a) Provide a brief description of Indigos business and what they offer customers.

b) What is Goodwill? Does Indigo have Goodwill?

c) How many common shares were issued and outstanding at the end of both years? What was the weighted average number of common shares outstanding (basic) for both years?

d) Calculate Indigos liquidity, using the current ratio for 2022 and 2021, and comment on the results.

e) Identify the cash flow patterns for 2022 and 2021. What do these patterns tell us about Indigo?

f) Evaluate the trend in the companys profitability by calculating the return on equity and the return on assets for 2022 and 2021. Comment on the results.

g) Prepare a common size analysis of the consolidated statement of earnings (loss) for 2022 and 2021. What significant trends do you observe? (see chapter 12 pages 12-16 and 12-17).

h) What is Indigos profit margin for both 2022 and 2021? Compare the results and comment.

i) Calculate the inventory turnover ratio for 2022 and 2021 and evaluate the result.

j) Summarize Indigos accounting policy for inventories and identify the cost formula that is used.

k) What are some of the actions Indigo took with regards to Covid-19 in fiscal 2022?

l) Briefly summarize Indigos revenue recognition policy.

m) What are some of the risks and uncertainties Indigo faces? Using the link to the annual report provided on page 1 of this case study, go to page 24 (25 of 78) of the annual report. The heading for this section is Risks and Uncertainties as shown below. Provide an overview of two of the risk factors you think would be important to your boss.

n) Evaluate the trend in the price/earnings ratio (P/E) comparing 2022 and 2021. You will need to look up the share price using Yahoo Finance, TMX Money or a similar financial services website. NOTE: Use March 31 when looking up the share prices. The companys stock trading symbol is IDG. Comment on the results.

o) Overall, based on your analysis above, should your boss purchase Indigo Books & Music Inc. shares? Explain your reasoning based on your above analysis.

(NOTE: Where ratio calculations require averages, use year-end amounts instead. No average calculations are required. le. 2022 inventory turnover use $273,849 ). Consolidated Balance Sheets Consolidated Statements of Earnings (Loss) and Comprehensive Earnings (Loss) Consolidated Statements of Changes in Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements 1. CORPORATE INFORMATION Indigo Books \&. Music Inc. (the "Company" or "Indigo") is a corporation domiciled and incorporated under the laws of the Province of Ontario in Canada. The Company's registered office is located at 620 King Street West, Suite 400 , Toronto, Ontario, M5V 1M6, Canada. The consolidated financial statements of the Company comprise the Company and its whollyowned subsidiaries, Indigo Design Studio Inc., Indigo Cultural Department Store Inc. ("Indigo U.S."), and YYZ Holdings Inc. ("YYZ"), along with its equity investment in Unplug Meditation, LLC ("Inplug"). The Company is the ul timate parent of the consolidated organization. 2. NATURE OF OPERATIONS Indigo is Canada's leading book and lifest yle retailer and was formed as a result of the August 2001 amalgamation of Chapters Inc, and Indigo Books \& Music Inc. The Company offers a curated assortment of books, gifts, baby, kids, wellness and lifestyle products that support customers by simplifying their journey to Living with Intention". The Company operates retail stores in all ten provinces and one territory in Canada, and also has retail operations in the United States through a wholly-owned subsidiary, operating one retail store in Short Hills, New Jersey. The retail network includes 88 superstores (2021 - 88 ) under the Indigo and Chopters names, as well as 85 small format stores (2021-89) under the banners Coles and Indigocpirit. Retail operations are scamlessly integrated with the Company's digital channels, induding the wwwindigaca website and the mobile applications, which are extensions of the physical stores and offer customers an expanded assor tment of book titles, along with a meaningfully curated assortment of general merchandise. The Company also offers a marketplace asortment of giftable products, experiences, services, and subscriptions on wwwthoeghtfull.ce. The Company defines an operating segment on the same basis that it uses to evaluate performance internally and to allocate capital resources. At Indigo, this is done on an enterprise level. This holistic managerial approach is reflected in the Company's reimagined new store concept. The new store design emphasizes a central focus on enriching the lives of book lovers with core print and general merchandise products. Therefore, the Company reports as a single segment. The Company supports a separate registered charity, the Lndigo Love of Reading Foundation (the "Foundation"). The Foundation provides new books and learning material to high-needs elementary schools and children across the country through donations from Indigo, its customers, its suppliers, and its employees. 3. BASIS OF PREPARATION Statement of Compliance These consolidated financial statements have been prepared using accounting policies consistent with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). These consolidated financial statements were approved by the Board of Directors on June 2, 2022. Fiscal Year The fiscal year of the Company ends on the Saturday dosest to March 31 . Under an accounting convention common in the retail industry, the Company follows a 52 -week reporting cycle, which periodically necessitates a fiscal year of 53 weeks, The year ended April 2, 2022 contained 52 weeks, while the year ended April 3, 2021 contained 53 weeks, COVID-19 Pandemic On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, significantly impacting the Company's operations during fiscal 2022, most notably by numerous temporary mandated store closures in its first quarter, and the adverse impact of mandated pandemic restrictions to retail traffic in the Company's store network during critical holiday selling weeks in the month of December. The impact of the outbreak on the financial results of the Company will depend on future developenents, induding the duration and spread of future waves of the outbreak and its impact on the overall conomy and related advisories and restrictions. Further or prolonged dosures of the Company's stores, or capacity restrictions, could result in the reassessment of its significant accounting estimates, induding but not limited to impairment of assets. The Company is in negotiations with its landlords regarding rent ahatement to address the financial impacts of the most recent wave of COVID-19 related store closures. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements. Foreign Currency The functional currency for each entity included in these consolidated financial statements is the currency of the primary economic environment in which the entity cperates. The consolidated financial statements are presented in Camadian dollars, which is the functional currency of the Company. Assets and liabilities of the Company's U.S. operations have a functional currency of U.S. dollars and are translated into Canadian dollars at the exchange rate in effect at the reporting date, Revenues and expenses are translated into Canalian dollars at average exchange rates during the reporting period. The resulting unrealized translation gains or losses are included in other comprehensive income (loss). Monetary assets and liabilities denominated in foreign currendes that are beld at the reporting date are translated at the closing consolidated balance sheet rate. Non-monetary items are measured at historical cost and are translated using the exchange rates at the date of the transaction. Non-monetary items measured at fair value are translated using exchange rates at the date when fair value was determined. The resulting exchange gains or losses are induded in earnings. Inventories Imentories are valued at the lower of cost, determined on a moving average cost basis, and market, being net realizable value. Costs include all direct and reasonable expenditures that are incurred in bringing inventories to their present location and condition. Net realizable value is the estimated selling price in the ondinary course of business. When the Company permanently reduces the retail price of an item and the markdown incurred brings the retail price below the cost of the item, there is a corresponding reduction in inventory recognized in the period. Vendor rebates are recorded as a reduction in the price of the products and corresponding inventories are recorded net of vendor rebates. Prepaid Expenses Prepaid expenses indude store supplies, software subscription fees, rent and insurance. Store supplies are expensed as they are used while other costs are amortized over the term of the contract. Property, Plant, and Equipment All items of property, plant, and equipment are initially recogniacd at cost, which includes any costs directly attrilutahle to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by the Company, Subsequent to initial recognition, property, plant, and equipment asocts are shown at cost less accumalated depreciation and any acxumulated impairment losses. Deprediatioe of an asset begins cece it becomes avalable foe use. The depeociahle amount of an asset, being the cost of an asset less the residual value, is allocated on a straight-Line basis over the estimated useful life of the asset. Residual value is estimated to be nil unless the Company expects to dispose of the asset at a value that exceeds the estimated disposal costs. The residual values, useful lives, and depreciation methods applied to assets are reviewed based on relevant market information and management considerations. The following useful lives are applikd: Furniture, fixtures, and equipement 510 years Computer equuipenent 35 years Equipment under finance leases 35 years Leashold improvements ower the shorter of useful life and lease term ples expected renewals, to a maximum of 10 years ltems of property, plant, and equipment are assessed for impairment as detalled in the aocounting policy note on impairment and are derecognimod either upon disposal or when no future economic benefits are expected from their use. Any gain or loss arising on derecogrition is induded in earnings when the asset is derecognized. Intangible Assets Intangible asets are initially recognixed at cost, if acquired separately, at fair value, or as part of a business combination. After initial recognition, intangible assets are carried at cost less accumulated amortization and any accumulated impairment losses. Amortixation commences when the intangille assets are arailable for their intended use, The aseful lives of intangible aswets are assessed as either fnite or indefinite, Intangihle assets with finite lives are amortixed oner their aseful ecceomie life. Intangible assets with indefinite lives are not amortized but are reviewed at each reporting date to determine whether the indefinite life continues to be supportable. If not, the change in useful Life from indefinite to finite is made on a prospective basic. Residual value is estimated to be mero unless the Comparry expects to dispose of the asset at andue that excects the estimated disposal costs. The residual values, useful lives, and amor tization methods applied to intangible assets are reviewed annually hased on relevant market information and management considerations. The following useful lives are applied: There are no legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of the domain name to the Company. Therefore, the useful life of the domain name is deemed to be indefinite. Latangible assets are assased for impairment as detailed in the accounting policy aote on impairment, An intangible asset is derecognixed either upon dixposal or when no future economic benefit is expected from its use. Amy gain or loss arising on dereongnition is induded in earnings when the asset is derecognized. Revenue Recognition The Company recognizes revenue when control of goods has been transferred at the amount of consideration to which the Company expects to be entitled. Revenue is recorded net of sales discounts, estimated returns, sales tax, emironmental fees and amounts deferred related to the issuance of plume poents. Revenue is recognioed when control of goods has been transferred (as described below) for each of the Company's revenue-generating activities. Retail sales Revenue for retail customers is recogmixed when the product is delivened to the customer, which for the majority of retail transactions occurs at time of purchase. Online and kiosk sales Revenue for online and kiosk customers is recogniod when the product is shipped to customers. Gift cards The Company sells gift cards to its customers and recognizes the revenue as gift cards are redeemed for merchandise. A customer's non-refundable prepayment to the Compary gives them a right to receive product in the future. Hovever, historically customers do not exercise all of their contractual rights, which is referred to as breakage. The Company determines its average gift card breakage rate based on historical redemption rates. Breakage income represents the estimated value of gift cards that is not expected to be redeemed by customers and is determined in proportion to the pattern of rights exercised by the customer. Gift card breakage is induded in revenue in the Company's consolidated statements of earnings (loss) and comprehensive earnings (loss). Changes in estimated breakage is accounted for by adjusting the contract liability to reflect the remaining rights expected to be redeemed. Indigo plum* rewards program Indigo's loyalty program, plam , has two tiers: plam", a free points-based tier; and plum" PL. US, an annual fee-based tier. The pluan program is an omni-channel program that allows members to earn and redecm poluts caline and in-stone, weambesly. This program engages members throagh mass promotions and targeted one-to-cene promotional offers, as well as imvitatiors to exdusive events and member-only shopping experiences. The Company launched the plumi PL.US membership program in fscal 2020 , replacing its former anntal fee-hased irewards" program, plume PLuS offers its members an immediate discount os elighble products, Iree dupping and the ahdity to ears poknts on almsost every dollar spent at the Coarpany's Canadian stores. as well as on its digital platforms. When a plun" PLUS menbership is sold, the amount is recognixed in deferred revenue and amortiod into revemue over the life of the membership, based on historical usage patterne. When a plam" member purchases merchandise, the Company allocates consideration received between the loyalty pro. gram points and the merchandise on which the points were earned based on their relative stand-alone selling prices, The portion of revenve attributed to the merchandise is recognized at the time of parchase. Revenue attributed to the points is recorded as deferred revenue and recognized when points are redecmed. The stand-alone selling price of the points issued is determined based on the estimated reward tier value, net of points that mamagement expects will go urredecmed. The Company continaes to moritor trends in rodemption patterns (redemption at each reward level), historical redemption rates (points redeemed as a percentage of points issued) and net cost per point redecmed to reduce estimation uncertainty in the consideration allocated to the boyalty contract right, Points revenue is induded as part of total revenue in the Company's consolidated statements of earnings (loss) and compnethensive earnings (loes). Interest income laterest income is reported on an accrual basis asing the effective interest method and induded as part of net interest in the Company's consolichted statements of earnings (loss) and comprehensive earnings (loss). 7. INVENTORIES The cost of inventories recognized as an expense during the 52. weck period ended April 2, 2022 was 8592.9 million (2021 5530.1 million), Inventories consist of the landed cost of goods sold and exclude inventory shrink and damage reserve and all vendor support programs. The amount of inventary write -bowns as a result of net realizable value lower than cost during the 52-week period ended April 2, 2022 was $9.1 million (2021 - 59.2 million). The amount of inventory with net realirable value equal to cost was $2.8 million as at April 2, 2022 (April 3, 2021 - $5.4 million). 9. PROPERTY, PLANT, AND EQUIPMENT 15. CONTINGENCIES L.egal Claims In the normal course of business, the Company becomes involved in various claims and litigation. While the final outcome of such claims and litigation pending as at April 2, 2022 cannot be predicted with certainty management believes that amy such amount would not have a material impect on the Company's financial position or financial performance, except for those amounts that have been recorded as provisions on the Company's consolidated halance sheets. 16. SHARE CAPITAL Share capital consists of the following: 19. EARNINGS (LOSS) PER SHARE Earnings (loss) per share is calculated based on the weighted average number of shares outstanding during the period. In calculating diluted earnings per share amounts under the treasury stock method, the numerator remains unchanged from the basic earnings per share calculations as the assumed exercise of the Company's stock options does not result in an adjustment to net earnings. The reconciliation of the denominator in calculating diluted earnings per share amounts for the periods presented are as follows: 20. STATEMENTS OF CASH FLOWS Serpplemental coch flow information: Management's Discussion and Analysis Overview Indigo b Canada' leading book and lestyle retailer and was formed as a result of the Auguat 2001 amalgamation of Chapters Inc. and Indigo Bools s.Music lnc. The Compamy offers a cur ated asortment of books, gifts, baby, kids, wellnesa and lifestyle products, that supports cutomers by simplifying their journey to Lring wth lntenticn": The Compary operates retail stores in all ten provirces and one territory is Canada, and aleo has retail operations in the United States through a wholly-owned subsidiary, operading one retail store in Short Hills, New Jersey. The retail network inclodes 88 aperstores (2021 - 88 ) under the Indyo and Chapters names, as well as 85 small format stores (2021 -89 ) under the banners Cols and Indrgorptrit. Retail operations are seamlesily integrated with the Company's digital channels, including the wwa indigo.co website and the mobile applications, which are extensions of the physical stores and offer cuatomers an expanded awortment of book tates, alosg with a meaning fully curated asortment of general merchandise. The Compury aleo offers a marketplace aceor tmeat of githalde peoducts, experiences, services, and subscriptions on wwe.thoughyfull. . Throughout flecal 2022, the Company employed an arerige of approximately 5,000 people (on a full-time, part-time, and casual hasts) and generated annual revenue of 51,062.3 million. The consolidated financial stanements of the Campany camprioe the Company and its wholly-owned subaidaries; lndigo Design Studio, lhe, lndigo Cultural Departmeat Seore lne. The Company supports a sepurate registerod charity called the Indigo Lore of Realing Foundetion (the "Foundation"). The Foundation prowides new books and learwing materials to high-need elementary schools and childen across the country throegh donations from Indigo, its custonsers, ts suppliers, and its employees. Statement on COVID-19 The Company, and the reeail induntry, continue to navigate the impacts of the COVID-19 pandemic, including goernment imposed restrictions, such as clodares, quarantine policies and socil distancing measures that negatively impact the Compan's retail operations, distributions centres, head office operations and supply chain. The Company undertook the following actions in fiscal 2022 : - Partidipated in rolling closures of its retail network, as directed by local governments and peblic heal th authorities. This notably included prosince-wide closures in Ontario that negatively impacted the Company's retail operations through the majority of the first quarter; store locations with extemal entrances re-gpened on June 1, 2021, with remaining tore locations in the province having re-opened on June 29, 2021. The Company ancoesfully executed on the reopening of 93 dowed retal stores across Canala with a focus on driving operational effictiveneas. - In December 2021, the Campany responded to the adverse impat of the Onaicroe variare on retal foot traffic pattern and implemented mandabed government capadity nestrictions, which most notably included a fifty percent reduction in capacity in the province of Onturio during critical selling wodk. - Recognived 87.7 million of CONID-19 ocoupancy expense atatement as a direct response to the economic impact of the COVID-19 pundemic, conpared to $15.5 million in the prior year. The Company continues to negotize with landllords regarding abatement to share the finandal burden of COVID- 19. * Applied for the Canada Emergency Rent Subeldy ("CERS") program and recognized rent muhsides of 52.9 maillion, compared to 51,1 million in the prior year. - Applied for the Canada Enwergency Wage Subwidy (CEWS") program and recognixed payroll sabsidies of s2.3 mil lios, compared to 527.4m ilion in the prior year. - Entered into a 525,0 million related party revolving line of credit to erhance the Company's liquidity in mesponse to uncer ainty surroundling the pandemic's financial impacts. No alvances were made on the non-interest beiring faciliny, which marured on Fobruary 1, 2022. - Foreciated inbound inventory roceipts to account formodest delops a a moult of dieruption to the global supply chien based on the monitored impacts of higher inbound freight costs and conitrained thipping capacify. - Eflectively mitigared dicruption to its prist besines, stemaning frem the raw material scouty and distribetion delays experienced acrow the publiahing industrys by shifting imwentory purchwes earlier in the planning mawn. Asa rwalt, the Company had sufficient invernoory on-hiod for bestelling eitlos and its back list catalogue to fulfill an increased demand for books during the boliday season. The Company is top pricrity remsins the hralth and afifty of its cuatomers, employees and communities, and extensive health and afety mescures have been employed that mert or exceed the guidance and direation from public beath authovities. Overview of Consolidated Balance Sheets Equity Total equity at April 2, 2022 increased $5.2 million to $27.8 million, compared to $22.6 million as at April 3, 2021, driven prim. arily by the net earnings of $3.3 million recognized owe the past foer quarters. This was furthered by an intrease of $1.0 milllion in aceumulated other compectensive income, primarily due to the change in fair value of oetstanding cash flow hedges. The weighted average number of common shares outstanding for fiscal 2022 was 27,771,387 compared to 27,664,268 in the prior year. As at June 2, 2022, the number of outstanding common shares was 27,349,711 with a book value of $227.1 millison. Accounting Policies Inventories The future realiation of the carrying amoant of inventory is affected by future sales demand, inventory levels, and product quality. At each belance sheet dete, the Company reviews its on hend inwentory and uses historical trends and car rent inventory mix to determine a reserve for the impact of future markdowns that will take the net realivalle value of iaventory an-hand below cost. Inentory valuation also incorporates a write-down to reflect future losses on the disposition of obsolete nerchandise. The Company reduces imentory foe estimated shrinkage that has occurred between physical inventory couns and each reportirg date hased an hibtorical experience as a percentage of ales. In addition, the Company records a wealor settlement accrual to cover any disputes between the Company and its vendors. The Compary estimates this reserve hased on historical experience of aethenents with its wendors. Property, plant, equipment, and intangible assets (collectively, "capital assets") Capital asets are depreciated and amortioed over their useful lives, taking into account residual values where appropriate. Assesments of useful lives and residual values are performed an an congoing basis and take into consideration factors such as technological imovation, mainterance programa, and relerant market information, In assesking residual valusx, the Company coeniders the remaining like of the asst, its projected dixposal value, and future marbet conclitions. Revenue The Company recognizes revenue for the estimated value of gift cards that are not expected to be redeemed by cuetomers (gift card breakage) in proportion to the pattern of righes exercised by the customer, The resulting gift card breakage revenue is recognized ower the estimated period of redemption based on historical redemption patterns commending when the gift cards are sold. Indigo's plunre loyalty program, which includes the pluat and plune Pl.uS membership tiers, allows customers to earn points on their purchass. The allocation of transation price to the plum" loyalty obligation, which is the estimated reward tier value of a future redemption net of points managment expects will go unredecmed ("plues" brealage"), is hasd on a relative stand alone selling price basis. The Company continues to monitor trends in redemption putterns (rodemption at each reward level), historical redemption rates (points redecmed as a peroentage of pohts issued) and net cost per point redeemed. Internal Controls over Financial Reporting Management is aloo responsible for establishing and maintaining adecquate internal controls over financial reporting to provide reasonable assuriece regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in acoordenoe with GRRS. All internal control systems, no matter how well designed, have inherent limitations. Thenefore, even those systems determined to be effective can provide only reasonalle assurance with respect to consolidated finandial statement preparation and presuntation, Additionally, management is necemarily rexpired to use jodgment in evaluating coentrols and procedares, As required by National Instrument 52-109, "Certification of Disclasure in lswers'Anemal and literim Filings," the CEO and CFO have eraluated, or cased to be evaluated under their stpervision, the effectiveness of such internal controb over financial reporting uing the framcwork establixhed in the Intermal Control - Integrated Framework (COSO Frameiork") published in 2013 by the Commiztee of Sponscring Organieations of the Treadway Commission, Bumd on that evaluation, they have conduded that the design and operation of the Coenpany's internal controls orer financial reporting were effective as at April 2, 2022. (NOTE: Where ratio calculations require averages, use year-end amounts instead. No average calculations are required. le. 2022 inventory turnover use $273,849 ). Consolidated Balance Sheets Consolidated Statements of Earnings (Loss) and Comprehensive Earnings (Loss) Consolidated Statements of Changes in Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements 1. CORPORATE INFORMATION Indigo Books \&. Music Inc. (the "Company" or "Indigo") is a corporation domiciled and incorporated under the laws of the Province of Ontario in Canada. The Company's registered office is located at 620 King Street West, Suite 400 , Toronto, Ontario, M5V 1M6, Canada. The consolidated financial statements of the Company comprise the Company and its whollyowned subsidiaries, Indigo Design Studio Inc., Indigo Cultural Department Store Inc. ("Indigo U.S."), and YYZ Holdings Inc. ("YYZ"), along with its equity investment in Unplug Meditation, LLC ("Inplug"). The Company is the ul timate parent of the consolidated organization. 2. NATURE OF OPERATIONS Indigo is Canada's leading book and lifest yle retailer and was formed as a result of the August 2001 amalgamation of Chapters Inc, and Indigo Books \& Music Inc. The Company offers a curated assortment of books, gifts, baby, kids, wellness and lifestyle products that support customers by simplifying their journey to Living with Intention". The Company operates retail stores in all ten provinces and one territory in Canada, and also has retail operations in the United States through a wholly-owned subsidiary, operating one retail store in Short Hills, New Jersey. The retail network includes 88 superstores (2021 - 88 ) under the Indigo and Chopters names, as well as 85 small format stores (2021-89) under the banners Coles and Indigocpirit. Retail operations are scamlessly integrated with the Company's digital channels, induding the wwwindigaca website and the mobile applications, which are extensions of the physical stores and offer customers an expanded assor tment of book titles, along with a meaningfully curated assortment of general merchandise. The Company also offers a marketplace asortment of giftable products, experiences, services, and subscriptions on wwwthoeghtfull.ce. The Company defines an operating segment on the same basis that it uses to evaluate performance internally and to allocate capital resources. At Indigo, this is done on an enterprise level. This holistic managerial approach is reflected in the Company's reimagined new store concept. The new store design emphasizes a central focus on enriching the lives of book lovers with core print and general merchandise products. Therefore, the Company reports as a single segment. The Company supports a separate registered charity, the Lndigo Love of Reading Foundation (the "Foundation"). The Foundation provides new books and learning material to high-needs elementary schools and children across the country through donations from Indigo, its customers, its suppliers, and its employees. 3. BASIS OF PREPARATION Statement of Compliance These consolidated financial statements have been prepared using accounting policies consistent with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). These consolidated financial statements were approved by the Board of Directors on June 2, 2022. Fiscal Year The fiscal year of the Company ends on the Saturday dosest to March 31 . Under an accounting convention common in the retail industry, the Company follows a 52 -week reporting cycle, which periodically necessitates a fiscal year of 53 weeks, The year ended April 2, 2022 contained 52 weeks, while the year ended April 3, 2021 contained 53 weeks, COVID-19 Pandemic On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, significantly impacting the Company's operations during fiscal 2022, most notably by numerous temporary mandated store closures in its first quarter, and the adverse impact of mandated pandemic restrictions to retail traffic in the Company's store network during critical holiday selling weeks in the month of December. The impact of the outbreak on the financial results of the Company will depend on future developenents, induding the duration and spread of future waves of the outbreak and its impact on the overall conomy and related advisories and restrictions. Further or prolonged dosures of the Company's stores, or capacity restrictions, could result in the reassessment of its significant accounting estimates, induding but not limited to impairment of assets. The Company is in negotiations with its landlords regarding rent ahatement to address the financial impacts of the most recent wave of COVID-19 related store closures. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements. Foreign Currency The functional currency for each entity included in these consolidated financial statements is the currency of the primary economic environment in which the entity cperates. The consolidated financial statements are presented in Camadian dollars, which is the functional currency of the Company. Assets and liabilities of the Company's U.S. operations have a functional currency of U.S. dollars and are translated into Canadian dollars at the exchange rate in effect at the reporting date, Revenues and expenses are translated into Canalian dollars at average exchange rates during the reporting period. The resulting unrealized translation gains or losses are included in other comprehensive income (loss). Monetary assets and liabilities denominated in foreign currendes that are beld at the reporting date are translated at the closing consolidated balance sheet rate. Non-monetary items are measured at historical cost and are translated using the exchange rates at the date of the transaction. Non-monetary items measured at fair value are translated using exchange rates at the date when fair value was determined. The resulting exchange gains or losses are induded in earnings. Inventories Imentories are valued at the lower of cost, determined on a moving average cost basis, and market, being net realizable value. Costs include all direct and reasonable expenditures that are incurred in bringing inventories to their present location and condition. Net realizable value is the estimated selling price in the ondinary course of business. When the Company permanently reduces the retail price of an item and the markdown incurred brings the retail price below the cost of the item, there is a corresponding reduction in inventory recognized in the period. Vendor rebates are recorded as a reduction in the price of the products and corresponding inventories are recorded net of vendor rebates. Prepaid Expenses Prepaid expenses indude store supplies, software subscription fees, rent and insurance. Store supplies are expensed as they are used while other costs are amortized over the term of the contract. Property, Plant, and Equipment All items of property, plant, and equipment are initially recogniacd at cost, which includes any costs directly attrilutahle to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by the Company, Subsequent to initial recognition, property, plant, and equipment asocts are shown at cost less accumalated depreciation and any acxumulated impairment losses. Deprediatioe of an asset begins cece it becomes avalable foe use. The depeociahle amount of an asset, being the cost of an asset less the residual value, is allocated on a straight-Line basis over the estimated useful life of the asset. Residual value is estimated to be nil unless the Company expects to dispose of the asset at a value that exceeds the estimated disposal costs. The residual values, useful lives, and depreciation methods applied to assets are reviewed based on relevant market information and management considerations. The following useful lives are applikd: Furniture, fixtures, and equipement 510 years Computer equuipenent 35 years Equipment under finance leases 35 years Leashold improvements ower the shorter of useful life and lease term ples expected renewals, to a maximum of 10 years ltems of property, plant, and equipment are assessed for impairment as detalled in the aocounting policy note on impairment and are derecognimod either upon disposal or when no future economic benefits are expected from their use. Any gain or loss arising on derecogrition is induded in earnings when the asset is derecognized. Intangible Assets Intangible asets are initially recognixed at cost, if acquired separately, at fair value, or as part of a business combination. After initial recognition, intangible assets are carried at cost less accumulated amortization and any accumulated impairment losses. Amortixation commences when the intangille assets are arailable for their intended use, The aseful lives of intangible aswets are assessed as either fnite or indefinite, Intangihle assets with finite lives are amortixed oner their aseful ecceomie life. Intangible assets with indefinite lives are not amortized but are reviewed at each reporting date to determine whether the indefinite life continues to be supportable. If not, the change in useful Life from indefinite to finite is made on a prospective basic. Residual value is estimated to be mero unless the Comparry expects to dispose of the asset at andue that excects the estimated disposal costs. The residual values, useful lives, and amor tization methods applied to intangible assets are reviewed annually hased on relevant market information and management considerations. The following useful lives are applied: There are no legal, regulatory, contractual, competitive, economic or other factors that limit the useful life of the domain name to the Company. Therefore, the useful life of the domain name is deemed to be indefinite. Latangible assets are assased for impairment as detailed in the accounting policy aote on impairment, An intangible asset is derecognixed either upon dixposal or when no future economic benefit is expected from its use. Amy gain or loss arising on dereongnition is induded in earnings when the asset is derecognized. Revenue Recognition The Company recognizes revenue when control of goods has been transferred at the amount of consideration to which the Company expects to be entitled. Revenue is recorded net of sales discounts, estimated returns, sales tax, emironmental fees and amounts deferred related to the issuance of plume poents. Revenue is recognioed when control of goods has been transferred (as described below) for each of the Company's revenue-generating activities. Retail sales Revenue for retail customers is recogmixed when the product is delivened to the customer, which for the majority of retail transactions occurs at time of purchase. Online and kiosk sales Revenue for online and kiosk customers is recogniod when the product is shipped to customers. Gift cards The Company sells gift cards to its customers and recognizes the revenue as gift cards are redeemed for merchandise. A customer's non-refundable prepayment to the Compary gives them a right to receive product in the future. Hovever, historically customers do not exercise all of their contractual rights, which is referred to as breakage. The Company determines its average gift card breakage rate based on historical redemption rates. Breakage income represents the estimated value of gift cards that is not expected to be redeemed by customers and is determined in proportion to the pattern of rights exercised by the customer. Gift card breakage is induded in revenue in the Company's consolidated statements of earnings (loss) and comprehensive earnings (loss). Changes in estimated breakage is accounted for by adjusting the contract liability to reflect the remaining rights expected to be redeemed. Indigo plum* rewards program Indigo's loyalty program, plam , has two tiers: plam", a free points-based tier; and plum" PL. US, an annual fee-based tier. The pluan program is an omni-channel program that allows members to earn and redecm poluts caline and in-stone, weambesly. This program engages members throagh mass promotions and targeted one-to-cene promotional offers, as well as imvitatiors to exdusive events and member-only shopping experiences. The Company launched the plumi PL.US membership program in fscal 2020 , replacing its former anntal fee-hased irewards" program, plume PLuS offers its members an immediate discount os elighble products, Iree dupping and the ahdity to ears poknts on almsost every dollar spent at the Coarpany's Canadian stores. as well as on its digital platforms. When a plun" PLUS menbership is sold, the amount is recognixed in deferred revenue and amortiod into revemue over the life of the membership, based on historical usage patterne. When a plam" member purchases merchandise, the Company allocates consideration received between the loyalty pro. gram points and the merchandise on which the points were earned based on their relative stand-alone selling prices, The portion of revenve attributed to the merchandise is recognized at the time of parchase. Revenue attributed to the points is recorded as deferred revenue and recognized when points are redecmed. The stand-alone selling price of the points issued is determined based on the estimated reward tier value, net of points that mamagement expects will go urredecmed. The Company continaes to moritor trends in rodemption patterns (redemption at each reward level), historical redemption rates (points redeemed as a percentage of points issued) and net cost per point redecmed to reduce estimation uncertainty in the consideration allocated to the boyalty contract right, Points revenue is induded as part of total revenue in the Company's consolidated statements of earnings (loss) and compnethensive earnings (loes). Interest income laterest income is reported on an accrual basis asing the effective interest method and induded as part of net interest in the Company's consolichted statements of earnings (loss) and comprehensive earnings (loss). 7. INVENTORIES The cost of inventories recognized as an expense during the 52. weck period ended April 2, 2022 was 8592.9 million (2021 5530.1 million), Inventories consist of the landed cost of goods sold and exclude inventory shrink and damage reserve and all vendor support programs. The amount of inventary write -bowns as a result of net realizable value lower than cost during the 52-week period ended April 2, 2022 was $9.1 million (2021 - 59.2 million). The amount of inventory with net realirable value equal to cost was $2.8 million as at April 2, 2022 (April 3, 2021 - $5.4 million). 9. PROPERTY, PLANT, AND EQUIPMENT 15. CONTINGENCIES L.egal Claims In the normal course of business, the Company becomes involved in various claims and litigation. While the final outcome of such claims and litigation pending as at April 2, 2022 cannot be predicted with certainty management believes that amy such amount would not have a material impect on the Company's financial position or financial performance, except for those amounts that have been recorded as provisions on the Company's consolidated halance sheets. 16. SHARE CAPITAL Share capital consists of the following: 19. EARNINGS (LOSS) PER SHARE Earnings (loss) per share is calculated based on the weighted average number of shares outstanding during the period. In calculating diluted earnings per share amounts under the treasury stock method, the numerator remains unchanged from the basic earnings per share calculations as the assumed exercise of the Company's stock options does not result in an adjustment to net earnings. The reconciliation of the denominator in calculating diluted earnings per share amounts for the periods presented are as follows: 20. STATEMENTS OF CASH FLOWS Serpplemental coch flow information: Management's Discussion and Analysis Overview Indigo b Canada' leading book and lestyle retailer and was formed as a result of the Auguat 2001 amalgamation of Chapters Inc. and Indigo Bools s.Music lnc. The Compamy offers a cur ated asortment of books, gifts, baby, kids, wellnesa and lifestyle products, that supports cutomers by simplifying their journey to Lring wth lntenticn": The Compary operates retail stores in all ten provirces and one territory is Canada, and aleo has retail operations in the United States through a wholly-owned subsidiary, operading one retail store in Short Hills, New Jersey. The retail network inclodes 88 aperstores (2021 - 88 ) under the Indyo and Chapters names, as well as 85 small format stores (2021 -89 ) under the banners Cols and Indrgorptrit. Retail operations are seamlesily integrated with the Company's digital channels, including the wwa indigo.co website and the mobile applications, which are extensions of the physical stores and offer cuatomers an expanded awortment of book tates, alosg with a meaning fully curated asortment of general merchandise. The Compury aleo offers a marketplace aceor tmeat of githalde peoducts, experiences, services, and subscriptions on wwe.thoughyfull. . Throughout flecal 2022, the Company employed an arerige of approximately 5,000 people (on a full-time, part-time, and casual hasts) and generated annual revenue of 51,062.3 million. The consolidated financial stanements of the Campany camprioe the Company and its wholly-owned subaidaries; lndigo Design Studio, lhe, lndigo Cultural Departmeat Seore lne. The Company supports a sepurate registerod charity called the Indigo Lore of Realing Foundetion (the "Foundation"). The Foundation prowides new books and learwing materials to high-need elementary schools and childen across the country throegh donations from Indigo, its custonsers, ts suppliers, and its employees. Statement on COVID-19 The Company, and the reeail induntry, continue to navigate the impacts of the COVID-19 pandemic, including goernment imposed restrictions, such as clodares, quarantine policies and socil distancing measures that negatively impact the Compan's retail operations, distributions centres, head office operations and supply chain. The Company undertook the following actions in fiscal 2022 : - Partidipated in rolling closures of its retail network, as directed by local governments and peblic heal th authorities. This notably included prosince-wide closures in Ontario that negatively impacted the Company's retail operations through the majority of the first quarter; store locations with extemal entrances re-gpened on June 1, 2021, with remaining tore locations in the province having re-opened on June 29, 2021. The Company ancoesfully executed on the reopening of 93 dowed retal stores across Canala with a focus on driving operational effictiveneas. - In December 2021, the Campany responded to the adverse impat of the Onaicroe variare on retal foot traffic pattern and implemented mandabed government capadity nestrictions, which most notably included a fifty percent reduction in capacity in the province of Onturio during critical selling wodk. - Recognived 87.7 million of CONID-19 ocoupancy expense atatement as a direct response to the economic impact of the COVID-19 pundemic, conpared to $15.5 million in the prior year. The Company continues to negotize with landllords regarding abatement to share the finandal burden of COVID- 19. * Applied for the Canada Emergency Rent Subeldy ("CERS") program and recognized rent muhsides of 52.9 maillion, compared to 51,1 million in the prior year. - Applied for the Canada Enwergency Wage Subwidy (CEWS") program and recognixed payroll sabsidies of s2.3 mil lios, compared to 527.4m ilion in the prior year. - Entered into a 525,0 million related party revolving line of credit to erhance the Company's liquidity in mesponse to uncer ainty surroundling the pandemic's financial impacts. No alvances were made on the non-interest beiring faciliny, which marured on Fobruary 1, 2022. - Foreciated inbound inventory roceipts to account formodest delops a a moult of dieruption to the global supply chien based on the monitored impacts of higher inbound freight costs and conitrained thipping capacify. - Eflectively mitigared dicruption to its prist besines, stemaning frem the raw material scouty and distribetion delays experienced acrow the publiahing industrys by shifting imwentory purchwes earlier in the planning mawn. Asa rwalt, the Company had sufficient invernoory on-hiod for bestelling eitlos and its back list catalogue to fulfill an increased demand for books during the boliday season. The Company is top pricrity remsins the hralth and afifty of its cuatomers, employees and communities, and extensive health and afety mescures have been employed that mert or exceed the guidance and direation from public beath authovities. Overview of Consolidated Balance Sheets Equity Total equity at April 2, 2022 increased $5.2 million to $27.8 million, compared to $22.6 million as at April 3, 2021, driven prim. arily by the net earnings of $3.3 million recognized owe the past foer quarters. This was furthered by an intrease of $1.0 milllion in aceumulated other compectensive income, primarily due to the change in fair value of oetstanding cash flow hedges. The weighted average number of common shares outstanding for fiscal 2022 was 27,771,387 compared to 27,664,268 in the prior year. As at June 2, 2022, the number of outstanding common shares was 27,349,711 with a book value of $227.1 millison. Accounting Policies Inventories The future realiation of the carrying amoant of inventory is affected by future sales demand, inventory levels, and product quality. At each belance sheet dete, the Company reviews its on hend inwentory and uses historical trends and car rent inventory mix to determine a reserve for the impact of future markdowns that will take the net realivalle value of iaventory an-hand below cost. Inentory valuation also incorporates a write-down to reflect future losses on the disposition of obsolete nerchandise. The Company reduces imentory foe estimated shrinkage that has occurred between physical inventory couns and each reportirg date hased an hibtorical experience as a percentage of ales. In addition, the Company records a wealor settlement accrual to cover any disputes between the Company and its vendors. The Compary estimates this reserve hased on historical experience of aethenents with its wendors. Property, plant, equipment, and intangible assets (collectively, "capital assets") Capital asets are depreciated and amortioed over their useful lives, taking into account residual values where appropriate. Assesments of useful lives and residual values are performed an an congoing basis and take into consideration factors such as technological imovation, mainterance programa, and relerant market information, In assesking residual valusx, the Company coeniders the remaining like of the asst, its projected dixposal value, and future marbet conclitions. Revenue The Company recognizes revenue for the estimated value of gift cards that are not expected to be redeemed by cuetomers (gift card breakage) in proportion to the pattern of righes exercised by the customer, The resulting gift card breakage revenue is recognized ower the estimated period of redemption based on historical redemption patterns commending when the gift cards are sold. Indigo's plunre loyalty program, which includes the pluat and plune Pl.uS membership tiers, allows customers to earn points on their purchass. The allocation of transation price to the plum" loyalty obligation, which is the estimated reward tier value of a future redemption net of points managment expects will go unredecmed ("plues" brealage"), is hasd on a relative stand alone selling price basis. The Company continues to monitor trends in redemption putterns (rodemption at each reward level), historical redemption rates (points redecmed as a peroentage of pohts issued) and net cost per point redeemed. Internal Controls over Financial Reporting Management is aloo responsible for establishing and maintaining adecquate internal controls over financial reporting to provide reasonable assuriece regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in acoordenoe with GRRS. All internal control systems, no matter how well designed, have inherent limitations. Thenefore, even those systems determined to be effective can provide only reasonalle assurance with respect to consolidated finandial statement preparation and presuntation, Additionally, management is necemarily rexpired to use jodgment in evaluating coentrols and procedares, As required by National Instrument 52-109, "Certification of Disclasure in lswers'Anemal and literim Filings," the CEO and CFO have eraluated, or cased to be evaluated under their stpervision, the effectiveness of such internal controb over financial reporting uing the framcwork establixhed in the Intermal Control - Integrated Framework (COSO Frameiork") published in 2013 by the Commiztee of Sponscring Organieations of the Treadway Commission, Bumd on that evaluation, they have conduded that the design and operation of the Coenpany's internal controls orer financial reporting were effective as at April 2, 2022