Leon's Furniture Limited - 2007 Second Quarter



    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, Québec 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

    -------------------------------------------------------------------------
    ($ 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
    -------------------------------------------------------------------------
    Purchase obligations(2)    2,176     2,176
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total contractual
     obligations              12,312     2,780     1,786     1,661     6,085
    -------------------------------------------------------------------------

    (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)
    -------------------------------------------------------------------------
    Redeemable share liability                            919            631
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    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)

    -------------------------------------------------------------------------
                                       Quarter Ended         Quarter Ended
                                          June 30               March 31
    -------------------------------------------------------------------------
                                      2007       2006       2007       2006
    -------------------------------------------------------------------------
    Leon corporate sales            147,000    134,028    138,743    120,018
    -------------------------------------------------------------------------
    Leon franchise sales             43,437     39,054     41,054     34,955
    -------------------------------------------------------------------------
    Total Leon sales                190,437    173,082    179,797    154,973
    -------------------------------------------------------------------------
    Net income per share              $0.14      $0.12      $0.15      $0.14
    -------------------------------------------------------------------------
    Fully diluted per share           $0.14      $0.11      $0.14      $0.14
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                       Quarter Ended         Quarter Ended
                                        December 31           September 30
    -------------------------------------------------------------------------
                                      2006       2005       2006       2005
    -------------------------------------------------------------------------
    Leon corporate sales            180,108    170,244    157,132    141,985
    -------------------------------------------------------------------------
    Leon franchise sales             56,658     54,535     46,500     45,070
    -------------------------------------------------------------------------
    Total Leon sales                236,766    224,779    203,632    187,055
    -------------------------------------------------------------------------
    Net income per share              $0.29      $0.28      $0.21      $0.19
    -------------------------------------------------------------------------
    Fully diluted per share           $0.28      $0.26      $0.20      $0.18
    -------------------------------------------------------------------------
    

    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
    -------------------------------------------------------------------------
    Gross profit                     60,720     54,647    118,962    105,905
    -------------------------------------------------------------------------

    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)
    -------------------------------------------------------------------------
                                     45,480     41,965     88,001     80,817
    -------------------------------------------------------------------------
    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
    -------------------------------------------------------------------------
    Income before income taxes       15,240     12,682     31,404     27,098
    Provision for income taxes        5,323      4,430     10,694      9,094
    -------------------------------------------------------------------------
    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)
    -------------------------------------------------------------------------
    Retained earnings, end
     of period                      284,026    249,700    284,026    249,700
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    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
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per share
    Basic                             $0.14      $0.12      $0.29      $0.25
    Diluted                           $0.14      $0.11      $0.28      $0.24
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    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
                                                              $            $
    -------------------------------------------------------------------------

    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            -
    -------------------------------------------------------------------------
    Total current assets                                196,856      221,279
    Future tax assets                                    10,339       10,652
    Capital assets, net                                 212,456      207,066
    -------------------------------------------------------------------------
                                                        419,651      438,997
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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
    -------------------------------------------------------------------------
    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
    -------------------------------------------------------------------------
    Total liabilities                                   122,088      151,422
    -------------------------------------------------------------------------

    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
    -------------------------------------------------------------------------
                                                        419,651      438,997
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    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
                                          $          $          $          $
    -------------------------------------------------------------------------

    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
    -------------------------------------------------------------------------
                                     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
    -------------------------------------------------------------------------
    Cash provided by operating
     activities                      18,153     17,980      6,117     22,208
    -------------------------------------------------------------------------

    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
    -------------------------------------------------------------------------
    Cash used in investing
     activities                      (8,349)    (4,182)    (6,463)   (10,560)
    -------------------------------------------------------------------------

    FINANCING ACTIVITIES
    Dividends paid                   (4,963)   (13,274)    (9,390)   (16,809)
    Repurchase of capital stock           -        (74)    (2,818)       (74)
    -------------------------------------------------------------------------
    Cash used in financing
     activities                      (4,963)   (13,348)   (12,208)   (16,883)
    -------------------------------------------------------------------------

    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
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                   15,618     15,357     15,618     15,357
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    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.
    




For further information:

For further information: Terrence Leon, (416) 243-4073


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