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Press release from CNW Group

Leon's Furniture Limited - 2011 Third Quarter

Monday, November 14, 2011

Leon's Furniture Limited - 2011 Third Quarter13:57 EST Monday, November 14, 2011TORONTO, Nov. 14, 2011 /CNW/ - For the three months ended September 30, 2011, total Leon's sales were $223,646,000 including $49,273,000 of franchise sales ($231,546,000 including $49,421,000 franchise sales in 2010), a decrease of 3.4% from the third quarter 2010.  Net income was $16,956,000, 24¢ per common share ($17,837,000, 25¢ per common share in 2010), a decrease of 4.0% per common share. The third quarter 2010 includes an after tax gain of $1,050,000 on the sale of property (1.5¢ per common share).For the nine months ended September 30, 2011, total Leon's sales were $624,572,000 including $135,559,000 of franchise sales ($649,789,000 including $137,242,000 of franchise sales in 2010), a decrease of 3.9% and net income was $37,927,000, 54¢ per common share ($41,583,000, 59¢ per common share in 2010), a decrease of 8.5% per common share.We continue to face a difficult economy, with decreasing new housing starts and record consumer debt. That being said, we are pleased with the efforts of our associates to continue to find ways of improving productivity and controlling expenses.In the third quarter of 2011, the Company celebrated the grand opening of a new corporate store in Guelph, Ontario. That was followed by grand openings in the fourth quarter of 2011 of three additional corporate stores in Mississauga, Ontario; Rosemère, Quebec; and Regina, Saskatchewan. As well, during the fourth quarter of 2011 new Leon's franchise locations had grand openings in Bathurst, New Brunswick; and Drummondville, Quebec, our first franchise located in Quebec.In addition to these new locations, the Company and our existing franchisees continue to replace, renovate and expand existing stores in order to serve our customers better. Renovations are well underway in our Sudbury and Sault Ste. Marie, Ontario corporate stores. Our Trenton, Ontario franchise recently completed a renovation of their store and a renovation and expansion will commence shortly at our Simcoe, Ontario franchise. Our Kentville franchise has recently completed construction of a new and larger replacement store in Coldbrook, Nova Scotia. Finally, construction has started for a brand new franchise store to replace our existing St. John, New Brunswick store.The Company continues to explore new opportunities across Canada. The Company has recently secured sites for four new corporate stores in: Orangeville and Brantford, Ontario; Sherbrooke, Quebec; and Rocky View County, which is just north of Calgary, Alberta. Our current plan is to open these locations during 2012 and 2013. All funding for new store projects and renovations is scheduled to come from our existing cash resources.In light of our strong financial position, the Directors are pleased to declare an increase in the quarterly dividend from 9¢ per common share to 10¢ per common share payable on January 9, 2012 to the shareholders of record at the close of business on December 9, 2011. The Directors have also increased the annual dividend on the convertible non-voting series shares from 18¢ to 20¢, which will be payable on January 9, 2012 to the shareholders of record at the close of business on December 9, 2011. In addition, due to our positive cash position, the Directors are pleased to declare a special dividend of 15¢ per common share payable on January 9, 2012 to the shareholders of record at the close of business on December 9, 2011. As stated in our press release dated February 20, 2007, as of 2006, dividends paid by Leon's Furniture Limited are "eligible dividends" and for further clarification, all future dividends are eligible dividends unless otherwise stated.For further information, please consult the Company's Management Discussion & Analysis dated November 14, 2011.EARNINGS PER SHARE FOR EACH QUARTER       MARCH 31JUNE 30SEPT. 30DEC. 31YEAR TOTAL        2011--BasicFully Diluted14¢14¢16¢15¢24¢23¢ $0.54$0.52        2010--BasicFully Diluted16¢16¢17¢17¢25¢24¢30¢29¢$0.89$0.86        2009--BasicFully Diluted12¢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 September 30, 2011 and 2010Dated: November 14, 2011The MD&A should be read in conjunction with i) the Company's 2010 audited consolidated financial statements and the related notes and MD&A, ii) the Company's unaudited interim consolidated financial statements for the three months ended March 31, 2011 and the related notes and MD&A and iii) the Company's unaudited interim condensed consolidated financial statements for the nine months ended September 30, 2011 and the related notes.Cautionary Statement Regarding Forward-Looking 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 be in accordance with IFRS.The Audit Committee of the Board of Directors of Leon's Furniture Limited reviewed the MD&A and the unaudited interim condensed consolidated financial statements, and recommended that the Board of Directors approve them. Following review by the full Board, the unaudited interim condensed consolidated financial statements and MD&A were approved.IntroductionLeon's Furniture Limited has been in the furniture retail business for over 100 years. The Company's 43 corporate and 32 franchise stores can be found in every province across Canada except British Columbia. Main product lines sold at retail include furniture, appliances and electronics.Revenues and ExpensesFor the three months ended September 30, 2011, total Leon's sales were $223,646,000 including $49,273,000 of franchise sales ($231,546,000 including $49,421,000 of franchise sales in 2010), a decrease of 3.4%.Leon's corporate sales of $174,373,000 in the third quarter of 2011, decreased by $7,752,000, or 4.3%, compared to the third quarter of 2010.  The decrease in sales in the third quarter compared to the prior year reflected a continuation of waning consumer confidence, a decrease in housing starts, and an overall increase in consumer debt resulting in reduced consumer spending. Same store corporate sales decreased by 6.2% compared to the prior year. Comparable store sales are defined as sales generated by stores that have been open or closed for more than 12 months on a yearly basis.Leon's franchise sales of $49,273,000 in the third quarter of 2011 are virtually the same as the third quarter of 2010.Our gross margin for the third quarter 2011 of 42.2% increased by 0.7% from the third quarter of 2010. We experienced some improvement in most product category margins aided by the reduction in import costs due to a strong Canadian dollar during most of the third quarter.Net operating expenses of $50,930,000 were down $1,813,000 or 3.4% for the third quarter of 2011 compared to the third quarter of 2010. General and administrative expenses were down by 1.4% in the quarter compared to the prior year's quarter. The decrease was mainly the result of lower depreciation cost on buildings. Under IFRS, buildings are now depreciated over a useful life of 30 years which resulted in a depreciation expense reduction of approximately $700,000 compared to the same quarter 2010. Selling expenses are down 3.0% compared to the same quarter in 2010. The decrease is the result of lower commissions paid on reduced sales in comparison to the prior year. Actual marketing expenses were flat compared to the prior year quarter. Occupancy expenses were up 13.8% from the prior year quarter. The increase in expenses is mainly the result of our new store addition in Thunder Bay in the fourth quarter of 2010 along with an increase in repairs and maintenance related to roof repairs. Other operating expenses in the quarter decreased by $1,893,000 compared to the same quarter in 2010. The strength in the US dollar in comparison to the Canadian dollar at the end of the third quarter resulted in a $1,705,000 unrealized foreign exchange gain on investments, which is recorded in other operating expenses.As a result of the above, net income for the third quarter of 2011 was $16,956,000, 24¢ per common share ($17,837,000, 25¢ per common share in 2010), a decrease of 4.0% per common share. The third quarter of 2010 includes an after tax gain on sale of property of 1.5 ¢ per common share.For the nine months ended September 30, 2011, total Leon's sales were $624,572,000 including $135,559,000 of franchise sales ($649,789,000 including $137,242,000 of franchise sales in 2010), a decrease of 3.9% and net income was $37,927,000, 54¢ per common share ($41,583,000, 59¢ per common share in 2010), a decrease of 8.5% per common share.        Annual Financial Information($ in thousands, except earnings per share and dividends)20102009*2008*    Net corporate sales710,435703,180740,376Leon franchise sales197,062194,290209,848    Total Leon's 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$0.14* The year ended 2010 has been restated to IFRS while years ended 2009 and 2008 are as originally reported under Canadian Generally Accepted Accounting Principles ("Canadian GAAP"). Liquidity and Financial Resources        ($ in thousands, except dividends per share)Sept 30/11Dec. 31/10Sept 30/10    Cash, cash equivalents, available-for-sale financial assets207,696211,813182,260Trade and other accounts receivable18,72428,56920,627Inventory85,87285,42397,852Total assets569,916566,674543,238Working capital200,499200,826186,727    For the 3 months endedCurrent QuarterSept 30/11Prior QuarterDec. 31/10Prior QuarterSept 30/10    Cash flow provided by operations26,85742,63315,299Purchase of property, plant and equipment9,3865,5023,100Repurchase of capital stock1,6151,8005,419Dividends paid6,3056,3094,936    Dividends paid per share$0.09$0.09$0.07In the third quarter of 2011, the Company celebrated a grand opening of a new corporate store in Guelph, Ontario. That was followed by grand openings in the fourth quarter of 2011 of three additional corporate stores in Mississauga, Ontario; Rosemère, Quebec; and Regina, Saskatchewan. As well, during the fourth quarter of 2011 new Leon's franchise locations had grand openings in Bathurst, New Brunswick; and Drummondville, Quebec, our first franchise located in Quebec.In addition to these new locations, the Company and our existing franchisees continue to replace, renovate and expand existing stores in order to serve our customers better. Renovations are well underway in our Sudbury and Sault Ste. Marie, Ontario corporate stores. Our Trenton, Ontario franchise recently completed a renovation of their store and a renovation and expansion will commence shortly at our Simcoe, Ontario franchise. Our Kentville franchise has recently completed construction of a new and larger replacement store in Coldbrook, Nova Scotia. Finally, construction has started for a brand new franchise store to replace our existing St. John, New Brunswick store.The Company continues to explore new opportunities across Canada. The Company has recently secured sites for four new corporate stores in: Orangeville and Brantford, Ontario; Sherbrooke, Quebec; and Rocky View County, which is just north of Calgary, Alberta. Our current plan is to open these locations during 2012 and 2013. All funding for new store projects and renovations are planned to come from our existing cash resources.Quarterly Results (2011, 2010, 2009)Quarterly Income Statement ($000) - except per share data Quarter EndedSeptember 30Quarter EndedJune 30Quarter EndedMarch 31Quarter EndedDecember 31 20112010201120102011201020102009Leon's corporate sales174,373182,125163,857168,952150,783161,470197,888197,986Leon's franchise sales49,27349,42145,47745,49340,80942,32859,82057,679Total Leon's sales223,646231,546209,334214,445191,592203,798257,168255,665Net income per share$0.24$0.25$0.16$0.17$0.14$0.16$0.30$0.34Fully diluted per share$0.23$0.24$0.15$0.17$0.14$0.16$0.29$0.33The quarters ended March 31, 2010, June 30, 2010, September 30, 2010 and December 31, 2010 have been restated to IFRS while quarters reported for 2009 are as originally reported under Canadian GAAP. Changes in Accounting Policies - Adoption of IFRSLeon's Furniture Limited was required to prepare financial statements in accordance with IFRS starting with the unaudited interim condensed consolidated financial statements for the quarter ended March 31, 2011. These statements required the 2010 results to be restated in accordance with IFRS.Detailed notes on the changes to previously reported amounts are included in the notes to the unaudited interim condensed consolidated financial statements for the period ended March 31, 2011, which have been filed on SEDAR.The following table provides selected restated 2010 results by quarter.Interim and Annual Consolidated Net IncomeIFRS restated 2010 results by quarter                   FirstQuarterSecondQuarterThirdQuarterFourthQuarterFull Year2010      Revenue161,470168,952182,125197,888710,435Cost of sales93,498100,187106,564112,130412,379Gross profit67,97268,76575,56185,758298,056      Operating expenses     General and administrative expenses23,29325,43224,48425,47598,684Sales and marketing expenses18,57218,00819,29722,34478,221Occupancy expenses7,6307,4907,2147,21729,551Other operating expenses2,1677851,7481,9346,634 51,66251,71552,74356,970213,090Operating profit16,31017,05022,81828,78884,966      Gain on sale of capital property-- 1,231- 1,231Finance income6916637899913,134Profit before income tax17,00117,71324,83829,77989,331      Income tax expense5,5555,4137,0018,81226,781Profit for the period attributable to theshareholders of the Company 11,446 12,300 17,837 20,967 62,550      Earnings per share     Basic$ 0.16$ 0.17$ 0.25$ 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 July 1, 2011 and ended on September 30, 2011 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. The Company has determined that no material changes in internal controls have occurred during this period.OutlookIn the third quarter of 2011, we experienced a reduction in same store sales from the prior year quarter. We continue to see a slowdown in new housing starts and a general slowdown in consumer spending that we noted in 2010. At this point, we do not see any clear signs pointing towards a strong economic turnaround. We expect that consumers will remain cautious about major purchases and as a result we anticipate a very competitive market moving forward. To help counter this, we plan an even more robust marketing and merchandising campaign for the balance of the year. Fourth quarter sales should be aided by the recent opening of four new stores. Even with these measures in place, growing profits for the balance of this year will be challenging. Despite this, our strong financial position coupled with our experience in adjusting to changing market conditions, provide us with the confidence to adapt to whatever economic conditions prevail.NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL 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 14th day of November, 2011.Interim Condensed Consolidated Financial Statements        Leon's Furniture LimitedINTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION(UNAUDITED)    As at September 30As at December 31($ in thousands)20112010  [note 20]ASSETS  Current  assets  Cash and cash equivalents [notes 4 and 6]37,40871,589Available-for-sale financial assets [notes 4 and 18e]170,288140,224Trade receivables [note 4]18,72428,569Income taxes receivable4,963- Inventory85,87285,423Total current assets317,255325,805Other assets1,4861,574Property, plant and equipment [note 7]214,203201,492Investment properties [note 8]8,3798,417Intangible assets [note 9]4,1804,902Goodwill11,28211,282Deferred income tax assets13,13113,202Total assets569,916566,674   LIABILITIES AND SHAREHOLDERS' EQUITY  Current liabilities  Trade and other payables [notes 4 and 10]66,36171,724Provisions [note 11]11,15212,341Income taxes payable- 524Customers' deposits16,66117,198Dividends payable [note 13]6,2926,310Deferred warranty plan revenue16,29016,882Total current liabilities116,756124,979Deferred warranty plan revenue 19,58221,392Redeemable share liability [notes 4 and 12]382172Deferred income tax liabilities10,4349,845Total liabilities147,154156,388   Shareholders' equity attributable to the shareholders of the Company  Common shares [note 13]20,87119,177Retained earnings402,463389,511Accumulated other comprehensive income(572)1,598Total shareholders' equity422,762410,286Total liabilities and shareholder's equity569,916566,674   Commitments and contingencies [note 18]     The accompanying notes are an integral part of these interim condensed consolidated financial statements.    Interim Condensed Consolidated Financial Statements              Leon's Furniture LimitedINTERIM CONSOLIDATED INCOME STATEMENTS(UNAUDITED)      Three months ended September 30Nine months ended September 30($ in thousands)2011201020112010  [note 20] [note 20]Revenue [note 14]174,373182,125489,013512,547Cost of sales100,854106,564286,089300,249Gross profit73,51975,561202,924212,298Operating expenses [note 15]    General and administrative expenses24,14724,48471,70073,209Sales and marketing expenses18,72119,29755,39455,877Occupancy expenses8,2077,21422,80322,334Other operating expenses(145)1,7482,7524,700 50,93052,743152,649156,120Operating profit22,58922,81850,27556,178Gain on sale of capital property- 1,231- 1,231Finance income7947892,4182,143Profit before income tax23,38324,83852,69359,552Income tax expense [note 16]6,4277,00114,76617,969Profit for the period attributable to the shareholders of the Company16,95617,83737,92741,583     Earnings per share  [note 17]    Basic$0.24$0.25$0.54$0.59Diluted$0.23$0.24$0.52$0.57     The accompanying notes are an integral part of these interim condensed consolidated financial statements.        Interim Condensed Consolidated Financial Statements           Leon's Furniture LimitedINTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(UNAUDITED)     Three months ended September 30   Net of tax($ in thousands)2011Tax effect2011    Profit for the period16,956- 16,956Other comprehensive income, net of tax      Unrealized (losses) on available-for-sale financial assets arising during the period(3,903)(546)(3,357)   Reclassification adjustment for net gains and (losses) included in profit for the period2- 2   Change in unrealized (losses) on available-for-sale financial      assets arising during the period (3,901) (546) (3,355)Comprehensive income for the period attributable to the shareholders of the Company13,055(546)13,601       Net of tax 2010Tax effect2010 [note 20] [note 20]Profit for the period17,837- 17,837Other comprehensive income, net of tax      Unrealized gains on available-for-sale financial assets arising during the period2,3043431,961   Reclassification adjustment for net gains and (losses) included in profit for the period(82)(12)(70)   Change in unrealized gains on available-for-sale financial      assets arising during the period 2,222 331 1,891Comprehensive income for the period attributable to the shareholders of the Company20,05933119,728     Nine months ended September 30   Net of tax($ in thousands)2011Tax effect2011    Profit for the period37,927- 37,927Other comprehensive income, net of tax      Unrealized (losses) on available-for-sale financial assets arising during the period(2,513)(351)(2,162)   Reclassification adjustment for net gains and (losses) included in profit for the period(9)(1)(8)   Change in unrealized (losses) on available-for-sale financial      assets arising during the period (2,522) (352) (2,170)Comprehensive income for the period attributable to the shareholders of the Company35,405(352)35,757       Net of tax 2010Tax effect2010 [note 20] [note 20]Profit for the period41,583- 41,583Other comprehensive income, net of tax      Unrealized gains on available-for-sale financial assets arising during the period1,151173978   Reclassification adjustment for net gains and (losses) included in profit for the period(10)(2)(8)   Change in unrealized gains on available-for-sale financial      assets arising during the period 1,141 171 970Comprehensive income for the period attributable to the shareholders of the Company42,72417142,553    The 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)Common sharesAccumulated other comprehensive incomeRetained earningsTotal     At January 1, 201017,704242357,192375,138     Comprehensive income    Profit for the period——41,58341,583Change in unrealized gains on available-for-salefinancial assets arising during the period — 385 — 385Total comprehensive income—38541,58341,968     Transactions with shareholders    Dividends declared [note 13]——(16,182)(16,182)Management share purchase plan831——831Repurchase of common shares [note 13](234)—(5,999)(6,233)Total transactions with shareholders597—(22,181)(21,584)     At September 30, 201018,301627376,594395,522     At January 1, 201119,1771,598389,511410,286     Comprehensive income    Profit for the period——37,92737,927Change in unrealized (losses) on available-for-salefinancial assets arising during the period — (2,170) — (2,170)Total comprehensive income—(2,170)37,92735,757     Transactions with shareholders    Dividends declared [note 13]——(18,914)(18,914)Management share purchase plan1,748——1,748Repurchase of common shares [note 13](54)—(6,061)(6,115)Total transactions with shareholders1,694—(24,975)(23,281)     At September 30, 201120,871(572)402,463422,762     The 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)    Nine months ended September 30($ in thousands)20112010  [note 20]OPERATING ACTIVITIES  Profit for the period37,92741,583Add (deduct) items not involving an outlay of cash   Depreciation of property, plant and equipment and investment properties9,30611,419 Amortization of intangible assets658577 Amortization of deferred warranty plan revenue(12,943)(12,492) Gain on sale of property, plant and equipment(21)(1,238) Deferred income taxes1,012892 Gain (loss) on sale of available-for-sale financial assets19(156) Unrealized foreign exchange (gain) loss(1,133)397 Cash received on warranty plan sales10,54112,079 45,36653,061Net change in non-cash working capital balances relatedto operations [note 19] (6,426) (16,265)Cash provided by operating activities38,94036,796   INVESTING ACTIVITIES  Purchase of property, plant & equipment(18,663)(8,066)Purchase of intangible assets64(262)Proceeds on sale of property, plant & equipment392,113Purchase of available-for-sale financial assets(403,621)(371,023)Proceeds on sale of available-for-sale financial assets372,149357,140Decrease in employee share purchase loans [note 12]1,9581,095Cash used in investing activities(48,074)(19,003)   FINANCING ACTIVITIES  Dividends paid  [note 13](18,932)(14,811)Repurchase of common shares [note 13](6,115)(6,233)Cash used in financing activities(25,047)(21,044)Net decrease in cash and cash equivalents     during the period(34,181)(3,251)Cash and cash equivalents, beginning of period71,58958,301Cash and cash equivalents,end of period37,40855,050   The accompanying notes are an integral part of these interim condensed consolidated financial statements.    Leon's Furniture Limited Management'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 nine month periods ended September 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-eight retail stores operating as Leon's Home Furnishings Super Stores, two retail stores operating under the brand of Appliance Canada and operates an ecommerce internet site www.leons.ca. In addition, the Company has twenty-five franchisees operating thirty Leon's Furniture franchise stores.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of preparationThe interim condensed consolidated financial statements for the three and nine month periods ended September 30, 2011 were prepared in accordance with International Accounting Standards ("IAS") 34, Interim Financial Reporting. The same accounting policies and methods of computation were followed in the preparation of these interim condensed consolidated financial statements as were followed in the preparation of the interim condensed consolidated financial statements for the three month period ended March 31, 2011. In addition, the interim condensed consolidated financial statements for the three month period ended March 31, 2011 contain certain incremental annual International Financial Reporting Standards ("IFRS") disclosures not included in the annual financial statements for the year ended December 31, 2010 prepared in accordance with previous Canadian Generally Accepted Accounting Principles ("CGAAP"). Accordingly, these interim condensed consolidated financial statements for the three and nine month periods ended September 30, 2011 should be read together with the annual consolidated financial statements for the year ended December 31, 2010 prepared in accordance with previous CGAAP as well as the interim condensed consolidated financial statements for the three month period ended March 31, 2011.The policies applied in these interim condensed consolidated financial statements are based on IFRS issued and outstanding as of November 14, 2011, the date the Directors approved and authorized for issuance the interim condensed consolidated financial statements. Any subsequent changes to IFRS that are given effect in the Company's annual consolidated financial statements for the year ending December 31, 2011 could result in a restatement of these interim condensed consolidated financial statements, including the transition adjustments recognized on changeover to IFRS.Basis of 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 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 September 30, 2011 and the results of these subsidiaries for the three and nine months period then ended.Subsidiaries are all those entities over which the Company has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company and de-consolidated from the date that control ceases. Intercompany transactions, balances and unrealized gains/losses on transactions between group companies are eliminated.3. CRITICAL ACCOUNTING ESTIMATES AND 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 nine month period ended September 30, 2011 was $279,796,000 (period ended September 30, 2010 - $292,989,000) which is presented within cost of sales in the interim consolidated income statements.During the three month period ended September 30, 2011, there was $443,000 in inventory write-downs (three month period ended September 30, 2010 - $Nil). At September 30, 2011, the inventory markdown provision totaled $4,473,000 (September 30, 2010 - $3,862,000). There were no reversals of any write-down for the three month period ended September 30, 2011 (three month period ended September 30, 2010 - $138,000). None of the Company's inventory has been pledged as security for any liabilities of the Company.Extended warranty 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 September 30, 2011 was $4,331,000 (three month period ended September 30, 2010 - $4,254,000). Extended warranty expenses deducted through cost of sales for the three month period ended September 30, 2011 were $1,195,000 (three month period ended September 30, 2010 - $1,593,000).Franchise 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 consolidated financial statements and the interim consolidated financial statements. Additionally, estimation of income taxes includes evaluating the recoverability of deferred income tax assets based on an assessment of the ability to use the underlying future tax deductions before they expire against future taxable income. The assessment is based upon existing tax laws and estimates of future taxable income. To the extent estimates differ from the final tax return, earnings would be affected in a subsequent period.Impairment of 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.September 30, 2011             Available-for-sale [fair value]Loans andreceivables[amortized cost]Other financialliabilities[amortized cost]Total carryingamountFair valueFinancial Assets     Cash and cash equivalents37,408——37,40837,408Available-for-sale financial assets170,288——170,288170,288Trade receivables—18,724—18,72418,724Total207,69618,724—226,420226,420Financial Liabilities     Trade and other payables——66,36166,36166,361Redeemable share liability——382382382Total——66,74366,74366,743December 31, 2010       Available-for-sale [fair value]Loans andreceivables[amortized cost]Other financialliabilities[amortized cost]Total carryingamountFair valueFinancial Assets     Cash and cash equivalents71,589——71,58971,589Available-for-sale financial assets140,224——140,224140,224Trade receivables—28,569—28,56928,569Total211,81328,569—240,382240,382Financial Liabilities     Trade and other payables——71,72471,72471,724Redeemable share liability——172172172Total——71,89671,89671,896For 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 September 30, 2011 Level 1Level 2Level 3Cash and cash equivalents37,408——Available-for-sale financial assets - Bonds—140,648—Available-for-sale financial assets - Equities29,640—— 67,048140,648—   Fair value measurement at December 31, 2010 Level 1Level 2Level 3Cash and cash equivalents71,589--Available-for-sale financial assets - Bonds-117,817-Available-for-sale financial assets - Equities22,407-- 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 $18,724,000 as at September 30, 2011 [as at December 31, 2010 - $28,569,000]. The amount of trade receivables that the Company has determined to be past due [which is defined as a balance that is more than 90 days past due] is $113,000 as at September 30, 2011 [as at December 31, 2010 - $158,000] which relates entirely to the Appliance Canada division. The Company's provision for impairment of trade receivables, established through on-going monitoring of individual customer accounts, was $500,000 as at September 30, 2011 [as at December 31, 2010 - $470,000].   The majority of the Company's sales are paid through cash, credit card or non-recourse third-party finance.  The Company relies on one third-party credit supplier to supply financing to its customers.  [ii] Liquidity risk   The Company has no outstanding borrowings and does not rely upon available credit facilities to finance operations or to finance committed capital expenditures.  The portfolio of available-for-sale financial assets consists primarily of actively traded Canadian and international bonds.  There is no immediate need for cash by the Company from its investment portfolio.   The Company expects to settle its trade and other payables within 30 days of the period end date. The redeemable share liability does not have any fixed terms of repayment.  [iii] Foreign currency risk   The Company is exposed to foreign currency exchange rate risk.  Some merchandise is paid for in U.S. dollars.  The foreign currency cost is included in the inventory cost.  The Company does not believe it has significant foreign currency risk with respect to its trade payable in U.S. dollars.   The Company is also exposed to foreign currency exchange rate risk on its foreign currency denominated portfolio of available-for-sale financial assets, primarily related to actively traded international equities. As at September 30, 2011, the Company's investment portfolio included 9% of foreign currency denominated assets [as at December 31, 2010 - 8%]. This risk is monitored by the Company's investment managers in an effort to reduce the Company's exposure to foreign currency exchange rate risk.  [iv] Interest rate risk     The Company is exposed to interest rate risk through its portfolio of available-for-sale financial assets by holding actively traded Canadian and international Bonds. At September 30, 2011, 86% of the Company's investment portfolio was made up of Canadian and international Bonds [as at December 31, 2010 - 89%]. This risk is monitored by the Company's investment managers in an effort to reduce the Company's exposure to interest rate risk. The exposure to this risk is minimal due to the short-term maturities of the bonds held. The Company is not subject to any other interest rate risk.  [v] Other price risk   The Company is exposed to fluctuations in the market prices of its portfolio of available-for-sale financial assets. Changes in the fair value of the available-for-sale financial assets are recorded, net of income taxes, in accumulated other comprehensive income.  The risk is managed by the Company and its investment managers by ensuring a conservative asset allocation of bonds and equities.5. CAPITAL RISK 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 September 30, 2011As at December 31, 2010Cash at bank or on handShort-term investments3,57533,83319,64251,947 37,40871,5897. PROPERTY, PLANT AND EQUIPMENT LandBuildingsEquipmentVehiclesComputerhardwareBuildingimprovementsTotalAs at December 31, 2010:Opening net book valueAdditionsDisposalsDepreciation 56,15645870— 77,94311,685—7,024 11,0781,323—1,340 4,127484437826 1,307347—537 53,04298—5,109 203,65313,9821,30714,836Closing net book value55,33182,60411,0613,3481,11748,031201,492As at December 31, 2010CostAccumulated depreciation 55,331— 175,36592,761 36,05324,992 20,90017,552 8,9517,834 78,27330,242 374,873173,381Closing net book value55,33182,60411,0613,3481,11748,031201,492As at September 30, 2011:Opening net book valueAdditionsDisposalsDepreciation 55,331——— 82,6049,853—2,627 11,0612,824—1,387 3,3481,83317943 1,117157—396 48,0317,329—3,915 201,49221,996179,268Closing net book value55,33189,83012,4984,22187851,445214,203As at September 30, 2011CostAccumulated depreciation 55,331— 185,21895,388 38,87726,379 22,63118,410 9,1088,230 85,60234,157 396,767182,564Closing net book value55,33189,83012,4984,22187851,445214,203Included in the above balances at September 30, 2011 are assets not being amortized with a net book value of approximately $16,396,000 [December 31, 2010 - $2,400,000] being construction-in-progress.8. INVESTMENT PROPERTIES LandBuildingsBuildingimprovementsTotalAs at December 31, 2010:Opening net book valueAdditionsDisposalsDepreciation charge 8,286——— ———— 259—3791 8,545—3791Closing net book value8,286—1318,417As at December 31, 2010CostAccumulated depreciation 8,286— 8,0398,039 1,4571,326 17,7829,365Closing net book value8,286—1318,417As at September 30, 2011:Opening net book valueAdditionsDisposalsDepreciation charge 8,286——— ———— 131——38 8,417——38Closing net book value8,286—938,379As at September 30, 2011CostAccumulated depreciation 8,286— 8,0398,039 1,4571,364 17,7829,403Closing net book value8,286—938,379The fair value of the investment property portfolio as at September 30, 2011 was $29,700,000 [as at December 31, 2010 - $29,700,000]. The fair value was determined internally by management based on available market evidence.9. INTANGIBLE ASSETS Customer relationshipsBrand nameNon-compete AgreementComputer softwareTotalAs at December 31, 2010:Opening net book valueAdditionsDisposalsAmortization charge 1,500——250 2,000——250 750——125 1,084370—177 5,334370—802Closing net book value1,2501,7506251,2774,902As at December 31, 2010CostAccumulated amortization 2,000750 2,500750 1,000375 4,2662,989 9,7664,864Closing net book value1,2501,7506251,2774,902As at September 30, 2011:Opening net book valueAdditionsDisposalsAmortization charge 1,250——188 1,750——188 625——94 1,277—64188 4,902—64658Closing net book value1,0621,5625311,0254,180As at September 30, 2011CostAccumulated amortization 2,000938 2,500938 1,000469 4,2023,177 9,7025,522Closing net book value1,0621,5625311,0254,18010. TRADE AND OTHER PAYABLES As at September 30, 2011As at December 31, 2010Trade payablesOther payables54,81511,54660,12711,597 66,36171,72411. PROVISIONS Profit sharing and bonusesVacation payTotalsAs at December 31, 201012,00034112,341Charged to the consolidated income statement  Additional provisions  Unused amounts reversed  Used during the nine month period 9,460(1,007)(10,981) 2,862—(1,523) 12,322(1,007)(12,504)As at September 30, 20119,4721,68011,152Profit 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 at September 30,2011As atDecember 31,2010 Authorized2,284,000 convertible, non-voting, series 2002 shares806,000 convertible, non-voting, series 20051,224,000 convertible, non-voting, series 2009 shares Issued674,589 series 2002 shares [December 31, 2010 - 813,331]541,248 series 2005 shares [December 31, 2010 - 620,793]1,115,107 series 2009 shares [December 31, 2010 - 1,168,124]Less employee share purchase loans       4,8495,1119,869(19,447)       5,8465,86210,339(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 $470,000 [2010 - $401,000] have been used to reduce the respective shareholder loans.During the nine month period ended September 30, 2011, 138,742 series 2002 shares [nine month period ended September 30, 2010 - 115,719] and 79,545 series 2005 shares [nine month period ended September 30, 2010 - Nil] were converted into common shares with a stated value of approximately $997,000 [nine month period ended September 30, 2010 - $751,000] and $832,000 [nine month period ended September 30, 2010 - Nil], respectively.During the nine month period ended September 30, 2011, the Company cancelled 53,017 series 2009 shares [nine month period ended September 30, 2010 - 31,494] in the amount of $469,000 [nine month period ended September 30, 2010 - $279,000].13. COMMON SHARES As at September 30, 2011As at December 31, 2010AuthorizedUnlimited common shares    Issued69,826,595 common shares[December 31, 2010 - 70,075,333] 20,871 19,177During the three month period ended September 30, 2011, 8,063 series 2002 shares [three month period ended September 30, 2010 - 39,296] and 18,799 series 2005 shares [three month period ended September 30, 2010 - Nil] were converted into common shares with a stated value of approximately $58,000 [three month period ended September 30, 2010 - $282,000] and $177,000 [three month period ended September 30, 2010 - $Nil], respectively.During the nine month period ended September 30, 2011, the Company repurchased 467,025 [nine month period ended September 30, 2010 - 498,896] of its common shares on the open market pursuant to the terms and conditions of Normal Course Issuer Bids at a net cost of approximately $6,115,000 [nine month period ended September 30, 2010 - $6,233,000].  All shares repurchased by the Company pursuant to its Normal Course Issuer Bids have been cancelled.  The repurchase of common shares resulted in a reduction of share capital in the amount of approximately $54,000 [nine month period ended September 30, 2010 - $234,000].  The excess net cost over the average carrying value of the shares of approximately $6,061,000 [nine month period ended September 30, 2010 - $5,999,000] has been recorded as a reduction in retained earnings.The dividends paid for the three month periods ended September 30, 2011 and September 30, 2010 were $6,305,000 [$0.09 per share] and $4,936,000 [$0.07 per share], respectively.14. REVENUE Three month period endedSeptember 30, 2011Three month period endedSeptember 30, 2010Sale of goods by corporate storesRoyalty income from franchiseesExtended warranty revenueRental income from investment property169,8182,3582,014183177,3202,6252,002178 174,373182,125 Nine month period endedSeptember 30, 2011Nine month period endedSeptember 30, 2010Sale of goods by corporate storesRoyalty income from franchiseesExtended warranty revenueRental income from investment property475,1467,2756,041551498,5637,4726,006506 489,013512,54715. OPERATING EXPENSES BY NATURE Three month period endedSeptember 30, 2011Three month period endedSeptember 30, 2010Depreciation of property, plant and equipment and investment properties3,2763,854Amortization of intangible assets214199Operating lease payments880811Unrealized foreign exchange gains (losses)1,679(284)Gain on sale of property, plant and equipment—— Nine month period endedSeptember 30, 2011Nine month period endedSeptember 30, 2010Depreciation of property, plant and equipment and investment properties9,30611,419Amortization of intangible assets658577Operating lease payments2,4972,438Unrealized foreign exchange gains (losses)1,133(397)Gain on sale of property, plant and equipment211,23816. INCOME TAX EXPENSE Three month period endedSeptember 30, 2011Three month period endedSeptember 30, 2010Current income tax expenseDeferred income tax (recovery) expense6,594(167)7,476(475) 6,4277,001 Nine month period endedSeptember 30, 2011Nine month period endedSeptember 30, 2010Current income tax expenseDeferred income tax (recovery) expense14,848(82)17,92544 14,76617,969Income tax expense is recognized based on management's best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual rates used for the three month periods ended September 30, 2011 and September 30, 2010 were 28.2% and 30.1%, respectively.17. EARNINGS PER 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 69,913,255 for the three month period ended September 30, 2011 (three month period ended September 30, 2010 - 70,330,309).The following table reconciles the profit for the period and the number of shares for the basic and diluted earnings per share calculations:Three month period endedSeptember 30, 2011Profit for the period attributed to common shareholdersWeighted average number of sharesPer share amountBasic16,95669,913,2550.24Diluted16,95672,289,3870.23Three month period endedSeptember 30, 2010Profit for the period attributed to common shareholdersWeighted average number of sharesPer share amountBasic17,83770,330,3090.25Diluted17,83773,098,3370.24Nine month period ended September 30, 2011Profit for the period attributed to common shareholdersWeighted average number of sharesPer share amountBasic37,92770,023,1500.54Diluted37,92772,472,2270.52Nine month period ended September 30, 2010Profit for the period attributed to common shareholdersWeighted average number of sharesPer share amountBasic41,58370,454,6740.59Diluted41,58373,246,6330.5718. COMMITMENTS AND CONTINGENCIES[a] The cost to complete all construction-in-progress as at September 30, 2011 totals $6,687,000 at five locations [December 31, 2010 - to complete at two locations at an approximate cost of $9,609,000].[b] The Company is obligated under operating leases for future minimum annual rental payments for certain land and buildings as follows:No later than 1 yearLater than 1 year and no later than 5 yearsLater than 5 years5,86019,98918,282 44,131[c] The future minimum lease payments receivable under non-cancellable operating leases for certain land and buildings classified as investment property are as follows:No later than 1 yearLater than 1 year and no later than 5 yearsLater than 5 years7122,027427 3,166[d]  The Company has issued approximately $255,000 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 $20,301,000 [as at December 31, 2010 - $19,498,000] and provided a letter of credit of $1,500,000 [as at December 31, 2010 - $1,500,000] for the benefit of the insurance company.19. INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS[a] The net change in non-cash working capital balances related to operations consists of the following: Nine month period endedSeptember 30, 2011Nine month period endedSeptember 30, 2010Trade receivablesInventoryPrepaid expensesTrade and other payablesProvisionsIncome taxes payableCustomers' deposits9,845(449)88(8,697)(1,189)(5,487)(537)10,874(13,895)112(8,674)(81)(4,428)(173) (6,426)(16,265)[b] Supplemental cash flow information: Nine month period ended September 30, 2011Nine month period ended September 30, 2010Income taxes paid19,45922,007[c]  During the nine month period, property, plant and equipment were acquired at an aggregate cost of $21,995,000 [2010 - $10,594,000], of which $3,868,000 [2010 - $536,000] is included in trade and other payables as at December 31, 2010.20. TRANSITION TO IFRSIn preparing the opening IFRS consolidated statements of financial position, the Company has adjusted amounts previously reported that have been prepared in accordance with CGAAP. An explanation of how the transition from CGAAP to IFRS has affected the Company's financial position and financial performance on the Transition Date, for the three months ended March 31, 2010, for the year ended December 31, 2010, as at January 1, 2010 and December 31, 2010 are set out in the tables and notes in the Company's interim condensed consolidated financial statements for the first quarter ended March 31, 2011. The Company has also selected certain transition exemptions on the Transition Date, the details of which are also in the notes to the March 31, 2011 interim condensed consolidated financial statements.  An explanation of how the transition from CGAAP to IFRS has affected the Company's consolidated statements of financial position as of September 30, 2010, the consolidated income statements for the three and nine months period ended September 30, 2010, the consolidated statements of comprehensive income for the three and nine months period ended September 30, 2010 and the consolidated statements of cash flows are set out in the following tables and the notes that accompany the tables below.i.     Consolidated Statement of Financial Position As at September 30, 2010 Cdn. GAAPAdj.IFRSASSETS   CurrentCash and cash equivalentsAvailable-for-sale financial assetsTrade receivablesIncome taxes receivableInventoryDeferred income tax assets [note a] 55,050127,21020,6272,47097,852400 —————(400) 55,050127,21020,6272,47097,852—Total current assets303,609(400)303,209Other assetsProperty, plant and equipment [note b]Investment properties [note b]Intangible assetsGoodwillDeferred income tax assets [note a]1,448210,498—5,01811,28211,383—(8,457)8,457——4001,448202,0418,4575,01811,28211,783Total assets543,238—543,238LIABILITIES AND SHAREHOLDERS' EQUITY   CurrentTrade and other payables [note c]Provisions [note c]Customers' depositsDividends payableDeferred warranty plan revenue 77,654—15,4596,30817,061 (11,358)11,358——— 66,29611,35815,4596,30817,061Total current liabilities116,482        —116,482Deferred warranty plan revenueRedeemable share liabilityDeferred income tax liabilities [notes a and d]20,9246479,078      ———20,9246479,078Total liabilities147,131—147,131Shareholders' equity attributable to the shareholders of the Company   Common sharesRetained earnings [note d]Accumulated other comprehensive loss [note d]18,301377,319487—(725)72518,301376,5941,212Total shareholders' equity396,107—396,107Total liabilities and shareholder's equity543,238        —543,238ii.     Consolidated Income Statements Three months ended September 30, 2010Nine months ended September 30, 2010 Cdn. GAAPAdj.ReclassesIFRSCdn. GAAPAdj.ReclassesIFRS Revenue[note e]Cost of sales 179,500106,564 —— 2,625— 182,125106,564 505,075300,249 —— 7,472— 512,547300,249Gross profit72,936—2,62575,561204,826—7,472212,298 Operating expenses[note f]General and administrative expensesSales and marketing expensesOccupancy expensesOther operating expenses [note d]Salaries and commissionsAdvertisingRent and property taxesAmortizationEmployee profit-sharing planOther operating expensesInterest incomeOther income  ————27,1667,2463,4274,0531,0979,677(789)(2,832)  ———284————————  24,48419,2977,2141,464(27,166)(7,246)(3,427)(4,053)(1,097)(9,677)7892,832  24,48419,2977,2141,748————————  ————78,19421,72210,46211,9963,47130,487(2,143)(8,081)  ———397————————  73,20955,87722,3344,303(78,194)(21,722)(10,462)(11,996)(3,471)(30,487)2,1438,081  73,20955,87722,3344,700———————— 49,0452843,41452,743146,1083979,615156,120Operating profit23,891(284)(789)22,81858,718(397)(2,143)56,178Gain on sale of capital propertyFinance income1,231————7891,2317891,231————2,1431,2312,143Profit before income taxIncome tax expense [note d]25,1227,041(284)40——24,8387,00159,94918,025(397)56——59,55217,969Profit for the period attributable to the shareholders of the Company18,081(244)—17,83741,924(341)—41,583iii.     Consolidated Statements of Comprehensive Income Three months ended September 30, 2010Nine months ended September 30, 2010 Cdn.GAAPAdj.IFRSCdn. GAAPAdj.IFRS Profit for the period 18,081 (244) 17,837 41,924 (341) 41,583 Other comprehensive income, net of taxUnrealized losses on available-for-sale financial assets arising during the period [note d]Reclassification adjustment for net gains and losses included in profit for the period  1,717 (70)   244 —   1,961  (70)   637 (8)   341 —   978  (8) Change in unrealized losses on available-for-sale financial assets arising during the period1,647 244 1,891 629 341 970 Comprehensive income for the period attributable to the Shareholders of the Company19,728—19,72842,553—42,553iv.     Explanatory notesa.     Classification of deferred income tax - Under IFRS, it is not appropriate to classify deferred income tax balances as current, irrespective of the classification of the financial assets or financial liabilities to which the deferred income tax relates or the expected timing of reversal. Under CGAAP, deferred income tax relating to current assets or current liabilities must be classified as current. Accordingly, current deferred income tax reported under CGAAP of $400,000 at September 30, 2010 has been reclassified to non-current assets under IFRS.b.     Investment properties - Under IFRS, where items of property, plant and equipment are held to earn rental income or for capital appreciation or both, they are classified separately on the consolidated statement of financial position as investment property. The Company has reclassified certain items of its land, buildings and building improvements to investment property on transition to IFRS. The Company has chosen to account for its investment property under the cost model with information on fair value being disclosed in the notes to the consolidated financial statements. This adjustment resulted in $8,457,000 of net book value being reclassified from property plant and equipment to investment property at September 30, 2010.c.     Provisions - Under IFRS, provisions are required to be disclosed on the face of the consolidated statement of financial position with a more detailed breakdown included in the notes. Under CGAAP, contingencies were included within trade and other payables. Trade and other payables have been decreased and provisions increased by $11,358,000 at September 30, 2010 in relation to profit sharing, bonuses and vacation pay provided for. These are further disclosed in note 11.d.     Available-for-sale financial assets - Under IFRS, changes in the fair value of available-for-sale financial assets are bi-furcated with foreign exchange gains and losses arising on translation being recorded through the consolidated income statement and changes in the underlying prices being recorded through other comprehensive income. Under CGAAP, all changes in the fair value of available-for-sale financial assets (including foreign exchange gains or losses) are recognized directly in other comprehensive income. At September 30, 2010 this resulted in a reclassification between accumulated other comprehensive income and retained earnings of $725,000. For the three month period ended September 30, 2010 this resulted in a change of $244,000 in other comprehensive income and a foreign exchange loss within other operating expenses of $284,000 and for the nine month period ended September 30, 2010 this resulted in a change of $341,000 in other comprehensive income and an increase in foreign exchange losses within other operating expenses of $397,000.e.     Franchisee royalty revenue - Under IFRS, royalties received from the Company's franchisees meets the definition of revenue under IAS 18 - Revenue. Under CGAAP this royalty revenue was classified as other income on the consolidated income statement. The Company has reclassified the royalties received from other income to revenue on transition to IFRS. This adjustment resulted in a reclassification of $2,625,000 and $7,472,000 for the three and nine month period ended September 30, 2010, respectively.f.     Operating expenses - These expense categories have been reclassified to meet the function of expense presentation under IFRS.v.     Consolidated Statements of Cash FlowsThe transition from CGAAP 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 and nine months ended September 30, 2011 were approved and authorized for issuance by the Board of Directors on November 14, 2011.  For further information: Dominic Scarangella, Tel: 416.243.4073