LNF Leons Furniture Ltd

TORONTO, Nov. 14, 2011 /CNW/ - For the three months ended September 30, 2011, total Leon's sales were $223,646,000 including $49,273,000 of franchise sales ($231,546,000 including $49,421,000 franchise sales in 2010), a decrease of 3.4% from the third quarter 2010.  Net income was $16,956,000, 24¢ per common share ($17,837,000, 25¢ per common share in 2010), a decrease of 4.0% per common share. The third quarter 2010 includes an after tax gain of $1,050,000 on the sale of property (1.5¢ per common share). For the nine months ended September 30, 2011, total Leon's sales were $624,572,000 including $135,559,000 of franchise sales ($649,789,000 including $137,242,000 of franchise sales in 2010), a decrease of 3.9% and net income was $37,927,000, 54¢ per common share ($41,583,000, 59¢ per common share in 2010), a decrease of 8.5% per common share. We continue to face a difficult economy, with decreasing new housing starts and record consumer debt. That being said, we are pleased with the efforts of our associates to continue to find ways of improving productivity and controlling expenses. In the third quarter of 2011, the Company celebrated the grand opening of a new corporate store in Guelph, Ontario. That was followed by grand openings in the fourth quarter of 2011 of three additional corporate stores in Mississauga, Ontario; Rosemère, Quebec; and Regina, Saskatchewan. As well, during the fourth quarter of 2011 new Leon's franchise locations had grand openings in Bathurst, New Brunswick; and Drummondville, Quebec, our first franchise located in Quebec. In addition to these new locations, the Company and our existing franchisees continue to replace, renovate and expand existing stores in order to serve our customers better. Renovations are well underway in our Sudbury and Sault Ste. Marie, Ontario corporate stores. Our Trenton, Ontario franchise recently completed a renovation of their store and a renovation and expansion will commence shortly at our Simcoe, Ontario franchise. Our Kentville franchise has recently completed construction of a new and larger replacement store in Coldbrook, Nova Scotia. Finally, construction has started for a brand new franchise store to replace our existing St. John, New Brunswick store. The Company continues to explore new opportunities across Canada. The Company has recently secured sites for four new corporate stores in: Orangeville and Brantford, Ontario; Sherbrooke, Quebec; and Rocky View County, which is just north of Calgary, Alberta. Our current plan is to open these locations during 2012 and 2013. All funding for new store projects and renovations is scheduled to come from our existing cash resources. In light of our strong financial position, the Directors are pleased to declare an increase in the quarterly dividend from 9¢ per common share to 10¢ per common share payable on January 9, 2012 to the shareholders of record at the close of business on December 9, 2011. The Directors have also increased the annual dividend on the convertible non-voting series shares from 18¢ to 20¢, which will be payable on January 9, 2012 to the shareholders of record at the close of business on December 9, 2011. In addition, due to our positive cash position, the Directors are pleased to declare a special dividend of 15¢ per common share payable on January 9, 2012 to the shareholders of record at the close of business on December 9, 2011. 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. For further information, please consult the Company's Management Discussion & Analysis dated November 14, 2011. EARNINGS PER SHARE FOR EACH QUARTER MARCH 31 JUNE 30 SEPT. 30 DEC. 31 YEAR TOTAL 2011 - Basic 14¢ 16¢ 24¢ $0.54 - Fully Diluted 14¢ 15¢ 23¢ $0.52 2010 - Basic 16¢ 17¢ 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 LEON'S FURNITURE LIMITED - MEUBLES LEON LTEE Mark J. Leon Chairman of the Board MANAGEMENT'S DISCUSSION AND ANALYSIS For the three months ended September 30, 2011 and 2010 Dated: November 14, 2011 The MD&A should be read in conjunction with i) the Company's 2010 audited consolidated financial statements and the related notes and MD&A, ii) the Company's unaudited interim consolidated financial statements for the three months ended March 31, 2011 and the related notes and MD&A and iii) the Company's unaudited interim condensed consolidated financial statements for the nine months ended September 30, 2011 and the related notes. Cautionary Statement Regarding Forward-Looking Statements This Management's Discussion and Analysis ("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. This MD&A, and in particular the section under heading "Outlook", includes forward-looking statements, which are based on certain assumptions and reflect Leon's Furniture Limited's current plans and expectations. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results and future prospects 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. Readers of this report are cautioned that actual events and results may vary. Financial Statements Governance Practice Leon's Furniture Limited's unaudited interim condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and incorporate the requirements of International Accounting Standards ("IAS") 34, Interim financial reporting and IFRS 1, First time adoption of IFRS. 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 be in accordance with IFRS. The Audit Committee of the Board of Directors of Leon's Furniture Limited reviewed the MD&A and the unaudited interim condensed consolidated financial statements, and recommended that the Board of Directors approve them. Following review by the full Board, the unaudited interim condensed consolidated 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 43 corporate and 32 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 September 30, 2011, total Leon's sales were $223,646,000 including $49,273,000 of franchise sales ($231,546,000 including $49,421,000 of franchise sales in 2010), a decrease of 3.4%. Leon's corporate sales of $174,373,000 in the third quarter of 2011, decreased by $7,752,000, or 4.3%, compared to the third quarter of 2010.  The decrease in sales in the third quarter compared to the prior year reflected a continuation of waning consumer confidence, a decrease in housing starts, and an overall increase in consumer debt resulting in reduced consumer spending. Same store corporate sales decreased by 6.2% compared to the prior year. Comparable store sales are defined as sales generated by stores that have been open or closed for more than 12 months on a yearly basis. Leon's franchise sales of $49,273,000 in the third quarter of 2011 are virtually the same as the third quarter of 2010. Our gross margin for the third quarter 2011 of 42.2% increased by 0.7% from the third quarter of 2010. We experienced some improvement in most product category margins aided by the reduction in import costs due to a strong Canadian dollar during most of the third quarter. Net operating expenses of $50,930,000 were down $1,813,000 or 3.4% for the third quarter of 2011 compared to the third quarter of 2010. General and administrative expenses were down by 1.4% in the quarter compared to the prior year's quarter. The decrease was mainly the result of lower depreciation cost on buildings. Under IFRS, buildings are now depreciated over a useful life of 30 years which resulted in a depreciation expense reduction of approximately $700,000 compared to the same quarter 2010. Selling expenses are down 3.0% compared to the same quarter in 2010. The decrease is the result of lower commissions paid on reduced sales in comparison to the prior year. Actual marketing expenses were flat compared to the prior year quarter. Occupancy expenses were up 13.8% from the prior year quarter. The increase in expenses is mainly the result of our new store addition in Thunder Bay in the fourth quarter of 2010 along with an increase in repairs and maintenance related to roof repairs. Other operating expenses in the quarter decreased by $1,893,000 compared to the same quarter in 2010. The strength in the US dollar in comparison to the Canadian dollar at the end of the third quarter resulted in a $1,705,000 unrealized foreign exchange gain on investments, which is recorded in other operating expenses. As a result of the above, net income for the third quarter of 2011 was $16,956,000, 24¢ per common share ($17,837,000, 25¢ per common share in 2010), a decrease of 4.0% per common share. The third quarter of 2010 includes an after tax gain on sale of property of 1.5 ¢ per common share. For the nine months ended September 30, 2011, total Leon's sales were $624,572,000 including $135,559,000 of franchise sales ($649,789,000 including $137,242,000 of franchise sales in 2010), a decrease of 3.9% and net income was $37,927,000, 54¢ per common share ($41,583,000, 59¢ per common share in 2010), a decrease of 8.5% per common share. Annual Financial Information ($ 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's 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 $0.18 $0.14 $0.14 declared * The year ended 2010 has been restated to IFRS while years ended 2009 and 2008 are as originally reported under Canadian Generally Accepted Accounting Principles ("Canadian GAAP"). Liquidity and Financial Resources ($ in thousands, except Sept 30/11 Dec. 31/10 Sept 30/10 dividends per share) Cash, cash equivalents, 207,696 211,813 182,260 available-for-sale financial assets Trade and other accounts 18,724 28,569 20,627 receivable Inventory 85,872 85,423 97,852 Total assets 569,916 566,674 543,238 Working capital 200,499 200,826 186,727 For the 3 months ended Current Quarter Prior Quarter Prior Quarter Sept 30/11 Dec. 31/10 Sept 30/10 Cash flow provided by 26,857 42,633 15,299 operations Purchase of property, plant 9,386 5,502 3,100 and equipment Repurchase of capital stock 1,615 1,800 5,419 Dividends paid 6,305 6,309 4,936 Dividends paid per share $0.09 $0.09 $0.07 In the third quarter of 2011, the Company celebrated a grand opening of a new corporate store in Guelph, Ontario. That was followed by grand openings in the fourth quarter of 2011 of three additional corporate stores in Mississauga, Ontario; Rosemère, Quebec; and Regina, Saskatchewan. As well, during the fourth quarter of 2011 new Leon's franchise locations had grand openings in Bathurst, New Brunswick; and Drummondville, Quebec, our first franchise located in Quebec. In addition to these new locations, the Company and our existing franchisees continue to replace, renovate and expand existing stores in order to serve our customers better. Renovations are well underway in our Sudbury and Sault Ste. Marie, Ontario corporate stores. Our Trenton, Ontario franchise recently completed a renovation of their store and a renovation and expansion will commence shortly at our Simcoe, Ontario franchise. Our Kentville franchise has recently completed construction of a new and larger replacement store in Coldbrook, Nova Scotia. Finally, construction has started for a brand new franchise store to replace our existing St. John, New Brunswick store. The Company continues to explore new opportunities across Canada. The Company has recently secured sites for four new corporate stores in: Orangeville and Brantford, Ontario; Sherbrooke, Quebec; and Rocky View County, which is just north of Calgary, Alberta. Our current plan is to open these locations during 2012 and 2013. All funding for new store projects and renovations are planned 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 | | | September 30 | June 30 | March 31 | December 31 | |_________|_______________|_______________|_______________|_______________| | | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2010 | 2009 | |_________|_______|_______|_______|_______|_______|_______|_______|_______| |Leon's |174,373|182,125|163,857|168,952|150,783|161,470|197,888|197,986| |corporate| | | | | | | | | |sales | | | | | | | | | |_________|_______|_______|_______|_______|_______|_______|_______|_______| |Leon's | 49,273| 49,421| 45,477| 45,493| 40,809| 42,328| 59,820| 57,679| |franchise| | | | | | | | | |sales | | | | | | | | | |_________|_______|_______|_______|_______|_______|_______|_______|_______| |Total |223,646|231,546|209,334|214,445|191,592|203,798|257,168|255,665| |Leon's | | | | | | | | | |sales | | | | | | | | | |_________|_______|_______|_______|_______|_______|_______|_______|_______| |Net | $0.24| $0.25| $0.16| $0.17| $0.14| $0.16| $0.30| $0.34| |income | | | | | | | | | |per share| | | | | | | | | |_________|_______|_______|_______|_______|_______|_______|_______|_______| |Fully | $0.23| $0.24| $0.15| $0.17| $0.14| $0.16| $0.29| $0.33| |diluted | | | | | | | | | |per share| | | | | | | | | |_________|_______|_______|_______|_______|_______|_______|_______|_______| 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 unaudited interim condensed consolidated 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 interim condensed consolidated financial statements for the period ended March 31, 2011, which have been filed on SEDAR. The following table provides selected restated 2010 results by quarter. Interim and Annual 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 23,293 25,432 24,484 25,475 98,684 expenses 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 1,934 6,634 51,662 51,715 52,743 56,970 213,090 Operating profit 16,310 17,050 22,818 28,788 84,966 Gain on sale of capital - - 1,231 - 1,231 property Finance income 691 663 789 991 3,134 Profit before income tax 17,001 17,713 24,838 29,779 89,331 Income tax expense 5,555 5,413 7,001 8,812 26,781 Profit for the period attributable to the 11,446 12,300 17,837 20,967 62,550 shareholders of the Company Earnings per share Basic $ 0.16 $ 0.17 $ 0.25 $ 0.30 $ 0.89 Diluted $ 0.16 $ 0.17 $ 0.24 $ 0.29 $ 0.86 Disclosure Controls & Procedures Management is responsible for establishing and maintaining a system of disclosure controls and procedures to provide reasonable assurance that all material information relating to the Company is gathered and reported on a timely basis to senior management, including the Chief Executive Officer and Chief Financial Officer so that appropriate decisions can be made by them regarding public disclosure. Internal Controls over Financial Reporting Management is also responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with IFRS.  All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to consolidated financial statement preparation and presentation. Additionally, management is required to use judgment in evaluating controls and procedures. Changes in Internal Control over Financial Reporting Management has also evaluated whether there were changes in the Company's internal control over financial reporting that occurred during the period beginning on July 1, 2011 and ended on September 30, 2011 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. The Company has determined that no material changes in internal controls have occurred during this period. Outlook In the third quarter of 2011, we experienced 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 pointing towards a strong economic turnaround. We expect that consumers will remain cautious about major purchases and as a result we anticipate a very competitive market moving forward. To help counter this, we plan an even more robust marketing and merchandising campaign for the balance of the year. Fourth quarter sales should be aided by the recent opening of four new stores. 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 14(th) day of November, 2011. Interim Condensed Consolidated Financial Statements Leon's Furniture Limited INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) As at September 30 As at December 31 ($ in thousands) 2011 2010 [note 20] ASSETS Current assets Cash and cash equivalents [notes 4 and 6] 37,408 71,589 Available-for-sale financial assets [notes 4 and 18e] 170,288 140,224 Trade receivables[note 4] 18,724 28,569 Income taxes receivable 4,963 - Inventory 85,872 85,423 Total current assets 317,255 325,805 Other assets 1,486 1,574 Property, plant and equipment [note 7] 214,203 201,492 Investment properties [note 8] 8,379 8,417 Intangible assets [note 9] 4,180 4,902 Goodwill 11,282 11,282 Deferred income tax assets 13,131 13,202 Total assets 569,916 566,674 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Trade and other payables [notes 4 and 10] 66,361 71,724 Provisions [note 11] 11,152 12,341 Income taxes payable - 524 Customers' deposits 16,661 17,198 Dividends payable [note 13] 6,292 6,310 Deferred warranty plan revenue 16,290 16,882 Total current liabilities 116,756 124,979 Deferred warranty plan revenue 19,582 21,392 Redeemable share liability [notes 4 and 12] 382 172 Deferred income tax liabilities 10,434 9,845 Totalliabilities 147,154 156,388 Shareholders' equity attributable to the shareholders of the Company Common shares [note 13] 20,871 19,177 Retained earnings 402,463 389,511 Accumulated other comprehensive income (572) 1,598 Total shareholders' equity 422,762 410,286 Total liabilities and shareholder's equity 569,916 566,674 Commitments and contingencies [note 18] The accompanying notes are an integral part of these interim condensed consolidated financial statements. Interim Condensed Consolidated Financial Statements Leon's Furniture Limited INTERIM CONSOLIDATED INCOME STATEMENTS (UNAUDITED) Three months ended Nine months ended September September 30 30 ($ in thousands) 2011 2010 2011 2010 [note 20] [note 20] Revenue[note 14] 174,373 182,125 489,013 512,547 Cost of sales 100,854 106,564 286,089 300,249 Grossprofit 73,519 75,561 202,924 212,298 Operating expenses [note 15] General and administrative expenses 24,147 24,484 71,700 73,209 Sales and marketing expenses 18,721 19,297 55,394 55,877 Occupancy expenses 8,207 7,214 22,803 22,334 Other operating expenses (145) 1,748 2,752 4,700 50,930 52,743 152,649 156,120 Operating profit 22,589 22,818 50,275 56,178 Gain on sale of capital property - 1,231 - 1,231 Finance income 794 789 2,418 2,143 Profit before income tax 23,383 24,838 52,693 59,552 Income tax expense [note 16] 6,427 7,001 14,766 17,969 Profit for the period attributable to the shareholders of the Company 16,956 17,837 37,927 41,583 Earnings per share [note 17] Basic $0.24 $0.25 $0.54 $0.59 Diluted $0.23 $0.24 $0.52 $0.57 The accompanying notes are an integral part of these interim condensed consolidated financial statements. Interim Condensed Consolidated Financial Statements Leon's Furniture Limited INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) Three months ended September 30 Net of tax ($ in thousands) 2011 Tax effect 2011 Profit for the period 16,956 - 16,956 Other comprehensive income, net of tax Unrealized (losses) on available-for-sale financial assets arising during the period (3,903) (546) (3,357) Reclassification adjustment for net gains and (losses) included in profit for the period 2 - 2 Change in unrealized (losses) on available-for-sale financial assets arising during the period (3,901) (546) (3,355) Comprehensive income for the period attributable to the shareholders of the Company 13,055 (546) 13,601 Net of tax 2010 Tax effect 2010 [note 20] [note 20] Profit for the period 17,837 - 17,837 Other comprehensive income, net of tax Unrealized gains on available-for-sale financial assets arising during the period 2,304 343 1,961 Reclassification adjustment for net gains and (losses) included in profit for the period (82) (12) (70) Change in unrealized gains on available-for-sale financial assets arising during the period 2,222 331 1,891 Comprehensive income forthe period attributable to the shareholders of the Company 20,059 331 19,728 Nine months ended September 30 Net of tax ($ in thousands) 2011 Tax effect 2011 Profit for the period 37,927 - 37,927 Other comprehensive income, net of tax Unrealized (losses) on available-for-sale financial assets arising during the period (2,513) (351) (2,162) Reclassification adjustment for net gains and (losses) included in profit for the period (9) (1) (8) Change in unrealized (losses) on available-for-sale financial assets arising during the period (2,522) (352) (2,170) Comprehensive income for the period attributable to the shareholders of the Company 35,405 (352) 35,757 Net of tax 2010 Tax effect 2010 [note 20] [note 20] Profit for the period 41,583 - 41,583 Other comprehensive income, net of tax Unrealized gains on available-for-sale financial assets arising during the period 1,151 173 978 Reclassification adjustment for net gains and (losses) included in profit for the period (10) (2) (8) Change in unrealized gains on available-for-sale financial assets arising during the period 1,141 171 970 Comprehensive income for the period attributable to the shareholders of the Company 42,724 171 42,553 The accompanying notes are an integral part of these interim condensed consolidated financial statements. Interim Condensed Consolidated Financial Statements Leon's Furniture Limited INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED) Accumulated other comprehensive Retained ($ in thousands) Common shares income earnings Total At January 1, 2010 17,704 242 357,192 375,138 Comprehensive income Profit for the period — — 41,583 41,583 Change in unrealized gains on available-for-sale financial assets arising during the period — 385 — 385 Total comprehensive income — 385 41,583 41,968 Transactions with shareholders Dividends declared [note 13] — — (16,182) (16,182) Management share purchase plan 831 — — 831 Repurchase of common shares [note 13] (234) — (5,999) (6,233) Total transactions with shareholders 597 — (22,181) (21,584) At September 30, 2010 18,301 627 376,594 395,522 At January 1, 2011 19,177 1,598 389,511 410,286 Comprehensive income Profit for the period — — 37,927 37,927 Change in unrealized (losses) on available-for-sale financial assets arising during the period — (2,170) — (2,170) Total comprehensive income — (2,170) 37,927 35,757 Transactions with shareholders Dividends declared [note 13] — — (18,914) (18,914) Management share purchase plan 1,748 — — 1,748 Repurchase of common shares [note 13] (54) — (6,061) (6,115) Total transactions with shareholders 1,694 — (24,975) (23,281) At September 30, 2011 20,871 (572) 402,463 422,762 The accompanying notes are an integral part of these interim condensed consolidated financialstatements. Interim Condensed Consolidated Financial Statements Leon's Furniture Limited INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Nine months ended September 30 ($ in thousands) 2011 2010 [note 20] OPERATING ACTIVITIES Profit for the period 37,927 41,583 Add (deduct) items not involving an outlay of cash Depreciation of property, plant and equipment and investment properties 9,306 11,419 Amortization of intangible assets 658 577 Amortization of deferred warranty plan revenue (12,943) (12,492) Gain on sale of property, plant and equipment (21) (1,238) Deferred income taxes 1,012 892 Gain (loss) on sale of available-for-sale financial assets 19 (156) Unrealized foreign exchange (gain) loss (1,133) 397 Cash received on warranty plan sales 10,541 12,079 45,366 53,061 Net change in non-cash working capital balances related (6,426) (16,265) to operations [note 19] Cash provided by operating activities 38,940 36,796 INVESTING ACTIVITIES Purchase of property, plant & equipment (18,663) (8,066) Purchase of intangible assets 64 (262) Proceeds on sale of property, plant & equipment 39 2,113 Purchase of available-for-sale financial assets (403,621) (371,023) Proceeds on sale of available-for-sale financial assets 372,149 357,140 Decrease in employee share purchase loans [note 12] 1,958 1,095 Cash used in investing activities (48,074) (19,003) FINANCING ACTIVITIES Dividends paid [note 13] (18,932) (14,811) Repurchase of common shares [note 13] (6,115) (6,233) Cashused in financing activities (25,047) (21,044) Netdecrease in cash and cash equivalents during the period (34,181) (3,251) Cash and cash equivalents, beginning of period 71,589 58,301 Cash and cashequivalents,end of period 37,408 55,050 Theaccompanying notes are an integral part of these interim condensed consolidatedfinancial statements. Leon's Furniture Limited Management's Responsibility for Financial Reporting The accompanying interim condensed consolidated financial statements are the responsibility of management and have been approved by the Board of Directors. The accompanying interim condensed consolidated financial statements have been prepared by management in accordance with International Financial Reporting Standards ("IFRS") and incorporate the requirements of International Accounting Standards ("IAS") 34, Interim financial reporting and IFRS 1, First time adoption of IFRS. 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 ("Leon's" or the "Company") maintains systems of internal accounting and administrative controls, 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 interim condensed 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 interim condensed consolidated financial statements for issuance to the shareholders. Terrence T. Leon Dominic Scarangella President & CEO Vice President & CFO Interim Condensed Consolidated Financial Statements Leon's Furniture Limited Tabular amounts in thousands of Canadian dollars except shares outstanding and earnings per share For the three and nine month periods ended September 30, 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 ("Leon's" or the "Company") 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, Toronto, Ontario, M9N 3X3. Leon's is a retailer of home furnishings, electronics and appliances across Canada from Alberta to Newfoundland and Labrador. The Company owns a chain of thirty-eight retail stores operating as Leon's Home Furnishings Super Stores, two retail stores operating under the brand of Appliance Canada and operates an ecommerce internet site www.leons.ca. In addition, the Company has twenty-five franchisees operating thirty Leon's Furniture franchise stores. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of preparation The interim condensed consolidated financial statements for the three and nine month periods ended September 30, 2011 were prepared in accordance with International Accounting Standards ("IAS") 34, Interim Financial Reporting. The same accounting policies and methods of computation were followed in the preparation of these interim condensed consolidated financial statements as were followed in the preparation of the interim condensed consolidated financial statements for the three month period ended March 31, 2011. In addition, the interim condensed consolidated financial statements for the three month period ended March 31, 2011 contain certain incremental annual International Financial Reporting Standards ("IFRS") disclosures not included in the annual financial statements for the year ended December 31, 2010 prepared in accordance with previous Canadian Generally Accepted Accounting Principles ("CGAAP"). Accordingly, these interim condensed consolidated financial statements for the three and nine month periods ended September 30, 2011 should be read together with the annual consolidated financial statements for the year ended December 31, 2010 prepared in accordance with previous CGAAP as well as the interim condensed consolidated financial statements for the three month period ended March 31, 2011. The policies applied in these interim condensed consolidated financial statements are based on IFRS issued and outstanding as of November 14, 2011, the date the Directors approved and authorized for issuance the interim condensed 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 interim condensed consolidated financial statements, including the transition adjustments recognized on changeover to IFRS. Basis of measurement The interim condensed 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 interim condensed 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 where assumptions and estimates are significant to the interim condensed consolidated financial statements are disclosed in note 3. Future changes in accounting policy and disclosure Standards issued but not yet effective IFRS 7, Financial Instruments: Disclosures - Enhanced Derecognition Disclosure The amendment requires additional disclosure about financial assets that have been transferred but not derecognized to enable the user of the Company's financial statements to understand the relationship with those assets that have not been derecognized and their associated liabilities. In addition, the amendment requires disclosures about continuing involvement in derecognised assets to enable the user to evaluate the nature of, and risks associated with, the entity's continuing involvement in those derecognized assets. The amendment becomes effective for annual periods beginning on or after July 1, 2011. The amendment would affect disclosure only but is not expected to impact on the Company's disclosures. 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. IFRS 10, Consolidated Financial Statements IFRS 10, Consolidated Financial Statements ("IFRS 10") is effective for annual periods beginning on or after January 1, 2013 and will replace portions of IAS 27 Consolidated and Separate Financial Statements ("IAS 27") and interpretation SIC-12 Consolidation — Special Purpose Entities. Under IFRS 10, consolidated financial statements include all controlled entities under a single control model that applies to all entities, including special purpose entities and structured entities. A group will still continue to consist of a parent and its subsidiaries; however IFRS 10 uses different terminology from IAS 27 in describing its control model. The changes introduced by IFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and therefore are required to be consolidated by a parent, compared with the requirements that were in IAS 27. Early adoption of this standard is permitted. The Company has not fully assessed the impact of adopting IFRS 10; however, it anticipates that its impact will be limited. IFRS 12, Disclosure of Interests in Other Entities IFRS 12, Disclosure of Interests in Other Entities ("IFRS 12") includes disclosure requirements about subsidiaries, joint ventures, and associates, as well as unconsolidated structured entities. Many of the disclosure requirements were previously included in IAS 27, IAS 1 and IAS 28 while others are new. This standard is effective for annual periods beginning on or after January 1, 2013 with early adoption permitted. The Company has not fully assessed the impact of adopting IFRS 12; however, it anticipates that its impact will be limited. IFRS 13, Fair Value Measurement IFRS 13, Fair Value Measurement ("IFRS 13") provides guidance on how to measure fair value of financial and nonfinancial assets and liabilities when fair value is required or permitted per IFRS. While many of the concepts in IFRS 13 are consistent with current practice, certain principles could have a significant effect on some entities adopting the standard. IFRS 13 is effective January 1, 2013 and will be adopted prospectively. The Company does not expect any impact on its financial position or performance. Consolidation The interim condensed 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 September 30, 2011 and the results of these subsidiaries for the three and nine months 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. 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 nine month period ended September 30, 2011 was $279,796,000 (period ended September 30, 2010 - $292,989,000) which is presented within cost of sales in the interim consolidated income statements. During the three month period ended September 30, 2011, there was $443,000 in inventory write-downs (three month period ended September 30, 2010 - $Nil). At September 30, 2011, the inventory markdown provision totaled $4,473,000 (September 30, 2010 - $3,862,000). There were no reversals of any write-down for the three month period ended September 30, 2011 (three month period ended September 30, 2010 - $138,000). 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 September 30, 2011 was $4,331,000 (three month period ended September 30, 2010 - $4,254,000). Extended warranty expenses deducted through cost of sales for the three month period ended September 30, 2011 were $1,195,000 (three month period ended September 30, 2010 - $1,593,000). 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 revenues. This royalty revenue is recorded by the Company on an accruals basis and is classified as revenue within the interim consolidated income statements. 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 annual consolidated financial statements and the interim 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. 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. September 30, 2011 Loansand Otherfinancial Available-for- receivables liabilities Total sale [fair [amortized [amortized carrying Fair value] cost] cost] amount value Financial Assets Cash and cash 37,408 — — 37,408 37,408 equivalents Available-for-sale 170,288 — — 170,288 170,288 financial assets Trade receivables — 18,724 — 18,724 18,724 Total 207,696 18,724 — 226,420 226,420 Financial Liabilities Trade and other — — 66,361 66,361 66,361 payables Redeemable share — — 382 382 382 liability Total — — 66,743 66,743 66,743 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 71,589 — — 71,589 71,589 equivalents Available-for-sale 140,224 — — 140,224 140,224 financial assets Trade receivables — 28,569 — 28,569 28,569 Total 211,813 28,569 — 240,382 240,382 Financial Liabilities Trade and other — — 71,724 71,724 71,724 payables Redeemable share — — 172 172 172 liability Total — — 71,896 71,896 71,896 For financial instruments recognized in the interim consolidated statements 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 data 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 interim consolidated statements of financial position at fair value: Financial Instruments at Fair Value Fairvalue measurement at September 30, 2011 Level 1 Level 2 Level 3 Cash and cash equivalents 37,408 — — Available-for-sale — 140,648 — financial assets - Bonds Available-for-sale 29,640 — — financial assets - Equities 67,048 140,648 — Fairvalue measurement at December 31, 2010 Level 1 Level 2 Level 3 Cash and cash equivalents 71,589 - - Available-for-sale financial - 117,817 - assets - Bonds Available-for-sale financial 22,407 - - assets - Equities 93,996 117,817 -   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 $18,724,000 as at September 30, 2011 [as at December 31, 2010 - $28,569,000]. 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 $113,000 as at September 30, 2011 [as at December 31, 2010 - $158,000] 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 September 30, 2011 [as at December 31, 2010 - $470,000]. The majority of the Company's sales are paid through cash, credit card or non-recourse third-party finance. The Company relies on one third-party credit supplier to supply financing 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 September 30, 2011, the Company's investment portfolio included 9% of foreign currency denominated assets [as at December 31, 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. At September 30, 2011, 86% of the Company's investment portfolio was made up of Canadian and international Bonds [as at December 31, 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 September 30,| | | | 2011|As at December 31, 2010| |_______________________|___________________|_______________________| |Cash at bank or on hand| 3,575| 19,642| |Short-term investments | 33,833| 51,947| |_______________________|___________________|_______________________| | | 37,408| 71,589| |_______________________|___________________|_______________________| 7. PROPERTY, PLANT AND EQUIPMENT _______________________________________________________________________________ | | | | | |Computer| Building| | | | Land|Buildings|Equipment|Vehicles|hardware|improvements| Total| |____________|_______|_________|_________|________|________|____________|_______| | As at| | | | | | | | |December 31,| 56,156| 77,943| 11,078| 4,127| 1,307| 53,042|203,653| | 2010:| 45| 11,685| 1,323| 484| 347| 98| 13,982| | Opening net| 870| —| —| 437| —| —| 1,307| | book value|—| 7,024| 1,340| 826| 537| 5,109| 14,836| | Additions| | | | | | | | | Disposals| | | | | | | | |Depreciation| | | | | | | | |____________|_______|_________|_________|________|________|____________|_______| | Closing net| 55,331| 82,604| 11,061| 3,348| 1,117| 48,031|201,492| | book value| | | | | | | | |____________|_______|_________|_________|________|________|____________|_______| | As at| | | | | | | | |December 31,| 55,331| 175,365| 36,053| 20,900| 8,951| 78,273|374,873| | 2010|—| 92,761| 24,992| 17,552| 7,834| 30,242|173,381| | Cost| | | | | | | | | Accumulated| | | | | | | | |depreciation| | | | | | | | |____________|_______|_________|_________|________|________|____________|_______| | Closing net| 55,331| 82,604| 11,061| 3,348| 1,117| 48,031|201,492| | book value| | | | | | | | |____________|_______|_________|_________|________|________|____________|_______| | As at| | | | | | | | | September| 55,331| 82,604| 11,061| 3,348| 1,117| 48,031|201,492| | 30, 2011:|—| 9,853| 2,824| 1,833| 157| 7,329| 21,996| | Opening net|—| —| —| 17| —| —| 17| | book value|—| 2,627| 1,387| 943| 396| 3,915| 9,268| | Additions| | | | | | | | | Disposals| | | | | | | | |Depreciation| | | | | | | | |____________|_______|_________|_________|________|________|____________|_______| | Closing net| 55,331| 89,830| 12,498| 4,221| 878| 51,445|214,203| | book value| | | | | | | | |____________|_______|_________|_________|________|________|____________|_______| | As at| | | | | | | | | September| 55,331| 185,218| 38,877| 22,631| 9,108| 85,602|396,767| | 30, 2011|—| 95,388| 26,379| 18,410| 8,230| 34,157|182,564| | Cost| | | | | | | | | Accumulated| | | | | | | | |depreciation| | | | | | | | |____________|_______|_________|_________|________|________|____________|_______| | Closing net| 55,331| 89,830| 12,498| 4,221| 878| 51,445|214,203| | book value| | | | | | | | |____________|_______|_________|_________|________|________|____________|_______| Included in the above balances at September 30, 2011 are assets not being amortized with a net book value of approximately $16,396,000 [December 31, 2010 - $2,400,000] being construction-in-progress. 8. INVESTMENT PROPERTIES ________________________________________________________________ | | | | Building | | | | Land |Buildings|improvements| Total | |_________________________|_______|_________|____________|_______| |As at 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| |_________________________|_______|_________|____________|_______| |As at December 31, 2010 | | | | | |Cost | 8,286| 8,039| 1,457| 17,782| |Accumulated depreciation |—| 8,039| 1,326| 9,365| |_________________________|_______|_________|____________|_______| |Closing net book value | 8,286| —| 131| 8,417| |_________________________|_______|_________|____________|_______| |As at September 30, 2011:| | | | | |Opening net book value | 8,286| —| 131| 8,417| |Additions |—| —| —|—| |Disposals |—| —| —|—| |Depreciation charge |—| —| 38| 38| |_________________________|_______|_________|____________|_______| |Closing net book value | 8,286| —| 93| 8,379| |_________________________|_______|_________|____________|_______| |As at September 30, 2011 | | | | | |Cost | 8,286| 8,039| 1,457| 17,782| |Accumulated depreciation |—| 8,039| 1,364| 9,403| |_________________________|_______|_________|____________|_______| |Closing net book value | 8,286| —| 93| 8,379| |_________________________|_______|_________|____________|_______| The fair value of the investment property portfolio as at September 30, 2011 was $29,700,000 [as at December 31, 2010 - $29,700,000]. 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 December 31,| | | | | | |2010: | 1,500| 2,000| 750| 1,084| 5,334| |Opening net book | —|—| —| 370| 370| |value | —|—| —| —|—| |Additions | 250| 250| 125| 177| 802| |Disposals | | | | | | |Amortization | | | | | | |charge | | | | | | |__________________|_____________|_______|___________|________|_______| |Closing net book | 1,250| 1,750| 625| 1,277| 4,902| |value | | | | | | |__________________|_____________|_______|___________|________|_______| |As at December 31,| | | | | | |2010 | 2,000| 2,500| 1,000| 4,266| 9,766| |Cost | 750| 750| 375| 2,989| 4,864| |Accumulated | | | | | | |amortization | | | | | | |__________________|_____________|_______|___________|________|_______| |Closing net book | 1,250| 1,750| 625| 1,277| 4,902| |value | | | | | | |__________________|_____________|_______|___________|________|_______| |As at September | | | | | | |30, 2011: | 1,250| 1,750| 625| 1,277| 4,902| |Opening net book | —|—| —| —|—| |value | —|—| —| 64| 64| |Additions | 188| 188| 94| 188| 658| |Disposals | | | | | | |Amortization | | | | | | |charge | | | | | | |__________________|_____________|_______|___________|________|_______| |Closing net book | 1,062| 1,562| 531| 1,025| 4,180| |value | | | | | | |__________________|_____________|_______|___________|________|_______| |As at September | | | | | | |30, 2011 | 2,000| 2,500| 1,000| 4,202| 9,702| |Cost | 938| 938| 469| 3,177| 5,522| |Accumulated | | | | | | |amortization | | | | | | |__________________|_____________|_______|___________|________|_______| |Closing net book | 1,062| 1,562| 531| 1,025| 4,180| |value | | | | | | |__________________|_____________|_______|___________|________|_______| 10. TRADE AND OTHER PAYABLES _______________________________________________________________ | |As at September 30, 2011|As at December 31, 2010| |______________|________________________|_______________________| |Trade payables| 54,815| 60,127| |Other payables| 11,546| 11,597| |______________|________________________|_______________________| | | 66,361| 71,724| |______________|________________________|_______________________| 11. PROVISIONS __________________________________________________________________ | |Profit sharing and|Vacation pay| Totals| | | bonuses| | | |_________________________|__________________|____________|________| |As at December 31, 2010 | 12,000| 341| 12,341| |_________________________|__________________|____________|________| |Charged to the | | | | |consolidated income | 9,460| 2,862| 12,322| |statement | (1,007)| —| (1,007)| | Additional provisions | (10,981)| (1,523)|(12,504)| | Unused amounts reversed| | | | | Used during the nine | | | | |month period | | | | |_________________________|__________________|____________|________| |As at September 30, 2011 | 9,472| 1,680| 11,152| |_________________________|__________________|____________|________| Profit sharing and bonuses The provision for profit sharing and bonuses is payable within the first half of the following fiscal year. Vacation pay The provision for vacation pay represents employee entitlements to untaken vacation at the interim consolidated statement of financial position date. 12. REDEEMABLE SHARE LIABILITY _____________________________________________________________________ | | As at| As at| | |September 30,|December 31,| | | 2011| 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 | 4,849| 5,846| | | 5,111| 5,862| |Issued | 9,869| 10,339| |674,589 series 2002 shares [December 31, | (19,447)| (21,875)| |2010 - 813,331] | | | |541,248 series 2005 shares [December 31, | | | |2010 - 620,793] | | | |1,115,107 series 2009 shares [December 31,| | | |2010 - 1,168,124] | | | |Less employee share purchase loans | | | |__________________________________________|_____________|____________| | | 382| 172| |__________________________________________|_____________|____________| 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 $470,000 [2010 - $401,000] have been used to reduce the respective shareholder loans. During the nine month period ended September 30, 2011, 138,742 series 2002 shares [nine month period ended September 30, 2010 - 115,719] and 79,545 series 2005 shares [nine month period ended September 30, 2010 - Nil] were converted into common shares with a stated value of approximately $997,000 [nine month period ended September 30, 2010 - $751,000] and $832,000 [nine month period ended September 30, 2010 - Nil], respectively. During the nine month period ended September 30, 2011, the Company cancelled 53,017 series 2009 shares [nine month period ended September 30, 2010 - 31,494] in the amount of $469,000 [nine month period ended September 30, 2010 - $279,000]. 13. COMMON SHARES _____________________________________________________________________ | | As at| As at| | |September 30, 2011|December 31, 2010| |________________________________|__________________|_________________| |Authorized | | | |Unlimited common shares | | | |________________________________|__________________|_________________| |Issued | | | |69,826,595 common shares | 20,871| 19,177| |[December 31, 2010 - 70,075,333]| | | |________________________________|__________________|_________________| During the three month period ended September 30, 2011, 8,063 series 2002 shares [three month period ended September 30, 2010 - 39,296] and 18,799 series 2005 shares [three month period ended September 30, 2010 - Nil] were converted into common shares with a stated value of approximately $58,000 [three month period ended September 30, 2010 - $282,000] and $177,000 [three month period ended September 30, 2010 - $Nil], respectively. During the nine month period ended September 30, 2011, the Company repurchased 467,025 [nine month period ended September 30, 2010 - 498,896] 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 $6,115,000 [nine month period ended September 30, 2010 - $6,233,000].  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 $54,000 [nine month period ended September 30, 2010 - $234,000].  The excess net cost over the average carrying value of the shares of approximately $6,061,000 [nine month period ended September 30, 2010 - $5,999,000] has been recorded as a reduction in retained earnings. The dividends paid for the three month periods ended September 30, 2011 and September 30, 2010 were $6,305,000 [$0.09 per share] and $4,936,000 [$0.07 per share], respectively. 14. REVENUE _____________________________________________________________________ | |Three month period ended|Three month period ended| | | September 30, 2011| September 30, 2010| |___________________|________________________|________________________| |Sale of goods by | 169,818| 177,320| |corporate stores | 2,358| 2,625| |Royalty income from| 2,014| 2,002| |franchisees | 183| 178| |Extended warranty | | | |revenue | | | |Rental income from | | | |investment property| | | |___________________|________________________|________________________| | | 174,373| 182,125| |___________________|________________________|________________________| | | Nine month period ended| Nine month period ended| | | September 30, 2011| September 30, 2010| |___________________|________________________|________________________| |Sale of goods by | 475,146| 498,563| |corporate stores | 7,275| 7,472| |Royalty income from| 6,041| 6,006| |franchisees | 551| 506| |Extended warranty | | | |revenue | | | |Rental income from | | | |investment property| | | |___________________|________________________|________________________| | | 489,013| 512,547| |___________________|________________________|________________________| 15. OPERATING EXPENSES BY NATURE _____________________________________________________________________ | | Three month period| Three month period| | | ended| ended| | | September 30, 2011| September 30, 2010| |_____________________|_______________________|_______________________| |Depreciation of | | | |property, plant and | | | |equipment and | | | |investment properties| 3,276| 3,854| |_____________________|_______________________|_______________________| |Amortization of | | | |intangible assets | 214| 199| |_____________________|_______________________|_______________________| |Operating lease | | | |payments | 880| 811| |_____________________|_______________________|_______________________| |Unrealized foreign | | | |exchange gains | | | |(losses) | 1,679| (284)| |_____________________|_______________________|_______________________| |Gain on sale of | | | |property, plant and | | | |equipment | —| —| |_____________________|_______________________|_______________________| | |Nine month period ended|Nine month period ended| | | September30, 2011| September 30, 2010| |_____________________|_______________________|_______________________| |Depreciation of | | | |property, plant and | | | |equipment and | | | |investment properties| 9,306| 11,419| |_____________________|_______________________|_______________________| |Amortization of | | | |intangible assets | 658| 577| |_____________________|_______________________|_______________________| |Operating lease | | | |payments | 2,497| 2,438| |_____________________|_______________________|_______________________| |Unrealized foreign | | | |exchange gains | | | |(losses) | 1,133| (397)| |_____________________|_______________________|_______________________| |Gain on sale of | | | |property, plant and | | | |equipment | 21| 1,238| |_____________________|_______________________|_______________________| 16. INCOME TAX EXPENSE _____________________________________________________________________ | | Three month period|Three month period ended| | | ended| September 30, 2010| | | September 30, 2011| | |____________________|_______________________|________________________| |Current income tax | 6,594| 7,476| |expense | (167)| (475)| |Deferred income tax | | | |(recovery) expense | | | |____________________|_______________________|________________________| | | 6,427| 7,001| |____________________|_______________________|________________________| | |Nine month period ended| Nine month period ended| | | September 30, 2011| September 30, 2010| |____________________|_______________________|________________________| |Current income tax | 14,848| 17,925| |expense | (82)| 44| |Deferred income tax | | | |(recovery) expense | | | |____________________|_______________________|________________________| | | 14,766| 17,969| |____________________|_______________________|________________________| 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 September 30, 2011 and September 30, 2010 were 28.2% and 30.1%, 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 69,913,255 for the three month period ended September 30, 2011 (three month period ended September 30, 2010 - 70,330,309). 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 | Profit for the|Weighted average|Per share amount| |period ended |period attributed|number of shares| | |September 30,| to common| | | |2011 | shareholders| | | |_____________|_________________|________________|________________| |Basic | 16,956| 69,913,255| 0.24| |_____________|_________________|________________|________________| |Diluted | 16,956| 72,289,387| 0.23| |_____________|_________________|________________|________________| _________________________________________________________________ |Three month | Profit for the|Weighted average|Per share amount| |periodended |period attributed|number of shares| | |September 30,| to common| | | |2010 | shareholders| | | |_____________|_________________|________________|________________| |Basic | 17,837| 70,330,309| 0.25| |_____________|_________________|________________|________________| |Diluted | 17,837| 73,098,337| 0.24| |_____________|_________________|________________|________________| _____________________________________________________________________ |Nine month period| Profit for the|Weighted average|Per share amount| |ended |period attributed|number of shares| | |September 30, | to common| | | |2011 | shareholders| | | |_________________|_________________|________________|________________| |Basic | 37,927| 70,023,150| 0.54| |_________________|_________________|________________|________________| |Diluted | 37,927| 72,472,227| 0.52| |_________________|_________________|________________|________________| _____________________________________________________________________ |Nine month period| Profit for the|Weighted average|Per share amount| |ended |period attributed|number of shares| | |September 30, | to common| | | |2010 | shareholders| | | |_________________|_________________|________________|________________| |Basic | 41,583| 70,454,674| 0.59| |_________________|_________________|________________|________________| |Diluted | 41,583| 73,246,633| 0.57| |_________________|_________________|________________|________________| 18. COMMITMENTS AND CONTINGENCIES [a] The cost to complete all construction-in-progress as at September 30, 2011 totals $6,687,000 at five locations [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 | 5,860| |Later than 1 year and no later than 5 years|19,989| |Later than 5 years |18,282| |___________________________________________|______| | |44,131| |___________________________________________|______| [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| |___________________________________________|_____| The Company has issued approximately $255,000 in letters of [d] credit primarily with respect to buildings under construction which were completed during the year ended December 31, 2010. Pursuant to a reinsurance agreement relating to the extended warranty sales, the Company has pledged available-for-sale [e] financial assets amounting to $20,301,000 [as at December 31, 2010 - $19,498,000] 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. INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS [a] The net change in non-cash working capital balances related to operations consists of the following: ___________________________________________________________________ | |Nine monthperiod ended|Nine month period ended| | | September 30, 2011| September 30, 2010| |____________________|______________________|_______________________| |Trade receivables | 9,845| 10,874| |Inventory | (449)| (13,895)| |Prepaid expenses | 88| 112| |Trade and other | (8,697)| (8,674)| |payables | (1,189)| (81)| |Provisions | (5,487)| (4,428)| |Income taxes payable| (537)| (173)| |Customers' deposits | | | |____________________|______________________|_______________________| | | (6,426)| (16,265)| |____________________|______________________|_______________________| [b] Supplemental cash flow information: _________________________________________________________________ | |Nine month period ended|Nine month period ended| | | September 30, 2011| September 30, 2010| |_________________|_______________________|_______________________| |Income taxes paid| 19,459| 22,007| |_________________|_______________________|_______________________| [c]  During the nine month period, property, plant and equipment were acquired at an aggregate cost of $21,995,000 [2010 - $10,594,000], of which $3,868,000 [2010 - $536,000] is included in trade and other payables as at December 31, 2010. 20. TRANSITION TO IFRS In preparing the opening IFRS consolidated statements of financial position, the Company has adjusted amounts previously reported that have been prepared in accordance with CGAAP. An explanation of how the transition from CGAAP to IFRS has affected the Company's financial position and financial performance on the Transition Date, for the three months ended March 31, 2010, for the year ended December 31, 2010, as at January 1, 2010 and December 31, 2010 are set out in the tables and notes in the Company's interim condensed consolidated financial statements for the first quarter ended March 31, 2011. The Company has also selected certain transition exemptions on the Transition Date, the details of which are also in the notes to the March 31, 2011 interim condensed consolidated financial statements.  An explanation of how the transition from CGAAP to IFRS has affected the Company's consolidated statements of financial position as of September 30, 2010, the consolidated income statements for the three and nine months period ended September 30, 2010, the consolidated statements of comprehensive income for the three and nine months period ended September 30, 2010 and the consolidated statements of cash flows are set out in the following tables and the notes that accompany the tables below. i.     Consolidated Statement of Financial Position _____________________________________________________________________ | | Asat September 30, 2010 | |___________________________________|_________________________________| | |Cdn. GAAP| Adj.| IFRS| |___________________________________|_________|_______________|_______| |ASSETS | | | | |___________________________________|_________|_______________|_______| |Current | | | | |Cash and cash equivalents | 55,050| —| 55,050| |Available-for-sale financial assets| 127,210| —|127,210| |Trade receivables | 20,627| —| 20,627| |Income taxes receivable | 2,470| —| 2,470| |Inventory | 97,852| —| 97,852| |Deferred income tax assets [note a]| 400| (400)|—| |___________________________________|_________|_______________|_______| |Total current assets | 303,609| (400)|303,209| |___________________________________|_________|_______________|_______| |Other assets | 1,448| —| 1,448| |Property, plant and equipment [note| 210,498| (8,457)|202,041| |b] | —| 8,457| 8,457| |Investment properties [note b] | 5,018| —| 5,018| |Intangible assets | 11,282| —| 11,282| |Goodwill | 11,383| 400| 11,783| |Deferred income tax assets [note a]| | | | |___________________________________|_________|_______________|_______| |Total assets | 543,238| —|543,238| |___________________________________|_________|_______________|_______| |LIABILITIES AND SHAREHOLDERS' | | | | |EQUITY | | | | |___________________________________|_________|_______________|_______| |Current | | | | |Trade and other payables [note c] | 77,654| (11,358)| 66,296| |Provisions [note c] | —| 11,358| 11,358| |Customers' deposits | 15,459| —| 15,459| |Dividends payable | 6,308| —| 6,308| |Deferred warranty plan revenue | 17,061| —| 17,061| |___________________________________|_________|_______________|_______| |Total current liabilities | 116,482| —|116,482| |___________________________________|_________|_______________|_______| |Deferred warranty plan revenue | 20,924| —| 20,924| |Redeemable share liability | 647| —| 647| |Deferred income tax liabilities | 9,078| —| 9,078| |[notes a and d] | | | | |___________________________________|_________|_______________|_______| |Total liabilities | 147,131| —|147,131| |___________________________________|_________|_______________|_______| |Shareholders' equity attributable | | | | |to the shareholders of the Company | | | | |___________________________________|_________|_______________|_______| |Common shares | 18,301| —| 18,301| |Retained earnings [note d] | 377,319| (725)|376,594| |Accumulated other comprehensive | 487| 725| 1,212| |loss [note d] | | | | |___________________________________|_________|_______________|_______| |Total shareholders' equity | 396,107| —|396,107| |___________________________________|_________|_______________|_______| |Total liabilities and shareholder's| 543,238| —|543,238| |equity | | | | |___________________________________|_________|_______________|_______| ii.     Consolidated Income Statements __________________________________________________________________________________ | | Three months ended September 30,| Nine months ended September 30,| | | 2010| 2010| |______________|_________________________________|_________________________________| | | Cdn. | | | | Cdn. | | | | | | GAAP | Adj. |Reclasses| IFRS | GAAP | Adj. |Reclasses| IFRS | |______________|_______|_______|_________|_______|_______|_______|_________|_______| | | | | | | | | | | |Revenue [note |179,500|—| 2,625|182,125|505,075|—| 7,472|512,547| |e] |106,564|—| —|106,564|300,249|—| —|300,249| |Cost of sales | | | | | | | | | |______________|_______|_______|_________|_______|_______|_______|_________|_______| |Gross profit | 72,936|—| 2,625| 75,561|204,826|—| 7,472|212,298| |______________|_______|_______|_________|_______|_______|_______|_________|_______| | | | | | | | | | | |Operating | | | | | | | | | |expenses [note|—|—| 24,484| 24,484|—|—| 73,209| 73,209| |f] |—|—| 19,297| 19,297|—|—| 55,877| 55,877| |General and |—|—| 7,214| 7,214|—|—| 22,334| 22,334| |administrative|—| 284| 1,464| 1,748|—| 397| 4,303| 4,700| |expenses | 27,166|—| (27,166)|—| 78,194|—| (78,194)|—| |Sales and | 7,246|—| (7,246)|—| 21,722|—| (21,722)|—| |marketing | 3,427|—| (3,427)|—| 10,462|—| (10,462)|—| |expenses | 4,053|—| (4,053)|—| 11,996|—| (11,996)|—| |Occupancy | 1,097|—| (1,097)|—| 3,471|—| (3,471)|—| |expenses | 9,677|—| (9,677)|—| 30,487|—| (30,487)|—| |Other | (789)|—| 789|—|(2,143)|—| 2,143|—| |operating |(2,832)|—| 2,832|—|(8,081)|—| 8,081|—| |expenses [note| | | | | | | | | |d] | | | | | | | | | |Salaries and | | | | | | | | | |commissions | | | | | | | | | |Advertising | | | | | | | | | |Rent and | | | | | | | | | |property taxes| | | | | | | | | |Amortization | | | | | | | | | |Employee | | | | | | | | | |profit-sharing| | | | | | | | | |plan | | | | | | | | | |Other | | | | | | | | | |operating | | | | | | | | | |expenses | | | | | | | | | |Interest | | | | | | | | | |income | | | | | | | | | |Other income | | | | | | | | | |______________|_______|_______|_________|_______|_______|_______|_________|_______| | | 49,045| 284| 3,414| 52,743|146,108| 397| 9,615|156,120| |______________|_______|_______|_________|_______|_______|_______|_________|_______| |Operating | 23,891| (284)| (789)| 22,818| 58,718| (397)| (2,143)| 56,178| |profit | | | | | | | | | |______________|_______|_______|_________|_______|_______|_______|_________|_______| |Gain on sale | 1,231|—| —| 1,231| 1,231|—| —| 1,231| |of capital |—|—| 789| 789|—|—| 2,143| 2,143| |property | | | | | | | | | |Finance income| | | | | | | | | |______________|_______|_______|_________|_______|_______|_______|_________|_______| |Profit before | 25,122| (284)| —| 24,838| 59,949| (397)| —| 59,552| |income tax | 7,041| 40| —| 7,001| 18,025| 56| —| 17,969| |Income tax | | | | | | | | | |expense[note | | | | | | | | | |d] | | | | | | | | | |______________|_______|_______|_________|_______|_______|_______|_________|_______| |Profit for the| | | | | | | | | |period | | | | | | | | | |attributable | | | | | | | | | |to the | | | | | | | | | |shareholders | | | | | | | | | |of the Company| 18,081| (244)| —| 17,837| 41,924| (341)| —| 41,583| |______________|_______|_______|_________|_______|_______|_______|_________|_______| iii.     Consolidated Statements of Comprehensive Income _____________________________________________________________________ | | Three monthsended| Ninemonths ended| | | September 30, 2010| September 30, 2010| |______________________|_____________________|________________________| | | Cdn. | | | | | | | | GAAP | Adj. | IFRS |Cdn. GAAP| Adj. | IFRS | |______________________|______|_______|______|_________|_______|______| | | | | | | | | |Profit for the period |18,081| (244)|17,837| 41,924| (341)|41,583| |______________________|______|_______|______|_________|_______|______| | | | | | | | | |Other comprehensive | | | | | | | |income, net of tax | 1,717| 244| 1,961| 637| 341| 978| |Unrealized losses on | | | | | | | |available-for-sale | (70)|—| (70)| (8)|—| (8)| |financial | | | | | | | | assets arising during| | | | | | | |the period [note d] | | | | | | | |Reclassification | | | | | | | |adjustment for net | | | | | | | |gains and losses | | | | | | | | included in profit | | | | | | | |for the period | | | | | | | |______________________|______|_______|______|_________|_______|______| |Change in unrealized | 1,647| 244| 1,891| 629| 341| 970| |losses on | | | | | | | |available-for-sale | | | | | | | | financial assets | | | | | | | |arising during the | | | | | | | |period | | | | | | | |______________________|______|_______|______|_________|_______|______| |Comprehensive income |19,728|—|19,728| 42,553|—|42,553| |for the period | | | | | | | |attributable to the | | | | | | | |Shareholders of the | | | | | | | |Company | | | | | | | |______________________|______|_______|______|_________|_______|______| 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 CGAAP, deferred income tax relating to current assets or current liabilities must be classified as current. Accordingly, current deferred income tax reported under CGAAP of $400,000 at September 30, 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 $8,457,000 of net book value being reclassified from property plant and equipment to investment property at September 30, 2010. 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 CGAAP, contingencies were included within trade and other payables. Trade and other payables have been decreased and provisions increased by $11,358,000 at September 30, 2010 in relation to profit sharing, 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 CGAAP, 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 September 30, 2010 this resulted in a reclassification between accumulated other comprehensive income and retained earnings of $725,000. For the three month period ended September 30, 2010 this resulted in a change of $244,000 in other comprehensive income and a foreign exchange loss within other operating expenses of $284,000 and for the nine month period ended September 30, 2010 this resulted in a change of $341,000 in other comprehensive income and an increase in foreign exchange losses within other operating expenses of $397,000. e. Franchisee royalty revenue - Under IFRS, royalties received from the Company's franchisees meets the definition of revenue under IAS 18 - Revenue. Under CGAAP this royalty revenue was 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 $2,625,000 and $7,472,000 for the three and nine month period ended September 30, 2010, respectively. 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 CGAAP to IFRS had no significant impact on the cash flows generated by the Company. 21. APPROVAL OF THE FINANCIAL STATEMENTS The interim condensed consolidated financial statements for the three and nine months ended September 30, 2011 were approved and authorized for issuance by the Board of Directors on November 14, 2011.     Leon's Furniture Limited CONTACT: Dominic Scarangella, Tel: 416.243.4073

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