Danier Leather Reports Fiscal 2008 First Quarter Results


TSX SYMBOL: DL

Oct 17, 2007 - 15:01

TORONTO, ONTARIO--(Marketwire - Oct. 17, 2007) - Danier Leather Inc. (TSX:DL) today announced its unaudited consolidated financial results for the 13-weeks ended September 29, 2007.



Q1 2008 HIGHLIGHTS

- Comparable store sales increased 5%

- Class action matter is resolved in favour of Danier. Unanimous Supreme
Court of Canada decision upholds the unanimous 2005 Ontario Court of Appeal
ruling that dismissed the class action concerning the Company's initial
public offering ("IPO") in 1998 resulting in a reversal of the $18 million
litigation provision less future income taxes of $4.6 million

- Shareholders' equity increases by approximately $2 per share due to
reversal of litigation provision less future income taxes. Book value per
share as at September 29, 2007 equals $9.10 per share.

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


------------------------------------
For the 13 Weeks Ended
------------------------------------------------------------
Sept. 29, 2007 Sept. 23, 2006(i)
------------------------------------------------------------
Sales $22,087 $21,928
------------------------------------------------------------
EBITDA(1) (4,007) (4,002)
------------------------------------------------------------
Net Loss Excluding
Litigation Provision(2) (3,563) (3,702)
------------------------------------------------------------
Net Earnings (Loss) 9,820 (3,702)
------------------------------------------------------------
EPS - Basic $1.54 ($0.56)
------------------------------------------------------------
EPS - Diluted $1.53 ($0.56)
------------------------------------------------------------
Number of Stores 91 93
------------------------------------------------------------
Retail Square Footage 349,248 364,986
------------------------------------------------------------
(i)restated

 


As a result of the unanimous Supreme Court of Canada decision upholding the unanimous Ontario Court of Appeal ruling that dismissed the class action, the litigation provision of $18 million less future income taxes of $4.6 million was reversed in the first quarter of 2008 and net earnings were $9.8 million ($1.54 per basic share). Excluding the reversal of the class action provision, the net loss for the first quarter of 2008 was $3.6 million(2) ($0.57 loss per basic share) compared with a net loss of $3.7 million ($0.56 loss per basic share) during the first quarter of 2007.

Sales for the first quarter increased by 1% or $0.2 million to $22.1 million from $21.9 million in the first quarter of 2007. Comparable store sales increased 5%. Danier opened one shopping mall store in Saskatoon, Saskatchewan during the quarter and had 91 stores in operation compared with 93 stores in the same quarter last year.

Gross profit as a percentage of revenue during the first quarter of 2008 expanded by 490 basis points or 4.9% to 48.9% compared with 44.0% during the first quarter last year. The expanded gross profit as a percentage of revenue resulted in gross profit dollars increasing by 12% or $1.2 million for the first quarter.

On October 12, 2007, the Supreme Court of Canada released its unanimous decision in the matter of a class action concerning the Company's initial public offering ("IPO") in 1998. The Supreme Court upheld the unanimous 2005 Ontario Court of Appeal ruling that dismissed the class action. The Supreme Court decision removes uncertainty and allows Danier to build and grow its business. The Company had provided for this uncertainty and the $18 million provision less future income taxes of approximately $4.6 million was reversed and as a result shareholders' equity increased by approximately $2 per share.

During the first quarter of 2008, Danier repurchased 65,000 subordinate voting shares for cancellation under the Normal Course Issuer Bid. Since the bid commenced on April 23, 2007, Danier has repurchased a total of 189,500 shares for cancellation.

Danier is holding its Annual and Special Meeting of Shareholders today, Wednesday, October 17, 2007 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 earnings (loss) before interest expense (income), income taxes, amortization and litigation provision and related expenses. EBITDA is a financial metric used by management and some investors to compare companies on the basis of ongoing operating results before taxes, interest expense, amortization, litigation provision and related expenses 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 29, 2007 Sept 23, 2006
-------------- -----------------
($000) ($000 - restated)
Net earnings (loss) $9,820 ($3,702)
Income tax 2,502 (1,960)
Interest expense - net 50 57
Amortization 1,621 1,603
Litigation provision and related
expenses (18,000) -
--------------------------------
EBITDA ($4,007) ($4,002)
--------------------------------
--------------------------------

 


(2) Net loss excluding litigation provision is defined as net earnings (loss) before litigation provision and related expenses and income taxes related to the litigation provision and related expenses. Net loss excluding litigation provision is a financial metric used by management and allows for a more effective analysis of the ongoing operating performance of the Company. Net loss excluding litigation provision is not a recognized measure for financial presentation under Canadian GAAP. Non-GAAP earnings measures such as net loss excluding litigation provision 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. Net loss excluding litigation provision is calculated as outlined in the following table:



For the 13 Weeks Ended
--------------------------------
Sept 29, 2007 Sept 23, 2006
-------------- -----------------
($000) ($000 - restated)
Net earnings (loss) $9,820 ($3,702)

Litigation provision and related
expenses (18,000) -
Future income tax provision related to
litigation provision and related
expenses 4,617 -
--------------------------------
Net loss excluding litigation provision ($3,563) ($3,702)
--------------------------------
--------------------------------

 


Note: This press release may contain 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. Forward-looking statements should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether, or the times at which, such performance or results will be achieved. Any statements in this press release containing forward-looking information are qualified by these cautionary statements.

Forward-looking statements are based on information available at the time they are made, underlying assumptions made by management and management's good faith belief with respect to future events, 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, change in consumer shopping patterns away from shopping malls and power centres, unseasonably hot weather or severe or unusual weather that prevents customers from going to the Company's stores, seasonality, heightened competition including new competitors and expansion of current competitors, domestic and foreign currency fluctuations which result in increased costs, leather availability and prices, risks associated with foreign sourcing and manufacturing and potential legal proceedings, 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 assumptions prove incorrect, actual results may vary significantly from those expected. There can be no assurance that the actual results, 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 and other factors carefully in evaluating forward-looking statements and are cautioned not to place undue reliance on any 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 Canadian Securities Regulatory Authorities, including the Company's annual information form and 2007 annual report, 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 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 only at its 91 shopping mall, street-front, and power centre stores, or through its corporate sales division. Danier's products are also available at Festival City Mall in Dubai. For more information about the Company and our products, see www.danier.com.



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

For the 13 Weeks Ended
-----------------------------
September 29, September 23,
2007 2006
-----------------------------
(restated)
Revenue $ 22,087 $ 21,928
Cost of sales (Note 7) 11,285 12,281
-----------------------------
Gross profit 10,802 9,647
Selling general and administrative expenses
(Note 7) 16,430 15,252
Interest expense - net 50 57
-----------------------------
Loss before undernoted item and income taxes (5,678) (5,662)
Litigation provision and related expenses
(Note 8) (18,000) -
-----------------------------
Earnings (loss) before income taxes 12,322 (5,662)
Provision for (recovery of) income taxes
Current (2,122) (1,937)
Future 4,624 (23)
-----------------------------
2,502 (1,960)
-----------------------------
Net earnings (loss) and comprehensive
earnings (loss) $ 9,820 $ (3,702)
-----------------------------

Net earnings (loss) per share:
Basic $ 1.54 ($0.56)
Diluted $ 1.53 ($0.56)

Weighted average number of shares
outstanding:
Basic 6,378,825 6,553,254
Diluted 6,410,263 6,560,371
Number of shares outstanding at period end 6,368,754 6,553,254

See accompanying notes to the consolidated financial statements

DANIER LEATHER INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(thousands of dollars)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
September
September 29, 23, June 30,
2007 2006 2007
-------------------------------------
ASSETS (restated)
Current Assets
Cash $ - $ - $ 20,579
Accounts receivable 2,091 1,986 724
Income taxes recoverable 1,943 4,309 -
Inventories (Note 3) 46,021 45,734 28,561
Prepaid expenses 1,413 1,656 1,446
Future income tax asset 477 534 5,112
-------------- ----------- ----------
51,945 54,219 56,422
Other Assets
Property and equipment (Note 4) 24,007 26,731 23,575
Goodwill 342 342 342
Future income tax asset 1,390 5,809 1,407
-------------- ----------- ----------
$ 77,684 $ 87,101 $ 81,746
-------------- ----------- ----------
-------------- ----------- ----------
LIABILITIES
Current Liabilities
Bank indebtedness $ 3,465 $ 9,302 $ -
Accounts payable and accrued
liabilities 12,394 10,502 9,387
Income taxes payable - - 1,473
Current portion of capital lease
obligation (Note 5) 987 925 971
Future income tax liability 416 464 444
Accrued litigation provision and
related expenses (Note 8) - - 18,000
-------------- ----------- ----------
17,262 21,193 30,275
Capital lease obligation (Note 5) 606 1,593 858
Accrued litigation provision and
related expenses (Note 8) - 18,000 -
Deferred lease inducements and rent
liability 1,799 1,994 1,849
Future income tax liability 55 56 55
-------------- ----------- ----------
19,722 42,836 33,037
-------------- ----------- ----------
SHAREHOLDERS' EQUITY
Share capital (Note 6) 21,769 22,542 22,044
Contributed surplus 458 286 431
Retained earnings 35,735 21,437 26,234
Accumulated other comprehensive
income - - -
-------------- ----------- ----------
57,962 44,265 48,709
-------------- ----------- ----------
$ 77,684 $ 87,101 $ 81,746
-------------- ----------- ----------
-------------- ----------- ----------

DANIER LEATHER INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
(thousands of dollars)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
For the 13 Weeks Ended
-----------------------------
September 29, September 23,
2007 2006
-----------------------------
(restated)

OPERATING ACTIVITIES
Net earnings (loss) $ 9,820 $ (3,702)
Items not affecting cash:
Amortization (Note 7) 1,621 1,603
Amortization of deferred lease inducements
and other (120) (133)
Straight line rent expense 42 43
Stock based compensation 27 11
Accrued litigation provision and related
expenses (Note 8) (18,000) -
Future income taxes 4,624 (23)
Net change in non-cash working capital items
(Note 9) (19,175) (17,772)
Repayment of deferred lease inducement - (59)
-----------------------------
Cash flows used in operating activities (21,161) (20,032)
-----------------------------

FINANCING ACTIVITIES
Subordinate voting shares repurchased (594) -
Repayment of obligation under capital lease (236) (222)
-----------------------------
Cash flows used in financing activities (830) (222)
-----------------------------

INVESTING ACTIVITIES
Acquisition of capital assets (2,053) (1,041)
Proceeds from sublease - 160
-----------------------------
Cash flows used in investing activities (2,053) (881)
-----------------------------

Decrease in cash (24,044) (21,135)
Cash, beginning of period 20,579 11,833
-----------------------------
Bank indebtedness, end of period $ (3,465) $ (9,302)
-----------------------------
-----------------------------

Supplementary cash flow information:
Interest paid 273 28
Income taxes paid 1,295 -

See accompanying notes to the consolidated financial statements



DANIER LEATHER INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(thousands of dollars)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
For the 13 Weeks Ended
-----------------------
September September
29, 23,
2007 2006
-----------------------
(restated)
SHARE CAPITAL
Balance, beginning of period $22,044 $22,542
Shares repurchased (275) -
-----------------------
Balance, end of period $21,769 $22,542
-----------------------

CONTRIBUTED SURPLUS
Balance, beginning of period $431 $275
Stock-based compensation related to stock
options 27 11
-----------------------
Balance, end of period $458 $286
-----------------------

RETAINED EARNINGS
Balance, beginning of period $26,234 $25,139
Net earnings (loss) 9,820 (3,702)
Shares repurchased (319) -
-----------------------
Balance, end of period $35,735 $21,437
-----------------------

ACCUMULATED OTHER COMPRENSIVE 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 $57,962 $44,265

See accompanying notes to the consolidated financial statements



DANIER LEATHER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the 13 week periods ended September 29, 2007 and September 23, 2006
(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 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 53 week period ended June 30, 2007 and the accompanying notes contained in the Company's 2007 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 30, 2007, except as described below in Note 1(b). In addition, certain prior period balances have been reclassified to conform with the presentation adopted in the current year.

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 at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are based on management's 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 litigation provision and related expenses, inventory valuation, realizable value of property and equipment, stock based compensation, future income tax assets and liabilities, 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 be material.

(b) Changes in Accounting Policies:

(i) On July 1, 2007, the Company adopted the following new accounting standards issued by the Canadian Institute of Chartered Accountants ("CICA"). As provided under the standards, the Company adopted these recommendations prospectively without restatement of the prior period financial statements. There were no transitional adjustments resulting from the adoption of these standards.

CICA Section 1530 - Comprehensive Income

This CICA Handbook section introduced a statement of comprehensive income which is included in the financial statements. Comprehensive income represents the change in equity during a period from transactions and other events and circumstances from non-owner sources and will include all changes in equity other than those resulting from investments by owners and distributions to owners. The adoption of this standard has had no impact on the financial statements of the Company. Since comprehensive earnings equal the net earnings for the 13 week period ended September 29, 2007, the consolidated statement of comprehensive earnings (loss) has been combined with the consolidated statements of earnings (loss).

CICA Section 3251 - Equity

This CICA Handbook section, which replaced Section 3250 - Surplus, establishes standards for the presentation of equity and changes in equity during the reporting period and requires the Company to present separately equity components and changes in equity arising from (i) net earnings; (ii) other comprehensive income; (iii) other changes in retained earnings; (iv) changes in contributed surplus; (v) changes in share capital; and (vi) changes in reserves. New consolidated statements of changes in shareholders' equity are included in these financial statements.

CICA Section 3855 - Financial Instruments - Recognition and Measurement and CICA Section 3861 - Financial Instruments - Disclosure and Presentation

These CICA Handbook sections establish standards for recognition and measurement as well as disclosure and presentation of financial assets, financial liabilities and non-financial derivatives. CICA Section 3855 requires that financial assets and financial liabilities, including derivatives, be recognized on the consolidated balance sheet when the Company becomes a party to the contractual provisions of the financial instrument or non-financial derivative contract. It also requires that all financial instruments be classified into a defined category, namely (a) held-to-maturity, (b) held-for-trading, (c) available-for-sale, (d) loans and receivables and (e) other financial liabilities, depending on the Company's stated intention and/or historical practice. All financial instruments are required to be measured at fair value except for loans and receivables, held-to-maturity investments and other financial liabilities which are measured at cost or amortized cost. Gains and losses on held-for-trading financial assets and liabilities are recognized in net earnings in the period in which they arise. Unrealized gains and losses, including changes in foreign exchange rates on available-for-sale financial assets are recognized in comprehensive income until the financial assets are derecognized or impaired, at which time any unrealized gains or losses are recorded in net earnings. Transaction costs are added to the financial asset on initial recognition and are recognized in net earnings when the asset is derecognized or impaired.

The adoption of these new standards resulted in the following changes in the classification and measurement of the Company's financial instruments, previously recorded at cost:

Cash is classified as "held-for-trading" and is measured at fair value. Money market investments included in cash are marked-to-market through net earnings and recorded as interest income at each period end. This change had no impact on the Company's financial statements.

Accounts receivable is classified as "loans and receivables" and is recorded at cost which at initial measurement corresponds to fair value. After initial fair value measurement, it is measured at amortized cost using the effective interest rate method. This change had no impact on the Company's financial statements.

Bank indebtedness and accounts payable and accrued liabilities are classified as "other financial liabilities". They are initially measured at fair value and subsequent revaluations are recorded at amortized costs using the effective interest rate method. This change had no impact on the Company's financial statements.

From time-to-time the Company utilizes derivative financial instruments in the management of its foreign currency exposure. Derivative financial instruments are not used for trading purposes. As at September 29, 2007, June 30, 2007, and September 23, 2006, the Company did not have any outstanding foreign currency exchange forward contracts.

Embedded derivatives (elements of contracts whose cash flows move independently from the host contract) are required to be separated and measured at fair values if certain criteria are met. The Company selected June 30, 2002 as the transition date for embedded derivatives, as such, only contracts or financial instruments entered into or modified after the transition date were examined for embedded derivatives. As at September 29, 2007, June 30, 2007, and September 23, 2006, the Company did not have any outstanding contracts or financial instruments with embedded derivatives.

CICA Section 3865 - Hedges

This CICA Handbook section establishes criteria that must be satisfied in order for hedge accounting to be applied and the accounting for each of the permitted hedging strategies: fair value hedges, cash flow hedges and hedges of a net investment in a self-sustaining foreign operation. Treatment of changes in the fair value of each type of hedge is determined by its classification and the portion of gains or losses on the hedging item that is determined to be an effective hedge is recognized in other comprehensive income. The determination of the effectiveness of each hedging relationship is required under the section with any ineffectiveness immediately recognized in income. The Company does not have any outstanding hedging contracts as at September 29, 2007, June 30, 2007 and September 23, 2006.

(ii) Advertising production costs for newspaper flyer inserts and other media are generally incurred several months before the advertising occurs. Effective March 25, 2007, Danier changed its accounting policy for the treatment of advertising production costs and these expenses are now deferred and expensed the first time the advertising occurs. Previously, Danier's accounting policy was to expense advertising production costs during the period the invoice was received. Management believes the new accounting policy for advertising production costs is preferable as it provides more relevant financial reporting and better links advertising expenses with the revenues generated from the advertising campaign. This change had no material effect on the selling, general and administrative expenses ("SG&A") or net earnings for the 53 weeks ended June 30, 2007 but does affect the timing of SG&A expenses recorded during the first, second and third quarters of fiscal 2007. This change in accounting policy has been accounted for retrospectively, and the comparative unaudited interim consolidated financial statements for the 13 week period ended September 23, 2006 have been restated. The effect of the change on the first, second and third quarters of fiscal 2007 is tabulated below. Prepaid advertising production costs were $695 as at September 29, 2007 ($725 - September 23, 2006) and are included in prepaid expenses in the unaudited interim consolidated balance sheet.



Effect on Consolidated Statement of Earnings (Loss)
--------------------------------------------------------------
Income Earnings Earnings
(loss) Net per per
before Income earnings share share -
SG&A tax tax (loss) - Basic Diluted
--------------------------------------------------------------
Q1 2007
-------
Restated $15,252 ($5,662) ($1,960) ($3,702) ($0.56) ($0.56)
As reported $15,977 ($6,387) ($2,211) ($4,176) ($0.64) ($0.64)
--------------------------------------------------------------
Effect ($725) $725 $251 $474 $0.08 $0.08

Q2 2007
-------
Restated $24,201 $11,398 $3,905 $7,493 $1.14 $1.14
As reported $23,978 $11,621 $3,982 $7,639 $1.17 $1.17
--------------------------------------------------------------
Effect $223 ($223) ($77) ($146) ($0.03) ($0.03)

Q3 2007
-------
Restated $20,860 $485 $198 $287 $0.04 $0.04
As reported $20,358 $987 $372 $615 $0.09 $0.09
--------------------------------------------------------------
Effect $502 ($502) ($174) ($328) ($0.05) ($0.05)



Effect on Consolidated Balance Sheet
---------------------------------------------------------
Prepaid Income taxes Income taxes Retained
expense recoverable payable Earnings
---------------------------------------------------------
Q1 2007
Restated $1,656 $4,309 - $21,437
As reported $931 $4,560 - $20.963
---------------------------------------------------------

Effect $725 ($251) - $474
Q2 2007
Restated $988 - $1,654 $28,930
As reported $486 - $1,480 $28,602
---------------------------------------------------------

Effect $502 - $174 $328
Q3 2007
Restated $376 - $2,440 $29,217
As reported $376 - $2,440 $29,217
---------------------------------------------------------
Effect - - - -

 


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 generated during the fiscal second quarter, which includes the holiday selling season. Sales are generally lowest and losses are experienced during the period from April to September.



3. INVENTORIES:

September 29, September 23,
2007 2006 June 30, 2007
------------- ------------ --------------
Raw materials $ 2,796 $ 2,676 $ 2,389
Work-in-process 1,276 1,431 989
Finished goods 41,949 41,627 25,183
------------- ------------ --------------
$ 46,021 $ 45,734 $ 28,561
------------- ------------ --------------
------------- ------------ --------------



4. PROPERTY AND EQUIPMENT:

September 29, 2007 September 23, 2006
------------------------------ -------------------------------
Net Net
Accumulated Book Accumulated Book
Cost Amortization Value Cost Amortization Value
------------------------------ -------------------------------
Land $ 1,000 $ - $ 1,000 $ 1,000 $ - $ 1,000
Building 7,064 1,836 5,228 7,064 1,613 5,451
Leasehold
improve-
ments 25,315 15,604 9,711 26,485 16,266 10,219
Furniture
and
equipment 11,282 7,576 3,706 11,119 6,933 4,186
Computer
hardware
and
software 7,783 5,028 2,755 8,591 5,012 3,579
Computer
hardware
and
software
under
capital
lease 2,920 1,313 1,607 2,920 624 2,296
------------------------------ -------------------------------
$ 55,364 $ 31,357 $ 24,007 $ 57,179 $ 30,448 $ 26,731
------------------------------ -------------------------------
------------------------------ -------------------------------



June 30, 2007
---------------------------------------
Net
Accumulated Book
Cost Amortization Value
---------------------------------------
Land $ 1,000 $ - $ 1,000
Building 7,064 1,769 5,295
Leasehold improvements 24,013 14,980 9,033
Furniture and equipment 10,736 7,192 3,544
Computer hardware and software 7,578 4,613 2,965
Computer hardware and software
under capital lease 2,920 1,182 1,738
---------------------------------------
$ 53,311 $ 29,736 $ 23,575
---------------------------------------
---------------------------------------



5. OBLIGATIONS UNDER CAPITAL LEASES:

Future minimum lease payments required under capital leases which expire in
April 2009 are:

For the 12 month period ending September 2008 1,061
For the 12 month period ending September 2009 619
---------------------------------------------------------------------------
$ 1,680
Amounts representing interest (at a weighted average annual
rate of 6.2%) 87
---------------------------------------------------------------------------
$ 1,593
Current portion 987
---------------------------------------------------------------------------
$ 606
---------------------------------------------------------------------------
---------------------------------------------------------------------------



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 29, Sept 23, June 30,
2007 2006 2007
-------- ---------- ----------
1,224,329 Multiple Voting Shares
(September 23, 2006 and June 30,
2007 - 1,224,329) (i) (i) (i)
5,144,425 Subordinate Voting Shares
(September 23, 2006 - 5,328,925
and June 30, 2007 - 5,209,425) 21,769 22,542 22,044
-------- ---------- ----------
$ 21,769 $ 22,542 $ 22,044
-------- ---------- ----------
-------- ---------- ----------

(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 29, Sept 23,
2007 2006
----------------------
Weighted average number of shares for basic
earnings per share calculations 6,378,825 6,553,254
Effect of dilutive options outstanding 31,348 7,117
----------------------
Weighted average number of shares for diluted
earnings per share calculations 6,410,263 6,560,371
----------------------
----------------------

 


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 406,000 and 574,800 for the 13 week periods ended September 29, 2007 and September 23, 2006, respectively.

(d) Normal Course Issuer Bid

On April 19, 2007, the Company received approval from The Toronto Stock Exchange to commence a Normal Course Issuer Bid. The bid permits the Company to acquire up to 320,320 Subordinate Voting Shares, representing approximately 10% of the public float of the Subordinate Voting Shares, during the period from April 23, 2007 to April 22, 2008. During the 13 weeks ended September 29, 2007, 65,000 Subordinate Voting Shares were purchased for cancellation at prevailing market prices for cash consideration of approximately $594. The excess of $319 over the average paid-in value of the shares was charged to retained earnings. Since the bid commenced on April 23, 2007, the Company has repurchased for cancellation 188,500 Subordinate Voting Shares.

(e) Stock Option Plan

The Company maintains a Stock Option Plan for the benefit of directors, officers and employees. As at September 29, 2007, the Company has reserved 900,175 Subordinate Voting Shares for issuance under its Stock Option Plan and there were 554,300 options outstanding with exercise prices ranging from $6.02 to $15.85.

The following transactions occurred during the 13 week periods ended September 29, 2007 and September 23, 2006 with respect to the Stock Option Plan:



13 weeks ended
-------------------
Sept 29, Sept 23,
2007 2006
-------------------
Outstanding at beginning of period 605,300 618,300
Granted - -
Exercised - -
Forfeited (51,000) (25,000)
-------------------
Outstanding at end of period 554,300 593,300
-------------------
Options exercisable at end of period 491,800 573,300
-------------------

 


Further details of the Stock Option Plan are contained in Note 6(e) of the consolidated financial statements contained in the Company's 2007 Annual Report.

(f) Deferred Share Unit Plan

The Deferred Share Unit ("DSU") Plan was established for non-management directors. Under this 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 Toronto Stock Exchange immediately prior to the date on which the value of the DSU is determined. When dividends are paid by the Company, an equivalent number of DSUs are added to the DSU account of the non-management director based on the number of DSUs in their account and the market value of the Subordinate Voting Shares on the date the dividend is paid. 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 compensation expense recorded in SG&A for the 13 week periods ended September 29, 2007 and September 23, 2006 was $45 and $11, respectively. The following transactions occurred during the 13 week periods ended September 29, 2007 and September 23, 2006 with respect to the Deferred Share Unit Plan:



13 weeks ended
------------------------------
Sept 29, 2007 Sept 23, 2006
------------------------------
Outstanding at beginning of period 39,420 14,904
Granted 7,000 7,000
Redeemed - -
------------------------------
Outstanding at end of period 46,420 21,904
------------------------------
Danier stock price at end of period $8.75 $5.90
------------------------------
Liability at end of period $406 $129
------------------------------
------------------------------



 


(g) Restricted Share Unit Plan

The Company established a Restricted Share Unit ("RSU") Plan 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. Under this Plan, senior officers 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. When dividends are paid by the Company, an equivalent number of RSUs are added to the RSU account of the Senior Officer based on the number of RSUs in their account, the dividend paid per Subordinate Voting Share and the market value of the Subordinate Voting Shares on the date the dividend is paid. 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 Senior Officer. The value of the vested RSU liability is adjusted to reflect changes in the market value of the Company's Subordinate Voting Shares.

Compensation expense recorded in SG&A for the 13 week periods ended September 29, 2007 and September 23, 2006 in respect of RSU's was $35 and NIL, respectively and the liability was $269 and $10, respectively.

The following transactions occurred during the 13 week periods ended September 29, 2007 and September 23, 2006 with respect to the Restricted Share Unit Plan:



13 weeks ended
----------------------------
Sept 29, 2007 Sept 23, 2006
----------------------------
Outstanding at beginning of period 50,201 15,238
Granted - -
Forfeited - (5,037)
Issued as dividend equivalents - -
----------------------------
Outstanding at end of period 50,201 10,201
----------------------------

 


7. AMORTIZATION:

Amortization included in cost of sales and selling, ("SG&A") is general and administrative expenses summarized as follows:



13 weeks ended
----------------------------------
Sept 29, 2007 Sept 23, 2006
----------------------------------
Cost of sales $ 136 $ 132
SG&A 1,485 1,471
----------------------------------
$ 1,621 $ 1,603
----------------------------------
----------------------------------



8. LITIGATION PROVISION AND RELATED EXPENSES:

Sept 29, 2007 Sept 23, 2006 June 30, 2007
------------- ------------- -------------
Accrued litigation provision
and related expenses $ - $ 18,000 $ 18,000
------------- ------------- -------------
------------- ------------- -------------

 


In fiscal 1999, the Company and certain of its directors and officers were served with a Statement of Claim under the Class Proceedings Act (Ontario) which made allegations about the accuracy and disclosure of certain information contained in a financial forecast issued by the Company and contained in the Prospectus it issued dated May 6, 1998 for its initial public offering ("IPO") which closed on May 20, 1998. The suit sought damages to be paid equal to the alleged diminution in value of the Subordinate Voting Shares sold under the Prospectus.

In October 2001, a motion to certify the action as a class proceeding was granted. The trial commenced in the Superior Court of Justice (Ontario) in May 2003 and was completed in January 2004. On May 7, 2004, the trial judge issued a judgment against the Company and two of its Senior Officers in favour of the Plaintiffs and awarded damages to Canadian shareholders who purchased Subordinate Voting Shares under the Prospectus. For those shareholders who sold their shares between June 4 and 9, 1998, the trial judge awarded the difference between the IPO price and the price at which they sold their shares. For those shareholders who sold or still held their shares after June 9, 1998, the trial judge awarded $2.35 per share.

Although the trial judge concluded that at the date of the Prospectus the forecast was reasonable, and that at the time of closing of the IPO the Company's CEO and CFO had an honest belief that the forecast could still be achieved, and although he held that the forecast was, in fact, substantially achieved, the trial judge decided that management's judgment that the forecast was still achievable at the time of closing was not reasonable and that therefore the Prospectus contained a misrepresentation. Based solely on information available at the time, the Company estimated that the trial judge's award would have totaled approximately $15 million. As noted below, the Company and its Senior Officers successfully appealed this decision to the Court of Appeal for Ontario and a decision on a further appeal taken by the Plaintiffs to the Supreme Court of Canada was dismissed with costs, as discussed further below.

In May 2005, the trial judge awarded the Plaintiffs a portion of the costs claimed for the action and referred for assessment the amount of costs to be paid. Based solely on the information available at the time, the Company estimated that these costs would have amounted to approximately $3 million to $4 million.

A hearing to determine the awarding of costs related to the certification and summary judgment motion which was decided in 2000 and 2001 was held in December 2004. In June 2005, partial indemnity costs were awarded to the Plaintiffs for these motions in an amount to be assessed. The Company has appealed this decision and the appeal is still waiting to be heard.

In June 2004, a Notice of Appeal was filed by the Company and two of its Senior Officers from the trial judge's decision. The appeal was heard by the Ontario Court of Appeal in June 2005 and in December 2005, the Court of Appeal unanimously allowed the appeal on three separate grounds, set aside the trial decision and dismissed the class proceeding. The Court of Appeal's decision stated that the Company had met its disclosure obligations in the Prospectus and during the IPO process and the trial judge erred in finding that any misrepresentation had occurred. In September, 2006 partial indemnity costs were awarded to the Company for the appeal in the amount of $0.1 million. The Court of Appeal also awarded costs to the Company for the trial on a partial indemnity basis in an amount to be determined. These costs will be recorded when the amounts are received.

In February 2006, the Plaintiffs filed an application for leave to appeal from the Court of Appeal's decision to the Supreme Court of Canada. In June 2006, the Supreme Court of Canada granted leave to appeal to the Plaintiffs. The appeal was heard by the Supreme Court of Canada on March 20, 2007. On October 12, 2007, the Supreme Court released its decision and unanimously dismissed the Plaintiffs' appeal. As a result, the Company and its Senior Officers are not required to pay any of the damages, interest or costs awarded by the trial judge. The Supreme Court of Canada also awarded costs to the Company, the amount of which will be determined at a later date.

Based solely on the information available at the time, if the damages, costs and interest awarded by the trial judge had been paid at the fiscal 2005 year-end, the Company estimated this amount to be about $18 million. The provision for the damages award, costs and interest and the income tax recovery were based on management's best estimate and was subject to adjustment when all facts were known and all issues were resolved. As a result of the final determination by the Supreme Court of Canada, the Company reversed the $18 million litigation provision and related future income tax recovery in the financial statements for the 13 week period September 29, 2007.

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



13 weeks ended
-----------------------------
Sept 29, Sept 23,
2007 2006
-----------------------------
Decrease (increase) in:
Accounts receivable ($1,367) ($1,584)
Income taxes recoverable (1,943) (1,824)
Inventories (17,460) (13,386)
Prepaid expenses 33 (630)
Increase (decrease) in:
Accounts payable and accrued liabilities 3,035 (348)
Income taxes payable (1,473) -
-----------------------------
($19,175) ($17,772)
-----------------------------
-----------------------------

 


10. CONTINGENCIES & GUARANTEES:

(a) Legal proceedings

In addition to the class action matter discussed in Note 8, in the course of its business, the Company from time to time becomes involved in various claims and legal proceedings. In the opinion of management, all such claims and suits are adequately covered by insurance, or if not so covered, the results are not expected to materially affect the Company's financial position.

(b) Guarantees

The Company has provided the following guarantees to third parties and no amounts have been accrued in the financial statements for these guarantees:

(i) In the ordinary course of business, the Company has agreed to indemnify its lenders under its credit facility against certain costs or losses resulting from changes in laws and regulations or from a default in repaying a borrowing. These indemnifications extend for the term of the credit facility and do not provide any limit on the maximum potential liability. Historically, the Company has not made any indemnification payments under such agreements.

(ii) In the ordinary course of business, the Company has provided indemnification commitments to certain counterparties in matters such as real estate leasing transactions, director and officer indemnification agreements and certain purchases of property and equipment such as computer software. These indemnification agreements generally require the Company to compensate the counterparties for costs or losses resulting from legal action brought against the counterparties related to the actions of the Company. The terms of these indemnification agreements will vary based on the contract and generally do not provide any limit on the maximum potential liability.

(iii) The Company sublet one location during the first quarter of fiscal 2007 and one location during fiscal 2004 and has provided the landlords with guarantees in the event the sub-tenants default on their obligation to pay rent. The terms of the guarantees are between 0.25 and 1.5 years and the Company's maximum exposure is $0.2 million.

11. COMMITMENTS:

(a) Operating and capital leases

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



Operating Capital
--------- -------
2008 $10,690 $1,061
2009 9,168 619
2010 7,257 -
2011 6,134 -
2012 4,265 -
Thereafter 7,785 -

 


(b) Letters of credit

The Company had outstanding letters of credit in the amount of $16,714 (September 23, 2006 - $8,769) for imports of finished goods inventories to be received.

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.



FOR FURTHER INFORMATION PLEASE CONTACT:
Investor Relations Contact:
Danier Leather Inc.
Jeffrey Wortsman, President and Chief Executive Officer
(416) 762-8175 ext. 302
(416) 762-7408 (FAX)
Email: 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)
Email: bryan@danier.com
Website: www.danier.com