Press release from CNW Group
Leon's Furniture Limited - 2011 FIRST QUARTER
Thursday, May 19, 2011
Leon's Furniture Limited - 2011 FIRST QUARTER12:24 EDT Thursday, May 19, 2011TORONTO, May 19 /CNW/ - For the three months ended March 31, 2011, total Leon's sales were $191,592,000 including $40,809,000 of franchise sales ($203,798,000 including $42,328,000 of franchise sales in 2010), a decrease of 6%. Net income from operations for the first quarter 2011 was $9,827,000, 14¢ per common share ($11,446,000, 16¢ per common share in 2010), a decrease of 12.5% per common share.We ended up the first quarter of 2011 with lower sales and profits compared to the first quarter of 2010. The decrease in sales was due to both a reduction in the number of sales transactions but also a lower average sale than the prior year. We face a difficult economy, decreasing new housing starts and record consumer debt. We continue to look for innovations in order to help improve sales. At the same time, we are pleased with the efforts of our associates to improve productivity and control expenses.We believe that we must become even more aggressive in the marketplace during 2011 in order to improve the performance of our Company going forward. Improved sales and productivity will be aided by the opening of four additional stores this year. We have begun construction on a new 84,000 sq. ft. facility in Regina, Saskatchewan with a scheduled grand opening for the fall of 2011. Leasehold improvements are well on their way for a new leased retail showroom and warehouse of 76,000 sq. ft. in Guelph, Ontario. In addition, leasing documents have been signed for a 40,000 sq. ft. retail store in Mississauga, Ontario and a 40,000 sq. ft. retail store in Rosemère, Quebec. We plan for grand openings of these new facilities in the fall of this year. Finally, we also plan to continue the renovation of our existing buildings with major renovations and additions to our Sault St. Marie and Sudbury stores later this year.As previously announced, we paid a quarterly 9¢ dividend on April 4, 2011. Today we are happy to announce that the Directors have declared a quarterly dividend of 9¢ per common share payable on the 7th day of July 2011 to shareholders of record at the close of business on the 7th day of June 2011. As of 2007, dividends paid by Leon's Furniture Limited are "eligible dividends" pursuant to the changes to the Income Tax Act under Bill C-28, Canada.EARNINGS PER SHARE FOR EACH QUARTER MARCH 31JUNE 30SEPT. 30DEC. 31YEAR TOTAL2011--BasicFully Diluted14¢14¢ $0.14$0.142010--BasicFully Diluted16¢16¢18¢17¢25¢24¢30¢29¢$0.89$0.862009--BasicFully Diluted12¢12¢12¢12¢22¢21¢34¢33¢$0.80$0.78The quarter ended March 31, 2011 and all quarters for 2010 have been restated to IFRS while quarters reported for 2009 are as originally reported under Canadian GAAP. LEON'S FURNITURE LIMITEDMark J. LeonChairman of the BoardMANAGEMENT'S DISCUSSION AND ANALYSISFor the three months ended March 31, 2011 and 2010Dated: May 19, 2011The following review and analysis of Leon's Furniture Limited's operations and financial position for the three months ended March 31, 2011 and 2010 should be read in conjunction with the audited consolidated financial statements of Leon's Furniture Limited for the year ended December 31, 2010, set forth in the Company's Annual Report for such year and incorporated by reference in the Company's Annual Information Form dated March 31, 2011.Forward-Looking StatementsThis MD&A, in particular the section under heading "Outlook", includes forward-looking statements, which are not historic facts based on certain assumptions and reflect Leon's Furniture Limited's current expectations. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from current expectations. Some of the factors that can cause actual results to differ materially from current expectations are: a continuing slowdown in the Canadian economy; a further drop in consumer confidence and dependency on product from third party suppliers. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.Financial Statements Governance PracticeLeon's Furniture Limited's financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and the amounts expressed are in Canadian dollars. Per share amounts are calculated using the weighted average number of shares outstanding for the applicable period.Leon's Furniture Limited 2010 financial results included in this Interim MD&A have been restated to an IFRS basis. This MD&A is intended to provide readers with the information that management believes is required to gain an understanding of Leon's Furniture Limited's current results and to assess the Company's future prospects. Accordingly, sections of this report contain forward-looking statements that are based on current plans and expectations. These forward-looking statements are effected by risks and uncertainties that could have a material impact on future prospects. Readers are cautioned that actual events and results may vary.The Audit Committee of the Board of Directors of Leon's Furniture Limited reviewed the Management's Discussion and Analysis ("MD&A") and the financial statements, and recommended that the Board of Directors approve them. Following review by the full Board, the financial statements and MD&A were approved.IntroductionLeon's Furniture Limited has been in the furniture retail business for over 100 years. The Company's 39 corporate and 30 franchise stores can be found in every province across Canada except British Columbia. Main product lines sold at retail include furniture, appliances and electronics.Revenues and ExpensesFor the three months ended March 31, 2011, total Leon's sales were $191,592,000 including $40,809,000 of franchise sales ($203,798,000 including $42,328,000 of franchise sales in 2010), a decrease of 6%.Leon's corporate sales of $150,783,000 in the first quarter of 2011, decreased by $10,687,000, or 6.6%, compared to the first quarter of 2010. The decrease in sales in the first quarter compared to the prior year reflected a continuation of waning consumer confidence, a somewhat soft economy, decrease in housing starts and overall reduced consumer spending. Same store corporate sales decreased by 7.5% compared to the prior year.Leon's franchise sales of $40,809,000 in the first quarter of 2011, decreased by $1,519,000 or 3.6%, compared to the first quarter of 2010. The franchise division experienced sales decreases in most regions of Canada.Our gross margin for the first quarter 2011 of 41.6% decreased marginally from the first quarter 2010. Overall margins were down slightly in all major product categories compared to the first quarter of 2010.Net operating expenses of $49,756,000 were down $1,906,000 or 3.7% for the first quarter 2011 compared to the first quarter 2010. General and Administrative expenses are down by 3.9% in the quarter compared to the prior year. The decrease was mainly the result of lower depreciation costs on buildings. Commencing with 2011, buildings are being depreciated over a useful life of 30 years which has resulted in a depreciation expense reduction of approximately $800,000 compared to the same quarter 2010. Selling and Marketing expenses were basically in line with the prior year. However, advertising expenses were up $750,000 compared to the prior year quarter, offset by lower commissions paid on less sales than the prior year. All other operating costs in the quarter were comparable with the prior year first quarter.As a result of the above, net income from operations for the first quarter 2011 was $9,827,000, 14¢ per common share ($11,446,000, 16¢ per common share in 2010), a decrease of 12.5% per common share. Annual Financial Information($ in thousands, except earnings per share and dividends)2010*2009*2008 Net Corporate Sales710,435703,180740,376Leon Franchise Sales197,062194,290209,848 Total Leon sales907,497897,470950,224 Net Income62,66456,86463,390Earnings per Share Basic$0.89$0.80$0.90Diluted$0.86$0.78$0.87 Total Assets544,053529,156513,408 Common Share Dividends Declared$0.32$0.28$0.28Special Common Share Dividends Declared-$0.20$0.10Convertible, Non-Voting Shares Dividends Declared$0.18$0.14$0.14* The year ended 2010 has been restated to IFRS while years ended 2009 and 2008 are as originally reported under Canadian GAAP. Liquidity and Financial Resources ($ in thousands, except dividends per share)Mar. 31/11Dec. 31/10Mar. 31/10 Cash, cash equivalents, available for sale financial assets202,770211,813168,258Trade and other accounts receivable17,26228,56921,065Inventory78,44485,42385,622Total assets544,053566,674515,653Working capital202,832200,826174,270 For the 3 months endedCurrent QuarterMar. 31/11Prior QuarterDec. 31/10Prior QuarterMar. 31/10 Cash flow (used in) provided by operations(687)42,6332,871Purchase of property, plant & equipment2,8765,502398Repurchase of capital stock7151,800-Dividends paid6,3106,3094,938 Dividends paid per share$0.09$0.09$0.07This year, we have begun construction on a new 84,000 sq. ft. facility in Regina, Saskatchewan with a scheduled grand opening for the fall of 2011. Leasehold improvements are well on there way for a new leased premise of 76,000 sq. ft. in Guelph, Ontario. In addition, leasing documents have been signed for a 40,000 sq. ft. premise in Mississauga, Ontario and a 40,000 sq. ft. facility in Rosemère, Quebec. We plan for grand openings of these new facilities in the late fall of this year. Finally, we also plan to continue the renovation of our existing buildings with major renovations and additions to our Sault St. Marie and Sudbury stores later this year. At the present time, all funding for new store projects and renovations are scheduled to come from our existing cash resources.Quarterly Results (2011, 2010, 2009)Quarterly Income Statement ($000) - except per share data Quarter EndedMarch 31Quarter EndedDecember 31Quarter EndedSeptember 30Quarter EndedJune 30 20112010201020092010200920102009Leon's Corporate Sales150,783161,470197,888197,986182,125187,431168,952165,238Leon's Franchise sales40,80942,32859,82057,67949,42149,24345,49344,693Total Leon's sales191,592203,798257,168255,665231,546236,674214,445209,931Net Income Per Share$0.14$0.16$0.30$0.34$0.25$0.22$0.18$0.12Fully Diluted Per Share$0.14$0.16$0.29$0.33$0.24$0.21$0.17$0.12The quarters ended March 31, 2010, June 30, 2010, September 30, 2010 and December 31, 2010 have been restated to IFRS while quarters reported for 2009 are as originally reported under Canadian GAAP. CHANGES IN ACCOUNTING POLICIESAdoption of IFRSLeon's Furniture Limited was required to prepare financial statements in accordance with IFRS starting with the interim financial statements for the quarter ended March 31, 2011. These statements required the 2010 results to be restated in accordance with IFRS.Detailed notes on the changes to previously reported amounts are included in the notes to the unaudited condensed interim consolidated financial statements for the period ended March 31, 2011 which have been filed on SEDAR.The following charts provide selected restated 2010 results by quarter.Consolidated Net IncomeIFRS Restated 2010 results by quarter FirstSecondThirdFourthFull Year QuarterQuarterQuarterQuarter2010 Revenue161,470168,952182,125197,888710,435Cost of sales93,498100,187106,564112,130412,379Gross profit67,97268,76575,56185,758298,056 Operating expenses General and administrative expenses23,29325,43224,48425,47598,684Sales and marketing expenses18,57218,00819,29722,34478,221Occupancy expenses7,6307,4907,2147,21729,551Other operating expenses2,1677851,7481,8026,502 51,66251,71552,74356,838212,958Operating profit16,31017,05022,81828,92085,098 Gain on sale of capital property 1,231 1,231Finance income6916637899913,134Profit before income tax17,00117,71324,83829,91189,463 Income tax expense5,5555,4137,0018,83026,799Profit for the period attributable to the shareholders of the Company11,44612,30017,83721,08162,664 Earnings per share Basic$ 0.16$ 0.18$ 0.25$ 0.30$ 0.89Diluted$ 0.16$ 0.17$ 0.24$ 0.29$ 0.86CONTROLS AND PROCEDURESChanges in Internal Control over Financial ReportingThere have been no changes in Leon's internal controls over financial reporting that occurred during the first quarter 2011, the most recent interim period, that materially affected, or are reasonably likely to materially affect, Leon's internal controls over financial reporting.OutlookIn the first quarter of 2011 we saw a reduction in same store sales from the prior year quarter. We continue to see a slowdown in new housing starts and a general slowdown in consumer spending that we noted in 2010. At this point we do not see any clear signs as to when we will see a strong economic turnaround. However, to counter this, we continue to plan a very robust marketing and merchandising campaign for the balance of the year. In addition, we should see a boost in sales and improved productivity that will be aided by the opening of four additional stores this year. Even with these measures in place, growing profits for the balance of this year will be challenging. Despite this, our strong financial position coupled with our experience in adjusting to changing market conditions, provide us with the confidence to adapt to whatever economic conditions prevail.NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTSUnder 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 ScarangellaPresident & Chief Executive Officer Vice President & Chief Financial OfficerDated as of the 19th day of May, 2011.Condensed Consolidated Financial Statements Leon's Furniture LimitedCONSOLIDATED STATEMENT OF FINANCIAL POSITION(UNAUDITED) As at March 31As at December 31As at January 1($ in thousands)201120102010 [note 21][note 21]ASSETS Current assets Cash and cash equivalents [note 6] 72,699 71,589 58,301Available-for-sale financial assets [note 18] 130,071 140,224 112,425Trade receivables 17,262 28,569 31,501Income taxes receivable 2,520 - - Inventory 78,444 85,423 83,957Total current assets 300,996 325,805 286,184Other assets 1,561 1,574 1,560Property, plant and equipment [note 7] 204,052201,492203,653Investment properties [note 8] 8,4048,4178,545Intangible assets [note 9] 4,681 4,902 5,334Goodwill [note 9] 11,282 11,282 11,282Deferred income tax assets 13,07713,20212,598Total assets 544,053 566,674 529,156 LIABILITIES AND SHAREHOLDERS' EQUITYCurrent Trade and other payables [note 10] 47,18571,724 72,603Provisions [note 11] 10,69312,341 11,277Income taxes payable - 524 1,958Customers' deposits 17,26217,198 15,632Dividends payable [note 13] 6,3176,310 4,938Deferred warranty plan revenue 16,70716,882 16,150Total current liabilities 98,164 124,979 122,558Deferred warranty plan revenue 20,77521,39222,248Redeemable share liability [note 12] 382172383Deferred income tax liabilities 9,9209,8458,829Total liabilities 129,241 156,388 154,018 Shareholders' equity attributable to the shareholders of the CompanyCommon shares [note 13] 20,11719,17717,704Retained earnings 392,425389,624357,192Accumulated other comprehensive income 2,270 1,485 242Total shareholders' equity 414,812 410,286 375,138Total liabilities and shareholder's equity 544,053566,674529,156 Commitments and contingencies [note 18] The accompanying notes are an integral part of these interim consolidated financial statements. Condensed Consolidated Financial Statements Leon's Furniture LimitedCONSOLIDATED INCOME STATEMENTS (UNAUDITED) Three months ended March 31($ in thousands)20112010 Revenue [note 14] 150,783 161,470Cost of sales 88,065 93,498Gross profit 62,718 67,972Operating expenses [note 15] General and administrative expenses 22,395 23,293Sales and marketing expenses 18,512 18,572Occupancy expenses 7,440 7,630Other operating expenses 1,409 2,167 49,756 51,662Operating profit 12,962 16,310Finance income 821 691Profit before income tax 13,783 17,001Income tax expense [note 16] 3,956 5,555Profit for the period attributable to the shareholders of the Company 9,827 11,446 Earnings per share [note 17] Basic$0.14$0.16Diluted$0.14$0.16 The accompanying notes are an integral part of these interim consolidated financial statements. Condensed Consolidated Financial Statements Leon's Furniture LimitedCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(UNAUDITED) Three months ended March 31 Net of tax($ in thousands)2011 Tax effect 2011 Profit for the period 9,827 - 9,827Other comprehensive income, net of tax Unrealized gains on available-for-sale financial assets arising during the period 916 128 788 Reclassification adjustment for net gains and (losses) included in profit for the period (3) - (3) Change in unrealized gains on available-for-sale financial assets arising during the period 913 128 785Comprehensive income for the period attributable to the shareholders of the Company 10,740 128 10,612 Net of tax 2010 Tax effect 2010 Profit for the period 11,446 - 11,446Other comprehensive income, net of tax Unrealized gains on available-for-sale financial assets arising during the period 323 48 275 Reclassification adjustment for net gains and (losses) included in profit for the period 141 21 120 Change in unrealized gains on available-for-sale financial assets arising during the period 464 69 395Comprehensive income for the period attributable to the shareholders of the Company 11,910 69 11,841 The accompanying notes are an integral part of these interim consolidated financial statements. Condensed Consolidated Financial Statements Leon's Furniture LimitedCONSOLIDATED STATEMENTS OF CHANGES IN EQUITY(UNAUDITED) ($ in thousands)CommonsharesAccumulated othercomprehensiveincomeRetainedearningsTotal At January 1, 201017,704 242 357,192 375,138 Comprehensive income Profit for the period — — 11,446 11,446Change in unrealized gains on available-for-sale financial assets arising during the period — 395 — —Total comprehensive income — 395 11,446 11,841 Transactions with shareholders Dividends declared [note 13] — — (4,937) (4,937)Management share purchase plan 413 — — 413Total transactions with shareholders 413 — (4,937) (4,524) At March 31, 2010 18,117 637 363,701 382,455 At January 1, 2011 19,177 1,485 389,624 410,286 Comprehensive income Profit for the period — — 9,827 9,827Change in unrealized gains on available-for-sale financial assets arising during the period — 785 — —Total comprehensive income — 785 9,827 10,612 Transactions with shareholders Dividends declared [note 13] — — (6,317) (6,317)Management share purchase plan 946 — — 946Repurchase of common shares [note 13] (6) — (709) (715)Total transactions with shareholders 940 — (7,026) (6,086) At March 31, 2011 20,117 2,270 392,425 414,812 The accompanying notes are an integral part of these interim consolidated financial statements. Condensed Consolidated Financial Statements Leon's Furniture LimitedCONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three months ended March 31($ in thousands)20112010 OPERATING ACTIVITIES Profit for the period 9,827 11,446Add (deduct) items not involving an outlay of cash Depreciation of property, plant and equipment and investment properties 2,977 3,781 Amortization of intangible assets 221 187 Amortization of deferred warranty plan revenue (4,297) (4,105) Gain (loss) on sale of property, plant and equipment - (4) Deferred income taxes 71 349 Loss (gain) on sale of available-for-sale financial assets 43 (121) Unrealized foreign exchange losses 481 609 Cash received on warranty plan sales 3,505 3,924 12,828 16,066Net change in non-cash working capital balances related to operations [note 19] (13,515) (13,195)Cash (used in) provided by operating activities (687) 2,871 INVESTING ACTIVITIES Purchase of property, plant & equipment (2,876) (398)Purchase of intangible assets - (259)Proceeds on sale of property, plant & equipment - 8Purchase of available-for-sale financial assets (94,024) (72,735)Proceeds on sale of available-for-sale financial assets 104,566 56,514Decrease in employee share purchase loans 1,156 271Cash provided by (used in) investing activities 8,822 (16,599) FINANCING ACTIVITIES Dividends paid (6,310) (4,938)Repurchase of common shares [note 13] (715) - Cash used in financing activities (7,025) (4,938)Net (decrease) increase in cash and cash equivalents during the period 1,110 (18,666)Cash and cash equivalents, beginning of period 71,589 58,301Cash and cash equivalents, end of period 72,699 39,635 The accompanying notes are an integral part of these interim consolidated financial statements. Management's Responsibility for Financial ReportingThe accompanying condensed interim consolidated financial statements are the responsibility of management and have been approved by the Board of Directors.The accompanying condensed interim consolidated financial statements have been prepared by management in accordance with International Financial Reporting Standards. Financial statements are not precise since they include certain amounts based upon estimates and judgments. When alternative methods exist, management has chosen those it deems to be the most appropriate in the circumstances.Leon's Furniture Limited maintains systems of internal accounting and administrative controls of high quality, consistent with reasonable costs. Such systems are designed to provide reasonable assurance that the financial information is relevant and reliable and that Leon's assets are appropriately accounted for and adequately safeguarded.The Board of Directors is responsible for ensuring that management fulfils its responsibilities for financial reporting and is ultimately responsible for reviewing and approving the financial statements. The Board carries out this responsibility through its Audit Committee.The Audit Committee is appointed by the Board and reviews these condensed interim consolidated financial statements; assesses the adequacy of the internal controls of the Company; and recommends to the Board the independent auditors for appointment by the shareholders. The Committee reports its findings to the Board of Directors for consideration when approving these condensed interim consolidated financial statements for issuance to the shareholders.Terrence T. Leon Dominic ScarangellaPresident & CEO Vice President & CFONOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Unaudited)Tabular amounts in thousands of Canadian dollars except shares outstanding and earnings per shareFor the three month periods ended March 31, 2011 and 20101. GENERAL INFORMATIONLeon's Furniture Limited was incorporated by Articles of Incorporation under the Business Corporations Act on February 28, 1969. Leon's Furniture Limited and its subsidiaries (the Company or Leon's) is a public company with its common shares listed on the Toronto Stock Exchange and is incorporated and domiciled in Canada. The address of the Company's head and registered office is 45 Gordon Mackay Road, Weston, Ontario, M9N 3X3.Leon's is a retailer of home furnishings across Canada from Alberta to Newfoundland and Labrador. The Company owns a chain of 39 retail furniture stores operating as Leon's Furniture Home Furnishings Super Stores and 2 retail stores under the brand Appliance Canada. The Company has 25 franchisees operating 30 franchise stores.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe principal accounting policies applied in the preparation of these condensed interim consolidated financial statements are set out below. These policies have been consistently applied to all periods presented, unless otherwise stated.Basis of preparationThe Company prepares its condensed interim consolidated financial statements in accordance with Canadian generally accepted accounting principles (Canadian GAAP) as set out in the Handbook of the Canadian Institute of Chartered Accountants (CICA). In 2010, the CICA Handbook was revised to incorporate International Financial Reporting Standards (IFRS), and required publicly accountable enterprises to apply such standards effective for years beginning on or after January 1, 2011. Accordingly, the Company has commenced reporting on this basis in these condensed interim consolidated financial statements. In these condensed interim consolidated financial statements, the term Canadian GAAP refers to Canadian GAAP before adoption of IFRS.These condensed interim consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB, and incorporate the requirements of IAS 34, Interim financial reporting, and IFRS 1, First-time adoption of IFRS. Subject to certain transition elections disclosed in note 21, the Company has consistently applied the same accounting policies in its opening IFRS consolidated statement of financial position at January 1, 2010 and throughout all periods presented, as if these policies had always been in effect. Note 21 discloses the impact of the transition to IFRS on the Company's reported consolidated statement of financial positions, consolidated income statements, consolidated statements of comprehensive income and consolidated statements of cash flows, including the nature and effect of significant changes in accounting policies from those used in the Company's Canadian GAAP consolidated financial statements for the year ended December 31, 2010. Comparative figures in these condensed interim consolidated financial statements have been restated to give effect to these changes.The policies applied in these condensed interim consolidated financial statements are based on IFRS issued and outstanding as of May 19, 2011, the date the Directors approved and authorized for issuance the condensed interim consolidated financial statements. Any subsequent changes to IFRS that are given effect in the Company's annual consolidated financial statements for the year ending December 31, 2011 could result in a restatement of these condensed interim consolidated financial statements, including the transition adjustments recognized on changeover to IFRS.These condensed interim consolidated financial statements should be read in conjunction with the Company's Canadian GAAP annual consolidated financial statements for the year ended December 31, 2010.The condensed interim consolidated financial statements have been prepared using the historical cost convention, as modified by certain financial assets measured at fair value through profit or loss.The preparation of condensed interim consolidated financial statements in conformity with IFRS requires use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the condensed interim consolidated financial statements are disclosed in note 3.Future changes in accounting policy and disclosureStandards that are not yet effective and have not been early adopted by the CompanyIFRS 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.ConsolidationThe condensed interim consolidated financial statements include the assets and liabilities of Leon's Furniture Limited and its wholly owned subsidiaries, Murlee Holdings Limited, Leon Holdings (1967) Limited and Ablan Insurance Corporation as at March 31, 2011 and the results of these subsidiaries for the three month period then ended.Subsidiaries are all those entities over which the Company has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company and de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealized gains/losses on transactions between group companies are eliminated.Segment reportingOperating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the President and Chief Executive Officer. The Company operates in one geographical segment (Canada) and one industry (sale of home furnishings, appliances and electronics). Accordingly, no segment information has been provided in these condensed interim consolidated financial statements.Foreign currency translationForeign currency transactionsForeign currency transactions are translated into the respective functional currencies of the Company's subsidiaries using the exchange rate at the dates of transactions. Merchandise imported from the United States and South East Asia, paid for in U.S. dollars, is recorded at its equivalent Canadian dollar value upon receipt. U.S. dollar trade payables are translated at the year-end exchange rate. The Company is subject to gains and losses due to fluctuations in the U.S. dollar. Foreign exchange gains and losses resulting from translation of U.S. dollar accounts payable are included in the consolidated income statement within cost of sales.Changes in the fair value of available-for-sale financial assets denominated in foreign currencies are analyzed between translation differences resulting from changes in the amortized cost of the asset and other changes in the carrying amount of the asset. Translation differences related to changes in amortized cost are recognized in the consolidated income statement, and other changes in the carrying amount are recognized in other comprehensive income.Functional and presentation currencyItems included in the condensed interim consolidated financial statements are measured using the currency of the primary economic environment in which the Company operates (the functional currency). These condensed interim consolidated financial statements are presented in Canadian dollars, which is the Company's functional and presentation currency and is also the functional currency of each of the Company's subsidiaries.Financial assets and liabilitiesA financial asset or liability is recognized if the Company becomes a party to the contractual provisions of the asset or liability. A financial asset or liability is recognized initially (at trade date) at its fair value plus, in the case of a financial asset or liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the instrument. Financial assets and liabilities carried at fair value through profit or loss are initially recognized at fair value and transaction costs are expensed in the consolidated income statement.After initial recognition, financial assets are measured at their fair values except for loans and receivables which are measured at amortized cost using the effective interest method. After initial recognition, financial liabilities are measured at amortized cost except for financial liabilities at fair value through profit or loss which are measured at fair value.The Company classifies its financial assets and liabilities according to their characteristics and management's choices and intentions related thereto for the purposes of ongoing measurement.Classifications that the Company has used for financial assets include:a) Available-for-sale - financial assets that are non-derivatives that are either designated in this category or not classified in any other category and include marketable securities which consists primarily of quoted bonds, equities and debentures. These assets are measured at fair value with changes in fair value recognized in other comprehensive income for the current period until realized through disposal or impairment; and b) Loans and receivables - are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables include trade receivables and recorded at amortized cost with gains and losses recognized in net earnings in the period that the asset is no longer recognized or impaired.Classification choice that the Company has used for financial liabilities include:a) Other financial liabilities - measured at amortized cost with gains and losses recognized in the consolidated income statement in the period that the liability is no longer recognized.Financial assets are derecognized if the Company's contractual rights to the cash flows from the financial assets expire or if the Company transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Financial liabilities are derecognized if the Company's obligations specified in the contract expire or are discharged or cancelled.Impairment of financial assetsThe Company assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event) and that loss event has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.The amount of the loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the financial asset's original effective interest rate. The asset's carrying amount is reduced and the amount of the loss is recognized in the consolidated income statement.If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the reversal of the previously recognized impairment is recognized in the consolidated income statement.Cash and cash equivalentsCash and cash equivalents include cash on hand, balances with banks and short-term market investments with a remaining term to maturity of less than 90 days from the date of purchase.Trade receivablesTrade receivables are amounts due for goods sold in the ordinary course of business. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets.Trade receivables are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment.InventoryInventory is valued at the lower of cost, determined on a first-in, first-out basis, and net realizable value.The Company receives vendor rebates on certain products based on the volume of purchases made during specified periods. The rebates are deducted from the inventory value of goods received and are recognized as a reduction of cost of sales upon sale of the goods. Incentives received for a direct reimbursement of costs incurred to sell the vendor's products such as marketing and advertising funds are recorded as a reduction of those related costs in the consolidated income statement, provided certain conditions are met.Property, plant and equipmentOwned assetsProperty, plant and equipment are initially recorded at cost. Historical cost includes expenditure that is directly attributable to the acquisition of items. Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the asset will flow to the Company and the cost can be measured reliably. Normal repair and maintenance expenditures are expensed as incurred.DepreciationLand and construction in progress are not depreciated. Depreciation on other assets is provided over the estimated useful lives of the assets using the following annual rates and methods:Buildings 30 years straight-lineEquipment 20% to 30% declining balanceVehicles 30% declining balanceComputer hardware 5 years straight-lineBuilding improvements Over the estimated useful life to a maximum of 15 yearsThe Company allocates the amount initially recognized in respect of an item of property, plant and equipment to its significant parts and depreciates separately each such part. Residual values, method of depreciation and useful lives of items of property, plant and equipment are reviewed annually by the Company and adjusted if appropriate.Gains and losses on disposals of property, plant and equipment are determined by comparing the proceeds with the carrying amount of the asset and are included as part of other expenses in the consolidated income statement.Leased assets - Leon's is the lesseeLeases that are not finance leases are classified as operating leases and the assets are not recognized on the Company's consolidated statement of financial position. Operating lease payments are recognized as an expense in the consolidated income statement on a straight line basis over the period of the lease.Leased assets - Leon's is the lessorAssets leased to third parties under operating leases are classified as investment property in the consolidated statement of financial position. They are depreciated over their expected useful lives on a basis consistent with similar owned investment property. Rental income (net of any incentives given to lessees) is recognized on a straight line basis over the period of the lease.Investment propertyAssets that are held for long-term rental yields or for capital appreciation or both, and that are not occupied by either the Company or any of its subsidiaries, are classified as investment property. Investment property is measured initially at its cost, including related transaction costs. After initial recognition, investment property is carried at cost and is depreciated over the estimated useful life of the property using the following annual rates and methods:Buildings 30 years straight-lineBuilding improvements Over the estimated useful life to a maximum of 15 yearsLand held by the Company and classified as investment property is not depreciated.Subsequent expenditure on investment property is capitalized to the property's carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed when incurred. When part of an investment property is replaced, the carrying amount of the replaced part is derecognized.If an investment property becomes owner-occupied, it is reclassified as property, plant and equipment.Intangible assetsGoodwillGoodwill is the residual amount that results when the purchase price of an acquired business exceeds the sum of the amounts allocated to the tangible and intangible assets acquired, less liabilities assumed, based on their fair value. Goodwill is assigned as of the date of the business acquisition. The Company assesses at least annually, or at any time if an indicator of impairment exists, whether there has been an impairment loss in the carrying value of goodwill and it is carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed.Goodwill is allocated to cash-generating units (CGUs), or groups of CGUs, that are expected to benefit from the business combination for the purpose of impairment testing. A group of CGUs represents the lowest level within the Company at which goodwill is monitored for internal management purposes.Finite-lived intangible assetsIntangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful lives using the following annual rates:Customer relations 8 yearsBrand name 10 yearsNon-compete agreement 8 yearsComputer software 7 yearsThe Company identifies and measures intangible assets acquired in business acquisitions and accounts for these assets separately from goodwill.Impairment of non-financial assetsProperty, plant and equipment and finite lived intangible assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the estimated recoverable amount of an asset is less than its carrying amount, the asset is written down to its estimated recoverable amount and an impairment loss is recognized in the consolidated income statement. The recoverable amount of an asset is the higher of its fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash inflows (cash-generating units).Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.Income taxesIncome tax expense for the period comprises current and deferred income tax. Income tax is recognized in the consolidated income statement except to the extent it relates to items recognized in other comprehensive income or directly in equity in which case the related tax is recognized in equity. Levies other than income taxes, such as taxes on real estate, are included in occupancy expenses.Current income taxCurrent income tax expense is based on the results of the period as adjusted for items that are not taxable or not deductible. Current tax is calculated using tax rates and laws that were substantively enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.Deferred income taxDeferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the statement of financial position. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the consolidated statement of financial position date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current income tax assets against current income tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority where there is an intention to settle the balances on a net basis.Trade and other payablesTrade and other payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade and other payables are classified as current liabilities if payment is due within one year or less.ProvisionsProvisions are recognized only in those circumstances where the Company has a present legal or constructive obligation as a result of a past event, when it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made.Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation.Share capitalCommon shares are classified as equity. Incremental costs directly attributable to the issuance of new shares are shown in equity as a deduction, net of income tax, from the proceeds.Revenue recognitionRevenue comprises the fair value of consideration received or receivable for the sale of goods and services in the ordinary course of the Company's activities. Revenue is shown net of sales tax and financing charges. The Company recognizes revenue when the amount of revenue can be reliably measured and it is probable that future economic benefits will flow to the Company.In addition to the above general principles, the Company applies the following specific revenue recognition policies:Sale of goodsRevenue from the sale of goods is recognized either when the customer picks up the merchandise ordered or when merchandise is delivered to the customer's home. Any payments received in advance of delivery are deferred and recorded as customers' deposits.Extended warrantyThe Company recognizes extended warranty plan revenue and costs on a straight-line basis over the contract period. The service costs associated with the warranty obligations are expensed as incurred.Franchise feesLeon's franchisees operate principally as independent owners. The Company charges each franchisee a royalty fee based on a percentage of the franchisee's gross revenue. This royalty income is recorded by the Company on an accrual basis and presented within revenue.Rent on investment propertiesRental income arising on investment properties is accounted for on a straight-line basis over the lease term and is presented within revenue.Sale of gift cardsRevenue from the sale of gift cards is recognized when the gift cards are redeemed and the customer purchases merchandise, or when the gift cards are no longer expected to be redeemed, based on an analysis of historical redemption rates. Payment received in advance of revenue recognition are deferred and recorded in a separate bank account.Store pre-opening costsStore pre-opening costs are expensed as incurred.Earnings per shareBasic earnings per share have been calculated using the weighted average number of common shares outstanding during the period. Diluted earnings per share are calculated using the "if converted" method. The dividends declared on the redeemable share liability under the Company's Management Share Purchase Plan (the Plan) are included in profit for the period. The redeemable shares convertible under the Plan are included in the calculation of diluted number of common shares to the extent the redemption price was less than the average annual market price of the Company's common shares.3. CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONSThe 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 recognitionRevenue 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.InventoriesThe Company estimates the net realizable value as the amount at which inventories are expected to be sold by taking into account fluctuations of retail prices due to prevailing market conditions. If required, inventories are written down to net realizable value when the cost of inventories is estimated to not be recoverable due to obsolescence, damage or declining sales prices.Reserves for slow moving and damaged inventory are deducted in the Company's evaluation of inventories. The reserve for slow moving inventory is based on many years of historic retail experience. The reserve is calculated by analyzing all inventory on hand older than one year. The amount of reserve for damaged inventory is determined by specific product categories.The amount of inventory recognized as an expense for the period ended March 31, 2011 was $85,873,000 (period ended March 31, 2010 - $91,134,000) which is presented within cost of sales on the consolidated income statements.During the three month period ended March 31, 2011 there was $149,000 in inventory write-downs (period ended March 31, 2010 - $170,000). At March 31, 2011, the inventory markdown provision totaled $4,185,000 (At March 31, 2010 - $3,668,000). There were no reversals of any write-down for the period ended March 31, 2011 (period ended March 31, 2010 - nil). None of the Company's inventory has been pledged as security for any liabilities of the Company.Extended warranty RevenueExtended warranty revenue is deferred and taken into revenue on a straight-line basis over the life of the extended warranty period. Extended warranty revenue included in revenue for the three month period ended March 31, 2011 was $4,297,000 (For the three month period ended March 31, 2010 - $4,105,000). Extended warranty expenses deducted through cost of sales for the three month period ended March 31, 2011 were $1,307,000 (For the three month period ended March 31, 2010 - $1,376,000).Franchise RoyaltiesLeon's franchisees operate as independent owners. The Company charges the franchisee a royalty fee based primarily on a percentage of the franchisee's gross revenue. This royalty revenue is recorded by the Company on an accruals basis and is classified as revenue within the consolidated income statement.Volume RebatesThe 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 taxesThe Company computes an income tax provision. However, actual amounts of income tax expense only become final upon filing and acceptance of the tax return by the relevant taxation authorities, which occur subsequent to the issuance of the consolidated financial statements. Additionally estimation of income taxes includes evaluating the recoverability of deferred income tax assets based on an assessment of the ability to use the underlying future tax deductions before they expire against future taxable income. The assessment is based upon existing tax laws and estimates of future taxable income. To the extent estimates differ from the final tax return, earnings would be affected in a subsequent period.Impairment of goodwillDetermining whether goodwill is impaired requires an estimation of the value-in-use of the cash generating unit that the goodwill is included in. The value-in-use calculation requires the Company to estimate the future cash flows expected to arise from the cash generating unit and a suitable discount rate in order to calculate present value. The significant estimates and assumptions used in the goodwill impairment tests performed at December 31, 2010 and January 1, 2010 are disclosed in note 9.4. FINANCIAL RISK MANAGEMENTClassification of financial instruments and fair valueThe classification of the Company's financial instruments as well as their carrying amounts and fair values are disclosed in the table below.March 31, 2011 Available-for-sale[fair value] Loans andreceivables[amortized cost] Other financialliabilities[amortized cost] Total carryingamount Fair valueFinancial Assets Cash and cash equivalents 72,699 72,699 72,699Available-for-sale financial assets 130,071 130,071 130,071Trade receivables 17,262 17,262 17,262Total 202,770 17,262 220,032 220,032Financial Liabilities Trade and other payables 47,185 47,185 47,185Redeemable share liability 382 382 382Total 47,567 47,567 47,567 December 31, 2010 Available-for-sale[fair value] Loans andreceivables[amortized cost] Other financialliabilities[amortized cost] Total carryingamount Fair valueFinancial Assets Cash and cash equivalents 71,589 71,589 71,589Available-for-sale financial assets 140,224 140,224 140,224Trade receivables 28,569 28,569 28,569Total 211,813 28,569 240,382 240,382Financial Liabilities Trade and other payables 71,724 71,724 71,724Redeemable share liability 172 172 172Total 71,896 71,896 71,896For financial instruments recognized in the consolidated statement of financial position at fair value, the Company is required to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements.Fair Values are assessed as:Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis;Level 2 - Observable inputs other than level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market date for substantially the full term of the assets or liabilities; andLevel 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.The following table presents the Company's financial instruments recognized in the consolidated statement of financial position at fair value: Financial Instruments at Fair Value Fair value measurement at March 31, 2011 Level 1 Level 2 Level 3Cash and cash equivalents 72,699 Available-for-sale financial assets - Bonds - 103,006 -Available-for-sale financial assets - Equities 27,065 - - 99,764 103,006 - Fair valuemeasurement at December 31, 2010 Level 1 Level 2 Level 3Cash and cash equivalents 71,589 Available-for-sale financial assets - Bonds - 117,817 -Available-for-sale financial assets - Equities 22,407 - - 93,996 117,817 - Fair valuemeasurement at January 1, 2010 Level 1 Level 2 Level 3Cash and cash equivalents 58,301 - Available-for-sale financial assets - Bonds - 92,894 -Available-for-sale financial assets - Equities 19,531 - - 77,832 92,894 -Risk managementThe Company is exposed to various risks associated with its financial instruments. These risks are summarized as credit risk, liquidity risk, foreign currency risk, interest rate risk and other price risk. The significant risks for the Company's financial instruments are:[i] Credit risk Credit risk arises from cash and cash equivalents, available-for-sale financial assets and trade receivables. The Company places its cash and cash equivalents and available-for-sale financial assets with institutions of high credit worthiness. Maximum credit risk exposure represents the loss that would be incurred if all of the Company's counterparties were to default at the same time. The Company has some credit risk associated with its trade receivables as it relates to the Appliance Canada division that is partly mitigated by the Company's credit management practices. The Company's trade receivables total $17,262,000 as at March 31, 2011 [as at December 31, 2010 - $28,569,000 and as at January 1, 2010 - $31,501,000]. The amount of trade receivables that the Company has determined to be past due [which is defined as a balance that is more than 90 days past due] is $143,000 as at March 31, 2011 [as at December 31, 2010 - $158,000 and as at January 1, 2010 - $439,000] which relates entirely to the Appliance Canada division. The Company's provision for impairment of trade receivables, established through on-going monitoring of individual customer accounts, was $500,000 as at March 31, 2011 [as at December 31, 2010 - $470,000 and as at January 1, 2010 - $300,000]. The majority of the Company's sales are paid through cash, credit card or non-recourse third-party finance. The Company relies on two third-party credit suppliers to supply financing alternatives to its customers. [ii] Liquidity risk The Company has no outstanding borrowings and does not rely upon available credit facilities to finance operations or to finance committed capital expenditures. The portfolio of available-for-sale financial assets consists primarily of actively traded Canadian and international bonds. There is no immediate need for cash by the Company from its investment portfolio. The Company expects to settle its trade and other payables within 30 days of the period end date. The redeemable share liability does not have any fixed terms of repayment. [iii] Foreign currency risk The Company is exposed to foreign currency exchange rate risk. Some merchandise is paid for in U.S. dollars. The foreign currency cost is included in the inventory cost. The Company does not believe it has significant foreign currency risk with respect to its trade payable in U.S. dollars. The Company is also exposed to foreign currency exchange rate risk on its foreign currency denominated portfolio of available-for-sale financial assets, primarily related to actively traded international equities. As at March 31, 2011, the Company's investment portfolio included 10% of foreign currency denominated assets [as at December 31, 2010 - 8% and as at January 1, 2010 - 8%]. This risk is monitored by the Company's investment managers in an effort to reduce the Company's exposure to foreign currency exchange rate risk. [iv] Interest rate risk The Company is exposed to interest rate risk through its portfolio of available-for-sale financial assets by holding actively traded Canadian and international Bonds. As at March 31, 2011, 87% of the Company's investment portfolio was made up of Canadian and international Bonds [as at December 31, 2010 - 89% and as at January 1, 2010 - 89%]. This risk is monitored by the Company's investment managers in an effort to reduce the Company's exposure to interest rate risk. The exposure to this risk is minimal due to the short-term maturities of the bonds held. The Company is not subject to any other interest rate risk. [v] Other price risk The Company is exposed to fluctuations in the market prices of its portfolio of available-for-sale financial assets. Changes in the fair value of the available-for-sale financial assets are recorded, net of income taxes, in accumulated other comprehensive income. The risk is managed by the Company and its investment managers by ensuring a conservative asset allocation of bonds and equities.5. CAPITAL RISK MANAGEMENTThe 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; andutilize 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, 2011 As at December 31, 2010 As at January 1, 2010Cash at bank or on hand 6,203 19,642 7,620Short-term investments 66,496 51,947 50,681 72,699 71,589 58,3017. PROPERTY, PLANT AND EQUIPMENT Land Buildings Equipment Vehicles Computerhardware Buildingimprovements TotalAs at January 1, 2010 Cost 56,156 163,680 34,730 20,853 8,604 78,175 362,198Accumulated depreciation - 86,277 23,112 16,726 7,297 25,133 158,545Net book value 56,156 77,403 11,618 4,127 1,307 53,042 203,653Year ended December 31, 2010 Opening net book value 56,156 77,403 11,618 4,127 1,307 53,042 203,653Additions 45 11,685 1,323 484 347 98 13,982Disposals 870 - - 437 - - 1,307Depreciation - 7,024 1,340 826 537 5,109 14,836Closing net book value 55,331 82,064 11,601 3,348 1,117 48,031 201,492As at December 31, 2010 Cost 55,331 175,365 36,053 20,900 8,951 78,273 374,873Accumulated depreciation - 93,301 24,452 17,552 7,834 30,242 173,381Net book value 55,331 82,064 11,601 3,348 1,117 48,031 201,492Three month period ended March 31, 2011 Opening net book value 55,331 82,064 11,601 3,348 1,117 48,031 201,492Additions - 3,605 71 85 - 1,763 5,524Disposals - - - - - - -Depreciation - 884 419 257 132 1,272 2,964Closing net book value 55,331 84,785 11,253 3,176 985 48,522 204,052As at March 31, 2011 Cost 55,331 178,970 36,124 20,985 8,951 80,036 380,397Accumulated depreciation - 94,185 24,871 17,809 7,966 31,514 176,345Net book value 55,331 84,785 11,253 3,176 985 48,522 204,052All assets relating to March 31, 2011 are being depreciated. Included in the above balances for December 31, 2010 are assets not being amortized with a net book value of approximately $2,400,000 being construction-in-progress.8. INVESTMENT PROPERTIESInvestment properties consist of the following: Land Buildings Buildingimprovements TotalAt January 1, 2010 Cost 8,286 8,039 1,494 17,819Accumulated depreciation - 8,039 1,235 9,274Net book value 8,286 - 259 8,545Year ended December 31, 2010 Opening net book value 8,286 - 259 8,545Additions - - - -Disposals - - 37 37Depreciation charge - - 91 91Closing net book value 8,286 - 131 8,417At December 31, 2010 Cost 8,286 8,039 1,457 17,782Accumulated depreciation - 8,039 1,326 9,365Net book value 8,286 - 131 8,417Three month period ended March 31, 2011 Opening net book value 8,286 - 131 8,417Additions - - - -Disposals - - - -Depreciation charge - - 13 13Closing net book value 8,286 - 118 8,404At March 31, 2011 Cost 8,286 8,039 1,457 17,782Accumulated depreciation - 8,039 1,339 9,378Net book value 8,286 - 118 8,404The fair value of the Company's investment property portfolio as at March 31, 2011 was $29,748,701 [as at December 31, 2010 - $29,748,701]. The fair value was determined internally by management based on available market evidence.9. INTANGIBLE ASSETS Customerrelationships Brandname Non-competeAgreement Computersoftware TotalAs at January 1, 2010 Cost 2,000 2,500 1,000 3,896 9,396Accumulated amortization 500 500 250 2,812 4,062Net book value 1,500 2,000 750 1,084 5,334Year ended December 31, 2010 Opening net book value 1,500 2,000 750 1,084 5,334Additions — — — — —Disposals — — — — —Amortization charge 250 250 125 Closing net book value 1,250 1,750 625 1,277 4,902As at December 31, 2010 Cost 2,000 2,500 1,000 4,266 9,766Accumulated amortization 750 750 375 2,989 4,864Net book value 1,250 1,750 625 1,277 4,902Three month period ended March 31, 2011 Opening net book value 1,250 1,750 625 1,277 4,902Additions — — — — —Disposals — — — — —Amortization charge 63 62 31 65 221Closing net book value 1,187 1,688 594 1,212 4,681As at March 31, 2011 Cost 2,000 2,500 1,000 4,266 9,766Accumulated amortization 813 812 406 3,054 5,085Net book value 1,187 1,688 594 1,212 4,681Impairment test of goodwillThe Company performed impairment tests of goodwill at December 31, 2010 and January 1, 2010 in accordance with the accounting policy as described in note 2 and IFRS transitional provisions. The recoverable amount of the Appliance Canada cash generating unit (CGU), where all goodwill is allocated, was determined based on value-in-use calculations. These calculations used cash flow projections based on financial budgets approved by management covering a one year period. Cash flows beyond the one year period are extrapolated using the estimated growth rates stated below. The key assumptions used for the value-in-use calculation at December 31, 2010 and January 1, 2010 were as follows: Growth rate Discount rate % %December 31, 2010 2.0 9.70January 1, 2010 3.0 9.91The impairment test performed resulted in no impairment of the goodwill at December 31, 2010 or January 1, 2010.10. TRADE AND OTHER PAYABLES As at March 31, 2011 As at December 31, 2010 As at January 1, 2010Trade payables 40,048 60,127 69,495Other payables 7,137 11,597 3,108 47,185 71,724 72,60311. PROVISIONS Profit sharing and bonuses Vacation pay TotalsAs at January 1, 2010 10,775 502 11,277Charged to the consolidated income statement Additional provisions 12,029 341 12,370Unused amounts reversed (747) - (747)Used during the year (10,057) (502) (10,559)As at December 31, 2010 12,000 341 12,341Charged to the consolidated income statement 12,000 341 12,341Additional provisions 1,913 1,039 2,952Unused amounts reversed (306) - (306)Used during the three month period (4,294) - (4,294)As at March 31, 2011 9,313 1,380 10,693Profit sharing and bonusesThe provision for profit sharing and bonuses is payable within four months of the finalization of the annual audited consolidated financial statements.Vacation payThe provision for vacation pay represents employee entitlements to untaken vacation at the consolidated statement of financial position date.12. REDEEMABLE SHARE LIABILITY As at March 31,2011 As atDecember 31,2010 As atJanuary 1,2010 Authorized 2,284,000 convertible, non-voting, series 2002 shares 806,000 convertible, non-voting, series 2005 1,224,000 convertible, non-voting, series 2009 shares Issued 742,133 series 2002 shares[December 31, 2010 - 813,331 and January 1, 2010 - 969,033] 5,334 5,846 6,965574,807 series 2005 shares[December 31, 2010 - 620,793 and January 1, 2010 - 689,513] 5,428 5,862 6,5111,168,124 series 2009 shares[December 31, 2010 - 1,168,124 and January 1, 2010 - 1,207,000] 10,339 10,339 10,683Less employee share purchase loans (20,719) (21,875) (23,776) 382 172 383Under the terms of the Plan, the Company advanced non-interest bearing loans to certain of its employees in 2002, 2005 and 2009 to allow them to acquire convertible, non-voting, series 2002 shares, series 2005 shares and series 2009 shares, respectively, of the Company. These loans are repayable through the application against the loans of any dividends on the shares, with any remaining balance repayable on the date the shares are converted to common shares. Each issued and fully paid for series 2002, 2005 and 2009 share may be converted into one common share at any time after the fifth anniversary date of the issue of these shares and prior to the tenth anniversary of such issue. Series 2002 shares may also be redeemed at the option of the holder or by the Company at any time after the fifth anniversary date of the issue of these shares and must be redeemed prior to the tenth anniversary of such issue. The series 2005 and series 2009 shares are redeemable at the option of the holder for a period of one business day following the date of issue of such shares. The Company has the option to redeem the series 2005 and series 2009 shares at any time after the fifth anniversary date of the issue of these shares and must redeem them prior to the tenth anniversary of such issue. The redemption price is equal to the original issue price of the shares adjusted for subsequent subdivisions of shares plus accrued and unpaid dividends. The purchase prices of the shares are $7.19 per series 2002 share, $9.44 per series 2005 share and $8.85 per series 2009 share.Dividends paid to holders of series 2002, 2005 and 2009 shares of approximately $471,000 [2010 - $401,000] have been used to reduce the respective shareholder loans.During the period ended March 31, 2011, 71,198 series 2002 shares [period ended March 31, 2010 - 57,583] and 45,986 series 2005 shares [period ended March 31, 2010 - nil] were converted into common shares with a stated value of approximately $512,000 [period ended March 31, 2010 - $414,000] and $434,000 [period ended March 31, 2010 - nil], respectively.13. COMMON SHARES As atMarch 31,2011 As atDecember 31,2010 As atJanuary 1,2010 Authorized Unlimited common shares Issued 70,095,257 common shares [December 31, 2010 -70,075,333 and January 1, 2010 - 70,477,611] 20,117 19,177 17,704During the three month period ended March 31, 2011, 71,198 series 2002 shares [period ended March 31, 2010 - 57,583] and 45,986 series 2005 shares [period ended March 31, 2010 - nil] were converted into common shares with a stated value of approximately $512,000 [period ended March 31, 2010 - $414,000] and $434,000 [period ended March 31, 2010 - $nil], respectively.During the three month period ended March 31, 2011, the Company repurchased 51,274 [period ended March 31, 2010 - nil] of its common shares on the open market pursuant to the terms and conditions of Normal Course Issuer Bids at a net cost of approximately $715,000 [period ended March 31, 2010 - nil]. All shares repurchased by the Company pursuant to its Normal Course Issuer Bids have been cancelled. The repurchase of common shares resulted in a reduction of share capital in the amount of approximately $6,000 [period ended March 31, 2010 - nil]. The excess net cost over the average carrying value of the shares of approximately $709,000 [period ended March 31, 2010 - nil] has been recorded as a reduction in retained earnings.The dividends paid for the three month periods ended March 31, 2011 and March 31, 2010 were $6,310,000 [$0.09 per share] and $4,938,000 [$0.07 per share] respectively.14. REVENUE Three month periodended March 31, 2011 Three month periodended March 31, 2010 Year endedDecember 31, 2010Sale of goods by corporate stores 143,771 154,536 682,248Royalty income from franchisees 2,531 2,680 10,663Extended warranty revenue 4,297 4,105 16,838Rental income from investment property 184 149 686 150,783 161,470 710,435 15. OPERATING EXPENSES BY NATURE Three month periodended March 31, 2011 Three month periodended March 31, 2010 Year endedDecember 31, 2010Depreciation of property, plant and equipment and investment properties 2,977 3,781 15,354Amortization of intangible assets 221 187 802Operating lease payments 791 907 3,300Foreign exchange (gains) losses 481 609 722Gain on disposal of property, plant and equipment - 4 1,231 16. INCOME TAX EXPENSE Three month periodended March 31, 2011 Three month periodended March 31, 2010 Year endedDecember 31, 2010Current income tax expense 3,885 5,206 26,606Deferred income tax expense 71 349 295 3,956 5,555 26,901Income tax expense is recognized based on management's best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual rates used for the three month periods ended March 31, 2011 and March 31, 2010 were 28.5% and 30.5%, respectively.17. EARNINGS PER SHAREEarnings per share are calculated using the weighted average number of shares outstanding. The weighted average number of shares used in the basic earnings per share calculations amounted to 70,148,298 for the three month period ended March 31, 2011 (three month period ended March 31, 2010 - 70,514,424).The following table reconciles the profit for the period and the number of shares for the basic and diluted earnings per share calculations: Three month period ended March 31, 2011 Profit for the period attributedto common shareholders Weighted averagenumber of shares Per share amountBasic 9,827 70,148,298 0.14Diluted 9,827 72,677,581 0.14 Three month period ended March 31, 2010 Profit for the period attributedto common shareholders Weighted averagenumber of shares Per share amountBasic 11,446 70,514,424 0.16Diluted 11,446 73,343,055 0.1618. COMMITMENTS AND CONTINGENCIES[a] The cost to complete all construction-in-progress as at March 31, 2011 totals $11,139,000 at four locations [At December 31, 2010 - to complete at two locations at an approximate cost of $9,609,000]. [b] The Company is obligated under operating leases for future minimum annual rental payments for certain land and buildings as follows: No later than 1 year 5,240Later than 1 year and no later than 5 years 18,811Later than 5 years 21,008 45,059[c] The future minimum lease payments receivable under non-cancellable operating leases for certain land and buildings classified as investment property are as follows: No later than 1 year 712Later than 1 year and no later than 5 years 2,027Later than 5 years 427 3,166[d] The Company has issued approximately $853,000 in letters of credit primarily with respect to buildings under construction which were completed during the year ended December 31, 2010. [e] Pursuant to a reinsurance agreement relating to the extended warranty sales, the Company has pledged available-for-sale financial assets amounting to $18,610,000 [as at December 31, 2010 - $19,498,000 and as at January 1, 2010 - $18,088,000] and provided a letter of credit of $1,500,000 [as at December 31, 2010 - $1,500,000] for the benefit of the insurance company.19. CONSOLIDATED STATEMENTS OF CASH FLOWS[a] The net change in non-cash working capital balances related to operations consists of the following: Three month periodended March 31, 2011 Three month periodended March 31, 2010Trade receivables 11,307 10,436Inventory 6,979 (1,665)Prepaid expenses 13 (43)Trade and other payables (27,186) (16,000)Provisions (1,648) (1,831)Income taxes payable (3,044) (3,166)Customers' deposits 64 (926) (13,515) (13,195)[b] Supplemental cash flow information: Three month periodended March 31, 2011 Three month periodended March 31, 2010Income taxes paid 7,118 8,871[c] During the period, property, plant and equipment were acquired at an aggregate cost of $5,524,000 [2010 - $370,000], of which $3,184,000 [2010 - $536,000] is included in trade and other payables as at December 31, 2010.20. RELATED PARTY TRANSACTIONSKey management compensationKey management includes the Directors and the five senior executives of the Company. The compensation expense paid to key management for employee services during each period is shown below: Three month periodended March 31, 2011 Three month periodended March 31, 2010Salaries and other short-term employee benefits 689 735Other long-term benefits 31 32 720 76721. TRANSITION TO IFRSThe Company's financial statements for the year ending December 31, 2011 will be the first annual financial statements that comply with IFRS and these condensed interim consolidated financial statements were prepared as described in note 2, including the application of IFRS 1. IFRS 1 requires an entity to adopt IFRS in its first annual financial statements prepared under IFRS by making an explicit and unreserved statement in those financial statements of compliance with IFRS. The Company will make this statement when it issues its 2011 annual financial statements.IFRS 1 also requires that comparative financial information be provided. As a result, the first date at which the Company has applied IFRS was January 1, 2010 (the "Transition Date"). IFRS 1 requires first-time adopters to retrospectively apply all effective IFRS standards as of the reporting date, which for the Company will be December 31, 2011. However, it also provides for certain optional exemptions and certain mandatory exceptions for first time IFRS adopters.The effect of the Company's transition to IFRS is summarized in this note as follows:a) Transition electionsThe Company has applied the following transition exceptions and exemptions to full retrospective application of IFRS:Business Combinations - In accordance with IFRS transitional provisions, the Company elected to apply IFRS relating to business combinations prospectively from January 1, 2010. As such, Canadian GAAP balances relating to the acquisition of Appliance Canada Ltd. on January 2, 2008, including goodwill, have been carried forward without adjustment.Share-based Payments - In accordance with IFRS transitional provisions, the Company elected not to apply IFRS 2, Share-based Payments, to convertible shares issued under the Management Share Purchase Plan that were still outstanding at January 1, 2010 but had fully vested.Estimates - Hindsight is not used to create or revise estimates. The estimates previously made by the Company under Canadian GAAP were not revised for application of IFRS except where necessary to reflect any difference in accounting policies.b) Effect of material transition adjustments on the consolidated statement of financial positions, consolidated income statements, consolidated statements of comprehensive income and consolidated statements of cash flows i. Consolidated Statements of Financial Position As at December 31, 2010 As at March 31,2010 As atJanuary1,2010 Cdn.GAAP Adj. IFRS Cdn.GAAP Adj. IFRS Cdn.GAAP Adj. IFRSASSETS Current Cash and cash equivalents 71,589 — 71,589 39,635 — 39,635 58,301 — 58,301Available-for-sale financial assets 140,224 — 140,224 128,623 — 128,623 112,425 — 112,425Trade receivables 28,569 — 28,569 21,065 — 21,065 31,501 — 31,501Income taxes receivable — — — 1,209 — 1,209 Inventory 85,423 — 85,423 85,622 — 85,622 83,957 — 83,957Deferred income tax assets [note a] 1,251 (1,251) — 903 (903) — 1,133 (1,133) —Total current assets 327,056 (1,251) 325,805 277,057 (903) 276,154 287,317 (1,133) 286,184Other assets 1,574 — 1,574 1,603 — 1,603 1,560 — 1,560Property, plant and equipment [note b] 209,909 (8,417) 201,492 208,786 (8,521) 200,265 212,198 (8,545) 203,653Investment properties [note b] — 8,417 8,417 — 8,521 8,521 — 8,545 8,545Intangible assets 4,902 — 4,902 5,404 — 5,404 5,334 — 5,334Goodwill 11,282 — 11,282 11,282 — 11,282 11,282 — 11,282Deferred income tax assets [note a] 11,951 1,251 13,202 11,521 903 12,424 11,465 1,133 12,598Total assets 566,674 — 566,674 515,653 — 515,653 529,156 — 529,156LIABILITIES AND SHAREHOLDERS' EQUITY Current Trade and other payables [note c] 84,065 (12,341) 71,724 66,024 (9,446) 56,578 83,880 (11,277) 72,603Provisions [note c] — 12,341 12,341 — 9,446 9,446 — 11,277 11,277Income taxes payable 524 — 524 — — — 1,958 — 1,958Customers' deposits 17,198 — 17,198 14,705 — 14,705 15,632 — 15,632Dividends payable 6,310 — 6,310 4,937 — 4,937 4,938 — 4,938Deferred warranty plan revenue 16,882 — 16,882 16,121 — 16,121 16,150 — 16,150Total current liabilities 124,979 — 124,979 101,787 — 101,787 122,558 — 122,558Deferred warranty plan revenue 21,392 — 21,392 22,096 — 22,096 22,248 — 22,248Redeemable share liability 172 — 172 241 — 241 383 — 383Deferred income tax liabilities [note a,d] 9,845 — 9,845 9,073 — 9,073 8,829 — 8,829Total liabilities 156,388 — 156,388 133,197 — 133,197 154,018 — 154,018Shareholders' equity attributableto the shareholdersof the Company Common shares 19,177 — 19,177 18,117 — 18,117 17,704 — 17,704Retained earnings [note d] 390,629 (1,005) 389,624 364,609 (907) 363,702 357,576 (384) 357,192Accumulated other comprehensive income (loss) [note d] 480 1,005 1,485 (270) 907 637 (142) 384 242Total shareholders' equity 410,286 — 410,286 382,456 — 382,456 375,138 — 375,138Total liabilities and shareholder's equity 566,674 — 566,674 515,653 — 515,653 529,156 — 529,156 ii. Consolidated Statements of Changes in Equity As at December31, 2010 As atMarch 31, 2010 Cdn.GAAP Adj. Reclasses IFRS Cdn.GAAP Adj. Reclasses IFRS Revenue[note e] 699,772 10,663 710,435 158,791 2,679 161,470Cost of sales 412,379 412,379 93,498 93,498Gross profit 287,393 — 10,663 298,056 65,293 — 2,679 67,972 Operating expenses[note f] General and administrative expenses — — 98,684 98,684 — — 23,293 23,293Sales and marketing expenses — — 78,221 78,221 — — 18,572 18,572Occupancy expenses — — 29,551 29,551 — — 7,630 7,630Other operating expenses [note d] — 722 5,780 6,502 — 609 1,558 2,167Salaries and commissions 105,368 — (105,368) — 24,723 — (24,723) —Advertising 31,565 — (31,565) — 7,590 — (7,590) —Rent and property taxes 14,000 — (14,000) — 3,488 — (3,488) —Amortization 16,156 — (16,156) — 3,968 — (3,968) —Employee profit-sharing plan 4,746 — (4,746) — 1,162 — (1,162) —Other operating expenses 41,495 — (41,495) — 10,323 — (10,323) —Interest income (3,134) — 3,134 — (691) — 691 —Other income (12,988) — 12,988 — (2,880) — 2,880 — 197,208 722 15,028 212,958 47,683 609 3,370 51,662Operating profit 90,185 (722) (4,365) 85,098 17,610 (609) (691) 16,310Gain on disposal 1,231 1,231 Finance income — — 3,134 3,134 — — 691 691Profit before income tax 90,185 (722) — 89,463 17,610 (609) — 17,001 Income tax expense [note d] 26,901 (102) 26,799 5,640 (85) 5,555Profit for the period attributable to the shareholders of the Company 63,284 (620) — 62,664 11,970 (524) — 11,446 iii. Consolidated Statements of Comprehensive Income Year ended December 31, 2010 Three monthperiodendedMarch 31, 2010 Cdn. GAAP Adj. IFRS Cdn. GAAP Adj. IFRS Profit for the period 63,284 (620) 62,664 11,970 (524) 11,446 Other comprehensive income, net of tax Unrealized gains on available-for-sale financial assets arising during the period [note d] 773 620 1,393 (248) 524 276Reclassification adjustment for net gains and losses included in profit for the period (151) — (151) 120 — 120Change in unrealized gains on available-for-sale financial assets arising during the period 622 620 1,242 (128) 524 396Comprehensive income for the period attributable to the Shareholders of the Company 63,906 — 63,906 11,842 — 11,842iv. Explanatory notes a. Classification of deferred income tax - Under IFRS, it is not appropriate to classify deferred income tax balances as current, irrespective of the classification of the financial assets or financial liabilities to which the deferred income tax relates or the expected timing of reversal. Under Canadian GAAP, deferred income tax relating to current assets or current liabilities must be classified as current. Accordingly, current deferred income tax reported under Canadian GAAP of $1,133,000 at January 1, 2010, $903,000 at March 31, 2010 and $1,251,000 at December 31, 2010 has been reclassified to non-current assets under IFRS. b. Investment properties - Under IFRS, where items of property, plant and equipment are held to earn rental income or for capital appreciation or both, they are classified separately on the consolidated statement of financial position as investment property. The Company has reclassified certain items of its land, buildings and building improvements to investment property on transition to IFRS. The Company has chosen to account for its investment property under the cost model with information on fair value being disclosed in the notes to the consolidated financial statements. This adjustment resulted in $8,417,000, $8,521,000 and $8,545,000 of net book value being reclassified from property plant and equipment to investment property at December 31, 2010, March 31, 2010 and January 1, 2010 respectively. c. Provisions - Under IFRS, provisions are required to be disclosed on the face of the consolidated statement of financial position with a more detailed breakdown included in the notes. Under Canadian GAAP, contingencies were included within trade and other payables. Trade and other payables have been decreased and provisions increased by $11,277,000 at January 1, 2010, $9,446,000 at March 31, 2010 and $12,341,000 at December 31, 2010 in relation to profit sharing and bonuses and vacation pay provided for. These are further disclosed in note 11. d. Available-for-sale financial assets - Under IFRS, changes in the fair value of available-for-sale financial assets are bi-furcated with foreign exchange gains and losses arising on translation being recorded through the consolidated income statement and changes in the underlying prices being recorded through other comprehensive income. Under Canadian GAAP, all changes in the fair value of available-for-sale financial assets (including foreign exchange gains or losses) are recognized directly in other comprehensive income. At January 1, 2010 this resulted in a reclassification between accumulated other comprehensive income and retained earnings of $384,000. For the three month period ended March 31, 2010 and year ended December 31, 2010 this resulted in a reduction in other comprehensive income and an increase in foreign exchange losses within other operating expenses of $609,000 and $722,000 respectively. e. Franchisee royalty revenue - Under IFRS, royalties received from the Company's franchisees meets the definition of revenue under IAS 18 - Revenue. Under Canadian GAAP they were classified as other income on the consolidated income statement. The Company has reclassified the royalties received from other income to revenue on transition to IFRS. This adjustment resulted in a reclassification of $10,663,000 for the year ended December 31, 2010 and $2,679,000 for the three month period ended March 31, 2010. f. Operating expenses - These expense categories have been reclassified to meet the function of expense presentation under IFRS. v. Consolidated Statements of Cash Flows The transition from Canadian GAAP to IFRS had no significant impact on the cash flows generated by the Company.21. APPROVAL OF THE FINANCIAL STATEMENTSThe condensed consolidated financial statements for the three months ended March 31, 2011 were approved and authorized for issuance by the Board of Directors on May 19, 2011. For further information: Dominic Scarangella, Tel: 416.243.4073.