leading
TogeTher
annual
reporT
2014
FinanCial highlighTS
($ in thousands, except per share amounts)
Revenue
Income before income taxes
Net income
Cash generated from operations
Dividends paid
Per common share
Net income
Cash flow generated from operations
Dividends declared
Shareholders’ equity at year end
reVenue
$1,974,417
($ in thousands)
2,000,000
1,750,000
1,500,000
1,250,000
1,000,000
750,000
500,000
250,000
0
10
11
12
13
14
neT inCoMe
$75,524
($ in thousands)
2000000
80,000
1750000
70,000
1500000
60,000
1250000
50,000
1000000
40,000
750000
500000
250000
30,000
20,000
10,000
0
0
2014
2013
% Change
$ 1,974,417
103,134
75,524
151,988
28,328
$ 1,694,643
93,270
68,392
76,393
28,239
$
$
$
$
1.07
2.14
0.40
7.74
$
$
$
$
0.97
1.08
0.40
7.05
16.5%
10.6%
10.4%
99.0%
–
10.3%
98.1%
–
9.8%
ShareholderS’ eQuiTY per Share
$7.74
($ per share)
2000000
1750000
1500000
1250000
1000000
750000
500000
250000
0
8
7
6
5
4
3
2
1
0
10
11
12
13
14
10
11
12
13
14
8
7
6
5
4
3
2
1
0
8
7
6
5
4
3
2
1
0
leading
TogeTher
Since the landmark acquisition of The Brick in
March 2013, our two divisions have been working
closely together to strengthen the lead of Canada’s
largest home furnishing retailer.
abouT uS
Founded in 1909 by Ablan leon,
leon’s Furniture has since grown into
the largest home furnishing retailer
in Canada, with a modern network
of 302 stores selling a wide range of
furniture, major appliances and home
electronics. We are also the country’s
largest commercial retailer of appliances
to builders, developers, hotels and
property management companies. With
annual system-wide sales of $2.35 billion
and more than 8,400 associates across
the country, leon’s remains committed
to the standards of service, integrity
and trust established by its founder
more than 105 years ago.
AnnuAl RepoRt 2014 / 1
preSidenT’S MeSSage To ShareholderS
anoTher
reCord
Year
The friendly competition and mutual support
between Leon’s and The Brick have quickly
become one of our greatest competitive
advantages. Today, these divisions are working
more closely than ever to capture the full
benefits of our shared potential.
Terrence T. Leon
President and Chief executive officer
2 / LeoN’S FuRNItuRe LImIteD
STrong FinanCial reSulTS
leading TogeTher
Leon’s achieved another year of record
financial results in 2014, reflecting the
first full year of revenue and earnings
contribution from the Brick. System-
wide sales reached $2.35 billion
including $374 million in franchise sales,
compared to $2.04 billion including
$345 million in franchise sales in 2013.
Same-store sales returned to positive
territory, increasing 0.4 percent amid
continuing softness in the economy
and modest consumer spending growth.
Leon’s also achieved record earnings
as net income rose 10.4 percent to
$75.5 million or $1.07 per common share.
the theme of this year’s annual
report – Leading together – is an apt
description of the growing spirit of
cooperation between our two operating
divisions. It has found full expression
in our talented transition teams, which
have continued to share best practices,
identify potential synergies and set the
stage for the complete integration and
optimization of our back office operations.
Fundamental to the successful realization
of our objectives is the implementation of
a single, system-wide It platform, which
is scheduled for completion by the end
of this year. this is an ambitious under-
taking, but one that will harmonize five
databases from the Brick while improving
the functionality of the entire platform.
Canada’S nuMber 1 CoMMerCial
applianCe reTailer
the combination of the midnorthern
and Appliance Canada banners has
made Leon’s the largest commercial
retailer of conventional and luxury
appliances in the country.
ANNuAL RePoRt 2014 / 3
our exeCuTiVe TeaM
(from left to right)
Dominic Scarangella
Vice president Finance and
Chief Financial officer
Edward F. Leon
Vice president of Merchandising
and Director
Terrence Leon
president and Chief executive
officer and Director
Mark Leon
Chairman and Director
Jim Caldwell
president, the Brick Group
4 / LeoN’S FuRNItuRe LImIteD
once completed, it will provide a clearer
strategic window on our entire business
and facilitate significant cost efficiencies
in core business functions such as human
resources, finance, procurement, and
product warranty and service. the second
stage of the integration process will take
place in 2016, with the creation of an
integrated national distribution network.
Coincident with the integration of our
It systems, we will also be introducing
new functionality as such point-of-sale
technology to enhance the customer
experience in all our stores. this will
include the introduction of icon-based
software and mobile devices that allow
our associates to process all purchase,
delivery and service transactions at
record time and in any location
throughout the store.
inVeSTing in our brandS
In the meantime, we have continued
to invest in the two best brands in
the Canadian home furnishing
business. Both Leon’s and the Brick
are operated independently with
divisional management teams fully
responsible for all sales, marketing,
merchandising and store operations
initiatives. they both serve multiple
customer groups and during the past
year, we worked to further strengthen
the brand equity of both divisions
with the aid of one of Canada’s top
marketing and consumer research firms.
the Brick’s new tagline – Saving you
more – builds upon their positioning in
the market as the smart choice for
price-oriented customers. In contrast,
Leon’s has moved toward more of an
aspirational lifestyle positioning, which
is also aimed at strengthening their
connection with younger Canadians. this
can be seen in Leon’s edgier advertising
campaigns and our sponsorship of
popular home improvement programming.
an expanding reTail neTwork
We also took the opportunity to
expand our store network into selective
communities over the course of the past
year despite the relatively slow pace of
growth in the Canadian economy. this
included the opening of new Leon’s
franchise locations in Bridgewater and
Yarmouth, Nova Scotia and a new Brick
franchise in Rocky mountain Horse,
British Columbia. the Brick division
also closed eight non-performing uFW
stores, one Brick Clearance Centre
and three franchises.
inVeSTing in our MarkeT-leading brandS
Leon’s is moving toward more of an
aspirational lifestyle positioning, which
is also aimed at strengthening our
connection with younger Canadians.
ANNuAL RePoRt 2014 / 5
our growing online preSenCe
ouTlook
to complement and support this traditional
network, we have been strengthening our
online retailing presence over the past
few years. our leons.ca and thebrick.com
websites accounted for a higher percentage
of total sales than ever as distinct retail
channels, while also driving traffic into our
stores. In 2014, we extended our online
presence through social media such as
twitter and Facebook, which along with
our divisional websites, keep customers
abreast of sales events, special offers and
other important news. to keep pace with
the growing importance of the Internet as
a retail channel, we purchased a minority
interest in our online commerce provider,
Blueport Investors LLC, and obtained
exclusive rights to the use of the trade
name and uRL furniture.com in Canada.
In 2016, we are planning to offer the
combined product lines of Leon’s and
the Brick, along with an extensive and
complementary range of additional home
furnishings, on our new furniture.com
website. We plan to be Canada’s
largest online provider of furniture,
major appliances, home electronics,
mattresses and home furnishings.
We have the marketing expertise, and
the service and distribution networks
required to do this, from coast to coast.
Looking to the year ahead, we are
encouraged by the gradual pick-up in
same-store sales that occurred in 2014
and we are cautiously optimistic that this
trend will continue during the year ahead.
In any event, we will continue to reduce
costs within Leon’s and the Brick and
capture the synergies between them
as we work to complete our migration
toward a single It platform by the end
of 2015.
In closing, I would like to extend my
thanks to the capable and dedicated
executives, corporate and franchised
store management teams and all our
associates throughout Leon’s operating
divisions. thanks to their efforts, we
have been able to achieve another year
of record performance while building a
stronger foundation for future growth.
With their continued support, I look
forward to reporting on our progress.
"Terrence T. Leon"
Terrence T. Leon
President and Chief executive officer
a growing online reTailing preSenCe
our leons.ca and thebrick.com
websites are just part of our plans
to be Canada’s largest online
provider of furniture, major
appliances, home electronics,
mattresses and home furnishings.
6 / LeoN’S FuRNItuRe LImIteD
More Than
$2Bin annual SYSTeM-wide SaleS
AnnuAl RepoRt 2014 / 7
aT-a-glanCe
bigger
and beTTer
1
Yukon
1
Northwest
Territories
302
35
1
British
Columbia
6
53
7
Alberta
total stores nationwide
80
202
16
3
11
3
Saskatchewan
3
2
8
1
Manitoba
1
45
71
4
3
1
Ontario
11
16
Québec
Leon’s Furniture
stores
the Brick
stores
united Furniture
Warehouse
stores
Appliance
Canada
stores
midnorthern
Appliance
stores
3
Newfoundland
1
1
Prince
Edward
Island
5
3
Nova
Scotia
4
2
New
Brunswick
100+ years of Leon’s history
1909
1973
1974
1983
1985
the A. leon Co.
opens for business
on King Street in
Welland, ontario.
leon’s introduces
“big-box” retailing
to Canada with the
opening of our first
warehouse showroom
in Weston, ontario.
the opening of our
10th store in laval,
Québec marks
leon’s expansion
beyond ontario.
leon’s extends its
presence to smaller
centres with the
introduction of the
first franchise store
in Kingston, ontario.
leon’s opens its
first store in Atlantic
Canada in Saint John,
new Brunswick.
8 / leon’S FuRnituRe liMiteD
bigger
and beTTer
our hiSTorY
Since Leon’s was founded more than a century ago, our history has been one of continuous
expansion and innovation. two years ago, we took the biggest step in our storied evolution
with the acquisition of the Brick Ltd. today, we are the largest retailer of furniture, appliances
and home electronics in Canada and the country’s largest commercial retailer of appliances to
builders, developers, hotels and property management companies.
100+ years of Leon’s history
2009
2011
2012
2013
2014
the first urban concept
store is opened at the
Roundhouse in downtown
toronto, ontario, part
of a multi-million dollar
investment to restore this
historic steam locomotive
repair shop.
leon’s opens four new
corporate stores, and
two new franchise
locations, including
our first franchise
store in Québec.
leon’s secures sites
for four new corporate
stores, three of which
opened in 2013.
leon’s acquires
the Brick creating
Canada’s largest home
furnishing, appliance
and electronics retailer,
with a network of over
300 stores from coast
to coast.
leon’s acquires minority
interest in online
commerce provider,
Blueport investors llC,
with exclusive rights to
the tradename and uRl
furniture.com in Canada.
AnnuAl RepoRt 2014 / 9
aT hoMe in our CoMMuniTieS
aT hoMe
in our
CoMMuniTieS
Leon’s has always believed in giving something
back to the Canadian communities that have
welcomed our stores and continue to make us
a prosperous and growing company.
10 / LeoN’S FuRNItuRe LImIteD
our Leon’s and the Brick divisions share
a long-standing tradition of supporting
the communities that are home to
our operations, both corporately, and
through the volunteer efforts, resources
and financial contributions of our stores
and associates across the country.
the largest recipient of Leon’s support
is the Boys and Girls Clubs of Canada,
a leading charitable organization that
provides programs to children and
youth that support the healthy physical,
educational and social development
of 200,000 young people and their
families every year. Leon’s also
supports the local hospitals in the
communities served by its store
network. In addition, our associates
volunteer for 100 hours of service
in each of our communities across
the country.
the Brick division shares a similar focus
on improving the health and wellbeing
of the communities that are home to
its store network. this can be seen in
their support of the Children’s miracle
Network®, which raises funds and
awareness for 170 member hospitals,
14 of which are in Canada. Donations
stay local to fund critical treatments and
healthcare services, paediatric medical
equipment and research. We are also
proud to sponsor Breakfast for
Learning, which works with schools
across Canada to help them start and
operate programs that have provided
more than 500 million meals to more
than three million Canadian children
since the program started in 1992.
You can learn more about our support
for these and other important causes
at leons.ca and thebrick.com.
lending our FinanCial
and VolunTarY SupporT
our Leon’s and the Brick divisions both
focus their support on organizations
that improve the health and wellbeing
of the communities that are home to
our retail stores.
ANNuAL RePoRt 2014 / 11
5-YEAR
REVIEW
IncomE StAtIStIcS
($ in thousands, except amounts per share)
2014
2013
2012
2011
2010
Revenue
Cost of sales
Gross profit
Operating expenses
Income before income taxes
Provision for income taxes
Net income
Common shares outstanding (’000)
Earnings per common share
Percent annual change in sales
Net income as a percentage of sales
$ $ 1,974,417
1,117,460
$ 1,694,643 $
959,307
856,957
753,823
103,134
27,610
735,336
642,066
93,270
24,878
682,163
398,704
283,459
219,776
63,683
16,901
$
682,836 $
394,099
288,737
209,889
78,848
22,182
$
75,524
$
68,392 $
46,782 $
56,666
$
$
70,899
1.07
16.5%
3.8%
70,612
70,033
69,969
$
0.97 $
0.67 $
0.81 $
148.4%
4.0%
(0.1%)
6.9%
(3.9%)
8.3%
Dividend declared
$
28,370
$
28,247 $
28,047 $
36,371 $
710,435
412,379
298,056
207,871
90,185
26,901
63,284
70,372
0.90
1.0%
8.9%
22,492
BAlAncE ShEEt StAtIStIcS
($ in thousands, except per share amounts)
2014
2013
2012
2011
2010
Shareholders’ equity
Total assets
Purchase of capital assets
Working capital
Shareholders’ equity per common share
Common share price range on the
Toronto Stock Exchange
High
Low
$ $ 549,105
1,563,476
16,562
18,972
7.74
$
497,764 $
1,565,356
18,984
(11,713)
7.05
452,187 $
588,178
17,897
226,208
6.46
425,461 $
584,411
24,999
204,649
6.08
410,286
566,674
13,567
200,826
5.83
$
$
17.90
13.41
$
$
14.75 $
11.62 $
13.47 $
10.55 $
15.65 $
10.56 $
15.10
10.35
12 / LEON’S FuRNITuRE LImITED
12 / Leon’s Furniture Limited
mAnAgement’s discussion & AnAlysis
mAnAgEmEnt’S
dIScuSSIon & AnAlYSIS
FInAncIAl REVIEW
the following management’s discussion and Analysis (“md&A”) is prepared as at February 26, 2015 and is based on the consolidated financial
position and operating results of Leon’s Furniture Limited/meubles Leon Ltée (the “Company”) as of december 31, 2014 and for the year ended
december 31, 2014. it should be read in conjunction with the fiscal year 2014 consolidated financial statements and the notes thereto. For
additional detail and information relating to the Company, readers are referred to the fiscal 2014 quarterly financial statements and corresponding
md&As which are published separately and available at www.sedar.com.
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; further changes to the Canadian bank lending rates; and a further weakening of the Canadian dollar vs. the us dollar. Given these
risks and uncertainties and the integration risk associated with the acquisition of the Brick Ltd., 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
the consolidated financial statements of the Company have been prepared in accordance with the international Financial reporting standards
(“iFrs”) 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 debentures and the management share purchase plan for the applicable period.
the Audit Committee of the Board of directors of Leon’s Furniture Limited reviewed the md&A and the consolidated financial statements,
and recommended that the Board of directors approve them. Following review by the full Board, the fiscal year 2014 consolidated financial
statements and md&A were approved on February 26, 2015.
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 network of home furniture, appliances and electronics, and
mattress stores in Canada. our retail banners include: Leon’s; the Brick; the Brick mattress store; the Brick Clearance Centre; and united
Furniture Warehouse (“uFW”). Finally, the addition of the Brick’s midnorthern Appliance banner alongside with 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.
AnnuAL report 2014 / 13
mAnAgement’s discussion & AnAlysismAnAgement’s discussion & AnAlysis Banner
Leon’s banner corporate stores
Leon’s banner franchise stores
Appliance Canada banner stores
the Brick banner corporate stores1
the Brick banner franchise stores2
the Brick mattress store banner locations
uFW banner stores
uFW and the Brick Clearance Centre banner stores
Total number of stores
1includes the midnorthern Appliance banner
2includes one uFW Franchise
REVEnuES And ExPEnSES
number of stores
44
36
3
112
67
24
6
10
302
For the year ended december 31, 2014, total system wide sales were $2,348,376,000, which includes $1,974,417,000 of corporate sales and
$373,959,000 of franchise sales ($2,039,428,000 including $344,785,000 of franchise sales in 2013).
overall, same store sales for the year 2014 increased by 0.4% compared to the prior year.
our gross margin for the year was basically flat at 43.40% versus 43.39% for the prior year.
For the year, net operating expenses of $737,064,000 were up $109,302,000 as compared to 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. excluding this factor,
operating expenses were down approximately 1% as a percentage of sales compared to the prior comparative period.
As a result of the above, net income for the year was $75,524,000, $1.07 per common share ($68,392,000, $0.97 per common share in 2013).
net income per fully diluted common share for 2014 was $0.96 ($0.89 per fully diluted common share in 2013), an increase of 7.9% per share.
these figures include the Brick Limited results since march 28, 2013.
For the three months ended december 31, 2014, total system wide sales were $649,386,000, which includes $542,206,000 of corporate sales
and $107,180,000 of franchise sales ($633,870,000 including $110,846,000 of franchise sales in 2013).
We are pleased to announce that same store sales increased by 4.3% for the fourth quarter compared to the prior year. We had strong sales
growth in both commercial and retail sales in the quarter. We did see a slight improvement in sales aided by a stronger marketing campaign
in the latter part of 2014 and by severe weather conditions in eastern Canada, which impacted the sales during the fourth quarter of the
prior year.
net income for the fourth quarter of 2014 was $29,914,000, $0.42 per common share ($26,334,000, $0.37 per common share in 2013).
net income per fully diluted common share for 2014 was $0.38 ($0.34 per fully diluted common share in 2013), an increase of 11.8% per share.
AnnuAl FInAncIAl InFoRmAtIon
($ in thousands, except earnings per share and dividends)
Corporate sales
Franchise sales
total system wide sales
net income
earnings per share
Basic
diluted
total assets
Common share dividends declared
Convertible, non-voting shares dividends declared
14 / Leon’s Furniture Limited
2014
restated
2013
$ 1,974,417
373,959
$ 1,694,643
344,785
$ 2,348,376
$ 2,039,428
$
75,524
$
68,392
$
$
1.07
0.96
$
$
0.97
0.89
$ 1,563,476
$ 1,565,356
$
$
0.40
0.20
$
$
0.40
0.20
$
$
$
$
$
$
$
$
2012
682,163
198,077
880,240
46,782
0.67
0.65
588,178
0.40
0.20
mAnAgement’s discussion & AnAlysis
lIquIdItY And FInAncIAl RESouRcES
($ in thousands, except dividends per share)
Cash, cash equivalents, available-for-sale financial assets
trade and other accounts receivable
inventory
total assets
Working capital
For the 3 months ended
Cash flow provided by operations
purchase of property, plant and equipment
dividends paid
dividends paid per share
common ShARES
$
$
Dec. 31,
2014
58,609
112,171
266,628
1,563,476
18,972
restated
dec. 31,
2013
43,272
104,275
277,656
1,565,356
(11,713)
$
dec. 31,
2012
221,684
27,961
86,057
588,178
226,208
Current quarter
Dec. 31,
2014
prior quarter
sept. 30,
2014
prior quarter
June 30,
2014
$
$
50,618
10,669
7,101
0.10
$
$
74,595
1,593
7,097
0.10
$
$
26,912
2,009
7,067
0.10
At december 31, 2014, there were 71,056,885 common shares issued and outstanding. during the year ended december 31, 2014, 135,433
convertible, non-voting series 2005 shares and 286,743 convertible non-voting series 2009 shares were converted into common shares. there
were 6,722 convertible, non-voting series 2009 shares; 20,812 convertible, non-voting series 2012 shares; and 43,228 convertible, non-voting
series 2013 shares cancelled. For details on the Company’s commitments related to its redeemable shares please refer to note 15 to the
accompanying consolidated financial statements.
commItmEntS
($ in thousands)
Contractual Obligations
Long term debt
operating leases1
trade and other payables
Finance lease liabilities
payments due by period
$
$
Total
465,954
519,046
197,044
19,953
Under
1 year
63,591
83,038
197,044
2,893
1–3 years
3–5 years
$
$
286,656
149,366
–
4,814
$
6,000
112,005
–
3,738
More than
5 years
109,707
174,637
–
8,508
Total contractual obligations
$ 1,201,997
$
346,566
$
440,836
$
121,743
$
292,852
1the Company is obligated under operating leases to future minimum rental payments for various land and building sites across Canada.
REcEnt AccountIng PRonouncEmEntS
please refer to note 3 of the 2014 annual consolidated financial statements for the accounting standards and amendments issued but not
yet adopted.
cRItIcAl AccountIng EStImAtES And ASSumPtIonS
please refer to note 2 of the 2014 annual consolidated financial statements for the Company’s critical accounting estimates and assumptions.
SIgnIFIcAnt AccountIng PolIcIES
please refer to note 3 of the 2014 annual consolidated financial statements for the Company’s significant accounting policies.
RElAtEd PARtY tRAnSActIonS
At december 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.
AnnuAL report 2014 / 15
mAnAgement’s discussion & AnAlysismAnAgement’s discussion & AnAlysis
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 27, 2015 available on www.sedar.com.
quARtERlY RESultS
($000) – except per share data
Quarter ended
Quarter ended
Quarter ended
Quarter ended
Dec. 31,
2014
dec. 31,
2013*
Sept. 30,
2014
sept. 30,
2013*
June 30,
2014*
June 30, March 31,
2014*
2013*
march 31,
2013
Corporate sales
Franchise sales
$ 542,206 $ 523,025 $ 531,685 $ 528,602 $ 474,517 $ 480,559 $ 426,009 $ 162,457
107,180
110,846
97,467
100,017
86,921
92,825
82,391
41,097
total system wide sales
$ 649,386 $ 633,871 $ 629,152 $ 628,619 $ 561,438 $ 573,384 $ 508,400 $ 203,554
net income per share
Fully diluted per share
$
$
0.42 $
0.37 $
0.38 $
0.31 $
0.24 $
0.21 $
0.02 $
0.38 $
0.34 $
0.34 $
0.28 $
0.21 $
0.18 $
0.02 $
0.08
0.07
the Company’s quarterly results include the results of the Brick as of the date of acquisition on march 28, 2013.
* restated earnings per share
dIScloSuRE contRolS And 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 december 31, 2014.
IntERnAl contRolS oVER FInAncIAl REPoRtIng
management is also responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in
accordance with iFrs. the Company’s internal control over financial reporting may not prevent or detect all misstatements because of
inherent limitations. the Company assessed the effectiveness of its internal control over financial reporting as of december 31, 2014, 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.
Based on this assessment, the Ceo and the CFo concluded that the Company maintained effective internal control over financial reporting
as of december 31, 2014.
chAngES In IntERnAl contRol oVER FInAncIAl REPoRtIng
management has also evaluated whether there were changes in the Company’s internal control over financial reporting that occurred during the
period beginning on January 1, 2014 and ended on december 31, 2014 that have materially affected, or are reasonably likely to materially affect,
the Company’s internal control over financial reporting. the Company has determined that no material changes in internal controls have occurred
during this period.
outlook
overall we are pleased with the significant increase in sales and solid profit growth we experienced with the purchase of the Brick since the
acquisition on march 28, 2013. even though we anticipate soft economic growth going forward, we expect to see a continuation of improved
profit growth in 2015.
16 / Leon’s Furniture Limited
mAnAgement’s discussion & AnAlysis 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 (page 14). this measure does not have a standardized meaning prescribed by iFrs but it is a key indicator used by the
Company to measure performance against prior period results. Comparable store sales are defined as sales generated by stores that have
been open or closed for more than 12 months on a yearly basis. the reconciliation between revenue (an iFrs measure) and comparable
store sales is provided below:
($ in thousands)
revenue1
Adjustments for stores not in both fiscal periods2
Comparable store sales
2014
2013
$ 1,974,417
(99,208)
$ 1,866,977
–
$ 1,875,209
$ 1,866,977
1the corporate sales for the years ended december 31, 2014 and 2013 include the Brick results for the comparative purposes.
2For the year ended december 31, 2014, there are ten locations excluded for the adjustments for stores not in both fiscal periods.
AnnuAL report 2014 / 17
mAnAgement’s discussion & AnAlysismAnAgement’s discussion & AnAlysis
mAnAgEmEnt’S RESPonSIBIlItY
FoR FInAncIAl REPoRtIng
the accompanying consolidated financial statements are the responsibility of management and have been approved by the Board of directors.
the accompanying consolidated financial statements have been prepared by management in accordance with international Financial reporting
standards (“iFrs”). Financial statements are not precise since they include certain amounts based upon estimates and judgments. When
alternative methods exist, management has chosen those it deems to be the most appropriate in the circumstances.
Leon’s Furniture Limited/meubles Leon Ltée (“Leon’s” or the “Company”) maintains systems of internal accounting and administrative controls,
consistent with reasonable costs. such systems are designed to provide reasonable assurance that the financial information is relevant and
reliable and that Leon’s assets are appropriately accounted for and adequately safeguarded.
the Board of directors is responsible for ensuring that management fulfils its responsibilities for financial reporting and is ultimately responsible
for reviewing and approving the financial statements. the Board carries out this responsibility through its Audit Committee.
the Audit Committee is appointed by the Board and reviews these consolidated financial statements; considers the report of the external
auditors; assesses the adequacy of the internal controls of the Company; examines the fees and expenses for audit services; and recommends
to the Board the independent auditors for appointment by the shareholders. the Committee reports its findings to the Board of directors for
consideration when approving these consolidated financial statements for issuance to the shareholders.
these consolidated financial statements have been audited by ernst & Young, the external auditors, in accordance with Canadian generally
accepted auditing standards on behalf of the shareholders. ernst & Young has full and free access to the Audit Committee.
"Terrence T. Leon"
"Dominic Scarangella"
Terrence T. Leon
Dominic Scarangella
president and Ceo
Vice president and CFo
18 / Leon’s Furniture Limited
INDEPENDENT
AUDITORS’ REPORT
To the Shareholders of Leon’s Furniture Limited/Meubles Leon Ltée
We have audited the accompanying consolidated financial statements of Leon’s Furniture Limited/Meubles Leon Ltée, which comprise the
consolidated statements of financial position as at December 31, 2014 and 2013, and the consolidated statements of income, comprehensive
income, changes in shareholders’ equity and cash flows for the years then ended, and a summary of significant accounting policies and other
explanatory information.
MANAGEMENT’S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International
Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error.
AUDITORS’ RESPONSIBILITY
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in
accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements
and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from
material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements.
The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated
financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the
entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.
OPINION
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Leon’s Furniture Limited/
Meubles Leon Ltée as at December 31, 2014 and 2013, and its financial performance and its cash flows for the years then ended in accordance
with International Financial Reporting Standards.
Toronto, Canada
February 26, 2015
ANNUAL REPORT 2014 / 19
conSolIdAtEd StAtEmEntS oF FInAncIAl PoSItIon
($ in thousands)
ASSEtS
Current assets
Cash and cash equivalents [notes 5 And 22]
restricted marketable securities [note 22]
Available-for-sale financial assets [note 22]
trade receivables [note 22]
inventories [note 6]
deferred acquisition costs [note 7]
deferred financing costs
Total current assets
other assets
deferred acquisition costs [note 7]
property, plant and equipment [note 8]
investment properties [note 9]
intangible assets [note 10]
Goodwill [note 10]
deferred income tax assets [note 20]
Total assets
lIABIlItIES And ShAREholdERS’ EquItY
Current liabilities
trade and other payables [note 11]
provisions [note 12]
income taxes payable
Customers’ deposits
Finance lease liabilities [note 13]
dividends payable [note 16]
deferred warranty plan revenue
debentures [note 14]
Loans and borrowings [note 14]
Total current liabilities
Loans and borrowings [note 14]
Convertible debentures [note 14]
Finance lease liabilities [note 13]
deferred warranty plan revenue
redeemable share liability [note 15]
deferred rent liabilities and lease inducements
deferred income tax liabilities [note 20]
Total liabilities
Shareholders’ equity attributable to the shareholders of the Company
Common shares [note 16]
equity component of convertible debentures [note 14]
retained earnings
Accumulated other comprehensive income
Total shareholders’ equity
Total liabilities and shareholders’ equity
the accompanying notes are an integral part of these consolidated financial statements.
on behalf of the Board:
"Mark J. Leon"
"Peter Eby"
Mark J. Leon, director
peter eby, director
20 / Leon’s Furniture Limited
as at
December 31,
2014
restated
[note 4]
As at
december 31,
2013
$
17,941 $
18,310
22,358
112,171
266,628
4,957
923
5,832
20,104
17,336
104,275
277,656
1,659
903
$
443,288 $
427,765
6,192
11,093
334,052
21,992
321,302
418,079
7,478
4,970
7,250
352,707
22,304
324,837
418,079
7,444
$ 1,563,476 $ 1,565,356
$
197,044 $
4,576
34,773
97,705
2,002
7,105
51,111
–
30,000
200,361
4,769
12,135
93,609
2,010
7,063
54,028
15,503
50,000
$
424,316
$
439,478
285,363
91,773
13,849
92,254
401
6,794
99,621
325,255
90,952
15,851
85,494
859
4,652
105,051
$ 1,014,371 $
1,067,592
$
31,169 $
7,089
510,398
449
27,352
7,089
463,244
79
$
549,105 $
497,764
$ 1,563,476 $ 1,565,356
conSolIdAtEd StAtEmEntS oF IncomE
($ in thousands)
revenue [note17]
Cost of sales [note 6]
gross profit
General and administrative expenses
sales and marketing expenses
occupancy expenses
other operating expenses
Total operating expenses
operating profit
Finance costs [note 19]
Finance income
net income before income tax
income tax expense [note 20]
net income
Weighted average number of common shares outstanding
Basic
diluted
earnings per share [note 21]
Basic
diluted
Dividends declared per share
Common
Convertible, non-voting
the accompanying notes are an integral part of these consolidated financial statements.
year ended
December 31,
2014
restated
[note 4]
Year ended
december 31,
2013
$ 1,974,417 $ 1,694,643
959,307
1,117,460
$
856,957 $
735,336
305,816
248,913
166,449
15,886
264,953
213,562
134,685
14,562
$
737,064 $
627,762
119,893
(18,847)
2,088
103,134
27,610
107,574
(16,798)
2,494
93,270
24,878
$
75,524
$
68,392
70,898,590
82,177,519
70,612,407
79,818,914
$
$
$
$
1.07
$
0.96 $
$
0.40
0.20 $
0.97
0.89
0.40
0.20
AnnuAL report 2014 / 21
conSolIdAtEd StAtEmEntS oF comPREhEnSIVE IncomE
($ in thousands)
net income for the year
Years ended december 31
2014
Tax effect
net of tax
2014
$
75,524
$
–
$
75,524
Other comprehensive income, net of tax
other comprehensive income to be reclassified to profit or loss in subsequent years:
unrealized gains on available-for-sale financial assets arising during the year
reclassification adjustment for net gains (losses) included in profit for the year
Change in unrealized gains on available-for-sale financial assets arising during the year
908
(453)
455
175
(90)
85
733
(363)
370
Comprehensive income for the year
$
75,979
$
85
$
75,894
($ in thousands)
net income for the year
Years ended december 31
restated
[note 4]
2013
tax effect
restated
[note 4]
net of tax
2013
$
68,392
$
–
$
68,392
Other comprehensive income, net of tax
other comprehensive income to be reclassified to profit or loss in subsequent years:
unrealized gains on available-for-sale financial assets arising during the year
reclassification adjustment for net gains (losses) included in profit for the year
Change in unrealized losses on available-for-sale financial assets arising during the year
276
(2,998)
(2,722)
44
(450)
(406)
232
(2,548)
(2,316)
Comprehensive income for the year
$
65,670
$
(406)
$
66,076
the accompanying notes are an integral part of these consolidated financial statements.
22 / Leon’s Furniture Limited
22 / Leon’s Furniture Limited
conSolIdAtEd StAtEmEntS oF chAngES In ShAREholdERS’ EquItY
($ in thousands)
as at December 31, 2013
Comprehensive income
net income for the year
Change in unrealized gains on available-for-sale
financial assets arising during the year
Total comprehensive income
Transactions with shareholders
dividends declared
management share purchase plan [note 15]
Total transactions with shareholders
equity
component
of convertible
debentures
accumulated
other
comprehensive
income (loss)
Common
shares
restated
[note 4]
retained
earnings
Total
$
7,089
$
27,352
$
79
$
463,244
$
497,764
–
–
–
–
–
–
–
–
–
–
3,817
3,817
–
75,524
75,524
370
370
–
370
75,524
75,894
–
–
–
(28,370)
–
(28,370)
(28,370)
3,817
(24,553)
as at December 31, 2014
$
7,089
$
31,169
$
449
$
510,398
$
549,105
($ in thousands)
as at December 31, 2012
Comprehensive income
net income for the year
Change in unrealized losses on available-for-sale
financial assets arising during the year
Total comprehensive income
Transactions with shareholders
dividends declared
issuance of equity component of convertible debt [note 14]
management share purchase plan [note 15]
total transactions with shareholders
equity component
of convertible
debentures
Accumulated
other
comprehensive
income (loss)
Common
shares
restated
[note 4]
retained
earnings
total
$
–
$
26,693
$
2,395
$
423,099
$
452,187
–
–
–
–
7,089
–
7,089
–
–
–
–
–
659
659
–
(2,316)
68,392
–
68,392
(2,316)
(2,316)
68,392
66,076
–
–
–
–
(28,247)
–
–
(28,247)
(28,247)
7,089
659
(20,499)
as at December 31, 2013
$
7,089
$
27,352
$
79
$
463,244
$
497,764
the accompanying notes are an integral part of these consolidated financial statements.
AnnuAL report 2014 / 23
conSolIdAtEd StAtEmEntS oF cASh FloWS
($ in thousands)
oPERAtIng ActIVItIES
net income for the year
Adjustments for:
depreciation of property, plant and equipment and investment properties
Amortization of intangible assets
Amortization of deferred warranty plan revenue
net finance costs
deferred income taxes
Gain on sale of property, plant and equipment
Gain on sale of available-for-sale financial assets
net change in non-cash working capital balances related to operations [note 26]
Cash received on warranty plan sales
year ended
December 31,
2014
restated
[note 4]
Year ended
december 31,
2013
$
75,524
$
68,392
35,431
7,289
(61,974)
16,759
(5,513)
(126)
(399)
$
66,991 $
19,180
65,817
30,461
5,724
(60,664)
14,304
(768)
(32)
(5,462)
51,955
(39,414)
63,852
Cash provided by operating activities
$
151,988
$
76,393
InVEStIng ActIVItIES
purchase of property, plant and equipment and investment properties [notes 8 And 9]
purchase of intangible assets [note 10]
proceeds on sale of property, plant and equipment
purchase of available-for-sale financial assets
proceeds on sale of available-for-sale financial assets
interest received
purchase of the Brick, net of cash acquired $31,069
(16,562)
(3,754)
224
(12,801)
10,429
2,501
–
(18,984)
(6,669)
134
(109,674)
235,260
2,494
(654,954)
Cash used in investing activities
$
(19,963)
$
(552,393)
FInAncIng ActIVItIES
repayment of finance leases
dividends paid
repayment of employee loans-redeemable shares [note 15]
issuance of term loan [note 14]
issuance of convertible debentures [note 14]
Finance costs paid
repayment of debentures [note 14]
repayment of term loan [note 14]
interest paid
Cash (used in) provided by financing activities
net increase (decrease) in cash and cash equivalents during the year
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
the accompanying notes are an integral part of these consolidated financial statements.
(1,949)
(28,328)
3,358
–
–
–
(15,000)
(60,000)
(17,997)
(1,512)
(28,239)
1,090
400,000
100,000
(4,693)
(19,616)
(20,000)
(20,147)
$
(119,916) $
406,883
12,109
5,832
(69,117)
74,949
$
17,941
$
5,832
24 / Leon’s Furniture Limited
Notes to the CoNsolidated FiNaNCial statemeNts
notES to thE conSolIdAtEd
FInAncIAl StAtEmEntS
[Amounts in thousands of Canadian dollars, except share amounts and earnings per share]
For the years ended december 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. 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
Statement of compliance
these consolidated financial statements have been prepared in accordance with international Financial reporting standards (“iFrs”) as issued
by the international Accounting standards Board (“iAsB”).
these consolidated financial statements were approved by the Board of directors for issuance on February 26, 2015.
Basis of measurement
the consolidated financial statements have been prepared under the historical cost convention, except for available-for-sale financial assets and
derivative instruments which are measured at fair value and the initial recognition of assets acquired and liabilities assumed in business combinations.
Functional and presentation currency
items included in the consolidated financial statements are measured using the currency of the primary economic environment in which the
Company operates (the functional currency). these consolidated financial statements are presented in Canadian dollars, which is the Company’s
functional and presentation currency and is also the functional currency of each of the Company’s subsidiaries.
use of estimates and judgments
management has exercised judgment in the process of applying the Company’s accounting policies. the preparation of consolidated financial
statements in accordance with iFrs requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the consolidated balance sheet dates and the reported amounts of revenue and
expenses during the reporting period. estimates and other judgments are continuously evaluated and are based on management’s experience
and other factors, including expectations about future events that are believed to be reasonable under the circumstances. Actual results could
differ from those estimates. the following discusses the most significant accounting judgments and estimates that the Company has made in
the preparation of the consolidated financial statements.
Revenue recognition
the Company offers extended warranties on certain merchandise. management has applied judgment in determining the basis upon and period
over which to recognize deferred warranty revenue.
Inventories
the Company estimates the net realizable value as the amount at which inventories are expected to be sold by taking into account fluctuations
of retail prices due to prevailing market conditions. if required, inventories are written down to net realizable value when the cost of inventories
is estimated to not be recoverable due to obsolescence, damage or declining sales prices.
reserves for slow moving and damaged inventory are deducted in the Company’s valuation of inventories. management has estimated the
amount of reserve for slow moving inventory based on the Company’s historic retail experience.
AnnuAL report 2014 / 25
Notes to the CoNsolidated FiNaNCial statemeNts Impairment of marketable securities
the Company exercises judgment in the determination of whether there are objective indicators of impairment with respect to its marketable
securities. this includes making judgments as to whether a potential impairment is either significant or prolonged with respect to equity
securities held.
Impairment of property, plant and equipment
the Company exercises judgment in the determination of cash-generating units (“CGus”) for purposes of assessing any impairment of property,
plant and equipment, as well as in determining whether there are indicators of impairment present. should indicators of impairment be present,
management estimates the recoverable amount of the relevant CGu. this estimation requires assumptions about future cash flows, margins and
discount rates.
Impairment of goodwill and intangible assets
the Company tests goodwill and indefinite life intangible assets at least annually and reviews other long-lived intangible assets for any indication
that the asset might be impaired. significant judgments are required in determining the CGus or groups of CGus for purposes of assessing
impairment. significant judgments are also required in determining whether to allocate goodwill to CGus or groups of CGus. When performing
impairment tests, the Company estimates the recoverable amount of the CGus or groups of CGus to which goodwill and indefinite life intangible
assets have been allocated using a discounted cash flow model that requires assumptions about future cash flows, margins and discount rates.
Provisions
the Company exercises judgment in the determination of recognizing a provision. the Company recognizes a provision when it has a present
legal or constructive obligation as a result of a past event and a reliable estimate of the obligation can be made. significant judgments are
required to be made in determining what the probable outflow of resources will be required to settle the obligation.
3. SummARY oF SIgnIFIcAnt AccountIng PolIcIES
the significant accounting policies used in the preparation of these consolidated financial statements are as follows:
Basis of consolidation
the financial statements consolidate the accounts of Leon’s Furniture Limited and its wholly-owned subsidiaries: murlee Holdings Limited,
Leon Holdings (1967) Limited, Ablan insurance Corporation, the Brick Ltd., the Brick Warehouse Lp, united Furniture Warehouse Lp, First oceans
trading Corporation, trans Global Warranty Corp. and its subsidiaries: trans Global Life insurance Company and trans Global insurance Company.
subsidiaries are all those entities over which the Company has control. Control is achieved when the Company 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
existence and effect of potential voting rights that are currently exercisable or convertible and rights arising from other contractual arrangements
are considered when assessing whether the Company controls another entity. subsidiaries are fully consolidated from the date on which control
is transferred to the Company and de-consolidated from the date that control ceases. the Company reassesses whether or not it controls an
investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. All inter-company transactions
and balances have been appropriately eliminated.
Business combinations
the Company applies the acquisition method in accounting for business combinations. the cost of an acquisition is measured as the aggregate
of the consideration transferred measured at the acquisition date fair value. transaction costs that the Company incurs in connection with a
business combination are expensed in the period in which they are incurred.
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 president and Chief executive officer. the Company operates in one geographical segment (Canada) and one industry (sale
of home furnishings, mattresses, appliances and electronics). Accordingly, no segment information has been provided in these consolidated
financial statements.
Foreign currency translation
Foreign currency transactions are translated into the respective functional currency of the Company’s subsidiaries using the exchange rate at the
dates of the transactions. merchandise imported from the united states and southeast Asia, paid for in u.s. dollars, is recorded at its equivalent
Canadian dollar value upon receipt. u.s. dollar trade payables are translated at the year-end exchange rate. the Company is subject to gains and
losses due to fluctuations in the u.s. dollar. Foreign exchange gains and losses resulting from translation of u.s. dollar accounts payable are
included in the consolidated statements of income within cost of sales.
Any foreign exchange gains and losses on monetary available-for-sale financial assets are recognized in the consolidated statements of income,
and other changes in the carrying amounts are recognized in other comprehensive income. For available-for-sale assets that are not monetary
items, the gain or loss that is recognized in other comprehensive income includes any related foreign exchange component.
26 / Leon’s Furniture Limited
Notes to the CoNsolidated FiNaNCial statemeNts Fair value measurement
the Company measures certain financial instruments at fair value upon initial recognition, and at each balance sheet date. Fair value is 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 fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in
the principal market for the asset or liability; or, in the absence of a principal market, in the most advantageous market for the asset or liability
that is accessible. the fair value of an asset or liability is measured using the assumptions that market participants would use, assuming that
market participants act in their economic best interest.
Financial assets and liabilities
A financial asset or liability is recognized if the Company becomes a party to the contractual provisions of the asset or liability. A financial asset
or liability is recognized initially (at trade date) at its fair value plus, in the case of a financial asset or liability not at fair value through profit or loss,
transaction costs that are directly attributable to the acquisition or issue of the instrument. Financial assets and liabilities carried at fair value
through profit or loss are initially recognized at fair value and transaction costs are expensed in the consolidated statements of income.
After initial recognition, financial assets are measured at their fair values except for loans and receivables, which are measured at amortized cost
using the effective interest method. After initial recognition, financial liabilities are measured at amortized cost.
the Company classifies its financial assets and liabilities according to their characteristics and management’s choices and intentions related
thereto for the purposes of ongoing measurement.
Classifications that the Company has used for financial assets include:
a) available-for-sale – financial assets that are non-derivatives that are either designated in this category or not classified in any other category
and include marketable securities, which consist primarily of quoted bonds, equities and debentures. these assets are measured at fair value
with the changes in fair value recognized in other comprehensive income for the current year until realized through disposal or impairment;
b) Loans and receivables – non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans
and receivables include trade receivables and are recorded at amortized cost with gains and losses recognized in the consolidated statements
of income in the period that the asset is no longer recognized or impaired; and
c) Derivative instruments – financial assets which are classified as fair value through profit and loss.
Classifications that the Company has used for financial liabilities include:
a) Other financial liabilities – measured at amortized cost with gains and losses recognized in the consolidated statements of income in the
period that the liability is no longer recognized; and
b) Derivative instruments – financial liabilities which are classified as fair value through profit and loss.
Financial assets are derecognized if the Company’s contractual rights to the cash flows from the financial asset expire or if the Company transfers
the financial asset to another party without retaining control or substantially all of the risks and rewards of ownership of the asset. Financial
liabilities are derecognized if the Company’s obligations specified in the contract expire or are discharged or cancelled.
Impairment of financial assets
the Company assesses at the end of each reporting period whether there is objective evidence that a financial asset or group of financial assets
is impaired. A financial asset or group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of
impairment as a result of one or more events that have occurred after the initial recognition of the asset (a loss event) and that loss event has
an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows
discounted at the financial asset’s original effective interest rate. the asset’s carrying amount is reduced and the amount of the loss is recognized
in the consolidated statements of income.
if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after
the impairment was recognized, the reversal of the previously recognized impairment is recognized in the consolidated statements of income.
derivative instruments
Financial derivative instruments in the form of interest rate swaps and foreign exchange forwards are recorded at fair value on the consolidated
balance sheets. Fair values are based on quoted market prices where available from active markets, otherwise fair values are estimated using
valuation methodologies, primarily discounted cash flows taking into account external market inputs. derivative instruments are recorded in
current or non-current assets and liabilities based on their remaining terms to maturity. All changes in fair value of the derivative instruments
are recorded in net income.
cash and cash equivalents
Cash and cash equivalents include cash on hand, balances with banks and short-term market investments with a remaining term to maturity of
less than 90 days from the date of purchase.
AnnuAL report 2014 / 27
Notes to the CoNsolidated FiNaNCial statemeNtsNotes to the CoNsolidated FiNaNCial statemeNts trade receivables
trade receivables are amounts due for goods sold in the ordinary course of business. if collection is expected in one year or less, they are classified
as current assets. if not, they are presented as non-current assets.
trade receivables are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method, less
provision for impairment.
Inventories
inventories are valued at the lower of cost, determined on a first-in, first-out basis, and net realizable value.
the Company receives vendor rebates on certain products based on the volume of purchases made during specified periods. the rebates are
deducted from the inventory value of goods received and are recognized as a reduction of cost of sales upon sale of the goods. incentives
received for a direct reimbursement of costs incurred to sell the vendor’s products, such as marketing and advertising funds, are recorded as
a reduction of those related costs in the consolidated statements of income, provided certain conditions are met.
Property, plant and equipment
property, plant and equipment are initially recorded at cost. Historical cost includes expenditures that are directly attributable to the acquisition of
items. subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable
that future economic benefits associated with the asset will flow to the Company and the cost can be measured reliably. When significant parts
of an item of property, plant and equipment are required to be replaced at intervals, the Company derecognizes the replaced part and recognizes
the new part with its own associated useful life and depreciation. normal repair and maintenance expenditures are expensed as incurred.
Land and construction in progress are not depreciated. depreciation on other assets is provided over the estimated useful lives of the assets
using the following annual rates:
Buildings
equipment
Vehicles
Computer hardware
Building improvements
30 to 50 years
3 to 30 years
5 to 20 years
5 years
over the remaining lease term
Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will
obtain ownership by the end of the lease term.
the Company allocates the amount initially recognized in respect of an item of property, plant and equipment to its significant parts and
depreciates separately each such part. residual values, method of depreciation and useful lives of items of property, plant and equipment are
reviewed annually by the Company and adjusted, if appropriate.
Gains and losses on disposal of property, plant and equipment are determined by comparing the proceeds with the carrying amount of the asset
and are included as part of other expenses in the consolidated statements of income.
leases
Leases that transfer substantially all of the risks and rewards of ownership to the lessee are classified as finance leases. All other leases are
classified as operating leases. in determining whether a lease should be classified as an operating or finance lease, management must consider
specific criteria. the inputs to these classification criteria require judgment in the following areas: assessing whether an option to purchase exists
and if that option will be exercised, determining the economic life of the leased asset, and determining whether the present value of minimum
lease payments amounts to at least substantially all of the fair value of the leased asset. this assessment is subject to a significant degree
of judgment.
The Company as lessee
Finance lease
Assets held under finance leases are initially recognized as assets of the Company at the commencement of the lease at the lower of their fair
value or the present value of the minimum lease payments. subsequent to initial recognition, the asset is accounted for in accordance with the
accounting policy applicable to that asset. A corresponding liability to the lessor is included in the consolidated statements of financial position
as a finance lease liability.
minimum lease payments made under finance leases are apportioned between the finance costs and the reduction of the outstanding finance
lease liability using the effective interest method. the finance cost, net of lease inducements, is allocated to each period during the lease term so
as to produce a constant periodic rate of interest on the remaining balance of the finance lease liability. Contingent lease payments arising under
finance leases are recognized as an expense in the period in which they are incurred.
28 / Leon’s Furniture Limited
Notes to the CoNsolidated FiNaNCial statemeNts Operating lease
For real estate operating leases any related rent escalations are factored into the determination of rent expense to be recognized over the
lease term.
the total operating lease payments to be made over the lease term are recognized in income on a straight-line basis over the lease term.
Lease incentives received are recognized as an integral part of the total lease expense over the lease term.
Contingent rental expenses arising under operating leases are recognized as an expense in the period in which they are incurred.
Investment properties
Assets that are held for long-term rental yields or for capital appreciation or both, and that are not occupied by either the Company or any of its
subsidiaries, are classified as investment properties. investment properties are measured initially at cost, including related transaction costs.
subsequent to initial recognition, investment properties are carried at cost and depreciated over the estimated useful lives of the properties:
Buildings
Building improvements
30 to 50 years
over the remaining lease term
Land held by the Company and classified as investment property is not depreciated.
subsequent expenditures on investment properties are capitalized to the properties’ carrying amount only when it is probable that future
economic benefits associated with the expenditures will flow to the Company and the cost of the item can be measured reliably. All other
repairs and maintenance costs are expensed when incurred. When part of an investment property is replaced, the carrying amount of the
replaced part is derecognized.
if an investment property becomes owner occupied, it is reclassified as property, plant and equipment.
goodwill and intangible assets
Goodwill
Goodwill is the residual amount that results when the purchase price of an acquired business exceeds the sum of the amounts allocated to the
tangible and intangible assets acquired, less liabilities assumed, based on their fair value. Goodwill is assigned at the date of the business acquisition.
the Company assesses at least annually, or at any time if an indicator of impairment exists, whether there has been an impairment loss in the
carrying value of goodwill and it is carried at cost less accumulated impairment losses. impairment losses on goodwill are not reversed.
Goodwill is allocated to CGus or groups of CGus that are expected to benefit from the business combination for the purpose of impairment
testing. A group of CGus represents the lowest level within the Company at which goodwill is monitored for internal management purposes.
Intangible assets
intangible assets acquired separately are measured on initial recognition at cost. the cost of intangible assets acquired in a business combination
is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization
and accumulated impairment losses. internally generated intangibles, excluding capitalized development costs, are not capitalized and the related
expenditure is reflected in profit or loss in the period in which the expenditure is incurred. the useful lives of intangible assets are assessed as
either finite or indefinite.
intangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful lives as follows:
Customer relationships
Brand name (Appliance Canada)
non-compete agreement
Computer software
Favourable lease agreements
8 years
10 years
8 years
3 to 7 years
over the lease term including renewal options
Impairment of non-financial assets
the Company considers at each reporting date whether there is an indication that an asset may be impaired. if impairment indicators are found to
be present, or when annual impairment testing for an asset is required, the non-financial assets are assessed for impairment.
impairment losses are recognized immediately in income to the extent an asset’s carrying amount exceeds its recoverable amount. the recoverable
amount is the higher of an asset’s fair value less costs to sell and value in use. in assessing value in use, estimated future cash flows are discounted
to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to
the asset for which the estimates of future cash flows have not been adjusted.
Goodwill and indefinite life intangible assets are tested annually in the fourth quarter of the year, or when circumstances indicate that the carrying
value may be impaired. the assessment of recoverable amount for goodwill and indefinite life intangible assets involves assumptions about future
conditions for the economy, capital markets, and specifically, the retail sector. As such, the assessment is subject to a significant degree
of measurement uncertainty.
AnnuAL report 2014 / 29
Notes to the CoNsolidated FiNaNCial statemeNtsNotes to the CoNsolidated FiNaNCial statemeNts For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that
generate cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets. For the Company,
store-related CGus are defined as individual stores or regional groups of stores within a geographic market.
For the Company’s corporate assets that do not generate separate cash inflows, the recoverable amount is determined for the CGu to which the
corporate asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are allocated to an individual
CGu; otherwise, they are allocated to the smallest group of CGus for which a reasonable and consistent allocation basis can be identified.
impairment losses recognized in respect of CGus are allocated to reduce the carrying amounts of the assets in the CGus on a pro rata basis.
impairment losses recognized in prior periods are assessed at each reporting date for any indication that the loss has decreased or no longer
exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount and the reversal is
recognized in income. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount
that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.
Income taxes
the Company computes an income tax expense. However, actual amounts of income tax expense only become final upon filing and acceptance
of the tax return by the relevant taxation authorities, which occur subsequent to the issuance of the annual consolidated financial statements.
Additionally, estimation of income taxes includes evaluating the recoverability of deferred income tax assets based on an assessment of the
ability to use the underlying future tax deductions before they expire against future taxable income. the assessment is based on existing tax laws
and estimates of future taxable income. to the extent estimates differ from the final tax return, income would be affected in a subsequent period.
income tax expense for the period comprises current and deferred income tax. income tax is recognized in the consolidated statements of
income except to the extent it relates to items recognized in other comprehensive income or directly in equity, in which case the related tax is
recognized in equity. Levies other than income taxes, such as taxes on real estate, are included in occupancy expenses.
Current income tax
Current income tax expense is based on the results of the year as adjusted for items that are not taxable or not deductible. Current income tax
is calculated using tax rates and laws that were substantively enacted at the end of the reporting period. management periodically evaluates
positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. it establishes provisions
where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred income tax
deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the consolidated statements of financial position. deferred income tax is determined using tax rates and laws that
have been enacted or substantively enacted by the consolidated statement of financial position dates and are expected to apply when the related
deferred income tax asset is realized or the deferred income tax liability is settled.
deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the
temporary differences can be utilized.
deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current income tax assets against current
income tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority where
there is an intention to settle the balances on a net basis.
trade and other payables
trade and other payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers.
trade and other payables are classified as current liabilities if payment is due within one year or less.
Provisions
provisions are recognized only in those circumstances where the Company has a present legal or constructive obligation as a result of a
past event, when it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can
be made.
provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax discount rate
that reflects current market assessments of the time value of money and the risks specific to the obligation.
Unpaid insurance claims
the provision for unpaid claims includes adjustment expenses and an estimate of the future settlement of claims, both reported and unreported,
that have occurred on or before the reporting date on the insurance contracts the Company has underwritten. the provision is actuarially determined
on an annual basis using assumptions of loss emergence, payment rates, interest, and expected expenses associated with the adjustment
and payment of such claims. the provision includes appropriate charges for risk and uncertainty and is measured on a discounted basis. As this
provision is an estimate, the amount of actual claims may differ from the recorded amount. the provisions are derecognized when the obligation
to pay a claim no longer exists.
30 / Leon’s Furniture Limited
Notes to the CoNsolidated FiNaNCial statemeNts Unpaid warranty claims
Warranty repairs related to warranty plans sold separately are recorded as claims expense at the time the customer reports a claim. For
these warranties, a provision for unpaid warranty claims is established for unpaid reported claims. the provision for unpaid claims is based
on estimates, and may differ from actual claims paid.
the Company also provides a standard warranty for certain products. For these warranties, a provision for warranty claims is recognized when
the underlying products are sold. the amount of the provision is estimated using historical experience and may differ from actual claims paid.
Product returns
the Company has a return policy allowing customers to return merchandise if not satisfied within 7 days. the provision for product returns is
based on sales recognized prior to the year end. the amount of the provision is estimated using historical experience and actual experience
subsequent to the year end and may differ from the actual returns made.
loans and borrowings
Long-term debt is classified as current when the Company expects to settle the debt in its normal operating cycle or the debt is due to be settled
within 12 months after the date of the consolidated statement of financial position.
Share capital
Common shares are classified as equity. incremental costs directly attributable to the issuance of new shares are shown in equity as a deduction,
net of income tax, from the proceeds.
Revenue recognition
revenue comprises the fair value of consideration received or receivable for the sale of goods and services in the ordinary course of the
Company’s activities. revenue is shown net of sales tax and financing charges. the Company recognizes revenue when the amount of
revenue can be reliably measured and it is probable that future economic benefits will flow to the Company.
in addition to the above general principles, the Company applies the following specific revenue recognition policies:
Sale of goods and related services
revenue from the sale of goods and related services is recognized either when the customer picks up the merchandise ordered or
when merchandise is delivered to the customer’s home. Any payments received in advance of delivery are deferred and recorded as
customers’ deposits.
the Company records a provision for sales returns and price guarantees based on historical experience and actual experience subsequent
to the year end.
Franchise operations
Leon’s franchisees operate principally as independent owners. the Company charges each franchisee a royalty fee based on a percentage of the
franchisee’s gross revenue. the Company supplies inventory for amounts representing landed cost plus a mark-up. the royalty income and sales
to franchises, net of costs, is recorded by the Company on an accrual basis and presented within revenue.
Insurance contracts and revenue
the Company issues insurance contracts through its subsidiaries: trans Global insurance Company and trans Global Life insurance Company.
the Company provides credit insurance on balances that arise from customers’ use of their private label financing card. the Company
provides group coverage for losses as discussed in note 23, thereby providing protection to many customers who do not carry other similar
insurance policies.
insurance contracts are contracts where the Company (the “insurer”) has accepted significant insurance risk from another party (the “policyholders”)
by agreeing to compensate the policyholders if a specified uncertain future event (the “insured event”) adversely affects the policyholders. As
a general guideline, the Company determines whether it has significant insurance risk by comparing benefits paid with benefits payable if the
insured event did not occur.
once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its term, even if the insurance
risk reduces significantly during this period, unless all rights and obligations are extinguished or expire. investment contracts can, however, be
reclassified as insurance contracts after inception if insurance risk becomes significant.
premiums on insurance contracts are recognized as revenue over the term of the policies in accordance with the pattern of insurance service
provided under the contract.
AnnuAL report 2014 / 31
Notes to the CoNsolidated FiNaNCial statemeNtsNotes to the CoNsolidated FiNaNCial statemeNts Unearned insurance revenue
At each reporting period date, the insurance revenue received by the Company in regards to the unexpired portion of policies in force is
deferred as unearned insurance revenue. Any amount of unearned insurance revenue is included in the consolidated statements of financial
position within deferred warranty plan revenue.
the Company performs an unearned insurance revenue adequacy test on an annual basis to determine whether the carrying amount of the
unearned insurance revenue needs to be adjusted (or the carrying amount of deferred acquisition costs adjusted), based upon a review of
the expected future cash flows. if these estimates show that the carrying amount of the unearned insurance revenue (less related deferred
acquisition costs) is inadequate, the deficiency is recognized in net income by setting up a provision for insurance revenue deficiency.
unearned insurance revenue is calculated based on assumptions of loss emergence, payment rates, interest, and expected expenses
associated with the adjustment and payment of claims. unearned insurance revenue is derecognized when the obligation to pay no
longer exists.
Deferred warranty plan revenue
Warranties, underwritten by the Company’s wholly-owned subsidiaries, Ablan insurance Corporation and trans Global Warranty Corp., are offered
on all products sold by the Company and franchisees to provide coverage that extends beyond the manufacturer’s warranty period by up to five
years. Warranties are sold to customers when they make their original purchase and take effect immediately. the warranty contracts provide both
repair and replacement services depending upon the nature of the warranty claim.
the Company’s extended warranty plan revenues are deferred at the time of sale and are recognized as revenue over the term of the warranty
plan in a pattern matching the estimated future claims expense.
Deferred acquisition costs
Acquisition costs are comprised of commissions, premium taxes and other expenses that relate directly to the writing or renewing of warranty and
insurance contracts. these costs are deferred only to the extent that they are expected to be recovered from unearned premiums and are amortized
over the period in which the revenue from the policies is earned. All other acquisition costs are recognized as an expense when incurred.
Costs incurred on warranty plan sales, including sales commissions and premium taxes, are recorded as deferred acquisition costs. these costs
are amortized to income in the same pattern as revenue from warranty plan sales is recognized.
Changes in the expected pattern of consumption are accounted for by changing the amortization period and are treated as a change in an accounting
estimate. deferred acquisition costs are derecognized when the related contracts are either settled or disposed of.
Sale of gift cards
revenue from the sale of gift cards is recognized when the gift cards are redeemed (the customer purchases merchandise). revenue from
unredeemed gift cards is deferred and included in trade and other payables.
Rental income on investment properties
rental income arising on investment properties is accounted for on a straight-line basis over the lease term and is presented within revenue.
Store pre-opening costs
store pre-opening costs are expensed as incurred.
Borrowing costs
Borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that the Company incurs in
connection with the borrowing of funds.
Earnings per share
Basic earnings per share have been calculated using the weighted average number of common shares outstanding during the year. diluted
earnings per share are calculated using the “if converted” method. the dividends declared on the redeemable share liability under the Company’s
management share purchase plan (the “plan”) are included in net income for the year. the redeemable shares convertible under the plan are
included in the calculation of diluted number of common shares to the extent the redemption price was less than the average annual market
price of the Company’s common shares.
Accounting standards and amendments issued but not yet adopted
in July 2014, the iAsB issued the final amendments to iFrs 9, Financial Instruments (“iFrs 9”), which provides guidance on the classification
and measurement of financial assets and liabilities, impairment of financial assets, and general hedge accounting. the classification and measurement
portion of the standard determines how financial assets and financial liabilities are accounted for in financial statements and, in particular, how
they are measured on an ongoing basis. the amended iFrs 9 introduced a new, expected-loss impairment model that will require more timely
recognition of expected credit losses. in addition, the amended iFrs 9 includes a substantially reformed model for hedge accounting, with
enhanced disclosures about risk management activity. the new standard is effective for annual periods beginning on or after January 1, 2018,
with earlier adoption permitted. the Company is in the process of evaluating the impact of adopting these amendments on the Company’s
consolidated financial statements.
32 / Leon’s Furniture Limited
Notes to the CoNsolidated FiNaNCial statemeNts iFrs 15, Revenue from Contracts with Customers (“iFrs 15”), was issued in may 2014, which will replace iAs 11, Construction Contracts,
iAs 18, Revenue Recognition, iFriC 13, Customer Loyalty Programmes, iFriC 15, Agreements for the Construction of Real Estate, iFriC 18,
Transfers of Assets from Customers, and siC-31, Revenue – Barter Transactions Involving Advertising Services. iFrs 15 provides a single,
principles based five-step model that will apply to all contracts with customers with limited exceptions, including, but not limited to, leases
within the scope of iAs 17, Leases; financial instruments and other contractual rights or obligations within the scope of iFrs 9, iFrs 10,
Consolidated Financial Statements and iFrs 11, Joint Arrangements (“iFrs 11”). in addition to the five-step model, the standard specifies
how to account for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. the incremental costs
of obtaining a contract must be recognized as an asset if the entity expects to recover these costs. the standard’s requirements will also apply
to the recognition and measurement of gains and losses on the sale of some nonfinancial assets that are not an output of the entity’s ordinary
activities. iFrs 15 is required for annual periods beginning on or after January 1, 2017. earlier adoption is permitted. the Company is in the
process of assessing the impact of iFrs 15 on its consolidated financial statements.
in may 2014, the iAsB issued amendments to iFrs 11 to address the accounting for acquisitions of interests in joint operations. the amendments
address how a joint operator should account for the acquisition of an interest in a joint operation in which the activity of the joint operation
constitutes a business. iFrs 11, as amended, now requires that such transactions shall be accounted for using the principles related to
business combinations accounting as outlined in iFrs 3, Business Combinations. the amendments are to be applied prospectively and are
effective for annual periods beginning on or after January 1, 2016, with earlier application permitted. the Company is in the process of evaluating
the impact of adopting this amendment may have on the Company’s consolidated financial statements.
in may 2014, the iAsB issued amendments to iAs 16, Property, Plant and Equipment (“iAs 16”) and iAs 38, Intangible Assets (“iAs 38”) to
clarify acceptable methods of depreciation and amortization. the amended iAs 16 eliminates the use of a revenue-based depreciation method for
items of property, plant and equipment. similarly, amendments to iAs 38 eliminate the use of a revenue-based amortization model for intangible
assets except in certain specific circumstances. the amendments are to be applied prospectively and are effective for annual periods beginning
on or after January 1, 2016, with earlier application permitted. the Company is in the process of evaluating the impact of adopting these amendments
on the Company’s 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, 2014, the Company adopted amendments to iAs 32, Financial Instruments: Presentation (“iAs 32”). 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 (“iAs 36”) – on may 29, 2013, iAsB published amendments to iAs 36, 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. REStAtEmEnt oF PREVIouSlY REPoRtEd FInAncIAl RESultS
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 year ended december 31, 2013, the Brick contributed revenue of $1,018,939 to the Company’s results from the date of acquisition of
march 28, 2013.
AnnuAL report 2014 / 33
Notes to the CoNsolidated FiNaNCial statemeNtsNotes to the CoNsolidated FiNaNCial statemeNts the acquisition date fair value of consideration transferred was as follows:
Cash
Convertible debenture
Total consideration transferred
Goodwill was recognized as a result of the acquisition as follows:
total consideration transferred
Less: total net identifiable assets
Goodwill
$
$
586,023
100,000
686,023
$
686,023
(261,671)
$
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.
the Company incurred acquisition related costs of $10,326 for the year ended december 31, 2013, relating to external legal fees, advisory fees
and due diligence costs. these costs have been included in general and administrative expenses in the consolidated statements of income.
subsequent to the finalization of the purchase price allocation for the march 28, 2013 acquisition of the Brick as previously disclosed in the
Company’s interim condensed consolidated financial statements as of and for the three months ended march 31, 2014, management discovered
that certain of the values allocated to property, plant and equipment, intangible assets and finance lease liabilities were incorrect.
management has made the following adjustments as of march 28, 2013 to restate the purchase price allocation, and goodwill recognized on
acquisition, as follows:
originally reported
Adjustments
As restated
Cash
trade and other receivables
income taxes receivable
inventories
other assets
Available-for-sale financial assets
property, plant and equipment
investment properties
intangible assets
trade and other payables
Customers’ deposits
share-based compensation plans
deferred warranty plan revenue and unearned insurance plan revenue
provisions
debentures
Finance lease liabilities
income taxes payable
deferred income tax liabilities
Total net identifiable assets
total consideration transferred
Less: total net identifiable assets
Goodwill
the adjustments relate to the following two matters:
$
$
$
$
$
31,069
55,986
18
162,138
7,905
13,279
229,153
14,400
339,081
(145,304)
(52,221)
(2,292)
(104,342)
(5,479)
(36,156)
(143,693)
(10,994)
(90,877)
$
–
–
–
–
–
–
(83,737)
–
(18,290)
–
–
–
–
–
–
125,358
–
(5,776)
31,069
55,986
18
162,138
7,905
13,279
145,416
14,400
320,791
(145,304)
(52,221)
(2,292)
(104,342)
(5,479)
(36,156)
(18,335)
(10,994)
(96,653)
261,671
$
17,555
$
279,226
686,023
$
–
$
686,023
(261,671)
(17,555)
(279,226)
424,352
$
(17,555) $
406,797
Franchise agreements
subsequent to the finalization of the purchase price allocation, management of the Company discovered that the value allocated to franchise
agreements was overstated by $19,000, due to the fact that all costs attributable to the franchise operations had not been considered in the initial
valuation of the franchise agreements. this reduction of these indefinite life intangibles had no impact to the Company’s profitability. management
has also adjusted deferred taxes associated with this adjustment in the revised purchase price allocation.
34 / Leon’s Furniture Limited
Notes to the CoNsolidated FiNaNCial statemeNts
Finance and operating leases
subsequent to the finalization of the purchase price allocation, management of the Company discovered that certain leases had been
inappropriately classified as finance leases by the Brick. this error occurred because the determinations of the lease term, as defined by
iAs 17, Leases, for the Brick’s lease agreements had not been correctly made at lease inception. management undertook an exercise to
re-assess the lease terms as of the date of inception, and reconsidered the impact of the revised assessment on the purchase price allocation.
As a result of this exercise, it was determined that the value allocated to property, plant and equipment and finance lease obligations in the
purchase price allocation were overstated by $83,737 and $125,358, respectively. As a result of the change in classification for certain leases
from finance leases to operating leases, intangible assets were adjusted by $710 to account for previously unrecognized favourable lease
intangible assets. management has also adjusted deferred taxes associated with this adjustment in the revised purchase price allocation.
Summary of restatement
the following tables summarize the impact of the restatement of the purchase price allocation as of march 28, 2013 on the consolidated
statement of financial position as at december 31, 2013 and the consolidated income statement for the year ended december 31, 2013.
Consolidated statement of financial position as at December 31, 2013
ASSEtS
property, plant and equipment
intangible assets
Goodwill
All other assets
lIABIlItIES
trade and other payables
Finance lease liabilities – short term
Finance lease liabilities – long term
deferred rent liabilities and lease inducements
deferred income tax liabilities
All other liabilities
ShAREholdERS’ EquItY
retained earnings
All other shareholders’ equity items
Consolidated income statement for the year ended December 31, 2013
General and administrative expenses
occupancy expenses
Finance costs
income tax expense
profit for the period attributable to the shareholders of the Company
earnings per share
Basic
diluted
originally reported
Adjustments
As restated
$
$
433,586
343,221
435,634
469,733
(80,879) $
(18,384)
(17,555)
–
352,707
324,837
418,079
469,733
$
1,682,174
$
(116,818) $ 1,565,356
$
$
202,618
4,302
137,887
2,377
98,768
739,667
(2,257) $
(2,292)
(122,036)
2,275
6,283
–
200,361
2,010
15,851
4,652
105,051
739,667
$ 1,185,619
$
(118,027) $
1,067,592
$
$
462,035
34,520
496,555
$
1,209
–
1,209
463,244
34,520
497,764
$
1,682,174
$
(116,818) $ 1,565,356
originally reported
Adjustments
As restated
$
$
$
$
267,741
127,985
22,424
24,373
67,183
0.95
0.87
$
$
$
$
(2,788) $
6,700
(5,626)
505
1,209
$
264,953
134,685
16,798
24,878
68,392
0.02
0.02
$
$
0.97
0.89
AnnuAL report 2014 / 35
Notes to the CoNsolidated FiNaNCial statemeNtsNotes to the CoNsolidated FiNaNCial statemeNts
5. cASh And cASh EquIVAlEntS
Cash at bank and on hand
6. InVEntoRIES
as at
December 31,
2014
$
17,941
$
As at
december 31,
2013
5,832
the amount of inventory recognized as an expense for the year ended december 31, 2014 was $1,100,145 [2013 – $934,976], which is
presented within cost of sales in the consolidated statements of income. there were $717 in inventory write-downs [2013 – $3,745] recognized
as an expense during 2014. no inventory write-downs recognized in prior periods were reversed.
As at december 31, 2014, the inventory mark-down provision totalled $9,839 [2013 – $9,122].
7. dEFERREd AcquISItIon coStS
Balance at december 31, 2012
Costs of new policies sold
policy sales costs recognized
Balance at december 31, 2013
Cost of new policies sold
policy sales costs recognized
balance at December 31, 2014
reported as:
Current
non-current
Balance at december 31, 2013
Current
non-current
balance at December 31, 2014
8. PRoPERtY, PlAnt And EquIPmEnt
$
$
2,796
7,419
(1,306)
8,909
9,042
(1,901)
$
16,050
$
$
$
$
1,659
7,250
8,909
4,957
11,093
16,050
Land
buildings
equipment
building
Vehicles improvements
Leased
property
Leased
equipment
Total
as at December 31, 2014:
opening net book value
Additions
disposals
depreciation
$
83,987 $ 122,077 $
146
–
–
662
–
(6,017)
41,399 $
8,612
(63)
(8,044)
4,288 $
5,453
(31)
(1,331)
86,295 $
1,477
(4)
(17,398)
11,778 $
–
–
(1,131)
2,883 $ 352,707
16,350
(98)
(34,907)
–
–
(986)
Closing net book value
84,133
116,722
41,904
8,379
70,370
10,647
1,897
334,052
as at December 31, 2014:
Cost
Accumulated depreciation
84,133
–
228,452
(111,730)
95,026
(53,122)
29,565
(21,186)
139,779
(69,409)
12,626
(1,979)
2,954
(1,057)
592,535
(258,483)
net book value
$
84,133 $ 116,722 $
41,904 $
8,379 $
70,370 $
10,647 $
1,897 $ 334,052
36 / Leon’s Furniture Limited
Notes to the CoNsolidated FiNaNCial statemeNts
restated [note 4]
Land
Buildings
equipment
Vehicles
Building
improvements
Leased
property
Leased
equipment
total
as at December 31, 2013:
opening net book value
Additions
Additions due to acquisition
disposals
depreciation
$
55,381 $
5,315
23,291
–
–
84,383 $
420
42,776
–
(5,502)
16,476 $
4,609
27,824
(76)
(7,434)
3,900 $
627
1,177
(18)
(1,398)
58,006 $
8,326
33,978
–
(14,015)
– $
–
12,626
–
(848)
– $ 218,146
19,297
–
145,416
3,744
(8)
(102)
(30,050)
(853)
Closing net book value
83,987
122,077
41,399
4,288
86,295
11,778
2,883
352,707
as at December 31, 2013:
Cost
Accumulated depreciation
83,987
–
227,790
(105,713)
87,005
(45,606)
25,682
(21,394)
141,578
(55,283)
12,626
(848)
3,736
(853)
582,404
(229,697)
net book value
$
83,987 $ 122,077 $
41,399 $
4,288 $
86,295 $
11,778 $
2,883 $ 352,707
included in the above balances as at december 31, 2014 are assets not being amortized with a net book value of approximately $5,741
[2013 – $459], being construction in progress.
the Company assessed for indicators of impairment of each CGu. Where the impairment indicator existed, the carrying value of the assets
within a CGu was compared with its estimated recoverable value, which was generally considered to be the CGu’s value-in-use.
When determining the CGu’s value-in-use, the Company estimated the future cash flows based on actual operating results, operating budgets
and long term growth rates that were consistent with industry averages and discounted them at a pre-tax rate of 9.9% for the CGu. Where
the carrying value of the CGu’s assets exceeded the recoverable amounts, as represented by the CGu’s value-in-use, the CGu’s property and
equipment assets were written down.
For the years ended december 31, 2014 and 2013, there has been no impairment loss recognized.
9. InVEStmEnt PRoPERtIES
as at December 31, 2014:
opening net book value
Additions
depreciation
Closing net book value
as at December 31, 2014:
Cost
Accumulated depreciation
net book value
as at December 31, 2013:
opening net book value
Additions due to acquisition
depreciation
Closing net book value
as at December 31, 2013:
Cost
Accumulated depreciation
net book value
Land
building
buildings improvements
Total
$
12,519 $
9,273 $
–
–
–
(475)
512 $
212
(49)
22,304
212
(524)
12,519
8,798
675
21,992
12,519
–
17,694
(8,896)
2,181
(1,506)
32,394
(10,402)
$
12,519 $
8,798 $
675 $
21,992
$
8,286 $
4,233
–
– $
9,655
(382)
29 $
512
(29)
8,315
14,400
(411)
12,519
9,273
512
22,304
12,519
–
17,694
(8,421)
1,969
(1,457)
32,182
(9,878)
$
12,519 $
9,273 $
512 $
22,304
AnnuAL report 2014 / 37
Notes to the CoNsolidated FiNaNCial statemeNtsNotes to the CoNsolidated FiNaNCial statemeNts
the estimated fair value of the investment properties portfolio as at december 31, 2014 was approximately $47,696 [2013 – $47,940]. this
recurring fair value measurement is categorized within Level 3 of the fair value hierarchy (note 22 for definition of levels). the Company used an
independent valuation specialist to determine the fair value of the Brick division’s investment properties of $14,400. the remaining disclosed fair
value of $33,296 was compiled internally by management based on available market evidence.
10. IntAngIBlE ASSEtS And goodWIll
brand name
and
franchise
non-
compete
relationships agreements agreements
Customer
Computer
Favourable
lease
software agreements
Total
as at December 31, 2014:
opening net book value
Additions
Amortization
Closing net book value
as at December 31, 2014:
Cost
Accumulated amortization
net book value
restated [note 4]
as at December 31, 2013:
opening net book value
Additions
Additions due to acquisition
Amortization
Closing net book value
as at December 31, 2013:
Cost
Accumulated amortization
net book value
$
5,031 $ 267,000 $
–
(875)
–
(250)
251 $
–
(126)
9,996 $
3,754
(1,804)
42,559 $ 324,837
3,754
(7,289)
–
(4,234)
4,156
266,750
125
11,946
38,325
321,302
7,000
(2,844)
268,500
(1,750)
1,012
(887)
18,363
(6,417)
46,049
(7,724)
340,924
(19,622)
$
4,156 $ 266,750 $
125 $
11,946 $
38,325 $ 321,302
$
750 $
–
5,000
(719)
1,250 $
–
266,000
(250)
375 $
–
12
(136)
726 $
6,669
3,730
(1,129)
– $
–
46,049
(3,490)
3,101
6,669
320,791
(5,724)
5,031
267,000
251
9,996
42,559
324,837
7,000
(1,969)
268,500
(1,500)
1,012
(761)
14,610
(4,614)
46,049
(3,490)
337,171
(12,334)
$
5,031 $ 267,000 $
251 $
9,996 $
42,559 $ 324,837
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:
the Brick brand name (allocated to Brick division)
the Brick franchise agreements (allocated to Brick division)
as at
December 31,
2014
restated
[note 4]
As at
december 31,
2013
$
$
245,000
21,000
$
245,000
21,000
266,000
$
266,000
the Company currently has no plans to change the Brick store banners and expects these assets to generate cash flows over an indefinite future
period. therefore, these intangible assets are considered to have indefinite useful lives for accounting purposes. 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 over an indefinite future period. therefore, this asset is also
considered to have an indefinite useful life.
38 / Leon’s Furniture Limited
Notes to the CoNsolidated FiNaNCial statemeNts
the following table presents the details of the Company’s finite-life intangible assets:
Leon’s division customer relationships
Leon’s division brand name
Leon’s division non-compete agreement
Brick division customer relationships
Brick division favourable lease agreements
Computer software
the following table presents the details of the Company’s goodwill:
as at
December 31,
2014
$
$
250
750
125
3,906
38,325
11,946
$
55,302
$
as at
December 31,,
2014
restated
[note 4]
As at
december 31,
2013
500
1,000
251
4,531
42,559
9,996
58,837
restated
[note 4]
As at
december 31,
2013
11,282
406,797
Balance, beginning of year
Acquisition through business combination
Balance, end of year
$
$
418,079
–
$
418,079
$
418,079
For the purpose of the annual impairment testing, goodwill is allocated to the following CGu groups, which are the groups expected to benefit
from the synergies of the business combinations and to which the goodwill is monitored by the Company:
Appliance Canada (included within the Leon’s division)
Brick division
Total goodwill
as at
December 31,
2014
restated
[note 4]
As at
december 31,
2013
$
$
11,282
406,797
$
11,282
406,797
418,079
$
418,079
Impairment tests
the Company performed impairment tests of goodwill, brand and franchise agreements intangible as at december 31, 2014 and december 31,
2013 in accordance with the accounting policy as described in note 3. the recoverable amount of the CGus was determined based on value-in-
use calculations. these calculations used cash flow projections based on financial budgets approved by management covering a one-year period.
Cash flows beyond the one-year period are extrapolated using the estimated growth rates stated below. the key assumptions used for the Brick’s
value-in-use calculation as at december 31, 2014 and december 31, 2013 were as follows:
Growth rate
pre-tax discount rate
2014
2.0%
9.5%
2013
2.0%
8.3%
the impairment tests performed resulted in no impairment of the goodwill as at december 31, 2014 and december 31, 2013.
11. tRAdE And othER PAYABlES
trade payables
other payables
restated
[note 4]
As at
december 31,
2013
128,918
71,443
as at
December 31,
2014
117,666
79,378
$
$
$
197,044
$
200,361
AnnuAL report 2014 / 39
Notes to the CoNsolidated FiNaNCial statemeNtsNotes to the CoNsolidated FiNaNCial statemeNts
12. PRoVISIonS
Balance as at december 31, 2013
provisions made during the year
provisions used during the year
provisions reversed during the year
balance as at December 31, 2014
Unpaid
insurance
claims
Unpaid
warranty
claims
product
returns
$
2,170 $
–
(256)
(252)
290 $
–
–
(189)
2,194 $
410
–
(376)
Other
115 $
476
–
(6)
Total
4,769
886
(256)
(823)
$
1,662 $
101 $
2,228 $
585 $
4,576
unpaid insurance claims
the provision for unpaid insurance claims represents the estimated amounts necessary to settle all outstanding claims, as well as claims that
are incurred but not reported, as of the reporting date. unpaid claims are determined using generally accepted actuarial practices, according to
the standards established by the Canadian institute of Actuaries. the establishment of the provision for unpaid claims, measured on a discounted
basis, relies on the judgment and estimates of the Company based on historical precedent and trends, on prevailing legal, economic, social and
regulatory trends and on expectations as to future developments. the process of determining the provisions necessarily involves risks that the
actual results will deviate, perhaps materially, from the best estimates made.
unpaid warranty claims
the provision for unpaid warranty claims represents the estimated amounts necessary to settle unpaid reported claims for warranty plans
sold and all outstanding claims for certain products where the Company provides a standard warranty. the estimates are necessarily subject to
uncertainty and are selected from a range of possible outcomes. the provisions are increased or decreased as additional information affecting
the estimates becomes known during the course of claims settlement. All changes in estimates are recorded in cost of sales in the current year.
Product returns
the provision for product returns represents the Company’s estimate of amounts the Company expects to incur regarding its product return
policies. the estimate is based on sales recognized prior to the end of the reporting period, historical information, management judgment and
actual experience subsequent to the end of the reporting period.
13. FInAncE lEASE lIABIlItIES
leasing arrangements
the Company leases a distribution center and vehicles under a number of finance lease agreements. the lease term on the distribution center
and vehicles do not exceed 20 years and 8 years, respectively. the Company’s obligations under finance leases are secured by the leased assets.
the Company’s distribution center lease has renewal and escalation clauses as part of the general lease conditions. the escalation clauses
expected to occur have been included in the determination of this finance lease liability.
Finance lease liabilities
Finance lease liabilities are payable as follows:
Future
minimum
lease
payments
interest
2014
present
value of
minimum
lease
payments
Future
minimum
lease
payments
$
2,893 $
8,552
8,508
891 $
2,488
723
2,002 $
6,064
7,785
3,010 $
9,551
10,399
restated [note 4]
2013
present
value of
minimum
lease
payments
2,010
6,649
9,202
interest
1,000 $
2,902
1,197
19,953
4,102
15,851
22,960
5,099
17,861
2,002
13,849
2,010
15,851
$
15,851
$
17,861
Less than one year
Between one and five years
more than five years
reported as:
Current
non-current
40 / Leon’s Furniture Limited
Notes to the CoNsolidated FiNaNCial statemeNts
14. 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
ninetieth day prior to the fourth anniversary of the issuance date and the third 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 shares 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 fourth anniversary of the issuance date and on the 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.
the Company will accrete the carrying value of the convertible debentures of $91,773 to their contractual face value of $100,000 through a
charge to net income over their term. this charge will be included in finance costs.
principal amount of convertible debentures issued on march 28, 2013
Less equity component of convertible debentures
Accretion expense for the year ended december 31, 2013
Carrying value of convertible debentures as at december 31, 2013
Accretion expense for the year ended december 31, 2014
Carrying value of convertible debentures as at december 31, 2014
$
100,000
(9,645)
597
90,952
821
$
91,773
the effective interest rate for the convertible debentures is 4.2% and includes accretion expense and semi-annual coupon payments.
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
$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 and bear interest at a fixed rate of 12% per annum payable in
cash semi-annually in arrears on June 30 and december 31.
the debentures matured on may 30, 2014. payment for the debentures totalled $15,740 comprising $15,000 in respect of principal and $740 in
respect of accrued interest.
Bank indebtedness
on January 31, 2013, a senior secured Credit Agreement (“ssCA”) was obtained to fund the acquisition of the Brick. the ssCA 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, which includes a
swing-line of $20,000. under the terms of the ssCA amounts borrowed must be repaid in full by march 28, 2017. Bank indebtedness bears
interest based on Canadian prime, London interbank offered rate (“LiBor”) and Bankers’ Acceptance (“BA”) 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 3.59% that was renewed on december 31, 2014. the term credit facility is repayable in
quarterly amounts ranging from $10,000 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 at december 31, 2014 the Company is in full compliance of these financial and non-financial covenants.
AnnuAL report 2014 / 41
Notes to the CoNsolidated FiNaNCial statemeNtsNotes to the CoNsolidated FiNaNCial statemeNts
15. REdEEmABlE ShARE lIABIlItY
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
251,080 series 2005 shares [december 31, 2013 – 386,513]
715,000 series 2009 shares [december 31, 2013 – 1,008,465]
247,896 series 2012 shares [december 31, 2013 – 268,708]
1,406,772 series 2013 shares [december 31, 2013 – 1,450,000]
740,000 series 2014 shares [december 31, 2013 – nil]
Less employee share purchase loans
as at
December 31,
2014
As at
december 31,
2013
$
$
2,371
6,328
3,076
16,024
11,137
(38,535)
3,650
8,925
3,334
16,516
–
(31,566)
$
401
$
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 – $360] have been used to reduce the
respective shareholder loans. the preferred dividends are paid once a year during the first quarter.
during the year ended december 31, 2014, 135,433 series 2005 shares [2013 – 69,804] and 286,743 series 2009 shares [2013 – nil] were converted
into common shares with a stated value of approximately $1,279 [2013 – $659] and $2,538 [2013 – nil], respectively.
during the year ended december 31, 2014, the Company cancelled 6,722 series 2009 shares [2013 – 36,754], 20,812 series 2012 shares [2013 – 12,792]
and 43,228 series 2013 shares [2013 – 35,000] in the amount of $59 [2013 – $325], $258 [2013 – $159] and $492 [2013 – $399], respectively.
employee share purchase loans have been netted against the redeemable share liability, as the Company has the legally enforceable right of
set-off and the positive intent to settle on a net basis.
during the year ended december 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.
42 / Leon’s Furniture Limited
Notes to the CoNsolidated FiNaNCial statemeNts
16. common ShARES
authorized
unlimited common shares
issued
71,056,885 common shares [2013 – 70,634,709]
as at
December 31,
As at
december 31,
2014
2013
31,169
27,352
during the year ended december 31, 2014, 135,433 series 2005 shares [2013 – 69,804] and 286,743 series 2009 shares [2013 – nil] were
converted into common shares with a stated value of approximately $1,279 [2013 – $659] and $2,538 [2013 – nil], respectively.
As at december 31, 2014, the dividends payable were $7,105 [$0.10 per share] and as at december 31, 2013 were $7,063 [$0.10 per share].
17. REVEnuE
sale of goods by corporate stores
income from franchise operations
extended warranty revenue
insurance sales revenue
rental income from investment property
Total
18. ExPEnSES BY nAtuRE
depreciation of property, plant and equipment and investment properties
Amortization of intangible assets
operating lease payments
(Gain) on sale of property, plant and equipment
19. FInAncE coStS
interest expense on finance lease obligations
interest expense on term credit facilities and revolving credit facilities
interest expense on convertible debentures
Total
year ended
December 31,
2014
Year ended
december 31,
2013
$ 1,901,029
17,323
42,071
12,338
1,656
$ 1,624,618
16,391
37,241
15,015
1,378
$ 1,974,417
$ 1,694,643
year ended
December 31,
2014
$
$
$
$
35,431
7,289
90,420
$
$
$
(126) $
restated
[note 4]
Year ended
december 31,
2013
30,461
5,724
69,742
(32)
year ended
December 31,
2014
$
$
1,017
13,387
4,443
restated
[note 4]
Year ended
december 31,
2013
933
11,993
3,872
$
18,847
$
16,798
AnnuAL report 2014 / 43
Notes to the CoNsolidated FiNaNCial statemeNtsNotes to the CoNsolidated FiNaNCial statemeNts
20. IncomE tAx ExPEnSE
(a) the major components of income tax expense for the years ended december 31 are as follows:
Consolidated statements of income
2014
restated
[note 4]
2013
Current income tax expense:
Based on taxable income of the current year
Deferred income tax expense:
origination and reversal of temporary differences
impact of change in tax rates/new tax laws
income tax expense reported in the
consolidated statements of income
Consolidated Statements of Changes in Shareholders’ equity
Deferred income tax:
movement in convertible debentures
Consolidated Statements of Other Comprehensive income
Deferred income tax:
unrealized losses on available-for-sale financial assets
Total deferred income tax expense
Total income tax expense
(b) Reconciliation of the effective tax rates are as follows:
income before income taxes
income tax expense based on statutory tax rate
increase (decrease) in income taxes resulting from
non-taxable items or adjustments of prior year taxes:
non-deductible items
non-taxable portion of capital gains
remeasurement of deferred tax asset for rate changes
other
income tax expense reported in the
consolidated statements of income
(c) deferred income tax balances and reconciliation are as follows:
(i) Deferred income tax relates to the following:
Deferred income tax assets (liabilities)
deferred tax Assets
deferred tax Liabilities
Total deferred income tax assets (liabilities)
44 / Leon’s Furniture Limited
$
31,899
$
25,646
(3,702)
(587)
(4,289)
27,610
–
–
(4,289)
$
27,610
2014
$
103,134
(574)
(194)
(768)
24,878
(63)
(165)
(996)
$
24,650
restated
[note 4]
2013
$
93,270
27,331
26.50%
24,717
26.50%
437
–
(587)
429
0.42%
–
(0.57%)
0.42%
746
(722)
(194)
331
0.80%
(0.77%)
(0.21%)
0.35%
$
27,610
26.77%
$
24,878
26.67%
December 31,
2014
$
$
7,478
(99,621)
(92,143)
restated
[note 4]
december 31,
2013
$
$
7,444
(105,051)
(97,607)
Notes to the CoNsolidated FiNaNCial statemeNts
(ii) Deferred income tax movements are as follows:
deferred warranty plan
deferred financing fees
deferred acquisition costs
property, plant and equipment
intangible assets
deferred rent liabilities
Finance lease liabilities
transition for partnership deferral
unused tax losses
other
net deferred income tax expense – Statements of income
movement in convertible debenture
net deferred income tax expense (benefit) – equity
balance,
beginning
of year
$
(484) $
(93)
6,727
(25,410)
(74,933)
505
4,796
(7,470)
120
1,191
(95,051)
(2,556)
(2,556)
$
Other
–
–
–
–
–
–
–
–
–
1,175
1,175
–
–
expense
(benefit)
1,769
(304)
(2,199)
2,585
427
590
(686)
2,083
(16)
40
4,289
–
–
2014
Consolidated
balance,
end of year
$
1,285
(397)
4,528
(22,825)
(74,506)
1,095
4,110
(5,387)
104
2,406
(89,587)
(2,556)
(2,556)
Total deferred income tax expense (benefit)
$
(97,607) $
1,175
$
4,289
$
(92,143)
deferred warranty plan
deferred financing fees
deferred acquisition costs
property, plant and equipment
intangible assets
deferred rent liabilities
Finance lease liabilities
transition for partnership deferral
unused tax losses
other
net deferred income tax expense – Statements of income
movement in convertible debenture
net deferred income tax expense (benefit) – equity
unrealized gains (losses) on available-for-sale financial assets
net deferred income tax expense (benefit) – Other
comprehensive income
$
Balance,
beginning
of year
due to
acquisition
expense
(benefit)
2013
Consolidated
balance,
end of year
$
3,014
–
–
(2,114)
(57)
–
–
–
–
(150)
693
–
–
(165)
(165)
(5,096) $
–
8,375
(25,364)
(71,683)
–
5,491
(10,859)
120
2,364
(96,652)
(2,619)
(2,619)
–
–
$
1,598
(93)
(1,648)
2,068
(3,193)
505
(695)
3,389
–
(1,023)
908
63
63
165
165
(484)
(93)
6,727
(25,410)
(74,933)
505
4,796
(7,470)
120
1,191
(95,051)
(2,556)
(2,556)
–
–
Total deferred income tax expense (benefit)
$
528
$
(99,271) $
1,136
$
(97,607)
AnnuAL report 2014 / 45
Notes to the CoNsolidated FiNaNCial statemeNtsNotes to the CoNsolidated FiNaNCial statemeNts
21. EARnIngS PER ShARE
earnings per share are calculated using the weighted average number of common shares outstanding. the weighted average number of common
shares used in the basic earnings per share calculations amounted to 70,898,590 for the year ended december 31, 2014 [2013 – 70,612,407]. the
following table reconciles the net income for the year and the number of shares for the basic and diluted earnings per share calculations:
net income for the year for basic earnings per share
net income for the year for diluted earnings per share
Weighted average number of common shares outstanding
dilutive effect
diluted weighted average number of common shares outstanding
Basic earnings per share
diluted earnings per share
22. FInAncIAl InStRumEntS And FInAncIAl RISk mAnAgEmEnt
restated
[note 4]
year ended
December 31,,
Year ended
december 31,
2014
$
75,524
$
79,007
2013
68,392
71,125
70,898,590
70,612,407
11,278,929
9,206,507
82,177,519
79,818,914
1.07
0.96
0.97
0.89
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.
Measurement
Total carrying
amount
Fair value
Fair value
hierarchy
Fair value
amortized cost
Fair value
Fair value
amortized cost
$
$
$
$
17,941
112,171
18,310
22,358
21,992
17,941
112,171
18,310
22,358
47,696
Level 1
Level 2
Level 1
Level 1
Level 3
Fair value
171
171
Level 2
$
amortized cost
amortized cost
amortized cost
amortized cost
amortized cost
amortized cost
amortized cost
$
197,044
4,576
15,851
–
315,363
91,773
401
197,044
4,576
15,851
–
315,363
138,000
401
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
as at December 31, 2014:
Loans and receivables
Cash and cash equivalents
trade receivables
available-for-sale
restricted marketable securities
Available-for-sale financial assets
investment properties
Derivative instruments
other assets
Other financial liabilities
trade and other payables
provisions
Finance lease liabilities
debentures
Loans and borrowings
Convertible debentures
redeemable share liability
46 / Leon’s Furniture Limited
Notes to the CoNsolidated FiNaNCial statemeNts
restated [note 4]
As at december 31, 2013:
Loans and receivables
Cash and cash equivalents
trade receivables
available-for-sale
restricted marketable securities
Available-for-sale financial assets
investment properties
Other financial liabilities
trade and other payables
provisions
Finance lease liabilities
debentures
Loans and borrowings
Convertible debentures
redeemable share liability
measurement
total carrying
amount
$
$
$
Fair value
Amortized cost
Fair value
Fair value
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
$
$
$
5,832
104,275
20,104
17,336
22,304
200,361
4,769
17,861
15,503
375,255
90,952
859
Fair value
5,832
104,275
20,104
17,336
47,940
200,361
4,769
17,861
15,503
375,255
112,970
859
Fair value
hierarchy
Level 1
Level 2
Level 1
Level 1
Level 3
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
the fair value hierarchy of financial instruments measured at fair value, as at december 31, 2014, includes financial assets of $58,609, $112,342
and $47,696 for Levels 1, 2 and 3, respectively, and financial liabilities of nil, $671,235 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 december 31, 2014, the fair value of the convertible debentures was determined using their closing quoted market price (not in thousands
of dollars) of $138.00 per $100.00 of face value [2013 – $112.97 per $100.00 of face value]. For the convertible debentures at december 31, 2014,
fair value is calculated based on the face value of the convertible debentures of $100,000.
the fair values of derivative assets and liabilities are estimated using industry standard valuation models. Where applicable, these models project
future cash flows and discount the future amounts to a present value using market based observable inputs including interest rate curves, foreign
exchange rates and forward and spot prices for currencies.
the Company maintains a notional $100,000 [2013 – nil] in interest rate swaps that mature by the fourth quarter of 2019 on which it pays a fixed
rate of 1.895% and currently receives 1 month BA rate. the Company also maintains other financial derivatives which comprise foreign exchange
contracts, with maturities that do not exceed past the third quarter of 2016. At december 31, 2014, a $171 [2013 – nil] unrealized receivable was
recorded in other assets.
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).
AnnuAL report 2014 / 47
Notes to the CoNsolidated FiNaNCial statemeNtsNotes to the CoNsolidated FiNaNCial statemeNts
Financial risk management
the Company’s activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk (including interest rate risks, currency risk
and other price risk). risk management is carried out by the Company by identifying and evaluating the financial risks inherent within its operations.
the Company’s overall risk management activities seek to minimize potential adverse effects on the Company’s financial performance.
credit risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations.
the following table summarizes the Company’s maximum exposure to credit risk related to financial instruments. the maximum credit exposure
is the carrying value of the asset, net of any allowances for impairment.
Cash and cash equivalents
restricted marketable securities
Available-for-sale financial assets
trade receivables
$
Carrying amount
$
2014
17,941
18,310
22,358
112,171
2013
5,832
20,104
17,336
104,275
$
170,780
$
147,547
Generally, the carrying amount on the consolidated statements of financial position of the Company’s financial assets exposed to credit risk
represents the Company’s maximum exposure to credit risk. no additional credit risk disclosure is provided, unless the maximum potential loss
exposure to credit risk for certain financial assets differs significantly from their carrying amount. the Company’s main credit risk exposure is from
its trade receivables. For the Company, trade receivables are comprised principally of amounts related to its commercial sales, to its franchise
operations, and to vendor rebate programs.
For commercial trade and other receivables, credit risk is mitigated through customer agreements specifying payment terms and credit limits.
For franchise trade receivables, personal guarantees are obtained. As well, liens are placed against the goods and the Company may repossess
goods for non-payment. Credit risk is also limited due to the large number of customers and their dispersion across geographic areas and market
sectors (i.e. retail, commercial, and franchise). Accordingly, the Company believes it has no significant concentrations of credit risk related to
trade receivables. in addition, trade receivables are managed and analyzed on an ongoing basis to control the Company’s exposure to bad debts.
the Company assesses the adequacy of the allowance for impairment quarterly, taking into account historical experience, current collection
trends, the age of receivables, and when warranted and available, the financial condition of specific counterparties. the Company focuses on
receivables outstanding for greater than 90 days in assessing the Company’s credit risk and records a reserve, when required, to mitigate that
risk. When collection efforts have been exhausted, specific balances are written off.
As at december 31, 2014, there are no financial assets that the Company deems to be impaired or that are past due according to their terms
and conditions, for which allowances have not been recorded. the Company’s trade receivables totalled $112,171 as at december 31, 2014 [2013
– $104,275]. the amount of trade receivables that the Company has determined to be past due [which is defined as a balance that is more than
90 days past due] is $2,950 as at december 31, 2014 [2013 – $2,359]. the Company’s provision for impairment of trade receivables, established
through on-going monitoring of individual customer accounts, was $1,969 as at december 31, 2014 [2013 – $1,658].
the majority of the Company’s retail sales are funded through cash, traditional credit cards and private label credit cards carried on a non-
recourse basis by third parties. Accordingly, fluctuations in the availability and cost of credit may have an impact on the Company’s retail sales
and profitability.
the Company manages credit risk for its cash and cash equivalents by maintaining bank accounts with major Canadian banks and investing
only in highly rated Canadian and u.s. securities that are traded on active markets and are capable of prompt liquidation.
liquidity risk
Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. the purpose of liquidity
risk management is to maintain sufficient amounts of cash and cash equivalents, and authorized credit facilities, to fulfil obligations associated
with financial liabilities. to manage liquidity risk, the Company prepares budgets and cash forecasts, and monitors its performance against these.
management also monitors cash and working capital efficiency given current sales levels and seasonal variability. the Company measures and
monitors liquidity risk by regularly evaluating its cash inflows and outflows under expected conditions through cash flow reporting such that it
anticipates certain funding mismatches and ensures the cash management of the business within certain tolerable levels. these cash flow
forecasts are reviewed on a weekly basis by management. the Company mitigates liquidity risk through continuous monitoring of its credit
facilities and the diversification of its funding sources, both in the short term as well as the long term.
48 / Leon’s Furniture Limited
Notes to the CoNsolidated FiNaNCial statemeNts
the following tables summarize the Company’s contractual maturity for its financial liabilities, including both principal and interest payments:
as at December 31, 2014:
trade and other payables
Finance lease liabilities
Loans and borrowings
Convertible debentures
redeemable share liability
restated [note 4]
as at December 31, 2013:
trade and other payables
Finance lease liabilities
debentures
Loans and borrowings
Convertible debentures
redeemable share liability
Carrying
amount
Contractual
cash flows
Under 1 year
1–3 years
3–5 years
More than
5 years
remaining term to maturity
$
$
$
197,044
15,851
315,363
91,773
401
197,044
19,953
341,247
124,707
401
$
$
197,044
2,893
60,591
3,000
–
–
4,814
280,656
6,000
–
$
–
3,738
–
6,000
–
–
8,508
–
109,707
401
$
620,432
$
683,352
$
263,528
$
291,470
$
9,738
$
118,616
Carrying
amount
Contractual
cash flows
under 1 year
1–3 years
3–5 years
more than
5 years
remaining term to maturity
$
$
200,361
17,861
15,503
375,255
90,952
859
$
200,361
22,960
15,740
425,164
127,707
859
$
200,361
3,010
15,740
62,815
3,000
–
–
5,618
–
120,364
6,000
–
$
–
3,933
–
241,985
6,000
–
$
–
10,399
–
–
112,707
859
$
700,791
$
792,791
$
284,926
$
131,982
$
251,918
$
123,965
the contractual cash flows have been included in the tables above based on the contractual arrangements that exist at the reporting date and do
not factor in any assumptions for early repayment. the amount and timing of actual payments may be materially different. Contractual cash flows
presented in the above maturity analysis table for finance lease liabilities, debentures, loans and borrowings and convertible debentures include
principal repayments, interest payments, and other related cash payments. As the carrying amounts of these liabilities are measured at amortized
cost, the future contractual cash flows do not agree to the carrying amounts.
the Company’s debentures, credit facilities and convertible debentures are further discussed in note 14.
the Company’s future obligations under operating leases are discussed in note 25.
market risk
market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. market
risk is comprised of three types of risk: interest rate risk, currency risk, and other price risk.
(a) Interest rate risk
interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market
interest rates.
the Company is exposed to cash flow risk on the term credit facility and the revolving credit facility, and to fair value risk on the finance lease
liabilities, debentures, and convertible debentures due to fluctuations in interest rates. Fair value risk related to the finance lease liabilities,
debentures and convertible debentures impacts disclosure only as these items are carried at amortized cost on the consolidated statements
of financial position.
As well, the Company’s revenues depend, in part, on supplying financing alternatives to its customers through third party credit providers. the
terms of these financing alternatives are affected by changes in interest rates. therefore, interest rate fluctuations may impact the Company’s
financing costs for retail sales financed using these alternatives, and may also impact the Company’s revenues where customers’ buying
decisions are impacted by their ability or desire to use these financing alternatives.
Interest rate sensitivity analysis
(i)
the Company’s net income is sensitive to the impact of a change in interest rates on the average indebtedness under the term credit facility
and the revolving credit facility during the year. For the year ended december 31, 2014, the Company’s average indebtedness under the term
credit facility was $350,000 (2013 – $390,000) and under the revolving credit facility was nil (2013 – nil). Accordingly, a change during the year
ended december 31, 2014 of a one percentage point increase or decrease in the applicable interest rate would have impacted the Company’s
net income by approximately $2,573 (2013 – $2,867).
AnnuAL report 2014 / 49
Notes to the CoNsolidated FiNaNCial statemeNtsNotes to the CoNsolidated FiNaNCial statemeNts
(b) Currency risk
the Company is exposed to foreign currency fluctuations since certain merchandise is paid for in u.s. dollars. this risk is offset to the extent
that foreign currency costs are included in product costs when setting retail prices. Accordingly, the Company does not believe it has significant
foreign currency risk with respect to its inventory purchases made in u.s. dollars.
(c) Other price risk
the Company is exposed to fluctuations in the market prices of its portfolio of restricted marketable securities that are classified as available-for-
sale financial assets. Changes in the fair value of these financial assets are recorded, net of income taxes, in accumulated other comprehensive
income as it relates to unrecognized gains and losses. the risk is managed by the Company and its investment managers by ensuring a
conservative asset allocation.
23. InSuRAncE contRAct RISk
Certain subsidiaries of the Company are responsible for the insurance business and monitoring and managing the financial risks related to the
Company’s insurance operations. this is done through internal risk assessment reporting and by compliance with regulatory requirements. trans
Global Life insurance Company (“tGLi”) provides group insurance coverage for life, accident and sickness covering personal credit card debt; and
group coverage for life, accident and sickness covering other personal short-term debt. trans Global insurance Company (“tGi”) provides group
coverage for loss of income and property covering personal credit card debt; group coverage for loss of income and property covering other
personal short-term debt; and four and five-year term commercial property coverage. the principal risks faced under insurance contracts are
that (i) the actual claims and benefit payments or the timing thereof, differ from expectations. this risk is influenced by the frequency of claims,
severity of claims, actual benefits paid and subsequent development of claims; (ii) the risk of loss arising from expense experience being different
than expected; and (iii) the risk arising due to policyholder experiences (lapses) being different than expected. the Company’s objective with
respect to this risk is to ensure that sufficient reserves are available to cover these liabilities.
the overall risk of the insurance operations is managed by diversifying across a large portfolio of insurance contracts and limiting the benefits that
the policyholder stands to receive. the Company, therefore, has a defined maximum exposure which enables it to effectively manage the overall
risk. these maximum benefits are limited to $25,000 per occurrence.
24. cAPItAl 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 of the Company has not changed from the prior fiscal year. the capital structure currently includes finance lease liabilities,
convertible debentures, term credit facility and borrowing capacity available under the revolving credit facilities (note 14). As at december 31,
2014, $99,475 is available to draw on under our $100,000 revolving credit facility, as the borrowing capacity is reduced by ordinary course letters
of credit of $525 primarily with respect to buildings under construction or being completed (2013 – $525).
Current portion of finance lease liabilities
debentures
Current portion of loans and borrowings
Convertible debentures
Finance lease liabilities
Loans and borrowings
total shareholders’ equity
Total capital under management
$
$
2014
2,002
–
30,000
91,773
13,849
285,363
549,105
restated
[note 4]
2013
2,010
15,503
50,000
90,952
15,851
325,255
497,764
$
972,092
$
997,335
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 december 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.
50 / Leon’s Furniture Limited
Notes to the CoNsolidated FiNaNCial statemeNts
restriction on the distribution of capital from Trans global insurance Company and Trans global Life insurance Company
For purposes of regulatory requirements for tGi and tGLi, capital is considered to be equivalent to their respective statement of financial position
equity. regulatory requirements stipulate that tGi must maintain minimum capital of at least $3,000 and tGLi must maintain minimum capital of
at least $5,000.
in addition, the Company is subject to the regulatory capital requirements defined by the office of the superintendent of insurance of Alberta
and the insurance Act of Alberta (the “Act”). notwithstanding that a company may meet the supervisory target standard; the office of the
superintendent of insurance of Alberta may direct a company to increase its capital under the Act. As at december 31, 2014, tGi’s minimum
Capital test ratio was 634% (2013 – 537%), which is in compliance with the requirements of the office of the superintendent of insurance of
Alberta and the Act. As at december 31, 2014, tGLi’s minimum Continuing Capital and surplus requirements ratio was 579% (2013 – 396%),
which is in compliance with the requirements of the office of the superintendent of insurance of Alberta and the Act.
25. commItmEntS And contIngEncIES
(a) the Company leases a number of retail stores under operating leases. Generally, the leases have rent escalation terms and renewal options
to extend. the Company is obligated under these operating leases for future minimum annual rental payments as follows:
no later than 1 year
Later than 1 year and no later than 5 years
Later than 5 years
$
83,038
261,371
174,637
$
519,046
(b) the future minimum lease payments receivable under non-cancellable operating leases for certain land and buildings classified as
investment property are as follows:
no later than 1 year
Later than 1 year and no later than 5 years
Later than 5 years
$
$
2,554
5,229
459
8,242
(c) pursuant to a reinsurance agreement relating to the extended warranty sales, the Company has pledged available-for-sale financial assets
amounting to $18,310 [2013 – $20,104].
(d) in the normal course of operations, the Company is party to a number of lawsuits, claims and contingencies. Accruals are made in instances
where it is probable that liabilities have been incurred and where such liabilities can be reasonably estimated. Although it is possible that
liabilities may be incurred in instances for which no accruals have been made, the Company does not believe that the ultimate outcome of
these matters will have a material impact on its financial position.
26. conSolIdAtEd StAtEmEntS oF cASh FloWS
the net change in non-cash working capital balances related to operations consists of the following:
trade receivables
inventories
deferred financing costs
other assets
deferred acquisition costs
trade and other payables
provisions
income taxes payable
Customers’ deposits
deferred rent liabilities and lease inducements
year ended
December 31,
Year ended
december 31,
$
2014
(8,528) $
11,028
–
(1,222)
(7,141)
(3,603)
(193)
22,601
4,096
2,142
2013
(20,328)
(29,461)
817
3,696
(6,113)
(16,996)
(710)
4,903
21,002
3,776
$
19,180
$
(39,414)
AnnuAL report 2014 / 51
Notes to the CoNsolidated FiNaNCial statemeNtsNotes to the CoNsolidated FiNaNCial statemeNts
27. RElAtEd PARtY tRAnSActIonS
Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated
on consolidation.
key management compensation
Key management includes the directors and the five senior executives of the Company. the compensation expense paid to key management for
employee services during each year is shown below:
salaries and other short-term employee benefits
28. comPARAtIVE FInAncIAl StAtEmEntS
year ended
December 31,,
2014
Year ended
december 31,
2013
$
5,280
$
12,521
the comparative consolidated financial statements have been reclassified from statements previously presented to conform to the presentation
of the 2014 consolidated financial statements.
52 / Leon’s Furniture Limited
Notes to the CoNsolidated FiNaNCial statemeNts
coRPoRAtE And
ShAREholdER InFoRmAtIon
corporate office
45 Gordon mackay Road
Toronto, Ontario m9N 3X3
(416) 243-7880
Auditors
Ernst & Young LLP
Toronto
Registrar and transfer Agent
CST Trust Company
listing
Leon’s shares are listed on the
Toronto Stock Exchange
Ticker Symbol is LNF
Annual general meeting
may 14, 2015 2:00 Pm
Leon’s Furniture Limited
The John Street Roundhouse
255 Bremner Blvd.
unit 32
Toronto, Ontario
Board of directors
Mark J. Leon
Toronto
Terrence T. Leon
Toronto
edward F. Leon
King City
Joseph M. Leon ii
mississauga
peter b. eby
Private Investor, Toronto
alan J. Lenczner
Barrister, Partner in
Lenczner Slaght, Toronto
Mary ann Leon
Financial Executive, Toronto
Frank gagliano
Vice Chairman,
St. Joseph Communications, Toronto
officers
Mark J. Leon
Chairman of the Board
Terrence T. Leon
President and CEO
Dominic Scarangella
Vice President and CFO
edward F. Leon
Vice President, merchandising
John a. Cooney
Corporate Secretary
AnnuAL report 2014 / 53
Notes to the CoNsolidated FiNaNCial statemeNts Our LeOn’s and THe Brick diVisiOns comprise the largest retail network for
home furnishings, appliances and electronics in Canada, with over 300 stores
from coast-to-coast. Our customers also can find everything we offer at stores
and more, including the same high standards for delivery, service and guaranteed
pricing – through our growing online stores.
Visit us today at leons.ca and thebrick.com