LNF Leons Furniture Ltd

TORONTO, May 14, 2012 /CNW/ - For the three months ended March 31, 2012, total Leon's sales were $200,651,000 including $43,220,000 of franchise sales ($191,592,000 including $40,809,000 of franchise sales in 2011), an increase of 4.7%. Same store sales were down 0.7% from the prior year first quarter. Net income was $8,599,000, $0.12 per common share ($10,293,000, $0.15 per common share in 2011). The profit decrease in the quarter compared to the prior quarter was mainly due to higher marketing expenses and opening costs related to four new stores that were opened in the latter part of 2011. Major renovations are well underway in our Sudbury and Sault Ste. Marie, Ontario corporate stores. Our Kentville franchise has recently opened a new and larger replacement store in Coldbrook, Nova Scotia. Construction has also started for a brand new franchise store to replace our existing St. John, New Brunswick store. Finally, the Company has secured sites for four new corporate stores in: Orangeville and Brantford, Ontario; Sherbrooke, Quebec; and Rocky View County, Alberta, which is just north of Calgary. Our current plan is to open these locations during the latter part of 2012 and in 2013. As previously announced, we paid a quarterly 10¢ dividend on April 5, 2012. Today we are happy to announce that the Directors have declared a quarterly dividend of 10¢ per common share payable on the 6(th) day of July 2012 to shareholders of record at the close of business on the 6(th) day of June 2012. 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 JUNE SEPT. DEC. YEAR 31 30 30 31 TOTAL 2012 - Basic 12¢ $0.12 - Fully 12¢ $0.12 Diluted 2011 - Basic 15¢ 16¢ 22¢ 28¢ $0.81 - Fully 14¢ 15¢ 21¢ 27¢ $0.78 Diluted 2010 - Basic 17¢ 17¢ 26¢ 30¢ $0.90 - Fully 16¢ 16¢ 25¢ 29¢ $0.87 Diluted LEON'S FURNITURE LIMITED / MEUBLES LEON LTÉE Mark J. Leon Chairman of the Board MANAGEMENT'S DISCUSSION AND ANALYSIS For the three months ended March 31, 2012 and 2011 Dated: May 14, 2012 The Management's Discussion and Analysis ("MD&A") for Leon's Furniture Limited/Meubles Leon Ltée (the "Company") should be read in conjunction with i) the Company's 2011 audited consolidated financial statements and the related notes and MD&A and ii) the Company's unaudited interim condensed consolidated financial statements for the three months ended March 31, 2012 and the related notes. Cautionary Statement Regarding Forward-Looking Statements 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. 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 IAS 34, Interim Financial Reporting as issued by the International Accounting Standards Board ("IASB"). The amounts expressed are in Canadian dollars. Per share amounts are calculated using the weighted average number of shares outstanding for the applicable period. 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 on May 14, 2012. 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 March 31, 2012, total Leon's sales were $200,651,000 including $43,220,000 of franchise sales ($191,592,000 including $40,809,000 of franchise sales in 2011), an increase of 4.7%. Leon's corporate sales of $157,431,000 in the first quarter of 2012, increased by $6,648,000, or 4.4%, compared to the first quarter of 2011.  The increase in sales in the first quarter compared to the prior year was the result of opening four new stores in the latter part of the prior year. Same store sales decreased by 0.7% compared to the prior year. Leon's franchise sales of $43,220,000 in the first quarter of 2012, increased by $2,411,000 or 5.9%, compared to the first quarter of 2011. The increase in sales in the first quarter compared to the same period in the prior year was mainly the result of opening two new stores in the latter part of 2011. Same store franchise sales increased by 1.6%. Our gross margin for the first quarter 2012 of 40.8% was down approximately 0.8% from the first quarter of 2011. The decrease in gross margin was mainly attributable to the decline in electronics margins. Net operating expenses of $53,306,000 were up $4,016,000 or 8.1% for the first quarter 2012 compared to the first quarter of 2011. The increase in operating expenses compared to the prior year were mainly due to two factors; higher costs including marketing, payroll and occupancy as a result of opening four new corporate stores in late 2011, being Guelph, Ontario; Mississauga, Ontario; Rosemère, Quebec; and Regina, Saskatchewan; higher sales commissions expenses as a result of higher sales for the quarter compared to the prior year quarter. Our accounting policy is to expense all new store opening costs as incurred. As a result of the above, net income for the first quarter of 2012 was $8,599,000, $0.12 per common share ($10,293,000, $0.15 per common share in 2011), a decrease of $0.03 per common share. Annual Financial Information ($ in thousands, except 2011 2010 2009 earnings per share and dividends) Net corporate sales 682,836 710,435 703,180 Leon's franchise sales 196,725 197,062 194,290 Total Leon's system-wide 879,561 907,497 897,470 sales Net income 56,666 63,284 56,864 Earnings per share Basic $0.81 $0.90 $0.80 Diluted $0.78 $0.87 $0.78 Total assets 595,339 566,674 529,156 Common share dividends $0.37 $0.32 $0.28 declared Special common share $0.15 - $0.20 dividends declared Convertible, non-voting $0.20 $0.18 $0.14 shares dividends declared Liquidity and Financial Resources ($ in thousands, Mar 31/12 Dec 31/11 Mar 31/11 except dividends per share) Cash, cash 195,931 221,823 202,770 equivalents, available-for-sale financial assets Trade and other 17,315 28,937 17,262 accounts receivable Inventory 91,694 87,830 78,444 Total assets 563,793 595,339 544,053 Working capital 208,154 204,649 202,832 CurrentQuarter Prior Prior Mar 31, 2012 Quarter Quarter For the 3 months Dec 31, Mar 31, ended 2011 2011 Cash flow provided (7,581) 26,230 (687) by (used in) operations Purchase of 3,586 6,336 2,876 property, plant and equipment Repurchase of 232 219 715 capital stock Dividends paid 17,457 6,292 6,310 Dividends paid per $0.25 $0.09 $0.09 share Cash, cash equivalents and available-for-sale financial assets decreased by $25,892,000 in the quarter mainly as a result of dividends paid. Major renovations are well underway in our Sudbury and Sault Ste. Marie, Ontario corporate stores. Our Kentville franchise has recently opened a new and larger replacement store in Coldbrook, Nova Scotia. Construction has also started for a brand new franchise store to replace our existing St. John, New Brunswick store. Finally, the Company has secured sites for four new corporate stores in: Orangeville and Brantford, Ontario; Sherbrooke, Quebec; and Rocky View County, Alberta, which is just north of Calgary. Our current plan is to open these locations during the latter part of 2012 and 2013. All funding for new store projects and renovations are planned to come from our existing cash resources. Quarterly Results (2012, 2011, 2010) Quarterly Income Statement ($000) - except per share data ___________________________________________________________________________________________ | | Quarter Ended | Quarter Ended | Quarter Ended | Quarter Ended | | | March 31 | December 31 | September 30 | June 30 | |___________|___________________|___________________|___________________|___________________| | | 2012 | 2011 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |___________|_________|_________|_________|_________|_________|_________|_________|_________| |Leon's | 157,431| 150,783| 193,823| 197,888| 174,373| 182,125| 163,857| 168,952| |corporate | | | | | | | | | |sales | | | | | | | | | |___________|_________|_________|_________|_________|_________|_________|_________|_________| |Leon's | 43,220| 40,809| 61,166| 59,820| 49,273| 49,421| 45,477| 45,493| |franchise | | | | | | | | | |sales | | | | | | | | | |___________|_________|_________|_________|_________|_________|_________|_________|_________| |Total | 200,651| 191,592| 254,989| 257,708| 223,646| 231,546| 209,334| 214,445| |Leon's | | | | | | | | | |system-wide| | | | | | | | | |sales | | | | | | | | | |___________|_________|_________|_________|_________|_________|_________|_________|_________| |Net income | $0.12| $0.15| $0.28| $0.30| $0.22| $0.26| $0.16| $0.17| |per share | | | | | | | | | |___________|_________|_________|_________|_________|_________|_________|_________|_________| |Fully | $0.12| $0.14| $0.27| $0.29| $0.21| $0.25| $0.15| $0.16| |diluted per| | | | | | | | | |share | | | | | | | | | |___________|_________|_________|_________|_________|_________|_________|_________|_________| Common Shares At March 31, 2012, there were 69,919,120 common shares issued and outstanding. During the first quarter 2012, 19,104 shares were repurchased at an average cost of $12.16 and then cancelled by the Company through its Normal Course Issuer Bid. In addition, during the quarter ended March 31, 2012, 89,668 convertible, non-voting series 2002 shares and 32,822 convertible, non-voting series 2005 shares were converted into common shares. There were 12,237 convertible, non-voting series 2009 shares cancelled. For details on the Company's commitments related to its redeemable shares, please refer to note 13 of the unaudited interim condensed consolidated financial statements. Commitments ($ in thousands) PaymentsDueby Period Contractual Lessthan 2-3 After5 Obligations Total 1 year years 4-5years years Operating Leases 1 59,065 6,859 12,512 12,647 27,047 Purchase Obligations 4,551 4,551 - - - Total Contractual Obligations 63,616 11,410 12,512 12,647 27,047 (1)The Company is obligated under operating leases to future minimum rental payments for various land and building sites across Canada. Critical Accounting Estimates and Assumptions Please refer to Note 4 of the 2011 annual consolidated financial statements for the Company's critical accounting estimates and assumptions. Pending Changes to Accounting Policies Several new and amended standards are not yet effective for the Company's interim condensed consolidated financial statements for the three month period ended March 31, 2012.  These pending changes to accounting standards and amendments are the same as those discussed in Note 3 of Leon's 2011 annual consolidated financial statements.  Please refer to the section heading "Accounting standards and amendments issued but not yet adopted" for further details, presented within Note 3 of Leon's 2011 annual consolidated financial statements. Risks and Uncertainties For a complete discussion of the risks and uncertainties which apply to the Company's business and operating results please refer to the Company's Annual Information Form dated March 30, 2012 available on www.sedar.com. 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 January 1, 2012 and ended on March 31, 2012 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 The slowdown in the economy which began in 2009 continues to affect our results and we do not see signs of any immediate improvement. As such, we anticipate that consumer discretionary spending will remain soft throughout 2012. To help counter this, we plan an even more robust marketing and merchandising campaign for the balance of 2012. The recent opening of four new stores in the latter part of 2011 should also aid our sales in 2012. Even with these measures in place, growing profits in 2012 will be challenging, but our strong financial position coupled with our experience in adjusting to changing market conditions, provide us with the confidence to adapt to the prevailing economic conditions. Non-IFRS Financial Measures In order to provide additional insight into the business, the Company has provided the measure of same store sales, in the revenue and expenses section above.  This measure does not have a standardized meaning prescribed by IFRS but it is a key indicator used by the Company to measure performance against prior period results. 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. The reconciliation between total corporate sales (an IFRS measure) and comparable store sales is provided below: ($ in thousands and Mar31,2012 Mar 31, 2011 for the 3 months ended) Net corporate sales 157,431 150,783 Adjustments for 7,675 - stores not in both fiscal periods Comparable store 149,756 150,783 sales 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 May, 2012. Interim Condensed Consolidated Financial Statements Leon's Furniture Limited INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED) As at March 31 As at December 31 ($ in thousands) 2012 2011 ASSETS Current assets Cash and cash equivalents [notes 4 and 6] 50,640 72,505 Available-for-sale financial assets [notes 4 and 19e] 145,291 149,318 Trade receivables [note 4] 17,315 28,937 Income taxes receivable 7,427 5,182 Inventories 91,694 87,830 Total current assets 312,367 343,772 Other assets 1,442 1,431 Property, plant and equipment [note 8] 214,416 214,158 Investment properties [note 9] 8,353 8,366 Intangible assets [note 10] 3,751 3,958 Goodwill 11,282 11,282 Deferred income tax assets 12,182 12,372 Total assets 563,793 595,339 LIABILITIES ANDSHAREHOLDERS' EQUITY Current liabilities Trade and other payables [notes 4 and 11] 53,324 75,126 Provisions [note 12] 9,356 11,231 Customers' deposits 18,736 19,157 Dividends payable [note 14] 6,993 17,457 Deferred warranty plan revenue 15,804 16,152 Total current liabilities 104,213 139,123 Deferred warranty plan revenue 18,721 19,445 Redeemable share liability [notes 4 and 13] 604 382 Deferred income tax liabilities 11,007 10,928 Total liabilities 134,545 169,878 Shareholders'equity attributable to the shareholders of theCompany Common shares [note 14] 21,870 20,918 Retained earnings 406,023 404,647 Accumulated other comprehensive income 1,355 (104) Total shareholders' equity 429,248 425,461 Total liabilities and shareholder's equity 563,793 595,339 Commitments and contingencies [note 19] The accompanying notes are an integral part of these unaudited interim condensed consolidated financialstatements Interim Condensed Consolidated Financial Statements Leon's Furniture Limited INTERIM CONSOLIDATED INCOME STATEMENTS (UNAUDITED) Three months ended March 31 ($ in thousands) 2012 2011 Revenue[note 15] 157,431 150,783 Cost of sales [note 7] 93,218 88,065 Gross profit 64,213 62,718 Operating expenses[note 16] General and administrative expenses 22,854 22,395 Sales and marketing expenses 20,512 18,512 Occupancy expenses 8,629 7,440 Other operating expenses 1,311 943 53,306 49,290 Operating profit 10,907 13,428 Finance income 749 821 Profit before income tax 11,656 14,249 Income tax expense [note 17] 3,057 3,956 Profit for the period attributable to theshareholders of the Company 8,599 10,293 Earnings per share [note 18] Basic $0.12 $0.15 Diluted $0.12 $0.14 The accompanying notes are an integralpart of these unaudited interim condensedconsolidatedfinancial statements. Interim Condensed Consolidated Financial Statements Leon's Furniture Limited INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) Three months ended March 31 Net of tax ($ in thousands) 2012 Tax effect 2012 Profit for the period 8,599 - 8,599 Other comprehensive income, net of tax Unrealized gains on available-for-sale financial assets arising during the period 1,735 227 1,508 Reclassification adjustment for net gains and (losses) included in profit for the period (57) (8) (49) Change in unrealized gains on available-for-sale financial assets arising during the period 1,678 219 1,459 Comprehensive income for the period attributable to the shareholders of the Company 10,277 219 10,058 Net of tax 2011 Tax effect 2011 Profit for the period 10,293 - 10,293 Other comprehensive income, net of tax Unrealized gains on available-for-sale financial assets arising during the period 450 128 322 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 447 128 319 Comprehensive income forthe period attributable to the shareholders of theCompany 10,740 128 10,612 The accompanying notes are an integral part of these unaudited interim condensedconsolidatedfinancial statements. Interim Condensed Consolidated Financial Statements Leon's Furniture Limited INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED) Accumulated other comprehensive Retained ($ in thousands) Commonshares income earnings Total As at December 31, 2010 19,177 480 390,629 410,286 Comprehensive income Profit for the period — — 10,293 10,293 Change in unrealized gains on available-for-sale — 319 — 319 financial assets arising during the period Total comprehensive income — 319 10,293 10,612 Transactions with shareholders Dividends declared — — (6,317) (6,317) Management share purchase plan [note 13] 946 — — 946 Repurchase of common shares [note 14] (6) — (709) (715) Total transactions with shareholders 940 — (7,026) (6,086) As at March 31, 2011 20,117 799 393,896 414,812 As at December 31, 2011 20,918 (104) 404,647 425,461 Comprehensive income Profit for the period — — 8,599 8,599 Change in unrealized gains on available-for-sale — 1,459 — 1,459 financial assets arising during the period Total comprehensive income — 1,459 8,599 10,058 Transactions with shareholders Dividends declared — — (6,993) (6,993) Management share purchase plan 954 — — 954 [note 13] Repurchase of common shares (2) — (230) (232) [note 14] Total transactions 952 — (7,223) (6,271) with shareholders As at March 31, 2012 21,870 1,355 406,023 429,248 The accompanying notes arean integral part of these unaudited interim condensedconsolidatedfinancial statements. Interim Condensed Consolidated Financial Statements Leon's Furniture Limited INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three months ended March 31 ($ in thousands) 2012 2011 OPERATING ACTIVITIES Profit for the period 8,599 10,293 Add (deduct) items not involving an outlay of cash Depreciation of property, plant and equipment and investment properties 3,375 2,977 Amortization of intangible assets 216 221 Amortization of deferred warranty plan revenue (4,167) (4,297) Gain on sale of property, plant and equipment (2) - Deferred income taxes 50 86 Gain (loss) on sale of available-for-sale financial assets (115) 43 Cash received on warranty plan sales 3,095 3,505 11,051 12,828 Net change in non-cash working capital balances related to operations [note 20(a)] (18,632) (13,515) Cash used in operating activities (7,581) (687) INVESTING ACTIVITIES Purchase of property, plant & equipment (3,586) (2,876) Purchase of intangible assets (9) - Proceeds on sale of property, plant & equipment 3 - Purchase of available-for-sale financial assets (129,990) (94,024) Proceeds on sale of available-for-sale financial assets 135,810 104,566 Decrease in employee share purchase loans [note 13] 1,177 1,156 Cash provided by investing activities 3,405 8,822 FINANCING ACTIVITIES Dividends paid [note 14] (17,457) (6,310) Repurchase of common shares [note (232) (715) 14] Cash used in financing activities (17,689) (7,025) Net (decrease) increase in cash and cash equivalents during the period (21,865) 1,110 Cash and cash equivalents, 72,505 71,589 beginning of period Cash and cash equivalents, end of 50,640 72,699 period The accompanying notes arean integral part of these unaudited interimcondensedconsolidatedfinancial statements. Notes to the Interim Condensed Consolidated Financial Statements (Unaudited) Leon's Furniture Limited Tabular amounts in thousands of Canadian dollars except shares outstanding and earnings per share For the three month periods ended March 31, 2012 and 2011 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 forty-one 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-seven franchisees operating thirty-two Leon's Furniture franchise stores. 2. BASIS OF PRESENTATION The interim condensed consolidated financial statements of the Company are prepared in accordance with IAS 34, Interim Financial Reporting, as issued by the International Accounting Standards Board ("IASB").  These interim condensed consolidated financial statements have been prepared using the same accounting policies and methods of computation as the annual consolidated financial statements of Leon's for the year ended December 31, 2011. The disclosure contained in these interim condensed consolidated financial statements does not include all requirements in IAS 1, Presentation of Financial Statements. Accordingly, the interim condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2011. The preparation of interim financial statements in accordance with IAS 34 requires the use of certain critical accounting estimates.  It also requires management to exercise judgment in 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 financial statements are consistent with those disclosed in the notes to the annual consolidated financial statements for the year ended December 31, 2011.  Accordingly, certain information and note disclosure normally included in the annual financial statements prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the IASB, have been omitted or condensed.  The financial statements of the Company include the financial results of Leon's Furniture Limited and its wholly owned subsidiaries, Murlee Holdings Limited, Leon Holdings (1967) Limited and Ablan Insurance Corporation. 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. These interim condensed consolidated financial statements were approved and authorized for issuance by the Board of Directors on May 14, 2012. 3. STANDARDS ISSUED BUT NOT EFFECTIVE Several new and amended standards are not yet effective for the Company's interim condensed consolidated financial statements for the three month period ended March 31, 2012.  These pending changes to accounting standards and amendments are the same as those discussed in Note 3 of Leon's 2011 annual consolidated financial statements.  Please refer to the section heading "Accounting standards and amendments issued but not yet adopted" for further details, presented within Note 3 of Leon's 2011 annual consolidated financial statements. 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. _________________________________________________________________________ |Financial |Designation |Measurement | March| December| |Instrument | | |31, 2012| 31, 2011| |__________________|__________________|______________|________|___________| |Cash and cash |Available-for-sale|Fair value | 50,640| 72,505| |equivalents | | | | | |__________________|__________________|______________|________|___________| |Available-for-sale|Available-for-sale|Fair Value | 145,291| 149,318| |financial assets | | | | | |__________________|__________________|______________|________|___________| |Trade receivables |Loans and |Amortized cost| 17,315| 28,937| | |receivables | | | | |__________________|__________________|______________|________|___________| |Trade and other |Other financial |Amortized cost| 53,324| 75,126| |payables |liabilities | | | | |__________________|__________________|______________|________|___________| |Redeemable share |Other financial |Amortized cost| 604| 382| |liability |liabilities | | | | |__________________|__________________|______________|________|___________| Fair value hierarchy The following table classifies financial assets and liabilities that are recognized on the consolidated statements of financial position at fair value in a hierarchy that is based on significance of the inputs used in making the measurements. The levels in the hierarchy are: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) Level 3: Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs). __________________________________________________________________ |Financial | Hierarchy level | March 31,2012| December31,| |Instruments at | | | 2011| |Fair Value | | | | |__________________|_________________|_______________|_____________| |Cash and cash | 1 | 50,640| 72,505| |equivalents | | | | |__________________|_________________|_______________|_____________| |Available-for-sale| 1 | 33,718| 31,147| |financial assets -| | | | |Equities | | | | |__________________|_________________|_______________|_____________| |Available-for-sale| 2 | 111,573| 118,171| |financial assets -| | | | |Bonds | | | | |__________________|_________________|_______________|_____________| Financial risks factors The Company's activities expose it to a variety of financial risks: market risk (including foreign currency risk, interest rate risk, and other price risk), credit risk and liquidity risk.  Risk management is carried out by the Company by identifying and evaluating the financial risks inherent within its operations.  The Company's overall risk management activities seek to minimize potential adverse effects on the Company's financial performance. (a)   Market risk (i) Foreign exchange risk - The Company is exposed to foreign currency risk. Certain merchandise is paid for in U.S. dollars. This foreign exchange cost is included in the inventory cost. The Company does not believe it has significant foreign currency risk with respect to its trade payables in U.S. dollars. The Company is also exposed to foreign currency risk on its foreign currency denominated portfolio of available-for-sale financial assets, primarily related to actively traded international equities. As at March 31, 2012, the Company's investment portfolio included 12% of foreign currency denominated assets [as at December 31, 2011 - 10%]. 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. (ii) Interest rate risk - The Company is exposed to interest rate risk through its portfolio of available-for-sale financial assets by holding cash, cash equivalents and actively traded Canadian and international Bonds. At March 31, 2012, 83% of the Company's investment portfolio was made up of cash, cash equivalents and Canadian and international Bonds [as at December 31, 2011 - 86%]. 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. (iii) 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 as it relates to unrecognized gains and losses. The risk is managed by the Company and its investment managers by ensuring a conservative asset allocation of bonds and equities. (b)   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 partially mitigated by the Company's credit management practices. The Company's trade receivables total $17,315,000 as at March 31, 2012 [as at December 31, 2011 - $28,937,000]. 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 $85,000 as at March 31, 2012 [as at December 31, 2011 - $191,000] 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, 2012 [as at December 31, 2011 - $500,000]. 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. (c)   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. 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 31, 2012| As at December 31,| | | | 2011| |______________________|______________________|____________________| |Cash at bank and on | 5,070| 2,181| |hand | 45,570| 70,324| |Short-term investments| | | |______________________|______________________|____________________| |Totals | 50,640| 72,505| |______________________|______________________|____________________| 7. INVENTORIES The amount of inventory recognized as an expense for the three month period ended March 31, 2012 was $91,301,000 (period ended March 31, 2011 - $85,873,000) which is presented within cost of sales on the interim consolidated income statements. During the three month period ended March 31, 2012, there was $125,000 in inventory write-downs (three month period ended March 31, 2011 - $149,000). At March 31, 2012, the inventory markdown provision totaled $4,971,000 (As at December 31, 2011 - $4,846,000). There were no reversals of any write-down for the period ended March 31, 2012 (period ended March 31, 2011 - $nil). None of the Company's inventory has been pledged as security for any liabilities of the Company. 8. PROPERTY, PLANT AND EQUIPMENT _____________________________________________________________________________________________ | | | | | | Computer| Building| | | | Land| Buildings| Equipment| Vehicles| hardware| improvements| Total| |____________|________|___________|___________|__________|__________|______________|__________| |As at | | | | | | | | |December 31,| 55,331| 82,604| 11,061| 3,348| 1,117| 48,031| 201,492| |2011: | 100| 9,165| 4,403| 2,253| 164| 9,253| 25,338| |Opening net | —| —| —| 18| —| —| 18| |book value | —| 3,563| 2,029| 1,271| 538| 5,253| 12,654| |Additions | | | | | | | | |Disposals | | | | | | | | |Depreciation| | | | | | | | |____________|________|___________|___________|__________|__________|______________|__________| |Closing net | 55,431| 88,206| 13,435| 4,312| 743| 52,031| 214,158| |book value | | | | | | | | |____________|________|___________|___________|__________|__________|______________|__________| |As at | | | | | | | | |December 31,| 55,431| 184,530| 40,456| 23,051| 9,115| 87,526| 400,109| |2011: | —| 96,324| 27,021| 18,739| 8,372| 35,495| 185,951| |Cost | | | | | | | | |Accumulated | | | | | | | | |depreciation| | | | | | | | |____________|________|___________|___________|__________|__________|______________|__________| |Net book | 55,431| 88,206| 13,435| 4,312| 743| 52,031| 214,158| |value | | | | | | | | |____________|________|___________|___________|__________|__________|______________|__________| |As at March | | | | | | | | |31, 2012: | 55,431| 88,206| 13,435| 4,312| 743| 52,031| 214,158| |Opening net | (50)| 7| 365| 209| —| 3,090| 3,621| |book value | —| —| —| 1| —| —| 1| |Additions | —| 972| 535| 339| 114| 1,402| 3,362| |Disposals | | | | | | | | |Depreciation| | | | | | | | |____________|________|___________|___________|__________|__________|______________|__________| |Closing net | 55,381| 87,241| 13,265| 4,181| 629| 53,719| 214,416| |book value | | | | | | | | |____________|________|___________|___________|__________|__________|______________|__________| |As at March | | | | | | | | |31, 2012: | 55,381| 184,537| 40,821| 23,185| 9,115| 90,616| 403,655| |Cost | —| 97,296| 27,556| 19,004| 8,486| 36,897| 189,239| |Accumulated | | | | | | | | |depreciation| | | | | | | | |____________|________|___________|___________|__________|__________|______________|__________| |Net book | 55,381| 87,241| 13,265| 4,181| 629| 53,719| 214,416| |value | | | | | | | | |____________|________|___________|___________|__________|__________|______________|__________| Included in the above balances at March 31, 2012 are assets not being amortized with a net book value of approximately $2,946,000 [as at December 31, 2011 - $2,638,000] being construction-in-progress. 9. INVESTMENT PROPERTIES _____________________________________________________________________ | | | | Building| | | | Land| Buildings| improvements| Total| |_____________________|_________|___________|______________|__________| |As at December | | | | | |31,2011: | 8,286| —| 131| 8,417| |Opening net book | —| —| —| —| |value | —| —| —| —| |Additions | —| —| 51| 51| |Disposals | | | | | |Depreciation | | | | | |_____________________|_________|___________|______________|__________| |Closing net book | 8,286| —| 80| 8,366| |value | | | | | |_____________________|_________|___________|______________|__________| |As at December 31, | | | | | |2011: | 8,286| 8,039| 1,457| 17,782| |Cost | -| 8,039| 1,377| 9,416| |Accumulated | | | | | |depreciation | | | | | |_____________________|_________|___________|______________|__________| |Net book value | 8,286| —| 80| 8,366| |_____________________|_________|___________|______________|__________| |As at March 31, 2012:| | | | | |Opening net book | 8,286| —| 80| 8,366| |value | —| —| —| —| |Additions | —| —| —| —| |Disposals | —| —| 13| 13| |Depreciation | | | | | |_____________________|_________|___________|______________|__________| |Closing net book | 8,286| —| 67| 8,353| |value | | | | | |_____________________|_________|___________|______________|__________| |As at March 31, 2012:| | | | | |Cost | 8,286| 8,039| 1,457| 17,782| |Accumulated | —| 8,039| 1,390| 9,429| |depreciation | | | | | |_____________________|_________|___________|______________|__________| |Net book value | 8,286| —| 67| 8,353| |_____________________|_________|___________|______________|__________| The fair value of the investment property portfolio as at March 31, 2012 was approximately $29,750,000 [as at December 31, 2011 - $29,750,000]. The fair value was compiled internally by management based on available market evidence. 10. INTANGIBLE ASSETS ______________________________________________________________________ | | Customer| Brand| Non-compete| Computer| | | | relationships| name| Agreement| software| Total| |____________|______________|_______|____________|__________|__________| | | | | | | | |As at | | | | | | |December 31,| 1,250| 1,750| 625| 1,277| 4,902| |2011: | —|—| —| (64)| (64)| |Opening net | —|—| —| —| —| |book value | 250| 250| 125| 255| 880| |Additions | | | | | | |Disposals | | | | | | |Amortization| | | | | | |for the year| | | | | | |____________|______________|_______|____________|__________|__________| |Net book | 1,000| 1,500| 500| 958| 3,958| |value | | | | | | |____________|______________|_______|____________|__________|__________| | | | | | | | |As at | | | | | | |December 31,| | | | | | |2011: | 2,000| 2,500| 1,000| 4,202| 9,702| |Cost | 1,000| 1,000| 500| 3,244| 5,744| |Accumulated | | | | | | |amortization| | | | | | |____________|______________|_______|____________|__________|__________| |Net book | 1,000| 1,500| 500| 958| 3,958| |value | | | | | | |____________|______________|_______|____________|__________|__________| | | | | | | | |As at March | | | | | | |31, 2012: | | | | | | |Opening net | 1,000| 1,500| 500| 958| 3,958| |book value | —|—| —| 9| 9| |Additions | —|—| —| —| —| |Disposals | 63| 62| 31| 60| 216| |Amortization| | | | | | |for the year| | | | | | |____________|______________|_______|____________|__________|__________| |Closing net | 937| 1,438| 469| 907| 3,751| |book value | | | | | | |____________|______________|_______|____________|__________|__________| | | | | | | | |As at March | | | | | | |31, 2012: | | | | | | |Cost | 2,000| 2,500| 1,000| 4,211| 9,711| |Accumulated | 1,063| 1,062| 531| 3,304| 5,960| |amortization| | | | | | |____________|______________|_______|____________|__________|__________| |Net book | 937| 1,438| 469| 907| 3,751| |value | | | | | | |____________|______________|_______|____________|__________|__________| 11. TRADE AND OTHER PAYABLES _________________________________________________________________ | | As at March 31, 2012| Asat December 31, 2011| |_________________|______________________|________________________| |Trade payables | 45,494| 62,485| |Other payables | 7,830| 12,641| |_________________|______________________|________________________| | | 53,324| 75,126| |_________________|______________________|________________________| 12. PROVISIONS ____________________________________________________________________ | | Profit sharing and| | | | | bonuses| Vacation pay| Totals| |_____________________|___________________|______________|___________| |As at December 31, | 10,860| 371| 11,231| |2011 | | | | |_____________________|___________________|______________|___________| | Additional | 2,900| 1,328| 4,228| |provisions | (1,865)| — | (1,865)| | Unused amounts | (3,865)| (373)| (4,238)| |reversed | | | | | Utilized during the| | | | |quarter | | | | |_____________________|___________________|______________|___________| |As at March 31, 2012 | 8,030| 1,326| 9,356| |_____________________|___________________|______________|___________| (a)     The provision for profit sharing and bonuses is payable within the first half of the following fiscal year. (b)     The provision for vacation pay represents employee entitlements to untaken vacation at each reporting date. 13. REDEEMABLE SHARE LIABILITY ____________________________________________________________________ | | As at| As at| | | March 31,| December 31,| | | 2012| 2011| |_______________________________________|____________|_______________| | | | | |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 | 4,155| 4,799| | | | | |Issued and fully paid | 4,800| 5,111| |578,080 series 2002 shares | | | |[December 31, 2011 - 667,748] | 9,761| 9,869| |508,426 series 2005 shares | | | |[December 31, 2011 - 541,248] | (18,112)| (19,397)| |1,102,870 series 2009 shares | | | |[December 31, 2011 - 1,115,107] | | | |Less employee share purchase loans | | | |_______________________________________|____________|_______________| | | 604| 382| |_______________________________________|____________|_______________| 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 $465,000 [2011 - $470,000] have been used to reduce the respective shareholder loans. The preferred dividends are paid once a year during the first quarter. During the three month period ended March 31, 2012, 89,668 series 2002 shares [three month period ended March 31, 2011 - 71,198] and 32,822 series 2005 shares [three month period ended March 31, 2011 - 45,986] were converted into common shares with a stated value of approximately $644,000 [three month period ended March 31, 2011 - $512,000] and $310,000 [three month period ended March 31, 2011 - $434,000], respectively. During the three month period ended March 31, 2012, the Company cancelled 12,237 series 2009 shares [three month period ended March 31, 2011 - nil] in the amount of $108,000 [three month period ended March 31, 2011 - $nil]. 14. COMMON SHARES _____________________________________________________________________ | | As at March 31,| As at December 31,| | | 2012| 2011| |____________________________|__________________|_____________________| | | | | |Authorized -Unlimited common| | | |shares | | | |____________________________|__________________|_____________________| | | | | |Issued | | | |69,919,120 common shares | 21,870| 20,918| |[December 31, 2011 - | | | |69,815,734] | | | |____________________________|__________________|_____________________| During the three month period ended March 31, 2012, 89,668 series 2002 shares [three month period ended March 31, 2011 - 71,198] and 32,822 series 2005 shares [three month period ended March 31, 2011 - 45,986] were converted into common shares with a stated value of approximately $644,000 [three month period ended March 31, 2011 - $512,000] and $310,000 [three month period ended March 31, 2011 - $434,000], respectively. During the three month period ended March 31, 2012, the Company repurchased 19,104 [three month period ended March 31, 2011 - 51,274] of its common shares on the open market pursuant to the terms and conditions of Normal Course Issuer Bid at a net cost of approximately $232,000 [three month period ended March 31, 2011 - $715,000].  All shares repurchased by the Company pursuant to its Normal Course Issuer Bid have been cancelled.  The repurchase of common shares resulted in a reduction of share capital in the amount of approximately $2,000 [three month period ended March 31, 2011 - $6,000].  The excess net cost over the average carrying value of the shares of approximately $230,000 [three month period ended March 31, 2011 - $709,000] has been recorded as a reduction in retained earnings. The dividends paid for the three month periods ended March 31, 2012 and March 31, 2011 were $17,457,000 [$0.25 per share] and $6,310,000 [$0.09 per share] respectively. 15. REVENUE _________________________________________________________________ | |Three month period| Three month period| | | ended March 31,| ended March 31, 2011| | | 2012| | |______________________|__________________|_______________________| |Sale of goods by | 152,585| 146,054| |corporate stores | 2,760| 2,531| |Royalty income from | 1,898| 2,014| |franchisees | 188| 184| |Extended warranty | | | |revenue | | | |Rental income from | | | |investment property | | | |______________________|__________________|_______________________| | | 157,431| 150,783| |______________________|__________________|_______________________| 16. OPERATING EXPENSES BY NATURE _____________________________________________________________________ | | Three month period| Three month period| | | ended March 31, 2012| ended March 31, 2011| |_____________________|_______________________|_______________________| |Depreciation of | | | |property, plant and | 3,375| 2,977| |equipment and | | | |investment properties| | | |_____________________|_______________________|_______________________| |Amortization of | 216| 221| |intangible assets | | | |_____________________|_______________________|_______________________| |Operating lease | 1,280| 791| |payments | | | |_____________________|_______________________|_______________________| 17. INCOME TAX EXPENSE _____________________________________________________________________ | | Three month period| Threemonth period| | | ended March 31, 2012| ended March 31, 2011| |_____________________|_______________________|_______________________| |Current income tax | 3,118| 3,885| |expense | (61)| 71| |Deferred income tax | | | |(recovery) expense | | | |_____________________|_______________________|_______________________| | | 3,057| 3,956| |_____________________|_______________________|_______________________| 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, 2012 and March 31, 2011 were 26.75% and 28.5%, respectively. 18. 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 69,870,782 for the three month period ended March 31, 2012 [three month period ended March 31, 2011 - 70,148,298] The following table reconciles the profit for the period and the number of shares for the basic and diluted earnings per share calculations: _____________________________________________________________________ | | | Profit for the| Weighted| Per share| | | | period| average| amount| | | | attributed to| number of| | | | | common| shares| | | | | shareholders| | | |______________|____________|_______________|__________|______________| | |Basic | 8,599|69,870,782| 0.12| | |____________|_______________|__________|______________| | |Dilutive | —| 2,256,893| —| |Three month |effect (note| | | | |period ended |13) | | | | |March 31, |____________|_______________|__________|______________| |2012 |Diluted | 8,599|72,127,675| 0.12| |______________|____________|_______________|__________|______________| | |Basic | 10,293|70,148,298| 0.15| | |____________|_______________|__________|______________| | |Dilutive | —| 2,529,283| —| | |effect (note| | | | |Three month |13) | | | | |period ended |____________|_______________|__________|______________| |March 31, 2011|Diluted | 10,293|72,677,581| 0.14| |______________|____________|_______________|__________|______________| 19. COMMITMENTS AND CONTINGENCIES [a] The cost to complete all construction-in-progress as at March 31, 2012 totals $1,817,000 at three locations [December 31, 2011 - to complete at two locations at an approximate cost of $4,407,000]. [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 | 6,859| |Later than 1 year and no later than 5 years | 25,159| |Later than 5 years | 27,047| |________________________________________________|___________| | | 59,065| |________________________________________________|___________| [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 | 791| |Later than 1 year and no later than 5 years | 2,435| |Later than 5 years | 1,291| |________________________________________________|__________| | | 4,517| |________________________________________________|__________| [d] The Company has issued approximately $255,000 in letters of credit primarily with respect to buildings under construction or being completed. [e] Pursuant to a reinsurance agreement relating to the extended warranty sales, the Company has pledged available-for-sale financial assets amounting to $20,523,000 [as at December 31, 2011 - $20,257,000] and provided a letter of credit of $1,500,000 [as at December 31, 2011 - $1,500,000] for the benefit of the insurance company. 20. INTERIM 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 March31, 2012| ended March 31, 2011| |_____________________|______________________|_______________________| |Trade receivables | 11,622| 11,307| |Inventories | (3,864)| 6,979| |Other assets | (11)| 13| |Trade, other payables| (23,713)| (28,834)| |and provisions | (2,245)| (3,044)| |Income taxes payable | (421)| 64| |Customers' deposits | | | |_____________________|______________________|_______________________| | | (18,632)| (13,515)| |_____________________|______________________|_______________________| [b] Supplemental cash flow information: _________________________________________________________________ | | Three monthperiod| Three month period| | | ended March 31,| ended March 31, 2011| | | 2012| | |______________________|__________________|_______________________| |Income taxes paid | 5,257| 7,118| |______________________|__________________|_______________________| [c] During the three month period, property, plant and equipment were acquired at an aggregate cost of $3,621,000 [period ended March 31, 2011 - $5,524,000], of which $909,000 [2011 - $874,000] is included in trade and other payables as at December 31, 2011.           Leon's Furniture Limited CONTACT: Dominic Scarangella, Tel: 416.243.4073

Copyright