TORONTO, Aug. 10 /CNW/ - For the six months ended June 30, 2005 sales
were $235,515,000 ($220,366,000 in 2004), an increase of 6.9% and net income
was $15,676,000, 86 cents per common share ($15,067,000, 81 cents per common
share in 2004), an increase of 6.2% per common share. Total Leon's sales,
including $73,438,000 of sales by franchisees, were $308,953,000 ($288,675,000
in 2004).
For the three months ended June 30, 2005, sales were $121,933,000
($115,894,000 in 2004), an increase of 5.2%. Same store sales were up 1.1% for
the three months ended June 30, 2005 compared to the prior year. Net income
was $7,850,000, 43 cents per common share ($7,590,000, 41 cents per common
share from operations in 2004), an increase of 4.9% per common share.
Franchise sales for the three months ended June 30, 2005 were $38,953,000
($38,160,000 in 2004), an increase of 2.1%.
We are encouraged by our financial results for the second quarter 2005.
The continued effort and dedication of our Associates, during this period is
continuing to show returns as we are seeing an improvement in our sales
momentum thus far into the third quarter.
The Directors have declared a quarterly dividend of 20 cents per common
share payable on the 14th day of October 2005 to shareholders of record at the
close of business on the 14th day of September 2005.
The Directors have also approved, subject to obtaining regulatory
approvals, the continuation of the Company's ongoing Normal Course Issuer Bid,
which expires on September 2, 2005. Pursuant to the continued bid, the Company
intends, in the twelve months commencing September 3, 2005, to purchase up to
the lesser of 903,079 of its Common Shares, representing approximately
4.99% of its approximately 18,097,784 Common Shares outstanding on August 10,
2005, and the amount equal to 4.99% of its Common Shares outstanding on the
date the Toronto Stock Exchange accepts the notice of intention to make a
normal course issuer bid.
Since September 3, 2004, the date on which Leon's current issuer bid
commenced, the company has purchased 420,600 Common Shares at an average price
of $35.48 per share. The Company's management believes that the purchase of
its common shares is an appropriate use of its corporate funds, given the very
strong liquidity position.
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EARNINGS PER SHARE FOR EACH QUARTER
-----------------------------------
YEAR
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 TOTAL
-------- -------- -------- -------- ------
2005 - Basic 43 cents 43 cents $0.86
- Fully Diluted 41 cents 42 cents $0.83
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
Restated - Fully Diluted 23 cents 31 cents 56 cents 82 cents $1.92
LEON'S FURNITURE LIMITED - MEUBLES LEON LTEE
Mark J. Leon
Chairman of the Board
MANAGEMENT'S DISCUSSION AND ANALYSIS
August 10, 2005
Management's Discussion and Analysis should be read in conjunction with
the unaudited consolidated interim financial statements of the Company for the
six months ended June 30, 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 $121,933,000 in the second quarter of 2005 increased by
$6,039,000, or 5.2%, compared to $115,894,000 in the second quarter of 2004.
This increase in sales was due to a number of factors, including an improved
product line up and strong marketing campaigns. In addition, we saw continued
sales growth from recent new stores and renovated showrooms. Same store sales
grew by 1.1% in the quarter when compared to the prior year. We are also
starting to see sales growth from the successful grand reopening of our newly
renovated Windsor, Ontario store in the first quarter 2005.
As was the case in the first quarter 2005, operating, administrative and
selling expenses in the second quarter decreased as a percentage of sales when
compared to the second quarter of 2004. This was a result of higher sales
coupled with the continuing effort to increase productivity and efficiency
from every department of the organization. Again, we must congratulate our
Associates for their continued effort to find ways of improving productivity
and finding feasible ways of reducing expenses. Once more their pride and
passion for the well being of this organization continues to have a major
impact on improving profitability year after year.
Annual Financial Information
($ in thousands, except earnings per
share) 2004 2003 2002
Sales 504,591 455,702 449,693
Net Income 46,104 38,438 38,520
Earnings Per Share
Basic $2.49 $1.99 $1.96
Fully diluted $2.41 $1.92 $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.
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: June 30/05 Dec. 31/04 June 30/04
---------- ---------- ----------
Cash and marketable securities $80,797 $98,995 $78,244
Accounts receivable 7,893 17,763 10,898
Inventory 68,359 71,279 64,591
Total assets 341,805 368,121 330,877
Working capital 90,437 90,838 86,523
Current Prior Prior
Quarter Quarter Quarter
For the 3 Months Ended June 30/05 March 31/05 Dec. 31/04
----------- ----------- -----------
Cash flow from operations $22,144 $(18,976) $32,755
Purchase of capital assets 5,313 2,265 11,361
Repurchase of capital stock 7,635 0 3,475
Dividends paid 3,659 3,656 3,702
Dividends paid per share $0.20 $0.20 $0.20
Cash investments and marketable securities increased by $6,693,000 in the
quarter. The cash balances increase during the second quarter is mainly the
result of the reduction of inventory offset by a slight increase in trade
creditor liabilities.
Marketable securities consist primarily of bonds with maturities not
exceeding ten years with an interest rate range of 2.44% to 5.0% and are
stated at the lower of cost and market value. As at June 30, 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 $9,789,000.
The cash provided by operating activities of $22,144,000 is the result of
the slight improvement in after tax profits in the quarter and the net changes
in non-cash working capital balances.
Two major new warehouse showrooms will open this year, one in Beauport,
Quebec (57,000 sq. ft.) this month and Hamilton, Ontario (73,703 sq. ft.)
later this fall. A new major warehouse showroom being constructed in Vaughan,
Ontario (70,202 sq. ft.) is scheduled to open in early 2006. Major renovations
to our existing stores in Kitchener, Ontario; Winnipeg, Manitoba and Halifax,
Nova Scotia are scheduled to begin later this year. Additional properties have
been purchased for new stores in Longueuil, Quebec; Saskatoon, Saskatchewan
and Newmarket, Ontario. These capital expenditures will be funded from our
existing cash resources.
Share Data
At June 30, 2005 there were 18,097,784 common shares issued and
outstanding. During the second quarter of 2005, the company repurchased
205,400 common shares and 9,714 convertible, non-voting series 1998 shares
were converted to common shares.
For the six-month period ending June 30, 2005, the Company repurchased
205,400 common shares and 21,916 convertible, non-voting series 1998 shares
were converted to common shares.
At June 30, 2005 there were 197,602 convertible, non-voting series 1998
shares and 404,230 convertible, non-voting series 2002 shares.
Commitments
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Payments Due by Period 000's
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Less than 2-3 4-5 After
Contractual Obligations Total 1 year years years 5 years
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Operating Leases(1) 1,548 237 1,146 165
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Purchase Obligations(2) 7,678 7,678
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Total Contractual Obligations 9,226 7,915 1,146 165
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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.
Accounting Changes
Effective January 1, 2004, the Company adopted on a retroactive basis,
the new standard of the Canadian Institute of Chartered Accountants on
accounting for warranty revenues and expenses. The accounting change adopted
by the Company now recognizes warranty revenue and expenses over the life of
the warranty contract. This new accounting policy does differ from how the
Company accounted for warranty revenue and expenses in the past.
Quarterly Results (2005, 2004, 2003)
Quarterly Income Statement ($000) - except Per Share Data
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Quarter Ended Quarter Ended
June 30, 2005 March 31
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2005 2004 2005 2004
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Net Sales $121,933 $115,894 $113,582 $104,472
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Net Income for the Period 7,850 7,590 7,826 7,477
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Net Income Per Share $0.43 $0.41 $0.43 $0.40
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Fully Diluted Per Share $0.42 $0.40 $0.41 $0.39
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Quarter Ended Quarter Ended
December 31 September 30
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2004 2003 2004 2003
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Net Sales $153,080 $136,865 $131,145 $120,998
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Net Income for the Period 17,090 16,099 13,947 11,357
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Net Income Per Share $0.93 $0.85 $0.75 $0.58
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Fully Diluted Per Share $0.89 $0.82 $0.73 $0.56
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In moving from 2003 to 2004, the Company saw a steady increase in sales
and profits each quarter as a result of an improvement in the Canadian
economy, as well as a more aggressive marketing and merchandising campaign.
Although the first six months of 2005 has seen a slow down in the Canadian
economy, we have managed a gradual improvement in sales and profits.
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.
Outlook
During the first two quarters of 2005 we saw a relative slowdown in
consumer spending despite which we were still able to increase sales and
profits over the comparable period for the prior year. We expect the second
half of 2005 to continue to improve over last year, at a steady pace. The
opening of two new stores in the second half of this year will also help grow
sales going forward. Our Company's strong financial position, combined with
our constant effort to improve productivity and our renewed efforts to improve
market share, enable us to look forward with continued optimism.
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.
Leon's Furniture Limited
P.O. Box 1100, Stn. "B"
Weston, ON
M9L 2R8
Phone: (416) 243-4073 Fax: (416) 243-7890
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 10th day of August 2005.
CONSOLIDATED STATEMENTS OF INCOME AND
RETAINED EARNINGS
(UNAUDITED)
Period ended June 30th
(in thousands, except earnings per share)
3 months 6 months
ended ended
2005 2004 2005 2004
$ $ $ $
Sales 121,933 115,894 235,515 220,366
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Cost of sales, operating,
administrative and selling
expenses 107,676 102,171 207,139 193,579
Amortization 2,902 2,628 5,763 5,007
Interest income (691) (727) (1,445) (1,567)
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Income before income taxes 12,046 11,822 24,058 23,347
Provision for income taxes 4,196 4,232 8,382 8,280
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Net income for the period 7,850 7,590 15,676 15,067
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Retained earnings, beginning of
the period 243,502 220,042 239,335 220,426
Dividends declared (3,660) (3,703) (7,319) (6,305)
Excess of cost of share repurchase
over carrying value of related
shares (7,538) - (7,538) (5,259)
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Retained earnings, end of period 240,154 223,929 240,154 223,929
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Weighted average number of common
shares outstanding
Basic 18,242 18,506 18,181 18,549
Fully diluted 18,844 19,151 18,783 19,194
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Earnings per share
Basic $0.43 $0.41 $0.86 $0.81
Fully diluted $0.42 $0.40 $0.83 $0.78
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See accompanying notes to interim financial statements.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
As at June 30 As at December 31
(in thousands) 2005 2004
$ $
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ASSETS
Current
Cash and cash equivalents 8,591 14,995
Marketable securities 72,206 84,000
Accounts receivable 7,893 17,763
Inventory 68,359 71,279
Income taxes recoverable 6,961 3,472
Future income tax assets 305 305
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Total current assets 164,315 191,814
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Future income tax assets 5,775 6,285
Capital assets, net 171,715 170,022
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341,805 368,121
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 53,968 79,451
Customers' deposits 8,037 9,896
Dividends payable 3,660 3,907
Deferred warranty plan revenue 8,213 7,722
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Total current liabilities 73,878 100,976
Deferred warranty plan revenue 16,589 17,079
Redeemable share liability 363 199
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Total liabilities 90,830 118,254
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Shareholders' equity
Common shares 10,821 10,532
Retained earnings 240,154 239,335
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Total shareholders' equity 250,975 249,867
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341,805 368,121
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See accompanying notes to interim financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Period ended June 30th
(in thousands) 3 months ended 6 months ended
2005 2004 2005 2004
$ $ $ $
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OPERATING ACTIVITIES
Net income for the period 7,850 7,590 15,676 15,067
Add (deduct) items not
involving a current cash
payment
Amortization of capital
assets 2,902 2,628 5,763 5,007
Amortization of deferred
warranty revenue (2,600) (1,366) (5,298) (2,276)
Gain on sale of
marketable securities (352) (303) (507) (572)
Future tax expense 433 456 247 298
Gain on sale of capital
assets (60) (13) (75) (13)
Cash received on warranty
sales 2,620 1,463 5,300 2,439
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10,793 10,455 21,106 19,950
Net change in non-cash
working capital balances
related to operations 11,351 (5,265) (17,938) (24,337)
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Cash provided by (used in)
operating activities 22,144 5,190 3,325 (4,387)
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INVESTING ACTIVITIES
Purchase of capital assets (5,313) (6,644) (7,578) (11,025)
Proceeds on sale of capital
assets 332 18 355 18
Purchase of marketable
securities (588,171) (422,044) (1,027,047) (875,041)
Proceeds on sale of
marketable securities 588,824 433,994 1,039,350 899,470
Decrease in employee share
purchase loans 171 506 298 834
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Cash (used in) provided by
investing activities (4,157) 5,830 5,378 14,256
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FINANCING ACTIVITIES
Dividends paid (3,659) (2,602) (7,315) (5,257)
Repurchase of capital stock (7,635) - (7,635) (5,345)
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Cash used in financing
activities (11,294) (2,602) (14,950) (10,602)
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Net increase (decrease) in
cash and cash equivalents
during the period 6,693 8,418 (6,404) (733)
Cash and cash equivalents,
beginning of period 1,898 3,498 14,995 12,649
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Cash and cash equivalents,
end of period 8,591 11,916 8,591 11,916
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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, 205,400 common shares were repurchased (2004-nil) on
the open market pursuant to the terms and conditions of Normal Course
Issuer Bids at a net cost of approximately $7,635,000 (2004-$nil). For
the six month period, the Company repurchased 205,400 (2004-182,100)
common shares at a net cost of $7,635,000 (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 $96,700
(2004-nil) for the three month period and $96,700 (2004-$85,700) for the
six month period. 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
(2004-8,431 for a stated value of $107,000) were converted into common
shares. For the six month period, no convertible, non-voting, series 1994
shares (2004-9,180 for a stated value of $118,000) were converted into
common shares.
During the period, 9,714 convertible, non-voting, series 1998 shares were
converted into common shares with a stated value of $171,000
(2004-22,657 for a stated value of $399,000). For the six month period,
21,916 convertible, non-voting, series 1998 shares were converted into
common shares with a stated value of $386,000 (2004-44,649 for a stated
value of $786,000)
For the six month 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 June 30, 2005 were $4,591,000 (2004-$7,318,000) and
for the six month period were $11,990,000 (2004-$22,647,000).
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