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Press release from Marketwire

Danier Leather Reports Fiscal 2013 Fourth Quarter and Year End Results

Thursday, August 15, 2013

Danier Leather Reports Fiscal 2013 Fourth Quarter and Year End Results

06:30 EDT Thursday, August 15, 2013

TORONTO, ONTARIO--(Marketwired - Aug. 15, 2013) - Danier Leather Inc. (TSX:DL) ("Danier" or the "Company") today announced its consolidated financial results for the fourth quarter and fiscal year ended June 29, 2013.

SELECTED HIGHLIGHTS

  • Comparable store sales increased by 4% for the fourth quarter of fiscal 2013 and increased by 5% for the fiscal year as compared to the corresponding periods last year.
  • Higher margin accessory sales on a comparable week basis increased by 14% during the fourth quarter of fiscal 2013 and by 12% for the full fiscal year.
  • As a result of ongoing investments made to support Danier's growth strategy, including the growth of the higher margin accessories business, net loss for the fourth quarter of fiscal 2013 increased to $2.7 million as compared to a net loss of $2.1 million for the same period last year.
  • Fiscal 2013 net earnings were $1.4 million compared with net earnings of $4.0 million for fiscal 2012.

FINANCIAL HIGHLIGHTS ($000s, except earnings per share (EPS), square footage and number of stores):

Quarter Ended* Year Ended*
Jun 29,
2013
Jun 30,
2012
Jun 29,
2013
Jun 30,
2012
(13 weeks) (14 weeks) (52 weeks) (53 weeks)
Sales $ 28,369 $ 27,510 $ 154,995 $ 148,219
EBITDA (1) (2,805 ) (2,120 ) 5,684 9,095
Net Earnings (Loss) (2,652 ) (2,090 ) 1,411 4,003
EPS - Basic $ (0.69 ) $ (0.45 ) $ 0.34 $ 0.86
EPS - Diluted $ (0.69 ) $ (0.45 ) $ 0.33 $ 0.83
Number of Stores 89 89 89 89
Retail Square Footage 283,381 294,343 283,381 294,343

* The Company's fiscal year ends on the last Saturday in June of each year. Consequently, fiscal 2013 consisted of a 52-week year that ended on June 29, 2013, while the fiscal 2012 year consisted of a 53-week year that ended on June 30, 2012. For the full impact on sales and comparable store sales excluding the additional week in fiscal 2012, please see footnote 3 below under the heading "Non-IFRS Financial Measures".

Total company sales during the fourth quarter, which consisted of a 13-week period compared with a 14-week period last year, increased by 3% or $0.9 million to $28.4 million from $27.5 million in the fourth quarter last year. Comparable store sales(2) during the fourth quarter of fiscal 2013 increased by 4%, as compared to the fourth quarter last year.

Year-to-date sales, which consisted of a 52-week period compared with a 53-week period last year, increased by 5% to $155.0 million compared with $148.2 million last year. Comparable store sales for fiscal 2013 increased by 5%, as compared to the corresponding period last year.

In line with Danier's growth strategy, accessory sales, which includes handbags and small leather goods, continued to perform well, increasing by 14% during the fourth quarter of fiscal 2013, on a comparable week basis, and by 12% for the year-to-date period, on a comparable week basis. We believe accessories will help us to attract new and younger customers as well as offer a wider selection of products to our existing customer base. Accessories also typically have higher margins than outerwear and tend to be less seasonal.

Gross profit as a percentage of revenue during the fourth quarter of fiscal 2013 decreased by 100 basis points to 46.6% compared with 47.6% during the fourth quarter last year. Year-to-date gross profit margin was 50.6% compared with 51.8% during fiscal 2012. The decrease in gross profit margin was mainly due to increased leather prices as compared to the prior year period and the Company implementing more markdowns than the prior year, mainly in the first quarter, in order to aggressively reduce past season inventory levels.

Selling, general and administrative expenses ("SG&A") during the fourth quarter of fiscal 2013 increased by $0.8 million to $17.0 million, compared with $16.2 million during the fourth quarter last year. Year-to-date SG&A increased by approximately $5.2 million to $76.6 million compared with $71.4 million last year. Danier has made several investments to support the growth of its higher margin accessories business, to enhance merchandise planning and sourcing capabilities and to increase brand awareness.

Net loss during the fourth quarter of fiscal 2013 was $2.7 million ($0.69 per diluted share) compared with a net loss of $2.1 million ($0.45 per diluted share) during the fourth quarter last year. For the fiscal year ended June 29, 2013, net earnings were $1.4 million ($0.33 per diluted share) compared with net earnings of $4.0 million ($0.83 per diluted share) for the fiscal year ended June 30, 2012.

Danier continues to maintain a strong balance sheet with cash of $24.5 million, working capital of $38.0 million, no long-term debt and a book value of $14.59 per outstanding share.

Non-IFRS Financial Measures

The Company prepares its consolidated financial statements in accordance with International Financial Reporting Standards ("IFRS"). In order to provide additional insight into the business, the Company has also provided certain non-IFRS data, including "EBITDA" and "comparable store sales", 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.

(1) 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 Ended Year Ended
Jun 29,
2013
Jun 30,
2012
Jun 29,
2013
Jun 30,
2012
($000) ($000) ($000) ($000)
Net earnings (loss) $ (2,652 ) $ (2,090 ) $ 1,411 $ 4,003
Add (deduct) impact of the following:
Income tax (1,063 ) (916 ) 570 1,524
Interest expense 11 10 51 51
Interest income (68 ) (89 ) (236 ) (229 )
Impairment loss on property and equipment - - 327 66
Amortization 967 965 3,561 3,680
EBITDA $ (2,805 ) $ (2,120 ) $ 5,684 $ 9,095
(2) Comparable 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.
(3) Total company sales during the fourth quarter of fiscal 2013, which contained 13 weeks compared with 14 weeks last year, increased by 3% and comparable store sales increased by 4%. On a comparable 13-week basis, total company sales increased by 12% and comparable store sales increased by 12%. Total company sales increased by 5% and comparable store sales increased by 5% for the year-to-date period, which contained 52 weeks compared with 53 weeks last year. On a comparable 52 week basis, total company sales increased by 5% and comparable store sales increased 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 strategies, 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 outside the Company's control 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 strategies, events, performance and results may vary significantly from those expected. There can be no assurance that the actual strategies, 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. In addition, Danier does not provide financial outlooks or future-oriented financial information and, accordingly, no forward-looking information or statements should be construed as such. 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 416-623-0333 in the Toronto area or 1-855-353-9183 (rest of Canada and the U.S.) and enter passcode 60247# or state Danier Leather Conference Call at least five minutes prior to the call. The call will also be webcast at www.danier.com or at www.marketwire.com.

DANIER LEATHER INC.
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) & COMPREHENSIVE EARNINGS (LOSS)
(thousands of Canadian dollars, except per share amounts and number of shares)
Fourth Quarter Ended Year Ended
June 29,
2013
June 30,
2012
June 29,
2013
June 30,
2012
13 weeks 14 weeks 52 weeks 53 weeks
(unaudited) (unaudited)
Revenue $ 28,369 $ 27,510 $ 154,995 $ 148,219
Cost of sales (Note 13) 15,159 14,420 76,579 71,513
Gross profit 13,210 13,090 78,416 76,706
Selling, general and administrative expenses (Note 13) 16,982 16,175 76,620 71,357
Interest income (68 ) (89 ) (236 ) (229 )
Interest expense 11 10 51 51
Earnings (loss) before income taxes (3,715 ) (3,006 ) 1,981 5,527
Provision for (recovery of) income taxes (Note 14) (1,063 ) (916 ) 570 1,524
Net earnings (loss) and comprehensive earnings (loss) $ (2,652 ) $ (2,090 ) $ 1,411 $ 4,003
Net earnings (loss) per share:
Basic $ (0.69 ) $ (0.45 ) $ 0.34 $ 0.86
Diluted $ (0.69 ) $ (0.45 ) $ 0.33 $ 0.83
Weighted average number of shares outstanding:
Basic 3,844,558 4,637,546 4,180,829 4,638,829
Diluted 3,971,295 4,792,911 4,323,619 4,794,355
Number of shares outstanding at period end 3,832,168 4,646,902 3,832,168 4,646,902

See accompanying notes to the consolidated financial statements

DANIER LEATHER INC.
CONSOLIDATED BALANCE SHEETS
(thousands of Canadian dollars)
June 29,
2013
June 30,
2012
ASSETS
Current Assets
Cash and cash equivalents $ 24,541 $ 34,332
Accounts receivable 1,197 517
Income taxes recoverable 358 426
Inventories (Note 5) 22,810 24,891
Prepaid expenses 803 799
49,709 60,965
Non-current Assets
Property and equipment (Note 6) 16,034 15,012
Computer software (Note 7) 1,143 726
Deferred income tax asset (Note 14) 2,163 1,909
$ 69,049 $ 78,612
LIABILITIES
Current Liabilities
Payables and accruals (Note 9) $ 10,101 $ 10,161
Deferred revenue 1,548 1,463
Sales return provision (Note 10) 99 124
11,748 11,748
Non-current Liabilities
Deferred lease inducements and rent liability 1,392 1,373
13,140 13,121
SHAREHOLDERS' EQUITY
Share capital (Note 11) 11,533 15,040
Contributed surplus 954 925
Retained earnings 43,422 49,526
55,909 65,491
$ 69,049 $ 78,612

Commitments, Contingencies and Guarantees (Notes 16 and 17)

Approved by the Board of Directors

August 14, 2013

See accompanying notes to the consolidated financial statements

DANIER LEATHER INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(thousands of Canadian dollars)
Fourth Quarter Ended Year Ended
June 29,
2013
June 30,
2012
June 29,
2013
June 30,
2012
13 weeks 14 weeks 52 weeks 53 weeks
(unaudited) (unaudited)
Cash provided by (used in)
OPERATING ACTIVITIES
Net earnings (loss) $ (2,652 ) $ (2,090 ) $ 1,411 $ 4,003
Adjustments for:
Amortization of property and equipment 825 854 3,149 3,300
Amortization of computer software 142 111 412 380
Impairment loss on property and equipment - - 327 66
Amortization of deferred lease inducements (19 ) (60 ) (100 ) (175 )
Proceeds from deferred lease inducement - - - 188
Straight line rent expense (16 ) 11 121 42
Stock-based compensation 45 7 131 25
Interest income (68 ) (89 ) (236 ) (229 )
Interest expense 11 10 51 51
Provision for (refund of) income taxes (1,063 ) (916 ) 570 1,524
Changes in working capital (Note 15) 5,572 2,757 1,348 3,198
Interest paid (12 ) - (12 ) (12 )
Interest received 65 77 244 223
Income taxes (paid) recovered 18 16 (664 ) (2,459 )
Net cash generated from (used in) operating activities 2,848 688 6,752 10,125
FINANCING ACTIVITIES
Subordinate voting shares issued 125 53 183 65
Subordinate voting shares repurchased (Note 11) (606 ) - (11,399 ) (530 )
Net cash (used in) generated from financing activities (481 ) 53 (11,216 ) (465 )
INVESTING ACTIVITIES
Acquisition of property and equipment (628 ) (975 ) (4,498 ) (3,974 )
Acquisition of computer software (674 ) (24 ) (829 ) (52 )
Net cash used in investing activities (1,302 ) (999 ) (5,327 ) (4,026 )
Increase (decrease) in cash 1,065 (258 ) (9,791 ) 5,634
Cash, beginning of period 23,476 34,590 34,332 28,698
Cash, end of period $ 24,541 $ 34,332 $ 24,541 $ 34,332

See accompanying notes to the consolidated financial statements

DANIER LEATHER INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(thousands of Canadian dollars)
Share
Capital
Contributed
Surplus
Accumulated
Other
Comprehensive
Income
Retained
Earnings
Total
Balance - June 30, 2012 $ 15,040 $ 925 $ - $ 49,526 $ 65,491
Net earnings - - - 1,411 1,411
Stock-based compensation related to stock options - 131 - - 131
Exercise of stock options 285 (102 ) - - 183
Share repurchases (net of tax) (3,792 ) - - (7,515 ) (11,307 )
Balance - June 29, 2013 $ 11,533 $ 954 $ - $ 43,422 $ 55,909
Share
Capital
Contributed
Surplus
Accumulated
Other
Comprehensive
Income
Retained
Earnings
Total
Balance - June 25, 2011 $ 15,160 $ 934 $ - $ 45,834 $ 61,928
Net earnings - - - 4,003 4,003
Stock-based compensation related to stock options - 25 - - 25
Exercise of stock options 99 (34 ) - - 65
Share repurchases (219 ) - - (311 ) (530 )
Balance - June 30, 2012 $ 15,040 $ 925 $ - $ 49,526 $ 65,491

See accompanying notes to the consolidated financial statements

DANIER LEATHER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 29, 2013 and June 30, 2012
(unless otherwise stated, all amounts are in thousands of Canadian dollars)

1. 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.

The Company's operations are focused on the design, manufacture, distribution and retail of leather apparel and accessories in Canada. As such, the Company presents one operating segment in its consolidated financial statements.

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 the 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.

2. Basis of Preparation:

(a) 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 consolidated financial statements were approved by the Board of Directors of the Company on August 14, 2013.

(b) 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.

(c) 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.

(d) 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. Volatile equity, foreign currency and energy markets, the potential illiquidity of credit markets and unpredictable changes 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.

3. Significant Accounting Policies:

The accounting policies described below have been applied consistently to all periods presented in these consolidated financial statements.

(a) 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.

(b) 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.

(c) 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 is the 52-week period ended June 29, 2013, and comparably the 53-week period ended June 30, 2012.

(d) 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 foreign currency exchange rate in effect at the balance sheet date and non-monetary items are measured at historical cost and are translated into Canadian dollars at foreign currency exchange rates that approximate the rates in effect at the dates when such items are transacted. Revenues and expenses are translated at the foreign currency exchange rate in effect on the transaction dates or at the average foreign currency exchange rate 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).

(e) 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. Return allowances are estimated using historical experience.

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 at the time the buyer takes possession of the merchandise because alteration revenue represents less than one percent of merchandise revenue, the short amount of time required to complete an alteration and because at any point in time there is an immaterial amount of partially processed alterations.

Sales to the third party distributor are 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.

(f) Share-Based Compensation Plans:

The Company maintains 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 12(a)), 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 12(c)), the expense is recognized on a graded vesting schedule and is determined based on the fair value of the liability incurred at each balance sheet date until the award is settled. The fair value of the liability is measured at each balance sheet date 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 12(b)), 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 balance sheet date by applying the Black-Scholes Option Pricing Model until the award is settled.

At each balance sheet 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.

(g) Cash and Cash Equivalents:

Cash consists of cash on hand and bank balances. From time to time the Company considers purchases of money market investments with maturities of three months or less, which would be classified as cash equivalents.

(h) Financial Instruments:

(i) 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/Liability Category Measurement
Cash Loans and receivables Amortized cost
Accounts receivable Loans and receivables Amortized cost
Payables and accruals Financial liabilities Amortized cost
Sales return provision Financial liabilities Amortized cost
Foreign currency option contract derivatives(1) Fair value through profit and loss Fair value through profit and loss
(1) The carrying value of the Company's derivatives are included in the consolidated balance sheet 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 measured 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 balance sheets 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 Costs

Transaction 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 Instruments

The 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 fair value through profit and loss, are not designated as hedges, are included in the balance sheets 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 Value

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 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 29, 2013, a $822 unrealized gain (June 30, 2012 - $172 unrealized gain) was recorded in SG&A for the contracts outstanding.
  • The fair value of cash equivalents, if any, 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. Evidence of impairment may include: indications that a debtor or a group of debtors are experiencing significant financial difficulty; default or delinquency in interest or principal payments; and observable data indicating that there is a measurable decrease in the estimated future cash flows. 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 in which the costs are incurred.

(k) Property and Equipment:

Property and equipment are recorded at cost less accumulated amortization and accumulated impairment losses, if any. 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.

Depreciation of an asset begins once it is available for use. 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. The depreciable amount of an asset, being the cost of an asset less the residual value, if any, is allocated on a straight-line basis over the estimated useful life of the asset. Residual value is estimated to be zero unless the Company expects to dispose of the asset at a value that exceeds the estimated disposal costs. Gains and losses on disposals of property and equipment, if any, 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).

The major categories of property and equipment, their methods of amortization and useful lives for the fiscal years ended June 29, 2013 and June 30, 2012 are as follows:

Building 25 years straight-line
Roof 20 years straight-line
HVAC equipment 5 to 15 years straight-line
Computer hardware 4 to 7 years straight-line
Furniture and equipment (non-retail) 5 to 7 years straight-line
Leasehold improvements, furniture and fixtures (retail locations) Term of lease not to exceed 10 years

The residual values, useful lives and amortization methods applied to assets are reviewed annually based on relevant market information and management considerations.

Property and equipment is derecognized either upon disposal or when no future economic benefits are expected from their use. Any gain or loss arising on derecognition is included as part of SG&A in the statement of earnings (loss).

(l) Computer Software:

Computer software is recorded at cost less accumulated amortization and accumulated impairment losses, if any. Amortization commences when the computer software application is available for its intended use. Residual value is estimated to be zero unless the Company expects to dispose of the asset at a value that exceeds the estimated disposal costs. The residual values, useful lives and amortization methods applied to computer software are reviewed annually based on relevant market information and management considerations. 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.

Computer software is derecognized either upon disposal or when no future economic benefit is expected from its use. Any gain or loss arising on derecognition is included as part of SG&A in the statement of earnings (loss).

(m) Impairment of Non-Financial Assets:

Property and equipment and computer software with finite lives are tested for impairment at each reporting date and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Events or changes in circumstances which may indicate impairment include: a significant change to the Company's operations, a significant decline in performance or a change in market conditions which adversely affects the Company.

An impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. 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). 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 balance sheet. 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 balance sheet 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 balance sheet 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 balance sheet 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) Accounting Standards Implemented During Fiscal 2013:

The Company adopted the following new accounting standards in preparing these annual consolidated financial statements:

(i) Financial Instruments - Disclosures: The IASB issued an amendment to IFRS 7, Financial Instruments: Disclosures. Amendment Regarding Disclosures on Transfers of Financial Assets, requiring incremental disclosures regarding transfers of financial assets. This amendment is effective for annual periods beginning on or after July 1, 2011. The application of this amendment did not have an impact on the Company's disclosures as it had no transfers of financial assets.

(ii) Income Taxes: The IASB issued an amendment to IFRS 12, Income Taxes: Amendment Regarding Deferred Tax: Recovery of Underlying Assets, requiring an entity to recognize a deferred tax asset or liability depending on the expected manner of recovery or settlement of the asset or liability and for which the tax base is not immediately apparent. This amendment is effective for annual periods beginning on or after January 1, 2012. The application of this amendment did not have an impact on the Company's consolidated financial statements.

4. Future Accounting Standards:

A number of new standards, and amendments to standards and interpretations, are not yet effective for the year ended June 29, 2013 and have not been applied in preparing these annual consolidated financial statements. New standards and amendments to standards and interpretations that are currently under review include:

IFRS 7 - Financial Instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities ("IFRS 7") and IAS 32 - Financial Instruments: Presentation ("IAS 32")

In December 2011, the IASB amended IFRS 7 and IAS 32 to clarify the requirements for offsetting financial instruments and to require new disclosures on the effect of offsetting arrangements on an entity's financial position. The IFRS 7 amendments are effective for annual periods beginning on or after January 1, 2013 and the IAS 32 amendments are effective for annual periods beginning on or after January 1, 2014. The Company will apply the IFRS 7 amendments beginning in the first quarter of fiscal 2014 and no significant impact on the consolidated financial statements is expected. The Company is assessing the potential impact of the IAS 32 amendments.

IFRS 9 - Financial Instruments

On November 12, 2009, the IASB 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 originally was to become effective on January 1, 2013 but the mandatory effective date has been amended to January 1, 2015 and must be applied retrospectively. The Company has not yet evaluated the impact on the consolidated financial statements as a result of adopting IFRS 9.

IFRS 13 - Fair Value Measurement

The IASB has issued a new standard, IFRS 13, Fair Value Measurement ("IFRS 13"), which is a comprehensive standard for the 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. The Company will apply IFRS 13 beginning in the first quarter of fiscal 2014 and no significant impact on the consolidated financial statements is expected.

A number of other standards have been adopted by the IASB but currently have no impact on the Company.

5. Inventories:

June 29, 2013 June 30, 2012
Raw materials $ 2,594 $ 2,644
Work-in-process 222 183
Finished goods 19,994 22,064
$ 22,810 $ 24,891
Year Ended
June 29, 2013 June 30, 2012
Cost of inventory recognized as an expense $ 75,805 $ 70,739
Write-downs of inventory due to net realizable value being lower than cost $ 1,632 $ 1,746
Write-downs recognized in previous periods that were reversed $ 30 $ 174
Fourth Quarter Ended
June 29, 2013 June 30, 2012
Cost of inventory recognized as an expense $ 14,967 $ 14,250
Write-downs of inventory due to net realizable value being lower than cost $ 645 $ 323
Write-downs recognized in previous periods that were reversed $ 3 $ 171

6. Property and Equipment:

Year Ended June 29, 2013
Land Building Roof HVAC Leasehold
Improvements
Furniture
& Equipment
Computer
Hardware
Total
Cost
At June 30, 2012 $ 1,000 $ 6,063 $ 308 $ 793 $ 22,208 $ 9,088 $ 3,386 $ 42,846
Additions - - - 47 2,970 1,333 148 4,498
Disposals - - - - (2,499 ) (464 ) (186 ) (3,149 )
At June 29, 2013 $ 1,000 $ 6,063 $ 308 $ 840 $ 22,679 $ 9,957 $ 3,348 $ 44,195
Accumulated amortization and impairment losses
At June 30, 2012 - $ 2,354 $ 201 $ 578 $ 15,875 $ 6,321 $ 2,505 $ 27,834
Amortization for the period - 154 15 47 1,669 847 417 3,149
Impairment losses - - - - 277 50 - 327
Disposals - - - - (2,499 ) (464 ) (186 ) (3,149 )
At June 29, 2013 - $ 2,508 $ 216 $ 625 $ 15,322 $ 6,754 $ 2,736 $ 28,161
Net carrying value
At June 29, 2013 $ 1,000 $ 3,555 $ 92 $ 215 $ 7,357 $ 3,203 $ 612 $ 16,034
Capital work in progress included above
At June 29, 2013 - - - - $ 299 $ 19 - $ 318
Year Ended June 30, 2012
Land Building Roof HVAC Leasehold Improvements Furniture & Equipment Computer Hardware Total
Cost
At June 25, 2011 $ 1,000 $ 6,063 $ 308 $ 753 $ 23,453 $ 8,985 $ 3,180 $ 43,742
Additions - - - 40 2,632 977 325 3,974
Disposals - - - - (3,877 ) (874 ) (119 ) (4,870 )
At June 30, 2012 $ 1,000 $ 6,063 $ 308 $ 793 $ 22,208 $ 9,088 $ 3,386 $ 42,846
Accumulated amortization and impairment losses
At June 25, 2011 - $ 2,198 $ 184 $ 531 $ 17,968 $ 6,232 $ 2,225 $ 29,338
Amortization for the period - 156 17 47 1,722 959 399 3,300
Impairment losses - - - - 62 4 - 66
Disposals - - - - (3,877 ) (874 ) (119 ) (4,870 )
At June 30, 2012 - $ 2,354 $ 201 $ 578 $ 15,875 $ 6,321 $ 2,505 $ 27,834
Net carrying value
At June 30, 2012 $ 1,000 $ 3,709 $ 107 $ 215 $ 6,333 $ 2,767 $ 881 $ 15,012
Capital work in progress included above
At June 30, 2012 - - - - $ 472 $ 106 - $ 578

The 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 $327 for the year ended June 29, 2013 ($66 for the year ended June 30, 2012) and recorded in SG&A during the second quarter of fiscal 2013. 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 29, 2013 would remain unchanged (unchanged for the year ended June 30, 2012).

7. Computer Software:

Year Ended
June 29, 2013 June 30, 2012
Cost
Beginning of fiscal year $ 3,994 $ 4,041
Additions 829 52
Disposals (139 ) (99 )
End of period 4,684 $ 3,994
Accumulated amortization
Beginning of fiscal year $ 3,268 $ 2,987
Amortization for the period 412 380
Disposals (139 ) (99 )
End of period $ 3,541 $ 3,268
Net carrying value
End of period $ 1,143 $ 726
Beginning of fiscal year $ 726 $ 1,054
Capital work in progress include at end of period $ 702 -

8. Bank 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 ($14 million between September 1, 2013 and December 15, 2013) 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.

9. Payables and Accruals:

June 29, 2013 June 30, 2012
Trade payables $ 1,840 $ 1,482
Accruals 4,981 5,742
RSU/DSU liability 2,516 2,374
Commodity and capital taxes 764 563
$ 10,101 $ 10,161

10. Sales 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 29, 2013 and June 30, 2012, respectively, with respect to the sales return provision:

Fourth Quarter Ended Year Ended
June 29, 2013 June 30, 2012 June 29, 2013 June 30, 2012
Beginning of period $ 105 $ 98 $ 124 $ 47
Amount provided during the period 99 124 2,049 1,799
Utilized or released during the period (105 ) (98 ) (2,074 ) (1,722 )
End of period $ 99 $ 124 $ 99 $ 124

11. Share Capital:

(a) Authorized

1,224,329 Multiple Voting Shares
Unlimited Subordinate Voting Shares
Unlimited Class A and B Preference Shares

(b) Issued

Multiple Voting Shares
Number Consideration
Balance June 25, 2011 1,224,329 Nominal
Balance June 30, 2012 1,224,329 Nominal
Balance June 29, 2013 1,224,329 Nominal
Subordinate Voting Shares
Number Consideration
Balance June 25, 2011 3,453,806 $ 15,160
Shares repurchased (50,000 ) (219 )
Shares issued upon exercising of stock options 18,767 99
Balance June 30, 2012 3,422,573 $ 15,040
Shares repurchased (862,801 ) (3,792 )
Shares issued upon exercising of stock options 48,067 285
Balance June 29, 2013 2,607,839 $ 11,533

The Multiple Voting Shares and Subordinate Voting Shares have identical attributes except that the Multiple Voting Shares entitle the holder to 10 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.

(c) Earnings Per Share

Basic and diluted per share amounts are based on the following weighted average number of shares outstanding:

Fiscal Year Ended
June 29,
2013
June 30,
2012
Weighted average number of shares for basic earnings per share calculations 4,180,829 4,638,829
Effect of dilutive options outstanding 142,790 155,526
Weighted average number of shares for diluted earnings per share calculations 4,323,619 4,794,355
Fourth Quarter Ended
June 29,
2013
June 30,
2012
Weighted average number of shares for basic earnings per share calculations 3,844,558 4,637,546
Effect of dilutive options outstanding 126,737 155,365
Weighted average number of shares for diluted earnings per share calculations 3,971,295 4,792,911

The 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 26,200 as at June 29, 2013 and 62,000 as at June 30, 2012.

(d) Issuer Bids

On October 24, 2012, the Company commenced a substantial issuer bid ("SIB" or the "Offer") by filing and mailing a formal offer to purchase and accompanying circular dated October 23, 2012, pursuant to which the Company offered to purchase for cancellation up to $10 million in value of its Subordinate Voting Shares from shareholders for cash by way of a "modified Dutch Auction" at a range of Offer prices between $12.55 and $13.30 per share. The minimum and maximum Offer prices corresponded with the fair market range of values per Subordinate Voting Share determined, as of October 23, 2012, by Deloitte and Touche LLP, the independent valuator engaged by a Special Committee of independent directors of the Board of Directors to prepare a formal valuation of the Subordinate Voting Shares. The Offer expired on November 28, 2012 and a total of 1,748,470 Subordinate Voting Shares were validly deposited and not withdrawn under the Offer. As the aggregate value of Subordinate Voting Shares deposited under the Offer exceeded the $10 million maximum value of consideration payable by the Company pursuant to the Offer, a pro-ration factor of 0.9852 was applied to deposited Subordinate Voting Shares (except for odd lot deposits, which were not subject to pro-ration), and the Company repurchased for cancellation 787,401 Subordinate Voting Shares at a purchase price of $12.70 per share.

During the past several years, the Company has from time to time received approval from the TSX to commence various normal course issuer bids ("NCIBs"). On February 11, 2013, the Company announced that the TSX had accepted a notice of its intention to proceed with its sixth NCIB (the "2013 NCIB"). Pursuant to the 2013 NCIB, the Company may purchase for cancellation up to a maximum of 148,211 Subordinate Voting Shares. The maximum number of Subordinate Voting Shares that may be purchased pursuant to the 2013 NCIB represents approximately 10% of the "public float" of the Subordinate Voting Shares outstanding as at the date of the notice of its intention to proceed with the 2013 NCIB. The 2013 NCIB commenced on February 14, 2013 and will terminate on February 13, 2014, or on such earlier date as the Company may complete its purchases under the 2013 NCIB.

During the fourth quarter of fiscal 2013, the Company repurchased 50,400 Subordinate Voting Shares for cancellation at a weighted average price of $12.02 per share. During the fourth quarter of fiscal 2012, there were no shares repurchased under the NCIB in effect at that time.

The following Subordinate Voting Shares were repurchased for cancellation under the SIB and NCIBs then in effect during the fourth quarters and years ended June 29, 2013 and June 30, 2012, respectively:

Fourth Quarter Ended Fiscal Year Ended
June 29,
2013
June 30,
2012
June 29,
2013
June 30,
2012
Number of shares repurchased under SIB - - 787,401 -
Number of shares repurchased under NCIBs 50,400 - 75,400 50,000
Amount charged to share capital $ 222 - $ 3,792 $ 219
Amount charged to retained earnings representing the excess over the average paid-in value $ 384 - $ 7,515 $ 311
Total cash consideration $ 606 - $ 11,307 $ 530
Income tax related to SIB that was recorded directly to Shareholders' Equity - - $ 92 -

12. Share-based Compensation:

The Company's net share-based compensation expense recognized in SG&A related to its stock option, RSU and DSU plans is presented below:

Fourth Quarter Ended Fiscal Year Ended
June 29,
2013
June 30,
2012
June 29,
2013
June 30,
2012
Stock option plan expense $ 45 $ 7 $ 131 $ 25
RSU plan expense (27 ) 76 693 697
DSU plan expense (132 ) (82 ) 75 (47 )
$ (114 ) $ 1 $ 899 $ 675

The carrying amount of the Company's share-based compensation arrangements including stock option, RSU and DSU plans are recorded on the consolidated balance sheet as follows:

June 29,
2013
June 30,
2012
Payables and accruals $ 2,516 $ 2,374
Contributed surplus 954 925
$ 3,470 $ 3,299

(a) Stock 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 29, 2013, the Company has reserved 572,100 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 three 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 29, 2013 and June 30, 2012 and changes during the fiscal years ended on those dates is presented below:

June 29, 2013 June 30, 2012
Stock Options Shares Weighted
Average
Exercise
Price
Shares Weighted
Average
Exercise
Price
Outstanding at beginning of year 357,767 $ 7.14 348,434 $ 6.65
Granted 26,200 $ 12.97 28,100 $ 10.68
Exercised (48,067 ) $ 3.80 (18,767 ) $ 3.44
Forfeited (58,000 ) $ 15.85 - -
Outstanding at end of year 277,900 $ 6.45 357,767 $ 7.14
Options exercisable at end of year 232,966 $ 5.37 329,667 $ 6.84

The following table summarizes the distribution of these options and the remaining contractual life as at June 29, 2013:

Options Outstanding Options Exercisable
Exercise
Prices
#
Outstanding
Weighted
Average
Remaining
Contractual
Life
Weighted
Average
Exercise
Price
# of
Shares
Exercisable
Weighted
Average
Exercise
Price
$3.15 113,600 5.3 years $ 3.15 113,600 $ 3.15
$6.25 50,000 5.0 years $ 6.25 50,000 $ 6.25
$7.80 45,000 3.6 years $ 7.80 45,000 $ 7.80
$8.68 15,000 3.8 years $ 8.68 15,000 $ 8.68
$10.68 28,100 9.0 years $ 10.68 9,366 $ 10.68
$12.97 26,200 9.6 years $ 12.97 - $ 12.97
277,900 5.7 years $ 6.45 232,966 $ 5.37

During the year ended June 29, 2013, the Company granted 26,200 stock options with an exercise price of $12.97 per stock option (June 30, 2012 - 28,100 stock options were granted with an exercise price of $10.68 per stock option). The estimated fair value at the date of grant for the options granted during the year ended June 29, 2013 was $6.57 per stock option (June 30, 2012 - $5.34 per stock option). The fair value of each option granted was estimated on the date of grant using the Black-Scholes Options Pricing Model with the following assumptions:

June 29,
2013
June 30,
2012
Risk-free interest rate 2.00 % 1.75 %
Dividend yield - -
Expected volatility 38 % 38 %
Expected life of stock options 10 years 10 years
Expected forfeiture rate 0 % 0 %

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.

(b) Deferred Share Unit Plan

The cash-settled 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 balance sheet 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 29, 2013 and June 30, 2012, respectively, with respect to the DSU Plan:

Fourth Quarter Ended Year Ended
June 29,
2013
June 30,
2012
June 29,
2013
June 30,
2012
Outstanding at beginning of period 83,136 103,920 103,920 103,920
Granted - - - -
Redeemed - - (20,784 ) -
Outstanding at end of period 83,136 103,920 83,136 103,920
Danier stock price at end of period $ 11.31 $ 10.55 $ 11.31 $ 10.55
Liability at end of period $ 940 $ 1,096 $ 940 $ 1,096

(c) Restricted Share Unit Plan

The Company has established a cash-settled 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 balance sheet 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 29, 2013 and June 30, 2012, respectively, with respect to the RSU Plan:

Fourth Quarter Ended Year Ended
June 29,
2013
June 30,
2012
June 29,
2013
June 30,
2012
Outstanding at beginning of period 153,005 166,770 167,536 122,300
Granted 21,600 4,700 46,600 65,800
Redeemed - - (36,063 ) (16,130 )
Forfeited - (3,934 ) (3,468 ) (4,434 )
Outstanding at end of period 174,605 167,536 174,605 167,536
RSUs vested at end of period 39,331 16,300 39,331 16,300
Liability at end of period $ 1,576 $ 1,278 $ 1,576 $ 1,278

13. Amortization and Impairment Loss:

Amortization of property and equipment, computer software and impairment loss on property and equipment, included in cost of sales and SG&A is summarized as follows:

Fourth Quarter Ended Year Ended
June 29,
2013
June 30,
2012
June 29,
2013
June 30,
2012
Cost of sales $ 43 $ 46 $ 168 $ 188
SG&A 924 919 3,720 3,558
End of period $ 967 $ 965 $ 3,888 $ 3,746

14. Income Taxes:

The Company's income tax expense is comprised as follows:

Year Ended
June 29,
2013
June 30,
2012
Current tax expense
Current period $ 746 $ 1,768
Adjustment for prior years (14 ) (14 )
Current tax expense $ 732 $ 1,754
Deferred tax expense
Recognition and reversal of temporary differences $ (156 ) $ (205 )
Changes in tax rates (7 ) (23 )
Adjustment for prior years and other 1 (2 )
Deferred tax expense $ (162 ) $ (230 )
Total income tax expense $ 570 $ 1,524

The Company's effective income tax rate consists of the following:

June 29,
2013
June 30,
2012
Combined basic federal and provincial average statutory rate 26.4 % 27.2 %
Non-deductible expenses 4.2 % 0.9 %
Future federal and provincial rate changes (0.3 %) (0.4 %)
Adjustment for prior years (0.7 %) (0.3 %)
Other (0.8 %) 0.2 %
28.8 % 27.6 %

Deferred income tax asset is summarized as follows:

June 29,
2013
June 30,
2012
Amortization $ 1,041 $ 913
Deferred lease inducements and rent liability 369 362
Other deferred expenses 86 7
Stock based compensation 667 627
$ 2,163 $ 1,909

15. Changes in Working Capital Items:

Fourth Quarter Ended Year Ended
June 29,
2013
June 30,
2012
June 29,
2013
June 30,
2012
Decrease (increase) in:
Accounts receivable 143 338 (680 ) (132 )
Inventories 5,715 3,492 2,081 4,073
Prepaid expenses (310 ) (295 ) (53 ) 69
Increase (decrease) in:
Payables and accruals 205 (492 ) (60 ) (863 )
Deferred revenue (175 ) (312 ) 85 (26 )
Sales return provision (6 ) 26 (25 ) 77
$ 5,572 $ 2,757 $ 1,348 $ 3,198

16. Contingencies and Guarantees:

(a) 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.

(b) 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:

(i) 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.
(ii) 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.

17. Commitments:

(a) 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 five 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 $ 10,617
Later than one year and not later than five years $ 28,333
Later than five years $ 13,633
Total $ 52,583

Minimum lease payments and contingent rentals recognized as an expense are summarized as follows:

Fourth Quarter Ended Year Ended
June 29,
2013
June 30,
2012
June 29,
2013
June 30,
2012
Minimum lease payments $ 2,904 $ 2,700 $ 11,550 $ 11,062
Contingent rentals $ (8 ) $ (43 ) $ 292 $ 186

(b) Letters of credit:

As at June 29, 2013, the Company had outstanding letters of credit in the amount of $8,743 (June 30, 2012 - $6,303) for the importation of finished goods inventories to be received.

18. Financial Instruments:

(a) Fair value disclosure

The following table presents the carrying amount and the fair value of the Company's financial instruments:

June 29, 2013 June 30, 2012
Classification Maturity Carrying
value
Fair
value
Carrying
value
Fair
value
Cash Loans and receivables Short-term $ 24,541 $ 24,541 $ 34,332 $ 34,332
Accounts receivable Loans and receivables Short-term $ 375 $ 375 $ 345 $ 345
Payables and accruals Financial liabilities Short-term $ 10,101 $ 10,101 $ 10,161 $ 10,161
Sales return provision Financial liabilities Short-term $ 99 $ 99 $ 124 $ 124
Derivative financial instruments(1) Fair value through profit and loss Short-term $ 822 $ 822 $ 172 $ 172
(1) Included in accounts receivable for the fiscal years ended June 29, 2013 and June 30, 2012.

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 29, 2013, a $822 unrealized gain (June 30, 2012 - $172 unrealized gain) was recorded in SG&A for the foreign exchange contracts outstanding.
  • Given their short-term maturity, the fair value of cash, accounts receivable, payables and accruals and sales return provision approximate their carrying values.

(b) 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 mainly dealing with highly-rated counterparties such as major Canadian financial institutions.

During the fourth quarters and years ended June 29, 2013 and June 30, 2012, the Company entered into foreign exchange contracts with Canadian financial institutions as counterparties with U.S. dollar notional amounts as listed below. Foreign exchange contracts outstanding as at June 29, 2013 expire at various times between July 8, 2013 and August 29, 2014 and the foreign exchange contracts that were outstanding as at June 30, 2012 expired or will expire between July 5, 2012 and September 24, 2013.

Fourth Quarter Ended Year Ended
June 29,
2013
June 30,
2012
June 29,
2013
June 30,
2012
Notional amount outstanding at beginning of period (US$000) $ 22,000 $ 16,000 $ 21,000 $ 18,500
Notional amount of foreign exchange contracts entered into during the period (US$000) 13,700 6,000 38,200 26,000
Notional amount of foreign exchange contracts expired during the period (US$000) (3,000 ) (1,000 ) (26,500 ) (23,500 )
Notional amount outstanding at end of period (US$000) $ 32,700 $ 21,000 $ 32,700 $ 21,000
Maturing in less than 1 year (US$000) $ 29,000 $ 15,000 $ 29,000 $ 15,000
Maturing from 1 to 2 years (US$000) $ 3,700 $ 6,000 $ 3,700 $ 6,000
Fair value of foreign exchange contracts - gain/(loss) - (CDN$000) $ 822 $ 172 $ 822 $ 172

As at June 29, 2013, a sensitivity analysis was performed on the Company's U.S. dollar denominated financial instruments, which principally consist of US$0.8 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 $28 decrease or increase in the Company's net earnings for the year ended June 29, 2013.

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 29, 2013, the Company had $24.5 million of cash; an operating credit facility of $25 million that is committed until June 27, 2014; and a $10 million ($14 million between September 1, 2013 and December 15, 2013) 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 29, 2013 to determine how a change in interest rates would have impacted net earnings. As at June 29, 2013, the Company's cash available for investment was approximately $24.5 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 29, 2013. 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 29, 2013 to determine how a change in the price of the Company's Subordinate Voting Shares would have impacted net earnings. As at June 29, 2013, a total of 174,605 RSUs and 83,136 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 29, 2013. 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, 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, excluding derivative financial instruments, 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 mainly dealing with highly-rated counterparties such as major Canadian financial institutions.

As at June 29, 2013, the Company's exposure to credit risk for these financial instruments was cash of $24.5 million, accounts receivable of $1.2 million and foreign exchange option contracts that had a notional value of US$32.7 million.

19. 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 ($14 million between September 1, 2013 and December 15, 2013) 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, among other things. 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 29, 2013 and June 30, 2012. There has been no change with respect to the overall capital risk management strategy during the year ended June 29, 2013.

20. 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 Ended
June 29,
2013
June 30,
2012
Salaries and short-term benefits $ 2,000 $ 2,068
Termination benefits - -
Share-based compensation 810 545
$ 2,810 $ 2,613

The Company's subsidiaries are described in Note 3(b).

21. Expense Analysis:

Selling, general and administrative expenses include the following:

Year Ended
June 29,
2013
June 30,
2012
Selling expense $ 60,464 $ 56,428
General and administrative expense 16,156 14,929
$ 76,620 $ 71,357

Selling 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.

22. Employee Benefits Expense:

Selling, general and administrative expenses include the following:

Year Ended
June 29,
2013
June 30,
2012
Wages, salaries and bonus $ 27,783 $ 25,732
Short-term benefits expense 4,295 $ 3,866
Termination benefits 237 65
Share-based compensation 898 675
$ 33,213 $ 30,338

FOR FURTHER INFORMATION PLEASE CONTACT:

Contact Information:
Investor Relations Contact: Danier Leather Inc.
Jeffrey Wortsman
President and Chief Executive Officer
(416) 762-8175 ext. 302
jeffreyw@danier.com


Danier Leather Inc.
Bryan Tatoff
Senior Vice-President, CFO and Secretary
(416) 762-8175 ext. 328
bryan@danier.com
www.danier.com

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