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Press release from CNW Group

Leon's Furniture Limited - 2012 Second Quarter

Monday, August 13, 2012

Leon's Furniture Limited - 2012 Second Quarter12:45 EDT Monday, August 13, 2012TORONTO, Aug. 13, 2012 /CNW/ - For the three months ended June 30, 2012, total Leon's system wide sales were $207,722,000 including $45,627,000 of franchise sales ($209,334,000 including $45,477,000 of franchise sales in 2011), a decrease of 0.8%. Net income was $9,004,000, 13¢ per common share ($11,224,000, 16¢ per common share in 2011), a decrease of 18.8% per common share.For the six months ended June 30, 2012, total Leon's system wide sales were $408,373,000 including $88,847,000 of franchise sales ($400,926,000 including $86,286,000 of franchise sales in 2011), an increase of 1.9% and net income was $17,603,000, 25¢ per common share ($21,517,000, 31¢ per common share in 2011), a decrease of 19.4% per common share.Major renovations have just been completed at our Sudbury and Sault Ste. Marie, Ontario corporate stores. Construction has also started for a brand new franchise store to replace our existing St. John, New Brunswick store. Also, the Company has secured sites for four new corporate stores in: Orangeville and Brantford, Ontario; Sherbrooke, Quebec; and Rocky View County, Alberta, which is just north of Calgary. Our current plan is to open the first of these stores in late 2012 and the balance in 2013.As previously announced, we paid a quarterly 10¢ dividend on July 6th, 2012. Today we are pleased to announce that the Board of Directors have declared a quarterly dividend of 10¢ per common share payable on the 4th day of October 2012 to shareholders of record at the close of business on the 4th day of September 2012. As of 2007, dividends paid by Leon's Furniture Limited are "eligible dividends" pursuant to the changes to the Income Tax Act under Bill C-28, Canada.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, 2012. Pursuant to the continued bid, the Company intends, in the twelve months commencing September 10, 2012, to purchase up to the lesser of 4.99% of its Common Shares outstanding on August 31, 2012, 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, 2011, the date on which Leon's current issuer bid commenced, the Company has purchased 130,362 common shares at an average price of $11.93 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 31JUNE 30SEPT. 30DEC. 31YEAR TOTAL        2012--BasicFully Diluted12¢12¢13¢12¢  $0.25$0.24        2011--BasicFully Diluted15¢14¢16¢15¢ 22¢ 21¢28¢27¢$0.81$0.78        2010--BasicFully Diluted17¢16¢17¢16¢26¢25¢30¢29¢$0.90$0.87LEON'S FURNITURE LIMITED - MEUBLES LEON LTEEMark J. LeonChairman of the BoardMANAGEMENT'S DISCUSSION AND ANALYSISFor the three and six months ended June 30, 2012 and 2011Dated: August 13, 2012The following review and analysis of Leon's Furniture Limited's (the "Company") operations and financial position for the three and six months ended June 30, 2012 and 2011 should be read in conjunction with the audited consolidated financial statements of Leon's Furniture Limited for the year ended December 31, 2011, set forth in the Company's Annual Report for such year and incorporated by reference in the Company's Annual Information Form dated March 30, 2012.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. The amounts expressed are in Canadian dollars. Per share amounts are calculated using the weighted average number of shares outstanding for the applicable period.The Audit Committee of the Board of Directors of Leon's Furniture Limited reviewed the MD&A and the unaudited interim condensed consolidated financial statements, and recommended that the Board of Directors approve them. Following review by the full Board, the unaudited interim condensed consolidated financial statements and MD&A were approved on August 13, 2012.IntroductionLeon's Furniture Limited has been in the furniture retail business for over 100 years. The Company's 44 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 June 30, 2012, total Leon's system wide sales were $207,722,000 including $45,627,000 of franchise sales ($209,334,000 including $45,477,000 of franchise sales in 2011), a decrease of 0.8%.Leon's corporate sales of $162,095,000 in the second quarter of 2012, decreased by $1,762,000, or 1.1%, compared to the second quarter of 2011.  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 continued high consumer debt resulting in reduced consumer spending. Same store corporate sales decreased by 5.8% 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 $45,627,000 in the second quarter of 2011 are virtually the same as the second quarter of 2011. The franchise division experienced modest growth in Western and Eastern Canada and a decrease in Ontario.Our gross margin for the second quarter 2012 of 40.85% increased slightly from the second quarter margin of 40.70%.Net operating expenses of $54,565,000 were up $2,682,000 or 5.2% for the second quarter 2012 compared to the second quarter 2011. This increase was mostly the result of two factors: marketing expenses were up $2,430,000 and occupancy costs were up $1,234,000 due to four new stores added in the fall of 2011. General and administrative expenses were down by 3.8% in the quarter compared to the prior year's quarter. The decrease was mainly the result of reduced salary costs. As a result of the above, net income for the second quarter 2012 was $9,004,000, 13¢ per common share ($11,224,000, 16¢ per common share in 2011), a decrease of 18.8% per common share compared with the prior year second quarter.For the six months ended June 30, 2012, total Leon's system wide sales were $408,373,000 including $88,847,000 of franchise sales ($400,926,000 including $86,286,000 of franchise sales in 2012), an increase of 1.9% and net income was $17,603,000, 25¢ per common share ($21,517,000, 31¢ per common share in 2011), a decrease of 19.4% per common share.Annual Financial Information          ($ in thousands, except earnings per share and dividends)  2011  2010  2009          Net corporate sales  682,836  710,435  703,180Leon's franchise sales  196,725  197,062  194,290          Total Leon's system-wide sales  879,561  907,497  897,470          Net income  56,666  63,284  56,864Earnings per share         Basic  $0.81  $0.90  $0.80Diluted  $0.78  $0.87  $0.78          Total assets  595,339  566,674  529,156          Common share dividends declared  $0.37  $0.32  $0.28Special common share dividends declared  $0.15  -  $0.20Convertible, non-voting shares dividends declared  $0.20  $0.18  $0.14Liquidity and Financial Resources          ($ in thousands, except dividends per share)  Jun 30/12  Dec 31/11  Jun 30/11          Cash, cash equivalents, available-for-sale financial assets  182,722  221,823  200,018Trade and other accounts receivable  19,369  28,937  18,615Inventory  90,706  87,830  89,204Total assets  557,236  595,339  559,462Working capital  206,405  204,649  201,465          For the 3 months ended  Current QuarterJun 30/12  Prior QuarterDec 31/11  Prior QuarterJune 30/11          Cash flow provided by operations  1,040  26,230  12,770Purchase of property, plant and equipment  6,900  6,336  6,401Repurchase of capital stock  54  219  3,785Dividends paid  6,993  6,292  6,317          Dividends paid per share  $0.10  $0.09  $0.09Cash, cash equivalents and available-for-sale financial assets decreased by $39,101,000 for the six months ending June 30, 2012, mainly as a result of dividends paid (including a special dividend of $0.15 per share), the purchase of property, plant and equipment, and the timing of payments to our suppliers.Major renovations have just been completed at our Sudbury and Sault Ste. Marie, Ontario corporate stores. Construction has also started for a brand new franchise store to replace our existing St. John, New Brunswick store. Also, the Company has secured sites for four new corporate stores in: Orangeville and Brantford, Ontario; Sherbrooke, Quebec; and Rocky View County, Alberta, which is just north of Calgary. Our current plan is to open the first of these stores in late 2012 and the balance in 2013.Quarterly Results (2012, 2011, 2010)Quarterly Income Statement ($000) - except per share data Quarter EndedJune 30Quarter EndedMarch 31Quarter EndedDecember 31Quarter EndedSeptember 30 20122011201220112011201020112010Leon's Corporate Sales162,095163,857157,431150,783193,823197,888174,373182,125Leon's Franchise sales45,62745,47743,22040,80961,16659,82049,27349,421Total Leon's system wide sales207,722209,334200,651191,592254,989257,708223,646231,546Net Income Per Share$0.13$0.16$0.12$0.15$0.28$0.30$0.22$0.26Fully Diluted Per Share$0.12$0.15$0.12$0.14$0.27$0.29$0.21$0.25Common SharesAt June 30, 2012, there were 69,977,812 common shares issued and outstanding. During the second quarter of 2012, 4,402 shares were repurchased at an average cost of $12.17 and then cancelled by the Company through its Normal Course Issuer Bid. In addition, during the quarter ended June 30, 2012, 24,358 convertible, non-voting series 2002 shares; 18,736 convertible, non-voting series 2005 shares and 20,000 convertible, non-voting series 2009 shares were converted into common shares. There were no convertible, non-voting series 2009 shares cancelled. For details on the Company's commitments related to its redeemable shares, please refer to note 13 of the unaudited interim condensed consolidated financial statements.Commitments  ($ in thousands)Payments Due by PeriodContractual ObligationsTotalLess than1 year2-3 years4-5 yearsAfter 5 yearsOperating Leases 159,0656,85912,51212,64727,047Purchase Obligations2,7342,734   Total Contractual Obligations61,7999,59312,51212,64727,0471The Company is obligated under operating leases to future minimum rental payments for various land and building sites across Canada.Critical Accounting Estimates and AssumptionsPlease refer to Note 4 of the 2011 annual consolidated financial statements for the Company's critical accounting estimates and assumptions.Pending Changes to Accounting PoliciesSeveral new and amended standards are not yet effective for the Company's interim condensed consolidated financial statements for the three and six month period ended June 30, 2012.  Please refer to the section heading "Accounting standards and amendments issued but not yet adopted" for further details, presented within Note 3 of Leon's 2011 annual consolidated financial statements.Risks and UncertaintiesFor a complete discussion of the risks and uncertainties which apply to the Company's business and operating results please refer to the Company's Annual Information Form dated March 30, 2012 available on www.sedar.com.Disclosure Controls & 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, 2012 and ended on June 30 2012 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. The Company has determined that no material changes in internal controls have occurred during this period.OutlookThe slowdown in the economy continues to affect our results and we do not see any immediate signs of improvement. As such, we anticipate that consumer discretionary spending will remain soft throughout 2012. To help counter this, we will continue our strong marketing and merchandising campaign for the balance of 2012. The recent opening of four new stores in the latter part of 2011 should also aid our sales in 2012. Even with these measures in place, growing profits in 2012 will be challenging, but our strong financial position coupled with our experience in adjusting to changing market conditions, provide us with the confidence to adapt to the prevailing economic conditions.Non-IFRS Financial MeasuresIn order to provide additional insight into the business, the Company has provided the measure of same store sales, in the revenue and expenses section above.  This measure does not have a standardized meaning prescribed by IFRS but it is a key indicator used by the Company to measure performance against prior period results. Comparable store sales are defined as sales generated by stores that have been open or closed for more than 12 months on a yearly basis. The reconciliation between total corporate sales (an IFRS measure) and comparable store sales is provided below:($ in thousands and for the 3 months ended)June 30, 2012June 30, 2011   Net corporate sales162,095163,857Adjustments for stores not in both fiscal periods(7,814)-Comparable store sales154,281163,857   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 13th day of August, 2012.Interim Condensed Consolidated Financial Statements        Leon's Furniture LimitedINTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION(UNAUDITED)    As at June 30,As at December 31,($ in thousands)20122011   ASSETS  Current  assets  Cash and cash equivalents [notes 4 and 6]12,90572,505Available-for-sale financial assets [notes 4 and 19e]169,817149,318Trade receivables [note 4]19,36928,937Income taxes receivable9,7845,182Inventories [note 7]90,70687,830Total current assets302,581343,772Other assets1,3251,431Property, plant and equipment [note 8]218,007214,158Investment properties [note 9]8,3408,366Intangible assets [note 10]3,5343,958Goodwill 11,28211,282Deferred income tax assets12,16712,372Total assets557,236595,339   LIABILITIES AND SHAREHOLDERS' EQUITY  Current liabilities  Trade and other payables [notes 4 and 11]48,54775,126Provisions [note 12]6,19111,231Customers' deposits19,04319,157Dividends payable [note 14]6,99817,457Deferred warranty plan revenue15,39716,152Total current liabilities96,176139,123Deferred warranty plan revenue17,90619,445Redeemable share liability [notes 4 and 13]594382Deferred income tax liabilities11,31310,928Total liabilities125,989169,878   Shareholders' equity attributable to the shareholders of the Company  Common shares [note 14]22,39820,918Retained earnings407,976404,647Accumulated other comprehensive income 873(104)Total shareholders' equity431,247425,461Total liabilities and shareholder's equity557,236595,339Commitments and contingencies [note 19]The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.Interim Condensed Consolidated Financial Statements              Leon's Furniture LimitedINTERIM CONSOLIDATED INCOME STATEMENTS (UNAUDITED)  Three months ended June 30Six  months ended June 30($ in thousands)2012201120122011     Revenue [note 15]162,095163,857319,526314,640Cost of sales [note 7]95,88597,170189,103185,235Gross profit66,21066,687130,423129,405Operating expenses [note 16]    General and administrative expenses24,20825,15847,06247,553Sales and marketing expenses20,59118,16141,10336,673Occupancy expenses8,3907,15617,01914,596Other operating expenses1,3761,4082,6872,351 54,56551,883107,871101,173Operating profit11,64514,80422,55228,232Finance income5598031,3081,624Profit before income tax12,20415,60723,86029,856Income tax expense [note 17]3,2004,3836,2578,339Profit for the period attributable to the shareholders of the Company9,00411,22417,60321,517     Earnings per share  [note 18]    Basic $ 0.13 $ 0.16 $ 0.25 $ 0.31Diluted $ 0.12 $ 0.15 $ 0.24 $ 0.30 The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.  Interim Condensed Consolidated Financial Statements           Leon's Furniture LimitedINTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(UNAUDITED)  Three months ended June 30   Net of tax($ in thousands)2012 Tax effect 2012    Profit for the period9,004-9,004Other comprehensive income, net of tax    Unrealized (losses) on available-for-sale financial assets arising during the period(384)(50)(334) Reclassification adjustment for net gains and (losses) included in profit for the period(170)(22)(148) Change in unrealized (losses) on available-for-sale financial assets arising during the period (554) (72) (482)Comprehensive income for the period attributable to the shareholders of the Company8,450(72)8,522       Net of tax 2011 Tax effect 2011    Profit for the period11,224-11,224Other comprehensive income, net of tax    Unrealized gains on available-for-sale financial assets arising during the period39467327 Reclassification adjustment for net gains and (losses) included in profit for the period(8)(1)(7) Change in unrealized gains on available-for-sale financialassets arising during the period 386 66 320Comprehensive income for the period attributable to the shareholders of the Company11,6106611,544  Six months ended June 30   Net of tax($ in thousands)2012 Tax effect 2012    Profit for the period17,603-17,603Other comprehensive income, net of tax    Unrealized gains on available-for-sale financial assets arising during the period1,3511771,174 Reclassification adjustment for net gains and (losses) included in profit for the period(228)(31)(197) Change in unrealized gains on available-for-sale financialassets arising during the period 1,123 146 977Comprehensive income for the period attributable to the shareholders of the Company18,72614618,580       Net of tax 2011 Tax effect 2011    Profit for the period21,517-21,517Other comprehensive income, net of tax    Unrealized gains on available-for-sale financial assets arising during the period844195649 Reclassification adjustment for net gains and (losses) included in profit for the period(11)(1)(10) Change in unrealized gains on available-for-sale financialassets arising during the period 833 194 639Comprehensive income for the period attributable to the shareholders of the Company22,35019422,156The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements. Interim Condensed Consolidated Financial Statements              Leon's Furniture LimitedINTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY(UNAUDITED)     ($ in thousands)Common sharesAccumulatedothercomprehensiveincomeRetained earningsTotal     As at  January 1, 201119,177480390,629410,286     Comprehensive income    Profit for the period——21,51721,517Change in unrealized gains on available-for-sale financial assets arising during the period — 639 — 639 Total comprehensive income—63921,51722,156     Transactions with shareholders    Dividends declared ——(12,622)(12,622)Management share purchase plan [note 13]1,513——1,513Repurchase of common shares [note 14](39)—(4,461)(4,500)Total transactions with shareholders1,474—(17,083)(15,609)     As at June 30, 201120,6511,119395,063416,833     As at  January 1, 201220,918(104)404,647425,461     Comprehensive income    Profit for the period——17,60317,603Change in unrealized gains on available-for-sale financial assets arising during the period — 977 — 977 Total comprehensive income—97717,60318,580     Transactions with shareholders    Dividends declared ——(13,991)(13,991)Management share purchase plan [note 13]1,483——1,483Repurchase of common shares [note 14](3)—(283)(286)Total transactions with shareholders1,480—(14,274)(12,794)     As at June 30, 201222,398873407,976431,247The accompanying notes are an integral part of these unaudited 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)20122011   OPERATING ACTIVITIES  Profit for the period17,60321,517Add (deduct) items not involving an outlay of cash   Depreciation of property, plant and equipment and investment properties6,8306,030 Amortization of intangible assets433442 Amortization of deferred warranty plan revenue(8,329)(8,612) Gain on sale of property, plant and equipment(15)(21) Deferred income taxes444454 Loss on sale of available-for-sale financial assets17168 Cash received on warranty plan sales6,0356,895 23,17226,773Net change in non-cash working capital balances related to operations [note 20(a)] (29,713) (14,690)Cash (used in) provided by operating activities(6,541)12,083   INVESTING ACTIVITIES  Purchase of property, plant & equipment(10,486)(9,277)Purchase of intangible assets(9)-Proceeds on sale of property, plant & equipment2439Purchase of available-for-sale financial assets(259,904)(241,489)Proceeds on sale of available-for-sale financial assets240,357235,408Issuance of series 2012 shares [note 13]3,804-(Increase) decrease in employee share purchase loans [note 13](2,109)1,723Cash (used in) provided by investing activities(28,323)(13,596)   FINANCING ACTIVITIES  Dividends paid(24,450)(12,627)Repurchase of common shares [note 14](286)(4,500)Cash used in financing activities(24,736)(17,127)Net decrease in cash and cash equivalents during the period(59,600)(18,640)Cash and cash equivalents, beginning of period72,50571,589Cash and cash equivalents, end of period12,90552,949The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.  Notes to the Interim Condensed Consolidated Financial Statements (Unaudited)Leon'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, 2012 and 20111. 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 forty-one retail stores operating as Leon's Home Furnishings Super Stores, three retail stores operating under the brand of Appliance Canada and operates an ecommerce internet site www.leons.ca. In addition, the Company has twenty-seven franchisees operating thirty-two Leon's Furniture franchise stores.2. BASIS OF PRESENTATIONThe interim condensed consolidated financial statements of the Company are prepared in accordance with IAS 34, Interim Financial Reporting, as issued by the International Accounting Standards Board ("IASB").  Accordingly, certain information and note disclosure normally included in the annual financial statements prepared in accordance with International Financial Reporting Standards ("IFRS"), as issued by the IASB, have been omitted or condensed.  The financial statements of the Company include the financial results of Leon's Furniture Limited and its wholly owned subsidiaries, Murlee Holdings Limited, Leon Holdings (1967) Limited and Ablan Insurance Corporation.The interim condensed consolidated financial statements have been prepared using the historical cost convention, as modified by certain financial assets measured at fair value through profit or loss. These interim condensed consolidated financial statements were approved and authorized for issuance by the Board of Directors on August 13, 2012.3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThese interim condensed consolidated financial statements have been prepared using the same accounting policies and methods of computation as the annual consolidated financial statements of Leon's for the year ended December 31, 2011. The disclosure contained in these interim condensed consolidated financial statements does not include all requirements in IAS 1, Presentation of Financial Statements. Accordingly, the interim condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2011.4. 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.Financial InstrumentDesignationMeasurementJune 30, 2012December 31, 2011Cash and cash equivalentsAvailable-for-saleFair value12,90572,505Available-for-sale financial assetsAvailable-for-saleFair Value169,817149,318Trade receivablesLoans and receivablesAmortized cost19,36928,937Trade and other payablesOther financial liabilitiesAmortized cost48,54775,126Redeemable share liabilityOther financial liabilitiesAmortized cost594382Fair value hierarchyThe following table classifies financial assets and liabilities that are recognized on the consolidated statements of financial position at fair value in a hierarchy that is based on significance of the inputs used in making the measurements. The levels in the hierarchy are:Level 1:Quoted prices (unadjusted) in active markets for identical assets or liabilitiesLevel 2:Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices)Level 3:Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).Financial Instruments at Fair ValueHierarchy levelJune 30, 2012December 31, 2011Cash and cash equivalents112,90572,505Available-for-sale financial assets - Equities132,76631,147Available-for-sale financial assets - Bonds2137,051118,171Financial risks factorsThe Company's activities expose it to a variety of financial risks: market risk (including foreign currency risk, interest rate risk, and other price risk), credit risk and liquidity risk.  Risk management is carried out by the Company by identifying and evaluating the financial risks inherent within its operations.  The Company's overall risk management activities seek to minimize potential adverse effects on the Company's financial performance.(a)     Market risk(i)   Foreign exchange risk - The Company is exposed to foreign currency risk.  Certain merchandise is paid for in U.S. dollars.  This foreign exchange cost is included in the inventory cost.  The Company does not believe it has significant foreign currency risk with respect to its trade payables in U.S. dollars. The Company is also exposed to foreign currency risk on its foreign currency denominated portfolio of available-for-sale financial assets, primarily related to actively traded international equities. As at June 30, 2012, the Company's investment portfolio included 12% of foreign currency denominated assets [as at December 31, 2011 - 10%]. This risk is monitored by the Company's management and investment managers in an effort to reduce the Company's exposure to foreign currency exchange rate risk.  (ii) Interest rate risk - The Company is exposed to interest rate risk through its portfolio of available-for-sale financial assets by holding cash, cash equivalents and actively traded Canadian and international Bonds. At June 30, 2012, 82% of the Company's investment portfolio was made up of cash, cash equivalents and Canadian and international Bonds [as at December 31, 2011 - 86%]. This risk is monitored by the Company's management and investment managers in an effort to reduce the Company's exposure to interest rate risk. The exposure to this risk is minimal due to the short-term maturities of the bonds held. The Company is not subject to any other interest rate risk.  (iii) Price risk - The Company is exposed to fluctuations in the market prices of its portfolio of available-for-sale financial assets. Changes in the fair value of the available-for-sale financial assets are recorded, net of income taxes, in accumulated other comprehensive income as it relates to unrecognized gains and losses.  The risk is managed by the Company and its investment managers by ensuring a conservative asset allocation of bonds and equities.(b)     Credit riskCredit risk arises from cash and cash equivalents, available-for-sale financial assets and trade receivables. The Company places its cash and cash equivalents and available-for-sale financial assets with institutions of high credit worthiness. Maximum credit risk exposure represents the loss that would be incurred if all of the Company's counterparties were to default at the same time.The Company has some credit risk associated with its trade receivables as it relates to the Appliance Canada division that is partially mitigated by the Company's credit management practices.The Company's trade receivables total $19,369,000 as at June 30, 2012 [as at December 31, 2011 - $28,937,000]. The amount of trade receivables that the Company has determined to be past due [which is defined as a balance that is more than 90 days past due] is $558,000 as at June 30, 2012 [as at December 31, 2011 - $191,000] which relates entirely to the Appliance Canada division. The Company's provision for impairment of trade receivables, established through on-going monitoring of individual customer accounts, was $500,000 as at June 30, 2012 [as at December 31, 2011 - $500,000].The majority of the Company's sales are paid through cash, credit card or non-recourse third-party finance.  The Company relies on one third-party credit supplier to supply financing to its customers.(c)     Liquidity riskThe Company has no outstanding borrowings and does not rely upon available credit facilities to finance operations or to finance committed capital expenditures.  The portfolio of available-for-sale financial assets consists primarily of actively traded Canadian and international bonds.  There is no immediate need for cash by the Company from its investment portfolio.The Company expects to settle its trade and other payables within 30 days of the period end date. The redeemable share liability does not have any fixed terms of repayment.5. CAPITAL RISK 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, 2012As at December 31, 2011Cash at bank and on hand(4,381)2,181Short-term investments17,28670,324Totals12,90572,5057. INVENTORIESThe amount of inventory recognized as an expense for the six month period ended June 30, 2012 was $185,240,000 (period ended June 30, 2011 - $181,095,000) which is presented within cost of sales on the interim consolidated income statements.During the three month period ended June 30, 2012, there was $161,000 in inventory write-downs (three month period ended June 30, 2011 - $288,000). At June 30, 2012, the inventory markdown provision totaled $5,132,000 (As of December 31, 2011 - $4,846,000). There were no reversals of any write-down for the three and six month period ended June 30, 2012 ( three and six month period ended June 30, 2011 - nil). None of the Company's inventory has been pledged as security for any liabilities of the Company.8. PROPERTY, PLANT AND EQUIPMENT  LandBuildingsEquipmentVehiclesComputer hardwareBuildingimprovementsTotalAs at December 31, 2011:Opening net book valueAdditionsDisposalsDepreciation 55,331100—— 82,6049,165—3,563 11,0614,403—2,029 3,3482,253181,271 1,117164—538 48,0319,253—5,253 201,49225,3381812,654Closing net book value55,43188,20613,4354,31274352,031214,158As at December 31, 2011:CostAccumulated depreciation 55,431— 184,53096,324 40,45627,021 23,05118,739 9,1158,372 87,52635,495 400,109185,951Net book value55,43188,20613,4354,31274352,031214,158As at June 30, 2012:Opening net book valueAdditionsDisposalsDepreciation 55,431(50)—— 88,20618—1,943 13,4353,937—1,092 4,3129068735 743——226 52,0315,850—2,808 214,15810,66186,804Closing net book value55,38186,28116,2804,47551755,073218,007As at June 30, 2012:CostAccumulated depreciation 55,381— 184,54898,267 44,39328,113 23,72119,246 9,1158,598 93,37638,303 410,534192,527Net book value55,38186,28116,2804,47551755,073218,007Included in the above balances at June 30, 2012 are assets not being amortized with a net book value of approximately $9,013,000 [as at December 31, 2011 - $2,638,000] being construction-in-progress.9. INVESTMENT PROPERTIES LandBuildingsBuildingimprovementsTotalAs at December 31, 2011:Opening net book valueAdditionsDisposalsDepreciation 8,286——— ———— 131——51 8,417——51Closing net book value8,286—808,366As at December 31, 2011:CostAccumulated depreciation 8,286- 8,0398,039 1,4571,377 17,7829,416Net book value8,286—808,366As at June 30, 2012:Opening net book valueAdditionsDisposalsDepreciation 8,286——— ———— 80——26 8,366——26Closing net book value8,286—548,340As at June 30, 2012:CostAccumulated depreciation 8,286— 8,0398,039 1,4571,403 17,7829,442Net book value8,286—548,340The fair value of the investment property portfolio as at June 30, 2012 was approximately $29,750,000 [as at December 31, 2011 - $29,750,000]. The fair value was compiled internally by management based on available market evidence.10. INTANGIBLE ASSETS  Customer relationshipsBrand nameNon-compete AgreementComputer softwareTotal      As at December 31, 2011:Opening net book valueAdditionsDisposalsAmortization for the year 1,250——250 1,750——250 625——125 1,277(64)—255 4,902(64)—880Net book value1,0001,5005009583,958As at December 31, 2011:CostAccumulated amortization 2,0001,000 2,5001,000 1,000500 4,2023,244 9,7025,744Net book value1,0001,5005009583,958As at June 30, 2012:Opening net book valueAdditionsDisposalsAmortization for the year 1,000——125 1,500——125 500——63 9589—120 3,9589—433Closing net book value8751,3754378473,534As at June 30, 2012:CostAccumulated amortization 2,0001,125 2,5001,125 1,000563 4,2113,364 9,7116,177Net book value8751,3754378473,53411. TRADE AND OTHER PAYABLES  As at June 30, 2012As at December 31, 2011Trade payablesOther payables43,7884,75962,48512,641 48,54775,12612. PROVISIONS Profit sharingand bonusesVacation payTotalsAs at December 31, 201110,86037111,231  Additional provisions4,8401,3596,199  Unused amounts reversed(1,903)—(1,903)  Utilized during the quarter(8,957)(379)(9,336)As at June 30, 20124,8401,3516,191(a)  The provision for profit sharing and bonuses is payable within the first half of the following fiscal year.(b)The provision for vacation pay represents employee entitlements to untaken vacation at each reporting date.13. REDEEMABLE SHARE LIABILITY As atJune 30,2012As atDecember 31,2011 Authorized2,284,000 convertible, non-voting, series 2002 shares806,000 convertible, non-voting, series 2005 shares1,224,000 convertible, non-voting, series 2009 shares306,500 convertible, non-voting, series 2012 shares Issued and fully paid553,722 series 2002 shares [December 31, 2011 - 667,748]489,690 series 2005 shares [December 31, 2011 - 541,248]1,082,870 series 2009 shares [December 31, 2011 - 1,115,107]306,500 series 2012 shares [December 31, 2011 - nil]Less employee share purchase loans       3,9804,6249,5843,804(21,398)       4,7995,1119,869-(19,397) 594382Under the terms of the Plan, the Company advanced non-interest bearing loans to certain of its employees in 2002, 2005, 2009 and 2012 to allow them to acquire convertible, non-voting, series 2002 shares, series 2005 shares, series 2009 shares and series 2012 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, 2009 and 2012 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, series 2009 and series 2012 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, series 2009 and series 2012 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, $8.85 per series 2009 share and $12.41 per series 2012 share.Dividends paid to holders of series 2002, 2005 and 2009 shares of approximately $465,000 [2011 - $470,000] have been used to reduce the respective shareholder loans.During the six month period ended June 30, 2012, 114,026 series 2002 shares [six month period ended June 30, 2011 - 130,679], 51,558 series 2005 shares [six month period ended June 30, 2011 - 60,746] and 20,000 series 2009 shares [six month period ended June 30, 2011 - nil] were converted into common shares with a stated value of approximately $819,000 [six month period ended June 30, 2011 - $939,000], $487,000 [six month period ended June 30, 2011 - $574,000] and $177,000 [six month period ended June 30, 2011 - $nil], respectively.During the six month period ended June 30, 2012, the Company cancelled 12,237 series 2009 shares [six month period ended June 30, 2011 - 4,820] in the amount of $108,000 [six month period ended June 30, 2011 - $43,000].14. COMMON SHARES  As at June30, 2012As at December31, 2011 Authorized - Unlimited common shares     Issued69,977,812 common shares [December 31, 2011 - 69,815,734]  22,398  20,918During the three month period ended June 30, 2012, 24,358 series 2002 shares [three month period ended June 30, 2011 - 59,481], 18,736 series 2005 shares [three month period ended June 30, 2011 - 14,760] and 20,000 series 2009 shares [three month period ended June 30, 2011 - nil] were converted into common shares with a stated value of approximately $175,000 [three month period ended June 30, 2011 - $427,000], $177,000 [three month period ended June 30, 2011 - $139,000] and $177,000 [three month period ended June 30, 2011 - $nil], respectively.During the six month period ended June 30, 2012, the Company repurchased 23,506 [six month period ended June 30, 2011 - 330,843] 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 $286,000 [six month period ended June 30, 2011 - $4,500,000].  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 $3,000 [six month period ended June 30, 2011 - $39,000].  The excess net cost over the average carrying value of the shares of approximately $283,000 [six month period ended June 30, 2011 - $4,461,000] has been recorded as a reduction in retained earnings.The dividends paid for the three month periods ended June 30, 2012 and June 30, 2011 were $6,993,000 [$0.10 per share] and $6,317,000 [$0.09 per share], respectively. The dividends paid for the six month periods end June 30, 2012 and June 30, 2011 were $24,450,000 [$0.35 per share] and $12,627,000 [$0.18 per share], respectively.15. REVENUE  Three month period ended June 30, 2012Three month period ended June 30, 2011Sale of goods by corporate storesIncome from franchise operationsExtended warranty revenueRental income from investment property157,8192,1981,898180159,2732,3862,014184 162,095163,857 Six month period ended June 30, 2012Six month period ended June 30, 2011Sale of goods by corporate storesIncome from franchise operationsExtended warranty revenueRental income from investment property310,4024,9583,797369305,3284,9174,027368 319,526314,64016. OPERATING EXPENSES BY NATURE  Three month periodended June 30, 2012Three month periodended June 30, 2011Depreciation of property, plant and equipment and  investment propertiesAmortization of intangible assetsOperating lease paymentsGain on sale of property, plant and equipment3,4552161,297133,05322182521 Six month periodended June 30, 2012Six month periodended June 30, 2011Depreciation of property, plant and equipment and  investment propertiesAmortization of intangible assetsOperating lease paymentsGain on sale of property, plant and equipment6,8304332,578156,0304421,6162117. INCOME TAX EXPENSE  Three month periodended June 30, 2012Three month periodended June 30, 2011Current income tax expenseDeferred income tax (recovery) expense3,271(71)4,425(42) 3,2004,383 Six month periodended June 30, 2012Six month periodended June 30, 2011Current income tax expenseDeferred income tax (recovery) expense6,394(137)8,353(14) 6,2578,339Income 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, 2012 and June 30, 2011 were 26.8% and 28.5%, respectively.18. EARNINGS PER SHARE Earnings per share are calculated using the weighted average number of shares outstanding. The weighted average number of shares used in the basic earnings per share calculations amounted to 69,945,113 for the three month period ended June 30, 2012 [three month period ended June 30, 2011 - 69,962,673].  The following table reconciles the profit for the period and the number of shares for the basic and diluted earnings per share calculations: Three monthperiod endedJune 30, 2012Three monthperiod endedJune 30, 2011Six monthperiod endedJune 30, 2012Six monthperiod endedJune 30, 2011Profit for the period for basic earnings per share9,00411,22417,60321,517Profit for the period for diluted earnings per share9,00411,22417,60321,517Weighted average common shares outstanding69,945,11369,962,67369,920,12770,162,709Dilutive effect (note 13)2,452,1742,444,1892,354,5332,486,500Diluted weighted average common shares outstanding72,397,28772,406,86272,274,66072,649,209Basic earnings per share0.130.160.250.31Diluted earnings per share0.120.150.240.3019. COMMITMENTS AND CONTINGENCIES[a]The cost to complete all construction-in-progress as at June 30, 2012 totals $2,734,000 at one location [December 31, 2011 - to complete at two locations at an approximate cost of $4,407,000].[b]The Company is obligated under operating leases for future minimum annual rental payments for certain land and buildings as follows:No later than 1 yearLater than 1 year and no later than 5 yearsLater than 5 years6,85925,15927,047 59,065[c]The future minimum lease payments receivable under non-cancellable operating leases for certain land and buildings classified as investment property are as follows:No later than 1 yearLater than 1 year and no later than 5 yearsLater than 5 years7912,4351,291 4,517[d] The Company has issued approximately $255,000 in letters of credit primarily with respect to buildings under construction or being completed.[e] Pursuant to a reinsurance agreement relating to the extended warranty sales, the Company has pledged available-for-sale financial assets amounting to $20,151,000 [as at December 31, 2011 - $20,257,000] and provided a letter of credit of $1,500,000 [as at December 31, 2011 - $1,500,000] for the benefit of the insurance company.20. INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS [a] The net change in non-cash working capital balances related to operations consists of the following: Six month periodended June 30, 2012Six month periodended June 30, 2011Trade receivablesInventoryOther assetsTrade, other payables and provisionsIncome taxes payableCustomers' deposits9,568(2,876)106(31,795)(4,602)(114)9,954(3,781)62(14,511)(6,108)(306) (29,713)(14,690)[b] Supplemental cash flow information: Six month period ended June 30, 2012Six month period endedJune 30, 2011Income taxes paid10,42113,693[c]During the six month period, property, plant and equipment were acquired at an aggregate cost of $10,661,000 [2011 - $11,989,000], of which $1,050,000 [2011 - $874,000] is included in trade and other payables as at December 31, 2011.21. SUBSEQUENT EVENTThe 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, 2012. Pursuant to the continued bid, the Company intends, in the twelve months commencing September 10, 2012, to purchase up to the lesser of 4.99% of its Common Shares outstanding on August 31, 2012, 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.   SOURCE: Leon's Furniture LimitedFor further information: Dominic Scarangella, Tel: 416.243.4073