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued
by the International Accounting Standards Board (“IASB”) using the accounting policies described therein. These statements
reflect the adoption of IFRS 16 Leases on March 31, 2019, using the modified retrospective method, with the cumulative effect
initially recognized in retained earnings, and no restatement of the prior comparative period. Please see “Adoption of IFRS
16 Leases” for further information.
This MD&A should be read in conjunction with the consolidated financial statements and accompanying notes contained
in the attached Annual Report. The Annual Report and additional information about the Company, including the Annual
Information Form, can be found on SEDAR at www.sedar.com.
Overview
Indigo is Canada’s largest book, gift, and specialty toy retailer, operating stores in all ten provinces and one territory and
offering online sales through the www.indigo.ca website and the Company’s mobile applications. The Company also has retail
operations in the United States through a wholly-owned subsidiary, operating one retail store in Short Hills, New Jersey.
As at March 28, 2020, the Company operated 88 superstores under the banners Chapters and Indigo and 108 small format
stores under the banners Coles, Indigospirit and The Book Company.
Throughout fiscal 2020, the Company employed an average of approximately 6,000 people (on a full-time, part-time,
and casual basis) and generated annual revenue of $957.7 million. The Company is inclusive of its wholly-owned subsidiaries;
Indigo Design Studio, Inc., Indigo Cultural Department Store Inc. (“Indigo U.S.”), and YYZ Holdings Inc. (“YYZ”), along with
its 20% equity investment in Unplug Meditation, LLC (“Unplug”).
The Company supports a separate registered charity called the Indigo Love of Reading Foundation (the “Foundation”).
The Foundation provides new books and learning materials to high-needs elementary schools across the country through
donations from Indigo, its customers, its suppliers, and its employees.
Statement on COVID-19
In December 2019, COVID-19 surfaced in Wuhan, China. The World Health Organization declared a global emergency on
January 30, 2020, and then characterized the outbreak as a pandemic on March 11, 2020. Shortly thereafter, numerous juris-
dictions declared states of emergency and imposed restrictions such as closures, quarantine policies and social distancing
measures, negatively impacting the Company’s retail operations, distribution centres, and head office operations. During this
period, the communicable disease spread globally, with active outbreaks continuing in communities across Canada and the
United States.
Initial Actions
In response to the complex and fast-evolving situation, the Company took the following proactive steps to protect the health
and safety of its customers, employees and communities and to ensure the continuity of the Company’s business operations:
• announced the temporary closure of its retail locations on March 17, 2020 and made the difficult decision to tem-
porarily lay-off 5,200 of its retail employees;
• closed its head office and support offices and implemented a remote work program to maintain its operations;
4
Management ’s Discussion and Analysis
• enhanced health and safety precautions at its distribution centres to support its employees; and
• refocused its efforts to its online channel to keep the e-commerce business operational and optimized.
Actions Taken to Manage Liquidity
Following the initial actions in response to the COVID-19 pandemic, in order to preserve cash and take precautionary meas-
ures to manage liquidity risk, the Company:
• ceased its normal rent payments as of April 1, 2020 and is in negotiations with its landlords regarding rent abatements;
• assessed and leveraged applicable government business support programs for COVID-19, including the Canada
Emergency Wage Subsidy;
• extended payment terms with many of its vendors and plans to reduce its inventory levels while maintaining an
optimized assortment;
• implemented a cost reduction plan to minimize non-essential operating costs;
• reviewed the capital investment plans pre-dating COVID-19 to account for the widespread economic impact of
COVID-19;
• suspended much of its planned marketing spend in the first half of fiscal 2021;
• reviewed its head office workforce model and commenced certain role restructurings;
• froze salary increases and elected not to pay discretionary fiscal 2020 annual incentive plan bonuses; and
• the Chief Executive Officer elected to temporarily forgo her salary.
While many of these actions are expected to be temporary, the duration and related financial impact cannot be reliably
estimated at this time.
Current Status
On May 19, 2020, where permitted by local authorities, the Company began the phased re-opening of its retail stores. The
Company’s top priority remains the health and safety of its customers, employees and communities, and extensive health and
safety measures have been employed based on the guidance and direction from public health authorities. As of the date of this
Management Discussion & Analysis, the Company has re-opened 172 of its previously closed retail stores and recalled from
temporary layoff 2,878 of its retail leadership and hourly employees. The Company continues its negotiations with its land-
lords regarding rent abatements to address the financial impacts of COVID-19. Separately, the Company has accelerated its
review of its real estate portfolio, and in May 2020, made the decision to not renew the leases for 15 small format stores
beyond June 2020.
Since the declaration of the COVID-19 pandemic, the Company’s online channel has experienced significant growth in
comparison to the prior year. The enhanced health and safety precautions taken to support its distribution centre employees
ensured uninterrupted operation of the facilities and allowed the Company to meet the surge in online order volumes. The
Company also accelerated the development of its omni-channel fulfilment infrastructure and piloted contactless curbside
pick-up in several superstore format stores in an ongoing effort to keep its employees and customers safe.
As of the date of this MD&A, the head office remains closed due to provincial restrictions and the Company is reviewing
its health and safety plans for the eventual re-opening of the office and the gradual, phased return of head office employees.
Future Developments
The COVID-19 pandemic has negatively impacted the economy, disrupted consumer spending and supply chains and created
significant volatility in financial markets on a global scale, the extent of which will depend on future developments that are
highly uncertain and cannot be reliably forecasted. These future developments include new information regarding disease
immunity and emerging actions taken to contain the virus, the potential recurrence of a second wave of significant infections,
as well as ongoing consumer fears about the disease, which could adversely affect traffic to Indigo’s stores, among others.
Consumer spending and demand for the Company’s product lines may also be negatively impacted by general macroeconomic
Annual Report 2020 5
conditions resulting from the COVID-19 pandemic. If the Company does not generate sufficient cash flows from operating
activities, and sufficient funds are not accessed through other sources, the Company may not be able to cover its expenses, fund
its capital needs and adequately respond to competitive challenges, which would have a material adverse impact on its business.
The foregoing statement on COVID-19 is not an exhaustive description of the actual or potential impact of the COVID-19
outbreak on the Company. Given this unprecedented period of uncertainty, there can be no assurances regarding: the closure
status of retail locations as a result of COVID-19; the COVID-19-related impacts on the Company’s business, operations and
performance; credit, foreign currency, and liquidity risks generally; and other risks inherent to the Company’s business and/
or factors beyond its control which could have a material adverse effect on the company. Investors should also refer to the risks
described below under the “Risks and Uncertainties” section of this Management Discussion & Analysis.
General Development of the Business
It has been over 20 years since the Company launched its first superstore with a commitment to enriching Canadians’ lives
through books and complementary products. Much has changed since then, and continues to change, in both the book indus-
try and the larger retail landscape. Indigo has been proactive in transforming its business in both its retail stores and digital
offerings. The www.indigo.ca website has expanded dramatically, offering customers an increased number of titles at a lower
cost than a traditional physical bookstore along with a broad range of general merchandise, much of which is unique to Indigo.
In addition, digital channels have provided customers with instant accessibility, wide selection, and lower prices.
The distinction between physical retail and digital retail is increasingly blurred as customers expect to have a seamless
experience with the Indigo brand regardless of channel. Recognizing this, the Company is continuing to focus on improving
the omni-channel customer experience with initiatives that better integrate physical and digital retail. The Company’s priorities
are to drive a customer inspired retail and digital transformation, build a truly superior gifting experience, and become the
best rewarding retail employer in Canada.
The recent outbreak of the COVID-19 pandemic has placed significant limitations on the Company’s ability to conduct
its business. The Company is focused on being agile and taking the necessary steps to service its customers in the face of the
unprecedented and continuing impact of COVID-19. This includes a commitment to the Company’s strategic priorities out-
lined below. See “Statement on COVID-19” above for more information.
Drive a Customer Inspired Retail Transformation
The Company’s physical stores were transformed in recent years as part of the rollout of Indigo’s new store concept and its
focus on being a truly superior gifting destination. The new store concept reflects Indigo’s transformation from a bookstore
to the Cultural Department Store; a physical and digital meeting place inspired by and filled with books, music, art, ideas,
and beautifully designed lifestyle products. Indigo believes in real books, in living life fully and generously, in being kind to
each other and that stories – big and little – connect us.
Over the past three years, the Company has rebranded and renovated 24 stores and opened five new stores to improve
the customer experience and product offerings across key gifting categories.
Indigo continues to explore initiatives around further integration of its physical and digital platforms. This includes a
mobile checkout POS solution piloted in fiscal 2018 and rolled out in 2019 to facilitate a more connected end-to-end cus-
tomer experience, as well as expediting customer queues during busy gifting periods. In fiscal 2019, the Company piloted an
express pick-up checkout solution, which allows customers to order online and pick up their order in store within the same
day, which was then more broadly implemented in fiscal 2020.
Indigo launched a new IndigoBaby concept shop in fiscal 2020 at Indigo CF Sherway Gardens in Toronto, Ontario, as a
premier specialty destination for expectant and new parents. The new concept offers a curated assortment of essential prod-
ucts in-store, and an extensive online assortment that can be shipped home. Opened in fiscal 2019, the Company continues
to operate its new concept store in Short Hills, New Jersey, and gather learnings regarding American customers’ engagement
with the Indigo brand.
6
Management ’s Discussion and Analysis
Drive a Customer Inspired Enhanced Digital Platform
In addition to reshaping Indigo’s physical store offerings, the Company continues to invest heavily in its digital platforms. The
Company has a dedicated team solely focused on the agile delivery of digital products and services to further enhance the cus-
tomer experience. The Company continues its strong social media presence across Facebook, Instagram, Pinterest, and
Twitter, with half a million followers on Facebook and over 350,000 on Instagram. In fiscal 2018, the Company focused on
several enhancements to improve and simplify the customer experience across its digital platforms.
In the third quarter of fiscal 2020, Indigo launched www.thoughtfull.co, a gifting site dedicated to helping customers find
unique and meaningful gifts.Thoughtfull™ provides a last-minute gifting solution with digitally fulfilled delivery for a selection
of its assortment and Thoughtfull’s guided navigation tool, the Thoughtfull Assistant, helps customers find the perfect gift
from its marketplace assortment of giftable products, experiences, services, and subscriptions. In fiscal 2020, the Company also
launched a new product information management system, which will provide the foundation for an enhanced digital experience.
In fiscal 2018, the Company expanded its online distribution centre and acquired a new facility in Western Canada to
support its growth and to improve service levels to customers nationally, especially during the Company’s peak third quarter
holiday period. In fiscal 2019, the Company’s Calgary distribution centre began supporting the Company’s Western Canadian
retail stores and in fiscal 2020 started serving online customers in Western Canada. Going forward, Indigo will continue to
focus on driving end-to-end productivity and process efficiency in the supply chain and across the Company.
Optimizing the Company’s plum® rewards loyalty program has also been a key area of focus over the past three years. The
Company now has a two-tiered loyalty program under the plum® rewards brand, plum and plum PLUS, the latter of which was
launched on a national scale in fiscal 2020, replacing the Company’s irewards program, which is being phased out throughout
fiscal 2020-2021. As an annual fee-based discount program, plum PLUS offers member discounts and free shipping every day
as incremental benefits to the redeemable points offered on almost all products purchased. The success of this program creates
a deeper understanding of the Company’s customers, as well as direct marketing and communication opportunities with
Indigo’s best customers. Going forward, the Company will continue to increase its capabilities to utilize this data to person-
alize each touch point with customers and provide a rich omni-channel shopping experience.
Build a Truly Superior Gifting Experience
Indigo is committed to becoming the ultimate year-round gifting destination in Canada for gifts that touch the heart and soul.
The gifting experience for the major seasonal holidays and for everyday gifting occasions are supported through the
Company’s expanded assortment of books, lifestyle and baby offerings, and toys. Indigo’s focus on making gifting joyful and
easy for customers includes a wide selection of gift wrap and greeting cards, as well as tools to help customers make the best
gifting decisions. In fiscal 2018, “The Gift Shop”, an expanded online gifting experience, was launched on Indigo’s digital chan-
nels, creating an interactive and curated shopping experience with functionalities to view gift ideas in multiple ways, including
by gifting occasion or by recipient. In fiscal 2019, Indigo launched a digital gift registry where customers can create, manage
and share their birthday, wedding or baby registry on www.indigo.ca and on the Indigo mobile application. Gifts listed on reg-
istries can be purchased either in stores or on the Company’s digital platforms. In fiscal 2019, Indigo also introduced its very
own iconic brand gift wrap program with offerings for adults and kids. With a strong commitment to reducing waste, Indigo
focused on the design and quality of its branded gift boxes and gift bags to ensure that each is reusable and can be used for
treasured keepsakes or to gift again. The IndigoBaby assortment has significantly expanded over the past three fiscal years, and
in fiscal 2020, the Company launched an easy-to-navigate and beautifully designed dedicated registry to take the guesswork
out of what expectant parents need for their new arrival. As noted above, in fiscal 2020, the Company also launched the
www.thoughtfull.co online gifting platform.
The enhanced gifting assortment is supported by the Company’s design and global sourcing team that leads the design
and development of Indigo’s proprietary merchandise. These private-label products are created by the Company’s in-house
creative team and are manufactured by third parties exclusively for Indigo. This aspect of the business is part of the Company’s
focus on providing customers with meaningful and giftable merchandise available only at Indigo. The Company is committed
to adapting and improving its proprietary product development capability, as well as expanding its line of gift and lifestyle
Annual Report 2020 7
merchandise which includes home, paper merchandise, and fashion accessories. To further integrate the design and global
sourcing teams and enhance its proprietary offerings, in fiscal 2020, the Company closed its New York, New York design
studio and relocated the design and global sourcing functions to Indigo’s head office in Toronto.
Become the Best Rewarding Retail Employer in Canada
While a key focus of the Company’s business is evolving to meet the emerging needs of customers, Indigo is also focused on
becoming the best rewarding retail employer in Canada by driving a high performance, growth culture and aspiring for oper-
ational excellence to support the Company’s continued evolution and new business strategies.
The Company’s ambition is to be the best rewarding retail employer, not only in pay, but in a holistic view of the employ-
ment relationship that includes a sense of purpose, meaningful relationships, benefits and flexible work opportunities. This
Company-wide initiative focuses on driving engagement, high performance and operational excellence while removing inef-
ficiency from the Company’s work processes. There are several initiatives underway across the Company including reinforcing
Indigo’s unique culture through values-based leadership. As well, the Company is focusing on the development of high-
performing teams where individuals are encouraged to chart their own career paths and apply their strengths to meaningful
work, allowing them to bring their best selves to work. This work involves partnerships across all areas of the Company and
is expected to continue to evolve over the next several years.
In fiscal 2020, Indigo continued to attain record-high employee engagement and customer satisfaction scores of 89% and
77%, respectively, as well as receiving external recognition for its employee and customer experience. Indigo received a
Diversity and Inclusion award in 2019 from Universum, an organization that annually surveys over 1,700,000 students and pro-
fessionals worldwide. For the 2019 Canada edition of the award, 23,000 students from more than 150 Canadian colleges and
universities were asked to rank employers on Universum’s Diversity & Inclusion Index. Indigo ranked in the top 25 out of 140
employers from different industries in both the Business and Liberal Arts/Humanities categories. This award recognizes com-
panies perceived by students across Canada to be the most diverse and inclusive employers in the country. Indigo was also
named a Top Toronto Employer Brand in Hired’s third annual Brand Health Report. For reference, Hired asks its marketplace
of tech talent based in Toronto to rank the local companies they find most attractive to work for every year to determine
which factors job seekers prioritize when evaluating a potential employer. In addition, Forbes selected Indigo as one of
Canada’s Best Employers in 2019 based on an independent survey from a vast sample of more than 8,000 Canadian employees
working for companies employing at least 500 people in their Canadian operations. Indigo was ranked 125th out of all selected
organizations, and 12th in the retail category.
Results of Operations
The following three tables summarize selected financial and operational information for the Company. The classification of
financial information presented below is specific to Indigo and may not be comparable to that of other retailers. The selected
financial information is derived from the audited consolidated financial statements for the 52-week periods ended March 28,
2020 and March 30, 2019. The Company implemented IFRS 16 Leases, on March 31, 2019 using the modified retrospective
approach. As a result, the Company’s fiscal 2020 results reflect lease accounting under IFRS 16, while the comparative year
has not been restated. This resulted in a material increase to adjusted EBITDA.
8
Management ’s Discussion and Analysis
Key elements of the consolidated statements of loss and comprehensive loss for the periods indicated are shown in the
following table:
52-week 52-week
period ended period ended
March 28, % March 30, %
(millions of Canadian dollars) 2020 Revenue 2019 Revenue
Revenue 957.7 100.0 1,046.8 100.0
Cost of sales (553.6) 57.8 (619.9) 59.2
Cost of operations (255.6) 26.7 (330.9) 31.6
Selling, general and administrative expenses (90.1) 9.4 (115.1) 11.0
Adjusted EBITDA1 58.4 6.1 (19.1) 1.8
Depreciation of property, plant and
equipment and right-of-use assets (63.1) 6.6 (21.9) 2.1
Amortization of intangible assets (13.4) 1.4 (10.6) 1.0
Loss on disposal of capital assets
and equity investments (0.4) – (2.1) 0.2
Impairment losses (56.6) 5.9 – –
Net interest income (expense) (23.5) 2.5 3.2 0.3
Share of earnings (loss) from equity investments (1.7) 0.2 0.9 0.1
Loss before income taxes (100.3) 10.5 (49.6) 4.7
1 Earnings before interest, taxes, depreciation, amortization, impairment, asset disposals, and share of earnings (loss) from equity investments.
Also see “Non-IFRS Financial Measures”.
Adjusted EBITDA is a key indicator used by the Company to measure performance against internal targets and prior period
results and is commonly used by financial analysts and investors to assess performance. This measure is specific to Indigo and
has no standardized meaning prescribed by IFRS. Therefore, adjusted EBITDA may not be comparable to similar measures
presented by other companies. A reconciliation of adjusted EBITDA to loss before income taxes, the most directly comparable
measure determined under IFRS, is presented above for informational purposes.
Annual Report 2020 9
Selected financial information of the Company for the last three fiscal years is shown in the following table:
52-week 52-week 52-week
period ended period ended period ended
March 28, March 30, March 31,
(millions of Canadian dollars, except per share data) 2020 2019 20181
Revenue
Superstores 655.8 711.4 728.6
Small format stores 122.1 144.8 143.6
Online 162.7 175.9 176.8
Other 17.1 14.7 30.6
957.7 1,046.8 1,079.6
Earnings (loss) before income taxes (100.3) (49.6) 30.7
Income tax recovery (expense) (84.7) 12.8 (8.7)
Net earnings (loss) (185.0) (36.8) 21.9
Total assets 883.0 610.5 634.0
Lease liabilities (including current portion) 568.6 – –
Working capital 85.2 164.1 258.8
Basic earnings (loss) per common share ($6.72) ($1.35) $0.82
Diluted earnings (loss) per common share ($6.72) ($1.35) $0.81
1 The Company implemented IFRS 15 Revenue from Contracts with Customers, in fiscal 2019 using the full retrospective transition method.
As a result, certain prior year balances were restated.
10
Management ’s Discussion and Analysis
Selected operating information of the Company for the last three fiscal years is shown in the following table:
52-week 52-week 52-week
period ended period ended period ended
March 28, March 30, March 31,
2020 2019 2018
Comparable Sales Growth1
Total retail and online (7.9%) (1.1%) 6.2%
Superstores (8.2%) (1.8%) 4.0%
Small format stores (7.4%) 1.2% 2.4%
Stores Opened
Superstores – 4 –
Small format stores – – 1
– 4 1
Stores Rebranded, Relocated, or Renovated
Superstores 3 13 5
Small format stores – – 3
3 13 8
Stores Closed
Superstores 1 1 3
Small format stores 7 8 1
8 9 4
Number of Stores Open at Year-End
Superstores 88 89 86
Small format stores2 108 115 123
196 204 209
Selling Square Footage at Year-End (in thousands)
Superstores 1,941 1,962 1,887
Small format stores 279 287 308
2,220 2,249 2,195
1 See “Non-IFRS Financial Measures”.
2 Subsequent to the Company’s fiscal year end, in May 2020 the Company decided not to renew the leases for 15 small format stores beyond June 2020.
Adoption of IFRS 16 Leases (“IFRS 16”)
The Company’s financial performance in fiscal 2020 was materially impacted by the adoption of IFRS 16 Leases, which super-
sedes IAS 17. IFRS 16 introduced a single lessee accounting model which required substantially all the Company’s operating
leases to be recorded on balance sheet as a right-of-use asset and a lease liability, representing the right to use the underlying
asset during the lease term and the obligation to make future lease payments, respectively. The Company implemented the
standard on March 31, 2019 using the modified retrospective approach; therefore, the Company’s 2020 results reflect lease
accounting under IFRS 16. Prior year results have not been restated, as permitted under the transition provisions in the stan-
dard, and continue to be reported under IAS 17.
Certain lease-related expenses which were previously recorded in operating expenses are now recorded as depreciation
on the right-of-use asset and interest expense on the lease liability, line items which are reported below the adjusted EBITDA
key performance indicator. The depreciation expense associated with the right-of-use asset is recognized on a straight-line
basis over the associated lease term, while the interest expense declines over the life of the lease, as the liability is repaid.
From a measurement perspective, lease-related expenses are higher in the first half of the lease term, and lower in the second
Annual Report 2020 11
half when compared to the previous accounting method because of the recognition pattern for interest expense. Combined
with the change in presentation on the consolidated statements of loss, this resulted in a positive year-over-year variance in
adjusted EBITDA.
The impact of this adoption on the Company’s statement of loss for the 52-week periods ended March 28, 2020 and
March 30, 2019 is as follows:
52-week 52-week 52-week
period ended period ended period ended
March 28, March 28, March 30,
2020 Impact of 2020 % 2019 %
(millions of Canadian dollars) IFRS 16 IFRS 16 IAS 17 Revenue IAS 17 Revenue
Revenue 957.7 – 957.7 100.0 1,046.8 100.0
Cost of sales (553.6) – (553.6) 57.8 (619.9) 59.2
Cost of operations (255.6) (62.5) (318.1) 33.2 (330.9) 31.6
Selling, general and
administrative expenses (90.1) (5.4) (95.5) 10.0 (115.1) 11.0
Adjusted EBITDA1 58.4 (67.9) (9.5) 1.0 (19.1) 1.8
Depreciation of property, plant
and equipment and
right-of-use assets (63.1) 40.1 (23.0) 2.4 (21.9) 2.1
Amortization of intangible assets (13.4) – (13.4) 1.4 (10.6) 1.0
Loss on disposal of capital
assets and equity investments (0.4) – (0.4) – (2.1) 0.2
Impairment losses (56.6) 40.9 (15.7) 1.6 – –
Net interest income (expense) (23.5) 25.6 2.1 0.2 3.2 0.3
Share of earnings (loss) from
equity investments (1.7) – (1.7) 0.2 0.9 0.1
Loss before income taxes (100.3) 38.7 (61.6) 6.4 (49.6) 4.7
Income tax recovery (expense) (84.7) 37.5 (47.2) 4.9 12.8 1.2
Net Loss (185.0) 76.2 (108.8) 11.4 (36.8) 3.5
1 Earnings before interest, taxes, depreciation, amortization, impairment, asset disposals, and share of earnings (loss) from equity investments.
Also see “Non-IFRS Financial Measures”.
Refer to the “Accounting Standards Implemented in Fiscal 2020” section of this MD&A and Note 4 of the audited consol-
idated financial statements for further details regarding the adoption of IFRS 16 and the impact to the consolidated balance
sheets and opening retained earnings.
Revenue
Total consolidated revenue for the 52-week period ended March 28, 2020 decreased $89.1 million or 8.5% to $957.7 million
compared to $1,046.8 million for 52-week period ended March 30, 2019. This decline in revenue was primarily due to inten-
sified competitive pressures, softer traffic and the Company’s planned efforts to reduce promotions to improve profitability.
Notably, this included the deliberate reduction of mass promotions such as the ‘Every Book Ships Free’ summer campaign and
Black Friday promotions in the Company’s online channel. Print and general merchandise sales were also challenged without
a breakout book title or toy item when compared to fiscal 2019. COVID-19 disruptions also had a material negative impact
on sales for the year, primarily due to the temporary store closures which occurred on March 17, 2020, coinciding with many
March Break school holidays that would historically drive meaningful retail traffic in the fourth quarter.
Total comparable sales, which includes online sales, decreased by 7.9% for the year. Total comparable sales are based on
comparable retail store sales and includes online sales for the same period. Comparable retail store sales are defined as sales
generated by stores that have been open for more than 52 weeks. These measures exclude sales fluctuations due to store
12
Management ’s Discussion and Analysis
openings and closings, significant renovations, permanent relocations, material changes in square footage, and the impact of
a 53-week fiscal year, when applicable. In fiscal 2020, these measures also exclude retail sales fluctuations from the temporary
store closures associated with COVID-19. These measures are key performance indicators for the Company but have no stan-
dardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies.
Comparable retail superstore sales for the year decreased 8.2%, while small format stores decreased 7.4%. The decrease
was predominantly a result of lower store traffic and significantly less promotional activity undertaken by the Company to
preserve its profitability.
Online revenue decreased by $13.2 million or 7.5% to $162.7 million for the 52-week period ended March 28, 2020
compared to $175.9 million last year. The decrease was predominantly a result of the Company’s strategy to eliminate unprof-
itable business in its online channel, partially offset by the acceleration of online sales experienced in late March 2020, fueled
by retail store closures and government stay-at-home orders. Digital demand accelerated in conjunction with disruptions
from COVID-19 as household spending redirected to at-home entertainment, resulting in significant growth across the
Company’s book and toy merchandise categories, and partially offset the corresponding revenue loss experienced in retail.
While the Company’s focus on restoring profitability has resulted in lower revenue as discussed, the strategic initiative was
successful in delivering a year-over-year margin increase in the online channel of $1.8 million.
Revenue from other sources includes café revenue, irewards card sales, revenue from unredeemed gift cards (“gift card
breakage”), revenue from unredeemed plum points (“plum breakage”), plum PLUS membership fees (“plum PLUS revenue”),
corporate sales, and revenue-sharing with Rakuten Kobo Inc. (“Kobo”). Revenue from other sources increased $2.4 million
or 16.3% to $17.1 million for the 52-week period ended March 28, 2020 compared to $14.7 million in the same period last
year, primarily driven by the launch of plum PLUS, the Company’s new paid membership program.
Revenue by channel is highlighted below:
52-week 52-week Comparable
period ended period ended sales
March 28, March 30, % increase/ % increase/
(millions of Canadian dollars) 2020 2019 (decrease) (decrease)
Superstores 655.8 711.4 (7.8) (8.2)
Small format stores 122.1 144.8 (15.7) (7.4)
Online (including store kiosks) 162.7 175.9 (7.5) (7.5)
Other 1 17.1 14.7 16.3 N/A
Total 957.7 1,046.8 (8.5) (7.9)
1 Includes cafés, irewards, gift card breakage, plum breakage, plum PLUS revenue, corporate sales, and Kobo revenue share.
Reconciliations between total revenue and comparable sales are provided below:
52-week 52-week
period ended period ended
March 28, March 30,
(millions of Canadian dollars) 2020 2019
Total retail store revenue 777.9 856.2
Total online revenue 162.7 175.9
Adjustments for non-comparable items (65.6) (81.7)
Total comparable sales 875.0 950.4
Annual Report 2020 13
Superstores Small format stores
52-week 52-week 52-week 52-week
period ended period ended period ended period ended
March 28, March 30, March 28, March 30,
(millions of Canadian dollars) 2020 2019 2020 2019
Total revenue by format 655.8 711.4 122.1 144.8
Adjustments for non-comparable items (64.5) (67.5) (1.1) (14.2)
Comparable retail store sales 591.3 643.9 121.0 130.6
Revenue by product line is as follows:
52-week 52-week
period ended period ended
March 28, March 30,
2020 2019
Print 1 55.5% 55.5%
General merchandise 2 42.7% 43.1%
Other 3 1.8% 1.4%
Total 100.0% 100.0%
1 Includes books, magazines, newspapers, and related shipping revenue.
2 Includes lifestyle, paper, toys, electronics, eReaders, eReader accessories, and related shipping revenue.
3 Includes cafés, irewards, gift card breakage, plum breakage, plum PLUS revenue, corporate sales, and Kobo revenue share.
Cost of Sales
Cost of sales includes the landed cost of goods sold, online shipping costs, inventory shrink and damage reserve, less all vendor
support programs. Cost of sales decreased $66.3 million to $553.6 million for the 52-week period ended March 28, 2020,
compared to $619.9 million for the same period last year. As a percentage of total revenue, cost of sales decreased 1.4% to
57.8% compared to 59.2% for the same period last year.
This rate improvement was the result of focused efforts to eliminate non-margin accretive promotions, following a high
promotional cadence in the prior year in response to sales disruptions from store renovations and the Canadian postal strike.
Disciplined inventory management also resulted in lower markdowns throughout the year, which further improved the gross
margin rate across both print and general merchandise categories. In aggregate however, the rate improvement achieved did not
offset the impact of lost sales volume to margin, which was further impacted as a result of COVID-19 temporary store closures.
Cost of Operations
Cost of operations includes all store, store support, online, and distribution centre costs. Cost of operations decreased
$75.3 million to $255.6 million for the 52-week period ended March 28, 2020 compared to $330.9 million for the same period
last year. Excluding the impact of IFRS 16, normalized cost of operations decreased by $12.8 million from the prior year.
The Company achieved $14.9 million in operational costs savings from the impact of lower sales volumes on variable
costs in the store and distribution networks, as well as through productivity initiatives undertaken throughout the year. This
was partially offset by incremental costs associated with the Company’s online operations. As a percent of total revenue, nor-
malized cost of operations increased by 1.6% to 33.2%, compared to 31.6% for the same period last year as the efficiencies
realized were offset by the impact of a declining sales base.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include marketing, head office costs, and operating expenses associated with the
Company’s strategic initiatives. These expenses decreased $25.0 million to $90.1 million for the 52-week period ended
March 28, 2020 compared to $115.1 million for the same period last year. Excluding the impact of IFRS 16, normalized selling,
general and administrative expenses decreased by $19.6 million.
14
Management ’s Discussion and Analysis
The Company achieved $22.3 million in savings throughout the year through disciplined strategic spending and reduced
labour costs, which includes a reduction in incentive compensation. This was partially offset by $1.7 million of additional costs
from the repatriation of the Company’s New York design studio to Toronto, mostly in the form of termination expenses. As a
percent of total revenue, normalized selling, general and administrative expenses decreased by 1.0% to 10.0% compared to
11.0% for the same period last year.
Adjusted EBITDA
Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, impairment, asset disposals, and
share of earnings (loss) from equity investments. During the 52-week period ended March 28, 2020, adjusted EBITDA
increased $77.5 million to $58.4 million, compared to a loss of $19.1 million for the same period last year. Excluding the
impact of IFRS 16, adjusted EBITDA increased $9.6 million to loss of $9.5 million. As a percentage of total revenue, normal-
ized adjusted EBITDA improved by 0.8%.
The increase in normalized adjusted EBITDA was achieved despite a lower sales base in the current year. This was driven
by a disciplined focus on initiatives to improve margin rate, create efficiencies in the Company’s store and distribution net-
work, and to streamline the Company’s cost base. This was partially offset by temporary store closures in response to the
COVID-19 pandemic, and the Company’s decision to pay retail labour wages for all scheduled shifts through March, which
had an adverse impact to adjusted EBITDA.
A reconciliation of adjusted EBITDA to net loss before income taxes has been included in the “Results of Operations”
section of this MD&A.
Capital Assets
Depreciation and amortization for the 52-week period ended March 28, 2020 increased by $43.9 million to $76.5 million
compared to $32.6 million for the same period last year, which reflects the depreciation of the IFRS 16 right-of-use assets in
the current period. Excluding the impact of IFRS 16, depreciation and amortization increased $3.8 million as a result of sig-
nificant investments in capital assets made throughout fiscal 2019.
Capital expenditures in fiscal 2020 totaled $10.6 million compared to $86.6 million in the same period last year. This
decrease is a result of the completion of the capital investment program undertaken during fiscal 2019 across the Company’s
retail outlets, digital platforms and supply chain facilities. Capital expenditures for fiscal 2020 included $8.4 million for intan-
gible assets, relating primarily to application software and internal development costs, $1.2 million for technology equipment
and $1.0 million for capital asset additions from retail store renovations. None of the capital expenditures were financed
through leases.
Impairment Losses
Impairment losses for the 52-week period ended March 28, 2020 were $56.6 million, compared to no impairment losses
recognized in the prior year. Of this impairment, $40.9 million was taken against the right-of-use asset. Due to the adverse
impact of the COVID-19 pandemic on the global economy, including the impact on the Company’s business and share price,
and due to the Company’s current operating losses, impairment losses were recognized in the current period, as further
described in note 5 to the consolidated financial statements.
At each reporting date, the Company assesses whether indicators of asset impairment or impairment reversals existed,
in accordance with IAS 36 “Impairment of Assets”. For assets that can be reasonably and consistently allocated to individual
stores, the store level was used as the cash-generating unit (“CGU”) and remaining assets are assessed as a corporate asset
group. Recoverable amounts for CGUs tested were based on the higher of the value in use and the fair value less cost of dis-
posal, which is calculated from discounted cash flow projections and the amount obtainable from the sale of a CGU in an
arm’s-length transaction between knowledgeable, willing parties, less the costs of disposal, respectively.
Annual Report 2020 15
Net Interest Income (Expense)
The Company recognized net interest expense of $23.5 million for the 52-week period ended March 28, 2020, which reflects
the interest expense associated with the IFRS 16 lease liability in the current year, compared to net interest income of $3.2 mil-
lion in the prior year. Excluding the impact of IFRS 16, net interest income decreased by $1.1 million to $2.1 million due to
the lower cash balances maintained in interest-bearing short-term investments throughout the year.
Equity Investments
The Company uses the equity method to account for its investment in Unplug, and its prior investment in Calendar Club of
Canada Limited Partnership (“Calendar Club”). The Company recognizes its share of equity investment earnings and losses as
part of consolidated net earnings and losses.
During the year, the Company sold its equity investments in Calendar Club to Paris Southern Lights Inc. (a minority part-
ner in the partnership). The financial impact of the transaction consisted of proceeds of $1.8 million, which generated a gain
on the sale of $1.5 million. Prior to the sale, the Company recognized a net loss from Calendar Club of $1.6 million.
Earnings from Unplug were immaterial for the 52-week periods ended March 28, 2020 and March 30, 2019.
Income Taxes
The Company recognized a non-cash income tax expense of $84.7 million for the 52-week period ended March 28, 2020,
compared to recognizing a non-cash income tax recovery of $12.8 million last year. The income tax expense recognized in
the current period includes $37.5 million of income tax impact from IFRS 16, which primarily relates to the tax impact of
impairment on the right-of-use asset. Excluding the impact of IFRS 16, income tax expense increased by $60.0 million to
$47.2 million.
The income tax expense for the 52-week period ended March 28, 2020 was driven by the effect of deferred tax assets
that were not recognized in the current period. This decision was influenced by the Company’s current operating loss, and
uncertainty surrounding future profitability as a result of the COVID-19 pandemic, among other factors. As such, uncertainty
exists surrounding the probability of sufficient taxable income being available to utilize all deferred tax assets within the time-
line of management’s forecasts.The time period of future projected taxable profits used to assess the recognition of deferred
tax assets was shorter than the expiration period of the non-capital tax loss carryforward, and other deferred tax assets which
do not expire.
The Company’s effective tax rate was (84.5%) compared to 25.7% in the prior year.
Net Loss
The Company recognized a net loss of $185.0 million for the 52-week period ended March 28, 2020 ($6.72 basic net loss
per common share), compared to a net loss of $36.8 million last year ($1.35 basic net loss per common share).
The Company implemented IFRS 16 Leases on March 31, 2019, recognizing $388.5 million of right-of-use assets and
$37.5 million of additional deferred tax assets, a material increase to the Company’s consolidated balance sheet. Subsequently,
as at March 28, 2020, $40.9 million of impairment losses were recognized against the right-of-use assets, and the additional
$37.5 million of deferred tax assets were unrecognized. Together, this had a $78.4 million negative impact to the net loss posi-
tion, which was partially offset by the additional income from IFRS 16 accounting of $2.2 million. In totality, IFRS 16 had a
$76.2 million negative impact to the net loss position in the year.
Excluding the impact of IFRS 16, the net loss recognized in the period was $108.8 million. The increased loss was mainly
due to additional impairment losses of $15.7 million, as well as a deferred tax expense of $47.2 million from unrecognizing
the Company’s remaining deferred tax asset balance, as discussed.
Lower profitability was also driven by a decline in revenue, which reflects the current competitive landscape and the
Company’s deliberate actions to reduce promotional activity. Although the Company achieved cost improvements throughout
the year, these efforts did not offset the impact of a lower sales base. Lost revenue from temporary store closures in response
16
Management ’s Discussion and Analysis
to the COVID-19 pandemic, and the Company’s decision to pay retail labour wages for all scheduled shifts up until the end
of March, also had a material negative impact to earnings for the 52-week period ended March 28, 2020.
Other Comprehensive Income
Other comprehensive income consists primarily of gains and losses related to hedge accounting and the Company’s foreign
currency translation adjustments. The Company has a formal hedging policy to mitigate foreign exchange risk, entering into
contracts to manage the currency fluctuation risk associated with forecasted U.S. dollar expenses, primarily for general mer-
chandise inventory purchases. Financial instruments used to mitigate risk include foreign exchange forward contracts. All
contracts entered into during the year have been designated as cash flow hedges for accounting purposes and extend over a
period not exceeding 12 months.
During the 52-week period ended March 28, 2020, the Company entered into forward contracts with total notional
amounts of C$118.8 million to buy U.S. dollars and sell Canadian dollars, compared to entering contracts with total notional
amounts of C$153.1 million last year. As at March 28, 2020, the Company had remaining contracts in place representing a
total notional amount of $66.2 million and an unrealized net gain of $3.8 million, compared to a total notional amount of
C$66.9 million and an unrealized net gain of $1.1 million as at March 30, 2019.
During the fiscal year ended March 28, 2020, the Company had net gains (net of taxes) from the change in fair value of
outstanding cash flow hedges of $2.5 million, compared to net gains (net of taxes) of $2.4 million in the prior year. During
the same respective periods, the Company reclassified net gains (net of taxes) from settled contracts of $0.5 million from
other comprehensive income to inventory and expenses, and net gains (net of taxes) of $2.5 million in the prior year. This
resulted in an overall impact to other comprehensive income of $2.0 million for the fiscal year ended March 28, 2020 and
no impact to other comprehensive income for the fiscal year ended March 30, 2019.
The Company also recognized other comprehensive income of $0.4 million from the foreign currency translation adjust-
ment on consolidation of its foreign subsidiaries for the fiscal year ended March 28, 2020, compared to an other comprehensive
loss of $0.2 million in the prior year.
Seasonality and Fourth Quarter Results
Indigo’s business is highly seasonal and follows quarterly sales and earnings (loss) fluctuation patterns, which are similar to
those of other retailers that are highly dependent on the holiday season. A disproportionate amount of revenues and earnings
(losses) are earned in the third quarter. As a result, quarterly performance is not necessarily indicative of the Company’s per-
formance for the rest of the year.The impact of certain risks, as discussed in the “Risks and Uncertainties” section of this
MD&A, would have a disproportionate impact to the Company’s financial performance should any such events occur during
the holiday season.
The following table sets out revenue, net earnings (loss) and basic and diluted earnings (loss) per common share for the
preceding eight fiscal quarters.
Fiscal quarters
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
(millions of Canadian dollars, Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal Fiscal
except per share data) 20201 20201 20201 20201 2019 2019 2019 2019
Revenue 178.1 383.7 203.4 192.6 199.2 426.0 216.3 205.4
Total net earnings (loss) (171.3) 25.8 (20.5) (19.1) (23.8) 21.5 (19.1) (15.4)
Basic earnings (loss) per common share ($6.22) $0.94 ($0.74) ($0.69) ($0.86) $0.80 ($0.70) ($0.57)
Diluted earnings (loss) per
common share ($6.22) $0.94 ($0.74) ($0.69) ($0.86) $0.79 ($0.70) ($0.57)
1 The Company implemented IFRS 16 Leases, on March 31, 2019 using the modified retrospective approach. As a result, the Company’s fiscal 2020 results
reflect lease accounting under IFRS 16, while the prior quarters have not been restated. Refer to the “Results of Operations” section of this MD&A to assist
with year-over-year variance analysis.
Annual Report 2020 17
For fiscal 2021, revenue and net earnings (losses) may not follow historic patterns of seasonality presented above, due to
the impact of the COVID-19 pandemic.
For the 13-week period ended March 28, 2020, total consolidated revenue decreased by $21.1 million or 10.6% to
$178.1 million compared to $199.2 million for the 13-week period ended March 30, 2019. The decrease in revenue was mainly
a result of COVID-19 disruptions which had a material negative impact on sales in the fourth quarter, primarily due to the
temporary store closures which occurred on March 17, 2020. As a result, retail revenue decreased by $30.6 million or 18.5%
to $134.4 million for the 13-week period ended March 28, 2020 compared to $165.0 million for the same period last year.
The decrease in retail sales was partially offset by the acceleration of online sales experienced in late March 2020, fueled by
retail store closures and government stay-at-home orders, as discussed. Online revenue increased by $5.5 million or 16.4%
to $39.0 million for the 13-week period ended March 28, 2020 compared to $33.5 million in the same period last year.
The Company recognized a net loss of $171.3 million for the 13-week period ended March 28, 2020 ($6.22 basic net
loss per common share), compared to a net loss of $23.8 million ($0.86 basic net loss per common share) for the same period
last year. The impact of adopting IFRS 16 to the net loss position in the quarter was $77.0 million, which included the impair-
ment recognized on the right-of-use asset and the associated deferred tax impact. The increased loss compared to the prior
year was primarily a result of the impairment losses recognized, and the income tax expense associated with not recognizing
the deferred tax assets, as discussed. Contributing to these losses was also the financial impact of COVID-19, which included
the impact of temporary store closures and the payment of wages for all scheduled shifts up until the end of March.
Overview of Consolidated Balance Sheets
Assets
As at March 28, 2020, total assets increased by $272.5 million to $883.0 million compared to $610.5 million as at March 30,
2019, which reflects the inclusion of the right-of-use asset as per IFRS 16. Excluding the impact of IFRS 16, total assets de creased
by $109.7 million to $500.8 million, primarily driven by the decrease in deferred tax assets, and the impairment losses rec-
ognized in the year. In the current year, the Company did not recognize its net deferred tax assets, compared to recognizing
$47.9 million in the prior year. The Company also recognized an impairment loss of $15.7 million against non-financial assets,
compared to no impairment loss in the prior year. The impairment loss was recognized against and resulted in a decrease to
property, plant and equipment of $12.5 million, intangible assets of $3.0 million and the equity investment of $0.2 million.
Both the impact to deferred tax assets and impairment losses were influenced by the Company’s current operating loss, and
uncertainty surrounding future profitability as a result of the COVID-19 pandemic, among other factors.
This decline in total assets was furthered by an additional decrease in property, plant and equipment, a decrease in inven-
tories and a net decrease in cash and cash equivalents and short-term investments, partially offset by an increase in derivative
financial instruments. Property, plant, and equipment also decreased by $22.2 million as a result of increased accumulated
amortization associated with the significant capital investment program undertaken in fiscal 2019. Inventories decreased by
$10.7 million, consistent with the Company’s continued focus on stronger management of inventory levels. Net cash and cash
equivalents and short-term investments decreased by $8.0 million, due to the operating loss sustained. These decreases were
partially offset by the $2.7 million increase to derivative financial instruments as a result of favourable changes in fair value
of outstanding cash flow hedges.
Liabilities
As at March 28, 2020, total liabilities increased $558.7 million to $799.0 million compared to $240.3 million as at March 30,
2019, which includes the adjustments of $563.7 million to liabilities since the adoption of IFRS 16, primarily from the recog-
nition of the lease liabilities. Excluding the impact of IFRS 16, total liabilities decreased by $5.0 million. This decrease was driven
by a reduction in accounts payable and accrued liabilities, partially offset by an increase in deferred revenue and unredeemed
gift card liability. Accounts payable and accrued liabilities decreased by $15.9 million, primarily due to the reversal of accrued
incentive compensation. This impact was partially offset by a $3.0 million increase in deferred revenue from the launch of plum
18
Management ’s Discussion and Analysis
rewards, the Company’s new paid loyalty program and a $2.9 million increase in unredeemed gift card liability driven by sus-
tained changes in customer redemption patterns.
Equity
Total equity at March 28, 2020 decreased $286.1 million to $84.0 million, compared to $370.1 million as at March 30,
2019, which includes to-date adjustments to retained earnings for IFRS 16 of $181.3 million. Excluding the impact of IFRS 16,
total equity decreased by $104.6 million, primarily due to the net loss recognized in the year. This decrease was partially
offset by an increase in accumulated other comprehensive income of $2.6 million, primarily due to the change in the fair value
of outstanding cash flow hedges.
The weighted average number of common shares outstanding for fiscal 2020 was 27,515,109 compared to 27,354,358
last year. As at June 23, 2020, the number of outstanding common shares was 27,273,961 with a book value of $227.0 million.
Working Capital and Leverage
The Company reported working capital of $85.2 million as at March 28, 2020, compared to $164.1 million as at March 30,
2019. Excluding the impact of IFRS 16, the Company reported working capital of $154.3 million as at March 28, 2020. The
decrease in working capital compared to the same period last year was primarily a result of the decrease in inventories and
net decrease in cash and cash equivalents and short-term investments, as previously discussed.
Overview of Consolidated Statements of Cash Flows
Cash and cash equivalents increased $79.2 million during fiscal 2020, compared to a decrease of $109.0 million in the prior
year. The change in cash and cash equivalents during fiscal 2020 was driven by cash flows generated from operating activities of
$65.2 million and investing activities of $79.3 million, partially offset by cash flows used in financing activities of $66.0 million.
Cash Flows From (Used for) Operating Activities
The Company generated cash flows of $65.2 million from operating activities in fiscal 2020 compared to using $2.8 million
last year, an increase of $68.0 million. This is inclusive of the impact of IFRS 16, which had a $66.0 million impact to cash
flows from operating activities. Excluding the impact of IFRS 16, the Company used cash flows of $0.8 million for operating
activities, an improvement of $2.0 million from the prior period. This was primarily a result of the additional $9.5 million of
adjusted EBITDA recognized in the year, partially offset by the decrease of cash generated from working capital of $8.7 million,
excluding the impact of IFRS 16.
Cash Flows From (Used for) Investing Activities
The Company generated cash flows of $79.3 million from investing activities in fiscal 2020 compared to using $109.7 million
last year, a change of $189.0 million. This was partially driven by the maturity of $87.2 million of short-term investments in
fiscal 2020, compared to a re-investment of $27.2 million in the prior year. Contributing to this increase was the completion
of the capital investment program undertaken during fiscal 2019. In the current year, the Company spent $10.6 million on capital
projects compared to spending $86.6 million last year, a decrease of $76.0 million. Cash was used for capital projects as follows:
52-week 52-week
period ended period ended
March 28, March 30,
(millions of Canadian dollars) 2020 2019
Construction, renovations, and equipment, net 1.0 60.1
Intangible assets (primarily application software and internal development costs) 8.4 19.1
Technology equipment 1.2 7.4
Total 10.6 86.6
Annual Report 2020 19
Cash Flows From (Used for) Financing Activities
The Company used cash flows of $66.0 million for financing activities in fiscal 2020, compared to generating cash flows of
$2.9 million last year, which reflects the impact of IFRS 16. All cash flows used for financing activities in the current period
were associated with the lease liabilities under IFRS 16, which were previously classified as operating activities prior to the
implementation of the standard. Excluding the impact of IFRS 16, the Company had no cash flows from financing activities
as no share-based compensation options were exercised in the year.
Liquidity and Capital Resources
The Company has a highly seasonal business that generates a significant portion of its revenue and cash flows during the holiday
season. The Company has minimal accounts receivable and a majority of book products are purchased on trade terms with the
right to return. The Company’s main sources of capital are cash flows generated from operations, cash and cash equivalents
and short-term investments. Cash flows from operating activities could be negatively impacted by decreased demand for the
Company’s product offerings, which could result from factors such as, but not limited to, adverse economic conditions result-
ing from the COVID-19 pandemic and associated changes in consumer preferences, by the impact of social distancing policies
and general public health sentiment on retail store traffic, and the Company’s ability to safely fulfill orders through its online
distribution network.
The Company’s contractual obligations due over the next five years are summarized below:
(millions of Canadian dollars) Less than 1 year 1-3 years 4-5 years After 5 years Total
Total obligations 67.9 123.9 103.8 162.3 457.9
Based on the Company’s current business plan, liquidity position, cash flow forecast, and factors known to date, including
the currently known impacts of COVID-19, it is expected that the Company’s current cash position and future cash flows
generated from operations will be sufficient to meet its working capital requirements for fiscal 2021. However, the Company’s
ability to fund future operations will depend on its operating performance, which could be affected by risks associated by the
COVID-19 pandemic, as discussed. The Company can seek to raise additional funding should a significant risk to liquidity
arise, as it currently has no outstanding debt financing, and can reduce capital spending if necessary. However, the COVID-19
pandemic creates a number of additional risks to obtaining such funding, such as the ability to access capital at a reasonable
cost. Also, a long-term decline in capital expenditures may negatively impact the Company’s revenue and profit growth.
For additional discussion surrounding risks and uncertainties related to COVID-19, refer to the “Risks and Uncertainties”
section in this MD&A.
Accounting Policies
Critical Accounting Judgments and Estimates
The discussion and analysis of Indigo’s operations and financial condition are based upon the consolidated financial statements,
which have been prepared in accordance with IFRS. The preparation of these consolidated financial statements in conformity
with IFRS requires management to undertake a number of judgments and estimates about the recognition and measurement
of assets, liabilities, revenues, and expenses. These judgments and estimates are based on management’s historical experience
and other assumptions which the Company believes to be reasonable under the circumstances. The Company also evaluates
its judgments and estimates on an ongoing basis. Methods for determining all material judgments and estimates are consistent
with those used in prior periods, except as noted. Actual results may differ from the judgments and estimates made by man-
agement, and actual results will seldom equal estimates. The critical accounting judgments and estimates and significant
accounting policies of the Company are described in notes 3 and 4 of the consolidated financial statements.
The following items in the consolidated financial statements involve significant judgment or estimation.
20
Management ’s Discussion and Analysis
Use of judgments
The preparation of the consolidated financial statements in conformity with IFRS requires the Company to make judgments,
apart from those involving estimation, in applying accounting policies that affect the recognition and measurement of assets,
liabilities, revenues, and expenses. Actual results may differ from the judgments made by the Company. Information about
judgments that have the most significant effect on recognition and measurement of assets, liabilities, revenues, and expenses
is discussed below. Information about significant estimates is discussed in the following section.
Impairment
An impairment loss is recognized for the amount by which the carrying amount of an asset or a CGU exceeds its recoverable
amount. Impairment losses are reversed if the recoverable amount of the capital asset, CGU, or group of CGUs exceeds its
carrying amount, but only to the extent that the carrying amount of the asset does not exceed the carrying amount that would
have been determined, net of depreciation or amortization, if no impairment loss had been recognized. The Company uses
judgment when identifying CGUs, when assessing for indicators of impairment or reversal, and when estimating the recov-
erable amount of CGUs.
Intangible assets
Initial capitalization of intangible asset costs is based on the Company’s judgment that technological and economic feasibility
are confirmed and the project will generate future economic benefits by way of estimated future discounted cash flows that
are being generated.
Leases
The Company assesses whether a contract is or contains a lease, at inception of a contract. The Company recognizes a right-of-use
asset and a corresponding lease liability with respect to all lease agreements in which it is the lessee, except for short-term
leases (defined as leases with a lease term of 12 months or less) and leases of low value assets. For these leases, the Company
recognizes the lease payments as an operating expense on a straight-line basis over the term of the lease unless another sys-
tematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
The Company determines the lease term as the non-cancellable term of the lease, together with any periods covered by
an option to extend the lease if it is reasonably certain to be exercised. The Company has the option under many of its leases
to lease the assets for additional terms of five years, and applies judgment in evaluating whether it is reasonably certain to
exercise the option to renew. The Company considers all relevant factors that create an economic incentive for it to exercise
the renewal, including store performance, expected future performance and past business practice. After the commencement
date, the Company reassesses the lease term if there is a significant event or change in circumstances that is within its control
and affects its ability to exercise (or not to exercise) the option to renew (e.g., a change in business strategy).
Deferred tax assets
The recognition of deferred tax assets is based on the Company’s judgment. The assessment of the probability of future taxable
income against which deferred tax assets can be utilized is based on management’s best estimate of future taxable income that
the Company expects to achieve from reviewing its latest forecast. This estimate is adjusted for significant non-taxable income
and expenses and for specific limits to the use of any unused tax loss or credits. Deferred tax assets are recognized to the
extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry
forward of unused tax losses and unused tax credits can be utilized. If estimates of future taxable profit change, unrecognized
deferred tax assets can be recognized again in a future period. The recognition of deferred tax assets that are subject to certain
legal or economic limits or uncertainties are assessed individually by the Company based on the specific facts and circumstances.
Annual Report 2020 21
Use of estimates
Information about estimates that have the most significant effect on the recognition and measurement of assets, liabilities, rev-
enues, and expenses are discussed below.
Impairment
To determine the recoverable amount of an impaired asset, the Company estimates expected future cash flows and determines
a suitable discount rate in order to calculate the present value of those cash flows. In the process of measuring expected future
cash flows, the Company makes assumptions about certain variables, such as future sales, gross margin rates, expenses, capital
expenditures, working capital investments, which are based upon historical experience and expected future performance.
Determining the applicable discount rate involves estimating appropriate adjustments to market risk and to Company-specific
risk factors.
Inventories
The future realization of the carrying amount of inventory is affected by future sales demand, inventory levels, and product
quality. At each balance sheet date, the Company reviews its on-hand inventory and uses historical trends and current inventory
mix to determine a reserve for the impact of future markdowns that will take the net realizable value of inventory on-hand
below cost. Inventory valuation also incorporates a write-down to reflect future losses on the disposition of obsolete mer-
chandise. The Company reduces inventory for estimated shrinkage that has occurred between physical inventory counts and
each reporting date based on historical experience as a percentage of sales. In addition, the Company records a vendor settle -
ment accrual to cover any disputes between the Company and its vendors. The Company estimates this reserve based on his-
torical experience of settlements with its vendors.
Property, plant, equipment, and intangible assets (collectively, “capital assets”)
Capital assets are depreciated and amortized over their useful lives, taking into account residual values where appropriate.
Assessments of useful lives and residual values are performed on an ongoing basis and take into consideration factors such as
technological innovation, maintenance programs, and relevant market information. In assessing residual values, the Company
considers the remaining life of the asset, its projected disposal value, and future market conditions.
Leases
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted by using the Company’s incremental borrowing rate (“IBR”). The Company cannot readily determine the interest
rate implicit in the lease, therefore, it uses its IBR to measure lease liabilities.
The IBR is the rate of interest that the Company would have to pay to borrow over a similar term, and with a similar
security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment.
The IBR therefore reflects what the Company ‘would have to pay’, which requires estimation when no observable rates are
available or when they need to be adjusted to reflect the terms and conditions of the lease. The Company estimates the IBR
using observable inputs (such as market interest rates) when available and is required to make certain entity and asset-specific
estimates (such as the subsidiary’s stand-alone credit rating).
Revenue
The Company recognizes revenue for the estimated value of gift cards that are not expected to be redeemed by customers
(“gift card breakage”) in proportion to the pattern of rights exercised by the customer. The resulting gift card breakage revenue
is recognized over the estimated period of redemption based on historical redemption patterns commencing when the gift
cards are sold.
22
Management ’s Discussion and Analysis
The Indigo plum rewards program (“plum”) allows customers to earn points on their purchases. The allocation of trans-
action price to the plum loyalty obligation, which is the estimated reward tier value of a future redemption net of points man-
agement expects will go unredeemed, is based on a relative stand-alone selling price basis. The Company continues to
monitor trends in redemption patterns (redemption at each reward level), historical redemption rates (points redeemed as a
percentage of points issued) and net cost per point redeemed. Points revenue is included as part of total revenue in the
Company’s consolidated statements of earnings (loss) and comprehensive earnings (loss).
Share-based payments
The cost of equity-settled transactions with counterparties is based on the Company’s estimate of the fair value of share-based
instruments and the number of equity instruments that will eventually vest. The Company’s estimated fair value of the share-
based instruments is calculated using the following variables: risk-free interest rate; expected volatility; expected time until
exercise; and expected dividend yield. Risk-free interest rate is based on Government of Canada bond yields, while all other
variables are estimated based on the Company’s historical experience with its share-based payments.
Accounting Standards Implemented in Fiscal 2020
IFRS 16 Leases
Effective in the first quarter of fiscal 2020, the Company adopted IFRS 16, which introduces a single lessee accounting model,
eliminating the distinction between operating and finance leases. IFRS 16 is effective for annual reporting periods beginning
on or after January 1, 2019 and supersedes IAS 17.
The Company adopted the standard on March 31, 2019, applying the requirements using the modified retrospective tran-
sition method, with the cumulative effect recognized in retained earnings. Prior year figures were not restated, as permitted
under the transition provisions in the standard, and continue to be reported under IAS 17. The adoption of IFRS 16 has resulted
in the recognition of right-of-use assets and lease liabilities for substantially all operating leases where the Company is a lessee.
During the course of the Company’s financial statement close process for the year ended March 28, 2020, accounting
errors were identified in the assessment of the modified retrospective application of day one right-of-use assets (“ROU
assets”) performed in connection with the adoption of IFRS 16 as at March 31, 2019.
In particular, there were errors identified in performing the likelihood assessment on extension options for one lease con-
tract, and in applying historical data to retrospectively construct the ROU assets for a select number of leases. These errors
produced an overstatement of the ROU assets of $24.4 million, and an understatement of the ROU assets of $5.4 million,
respectively. When appropriately performing the quantification of the ROU assets as at March 31, 2019, the net effect of these
errors resulted in the overstatement of ROU assets recognized on IFRS 16 adoption of $19.5 million, requiring an associated
increase of $24.4 million to long-term lease liabilities, a charge of $4.0 million to opening retained earnings and an increase
of $1.4 million to the deferred tax asset balance recognized.
Additionally, there was an error with the classification between short-term and long-term lease liabilities of $25.1 mil-
lion as a result of implementing an amortization approach rather than the present value of lease payments due within twelve
months of the reporting date.
Correction of these errors (which appeared in the unaudited condensed interim consolidated financial statements and
related note disclosures for the quarters ended June 29, 2019, September 28, 2019 and December 28, 2019) has a non-cash
impact on the ROU asset, deferred tax asset balance, long-term lease liabilities and opening retained earnings (deficit) bal-
ance, and will result in lower depreciation of the ROU assets and reduced interest expense going forward.
Correction of these errors would have also impacted working capital disclosures in the referenced quarterly reports.
However, the Company provided commentary in its Management Discussion & Analysis to normalized working capital balances,
excluding all effects of IFRS 16, which accurately reflected the liquidity position of the Company.
Annual Report 2020 23
The following table summarizes the adjustments to opening balances resulting from the initial adoption of IFRS 16:
As at As at
March 30, March 31,
2019 IFRS 16 2019
(millions of Canadian dollars) IAS 17 Adjustment IFRS 16
Assets
Right-of-use assets (as restated) – 388.5 388.5
Deferred tax assets 47.9 37.5 85.4
Liabilities
Accounts payable and accrued liabilities 179.2 1.2 180.4
Short-term lease liabilities (as restated) – 68.1 68.1
Long-term accrued liabilities 4.7 (3.5) 1.2
Long-term lease liabilities (as restated) – 465.2 465.2
Equity
Retained earnings (as restated) 131.3 (105.1) 26.2
Upon adoption of IFRS 16, the Company recognized lease liabilities in relation to leases which had previously been clas-
sified as operating leases under the principles of IAS 17. These liabilities are measured at the present value of the remaining
fixed lease payments, discounted using the Company’s incremental borrowing rate as of March 31, 2019. The weighted aver-
age rate applied to the lease liabilities recognized in the consolidated balance sheet as at March 31, 2019 was 4.52 percent.
The associated right-of-use assets were primarily measured as if the standard had been applied since the commencement
date of the lease, but discounted using the Company’s incremental borrowing rate at the date of initial application.
In applying IFRS 16, the Company has used the following practical expedients permitted by the standard:
• the exclusion of short-term leases and contracts for which the underlying asset is of low value,
• the exclusion of initial direct costs from the right-of-use assets on transition,
• the treatment of lease and non-lease components as a single lease component for the real estate class of assets,
• the onerous lease provisions recognized as at March 30, 2019 as an alternative to performing an impairment
review on right-of-use assets as at March 31, 2019,
• the use of hindsight in determining lease term at the date of initial application,
• and the use of a single discount rate for a portfolio of leases with reasonably similar underlying characteristics.
The impact on the Company’s statement of loss for the 52-week period ended March 28, 2020 is outlined in the Results
of Operations section of this MD&A to assist with year-over-year variance analysis.
On completion of the IFRS 16 implementation, the Company updated its lease accounting policies as follows:
The Company assesses whether a contract is or contains a lease at the inception of the contract. Leases are recognized as
a right-of-use asset and corresponding lease liability at the lease commencement date. The lease liability is measured at the
present value of the future lease payments, less any lease incentives receivable, discounted using the lessee’s incremental bor-
rowing rate, unless the implicit interest rate in the lease can be easily determined. Lease liabilities are subsequently measured
at amortized cost using the effective interest rate method.
Lease terms applied are the contractual non-cancellable periods for which the Company has the right to use an underlying
asset, together with periods covered by an option to extend or terminate, if the Company is reasonably certain to exercise
those options. Lease liabilities are remeasured (with a corresponding adjustment to the right-of-use asset) when there is a
change in the lease term, a change in the future lease payments resulting from a change in an index or rate used to determine
those payments, or when the lease contract is modified and the lease modification is not accounted for as a separate lease.
24
Management ’s Discussion and Analysis
The right-of-use assets include the initial measurement of the corresponding lease liabilities, lease payments at or before
the commencement date, any initial direct costs, less any lease incentives received before the commencement date. The right-
of-use assets are subsequently measured at cost and are depreciated on a straight-line basis over the lease term from the date
the underlying asset is available for use.
Variable lease payments that do not meet IFRS 16 measurement parameters are not included in the measurement of the
lease liabilities and are recognized in cost of operations and selling, administrative, and other expenses as incurred.
Risks and Uncertainties
COVID-19 Emerging Risk
The COVID-19 pandemic creates a number of risks and uncertainties for the Company’s business, which could significantly
impact the Company’s results of operations going forward and the forward-looking statements made herein.
As an emerging risk, the duration and impact of the COVID-19 pandemic is unknown at this time, as is the efficacy of
any current or future government and central bank interventions. Any estimate of the length and severity of these develop-
ments is therefore subject to significant uncertainty, and accordingly estimates of the extent to which the COVID-19 pan-
demic may, directly or indirectly, materially and adversely affect the Company’s operations, financial results and condition in
future periods are also subject to significant uncertainty.
Investors should also refer to the Company’s description of certain impacts of the ongoing pandemic described above
under “Statement on COVID-19”.
Economic Environment
Traditionally, retail businesses are highly susceptible to market conditions in the economy. Economic conditions, both on a
global scale and in particular markets, may have significant effects on consumer confidence and spending. A decline in con-
sumer spending, especially during the holiday season, could have an adverse effect on the Company’s financial condition. Health
pandemics, such as the current COVID-19 outbreak, and the related governmental, private sector and individual consumer
responses could reduce retail traffic and consumer spending, result in temporary or permanent closures of stores, offices, and
factories, and could disrupt the material flow of goods, which could have an adverse effect on the Company’s financial situa-
tion. Other variables, such as unanticipated increases in merchandise costs, higher labour costs, increases in shipping rates or
interruptions in shipping service, foreign exchange fluctuations, political uncertainty, disruptions in international trade, the
impact of natural disasters, geo-political events or acts of terrorism, or higher interest rates or unemployment rates, could
also unfavourably impact the Company’s financial performance.
Real Estate
The Company leases all of its retail locations and while it attempts to renew these leases as they come due on favourable terms
and conditions, it is susceptible to volatility in the market for supercentre and shopping mall space. Unforeseen increases in
occupancy costs, or costs incurred due to unanticipated store closings or relocations, could also unfavourably impact the
Company’s performance.
As a result of the COVID-19 pandemic, the Company temporarily closed its retail stores on March 17, 2020. Beginning
in April 2020, the Company suspended rent payments under a number of its real estate leases in response to business disrup-
tions from COVID-19. The Company is currently negotiating with its landlords to abate certain rent expense in response to
the financial impact of COVID-19, as discussed; however, there can be no assurance that such negotiations will be successful
and there are additional risks associated with these suspensions.
The inability of the Company to enter into suitable rent relief arrangements could potentially have a cumulative material
effect, depending on the number of locations impacted, the materiality of such locations to the overall business, and any dis-
pute under these leases that may result in litigation with the respective landlord.
Investors should also refer to the Company’s description of certain impacts of the ongoing pandemic described above
under “Statement on COVID-19”.
Annual Report 2020 25
Liquidity Risk
Liquidity risk is the risk that the Company cannot meet a demand for cash or fund its obligations as they come due. Liquidity
risk is managed by continuously monitoring actual and projected cash flows, taking into account the historical seasonality of
the Company’s revenue and working capital needs.
However, cash flows from operating activities could be negatively impacted by decreased demand for the Company’s
product offerings, which could result from factors such as, but not limited to, adverse economic conditions resulting from
the COVID-19 pandemic and associated changes in consumer preferences, or by the impact of social distancing policies and
general public health sentiment on retail store traffic, and or the Company’s ability to safely fulfill orders through its online
distribution network.
Based on the Company’s current business plan, liquidity position, cash flow forecast, and factors known to date, including
the currently known impacts of COVID-19, it is expected that the Company’s current cash position and future cash flows
generated from operations will be sufficient to meet its working capital requirements for fiscal 2021. However, the Company’s
ability to fund future cash requirements will depend on its future operating performance, which could be affected by risks
associated by the COVID-19 pandemic, as discussed. The Company could seek to raise additional funding in the event it fails
to maintain sufficient liquidity, as it currently has no outstanding debt financing, and reduce capital spending if necessary.
However, the COVID-19 pandemic creates a number of additional risks such as the negative impact on debt and equity capital
markets, including the ability to access capital at a reasonable cost and the trading price of the Company’s securities, which
could impact future capital raising efforts if required by the Company. A long-term decline in capital expenditures may neg-
atively impact the Company’s revenue and profit growth.
Workplace Health and Safety
The failure of the Company to adhere to appropriate health and safety procedures and to ensure compliance with applicable
laws and regulations could result in employee injuries, productivity loss, and liabilities to the Company. To reduce the risk of
workplace incidents, the Company has health and safety programs in place and has established policies and procedures aimed
at ensuring compliance with applicable legislative requirements.
During the COVID-19 pandemic, the health and safety of the Company’s customers, employees and communities have
remained a top priority in the face of evolving workplace risks and practices related to the pandemic. The Company has put
in place and employed extensive health and safety measures across all of its operations based on the guidance and direction
from public health authorities. If government authorities introduce more stringent health and safety laws, the Company may
incur additional costs to comply with these requirements, which may have an adverse impact on the Company’s financial
results. Further, if the Company is unable to meet the current or future health and safety laws, regulations and industry stan-
dards related to COVID-19, or despite the Company’s efforts and precautions, employees are exposed and infected by the
COVID-19 virus, it could have an adverse effect on the Company’s abilities to re-open and operate its stores, maintain oper-
ations at its distribution centres, or reopen and operate its head office and an impact to customer and employee engagement,
all of which could have an adverse effect on the Company’s operations and financial performance.
Remote Work
In addition to closing its retail locations, in response to the COVID-19 pandemic the Company also had to close its head office
and implement a remote work program to maintain its operations. While employees are generally able to perform their functions
in a remote setting from their homes or other locations, certain additional risk factors may negatively impact the Company’s
ability to perform its operations efficiently, securely and without interruptions. These risk factors, any of which could have an
adverse effect on the Company’s operations and financial performance, include: increased cybersecurity threats while duties
are performed outside the Company’s regular offices, increased dependence on telecommunication links such as Internet
access in employees’ homes, decreased efficiency due to the change in equipment and network speeds used for data processing
and use, the timely dissemination and exchange of information in a remote workforce environment and the dependence on
certain functions that are difficult to efficiently conduct outside a regular workplace.
26
Management ’s Discussion and Analysis
Competition
The retail industry is highly competitive and continues to experience fundamental changes in a rapidly evolving environment.
Specialty and independent bookstores, other book superstores, regional multi-store operators, mass merchandisers, super -
markets, retail pharmacies, warehouse clubs, internet booksellers, publisher direct-to-consumer operations and other retailers
continue to sell physical book offerings, often at substantially discounted prices. Many of these competitors, as well as other
retailers, also offer digital reading options, which compete for the share of the customer’s discretionary book and entertain-
ment budget.
The general merchandise retail landscape also features significant competition from established retailers and emerging
disruptive digital retail options, and there can be no assurances that the Company will be able to gain market share. The
Company competes with local, regional, national, and international retailers and direct-to-consumer companies that sell gift
and specialty toy products through both physical and digital platforms. New competitors frequently enter the market and
existing competitors may increase market presence, expand merchandise offerings, add new sales channels, or change their
pricing methods, all of which increase competition for customers.
Many of the Company’s current and potentially future competitors are larger, have greater brand recognition, greater
online presence and access to greater financial, marketing and other resources. The size and resources of such competitors
may allow them to compete more aggressively, which could adversely impact Indigo’s revenue, market share and operating
margins. In addition, increased efforts by such competitors, including the introduction of new and innovative products and
services as well as aggressive expansion, merchandising or discounting by competitors, could reduce the Company’s revenue,
market share, and operating margins.
Consumer Trends
The Company’s success largely depends on its ability to anticipate and respond to shifts in consumer trends in an agile manner.
The general merchandise business is particularly susceptible to changing consumer preferences that cannot be predicted with
certainty. If the Company is unable to adequately respond to changing consumer trends or sales forecasts that do not match
customer demand, it could experience higher inventory markdowns or an inventory shortage, both of which would have an
adverse effect on sales and profitability. This risk is mitigated by the Company’s focus on building an assortment of innovative
products which resonate with consumers, including through its proprietary brands, and by the breadth of the Company’s
product range across diversified categories.
Reliance on Third Parties in Omni-Channel Business
As e-commerce continues to become a larger component of the Company’s omni-channel business, Indigo relies on third-party
logistics partners, such as Canada Post, to fulfill sales transactions with its customers in a dependable and timely manner.
Changes in geographic coverage, service levels, capacity levels, and labour disruptions at the Company’s logistics partners,
including as a result of COVID-19, may adversely affect Indigo’s business and financial results.
Strategic Initiatives
The retail industry is constantly changing and management is committed to the Company’s continued growth and success.
Expansion into new markets, or the launch of new initiatives could place a significant strain on the Company’s management,
operations, technical performance, financial resources, and internal financial control and reporting functions. The Company
will continue to change and modify its strategy based on its economic environment and there can be no assurances that
Indigo’s strategy will be successful.
Relationships with Suppliers
Indigo relies heavily on suppliers to sell books and general merchandise on acceptable terms and within agreed upon time-
lines. These suppliers are impacted by, among other things, increases in labour and input costs, labour disputes and disruptions,
regulatory changes, political or economic instability, natural disasters, trade restrictions, tariffs, currency exchange rates,
Annual Report 2020 27
transport costs and other factors, which more recently, include the closure of national borders and disruption of merchandise
deliveries due to the effects of the COVID-19 pandemic. To date, the Company has not experienced any significant difficulty
in obtaining merchandise and considers its sources of supply to be adequate, however, the Company’s flow of merchandise
could be affected by the COVID-19 pandemic, including from countries such as China and India. Collectively and individu-
ally, these factors are beyond the Company’s control and a failure to maintain favorable terms and relationships with these
suppliers, or the absence of key suppliers, may affect the Company’s ability to compete in the marketplace. As Indigo contin-
ues to source a greater portion of its products from overseas, events causing disruptions to imports, changes in trade restric-
tions and tariffs, or currency fluctuations could negatively impact the Company’s revenues and margins.
The Company is also reliant on third parties to provide services essential to daily operations. Any disruption to these
third-party services could have an unfavourable impact on the Company’s performance and reputation, including significant
negative impact in areas such as supply chain logistics, software development and support, transaction and payment processing,
and other key processes. The Company cannot make any assurances that it would be able to arrange for alternate or replacement
contracts, transactions, or business relationships to mitigate the impact of disruptive events.
Inventory Management
The Company must manage its inventory levels to successfully operate the business. Inventory purchases are based on several
variables, such as market trends and sales forecasts. An inability to respond to changing customer preferences or sales forecasts
which do not match customer demand may result in an inventory shortage or excess inventory that must be sold at lower
prices. While the majority of the Company’s book purchases are eligible for return to suppliers at full credit, the evolution
of the Company’s product assortment, namely general merchandise items, means the Company has an increasing amount of
non-returnable inventory. The Company monitors the impact of customer trends on inventory turnover and obsolescence,
but inappropriate inventory levels could negatively impact the Company’s revenue and financial performance.
Product Quality and Product Safety
The Company sells products produced by third-party manufacturers and relies on vendors to provide quality merchandise
compliant with all applicable laws. Some of these products may expose the Company to potential liabilities and costs associated
with defective products, product handling, and product safety. As part of its general merchandise assortment, the Company
also sells food and personal care products and is subject to the distinctive risks associated with those products.
These risks could result in harm to the Company’s customers and expose Indigo to product liability claims, damage the
Company’s reputation, and lead to product recalls. Liabilities and costs related to product quality and product safety may also
have a negative impact on the Company’s revenue and financial performance. The Company has policies and controls in place to
manage these risks, including maintaining liability insurance and offering product safety guidance to third-party manufacturers.
Information Technology and Digital Platforms
The Company increasingly depends on the proper operation of its information technology platforms and those of third parties
to successfully conduct daily business functions, maintain its competitive position in the marketplace and enable its growth
strategy. The Company continues to invest in new technologies to expand its competitiveness and customer experience. Any
failure in the implementation of these solutions, the operation of current information technology systems, platforms or third-
party cloud-based processing could result in a significant disruption to the business, potentially negatively impacting revenue
or damaging the Company’s reputation. Furthermore, the Company continues to rely on legacy technologies and systems and
any failure to maintain and support these legacy systems or migrate to new technology systems could impact Indigo’s oper-
ational effectiveness.
28
Management ’s Discussion and Analysis
Cybersecurity
A failure in, or breach of, the Company’s information technology, operational or security systems or physical infrastructure,
or those of Indigo’s third-party vendors, cloud-based services, and other service providers, including as a result of cyberat-
tacks, could disrupt the business, result in the disclosure or misuse of confidential or proprietary information, damage
Indigo’s brand and reputation, lead to temporary or permanent loss of data, increase the Company’s remediation costs and
legal liabilities, and impact its financial position and/or ability to achieve its strategic objectives. Although Indigo has business
continuity plans, cyber insurance coverage and other safeguards in place, along with robust information security procedures,
employee security awareness training and controls, the Company’s business operations may be adversely affected by signifi-
cant and widespread disruption to Indigo’s physical information technology infrastructure or operating systems that support
the Company’s business and customers. As cyber threats continue to evolve and become more difficult to detect, the Company
may be required to expend significant additional resources to continue to modify or enhance Indigo’s protective measures to
protect against, among other things, security breaches, computer viruses and malware, phishing, hacktivism, cyberterrorism,
denial-of-service attacks, credentials compromise, or to investigate and remediate any information security vulnerabilities.
Additionally, please see the “Remote Work” risk factor above.
Disaster Recovery and Business Continuity
Weather conditions, as well as events such as political or social unrest, natural disasters, disease outbreaks such as the COVID-19
pandemic, or acts of terrorism, could have a material adverse effect on the Company’s operations and financial performance.
Moreover, if such events were to occur at peak times in the Company’s business cycle, the impact of these events on operating
performance could be significantly greater than they would otherwise have been. The Company has procedures in place to
reduce the impact of business interruptions, crises, and potential disasters, but there can be no assurance that these proce-
dures can fully eliminate the negative impact of such events.
Key Personnel
The Company’s continued success will depend to a significant extent upon securing and retaining sufficient talent in manage-
ment and other key areas. Employees have developed specialized skills and an in-depth knowledge of the business. Failure to
effectively attract and retain talented and experienced employees or failure to establish adequate succession planning could
result in a lack of requisite knowledge, skill and experience. If the Company does not continue to attract qualified individuals,
train them in Indigo’s business model, support their development, and retain them, the Company’s performance could be
adversely impacted and growth could be limited. The loss of the services of key personnel, particularly the Chief Executive
Officer, could have a material adverse effect on the Company. To mitigate the risk of personnel loss, the Company has imple-
mented a number of employee engagement and retention strategies.
Corporate Reputation
The Company’s corporate reputation and those of its brands are very important to Indigo’s success and competitive position.
The Company’s reputation and, consequently, its brand, may be negatively affected by various factors, some of which may be
outside of Indigo’s control. Adverse events may damage the Company’s reputation and brands at the corporate or retail level.
Should negative factors materialize and diminish Indigo’s brand equity, there could be a material adverse effect on the
Company’s operations and financial performance.
Intellectual Property
Infringement of the Company’s intellectual property could negatively affect the Company’s revenue, profitability and repu-
tation. While the Company is not currently aware of any infringement or material challenges to the use of its trademarks and
domain names in Canada or the United States, the Company has a strategy and processes in place to protect and vigorously
defend its intellectual property.
Annual Report 2020 29
Credit, Foreign Exchange, and Interest Rate Risks
Indigo is exposed to credit risk resulting from the possibility that counterparties may default on their financial obligations to
the Company. Credit risk primarily arises from accounts receivable, cash and cash equivalents, short-term investments, and
derivative financial instruments.
Accounts receivable primarily consists of receivables from financial institutions for the Company’s sales by credit card
tender, recoveries of credits from suppliers for returned or damaged products, tenant allowances receivable from landlords
for renovations and lease inducements and receivables from other companies for sales of products, gift cards, and other services.
Credit card payments have minimal credit risk and the limited number of corporate receivables is closely monitored.
The Company limits its exposure to counterparty credit risk related to cash and cash equivalents, short-term invest-
ments, and derivative financial instruments by transacting only with highly-rated financial institutions and other counterparties
and by managing within specific limits for credit exposure and term to maturity.
The Company’s foreign exchange risk is largely limited to currency fluctuations between the Canadian and U.S. dollars.
Decreases in the value of the Canadian dollar relative to the U.S. dollar could negatively impact net earnings since the pur-
chase price of some of the Company’s products are negotiated with vendors in U.S. dollars, while the retail price to Indigo’s
Canadian customers is set in Canadian dollars. The Company also has a U.S. retail store that earns revenue in U.S. dollars and
incurs U.S. dollar expenses. The Company maintains a hedging program to mitigate foreign exchange risk.
The Company’s interest income is sensitive to fluctuations in Canadian interest rates, which affect the interest earned on
Indigo’s cash and cash equivalents and short-term investments. The Company does not currently have any debt and all interest
expense recognized in fiscal 2020 relates to its retail lease liabilities. The Company has minimal interest rate risk and does not
use any interest rate swaps to manage its risk.
Legal Proceedings
In the normal course of business, Indigo becomes involved from time to time in litigation and disputes. The outcomes of reg-
ulatory investigations, litigation and arbitration disputes are inherently difficult to predict, which creates the risk that an
unfavourable outcome in any of these matters could negatively affect the Company’s business, reputation, financial condition
and performance. Regardless of the outcome, litigation may result in substantial costs and expenses to the Company and sig-
nificantly divert the attention of the Company’s management. While the final outcome of such claims and litigation pending
as at March 28, 2020 cannot be predicted with certainty, management believes that any such amount would not have a mate-
rial impact on the Company’s financial position.
Regulatory Environment
The Company’s operations and activities are subject to a number of laws and regulations in Canada, the United States and in
other countries. Changes to statutes, laws, regulations or regulatory policies, including tax laws, accounting principles, and envi-
ronmental regulations, or changes in their interpretation, implementation or enforcement, could adversely affect the Company’s
operations and performance. The Company may incur significant costs in the course of complying with any such changes.
The Company is also subject to continuous examination of its regulatory filings by various securities regulators, tax
authorities, and environmental stewards. As a result, authorities may disagree with the positions and conclusions taken by the
Company in its filings, resulting in a reassessment. Reassessments could also arise from amended legislation or new interpre-
tations of current legislation. Any reassessment could adversely affect the Company’s financial performance.
Failure to comply with applicable regulations could also result in judgment, sanctions, or financial penalties that could
adversely impact the Company’s reputation and financial performance. The Company believes that it has taken reasonable
measures designed to ensure compliance with applicable regulations, but there is no assurance that the Company will always
be deemed to be in compliance.
Throughout the COVID-19 pandemic, federal, provincial, state and municipal government authorities have introduced
new legislation and regulations, as well as applied existing laws and ordinances in novel ways, in order to mitigate the impacts
of the virus. The Company has actively monitored and analysed these government actions, assessed their impact on the
30
Management ’s Discussion and Analysis
Company’s operations, and, where necessary or prudent, implemented changes to the Company’s business practices and
operations. The imposition of additional regulations or the enactment of any new or more stringent legislation in response to
the COVID-19 pandemic could have a material adverse impact on the Company’s business and results of operations.
The sourcing and importation of books is governed by the Book Importation Regulations to the Copyright Act (Canada).
Any changes to the existing regulatory framework may impact the Company’s ability to secure and maintain favorable terms
and access to essential products, which could negatively impact the Company’s revenues and margins and its ability to com-
pete in the marketplace. As well, the distribution and sale of books is a regulated cultural industry in which foreign invest-
ments to acquire control of an existing cultural business are subject to review under the Investment Canada Act. There is no
assurance that the existing regulatory framework will not change in the future or that it will be effective in preventing for-
eign-owned retailers from competing in Canada or by acting as a constraint on the acquisition by foreign investors of Canadian
retailers involved in a cultural business. An increased number of competitors could have an adverse effect on the Company’s
financial performance.
Compliance with Privacy Laws
A number of Canadian federal and provincial statutes, as well as corresponding U.S. federal and state statutes, govern the pri-
vacy rights of the Company’s employees and customers. These privacy laws create certain obligations regarding the Company’s
handling of personal information, including obligations relating to obtaining appropriate consent, limitations on use, reten-
tion, and disclosure of personal information, and ensuring appropriate security safeguards are in place. In the course of its
business, the Company maintains records containing sensitive information identifying or relating to individual customers and
employees. Although the Company has implemented systems and processes to comply with applicable privacy laws in con-
nection with the collection, use, retention, and disclosure of such personal information, if a significant failure of such systems
was to occur, the Company’s business and reputation could be adversely affected.
Disclosure Controls and Procedures
Management is responsible for establishing and maintaining a system of disclosure controls and procedures to provide reason-
able assurance that all material information relating to the Company is gathered and reported on a timely basis to senior man-
agement, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), so that appropriate decisions
can be made by them regarding public disclosure.
As required by National Instrument 52-109, “Certification of Disclosure in Issuers’ Annual and Interim Filings,” the CEO
and CFO have evaluated, or caused to be evaluated under their supervision, the effectiveness of such disclosure controls and
procedures. Based on that evaluation, they have concluded that the design and operation of the system of disclosure controls
and procedures were effective as at March 28, 2020.
Internal Controls over Financial Reporting
Management is also responsible for establishing and maintaining adequate internal controls over financial reporting to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements
for external purposes in accordance with IFRS.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to consolidated financial statement preparation
and presentation. Additionally, management is necessarily required to use judgment in evaluating controls and procedures.
As required by National Instrument 52-109, “Certification of Disclosure in Issuers’ Annual and Interim Filings,” the CEO
and CFO have evaluated, or caused to be evaluated under their supervision, the effectiveness of such internal controls over
financial reporting using the framework established in the Internal Control – Integrated Framework (“COSO Framework”)
published in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation,
they have concluded that the design and operation of the Company’s internal controls over financial reporting were effective
as at March 28, 2020.
Annual Report 2020 31
Changes in Internal Controls over Financial Reporting
Management has also evaluated whether there were changes in the Company’s internal controls over financial reporting that
occurred during the quarter and year ended on March 28, 2020 that have materially affected, or are reasonably likely to mate-
rially affect, the Company’s internal controls over financial reporting. The Company has determined that no material changes
in internal controls over financial reporting have occurred in this period.
Cautionary Statement Regarding Forward-Looking Statements
The above discussion includes forward-looking statements. All statements other than statements of historical facts included
in this discussion that address activities, events, or developments that the Company expects or anticipates will or may occur
in the future are forward-looking statements. These statements are based on certain assumptions and analyses made by the
Company in light of its experience, analysis, and its perception of historical trends, current conditions, and expected future
developments as well as other factors it believes are appropriate in the circumstances. However, whether actual results and
developments will conform to the expectations and predictions of the Company is subject to a number of risks and uncer-
tainties, including the general economic, market, or business conditions; competitive actions by other companies; changes in
laws or regulations; and other factors, many of which are beyond the control of the Company. Consequently, all of the for-
ward-looking statements made in this discussion are qualified by these cautionary statements and there can be no assurance
that results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have
the expected consequences to, or effects on, the Company.
Non-IFRS Financial Measures
The Company prepares its consolidated financial statements in accordance with IFRS. To provide additional insight into the
business, the Company has also provided non-IFRS data, including comparable sales and adjusted EBITDA, in the discussion
and analysis section above. These measures are specific to Indigo and have no standardized meaning prescribed by IFRS.
Therefore, these measures may not be comparable to similar measures presented by other companies. The adoption of IFRS 16
in fiscal 2020 hinders the comparability of underlying performance with periods prior to the accounting standard adoption.
A reconciliation of the IFRS 16 impact on the current year period was included in this report to reconcile adjusted EBITDA
and reported net earnings (loss) as stated in the Company’s consolidated financial statements to their values excluding the
impact of the new accounting standard.
Total comparable sales (including online), comparable retail store sales, and adjusted EBITDA are key indicators used by
the Company to measure performance against internal targets and prior period results. These measures are commonly used
by financial analysts and investors to compare the Company to other retailers.
Total comparable sales is based on comparable retail store sales and includes online sales for the same period. Comparable
retail store sales are based on a 52-week fiscal year and defined as sales generated by stores that have been open for more than
52 weeks. These measures exclude sales fluctuations due to store openings and closings, significant renovations, permanent
relocation, and material changes in square footage. In fiscal 2020, these measures also exclude retail sales fluctuations from
the temporary store closures associated with COVID-19, which occurred on March 17, 2020.
Both measures are key performance indicators for the Company. Adjusted EBITDA is defined as earnings before interest,
taxes, depreciation, amortization, impairment, asset disposals, and share of earnings (loss) from equity investments. The
method of calculating adjusted EBITDA is consistent with that used in prior periods.
Reconciliations between total comparable sales, comparable retail store sales, and revenue (the most comparable IFRS
measure), and between adjusted EBITDA and net earnings (loss) before income taxes (the most comparable IFRS measure)
were included earlier in this report.
32
Management ’s Discussion and Analysis
Independent Auditor’s Report
To the Shareholders of Indigo Books & Music Inc.
Opinion
We have audited the consolidated financial statements of Indigo Books & Music Inc. and its subsidiaries (the Group), which
comprise the consolidated balance sheets as at March 28, 2020 and March 30, 2019, and the consolidated statements of loss
and comprehensive loss, consolidated statements of changes in equity and consolidated statements of cash flows for the years
then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated
financial position of the Group as at March 28, 2020 and March 30, 2019, and its consolidated financial performance and its
consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRS).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those
standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section
of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of
the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Other Information
Management is responsible for the other information. The other information comprises:
• Management’s Discussion and Analysis
• The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual Report
Our opinion on the consolidated financial statements does not cover the other information and we do not express any
form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information,
and in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements
or our knowledge obtained in the audit or otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis and the Annual Report prior to the date of this auditor’s report. If,
based on the work we have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact in this auditor’s report. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Consolidated
Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance
with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
Annual Report 2020 33
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian
generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment
and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient
and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and
related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the
audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast signif-
icant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists,
we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial
statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit
evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the
Group to cease to continue as a going concern
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the dis-
closures, and whether the consolidated financial statements represent the underlying transactions and events in a
manner that achieves fair presentation
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of
the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical require-
ments regarding independence, and to communicate with them all relationships and other matters that may reasonably be
thought to bear on our independence, and where applicable, related safeguards.
The engagement partner on the audit resulting in this independent auditor’s report is Jeremy Arruda.
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
June 23, 2020
34
Independent Auditor ’s Report
Consolidated Balance Sheets
As at As at
March 28, March 30,
(thousands of Canadian dollars) 2020 2019
ASSETS
Current
Cash and cash equivalents (note 6) 120,473 41,290
Short-term investments (note 6) – 87,150
Accounts receivable 7,640 10,543
Inventories (note 7) 241,812 252,541
Prepaid expenses 6,062 5,802
Income taxes receivable 138 483
Derivative assets (note 8) 3,794 1,070
Other assets (note 12) 2,320 853
Total current assets 382,239 399,732
Loan receivable (note 12) 446 –
Property, plant, and equipment, net (notes 5 and 9) 91,215 125,906
Right-of-use assets, net (notes 4, 5 and 10) 382,146 –
Intangible assets, net (notes 5 and 11) 24,571 32,527
Equity investment, net (notes 5 and 12) 2,353 4,359
Deferred tax assets (notes 4 and 13) – 47,940
Total assets 882,970 610,464
LIABILITIES AND EQUITY
Current
Accounts payable and accrued liabilities (notes 4 and 22) 164,294 179,180
Unredeemed gift card liability 51,673 48,729
Provisions (notes 14 and 22) 2,034 60
Deferred revenue 10,682 7,636
Short-term lease liabilities (notes 4, 10 and 22) 68,402 –
Total current liabilities 297,085 235,605
Long-term accrued liabilities (notes 4 and 22) 1,196 4,698
Long-term provisions (note 14) 469 45
Long-term lease liabilities (notes 4 and 10) 500,215 –
Total liabilities 798,965 240,348
Equity
Share capital (note 16) 226,986 225,531
Contributed surplus (note 17) 12,822 12,716
Retained earnings (deficit) (note 4) (158,801) 131,311
Accumulated other comprehensive income (note 8) 2,998 558
Total equity 84,005 370,116
Total liabilities and equity 882,970 610,464
See accompanying notes
On behalf of the Board:
Heather Reisman Anne Marie O’Donovan
Director Director
Annual Report 2020 35
Consolidated Statements of Loss
and Comprehensive Loss
52-week 52-week
period ended period ended
March 28, March 30,
(thousands of Canadian dollars, except per share data) 2020 2019
Revenue (note 18) 957,722 1,046,824
Cost of sales (553,627) (619,878)
Gross profit 404,095 426,946
Operating, selling, and other expenses (notes 9, 11, and 12) (422,624) (480,662)
Impairment losses (note 5) (56,582) –
Operating loss (75,111) (53,716)
Net interest income (expense) (note 10) (23,524) 3,220
Share of earnings (loss) from equity investments (note 12) (1,651) 858
Loss before income taxes (100,286) (49,638)
Income tax recovery (expense) (note 13) (84,712) 12,840
Net loss (184,998) (36,798)
Other comprehensive income (loss) (note 8)
Items that are or may be reclassified subsequently to net loss:
Net change in fair value of cash flow hedges
[net of taxes of (912); 2019 – (897)] 2,492 2,439
Reclassification of net realized gain
[net of taxes of 182; 2019 – 908] (497) (2,471)
Foreign currency translation adjustment
[net of taxes of 43; 2019 – (6)] 445 (225)
Other comprehensive income (loss) 2,440 (257)
Total comprehensive loss (182,558) (37,055)
Net loss per common share (note 19)
Basic ($6.72) ($1.35)
Diluted ($6.72) ($1.35)
See accompanying notes
36
Consolidated Financial Statements and Notes
Consolidated Statements of Changes in Equity
Accumulated
Retained Other
Share Contributed Earnings Comprehensive Total
(thousands of Canadian dollars) Capital Surplus (Deficit) Income Equity
Balance, March 31, 2018 221,854 11,621 168,109 815 402,399
Net loss for the period – – (36,798) – (36,798)
Exercise of options (notes 16 and 17) 3,617 (709) – – 2,908
Directors’ deferred stock units converted (note 16) 60 (60) – – –
Share-based compensation (note 17) – 1,514 – – 1,514
Directors’ compensation (note 17) – 350 – – 350
Other comprehensive loss (note 8) – – – (32) (32)
Foreign currency translation adjustment – – – (225) (225)
Balance, March 30, 2019 225,531 12,716 131,311 558 370,116
Balance, March 30, 2019 225,531 12,716 131,311 558 370,116
Adjustment on adoption of IFRS 16 (note 4) – – (105,114) – (105,114)
Balance, March 31, 2019 225,531 12,716 26,197 558 265,002
Net loss for the period – – (184,998) – (184,998)
Directors’ deferred stock units converted (note 16) 1,455 (1,455) – – –
Share-based compensation (note 17) – 1,268 – – 1,268
Directors’ compensation (note 17) – 293 – – 293
Other comprehensive income (note 8) – – – 1,995 1,995
Foreign currency translation adjustment – – – 445 445
Balance, March 28, 2020 226,986 12,822 (158,801) 2,998 84,005
See accompanying notes
Annual Report 2020 37
Consolidated Statements of Cash Flows
52-week 52-week
period ended period ended
March 28, March 30,
(thousands of Canadian dollars) 2020 2019
OPERATING ACTIVITIES
Net loss (184,998) (36,798)
Adjustments to reconcile net loss to cash flows from (used for) operating activities
Depreciation of property, plant and equipment
and right-of-use assets (notes 9 and 10) 63,106 21,920
Amortization of intangible assets (note 11) 13,374 10,650
Gain on disposal of equity investments (note 12) (1,484) –
Loss on disposal of capital assets (notes 9 and 11) 1,932 2,088
Impairment losses (note 5) 56,582 –
Share-based compensation (note 17) 1,268 1,514
Directors’ compensation (note 17) 293 350
Deferred income tax expense (recovery) (note 13) 84,712 (12,840)
Other 377 (809)
Net change in non-cash working capital balances related to operations (note 20) 4,512 15,211
Interest expense (note 10) 25,585 6
Interest income (1,714) (3,226)
Share of (earnings) loss from equity investments (note 12) 1,651 (858)
Cash flows from (used for) operating activities 65,196 (2,792)
INVESTING ACTIVITIES
Net purchases of property, plant, and equipment (note 9) (2,223) (67,505)
Addition of intangible assets (note 11) (8,397) (19,056)
Change in short-term investments (note 6) 87,150 (27,150)
Distribution from equity investments (note 12) – 829
Principal payment on loan receivable (note 12) 719 –
Interest received 2,034 3,225
Cash flows from (used for) investing activities 79,283 (109,657)
FINANCING ACTIVITIES
Repayment of principal on lease liabilities (note 10) (40,391) –
Interest paid (note 10) (25,585) –
Proceeds from share issuances (notes 16 and 17) – 2,908
Cash flows from (used for) financing activities (65,976) 2,908
Effect of foreign currency exchange rate changes on cash and cash equivalents 680 575
Net increase in cash and cash equivalents during the period 79,183 (108,966)
Cash and cash equivalents, beginning of period 41,290 150,256
Cash and cash equivalents, end of period 120,473 41,290
See accompanying notes
38
Consolidated Financial Statements and Notes
Notes to Consolidated Financial Statements
March 28, 2020
1. CORPORATE INFORMATION
Indigo Books & Music Inc. (the “Company” or “Indigo”) is a corporation domiciled and incorporated under the laws of the
Province of Ontario in Canada. The Company’s registered office is located at 620 King Street West, Suite 400, Toronto,
Ontario, M5V 1M6, Canada. The consolidated financial statements of the Company comprise the Company and its wholly-
owned subsidiaries, Indigo Design Studio, Inc., Indigo Cultural Department Store Inc. (“Indigo U.S.”), and YYZ Holdings Inc.
(“YYZ”), along with its equity investment in Unplug Meditation, LLC (“Unplug”). The Company is the ultimate parent of the
consolidated organization.
2. NATURE OF OPERATIONS
Indigo is Canada’s largest book, gift, and specialty toy retailer and was formed as a result of the August 2001 amalgamation
of Chapters Inc. and Indigo Books & Music Inc. The Company operates a chain of retail bookstores across all ten provinces
and one territory in Canada, including 88 superstores (2019 – 89) under the Indigo and Chapters names, as well as 108 small
format stores (2019 – 115) under the banners Coles, Indigospirit, and The Book Company.The Company also has retail operations
in the United States through a wholly-owned subsidiary, operating one retail store in Short Hills, New Jersey. Online sales are
generated through the Company’s digital platforms, its www.indigo.ca website and the Company’s mobile applications, where
it sells an expanded selection of books, gifts, toys, and paper products. The Company offers a marketplace assortment of
giftable products, experiences, services, and subscriptions on www.thoughtfull.co.
The Company defines an operating segment on the same basis that it uses to evaluate performance internally and to allocate
capital resources. At Indigo, this is done on an enterprise level. This holistic managerial approach is reflected in the Company’s
reimagined new store concept. The new store design emphasizes a central focus on enriching the lives of book lovers with
core print and general merchandise products. Therefore, the Company reports as a single segment.
The Company supports a separate registered charity, the Indigo Love of Reading Foundation (the “Foundation”). The
Foundation provides new books and learning material to high-needs elementary schools across the country through donations
from Indigo, its customers, its suppliers, and its employees.
3. BASIS OF PREPARATION
Statement of Compliance
These consolidated financial statements have been prepared using accounting policies consistent with International Financial
Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). These statements reflect
the adoption of IFRS 16 Leases, on March 31, 2019 using the modified retrospective method, with the cumulative effect ini-
tially recognized in retained earnings, with no restatement of prior comparative period. Please see “IFRS 16 Leases” in Note 4
for further information.
These consolidated financial statements were approved by the Company’s Board of Directors on June 23, 2020.
Fiscal Year
The fiscal year of the Company ends on the Saturday closest to March 31. Under an accounting convention common in the
retail industry, the Company follows a 52-week reporting cycle, which periodically necessitates a fiscal year of 53 weeks. The
years ended March 28, 2020 and March 30, 2019 both contained 52 weeks. The next 53-week period will be for the fiscal
year ending April 3, 2021.
Annual Report 2020 39
COVID-19 Pandemic
Commencing from the declaration of COVID-19 as a pandemic, to the release of these statements, the Company has been
dealing with the repercussions to its business, operations and performance. The impact of the outbreak on the financial results
of the Company will depend on future developments, including the duration and spread of the outbreak and its impact on the
overall economy and related advisories and restrictions.
In response to the COVID-19 pandemic, the Company announced the temporary closure of its retail locations on
March 17, 2020 and made the difficult decision to temporarily lay-off 5,200 of its retail employees. Commencing May 19,
2020, as permitted by federal and provincial regulations, the Company began the phased re-opening of its retail stores. As of
the date of this fiscal 2020 Annual Report, the Company has re-opened 172 of its previously closed retail stores, and recalled
2,878 of its retail leadership and hourly employees.
The Company has also leveraged applicable government business support programs for COVID-19 subsequent to year-end,
including the Canada Emergency Wage Subsidy, and will continue to do so subject to eligibility.
Use of Judgments
The preparation of the consolidated financial statements in conformity with IFRS requires the Company to make judgments,
apart from those involving estimation, in applying accounting policies that affect the recognition and measurement of assets,
liabilities, revenues, and expenses. Actual results may differ from the judgments made by the Company. Information about
judgments that have the most significant effect on recognition and measurement of assets, liabilities, revenues, and expenses
is discussed below. Information about significant estimates is discussed in the following section.
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic. The extent to
which the impacts of the COVID-19 pandemic affect the judgments and estimates described herein depend on future devel-
opments, which are highly uncertain and cannot be predicted. Management will continue to monitor and assess the impact
of the pandemic on its judgments, estimates, accounting policies and amounts recognized in these consolidated financial state-
ments, including but not limited to Impairment of Assets.
Impairment
An impairment loss is recognized for the amount by which the carrying amount of an asset or a cash-generating unit (“CGU”)
exceeds its recoverable amount. Impairment losses are reversed if the recoverable amount of the capital asset, CGU, or group
of CGUs exceeds its carrying amount, but only to the extent that the carrying amount of the asset does not exceed the car-
rying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recog-
nized. The Company uses judgment when identifying CGUs, when assessing for indicators of impairment or reversal, and
when estimating the recoverable amount for its CGUs in impairment testing.
Intangible assets
Initial capitalization of intangible asset costs is based on the Company’s judgment that technological and economic feasibility
are confirmed and the project will generate future economic benefits by way of estimated future discounted cash flows that
will be generated.
Leases
The Company assesses whether a contract is or contains a lease, at inception of a contract. The Company recognizes a right-of-
use asset and a corresponding lease liability with respect to all lease agreements in which it is the lessee, except for short-term
leases (defined as leases with a lease term of 12 months or less) and leases of low value assets. For these leases, the Company
recognizes the lease payments as an operating expense on a straight-line basis over the term of the lease unless another system-
atic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.
The Company determines the lease term as the non-cancellable term of the lease, together with any periods covered by
an option to extend the lease if it is reasonably certain to be exercised. The Company has the option under many of its leases
40
Consolidated Financial Statements and Notes
to lease the assets for additional terms of five years, and applies judgment in evaluating whether it is reasonably certain to
exercise the option to renew. The Company considers all relevant factors that create an economic incentive for it to exercise
the renewal, including store performance, expected future performance and past business practice. After the commencement
date, the Company reassesses the lease term if there is a significant event or change in circumstances that is within its control
and affects its ability to exercise (or not to exercise) the option to renew (e.g., a change in business strategy).
Deferred tax assets
The recognition of deferred tax assets is based on the Company’s judgment. The assessment of the probability of future taxable
income in which deferred tax assets can be utilized is based on management’s best estimate of future taxable income that the
Company expects to achieve from reviewing its latest forecast. This estimate is adjusted for significant non-taxable income
and expenses and for specific limits to the use of any unused tax loss or credits. Deferred tax assets are recognized to the
extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry -
forward of unused tax losses and unused tax credits can be utilized. If estimates of future taxable profit change, unrecognized
deferred tax assets can be recognized again in a future period. The recognition of deferred tax assets that are subject to certain
legal or economic limits or uncertainties are assessed individually by the Company based on the specific facts and circumstances.
Use of Estimates
The preparation of the consolidated financial statements in conformity with IFRS requires the Company to make estimates
and assumptions in applying accounting policies that affect the recognition and measurement of assets, liabilities, revenues,
and expenses. Actual results may differ from the estimates made by the Company, and actual results will seldom equal esti-
mates. Information about estimates that have the most significant effect on the recognition and measurement of assets, liabil-
ities, revenues, and expenses are discussed below.
Impairment
To determine the recoverable amount of an impaired asset, the Company estimates expected future cash flows and determines
a suitable discount rate in order to calculate the present value of those cash flows. In the process of measuring expected future
cash flows, the Company makes assumptions about certain variables, such as future sales, gross margin rates, expenses, capital
expenditures, and working capital investments, which are based upon historical experience and expected future performance.
Determining the applicable discount rate involves estimating appropriate adjustments to market risk and to Company-specific
risk factors.
Inventories
The future realization of the carrying amount of inventory is affected by future sales demand, inventory levels, and product
quality. At each balance sheet date, the Company reviews its on-hand inventory and uses historical trends and current inven-
tory mix to determine a reserve for the impact of future markdowns that will take the net realizable value of inventory on-
hand below cost. Inventory valuation also incorporates a write-down to reflect future losses on the disposition of obsolete
merchandise. The Company reduces inventory for estimated shrinkage that has occurred between physical inventory counts
and each reporting date based on historical experience as a percentage of sales. In addition, the Company records a vendor
settlement accrual to cover any disputes between the Company and its vendors. The Company estimates this reserve based
on historical experience of settlements with its vendors.
Property, plant, equipment, and intangible assets (collectively, “capital assets”)
Capital assets are depreciated and amortized over their useful lives, taking into account residual values where appropriate.
Assessments of useful lives and residual values are performed on an ongoing basis and take into consideration factors such as
technological innovation, maintenance programs, and relevant market information. In assessing residual values, the Company
considers the remaining life of the asset, its projected disposal value, and future market conditions.
Annual Report 2020 41
Leases
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date,
discounted by using the Company’s incremental borrowing rate (“IBR”). The Company cannot readily determine the interest
rate implicit in the lease, therefore, it uses its IBR to measure lease liabilities.
The IBR is the rate of interest that the Company would have to pay to borrow over a similar term, and with a similar
security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment.
The IBR therefore reflects what the Company ‘would have to pay’, which requires estimation when no observable rates are
available or when they need to be adjusted to reflect the terms and conditions of the lease. The Company estimates the IBR
using observable inputs (such as market interest rates) when available and is required to make certain entity and asset-specific
estimates (such as the subsidiary’s stand-alone credit rating).
Revenue
The Company recognizes revenue for the estimated value of gift cards that are not expected to be redeemed by customers
(“gift card breakage”) in proportion to the pattern of rights exercised by the customer. The resulting gift card breakage rev-
enue is recognized over the estimated period of redemption based on historical redemption patterns commencing when the
gift cards are sold.
The Indigo plum rewards program (“plum”) allows customers to earn points on their purchases. The allocation of trans-
action price to the plum loyalty obligation, which is the estimated reward tier value of a future redemption net of points man-
agement expects will go unredeemed, is based on a relative stand-alone selling price basis. The Company continues to
monitor trends in redemption patterns (redemption at each reward level), historical redemption rates (points redeemed as a
percentage of points issued) and net cost per point redeemed. Points revenue is included as part of total revenue in the
Company’s consolidated statements of earnings (loss) and comprehensive earnings (loss).
Share-based payments
The cost of equity-settled transactions with employees is based on the Company’s estimate of the fair value of share-based
instruments and the number of equity instruments that will eventually vest. The Company’s estimated fair value of share-
based compensation is calculated using the following variables: risk-free interest rate; expected volatility; expected time until
exercise; and expected dividend yield. The risk-free interest rate is based on Government of Canada bond yields, while all
other variables are estimated based on the Company’s historical experience with its share-based payments.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial
statements.
Basis of Measurement
The Company’s consolidated financial statements are prepared on the historical cost basis of accounting, except as disclosed
in the accounting policies set out below.
Basis of Consolidation
The consolidated financial statements comprise of the financial statements of the Company and entities controlled by the
Company. Control exists when the Company is exposed to, or has the right to, variable returns from its involvement with
the controlled entity and when the Company has the current ability to affect those returns through its power over the con-
trolled entity. When the Company does not own all of the equity in a subsidiary, the non-controlling interest is disclosed as a
separate line item in the consolidated balance sheets and the earnings accruing to non-controlling interest holders are dis-
closed as a separate line item in the consolidated statements of earnings (loss) and comprehensive earnings (loss).
42
Consolidated Financial Statements and Notes
The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using con-
sistent accounting policies. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the
Company obtains control, and continue to be consolidated until the date that such control ceases. Once control ceases, the
Company will reassess the relationship with the former subsidiary and revise Indigo’s accounting policy based on the Company’s
remaining percentage of ownership. All intercompany balances and transactions and any unrealized gains and losses arising
from intercompany transactions are eliminated in preparing these consolidated financial statements.
Foreign Currency
The functional currency for each entity included in these consolidated financial statements is the currency of the primary eco-
nomic environment in which the entity operates. The consolidated financial statements are presented in Canadian dollars,
which is the functional currency of the Company.
Assets and liabilities of the Company’s U.S. operations have a functional currency of U.S. dollars and are translated into
Canadian dollars at the exchange rate in effect at the reporting date. Revenues and expenses are translated into Canadian dol-
lars at average exchange rates during the reporting period. The resulting unrealized translation gains or losses are included in
other comprehensive income (loss).
Monetary assets and liabilities denominated in foreign currencies that are held at the reporting date are translated at the
closing consolidated balance sheet rate. Non-monetary items are measured at historical cost and are translated using the
exchange rates at the date of the transaction. Non-monetary items measured at fair value are translated using exchange rates
at the date when fair value was determined. The resulting exchange gains or losses are included in earnings.
Equity Investments
The equity method of accounting is applied to investments in companies where Indigo has the ability to exert significant influ-
ence over the financial and operating policy decisions of the company but lacks control or joint control over those policies.
Under the equity method, the Company’s investment is initially recognized at cost and subsequently increased or decreased
to recognize the Company’s share of earnings and losses of the investment, distributions received, and for impairment losses
after the initial recognition date. The Company’s share of losses that are in excess of its investment is recognized only to the
extent that Indigo has incurred legal or constructive obligations or made payments on behalf of the company. The Company’s
share of earnings and losses of its equity investment are recognized through profit or loss during the period. Cash distributions
received from the investment are accounted for as a reduction in the carrying amount of the Company’s equity investment.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand, balances with banks, and highly liquid investments that are readily convert-
ible to known amounts of cash with original maturities of 90 days or less at the date of acquisition. Cash equivalents of fixed
deposits or similar instruments with an original term of longer than three months are also included in this category if they
are readily convertible to a known amount of cash throughout their term and are subject to an insignificant risk of change in
value assessed against the amount at inception.
Short-term Investments
Short-term investments consist of guaranteed investment securities with an original maturity date greater than 90 days and
remaining term to maturity of less than or equal to 365 days from the date of acquisition. These investments are non-redeemable
until the maturity date.
Inventories
Inventories are valued at the lower of cost, determined on a moving average cost basis, and market, being net realizable value.
Costs include all direct and reasonable expenditures that are incurred in bringing inventories to their present location and
condition. Net realizable value is the estimated selling price in the ordinary course of business. When the Company permanently
Annual Report 2020 43
reduces the retail price of an item and the markdown incurred brings the retail price below the cost of the item, there is a
corresponding reduction in inventory recognized in the period. Vendor rebates are recorded as a reduction in the price of the
products and corresponding inventories are recorded net of vendor rebates.
Prepaid Expenses
Prepaid expenses include store supplies, software subscription fees, and insurance. Store supplies are expensed as they are used
while other costs are amortized over the term of the contract.
Income Taxes
Current income taxes are the expected taxes payable or recoverable on the taxable earnings or loss for the period. Current
income taxes are payable on taxable earnings for the period as calculated under Canadian and U.S. taxation guidelines, which
differ from taxable earnings under IFRS. Calculation of current income taxes is based on tax rates and tax laws that have been
enacted, or substantively enacted, by the end of the reporting period. Income taxes relating to items recognized directly in
equity are recognized in equity and not in the consolidated statements of loss and comprehensive earnings loss.
Deferred income taxes are calculated at the reporting date using the liability method based on temporary differences
between the carrying amounts of assets and liabilities and their tax bases. However, deferred tax assets and liabilities on tem-
porary differences arising from the initial recognition of goodwill, or of an asset or liability in a transaction that is not a busi-
ness combination, will not be recognized when neither accounting nor taxable profit or loss are affected at the time of the
transaction.
Deferred tax assets arising from temporary differences associated with investments in subsidiaries are provided for if it
is probable that the differences will reverse in the foreseeable future and taxable profit will be available against which the tax
assets may be utilized. Deferred tax assets on temporary differences associated with investments in subsidiaries are not pro-
vided for if the timing of the reversal of these temporary differences can be controlled by the Company and it is probable that
reversal will not occur in the foreseeable future.
Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their
respective periods of realization, provided they are enacted or substantively enacted by the end of the reporting period.
Deferred tax assets and liabilities are offset only when the Company has the right and intention to set off current tax assets
and liabilities from the same taxable entity and the same taxation authority.
Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the
deductible temporary differences and the carryforward of unused tax credits and unused tax losses can be utilized. In this
consideration, the Company evaluates forecasted earnings, future market growth, future sources of taxable income, the mix
of earnings in the jurisdictions in which the Company operates, and prudent and feasible tax planning strategies. To the extent
that uncertainty exists surrounding the probability of utilizing such deferred tax assets, they are no longer recognized.
Likewise, these assets can be recognized again should it be probable that sufficient taxable profit will be available against which
they can be utilized.
Property, Plant, and Equipment
All items of property, plant, and equipment are initially recognized at cost, which includes any costs directly attributable to
bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by the
Company. Subsequent to initial recognition, property, plant, and equipment assets are shown at cost less accumulated depre-
ciation and any accumulated impairment losses.
Depreciation of an asset begins once it becomes available for use. The depreciable amount of an asset, being the cost of
an asset less the residual value, is allocated on a straight-line basis over the estimated useful life of the asset. Residual value is
estimated to be nil unless the Company expects to dispose of the asset at a value that exceeds the estimated disposal costs.
The residual values, useful lives, and depreciation methods applied to assets are reviewed based on relevant market informa-
tion and management considerations.
44
Consolidated Financial Statements and Notes
The following useful lives are applied:
Furniture, fixtures, and equipment 5 – 10 years
Computer equipment 3 – 5 years
Equipment under finance leases 3 – 5 years
Leasehold improvements over the shorter of useful life and lease term plus expected renewals,
to a maximum of 10 years
Items of property, plant, and equipment are assessed for impairment as detailed in the accounting policy note on impair-
ment and are derecognized either upon disposal or when no future economic benefits are expected from their use. Any gain
or loss arising on derecognition is included in earnings when the asset is derecognized.
Leased assets
Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards related to
ownership of the leased asset to the Company. At lease inception, the related asset and corresponding long-term liability are
recognized at the lower of the fair value of the leased asset or the present value of the minimum lease payments.
Depreciation methods and useful lives for assets held under finance lease agreements correspond to those applied to com-
parable assets that are legally owned by the Company. If there is no reasonable certainty that the Company will obtain own-
ership of the financed asset at the end of the lease term, the asset is depreciated over the shorter of its estimated useful life
or the lease term. The corresponding long-term liability is reduced by lease payments less interest paid. Interest payments are
expensed as part of net interest on the consolidated statements of earnings (loss) and comprehensive earnings (loss) over the
period of the lease.
All other leases are treated as operating leases. Payments on operating lease agreements are recognized as an expense on
a straight-line basis over the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred.
The Company performs quarterly assessments of contracts that do not take the legal form of a lease to determine
whether they convey the right to use an asset in return for a payment or series of payments and therefore need to be
accounted for as leases. As at March 28, 2020, the Company had no such contracts.
Leased premises
The Company conducts all of its business from leased premises. Leasehold improvements are depreciated over the lesser of
their economic life or the initial lease term plus renewal periods where renewal has been determined to be reasonably cer-
tain. Leasehold improvements are assessed for impairment as detailed in the accounting policy note on impairment. Leasehold
improvement allowances are depreciated over the lease term. Other inducements, such as rent-free periods, are amortized
into earnings over the lease term, with the unamortized portion recorded in current and long-term accounts payable and
accrued liabilities. As at March 28, 2020, all of the Company’s leases on premises were accounted for as operating leases.
Expenses incurred for leased premises include base rent, taxes, common area maintenance, and contingent rent based upon
a percentage of sales.
Intangible Assets
Intangible assets are initially recognized at cost, if acquired separately, at fair value, or as part of a business combination. After
initial recognition, intangible assets are carried at cost less accumulated amortization and any accumulated impairment losses.
Amortization commences when the intangible assets are available for their intended use. The useful lives of intangible
assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortized over their useful economic life.
Intangible assets with indefinite lives are not amortized but are reviewed at each reporting date to determine whether the
indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective
basis. Residual value is estimated to be zero unless the Company expects to dispose of the asset at a value that exceeds the
Annual Report 2020 45
estimated disposal costs. The residual values, useful lives, and amortization methods applied to intangible assets are reviewed
annually based on relevant market information and management considerations.
The following useful lives are applied:
Computer application software 3 – 5 years
Internal development costs 3 years
Retail lease over the lease term
Domain name indefinite useful life – not amortized
There are no legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of the domain
name to the Company. Therefore, useful life of the domain name is deemed to be indefinite.
Intangible assets are assessed for impairment as detailed in the accounting policy note on impairment. An intangible asset
is derecognized either upon disposal or when no future economic benefit is expected from its use. Any gain or loss arising on
derecognition is included in earnings when the asset is derecognized.
Computer application software
When computer application software is not an integral part of a related item of computer hardware, the software is treated
as an intangible asset. Computer application software that is integral to the use of related computer hardware is recorded as
property, plant, and equipment.
Internal development costs
Costs that are directly attributable to internal development are recognized as intangible assets provided they meet the defini-
tion of an intangible asset. Development costs not meeting these criteria are expensed as incurred. Capitalized development
costs include external direct costs of materials and services and the payroll and payroll-related costs for employees who are
directly associated with the projects.
Retail lease
Amounts paid as a premium to gain access to a property located in a specific location, inclusive of any associated professional
fees, are treated as an intangible asset.
Impairment Testing
Capital assets
For the purposes of assessing impairment, capital assets are grouped at the lowest levels for which there are largely independ-
ent cash inflows and for which a reasonable and consistent allocation basis can be identified. For capital assets that can be rea-
sonably and consistently allocated to individual stores, the store level is used as the CGU for impairment testing. For all other
capital assets, the corporate level is used as the group of CGUs. Capital assets and related CGUs or groups of CGUs are tested
for impairment quarterly and whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. Events or changes in circumstances that may indicate impairment include a significant change to the Company’s
operations, a significant decline in performance, or a change in market conditions that adversely affects the Company.
An impairment loss is recognized for the amount by which the carrying amount of a CGU or group of CGUs exceeds its
recoverable amount. To determine the recoverable amount, management applies the higher of the CGU’s value-in-use or fair
value less costs to dispose. Value-in-use calculation quantifies the present value of the expected future cash flows from each CGU
or group of CGUs based on the CGU’s estimated growth rate. The Company’s growth rate and future cash flows are based on
historical data and management’s expectations. Impairment losses are charged pro rata to the capital assets in the CGU or group
of CGUs. Capital assets and CGUs or groups of CGUs are subsequently reassessed for indicators that a previously recognized
impairment loss may no longer exist. An impairment loss is reversed if the recoverable amount of the capital asset, CGU, or
46
Consolidated Financial Statements and Notes
group of CGUs exceeds its carrying amount, but only to the extent that the carrying amount of the asset does not exceed the
carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
Financial assets
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are
assessed collectively in groups that share similar credit risk characteristics. Financial assets are tested for impairment when-
ever events or changes in circumstances indicate that the carrying amount may not be recoverable. Evidence of impairment
may include indications that a debtor or a group of debtors are experiencing significant financial difficulty, default, or delin-
quency in interest or principal payments, and observable data indicating that there is a measurable decrease in the estimated
future cash flows.
A financial asset is deemed to be impaired if there is objective evidence that one or more loss events having a negative
effect on future cash flows of the financial asset occur after initial recognition and the loss can be reliably measured. The
impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of the
estimated future cash flows, discounted at the original effective interest rate. The impairment loss is recorded as an allowance
and recognized in net earnings. If the impairment loss decreases as a result of subsequent events, the previously recognized
impairment loss is reversed.
Provisions
A provision is a liability of uncertain timing or amount. Provisions are recognized when the Company has a present legal or
constructive obligation as a result of past events for which it is probable that the Company will be required to settle the obli-
gation and a reliable estimate of the settlement can be made. The amount recognized as a provision is the best estimate of the
consideration required to settle the present obligation at the end of the reporting period, taking into account risks and uncer-
tainties of cash flows. Where the effect of discounting to present value is material, provisions are adjusted to reflect the time
value of money. Examples of provisions include decommissioning liabilities, onerous leases, legal claims and other accrued
liabilities where there is uncertainty regarding the timing or amount outstanding.
Total Equity
Share capital represents the nominal value of shares that have been issued. Retained earnings include all current and prior
period retained profits. Dividend distributions payable to equity shareholders are recorded as dividends payable when the div-
idends have been approved by the Board of Directors prior to the reporting date.
Share-Based Awards
The Company has established an employee stock option plan for key employees. The fair value of each tranche of options
granted is estimated on the grant date using the Black-Scholes option pricing model. The Black-Scholes option pricing model
is based on variables such as: risk-free interest rate; expected volatility; expected time until exercise; and expected dividend
yield. Expected stock price volatility is based on the historical volatility of the Company’s stock for a period approximating
the expected life. The grant date fair value, net of estimated forfeitures, is recognized as an expense with a corresponding
increase to contributed surplus over the vesting period. Estimates are subsequently revised if there is an indication that the
number of stock options expected to vest differs from previous estimates. Any consideration paid by employees on exercise
of stock options is credited to share capital with a corresponding reduction to contributed surplus.
Revenue Recognition
The Company recognizes revenue when control of goods has been transferred at the amount of consideration to which the
company expects to be entitled. Revenue is recorded net of sales discounts, estimated returns, sales tax, environmental fees
and amounts deferred related to the issuance of plum points. Revenue is recognized when control of goods has been trans-
ferred (as described below) for each of the Company’s revenue generating activities.
Annual Report 2020 47
Retail sales
Revenue for retail customers is recognized when the product is delivered to the customer, which for the majority of retail
transactions this occurs at time of purchase.
Online and kiosk sales
Revenue for online and kiosk customers is recognized when the product is shipped to customers.
Gift cards
The Company sells gift cards to its customers and recognizes the revenue as gift cards are redeemed for merchandise. A cus-
tomer’s non-refundable prepayment to the Company gives them a right to receive product in the future. However, historically
customers do not exercise all of their contractual rights, which is referred to as breakage.
The Company determines its average gift card breakage rate based on historical redemption rates. Breakage income rep-
resents the estimated value of gift cards that is not expected to be redeemed by customers and is determined in proportion
to the pattern of rights exercised by the customer. Gift card breakage is included in revenue in the Company’s consolidated
statements of earnings (loss) and comprehensive earnings (loss). Changes in estimated breakage should be accounted for by
adjusting the contract liability to reflect the remaining rights expected to be redeemed.
Indigo plum rewards program
Indigo’s loyalty program, plum® rewards has two tiers: plum, a free points-based tier; and plum PLUS, an annual fee-based discount
tier. The Company launched the plum PLUS membership program in fiscal 2020, replacing its former annual fee-based irewards
program. The plum rewards program is an omni-channel program that allows members to earn and redeem points online and
in-store, seamlessly. This program engages members through mass promotions and targeted one-to-one promotional offers,
as well as invitations to exclusive events and member-only shopping experiences. plum PLUS offers its members an immediate
discount on eligible products, free shipping and the ability to earn points on almost every dollar spent at the Company’s
Canadian stores, as well as at www.indigo.ca.
When a plum member purchases merchandise, the Company allocates consideration received between the loyalty pro-
gram points and the merchandise on which the points were earned based on their relative stand-alone selling prices. The por-
tion of revenue attributed to the merchandise is recognized at the time of purchase. Revenue attributed to the points is recorded
as deferred revenue and recognized when points are redeemed.
The stand-alone selling price of the points issued is determined based on the estimated reward tier value, net of points
that management expects will go unredeemed. The Company continues to monitor trends in redemption patterns (redemption
at each reward level), historical redemption rates (points redeemed as a percentage of points issued) and net cost per point
redeemed to reduce estimation uncertainty in the consideration allocated to the loyalty contract right. Points revenue is
included as part of total revenue in the Company’s consolidated statements of earnings (loss) and comprehensive earnings (loss).
Interest income
Interest income is reported on an accrual basis using the effective interest method and included as part of net interest in the
Company’s consolidated statements of earnings (loss) and comprehensive earnings (loss).
Vendor Rebates
The Company records cash consideration received from vendors as a reduction to the price of vendors’ products. This is
reflected as a reduction in cost of sales and related inventories when recognized in the consolidated financial statements.
Certain exceptions apply where the cash consideration received is a reimbursement of incremental selling costs incurred by
the Company, in which case the cash received is reflected as a reduction in operating, selling, and administrative expenses.
48
Consolidated Financial Statements and Notes
Earnings per Share
Basic earnings per share is determined by dividing the net earnings attributable to common shareholders by the weighted
average number of common shares outstanding during the period. Diluted earnings per share is calculated in accordance with
the treasury stock method and is based on the weighted average number of common shares and dilutive common share equiv-
alents outstanding during the period. The weighted average number of shares used in the computation of both basic and fully
diluted earnings per share may be the same due to the anti-dilutive effect of securities.
Financial Instruments
Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions of
the financial instrument. Financial assets are derecognized when the contractual rights to the cash flows from the financial
asset expire. A financial liability is derecognized when it is extinguished, discharged, cancelled, or expires. Where a legally
enforceable right to offset exists for recognized financial assets and financial liabilities and there is an intention to settle the lia-
bility and realize the asset simultaneously, or to settle on a net basis, such related financial assets and financial liabilities are offset.
Non-derivative financial assets are initially measured at fair value and subsequently measured at amortized cost using the
effective interest method if both of the following conditions are met and they are not designated as fair value through profit
and loss (“FVTPL”):
• the financial asset is held within a business model whose objective is to hold financial assets 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 prin-
cipal and interest on the principal amount outstanding.
All financial assets not classified as amortized cost as described above are measured at FVTPL.
Non-derivative financial liabilities are initially measured at fair value, less any directly attributable transaction costs, and
subsequently measured at amortized cost using the effective interest method.
The Company designates its derivative financial assets and liabilities under a cash flow hedge program for its foreign cur-
rency exposures on a portion of its U.S. dollar denominated cash outflows. The forward contracts used for hedging are rec-
ognized at fair value. Subsequent to initial recognition, the forward contracts are measured at fair value and changes therein
are accounted for as described in the derivative disclosure below.
Financial Asset /Liability IFRS 9 Classification and Measurement
Cash and cash equivalents Amortized cost
Short-term investments Amortized cost
Accounts receivable Amortized cost
Accounts payable and accrued liabilities Amortized cost
Derivative instruments FVTPL
Financial assets and financial liabilities are measured at fair value using a valuation hierarchy for disclosure of fair value
measurements. The determination of the applicable level within the hierarchy of a particular asset or liability depends on the
inputs used in the valuation as of the measurement date, notably the extent to which the inputs are market-based (observable)
or internally derived (unobservable). Observable inputs are inputs that market participants would use in pricing the asset or
liability based on market data obtained from independent sources. Unobservable inputs are inputs based on a company’s own
assumptions about market participant assumptions using the best information available.
Annual Report 2020 49
The hierarchy is broken down into three levels based on the reliability of inputs as follows:
Level 1: Valuations based on quoted prices in active markets for identical assets or liabilities that a company has the ability to
access at the measurement date.
Level 2: Valuations based on quoted inputs other than quoted prices included within Level 1, that are observable for the asset
or liability, either directly or indirectly through corroboration with observable market data.
Level 3: Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The following methods and assumptions were used to estimate the fair value of each type of financial instrument by ref-
erence to market data and other valuation techniques, as appropriate:
(i) The initial fair values of cash and cash equivalents, short-term investments, accounts receivable, and accounts payable
and accrued liabilities approximate their carrying values given their short maturities; and
(ii) The fair value of derivative financial instruments are estimated using quoted market rates at the measurement date
adjusted for the maturity term of each instrument. The Company’s portfolio of derivative financial instruments as at
March 28, 2020 are classified as Level 2 in the fair value hierarchy.
Derivative financial instruments and hedge accounting
The Company enters into various derivative financial instruments as part of its strategy to manage foreign currency exposure.
All contracts entered into during the year have been designated as cash flow hedges for accounting purposes. The Company
does not hold or issue derivative financial instruments for trading purposes.
All derivative financial instruments, including derivatives embedded in financial or non-financial contracts not closely
related to the host contracts, are measured at fair value. The gain or loss that results from remeasurement at each reporting
period is recognized in net income immediately unless the derivative is designated and effective as a hedging instrument, in
which case the timing of the recognition in net income depends on the nature of the hedge relationship.
At the inception of a hedge relationship, the Company documents the relationship between the hedging instrument and
the hedged item along with the Company’s risk management objectives and strategy for undertaking various hedge transac-
tions, together with the methods that will be used to assess the effectiveness of the hedging relationship. Such hedges are
expected to be highly effective in achieving offsetting changes in cash flows and are assessed on an ongoing basis to determine
that they actually have been highly effective throughout the financial reporting periods for which they were designated.
Accordingly, the effective portion of the change in the fair value of the foreign exchange forward contracts that are des-
ignated and qualify as cash flow hedges is recognized in other comprehensive income (loss) until related payments have been
made in future accounting periods. The Company has not made an election to exclude the time value component of forward
contracts designated as cash flow hedges from the hedging relationship. Associated gains and losses recognized in other com-
prehensive income (loss) are reclassified to earnings in the periods when the hedged item is recognized in earnings. These
earnings are included within the same line of the consolidated statement of earnings (loss) as the recognized item. However,
when the hedged forecast transaction results in the recognition of a non-financial asset, the gains and losses previously recog-
nized in other comprehensive income (loss) are transferred from equity and included in the initial measurement of the cost
of the non-financial asset. The gain or loss relating to the ineffective portion is recognized immediately in the consolidated
statements of earnings (loss).
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised,
then hedge accounting is discontinued prospectively. If the forecasted transaction is no longer expected to occur, then the bal-
ance in accumulated other comprehensive income is recognized immediately in net income.
Retirement Benefits
The Company provides retirement benefits through a defined contribution retirement plan. Under the defined contribution
retirement plan, the Company pays fixed contributions to an independent entity. The Company has no legal or constructive
obligations to pay further contributions after its payment of the fixed contribution. The costs of benefits under the defined con-
tribution retirement plan are expensed as contributions are due and are reversed if employees leave before the vesting period.
50
Consolidated Financial Statements and Notes
Accounting Standards Implemented in Fiscal 2020
IFRS 16 Leases
Effective in the first quarter of fiscal 2020, the Company adopted IFRS 16, which introduces a single lessee accounting model,
eliminating the distinction between operating and finance leases. IFRS 16 is effective for annual reporting periods beginning
on or after January 1, 2019 and supersedes IAS 17.
The Company adopted the standard on March 31, 2019, applying the requirements using the modified retrospective tran-
sition method, with the cumulative effect recognized in retained earnings. Prior year figures were not restated, as permitted
under the transition provisions in the standard, and continue to be reported under IAS 17. The adoption of IFRS 16 has resulted
in the recognition of right-of-use assets and lease liabilities for substantially all operating leases where the Company is a lessee.
During the course of the Company’s financial statement close process for the year ended March 28, 2020, accounting errors
were identified in the assessment of the modified retrospective application of day one right-of-use assets (“ROU assets”) per-
formed in connection with the adoption of IFRS 16 as at March 31, 2019.
In particular, there were errors identified in performing the likelihood assessment on extension options for one lease
contract, and in applying historical data to retrospectively construct the ROU assets for a select number of leases. These
errors produced an overstatement of the ROU assets of $24.4 million, and an understatement of the ROU assets of $5.4 mil-
lion, respectively. When appropriately performing the quantification of the ROU assets as at March 31, 2019, the net effect
of these errors result in the overstatement of ROU assets recognized on IFRS 16 adoption of $19.5 million, requiring an asso-
ciated increase of $24.4 million to long-term lease liabilities, a charge of $4.0 to opening retained earnings and an increase
of $1.4 million to the deferred tax asset balance recognized.
Additionally, there was an error with the classification between short-term and long-term lease liabilities of $25.1 million
as a result of implementing an amortization approach rather than the present value of lease payments due within twelve months
of the reporting date.
Correction of these errors (which appeared in the unaudited condensed interim consolidated financial statements and
related note disclosures for the quarters ended June 29, 2019, September 28, 2019 and December 28, 2019) has a non-cash
impact on the ROU asset, deferred tax asset balance, long-term lease liabilities and opening retained earnings (deficit) balance,
and will result in lower depreciation of the ROU assets going forward.
Correction of these errors would have also impacted working capital disclosures in the referenced quarterly reports.
However, the Company provided commentary in its Management Discussion & Analysis which accurately reflected the liquidity
position of the Company.
The following table summarizes the adjustments to opening balances resulting from the initial adoption of IFRS 16:
As at As at
March 30, March 31,
2019 IFRS 16 2019
(thousands of Canadian dollars) IAS 17 Adjustment IFRS 16
Assets
Right-of-use assets (as restated) – 388,492 388,492
Deferred tax assets 47,940 37,498 85,438
Liabilities
Accounts payable and accrued liabilities 179,180 1,207 180,387
Short-term lease liabilities (as restated) – 68,138 68,138
Long-term accrued liabilities 4,698 (3,471) 1,227
Long-term lease liabilities (as restated) – 465,229 465,229
Equity
Retained earnings (as restated) 131,311 (105,114) 26,197
Annual Report 2020 51
Upon adoption of IFRS 16, the Company recognized lease liabilities in relation to leases which had previously been clas-
sified as operating leases under the principles of IAS 17. These liabilities are measured at the present value of the remaining
fixed lease payments, discounted using the Company’s incremental borrowing rate as of March 31, 2019. The weighted aver-
age rate applied to the lease liabilities recognized in the consolidated balance sheet as at March 31, 2019 was 4.52 percent.
The associated ROU assets were primarily measured as if the standard had been applied since the commencement date
of the lease, but discounted using the Company’s incremental borrowing rate at the date of initial application.
In applying IFRS 16, the Company has used the following practical expedients permitted by the standard:
• the exclusion of short-term leases and contracts for which the underlying asset is of low value,
• the exclusion of initial direct costs from the right-of-use assets on transition,
• the treatment of lease and non-lease components as a single lease component for the real estate class of assets,
• the onerous lease provisions recognized as at March 30, 2019 as an alternative to performing an impairment
review on right-of-use assets as at March 31, 2019,
• the use of hindsight in determining lease term at the date of initial application,
• and the use of a single discount rate for a portfolio of leases with reasonably similar underlying characteristics.
The following table reconciles the operating lease commitments as at March 30, 2019 to the opening balance of lease lia-
bilities as at March 31, 2019:
(thousands of Canadian dollars) Lease Liabilities
Operating lease commitments as at March 30, 2019 404,596
Adjustments as a result of different treatment of extension options and non-lease components 376,795
Adjustments as a result of short-term and low value asset leases exemptions (13,120)
Effect of discounting using the Company’s incremental borrowing rate (239,702)
Contracts outside IAS 17 scope included in IFRS 16 Lease definition 4,798
Lease liabilities recognized as at March 31, 2019 533,367
On completion of the IFRS 16 implementation, the Company updated its lease accounting policies as follows:
The Company assesses whether a contract is or contains a lease at the inception of the contract. Leases are recognized as
a right-of-use asset and corresponding lease liability at the lease commencement date. The lease liability is measured at the
present value of the future lease payments, less any lease incentives receivable, discounted using the lessee’s incremental bor-
rowing rate, unless the implicit interest rate in the lease can be easily determined. Lease liabilities are subsequently measured
at amortized cost using the effective interest rate method.
Lease terms applied are the contractual non-cancellable periods for which the Company has the right to use an underlying
asset, together both with periods covered by an option to extend or terminate, if the Company is reasonably certain to exer-
cise those options. Lease liabilities are remeasured (with a corresponding adjustment to the right-of-use asset) when there is
a change in the lease term, a change in the future lease payments resulting from a change in an index or rate used to determine
those payments, or when the lease contract is modified and the lease modification is not accounted for as a separate lease.
The right-of-use assets include the initial measurement of the corresponding lease liabilities, lease payments at or before
the commencement date, any initial direct costs, less any lease incentives received before the commencement date. The right-
of-use assets are subsequently measured at cost and are depreciated on a straight-line basis over the lease term from the date
the underlying asset is available for use.
Variable lease payments that do not meet IFRS 16 measurement parameters are not included in the measurement of the
lease liabilities and are recognized in cost of operations and selling, administrative, and other expenses as incurred.
52
Consolidated Financial Statements and Notes
5. IMPAIRMENT OF ASSETS
Assets are assessed for impairment at the CGU level, except for those assets which are considered to be corporate assets. As
certain corporate assets cannot be allocated on a reasonable and consistent basis to individual CGUs, they are tested for
impairment at the corporate level. A CGU has been defined as an individual retail store, as each store generates cash inflows
that are largely independent from the cash inflows of other stores. CGUs and groups of CGUs are tested for impairment if
impairment indicators exist at the reporting date.
Recoverable amounts for CGUs being tested are based on the higher of the value in use and the fair value less cost of dis-
posal, which is calculated from discounted cash flow projections and the amount obtainable from the sale of a CGU in an
arm’s-length transaction between knowledgeable, willing parties, less the costs of disposal.
Retail Store Impairment
Impairment indicators were identified as at March 28, 2020 for certain retail stores. Accordingly, the Company performed impair -
ment testing, which resulted in the recognition of impairment losses of $15.3 million for the 52-week period ended March 28,
2020 (2019 – no impairment losses), spread across a number of CGUs. Of these impairment losses, $9.4 million was recognized
against the right-of-use assets, $5.0 million against property, plant and equipment and $0.9 million against intangible assets.
In all cases, the impairment losses arose due to these stores having lower-than-expected profitability and the impacts of the
current macro-economic environment as at March 28, 2020. The impairment loss was recorded as the carrying amount of these CGUs
exceeded their recoverable amounts, which were determined as the higher of their value in use or fair value less cost of disposal.
The key assumptions, where the recoverable amount was measured as a CGU’s value in use, are those related to uncer-
tainties around the impact of COVID-19 on projected sales, as well as the discount rate. Management’s estimate of the discount
rate reflects its weighted average cost of capital, which intrinsically considers the current market assessment of the time value
of money and the risks specific to the CGU. The recoverable amount is based on an average discount rate of 13.5%, which is
reflective of concentration and geographic risk premiums.
Where the recoverable amount of a CGU was measured at its fair value less cost of disposal, the fair value is categorized
as level 3 in the fair value hierarchy. Management’s fair value estimate was based on prevailing commercial rent rates,
management’s judgment on the comparability of these market inputs, and management’s estimate of the risks associated with
brick-and-mortar retail properties in the current COVID-19 pandemic.
Corporate Asset Impairment
As at March 28, 2020, the Company also identified impairment indicators relating to its corporate assets. Corporate asset
testing calculates discounted cash flow projections over a five-year period plus a terminal value, and resulted in the recogni-
tion of impairment losses of $41.2 million for the 52-week period ended March 28, 2020 (2019 – no impairment losses). Of
these impairment losses, $31.5 million were recognized against the right-of-use assets, $7.5 million against property, plant
and equipment, $2.0 million against intangible assets, and $0.2 million against the equity investment.
The recoverable amount was determined using the value in use methodology. Key assumptions were the cash flow pro-
jections, terminal growth rate, and the discount rate. Cash flow projections were based on financial forecasts approved by
management, and covered a five-year period. The cash flows represent management’s best projections based on current and
anticipated market conditions, however, these projections are inherently uncertain due to the recent and fluidly evolving
impact of the COVID-19 pandemic. The cash flows beyond the five-year period for Corporate asset testing have been extrap-
olated using a steady 1.0% terminal growth rate, which management has assessed to be the projected long-term average
growth rate. Consistent with retail store impairment, management’s estimate of the discount rate reflects its weighted average
cost of capital. Management’s estimate of the discount rate is assessed as at March 28, 2020, reflects the current market assess-
ment of the time value of money, enterprise market risk and the risks specific to the Company. The recoverable amount is based
on a discount rate of 12.5%. Although the Company believes the assumptions and estimates made are reasonable and appro-
priate, different assumptions and estimates could materially impact its reported financial results.
Annual Report 2020 53
6. CASH, CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS
Cash and cash equivalents consist of the following:
As at As at
March 28, March 30,
(thousands of Canadian dollars) 2020 2019
Cash 48,955 39,466
Restricted cash 1,212 1,593
Cash equivalents 70,306 231
Cash and cash equivalents 120,473 41,290
Restricted cash represents cash pledged as collateral for letter of credit obligations issued to support the Company’s pur-
chases of offshore merchandise.
As at March 28, 2020, the Company held no short-term investments (March 30, 2019 – $87.2 million). Short-term invest-
ments consist of guaranteed investment securities with an original maturity date greater than 90 days and remaining term to
maturity of less than or equal to 365 days from the date of acquisition. These investments are non-redeemable until the matu-
rity date, and therefore they are classified separately from cash and cash equivalents.
7. INVENTORIES
The cost of inventories recognized as an expense was $550.0 million in fiscal 2020 (2019 – $616.4 million). Inventories consist
of the landed cost of goods sold and exclude inventory shrink and damage reserves, and all vendor support programs.
The amount of inventory write-downs as a result of net realizable value lower than cost was $10.2 million in fiscal 2020
(2019 – $11.2 million). The amount of inventory with net realizable value equal to cost was $4.4 million as at March 28,
2020 (March 30, 2019 – $4.2 million).
8. DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative financial instruments, such as foreign exchange forward contracts, to manage the currency fluc-
tuation risk associated with forecasted U.S. dollar payments, primarily for general merchandise inventory purchases. These
contracts have been designated as cash flow hedges for accounting purposes. There is an economic relationship between the
hedged items and the hedging instruments as the terms of the foreign exchange forward contracts match the terms of the
expected highly probable forecast transactions (i.e., notional amount and expected payment date). Furthermore, the Company
has established a hedge ratio of 1:1 for the hedging relationships as the underlying risk of the foreign exchange forward con-
tracts are identical to the hedged risk components.
The fair values of derivative financial instruments are determined based on observable market information as well as val-
uations determined by external valuators with experience in financial markets.
During the fiscal year ended March 28, 2020, the Company entered into forward contracts with total notional amounts
of C$118.8 million to purchase U.S. dollar/Canadian dollar currency pair forwards (March 30, 2019 – C$153.1 million).
As at March 28, 2020, the Company had remaining contracts in place representing a total notional amount of C$66.2 million
(March 30, 2019 – C$66.9 million) at an average forward rate of 1.32 (March 30, 2019 – 1.31). These contracts extend over
a period not exceeding 12 months. There were no forecast transactions for which hedge accounting had been used in the pre-
vious period, but which were no longer expected to occur, or hedging relationships discontinued and restarted during the
ended March 28, 2020, as well as in the prior year.
The total fair value of the contracts as at March 28, 2020 resulted in the recognition of a derivative asset of $3.8 million
(March 30, 2019 – $1.1 million), and no derivative liability (March 30, 2019 – no derivative liability).
During the fiscal year ended March 28, 2020, the Company had net gains (net of taxes) from the change in fair value of
outstanding cash flow hedges of $2.5 million (2019 – net gains (net of taxes) of $2.4 million). During the same period, the
54
Consolidated Financial Statements and Notes
Company reclassified net gains (net of taxes) from settled contracts of $0.5 million from other comprehensive income to inven-
tory and expenses (2019 – net gains (net of taxes) of $2.5 million). This resulted in other comprehensive income of $2.0 mil-
lion for the fiscal year ended March 28, 2020 (2019 – no other comprehensive income).
Potential causes of mismatch between the hedging instrument and hedged item which would generate ineffectiveness
include changes in credit risk, a timing mismatch between the maturity of the instrument and the future transaction date, and/
or the hedged transaction does not occur. Reclassified amounts resulting from hedge ineffectiveness, as well as any realized
foreign exchange amounts as a result of derivative financial instruments were both immaterial in the fiscal year ended March 28,
2020, as well as in the prior year.
9. PROPERTY, PLANT, AND EQUIPMENT
Furniture,
fixtures, and Computer Leasehold
(thousands of Canadian dollars) equipment equipment improvements Total
Gross carrying amount
Balance, March 31, 2018 83,211 16,543 64,501 164,255
Additions, net 29,437 3,081 34,987 67,505
Disposals (2,920) (185) (2,097) (5,202)
Assets with zero net book value (7,288) (2,268) (17,106) (26,662)
Balance, March 30, 2019 102,440 17,171 80,285 199,896
Additions, net 4,169 1,234 (3,180) 2,223
Disposals (1,446) (204) (2,274) (3,924)
Assets with zero net book value (7,431) (2,498) (10,592) (20,521)
Foreign currency adjustment 171 – 336 507
Balance, March 28, 2020 97,903 15,703 64,575 178,181
Accumulated depreciation and impairment
Balance, March 31, 2018 38,728 6,290 36,923 81,941
Depreciation 8,970 3,116 9,834 21,920
Disposals (1,436) (108) (1,665) (3,209)
Assets with zero net book value (7,288) (2,268) (17,106) (26,662)
Balance, March 30, 2019 38,974 7,030 27,986 73,990
Depreciation 10,149 3,118 9,738 23,005
Disposals (745) (133) (1,165) (2,043)
Impairment losses 4,884 649 7,002 12,535
Assets with zero net book value (7,431) (2,498) (10,592) (20,521)
Balance, March 28, 2020 45,831 8,166 32,969 86,966
Net carrying amount
March 30, 2019 63,466 10,141 52,299 125,906
March 28, 2020 52,072 7,537 31,606 91,215
For further information regarding impairment losses recognized against property, plant and equipment refer to note 5,
“Impairment of Assets”.
Annual Report 2020 55
10. LEASE BALANCES
The following table reconciles the change in right-of-use assets for the year ended March 28, 2020:
(thousands of Canadian dollars)
Gross carrying amount
Balance on transition, March 31, 2019 388,492
Additions 74,642
Balance, March 28, 2020 463,134
Accumulated depreciation and impairment
Balance on transition, March 31, 2019 –
Depreciation 40,101
Impairment losses 40,887
Balance, March 28, 2020 80,988
Net carrying amount
March 28, 2020 382,146
For further information regarding impairment losses recognized against the right-of-use assets refer to note 5, “Impairment
of Assets”.
The following table reconciles the change in lease liabilities for the year ended March 28, 2020:
(thousands of Canadian dollars)
Balance as at March 31, 2019 533,367
Lease renewals included in the scope of IFRS 16 75,641
Accretion of lease liabilities 25,585
Repayment of interest and principle on lease liabilities (65,976)
Balance as at March 28, 2020 568,617
During the year ended March 28, 2020, the Company expensed $2.9 million of base rent payments relating to short-term
leases for which the recognition exemption was applied and these payments were not included in the lease liabilities.
As at March 28, 2020, the Company had leases in respect of its stores and support office premises. The future undiscounted
minimum lease commitments for the Company’s leases for its premises, excluding other occupancy charges and variable lease
payments, are as follows:
(thousands of Canadian dollars) Total
2021 67,933
2022 64,949
2023 58,938
2024 55,305
2025 48,525
Thereafter 162,289
Total obligations 457,939
56
Consolidated Financial Statements and Notes
11. INTANGIBLE ASSETS
Computer Internal
application development Domain Retail
(thousands of Canadian dollars) software costs name lease Total
Gross carrying amount
Balance, March 31, 2018 20,222 13,229 3,462 1,207 38,120
Additions 12,461 6,595 – – 19,056
Disposals (171) – (75) – (246)
Assets with zero net book value (4,004) (4,338) – – (8,342)
Balance, March 30, 2019 28,508 15,486 3,387 1,207 48,588
Additions 3,831 4,566 – – 8,397
Disposals (23) (4) – – (27)
Assets with zero net book value – (3,012) – – (3,012)
Balance, March 28, 2020 32,316 17,036 3,387 1,207 53,946
Accumulated amortization and impairment
Balance, March 31, 2018 7,948 5,936 – 21 13,905
Amortization 6,452 4,074 – 124 10,650
Disposals (151) – – – (151)
Assets with zero net book value (4,005) (4,338) – – (8,343)
Balance, March 30, 2019 10,244 5,672 – 145 16,061
Amortization 8,199 5,051 – 124 13,374
Disposals (13) – – – (13)
Impairment losses 1,056 713 259 938 2,966
Assets with zero net book value – (3,012) – – (3,012)
Balance, March 28, 2020 19,486 8,424 259 1,207 29,376
Net carrying amount
March 30, 2019 18,264 9,814 3,387 1,062 32,527
March 28, 2020 12,830 8,612 3,128 – 24,570
The useful life of the domain names have been deemed to be indefinite because there are no legal, regulatory, contractual,
competitive, economic, or other factors that limit the useful lives of these assets to the Company.
For further information regarding impairment losses recognized against intangible assets, refer to note 5, “Impairment
of Assets”.
12. EQUITY INVESTMENTS
During the year, the Company sold its equity investments in Calendar Club of Canada Limited Partnership (“Calendar Club”)
and Calendar Club of Canada Ltd. (the general partner of the partnership) to Paris Southern Lights Inc. (a minority partner
in the partnership). The financial impact of the transaction consisted of proceeds of $1.8 million, which generated a gain on
the sale of $1.5 million.As at March 28, 2020, the proceeds to be received are $0.9 million, to be paid in installments over
the next two years.
Prior to the sale, the Company used the equity method of accounting to record Calendar Club results. In fiscal 2020,
Indigo had recognized a net loss from Calendar Club of $1.7 million and received no annual distribution (2019 – equity
income of $0.9 million and distribution of $0.8 million).
Annual Report 2020 57
The Company holds an equity ownership in Unplug, which operates meditation studios in the U.S., resulting in a 20%
voting interest and representation on the board of managers. The Company uses the equity method of accounting to record
Unplug results. The Company did not receive a distribution from Unplug during the period.
Changes in the carrying amount of Unplug were as follows:
(thousands of Canadian dollars) Carrying value
Balance March 31, 2018 2,676
Share of loss from Unplug (66)
Balance March 30, 2019 2,610
Share of loss from Unplug (63)
Impairment of investment (194)
Balance March 28, 2020 2,353
For further information regarding impairment losses recognized against the equity investment, refer to note 5, “Impairment
of Assets”.
13. INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes, and the amounts used for income tax purposes. The Company recognizes deferred tax assets
to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and
the carryforward of unused tax credits and unused tax losses can be utilized. As at March 28, 2020, the Company has recognized
no net deferred tax assets (March 30, 2019 – $47.9 million of net deferred tax assets).
Significant components of the Company’s net deferred tax assets are as follows:
As at As at
March 28, March 30,
(thousands of Canadian dollars) 2020 2019
Reserves and allowances 1,777 1,452
Non-capital loss carryforwards 20,413 21,613
Capital loss carryforwards 319 –
Corporate minimum tax credit 3,379 3,379
Book amortization in excess of capital cost allowance 36,359 21,783
Lease liabilities 148,551 –
Total deferred tax assets 210,798 48,227
Right-of-use assets (100,310)
Cash flow hedges (1,017) (287)
Total deferred tax liabilities (101,327) (287)
Net deferred tax assets 109,471 47,940
Value of deferred tax assets not recognized in the current period (109,471) –
Recognized net deferred tax assets – 47,940
Net deferred tax assets of $109.5 million have not been recognized in the current period (March 30, 2019 – no net
deferred tax assets were not recognized). This decision was influenced by the Company’s current operating loss, and uncer-
tainty surrounding future profitability as a result of the COVID-19 pandemic, among other factors. As such, uncertainty exists
surrounding the probability of sufficient taxable income being available to utilize all deferred tax assets within the time line
58
Consolidated Financial Statements and Notes
of management’s forecasts.The time period of future projected taxable profits used to assess the recognition of deferred tax
assets was shorter than the expiration period of the non-capital tax loss carryforward, and other deferred tax assets which do
not expire.
As at March 28, 2020, the Company has Canadian non-capital tax loss carryforwards of $64.2 million that expire in
2031, $8.3 million that expire in 2039, and $0.5 million that expire in 2040, and capital losses of $2.4 million. The Company
also has $4.5 million of both U.S. federal and U.S. state non-capital losses in the states which it operates. The federal losses
have no expiration, and the state losses expire between 2039 and 2040.
Significant components of income tax expense (recovery) are as follows:
52-week 52-week
period ended period ended
March 28, March 30,
(thousands of Canadian dollars) 2020 2019
Current income tax expense – –
Deferred income tax expense (recovery)
Origination and reversal of temporary differences (25,588) (8,170)
Deferred income tax recovery relating to change in non-capital loss
carryforwards (174) (4,669)
Deferred income tax recovery relating to change in capital loss
carryforwards (319) –
Adjustment resulting from a change in substantively enacted tax rates
and expected pattern of reversal 1,423 (65)
Adjustment for deferred tax assets not recognized 109,471 –
Other, net (101) 64
Total income tax expense (recovery) 84,712 (12,840)
The reconciliation of income taxes computed at statutory income tax rates to the effective income tax rates is as follows:
52-week 52-week
period ended period ended
March 28, March 30,
(thousands of Canadian dollars) 2020 % 2019 %
Earnings (loss) before income taxes (100,286) (49,638)
Tax at combined federal and provincial tax rates (26,838) 26.8% (13,303) 26.8%
Tax effect of expenses not deductible
for income tax purposes 573 (0.6%) 629 (1.3%)
Adjustment to deferred tax assets resulting
from reduction in substantively enacted tax rates
and expected pattern of reversal 1,423 (1.4%) (65) 0.1%
Adjustment for deferred tax assets not recognized 109,471 (109.2%) –
Other, net 83 (0.1%) 101 0.2%
84,712 (84.5%) (12,840) 25.7%
Annual Report 2020 59
14. PROVISIONS
Provisions consist primarily of amounts recorded in respect of decommissioning liabilities, legal claims and other liabilities
where there is uncertainty regarding the timing or amount outstanding. The Company is subject to payment of decommis-
sioning liabilities upon exiting certain leases. The amount of these payments may fluctuate based on negotiations with the
landlord. Legal claim provisions fluctuate depending on the outcomes when claims are settled.
Activity related to the Company’s provisions is as follows:
52-week 52-week
period ended period ended
March 28, March 30,
(thousands of Canadian dollars) 2020 2019
Balance, beginning of period 105 211
Arising during the year 2,398 –
Utilized / released – (106)
Balance, end of period 2,503 105
The Company reviews the merits, risks and uncertainties of each provision, based on current information, and the
amount expected to be required to settle the obligation. Provisions are reviewed on an ongoing basis and are adjusted accord-
ingly when new facts and events become known to the Company.
15. COMMITMENTS AND CONTINGENCIES
(a) Commitments
The Company generates sublease income in respect of some of its premises leases. As at March 28, 2020, the Company’s
expected sublease income for the next five fiscal years and thereafter is as follows:
(thousands of Canadian dollars) Total
Less than 1 year 1,846
1-5 years 20,128
After 5 years 10,938
Total 32,912
(b) Legal Claims
In the normal course of business, the Company becomes involved in various claims and litigation. While the final outcome
of such claims and litigation pending as at March 28, 2020 cannot be predicted with certainty, management believes that
any such amount would not have a material impact on the Company’s financial position or financial performance, except
for those amounts that have been recorded as provisions on the Company’s consolidated balance sheets.
60
Consolidated Financial Statements and Notes
16. SHARE CAPITAL
Share capital consists of the following:
52-week period ended 52-week period ended
March 28, 2020 March 30, 2019
Number of Amount C$ Number of Amount C$
shares (thousands) shares (thousands)
Balance, beginning of period 27,136,386 225,531 26,800,609 221,854
Issued during the period
Directors’ deferred stock units converted 137,575 1,455 4,021 60
Adjustment for share exchange
per 2001 merger agreement – – 519 –
Options exercised – – 331,237 3,617
Balance, end of period 27,273,961 226,986 27,136,386 225,531
17. SHARE-BASED COMPENSATION
The Company has established an employee stock option plan (the “Plan”) for key employees. The number of common shares
reserved for issuance under the Plan as at March 28, 2020 is 3,591,094. Most options granted after April 1, 2012 have a five-
year term and have one third of the options granted exercisable one year after the date of issue with the remainder exercisable
in equal installments on the anniversary date over the next two years. Stock options granted in August 2019 vest over a two-
year period, while all other outstanding options vest over the above referenced three-year period. The vesting schedule for
the August 2019 grant was changed to reward and retain plan participants. Each option is exercisable into one common share
of the Company at the price specified in the terms of the option agreement.
The Company uses the fair value method of accounting for stock options, which estimates the fair value of the stock
options granted on the date of grant, net of estimated forfeitures, and expenses this value over the vesting period. During
fiscal 2020, the pre-forfeiture value of the options granted was $1.3 million (2019 – $1.8 million). The weighted average fair
value of options issued in fiscal 2020 was $1.49 per option (2019 – $3.19 per option).
The fair value of the employee stock options is estimated at the date of grant using the Black-Scholes option pricing
model with the following weighted average assumptions during the periods presented:
52-week 52-week
period ended period ended
March 28, March 30,
2020 2019
Black-Scholes option pricing assumptions
Risk-free interest rate 1.3% 2.2%
Expected volatility 32.9% 27.8%
Expected time until exercise 2.6 years 3.0 years
Expected dividend yield – –
Other assumptions
Forfeiture rate 26.7% 26.4%
Annual Report 2020 61
A summary of the status of the Plan and changes during both periods is presented below:
52-week period ended 52-week period ended
March 28, 2020 March 30, 2019
Weighted Weighted
average average
Number exercise price Number exercise price
# C$ # C$
Outstanding options, beginning of period 1,737,593 15.34 1,788,875 14.36
Granted 905,000 6.74 560,000 14.75
Forfeited (306,205) 14.73 (280,045) 15.40
Expired (117,900) 10.46 – –
Exercised – – (331,237) 9.02
Outstanding options, end of period 2,218,488 12.21 1,737,593 15.34
Options exercisable, end of period 995,913 15.73 841,253 14.67
A summary of options outstanding and exercisable is presented below:
March 28, 2020
Outstanding Exercisable
Weighted
Weighted average Weighted
Range of average remaining average
exercise prices Number exercise price contractual life Number exercise price
C$ # C$ (in years) # C$
6.60 – 6.92 672,000 6.60 4.4 – –
6.93 – 13.95 388,663 8.90 2.3 193,663 10.58
13.96 – 15.38 324,350 14.75 3.4 116,450 14.75
15.39 – 17.38 342,375 16.01 2.4 244,200 16.02
17.39 – 18.40 491,100 18.12 1.8 441,600 18.09
6.60 – 18.40 2,218,488 12.20 3.0 995,913 15.73
Directors’ Compensation
The Company has established a Directors’ Deferred Stock Unit Plan (“DSU Plan”). Under the DSU Plan, Directors annually
elect whether to receive their annual retainer fees and other Board-related compensation in the form of deferred stock units
(“DSUs”) or receive up to 50% of this compensation in cash. All Directors’ compensation during the year was in the form of
DSUs (2019 – all DSUs).
The number of shares reserved for issuance under this plan is 500,000. The Company issued 76,269 DSUs with a value
of $0.3 million during the year (2019 – 27,844 DSUs with a value of $0.4 million). The number of DSUs to be issued
to each Director is based on a set fee schedule. The grant date fair value of the outstanding DSUs as at March 28, 2020 was
$4.4 million (March 30, 2019 – $4.1 million) and was recorded in contributed surplus. The fair value of DSUs is equal to the
traded price of the Company’s common shares on the grant date.
62
Consolidated Financial Statements and Notes
18. SUPPLEMENTARY OPERATING INFORMATION
Set out below is the disaggregation of the Company’s revenue from contracts with customers.
The following table summarizes net revenue by product line:
52-week 52-week
period ended period ended
March 28, March 30,
(thousands of Canadian dollars) 2020 2019
Print 1 531,437 580,654
General merchandise 2 409,221 451,499
Other 3 17,064 14,671
Total 957,722 1,046,824
1 Includes books, magazines, newspapers, and related shipping revenue.
2 Includes lifestyle, paper, toys, electronics, eReaders, eReader accessories, and related shipping revenue.
3 Includes cafés, irewards, gift card breakage, plum breakage, plum PLUS revenue, corporate sales, and Rakuten Kobo Inc. (“Kobo”) revenue share.
The following table summarizes net revenue by channel:
52-week 52-week
period ended period ended
March 28, March 30,
(thousands of Canadian dollars) 2020 2019
Superstores 655,844 711,360
Small format stores 122,138 144,844
Online (including store kiosks) 162,676 175,948
Other 1 17,064 14,672
Total 957,722 1,046,824
1 Includes cafés, irewards, gift card breakage, plum breakage, plum PLUS revenue, corporate sales, and Kobo revenue share.
Supplemental operating and administrative expenses information:
52-week 52-week
period ended period ended
March 28, March 30,
(thousands of Canadian dollars) 2020 2019
Wages, salaries, and bonuses 172,597 196,183
Short-term benefits expense 20,807 20,589
Termination benefits expense 6,027 6,262
Retirement benefits expense 1,774 1,863
Share-based compensation 1,268 1,514
Total employee benefits expense 202,473 226,411
Termination benefits arise when the Company terminates certain employment agreements.
Contingent rents recognized as an expense during fiscal 2020 were $1.5 million (2019 – $1.9 million).
Annual Report 2020 63
19. LOSS PER SHARE
Loss per share is calculated based on the weighted average number of shares outstanding during the period. In calculating
diluted earnings per share amounts under the treasury stock method, the numerator remains unchanged from the basic earn-
ings per share calculations as the assumed exercise of the Company’s stock options do not result in adjustment to net earnings.
The reconciliation of the denominator in calculating diluted earnings per share amounts for the periods presented is as follows:
52-week 52-week
period ended period ended
March 28, March 30,
2020 2019
Weighted average number of common shares outstanding, basic 27,515,109 27,354,358
Effect of dilutive securities – stock options
– –
Weighted average number of common shares outstanding, diluted 27,515,109 27,354,358
The Company’s stock options were anti-dilutive as the company reported losses for the 52-week periods ended March
28, 2020 and March 30, 2019, and therefore were not included in the diluted loss per share calculations.
20. STATEMENTS OF CASH FLOWS
Supplemental cash flow information:
52-week 52-week
period ended period ended
March 28, March 30,
(thousands of Canadian dollars) 2020 2019
Accounts receivable 2,903 (3,796)
Inventories 10,729 12,045
Prepaid expenses (260) (1,678)
Income taxes recoverable 345 (483)
Other assets (1,467) 12
Accounts payable and accrued liabilities (current and long-term) and other 1 (16,126) 4,251
Unredeemed gift card liability 2,944 4,511
Provisions (current and long-term) 2,398 (106)
Deferred revenue 3,046 607
Income taxes payable
– (152)
Net change in non-cash working capital balances related to operations 4,512 15,211
1 This change has been impacted by the adoption of IFRS 16. Refer to Note 4 “Summary of Significant Accounting Policies” for additional information.
21. CAPITAL MANAGEMENT
The Company’s main objectives when managing capital are:
• Ensuring sufficient liquidity to support financial obligations and to execute operating and strategic objectives;
• Maintaining financial capacity and flexibility through access to capital to support future development of the business; and
• Minimizing the cost of capital while taking into consideration current and future industry, market, and economic
risks and conditions.
64
Consolidated Financial Statements and Notes
There were no changes to these objectives during the year. The primary activities engaged by the Company to generate
attractive returns for shareholders include transforming digital platforms and driving productivity improvement through
investments in information technology and distribution to support the Company’s sales networks. The Company’s main
sources of capital are its current cash position, short-term investments, and cash flows generated from operations. Cash flow
is primarily used to fund working capital needs and capital expenditures. The Company manages its capital structure in accor-
dance with changes in economic conditions.
22. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company’s activities expose it to a variety of financial risks, including risks related to foreign exchange, interest rate, credit,
and liquidity.
Foreign Exchange Risk
The Company is exposed to foreign exchange risk on foreign currency denominated transactions, monetary assets and liabil-
ities denominated in a foreign currency, and net investments in foreign operations located in the United States. The Company’s
foreign exchange risk is largely limited to currency fluctuations between the Canadian and U.S. dollars. Decreases in the value
of the Canadian dollar relative to the U.S. dollar could negatively impact net earnings since the purchase price of some of the
Company’s products are negotiated with vendors in U.S. dollars, while the retail price to customers is set in Canadian dollars.
The majority of the Company’s foreign currency risk is concentrated in this area, as a significant amount of the Company’s
general merchandise inventory purchases are denominated in U.S. dollars and the Company had a New York office and a New
Jersey retail location that incur U.S. dollar expenses. The Company’s New Jersey retail location generates sales in U.S. dollars,
reducing the Company’s overall net exposure.
The Company uses derivative instruments in the form of forward contracts to manage its exposure to fluctuations in U.S.
dollar exchange rates. As the Company has hedged a significant portion of the cost of its near-term forecasted U.S. dollar pur-
chases, a change in foreign currency rates will not impact that portion of the cost of those purchases.
In fiscal 2020, the effect of foreign currency translation on comprehensive earnings was a gain of $0.4 million (2019 –
loss of $0.2 million), and the effect of foreign currency transactions on net earnings was a gain of $0.5 million (2019 – loss
of $0.2 million).
Interest Rate Risk
The Company’s interest income is sensitive to fluctuations in Canadian interest rates, which affect the interest earned on the
Company’s cash, cash equivalents, and short-term investments. The Company has minimal interest rate risk and does not use
any interest rate swaps to manage its risk. The Company does not currently have any debt.
Credit Risk
The Company is exposed to credit risk resulting from the possibility that counterparties may default on their financial obli-
gations to the Company. Credit risk primarily arises from accounts receivable, cash and cash equivalents, short-term invest-
ments, and derivative financial instruments. Fair values of financial instruments reflect the credit risk of the Company and
counterparties when appropriate.
Accounts receivable primarily consist of receivables from retail customers who pay by credit card, recoveries of credits from
suppliers for returned or damaged products, and receivables from other companies for sales of products, gift cards, and other
services. Credit card payments have minimal credit risk and the limited number of corporate receivables are closely monitored.
Annual Report 2020 65
The Company limits its exposure to counterparty credit risk related to cash and cash equivalents, short-term invest-
ments, and derivative financial instruments by transacting only with highly-rated financial institutions and other counterpar-
ties, and by managing within specific limits for credit exposure and term to maturity. The Company’s maximum credit risk
exposure if all counterparties default concurrently is equivalent to the carrying amounts of accounts receivable, cash and cash
equivalents, short-term investments, and derivative financial instruments.
Liquidity Risk
Liquidity risk is the risk that the Company will be unable to meet its obligations relating to its financial liabilities. The
Company manages liquidity risk by preparing and monitoring cash flow budgets and forecasts to ensure that the Company
has sufficient funds to meet its financial obligations and fund new business opportunities or other unanticipated requirements
as they arise.
Based on the Company’s current business plan, liquidity position, cash flow forecast, and factors known to date, including
the currently known impacts of COVID-19, it is expected that the Company’s current cash position and future cash flows
generated from operations will be sufficient to meet its working capital requirements for fiscal 2021. However, the Company’s
ability to fund future cash requirements will depend on its future operating performance, which could be affected by risks
associated by the COVID-19 pandemic, as discussed. The Company could seek to raise additional funding in the event it fails
to maintain sufficient liquidity, as it currently has no outstanding debt financing, and reduce capital spending if necessary.
However, the COVID-19 pandemic creates a number of additional risks such as the negative impact on debt and equity capital
markets, including the ability to access capital at a reasonable cost and the trading price of the Company’s securities, which
could impact future capital raising efforts if required by the Company.
The contractual maturities of the Company’s current and long-term liabilities as at March 28, 2020 are as follows:
Payments
Payments due between Payments
due in the 90 days and due after
(thousands of Canadian dollars) next 90 days less than a year 1 year Total
Accounts payable and accrued liabilities 149,085 15,209 164,294
Provisions 1,688 346 – 2,034
Current portion of long-term lease liability 17,185 51,217 – 68,402
Long-term accrued liabilities – – 1,196 1,196
Long-term provisions – – 469 469
Long-term lease liability – – 500,215 500,215
Total 167,958 66,772 501,880 736,610
23. RELATED PARTY TRANSACTIONS
The Company’s related parties include its key management personnel, shareholders, defined contribution retirement plan,
equity investments in associates, and subsidiaries. Unless otherwise stated, none of the transactions incorporate special terms
and conditions and no guarantees were given or received. Outstanding balances are usually settled in cash.
Transactions with Key Management Personnel
Key management of the Company includes members of the Board of Directors as well as members of the Executive Team.
66
Consolidated Financial Statements and Notes
Key management personnel remuneration includes the following:
52-week 52-week
period ended period ended
March 28, March 30,
(thousands of Canadian dollars) 2020 2019
Wages, salaries, and bonus 3,612 5,626
Short-term benefits expense 154 207
Termination benefits expense 793 1,997
Retirement benefits expense 68 86
Share-based compensation 767 1,110
Directors’ compensation 293 350
Total remuneration 5,687 9,376
Transactions with Shareholders
During fiscal 2020, the Company purchased goods and services from companies in which Mr. Gerald W. Schwartz, who is
the controlling shareholder of Indigo, holds a controlling or significant interest. In fiscal 2020, the Company paid $2.2 million
for these transactions (2019 – $3.5 million). As at March 28, 2020, Indigo had $0.1 million payable to these companies under
standard payment terms and $1.0 million of restricted cash pledged as collateral for letter of credit obligations issued to sup-
port the Company’s purchases of merchandise from these companies (March 30, 2019 – $0.2 million payable and $1.0 mil-
lion restricted cash). All transactions were measured at fair market value and were in the normal course of business, under
normal commercial terms, for both Indigo and the related companies.
Transactions with Defined Contribution Retirement Plan
The Company’s transactions with the defined contribution retirement plan include contributions paid to the retirement plan
as disclosed in note 18 “Supplementary Operating Information”. The Company has not entered into other transactions with
the retirement plan.
Transactions with Associates
As noted, the Company sold its equity investments in Calendar Club of Canada Limited Partnership and Calendar Club of
Canada Ltd. (the general partner of the partnership) to Paris Southern Lights Inc. (a minority partner in the partnership).
During the year, the Company loaned $6.6 million to Calendar Club which was repaid on the close of the sale transaction.
The Company had immaterial transactions with Unplug during the period.
24. SUBSEQUENT EVENTS
The Company has ceased its normal rent payments as of April 1, 2020 and is in negotiations with its landlords regarding rent
abatements to address the financial impacts of COVID-19. The inability of the Company to enter into suitable rent relief
arrangements could potentially have a cumulative material financial impact, depending on the number of locations impacted,
the materiality of such locations to the overall business, and any dispute under these leases that may result in litigation with the
respective landlord. In May 2020, the Company made the decision to not renew the leases for 15 small format stores beyond
June 2020.
Annual Report 2020 67
Corporate Governance Policies
A presentation of the Company’s corporate governance policies is included in the Management Information Circular, which
is either mailed directly to shareholders or made available through the Notice and Access process. If you would like to receive
a copy of this information, please contact Investor Relations at Indigo.
68
Corporate Governance Policies
Executive Management and Board of Directors
As at June 23, 2020
EXECUTIVE MANAGEMENT
BOARD OF DIRECTORS
Heather Reisman
Chair and Chief Executive Officer
Kirsten Chapman
President
Gildave (Gil) Dennis
Chief Operating Officer
Craig Loudon
Chief Financial Officer and Executive Vice President,
Supply Chain
Bahman (Bo) Parizadeh
Chief Technology Officer
Nathan Williams
Chief Creative Officer
Frank Clegg
Volunteer Chairman and Chief Executive Officer
C4ST (Canadians for Safe Technology)
Jonathan Deitcher
Investment Advisor
RBC Dominion Securities Inc.
Mitchell Goldhar
Executive Chairman
SmartCentres REIT and
Owner
Penguin Group of Companies
Howard Grosfield
Executive Vice President and General Manager
US Consumer Card Services
American Express
Robert Haft
Managing Partner
Morgan Noble Healthcare Partners
Andrea Johnson
Chief Executive Officer
Rally Reader, LLC
Anne Marie O’Donovan
President
O’Donovan Advisory Services Ltd.
Heather Reisman
Chair and Chief Executive Officer
Indigo Books & Music Inc.
Gerald Schwartz
Chairman and Chief Executive Officer
Onex Corporation
Annual Report 2020 69
Five-Year Summary of Financial Information
For the years ended March 28, March 30, March 31, April 1, April 2,
(financial information in millions of Canadian dollars, except per share data) 20201 2019 20182 20172 20162
SELECTED STATEMENT OF EARNINGS
(LOSS) AND COMPREHENSIVE EARNINGS
(LOSS) INFORMATION
Revenue
Superstores 655.8 711.4 728.6 702.1 695.3
Small format stores 122.1 144.8 143.6 140.7 140.2
Online 162.7 175.9 176.8 148.2 133.3
Other 17.1 14.7 30.6 29.0 25.6
Total revenue 957.7 1,046.8 1,079.6 1,020.0 994.4
Adjusted EBITDA3,4 58.4 (19.1) 55.2 52.4 43.3
Earnings (loss) before income taxes (100.3) (49.6) 30.7 29.2 22.3
Net earnings (loss) (185.0) (36.8) 21.9 21.0 28.8
Net earnings (loss) per common share ($6.72) ($1.35) $0.82 $0.80 $1.11
SELECTED CONSOLIDATED BALANCE
SHEET INFORMATION
Working capital 85.2 164.1 258.8 248.9 218.6
Total assets 883.0 610.5 634.0 609.3 584.6
Total liabilities 799.0 240.3 231.6 236.8 240.0
Total equity 84.0 370.1 402.4 373.3 345.3
Weighted average number of
common shares outstanding 27,515,109 27,354,358 26,849,418 26,384,775 25,949,068
Common shares outstanding at end of period 27,273,961 27,136,386 26,800,609 26,351,484 25,797,351
STORE OPERATING STATISTICS
Number of stores at end of period
Superstores 88 89 86 89 88
Small format stores 108 115 123 123 123
Selling square footage at end of period (in thousands)
Superstores 1,941 1,962 1,887 1,953 1,925
Small format stores 279 287 308 304 305
Comparable sales growth4
Total retail and online (7.9%) (1.1%) 6.2% 4.1% 12.9%
Superstores (8.2%) (1.8%) 4.0% 2.9% 12.8%
Small format stores (7.4%) 1.2% 2.4% 0.9% 10.9%
Sales per selling square foot
Superstores 338 363 386 360 361
Small format stores 438 504 467 463 460
1 The Company implemented IFRS 16 Leases, on March 31, 2019 using the modified retrospective approach. As a result, the Company’s fiscal 2020 results
reflect lease accounting under IFRS 16, while the prior years have not been restated.
2 The Company implemented IFRS 15 Revenue from Contracts with Customers, in fiscal 2019 using the full retrospective transition method. As a result, certain prior
year balances were restated.
3 Earnings before interest, taxes, depreciation, amortization, impairment, asset disposals, and share of earnings (loss) from equity investments.
4 See “Non-IFRS Financial Measures” in the Company’s Management Discussion and Analysis section of the Annual Report.
70
Five -Year Summary of Financial Information
Investor Information
AUDITORS
Ernst & Young LLP
EY Tower
100 Adelaide Street West, PO Box 1
Toronto, Ontario
Canada M5H 0B3
ANNUAL MEETING
The 2020 Annual Meeting of Shareholders of Indigo
Books & Music Inc. will be held on August 18, 2020
at 10:00 a.m. via live audio webcast at:
https://web.lumiagm.com/126476142
Shareholders are encouraged to attend and
guests are welcome.
Une traduction française de ce document est
disponible sur demande.
CORPORATE HOME OFFICE
620 King Street West
Suite 400
Toronto, Ontario
Canada M5V 1M6
Telephone (416) 364-4499
Fax (416) 364-0355
INVESTOR CONTACT
InvestorRelations @indigo.ca
www.chapters.indigo.ca/investor-relations/
MEDIA CONTACT
Kate Gregory
Director, Public Relations
KGregory@indigo.ca
Telephone (416) 364-4499 ext. 6659
STOCK LISTING
Toronto Stock Exchange
TRADING SYMBOL
IDG
TRANSFER AGENT AND REGISTRAR
AST Trust Company (Canada)
P.O. Box 700, Station B
Montreal, Quebec
Canada H3B 3K3
Telephone (Toll Free) 1-800-387-0825
(Toronto) (416) 682-3860
Fax: 1-888-249-6189
Email: inquiries@astfinancial.com
Website: www.astfinancial.com/ca-en
Annual Report 2020 71
Indigo’s Commitment to Communities
Across Canada
The Indigo Love of Reading Foundation (the “Foundation”) exists to promote children’s literacy in high-needs communities
across Canada. Through the donations of Indigo, its leadership, its customers, its employees, and suppliers, the Foundation
provides transformational grants to high-needs elementary schools across Canada and helps put books into hands of children
in need. Since 2004, the Foundation has committed over $32 million in more than 3,000 high-needs schools, impacting over
one million children. The Foundation runs two signature programs each year, the Literacy Grant Fund and the Adopt a School
program, and strives to meet the urgent needs of high-needs communities as they arise. Every fall, the Indigo Adopt a School
program unites Indigo staff, local schools, and their communities to raise money for new library books for their local schools.
In October 2019, the Indigo Adopt a School program contributed over $650,000 to more than 180 schools across Canada,
impacting more than 100,000 children. On Giving Tuesday in December 2019, the Indigo Love of Reading Foundation pro-
vided two high-needs elementary schools with transformational grants to rebuild their school libraries after devastating fires.
Most recently in April 2020, in the wake of the COVID-19 pandemic and the unprecedented nation-wide school closures,
the Indigo Love of Reading Foundation committed $1.0 million to provide books to families in need.
72
Indigo’s Commitment to Communities Across Canada
Our Beliefs
•
We exist to add joy to customers’ lives – when
they interact with us and, when they interact with
our products.
• Each and every person in the company should
understand how his or her work contributes to the
creation of joyful customer moments.
• We owe to each other, irrespective of role or position,
the same level of respect and caring as we would show
to a valued friend.
• We have a responsibility to create an environment
where each individual is inspired to perform to the
best of his or her ability.
•
Passion, creativity and innovation are the keys to
sustainable growth and profitability. Each individual
working at Indigo should reflect this in his or her work.
Our role, as a company, is to encourage and reward the
demonstration of these attributes.
•
We have a responsibility to give back to the communities
in which we operate.
F P O
Printed in Canada