TORONTO, Nov. 14 /CNW/ - For the three months ended September 30, 2007, total Leon's sales were $216,225,000 including $50,434,000 of franchise sales ($203,632,000 including $46,500,000 franchise sales in 2006), an increase of 6.2%. Net income was $16,174,000, 23 cents per common share ($14,886,000, 21 cents per common share in 2006), an increase of 9.5% per common share.
For the nine months ended September 30, 2007, total Leon's sales were $586,459,000 including $134,925,000 of franchise sales ($531,687,000 including $120,509,000 of franchise sales in 2006), an increase of 10.3% and net income was $36,884,000, 52 cents per common share ($32,890,000, 47 cents per common share in 2006), an increase of 10.6% per common share. The first quarter of 2006 includes a net after tax gain from sale of property of $1,500,000 or 2 cents per common share.
Although sales did not increase at the same pace as the first half of the year, overall we are pleased that we continued to improve our financial results in the third quarter of 2007. We just completed a successful grand opening of a new showroom and warehouse in Longueuil, Quebec and renovations are substantially complete at existing stores in Calgary, Alberta and Kitchener, Ontario. As well, we have purchased land for a new showroom and warehouse in Thunder Bay, Ontario with construction anticipated to commence in the spring of 2008. Land has also been secured in North Calgary for a new showroom and warehouse.
We continue to proceed with finalizing the purchase of Appliance Canada Ltd. whose annual sales average close to $100,000,000 a year. This purchase will give us a significant entry into the wholesale distribution of major home appliances to the building and apartment trade, and entry into selling high end appliances to the public. We anticipate the successful purchase of this company by the end of this year.
The Directors have declared a quarterly dividend of 7 cents per common share payable on the 10th day of January 2008 to shareholders of record at the close of business on the 10th day of December 2007. In addition, the annual dividend on the convertible non-voting series shares of 14 cents, will be payable on January 10th, 2008 to the shareholders of record at the close of business on December 10th, 2008. 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.
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 23 cents $0.52
- Fully Diluted 15 cents 13 cents 22 cents $0.50
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
Anthony T. Leon
Chairman Emeritus
MANAGEMENT'S DISCUSSION AND ANALYSIS
November 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 nine months ended September 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 may 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 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 September 30, 2007, total Leon's sales were $216,225,000 including $50,434,000 of franchise sales ($203,632,000 including $46,500,000 of franchise sales in 2006), an increase of 6.2%.
Leon's corporate sales of $165,791,000 in the third quarter of 2007, increased by $8,659,000 or 5.5%, compared to the third quarter of 2006. Part of our increase in sales was related to our new store and warehouse locations in Saskatoon, Saskatchewan opened in November 2006 and Newmarket, Ontario opened in March 2007. All regions had increased sales in the quarter with Western Canada showing the most improvement. Same store corporate sales were up 1.5 % in the third quarter compared to the same quarter in 2006.
Leon's franchise sales of $50,434,000 in the third quarter of 2007, increased by $3,934,000, or 8.5% store for store, compared to the third quarter of 2006. We saw good growth in all regions of Canada.
Our gross margin of 41.9% for the third quarter 2007 increased marginally from the third quarter 2006.
Net operating expenses of $44,503,000 were up $1,885,000 or 4.4% for the third quarter 2007 compared to the third quarter 2006. Payroll and commission costs were up 7.5% in the third quarter compared to the prior year. These costs were in line with the increase in sales of 5.5% for the quarter as well as higher payroll costs related to new store operations in 2007. We saw advertising expenses decrease by $524,000 or 7.2% for the third quarter compared to the prior year. A large portion of the decrease in advertising dollars was due to fewer grand openings in the quarter compared to the prior year. Overall, operating expenses were up by 4.4% over the prior year which is well in line with the increase in sales in the third quarter 2007 and as a percentage of sales fell below prior year levels.
As a result of the above, net income for the third quarter 2007 was $16,174,000, 23 cents per common share (as compared to $14,886,000, 21 cents per common share in 2006), an increase of 9.5% per common share.
For the nine months ended September 30, 2007, total Leon's sales were $586,459,000 including $134,925,000 of franchise sales ($531,687,000 including $120,509,000 of franchise sales in 2006), an increase of 10.3% and net income was $36,884,000, 52 cents per common share ($32,890,000, 47 cents per common share in 2006), an increase of 10.6% per common share.
Annual Financial Information
($ 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: Sept 30/07 Dec 31/06 Sept 30/06
----------- ----------- -----------
Cash and marketable securities 124,645 120,227 103,225
Accounts receivable 15,366 26,319 13,579
Inventory 71,787 74,733 76,852
Total assets 437,364 438,997 404,670
Net working capital 106,358 94,288 84,166
Current Prior Prior
Quarter Quarter Quarter
For the 3 Months Ended Sept 30/07 June 30/07 March 31/07
----------- ----------- -----------
Cash flow from operations 35,442 18,153 (12,036)
Purchase of capital assets (7,025) (4,331) (7,827)
Repurchase of capital stock (4,454) - (2,818)
Dividends paid (4,679) (4,963) (4,427)
Dividends paid per share $0.07 $0.0625 $0.0625
Cash investments and marketable securities increased by $19,011,000 in the quarter. In the third quarter of 2007, $7,025,000 of the Company's financial resources were used for the acquisition of land and buildings.
Marketable securities consist primarily of bonds with maturities not exceeding eight years with an interest rate range of 4.09% to 7.6% and are stated at market value. The Company does not own any asset backed commercial paper in its portfolio.
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 $13,380,000
Inventory decreased by $2,928,000 from the second quarter 2007. The decrease in inventory is mainly attributable to higher sales in the quarter and some delays in receiving foreign products.
The cash provided by operating activities of $35,442,000 is principally the result of the net changes in non-cash working capital balances.
Construction was completed on the new warehouse and showroom in Longueuil, Quebec (71,000 sq. ft.) in the third quarter 2007 which was followed by a successful grand opening in early October 2007. In addition, major renovations were substantially completed in the third quarter at our Kitchener, Ontario and Calgary, Alberta stores. As well, we purchased a parcel of land in Thunder Bay, Ontario with the anticipation of construction to commence in Spring 2008 for a new showroom and warehouse. Land has also been secured in North Calgary for a new showroom and warehouse. We continue to seek new sites for expansion in Ontario and Western Canada.
We continue to proceed with finalizing the purchase of Appliance Canada Ltd. whose annual sales average close to $100,000,000 a year. This purchase will give us a significant entry into the wholesale distribution of major home appliances to the building and apartment trade, and entry into selling high end appliances to the public. We anticipate the successful purchase of this company by the end of this year.
At the present time all funding for all new store projects, renovations, and the proposed acquisition of Appliance Canada are 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 September 30, 2007 there were 70,617,008 common shares issued and outstanding. During the third quarter of 2007, 342,800 common shares were repurchased by the Company at an average price of $12.99 and 20,844 convertible, non-voting series 1998 shares were converted to common shares.
For the nine-month period ending September 30, 2007, the Company repurchased 565,600 common shares at an average price of $12.86 and 384,340 convertible, non-voting series 1998 were converted to common shares. In addition, 38,136 convertible, non voting series 2002 and 2005 shares were cancelled.
Commitments
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($ 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) 9,834 302 1,786 1,661 6,085
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Purchase Obligations(2) 662 662 - - -
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Total Contractual
Obligations 10,496 964 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
($ in thousands) September 30, 2007 December 31, 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
225,388 series 1998 shares
(2006 - 609,728) $ 992 $ 2,683
1,500,688 series 2002 shares
(2006 - 1,523,204) 10,786 10,948
768,528 series 2005 shares
(2006 - 784,148) 7,257 7,404
Less employees share purchase loans (18,116) (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 allowing 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 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 third quarter 2007, 20,844 convertible, non-voting, series 1998 shares were converted into common shares with a stated value of $92,000 (2006 - 10,200 for a stated value of $45,000). For the nine month period, 384,340 convertible, non-voting, series 1998 shares were converted into common shares with a stated value of $1,691,000 (2006 - 126,852 for a stated value of $558,000).
During the period no convertible, non-voting series 2002 shares were cancelled. (2006 - 7,644 series 2002 shares for a stated value of $55,000).
Quarterly Results (2007, 2006, 2005)
Quarterly Income Statement ($ in thousands, except earnings per share)
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Quarter Ended Quarter Ended
September 30 June 30
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2007 2006 2007 2006
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Leon Corporate Sales 165,791 157,132 147,000 134,028
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Leon Franchise Sales 50,434 46,500 43,437 39,054
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Total Leon sales 216,225 203,632 190,437 173,082
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Net Income Per Share $0.23 $0.21 $0.14 $0.12
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Fully Diluted Per Share $0.22 $0.20 $0.14 $0.11
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Quarter Ended Quarter Ended
March 31 December 31
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2007 2006 2006 2005
-------------------------------------------------------------------------
Leon Corporate Sales 138,743 120,018 180,108 170,244
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Leon Franchise Sales 41,054 34,955 56,658 54,535
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Total Leon sales 179,797 154,973 236,766 224,779
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Net Income Per Share $0.15 $0.14 $0.29 $0.28
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Fully Diluted Per Share $0.14 $0.14 $0.28 $0.26
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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 third quarter 2007 were down slightly when compared to the same period for 2006.
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 $9,957,000 compared to $8,395,000 in 2006. Warranty expenses deducted through costs of goods sold year to date 2007 are $3,317,000 compared to $2,549,000 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 11.5% 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 September 30, 2007, accumulated other comprehensive income was comprised of the unrealized gain on marketable securities of $940,000 ($776,000 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 reserve for damaged inventory 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 September 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 third quarter ended September 30, 2007, that have materially affected or are reasonably likely to materially affect Leon's internal control over financial reporting.
Outlook
During the first three quarters of 2007 we saw an improvement in consumer spending which enabled us to increase sales and profits over the comparable period for the prior year. As of late we have seen some signs of a slow down in consumer spending and as such we expect the final quarter of 2007 to show a moderation in sales growth as compared to last year. Despite these concerns, our Company's strong financial position, combined with our constant effort to improve productivity allow us to continue to look forward to the future with cautious optimism.
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 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.
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 November, 2007.
Leon's Furniture Limited-Meubles Leon Ltee
Incorporated under the laws of Ontario
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
As at As at
September 30 December 31
($ in thousands) 2007 2006
ASSETS
Current
Cash and cash equivalents 21,703 28,172
Marketable securities 102,942 92,055
Accounts receivable 15,366 26,319
Inventory 71,787 74,733
Income taxes recoverable 790 -
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Total current assets 212,588 221,279
Future tax assets 11,849 10,652
Capital assets, net 212,927 207,066
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437,364 438,997
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 75,534 94,023
Income taxes payable - 2,963
Customers' deposits 13,525 12,887
Dividends payable 4,950 4,427
Deferred warranty plan revenue 11,445 12,487
Future tax liabilities 776 204
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Total current liabilities 106,230 126,991
Deferred warranty plan revenue 20,252 18,216
Redeemable share liability 919 631
Future tax liabilities 5,188 5,584
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Total liabilities 132,589 151,422
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Shareholders' equity
Common shares (note 5) 13,162 11,538
Retained earnings 290,837 276,037
Accumulated other comprehensive income
(notes 2 and 3) 776 -
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Total shareholders' equity 304,775 287,575
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437,364 438,997
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Leon's Furniture Limited-Meubles Leon Ltee
CONSOLIDATED STATEMENTS OF INCOME AND
RETAINED EARNINGS
(UNAUDITED)
Period ended September 30th
($ in thousands) 3 months ended 9 months ended
2007 2006 2007 2006
Sales 165,791 157,132 451,534 411,178
Cost of sales 96,321 91,658 263,102 239,799
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Gross profit 69,470 65,474 188,432 171,379
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Operating expenses (income)
Salaries and commissions 24,709 22,995 72,436 64,898
Advertising 6,764 7,288 22,175 22,481
Rent and property taxes 2,581 2,552 7,931 7,847
Amortization 3,557 3,465 10,301 9,878
Employee profit-sharing plan 888 822 2,855 2,470
Other operating expenses 9,161 9,199 27,911 25,532
Interest income (1,213) (970) (3,442) (2,842)
Other income (1,944) (2,733) (7,663) (6,829)
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44,503 42,618 132,504 123,435
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Income before gain on sale of
capital property and income
taxes 24,967 22,856 55,928 47,944
Gain on sale of capital
property - - 443 2,010
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Income before income taxes 24,967 22,856 56,371 49,954
Provision for income taxes 8,793 7,970 19,487 17,064
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Net income for the period 16,174 14,886 36,884 32,890
Retained earnings, beginning
of the period 284,026 249,700 276,037 249,470
Dividends declared (4,950) (4,427) (14,879) (22,127)
Excess of cost of share
repurchase over carrying
value of related shares
(note 5) (4,413) - (7,205) (74)
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Retained earnings, end of
period 290,837 260,159 290,837 260,159
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Weighted average number of
common shares outstanding
('000's) (note 7)
Basic 70,871 70,824 70,810 70,730
Diluted 73,366 73,744 73,305 73,712
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Earnings per share
Basic $0.23 $0.21 $0.52 $0.47
Diluted $0.22 $0.20 $0.50 $0.45
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Leon's Furniture Limited-Meubles Leon Ltee
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
Three month period ended September 30th
($ in thousands)
3 months 9 months
ended ended
2007 2007
Net income for the period 16,174 36,884
--------- ---------
Other comprehensive income, net of tax
Unrealized (losses) gains on available-for-sale
financial assets arising during the period 579 (388)
Reclassification adjustment for net gains
included in net income (229) (1,228)
--------- ---------
Change in unrealized gains (losses) on
available-for-sale financial assets arising
during the period 350 (1,616)
--------- ---------
Comprehensive income for the period 16,524 35,268
--------- ---------
--------- ---------
Leon's Furniture Limited-Meubles Leon Ltee
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three month period ended
September 30th
($ in thousands) 3 months ended 9 months ended
2007 2006 2007 2006
OPERATING ACTIVITIES
Net income for the period 16,174 14,886 36,884 32,890
Add (deduct) items not
involving a current cash
payment
Amortization of capital
assets 3,557 3,465 10,301 9,878
Amortization of deferred
warranty plan revenue (3,597) (2,368) (9,957) (8,395)
Loss (gain) on sale of
marketable securities 570 (7) (562) (6)
Future tax expense (290) (193) (1,188) (610)
Loss (gain) on sale of
capital assets 3 (12) 21 (2,016)
Cash received on warranty
plan sales 4,075 4,091 10,952 10,249
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20,492 19,862 46,451 41,990
Net change in non-cash
working capital balances
related to operations 14,950 10,821 (4,892) 10,901
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Cash provided by operating
activities 35,442 30,683 41,559 52,891
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INVESTING ACTIVITIES
Purchase of capital assets (7,025) (11,933) (19,183) (26,697)
Proceeds on sale of capital
assets 6 14 187 2,129
Purchase of marketable
securities (54,933) (56,117) (117,920) (114,738)
Proceeds on sale of
marketable securities 41,636 35,730 108,538 96,000
Decrease in employee share
purchase loans 92 45 1,691 485
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Cash used in investing
activities (20,224) (32,261) (26,687) (42,821)
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FINANCING ACTIVITIES
Dividends paid (4,679) (4,426) (14,069) (21,235)
Repurchase of common shares (4,454) - (7,272) (74)
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Cash used in financing
activities (9,133) (4,426) (21,341) (21,309)
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Net increase (decrease) in
cash and cash equivalents
during the period 6,085 (6,004) (6,469) (11,239)
Cash and cash equivalents,
beginning of period 15,618 15,357 28,172 20,592
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Cash and cash equivalents,
end of period 21,703 9,353 21,703 9,353
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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 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 September 30, 2007, accumulated other comprehensive income was
comprised of the unrealized gain on marketable securities of $940,000
($776,000 net of tax).
4. INCOME TAXES
The Company's total cash payments for income taxes paid in the three
month period ending September 30, 2007 were $7,208,000 (2006 -
$2,936,000) and for the nine month period were $25,067,000 (2006 -
$17,856,000).
5. COMMON SHARES
During the period, 342,800 common shares were repurchased (2006 - nil) on
the open market pursuant to the terms and conditions of Normal Course
Issuer Bids at a net cost of approximately $4,454,000 (2006 - nil). For
the nine month period, the Company repurchased 565,600 (2006 - 7,200)
common shares at a net cost of approximately $7,272,000 (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 $41,000
(2006 - nil) for the three month period and $67,000 (2006 - $1,000) for
the nine month period. During the period, excess net cost over the
carrying value of the shares of approximately $4,413,000 (2006 - nil) has
been recorded as a reduction in retained earnings. For the nine month
period, the excess net cost over the carrying value of the shares of
approximately $7,205,000 (2006 - $73,000) has been recorded as a
reduction in retained earnings.
During the quarter ended September 30, 2007, 20,844 convertible, non-
voting, series 1998 shares (2006 - 10,200) were converted into common
shares with a stated value of approximately $92,000 (2006 - $45,000). For
the nine month period 384,340 convertible, non-voting, series 1998
shares (2006 - 126,852) were converted into common shares with a stated
value of approximately $1,691,000 (2006 - $558,000)
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.