Danier Leather Inc.
TSX : DL

Danier Leather Inc.

January 20, 2010 14:48 ET

Danier Leather Reports Fiscal 2010 Second Quarter Results

TORONTO, ONTARIO--(Marketwire - Jan. 20, 2010) - Danier Leather Inc. (TSX:DL) today announced its unaudited interim consolidated financial results for the 13 week and 26 week periods ended December 26, 2009.

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



----------------------------------------------------------
For the 13 Weeks Ended For the 26 Weeks Ended
--------------------------------------------------------------------------
Dec. 26, 2009 Dec. 27, 2008 Dec. 26, 2009 Dec. 27, 2008
--------------------------------------------------------------------------
Sales $70,622 $69,085 $90,573 $91,660
--------------------------------------------------------------------------
EBITDA(1) 14,625 11,247 10,346 6,468
--------------------------------------------------------------------------
Net Earnings 8,533 6,474 5,091 2,768
--------------------------------------------------------------------------
EPS - Basic $1.44 $1.05 $0.86 $0.44
--------------------------------------------------------------------------
EPS - Diluted $1.43 $1.05 $0.85 $0.44
--------------------------------------------------------------------------
Number of
Stores 90 92 90 92
--------------------------------------------------------------------------
Retail Square
Footage 324,644 350,614 324,644 350,614
--------------------------------------------------------------------------


Net earnings during the second quarter of fiscal 2010 increased by approximately $2.0 million to $8.5 million ($1.44 per diluted share) compared with $6.5 million ($1.05 per diluted share) during the second quarter last year. For the year-to-date period, net earnings increased by $2.3 million to $5.1 million compared with $2.8 million for the corresponding period last year.

Sales for the second quarter of fiscal 2010 increased by 2% to $70.6 million from $69.1 million in the second quarter last year. Comparable store sales increased by 6%. Gross profit margin increased by 6.4% (640 basis points) to 54.4% from 48.0% resulting in a gross profit dollar increase of 16% or $5.3 million to $38.5 million from $33.2 million during the second quarter last year. The increase in gross profit margin was due in part to a stronger Canadian dollar, reduced markdowns as compared with the second quarter last year and improved merchandise planning and purchasing.

Selling, general and administrative expenses ("SG&A") during the second quarter of fiscal 2010 increased by $1.8 million. The increase was due to higher performance-based compensation for stores and head office staff and increased stock-based compensation resulting from to an increase in the Company's share price.

Year-to-date sales decreased by 1% to $90.6 million compared with $91.7 million for the corresponding period last year. Year-to-date comparable store sales increased by 3%. Gross profit as a percentage of revenue for the first half of the year increased by 6.4% or 640 basis points to 53.1% compared with 46.7% last year and year-to-date SG&A was $40.0 million compared with $39.0 million last year.

Danier continues to maintain a strong balance sheet with cash of $28.7 million, working capital of $43.3 million and no long-term debt.

(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 For the 26 Weeks Ended
-------------------------- --------------------------
Dec 26, 2009 Dec 27, 2008 Dec 26, 2009 Dec 27, 2008
------------ ------------ ------------ ------------
($000) ($000) ($000) ($000)
Net earnings $8,533 $6,474 $5,091 $2,768
Income tax 4,903 3,391 2,982 1,018
Interest expense -
net 40 90 101 110
Amortization 1,149 1,292 2,272 2,572
Restructuring
costs - - (100) -
-------------------------- --------------------------
EBITDA
$14,625 $11,247 $10,346 $6,468
-------------------------- --------------------------
-------------------------- --------------------------


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

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

Danier cautions readers that the list of risk factors and uncertainties 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 any forward-looking information and forward-looking statements and are cautioned not to place undue reliance on any forward-looking information or forward-looking statements. Danier disclaims any intention or obligation to update or revise any forward-looking information or forward-looking statements, whether as a result of new information, future events or otherwise, except as required under applicable securities laws.

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. Corporations and other organizations can obtain Danier products for use as incentives and premiums for employees, suppliers, and customers through Canada Sportswear Corp. For more information about the Company and our products, see www.danier.com.



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


For the 13 Weeks Ended For the 26 Weeks Ended
----------------------- --------------------------
December December December December
26, 2009 27, 2008 26, 2009 27, 2008
----------------------- -------------------------
Revenue $ 70,622 $ 69,085 $ 90,573 $ 91,660
Cost of sales (Note 7) 32,171 35,928 42,474 48,811
----------------------- -------------------------
Gross profit 38,451 33,157 48,099 42,849
Selling, general and
administrative
expenses (Note 7) 24,975 23,202 40,025 38,953
Interest expense -
net 40 90 101 110
Restructuring costs
(Note 8) - - (100) -
---------------------- --------------------------
Earnings before
income taxes 13,436 9,865 8,073 3,786
Provision for income
taxes (Note 9)
Current 4,859 3,330 2,955 893
Future 44 61 27 125
---------------------- --------------------------
4,903 3,391 2,982 1,018
---------------------- --------------------------
Net earnings and
comprehensive earnings $ 8,533 6,474 $ 5,091 $ 2,768
---------------------- --------------------------
---------------------- --------------------------

Net earnings per share:
Basic $1.44 $1.05 $0.86 $ 0.44
Diluted $1.43 $1.05 $0.85 $ 0.44


Weighted average number
of shares outstanding:
Basic 5,912,511 6,179,726 5,910,890 6,228,077
Diluted 5,983,160 6,180,071 5,958,341 6,228,259
Number of shares
outstanding at period
end 5,914,269 6,176,429 5,914,269 6,176,429

See accompanying notes to the consolidated financial statements



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

December December June 27,
26, 2009 27, 2008 2009
------------------------------------------
ASSETS
Current Assets
Cash $ 28,717 $ 11,174 $ 24,628
Accounts receivable 5,171 7,702 351
Income taxes recoverable - - 631
Inventories (Note 3) 32,067 40,837 21,045
Prepaid expenses 522 556 1,156
Future income tax asset 249 396 245
----------- ------------- ------------
66,726 60,665 48,056
Other Assets
Property and equipment
(Note 4) 17,140 18,576 17,611
Intangible asset (Note 5) 1,416 1,567 1,728
Goodwill - 342 -
Future income tax asset 1,502 1,476 1,657
----------- ------------- ------------
$ 86,784 $ 82,626 $ 69,052
----------- ------------- ------------
----------- ------------- ------------
LIABILITIES
Current Liabilities
Accounts payable and
accrued liabilities $ 20,734 $ 16,884 $ 10,601
Income taxes payable 2,408 788 -
Current portion of capital
lease obligation - 349 -
Future income tax liability 242 382 366
----------- ------------- ------------
23,384 18,403 10,967
Deferred lease inducements
and rent liability 1,433 1,428 1,389
Future income tax liability - 49 -
----------- ------------- ------------
24,817 19,880 12,356
----------- ------------- ------------
SHAREHOLDERS' EQUITY
Share capital (Note 6) 19,877 20,985 19,853
Contributed surplus 979 663 823
Retained earnings 41,111 41,098 36,020
Accumulated other
comprehensive income - - -
----------- ------------- ------------
61,967 62,746 56,696
----------- ------------- ------------
$ 86,784 $ 82,626 $ 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 For the 26 Weeks Ended
------------------------ ------------------------
December December December December
26, 2009 27, 2008 26, 2009 27, 2008
------------------------ ------------------------

OPERATING ACTIVITIES
Net earnings $ 8,533 6,474 $ 5,091 $ 2,768
Items not affecting
cash:
---------------------
Amortization (Note 7) 1,149 1,292 2,272 2,572
Amortization of
deferred lease
inducements (55) (90) (117) (184)
Straight line rent
expense 31 12 61 23
Stock based
compensation 82 79 164 115
Future income taxes 44 61 27 125
Net change in non-
cash working capital
items (Note 10) 10,868 3,773 (2,036) (11,669)
Proceeds from
deferred lease
inducement 100 - 100 -
Repayment of
deferred lease
inducement - (86) - (86)
----------- ----------- ----------- -----------
Cash flows from
(used in) operating
activities 20,752 11,515 5,562 (6,336)
----------- ----------- ----------- -----------
FINANCING ACTIVITIES
Subordinate voting
shares repurchased - (460) - (460)
Subordinate voting
shares issued 16 - 16 -
Repayment of
obligation under
capital lease - (257) - (509)
----------- ----------- ----------- -----------
Cash flows from
(used in) financing
activities 16 (717) 16 (969)
----------- ----------- ----------- -----------

INVESTING ACTIVITIES
Acquisition of
property and
equipment (404) (325) (1,450) (1,269)
Acquisition of
intangible asset (27) (79) (39) (134)
----------- ----------- ----------- -----------
Cash flows used in
investing activities (431) (404) (1,489) (1,403)
----------- ----------- ----------- -----------

Increase (decrease)
in cash 20,337 10,394 4,089 (8,708)
Cash, beginning of
period 8,380 780 24,628 19,882
----------- ----------- ----------- -----------
Cash, end of period $ 28,717 $ 11,174 $ 28,717 $ 11,174
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------

Supplementary cash
flow information:
Interest paid - 47 - 210
Income taxes paid 58 31 58 353

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 For the 26 Weeks Ended
---------------------- -------------------------
December December December December
26, 2009 27, 2008 26, 2009 27, 2008
---------------------- -------------------------
SHARE CAPITAL
Balance, beginning
of period $19,853 $21,409 $19,853 $21,409
Shares repurchased - (424) - (424)
Cash received upon
exercise of stock
options 16 - 16 -
Fair value of stock
options exercised 8 - 8 -
---------------------- -------------------------
Balance, end of
period $19,877 $20,985 $19,877 $20,985
---------------------- -------------------------

CONTRIBUTED SURPLUS
Balance, beginning
of period $905 $584 $823 $548
Stock-based
compensation related to
stock options 82 79 164 115
Fair value of stock
options exercised (8) - (8) -
---------------------- -------------------------
Balance, end of
period $979 $663 $979 $663
---------------------- -------------------------

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


Net earnings 8,533 6,474 5,091 2,768
Share repurchases - (36) - (36)
---------------------- -------------------------
Balance, end of
period $41,111 $41,098 $41,111 $41,098
---------------------- -------------------------

ACCUMULATED OTHER
COMPREHENSIVE INCOME
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 $61,967 $62,746 $61,967 $62,746
---------------------- -------------------------
---------------------- -------------------------

See accompanying notes to the consolidated financial statements


DANIER LEATHER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the 13 week and 26 week periods ended
December 26, 2009 and December 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 prior years, a significant portion of alterations work was performed by third party suppliers and alterations revenue and expense was therefore previously reported on a net basis and was included in SG&A in accordance with EIC 123 - Reporting Revenue Gross as a Principal versus Net as an Agent.

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 earnings 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 December 27, 2008 there was a $1,567 decrease in property and equipment and a corresponding $1,567 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:



December 26, 2009 December 27, 2008 June 27, 2009
------------------ ------------------ ------------------
Raw materials $ 2,106 $ 2,654 $ 2,202
Work-in- 832
process 243 186
Finished goods 29,718 37,351 18,657
------------------ ------------------ ------------------
$ 32,067 $ 40,837 $ 21,045
------------------ ------------------ ------------------
------------------ ------------------ ------------------


13 weeks ended 26 weeks ended
------------------------ -----------------------
Dec 26, Dec 27, Dec 26, Dec 27,
2009 2008 2009 2008
------------------------------ -----------------------
Cost of inventory
recognized as an
expense $31,890 $35,928 $42,062 $48,811
Write-downs of
inventory due to
net realizable value
being lower than cost $372 $134 $484 $284
Write-downs
recognized in
previous periods
that were reversed - - $25 $222


4. PROPERTY AND EQUIPMENT:



December 26, 2009 December 27, 2008
------------------------------ -------------------------------
Cost Accumulated Net Book Cost Accumulated Net Book
Amortization Value Amortization Value
------------------------------ -------------------------------
Land $ 1,000 $ - $1,000 $ 1,000 $ - $ 1,000
Building 7,064 2,282 4,782 7,064 2,083 4,981
Leasehold
improvements 24,528 17,208 7,320 25,037 17,232 7,805
Furniture and 9,210 6,199 3,011 10,900 7,466 3,434
equipment
Computer
hardware 3,399 2,372 1,027 1,598 911 687
Computer
hardware
under
capital
lease - - - 1,889 1,220 669
--------- ----------- -------- ------- ----------- -----------

$45,201 $28,061 $17,140 $47,488 $28,912 $18,576
--------- ----------- -------- ------- ----------- -----------
--------- ----------- -------- ------- ----------- -----------


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 8,786 5,884 2,902
equipment
Computer 3,362 2,122 1,240
hardware
------- ------- -------
$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)).



Dec 26, 2009 Dec 27, 2008 June 27, 2009
--------------- --------------- ------------

Cost $3,979 $3,643 $3,940
Accumulated amortization 2,563 2,076 2,212
--------------- --------------- ------------
Net book value $1,416 $1,567 $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



Dec 26, 2009 Dec 27, 2008 June 27, 2009
------------ ------------- -------------
1,224,329 Multiple Voting Shares
(December 27, 2008 and June 27,
2009 - 1,224,329) (i) (i) (i)
4,689,940 Subordinate Voting
Shares (December 27, 2008 -
4,952,100 and June 27, 2009 -
4,684,940) 19,877 20,985 19,853
------------ ------------ ------------
$ 19,877 $ 20,985 $ 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 26 weeks ended
---------------------- ----------------------
Dec 26, Dec 27, Dec 26, Dec 27,
2009 2008 2009 2008
---------------------- ----------------------
Weighted average number of
shares for basic earnings
per share calculations 5,912,511 6,179,726 5,910,890 6,228,077
Effect of dilutive options
outstanding 70,649 345 47,451 182
---------------------- ----------------------
Weighted average number of
shares for diluted
earnings per share
calculations 5,983,160 6,180,071 5,958,341 6,228,259
---------------------- ----------------------
---------------------- ----------------------


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 December 26, 2009 and 557,000 as at December 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's previous normal course issuer bid 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 at the time of commencement, 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. For these purposes, the "public float" is the Company's then outstanding Subordinate Voting Shares less any shares held by the Company's senior officers and directors and by shareholders that own 10% or more of the Subordinate Voting Shares. 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 and 26 week periods ended December 26, 2009 and December 27, 2008:



13 weeks ended 26 weeks ended
---------------------- ----------------------
Dec 26, Dec 27, Dec 26, Dec 27,
2009 2008 2009 2008
---------------------- ----------------------
Number of shares - 100,000 - 100,000
repurchased
Amount charged to share - $424 - $424
capital
Amount charged to retained
earnings representing the
excess over the average
paid-in value - $36 - $36
---------------------- ----------------------
Total cash consideration - $460 - $460
---------------------- ----------------------
---------------------- ----------------------


(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 December 26, 2009, the Company has reserved 830,500 Subordinate Voting Shares for issuance under its Stock Option Plan and there were 560,000 options outstanding with exercise prices ranging from $3.15 to $15.85 per option.

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



13 weeks ended 26 weeks ended
---------------------- ----------------------
Dec 26, Dec 27, Dec 26, Dec 27,
2009 2008 2009 2008
---------------------- ----------------------
Outstanding at beginning of
period 565,000 247,000 577,000 293,000
Granted - 310,000 - 310,000
Exercised (5,000) - (5,000) -
Forfeited - - (12,000) (46,000)
---------------------- ----------------------
Outstanding at end of 560,000 557,000 560,000 557,000
period
---------------------- ----------------------
Options exercisable at end
of period 285,825 160,750 285,825 160,750
---------------------- ----------------------


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 and 26 week periods ended December 26, 2009 and December 27, 2008 with respect to the DSU Plan:



13 weeks ended 26 weeks ended
---------------------- ----------------------
Dec 26, Dec 27, Dec 26, Dec 27,
2009 2008 2009 2008
---------------------- ----------------------
Outstanding at beginning of 103,920 78,920 78,920 58,920
period
Granted - - 25,000 20,000
Redeemed - - - -
---------------------- ----------------------
Outstanding at end of
period 103,920 78,920 103,920 78,920
Danier stock price at end
of period $5.45 $2.52 $5.45 $2.52
---------------------- ----------------------
Liability at end of period $566 $199 $566 $199
---------------------- ----------------------
Compensation expense
recorded in SG&A ($58) ($167) $191 ($178)
---------------------- ----------------------


(g) Restricted Share Unit Plan

The Company has established a Restricted Share Unit ("RSU") Plan, as amended, as part of its overall 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 and 26 week periods ended December 26, 2009 and December 27, 2008 with respect to the RSU Plan:



13 weeks ended 26 weeks ended
---------------------- ----------------------
Dec 26, Dec 27, Dec 26, Dec 27,
2009 2008 2009 2008
---------------------- ----------------------
Outstanding at beginning of
period 133,300 133,300 133,300 133,300
Granted - - - -
Redeemed (2,410) - (2,410) -
---------------------- ----------------------
Outstanding at end of
period 130,890 133,300 130,890 133,300
Liability at end of period $586 $200 $586 $200
---------------------- ----------------------
Compensation expense
recorded in SG&A ($16) ($133) $149 ($211)
---------------------- ----------------------

7. AMORTIZATION:


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



13 weeks ended 26 weeks ended
-------------------------- --------------------------
Dec 26, 2009 Dec 27, 2008 Dec 26, 2009 Dec 27, 2008
-------------------------- --------------------------
Cost of sales $40 $70 $80 $142
SG&A 1,109 1,222 2,192 2,430
-------------------------- --------------------------
$1,149 $1,292 $2,272 $2,572
-------------------------- --------------------------
-------------------------- --------------------------


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 $1.3 million of the restructuring costs were paid during the last half of fiscal 2009 and first half of fiscal 2010. As at December 26, 2009 approximately $0.1 million remains to be paid over the next 3 months and has been recorded in accounts payable and accrued liabilities and $0.1 million of restructuring costs were reversed during the first quarter of fiscal 2010 as these costs are not expected to be incurred.

9. INCOME TAXES:

The estimated average annual effective rate was 36.9% during the 26 weeks ended December 26, 2009 compared with 26.9% estimated rate for the 26 weeks ended December 27, 2008 and a recovery of 26.0% for the fiscal year ended June 27, 2009. The difference between the rate for the 26 weeks ended December 26, 2009 and the rate for the 26 weeks ended December 27, 2008 and the fiscal year ended June 27, 2009 is due to the effect of non-deductible expenses on estimated earnings and the effect of changes in future federal and provincial rates on future taxes. The difference between the rate for the 26 weeks ended December 26, 2009 and the rate for the 13 weeks ended September 26, 2009 is due a change in estimated earnings and the effect of changes in future federal and provincial rates on future taxes.

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



13 weeks ended 26 weeks ended
-------------------------- --------------------------
Dec 26, 2009 Dec 27, 2008 Dec 26, 2009 Dec 27, 2008
------------ ------------ ------------ ------------
Decrease (increase)
in:
Accounts
receivable ($4,303) ($6,250) ($4,820) ($6,947)
Income taxes
recoverable 2,432 2,500 631 8
Inventories (187) 414 (11,022) (13,121)
Prepaid expenses 429 725 634 686
Increase (decrease)
in:
Accounts payable
and accrued
liabilities 10,089 5,596 10,133 7,039
Income taxes
payable 2,408 788 2,408 666
-------------------------- --------------------------
$10,868 $3,773 ($2,036) ($11,669)
-------------------------- --------------------------
-------------------------- --------------------------


11. COMMITMENTS:

(a) Operating leases

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



2010 $10,715
2011 $9,158
2012 $7,375
2013 $5,702
2014 $4,056
Thereafter $8,823


(b) Letters of credit

The Company had outstanding letters of credit in the amount of $8,080 (December 27, 2008 - $5,304) for imports of finished goods inventories to be received.

12. 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 principal 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.


(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. Except for US$4,300 notional amount of foreign exchange collar contracts that expired during the 13 weeks ended December 26, 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 and 26 week periods ended December 26, 2009. Risk exposures as at December 26, 2009 are discussed further below:



----------------------------------------------------------------------------
Financial
Instrument Risk Amount Sensitivity Analysis/Comments
----------------------------------------------------------------------------
Cash ($US) Foreign US$2,242 A 500 basis point change in
Currency the U.S. dollar exchange rate
would impact net earnings for
the 13 week and 26 week
periods ended December 26,
2009 by +/-$18 and $36,
respectively.
----------------------------------------------------------------------------
Cash Interest $28,717 A 100 basis point change in
Rate/ interest rates would impact
Credit Risk net earnings for the 13 week
and 26 week periods ended
December 26, 2009 by +/-$46
and $92, respectively.
Exposure to credit risk is
limited by investing in short-
term deposits and bankers
acceptances with major
Canadian financial
institutions.
----------------------------------------------------------------------------
Accounts Credit Risk $5,171 Primarily consists of credit
Receivable card receivables from the last
few days of the fiscal period
end and are settled within a
few days following the fiscal
period end.
----------------------------------------------------------------------------
RSU and DSU Equity Price 130,890 RSUs A $1.00 change in Danier's
Liability 103,920 DSUs share price would impact net
earnings for the 13 week and
26 week periods ended December
26, 2009 by +/-$38 and $75,
respectively.
----------------------------------------------------------------------------


13. 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.

14. SUBSEQUENT EVENT:

The Company recently announced that it intends to make a substantial issuer bid (the "Offer") pursuant to which the Company will offer to repurchase for cancellation up to $7 million of its outstanding Subordinate Voting Shares (the "Shares") from shareholders. The Offer will proceed by way of a modified "Dutch Auction" and the range of Offer prices is anticipated to be $6.10 to $6.45 per Share. The Offer will remain open for acceptance for at least 35 days after the date of commencement, unless withdrawn or extended by the Company. In accordance with applicable Canadian securities laws, the Company will suspend repurchases of any Shares under its normal course issuer bid announced on May 5, 2009 until the expiry or termination of the Offer. As a result of previous purchases under its normal course issuer bid, only 23 shares are available to be repurchased under that normal course issuer bid.

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, Chief Financial Officer
    & Secretary
    (416) 762-8175 ext. 328
    (416) 762-7408 (FAX)
    bryan@danier.com
    www.danier.com