interim_financial.htm

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Gildan Activewear Inc.
Interim Consolidated Balance Sheets
(in thousands of U.S. dollars)


		July 3, 2011		October 3, 2010		July 4, 2010
			(unaudited)		(audited)		(unaudited)
Current assets:
	Cash and cash equivalents	$	88,993	$	258,442	$	201,209
	Trade accounts receivable		275,607		145,684		167,948
	Income taxes receivable		-		-		528
	Inventories (note 5)		519,716		332,542		323,991
	Prepaid expenses and deposits		12,491		9,584		10,596
	Future income taxes		16,033		6,340		6,634
	Other current assets		8,092		9,079		9,646
			920,932		761,671		720,552

Property, plant and equipment			533,600		479,292		462,641
Assets held for sale (note 9)			14,912		3,246		3,546
Intangible assets			259,171		61,321		63,422
Goodwill			150,288		10,197		10,035
Other assets			14,383		11,805		12,242

Total assets		$	1,893,286	$	1,327,532	$	1,272,438


Current liabilities:
	Accounts payable and accrued liabilities	$	299,367	$	186,205	$	184,666
	Income taxes payable		5,504		5,024		-
	Current portion of long-term debt		-		-		58
			304,871		191,229		184,724

Long-term debt (note 6)			252,000		-		-
Future income taxes			28,049		10,816		19,447
Non-controlling interest in consolidated joint venture			11,364		11,058		8,367

Contingencies (note 15)

Shareholders' equity:
	Share capital		102,430		97,036		96,236
	Contributed surplus		13,001		10,091		9,753

	Retained earnings		1,155,669		982,764		925,948
	Accumulated other comprehensive income		25,902		24,538		27,963
			1,181,571		1,007,302		953,911
			1,297,002		1,114,429		1,059,900


Total liabilities and shareholders' equity		$	1,893,286	$	1,327,532	$	1,272,438


See accompanying notes to interim consolidated financial statements.

QUARTERLY REPORT – Q3 2011 P.29

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Gildan Activewear Inc.
Interim Consolidated Statements of Earnings and Comprehensive Income
(in thousands of U.S. dollars, except per share data)


	Three months ended				Nine months ended
		July 3,		July 4,		July 3,		July 4,
		2011		2010		2011		2010
		(unaudited)		(unaudited)		(unaudited)		(unaudited)

Net sales	$	529,777	$	395,324	$	1,244,286	$	942,528
Cost of sales		379,957		288,190		904,989		678,938

Gross profit		149,820		107,134		339,297		263,590

Selling, general and administrative
expenses		56,485		39,927		145,841		112,629
Restructuring and other charges
(note 9)		537		2,812		4,911		5,922

Operating income		92,798		64,395		188,545		145,039

Financial expense, net (note 14)		807		961		3,660		1,883
Non-controlling interest in
consolidated joint venture		891		584		306		1,095

Earnings before income taxes		91,100		62,850		184,579		142,061

Income taxes (note 17)		(2,982)		(1,837)		(6,791)		632

Net earnings		94,082		64,687		191,370		141,429

Other comprehensive income, net
of related income taxes (note 11)		1,371		489		1,364		1,715

Comprehensive income	$	95,453	$	65,176	$	192,734	$	143,144



Earnings per share:
Basic EPS (note 10)	$	0.77	$	0.53	$	1.57	$	1.17
Diluted EPS (note 10)	$	0.77	$	0.53	$	1.56	$	1.16




See accompanying notes to interim consolidated financial statements.

QUARTERLY REPORT – Q3 2011 P.30

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Gildan Activewear Inc.

Interim Consolidated Statements of Shareholders’ Equity

Nine months ended July 3, 2011 and July 4, 2010

(in thousands or thousands of U.S. dollars)

						Accumulated
						other					Total
	Share capital			Contributed		comprehensive		Retained		shareholders'
	Number	Amount		surplus		income		earnings			equity

Balance, October 3, 2010	121,352	$	97,036	$	10,091	$	24,538	$	982,764		$	1,114,429
Stock-based compensation related to
stock options and Treasury restricted
share units (note 7)	-		-		3,422		-		-			3,422
Shares issued as consideration for costs
incurred in a business acquisition
(note 12(c))	30		1,068		-		-		-			1,068
Shares issued under employee share
purchase plan	17		488		-		-		-			488
Shares issued pursuant to exercise of
stock options	354		3,343		(140)		-		-			3,203
Shares issued pursuant to vesting of
Treasury restricted share units	21		495		(495)		-		-			-
Other comprehensive income (note 11)	-		-		-		1,364		-			1,364
Dividends declared	-		-		123		-		(18,465)			(18,342)
Net earnings	-		-		-		-		191,370			191,370

Balance, July 3, 2011 (unaudited)	121,774	$	102,430	$	13,001	$	25,902	$	1,155,669		$	1,297,002



Balance, October 4, 2009	120,963	$	93,042	$	6,976	$	26,248	$	784,519		$	910,785
Stock-based compensation related to
stock options and Treasury restricted
share units (note 7)	-		-		3,146		-		-			3,146
Recovery related to repricing of stock
options previously exercised	-		-		1,159		-		-			1,159
Shares issued under employee share
purchase plan	19		466		-		-		-			466
Shares issued pursuant to exercise of
stock options	178		1,210		(10)		-		-			1,200
Shares issued pursuant to vesting of
Treasury restricted share units	142		1,518		(1,518)		-		-			-
Other comprehensive income (note 11)	-		-		-		1,715		-			1,715
Net earnings	-		-		-		-		141,429			141,429

Balance, July 4, 2010 (unaudited)	121,302	$	96,236	$	9,753	$	27,963	$	925,948		$	1,059,900




See accompanying notes to interim consolidated financial statements.

QUARTERLY REPORT – Q3 2011 P.31

INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Gildan Activewear Inc.

Interim Consolidated Statements of Cash Flows

(in thousands of U.S. dollars)

		Three months ended				Nine months ended
			July 3,		July 4,		July 3,		July 4,
			2011		2010		2011		2010
		(unaudited)		(unaudited)		(unaudited)		(unaudited)
Cash flows from (used in) operating activities:
	Net earnings	$	94,082	$	64,687	$	191,370	$	141,429
	Adjustments for non-cash items (note 12(a))		17,869		18,479		54,402		59,116
			111,951		83,166		245,772		200,545
	Changes in non-cash working capital balances:
	Trade accounts receivable		(54,219)		(17,615)		(100,091)		(7,655)
	Inventories		(23,071)		13,713		(127,585)		(24,291)
	Prepaid expenses and deposits		(2,345)		(3,529)		(827)		1,008
	Other current assets		1,135		(1,882)		(2)		(1,089)
	Accounts payable and accrued liabilities		23,758		32,866		52,952		55,437
	Income taxes		3,504		537		651		(12,357)
			60,713		107,256		70,870		211,598
Cash flows from (used in) financing activities:
	Increase in amounts drawn under revolving
	long-term credit facility		252,000		-		252,000		-
	Dividends paid		(9,148)		-		(18,342)		-
	Increase in other long-term debt		-		-		-		43
	Repayment of other long-term debt		-		(640)		-		(4,372)
	Proceeds from the issuance of shares		2,023		734		3,691		1,666
	Recovery related to repricing of stock options previously
	exercised		-		-		-		1,159
			244,875		94		237,349		(1,504)
Cash flows from (used in) investing activities:
	Purchase of property, plant and equipment		(32,189)		(25,597)		(110,904)		(93,613)
	Purchase of intangible assets		(1,233)		(399)		(3,000)		(917)
	Business acquisitions, net of cash acquired (note 4)		(352,495)		-		(352,495)		(15,326)
	Payment of contingent consideration (note 12(d))		-		-		(5,815)		-
	Restricted cash related to acquisition		-		254		-		254
	Purchase of corporate asset, net of proceeds (note 12(a))		-		-		(3,693)		-
	Proceeds on disposal of assets held for sale		7		348		468		4,388
	Net (increase) decrease in other assets		(4,346)		624		(2,517)		(2,900)
			(390,256)		(24,770)		(477,956)		(108,114)
Effect of exchange rate changes on cash and
cash equivalents denominated in foreign currencies			(99)		(463)		288		(503)
Net (decrease) increase in cash and cash equivalents
during the period			(84,767)		82,117		(169,449)		101,477
Cash and cash equivalents, beginning of period			173,760		119,092		258,442		99,732
Cash and cash equivalents, end of period		$	88,993	$	201,209	$	88,993	$	201,209

Supplemental disclosure of cash flow information (note 12)

See accompanying notes to interim consolidated financial statements.

QUARTERLY REPORT – Q3 2011 P.32

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(For the period ended July 3, 2011)

(Tabular amounts in thousands or thousands of U.S. dollars except per share data, unless otherwise indicated)

1. BASIS OF PRESENTATION:

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles for interim financial information and include all normal and recurring entries that are necessary for a fair presentation of the financial statements. Accordingly, they do not include all of the information and footnotes required by Canadian generally accepted accounting principles for complete financial statements, and should be read in conjunction with the Company’s annual audited consolidated financial statements for the year ended October 3, 2010.

The Company's revenues and income are subject to seasonal variations. Consequently, the results of operations for the third fiscal quarter are traditionally not indicative of the results to be expected for the full fiscal year.

2. SIGNIFICANT ACCOUNTING POLICIES:

The Company applied the same accounting policies in the preparation of the interim consolidated financial statements, as those disclosed in note 1 of its annual audited consolidated financial statements for the year ended October 3, 2010. The method of amortization and estimated useful lives of intangible assets resulting from the acquisition of Gold Toe Moretz Holdings Corp. are disclosed in note 4 below.

3. CHANGEOVER TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”):

In February 2008, the Canadian Accounting Standards Board confirmed that IFRS, as issued by the International Accounting Standards Board, will replace Canadian generally accepted accounting principles for publicly accountable enterprises effective for fiscal years beginning on or after January 1, 2011. As a result, the Company will be required to change over to IFRS for its fiscal 2012 interim and annual consolidated financial statements with comparative information for fiscal 2011.

In preparation for the changeover to IFRS, the Company has developed an IFRS transition plan. The Company has completed its initial phase, comprised of a diagnostic process, which involved a comparison of the Company’s current accounting policies under Canadian generally accepted accounting principles with currently issued IFRS. The second phase of the transition plan, which involved a detailed impact analysis of the identified differences, has also been completed, and the final implementation phase is currently underway. As the IFRS transition plan progresses, the Company will continue to report on the status of its transition plan in its Management’s Discussion and Analysis.

4. BUSINESS ACQUISITION:

Gold Toe Moretz Holdings Corp.

On April 15, 2011, the Company acquired 100% of the capital stock of Gold Toe Moretz Holdings Corp. (“Gold Toe Moretz”), a leading supplier of high-quality branded athletic, casual and dress socks for national chains, mass-market retailers, price clubs, department stores and specialty sporting goods stores in the United States.

The aggregate purchase price of $352.5 million, net of cash acquired, included direct acquisition related costs of $7.3 million. The purchase price was subject to a working capital adjustment which was finalized subsequent to the end of the quarter resulting in a reduction of the purchase price of approximately $3.0 million and will be recorded in the fourth quarter of fiscal 2011 as a reduction to goodwill. In addition, the purchase agreement provides for an additional purchase price consideration of up to 150,000 common shares issued in the form of treasury restricted share units (“Treasury RSUs”) at closing, with a fair value of approximately $5.3 million at the date of acquisition. The vesting of the Treasury RSUs is contingent on the satisfaction of specified future events. This contingent consideration has not been reflected in the purchase price of the acquisition on the basis that the outcome of the contingency cannot be determined beyond a reasonable doubt at this time. Any additional purchase price consideration paid by the Company will be accounted for as an increase to goodwill. The Company financed the acquisition by using approximately $100 million of cash on hand and approximately $250 million drawn on the Company’s revolving long-term credit facility.

QUARTERLY REPORT – Q3 2011 P.33

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4. BUSINESS ACQUISITION (continued):

The Company accounted for this acquisition using the purchase method and the results of Gold Toe Moretz have been consolidated with those of the Company from the date of acquisition.

The Company has allocated the purchase price on a preliminary basis to the assets acquired and liabilities assumed based on management’s best estimate of their fair values and taking into account all relevant information available at that time. Since the Company is still in the process of finalizing the valuation of assets acquired and liabilities assumed at the acquisition date, the allocation of the purchase price is subject to change. The Company expects to finalize the purchase price allocation by the end of fiscal 2011.

The following table summarizes the estimated fair value of assets acquired and liabilities assumed at the date of acquisition:


Assets acquired:
	Trade accounts receivable	$	28,150
	Income taxes receivable		208
	Inventories		57,549
	Prepaid expenses and deposits		2,080
	Future income taxes, current (ii)		13,208
	Other current assets		122
	Property, plant and equipment		3,523
	Intangible assets (i)		204,700
	Other assets		495
			310,035

Liabilities assumed:
	Accounts payable and accrued liabilities (iii)		(58,037)
	Future income taxes, net, non-current (ii)		(33,779)
			(91,816)

Net identifiable assets acquired			218,219
Goodwill			134,276
Purchase price		$	352,495

The total consideration paid for the acquisition is comprised of the following:


Cash paid at closing, net of cash acquired of $3,576	$	345,224
Direct acquisition costs		7,271
	$	352,495

Goodwill recorded in connection with this acquisition is not deductible for tax purposes.

(i)	The estimated fair value of intangible assets of $204.7 million included in the purchase price allocation above consists of the following:


Trademarks	$	94,000
License agreements		51,000
Customer relationships		58,000
Non-compete agreements		1,700
	$	204,700

QUARTERLY REPORT – Q3 2011 P.34

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4. BUSINESS ACQUISITION (continued):

The intangible assets are being amortized on a straight line basis over their estimated useful lives, being seven years for license agreements, twenty years for customer relationships and two years for non-compete agreements. The trademarks are not being amortized as they are considered to be indefinite life intangible assets.

(ii)

The estimated fair value of future income taxes include net future income tax liabilities of $57.6 million relating to the tax effect of temporary taxable differences between the purchase accounting values and tax basis of net assets acquired, partially offset by a future income tax asset of approximately $37 million relating to the tax benefit of income tax loss carryforwards.

(iii)

The estimated fair value of accounts payable and accrued liabilities assumed includes a net pension liability of approximately $25 million related to the funded status of Gold Toe Moretz’s defined pension plan which is in a deficit position. The pension liability also includes estimated costs related to management’s plan to wind up and settle the defined benefit plan within the next twelve months, and accordingly has been classified as a current liability in the interim consolidated balance sheet. As of July 3, 2011, the balance of the pension liability was $15.4 million, after reflecting a pension contribution of approximately $9.5 million during the third quarter of fiscal 2011.

5. INVENTORIES:

Inventories were comprised of the following:

	July 3, 2011		October 3, 2010		July 4, 2010

Raw materials and spare parts inventories	$	75,754	$	54,353	$	54,263
Work in process		33,169		37,305		29,527
Finished goods		410,793		240,884		240,201
	$	519,716	$	332,542	$	323,991

6. LONG-TERM DEBT:

In June 2011, the Company increased its existing unsecured revolving long-term credit facility from $400 million to $800 million. The amended facility has a maturity date of June 2016. Amounts drawn under the revised facility bear interest at a variable banker’s acceptance or U.S. LIBOR-based interest rate plus a spread ranging from 125 to 200 basis points. As at July 3, 2011, $252 million was drawn under the revolving long-term credit facility bearing a combined effective interest rate for the period of 2.0%. As described in note 14, the Company has entered into interest rate swap contracts in order to mitigate a portion of its exposure to potential increases in the variable interest rates.

7. STOCK-BASED COMPENSATION:

The Company’s Long Term Incentive Plan (the "LTIP") includes stock options and restricted share units. The LTIP allows the Board of Directors to grant stock options, dilutive restricted share units ("Treasury RSUs") and non-dilutive restricted share units ("non-Treasury RSUs") to officers and other key employees of the Company and its subsidiaries.

Holders of Treasury RSUs, non-Treasury RSUs and deferred share units are entitled to dividends declared by the Company which are recognized in the form of additional equity awards equivalent in value to the dividends paid on common shares. The vesting conditions of the additional equity awards are subject to the same performance objectives and other terms and conditions as the underlying equity awards. The additional awards related to outstanding Treasury RSUs are credited to contributed surplus when the dividends are declared, whereas the additional awards related to outstanding non-Treasury RSUs and deferred share units are credited to accounts payable and accrued liabilities.

QUARTERLY REPORT – Q3 2011 P.35

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

7. STOCK-BASED COMPENSATION (continued):

Outstanding stock options were as follows:

			Weighted average
		Number	exercise price
			(in Canadian dollars)

Options outstanding, October 3, 2010		1,299	$	19.57
Changes in outstanding stock options:
	Granted	69		28.64
	Exercised	(354)		8.86
	Forfeited	(27)		26.88
Options outstanding, July 3, 2011		987	$	23.86

As at July 3, 2011, 222,952 outstanding options were exercisable at the weighted average exercise price of CA$23.73 (July 4, 2010 - 479,227 options at CA$11.70). Based on the Black-Scholes option pricing model, the grant date weighted average fair value of options granted during the nine months ended July 3, 2011 was $13.36 (July 4, 2010 - $8.51).

Outstanding Treasury RSUs were as follows:

			Weighted average
		Number	fair value per unit

Treasury RSUs outstanding, October 3, 2010		748	$	19.93
Changes in outstanding Treasury RSUs:
	Granted	62		35.40
	Granted for dividends declared	4		31.94
	Settled through the issuance of common shares	(21)		23.45
	Forfeited	(27)		27.29
	Treasury RSUs granted as contingent consideration (note 4)	150		35.40
Treasury RSUs outstanding, July 3, 2011		916	$	23.27

As at July 3, 2011, none of the awarded and outstanding Treasury RSUs were vested.

The compensation expense included in selling, general and administrative expenses and cost of sales, in respect of the options and Treasury RSUs, for the three months and nine months ended July 3, 2011 was $1.1 million (2010 - $1.1 million) and $3.4 million (2010 - $3.1 million), respectively. The counterpart has been recorded as contributed surplus. When the underlying shares are issued to the employees, the amounts previously credited to contributed surplus are transferred to share capital. As described in note 4, the compensation expense excludes the value of 150,000 Treasury RSUs granted in connection with the acquisition of Gold Toe Moretz as they are considered contingent consideration.

Outstanding non-Treasury RSUs were as follows:

		Number

Non-Treasury RSUs outstanding, October 3, 2010		313
Changes in outstanding non-Treasury RSUs:
	Granted	151
	Granted for dividends declared	2
	Settled	(28)
	Forfeited	(36)
Non-Treasury RSUs outstanding, July 3, 2011		402

QUARTERLY REPORT – Q3 2011 P.36

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

7. STOCK-BASED COMPENSATION (continued):

As of July 3, 2011, the weighted average fair value per non-Treasury RSU was $35.48. No common shares are issued from treasury under such awards and they are, therefore, non-dilutive. As at July 3, 2011, none of the outstanding non-Treasury RSUs were vested.

The compensation expense included in selling, general and administrative expenses and cost of sales, in respect of the non-Treasury RSUs, for the three months and nine months ended July 3, 2011 was $1.4 million (2010 - $0.8 million) and $3.7 million (2010 - $2.5 million), respectively. The counterpart has been recorded in accounts payable and accrued liabilities.

8. GUARANTEES:

The Company, and some of its subsidiaries, have granted corporate guarantees, irrevocable standby letters of credit and surety bonds, to third parties to indemnify them in the event the Company and some of its subsidiaries do not perform their contractual obligations. As at July 3, 2011, the maximum potential liability under these guarantees was $20.9 million (October 3, 2010 - $21.8 million), of which $5.1 million (October 3, 2010 - $5.1 million) was for surety bonds and $15.8 million (October 3, 2010 - $16.7 million) was for corporate guarantees and standby letters of credit. The surety bonds are automatically renewed on an annual basis, and the corporate guarantees and standby letters of credit mature at various dates up to fiscal 2012.

As at July 3, 2011, the Company has recorded no liability with respect to these guarantees, as the Company does not expect to make any payments for the aforementioned items. Management has determined that the fair value of the non-contingent obligations requiring performance under the guarantees in the event that specified triggering events or conditions occur approximates the cost of obtaining the standby letters of credit and surety bonds.

9. RESTRUCTURING AND OTHER CHARGES AND ASSETS HELD FOR SALE:

	Three months ended				Nine months ended
	July 3,		July 4,		July 3,		July 4,
	2011		2010		2011		2010

(Gain) loss on disposal of assets held for sale	$	(177)	$	-	$	159	$	(433)
Accelerated depreciation		-		377		-		2,270
Asset impairment loss and write-down of assets held for sale		-		392		300		1,042
Employee termination costs and other benefits		208		346		2,765		673
Other exit costs		506		1,697		1,687		2,370
	$	537	$	2,812	$	4,911	$	5,922

During the first quarter of fiscal 2010, the Company announced plans to consolidate its distribution centres servicing retail customers at a new retail distribution centre in Charleston, South Carolina, and to close its leased retail distribution facility in Martinsville, Virginia and its retail distribution facilities in Fort Payne, Alabama. In February 2011 the Company announced the closure of the remaining U.S. sock knitting operations in Fort Payne, Alabama. Restructuring and other charges totaled $0.5 million and $4.9 million for the three months and nine months ended July 3, 2011, respectively, primarily related to these closures. For the first nine months of fiscal 2011, restructuring and other charges included $2.8 million of employee termination costs, and other exit costs of $1.7 million consisting of inventory transfer costs, carrying and dismantling costs related to the closures noted above. For the first nine months of fiscal 2010, restructuring and other charges totaled $5.9 million, mainly relating to the consolidation of retail distribution facilities, including $2.3 million of accelerated depreciation, $2.4 million of inventory transfer costs, carrying and dismantling costs, and lease termination costs, $0.7 million of employee termination costs, and an asset impairment loss of $1.0 million.

Assets held for sale of $14.9 million as at July 3, 2011 (October 3, 2010 - $3.2 million; July 4, 2010 - $3.5 million) include property, plant and equipment primarily relating to closed facilities. The Company expects to incur additional carrying costs relating to the closed facilities, which will be accounted for as restructuring charges as incurred until all property, plant and equipment related to the closures are disposed. Any gains or losses on the disposal of the assets held for sale relating to closed facilities will also be accounted for as restructuring charges as incurred.

QUARTERLY REPORT – Q3 2011 P.37

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

10. EARNINGS PER SHARE:

A reconciliation between basic and diluted earnings per share is as follows:

	Three months ended				Nine months ended
	July 3,		July 4,		July 3,		July 4,
	2011		2010		2011		2010

Basic earnings per share:
Basic weighted average number of common shares
outstanding	121,649		121,264		121,519		121,101
Basic earnings per share	$	0.77	$	0.53	$	1.57	$	1.17

Diluted earnings per share:
Basic weighted average number of common shares
outstanding	121,649		121,264		121,519		121,101
Plus dilutive impact of stock options and Treasury RSUs	857		834			803	826
Diluted weighted average number of common shares
outstanding	122,506		122,098		122,322		121,927
Diluted earnings per share	$	0.77	$	0.53	$	1.56	$	1.16

Excluded from the above calculation for the three months ended July 3, 2011 are 156,074 (2010 – 507,580) stock options and nil (2010 – nil) Treasury RSUs which were deemed to be anti-dilutive. Excluded from the above calculation for the nine months ended July 3, 2011 are 156,074 (2010 – 784,214) stock options and nil (2010 – 21,833) Treasury RSUs which were deemed to be anti-dilutive.

11. OTHER COMPREHENSIVE INCOME:

Other comprehensive income was comprised of the following:

			Three months ended				Nine months ended
			July 3,		July 4,		July 3,		July 4,
			2011		2010		2011		2010

Net (loss) gain on derivatives designated as cash flow hedges			$	(1,209)	$	1,496	$	(3,698)	$	4,324
Income taxes				12		(15)		37		(43)

Amount of loss (gain) reclassified from other comprehensive
	income to net earnings, and included in:
		Net sales		2,612		(797)		4,190		(1,810)
		Selling, general and administrative expenses		(278)		(292)		(789)		(292)
		Financial expense, net		259		87		1,674		(490)
		Income taxes		(25)		10		(50)		26
			$	1,371	$	489	$	1,364	$	1,715

As at July 3, 2011, approximately $1.1 million of net losses presented in accumulated other comprehensive income are expected to be reclassified to net earnings within the next twelve months.

QUARTERLY REPORT – Q3 2011 P.38

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

12. SUPPLEMENTAL CASH FLOW DISCLOSURE:

(a)	Adjustments for non-cash items:

	Three months ended				Nine months ended
	July 3,		July 4,		July 3,		July 4,
	2011		2010		2011		2010

Depreciation and amortization (note 13 (a))	$	21,756	$	17,079	$	57,875	$	48,855
Variation of depreciation included in inventories
(note 13 (a))		123		1,763		(2,040)		2,667
Restructuring charges related to assets held for sale
and property, plant and equipment (note 9)		(177)		769		459		2,879
Loss on disposal of long-lived assets		1,395		427		1,903		1,007
Loss on disposal of corporate asset (i)		-		-		3,693		-
Stock-based compensation costs		1,093		1,106		3,422		3,146
Future income taxes		(7,051)		(3,061)	(13,080)			(3,061)
Non-controlling interest		891		584		306		1,095
Unrealized net loss on foreign exchange and financial
derivatives not designated as cash flow hedges		146		1,115		1,608		1,819
Adjustments to financial derivatives included in other
comprehensive income, net of amounts reclassified
to net earnings		(307)		(1,303)		256		709
	$	17,869	$	18,479	$	54,402	$	59,116

(i)

During the nine months ended July 3, 2011, the Company purchased a corporate aircraft pursuant to an early purchase option under its operating lease for approximately $16.9 million. Immediately following the purchase, the Company sold the corporate aircraft to an unrelated third party for proceeds of $13.2 million, resulting in a loss of $3.7 million which is included in selling, general and administrative expenses. The Company has leased a new corporate aircraft which is being accounted for as an operating lease.

(b)	Cash paid during the period for:

	Three months ended				Nine months ended
	July 3,		July 4,		July 3,		July 4,
	2011		2010		2011		2010

Interest	$	1,137	$	335	$	1,524	$	444
Income taxes		321		1,172		5,248		16,584

QUARTERLY REPORT – Q3 2011 P.39

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

12. SUPPLEMENTAL CASH FLOW DISCLOSURE (continued):

(c)	Non-cash transactions:

	July 3, 2011		October 3, 2010		July 4, 2010

Balance of non-cash transactions:
Additions to property, plant and equipment
included in accounts payable and accrued
liabilities	$	4,067	$	2,099	$	2,150
Proceeds on disposal of long-lived assets
included in other assets		-		427		438
Proceeds on disposal of long-lived assets
included in other current assets		-		-		199

Non-cash ascribed value credited to contributed
surplus for dividends attributed to Treasury RSUs	$	123	$	-	$	-
Non-cash ascribed value credited to share capital
from shares issued pursuant to vesting of
Treasury RSUs and exercise of stock options		635		2,125		1,528
Shares issued as consideration for lease termination
costs incurred as part of the acquisition of
Gold Toe Moretz		1,068		-		-

(d)

In connection with the acquisition of V.I. Prewett & Son Inc. in fiscal 2008, the purchase agreement provided for an additional purchase consideration of up to $10.0 million contingent on specified future events. This amount was initially paid into escrow by the Company, but events occurring subsequent to the acquisition have resulted in a reduction of the contingent purchase price and escrow deposit balance to $5.8 million. During the nine months ended July 3, 2011, the contingent purchase consideration was settled and paid to the selling shareholders in the amount of $5.8 million from the escrow deposit. The additional purchase price consideration paid by the Company has been accounted for as an increase in goodwill and a corresponding decrease in other assets.

(e)	Cash and cash equivalents consist of:

	July 3, 2011		October 3, 2010		July 4, 2010

Cash balances with banks	$	88,993	$	196,279	$	96,508
Short-term investments, bearing interest at rates
between 0.1% and 0.6%		-		62,163		104,701
	$	88,993	$	258,442	$	201,209

QUARTERLY REPORT – Q3 2011 P.40

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

13. OTHER INFORMATION:

(a)	Depreciation and amortization (excluding accelerated depreciation, which is included in restructuring and other charges):

	Three months ended				Nine months ended
	July 3,		July 4,		July 3,		July 4,
	2011		2010		2011		2010

Depreciation and amortization of property, plant and
equipment and intangible assets	$	21,756	$	17,079	$	57,875	$	48,855
Adjustment for the variation of depreciation of property,
plant and equipment included in inventories at the
beginning and end of the period		123		1,763		(2,040)		2,667
Depreciation and amortization included in the interim
consolidated statements of earnings and
comprehensive income	$	21,879	$	18,842	$	55,835	$	51,522

Consists of:
Depreciation of property, plant and equipment	$	17,525	$	16,656	$	47,209	$	44,916
Amortization of intangible assets		4,353		2,181		8,619		6,587
Amortization of deferred financing costs and other		1		5		7		19
Depreciation and amortization included in the interim
consolidated statements of earnings and
comprehensive income	$	21,879	$	18,842	$	55,835	$	51,522

(b)	The Company recorded bad debt expense, net of recoveries, of $0.6 million (2010 – $0.1 million) for the three months ended July 3, 2011 and $0.3 million (2010 – $0.5 million) for the nine months ended July 3, 2011. Bad debt expense is included in selling, general and administrative expenses.

(c)

The Company expensed $3.0 million (2010 - $2.4 million) in cost of sales for the three months ended July 3, 2011, representing management’s best estimate of the cost of statutory severance and pre-notice benefit obligations accrued for active employees located in the Caribbean Basin and Central America. The expense for the nine months ended July 3, 2011 was $8.6 million (2010 - $6.4 million).

14. FINANCIAL INSTRUMENTS:

(a)	Financial expense, net:

	Three months ended				Nine months ended
	July 3,		July 4,		July 3,		July 4,
	2011		2010		2011		2010

Interest expense	$	1,048	$	281	$	1,155	$	299
Bank and other financial charges		584		264		1,406		1,042
Foreign exchange (gain) loss		(825)		535		(412)		654
Derivative (gain) loss on financial instruments not
designated for hedge accounting		-		(119)		1,511		(112)
	$	807	$	961	$	3,660	$	1,883

QUARTERLY REPORT – Q3 2011 P.41

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

14. FINANCIAL INSTRUMENTS (continued):

(b)	Derivative instruments:

The Company has entered into forward foreign exchange contracts and zero-cost collar options in order to reduce the exposure of forecasted cash flows in currencies other than the U.S. dollar. The forward foreign exchange contracts and the intrinsic value of zero-cost collar options were designated as cash flow hedges and qualified for hedge accounting. As such, the effective portion of unrealized gains and losses related to the fair value of the cash flow hedges are included in other comprehensive income, and are recognized in net earnings in the same period in which the foreign exchange impact of the forecasted cash flow affects net earnings. The gains and losses related to the time value of zero-cost collar options are immediately recognized in earnings in the same caption as the items being hedged. The forward foreign exchange contracts and zero-cost collar options outstanding as at July 3, 2011 consisted primarily of contracts to reduce the exposure to fluctuations in Euros, Australian dollars, Canadian dollars, and Pounds sterling against the U.S. dollar. As at July 3, 2011, the derivatives designated as cash flow hedges were considered to be fully effective with no resulting portions being ineffective.

						Carrying and fair value					Maturity
			Notional U.S.		Other current			Accounts payable			0 to 6		7 to 12
July 3, 2011			equivalent			assets		and accrued liabilities			months		months

Derivative instruments designated as cash flow hedges:
	Forward foreign exchange
		contracts	$	33,635		$	-		$	(2,412)	$	(2,412)	$	-
	Zero-cost collar options			12,194			7			(265)		(258)		-
			$	45,829		$	7		$	(2,677)	$	(2,670)	$	-


						Carrying and fair value					Maturity
			Notional U.S.		Other current			Accounts payable			0 to 6		7 to 12
July 4, 2010			equivalent			assets		and accrued liabilities			months		months

Derivative instruments designated as cash flow hedges:
	Forward foreign exchange
		contracts	$	90,005		$	2,035		$	(667)	$	715	$	653
	Forward fuel oil contracts			2,076			-			(185)		(185)		-
			$	92,081		$	2,035		$	(852)	$	530	$	653

During the three months ended July 3, 2011, the Company entered into a series of interest rate swap contracts to fix the variable interest rates on a designated portion of the borrowings under the revolving long-term credit facility. As at July 3, 2011, the interest rate swap contracts were designated as cash flow hedges and qualified for hedge accounting. As such, the effective portion of unrealized gains and losses related to the fair value of the interest rate swap contracts are included in other comprehensive income, and are recognized in earnings as a charge or credit to financial expense, in the same period as the interest payments on the amounts drawn under the revolving long-term credit facility are recognized. The following table summarizes the outstanding interest rate swap contracts as at July 3, 2011:

Notional

Fixed

Floating

Carrying and fair value

amount

Maturity date

Pay / Receive

rate

Asset

Liability

100,000

June 3, 2016

Pay fixed rate / Receive floating rate

1.88%

1-month U.S. LIBOR

QUARTERLY REPORT – Q3 2011 P.42

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

15. CONTINGENCIES:

The Company and certain of its senior officers were named as defendants in a number of class action lawsuits filed in the United States District Court for the Southern District of New York, which were subsequently consolidated, alleging claims under the U.S. securities laws, as well as in class action lawsuits filed in the Ontario Superior Court of Justice and in the Quebec Superior Court. Each of these U.S. and Canadian lawsuits alleged, among other things, that the defendants misrepresented the Company’s financial condition and its financial prospects in its earnings guidance concerning the 2008 fiscal year, which guidance was subsequently revised on April 29, 2008.

On August 3, 2010, the Company announced that it had entered into an agreement to settle all claims raised in these class action lawsuits, subject to final approval from the courts, on behalf of all persons who acquired the Company’s common shares between August 2, 2007 and April 29, 2008 (the “Class Members”). Final court approval of the settlement was obtained from each of the courts in February and March 2011 and all of the actions have been dismissed on terms including releases from Class Members of the claims against the Company and the named senior officers. The settlement agreement provides for a total settlement amount of $22.5 million, which has been entirely funded by the Company’s insurers. Therefore no provision has been recorded in the unaudited interim consolidated financial statements and no amounts have or will be disbursed by the Company in respect of the settlement.

16. SEGMENTED INFORMATION:

The Company manufactures and sells activewear, socks and underwear. The Company operates in one business segment, being high-volume, basic, frequently replenished apparel.

(a)	Net sales by major product group:

	Three months ended				Nine months ended
	July 3,		July 4,		July 3,		July 4,
	2011		2010		2011		2010

Activewear and underwear	$	424,624	$	351,335	$	1,037,139	$	777,477
Socks		105,153		43,989		207,147		165,051
	$	529,777	$	395,324	$	1,244,286	$	942,528

(b)	Major customers and revenues by geographic area:

(i) The Company has two customers accounting for at least 10% of total net sales:

	Three months ended				Nine months ended
	July 3,		July 4,		July 3,		July 4,
	2011		2010		2011		2010

Company A		21.2%		21.1%		20.1%		22.3%
Company B		10.7%		8.3%		12.7%		13.3%

(ii) Net sales were derived from customers located in the following geographic areas:

	Three months ended				Nine months ended
	July 3,		July 4,		July 3,		July 4,
	2011		2010		2011		2010

United States	$	468,577	$	342,599	$	1,107,996	$	826,726
Canada		18,622		17,209		44,800		38,032
Europe and other		42,578		35,516		91,490		77,770
	$	529,777	$	395,324	$	1,244,286	$	942,528

QUARTERLY REPORT – Q3 2011 P.43

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

16. SEGMENTED INFORMATION (continued):

(c)	Property, plant and equipment by geographic area are as follows:

	July 3, 2011		October 3, 2010		July 4, 2010

Honduras	$	296,586	$	243,033	$	230,031
Caribbean Basin		117,583		118,876		118,507
United States		86,330		81,555		80,250
Bangladesh		12,029		12,124		12,050
Canada		8,851		10,051		10,288
Other		12,221		13,653		11,515
	$	533,600	$	479,292	$	462,641

(d)	Intangible assets by geographic area are as follows:

	July 3, 2011		October 3, 2010		July 4, 2010

United States	$	253,814	$	54,650	$	55,699
Canada		4,471		5,456		6,418
Honduras		688		907		957
Other		198		308		348
	$	259,171	$	61,321	$	63,422

(e)	Goodwill by geographic area is as follows:

	July 3, 2011		October 3, 2010		July 4, 2010

United States	$	146,800	$	6,709	$	6,709
Bangladesh		3,488		3,488		3,326
	$	150,288	$	10,197	$	10,035

17. INCOME TAXES:

The income tax recovery of $6.8 million for the nine months ended July 3, 2011 includes an income tax recovery of $13.1 million related to the recognition of tax losses incurred during fiscal 2011 in higher tax jurisdictions, which are more likely than not to be realized in future periods.

18. COMPARATIVE FIGURES:

Certain comparative figures have been adjusted to conform to the current year’s presentation including the reclassification of the July 4, 2010 net book value of computer software of $9.1 million, comprised of a cost of $26.3 million and accumulated amortization of $17.2 million from property, plant and equipment to intangible assets.

The Company also reclassified future income taxes between current and non-current as at October 3, 2010 and July 4, 2010.

QUARTERLY REPORT – Q3 2011 P.44