ANNUAL REPORT 2005 - Danier

Transcription

ANNUAL REPORT 2005
FINANCIAL HIGHLIGHTS
(in thousands of dollars, except earnings per share and shares outstanding)
2004
2003
2002
2001
2000
Sales
178,115
175,487
179,977
165,418
143,011
Gross Profit
88,055
86,699
87,879
82,600
73,146
7,547
12,016
18,154
21,115
19,062
EBITDA
(1,834)
15,305
23,684
25,530
22,556
EBITDA excluding litigation provision
13,616
18,078
23,684
25,530
22,556
Net Earnings (loss)
(7,097)
5,394
10,725
12,078
10,710
(1.03)
0.78
1.57
1.75
1.48
n/a
0.76
1.53
1.73
1.40
6,944,554
6,919,554
6,908,204
6,835,329
7,023,329
Earnings before income tax and litigation provision
Earnings Per Share
Basic
Diluted
Shares Outstanding at year-end
Selected Balance Sheet Data
Cash
23,000
7,254
3,777
1,663
775
Working Capital
44,202
36,873
33,602
27,693
21,292
Total Assets
89,869
81,487
75,695
68,438
59,007
Long-term Debt
Shareholders’ Equity
nil
nil
nil
nil
470
61,287
67,994
62,522
51,292
41,445
2004
2003
2002
2001
2000
(4%)
(7%)
1%
8%
16%
SELECTED FINANCIAL INFORMATION
Comparable store sales increase (decrease)
Sales ($000)
Shopping Mall/Street-Front/E-commerce
86,128
82,384
86,865
83,038
75,104
Power Centre
91,987
93,103
93,112
82,380
67,907
Total
178,115
175,487
179,977
165,418
143,011
Retail Square Footage
Shopping Mall/Street-Front
118,847
117,927
108,566
95,018
84,640
Power Centre
258,680
251,235
212,672
177,574
158,624
Total
377,527
369,162
321,238
272,592
243,264
58
59
56
56
51
Power Centre
40
39
33
27
24
Total
98
98
89
83
75
Number of Stores
FINANCIAL HIGHLIGHTS
(in thousands of dollars, except earnings per share and shares outstanding)
2005
166,350
83,487
2004
175,270
86,528
2003
172,823
85,275
2002
177,704
86,776
2001
162,654
81,183
6,612
9,390
8,734
(963)
12,904
15,957
19,018
24,388
21,563
25,848
12,488
(185)
14,487
(7,097)
18,730
5,394
24,388
10,725
25,848
12,078
(0.03)
n/a
6,546,154
(1.03)
n/a
6,944,554
0.78
0.76
6,919,554
1.57
1.53
6,908,204
1.75
1.73
6,835,329
21,193
44,285
83,365
nil
54,937
22,576
44,202
89,869
nil
61,287
7,081
36,873
81,487
nil
67,994
3,581
33,602
75,695
nil
62,522
1,577
27,693
68,438
nil
51,292
2005
(6%)
2004
(4%)
2003
(7%)
2002
1%
2001
8%
Sales ($000)
Shopping Mall/Street-Front/Direct
Power Centre
Total
81,280
85,070
166,350
83,283
91,987
175,270
79,720
93,103
172,823
84,592
93,112
177,704
80,274
82,380
162,654
Retail Square Footage
Power Centre
Total
117,309
254,645
371,954
113,476
258,680
372,156
112,556
251,235
363,791
104,755
212,672
317,427
91,207
177,574
268,781
Number of Stores
Power Centre
Total
56
39
95
55
40
95
56
39
95
54
33
87
54
27
81
Sales
Gross Profit
Earnings before income tax
and litigation provision
EBITDA from continuing operations
excluding litigation provision
Net Earnings (loss)
Earnings Per Share
Basic
Diluted
Shares Outstanding at year-end
Selected Balance Sheet Data
Cash
Working Capital
Total Assets
Long-term Debt
Shareholders’ Equity
SELECTED FINANCIAL INFORMATION
Comparable store sales increase (decrease)
Table of Contents
Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . .3
Auditors’ Report to Shareholders . . . . . . . . . . . . . . .32
Review of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Consolidated Financial Statements . . . . . . . . . . . . .33
Management’s Discussion and Analysis . . . . . . . . . .17
Notes to Consolidated Financial Statements . . . .36
Management’s Responsibility
for Financial Statements . . . . . . . . . . . . . . . . . . . . . . .32
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
Company Information . . . . . . . . . . . . . . . . . . . . . . . . . .48
• LETTER TO SHAREHOLDERS •
Although fiscal 2005 did not result in the sales and profit performance that we had planned for, it nevertheless was a
year for Danier to initiate significant changes in a number of key areas. These changes have already started to be
implemented and while the initial results are expected to be realized this fall, we realistically expect that the majority of
the benefits will be realized in the following fiscal year.
There were a number of factors that affected Danier’s results. The overall market for leather outerwear and sportswear
was weak. This was partly the result of external forces such as a consumer shift to other materials such as microfibre
and denim, and milder weather, especially in the crucial pre-Christmas and Boxing Day periods. Other factors that
affected results included an emphasis on deep discounting in the Canadian retail industry. Danier responded to this
with multiple sales events that focused on price discounts which lowered the average price of Danier’s products but
did not generate a sufficient traffic lift. Danier also closed all three of its U.S. stores in April 2005. The Company
recorded additional amortization of $1.1 million in fiscal 2005 as a result of the discontinued U.S. operations and took a
$0.4 million charge to reflect lease termination and employee severance costs.
Danier is changing for the better. By far the most ambitious change at Danier is the transformation of our marketing
efforts as we elevate the Danier brand, place less reliance on price promotions and improve store presentation. Other
changes that will take place in the next year include the launch of a new line of merchandise aimed at a new
demographic of 20 to 30 year old customers, use of customer research more strategically and reinvigorating our 95
stores to make them more appealing to our customers. Efforts in this regard include clearer communication of the
unique features of our mall stores and power centres along with better segmentation of our real estate, customers and
merchandise.
We remain confident in our long-term strategy and are committed to continue building Danier into an industry leading
retailer and an even stronger brand. From an operations standpoint, our gross margins, inventory position and balance
sheet are in solid shape, and our stores are carrying fashionable and colourful merchandise at attractive price points.
Danier ended the year with $21.2 million of cash and working capital of $44.3 million while repurchasing 402,400 shares
and initiating a quarterly cash dividend of 6 cents per share which translates into a yield of approximately 2.4% based
on Danier’s year-end stock price.
I would like to extend sincere thanks to our 1,300 employees for their commitment to Danier and their hard work
throughout the year. I would also like to recognize our Board of Directors, whose guidance has been invaluable as we
chart a new direction for our company.
Jeffrey Wortsman
President and CEO
July 25, 2005
DANIER ANNUAL REPORT 2005
3
• REVIEW OF OPERATIONS •
About Danier
Danier owns and operates 95 stores in Canada, making us the leading specialty leather retailer in the country and
among the largest in the world. The company operates 56 shopping mall and street-front stores and 39 larger format
stores located in power centres. Danier also sells its merchandise directly to corporate clients through its Corporate
Sales Division and through its website, danier.com.
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leather represents authenticity
and detailed craftsmanship
Marketing
The Danier brand resonates strongly with consumers in search of leather and suede designs that are as accessible as
they are fashion-forward. Significant changes are occurring with Danier’s marketing activities, which will be focused on
building a strong foundation for future growth.
Elevating the Brand
One of Danier’s most important assets is its solid brand identity – an identity that must be supported proactively. We
see the coming year as a time to further establish Danier’s brand credentials.
An abiding truth about Danier is that no matter who buys leather at our stores, it is always a “trade-up” from other
garment materials they could otherwise purchase. Our product line incorporates authentic leather and detailed
craftsmanship to enhance the brand’s quality credentials. Danier’s market research indicates that the softness of our
leather and detailed finishes are important signals of quality. We will continue to invest in the best raw materials available
and to source buttery soft leather in a wide array of colours for our customers.
Fundamentally, the Danier brand represents accessible luxury that is highly versatile and can be easily integrated into
one's everyday wardrobe. This flexibility will be incorporated into Danier's new “Leather For Living” campaign for 2006,
which will showcase the authenticity and versatility of leather and further position Danier as the leather lifestyle brand.
We will also elevate our fashion credentials by showcasing more fashion-forward designs in selected stores in key
markets.
In 2006, we are striving for consistency in the way we project our brand by integrating all elements of consumer
communications and ensuring that they speak with the same voice. For example, the “Leather For Living” campaign will
be featured not just in our advertising, but also at the store level and on our website at danier.com.
7
www.danier.com
Magazine Ad – Fall 2005 National Advertising Campaign
Redefining Value
We believe that the strategy of deep discounting and holding multiple promotional events throughout the year has run
its course. Price promotions lose their impact if we are constantly discounting, while customers develop a habit of
delaying purchases until a promotion takes place.
Instead, we are taking a new approach to bringing shoppers into Danier stores by shifting promotion focus from “price
discount” to “value added”. We will hold a fixed number of national sales events per calendar year, ensuring that our
pricing policy reflects our commitment to value and style.
Strengthen Relationship with Customers
Communicating with customers helps us constantly to improve. In 2005, Danier continued reaching out to customers
by conducting market research on a range of subjects. We believe in-depth research contributes to better decision
making, enabling us to better target our customers and provide an improved shopping experience for them.
We have also committed ourselves to speaking with customers on an ongoing basis, not just when promotions are
taking place. The aim is to establish regular communication that enhances our relationship with customers and enables
us to better target our messaging, making them feel welcome as valued members of the Danier family.
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Build New Traffic and Sales
Danier is reaching out to more fashion forward customers by launching a new line called, appropriately, “New Label” in
select stores. The look emphasizes a new fit and a new attitude, and will be prominently displayed on new fixtures and
mannequins.
We will also be building awareness of accessory categories as a “point of entry” into the Danier brand for new customers.
Danier has been expanding its accessory business over the past several years and now offers a range of products, from
belts to purses to photo albums. In 1998, accessories accounted for 4% of total company revenue; in 2005, accessories
represented 19% of the company's total revenue, a modest increase over the 18% of sales they represented in 2004.
Danier’s eventual goal is to grow this business to 30% of total sales revenue through an expanded range of choice within
current product lines and bringing new accessories to the market for home, travel and office use. A marketing campaign
focused on handbags was tested in 2005, with strong traffic and sales results. Handbags will continue to be an important
marketing focus throughout 2006.
Yorkdale Shopping Centre – Purse Event Windows – July 2005
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the store is the fullest
expression of the Danier brand
Improve Store Experience
The store is the fullest expression of the Danier brand. We are enhancing the customer experience at store level by adding
visual merchandising specialists to our staff who will test and implement new store layouts, fixtures, and signs. Danier is
also investing in new fashion mannequins to elevate the appeal of our garments in store windows across the country.
Danier is fortunate in that our product offering appeals to a broad spectrum of customers. Therefore, better
communication of Danier’s value offering for each store format (power centres and mall stores) can be achieved through
better segmentation of Danier’s retail environment. To that end, Danier is working to segment stores, with some
emphasizing value and others being more fashion oriented.
We are also a multi-channel retailer and our website, danier.com, is invaluable both as a marketing tool as well as an
important sales channel. The site also places us in front of potential customers wherever and whenever they want to shop.
As part of our renewed commitment to deliver a consistent brand experience at every touch point, the Danier website will
reinforce our “Leather For Living” campaign and deliver the same value-added promotions to consumers as our stores.
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Test, Learn and Improve
The changes occurring at Danier represent the beginning of the road to improved performance. They are meant not to
revolutionize our business but to refine our strategy. We will assess the impact of our activities on our performance
throughout the year.
Test – We will test our new marketing strategy to assess the results it is delivering.
Learn – We are dedicating additional resources to learn about our customers and to get a better idea of who they are
and what motivates them to shop at Danier.
Improve – We will improve our ability to predict the appetite for our products and vary styles as necessary.
Operational Improvements
A major investment in Danier’s Information Technology systems will be launched in the coming year, involving
replacement of Danier’s point-of-sale (POS) system and customer relationship management (CRM) system. In addition
to reducing the time it takes to process a transaction, the CRM system will enable Danier to tailor offerings directly to
individual customers. This will be the first major upgrade in several years and is the largest capital expenditure for the
year. Upgrading now makes sense given recent advances in POS technology.
We will continue to invest in our store network, opening one power centre and one mall store, while renovating eight
existing mall stores.
The company’s overseas sourcing operation will be further enhanced with the recent opening of a new office in China
that puts our people closer to our existing and new vendors and delivers better access to low cost raw materials.
There is a positive appetite for change at Danier. Company management understands that we must look forward but also
remember our past as we implement our new marketing and operational improvements.
15
management’s discussion and analysis
As at July 25, 2005
The following management’s discussion and analysis is based upon and should be read in conjunction with Danier Leather Inc.
(“Danier” or the “Company”) consolidated financial statements and notes thereto prepared in accordance with Canadian generally
accepted accounting principles (“GAAP”). In the discussion that follows, “2005” refers to the 52-week period ended June 25, 2005 and
“2004” refers to the 52-week period ended June 26, 2004.
BUSINESS OVERVIEW
Danier is one of the largest publicly traded specialty-apparel leather retailers in the world. As a vertically integrated designer,
manufacturer and retailer, Danier is able to offer its customers high-quality, fashionable leather clothing and accessories at
exceptional value. Danier’s products are sold exclusively at its 95 shopping mall stores, street-front stores and large format power
centre locations and through its corporate sales division and website, danier.com.
In March 2005, the Company announced that it would close all 3 of its stores in the United States. Financial results for all of the
periods presented below were restated to reflect the discontinuance of the U.S. operation.
STRATEGY
Over the next several years, Danier’s business strategy will focus on the following:
1.
GROW ACCESSORIES TO 30% OF TOTAL SALES
Accessory sales represented 19% of total company revenue in 2005 compared with 4% of total company revenue in 1998.
Danier’s long-term objective is to grow this part of its business to 30% of total sales. This is expected to be achieved by
developing a wider assortment of products within existing product lines, as well as developing innovative new accessories for
business, travel and the home.
2.
OPEN NEW STORE LOCATIONS
Danier operates 56 shopping mall and street-front stores and 39 power centre locations (large format stores). Shopping mall,
street-front and power centre locations will be selectively added where sales, store profit and return on investment criteria are
met. The Company anticipates opening 1 or 2 new stores per year and will selectively close under-performing stores.
3.
CORPORATE SALES
Sales of Danier products to corporations and other organizations for use as incentives and premiums for employees, suppliers
and customers represent another growth channel. Danier believes that this line of business can achieve significant growth and
sales by providing corporate customers with unique, innovative and exciting merchandise. Danier’s strong brand, expertise in
leather design and manufacturing, and growing line of accessories provide a solid foundation for the development of a
successful corporate sales business.
4.
GEOGRAPHIC GROWTH
The world market for leather clothing is highly fragmented and polarized at two ends. At one end are products of lower quality
and low price with little differentiation among products or retailers. At the other end are high-quality, high-priced designer
products that offer limited merchandise that appeals to a small segment of the population. Danier, through its vertical
integration and 30 person design department, caters to the broad middle market by offering a wide selection of leather
clothing and accessories with the fashion and quality of the designer labels at value prices. Danier’s plans to explore licensing
opportunities for countries outside of North America.
17
SELECTED ANNUAL INFORMATION
The following table sets forth selected annual income statement and financial position data in thousands of dollars except per share
amounts for each of the last five years.
In March 2005, the Company announced that it would close all 3 of its stores in the United States. Financial results for all of the periods
presented below were restated to reflect the discontinuance of the U.S. operation.
Income Statement Data
Revenue
Earnings before income tax and litigation provision
and related expenses
Litigation provision and related expenses
Net earnings (loss) from continuing operations
Discontinued operations
Net earnings (loss)
Net earnings (loss) per share
before discontinued operations:
Basic
Diluted
Net earnings (loss) per share:
Basic
Diluted
Dividends per share
Financial Position Data
Total assets
Long term debt
Shareholders equity
2005
2004
2003
2002
2001
$ 166,350
$ 175,270
$ 172,823
$ 177,704
$ 162,654
6,612
3,098
2,583
(2,768)
(185)
8,734
15,450
(5,910)
(1,187)
(7,097)
12,904
2,773
6,282
(888)
5,394
19,018
11,589
(864)
10,725
21,564
12,526
(448)
12,078
$0.38
$0.38
($0.85)
n/a
$0.91
$0.89
$1.69
$1.65
$1.82
$1.79
($0.03)
n/a
$0.24
($1.03)
n/a
nil
$0.78
$0.76
nil
$1.57
$1.53
nil
$1.75
$1.73
nil
$ 83,365
nil
54,937
$ 89,869
nil
61,287
$ 81,487
nil
67,994
75,695
nil
62,522
$ 68,438
nil
51,292
$
RESULTS OF OPERATIONS
The following tables sets forth the Company’s condensed consolidated statements of income and supplemental information in
thousands of dollars and as a percentage of revenue for each of the last five years.
Revenue
Cost of sales
Gross profit
Selling, general and administrative expenses
Interest expense (income)
Earnings before undernoted item and income tax
Earnings (loss) before discontinued operations
and income taxes
Income tax expense (recovery)
Net earnings (loss) before discontinued operations
Loss from discontinued operations, net of income taxes
Net earnings (loss)
Supplemental information:
EBITDA from continuing operations(1)
EBITDA from continuing operations excluding litigation provision(1)
Net earnings before discontinued operations excluding litigation provision(1)
18
2005
$ 166,350
82,863
83,487
77,215
2004
$ 175,270
88,742
86,528
77,812
2003
$ 172,823
87,548
85,275
72,305
2002
$ 177,704
90,928
86,776
67,297
2001
$ 162,654
81,471
81,183
59,037
(340)
6,612
3,098
(18)
8,734
15,450
66
12,904
2,773
461
19,018
-
583
21,563
-
3,514
931
2,583
2,768
(185)
(6,716)
(806)
(5,910)
1,187
(7,097)
10,131
3,849
6,282
888
5,394
19,018
7,429
11,589
864
10,725
21,563
9,037
12,526
448
12,078
9,390
12,488
4,849
(963)
14,487
5,466
15,957
18,730
7,900
24,388
24,388
11,589
25,848
25,848
12,526
Revenue
Cost of sales
Gross profit
Selling, general and administrative expenses
Interest expense (income)
Earnings before undernoted item and income tax
and income tax
Income tax expense (recovery)
Loss from discontinued operations,
net of income taxes
Net earnings (loss)
2005
2004
2003
2002
2001
100.0%
49.8%
50.2%
46.4%
(0.2%)
4.0%
1.9%
100.0%
50.6%
49.4%
44.4%
5.0%
8.8%
100.0%
50.7%
49.3%
41.8%
7.5%
1.6%
100.0%
51.2%
48.8%
37.9%
0.2%
10.7%
-
100.0%
50.1%
49.9%
36.3%
0.3%
13.3%
-
2.1%
0.5%
1.6%
(3.8%)
(0.4%)
(3.4%)
5.9%
2.3%
3.6%
10.7%
4.2%
6.5%
13.3%
5.6%
7.7%
1.7%
(0.1%)
0.7%
(4.1%)
0.5%
3.1%
0.5%
6.0%
0.3%
7.4%
Supplemental information:
EBITDA from continuing operations(1)
5.6%
(0.5%)
9.2%
13.7%
15.9%
EBITDA from continuing operations excluding litigation provision(1)
7.5%
8.3%
10.8%
13.7%
15.9%
Net earnings from continuing operations excluding litigation provision
2.9%
3.1%
4.6%
6.5%
7.7%
(1)
EBITDA from continuing operations is defined as net earnings (loss) before discontinued operations, interest expense, income taxes, depreciation and amortization. EBITDA
from continuing operations excluding litigation provision is defined as net earnings (loss) before discontinued operations, interest expense, income taxes, depreciation and
amortization and litigation provision and related expenses. Net earnings before discontinued operations excluding litigation provision is defined as net earnings (loss) before
loss from discontinued operations, litigation provision and related expenses and income taxes related to the litigation provision and related expenses. EBITDA from continuing
operations as well as EBITDA from continuing operations excluding litigation provision is a financial metric used by management and some investors to compare companies
on the basis of operating results, asset value and the ability to incur and service debt. Net earnings before discontinued operations excluding litigation provision is a financial
metric used by management and some investors to compare Danier's operating results before unusual or non-recurring items. EBITDA from continuing operations, EBITDA from
continuing operations excluding litigation provision, and net earnings before discontinued operations excluding litigation provision are not recognized measures for financial
presentation under Canadian generally accepted accounting principles ("GAAP"). Non-GAAP earnings measures do not have any standardized meaning and are therefore
unlikely to be comparable to similar measures presented by other issuers. EBITDA from continuing operations as well as EBITDA from continuing operations excluding litigation
provision is calculated as outlined in the following table.
2005
2004
Net earnings (loss)
($185)
($7,097)
Plus: Loss from discontinued operations
2,768
1,187
888
864
448
931
(806)
3,849
7,429
9,037
Plus: Income tax expense (recovery)
2003
$
5,394
2002
$
10,725
2001
$
12,078
Plus: Interest expense (income)
(340)
(18)
66
461
583
Plus: Amortization
6,216
5,771
5,760
4,909
3,702
9,390
(963)
15,957
24,388
25,848
Plus: Litigation provision and related expenses
3,098
15,450
2,773
-
EBITDA excluding litigation provision
$
12,488
$
14,487
$
18,730
$
24,388
$
10,725
$
25,848
$
12,078
Net earnings before discontinued operations excluding litigation provision is calculated as outlined in the following table:
Net earnings (loss)
2005
2004
($185)
($7,097)
2003
$
5,394
2002
2001
2,768
1,187
888
864
448
3,098
15,450
2,773
-
-
Less: Income tax recovery
(832)
(4,074)
(1,155)
-
Net earnings excluding litigation provision
$
4,849
$
5,466
$
7,900
$
11,589
$
12,526
19
The following summarized statistical data compare each of the last five fiscal years.
Comparable store sales increase/(decrease)
Sales ($000)
Shopping Mall/Street-Front/Direct Sales
Power Centre
Total
Retail square footage
Power Centre
Total
Number of stores
Power Centre
Total
2005
(6%)
2004
(4%)
2003
(7%)
2002
1%
2001
8%
$ 81,280
85,070
$ 166,350
$ 83,283
91,987
$ 175,270
$ 79,720
93,103
$ 172,823
84,592
93,112
$ 177,704
$ 80,274
82,380
$ 162,654
117,309
254,645
371,954
113,476
258,680
372,156
112,556
251,235
363,791
104,755
212,672
317,427
91,207
177,574
268,781
56
39
95
55
40
95
56
39
95
54
33
87
54
27
81
$
Revenue decreased by 5% or $8.9 million to $166.4 million in 2005 from $175.3 million in 2004. Revenue from the 2 new shopping mall
stores opened during fiscal 2005 as well as the increase in revenue from the full period of operation from new stores opened during
fiscal 2004 represented an additional $3.5 million of revenue. Comparable stores sales decreased by 6% or $10.0 million and stores
closed during 2005 and 2004 resulted in $2.4 million of decreased revenue. Accessory sales represented 19% of total revenues
compared with 18% of total revenues in 2004. Power centre location revenues declined by approximately 8% or $6.9 million while
shopping mall revenues declined by approximately 2% or $2.0 million. Power centre traffic and average transaction size each declined
by 4% and there was virtually no change in conversion rate (the percentage of people that come into the store and make a purchase).
Shopping mall traffic increased by 2% but average transaction size decreased by 2% and the conversion rate decreased 3%.
The overall decrease in revenue is believed to have been affected by weak consumer spending on leather outerwear, unseasonably
warmer weather during the second quarter, and weaker than expected response to the Company’s promotions. Furthermore, average
price per garment for outerwear declined by 7% with all categories of outerwear and most categories of sportswear showing a
decrease in the average price per garment. This decrease was due in part to an aggressive promotional strategy leading up to
holidays. The Company is working on a strategy to elevate the Danier brand, better differentiate the power centre stores from the
shopping mall stores, become less reliant on price promotions and to further strengthen relationships with existing customers.
Implementation of these strategies is expected to begin during Fall 2005 and most of the benefits are expected to be realized in the
following year.
Store openings during the year included a new mall store in West Vancouver, BC during the first quarter and a new mall store at
Vaughan Mills in Vaughan, Ontario during the second quarter. Store closings included one street-front location in Montreal, Quebec
during the third quarter and a power centre location in South Surrey, BC during the fourth quarter. In March 2005 the Company
announced it would close all three of its U.S. stores. Two of the stores were closed on March 31, 2005 and the other store was closed
in April 2005.
FOURTH QUARTER REVENUES
Revenues in the fourth quarter of 2005 decreased by $3.4 million or 12% to $25.5 million compared with $28.9 million for the fourth
quarter of 2004. Comparable store sales decreased by $3.4 million with both mall stores and power centres locations each
experiencing a 12% or $1.7 million decrease in sales. Power centre traffic decreased 14%, conversion increased 2% while average
transaction size was unchanged. Shopping mall traffic decreased by 1%, the conversion rate decreased by 9% and the average
transaction size decreased by 3%. Weaker than expected response to the Company’s promotions as well as weak consumer
spending on leather outerwear were factors that contributed to the sales, traffic and conversion rate decreases. Furthermore, the
average price per garment for outerwear declined by 13%.
20
Gross profit as a percentage of revenue increased to 50.2% in 2005 compared with 49.4% in 2004. Gross profit dollars decreased
by 4% or $3.0 million to $83.5 million in 2005, compared with $86.5 million in 2004. The year-to-date increase in gross margin was due
to the stronger Canadian dollar which helped reduce the landed cost of merchandise imported from Asia. The foreign exchange
favourable impact was offset to some degree by a more aggressive promotional strategy and higher markdowns leading up to the
Christmas holidays.
Gross profit during the fourth quarter of 2005 decreased by 14% or $2.0 million to $12.6 million compared with $14.6 million in the
fourth quarter of 2004. Gross profit as a percentage of sales decreased to 49.6% compared with 50.5% during the same period last
year. A 12% sales decrease and a $0.5 million decrease in the year-end inventory estimate to actual adjustment bringing the book
inventory in line with the physical inventory are the primary reasons for the decrease. The Company conducts a physical count of
finished goods inventory in October, February and June. After the February count an assessment is made whether to bring the book
inventory in line with the physical inventory (“book to physical adjustment”). During the third quarter of 2005 a book to physical
adjustment reducing cost of sales was recognized due to allocation of too much overhead to imported finished goods purchases.
The overhead rates applied to imported finished goods remained consistent with the prior year but unit volumes increased while
overhead costs decreased. As a result of recognizing a book to physical adjustment in the third quarter of 2005, the book to physical
adjustment in the fourth quarter was lower. During 2004, all of the book to physical adjustment was recognized in the fourth quarter.
Selling, general and administrative expenses decreased by 1% or $0.6 million to $77.2 million, compared with $77.8 million in 2004.
This decrease was mainly due to decreased variable expenses associated with a 5% sales decrease and lower administrative
salaries. Amortization increased by $0.5 million due to accelerated amortization on miscellaneous assets no longer in use and for
existing point-of-sale equipment that is being replaced by new point-of-sale hardware and software.
Selling, general and administrative expenses for the fourth quarter of 2005 decreased by 4% or $0.7 million to $15.3 million, compared
with $16.0 million in the fourth quarter of 2004. The decrease was due to decreased variable expenses associated with a 12% sales
decrease and a year-end actual to estimate adjustment of approximately $0.6 million reversing bonuses for head office staff, which
are estimated in the second quarter based on meeting certain financial targets and then adjusted in the third or fourth quarter based
on the company’s year-to-date results.
Litigation provision and related expenses relate to the class action litigation. In 2004 the Superior Court of Justice (Ontario) issued
a judgment in favour of the Plaintiffs and awarded damages to Canadian shareholders who purchased Subordinate Voting Shares
in Danier’s initial public offering (IPO). Based solely on the information available at year-end, if the damages award, costs and interest
had been paid at the fiscal 2005 year-end, the Company estimates this amount to be about $18 million. During the fourth quarter of
2004, the Company recorded an expense and set up a provision of $15 million pursuant to this judgment. This provision was
subsequently increased by $3 million to $18 million during the fourth quarter of 2005. The judgment is a joint and several responsibility
of the Company and two of its Senior Officers. The Company carries directors and officers insurance and it expects that the
insurance will cover the two Senior Officers’ portion of the total award but the amount of insurance is not reasonably determinable
at this time. The provision for recovery of income taxes related to the award is based on the entire $18 million provision and does
not take account of the potential results of the appeal discussed in the next paragraph, any possible insurance recoveries or future
tax adjustments. The damages award and income tax recovery is based on management’s best estimate and is subject to
adjustment when all facts are known and all issues are resolved. The possible adjustment could be significant.
In June 2004, a Notice of Appeal was filed by the Company and two of its Senior Officers. The appeal was heard by the Ontario
Court of Appeal during June 2005. The Court reserved its decision and it is not anticipated that the Court’s determination will be
made before the fall of 2005. The payment of any damages and costs awarded by the trial judge is stayed pending the determination
of the appeal.
Interest income was $340,000 in 2005 compared with $18,000 in 2004. The increase in interest income is mostly due to higher
average cash balances on hand and lower borrowings.
Interest income for the fourth quarter of 2005 was $131,000 compared with $120,000 in 2004. This increase was due to higher interest rates.
21
Effective income tax expense was 124.7% in 2005 compared with an effective income tax recovery rate of 10.2% last year. The change
was due to unutilized losses from the U. S. operation, differences between tax accounting and financial accounting for provisions
made during 2004 and 2005, and higher Ontario tax rates.
Net earnings before discontinued operations excluding the litigation provision for 2005 was $4.8 million compared with net earnings
of $5.5 million in 2004. Including the litigation provision, net earnings before discontinued operations were $2.6 million ($0.38 per
share) in 2005 compared with a net loss of $5.9 million ($0.85 per share) for 2004. The decrease in net earnings before discontinued
operations excluding the litigation provision was due to decreased sales during the second and fourth quarters. The increase in net
earnings before discontinued operations was due to last year’s litigation provision and related expenses for the class action.
Net loss before discontinued operations for the fourth quarter of 2005 excluding the litigation provision was $0.9 million compared
with $0.8 million in the fourth quarter of 2004. The increase in the loss is due to lower gross profit dollars resulting from lower sales.
Including the litigation provision, the net loss before discontinued operations for the fourth quarter of 2005 was $3.2 million ($0.49
per share) compared with $12.1 million ($1.75 per share) in the fourth quarter of 2004. The decrease in the fourth quarter net loss
before discontinued operations was due to last year's provision for the class action litigation.
Discontinued operations, net of income taxes was a loss of $2.8 million for 2005 compared with a loss of $1.2 million in 2004. During
March 2005, the Company announced that it would discontinue its U.S. operations which consisted of 3 stores. During the third
quarter of 2005 the Company recorded additional amortization of $1.1 million to bring the net book value of its U.S. fixed assets to
zero. In addition a charge of $0.4 million was recorded for lease termination costs and employee severance costs.
On March 31, 2005, two of the U.S. stores on Long Island, New York were closed and in April 2005 the third store located in Paramus,
New Jersey was closed. Financial results for all of the periods presented were restated to reflect the discontinuance of the U.S. operation.
Net loss for 2005 was $0.2 million ($0.03 per share) compared with a net loss of $7.1 million ($1.03 per share) in 2004. The change in
net earnings was due to the litigation provision for the class action that was made in the fourth quarter of 2004 and fourth quarter
of 2005, a $2.8 million loss for discontinued operations during 2005 and lower gross margin dollars resulting from lower sales.
Net loss for the fourth quarter of 2005 was $3.2 million ($0.48 per share) compared with a net loss of $12.5 million ($1.81 per share) in
the fourth quarter of 2004. The change in net loss was due to the litigation provision for the class action that was made in the fourth
quarter of 2004 and fourth quarter of 2005 and lower gross margin dollars resulting from lower sales.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The business of the Company is seasonal and results of operations for any interim period are not necessarily indicative of the results of
operations for the full fiscal year. Generally, a significant portion of the Company’s sales and earnings are generated during the second
quarter, which includes the holiday selling season, and sales are lowest and losses are experienced in the period from April to September.
TWO YEAR SUMMARY BY QUARTER (unaudited) (in thousands of dollars, except per share amounts)
Revenue
Net earnings
Net earnings
Net earnings
Basic
Diluted
Net earnings
Basic
Diluted
22
(loss) before discontinued operations
(loss)
(loss) per share before discontinued operations:
Q1 2005
24,277
(2,952)
(3,413)
Q2 2005
70,091
7,364
7,182
Q3 2005
46,527
1,353
(794)
Q4 2005
25,455
(3,182)
(3,160)
($0.43)
n/a
$1.08
$1.07
$0.20
$0.20
($0.49)
n/a
($0.49)
n/a
$1.06
$1.04
($0.12)
n/a
($0.48)
n/a
(loss) per share:
Supplemental information(1):
(3,704)
13,924
3,636
(4,466)
EBITDA from continuing operations excluding litigation provision
(3,704)
13,924
3,636
(1,368)
Net earnings before discontinued operations excluding litigation provision
(2,952)
7,364
1,353
(916)
Q1 2004
22,920
(3,636)
(4,108)
Q2 2004
77,952
8,996
8,984
Q3 2004
45,480
863
531
Q4 2004
28,918
(12,133)
(12,504)
($0.53)
n/a
$1.30
$1.29
$0.12
$0.12
($1.75)
n/a
($0.59)
n/a
$1.30
$1.29
$0.08
$0.08
($1.81)
n/a
Revenue
Net earnings
Net earnings
Net earnings
Basic
Diluted
Net earnings
Basic
Diluted
(loss) before discontinued operations
(loss)
(loss) per share before discontinued operations:
(loss) per share:
Supplemental information(1):
(4,631)
16,925
2,792
(16,049)
EBITDA from continuing operations excluding litigation provision
(4,631)
16,925
2,792
(599)
Net earnings before discontinued operations excluding litigation provision
(3,636)
8,996
863
(757)
(1)
EBITDA from continuing operations as well as EBITDA from continuing operations excluding litigation provision is calculated as
outlined in the following table:
Q1
Net earnings (loss)
Plus: Income tax expense (recovery)
Plus: Interest expense (income)
Plus: Amortization
Q2
Q3
Q4
2005
2004
2005
2004
2005
2004
2005
2004
(3,413)
(4,108)
7,182
8,984
(794)
531
(3,160)
(12,504)
461
472
182
12
2,147
332
(22)
371
(2,323)
(2,739)
4,940
6,126
790
370
(2,476)
(4,563)
(120)
(59)
76
(11)
135
(139)
(109)
(131)
1,630
1,668
1,631
1,668
1,632
1,668
1,323
767
(3,704)
(4,631)
13,924
16,925
3,636
2,792
(4,466)
(16,049)
-
-
-
-
-
-
3,098
15,450
(3,704)
(4,631)
13,924
16,925
3,636
2,792
(1,368)
(599)
excluding litigation provision
Net earnings before discontinued operations excluding litigation provision is calculated as outlined in the following table:
Q1
Net earnings (loss)
Q2
Q3
Q4
2005
2004
2005
2004
2005
2004
2005
2004
(3,413)
(4,108)
7,182
8,984
(794)
531
(3,160)
(12,504)
461
472
182
12
2,147
332
(22)
371
-
-
-
-
-
-
3,098
15,450
Less: Income tax recovery
-
-
-
-
-
-
(832)
(4,074)
Net earnings (loss) excluding litigation provision (2,952)
(3,636)
7,364
8,996
1,353
863
(916)
(757)
23
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations and bank borrowings have been the primary funding sources for working capital requirements and capital
expenditures over the last several years. The Company’s financial position at the end of 2005 continues to be strong with no longterm debt and a working capital balance of $44.3 million compared with $44.2 million at the end of 2004. The ratio of current assets
to current liabilities was 6.4:1 as at the end of 2005 compared with 5.3:1 at the same time last year.
Inventory at the end of 2005 was $0.4 million lower than inventory at the end of 2004. Raw material and work-in-process inventory
decreased by approximately $1.3 million compared with 2004. Finished goods inventory increased by approximately $0.9 million with
purses representing most of the increase. Last year, purse inventory at year end was lower than plan so an investment in purse
inventory was made during the last half of 2005 to maximize sales opportunities during the spring and summer seasons.
Total liabilities at the end of 2005 were approximately $0.2 million lower than at the end of 2004. The change is due a $3.0 million
increase in the accrued litigation provision and related expenses as well as lower amounts owing to suppliers and lower sales and
corporate taxes payable resulting from lower revenues and lower taxable profits. In addition, deferred lease inducements declined
by $0.4 million due to the amortization of existing lease inducements.
OPERATING ACTIVITIES
Cash flows from operating activities were $7.4 million in 2005 compared with $17.6 million in 2004. Approximately $7.2 million of the
fiscal 2004 cash flows from operating activities resulted from the Company implementing an objective to reduce inventory levels.
By the 2004 year-end, inventory levels were $7.2 million lower than the prior year. These lower inventory levels were sustained during
2005. Cash flows from operating activities in 2005 were also affected by lower net earnings before discontinued operations and
litigation provision and related expenses. In addition, approximately $1.9 million of the decrease in cash flows from operating activities
resulted from having an income taxes recoverable balance of $0.9 million at the end of 2005 compared with income taxes payable
of $1.0 at the end of 2004.
FINANCING ACTIVITIES
The Company’s business is seasonal with peak working capital needs expected to occur during the period June to mid-December
as inventory levels are increased in advance of the peak selling season from October to March. The Company funds inventory
expenditures during normal and peak selling periods through a combination of cash flows provided by operations and bank credit
facilities. The Company has credit facilities available to a maximum amount of $68.0 million, consisting of (i) an operating facility for
working capital and for general corporate purposes to a maximum amount of $65 million that is committed until July 28, 2006 and
bears interest at prime plus 0.25%, and (ii) a $3.0 million revolving capital expenditure loan facility which bears interest at prime plus
0.75% and reduces by $1.0 million on June 30, 2006 and by $2.0 million on June 30, 2007 at which time it matures. Standby fees are
paid for any unused portion of the credit facilities. The credit facility is subject to certain covenants and other limitations that if
violated could cause a default and result in immediate repayment of amounts outstanding. Security provided includes a security
interest over all personal property of the business and a mortgage over the land and building, comprising the Company’s head
office/distribution facility.
On February 2, 2005, the Company received approval from the Toronto Stock Exchange to renew its Normal Course Issuer Bid. The
bid permits the Company to acquire up to 421,061 Subordinate Voting Shares, representing approximately 10% of the public float of
the Subordinate Voting Shares, during the period from February 7, 2005 to February 6, 2006. During the year ended June 25, 2005,
402,400 Subordinate Voting Shares were purchased for cancellation at prevailing market prices for cash consideration of $4,583,000.
The excess of $2,883,000 over the average paid-in value of the shares was charged to retained earnings.
A quarterly dividend of $0.06 per share on the outstanding Subordinate Voting and Multiple Voting Shares was paid on each of
September 1, 2004, December 1, 2004, March 1, 2005 and June 1, 2005.
During 2005, capital investments totalled approximately $2.6 million comprising (i) $1.9 million for the addition of two new shopping
mall stores, 3 renovations at existing mall stores and miscellaneous expenditures in the retail division, (ii) $0.6 million for information
technology including new servers and desktop computers as well as upgrades to the manufacturing system and head office
network, (iii) $0.1 million for manufacturing equipment and office furniture.
24
For fiscal 2006, Danier plans total capital expenditures of approximately $10.2 million. Approximately $4.0 million is anticipated to be
used for the addition of one new power centre outlet, one new shopping mall store, approximately 8 renovations at existing mall
stores, purchase of mannequins, bust forms and fixtures and miscellaneous expenditures in the retail division; $5.8 million for
information technology including implementation of a new point-of-sale hardware, software and customer relationship management
system, upgrade of merchandising and manufacturing systems, and upgrade of computer hardware and software at head office;
and $0.4 million for factory equipment and building improvements. The Company will fund these capital investments from existing
working capital, internally generated cash flow and available credit facilities.
Management believes that cash flow from operations and existing credit facilities will provide the Company with sufficient financial
resources to fund its working capital needs and planned capital investment program for fiscal 2006.
CONTRACTUAL OBLIGATIONS ($000)
Danier has no long term debt, capital lease obligations, or purchase obligations. Operating leases for stores and equipment
excluding percentage rent are listed below.
Payments Due By Period
Store Leases and Equipment
Year 1
$11,234
Year 2
$10,627
Year 3
$9,226
Year 4
$7,630
Year 5
$5,432
After 5 years
$10,579
Total
$54,728
In addition, the Company may be obligated to pay percentage rent under certain of the real property leases.
As at June 25, 2005, the Company had open letters of credit for purchases of inventory of approximately $4,839 (June 26, 2004 $6,804).
The Company sublet one location during fiscal 2004 and has provided the landlord with a guarantee in the event the subtenant defaults
on its obligation to pay rent. The term of the guarantee is approximately 3.5 years and the Company’s maximum exposure is $140.
RELATED PARTY TRANSACTION
During 2005, the Company expensed and paid fees of $28,000 to a corporation related to a director and officer of the Company.
This transaction was measured at the exchange amount, which is the amount of consideration established and agreed to by the
related parties.
DISCLOSURE CONTROLS
Based on an evaluation of the Company’s disclosure controls and procedures, the Company’s Chief Executive Officer and Chief
Financial Officer have concluded as of July 25, 2005 that these controls and procedures operated effectively.
RISKS AND UNCERTAINTIES
Danier is subject to certain risks and uncertainties that are common in the leather and retail apparel industry and the market
environment generally. These risks and uncertainties may impact Danier’s ability to successfully execute its key strategies and may
25
affect future performance. The risks included here are not exhaustive. Danier operates in a very competitive and rapidly changing
environment. New risk factors may emerge from time to time and it is not possible for management to predict all such risk factors,
nor can it assess the impact of all such risk factors on Danier's business.
FASHION AND APPAREL AND LEATHER INDUSTRY RISKS
The Company’s success is based in part on its ability to identify and interpret fashion and product trends, as well as to anticipate,
gauge and react to changing consumer demands in a timely manner. If the Company is unable to identify new fashion trends and
adjust the product mix in a timely manner or if market preferences are misjudged, the Company could be faced with significant
excess inventories for some products and missed opportunities for other products. In response, additional markdowns or promotions
may be required to reduce excess, slow-moving inventories, which may have a material adverse effect on the business, financial
condition and results of operations.
Historically, a large proportion of the Company’s merchandise was black and shades of brown. Current fashion trends are
emphasizing more colour and the ability of the Company to correctly identify and balance its inventories with these fashion colours
increases fashion risk and can have a material adverse effect on the business, financial condition and results of operations.
The apparel industry is cyclical and consumer purchases of the Company’s products are discretionary. Purchases of apparel and
related merchandise tend to decline during recessionary periods and may also decline at other times, particularly if the retail
environment remains stagnant or declines. Further, a recession in the general economy, increased interest rates, a change in the
availability of consumer credit, increased taxation levels, increased unemployment, or uncertainties regarding future economic
prospects could affect consumers' spending habits and have an adverse effect on the Company’s results of operations.
In addition, consumer sentiment towards and demand for leather may change. Bovine Spongiform Encephalopathy (BSE or “madcow" disease) and hoof-and-mouth disease may affect consumer demand for leather products. Although current scientific evidence
suggests that such diseases cannot be transmitted to humans through contact with leather products, demand for leather products
could be affected as a result of the publicity regarding these diseases.
CONSUMER SHOPPING PATTERNS
Changes in customer shopping patterns could affect sales. Most of the Company’s stores are located in enclosed shopping malls
and power centres. The ability to sustain or increase the level of sales depends in part on the continued popularity of malls and
power centers as shopping destinations and the ability of malls and power centres, tenants and other attractions to generate a high
volume of customer traffic. Many factors that are beyond the control of the Company may decrease mall and power centre traffic,
including, economic downturns, closing of anchor department stores, weather, concerns of terrorist attacks, construction and
accessibility, alternative shopping formats such as e-commerce, discount stores and lifestyle centres, among other factors. Any
changes in consumer shopping patterns could adversely affect the Company’s financial condition and operating results.
WEATHER
Extreme changes in weather can affect the timing of consumer spending and may have an adverse effect upon the Company’s
results of operations. In particular, unseasonably warm weather, especially during Danier’s peak selling season, may have an adverse
effect on the Company’s sales.
SEASONALITY
The Company’s business is seasonal, as are most retail businesses. Historically, approximately 45% or more of the Company’s total
annual sales have been generated during its second fiscal quarter, which includes the Christmas season. The Company’s results of
operations depend significantly upon the sales generated during this period. Any material decrease in sales for such period could have
a material adverse effect upon the Company’s profitability. The Company’s quarterly results of operations may also fluctuate as a result
of a variety of other factors, including the timing of new store openings and net sales contributed by new stores, the impact of new
stores on existing stores within the same trade area, the timing of redemption of gift cards or gift certificates, the merchandise mix and
the timing and level of markdowns, timing and level of markdowns and promotions by competitors and consumer shopping patterns
and preferences.
26
COMPETITION
The retail industry is highly competitive with price, quality, service, selection, fashion, location and store environment being the
principal competitive factors. The Company competes with numerous national and international mass merchandisers, discounters,
department stores, specialty apparel stores that supplement their product line with leather merchandise and accessories, leather
and suede specialty stores and with designers and manufacturers of apparel and accessory products, some of which are
significantly larger and have substantially greater resources than the Company. Increased competition may reduce sales, increase
operating expenses, decrease profit margins and negatively affect the Company’s ability to obtain site locations, sales associates
and other employees.
FOREIGN CURRENCY
A significant portion of Danier’s raw material and imported finished goods purchases are denominated in U.S. dollars. Accordingly,
the Company’s foreign currency exposure is mainly related to fluctuations between the Canadian and U.S. dollar. From time to time,
the Company may use forward contracts to fix the exchange rate on a portion of its expected requirements for U.S. dollars. Forward
contracts expose the Company to credit risk representing the maximum potential accounting loss due to non-performance by
counterparties under terms of their contracts. The Company manages credit risk under its foreign exchange contracts by only
dealing with major financial institutions. As at June 25, 2005 there were no forward foreign exchange contracts outstanding.
A significant portion of Danier’s imported finished goods purchases are sourced in China. The Chinese currency (the Renminbi or
Yuan (“RMB”)), was previously pegged to the U.S. dollar at US$1=8.28RMB but has recently been revalued and is being allowed to float
against a basket of foreign currencies. Fluctuations of the Renminbi could result in higher costs to the Company which may not be
able to be passed on to customers and could have a material adverse effect on cost of sales and decrease profitability.
LEATHER AVAILABILITY AND PRICES
Leather comprises approximately two-thirds of the garment cost of leather apparel and the availability and price of leather may
fluctuate significantly. A number of factors affect the price of leather, including the demand for leather in other industries such as
shoe, furniture, and automobile upholstery industries. Leather supply is influenced by a number of factors including wars, worldwide
meat consumption and the availability of hides. Certain leather-supplying countries have experienced highly publicized outbreaks
of mad-cow disease and hoof-and-mouth disease. The effect of these diseases cannot be determined but could affect leather
supply and pricing. Fluctuations in leather supply and pricing, which can be significant, may have a material adverse effect on the
business and profitability.
FOREIGN SOURCING AND MANUFACTURING
Danier sources a majority of its garments from independent foreign contract manufacturers located primarily in the Far East. Risks
associated with foreign sourcing include economic and political instability, transportation delays and interruptions, restrictive actions
by foreign governments, inability to meet the Company’s quality standards, production delays, duties, trade and foreign tax laws,
fluctuations in currency exchange rates and restrictions on the transfer of funds, tariffs and quotas and boycotts or other actions
prompted by domestic concerns regarding foreign labour practices. Any event causing a sudden disruption of imports from the Far
East, primarily China, including a disruption due to financial difficulties of a supplier, could have a material adverse effect on the
Company. The Company regularly seeks out new sources of supply and sub-contractors to minimize the impact of potential
disruptions. The Company has not historically experienced material adverse effects from foreign sourcing of finished goods.
LEGAL PROCEEDINGS
In fiscal 1999, the Company and certain of its directors and officers were served with a Statement of Claim under the Class
Proceedings Act (Ontario) concerning the accuracy and disclosure of certain information contained in a financial forecast issued by
the Company during its initial public offering (“IPO”) in 1998. The suit sought damages be paid equal to the alleged diminution in
value of the shares.
In October 2001, a motion to certify the action as a class action was granted. The trial commenced in the Superior Court of Justice
(Ontario) during May 2003 and was completed in January 2004. On May 7, 2004 the Judge issued a judgment in favour of the
Plaintiffs and awarded damages to Canadian shareholders who purchased Subordinate Voting Shares in the IPO. The Judge
concluded that at the time of pricing of the IPO, which was two weeks before the closing, the forecast was reasonable and that the
27
Company’s CEO and CFO had an honest belief at the time the IPO closed that the forecast could be achieved. The Judge further
held that the forecast was, in fact, substantially achieved. Despite these findings, the Court decided that management’s judgement
that the forecast was still achievable at the time of closing was not reasonable. The Company has appealed this decision as
discussed below.
For those shareholders who sold their shares between June 4 and 9, 1998, the Court awarded them the difference between the IPO
price and the price at which they sold their shares. For those shareholders who sold or still hold those shares after June 9, 1998, the
Court awarded $2.35 per share.
A hearing to determine the awarding of costs was held in April 2005. In May 2005, the Court awarded a portion of the costs claimed
by the plaintiffs but referred the matter for assessment to determine the amount of costs to be paid. The quantum of the costs award
will not be known until the final assessment ordered by the Court has been conducted. Based solely on the information available as
of year-end, the Company estimates that this award, if unchanged on appeal, would amount to approximately $3 million to $4 million.
Based solely on the information available at year-end, if the damages award, costs and interest had been paid at the fiscal 2005
year-end, the Company estimates this amount to be about $18 million. During the fourth quarter of 2004, the Company recorded an
expense and set up a provision of $15 million pursuant to this judgment. This provision was subsequently increased by $3 million to
$18 million during the fourth quarter of 2005. The judgment is a joint and several responsibility of the Company and two of its Senior
Officers. The Company carries directors and officers insurance and it expects that the insurance will cover the two Senior Officers'
portion of the total award but the amount of insurance is not reasonably determinable at this time. The provision for recovery of
income taxes related to the award is based on the entire $18 million provision and does not take account of the potential results of
the appeal discussed in the next paragraph, any possible insurance recoveries or future tax adjustments. The damages award and
income tax recovery is based on management’s best estimate and is subject to adjustment when all facts are known and all issues
are resolved. The possible adjustment could be significant.
In June 2004, a Notice of Appeal was filed by the Company and two of its Senior Officers. The appeal was heard by the Ontario Court
of Appeal during June 2005. The Court reserved its decision and it is not anticipated that the Court’s determination will be made before
the fall of 2005. The payment of any damages and costs awarded by the trial judge is stayed pending the determination of the appeal.
Even though the Company is appealing the judgment, if the judgment awarded by the Superior Court of Justice (Ontario) is upheld
by the Court of Appeal and if directors and officers insurance does not cover the two Senior Officers’ portion of the total award, then
the Company may be required to pay the total award and this could have a material adverse affect on the Company’s financial
condition and operations. Furthermore, the amount of interest and costs are estimated as of the current period. Should the Company
lose the appeal, additional interest and costs may be awarded by the Court.
RISKS OF BUSINESS STRATEGY
There can be no assurance that the Company’s business strategy will be successful or that the Company’s overall net revenue will
increase as a result of an increase in the number of retail stores or a change in the merchandising or marketing strategy. The
Company’s future growth and profitability may be restricted if it is unable to open new stores on a profitable basis, increase sales
at existing stores, identify, consummate and integrate strategic acquisitions, identify, negotiate, lease and open stores in suitable
locations on a profitable and timely basis, obtain necessary capital to operate the business and hire, train and retain qualified
personnel including management, executives and sales associates.
WAR AND ACTS OF TERRORISM
War and acts of terrorism, or if either is threatened, may negatively impact Danier’s ability to source leather and obtain and ship
merchandise available for sale. The majority of Danier’s stores are located in enclosed shopping malls and power centres. Any threat
of terrorist attacks or actual terrorist events could lead to lower customer traffic in shopping malls and power centres and could
negatively affect consumer behaviour, spending and shopping patterns which may result in an adverse effect upon the Company’s
results of operations.
28
UTILITY AND FUEL PRICES
The Company is a consumer of electricity, natural gas and fuel. Unanticipated cost increases in these items could increase the
Company’s operating costs and reduce profitability.
SENIOR MANAGEMENT
Danier’s success depends largely on the efforts and abilities of the current senior management team. Mr. Jeffrey Wortsman in
particular has been with the Company since 1986 and has been instrumental in defining and implementing the Company’s business
strategy and providing direction on merchandising and marketing strategy. The senior management team and Mr. Wortsman’s
experience and worldwide contacts in the leather industry significantly benefit the Company. If Danier were to lose the benefit of
their experience and contacts, the Company could be adversely affected.
MANAGEMENT INFORMATION SYSTEMS
Danier relies on vendors to support, maintain and periodically upgrade merchandise, distribution, design, accounting and financial
reporting packages. The inability of these vendors to continue to maintain and upgrade these software programs could disrupt
operations if Danier were unable to convert to alternate systems in an efficient and timely manner.
CONCENTRATION OF HEAD OFFICE AND DISTRIBUTION CENTRE
Danier’s corporate office and main distribution centre are in one location. Operations could be materially and adversely affected if
a catastrophic or other event impacts the use of this facility.
INFLATION
Inflation has not had a material impact on Danier’s results of operations during the past several years, however, there can be no
assurance that Danier’s business will not be affected by inflation in the future.
REAL ESTATE
With the exception of the head office store, all of Danier’s store locations are leased. Competition for prime locations within shopping
malls, power centres and for street-front locations is intense and there can be no assurance that Danier will be able to obtain new
locations or renew existing locations at existing or favourable terms.
CRITICAL ACCOUNTING ESTIMATES
The Company’s significant accounting policies are described in Note 1 of the consolidated financial statements. The preparation of
these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. The Company bases its estimates on historical experience and on various other assumptions that
are believed to be reasonable under the circumstances. Some of the Company’s significant accounting policies involve a higher
degree of judgment or complexity than its other accounting policies. The policies described below are considered to be critical
accounting estimates, as they require significant estimation or judgment.
LITIGATION PROVISION AND RELATED EXPENSES
The amount of damages, costs and interest were estimated based on various judgments issued by the Superior Court of Justice
(Ontario). The Court awarded a portion of the costs claimed by the plaintiffs but referred the matter for assessment to determine the
amount of costs to be paid. The quantum of the costs award will not be known until the final assessment ordered by the Court has been
conducted. The amount of damages, interest and costs were estimated by management as of June 25, 2005 and do not include any
potential interest and costs that could be awarded from June 25, 2005 to the date the decision is received from the Court of Appeal.
Any change in the amount of costs determined by the assessment officer appointed by the Court or any change in damages, costs and
interest by the Court of Appeal could have a significant impact on operating results and cash flows. In addition, the amount of the
provision could change as a result of the amount of directors and officers insurance recovered, the amounts of which cannot be
reasonably determined at this time. Proceeds from directors and officers insurance could have a significant impact on operating results
and cash flows.
29
INVENTORY VALUATION
Inventory is valued at the lower of cost or market. For finished goods and work-in-process, market is defined as net realizable value
and for raw materials, market is defined as replacement cost. Cost is determined using the weighted average cost method and
includes standard costs, estimates and averages for domestic labour, exchange rates for U.S. dollar purchases of leather and
finished goods purchased from foreign vendors, freight, duty, brokerage and overhead. In addition, a provision is recorded to reduce
the cost of inventories for loss due to theft (shrinkage), obsolete, damaged and slow moving items to their estimated net realizable
values. Any significant unanticipated changes in consumer demand, fashion trends, retail markdowns, or in any of the standard costs,
estimates and averages could have a significant impact on the value of inventories and operating results including cost of sales and
gross profit.
CAPITAL ASSETS AND AMORTIZATION
Capital assets consist of store leasehold improvements, furniture and fixtures, computer equipment and manufacturing equipment
in addition to the Company’s building. These assets are recorded at cost and are amortized over their estimated useful lives. Capital
assets are reviewed for impairment whenever events such as a decision to close a store or changes in circumstances indicate that
the carrying value of an asset may not be recoverable in which case accelerated amortization over the revised useful life or a writedown is recorded in the financial statements.
INCOME TAXES
Income taxes are provided for using the asset and liability method of accounting. This method recognizes future tax assets and
liabilities that arise from differences between the accounting basis of the Company’s assets and liabilities and their corresponding
tax basis. Future taxes are measured using tax rates expected to apply when the asset is realized or the liability is settled. Certain
assumptions are required in order to determine the provision for income taxes, including filing positions on certain items and the
realization of future tax assets.
The Company is audited regularly by federal and provincial authorities in the areas of income taxes and the remittance of sales taxes.
These audits consider the timing and amount of deductions and compliance with federal and provincial tax laws. To the extent that
the Company’s filing positions are challenged, the Company’s effective tax rate in a given financial statement period could be
materially affected.
The recognition of future tax assets depends on management’s assumption that future earnings will be sufficient to realize the future
benefit. Presently, no tax benefit is recognized for losses in the U.S. operation which is set up under a separate U.S. corporate
structure. The provision for recovery of income taxes related to the class action award is based on the entire $18 million provision
and does not take account of the potential results of the appeal, any possible insurance recoveries or future tax adjustments. The
income tax recovery related to the class action provision is subject to adjustment when all facts are known and all issues are
resolved. The possible adjustment for any of the factors noted could be significant.
ACCOUNTING STANDARDS IMPLEMENTED IN 2005
CICA Accounting Guideline (AcG-13) “Hedging Relationships,” is effective for fiscal years beginning on or after July 1, 2003. The
guideline addresses the identification, designation, documentation and effectiveness of hedging transactions for the purposes of
applying hedge accounting. It also establishes conditions for applying or discontinuing hedge accounting. Under the new guideline,
the Company will be required to document its hedging transactions and explicitly demonstrate that the hedges are sufficiently
effective in order to use accrual accounting for positions hedged with derivatives. As at June 25, 2005, the Company did not have
any hedges or derivatives outstanding. Accordingly, the adoption of this accounting standard has had no material impact on the
financial statements of the Company for the period ended June 25, 2005.
FUTURE ACCOUNTING STANDARDS
The Company monitors the standard setting process for new standards issued by the CICA that the Company may be required to
30
adopt in the future. Since the impact of a proposed standard may change during the review period, the Company does not comment
publicly until the standard has been finalized and the effects have been determined.
OUTSTANDING SHARE DATA
As of year-end, 5,321,825 Subordinate Voting Shares and 1,224,329 Multiple Voting Shares were issued and outstanding. Each
Subordinate Voting Share entitles the holder to one vote and each Multiple Voting Share entitles the holder to 10 votes at meetings
of shareholders of the Company.
OUTLOOK
Fiscal 2006 holds both challenges and opportunities for Danier. The market is increasingly price competitive. However, we believe
we offer a compelling combination of quality, fashion and overall value.
We remain focused on offering products that are aspirational, trend-right and appropriate for our customers. A key priority for next
year will be to implement a strategy that elevates the Danier brand, better differentiates the power centre stores from the shopping
mall stores, results in less reliance on price promotions and further strengthens relationships with existing customers.
Implementation of these strategies is expected to begin during Fall 2005 and most of the benefits are expected to be realized in
the following year.
The Accessories and Corporate Sales divisions are expected to continue to grow. Danier intends to open one new power centre
location, one new mall store, and to renovate up to 8 existing mall stores.
Capital expenditures are expected to be significantly higher than the past two years. The increase is mainly driven by information
technology upgrades including replacement of existing point of sale hardware, software and customer relationship management
systems as well as renovations and improved visual merchandising at the Company's existing stores.
The Company maintains a strong balance sheet with excellent liquidity and borrowing capacity should the need arise to capitalize
on business opportunities.
FORWARD-LOOKING STATEMENTS
This report contains certain forward-looking statements which reflect the current view of Danier Leather Inc. (“Danier” or the
“Company”) with respect to future events and financial performance. Wherever used, the words “may,” “will,” “anticipate,” “intend,”
“expect,” “plan,” “believe,” and similar expressions identify forward-looking statements. Forward-looking statements should not be
read as guarantees of future performance or results, and will not necessarily be accurate indications of whether, or the times at
which, such performance or results will be achieved. Forward-looking statements are based on information available at the time they
are made, assumptions made by management, and management’s good faith belief with respect to future events, and are subject
to the risks and uncertainties outlined in this report that could cause actual performance or results to differ materially from those
expressed in forward-looking statements, historical results or current expectations.
ADDITIONAL INFORMATION
Additional information, including the Company’s annual information form, quarterly and annual reports, and supplementary
information is available on SEDAR at www.sedar.com. Press releases and other information are also available in the Investor
Relations section of the Company’s website at www.danier.com.
31
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The accompanying financial statements and other financial information contained in this annual report are the responsibility of
management. The financial statements have been prepared in conformity with Canadian generally accepted accounting principles
using management’s best estimates and judgements based on currently available information, where appropriate. The financial
information contained elsewhere in this annual report has been reviewed to ensure consistency with that in the financial statements.
Management is also responsible for a system of internal controls which is designed to provide reasonable assurance that assets
are safeguarded, liabilities are recognized and that financial records are properly maintained to provide timely and accurate
financial reports.
The Board of Directors is responsible for ensuring that management fulfills its responsibility in respect of financial reporting and
internal control. The Audit Committee of the Board, which is comprised solely of unrelated and outside directors, meets regularly to
review significant accounting and auditing matters with management and the independent auditors and to review the interim and
annual financial statements.
The financial statements have been audited by PricewaterhouseCoopers LLP, the independent auditors, in accordance with generally
accepted auditing standards on behalf of the shareholders. The Auditors’ Report outlines the nature of their examination and their
opinion on the financial statements. PricewaterhouseCoopers LLP have full and unrestricted access to the Audit Committee to discuss
their audit and related findings as to the integrity of the financial reporting.
Jeffrey Wortsman
President and CEO
Bryan Tatoff, C.A.
Senior Vice-President, CFO and Secretary
AUDITORS’ REPORT TO SHAREHOLDERS
To the Shareholders of Danier Leather Inc.
We have audited the consolidated balance sheets of Danier Leather Inc. as at June 25, 2005 and June 26, 2004 and the
consolidated statements of earnings, retained earnings and cash flow for the years then ended. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we
plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company
as at June 25, 2005 and June 26, 2004 and the results of its operations and its cash flow for the years then ended in accordance
with Canadian generally accepted accounting principles.
Chartered Accountants
Toronto, Ontario
July 25, 2005
32
consolidated financial statements
For the years ended June 25, 2005 and June 26, 2004
CONSOLIDATED BALANCE SHEETS (THOUSANDS OF DOLLARS)
June 25, 2005
June 26, 2004
ASSETS
Current Assets
Cash
$
21,193
$
22,576
Accounts receivable
594
626
Income taxes recoverable
939
-
29,031
29,483
516
903
Inventories (Note 3)
Prepaid expenses
Assets of discontinued operations (Note 2)
Future income tax asset (Note 8)
23
884
159
107
52,455
54,579
25,314
28,891
342
342
Other Assets
Capital assets (Note 4)
Goodwill (Note 5)
Assets of discontinued operations (Note 2)
Future income taxes asset (Note 9)
-
1,321
5,254
4,736
$
83,365
$
89,869
$
8,170
$
9,355
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities
Income taxes payable
-
Liabilities of discontinued operations (Note 2)
Accrued litigation provision and related expenses (Note 10)
Deferred lease inducements
Future income tax liability (Note 9)
952
-
70
8,170
10,377
18,000
15,450
1,838
2,283
420
472
28,428
28,582
22,493
24,166
230
219
32,214
36,902
54,937
61,287
SHAREHOLDERS’ EQUITY
Share capital (Note 7)
Contributed surplus
Retained earnings
$
83,365
$
89,869
Approved by the Board
Edwin F. Hawken, Director
Jeffrey Wortsman, Director
33
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (THOUSANDS OF DOLLARS)
For the Year Ended
Retained earnings, beginning of year
June 25, 2005
June 26, 2004
$ 36,902
$ 43,999
(185)
(7,097)
(2,883)
-
Net loss
Share purchases (Note 7(c))
Dividends
Retained earnings, end of year
$
(1,620)
-
32,214
$ 36,902
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) (THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
For the Year Ended
Revenue
June 25, 2005
June 26, 2004
$ 166,350
$ 175,270
Cost of sales (Note 8)
82,863
88,742
Gross profit
83,487
86,528
Selling, general and administrative expenses (Note 8)
77,215
77,812
Interest (income)
(340)
(18)
Earnings before undernoted item and income taxes
6,612
8,734
Litigation provision and related expenses (Note 10)
3,098
15,450
3,514
(6,716)
1,553
(622)
3,217
(4,023)
931
(806)
and income taxes
Provision for income taxes (Note 9)
Current
Future
$
Loss from discontinued operations, net of income taxes (Note 2)
Net loss
Net earnings (loss) per share before discontinued operations:
Basic
Diluted
Net earnings (loss) per share:
Basic
Diluted
Weighted average number of shares outstanding:
Basic
Diluted
34
2,583
$
(2,768)
$
(185)
(5,910)
(1,187)
$
(7,097)
$0.38
$0.38
($0.85)
n/a
($0.03)
n/a
($1.03)
n/a
6,726,658
6,790,056
6,920,447
6,978,904
CONSOLIDATED STATEMENTS OF CASH FLOW (THOUSANDS OF DOLLARS)
For the Years Ended
June 25, 2005
June 26, 2004
OPERATING ACTIVITIES
Net loss
$
(185)
$
(7,097)
Items not affecting cash:
Amortization - continuing operations (Note 8)
6,216
5,771
Amortization - discontinued operations (Note 8)
1,330
316
Amortization of deferred lease inducements
(445)
(404)
-
696
11
219
Loss on disposal of capital assets
Stock based compensation
Accrued litigation provision and related expenses
2,550
14,241
Future income taxes
(622)
(4,023)
(2,205)
8,285
791
(380)
Net change in non-cash working capital items (Note 11)
Discontinued operations (Note 2)
Cash flows from operating activities
$
7,441
$
17,624
FINANCING ACTIVITIES
Subordinate voting shares issued
27
171
Subordinate voting shares repurchased (Note 7)
(4,583)
-
Dividends
(1,620)
-
Proceeds from lease inducements
-
449
(6,176)
620
(2,648)
(2,749)
Cash flows from investing activities
(2,648)
(2,749)
Increase (decrease) in cash
(1,383)
15,495
Cash flows from financing activities
INVESTING ACTIVITIES
Acquisition of capital assets
22,576
Cash, beginning of year
Cash, end of year
$
21,193
7,081
$
22,576
Supplementary cash flow information:
Interest paid
Income taxes paid
3
223
3,846
2,376
35
notes to consolidated financial statements
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles
(“GAAP”).
(a) Basis of consolidation:
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary companies. On
consolidation, all intercompany transactions and balances have been eliminated.
(b) 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 fiscal
year for the financial statements presented is the 52-week period ended June 25, 2005, and comparably the 52-week period
ended June 26, 2004.
(c) Revenue recognition:
Revenue includes sales to customers through stores operated by the Company and sales to corporate customers through the
Company’s direct sales division. Sales to customers through stores operated by the Company are recognized at the time the
transaction is entered into the point-of-sale register net of returns. Sales to corporate customers are recognized at the time of
shipment.
(d) Cash:
Cash consists of cash on hand, bank balances, and money market investments with maturities of three months or less.
(e) Inventories:
Inventories are valued at the lower of cost or market. Cost is determined using the weighted average cost method. For finished
goods and work-in-process, market is defined as net realizable value; for raw materials, market is defined as replacement cost.
(f) Capital assets:
Capital assets are recorded at cost and annual amortization is provided using the declining balance method as follows:
Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4%
Furniture and equipment . . . . . . . . . . . . . . . . . . . . .20%
Computer hardware and software . . . . . . . . . . . . .30%
Leasehold improvements are amortized on a straight-line basis over the term of the lease, unless the Company has decided to
terminate the lease, at which time the unamortized balance is written off.
(g) Goodwill:
Goodwill represents the excess of the cost of acquisition over the fair market value of the identifiable assets acquired. Goodwill
is not amortized, but is tested for impairment at least annually at year-end. If required, any impairment in the value of goodwill
would be written off against earnings.
(h) Deferred lease inducements:
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 10.5 years.
36
(CONTINUED)
(i) Store opening costs:
Expenditures associated with the opening of new stores, other than furniture and fixtures, equipment, and leasehold
improvements are expensed as incurred.
(j) Income taxes:
Income taxes are determined using the asset and liability method of accounting. This method recognizes future tax assets and
liabilities that arise from differences between the accounting basis of the Company’s assets and liabilities and their corresponding
tax basis. Future taxes are measured using tax rates expected to apply when the asset is realized or the liability settled.
(k) Earnings per share:
Earnings per share are calculated using the weighted average number of shares outstanding during the year (see Note 7). The
treasury stock method is used to calculate diluted earnings per share. The treasury stock method computes the number of
incremental shares by assuming the outstanding stock options exercisable at exercise prices below the average monthly market
price are exercised during the fiscal year and then that number of incremental shares is reduced by the number of shares that
could have been repurchased from the issuance proceeds, using the average monthly market price of the Company’s shares
during the fiscal year.
(l) Translation of foreign currencies:
Subsidiary accounts and accounts in foreign currencies are translated into Canadian dollars. Monetary balance sheet items are
translated at the rates of exchange in effect at year-end and non-monetary items are translated at historical exchange rates.
Revenues and expenses (other than amortization, which is translated at the same average rate as the related capital assets) 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 statement of earnings.
(m) Financial instruments:
From time-to-time the Company utilizes derivative financial instruments in the management of its foreign currency exposure.
Derivative financial instruments are not used for trading purposes. Accounting guideline (AcG13) was implemented June 29, 2003
on a prospective basis. There was no impact on the current year.
(n) Stock option plan:
The Company has a stock option plan which is described in Note 7 where options to purchase Subordinate Voting Shares are
issued to directors, officers and employees.
In the year ended June 26, 2004 the Canadian Institute of Chartered Accountants (CICA) amended Handbook Section 3870
“Stock-based Compensation and Other Stock-based Payments”, which provides guidance on accounting for stock-based
compensation, to require the use of the fair value-based method to account for stock options. In accordance with the transitional
provisions allowed under the revised accounting standard, the Company has prospectively applied the fair value-based method
to all stock options granted on or after June 29, 2003. Accordingly, compensation cost is measured at fair value at the date of
grant using the Black-Scholes Option Pricing Model and is recognized as an expense over the vesting period of the stock option.
The Company continues to use settlement accounting to account for stock options granted prior to June 29, 2003. In accordance
with the prospective method of adoption of the new standard, no compensation expense is recognized for options granted prior
to fiscal 2004. Pro forma disclosures relating to net earnings per share figures, as if the fair value method had been used for
awards granted during fiscal 2003, are presented in Note 7(d).
37
(CONTINUED)
(o) Restricted Share Units and Deferred Share Units:
The Company has restricted share unit (“RSU”) and deferred share unit (“DSU”) Plans, which are described in Note 7. RSU and
DSU Plans are settled in cash and are recorded as liabilities. The measurement of the liability and compensation expense for
these awards is based on the fair value of the award, and is recorded as a charge to selling, general and administrative (“SG&A”)
expenses over the vesting period of the award. Changes in the Company’s payment obligation subsequent to vesting of the
award and prior to the settlement date are recorded as a charge to SG&A expenses in the period incurred.
(p) Use of estimates:
The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. These estimates and assumptions are based on management's best knowledge of current events
and actions that the Company may undertake in the future. Significant areas requiring the use of management estimates relate
to the determination of litigation award reserves, inventory valuation, realizable value of capital assets, future tax assets, and
income tax provisions. By their nature, these estimates are subject to measurement uncertainty and the impact on the
consolidated financial statements of future periods could differ materially from those estimated.
(q) Comparative figures:
Certain amounts included in the June 26, 2004 comparative figures were reclassified to conform with the current year’s financial
statement presentation. Reclassification of these amounts had no effect on previously reported shareholders’ equity or net
earnings.
NOTE 2: DISCONTINUED OPERATIONS (THOUSANDS
OF DOLLARS)
In March 2005 the Company announced that it would discontinue its U.S. operations which consisted of 3 shopping mall stores. On
March 31, 2005, two of the U.S. shopping mall locations located on Long Island, New York were closed. The third store located in Paramus,
New Jersey was closed in April 2005.
Financial results for the periods presented were restated to reflect the discontinuance of the U.S. operations. The results of
discontinued operations were as follows:
Sales
Operating loss
Write-down of capital assets
Lease and employee termination costs
Loss from discontinued operations
June 25, 2005
$
2,347
(1,288)
(1,075)
(405)
($2,768)
June 26, 2004
$
2,845
(1,187)
($1,187)
The net assets of discontinued operations are summarized as follows:
Current assets
Capital assets
Current liabilities
Net assets from discontinued operations
38
June 25, 2005
$
23
23
$
23
June 26, 2004
$
884
1,321
2,205
70
$
2,135
NOTE 2: DISCONTINUED OPERATIONS
(CONTINUED)
Changes in current assets and liabilities of discontinued operations are summarized as follows:
Current assets
Current liabilities
NOTE 3: INVENTORIES (THOUSANDS
June 26, 2004
$
(312)
(68)
$
(380)
June 25, 2005
$
3,456
634
24,941
$ 29,031
June 26, 2004
$
4,043
1,363
24,077
$ 29,483
OF DOLLARS)
Raw materials
Work-in-process
Finished goods
NOTE 4: CAPITAL ASSETS (THOUSANDS
OF DOLLARS)
Cost
Land
Building
Leasehold improvements
Furniture and equipment
Computer hardware and software
June 25, 2005
$
861
(70)
$
791
$
$
1,000
7,064
25,566
9,966
8,985
52,581
June 25, 2005
Accumulated Net Book
Amortization
Value
$
$
1,319
13,710
5,880
6,358
27,267
$
$
1,000
5,745
11,856
4,086
2,627
25,314
Cost
$
$
1,000
7,066
25,174
12,070
8,883
54,193
June 26, 2004
Accumulated
Net Book
Amortization
Value
$
$
1,080
11,887
7,017
5,318
25,302
$
$
1,000
5,986
13,287
5,053
3,565
28,891
NOTE 5: GOODWILL (THOUSANDS
OF DOLLARS)
Goodwill of $342 (June 26, 2004 - $342) is stated at cost less accumulated amortization of $205 (June 26, 2004 - $205).
NOTE 6: BANK OVERDRAFT
As at June 25, 2005, the Company had credit facilities available to a maximum amount of $69.0 million. The credit facilities consist of
an operating facility for working capital and for general corporate purposes to a maximum amount of $65 million, bearing interest at
prime plus 0.25% and a $4.0 million revolving capital expenditure loan facility bearing interest at prime plus 0.75%. The maximum
amount available under the revolving capital expenditure loan facility reduces by $1.0 million on each of June 30, 2005 and June 30,
2006 and by $2.0 million on June 30, 2007. The operating facility is committed until July 28, 2006 and the revolving capital expenditure
loan facility matures on June 30, 2007. The Company is required to comply with covenants regarding financial performance.
Security provided includes a security interest over all personal property of the business and a mortgage over the land and building,
comprising the Company's head office/distribution facility.
39
NOTE 7: SHARE CAPITAL (THOUSANDS
OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
(a) Authorized
1,224,329 Multiple Voting Shares
Unlimited Subordinate Voting Shares
Unlimited Class A and B Preference Shares
(b) Issued
Multiple Voting Shares
Balance June 28, 2003
Number
1,224,329
1,224,329
1,224,329
Consideration
Nominal
Nominal
Nominal
Subordinate Voting Shares
Shares issued upon exercising of stock options
Shares repurchased
Shares issued upon exercising of stock options
Number
5,695,225
25,000
5,720,225
(402,400)
4,000
5,321,825
Consideration
$ 23,995
171
$ 24,166
(1,700)
27
$ 22,493
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 Mr. Jeffrey Wortsman: (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) Normal course issuer bid
On February 2, 2005, the Company received approval from the Toronto Stock Exchange to renew its Normal Course Issuer Bid.
The bid permits the Company to acquire up to 421,061 Subordinate Voting Shares, representing approximately 10% of the public
float of the Subordinate Voting Shares, during the period from February 7, 2005 to February 6, 2006. During the year ended June
25, 2005, 402,400 Subordinate Voting Shares were purchased for cancellation at prevailing market prices for cash consideration
of $4,583. The excess of $2,883 over the average paid-in value of the shares was charged to retained earnings. During the year
ended June 26, 2004 no shares were repurchased under the Normal Course Issuer Bid.
(d) Stock option plan
The Company maintains a Stock Option Plan for the benefit of directors, officers and employees. As at June 25, 2005, the
Company has reserved 911,275 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 at exercise prices determined as the weighted average
of the trading prices of the Company’s Subordinate Voting Shares on The Toronto Stock Exchange 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 one year
from the grant date for options issued to directors and four years from the grant date for options issued to officers and
employees and expire no later than the tenth anniversary of the date of grant.
40
NOTE 7: SHARE CAPITAL
(CONTINUED)
A summary of the status of the Company's Stock Option Plan as of June 25, 2005 and June 26, 2004 and changes during the
years ended on those dates is presented below:
Stock Options
Outstanding at beginning of year
Granted
Exercised
Forfeited
Outstanding at end of year
Options exercisable at end of year
June 25, 2005
June 26, 2004
Shares
Weighted-average
exercise price
Shares
Weighted-average
exercise price
649,400
25,000
(4,000)
(25,000)
645,400
573,150
$ 11.21
$ 10.10
$ 6.85
$ 12.92
$ 11.13
$ 10.80
730,400
44,000
(25,000)
(100,000)
649,400
523,650
$ 11.16
$ 10.96
$ 6.85
$ 11.80
$ 11.21
$ 10.53
The following table summarizes the distribution of these options and the remaining contractual life as at June 25, 2005:
Exercise
Prices
$6.02
$6.85
$10.10
$10.40
$10.50
$10.96
$11.20
$11.25
$15.85
$17.94
#
Outstanding
18,500
114,400
25,000
33,250
15,000
29,000
24,000
265,250
101,000
20,000
645,400
Options Outstanding
Weighted Average
Remaining
Contractual Life
4.2 years
3.0 years
9.8 years
5.1 years
5.3 years
8.1 years
6.1 years
2.9 years
7.1 years
6.8 years
4.5 years
Weighted
Average
Exercise Price
$6.02
$6.85
$10.10
$10.40
$10.50
$10.96
$11.20
$11.25
$15.85
$17.94
$11.13
Options Exercisable
Weighted
# of Shares
Average
Exercisable
Exercise Price
18,500
$6.02
114,400
$6.85
33,250
$10.40
15,000
$10.50
25,250
$10.96
24,000
$11.20
265,250
$11.25
62,500
$15.85
15,000
$17.94
573,150
$10.80
The weighted average estimated fair values at the date of grant for options granted during the year ended June 25, 2005 was $7.18
per share (June 26, 2004 - $7.54 per share). The fair value of each option granted was estimated on the date of grant using the BlackScholes Option Pricing Model with the following assumptions:
Risk-free interest rate
Dividend yield
Expected volatility
Expected life of options
June 25, 2005
4.11%
2.4%
58%
10 years
June 26, 2004
5.25%
0.0%
54%
10 years
41
(CONTINUED)
The Black-Scholes Option Pricing Model was developed for use in estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, the Black-Scholes Option Pricing Model requires the use of subjective assumptions
including the expected stock price volatility. As a result, the Company’s Stock Option Plan having characteristics different from those
of traded options, and because changes in the subjective assumptions can have a material effect on the fair value estimate, the
Black-Scholes Option Pricing Model does not necessarily provide a reliable single measure of the fair value of options granted.
Prior to fiscal 2004, the Company used settlement accounting to account for its Stock Option Plan. No compensation cost was
recorded when stock options were granted. When options were exercised, consideration paid by employees and directors was
recorded in the financial statements as an increase of share capital based on the exercise price of the options.
In accordance with the transitional provisions of CICA Handbook Section 3870, the Company applied the fair value based method
to account for stock options on a prospective basis. Therefore, stock options granted during the year ended June 28, 2003 continue
to be accounted for using the settlement accounting method and the pro-forma effect on net earnings and earnings per share are
disclosed below. Had compensation cost been determined using the fair value-based method at the grant date of the stock options
awarded to employees and directors during fiscal 2003, the net earnings and earnings per share for the years ended June 25, 2005
and June 26, 2004 would have been reduced to the pro forma amounts indicated in the following table:
Net loss
Basic loss per share
Diluted loss per share
Year Ended June 25, 2005
As Reported
Pro forma
($185)
($427)
($0.03)
($0.06)
n/a
n/a
Year Ended June 26, 2004
As Reported
Pro forma
($7,097)
($7,339)
($1.03)
($1.06)
n/a
n/a
The pro forma effect on net earnings of the period is not representative of the pro forma effect on net earnings of future periods
because it does not take into consideration the pro forma compensation cost related to options awarded prior to June 29, 2002.
(e) Deferred Share Unit Plan
Effective October 19, 2004, the Company established a Deferred Share Unit (“DSU”) Plan for non-management directors. The DSU
Plan is administered by the Human Resources and Governance Committee of the Board of Directors. Under this plan, nonmanagement directors of the Company receive an annual grant of DSU’s and can also elect to receive their annual retainers and
meeting fees in DSU’s. A DSU is a unit equivalent in value to one Subordinate Voting Share of the Company based on the fiveday average trading price of the Company's Subordinate Voting Shares on The Toronto Stock Exchange immediately prior to the
date on which the value of the DSU is determined. When dividends are paid by the Company, an equivalent number of DSU’s are
added to the DSU account of the non-management director based on the number of DSU’s in their account and the market value
of the Subordinate Voting Shares on the date the dividend is paid. After retirement from the board, a participant in the DSU Plan
receives a cash payment equal to the market value of the accumulated DSU’s in their account.
During the year ended June 25, 2005, each non-management director was issued 1,200 DSU’s. A total of 7,317 DSU's were
outstanding as at June 25, 2005 and compensation cost of $74 was included in selling, general and administrative expenses and
a corresponding liability on the Company’s consolidated balance sheet has been recorded. The value of the DSU liability is
adjusted to reflect changes in the market value of the Company’s Subordinate Voting Shares.
(f) Restricted Share Unit Plan
Effective April 20, 2005, the Company established a Restricted Share Unit (“RSU”) Plan as part of its overall executive
compensation plan. The RSU Plan is administered by the Human Resources and Governance Committee of the Board of
Directors. Under this plan, Senior Officers of the Company are eligible to receive a grant of RSU’s that vest on each anniversary
of the grant in equal one-third installments over a vesting period of three years. A RSU is a unit equivalent in value to one
42
(CONTINUED)
Subordinate Voting Share of the Company. When dividends are paid by the Company, an equivalent number of RSU’s are added
to the RSU account of the Senior Officer based on the number of RSU’s in their account, the dividend paid per Subordinate Voting
Share and the market value of the Subordinate Voting Shares on the date the dividend is paid. Upon the exercise of the vested
RSU’s, a cash payment equal to the market value of the exercised vested RSU’s will be paid to the senior officer.
During year ended June 25, 2005, 5,030 RSU's were awarded and outstanding of which none were vested.
NOTE 8: AMORTIZATION (THOUSANDS OF DOLLARS)
Amortization included in cost of sales and selling, general and administrative expenses (“SG&A”) is summarized as follows:
Cost of sales
SG&A of continuing operations
Continuing operations
SG&A of discontinued operations
June 25, 2005
$
842
5,374
6,216
1,330
$
7,546
June 26, 2004
$
773
4,998
5,771
316
$
6,087
June 25, 2005
$
(420)
645
4,738
30
$
4,993
5,413
$
(420)
June 26, 2004
$
(505)
803
4,074
(1)
$
4,371
4,843
$
(472)
NOTE 9: INCOME TAXES (THOUSANDS OF DOLLARS)
Future income tax asset (liability) is summarized as follows:
Amortization
Deferred lease inducements
Other
Future income tax asset
Future income tax liability
Furthermore, the U.S. subsidiary has unutilized non-capital loss carry forwards available to reduce future year’s income taxes, the
potential benefit of which have not been recognized in these financial statements. These losses can be utilized in future years up to
2020.
The Company’s effective income tax rate consists of the following:
Combined basic federal and provincial average statutory rate
Litigation provision and related expenses,
manufacturing and processing deduction and other
Effect of foreign operating losses
June 25, 2005
35.4%
June 26, 2004
(36.1%)
21.7%
67.6%
124.7%
20.5%
5.4%
(10.2%)
43
NOTE 10: LITIGATION PROVISION AND RELATED EXPENSES
Provision for damages, costs and interest
Legal and professional fees
Accrued litigation provision and related expenses
June 25, 2005
$ 18,000
$ 18,000
June 26, 2004
$ 15,000
450
$ 15,450
In fiscal 1999, the Company and certain of its directors and officers were served with a Statement of Claim under the Class
Proceedings Act (Ontario) concerning the accuracy and disclosure of certain information contained in a financial forecast issued by
the Company during its initial public offering (“IPO”) in 1998. The suit sought damages be paid equal to the alleged diminution in value
of the shares.
In October 2001, a motion to certify the action as a class action was granted. The trial commenced in the Superior Court of Justice
(Ontario) during May 2003 and was completed in January 2004. On May 7, 2004 the Judge issued a judgment in favour of the Plaintiffs
and awarded damages to Canadian shareholders who purchased Subordinate Voting Shares in the IPO. The Judge concluded that at
the time of pricing of the IPO, which was two weeks before the closing, the forecast was reasonable and that the Company’s CEO and
CFO had an honest belief at the time the IPO closed that the forecast could be achieved. The Judge further held that the forecast
was, in fact, substantially achieved. Despite these findings, the Court decided that management’s judgement that the forecast was still
achievable at the time of closing was not reasonable. The Company has appealed this decision as discussed below.
For those shareholders who sold their shares between June 4 and 9, 1998, the Court awarded them the difference between the IPO
price and the price at which they sold their shares. For those shareholders who sold or still hold those shares after June 9, 1998, the
Court awarded $2.35 per share.
A hearing to determine the awarding of costs was held in April 2005. In May 2005, the Court awarded a portion of the costs claimed
by the plaintiffs but referred the matter for assessment to determine the amount of costs to be paid. The quantum of the costs award
will not be known until the final assessment ordered by the Court has been conducted. Based solely on the information available as
of year-end, the Company estimates that this award, if unchanged on appeal, would amount to approximately $3 million to $4 million.
Based solely on the information available at year-end, if the damages award, costs and interest had been paid at the fiscal 2005
year-end, the Company estimates this amount to be about $18 million. During the fourth quarter of 2004, the Company recorded an
expense and set up a provision of $15 million pursuant to this judgment. This provision was subsequently increased by $3 million to
$18 million during the fourth quarter of 2005. The judgment is a joint and several responsibility of the Company and two of its Senior
Officers. The Company carries directors and officers insurance and it expects that the insurance will cover the two Senior Officers’
portion of the total award but the amount of insurance is not reasonably determinable at this time. The provision for recovery of
income taxes related to the award is based on the entire $18 million provision and does not take account of the potential results of
the appeal discussed in the next paragraph, any possible insurance recoveries or future tax adjustments. The damages award and
income tax recovery is based on management’s best estimate and is subject to adjustment when all facts are known and all issues
are resolved. The possible adjustment could be significant.
In June 2004, a Notice of Appeal was filed by the Company and two of its Senior Officers. The appeal was heard by the Ontario Court
of Appeal during June 2005. The Court reserved its decision and it is not anticipated that the Court's determination will be made before
the fall of 2005. The payment of any damages and costs awarded by the trial judge is stayed pending the determination of the appeal.
44
NOTE 11: CHANGES IN NON-CASH OPERATING WORKING CAPITAL ITEMS (THOUSANDS OF DOLLARS)
Accounts receivable
Inventories
Prepaid expenses
Accounts payable and accrued liabilities
Income taxes recoverable/payable
June 25, 2005
$
32
452
387
(1,185)
(1,891)
$ (2,205)
June 26, 2004
$
(33)
7,155
(15)
143
1,035
$
8,285
NOTE 12: COMMITMENTS & CONTINGENCIES (THOUSANDS OF DOLLARS)
(a) Legal proceedings
In addition to the class action matter discussed in Note 10, 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 financial statements
for these guarantees:
(i)
In the ordinary course of business, the Company has agreed to indemnify its lenders under its credit facility 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 facility 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 fixed assets such as computer software. 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 fiscal 2004 and has provided the landlord with a guarantee in the event the subtenant defaults on its obligation to pay rent. The term of the guarantee is approximately 3.5 years and the Company’s
maximum exposure is $140.
NOTE 13: COMMITMENTS (THOUSANDS OF DOLLARS)
(a) Operating leases
Minimum rentals for the next five fiscal years and thereafter, excluding rentals based upon revenue are as follows:
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$
2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$
2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$
2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$
11,234
10,627
9,226
7,630
5,432
10,579
45
NOTE 13: COMMITMENTS
(CONTINUED)
(b) Letters of credit
The Company had outstanding letters of credit in the amount of $4,839 (June 26, 2004 - $6,804) for imports of finished goods
inventories to be received.
NOTE 14: RELATED PARTY TRANSACTIONS (THOUSANDS OF DOLLARS)
During fiscal 2005, the Company expensed and paid fees of $28 to a corporation related to a director and officer of the Company.
This transaction was measured at the exchange amount, which is the amount of consideration established and agreed to by the
related parties.
NOTE 15: FINANCIAL INSTRUMENTS (THOUSANDS OF DOLLARS)
The carrying value of the Company’s accounts receivable and accounts payable and accrued liabilities approximates their fair value.
The Company is exposed to credit risk on its accounts receivable from corporate customers through sales made by the direct sales
division. Accounts receivable are net of applicable allowance for doubtful accounts, which is established based on the specific credit
risks associated with each corporate customer and other relevant information.
The Company purchases a significant portion of its leather and finished goods inventory from foreign vendors with payment terms
in U.S. dollars. From time-to-time the Company may enter into foreign exchange forward contracts to manage foreign exchange risk
associated with these purchases. As at June 25, 2005, and as at June 26, 2004 the Company did not have any outstanding foreign
exchange forward contracts to purchase U.S. dollars.
The Company is exposed to interest rate risk based on the use of the credit facilities which bears interest at floating rates. For fiscal
2005, a +/-1% change in interest rates would change interest expense by +/- $NIL (June 26, 2004 +/-$52) since the Company only incurred
approximately $3 of interest expense.
NOTE 16: SEGMENTED INFORMATION
Management has determined that the Company operates in one dominant industry and geographic segment which involves the
design, manufacture and retail of fashion leather and suede apparel in Canada.
46
board of directors
as of June 2005
Edwin F. Hawken
Mr. Hawken is Chairman of the Board of Directors and Chairman of the Audit Committee. Prior to joining Danier’s board of directors
in May 1998, he held the positions of Vice Chairman of Newcourt Credit Group Inc. and President and Chief Executive Officer of
Commcorp Financial Services Inc.
Jeffrey Wortsman
Mr. Wortsman joined Danier in 1986 and was appointed President in 1994 and Chief Executive Officer in 1997. Prior to joining the
company, Mr. Wortsman was employed by a prominent Canadian investment firm. Mr. Wortsman received a Masters Degree in
Business Administration and a Bachelor of Laws Degree from York University and a Bachelor of Arts Degree in Economics from the
University of Western Ontario. He was called to the Ontario Bar in 1985. Mr. Wortsman is also a director of Cars4U.com Ltd., an online
retailer of automobiles.
Clare Copeland
Mr. Copeland joined the board of Danier in May 1998 and is also Chairman of Danier’s Human Resources and Governance Committee
and a member of the Audit Committee. For the past 35 years, Mr. Copeland has held senior executive positions with major
corporations such as, Peoples Jewellers, Zale Corporation, Granada Canada and Drake International. Mr. Copeland is also Chairman
of Toronto Hydro and holds directorships with Rio Can and several other Canadian companies. Mr. Copeland is also on the Advisory
Board for the Richard Ivey School of Business and the Molson Indy Foundation.
Stephen Kahn
Mr. Kahn joined the board of Danier in May 1998 and is also a member of Danier’s Audit Committee and Human Resources and
Governance Committee. Prior to being acquired by Alloy Inc. in 2003, Mr. Kahn was Chairman, Chief Executive Officer and co-founder
of dELiA*s, a multichannel retailer that markets apparel, accessories and home furnishings to teenage girls and young women.
Doug Murphy
Mr. Murphy joined the board of Danier in January 2004 and is also a member of Danier’s Human Resources and Governance
Committee. Mr. Murphy is currently Executive Vice-President, Business Development for Nelvana Limited, a division of Corus
Entertainment, where he oversees all sales, marketing and merchandising activities. Mr. Murphy has significant retail experience,
including more than 10 years in senior positions with The Walt Disney Company, where he led the development of Disney’s
international growth strategy for the Parks and Resorts segment and managed the growth of The Disney Stores in North America
and Japan.
Howard Stotland
Mr. Stotland joined the board of Danier in May 1998 and is also a member of Danier’s Human Resources and Governance Committee.
He is the founder of STS Systems, a leading information systems company for the retail industry, which was acquired by NSB Retail
Systems PLC in December 2000. Mr. Stotland is also a director of Reitmans.
Irving Wortsman
Mr. Wortsman is the founder of Danier Leather Inc. and was instrumental in growing the company from a manufacturer and wholesaler
to department stores to a multichannel national retailer.
47
company information
as of June 2005
COMPANY OFFICERS
Jeffrey Wortsman
President and CEO
Bruce Aitken
Vice-President, Planning and
Allocation
Olga E. Koel
Executive Vice-President and
Chief Merchandise Officer
Mila Daniely
Vice-President, Design
Bryan Tatoff, C.A.
Senior Vice-President,
CFO and Secretary
Karen J. Marshall
Vice-President,
Logistics and Distribution
Philip J. Cutter
Vice-President, Information
Technology and CIO
George Miltenburg
Vice-President, Manufacturing
HEAD OFFICE
LEGAL COUNSEL
2650 St. Clair Avenue West
Toronto, Ontario M6N 1M2
Telephone: (416) 762-8175
Fax: (416) 762-4570
Davies Ward Phillips & Vineberg LLP,
Toronto
INVESTOR RELATIONS
Bryan Tatoff
Senior Vice-President and CFO
Telephone: (416) 762-8175 ext.328
[email protected]
AUDITORS
Cris Ruivo
Vice-President, Store Operations
Sandra Sanderson
Vice-President and CMO
Cheryl Sproul
Vice-President, Human Resources
Kevin Strachan
Vice-President, Direct Sales
REGISTRAR AND
TRANSFER AGENT
Computershare Trust Company
of Canada
BANKERS
Canadian Imperial Bank of Commerce,
Toronto
HSBC Bank of Canada, Toronto
Scotiabank, Toronto
STOCK TRADING SYMBOL
ANNUAL MEETING
The Annual Meeting of Shareholders
will be held at Danier’s Head Office
2650 St. Clair Ave. W., Toronto, Ontario
Wednesday, October 19th, 2005
4:00pm (Eastern Daylight Time)
DL.SV on the Toronto Stock Exchange
WEBSITE
CORPORATE GOVERNANCE
FORWARD-LOOKING STATEMENTS
CORPORATE SALES
Danier Leather treats its fiduciary
responsibility to shareholders with the
utmost importance. The Company’s Board
of Directors is charged with overseeing
the proper management of the Company’s
affairs with the objective of maximizing
the long-term value of the Company for
its shareholders. The Company’s directors
are experienced businesspersons
representing varied professional
backgrounds. On behalf of Danier’s
shareholders, the Board of Directors is
responsible for stewardship of the
corporation, establishing overall policies,
reviewing strategic plans and holding
accountable management to whom it
delegates day-to-day operations.
Further information on Danier’s
corporate governance is available
from the Company’s regulatory filings.
This annual report contains forwardlooking statements that deal with potential
future circumstances and developments.
Forward-looking statements involve risks
and uncertainties, including, but not limited
to, the weather and performance of the
economies in the markets in which the
Company operates, continued acceptance
of the Company’s products, competitive
factors, the Company’s ability to identify
and interpret fashion trends, factors
affecting its sourcing of skins in Europe,
New Zealand and Asia, and other such
risks as we may identify in this report or in
other published documents. Any of these
risks could cause actual results to differ
materially from those expressed in or
implied by the statements. Accordingly,
readers are cautioned not to place undue
reliance on these statements.
Danier’s Corporate Sales division offers a
wide variety of quality, customized leather
goods for gifts, incentives, promotions and
other special occasions. Whether you want
to motivate, thank or reward one person or
an entire group, we have the product
selection and customer service to help
you choose wisely and make a lasting
impression.
PricewaterhouseCoopers LLP, Toronto
Danier Leather is proud to sponsor
150 children through Foster Parents Plan.
48
www.danier.com
For more information, or a catalogue and
pricing, please contact the professionals in
our corporate sales group at 1-877-9danier
or e-mail us at [email protected].
Danier Leather • 2650 St. Clair Avenue West Toronto, ON M6N 1M2 • www.danier.com

ANNUAL REPORT 2005 - Danier

Transcription

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