TORONTO, Aug. 14 /CNW/ - For the three months ended June 30, 2007, total Leon's sales were $190,437,000 including $43,437,000 of franchise sales ($173,082,000 including $39,054,000 of franchise sales in 2006), an increase of 10%. Net income was $9,917,000, 14 cents per common share ($8,252,000, 12 cents per common share in 2006), an increase of 17% per common share.
For the six months ended June 30, 2007, total Leon's sales were $370,234,000 including $84,491,000 of franchise sales ($328,055,000 including $74,009,000 of franchise sales in 2006), an increase of 12.9% and net income was $20,710,000, 29 cents per common share ($18,004,000, 25 cents per common share in 2006), an increase of 16% per common share.
We are pleased that we were able to continue to improve our financial results in the second quarter of 2007 even though the pace of growth of furniture sales in the economy generally has slowed. As a result, we believe that we have been able to increase market share. Renovation and expansion plans will continue during 2007 and beyond. Major renovations are ongoing at our Kitchener, Ontario and Calgary, Alberta stores with grand re-openings scheduled for the first quarter of 2008. Our newly constructed store in Longueuil, Quebec will open this fall. It will replace our current store in Greenfield Park. Additional sites for new stores have been secured for North Calgary, Alberta and downtown Toronto, Ontario.
In addition, the Company is pleased to announce that it has reached a tentative agreement to purchase Appliance Canada Ltd. (with annual sales averaging $100 million dollars). Further details will be provided upon the closing of the transaction expected in late September 2007. This purchase will give us a significant entry into a new market, namely the wholesale distribution of major home appliances to builders and apartment landlords. We also plan to maintain Appliance Canada's retail selling of higher end appliances to the public and retain the services of its management and employees.
The Directors have declared a quarterly dividend of 7 cents per common share payable on the 11th day of October 2007 to shareholders of record at the close of business on the 11th day of September 2007. As stated in our press release dated February 20, 2007, as of 2006, dividends paid by Leon's Furniture Limited are "eligible dividends" and for further clarification, all future dividends are eligible dividends unless otherwise stated.
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 4, 2007. Pursuant to the continued bid, the Company intends, in the twelve months commencing September 7, 2007, to purchase up to the lesser of 4.99% of its Common Shares outstanding on August 28, 2007, 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 5, 2006, the date on which Leon's current issuer bid commenced, the Company has purchased 255,200 Common Shares at an average price of $12.65 per share (post split numbers). The Company's Board of Directors believes that the purchase of its common shares is an appropriate use of its corporate funds, given its very strong liquidity position.
All earnings per share amounts in this Press Release have been restated to reflect the four-for-one subdivision of common shares effective June 27, 2007.
EARNINGS PER SHARE FOR EACH QUARTER
-----------------------------------
YEAR
----
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 TOTAL
-------- ------- -------- ------- -----
2007 - Basic 15 cents 14 cents $0.29
- Fully Diluted 15 cents 13 cents $0.28
2006 - Basic 14 cents 12 cents 21 cents 29 cents $0.76
- Fully Diluted 14 cents 11 cents 20 cents 28 cents $0.73
2005 - Basic 10 cents 11 cents 19 cents 28 cents $0.68
- Fully Diluted 10 cents 11 cents 18 cents 26 cents $0.65
LEON'S FURNITURE LIMITED - MEUBLES LEON LTEE
Mark J. Leon
Chairman of the Board
MANAGEMENT'S DISCUSSION AND ANALYSIS
August 14, 2007
Management's Discussion and Analysis ("MD&A") should be read in conjunction with the unaudited consolidated interim financial statements of the Company for the six months ended June 30, 2007, MD&A 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 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.
Share Split
All common share data and earnings per share amounts for all periods presented in this MD&A have been restated to reflect the four-for-one subdivision of common shares effective June 27, 2007.
Revenues and Expenses
For the three months ended June 30, 2007, total Leon's sales were $190,437,000 including $43,437,000 of franchise sales ($173,082,000 including $39,054,000 of franchise sales in 2006), an increase of 10.0 %.
Leon's corporate sales of $147,000,000 in the second quarter of 2007, increased by $12,972,000 or 9.7 %, compared to the second quarter of 2006. In this quarter we experienced good corporate sales growth across the country with same store corporate sales being up 3.5% compared to the prior year. The balance of the sales increase was the 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 $43,437,000 in the second quarter of 2007, increased by $4,383,000 or 11.2%, compared to the second quarter of 2006. Regionally we saw strong franchise sales growth in Central and Eastern Canada, with slightly lower sales in Western Canada compared to the same quarter the prior year.
Our gross margin for the second quarter of 2007 of 41.31 % was up just over one half a percentage point from the second quarter of 2006.
Net operating expenses of $45,480,000 were up $3,515,000 or 8.4% for the second quarter of 2007 compared to the second quarter of 2006. Payroll and commission costs were up 12.7% in the quarter compared to the prior year. This was mainly due to higher sales in the quarter as well as higher start-up payroll costs associated with new store openings in Saskatoon, Saskatchewan and Newmarket, Ontario. We saw advertising expenses decrease by $182,000 or 2.3% for the second quarter compared to the prior year. Store for store advertising expenses were down slightly from the prior year and well within budget. Other operating expenses were up 9.4% over the prior year's second quarter, mainly due to higher sales and start up costs relating to the opening of the Newmarket store in March 2007. With the exception of inflationary increases, all other operating costs in the quarter were in line with the prior year's second quarter.
As a result of the above, net income for the second quarter of 2007 was $9,917,000, 14 cents per common share ($8,252,000, 12 cents per common share in 2006), an increase of 16.7% per common share.
For the six months ended June 30, 2007, total Leon's sales were $370,234,000 including $84,491,000 of franchise sales ($328,055,000 including $74,009,000 of franchise sales in 2006), an increase of 12.9% and net income was $20,710,000, 29 cents per common share ($18,004,000, 25 cents per common share in 2006), an increase of 16% per common share.
Annual Financial Information
($ 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 $.76 $.68 $.62
Diluted $.73 $.65 $.60
Total Assets 438,997 381,702 370,931
Common Share Dividends Declared $0.375 $0.20 $0.185
Convertible, Non-Voting Shares
Dividends Declared $0.125 $0.10 $0.10
Liquidity and Financial Resources
($ in thousands, except dividends per share)
Balances as at: June 30/07 Dec. 31/06 June 30/06
---------- ---------- ----------
Cash and marketable securities 105,634 120,227 88,835
Accounts receivable 13,908 26,319 9,301
Inventory 74,715 74,733 71,099
Total assets 419,651 438,997 373,695
Working capital 98,283 94,288 82,101
Current Prior Prior
For the 3 months ended Quarter Quarter Quarter
June 30/07 March 31/07 Dec. 31/06
---------- ----------- ----------
Cash flow from operations 18,153 (12,036) 30,568
Purchase of capital assets (4,331) (7,827) (9,146)
Repurchase of capital stock - (2,818) (412)
Dividends paid (4,963) (4,427) (4,427)
Dividends paid per share $0.0625 $0.0625 $0.0625
Cash and marketable securities increased by $8,908,000 in the quarter mainly as the result of the reduction in inventory levels in the second quarter and the increase in net income.
Marketable securities consist primarily of bonds with maturities not exceeding eight years with an interest rate range of 3.4% 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. The assets are in the form of a trust with a financial institution amounting to $12,700,000.
Inventory decreased by $7,627,000 from the first quarter of 2007. Continued sales growth and a concentrated effort to reduce inventory levels were the main reasons for this decrease.
The cash provided by operating activities of $18,153,000 is the result of the improvement in after tax profits in the quarter and the net changes in non-cash working capital balances, primarily the reduction of inventory.
As mentioned, a new showroom and warehouse opened in Newmarket, Ontario (98,000 sq. ft.) in the first quarter of 2007 and to date sales continue to meet management expectations. Construction is nearing completion on a new warehouse and showroom in Longueuil, Quebec (80,000 sq. ft.) which we anticipate opening in the fall 2007. Renovations are well on their way 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
All common share data and earnings per share amounts for all periods presented in this MD&A have been restated to reflect the four-for-one subdivision of common shares effective June 27, 2007.
At June 30, 2007, there were 70,938,964 common shares issued and outstanding. During the second quarter of 2007, the Company did not repurchase any common shares and 234,672 convertible, non-voting series 1998 shares were converted to common shares.
For the six month period ending June 30, 2007, the Company repurchased 222,800 common shares at an average price of $12.65 and 363,496 convertible, non-voting series 1998 shares were converted to common shares.
Commitments
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($ in thousands) Payments Due by Period
-----------------------------------------------
Less
than After
Contractual Obligations Total 1 year 2-3 years 4-5 years 5 years
-------------------------------------------------------------------------
Operating leases(1) 10,136 604 1,786 1,661 6,085
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Purchase obligations(2) 2,176 2,176
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Total contractual
obligations 12,312 2,780 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 three
locations in Canada.
In addition, the Company has commitments related to redeemable shares as
follows:
As at As at
June 30, December 31,
($ in thousands) 2007 2006
Authorized
1,400,000 convertible, non-voting,
series 1998 shares
2,284,000 convertible, non-voting,
series 2002 shares
806,000 convertible, non-voting,
series 2005 shares
Issued
246,232 series 1998 shares (2006 - 656,680) 1,083 2,683
1,500,688 series 2002 shares (2006 - 1,549,280) 10,786 10,948
768,528 series 2005 shares (2006 - 798,000) 7,257 7,404
Less employees share purchase loans (18,207) (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 $4.40 per series 1998 share, $7.19 per series 2002 share and $9.44 per series 2005 share.
Dividends paid to holders of series 1998, 2002, 2005 shares of approximately $364,000 (2006 - $309,000) have been used to reduce the respective shareholder loans.
During the second quarter 2007, 234,672 convertible, non-voting, series 1998 shares were converted into common shares with a stated value of $ 1,032,000 (2006 - 35,032 for a stated value of $154,000). For the six month period, 363,496 convertible, non-voting, series 1998 shares were converted into common shares with a stated value of $1,599,000 (2006 - 116,652 for a stated value of $513,000).
During the period 22,516 convertible, non-voting series 2002 shares and 15,620 convertible, non-voting series 2005 shares were cancelled with a stated value of $162,000 and $147,000 respectively (2006 - 17,208 series 2002 shares and 13,852 series 2005 for a stated value of $76,000 and $131,000).
Quarterly Results (2007, 2006, 2005)
Quarterly Income Statement ($ in thousands, except earnings per share)
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Quarter Ended Quarter Ended
June 30 March 31
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2007 2006 2007 2006
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Leon corporate sales 147,000 134,028 138,743 120,018
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Leon franchise sales 43,437 39,054 41,054 34,955
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Total Leon sales 190,437 173,082 179,797 154,973
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Net income per share $0.14 $0.12 $0.15 $0.14
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Fully diluted per share $0.14 $0.11 $0.14 $0.14
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Quarter Ended Quarter Ended
December 31 September 30
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2006 2005 2006 2005
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Leon corporate sales 180,108 170,244 157,132 141,985
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Leon franchise sales 56,658 54,535 46,500 45,070
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Total Leon sales 236,766 224,779 203,632 187,055
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Net income per share $0.29 $0.28 $0.21 $0.19
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Fully diluted per share $0.28 $0.26 $0.20 $0.18
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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 year to date for 2007 are up $344,000 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 for 2007 are $6,360,000 compared to $6,027,000 in 2006. Warranty expenses deducted through costs of goods sold year to date for 2007 are $2,113,000 compared to $1,732,000 in 2006. The cost of warranty repairs in particular for electronics continues to increase each year.
Franchise Royalties
Leon's franchisees operate as independent owners. The Company charges the franchisee a royalty fee based primarily on a percentage of the franchisee's gross sales. This royalty income is recorded by the Company on an accrual basis under the heading "other income" and is up 13.4% year to date for 2007 compared to 2006 which is in line with the increase in franchise sales for the year.
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 a non-cash pre-tax credit 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 June 30, 2007, accumulated other comprehensive income was comprised of the unrealized gain on marketable securities of $513,000 ($426,000 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 June 30, 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 second quarter ended June 30, 2007, that have materially affected or are reasonably likely to materially affect Leon's internal control over financial reporting.
Outlook
The second quarter sales growth continued the trend evident in the first quarter. 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 although perhaps at a more moderate rate of increase than evident in the first half of the year.
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 August, 2007.
Leon's Furniture Limited-Meubles Leon Ltee
CONSOLIDATED STATEMENTS OF INCOME AND
RETAINED EARNINGS
(UNAUDITED)
Period ended June 30th
(in thousands) 3 months ended 6 months ended
2007 2006 2007 2006
$ $ $ $
Sales 147,000 134,028 285,743 254,046
Cost of sales 86,280 79,381 166,781 148,141
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Gross profit 60,720 54,647 118,962 105,905
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Operating expenses (income)
Salaries and commissions 24,410 21,661 47,727 41,903
Advertising 7,840 8,022 15,411 15,193
Rent and property taxes 2,620 2,604 5,350 5,295
Amortization 3,367 3,270 6,744 6,413
Employee profit-sharing plan 1,054 848 1,967 1,648
Other operating expenses 9,147 8,363 18,750 16,333
Interest income (978) (867) (2,229) (1,872)
Other income (1,980) (1,936) (5,719) (4,096)
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45,480 41,965 88,001 80,817
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Income before gain on sale of
capital property and income
taxes 15,240 12,682 30,961 25,088
Gain on sale of capital
property - - 443 2,010
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Income before income taxes 15,240 12,682 31,404 27,098
Provision for income taxes 5,323 4,430 10,694 9,094
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Net income for the period 9,917 8,252 20,710 18,004
Retained earnings, beginning
of the period 279,075 254,798 276,037 249,470
Dividends declared (4,966) (13,276) (9,929) (17,700)
Excess of cost of share
repurchase over carrying
value of related shares
(note 5) - (74) (2,792) (74)
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Retained earnings, end
of period 284,026 249,700 284,026 249,700
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Weighted average number of
common shares outstanding
('000's) (note 7)
Basic 70,772 70,808 70,788 70,788
Diluted 73,288 73,744 73,304 73,724
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Earnings per share
Basic $0.14 $0.12 $0.29 $0.25
Diluted $0.14 $0.11 $0.28 $0.24
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Leon's Furniture Limited-Meubles Leon Ltee
Incorporated under the laws of Ontario
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
As at As at
June 30 December 31
(in thousands) 2007 2006
$ $
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ASSETS
Current
Cash and cash equivalents 15,618 28,172
Marketable securities 90,016 92,055
Accounts receivable 13,908 26,319
Inventory 74,715 74,733
Income taxes recoverable 2,599 -
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Total current assets 196,856 221,279
Future tax assets 10,339 10,652
Capital assets, net 212,456 207,066
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419,651 438,997
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 68,294 94,023
Income taxes payable - 2,963
Customers' deposits 12,083 12,887
Dividends payable 4,966 4,427
Deferred warranty plan revenue 12,959 12,487
Future tax liabilities 271 204
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Total current liabilities 98,573 126,991
Deferred warranty plan revenue 18,261 18,216
Redeemable share liability 919 631
Future tax liabilities 4,335 5,584
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Total liabilities 122,088 151,422
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Shareholders' equity
Common shares (note 5) 13,111 11,538
Retained earnings 284,026 276,037
Accumulated other comprehensive income
(notes 2 and 3) 426 -
-------------------------------------------------------------------------
Total shareholders' equity 297,563 287,575
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419,651 438,997
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Leon's Furniture Limited-Meubles Leon Ltee
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three month period ended June 30th
(in thousands) 3 months ended 6 months ended
2007 2006 2007 2006
$ $ $ $
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OPERATING ACTIVITIES
Net income for the period 9,917 8,252 20,710 18,004
Add (deduct) items not
involving a current cash
payment
Amortization of capital
assets 3,367 3,270 6,744 6,413
Amortization of deferred
warranty revenue (3,194) (2,716) (6,360) (6,027)
Loss (gain) on sale of
marketable securities 150 (50) (1,132) 1
Future tax expense (978) (206) (898) (417)
Gain on sale of capital
assets 18 6 18 (2,004)
Cash received on warranty
sales 3,488 3,251 6,877 6,158
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12,768 11,807 25,959 22,128
Net change in non-cash
working capital balances
related to operations 5,385 6,173 (19,842) 80
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Cash provided by operating
activities 18,153 17,980 6,117 22,208
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INVESTING ACTIVITIES
Purchase of capital assets (4,331) (8,445) (12,158) (14,764)
Proceeds on sale of capital
assets 161 25 181 2,115
Purchase of marketable
securities (23,791) (36,916) (62,987) (58,620)
Proceeds on sale of
marketable securities 18,580 41,000 66,902 60,269
Decrease in employee share
purchase loans 1,032 154 1,599 440
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Cash used in investing
activities (8,349) (4,182) (6,463) (10,560)
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FINANCING ACTIVITIES
Dividends paid (4,963) (13,274) (9,390) (16,809)
Repurchase of capital stock - (74) (2,818) (74)
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Cash used in financing
activities (4,963) (13,348) (12,208) (16,883)
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Net increase (decrease) in
cash and cash equivalents
during the period 4,841 450 (12,554) (5,235)
Cash and cash equivalents,
beginning of period 10,777 14,907 28,172 20,592
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Cash and cash equivalents,
end of period 15,618 15,357 15,618 15,357
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Leon's Furniture Limited-Meubles Leon Ltee
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
Three month period ended June 30th
(in thousands)
3 months 6 months
ended ended
2007 2007
$ $
Net income for the period 9,917 20,710
-------- ---------
Other comprehensive income, net of tax
Unrealized (losses) gains on available-for-sale
financial assets arising during the period (1,067) (967)
Reclassification adjustment for net gains and
losses included in net income 50 (999)
-------- ---------
Change in unrealized gains(losses) on
available-for-sale financial assets arising
during the period (1,017) (1,966)
-------- ---------
Comprehensive income for the period 8,900 18,744
-------- ---------
-------- ---------
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 a 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 June 30, 2007, accumulated other comprehensive income was comprised
of the unrealized gain on marketable securities of $513,000 ($426,000 net
of tax).
4. INCOME TAXES
The Company's total cash payments for income taxes paid in the three -
month period ending June 30, 2007 were $7,448,000 (2006-$6,890,000 ) and
for the six month period were $ 17,859,000 (2006- $14,920,000)
5. COMMON SHARES
During the period, no common shares were repurchased (2006-nil) on the
open market pursuant to the terms and conditions of the Normal Course
Issuer Bid. For the six month period, the Company repurchased 55,700
(2006-1,800) common shares at a net cost of approximately $2,818,000
(2006-$74,000). 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 $26,000 (2006-$1,000). The excess net cost over the
carrying value of the shares of approximately $2,792,000 (2006-$73,000)
has been recorded as a reduction in retained earnings.
During the quarter ended June 30, 2007, 234,672 convertible, non-voting,
series 1998 shares (2006-35,032 were converted into common shares with a
stated value of approximately $1,032,000 (2006-$154,000). For the six
month period 363,496 convertible, non-voting, series 1998 shares
(2006-116,652) were converted into common shares with a stated value of
approximately $1,599,000 (2006-$513,000).
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.
7. SHARE SPLIT
All common share data and earnings per share amounts in these
consolidated financial statements have been restated to reflect the
four-for-one subdivision of common shares effective June 27, 2007.