Leon's Furniture Limited - 2014 First Quarter

TORONTO, May 13, 2014 /CNW/ - For the three months ended March 31, 2014, total system wide sales were $508,402,000 including $82,393,000 of franchise sales ($203,555,000 including $41,097,000 of franchise sales in 2013). The prior year comparisons only included $11,783,000 of The Brick Ltd ("The Brick") sales from the date of acquisition, being March 28, 2013 to March 31, 2013. Same store sales were down 3.8% from the prior year's first quarter. Net income was $818,000, $0.01 per common share ($5,424,000, $0.08 per common share in 2013).  The profit decrease in the quarter was related to lower same store sales partially due to the extreme weather conditions across Canada.  Further, gross margin dollars could have been higher had we reacted more quickly to the decline in the Canadian dollar.  Finally, finance costs and non-cash purchase price adjustments related to the acquisition of The Brick further lowered profit.

The integration of our online systems between The Brick and Leon's divisions is progressing as expected. Before the end of the year, we anticipate that both divisions will be using the same web platform for our individual websites and internet sales. In fact, we are pleased to announce that we have recently purchased a minority interest in Blueport Investors, LLC, our e-commerce provider and the exclusive rights to the use of the trade name and website Furniture.com in Canada. In the near future, we anticipate web promotions using three trade names: Leon's, The Brick and Furniture.com with the most extensive line up of furniture selection in the country.

In addition, we expect our enhanced computer system, scheduled to be implemented over the next 18 months, will provide new and improved applications to help create greater efficiencies in the operations of our two divisions. This should also allow us to establish integrated distribution networks using all our distribution facilities to better serve our brick and mortar stores as well as our web sales from sea to sea to sea.

With respect to new stores, construction is scheduled to begin this year on a new 90,000 square foot Leon's Furniture warehouse and showroom in the Calgary area. We continue to pursue new franchise locations in all areas of the country.

As previously announced, we paid a quarterly 10¢ dividend on April 7, 2014. Today we are happy to announce that the Directors have declared a quarterly dividend of 10¢ per common share payable on the 7^th day of July 2014 to shareholders of record at the close of business on the 6^th day of June 2014. As of 2007, dividends paid by Leon's Furniture Limited are "eligible dividends" pursuant to the changes to the Income Tax Act under Bill C-28, Canada.

EARNINGS PER SHARE FOR EACH QUARTER

			MARCH 31		JUNE 30		SEPT. 30		DEC. 31		YEAR TOTAL
2014	- -	Basic Fully Diluted	1¢ 1¢								$0.01 $0.01
2013	- -	Basic Fully Diluted	8¢ 7¢		20¢ 18¢		30¢ 27¢		37¢ 33¢		$0.95 $0.87
2012	- -	Basic Fully Diluted	12¢ 12¢		13¢ 12¢		19¢ 18¢		23¢ 22¢		$0.67 $0.65

LEON'S FURNITURE LIMITED / MEUBLES LEON LTÉE

Mark J. Leon
Chairman of the Board

MANAGEMENT'S DISCUSSION AND ANALYSIS

For the three months ended March 31, 2014 and 2013

Dated: May 13, 2014

The Management's Discussion and Analysis ("MD&A") for Leon's Furniture Limited/Meubles Leon Ltée ("Leon's" or the "Company") should be read in conjunction with i) the Company's 2013 audited consolidated financial statements and the related notes and MD&A and ii) the Company's unaudited interim condensed consolidated financial statements for the three months ended March 31, 2014, and 2013, and the related notes.

Cautionary Statement Regarding Forward-Looking Statements

This MD&A is intended to provide readers with the information that management believes is required to gain an understanding of Leon's Furniture Limited's current results and to assess the Company's future prospects. This MD&A, and in particular the section under heading "Outlook", includes forward-looking statements, which are based on certain assumptions and reflect Leon's Furniture Limited's current plans and expectations. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results and future prospects to differ materially from current expectations. Some of the factors that can cause actual results to differ materially from current expectations are: a continuing slowdown in the Canadian economy; a further drop in consumer confidence; and dependency on product from third party suppliers. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Readers of this report are cautioned that actual events and results may vary.

Financial Statements Governance Practice

Leon's Furniture Limited's unaudited interim condensed consolidated financial statements have been prepared in accordance with the requirements of IAS 34, Interim Financial Reporting as issued by the International Accounting Standards Board ("IASB"). The amounts expressed are in Canadian dollars. Per share amounts are calculated using the weighted average number of shares outstanding for the applicable period.

The Audit Committee of the Board of Directors of Leon's Furniture Limited reviewed the MD&A and the unaudited interim condensed consolidated financial statements, and recommended that the Board of Directors approve them. Following review by the full Board, the unaudited interim condensed consolidated financial statements and MD&A were approved on May 13, 2014.

Introduction

On November 11, 2012, Leon's Furniture Limited and The Brick Ltd. ("The Brick") announced that they had entered into a definitive agreement (the "Leon's Arrangement") that provided for Leon's to acquire 100% of The Brick's outstanding common shares for $5.40 per outstanding common share, and to acquire for cancellation 100% of the outstanding common share purchase warrants for $4.40 per common share purchase warrant.

Immediately upon completion of the Leon's Arrangement, which occurred on March 28, 2013, all outstanding common shares and common share purchase warrants were repurchased in accordance with the Leon's Arrangement and are no longer listed for trading on the Toronto Stock Exchange ("TSX").  The total consideration paid to shareholders and warrant holders of The Brick was approximately $700 million. As a result of this transaction, 100% of The Brick's common shares are owned by Leon's Furniture Limited. Any Brick Debentures which remain outstanding will continue to be listed for trading on the TSX until their maturity on May 30, 2014.

With The Brick acquisition, Leon's Furniture Limited is now the largest retailer of furniture, appliances and electronics in Canada. Our retail banners now include: Leon's, The Brick; United Furniture Warehouse; The Brick Mattress Store; and The Brick Clearance Centres. Finally, the addition of the Brick's Midnorthern Appliance banner along side with Leon's Appliance Canada banner, makes the Company the country's largest commercial retailer of appliances to builders, developers, hotels and property management companies.

As a result of this major acquisition, Leons' now has in excess of 300 retail stores from coast to coast in Canada under the various banners indicated below which also includes over 100 franchise locations.

BANNER	NUMBER OF STORES
Leon's banner corporate stores	44
Leons' banner franchise stores	34
Appliance Canada banner stores	3
The Brick banner corporate stores^1	112
The Brick banner franchise stores	69
Brick Clearance Centres banner stores	3
The Brick Mattress Store	24
United Furniture Warehouse banner stores	17
Total number of stores	306

¹ Includes the Midnorthern Appliance banner

Revenues and Expenses

For the three months ended March 31, 2014, total system wide sales were $508,402,000 including $82,393,000 of franchise sales ($203,555,000 including $41,097,000 of franchise sales in 2013). The prior year comparisons only included $11,783,000 of The Brick Ltd ("The Brick") sales from the date of acquisition, being March 28, 2013 to March 31, 2013.

Overall, same store corporate sales decreased by 3.8%. The decrease in same store sales for the three months ended March 31, 2014 compared to the prior period reflected the extreme weather conditions across Canada.

Our gross margin for the first quarter 2014 increased from 40.73% to 42.97% compared to the prior year's first quarter. The increase was attributable to the inclusion of The Brick's gross margin as well as higher vendor rebates being achieved.  Gross margin dollars, however, could have been higher had we reacted more quickly to the decline in the Canadian dollar.

Net operating expenses of $175,382,000 were up $116,113,000 for the first quarter 2014 compared to the first quarter of 2013. The increase compared to the comparative period was mainly due to expenses relating to the inclusion of The Brick's operations since its acquisition on March 28, 2013, which only represents 4 days in the comparative period.

Included in general and administrative expenses is a non-cash purchase price adjustment of $2,548,000 related to the acquisition of The Brick. Additionally, finance costs related to the acquisition of The Brick in 2013 increased by $7.2 million from the comparative quarter.

As a result of the above, net income for the first quarter of 2014 was $818,000, $0.01 per common share ($5,424,000, $0.08 per common share in 2013), a decrease of $0.07 per common share.

Annual Financial Information

($ in thousands, except earnings per share and dividends)	2013	2012	2011
Net corporate sales Franchise sales	1,694,643 344,785	682,163 198,077	682,836 196,725
Total system-wide sales	2,039,428	880,240	879,561
Net income	67,183	46,782	56,666
Earnings per share Basic Diluted	$0.95 $0.87	$0.67 $0.65	$0.81 $0.78
Total assets	1,682,174	585,592	584,411
Common share dividends declared Special common share dividends declared Convertible, non-voting shares dividends declared	$0.40 - $0.20	$0.40 - $0.20	$0.37 $0.15 $0.20

Liquidity and Financial Resources

($ in thousands, except dividends per share)	Mar 31/14	Dec. 31/13	Mar 31/13
Cash, cash equivalents, available-for-sale financial assets Trade and other accounts receivable Inventory Total assets Working capital	28,220 81,300 261,887 1,637,077 (18,847)	43,272 104,275 277,656 1,682,174 (16,262)	68,158 82,105 240,083 1,672,874 34,811
For the 3 months ended	Current Quarter Mar 31, 2014	Current Quarter Dec. 31, 2013	Current Quarter Mar 31, 2013
Cash flow used in operations Purchase of property, plant and equipment Dividends paid   Dividends paid per share	137 2,291 7,063   $0.10	10,973 12,347 7,062   $0.10	332 745 7,055   $0.10

Common Shares

At March 31, 2014, there were 70,711,803 common shares issued and outstanding. During the quarter ended March 31, 2014, 77,094 convertible, non-voting series 2005 shares were converted into common shares. For details on the Company's commitments related to its redeemable shares, please refer to note 10 of the unaudited interim condensed consolidated financial statements.

Commitments

($ in thousands)	Payments Due by Period
Contractual Obligations	Total	Less than 1 year	2-3 years	4-5 years	After 5 years
Long term debt	558,525	81,412	126,416	237,990	112,707
Operating leases ^1	724,854	68,364	129,656	116,381	410,453
Trade and other payables	165,070	165,070	-	-	-
Finance leases	273,094	12,877	24,976	23,401	211,840
Total Contractual Obligations	1,721,543	327,723	281,048	377,772	735,000

¹The Company is obligated under operating leases to future minimum rental payments for various land and building sites across Canada.

Critical Accounting Estimates and Assumptions

Please refer to Note 2 of the 2013 annual consolidated financial statements for the Company's critical accounting estimates and assumptions.

Recent Accounting Pronouncements

Please refer to Note 3 to the accompanying unaudited interim condensed consolidated financial statements for the accounting standards and amendments issued but not yet adopted.

Related Party Transactions

At March 31, 2014, we had no transactions with related parties as defined in IAS24 - Related Party Disclosures, except those pertaining to transactions with key management personnel in the ordinary course of their employment.

Risks and Uncertainties

For a complete discussion of the risks and uncertainties which apply to the Company's business and operating results please refer to the Company's Annual Information Form dated March 28, 2014 available on www.sedar.com.

Quarterly Results (2014, 2013, 2012)

Quarterly Income Statement ($000) - except per share data

	Quarter Ended March 31		Quarter Ended December 31		Quarter Ended September 30		Quarter Ended June 30
	2014	2013	2013^1	2012	2013^1	2012	2013^1	2012
Corporate sales	426,009	162,458	523,025	188,462	528,602	174,175	480,559	162,095
Franchise sales	82,393	41,097	110,846	59,725	100,017	49,505	92,822	45,627
Total system wide sales	508,402	203,555	633,871	248,187	628,619	223,680	573,381	207,722
Net income per share	$0.01	$0.08	$0.37	$0.23	$0.30	$0.19	$0.20	$0.13
Fully diluted per share	$0.01	$0.07	$0.33	$0.22	$0.27	$0.18	$0.18	$0.12

¹The Company's quarterly results for the quarter ended March 31, 2014, December 31, September 30, and June 30, 2013 include the results of The Brick from the acquisition date of March 28, 2013.

Disclosure Controls & Procedures

Management is responsible for establishing and maintaining a system of disclosure controls and procedures to provide reasonable assurance that all material information relating to the Company is gathered and reported on a timely basis to senior management, including the Chief Executive Officer and Chief Financial Officer so that appropriate decisions can be made by them regarding public disclosure. Based on the evaluation of disclosure controls and procedures, the CEO and CFO have concluded that the Company's disclosure controls and procedures were effective as at March 31, 2014.

Internal Controls over Financial Reporting

Management is also responsible for establishing  and  maintaining  disclosure  controls  and  procedures  and  internal  controls  over financial reporting for the Company. The control framework used in the design of disclosure controls  and  procedures  and  internal  control  over  financial  reporting  is  based on the framework established in the publications, Internal Control - Integrated Framework and specifically in Internal Control over Financial Reporting - Guidance for Smaller Public Companies published by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Management,  including  the  CEO  and  CFO,  does  not  expect  that  the  Company's  disclosure controls  or  internal  controls  over  financial  reporting  will  prevent  or  detect  all  errors  and  all fraud or will be effective under all potential future conditions. A control system is subject to inherent  limitations  and,  no  matter  how  well  designed  and  operated,  can  provide  only reasonable, not absolute, assurance that the control systems objectives will be met.

During  the  three months  ended  March 31, 2014, there have been no changes in the Company's internal controls over financial reporting that have  materially  affected,  or  are  reasonably  likely  to  materially  affect,  the  Company's internal controls over financial reporting.

Outlook

Although we had a difficult first quarter, and despite the challenging retail environment, we expect improved results going forward.

Non-IFRS Financial Measures

Same store sales 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 revenue (an IFRS measure) and comparable store sales is provided below:

($ in thousands)	Mar 31, 2014	Mar 31, 2013
Revenue^1 Adjustments for stores not in both fiscal periods^2	426,009 (22,674)	419,234 -
Comparable store sales	403,335	419,234

^1	The revenue for the three month periods ended March  31, 2014 and 2013 include The Brick results for comparative purposes
^2	For the three month period ended March 31, 2014, there are four locations excluded from the adjustments for stores not in both periods.

Interim Condensed Consolidated Financial Statements
Leon's Furniture Limited
INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
	As at March 31	As at December 31
($ in thousands)	2014	2013
ASSETS
Current assets
Cash and cash equivalents [note 15]	-	5,832
Restricted marketable securities [note 15]	20,592	20,104
Available-for-sale financial assets	17,672	17,336
Trade receivables [note 15]	81,300	104,275
Inventories [note 6]	261,887	277,656
Deferred acquisition costs	1,645	1,659
Deferred financing costs	1,095	903
Total current assets	384,191	427,765
Other assets	7,907	4,970
Deferred acquisition costs	8,796	7,250
Property, plant and equipment [note 7]	426,171	433,586
Investment properties [note 8]	22,177	22,304
Intangible assets [note 9]	341,803	343,221
Goodwill [notes 5 and 9]	435,634	435,634
Deferred income tax assets	10,398	7,444
Total assets	1,637,077	1,682,174
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank overdraft [note 15]	10,044	-
Trade and other payables	165,070	202,618
Provisions	5,318	4,769
Income taxes payable	9,551	12,135
Customers' deposits	82,496	93,609
Finance lease liability	4,302	4,302
Dividends payable	7,067	7,063
Deferred warranty plan revenue	53,734	54,028
Debentures [note 11]	15,456	15,503
Loans and borrowings [note 11]	50,000	50,000
Total current liabilities	403,038	444,027
Loans and borrowings [note 11]	325,615	325,255
Convertible debentures [note 11]	91,151	90,952
Finance lease liability	136,843	137,887
Deferred warranty plan revenue	84,512	85,494
Redeemable share liability [note 10]	1,398	859
Deferred rent liabilities and lease inducements	3,169	2,377
Deferred income tax liabilities	100,009	98,768
Total liabilities	1,145,735	1,185,619
Shareholders' equity attributable to the shareholders of the Company
Common shares [note 12]	28,080	27,352
Equity component of convertible debentures [note 11]	7,089	7,089
Retained earnings	455,786	462,035
Accumulated other comprehensive income	387	79
Total shareholders' equity	491,342	496,555
Total liabilities and shareholders' equity	1,637,077	1,682,174
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Interim Condensed Consolidated Financial Statements
Leon's Furniture Limited
INTERIM CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
	Three months ended March 31
($ in thousands)	2014	2013
Revenue	426,009	162,458
Cost of sales	242,971	96,293
Gross profit	183,038	66,165
Operating expenses
General and administrative expenses	73,936	25,618
Sales and marketing expenses	56,378	20,055
Occupancy expenses	40,761	11,116
Other operating expenses	4,307	2,480
Total operating expenses	175,382	59,269
Operating profit	7,656	6,896
Finance costs	(7,530)	(317)
Finance income	452	736
Net income before income tax	578	7,315
Income tax (recovery) expense [note 13]	(240)	1,891
Net income	818	5,424
Earnings per share [note 14]
Basic	$ 0.01	$ 0.08
Diluted	$ 0.01	$ 0.07
The accompanying notes are an integral part of these unaudited condensed consolidated
financial statements.

Interim Condensed Consolidated Financial Statements
Leon's Furniture Limited
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
			Three months ended March 31
					Net of tax
($ in thousands)			2014	Tax effect	2014
Net income for the period			818	—	818
Other comprehensive income, net of tax
Other comprehensive income to be reclassified to profit or loss in subsequent periods:
	Unrealized gains on available-for-sale financial assets arising during the period		452	98	354
	Reclassification adjustment for net gains included in profit for the period		(62)	(16)	(46)
	Change in unrealized gains on available-for-sale financial
	assets arising during the period		390	82	308
Comprehensive income for the period			1,208	82	1,126
					Net of tax
			2013	Tax effect	2013
Net income for the period			5,424	—	5,424
Other comprehensive income, net of tax
Other comprehensive income to be reclassified to profit or loss in subsequent periods:
	Unrealized gains on available-for-sale financial assets arising during the period		236	26	210
	Reclassification adjustment for net gains included in profit for the period		(2,418)	(312)	(2,106)
	Change in unrealized gains on available-for-sale financial
	assets arising during the period		(2,182)	(286)	(1,896)
Comprehensive income for the period			3,242	(286)	3,528
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Interim Condensed Consolidated Financial Statements
Leon's Furniture Limited
INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(UNAUDITED)
($ in thousands)	Equity component of convertible debenture	Common shares	Accumulated other comprehensive income (loss)	Retained earnings	Total
As at  December 31, 2012	-	26,693	2,395	423,099	452,187
Comprehensive income
Profit for the period	-	-	-	5,424	5,424
Change in unrealized losses on available-for-sale financial assets arising during the period	-	-	(1,896)	-	(1,896)
Total comprehensive income	-	-	(1,896)	5,424	3,528
Transactions with shareholders
Dividends declared	-	-	-	(7,061)	(7,061)
Issuance of equity component of convertible debt [note 11]	9,885	-	-	-	9,885
Management share purchase plan [note 10]	-	393	-	-	393
Total transactions with shareholders	9,885	393	-	(7,061)	3,217
As at March 31, 2013	9,885	27,086	499	421,462	458,932
As at December 31, 2013	7,089	27,352	79	462,035	496,555
Comprehensive income
Profit for the period	—	—	—	818	818
Change in unrealized gains on available-for-sale financial assets arising during the period	—	—	308	—	308
Total comprehensive income	—	—	308	818	1,126
Transactions with shareholders
Dividends declared	—	—	—	(7,067)	(7,067)
Issuance of equity component of convertible debt [note 11]	—	—	—	—	—
Management share purchase plan [note 10]	—	728	—	—	728
Repurchase of common shares [note 12]	—	—	—	—	—
Total transactions with shareholders	—	728	—	(7,067)	(6,339)
As at March 31, 2014	7,089	28,080	387	455,786	491,342
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Interim Condensed Consolidated Financial Statements
Leon's Furniture Limited
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
		Three months ended March 31
($ in thousands)		2014	2013
OPERATING ACTIVITIES
Net income for the period		818	5,424
Add (deduct) items not involving an outlay of cash
	Depreciation of property, plant and equipment and investment properties	9,793	3,699
	Amortization of intangible assets	1,734	246
	Amortization of deferred warranty plan revenue	(15,669)	(4,626)
	Net finance costs	7,078	(419)
	Deferred income taxes	(1,747)	118
	Gain on sale of property, plant and equipment	15	-
	Gain on sale of available-for-sale financial assets	—	(5,361)
		2,022	(919)
Net change in non-cash working capital balances related
	to operations [note 16]	(16,553)	(3,077)
	Cash received on warranty plan sales	14,394	3,664
Cash used in operating activities		(137)	(332)
INVESTING ACTIVITIES
Purchase of property, plant and equipment [note 7]		(2,291)	(745)
Purchase of intangible assets [note 9]		(316)	(2)
Proceeds on sale of property, plant and equipment		26	-
Purchase of available-for-sale financial assets		(2,272)	(100,263)
Proceeds on sale of available-for-sale financial assets		1,888	226,580
Interest received		360	736
Purchase of The Brick, net of cash acquired $31,069 [note 5]		—	(654,954)
Cash used in investing activities		(2,605)	(528,648)
FINANCING ACTIVITIES
Repayment of finance leases		(884)	-
Dividends paid [note 12]		(7,063)	(7,055)
Repayment of employee loans-redeemable shares [note 10]		1,267	826
Issuance of term loan [note 11]		—	400,000
Issuance of convertible debentures [note 11]		—	100,000
Finance costs paid		—	(4,693)
Interest paid		(6,454)	(3,768)
Cash (used in) provided by financing activities		(13,134)	485,310
Net decrease in cash and cash equivalents during the period		(15,876)	(43,670)
Cash and cash equivalents, beginning of period		5,832	74,949
Bank overdraft(cash and cash equivalents), end of period		(10,044)	31,279
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Notes to the Interim Condensed Consolidated Financial Statements (Unaudited)
Leon's Furniture Limited

Amounts in thousands of Canadian dollars except shares outstanding and earnings per share

For the three month periods ended March 31, 2014 and 2013

1. REPORTING ENTITY

Leon's Furniture Limited ("Leon's" or the "Company") was incorporated by Articles of Incorporation under the Business Corporations Act on February 28, 1969. Leon's is a retailer of home furnishings, mattresses, appliances and electronics across Canada.  Leon's is a public company listed on the Toronto Stock Exchange (TSX - LNF, LNF.DB) and is incorporated and domiciled in Canada. The address of the Company's head office and registered office is 45 Gordon Mackay Road, Toronto, Ontario, M9N 3X3.

On November 11, 2012, the Company announced that it had entered into a definitive agreement (the "Arrangement Agreement") that provided for the acquisition of 100% of the outstanding common shares and common share purchase warrants of The Brick Ltd. ("The Brick" or "Brick division") by the Company by way of a plan of arrangement for $5.40 per outstanding common share and $4.40 per outstanding common share purchase warrant.  On March 28, 2013, the Company acquired 100% of the common shares and warrants of The Brick [note 5].  The operations of The Brick are included in the Company's results from operations and financial position commencing March 28, 2013.

The Company's business is seasonal in nature. Retail sales are traditionally higher in the third and fourth quarters.

2. BASIS OF PRESENTATION

The interim condensed consolidated financial statements of the Company are prepared in accordance with IAS 34, Interim Financial Reporting, as issued by the International Accounting Standards Board ("IASB"). 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.

These interim condensed consolidated financial statements were approved and authorized for issuance by the Board of Directors on May 13, 2014.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Except for the adoption of the new, revised or amended accounting standards noted below, these interim condensed consolidated financial statements have been prepared using the same accounting policies and methods of computation as the annual consolidated financial statements of Leon's for the year ended December 31, 2013. 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, 2013.

Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Chief Executive Officer. The Company operates in one geographical segment (Canada) and one industry (sale of home furnishings, appliances and electronics). Accordingly, no segment information has been provided in these interim condensed consolidated financial statements.

Accounting standards and amendments issued but not yet adopted

IFRS 9, Financial Instruments, as issued, reflects the first phase of the IASB's work on the replacement of IAS 39, Financial Instruments - Recognition and Measurement, and applies to the classification and measurement of financial assets and financial liabilities. IFRS 9, as issued, eliminates the existing IAS 39 categories of held to maturity, available for sale, and loans and receivables.

Financial assets will be classified into one of two categories on initial recognition: financial assets measured at amortized cost, or financial assets measured at fair value. Gains and losses on remeasurement of financial assets measured at fair value will be recognized in profit or loss. The mandatory effective date of IFRS 9, as issued currently, was January 1, 2015, but a recent amendment removes the mandatory effective date of IFRS 9 from January 1, 2015 to a new date that will be determined when IFRS 9 is closer to completion. The Company has not yet assessed the impact of the standard or determined whether it will be adopted early.

Adoption of new, revised or amended accounting standards

The following is a description of the adoption of new, revised or amended accounting standards that are relevant to the Company:

[i]	Effective January 1, 2014, the Company adopted amendments to IAS 32, Financial Instruments: Presentation.  IAS 32 clarifies the meaning of "currently has a legally enforceable right to set-off" and the criteria for non-simultaneous settlement mechanisms of clearing houses to qualify for offsetting.  The adoption of this new standard had no impact on the consolidated financial statements.
[ii]	Effective January 1, 2014, the Company adopted IFRIC Interpretation 21, Levies ("IFRIC 21"). IFRIC 21 clarifies that an entity recognizes a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs.  For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the specified minimum threshold is reached.  The adoption of this new standard had no impact on the consolidated financial statements.
[iii]	IAS 36, Impairment of Assets - In May 29, 2013, IASB published amendments to IAS 36, Impairment of Assets which reduce the circumstances in which the recoverable amount of cash-generating units is required to be disclosed and clarifies the disclosures required when an impairment loss has been recognized or reversed in the period. This amendment is effective for annual periods beginning on or after January 1, 2014. The Company adopted the IAS 36 amendments in its consolidated financial statements for the annual period beginning on January 1, 2014. The adoption did not have a material impact on the consolidated financial statements.

4. CAPITAL RISK MANAGEMENT

The Company's objectives when managing capital are to:

• ensure sufficient liquidity to support its financial obligations and execute its operating and strategic plans; and
• utilize working capital to negotiate favourable supplier agreements both in respect of early payment discounts and overall payment terms.

The capital structure includes debentures, finance lease liabilities, convertible debentures, term credit facility and borrowing capacity available under the revolving credit facilities (Note 11).

Under the Senior Secured Credit Agreement, the financial and non-financial covenants are reviewed on an ongoing basis by management to monitor compliance with the agreement.  The Company was in compliance with these covenants as at March 31, 2014.

The Board of Directors reviews and approves any material transactions out of the ordinary course of business, including proposals on acquisitions or other major investments or divestitures, as well as capital and operating budgets. Based on current funds available and expected cash flow from operating activities, management believes that the Company has sufficient funds available to meet its liquidity requirements at any point in time. However, if cash from operating activities is lower than expected or capital costs for projects exceed current estimates, or if the Company incurs major unanticipated expenses, it may be required to seek additional capital.

The Company is not subject to any externally imposed capital requirements, other than with respect to its insurance subsidiaries.

5. BUSINESS COMBINATIONS

Acquisition of The Brick

On March 28, 2013, the Company acquired control of The Brick by purchasing 100% of its issued and outstanding shares and warrants. The Brick is a retailer of home furnishings, mattresses, appliances and electronics that was founded in Edmonton, Alberta in 1971.  The Brick operates stores across Canada under the following corporate and franchise banners: The Brick, The Brick Mattress Stores, United Furniture Warehouse and Midnorthern Appliances, which is part of The Brick's Commercial Sales Division. This acquisition allows the Company to strengthen and enhance its existing retail operations, grow the Company's franchise network and to further expand its Canadian geographical footprint to more than 300 combined retail locations from coast to coast.

The acquisition date fair value of consideration transferred is as follows:

Cash	$ 586,023
Convertible debenture	100,000
Total consideration transferred	$ 686,023

The allocation of the purchase price at fair value to the identifiable assets acquired and liabilities assumed at the acquisition date is as follows:

Cash	$    31,069
Trade and other receivables^1	55,986
Income taxes receivable	18
Inventories	162,138
Other assets	7,905
Available-for-sale financial assets	13,279
Property, plant and equipment	229,153
Investment properties	14,400
Intangible assets	339,081
Trade and other payables	(145,304)
Customers' deposits	(52,221)
Share-based compensation plans	(2,292)
Deferred warranty plan revenue and unearned insurance revenue	(104,342)
Provisions	(5,479)
Debentures	(36,156)
Finance lease liabilities	(143,693)
Income taxes payable	(10,994)
Deferred income tax liabilities	(90,877)
Total net identifiable assets	$   261,671
^1Gross trade and other receivables acquired is $57,001, of which $1,015 was expected to be uncollectible as at the acquisition date.

The Company has finalized the valuations of all amounts included in the purchase price allocation.  The Company determined the above fair values based on discounted cash flows, market information, independent valuations and management's estimates.  During the measurement period, certain adjustments were made to the purchase price allocation reflecting updates to the estimated fair values of net assets acquired.  The adjustments primarily impacted leased property and franchise agreement intangible assets with a corresponding reduction in deferred income tax liabilities.  These adjustments resulted in a decrease to the total net identifiable assets of $73,234 and a corresponding increase to recognized goodwill.

Goodwill was recognized as a result of the acquisition as follows:

Total consideration transferred	$  686,023
Less: Total net identifiable assets	(261,671)
Goodwill	$  424,352

The goodwill recognized on acquisition of The Brick is attributable mainly to the expected future growth potential of expanding the customer base of The Brick banners and efficiencies within the operations of The Brick.

None of the goodwill recognized is expected to be deductible for income tax purposes.

6. INVENTORIES

The amount of inventory recognized as an expense for the three month period ended March 31, 2014 was $239,200 (period ended March 31, 2013 - $94,555), which is presented within cost of sales on the interim consolidated statements of income.

During the three month period ended March 31, 2014, there was $622 in inventory writedowns (three month period ended March 31, 2013 - $193). As at March 31, 2014, the inventory markdown provision totaled $9,745 (as at December 31, 2013 - $9,122).

7. PROPERTY, PLANT AND EQUIPMENT

	Land	Buildings	Equipment	Vehicles	Building Improvements	Leased Property	Leased Equipment	Total
As at March 31, 2014:
Opening net book value	83,987	122,077	41,399	4,288	86,295	92,657	2,883	433,586
Additions	—	172	753	890	476	—	—	2,291
Disposals	—	—	(33)	(7)	—	—	—	(40)
Depreciation	—	(1,504)	(2,060)	(302)	(4,309)	(1,235)	(256)	(9,666)
Closing net book value	83,987	120,745	40,059	4,869	82,462	91,422	2,627	426,171
As at March 31, 2014:
Cost	83,987	227,962	87,561	26,452	142,008	96,410	3,736	668,116
Accumulated depreciation	—	(107,217)	(47,502)	(21,583)	(59,546)	(4,988)	(1,109)	(241,945)
Net book value	83,987	120,745	40,059	4,869	82,462	91,422	2,627	426,171
	Land	Buildings	Equipment	Vehicles	Building Improvements	Leased Property	Leased Equipment	Total
As at December 31, 2013:
Opening net book value	55,381	84,383	16,476	3,900	58,006	—	—	218,146
Additions	5,315	420	4,609	627	8,326	—	—	19,297
Additions due to acquisition	23,291	42,776	27,824	1,177	33,931	96,410	3,744	229,153
Disposals	—	—	(76)	(18)	—	—	(8)	(102)
Depreciation	—	(5,502)	(7,434)	(1,398)	(13,968)	(3,753)	(853)	(32,908)
Closing net book value	83,987	122,077	41,399	4,288	86,295	92,657	2,883	433,586
As at December 31, 2013:
Cost	83,987	227,790	87,005	25,682	141,578	96,410	3,736	666,188
Accumulated depreciation	—	(105,713)	(45,606)	(21,394)	(55,283)	(3,753)	(853)	(232,602)
Net book value	83,987	122,077	41,399	4,288	86,295	92,657	2,883	433,586

Included in the above balances as at March 31, 2014 are assets not being amortized with a net book value of approximately $204 [as at December 31, 2013 - $459] being construction in progress.

8. INVESTMENT PROPERTIES

	Land	Buildings	Building improvements	Total
As at March 31,2014:
Opening net book value	12,519	9,273	512	22,304
Depreciation	—	(119)	(8)	(127)
Closing net book value	12,519	9,154	504	22,177
As at March 31, 2014:
Cost	12,519	17,694	1,969	32,182
Accumulated depreciation	—	(8,540)	(1,465)	(10,005)
Net book value	12,519	9,154	504	22,177
As at December 31, 2013:
Opening net book value	8,286	—	29	8,315
Additions due to acquisition	4,233	9,655	512	14,400
Depreciation	—	(382)	(29)	(411)
Closing net book value	12,519	9,273	512	22,304
As at December 31, 2013:
Cost	12,519	17,694	1,969	32,182
Accumulated depreciation	—	(8,421)	(1,457)	(9,878)
Net book value	12,519	9,273	512	22,304

The estimated fair value of the investment properties portfolio as at March 31, 2014 was approximately $47,940 [as at December 31, 2013 - $47,940].

9. INTANGIBLE ASSETS AND GOODWILL

	Customer relationships	Brand name and franchise agreements	Non-compete agreement	Computer software	Favourable lease agreements	Total
As at March 31, 2014:
Opening net book value	5,031	286,000	251	9,996	41,943	343,221
Additions	—	—	—	316	—	316
Amortization	(219)	(63)	(32)	(346)	(1,074)	(1,734)
Closing net book value	4,812	285,937	219	9,966	40,869	341,803
As at March 31, 2014:
Cost	7,000	287,500	1,012	14,926	45,339	355,777
Accumulated amortization	(2,188)	(1,563)	(793)	(4,960)	(4,470)	(13,974)
Net book value	4,812	285,937	219	9,966	40,869	341,803
As at December 31, 2013:
Opening net book value	750	1,250	375	726	—	3,101
Additions	—	—	—	6,669	—	6,669
Additions due to acquisition	5,000	285,000	12	3,730	45,339	339,081
Amortization	(719)	(250)	(136)	(1,129)	(3,396)	(5,630)
Closing net book value	5,031	286,000	251	9,996	41,943	343,221
As at December 31, 2013:
Cost	7,000	287,500	1,012	14,610	45,339	355,461
Accumulated amortization	(1,969)	(1,500)	(761)	(4,614)	(3,396)	(12,240)
Net book value	5,031	286,000	251	9,996	41,943	343,221

Amortization of intangible assets is included within general and administrative expenses on the consolidated statements of income.

The following table presents the details of the Company's indefinite-life intangible assets:

	As at March 31, 2014	As at December 31, 2013
The Brick brand name (allocated to Brick division)	245,000	245,000
The Brick franchise agreements (allocated to Brick division)	40,000	40,000
	285,000	285,000

The Company currently has no plans to change The Brick store banners and expects these assets to generate cash flows in perpetuity. Therefore, these intangible assets are considered to have indefinite useful lives. The Brick franchise agreements have expiry dates with options to renew.  The Company's intention is to renew these agreements at each renewal date indefinitely.  The Company expects the franchise agreements and franchise locations will generate cash flows in perpetuity. Therefore, these assets are also considered to have indefinite useful lives.

The following table presents the details of the Company's finite-life intangible assets:

	As at March 31, 2014	As at December 31, 2013
Leon's division customer relationships	437	500
Leon's division brand name	937	1,000
Leon's division non-compete agreement	219	251
Brick division customer relationships	4,375	4,531
Brick division favourable lease agreements	40,869	41,943
Computer software	9,966	9,996
	56,803	58,221

The Company has assessed that these finite-life intangible assets have limited life terms.

The following table presents the details of the Company's goodwill:

	As at March 31, 2014	As at December 31, 2013
Balance, beginning of year	11,282	11,282
Acquisition through business combination (Note 5)	424,352	424,352
Balance, end of year	435,634	435,634

10. REDEEMABLE SHARE LIABILITY

	As at March 31, 2014	As at December 31, 2013
Authorized
806,000 convertible, non-voting, series 2005 shares
1,224,000 convertible, non-voting, series 2009 shares
306,500 convertible, non-voting, series 2012 shares
1,485,000 convertible, non-voting, series 2013 shares
740,000 convertible, non-voting, series 2014 shares
Issued and fully paid
309,419 series 2005 shares [December 31, 2013 - 386,513]	2,922	3,650
1,001,743 series 2009 shares [December 31, 2013 - 1,008,465]	8,866	8,925
268,708 series 2012 shares [December 31, 2013 - 268,708]	3,334	3,334
1,446,070 series 2013 shares [December 31, 2013 - 1,450,000]	16,471	16,516
740,000 series 2014 shares [December 31, 2013 - Nil]	11,137	—
Less employee share purchase loans	(41,332)	(31,566)
	1,398	859

Under the terms of the Plan, the Company advanced non-interest bearing loans to certain of its employees in 2005, 2009, 2012, 2013 and 2014 to allow them to acquire convertible, non-voting series 2005 shares, series 2009 shares, series 2012 shares, series 2013 and series 2014 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 2005, series 2009 and series 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. Each issued and fully paid for series 2013 and 2014 series share may be converted into one common share at any time after the third anniversary date of the issue of these shares and prior to the tenth anniversary of such issue. The series 2005, series 2009, series 2012, series 2013 and 2014 series 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 Company has the option to redeem the series 2013 and 2014 series shares at any time after the third 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 $9.44 per series 2005 share, $8.85 per series 2009 share, $12.41 per series 2012 share, $11.39 per series 2013 share and $15.05 per series 2014 share. Dividends paid to holders of series 2005, 2009, 2012 and 2013 shares of approximately $624 [2013 - $465] have been used to reduce the respective shareholder loans. The preferred dividends are paid once a year during the first quarter.

During the three month period ended March 31, 2014, 77,094 series 2005 shares [three month period ended March 31, 2013 - 41,581] were converted into common shares with a stated value of approximately $728 [three month period ended March 31, 2013 - $393].

During the three month period ended March 31, 2014, the Company cancelled 6,722 series 2009 shares [three month period ended March 31, 2013 - 13,783], Nil series 2012 shares [three month period ended March 31, 2013 - 4,920] and 3,930 series 2013 shares [three month period ended March 31, 2013 - Nil] in the amount of $59, $Nil and $45, respectively [three month period ended March 31, 2013 - $122, $61 and $Nil].

During the three month period ended March 31, 2014, the Company issued 740,000 series 2014 shares for proceeds of $11,137. In addition, the Company advanced non-interest bearing loans in the amount of $11,137 to certain of its employees to acquire these shares.

11. LOANS AND BORROWINGS

Convertible Debentures

On March 28, 2013 ("Issuance Date"), the Company closed an offering in which the shareholders of The Brick purchased $100,000 principal amount of 3% convertible unsecured debentures due on March 28, 2023 ("Maturity Date"). Interest is due semi-annually in arrears on June 30 and December 31 in each year. The convertible debentures are convertible, at the option of the holder, at any time during the period between the 90th day prior to the 4th anniversary of Issuance Date and the 3rd business day prior to the Maturity Date in whole or in multiples of one thousand dollars, into fully paid Common Shares of the Company at the conversion rate of 79.12707 Common Share per one thousand dollars principal amount of debentures subject to certain adjustments. The Company has the right to settle the convertible debentures in cash or shares during any time subsequent to the 4th anniversary of the Issuance Date and on Maturity Date. There are additional conversion options available to debenture holders in the event of an increase in the Company's dividend rate or in the event of a change in control of the Company. The convertible debentures are unsecured obligations of the Company and are subordinated in right of payment to all of the Company's senior indebtedness.

Brick Debentures

On March 11, 2013, in accordance with the terms of the Arrangement Agreement to acquire all the common shares and warrants of The Brick, The Brick issued a tender offer to all debenture holders to redeem their Debentures for a price of one hundred and ten dollars per one hundred dollars of principal value plus accrued and unpaid interest. The Brick received valid tenders for $17,833 aggregate principal amount of Debentures pursuant to the March 11, 2013 offer, which expired on April 11, 2013. Payment for the Debentures tendered in the amount of $20,191 comprised of $19,616 in respect of principal and the 10% premium on principal, and $575 in respect of accrued interest. The remaining principal amount of Debentures outstanding subsequent to the April 11, 2013 repurchase is $15,000.  The Debentures mature on May 30, 2014 and bear interest at a fixed rate of 12% per annum payable in cash semi-annually in arrears on June 30 and December 31.

Bank Indebtedness

On January 31, 2013, a Senior Secured Credit Agreement was obtained to fund the acquisition of The Brick. The Senior Secured Credit Agreement includes a credit facility, with a syndicate of banks, with a term credit facility limit of $400,000 and revolving credit facility limit of $100,000. Under the terms of the Senior Secured Credit Agreement amounts borrowed must be repaid in full by March 28, 2017. Bank indebtedness bears interest based on Canadian prime, Bankers' Acceptance and LIBOR ("London Interbank Offered Rate") rates plus an applicable standby fee on undrawn amounts. Transaction costs in the amount of $5,193 have been deferred and are being amortized. The Company has the ability to choose the type of advance required. Interest is based on the market rate plus an applicable margin. Currently, the Company has entered into a 30-day Bankers' Acceptance with a cost of borrowing of 3.52% that was renewed on April 30, 2014. The term credit facility is repayable in quarterly amounts ranging from $5,000 to $15,000. The Company can prepay without penalty amounts outstanding under the facilities at any time. The agreement includes a general security agreement which constitutes a lien on all personal property of the Company. In addition to this, there are financial covenants related to the credit facility as follows:

(1)	Maintain a ratio of Total Debt to Consolidated EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) of not more than (i) 3.5:1 up to and including June 30, 2014; and (ii) 3.0:1 from and after July 1, 2014.
(2)	Maintain a ratio of Total Adjusted Debt to Consolidated EBITDAR (Earnings Before Interest, Taxes, Depreciation, Amortization and Rent Expense) of not more than (i) 4.75:1 up to and including June 30, 2013; and (ii) 4.5:1 from and after July 1, 2014.
(3)	Maintain a Fixed Charge Coverage Ratio of not less than 1.10:1.00.

As at March 31, 2014 and 2013, the Company is in full compliance of these financial and non-financial covenants.

12. COMMON SHARES

	As at March 31, 2014	As at December 31, 2013
Authorized - Unlimited common shares
Issued
70,711,803 common shares [2013 - 70,634,709]	28,080	27,352

During the three month period ended March 31, 2014, 77,094 series 2005 shares [three month period ended March 31, 2013 - 41,581] were converted into common shares with a stated value of approximately $728 [three month period ended March 31, 2013 - $393], respectively.

The dividends paid for the three month periods ended March 31, 2014 and March 31, 2013 were $7,063 [$0.10 per share] and $7,055 [$0.10 per share] respectively.

13. INCOME TAX EXPENSE

	Three month period ended March 31, 2014	Three month period ended March 31, 2013
Current income tax expense	153	1,938
Deferred income tax recovery expense	(393)	(47)
	(240)	1,891

Income tax expense is recognized based on management's best estimate of the weighted average annual income tax rate expected for the full financial year. The estimated average annual rates used for the three month periods ended March 31, 2014 and March 31, 2013 was 26.5%.

14. 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 70,660,120 for the three month period ended March 31, 2014 [three month period ended March 31, 2013 - 70,591,587]. Dilutive earning per share calculation excludes the assumption that convertible debentures are converted as it has an antidilutive impact on earnings per share for the three months period ended March 31, 2014. The following table reconciles the profit for the period and the number of shares for the basic and diluted earnings per share calculations:

	Three month period ended March 31, 2014	Three month period ended March 31, 2013
Profit for the period for basic earnings per share	818	5,424
Profit for the period for diluted earnings per share	818	5,448
Weighted average common shares outstanding	70,660,120	70,591,587
Dilutive effect	3,104,177	3,528,625
Diluted weighted average common shares outstanding	73,764,298	74,120,212
Basic earnings per share	$0.01	$0.08
Diluted earnings per share	$0.01	$0.07

15. FINANCIAL INSTRUMENTS

Classification of financial instruments and fair value

The classification of the Company's financial instruments, as well as their carrying amounts and fair values, are disclosed in the tables below.

March 31, 2014:
		Measurement	Total Carrying Amount	Fair Value	Fair Value Hierarchy
Loans and receivables
	Trade receivables	Amortized cost	81,300	81,300	Level 2
Available-for-sale
	Restricted marketable securities	Fair value	20,592	20,592	Level 1
	Available-for-sale financial assets	Fair value	17,672	17,672	Level 1
	Investment properties	Amortized cost	22,177	47,940	Level 3
Other financial liabilities
	Bank overdraft	Fair value	10,044	10,044	Level 1
	Trade and other payables	Amortized cost	165,070	165,070	Level 2
	Provisions	Amortized cost	5,318	5,318	Level 2
	Finance lease liabilities	Amortized cost	141,145	141,145	Level 2
	Debentures	Amortized cost	15,456	15,456	Level 2
	Loans and borrowings	Amortized cost	375,615	375,615	Level 2
	Convertible debentures	Amortized cost	91,151	121,670	Level 2
	Redeemable share liability	Amortized cost	1,398	1,398	Level 2
December 31, 2013:
		Measurement	Total Carrying Amount	Fair Value	Fair Value Hierarchy
Loans and receivables
	Cash and cash equivalents	Fair value	5,832	5,832	Level 1
	Trade receivables	Amortized cost	104,275	104,275	Level 2
Available-for-sale
	Restricted marketable securities	Fair value	20,104	20,104	Level 1
	Available-for-sale financial assets	Fair value	17,336	17,336	Level 1
	Investment properties	Amortized cost	22,304	47,940	Level 3
Other financial liabilities
	Trade and other payables	Amortized cost	202,618	202,618	Level 2
	Provisions	Amortized cost	4,769	4,769	Level 2
	Finance lease liabilities	Amortized cost	142,189	142,189	Level 2
	Debentures	Amortized cost	15,503	15,503	Level 2
	Loans and borrowings	Amortized cost	375,255	375,255	Level 2
	Convertible debentures	Amortized cost	90,952	112,970	Level 2
	Redeemable share liability	Amortized cost	859	859	Level 2

The fair value hierarchy of financial instruments measured at fair value, as at March 31, 2014, includes financial assets of $38,264, $81,300 and $47,940 for Levels 1, 2 and 3 respectively, and financial liabilities of $10,044, $825,672 and nil for Levels 1, 2 and 3, respectively.

The carrying amounts of the Company's trade receivables, trade and other payables and debentures approximate their fair values due to their short-term nature.

The carrying amounts of the Company's finance lease liabilities approximate their fair values because the interest rate applied to measure their carrying amount approximates current market interest rates.

The carrying amounts of the Company's loans and borrowings approximate their fair values since they bear interest at rates comparable to market rates at the end of the reporting period.

The fair values of available-for-sale financial assets and restricted marketable securities that are traded in active markets are determined by reference to their quoted closing price or dealer price quotations at the reporting date.  For financial instruments that are not traded in active markets, the Company determines fair values using a combination of discounted cash flow models and comparison to similar instruments for which market observable prices exist.

As at March 31, 2014, the fair value of the convertible debentures was determined using their closing quoted market price (not in thousands of dollars) of $121.67 per $100.00 of face value.  For the convertible debentures at March 31, 2014, fair value is calculated based on the face value of the convertible debentures of $100,000.

Fair values of financial instruments reflect the credit risk of the Company and counterparties when appropriate.

Fair value hierarchy

The Company uses a fair value hierarchy to categorize the inputs used to measure the fair value of financial assets and financial liabilities, the levels of which are as follows:

Level 1:	Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2:	Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).
Level 3:	Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

16. INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

[a]   The net change in non-cash working capital balances related to operations consists of the following:
	Three month period ended March 31, 2014	Three month period ended March 31, 2013
Trade receivables	22,975	1,815
Inventoriesentoryerred dividends are paid once a year during the first quarter.	15,769	8,113
Deferred financing costs	—	817
Other assets	(2,937)	2,263
Trade and other payables	(38,423)	(8,789)
Income taxes payable	(2,633)	(4,537)
Customers' deposits	(11,113)	(958)
Provisions	549	(1,873)
Deferred acquisition costs	(1,532)	72
Deferred rent liabilities and lease inducements	792	—
	(16,553)	(3,077)
[b]   Supplemental cash flow information:
	Three month period ended March 31, 2014	Three month period ended March 31, 2013
Income taxes paid	4,138	6,283

[c]	During the three month period, property, plant and equipment were acquired at an aggregate cost of $2,291 [period ended March 31, 2013 - $745], of which $53 [as at December 31, 2013 - $53] is included in trade and other payables as at March 31, 2014.

17. SUBSEQUENT EVENT

Investment in Blueport Investors, LLC

On April 16, 2014, the Company entered into a subscription agreement to purchase a minority interest in Blueport Investors, LLC, the Company's e-commerce provider for the amount of $3 million U.S. dollars.

18. COMPARATIVE FINANCIAL INFORMATION

The comparative Interim Condensed Consolidated Financial Statements have been reclassified from statements previously presented to conform to the presentation of the first quarter 2013 Interim Condensed Consolidated Financial Statements

 

 

SOURCE: Leon's Furniture Limited

Dominic Scarangella, Tel: [phone]