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Press release from Marketwire

Danier Leather Reports Fiscal 2012 Fourth Quarter and Year End Results

Thursday, August 16, 2012

Danier Leather Reports Fiscal 2012 Fourth Quarter and Year End Results06:00 EDT Thursday, August 16, 2012TORONTO, ONTARIO--(Marketwire - Aug. 16, 2012) -Danier Leather Inc. (TSX:DL) ("Danier" or the "Company") today announced its consolidated financial results for the fourth quarter and fiscal year ended June 30, 2012.FINANCIAL HIGHLIGHTS ($000s, except earnings per share (EPS), square footage and number of stores):Quarter Ended*Year Ended*Jun 30, 2012Jun 25, 2011Jun 30, 2012Jun 25, 2011(14 weeks)(13 weeks)(53 weeks)(52 weeks)Sales$27,510$26,713$148,219$157,621EBITDA(1)(2,120)2869,09514,662Net Earnings (Loss)(2,090)(212)4,0037,568EPS - Basic$(0.45)$(0.04)$0.86$1.62EPS - Diluted$(0.45)$(0.04)$0.83$1.55Number of Stores89898989Retail Square Footage294,343306,050294,343306,050* The Company's fiscal year ends on the last Saturday in June of each year. Consequently, fiscal 2012 consists of a 53-week year that ended on June 30, 2012, while the fiscal 2011 year consists of a 52-week year that ended on June 25, 2011. For the full impact on sales and comparable store sales excluding the additional week in fiscal 2012, please see footnote 3.Total company sales during the fourth quarter, which consisted of a 14-week period compared with a 13-week period last year, increased by 3% to $27.5 million, compared with $26.7 million during the fourth quarter last year. Comparable store sales(2) during the fourth quarter of fiscal 2012 increased by 6%, compared to the fourth quarter last year. Total company sales for the year were impacted by one of the warmest winters on record, which significantly affected sales of winter-related merchandise such as outerwear. Total sales for fiscal 2012 decreased by 6% to $148.2 million compared with $157.6 million last year. Comparable store sales for fiscal 2012 decreased by 6%, as compared to the corresponding quarter last year. Danier's accessory sales increased by 38% during the fourth quarter of fiscal 2012 and represented 35% of total fourth quarter sales compared with 27% of total fourth quarter sales the previous year. For fiscal 2012, accessory sales increased by 11% and represented 32% of total company sales compared with 27% of total company sales during fiscal 2011.While unseasonably warmer weather continued throughout the fourth quarter this year, impacting outerwear sales particularly during April and May, a successful accessories-focused brochure was distributed at the beginning of June, helping to drive significant increases in customer traffic and accessory sales during that month. During fiscal 2012, Danier placed more emphasis on growing the higher margin accessory category by expanding the offering of handbags, wallets, briefcases, business accessories and other accessory categories, as well as featuring more accessories in its windows and marketing programs. Gross profit as a percentage of revenue during the fourth quarter of this year was 47.6% compared with 55.6% during the fourth quarter last year. Gross profit margin for the fiscal 2012 year was 51.8% compared with 54.7% during fiscal 2011. The decrease in the gross margin rate was mainly due to higher than anticipated markdowns for outerwear as a result of the unseasonably warm weather as well as increased leather prices. Selling, general and administrative expenses during the fourth quarter of fiscal 2012 increased by $0.8 million, or 5%, to $16.2 million, compared with $15.4 million during the fourth quarter last year. Selling, general and administrative expenses for the fiscal 2012 year decreased by $4.2 million, or 6%, to $71.4 million, compared with $75.6 million last year. Net loss during the fourth quarter of fiscal 2012 was $2.1 million ($0.45 per diluted share) compared with a net loss of $0.2 million ($0.04 per diluted share) during the fourth quarter last year. For the fiscal year ended June 30, 2012, net earnings were $4.0 million ($0.83 per diluted share) compared with net earnings of $7.6 million ($1.55 per diluted share) for the fiscal year ended June 25, 2011.Danier continues to maintain a strong balance sheet with cash and cash equivalents of $34.3 million compared with $28.7 million at the end of fiscal 2011. In addition, at the fiscal 2012 year-end, Danier had working capital of $49.2 million and no long-term debt. For the 2012 fiscal year, Danier began reporting its financial results in accordance with International Financial Reporting Standards ("IFRS"), including comparative information. Previously reported financial results prepared in accordance with Canadian generally accepted accounting principles have been restated to conform to the new standards adopted. See note 23 accompanying Danier's fourth quarter 2012 unaudited interim condensed consolidated financial statements for further information on the transition to IFRS and its impact on Danier's financial position, financial performance and cash flows. Non-IFRS Financial Measures and Impact of Additional Week during Fiscal 2012 The Company prepares its consolidated financial statements in accordance with IFRS. In order to provide additional insight into the business, the Company has also provided non-IFRS data, including EBITDA and comparable store sales, each as defined below. Non-IFRS measures such as EBITDA and comparable store sales are not recognized measures for financial presentation under IFRS. These non-IFRS measures do not have a standardized meaning prescribed by IFRS and, therefore, may not be comparable to similarly titled measures presented by other publicly traded companies, nor should they be construed as an alternative to other financial measures determined in accordance with IFRS. EBITDA is defined as net earnings (loss) before interest expense, interest income, income taxes, impairment loss on property and equipment and amortization. EBITDA is a financial metric used by management and some investors to compare companies on the basis of ongoing operating results before taxes, interest expense, interest income, impairment loss on property and equipment and amortization and its ability to incur and service debt. EBITDA is also used by management to measure performance against internal targets and prior period results. EBITDA is calculated as outlined in the following table: Fourth Quarter EndedYear EndedJun 30, 2012Jun 25, 2011Jun 30, 2012Jun 25, 2011(14 weeks)(13 weeks)(53 weeks)(52 weeks)($000)($000)($000)($000)Net earnings (loss)$(2,090)$(212)$4,003$7,568Add (deduct) impact of the following:Income tax(916)(299)1,5243,140Interest expense10951103Interest income(89)(62)(229)(160)Impairment loss on property and equipment--6698Amortization9658503,6803,913EBITDA$(2,120)$286$9,095$14,662Comparable store sales are defined as sales generated by stores that have been open during the full current fiscal year as well as the full prior fiscal year. Comparable store sales is a key indicator used by the Company to measure performance against internal targets and prior period results and excludes sales fluctuations due to new stores, store closings and certain permanent store relocations. This measure is also commonly used by financial analysts and investors to compare Danier to other retailers. Total company sales during the fourth quarter of fiscal 2012, which contained 14 weeks compared with 13 weeks last year, increased by 3% and comparable store sales increased by 6%. Excluding the additional week during the fourth quarter of fiscal 2012, total company sales decreased 2% and comparable store sales increased 1%. For the year-to-date period, which contained 53 weeks compared with 52 weeks last year, sales and comparable store sales decreased by 6%. Excluding the additional week during fiscal 2012, total company sales decreased by 7% and comparable store sales decreased by 6%. Forward-Looking Statements This press release may contain forward-looking information and forward-looking statements which reflect the current view of Danier with respect to the Company's objectives, plans, goals, strategies, future growth, results of operations, financial and operating performance and business prospects and opportunities. Wherever used, the words "may", "will", "anticipate", "intend", "estimate", "expect", "plan", "believe" and similar expressions identify forward-looking statements and forward-looking information. Forward-looking statements and forward-looking information should not be read as guarantees of future events, performance or results, and will not necessarily be accurate indications of whether, or the times at which, such events, performance or results will be achieved. All of the statements in this press release containing forward-looking statements or forward-looking information, if any, are qualified by these cautionary statements. Forward-looking statements and forward-looking information are based on information available at the time they are made, underlying estimates, opinions and assumptions made by management and management's good faith belief with respect to future events, performance and results, and are subject to inherent risks and uncertainties surrounding future expectations generally. For additional information with respect to Danier's inherent risks and uncertainties, reference should be made to Danier's continuous disclosure materials filed from time to time with the Canadian Securities Regulatory Authorities, including the Company's most recent annual information form, quarterly and annual reports and financial statements and notes thereto, and supplementary information, which are available on SEDAR at www.sedar.com and in the Investor Relations section of the Company's website at www.danier.com. Additional risks and uncertainties not presently known to the Company or that Danier currently believes to be less significant may also adversely affect the Company.Danier cautions readers that such factors and uncertainties are not exhaustive and that should certain risks or uncertainties materialize, or should underlying estimates or assumptions prove incorrect, actual events, performance and results may vary significantly from those expected. There can be no assurance that the actual results, performance, events or activities anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company. Potential investors and other readers are urged to consider these factors carefully in evaluating forward-looking information and forward-looking statements and are cautioned not to place undue reliance on any forward-looking information or forward-looking statements. Danier disclaims any intention or obligation to update or revise any forward-looking information or forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable laws. About Danier Danier Leather Inc. is a leading integrated designer, manufacturer, distributor and retailer of high-quality fashion-oriented leather apparel and accessories. The Company's merchandise is marketed exclusively under the well-known Danier brand name and is available at its 89 shopping mall, street-front and power centre stores. Corporations and other organizations can obtain Danier products for use as incentives and premiums for employees, suppliers and customers through Canada Sportswear Corp. For more information about the Company and our products, visit www.danier.com.Investors and analysts are invited to participate in a conference call today at 9:00 AM Eastern Time to discuss the results. Please dial 416-340-2216 in the Toronto area or 1-866-226-1792 (rest of Canada and the U.S.) and quote the Danier Leather Inc. 2012 fourth quarter and year-end conference call with Chairperson Jeffrey Wortsman at least five minutes prior to the call. The call will also be webcast at http://www.danier.com/ or at http://www.marketwire.com/. DANIER LEATHER INC.CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) AND COMPREHENSIVE EARNINGS (LOSS)(thousands of Canadian dollars, except per share amounts and number of shares)Fourth Quarter EndedYear EndedJune 30, 2012June 25, 2011June 30, 2012June 25, 201114 weeks13 weeks53 weeks52 weeks(unaudited)(unaudited)Revenue$27,510$26,713$148,219$157,621Cost of sales (Note 12)14,42011,85971,51371,352Gross profit13,09014,85476,70686,269Selling, general and administrative expenses (Note 12)16,17515,41871,35775,618Interest income(89)(62)(229)(160)Interest expense10951103Earnings (loss) before income taxes(3,006)(511)5,52710,708Provision for (recovery of) income taxes (Note 13)(916)(299)1,5243,140Net earnings (loss) and comprehensive earnings (loss)$(2,090)$(212)$4,003$7,568Net earnings (loss) per share:Basic$(0.45)$(0.04)$0.86$1.62Diluted$(0.45)$(0.04)$0.83$1.55Weighted average number of shares outstanding:Basic4,637,5464,738,3684,638,8294,673,944Diluted4,792,9114,916,8384,794,3554,889,053Number of shares outstanding at period end4,646,9024,678,1354,646,9024,678,135DANIER LEATHER INC.CONSOLIDATED STATEMENTS OF FINANCIAL POSITION(thousands of Canadian dollars)June 30, 2012June 25, 2011June 27, 2010ASSETSCurrent AssetsCash and cash equivalents (Note 4)$34,332$28,698$26,563Accounts receivable517385543Income taxes recoverable426--Inventories (Note 5)24,89128,96426,539Prepaid expenses7999011,14060,96558,94854,785Non-current AssetsProperty and equipment (Note 6)15,01214,40415,662Computer software (Note 7)7261,0541,417Deferred income tax asset (Note 13)1,9091,6781,717$78,612$76,084$73,581LIABILITIESCurrent LiabilitiesPayables and accruals (Note 9)$10,161$11,024$12,443Deferred revenue1,4631,4891,628Sales return provision (Note 10)12447-Income taxes payable-2783,90011,74812,83817,971Non-current LiabilitiesDeferred lease inducements and rent liability1,3731,3181,34513,12114,15619,316SHAREHOLDERS' EQUITYShare capital (Note 11)15,04015,16014,176Contributed surplus9259341,252Retained earnings49,52645,83438,83765,49161,92854,265$78,612$76,084$73,581Contingencies, Guarantees and Commitments (Notes 15 and 16)Approved by the Board of DirectorsAugust 15, 2012DANIER LEATHER INC.CONSOLIDATED STATEMENTS OF CASH FLOW(thousands of Canadian dollars)Fourth Quarter EndedYear EndedJune 30, 2012June 25, 2011June 30, 2012June 25, 201114 weeks13 weeks53 weeks52 weeks(unaudited)(unaudited)Cash provided by (used in)OPERATING ACTIVITIESNet earnings (loss)$(2,090)$(212)$4,003$7,568Adjustments for:Amortization of property and equipment8547353,3003,390Amortization of computer software111115380523Impairment loss on property and equipment--6698Amortization of deferred lease inducements(60)(70)(175)(213)Proceeds from deferred lease inducement--188155Straight line rent expense1194231Stock-based compensation7162593Interest income(89)(62)(229)(160)Interest expense10951103Provision for (recovery of) income taxes(916)(299)1,5243,140Changes in working capital (Note 14)2,757(684)3,198(3,404)Interest paid-(118)(12)(218)Interest received7754223140Income taxes paid (recovered)16(525)(2,459)(6,723)Net cash generated from (used in) operating activities688(1,032)10,1254,523FINANCING ACTIVITIESSubordinate voting shares issued534265902Subordinate voting shares repurchased (Note 11)-(900)(530)(900)Net cash (used in) generated from financing activities53(858)(465)2INVESTING ACTIVITIESAcquisition of property and equipment(975)(182)(3,974)(2,230)Acquisition of computer software(24)(111)(52)(160)Net cash used in investing activities(999)(293)(4,026)(2,390)Increase (decrease) in cash and cash equivalents(258)(2,183)5,6342,135Cash and cash equivalents, beginning of period34,59030,88128,69826,563Cash and cash equivalents, end of period$34,332$28,698$34,332$28,698DANIER LEATHER INC.CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY(thousands of Canadian dollars) - unauditedShare CapitalContributed SurplusAccumulated Other Comprehensive IncomeRetained EarningsTotalBalance - June 25, 2011$15,160$934$-$45,834$61,928Net earnings---4,0034,003Stock-based compensation related to stock options-25--25Exercise of stock options99(34)--65Share repurchases(219)--(311)(530)Balance - June 30, 2012$15,040$925$-$49,526$65,491Share CapitalContributed SurplusAccumulated Other Comprehensive IncomeRetained EarningsTotalBalance - June 27, 2010$14,176$1,252$-$38,837$54,265Net earnings---7,5687,568Stock-based compensation related to stock options-93--93Exercise of stock options1,313(411)--902Share repurchases(329)--(571)(900)Balance - June 25, 2011$15,160$934$-$45,834$61,928See accompanying notes to the consolidated financial statementsDANIER LEATHER INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended June 30, 2012 and June 25, 2011(unless otherwise stated, all amounts are in thousands of Canadian dollars) General Information:Danier Leather Inc. and its subsidiaries ("Danier" or the "Company") comprise a vertically integrated designer, manufacturer, distributor and retailer of leather apparel and accessories. Danier Leather Inc. is a corporation existing under the Business Corporations Act (Ontario) and is domiciled in Canada. The Company's subordinate voting shares (the "Subordinate Voting Shares") are listed on the Toronto Stock Exchange (the "TSX") under the symbol "DL". The address of its registered head office is 2650 St. Clair Avenue West, Toronto, Ontario, M6N 1M2, Canada. Due to the seasonal nature of the retail business and the Company's product line, the results of operation for any interim period are not necessarily indicative of results of operations to be expected for the fiscal year. A significant portion of the Company's sales and earnings are generated during the second fiscal quarter, which includes the holiday selling season. Sales are usually lowest and losses are typically experienced during the period from April to September.Basis of Preparation and Adoption of IFRS:Statement of Compliance These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and using the accounting policies described herein. These are the Company's first annual consolidated financial statements prepared and reported under IFRS as issued by the IASB. The first date at which IFRS was applied was June 27, 2010 (the "Transition Date"). In accordance with IFRS 1, "First-time Adoption of International Financial Reporting Standards ("IFRS 1") the Company has: prepared these consolidated financial statements for the 53 week period ended June 30, 2012 with comparative financial information for the 52 week period ended June 25, 2011; applied the same accounting policies throughout all periods presented, unless otherwise indicated; retroactively applied all effective IFRS standards as at June 30, 2012, as required; and applied certain optional exemptions and certain mandatory exceptions as applicable for first-time IFRS adopters. The Company's financial statements were previously prepared in accordance with Canadian generally accepted accounting principles ("Canadian GAAP"). An explanation of how the transition from Canadian GAAP to IFRS as at the Transition Date has affected the reported statements of financial position, earnings (loss) and cash flows of the Company, including the mandatory exceptions and optional exemptions under IFRS 1, is provided in note 23 to these consolidated financial statements.These consolidated financial statements were approved by the Board of Directors of the Company on August 15, 2012.Basis of Presentation These consolidated financial statements have been prepared on a going concern basis, under the historical cost convention, except for the following items which are measured at fair value:Financial instruments at fair value through profit and loss; and Liabilities for cash-settled share-based payment plans. Functional and presentation currency These consolidated financial statements are presented in Canadian dollars ("C$"), the Company's functional currency. All financial information is presented in thousands, except per share amounts, which are presented in whole dollars, and number of shares, which are presented as whole numbers.Use of Estimates, Judgments and Assumptions The preparation of these consolidated financial statements in accordance with IFRS requires management to make certain judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the period.Judgment is commonly used in determining whether a balance or transaction should be recognized in the consolidated financial statements, and estimates and assumptions are more commonly used in determining the measurement of recognized transactions and balances. However, judgments and estimates are often interrelated.Management has applied its judgment in its assessment of the classification of leases and financial instruments, the recognition of tax provisions, determining the tax rates used for measuring deferred taxes, and identifying the indicators of impairment of property and equipment and computer software.Estimates are used when estimating the useful lives of property and equipment and computer software for the purposes of depreciation and amortization, when determining the number of share-based payments that will ultimately vest, when accounting for or measuring items such as inventory provisions, gift card breakage, assumptions underlying income taxes, sales and use taxes and sales return provisions, certain fair value measures including those related to the valuation of share-based payments and financial instruments and when testing assets for impairment. These estimates depend upon subjective and complex judgments about matters that may be uncertain, and changes in those estimates could materially impact the consolidated financial statements. Illiquid credit markets, volatile equity, foreign currency and energy markets and declines in consumer spending have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results may differ significantly from such estimates and assumptions.Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.Significant Accounting Policies:The accounting policies described below have been applied consistently to all periods presented in these consolidated financial statements. Basis of measurement: The consolidated financial statements have been prepared on a going concern basis, under the historical cost convention as modified by the revaluation of certain financial assets and financial liabilities (including derivative instruments) at fair value through profit and loss.Basis of consolidation: The consolidated financial statements include the accounts of Danier Leather Inc. consolidated with those of its wholly-owned subsidiaries, 1331677 Ontario Inc., Danier International Corporation and Danier Leather (USA), Inc. 1331677 Ontario Inc. was incorporated in Ontario, Canada on December 22, 1998 to hold vacant land next to the Company's Toronto head office. Danier International Corporation was incorporated in Barbados on April 7, 2006 to hold the international intellectual property of Danier. Danier Leather (USA), Inc. is currently inactive and was incorporated in Delaware, U.S.A. on September 8, 1998 to operate Danier stores in the United States, which operations have since been discontinued. On consolidation, all intercompany transactions, balances, revenue and expenses have been eliminated.Year-end: The fiscal year end of the Company consists of a 52 or 53 week period ending on the last Saturday in June each year. The current fiscal year for the consolidated financial statements will be the 53-week period ended June 30, 2012, and comparably the 52-week period ended June 25, 2011. Foreign currency translation: Items included in the financial statements of each wholly owned consolidated entity in the Danier Leather Inc. group are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). The consolidated financial statements are presented in Canadian dollars, which is the Company's presentation currency.Accounts in foreign currencies are translated into Canadian dollars. Monetary financial position items are translated at the rates of exchange in effect at the period end and non-monetary items are translated at historical exchange rates. Revenues and expenses are translated at the rates in effect on the transaction dates or at the average rates of exchange for the reporting period. The resulting net gain or loss is included as part of selling, general and administrative expenses ("SG&A") in the consolidated statement of earnings (loss). Revenue recognition: Revenue includes sales of merchandise, alteration services and gift cards to customers through stores operated by the Company and sales of incentive and promotional product merchandise to a third party distributor. Revenue is measured at the fair value of consideration received net of sales tax, returns and discounts. Sales of merchandise to customers through stores operated by the Company is recognized when the significant risks and rewards of ownership have been transferred to the buyer, which is the time the customer tenders payment for and takes possession of the merchandise.Alteration revenue is recorded based on the percentage of completion method. Due to alteration revenue representing less than one percent of merchandise revenue, the short time required to complete an alteration and at any point in time there is an immaterial amount of partially processed alterations, alteration revenue is recorded at the same time as the customer tenders payment for and takes possession of the merchandise. Sales to the third party distributor is recorded when the significant risks and rewards of ownership have been transferred to the buyer, which is at the time the distributor ships the merchandise to their customer.Gift cards sold are recorded as deferred revenue and revenue is recognized at the time of redemption or in accordance with the Company's accounting policy for breakage. Breakage income represents the estimated value of gift cards that is not expected to be redeemed by customers where the unredeemed balance is more than two years old from the date of issuance. Historically, breakage has not been material. Share-based compensation plans: The Company operates an equity-settled Stock Option Plan and cash-settled Restricted Share Unit ("RSU") and Deferred Share Unit ("DSU") share-based compensation plans. For the equity-settled Stock Option Plan, where options to purchase Subordinate Voting Shares are issued to directors, officers, employees and service providers (further details of which are described in Note 11(e)), the expense is based on the fair value of the awards granted, excluding the impact of any non-market service conditions (for example, continued employment over a specified time period). Non-market vesting conditions are considered in making assumptions about the number of awards that are expected to vest. The fair value of options granted is estimated at the date of grant using the Black-Scholes Option Pricing Model. The expense is recognized on a graded vesting basis over the vesting period of the stock options, which is generally three years. When stock options are subsequently exercised, share capital is increased by the sum of the consideration paid together with the related portion previously added to contributed surplus when compensation costs were charged against income. For the cash-settled RSU plan, where RSUs are issued to eligible directors, officers and employees and vest over a period of up to three years (further details of which are described in Note 11(g)), the expense is recognized on a graded vesting schedule and is determined based on the fair value of the liability incurred at each financial position date until the award is settled. The fair value of the liability is measured by applying the Black-Scholes Option Pricing Model, taking into account the extent to which participants have rendered services to date.For the cash-settled DSU plan, where DSUs are issued to directors and vest immediately and can only be redeemed once the director leaves the Board of Directors of the Company (further details of which are described in Note 11(f)), the expense is recognized on the grant date based on the fair value of the award by applying the Black-Scholes Option Pricing Model. The fair value of the liability is measured at each financial position date by applying the Black-Scholes Option Pricing Model until the award is settled.At each financial position date, the Company reassesses its estimates of the number of awards that are expected to vest and recognizes the impact of any revisions in the statement of earnings (loss) with a corresponding adjustment to equity or liabilities, as appropriate.Cash and cash equivalents: Cash and cash equivalents consists of cash on hand, bank balances and money market investments with maturities of three months or less. Financial instruments: Classification of Financial Instruments Financial instruments are classified into one of the following three categories: fair value through profit and loss, loans and receivables, or financial liabilities at amortized cost. The classification determines the accounting treatment of the instrument. The classification is determined by the Company when the financial instrument is initially recorded, based on the underlying purpose of the instrument.The Company's financial instruments are classified and measured as follows:Financial Asset/LiabilityCategoryMeasurementCash and cash equivalentsLoans and receivablesAmortized costAccounts receivableLoans and receivablesAmortized costPayables and accrualsFinancial liabilitiesAmortized costSales return provisionFinancial liabilitiesAmortized costForeign currency option contract derivatives(1)Fair value through profit and lossFair value through profit and loss(1) The carrying value of the Company's derivatives are included in the statement of financial position as accounts receivable (if the fair value is an unrealized gain) or payables and accruals (if the fair value is an unrealized loss).Loans and receivables are initially recognized at fair value and then subsequently at amortized cost using the effective interest method, less any impairment losses recognized in the statement of earnings (loss) in the period in which the impairment is recognized. Financial liabilities are initially recognized at the amount required to be paid, less, when material, a discount to reduce the payables to fair value. Subsequently, financial liabilities are measures at amortized cost using the effective interest method. Changes in fair value of financial instruments classified as held for trading are recorded in the statement of earnings (loss) in the period of change. The Company categorizes its financial assets and financial liabilities that are recognized in the statements of financial position at fair value using the fair value hierarchy. The fair value hierarchy has the following levels:Level 1 - quoted market prices in active markets for identical assets or liabilities; Level 2 - inputs other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and Level 3 - unobservable inputs such as inputs for the asset or liability that are not based on observable market data. The level in the fair value hierarchy within which the fair value measurement is categorized in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety.(ii) Transaction CostsTransaction costs are added to the initial fair value of financial assets and liabilities when those financial assets and liabilities are not measured at fair value subsequent to initial measurement. Transaction costs are recorded in SG&A using the effective interest method. (iii) Derivative Financial InstrumentsThe Company uses derivatives in the form of foreign currency option contracts and forwards, which are used to manage risks related to its inventory purchases, which are primarily denominated in United States dollars. All derivatives have been classified as held-for-trading, are not designated as hedges, are included on the statements of financial position as accounts receivable or payables and accruals, and are classified as current or non-current based on the contractual terms specific to the instrument. Gains and losses on re-measurement are included in SG&A.(iv) Fair ValueThe fair value of a financial instrument is the estimated amount that the Company would receive or pay to settle the financial assets and financial liabilities as at the reporting date. These estimates are subjective in nature, often involve uncertainties and the exercise of significant judgment and are made at a specific point in time using available information about the financial instrument and may not reflect fair value in the future. The estimated fair value amounts can be materially affected by the use of different assumptions or methodologies.The methods and assumptions used in estimating the fair value of the Company's financial instruments are as follows:The derivative financial instruments, which consist of foreign currency option contracts and forwards, have been marked-to-market and are categorized as Level 2 in the fair value hierarchy. Factors included in the determination of fair value include the spot rate, forward rates, estimates of volatility, present value factor, strike prices, credit risk of the Company and credit risk of counterparties. As at June 30, 2012, a $172 unrealized gain (June 25, 2011 - $140 unrealized loss) was recorded in SG&A for the contracts outstanding. The fair value of cash equivalents is determined using Level 2 inputs in the fair value hierarchy which include interest rates for similar instruments which are obtained from independent publications and market exchanges. Given their short-term maturity, the fair value of cash, accounts receivable, payables and accruals and deferred revenue approximates their carrying values. (i) Impairment of financial assets: At each reporting date, the Company assesses whether there is objective evidence that a financial asset is impaired. If such evidence exists, the Company recognizes an impairment loss. For financial assets carried at amortized cost, the loss is the difference between the amortized cost of the receivable and the present value of the estimated future cash flows, discounted using the instrument's original effective interest rate. The carrying amount of the asset is reduced by this amount either directly or indirectly through the use of an allowance account. Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized.(j) Inventories: Merchandise inventories are valued at the lower of cost, using the weighted average cost method, and net realizable value. For inventories manufactured by the Company, cost includes direct labour, raw materials, manufacturing and distribution centre costs related to inventories and transportation costs that are directly incurred to bring inventories to their present location and condition. For inventories purchased from third party vendors, cost includes the cost of purchase, duty and brokerage, quality assurance costs, distribution centre costs related to inventories and transportation costs that are directly incurred to bring inventories to their present location and condition. The Company estimates the net realizable value as the amount at which inventories are expected to be sold, taking into account fluctuations in retail prices due to seasonality, age, excess quantities, condition of the inventory, nature of the inventory and the estimated variable costs necessary to make the sale. Inventories are written down to net realizable value when the cost of inventories is not estimated to be recoverable due to obsolescence, damage or declining selling prices. When circumstances that previously caused inventories to be written down below cost no longer exist, the amount of the write-down previously recorded is reversed. Storage costs, administrative overheads and selling costs related to the inventories are expensed in the period the costs are incurred.(k) Property and equipment: Property and equipment are recorded at cost less accumulated amortization and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. Borrowing costs attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets, until such time as the assets are substantially ready for their intended use. Qualifying assets are those assets that take longer than nine months to be substantially ready for their intended use. All other borrowing costs are recognized as interest expense in the statement of earnings (loss) in the period in which they are incurred.Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits can be measured reliably. The carrying amount of a replaced asset is de-recognized when replaced. Repair and maintenance costs are charged to the statement of earnings (loss) during the period in which they are incurred.Effective June 26, 2011, the Company reviewed and adjusted its method of amortization and remaining useful lives of property and equipment from the declining balance method to the straight-line method, as this is believed to more accurately reflect the remaining estimated useful life and usage of each category of property and equipment. The change has been accounted for prospectively as a change in estimate. Based on property and equipment held as at June 30, 2012, the effect of this change results in an increase of amortization expense of $173 for the fiscal year ended June 30, 2012. The major categories of property and equipment and their methods of amortization and useful lives for the fiscal years ended June 30, 2012 and June 25, 2011 are as follows: Fiscal Year EndedJune 30, 2012June 25, 2011Building25 years straight-line4% declining balanceRoof20 years straight-line20 years straight-lineHVAC equipment5 to 15 years straight-line5 to 15 years straight-lineFurniture and equipment (non-retail)5 to 7 years straight-line20% declining balanceFurniture and fixtures (retail locations)Term of lease not to exceed 10 years20% declining balanceComputer hardware4 to 7 years straight-line30% declining balanceLeasehold improvements for a specific retail location are amortized on a straight-line basis over the term of the lease not to exceed 10 years, unless the Company has decided to terminate the lease, at which time the unamortized balance is written off. Land is not amortized.The Company allocates the amount initially recognized in respect of an item of property and equipment to its significant parts and depreciates each such part separately. Residual values, method of amortization and useful lives of the assets are reviewed annually and adjusted if appropriate. Gains and losses on disposals of property and equipment are determined by comparing the proceeds with the carrying amount of the asset and are included as part of SG&A in the statement of earnings (loss). (l) Computer software: Computer software costs are capitalized and amortized on a straight line basis over the period of its expected useful life which ranges from 4 to 7 years. The assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable.(m) Impairment of non-financial assets: Property and equipment and computer software with finite lives are tested for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable at the financial position date. For purposes of measuring recoverable amounts, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units or CGUs), which is at the individual store level for the Company. The recoverable amount is the greater of an asset's fair value less costs to sell and value in use (being the present value of the expected future cash flows of the relevant asset or CGU). An impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. The Company evaluates impairment losses for potential reversals when events or circumstances warrant such consideration. (n) Leased assets: Leases are classified as either operating or finance, based on the substance of the transaction at inception of the lease. Classification is re-assessed if the terms of the lease are changed.Leases in which a significant portion of the risks and rewards of ownership are not assumed by the Company are classified as operating leases. The Company enters into leases of varying terms for the operation of its stores, which are accounted for as operating leases. Payments under an operating lease are recognized in SG&A on the statement of earnings (loss) on a straight-line basis over the term of the lease. When a lease contains a predetermined fixed escalation of the minimum rent, the Company recognizes the related rent expense on a straight-line basis and records the difference between the recognized rental expense and the amount payable under the lease as deferred rent, which is included in deferred lease inducements and rent liability on the statement of financial position. Contingent rentals (rent as a percentage of sales above a predetermined sales threshold) are recognized in SG&A in the period in which they are incurred.Tenant allowances are recorded as deferred lease inducements and amortized as a reduction of rent expense over the term of the related leases.(o) Provisions: Provisions represent liabilities to the Company for which the amount or timing is uncertain. Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. The sales return provision primarily comprises customer returns of unworn and undamaged purchases for a full refund within the time period provided by Danier's return policy, which is generally 14 days after the purchase date. The sales return provision is estimated based on historical experience and since the time period of the provision is of relatively short duration, the present value of the expenditure expected to be required to settle the obligation approximates the actual provision estimate. The provision is reviewed at each financial position date and updated to reflect management's latest best estimate, however, actual returns could vary from these estimates.(p) Deferred lease inducements and rent liability: Deferred lease inducements represent cash benefits received from landlords pursuant to store lease agreements. These lease inducements are amortized against rent expense over the term of the lease, not exceeding 10 years. Rent liability represents the difference between minimum rent as specified in the lease and rent calculated on a straight-line basis.(q) Income taxes: Income tax comprises current and deferred tax. The Company's income tax expense is based on tax rules and regulations that are subject to interpretation and require estimates and assumptions that may be challenged by taxation authorities. Current income tax is the expected tax payable on the taxable income for the year using tax rates enacted or substantially enacted, at the end of the reporting period, and any adjustments to tax payable in respect of previous years. A weighted average of rates across provinces or categories of income is used if it is a reasonable approximation of the effect of using more specific rates. The Company's estimates of current income tax are periodically reviewed and adjusted as circumstances warrant, such as for changes to tax laws and administrative guidance, and the resolution of uncertainties through either the conclusion of tax audits or expiration of prescribed time limits within the relevant statutes. The final results of government tax audits and other events may vary materially compared to estimates and assumptions used by management in determining income tax expense and in measuring current income tax.In general, deferred tax is recognized in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined on a non-discounted basis using tax rates and laws that have been enacted or substantially enacted at the financial position date and are expected to apply when the deferred tax asset or liability is settled. The effect on deferred income tax assets and liabilities of a change in tax rates are included in net earnings in the period that the laws have been enacted or substantially enacted. Deferred tax assets are recognized to the extent that it is probable that the assets can be recovered.Estimation of income taxes includes evaluating the recoverability of deferred tax assets based on an assessment of the Company's ability to utilize the underlying future tax deductions against future taxable income before they expire. As described above, the Company's assessment is based upon substantially enacted tax rates and laws that are expected to apply when the assets are expected to be realized, as well as on estimates of future taxable income. If the assessment of the Company's ability to utilize the underlying future tax deductions changes, the Company would be required to recognize more or fewer of the tax deductions or assets, which would decrease or increase the income tax expense in the period in which this is determined. Deferred income tax assets are recognized on the statement of financial position under non-current assets, irrespective of the expected date of realization or settlement.Significant judgment is required in determining the provision for taxation. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Company assesses the need for provisions for uncertain tax positions using best estimates of the amounts that would be expected to be paid based on a qualitative assessment of all relevant factors. However, it is possible that at some future date an additional liability could result from audits by taxation authorities. Where the final outcome of these matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such determination is made.(r) Earnings per share: Basic earnings per share is calculated by dividing the net earnings available to shareholders by the weighted average number of shares outstanding during the year (see Note 11(c)). Diluted earnings per share is calculated using the treasury stock method, which assumes that all outstanding stock options with an exercise price below the average monthly market price of the Subordinate Voting Shares on the TSX are exercised and the assumed proceeds are used to purchase the Company's Subordinate Voting Shares at the average monthly market price on the TSX during the fiscal year. (s) Share capital: Subordinate Voting Shares are classified as equity. When Subordinate Voting Shares are purchased for cancellation, the carrying amount of the Subordinate Voting Shares is recognized as a deduction from share capital. The excess of the purchase price over the carrying amount of the Subordinate Voting Shares is charged to retained earnings.(t) New standards and interpretations not yet adopted: A number of new standards, amendments to standards and interpretations that are or may be applicable to the Company have been issued but are not yet effective for the financial year ending June 30, 2012, and accordingly, have not been applied in preparing these consolidated financial statements. (i) Financial InstrumentsThe IASB has issued a new standard, IFRS 9, "Financial Instruments" ("IFRS 9"), which will ultimately replace IAS 39, "Financial Instruments: Recognition and Measurement" ("IAS 39"). The replacement of IAS 39 is a multi-phase project with the objective of improving and simplifying the reporting for financial instruments and the issuance of IFRS 9 is a part of the first phase. This standard becomes effective on January 1, 2015 and must be applied retrospectively. The Company has yet to assess the impact of the new standard on its statements of financial position, earnings (loss) and disclosures.(ii) Fair ValueThe IASB has issued a new standard, IFRS 13, "Fair Value Measurement" ("IFRS 13"), which is a comprehensive standard for fair value measurement and disclosure requirements for use across all IFRS standards. The new standard is effective for annual periods beginning on or after January 1, 2013 and clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. It also establishes disclosures about fair value measurement. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and in many cases does not reflect a clear measurement basis or consistent disclosures. The Company does not currently believe that this new standard will have a material impact on its consolidated financial statements. Cash and Cash Equivalents:The components of cash and cash equivalents are as follows:June 30, 2012June 25, 2011June 27, 2010Cash$34,332$4,625$11,569Bankers acceptances-24,07314,994Cash and cash equivalents$34,332$28,698$26,563Inventories:June 30, 2012June 25, 2011June 27, 2010Raw materials$2,644$2,655$1,451Work-in-process183265105Finished goods22,06426,04424,983$24,891$28,964$26,539Year EndedJune 30, 2012June 25, 2011Cost of inventory recognized as an expense$70,739$70,439Write-downs of inventory due to net realizable value being lower than cost$1,746$1,549Write-downs recognized in previous periods that were reversed$174$45Fourth Quarter EndedJune 30, 2012June 25, 2011Cost of inventory recognized as an expense$14,250$11,663Write-downs of inventory due to net realizable value being lower than cost$323$533Write-downs recognized in previous periods that were reversed$171$24Property and Equipment:Year Ended June 30, 2012LandBuildingRoofHVACLeasehold ImprovementsFurniture & EquipmentComputer HardwareTotalCostAt June 25, 2011$1,000$6,063$308$753$23,453$8,985$3,180$43,742Additions---402,6329773253,974Disposals----(3,877)(874)(119)(4,870)At June 30, 2012$1,000$6,063$308$793$22,208$9,088$3,386$42,846Accumulated amortization and impairment lossesAt June 25, 2011-$2,198$184$531$17,968$6,232$2,225$29,338Amortization for the period-15617471,7229593993,300Impairment losses----624-66Disposals----(3,877)(874)(119)(4,870)At June 30, 2012-$2,354$201$578$15,875$6,321$2,505$27,834Net carrying valueAt June 30, 2012$1,000$3,709$107$215$6,333$2,767$881$15,012At June 25, 2011$1,000$3,865$124$222$5,485$2,753$955$14,404Capital work in progress included aboveAt June 30, 2012----$472$106-$578Year Ended June 25, 2011LandBuildingRoofHVACLeasehold ImprovementsFurniture & EquipmentComputer HardwareTotalCostAt June 27, 2010$1,000$6,063$308$693$23,574$8,504$3,110$43,252Additions---609297794622,230Disposals----(1,050)(298)(392)(1,740)At June 25, 2011$1,000$6,063$308$753$23,453$8,985$3,180$43,742Accumulated amortization and impairment lossesAt June 27, 2010-$2,036$169$481$17,068$5,684$2,152$27,590Amortization for the period-16215501,8948044653,390Impairment losses----5642-98Disposals----(1,050)(298)(392)(1,740)At June 25, 2011-$2,198$184$531$17,968$6,232$2,225$29,338Net carrying valueAt June 25, 2011$1,000$3,865$124$222$5,485$2,753$955$14,404At June 27, 2010$1,000$4,027$139$212$6,506$2,820$958$15,662Capital work in progress included aboveAt June 25, 2011----$41$36-$77At June 27, 2010----$29$17-$46The Company conducted an impairment test for its property and equipment and determined that there was an impairment at one of its stores, which was under-performing, in the amount of $66 for the year ended June 30, 2012 ($98 for the year ended June 25, 2011) and recorded in SG&A. The recoverable amount of the CGU was estimated based on value-in-use calculations as this was determined to be higher than fair value less costs to sell. These calculations use cash flow projections based on actual performance during the past 12 months which are then extrapolated over each CGU's remaining lease term and then discounted using an estimated discount rate. The key assumptions for the value-in-use calculations include discount rates, growth rates and expected cash flows. Management estimates discount rates using pre-tax rates that reflect a current market assessment of the time value of money and the risks specific to the CGUs. Changes in revenues and direct costs are based on past experience and expectations of future changes in the market. The pre-tax discount rate used to calculate the value-in-use range is 11% and is dependent on the specific risks in relation to the CGU. The discount rate is derived from retail industry comparable post-tax weighted average cost of capital.If management's cash flow estimate were to decrease by 10% or if the discount rate were to increase by 100 basis points, the impairment for the year ended June 30, 2012 would remain unchanged (unchanged for the year ended June 25, 2011). Computer Software:Year EndedJune 30, 2012June 25, 2011CostBeginning of fiscal year$4,041$4,169Additions52160Disposals(99)(288)End of period$3,994$4,041Accumulated amortizationBeginning of fiscal year$2,987$2,752Amortization for the period380523Disposals(99)(288)End of period$3,268$2,987Net carrying valueEnd of period$726$1,054Beginning of fiscal year$1,054$1,417Bank Facilities:The Company has an operating credit facility for working capital and for general corporate purposes to a maximum amount of $25 million that is committed until June 27, 2014 and bears interest at prime plus 0.75%. Standby fees of 0.50% are paid on a quarterly basis for any unused portion of the operating credit facility. The operating credit facility is subject to certain covenants and other limitations that, if breached, could cause a default and may result in a requirement for immediate repayment of amounts outstanding. Security provided includes a security interest over all personal property of the Company's business and a mortgage over the land and building comprising the Company's head office/distribution facility. The Company also has an uncommitted letter of credit facility (the "LC Facility") to a maximum amount of $10 million and an uncommitted demand overdraft facility in the amount of $0.5 million to be used exclusively for issuance of letters of credit for the purchase of inventory. Any amounts outstanding under the overdraft facility will bear interest at the bank's prime rate. The LC Facility is secured by the Company's personal property from time to time financed with the proceeds drawn thereunder.Payables and Accruals:June 30, 2012June 25, 2011June 27, 2010Trade payables$1,482$1,633$2,365Accruals5,7876,5067,472RSU/DSU liability2,3741,8971,823Commodity and capital taxes489777747Derivative financial instrument-140-Other current liabilities297136$10,161$11,024$12,443Sales Return Provision:The provision for sales returns primarily relates to customer returns of unworn and undamaged purchases for a full refund within the time period provided by Danier's return policy, which is generally 14 days after the purchase date. Since the time period of the provision is of relatively short duration, all of the provision is classified as current. The following transactions occurred during the fourth quarters and years ended June 30, 2012 and June 25, 2011, respectively, with respect to the sales return provision:Fourth Quarter EndedYear EndedJune 30, 2012June 25, 2011June 30, 2012June 25, 2011Beginning of period$98$128$47$-Amount provided during the period124471,7991,687Released during the period(98)(128)(1,722)(1,640)End of period$124$47$124$47Share Capital:Authorized 1,224,329 Multiple Voting SharesUnlimited Subordinate Voting SharesUnlimited Class A and B Preference SharesIssued Multiple Voting SharesNumberConsiderationBalance June 27, 20101,224,329NominalBalance June 25, 20111,224,329NominalBalance June 30, 20121,224,329NominalSubordinate Voting SharesNumberConsiderationBalance June 27, 20103,343,840$14,176Shares repurchased(75,000)(329)Shares issued upon exercising of stock options184,9661,313Balance June 25, 20113,453,806$15,160Shares repurchased(50,000)(219)Shares issued upon exercising of stock options18,76799Balance June 30, 20123,422,573$15,040The Multiple Voting Shares and Subordinate Voting Shares have identical attributes except that the Multiple Voting Shares entitle the holder to ten votes per share and the Subordinate Voting Shares entitle the holder to one vote per share. Each Multiple Voting Share is convertible at any time, at the holder's option, into one fully paid and non-assessable Subordinate Voting Share. The Multiple Voting Shares are subject to provisions whereby, if a triggering event occurs, then each Multiple Voting Share is converted into one fully paid and non-assessable Subordinate Voting Share. A triggering event may occur if, among other things, Mr. Jeffrey Wortsman, President and Chief Executive Officer: (i) dies; (ii) ceases to be a Senior Officer of the Company; (iii) ceases to own 5% or more of the aggregate number of Multiple Voting Shares and Subordinate Voting Shares outstanding; or (iv) owns less than 918,247 Multiple Voting Shares and Subordinate Voting Shares combined. Earnings per share Basic and diluted per share amounts are based on the following weighted average number of shares outstanding:Fiscal Year EndedJune 30, 2012June 25, 2011Weighted average number of shares for basic earnings per share calculations4,638,8294,673,944Effect of dilutive options outstanding155,526215,109Weighted average number of shares for diluted earnings per share calculations4,794,3554,889,053Fourth Quarter EndedJune 30, 2012June 25, 2011Weighted average number of shares for basic earnings per share calculations4,637,5464,738,368Effect of dilutive options outstanding155,365178,470Weighted average number of shares for diluted earnings per share calculations4,792,9114,916,838The computation of dilutive options outstanding only includes those options having exercise prices below the average market price of Subordinate Voting Shares on the TSX during the period. The number of options excluded was 62,000 as at June 30, 2012 and 58,000 as at June 25, 2011.Normal Course Issuer Bids During the past several years, the Company has received approval from the TSX to commence various normal course issuer bids ("NCIBs"). On May 5, 2011, the Company received approval from the TSX to commence its fifth normal course issuer bid (the "2011 NCIB"). The 2011 NCIB permitted the Company to acquire up to 176,440 Subordinate Voting Shares, representing approximately 5% of the Company's issued and outstanding Subordinate Voting Shares at the date of acceptance of the notice of intention in respect of the 2011 NCIB filed with the TSX during the period from May 9, 2011 to May 8, 2012, or such earlier date as the Company may have completed its purchases under the 2011 NCIB. The 2011 NCIB expired on May 8, 2012 without being renewed. During the fourth quarter of fiscal 2011 and the first quarter of fiscal 2012, the Company repurchased an aggregate of 125,000 Subordinate Voting Shares for cancellation at a weighted average price of $11.44.The following Subordinate Voting Shares were repurchased for cancellation under the NCIBs in effect during the years ended June 30, 2012 and June 25, 2011, respectively:Year EndedJune 30, 2012June 25, 2011Number of shares repurchased under NCIBs50,00075,000Amount charged to share capital$219$329Amount charged to retained earnings representing the excess over the average paid-in value$311$571Total cash consideration$530$900Stock option plan The Company maintains a Stock Option Plan, as amended, for the benefit of directors, officers, employees and service providers, pursuant to which granted options are exercisable for Subordinate Voting Shares. As at June 30, 2012, the Company has reserved 620,167 Subordinate Voting Shares for issuance under its Stock Option Plan. The granting of options and the related vesting periods are at the discretion of the Board of Directors, on the advice of the Governance, Compensation, Human Resources and Nominating Committee of the Board (the "Committee"), at exercise prices determined as the weighted average of the trading prices of the Company's Subordinate Voting Shares on the TSX for the five trading days preceding the effective date of the grant. In general, options granted to officers, employees and service providers under the Stock Option Plan typically vest over a period of between three years and four years from the grant date and expire no later than the tenth anniversary of the date of grant (subject to extension in accordance with the Stock Option Plan if the options would otherwise expire during a black-out period). A summary of the status of the Company's Stock Option Plan as of June 30, 2012 and June 25, 2011 and changes during the fiscal years ended on those dates is presented below:June 30, 2012June 25, 2011Stock OptionsSharesWeighted Average Exercise PriceSharesWeighted Average Exercise PriceOutstanding at beginning of year348,434$6.65553,400$6.19Granted28,100$10.68--Exercised(18,767)$3.44(184,966)$4.87Forfeited--(20,000)$10.40Outstanding at end of year357,767$7.14348,434$6.65Options exercisable at end of year329,667$6.84238,429$8.25The following table summarizes the distribution of these options and the remaining contractual life as at June 30, 2012:Options OutstandingOptions ExercisableExercise Prices# OutstandingWeighted Average Remaining Contractual LifeWeighted Average Exercise Price# of Shares ExercisableWeighted Average Exercise Price$3.15157,6676.3 years$3.15157,667$3.15$6.2550,0006.0 years$6.2550,000$6.25$7.8045,0004.6 years$7.8045,000$7.80$8.6815,0004.8 years$8.6815,000$8.68$10.6828,10010.0 years$10.68-$10.68$10.964,0001.1 years$10.964,000$10.96$15.8558,0000.1 years$15.8558,000$15.85357,7675.2 years$7.14329,667$6.84During the year ended June 30, 2012, the Company granted 28,100 stock options with an exercise price of $10.68 per stock option. The Black-Scholes Options Pricing Model was used to determine the estimated fair value of the options granted on the date of grant. The fair value was estimated to be $5.34 based on the following assumptions: a risk free rate of 1.75%; expected volatility of 38%; dividend yield of 0%; previous 5 day weighted average share price of $10.68 at date of grant; and an expected life of 10 years. There were no stock options granted during the year ended June 25, 2011. The Black-Scholes Option Pricing Model was developed for use in estimating the fair value of traded options, which have no black-out or vesting restrictions and are fully transferable. In addition, the Black-Scholes Option Pricing Model requires the use of subjective assumptions, including the expected stock price volatility. As a result of the Company's Stock Option Plan having characteristics different from those of traded options, and because changes in the subjective assumptions can have a material effect on the fair value estimate, the Black-Scholes Option Pricing Model does not necessarily provide a reliable single measure of the fair value of options granted.Expected volatility was determined by calculating the historical volatility of the Company's share price over a period equal to the expected life of the options. The expected life was based on the contractual life of the awards and adjusted, based on management's best estimate, for the effects of exercise restrictions and behaviour considerations.The compensation expense recorded for the year ended June 30, 2012 in respect of stock options was $25 (June 25, 2011 - $93). The counterpart is recorded as contributed surplus. Any consideration paid by optionees upon the exercise of stock options is credited to share capital.Deferred Share Unit Plan The cash-settled Deferred Share Unit ("DSU") Plan, as amended, was established for non-management directors. Under the DSU Plan, non-management directors of the Company may receive an annual grant of DSUs at the discretion of the Board of Directors on the advice of the Committee, and can also elect to receive their annual retainers and meeting fees in DSUs. A DSU is a notional unit equivalent in value to one Subordinate Voting Share of the Company based on the five-day average high and low board lot trading prices of the Company's Subordinate Voting Shares on the TSX immediately prior to the date on which the value of the DSU is determined. Only after retirement from the Board of Directors, a participant in the DSU Plan receives a cash payment equal to the market value of the accumulated DSUs in their account. The fair value of the liability is measured at each financial position date by applying the Black-Scholes Option Pricing Model until the award is settled.The following transactions occurred during each of the fourth quarters and years ended June 30, 2012 and June 25, 2011, respectively, with respect to the DSU Plan:Fourth Quarter EndedYear EndedJune 30, 2012June 25, 2011June 30, 2012June 25, 2011Outstanding at beginning of period103,920103,920103,920103,920Granted----Redeemed----Outstanding at end of period103,920103,920103,920103,920Danier stock price at end of period$10.55$11.00$10.55$11.00Liability at end of period$1,096$1,143$1,096$1,143Compensation expense recorded in SG&A$(82)$(161)$(47)$222Restricted Share Unit Plan The Company has established a cash-settled Restricted Share Unit ("RSU") Plan, as amended, as part of its overall compensation plan. An RSU is a notional unit equivalent in value to one Subordinate Voting Share of the Company. The RSU Plan is administered by the Board of Directors, with the advice of the Committee. Under the RSU plan, certain eligible officers, employees and directors of the Company are eligible to receive a grant of RSUs that generally vest over periods not exceeding three years, as determined by the Committee. Upon the exercise of the vested RSUs, a cash payment equal to the market value of the exercised vested RSUs will be paid to the participant. The market value is based on the average daily closing prices of the Subordinate Voting Shares on the TSX immediately prior to the applicable payment date. RSU expense is recognized on a graded vesting schedule and is determined based on the fair value of the liability incurred at each financial position date until the award is settled. The fair value of the liability is measured by applying the Black-Scholes Option Pricing Model, taking into account the extent to which participants have rendered services to date. The following transactions occurred during each of the fourth quarters and years ended June 30, 2012 and June 25, 2011, respectively, with respect to the RSU Plan:Fourth Quarter EndedYear EndedJune 30, 2012June 25, 2011June 30, 2012June 25, 2011Outstanding at beginning of period166,770134,997122,300105,479Granted4,700-65,800122,300Redeemed-(12,697)(16,130)(104,479)Forfeited(3,934)-(4,434)(1,000)Outstanding at end of period167,536122,300167,536122,300RSUs vested at end of period16,300-16,300-Liability at end of period$1,278$754$1,278$754Compensation expense recorded in SG&A$76$121$697$1,250Amortization:Amortization, which includes impairment loss on property and equipment, included in cost of sales and SG&A is summarized as follows:Fourth Quarter EndedYear EndedJune 30, 2012June 25, 2011June 30, 2012June 25, 2011Cost of sales$46$97$188$245SG&A9197533,5583,766End of period$965$850$3,746$4,011Income Taxes:The Company's income tax expense is comprised as follows:June 30, 2012June 25, 2011Current tax expenseCurrent period$1,768$3,178Adjustment for prior years(14)(77)Current tax expense$1,754$3,101Deferred tax expenseRecognition and reversal of temporary differences$(205)$7Changes in tax rates(23)23Adjustment for prior years and other(2)9Deferred tax expense$(230)$39Total income tax expense$1,524$3,140The Company's effective income tax rate consists of the following: June 30, 2012June 25, 2011Combined basic federal and provincial average statutory rate27.2%29.1%Non-deductible expenses0.9%0.9%Future federal and provincial rate changes(0.4%)0.2%Adjustment for prior years(0.3%)(0.7%)Other0.2%(0.2%)27.6%29.3%Deferred income tax asset is summarized as follows:June 30, 2012June 25, 2011June 27, 2010Amortization$913$825$888Deferred lease inducements and rent liability362337354Other deferred expenses7--Stock based compensation627516475$1,909$1,678$1,717Changes in Working Capital Items:Fourth Quarter EndedYear EndedJune 30, 2012June 25, 2011June 30, 2012June 25, 2011Decrease (increase) in:Accounts receivable338631(132)158Inventories3,4922,1744,073(2,425)Prepaid expenses(295)(397)69374Increase (decrease) in:Payables and accruals(492)(2,554)(863)(1,419)Deferred revenue(312)(457)(26)(139)Sales return provision26(81)7747$2,757$(684)$3,198$(3,404)Contingencies and Guarantees:Legal proceedings In the course of its business, the Company from time to time becomes involved in various claims and legal proceedings. In the opinion of management, all such claims and suits are adequately covered by insurance, or if not so covered, the results are not expected to materially affect the Company's financial position.Guarantees The Company has provided the following guarantees to third parties and no amounts have been accrued in the consolidated financial statements for these guarantees:In the ordinary course of business, the Company has agreed to indemnify its lenders under its credit facilities against certain costs or losses resulting from changes in laws and regulations or from a default in repaying a borrowing. These indemnifications extend for the term of the credit facilities and do not provide any limit on the maximum potential liability. Historically, the Company has not made any indemnification payments under such agreements. In the ordinary course of business, the Company has provided indemnification commitments to certain counterparties in matters such as real estate leasing transactions, director and officer indemnification agreements and certain purchases of non-inventory assets and services. These indemnification agreements generally require the Company to compensate the counterparties for costs or losses resulting from legal action brought against the counterparties related to the actions of the Company. The terms of these indemnification agreements will vary based on the contract and generally do not provide any limit on the maximum potential liability. The Company sublet one location during the first quarter of fiscal 2011 and provided the landlord with a guarantee in the event the sub-tenant defaults on its obligations under the lease. The guarantee terminates at the time of lease expiry, which is March 31, 2013, and the Company's maximum exposure is approximately $105. Commitments:Operating leases: The Company leases various store locations, a distribution warehouse and equipment under non-cancellable operating lease agreements. The leases are classified as operating leases since there is no transfer of risks and rewards inherent to ownership. The leases have varying terms, escalation clauses and renewal rights. Minimum lease payments are recognized on a straight-line basis. Leases run for varying terms that generally do not exceed 10 years, with options to renew (if any) that do not exceed 5 years. The majority of leases are net leases, which require additional payments for the cost of insurance, taxes, common area maintenance and utilities. Certain rental agreements include contingent rent, which is based on revenue exceeding a minimum amount. Minimum rentals, excluding rentals based upon revenue, are as follows:Not later than one year$9,734Later than one year and not later than five years$24,277Later than 5 years$10,620Total$44,631Minimum lease payments, contingent rentals and sublease payments recognized as an expense are summarized as followsFourth Quarter EndedYear EndedJune 30, 2012June 25, 2011June 30, 2012June 25, 2011Minimum lease payments$2,700$2,796$11,062$11,141Contingent rentals$(43)$(86)186$165Sublease payments----Letters of credit: As at June 30, 2012, the Company had outstanding letters of credit in the amount of $6,303 (June 25, 2011 - $11,827) for the importation of finished goods inventories to be received.Financial Instruments:Fair value disclosure The following table presents the carrying amount and the fair value of the Company's financial instruments. June 30, 2012June 25, 2011ClassificationMaturityCarrying valueFair valueCarrying valueFair valueCash and cash equivalentsLoans and receivablesShort-term$34,332$34,332$28,698$28,698Accounts receivableLoans and receivablesShort-term$345$345$385$385Payables and accrualsFinancial liabilitiesShort-term$10,161$10,161$10,884$10,884Sales return provisionFinancial liabilitiesShort-term$124$124$47$47Derivative financial instruments(1)Fair value through profit and lossShort-term$172$172($140)($140)(1) Included in accounts receivable for the fiscal year ended June 30, 2012 and included in payables and accruals for the fiscal year ended June 25, 2011.The fair value of a financial instrument is the estimated amount that the Company would receive or pay to settle the financial assets and financial liabilities as at the reporting date. These estimates are subjective in nature, often involve uncertainties and the exercise of significant judgment and are made at a specific point in time, using available information about the financial instrument and may not reflect fair value in the future. The estimated fair value amounts can be materially affected by the use of different assumptions or methodologies.The principal methodologies and assumptions used in estimating the fair value of the Company's financial instruments are as follows: The derivative financial instruments, which consist of foreign exchange contracts, have been marked-to-market and are categorized as Level 2 in the fair value hierarchy. Factors included in the determination of fair value include the spot rate, forward rates, estimates of volatility, present value factor, strike prices, credit risk of the Company and credit risk of counterparties. As at June 30, 2012, a $172 unrealized gain (June 25, 2011 - $140 unrealized loss) was recorded in SG&A for the foreign exchange contracts outstanding. The fair value of cash equivalents is determined using Level 2 inputs in the fair value hierarchy, which include interest rates for similar instruments which are obtained from independent publications and market exchanges. Given their short-term maturity, the fair value of cash, accounts receivable, payables and accruals and sales return provision approximate their carrying values. Financial instrument risk management Exposure to foreign currency risk, interest rate risk, equity price risk, liquidity risk and credit risk arise in the normal course of the Company's business and are discussed further below: Foreign Currency Risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign currency exchange rates. The Company purchases a significant portion of its leather and finished goods inventory from foreign vendors with payment terms in U.S. dollars. The Company uses a combination of foreign exchange contracts and spot purchases to manage its foreign exchange exposure on cash flows related to these purchases. A foreign exchange contract represents an option with a counterparty to buy or sell a foreign currency to meet its obligations. Credit risk exists in the event of a failure by a counterparty to fulfill its obligations. The Company reduces this risk by dealing only with highly-rated counterparties such as major Canadian financial institutions. During the fourth quarters and years ended June 30, 2012 and June 25, 2011, the Company entered into foreign exchange contracts with a major Canadian financial institution as counterparty with U.S. dollar notional amounts as listed below. Foreign exchange contracts outstanding as at June 30, 2012 expire at various times between July 5, 2012 and September 24, 2013 and the foreign exchange contracts that were outstanding as at June 25, 2011 expired between July 15, 2011 and December 16, 2011. Fourth Quarter EndedYear EndedJune 30, 2012June 25, 2011June 30, 2012June 25, 2011Notional amount outstanding at beginning of period (US$000)$16,000$20,000$18,500$15,000Notional amount of foreign exchange contracts entered into during the period (US$000)6,000-26,00030,500Notional amount of foreign exchange contracts expired during the period (US$000)(1,000)(1,500)(23,500)(27,000)Notional amount outstanding at end of period (US$000)$21,000$18,500$21,000$18,500Maturing in less than 1 year (US$000)$15,000$18,500$15,000$18,500Maturing from 1 to 2 years (US$000)$6,000-$6,000-Fair value of foreign exchange contracts - gain/(loss) - (CDN$000)$172$(140)$172$(140)As at June 30, 2012, a sensitivity analysis was performed on the Company's U.S. dollar denominated financial instruments, which principally consist of US$2.6 million of cash, to determine how a change in the U.S. dollar exchange rate would impact net earnings. A 500 basis point rise or fall in the Canadian dollar against the U.S. dollar, assuming that all other variables, in particular interest rates, remain the same, would have resulted in a $0.1 million decrease or increase in the Company's net earnings for the year ended June 30, 2012. Liquidity Risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company's approach to managing liquidity risk is to ensure, to the extent possible, that it will have sufficient liquidity to meet its liabilities when due. As at June 30, 2012, the Company had $34.3 million of cash and cash equivalents; an operating credit facility of $25 million that is committed until June 27, 2014; and a $10 million uncommitted letter of credit facility which includes an uncommitted demand overdraft facility in the amount of $0.5 million related thereto. The credit facilities are used to finance seasonal working capital requirements for merchandise purchases and other corporate purposes. The Company expects that the majority of its payables and accruals and deferred revenue will be discharged within 90 days. Interest Rate Risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company's exposure to interest rate fluctuations is primarily related to cash borrowings under its existing credit facility, which bears interest at floating rates, and interest earned on its cash balances. The Company has performed a sensitivity analysis on interest rate risk at June 30, 2012 to determine how a change in interest rates would have impacted net earnings. As at June 30, 2012, the Company's cash and cash equivalents available for investment was approximately $34.3 million. A 100 basis point change in interest rates would have increased or decreased net earnings by approximately $0.2 million for the year ended June 30, 2012. This analysis assumes that all other variables, in particular foreign currency exchange rates, remain constant. Equity Price Risk Equity price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market equity prices. The Company's exposure to equity price fluctuations is primarily related to the RSU and DSU liability included in payables and accruals. The value of the vested DSU and RSU liability is adjusted to reflect changes in the market value of the Company's Subordinate Voting Shares on the TSX. The Company has performed a sensitivity analysis on equity price risk as at June 30, 2012 to determine how a change in the price of the Company's Subordinate Voting Shares would have impacted net earnings. As at June 30, 2012, a total of 167,536 RSUs and 103,920 DSUs have been granted and are outstanding. An increase or decrease of $1.00 in the market price of the Company's Subordinate Voting Shares would have increased or decreased net earnings by approximately $0.2 million for the year ended June 30, 2012. This analysis assumes that all RSUs and DSUs were fully vested and all other variables remain constant. Credit Risk Credit risk is the risk that a customer or counterparty to a financial instrument will cause a financial loss to the Company by failing to meet its obligations. The Company's financial instruments that are exposed to concentrations of credit risk are primarily cash and cash equivalents (which includes cash and money market investments with maturities of three months or less), accounts receivable and foreign exchange option contracts. The Company limits its exposure to credit risk with respect to cash and money market investments by investing in short-term deposits and bankers' acceptances with major Canadian financial institutions and Government of Canada treasury bills. The Company's accounts receivable consist primarily of credit card receivables from the last few days of the fiscal period end, which are settled within the first few days of the new fiscal period. Accounts receivable also consist of accounts receivable from distributors and corporate customers. Accounts receivable are net of applicable allowance for doubtful accounts, which is established based on the specific credit risks associated with the distributor and each corporate customer and other relevant information. The allowance for doubtful accounts is assessed on a quarterly basis. Concentration of credit risk with respect to accounts receivable from distributors and corporate customers is limited due to the relatively insignificant balances outstanding and the number of different customers comprising the Company's customer base. Credit risk for foreign exchange option contracts exists in the event of a failure by a counterparty to fulfill its obligations. The Company reduces this risk by dealing only with highly-rated counterparties such as major Canadian financial institutions.As at June 30, 2012, the Company's exposure to credit risk for these financial instruments was cash and cash equivalents of $34.3 million, accounts receivable of $0.5 million and foreign exchange option contracts that had a notional value of US$21.0 million.Capital Disclosure:The Company defines its capital as shareholders' equity. The Company's objectives in managing capital are to:Ensure sufficient liquidity to support its current operations and execute its business plans; Enable the internal financing of capital projects; and Maintain a strong capital base so as to maintain investor, creditor and market confidence. The Company's primary uses of capital are to finance non-cash working capital along with capital expenditures for new store additions, existing store renovation or relocation projects, information technology software and hardware purchases and production machinery and equipment purchases. The Company maintains a $25 million operating credit facility and a $10 million uncommitted LC Facility that it uses to finance seasonal working capital requirements for merchandise purchases and other corporate purposes. The Company does not have any long-term debt and therefore net earnings generated from operations are available for reinvestment in the Company. The Board of Directors does not establish quantitative return on capital criteria for management, but rather promotes year-over-year sustainable profitable growth. On a quarterly basis, the Board of Directors monitors share repurchase program activities. Decisions on whether to repurchase shares are made on a specific transaction basis and depend on the Company's cash position, estimates of future cash requirements, market prices and regulatory restrictions. The Company does not currently pay dividends. Externally imposed capital requirements include a debt-to-equity ratio covenant as part of the operating credit facility. The Company was in compliance with this covenant as at June 30, 2012 and June 25, 2011. There has been no change with respect to the overall capital risk management strategy during the year ended June 30, 2012. Segmented Information:Management has determined that the Company operates in one dominant industry which involves the design, manufacture, distribution and retail of fashion leather clothing and accessories. Related Parties:Key management personnel are those individuals having authority and responsibility for planning, directing and controlling the activities of the Company, including members of the Company's Board of Directors. The Company considers key management to be the Company's Board of Directors and its five most highly compensated executive officers. Compensation awarded to key management included:Year EndedJune 30, 2012June 25, 2011Salaries and short-term benefits$2,068$2,724Termination benefits--Share-based compensation5451,339$2,613$4,063The Company's subsidiaries are described in Note 3(b).Expense Analysis:Selling, general and administrative expenses include the following:Year EndedJune 30, 2012June 25, 2011Selling expense$56,428$57,945General and administrative expense14,92917,673$71,357$75,618Selling expense comprises costs incurred to operate the Company's stores including wages and benefits for store management and staff, rent and occupancy, advertising, credit card fees, amortization of store property and equipment and computer software and other store operating expenses.General and administrative expense includes the cost of design, merchandising, sourcing, merchandise planning, marketing, store administrative support, finance, loss prevention, information technology, human resource and executive functions. Employee Benefits Expense:Selling, general and administrative expenses include the following:Year EndedJune 30, 2012June 25, 2011Wages, salaries and bonus$25,732$26,529Short-term benefits expense3,8663,816Termination benefits65113Share-based compensation6751,564$30,338$32,022Transition to IFRS:These are the Company's first annual financial statements prepared in accordance with IFRS. The Company has applied IFRS 1, First-time Adoption of International Financial Reporting Standards ("IFRS 1") and the accounting policies set out in note 3 have been applied in preparing the financial statements for the year ended June 30, 2012, the comparative information presented in these financial statements for the year ended June 25, 2011, and in preparation of the opening IFRS balance sheet at June 27, 2010, which is the Company's Transition Date.In preparing these consolidated financial statements in accordance with IFRS 1, the Company has adjusted amounts reported previously in the financial statements prepared in accordance with Canadian GAAP. An explanation of how the transition from Canadian GAAP to IFRS has affected the Company's previously reported financial statements as at and for the year ended June 25, 2011 and as at June 27, 2010 is described in the following tables and the notes that accompany the tables.IFRS 1 requires first-time adopters to retrospectively apply all effective IFRS standards as of the reporting date, which for the Company is June 30, 2012. However, IFRS provides for certain optional exemptions and certain mandatory exceptions for first time IFRS adopters.Initial elections upon adoptionSet forth below are the IFRS 1 applicable exemptions and exceptions applied in the conversion from Canadian GAAP to IFRS.Share-based payments - IFRS 2, Share-based Payments ("IFRS 2"), encourages the application of its provisions to equity instruments granted on or before November 7, 2002, but permits the application only to equity instruments granted after November 7, 2002 that had not vested by the Transition Date. The Company elected to use this exemption provided under IFRS 1 and applied IFRS 2 for all equity-settled stock options and cash-settled RSUs and DSUs granted after November 7, 2002 that had not vested by its Transition Date. As a result of the transition method elected, the Company recognized additional compensation expense through retained earnings with corresponding impacts to contributed surplus, payables and accruals and deferred income tax asset. Deemed cost of property and equipment - The Company may elect to measure an item of property and equipment at the date of transition to IFRS at its fair value and use the fair value as its deemed cost at that date. The Company elected not to use this election and will continue to value its property and equipment at cost less accumulated amortization and accumulated impairment losses. Business combinations - The Company has elected not to apply the requirements of IFRS 3, Business Combinations ("IFRS 3") retrospectively to business combinations that occurred prior to the Transition Date. Under the business combinations exemption, the carrying amounts of the assets acquired and liabilities assumed under Canadian GAAP at the date of the acquisition became their deemed carrying amount under IFRS at that date. In addition, any goodwill arising on such business combinations would remain at the carrying value determined under Canadian GAAP. The Company did not have any goodwill on the Transition Date. Borrowing costs - IAS 23, Borrowing Costs ("IAS 23"), allows the Company to prospectively adopt IAS 23, which requires the capitalization of borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to ready for its intended use or sale. The Company has elected to apply the requirements of IAS 23 prospectively beginning on the Transition Date of June 27, 2010. Estimates - Hindsight is not used to create or revise estimates. The estimates previously made by the Company under Canadian GAAP were not revised for application of IFRS except where necessary to reflect any difference in accounting policies. IFRS 1 requires an entity to reconcile equity, comprehensive income and cash flows for prior periods. The Company's first time adoption of IFRS did not have an impact on the total operating, investing or financing cash flows. The following represents the reconciliations from Canadian GAAP to IFRS for the respective period noted for the consolidated statements of financial position, consolidated statements of earnings and comprehensive earnings and total shareholders' equity.Material Adjustments to Consolidated Statements of Cash FlowIFRS requires cash flows from interest received, interest paid and income taxes paid to be disclosed directly in the consolidated statements of cash flow. Under Canadian GAAP, the Company disclosed interest and income taxes paid as supplementary cash flow information. This has resulted in a change to the presentation of the consolidated statements of cash flow for all periods presented in these consolidated financial statements. There are no other material differences between the Company's statements of cash flow presented under IFRS and the statements of cash flow presented under Canadian GAAP.Reconciliation of Consolidated Statements of Financial Position as previously reported under Canadian GAAP to IFRSJune 25, 2011June 27, 2010NotesCdn GAAPAdjIFRSCdn GAAPAdjIFRSAssetsCurrent assetsCash28,698-28,69826,563-26,563Accounts receivable385-385543-543Income taxes recoverable------Inventories28,964-28,96426,539-26,539Prepaid expenses901-9011,140-1,140Deferred income tax assetd422(422)-456(456)-59,370(422)58,94855,241(456)54,785Non-current assetsProperty and equipmentb,c15,061(657)14,40416,349(687)15,662Computer software1,054-1,0541,417-1,417Deferred income tax assetd,e9926861,6781,0646531,71776,477(393)76,08474,071(490)73,581LiabilitiesCurrent liabilitiesPayables and accrualsa,f12,217(1,193)11,02414,005(1,562)12,443Deferred revenuef-1,4891,4891,6281,628Sales return provisiong-4747---Income tax payable278-2783,900-3,900Deferred income tax liabilityd------12,49534312,83817,9056617,971Non-current liabilitiesDeferred lease inducements and rent liability1,318-1,3181,345-1,34513,81334314,15619,2506619,316EquityShare capital15,160-15,16014,176-14,176Contributed surplusa898369341,1061461,252Retained earningsh46,606(772)45,83439,539(702)38,83762,664(736)61,92854,821(556)54,26576,477(393)76,08474,071(490)73,581Reconciliation of Consolidated Statement Income and Comprehensive Income as previously reported under Canadian GAAP to IFRSYear EndedJune 25, 2011NotesCdn GAAPAdjIFRSRevenue157,621-157,621Cost of salesc71,3331971,352Gross profit86,288(19)86,269Selling, general and administrative expensesa,b,c75,50011875,618Interest income(160)-(160)Interest expense103-103Earnings before tax10,845(137)10,708Provision for income taxe3,207(67)3,140Net earnings and comprehensive earnings for the period7,638(70)7,568Earnings per share:Basic$1.63$1.62Diluted$1.57$1.55Reconciliation of Shareholders' Equity as previously reported under Canadian GAAP to IFRSNotesJune 25, 2011June 27, 2010Total Shareholders' Equity as reported under previous GAAP$62,664$54,821Transitional adjustments:Share-based paymentsa$(343)$(66)Impairmentb$(316)$(381)Property and equipmentc$(341)$(306)Income taxesa,b,c$264$197Total Shareholders' Equity as reported under IFRS$61,928$54,265Notes to the ReconciliationsThe preceding are reconciliations of the financial statements previously presented under Canadian GAAP to the amended financial statements prepared under IFRS. Items in the "Adj" columns included IFRS adjustments that are required as the accounting treatment under Canadian GAAP differs from the treatment under IFRS, as well as IFRS reclassifications which are solely presentation reclassifications required to present the previous Canadian GAAP financial statement line items on a consistent basis with that of the IFRS presentation. Details on the nature of both IFRS adjustments and IFRS reclassifications are described below.Index to the Notes to the ReconciliationsShare based payments Impairment of property and equipment Components of property and equipment Deferred income tax reclassification Deferred income tax adjustments Deferred revenue reclassification Sales return provision reclassification Retained earnings IFRS AdjustmentsUnder IFRS, the Company accrues the cost of employee stock options and RSUs over the vesting period using the graded vesting method of amortization rather than the straight-line method, which was the Company's policy under Canadian GAAP. The effect of this change in accounting is summarized below: Effect on Consolidated Statements of Financial Position: As AtIncrease/(Decrease)June 27, 2010Sept 25, 2010Dec 25, 2010Mar 26, 2011June 25, 2011Deferred income tax asset$19$37$66$83$94Payables and accruals$66$132$238$302$343Contributed surplus$146$131$95$66$36Retained earnings$(193)$(226)$(267)$(285)$(285) Effect on Consolidated Statements of Earnings (Loss) and Comprehensive Earnings (Loss): 13 Week Periods EndedYear EndedIncrease/(Decrease)Sept 25, 2010Dec 25, 2010Mar 26, 2011June 25, 2011June 25, 2011SG&A$51$70$35$11$167Deferred tax expense (recovery)$(18)$(29)$(17)$(11)$(75)IFRS requires asset groups to be tested for impairment at the independent CGU level based on the generation of cash flows which the Company has determined to be at the individual store level. Canadian GAAP allows assets to be grouped together at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities for impairment testing purposes. Since impairment testing under IFRS is conducted at the individual store level compared with a higher level under Canadian GAAP, impairment losses were recognized in selling, general and administrative expenses as summarized below: Effect on Consolidated Statements of Financial Position: As AtIncrease/(Decrease)June 27, 2010Sept 25, 2010Dec 25, 2010Mar 26, 2011June 25, 2011Property and equipment (impairments)$(381)$(381)$(416)$(479)$(479)Property and equipment (accumulated amortization)-$24$48$74$163Deferred income tax asset$99$93$96$105$82Retained earnings$(282)$(264)$(272)$(300)$(234) Effect on Consolidated Statements of Earnings (Loss) and Comprehensive Earnings (Loss): 13 Week Periods EndedYear EndedJune 25, 2011Increase/(Decrease)Sept 25, 2010Dec 25, 2010Mar 26, 2011June 25, 2011SG&A - Impairments-$35$63-$98SG&A - Amortization$(24)$(24)$(26)$(89)$(163)Deferred tax expense$6$(3)$(9)$23$17IFRS requires separate amortization for each part of an item of property and equipment with a cost that is significant in relation to the total cost of the item. The Company has reviewed the significant components of its head office building and has determined that its head office building includes major components consisting of the roof and HVAC equipment, which have shorter estimated useful lives than the building. The effect of this change on transition is summarized below: Effect on Consolidated Statements of Financial Position: As AtIncrease/(Decrease)June 27, 2010Sept 25, 2010Dec 25, 2010Mar 26, 2011June 25, 2011Property and equipment$(306)$(315)$(324)$(333)$(341)Deferred income tax asset$79$81$83$86$88Retained earnings$(227)$(234)$(241)$(247)$(253) Effect on Consolidated Statements of Earnings (Loss) and Comprehensive Earnings (Loss): 13 Week Periods EndedYear EndedIncrease/(Decrease)Sept 25, 2010Dec 25, 2010Mar 26, 2011June 25, 2011June 25, 2011Cost of sales$5$5$5$4$19SG&A$4$4$4$4$16Deferred tax expense$(2)$(2)$(3)$(2)$(9)Under IFRS, it is not appropriate to classify deferred income tax asset balances as current, irrespective of the classification of the assets or liabilities to which the deferred income tax asset relates or the expected timing of reversal. Under Canadian GAAP, deferred income tax relating to current assets or current liabilities must be classified as current. Accordingly, current deferred income tax asset reported under Canadian GAAP of $456 at June 27, 2010 ($422 at June 25, 2011) has been reclassified as non-current deferred tax asset under IFRS. In addition, current deferred income tax liability reported under Canadian GAAP of $Nil at June 27, 2010 ($Nil at June 25, 2011) has been reclassified as non-current deferred tax asset under IFRS. Deferred income tax expense has been adjusted to give effect to adjustments as follows: Effect on Consolidated Statements of Financial Position: As AtIncrease/(Decrease)NotesJune 27, 2010Sept 25, 2010Dec 25, 2010Mar 26, 2011June 25, 2011Stock-based compensationa$19$37$66$83$94Property and equipmentb$99$93$96$105$82Property and equipmentc$79$81$83$86$88$197$211$245$274$264 Effect on Consolidated Statements of Earnings (Loss) and Comprehensive Earnings (Loss): 13 Week Periods EndedYear EndedIncrease/(Decrease)NotesSept 25, 2010Dec 25, 2010Mar 26, 2011June 25, 2011June 25, 2011Stock-based compensationa$(18)$(29)$(17)$(11)$(75)Property and equipmentb$6$(3)$(9)$23$17Property and equipmentc$(2)$(2)$(3)$(2)$(9)$(14)$(34)$(29)$10$(67)Under IFRS, the Company has chosen to present unredeemed gift cards as deferred revenue on the statement of financial position. Under Canadian GAAP, unredeemed gift cards were presented as accounts payable and accrued liabilities. Accordingly, accounts payable and accrued liabilities under Canadian GAAP of $1,628 at June 27, 2010 ($1,489 at June 25, 2011) have been reclassified as deferred revenue under IFRS.Under IFRS, the Company has chosen to present the sales return provision as a separate line item on the statement of financial position. Under Canadian GAAP, the sales return provision was presented as part of accounts payable and accrued liabilities. Accordingly, accounts payable and accrued liabilities under Canadian GAAP of $Nil at June 27, 2010 ($47 at June 25, 2011) have been reclassified as sales return provision under IFRS.The following is a summary of transition adjustments to the Company's retained earnings from Canadian GAAP to IFRS:As atNotesJune 27, 2010Sept 25, 2010Dec 25, 2010Mar 26, 2011June 25, 2011Retained earnings as reported under Canadian GAAP$39,539$36,689$44,915$47,449$46,606IFRS adjustments increase (decrease)Stock-based compensationa$(193)$(226)$(267)$(285)$(285)Property and equipmentb$(282)$(264)$(272)$(300)$(234)Property and equipmentc$(227)$(234)$(241)$(247)$(253)Retained earnings as reported under IFRS$38,837$35,965$44,135$46,617$45,834FOR FURTHER INFORMATION PLEASE CONTACT: Jeffrey WortsmanDanier Leather Inc.President and Chief Executive Officer(416) 762-8175 ext. 302jeffreyw@danier.comORBryan TatoffDanier Leather Inc.Senior Vice-President, CFO & Secretary(416) 762-8175 ext. 328bryan@danier.comwww.danier.com