Danier Leather Reports Fiscal 2012 First Quarter Results
(firmenpresse) - TORONTO, ONTARIO -- (Marketwire) -- 10/19/11 -- Danier Leather Inc. (TSX: DL) today announced its unaudited interim consolidated financial results for the 13 week period ended September 24, 2011.
FINANCIAL HIGHLIGHTS ($000s, except earnings per share (EPS), square footage and number of stores):
A seasonal net loss of $2.8 million during the first quarter of fiscal 2012 represents a 4% improvement over a net loss of $2.9 million during the first quarter last year.
Sales during the first quarter of fiscal 2012were $22.1 million compared with $23.4 million during the first quarter last year, a decrease of 6%. Comparable store sales(2) also decreased by 6%. In addition to comparing against a strong first quarter last year, where sales increased by 18% over the prior year, the decrease in sales was mainly due to reduced customer traffic which is believed to be due to weakened consumer confidence and concerns over uncertain economic conditions.
Accessory sales continued to perform well, increasing by 11% over the corresponding period last year. Accessories represented 39% of total revenue compared with 33% during the first quarter of fiscal 2011.
Gross profit as a percentage of revenue increased by 60 basis points to 52.9% compared with 52.3% during the first quarter last year. Selling, general and administrative expenses during the first quarter of fiscal 2012 decreased by 5% to $15.6 million, compared with $16.3 million during the first quarter last year.
Danier continues to maintain a strong balance sheet with cash of $12.1 million compared with $9.3 million at the end of the first quarter last year, working capital of $42.6 million, no long-term debt and a book value of $12.67 per outstanding share.
Effective for the first quarter ended September 24, 2011, Danier began reporting its financial results in accordance with International Financial Reporting Standards ("IFRS"), including comparative information. Previously reported financial results prepared in accordance with Canadian generally accepted accounting principles have been restated to conform to the new standards adopted. See Note 21 and Note 22 accompanying Danier's first quarter 2012 unaudited interim condensed consolidated financial statements for further information on the transition to IFRS and its impact on Danier's financial position, financial performance and cash flows.
Danier is holding its Annual General Meeting of Shareholders today, Wednesday, October 19, 2011 at 4:00 p.m. Eastern Time at Danier's corporate headquarters in Toronto. Shareholders are encouraged to attend. The meeting will also be webcast live at .
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 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.
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", "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 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 and in the Investor Relations section of the Company's website at . 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 law.
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, see .
1. General Information:
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 address of its registered head office is 2650 St. Clair Avenue West, Toronto, Ontario, M6N 1M2, Canada.
2. Basis of Preparation and Adoption of IFRS:
(a) Statement of Compliance
These unaudited interim condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") applicable to the preparation of interim financial statements, including International Accounting Standard ("IAS") 34, Interim Financial Reporting and by IFRS 1, First-time Adoption of IFRS, as issued by the International Accounting Standards Board ("IASB"). Subject to certain transition elections disclosed in Note 21, the Company has consistently applied the same accounting policies in its opening IFRS statement of financial position at June 27, 2010 and throughout all periods presented, as if these policies had always been in effect. Note 21 and Note 22 discloses the impact of the transition to IFRS on the Company's reported statements of financial position, income (loss) and cash flows, including the nature and effect of significant changes in accounting policies from those used in the Company's consolidated financial statements for the fiscal year ended June 25, 2011.
The policies applied in these interim condensed consolidated financial statements are based on IFRS standards issued and outstanding as of October 19, 2011, the date the Board of Directors approved the financial statements. Any subsequent changes to IFRS that are given effect in the Company's annual consolidated financial statements for the financial year ending June 30, 2012 could result in restatement of these interim condensed consolidated financial statements, including transition adjustments recognized on change-over to IFRS.
The interim condensed consolidated financial statements should be read in conjunction with the Company's annual financial statements for the year ended June 25, 2011 prepared in accordance with Canadian generally accepted accounting principles ("GAAP"). Note 22 discloses IFRS information for the year ended June 25, 2011 that is material to understanding of these interim condensed consolidated financial statements.
(b) Basis of Presentation
These interim condensed consolidated financial statements have been prepared on a historical cost basis except for the following items which are measured at fair value:
(c) Functional and presentation currency
These interim condensed consolidated financial statements are presented in Canadian dollars ("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) Use of Estimates and Judgments
The preparation of these interim condensed consolidated financial statements in accordance with IFRS requires management to make certain judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the period.
Judgment is commonly used in determining whether a balance or transaction should be recognized in the consolidated financial statements, and estimates and assumptions are more commonly used in determining the measurement of recognized transactions and balances. However, judgments and estimates are often interrelated.
Management has applied its judgment in its assessment of the classification of leases and financial instruments, the recognition of tax provisions, determining the tax rates used for measuring deferred taxes, and identifying the indicators of impairment of property and equipment and computer software.
Estimates are used when estimating the useful lives of property and equipment and computer software for the purposes of depreciation and amortization, when accounting for or measuring items such as inventory provisions, gift card breakage, assumptions underlying income taxes, sales and use taxes and sales return provisions, certain fair value measures including those related to the valuation of share-based payments and financial instruments and when testing assets for impairment. These estimations depend upon subjective and complex judgments about matters that may be uncertain, and changes in those estimates could materially impact the unaudited interim condensed consolidated 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 such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results may differ significantly from such estimates and assumptions.
Estimates and underlying 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.
3. Summary of Significant Accounting Policies:
The significant accounting policies used in the preparation of these interim condensed consolidated financial statements are described below.
(a) Basis of measurement:
The interim condensed consolidated financial statements have been prepared on a going concern basis, under the historical cost convention as modified by the revaluation of certain financial assets and financial liabilities (including derivative instruments) at fair value through profit and loss.
(b) Basis of consolidation:
The interim condensed consolidated financial statements include the accounts of the Company and its subsidiary companies, all of which are wholly owned. On consolidation, all intercompany transactions and balances have been eliminated.
(c) Year-end:
The fiscal year end of the Company consists of a 52 or 53 week period ending on the last Saturday in June each year. The current fiscal year for the consolidated financial statements will be the 53-week period ended June 30, 2012, and comparably the 52-week period ended June 25, 2011.
(d) Foreign currency translation:
Items included in the financial statements of each wholly owned consolidated entity in the Danier Leather Inc. group are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). The consolidated financial statements are presented in Canadian dollars, which is the Company's presentation currency.
Accounts in foreign currencies are translated into Canadian dollars. Monetary financial position items are translated at the rates of exchange in effect at the period end and non-monetary items are translated at historical exchange rates. Revenues and expenses are translated at the rates in effect on the transaction dates or at the average rates of exchange for the reporting period. The resulting net gain or loss is included in the consolidated statement of earnings (loss).
(e) Revenue recognition:
Revenue includes sales of merchandise, alteration services and gift cards to customers through stores operated by the Company and sales of incentive and promotional product merchandise to a third party distributor. Revenue is measured at the fair value of consideration received, net of estimated returns and discounts and excludes sales taxes. Estimated returns are based on historical results and the type of transaction.
Sales of merchandise to customers through stores operated by the Company is recorded net of returns and discounts and is recognized when the significant risks and rewards of ownership have been transferred to the buyer, which is the time the transaction is entered into the point-of-sale register.
Alteration revenue is recorded based on the percentage of completion method. Due to alteration revenue representing less than one percent of merchandise revenue, the short time required to complete an alteration and at any point in time there is an immaterial amount of partially processed alterations, alteration revenue is recorded at the same time the sale of merchandise transaction is entered into the point-of-sale register.
Sales to the third party distributor is recorded when the significant risks and rewards of ownership have been transferred to the buyer, which is at the time of shipment.
Gift cards sold are recorded as deferred revenue and revenue is recognized at the time of redemption or in accordance with the Company's accounting policy for breakage. Breakage income represents the estimated value of gift cards that is not expected to be redeemed by customers where the unredeemed balance is more than two years old from the date of issuance. Historically breakage has not been material.
(f) Share-based compensation plans:
The Company operates an equity-settled Stock Option Plan and cash-settled Restricted Share Unit ("RSU") and Deferred Share Unit ("DSU") share-based compensation plans.
For the equity-settled Stock Option Plan, where options to purchase Subordinate Voting Shares are issued to directors, officers, employees and service providers (further details of which are described in Note 12(e)), the expense is based on the fair value of the awards granted, excluding the impact of any non-market service conditions (for example, continued employment over a specified time period). Non-market vesting conditions are considered in making assumptions about the number of awards that are expected to vest. The fair value of options granted is estimated at the date of grant using the Black-Scholes Option Pricing Model. The expense is recognized on a graded vesting basis over the vesting period of the stock options, which is generally three years.
When stock options are subsequently exercised, share capital is increased by the sum of the consideration paid together with the related portion previously added to contributed surplus when compensation costs were charged against income.
For the cash-settled RSU plan, where RSUs are issued to directors, officers and employees and vest over a period of up to three years (further details of which are described in Note 12(g)), the 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.
For the cash-settled DSU plan, where DSUs are issued to directors and vest immediately and can only be redeemed once the director leaves the Board of Directors of the Company (further details of which are described in Note 12(f)), the expense is recognized on the grant date based on the fair value of the award by applying the Black-Scholes Option Pricing Model. 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.
At each financial position date, the Company reassesses its estimates of the number of awards that are expected to vest and recognizes the impact of any revisions in the statement of earnings (loss) with a corresponding adjustment to equity or liabilities, as appropriate.
(g) Cash and cash equivalents:
Cash and cash equivalents consists of cash on hand, bank balances and money market investments with maturities of three months or less.
(h) Financial instruments:
(i) Classification of Financial Instruments
Financial instruments are classified into one of the following three categories: held for trading, loans and receivables, or financial liabilities. The classification determines the accounting treatment of the instrument. The classification is determined by the Company when the financial instrument is initially recorded, based on the underlying purpose of the instrument.
The Company's financial instruments are classified and measured as follows:
Financial instruments measured at amortized cost are initially recognized at fair value and then subsequently at amortized cost using the effective interest method, less any impairment losses, with gains and losses recognized in the statement of earnings (loss) in the period in which the gain or loss occurs. Changes in fair value of financial instruments classified as held for trading are recorded in the statement of earnings (loss) in the period of change.
The Company categorizes its financial assets and financial liabilities that are recognized in the statements of financial position at fair value using the fair value hierarchy. The fair value hierarchy has the following levels:
The level in the fair value hierarchy within which the fair value measurement is categorized in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety.
(ii) Transaction Costs
Transaction costs are added to the initial fair value of financial assets and liabilities when those financial assets and liabilities are not measured at fair value subsequent to initial measurement. Transaction costs are recorded in selling, general and administrative expenses ("SG&A") using the effective interest method.
(iii) Derivative Financial Instruments
The Company uses derivatives in the form of foreign currency option contracts, which are used to manage risks related to its inventory purchases which are primarily denominated in United States dollars. All derivatives have been classified as held-for-trading, are included on the statements of financial position as accounts receivable or payables and accruals and are classified as current or non-current based on the contractual terms specific to the instrument. Gains and losses on re-measurement are included in SG&A.
(iv) Fair Value
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 assumption used in estimating the fair value of the Company's financial instruments are as follows:
(i) Impairment of financial assets:
At each reporting date, the Company assesses whether there is objective evidence that a financial asset is impaired. If such evidence exists, the Company recognizes an impairment loss, as follows:
(j) Inventories:
Merchandise inventories are valued at the lower of cost, using the weighted average cost method, and net realizable value. For inventories manufactured by the Company, cost includes direct labour, raw materials, manufacturing and distribution centre costs related to inventories and transportation costs that are directly incurred to bring inventories to their present location and condition. For inventories purchased from third party vendors, cost includes the cost of purchase, duty and brokerage, quality assurance costs, distribution centre costs related to inventories and transportation costs that are directly incurred to bring inventories to their present location and condition. The Company estimates the net realizable value as the amount at which inventories are expected to be sold, taking into account fluctuations in retail prices due to seasonality, less estimated costs necessary to make the sale. Inventories are written down to net realizable value when the cost of inventories is not estimated to be recoverable due to obsolescence, damage or declining selling prices. When circumstances that previously caused inventories to be written down below cost no longer exist, the amount of the write-down previously recorded is reversed. Storage costs, administrative overheads and selling costs related to the inventories are expensed in the period the costs are incurred.
(k) Property and equipment:
Property and equipment are recorded at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. Borrowing costs attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets, until such time as the assets are substantially ready for their intended use. Qualifying assets are those assets that take longer than nine months to be substantially ready for their intended use. All other borrowing costs are recognized as interest expense in the statement of earnings (loss) in the period in which they are incurred.
Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits can be measured reliably. The carrying amount of a replaced asset is de-recognized when replaced. Repairs and maintenance costs are charged to the statement of earnings (loss) during the period in which they are incurred.
During the 13 week period ended September 24, 2011, the Company reviewed and adjusted its method of amortization and remaining useful lives of property and equipment from the declining balance method to the straight-line method, as this is believed to more accurately reflect the remaining useful life of each category of property and equipment. The change has been accounted for prospectively as a change in estimate. Based on property and equipment held as at September 24, 2011, the effect of this change results in an increase of amortization expense of $43 for the 13 week period ended September 24, 2011 and an estimated increase of amortization expense of $173 for the fiscal year ended June 30, 2012.The major categories of property and equipment and their methods of amortization and useful lives for the 13 week periods ended September 24, 2011 and September 25, 2010 are as follows:
Leasehold improvements for a specific retail location are amortized on a straight-line basis over the term of the lease not to exceed 10 years, unless the Company has decided to terminate the lease, at which time the unamortized balance is written off. Land is not amortized.
The Company allocates the amount initially recognized in respect of an item of property and equipment to its significant parts and depreciates separately each such part. Residual values, method of amortization and useful lives of the assets are reviewed annually and adjusted if appropriate. Gains and losses on disposals of property and equipment are determined by comparing the proceeds with the carrying amount of the asset and are included as part of SG&A in the statement of earnings (loss).
(l) Computer software:
Computer software with finite useful lives is classified as an intangible asset. Computer software is purchased from external vendors and capitalized and amortized in the statement of earnings (loss) over the period of its expected useful life. During the 13 week period ended September 24, 2011, the Company reviewed and adjusted its method of amortization and useful lives of computer software from the 30% declining balance method to the straight-line method over a period of 4 to 7 years. Based on computer software held as at September 24, 2011, the effect of this change resulted in an increase of amortization expense of $10 for the 13 week period ended September 24, 2011 and an estimated increase of amortization expense of $39 for the fiscal year ended June 30, 2012. Amortization and useful lives of computer software is reviewed annually and adjusted if appropriate.
(m) Impairment of non-financial assets:
Property and equipment and computer software with finite lives are tested for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable at the financial position date. For purposes of measuring recoverable amounts, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units or CGUs), which is at the individual store level for the Company. The recoverable amount is the greater of an asset's fair value less costs to sell and value in use (being the present value of the expected future cash flows of the relevant asset or CGU). An impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. The Company evaluates impairment losses for potential reversals when events or circumstances warrant such consideration.
(n) Provisions:
Provisions represent liabilities to the Company for which the amount or timing is uncertain. Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. The sales return provision primarily comprises 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. The sales return provision is estimated based on historical experience and since the time period of the provision is of relatively short duration, the present value of the expenditure expected to be required to settle the obligation approximates the actual provision estimate. The provision is reviewed at each financial position date and updated to reflect management's latest best estimate, however, actual returns could vary from these estimates.
(o) Deferred lease inducements and rent liability:
Deferred lease inducements represent cash benefits received from landlords pursuant to store lease agreements. These lease inducements are amortized against rent expense over the term of the lease, not exceeding 10 years.
Rent liability represents the difference between minimum rent as specified in the lease and rent calculated on a straight-line basis.
(p) Income taxes:
Income tax comprises current and deferred tax.
Current tax is the expected tax payable on the taxable income for the year using tax rates enacted or substantially enacted, at the end of the reporting period, and any adjustments to tax payable in respect of previous years. Income taxes in interim reporting periods are accrued, to the extent practicable, by applying estimated average annual effective federal and provincial income tax rates to the interim period pre-tax income. A weighted average of rates across provinces or categories of income is used if it is a reasonable approximation of the effect of using more specific rates. The estimated average annual effective income tax rates are re-estimated at each interim reporting date. In determining estimated tax rates, the Company uses enacted or substantially enacted tax rates in effect at the reporting date and any adjustments to taxes payable in respect of previous years.
In general, deferred tax is recognized in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined on a non-discounted basis using tax rates and laws that have been enacted or substantially enacted at the financial position date and are expected to apply when the deferred tax asset or liability is settled. Deferred tax assets are recognized to the extent that it is probable that the assets can be recovered.
Estimation of income taxes includes evaluating the recoverability of deferred tax assets based on an assessment of the Company's ability to utilize the underlying future tax deductions against future taxable income before they expire. As described above, the Company's assessment is based upon substantially enacted tax rates and laws that are expected to apply when the assets are expected to be realized, as well as on estimates of future taxable income. If the assessment of the Company's ability to utilize the underlying future tax deductions changes, the Company would be required to recognize more or fewer of the tax deductions or assets, which would decrease or increase the income tax expense in the period in which this is determined. Deferred income tax assets are recognized on the statement of financial position under non-current assets, irrespective of the expected date of realization or settlement.
The Company is subject to taxation federally and in numerous provinces. Significant judgment is required in determining the provision for taxation. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Company assesses the need for provisions for uncertain tax positions using best estimates of the amounts that would be expected to be paid based on a qualitative assessment of all relevant factors. The Company reviews the adequacy of it tax provisions at each financial position date. However, it is possible that at some future date an additional liability could result from audits by taxing authorities. Where the final outcome of these matters is different from the amounts that were initially recorded, such differences will affect the tax provisions in the period in which such determination is made.
(q) Earnings per share:
Basic earnings per share is calculated by dividing the net earnings available to shareholders by the weighted average number of shares outstanding during the year (see Note 12). Diluted earnings per share is calculated using the treasury stock method, which assumes that all outstanding stock options with an exercise price below the average monthly market price of the Subordinate Voting Shares on the Toronto Stock Exchange (the "TSX") are exercised and the assumed proceeds are used to purchase the Company's Subordinate Voting Shares at the average monthly market price on the TSX during the fiscal year.
(r) New standards and interpretations not yet adopted:
A number of new standards, amendments to standards and interpretations have been issued but are not yet effective for the financial year ending June 30, 2012, and accordingly, have not been applied in preparing these unaudited interim condensed consolidated financial statements:
(i) Financial Instruments - Disclosures
The IASB has issued an amendment to IFRS 7, "Financial Instruments: Disclosures", requiring incremental disclosures regarding transfers of financial assets. This amendment is effective for annual periods beginning on or after July 1, 2011. The Company will apply the amendment for its fiscal year beginning July 1, 2012 and does not expect the implementation to have a significant impact on the Company's disclosures.
(ii) Financial Instruments
The IASB has 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 becomes effective on January 1, 2013. The Company has yet to assess the impact of the new standard on its statements of financial position, earnings (loss) and disclosures.
(iii) Fair Value
The IASB has issued a new standard, IFRS 13, "Fair Value Measurement" ("IFRS 13"), which is a comprehensive standard for fair value measurement and disclosure requirements for use across all IFRS standards. The new standard 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 and in many cases does not reflect a clear measurement basis or consistent disclosures. The Company does not believe that this new standard will have a material impact on its consolidated financial statements.
(iv) Other Standards
On May 12, 2011, the IASB issued a package of five new standards, all of which are effective for annual periods beginning on or after January 1, 2013. Early adoption is permitted but IFRS 10, IFRS 11 and IFRS 12 (all discussed below) must all be adopted at the same time. The Company has yet to fully assess the impact of the new standards and amendments on its consolidated financial statements. The following is a list of these new standards and amendments.
4. Seasonality of retail operations:
Due 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 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.
5. Cash and cash equivalents:
The components of cash and cash equivalents are as follows:
The Company conducted an impairment test for its property and equipment and determined that there was no impairment for the 13 weeks ended September 24, 2011 ($NIL - 13 weeks ended September 25, 2010). The recoverable amount of the CGU was estimated based on value-in-use calculations as this was determined to be higher than fair value less costs to sell. These calculations use cash flow projections based on actual performance during the past 12 months which are then extrapolated over each CGU's remaining lease term and then discounted using an estimated discount rate. The key assumptions for the value-in-use calculations include discount rates, growth rates and expected cash flows. Management estimates discount rates using pre-tax rates that reflect current market assessment of the time value of money and the risks specific to the CGUs. Changes in revenues and direct costs are based on past experience and expectations of future changes in the market.
The pre-tax discount rate used to calculate value-in-use range is 11% and is dependent on the specific risks in relation to the CGU. The discount rate is derived from retail industry comparable post-tax weighted average cost of capital.
If management's cash flow estimate were to decrease by 10% or if the discount rate were to increase by 100 basis points, there would still be no impairment.
8. Computer Software:
9. 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 ($14 million between September 1, 2011 and December 15, 2011) and an uncommitted demand overdraft facility in the amount of $0.5 million (the "LC Facility") 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.
10. Payables and Accruals:
11. 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 24, 2011 and September 25, 2010 with respect to the sales return provision:
The 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:
The 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. The number of options excluded was 62,000 as at September 24, 2011 and 58,000as at September 25, 2010.
(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 "2010 NCIB"). The 2011 NCIB permits 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 complete its purchases under the 2011 NCIB. During the fourth quarter of fiscal 2011 and the first quarter of fiscal 2012, the Company repurchased an aggregate of 125,000 Subordinate Voting Shares for cancellation at a weighted average price of $11.44, leaving 51,440 Subordinate Voting Shares available for repurchase by the Company under the 2011 NCIB.
During the 13 week periods ended September 24, 2011 and September 25, 2010, repurchases of Subordinate Voting Shares under the Company's NCIBs outstanding during the applicable period is presented below.
(e) Stock option plan
The Company maintains a Stock Option Plan for the benefit of directors, officers, employees and service providers, pursuant to which granted options are exercisable for Subordinate Voting Shares. As at September 24, 2011, the Company has reserved 638,934 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 under the Stock Option Plan vest over a period of three 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 24, 2011 and September 25, 2010 and changes during the 13 week periods ended on those dates is presented below:
The following table summarizes the distribution of these options and the remaining contractual life as at September 24, 2011:
During the 13 week periods ended September 24, 2011 and September 25, 2010, there were no stock options granted.
The compensation expense recorded for the 13 week period ended September 24, 2011 in respect of stock options was $15 (13 week period ended September 25, 2010 - $40). The counterpart is recorded as contributed surplus. Any consideration paid by optionees on the exercise of stock options is credited to share capital.
(f) Deferred Share Unit Plan
The cash-settled 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 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 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 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 24, 2011 and September 25, 2010 with respect to the DSU Plan:
(g) Restricted Share Unit Plan
The Company has established a cash-settled Restricted Share Unit ("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 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. 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 24, 2011 and September 25, 2010 with respect to the RSU Plan:
13. Amortization:
Amortization included in cost of sales and SG&A is summarized as follows:
14. Income Taxes:
The estimated average annual effective rate was 28.3% during the 13 weeks ended September 24, 2011 compared with 30.1% estimated rate for the 13 weeks ended September 25, 2010 and 30.8% for the fiscal year ended June 25, 2011. The difference between the rate for the 13 weeks ended September 24, 2011 and the rate for the 13 weeks ended September 25, 2010 and the fiscal year ended June 25, 2011 is due to a reduction in the statutory tax rates as well as the effect of certain non-deductible expenses on estimated earnings and the effect of changes in future federal and provincial rates on deferred taxes.
Deferred income tax asset is summarized as follows:
16. 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:
(i) 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.
(ii) In the ordinary course of business, the Company has provided indemnification commitments to certain counterparties in matters such as real estate leasing transactions, director and officer indemnification agreements and certain purchases of 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.
(iii) 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 $211.
17. 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:
(b) Letters of credit:
The Company had outstanding letters of credit in the amount of $12,729 (September 25, 2010 - $17,765) for the importation of finished goods inventories to be received.
18. Financial Instruments:
(a) Fair value disclosure
The following table presents the carrying amount and the fair value of the Company's financial instruments.
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:
(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 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.
During the 13 week periods ended September 24, 2011 and September 25, 2010, the Company entered into foreign exchange contracts with a major Canadian financial institution as counterparty with U.S. dollar notional amounts as listed below. Foreign exchange contracts outstanding as at September 24, 2011 expire at various times between October 3, 2011 and December 16, 2011 and the foreign exchange contracts that were outstanding as at September 25, 2010 expired between October 1, 2010 and February 11, 2011.
As at September 24, 2011, a sensitivity analysis was performed on the Company's U.S. dollar denominated financial instruments, which principally consist of US$0.4million 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 $4 decrease or increase, respectively, in the Company's net loss for the 13 week period ended September 24, 2011.
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 at September 24, 2011 to determine how a change in interest rates would have impacted net loss. As at September 24, 2011, the Company's cash balance available for investment was approximately $12.1 million and an increase or decrease of 100 basis points in interest rates would have increased or decreased net loss by approximately $21. 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 24, 2011 to determine how a change in the price of the Company's Subordinate Voting Shares would have impacted net loss. As at September 24, 2011, a total of 167,770 RSUs and 103,920 DSUs have been granted and are outstanding. An increase or decrease of $1.00in the market price of the Company's Subordinate Voting Shares would have increased or decreased net loss by approximately $189. 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 24, 2011, the Company had $12.1 million of cash; an operating credit facility of $25 million that is committed until June 27, 2014; and a $10 million ($14 million between September 1, 2011 to December 15, 2011) 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 (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 and Government of Canada treasury bills. 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 licensees, 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 licensee, 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 licensees, 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.
As at September 24, 2011, the Company's exposure to credit risk for these financial instruments was cash of $12.1million and accounts receivable of $1.1million. Cash included $6.0million of short-term deposits.
19. Capital Disclosure:
The Company defines its capital as shareholders' equity. The Company's objectives in managing capital are to:
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 ($14 million between September 1, 2011 and December 15, 2011) 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. 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 24, 2011 and September 25, 2010. There has been no change with respect to the overall capital risk management strategy during the 13 week period ended September 24, 2011.
20. Segmented Information:
Management has determined that the Company operates in one operating segment which involves the design, manufacture, distribution and retail of fashion leather and suede.
21. Transition to IFRS:
The Company's financial statements for the fiscal year ending June 30, 2012 will be the first annual financial statements that comply with IFRS and these interim consolidated financial statements were prepared as described in Note 2, including the application of IFRS 1. IFRS 1 requires an entity to adopt IFRS in its first annual financial statements prepared under IFRS by making an explicit and unreserved statement in those financial statements of compliance with IFRS.
IAS 1 requires that comparative financial information be provided. As a result, the first date at which the Company has applied IFRS was June 27, 2010 (the "Transition Date"). IFRS 1 requires first-time adopters to retrospectively apply all effective IFRS standards as of the reporting date, which for the Company will be June 30, 2012. However, it provides for certain optional exemptions and certain mandatory exceptions for first time IFRS adopters.
Initial elections upon adoption
Set forth below are the IFRS 1 applicable exemptions and exceptions applied in the conversion from Canadian GAAP to IFRS.
IFRS 1 requires an entity to reconcile equity, comprehensive income and cash flows for prior periods. The Company's first time adoption of IFRS did not have an impact on the total operating, investing or financing cash flows. The following represents the reconciliations from Canadian GAAP to IFRS for the respective period noted for the consolidated statements of financial position, consolidated statements of income and comprehensive income and total shareholders' equity.
Material Adjustments to Consolidated Statements of Cash Flow
IFRS requires cash flows from interest received, interest paid and income taxes paid to be disclosed directly in the consolidated statements of cash flow. Under Canadian GAAP, the Company disclosed interest and income taxes paid as supplementary cash flow information. This has resulted in a change to the presentation of the consolidated statements of cash flow for all periods presented in these unaudited interim condensed consolidated financial statements. There are no other material differences between the Company's statements of cash flow presented under IFRS and the statements of cash flow presented under Canadian GAAP.
Reconciliation of Consolidated Statements of Financial Position as previously reported under Canadian GAAP to IFRS
Reconciliation of Consolidated Statement Income and Comprehensive Income as previously reported under Canadian GAAP to IFRS
Reconciliation of Shareholders' Equity as previously reported under Canadian GAAP to IFRS
Notes to the Reconciliations
The preceding are reconciliations of the financial statements previously presented under Canadian GAAP to the amended financial statements prepared under IFRS. Items in the "Adj" columns included IFRS adjustments that are required as the accounting treatment under Canadian GAAP differs from the treatment under IFRS, as well as IFRS reclassifications which are solely presentation reclassifi
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Datum: 19.10.2011 - 19:15 Uhr
Sprache: Deutsch
News-ID 78136
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Town:
TORONTO, ONTARIO
Kategorie:
Fashion
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