Danier Leather Inc.
TSX : DL

Danier Leather Inc.

October 27, 2009 15:10 ET

Danier Leather Reports Fiscal 2010 First Quarter Results

TORONTO, ONTARIO--(Marketwire - Oct. 27, 2009) - Danier Leather Inc. (TSX:DL) today announced its unaudited interim consolidated financial results for the 13 week period ended September 26, 2009.



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

-----------------------
For the 13 Weeks Ended
---------------------------------------------
Sept. 26, Sept. 27,
2009 2008
---------------------------------------------
Sales $19,951 $22,575
---------------------------------------------
EBITDA(1) (4,279) (4,779)
---------------------------------------------
Net Loss (3,442) (3,706)
---------------------------------------------
EPS - Basic ($0.58) ($0.59)
---------------------------------------------
EPS - Diluted ($0.58) ($0.59)
---------------------------------------------
Number of Stores 90 91
---------------------------------------------
Retail Square Footage 324,644 348,504
---------------------------------------------


Net loss during the first quarter of fiscal 2010 decreased by 7% or $0.3 million to $3.4 million ($0.58 loss per diluted share) compared with $3.7 million ($0.59 loss per diluted share) during the first quarter last year. The improvement was due to lower expenses and an increase in gross profit margin.

During the first quarter of fiscal 2010, gross profit as a percentage of revenue increased by 5.5% or 550 basis points to 48.4% compared with 42.9% during the first quarter last year. With 23% less inventory and reduced clearance activity than the same time last year, sales decreased by 12% during the first quarter of fiscal 2010 while gross profit dollars only decreased 1%. Comparable store sales decreased by 9%. Sales were $20.0 million compared with $22.6 million during the first quarter of fiscal 2009.

Selling, general and administrative expenses ("SG&A") during the first quarter of fiscal 2010 decreased by 4% or $0.7 million to $15.1 million compared with $15.8 million during the first quarter last year. The decrease was mainly due to cost reduction initiatives implemented during the last half of fiscal 2009. SG&A during the first quarter of fiscal 2010 included $0.4 million of stock-based compensation expense compared with a recovery of $0.1 million during the first quarter last year. Excluding the effect of stock-based compensation, SG&A during the first quarter of fiscal 2010 was approximately $1.2 million lower than the same period last year.

Danier continues to maintain a strong balance sheet with cash of $8.4 million compared with $0.8 million last year, working capital of $33.8 million, no long-term debt and a book value of $9.03 per outstanding share.

Danier is holding its Annual General Meeting of Shareholders today, Tuesday, October 27, 2009 at 4:00 p.m. Eastern Time at Danier's corporate headquarters in Toronto. Shareholders are encouraged to attend. The meeting will also be webcast live at www.danier.com.

(1) EBITDA is defined as net loss before net interest expense, income taxes, amortization and restructuring costs. EBITDA is a financial metric used by management and some investors to compare companies on the basis of ongoing operating results before taxes, net interest expense, amortization and restructuring costs and its ability to incur and service debt. EBITDA is not a recognized measure for financial presentation under Canadian generally accepted accounting principles ("GAAP"). Non-GAAP earnings measures such as EBITDA do not have any standardized meaning prescribed by Canadian GAAP and, therefore may not be comparable to similarly titled measures presented by other publicly traded companies, nor should they be construed as an alternative to other financial measures determined in accordance with GAAP. EBITDA is calculated as outlined in the following table:



For the 13 Weeks Ended
-----------------------------
Sept 26, 2009 Sept 27, 2008
------------- -------------
($000) ($000)
Net loss ($3,442) ($3,706)
Add (deduct) impact of the following:
Income tax (1,921) (2,373)
Interest expense - net 61 20
Amortization 1,123 1,280
Restructuring costs (100) -
-----------------------------
EBITDA ($4,279) ($4,779)
-----------------------------
-----------------------------


Note: This press release contains forward-looking information and forward-looking statements which reflect the current view of Danier with respect to the Company's objectives, plans, goals, strategies, future growth, results of operations, financial and operating performance and business prospects and opportunities. Wherever used, the words "may", "will", "anticipate", "intend", "expect", "estimate", "plan", "believe" and similar expressions identify forward-looking statements and forward-looking information. Forward-looking statements and forward-looking information should not be read as guarantees of future events, performance or results, and will not necessarily be accurate indications of whether, or the times at which, such events, performance or results will be achieved. All of the statements in this press release containing forward-looking statements or forward-looking information are qualified by these cautionary statements.

Forward-looking statements and forward-looking information are based on information available at the time they are made, underlying estimates and assumptions made by management and management's good faith belief with respect to future events, performance and results, and are subject to inherent risks and uncertainties surrounding future expectations generally. Such risks and uncertainties include, but are not limited to, fashion and apparel and leather industry risks that can affect demand for the Company's products and inventory markdowns, a real or perceived slowdown in the general economy which can result in a reduction in consumer spending and can affect demand for the Company's products, changes in consumer shopping patterns, unseasonably hot weather or severe or unusual weather, seasonality, heightened competition including new competitors and expansion of current competitors, foreign currency and interest rate fluctuations which result in increased costs, leather availability and prices, consumer demand, disruptions in the credit markets, risks associated with foreign sourcing and manufacturing, potential legal proceedings, ability to successfully implement the Company's business strategy, ability to realize anticipated cost savings, inability to renew or access or obtain replacement credit facilities, war and acts of terrorism, higher utility and fuel prices which can result in increased costs, the ability of the Company to attract and retain key executives and key employees, the ability of vendors to maintain, support and upgrade management information systems, catastrophic or other events that impact the use of the Company's head office and distribution centre, increased inflation and interest rates, changes or disruptions in the securities markets, the ability of the Company to obtain new locations or renew or relocate existing locations at existing or favourable lease terms, changes to the regulatory and economic environment in which the Company operates now and in the future, including changes in accounting policies or pronouncements introduced by regulatory authorities, changes in the Company's tax liabilities, either through changes in tax laws or future assessments, performance of third party service providers, and decreases in sales from existing stores and any material disruption to the Company's operations, among other things.

Danier cautions readers that this list of factors is not exhaustive and that should certain risks or uncertainties materialize, or should underlying estimates or assumptions prove incorrect, actual events, performance and results may vary significantly from those expected. There can be no assurance that the actual results, performance, events or activities anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company. Potential investors and other readers are urged to consider these factors carefully in evaluating forward-looking information and forward-looking statements and are cautioned not to place undue reliance on any forward-looking information or forward-looking statements.

For additional information with respect to certain of these and other risks or uncertainties, reference should be made to Danier's continuous disclosure materials filed from time to time with the Canadian Securities Regulatory Authorities, including the Company's annual information form, quarterly and annual reports and financial statements, and supplementary information, which are available on SEDAR at www.sedar.com and in the Investor Relations section of the Company's website at www.danier.com. Additional risks and uncertainties not presently known to the Company or that Danier currently believes to be less significant may also adversely affect the Company. Danier disclaims any intention or obligation to update or revise any forward-looking information or forward-looking statements, whether as a result of new information, future events or otherwise.

About Danier

Danier Leather Inc. is a leading integrated designer, manufacturer and retailer of high-quality leather and suede clothing and accessories. The Company's merchandise is marketed exclusively under the well-known Danier brand name and is available at its 90 shopping mall, street-front and power centre stores in Canada and at the Dubai Mall and the Festival City Mall in Dubai. Corporations and other organizations can obtain Danier products for use as incentives and premiums for employees, suppliers, and customers through Canada Sportswear. For more information about the Company and our products, see www.danier.com.



DANIER LEATHER INC.
CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS
(thousands of dollars, except per share amounts and number of shares) -
unaudited
----------------------------------------------------------------------------
----------------------------------------------------------------------------

For the 13 Weeks Ended
----------------------------
September 26, September 27,
2009 2008
----------------------------
Revenue $ 19,951 $ 22,575
Cost of sales (Note 7) 10,303 12,883
----------------------------
Gross profit 9,648 9,692
Selling, general and administrative expenses
(Note 7) 15,050 15,751
Interest expense - net 61 20
Restructuring costs (Note 8) (100) -
----------------------------
Loss before income taxes (5,363) (6,079)
Provision for (recovery of) income taxes
Current (1,904) (2,437)
Future (17) 64
----------------------------
(1,921) (2,373)
----------------------------
Net loss and comprehensive loss ($ 3,442) ($ 3,706)
----------------------------
----------------------------
Net loss per share:
Basic ($0.58) ($0.59)
Diluted ($0.58) ($0.59)

Weighted average number of shares outstanding:
Basic 5,909,269 6,276,429
Diluted 5,933,522 6,276,447
Number of shares outstanding at period end 5,909,269 6,276,429

See accompanying notes to the consolidated financial statements



DANIER LEATHER INC.
CONSOLIDATED BALANCE SHEETS
(thousands of dollars) - unaudited
----------------------------------------------------------------------------
----------------------------------------------------------------------------

September 26, September 27, June 27,
2009 2008 2009
------------------------------------
ASSETS
Current Assets
Cash $ 8,380 $ 780 $ 24,628
Accounts receivable 868 1,452 351
Income taxes recoverable 2,432 2,500 631
Inventories (Note 3) 31,880 41,251 21,045
Prepaid expenses 951 1,281 1,156
Future income tax asset 250 441 245
------------ ------------ ---------
44,761 47,705 48,056
Other Assets
Property and equipment (Note 4) 17,701 19,378 17,611
Intangible asset (Note 5) 1,573 1,653 1,728
Goodwill - 342 -
Future income tax asset 1,608 1,553 1,657
------------ ------------ ---------
$ 65,643 $ 70,631 $ 69,052
------------ ------------ ---------
------------ ------------ ---------
LIABILITIES
Current Liabilities
Accounts payable and accrued
liabilities $ 10,645 $ 11,288 $ 10,601
Current portion of capital lease
obligation - 606 -
Future income tax liability 305 442 366
------------ ------------ ---------
10,950 12,336 10,967
Deferred lease inducements and rent
liability 1,357 1,592 1,389
Future income tax liability - 50 -
------------ ------------ ---------
12,307 13,978 12,356
SHAREHOLDERS' EQUITY
Share capital (Note 6) 19,853 21,409 19,853
Contributed surplus 905 584 823
Retained earnings 32,578 34,660 36,020
Accumulated other comprehensive income - - -
------------ ------------ ---------
53,336 56,653 56,696
------------ ------------ ---------
$ 65,643 $ 70,631 $ 69,052
------------ ------------ ---------
------------ ------------ ---------

See accompanying notes to the consolidated financial statements



DANIER LEATHER INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(thousands of dollars) - unaudited
----------------------------------------------------------------------------
----------------------------------------------------------------------------

For the 13 Weeks Ended
----------------------------
September 26, September 27,
2009 2008
----------------------------
OPERATING ACTIVITIES
Net loss ($ 3,442) ($ 3,706)
Items not affecting cash:
Amortization (Note 7) 1,123 1,280
Amortization of deferred lease inducements (62) (94)
Straight line rent expense 30 11
Stock based compensation 82 36
Future income taxes (17) 64
Net change in non-cash working capital items
(Note 9) (12,904) (15,442)
----------------------------
Cash flows used in operating activities (15,190) (17,851)
----------------------------

FINANCING ACTIVITIES
Repayment of obligation under capital lease - (252)
----------------------------
Cash flows used in financing activities - (252)
----------------------------

INVESTING ACTIVITIES
Acquisition of property and equipment (1,046) (944)
Acquisition of intangible asset (12) (55)
----------------------------
Cash flows used in investing activities (1,058) (999)
----------------------------

Decrease in cash (16,248) (19,102)
Cash, beginning of period 24,628 19,882
----------------------------
Cash, end of period $ 8,380 $ 780
----------------------------
----------------------------

Supplementary cash flow information:
Interest paid - 163
Income taxes paid - 322

See accompanying notes to the consolidated financial statements



DANIER LEATHER INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(thousands of dollars) - unaudited
----------------------------------------------------------------------------
----------------------------------------------------------------------------

For the 13 Weeks Ended
----------------------------
September 26, September 27,
2009 2008
----------------------------
SHARE CAPITAL
Balance, beginning of period $19,853 $21,409
Shares repurchased - -
----------------------------
Balance, end of period $19,853 $21,409
----------------------------

CONTRIBUTED SURPLUS
Balance, beginning of period $823 $548
Stock-based compensation related to stock
options 82 36
----------------------------
Balance, end of period $905 $584
----------------------------

RETAINED EARNINGS
Balance, beginning of period $36,020 $38,176
Adjustment to opening retained earnings due to
adoption of new inventory accounting standard
(net of tax of $122) - 190
Net loss (3,442) (3,706)
Balance, end of period $32,578 $34,660

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance, beginning of period $- $-
Adjustment to opening balance due to the new
accounting policies adopted regarding financial
instruments - -
----------------------------
Balance, end of period $ - $ -
----------------------------
TOTAL SHAREHOLDERS' EQUITY $53,336 $56,653
----------------------------
----------------------------

See accompanying notes to the consolidated financial statements



DANIER LEATHER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the 13 week periods ended September 26, 2009 and September 27, 2008
(Thousands of dollars, except per share amounts and number of shares) -
Unaudited


1. SIGNIFICANT ACCOUNTING POLICIES:

(a) Basis of Presentation:

These unaudited interim consolidated financial statements (the "financial statements") have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") for interim financial information and include all normal and recurring entries that are necessary for a fair presentation of the financial statements. Accordingly, they do not include all of the information and footnotes required by Canadian GAAP for annual financial statements. These financial statements should be read in conjunction with the most recently prepared annual audited consolidated financial statements of Danier Leather Inc. (the "Company" or "Danier") for the 52 week period ended June 27, 2009 and the accompanying notes contained in the Company's 2009 Annual Report.

The financial statements follow the same accounting policies and methods of application as the most recent annual audited consolidated financial statements as at June 27, 2009, except as described below and in Note 1(b).

Effective as of the fiscal year beginning June 28, 2009, the Company centralized a significant portion of its alterations operation and now has alterations work performed by the Company's own employees rather than third party suppliers. As a result, the Company began to report alterations revenue as part of revenue and alterations expense as cost of sales. Warranty related repairs continue to be included in selling, general and administrative expenses ("SG&A") in accordance with EIC 123 - Reporting Revenue Gross as a Principle versus Net as an Agent. In prior years, a significant portion of alterations work was performed by third party suppliers and as a result, alterations revenue and expense was previously reported on a net basis and was included in SG&A.

The preparation of financial statements in conformity with Canadian GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities in the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are based on management's historical experience, best knowledge of current events and actions that the Company may undertake in the future. Significant areas requiring the use of management estimates relate to the determination of inventory valuation, realizable value of property and equipment, stock based compensation, future tax assets and liabilities, goods and services tax, provincial sales tax, breakage of gift cards and income tax provisions. By their nature, these estimates are subject to measurement uncertainty and the impact on the consolidated financial statements of future periods from changes in estimates could differ materially from those estimated.

(b) Implementation of New Accounting Standard:

Effective June 28, 2009, the Company adopted the following new accounting standard issued by the Canadian Institute of Chartered Accountants ("CICA"):

CICA Section 3064 - Goodwill and Intangible Assets

This CICA Handbook section replaces Section 3062 - Goodwill and Other Intangible Assets and Section 3450 - Research and Development Costs. The new section establishes standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets and is applicable to fiscal years beginning on or after October 1, 2008. Under the new standard, computer software, which was previously included in property and equipment, is now required to be reported as an intangible asset. As computer software has a limited useful life, it continues to be amortized at an annual rate of 30% declining balance.

This standard was adopted retrospectively and there was no impact on net loss or on cash flows of the Company. The cumulative impact on the balance sheet of the Company on the date of adoption was a $1,728 decrease in property and equipment and a corresponding $1,728 increase in the intangible asset and as at September 27, 2008 there was a $1,653 decrease in property and equipment and a corresponding $1,653 increase in the intangible asset.

(c) Recent Accounting Pronouncements:

The Company monitors new accounting standards to assess the impact, if any, on its consolidated financial statements. The CICA has issued the following accounting standard that will be applicable to the Company.

CICA Section 3862 - Financial Instruments - Disclosures

In June 2009, the CICA amended Section 3862 - Financial Instruments - Disclosures to adopt the amendments recently issued by the IASB to International Financial Reporting Standard 7 - Financial Instruments - Disclosures ("IFRS 7"), in March 2009. These amendments are applicable to publicly accountable enterprises or those private enterprises, co-operative business enterprises, rate-regulated enterprises and not-for-profit organizations that choose to apply Section 3862. The amendments were made to enhance disclosures about fair value measurements, including the relative reliability of the inputs used in those measurements, and about the liquidity risk of financial instruments.

The amendments are effective for annual financial statements for fiscal years ending after September 30, 2009, with early adoption permitted. To provide relief for financial statement preparers, and consistent with IFRS 7, the CICA decided that an entity need not provide comparative information for the disclosures required by the amendments in the first year of application. The Company is assessing the potential impact of the amendments to this standard and, at this time, the impact on the Company's consolidated financial statements and disclosure, if any, is not reasonably determinable or estimable.

2. SEASONALITY OF RETAIL OPERATIONS:

Due to the seasonal nature of the retail business and the Company's product lines, the results of operations for any interim period are not necessarily indicative of the results of operations to be expected for the fiscal year. Generally, a significant portion of the Company's sales and earnings are typically generated during the second fiscal quarter, which includes the holiday selling season. Sales are usually lowest and losses are typically experienced during the period from April to September.

3. INVENTORIES:



September 26, September 27, June 27,
2009 2008 2009
------------- ------------ -----------
Raw materials $ 2,173 $ 3,065 $ 2,202
Work-in-process 196 1,402 186
Finished goods 29,511 36,784 18,657
------------- ------------ -----------
$ 31,880 $ 41,251 $ 21,045
------------- ------------ -----------
------------- ------------ -----------


The cost of inventory recognized as an expense is $10,137 (September 27, 2008 - $12,883). The Company recorded write-downs of inventory as a result of net realizable value being lower than cost of $112 (September 27, 2008 - $150) and write-downs recognized in previous years that were reversed was $25 (September 27, 2008 - $222).

4. PROPERTY AND EQUIPMENT:



September 26, 2009 September 27, 2008
---------------------------- ----------------------------
Net Net
Accumulated Book Accumulated Book
Cost Amortization Value Cost Amortization Value
---------------------------- ----------------------------
Land $ 1,000 $ - $1,000 $ 1,000 $ - $ 1,000
Building 7,064 2,233 4,831 7,064 2,032 5,032
Leasehold
improvements 24,270 16,577 7,693 24,891 16,543 8,348
Furniture and
equipment 9,088 6,034 3,054 10,759 7,230 3,529
Computer hardware 3,375 2,252 1,123 1,560 818 742
Computer hardware
under capital
lease - - - 1,889 1,162 727
---------------------------- ----------------------------
$44,797 $27,096 $17,701 $47,163 $ 27,785 $19,378
---------------------------- ----------------------------
---------------------------- ----------------------------



June 27, 2009
-----------------------------
Net
Accumulated Book
Cost Amortization Value
-----------------------------
Land $ 1,000 $ - $1,000
Building 7,064 2,185 4,879
Leasehold improvements 23,539 15,949 7,590
Furniture and equipment 8,786 5,884 2,902
Computer hardware 3,362 2,122 1,240
-----------------------------
$43,751 $26,140 $17,611
-----------------------------
-----------------------------


5. INTANGIBLE ASSET:

Intangible asset consists of computer software which was previously reported as property and equipment (see Note 1(b)).



Sept 26, Sept 27, June 27,
2009 2008 2009
------- ------- --------

Cost $3,952 $3,564 $3,940
Accumulated amortization 2,379 1,911 2,212
------- ------- --------
Net book value $1,573 $1,653 $1,728
------- ------- --------
------- ------- --------


6. SHARE CAPITAL:

(a) Authorized



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


(b) Issued



Sept 26, Sept 27, June 27,
2009 2008 2009
---------- ---------- --------
1,224,329 Multiple Voting Shares (September
27, 2008 and June 27, 2009 - 1,224,329) (i) (i) (i)
4,684,940 Subordinate Voting Shares
(September 27, 2008 - 5,052,100 and June 27,
2009 - 4,684,940) 19,853 21,409 19,853
---------- ---------- --------
$ 19,853 $ 21,409 $ 19,853
---------- ---------- --------
---------- ---------- --------
(i) Nominal


(c) Earnings per share

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



13 weeks ended
--------------------
Sept 26, Sept 27,
2009 2008
--------------------
Weighted average number of shares for basic
earnings per share calculations 5,909,269 6,276,429
Effect of dilutive options outstanding 24,253 18
--------------------
Weighted average number of shares for diluted earnings
per share calculations 5,933,522 6,276,447
--------------------
--------------------


The computation of dilutive options outstanding only includes those options having exercise prices below the average market price of Subordinate Voting Shares during the period. The number of options excluded was 235,000 as at September 26, 2009 and 247,000 as at September 27, 2008.

(d) Normal Course Issuer Bid

During the past several years, the Company has received approval from the Toronto Stock Exchange ("the TSX") to commence various normal course issuer bids ("NCIBs"). On May 5, 2009, the Company received approval from the TSX to commence its third normal course issuer bid (the "2009 NCIB"). The Company had a previous normal course issuer bid that expired on May 5, 2009 (the "2008 NCIB"). The 2009 NCIB permits the Company to acquire up to 267,183 Subordinate Voting Shares, representing approximately 10% of the "public float" of the Subordinate Voting Shares, during the period from May 7, 2009 to May 6, 2010, or such earlier date as the Company may complete its purchases under the 2009 NCIB. During the fourth quarter of fiscal 2009, the Company repurchased 267,160 Subordinate Voting Shares for cancellation at a weighted average price of $4.24 leaving only 23 Subordinate Voting Shares remaining to be purchased under the 2009 NCIB.

The following Subordinate Voting Shares were repurchased for cancellation under NCIBs then in effect during the 13 week periods ended September 26, 2009 ("Q1 2010") and September 27, 2008 ("Q1 2009") and the year ended June 27, 2009 ("Y/E 2009"):



Q1 2010 Q1 2009 Y/E 2009
------------------------
Number of shares repurchased - - 367,160
Amount charged to share capital - - $1,556
Amount charged to retained earnings representing
the excess over the average paid-in value - - 37
------------------------
Total cash consideration - - $1,593
------------------------
------------------------


(e) Stock Option Plan

The Company maintains a Stock Option Plan, as amended, for the benefit of directors, officers, employees and service providers. As at September 26, 2009, the Company has reserved 835,500 Subordinate Voting Shares for issuance under its Stock Option Plan and there were 565,000 options outstanding with exercise prices ranging from $3.15 to $15.85 per option.

The following transactions occurred during the 13 week periods ended September 26, 2009 and September 27, 2008 with respect to the Stock Option Plan:



13 weeks ended
------------------
Sept 26, Sept 27,
2009 2008
------------------
Outstanding at beginning of period 577,000 293,000
Granted - -
Exercised - -
Forfeited (12,000) (46,000)
------------------
Outstanding at end of period 565,000 247,000
------------------
Options exercisable at end of period 187,500 160,750
------------------


Further details of the Stock Option Plan are contained in Note 8(e) of the annual consolidated financial statements contained in the Company's 2009 Annual Report.

(f) Deferred Share Unit Plan

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

After retirement from the Board of Directors, a participant in the DSU Plan receives a cash payment equal to the market value of the accumulated DSUs in their account. The value of the DSU liability is adjusted to reflect changes in the market value of the Company's Subordinate Voting Shares.

The following transactions occurred during each of the 13 week periods ended September 26, 2009 and September 27, 2008 with respect to the DSU Plan:



13 weeks ended
-----------------
Sept 26, Sept 27,
2009 2008
-----------------
Outstanding at beginning of period 78,920 58,920
Granted 25,000 20,000
Redeemed - -
-----------------
Outstanding at end of period 103,920 78,920
Danier stock price at end of period $6.00 $4.64
-----------------
Liability at end of period $624 $366
-----------------
Compensation expense recorded in SG&A $249 ($11)
-----------------


(g) Restricted Share Unit Plan

The Company has established a Restricted Share Unit ("RSU") Plan, as amended, as part of its overall executive compensation plan. The RSU Plan is administered by the Board of Directors, with the advice of the Governance, Compensation, Human Resources and Nominating Committee (the "Committee"). Under this Plan, certain employees of the Company are eligible to receive a grant of RSUs that generally vest over periods not exceeding three years as determined by the Committee. An RSU is a unit equivalent in value to one Subordinate Voting Share of the Company. Upon the exercise of the vested RSUs, a cash payment equal to the market value of the exercised vested RSUs will be paid to the employee. The value of the vested RSU liability is adjusted to reflect changes in the market value of the Company's Subordinate Voting Shares.

The following transactions occurred during each of the 13 week periods ended September 26, 2009 and September 27, 2008 with respect to the RSU Plan:



13 weeks ended
-----------------
Sept 26, Sept 27,
2009 2008
-----------------
Outstanding at beginning of period 133,300 133,300
Granted - -
Redeemed - -
Forfeited - -
-----------------
Outstanding at end of period 133,300 133,300
-----------------
Liability at end of period $615 $333
-----------------
Compensation expense recorded in SG&A $165 ($78)
-----------------


7. AMORTIZATION:

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



13 weeks ended
-----------------
Sept 26, Sept 27,
2009 2008
-----------------
Cost of sales $40 $72
SG&A 1,083 1,208
-----------------
$1,123 $1,280
-----------------
-----------------


8. RESTRUCTURING COSTS:

Restructuring costs of approximately $1.5 million were originally recorded during the last half of fiscal 2009 and represent severance costs in connection with the Toronto manufacturing facility and head office workforce reductions. Approximately $1.2 million of the restructuring costs were paid during the last half of fiscal 2009 and first quarter of fiscal 2010. As at September 26, 2009 approximately $0.2 million remains to be paid over the next 6 months and has been recorded in accounts payable and accrued liabilities and $0.1 million of restructuring costs were reversed as these costs are not expected to be incurred.

9. CHANGES IN NON-CASH OPERATING WORKING CAPITAL ITEMS:



13 weeks ended
------------------
Sept 26, Sept 27,
2009 2008
------------------
Decrease (increase) in:
Accounts receivable ($517) ($697)
Income taxes recoverable (1,801) (2,614)
Inventories (10,835) (13,535)
Prepaid expenses 205 (39)
Increase (decrease) in:
Accounts payable and accrued
liabilities 44 1,443
------------------
($12,904) ($15,442)
------------------
------------------


10. COMMITMENTS:

(a) Operating leases

Minimum rentals for the next five 12 month periods and thereafter, excluding rentals based upon revenue, are as follows:



2010 $10,556
2011 $9,205
2012 $7,379
2013 $5,498
2014 $4,152
Thereafter $8,998


(b) Letters of credit

The Company had outstanding letters of credit in the amount of $18,764 (September 27, 2008 - $17,160) for imports of finished goods inventories to be received.

11. FINANCIAL INSTRUMENTS:

(a) Fair value disclosure

Fair value estimates are made at a specific point in time, using available information about the financial instrument and may not reflect fair value in the future. These estimates are subjective in nature and often involve uncertainties and the exercise of significant judgment. The estimated fair value amounts can be materially affected by the use of different assumptions or methodologies.

The methods and assumptions used in estimating the fair value of the Company's financial instruments are as follows:

- The fair value of short-term financial instruments such as cash, accounts receivable and accounts payable and accrued liabilities, approximate their carrying values due to the immediate short-term period to maturity.

- The derivative financial instruments, which consist of foreign exchange collar contracts with a net gain of $4 have been marked to market using values prepared by the financial institution which is the counterparty to these contracts. Factors included in the determination of fair value included the spot rate, forward rate, estimates of volatility, present value factor, strikes price and credit risk of the Company and counterparty.

(b) Risk management

Exposure to foreign currency risk, interest rate risk, equity price risk, liquidity risk and credit risk arise in the normal course of the Company's business and disclosures were provided in the annual consolidated financial statements for the fiscal year ended June 27, 2009. There have been no significant changes in liquidity risk or in the way the Company manages the risks described above for the 13 week period ended September 26, 2009. Risk exposures as at September 26, 2009 are discussed further below:



----------------------------------------------------------------------------
Risk Financial Amount Sensitivity Analysis/Comments
Instrument
----------------------------------------------------------------------------
Foreign Foreign US$4,300 For every 500 basis points that the
Currency Exchange (notional U.S. dollar exchange rate is outside
Contracts amount) of the collar range, the impact on net
(Collars loss is +/-$35.
expiring
between
September
30, 2009
and
October 26,
2009)
----------------------------------------------------------------------------
Foreign Cash ($US) US$141 A 500 basis point change in the U.S.
Currency dollar exchange rate would impact
net loss by +/-$1.
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Interest Cash $8,380 A 100 basis point change in interest
Rate/ rates would impact net loss by +/-
Credit $13. Exposure to credit risk is
Risk limited by investing in short-term
deposits and bankers acceptances with
major Canadian financial institutions.
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Credit Accounts $868 Primarily consists of credit card
Risk Receivable receivables from the last few days of
the fiscal period end and are settled
within a few days following the fiscal
period end.
----------------------------------------------------------------------------
Equity RSU and DSU 133,300 RSUs A $1.00 change in Danier's share
Price Liability 103,920 DSUs price would impact net loss by +/-
$38.
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12. SEGMENTED INFORMATION:

Management has determined that the Company operates in one dominant industry which involves the design, manufacture and retail of fashion leather and suede apparel.

Contact Information

  • Investor Relations Contact
    Danier Leather Inc.
    Jeffrey Wortsman, President and Chief Executive Officer
    (416) 762-8175 ext. 302
    (416) 762-7408 (FAX)
    leather@danier.com
    or
    Danier Leather Inc.
    Bryan Tatoff
    Senior Vice-President and Chief Financial Officer
    (416) 762-8175 ext. 328
    (416) 762-7408 (FAX)
    bryan@danier.com