TORONTO, May 14 /CNW/ - For the three months ended March 31, 2007, total Leon's sales were $179,797,000 including $41,054,000 of franchise sales ($154,973,000 including $34,955,000 of franchise sales in 2006), an increase of 16.0%. Net income was $10,793,000, 61 cents per common share ($9,752,000, 55 cents per common share in 2006), an increase of 10.9% per common share. Included in the first quarter 2007 was a $288,000, 1.6 cents per common share ($1,500,000, 8cents per common share in 2006) after tax gain on sale of land and building.
Overall, we are pleased that we were able to improve our financial results in the first quarter of 2007. Our strong sales increase has encouraged us to continue our focus on increasing market share in existing and new markets going forward. Renovation and expansion plans will continue during 2007. We have just completed a successful opening in the first quarter 2007 of a new showroom and warehouse in Newmarket, Ontario. We also plan to open a new showroom and warehouse in Longueuil, Quebec this fall. Major renovations of existing stores in Calgary, Alberta and Kitchener, Ontario are ongoing and should be completed before the end of the year.
As previously announced, we paid a quarterly 28 cents dividend on April 6, 2007. Today we are happy to announce that the Directors have declared a quarterly dividend of 28 cents per common share payable on the 6th day of July 2007 to shareholders of record at the close of business on the 6th day of June 2007.
EARNINGS PER SHARE FOR EACH QUARTER
-----------------------------------
YEAR
----
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 TOTAL
--------- --------- --------- --------- -----
2007
- Basic 61 cents $0.61
- Fully Diluted 59 cents $0.59
2006
- Basic 55 cents 47 cents 84 cents $1.17 $3.03
- Fully Diluted 53 cents 45 cents 81 cents $1.12 $2.91
2005
- Basic 43 cents 43 cents 76 cents $1.11 $2.73
- Fully Diluted 41 cents 42 cents 74 cents $1.04 $2.61
LEON'S FURNITURE LIMITED
Mark J. Leon
Chairman of the Board
MANAGEMENT'S DISCUSSION AND ANALYSIS
May 14, 2007
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, 2007, Management's Discussion and Analysis for the year ended December 31, 2006, the audited consolidated financial statements for the year ended December 31, 2006 and the Company's Annual Information Form dated March 23, 2007.
Financial Statements Governance Practice
Leon's Furniture Limited's financial statements have been prepared in accordance with Canadian Generally Accepted Accounting Principles and the amounts expressed are in Canadian dollars.
This MD&A is intended to provide readers with the information that management believes is required to gain an understanding of Leon's Furniture Limited's current results and to assess the Company's future prospects. Accordingly, sections of this report contain forward-looking statements that are based on current plans and expectations. These forward-looking statements are effected by risks and uncertainties that could have a material impact on future prospects. Readers are cautioned that actual events and results will vary.
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.
Introduction
Leon's Furniture Limited has been in the furniture retail business for close to 100 years. The Company's 35 corporate and 28 franchise stores can be found in every province across Canada. Main product lines sold at retail include furniture, appliances and electronics.
Revenues and Expenses
For the three months ended March 31, 2007, total Leon's sales were $179,797,000 including $41,054,000 of franchise sales ($154,973,000 including $34,955,000 of franchise sales in 2006), an increase of 16.0%.
Leon's corporate sales of $138,743,000 in the first quarter of 2007, increased by $18,725,000, or 15.6%, compared to the first quarter of 2006. In the quarter we experienced strong sales growth across the country with same store corporate sales being up by 9.9% compared to the prior year. In addition, we increased sales as a result of new store showroom and warehouse openings in Saskatoon, Saskatchewan in November 2006 and Newmarket, Ontario in March, 2007.
Leon's franchise sales of $41,054,000 in the first quarter of 2007, increased by $6,099,000 or 17.4%, compared to the first quarter of 2006. Similar to the corporate stores, sales for every region of the country experienced increases, with same store sales being up 16.0% compared to the prior year. In addition, new franchises opened in Nanaimo, British Columbia and Bancroft, Ontario.
Our gross margin for the first quarter 2007 of 41.98 % was down a little more than one half percentage point from the first quarter 2006. In order to help drive higher sales, slightly more favorable pricing was passed on to the consumer as well as a slight change in product mix.
Net operating expenses of $42,521,000 were up $3,669,000 or 9.4% for the first quarter 2007 compared to the first quarter 2006. Payroll and commission costs were up 15.2% in the quarter compared to the prior year which is in line with the increase in sales in the quarter as well as higher start-up payroll costs associated with new stores opening in Saskatoon, Saskatchewan and Newmarket, Ontario. We saw advertising expenses increase by $400,000 or 5.6% for the first quarter compared to the prior year. Store for store advertising expenses were down slightly from the prior year and well within budget. The overall increase in advertising dollars can be attributed to the opening of the two new stores mentioned above. Overall, operating costs as a percentage of sales were lower in the first quarter 2007 compared to the prior year. This percentage drop was aided by higher franchise royalties given the increase in franchise sales of 17.4% and gains realized on sale from investments being up $1,200,000 from the prior year. These items are included in the "other income" line of operating expenses. All other operating costs in the quarter were in line with the prior year first quarter.
As a result of the above, net income for the first quarter 2007 was $10,793,000, 61 cents per common share ($9,752,000, 55 cents per common share in 2006), an increase of 10.9% per common share. Included in the first quarter 2007 was a $288,000, 1.6 cents per common share ($1,500,000, 8 cents per common share in 2006) after tax gain on sale of land and building.
Annual Financial Information
($ in thousands, except earnings
per share and dividends) 2006 2005 2004
Net Corporate Sales 591,286 547,744 504,591
Leon Franchise Sales 177,167 173,043 165,252
Total Leon sales 768,453 720,787 669,843
Net Income 53,602 48,964 46,104
Earnings per Share
Basic $3.03 $2.73 $2.49
Diluted $2.91 $2.61 $2.41
Total Assets 438,997 381,702 370,931
Common Share Dividends Declared $1.50 $0.80 $0.74
Convertible, Non-Voting Shares
Dividends Declared $0.50 $0.40 $0.40
Liquidity and Financial Resources
($ in thousands, except dividends
per share) Mar. 31/07 Dec. 31/06 Mar. 31/06
Cash and marketable securities 96,726 120,227 92,419
Accounts receivable 13,471 26,319 8,602
Inventory 82,342 74,733 69,134
Total assets 414,462 438,997 366,688
Working capital 96,280 94,288 91,743
Current Prior First
Quarter Quarter Quarter
For the 3 Months Ended Mar. 31/07 Dec. 31/06 Mar. 31/06
Cash flow (used in) provided by
operations (12,036) 30,568 4,228
Purchase of capital assets 7,827 9,146 6,319
Repurchase of capital stock 2,818 412 -
Dividends paid 4,427 4,427 3,535
Dividends paid per share $0.25 $0.25 $0.20
Cash and marketable securities decreased by $23,501,000 in the quarter mainly the result of the reduction of accounts payable and accrued liabilities of $24,778,000 since the year end.
Marketable securities consist primarily of bonds with maturities not exceeding eight years with an interest rate range of 3.38% to 7.6% and are stated at market value.
As part of the warranty 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 for the purposes of insuring customer product warranty sales. The assets are in the form of a trust with a financial institution amounting to $12,700,000.
Inventory increased by $7,609,000 from the last quarter 2006. This is the result of additional inventory associated with the new stores opened in Newmarket, Ontario and Saskatoon, Saskatchewan, as well as commencing the build up of merchandise for the summer and fall sales seasons.
As mentioned a new showroom and warehouse was opened in Newmarket, Ontario (98,000 sq. ft.), in the first quarter, 2007 and to date sales are meeting management expectations. Construction has commenced on a new warehouse and showroom in Longueuil, Quebec (80,000 sq. ft.) which we anticipate opening in the fall 2007. Renovations have also begun at our existing stores in Calgary, Alberta and Kitchener, Ontario. We anticipate completion of these projects in the late fall of 2007. All funding for new store projects and renovations is scheduled to come from our existing cash resources.
Common Shares
At March 31, 2007 there were 17,676,073 common shares issued and outstanding. During the first quarter of 2007, 32,206 convertible, non-voting series 1998 shares were converted to common shares, and 55,700 repurchased at an average cost of $50.59 and cancelled by the Company, through a normal course issuer bid.
Commitments
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Payments Due by Period 000's
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Contractual Less than 2-3 4-5 After
Obligations Total 1 year years years 5 years
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Operating Leases(1) 10,418 886 1,786 1,661 6,085
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Purchase Obligations(2) 5,351 5,351
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Total Contractual
Obligations 15,769 6,237 1,786 1,661 6,085
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(1) The Company is obligated under operating leases to future minimum
annual rental payments for various land and building sites across
Canada.
(2) The estimated cost to complete construction in progress at five
locations in Canada.
In addition, the Company has commitments related to redeemable shares as
follows:
As at As at
($ in thousands) March 31, 2007 December 31, 2006
Authorized
350,000 convertible,
non-voting, series 1998 shares
571,000 convertible,
non-voting, series 2002 shares
201,500 convertible,
non-voting, series 2005 shares
Issued
120,163 series 1998 shares
(2006 - 164,170) $ 2,116 $ 2,683
380,801 series 2002 shares
(2006 - 387,320) 10,948 10,948
196,037 series 2005 shares
(2006 - 199,500) 7,404 7,404
Less employees share
purchase loans (19,549) (20,404)
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Redeemable Share Liability $ 919 $ 631
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Under the terms of its Management Share Purchase Plan, the Company advanced non-interest bearing loans to certain of its employees in 1998, 2002 and 2005 to allow them to acquire convertible, non-voting, series 1998 shares, series 2002 shares and series 2005 shares, respectively, of the Company. These loans are repayable through the application against the loans of any dividends on the shares, with any remaining balance repayable on the date the shares are converted to common shares. Each issued and fully paid for series 1998, 2002 and 2005 share may be converted into one common share at any time after the fifth anniversary date of the issue of these shares and prior to the tenth anniversary of such issue. Each series 1998 and 2002 shares may also be redeemed at the option of the holder or by the Company at any time after the fifth anniversary date of the issue of these shares and must be redeemed prior to the tenth anniversary of such issue. The series 2005 shares are redeemable at the option of the holder for a period of one business day following the date of issue of such shares. The Company has the option to redeem the series 2005 shares at any time after the fifth anniversary date of the issue of these shares and must redeem prior to the tenth anniversary of such issue. The redemption price is equal to the original issue price of the shares adjusted for subsequent subdivisions of shares plus accrued and unpaid dividends. The purchase prices of the shares are $17.60 per series 1998 share, $28.75 per series 2002 share and $37.77 per series 2005 share.
Dividends paid to holders of series 1998, 2002, 2005 shares of approximately $365,000 (2006 - $309,000) have been used to reduce the respective shareholder loans.
During the period 32,206 convertible, non-voting, series 1998 shares were converted into common shares with a stated value of $567,000 (2006 - 20,405 for a stated value of $359,000).
Quarterly Results (2007, 2006, 2005)
Quarterly Income Statement ($000) - except Per Share Data
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Quarter Ended Quarter Ended
March 31 December 31
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2007 2006 2006 2005
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Leon's Corporate Sales $138,743 $120,018 $180,108 $170,244
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Leon's Franchise sales 41,054 34,955 56,658 54,535
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Total Leon's sales 179,797 $154,973 236,766 $224,779
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Net Income
Per Share $0.61 $0.55 $1.17 $1.11
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Fully Diluted
Per Share $0.59 $0.53 $1.12 $1.04
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Quarter Ended Quarter Ended
September 30 June 30
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2006 2005 2006 2005
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Leon's Corporate Sales $157,132 $141,985 $134,028 $121,933
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Leon's Franchise sales $46,500 45,070 $39,054 38,953
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Total Leon's sales $203,632 $187,055 $173,082 $160,886
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Net Income
Per Share $0.84 $0.76 $0.47 $0.43
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Fully Diluted
Per Share $0.81 $0.74 $0.45 $0.42
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Revenue Recognition
Sales are recognized as revenue for accounting purposes upon the customer either picking up the merchandise or when merchandise is delivered to the customers' home.
The Company offers customers the option to finance purchases through various third party financing companies. In situations where a customer elects to take advantage of delayed payment terms, the costs of financing these sales are deducted from sales. Finance costs deducted from sales for the first quarter 2007 are up $474,000 when compared to the same period for 2006. These additional costs were the result of increased sales and higher finance rates.
Warranty Revenue
Warranty revenues are deferred and taken into income on a straight-line basis over the life of the warranty period. Warranty revenues included in sales year to date 2007 are $3,166,000 compared to $3,311,000 in 2006. Warranty expenses deducted through costs of goods sold year to date 2006 are $1,035,000 compared to $824,000 in 2006.
Franchise Royalties
Leon's franchisees operate as independent owners. The Company charges the franchisee a royalty fee based primarily on a percentage of the franchisees gross sales. This royalty income is recorded by the Company on an accrual basis under the heading, "other income" and is up 18% for the first quarter 2007 compared to 2006 which is in line with the increase in franchise sales for the quarter.
Volume Rebates
The Company receives vendor rebates on certain products based on the volume of purchases made during specified periods. The rebates are deducted from the inventory value of goods received and are recognized as a reduction of cost of goods sold as sales occur.
Change in Accounting Policy
In 2005, The Canadian Institute of Chartered Accountants ("CICA") issued Handbook Section 3855, Financial Instruments - Recognition and Measurement; Handbook Section 3861, Financial Instruments - Disclosure and Presentation; Handbook Section 3865, Hedges, and Handbook Section 1530, Comprehensive Income. The new standards are effective for the Company's interim and annual financial statements commencing January 1, 2007.
A new statement entitled "Unaudited Interim Consolidated Statement of Comprehensive Income" was added to the Company's unaudited interim consolidated financial statements and includes net income, as well as the components of other comprehensive income. Accumulated other comprehensive income forms part of shareholders' equity.
As provided under the standards, the adoption of these recommendations was done retroactively without restatement of prior period consolidated financial statements. Under the new standards, all of our financial assets and financial liabilities are classified as held for trading, held to maturity investments, loans and receivables, or available-for-sale financial assets and other financial liabilities. Held for trading financial instruments, which include cash and cash equivalents, are measured at fair value and all gains and losses are included in net income in the period in which they arise. Loans and receivables, which include accounts receivable and long-term receivables, accounts payable, accrued salaries and wages and certain other accrued liabilities are recorded at amortized cost using the effective interest method. Available-for-sale financial assets, which include marketable securities, are recorded at their fair value. Unrealized holding gains and losses are excluded from net income and are included in other comprehensive income until such gains or losses are realized or an other than temporary impairment is determined to have occurred. The quoted bid price was used to estimate the fair value of the financial instruments at the balance sheet date.
As a result of adopting these new standards, the Company has written up the marketable securities to their fair values and recorded an unrealized pre-tax gain of $2,883,000 ($2,392,000 net of tax) for the change in accounting for financial assets classified as available-for-sale. This has been recorded as a transition adjustment in opening accumulated other comprehensive income on January 1, 2007.
As at March 31, 2007, accumulated other comprehensive income was comprised of the unrealized gain on marketable securities of $1,738,000 ($1,443, 000 net of tax).
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.
Disclosure Controls and Procedures
Leon's management evaluated the effectiveness of the design of its disclosure controls and procedures, as defined under Multilateral Instrument 52-109. The evaluation was performed under the supervision of Leon's Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO").
Disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed in reports filed with Canadian securities regulatory authorities are recorded, summarized and reported in a timely fashion. The disclosure controls and procedures are designed to ensure that information required to be disclosed by Leon's in such reports is then accumulated and communicated to the CEO and the CFO, as appropriate, to allow timely decisions regarding required disclosure.
Based on the evaluation of disclosure controls and procedures, the CEO and CFO have concluded that the Company's disclosure controls and procedures are effective as at March 31, 2007.
Internal Control Over Financial Reporting
Leon's management, under the supervision of the CEO and the CFO, has designed internal controls over financial reporting, as defined under Multilateral Instrument 52-109.
The purpose of internal controls over financial reporting is to provide reasonable assurance regarding the reliability of financial reporting, in accordance with GAAP, focusing in particular on controls over information contained in the annual and interim financial statements. The internal controls are not expected to prevent and detect all misstatements due to error or fraud.
There have been no changes in Leon's internal controls over financial reporting during the first quarter ended March 31, 2007, that have materially affected or are reasonably likely to materially affect Leon's internal control over financial reporting.
Outlook
The first quarter sales improved over last year, which was a continuation of a trend we saw for all four quarters of 2006. The opening of a new store in the fourth quarter 2006 and a new store in the first quarter 2007 should help grow sales going forward. We are continuing to experience a stable retail environment and we feel confident, under these conditions, in our ability to continue to increase sales for the balance of the year, although we do not expect them to increase at the same pace as the first quarter 2007.
Financial Statements Governance Practice
Leon's Furniture Limited's financial statements have been prepared in accordance with Canadian generally accepted accounting principles.
The Audit Committee of the Board of Directors of Leon's Furniture Limited reviewed the Management's Discussion and Analysis 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 MD&A, 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 on 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.
No auditor has performed a review of these financial statements.
----------------------------------- --------------------------------
Terrence T. Leon Dominic Scarangella
President & Chief Executive Officer Vice President & Chief Financial
Officer
Dated as of the 14th day of May, 2007.
Leon's Furniture Limited-Meubles Leon Ltee
Incorporated under the laws of Ontario
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
As at March 31 As at December 31
(in thousands) 2007 2006
$ $
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ASSETS
Current
Cash and cash equivalents 10,777 28,172
Marketable securities 85,949 92,055
Accounts receivable 13,471 26,319
Inventory 82,342 74,733
Income taxes recoverable 1,214 -
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Total current assets 193,753 221,279
Future tax assets 9,672 10,652
Capital assets, net 211,037 207,066
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414,462 438,997
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued
liabilities 69,245 94,023
Income taxes payable - 2,963
Customers' deposits 10,925 12,887
Dividends payable 4,963 4,427
Deferred warranty plan revenue 11,766 12,487
Future tax liabilities 574 204
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Total current liabilities 97,473 126,991
Deferred warranty plan revenue 19,160 18,216
Redeemable share liability 919 631
Future tax liabilities 4,314 5,584
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Total liabilities 121,866 151,422
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Shareholders' equity
Common shares (note 5) 12,078 11,538
Retained earnings 279,075 276,037
Accumulated other comprehensive income
(notes 2 and 3) 1,443 -
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Total shareholders' equity 292,596 287,575
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414,462 438,997
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Leon's Furniture Limited-Meubles Leon Ltee
CONSOLIDATED STATEMENTS OF INCOME AND
RETAINED EARNINGS
(UNAUDITED)
Three month period ended March 31st
(in thousands, except earnings per share)
2007 2006
$ $
Sales 138,743 120,018
Cost of sales 80,501 68,760
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Gross profit 58,242 51,258
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Operating expenses (income)
Salaries and commissions 23,317 20,242
Advertising 7,571 7,171
Rent and property taxes 2,730 2,691
Amortization 3,377 3,143
Employee profit-sharing plan 913 800
Other operating expenses 9,603 7,970
Interest income (1,251) (1,005)
Other income (3,739) (2,160)
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42,521 38,852
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Income before gain on sale of capital
property and income taxes 15,721 12,406
Gain on sale of capital property 443 2,010
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Income before income taxes 16,164 14,416
Provision for income taxes 5,371 4,664
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Net income for the period 10,793 9,752
Retained earnings, beginning of the
period 276,037 249,470
Dividends declared (4,963) (4,424)
Excess of cost of share repurchase
over carrying value of related shares (2,792) -
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Retained earnings, end of period 279,075 254,798
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Weighted average number of common shares
outstanding ('000's)
Basic 17,704 17,686
Diluted 18,401 18,437
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Earnings per share
Basic $0.61 $0.55
Diluted $0.59 $0.53
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Leon's Furniture Limited-Meubles Leon Ltee
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
Three month period ended March 31st
( in thousands)
2007
$
Net income for the period 10,793
-------
Other comprehensive income, net of tax
Unrealized gains on available-for-sale financial assets
arising during the period 100
Reclassification adjustment for net gains and losses included
in net income (1,049)
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Change in unrealized gains(losses) on available-for-sale
financial assets arising during the period (949)
-------
Comprehensive income for the period 9,844
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Leon's Furniture Limited-Meubles Leon Ltee
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three month period ended March 31st
(in thousands)
2007 2006
$ $
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OPERATING ACTIVITIES
Net income for the period 10,793 9,752
Add (deduct) items not involving a
current cash payment
Amortization of capital assets 3,377 3,143
Amortization of deferred warranty
revenue (3,166) (3,311)
Gain on sale of marketable securities (1,282) 51
Future tax expense 80 (211)
Gain on sale of capital assets - (2,010)
Cash received on warranty sales 3,389 2,907
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13,191 10,321
Net change in non-cash working capital
balances related to operations (25,227) (6,093)
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Cash provided by (used in) operating
activities (12,036) 4,228
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INVESTING ACTIVITIES
Purchase of capital assets (7,827) (6,319)
Proceeds on sale of capital assets 20 2,090
Purchase of marketable securities (39,196) (21,704)
Proceeds on sale of marketable
securities 48,322 19,269
Decrease in employee share purchase
loans 567 286
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Cash provided by (used in) investing
activities 1,886 (6,378)
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FINANCING ACTIVITIES
Dividends paid (4,427) (3,535)
Repurchase of capital stock (2,818) -
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Cash used in financing activities (7,245) (3,535)
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Net decrease in cash and
cash equivalents during the period (17,395) (5,685)
Cash and cash equivalents,
beginning of period 28,172 20,592
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Cash and cash equivalents, end of
period 10,777 14,907
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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, 2006.
These interim consolidated financial statements were prepared following
the same policies and standards as in in the most recent annual
consolidated financial statements with the exception of the adoption of
the new accounting policies described in Note 2.
2. CHANGE IN ACCOUNTING POLICY
In 2005, The Canadian Institute of Chartered Accountants ("CICA") issued
Handbook Section 3855, Financial Instruments - Recognition and
Measurement; Handbook Section 3861, Financial Instruments - Disclosure
and Presentation; Handbook Section 3865, Hedges, and Handbook Section
1530, Comprehensive Income. The new standards are effective for the
Company's interim and annual financial statements commencing
January 1, 2007.
A new statement entitled "Unaudited Interim Consolidated Statement of
Comprehensive Income" was added to the Company's unaudited interim
consolidated financial statements and includes net income, as well as the
components of other comprehensive income. Accumulated other comprehensive
income forms part of shareholders' equity.
As provided under the standards, the adoption of these recommendations
was done retroactively without restatement of prior period consolidated
financial statements. Under the new standards, all of our financial
assets and financial liabilities are classified as held for trading, held
to maturity investments, loans and receivables, or available-for-sale
financial assets and other financial liabilities. Held for trading
financial instruments, which include cash and cash equivalents, are
measured at fair value and all gains and losses are included in net
income in the period in which they arise. Loans and receivables, which
include accounts receivable and long-term receivables, accounts payable,
accrued salaries and wages and certain other accrued liabilities are
recorded at amortized cost using the effective interest method.
Available-for-sale financial assets, which include marketable securities
are recorded at their fair value. Unrealized holding gains and losses are
excluded from net income and are included in other comprehensive income
until such gains or losses are realized or an other than temporary
impairment is determined to have occurred. The quoted bid price was used
to estimate the fair value of the financial instruments at the balance
sheet date.
As a result of adopting these new standards, the Company has written up
the marketable securities to their fair values and recorded an unrealized
pre-tax gain of $2,883,000 ($2,392,000 net of tax) for the change in
accounting for financial assets classified as available-for-sale. This
has been recorded as a transition adjustment in opening accumulated other
comprehensive income on January 1, 2007.
3. ACCUMULATED OTHER COMPREHENSIVE INCOME
As at March 31, 2007, accumulated other comprehensive income was
comprised of the unrealized gain on marketable securities of $1,738,000
($1,443, 000 net of tax).
4. INCOME TAXES
The Company's total cash payments for income taxes paid in the three -
month period ending March 31, 2007 were $10,411,000 (2006 - $8,030,000).
5. COMMON SHARES
During the quarter ended March 31, 2007, 32,206 convertible, non-voting
series 1998 shares (2006 - 20,405) were converted into common shares with
a stated value of approximately $ 567,000 (2006 - $359,000) and 55,700
(2006 - nil) common shares were repurchased on the open market pursuant
to the terms and conditions of Normal Course Issuer Bids at a net cost of
approximately $2,818,000 (2006 - nil). All shares repurchased by the
Company pursuant to its Normal course Issuer Bids have been cancelled.
The repurchase of common shares resulted in a reduction of share capital
in the amount of approximately $25,000 (2006 - nil). The excess net cost
over the average carrying value of the shares of approximately $2,793,000
(2006 - nil) has been recorded as a reduction in retained earnings.
6. COMPARATIVE FINANCIAL STATEMENTS
The comparative financial statements have been reclassified from
statements previously presented to conform to the presentation of the
2007 financial statements.