Danier Leather Reports Fiscal 2011 Second Quarter Results


TSX SYMBOL: DL

Jan 19, 2011 - 14:09

TORONTO, ONTARIO--(Marketwire - Jan. 19, 2011) - Danier Leather Inc. (TSX:DL) today announced its unaudited interim consolidated financial results for the 13 week and 26 week periods ended December 25, 2010.

HIGHLIGHTS

  • Gross profit margin increased by 410 basis points during the second quarter of fiscal 2011 and increased by 370 basis points for the year-to-date period.
  • Year-to-date net earnings increased by 6% to $5.4 million compared to the same period last year
  • Diluted earnings per share increased by 17% to $1.68 from $1.43 during the second quarter of fiscal 2011 and increased by 30% to $1.11 from $0.85 for the first half of fiscal 2011

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. 25, 2010   Dec. 26, 2009   Dec. 25, 2010   Dec. 26, 2009
Sales $ 61,442 $ 70,622 $ 84,869 $ 90,573
EBITDA(1)   12,778   14,625   9,730   10,346
Net Earnings   8,226   8,533   5,376   5,091
EPS – Basic $ 1.77 $ 1.44 $ 1.17 $ 0.86
EPS – Diluted $ 1.68 $ 1.43 $ 1.11 $ 0.85
Number of Stores   91   90   91   90
Retail Square Footage   315,623   324,644   315,623   324,644

The calendar 2010 holiday season spanned Danier's second and third quarters for fiscal 2011, resulting in Boxing Day results being shifted to the third quarter for fiscal 2011. In fiscal 2010, Boxing Day results were included in the second quarter. Thus, in certain cases where indicated, Danier has provided information for a 14 week and 27 week period so as to include Boxing Day in both periods for comparative purposes only, to assist readers in comparing Danier's fiscal 2011 sales results with the corresponding period from last year.

While softness in consumer spending leading up to Christmas as well as customers shifting their purchases to lower price points contributed to the overall decrease in sales, gross profit margin remained strong and accessories continued to perform well. Accessory sales increased 9% during the 14 week period ended January 1, 2011 and increased by 11% during the 27 week period ended January 1, 2011.

Sales for the second quarter of fiscal 2011 were $61.4 million compared with $70.6 million for the corresponding period last year. Comparable store sales decreased by 13% while gross profit dollars decreased by 7%. Gross profit margin during the second quarter of fiscal 2011 increased by 410 basis points to 58.5% compared with 54.4% during the same period last year. For the 14 week period ended January 1, 2011 (which is a comparable period that includes Boxing Day Week for this year and last year), sales decreased by 6% and gross profit dollars decreased by 1%. 

Year-to-date sales were $84.9 million compared with $90.6 million for the corresponding period last year. Year-to-date comparable store sales decreased by 6% while gross profit dollars increased by $0.1 million. Gross profit margin for the first half of fiscal 2011 increased by 370 basis points to 56.8% compared with 53.1% during the first six months of last year. For the 27 weeks ended January 1, 2011 (which includes Boxing Day Week in both periods), sales decreased by 2% and gross profit dollars increased by 4%. 

Net earnings during the second quarter of fiscal 2011 were $8.2 million ($1.68 per diluted share) compared with $8.5 million ($1.43 per diluted share) during the second quarter last year. For the year-to-date period, net earnings increased by 5% to $5.4 million ($1.11 per diluted share) compared with net earnings of $5.1 million ($0.85 per diluted share) for the same period last year. In fiscal 2010, Danier reduced the number of its subordinate voting shares outstanding by repurchasing approximately 1.35 million shares during the last half of fiscal 2010.

Selling, general and administrative expenses ("SG&A") during the second quarter of fiscal 2011 were $24.2 million compared with $25.0 million during the second quarter last year. Year-to-date, SG&A was $40.5 million compared with $40.0 million last year. Approximately $0.9 million of the increase in year-to-date SG&A is due to increased stock-based compensation expenses resulting from a $4.74 increase in Danier's share price during the 26 weeks ended December 25, 2010.

Danier continues to maintain a strong balance sheet with cash of $25.4 million, working capital of $43.2 million and no long-term debt.

(1) EBITDA is defined as net earnings 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 Canadian GAAP. EBITDA is calculated as outlined in the following table:

  For the 13 Weeks Ended   For the 26 Weeks Ended  
  Dec 25, 2010 Dec 26, 2009   Dec 25, 2010 Dec 26, 2009  
  ($000) ($000)   ($000) ($000)  
Net earnings $ 8,226 $ 8,533   $ 5,376 $ 5,091  
  Income tax   3,506   4,903     2,281   2,982  
  Interest expense - net   15   40     43   101  
  Amortization   1,031   1,149     2,030   2,272  
  Restructuring costs   -   -     -   (100 )
EBITDA $ 12,778 $ 14,625   $ 9,730 $ 10,346  

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, opinions 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 2010 Annual Report and 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 such factors, risks and uncertainties are not exhaustive and that should certain risks or uncertainties materialize, or should underlying estimates or assumptions prove incorrect, actual events, performance and results may vary significantly from those expected. There can be no assurance that the actual results, performance, events or activities anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company. Potential investors and other readers are urged to consider these factors carefully in evaluating forward-looking information and forward-looking statements and are cautioned not to place undue reliance on any forward-looking information or forward-looking statements. 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 by applicable law.

About Danier

Danier Leather Inc. is a leading integrated designer, manufacturer, distributor and retailer of high-quality fashion-oriented 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 91 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.

Investors and analysts are invited to participate in a conference call today at 4:00 PM Eastern Time to discuss the results. Please dial 416-340-2216 in the Toronto area or 1-866-226-1792 (rest of Canada and the U.S.) and quote the Danier Leather Inc. conference call with Chairperson Jeffrey Wortsman at least five minutes prior to the call. The call will also be webcast at www.danier.com or at www.marketwire.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 25, 2010   December 26, 2009   December 25, 2010   December 26, 2009  
Revenue $ 61,442   $ 70,622   $ 84,869   $ 90,573  
Cost of sales (Note 7)   25,495     32,171     36,656     42,474  
Gross profit   35,947     38,451     48,213     48,099  
Selling, general and administrative expenses (Note 7)   24,200     24,975     40,513     40,025  
Interest expense - net   15     40     43     101  
Restructuring costs   -     -     -     (100 )
Earnings before income taxes   11,732     13,436     7,657     8,073  
Provision for (recovery of) income taxes (Note 8)                        
  Current   3,512     4,859     2,293     2,955  
  Future   (6 )   44     (12 )   27  
    3,506     4,903     2,281     2,982  
Net earnings and comprehensive earnings $ 8,226   $ 8,533   $ 5,376   $ 5,091  
                         
Net earnings per share:                        
  Basic $ 1.77   $ 1.44   $ 1.17   $ 0.86  
  Diluted $ 1.68   $ 1.43   $ 1.11   $ 0.85  
                         
Weighted average number of shares outstanding:                        
  Basic   4,656,321     5,912,511     4,614,433     5,910,890  
  Diluted   4,884,606     5,983,160     4,845,042     5,958,341  
Number of shares outstanding at period end   4,702,068     5,914,269     4,702,068     5,914,269  
 
 
See accompanying notes to the consolidated financial statements
 
DANIER LEATHER INC.
CONSOLIDATED BALANCE SHEETS
(thousands of dollars) - unaudited
       
  December 25, 2010 December 26, 2009 June 26, 2010
ASSETS            
Current Assets            
  Cash $ 25,406 $ 28,717 $ 26,563
  Accounts receivable   391   5,171   543
  Inventories (Note 3)   41,163   32,067   26,539
  Prepaid expenses   381   522   1,140
  Future income tax asset   48   249   51
    67,389   66,726   54,836
Other Assets            
  Property and equipment (Note 4)   16,500   17,140   16,349
  Intangible assets (Note 5)   1,166   1,416   1,417
  Future income tax asset   1,538   1,502   1,522
  $ 86,593 $ 86,784 $ 74,124
LIABILITIES            
Current Liabilities            
  Accounts payable and accrued liabilities $ 23,071 $ 20,734 $ 14,005
  Income taxes payable   1,097   2,408   3,900
  Future income tax liability   54   242   53
    24,222   23,384   17,958
Deferred lease inducements and rent liability   1,414   1,433   1,345
    25,636   24,817   19,303
SHAREHOLDERS' EQUITY            
  Share capital (Note 6)   15,001   19,877   14,176
  Contributed surplus   1,041   979   1,106
  Retained earnings   44,915   41,111   39,539
  Accumulated other comprehensive income   -   -   -
    60,957   61,967   54,821
  $ 86,593 $ 86,784 $ 74,124
 
 
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 25, 2010   December 26, 2009     December 25, 2010   December 26, 2009  
OPERATING ACTIVITIES                          
  Net earnings $ 8,226   $ 8,533     $ 5,376   $ 5,091  
  Items not affecting cash:                          
  Amortization of property and equipment   855     965       1,730     1,921  
  Amortization of intangible assets   176     184       300     351  
  Amortization of deferred lease inducements   (46 )   (55 )     (99 )   (117 )
  Straight line rent expense   6     31       13     61  
  Stock based compensation   56     82       111     164  
  Future income taxes   (6 )   44       (12 )   27  
  Net change in non-cash working capital items (Note 9)   6,931     10,868       (7,450 )   (2,036 )
  Proceeds from deferred lease inducement   155     100       155     100  
Cash flows from operating activities   16,353     20,752       124     5,562  
                           
FINANCING ACTIVITIES                          
  Subordinate voting shares issued   607     16       649     16  
Cash flows from financing activities   607     16       649     16  
                           
INVESTING ACTIVITIES                          
  Acquisition of property and equipment   (874 )   (404 )     (1,881 )   (1,450 )
  Acquisition of intangible asset   (10 )   (27 )     (49 )   (39 )
Cash flows used in investing activities   (884 )   (431 )     (1,930 )   (1,489 )
                           
Increase (decrease) in cash   16,076     20,337       (1,157 )   4,089  
Cash, beginning of period   9,330     8,380       26,563     24,628  
Cash, end of period $ 25,406   $ 28,717     $ 25,406   $ 28,717  
                           
Supplementary cash flow information:                          
  Interest paid   -     -       100     -  
  Income taxes paid   1,041     58       5,091     58  
 
 
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 25, 2010   December 26, 2009     December 25, 2010   December 26, 2009  
SHARE CAPITAL                          
  Balance, beginning of period $ 14,240   $ 19,853     $ 14,176   $ 19,853  
  Shares issued on exercise of stock options   761     24       825     24  
  Balance, end of period $ 15,001   $ 19,877     $ 15,001   $ 19,877  
                           
CONTRIBUTED SURPLUS                          
  Balance, beginning of period $ 1,139   $ 905     $ 1,106   $ 823  
  Stock-based compensation related to stock options   56     82       111     164  
  Exercise of stock options   (154 )   (8 )     (176 )   (8 )
  Balance, end of period $ 1,041   $ 979     $ 1,041   $ 979  
                           
RETAINED EARNINGS                          
  Balance, beginning of period $ 36,689   $ 32,578     $ 39,539   $ 36,020  
  Net earnings   8,226     8,533       5,376     5,091  
  Balance, end of period $ 44,915   $ 41,111     $ 44,915   $ 41,111  
                           
ACCUMULATED OTHER COMPREHENSIVE INCOME                      
  Balance, beginning of period $ -   $ -     $ -   $ -  
  Balance, end of period $ -   $ -     $ -   $ -  
TOTAL SHAREHOLDERS' EQUITY $ 60,957   $ 61,967     $ 60,957   $ 61,967  
 
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 25, 2010 and December 26, 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 26, 2010 and the accompanying notes contained in the Company's 2010 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 26, 2010.

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 and intangible assets, stock based compensation, future tax assets and liabilities, goods and services tax, harmonized sales 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) Recent Accounting Pronouncements:

The Company monitors new accounting standards to assess the impact, if any, on its consolidated financial statements. During 2011, Canadian GAAP will be replaced by International Financial Reporting Standards ("IFRS") for publicly accountable enterprises. When converting from Canadian GAAP to IFRS, the Company will prepare both current and comparative information using IFRS. The Company expects this transition to have an impact on its accounting policies, financial reporting and internal controls. Further details of the Company's IFRS plan is included in the Company's Management Discussion & Analysis for the 13 week and 26 week periods ended December 25, 2010.

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 25, 2010 December 26, 2009 June 26,2010
Raw materials $ 3,188 $ 2,106 $ 1,451
Work-in-process   180   243   105
Finished goods   37,795   29,718   24,983
  $ 41,163 $ 32,067 $ 26,539
     
  13 weeks ended 26 weeks ended
  Dec 25, 2010 Dec 26, 2009 Dec 25, 2010 Dec 26, 2009
Cost of inventory recognized as an expense $ 25,183 $ 31,890 $ 36,204 $ 42,062
Write-downs of inventory due to net realizable value being lower than cost $ 330 $ 372 $ 439 $ 484
Write-downs recognized in previous periods that were reversed   -   - $ 21 $ 25

4. PROPERTY AND EQUIPMENT:

  December 25, 2010 December 26, 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   2,474   4,590   7,064   2,282   4,782
Leasehold improvements   24,410   17,805   6,605   24,528   17,208   7,320
Furniture and equipment   9,142   5,999   3,143   9,210   6,199   3,011
Computer hardware   3,517   2,355   1,162   3,399   2,372   1,027
  $ 45,133 $ 28,633 $ 16,500 $ 45,201 $ 28,061 $ 17,140
  June 26, 2010  
  Cost Accumulated
Amortization
Net
Book
Value
 
Land $ 1,000 $ - $ 1,000  
Building   7,064   2,380   4,684  
Leasehold improvements   23,574   16,700   6,874  
Furniture and equipment   8,504   5,671   2,833  
Computer hardware   3,110   2,152   958  
  $ 43,252 $ 26,903 $ 16,349  

5. INTANGIBLE ASSETS:

Intangible assets consists of computer software.

  Dec 25, 2010 Dec 26, 2009 June 26, 2010
Cost $ 4,218 $ 3,979 $ 4,169
Accumulated amortization   3,052   2,563   2,752
Net book value $ 1,166 $ 1,416 $ 1,417

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 25, 2010 Dec 26, 2009 June 26, 2010
1,224,329 Multiple Voting Shares (December 26, 2009 and June 26, 2010 – 1,224,329)   *   *   *
3,477,739 Subordinate Voting Shares (December 26, 2009 – 4,689,940 and June 26, 2010 – 3,343,840)   15,001   19,877   14,176
  $ 15,001 $ 19,877 $ 14,176
* 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 25, 2010 Dec 26, 2009 Dec 25, 2010 Dec 26, 2009
Weighted average number of shares for basic earnings per share calculations 4,656,321 5,912,511 4,614,433 5,910,890
Effect of dilutive options outstanding 228,285 70,649 230,609 47,451
Weighted average number of shares for diluted earnings per share calculations 4,884,606 5,983,160 4,845,042 5,958,341

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 58,000 as at December 25, 2010 and 235,000 as at December 26, 2009.

(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 4, 2010, the Company received approval from the TSX to commence its fourth normal course issuer bid (the "2010 NCIB"). The Company's previous normal course issuer bid expired on May 6, 2010 (the "2009 NCIB"). The 2010 NCIB permits the Company to acquire up to 232,792 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, 2010 to May 6, 2011, or such earlier date as the Company may complete its purchases under the 2010 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 2010, the Company repurchased 232,700 Subordinate Voting Shares for cancellation at a weighted average price of $8.49, leaving only 92 Subordinate Voting Shares available for repurchase by the Company under the 2010 NCIB. 

During the 13 week and 26 week periods ended December 25, 2010 and December 26, 2009, the Company did not repurchase any Subordinate Voting Shares under its NCIBs outstanding during the applicable period.

(e) Stock Option Plan

The Company maintains a Stock Option Plan, as amended, for the benefit of directors, officers, employees and service providers, pursuant to which granted options are exercisable for Subordinate Voting Shares. As at December 25, 2010, the Company has reserved 690,001 Subordinate Voting Shares for issuance under its Stock Option Plan and there were 399,501 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 25, 2010 and December 26, 2009 with respect to the Stock Option Plan:

  13 weeks ended   26 weeks ended  
  Dec 25, 2010   Dec 26, 2009   Dec 25, 2010   Dec 26, 2009  
Outstanding at beginning of period 521,734   565,000   553,400   577,000  
Granted -   -   -   -  
Exercised (122,233 ) (5,000 ) (133,899 ) (5,000 )
Forfeited -   -   (20,000 ) (12,000 )
Outstanding at end of period 399,501   560,000   399,501   560,000  
Options exercisable at end of period 274,079   285,825   274,079   285,825  

Further details of the Stock Option Plan are contained in Note 7(e) of the annual consolidated financial statements contained in the Company's 2010 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 may receive an annual grant of DSUs and can also elect to receive their annual retainers and meeting fees in DSUs. A DSU is a notional 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 25, 2010 and December 26, 2009 with respect to the DSU Plan:

  13 weeks ended   26 weeks ended
  Dec 25, 2010 Dec 26, 2009   Dec 25, 2010 Dec 26, 2009
Outstanding at beginning of period   103,920   103,920     103,920   78,920
Granted   -   -     -   25,000
Outstanding at end of period   103,920   103,920     103,920   103,920
Danier stock price at end of period $ 13.60 $ 5.45   $ 13.60 $ 5.45
Liability at end of period $ 1,413 $ 566   $ 1,413 $ 566
Compensation expense recorded in SG&A $ 178 $ (58 ) $ 492 $ 191

(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 the RSU Plan, certain eligible employees and directors 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 notional 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 participant. 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 25, 2010 and December 26, 2009 with respect to the RSU Plan:

  13 weeks ended   26 weeks ended  
  Dec 25, 2010   Dec 26, 2009   Dec 25, 2010   Dec 26, 2009  
Outstanding at beginning of period   227,779     133,300     105,479     133,300  
Granted   -     -     122,300     -  
Redeemed   (31,782 )   (2,410 )   (31,782 )   (2,410 )
Forfeited   (1,000 )   -     (1,000 )   -  
Outstanding at end of period   194,997     130,890     194,997     130,890  
Liability at end of period $ 1,153   $ 586   $ 1,153   $ 586  
Compensation expense recorded in SG&A $ 348   $ (16 ) $ 750   $ 149  

7. AMORTIZATION:

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

  13 weeks ended 26 weeks ended
  Dec 25, 2010 Dec 26, 2009 Dec 25, 2010 Dec 26, 2009
Cost of sales $ 43 $ 40 $ 81 $ 80
SG&A   988   1,109   1,949   2,192
  $ 1,031 $ 1,149 $ 2,030 $ 2,272

8. INCOME TAXES:

The estimated average annual effective rate was 29.8% during the 26 weeks ended December 25, 2010 compared with 36.9% estimated rate for the 26 weeks ended December 26, 2009 and 34.1% for the fiscal year ended June 26, 2010. The difference between the rate for the 26 weeks ended December 25, 2010 and the rate for the 26 weeks ended December 26, 2009 and the fiscal year ended June 26, 2010 is due to a reduction in the statutory tax rates as well as the effect of non-deductible expenses on estimated earnings and the effect of changes in future federal and provincial rates on future taxes. 

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

  13 weeks ended   26 weeks ended  
  Dec 25, 2010   Dec 26, 2009   Dec 25, 2010   Dec 26, 2009  
Decrease (increase) in:                        
  Accounts receivable $ 357   $ (4,303 ) $ 152   $ (4,820 )
  Income taxes recoverable   1,368     2,432     -     631  
  Inventories   (4,750 )   (187 )   (14,624 )   (11,022 )
  Prepaid expenses   632     429     759     634  
Increase (decrease) in:                        
  Accounts payable and accrued liabilities   8,227     10,089     9,066     10,133  
  Income taxes payable   1,097     2,408     (2,803 )   2,408  
    6,931   $ 10,868   $ (7,450 ) $ (2,036 )

10. COMMITMENTS & GUARANTEES:

(a) Operating leases

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

2011 $ 10,308  
2012 $ 8,428  
2013 $ 6,670  
2014 $ 5,095  
2015 $ 3,403  
Thereafter $ 8,619  

(b) Letters of credit

The Company had outstanding letters of credit in the amount of $7,896 (December 26, 2009 - $8,080) for imports of finished goods inventories to be received.

(c) Guarantees

The Company sublet one location during the first quarter of fiscal 2011 and provided the landlord with a guarantee in the event the sub-tenant defaults on its obligations under the lease. The guarantee terminates at the time of lease expiry which is March 31, 2013 and the Company's maximum exposure is approximately $316.

11. FINANCIAL INSTRUMENTS:

(a) Fair value disclosure

The following table presents the carrying amount and the fair value of the Company's financial instruments:

    December 25, 2010 December 26, 2009
  Maturity Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
Cash Short-term $ 25,406 $ 25,406 $ 28,717 $ 28,717
Accounts receivable Short-term $ 391 $ 391 $ 5,171 $ 5,171
Accounts payable and accrued liabilities Short-term $ 22,999 $ 22,999 $ 20,734 $ 20,734
Derivative financial instruments(1) Short-term $ 72 $ 72 $ - $ -
(1) Included in accounts payable and accrued liabilities as at December 25, 2010. There were no derivate financial instruments outstanding as at December 26, 2009.

The fair value of a financial instrument is the estimated amount that the Company would receive or pay to settle the financial assets and financial liabilities as at the reporting date. These estimates are subjective in nature, often involve uncertainties and the exercise of significant judgment and are made at a specific point in time, using available information about the financial instrument and may not reflect fair value in the future. The estimated fair value amounts can be materially affected by the use of different assumptions or methodologies.

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

  • The derivative financial instruments, which consist of foreign exchange collar and forward contracts, have been marked-to-market and are categorized as Level 2 in the fair value hierarchy. 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 and the Company. As at December 25, 2010, a $72 unrealized loss was recorded in selling, general and administrative expenses for the contracts outstanding.
  • The fair value of cash is determined using Level 2 inputs in the fair value hierarchy which include interest rates for similar instruments which are obtained from independent publications and market exchanges.
  • Given their short-term maturity, the fair value of cash, accounts receivable and accounts payable and accrued liabilities approximate their carrying values.

(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 26, 2010. 

During the 13 week and 26 week periods ended December 25, 2010 and December 26, 2009, the Company entered into foreign exchange contracts with a major Canadian financial institution as counterparty with U.S. dollar notional amounts as follows:

  13 weeks ended   26 weeks ended  
  Dec 25, 2010   Dec 26, 2009   Dec 25, 2010   Dec 26, 2009  
Outstanding at beginning of period $ 15,000   $ 4,300   $ 15,000   $ 9,000  
  Foreign exchange contracts entered into during the period $ 5,000   $ 4,000   $ 15,500   $ 10,300  
  Foreign exchange contracts expired during the period $ (12,000 ) $ (8,300 ) $ (22,500 ) $ (19,300 )
Outstanding at end of period $ 8,000   $ -   $ 8,000   $ -  
Fair value of foreign exchange contracts $ 72   $ -   $ 72   $ -  

With the exception of the Company entering into foreign exchange contracts as described above, 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 25, 2010. Risk exposures as at December 25, 2010 are discussed further below: 

Risk Financial
Instrument
Amount   Sensitivity
Analysis/Comments
Foreign Currency Risk Cash ($US) US$520   A 500 basis point change in the U.S. dollar exchange rate would impact net earnings for the 13 week and 26 week periods ended December 25, 2010 by /-$5 and $9, respectively.
Interest Rate/ Credit Risk Cash $25,406   A 100 basis point change in interest rates would impact net earnings for the 13 week and 26 week periods ended December 25, 2010 by /-$44 and $79, respectively. Exposure to credit risk is limited by investing in short-term deposits and bankers acceptances with major Canadian financial institutions.
Credit Risk Accounts Receivable $391   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.
Equity Price Risk RSU and DSU Liability 194,997 RSUs 103,920 DSUs   A $1.00 change in Danier's share price would impact net earnings for the 13 week and 26 week periods ended December 25, 2010 by /-$209. This assumes that all RSUs and DSUs were fully vested and other variables remained constant.

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.

13. COMPARATIVE FIGURES:

Certain comparative figures in the financial statements have been reclassified to conform with the current year's financial statement presentation.





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