Canada Goose(GOOS) - 2024 Q3 - Quarterly Report

Condensed Consolidated Interim Statements of Income The company achieved revenue and gross profit growth in both the third quarter and the nine months ended December 31, 2023; however, net income and earnings per share (basic and diluted) decreased in both periods due to significant increases in selling, general and administrative expenses and net interest, finance and other costs Third Quarter Financial Performance (Millions of CAD) | Indicator | As of Dec 31, 2023 | As of Jan 1, 2023 | Change (%) | | :----------------------------- | :-------------------------- | :-------------------------- | :--------- | | Revenue | 609.9 | 576.7 | 5.76% | | Cost of Sales | 160.2 | 160.3 | -0.06% | | Gross Profit | 449.7 | 416.4 | 7.99% | | Selling, General and Administrative Expenses | 250.9 | 225.7 | 11.17% | | Operating Profit | 198.8 | 190.7 | 4.25% | | Net Interest, Finance and Other Costs | 14.8 | 2.4 | 516.67% | | Profit Before Income Tax | 184.0 | 188.3 | -2.28% | | Income Tax Expense | 52.6 | 50.8 | 3.54% | | Net Income | 131.4 | 137.5 | -4.44% | | Net Income Attributable to Company Shareholders | 130.6 | 134.9 | -3.26% | | Basic Earnings Per Share | 1.30 | 1.28 | 1.56% | | Diluted Earnings Per Share | 1.29 | 1.28 | 0.78% | Nine Months Financial Performance (Millions of CAD) | Indicator | As of Dec 31, 2023 | As of Jan 1, 2023 | Change (%) | | :----------------------------- | :-------------------------- | :-------------------------- | :--------- | | Revenue | 975.8 | 923.8 | 5.63% | | Cost of Sales | 291.4 | 298.9 | -2.51% | | Gross Profit | 684.4 | 624.9 | 9.52% | | Selling, General and Administrative Expenses | 583.0 | 494.9 | 17.80% | | Operating Profit | 101.4 | 130.0 | -21.99% | | Net Interest, Finance and Other Costs | 42.9 | 31.9 | 34.48% | | Profit Before Income Tax | 58.5 | 98.1 | -40.40% | | Income Tax Expense | 8.0 | 19.2 | -58.33% | | Net Income | 50.5 | 78.9 | -36.00% | | Net Income Attributable to Company Shareholders | 53.4 | 75.8 | -29.55% | | Basic Earnings Per Share | 0.52 | 0.72 | -27.78% | | Diluted Earnings Per Share | 0.52 | 0.72 | -27.78% | - For the nine months ended December 31, 2023, selling, general and administrative expenses increased by 17.8% from CAD 494.9 million to CAD 583.0 million, while net interest, finance and other costs rose by 34.48% from CAD 31.9 million to CAD 42.9 million[2] Condensed Consolidated Interim Statements of Comprehensive Income Comprehensive income for the third quarter ended December 31, 2023, decreased by 17.76% year-over-year to CAD 130.6 million, and for the nine months, it fell by 52.00% to CAD 48.0 million, primarily due to reduced net income and a shift to losses in other comprehensive income, notably from cumulative translation adjustments and net losses on derivatives Comprehensive Income (Millions of CAD) | Period | As of Dec 31, 2023 | As of Jan 1, 2023 | Change (%) | | :------------------- | :----------- | :---------- | :--------- | | Third Quarter | 130.6 | 158.8 | -17.76% | | Nine Months | 48.0 | 100.0 | -52.00% | - In the third quarter, cumulative translation adjustments decreased from CAD 22.5 million to CAD 6.7 million, and net losses on derivatives designated as cash flow hedges increased from CAD 4.6 million to CAD 7.5 million[4] Condensed Consolidated Interim Statements of Financial Position As of December 31, 2023, total assets decreased from CAD 1,703.0 million on January 1, 2023, to CAD 1,601.9 million, primarily due to a significant reduction in cash, while total liabilities remained relatively stable and total equity declined from CAD 498.1 million to CAD 400.9 million, mainly influenced by share repurchase activities Financial Position (Millions of CAD) | Indicator | As of Dec 31, 2023 | As of Jan 1, 2023 | As of Apr 2, 2023 | | :-------------------------- | :----------- | :---------- | :------------ | | Total Assets | 1,601.9 | 1,703.0 | 1,590.0 | | Total Liabilities | 1,201.0 | 1,204.9 | 1,112.5 | | Total Equity | 400.9 | 498.1 | 477.5 | - As of December 31, 2023, cash decreased by 55.17% from CAD 344.2 million on January 1, 2023, to CAD 154.3 million, while trade receivables increased by 19.52% from CAD 120.9 million to CAD 144.5 million, and inventories slightly decreased by 0.75% to CAD 478.4 million[6] - As of December 31, 2023, short-term borrowings decreased by 26.15% from CAD 52.4 million on January 1, 2023, to CAD 38.7 million, and term loans decreased by 3.15% from CAD 393.4 million to CAD 381.0 million[6] Condensed Consolidated Interim Statements of Changes in Equity Total equity decreased from CAD 477.5 million on April 2, 2023, to CAD 400.9 million on December 31, 2023, primarily due to significant repurchases of subordinate voting shares under a Normal Course Issuer Bid (NCIB), reducing share capital and retained earnings, partially offset by net income and share-based payments Total Equity (Millions of CAD) | Period | Amount | | :------------------- | :----------- | | Balance as of Apr 2, 2023 | 477.5 | | Balance as of Dec 31, 2023 | 400.9 | | Balance as of Jan 1, 2023 | 498.1 | - From April 2, 2023, to December 31, 2023, repurchases of subordinate voting shares under the Normal Course Issuer Bid resulted in a CAD 110.5 million reduction (allocated to share capital and retained earnings), with net income at CAD 53.4 million and share-based payments at CAD 11.2 million[7] Condensed Consolidated Interim Statements of Cash Flows For the nine months ended December 31, 2023, net cash from operating activities decreased to CAD 81.8 million from CAD 109.3 million in the prior year, while net cash used in investing activities significantly increased due to property, plant, and equipment acquisitions and business combinations, and net cash used in financing activities also rose sharply due to increased share repurchases and revolving credit facility repayments, resulting in an overall cash decrease of CAD 132.2 million for the period Summary of Cash Flows (Nine Months, Millions of CAD) | Activity | As of Dec 31, 2023 | As of Jan 1, 2023 | Change (%) | | :----------------------------- | :----------- | :---------- | :--------- | | Net Cash from Operating Activities | 81.8 | 109.3 | -25.16% | | Net Cash Used in Investing Activities | (59.7) | (21.4) | 178.04% | | Net Cash Used in Financing Activities | (153.3) | (35.3) | 334.28% | | Increase (Decrease) in Cash | (132.2) | 56.5 | -333.98% | - In operating activities, net income decreased from CAD 78.9 million to CAD 50.5 million, and changes in non-cash operating items shifted from (CAD 48.1 million) to (CAD 32.2 million)[9] - In investing activities, the acquisition of property, plant, and equipment increased from (CAD 22.9 million) to (CAD 46.3 million), and net cash outflow from business combinations was (CAD 12.3 million), compared to an inflow of CAD 2.8 million in the prior period[9] - In financing activities, repurchases of subordinate voting shares under the Normal Course Issuer Bid increased from (CAD 16.1 million) to (CAD 111.7 million), and revolving credit facility repayments increased from (CAD 0.5 million) to CAD 0 (with significant activity during the quarter)[9] Notes to the Condensed Consolidated Interim Financial Statements This section provides detailed disclosures on the company's accounting policies, business combinations, segment performance, financial instruments, and risk management strategies, offering crucial context to the interim financial statements Note 1. The Company Canada Goose Holdings Inc. designs, manufactures, and sells performance luxury apparel, listed on the TSX and NYSE, operating through Direct-to-Consumer (DTC), Wholesale, and Other segments, with revenue and operating profit significantly impacted by seasonality, where DTC and Wholesale contribute most revenue in specific quarters - The company designs, manufactures, and sells performance luxury apparel for men, women, youth, children, and babies, including parkas, lightweight down, rainwear, windwear, apparel, fleece, footwear, and accessories[11] - The company is listed on the Toronto Stock Exchange and the New York Stock Exchange under the ticker symbol "GOOS," with major shareholders including Bain Capital LP and its affiliates, and DTR LLC (indirectly controlled by the company's Chairman and CEO)[12] - The company's operations are divided into three reportable operating segments: Direct-to-Consumer (DTC), Wholesale, and Other, where the DTC segment includes sales through e-commerce platforms and company-owned retail stores, the Wholesale segment includes sales to retailers and international distributors, and the Other segment includes employee sales, friends and family sales, SG&A expenses, and the newly acquired Paola Confectii business[16][17][19] - The company's business is seasonal, with wholesale revenue and operating profit primarily concentrated in the second and third fiscal quarters, and DTC revenue and operating profit mainly in the third and fourth quarters, while cash flows from operating activities are typically highest in the third and fourth quarters[20][21] Note 2. Material accounting policy information and critical accounting estimates and judgments The interim financial statements are prepared in accordance with IAS 34, maintaining consistent accounting policies with annual statements, except for the reclassification of foreign exchange gains and losses related to term loans, while the company assesses the potential impact of IAS 1 amendments on liability classification and has adopted the IAS 12 amendment for Pillar Two model rules exemption - The interim financial statements are prepared in accordance with International Accounting Standard (IAS) 34, "Interim Financial Reporting"[13] - Certain comparative data has been reclassified to re-present foreign exchange gains and losses (net of hedging) related to the outstanding principal balance of term loans from selling, general and administrative expenses to net interest, finance and other costs, with no impact on net income, earnings per share, or the condensed consolidated interim statements of financial position[23] - The International Accounting Standards Board (IASB) issued amendments to IAS 1, "Presentation of Financial Statements," clarifying liability presentation requirements in the statement of financial position, effective for annual reporting periods beginning on or after January 1, 2024, which the company is currently evaluating for potential impact[27] - The company has adopted the IAS 12, "Income Taxes," amendments issued by the IASB in May 2023, which provide a temporary mandatory exception from recognizing and disclosing deferred tax assets and liabilities arising from the OECD Pillar Two international tax reform[29] Note 3. Business combination On November 1, 2023, Canada Goose acquired the business of luxury knitwear manufacturer Paola Confectii SRL for CAD 16.4 million in cash, aiming to enhance product margins, supply chain control, and in-house expertise, with CAD 13.5 million in goodwill initially recognized and an estimated CAD 6.6 million earn-out payable to the seller over two years based on future performance and continued employment - On November 1, 2023, the company's newly formed subsidiary, Paola Confectii Manufacturing Limited, acquired the business of Paola Confectii SRL, a luxury knitwear manufacturer, for CAD 16.4 million in cash[30] - This acquisition is expected to enhance product margins and supply chain control while deepening in-house product expertise and capabilities[30] - Goodwill of CAD 13.5 million was provisionally recognized at the acquisition date, primarily attributable to the strengthening of the vertically integrated supply chain and the anticipated future growth potential in the knitwear category[33] - An additional earn-out, estimated at CAD 6.6 million, is payable to Paola Confectii SRL's controlling shareholder (PCML supplier) over two years, expensed as compensation cost, contingent on continued employment until November 1, 2025, and specific performance conditions[34] - Paola Confectii's results have been consolidated into the company's financial performance since the acquisition date and are reported within the company's "Other" operating segment[36] Note 4. Segment information For the third quarter and nine months ended December 31, 2023, the DTC segment experienced strong revenue growth while wholesale revenue declined, leading to increased DTC operating profit but continued significant operating losses in the 'Other' segment, resulting in a decrease in total operating profit for the nine months, with strong APAC revenue growth offsetting declines in North America and EMEA Third Quarter Segment Performance (Millions of CAD) | Segment | Revenue as of Dec 31, 2023 | Revenue as of Jan 1, 2023 | Revenue Change (%) | Operating Profit (Loss) as of Dec 31, 2023 | Operating Profit (Loss) as of Jan 1, 2023 | Operating Profit Change (%) | | :-------- | :------------------- | :------------------ | :----------------- | :----------------------------------- | :---------------------------------- | :-------------------------- | | DTC | 514.0 | 450.2 | 14.17% | 287.1 | 258.8 | 10.93% | | Wholesale | 81.8 | 114.4 | -28.49% | 25.9 | 38.8 | -33.25% | | Other | 14.1 | 12.1 | 16.53% | (114.2) | (106.9) | -6.83% | | Total | 609.9 | 576.7 | 5.76% | 198.8 | 190.7 | 4.25% | Nine Months Segment Performance (Millions of CAD) | Segment | Revenue as of Dec 31, 2023 | Revenue as of Jan 1, 2023 | Revenue Change (%) | Operating Profit (Loss) as of Dec 31, 2023 | Operating Profit (Loss) as of Jan 1, 2023 | Operating Profit Change (%) | | :-------- | :------------------- | :------------------ | :----------------- | :----------------------------------- | :---------------------------------- | :-------------------------- | | DTC | 679.2 | 579.8 | 17.14% | 293.4 | 265.4 | 10.55% | | Wholesale | 270.9 | 328.3 | -17.48% | 99.0 | 118.5 | -16.46% | | Other | 25.7 | 15.7 | 63.69% | (291.0) | (253.9) | -14.61% | | Total | 975.8 | 923.8 | 5.63% | 101.4 | 130.0 | -21.99% | Nine Months Geographical Revenue (Millions of CAD) | Region | As of Dec 31, 2023 | As of Jan 1, 2023 | Change (%) | | :------------ | :----------- | :---------- | :--------- | | North America | 418.1 | 458.5 | -8.79% | | Asia Pacific | 359.0 | 240.1 | 49.52% | | Europe, Middle East, Africa and Latin America (EMEA) | 198.7 | 225.2 | -11.77% | | Total Revenue | 975.8 | 923.8 | 5.63% | Note 5. Earnings per share For the third quarter ended December 31, 2023, basic and diluted earnings per share saw a slight year-over-year increase, but for the nine months, both basic and diluted EPS significantly decreased, primarily due to lower net income attributable to company shareholders and a reduced weighted average number of outstanding shares Earnings Per Share (CAD) | Indicator | As of Dec 31, 2023 (Q3) | As of Jan 1, 2023 (Q3) | As of Dec 31, 2023 (9 Months) | As of Jan 1, 2023 (9 Months) | | :--- | :----------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic | 1.30 | 1.28 | 0.52 | 0.72 | | Diluted | 1.29 | 1.28 | 0.52 | 0.72 | Weighted Average Number of Outstanding Shares | Indicator | As of Dec 31, 2023 (9 Months) | As of Jan 1, 2023 (9 Months) | | :--- | :----------------------------- | :-------------------------- | | Basic | 102,144,232 | 105,238,509 | | Diluted | 103,125,365 | 105,778,351 | Note 6. Trade receivables As of December 31, 2023, total trade receivables increased to CAD 144.5 million from CAD 120.9 million on January 1, 2023, primarily driven by increases in trade accounts receivable and credit card receivables Trade Receivables (Millions of CAD) | Indicator | As of Dec 31, 2023 | As of Jan 1, 2023 | As of Apr 2, 2023 | | :-------------------------------- | :----------- | :---------- | :------------ | | Trade Accounts Receivable | 129.4 | 103.3 | 30.4 | | Credit Card Receivables | 7.5 | 5.8 | 2.5 | | Other Receivables | 9.3 | 13.5 | 19.5 | | Less: Expected Credit Losses and Sales Allowances | (1.7) | (1.7) | (1.5) | | Total Trade Receivables | 144.5 | 120.9 | 50.9 | Note 7. Inventories As of December 31, 2023, total inventories remained relatively stable at CAD 478.4 million compared to CAD 482.0 million on January 1, 2023, but inventory write-downs significantly increased from CAD 32.7 million to CAD 51.0 million, primarily due to higher provisions for slow-moving raw materials and finished goods Inventories (Millions of CAD) | Indicator | As of Dec 31, 2023 | As of Jan 1, 2023 | As of Apr 2, 2023 | | :------------------------------------------ | :----------- | :---------- | :------------ | | Raw Materials | 48.9 | 71.3 | 60.3 | | Work-in-Progress | 23.0 | 15.4 | 17.5 | | Finished Goods | 406.5 | 395.3 | 394.8 | | Total Inventories at the Lower of Cost and Net Realizable Value | 478.4 | 482.0 | 472.6 | Inventory Write-Downs (Millions of CAD) | Indicator | As of Dec 31, 2023 | As of Jan 1, 2023 | As of Apr 2, 2023 | | :-------------------------------- | :----------- | :---------- | :------------ | | Raw Material Obsolescence Provision | 0.2 | — | 0.2 | | Finished Goods Obsolescence Provision | 0.9 | 0.8 | 0.4 | | Raw Material Slow-Moving Inventory Provision | 21.4 | 12.9 | 20.5 | | Finished Goods Slow-Moving Inventory Provision | 28.5 | 19.0 | 22.1 | | Total Inventory Write-Downs | 51.0 | 32.7 | 43.2 | Note 8. Leases As of December 31, 2023, the net book value of right-of-use assets slightly adjusted from CAD 275.6 million on January 1, 2023, to CAD 272.7 million, influenced by new leases, business combinations, depreciation, and foreign currency translation, while lease liabilities also marginally increased from CAD 316.9 million to CAD 321.3 million during the same period Net Book Value of Right-of-Use Assets (Millions of CAD) | Period | Amount | | :------------------- | :----------- | | As of Dec 31, 2023 | 272.7 | | As of Jan 1, 2023 | 275.6 | | As of Apr 2, 2023 | 291.8 | - From April 2, 2023, to December 31, 2023, right-of-use asset costs increased by CAD 28.2 million, business combinations added CAD 1.2 million, lease modifications added CAD 11.4 million, and derecognitions reduced by CAD 5.8 million[49] Total Lease Liabilities (Millions of CAD) | Period | Amount | | :------------------- | :----------- | | As of Dec 31, 2023 | 321.3 | | As of Jan 1, 2023 | 316.9 | | As of Apr 2, 2023 | 334.8 | Lease Liabilities Classification (As of Dec 31, 2023, Millions of CAD) | Classification | Amount | | :------------------- | :----------- | | Current Lease Liabilities | 76.4 | | Non-Current Lease Liabilities | 244.9 | Note 9. Accounts payable and accrued liabilities As of December 31, 2023, accounts payable and accrued liabilities increased to CAD 268.8 million from CAD 262.0 million on January 1, 2023, primarily driven by higher employee benefits and the recognition of ASPP liabilities, partially offset by reductions in trade payables and other payables Accounts Payable and Accrued Liabilities (Millions of CAD) | Indicator | As of Dec 31, 2023 | As of Jan 1, 2023 | As of Apr 2, 2023 | | :-------------------------------- | :----------- | :---------- | :------------ | | Trade Payables | 60.0 | 72.7 | 60.1 | | Accrued Liabilities | 107.9 | 119.0 | 82.4 | | Employee Benefits | 34.4 | 24.1 | 21.9 | | Derivative Financial Instruments | 3.8 | 7.4 | 3.3 | | ASPP Liabilities (Note 12) | 43.1 | — | 20.0 | | Other Payables | 19.6 | 38.8 | 7.9 | | Total | 268.8 | 262.0 | 195.6 | Note 10. Provisions As of December 31, 2023, total provisions increased to CAD 92.2 million from CAD 83.3 million on January 1, 2023, primarily due to a significant rise in sales return provisions from CAD 40.6 million to CAD 47.7 million and an increase in asset retirement obligations Provisions (Millions of CAD) | Indicator | As of Dec 31, 2023 | As of Jan 1, 2023 | As of Apr 2, 2023 | | :---------------------- | :----------- | :---------- | :------------ | | Warranty | 30.6 | 33.0 | 30.4 | | Sales Returns | 47.7 | 40.6 | 15.6 | | Asset Retirement Obligations | 13.9 | 9.7 | 12.1 | | Total | 92.2 | 83.3 | 58.1 | Note 11. Borrowings In Q1 FY2024, the company transitioned its USD-denominated financing instruments and contracts from LIBOR to SOFR and extended its revolving credit facility to May 15, 2028; as of December 31, 2023, the facility had no outstanding balance and CAD 359.4 million in unused borrowing capacity, with USD 291.0 million in outstanding term loan principal and CAD 9.3 million and CAD 25.4 million outstanding on China and Japan financing instruments, respectively, while net interest, finance and other costs significantly increased to CAD 42.9 million for the nine months ended December 31, 2023, driven by higher interest expenses on term loans and lease liabilities, and fair value remeasurement of put option liabilities - The company transitioned its USD-denominated financing instruments and contracts from LIBOR to SOFR in the first quarter of fiscal 2024 and extended the maturity of its revolving credit facility to May 15, 2028, on June 30, 2023[55] - As of December 31, 2023, the revolving credit facility had no outstanding balance and an available borrowing capacity of CAD 359.4 million[59][60] - The term loan has a total principal of USD 300.0 million, with USD 291.0 million outstanding as of December 31, 2023, and the company is in compliance with all loan covenants[63][64] - As of December 31, 2023, the China financing instrument had CAD 9.3 million (RMB 50.0 million) outstanding, and the Japan financing instrument had CAD 25.4 million (JPY 2.7 billion) outstanding[66][68] Net Interest, Finance and Other Costs (Nine Months, Millions of CAD) | Indicator | As of Dec 31, 2023 | As of Jan 1, 2023 | Change (%) | | :------------------------------------------ | :----------- | :---------- | :--------- | | Interest Expense (Total) | 31.4 | 23.5 | 33.62% | | Foreign Exchange Loss (Gain) on Term Loan, Net of Hedging | — | 11.7 | -100.00% | | Fair Value Remeasurement of Put Option Liability | 15.7 | 1.2 | 1208.33% | | Fair Value Remeasurement of Contingent Consideration | (4.9) | (5.9) | 16.95% | | Total Net Interest, Finance and Other Costs | 42.9 | 31.9 | 34.48% | Note 12. Shareholders' equity The company initiated a FY2024 Normal Course Issuer Bid (NCIB) to repurchase up to 4,980,505 subordinate voting shares, with 1,862,550 shares repurchased for CAD 29.5 million in cash by December 31, 2023; these repurchases, combined with those under the FY2023 NCIB, significantly reduced total share capital and retained earnings, leading to a decrease in total equity - The Board of Directors authorized the company to commence a fiscal 2024 Normal Course Issuer Bid (NCIB) to repurchase up to 4,980,505 subordinate voting shares between November 22, 2023, and November 21, 2024[71] - For the nine months ended December 31, 2023, the company repurchased and cancelled 1,862,550 subordinate voting shares under the FY2024 NCIB for a total cash consideration of CAD 29.5 million[73] - For the nine months ended December 31, 2023, the company repurchased and cancelled 4,268,883 subordinate voting shares under the FY2023 NCIB for a total cash consideration of CAD 83.3 million[77] Share Capital Movement (April 2, 2023, to December 31, 2023, Millions of CAD) | Indicator | Multiple Voting Shares (Number) | Multiple Voting Shares (Amount) | Subordinate Voting Shares (Number) | Subordinate Voting Shares (Amount) | Total (Number) | Total (Amount) | | :-------------------------------- | :----------------- | :----------------- | :----------------- | :----------------- | :----------- | :----------- | | Balance as of Apr 2, 2023 | 51,004,076 | 1.4 | 53,184,912 | 117.3 | 104,188,988 | 118.7 | | Purchase of Subordinate Voting Shares | — | — | (5,987,741) | (13.6) | (5,987,741) | (13.6) | | Purchase and Cancellation of Subordinate Voting Shares | — | — | (143,692) | (0.3) | (143,692) | (0.3) | | Total Share Purchases | — | — | (6,131,433) | (13.9) | (6,131,433) | (13.9) | | Exercise of Stock Options | — | — | 36,350 | 0.2 | 36,350 | 0.2 | | Settlement of Restricted Share Units | — | — | 134,475 | 3.8 | 134,475 | 3.8 | | Total Share Issuances | — | — | 170,825 | 4.0 | 170,825 | 4.0 | | Balance as of Dec 31, 2023 | 51,004,076 | 1.4 | 47,224,304 | 107.4 | 98,228,380 | 108.8 | Note 13. Share-based payments For the nine months ended December 31, 2023, the company granted 758,327 stock options, 376,543 Restricted Share Units (RSUs), and 399,349 Performance Share Units (PSUs), with share-based payment expense totaling CAD 11.5 million, slightly up from CAD 11.2 million in the prior year Stock Option Transactions (Nine Months, Number of Shares) | Indicator | As of Dec 31, 2023 | As of Jan 1, 2023 | | :----------------------- | :----------------- | :----------------- | | Options Outstanding at Beginning of Period | 4,055,199 | 2,722,690 | | Granted | 758,327 | 1,580,506 | | Exercised | (36,350) | (60,248) | | Forfeited | (303,217) | (146,079) | | Options Outstanding at End of Period | 4,473,959 | 4,096,869 | Restricted Share Unit (RSU) Transactions (Nine Months, Number of Shares) | Indicator | As of Dec 31, 2023 | As of Jan 1, 2023 | | :----------------------- | :----------------- | :----------------- | | RSUs Outstanding at Beginning of Period | 318,082 | 215,590 | | Granted | 376,543 | 209,187 | | Settled | (134,475) | (87,034) | | Forfeited | (38,599) | (14,039) | | RSUs Outstanding at End of Period | 521,551 | 323,704 | - The company implemented a Performance Share Unit (PSU) plan in May 2023, granting 399,349 PSUs for the nine months ended December 31, 2023, with 389,858 PSUs outstanding at period-end[83][84] - For the third quarter and nine months ended December 31, 2023, the company recorded share-based payment expenses of CAD 4.3 million and CAD 11.5 million, respectively, compared to CAD 4.2 million and CAD 11.2 million in the prior periods[86] Note 14. Related party transactions The company engaged in various related party transactions, including CAD 0.8 million in service fees paid to shareholder affiliates for the nine months ended December 31, 2023, CAD 2.8 million in lease liabilities related to Baffin Inc.'s former controlling shareholder, and CAD 2.2 million in lease liabilities and CAD 1.2 million in inventory sales with the Japan joint venture and Sazaby League, in addition to recognizing CAD 0.5 million in compensation costs for the Paola Confectii acquisition earn-out - For the third quarter and nine months ended December 31, 2023, the company paid CAD 0.4 million and CAD 0.8 million, respectively, in business services fees to certain shareholder affiliates[88] - As of December 31, 2023, lease liabilities payable to the former controlling shareholder of Baffin Inc. amounted to CAD 2.8 million[89] - As of December 31, 2023, lease liabilities related to the Japan joint venture with Sazaby League totaled CAD 2.2 million; for the nine months, the company paid CAD 1.3 million in principal and interest, royalties, and other operating costs to Sazaby League and sold CAD 1.2 million in inventory to a wholly-owned subsidiary of Sazaby League[90][91] - For the nine months ended December 31, 2023, the company recognized CAD 0.5 million in compensation costs related to the Paola Confectii business combination earn-out, recorded in other long-term liabilities[94] Note 15. Financial instruments and fair value The company's financial instruments include derivatives, borrowings, put option liabilities, and contingent consideration; as of December 31, 2023, term loans had a carrying value of CAD 385.0 million and a fair value of CAD 421.7 million, while the Japan joint venture's put option liabilities and contingent consideration were remeasured for the nine months ended December 31, 2023, with contingent consideration decreasing and put option liabilities increasing, primarily driven by contract term progression and improved market debt costs Financial Instruments (As of Dec 31, 2023, Millions of CAD) | Instrument | Carrying Value | Fair Value | | :------------------------------------------ | :------------- | :--------- | | Derivative Financial Assets | 24.9 | 24.9 | | Derivative Financial Liabilities | 16.0 | 16.0 | | China Financing Instrument | 9.3 | 9.3 | | Japan Financing Instrument | 25.4 | 25.4 | | Term Loan | 385.0 | 421.7 | | Put Option Liability | 45.7 | 45.7 | | Contingent Consideration | 10.6 | 10.6 | | Contingent Consideration (Note 3) | 0.5 | 0.5 | - For the nine months ended December 31, 2023, the Japan joint venture's contingent consideration remeasurement decreased by JPY 529.7 million (CAD 1.5 million, excluding CAD 0.4 million in foreign exchange gains), and the put option liability remeasurement increased by JPY 1,707.4 million (CAD 13.6 million, excluding CAD 2.1 million in foreign exchange losses), primarily driven by the progression of the 4-year and 10-year terms and improved market debt costs[99] Note 16. Financial risk management objectives and policies The company manages capital, liquidity, credit, market, foreign exchange, and interest rate risks to protect assets and cash flows, maintaining liquidity through operating cash flows and credit facilities, mitigating credit risk via third-party insurance and internal monitoring, hedging foreign exchange risk with forward contracts for operational cash flows and borrowings, and partially hedging term loan interest rate risk with interest rate swaps that transitioned from LIBOR to SOFR in Q1 FY2024 - The company's primary risk management objective is to protect its assets and cash flows to enhance corporate value[101] - Liquidity risk is managed through funds generated from operating activities, as well as the China financing instrument, Japan financing instrument, and revolving credit facility, to ensure sufficient liquidity under both normal and stressed conditions[104] Contractual Obligations (As of Dec 31, 2023, Millions of CAD) | Obligation | Q4 FY2024 | FY2025 | FY2026 | FY2027 | FY2028 | FY2029 | Thereafter | Total | | :-------------------------------- | :------ | :--- | :--- | :--- | :--- | :--- | :--------- | :---- | | Accounts Payable and Accrued Liabilities | 268.8 | — | — | — | — | — | — | 268.8 | | China Financing Instrument | 9.3 | — | — | — | — | — | — | 9.3 | | Japan Financing Instrument | 25.4 | — | — | — | — | — | — | 25.4 | | Term Loan | 1.0 | 4.0 | 4.0 | 4.0 | 372.7 | — | — | 385.7 | | Borrowing-Related Interest Commitments | 8.7 | 34.9 | 34.6 | 34.6 | 17.3 | — | — | 130.1 | | Derivative Contracts | — | — | 5.5 | — | — | — | — | 5.5 | | Lease Obligations | 21.6 | 88.6 | 66.7 | 55.9 | 41.2 | 31.3 | 76.3 | 381.6 | | Pension Obligations | — | — | — | — | — | — | 2.0 | 2.0 | | Total Contractual Obligations | 334.8 | 127.5 | 110.8 | 94.5 | 431.2 | 31.3 | 78.3 | 1,208.4 | - Credit risk is managed through a combination of third-party credit insurance and internal risk management, with insurance covering specific amounts of trade receivables up to CAD 30.0 million annually[110][111] - Foreign exchange risk is hedged through forward foreign exchange contracts to mitigate exposure related to revenue, purchases, and expenses denominated in USD, EUR, GBP, CHF, RMB, HKD, and JPY, as well as term loan principal and interest payments[116][122] - Interest rate risk primarily arises from the China financing instrument, Japan financing instrument, and term loan, with the term loan's interest rate risk partially hedged through interest rate swap agreements that transitioned from LIBOR to SOFR on June 30, 2023[125][126] - Based on the weighted average outstanding borrowing amounts, a 1.00% increase in average interest rates for the nine months ended December 31, 2023, would increase interest expense by CAD 0.3 million for the China financing instrument, CAD 0.2 million for the Japan financing instrument, and CAD 3.0 million for the term loan (pre-hedging)[127] Note 17. Selected cash flow information For the nine months ended December 31, 2023, changes in non-cash operating items resulted in a CAD 32.2 million decrease, primarily influenced by trade receivables and inventory movements, while non-cash changes in financing activities were significant, including a CAD 110.5 million deduction from share capital and a CAD 96.9 million deduction from retained earnings due to share repurchases under the Normal Course Issuer Bid Non-Cash Operating Items Changes (Nine Months, Millions of CAD) | Item | As of Dec 31, 2023 | As of Jan 1, 2023 | | :-------------------------------- | :----------- | :---------- | | Trade Receivables | (86.7) | (75.0) | | Inventories | (5.5) | (60.0) | | Other Current Assets | (3.0) | (8.9) | | Accounts Payable and Accrued Liabilities | 27.6 | 66.9 | | Provisions | 33.9 | 33.9 | | Other | 1.5 | (5.0) | | Total Non-Cash Operating Items Changes | (32.2) | (48.1) | - From April 2, 2023, to December 31, 2023, changes in liabilities and equity from financing activities included CAD 110.5 million in cash outflow for subordinate voting share repurchases under the Normal Course Issuer Bid, a CAD 96.9 million deduction from retained earnings for share purchases, a CAD 7.7 million decrease in unrealized foreign exchange gains on term loans, and a CAD 39.2 million increase and modification of lease liabilities[129]