TORONTO, May 12 /CNW/ - For the three months ended March 31, 2005, sales
were $113,582,000 ($104,472,000 in 2004), an increase of 8.7% and net income
was $7,826,000, 43 cents per common share ($7,477,000, 40 cents per common
share in 2004), an increase of 7.5% per common share, all of which represented
a record for the first quarter. Total Leon's sales, including $34,485,000 of
sales by franchisees ($31,647,000 in 2004), were $148,067,000 ($136,119,000 in
2004).
We are pleased that we were able to improve our financial results in the
first quarter of 2005 during a period of what has become a more difficult
retail environment. Our strong capital position will allow us to focus on
growing market share going forward, especially when combined with the efforts
of our dedicated Associates across the country who continue to create a
positive impression with our customers as they have for almost 100 years.
As previously announced, we paid a quarterly 20 cents dividend on
April 6, 2005. Today we are happy to announce that the Directors have declared
a quarterly dividend of 20 cents per common share payable on the 8th day of
July 2005 to shareholders of record at the close of business on the 8th day of
June 2005.
Our renovation and expansion plans will continue during 2005. We have
just completed a very successful major renovation to our Windsor, Ontario
store. Further major renovations of existing stores in Calgary, Alberta;
Winnipeg, Manitoba; Kitchener, Ontario; and Halifax, Nova Scotia, are
currently planned to begin this year. We will, as well, open new stores in
Hamilton, Ontario and Quebec City, Quebec this summer. Construction of
additional new stores is scheduled to start soon in Saskatoon, Saskatchewan
and Vaughan, Ontario. We have also secured properties in Newmarket, Ontario
and the South Shore of Montreal for future stores.
<<
EARNINGS PER SHARE FOR EACH QUARTER
-----------------------------------
YEAR
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 TOTAL
-------- -------- -------- -------- --------
2005 - Basic 43 cents $ 0.43
- Fully Diluted 41 cents $ 0.41
2004 - Basic 40 cents 41 cents 75 cents 93 cents $ 2.49
- Fully Diluted 39 cents 40 cents 73 cents 89 cents $ 2.41
2003 - Basic 23 cents 33 cents 58 cents 85 cents $ 1.99
- Fully Diluted 23 cents 31 cents 56 cents 82 cents $ 1.92
LEON'S FURNITURE LIMITED
(signed) Mark J. Leon
Chairman of the Board
MANAGEMENT'S DISCUSSION AND ANALYSIS
May 12, 2005
Management's Discussion and Analysis should be read in conjunction with
the unaudited consolidated interim financial statements of the Company for the
three months ended March 31, 2005, Management's Discussion and Analysis for
the year ended December 31, 2004, the audited consolidated financial
statements for the year ended December 31, 2004 and the Company's Annual
Information Form dated February 21, 2005.
Revenues and Expenses
Sales of $113,582,000 in the first quarter of 2005 increased by
$9,110,000, or 8.74%, compared to $104,472,000 in the first quarter of 2004.
This increase in sales was due to such factors as growth in same store sales
of 3.3% and a continuation of our vigorous marketing campaign. Leon's
franchise sales in the first quarter 2005 were $34,485,000 ($31,647,000 in
2004), which is an increase of 8.9% over the prior year. We also had
successful grand openings of our new stores in South Edmonton, Alberta and
Quebec City, Quebec in the last quarter of 2004, and in the first quarter
2005, we had a very successful grand reopening of our new renovated Windsor,
Ontario store. All these factors contributed to the increase in sales and
profitability in the first quarter 2005 when compared to the prior year.
Even though operating, administrative and selling expenses for the first
quarter 2005 increased, when compared to the first quarter 2004, they
decreased as a percentage of sales. Strong efforts which began in early 2004
to increase productivity, has continued thanks to the dedication of all our
Associates throughout Canada. Once again, their pride and commitment to the
well-being of this organization is well reflected in our overall results.
Annual Financial Information
($ in thousands, except earnings per
share) 2004 2003 2002
Net Sales 504,591 456,352 449,693
Net Income 46,104 38,852 38,520
Earnings Per Share
Basic $ 2.49 $ 2.01 $ 1.96
Diluted $ 2.41 $ 1.94 $ 1.93
Total Assets $ 368,121 $ 340,093 $ 320,439
Common Share Dividends Declared $ 0.74 $ 0.50 $ 0.98
Convertible Non-Voting Shares
Dividends Declared $ 0.40 $ 0.24 $ 0.24
The increase in both sales and profits over the past three years has
resulted from growth in same store sales and from new stores as well.
Continued efforts to streamline operations have also resulted in cost
reductions, which have in turn helped the Company increase profits.
Liquidity and Financial Resources
In $000 - except Per Share Data
Balances as at: March 31/05 Dec. 31/04 March 31/04
----------- ---------- -----------
Cash and marketable securities $ 74,403 $ 98,995 $ 81,471
Accounts receivable 8,009 17,763 6,994
Inventory 76,815 71,279 64,952
Total assets 341,094 368,121 313,634
Working capital 95,397 90,838 79,573
Prior Year
Current Prior First
Quarter Quarter Quarter
For the 3 Months Ended March 31/05 Dec. 31/04 March 31/04
----------- ---------- -----------
Cash flow from operations ($18,976) $ 32,755 $ 21,708
Purchase of capital assets 2,265 11,361 8,874
Repurchase of capital stock - 3,475 5,132
Dividends paid 3,656 3,702 3,704
Dividends paid per share $ 0.20 $ 0.20 $ 0.20
Cash investments and marketable securities decreased by $24,592,000 in
the quarter. As a rule, cash balances generally decrease during the first
quarter due to the seasonality of sales (lower in the first part of the year),
a build-up of inventory and the payment of year-end trade creditor
liabilities.
Marketable securities consist primarily of bonds with maturities not
exceeding ten years with an interest rate range of 2.5% to 6.75% and are
stated at the lower of cost and market value. As at March 31, 2005 the market
value exceeds the cost of the marketable securities.
As part of the reinsurance agreement with a subsidiary, the Company has
pledged assets, which are part of the investment portfolio. The pledged assets
are for the benefit of the primary insurance company. The assets are in the
form of a trust with a financial institution amounting to $9,075,000.
Accounts receivable decreased by $9,754,000 from the end of the year.
This decline in accounts receivable is seasonal and attributed to the
collection from our finance sales and year-end volume rebates.
Inventory increased by $5,536,000 as a result of the increase in sales
over the three-month period and the build-up of inventory for our traditional
spring, summer higher sales season.
The cash used in operating activities of $18,976,000 is mainly the result
of the $29,289,000 change in the non-cash working capital balances. The
non-cash working capital balances primarily relate to the change in accounts
receivable, inventory and trade accounts payable. Accounts payable and accrued
liabilities decreased by $28,714,000 since the prior year-end.
New warehouse showrooms are scheduled to open this summer in Quebec City
(57,000 sq. ft.) and Hamilton, Ontario (75,000 sq. ft.). Construction on new
stores in Saskatoon, Saskatchewan and Vaughan, Ontario will commence this
year. In addition, major renovations of existing stores in Kitchener, Ontario;
Winnipeg, Manitoba; Halifax, Nova Scotia; and Calgary, Alberta will commence
this year. These capital expenditures will be funded from our existing cash
resources.
Share Data
At March 31, 2005 there were 18,293,470 common shares issued and
outstanding. During the first quarter of 2005, 12,202 convertible, non-voting
shares were converted to common shares.
At March 31, 2005 there were 207,316 convertible, non-voting 1998 shares
and 404,230 convertible, non-voting series 2002 shares.
Commitments
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Payments Due by Period 000's
-----------------------------------
Less After
than 1-3 4-5 5
Contractual Obligations Total 1 year Years Years Years
-------------------------------------------------------------------------
Operating Leases(1) 1,844 561 1,118 165 0
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Purchase Obligations(2) 2,059 2,059
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Total Contractual Obligations 3,903 2,620 1,118 165 0
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(1) The Company is obligated under operating leases to future minimum
annual rental payments for various land and building sites across
Canada.
(2) The estimated cost to complete construction in progress at two
locations in Canada.
Quarterly Results (2004, 2003, 2002)
Quarterly Income Statement ($000) - except Per Share Data
Quarter Ended Quarter Ended
March 31 June 30
2005 2004 2003 2004 2003
Net Sales $113,582 $104,472 $ 91,892 $115,894 $105,947
Net Income for the
Period 7,826 7,477 4,567 7,590 6,415
Net Income Per Share $0.43 $0.40 $0.23 $0.41 $0.33
Fully Diluted Per
Share $0.41 $0.39 $0.23 $0.40 $0.31
Quarter Ended Quarter Ended
September 30 December 31
2004 2003 2004 2003
Net Sales $131,145 $120,998 $153,080 $136,865
Net Income for the
Period 13,947 11,357 17,090 16,099
Net Income Per Share $0.75 $0.58 $0.93 $0.85
Fully Diluted Per
Share $0.73 $0.56 $0.89 $0.82
In moving from 2003 to 2004, the Company saw an increase in sales and
profits in the first quarter 2004 as a result of a more aggressive marketing
campaign and a general improvement in the Canadian economy. In subsequent
quarters we have seen a gradual improvement in sales and profits which trend
has carried on to the first quarter of 2005.
Accounting Estimates
Reserves for slow moving and damaged inventory are deducted in our
evaluation of inventories. The reserve for slow moving inventory is based on
many years of historic retail experience. The reserve is calculated by
analyzing all inventory on hand older than one year. Damaged inventory is
coded as such and placed in specific locations. The amount of damaged reserve
is determined by specific product categories.
Reserves for future warranty costs are estimated based on past experience
of actual claims over the warranty period.
Outlook
Even though we noted a softening trend in economic activity going back to
the fall of 2004, we were still able to increase sales and profitability in
the first quarter 2005. Moving forward, at this time it is difficult to gauge
consumer confidence and what impact it may have on retail. Housing continues
to remain strong and we expect our sales and profitability to remain stable.
Given the Company's strong financial position, our goal continues to be to
increase market share and profitability.
Financial Statements Governance Practice
Leon's Furniture Limited's financial statements have been prepared in
accordance with Canadian generally accepted accounting policies and
principles.
The Audit Committee of the Board of Directors of Leon's Furniture Limited
reviewed the Management's Discussion and Analysis ("MD & A") and the financial
statements, and recommended the Board of Directors approve them. Following
review by the full Board, the financial statements and MD & A were approved.
Forward-Looking Statements
This news release, in particular the section under heading "Outlook",
includes forward-looking statements, which are not historic facts based on
certain assumptions and reflect Leon's Furniture Limited's current
expectations. These forward-looking statements are subject to a number of
risks and uncertainties that could cause actual results to differ materially
from current expectations. Some of the factors that can cause actual results
to differ materially from current expectations are: sudden slow down in the
Canadian economy, drop in consumer confidence and dependency of product from
third party suppliers. Given these risks and uncertainties, investors should
not place undue reliance on forward-looking statements as a prediction of
actual results.
NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS
Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an
auditor has not performed a review of the interim financial statements, they
must be accompanied by a notice indicating that the financial statements have
not been reviewed by an auditor.
The accompanying unaudited interim financial statements of the company
have been prepared by and are the responsibility of the company's management.
The company's independent auditor has not performed a review of these
financial statements in accordance with the standards established by the
Canadian Institute of Chartered Accountants for a review of interim financial
statements by an entity's auditor.
------------------------------ -------------------------------------
Terrence T. Leon Dominic Scarangella
President & Chief Executive Vice President & Chief Financial
Officer Officer
Dated as of the 12th day of May 2005.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
As at As at
March 31 December 31
(in thousands) 2005 2004
$ $
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ASSETS
Current
Cash and cash equivalents 1,898 14,995
Marketable securities 72,505 84,000
Accounts receivable 8,009 17,763
Inventory 76,815 71,279
Income taxes recoverable 6,142 3,472
Future income tax assets 305 305
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Total current assets 165,674 191,814
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Future income tax assets 6,209 6,285
Capital assets,net 169,211 170,022
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341,094 368,121
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 50,737 79,451
Customers' deposits 7,304 9,896
Dividends payable 3,659 3,907
Deferred warranty plan revenue 8,314 7,722
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Total current liabilities 70,014 100,976
Deferred warranty plan revenue 16,468 17,079
Redeemable share liability 363 199
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Total liabilities 86,845 118,254
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Shareholders' equity
Common shares 10,747 10,532
Retained earnings 243,502 239,335
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Total shareholders' equity 254,249 249,867
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341,094 368,121
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See accompanying notes to interim financial statements.
CONSOLIDATED STATEMENTS OF INCOME AND
RETAINED EARNINGS
(UNAUDITED)
Period ended March 31st
(in thousands, except earnings per share)
3 months
ended
2005 2004
$ $
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Sales 113,582 104,472
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Cost of sales, operating, administrative and
selling expenses 99,463 91,408
Amortization 2,861 2,379
Interest income (754) (840)
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Income before income taxes 12,012 11,525
Provision for income taxes 4,186 4,048
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Net income for the period 7,826 7,477
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Retained earnings, beginning of the period 239,335 220,892
Dividends declared (3,659) (2,602)
Excess of cost of share repurchase over
carrying value of related shares - (5,259)
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Retained earnings, end of period 243,502 213,031
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Weighted average number of common shares
outstanding
Basic 18,285 18,570
Fully diluted 18,896 19,246
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Earnings per share
Basic $0.43 $0.40
Fully diluted $0.41 $0.39
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See accompanying notes to interim financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Period ended March 31st
(in thousands)
3 months
ended
2005 2004
$ $
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OPERATING ACTIVITIES
Net income for the period 7,826 7,477
Add (deduct) items not involving a current cash
payment
Amortization of capital assets 2,861 2,379
Amortization of deferred warranty revenue (2,698) (2,198)
Loss (gain) on sale of marketable securities (155) (269)
Future tax expense (recovery) (186) (158)
Loss (gain) on sale of capital assets (15) -
Cash received on warranty sales 2,680 2,087
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10,313 9,318
Net change in non-cash working capital balances
related to operations (29,289) (18,895)
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Cash used in operating activities (18,976) (9,577)
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INVESTING ACTIVITIES
Purchase of capital assets (2,265) (4,381)
Proceeds on sale of capital assets 23 -
Purchase of marketable securities (438,876) (452,997)
Proceeds on sale of marketable securities 450,526 465,476
Decrease in employee share purchase loans 127 328
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Cash provided by investing activities 9,535 8,426
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FINANCING ACTIVITIES
Dividends paid (3,656) (2,655)
Repurchase of capital stock - (5,345)
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Cash used in financing activities (3,656) (8,000)
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Net increase (decrease) in cash and cash
equivalents during the period (13,097) (9,151)
Cash and cash equivalents, beginning of period 14,995 12,649
-------------------------------------------------------------------------
Cash and cash equivalents, end of period 1,898 3,498
-------------------------------------------------------------------------
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See accompanying notes to interim financial statements.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. BASIS OF PREPARATION
The Company prepares its financial statements in accordance with
accounting principles generally accepted in Canada. The disclosures
contained in these unaudited interim consolidated financial
statements do not include all requirements of generally accepted
accounting principles for annual financial statements. The unaudited
interim consolidated financial statements should be read in
conjunction with the annual consolidated financial statements for the
year ended December 31, 2004. These interim consolidated financial
statements were prepared following the same policies and standards as
in the most recent annual consolidated financial statements.
2. REVENUE RECOGNITION POLICY
Sales are recognized as revenue for accounting purposes upon the
customer either picking up merchandise ordered or when merchandise is
delivered to the customer's home.
3. COMMON SHARES
During the period, no common shares were repurchased (2004-182,100)
on the open market pursuant to the terms and conditions of Normal
Course Issuer Bids at a net cost of approximately $nil
(2004-$5,344,600) All shares repurchased by the Company pursuant to
its Normal Course Bids have been cancelled. The repurchase of common
shares resulted in a reduction of share capital in the amount of
approximately $85,700 for the prior year. The excess net cost over
the average book value of the shares, has been shown as a reduction
in retained earnings.
During the period, no convertible, non-voting, series 1994 shares
(2004-749 for a stated value of $9,500) were converted into common
shares.
During the period, 12,202 convertible, non-voting, series 1998 shares
were converted into common shares with a stated value of $215,000
(2004-21,992 for a stated value of $387,000).
During the period 3,393 convertible, non-voting series 2002 shares
were cancelled in the amount of $97,500 (2004-1,967 for a stated
value of $56,500).
This Management Share Purchase Plan represents a compensatory plan.
The terms of the series 2002 shares issued under the Plan and related
employee share purchase loans collectively give the employees the
ability, but not the obligation, to acquire common shares of the
Company. The pro forma impact on net income and earnings per share
using the fair value method is not material.
4. INCOME TAXES
The Company's total cash payments for income taxes paid in the three
month period ending March 31, 3005 were $7,399,000 (2004-
$15,329,000).
