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Press release from Marketwire

Danier Leather Reports Fiscal 2013 First Quarter Results

Tuesday, October 23, 2012

Danier Leather Reports Fiscal 2013 First Quarter Results15:30 EDT Tuesday, October 23, 2012TORONTO, ONTARIO--(Marketwire - Oct. 23, 2012) -Danier Leather Inc. (TSX:DL) today announced its unaudited interim consolidated financial results for the 13 week period ended September 29, 2012.FINANCIAL HIGHLIGHTS ($000s, except earnings per share (EPS), square footage and number of stores):For the 13 Weeks EndedSept. 29, 2012Sept. 24, 2011Sales$23,098$22,091EBITDA(1)(4,014)(2,957)Net Loss(3,458)(2,768)EPS - Basic$(0.74)$(0.59)EPS - Diluted$(0.74)$(0.59)Number of Stores8989Retail Square Footage292,836301,233Sales during the first quarter of fiscal 2013 increased by 5% to $23.1 million compared with $22.1 million during the first quarter last year. Comparable store sales(2) increased by 4%. In line with our stated strategy, accessory sales continued to perform well, increasing by 9% over the corresponding period last year. Accessories represented 40% of total merchandise revenue compared with 39% during the first quarter of fiscal 2012.Gross profit as a percentage of revenue decreased to 50.2% compared with 52.9% during the first quarter last year. Danier entered the fiscal year with approximately $4 million less finished goods inventory but continued to aggressively reduce past season inventory levels during the first quarter of fiscal 2013. The reduction of past season inventory levels allows more new styles to be purchased for the upcoming fall/winter season, which adds newness, excitement and encourages more frequent customer visits. Selling, general and administrative expenses during the first quarter of fiscal 2013 increased by $0.8 million to $16.4 million, compared with $15.6 million during the first quarter last year. The increase was mainly due to unrealized foreign exchange fair value costs on the Company's outstanding foreign exchange contracts as well as higher stock-based compensation expense. A seasonal net loss of approximately $3.5 million during the first quarter of fiscal 2013 compares to the net loss of $2.8 million during the first quarter last year. Danier continues to maintain a strong balance sheet with cash of $16.6 million compared with $12.1 million at the end of the first quarter last year, working capital of $44.6 million and no long-term debt. Danier is holding its Annual General Meeting of Shareholders today, Tuesday, October 23, 2012 at 4:00 p.m. (Toronto time) at Danier's corporate headquarters in Toronto. Shareholders are encouraged to attend. The meeting will also be webcast live at www.danier.com. Non-IFRS Financial Measures The Company prepares its consolidated financial statements in accordance with IFRS. In order to provide additional insight into the business, the Company has also provided certain non-IFRS data, including EBITDA and comparable store sales, as defined below. Non-IFRS measures such as EBITDA and comparable store sales are not recognized measures for financial presentation under IFRS. These non-IFRS measures do not have a standardized meaning prescribed by IFRS 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 IFRS. (1)EBITDA is defined as net earnings (loss) before interest expense, interest income, income taxes, impairment loss on property and equipment and amortization. EBITDA is a financial metric used by management and some investors to compare companies on the basis of ongoing operating results before taxes, interest expense, interest income, impairment loss on property and equipment and amortization and its ability to incur and service debt. EBITDA is also used by management to measure performance against internal targets and prior period results. EBITDA is calculated as outlined in the following table:For the 13 Weeks EndedSept 29, 2012Sept 24, 2011($000)($000)Net loss$(3,458)$(2,768)Add (deduct) impact of the following:Income tax(1,320)(1,093)Interest expense1822Interest income(66)(38)Amortization812920EBITDA$(4,014)$(2,957)(2)Comparable store sales are defined as sales generated by stores that have been open during the full current fiscal year as well as the full prior fiscal year. Comparable store sales is a key indicator used by the Company to measure performance against internal targets and prior period results and excludes sales fluctuations due to new stores, store closings and certain permanent store relocations. This measure is also commonly used by financial analysts and investors to compare Danier to other retailers. Forward-Looking Statements 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", "estimate", "expect", "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 continuous disclosure materials filed from time to time with the Canadian Securities Regulatory Authorities, including the Company's most recent 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 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 laws. About Danier Danier Leather Inc. is a leading integrated designer, manufacturer, distributor and retailer of high-quality fashion-oriented leather apparel and accessories. The Company's merchandise is marketed exclusively under the well-known Danier brand name and is available at its 89 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, visit www.danier.com.DANIER LEATHER INC.CONSOLIDATED STATEMENTS OF LOSS AND COMPREHENSIVE LOSS(thousands of Canadian dollars, except per share amounts and number of shares) - unauditedFor the 13 Weeks EndedSept 29, 2012Sept 24, 2011Revenue$23,098$22,091Cost of sales (Note 12)11,50710,401Gross profit11,59111,690Selling, general and administrative expenses (Note 12)16,41715,567Interest income(66)(38)Interest expense1822Loss before income taxes(4,778)(3,861)Recovery of income taxes (Note 13)(1,320)(1,093)Net loss and comprehensive loss$( 3,458)$( 2,768)Net loss per share:Basic$(0.74)$(0.59)Diluted$(0.74)$(0.59)Weighted average number of shares outstanding:Basic4,646,9024,656,157Diluted4,785,3344,815,694Number of shares outstanding at period end4,646,9024,628,135See accompanying notes to the consolidated financial statementsDANIER LEATHER INC.CONSOLIDATED STATEMENTS OF FINANCIAL POSITION(thousands of Canadian dollars) - unauditedSept 29, 2012Sept 24, 2011June 30, 2012ASSETSCurrent AssetsCash and cash equivalents (Note 3)$16,584$12,090$34,332Accounts receivable8551,093517Income taxes recoverable2,5591,846426Inventories (Note 4)35,14939,77524,891Prepaid expenses68177179955,82855,57560,965Non-current AssetsProperty and equipment (Note 5)16,24414,60815,012Computer software (Note 6)651965726Deferred income tax asset (Note 13)1,9031,7221,909$74,626$72,870$78,612LIABILITIESCurrent LiabilitiesPayables and accruals (Note 8)$9,638$11,360$10,161Deferred revenue1,4191,4561,463Sales return provision (Note 9)12912612411,18612,94211,748Non-current LiabilitiesDeferred lease inducements and rent liability1,3841,2831,37312,57014,22513,121SHAREHOLDERS' EQUITYShare capital (Note 10)15,04014,94115,040Contributed surplus948949925Retained earnings46,06842,75549,52662,05658,64565,491$74,626$72,870$78,612Contingencies, Guarantees and Commitments (Notes 15 and 16)Approved by the Board of Directors October 23, 2012See accompanying notes to the consolidated financial statementsDANIER LEATHER INC.CONSOLIDATED STATEMENTS OF CASH FLOW(thousands of Canadian dollars) - unauditedFor the 13 Weeks EndedSept 29, 2012Sept 24, 2011Cash provided by (used in)OPERATING ACTIVITIESNet loss$(3,458)$(2,768)Adjustments for:Amortization of property and equipment724831Amortization of computer software8889Amortization of deferred lease inducements(33)(40)Straight line rent expense445Stock-based compensation2315Interest income(66)(38)Interest expense1822Recovery of income taxes(1,320)(1,093)Changes in working capital (Note 14)(11,073)(11,037)Interest paid-(12)Interest received8157Income taxes paid(807)(1,074)Net cash used in operating activities(15,779)(15,043)FINANCING ACTIVITIESSubordinate voting shares repurchased-(530)Net cash used in financing activities-(530)INVESTING ACTIVITIESAcquisition of property and equipment(1,956)(1,035)Acquisition of intangible assets(13)-Net cash used in investing activities(1,969)(1,035)Decrease in cash and cash equivalents(17,748)(16,608)Cash and cash equivalents, beginning of period34,33228,698Cash and cash equivalents, end of period$16,584$12,090See accompanying notes to the consolidated financial statementsDANIER LEATHER INC.CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY(thousands of Canadian dollars) - unauditedShare CapitalContributed SurplusAccumulated Other Comprehensive IncomeRetained EarningsTotalBalance - June 30, 2012$15,040$925$-$49,526$65,491Net loss---(3,458)(3,458)Stock-based compensation related to stock options-23--23Balance - September 29, 2012$15,040$948$-$46,068$62,056Share CapitalContributed SurplusAccumulated Other Comprehensive IncomeRetained EarningsTotalBalance - June 25, 2011$15,160$934$-$45,834$61,928Net loss---(2,768)(2,768)Stock-based compensation related to stock options-15--15Share repurchases(219)--(311)(530)Balance - September 24, 2011$14,941$949$-$42,755$58,645See accompanying notes to the consolidated financial statementsDANIER LEATHER INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSFor the 13 week periods ended September 29, 2012 and September 24, 2011(unless otherwise stated, all amounts are in thousands of Canadian dollars) - unaudited1.Reporting Entity:Danier Leather Inc. and its subsidiaries ("Danier" or the "Company") comprise a vertically integrated designer, manufacturer, distributor and retailer of leather apparel and accessories. Danier Leather Inc. is a corporation existing under the Business Corporations Act (Ontario) and is domiciled in Canada. The Company's subordinate voting shares (the "Subordinate Voting Shares") are listed on the Toronto Stock Exchange (the "TSX") under the symbol "DL". The address of its registered head office is 2650 St. Clair Avenue West, Toronto, Ontario, M6N 1M2, Canada. Under an accounting practice common in the retail industry, the Company follows a 52-week reporting cycle which periodically necessitates a fiscal year of 53 weeks. Fiscal 2013 is a 52-week fiscal year and fiscal 2012 was a 53-week fiscal year. The 52-week reporting cycle is divided into four quarters of 13 weeks each. The 53-week reporting cycle is divided into four quarters of 13 weeks each with the exception of the fourth quarter, which is 14 weeks in duration.2. Significant Accounting Policies:(a) Statement of Compliance These unaudited interim condensed consolidated financial statements ("unaudited interim financial statements") have been prepared on a going concern basis in accordance with International Financial Reporting Standards ("IFRS"), as issued by the International Accounting Standards Board ("IASB"). The unaudited interim financial statements have been prepared in accordance with IAS 34, Interim Financial Reporting and using accounting policies and methods consistent with those used for the Company's audited annual consolidated financial statements and notes thereto for the fiscal years ended June 30, 2012 and June 25, 2011 (the "2012 Financial Statements"), except for the following new accounting pronouncements which have been adopted. Certain information, in particular the accompanying notes, normally included in the audited annual consolidated financial statements prepared in accordance with IFRS, has been omitted or condensed. Accordingly, these unaudited interim financial statements do not include all the information required for annual consolidated financial statements, and, therefore, should be read in conjunction with the 2012 Financial Statements.On July 1, 2012, the Company adopted IFRS 7, Financial Instruments: Disclosures, Amendment regarding Disclosures on Transfers of Financial Assets. This amendment requires increased disclosure for transactions involving transfers of financial assets to help users of the financial statements evaluate the risk exposures related to such transfers and the effect of those risks on an entity's financial position. There was no impact on the unaudited interim financial statements as a result of adopting this standard. On July 1, 2012, the Company adopted IAS 12, Income Taxes, Amendment regarding Deferred Tax: Recovery of Underlying Assets. This amendment requires an entity to recognize a deferred tax asset or liability depending on the expected manner of recovery or settlement of the asset or liability and for which the tax base is not immediately apparent. There was no impact on the unaudited interim financial statements as a result of adopting this standard. The unaudited interim financial statements for the 13-week period ended September 29, 2012 (including comparatives) were approved by the Board of Directors on October 23, 2012.(b) Basis of Measurement The unaudited interim financial statements have been prepared on a going concern basis under the historical cost convention except for the following items which are measured at fair value:Financial instruments at fair value through profit and loss; and Liabilities for cash-settled share-based payment plans. (c) Functional and Presentation Currency These unaudited interim financial statements are presented in Canadian dollars ("$" or "C$"), the Company's functional currency. All financial information is presented in thousands, except per share amounts which are presented in whole dollars and number of shares, which are presented as whole numbers.(d) Seasonality of Interim OperationsDue to the seasonal nature of the retail business and the Company's product lines, the results of operation for any interim period are not necessarily indicative of the results of operation 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.(e) Estimates, Judgments and Assumptions The preparation of these unaudited interim financial statements in accordance with IFRS requires management to make certain estimates, judgments and assumptions in applying the Company's accounting policies which have an effect on the reported amounts and disclosures made in these unaudited interim financial statements and accompanying notes. These estimates, judgments and assumptions are based on historical experience, knowledge of current events and conditions, expectations of the future and other relevant factors that are believed to be reasonable under the circumstances. Estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.Significant estimates, judgments and assumptions applicable to the preparation of these unaudited interim financial statements are described in the Company's 2012 Financial Statements for the year ended June 30, 2012. Estimates made by management depend upon subjective or complex judgments about matters that may be uncertain, and changes in those estimates could materially impact these unaudited interim financial statements. Illiquid credit markets, volatile equity, foreign currency, and energy markets and declines in consumer spending have combined to increase the uncertainty inherent in estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from the estimates, judgments and assumptions made by management.(f) Future Changes in Accounting Policies A number of new standards, and amendments to standards and interpretations, are not yet effective for the 13-week period ended September 29, 2012 and have not been applied in preparing these unaudited interim financial statements. New standards and amendments to standards and interpretations that are currently under review include: IFRS 7 - Financial Instruments: Disclosures - Offsetting Financial Assets and Financial Liabilities ("IFRS 7") The IASB has issued amendments to IFRS 7 relating to enhanced disclosure requirements for the offsetting of financial assets and liabilities and additional disclosures on transition from IAS 39 to IFRS 9 (as discussed below). The amendment relating to the offsetting of financial assets and liabilities is effective for annual periods beginning on or after January 1, 2013 and the amendment relating to additional disclosures on transition from IAS 39 to IFRS 9 is effective for annual periods beginning on or after January 1, 2015. IFRS 9 - Financial Instruments On November 12, 2009, the IASB issued a new standard, IFRS 9, Financial Instruments ("IFRS 9"), which will ultimately replace IAS 39, Financial Instruments: Recognition and Measurement ("IAS 39"). The replacement of IAS 39 is a multi-phase project with the objective of improving and simplifying the reporting for financial instruments and the issuance of IFRS 9 is a part of the first phase. This standard originally was to become effective on January 1, 2013 but the mandatory effective date has been amended to January 1, 2015 and must be applied retrospectively. IFRS 13 - Fair Value Measurement The IASB has issued a new standard, IFRS 13, Fair Value Measurement, which is a comprehensive standard for the fair value measurement and disclosure requirements for use across all IFRS standards. The new standard is effective for annual periods beginning on or after January 1, 2013 and clarifies that fair value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. It also establishes disclosures about fair value measurement. Under existing IFRS, guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair value measurements. The extent of the impact of adoption of the above noted standards and interpretations on the unaudited interim financial statements of the Company have not yet been determined.A number of other standards have been adopted by the IASB but currently have no impact on the Company.3.Cash and cash equivalents:The components of cash and cash equivalents are as follows:September 29, 2012September 24, 2011June 30, 2012Cash$16,584$6,093$34,332Bankers acceptances-5,997-Cash and cash equivalents$16,584$12,090$34,3324.Inventories:September 29, 2012September 24, 2011June 30, 2012Raw materials$3,029$2,595$2,644Work-in-process304150183Finished goods31,81637,03022,064$35,149$39,775$24,89113 Weeks EndedSeptember 29, 2012September 24, 2011Cost of inventory recognized as an expense$11,412$10,282Write-downs of inventory due to net realizable value being lower than cost$140$145Write-downs recognized in previous periods that were reversed$27$35.Property and Equipment:13 Weeks Ended September 29, 2012LandBuildingRoofHVACLeasehold ImprovementsFurniture & EquipmentComputer HardwareTotalCostAt June 30, 2012$1,000$6,063$308$793$22,208$9,088$3,386$42,846Additions----1,408520281,956Disposals----(1,259)(127)-(1,386)At September 29, 2012$1,000$6,063$308$793$22,357$9,481$3,414$43,416Accumulated amortization and impairment lossesAt June 30, 2012-$2,354$201$578$15,875$6,321$2,505$27,834Amortization for the period-3931239118396724Impairment losses--------Disposals----(1,259)(127)-(1,386)At September 29, 2012-$2,393$204$590$15,007$6,377$2,601$27,172Net carrying valueAt September 29, 2012$1,000$3,670$104$203$7,350$3,104$813$16,244At June 30, 2012$1,000$3,709$107$215$6,333$2,767$881$15,012Capital work in progress included aboveAt September 29, 2012----$661$160-$82113 Weeks Ended September 24, 2011LandBuildingRoofHVACLeasehold ImprovementsFurniture & EquipmentComputer HardwareTotalCostAt June 25, 2011$1,000$6,063$308$753$23,453$8,985$3,180$43,742Additions---34767179551,035Disposals----(1,470)(346)-(1,816)At September 24, 2011$1,000$6,063$308$787$22,750$8,818$3,235$42,961Accumulated amortization and impairment lossesAt June 25, 2011-$2,198$184$531$17,968$6,232$2,225$29,338Amortization for the period-3941242526784831Impairment losses--------Disposals----(1,470)(346)-(1,816)At September 24, 2011-$2,237$188$543$16,923$6,153$2,309$28,353Net carrying valueAt September 24, 2011$1,000$3,826$120$244$5,827$2,665$926$14,608At June 25, 2011$1,000$3,865$124$222$5,485$2,753$955$14,404Capital work in progress included aboveAt September 24, 2011----$464$31-$495The Company conducted an impairment test for its property and equipment and noted that there were no indicators of impairment during the 13 week periods ended September 29, 2012 and September 24, 2011. 6.Computer Software:13 Weeks EndedSeptember 29, 2012September 24, 2011CostBeginning of period$3,994$4,041Additions13-Disposals--End of period$4,007$4,041Accumulated amortizationBeginning of period$3,268$2,987Amortization for the period8889Impairment losses--End of period$3,356$3,076Net carrying valueEnd of period$651$965Beginning of period$726$1,0547.Bank Facilities:The Company has an operating credit facility for working capital and for general corporate purposes to a maximum amount of $25 million that is committed until June 27, 2014 and bears interest at prime plus 0.75%. Standby fees of 0.50% are paid on a quarterly basis for any unused portion of the operating credit facility. The operating credit facility is subject to certain covenants and other limitations that, if breached, could cause a default and may result in a requirement for immediate repayment of amounts outstanding. Security provided includes a security interest over all personal property of the Company's business and a mortgage over the land and building comprising the Company's head office/distribution facility. The Company also has an uncommitted letter of credit facility (the "LC Facility") to a maximum amount of $10 million and an uncommitted demand overdraft facility in the amount of $0.5 million to be used exclusively for issuance of letters of credit for the purchase of inventory. Any amounts outstanding under the overdraft facility will bear interest at the bank's prime rate. The LC Facility is secured by the Company's personal property from time to time financed with the proceeds drawn thereunder.8.Payables and Accruals:September 29, 2012September 24, 2011June 30, 2012Trade payables$2,443$3,590$1,482Accruals4,0945,3315,787RSU/DSU liability2,1281,8302,374Commodity and capital taxes422509489Derivative financial instruments433--Other current liabilities11810029$9,638$11,360$10,1619.Sales Return Provision:The provision for sales returns primarily relates to customer returns of unworn and undamaged purchases for a full refund within the time period provided by Danier's return policy, which is generally 14 days after the purchase date. Since the time period of the provision is of relatively short duration, all of the provision is classified as current. The following transactions occurred during the 13 week periods ended September 29, 2012 and September 24, 2011 with respect to the sales return provision:13 Weeks EndedSeptember 29, 2012September 24, 2011Beginning of period$124$47Amount provided during the period129126Released during the period(124)(47)End of period$129$12610.Share Capital:(a) Authorized 1,224,329 Multiple Voting SharesUnlimited Subordinate Voting SharesUnlimited Class A and B Preference Shares(b) Issued Multiple Voting Shares NumberConsiderationBalance September 24, 20111,224,329NominalBalance June 30, 20121,224,329NominalBalance September 29, 20121,224,329Nominal Subordinate Voting Shares NumberConsiderationBalance June 30, 20123,422,573$15,040Shares repurchased--Shares issued upon exercising of stock options--Balance September 29, 20123,422,573$15,040Balance June 25, 20113,453,806$15,160Shares repurchased(50,000)(219)Shares issued upon exercising of stock options--Balance September 24, 20113,403,806$14,941The Multiple Voting Shares and Subordinate Voting Shares have identical attributes except that the Multiple Voting Shares entitle the holder to ten votes per share and the Subordinate Voting Shares entitle the holder to one vote per share. Each Multiple Voting Share is convertible at any time, at the holder's option, into one fully paid and non-assessable Subordinate Voting Share. The Multiple Voting Shares are subject to provisions whereby, if a triggering event occurs, then each Multiple Voting Share is converted into one fully paid and non-assessable Subordinate Voting Share. A triggering event may occur if, among other things, Mr. Jeffrey Wortsman, President and Chief Executive Officer: (i) dies; (ii) ceases to be a Senior Officer of the Company; (iii) ceases to own 5% or more of the aggregate number of Multiple Voting Shares and Subordinate Voting Shares outstanding; or (iv) owns less than 918,247 Multiple Voting Shares and Subordinate Voting Shares combined. (c) Earnings per share Basic and diluted per share amounts are based on the following weighted average number of shares outstanding:13 Weeks EndedSeptember 29, 2012September 24, 2011Weighted average number of shares for basic earnings per share calculations4,646,9024,656,157Effect of dilutive options outstanding138,432159,537Weighted average number of shares for diluted earnings per share calculations4,785,3344,815,694The computation of dilutive options outstanding only includes those options having exercise prices below the average market price of Subordinate Voting Shares on the TSX during the period. No options were excluded as at September 29, 2012 and 62,000 options were excluded as at September 24, 2011.(d) Normal Course Issuer Bids During the past several years, the Company has received approval from the TSX to commence various normal course issuer bids ("NCIBs"). On May 5, 2011, the Company received approval from the TSX to commence its fifth normal course issuer bid (the "2011 NCIB"). The Company's previous normal course issuer bid expired on May 6, 2011. The 2011 NCIB permitted the Company to acquire up to 176,440 Subordinate Voting Shares, representing approximately 5% of the Company's issued and outstanding Subordinate Voting Shares at the date of acceptance of the notice of intention in respect of the 2011 NCIB filed with the TSX during the period from May 9, 2011 to May 8, 2012, or such earlier date as the Company may have completed its purchases under the 2011 NCIB. The 2011 NCIB expired on May 8, 2012 without being renewed. During the 13 week periods ended September 29, 2012 and September 24, 2011, repurchases of Subordinate Voting Shares under the Company's 2011 NCIB outstanding during the applicable period is presented below. 13 Weeks EndedSeptember 29, 2012September 24, 2011Number of shares repurchased under NCIBs-50,000Amount charged to share capital-$219Amount charged to retained earnings representing the excess over the average paid-in value-$311Total cash consideration-$53011.Share-based Compensation:The Company's net share-based compensation expense recognized in selling, general and administrative expenses ("SG&A") related to its stock option, restricted share unit ("RSU") and deferred share unit ("DSU") plans is presented below:13 Weeks EndedSeptember 29, 2012September 24, 2011Stock option plan expense$23$15RSU plan expense306158DSU plan expense70(52)$399$121The carrying amount of the Company's share-based compensation arrangements including stock option, RSU and DSU plans are recorded on the statement of financial position as follows:September 29, 2012September 24, 2011June 30, 2012Payables and accruals$2,127$1,831$2,374Contributed surplus948949925$3,075$2,780$3,299(a) 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 September 29, 2012, the Company has reserved 620,167 Subordinate Voting Shares for issuance under its Stock Option Plan. The granting of options and the related vesting periods are at the discretion of the Board of Directors, on the advice of the Governance, Compensation, Human Resources and Nominating Committee of the Board (the "Committee"), at exercise prices determined as the weighted average of the trading prices of the Company's Subordinate Voting Shares on the TSX for the five trading days preceding the effective date of the grant. In general, options granted to officers, employees and service providers under the Stock Option Plan typically vest over a period of between three years and four years from the grant date and expire no later than the tenth anniversary of the date of grant (subject to extension in accordance with the Stock Option Plan if the options would otherwise expire during a black-out period).A summary of the status of the Company's Stock Option Plan as of September 29, 2012 and September 24, 2011 and changes during the 13 week periods ended on those dates is presented below:September 29, 2012September 24, 2011Stock OptionsSharesWeighted Average Exercise PriceSharesWeighted Average Exercise PriceOutstanding at beginning of period357,767$7.14348,434$6.65Granted----Exercised----Forfeited58,000$15.85--Outstanding at end of period299,767$5.45348,434$6.65Options exercisable at end of period271,667$4.91238,429$8.25The following table summarizes the distribution of these options and the remaining contractual life as at September 29, 2012:Options OutstandingOptions ExercisableExercise Prices# OutstandingWeighted Average Remaining Contractual LifeWeighted Average Exercise Price# of Shares ExercisableWeighted Average Exercise Price$3.15157,6676.1 years$3.15157,667$3.15$6.2550,0005.7 years$6.2550,000$6.25$7.8045,0004.3 years$7.8045,000$7.80$8.6815,0004.6 years$8.6815,000$8.68$10.6828,1009.7 years$10.68-$10.68$10.964,0000.9 years$10.964,000$10.96299,7676.0 years$5.45271,667$4.91There were no stock options granted during the 13 week periods ended September 29, 2012 and September 24, 2011. (b) Restricted Share Unit Plan The Company has established a cash-settled RSU Plan, as amended, as part of its overall compensation plan. An RSU is a notional unit equivalent in value to one Subordinate Voting Share of the Company. The RSU Plan is administered by the Board of Directors, with the advice of the Committee. Under the RSU Plan, certain eligible officers, 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. 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 market value is based on the five-day average daily closing prices of the Subordinate Voting Shares on the TSX immediately prior to the applicable payment date. RSU expense is recognized on a graded vesting schedule and is determined based on the fair value of the liability incurred at each financial position date until the award is settled. The fair value of the liability is measured by applying the Black-Scholes Option Pricing Model, taking into account the extent to which participants have rendered services to date.The following transactions occurred during each of the 13 week periods ended September 29, 2012 and September 24, 2011, respectively, with respect to the RSU Plan:13 Weeks EndedSept 29, 2012Sept 24, 2011Outstanding at beginning of period167,536122,300Granted25,00061,100Redeemed(35,897)(16,130)Forfeited-(500)Outstanding at end of period156,639166,770RSUs vested at end of period37,93116,300Liability at end of period$1,191$740(c) Deferred Share Unit Plan The cash-settled 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 at the discretion of the Board of Directors on the advice of the Committee, 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 daily closing prices of the Subordinate Voting Shares on the TSX immediately prior to the date on which the value of the DSU is determined. The fair value of the liability is measured at each financial position date by applying the Black-Scholes Option Pricing Model until the award is settled.The following transactions occurred during each of the 13 week periods ended September 29, 2012 and September 24, 2011, respectively, with respect to the DSU Plan:13 Weeks EndedSept 29, 2012Sept 24, 2011Outstanding at beginning of period103,920103,920Granted--Redeemed(20,784)-Outstanding at end of period83,136103,920Danier stock price at end of period$11.26$10.50Liability at end of period$936$1,09112.Amortization:Amortization included in cost of sales and SG&A is summarized as follows:13 Weeks EndedSeptember 29, 2012September 24, 2011Cost of sales$41$46SG&A771874$812$92013.Income Taxes:The Company's income tax expense is comprised as follows:September 29, 2012September 24, 2011Current period income tax recovery$(1,326)$(1,050)Adjustment for prior years taxes--Current income tax recovery$(1,326)$(1,050)Deferred tax expense6(43)Income tax recovery$(1,320)$(1,093)The estimated average annual effective rate was 27.6% during the 13 weeks ended September 29, 2012 compared with the 28.3% estimated rate for the 13 weeks ended September 24, 2011 and 27.6% for the fiscal year ended June 30, 2012. The difference between the rate for the 13 weeks ended September 29, 2012 and the rate for the 13 weeks ended September 24, 2011 is mainly due to a reduction in the statutory tax rates as well as the effect of certain non-deductible expenses on estimated earnings.The Company's effective income tax rate consists of the following: 13 Weeks EndedSeptember 29, 2012September 24, 2011Combined basic federal and provincial average statutory rate26.4%27.2%Non-deductible expenses1.1%0.5%Future federal and provincial rate changes-0.4%Other0.1%0.2%27.6%28.3%14.Change in Working Capital Items:13 Weeks EndedSeptember 29, 2012September 24, 2011Decrease (increase) in:Accounts receivable$(338)$(708)Inventories(10,258)(10,811)Prepaid expenses85100Increase (decrease) in:Payables and accruals(523)336Deferred revenue(44)(33)Sales return provision579$(11,073)$(11,037)15.Contingencies and Guarantees:(a) Legal proceedings In the course of its business, the Company from time to time becomes involved in various claims and legal proceedings. In the opinion of management, all such claims and suits are adequately covered by insurance, or if not so covered, the results are not expected to materially affect the Company's financial position.(b) Guarantees The Company has provided the following guarantees to third parties and no amounts have been accrued in the consolidated financial statements for these guarantees:In the ordinary course of business, the Company has agreed to indemnify its lenders under its credit facilities against certain costs or losses resulting from changes in laws and regulations or from a default in repaying a borrowing. These indemnifications extend for the term of the credit facilities and do not provide any limit on the maximum potential liability. Historically, the Company has not made any indemnification payments under such agreements. In the ordinary course of business, the Company has provided indemnification commitments to certain counterparties in matters such as real estate leasing transactions, director and officer indemnification agreements and certain purchases of non-inventory assets and services. These indemnification agreements generally require the Company to compensate the counterparties for costs or losses resulting from legal action brought against the counterparties related to the actions of the Company. The terms of these indemnification agreements will vary based on the contract and generally do not provide any limit on the maximum potential liability. 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 $70. 16.Commitments:(a) Operating leases: The Company leases various store locations, a distribution warehouse and equipment under non-cancellable operating lease agreements. The leases are classified as operating leases since there is no transfer of risks and rewards inherent to ownership. The leases have varying terms, escalation clauses and renewal rights. Minimum lease payments are recognized on a straight-line basis. Leases run for varying terms that generally do not exceed 10 years, with options to renew (if any) that do not exceed 5 years. The majority of leases are net leases, which require additional payments for the cost of insurance, taxes, common area maintenance and utilities. Certain rental agreements include contingent rent, which is based on revenue exceeding a minimum amount. Minimum rentals, excluding rentals based upon revenue, are as follows:Not later than one year$10,821Later than one year and not later than five years$29,396Later than 5 years$15,817Total$56,034Minimum lease payments, contingent rentals and sublease payments recognized as an expense are summarized as follows:13 Weeks EndedSeptember 29, 2012September 24, 2011Minimum lease payments recognized as an expense$2,805$2,807Contingent rentals recognized as an expense$18$1Sublease payments recognized as an expense--(b) Letters of credit: As at September 29, 2012, the Company had outstanding letters of credit in the amount of $16,311 (September 24, 2011 - $12,729) for the importation of finished goods inventories to be received.17.Financial Instruments:(a) Fair value disclosure The following table presents the carrying amount and the fair value of the Company's financial instruments: September 29, 2012September 24, 2011ClassificationMaturityCarrying valueFair valueCarrying valueFair valueCash and cash equivalentsLoans and receivablesShort-term$16,584$16,584$12,090$12,090Accounts receivableLoans and receivablesShort-term$855$855$815$815Payables and accrualsFinancial liabilitiesShort-term$9,205$9,205$11,360$11,360Sales return provisionFinancial liabilitiesShort-term$129$129$126$126Derivative financial instruments (1)Fair value through profit and lossShort-term$(433)$(433)$278$278(1)Included in payables and accruals for the 13 week period ended September 29, 2012 and included in accounts receivable for the 13 week period ended September 24, 2011.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, credit risk of the Company and credit risk of counterparties. As at September 29, 2012, a $433 unrealized loss (September 24, 2011 - $278 unrealized gain) was recorded in SG&A for the foreign exchange 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, payables and accruals and sales return provision approximates their carrying values. (b) Financial instrument 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 are discussed further below: Foreign Currency Risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign currency exchange rates. The Company purchases a significant portion of its leather and finished goods inventory from foreign vendors with payment terms in U.S. dollars. The Company uses a combination of foreign exchange contracts and spot purchases to manage its foreign exchange exposure on cash flows related to these purchases. A foreign exchange contract represents an option with a counterparty to buy or sell a foreign currency to meet its obligations. Credit risk exists in the event of a failure by a counterparty to fulfill its obligations. The Company reduces this risk by mainly dealing with highly-rated counterparties such as major Canadian financial institutions. During the 13 week periods ended September 29, 2012 and September 24, 2011, the Company entered into foreign exchange contracts with Canadian financial institutions as counterparties with U.S. dollar notional amounts as listed below. Foreign exchange contracts outstanding as at September 29, 2012 expire at various times between October 5, 2012 and December 16, 2013 and the foreign exchange contracts that were outstanding as at September 24, 2011 expired between October 3, 2011 and December 16, 2011. 13 Weeks EndedSeptember 29, 2012September 24, 2011Notional amount outstanding at beginning of period (US$000)$21,000$18,500Notional amount of foreign exchange contracts entered into during the period (US$000)15,500-Notional amount of foreign exchange contracts expired during the period (US$000)(8,000)(8,000)Notional amount outstanding at end of period (US$000)$28,500$10,500Maturing in less than 1 year (US$000)$22,500$10,500Maturing between 1 year and 2 years (US$000)$6,000-Fair value of foreign exchange contracts - gain/(loss) (C$000)$(433)$278As at September 29, 2012, a sensitivity analysis was performed on the Company's U.S. dollar denominated financial instruments, which principally consist of US$0.6 million of cash, to determine how a change in the U.S. dollar exchange rate would impact net earnings. A 500 basis point rise or fall in the Canadian dollar against the U.S. dollar, assuming that all other variables, in particular interest rates, remained the same, would have resulted in a $5 decrease or increase, respectively, in the Company's net loss for the 13 week period ended September 29, 2012. Interest Rate Risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company's exposure to interest rate fluctuations is primarily related to cash borrowings under its existing credit facility, which bears interest at floating rates, and interest earned on its cash balances. The Company has performed a sensitivity analysis on interest rate risk as at September 29, 2012 to determine how a change in interest rates would have impacted net loss. As at September 29, 2012, the Company's cash balance available for investment was approximately $16.6 million. A 100 basis point change in interest rates would have increased or decreased net loss by approximately $29 for the 13 week period ended September 29, 2012. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. Equity Price Risk Equity price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market equity prices. The Company's exposure to equity price fluctuations is primarily related to the RSU and DSU liability included in payables and accruals. The value of the vested DSU and RSU liability is adjusted to reflect changes in the market value of the Company's Subordinate Voting Shares on the TSX. The Company has performed a sensitivity analysis on equity price risk as at September 29, 2012 to determine how a change in the price of the Subordinate Voting Shares would have impacted net loss. As at September 29, 2012, a total of 156,639 RSUs and 83,136 DSUs have been granted and are outstanding. An increase or decrease of $1.00 in the market price of the Company's Subordinate Voting Shares would have increased or decreased net loss by approximately $168 for the 13 week period ended September 29, 2012. This analysis assumes that all RSUs and DSUs were fully vested and other variables remain constant. Liquidity Risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due. The Company's approach to managing liquidity risk is to ensure, to the extent possible, that it will have sufficient liquidity to meet its liabilities when due. As at September 29, 2012, the Company had $16.6 million of cash; an operating credit facility of $25 million that is committed until June 27, 2014; and a $10 million uncommitted letter of credit facility which includes an uncommitted demand overdraft facility in the amount of $0.5 million related thereto. The credit facilities are used to finance seasonal working capital requirements for merchandise purchases and other corporate purposes. The Company expects that the majority of its payables and accruals and deferred revenue will be discharged within 90 days. Credit Risk Credit risk is the risk that a customer or counterparty to a financial instrument will cause a financial loss to the Company by failing to meet its obligations. The Company's financial instruments that are exposed to concentrations of credit risk are primarily cash and cash equivalents (which includes cash and money market investments with maturities of three months or less), accounts receivable and foreign exchange option contracts. The Company limits its exposure to credit risk with respect to cash and money market investments by investing in short-term deposits and bankers' acceptances with major Canadian financial institutions. The Company's accounts receivable consist primarily of credit card receivables from the last few days of the fiscal period end, which are settled within the first few days of the new fiscal period. Accounts receivable also consist of accounts receivable from distributors and corporate customers. Accounts receivable are net of applicable allowance for doubtful accounts, which is established based on the specific credit risks associated with the distributor, each corporate customer and other relevant information. The allowance for doubtful accounts is assessed on a quarterly basis. Concentration of credit risk with respect to accounts receivable from distributors and corporate customers is limited due to the relatively insignificant balances outstanding and the number of different customers comprising the Company's customer base. Credit risk for foreign exchange contracts exists in the event of failure by a counterparty to fulfill its obligations. The Company reduces this risk by dealing only with highly-rated counterparties such as major Canadian financial institutions.As at September 29, 2012, the Company's exposure to credit risk for these financial instruments was cash of $16.6 million, accounts receivable of $0.9 million and foreign exchange option contracts that had a notional amount of US$28.5 million. 18.Capital Disclosure:The Company defines its capital as shareholders' equity. The Company's objectives in managing capital are to:Ensure sufficient liquidity to support its current operations and execute its business plans; Enable the internal financing of capital projects; and Maintain a strong capital base so as to maintain investor, creditor and market confidence. The Company's primary uses of capital are to finance non-cash working capital along with capital expenditures for new store additions, existing store renovation or relocation projects, information technology software and hardware purchases and production machinery and equipment purchases. The Company maintains a $25 million operating credit facility and a $10 million uncommitted letter of credit facility that it uses to finance seasonal working capital requirements for merchandise purchases and other corporate purposes. The Company does not have any long-term debt and therefore net earnings generated from operations are available for reinvestment in the Company. The Board of Directors does not establish quantitative return on capital criteria for management, but rather promotes year-over-year sustainable profitable growth. On a quarterly basis, the Board of Directors monitors share repurchase program activities. Decisions on whether to repurchase shares are made on a specific transaction basis and depend on the Company's cash position, estimates of future cash requirements, market prices and regulatory restrictions, among other factors. The Company does not currently pay dividends. Externally imposed capital requirements include a debt-to-equity ratio covenant as part of the operating credit facility. The Company was in compliance with this covenant as at September 29, 2012 and September 24, 2011. There has been no change with respect to the overall capital risk management strategy during the 13 week period ended September 29, 2012. 19.Expenses by Nature:13 Weeks EndedSeptember 29, 2012September 24, 2011Selling and retail operating expenses11,70412,387General and administrative expenses4,7133,180$16,417$15,567Selling and retail operating expenses comprise costs incurred to operate the Company's stores including wages and benefits for store personnel, rent and occupancy, marketing and advertising, credit card fees, amortization of property and equipment and computer software and other store operating expenses.General and administrative expenses include the cost of design, merchandising, sourcing, merchandise planning, marketing, store administrative support, finance, loss prevention, information technology, human resources and executive functions.20. Segmented Information:Management has determined that the Company operates in one dominant industry which involves the design, manufacture, distribution and retail of fashion leather clothing and accessories. 21.Subsequent Event:The Company announced on October 23, 2012 that it intends to make a substantial issuer bid (the "Offer"), pursuant to which the Company will offer to repurchase for cancellation up to $10 million of its outstanding Subordinate Voting Shares from shareholders. The Offer will proceed by way of "modified Dutch auction" and the range of Offer prices will be $12.55 to $13.30 per share. The Offer will remain open for acceptance for at least 35 days after the commencement, unless withdrawn or extended by the Company. FOR FURTHER INFORMATION PLEASE CONTACT: Contact Information: Investor Relations Contact: Danier Leather Inc.Bryan TatoffSenior Vice-President, Chief Financial Officer & Secretary(416) 762-8175 ext. 328bryan@danier.comDanier Leather Inc.Jeffrey WortsmanPresident and Chief Executive Officer(416) 762-8175 ext. 302jeffreyw@danier.comwww.danier.com