TORONTO, Aug. 12 /CNW/ - For the three months ended June 30, 2008, total Leon's sales were $224,688,000 including $47,962,000 of franchise sales ($190,437,000 including $43,437,000 of franchise sales in 2007), an increase of 18%. Net income was $11,618,000, 16 cents per common share ($9,917,000, 14 cents per common share in 2007), an increase of 14.3% per common share.
For the six months ended June 30, 2008, total Leon's sales were $421,129,000 including $89,826,000 of franchise sales ($370,234,000 including $84,491,000 of franchise sales in 2007), an increase of 13.7% and net income was $22,686,000, 32 cents per common share ($20,710,000, 29 cents per common share in 2007), an increase of 10.3% per common share.
We are pleased that we were able to continue to improve our financial results in the second quarter of 2008 compared to the prior year. Renovations have been completed at our Nepean and London, Ontario stores which have just commenced their grand re-openings. We have recently started significant renovations to our Mississauga store which we plan to complete before the end of the year. A major renovation to our Laval, Quebec showroom and warehouse store is well on its way and is scheduled to be complete by the spring of 2009. Progress is continuing with a new downtown Toronto, Ontario store known as the "Roundhouse" and we anticipate a grand opening in early 2009. We are also pleased with the year-to-date performance of Appliance Canada which was acquired effective January 1, 2008.
The Directors have declared a quarterly dividend of 7 cents per common share payable on the 9th day of October 2008 to shareholders of record at the close of business on the 9th day of September 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.
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 9, 2008. Pursuant to the continued bid, the Company intends, in the twelve months commencing September 10, 2008, to purchase up to the lesser of 4.99% of its Common Shares outstanding on August 28, 2008, 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 10, 2007, the date on which Leon's current issuer bid commenced, the Company has purchased 331,400 Common Shares at an average price of $12.19 per share. 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.
EARNINGS PER SHARE FOR EACH QUARTER
-----------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 YEAR TOTAL
-------- ------- -------- ------- ----------
2008
- Basic 16 cents 16 cents $0.32
- Fully Diluted 15 cents 16 cents $0.31
2007
- Basic 15 cents 14 cents 23 cents 31 cents $0.83
- Fully Diluted 15 cents 13 cents 22 cents 30 cents $0.80
2006
- Basic 14 cents 12 cents 21 cents 29 cents $0.76
- Fully Diluted 14 cents 11 cents 20 cents 28 cents $0.73
LEON'S FURNITURE LIMITED - MEUBLES LEON LTEE
Mark J. Leon
Chairman of the Board
MANAGEMENT'S DISCUSSION AND ANALYSIS
August 12, 2008
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, 2008, MD&A for the year ended December 31, 2007, the audited consolidated financial statements for the year ended December 31, 2007 and the Company's Annual Information Form dated March 14, 2008.
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 29 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 June 30, 2008, total Leon's sales were $224,688,000 including $47,962,000 of franchise sales ($190,437,000 including $43,437,000 of franchise sales in 2007), an increase of 18%.
Leon's corporate sales of $176,726,000 in the second quarter of 2008, increased by $29,726,000 or 20.2%, compared to the second quarter of 2007. In this quarter we experienced strong corporate sales growth across the country with same store corporate sales being up 4.8% compared to the prior year. The balance of the sales increase in the second quarter was the result of the acquisition of Appliance Canada which took effect January 1, 2008.
Leon's franchise sales of $47,962,000 in the second quarter of 2008, increased by $4,525,000 or 10.4%, compared to the second quarter of 2007. Regionally we saw strong franchise sales growth in Eastern and Central Canada, with flat sales in Western Canada compared to the same quarter the prior year.
Our gross margin for the second quarter of 2008 of 39.4% has decreased 1.9% from the second quarter 2007. The drop in gross margin was attributable to Appliance Canada sales whose margins are substantially lower than a typical Leon's store. Appliance Canada is involved in the wholesale of appliances to the building and apartment trade, as well as some retail of high end appliances to the public.
Net operating expenses of $52,311,000 were up $6,831,000 or 15% for the second quarter of 2008 compared to the second quarter of 2007. Payroll and commission costs were up 16.5% in the quarter compared to the prior year. The increase was the result of three key factors: the inclusion of Appliance Canada effective January 1, 2008; higher payroll costs associated with the increase in sales over the prior year and the continuation of a trend started in 2007 where higher than normal wage cost increases continue in Western Canada where they have experienced a labour shortage due to the boom in the oil and gas industry. We saw advertising expenses increase by $168,000 or 2.1% for the second quarter compared to the prior year which is well within budget. Other operating expenses were up 19.9% over the prior year's second quarter. The increase in other operating expenses is consistent with the increase in sales and the acquisition of Appliance Canada. Overall, operating costs as a percentage of sales were down in the second quarter 2008 compared to the prior year.
As a result of the above, net income for the second quarter of 2008 was $11,618,000, 16 cents per common share ($9,917,000, 14 cents per common share in 2007), an increase of 14.3% per common share.
For the six months ended June 30, 2008, total Leon's sales were $421,129,000 including $89,826,000 of franchise sales ($370,234,000 including $84,491,000 of franchise sales in 2007), an increase of 13.7% and net income was $22,686,000, 32 cents per common share ($20,710,000, 29 cents per common share in 2007), an increase of 10.3% per common share.
Annual Financial Information
($ in thousands, except earnings
per share and dividends) 2007 2006 2005
Net corporate sales 637,456 591,286 547,744
Leon franchise sales 195,925 177,167 173,043
Total Leon sales 833,381 768,453 720,787
Net income 58,494 53,602 48,964
Earnings per share
Basic $0.83 $0.76 $0.68
Diluted $0.80 $0.73 $0.65
Total Assets 475,226 438,997 381,702
Common Share Dividends Declared $0.2725 $0.375 $0.20
Convertible, Non-Voting Shares
Dividends Declared $0.14 $0.125 $0.10
Liquidity and Financial Resources
($ in thousands, except dividends
per share)
Balances as at: June 30/08 Dec. 31/07 June 30/07
----------- ----------- -----------
Cash and marketable securities
(including restricted
marketable securities) 125,550 142,279 105,634
Accounts receivable 22,736 33,684 13,908
Inventory 81,313 75,640 74,715
Total assets 475,886 475,226 419,651
Working capital 113,816 124,766 98,283
Current Prior Prior
Quarter Quarter Quarter
For the 3 months ended June 30/08 Mar. 31/08 Dec. 31/07
----------- ----------- -----------
Cash flow from operations 22,956 468 26,974
Purchase of capital assets 4,796 1,606 4,221
Repurchase of capital stock 273 1,992 434
Dividends paid 12,023 5,279 5,602
Dividends paid per share $0.17 $0.07 $0.07
Cash and marketable securities (including restricted marketable securities) increased by $4,103,000 in the quarter mainly as the result of the increase in net income, and reduced investment in working capital balances.
Marketable securities consist primarily of bonds with maturities not exceeding nine years with an interest rate range of 4.0% to 7.75% 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 $16,584,000.
Inventory decreased slightly by $684,000 from the first quarter of 2008. Continued sales growth and a concentrated effort to maintain inventory levels within the forecast were the main reasons for this decrease.
Renovations have just been completed at our Nepean and London, Ontario stores which have just commenced their grand re-openings this quarter. We have recently started a significant renovation to our Mississauga store which we plan to complete before the end of the year. A major renovation to our Laval, Quebec showroom and warehouse store is well on its way and is scheduled to be complete by the spring of 2009. As previously mentioned, progress is continuing with a new downtown Toronto, Ontario store known as the "Roundhouse" and we anticipate a grand opening in early 2009. All funding for new store projects and renovations is scheduled to come from our existing cash resources.
Common Shares
At June 30, 2008, there were 70,766,734 common shares issued and outstanding. During the second quarter of 2008, 23,450 convertible, non-voting series 1998 shares and 97,930 convertible, non-voting series 2002 shares were converted to common shares. The Company repurchased 22,800 (2007 - nil) of its common shares on the open market at an average cost of $11.99. Pursuant to the terms and conditions of Normal Course issuer Bids, all shares repurchased by the Company have been cancelled.
For the six month period ending June 30, 2008, the Company repurchased 194,000 common shares at an average price of $11.68 and 38,799 convertible, non-voting series 1998 shares and 208,403 convertible, non-voting series 2002 shares were converted to common shares.
Commitments
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($ in thousands) Payments Due by Period
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Less than 2-3 4-5 After
Contractual Obligations Total 1 year years years 5 years
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Operating leases(1) 13,745 894 3,504 3,486 5,861
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Purchase obligations(2) 12,469 12,469
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Total contractual
obligations 26,214 13,363 3,504 3,486 5,861
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(1) The Company is obligated under operating leases to future minimum
annual rental payments for various land and building sites
across Canada.
(2) The estimated cost to complete construction in progress at two
locations in Canada.
In addition, the Company has commitments related to redeemable shares as
follows:
($ in thousands) As at As at
June 30, 2008 December 31, 2007
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
159,181 series 1998 shares
(2007 - 197,980) 700 871
1,189,169 series 2002 shares
(2007 - 1,397,572) 8,547 10,045
745,694 series 2005 shares
(2007 - 756,814) 6,783 7,146
Less employees share purchase loans (15,743) (17,882)
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Redeemable share liability 287 180
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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 $329,000 (2007 - $365,000) have been used to reduce the respective shareholder loans.
During the second quarter 2008, 23,450 convertible, non-voting, series 1998 shares were converted into common shares with a stated value of $103,000 (2007 - 234,672 for a stated value of $1,032,000). For the six month period, 38,799 convertible, non-voting, series 1998 shares were converted into common shares with a stated value of $170,000 (2007 - 363,496 for a stated value of $1,599,000).
During the second quarter 2008, 97,930 convertible, non-voting series 2002 shares were converted into common shares with a stated value of $704,000 (2007 - 22,516 for a stated value of $162,000). For the six month period, 208,403 convertible non-voting series 2002 shares were converted into common shares with a stated value of $1,498,000 (2007 - nil). During the quarter ended June 30, 2008, the Company cancelled 38,454 series 2005 shares (2007 - nil) in the amount of $363,000.
Quarterly Results (2008, 2007, 2006)
Quarterly Income Statement ($ in thousands, except earnings per share)
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Quarter Ended Quarter Ended
June 30 March 31
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2008 2007 2008 2007
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Leon corporate sales 176,726 147,000 $154,577 $138,743
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Leon franchise sales 47,962 43,437 41,864 41,054
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Total Leon sales 224,688 190,437 196,441 179,797
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Net income per share $0.16 $0.14 $0.16 $0.15
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Fully diluted per share $0.16 $0.14 $0.15 $0.15
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Quarter Ended Quarter Ended
December 31 September 30
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2007 2006 2007 2006
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Leon corporate sales 185,922 $180,108 165,791 $157,132
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Leon franchise sales 60,931 56,658 50,503 $46,500
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Total Leon sales 246,853 236,766 216,294 $203,632
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Net income per share $0.31 $0.29 $0.23 $0.21
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Fully diluted per share $0.30 $0.28 $0.22 $0.20
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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 2008 are down slightly when compared to the same period for 2007. The cost decrease is a result of the decrease in the prime lending rate.
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 2008 are $7,017,000 compared to $6,360,000 in 2007. Warranty expenses deducted through costs of goods sold year to date for 2008 are $2,530,000 compared to $2,113,000 in 2007. The cost of warranty repairs in particular for electronics continues to increase but we anticipate it will level off in the very near future.
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 6.5% year to date for 2008 compared to 2007 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.
Accounting Standards Implemented in 2008
Capital Disclosures and Financial Instruments - Disclosure and Presentation
In December 2006, the Canadian Institute of Chartered Accountants ("CICA") issued three new accounting standards: Section 1535, "Capital Disclosures" ("Section 1535"), Section 3862, "Financial Instruments - Disclosures" ("Section 3862") and Section 3863, "Financial Instruments - Presentation" (Section 3863").
Section 1535 establishes guidelines for the disclosure of information regarding a company's capital and how it is managed. The adoption of Section 1535 did not have an impact on the Company's results of operations or financial condition.
Section 3862 and Section 3863 replaced Section 3861, "Financial Instruments - Disclosure and Presentation". Section 3862 requires increased disclosures regarding the risks associated with financial instruments and how these risks are managed. Section 3863 carried forward standards for presentation of financial instruments and provides additional guidance for the classification of financial instruments, from the perspective of the issuer, between liabilities and equity. Comparative information about the nature and extent of risks arising from financial instruments is not required in the year Section 3862 is adopted. The adoption of Section 3862 and Section 3863 did not have an impact on the Company's results of operations or financial condition.
Inventories
During the first quarter of 2008, the Company also implemented Section 3031, "Inventories" ("Section 3031"), which replaced Section 3030 of the same title. Section 3031 provides guidance with respect to the determination of cost and requires inventories to be measured at the lower of cost and net realizable value. Costs such as storage costs and administrative overhead that do not contribute to bringing inventories to their present location and condition are specifically excluded from the cost of inventories and expensed in the period incurred. Reversal of previous write-downs to net realizable value when there is a subsequent increase in the value of inventories is now required. The cost of the inventories should be based on a first-in, first-out or a weighted average cost formula. Techniques used for the measurement of cost of inventories, such as the retail method may be used if the results approximate cost. The new standard also requires additional disclosures including the accounting policies used in measuring inventories, the carrying amount of the inventories, amounts recognized as an expense during the period, write-downs and the amount of any reversal of any write-downs recognized as a reduction in expenses. This new standard was adopted by the Company for its fiscal year starting on January 1, 2008 and had no impact on its financial position or results of operation.
International Financial Reporting Standards ("IFRS")
The Canadian Accounting Standards Board will require all public companies to adopt IFRS for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. Companies will be required to provide IFRS comparative information for the previous fiscal year. The transition from Canadian GAAP to IFRS will be applicable for the Company for the first quarter of 2011 when the Company will prepare both the current and comparative financial information using IFRS. The Company expects the transition to IFRS to impact financial reporting, business processes and information systems. The Company will assess the impact of the transition to IFRS and will continue to invest in training and resources throughout the transition period to facilitate a timely conversion.
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, 2008.
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, 2008, that have materially affected or are reasonably likely to materially affect Leon's internal control over financial reporting.
Outlook
In the second quarter we saw good sales growth compared to the prior year. Although our sales continue to be strong, we are concerned about a general slow down in the economy.
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.
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Terrence T. Leon Dominic Scarangella
President & Chief Executive Vice President & Chief Financial
Officer Officer
Dated as of the 12th day of August, 2008.
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) 2008 2007
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ASSETS
Current
Cash and cash equivalents 13,616 25,699
Marketable securities 95,350 102,013
Restricted marketable securities 16,584 14,567
Accounts receivable 22,736 33,684
Income taxes recoverable 4,652 -
Inventory 81,313 75,640
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Total current assets 234,251 251,603
Prepaid expenses 1,323 1,282
Goodwill 16,782 -
Other receivables 578 -
Future tax assets 11,717 10,722
Capital assets, net 211,235 211,619
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475,886 475,226
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 84,820 92,051
Income taxes payable - 2,137
Customers' deposits 18,185 13,533
Dividends payable 4,955 4,949
Deferred warranty plan revenue 11,820 13,812
Future tax liabilities 655 355
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Total current liabilities 120,435 126,837
Deferred warranty plan revenue 21,901 19,124
Redeemable share liability 287 180
Future tax liabilities 7,552 7,080
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Total liabilities 150,175 153,221
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Shareholders' equity
Common shares 15,666 14,020
Retained earnings 310,534 307,068
Accumulated other comprehensive income (489) 917
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Total shareholders' equity 325,711 322,005
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475,886 475,226
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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
2008 2007 2008 2007
Sales 176,726 147,000 331,303 285,743
Cost of sales 107,077 86,280 199,609 166,781
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Gross profit 69,649 60,720 131,694 118,962
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Operating expenses (income)
Salaries and commissions 28,438 24,410 53,608 47,727
Advertising 8,008 7,840 16,349 15,411
Rent and property taxes 2,778 2,620 5,755 5,350
Amortization 3,801 3,367 7,563 6,744
Employee profit-sharing plan 1,150 1,054 1,973 1,967
Other operating expenses 11,946 9,147 22,416 18,750
Interest income (886) (978) (2,165) (2,229)
Other income (2,924) (1,980) (6,471) (5,719)
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52,311 45,480 99,028 88,001
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Income before gain on sale of
capital property and income
taxes 17,338 15,240 32,666 30,961
Gain on sale of capital property - - 1,385 443
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Income before income taxes 17,338 15,240 34,051 31,404
Provision for income taxes 5,720 5,323 11,365 10,694
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Net income for the period 11,618 9,917 22,686 20,710
Retained earnings, beginning of
the period 311,207 279,075 307,068 276,037
Dividends declared (12,021) (4,966) (16,978) (9,929)
Excess of cost of share repurchase
over carrying value of
related shares (note 5) (270) - (2,242) (2,792)
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Retained earnings, end of period 310,534 284,026 310,534 284,026
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Weighted average number of common
shares outstanding ('000's) (note 7)
Basic 70,678 70,772 70,637 70,788
Diluted 72,081 73,288 72,099 73,304
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Earnings per share
Basic $0.16 $0.14 $0.32 $0.29
Diluted $0.16 $0.14 $0.31 $0.28
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Dividends declared per share
Common $0.17 $0.0625 $0.24 $0.1250
Convertible, non-voting - - - -
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Leon's Furniture Limited-Meubles Leon Ltee
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
Three month period ended June 30th
($ in thousands)
Net of tax
Tax
2008 effect 2008
Net income for the period 11,618 - 11,618
Other comprehensive income, net of tax
Unrealized losses on available-for-sale
financial assets arising during
the period (1,506) (255) (1,251)
Reclassification adjustment for net
gains and losses included in net income (336) (57) (279)
Change in unrealized gains on
available-for-sale financial assets
arising during the period (1,842) (312) (1,530)
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Comprehensive income for the period 9,776 (312) 10,088
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Net of tax
Tax
2007 effect 2007
Net income for the period 9,917 - 9,917
Other comprehensive income, net of tax
Unrealized losses on available-for-sale
financial assets arising during
the period (1,285) (218) (1,067)
Reclassification adjustment for net
gains and losses included in net income 60 10 50
Change in unrealized (losses) on
available-for-sale financial assets
arising during the period (1,225) (208) (1,017)
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Comprehensive income for the period 8,692 (208) 8,900
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Six month period ended June 30th
($ in thousands)
Net of tax
Tax
2008 effect 2008
Net income for the period 22,686 22,686
Other comprehensive income, net of tax
Unrealized losses on available-for-sale
financial assets arising during
the period (731) (123) (608)
Reclassification adjustment for net
gains and losses included in net income (961) (163) (798)
Change in unrealized gains on
available-for-sale financial assets
arising during the period (1,692) (286) (1,406)
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Comprehensive income for the period 20,994 (286) 21,280
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Net of tax
Tax
2007 effect 2007
Net income for the period 20,710 - 20,710
Other comprehensive income, net of tax
Unrealized losses on available-for-sale
financial assets arising during
the period (1,164) (197) (967)
Reclassification adjustment for net
gains and losses included in net income (1,206) (207) (999)
Change in unrealized (losses) on
available-for-sale financial assets
arising during the period (2,370) (404) (1,966)
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Comprehensive income for the period 18,340 (404) 18,744
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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) 3 months ended 6 months ended
2008 2007 2008 2007
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OPERATING ACTIVITIES
Net income for the period 11,618 9,917 22,686 20,710
Add (deduct) items not involving
a current cash payment
Amortization of capital assets 3,801 3,367 7,563 6,744
Amortization of deferred
warranty revenue (3,528) (3,194) (7,017) (6,360)
Loss (gain) on sale of marketable
securities (144) 150 (712) (1,132)
Future tax expense 65 (978) 66 (898)
Loss (gain) on sale of capital
assets (11) 18 (1,398) 18
Cash received on warranty sales 4,110 3,488 7,802 6,877
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15,911 12,768 28,990 25,959
Net change in non-cash working
capital balances related to
operations 7,045 5,385 (5,566) (19,842)
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Cash provided by operating
activities 22,956 18,153 23,424 6,117
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INVESTING ACTIVITIES
Purchase of capital assets (4,796) (4,331) (6,402) (12,158)
Proceeds on sale of capital
assets 38 161 2,463 181
Purchase of marketable
securities (71,967) (23,791) (110,766) (62,987)
Proceeds on sale of marketable
securities 67,284 18,580 114,432 66,902
Decrease in employee share
purchase loans 807 1,032 1,447 1,599
Purchase of Appliance Canada (908) - (17,114) -
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Cash used in investing activities (9,542) (8,349) (15,940) (6,463)
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FINANCING ACTIVITIES
Dividends paid (12,023) (4,963) (17,302) (9,390)
Repurchase of capital stock (273) - (2,265) (2,818)
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Cash used in financing activities (12,296) (4,963) (19,567) (12,208)
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Net increase (decrease) in cash
and cash equivalents during the
period 1,118 4,841 (12,083) (12,554)
Cash and cash equivalents,
beginning of period 12,498 10,777 25,699 28,172
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Cash and cash equivalents,
end of period 13,616 15,618 13,616 15,618
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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, 2007.
These interim consolidated financial statements were prepared following
the same policies and standards as in the most recent annual consolidated
financial statements, except as described in Note 2.
2. ACCOUNTING STANDARDS IMPLEMENTED IN 2008
Capital Disclosures and Financial Instruments - Disclosure and
Presentation
In December 2006, the Canadian Institute of Chartered Accountants
("CICA") issued three new accounting standards: Section 1535, "Capital
Disclosures" ("Section 1535"), Section 3862, "Financial Instruments -
Disclosures" ("Section 3862") and Section 3863, "Financial Instruments -
Presentation" ("Section 3863").
Section 1535 establishes guidelines for the disclosure of information
regarding a company's capital and how it is managed. The adoption of
Section 1535 did not have an impact on the Company's results of
operations or financial condition.
Section 3862 and Section 3863 replaced Section 3861, "Financial
Instruments - Disclosure and Presentation". Section 3862 requires
increased disclosures regarding the risks associated with financial
instruments and how these risks are managed. Section 3863 carried forward
standards for presentation of financial instruments and provides
additional guidance for the classification of financial instruments, from
the perspective of the issuer, between liabilities and equity.
Comparative information about the nature and extent of risks arising from
financial instruments is not required in the year Section 3862 is
adopted. The adoption of Section 3862 and Section 3863 did not have an
impact on the Company's results of operations or financial condition.
Inventories
During the first quarter of 2008, the Company also implemented Section
3031, "Inventories" ("Section 3031"), which replaced Section 3030 of the
same title. Section 3031 provides guidance with respect to the
determination of cost and requires inventories to be measured at the
lower of cost and net realizable value. Costs such as storage costs and
administrative overhead that do not contribute to bringing inventories to
their present location and condition are specifically excluded from the
cost of inventories and expensed in the period incurred. Reversal of
previous write-downs to net realizable value when there is a subsequent
increase in the value of inventories is now required. The cost of the
inventories should be based on a first-in, first-out or a weighted
average cost formula. Techniques used for the measurement of cost of
inventories, such as the retail method may be used if the results
approximate cost. The new standard also requires additional disclosures
including the accounting policies used in measuring inventories, the
carrying amount of the inventories, amounts recognized as an expense
during the period, write-downs and the amount of any reversal of any
write-downs recognized as a reduction in expenses. This new standard was
adopted by the Company for its fiscal year starting on January 1, 2008
and had no impact on its financial position or results of operation.
3. ACCUMULATED OTHER COMPREHENSIVE INCOME
As at June 30, 2008 accumulated other comprehensive income was comprised
of the unrealized loss on marketable securities of $594,000 ($489,000 net
of tax)
2008 2007
Balance, beginning of period $ 917 $ -
Cumulative impact of implementing new accounting
standards (net of income taxes $491,000) - 2,392
Changes in unrealized losses on available-for-sale
financial assets arising during the period (1,406) (1,966)
Balance, end of period $ (489) $ 426
4. INCOME TAXES
The Company's total cash payments for income taxes paid in the three
month period ending June 30, 2008 were $8,172,000 (2007 - $7,448,000)
and for the six month period were $18,752,000 (2007 - $17,859,000).
5. COMMON SHARES
During the quarter, 22,800 common shares were repurchased (2007 - nil) on
the open market pursuant to the terms and conditions of Normal Course
Issuer Bids at a net cost of approximately $273,000 (2007 - nil). For the
six month period, the Company repurchased 194,000 (2007 - 222,800) common
shares at a net cost of approximately $2,265,000 (2007 - $2,818,000). 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 $23,000 (2007 -
$26,000) for the six month period. The excess net cost over the carrying
value of the shares of approximately $2,242,000 (2007 - $2,792,000) has
been recorded as a reduction in retained earnings.
During the quarter ended June 30, 2008, 23,450 series 1998 shares (2007 -
234,672) and 97,930 series 2002 shares (2007 - nil) were converted into
common shares with a stated value of approximately $103,000 (2007 -
$1,032,000) and $704,000 (2007 - nil) respectively. For the six month
period 38,799 (2007 - 363,496) series 1998 shares and 208,403 (2007 -
nil) series 2002 shares were converted in to common shares with a stated
value of approximately $170,000 (2007 - $1,599,000) and $1,498,000 (2007
- nil).
During the quarter ended June 30, 2008, the Company cancelled 38,454
series 2005 shares in the amount of $363,000 (2007 - 22,516 series 2002
and 15,620 series 2005 for a stated value of $162,000 and $147,000
respectively).
6. CLASSIFICATION AND FAIR VALUE OF FINANCIAL INSTRUMENTS
As at June 30, 2008, the classification of the Company's financial
instruments is as follows:
June 30, 2008
Other
Finan-
Loans and cial
Avail- Receiv- Liabili-
Held able ables ties Total
for Trading for Sale (amorti- (amorti- Carry-
Financial (fair (fair zed zed ing Fair
Assets value) value) cost) cost) Amount Value
Cash and cash
equivalents 13,616 - - - 13,616 13,616
Accounts receivable - - 22,736 - 22,736 22,736
Marketable securities - 95,350 - - 95,350 95,350
Restricted marketable
securities - 16,584 - - 16,584 16,584
Income taxes recoverable - - 4,652 - 4,652 4,652
Other receivables - - 578 - 578 578
Financial Liabilities
Accounts payable and
accrued liabilities - - - 84,820 84,820 84,820
Income taxes payable - - - - - -
Redeemable share
liability - - - 287 287 287
December 31, 2007
Other
Finan-
Loans and cial
Avail- Receiv- Liabili-
Held able ables ties Total
for Trading for Sale (amorti- (amorti- Carry-
Financial (fair (fair zed zed ing Fair
Assets value) value) cost) cost) Amount Value
Cash and cash
equivalents 25,699 - - - 25,699 25,699
Accounts receivable - - 33,684 - 33,684 33,684
Marketable securities - 102,013 - - 102,013 102,013
Restricted marketable
securities - 14,567 - - 14,567 14,567
Income taxes recoverable - - - - - -
Other receivables - - - - - -
Financial Liabilities
Accounts payable and
accrued liabilities - - - 92,051 92,051 92,051
Income taxes payable - - - 2,137 2,137 2,137
Redeemable share
liability - - - 180 180 180
Risk of Management of Financial Instruments
The Company is exposed to various risks associated with its financial
instruments. These risks are summarized as credit risk, liquidity risk
and market risk. The significant risks for the Company's financial
instruments are:
i) Credit risk
The Company believes it has no significant credit risk associated to its
accounts receivable. The majority of the Company's sales are paid through
cash, credit card or third party finance.
ii) Liquidity risk
The Company has no outstanding debt and the accounts payable and accrued
liabilities are all current. As a result, the Company believes it has no
significant liquidity risk.
iii) Market risk
The Company is exposed to foreign currency exchange rate risk. Some
merchandise is paid for in United States dollars. The foreign currency
cost is included in the inventory cost. The Company does not believe it
has significant foreign currency risk with respect to its accounts
payable in United States dollars.
The Company is exposed to fluctuations in the market prices of its
marketable securities that are classified as available for sale. Changes
in the fair value of marketable securities are recorded, net of income
taxes, in accumulated other comprehensive income (note 3). The risk is
managed by ensuring a conservative asset allocation of bonds and
equities.
7. CAPITAL MANAGEMENT
The Company defines capital as shareholders' equity. The Company's
objectives when managing capital are to:
- ensure sufficient liquidity to support its financial obligations and
execute its operating and strategic plans;
- maintain financial capacity and access to capital to support future
development of the business while taking into consideration current
and future industry, market and economic risks and conditions; and
- utilize short term funding sources to manage its working capital
requirements.