TORONTO, May 19 /CNW/ -- TORONTO, May 19 /CNW/ - For the three
months ended March 31, 2011, total Leon's sales were $191,592,000
including $40,809,000 of franchise sales ($203,798,000 including
$42,328,000 of franchise sales in 2010), a decrease of 6%. Net
income from operations for the first quarter 2011 was $9,827,000,
14¢ per common share ($11,446,000, 16¢ per common share in 2010), a
decrease of 12.5% per common share. We ended up the first quarter
of 2011 with lower sales and profits compared to the first quarter
of 2010. The decrease in sales was due to both a reduction in the
number of sales transactions but also a lower average sale than the
prior year. We face a difficult economy, decreasing new housing
starts and record consumer debt. We continue to look for
innovations in order to help improve sales. At the same time, we
are pleased with the efforts of our associates to improve
productivity and control expenses. We believe that we must become
even more aggressive in the marketplace during 2011 in order to
improve the performance of our Company going forward. Improved
sales and productivity will be aided by the opening of four
additional stores this year. We have begun construction on a new
84,000 sq. ft. facility in Regina, Saskatchewan with a scheduled
grand opening for the fall of 2011. Leasehold improvements are well
on their way for a new leased retail showroom and warehouse of
76,000 sq. ft. in Guelph, Ontario. In addition, leasing documents
have been signed for a 40,000 sq. ft. retail store in Mississauga,
Ontario and a 40,000 sq. ft. retail store in Rosemère, Quebec. We
plan for grand openings of these new facilities in the fall of this
year. Finally, we also plan to continue the renovation of our
existing buildings with major renovations and additions to our
Sault St. Marie and Sudbury stores later this year. As previously
announced, we paid a quarterly 9¢ dividend on April 4, 2011. Today
we are happy to announce that the Directors have declared a
quarterly dividend of 9¢ per common share payable on the 7(th) day
of July 2011 to shareholders of record at the close of business on
the 7(th) day of June 2011. As of 2007, dividends paid by
Leon's Furniture Limited are "eligible dividends" pursuant to the
changes to the Income Tax Act under Bill C-28, Canada. EARNINGS PER
SHARE FOR EACH QUARTER MARCH 31 JUNE 30 SEPT. 30 DEC. 31 YEAR TOTAL
2011 - Basic 14¢ $0.14 - Fully Diluted 14¢ $0.14 2010 - Basic 16¢
18¢ 25¢ 30¢ $0.89 - Fully Diluted 16¢ 17¢ 24¢ 29¢ $0.86 2009 -
Basic 12¢ 12¢ 22¢ 34¢ $0.80 - Fully Diluted 12¢ 12¢ 21¢ 33¢ $0.78
The quarter ended March 31, 2011 and all quarters for 2010 have
been restated to IFRS while quarters reported for 2009 are as
originally reported under Canadian GAAP. LEON'S FURNITURE LIMITED
Mark J. Leon Chairman of the Board MANAGEMENT'S DISCUSSION AND
ANALYSIS For the three months ended March 31, 2011 and 2010 Dated:
May 19, 2011 The following review and analysis of Leon's Furniture
Limited's operations and financial position for the three months
ended March 31, 2011 and 2010 should be read in conjunction with
the audited consolidated financial statements of Leon's Furniture
Limited for the year ended December 31, 2010, set forth in the
Company's Annual Report for such year and incorporated by reference
in the Company's Annual Information Form dated March 31, 2011.
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:
a continuing slowdown in the Canadian economy; a further 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. Financial Statements Governance
Practice Leon's Furniture Limited's financial statements have been
prepared in accordance with International Financial Reporting
Standards ("IFRS") and the amounts expressed are in Canadian
dollars. Per share amounts are calculated using the weighted
average number of shares outstanding for the applicable period.
Leon's Furniture Limited 2010 financial results included in this
Interim MD&A have been restated to an IFRS basis. This MD&A
is intended to provide readers with the information that management
believes is required to gain an understanding of Leon's Furniture
Limited's current results and to assess the Company's future
prospects. Accordingly, sections of this report contain
forward-looking statements that are based on current plans and
expectations. These forward-looking statements are effected by
risks and uncertainties that could have a material impact on future
prospects. Readers are cautioned that actual events and results may
vary. The Audit Committee of the Board of Directors of Leon's
Furniture Limited reviewed the Management's Discussion and Analysis
("MD&A") and the financial statements, and recommended that 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 over 100 years. The Company's 39 corporate and
30 franchise stores can be found in every province across Canada
except British Columbia. Main product lines sold at retail include
furniture, appliances and electronics. Revenues and Expenses For
the three months ended March 31, 2011, total Leon's sales were
$191,592,000 including $40,809,000 of franchise sales ($203,798,000
including $42,328,000 of franchise sales in 2010), a decrease of
6%. Leon's corporate sales of $150,783,000 in the first quarter of
2011, decreased by $10,687,000, or 6.6%, compared to the first
quarter of 2010. The decrease in sales in the first quarter
compared to the prior year reflected a continuation of waning
consumer confidence, a somewhat soft economy, decrease in housing
starts and overall reduced consumer spending. Same store corporate
sales decreased by 7.5% compared to the prior year. Leon's
franchise sales of $40,809,000 in the first quarter of 2011,
decreased by $1,519,000 or 3.6%, compared to the first quarter of
2010. The franchise division experienced sales decreases in most
regions of Canada. Our gross margin for the first quarter 2011 of
41.6% decreased marginally from the first quarter 2010. Overall
margins were down slightly in all major product categories compared
to the first quarter of 2010. Net operating expenses of $49,756,000
were down $1,906,000 or 3.7% for the first quarter 2011 compared to
the first quarter 2010. General and Administrative expenses are
down by 3.9% in the quarter compared to the prior year. The
decrease was mainly the result of lower depreciation costs on
buildings. Commencing with 2011, buildings are being depreciated
over a useful life of 30 years which has resulted in a depreciation
expense reduction of approximately $800,000 compared to the same
quarter 2010. Selling and Marketing expenses were basically in line
with the prior year. However, advertising expenses were up $750,000
compared to the prior year quarter, offset by lower commissions
paid on less sales than the prior year. All other operating costs
in the quarter were comparable with the prior year first quarter.
As a result of the above, net income from operations for the first
quarter 2011 was $9,827,000, 14¢ per common share ($11,446,000, 16¢
per common share in 2010), a decrease of 12.5% per common share.
Annual Financial Information ($ in thousands, except earnings per
share and * * dividends) 2010 2009 2008 Net Corporate Sales 710,435
703,180 740,376 Leon Franchise Sales 197,062 194,290 209,848 Total
Leon sales 907,497 897,470 950,224 Net Income 62,664 56,864 63,390
Earnings per Share Basic $0.89 $0.80 $0.90 Diluted $0.86 $0.78
$0.87 Total Assets 544,053 529,156 513,408 Common Share Dividends
Declared $0.32 $0.28 $0.28 Special Common Share Dividends Declared
- $0.20 $0.10 Convertible, Non-Voting Shares Dividends Declared
$0.18 $0.14 $0.14 * The year ended 2010 has been restated to IFRS
while years ended 2009 and 2008 are as originally reported under
Canadian GAAP. Liquidity and Financial Resources ($ in thousands,
except dividends per share) Mar. 31/11 Dec. 31/10 Mar. 31/10 Cash,
cash equivalents, available for sale financial assets 202,770
211,813 168,258 Trade and other accounts receivable 17,262 28,569
21,065 Inventory 78,444 85,423 85,622 Total assets 544,053 566,674
515,653 Working capital 202,832 200,826 174,270 Current Quarter
Prior Quarter Prior Quarter For the 3 months ended Mar. 31/11 Dec.
31/10 Mar. 31/10 Cash flow (used in) provided by operations (687)
42,633 2,871 Purchase of property, plant & equipment 2,876
5,502 398 Repurchase of capital stock 715 1,800 - Dividends paid
6,310 6,309 4,938 Dividends paid per share $0.09 $0.09 $0.07 This
year, we have begun construction on a new 84,000 sq. ft. facility
in Regina, Saskatchewan with a scheduled grand opening for the fall
of 2011. Leasehold improvements are well on there way for a new
leased premise of 76,000 sq. ft. in Guelph, Ontario. In addition,
leasing documents have been signed for a 40,000 sq. ft. premise in
Mississauga, Ontario and a 40,000 sq. ft. facility in Rosemère,
Quebec. We plan for grand openings of these new facilities in the
late fall of this year. Finally, we also plan to continue the
renovation of our existing buildings with major renovations and
additions to our Sault St. Marie and Sudbury stores later this
year. At the present time, all funding for new store projects and
renovations are scheduled to come from our existing cash resources.
Quarterly Results (2011, 2010, 2009) Quarterly Income Statement
($000) - except per share data Quarter Ended Quarter Ended Quarter
Ended Quarter Ended March 31 December 31 September 30 June 30 2011
2010 2010 2009 2010 2009 2010 2009 Leon's Corporate Sales 150,783
161,470 197,888 197,986 182,125 187,431 168,952 165,238 Leon's
Franchise sales 40,809 42,328 59,820 57,679 49,421 49,243 45,493
44,693 Total Leon's sales 191,592 203,798 257,168 255,665 231,546
236,674 214,445 209,931 Net Income Per Share $0.14 $0.16 $0.30
$0.34 $0.25 $0.22 $0.18 $0.12 Fully Diluted Per Share $0.14 $0.16
$0.29 $0.33 $0.24 $0.21 $0.17 $0.12 The quarters ended March 31,
2010, June 30, 2010, September 30, 2010 and December 31, 2010 have
been restated to IFRS while quarters reported for 2009 are as
originally reported under Canadian GAAP. CHANGES IN ACCOUNTING
POLICIES Adoption of IFRS Leon's Furniture Limited was required to
prepare financial statements in accordance with IFRS starting with
the interim financial statements for the quarter ended March 31,
2011. These statements required the 2010 results to be restated in
accordance with IFRS. Detailed notes on the changes to previously
reported amounts are included in the notes to the unaudited
condensed interim consolidated financial statements for the period
ended March 31, 2011 which have been filed on SEDAR. The following
charts provide selected restated 2010 results by quarter.
Consolidated Net Income IFRS Restated 2010 results by quarter First
Second Third Fourth Full Year Quarter Quarter Quarter Quarter 2010
Revenue 161,470 168,952 182,125 197,888 710,435 Cost of sales
93,498 100,187 106,564 112,130 412,379 Gross profit 67,972 68,765
75,561 85,758 298,056 Operating expenses General and administrative
expenses 23,293 25,432 24,484 25,475 98,684 Sales and marketing
expenses 18,572 18,008 19,297 22,344 78,221 Occupancy expenses
7,630 7,490 7,214 7,217 29,551 Other operating expenses 2,167 785
1,748 1,802 6,502 51,662 51,715 52,743 56,838 212,958 Operating
profit 16,310 17,050 22,818 28,920 85,098 Gain on sale of capital
property 1,231 1,231 Finance income 691 663 789 991 3,134 Profit
before income tax 17,001 17,713 24,838 29,911 89,463 Income tax
expense 5,555 5,413 7,001 8,830 26,799 Profit for the period
attributable to the shareholders of the Company 11,446 12,300
17,837 21,081 62,664 Earnings per share Basic $ 0.16 $ 0.18 $ 0.25
$ 0.30 $ 0.89 Diluted $ 0.16 $ 0.17 $ 0.24 $ 0.29 $ 0.86 CONTROLS
AND PROCEDURES Changes in Internal Control over Financial Reporting
There have been no changes in Leon's internal controls over
financial reporting that occurred during the first quarter 2011,
the most recent interim period, that materially affected, or are
reasonably likely to materially affect, Leon's internal controls
over financial reporting. Outlook In the first quarter of 2011 we
saw a reduction in same store sales from the prior year quarter. We
continue to see a slowdown in new housing starts and a general
slowdown in consumer spending that we noted in 2010. At this point
we do not see any clear signs as to when we will see a strong
economic turnaround. However, to counter this, we continue to plan
a very robust marketing and merchandising campaign for the balance
of the year. In addition, we should see a boost in sales and
improved productivity that will be aided by the opening of four
additional stores this year. Even with these measures in place,
growing profits for the balance of this year will be challenging.
Despite this, our strong financial position coupled with our
experience in adjusting to changing market conditions, provide us
with the confidence to adapt to whatever economic conditions
prevail. 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 Vice President & Chief
Financial Officer Officer Dated as of the 19(th) day of May, 2011.
Condensed Consolidated Financial Statements Leon's Furniture
Limited CONSOLIDATED STATEMENT OF FINANCIAL POSITION (UNAUDITED) As
at March 31 As at December 31 As at January 1 ($ in thousands) 2011
2010 2010 [note 21] [note 21] ASSETS Current assets Cash and cash
equivalents [note 6] 72,699 71,589 58,301 Available-for-sale
financial assets [note 18] 130,071 140,224 112,425 Trade
receivables 17,262 28,569 31,501 Income taxes receivable 2,520 - -
Inventory 78,444 85,423 83,957 Total current assets 300,996 325,805
286,184 Other assets 1,561 1,574 1,560 Property, plant and
equipment [note 7] 204,052 201,492 203,653 Investment properties
[note 8] 8,404 8,417 8,545 Intangible assets [note 9] 4,681 4,902
5,334 Goodwill [note 9] 11,282 11,282 11,282 Deferred income tax
assets 13,077 13,202 12,598 Total assets 544,053 566,674 529,156
LIABILITIES AND SHAREHOLDERS' EQUITY Current Trade and other
payables [note 10] 47,185 71,724 72,603 Provisions [note 11] 10,693
12,341 11,277 Income taxes payable - 524 1,958 Customers' deposits
17,262 17,198 15,632 Dividends payable [note 13] 6,317 6,310 4,938
Deferred warranty plan revenue 16,707 16,882 16,150 Total current
liabilities 98,164 124,979 122,558 Deferred warranty plan revenue
20,775 21,392 22,248 Redeemable share liability [note 12] 382 172
383 Deferred income tax liabilities 9,920 9,845 8,829 Total
liabilities 129,241 156,388 154,018 Shareholders' equity
attributable to the shareholders of the Company Common shares [note
13] 20,117 19,177 17,704 Retained earnings 392,425 389,624 357,192
Accumulated other comprehensive income 2,270 1,485 242 Total
shareholders' equity 414,812 410,286 375,138 Total liabilities and
shareholder's equity 544,053 566,674 529,156 Commitments and
contingencies [note 18] The accompanying notes are an integral part
of these interim consolidated financial statements.
Condensed Consolidated Financial Statements Leon's Furniture
Limited CONSOLIDATED INCOME STATEMENTS (UNAUDITED) Three months
ended March 31 ($ in thousands) 2011 2010 Revenue [note 14] 150,783
161,470 Cost of sales 88,065 93,498 Gross profit 62,718 67,972
Operating expenses [note 15] General and administrative expenses
22,395 23,293 Sales and marketing expenses 18,512 18,572 Occupancy
expenses 7,440 7,630 Other operating expenses 1,409 2,167 49,756
51,662 Operating profit 12,962 16,310 Finance income 821 691 Profit
before income tax 13,783 17,001 Income tax expense [note 16] 3,956
5,555 Profit for the period attributable to the shareholders of the
Company 9,827 11,446 Earnings per share [note 17] Basic $0.14 $0.16
Diluted $0.14 $0.16 The accompanying notes are an integral part of
these interim consolidated financial statements. Condensed
Consolidated Financial Statements Leon's Furniture Limited
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) Three
months ended March 31 Net of tax ($ in thousands) 2011 Tax effect
2011 Profit for the period 9,827 - 9,827 Other comprehensive
income, net of tax Unrealized gains on available-for-sale financial
assets arising during the period 916 128 788 Reclassification
adjustment for net gains and (losses) included in profit for the
period (3) - (3) Change in unrealized gains on available-for-sale
financial assets arising during the period 913 128 785
Comprehensive income for the period attributable to the
shareholders of the Company 10,740 128 10,612 Net of tax 2010 Tax
effect 2010 Profit for the period 11,446 - 11,446 Other
comprehensive income, net of tax Unrealized gains on
available-for-sale financial assets arising during the period 323
48 275 Reclassification adjustment for net gains and (losses)
included in profit for the period 141 21 120 Change in unrealized
gains on available-for-sale financial assets arising during the
period 464 69 395 Comprehensive income for the period attributable
to the shareholders of the Company 11,910 69 11,841 The
accompanying notes are an integral part of these interim
consolidated financial statements. Condensed Consolidated Financial
Statements Leon's Furniture Limited CONSOLIDATED STATEMENTS OF
CHANGES IN EQUITY (UNAUDITED) Accumulated other Common
comprehensive Retained ($ in thousands) shares income earnings
Total At January 1, 2010 17,704 242 357,192 375,138 Comprehensive
income Profit for the period — — 11,446 11,446 Change in unrealized
gains on available-for-sale financial assets arising during the
period — 395 — — Total comprehensive income — 395 11,446 11,841
Transactions with shareholders Dividends declared [note 13] — —
(4,937) (4,937) Management share purchase plan 413 — — 413 Total
transactions with shareholders 413 — (4,937) (4,524) At March 31,
2010 18,117 637 363,701 382,455 At January 1, 2011 19,177 1,485
389,624 410,286 Comprehensive income Profit for the period — —
9,827 9,827 Change in unrealized gains on available-for-sale
financial assets arising during the period — 785 — — Total
comprehensive income — 785 9,827 10,612 Transactions with
shareholders Dividends declared [note 13] — — (6,317) (6,317)
Management share purchase plan 946 — — 946 Repurchase of common
shares [note 13] (6) — (709) (715) Total transactions with
shareholders 940 — (7,026) (6,086) At March 31, 2011 20,117 2,270
392,425 414,812 The accompanying notes are an integral part of
these interim consolidated financial statements. Condensed
Consolidated Financial Statements Leon's Furniture Limited
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three months
ended March 31 ($ in thousands) 2011 2010 OPERATING ACTIVITIES
Profit for the period 9,827 11,446 Add (deduct) items not involving
an outlay of cash Depreciation of property, plant and equipment and
investment properties 2,977 3,781 Amortization of intangible assets
221 187 Amortization of deferred warranty plan revenue (4,297)
(4,105) Gain (loss) on sale of property, plant and equipment - (4)
Deferred income taxes 71 349 Loss (gain) on sale of
available-for-sale financial assets 43 (121) Unrealized foreign
exchange losses 481 609 Cash received on warranty plan sales 3,505
3,924 12,828 16,066 Net change in non-cash working capital balances
related to operations [note 19] (13,515) (13,195) Cash (used in)
provided by operating activities (687) 2,871 INVESTING ACTIVITIES
Purchase of property, plant & equipment (2,876) (398) Purchase
of intangible assets - (259) Proceeds on sale of property, plant
& equipment - 8 Purchase of available-for-sale financial assets
(94,024) (72,735) Proceeds on sale of available-for-sale financial
assets 104,566 56,514 Decrease in employee share purchase loans
1,156 271 Cash provided by (used in) investing activities 8,822
(16,599) FINANCING ACTIVITIES Dividends paid (6,310) (4,938)
Repurchase of common shares [note 13] (715) - Cash used in
financing activities (7,025) (4,938) Net (decrease) increase in
cash and cash equivalents during the period 1,110 (18,666) Cash and
cash equivalents, beginning of period 71,589 58,301 Cash and cash
equivalents, end of period 72,699 39,635 The accompanying notes are
an integral part of these interim consolidated financial
statements. Management's Responsibility for Financial
Reporting The accompanying condensed interim consolidated financial
statements are the responsibility of management and have been
approved by the Board of Directors. The accompanying condensed
interim consolidated financial statements have been prepared by
management in accordance with International Financial Reporting
Standards. Financial statements are not precise since they include
certain amounts based upon estimates and judgments. When
alternative methods exist, management has chosen those it deems to
be the most appropriate in the circumstances. Leon's Furniture
Limited maintains systems of internal accounting and administrative
controls of high quality, consistent with reasonable costs. Such
systems are designed to provide reasonable assurance that the
financial information is relevant and reliable and that Leon's
assets are appropriately accounted for and adequately safeguarded.
The Board of Directors is responsible for ensuring that management
fulfils its responsibilities for financial reporting and is
ultimately responsible for reviewing and approving the financial
statements. The Board carries out this responsibility through its
Audit Committee. The Audit Committee is appointed by the Board and
reviews these condensed interim consolidated financial statements;
assesses the adequacy of the internal controls of the Company; and
recommends to the Board the independent auditors for appointment by
the shareholders. The Committee reports its findings to the Board
of Directors for consideration when approving these condensed
interim consolidated financial statements for issuance to the
shareholders. Terrence T. Leon Dominic Scarangella President &
CEO Vice President & CFO NOTES TO THE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited) Tabular amounts in thousands of
Canadian dollars except shares outstanding and earnings per share
For the three month periods ended March 31, 2011 and 2010 1.
GENERAL INFORMATION Leon's Furniture Limited was incorporated by
Articles of Incorporation under the Business Corporations Act on
February 28, 1969. Leon's Furniture Limited and its subsidiaries
(the Company or Leon's) is a public company with its common shares
listed on the Toronto Stock Exchange and is incorporated and
domiciled in Canada. The address of the Company's head and
registered office is 45 Gordon Mackay Road, Weston, Ontario, M9N
3X3. Leon's is a retailer of home furnishings across Canada from
Alberta to Newfoundland and Labrador. The Company owns a chain of
39 retail furniture stores operating as Leon's Furniture Home
Furnishings Super Stores and 2 retail stores under the brand
Appliance Canada. The Company has 25 franchisees operating 30
franchise stores. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The
principal accounting policies applied in the preparation of these
condensed interim consolidated financial statements are set out
below. These policies have been consistently applied to all periods
presented, unless otherwise stated. Basis of preparation The
Company prepares its condensed interim consolidated financial
statements in accordance with Canadian generally accepted
accounting principles (Canadian GAAP) as set out in the Handbook of
the Canadian Institute of Chartered Accountants (CICA). In 2010,
the CICA Handbook was revised to incorporate International
Financial Reporting Standards (IFRS), and required publicly
accountable enterprises to apply such standards effective for years
beginning on or after January 1, 2011. Accordingly, the Company has
commenced reporting on this basis in these condensed interim
consolidated financial statements. In these condensed interim
consolidated financial statements, the term Canadian GAAP refers to
Canadian GAAP before adoption of IFRS. These condensed interim
consolidated financial statements have been prepared in accordance
with IFRS as issued by the IASB, and incorporate the requirements
of IAS 34, Interim financial reporting, and IFRS 1, First-time
adoption of IFRS. Subject to certain transition elections disclosed
in note 21, the Company has consistently applied the same
accounting policies in its opening IFRS consolidated statement of
financial position at January 1, 2010 and throughout all periods
presented, as if these policies had always been in effect. Note 21
discloses the impact of the transition to IFRS on the Company's
reported consolidated statement of financial positions,
consolidated income statements, consolidated statements of
comprehensive income and consolidated statements of cash flows,
including the nature and effect of significant changes in
accounting policies from those used in the Company's Canadian GAAP
consolidated financial statements for the year ended December 31,
2010. Comparative figures in these condensed interim consolidated
financial statements have been restated to give effect to these
changes. The policies applied in these condensed interim
consolidated financial statements are based on IFRS issued and
outstanding as of May 19, 2011, the date the Directors approved and
authorized for issuance the condensed interim consolidated
financial statements. Any subsequent changes to IFRS that are given
effect in the Company's annual consolidated financial statements
for the year ending December 31, 2011 could result in a restatement
of these condensed interim consolidated financial statements,
including the transition adjustments recognized on changeover to
IFRS. These condensed interim consolidated financial statements
should be read in conjunction with the Company's Canadian GAAP
annual consolidated financial statements for the year ended
December 31, 2010. The condensed interim consolidated financial
statements have been prepared using the historical cost convention,
as modified by certain financial assets measured at fair value
through profit or loss. The preparation of condensed interim
consolidated financial statements in conformity with IFRS requires
use of certain critical accounting estimates. It also requires
management to exercise its judgment in the process of applying the
Company's accounting policies. The areas involving a higher degree
of judgment or complexity, or areas where assumptions and estimates
are significant to the condensed interim consolidated financial
statements are disclosed in note 3. Future changes in
accounting policy and disclosure Standards that are not yet
effective and have not been early adopted by the Company IFRS 9,
Financial Instruments (IFRS 9), was issued by the IASB in November
2009 and contained requirements for financial assets. This standard
addresses classification and measurement of financial assets and
replaces the multiple category and measurement models in IAS 39,
Financial Instruments - Recognition and Measurement (IAS 39), for
debt instruments with a new mixed measurement model having only two
categories: Amortized cost and fair value through profit or loss.
IFRS 9 also replaces the models for measuring equity instruments
and such instruments are either recognized at fair value through
profit or loss or at fair value through other comprehensive income.
Where such equity instruments are measured at fair value through
other comprehensive income, dividends are recognized in profit or
loss; however, other gains and losses (including impairments)
associated with such instruments remain in accumulated
comprehensive income indefinitely. Requirements for financial
liabilities were added in October 2010 and they largely carried
forward existing requirements in IAS 39 except that fair value
changes due to credit risk for liabilities designated at fair value
through profit or loss would generally be recorded in other
comprehensive income. This standard is required to be applied for
accounting periods beginning on or after January 1, 2013, with
earlier adoption permitted. The Company is currently assessing the
impact of the standard and has not determined whether it will adopt
the standard early. Consolidation The condensed interim
consolidated financial statements include the assets and
liabilities of Leon's Furniture Limited and its wholly owned
subsidiaries, Murlee Holdings Limited, Leon Holdings (1967) Limited
and Ablan Insurance Corporation as at March 31, 2011 and the
results of these subsidiaries for the three month period then
ended. Subsidiaries are all those entities over which the Company
has the power to govern the financial and operating policies
generally accompanying a shareholding of more than one half of the
voting rights. The existence and effect of potential voting rights
that are currently exercisable or convertible are considered when
assessing whether the Company controls another entity. Subsidiaries
are fully consolidated from the date on which control is
transferred to the Company and de-consolidated from the date that
control ceases. Intercompany transactions, balances and unrealized
gains/losses on transactions between group companies are
eliminated. Segment reporting Operating segments are reported in a
manner consistent with the internal reporting provided to the chief
operating decision-maker. The chief operating decision-maker, who
is responsible for allocating resources and assessing performance
of the operating segments, has been identified as the President and
Chief Executive Officer. The Company operates in one geographical
segment (Canada) and one industry (sale of home furnishings,
appliances and electronics). Accordingly, no segment information
has been provided in these condensed interim consolidated financial
statements. Foreign currency translation Foreign currency
transactions Foreign currency transactions are translated into the
respective functional currencies of the Company's subsidiaries
using the exchange rate at the dates of transactions. Merchandise
imported from the United States and South East Asia, paid for
in U.S. dollars, is recorded at its equivalent Canadian dollar
value upon receipt. U.S. dollar trade payables are translated
at the year-end exchange rate. The Company is subject to
gains and losses due to fluctuations in the U.S. dollar. Foreign
exchange gains and losses resulting from translation of U.S. dollar
accounts payable are included in the consolidated income statement
within cost of sales. Changes in the fair value of
available-for-sale financial assets denominated in foreign
currencies are analyzed between translation differences resulting
from changes in the amortized cost of the asset and other changes
in the carrying amount of the asset. Translation differences
related to changes in amortized cost are recognized in the
consolidated income statement, and other changes in the carrying
amount are recognized in other comprehensive income. Functional and
presentation currency Items included in the condensed interim
consolidated financial statements are measured using the currency
of the primary economic environment in which the Company operates
(the functional currency). These condensed interim consolidated
financial statements are presented in Canadian dollars, which is
the Company's functional and presentation currency and is also the
functional currency of each of the Company's subsidiaries.
Financial assets and liabilities A financial asset or liability is
recognized if the Company becomes a party to the contractual
provisions of the asset or liability. A financial asset or
liability is recognized initially (at trade date) at its fair value
plus, in the case of a financial asset or liability not at fair
value through profit or loss, transaction costs that are directly
attributable to the acquisition or issue of the instrument.
Financial assets and liabilities carried at fair value through
profit or loss are initially recognized at fair value and
transaction costs are expensed in the consolidated income
statement. After initial recognition, financial assets are measured
at their fair values except for loans and receivables which are
measured at amortized cost using the effective interest method.
After initial recognition, financial liabilities are measured at
amortized cost except for financial liabilities at fair value
through profit or loss which are measured at fair value. The
Company classifies its financial assets and liabilities according
to their characteristics and management's choices and intentions
related thereto for the purposes of ongoing measurement.
Classifications that the Company has used for financial assets
include: a) Available-for-sale - financial assets that are
non-derivatives that are either designated in this category or not
classified in any other category and include marketable securities
which consists primarily of quoted bonds, equities and debentures.
These assets are measured at fair value with changes in fair value
recognized in other comprehensive income for the current period
until realized through disposal or impairment; and b) Loans and
receivables - are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market.
Loans and receivables include trade receivables and recorded at
amortized cost with gains and losses recognized in net earnings in
the period that the asset is no longer recognized or impaired.
Classification choice that the Company has used for financial
liabilities include: a) Other financial liabilities - measured at
amortized cost with gains and losses recognized in the consolidated
income statement in the period that the liability is no longer
recognized. Financial assets are derecognized if the Company's
contractual rights to the cash flows from the financial assets
expire or if the Company transfers the financial asset to another
party without retaining control or substantially all risks and
rewards of the asset. Financial liabilities are derecognized if the
Company's obligations specified in the contract expire or are
discharged or cancelled. Impairment of financial assets The Company
assesses at the end of each reporting period whether there is
objective evidence that a financial asset or group of financial
assets is impaired. A financial asset or group of financial assets
is impaired and impairment losses are incurred only if there is
objective evidence of impairment as a result of one or more events
that occurred after the initial recognition of the asset (a loss
event) and that loss event has an impact on the estimated future
cash flows of the financial asset or group of financial assets that
can be reliably estimated. The amount of the loss is measured as
the difference between the asset's carrying amount and the present
value of estimated future cash flows discounted at the financial
asset's original effective interest rate. The asset's carrying
amount is reduced and the amount of the loss is recognized in the
consolidated income statement. If, in a subsequent period, the
amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was
recognized, the reversal of the previously recognized impairment is
recognized in the consolidated income statement. Cash and cash
equivalents Cash and cash equivalents include cash on hand,
balances with banks and short-term market investments with a
remaining term to maturity of less than 90 days from the date of
purchase. Trade receivables Trade receivables are amounts due for
goods sold in the ordinary course of business. If collection is
expected in one year or less, they are classified as current
assets. If not, they are presented as non-current assets. Trade
receivables are initially recognized at fair value and subsequently
measured at amortized cost using the effective interest method,
less provision for impairment. Inventory Inventory is valued at the
lower of cost, determined on a first-in, first-out basis, and net
realizable value. 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 sales
upon sale of the goods. Incentives received for a direct
reimbursement of costs incurred to sell the vendor's products such
as marketing and advertising funds are recorded as a reduction of
those related costs in the consolidated income statement, provided
certain conditions are met. Property, plant and equipment Owned
assets Property, plant and equipment are initially recorded at
cost. Historical cost includes expenditure that is directly
attributable to the acquisition of items. Subsequent costs are
included in the asset's carrying amount or recognized as a separate
asset, as appropriate, only when it is probable that future
economic benefits associated with the asset will flow to the
Company and the cost can be measured reliably. Normal repair and
maintenance expenditures are expensed as incurred. Depreciation
Land and construction in progress are not depreciated. Depreciation
on other assets is provided over the estimated useful lives of the
assets using the following annual rates and methods: Buildings 30
years straight-line Equipment 20% to 30% declining balance Vehicles
30% declining balance Computer hardware 5 years straight-line
Building improvements Over the estimated useful life to a maximum
of 15 years The Company allocates the amount initially recognized
in respect of an item of property, plant and equipment to its
significant parts and depreciates separately each such part.
Residual values, method of depreciation and useful lives of items
of property, plant and equipment are reviewed annually by the
Company and adjusted if appropriate. Gains and losses on disposals
of property, plant and equipment are determined by comparing the
proceeds with the carrying amount of the asset and are included as
part of other expenses in the consolidated income statement. Leased
assets - Leon's is the lessee Leases that are not finance leases
are classified as operating leases and the assets are not
recognized on the Company's consolidated statement of financial
position. Operating lease payments are recognized as an expense in
the consolidated income statement on a straight line basis over the
period of the lease. Leased assets - Leon's is the lessor Assets
leased to third parties under operating leases are classified as
investment property in the consolidated statement of financial
position. They are depreciated over their expected useful lives on
a basis consistent with similar owned investment property. Rental
income (net of any incentives given to lessees) is recognized on a
straight line basis over the period of the lease. Investment
property Assets that are held for long-term rental yields or for
capital appreciation or both, and that are not occupied by either
the Company or any of its subsidiaries, are classified as
investment property. Investment property is measured initially at
its cost, including related transaction costs. After initial
recognition, investment property is carried at cost and is
depreciated over the estimated useful life of the property using
the following annual rates and methods: Buildings 30 years
straight-line Building improvements Over the estimated useful life
to a maximum of 15 years Land held by the Company and classified as
investment property is not depreciated. Subsequent expenditure on
investment property is capitalized to the property's carrying
amount only when it is probable that future economic benefits
associated with the expenditure will flow to the Company and the
cost of the item can be measured reliably. All other repairs and
maintenance costs are expensed when incurred. When part of an
investment property is replaced, the carrying amount of the
replaced part is derecognized. If an investment property becomes
owner-occupied, it is reclassified as property, plant and
equipment. Intangible assets Goodwill Goodwill is the residual
amount that results when the purchase price of an acquired business
exceeds the sum of the amounts allocated to the tangible and
intangible assets acquired, less liabilities assumed, based on
their fair value. Goodwill is assigned as of the date of the
business acquisition. The Company assesses at least annually, or at
any time if an indicator of impairment exists, whether there has
been an impairment loss in the carrying value of goodwill and it is
carried at cost less accumulated impairment losses. Impairment
losses on goodwill are not reversed. Goodwill is allocated to
cash-generating units (CGUs), or groups of CGUs, that are expected
to benefit from the business combination for the purpose of
impairment testing. A group of CGUs represents the lowest level
within the Company at which goodwill is monitored for internal
management purposes. Finite-lived intangible assets Intangible
assets with finite useful lives are amortized on a straight-line
basis over their estimated useful lives using the following annual
rates: Customer relations 8 years Brand name 10 years Non-compete
agreement 8 years Computer software 7 years The Company identifies
and measures intangible assets acquired in business acquisitions
and accounts for these assets separately from goodwill. Impairment
of non-financial assets Property, plant and equipment and finite
lived intangible assets are tested for impairment whenever events
or changes in circumstances indicate that the carrying amount may
not be recoverable. If the estimated recoverable amount of an asset
is less than its carrying amount, the asset is written down to its
estimated recoverable amount and an impairment loss is recognized
in the consolidated income statement. The recoverable amount of an
asset is the higher of its fair value less costs to sell and value
in use. For the purposes of assessing impairment, assets are
grouped at the lowest level for which there are separately
identifiable cash inflows (cash-generating units). Non-financial
assets other than goodwill that suffered impairment are reviewed
for possible reversal of the impairment at each reporting date.
Income taxes Income tax expense for the period comprises current
and deferred income tax. Income tax is recognized in the
consolidated income statement except to the extent it relates to
items recognized in other comprehensive income or directly in
equity in which case the related tax is recognized in equity.
Levies other than income taxes, such as taxes on real estate, are
included in occupancy expenses. Current income tax Current income
tax expense is based on the results of the period as adjusted for
items that are not taxable or not deductible. Current tax is
calculated using tax rates and laws that were substantively enacted
at the end of the reporting period. Management periodically
evaluates positions taken in tax returns with respect to situations
in which applicable tax regulation is subject to interpretation. It
establishes provisions where appropriate on the basis of amounts
expected to be paid to the tax authorities. Deferred income tax
Deferred income tax is recognized, using the liability method, on
temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the statement of
financial position. Deferred income tax is determined using tax
rates (and laws) that have been enacted or substantively enacted by
the consolidated statement of financial position date and are
expected to apply when the related deferred income tax asset is
realized or the deferred income tax liability is settled. Deferred
income tax assets are recognized only to the extent that it is
probable that future taxable profit will be available against which
the temporary differences can be utilized. Deferred income tax
assets and liabilities are offset when there is a legally
enforceable right to offset current income tax assets against
current income tax liabilities and when the deferred income tax
assets and liabilities relate to income taxes levied by the same
taxation authority where there is an intention to settle the
balances on a net basis. Trade and other payables Trade and other
payables are obligations to pay for goods or services that have
been acquired in the ordinary course of business from suppliers.
Trade and other payables are classified as current liabilities if
payment is due within one year or less. Provisions Provisions are
recognized only in those circumstances where the Company has a
present legal or constructive obligation as a result of a past
event, when it is probable that an outflow of resources will be
required to settle the obligation, and a reliable estimate of the
amount can be made. Provisions are measured at the present value of
the expenditures expected to be required to settle the obligation
using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to
the obligation. Share capital Common shares are classified as
equity. Incremental costs directly attributable to the issuance of
new shares are shown in equity as a deduction, net of income tax,
from the proceeds. Revenue recognition Revenue comprises the fair
value of consideration received or receivable for the sale of goods
and services in the ordinary course of the Company's activities.
Revenue is shown net of sales tax and financing charges. The
Company recognizes revenue when the amount of revenue can be
reliably measured and it is probable that future economic benefits
will flow to the Company. In addition to the above general
principles, the Company applies the following specific revenue
recognition policies: Sale of goods Revenue from the sale of goods
is recognized either when the customer picks up the merchandise
ordered or when merchandise is delivered to the customer's home.
Any payments received in advance of delivery are deferred and
recorded as customers' deposits. Extended warranty The Company
recognizes extended warranty plan revenue and costs on a
straight-line basis over the contract period. The service
costs associated with the warranty obligations are expensed as
incurred. Franchise fees Leon's franchisees operate principally as
independent owners. The Company charges each franchisee a
royalty fee based on a percentage of the franchisee's gross
revenue. This royalty income is recorded by the Company on an
accrual basis and presented within revenue. Rent on investment
properties Rental income arising on investment properties is
accounted for on a straight-line basis over the lease term and is
presented within revenue. Sale of gift cards Revenue from the sale
of gift cards is recognized when the gift cards are redeemed and
the customer purchases merchandise, or when the gift cards are no
longer expected to be redeemed, based on an analysis of historical
redemption rates. Payment received in advance of revenue
recognition are deferred and recorded in a separate bank account.
Store pre-opening costs Store pre-opening costs are expensed as
incurred. Earnings per share Basic earnings per share have been
calculated using the weighted average number of common shares
outstanding during the period. Diluted earnings per share are
calculated using the "if converted" method. The dividends
declared on the redeemable share liability under the Company's
Management Share Purchase Plan (the Plan) are included in profit
for the period. The redeemable shares convertible under the
Plan are included in the calculation of diluted number of common
shares to the extent the redemption price was less than the average
annual market price of the Company's common shares. 3. CRITICAL
ACCOUNTING ESTIMATES AND ASSUMPTIONS The Company makes estimates
and assumptions concerning the future. The resulting accounting
estimates will, by definition, seldom equal the related actual
results. The estimates and assumptions that have a significant risk
of causing a material adjustment to the carrying amounts of assets
and liabilities within the next financial period are addressed
below: Revenue recognition Revenue is recognized for accounting
purposes upon the customer either picking up the merchandise or
when merchandise is delivered to the customer's home. The Company
offers 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 this
revenue is deducted from revenue. Inventories The Company estimates
the net realizable value as the amount at which inventories are
expected to be sold by taking into account fluctuations of retail
prices due to prevailing market conditions. If required,
inventories are written down to net realizable value when the cost
of inventories is estimated to not be recoverable due to
obsolescence, damage or declining sales prices. Reserves for slow
moving and damaged inventory are deducted in the Company's
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.
The amount of reserve for damaged inventory is determined by
specific product categories. The amount of inventory recognized as
an expense for the period ended March 31, 2011 was $85,873,000
(period ended March 31, 2010 - $91,134,000) which is presented
within cost of sales on the consolidated income statements. During
the three month period ended March 31, 2011 there was $149,000 in
inventory write-downs (period ended March 31, 2010 - $170,000). At
March 31, 2011, the inventory markdown provision totaled $4,185,000
(At March 31, 2010 - $3,668,000). There were no reversals of any
write-down for the period ended March 31, 2011 (period ended March
31, 2010 - nil). None of the Company's inventory has been pledged
as security for any liabilities of the Company. Extended warranty
Revenue Extended warranty revenue is deferred and taken into
revenue on a straight-line basis over the life of the extended
warranty period. Extended warranty revenue included in revenue for
the three month period ended March 31, 2011 was $4,297,000 (For the
three month period ended March 31, 2010 - $4,105,000). Extended
warranty expenses deducted through cost of sales for the three
month period ended March 31, 2011 were $1,307,000 (For the three
month period ended March 31, 2010 - $1,376,000). 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 revenue. This royalty revenue
is recorded by the Company on an accruals basis and is classified
as revenue within the consolidated income statement. 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 in cost of goods sold as revenue is
recognized. Income taxes The Company computes an income tax
provision. However, actual amounts of income tax expense only
become final upon filing and acceptance of the tax return by the
relevant taxation authorities, which occur subsequent to the
issuance of the consolidated financial statements. Additionally
estimation of income taxes includes evaluating the recoverability
of deferred income tax assets based on an assessment of the ability
to use the underlying future tax deductions before they expire
against future taxable income. The assessment is based upon
existing tax laws and estimates of future taxable income. To the
extent estimates differ from the final tax return, earnings would
be affected in a subsequent period. Impairment of goodwill
Determining whether goodwill is impaired requires an estimation of
the value-in-use of the cash generating unit that the goodwill is
included in. The value-in-use calculation requires the Company to
estimate the future cash flows expected to arise from the cash
generating unit and a suitable discount rate in order to calculate
present value. The significant estimates and assumptions used in
the goodwill impairment tests performed at December 31, 2010 and
January 1, 2010 are disclosed in note 9. 4. FINANCIAL RISK
MANAGEMENT Classification of financial instruments and fair value
The classification of the Company's financial instruments as well
as their carrying amounts and fair values are disclosed in the
table below. March 31, 2011 Other Loans and financial
Available-for- receivables liabilities Total sale [fair [amortized
[amortized carrying Fair value] cost] cost] amount value Financial
Assets Cash and cash equivalents 72,699 72,699 72,699
Available-for-sale financial assets 130,071 130,071 130,071 Trade
receivables 17,262 17,262 17,262 Total 202,770 17,262 220,032
220,032 Financial Liabilities Trade and other payables 47,185
47,185 47,185 Redeemable share liability 382 382 382 Total 47,567
47,567 47,567 December 31, 2010 Other Loans and financial
Available-for- receivables liabilities Total sale [fair [amortized
[amortized carrying Fair value] cost] cost] amount value Financial
Assets Cash and cash equivalents 71,589 71,589 71,589
Available-for-sale financial assets 140,224 140,224 140,224 Trade
receivables 28,569 28,569 28,569 Total 211,813 28,569 240,382
240,382 Financial Liabilities Trade and other payables 71,724
71,724 71,724 Redeemable share liability 172 172 172 Total 71,896
71,896 71,896 For financial instruments recognized in the
consolidated statement of financial position at fair value, the
Company is required to classify fair value measurements using a
fair value hierarchy that reflects the significance of the inputs
used in making the measurements. Fair Values are assessed as: --
Level 1 - Unadjusted quoted prices in active markets for identical
assets or liabilities. An active market for the asset or liability
is a market in which transactions for the asset or liability occur
with sufficient frequency and volume to provide pricing information
on an ongoing basis; -- Level 2 - Observable inputs other than
level 1 prices, such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable
market date for substantially the full term of the assets or
liabilities; and -- Level 3 - Unobservable inputs that are
supported by little or no market activity and that are significant
to the fair value of the assets or liabilities. The following table
presents the Company's financial instruments recognized in the
consolidated statement of financial position at fair value:
Financial Instruments at Fair Value Fair value measurement at March
31, 2011 Level 1 Level 2 Level 3 Cash and cash equivalents 72,699
Available-for-sale financial assets - Bonds - 103,006 -
Available-for-sale financial assets - Equities 27,065 - - 99,764
103,006 - Fair value measurement at December 31, 2010 Level 1 Level
2 Level 3 Cash and cash equivalents 71,589 Available-for-sale
financial assets - Bonds - 117,817 - Available-for-sale financial
assets - Equities 22,407 - - 93,996 117,817 - Fair value
measurement at January 1, 2010 Level 1 Level 2 Level 3 Cash and
cash equivalents 58,301 - Available-for-sale financial assets -
Bonds - 92,894 - Available-for-sale financial assets - Equities
19,531 - - 77,832 92,894 - Risk management The Company is exposed
to various risks associated with its financial
instruments. These risks are summarized as credit risk,
liquidity risk, foreign currency risk, interest rate risk and other
price risk. The significant risks for the Company's financial
instruments are: [i] Credit risk Credit risk arises from cash and
cash equivalents, available-for-sale financial assets and trade
receivables. The Company places its cash and cash equivalents and
available-for-sale financial assets with institutions of high
credit worthiness. Maximum credit risk exposure represents the loss
that would be incurred if all of the Company's counterparties were
to default at the same time. The Company has some credit risk
associated with its trade receivables as it relates to the
Appliance Canada division that is partly mitigated by the Company's
credit management practices. The Company's trade receivables total
$17,262,000 as at March 31, 2011 [as at December 31, 2010 -
$28,569,000 and as at January 1, 2010 - $31,501,000]. The amount of
trade receivables that the Company has determined to be past due
[which is defined as a balance that is more than 90 days past due]
is $143,000 as at March 31, 2011 [as at December 31, 2010 -
$158,000 and as at January 1, 2010 - $439,000] which relates
entirely to the Appliance Canada division. The Company's provision
for impairment of trade receivables, established through on-going
monitoring of individual customer accounts, was $500,000 as at
March 31, 2011 [as at December 31, 2010 - $470,000 and as at
January 1, 2010 - $300,000]. The majority of the Company's sales
are paid through cash, credit card or non-recourse third-party
finance. The Company relies on two third-party credit suppliers to
supply financing alternatives to its customers. [ii] Liquidity risk
The Company has no outstanding borrowings and does not rely upon
available credit facilities to finance operations or to finance
committed capital expenditures. The portfolio of available-for-sale
financial assets consists primarily of actively traded Canadian and
international bonds. There is no immediate need for cash by the
Company from its investment portfolio. The Company expects to
settle its trade and other payables within 30 days of the period
end date. The redeemable share liability does not have any fixed
terms of repayment. [iii] Foreign currency risk The Company is
exposed to foreign currency exchange rate risk. Some merchandise is
paid for in U.S. 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 trade payable in U.S.
dollars. The Company is also exposed to foreign currency exchange
rate risk on its foreign currency denominated portfolio of
available-for-sale financial assets, primarily related to actively
traded international equities. As at March 31, 2011, the Company's
investment portfolio included 10% of foreign currency denominated
assets [as at December 31, 2010 - 8% and as at January 1, 2010 -
8%]. This risk is monitored by the Company's investment managers in
an effort to reduce the Company's exposure to foreign currency
exchange rate risk. [iv] Interest rate risk The Company is exposed
to interest rate risk through its portfolio of available-for-sale
financial assets by holding actively traded Canadian and
international Bonds. As at March 31, 2011, 87% of the Company's
investment portfolio was made up of Canadian and international
Bonds [as at December 31, 2010 - 89% and as at January 1, 2010 -
89%]. This risk is monitored by the Company's investment managers
in an effort to reduce the Company's exposure to interest rate
risk. The exposure to this risk is minimal due to the short-term
maturities of the bonds held. The Company is not subject to any
other interest rate risk. [v] Other price risk The Company is
exposed to fluctuations in the market prices of its portfolio of
available-for-sale financial assets. Changes in the fair value of
the available-for-sale financial assets are recorded, net of income
taxes, in accumulated other comprehensive income. The risk is
managed by the Company and its investment managers by ensuring a
conservative asset allocation of bonds and equities. 5. CAPITAL
RISK 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; and -- utilize
working capital to negotiate favourable supplier agreements both in
respect of early payment discounts and overall payment terms. The
Company is not subject to any externally imposed capital
requirements. 6. CASH AND CASH EQUIVALENTS As at March As at As at
31, December January 2011 31, 2010 1, 2010 Cash at bank or on hand
6,203 19,642 7,620 Short-term investments 66,496 51,947 50,681
72,699 71,589 58,301 7. PROPERTY, PLANT AND EQUIPMENT Computer
Building Land Buildings Equipment Vehicles hardware improvements
Total As at January 1, 2010 Cost 56,156 163,680 34,730 20,853 8,604
78,175 362,198 Accumulated depreciation - 86,277 23,112 16,726
7,297 25,133 158,545 Net book value 56,156 77,403 11,618 4,127
1,307 53,042 203,653 Year ended December 31, 2010 Opening net book
value 56,156 77,403 11,618 4,127 1,307 53,042 203,653 Additions 45
11,685 1,323 484 347 98 13,982 Disposals 870 - - 437 - - 1,307
Depreciation - 7,024 1,340 826 537 5,109 14,836 Closing net book
value 55,331 82,064 11,601 3,348 1,117 48,031 201,492 As at
December 31, 2010 Cost 55,331 175,365 36,053 20,900 8,951 78,273
374,873 Accumulated depreciation - 93,301 24,452 17,552 7,834
30,242 173,381 Net book value 55,331 82,064 11,601 3,348 1,117
48,031 201,492 Three month period ended March 31, 2011 Opening net
book value 55,331 82,064 11,601 3,348 1,117 48,031 201,492
Additions - 3,605 71 85 - 1,763 5,524 Disposals - - - - - - -
Depreciation - 884 419 257 132 1,272 2,964 Closing net book value
55,331 84,785 11,253 3,176 985 48,522 204,052 As at March 31, 2011
Cost 55,331 178,970 36,124 20,985 8,951 80,036 380,397 Accumulated
depreciation - 94,185 24,871 17,809 7,966 31,514 176,345 Net book
value 55,331 84,785 11,253 3,176 985 48,522 204,052 All assets
relating to March 31, 2011 are being depreciated. Included in
the above balances for December 31, 2010 are assets not being
amortized with a net book value of approximately $2,400,000 being
construction-in-progress. 8. INVESTMENT PROPERTIES Investment
properties consist of the following: Building Land Buildings
improvements Total At January 1, 2010 Cost 8,286 8,039 1,494 17,819
Accumulated depreciation - 8,039 1,235 9,274 Net book value 8,286 -
259 8,545 Year ended December 31, 2010 Opening net book value 8,286
- 259 8,545 Additions - - - - Disposals - - 37 37 Depreciation
charge - - 91 91 Closing net book value 8,286 - 131 8,417 At
December 31, 2010 Cost 8,286 8,039 1,457 17,782 Accumulated
depreciation - 8,039 1,326 9,365 Net book value 8,286 - 131 8,417
Three month period ended March 31, 2011 Opening net book value
8,286 - 131 8,417 Additions - - - - Disposals - - - - Depreciation
charge - - 13 13 Closing net book value 8,286 - 118 8,404 At March
31, 2011 Cost 8,286 8,039 1,457 17,782 Accumulated depreciation -
8,039 1,339 9,378 Net book value 8,286 - 118 8,404 The fair value
of the Company's investment property portfolio as at March 31, 2011
was $29,748,701 [as at December 31, 2010 - $29,748,701]. The fair
value was determined internally by management based on available
market evidence. 9. INTANGIBLE ASSETS Customer Brand Non-compete
Computer relationships name Agreement software Total As at January
1, 2010 Cost 2,000 2,500 1,000 3,896 9,396 Accumulated amortization
500 500 250 2,812 4,062 Net book value 1,500 2,000 750 1,084 5,334
Year ended December 31, 2010 Opening net book value 1,500 2,000 750
1,084 5,334 Additions — — — — — Disposals — — — — — Amortization
charge 250 250 125 Closing net book value 1,250 1,750 625 1,277
4,902 As at December 31, 2010 Cost 2,000 2,500 1,000 4,266 9,766
Accumulated amortization 750 750 375 2,989 4,864 Net book value
1,250 1,750 625 1,277 4,902 Three month period ended March 31, 2011
Opening net book value 1,250 1,750 625 1,277 4,902 Additions — — —
— — Disposals — — — — — Amortization charge 63 62 31 65 221 Closing
net book value 1,187 1,688 594 1,212 4,681 As at March 31, 2011
Cost 2,000 2,500 1,000 4,266 9,766 Accumulated amortization 813 812
406 3,054 5,085 Net book value 1,187 1,688 594 1,212 4,681
Impairment test of goodwill The Company performed impairment tests
of goodwill at December 31, 2010 and January 1, 2010 in accordance
with the accounting policy as described in note 2 and IFRS
transitional provisions. The recoverable amount of the Appliance
Canada cash generating unit (CGU), where all goodwill is allocated,
was determined based on value-in-use calculations. These
calculations used cash flow projections based on financial budgets
approved by management covering a one year period. Cash flows
beyond the one year period are extrapolated using the estimated
growth rates stated below. The key assumptions used for the
value-in-use calculation at December 31, 2010 and January 1, 2010
were as follows: Growth rate Discount rate % % December 31, 2010
2.0 9.70 January 1, 2010 3.0 9.91 The impairment test performed
resulted in no impairment of the goodwill at December 31, 2010 or
January 1, 2010. 10. TRADE AND OTHER PAYABLES As at As at As at
March 31, December January 1, 2011 31, 2010 2010 Trade payables
40,048 60,127 69,495 Other payables 7,137 11,597 3,108 47,185
71,724 72,603 11. PROVISIONS Profit sharing and bonuses Vacation
pay Totals As at January 1, 2010 10,775 502 11,277 Charged to the
consolidated income statement Additional provisions 12,029 341
12,370 Unused amounts reversed (747) - (747) Used during the year
(10,057) (502) (10,559) As at December 31, 2010 12,000 341 12,341
Charged to the consolidated income statement 12,000 341 12,341
Additional provisions 1,913 1,039 2,952 Unused amounts reversed
(306) - (306) Used during the three month period (4,294) - (4,294)
As at March 31, 2011 9,313 1,380 10,693 Profit sharing and bonuses
The provision for profit sharing and bonuses is payable within four
months of the finalization of the annual audited consolidated
financial statements. Vacation pay The provision for vacation pay
represents employee entitlements to untaken vacation at the
consolidated statement of financial position date. 12. REDEEMABLE
SHARE LIABILITY As at As at As at March 31, December 31, January 1,
2011 2010 2010 Authorized 2,284,000 convertible, non-voting, series
2002 shares 806,000 convertible, non-voting, series 2005 1,224,000
convertible, non-voting, series 2009 shares Issued 742,133 series
2002 shares [December 31, 2010 - 813,331 and January 1, 2010 -
969,033] 5,334 5,846 6,965 574,807 series 2005 shares [December 31,
2010 - 620,793 and January 1, 2010 - 689,513] 5,428 5,862 6,511
1,168,124 series 2009 shares [December 31, 2010 - 1,168,124 and
January 1, 2010 - 1,207,000] 10,339 10,339 10,683 Less employee
share purchase loans (20,719) (21,875) (23,776) 382 172 383 Under
the terms of the Plan, the Company advanced non-interest bearing
loans to certain of its employees in 2002, 2005 and 2009 to allow
them to acquire convertible, non-voting, series 2002 shares, series
2005 shares and series 2009 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 2002,
2005 and 2009 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. Series 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 and series 2009 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 and series 2009 shares at
any time after the fifth anniversary date of the issue of these
shares and must redeem them 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 $7.19 per series 2002 share, $9.44 per series 2005 share
and $8.85 per series 2009 share. Dividends paid to holders of
series 2002, 2005 and 2009 shares of approximately $471,000
[2010 - $401,000] have been used to reduce the respective
shareholder loans. During the period ended March 31, 2011, 71,198
series 2002 shares [period ended March 31, 2010 - 57,583]
and 45,986 series 2005 shares [period ended March 31, 2010 -
nil] were converted into common shares with a stated value of
approximately $512,000 [period ended March 31, 2010 -
$414,000] and $434,000 [period ended March 31, 2010 - nil],
respectively. 13. COMMON SHARES As at As at As at December January
March 31, 31, 1, 2011 2010 2010 Authorized Unlimited common shares
Issued 70,095,257 common shares [December 31, 2010 - 70,075,333 and
January 1, 2010 - 70,477,611] 20,117 19,177 17,704 During the three
month period ended March 31, 2011, 71,198 series 2002 shares
[period ended March 31, 2010 - 57,583] and 45,986 series 2005
shares [period ended March 31, 2010 - nil] were converted into
common shares with a stated value of approximately $512,000 [period
ended March 31, 2010 - $414,000] and $434,000 [period ended
March 31, 2010 - $nil], respectively. During the three month
period ended March 31, 2011, the Company repurchased 51,274 [period
ended March 31, 2010 - nil] of its common shares on the open
market pursuant to the terms and conditions of Normal Course Issuer
Bids at a net cost of approximately $715,000 [period ended March
31, 2010 - nil]. All shares repurchased by the Company
pursuant to its Normal Course Issuer Bids have been
cancelled. The repurchase of common shares resulted in a
reduction of share capital in the amount of approximately $6,000
[period ended March 31, 2010 - nil]. The excess net cost
over the average carrying value of the shares of approximately
$709,000 [period ended March 31, 2010 - nil] has been recorded
as a reduction in retained earnings. The dividends paid for the
three month periods ended March 31, 2011 and March 31, 2010 were
$6,310,000 [$0.09 per share] and $4,938,000 [$0.07 per share]
respectively. 14. REVENUE Three month Three month period period
Year ended ended March ended March 31, December 31, 31, 2011 2010
2010 Sale of goods by corporate stores 143,771 154,536 682,248
Royalty income from franchisees 2,531 2,680 10,663 Extended
warranty revenue 4,297 4,105 16,838 Rental income from investment
property 184 149 686 150,783 161,470 710,435 15. OPERATING EXPENSES
BY NATURE Three month Three month period period Year ended ended
March ended March 31, December 31, 31, 2011 2010 2010 Depreciation
of property, plant and equipment and investment properties 2,977
3,781 15,354 Amortization of intangible assets 221 187 802
Operating lease payments 791 907 3,300 Foreign exchange (gains)
losses 481 609 722 Gain on disposal of property, plant and
equipment - 4 1,231 16. INCOME TAX EXPENSE Three month Three month
period period Year ended ended March ended March 31, December 31,
31, 2011 2010 2010 Current income tax expense 3,885 5,206 26,606
Deferred income tax expense 71 349 295 3,956 5,555 26,901 Income
tax expense is recognized based on management's best estimate of
the weighted average annual income tax rate expected for the full
financial year. The estimated average annual rates used for the
three month periods ended March 31, 2011 and March 31, 2010
were 28.5% and 30.5%, respectively. 17. EARNINGS PER SHARE Earnings
per share are calculated using the weighted average number of
shares outstanding. The weighted average number of shares used in
the basic earnings per share calculations amounted to 70,148,298
for the three month period ended March 31, 2011 (three month period
ended March 31, 2010 - 70,514,424). The following table reconciles
the profit for the period and the number of shares for the basic
and diluted earnings per share calculations: Three month period
ended March 31, 2011 Profit for the period Weighted attributed
average to common number of Per share shareholders shares amount
Basic 9,827 70,148,298 0.14 Diluted 9,827 72,677,581 0.14 Three
month period ended March 31, 2010 Profit for the period Weighted
attributed average to common number of Per share shareholders
shares amount Basic 11,446 70,514,424 0.16 Diluted 11,446
73,343,055 0.16 18. COMMITMENTS AND CONTINGENCIES [a] The cost to
complete all construction-in-progress as at March 31, 2011 totals
$11,139,000 at four locations [At December 31, 2010 - to complete
at two locations at an approximate cost of $9,609,000]. [b] The
Company is obligated under operating leases for future minimum
annual rental payments for certain land and buildings as follows:
No later than 1 year 5,240 Later than 1 year and no later than 5
years 18,811 Later than 5 years 21,008 45,059 [c] The future
minimum lease payments receivable under non-cancellable operating
leases for certain land and buildings classified as investment
property are as follows: No later than 1 year 712 Later than 1 year
and no later than 5 years 2,027 Later than 5 years 427 3,166 [d]
The Company has issued approximately $853,000 in letters of credit
primarily with respect to buildings under construction which were
completed during the year ended December 31, 2010. [e] Pursuant to
a reinsurance agreement relating to the extended warranty sales,
the Company has pledged available-for-sale financial assets
amounting to $18,610,000 [as at December 31, 2010 - $19,498,000 and
as at January 1, 2010 - $18,088,000] and provided a letter of
credit of $1,500,000 [as at December 31, 2010 - $1,500,000] for the
benefit of the insurance company. 19. CONSOLIDATED STATEMENTS OF
CASH FLOWS [a] The net change in non-cash working capital balances
related to operations consists of the following: Three month period
Three month period ended March 31, ended March 31, 2011 2010 Trade
receivables 11,307 10,436 Inventory 6,979 (1,665) Prepaid expenses
13 (43) Trade and other payables (27,186) (16,000) Provisions
(1,648) (1,831) Income taxes payable (3,044) (3,166) Customers'
deposits 64 (926) (13,515) (13,195) [b] Supplemental cash flow
information: Three month Three month period period ended March 31,
ended March 31, 2011 2010 Income taxes paid 7,118 8,871 [c] During
the period, property, plant and equipment were acquired at an
aggregate cost of $5,524,000 [2010 - $370,000], of which $3,184,000
[2010 - $536,000] is included in trade and other payables as at
December 31, 2010. 20. RELATED PARTY TRANSACTIONS Key management
compensation Key management includes the Directors and the five
senior executives of the Company. The compensation expense paid to
key management for employee services during each period is shown
below: Three month period Three month period ended March 31, 2011
ended March 31, 2010 Salaries and other short-term employee
benefits 689 735 Other long-term benefits 31 32 720 767 21.
TRANSITION TO IFRS The Company's financial statements for the year
ending December 31, 2011 will be the first annual financial
statements that comply with IFRS and these condensed interim
consolidated financial statements were prepared as described in
note 2, including the application of IFRS 1. IFRS 1 requires an
entity to adopt IFRS in its first annual financial statements
prepared under IFRS by making an explicit and unreserved statement
in those financial statements of compliance with IFRS. The Company
will make this statement when it issues its 2011 annual financial
statements. IFRS 1 also requires that comparative financial
information be provided. As a result, the first date at which the
Company has applied IFRS was January 1, 2010 (the "Transition
Date"). IFRS 1 requires first-time adopters to retrospectively
apply all effective IFRS standards as of the reporting date, which
for the Company will be December 31, 2011. However, it also
provides for certain optional exemptions and certain mandatory
exceptions for first time IFRS adopters. The effect of the
Company's transition to IFRS is summarized in this note as follows:
a) Transition elections The Company has applied the following
transition exceptions and exemptions to full retrospective
application of IFRS: Business Combinations - In accordance with
IFRS transitional provisions, the Company elected to apply IFRS
relating to business combinations prospectively from January 1,
2010. As such, Canadian GAAP balances relating to the acquisition
of Appliance Canada Ltd. on January 2, 2008, including goodwill,
have been carried forward without adjustment. Share-based Payments
- In accordance with IFRS transitional provisions, the Company
elected not to apply IFRS 2, Share-based Payments, to
convertible shares issued under the Management Share Purchase Plan
that were still outstanding at January 1, 2010 but had fully
vested. Estimates - Hindsight is not used to create or revise
estimates. The estimates previously made by the Company under
Canadian GAAP were not revised for application of IFRS except where
necessary to reflect any difference in accounting policies. b)
Effect of material transition adjustments on the consolidated
statement of financial positions, consolidated income statements,
consolidated statements of comprehensive income and consolidated
statements of cash flows i. Consolidated Statements of Financial
Position As at December 31, 2010 As at March 31, 2010 As at January
1, 2010 Cdn. Cdn. Cdn. GAAP Adj. IFRS GAAP Adj. IFRS GAAP Adj. IFRS
ASSETS Current Cash and cash equivalents 71,589 — 71,589 39,635 —
39,635 58,301 — 58,301 Available-for-sale financial assets 140,224
— 140,224 128,623 — 128,623 112,425 — 112,425 Trade receivables
28,569 — 28,569 21,065 — 21,065 31,501 — 31,501 Income taxes
receivable — — — 1,209 — 1,209 Inventory 85,423 — 85,423 85,622 —
85,622 83,957 — 83,957 Deferred income tax assets [note a] 1,251
(1,251) — 903 (903) — 1,133 (1,133) — Total current assets 327,056
(1,251) 325,805 277,057 (903) 276,154 287,317 (1,133) 286,184 Other
assets 1,574 — 1,574 1,603 — 1,603 1,560 — 1,560 Property, plant
and equipment [note b] 209,909 (8,417) 201,492 208,786 (8,521)
200,265 212,198 (8,545) 203,653 Investment properties [note b] —
8,417 8,417 — 8,521 8,521 — 8,545 8,545 Intangible assets 4,902 —
4,902 5,404 — 5,404 5,334 — 5,334 Goodwill 11,282 — 11,282 11,282 —
11,282 11,282 — 11,282 Deferred income tax assets [note a] 11,951
1,251 13,202 11,521 903 12,424 11,465 1,133 12,598 Total assets
566,674 — 566,674 515,653 — 515,653 529,156 — 529,156 LIABILITIES
AND SHAREHOLDERS' EQUITY Current Trade and other payables [note c]
84,065 (12,341) 71,724 66,024 (9,446) 56,578 83,880 (11,277) 72,603
Provisions [note c] — 12,341 12,341 — 9,446 9,446 — 11,277 11,277
Income taxes payable 524 — 524 — — — 1,958 — 1,958 Customers'
deposits 17,198 — 17,198 14,705 — 14,705 15,632 — 15,632 Dividends
payable 6,310 — 6,310 4,937 — 4,937 4,938 — 4,938 Deferred warranty
plan revenue 16,882 — 16,882 16,121 — 16,121 16,150 — 16,150 Total
current liabilities 124,979 — 124,979 101,787 — 101,787 122,558 —
122,558 Deferred warranty plan revenue 21,392 — 21,392 22,096 —
22,096 22,248 — 22,248 Redeemable share liability 172 — 172 241 —
241 383 — 383 Deferred income tax liabilities [note a,d] 9,845 —
9,845 9,073 — 9,073 8,829 — 8,829 Total liabilities 156,388 —
156,388 133,197 — 133,197 154,018 — 154,018 Shareholders' equity
attributable to the shareholders of the Company Common shares
19,177 — 19,177 18,117 — 18,117 17,704 — 17,704 Retained earnings
[note d] 390,629 (1,005) 389,624 364,609 (907) 363,702 357,576
(384) 357,192 Accumulated other comprehensive income (loss) [note
d] 480 1,005 1,485 (270) 907 637 (142) 384 242 Total shareholders'
equity 410,286 — 410,286 382,456 — 382,456 375,138 — 375,138 Total
liabilities and shareholder's equity 566,674 — 566,674 515,653 —
515,653 529,156 — 529,156 ii. Consolidated Statements of Changes in
Equity As at December 31, 2010 As at March 31, 2010 Cdn. Cdn. GAAP
Adj. Reclasses IFRS GAAP Adj. Reclasses IFRS Revenue [note e]
699,772 10,663 710,435 158,791 2,679 161,470 Cost of sales 412,379
412,379 93,498 93,498 Gross profit 287,393 — 10,663 298,056 65,293
— 2,679 67,972 Operating expenses [note f] General and
administrative expenses — — 98,684 98,684 — — 23,293 23,293 Sales
and marketing expenses — — 78,221 78,221 — — 18,572 18,572
Occupancy expenses — — 29,551 29,551 — — 7,630 7,630 Other
operating expenses [note d] — 722 5,780 6,502 — 609 1,558 2,167
Salaries and commissions 105,368 — (105,368) — 24,723 — (24,723) —
Advertising 31,565 — (31,565) — 7,590 — (7,590) — Rent and property
taxes 14,000 — (14,000) — 3,488 — (3,488) — Amortization 16,156 —
(16,156) — 3,968 — (3,968) — Employee profit-sharing plan 4,746 —
(4,746) — 1,162 — (1,162) — Other operating expenses 41,495 —
(41,495) — 10,323 — (10,323) — Interest income (3,134) — 3,134 —
(691) — 691 — Other income (12,988) — 12,988 — (2,880) — 2,880 —
197,208 722 15,028 212,958 47,683 609 3,370 51,662 Operating profit
90,185 (722) (4,365) 85,098 17,610 (609) (691) 16,310 Gain on
disposal 1,231 1,231 Finance income — — 3,134 3,134 — — 691 691
Profit before income tax 90,185 (722) — 89,463 17,610 (609) —
17,001 Income tax expense [note d] 26,901 (102) 26,799 5,640 (85)
5,555 Profit for the period attributable to the shareholders of the
Company 63,284 (620) — 62,664 11,970 (524) — 11,446 iii.
Consolidated Statements of Comprehensive Income Year ended December
31, Three month period 2010 ended March 31, 2010 Cdn. Cdn. GAAP
Adj. IFRS GAAP Adj. IFRS Profit for the period 63,284 (620) 62,664
11,970 (524) 11,446 Other comprehensive income, net of tax
Unrealized gains on available-for-sale financial assets arising
during the period [note d] 773 620 1,393 (248) 524 276
Reclassification adjustment for net gains and losses included in
profit for the period (151) — (151) 120 — 120 Change in unrealized
gains on available-for-sale financial assets arising during the
period 622 620 1,242 (128) 524 396 Comprehensive income for the
period attributable to the Shareholders of the Company 63,906 —
63,906 11,842 — 11,842 iv. Explanatory notes a. Classification of
deferred income tax - Under IFRS, it is not appropriate to classify
deferred income tax balances as current, irrespective of the
classification of the financial assets or financial liabilities to
which the deferred income tax relates or the expected timing of
reversal. Under Canadian GAAP, deferred income tax relating to
current assets or current liabilities must be classified as
current. Accordingly, current deferred income tax reported under
Canadian GAAP of $1,133,000 at January 1, 2010, $903,000 at March
31, 2010 and $1,251,000 at December 31, 2010 has been reclassified
to non-current assets under IFRS. b. Investment properties - Under
IFRS, where items of property, plant and equipment are held to earn
rental income or for capital appreciation or both, they are
classified separately on the consolidated statement of financial
position as investment property. The Company has reclassified
certain items of its land, buildings and building improvements to
investment property on transition to IFRS. The Company has chosen
to account for its investment property under the cost model with
information on fair value being disclosed in the notes to the
consolidated financial statements. This adjustment resulted in
$8,417,000, $8,521,000 and $8,545,000 of net book value being
reclassified from property plant and equipment to investment
property at December 31, 2010, March 31, 2010 and January 1, 2010
respectively. c. Provisions - Under IFRS, provisions are required
to be disclosed on the face of the consolidated statement of
financial position with a more detailed breakdown included in the
notes. Under Canadian GAAP, contingencies were included within
trade and other payables. Trade and other payables have been
decreased and provisions increased by $11,277,000 at January 1,
2010, $9,446,000 at March 31, 2010 and $12,341,000 at December 31,
2010 in relation to profit sharing and bonuses and vacation pay
provided for. These are further disclosed in note 11. d.
Available-for-sale financial assets - Under IFRS, changes in the
fair value of available-for-sale financial assets are bi-furcated
with foreign exchange gains and losses arising on translation being
recorded through the consolidated income statement and changes in
the underlying prices being recorded through other comprehensive
income. Under Canadian GAAP, all changes in the fair value of
available-for-sale financial assets (including foreign exchange
gains or losses) are recognized directly in other comprehensive
income. At January 1, 2010 this resulted in a reclassification
between accumulated other comprehensive income and retained
earnings of $384,000. For the three month period ended March 31,
2010 and year ended December 31, 2010 this resulted in a reduction
in other comprehensive income and an increase in foreign exchange
losses within other operating expenses of $609,000 and $722,000
respectively. e. Franchisee royalty revenue - Under IFRS, royalties
received from the Company's franchisees meets the definition of
revenue under IAS 18 - Revenue. Under Canadian GAAP they were
classified as other income on the consolidated income statement.
The Company has reclassified the royalties received from other
income to revenue on transition to IFRS. This adjustment resulted
in a reclassification of $10,663,000 for the year ended December
31, 2010 and $2,679,000 for the three month period ended March 31,
2010. f. Operating expenses - These expense categories have been
reclassified to meet the function of expense presentation under
IFRS. v. Consolidated Statements of Cash Flows The transition from
Canadian GAAP to IFRS had no significant impact on the cash flows
generated by the Company. 21. APPROVAL OF THE FINANCIAL STATEMENTS
The condensed consolidated financial statements for the three
months ended March 31, 2011 were approved and authorized for
issuance by the Board of Directors on May 19, 2011.
To view this news release in HTML formatting,
please use the following URL:
http://www.newswire.ca/en/releases/archive/May2011/19/c5476.html p
Dominic Scarangella, Tel: 416.243.4073. /p
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