EX-99.2 3 exhibit99-2.htm EXHIBIT 99.2 exhibit99-2.htm
Exhibit 99.2
 
 
CONSOLIDATED FINANCIAL STATEMENTS

MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

The accompanying consolidated financial statements have been prepared by management and approved by the Board of Directors of the Company. The consolidated financial statements were prepared in accordance with International Financial Reporting Standards and, where appropriate, reflect management’s best estimates and judgments. Where alternative accounting methods exist, management has chosen those methods deemed most appropriate in the circumstances. Management is responsible for the accuracy, integrity and objectivity of the consolidated financial statements within reasonable limits of materiality, and for maintaining a system of internal controls over financial reporting as described in “Management’s annual report on internal control over financial reporting” included in Management’s Discussion and Analysis for the year ended September 29, 2013. Management is also responsible for the preparation and presentation of other financial information included in the 2013 Annual Report and its consistency with the consolidated financial statements.

The Audit and Finance Committee, which is appointed annually by the Board of Directors and comprised exclusively of independent directors, meets with management as well as with the independent auditors and internal auditors to satisfy itself that management is properly discharging its financial reporting responsibilities and to review the consolidated financial statements and the independent auditors’ report. The Audit and Finance Committee reports its findings to the Board of Directors for consideration in approving the consolidated financial statements for presentation to the shareholders. The Audit and Finance Committee considers, for review by the Board of Directors and approval by the shareholders, the engagement or reappointment of the independent auditors.

The consolidated financial statements have been independently audited by KPMG LLP, on behalf of the shareholders, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Their report outlines the nature of their audit and expresses their opinion on the consolidated financial statements of the Company. In addition, our auditors have issued an attestation report on the Company’s internal controls over financial reporting as at September 29, 2013. KPMG LLP has direct access to the Audit and Finance Committee of the Board of Directors.






(S) Glenn J. Chamandy                                                                  (S) Laurence G. Sellyn
Glenn J. Chamandy                                                                           Laurence G. Sellyn
President and Chief Executive Officer                                            Executive Vice-President,
             Chief Financial and Administrative Officer

November 26, 2013


 
 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 48
 
CONSOLIDATED FINANCIAL STATEMENTS

INDEPENDENT AUDITORS’ REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders of Gildan Activewear Inc.

We have audited the accompanying consolidated financial statements of Gildan Activewear Inc. (the “Company”), which comprise the consolidated statements of financial position as at September 29, 2013 and September 30, 2012, the consolidated statements of earnings and comprehensive income, changes in equity and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as Management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Gildan Activewear Inc. as at September 29, 2013 and September 30, 2012, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as at September 29, 2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated November 20, 2013 expressed an unqualified (unmodified) opinion on the effectiveness of the Company’s internal control over financial reporting.
 
 
 
Montréal, Canada
November 20, 2013
 

*CPA auditor, CA, public accountancy permit No. A120841
 

                                     KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
                                     network of independent member firms affiliated with KPMG International Cooperative
                                    (“KPMG International”), a Swiss entity.
                                    KPMG Canada provides services to KPMG LLP.


 
 
GILDAN 2013 REPORT TO SHAREHOLDERS P.49
 
CONSOLIDATED FINANCIAL STATEMENTS


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of Gildan Activewear Inc.

We have audited Gildan Activewear Inc.’s internal control over financial reporting as at September 29, 2013, based on the criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Gildan Activewear Inc.’s Management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting as presented in the section entitled “Management’s Annual Report on Internal Control over Financial Reporting” included in Management’s Discussion and Analysis for the year ended September 29, 2013. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of Management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Gildan Activewear Inc. maintained, in all material respects, effective internal control over financial reporting as of September 29, 2013, based on criteria established in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial position of Gildan Activewear Inc. as at September 29, 2013 and September 30, 2012 and the related consolidated statements of earnings and comprehensive income, changes in equity and cash flows for the years then ended, and our report dated November 20, 2013 expressed an unqualified (unmodified) opinion on those consolidated financial statements.

 

Montréal, Canada
November 20, 2013
 

*CPA auditor, CA, public accountancy permit No. A120841

                                     KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
                                     network of independent member firms affiliated with KPMG International Cooperative
                                     (“KPMG International”), a Swiss entity.
                                     KPMG Canada provides services to KPMG LLP.


 
 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 50
 
CONSOLIDATED FINANCIAL STATEMENTS


GILDAN ACTIVEWEAR INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(in thousands of U.S. dollars)
                 
       
September 29,
  
September 30,
       
2013 
  
2012 
                 
Current assets:
              
 
Cash and cash equivalents (note 6)
    
$
 97,368 
  
$
 70,410 
 
Trade accounts receivable (note 7)
      
 255,018 
    
 257,595 
 
Income taxes receivable
      
 700 
    
 353 
 
Inventories (note 8)
      
 595,794 
    
 553,068 
 
Prepaid expenses and deposits
      
 14,959 
    
 14,451 
 
Assets held for sale (note 18)
      
 5,839 
    
 8,029 
 
Other current assets
      
 11,034 
    
 8,694 
Total current assets
      
 980,712 
    
 912,600 
                 
Non-current assets:
              
 
Property, plant and equipment (note 9)
      
 655,869 
    
 552,437 
 
Intangible assets (note 10)
      
 247,537 
    
 259,981 
 
Goodwill (note 10)
      
 150,099 
    
 143,833 
 
Investment in joint venture
      
 - 
    
 12,126 
 
Deferred income taxes (note 19)
      
 1,443 
    
 4,471 
 
Other non-current assets
      
 7,991 
    
 10,989 
Total non-current assets
      
 1,062,939 
    
 983,837 
                 
Total assets
    
$
 2,043,651 
  
$
 1,896,437 
                 
Current liabilities:
              
 
Accounts payable and accrued liabilities
    
$
 289,414 
  
$
 256,442 
Total current liabilities
      
 289,414 
    
 256,442 
                 
Non-current liabilities:
              
 
Long-term debt (note 11)
      
 - 
    
 181,000 
 
Employee benefit obligations (note 12)
      
 18,486 
    
 19,612 
 
Provisions (note 13)
      
 16,325 
    
 13,042 
Total non-current liabilities
      
 34,811 
    
 213,654 
                 
Total liabilities
      
 324,225 
    
 470,096 
                 
Commitments, guarantees and contingent liabilities (note 24)
                 
Equity:
              
 
Share capital
      
 107,867 
    
 101,113 
 
Contributed surplus
      
 28,869 
    
 25,579 
 
Retained earnings
      
 1,583,346 
    
 1,306,724 
 
Accumulated other comprehensive income
      
 (656)
    
 (7,075)
Total equity attributable to shareholders of the Company
    
 1,719,426 
    
 1,426,341 
                 
Total liabilities and equity
    
$
 2,043,651 
  
$
 1,896,437 
                 
                 
See accompanying notes to consolidated financial statements.
      
                 
                 
On behalf of the Board of Directors:
              
               
(S) Glenn J. Chamandy
    
(S) Russell Goodman
Glenn J. Chamandy
    
Russell Goodman
Director
    
Director



 
 GILDAN 2013 REPORT TO SHAREHOLDERS P. 51
 
CONSOLIDATED FINANCIAL STATEMENTS

GILDAN ACTIVEWEAR INC.
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
Years ended September 29, 2013 and September 30, 2012
(in thousands of U.S. dollars, except per share data)

                 
       
2013 
    
2012 
                 
                 
Net sales
    
$
2,184,303 
  
$
1,948,253 
Cost of sales
      
1,550,266 
    
1,552,128 
                 
Gross profit
      
634,037 
    
396,125 
                 
Selling, general and administrative expenses (note 17(a))
      
282,563 
    
226,035 
Restructuring and acquisition-related costs (note 18)
      
8,788 
    
14,962 
                 
Operating income
      
342,686 
    
155,128 
                 
Financial expenses, net (note 15(c))
      
12,013 
    
11,598 
Equity earnings in investment in joint venture
      
(46)
    
(597)
                 
Earnings before income taxes
      
330,719 
    
144,127 
                 
Income tax expense (recovery) (note 19)
      
10,541 
    
(4,337)
                 
Net earnings
      
320,178 
    
148,464 
                 
Other comprehensive income (loss), net of related
              
  income taxes (note 15(d)):
              
 
Cash flow hedges
      
6,419 
    
(6,399)
 
Actuarial gain on employee benefit obligations
      
436 
    
 323 
         
6,855 
    
(6,076)
                 
Comprehensive income
    
$
327,033 
  
$
142,388 
                 
                 
                 
Earnings per share:
              
 
Basic (note 20)
    
$
 2.64 
  
$
 1.22 
 
Diluted (note 20)
    
$
 2.61 
  
$
 1.22 
                 
                 
See accompanying notes to consolidated financial statements.



 
 GILDAN 2013 REPORT TO SHAREHOLDERS P. 52
 
CONSOLIDATED FINANCIAL STATEMENTS

GILDAN ACTIVEWEAR INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Years ended September 29, 2013 and September 30, 2012
(in thousands or thousands of U.S. dollars)

 
 
 
 
 
 
 
 
 
Accumulated
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
other
 
 
 
 
 
 
 
Share capital
 
Contributed
 
comprehensive
 
Retained
 
Total
 
Number
 
Amount
 
 surplus
 
income (loss)
 
earnings
 
equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, October 2, 2011
 121,331 
 
$
 100,436 
 
$
 16,526 
 
$
 (676)
 
$
 1,194,804 
 
$
 1,311,090 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Share-based compensation
 - 
 
 
 - 
 
 
 4,606 
 
 
 - 
 
 
 - 
 
 
 4,606 
Shares issued under employee share
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  purchase plan
 28 
 
 
 728 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 728 
Shares issued pursuant to exercise of
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  stock options
 56 
 
 
 982 
 
 
 (209)
 
 
 - 
 
 
 - 
 
 
 773 
Shares issued or distributed pursuant to
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  vesting of restricted share units
 181 
 
 
 4,957 
 
 
 (4,957)
 
 
 - 
 
 
 - 
 
 
 - 
Share-based consideration in connection
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 with a business acquisition
 - 
 
 
 - 
 
 
 3,432 
 
 
 - 
 
 
 - 
 
 
 3,432 
Share repurchases for future settlement
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  of non-Treasury RSUs (note 14(e))
 (210)
 
 
 (5,990)
 
 
 5,929 
 
 
 - 
 
 
 - 
 
 
 (61)
Dividends declared
 - 
 
 
 - 
 
 
 252 
 
 
 - 
 
 
 (36,867)
 
 
 (36,615)
Transactions with shareholders of the
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Company recognized directly in equity
 55 
 
 
 677 
 
 
 9,053 
 
 
 - 
 
 
 (36,867)
 
 
 (27,137)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash flow hedges (note 15(d))
 - 
 
 
 - 
 
 
 - 
 
 
 (6,399)
 
 
 - 
 
 
 (6,399)
Actuarial gain on employee benefit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  obligations (note 15(d))
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 323 
 
 
 323 
Net earnings
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 148,464 
 
 
 148,464 
Comprehensive income
 - 
 
 
 - 
 
 
 - 
 
 
 (6,399)
 
 
 148,787 
 
 
 142,388 
Balance, September 30, 2012
 121,386 
 
$
 101,113 
 
$
 25,579 
 
$
 (7,075)
 
$
 1,306,724 
 
$
 1,426,341 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Share-based compensation
 - 
 
 
 - 
 
 
 8,179 
 
 
 - 
 
 
 - 
 
 
 8,179 
Shares issued under employee share
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  purchase plan
 24 
 
 
 927 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 927 
Shares issued pursuant to exercise of
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  stock options
 195 
 
 
 6,955 
 
 
 (1,779)
 
 
 - 
 
 
 - 
 
 
 5,176 
Shares issued or distributed pursuant to
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  vesting of restricted share units
 299 
 
 
 8,493 
 
 
 (8,493)
 
 
 - 
 
 
 - 
 
 
 - 
Share repurchases for future settlement
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  of non-Treasury RSUs (note 14(e))
 (278)
 
 
 (9,621)
 
 
 5,114 
 
 
 - 
 
 
 - 
 
 
 (4,507)
Dividends declared
 - 
 
 
 - 
 
 
 269 
 
 
 - 
 
 
 (43,992)
 
 
 (43,723)
Transactions with shareholders of the
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Company recognized directly in equity
 240 
 
 
 6,754 
 
 
 3,290 
 
 
 - 
 
 
 (43,992)
 
 
 (33,948)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash flow hedges (note 15(d))
 - 
 
 
 - 
 
 
 - 
 
 
 6,419 
 
 
 - 
 
 
 6,419 
Actuarial gain on employee benefit
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  obligations (note 15(d))
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 436 
 
 
 436 
Net earnings
 - 
 
 
 - 
 
 
 - 
 
 
 - 
 
 
 320,178 
 
 
 320,178 
Comprehensive income
 - 
 
 
 - 
 
 
 - 
 
 
 6,419 
 
 
 320,614 
 
 
 327,033 
Balance, September 29, 2013
 121,626 
 
$
 107,867 
 
$
 28,869 
 
$
 (656)
 
$
 1,583,346 
 
$
 1,719,426 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements.
 
 
 


 
 
 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 53
 
CONSOLIDATED FINANCIAL STATEMENTS

GILDAN ACTIVEWEAR INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended September 29, 2013 and September 30, 2012
(in thousands of U.S. dollars)

 
 
 
 
 
2013 
 
2012 
 
 
 
 
 
 
 
 
 
 
Cash flows from (used in) operating activities:
 
 
 
 
 
 
 
 
 
Net earnings
 
 
 
$
 320,178 
 
$
 148,464 
 
Adjustments to reconcile net earnings to cash flows from
 
 
 
 
 
 
 
 
 
  operating activities (note 22(a))
 
 
 
 
 109,023 
 
 
 94,221 
 
 
 
 
 
 
 429,201 
 
 
 242,685 
     Changes in non-cash working capital balances:
 
 
 
 
 
 
 
 
 
  Trade accounts receivable
 
 
 
 
 2,986 
 
 
 (36,660)
 
  Income taxes
 
 
 
 
 (392)
 
 
 2,440 
 
  Inventories
 
 
 
 
 (38,092)
 
 
 77,111 
 
  Prepaid expenses and deposits
 
 
 
 
 (1,098)
 
 
 (1,828)
 
  Other current assets
 
 
 
 
 (1,896)
 
 
 (2,368)
 
  Accounts payable and accrued liabilities
 
 
 
 
 36,447 
 
 
 (61,798)
Cash flows from operating activities
 
 
 
 
 427,156 
 
 
 219,582 
 
 
 
 
 
 
 
 
 
 
Cash flows from (used in) investing activities:
 
 
 
 
 
 
 
 
 
Purchase of property, plant and equipment
 
 
 
 
 (162,643)
 
 
 (71,316)
 
Purchase of intangible assets
 
 
 
 
 (4,315)
 
 
 (5,439)
 
Business acquisitions (note 5)
 
 
 
 
 (8,027)
 
 
 (87,373)
 
Proceeds on disposal of assets held for sale and property,
 
 
 
 
 
 
 
 
 
   plant and equipment
 
 
 
 
 2,849 
 
 
 600 
 
Dividend received from investment in joint venture
 
 
 
 
 - 
 
 
 1,509 
Cash flows used in investing activities
 
 
 
 
 (172,136)
 
 
 (162,019)
 
 
 
 
 
 
 
 
 
 
Cash flows from (used in) financing activities:
 
 
 
 
 
 
 
 
 
Decrease in amounts drawn under revolving long-term
 
 
 
 
 
 
 
 
 
   bank credit facility
 
 
 
 
 (181,000)
 
 
 (28,000)
 
Dividends paid
 
 
 
 
 (43,723)
 
 
 (36,615)
 
Proceeds from the issuance of shares
 
 
 
 
 6,014 
 
 
 1,501 
 
Share repurchases for future settlement of non-Treasury
 
 
 
 
 
 
 
 
 
   RSUs (note 14(e))
 
 
 
 
 (9,621)
 
 
 (5,990)
Cash flows used in financing activities
 
 
 
 
 (228,330)
 
 
 (69,104)
 
 
 
 
 
 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
 
 
 
 
 
 
 
 
  denominated in foreign currencies
 
 
 
 
 268 
 
 
 (74)
Net increase (decrease) in cash and cash equivalents during the year
 
 
 26,958 
 
 
 (11,615)
Cash and cash equivalents, beginning of year
 
 
 
 
 70,410 
 
 
 82,025 
Cash and cash equivalents, end of year
 
 
 
$
 97,368 
 
$
 70,410 
 
 
 
 
 
 
 
 
 
 
Cash paid during the period (included in cash flows from operating activities):
 
 
 
 
 
 
 
Interest
 
 
 
$
 4,278 
 
$
 8,101 
 
Income taxes
 
 
 
 
 9,340 
 
 
 4,331 
 
 
 
 
 
 
 
 
 
 
Supplemental disclosure of cash flow information (note 22)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to consolidated financial statements.


 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 54
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years ended September 29, 2013 and September 30, 2012
(Tabular amounts in thousands or thousands of U.S. dollars except per share data, unless otherwise indicated)

1. REPORTING ENTITY:

Gildan Activewear Inc. (the "Company") is domiciled in Canada and is incorporated under the Canada Business Corporations Act. Its principal business activity is the manufacture and sale of activewear, socks and underwear. The Company’s fiscal year ends on the first Sunday following September 28 of each year.

The address of the Company’s registered office is 600 de Maisonneuve Boulevard West, Suite 3300, Montreal, Quebec. The consolidated financial statements for the years ended September 29, 2013 and September 30, 2012 include the accounts of the Company and its subsidiaries. The Company is a publicly listed entity and its shares are traded on the Toronto Stock Exchange and New York Stock Exchange under the symbol GIL.

2. BASIS OF PREPARATION:

(a)  
Statement of compliance:
The Company’s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

These consolidated financial statements for the fiscal year ended September 29, 2013 were authorized for issuance by the Board of Directors of the Company on November 20, 2013.

(b)  
Basis of measurement:
The consolidated financial statements have been prepared on the historical cost basis except for the following items in the consolidated statements of financial position:
·
 Derivative financial instruments which are measured at fair value;
·
 Non-current assets held for sale which are stated at the lower of carrying amount and fair value less costs to sell;
·
 Liabilities for cash-settled share-based payment arrangements which are measured at fair value;
·
 Employee benefit obligations related to defined benefit plans which are measured as the net total of the fair value of plan assets and the present value of the defined benefit obligations;
·
 Provisions for decommissioning, site restoration costs and onerous contracts which is measured at the present value of the expenditures expected to be required to settle the obligation;
·
 Contingent consideration in connection with a business combination which is measured at fair value; and
·
 Identifiable assets acquired and liabilities assumed in connection with a business combination which are initially measured at fair value.

The functional and presentation currency of the Company is the U.S. dollar.


 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 55
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. SIGNIFICANT ACCOUNTING POLICIES:

The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, unless otherwise indicated.

(a)  
Basis of consolidation:
 
(i)    Business combinations:
Business combinations are accounted for using the acquisition method. Accordingly, the consideration transferred for the acquisition of a business is the fair value of the assets transferred, and any debt and equity interests issued by the Company on the date control of the acquired company is obtained. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or a liability that is a financial instrument is remeasured at fair value, with any resulting gain or loss recognized in the consolidated statement of earnings and comprehensive income. Acquisition-related costs, other than those associated with the issue of debt or equity securities, are expensed as incurred and are included in restructuring and acquisition-related costs in the consolidated statement of earnings and comprehensive income. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are generally measured initially at their fair values at the acquisition date. The Company recognizes any non-controlling interest in an acquired company on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquired company’s net identifiable assets. The excess of the consideration transferred over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred and non-controlling interest recognized is less than the fair value of the net assets of the business acquired, a purchase gain is recognized immediately in the consolidated statement of earnings and comprehensive income.

(ii)   Subsidiaries:
Subsidiaries are entities controlled by the Company. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries are aligned with the policies adopted by the Company. Intragroup transactions, balances and unrealized gains or losses on transactions between group companies are eliminated.

The Company’s principal subsidiaries, their jurisdiction of incorporation, and the Company’s percentage ownership share of each are as follows:
 
 
Subsidiary
Ownership
percentage
Jurisdiction of Incorporation
 
Gildan Activewear SRL
100%
Barbados
 
Gildan USA Inc.
100%
Delaware
 
GoldToeMoretz, LLC
100%
Delaware
 
Gildan Honduras Properties, S. de R. L.
100%
Honduras
 
Gildan Yarns, LLC
100%
Delaware
 
Gildan Mayan Textiles, S. de R. L.
100%
Honduras
 
Anvil Knitwear, Inc.
100%
Delaware
 
Gildan Hosiery Rio Nance, S. de R. L.
100%
Honduras
 
Gildan Activewear Dominican Republic Textile Company Inc.
100%
Barbados
 
Gildan Activewear (UK) Limited
100%
United Kingdom
 
Gildan Choloma Textiles, S. de R. L.
100%
Honduras
 
Gildan Honduras Hosiery Factory, S. de R. L.
100%
Honduras



 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 56
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. SIGNIFICANT ACCOUNTING POLICIES (continued):

(a)  
Basis of consolidation (continued):
 
(iii) Investment in a joint venture:
Investments in jointly controlled entities are accounted for using the equity method. Under the equity method of accounting, the investment in a joint venture is initially recognized in the consolidated statement of financial position at cost and subsequently adjusted to recognize the Company’s share of the post-acquisition earnings in the consolidated statement of earnings and comprehensive income. Dividends received from an equity accounted investee are deducted from the carrying amount of the investment when the dividends are declared. Unrealized gains on transactions between the Company and the joint venture are eliminated to the extent of the Company’s interest in the joint venture. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of the joint venture have been modified where necessary to ensure consistency with the policies adopted by the Company.

The Company’s previous investment in a yarn spinning joint venture with Frontier Spinning Mills, Inc., CanAm Yarns, LLC (“CanAm”) was considered a jointly controlled entity over which the Company exercised joint control, until the Company acquired the remaining 50% interest on October 29, 2012.

(b)  
Foreign currency translation:
Monetary assets and liabilities of the Company’s Canadian and foreign operations denominated in currencies other than the U.S. dollar are translated using exchange rates in effect at the reporting date. Non-monetary assets and liabilities denominated in currencies other than U.S. dollars are translated at the rates prevailing at the respective transaction dates. Income and expenses denominated in currencies other than U.S. dollars are translated at average rates prevailing during the year. Gains or losses on foreign exchange are recorded in net earnings, and presented in the statement of earnings and comprehensive income within financial expenses.

(c)  
Cash and cash equivalents:
The Company considers all liquid investments with maturities of three months or less from the date of purchase to be cash equivalents.

(d)  
Trade accounts receivable:
Trade accounts receivable consist of amounts due from our normal business activities. An allowance for doubtful accounts is maintained to reflect expected credit losses. Bad debts are provided for based on collection history and specific risks identified on a customer-by-customer basis. Uncollected accounts are written off through the allowance for doubtful accounts.

(e)  
Inventories:
Inventories are stated at the lower of cost and net realizable value. The cost of inventories is based on the first-in, first-out principle. Inventory costs include the purchase price and other costs directly related to the acquisition of raw materials and spare parts held for use in the manufacturing process, and the cost of purchased finished goods. Inventory costs also include the costs directly related to the conversion of materials to finished goods, such as direct labour, and a systematic allocation of fixed and variable production overhead, including manufacturing depreciation expense. The allocation of fixed production overheads to the cost of inventories is based on the normal capacity of the production facilities. Normal capacity is the average production expected to be achieved over a number of periods during the fiscal year, under normal circumstances. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Raw materials, work in progress and spare parts inventories are not written down if the finished products in which they will be incorporated are expected to be sold at or above cost.

(f)  
Assets held for sale:
Non-current assets are classified as assets held for sale, and are reported in current assets in the statement of financial position, when their carrying amount is to be recovered principally through a sale transaction rather than through continuing use, and a sale is considered highly probable. Assets held for sale are stated at the lower of carrying amount and fair value less costs to sell.

 
 
 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 57
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. SIGNIFICANT ACCOUNTING POLICIES (continued):

(g)  
Property, plant and equipment:
Property, plant and equipment are initially recorded at cost, and are subsequently carried at cost less any accumulated depreciation and any accumulated impairment losses. The cost of an item of property, plant and equipment includes expenditures that are directly attributable to the acquisition or construction of an asset. The cost of self-constructed assets includes the cost of materials and direct labour, site preparation costs, initial delivery and handling costs, installation and assembly costs, and any other costs directly attributable to bringing the assets to the location and condition necessary for the assets to be capable of operating in the manner intended by management. The cost of property, plant and equipment also includes, when applicable, the initial present value estimate of the costs of dismantling and removing the asset and restoring the site on which it is located at the end of its useful life, and any applicable borrowing costs. Purchased software that is integral to the functionality of the related equipment is capitalized as part of other equipment. Subsequent costs are included in an asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits are present and the cost of the item can be measured reliably. Gains and losses on the disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognized in the statement of earnings and comprehensive income.

Land is not depreciated. The cost of property, plant and equipment less its residual value, if any, is depreciated on a straight-line basis over the following estimated useful lives:

 
Asset
Useful life
 
Buildings and improvements
5 to 40 years
 
Manufacturing equipment
3 to 10 years
 
Other equipment, including aircraft
2 to 25 years

Significant components of property, plant and equipment which are identified as having different useful lives are depreciated separately over their respective useful lives. Depreciation methods, useful lives and residual values, if applicable, are reviewed and adjusted, if appropriate, on a prospective basis at the end of each fiscal year.

Assets not yet utilized in operations include expenditures incurred to date for plant constructions or expansions which are still in process and equipment not yet placed into service as at the reporting date. Depreciation on these assets commences when the assets are available for use.

Borrowing costs
Borrowing costs that are directly attributable to the acquisition or construction of a qualifying asset are capitalized as part of the cost of the asset. A qualifying asset is one that necessarily takes a substantial period of time to get ready for its intended use. Capitalization of borrowing costs ceases when the asset is completed and ready for its intended use. All other borrowing costs are recognized as financial expenses in the consolidated statement of earnings and comprehensive income as incurred. The Company had no capitalized borrowing costs as at September 29, 2013 and September 30, 2012.

(h)  
Intangible assets:
Intangible assets are measured at cost less accumulated amortization and any accumulated impairment losses. Intangible assets include identifiable intangible assets acquired in a business combination, and consist of customer contracts and customer relationships, license agreements, non-compete agreements, and trademarks. Intangible assets also include computer software that is not an integral part of the related hardware. Indefinite life intangible assets represent intangible assets which the Company controls with no contractual or legal expiration date, and therefore are not amortized as there is no foreseeable time limit to their useful economic life. An assessment of indefinite life intangible assets is performed annually to determine whether events and circumstances continue to support an indefinite useful life, and any change in the useful life assessment from indefinite to finite is accounted for as a change in accounting estimate on a prospective basis. Intangible assets with finite lives are amortized on a straight-line basis over the following estimated useful-lives:

 

 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 58
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. SIGNIFICANT ACCOUNTING POLICIES (continued):

(h)  
Intangible assets (continued):
 
 
Asset
Useful life
 
Customer contracts and customer relationships
7 to 20 years
 
License agreements
7 years
 
Computer software
4 to 7 years
 
Non-compete agreements
2 years

Trademarks are not amortized as they are considered to be indefinite life intangible assets.

The costs of information technology projects that are directly attributable to the design and testing of identifiable and unique software products, including internally developed computer software are recognized as intangible assets when the following criteria are met:
·
 it is technically feasible to complete the software product so that it will be available for use;
·
 management intends to complete the software product and use it;
·
 there is an ability to use the software product;
·
 it can be demonstrated how the software product will generate probable future economic benefits;
·
 adequate technical, financial and other resources to complete the development and to use the software product are available; and
·
 the expenditures attributable to the software product during its development can be reliably measured.

Other development expenditures that do not meet these criteria are recognized as an expense in the consolidated statement of earnings and comprehensive income as incurred.

(i)  
Goodwill:
Goodwill is measured at cost less accumulated impairment losses, if any. Goodwill arises on business combinations and is measured as the excess of the consideration transferred and the recognized amount of the non-controlling interest in the acquired business, if any, over the fair value of identifiable assets acquired and liabilities assumed of an acquired business.

(j)  
Impairment of non-financial assets:
Non-financial assets that have an indefinite useful life such as goodwill and trademarks are not subject to amortization and are tested annually for impairment or more frequently if events or changes in circumstances indicate that the asset might be impaired. Assets that are subject to amortization are assessed at the end of each reporting period as to whether there is any indication of impairment, or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s value in use and fair value less costs to sell. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case assets are grouped at the lowest levels for which there are separately identifiable cash inflows (i.e. cash-generating units or CGUs).

In assessing value in use, the estimated future cash flows expected to be derived from the asset or CGU by the Company are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset and or the CGU. In assessing a CGU’s fair value less costs to sell, the Company uses the best information available to reflect the amount that the Company could obtain, at the time of the impairment test, from the disposal of the asset or CGU in an arm’s length transaction between knowledgeable, willing parties, after deducting the estimated costs of disposal.

For the purpose of testing goodwill for impairment, goodwill acquired in a business combination is allocated to a CGU or a group of CGUs that is expected to benefit from the synergies of the combination, regardless of whether other assets or liabilities of the acquired company are assigned to those CGUs. Impairment losses recognized are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis. Impairment losses are recognized in net earnings.

 
 
 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 59
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. SIGNIFICANT ACCOUNTING POLICIES (continued):

(j)  
Impairment of non-financial assets (continued):
 
Reversal of impairment losses
A goodwill impairment loss is not reversed. Impairment losses on non-financial assets other than goodwill recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

(k)  
Financial instruments:
 
Financial assets
Financial assets are classified into the following categories, and depend on the purpose for which the financial assets were acquired.
 
(i)    Financial assets at fair value through profit or loss
A financial asset is classified at fair value through profit or loss (“FVTPL”) if it is classified as held for trading or is designated as such upon initial recognition. Derivatives are also categorized as held for trading unless they are designated as hedges. Upon initial recognition transaction costs are recognized in net earnings as incurred. Financial assets at FVTPL are measured at fair value, and changes therein are recognized in net earnings. Assets in this category are classified as current assets if they are expected to be settled within 12 months; otherwise, they are classified as non-current. The Company currently has no significant financial assets at FVTPL.
 
(ii)   Held-to-maturity financial assets
A financial asset is classified as held-to maturity if the Company has the intent and ability to hold debt securities to maturity. Held-to-maturity financial assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition held-to-maturity financial assets are measured at amortized cost using the effective interest method, less any impairment losses. Any sale or reclassification of a more than insignificant amount of held-to-maturity investments not close to their maturity would result in the reclassification of all held-to-maturity investments as available-for-sale, and prevent the Company from classifying investment securities as held-to-maturity for the current and the following two fiscal years. The Company currently has no financial assets classified as held-to-maturity.
 
(iii)  Loans and receivables
Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses. The Company currently classifies its cash and cash equivalents, trade accounts receivable, certain other current assets, and long-term non-trade receivable as loans and receivables.
 
(iv)  Available-for-sale financial assets
Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale   and that are not classified in any of the previous categories. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses, are recognized in other comprehensive income and presented within equity in accumulated other comprehensive income. When an investment is derecognized, the cumulative gain or loss in other comprehensive income is transferred to profit or loss. The Company currently has no financial assets classified as available-for-sale.

The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred.


 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 60
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. SIGNIFICANT ACCOUNTING POLICIES (continued):

(k)  
Financial instruments (continued):
 
Financial liabilities
 
(i)    Financial liabilities at fair value through profit or loss
Financial liabilities at FVTPL are initially recognized at fair value and are re-measured at each reporting date with any changes therein recognized in net earnings. The Company currently has no financial liabilities at FVTPL.
 
(ii)   Other financial liabilities
Other financial liabilities are recognized initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition other financial liabilities are measured at amortized cost using the effective interest method. The Company currently classifies accounts payable and accrued liabilities (excluding derivative financial instruments designated as effective hedging instruments and contingent consideration), and long-term debt as other financial liabilities.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled or expired.

Fair value of financial instruments
Financial instruments measured at fair value use the following fair value hierarchy to prioritize the inputs used in measuring fair value:
·
 Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
·
 Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
·
 Level 3: inputs for the asset or liability that are not based on observable market data.

Impairment of financial assets
The Company assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization, and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the reversal of the previously recognized impairment loss is recognized in the consolidated statement of earnings and comprehensive income.

(l)  
Derivative financial instruments and hedging relationships:
The Company enters into derivative financial instruments to hedge its market risk exposures. On initial designation of the hedge, the Company formally documents the relationship between the hedging instruments and hedged items, including the risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship. The Company makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, whether the hedging instruments are expected to be “highly effective” in offsetting the changes in the fair value or cash flows of the respective hedged items during the period for which the hedge is designated, and whether the actual results of the effectiveness of each hedge are within a range of 80-125 percent. For a cash flow hedge of a forecasted transaction, the transaction should be highly probable to occur and should present an exposure to variations in cash flows that could ultimately affect reported net earnings.

 
 
 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 61
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. SIGNIFICANT ACCOUNTING POLICIES (continued):

(l)  
Derivative financial instruments and hedging relationships (continued):
 
Derivatives are recognized initially at fair value, and attributable transaction costs are recognized in net earnings as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

Cash flow hedges
When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecasted transaction that could affect net earnings, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and presented in accumulated other comprehensive income in equity. The amount recognized in other comprehensive income is removed and included in net earnings under the same line item in the consolidated statement of earnings and comprehensive income as the hedged item, in the same period that the hedged cash flows affect net earnings. Any ineffective portion of changes in the fair value of the derivative is recognized immediately in net earnings. If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated, exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognized in other comprehensive income remains in accumulated other comprehensive income until the forecasted transaction affects profit or loss. If the forecasted transaction is no longer expected to occur, then the balance in accumulated other comprehensive income is recognized immediately in net earnings.

When the hedged item is a non-financial asset, the amount recognized in other comprehensive income is transferred to net earnings in the same period that the hedged item affects net earnings.

Embedded derivatives
Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss.

Other derivatives
When a derivative financial instrument is not designated in a qualifying hedge relationship, all changes in its fair value are recognized immediately in net earnings.

(m)  
Accounts payable and accrued liabilities:
Accounts payable and accrued liabilities are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. Accounts payable and accrued liabilities are classified as current liabilities if payment is due within one year, otherwise, they are presented as non-current liabilities.

(n)  
Long-term debt:
Long-term debt is recognized initially at fair value, and is subsequently carried at amortized cost. Initial facility fees are deferred and treated as an adjustment to the instrument's effective interest rate and recognized as an expense over the instrument's estimated life if it is probable that the facility will be drawn down. However, if it is not probable that a facility will be drawn down, then the fees are considered service fees and are deferred and recognized as an expense on a straight-line basis over the commitment period.

The Company classifies its existing revolving long-term bank credit facility as a non-current liability on the basis that the Company has the discretion to refinance or rollover amounts drawn under the facility for at least twelve months following the reporting date.

 

 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 62
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. SIGNIFICANT ACCOUNTING POLICIES (continued):

(o)  
Employee benefits:
 
Short-term employee benefits
Short-term employee benefits include wages, salaries, commissions, compensated absences and bonuses. Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid under short-term cash bonus or profit sharing plans if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably. Short-term employee benefit obligations are included in accounts payable and accrued liabilities.

Defined contribution plans
The Company offers group defined contribution plans to eligible employees whereby the Company matches employees' contributions up to a fixed percentage of the employee's salary. Contributions by the Company to trustee-managed investment portfolios or employee associations are expensed as incurred. Benefits are also provided to employees through defined contribution plans administered by the governments in the countries in which the Company operates. The Company’s contributions to these plans are recognized in the period when services are rendered.

Defined benefit plans
The Company also maintains a funded qualified defined benefit plan (“Retirement Plan”) covering certain employees of Gold Toe Moretz. The Retirement Plan has been frozen since January 1, 2007, and as such no additional employees became participants in the Retirement Plan and existing participants in the Retirement Plan ceased accruing any additional benefits after that date. The pension obligation is actuarially determined using the projected benefit method to determine plan obligations and related periodic costs. Assets of the Retirement Plan are invested in high quality money market funds and are recorded at fair value. Plan valuations require economic assumptions, including expected rates of return on plan assets, discount rates to value plan obligations, and participant demographic assumptions including mortality rates. Because the Retirement Plan is frozen, salary escalation is not considered in the actuarial valuation, and there are no current service costs incurred.

The Company also maintains a liability for statutory severance and pre-notice benefit obligations for active employees located in the Caribbean Basin and Central America which is payable to the employees in a lump sum payment upon termination of employment. The liability is based on management’s best estimates of the ultimate costs to be incurred to settle the liability and is based on a number of assumptions and factors, including historical trends, actuarial assumptions and economic conditions.

Liabilities related to defined benefit plans are included in employee benefit obligations in the consolidated statement of financial position. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized directly to other comprehensive income in the period in which they arise, and are immediately transferred to retained earnings without reclassification to net earnings in a subsequent period.

(p)  
Provisions:
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 has been reliably estimated. Provisions are not recognized for future operating losses. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognized as financial expense.

Decommissioning and site restoration costs
The Company recognizes decommissioning and site restoration obligations for future removal and site restoration costs associated with the restoration of certain property and plant should it decide to discontinue some of its activities. A corresponding amount is added to the carrying value of the related asset and amortized over the remaining life of the underlying asset.

Onerous contracts
A provision for onerous contracts is recognized if the unavoidable costs of meeting the obligations specified in a contractual arrangement exceed the economic benefits expected to be received from the contract. Provisions for onerous contracts are measured at the lower of the cost of fulfilling the contract and the expected cost of terminating the contract.

 

 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 63
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. SIGNIFICANT ACCOUNTING POLICIES (continued):

(q)  
Share capital:
Common shares are classified as equity. Incremental costs directly attributable to the issue of common shares and stock options are recognized as a deduction from equity, net of any tax effects.

When the Company repurchases its own shares, the consideration paid, including any directly attributable incremental costs (net of income taxes) is deducted from equity attributable to the Company’s equity holders until the shares are cancelled or reissued. Where such common shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is included in equity attributable to the Company’s equity holders.

(r)  
Dividends declared:
Dividends declared to the Company’s shareholders are recognized as a liability in the consolidated statement of financial position in the period in which the dividends are approved by the Company’s Board of Directors.

(s)  
Revenue recognition:
Revenue is recognized upon shipment of products to customers, since title passes upon shipment, and to the extent that the selling price is fixed or determinable. At the time of sale, estimates are made for customer price discounts and volume rebates based on the terms of existing programs. Sales are recorded net of these program costs and estimated sales returns, which are based on historical experience, current trends and other known factors, and exclude sales taxes. New sales incentive programs which relate to prior sales are recognized at the time the new program is introduced.

(t)  
Cost of sales and gross profit:
Cost of sales includes all raw material costs, manufacturing conversion costs, including manufacturing depreciation expense, sourcing costs, inbound freight and inter-facility transportation costs, and outbound freight to customers. Cost of sales also includes the cost of purchased finished goods, costs relating to purchasing, receiving and inspection activities, manufacturing administration, third-party manufacturing services, sales-based royalty costs, insurance, inventory write-downs, and customs and duties. Gross profit is the result of sales less cost of sales. The Company’s gross profit may not be comparable to gross profit as reported by other companies, since some entities include warehousing and handling costs, and/or exclude depreciation expense, outbound freight to customers and royalty costs from cost of sales.

(u)  
Selling, general and administrative expenses:
Selling, general and administrative (“SG&A”) expenses include warehousing and handling costs, selling and administrative personnel costs, co-op advertising and marketing expenses, costs of leased non-manufacturing facilities and equipment, professional fees, non-manufacturing depreciation expense, and other general and administrative expenses. SG&A expenses also include bad debt expense and amortization of intangible assets.

(v)  
Product introduction expenditures:
Product introduction expenditures are one-time fees paid to retailers to allow the Company’s products to be placed on store shelves. These fees are recognized as a reduction in revenue. If the Company receives a benefit over a period of time and the fees are directly attributable to the product placement, and certain other criteria are met, these fees are recorded as an asset and are amortized as a reduction of revenue over the term of the arrangement. The Company evaluates the recoverability of these assets on a quarterly basis.

(w)  
Restructuring and acquisition-related costs:
Restructuring and acquisition-related costs are expensed when incurred, or when a legal or constructive obligation exists. Restructuring and acquisition-related costs are comprised of costs directly related to the closure of business locations or the relocation of business activities, changes in management structure, as well as transaction and integration costs incurred pursuant to business acquisitions. The nature of expenses included in restructuring and acquisition-related costs include: severance and termination benefits, including the termination of employee benefit plans; gains or losses from the re-measurement and disposal of assets held for sale; facility exit and closure costs; costs incurred to eliminate redundant business activities pursuant to business acquisitions; legal, accounting and other professional fees (excluding costs of issuing debt or equity) directly incurred in connection with a business acquisition; purchase gains on business acquisitions; losses on business acquisitions achieved in stages; and the remeasurement of liabilities related to contingent consideration incurred in connection with a business acquisition.  

 

 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 64
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. SIGNIFICANT ACCOUNTING POLICIES (continued):

(x)  
Cotton and cotton-based yarn procurements:
The Company contracts to buy cotton and cotton-based yarn with future delivery dates at fixed prices in order to reduce the effects of fluctuations in the prices of cotton used in the manufacture of its products. These contracts are not used for trading purposes and are not considered to be financial instruments as they are entered into for purchase and receipt in accordance with the Company’s expected usage requirements, and therefore are not measured at fair value. The Company commits to fixed prices on a percentage of its cotton and cotton-based yarn requirements up to eighteen months in the future. If the cost of committed prices for cotton and cotton-based yarn plus estimated costs to complete production exceed current selling prices, a loss is recognized for the excess as a charge to cost of sales.

(y)  
Financial expenses (income):
Financial expenses (income) include: interest expense on borrowings, including realized gains and/or losses on interest rate swaps designated for hedge accounting; bank and other financial charges; interest income on funds invested; accretion of interest on discounted provisions; net foreign currency losses and/or gains; and losses and/or gains on financial derivatives that do not meet the criteria for effective hedge accounting.

(z)  
Income taxes:
Income tax expense is comprised of current and deferred income taxes, and is included in net earnings except to the extent that it relates to a business acquisition, or items recognized directly in equity or in other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date, for all temporary differences caused when the tax bases of assets and liabilities differ from those reported in the financial statements. The Company recognizes deferred income tax assets for unused tax losses, and deductible temporary differences only to the extent that, in management’s opinion, it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred tax assets are reviewed at each reporting date and are derecognized to the extent that it is no longer probable that the related tax benefit will be realized. Deferred income tax is provided on temporary differences arising on the Company’s investments in subsidiaries, except for deferred income tax liabilities where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is not recognized for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognized for taxable temporary differences arising on the initial recognition of goodwill.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

In determining the amount of current and deferred income taxes, the Company takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. Provisions for uncertain tax positions are measured at the best estimate of the amounts expected to be paid upon ultimate resolution. The Company periodically reviews and adjusts its estimates and assumptions of income tax assets and liabilities as circumstances warrant, such as changes to tax laws, administrative guidance, change in management’s assessment of the technical merits of its positions, due to new information, and the resolution of uncertainties through either the conclusion of tax audits or expiration of prescribed time limits within relevant statutes.

 

 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

3. SIGNIFICANT ACCOUNTING POLICIES (continued):

(aa)  
Earnings per share:
Basic earnings per share are computed by dividing net earnings by the weighted average number of common shares outstanding for the year. Diluted earnings per share are computed using the weighted average number of common shares outstanding for the period adjusted to include the dilutive impact of stock options and restricted share units. The number of additional shares is calculated by assuming that all common shares held in trust for the purpose of settling Non-treasury restricted share units have been delivered, all dilutive outstanding options are exercised and all dilutive outstanding Treasury restricted share units have vested, and that the proceeds from such exercises, as well as the amount of unrecognized share-based compensation which is considered to be assumed proceeds, are used to repurchase common shares at the average share price for the period. For Treasury restricted share units, only the unrecognized share-based compensation is considered assumed proceeds since there is no exercise price paid by the holder.

(bb)  
Share based payments:
 
Stock options and Treasury restricted share units
Stock options and Treasury restricted share units are equity settled share based payments, which are measured at fair value at the grant date. For stock options, the compensation cost is measured using the Black-Scholes option pricing model, and is expensed over the award's vesting period. For Treasury restricted share units, compensation cost is measured at the fair value of the underlying common share, and is expensed over the award's vesting period. Compensation expense is recognized in net earnings with a corresponding increase in contributed surplus. Any consideration paid by plan participants on the exercise of stock options is credited to share capital. Upon the exercise of stock options and the vesting of Treasury restricted share units, the corresponding amounts previously credited to contributed surplus are transferred to share capital. Stock options and Treasury restricted share units that are dilutive and meet the non-market performance conditions as at the reporting date are considered in the calculation of diluted earnings per share, as per note 3(aa) to these consolidated financial statements.

Non-Treasury restricted share units expected to be settled in cash
Non-Treasury restricted share units are expected to be settled in cash, except to the extent that common shares have been purchased on the open market and held in a trust for the purpose of settling the Non-Treasury restricted share units in shares in lieu of cash. Non-Treasury restricted share units expected to be settled in cash are accounted for as cash settled awards, with the recognized compensation expense included in accounts payable and accrued liabilities. Compensation expense is initially measured at fair value at the grant date and is recognized in net earnings over the vesting period. The liability is remeasured at fair value, based on the market price of the Company’s common shares, at each reporting date. Remeasurements during the vesting period are recognized immediately to net earnings to the extent that they relate to past services, and recognition is amortized over the remaining vesting period to the extent that they relate to future services. The cumulative compensation cost that will ultimately be recognized is the fair value of the Company's shares at the settlement date.

Non-Treasury restricted share units expected to be settled in common shares
Non-Treasury restricted share units are expected to be settled in common shares only when common shares have been purchased on the open market and held in a trust for the purpose of settling a corresponding amount of non-Treasury restricted share units in common shares in lieu of cash. At the time common shares are purchased on the open market and designated for future settlement of a corresponding amount of non-Treasury restricted share units, any accumulated accrued compensation expense previously credited to accounts payable and accrued liabilities for such non-Treasury restricted share units is transferred to contributed surplus, and compensation expense continues to be recognized over the remaining vesting period, based on the purchase cost of the common shares that are held in trust, with a corresponding increase to contributed surplus. In addition, the common shares purchased by the trust are considered as being temporarily held in treasury, as described in note 15(e) to these consolidated financial statements. Upon delivery of the common shares for settlement of vesting non-Treasury restricted share units, the corresponding amounts in contributed surplus are transferred to share capital.


 
 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 66
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. SIGNIFICANT ACCOUNTING POLICIES (continued):

(bb)  
Share based payments (continued):
 
Estimates for forfeitures and performance conditions
The measurement of compensation expense for stock options, Treasury restricted share units and non-Treasury restricted share units is net of estimated forfeitures. For the portion of Treasury restricted share units and Non-Treasury restricted share units that are issuable based on non-market performance conditions, the amount recognized as an expense is adjusted to reflect the number of awards for which the related service and performance conditions are expected to be met, such that the amount ultimately recognized as an expense is based on the number of awards that do meet the related service and non-market performance conditions at the vesting date.

Deferred share unit plan
The Company has a deferred share unit plan for independent members of the Company’s Board of Directors, who receive a portion of their compensation in the form of deferred share units (“DSUs”). These DSUs are cash settled awards, and are initially recognized in net earnings based on fair value at the grant date. The DSU obligation is included in accounts payable and accrued liabilities and is re-measured at fair value, based on the market price of the Company’s common shares, at each reporting date.

Employee share purchase plans
For employee share purchase plans, the Company's contribution, on the employee's behalf, is recognized as compensation expense with an offset to share capital, and consideration paid by employees on purchase of common shares is also recorded as an increase to share capital.

(cc)  
Leases:
Leases in which a significant portion of the risks and rewards of ownership are not assumed by the Company are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to net earnings on a straight-line basis over the lease term.

Leases of property, plant and equipment where the Company has substantially all of the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. The property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset and the lease term.

Determining whether an arrangement contains a lease
At inception of an arrangement where the Company receives the right to use an asset, the Company determines whether such an arrangement is or contains a lease. A specific asset is the subject of a lease if fulfillment of the arrangement is dependent on the use of that specified asset. An arrangement conveys the right to use the asset if the arrangement conveys to the Company the right to control the use of the underlying asset.

(dd)  
Use of estimates and judgments:
The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

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.

Critical judgments in applying accounting policies:
 
The following are critical judgments that management has made in the process of applying accounting policies and that have the most significant effect on the amounts recognized in the consolidated financial statements:


 
 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 67
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. SIGNIFICANT ACCOUNTING POLICIES (continued):

(dd)  
Use of estimates and judgments (continued):
 
Determination of Cash Generating Units (CGUs)
The identification of CGUs and grouping of assets into the respective CGUs is based on currently available information about actual utilization experience and expected future business plans. Management has taken into consideration various factors in identifying its CGUs. These factors include how the Company manages and monitors its operations, the nature of each CGU’s operations and the major customer markets they serve. As such, the Company has identified its CGUs for purposes of testing the recoverability and impairment of non-financial assets to be Printwear, Branded Apparel and Yarn-Spinning.

Income taxes
The Company’s income tax provisions and income tax assets and liabilities are based on interpretations of applicable tax laws, including income tax treaties between various countries in which the Company operates as well as underlying rules and regulations with respect to transfer pricing. These interpretations involve judgments and estimates and may be challenged through government taxation audits that the Company is regularly subject to. New information may become available that causes the Company to change its judgment regarding the adequacy of existing income tax assets and liabilities; such changes will impact net earnings in the period that such a determination is made.

Key sources of estimation uncertainty
 
Key sources of estimation uncertainty that have a significant risk of resulting in a material adjustment to the carrying amount of assets and liabilities within the next financial year are as follows:

Allowance for doubtful accounts
The Company makes an assessment of whether accounts receivable are collectable, which considers the credit-worthiness of each customer, taking into account each customer’s financial condition and payment history in order to estimate an appropriate allowance for doubtful accounts. Furthermore, these estimates must be continuously evaluated and updated. The Company is not able to predict changes in the financial condition of its customers, and if circumstances related to its customers’ financial condition deteriorate, the estimates of the recoverability of trade accounts receivable could be materially affected and the Company may be required to record additional allowances. Alternatively, if the Company provides more allowances than needed, a reversal of a portion of such allowances in future periods may be required based on actual collection experience.

Inventory valuation
The Company regularly reviews inventory quantities on hand and records a provision for those inventories no longer deemed to be fully recoverable. The cost of inventories may no longer be recoverable if those inventories are slow moving, discontinued, damaged, if they have become obsolete, or if their selling prices or estimated forecast of product demand decline. If actual market conditions are less favorable than previously projected, or if liquidation of the inventory which is no longer deemed to be fully recoverable is more difficult than anticipated, additional provisions may be required.

Business combinations
Business combinations are accounted for in accordance with the acquisition method. On the date that control is obtained, the identifiable assets, liabilities and contingent liabilities of the acquired company are measured at their fair value. Depending on the complexity of determining these valuations, the Company uses appropriate valuation techniques which are generally based on a forecast of the total expected future net discounted cash flows. These valuations are linked closely to the assumptions made by management regarding the future performance of the related assets and the discount rate applied as it would be assumed by a market participant.

 
 
 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 68
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. SIGNIFICANT ACCOUNTING POLICIES (continued):

(dd)  
Use of estimates and judgments (continued):
 
Recoverability and impairment of non-financial assets
The calculation of value in use for purposes of measuring the recoverable amount of non-financial assets involves the use of significant assumptions and estimates with respect to a variety of factors, including expected sales, gross margins, SG&A expenses, capital expenditures, cash flows and the selection of an appropriate discount rate, all of which are subject to inherent uncertainties and subjectivity. The assumptions are based on annual business plans and other forecasted results as well as discount rates which are used to reflect market based estimates of the risks associated with the projected cash flows, based on the best information available as of the date of the impairment test. Changes in circumstances, such as technological advances, adverse changes in third party licensing arrangements, changes to the Company’s business strategy, and changes in economic conditions can result in actual useful lives and future cash flows differing significantly from estimates and could result in increased charges for amortization or impairment. Revisions to the estimated useful lives of finite life non-financial assets or future cash flows constitute a change in accounting estimate and are applied prospectively. There can be no assurance that the estimates and assumptions used in the impairment tests will prove to be accurate predictions of the future. If the future adversely differs from management’s best estimate of key economic assumptions, and if associated cash flows materially decrease, the Company may be required to record material impairment charges related to its non-financial assets.

Measurement of the estimate of expected expenditures for decommissioning and site restoration costs
The measurement of the provision for decommissioning and site restoration costs requires assumptions to be made including expected timing of the event which would result in the outflow of resources, the range of possible methods of decommissioning and site restoration, and the expected costs that would be incurred to settle any decommissioning and site restoration liabilities. The Company has measured the provision using the present value of the expected expenditures which requires assumptions on the discount rate to use. Revisions to any of the assumptions and estimates used by management may result in changes to the expected expenditures to settle the liability which would require adjustments to the provision which may have an impact on the operating results of the Company in the period the change occurs.

Income taxes
The Company has unused available tax losses and deductible temporary differences in certain jurisdictions. The Company recognizes deferred income tax assets for these unused tax losses and deductible temporary differences only to the extent that, in management’s opinion, it is probable that future taxable profit will be available against which these available tax losses and temporary differences can be utilized. The Company’s projections of future taxable profit involve the use of significant assumptions and estimates with respect to a variety of factors, including future sales and operating expenses. There can be no assurance that the estimates and assumptions used in our projections of future taxable income will prove to be accurate predictions of the future, and in the event that our assessment of the recoverability of these deferred tax assets changes in the future, a material reduction in the carrying value of these deferred tax assets could be required, with a corresponding charge to net earnings.

4. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET APPLIED:

A number of new accounting standards, and amendments to accounting standards and interpretations, have been issued but are not yet effective for the year ended September 29, 2013. Accordingly, these standards have not been applied in preparing these audited annual consolidated financial statements. The new standards include:

Financial instruments
In October 2010, the IASB released IFRS 9, Financial Instruments, which is the first part of a three-part project to replace IAS 39, Financial Instruments: Recognition and Measurement. This first part covers classification and measurement of financial assets and financial liabilities. In November 2013, the IASB released IFRS 9, Financial Instruments (2013), which introduces a new hedge accounting model, together with corresponding disclosures about risk management activity for those applying hedge accounting. Impairment of financial assets will be addressed in the third part of the project.


 
 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 69
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET APPLIED (continued):

Financial instruments (continued)
IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments and the contractual cash flow characteristics of the financial assets. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward in IFRS 9. However, requirements for measuring a financial liability at fair value have changed, as the portion of the changes in fair value related to the entity’s own credit risk must be presented in other comprehensive income rather than in net earnings. The new hedging model represents a significant change in hedge accounting requirements for non-financial risks. It increases the scope of hedged items eligible for hedge accounting and removes the requirements for quantitative thresholds when calculating hedge effectiveness, allowing flexibility in how an economic relationship is demonstrated. This new standard will increase required disclosures about an entity’s risk management strategy, cash flows from hedging activities and the impact of hedge accounting on the consolidated financial statements. The effective date for IFRS 9 has yet to be determined. The Company is currently assessing the impact of the adoption of this standard on its consolidated financial statements.

Consolidation
In May 2011, the IASB released IFRS 10, Consolidated Financial Statements, which replaces SIC-12, Consolidation - Special Purpose Entities, and parts of IAS 27, Consolidated and Separate Financial Statements. The new standard builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included in a company’s consolidated financial statements. The standard provides additional guidance to assist in the determination of control where it is difficult to assess. IFRS 10 will be effective for the Company’s fiscal year beginning on September 30, 2013. The Company does not expect that the adoption of this standard will have a significant impact in its consolidated financial statements.

Joint arrangements
In May 2011, the IASB released IFRS 11, Joint Arrangements, which supersedes IAS 31, Interests in Joint Ventures, and SIC-13, Jointly Controlled Entities - Non-monetary Contributions by Venturers. IFRS 11 focuses on the rights and obligations of a joint arrangement, rather than its legal form as is currently the case under IAS 31. The standard addresses inconsistencies in the reporting of joint arrangements by requiring the equity method to account for interests in joint ventures. IFRS 11 will be effective for the Company’s fiscal year beginning on September 30, 2013. The Company does not expect that the adoption of this standard will have a significant impact in its consolidated financial statements.

Disclosure of interests in other entities
In May 2011, the IASB released IFRS 12, Disclosure of Interests in Other Entities. IFRS 12 is a new and comprehensive standard on disclosure requirements for all forms of interests in other entities, including subsidiaries, joint arrangements, associates, and unconsolidated structured entities. The standard requires an entity to disclose information regarding the nature and risks associated with its interests in other entities and the effects of those interests on its financial position, financial performance and cash flows. IFRS 12 will be effective for the Company’s fiscal year beginning on September 30, 2013. The adoption of this standard will result in additional disclosures, but it is not expected to have a significant impact on recognition or measurement in the Company’s consolidated financial statements.

Fair value measurement
In May 2011, the IASB released IFRS 13, Fair value measurement. IFRS 13 will improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRS. The standard will be effective for the Company’s fiscal year beginning on September 30, 2013. The adoption of this standard will result in additional disclosures, but it is not expected to have a significant impact on recognition or measurement in the Company’s consolidated financial statements.

Employee benefits
In June 2011, the IASB amended IAS 19, Employee Benefits. Amongst other changes, the amendments require entities to compute the financing cost component of defined benefit plans by applying the discount rate used to measure post-employment benefit obligations to the net post-employment benefit obligations (usually, the present value of defined benefit obligations less the fair value of plan assets). Furthermore, the amendments to IAS 19 enhance the disclosure requirements for defined benefit plans, providing additional information about the characteristics of defined benefit plans and the risks that entities are exposed to through participation in those plans. The amendments to IAS 19 will be effective for the Company’s fiscal year beginning on September 30, 2013. The adoption of this standard will result in additional disclosures, but it is not expected to have a significant impact on recognition or measurement in the Company’s consolidated financial statements.

 
 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

5. BUSINESS ACQUISITIONS:

New Buffalo Shirt Factory Inc.
 
On June 21, 2013, the Company acquired substantially all of the assets and assumed certain liabilities of New Buffalo Shirt Factory Inc. (“New Buffalo”) and its operating affiliate in Honduras, for cash consideration of $5.8 million, and a balance due of $0.5 million. The transaction also resulted in the effective settlement of $4.0 million of trade accounts receivable from New Buffalo prior to the acquisition. New Buffalo is a leader in screenprinting and apparel decoration, which provides high-quality screenprinting and decoration of apparel for global athletic and lifestyle brands. The rationale for the acquisition of New Buffalo is to complement the further development of the Company’s relationships with the major consumer brands which it supplies. The Company financed the acquisition through the utilization of its revolving long-term bank credit facility.

The Company accounted for this acquisition using the acquisition method in accordance with IFRS 3, Business Combinations. The Company has determined the fair value of 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. Goodwill is attributable primarily to New Buffalo’s assembled workforce, and management reputation and expertise, which were not recorded separately since they did not meet the recognition criteria for identifiable intangible assets. Goodwill recorded in connection with this acquisition is fully deductible for tax purposes. The fair value of acquired trade accounts receivable was $5.5 million. Gross contractual amounts receivable were $5.6 million and the best estimate at the date of acquisition of the contractual cash flows not expected to be collected amounted to $0.1 million.

The results of New Buffalo are included in the Branded Apparel segment. The acquisition of the net assets of New Buffalo had no material impact on net sales and on net earnings for the year ended September 29, 2013. There would have been no material impact on the Company's consolidated net sales or net earnings on a pro forma basis had the acquisition of New Buffalo occurred at the beginning of the Company's fiscal year.

CanAm Yarns, LLC
 
On October 29, 2012, the Company acquired the remaining 50% interest of CanAm Yarns, LLC (“CanAm”), its jointly-controlled entity, for cash consideration of $11.1 million. The entity was subsequently renamed Gildan Yarns, LLC (“Gildan Yarns”). The acquisition has been presented in the consolidated statement of cash flows as a cash outflow from investing activities of $2.3 million, which represents the cash consideration paid of $11.1 million, net of cash acquired of $8.8 million. The Company financed the acquisition through the utilization of its revolving long-term bank credit facility. Gildan Yarns operates yarn-spinning facilities in the U.S. in Cedartown, Georgia and Clarkton, North Carolina, and all of the output from these facilities is utilized by the Company in its manufacturing operations. The acquisition is part of the Company’s strategy to increase the degree of vertical integration in yarn spinning.

The Company accounted for this acquisition as a business combination achieved in stages using the acquisition method in accordance with IFRS 3, Business Combinations. The Company has determined the fair value of 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. Goodwill is attributable primarily to the assembled workforce of CanAm which was not recorded separately since it did not meet the recognition criteria for identifiable intangible assets. An amount of $1.1 million of goodwill recorded in connection with this acquisition is deductible for tax purposes.

Prior to the acquisition, the Company had a yarn supply agreement with CanAm which was effectively settled at the date of acquisition and resulted in a loss of $0.4 million. The settlement amount was determined by computing the fair value of the pre-existing relationship using observable market prices. At the date of acquisition, the previously held interest in CanAm was remeasured to its fair value resulting in a loss of $1.1 million. The fair value of the previously held 50% interest in CanAm was determined to be $11.1 million, being the same value as the amount disbursed to acquire the remaining 50% interest. The remeasurement of the previously held interest in CanAm, and the settlement of the pre-existing relationship are presented as a loss on business acquisition achieved in stages of $1.5 million which is included in restructuring and acquisition-related costs in the consolidated statement of earnings and comprehensive income.

The Company had a deferred income tax liability balance of $1.1 million related to its previously held interest in the underlying assets and liabilities of CanAm, which was reversed at the date of acquisition as part of the remeasurement of the previously held interest in CanAm, resulting in a gain of $1.1 million. The reversal of the deferred income tax liability was recorded as a reduction to income tax expense in the consolidated statement of earnings and comprehensive income.


 
 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 71
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. BUSINESS ACQUISITIONS (continued):

CanAm Yarns, LLC (continued)
 
In fiscal 2013, the output of Gildan Yarns was consumed primarily by the Printwear segment. The acquisition of the remaining interest in CanAm had no impact on net sales, and no significant impact on net earnings for the year ended September 29, 2013. There would have been no significant impact on the Company's consolidated net sales or net earnings on a pro forma basis had the acquisition of the remaining interest in CanAm occurred at the beginning of the Company's fiscal year.

The following table summarizes the amounts recognized for the assets acquired and liabilities assumed at the date of acquisition for both business acquisitions in fiscal 2013:

         
New Buffalo
    
CanAm
    
Total
                       
Assets acquired:
                  
 
Cash and cash equivalents
  
$
 - 
  
$
 8,817 
  
$
 8,817 
 
Trade accounts receivable
    
 5,506 
    
 - 
    
 5,506 
 
Inventories
    
 2,033 
    
 2,227 
    
 4,260 
 
Prepaid expenses and deposits
    
 69 
    
 62 
    
 131 
 
Other current assets
    
 25 
    
 401 
    
 426 
 
Property, plant and equipment
    
 1,990 
    
 12,404 
    
 14,394 
 
Other non-current assets
    
 - 
    
 75 
    
 75 
         
 9,623 
    
 23,986 
    
 33,609 
                       
Liabilities assumed:
                  
 
Accounts payable and accrued liabilities
    
 (3,286)
    
 (3,556)
    
 (6,842)
 
Deferred income taxes
    
 - 
    
 (914)
    
 (914)
         
 (3,286)
    
 (4,470)
    
 (7,756)
                       
Goodwill
    
 3,958 
    
 2,308 
    
 6,266 
Net assets acquired at fair value
  
$
 10,295 
  
$
 21,824 
  
$
 32,119 
                       
Cash consideration paid at closing
  
$
 5,757 
  
$
 11,087 
  
$
 16,844 (i)
Fair value of the equity interest in CanAm held by the
                  
  Company immediately prior to the acquisition date
    
 - 
    
 11,087 
    
 11,087 
Balance due
    
 500 
    
 - 
    
 500 
Settlement of pre-existing relationships
    
 4,038 
    
 (350)
    
 3,688 
       
$
 10,295 
  
$
 21,824 
  
$
 32,119 
 
(i)
The cash consideration paid has been presented in the consolidated statement of cash flows as a cash outflow from investing activities of $8.0 million, which represents the cash consideration paid of $16.8 million, net of cash acquired of $8.8 million.

Anvil Holdings, Inc.
 
On May 9, 2012, the Company acquired 100% of the common shares of Anvil Holdings, Inc. (“Anvil”), a supplier of high-quality basic T-shirts and sport shirts, for cash consideration of $87.4 million, net of cash acquired. The acquisition of Anvil further enhances the Company’s leadership position in the U.S. printwear market, and also positions the Company with potential growth opportunities as a supply chain partner to leading consumer brands with rigorous criteria for product quality and social responsibility. The Company financed the acquisition by the utilization of its revolving long-term bank credit facility.

The Company accounted for this acquisition using the acquisition method in accordance with IFRS 3, Business Combinations, and the results of Anvil have been consolidated with those of the Company from the date of acquisition. The Company determined the fair value of 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.


 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 72
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5. BUSINESS ACQUISITIONS (continued):

Anvil Holdings, Inc. (continued)
 
The following table summarizes the amounts recognized for the assets acquired and liabilities assumed at the date of acquisition:

                     
Assets acquired:
                  
 
Trade accounts receivable
        
$
 31,491 
 
Income taxes receivable
                
 2,253 
 
Inventories
                
 59,005 
 
Prepaid expenses and deposits
                
 1,796 
 
Other current assets
                
 501 
 
Property, plant and equipment
                
 14,753 
 
Intangible assets (i)
                
 9,700 
 
Deferred income taxes
                
 5,066 
 
Other non-current assets
                
 1,714 
                   
 126,279 
                     
Liabilities assumed:
                  
 
Accounts payable and accrued liabilities
                
 (26,276)
 
Employee benefit obligations
                
 (1,451)
 
Provisions
                
 (4,500)
                   
 (32,227)
                     
Net identifiable assets acquired
                
 94,052 
Purchase gain on business acquisition
                
 (6,679)
Consideration transferred (excluding cash acquired of $627)
        
$
 87,373 
 
(i)
The intangible assets acquired are comprised of customer relationships in the amount of $5.0 million, which are being amortized on a straight line basis over their estimated useful lives of seven years, and trademarks in the amount of $4.7 million, which are not being amortized as they are considered to be indefinite life intangible assets.

The fair value of acquired trade accounts receivable was $31.5 million. Gross contractual amounts receivable were $32.9 million and the best estimate at the date of acquisition of the contractual cash flows not expected to be collected amounted to $1.4 million.

The excess of the net assets acquired over the consideration transferred represents a purchase gain on business acquisition of approximately $6.7 million. Excluded from the purchase gain were $1.2 million of acquisition-related transaction costs and $10.2 million of charges relating to a restructuring plan pursuant to the acquisition of Anvil. These charges were identified during the acquisition process, but were not recognized as liabilities assumed in the acquisition accounting in accordance with IFRS. The purchase gain in connection with this acquisition is not taxable. The purchase gain, acquisition-related transaction costs and charges relating to the restructuring plan have been included in restructuring and acquisition-related costs in the consolidated statements of earnings and comprehensive income.

The Printwear segment includes the results of operations of Anvil’s printwear business, while the Branded Apparel segment includes Anvil’s operations related to the manufacture and distribution of products for leading consumer brands, including major sportswear and family entertainment brands.


 
 
 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 73
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6. CASH AND CASH EQUIVALENTS:

       
September 29,
  
September 30,
       
2013 
  
2012 
                   
Bank balances
        
$
 96,493 
  
$
 68,748 
Term deposits
          
 875 
    
 1,662 
         
$
 97,368 
  
$
 70,410 

7. TRADE ACCOUNTS RECEIVABLE:

       
September 29,
  
September 30,
       
2013 
  
2012 
                   
Trade accounts receivable
        
$
258,685 
  
$
 262,090 
Allowance for doubtful accounts
          
(3,667)
    
 (4,495)
         
$
 255,018 
  
$
 257,595 

The movement in the allowance for doubtful accounts in respect of trade receivables was as follows:

           
2013 
    
2012 
                   
Balance, beginning of year
        
$
 (4,495)
  
$
 (4,106)
Bad debt (expense) recovery
          
 (713)
    
 401 
Write-off of trade accounts receivable
          
 1,607 
    
 648 
Increase due to business acquisitions (note 5)
          
 (66)
    
 (1,438)
Balance, end of year
        
$
 (3,667)
  
$
 (4,495)

8. INVENTORIES:

       
September 29,
  
September 30,
       
2013 
  
2012 
                   
Raw materials and spare parts inventories
        
$
69,508 
  
$
 61,841 
Work in progress
          
36,507 
    
 37,358 
Finished goods
          
489,779 
    
 453,869 
         
$
 595,794 
  
$
 553,068 

The amount of inventories recognized as an expense and included in cost of sales was $1,508.6 million for fiscal 2013 (2012 - $1,517.8 million), which included an expense of $6.0 million (2012 - $4.2 million) related to the write-down of inventory to net realizable value.


 
 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 74
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. PROPERTY, PLANT AND EQUIPMENT:

   
Land
  
Buildings and improvements
  
Manufacturing equipment
  
Other equipment
  
Assets not yet utilized in operations
  
Total
             
2013 
            
                                     
Cost
                                    
Balance, September 30, 2012
  
$
 38,936 
  
$
 231,032 
  
$
 532,341 
  
$
 96,624 
  
$
 11,769 
  
$
 910,702 
Additions
    
 648 
    
 13,889 
    
 18,158 
    
 23,498 
    
 114,030 
    
 170,223 
Additions through business
                                    
  acquisitions
    
 338 
    
 4,613 
    
 9,320 
    
 123 
    
 - 
    
 14,394 
Transfers
    
 - 
    
 435 
    
 9,144 
    
 2,190 
    
 (11,769)
    
 - 
Disposals
    
 - 
    
 (739)
    
 (36,406)
    
 (7,807)
    
 - 
    
 (44,952)
Balance, September 29, 2013
  
$
 39,922 
  
$
 249,230 
  
$
 532,557 
  
$
 114,628 
  
$
 114,030 
  
$
 1,050,367 
                                     
Accumulated depreciation
                              
Balance, September 30, 2012
  
$
 - 
  
$
 65,168 
  
$
 242,923 
  
$
 50,174 
  
$
 - 
  
$
 358,265 
Depreciation
    
 - 
    
 7,721 
    
 54,551 
    
 16,811 
    
 - 
    
 79,083 
Disposals
    
 - 
    
 (424)
    
 (34,689)
    
 (7,737)
    
 - 
    
 (42,850)
Balance, September 29, 2013
  
$
 - 
  
$
 72,465 
  
$
 262,785 
  
$
 59,248 
  
$
 - 
  
$
 394,498 
Carrying amount,
                                    
  September 29, 2013
  
$
 39,922 
  
$
 176,765 
  
$
 269,772 
  
$
 55,380 
  
$
 114,030 
  
$
 655,869 

   
Land
  
Buildings and improvements
  
Manufacturing equipment
  
Other equipment
  
Assets not yet utilized in operations
  
Total
             
2012 
            
                                     
Cost
                              
Balance, October 2, 2011
  
$
 35,113 
  
$
 194,530 
  
$
 464,886 
  
$
 91,853 
  
$
 47,547 
  
$
 833,929 
Additions
    
 3,620 
    
 17,066 
    
 35,891 
    
 4,689 
    
 8,755 
    
 70,021 
Additions through business
                                    
  acquisitions
    
 100 
    
 2,703 
    
 7,310 
    
 1,626 
    
 3,014 
    
 14,753 
Transfers from or to assets
                                    
  held for sale
    
 114 
    
 (212)
    
 - 
    
 - 
    
 - 
    
 (98)
Transfers
    
 - 
    
 17,337 
    
 30,210 
    
 - 
    
 (47,547)
    
 - 
Disposals
    
 (11)
    
 (392)
    
 (5,956)
    
 (1,544)
    
 - 
    
 (7,903)
Balance, September 30, 2012
  
$
 38,936 
  
$
 231,032 
  
$
 532,341 
  
$
 96,624 
  
$
 11,769 
  
$
 910,702 
                                     
Accumulated depreciation
                              
Balance, October 2, 2011
  
$
 - 
  
$
 52,881 
  
$
 191,696 
  
$
 39,028 
  
$
 - 
  
$
 283,605 
Depreciation
    
 - 
    
 12,494 
    
 55,763 
    
 12,560 
    
 - 
    
 80,817 
Transfers to assets held
                                    
  for sale
    
 - 
    
 (137)
    
 - 
    
 - 
    
 - 
    
 (137)
Disposals
    
 - 
    
 (70)
    
 (4,536)
    
 (1,414)
    
 - 
    
 (6,020)
Balance, September 30, 2012
  
$
 - 
  
$
 65,168 
  
$
 242,923 
  
$
 50,174 
  
$
 - 
  
$
 358,265 
Carrying amount,
                                    
  September 30, 2012
  
$
 38,936 
  
$
 165,864 
  
$
 289,418 
  
$
 46,450 
  
$
 11,769 
  
$
 552,437 


 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 75
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


9. PROPERTY, PLANT AND EQUIPMENT (continued):

Assets not yet utilized in operations include expenditures incurred to date for plant expansions which are still in process, and equipment not yet placed into service as at the end of the reporting period.

As at September 29, 2013, there were contractual purchase obligations outstanding of approximately $125.2 million for the acquisition of property, plant and equipment compared to $38.3 million as of September 30, 2012.

10. INTANGIBLE ASSETS AND GOODWILL:

Intangible assets

2013 
  
Customer contracts and customer relationships
Trademarks
License agreements
Computer software
  
Non-compete agreements
  
Total
                                     
Cost
                                    
Balance, September 30, 2012
  
$
 133,866 
  
$
 102,045 
  
$
 51,000 
  
$
 28,105 
  
$
 1,700 
  
$
 316,716 
Additions
    
 - 
    
 - 
    
 - 
    
 4,315 
    
 - 
    
 4,315 
Disposals
    
 - 
    
 - 
    
 - 
    
 (680)
    
 - 
    
 (680)
Balance, September 29, 2013
$
 133,866 
  
$
 102,045 
  
$
 51,000 
  
$
 31,740 
  
$
 1,700 
  
$
 320,351 
                                     
Accumulated amortization
                              
Balance, September 30, 2012
  
$
 23,299 
  
$
 - 
  
$
 11,087 
  
$
 21,109 
  
$
 1,240 
  
$
 56,735 
Amortization
    
 7,152 
    
 - 
    
 7,602 
    
 1,541 
    
 460 
    
 16,755 
Disposals
    
 - 
    
 - 
    
 - 
    
 (676)
    
 - 
    
 (676)
Balance, September 29, 2013
$
 30,451 
  
$
 - 
  
$
 18,689 
  
$
 21,974 
  
$
 1,700 
  
$
 72,814 
Carrying amount,
                                    
  September 29, 2013
$
 103,415 
  
$
 102,045 
  
$
 32,311 
  
$
 9,766 
  
$
 - 
  
$
 247,537 

2012 
  
Customer contracts and customer relationships
Trademarks
License agreements
Computer software
  
Non-compete agreements
  
Total
                                     
Cost
                                    
Balance, October 2, 2011
  
$
 128,866 
  
$
 94,000 
  
$
 51,000 
  
$
 26,038 
  
$
 1,700 
  
$
 301,604 
Additions
    
 - 
    
 3,345 
    
 - 
    
 2,094 
    
 - 
    
 5,439 
Additions through business
                                    
  acquisitions
    
 5,000 
    
 4,700 
    
 - 
    
 - 
    
 - 
    
 9,700 
Disposals
    
 - 
    
 - 
    
 - 
    
 (27)
    
 - 
    
 (27)
Balance, September 30, 2012
  
$
 133,866 
  
$
 102,045 
  
$
 51,000 
  
$
 28,105 
  
$
 1,700 
  
$
 316,716 
                                     
Accumulated amortization
                              
Balance, October 2, 2011
  
$
 16,600 
  
$
 - 
  
$
 3,484 
  
$
 19,477 
  
$
 390 
  
$
 39,951 
Amortization
    
 6,699 
    
 - 
    
 7,603 
    
 1,659 
    
 850 
    
 16,811 
Disposals
    
 - 
    
 - 
    
 - 
    
 (27)
    
 - 
    
 (27)
Balance, September 30, 2012
  
$
 23,299 
  
$
 - 
  
$
 11,087 
  
$
 21,109 
  
$
 1,240 
  
$
 56,735 
Carrying amount,
                                    
  September 30, 2012
  
$
 110,567 
  
$
 102,045 
  
$
 39,913 
  
$
 6,996 
  
$
 460 
  
$
 259,981 


 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 76
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


10. INTANGIBLE ASSETS AND GOODWILL (continued):

Goodwill

  
    
2013 
  
2012 
  
              
Balance, beginning of period(i)
    
$
 143,833 
  
$
 143,833 
Goodwill acquired  (note 5)
      
 6,266 
    
 - 
Balance, end of period 
    
$
 150,099 
  
$
 143,833 
  
              
(i)
The comparative balance as at September 30, 2012 has been adjusted to correct a non-significant error in the purchase price allocation relating to the acquisition of Gold Toe in fiscal 2011. The correction resulted in a $1.9 million increase to goodwill, a $1.1 million increase to deferred income tax assets, and a $3.0 million decrease to trade accounts receivable as at the acquisition date in April 2011 and as at September 30, 2012.

Recoverability of cash-generating units
 
Goodwill acquired through business acquisitions and trademarks with indefinite useful lives have been allocated to CGUs that are expected to benefit from the synergies of the acquisition, as follows:

         
September 29,
  
September 30,
         
2013 
  
2012 
                     
Branded Apparel
                  
 
Goodwill
        
$
 144,303 
  
$
 140,345 
 
Trademarks
          
 97,345 
    
 97,345 
             
 241,648 
    
 237,690 
                     
Printwear
                  
 
Goodwill
          
 5,796 
    
 3,488 
 
Trademarks
          
 4,700 
    
 4,700 
           
$
 10,496 
  
$
 8,188 

In assessing whether goodwill and indefinite life intangible assets are impaired, the carrying amount of the CGUs (including goodwill and indefinite life intangible assets) are compared to their recoverable amount. The recoverable amounts of CGUs are based on the higher of the value in use and fair value less costs to sell. The Company performed the annual impairment review for goodwill and indefinite life intangible assets as at September 29, 2013, and the estimated recoverable amounts exceeded the carrying amounts of the CGUs and as a result, there was no impairment identified.

Recoverable amount – Branded Apparel
The Company determined the recoverable amount of the Branded Apparel CGU based on a value in use calculation using cash flow projections, which take into account financial budgets and forecasts approved by senior management covering a five-year period with a terminal value calculated by discounting the final year in perpetuity. The key assumptions for the value in use calculation include estimated sales volumes, selling prices and input costs, as well as discount rates which are based on estimates of the risks associated with the projected cash flows based on the best information available as of the date of the impairment test. The pre-tax discount rate applied to cash flow projections was 14.2%. A growth rate of 2%, which does not exceed the historical and industry average growth rates, was used to calculate the terminal value. The Company determined that no reasonably possible change in the key assumptions would have resulted in any impairment of goodwill or indefinite life intangible assets.


 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 77
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. LONG-TERM DEBT:

The Company has a committed unsecured revolving long-term bank credit facility of $800 million. In November 2012, the Company amended its revolving long-term bank credit facility to extend the maturity date from June 2016 to January 2018. As a result of the amendment, the facility now provides for an annual extension which is subject to the approval of the lenders, and amounts drawn under the facility bear interest at a variable banker’s acceptance or U.S. LIBOR-based interest rate plus a reduced spread ranging from 1% to 2%, such range being a function of the total debt to EBITDA ratio (as defined in the credit facility agreement). The amendment also provides for a reduction in undrawn pricing. There were no amounts drawn under the facility as at September 29, 2013 (September 30, 2012 - $181.0 million) and the effective interest rate for fiscal 2013 was 2.4% (2012 - 2.2%), including the cash impact of interest rate swaps. In addition, an amount of $7.4 million (September 30, 2012 - $6.0 million) has been committed against this facility to cover various letters of credit as described in note 24. The revolving long-term bank credit facility requires the Company to comply with certain covenants including maintenance of financial ratios. The Company was in compliance with all covenants as at September 29, 2013.

12. EMPLOYEE BENEFIT OBLIGATIONS:

       
September 29,
  
September 30,
       
2013 
  
2012 
                   
Defined benefit pension plan
        
$
5,776 
  
$
 5,871 
Statutory severance obligation
          
10,935 
    
 12,246 
Defined contribution plan
          
1,775 
    
 1,495 
         
$
 18,486 
  
$
 19,612 

(a)  
Defined benefit pension plan:
 
The Company has a funded qualified defined benefit pension plan (“Retirement Plan”) covering certain employees of Gold Toe. An actuarial valuation is performed at every year-end, and was therefore last performed at September 29, 2013. The last valuation for funding purposes was performed on January 1, 2012. The Retirement Plan filed for termination in October 2012. The Company has committed to fully funding the Retirement Plan on a termination basis at the time assets are distributed. The Company’s plan for termination of the Retirement Plan was approved in the fourth quarter of fiscal 2013, and the final wind-up is expected to take place in fiscal 2014.

The funded status of the Company’s Retirement Plan was as follows:

         
2013 
  
2012 
                     
 
Benefit obligation, beginning of year
        
$
 9,571 
  
$
 18,983 
 
Interest cost
          
 315 
    
 595 
 
Actuarial gain
          
 (529)
    
 (765)
 
Settlement gain
          
 - 
    
 (725)
 
Benefits paid
          
 (550)
    
 (180)
 
Plan settlements
          
 - 
    
 (8,337)
 
Benefit obligation, end of year
        
$
 8,807 
  
$
 9,571 
                     
 
Fair value of plan assets, beginning of year
        
$
 3,700 
  
$
 12,564 
 
Plan settlements
          
 - 
    
 (8,337)
 
Expected return on plan assets
          
 101 
    
 273 
 
Actuarial loss
          
 (220)
    
 (620)
 
Benefits paid
          
 (550)
    
 (180)
 
Fair value of plan assets, end of year
        
$
 3,031 
  
$
3,700 
                     
 
Plan deficit / defined benefit pension liability, end of year
  
$
 5,776 
  
$
 5,871 


 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 78
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


12. EMPLOYEE BENEFIT OBLIGATIONS (continued):

(a)  
Defined benefit pension plan (continued):
 
The plan assets are invested entirely in high quality money market funds. The expected rate of return on plan assets of 3.5% is based on published capital market assumptions for high quality money market funds. The actual loss on plan assets for fiscal 2013 was $0.1 million (2012 - $0.3 million).

The net periodic pension expense (gain) of the Company’s Retirement Plan for the years ended September 29, 2013 and September 30, 2012 includes the following components:

           
2013 
    
2012 
                     
 
Interest cost
        
$
 315 
  
$
 595 
 
Expected return on plan assets
          
 (101)
    
 (273)
 
Settlement gain
          
 - 
    
 (725)
 
Net periodic pension expense (gain) - included in
              
 
  restructuring and acquisition-related costs
        
$
 214 
  
$
(403)

Weighted-average assumptions to determine benefit obligations and net periodic benefit cost:

               
2013 
    
2012 
                       
 
Benefit obligation:
                  
   
Discount rate
          
4.31%
    
3.40%
                       
 
Net periodic benefit cost:
                  
   
Discount rate
          
3.40%
    
4.37%
   
Rate of return on plan assets
          
3.50%
    
3.50%

(b)   Statutory severance obligation:

             
2013 
    
2012 
                     
 
Benefit obligation, beginning of year
        
$
 12,246 
  
$
 12,586 
 
Service cost
          
 8,242 
    
 7,691 
 
Interest cost
          
 3,650 
    
 3,093 
 
Actuarial gain
          
 (127)
    
 (178)
 
Benefits paid
          
 (13,076)
    
 (10,946)
 
Benefit obligation, end of year
        
$
 10,935 
  
$
 12,246 

A discount rate between 10% and 12%, and a rate of compensation increase between 5% and 7% were used to calculate the accumulated benefit obligation of statutory severance.

(c)  
Defined contribution plan:
 
During fiscal 2013, defined contribution expenses were $2.3 million (2012 - $2.0 million).

(d)  
Actuarial losses recognized in other comprehensive income:
 
The cumulative amount of actuarial losses recognized in other comprehensive income as at September 29, 2013 was $3.2 million (September 30, 2012 - $3.6 million) which have been reclassified to retained earnings in the period in which they were recognized.

 
 
 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 79
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13. PROVISIONS:

         
2013 
  
2012 
                   
Balance, beginning of year
        
$
 13,042 
  
$
 8,226 
Assumed in a business acquisition (note 5)
          
 - 
    
 4,500 
Provisions made during the year
          
 2,972 
    
 - 
Accretion of interest
          
 311 
    
 316 
Balance, end of year
        
$
 16,325 
  
$
 13,042 

Provisions include estimated future costs of decommissioning and site restoration for certain assets located at the Company’s textile and sock facilities and a distribution centre in the U.S. for which the timing of settlement is uncertain, but has been estimated to be in excess of twenty years, and costs related to the exit of an Anvil administrative office lease.

14. EQUITY:

(a)  
Shareholder rights plan:
 
The Company has a shareholder rights plan which provides the Board of Directors and the shareholders with additional time to assess any unsolicited take-over bid for the Company and, where appropriate, pursue other alternatives for maximizing shareholder value.

(b)
Accumulated other comprehensive income:
 
Accumulated other comprehensive income includes the changes in the fair value of the effective portion of qualifying cash flow hedging instruments outstanding at the end of the period.

(c)
Share capital:
 
Authorized:
Common shares, authorized without limit as to number and without par value. First preferred shares, without limit as to number and without par value, issuable in series and non-voting. Second preferred shares, without limit as to number and without par value, issuable in series and non-voting. As at September 29, 2013 and September 30, 2012 none of the first and second preferred shares were issued.

Issued:
As at September 29, 2013, there were 121,626,076 common shares (September 30, 2012 - 121,386,090) issued and outstanding, which are net of 282,761 common shares (September 30, 2012 - 210,400) that have been purchased and are held in trust as described in note 14(e).

(d)
Normal course issuer bid:
 
In December 2011 the Company implemented a normal course issuer bid (“NCIB”) to repurchase for cancellation up to one million outstanding common shares of the Company on the TSX and the NYSE, representing approximately 0.8% of its issued and outstanding common shares, in accordance with the requirements of the TSX. The Company did not renew the NCIB which expired on December 5, 2012. During fiscal 2013, there were no repurchases under the NCIB.

(e)
Common shares purchased as settlement for non-Treasury RSUs:
 
In September 2011, the Company established a trust for the purpose of settling the vesting of non-Treasury RSUs. For non-Treasury RSUs that are to be settled in common shares in lieu of cash, the Company directs the trustee to purchase common shares of the Company on the open market to be held in trust for and on behalf of the holders of non-Treasury RSUs until they are delivered for settlement, when the non-Treasury RSUs vest. At the time the common shares are purchased, the amounts previously credited to accounts payable and accrued liabilities for the non-Treasury RSUs initially expected to be settled in cash are transferred to contributed surplus. For accounting purposes, the common shares are considered as held in treasury, and recorded as a temporary reduction of outstanding common shares and share capital. Upon delivery of the common shares for settlement of the non-Treasury RSUs, the number of common shares outstanding is increased, and the amount in contributed surplus is transferred to share capital. The common shares purchased as settlement for non-Treasury RSUs were as follows:


 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 80
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. EQUITY (continued):

(e)
Common shares purchased as settlement for non-Treasury RSUs (continued):

       
2013 
  
2012 
       
Shares
    
Amount
    
Average cost
  
Shares
    
Amount
    
Average Cost
                                     
 
Balance, beginning of year
 210 
  
$
 5,990 
  
$
 28.52 
  
 79 
  
$
 2,152 
  
$
 27.24 
 
Distributed
  
 (205)
    
 (5,864)
    
 28.60 
  
 (79)
    
 (2,152)
    
 27.24 
 
Purchased
  
 278 
    
 9,621 
    
 34.61 
  
 210 
    
 5,990 
    
 28.52 
 
Balance, end of year
  
 283 
  
$
 9,747 
  
$
 34.44 
  
 210 
  
$
 5,990 
  
$
 28.52 

Subsequent to year end, the Company distributed 150,210 common shares with an average cost of $33.33 per share as settlement for the vesting of the equivalent number of non-Treasury RSUs.

(f)
Contributed surplus:
 
The contributed surplus account is used to record the initial value of equity-settled share based compensation transactions. Upon the exercise of stock options and the vesting of Treasury restricted share units, the corresponding amounts previously credited to contributed surplus are transferred to share capital.

15. FINANCIAL INSTRUMENTS:

Disclosures relating to the nature and extent of the Company’s exposure to risks arising from financial instruments, including credit risk, liquidity risk, foreign currency risk and interest rate risk, as well as risks arising from commodity prices, and how the Company manages those risks, are included in the section entitled “Financial risk management” of the Management’s Discussion and Analysis of the Company’s operations, financial performance and financial position as at September 29, 2013 and September 30, 2012. Accordingly, these disclosures are incorporated into these consolidated financial statements by cross-reference.

(a)  
Financial instruments – carrying amounts and fair values:
 
The carrying amounts and fair values of financial assets and liabilities included in the consolidated statements of financial position are as follows:

     
September 29,
  
September 30,
       
2013 
    
2012 
               
 
Financial assets
            
 
Loans and receivables:
            
 
  Cash and cash equivalents
  
$
 97,368 
  
$
 70,410 
 
  Trade accounts receivable
    
 255,018 
    
 257,595 
 
  Other current assets
    
 9,931 
    
 8,561 
 
  Long-term non-trade receivables included in other
            
 
    non-current assets
    
 3,400 
    
 509 
 
Derivative financial instruments designated as effective
            
 
  hedging instruments included in other current assets
    
 1,103 
    
 133 
               
 
Financial liabilities
            
 
Other financial liabilities:
            
 
  Accounts payable and accrued liabilities
  
$
 287,382 
  
$
 247,622 
 
  Long-term debt - bearing interest at variable rates
    
 - 
    
 181,000 
 
Derivative financial instruments designated as effective
            
 
  hedging instruments included in accounts payable
            
 
  and accrued liabilities
    
 2,032 
    
 7,870 
 
Contingent consideration
    
 - 
    
 950 

 

 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 81
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


15. FINANCIAL INSTRUMENTS (continued):

(a)  
Financial instruments – carrying amounts and fair values (continued):

The Company has determined that the fair value of its short-term financial assets and liabilities approximates their respective carrying amounts as at the reporting dates because of the short-term maturity of those instruments. The fair values of the long-term non-trade receivables included in other non-current assets, and the Company’s interest-bearing financial liabilities also approximate their respective carrying amounts. The fair values of cash and cash equivalents and derivative financial instruments were measured using Level 2 inputs in the fair value hierarchy. In determining the fair value of financial assets and financial liabilities, including derivative financial instruments, the Company takes into account its own credit risk and the credit risk of the counterparties.

(b)  Derivative financial instruments:
 
During fiscal 2013, the Company entered into forward foreign exchange contracts in order to reduce the exposure of forecasted cash flows in currencies other than the U.S. dollar. The forward foreign exchange contracts were designated as cash flow hedges and qualified for hedge accounting. The forward foreign exchange contracts outstanding as at September 29, 2013 consisted primarily of contracts to reduce the exposure to fluctuations in Euros, Canadian dollars, Pounds sterling and Swiss franc, against the U.S. dollar. For fiscal 2013, the derivatives designated as cash flow hedges were considered to be fully effective and no ineffectiveness has been recognized in net earnings.
 
The following table summarizes the Company’s commitments to buy and sell foreign currencies as at September 29, 2013:

                   
Carrying and fair value
  
Maturity
     
Notional
                  
Accounts
      
     
 foreign
                  
payable
      
     
 currency
Average
  
Notional
  
Other
  
and
      
     
 amount
 exchange
  
 U.S. $
  
 current
  
accrued
  
0 to 12
   
equivalent
rate
  
equivalent
  
assets
  
  liabilities
  
months
                                     
 
Forward foreign exchange contracts designated as cash flow hedges:
            
   
Sell GBP/Buy USD
  
 26,412 
  
 1.5510 
    
 40,966 
    
 - 
    
 (1,319)
    
 (1,319)
   
Sell EUR/Buy USD
  
 27,834 
  
 1.3237 
    
 36,844 
    
 - 
    
 (713)
    
 (713)
   
Sell USD/Buy CAD
  
 16,230 
  
 0.9487 
    
 15,398 
    
 286 
    
 - 
    
 286 
   
Sell USD/Buy EUR
  
 9,086 
  
 1.2844 
    
 11,670 
    
 586 
    
 - 
    
 586 
   
Sell USD/Buy CHF
  
 5,323 
  
 1.0556 
    
 5,619 
    
 231 
    
 - 
    
 231 
               
$
 110,497 
  
$
 1,103 
  
$
 (2,032)
  
$
 (929)

 

 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 82
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


15. FINANCIAL INSTRUMENTS (continued):

(c)
Financial expenses, net:

       
2013 
  
2012 
                 
 
Interest expense on financial liabilities recorded at amortized cost
  
$
 3,899 
  
$
 7,315 
 
Recognition of deferred hedging loss on interest rate swaps (i)
    
 4,734 
    
 - 
 
Bank and other financial charges
    
 3,674 
    
 3,676 
 
Interest accretion on discounted provision
    
 312 
    
 324 
 
Foreign exchange loss
    
 239 
    
 283 
 
Derivative gain on financial instruments not designated for
            
 
  hedge accounting
    
 (845)
    
 - 
       
$
 12,013 
  
$
 11,598 

 
(i) During fiscal 2011, the Company entered into a series of interest rate swap contracts to fix the variable interest rates on the designated interest payments, to June 2016, on $125 million of the borrowings under the revolving long-term bank credit facility. Prior to October 1, 2012, the interest rate swap contracts were designated as cash flow hedges and qualified for hedge accounting. The fair value of the interest rate swap contracts as at September 30, 2012 reflected an unrealized loss of $5.8 million, which was recognized as a charge to other comprehensive income with a corresponding liability included in accounts payable and accrued liabilities. During fiscal 2013, the Company determined that it no longer met the criteria for hedge accounting and discontinued hedge accounting prospectively effective October 1, 2012. As a result, changes in the fair value of the interest rate swap contracts subsequent to October 1, 2012 were recognized immediately in net earnings under the financial expenses caption. In addition, since the designated interest payments were still expected to occur throughout the year, the cumulative loss in accumulated other comprehensive income was drawn down systematically, as a charge to net earnings under the financial expenses caption, as the interest payments occurred. During the fourth quarter of fiscal 2013, the Company concluded that the majority of the designated interest payments are no longer expected to occur, and that it was no longer economic to maintain the interest rate swaps as the borrowings under the credit facility were fully repaid at the end of fiscal 2013. Therefore, the interest rate swaps were unwound, and the corresponding deferred loss on interest rate swaps remaining in accumulated other comprehensive income of $4.7 million was recognized immediately in net earnings, under the financial expenses caption.

(d)
Other comprehensive income (loss):

               
2013 
  
2012 
                         
 
Net gain (loss) on derivatives designated as cash flow hedges
  
$
 1,168 
  
$
 (4,955)
 
Income taxes
          
 (12)
    
 50 
                         
 
Amounts reclassified from other comprehensive income to
              
   
net earnings, and included in:
                  
     
Net sales
          
 469 
    
 (2,993)
     
Cost of sales
          
 (321)
    
 - 
     
Selling, general and administrative expenses
          
 - 
    
 (563)
     
Financial expenses, net
          
 5,110 
    
 2,029 
     
Income taxes
          
 5 
    
 33 
 
Cash flow hedges income (loss)
          
 6,419 
    
 (6,399)
                         
 
Actuarial gain on employee benefit obligations
          
 436 
    
 323 
 
Other comprehensive income (loss)
        
$
 6,855 
  
$
 (6,076)

As at September 29, 2013, approximately $0.7 million of net losses presented in accumulated other comprehensive income are expected to be reclassified to net earnings within the next twelve months.

 

 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 83
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16. SHARE-BASED COMPENSATION:

(a)
Employee share purchase plans:
 
The Company has employee share purchase plans which allow eligible employees to authorize payroll deductions of up to 10% of their salary to purchase from Treasury, common shares of the Company at a price of 90% of the then current share price as defined in the plans. Employees purchasing shares under the plans subsequent to January 1, 2008 must hold the shares for a minimum of two years. The Company has reserved 2,500,000 common shares for issuance under the plans. As at September 29, 2013, a total of 319,712 shares (September 30, 2012 - 295,493) were issued under these plans. Included as compensation costs in selling, general and administrative expenses is $0.1 million (2012 - $0.1 million) relating to the employee share purchase plans.

(b)
Stock options and restricted share units:
 
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. On February 2, 2006, the shareholders of the Company approved an amendment to the LTIP to fix at 6,000,316 the number of common shares that are issuable pursuant to the exercise of stock options and the vesting of Treasury RSUs. As at September 29, 2013, 2,138,374 common shares remained authorized for future issuance under this plan.

The exercise price payable for each common share covered by a stock option is determined by the Board of Directors at the date of the grant, but may not be less than the closing price of the common shares of the Company on the trading day immediately preceding the effective date of the grant. Stock options granted since fiscal 2007 vest equally beginning on the second, third, fourth and fifth anniversary of the grant date, with the exception of a special one-time award of 409,711 options which cliff vest on the fifth anniversary of the grant date, and expire no more than seven or ten years after the date of the grant. All stock options granted prior to fiscal 2008 have fully vested.

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 and non-Treasury RSUs expected to be settled in common shares are credited to contributed surplus when the dividends are declared, whereas the additional awards related to outstanding non-Treasury RSUs expected to be settled in cash and deferred share units are credited to accounts payable and accrued liabilities.

Outstanding stock options were as follows:

                   
Weighted average
                     
exercise price
               
Number
  
(CA$)
                       
 
Stock options outstanding, October 2, 2011
          
961 
  
$
24.28 
 
Changes in outstanding stock options:
                  
   
Granted
          
190 
    
27.20 
   
Exercised
          
(56)
    
14.09 
   
Forfeited
          
(41)
    
28.50 
 
Stock options outstanding, September 30, 2012
          
1,054 
    
25.18 
 
Changes in outstanding stock options:
                  
   
Granted
          
191 
    
31.17 
   
Exercised
          
(195)
    
27.18 
   
Forfeited
          
(4)
    
29.72 
 
Stock options outstanding, September 29, 2013
          
1,046 
  
$
25.88 


 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 84
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


16. SHARE-BASED COMPENSATION (continued):

(b)
Stock options and restricted share units (continued):
 
As at September 29, 2013, 143,283 outstanding options were exercisable at the weighted average exercise price of CA$29.33 (September 30, 2012 - 246,006 options at CA$28.58). For stock options exercised during fiscal 2013, the weighted average share price at the date of exercise was CA$42.21 (2012 - CA$25.09). Based on the Black-Scholes option pricing model, the grant date weighted average fair value of options granted during the twelve months ended September 29, 2013 was $14.34 (September 30, 2012 - $11.42). Expected volatilities are based on the historical volatility of Gildan’s share price. The risk-free rate used is equal to the yield available on Government of Canada bonds at the date of grant with a term equal to the expected life of the options.

             
2013 
    
2012 
                     
 
Exercise price
          
$ 31.17
    
$ 27.20
 
Risk-free interest rate
          
1.30%
    
1.31%
 
Expected volatility
          
54.70%
    
52.75%
 
Expected life
          
5.25 years
    
5.25 years
 
Expected dividend yield
          
0.95%
    
1.00%

The following table summarizes information about stock options issued and outstanding and exercisable at September 29, 2013:

     
Options issued and outstanding
  
Options exercisable
         
Remaining
    
 
Exercise prices (CA$)
  
Number
  
contractual life (yrs)
  
Number
               
 
$ 20.12
  
58 
  
 3 
  
 17 
 
$ 22.13
  
410 
  
 6 
  
 - 
 
$ 23.49
  
99 
  
 2 
  
 61 
 
$ 27.20
  
177 
  
 5 
  
 - 
 
$ 28.64
  
59 
  
 4 
  
 13 
 
$ 31.17
  
191 
  
 6 
  
 - 
 
$ 39.39
  
52 
  
 1 
  
 52 
     
1,046 
      
 143 

A Treasury RSU represents the right of an individual to receive one common share on the vesting date without any monetary consideration being paid to the Company. With limited exceptions, all Treasury RSUs awarded to date vest within a five-year vesting period. The vesting of at least 50% of each Treasury RSU grant is contingent on the achievement of performance conditions that are primarily based on the Company’s average return on assets performance for the period as compared to the S&P/TSX Capped Consumer Discretionary Index, excluding income trusts, or as determined by the Board of Directors.



 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 85
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16. SHARE-BASED COMPENSATION (continued):

(b)
Stock options and restricted share units (continued):
 
Outstanding Treasury RSUs were as follows:

                   
Weighted average
               
Number
  
fair value per unit
                       
 
Treasury RSUs outstanding, October 2, 2011
          
911 
  
$
 23.34 
 
Changes in outstanding Treasury RSUs:
                  
   
Granted
          
68 
    
 26.60 
   
Granted for dividends declared
          
10 
    
 25.10 
   
Settled through the issuance of common shares
          
(102)
    
 27.32 
   
Forfeited
          
(3)
    
 27.61 
 
Treasury RSUs outstanding, September 30, 2012
          
884 
    
 23.13 
 
Changes in outstanding Treasury RSUs:
                  
   
Granted
          
21 
    
 38.28 
   
Granted for dividends declared
          
7 
    
 40.06 
   
Settled through the issuance of common shares
          
(93)
    
 28.38 
   
Forfeited
          
(47)
    
 30.31 
 
Treasury RSUs outstanding, September 29, 2013
          
772 
  
$
 22.64 

As at September 29, 2013 and September 30, 2012, 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 fiscal 2013 was $5.4 million (2012 - $4.6 million). 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.

Outstanding non-Treasury RSUs were as follows:

               
2013 
    
2012 
                       
 
Non-Treasury RSUs outstanding, beginning of year
        
529 
    
396 
 
Changes in outstanding non-Treasury RSUs:
                
   
Granted
          
223 
    
247 
   
Granted for dividends declared
          
6 
    
7 
   
Settled
          
(172)
    
(94)
   
Forfeited
          
(17)
    
(27)
 
Non-Treasury RSUs outstanding, end of year
        
569 
    
529 

Non-Treasury RSUs have the same features as Treasury RSUs, except that their vesting period is a maximum of three years and they can be settled in cash based on the Company’s share price on the vesting date, or through the delivery of common shares purchased on the open market. The settlement amount for non-Treasury RSUs expected to be settled in cash is based on the Company's five-day average share price at the vesting date. Beginning in fiscal 2010, 100% of non-Treasury RSUs awarded to executive officers have vesting conditions that are dependent upon the financial performance of the Company relative to a benchmark group of Canadian publicly listed companies. In addition, up to two times the actual number of non-Treasury RSUs awarded to executive officers can vest if exceptional financial performance is achieved. As at September 29, 2013 and September 30, 2012, none of the outstanding non-Treasury RSUs were vested.

 
 
 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 86
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16. SHARE-BASED COMPENSATION (continued):

(b)
Stock options and restricted share units (continued):
 
The compensation expense included in selling, general and administrative expenses and cost of sales, in respect of the non-Treasury RSUs, for fiscal 2013 was $10.0 million (2012 - $6.1 million). As at September 29, 2013, 271,029 non-Treasury RSUs (September 30, 2012 – 318,923) were expected to be settled in cash, for which a recognized amount of $6.3 million (September 30, 2012 - $4.3 million) is included in accounts payable and accrued liabilities, based on a fair value per non-Treasury RSU of $47.01.

(c)  
Deferred share unit plan:
 
The Company has a deferred share unit plan for independent members of the Company’s Board of Directors who must receive at least 50% of their annual board retainers in the form of deferred share units ("DSUs"). The value of these DSUs is based on the Company’s share price at the time of payment of the retainers or fees. DSUs granted under the plan will be redeemable and the value thereof payable in cash only after the director ceases to act as a director of the Company. As at September 29, 2013, there were 121,677 (September 30, 2012 - 110,322) DSUs outstanding at a value of $5.7 million (September 30, 2012 - $3.5 million). This amount is included in accounts payable and accrued liabilities. The DSU obligation is adjusted each quarter based on the market value of the Company’s common shares. The Company includes the cost of the DSU plan in selling, general and administrative expenses, which for fiscal 2013 was $2.7 million (2012 - $1.3 million).

Changes in outstanding DSUs were as follows:

             
2013 
    
2012 
                     
 
DSUs outstanding, beginning of year
          
 110 
    
 78 
 
Granted
          
 22 
    
 31 
 
Granted for dividends declared
          
 1 
    
 1 
 
Redeemed
          
 (11)
    
 - 
 
DSUs outstanding, end of year
          
122 
    
110 
 
17. SUPPLEMENTARY INFORMATION RELATING TO THE NATURE OF EXPENSES:

(a)
Selling, general and administrative expenses:
 
         
2013 
  
2012 
                     
 
Selling expenses
        
$
 99,666 
  
$
 75,206 
 
Administrative expenses
          
 115,526 
    
 89,601 
 
Distribution expenses
        
 67,371 
    
 61,228 
           
$
 282,563 
  
$
 226,035 

(b)
Employee benefit expenses:
 
       
2013 
  
2012 
                 
 
Salaries, wages and other short-term employee benefits
    
$
 310,862 
  
$
 254,994 
 
Share-based payments
      
 15,483 
    
 10,970 
 
Post-employment benefits
      
 16,244 
    
 21,344 
       
$
 342,589 
  
$
 287,308 

 

 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 87
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17. SUPPLEMENTARY INFORMATION RELATING TO THE NATURE OF EXPENSES (continued):

(c)
Lease expense:
 
During the year ended September 29, 2013 an amount of $16.5 million was recognized in the consolidated statement of earnings and comprehensive income relating to operating leases (2012 - $14.0 million).

As at September 29, 2013, the future minimum lease payments under non-cancellable leases were as follows:

             
September 29,
                   
2013 
                     
 
Within 1 year
              
$
 14,368 
 
Between 1 and 5 years
                
 26,759 
 
More than 5 years
                
 5,157 
                 
$
 46,284 

18. RESTRUCTURING AND ACQUISITION-RELATED COSTS, AND ASSETS HELD FOR SALE:

Restructuring and acquisition-related costs are presented in the following table, and are comprised of costs directly related to the closure of business locations or the relocation of business activities, changes in management structure, as well as transaction, exit and integration costs incurred pursuant to business acquisitions.

       
Business
    
       
acquisitions
      
   
Facility
  
and changes in
      
   
closures and
  
management
      
2013 
  
relocations
  
structure
  
Total
                   
Write-downs and losses on disposal of assets held
                  
  for sale and property, plant and equipment
  
$
 552 
  
$
 - 
  
$
 552 
Employee termination and benefit costs
    
 1,436 
    
 - 
    
 1,436 
Net pension expense
    
 - 
    
 214 
    
 214 
Exit, relocation and other costs
    
 3,864 
    
 1,830 
    
 5,694 
Remeasurement of contingent consideration in
                  
  connection with a business acquisition
    
 - 
    
 (950)
    
 (950)
Loss on business acquisition achieved in stages (note 5)
    
 - 
    
 1,518 
    
 1,518 
Acquisition-related transaction costs
    
 - 
    
 324 
    
 324 
   
$
 5,852 
  
$
 2,936 
  
$
 8,788 





       
Business
    
         
acquisitions
      
   
Facility
  
and changes in
      
   
closures and
  
management
      
2012 
  
relocations
  
structure
  
Total
                   
Write-downs and losses on disposal of assets held
                  
  for sale and property, plant and equipment
  
$
 4,851 
  
$
 - 
  
$
 4,851 
Employee termination and benefit costs
    
 533 
    
 7,324 
    
 7,857 
Net pension recovery
    
 - 
    
 (403)
    
 (403)
Exit, relocation and other costs
    
 616 
    
 6,971 
    
 7,587 
Remeasurement of contingent consideration in
                  
  connection with a business acquisition
    
 - 
    
 532 
    
 532 
Purchase gain on business acquisition (note 5)
    
 - 
    
 (6,679)
    
 (6,679)
Acquisition-related transaction costs
    
 - 
    
 1,217 
    
 1,217 
   
$
 6,000 
  
$
 8,962 
  
$
 14,962 

 
 
 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 88
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


18. RESTRUCTURING AND ACQUISITION-RELATED COSTS, AND ASSETS HELD FOR SALE (continued):

In fiscal 2013, most of the facility closure and relocation costs related to the integration of Anvil, including a charge of $2.5 million for costs related to the exit of an Anvil administrative office lease in fiscal 2013. Costs related to facility closures and relocations in fiscal 2012 consisted primarily of asset write-downs and employee termination and benefit costs incurred in connection with facilities closed in prior years.

Costs related to business acquisitions and changes in management structure in fiscal 2013 included a loss on business acquisition achieved in stages of $1.5 million relating to the acquisition of CanAm. Acquisition-related costs incurred in fiscal 2012 related primarily to costs incurred, net of a purchase gain on business acquisition, pursuant to the acquisition of Anvil.

Assets held for sale of $5.8 million as at September 29, 2013 (September 30, 2012 - $8.0 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 assets 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.

19. INCOME TAXES:

The income tax provision differs from the amount computed by applying the combined Canadian federal and provincial tax rates to earnings before income taxes. The reasons for the difference and the related tax effects are as follows:

       
2013 
  
2012 
                 
Earnings before income taxes
    
$
330,719 
  
$
144,127 
Applicable tax rate
      
26.9%
    
27.2%
Income taxes at applicable statutory rate
      
88,801 
    
39,246 
                 
(Decrease) increase in income taxes resulting from:
              
 
Effect of different tax rates on earnings of foreign subsidiaries
    
(84,037)
    
(51,640)
 
Income tax expense for prior taxation years
      
25 
    
974 
 
Non-recognition of tax benefits related to tax losses and
              
 
  temporary differences
      
6,064 
    
5,910 
 
Effect of non-deductible expenses and other
      
(312)
    
1,173 
Total income tax expense (recovery)
    
$
10,541 
  
$
(4,337)
Average effective tax rate (recovery)
      
3.2%
    
(3.0%)

The Company’s applicable statutory tax rate is the Canadian combined rate applicable in the jurisdictions in which the Company operates. The decrease is due to the difference in provincial allocation of taxable earnings between 2013 and 2012.


The details of income tax expense (recovery) are as follows:

           
2013 
  
2012 
                     
Current income taxes
        
$
 8,352 
  
$
 6,005 
                     
Deferred income taxes:
                  
 
Origination and reversal of temporary differences
          
 (3,621)
    
 (16,286)
 
Non-recognition of tax benefits related to tax losses and
              
 
  temporary differences
          
 6,064 
    
 5,910 
 
Effect of substantively enacted income tax rates changes
      
 (254)
    
 34 
             
 2,189 
    
 (10,342)
                     
           
$
10,541 
  
$
(4,337)



 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 89
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


19. INCOME TAXES (continued):

Significant components of the Company’s deferred income tax assets and liabilities relate to the following temporary differences and unused tax losses:

         
September 29,
  
September 30,
             
2013 
    
2012 
                     
Deferred tax assets:
                  
 
Non-capital losses
        
$
 61,342 
  
$
 66,386 
 
Non-deductible reserves and accruals
          
 35,030 
    
 32,224 
 
Property, plant and equipment
          
 6,816 
    
 4,795 
 
Other items
          
 4,839 
    
 5,638 
           
$
 108,027 
  
$
 109,043 
 
Unrecognized deferred tax assets
          
 (17,771)
    
 (12,053)
Deferred tax assets
        
$
 90,256 
  
$
 96,990 
                     
Deferred tax liabilities:
                  
 
Property, plant and equipment
        
$
 (6,062)
  
$
 (4,984)
 
Intangible assets
          
 (82,751)
    
 (87,535)
Deferred tax liabilities
        
$
 (88,813)
  
$
 (92,519)
           
$
 1,443 
  
$
 4,471 


The details of changes to deferred income tax assets and liabilities were as follows:

           
2013 
    
2012 
                   
Balance, beginning of year, net
      
$
 4,471 
  
$
 (10,877)
                   
Recognized in the statements of earnings:
                
 
Non-capital losses
        
 (5,044)
    
 (859)
 
Non-deductible reserves and accruals
        
 2,806 
    
 3,850 
 
Property, plant and equipment
        
 2,104 
    
 5,939 
 
Intangible assets
        
 4,784 
    
 7,337 
 
Other
        
 (775)
    
 (15)
 
Unrecognized deferred tax assets
        
 (6,064)
    
 (5,910)
           
 (2,189)
    
 10,342 
                   
Business acquisitions
        
 (914)
    
 5,066 
Other
        
 75 
    
 (60)
Balance, end of year, net
      
$
 1,443 
  
$
 4,471 

As at September 29, 2013, the Company has tax credits, capital and non-capital loss carryforwards and other taxable temporary differences available to reduce future taxable income for tax purposes representing a tax benefit of approximately $17.8 million, for which no deferred tax asset has been recognized (September 30, 2012 - $12.1 million). The tax credits and capital and non-capital loss carryforwards expire between 2019 and 2033. The utilization of the recognized deferred tax asset is supported by projections of future profitability of the Company.

The Company has not recognized a deferred income tax liability for the undistributed profits of our subsidiaries, as the Company currently has no intention to repatriate these profits. If expectations or intentions change in the future, the Company may be subject to an additional tax liability upon distribution of these earnings in the form of dividend or otherwise. As at September 29, 2013, a deferred income tax liability of approximately $40 million would result from the recognition of the taxable temporary differences of approximately $151 million.


 

 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 90
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


20. EARNINGS PER SHARE:

Reconciliation between basic and diluted earnings per share is as follows:

         
2013 
    
2012 
                 
Net earnings - basic and diluted
    
$
 320,178 
  
$
 148,464 
                 
Basic earnings per share:
              
 
Basic weighted average number of common shares outstanding
    
 121,455 
    
 121,488 
 
Basic earnings per share
    
$
2.64 
  
$
1.22 
                 
Diluted earnings per share:
              
 
Basic weighted average number of common shares outstanding
    
 121,455 
    
 121,488 
 
Plus dilutive impact of stock options, Treasury RSUs and common
            
 
  shares held in trust
    
 1,253 
    
 580 
 
Diluted weighted average number of common shares
              
 
  outstanding
      
 122,708 
    
 122,068 
 
Diluted earnings per share
    
$
2.61 
  
$
1.22 

Excluded from the above calculation for the year ended September 29, 2013 are 191,088 stock options (2012 - 823,687) and 3,997 Treasury RSUs (2012 - 62,000) which were deemed to be anti-dilutive.

21. DEPRECIATION AND AMORTIZATION:

         
2013 
  
2012 
                 
Depreciation of property, plant and equipment
  
$
78,897 
  
$
80,625 
Adjustment for the variation of depreciation of property, plant and
            
  equipment included in inventories at the beginning and end of the year
    
(374)
    
(2,863)
Depreciation of property, plant and equipment included in net earnings
    
78,523 
    
77,762 
Amortization of intangible assets, excluding software
      
15,214 
    
15,152 
Amortization of software
          
1,541 
    
1,659 
Depreciation and amortization included in net earnings
    
$
95,278 
  
$
94,573 

Depreciation and amortization expense for fiscal 2012 included an impairment charge of $6.0 million, which consisted primarily of a charge of $3.9 million related to the retirement, before the end of the previously estimated useful lives, of certain machinery and equipment in connection with the ramp-down of the Company’s Rio Nance 1 textile facility in Honduras.

 
 
 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 91
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

22. SUPPLEMENTAL CASH FLOW DISCLOSURE:

(a)
Adjustments to reconcile net earnings to cash flows from operating activities:
 
       
2013 
  
2012 
               
 
Depreciation and amortization (note 21)
  
$
 95,278 
  
$
 94,573 
 
Loss on business acquisition achieved in stages (note 5 and 18)
    
 1,518 
    
 - 
 
Purchase gain on business acquisition (note 5 and 18)
    
 - 
    
 (6,679)
 
Restructuring charges related to assets held for sale and
            
 
  property, plant and equipment (note 18)
    
 552 
    
 4,851 
 
(Gain) loss on remeasurement of contingent consideration (note 18)
    
 (950)
    
 532 
 
Loss on disposal of property, plant and equipment
    
 1,002 
    
 1,619 
 
Share-based compensation
    
 8,268 
    
 4,606 
 
Deferred income taxes (note 19)
    
 2,189 
    
 (10,342)
 
Equity earnings in investment in joint venture
    
 (46)
    
 (597)
 
Unrealized net loss on foreign exchange and financial derivatives
    
 428 
    
 160 
 
Other non-current assets
    
 (2,032)
    
 6,634 
 
Employee benefit obligations
    
 (467)
    
 (1,452)
 
Provisions
    
 3,283 
    
 316 
     
$
 109,023 
  
$
 94,221 

(b)
Variations in non-cash transactions:
 
       
2013 
  
2012 
                 
 
Addition to property, plant and equipment transferred from
              
 
  prepaid expenses and deposits and other non-current assets
    
$
 5,826 
  
$
 - 
 
Additions to property, plant and equipment included in accounts
              
 
  payable and accrued liabilities
      
 1,754 
    
 (1,295)
 
Balance due on business acquisition (note 5)
      
 (500)
    
 - 
 
Settlement of pre-existing relationship (note 5)
      
 (4,038)
    
 - 
 
Non-cash ascribed value credited to contributed surplus for
              
 
  dividends attributed to Treasury RSUs
      
 269 
    
 252 
 
Non-cash ascribed value credited to share capital from shares
              
 
  issued or distributed pursuant to vesting of restricted share
              
 
  units and exercise of stock options
      
 10,272 
    
 5,166 


 

 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 92
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

23. RELATED PARTY TRANSACTIONS:

(a)  
Joint ventures:
 
The Company had transactions with CanAm prior to its acquisition of the remaining 50% ownership interest of CanAm as described in note 5 to these consolidated financial statements. These transactions were based on arm’s length terms and were measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties. All outstanding balances are to be settled in cash within twelve months of the reporting date. None of the balances are secured. The following is a summary of the related party transactions and balances owed:

             
2013 
  
2012 
                       
 
Transactions:
                  
   
Yarn purchases
        
$
 1,354 
  
$
 126,126 
   
Yarn sales
          
 - 
    
 1,304 
   
Dividend received
          
 - 
    
 1,509 
                       
 
Balances outstanding:
                  
   
Accounts payable and accrued liabilities
          
 - 
    
 2,027 

The following table illustrates the Company’s proportionate share of summarized financial information of CanAm as at and for the years then ended:

           
September 29,
  
September 30,
               
2013 
    
2012 
                       
 
Share of the joint venture's statement of financial position:
              
   
Current assets
        
$
 - 
  
$
 6,449 
   
Non-current assets
          
 - 
    
 6,878 
   
Current liabilities
          
 - 
    
 (2,044)
 
Equity
        
$
 - 
  
$
 11,283 
 
 
 
                    
               
2013 
    
2012 
                       
 
Share of the joint venture's income and expenses:
                  
   
Income
        
$
 677 
  
$
 62,260 
   
Expenses
          
 1,085 
    
 61,094 
             
$
 (408)
  
$
 1,166 

(b)  
Key management personnel compensation:
 
Key management personnel includes those individuals that have authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly, and is comprised of the members of the executive management team and the Board of Directors. The amount for compensation expense recognized in net earnings for key management personnel was as follows:

             
2013 
    
2012 
                     
 
Short-term employee benefits
        
$
 6,906 
  
$
 3,263 
 
Post-employment benefits
          
 129 
    
 131 
 
Share-based payments
          
 11,373 
    
 6,976 
           
$
 18,408 
  
$
 10,370 


 

 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 93
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

24. COMMITMENTS, GUARANTEES AND CONTINGENT LIABILITIES:

(a)
Claims and litigation
 
On October 12, 2012, Russell Brands, LLC, an affiliate of Fruit of the Loom, filed a lawsuit against the Company in the United States District Court of the Western District of Kentucky at Bowling Green, alleging trademark infringement and unfair competition and seeking injunctive relief and unspecified money damages. The litigation concerned labelling errors on certain inventory products shipped by Gildan to one of its customers. Upon being made aware of the error, the Company took immediate action to retrieve the disputed products. During the second quarter of fiscal 2013, the Company agreed to resolve the litigation by consenting to the entry of a final judgment providing for, among other things, the payment of $1.1 million.

The Company is a party to other claims and litigation arising in the normal course of operations. The Company does not expect the resolution of these matters to have a material adverse effect on the financial position or results of operations of the Company.

(b)  
Guarantees:
 
The Company, and some of its subsidiaries, have granted financial 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 September 29, 2013, the maximum potential liability under these guarantees was $27.0 million (September 30, 2012 - $16.5 million), of which $5.5 million was for surety bonds and $21.5 million was for financial guarantees and standby letters of credit (September 30, 2012 - $6.9 million and $9.6 million, respectively). The surety bonds are automatically renewed on an annual basis, the financial guarantees and standby letters of credit mature at various dates in fiscal 2014.

As at September 29, 2013, 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.

25. CAPITAL DISCLOSURES:

The Company’s objective in managing capital is to ensure sufficient liquidity to pursue its organic growth strategy and undertake selective acquisitions, while at the same time taking a conservative approach towards financial leverage and management of financial risk.

The Company’s capital is composed of net debt and shareholders’ equity. Net debt consists of interest-bearing debt less cash and cash equivalents. The Company’s primary uses of capital are to finance working capital requirements, capital expenditures, payment of dividends, and business acquisitions. The Company currently funds these requirements out of its internally-generated cash flows and the periodic use of its revolving long-term bank credit facility. The Company used its revolving long-term bank credit facility to finance the acquisition of Anvil in fiscal 2012 and to finance the acquisitions of CanAm and New Buffalo in fiscal 2013.

In November 2012, the Company amended its revolving long-term bank credit facility to extend the maturity date from June 2016 to January 2018. As a result of the amendment, the facility now provides for an annual extension which is subject to the approval of the lenders, and amounts drawn under the facility bear interest at a variable banker’s acceptance or U.S. LIBOR-based interest rate plus a reduced spread ranging from 1% to 2%, such range being a function of the total debt to EBITDA ratio (as defined in the credit facility agreement). The amendment also provides for a reduction in undrawn pricing.

The primary measure used by the Company to monitor its financial leverage is its ratio of net debt to earnings before financial expenses/income, taxes, depreciation and amortization, and restructuring and acquisition-related costs (“EBITDA”), which it aims to maintain at less than a maximum of 3.0:1. Net debt is defined as long-term debt less cash and cash equivalents. As at September 29, 2013 and September 30, 2012 the Company’s net debt to EBITDA ratio was below 1.0:1.

In order to maintain or adjust its capital structure, the Company, upon approval from its Board of Directors, may issue or repay long-term debt, issue shares, repurchase shares, pay dividends or undertake other activities as deemed appropriate under the specific circumstances.

 

 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 94
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

25. CAPITAL DISCLOSURES (continued):

During fiscal 2013, the Company paid an aggregate of $43.7 million of dividends (2012 - $36.6 million) representing a quarterly dividend of $0.09 per share. On November 20, 2013 the Board of Directors declared a quarterly dividend of $0.108 per share for an expected aggregate payment of $13.2 million which will be paid on January 6, 2014 on all of the issued and outstanding common shares of the Company, rateably and proportionately to the holders of record on December 12, 2013. This dividend is an “eligible dividend” for the purposes of the Income Tax Act (Canada) and any other applicable provincial legislation pertaining to eligible dividends.

The Board of Directors will consider several factors when deciding to declare quarterly cash dividends, including the Company’s present and future earnings, cash flows, capital requirements and present and/or future regulatory and legal restrictions. There can be no assurance as to the declaration of future quarterly cash dividends. Although the Company’s revolving long-term bank credit facility requires compliance with lending covenants in order to pay dividends, these covenants are not currently, and are not expected to be, a constraint to the payment of dividends under the Company’s dividend policy.

The Company is not subject to any capital requirements imposed by a regulator.

26. SEGMENT INFORMATION:

The Company manages and reports its business as two operating segments, Printwear and Branded Apparel, each of which is a reportable segment for financial reporting purposes. Each segment has its own management that is accountable and responsible for the segment’s operations, results and financial performance. These segments are principally organized by the major customer markets they serve. The following summary describes the operations of each of the Company’s operating segments:

Printwear: The Printwear segment, headquartered in Christ Church, Barbados, designs, manufactures, sources, and distributes undecorated activewear products in large quantities primarily to wholesale distributors in printwear markets in over 30 countries across North America, Europe and the Asia-Pacific region.

Branded Apparel: The Branded Apparel segment, headquartered in Charleston, South Carolina, designs, manufactures, sources, and distributes branded family apparel, which includes athletic, casual and dress socks, underwear and activewear products, primarily to U.S. retailers.

The chief operating decision-maker assesses segment performance based on segment operating income which is defined as operating income before corporate head office expenses, restructuring and acquisition-related costs, and amortization of intangible assets, excluding software. The accounting policies of the segments are the same as those described in note 3 of these consolidated financial statements.

         
2013 
  
2012 
                     
Segmented net sales:
                  
 
Printwear
        
$
 1,468,659 
  
$
 1,334,252 
 
Branded Apparel
          
 715,644 
    
 614,001 
Total net sales
        
$
 2,184,303 
  
$
 1,948,253 
                     
Segment operating income:
                  
 
Printwear
        
$
 364,363 
  
$
 209,426 
 
Branded Apparel
          
 78,444 
    
 32,827 
Total segment operating income
        
$
 442,807 
  
$
 242,253 
                     
Reconciliation to consolidated earnings before income taxes:
            
 
Total segment operating income
        
$
 442,807 
  
$
 242,253 
 
Amortization of intangible assets, excluding software
        
 (15,214)
    
 (15,152)
 
Corporate expenses
          
 (76,119)
    
 (57,011)
 
Restructuring and acquisition-related costs
          
 (8,788)
    
 (14,962)
 
Financial expenses, net
          
 (12,013)
    
 (11,598)
 
Equity earnings in investment in joint venture
          
 46 
    
 597 
Earnings before income taxes
        
$
 330,719 
  
$
 144,127 

 

 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 95
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


26. SEGMENT INFORMATION (continued):

         
2013 
  
2012 
                     
Additions to property, plant and equipment and intangible assets
            
  (including additions from business acquisitions and transfers):
            
 
Printwear
        
$
 50,354 
  
$
 107,184 
 
Branded Apparel
          
 10,693 
    
 25,263 
 
Corporate
          
 25,624 
    
 3,244 
 
Assets not yet utilized in operations, net of transfers
    
 102,261 
    
 (35,778)
         
$
 188,932 
  
$
 99,913 
                     
Depreciation of property, plant and equipment:
            
 
Printwear
        
$
 50,759 
  
$
 54,473 
 
Branded Apparel
          
 25,277 
    
 21,195 
 
Corporate
          
 2,487 
    
 2,094 
         
$
 78,523 
  
$
 77,762 

The reconciliation of total assets to segmented assets is as follows:

           
September 29,
  
September 30,
         
2013 
  
2012 
                     
Segmented assets (i):
                  
 
Printwear
        
$
 915,253 
  
$
 878,764 
 
Branded Apparel
          
 866,067 
    
 883,908 
Total segmented assets
          
 1,781,320 
    
 1,762,672 
Unallocated assets:
                  
 
Cash and cash equivalents
          
 97,368 
    
 70,410 
 
Income taxes receivable
          
 700 
    
 353 
 
Assets held for sale
          
 5,839 
    
 8,029 
 
Investment in joint venture
          
 - 
    
 12,126 
 
Deferred income taxes
          
 1,443 
    
 4,471 
 
Assets not yet utilized in operations
          
 114,030 
    
 11,769 
 
Other - primarily corporate assets
    
 42,951 
    
 26,607 
Consolidated assets
        
$
 2,043,651 
  
$
 1,896,437 
 
(i) Segmented assets include the net carrying amounts of intangible assets and goodwill.

Property, plant and equipment, intangible assets, and goodwill, were allocated to geographic areas as follows:

       
September 29,
  
September 30,
           
2013 
    
2012 
                   
United States
        
$
534,523 
  
$
452,481 
Canada
          
37,544 
    
15,101 
Honduras
          
354,039 
    
350,856 
Caribbean Basin
          
98,257 
    
109,056 
Bangladesh
          
19,507 
    
17,289 
Other
          
9,635 
    
11,468 
         
$
1,053,505 
  
$
956,251 

 
 
 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 96
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


26. SEGMENT INFORMATION (continued):

Net sales by major product group were as follows:

         
2013 
    
2012 
                   
Activewear and underwear
        
$
1,717,869 
  
$
1,472,510 
Socks
          
466,434 
    
475,743 
         
$
2,184,303 
  
$
1,948,253 

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

         
2013 
    
2012 
                   
United States
        
$
1,957,904 
  
$
1,738,564 
Canada
          
65,959 
    
67,752 
Europe and other
          
160,440 
    
141,937 
         
$
2,184,303 
  
$
1,948,253 

The Company has two customers accounting for at least 10% of total net sales.

         
2013 
    
2012 
                   
Customer A
          
17.9%
    
14.8%
Customer B
          
11.3%
    
12.0%


 

 
GILDAN 2013 REPORT TO SHAREHOLDERS P. 97