Canada Goose (GOOS) 6-KCondensed Consolidated Interim Financial Statements

Condensed Consolidated Interim Financial Statements

As at and for the first quarter ended

June 30, 2024 and July 2, 2023

(Unaudited)

Condensed Consolidated Interim Statements of Loss

(unaudited)

The accompanying notes to the condensed consolidated interim financial statements are an integral part of these financial statements.

Condensed Consolidated Interim Statements of Comprehensive Loss

(unaudited)

The accompanying notes to the condensed consolidated interim financial statements are an integral part of these financial statements.

Condensed Consolidated Interim Statements of Financial Position

(unaudited)

Condensed Consolidated Interim Statements of Changes in Equity

(unaudited)    

Condensed Consolidated Interim Statements of Cash Flows

(unaudited)

Canada Goose Holdings Inc. and its subsidiaries (the “Company”) design, manufacture, and sell performance luxury apparel for men, women, youth, children, and babies. The Company’s product offerings include various styles of heavyweight down and lightweight down jackets, rain and everyday jackets, fleece, vests, apparel, footwear, and accessories for the fall, winter, and spring seasons. The Company’s head office is located at 100 Queens Quay East, Toronto, Canada, M5E 1V3. The use of the terms “Canada Goose”, “we”, and “our” throughout these notes to the condensed consolidated interim financial statements ("Interim Financial Statements") refer to the Company.

Canada Goose is a public company listed on the Toronto Stock Exchange and the New York Stock Exchange under the trading symbol “GOOS”. The principal shareholders of the Company are investment funds advised by Bain Capital LP and its affiliates (“Bain Capital”), and DTR LLC ("DTR"), an entity indirectly controlled by the Chairman and Chief Executive Officer of the Company. The principal shareholders hold multiple voting shares representing 52.7% of the total shares outstanding as at June 30, 2024, or 91.8% of the combined voting power of the total voting shares outstanding. Subordinate voting shares that trade on public markets represent 47.3% of the total shares outstanding as at June 30, 2024, or 8.2% of the combined voting power of the total voting shares outstanding.

Statement of compliance

The Interim Financial Statements were authorized for issuance in accordance with a resolution of the Company’s Board of Directors on July 31, 2024.

Fiscal year

The Company's fiscal year is a 52 or 53-week reporting cycle with the fiscal year ending on the Sunday closest to March 31. Each fiscal quarter is 13 weeks for a 52-week fiscal year. Fiscal 2025 is a 52-week fiscal year.

Operating segments

The Company classifies its business in three operating and reportable segments: Direct-to-Consumer ("DTC"), Wholesale, and Other. The DTC segment comprises sales through country-specific e-Commerce platforms available across numerous markets, which includes the recommerce platform Canada Goose Generations, currently available in the United States and Canada, and our Company-owned retail stores located in luxury shopping locations.

The Wholesale segment comprises sales made to a mix of retailers and international distributors, who are partners that have exclusive rights to an entire market, and travel retail locations.

The Other segment comprises revenue and costs that are not related to the Company’s DTC or Wholesale segments, such as sales to employees, friends and family sales, and results from the Paola Confectii business.

Seasonality

Our business is seasonal, and we have historically realized a significant portion of our Wholesale revenue and operating income in the second and third quarters of the fiscal year and DTC revenue and operating income in the third and fourth quarters of the fiscal year. Thus, lower-than-expected revenue in these periods could have an adverse impact on our annual operating results.

Cash flows from operating activities are typically highest in the third and fourth quarters of the fiscal year due to revenue from the DTC segment and the collection of trade receivables from Wholesale revenue earlier in the year. Working capital requirements typically increase as inventory builds. Borrowings have historically increased in the first and second quarters and been repaid in the third quarter of the fiscal year.

Note 2.    Material accounting policy information

Basis of presentation

The accounting policies and critical accounting estimates and judgments as disclosed in the Company's audited annual financial statements for the year ended March 31, 2024 have been applied consistently in the preparation of these Interim Financial Statements except as noted below. The Interim Financial Statements are presented in Canadian dollars, the Company’s functional and presentation currency.

As at March 31, 2024, the Company amended the allocation basis for certain selling, general and administrative ("SG&A") expenses between the operating segments to provide more relevant information on financial performance of each operating segment. The reclassification did not impact net income, earnings per share, or the consolidated statements of financial position in the comparative year. Comparative figures have been reclassified to conform with the current year presentation.

Principles of consolidation

The Interim Financial Statements include the accounts of the Company and its subsidiaries and those investments over which the Company has control. All intercompany transactions and balances have been eliminated.

Standards issued and not yet adopted

Certain new standards, amendments, and interpretations to existing IFRS standards have been published but are not yet effective and have not been adopted early by the Company. Management anticipates that pronouncements will be adopted in the Company’s accounting policy for the first period beginning after the effective date of the pronouncement.

Standards issued and adopted

In accordance with IAS 8, retrospective application is required for accounting policy changes and comparative financial information was restated in the statement of financial position. As a result, $21.4m and $23.0m was reclassified from long-term provisions to current provisions for July 2, 2023 and March 31, 2024, respectively.

The Company is within the scope of the OECD Pillar Two rules. Under these rules, Canada Goose Holdings Inc., (the parent entity of Canada Goose Inc.) will be generally required to pay in Canada a top-up tax on profits of its subsidiaries that are taxed at an effective tax rate (determined in accordance with the Canadian Pillar Two rules) of less than 15%, unless the jurisdiction of incorporation have implemented similar legislation. On June 20, 2024, Pillar Two legislation was enacted in Canada. These rules apply to the Company from April 1, 2024.

An assessment of the potential exposure to Pillar Two income taxes has been performed. Based on this assessment, the Company does not estimate a significant tax impact to arise from this new regulation. The Company continues to monitor legislative action in the jurisdictions in which it operates and to refine this assessment.

Note 3.    Segment information

The Company has three reportable operating segments: DTC, Wholesale, and Other. The Company measures each reportable operating segment’s performance based on revenue and segment operating loss, which is the profit metric utilized by the Company's chief operating decision maker, the Chairman and Chief Executive Officer, for assessing the performance of operating segments. No single customer contributed 10 per cent or more to the Company’s revenue for the first quarters ended June 30, 2024 and July 2, 2023.

As at March 31, 2024, the performance measure for our Other segment was revised to exclude corporate general and administrative expenses; these expenses were presented as a reconciling item to the Company’s consolidated operating income. This change in segment reporting was made to improve the understanding of financial performance in the Other segment.

Corporate expenses comprises costs that do not occur through the DTC, Wholesale, or Other segments, including the cost of marketing expenditures to build brand awareness across all segments, management overhead costs in support of manufacturing operations, other corporate costs, and foreign exchange gains and losses not specifically associated with segment operations. Comparative figures have been reclassified to conform with the current year presentation.

The following table presents key performance information of the Company’s reportable operating segments:

The following table reconciles the Company’s reportable total segment operating loss to loss before income taxes:

The Company determines the geographic location of revenue based on the location of its customers.

The Company’s non-current, non-financial assets (comprising property, plant and equipment, intangible assets and right-of-use assets) are geographically located as follows:

Note 4.     Earnings per share

Note 5.    Trade receivables

Note 6.     Inventories

Inventories are written down to net realizable value when the cost of inventories is estimated to be unrecoverable due to obsolescence, damage, or declining rate of sale.

The breakdown of the provision for obsolescence is presented as follows:

Amounts charged to cost of sales comprise the following:

Note 7.    Leases

Right-of-use assets

The following table presents changes in the cost and the accumulated depreciation of the Company’s right-of-use assets:

Lease liabilities

The following table presents the changes in the Company's lease liabilities:

Lease liabilities are classified as current and non-current liabilities as follows:

For the first quarter ended June 30, 2024, $3.1m of lease payments were not included in the measurement of lease liabilities (first quarter ended July 2, 2023 - $2.8m respectively). The majority of these balances related to short-term leases and variable rent payments, net of rent concessions, which are expensed as incurred.

Note 8.     Accounts payable and accrued liabilities

Accounts payable and accrued liabilities consist of the following:

Provisions are classified as current and non-current liabilities based on legal rights which exist as at the reporting date as follows:

Amendments to borrowings

Post June 28, 2024, Canadian Dollar Offered Rate rates were no longer being published. As a result, in the first quarter ended June 30, 2024, the Company entered into amendments for its Revolving Facility (as defined below) to transition from the Canadian Dollar Offered interest benchmarks to the Canadian Overnight Repo Rate Average ("CORRA”). There were no further amendments to borrowings in the first quarter ended June 30, 2024.

Revolving Facility

The Revolving Facility has multiple interest rate charge options that are based on the Canadian prime rate, the lenders' Alternate Base Rate, European Base Rate, SOFR rate, or EURIBOR rate plus an applicable margin, with interest payable the earlier of quarterly or at the end of the then current interest period (whichever is earlier).

As at June 30, 2024, the Company had $54.3m owing on the Revolving Facility (July 2, 2023 - $nil, March 31, 2024 - $nil). As at June 30, 2024, $0.3m interest and administrative fees remain outstanding (July 2, 2023 - $nil, March 31, 2024 - $nil). Deferred financing charges in the amounts of $1.0m as at June 30, 2024 (July 2, 2023 - $1.1m, March 31, 2024 - $1.0m) were included in other long-term liabilities. As at and during the first quarter ended June 30, 2024, the Company was in compliance with all covenants.

The Company had unused borrowing capacity available under the Revolving Facility of $335.2m as at June 30, 2024 (July 2, 2023 - $402.9m, March 31, 2024 - $203.7m).

The revolving credit commitment also includes a letter of credit commitment in the amount of $25.0m, with a $5.0m sub-commitment for letters of credit issued in a currency other than Canadian dollars, U.S. dollars, euros or British pounds sterling, and a swingline commitment for $25.0m. As at June 30, 2024, the Company had letters of credit outstanding under the Revolving Facility of $1.6m (July 2, 2023 - $1.8m, March 31, 2024 - $1.5m).

Term Loan

The Company has a senior secured loan agreement with a syndicate of lenders that is secured on a split collateral basis ("Term Loan") alongside the Revolving Facility. The Term Loan has an aggregate principal amount of USD300.0m, with quarterly repayments of USD0.75m on the principal amount and a maturity date of October 7, 2027. Moreover, the Term Loan has an interest rate of SOFR plus a term SOFR adjustment of 0.11448% with an applicable margin of 3.50% payable monthly in arrears. SOFR plus the term SOFR adjustment may not be less than 0.75%.

Voluntary prepayments of amounts owing under the Term Loan may be made at any time without premium or penalty, once repaid may not be reborrowed. As at June 30, 2024, the Company had USD289.5m (July 2, 2023 - USD292.5m, March 31, 2024 - USD290.3m) aggregate principal amount outstanding under the Term Loan. The Company has pledged substantially all of its assets as collateral for the Term Loan. The Term Loan contains financial and non-financial covenants which could impact the Company’s ability to draw funds. As at and during the first quarter ended June 30, 2024, the Company was in compliance with all covenants.

As the Term Loan is denominated in U.S. dollars, the Company remeasures the outstanding balance plus accrued interest at each balance sheet date.

Mainland China Facilities

A subsidiary of the Company in Mainland China has uncommitted loan facilities in the aggregate amount of RMB510.0m ($96.0m) ("Mainland China Facilities"). The term of each draw on the loans is one, three or six months or such other period as agreed upon and shall not exceed twelve months (including any extension or rollover). The interest rate on each facility is equal to 3.1% or the loan prime rate of 1 year, minus a marginal rate of 0.5%, and payable quarterly. Proceeds drawn on the Mainland China Facilities are being used to support working capital requirements and build up of inventory for peak season sales. As at June 30, 2024, the Company had $16.6m (RMB88.3m) owing on the Mainland China Facilities (July 2, 2023 - $22.4m (RMB122.3m), March 31, 2024 - no amounts owing).

Japan Facility

A subsidiary of the Company in Japan has a loan facility in the aggregate amount of JPY4,000.0m ($34.0m) ("Japan Facility") with a floating interest rate of Japanese Bankers Association Tokyo Interbank Offered Rate plus an applicable margin of 0.30%. The term of the facility is 12 months and each draw on the facility is payable within the term. Proceeds drawn on the Japan Facility are being used to support build up of inventory for peak season sales. As at June 30, 2024, the Company had $16.2m (JPY1,900.0m) owing on the Japan Facility (July 2, 2023 - $22.0m (JPY2,400.0m), March 31, 2024 - $5.4m (JPY600.0m)).

Short-term Borrowings

As at June 30, 2024, the Company has short-term borrowings in the amount of $36.8m. Short-term borrowings include $16.6m (July 2, 2023 - $22.4m, March 31, 2024 - $nil) owing on the Mainland China Facilities, $16.2m (July 2, 2023 - $22.0m, March 31, 2024 - $5.4m) owing on the Japan Facility, and $4.0m (July 2, 2023 - $4.0m, March 31, 2024 - $4.0m) for the current portion of the quarterly principal repayments on the Term Loan. Short-term borrowings are all due within the next 12 months.

Net interest, finance and other costs consist of the following:

Note 11.     Shareholders' equity

Share capital transactions for the first quarter ended June 30, 2024

Normal course issuer bid for Fiscal 2024

The Board of Directors authorized the Company to initiate a normal course issuer bid, in accordance with the requirements of the Toronto Stock Exchange, to purchase up to 4,980,505 subordinate voting shares over the 12-month period from November 22, 2023 and ending no later than November 21, 2024 (the "Fiscal 2024 NCIB"). Purchased subordinate voting shares will be cancelled.

In connection with the Fiscal 2024 NCIB, the Company also entered an automatic share purchase plan (the “Fiscal 2024 ASPP”) under which a designated broker may purchase subordinate voting shares under the Fiscal 2024 NCIB during the regularly scheduled quarterly trading blackout periods of the Company. The repurchases made under the Fiscal 2024 ASPP will be made in accordance with certain purchasing parameters and will continue until the earlier of the date in which the Company has acquired the maximum limit of subordinate voting shares pursuant to the Fiscal 2024 ASPP or upon the date of expiry of the Fiscal 2024 NCIB.

During the first quarter ended June 30, 2024, the Company made no repurchases under the Fiscal 2024 NCIB.

Since the commencement of the Fiscal 2024 NCIB, the Company purchased 3,586,124 subordinate voting shares for total cash consideration of $56.9m. Of the 3,586,124 subordinate voting shares purchased, 3,088,648 were purchased under the Fiscal 2024 ASPP for total cash consideration of $49.6m.

The transactions affecting the issued and outstanding share capital of the Company are described below:

Normal course issuer bid for Fiscal 2023

The Board of Directors authorized the Company to initiate a normal course issuer bid, in accordance with the requirements of the Toronto Stock Exchange, to purchase up to 5,421,685 subordinate voting shares over the 12-month period which started on November 22, 2022 and concluded on November 21, 2023 (the "Fiscal 2023 NCIB").

In connection with the Fiscal 2023 NCIB, the Company had also entered an automatic share purchase plan (the “Fiscal 2023 ASPP”) under which a designated broker may purchase subordinate voting shares under the Fiscal 2023 NCIB during the regularly scheduled quarterly trading blackout periods of the Company. This Fiscal 2023 ASPP terminated on November 21, 2023, along with the Fiscal 2023 NCIB, and the liability to the broker was fully settled at the end of the plan.

In addition, subordinate voting shares held for cancellation as at April 2, 2023 valued at $1.2m were settled in the first quarter ended July 2, 2023. Since the commencement of the Fiscal 2023 NCIB, the Company purchased 2,309,761 subordinate voting shares for cancellation for total cash consideration of $54.2m.

A liability representing the maximum amount that the Company could be required to pay the designated broker under the ASPP was $10.0m as at first quarter ended July 2, 2023. The amount was charged to contributed surplus. Subsequent to the first quarter ended July 2, 2023, the Company purchased an additional 422,544 subordinate voting shares for cancellation for total cash consideration of $10.0m under the ASPP.

Note 12.    Share-based payments

Stock options

The Company issued stock options to purchase subordinate voting shares under its incentive plans, prior to the public share offering on March 21, 2017, the Legacy Plan, and subsequently, the Omnibus Plan. All options are issued at an exercise price that is not less than market value at the time of grant and expire ten years after the grant date.

Stock option transactions are as follows:

The Company grants shares as part of the Restricted Share Unit ("RSU") program under the Omnibus Plan to employees of the Company. The RSUs are treated as equity instruments for accounting purposes. We expect that vested RSUs will be paid at settlement through the issuance of one subordinate voting share per RSU. The RSUs vest over a period of three years, a third on each anniversary of the date of grant.

RSU transactions are as follows:

In May 2023, the Company implemented a Performance Share Unit (“PSU”) program under the Omnibus Plan. A PSU represents the right to receive a subordinate voting share settled by the issuance of shares at the vesting date. PSUs vest on the third anniversary of the award date and are earned only if certain performance targets are achieved. Shares issued per PSU at the vesting date can decrease or increase if minimum or maximum performance targets are achieved ranging from 0% to 200% of the PSU award granted. If performance targets are achieved, the Company expects that those vested PSUs will be paid at settlement through the issuance of one subordinate voting share per PSU. PSUs are treated as equity instruments for accounting purposes.

PSU transactions are as follows:

As at June 30, 2024, subordinate voting shares, to a maximum of 4,171,139 shares, have been reserved for issuance under equity incentive plans to select employees of the Company, with vesting contingent upon meeting the service, performance goals and other conditions of the Omnibus Plan.

For the first quarter ended June 30, 2024, the Company recorded $2.2m as compensation expense for the vesting of stock options, RSUs and PSUs (first quarter ended July 2, 2023 - $2.5m). Share-based compensation expense is included in SG&A expenses.

The assumptions used to measure the fair value of options granted under the Black-Scholes option pricing model at the grant date were as follows:

RSU and PSU fair values are determined based on the market value of the subordinate voting shares at the time of grant. As at June 30, 2024, the weighted average fair value of RSUs was $18.98 (July 2, 2023 - $22.24). As at June 30, 2024, the weighted average fair value of PSUs was $18.98 (July 2, 2023 - $22.24).

Note 13.    Related party transactions

The Company enters into transactions from time to time with its principal shareholders, as well as organizations affiliated with members of the Board of Directors and key management personnel by incurring expenses for business services. During the first quarter ended June 30, 2024, the Company incurred expenses with related parties of $0.5m (first quarter ended July 2, 2023 - $0.3m) from companies related to certain shareholders. Balances owing to related parties as at June 30, 2024 were $0.4m (July 2, 2023 - $0.4m, March 31, 2024 - $0.2m).

A lease liability due to the former controlling shareholder of the acquired Baffin Inc. business (the "Baffin Vendor") for leased premises was $2.3m as at June 30, 2024 (July 2, 2023 - $2.9m, March 31, 2024 - $2.5m). During the first quarter ended June 30, 2024, the Company paid principal and interest on the lease liability, net of rent concessions, and other operating costs to entities affiliated with the Baffin Vendor totalling $0.4m (first quarter ended July 2, 2023 - $0.4m). No amounts were owing to Baffin entities as at June 30, 2024, July 2, 2023, and March 31, 2024.

During the first quarter ended June 30, 2024, the Japan Joint Venture sold inventory of less than $0.1m to companies wholly owned by Sazaby League (first quarter ended July 2, 2023 - less

than $0.1m). As at June 30, 2024, the Japan Joint Venture recognized a trade receivable of less than $0.1m from these companies (July 2, 2023 - less than $0.1m, March 31, 2024 - $0.1m).

Note 14.    Financial instruments and fair value

The following table presents the fair values and fair value hierarchy of the Company’s financial instruments and excludes financial instruments carried at amortized cost that are short-term in nature:

In connection with the Japan Joint Venture, for the first quarter ended June 30, 2024, the Company recorded a decrease of JPY1,259.1m ($11.6m, excluding translation losses of $0.9m) on the remeasurement of the contingent consideration. The Company recorded an increase of JPY242.5m ($0.6m, excluding translation losses of $1.5m) on the remeasurement of the put option liability during the first quarter ended June 30, 2024. The change in fair value of the put option liability was driven by progression through the 10-year term, whereas the change in fair value of the contingent consideration was driven by the extension in term. During the first quarter ended June 30, 2024, the Company and Sazaby League amended the Joint Venture Agreement to extend the period by which the deferred contingent consideration is payable if an agreed cumulative adjusted EBIT target is not reached through the period ended June 30, 2026 to April 2, 2028.

For the first quarter ended July 2, 2023, the Company recorded a decrease of JPY110.2m ($2.6m, excluding translation losses of $1.6m) on the remeasurement of the contingent consideration. The Company recorded an increase of JPY885.5m ($5.0m, excluding translation losses of $3.1m) on the remeasurement of the put option liability during the first quarter ended July 2, 2023.

Note 15.    Financial risk management objectives and policies

The Company’s primary risk management objective is to protect the Company’s assets and cash flow, in order to increase the Company’s enterprise value.

The Company is exposed to capital management risk, liquidity risk, credit risk, market risk, foreign exchange risk, and interest rate risk. The Company’s senior management and Board of Directors oversee the management of these risks. The Board of Directors reviews and agrees upon policies for managing each of these risks which are summarized below.

Capital management

The Company manages its capital and capital structure with the objectives of safeguarding sufficient working capital over the annual operating cycle and providing sufficient financial resources to grow operations to meet long-term consumer demand. The Board of Directors of the Company monitors the Company’s capital management on a regular basis. The Company will continually assess the adequacy of the Company’s capital structure and capacity and make adjustments within the context of the Company’s strategy, economic conditions, and risk characteristics of the business.

Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to satisfy the requirements for business operations, capital expenditures, debt service and general corporate purposes, under normal and stressed conditions. The primary source of liquidity is funds generated by operating activities; the Company also relies on the Mainland China Facilities, the Japan Facility, and the Revolving Facility as sources of funds for short-term working capital needs. The Company continuously reviews both actual and forecasted cash flows to ensure that the Company has appropriate capital capacity.

The following table summarizes the amount of contractual undiscounted future cash flow requirements as at June 30, 2024:

As at June 30, 2024, we had additional liabilities which included provisions for warranty, sales returns, asset retirement obligations, deferred income tax liabilities, the Earn-Out to the PCML Vendors, the put option liability and the contingent consideration on the Japan Joint Venture. These liabilities have not been included in the table above as the timing and amount of future payments are uncertain.

Letter of guarantee facility

On April 14, 2020, Canada Goose Inc. entered into a letter of guarantee facility in the amount of $10.0m. Letters of guarantee are available for terms of up to twelve months and will be charged a fee equal to 1.0% per annum calculated against the face amount and over the term of the guarantee. Amounts issued on the facility will be used to finance working capital requirements of Canada Goose Inc. through letters of guarantee, standby letters of credit, performance bonds, counter guarantees, counter standby letters of credit, or similar credits. The Company immediately reimburses the issuing bank for amounts drawn on issued letters of guarantees. At June 30, 2024, the Company had $7.5m outstanding.

In addition, a subsidiary of the Company in Mainland China entered into letters of guarantee and as at June 30, 2024 the amount outstanding was $9.2m. Amounts will be used to support retail operations of such subsidiaries through letters of guarantee, standby letters of credit, performance bonds, counter guarantees, counter standby letters of credit, or similar credits.

Credit risk

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss.

Credit risk arises from the possibility that certain parties will be unable to discharge their obligations. The Company manages its credit risk through a combination of third-party credit insurance and internal house risk. Credit insurance is provided by a third party for customers and is subject to continuous monitoring of the credit worthiness of the Company's customers. Insurance covers a specific amount of revenue, which may be less than the Company's total revenue with a specific customer. The Company has an agreement with a third party who has insured the risk of loss for up to 90% of trade accounts receivable from certain designated

customers subject to a total deductible of $0.1m, to a maximum of $30.0m per year. As at June 30, 2024, trade accounts receivable totalling approximately $12.0m (July 2, 2023 - $22.8m, March 31, 2024 - $14.8m) were insured subject to the policy cap. Complementary to the third-party insurance, the Company establishes payment terms with customers to mitigate credit risk and continues to closely monitor its trade accounts receivable credit risk exposure.

Within CG Japan, the Company has an agreement with a third party who has insured the risk of trade accounts receivable for certain designated customers for a maximum of JPY540.0m per annum subject to a deductible of 10% and applicable only to accounts with receivables over JPY100k. As at June 30, 2024, trade accounts receivable totalling less than $0.1m (JPY2.9m) were insured subject to the policy cap (July 2, 2023 - less than $0.1m (JPY0.4m), March 31, 2024 - $0.3m (JPY32.5m)).

Trade accounts receivable factoring program

A subsidiary of the Company in Europe had an agreement to factor, on a limited recourse basis, certain of its trade accounts receivable up to a limit of EUR20.0m in exchange for advanced funding equal to 100% of the principal value of the invoice. On April 12, 2024, this agreement was terminated with an immaterial impact to the Company’s trade accounts receivables.

For the first quarter ended June 30, 2024, the Company received cash proceeds from the sale of trade accounts receivable with carrying values of $0.1m which were derecognized from the Company's statement of financial position (first quarter ended July 2, 2023 - $0.4m). No fees were incurred during the first quarter ended June 30, 2024 (first quarter ended July 2, 2023 - less than $0.1m) and included in net interest, finance and other costs in the interim statements of loss. As at June 30, 2024, the outstanding amount of trade accounts receivable derecognized from the Company’s statement of financial position, but which the Company continued to service, was $nil (July 2, 2023 - $nil, March 31, 2024 - $0.6m).

Market risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise foreign exchange risk and interest rate risk.

Foreign exchange risk

Foreign exchange risk in operating cash flows

The Company’s Interim Financial Statements are expressed in Canadian dollars, but a substantial portion of the Company’s revenues, purchases, and expenses are denominated in other currencies, principally U.S. dollars, euros, British pounds sterling, Swiss francs, Chinese yuan, Hong Kong dollars, and Japanese yen. The Company has entered into forward foreign exchange contracts to reduce the foreign exchange risk associated with revenues, purchases, and expenses denominated in these currencies. Certain forward foreign exchange contracts were designated at inception and accounted for as cash flow hedges. During the first quarter ended June 30, 2024, the Company executed the operating cash flow hedge program for fiscal 2025.

Revenues and expenses of all foreign operations are translated into Canadian dollars at the foreign currency exchange rates that approximate the rates in effect at the dates when such items are recognized. As a result, we are exposed to foreign currency translation gains and losses. Appreciating foreign currencies relative to the Canadian dollar, to the extent they are not hedged, will positively impact operating income and net income by increasing our revenue, while depreciating foreign currencies relative to the Canadian dollar will have the opposite impact.

The Company recognized the following unrealized gains in the fair value of derivatives designated as cash flow hedges in other comprehensive loss:

For the first quarter ended June 30, 2024, unrealized gains of $0.3m (first quarter ended July 2, 2023 - unrealized gains of $2.2m) on forward exchange contracts that were not treated as hedges were recognized in SG&A expenses in the interim statements of loss.

Foreign currency forward exchange contracts outstanding as at June 30, 2024 related to operating cash flows were:

The Company recognized the following unrealized losses and gains in the fair value of derivatives designated as hedging instruments in other comprehensive loss:

The Company reclassified the following gains from other comprehensive loss on derivatives designated as hedging instruments to net interest, finance and other costs:

For the first quarter ended June 30, 2024, unrealized gains of $2.2m (first quarter ended July 2, 2023 - unrealized loss of $5.6m) in the fair value of the long-dated forward exchange contract related to a portion of the Term Loan balance were recognized in net interest, finance and other costs in the interim statements of loss.

Interest rate risk

The Company is exposed to interest rate risk related to the effect of interest rate changes on the borrowings outstanding under the Mainland China Facilities, Japan Facility, Revolving Facility, and the Term Loan, which currently bear interest rates at 3.00%, 0.48%, 6.30% and 8.96%, respectively.

Interest rate risk on the Term Loan is partially mitigated by interest rate swap hedges. The Company has entered into five-year interest rate swap agreements terminating December 31, 2025 to pay fixed interest rates and receive floating interest rates on notional debt of USD270.0m. The floating interest benchmark reference rate contained within the swap agreements is SOFR with the average fixed rates of 1.76%. These swap agreements fix the interest rate on the USD300.0m Term Loan. The interest rate swaps continue to be designated and accounted for as cash flow hedges.

Based on the closing balance of outstanding borrowings, a 1.00% increase in the closing interest rate during the first quarter ended June 30, 2024 would have increased interest expense on the Mainland China Facilities, Japan Facility, Revolving Facility and the Term Loan before hedging, by less than $0.1m, less than $0.1m, $0.1m and $1.0m, respectively (first quarter ended July 2, 2023 - less than $0.1m, less than $0.1m, $nil and $1.0m, respectively).

Until the third quarter ended December 31, 2023, the Company calculated interest rate sensitivity on debt facilities using the average balance of the facility and average interest rate in the reporting period. Following the third quarter, and applicable for the first quarter ended June 30, 2024, the Company calculated interest rate sensitivity on debt facilities using the closing balance of the facility and the closing interest rate. The Company believes this change provides more relevant information on interest rate sensitivity. The Company has recognized this change as a change in estimates and had adjusted the disclosure prospectively.