Attached files
file | filename |
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EX-32.2 - EX-32.2 - DAVIDsTEA Inc. | ex-32d2.htm |
EX-32.1 - EX-32.1 - DAVIDsTEA Inc. | ex-32d1.htm |
EX-31.2 - EX-31.2 - DAVIDsTEA Inc. | ex-31d2.htm |
EX-31.1 - EX-31.1 - DAVIDsTEA Inc. | ex-31d1.htm |
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended April 29, 2017.
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number 001-37404
DAVIDsTEA Inc.
(Exact name of registrant as specified in its charter)
Canada |
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98-1048842 |
(State or other jurisdiction of |
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(I.R.S. Employer |
incorporation or organization) |
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Identification No.) |
5430 Ferrier
Mount-Royal, Québec, Canada, H4P 1M2
(Address of principal executive offices) (zip code)
(888) 873-0006
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12-b2 of the Exchange Act.
Large accelerated filer ☐ |
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Accelerated filer ☒ |
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Emerging growth company ☐ |
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Non-accelerated filer ☐ |
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Smaller reporting company ☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
As of June 6, 2017, 25,753,571 common shares of the registrant were outstanding.
DAVIDsTEA Inc.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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DAVIDsTEA Inc. (the “Company”), a corporation incorporated under the Canada Business Corporations Act, qualifies as a foreign private issuer in the United States for purposes of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As a foreign private issuer, the Company has chosen to file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K with the United States Securities and Exchange Commission (“SEC”) instead of filing the reporting forms available to foreign private issuers, although the Company is not required to do so.
In this quarterly report, unless otherwise specified, all monetary amounts are in Canadian dollars, all references to “$,” “C$,” “CAD,” “CND$,” “Canadian dollars” and “dollars” mean Canadian dollars and all references to “U.S. dollars,” “US$” and “USD” mean U.S. dollars.
On June 2, 2017, the noon buying rate certified for customs purposes by the U.S. Federal Reserve Bank of New York was US$1.00 = $1.3500.
2
Item 1. Consolidated Financial Statements
DAVIDsTEA Inc.
Incorporated under the laws of Canada
INTERIM CONSOLIDATED BALANCE SHEETS
[Unaudited and in thousands of Canadian dollars]
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As at |
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As at |
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April 29, |
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January 28, |
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$ |
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$ |
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ASSETS |
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Current |
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Cash |
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56,348 |
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64,440 |
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Accounts and other receivables |
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3,960 |
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3,485 |
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Inventories |
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[Note 5] |
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28,574 |
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31,264 |
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Income tax receivable |
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1,629 |
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539 |
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Prepaid expenses and deposits |
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8,159 |
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5,659 |
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Derivative financial instruments |
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[Note 14] |
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1,200 |
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454 |
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Total current assets |
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99,870 |
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105,841 |
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Property and equipment |
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51,407 |
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51,160 |
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Intangible assets |
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3,106 |
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2,958 |
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Deferred income tax assets |
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[Note 9] |
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13,522 |
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14,375 |
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Total assets |
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167,905 |
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174,334 |
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LIABILITIES AND EQUITY |
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Current |
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Trade and other payables |
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13,131 |
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19,681 |
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Deferred revenue |
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3,899 |
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4,885 |
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Current portion of provisions |
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[Note 6] |
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2,123 |
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2,562 |
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Total current liabilities |
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19,153 |
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27,128 |
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Deferred rent and lease inducements |
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7,908 |
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7,824 |
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Provisions |
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[Note 6] |
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5,369 |
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5,932 |
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Total liabilities |
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32,430 |
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40,884 |
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Equity |
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Share capital |
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[Note 8] |
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265,564 |
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263,828 |
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Contributed surplus |
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8,200 |
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8,833 |
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Deficit |
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(142,746) |
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(142,398) |
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Accumulated other comprehensive income |
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4,457 |
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3,187 |
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Total equity |
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135,475 |
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133,450 |
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167,905 |
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174,334 |
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See accompanying notes
3
DAVIDsTEA Inc.
Incorporated under the laws of Canada
INTERIM CONSOLIDATED STATEMENTS OF INCOME (LOSS)
AND COMPREHENSIVE INCOME (LOSS)
[Unaudited and in thousands of Canadian dollars, except share and per share information]
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For the three months ended |
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April 29, |
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April 30, |
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$ |
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$ |
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Sales |
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[Note 13] |
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48,669 |
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44,469 |
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Cost of sales |
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24,487 |
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21,314 |
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Gross profit |
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24,182 |
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23,155 |
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Selling, general and administration expenses |
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[Note 10] |
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24,153 |
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21,119 |
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Results from operating activities |
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29 |
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2,036 |
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Finance costs |
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131 |
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17 |
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Finance income |
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(136) |
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(121) |
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Income before income taxes |
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34 |
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2,140 |
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Provision for income tax |
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[Note 9] |
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396 |
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626 |
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Net income (loss) |
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(362) |
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1,514 |
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Other comprehensive income (loss) |
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Items to be reclassified subsequently to income: |
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Unrealized net gain (loss) on forward exchange contracts |
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[Note 14] |
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1,200 |
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(4,197) |
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Realized net gain on forward exchange contracts reclassified to inventory |
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(453) |
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(968) |
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Provision for income tax recovery (income tax) on comprehensive income |
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(199) |
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1,371 |
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Cumulative translation adjustment |
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722 |
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(2,322) |
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Other comprehensive income (loss), net of tax |
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1,270 |
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(6,116) |
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Total comprehensive income (loss) |
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908 |
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(4,602) |
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Net income (loss) per share: |
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Basic |
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[Note 11] |
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(0.01) |
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0.06 |
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Fully diluted |
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[Note 11] |
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(0.01) |
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0.06 |
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Weighted average number of shares outstanding |
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— basic |
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[Note 11] |
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25,402,543 |
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24,134,285 |
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— fully diluted |
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[Note 11] |
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25,402,543 |
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25,892,598 |
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See accompanying notes
4
DAVIDsTEA Inc.
Incorporated under the laws of Canada
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
[Unaudited and in thousands of Canadian dollars]
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For the three months ended |
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April 29, |
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April 30, |
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$ |
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$ |
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OPERATING ACTIVITIES |
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Net income (loss) |
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(362) |
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1,514 |
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Items not affecting cash: |
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Depreciation of property and equipment |
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2,064 |
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1,787 |
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Amortization of intangible assets |
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282 |
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161 |
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Loss on disposal of property and equipment |
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6 |
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— |
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Deferred rent |
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3 |
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280 |
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Recovery for onerous contracts |
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(886) |
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— |
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Stock-based compensation expense |
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574 |
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316 |
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Amortization of financing fees |
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20 |
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18 |
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Accretion on provisions |
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112 |
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— |
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Deferred income taxes (recovered) |
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1,000 |
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(30) |
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2,813 |
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4,046 |
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Net change in other non-cash working capital balances related to operations |
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(9,474) |
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(4,834) |
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Cash flows related to operating activities |
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(6,661) |
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(788) |
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FINANCING ACTIVITIES |
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Proceeds from issuance of common shares pursuant to exercise of stock options |
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815 |
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344 |
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Cash flows related to financing activities |
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815 |
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344 |
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INVESTING ACTIVITIES |
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Additions to property and equipment |
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(1,821) |
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(2,846) |
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Additions to intangible assets |
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(425) |
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(156) |
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Cash flows related to investing activities |
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(2,246) |
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(3,002) |
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Decrease in cash during the period |
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(8,092) |
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(3,446) |
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Cash, beginning of period |
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64,440 |
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72,514 |
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Cash, end of period |
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56,348 |
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69,068 |
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Supplemental Information |
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Cash paid for: |
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Interest |
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— |
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— |
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Income taxes (classified as operating activity) |
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496 |
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577 |
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Cash received for: |
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Interest |
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160 |
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120 |
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Income taxes (classified as operating activity) |
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— |
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344 |
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See accompanying notes
5
DAVIDsTEA Inc.
Incorporated under the laws of Canada
INTERIM CONSOLIDATED STATEMENTS OF EQUITY
[Unaudited and in thousands of Canadian dollars]
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Accumulated Other Comprehensive Income |
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Accumulated |
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Accumulated |
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Derivative |
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Foreign |
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Accumulated |
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Financial |
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Currency |
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Other |
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Share |
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Contributed |
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Instrument |
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Translation |
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Comprehensive |
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Total |
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Capital |
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Surplus |
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Deficit |
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Adjustment |
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Adjustment |
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Income |
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Equity |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Balance, January 30, 2016 |
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259,205 |
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7,094 |
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(138,465) |
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2,529 |
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3,674 |
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6,203 |
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134,037 |
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Net income for the three months ended April 30, 2016 |
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— |
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— |
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1,514 |
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— |
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— |
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— |
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1,514 |
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Other comprehensive loss |
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— |
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— |
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— |
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(3,794) |
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(2,322) |
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(6,116) |
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(6,116) |
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Total comprehensive income (loss) |
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— |
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— |
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1,514 |
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(3,794) |
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(2,322) |
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(6,116) |
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(4,602) |
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Issuance of common shares |
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470 |
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(126) |
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— |
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— |
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— |
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— |
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344 |
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Common shares issued on vesting of restricted stock units |
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214 |
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(417) |
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(289) |
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— |
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— |
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— |
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(492) |
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Stock-based compensation |
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— |
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316 |
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— |
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— |
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— |
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— |
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316 |
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Income tax impact associated with stock options |
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— |
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157 |
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— |
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— |
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— |
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— |
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157 |
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Balance, April 30, 2016 |
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259,889 |
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7,024 |
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(137,240) |
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(1,265) |
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1,352 |
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87 |
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129,760 |
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Balance, January 28, 2017 |
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263,828 |
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8,833 |
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(142,398) |
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333 |
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2,854 |
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3,187 |
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133,450 |
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Net loss for the three months ended April 29, 2017 |
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— |
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— |
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(362) |
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— |
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— |
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— |
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(362) |
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Other comprehensive income |
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— |
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— |
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— |
|
548 |
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722 |
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1,270 |
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1,270 |
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Total comprehensive income (loss) |
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— |
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— |
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(362) |
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548 |
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722 |
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1,270 |
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908 |
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Issuance of common shares |
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1,468 |
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(653) |
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— |
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— |
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— |
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— |
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815 |
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Common shares issued on vesting of restricted stock units |
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268 |
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(554) |
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14 |
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— |
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— |
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— |
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(272) |
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Stock-based compensation expense |
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— |
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574 |
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— |
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— |
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— |
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— |
|
574 |
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Balance, April 29, 2017 |
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265,564 |
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8,200 |
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(142,746) |
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881 |
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3,576 |
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4,457 |
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135,475 |
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See accompanying notes
6
DAVIDsTEA Inc.
NOTES TO CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
For the three-month periods ended April 29, 2017 and April 30, 2016 [Unaudited]
[Amounts in thousands of Canadian dollars except share and per share amounts]
1. CORPORATE INFORMATION
The unaudited condensed interim consolidated financial statements of DAVIDsTEA Inc. and its subsidiary (collectively, the “Company”) for the three-month period ended April 29, 2017 were authorized for issue in accordance with a resolution of the Board of Directors on June 7, 2017. The Company is incorporated and domiciled in Canada and its shares are publicly traded on the NASDAQ Global Market under the symbol “DTEA”. The registered office is located at 5430, Ferrier St., Town of Mount-Royal, Quebec, Canada, H4P 1M2.
The Company is engaged in the retail and online sale of tea, tea accessories and food and beverages in Canada and the United States. The results of operations for the interim period are not necessarily indicative of the results of operations for the full year. Sales fluctuate from quarter to quarter. Sales are traditionally higher in the fourth fiscal quarter due to the year-end holiday season, and tend to be lowest in the second and third fiscal quarter because of lower customer traffic during the summer months.
2. STATEMENT OF COMPLIANCE AND BASIS OF PREPARATION
These unaudited condensed interim consolidated financial statements have been prepared in accordance with IAS 34, “Interim Financial Reporting” as issued by the International Accounting Standards Board (“IASB”). Accordingly, these financial statements do not include all of the financial statement disclosures required for annual financial statements and should be read in conjunction with the Company’s audited consolidated financial statements for the year ended January 28, 2017, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the IASB. In management’s opinion, the unaudited condensed interim consolidated financial statements reflect all the adjustments that are necessary for a fair presentation of the results for the interim period presented. These unaudited condensed interim consolidated financial statements have been prepared using the accounting policies and methods of computation as outlined in note 3 of the consolidated financial statements for the year ended January 28, 2017. During the three-month period ended April 29, 2017, we did not implement any new accounting standards.
Gift card breakage
During the three months ended October 29, 2016, the Company determined that it had sufficient historical
redemption patterns to record breakage income associated with unredeemed gift cards, and accordingly recorded breakage income associated to gift cards issued and redeemed in prior years, when no breakage income was included. Gift card breakage is included in sales in the interim consolidated statement of income (loss). Sales for the three months ended April 29, 2017 include breakage income of $335 [nil for the three months ended April 30, 2016].
3. CHANGES IN ACCOUNTING POLICIES
Information on significant new accounting standards and amendments issued but not yet adopted is described below.
IFRS 9, “Financial Instruments”(“IFRS 9”), partially replaces the requirements of IAS 39, “Financial Instruments: Recognition and Measurement”. This standard is the first step in the project to replace IAS 39. The IASB intends to expand IFRS 9 to add new requirements for the classification and measurement of financial liabilities, derecognition of financial instruments, impairment and hedge accounting to become a complete replacement of IAS 39.
7
These changes are applicable for annual periods beginning on or after January 1, 2018, with earlier application permitted. The Company is currently assessing the impact of adopting this standard on the Company’s consolidated financial statements and related note disclosures.
IFRS 15, “Revenue from Contracts with Customers” (“IFRS 15”) replaces IAS 11, “Construction Contracts”, and IAS 18, “Revenue”, as well as various interpretations regarding revenue. This standard introduces a single model for recognizing revenue that applies to all contracts with customers, except for contracts that are within the scope of standards on leases, insurance and financial instruments. This standard also requires enhanced disclosures. Adoption of IFRS 15 is mandatory and will be effective for annual periods beginning on or after January 1, 2018. The Company is currently in the process of evaluating the impact this standard is expected to have on the consolidated financial statements. The Company in the process of assessing whether the loyalty program we currently offer could be considered a separate performance obligation. As we continue our evaluation, we will further clarify the expected impact of the adoption of the standard, which we do not believe will be material.
IFRS 16, “Leases” (“IFRS 16”) replaces IAS 17, “Leases”. This standard provides a single model for leases abolishing the current distinction between finance and operating leases, with most leases being recognized in the statement of financial position. Certain exemptions will apply for short-term leases and leases of low value assets. The new standard will be effective for annual periods beginning on or after January 1, 2019. Early application is permitted, provided the new revenue standard, IFRS 15, has been applied, or is applied at the same date as IFRS 16. The Company has performed a preliminary assessment of the potential impact of the adoption of IFRS 16 on its consolidated financial statements. The Company expects the adoption of IFRS 16 will have a significant impact as the Company will recognize new assets and liabilities for its operating leases of retail stores. In addition, the nature and timing of expenses related to those leases will change as IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for right-of use assets and interest expense on lease liabilities. The Company has not yet determined which transition method it will apply or whether it will use the optional exemptions or practical expedients under the standard. The Company expects to disclose additional detailed information, including its transition method, any practical expedients elected and
estimated quantitative financial effects, before the adoption of IFRS 16.
IFRIC 22, “Foreign Currency Transactions and Advance Consideration” (“IFRIC 22”). In December 2016, the IASB issued IFRIC 22, which addresses how to determine the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) and on the derecognition of a non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration in a foreign currency. IFRIC 22 is effective for annual periods beginning on or after January 1, 2018. Early adoption is permitted. The Company is in the process of evaluating the impact of adopting the interpretation of IFRIC 22 on its consolidated financial statements.
4. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS
The preparation of condensed interim consolidated financial statements requires management to make estimates and assumptions using judgment that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense during the reporting period. Estimates and other judgments are continually evaluated and are based on management’s experience and other factors, including expectations about future events that are believed to be reasonable under the circumstances. Actual results may differ from those estimates.
In preparing these unaudited condensed interim consolidated financial statements, critical judgements made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those referred to in note 5 of the consolidated financial statements for the year ended January 28, 2017.
8
5. INVENTORIES
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April 29, |
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January 28, |
|
|
|
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$ |
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$ |
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Finished goods |
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24,640 |
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24,504 |
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Goods in transit |
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2,482 |
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5,463 |
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Packaging |
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1,452 |
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1,297 |
|
|
|
|
28,574 |
|
31,264 |
|
6. PROVISIONS
|
|
For the three |
|
|
|
|
April 29, |
|
|
|
|
$ |
|
|
Opening balance |
|
8,494 |
|
|
Utilization |
|
(529) |
|
|
Reversals |
|
(886) |
|
|
Accretion expense |
|
112 |
|
|
Cumulative translation adjustment |
|
301 |
|
|
Ending balance |
|
7,492 |
|
|
Less: Current portion |
|
(2,123) |
|
|
Long-term portion of provisions |
|
5,369 |
|
|
Provisions for onerous contracts have been recognized in respect of store leases where the unavoidable costs of meeting the obligations under the lease agreements exceed the economic benefits expected to be received from the contract. The unavoidable costs reflect the present value of the lower of the expected cost of terminating the contract and the expected net cost of operating under the contract. During the three-month period ended April 29, 2017, the provisions for certain stores were partially or fully reversed due to changes in anticipated lease termination dates.
7. REVOLVING FACILITY
The Company has a credit agreement (the “Credit Agreement”) with the Bank of Montreal (“BMO”). The Credit Agreement provides for a three-year revolving term facility, maturing October 31, 2019, in the principal amount of $20,000 (which the Company refers to as the “Revolving Facility”) or the equivalent amount in U.S. dollars, repayable at any time. The Credit Agreement also provides for an accordion feature whereby the Company may, at any time prior to maturity and with permission from BMO, request an increase to the Revolving Facility by an amount not greater than $10,000.
The credit facility contains a number of financial and non-financial covenants that, among other things and subject to certain exceptions, restrict the Company’s ability to become guarantor or endorser or otherwise become liable upon any note or other obligation other than in the normal course of business. The Company also cannot make any dividend payments. As at April 29, 2017, the Company is in compliance with these covenants.
As at April 29, 2017 and January 28, 2017, the Company did not have any borrowings on the Revolving Facility.
9
8. SHARE CAPITAL
Authorized
An unlimited number of Common shares.
Issued and outstanding
|
|
April 29, |
|
January 28, |
|
|
|
$ |
|
$ |
|
25,576,056 Common shares [January 28, 2017 - 25,330,951 shares] |
|
265,564 |
|
263,828 |
|
|
|
265,564 |
|
263,828 |
|
During the three-month period ended April 29, 2017, 217,000 stock options were exercised for common shares for cash proceeds of $815 [April 30, 2016 — 394,515 stock options for cash proceeds of $344]. The carrying value of common shares during the three-month period ended April 29, 2017 includes $653 [April 30, 2016 — $126], which corresponds to a reduction in contributed surplus associated to options exercised during the period.
In addition, during the three-month period ended April 29, 2017, 28,105 common shares [April 30, 2016 – 30,398 common shares] were issued in relation to the vesting of restricted stock units (“RSU”), resulting in an increase in share capital of $268, net of tax [April 30, 2016 – $214] and a reduction in contributed surplus of $554 [April 30, 2016 — $417].
Stock-based compensation
As at April 29, 2017, 658,940 common shares remain available for issuance under the 2015 Omnibus Plan.
The weighted average fair value of options granted of $2.39 for the three-month period ended April 29, 2017 [for the three-month period ended April 30, 2016 — $3.65] was estimated using the Black Scholes option pricing model, using the following assumptions:
|
|
For the three months ended |
|
For the three months ended |
||||||||
|
|
April 29, |
|
April 30, |
||||||||
Risk-free interest rate |
|
|
|
|
1.79 |
% |
|
|
|
|
1.23 |
% |
Expected volatility |
|
|
|
|
27.4 |
% |
|
|
|
|
29.8 |
% |
Expected option life |
|
|
|
|
4.0 |
years |
|
|
|
|
4.0 |
years |
Expected dividend yield |
|
|
|
|
0 |
% |
|
|
|
|
0 |
% |
Exercise price |
|
|
|
$ |
9.76 |
|
|
|
|
$ |
14.39 |
|
Expected volatility was estimated using historical volatility of similar companies whose share prices were publicly available.
10
A summary of the status of the Company’s stock option plan and changes during the three-month period is presented below.
|
|
For the three months ended |
|
For the three months ended |
|
||||
|
|
April 29, |
|
April 30, |
|
||||
|
|
|
|
Weighted |
|
|
|
Weighted |
|
|
|
|
|
average |
|
|
|
average |
|
|
|
Options |
|
exercise |
|
Options |
|
exercise |
|
|
|
outstanding |
|
price |
|
outstanding |
|
price |
|
|
|
# |
|
$ |
|
# |
|
$ |
|
Outstanding, beginning of period |
|
933,195 |
|
5.63 |
|
2,146,880 |
|
3.04 |
|
Issued |
|
161,980 |
|
9.76 |
|
131,500 |
|
14.39 |
|
Exercised |
|
(217,000) |
|
3.76 |
|
(394,515) |
|
0.87 |
|
Forfeitures |
|
(30,040) |
|
7.64 |
|
(51,322) |
|
5.94 |
|
Outstanding, end of period |
|
848,135 |
|
6.83 |
|
1,832,543 |
|
4.24 |
|
Exercisable, end of period |
|
491,165 |
|
4.96 |
|
910,283 |
|
2.85 |
|
The weighted average share price at the date of exercise for stock options exercised during the three-month period ended April 29, 2017 was $9.47 [for the three-month period ended April 30, 2016 — $14.50].
A summary of the status of the Company’s RSU plan and changes during the three-month period is presented below.
|
|
For the three months ended |
|
For the three months ended |
|
||||
|
|
April 29, |
|
April 30, |
|
||||
Weighted |
Weighted |
||||||||
average |
average |
||||||||
RSUs |
fair value |
RSUs |
fair value |
||||||
outstanding |
per unit (1) |
outstanding |
per unit (1) |
||||||
|
|
# |
|
$ |
|
# |
|
$ |
|
Outstanding, beginning of period |
|
252,233 |
|
12.42 |
|
252,720 |
|
7.39 |
|
Granted |
|
204,437 |
|
8.96 |
|
96,520 |
|
14.39 |
|
Forfeitures |
|
(18,548) |
|
9.79 |
|
(20,310) |
|
7.07 |
|
Vested |
|
(28,105) |
|
10.05 |
|
(30,398) |
|
7.07 |
|
Vested, withheld for tax |
|
(30,119) |
|
10.09 |
|
(28,652) |
|
7.07 |
|
Outstanding, end of peiod |
|
379,898 |
|
6.53 |
|
269,880 |
|
9.99 |
|
(1) |
Weighted average fair value per unit as at date of grant. |
During the three-month period ended April 29, 2017, the Company recognized a stock-based compensation expense of $574 [April 30, 2016 — $316].
9. INCOME TAXES
Income tax expense is recognized based on management’s best estimate of the weighted average annual income tax rate expected for the full fiscal year.
11
A reconciliation of the statutory income tax rate to the effective tax rate is as follows:
|
|
For the three months ended |
|
||||||
|
|
April 29, |
|
April 30, |
|
||||
|
|
% |
|
$ |
|
% |
|
$ |
|
Income tax provision — statutory rate |
|
26.5 |
|
9 |
|
26.5 |
|
568 |
|
Non-deductible items |
|
364.7 |
|
124 |
|
3.5 |
|
74 |
|
Other |
|
773.5 |
|
263 |
|
(0.7) |
|
(16) |
|
Income tax provision — effective tax rate |
|
1,164.7 |
|
396 |
|
29.3 |
|
626 |
|
A breakdown of the income tax provision (recovery) on the interim consolidated statement of income (loss) is as follows:
|
|
For the three months ended |
|
||
|
|
April 29, |
|
April 30, |
|
|
|
$ |
|
$ |
|
Income tax provision (recovery) |
|
|
|
|
|
Current |
|
(604) |
|
793 |
|
Deferred |
|
1,000 |
|
(167) |
|
|
|
396 |
|
626 |
|
10. SELLING, GENERAL AND ADMINISTRATION EXPENSES
|
|
For the three months ended |
|
||
|
|
April 29, |
|
April 30, |
|
|
|
$ |
|
$ |
|
Wages, salaries and employee benefits |
|
16,221 |
|
13,327 |
|
Depreciation of property and equipment |
|
2,064 |
|
1,787 |
|
Amortization of intangible assets |
|
282 |
|
161 |
|
Loss on disposal of property and equipment |
|
6 |
|
— |
|
Recovery for onerous contracts |
|
(886) |
|
— |
|
Stock-based compensation |
|
574 |
|
316 |
|
Other selling, general and administration |
|
5,892 |
|
5,528 |
|
|
|
24,153 |
|
21,119 |
|
11. EARNINGS PER SHARE
Basic earnings per share (“EPS”) amounts are calculated by dividing the net income (loss) for the period attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the period. Diluted EPS amounts are calculated by dividing the net income (loss) attributable to ordinary equity holders (after adjusting for dividends) by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares, unless these would be anti‑dilutive.
12
The following reflects the income and share data used in the basic and diluted EPS computations:
|
|
For the three months ended |
|
||
|
|
April 29, |
|
April 30, |
|
|
|
$ |
|
$ |
|
Net income (loss) for basic EPS |
|
(362) |
|
1,514 |
|
|
|
|
|
|
|
Weighted average number of shares outstanding — basic |
|
25,402,543 |
|
24,134,285 |
|
Restricted stock units |
|
— |
|
213,275 |
|
Options |
|
— |
|
1,545,038 |
|
Weighted average number of shares — fully diluted |
|
25,402,543 |
|
25,892,598 |
|
As a result of the net loss during the three-month period ended April 29, 2017, the stock options and restricted stock units disclosed in Note 8 are anti-dilutive.
12. RELATED PARTY DISCLOSURES
There have been no significant changes in related party transactions from those disclosed in the Company’s audited annual consolidated financial statements for the year ended January 28, 2017.
13. SEGMENT INFORMATION
An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses. The Company has reviewed its operations and determined that each of its retail stores represents an operating segment. However, because its retail stores have similar economic characteristics, sell similar products, have similar types of customers, and use similar distribution channels, the Company has determined that these operating segments can be aggregated at a geographic level. As a result, the Company has concluded that it has two reportable segments, Canada and the U.S., that derive their revenues from the retail and online sale of tea, tea accessories and food and beverages. The Company’s Chief Executive Officer (the chief operating decision maker) makes decisions about resources allocation and assesses performance at the country level, and for which discrete financial information is available.
The Company derives revenue from the following products:
|
|
For the three months ended |
|
||
|
|
April 29, |
|
April 30, |
|
|
|
$ |
|
$ |
|
Tea |
|
33,873 |
|
30,147 |
|
Tea accessories |
|
10,509 |
|
9,893 |
|
Food and beverages |
|
4,287 |
|
4,429 |
|
|
|
48,669 |
|
44,469 |
|
Property and equipment and intangible assets by country are as follows:
|
|
April 29, |
|
January 28, |
|
|
|
$ |
|
$ |
|
Canada |
|
41,525 |
|
41,432 |
|
US |
|
12,988 |
|
12,686 |
|
Total |
|
54,513 |
|
54,118 |
|
13
Gross profit per country, excluding intercompany profit, is used to measure performance because management believes this information is the most relevant in evaluating results. Gross profit per country is as follows:
|
|
For the three months ended |
|
||||
|
|
April 29, 2017 |
|
||||
|
|
Canada |
|
US |
|
Consolidated |
|
|
|
$ |
|
$ |
|
$ |
|
Sales |
|
39,952 |
|
8,717 |
|
48,669 |
|
Cost of sales |
|
19,317 |
|
5,170 |
|
24,487 |
|
Gross profit |
|
20,635 |
|
3,547 |
|
24,182 |
|
Selling, general and administration expenses |
|
|
|
|
|
24,153 |
|
Results from operating activities |
|
|
|
|
|
29 |
|
Finance costs |
|
|
|
|
|
131 |
|
Finance income |
|
|
|
|
|
(136) |
|
Income before income taxes |
|
|
|
|
|
34 |
|
|
|
For the three months ended |
|
||||
|
|
April 30, 2016 |
|
||||
|
|
Canada |
|
US |
|
Consolidated |
|
|
|
$ |
|
$ |
|
$ |
|
Sales |
|
36,959 |
|
7,510 |
|
44,469 |
|
Cost of sales |
|
17,074 |
|
4,240 |
|
21,314 |
|
Gross profit |
|
19,885 |
|
3,270 |
|
23,155 |
|
Selling, general and administration expenses |
|
|
|
|
|
21,119 |
|
Results from operating activities |
|
|
|
|
|
2,036 |
|
Finance costs |
|
|
|
|
|
17 |
|
Finance income |
|
|
|
|
|
(121) |
|
Income before income taxes |
|
|
|
|
|
2,140 |
|
14. FINANCIAL RISK MANAGEMENT
The Company’s activities expose it to a variety of financial risks, including risks related to foreign exchange, interest rate, liquidity and credit.
Currency risk — foreign exchange risk
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Given that some of its purchases are denominated in U.S. dollars, the Company is exposed to foreign exchange risk. The Company’s foreign exchange risk is largely limited to currency fluctuations between the Canadian and U.S. dollars. The Company is exposed to currency risk through its cash, accounts receivable and accounts payable denominated in U.S. dollars.
Assuming that all other variables remain constant, a revaluation of these monetary assets and liabilities due to a 5% rise or fall in the Canadian dollar against the U.S. dollar would have resulted in an increase or decrease to net income (loss) in the amount of $131.
The Company’s foreign exchange exposure is as follows:
|
|
April 29, |
|
January 28, |
|
|
|
US$ |
|
US$ |
|
Cash |
|
2,802 |
|
690 |
|
Accounts receivable |
|
2,729 |
|
1,188 |
|
Accounts payable |
|
2,906 |
|
2,461 |
|
The Company’s U.S. subsidiary’s transactions are denominated in U.S. dollars.
14
In order to protect itself from the risk of losses should the value of the Canadian dollar decline in relation to the U.S. dollar, the Company has entered into forward contracts to fix the exchange rate of 80% to 90% of its expected U.S. dollar inventory purchasing requirements, through October 2017. A forward foreign exchange contract is a contractual agreement to buy a specific currency at a specific price and date in the future. The Company designated the forward contracts as cash flow hedging instruments under International Accounting Standard 39. This has resulted in mark-to-market foreign exchange adjustments, for qualifying hedged instruments, being recorded as a component of other comprehensive income (loss) for the three-month period ended April 29, 2017. As at April 29, 2017, the designated portion of these hedges was considered effective.
The nominal and contract values of foreign exchange contracts outstanding as at April 29, 2017 are as follows:
|
|
|
|
Nominal |
|
Nominal |
|
|
|
Unrealized |
|
|
|
Contractual |
|
value |
|
value |
|
|
|
gain |
|
|
|
exchange rate |
|
US$ |
|
C$ |
|
Term |
|
C$ |
|
Purchase contracts |
|
|
|
|
|
|
|
|
|
|
|
U.S. dollar |
|
1.3098 |
|
22,100 |
|
28,947 |
|
May 2017 to October 2017 |