Danier Leather Reports Fiscal 2010 Third Quarter Results


TSX SYMBOL: DL

Apr 29, 2010 - 14:35

TORONTO, ONTARIO--(Marketwire - April 29, 2010) - Danier Leather Inc. (TSX:DL) today announced its unaudited interim consolidated financial results for the 13 week and 39 week periods ended March 27, 2010.

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

  For the 13 Weeks Ended For the 39 Weeks Ended
  Mar. 27, 2010 Mar. 28, 2009 Mar. 27, 2010 Mar. 28, 2009
Sales $46,487 $43,457 $137,440 $135,117
EBITDA(1) 5,251 287 15,597 6,755
Net Earnings (Loss) 2,788 (2,309) 7,879 459
Adjusted Net Earnings (Loss)(2) 2,753 (1,002) 7,779 1,766
EPS – Basic $0.49 ($0.37) $1.35 $0.07
EPS – Diluted $0.48 ($0.37) $1.33 $0.07
Adjusted EPS – Diluted(2) $0.48 ($0.16) $1.32 $0.28
Number of Stores 90 88 90 88
Retail Square Footage 323,750 324,837 323,750 324,837

Q3 Highlights

  • Comparable store sales increased by 11%
  • Gross profit dollars increased by 36% 
  • EBITDA increased by $5.0 million
  • Cash increased by $7.7 million to $32.3 million from $24.6 million in the third quarter last year
  • 1,120,000 Subordinate Voting Shares repurchased under a Substantial Issuer Bid

Net earnings during the third quarter of fiscal 2010 were $2.8 million ($0.48 per diluted share) compared with a net loss of $2.3 million ($0.37 loss per diluted share) during the third quarter last year. The third quarter of last year included staff reduction costs of $1.4 million ($1.0 million after tax, or $0.16 per diluted share) and a goodwill impairment charge of $0.3 million ($0.05 per diluted share). Therefore, adjusted net earnings, which excludes staff reduction costs and the goodwill impairment charge (and income taxes related to the restructuring costs and goodwill impairment charge), was $2.8 million for the third quarter of fiscal 2010 compared with an adjusted net loss of $1.0 million during the third quarter of fiscal 2009. 

Sales for the third quarter of fiscal 2010 increased by 8% to $46.9 million from $43.5 million in the third quarter last year. Comparable store sales increased by 11%. Gross profit margin increased by 1,070 basis points to 52.1% from 41.4% resulting in a gross profit dollar increase of 36% or $6.4 million to $24.4 million from $18.0 million during the third quarter last year. The increase in gross profit margin was mainly due to improved merchandise planning and purchasing, a stronger Canadian dollar and reduced markdowns as compared with the third quarter last year.

Selling, general and administrative expenses ("SG&A") during the third quarter of fiscal 2010 increased by $1.1 million. The increase was due to higher performance-based compensation for store and head office staff and increased stock-based compensation primarily resulting from an increase in the Company's share price.

For the year-to-date period, net earnings increased by $7.4 million to $7.9 million ($1.33 per diluted share) compared with net earnings of $0.5 million ($0.07 per diluted share) for the corresponding period last year. As mentioned above, the third quarter of last year included staff reduction costs and a goodwill impairment charge. Therefore, adjusted net earnings for the year-to-date period were $7.8 million ($1.32 per diluted share) compared with $1.8 million ($0.28 per diluted share) during the same period last year.

Year-to-date sales increased by 2% to $137.4 million compared with $135.1 million for the corresponding period last year. Year-to-date comparable store sales increased by 5%. Gross profit as a percentage of revenue for the 39 week period ended March 27, 2010 increased by 770 basis points to 52.7% compared with 45.0% during the same period last year and year-to-date SG&A was $60.5 million compared with $58.3 million last year. 

During the third quarter of fiscal 2010, Danier repurchased 1,120,000 subordinate voting shares under a modified "Dutch Auction" substantial issuer bid at a purchase price of $6.25 per share. The subordinate voting shares repurchased under the substantial issuer bid represented approximately 23.88% of the total issued and outstanding subordinate voting shares as of March 8, 2010 and, immediately following the purchase and cancellation of those shares, approximately 3,569,940 subordinate voting shares remained outstanding. For further details, see note 6(d) to the accompanying unaudited interim consolidated financial statements of the Company. 

Danier continues to maintain a strong balance sheet with cash of $32.3 million, working capital of $39.5 million and no long-term debt.

(1) EBITDA is defined as net earnings (loss) before net interest expense (income), income taxes, amortization, restructuring costs and goodwill impairment charge. 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, restructuring costs and goodwill impairment charge 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 39 Weeks Ended
  Mar 27, 2010 Mar 28, 2009   Mar 27, 2010 Mar 28, 2009
  ($000) ($000)   ($000) ($000)
           
Net earnings (loss) $2,788 ($2,309)   $7,879 $459
  Income tax 1,218 (795)   4,200 223
  Interest expense (income) - net 5 (11)   106 99
  Amortization 1,293 1,612   3,565 4,184
  Restructuring costs (53) 1,448   (153) 1,448
  Goodwill impairment charge - 342   - 342
EBITDA $5,251 $287   $15,597 $6,755

 (2) Adjusted net earnings (loss) ("Adjusted Net Earnings (Loss)") is defined as net earnings (loss) before restructuring costs, goodwill impairment charge and income taxes related to the goodwill impairment charge and restructuring costs. Adjusted Net Earnings (Loss) is a financial metric used by management and some investors and allows for a more effective analysis of the ongoing operating performance of the Company. Adjusted Net Earnings (Loss) is not a recognized measure for financial presentation under Canadian GAAP. Non-GAAP earnings measures such as Adjusted Net Earnings (Loss) 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 Canadian GAAP. Adjusted Net Earnings (Loss) is calculated as outlined in the following table:

  For the 13 Weeks Ended   For the 39 Weeks Ended
  Mar 27, 2010 Mar 28, 2009   Mar 27, 2010 Mar 28, 2009
  ($000) ($000)   ($000) ($000)
           
Net earnings (loss) $2,788 ($2,309)   $7,879 $459
  Restructuring costs (53) 1,448   (153) 1,448
  Goodwill impairment charge - 342   - 342
  Income tax provision (recovery) related to goodwill impairment charge and restructuring costs 18 (483)   53 (483)
Adjusted net earnings (loss) $2,753 ($1,002)   $7,779 $1,766
           
Weighted average number of shares outstanding - (diluted) 5,790,036 6,176,429   5,902,239 6,210,867
           
Adjusted net earnings (loss) per diluted share $0.48 ($0.16)   $1.32 $0.28

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 (LOSS) AND COMPREHENSIVE EARNINGS (LOSS)
(thousands of dollars, except per share amounts and number of shares) - unaudited
               
      For the 13 Weeks Ended   For the 39 Weeks Ended
      March 27, 2010 March 28, 2009   March 27, 2010 March 28, 2009
Revenue $ 46,867 $ 43,457   $ 137,440 $ 135,117
Cost of sales (Note 7) 22,471 25,471   64,945 74,282
Gross profit 24,396 17,986   72,495 60,835
 Selling, general and administrative expenses (Note 7) 20,438 19,311   60,463 58,264
 Interest expense (income) - net 5 (11)   106 99
 Restructuring costs (Note 9) (53) 1,448   (153) 1,448
 Goodwill impairment charge (Note 8) - 342   - 342
Earnings (loss) before income taxes 4,006 (3,104)   12,079 682
Provision for (recovery of) income taxes (Note 10)          
 Current 1,219 (809)   4,174 84
 Future (1) 14   26 139
      1,218 (795)   4,200 223
Net earnings (loss) and comprehensive earnings (loss) $ 2,788 ($ 2,309)   $ 7,879 $ 459
               
Net earnings (loss) per share:          
 Basic $0.49 ($0.37)   $1.35 $0.07
 Diluted $0.48 ($0.37)   $1.33 $0.07
               
Weighted average number of shares outstanding:          
 Basic 5,680,423 6,176,429   5,834,068 6,210,861
 Diluted 5,790,036 6,176,429   5,902,239 6,210,867
Number of shares outstanding at period end 4,794,269 6,176,429   4,794,269 6,176,429
See accompanying notes to the consolidated financial statements
 
DANIER LEATHER INC.
CONSOLIDATED BALANCE SHEETS
(thousands of dollars) - unaudited
           
  March 27, 2010 March 28, 2009 June 27, 2009
ASSETS          
Current Assets          
  Cash $ 32,307   $ 24,595   $ 24,628
  Accounts receivable 1,109   1,048   351
  Income taxes recoverable -   -   631
  Inventories (Note 3) 26,435   27,744   21,045
  Prepaid expenses 435   505   1,156
  Future income tax asset 259   313   245
  60,545   54,205   48,056
Other Assets          
  Property and equipment (Note 4) 16,550   17,646   17,611
  Intangible asset (Note 5) 1,316   1,618   1,728
  Future income tax asset 1,432   1,435   1,657
  $ 79,843   $ 74,904   $ 69,052
LIABILITIES          
Current Liabilities          
  Accounts payable and accrued liabilities $ 16,522   $ 12,234   $ 10,601
  Income taxes payable 4,369   287   -
  Current portion of capital lease obligation -   88   -
  Future income tax liability 182   321   366
  21,073   12,930   10,967
Deferred lease inducements and rent liability 1,391   1,459   1,389
  22,464   14,389   12,356
SHAREHOLDERS' EQUITY          
  Share capital (Note 6) 15,130   20,985   19,853
  Contributed surplus 1,061   741   823
  Retained earnings 41,188   38,789   36,020
  Accumulated other comprehensive income -   -   -
  57,379   60,515   56,696
  $ 79,843   $ 74,904   $ 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 39 Weeks Ended
  March 27, 2010 March 28, 2009   March 27, 2010 March 28, 2009
OPERATING ACTIVITIES          
  Net earnings (loss) $ 2,788 ($ 2,309)   $ 7,879 $ 459
  Items not affecting cash:          
  Amortization (Note 7) 1,293 1,612   3,565 4,184
  Amortization of deferred lease inducements (56) (85)   (173) (269)
  Straight line rent expense 14 15   75 38
  Stock-based compensation 82 78   246 193
  Goodwill impairment charge (Note 8) - 342   - 342
  Future income taxes (1) 14   26 139
  Net change in non-cash working capital items (Note 11) 7,531 14,647   5,495 2,978
  Proceeds from deferred lease inducement - 101   100 101
  Repayment of deferred lease inducement - -   - (86)
Cash flows from operating activities 11,651 14,415   17,213 8,079
           
FINANCING ACTIVITIES          
  Subordinate voting shares repurchased (Note 6(d)) (7,458) -   (7,458) (460)
  Subordinate voting shares issued - -   16 -
  Repayment of obligation under capital lease - (261)   - (770)
Cash flows used in financing activities (7,458) (261)   (7,442) (1,230)
           
INVESTING ACTIVITIES          
  Acquisition of property and equipment (554) (578)   (2,004) (1,847)
  Acquisition of intangible asset (49) (155)   (88) (289)
Cash flows used in investing activities (603) (733)   (2,092) (2,136)
           
Increase in cash 3,590 13,421   7,679 4,713
Cash, beginning of period 28,717 11,174   24,628 19,882
Cash, end of period $ 32,307 $ 24,595   $ 32,307 $ 24,595
           
Supplementary cash flow information:          
  Interest paid 1 5   1 215
  Income taxes paid 9 -   67 353
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 39 Weeks Ended
  March 27, 2010 March 28, 2009   March 27, 2010 March 28, 2009
SHARE CAPITAL          
  Balance, beginning of period $19,877 $20,985   $19,853 $21,409
  Shares repurchased (4,747) -   (4,747) (424)
  Cash received upon exercise of stock options - -   16 -
  Fair value of stock options exercised - -   8 -
  Balance, end of period $15,130 $20,985   $15,130 $20,985
           
CONTRIBUTED SURPLUS          
  Balance, beginning of period $979 $663   $823 $548
  Stock-based compensation related to stock options 82 78   246 193
  Fair value of stock options exercised - -   (8) -
  Balance, end of period $1,061 $741   $1,061 $741
           
RETAINED EARNINGS          
  Balance, beginning of period $41,111 $41,098   $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 (loss) 2,788 (2,309)   7,879 459
  Share repurchases (2,711) -   (2,711) (36)
  Balance, end of period $41,188 $38,789   $41,188 $38,789
           
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 $57,379 $60,515   $57,379 $60,515
See accompanying notes to the consolidated financial statements
 
DANIER LEATHER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the 13 week and 39 week periods ended March 27, 2010 and March 28, 2009
(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 March 28, 2009, there was a $1,618 decrease in property and equipment and a corresponding $1,618 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 determined 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 and will be applied to the June 26, 2010 year-end financial statements.

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:

  March 27, 2010   March 28, 2009   June 27, 2009
Raw materials $ 1,632   $ 2,693   $ 2,202
Work-in-process 190   331   186
Finished goods 24,613   24,720   18,657
  $ 26,435   $ 27,744   $ 21,045

 

  13 weeks ended   39 weeks ended
  Mar 27, 2010 Mar 28, 2009   Mar 27, 2010 Mar 28, 2009
Cost of inventory recognized as an expense $22,151 $25,471   $64,206 $74,282
Write-downs of inventory due to net realizable value being lower than cost $483 $1,285   $967 $1,569
Write-downs recognized in previous periods that were reversed - -   $25 $222

4. PROPERTY AND EQUIPMENT:

  March 27, 2010   March 28, 2009
  Cost Accumulated Amortization Net Book Value   Cost Accumulated Amortization Net Book Value
Land $ 1,000 $ - $1,000   $ 1,000 $ - $ 1,000
Building 7,064 2,331 4,733   7,064 2,134 4,930
Leasehold improvements 24,895 17,965 6,930   25,469 17,925 7,544
Furniture and equipment 9,387 6,382 3,005   10,936 7,991 2,945
Computer hardware 3,409 2,527 882   1,707 1,090 617
Computer hardware under capital lease - - -   1,889 1,279 610
  $45,755 $29,205 $16,550   $48,065 $30,419 $17,646

 

  June 27, 2009
  Cost Accumulated Amortization Net Book 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)).

  Mar 27, 2010   Mar 28, 2009   June 27, 2009
Cost $4,028   $3,798   $3,940
Accumulated amortization 2,712   2,180   2,212
Net book value $1,316   $1,618   $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

  Mar 27, 2010   Mar 28, 2009   June 27, 2009
1,224,329 Multiple Voting Shares (March 28, 2009 and June 27, 2009 – 1,224,329) *   *   *
3,569,940 Subordinate Voting Shares (March 28, 2009 – 4,952,100 and June 27, 2009 – 4,684,940) 15,130   20,985   19,853
  $ 15,130   $ 20,985   $ 19,853
* 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   39 weeks ended
  Mar 27, 2010 Mar 28, 2009   Mar 27, 2010 Mar 28, 2009
Weighted average number of shares for basic earnings per share calculations 5,680,423 6,176,429   5,834,068 6,210,861
Effect of dilutive options outstanding 109,613 -   68,171 6
Weighted average number of shares for diluted earnings per share calculations 5,790,036 6,176,429   5,902,239 6,210,867

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 185,000 as at March 27, 2010 and 557,000 as at March 28, 2009.

(d) Substantial Issuer Bid and Normal Course Issuer Bids

On January 29, 2010, the Company commenced a substantial issuer bid ("SIB" or the "Offer") by filing and mailing a formal offer to purchase and accompanying circular dated January 26, 2010, pursuant to which the Company offered to purchase for cancellation up to $7 million in value of its Subordinate Voting Shares from shareholders by way of a modified "Dutch Auction" at a range of Offer prices between $6.10 and $6.45 per share. The minimum and maximum Offer prices corresponded with the fair market range of values per Subordinate Voting Share determined, as of January 20, 2010, by Deloitte and Touche LLP, the independent valuator engaged by the Special Committee of independent directors of the Board of Directors to prepare a formal valuation of the Subordinate Voting Shares. The Offer expired on March 8, 2010 and a total of 1,845,592 Subordinate Voting Shares were validly deposited and not withdrawn under the Offer. As the aggregate value of Subordinate Voting Shares deposited under the Offer exceeded the $7 million maximum value of consideration payable by the Corporation pursuant to the Offer, a pro-ration factor of 0.6088 was applied to deposited Subordinate Voting Shares (except for odd lot deposits, which were not subject to pro-ration), and the Corporation purchased for cancellation 1,120,000 Subordinate Voting Shares at a price of $6.25 per share.

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 the SIB and NCIBs then in effect during the 13 week and 39 week periods ended March 27, 2010 and March 28, 2009:

  13 weeks ended   39 weeks ended
  Mar 27, 2010 Mar 28, 2009   Mar 27, 2010 Mar 28, 2009
Number of shares repurchased under SIB 1,120,000 -   1,120,000 -
Number of shares repurchased under NCIBs - -   - 100,000
Amount charged to share capital $4,747 -   $4,747 $424
Amount charged to retained earnings representing the excess over the average paid-in value $2,711 -   $2,711 $36
Total cash consideration $7,458 -   $7,458 $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 March 27, 2010, 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 39 week periods ended March 27, 2010 and March 28, 2009 with respect to the Stock Option Plan:

  13 weeks ended   39 weeks ended
  Mar 27, 2010 Mar 28, 2009   Mar 27, 2010 Mar 28, 2009
Outstanding at beginning of period 560,000 557,000   577,000 293,000
Granted - -   - 310,000
Exercised - -   (5,000) -
Forfeited - -   (12,000) (46,000)
Outstanding at end of period 560,000 557,000   560,000 557,000
Options exercisable at end of period 294,575 169,500   294,575 169,500

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 39 week periods ended March 27, 2010 and March 28, 2009 with respect to the DSU Plan:

  13 weeks ended   39 weeks ended
  Mar 27, 2010 Mar 28, 2009   Mar 27, 2010 Mar 28, 2009
Outstanding at beginning of period 103,920 78,920   78,920 58,920
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 $6.50 $2.63   $6.50 $2.63
Liability at end of period $675 $208   $675 $208
Compensation expense recorded in SG&A $109 $9   $300 ($169)

(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 39 week periods ended March 27, 2010 and March 28, 2009 with respect to the RSU Plan:

  13 weeks ended   39 weeks ended
  Mar 27, 2010 Mar 28, 2009   Mar 27, 2010 Mar 28, 2009
Outstanding at beginning of period 130,890 133,300   133,300 133,300
Granted - -   - -
Redeemed (10,000) -   (12,410) -
Outstanding at end of period 120,890 133,300   120,890 133,300
Liability at end of period $678 $229   $678 $229
Compensation expense recorded in SG&A $158 $29   $307 ($182)

7. AMORTIZATION:

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

  13 weeks ended   39 weeks ended
  Mar 27, 2010 Mar 28, 2009   Mar 27, 2010 Mar 28, 2009
Cost of sales $50 $352   $130 $494
SG&A 1,243 1,260   3,435 3,690
  $1,293 $1,612   $3,565 $4,184

8. GOODWILL:

Due to the uncertain economic environment and a sustained decrease in the market capitalization of the Company during the third quarter of fiscal 2009, management concluded that an indicator of goodwill impairment was present. Accordingly, management completed a goodwill impairment test using the two-step process prescribed in CICA Handbook Section 3062 – Goodwill and Other Intangible Assets and determined the carrying value of goodwill was fully impaired. This resulted in a non-cash impairment charge of $342.

9. 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 have been paid to date and $0.2 million of restructuring costs were reversed during the first nine months of fiscal 2010 as these costs are not expected to be incurred. As at March 27, 2010, there are no amounts remaining to be paid.

10. INCOME TAXES:

The estimated average annual effective rate was 34.8% during the 39 weeks ended March 27, 2010 compared with 32.7% estimated rate for the 39 weeks ended March 28, 2009 and a recovery of 26.0% for the fiscal year ended June 27, 2009. The difference between the rate for the 39 weeks ended March 27, 2010 and the rate for the 39 weeks ended March 28, 2009 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 39 weeks ended March 27, 2010 and the rate for the 26 weeks ended December 26, 2009 is due a change in estimated earnings.

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

  13 weeks ended   39 weeks ended
  Mar 27, 2010 Mar 28, 2009   Mar 27, 2010 Mar 28, 2009
Decrease (increase) in:          
  Accounts receivable $4,062 $6,654   ($758) ($293)
  Income taxes recoverable - -   631 8
  Inventories 5,632 13,093   (5,390) (28)
  Prepaid expenses 87 51   721 737
Increase (decrease) in:          
  Accounts payable and accrued liabilities (4,211) (4,650)   5,922 2,389
  Income taxes payable 1,961 (501)   4,369 165
  $7,531 $14,647   $5,495 $2,978

12. COMMITTMENTS:

(a) Operating leases

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

   
2011 $10,402
2012 $8,654
2013 $6,854
2014 $5,312
2015 $3,629
Thereafter $8,411

(b) Letters of credit

The Company had outstanding letters of credit in the amount of $5,707 (March 28, 2009 - $3,273) for imports of finished goods inventories to be received.

13. 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.
  • The derivative financial instruments, which consist of foreign exchange collar contracts, 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 include the spot rate, forward rates, estimates of volatility, present value factor, strike prices and credit risk of counterparties.

(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. 

During the 13 week period ended March 27, 2010, the Company entered into foreign exchange contracts with a major Canadian financial institution as counterparty for US$10,000 notional amount of foreign exchange collar contracts that expire between July 2010 and December 2010. A collar is a simultaneous sale of a put option and purchase of a call option designed to provide protection against foreign exchange fluctuations within a defined range of exchange rates. The fair value of the collars at March 27, 2010 was an unrealized loss of approximately US$36 and was recorded in SG&A and as accounts payable and accrued liabilities in the unaudited consolidated financial statements. As at March 28, 2009, there were no outstanding foreign exchange contracts.

Risk exposures as at March 27, 2010 are discussed further below: 

Financial Instrument   Risk Amount   Sensitivity Analysis/Comments
Cash ($US)   Foreign Currency Risk US$572   A 500 basis point change in the U.S. dollar exchange rate would impact net earnings for the 13 week and 39 week periods ended March 27, 2010 by /-$5 and $14, respectively.
Cash   Interest Rate/ Credit Risk $32,307   A 100 basis point change in interest rates would impact net earnings for the 13 week and 39 week periods ended March 27, 2010 by /-$53 and $158, respectively. Exposure to credit risk is limited by investing in short-term deposits and bankers acceptances with major Canadian financial institutions.
Accounts Receivable   Credit Risk $1,109   Primarily consists of credit 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 Liability   Equity Price Risk 120,890 RSUs 103,920 DSUs   A $1.00 change in Danier's share price would impact net earnings for the 13 week and 39 week periods ended March 27, 2010 by /-$147.

14. 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)
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