Danier Leather Reports Fiscal 2011 Third Quarter Results




Apr 21, 2011 - 10:53

TORONTO, ONTARIO--(Marketwire - April 21, 2011) -Danier Leather Inc. (TSX:DL) today announced its unaudited interim consolidated financial results for the 13 week and 39 week periods ended March 26, 2011.

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

For the 13 Weeks EndedFor the 39 Weeks Ended
Mar. 26,
2011
Mar. 27,
2010
Mar. 26,
2011
Mar. 27,
2010
Sales$46,039$46,867$130,908$137,440
EBITDA(1)4,8025,25114,53215,597
Net Earnings2,5342,7887,9107,879
EPS – Basic$0.54$0.49$1.70$1.35
EPS – Diluted$0.52$0.48$1.62$1.33
Number of Stores91909190
Retail Square Footage315,623323,750315,623323,750

Sales for the third quarter of fiscal 2011 decreased by 2% to $46.0 million from $46.9 million in the third quarter of fiscal 2010. Boxing Day took place in the third quarter this year versus the second quarter last year. Year-to-date sales decreased by 5% or $6.5 million to $130.9 million compared with $137.4 million during the same period last year. Year-to-date comparable store sales decreased by 5%. The decrease in sales was mainly due to customers shifting their purchases to lower price point items which resulted in a lower average transaction.

The retail environment continues to remain highly promotional and Danier's strategy is to focus on providing customers with exciting merchandise at remarkable value. Danier is also continuing to build the Danier brand by, among other things, creating more exciting presentation in our stores, the results of which are anticipated to be seen during our next fiscal year. To enhance the brand and create more excitement for our customers, Danier is introducing new merchandise collections including the luxurious Danier Black label, which is a higher-end label, and the fashion-forward Blink label geared towards trend-followers of all ages. Danier's merchandise collection for next fall will also include collaborations with some leading fashion designers, such as key Canadian designer Greta Constantine, London-based internationally recognized Canadian designer Mark Fast, as well as one of Canada's top stylists George Antonpoulos. We are also putting more emphasis on store presentation and display and we expect to introduce a new store design during the first half of fiscal 2012 which has been developed in coordination with the renowned firm Chute Gerdman Retail of Columbus, Ohio.

Accessory sales continued to perform well during fiscal 2011. During the third quarter of fiscal 2011, accessory sales increased by 21% and represented approximately 23% of total sales. For the year-to-date period, accessory sales increased by 9% and represented approximately 27% of total sales.

Gross profit margin during the third quarter of fiscal 2011 decreased by 170 basis points to 50.4% compared with 52.1% during the third quarter last year. Gross profit margin for the 39 week period ended March 26, 2011 increased by 190 basis points to 54.6% compared with 52.7% during the same period last year.

Net earnings during the third quarter of fiscal 2011 were $2.5 million ($0.52 per diluted share) compared with $2.8 million ($0.48 per diluted share) during the third quarter last year. For the year-to-date period, net earnings were $7.9 million ($1.62 per diluted share) compared with net earnings of $7.9 million ($1.33 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 third quarter of fiscal 2011 were $19.5 million compared with $20.4 million during the third quarter last year. Year-to-date SG&A was $60.0 million compared with $60.5 million last year.

Danier continues to maintain a strong balance sheet with cash of $30.9 million, working capital of $46.9 million and no long-term debt.

(1) EBITDA is defined as net earnings before net interest (income) 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 income 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 EndedFor the 39 Weeks Ended
Mar 26, 2011Mar 27, 2010Mar 26, 2011Mar 27, 2010
($000)($000)($000)($000)
Net earnings$2,534$2,788$7,910$7,879
Income tax1,2351,2183,5164,200
Interest (income) expense - net(47)5(4)106
Amortization1,0801,2933,1103,565
Restructuring costs-(53)-(153)
EBITDA$4,802$5,251$14,532$15,597

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 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.

Investors and analysts are invited to participate in a conference call today at 12:00 PM Eastern Time to discuss the results. Please dial 416-340-8018 in the Toronto area or 1-866-223-7781 (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 EndedFor the 39 Weeks Ended
March 26, 2011March 27, 2010March 26, 2011March 27, 2010
Revenue$46,039$46,867$130,908$137,440
Cost of sales (Note 7)22,82222,47159,47864,945
Gross profit23,21724,39671,43072,495
Selling, general and administrative expenses (Note 7)19,49520,43860,00860,463
Interest (income) expense - net(47)5(4)106
Restructuring costs-(53)-(153)
Earnings before income taxes3,7694,00611,42612,079
Provision (recovery) for income taxes (Note 8)
Current1,1811,2193,4744,174
Future54(1)4226
1,2351,2183,5164,200
Net earnings and comprehensive earnings$2,534$2,788$7,910$7,879
Net earnings per share:
Basic$0.54$0.49$1.70$1.35
Diluted$0.52$0.48$1.62$1.33
Weighted average number of shares outstanding:
Basic4,728,5435,680,4234,652,4705,834,068
Diluted4,918,4115,790,0364,869,4995,902,239
Number of shares outstanding at period end4,741,6684,794,2694,741,6684,794,269

See accompanying notes to the consolidated financial statements

DANIER LEATHER INC.
CONSOLIDATED BALANCE SHEETS
(thousands of dollars) - unaudited
March 26, 2011March 27, 2010June 26, 2010
ASSETS
Current Assets
Cash$30,881$32,307$26,563
Accounts receivable1,0161,109543
Inventories (Note 3)31,13826,43526,539
Prepaid expenses3814351,140
Future income tax asset4725951
63,46360,54554,836
Other Assets
Property and equipment (Note 4)15,69516,55016,349
Intangible assets (Note 5)1,0581,3161,417
Future income tax asset1,4861,4321,522
$81,702$79,843$74,124
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities$15,350$16,522$14,005
Income taxes payable1,1704,3693,900
Future income tax liability5518253
16,57521,07317,958
Deferred lease inducements and rent liability1,3791,3911,345
17,95422,46419,303
SHAREHOLDERS' EQUITY
Share capital (Note 6)15,42515,13014,176
Contributed surplus8741,0611,106
Retained earnings47,44941,18839,539
Accumulated other comprehensive income---
63,74857,37954,821
$81,702$79,843$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 EndedFor the 39 Weeks Ended
March 26, 2011March 27, 2010March 26, 2011March 27, 2010
OPERATING ACTIVITIES
Net earnings$2,534$2,788$7,910$7,879
Items not affecting cash:
Amortization of property and equipment9721,1442,7023,065
Amortization of intangible assets108149408500
Amortization of deferred lease inducements(44)(56)(143)(173)
Straight line rent expense9142275
Stock based compensation4682157246
Future income taxes54(1)4226
Net change in non-cash working capital items (Note 9)1,7527,531(5,698)5,495
Proceeds from deferred lease inducement--155100
Cash flows from operating activities5,43111,6515,55517,213
FINANCING ACTIVITIES
Subordinate voting shares repurchased (Note 6)-(7,458)-(7,458)
Subordinate voting shares issued211-86016
Cash flows from (used in) financing activities211(7,458)860(7,442)
INVESTING ACTIVITIES
Acquisition of property and equipment(167)(554)(2,048)(2,004)
Acquisition of intangible assets-(49)(49)(88)
Cash flows used in investing activities(167)(603)(2,097)(2,092)
Increase in cash5,4753,5904,3187,679
Cash, beginning of period25,40628,71726,56324,628
Cash, end of period$30,881$32,307$30,881$32,307
Supplementary cash flow information:
Interest paid-11001
Income taxes paid1,10796,19867

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 EndedFor the 39 Weeks Ended
March 26, 2011March 27, 2010March 26, 2011March 27, 2010
SHARE CAPITAL
Balance, beginning of period$15,001$19,877$14,176$19,853
Shares repurchased-(4,747)-(4,747)
Shares issued on exercise of stock options424-1,24924
Balance, end of period$15,425$15,130$15,425$15,130
CONTRIBUTED SURPLUS
Balance, beginning of period$1,041$979$1,106$823
Stock-based compensation related to stock options4682157246
Exercise of stock options(213)-(389)(8)
Balance, end of period$874$1,061$874$1,061
RETAINED EARNINGS
Balance, beginning of period$44,915$41,111$39,539$36,020
Net earnings2,5342,7887,9107,879
Share repurchases-(2,711)-(2,711)
Balance, end of period$47,449$41,188$47,449$41,188
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance, beginning of period$-$-$-$-
Balance, end of period$-$-$-$-
TOTAL SHAREHOLDERS' EQUITY$63,748$57,379$63,748$57,379

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 26, 2011 and March 27, 2010
(Thousands of dollars, except per share amounts and number of shares) - Unaudited

1. SIGNIFICANT ACCOUNTING POLICIES:

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.

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 26, 2011March 27, 2010June 26, 2010
Raw materials$2,742$1,632$1,451
Work-in-process147190105
Finished goods28,24924,61324,983
$31,138$26,435$26,539
13 weeks ended39 weeks ended
Mar 26, 2011Mar 27, 2010Mar 26, 2011Mar 27, 2010
Cost of inventory recognized as an expense$22,557$22,151$58,761$64,206
Write-downs of inventory due to net realizable value being lower than cost$577$483$1,016$967
Write-downs recognized in previous periods that were reversed--$21$25

4.PROPERTY AND EQUIPMENT:

March 26, 2011March 27, 2010
CostAccumulated
Amortization
Net Book
Value
CostAccumulated
Amortization
Net Book
Value
Land$1,000$-$1,000$1,000$-$1,000
Building7,0642,5204,5447,0642,3314,733
Leasehold improvements24,45918,3336,12624,89517,9656,930
Furniture and equipment9,2376,2522,9859,3876,3823,005
Computer hardware3,5402,5001,0403,4092,527882
$45,300$29,605$15,695$45,755$29,205$16,550
June 26, 2010
CostAccumulated
Amortization
Net Book
Value
Land$1,000$-$1,000
Building7,0642,3804,684
Leasehold improvements23,57416,7006,874
Furniture and equipment8,5045,6712,833
Computer hardware3,1102,152958
$43,252$26,903$16,349

5.INTANGIBLE ASSETS:

Intangible assets consists of computer software.

Mar 26, 2011Mar 27, 2010June 26, 2010
Cost$4,218$4,028$4,169
Accumulated amortization3,1602,7122,752
Net book value$1,058$1,316$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
Mar 26, 2011Mar 27, 2010June 26, 2010
1,224,329 Multiple Voting Shares (March 27, 2010 and June 26, 2010 – 1,224,329)***
3,517,339 Subordinate Voting Shares (March 27, 2010 – 3,569,940 and June 26, 2010 – 3,343,840)
15,425

15,130

14,176
$15,425$15,130$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 ended39 weeks ended
Mar 26, 2011Mar 27, 2010Mar 26, 2011Mar 27, 2010
Weighted average number of shares for basic earnings per share calculations4,728,5435,680,4234,652,4705,834,068
Effect of dilutive options outstanding189,868109,613217,02968,171
Weighted average number of shares for diluted earnings per share calculations4,918,4115,790,0364,869,4995,902,239

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 March 26, 2011 and 185,000 as at March 27, 2010.

(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 39 week periods ended March 26, 2011 and March 27, 2010, the Company did not repurchase any Subordinate Voting Shares under its NCIBs outstanding during the applicable period.

(e) Substantial Issuer Bid

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 Company 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 Company purchased for cancellation 1,120,000 Subordinate Voting Shares at a price of $6.25 per share.

The amount charged to share capital representing the average paid-in value of the shares was $4.747 million and the amount charged to retained earnings representing the excess over the average paid-in value as well as the transaction costs associated with the Offer was $2.711 million.

(f) 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 March 26, 2011, the Company has reserved 650,401 Subordinate Voting Shares for issuance under its Stock Option Plan and there were 359,901 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 26, 2011 and March 27, 2010 with respect to the Stock Option Plan:

13 weeks ended39 weeks ended
Mar 26, 2011Mar 27, 2010Mar 26, 2011Mar 27, 2010
Outstanding at beginning of period399,501560,000553,400577,000
Granted----
Exercised(39,600)-(173,499)(5,000)
Forfeited--(20,000)(12,000)
Outstanding at end of period359,901560,000359,901560,000
Options exercisable at end of period243,229294,575243,229294,575

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.

(g) 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 39 week periods ended March 26, 2011 and March 27, 2010 with respect to the DSU Plan:

13 weeks ended39 weeks ended
Mar 26, 2011Mar 27, 2010Mar 26, 2011Mar 27, 2010
Outstanding at beginning of period103,920103,920103,92078,920
Granted---25,000
Outstanding at end of period103,920103,920103,920103,920
Danier stock price at end of period$12.55$6.50$12.55$6.50
Liability at end of period$1,304$675$1,304$675
Compensation expense recorded in SG&A$(109)$109$383$300
(h) 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 39 week periods ended March 26, 2011 and March 27, 2010 with respect to the RSU Plan:

13 weeks ended39 weeks ended
Mar 26, 2011Mar 27, 2010Mar 26, 2011Mar 27, 2010
Outstanding at beginning of period194,997130,890105,479133,300
Granted--122,300-
Redeemed(60,000)(10,000)(91,782)(12,410)
Forfeited--(1,000)-
Outstanding at end of period134,997120,890134,997120,890
Liability at end of period$476$678$476$678
Compensation expense recorded in SG&A$144$158$894$307

7.AMORTIZATION:

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

13 weeks ended39 weeks ended
Mar 26, 2011Mar 27, 2010Mar 26, 2011Mar 27, 2010
Cost of sales$52$50$133$130
SG&A1,0281,2432,9773,435
$1,080$1,293$3,110$3,565

8.INCOME TAXES:

The estimated average annual effective rate was 30.8% during the 39 weeks ended March 26, 2011 compared with 34.8% estimated rate for the 39 weeks ended March 27, 2010 and 34.1% for the fiscal year ended June 26, 2010. The difference between the rate for the 39 weeks ended March 26, 2011 and the rate for the 39 weeks ended March 27, 2010 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. The difference between the estimated rate for the 39 weeks ended March 26, 2011 and the estimated rate for the 26 weeks ended December 25, 2010 is due to a change in estimated earnings.

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

13 weeks ended39 weeks ended
Mar 26, 2011Mar 27, 2010Mar 26, 2011Mar 27, 2010
Decrease (increase) in:
Accounts receivable$(625)$4,062$(473)$(758)
Income taxes recoverable---631
Inventories10,0255,632(4,599)(5,390)
Prepaid expenses-87759721
Increase (decrease) in:
Accounts payable and accrued liabilities(7,721)(4,211)1,3455,922
Income taxes payable731,961(2,730)4,369
$1,752$7,531$(5,698)$5,495

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:

2012$10,141
2013$8,222
2014$6,579
2015$4,823
2016$3,289
Thereafter$8,201
(b) Letters of credit

The Company had outstanding letters of credit in the amount of $4,637 (March 27, 2010 - $5,707) 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 $281.

11.FINANCIAL INSTRUMENTS:

(a) Fair value disclosure

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

March 26, 2011March 27, 2010
MaturityCarrying
Value
Fair
Value
Carrying
Value
Fair
Value
CashShort-term$30,881$30,881$32,307$32,307
Accounts receivableShort-term$1,016$1,016$1,109$1,109
Accounts payable and accrued liabilitiesShort-term$15,020$15,020$16,486$16,486
Derivative financial instruments(1)Short-term$330$330$36$36
(1)Included in accounts payable and accrued liabilities as at March 26, 2011 and March 27, 2010.

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 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 March 26, 2011, a $330 unrealized loss (March 27, 2010 - $36 unrealized loss) was recorded in selling, general and administrative expenses and accounts payable and accrued liabilities 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 39 week periods ended March 26, 2011 and March 27, 2010, the Company entered into foreign exchange contracts with a major Canadian financial institution as counterparty with U.S. dollar notional amounts as follows:

11.FINANCIAL INSTRUMENTS:

13 weeks ended39 weeks ended
Mar 26, 2011Mar 27, 2010Mar 26, 2011Mar 27, 2010
Outstanding at beginning of period$8,000$-$15,000$9,000
Foreign exchange contracts entered into during the period$15,000$10,000$30,500$20,300
Foreign exchange contracts expired during the period$(3,000)-$(25,500)$(19,300)
Outstanding at end of period$20,000$10,000$20,000$10,000

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 39 week periods ended March 26, 2011. Risk exposures as at March 26, 2011 are discussed further below:

RiskFinancial InstrumentAmountSensitivity Analysis/Comments
Interest Rate/ Credit RiskCash$30,881A 100 basis point change in interest rates would impact net earnings for the 13 week and 39 week periods ended March 26, 2011 by +/-$53 and $160, respectively. Exposure to credit risk is limited by investing in short-term deposits and bankers acceptances with major Canadian financial institutions.
Credit RiskAccounts Receivable$1,016Primarily 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 RiskRSU and DSU Liability134,997 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 26, 2011 by +/-$167. 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
leather@danier.com

Danier Leather Inc.
Bryan Tatoff
Senior Vice-President, Chief Financial Officer & Secretary
(416) 762-8175 ext. 328
(416) 762-7408
bryan@danier.com
www.danier.com