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Press release from CNW Group

Leon's Furniture Limited - 2011 Second Quarter

Friday, August 12, 2011

Leon's Furniture Limited - 2011 Second Quarter13:36 EDT Friday, August 12, 2011TORONTO, Aug. 12, 2011 /CNW/ - For the three months ended June 30, 2011, total Leon's sales were $209,334,000 including $45,477,000 of franchise sales ($214,445,000 including $45,493,000 of franchise sales in 2010), a decrease of 2.4%. Net income was $11,144,000, 16¢ per common share ($12,300,000, 17¢ per common share in 2010), a decrease of 5.9% per common share.For the six months ended June 30, 2011, total Leon's sales were $400,926,000 including $86,286,000 of franchise sales ($418,243,000 including $87,821,000 of franchise sales in 2010), a decrease of 4.1% and net income was $20,971,000, 30¢ per common share ($23,746,000, 33¢ per common share in 2010), a decrease of 9.1% per common share.We closed out the second quarter of 2011 with lower sales and profits compared to the second quarter of 2010. The decrease in sales was mainly due to a lower average selling price than the prior year. We continue to face a difficult economy, with decreasing new housing starts and record consumer debt. We are pleased with the efforts of our associates to continue to find ways of improving productivity.Sales and productivity will be aided by the opening of four additional stores this year. Leasehold improvements have just been completed on a new leased premises of 76,000 sq. ft. in Guelph, Ontario with a grand opening scheduled for late August 2011. Construction is well on its way on a new 84,000 sq. ft. facility in Regina, Saskatchewan with a scheduled grand opening for the fourth quarter of 2011. We are planning grand openings of new 40,000 sq. ft. stores in Mississauga, Ontario and Rosemère, Quebec scheduled to open in the fall of this year. We also plan to continue the renovation of our existing buildings with major renovations and additions to our Sault Ste. Marie and Sudbury stores later this year with work scheduled to be completed by the summer of 2012. Finally, we have signed a new Franchisee in Bathurst, New Brunswick which is scheduled to open under the Leon's banner in the fourth quarter of 2011.As previously announced, we paid a quarterly 9¢ dividend on July 7th, 2011. Today we are pleased to announce that the Board of Directors have declared a quarterly dividend of 9¢ per common share payable on the 7th day of October 2011 to shareholders of record at the close of business on the 7th day of September 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.The Directors have also approved, subject to obtaining regulatory approvals, the continuation of the Company's ongoing Normal Course Issuer Bid, which expires on September 9, 2011. Pursuant to the continued bid, the Company intends, in the twelve months commencing September 10, 2011, to purchase up to the lesser of 4.99% of its Common Shares outstanding on August 31, 2011, and the amount equal to 4.99% of its Common Shares outstanding on the date the Toronto Stock Exchange accepts the notice of intention to make a normal course issuer bid.Since September 10, 2010, the date on which Leon's current issuer bid commenced, the Company has purchased 475,452 common shares at an average price of $13.71 per share.  The Company's Board of Directors believes that the purchase of its common shares is an appropriate use of its corporate funds, given its very strong financial position.EARNINGS PER SHARE FOR EACH QUARTER    MARCH 31   JUNE 30   SEPT. 30   DEC. 31   YEARTOTAL2011   -- BasicFully Diluted   14¢14¢   16¢15¢           $0.30$0.292010   -- BasicFully Diluted   16¢16¢   17¢17¢   26¢24¢   30¢29¢   $0.89$0.862009   -- BasicFully Diluted   12¢12¢   12¢12¢   22¢21¢   34¢33¢   $0.80$0.78LEON'S FURNITURE LIMITED - MEUBLES LEON LTEEMark J. LeonChairman of the BoardMANAGEMENT'S DISCUSSION AND ANALYSISFor the three months ended June 30, 2011 and 2010Dated: August 12, 2011The following review and analysis of Leon's Furniture Limited's (the "Company") operations and financial position for the three months ended June 30, 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 June 30, 2011.Cautionary Statement Regarding Forward-Looking StatementsThis Management's Discussion and Analysis ("MD&A") is intended to provide readers with the information that management believes is required to gain an understanding of Leon's Furniture Limited's current results and to assess the Company's future prospects. This MD&A, and in particular the section under heading "Outlook", includes forward-looking statements, which are based on certain assumptions and reflect Leon's Furniture Limited's current plans and expectations. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results and future prospects to differ materially from current expectations. Some of the factors that can cause actual results to differ materially from current expectations are: a continuing slowdown in the Canadian economy; a further drop in consumer confidence; and dependency on product from third party suppliers. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Readers of this report are cautioned that actual events and results may vary.Financial Statements Governance PracticeLeon's Furniture Limited's unaudited interim condensed consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and incorporate the requirements of International Accounting Standards ("IAS") 34, Interim financial reporting and IFRS 1, First time adoption of IFRS. The amounts expressed are in Canadian dollars. Per share amounts are calculated using the weighted average number of shares outstanding for the applicable period.Leon's Furniture Limited 2010 financial results included in this Interim MD&A have been restated to an IFRS basis.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.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 June 30, 2011, total Leon's sales were $209,334,000 including $45,477,000 of franchise sales ($214,445,000 including $45,493,000 of franchise sales in 2010), a decrease of 2.4%.Leon's corporate sales of $163,857,000 in the second quarter of 2011, decreased by $5,095,000, or 3.0%, compared to the second quarter of 2010.  The decrease in sales in the second quarter compared to the prior year reflected a continuation of waning consumer confidence, a decrease in housing starts, and an overall increase in consumer debt resulting in reduced consumer spending. Same store corporate sales decreased by 4.1% compared to the prior year. Comparable store sales are defined as sales generated by stores that have been open or closed for more than 12 months on a yearly basis.Leon's franchise sales of $45,477,000 in the second quarter of 2011 are virtually the same as the second quarter of 2010. The franchise division experienced modest growth in Western and Eastern Canada and a decrease in Ontario.  Our gross margin for the second quarter 2011 of 40.7% remained unchanged from the second quarter 2010.Net operating expenses of $51,963,000 were up $248,000 or 0.5% for the second quarter 2011 compared to the second quarter 2010. General and administrative expenses were down by 1.1% in the quarter compared to the prior year's quarter. The decrease was mainly the result of lower depreciation costs on buildings. Commencing at the beginning of 2011, buildings are being depreciated over a useful life of 30 years which resulted in a depreciation expense reduction of approximately $700,000 compared to the same quarter 2010. Selling and marketing expenses were basically in line with the prior year. However, advertising expenses were up $300,000 compared to the prior year quarter, offset by lower commissions paid on reduced sales in comparison to the prior year. All other operating costs in the quarter were comparable with the prior year second quarter. As a result of the above, net income for the second quarter 2011 was $11,144,000, 16¢ per common share ($12,300,000, 17¢ per common share in 2010), a decrease of 5.9% per common share.For the six months ended June 30, 2011, total Leon's sales were $400,926,000 including $86,286,000 of franchise sales ($418,243,000 including $87,821,000 of franchise sales in 2010), a decrease of 4.1% and net income was $20,971,000, 30¢ per common share ($23,746,000, 33¢ per common share in 2010), a decrease of 9.1% per common share.               Annual Financial Information($ in thousands, except earnings per share and dividends)     2010   *2009   *2008               Net Corporate Sales     710,435   703,180   740,376Leon Franchise Sales     197,062   194,290   209,848               Total Leon sales     907,497   897,470   950,224               Net Income     62,550   56,864   63,390Earnings per Share              Basic     $0.89   $0.80   $0.90Diluted     $0.86   $0.78   $0.87               Total Assets     544,053   529,156   513,408               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   $0.14* The year ended 2010 has been restated to IFRS while years ended 2009 and 2008 are as originally reported under Canadian Generally Accepted Accounting Principles ("Canadian GAAP"). Liquidity and Financial Resources           ($ in thousands, except dividends per share)   Jun 30/11  Dec. 31/10  June 30/10           Cash, cash equivalents, available-for-sale financial assets   200,018  211,813  175,703Trade and other accounts receivable   18,615  28,569  20,013Inventory   89,204  85,423  92,925Total assets   559,462  566,674  532,421Working capital   201,465  200,826  178,527           For the 3 months ended   Current QuarterJun 30/11  Prior QuarterDec. 31/10  Prior QuarterJune 30/10           Cash flow provided by operations   12,770  42,633  18,626Purchase of property, plant and equipment   6,401  5,502  4,568Repurchase of capital stock   3,785  1,800  814Dividends paid   6,317  6,309  4,937           Dividends paid per share   $0.09  $0.09  $0.07Leasehold improvements have just been completed on a new leased premises of 76,000 sq. ft. in Guelph, Ontario with a grand opening scheduled for late August 2011. Construction is well on its way on a new 84,000 sq. ft. facility in Regina, Saskatchewan with a scheduled grand opening for the fourth quarter of 2011. We are planning grand openings of new 40,000 sq. ft. stores in Mississauga, Ontario and Rosemère, Quebec scheduled to open 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 Ste. Marie and Sudbury stores later this year with work scheduled to be completed by the summer of 2012. At the present time, all funding for new store projects and renovations are planned to come from our existing cash resources.Quarterly Results (2011, 2010, 2009)Quarterly Income Statement ($000) - except per share data                              Quarter EndedJune 30  QuarterEndedMarch 31  Quarter EndedDecember 31  QuarterEndedSeptember 30    2011  2010  2011  2010  2010  2009  2010  2009Leon's Corporate Sales   163,857  168,952  150,783  161,470  197,888  197,986  182,125  187,431Leon's Franchise sales   45,477  45,493  40,809  42,328  59,820  57,679  49,421  49,243Total Leon's sales   209,334  214,445  191,592  203,798  257,168  255,665  231,546  236,674Net Income Per Share   $0.16  $0.17  $0.14  $0.16  $0.30  $0.34  $0.26  $0.22Fully Diluted Per Share   $0.15  $0.17  $0.14  $0.16  $0.29  $0.33  $0.24  $0.21The quarters ended March 31, 2010, June 30, 2010, September 30, 2010 and December 31, 2010 have been restated to IFRS while quarters reported for 2009 are as originally reported under Canadian GAAP. Changes in Accounting Policies - Adoption of IFRSLeon's Furniture Limited was required to prepare financial statements in accordance with IFRS starting with the unaudited interim condensed consolidated financial statements for the quarter ended March 31, 2011. These statements required the 2010 results to be restated in accordance with IFRS.Detailed notes on the changes to previously reported amounts are included in the notes to the unaudited interim condensed consolidated financial statements for the period ended March 31, 2011 which have been filed on SEDAR.The following table provides selected restated 2010 results by quarter.Interim and Annual Consolidated Net Income IFRS Restated 2010 results by quarter                         FirstQuarterSecondQuarterThirdQuarterFourthQuarterFull Year2010                       Revenue     161,470   168,952   182,125   197,888   710,435Cost of sales     93,498   100,187   106,564   112,130   412,379Gross profit     67,972   68,765   75,561   85,758   298,056                       Operating expenses                      General and administrative expenses     23,293   25,432   24,484   25,475   98,684Sales and marketing expenses     18,572   18,008   19,297   22,344   78,221Occupancy expenses     7,630   7,490   7,214   7,217   29,551Other operating expenses     2,167   785   1,748   1,934   6,634      51,662   51,715   52,743   56,970   213,090Operating profit     16,310   17,050   22,818   28,788   84,966                       Gain on sale of capital property     -   -    1,231   -    1,231Finance income     691   663   789   991   3,134Profit before income tax     17,001   17,713   24,838   29,779   89,331                       Income tax expense     5,555   5,413   7,001   8,812   26,781Profit for the period attributable to theshareholders of the Company 11,446 12,300 17,837 20,967 62,550                       Earnings per share                      Basic     $ 0.16   $ 0.17   $ 0.26   $ 0.30   $ 0.89Diluted     $ 0.16   $ 0.17   $ 0.24   $ 0.29   $ 0.86Disclosure Controls & ProceduresManagement 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 ReportingManagement 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 ReportingManagement has also evaluated whether there were changes in the Company's internal control over financial reporting that occurred during the period beginning on April 1, 2011 and ended on June 30, 2011 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. The Company has determined that no material changes in internal controls have occurred during this period.OutlookIn the second quarter of 2011 we saw a reduction in same store sales from the prior year quarter. Although we saw a slight improvement from the first quarter of 2011, we continue to see a slowdown in new housing starts and a general slowdown in consumer spending that we noted in 2010. At this point we do not see any clear signs pointing towards a strong economic turnaround. However, to counter this, we plan an even more robust marketing and merchandising campaign for the balance of the year. In addition, we should see an increase in sales and improved productivity that will be aided by the opening of four new stores in the second half of 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 12th day of August, 2011.Interim Condensed Consolidated Financial Statements           Leon's Furniture LimitedINTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION(UNAUDITED)            ($ in thousands)As at June 302011As at December 312010          [note 20]ASSETS          Current  assets          Cash and cash equivalents [notes 4 and 6]     52,949   71,589Available-for-sale financial assets [notes 4 and 18]     147,069   140,224Trade receivables [note 4]     18,615   28,569Income taxes receivable     5,584    — Inventory     89,204   85,423Total current assets     313,421   325,805Other assets     1,512   1,574Property, plant and equipment [note 7]     207,459   201,492Investment properties [note 8]     8,392   8,417Intangible assets [note 9]     4,460   4,902Goodwill     11,282   11,282Deferred income tax assets     12,936   13,202Total assets     559,462   566,674 LIABILITIES AND SHAREHOLDERS' EQUITY          Current           Trade and other payables [notes 4 and 10]     64,284   71,724Provisions [note 11]     7,982   12,341Income taxes payable      —   524Customers' deposits     16,892   17,198Dividends payable [note 13]     6,305   6,310Deferred warranty plan revenue     16,493   16,882Total current liabilities     111,956   124,979Deferred warranty plan revenue     20,064   21,392Redeemable share liability [notes 4 and 12]     382   172Deferred income tax liabilities     10,227   9,845Total liabilities     142,629   156,388 Shareholders' equity attributable to the shareholders of the CompanyCommon shares [note 13]     20,651   19,177Retained earnings     393,399   389,511Accumulated other comprehensive income      2,783   1,598Total shareholders' equity     416,833   410,286Total liabilities and shareholder's equity     559,462   566,674Commitments and contingencies [note 18] The accompanying notes are an integral part of these interim condensed consolidated financial statements. Interim Condensed Consolidated Financial Statements Leon's Furniture LimitedINTERIM CONSOLIDATED INCOME STATEMENTS (UNAUDITED)                  Three months ended June 30  Six months ended June 30($ in thousands)   2011  2010  2011  2010       [note 20]     [note 20]              Revenue [note 14]   163,857  168,952  314,640  330,422Cost of sales   97,170  100,187  185,235  193,685Gross profit   66,687  68,765  129,405  136,737Operating expenses [note 15]             General and administrative expenses   25,158  25,432  47,553  48,725Sales and marketing expenses   18,161  18,008  36,673  36,580Occupancy expenses   7,156  7,490  14,596  15,120Other operating expenses   1,488  785  2,897  2,952    51,963  51,715  101,719  103,377Operating profit   14,724  17,050  27,686  33,360Finance income   803  663  1,624  1,354Profit before income tax   15,527  17,713  29,310  34,714Income tax expense [note 16]   4,383  5,413  8,339  10,968Profit for the period attributable to the shareholders of the Company   11,144  12,300  20,971  23,746              Earnings per share  [note 17]             Basic   $0.16  $0.17  $0.30  $0.33Diluted   $0.15  $0.17  $0.29  $0.33The accompanying notes are an integral part of these interim condensed consolidated financial statements. Interim Condensed Consolidated Financial Statements Leon's Furniture LimitedINTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(UNAUDITED)                   Three months period ended June 30 ($ in thousands)      2011    Tax effect   Net of tax2011             Profit for the period     11,144   —   11,144Other comprehensive income, net of tax             Unrealized gains on available-for-sale financial assets arisingduring the period     474  67  407 Reclassification adjustment for net gains and (losses) included inprofit for the period     (8)  (1)  (7) Change in unrealized gains on available-for-sale financialassets arising during the period 466 66 400Comprehensive income for the period attributable to the shareholders of the Company     11,610  66  11,544                     2010    Tax effect   Net of tax2010      [note 20]     [note 20]             Profit for the period     12,300   —   12,300Other comprehensive income, net of tax             Unrealized losses on available-for-sale financial assets arisingduring the period     (1,477)  (216)  (1,261) Reclassification adjustment for net gains and (losses) included inprofit for the period     (69)  (11)  (58) Change in unrealized losses on available-for-sale financialassets arising during the period (1,546) (227) (1,319)Comprehensive income for the period attributable to the shareholders of the Company     10,754  (227)  10,981                   Six months period ended June 30 ($ in thousands)      2011    Tax effect   Net of tax2011             Profit for the period     20,971   —   20,971Other comprehensive income, net of tax             Unrealized gains on available-for-sale financial assets arisingduring the period     1,390  195  1,195 Reclassification adjustment for net gains and (losses) included inprofit for the period     (11)  (1)  (10) Change in unrealized gains on available-for-sale financialassets arising during the period 1,379 194 1,185Comprehensive income for the period attributable to the shareholders of the Company     22,350  194  22,156                     2010    Tax effect   Net of tax2010      [note 20]     [note 20]             Profit for the period     23,746   —   23,746Other comprehensive income, net of tax             Unrealized losses on available-for-sale financial assets arising during the period     (1,153)  (168)  (985) Reclassification adjustment for net gains and (losses) included inprofit for the period     72  10  62 Change in unrealized losses on available-for-sale financialassets arising during the period (1,081) (158) (923)Comprehensive income for the period attributable to the shareholders of the Company     22,665  (158)  22,823The accompanying notes are an integral part of these interim condensed consolidated financial statements.Interim Condensed Consolidated Financial Statements Leon's Furniture LimitedINTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY(UNAUDITED)                    ($ in thousands)       Commonshares  Accumulatedothercomprehensiveincome   Retainedearnings   Total                    As at January 1, 2010       17,704  242   357,192   375,138                    Comprehensive income                   Profit for the period       —  —   23,746   23,746Change in unrealized losses on available-for-sale financial assets arising during the period         —   (923)    —    (923)Total comprehensive income       —  (923)   23,746   22,823                    Transactions with shareholders                   Dividends declared [note 13]       —  —   (9,873)   (9,873)Management share purchase plan       549  —   —   549Repurchase of common shares [note 13]       (31)  —   (783)   (814)Total transactions with shareholders       518  —   (10,656)   (10,138)                    As at June 30, 2010       18,222  (681)   370,282   387,823                    As at January 1, 2011       19,177  1,598   389,511   410,286                    Comprehensive income                   Profit for the period       —  —   20,971   20,971Change in unrealized gains on available-for-sale financial assets arising during the period         —   1,185    —    1,185Total comprehensive income       —  1,185   20,971   22,156                    Transactions with shareholders                   Dividends declared [note 13]       —  —   (12,622)   (12,622)Management share purchase plan       1,513  —   —   1,513Repurchase of common shares [note 13]       (39)  —   (4,461)   (4,500)Total transactions with shareholders       1,474  —   (17,083)   (15,609)                    As at June 30, 2011       20,651  2,783   393,399   416,833The accompanying notes are an integral part of these interim condensed consolidated financial statements. Interim Condensed Consolidated Financial Statements Leon's Furniture LimitedINTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)                 Six months ended June 30($ in thousands)     2011   2010          [note 20]           OPERATING ACTIVITIES          Profit for the period     20,971   23,746Add (deduct) items not involving an outlay of cash           Depreciation of property, plant and equipment and investment properties     6,030   7,565 Amortization of intangible assets     442   378 Amortization of deferred warranty plan revenue     (8,612)   (8,238) Gain on sale of property, plant and equipment     (21)   (6) Deferred income taxes     454   659 Loss (gain) on sale of available-for-sale financial assets     68   (164) Unrealized foreign exchange losses     547   97 Cash received on warranty plan sales     6,895   7,852      26,774   31,889Net change in non-cash working capital balances relatedto operations [note 19] (14,691) (10,392)Cash provided by operating activities     12,083   21,497           INVESTING ACTIVITIES          Purchase of property, plant and equipment     (9,277)   (4,966)Purchase of intangible assets     —   (259)Proceeds on sale of property, plant and equipment     39   11Purchase of available-for-sale financial assets     (241,489)   (198,588)Proceeds on sale of available-for-sale financial assets     235,408   199,777Decrease in employee share purchase loans [note 12]     1,723   413Cash used in investing activities     (13,596)   (3,612)           FINANCING ACTIVITIES          Dividends paid [note 13]     (12,627)   (9,875)Repurchase of common shares [note 13]     (4,500)   (814)Cash used in financing activities     (17,127)   (10,689)Net (decrease) increase in cash and cash equivalentsduring the period (18,640) 7,196Cash and cash equivalents, beginning of period     71,589   58,301Cash and cash equivalents, end of period     52,949   65,497The accompanying notes are an integral part of these interim condensed consolidated financial statements.Leon's Furniture LimitedManagement's Responsibility for Financial ReportingThe accompanying interim condensed consolidated financial statements are the responsibility of management and have been approved by the Board of Directors.The accompanying interim condensed consolidated financial statements have been prepared by management in accordance with International Financial Reporting Standards ("IFRS") and incorporate the requirements of International Accounting Standards ("IAS") 34, Interim financial reporting and IFRS 1, First time adoption of IFRS. Financial statements are not precise since they include certain amounts based upon estimates and judgments. When alternative methods exist, management has chosen those it deems to be the most appropriate in the circumstances.Leon's Furniture Limited ("Leon's" or the "Company") maintains systems of internal accounting and administrative controls, consistent with reasonable costs. Such systems are designed to provide reasonable assurance that the financial information is relevant and reliable and that Leon's assets are appropriately accounted for and adequately safeguarded.The Board of Directors is responsible for ensuring that management fulfils its responsibilities for financial reporting and is ultimately responsible for reviewing and approving the financial statements. The Board carries out this responsibility through its Audit Committee.The Audit Committee is appointed by the Board and reviews these interim condensed consolidated financial statements; assesses the adequacy of the internal controls of the Company; and recommends to the Board the independent auditors for appointment by the shareholders. The Committee reports its findings to the Board of Directors for consideration when approving these interim condensed consolidated financial statements for issuance to the shareholders.Terrence T. Leon   President & CEO   Dominic ScarangellaVice President & CFOInterim Condensed Consolidated Financial StatementsLeon's Furniture LimitedTabular amounts in thousands of Canadian dollars except shares outstanding and earnings per shareFor the three and six month periods ended June 30, 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 ("Leon's" or the "Company") is a public company with its common shares listed on the Toronto Stock Exchange and is incorporated and domiciled in Canada. The address of the Company's head and registered office is 45 Gordon Mackay Road, Toronto, Ontario, M9N 3X3.Leon's is a retailer of home furnishings, electronics and appliances across Canada from Alberta to Newfoundland and Labrador. The Company owns a chain of thirty-seven retail stores operating as Leon's Home Furnishings Super Stores and two retail stores operating under the brand of Appliance Canada. The Company has twenty-five franchisees operating thirty Leon's Furniture franchise stores.2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of preparationThe interim condensed consolidated financial statements for the three and six month periods ended June 30, 2011 were prepared in accordance with International Accounting Standards ("IAS") 34, Interim Financial Reporting. The same accounting policies and methods of computation were followed in the preparation of these interim condensed consolidated financial statements as were followed in the preparation of the interim condensed consolidated financial statements for the three month period ended March 31, 2011. In addition, the interim condensed consolidated financial statements for the three month period ended March 31, 2011 contain certain incremental annual International Financial Reporting Standards ("IFRS") disclosures not included in the annual financial statements for the year ended December 31, 2010 prepared in accordance with previous Canadian Generally Accepted Accounting Principles ("CGAAP"). Accordingly, these interim condensed consolidated financial statements for the three and six month periods ended June 30, 2011 should be read together with the annual consolidated financial statements for the year ended December 31, 2010 prepared in accordance with previous CGAAP as well as the interim condensed consolidated financial statements for the three month period ended March 31, 2011.The policies applied in these interim condensed consolidated financial statements are based on IFRS issued and outstanding as of August 12, 2011, the date the Directors approved and authorized for issuance the interim condensed consolidated financial statements. Any subsequent changes to IFRS that are given effect in the Company's annual consolidated financial statements for the year ending December 31, 2011 could result in a restatement of these interim condensed consolidated financial statements, including the transition adjustments recognized on changeover to IFRS.Basis of measurementThe interim condensed consolidated financial statements have been prepared using the historical cost convention, as modified by certain financial assets measured at fair value through profit or loss.The preparation of interim condensed consolidated financial statements in conformity with IFRS requires use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the interim condensed consolidated financial statements are disclosed in note 3.Future changes in accounting policy and disclosureStandards issued but not yet effectiveIFRS 7, Financial Instruments: Disclosures - Enhanced Derecognition DisclosureThe amendment requires additional disclosure about financial assets that have been transferred but not derecognized to enable the user of the Company's financial statements to understand the relationship with those assets that have not been derecognized and their associated liabilities. In addition, the amendment requires disclosures about continuing involvement in derecognised assets to enable the user to evaluate the nature of, and risks associated with, the entity's continuing involvement in those derecognized assets. The amendment becomes effective for annual periods beginning on or after July 1, 2011. The amendment would affect disclosure only but is not expected to impact on the Company's disclosures.IFRS 9, Financial InstrumentsIFRS 9 was issued by the IASB in November 2009 and contained requirements for financial assets. This standard addresses classification and measurement of financial assets and replaces the multiple category and measurement models in IAS 39, Financial Instruments - Recognition and Measurement ("IAS 39"), for debt instruments with a new mixed measurement model having only two categories: Amortized cost and fair value through profit or loss. IFRS 9 also replaces the models for measuring equity instruments and such instruments are either recognized at fair value through profit or loss or at fair value through other comprehensive income. Where such equity instruments are measured at fair value through other comprehensive income, dividends are recognized in profit or loss; however, other gains and losses (including impairments) associated with such instruments remain in accumulated comprehensive income indefinitely.Requirements for financial liabilities were added in October 2010 and they largely carried forward existing requirements in IAS 39 except that fair value changes due to credit risk for liabilities designated at fair value through profit or loss would generally be recorded in other comprehensive income. This standard is required to be applied for accounting periods beginning on or after January 1, 2013, with earlier adoption permitted. The Company is currently assessing the impact of the standard and has not determined whether it will adopt the standard early.IFRS 10, Consolidated Financial StatementsIFRS 10, Consolidated Financial Statements ("IFRS 10") is effective for annual periods beginning on or after January 1, 2013 and will replace portions of IAS 27 Consolidated and Separate Financial Statements ("IAS 27") and interpretation SIC-12 Consolidation — Special Purpose Entities. Under IFRS 10, consolidated financial statements include all controlled entities under a single control model that applies to all entities, including special purpose entities and structured entities. A group will still continue to consist of a parent and its subsidiaries; however IFRS 10 uses different terminology from IAS 27 in describing its control model. The changes introduced by IFRS 10 will require management to exercise significant judgment to determine which entities are controlled, and therefore are required to be consolidated by a parent, compared with the requirements that were in IAS 27. Early adoption of this standard is permitted. The Company has not fully assessed the impact of adopting IFRS 10; however, it anticipates that its impact will be limited.IFRS 12, Disclosure of Interests in Other EntitiesIFRS 12, Disclosure of Interests in Other Entities ("IFRS 12") includes disclosure requirements about subsidiaries, joint ventures, and associates, as well as unconsolidated structured entities. Many of the disclosure requirements were previously included in IAS 27, IAS 1 and IAS 28 while others are new. This standard is effective for annual periods beginning on or after January 1, 2013 with early adoption permitted. The Company has not fully assessed the impact of adopting IFRS 12; however, it anticipates that its impact will be limited.IFRS 13, Fair Value MeasurementIFRS 13, Fair Value Measurement ("IFRS 13") provides guidance on how to measure fair value of financial and nonfinancial assets and liabilities when fair value is required or permitted per IFRS. While many of the concepts in IFRS 13 are consistent with current practice, certain principles could have a significant effect on some entities adopting the standard. IFRS 13 is effective January 1, 2013 and will be adopted prospectively. The Company does not expect any impact on its financial position or performance.ConsolidationThe interim condensed consolidated financial statements include the assets and liabilities of Leon's Furniture Limited and its wholly owned subsidiaries, Murlee Holdings Limited, Leon Holdings (1967) Limited and Ablan Insurance Corporation as at June 30, 2011 and the results of these subsidiaries for the three and six months period then ended.Subsidiaries are all those entities over which the Company has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company and de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealized gains/losses on transactions between group companies are eliminated.3.CRITICAL ACCOUNTING ESTIMATES AND 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 six month period ended June 30, 2011 was $181,095,000 (period ended June 30, 2010 - $189,037,000) which is presented within cost of sales on the interim consolidated income statements.During the three month period ended June 30, 2011, there was $288,000 in inventory write-downs (three month period ended June 30, 2010 - $332,000). At June 30, 2011, the inventory markdown provision totaled $4,474,000 (As of June 30, 2010 - $4,000,000). There were no reversals of any write-down for the period ended June 30, 2011 (period ended June 30, 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 June 30, 2011 was $4,315,000 (three month period ended June 30, 2010 - $4,133,000). Extended warranty expenses deducted through cost of sales for the three month period ended June 30, 2011 were $1,153,000 (three month period ended June 30, 2010 - $1,469,000).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 revenues. This royalty revenue is recorded by the Company on an accruals basis and is classified as revenue within the interim consolidated income statements.Volume 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 annual and interim consolidated financial statements. Additionally estimation of income taxes includes evaluating the recoverability of deferred income tax assets based on an assessment of the ability to use the underlying future tax deductions before they expire against future taxable income. The assessment is based upon existing tax laws and estimates of future taxable income. To the extent estimates differ from the final tax return, earnings would be affected in a subsequent period.Impairment of 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.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.June 30, 2011                    Available-for-sale [fair value]  Loans andreceivables[amortized cost]  Other financialliabilities[amortized cost]  Total carryingamount  Fair valueFinancial Assets                Cash and cash equivalents   52,949  —  —  52,949  52,949Available-for-sale financial assets   147,069  —  —  147,069  147,069Trade receivables   —  18,615  —  18,615  18,615Total   200,018  18,615  —  218,633  218,633Financial Liabilities                Trade and other payables   —  —  64,284  64,284  64,284Redeemable share liability   —  —  382  382  382Total   —  —  64,666  64,666  64,666December 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 interim consolidated statements of financial position at fair value, the Company is required to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements.Fair Values are assessed as:Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis;Level 2 - Observable inputs other than level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; 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 interim consolidated statements of financial position at fair value: Financial Instruments at Fair Value      Fair value measurement at June 30, 2011      Level 1Level 2Level 3Cash and cash equivalents     52,949——Available-for-sale financial assets - Bonds     —118,575—Available-for-sale financial assets - Equities     28,494——      81,443118,575—       Fair value measurement at December 31, 2010      Level 1Level 2Level 3Cash and cash equivalents     71,589——Available-for-sale financial assets - Bonds     —117,817—Available-for-sale financial assets - Equities     22,407——      93,996117,817—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 $18,615,000 as at June 30, 2011 [as at December 31, 2010 - $28,569,000]. The amount of trade receivables that the Company has determined to be past due [which is defined as a balance that is more than 90 days past due] is $5,000 as at June 30, 2011 [as at December 31, 2010 - $158,000] which relates entirely to the Appliance Canada division. The Company's provision for impairment of trade receivables, established through on-going monitoring of individual customer accounts, was $500,000 as at June 30, 2011 [as at December 31, 2010 - $470,000].       The majority of the Company's sales are paid through cash, credit card or non-recourse third-party finance.  The Company relies on 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 June 30, 2011, the Company's investment portfolio included 11% of foreign currency denominated assets [as at December 31, 2010 - 8%]. This risk is monitored by the Company's investment managers in an effort to reduce the Company's exposure to foreign currency exchange rate risk.    [iv]   Interest rate risk       The Company is exposed to interest rate risk through its portfolio of available-for-sale financial assets by holding actively traded Canadian and international Bonds. At June 30, 2011, 86% of the Company's investment portfolio was made up of Canadian and international Bonds [as at December 31, 2010 - 89%]. This risk is monitored by the Company's investment managers in an effort to reduce the Company's exposure to interest rate risk. The exposure to this risk is minimal due to the short-term maturities of the bonds held. The Company is not subject to any other interest rate risk.    [v]   Other price risk       The Company is exposed to fluctuations in the market prices of its portfolio of available-for-sale financial assets. Changes in the fair value of the available-for-sale financial assets are recorded, net of income taxes, in accumulated other comprehensive income.  The risk is managed by the Company and its investment managers by ensuring a conservative asset allocation of bonds and equities.5. CAPITAL RISK 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 June 30, 2011    As at December 31, 2010Cash at bank or on hand          4,023    19,642Short-term investments          48,926    51,947           52,949    71,5897. PROPERTY, PLANT AND EQUIPMENT                     Land Buildings Equipment Vehicles  Computerhardware Buildingimprovements  TotalAs at December 31, 2010:Opening net book valueAdditionsDisposalsDepreciation   56,15645870— 77,40311,685—7,024 11,6181,323—1,340 4,127484437826 1,307347—537  53,04298—5,109   203,65313,9821,30714,836Closing net book value  55,331 82,064 11,601 3,348  1,117 48,031  201,492As at December 31, 2010CostAccumulated depreciation   55,331— 175,36593,301 36,05324,452 20,90017,552 8,9517,83478,27330,242   374,873173,381Net book value  55,331 82,064 11,601 3,348  1,117 48,031  201,492As at June 30, 2011:Opening net book valueAdditionsDisposalsDepreciation   55,331——— 82,0646,327—1,752 11,601961—895 3,348510102464 1,11733—26348,0314,158—2,546   201,49211,9891025,920Closing net book value  55,331 86,639 11,667 3,292  887 49,643  207,459As at June 30, 2011CostAccumulated depreciation   55,331— 181,69295,053 37,01425,347 21,30818,016 8,9848,09782,43132,788   386,760179,301Net book value  55,331 86,639 11,667 3,292  887 49,643  207,459Included in the above balances at June 30, 2011 are assets not being amortized with a net book value of approximately $10,137,000 [At December 31, 2010 - $2,400,000] being construction-in-progress.8. INVESTMENT PROPERTIES       LandBuildingsBuilding improvementsTotalAs at December 31, 2010:    Opening net book value8,286—2598,545Additions————Disposals——3737Depreciation charge——9191Closing net book value8,286—1318,417As at December 31, 2010    Cost8,2868,0391,45717,782Accumulated depreciation—8,0391,3269,365Net book value8,286—1318,417As at June 30, 2011:    Opening net book value8,286—1318,417Additions————Disposals————Depreciation charge——2525Closing net book value8,286—1068,392As at June 30, 2011    Cost8,2868,0391,45717,782Accumulated depreciation—8,0391,3519,390Net book value8,286—1068,392The fair value of the investment property portfolio as at June 30, 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       CustomerrelationshipsBrandnameNon-compete AgreementComputer softwareTotalAs at December 31, 2010:     Opening net book value1,5002,0007501,0845,334Additions———370370Disposals—————Amortization charge250250125177802Closing net book value1,2501,7506251,2774,902As at December 31, 2010     Cost2,0002,5001,0004,2669,766Accumulated amortization7507503752,9894,864Net book value1,2501,7506251,2774,902As at June 30, 2011:     Opening net book value1,2501,7506251,2774,902Additions—————Disposals—————Amortization charge12512563129442Closing net book value1,1251,6255621,1484,460As at June 30, 2011     Cost2,0002,5001,0004,2669,766Accumulated amortization8758754383,1185,306Net book value1,1251,6255621,1484,46010. TRADE AND OTHER PAYABLES     As at June 30, 2011As at December 31, 2010Trade payables56,09660,127Other payables8,18811,597 64,28471,72411. PROVISIONS      Profit sharing and bonusesVacation payTotalsAs at December 31, 201012,00034112,341Charged to the consolidated income statement     Additional provisions6,5001,9628,462  Unused amounts reversed(1,007)—(1,007)  Used during the six month period(10,981)(833)(11,814)As at June 30, 20116,5121,4707,982Profit sharing and bonusesThe provision for profit sharing and bonuses is payable within the first half of the following fiscal year.Vacation payThe provision for vacation pay represents employee entitlements to untaken vacation at the interim consolidated statement of financial position date.12. REDEEMABLE SHARE LIABILITY    As atJune 30, 2011As at December 31, 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  682,652 series 2002 shares [December 31, 2010 - 813,331]4,9065,846560,047 series 2005 shares [December 31, 2010 - 620,793]5,2885,8621,163,304 series 2009 shares [December 31, 2010 - 1,168,124]10,29710,339Less employee share purchase loans(20,109)(21,875) 382172Under 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 six month period ended June 30, 2011, 130,679 series 2002 shares [six month period ended June 30, 2010 - 76,423] and 60,746 series 2005 shares [six month period ended June 30, 2010 - Nil] were converted into common shares with a stated value of approximately $939,000 [six month period ended June 30, 2010 - $549,000] and $574,000 [six month period ended June 30, 2010 - Nil], respectively.During the six month period ended June 30, 2011, the Company cancelled 4,820 series 2009 shares [six month period ended June 30, 2010 - Nil] in the amount of $43,000 [six month period ended June 30, 2010 - Nil].13. COMMON SHARES    As at June 30, 2011As at December 31, 2010AuthorizedUnlimited common shares    Issued69,935,915 common shares[December 31, 2010 - 70,075,333] 20,651 19,177During the three month period ended June 30, 2011, 59,481 series 2002 shares [three month period ended June 30, 2010 - 18,840] and 14,760 series 2005 shares [three month period ended June 30, 2010 - Nil] were converted into common shares with a stated value of approximately $427,000 [three month period ended June 30, 2010 - $135,000] and $139,000 [three month period ended June 30, 2010 - $Nil], respectively.During the six month period ended June 30, 2011, the Company repurchased 330,843 [six month period ended June 30, 2010 - 67,059] 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 $4,500,000 [six month period ended June 30, 2010 - $814,000].  All shares repurchased by the Company pursuant to its Normal Course Issuer Bids have been cancelled.  The repurchase of common shares resulted in a reduction of share capital in the amount of approximately $39,000 [six month period ended June 30, 2010 - $31,000].  The excess net cost over the average carrying value of the shares of approximately $4,461,000 [six month period ended June 30, 2010 - $783,000] has been recorded as a reduction in retained earnings.The dividends paid for the three month periods ended June 30, 2011 and June 30, 2010 were $6,317,000 [$0.09 per share] and $4,937,000 [$0.07 per share] respectively.14. REVENUE    Three month period ended June 30, 2011Three month period ended June 30, 2010Sale of goods by corporate stores159,273164,604Royalty income from franchisees2,3862,168Extended warranty revenue2,0142,002Rental income from investment property184178 163,857168,952 Six month period ended June 30, 2011Six month period ended June 30, 2010Sale of goods by corporate stores305,328321,243Royalty income from franchisees4,9174,848Extended warranty revenue4,0274,003Rental income from investment property368328 314,640330,42215. OPERATING EXPENSES BY NATURE    Three month period ended June 30, 2011Three month period ended June 30, 2010Depreciation of property, plant and equipment and investment properties3,0533,784Amortization of intangible assets221191Operating lease payments825720Foreign exchange (gains) losses65(496)Gain on sale of property, plant and equipment212 Six month period ended June 30, 2011Six month period ended June 30, 2010Depreciation of property, plant and equipment and investment properties6,0307,565Amortization of intangible assets442378Operating lease payments1,6161,627Foreign exchange (gains) losses546113Gain on sale of property, plant and equipment21616. INCOME TAX EXPENSE    Three month period ended June 30, 2011Three month period ended June 30, 2010Current income tax expense4,4255,402Deferred income tax (recovery) expense(42)11 4,3835,413 Six month period ended June 30, 2011Six month period ended June 30, 2010Current income tax expense8,35310,174Deferred income tax (recovery) expense(14)794 8,33910,968Income 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 June 30, 2011 and June 30, 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 69,962,673 for the three month period ended June 30, 2011 (three month period ended June 30, 2010 - 70,524,951).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 endedJune 30, 2011Profit for the period attributed to common shareholdersWeighted average number of sharesPer share amountBasic11,14469,962,6730.16Diluted11,14472,406,8620.15    Three month period endedJune 30, 2010Profit for the period attributed to common shareholdersWeighted average number of sharesPer share amountBasic12,30070,524,9510.17Diluted12,30073,323,2730.17    Six month period ended June 30, 2011Profit for the period attributed to common shareholdersWeighted average number of sharesPer share amountBasic20,97170,162,7090.30Diluted20,97172,649,2090.29    Six month period ended June 30, 2010Profit for the period attributed to common shareholdersWeighted average number of sharesPer share amountBasic23,74670,519,7170.33Diluted23,74673,298,4940.3318. COMMITMENTS AND CONTINGENCIES[a] The cost to complete all construction-in-progress as at June 30, 2011 totals $11,515,000 at five locations [December 31, 2010 - to complete at two locations at an approximate cost of $9,609,000].[b] The Company is obligated under operating leases for future minimum annual rental payments for certain land and buildings as follows:  No later than 1 year5,240Later than 1 year and no later than 5 years18,811Later than 5 years21,008 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 year712Later than 1 year and no later than 5 years2,027Later than 5 years427 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 $18,724,000 [as at December 31, 2010 - $19,498,000] and provided a letter of credit of $1,500,000 [as at December 31, 2010 - $1,500,000] for the benefit of the insurance company.19. INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS[a] The net change in non-cash working capital balances related to operations consists of the following:    Six month period ended June 30, 2011Six month period ended June 30, 2010Trade receivables9,95411,488Inventory(3,781)(8,968)Prepaid expenses62122Trade and other payables(10,153)(7,388)Provisions(4,359)(3,187)Income taxes payable(6,108)(5,097)Customers' deposits(306)2,638 (14,691)(10,392)[b] Supplemental cash flow information:    Six month period ended June 30, 2011Six month period ended June 30, 2010Income taxes paid13,69315,783[c] During the six month period, property, plant and equipment were acquired at an aggregate cost of $11,989,000 [2010 - $370,000], of which $3,248,000 [2010 - $536,000] is included in trade and other payables as at December 31, 2010.20. TRANSITION TO IFRSIn preparing its opening IFRS consolidated statements of financial position, the Company has adjusted amounts previously reported that have been prepared in accordance with Canadian GAAP. An explanation of how the transition from Canadian GAAP to IFRS has affected the Company's financial position and financial performance on the Transition Date, for the three months ended March 31, 2010, for the year ended December 31, 2010, as at January 1, 2010 and December 31, 2010 are set out in the tables and notes in the Company's interim condensed consolidated financial statements for the first quarter ended March 31, 2011. The Company has also selected certain transition exemptions on the Transition Date, the details of which are also in the notes to the March 31, 2011 interim condensed consolidated financial statements.  An explanation of how the transition from Canadian GAAP to IFRS has affected the Company's consolidated statements of financial position as of June 30, 2010, the consolidated income statements for the three and six months period ended June 30, 2010, the consolidated statements of comprehensive income for the three and six months period ended June 30, 2010 and the consolidated statements of cash flows are set out in the following tables and the notes that accompany the tables below.i.     Consolidated Statement of Financial Position   As at June 30, 2010 Cdn. GAAPAdj.IFRSASSETS   Current   Cash and cash equivalents65,497—65,497Available-for-sale financial assets110,206—110,206Trade receivables20,013—20,013Income taxes receivable3,139—3,319Inventory92,925—92,925Deferred income tax assets [note a]824(824)—Total current assets292,604 291,780Other assets1,438—1,438Property, plant and equipment [note b]210,105(8,496)201,609Investment properties [note b]—8,4968,496Intangible assets5,215—5,215Goodwill11,282—11,282Deferred income tax assets [note a]11,77782412,601Total assets532,421—532,421LIABILITIES AND SHAREHOLDERS' EQUITY   Current   Trade and other payables [note c]73,817(8,090)65,727Provisions [note c]        —8,0908,090Customers' deposits18,270—18,270Dividends payable4,936—4,936Deferred warranty plan revenue17,054—17,054Total current liabilities114,077        —114,077Deferred warranty plan revenue20,958      —20,958Redeemable share liability247—247Deferred income tax liabilities [notes a and d]9,316—9,316Total liabilities144,598—144,598Shareholders' equity attributable to the shareholders of the Company   Common shares18,222—18,222Retained earnings [note d]370,763(481)370,282Accumulated other comprehensive loss [note d](1,162)481(681)Total shareholders' equity387,823—387,823Total liabilities and shareholder's equity532,421        —532,421ii.     Consolidated Income Statements    Three months ended June 30, 2010Six months ended June 30, 2010 Cdn.GAAPAdj.ReclassesIFRSCdn.GAAPAdj.ReclassesIFRS         Revenue[note e]166,784—2,168168,952325,575—4,847330,422Cost of sales100,187——100,187193,685——193,685Gross profit66,597—2,16868,765131,890—4,847136,737         Operating expenses[note f]        General and administrative expenses——25,43225,432——48,72548,725Sales and marketing expenses——18,00818,008——36,58036,580Occupancy expenses——7,4907,490——15,12015,120Other operating expenses [note d]—(496)1,281785—1132,8392,952Salaries and commissions26,305—(26,305)—51,028—(51,028)—Advertising6,886—(6,886)—14,476—(14,476)—Rent and property taxes3,547—(3,547)—7,035—(7,035)—Amortization3,975—(3,975)—7,943—(7,943)—Employee profit-sharing plan1,212—(1,212)—2,374—(2,374)—Other operating expenses10,487—(10,487)—20,810—(20,810)—Interest income(663)—663—(1,354)—1,354—Other income(2,369)—2,369—(5,249)—5,249— 49,380(496)2,83151,71597,0631136,201103,377Operating profit17,217496(663)17,05034,827(113)(1,354)33,360Finance income——663663——1,3541,354Profit before income tax17,217496—17,71334,827(113)—34,714         Income tax expense [note d]5,34469—5,41310,984(16)—10,968Profit for the period attributable to the shareholders of the Company11,873427—12,30023,843(97)—23,746iii.     Consolidated Statements of Comprehensive Income    Three months ended June 30, 2010Six months ended June 30, 2010 Cdn.Adj.IFRSCdn.Adj.IFRS       Profit for the period11,87342712,30023,843(97)23,746       Other comprehensive income, net of tax      Unrealized (gains) and losses on available-for-sale financial assets arising during the period [note d](834) (427) (1,261)  (1,082) 97 (985)  Reclassification adjustment for net gains and losses included in profit for the period(58) — (58) 62 — 62 Change in unrealized (gains) and losses on available-for-sale financial assets arising during the period(892) (427) (1,319) (1,020) 97 (923) Comprehensive income for the period attributable to the Shareholders of the Company10,981—10,98122,823—22,823iv.     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 $824,000 at June 30, 2010 has been reclassified to non-current assets under IFRS. b.     Investment properties - Under IFRS, where items of property, plant and equipment are held to earn rental income or for capital appreciation or both, they are classified separately on the consolidated statement of financial position as investment property. The Company has reclassified certain items of its land, buildings and building improvements to investment property on transition to IFRS. The Company has chosen to account for its investment property under the cost model with information on fair value being disclosed in the notes to the consolidated financial statements. This adjustment resulted in $8,496,000 of net book value being reclassified from property plant and equipment to investment property at June 30, 2010. c.     Provisions - Under IFRS, provisions are required to be disclosed on the face of the consolidated statement of financial position with a more detailed breakdown included in the notes. Under Canadian GAAP, contingencies were included within trade and other payables. Trade and other payables have been decreased and provisions increased by $8,090,000 at June 30, 2010 in relation to profit sharing, bonuses and vacation pay provided for. These are further disclosed in note 11. d.     Available-for-sale financial assets - Under IFRS, changes in the fair value of available-for-sale financial assets are bi-furcated with foreign exchange gains and losses arising on translation being recorded through the consolidated income statement and changes in the underlying prices being recorded through other comprehensive income. Under 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 June 30, 2010 this resulted in a reclassification between accumulated other comprehensive income and retained earnings of $481,000. For the three month period ended June 30, 2010 this resulted in a $427,000 increase in other comprehensive income and a foreign exchange gain within other operating expenses of $496,000 and for the six month period ended June 30, 2010 this resulted in a $97,000 reduction in other comprehensive income and an increase in foreign exchange losses within other operating expenses of $113,000. 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 this royalty revenue was classified as other income on the consolidated income statement. The Company has reclassified the royalties received from other income to revenue on transition to IFRS. This adjustment resulted in a reclassification of $2,168,000 and $4,847,000 for the three and six month period ended June 30, 2010, respectively. f.     Operating expenses - These expense categories have been reclassified to meet the function of expense presentation under IFRS.v.     Consolidated Statements of Cash Flows   The transition from Canadian GAAP to IFRS had no significant impact on the cash flows generated by the Company.21. APPROVAL OF THE FINANCIAL STATEMENTSThe interim condensed consolidated financial statements for the three months ended June 30, 2011 were approved and authorized for issuance by the Board of Directors on August 12, 2011.              For further information: Dominic Scarangella, Tel: 416.243.4073