Leon's Furniture Limited - 2013 Third Quarter

PR Newswire

TORONTO, Nov. 14, 2013 /CNW/ - The Board is pleased to announce the 2013 third quarter results of Leon's Furniture Limited, which represents our second full quarter with The Brick Limited under the ownership of our Company. For the three months ended September 30, 2013, total Leon's system wide sales were $628,619,000 including $100,017,000 of franchise sales ($223,680,000 including $49,505,000 franchise sales in 2012). Same store sales were down 1% compared to the prior year third quarter assuming The Brick stores were included. Net income was $21,283,000, 30¢ per common share ($13,058,000, 19¢ per common share in 2012), an increase of 58% per common share. The sales and income increase in the quarter compared to the prior quarter were mainly a result of the inclusion of the operating results of The Brick Limited.

For the nine months ended September 30, 2013, total Leon's system wide sales were $1,405,555,000 including $233,936,000 of franchise sales ($632,053,000 including $138,352,000 of franchise sales in 2012) and net income was $41,152,000, 58¢ per common share ($30,661,000, 44¢ per common share in 2012), an increase of 32% per common share. These figures include The Brick Limited results since March 28, 2013.

While the businesses of Leon's and The Brick continue to operate under their separate banners, the management teams are working closely together to leverage the best practices of each for the benefit of the entire Company. We have made good progress on the integration to date and continue to identify more opportunities to realize on the benefits of this acquisition. While we recognize it will be a challenging period for the Company, we believe our customers and shareholders will benefit from our actions.

As previously announced, we paid a quarterly 10¢ dividend on October 4, 2013. Today we are pleased to announce that the Board of Directors have declared a quarterly dividend of 10¢ per common share payable on the 6th day of January 2014 to shareholders of record at the close of business on the 6th day of December 2013. In addition, the annual dividend on the convertible non-voting preferred shares of 20¢ will be payable on January 6, 2014 to the shareholders of record at the close of business on December 6, 2013. 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.

Effective December 31, 2013, Dr. Joseph Leon will retire as a Director of the Company. As an original Director, Dr. Joseph Leon has provided our Company with years of wise counsel for which we are extremely grateful. He will be replaced by Mr. Joseph Michael Leon.

For further information, please consult the Company's Management Discussion & Analysis dated November 14, 2013.

EARNINGS PER SHARE FOR EACH QUARTER
 
    MARCH 31   JUNE 30   SEPT. 30   DEC. 31   YEAR
TOTAL
2013 -
-
Basic
Fully Diluted
 
  20¢
18¢
  30¢
27¢
      $0.58
$0.54
                         
2012 -
-
Basic
Fully Diluted
  12¢
12¢
  13¢
12¢
  19¢
18¢
  23¢
22¢
  $0.67
$0.65
                         
2011 -
-
Basic
Fully Diluted
  15¢
14¢
  16¢
15¢
  22¢
21¢
  28¢
27¢
  $0.81
$0.78

LEON'S FURNITURE LIMITED / MEUBLES LEON LTEE

Mark J. Leon
Chairman of the Board


LEON'S FURNITURE LIMITED


MANAGEMENT'S DISCUSSION AND ANALYSIS

For the three and nine months ended September 30, 2013 and 2012
Dated: November 14, 2013

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 2012 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 and nine months ended September 30, 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; dependency on product from third party suppliers and changes to the Canadian bank lending rates. Given these economic risks and uncertainties and the integration risk associated with the acquisition of The Brick Limited, 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, before and after considering the potential dilutive effects of the convertible debt 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 November 14, 2013.

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.  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.

With the acquisition of The Brick, Leon's Furniture Limited is now the largest retailer of furniture, appliances and electronics in Canada. The Brick's retail banners include The Brick; United Furniture Warehouse; The Brick Mattress Store and Brick Clearance Centres. Finally, the addition of The Brick's Midnorthern Appliance banner alongside the 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, Leon's 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
Leon's banner franchise stores                                         33
Appliance Canada banner stores                              3
The Brick banner corporate stores1           107
The Brick banner franchise stores                                          70
Urban Brick banner stores 2
Brick Clearance Centres banner stores                             5
The Brick Mattress Store                                         24
United Furniture Warehouse banner stores       23
Total number of stores                                        311
1Includes the Midnorthern Appliance banner

Revenues and Expenses

For the three months ended September 30, 2013, total system wide sales were $628,619,000, which includes $528,602,000 of corporate sales and $100,017,000 of franchise sales, ($223,680,000, which includes $174,175,000 of corporate sales and $49,505,000 of franchise sales for the three months ended September 30, 2012).

Leon's third quarter 2013 same store sales, including The Brick banners, were down 1% assuming The Brick stores were included in the Company's comparative 2012 results.

Leon's banner franchise sales of $49,805,000 in the third quarter of 2013, increased by $300,000 or less than 1%, compared to the third quarter of 2012. The Brick banner franchise sales of $50,212,000 in the third quarter of 2013, increased by $1,305,000 or 2.7% compared to the third quarter of 2012 assuming The Brick stores were included in the Company's comparative 2012 results. Most of the increase in sales is attributable to five new franchises added since the third quarter of 2012.

Gross margin for the third quarter 2013 of 42.9% was up from the 40.9% gross margin experienced in the third quarter of 2012.

Net operating expenses of $190,490,000 were up $136,236,000 from the third quarter of 2012. 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. Excluding this factor, operating expenses were in line with the prior comparative period.

As a result of the above, net income for the third quarter of 2013 was $21,283,000, $0.30 per common share ($13,058,000, $0.19 per common share in 2012), an increase of $0.11 per common share or 58% from the prior year quarter.

For the nine months ended September 30, 2013, total system wide sales were $1,405,555,000 including $233,936,000 of franchise sales ($632,053,000 including $138,352,000 of franchise sales in 2012) and net income was $41,152,000, $0.58 per common share ($30,661,000, $0.44 per common share in 2012), an increase of  32% per common share. These figures include The Brick Limited results since March 28, 2013.

In the first quarter of 2013 we celebrated grand openings of a new 42,000 sq. ft. Leon store in Orangeville, Ontario and a 36,000 sq. ft. store in Brantford, Ontario. In the second quarter of 2013, we celebrated the grand opening of a new 50,000 sq, ft. Leon store in Sherbrooke, Quebec. In the 3rd quarter of 2013, we celebrated grand openings of a new Leon franchise store in Saint-Georges, Quebec and two new Brick franchise stores in Collingwood, Ontario and Swan River, Manitoba. In addition, we have secured land for a new store in Rocky View County, Alberta, which is just north of Calgary.

Annual Financial Information

($ in thousands, except earnings per share and dividends)


2012

2011

2010
 
Corporate sales
Franchise sales
 
 
682,163
198,077
 
682,836
196,725
 
710,435
197,062
       
Total system-wide sales 880,240 879,561 907,497
       
Net income 46,782 56,666 63,284
Earnings per share
Basic
Diluted
 
 
$0.67
$0.65
 
$0.81
$0.78
 
$0.90
$0.87
       
Total assets 585,592 584,411 566,674
       

Common share dividends declared
Special common share dividends declared
Convertible, non-voting shares dividends declared

$0.40
-
$0.20

$0.37
$0.15
$0.20

$0.32
-
$0.18

Liquidity and Financial Resources

($ in thousands, except dividends per share) Sept 30, 2013 Dec 31, 2012 Sept 30, 2012
       

Cash and cash equivalents and available-for-sale financial assets
Trade and other accounts receivable
Inventory
Total assets
Working capital

95,552
95,766
247,717
1,716,764
(16,102)

221,684
30,245
86,057
585,592
227,221

205,173
22,716
89,121
570,928
215,076

       
For the 3 months ended Current Quarter
Sept 30, 2013
Quarter
Dec. 31, 2012
Quarter
Sept 30, 2012
       

Cash flow provided by operations
Purchase of property, plant and equipment
Repurchase of capital stock
Dividends paid
 
Dividends paid per share

59,049
                 4,577
-
7,062
 
$0.10

22,926
3,678
-
7,001
 
$0.10

3,159
3,733
-
6,998
 
$0.10

As at September 30, 2013, cash and cash equivalents, and available-for-sale financial assets decreased by $126,132,000 as compared to December 31, 2012, as a result of the purchase of The Brick. The Company also has an undrawn $100 million credit facility, as of September 30, 2013, to fund its operations if required.

Common Shares

At September 30, 2013, there were 70,622,274 common shares issued and outstanding. During the third quarter 2013, no shares were repurchased and cancelled by the Company through its Normal Course Issuer Bid which has now expired. In addition, during the quarter ended September 30, 2013, 4,770 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 505,000 50,000 115,000 240,000 100,000
Operating Leases 1 737,528 68,002 116,715 116,898 435,913
Outstanding purchase orders 89,781 89,781 - - -
Finance Leases 282,311 11,941 23,826 23,075 223,469
Total Contractual Obligations 1,614,620 219,724 255,541 379,973 759,382
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 4 of the 2012 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.   In May 2013, amendments were made to IAS 36 - Impairment of Assets.  This narrow scope amendment addresses the disclosure of information about the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal. The amendments are to be applied retrospectively for annual periods beginning on or after January 1, 2014. Earlier application is permitted.

Related Party Transactions

At September 30, 2013, 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 refer to the Company's Annual Information Form dated March 28, 2013 available on www.sedar.com.

Quarterly Results (2013, 2012, 2011)

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

  Quarter Ended
September 30
Quarter Ended
June 30
Quarter Ended
March 31
Quarter Ended
December 31

  
20131 2012 20131 2012 20131 2012 2012 2011
Corporate sales
 
528,602 174,175 480,559 162,095 162,458 157,431 188,462 193,823
Franchise sales
 
100,017 49,505 92,822 45,627 41,097 43,220 59,725 61,166
Total system-wide sales
 
628,619 223,680 573,381 207,722 203,555 200,165 248,187 254,989
Net income per share
 
$0.30 $0.19 $0.20 $0.13 $0.08 $0.12 $0.23 $0.28
Fully diluted per share
 
$0.27 $0.18 $0.18 $0.12 $0.07 $0.12 $0.22 $0.27
1The Company's quarterly results for the quarter ended September 30, June 30, and March 31, 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 September 30, 2013.

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  the  internal  control integrated framework issued 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 and nine  months  ended  September 30, 2013,  other than as  noted  below,  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.

The Company acquired The Brick Limited on March 28, 2013. Management has not yet assessed the design or operating effectiveness of the Brick's disclosure controls and procedures and the procedures and internal controls over financial reporting.

Outlook

Overall we are very pleased with the significant increase in sales and solid profit growth we have experienced with the purchase of The Brick since the acquisition on March 28, 2013. Even though we continue to see poor economic growth, we expect to see improved sales and profits for the balance of the year, as a result of the acquisition of The Brick.

Non-IFRS Financial Measures

In 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 International Financial Reporting Standards ("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) Quarter Ended
Sept 30, 2013
Quarter Ended
Sept 30, 2012
     

Revenue1
Adjustments for stores not in both fiscal periods2
528,602
(895)
542,695
(8,600)
Comparable store sales 527,707 534,095
1The corporate sales for the quarter ended September 30, 2012 include The Brick results for comparative purposes.
2For the quarter ended September 30, 2013, there are six locations excluded for the adjustments for stores not in both fiscal periods.


Interim Consolidated Financial Statements

 
Leon's Furniture Limited
INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
     
  As at September 30 As at December 31
($ in thousands) 2013 2012
     
ASSETS    
Current assets    
Cash and cash equivalents 57,956 74,949
Restricted marketable securities 20,072 20,980
Available-for-sale financial assets 17,524 125,755
Trade receivables 95,766 30,245
Income taxes receivable 3,644
Inventories [note 6] 247,717 86,057
Deferred financing costs 939 1,317
Total current assets 439,974 342,947
Other assets 14,079 1,273
Property, plant and equipment [note 7] 430,075 218,146
Investment properties [note 8] 22,439 8,315
Intangible assets [note 9] 420,566 3,101
Goodwill [note 5] 379,230 11,282
Deferred income tax assets 10,401 528
Total assets 1,716,764 585,592
     
LIABILITIES AND SHAREHOLDERS' EQUITY    
Current liabilities    
Trade and other payables 247,635 73,542
Income taxes payable 6,466
Customers' deposits 81,350 20,386
Finance lease liability 3,612
Dividends payable [note 12] 7,062 7,055
Deferred warranty plan revenue 59,128 14,743
Debentures [note 11] 15,823
Loans and borrowings [note 11] 35,000
Total current liabilities 456,076 115,726
Loans and borrowings [note 11] 348,975
Convertible debentures [note 11] 90,115
Finance lease liability 139,625
Deferred warranty plan revenue  78,615 17,251
Redeemable share liability [note 10] 859 428
Deferred income tax liabilities 125,065
Total liabilities 1,239,330 133,405
     
Shareholders' equity attributable to the shareholders of the Company    
Common shares [note 12] 27,235 26,693
Equity component of convertible debentures [note 11] 7,266
Retained earnings 443,067 423,099
Accumulated other comprehensive income (loss) (134) 2,395
Total shareholders' equity 477,434 452,187
Total liabilities and shareholders' equity 1,716,764 585,592

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.


Interim Consolidated Financial Statements

         
Leon's Furniture Limited
INTERIM CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
     
  Three months ended September 30 Nine months ended September 30
($ in thousands) 2013 2012 2013 2012
         
Revenue 528,602 174,175 1,171,619 493,701
Cost of sales [note 6] 301,981 102,976 670,063 292,079
Gross profit 226,621 71,199 501,556 201,622
Operating expenses        
General and administrative expenses 81,528 25,006 186,197 72,068
Sales and marketing expenses 65,726 19,954 146,584 61,057
Occupancy expenses 40,568 8,508 90,179 25,527
Other operating expenses 2,668 786 9,780 3,473
Total operating expenses 190,490 54,254 432,740 162,125
Operating profit 36,131 16,945 68,816 39,497
Finance costs (7,179) (14,940)
Finance income 395 789 1,627 2,097
Net income before income tax 29,347 17,734 55,503 41,594
Income tax expense [note 13] 8,064 4,676 14,351 10,933
Net income 21,283 13,058 41,152 30,661
         
Earnings per share  [note 14]        
Basic $ 0.30 $ 0.19 $ 0.58 $ 0.44
Diluted $ 0.27 $ 0.18 $ 0.54 $ 0.42

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.


Interim Consolidated Financial Statements

       
Leon's Furniture Limited
INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
 
  Three months ended September 30
      Net of tax
($ in thousands) 2013 Tax effect 2013
       
Net income for the period 21,283 21,283
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 77 8 69
   Reclassification adjustment for net losses included in profit for the period (234) (59) (175)
   Change in unrealized losses on available-for-sale financial      
      assets arising during the period (157) (51) (106)
Comprehensive income for the period 21,126 (51) 21,177
      Net of tax
  2012 Tax effect 2012
       
Net income for the period 13,058 13,058
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 1,084 140 944
   Reclassification adjustment for net losses included in profit for the period (23) (3) (20)
   Change in unrealized gains on available-for-sale financial      
      assets arising during the period 1,061 137 924
Comprehensive income for the period 14,119 137 13,982
 
  Nine months ended September 30
      Net of tax
($ in thousands) 2013 Tax effect 2013
       
Net income for the period 41,152 41,152
Other comprehensive income, net of tax      
Other comprehensive income to be reclassified to profit or loss in subsequent periods:      
   Unrealized losses on available-for-sale financial assets arising during the period (234) (74) (160)
   Reclassification adjustment for net losses included in profit for the period (2,753) (384) (2,369)
   Change in unrealized losses on available-for-sale financial      
      assets arising during the period (2,987) (458) (2,529)
Comprehensive income for the period 38,165 (458) 38,623
      Net of tax
  2012 Tax effect 2012
       
Net income for the period 30,661 30,661
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 2,435 317 2,118
   Reclassification adjustment for net losses included in profit for the period (250) (33) (217)
   Change in unrealized gains on available-for-sale financial      
      assets arising during the period 2,185 284 1,901
Comprehensive income for the period 32,846 284 32,562

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements 


Interim 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, 2011 20,918 (104) 404,647 425,461
           
Comprehensive income          
Net income for the period 30,661 30,661
Change in unrealized gains on available-for-sale 1,901 1,901
   financial assets arising during the period          
Total comprehensive income 1,901 30,661 32,562
           
Transactions with shareholders          
Dividends declared (20,992) (20,992)
Management share purchase plan [note 10] 1,961 1,961
Repurchase of common shares [note 12] (3) (283) (286)
Total transactions with shareholders 1,958 (21,275) (19,317)
           
As at September 30, 2012 22,876 1,797 414,033 438,706
           
As at December 31, 2012 26,693 2,395 423,099 452,187
           
Comprehensive income          
Net income for the period 41,152 41,152
Change in unrealized losses on available-for-sale (2,529) (2,529)
   financial assets arising during the period          
Total comprehensive income (2,529) 41,152 38,623
           
Transactions with shareholders          
Dividends declared (21,184) (21,184)
Issuance of equity component of convertible debt 7,266 7,266
Management share purchase plan [note 10] 542 542
Repurchase of common shares [note 12]
Total transactions with shareholders 7,266 542 (21,184) (13,376)
           
As at September 30, 2013 7,266 27,235 (134) 443,067 477,434

The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements


Interim Condensed Consolidated Financial Statements

     
Leon's Furniture Limited
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
  Nine months ended September 30
($ in thousands) 2013 2012
     
OPERATING ACTIVITIES    
Net income for the period 41,152 30,661
Add (deduct) items not involving an outlay of cash    
   Depreciation of property, plant and equipment and investment properties 23,318 10,425
   Amortization of intangible assets 4,038 649
   Amortization of deferred warranty plan revenue (43,335) (12,458)
   Net finance costs 14,813
   Deferred income taxes (1,143) 788
   Gain on sale of property, plant and equipment (77) (15)
   Gain on sale of available-for-sale financial assets (5,666) 48
  33,100 30,098
Net change in non-cash working capital balances related    
   to operations [note 15] 17,752 (14,465)
   Cash received on warranty plan sales 44,741 9,345
Cash provided by operating activities 95,593 24,978
     
INVESTING ACTIVITIES    
Purchase of property, plant and equipment [note 7] (6,637) (14,219)
Purchase of intangible assets [note 9] (2,968) (9)
Proceeds on sale of property, plant and equipment 85 24
Purchase of available-for-sale financial assets (109,098) (366,478)
Proceeds on sale of available-for-sale financial assets 234,195 350,372
Interest received 1,617
Purchase of The Brick, net of cash acquired $31,069 [note 5] (654,954)
Cash used in investing activities (537,760) (30,310)
     
FINANCING ACTIVITIES    
Repayment of finance leases (1,850)
Dividends paid [note 12] (21,177) (31,448)
Repurchase of common shares [note 12] (286)
Repayment of employee loans-redeemable shares [note 10] 973 2,173
Issuance of term loan [note 11] 400,000
Issuance of convertible debentures [note 11] 100,000
Finance costs paid (4,693)
Repayment of debentures [note 11] (19,616)
Repayment of term loan [note 11] (10,000)
Interest paid (18,463)
Cash provided by (used in) financing activities 425,174 (29,561)
Net decrease in cash and cash equivalents    
   during the period (16,993) (34,893)
Cash and cash equivalents, beginning of period 74,949 72,505
Cash and cash equivalents, end of period 57,956 37,612

The 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 Limited

Amounts in thousands of Canadian dollars except share amounts and earnings per share

For the three and nine month periods ended September 30, 2013 and 2012

1. GENERAL INFORMATION

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, electronics and appliances across Canada.  On March 28, 2013, the Company acquired 100% of the common shares and warrants of The Brick Ltd. ("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.  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 and registered office is 45 Gordon Mackay Road, Toronto, Ontario, M9N 3X3.

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 November 14, 2013.

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, 2012. 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, 2012.

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.

Amendments issued but not yet adopted

IAS 36, Impairment of Assets has been amended to address the disclosure of information about the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal.  In addition, the amendments require an entity to disclose the discount rate that was used in a present value technique in order to determine the recoverable amount of an impaired asset.  The amendments are to be applied retrospectively for annual periods beginning on our after January 1, 2014.  Earlier application is permitted. The Company does not expect the implementation of the amendment to have an impact on its consolidated financial statements.

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, 2013, the Company adopted IFRS 10, Consolidated Financial Statements, which replaces SIC-12, Consolidation - Special Purpose Entities and parts of IAS 27, Consolidated and Separate Financial Statements.  IFRS 10 requires an entity to consolidate an investee when it is exposed or has rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.  The adoption of IFRS 10 had no impact on the interim condensed consolidated financial statements of the Company.
   
[ii]  Effective January 1, 2013, the Company adopted IFRS 11, Joint Arrangements, which replaces SIC-13, Jointly Controlled Entities - Non-Monetary Contributions be Venturers and IAS 31, Joint Ventures.  IFRS 11 requires an entity to classify its interest in a joint arrangement as a joint operation or joint venture.  Joint ventures are accounted for using the equity method of accounting, while for joint operations, the entity recognizes its share of the assets, liabilities, revenues and expenses related of the joint operation.  The adoption of IFRS 11 had no impact on the interim condensed consolidated financial statements of the Company.
   
[iii]  Effective January 1, 2013, the Company adopted IFRS 12, Disclosure of Interests in Other Entities.  IFRS 12 establishes disclosure requirements for interests in other entities such as subsidiaries, joint arrangements, associates and unconsolidated structured entities.  The standard carries forward existing disclosure requirements from other IFRSs and also introduces significant additional disclosure that addresses the nature of, and risks associate with, an entity's interests in other entities.  The adoption of IFRS 12 had no impact on the interim condensed consolidated financial statements of the Company.
   
[iv]  Effective January 1, 2013, the Company adopted IFRS 13, Fair Value Measurement.  IFRS 13 defines fair value as the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The adoption of IFRS 13 had no impact on the interim condensed consolidated financial statements of the Company.
   
[v]  Effective January 1, 2013, the Company adopted IAS 1, Presentation of Financial Statements.  The IASB amended IAS 1 by revising how certain items are presented in OCI.  Items within OCI that may be reclassified to profit and loss will be separated from items that will not.  The impact on the interim condensed financial statements of the Company is that of requiring additional disclosures than currently presented.

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;
  • utilize working capital to negotiate favourable supplier agreements both in respect of early payment discounts and overall payment terms; and
  • to maintain a capital structure that supports keeping capital costs to a minimum.

The capital structure of the Company has changed from the prior fiscal year.  The capital structure now includes convertible debentures, finance lease liabilities, loans and borrowings, and borrowing capacity available under the revolving credit facilities (Note 11).  The revolving credit facilities remain undrawn as at September 30, 2013.

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 key covenants as at September 30, 2013.

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, Urban 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.

For the nine months ended September 30, 2013, The Brick contributed revenue of $683,300 to the Company's results from the date of acquisition of March 28, 2013.

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

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

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

     
Cash  $     31,069
Trade and other receivables       55,986
Income taxes receivable             18
Inventories                   162,138
Other assets                        7,905
Available for sale financial assets                     13,279
Property, plant and equipment                   229,271
Investment properties                      14,400
Intangible assets                   418,535
Trade and other payables                   (145,309)
Customer 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 liability   (143,693)
Income taxes payable   (10,994)
Deferred income tax liabilities                    (114,040)
Total net identifiable assets $    318,075

Final valuations of certain items are not yet complete due to the inherent complexity associated with valuations.  Therefore, the purchase price allocation is preliminary and subject to adjustment on completion of the valuation process and analysis of resulting tax effects. Trade and other receivables include gross contractual amounts receivable of $57,001 net of an allowance of $1,015, which represents management's best estimate of the contractual cash flows not expected to be collected. 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 preliminary purchase price allocation reflecting updates to the estimated fair values of net assets acquired.  The adjustments primarily impacted property, plant and equipment and intangible assets.

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

                     
Total consideration transferred                 $   686,023
Less: Total net identifiable assets                   (318,075)
Goodwill                 $   367,948

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

The Company has incurred acquisition related costs of $7,638 for the nine months ended relating to external legal, advisory fees and due diligence costs. These costs have been included in general and administrative expenses in the interim consolidated statements of income. Total acquisition costs incurred to date as at September 30, 2013 by the Company were $14,023.

6. INVENTORIES

The amount of inventory recognized as an expense for the nine month period ended September 30, 2013 was $664,414 (period ended September 30, 2012 - $286,550), which is presented within cost of sales on the interim consolidated statements of income.

During the three month period ended September 30, 2013, there was $1,135 in inventory writedowns (three month period ended September 30, 2012 - $80). As at September 30, 2013, the inventory markdown provision totaled $9,276 (as at December 31, 2012 - $5,652). There were no reversals of any write-down for the period ended September 30, 2013 (period ended September 30, 2012 - nil).

7. PROPERTY, PLANT AND EQUIPMENT

  Land Buildings Equipment Vehicles Building
improvements
Leased
Property
Leased
Equipment
Total
As at September 30, 2013:
Opening net book value
Additions
Additions due to acquisition
Disposals
Depreciation
 
55,381

23,291

 
84,383
161
42,776

3,996
 
16,476
2,097
27,998

5,142
 
3,900
368
1,177
7
1,034
 
58,006
3,069
33,874
1
9,759
 


96,410

2,518
 

14
3,744

593
 
218,146
5,709
229,270
8
23,042
Closing net book value 78,672 123,324 41,429 4,404 85,189 93,892 3,165 430,075
As at September 30, 2013:
Cost
Accumulated depreciation
 
78,672
 
227,531
(104,207)
 
84,742
(43,313)
 
25,432
(21,028)
 
136,263
(51,074)
 
96,410
(2,518)
 
3,758
(593)
 
652,808
(222,733)
Net book value 78,672 123,324 41,429 4,404 85,189 93,892 3,165 430,075

  Land Buildings Equipment Vehicles Building
improvements
Leased
Property
Leased
Equipment
Total
As at December 31, 2012:
Opening net book value
Additions
Disposals
Depreciation
 
55,431
(50)

 
88,206
64

(3,887)
 
14,178
5,076

(2,778)
 
4,312
1,080
8
(1,484)
 
52,031
11,795

(5,820)
 



 



 
214,158
17,965
8
(13,969)
Closing net book value 55,381 84,383 16,476 3,900 58,006 218,146
As at December 31, 2012:
Cost
Accumulated depreciation
 
55,381
 
184,594
(100,211)
 
54,647
(38,171)
 
23,896
(19,996)
 
99,321
(41,315)
 

 

 
417,839
(199,693)
Net book value 55,381 84,383 16,476 3,900 58,006 218,146

Included in the above balances as at September 30, 2013 are assets not being amortized with a net book value of approximately Nil [as at December 31, 2012 - $4,371] being construction in progress.

8. INVESTMENT PROPERTIES

  Land Buildings Building
improvements
Total
As at September 30, 2013:
Opening net book value
Additions due to acquisition
Depreciation
 
8,286
4,233
 

9,655
255
 
29
512
21
 
8,315
14,400
276
Closing net book value 12,519 9,400 520 22,439
As at September 30, 2013:
Cost
Accumulated depreciation
 
12,519
 
17,694
(8,294)
 
1,969
(1,449)
 
32,182
(9,743)
Net book value 12,519 9,400 520 22,439
As at December 31, 2012:
Opening net book value
Depreciation
 
8,286
 

 
80
51
 
8,366
51
Closing net book value 8,286 29 8,315
As at December 31, 2012:
Cost
Accumulated depreciation
 
8,286
 
8,039
(8,039)
 
1,457
(1,428)
 
17,782
(9,467)
Net book value 8,286 29 8,315

The fair value of the investment properties portfolio as at September 30, 2013 was approximately $47,940 [as at December 31, 2012 - $33,540]. The fair value was compiled by management based on available market evidence.

9. INTANGIBLE ASSETS

  Customer
relationships
Brand name
and franchise
agreements
Non-compete
Agreement
Computer
software
Favourable
lease
agreements
Total
As at September 30, 2013:
Opening net book value
Additions
Additions due to acquisition
Amortization for the period
 
750

5,000
500
 
1,250

364,0001
187
 
375


94
 
726
2,968
4,562
978
 


44,973
2,279
 
3,101
2,968
418,535
4,038
Closing net book value 5,250 365,063 281 7,278 42,694 420,566
As at September 30, 2013:
Cost
Accumulated amortization
 
7,000
(1,750)
 
366,500
(1,437)
 
1,000
(719)
 
11,741
(4,463)
 
44,973
(2,279)
 
431,214
(10,648)
Net book value 5,250 365,063 281 7,278 42,694 420,566
As at December 31, 2012:
Opening net book value
Additions
Amortization for the year
 
1,000

(250)
 
1,500

(250)
 
500

(125)
 
958
9
(241)
 


 
3,958
9
(866)
Closing net book value 750 1,250 375 726 3,101
As at December 31, 2012:
Cost
Accumulated amortization
 
2,000
(1,250)
 
2,500
(1,250)
 
1,000
(625)
 
4,211
(3,485)
 

 
9,711
(6,610)
Net book value 750 1,250 375 726 3,101
1 This comprises $245,000 for The Brick brand name and $119,000 for The Brick franchise agreements.

10. REDEEMABLE SHARE LIABILITY

  As at
September 30,
2013
As at
December 31,
2012
 
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
 
Issued and fully paid
398,948 series 2005 shares [December 31, 2012 - 456,317]
1,013,060 series 2009 shares [December 31, 2012 - 1,045,219]
276,580 series 2012 shares [December 31, 2012 - 281,500]
1,450,000 series 2013 shares [December 31, 2012 - nil]
 
Less employee share purchase loans
 
 
 
 
 
 
 
 
3,767
8,966
3,432
16,516
 
(31,822)
 
 
 
 
 
 
 
 
4,309
9,250
3,493

 
(16,624)
  859 428

Under the terms of the Plan, the Company advanced non-interest bearing loans to certain of its employees in 2005, 2009, 2012 and 2013 to allow them to acquire convertible, non-voting series 2005 shares, series 2009 shares, series 2012 shares and series 2013 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 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 and series 2013 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 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 and $11.39 per series 2013 share.  Dividends paid to holders of series 2005, 2009 and 2012 shares of approximately $360 [2012 - $465] have been used to reduce the respective shareholder loans. The preferred dividends are paid once a year during the first quarter.

During the nine month period ended September 30, 2013, 57,369 series 2005 shares [nine month period ended September 30, 2012 - 65,093] were converted into common shares with a stated value of approximately $542 [nine month period ended September 30, 2012 - $615].

During the nine month period ended September 30, 2013, the Company cancelled 32,159 series 2009 shares [nine month period ended September 30, 2012 - 49,888], 4,920 series 2012 shares [nine month period ended September 30, 2012 - 20,000] and 35,000 series 2013 shares [nine month period ended September 30, 2012 - nil] in the amount of $285, $61 and $399, respectively [nine month period ended September 30, 2012 - $441 and $248].

During the nine month period ended September 30, 2013, the Company issued 1,485,000 series 2013 shares for proceeds of $16,914. In addition, the Company advanced non-interest bearing loans in the amount of $16,914 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 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 comprising 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 Company obtained 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 this agreement, these amounts 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 60 day Bankers Acceptance with a cost of borrowing of 3.54% that is due for renewal on November 29, 2013. The term credit facility is repayable in quarterly amounts ranging from $5,000 to $15,000 starting in this quarter. The Company made the scheduled repayment of $5,000 on September 30, 2013 and made a further optional prepayment of $5,000 on the same day, thereby reducing the term credit facility limit to $390,000. As at September 30, 2013, the Company had not drawn on the revolving credit facility. The Company can prepay without penalty amounts outstanding under the facilities at any time. The agreement includes a general security agreement which constitutes of 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 includingJune 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 September 30, 2013, the Company is in full compliance of these financial and non-financial covenants.

12. COMMON SHARES

  As at September
30, 2013
As at December
31, 2012
 
Authorized - Unlimited common shares
 
 
 
 
 
Issued
70,622,274 common shares [December 31, 2012 - 70,564,905]
 
 
27,235
 
 
26,693

During the three month period ended September 30, 2013, 4,770 series 2005 shares [three month period ended September 30, 2012 - 13,535] were converted into common shares with a stated value of approximately $45 [three month period ended September 30, 2012 - $128], respectively.

During the nine month period ended September 30, 2013, the Company repurchased no [nine month period ended September 30, 2012 - 23,506] common shares on the open market pursuant to the terms and conditions of Normal Course Issuer Bid at a net cost of approximately nil [nine month period ended September 30, 2012 - $286].  All shares repurchased by the Company pursuant to its Normal Course Issuer Bid have been cancelled.  The repurchase of common shares resulted in a reduction of share capital in the amount of approximately nil [nine month period ended September 30, 2012 - $3].  The excess net cost over the average carrying value of the shares of approximately nil [nine month period ended September 30, 2012 - $283] has been recorded as a reduction in retained earnings.

The dividends paid for the three month periods ended September 30, 2013 and September 30, 2012 were $7,062 [$0.10 per share] and $6,998 [$0.10 per share], respectively.  The dividends paid for the nine month period ended September 30, 2013 and September 30, 2012 were $21,177 [$0.30 per share] and $31,448 [$0.45 per share], respectively.

13. INCOME TAX EXPENSE

  Three month period ended
September 30, 2013
Three month period ended
September 30, 2012
Current income tax expense
Deferred income tax (recovery) expense
14,019
(5,955)
4,846
(170)
  8,064 4,676
  Nine month period ended
September 30, 2013
Nine month period ended
September 30, 2012
Current income tax expense
Deferred income tax (recovery) expense
16,884
(2,533)
11,240
(307)
  14,351 10,933

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 September 30, 2013 and September 30, 2012 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 70,618,713 for the three month period ended September 30, 2013 [three month period ended September 30, 2012 - 69,999,938]. 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
Sept. 30, 2013
Three month
period ended
Sept. 30, 2012
Nine month
period ended
Sept. 30, 2013
Nine month
period ended
Sept. 30, 2012
Profit for the period for basic earnings per share
Profit for the period for diluted earnings per share
Weighted average common shares outstanding
Dilutive effect
Diluted weighted average common shares outstanding
Basic earnings per share
Diluted earnings per share
21,283
21,984
70,618,713
11,056,121
81,674,834
0.30
0.27
13,058
13,058
69,999,938
2,395,823
72,395,761
0.19
0.18
41,152
42,554
70,607,637
8,589,479
79,197,116
0.58
0.54
30,661
30,661
69,946,920
2,368,397
72,315,317
0.44
0.42

15. INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS

[a] The net change in non-cash working capital balances related to operations consists of the following:

  Nine month period ended
September 30, 2013
Nine month period ended
September 30, 2012
Trade receivables
Income taxes receivable
Inventories
Deferred financing costs
Other assets
Trade and other payables
Customers' deposits
(9,535)
(866)
478
817
(4,901)
23,016
8,743
6,221
538
(1,291)

230
(19,736)
(427)
  17,752 (14,465)

[b] Supplemental cash flow information:

  Nine month period ended
September 30, 2013
Nine month period ended
September 30, 2012
Income taxes paid 16,219 9,614

[c]  During the nine month period, property, plant and equipment were acquired at an aggregate cost of $6,652 [period ended September 30, 2012 - $14,219], of which $942 [2012 - $816] is included in trade and other payables as at December 31, 2012.

16. COMPARATIVE FINANCIAL INFORMATION

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

 

 

 

 

 

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