Danier Leather Reports Fiscal 2012 First Quarter Results




Oct 19, 2011 - 15:15

TORONTO, ONTARIO--(Marketwire - Oct. 19, 2011) - Danier Leather Inc. (TSX:DL) today announced its unaudited interim consolidated financial results for the 13 week period ended September 24, 2011.

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

For the 13 Weeks Ended
Sept. 24, 2011 Sept. 25, 2010
Sales $22,091 $23,427
EBITDA(1) (2,957 ) (3,099 )
Net Loss (2,768 ) (2,872 )
EPS – Basic ($0.59 ) ($0.63 )
EPS – Diluted ($0.59 ) ($0.63 )
Number of Stores 89 90
Retail Square Footage 301,233 314,233

A seasonal net loss of $2.8 million during the first quarter of fiscal 2012 represents a 4% improvement over a net loss of $2.9 million during the first quarter last year.

Sales during the first quarter of fiscal 2012were $22.1 million compared with $23.4 million during the first quarter last year, a decrease of 6%. Comparable store sales(2) also decreased by 6%. In addition to comparing against a strong first quarter last year, where sales increased by 18% over the prior year, the decrease in sales was mainly due to reduced customer traffic which is believed to be due to weakened consumer confidence and concerns over uncertain economic conditions.

Accessory sales continued to perform well, increasing by 11% over the corresponding period last year. Accessories represented 39% of total revenue compared with 33% during the first quarter of fiscal 2011.

Gross profit as a percentage of revenue increased by 60 basis points to 52.9% compared with 52.3% during the first quarter last year. Selling, general and administrative expenses during the first quarter of fiscal 2012 decreased by 5% to $15.6 million, compared with $16.3 million during the first quarter last year.

Danier continues to maintain a strong balance sheet with cash of $12.1 million compared with $9.3 million at the end of the first quarter last year, working capital of $42.6 million, no long-term debt and a book value of $12.67 per outstanding share.

Effective for the first quarter ended September 24, 2011, Danier began reporting its financial results in accordance with International Financial Reporting Standards ("IFRS"), including comparative information. Previously reported financial results prepared in accordance with Canadian generally accepted accounting principles have been restated to conform to the new standards adopted. See Note 21 and Note 22 accompanying Danier's first quarter 2012 unaudited interim condensed consolidated financial statements for further information on the transition to IFRS and its impact on Danier's financial position, financial performance and cash flows.

Danier is holding its Annual General Meeting of Shareholders today, Wednesday, October 19, 2011 at 4:00 p.m. Eastern Time at Danier's corporate headquarters in Toronto. Shareholders are encouraged to attend. The meeting will also be webcast live at www.danier.com.

Non-IFRS Financial Measures

The Company prepares its consolidated financial statements in accordance with IFRS. In order to provide additional insight into the business, the Company has also provided non-IFRS data, including EBITDA and comparable store sales 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 loss before interest expense, interest income, income taxes 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 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:
For the 13 Weeks Ended
Sept 24, 2011 Sept 25, 2010
($000) ($000)
Net loss ($2,768 ) ($2,872 )
Add (deduct) impact of the following:
Income tax (1,093 ) (1,239 )
Interest expense 22 46
Interest income (38 ) (18 )
Amortization 920 984
EBITDA ($2,957 ) ($3,099 )
(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.

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", "expect", "estimate", "plan", "believe" and similar expressions identify forward-looking statements and forward-looking information. Forward-looking statements and forward-looking information should not be read as guarantees of future events, performance or results, and will not necessarily be accurate indications of whether, or the times at which, such events, performance or results will be achieved. All of the statements in this press release containing forward-looking statements or forward-looking information, if any, are qualified by these cautionary statements.

Forward-looking statements and forward-looking information are based on information available at the time they are made, underlying estimates, opinions and assumptions made by management and management's good faith belief with respect to future events, performance and results and are subject to inherent risks and uncertainties surrounding future expectations generally. For additional information with respect to Danier's inherent risks and uncertainties, reference should be made to Danier's continuous disclosure materials filed from time to time with the Canadian Securities Regulatory Authorities, including the Company's annual information form, quarterly and annual reports and financial statements and notes thereto, and supplementary information, which are available on SEDAR at www.sedar.com and in the Investor Relations section of the Company's website at www.danier.com. Additional risks and uncertainties not presently known to the Company or that Danier currently believes to be less significant may also adversely affect the Company.

Danier cautions readers that such factors and uncertainties are not exhaustive and that should certain risks or uncertainties materialize, or should underlying estimates or assumptions prove incorrect, actual events, performance and results may vary significantly from those expected. There can be no assurance that the actual results, performance, events or activities anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company. Potential investors and other readers are urged to consider these factors carefully in evaluating forward-looking information and forward-looking statements and are cautioned not to place undue reliance on any forward-looking information or forward-looking statements. Danier disclaims any intention or obligation to update or revise any forward-looking information or forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

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, see www.danier.com.

DANIER LEATHER INC.
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(thousands of Canadian dollars, except per share amounts and number of shares) - unaudited
For the 13 Weeks Ended
Sept 24, 2011 Sept 25, 2010
Revenue $ 22,091 $ 23,427
Cost of sales (Note 13) 10,401 11,166
Gross profit 11,690 12,261
Selling, general and administrative expenses (Note 13) 15,567 16,344
Interest income (38 ) (18 )
Interest expense 22 46
Loss before income taxes (3,861 ) (4,111 )
Recovery of income taxes (1,093 ) (1,239 )
Net loss and comprehensive loss ($ 2,768 ) ($ 2,872 )
Net loss per share:
Basic ($0.59 ) ($0.63 )
Diluted ($0.59 ) ($0.63 )
Weighted average number of shares outstanding:
Basic 4,656,157 4,572,546
Diluted 4,812,423 4,805,299
Number of shares outstanding at period end 4,628,135 4,579,835
See accompanying notes to the consolidated financial statements
DANIER LEATHER INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(thousands of Canadian dollars) - unaudited
Sept 24,
2011
Sept 25,
2010
June 25, 2011 June 27, 2010
ASSETS
Current Assets
Cash and cash equivalents (Note 5) $ 12,090 $ 9,330 $ 28,698 $ 26,563
Accounts receivable 1,093 748 385 543
Income taxes recoverable 1,846 1,368 - -
Inventories (Note 6) 39,775 36,413 28,964 26,539
Prepaid expenses 771 1,013 901 1,140
55,575 48,872 58,948 54,785
Non-current Assets
Property and equipment (Note 7) 14,608 15,809 14,404 15,662
Computer software (Note 8) 965 1,332 1,054 1,417
Deferred income tax asset (Note 14) 1,722 1,737 1,678 1,717
$ 72,870 $ 67,750 $ 76,084 $ 73,581
LIABILITIES
Current Liabilities
Payables and accruals (Note 10) $ 11,360 $ 13,133 $ 11,024 $ 12,443
Deferred revenue 1,456 1,637 1,489 1,628
Sales return provision (Note 11) 126 206 47 -
Income taxes payable - - 278 3,900
12,942 14,976 12,838 17,971
Non-current Liabilities
Deferred lease inducements and rent liability 1,283 1,299 1,318 1,345
14,225 16,275 14,156 19,316
SHAREHOLDERS' EQUITY
Share capital (Note 12) 14,941 14,240 15,160 14,176
Contributed surplus 949 1,270 934 1,252
Retained earnings 42,755 35,965 45,834 38,837
58,645 51,475 61,928 54,265
$ 72,870 $ 67,750 $ 76,084 $ 73,581
Commitments and Contingencies (Notes 16 and 17)
Approved by the Board
October 19, 2011
See accompanying notes to the consolidated financial statements
DANIER LEATHER INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(thousands of Canadian dollars) - unaudited
For the 13 Weeks Ended
Sept 24, 2011 Sept 25, 2010
Cash provided by (used in)
OPERATING ACTIVITIES
Net loss ($2,768 ) ($2,872 )
Adjustments for:
Amortization of property and equipment 831 860
Amortization of computer software 89 124
Amortization of deferred lease inducements (40 ) (53 )
Straight line rent expense 5 7
Stock-based compensation 15 40
Interest income (38 ) (18 )
Interest expense 22 46
Recovery of income taxes (1,093 ) (1,239 )
Changes in working capital (Note 15) (11,037 ) (8,992 )
Interest paid (12 ) (100 )
Interest received 57 18
Income taxes paid (1,074 ) (4,050 )
Net cash used in operating activities (15,043 ) (16,229 )
FINANCING ACTIVITIES
Subordinate voting shares issued - 42
Subordinate voting shares repurchased (530 ) -
Net cash (used in) generated from financing activities (530 ) 42
INVESTING ACTIVITIES
Acquisition of property and equipment (1,035 ) (1,007 )
Acquisition of intangible assets - (39 )
Net cash used in investing activities (1,035 ) (1,046 )
Decrease in cash and cash equivalents (16,608 ) (17,233 )
Cash and cash equivalents, beginning of period 28,698 26,563
Cash and cash equivalents, end of period $12,090 $9,330
See accompanying notes to the consolidated financial statements
DANIER LEATHER INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(thousands of Canadian dollars) – unaudited
Share Capital Contributed Surplus Accumulated Other Comprehensive Income Retained Earnings Total
Balance – June 25, 2011 $15,160 $934 $- $45,834 $61,928
Net loss - - - (2,768 ) (2,768 )
Stock-based compensation related to stock options - 15 - - 15
Exercise of stock options - - - - -
Share repurchases (219 ) - - (311 ) (530 )
Balance – September 24, 2011 $14,941 $949 $- $42,755 $58,645
Share Capital Contributed Surplus Accumulated Other Comprehensive Income Retained Earnings Total
Balance – June 27, 2010 $14,176 $1,252 $- $38,837 $54,265
Net loss - - - (2,872 ) (2,872 )
Stock-based compensation related to stock options - 40 - - 40
Exercise of stock options 64 (22 ) - - 42
Share repurchases - - - - -
Balance – September 25, 2010 $14,240 $1,270 $- $35,965 $51,475
See accompanying notes to the consolidated financial statements
DANIER LEATHER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the 13 week periods ended September 24, 2011 and September 25, 2010
(unless otherwise stated, all amounts are in thousands of Canadian dollars) - unaudited

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 address of its registered head office is 2650 St. Clair Avenue West, Toronto, Ontario, M6N 1M2, Canada.

2. Basis of Preparation and Adoption of IFRS:

(a) Statement of Compliance

These unaudited interim condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") applicable to the preparation of interim financial statements, including International Accounting Standard ("IAS") 34, Interim Financial Reporting and by IFRS 1, First-time Adoption of IFRS, as issued by the International Accounting Standards Board ("IASB"). Subject to certain transition elections disclosed in Note 21, the Company has consistently applied the same accounting policies in its opening IFRS statement of financial position at June 27, 2010 and throughout all periods presented, as if these policies had always been in effect. Note 21 and Note 22 discloses the impact of the transition to IFRS on the Company's reported statements of financial position, income (loss) and cash flows, including the nature and effect of significant changes in accounting policies from those used in the Company's consolidated financial statements for the fiscal year ended June 25, 2011.

The policies applied in these interim condensed consolidated financial statements are based on IFRS standards issued and outstanding as of October 19, 2011, the date the Board of Directors approved the financial statements. Any subsequent changes to IFRS that are given effect in the Company's annual consolidated financial statements for the financial year ending June 30, 2012 could result in restatement of these interim condensed consolidated financial statements, including transition adjustments recognized on change-over to IFRS.

The interim condensed consolidated financial statements should be read in conjunction with the Company's annual financial statements for the year ended June 25, 2011 prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). Note 22 discloses IFRS information for the year ended June 25, 2011 that is material to understanding of these interim condensed consolidated financial statements.

(b) Basis of Presentation

These interim condensed consolidated financial statements have been prepared on a historical cost basis 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 interim condensed 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 and Judgments

The preparation of these interim condensed 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 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 estimations depend upon subjective and complex judgments about matters that may be uncertain, and changes in those estimates could materially impact the unaudited interim condensed consolidated financial statements. Illiquid credit markets, volatile equity, foreign currency and energy markets and declines in consumer spending have combined to increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results may differ significantly from such estimates and assumptions.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

3. Summary of Significant Accounting Policies:

The significant accounting policies used in the preparation of these interim condensed consolidated financial statements are described below.

(a) Basis of measurement:

The interim condensed 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 interim condensed consolidated financial statements include the accounts of the Company and its subsidiary companies, all of which are wholly owned. On consolidation, all intercompany transactions and balances 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 will be the 53-week period ended June 30, 2012, and comparably the 52-week period ended June 25, 2011.

(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 rates of exchange in effect at the period end and non-monetary items are translated at historical exchange rates. Revenues and expenses are translated at the rates in effect on the transaction dates or at the average rates of exchange for the reporting period. The resulting net gain or loss is included 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 estimated returns and discounts and excludes sales taxes. Estimated returns are based on historical results and the type of transaction.

Sales of merchandise to customers through stores operated by the Company is recorded net of returns and discounts and is recognized when the significant risks and rewards of ownership have been transferred to the buyer, which is the time the transaction is entered into the point-of-sale register.

Alteration revenue is recorded based on the percentage of completion method. Due to alteration revenue representing less than one percent of merchandise revenue, the short time required to complete an alteration and at any point in time there is an immaterial amount of partially processed alterations, alteration revenue is recorded at the same time the sale of merchandise transaction is entered into the point-of-sale register.

Sales to the third party distributor is recorded when the significant risks and rewards of ownership have been transferred to the buyer, which is at the time of shipment.

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 operates an equity-settled Stock Option Plan and cash-settled Restricted Share Unit ("RSU") and Deferred Share Unit ("DSU") share-based compensation plans.

For the equity-settled Stock Option Plan, where options to purchase Subordinate Voting Shares are issued to directors, officers, employees and service providers (further details of which are described in Note 12(e)), the expense is based on the fair value of the awards granted, excluding the impact of any non-market service conditions (for example, continued employment over a specified time period). Non-market vesting conditions are considered in making assumptions about the number of awards that are expected to vest. The fair value of options granted is estimated at the date of grant using the Black-Scholes Option Pricing Model. The expense is recognized on a graded vesting basis over the vesting period of the stock options, which is generally three years.

When stock options are subsequently exercised, share capital is increased by the sum of the consideration paid together with the related portion previously added to contributed surplus when compensation costs were charged against income.

For the cash-settled RSU plan, where RSUs are issued to directors, officers and employees and vest over a period of up to three years (further details of which are described in Note 12(g)), the expense is recognized on a graded vesting schedule and is determined based on the fair value of the liability incurred at each financial position date until the award is settled. The fair value of the liability is measured by applying the Black-Scholes Option Pricing Model, taking into account the extent to which participants have rendered services to date.

For the cash-settled DSU plan, where DSUs are issued to directors and vest immediately and can only be redeemed once the director leaves the Board of Directors of the Company (further details of which are described in Note 12(f)), the expense is recognized on the grant date based on the fair value of the award by applying the Black-Scholes Option Pricing Model. The fair value of the liability is measured at each financial position date by applying the Black-Scholes Option Pricing Model until the award is settled.

At each financial position date, the Company reassesses its estimates of the number of awards that are expected to vest and recognizes the impact of any revisions in the statement of earnings (loss) with a corresponding adjustment to equity or liabilities, as appropriate.

(g) Cash and cash equivalents:

Cash and cash equivalents consists of cash on hand, bank balances and money market investments with maturities of three months or less.

(h) Financial instruments:

(i) Classification of Financial Instruments

Financial instruments are classified into one of the following three categories: held for trading, loans and receivables, or financial liabilities. 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
Bank indebtedness Financial liabilities Amortized cost
Payables and accruals Financial liabilities Amortized cost
Sales return provision Financial liabilities Amortized cost
Foreign currency option contract derivatives(1) Held for trading Fair value through profit and loss
(1) The carrying value of the Company's derivatives are included in the statement of financial position as accounts receivable (if the fair value is an unrealized gain) or payables and accruals (if the fair value is an unrealized loss).

Financial instruments measured at amortized cost are initially recognized at fair value and then subsequently at amortized cost using the effective interest method, less any impairment losses, with gains and losses recognized in the statement of earnings (loss) in the period in which the gain or loss occurs. Changes in fair value of financial instruments classified as held for trading are recorded in the statement of earnings (loss) in the period of change.

The Company categorizes its financial assets and financial liabilities that are recognized in the statements of financial position at fair value using the fair value hierarchy. The fair value hierarchy has the following levels:

  • Level 1 – quoted market prices in active markets for identical assets or liabilities;
  • Level 2 – inputs other than quoted market prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and
  • Level 3 – unobservable inputs such as inputs for the asset or liability that are not based on observable market data.

The level in the fair value hierarchy within which the fair value measurement is categorized in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety.

(ii) Transaction 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 selling, general and administrative expenses ("SG&A") using the effective interest method.

(iii) Derivative Financial Instruments

The Company uses derivatives in the form of foreign currency option contracts, which are used to manage risks related to its inventory purchases which are primarily denominated in United States dollars. All derivatives have been classified as held-for-trading, are included on the statements of financial position as accounts receivable or payables and accruals and are classified as current or non-current based on the contractual terms specific to the instrument. Gains and losses on re-measurement are included in SG&A.

(iv) Fair 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 assumption 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, 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 September 24, 2011, a $278gain (September 25, 2010 - $2 loss) was recorded in SG&A for the contracts outstanding.
The fair value of cash equivalents is determined using Level 2 inputs in the fair value hierarchy which include interest rates for similar instruments which are obtained from independent publications and market exchanges.
Given their short-term maturity, the fair value of accounts receivable, payables and accruals and deferred revenue approximates their carrying values.

(i) Impairment of financial assets:

At each reporting date, the Company assesses whether there is objective evidence that a financial asset is impaired. If such evidence exists, the Company recognizes an impairment loss, as follows:

  • 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.
  • Available-for-sale financial assets: The Company does not currently have available-for-sale financial assets. If the Company did have such assets, the impairment loss would be the difference between the original cost of the asset and its fair value at the measurement date, less any impairment losses previously recognized in the statement of earnings (loss). The amount would represent the cumulative loss in accumulated other comprehensive income that would be reclassified to net earnings. Impairment losses on available-for-sale equity instruments are not reversed.

(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, less estimated costs necessary to make the sale. Inventories are written down to net realizable value when the cost of inventories is not estimated to be recoverable due to obsolescence, damage or declining selling prices. When circumstances that previously caused inventories to be written down below cost no longer exist, the amount of the write-down previously recorded is reversed. Storage costs, administrative overheads and selling costs related to the inventories are expensed in the period the costs are incurred.

(k) Property and equipment:

Property and equipment are recorded at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. Borrowing costs attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets, until such time as the assets are substantially ready for their intended use. Qualifying assets are those assets that take longer than nine months to be substantially ready for their intended use. All other borrowing costs are recognized as interest expense in the statement of earnings (loss) in the period in which they are incurred.

Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits can be measured reliably. The carrying amount of a replaced asset is de-recognized when replaced. Repairs and maintenance costs are charged to the statement of earnings (loss) during the period in which they are incurred.

During the 13 week period ended September 24, 2011, the Company reviewed and adjusted its method of amortization and remaining useful lives of property and equipment from the declining balance method to the straight-line method, as this is believed to more accurately reflect the remaining useful life of each category of property and equipment. The change has been accounted for prospectively as a change in estimate. Based on property and equipment held as at September 24, 2011, the effect of this change results in an increase of amortization expense of $43 for the 13 week period ended September 24, 2011 and an estimated increase of amortization expense of $173 for the fiscal year ended June 30, 2012.The major categories of property and equipment and their methods of amortization and useful lives for the 13 week periods ended September 24, 2011 and September 25, 2010 are as follows:

13 Weeks Ended
September 24, 2011 September 25, 2010
Building 25 years straight-line 4% declining balance
Roof 20 years straight-line 20 years straight-line
HVAC equipment 5 to 15 years straight-line 5 to 15 years straight-line
Furniture and equipment (non-retail) 5 to 7 years straight-line 20% declining balance
Furniture and fixtures (retail locations) Term of lease not to exceed 10 years 20% declining balance
Computer hardware 4 to 7 years straight-line 30% declining balance

Leasehold improvements for a specific retail location are amortized on a straight-line basis over the term of the lease not to exceed 10 years, unless the Company has decided to terminate the lease, at which time the unamortized balance is written off. Land is not amortized.

The Company allocates the amount initially recognized in respect of an item of property and equipment to its significant parts and depreciates separately each such part. Residual values, method of amortization and useful lives of the assets are reviewed annually and adjusted if appropriate. Gains and losses on disposals of property and equipment are determined by comparing the proceeds with the carrying amount of the asset and are included as part of SG&A in the statement of earnings (loss).

(l) Computer software:

Computer software with finite useful lives is classified as an intangible asset. Computer software is purchased from external vendors and capitalized and amortized in the statement of earnings (loss) over the period of its expected useful life. During the 13 week period ended September 24, 2011, the Company reviewed and adjusted its method of amortization and useful lives of computer software from the 30% declining balance method to the straight-line method over a period of 4 to 7 years. Based on computer software held as at September 24, 2011, the effect of this change resulted in an increase of amortization expense of $10 for the 13 week period ended September 24, 2011 and an estimated increase of amortization expense of $39 for the fiscal year ended June 30, 2012. Amortization and useful lives of computer software is reviewed annually and adjusted if appropriate.

(m) Impairment of non-financial assets:

Property and equipment and computer software with finite lives are tested for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable at the financial position date. For purposes of measuring recoverable amounts, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units or CGUs), which is at the individual store level for the Company. The recoverable amount is the greater of an asset's fair value less costs to sell and value in use (being the present value of the expected future cash flows of the relevant asset or CGU). An impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. The Company evaluates impairment losses for potential reversals when events or circumstances warrant such consideration.

(n) Provisions:

Provisions represent liabilities to the Company for which the amount or timing is uncertain. Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. The sales return provision primarily comprises customer returns of unworn and undamaged purchases for a full refund within the time period provided by Danier's return policy, which is generally 14 days after the purchase date. The sales return provision is estimated based on historical experience and since the time period of the provision is of relatively short duration, the present value of the expenditure expected to be required to settle the obligation approximates the actual provision estimate. The provision is reviewed at each financial position date and updated to reflect management's latest best estimate, however, actual returns could vary from these estimates.

(o) 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.

(p) Income taxes:

Income tax comprises current and deferred tax.

Current 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. Income taxes in interim reporting periods are accrued, to the extent practicable, by applying estimated average annual effective federal and provincial income tax rates to the interim period pre-tax income. 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 estimated average annual effective income tax rates are re-estimated at each interim reporting date. In determining estimated tax rates, the Company uses enacted or substantially enacted tax rates in effect at the reporting date and any adjustments to taxes payable in respect of previous years.

In general, deferred tax is recognized in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined on a non-discounted basis using tax rates and laws that have been enacted or substantially enacted at the financial position date and are expected to apply when the deferred tax asset or liability is settled. Deferred tax assets are recognized to the extent that it is probable that the assets can be recovered.

Estimation of income taxes includes evaluating the recoverability of deferred tax assets based on an assessment of the Company's ability to utilize the underlying future tax deductions against future taxable income before they expire. As described above, the Company's assessment is based upon substantially enacted tax rates and laws that are expected to apply when the assets are expected to be realized, as well as on estimates of future taxable income. If the assessment of the Company's ability to utilize the underlying future tax deductions changes, the Company would be required to recognize more or fewer of the tax deductions or assets, which would decrease or increase the income tax expense in the period in which this is determined. Deferred income tax assets are recognized on the statement of financial position under non-current assets, irrespective of the expected date of realization or settlement.

The Company is subject to taxation federally and in numerous provinces. 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. The Company reviews the adequacy of it tax provisions at each financial position date. However, it is possible that at some future date an additional liability could result from audits by taxing 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.

(q) 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 12). 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 Toronto Stock Exchange (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.

(r) New standards and interpretations not yet adopted:

A number of new standards, amendments to standards and interpretations have been issued but are not yet effective for the financial year ending June 30, 2012, and accordingly, have not been applied in preparing these unaudited interim condensed consolidated financial statements:

(i) Financial Instruments – Disclosures

The IASB has issued an amendment to IFRS 7, "Financial Instruments: Disclosures", requiring incremental disclosures regarding transfers of financial assets. This amendment is effective for annual periods beginning on or after July 1, 2011. The Company will apply the amendment for its fiscal year beginning July 1, 2012 and does not expect the implementation to have a significant impact on the Company's disclosures.

(ii) Financial Instruments

The IASB has issued a new standard, IFRS 9, "Financial Instruments" ("IFRS 9"), which will ultimately replace IAS 39, "Financial Instruments: Recognition and Measurement" ("IAS 39"). The replacement of IAS 39 is a multi-phase project with the objective of improving and simplifying the reporting for financial instruments and the issuance of IFRS 9 is a part of the first phase. This standard becomes effective on January 1, 2013. The Company has yet to assess the impact of the new standard on its statements of financial position, earnings (loss) and disclosures.

(iii) Fair Value

The IASB has issued a new standard, IFRS 13, "Fair Value Measurement" ("IFRS 13"), which is a comprehensive standard for fair value measurement and disclosure requirements for use across all IFRS standards. The new standard clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the measurement date. It also establishes disclosures about fair value measurement. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements and in many cases does not reflect a clear measurement basis or consistent disclosures. The Company does not believe that this new standard will have a material impact on its consolidated financial statements.

(iv) Other Standards

On May 12, 2011, the IASB issued a package of five new standards, all of which are effective for annual periods beginning on or after January 1, 2013. Early adoption is permitted but IFRS 10, IFRS 11 and IFRS 12 (all discussed below) must all be adopted at the same time. The Company has yet to fully assess the impact of the new standards and amendments on its consolidated financial statements. The following is a list of these new standards and amendments.

  • IFRS 10, "Consolidated Financial Statements" ("IFRS 10") – This standard replaces the portions of IAS 27, "Consolidated and Separate Financial Statements" that pertain to consolidated reporting and also SIC-12, "Consolidation – Special Purpose Entities". This new standard establishes standards for the presentation and preparation of consolidated financial statements when an entity controls one or more entities. IFRS 10 establishes a single control model that applies to all entities.
  • IFRS 11, "Joint Arrangement" ("IFRS 11") – This standard replaces IAS 31, "Interests in Joint Ventures" and SIC-13, "Jointly-controlled Entities – Non-Monetary Contributions by Venturers", and requires that a party in a joint arrangement asses its rights and obligations to determine the type of joint arrangement and account for those rights and obligations accordingly. IFRS 11 removes the option to account for jointly controlled entities using proportionate consolidation. Instead, jointly controlled entities that meet the definition of a joint venture must be accounted for using the equity method.
  • IFRS 12, "Disclosure of Interests in Other Entities" ("IFRS 12") – This standard supplements existing disclosure requirements about interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. It focuses on the nature of, and risk associated with, interest in other entities and the effects of such interests on its statements of financial position, earnings (loss) and cash flows.
  • IAS 27, "Separate Financial Statements" and IAS 28 "Investments in Associates and Joint Venturers" are both being amended as a direct consequence of the above new standards and deal with accounting in separate, or unconsolidated, financial statements, as well as the mechanics of equity accounting for joint ventures.

4. Seasonality of retail operations:

Due to the seasonal nature of the retail business and the Company's product lines, the results of operation for any interim period are not necessarily indicative of the results of operations to be expected for the fiscal year. Generally, a significant portion of the Company's sales and earnings are typically 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.

5. Cash and cash equivalents:

The components of cash and cash equivalents are as follows:

September 24, 2011 September 25, 2010 June 25, 2011 June 27, 2010
Cash $6,093 $9,330 $4,625 $11,569
Bankers acceptances 5,997 - 24,073 14,994
Cash and cash equivalents $12,090 $9,330 $28,698 $26,563
6. Inventories:
September 24, 2011 September 25, 2010 June 25, 2011 June 27, 2010
Raw materials $2,595 $2,235 $2,655 $1,451
Work-in-process 150 151 265 105
Finished goods 37,030 34,027 26,044 24,983
$39,775 $36,413 $28,964 $26,539
13 Weeks Ended Year Ended
September 24, 2011 September 25, 2010 June 25, 2011 June 27, 2010
Cost of inventory recognized as an expense $10,282 $11,026 $70,439 $76,473
Write-downs of inventory due to net realizable value being lower than cost $145 $109 $1,549 $2,267
Write-downs recognized in previous periods that were reversed $3 $21 $45 $25
7. Property and Equipment:
13 Weeks Ended September 24, 2011
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 - - - 34 767 179 55 1,035
Disposals - - - - (1,470 ) (346 ) - (1,816 )
At September 24, 2011 $1,000 $6,063 $308 $787 $22,750 $8,818 $3,235 $42,961
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 - 39 4 12 425 267 84 831
Impairment losses - - - - - - - -
Disposals - - - - (1,470 ) (346 ) - (1,816 )
At September 24, 2011 - $2,237 $188 $543 $16,923 $6,153 $2,309 $28,353
Net carrying value
At September 24, 2011 $1,000 $3,826 $120 $244 $5,827 $2,665 $926 $14,608
At June 25, 2011 $1,000 $3,865 $124 $222 $5,485 $2,753 $955 $14,404
Capital work in progress included above
At September 24, 2011 - - - - $464 $31 - $495
13 Weeks Ended September 25, 2010
Land Building Roof HVAC Leasehold Improvements Furniture & Equipment Computer Hardware Total
Cost
At June 27, 2010 $1,000 $6,063 $308 $693 $23,574 $8,504 $3,110 $43,252
Additions - - - - 568 312 127 1,007
Disposals - - - - - - - -
At September 25, 2010 $1,000 $6,063 $308 $693 $24,142 $8,816 $3,237 $44,259
Accumulated amortization and impairment losses
At June 27, 2010 - $2,036 $169 $481 $17,068 $5,684 $2,152 $27,590
Amortization for the period - 40 4 11 555 158 92 860
Impairment losses - - - - - - - -
Disposals - - - - - - - -
At September 25, 2010 - $2,076 $173 $492 $17,623 $5,842 $2,244 $28,450
Net carrying value
At September 25, 2010 $1,000 $3,987 $135 $201 $6,519 $2,974 $993 $15,809
At June 27, 2010 $1,000 $4,027 $139 $212 $6,506 $2,820 $958 $15,662
Capital work in progress included above
At September 25, 2010 - - - - 17 18 - 35

The Company conducted an impairment test for its property and equipment and determined that there was no impairment for the 13 weeks ended September 24, 2011 ($NIL – 13 weeks ended September 25, 2010). 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 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 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, there would still be no impairment.

8. Computer Software:

13 Weeks Ended
September 24, 2011 September 25, 2010
Cost
Beginning of period $4,041 $4,169
Additions - 39
Disposals - -
End of period $4,041 $4,208
Accumulated amortization
Beginning of period $2,987 $2,752
Amortization for the period 89 124
Impairment losses - -
End of period $3,076 $2,876
Net carrying value
End of period $965 $1,332
Beginning of period $1,054 $1,417

9. 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, 2011 and December 15, 2011) and an uncommitted demand overdraft facility in the amount of $0.5 million (the "LC Facility") 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.

10. Payables and Accruals:

September 24, 2011 September 25, 2010 June 25, 2011 June 27, 2010
Trade payables $3,590 $4,119 $1,633 $2,286
Accruals 5,331 5,578 6,693 7,364
RSU/DSU liability 1,830 2,604 1,897 1,823
Commodity and capital taxes 509 712 777 747
Other current liabilities 100 120 24 223
$11,360 $13,133 $11,024 $12,443

11. 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 13 week periods ended September 24, 2011 and September 25, 2010 with respect to the sales return provision:

13 Weeks Ended
September 24, 2011 September 25, 2010
Beginning of period $47 $-
Amount provided during the period 126 206
Released during the period (47 ) -
End of period $126 $206
12. 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 27, 2010 1,224,329 Nominal
Balance September 25, 2010 1,224,329 Nominal
Balance, June 25, 2011 1,224,329 Nominal
Balance September 24, 2011 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 - -
Balance September 24, 2011 3,403,806 $14,941
Balance June 27, 2010 3,343,840 $14,176
Shares repurchased - -
Shares issued upon exercising of stock options 11,666 64
Balance September 25, 2010 3,355,506 $14,240

The Multiple Voting Shares and Subordinate Voting Shares have identical attributes except that the Multiple Voting Shares entitle the holder to ten votes per share and the Subordinate Voting Shares entitle the holder to one vote per share. Each Multiple Voting Share is convertible at any time, at the holder's option, into one fully paid and non-assessable Subordinate Voting Share. The Multiple Voting Shares are subject to provisions whereby, if a triggering event occurs, then each Multiple Voting Share is converted into one fully paid and non-assessable Subordinate Voting Share. A triggering event may occur if, among other things, Mr. Jeffrey Wortsman, President and Chief Executive Officer: (i) dies; (ii) ceases to be a Senior Officer of the Company; (iii) ceases to own 5% or more of the aggregate number of Multiple Voting Shares and Subordinate Voting Shares outstanding; or (iv) owns less than 918,247 Multiple Voting Shares and Subordinate Voting Shares combined.

(c) Earnings per share

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

13 Weeks Ended
September 24, 2011 September 25, 2010
Weighted average number of shares for basic earnings per share calculations 4,656,157 4,572,546
Effect of dilutive options outstanding 156,266 232,753
Weighted average number of shares for diluted earnings per share calculations 4,812,423 4,805,299

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 62,000 as at September 24, 2011 and 58,000as at September 25, 2010.

(d) Normal Course Issuer Bids

During the past several years, the Company has received approval from the TSX to commence various normal course issuer bids ("NCIBs"). On May 5, 2011, the Company received approval from the TSX to commence its fifth normal course issuer bid (the "2011 NCIB"). The Company's previous normal course issuer bid expired on May 6, 2011 (the "2010 NCIB"). The 2011 NCIB permits the Company to acquire up to 176,440 Subordinate Voting Shares, representing approximately 5% of the Company's issued and outstanding Subordinate Voting Shares at the date of acceptance of the notice of intention in respect of the 2011 NCIB filed with the TSX, during the period from May 9, 2011 to May 8, 2012, or such earlier date as the Company may complete its purchases under the 2011 NCIB. During the fourth quarter of fiscal 2011 and the first quarter of fiscal 2012, the Company repurchased an aggregate of 125,000 Subordinate Voting Shares for cancellation at a weighted average price of $11.44, leaving 51,440 Subordinate Voting Shares available for repurchase by the Company under the 2011 NCIB.

During the 13 week periods ended September 24, 2011 and September 25, 2010, repurchases of Subordinate Voting Shares under the Company's NCIBs outstanding during the applicable period is presented below.

13 Weeks Ended
September 24, 2011 September 25, 2010
Number of shares repurchased under NCIBs 50,000 -
Amount charged to share capital $219 $-
Amount charged to retained earnings representing the excess over the average paid-in value $311 $-
Total cash consideration $530 $-

(e) Stock option plan

The Company maintains a Stock Option Plan for the benefit of directors, officers, employees and service providers, pursuant to which granted options are exercisable for Subordinate Voting Shares. As at September 24, 2011, the Company has reserved 638,934 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 under the Stock Option Plan 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 September 24, 2011 and September 25, 2010 and changes during the 13 week periods ended on those dates is presented below:

September 24, 2011 September 25, 2010
Stock Options Shares Weighted Average Exercise Price Shares Weighted Average Exercise Price
Outstanding at beginning of period 348,434 $6.65 553,400 $6.13
Granted - - - -
Exercised - - (11,666 ) $3.15
Forfeited - - (20,000 ) $10.40
Outstanding at end of period 348,434 $6.65 521,734 $6.09
Options exercisable at end of period 238,429 $8.25 292,975 $8.21

The following table summarizes the distribution of these options and the remaining contractual life as at September 24, 2011:

Options Outstanding Options Exercisable
Exercise Prices # Outstanding Weighted Average Remaining Contractual Life Weighted Average Exercise Price # of Shares Exercisable Weighted Average Exercise Price
$3.15 169,767 7.1 years $3.15 66,429 $3.15
$3.97 6,667 7.6 years $3.97 - $3.97
$6.25 50,000 6.8 years $6.25 50,000 $6.25
$7.80 45,000 5.3 years $7.80 45,000 $7.80
$8.68 15,000 5.6 years $8.68 15,000 $8.68
$10.96 4,000 1.9 years $10.96 4,000 $10.96
$15.85 58,000 0.9 years $15.85 58,000 $15.85
348,434 5.7 years $6.65 238,429 $8.25

During the 13 week periods ended September 24, 2011 and September 25, 2010, there were no stock options granted.

The compensation expense recorded for the 13 week period ended September 24, 2011 in respect of stock options was $15 (13 week period ended September 25, 2010 - $40). The counterpart is recorded as contributed surplus. Any consideration paid by optionees on the exercise of stock options is credited to share capital.

(f) Deferred Share Unit Plan

The cash-settled Deferred Share Unit ("DSU") Plan, as amended, was established for non-management directors. Under the DSU Plan, non-management directors of the Company may receive an annual grant of DSUs at the discretion of the Board of Directors on the advice of the Committee, and can also elect to receive their annual retainers and meeting fees in DSUs. A DSU is a notional unit equivalent in value to one Subordinate Voting Share of the Company based on the five-day average trading price of the Company's Subordinate Voting Shares on the TSX immediately prior to the date on which the value of the DSU is determined.

After retirement from the Board of Directors, a participant in the DSU Plan receives a cash payment equal to the market value of the accumulated DSUs in their account. The fair value of the liability is measured at each financial position date by applying the Black-Scholes Option Pricing Model until the award is settled.

The following transactions occurred during each of the 13 week periods ended September 24, 2011 and September 25, 2010 with respect to the DSU Plan:

13 Weeks Ended
Sept 24, 2011 Sept 25, 2010
Outstanding at beginning of period 103,920 103,920
Granted - -
Redeemed - -
Outstanding at end of period 103,920 103,920
Danier stock price at end of period $10.50 $11.88
Liability at end of period $1,091 $1,235
Compensation expense recorded in SG&A ($52 ) $314

(g) Restricted Share Unit Plan

The Company has established a cash-settled Restricted Share Unit ("RSU") Plan, as amended, as part of its overall compensation plan. An RSU is a notional unit equivalent in value to one Subordinate Voting Share of the Company. The RSU Plan is administered by the Board of Directors, with the advice of the Committee. Under the RSU Plan, certain eligible 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. RSU expense is recognized on a graded vesting schedule and is determined based on the fair value of the liability incurred at each financial position date until the award is settled. The fair value of the liability is measured by applying the Black-Scholes Option Pricing Model, taking into account the extent to which participants have rendered services to date.

The following transactions occurred during each of the 13 week periods ended September 24, 2011 and September 25, 2010 with respect to the RSU Plan:

13 Weeks Ended
Sept 24, 2011 Sept 25, 2010
Outstanding at beginning of period 122,300 105,479
Granted 61,100 122,300
Redeemed (16,130 ) -
Forfeited (500 ) -
Outstanding at end of period 166,770 227,779
RSU vested at end of period 16,300 93,355
Liability at end of period $740 $1,369
Compensation expense recorded in SG&A $158 $467

13. Amortization:

Amortization included in cost of sales and SG&A is summarized as follows:

13 Weeks Ended
September 24, 2011 September 25, 2010
Cost of sales $46 $43
SG&A 874 941
$920 $984

14. Income Taxes:

The estimated average annual effective rate was 28.3% during the 13 weeks ended September 24, 2011 compared with 30.1% estimated rate for the 13 weeks ended September 25, 2010 and 30.8% for the fiscal year ended June 25, 2011. The difference between the rate for the 13 weeks ended September 24, 2011 and the rate for the 13 weeks ended September 25, 2010 and the fiscal year ended June 25, 2011 is due to a reduction in the statutory tax rates as well as the effect of certain non-deductible expenses on estimated earnings and the effect of changes in future federal and provincial rates on deferred taxes.

Deferred income tax asset is summarized as follows:

September 24, 2011 September 25, 2010 June 25, 2011 June 27, 2010
Amortization $853 $880 $825 $888
Deferred lease inducements and rent liability 330 358 337 354
Stock based compensation 539 499 516 475
$1,722 $1,737 $1,678 $1,717
The Company's effective income tax rate consists of the following:
13 Weeks Ended
September 24, 2011 September 25, 2010
Combined basic federal and provincial average statutory rate 27.2% 28.9%
Non-deductible expenses 0.5% 0.9%
Future federal and provincial rate changes 0.4% 0.2%
Other 0.2% 0.1%
28.3% 30.1%
15. Change in Working Capital Items:
13 Weeks Ended
September 24, 2011 September 25, 2010
Decrease (increase) in:
Accounts receivable ($708 ) ($205 )
Inventories (10,811 ) (9,874 )
Prepaid expenses 100 182
Increase (decrease) in:
Accounts payable and accrued liabilities 336 690
Deferred revenue (33 ) 9
Sales return provision 79 206
($11,037 ) ($8,992 )

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.

(iii) The Company sublet one location during the first quarter of fiscal 2011 and provided the landlord with a guarantee in the event the sub-tenant defaults on its obligations under the lease. The guarantee terminates at the time of lease expiry, which is March 31, 2013, and the Company's maximum exposure is approximately $211.

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 5 years. The majority of leases are net leases, which require additional payments for the cost of insurance, taxes, common area maintenance and utilities. Certain rental agreements include contingent rent, which is based on revenue exceeding a minimum amount. Minimum rentals, excluding rentals based upon revenue, are as follows:

Not later than one year $10,277
Later than one year and not later than five years $24,083
Later than 5 years $9,137
Total $43,497
13 Weeks Ended
September 24, 2011 September 25, 2010
Minimum lease payments recognized as an expense $2,733 $2,710
Contingent rentals recognized as an expense $1 ($27)
Sublease payments recognized as an expense - -

(b) Letters of credit:

The Company had outstanding letters of credit in the amount of $12,729 (September 25, 2010 - $17,765) 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.

September 24, 2011 June 25, 2011
Classification Maturity Carrying value Fair value Carrying value Fair value
Cash and cash equivalents Loans and receivables Short-term $12,090 $12,090 $28,698 $28,698
Accounts receivable Loans and receivables Short-term $815 $815 $385 $385
Payables and accruals Financial liabilities Short-term $11,360 $11,360 $10,884 $10,884
Sales return provision Financial liabilities Short-term $126 $126 $47 $47
Derivative financial instruments(1) Held for trading Short-term $278 $278 ($140 ) ($140 )
(1) Included in accounts receivable for the 13 week period ended September 24, 2011 and included in payables and accruals for the year ended June 25, 2011.

The fair value of a financial instrument is the estimated amount that the Company would receive or pay to settle the financial assets and financial liabilities as at the reporting date. These estimates are subjective in nature, often involve uncertainties and the exercise of significant judgment and are made at a specific point in time, using available information about the financial instrument and may not reflect fair value in the future. The estimated fair value amounts can be materially affected by the use of different assumptions or methodologies.

The 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 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 September 24, 2011, a $278unrealized gain was recorded in selling, general and administrative expenses for the foreign exchange contracts outstanding.
The fair value of cash 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.

(b) Financial instrume