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WHERE it
matters MOST
2016 Annual Report
Leon’s Furniture Limited
After 107 years and still
growing strong, Leon’s is
Canada’s largest retailer
of furniture, appliances
and home electronics with
more than $2.53 billion in
annual sales, six leading
banners, an expanding online
presence, and 305 stores
from Vancouver Island to
Newfoundland and Labrador.
1
WHERE it
matters MOST
Leon’s unmatched retail and distribution networks, growing online presence, and
full spectrum of after-sales services, set us apart from industry competitors and close
to the lives of our customers no matter where, when or how they wish to deal with us.
Financial Highlights
($ 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
2016
2015
% Change
$ 2,143,736
114,188
83,591
164,648
28,649
$
2,031,718
101,419
76,629
58,483
28,465
$
$
$
$
1.17 $
2.30 $
0.40 $
9.20 $
1.08
0.82
0.40
8.43
5.5%
12.6%
9.1%
181.5%
0.6%
8.3%
180.5%
–
9.1%
2016
2015
Revenue
Net Income
Shareholders’ Equity
2016
2015
2016
2015
5.5%
GROWTH
9.1%
GROWTH
9.1%
GROWTH
(per share)
For an extensive look at our 5-Year Review please see page 11.
2
Leon’s Furniture Limited | 2016 Annual Report
CHIEF EXECUTIVE OFFICER’S MESSAGE
CLOSE to
our CUSTOMERS
2016 was a year of continued progress for the Leon Group of Companies.
We strengthened the market-leading positions of our retail divisions,
harmonized the management of our businesses following the completion
of our enterprise information system, and opened seven new Leon’s
stores, extending the banner to British Columbia for the first time. In
addition we opened a new Brick store in Moncton, New Brunswick and
a new Appliance Canada store in the Greater Toronto Area.
Leon’s achieved record financial results
during another challenging year in the
Canadian retail industry. System-wide sales
reached $2.53 billion, including $388 million
of franchise sales, compared to
$2.41 billion, including $376 million of
franchise sales, in 2015. As a result of
strong merchandising and promotional
activity, same-store sales increased by
4.1 percent, despite slow growth in the
Canadian economy and continued weakness
in consumer spending. Earnings outpaced
sales growth, rising 9.1 percent to record
net income of $83.6 million or $1.17 per
share, as we took advantage of our enterprise
information system continued to gain
efficiencies and minimize expenses. We
also continued to strengthen the balance
sheet, retiring $50 million in long-term debt
associated with the acquisition of The Brick.
2016 IN REVIEW
One of the year’s most significant
developments was the quickening pace of
the integration that has taken place since
Leon’s acquired The Brick in 2013. We have
favoured a deliberately measured approach
to the union of these two Canadian retailing
icons, taking our time to get to know each
other, share best practices, and foster
input and buy-in for our strategic initiatives.
At the same time, we have been careful
to preserve the qualities that distinguish
Leon’s and The Brick in the marketplace
by ensuring both divisions continue to
operate independently with regard to
merchandising and marketing strategies.
This pace of integration began to pick
up momentum in 2016, as we were able
to leverage the benefits of the enterprise
information system completed at the end of
2015. With the full benefit of this system,
we have gained a unified perspective on our
business and a common language to use in
the way we measure and manage it. This has
helped us build a stronger corporate culture
in support of key objectives and allowed
us to work more effectively to improve our
financial and operating performance.
Yet greater potential synergies still lie ahead in
the integration of our distribution system. Our
vision is to create a unified national network
that will efficiently serve customers of both
divisions, including our online operations.
In August 2017, we are scheduled to open a
434,000 sq. ft. distribution centre in
Delta, British Columbia. This state-of-the-
art facility will represent our first trial of the
shared distribution concept, meeting the
needs of 35 Brick locations in the province
as well as our first four Leon’s stores in
British Columbia.
These new Leon’s locations in Abbottsford,
Langley, Richmond and Victoria were the
result of a transaction in which we acquired
eight leases from Sears Canada in February
2016. Also related to this transaction were
three new Leon’s locations, one Appliance
Canada location which opened in the Greater
Toronto Area, and one Brick store which
opened in Moncton, New Brunswick during
the year. All of these new stores are well
located in busy and growing communities.
Revenue
2016
2015
5.5%
GROWTH
Where it Matters Most
3
4
Ours is still a highly fragmented industry,
comprised of hundreds of regional and
independent operators, and it is expected to
consolidate significantly in the years ahead.
Leon’s Furniture Limited | 2016 Annual Report 5
Today, we are proud to have the most
expansive retail network in the industry. It
now includes 305 stores from Vancouver
Island to Newfoundland and Labrador.
We are also Canada’s #1 commercial
retailer of conventional and luxury
appliances through our Appliance
Canada and Midnorthern Appliance
stores. Despite this unprecedented scale,
Leon’s has abundant room to grow.
Although we are Canada’s largest retailer of
furniture, appliances and home electronics,
we hold less than a 20 percent share of our
market. Ours is still a highly fragmented
industry, comprised of hundreds of
regional and independent operators,
and it will continue to consolidate in the
years ahead. We also see opportunity to
expand Leon’s in Western Canada and
The Brick in Atlantic Canada where these
banners are relatively unrepresented.
Supporting this store network is our
increasingly important online presence
through leons.ca, thebrick.com, and
furniture.ca, which now features
more than 16,000 stylish home décor
products. These popular websites are
part of an omni-channel marketing
strategy that is making it easy for
customers to deal with us wherever,
whenever and however they choose.
Complementing our retail networks are
several related businesses that allow our
customers to get everything related to
their purchases from Leon’s, including
financing insurance, warranty protection
and after-sales service and repair.
TransGlobal Service "TGS", formerly the
service and repair division of The Brick,
is now the largest operation of its kind in
Canada, servicing and repairing appliances
for all major manufacturers across the
country. In 2016, TGS expanded into the
fast growing direct-to-consumer market.
All of our closely related businesses are
profitable and well positioned in their
respective industries with the potential
to make growing contributions to the
Company’s earnings in the years ahead.
Through subsidiary Murlee Holdings
Limited and Leon’s Holdings (1967)
Limited, we also possess 271 acres of land
and a 3.6 million square foot portfolio of
commercial real estate, much of it in prime
urban locations, with enormous unrealized
value and development potential.
Where it Matters Most 6
For the past 107
years, through many
economic cycles, we
have always tried
to deliver the best
combination of
selection, service and
value to our customers.
THE YEAR AHEAD
Our expectations for the Canadian
economy in 2017 are continued slow
growth given high levels of consumer
debt and continued relative weakness
in commodity prices. The U.S. economy
will likely be stronger, which could serve
a catalyst for the Canadian economy
later in the year. Whatever the macro-
economic climate, we will continue to
develop our business where it matters
most to our customers. For the past 107
years, through many economic cycles,
we have always tried to deliver the best
combination of selection, service and
value to our customers. In 2017, that
commitment will be reflected in all that
we do, from our distinctive marketing and
merchandising programs to the many
initiatives aimed at surfacing incremental
efficiencies in our retail businesses.
We will also continue to invest in the
complementary distribution channels and
services that have helped make Leon’s the
most complete retailer in our industry.
In closing, on behalf of our President of
the LFL Group Eddy Leon, and myself,
we would like to thank our many talented
and dedicated executives, including
Mr. Mike Walsh, whose presidential
leadership continues to improve our
Leon’s Division and Mr. Dave Freeman,
who was appointed President of The
Brick in November 2016. A 35-year
veteran of the Company, Dave is an
experienced retailer who served most
recently as Senior Vice President of
Operations. We would also like to extend
our appreciation to the corporate and
franchise store management teams
and all of the associates throughout our
businesses. Thanks to their dedication,
we are gaining momentum as a single,
culturally integrated organization with
the two most powerful brands in the
business. We still have further to go in
this journey but with your continued
support, we look forward to reporting
on our progress in the months ahead.
Sincerely,
"Terrence T. Leon"
Terrence T. Leon
Chief Executive Officer
Leon’s Furniture Limited | 2016 Annual Report
7
Where it Matters Most 8
Leon’s Furniture Limited | 2016 Annual Report
1
ACROSS
the COUNTRY
35
4
1
53
6
5
1
1
11
3
2
8
2
1
71
47
3
4
107 Years of 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.
9
2017
Scheduled to open in 2017,
our new state-of-the-art
distribution centre in
British Columbia will serve
the joint requirements of
all Leon’s and The Brick
locations in the province.
NATIONWIDE
305
STORES
202
The Brick
86
Leon’s Furniture
11
United Furniture Warehouse/
Brick Clearance Centres
2
4
United Furniture Warehouse
Appliance Canada
3
1
1
16
11
2
4
3
5
2011
2012
2013
2014
2016
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.ca in Canada.
Leon’s opens 9 new stores during the
year, including the first four Leon’s
stores in British Columbia. As a result,
customers can shop at Leon’s and The
Brick in every province of Canada.
Where it Matters Most 10
STRONG
Communities
Leon’s has always
believed in giving
something back to the
communities that are
home to our stores and
continue to make us
a prosperous and
growing company.
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 recipients of Leon’s support are
health care facilities. Leon’s believes there
are no better causes than the physical and
mental welfare of our customers, friends,
and families. In this regard, several of the
country’s outstanding hospitals receive
significant contributions annually. Along
with the hospitals, there are a number of
health associations, children’s charities,
societies and foundations that are
supported. Leon’s also assists the local
communities served by its store network
with financial contributions, as well as
the volunteer efforts of our associates
who contribute hundreds of hours of
service across this country each year.
The Brick division shares a similar focus
on improving the health and well-being
of the communities that are home to its
store network. In 2016, this could be
seen in the support of the Children’s
Miracle Network®, which raises funds and
awareness for 170 member hospitals, 12 of
which are in Canada. Donations stay local
to fund critical treatments and health care
services, paediatric medical equipment
and research. We are also proud to
sponsor Breakfast for LearningTM, which
works with schools across Canada to help
them start and operate programs that have
provided more than 638 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
www.leons.ca and www.thebrick.com.
™
Leon’s Furniture Limited | 2016 Annual Report 5-Year Review
Leon’s results include operations of The Brick Ltd. from March 28, 2013.
11
Income Statistics
($ in thousands, except amounts per share)
2016
2015
2014
2013
2012
Revenue
Cost of sales
Gross profit
Operating expenses
Income before income taxes
Provision for income taxes
Net income
Common shares outstanding (’000s)
Earnings per common share
Percent annual change in sales
Net income as a percentage of sales
$ $2,143,736
1,228,499
2,031,718
1,145,593
2,008,480
1,131,651
1,721,874
959,307
915,237
801,049
114,188
30,597
83,591
71,696
1.17
5.5%
3.9%
$
$
886,125
784,706
101,419
24,790
76,629
71,218
1.08
1.2%
3.8%
876,829
773,695
103,134
27,610
75,524
70,899
1.07
16.6%
3.8%
28,370
762,567
669,297
93,270
24,878
68,392
70,612
0.97
152.4%
4.0%
28,247
682,163
398,704
283,459
219,776
63,683
16,901
46,782
70,033
0.67
(0.1%)
6.9%
28,047
Dividend declared
$
28,691
28,501
Balance Sheet Statistics
($ in thousands, except amounts per share)
2016
2015
2014
2013
2012
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
$
659,553
1,611,662
25,689
120,563
9.20
600,402 $
549,105 $
497,764 $
1,583,463
22,756
65,419
8.43
1,563,476
16,562
46,931
7.74
1,565,356
18,984
16,246
7.05
452,187
588,178
17,897
226,208
6.46
$
$
18.75
13.08
19.38 $
12.61 $
17.90 $
13.41 $
14.75 $
11.62 $
13.47
10.55
Revenue
$2,143,736
($ in thousands)
Net Income
$83,591
($ in thousands)
2,250, 000
2,000, 000
1,750, 000
1,500, 000
1,250, 000
1,000, 000
750,000
500,000
250,000
0
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
Shareholders’ Equity (per share)
$9.20
($ per share)
10
9
8
7
6
5
4
3
2
1
0
12
13
14
15 16
12
13
14
15 16
12
13
14
15 16
Where it Matters Most
In more than 300 stores
from coast to coast, and
through a rapidly growing
online presence, Leon’s
Furniture Limited offers an
unbeatable combination of
service, selection and value
to Canadian customers, no
matter how, when or where
they wish to find us.
MANAGEMENT’S
DISCUSSION & ANALYSIS
13
For the quarters and years ended December 31, 2016 and 2015.
The following Management’s Discussion and Analysis (“MD&A”)
is prepared as at February 23, 2017 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, 2016 and for the year ended December 31, 2016.
It should be read in conjunction with the fiscal year 2016
consolidated financial statements and the notes thereto. For
additional detail and information relating to the Company, readers
are referred to the fiscal 2016 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 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, uncertainties
and the integration risk associated with the acquisition of The Brick
Ltd. (“The Brick”), 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 2016
consolidated financial statements and MD&A were approved on
February 23, 2017.
14
1. BUSINESS OVERVIEW
Leon’s Furniture Limited is 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 combination 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. The Company
operates three websites: leons.ca, thebrick.com and our
newest website furniture.ca.
The Company’s repair service division, Trans Global Services
(“TGS”), provides household furniture, electronics and appliance
repair services to its customers. TGS has contracts to support
several manufacturers’ warranty service work in addition to
servicing a number of individual programs offered by other
dealers. This division also performs work for products sold with
extended warranties and is an integral part of the retail offering.
These extended warranties, underwritten by the Company’s
wholly owned subsidiaries, are offered on appliances, electronics
and furniture to provide coverage that extends beyond
the manufacturer’s warranty period by up to five years.
The warranty contracts provide both repair and replacement
service depending upon the nature of the warranty claim.
The Company’s wholly-owned subsidiaries Trans Global
Insurance Company (“TGI”) and its sister company, Trans
Global Life Insurance Company (“TGLI”) also offer credit
insurance on the customer’s outstanding financing balances.
This credit insurance coverage includes life, dismemberment,
disability, critical illness, and involuntary unemployment. These
credit insurance policies are underwritten by TGI and TGLI
as they are licensed as insurance companies in all Canadian
provinces and territories.
The Company has foreign operations in Asia, through its wholly
owned subsidiary First Oceans Trading Corporation. These
operations relate to the Company’s import and quality control
program for sourcing products from Asia for resale in Canada
through its retail operations.
Leon’s has 305 retail stores from coast to coast in Canada
under the various banners indicated below.
Banner
2015
Opening
Closing
2016
Number of Stores
as at December 31,
Number of Stores
as at December 31,
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
1 Includes the Midnorthern Appliance banner
2 Includes one UFW Franchise
2. NON-IFRS FINANCIAL MEASURES
44
36
3
113
67
22
2
14
301
7
–
1
2
–
4
–
–
(1)
–
–
(1)
(3)
(2)
–
(3)
14
(10)
50
36
4
114
64
24
2
11
305
The Company uses financial measures that do not have standardized meaning under IFRS and may not be comparable to similar
measures presented by other entities. The Company calculates the non-IFRS measures by adjusting certain IFRS measures for specific
items the Company believes are significant, but not reflective of underlying operations in the period, as detailed below:
Non-IFRS Measure
Adjusted net income
Adjusted income before income taxes
Adjusted earnings per share – basic
Adjusted earnings per share – diluted
Adjusted EBITDA
IFRS Measure
Net income
Income before income taxes
Earnings per share – basic
Earnings per share – diluted
Net income
Adjusted Net Income
• severance charges in the period, a non-recurring expense
Leon’s calculates comparable measures by excluding the effect of:
included in the Company’s SG&A; and
• the mark-to-market adjustments included in the Company’s
selling, general and administration (“SG&A”) income statement
line item, related to the net effect of USD-denominated forward
contracts and an interest rate swap on the Company’s term credit
facility. In accordance with the Company’s corporate treasury
policy, the Company uses forward currency contracts to manage
the risk associated with its USD-denominated purchases and an
interest rate swap to manage interest rate risk on its term credit
facility which began in 2014;
• non-recurring prior period tax adjustments from 2015 relating
to the acquisition of The Brick.
Management believes excluding from income the effect of these
mark-to-market valuations and changes thereto, until settlement,
better aligns the intent and financial effect of these contracts
with the underlying cash flows. Similarly, excluding from income
the effect of non-recurring expenses better reflects Leon’s
normalized SG&A as a percentage of revenue in the period.
Leon’s Furniture Limited | 2016 Annual Report
15
The following is a reconciliation of reported net income to adjusted net income, basic and diluted earnings per share to adjusted basic
and diluted earnings per share:
($ in thousands)
Net income
For the three months
ended December 31
For the years ended
December 31
2016
2015
2016
2015
$
37,233
$
30,187 $
83,591
$
76,629
After-tax mark-to-market loss (gain) on financial derivative instruments
After-tax severance charge
Prior period tax adjustment
(2,488)
–
–
3,025
–
(2,623)
1,943
1,228
–
(268)
–
(2,623)
Adjusted net income
Basic earnings per share
Diluted earnings per share
Adjusted basic earnings per share
Adjusted diluted earnings per share
Adjusted EBITDA
$
$
$
$
$
34,745 $
30,589 $
86,762 $
73,738
0.52
0.46
0.48
0.43
$
$
$
$
0.42 $
0.38 $
0.43 $
0.39 $
1.17
1.05
1.21
1.08
$
$
$
$
1.08
0.97
1.04
0.93
Adjusted earnings before interest, income taxes, depreciation and
amortization, mark-to-market adjustment due to the changes in
the fair value of the Company’s financial derivative instruments and
any non-recurring charges to income (“Adjusted EBITDA”) is a
non-IFRS financial measure used by the Company. The Company
considers Adjusted EBITDA to be an effective measure of
profitability on an operational basis and is commonly regarded as
an indirect measure of operating cash flow, a significant indicator
of success for many businesses. Adjusted EBITDA is a non-
IFRS financial measure used by the Company. The Company’s
Adjusted EBITDA may not be comparable to the Adjusted
EBITDA measure of other companies, but in management’s
view appropriately reflects Leon’s specific financial condition.
This measure is not intended to replace net income, which,
as determined in accordance with IFRS, is an indicator of
operating performance.
The following is a reconciliation of reported net income to adjusted EBITDA:
($ in thousands)
Net income
Income tax expense
Net finance costs
Depreciation and amortization
Severance charge
Mark-to-market loss (gain) on financial derivative instruments
Prior period tax adjustment
Adjusted EBITDA
Same Store Sales
Same store sales are defined as sales generated by stores that
have been open or closed for more than 12 months on a fiscal year
basis. Same store sales is not an earnings measure recognized by
IFRS, and 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. Same store sales as
discussed in this MD&A may not be comparable to similar
measures presented by other issuers, however this measure is
commonly used in the retail industry. We believe that disclosing
this measure is meaningful to investors because it enables them
to better understand the level of growth of our business.
Total System Wide Sales
Total system wide sales refer to the aggregation of revenue
recognized in the Company’s consolidated financial statements
plus the franchise sales occurring at franchise stores to their
customers which are not included in the revenue figure presented
in the Company’s consolidated financial statements. Total system
wide sales is not a measure recognized by IFRS, and 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. Therefore, total system wide sales as
For the three months
ended December 31
For the years ended
December 31
2016
2015
2016
2015
$
37,233 $
30,187 $
83,591 $
76,629
13,600
3,526
10,654
–
(3,407)
–
7,273
4,243
11,053
–
4,137
(2,623)
30,597
14,481
41,235
1,700
2,662
–
24,790
17,627
41,738
–
(368)
(2,623)
$
61,606 $
54,270 $
174,266 $
157,793
discussed in this MD&A may not be comparable to similar
measures presented by other issuers. We believe that disclosing
this measure is meaningful to investors because it serves as an
indicator of the strength of the Company’s overall store network,
which ultimately impacts financial performance.
Franchise Sales
Franchise sales figures refer to sales occurring at franchise
stores to their customers which are not included in the revenue
figures presented in the Company’s consolidated financial
statements, or in the same store sales figures in this MD&A.
Franchise sales is not a measure recognized by IFRS, and 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. Therefore, franchise sales as
discussed in this MD&A may not be comparable to similar
measures presented by other issuers. Once again we believe
that disclosing this measure is meaningful to investors because
it serves as an indicator of the strength of the Company’s
brands, which ultimately impacts financial performance.
Management’s Discussion & Analysis
16
3. RESULTS OF OPERATION
Consolidated operating results for the quarters ended December 31, 2016 and December 31, 2015
($ in thousands except % and per share amounts)
2016
2015
Total system wide sales(1)
Franchise sales(1)
Revenue
Cost of sales
Gross profit
Gross profit margin as a percentage of revenue
Selling, general and administration expenses
(excluding mark-to-market impact and severance charge)(1)
SG&A as a percentage of revenue
Income before net finance costs and income tax expense
Net finance costs
Income before income taxes
(excluding mark-to-market impact and severance charge)(1)
Income tax expense
Adjusted net income(1)
Adjusted net income(1) as a percentage of revenue
After-tax mark-to-market loss (gain) on financial derivative instruments(1)
After-tax severance charge(1)
Prior period tax adjustment(1)
$
704,742 $
116,361
670,357
110,128
$
588,381
329,876
258,505
43.93%
207,554
35.28%
50,951
(3,526)
47,425
12,680
34,745
5.91%
(2,488)
–
–
560,229
310,255
249,974
44.62%
204,134
36.44%
45,840
(4,243)
41,597
11,008
30,589
5.46%
3,025
–
(2,623)
For the three months
ended December 31
$ Increase
(Decrease)
% Increase
(Decrease)
34,385
6,233
28,152
19,621
8,531
5.1%
5.7%
5.0%
6.3%
3.4%
3,420
1.7%
5,111
717
5,828
1,672
4,156
11.1%
(16.9%)
14.0%
15.2%
13.6%
(5,513)
(182.2%)
–
Net income
$
37,233 $
30,187 $
7,046
23.3%
Basic weighted average number of common shares
Basic earnings per share
Adjusted basic earnings per share(1)
Diluted weighted average number of common shares
Diluted earnings per share
Adjusted diluted earnings per share(1)
Common share dividends declared
Convertible, non-voting shares dividends declared
(1) Non-IFRS financial measures. Refer to section 2 in this MD&A for additional information.
Same Store Sales (1)
($ in thousands except %)
Same store sales(1)
(1) Non-IFRS financial measures. Refer to section 2 in this MD&A for additional information.
Fourth Quarter Overall Performance
R E V E N U E
For the three months ended December 31, 2016, revenue was
$588,381,000 compared to $560,229,000 in the prior year’s
fourth quarter. Revenue increased $28,152,000 or 5.0% between
the comparative quarters as we continued to see growth in most
product categories.
S A M E S T O R E S A L E S
Overall, same store corporate sales increased 1.1%.
G R O S S P R O F I T
The gross margin for the fourth quarter 2016 decreased
slightly from 44.62% to 43.93% compared to the prior year’s
fourth quarter.
0.52 $
0.48 $
71,820,999
$
$
82,989,568
0.46
$
0.43
$
71,215,941
0.42 $
0.43 $
82,363,520
$
$
0.38 $
0.39 $
$
$
0.10
0.20
$
$
0.10
0.20
23.8%
11.6%
21.1%
10.3%
0.10
0.05
0.08
0.04
–
–
For the three months
ended December 31
2016
2015
$ Increase
% Increase
$
560,541 $
554,241 $
6,300
1.1%
S E L L I N G , G E N E R A L A N D A D M I N I S T R AT I O N E X P E N S E S
Selling, general and administration expenses of $207,554,000
increased $3,420,000 for the fourth quarter 2016 compared to
the fourth quarter of 2015. Compared to the prior year quarter,
the change is due to an increase in advertising expenditures in
order to further promote our brands and increase sales and the
increase of store pre-opening costs from opening nine new
stores and a distribution centre.
I N C O M E TA X E X P E N S E
Due to a prior period tax adjustment in the fourth quarter of
2015, the income tax expense increased by $1,672,000.
N E T I N C O M E A N D E A R N I N G S P E R S H A R E
As a result of the above, net income for the fourth quarter of
2016 was $37,233,000, $0.46 per fully diluted common share
($30,187,000, $0.38 per fully diluted common share in 2015)
an increase of $0.08 per common share or 21.1%.
Leon’s Furniture Limited | 2016 Annual Report
Consolidated operating results for the years ended December 31, 2016, 2015 and 2014
17
For the years
ended December 31
($ in thousands except %
and per share amounts)
Total system wide sales (1)
Franchise sales (1)
Revenue
Cost of sales
Gross profit
Gross profit margin as a percentage
of revenue
Selling, general and
administration expenses
(excluding mark-to-market impact
and severance charge)(1)
SG&A as a percentage of revenue
Income before net finance costs
and income tax expense
Net finance costs
Income before income taxes
(excluding mark-to-market impact
and severance charge)(1)
Income tax expense
Adjusted net income(1)
Adjusted net income(1) as a
percentage of revenue
After-tax mark-to-market loss (gain)
on financial derivative instruments(1)
After-tax severance charge(1)
Prior period tax adjustment(1)
Basic weighted average
number of common shares
Basic earnings per share
Adjusted basic earnings per share(1)
Diluted weighted average number
of common shares
Diluted earnings per share
Adjusted diluted earnings per share(1)
2016
2015
$ Increase
(Decrease)
% Increase
(Decrease)
2015
2014
$ Increase
(Decrease)
% Increase
(Decrease)
$ 2,531,573
387,837
$ 2,407,512
375,794
2,143,736
1,228,499
2,031,718
1,141,706
$ 124,061
12,043
112,018
86,793
915,237
890,012
25,225
5.2%
3.2%
5.5%
7.6%
2.8%
$ 2,407,512
375,794
$ 2,383,324
374,844
$
2,031,718
1,141,706
2,008,480
1,131,651
890,012
876,829
24,188
950
23,238
10,055
13,183
1.0%
0.3%
1.2%
0.9%
1.5%
42.69%
43.81%
43.81%
43.66%
782,206
36.49%
133,031
(14,481)
118,550
31,788
86,762
4.05%
1,943
1,228
–
771,334
10,872
1.4%
37.96%
118,678
(17,627)
14,353
3,146
12.1%
(17.8%)
101,051
27,313
17,499
4,475
73,738
13,024
17.3%
16.4%
17.7%
771,334
37.96%
118,678
(17,627)
101,051
27,313
73,738
756,936
37.69%
119,893
(16,759)
103,134
27,610
75,524
3.63%
3.76%
14,398
1.9%
(1,215)
(868)
(1.0%)
5.2%
(2,083)
(297)
(1,786)
(2.0%)
(1.1%)
(2.4%)
3.63%
(268)
–
(2,623)
(825.0%)
2,211
1,228
2,623
(268)
–
(2,623)
–
–
–
(268)
–
(2,623)
Net income
$
83,591
$
76,629
$
6,962
9.1%
$
76,629
$
75,524
$
1,105
1.5%
71,695,955
1.17
$
1.21
$
71,217,958
1.08
$
1.04
$
83,081,832
1.05
$
1.08
$
82,364,539
0.97
0.93
0.40
0.20
$
$
$
$
$
$
$
$
0.09
0.17
0.08
0.15
–
–
8.3%
16.3%
8.2%
16.1%
71,217,958
1.08
$
1.04
$
70,898,590
1.07
$
1.07
$
82,364,539
0.97
$
0.93
$
82,177,519
0.96
$
0.96
$
$
$
0.40
0.20
$
$
0.40
0.20
$
$
$
$
0.01
(0.03)
0.01
(0.03)
–
–
0.9%
-2.8%
1.0%
-3.1%
Common share dividends declared
Convertible, non-voting shares
dividends declared
$
$
0.40
0.20
(1) Non-IFRS financial measures. Refer to section 2 in this MD&A for additional information.
Same Store Sales (1)
($ in thousands except %)
Same store sales(1)
2016
2015
$ Increase
% Increase
$ 2,086,388 $
2,004,986
$
81,402
4.1%
For the years
ended December 31
(1) Non-IFRS financial measures. Refer to section 2 in this MD&A for additional information.
Year to Date Overall Performance
R E V E N U E
For the year ended December 31, 2016, revenue was
$2,143,736,000 compared to $2,031,718,000 for the prior
year. Revenue increased $112,018,000 or 5.5% for the
comparative year.
S A M E S T O R E S A L E S
Overall, same store corporate sales increased 4.1%.
G R O S S P R O F I T
The gross margin for the year ended December 31, 2016
decreased slightly from 43.81% to 42.69% compared to the
prior year.
S E L L I N G , G E N E R A L A N D A D M I N I S T R AT I O N E X P E N S E S
For the year, selling, general and administration expenses of
$782,206,000 were up $10,872,000 or 1.4% as compared to
2015. The increase was mainly the result of incremental selling
costs as SG&A expenses as a percentage of revenue in 2016
were 36.49% as compared to 37.96% in the prior year.
Additional marketing dollars were also spent in an attempt to
generate higher consumer traffic into our stores and this dollar
increase was offset by operating efficiencies especially relating
to delivery expenses.
N E T I N C O M E A N D E A R N I N G S P E R S H A R E
As a result of the above, net income for the year was
$83,591,000, $1.05 per fully diluted common share
($76,629,000, $0.97 per fully diluted common share in 2015),
an increase of $0.08 per common share or 8.2%.
Management’s Discussion & Analysis
18
4. SUMMARY OF CONSOLIDATED QUARTERLY RESULTS
The table below highlights the variability of quarterly results and the impact of seasonality on the Company’s results. The Company’s
profitability is typically lower in the first half of the year, since retail sales are traditionally higher in the third and fourth quarters.
($ in thousands,
except per share data)
Quarter Ended
December 31
Quarter Ended
September 30
Quarter Ended
June 30
Quarter Ended
March 31
2016
2015
2016
2015
2016
2015
2016
2015
Total system wide sales(1)
Franchise sales(1)
Revenue
Net income
Adjusted net income(1)
Basic earnings(loss) per share
Fully diluted earnings(loss)
per share
Adjusted basic earnings
per share(1)
Adjusted fully diluted
per share(1)
$
$
$
$
704,742
116,361
588,381
37,233
34,745
0.52
0.46
0.48
0.43
$
$
$
$
670,357
110,128
560,229
30,187
30,589
0.42
0.38
0.43
0.39
673,897
98,173
575,724
34,111
31,300
0.48
0.42
0.44
0.39
$
$
$
$
$
$
$
$
646,078
97,217
548,861
27,340
24,739
0.38
0.34
0.35
0.31
606,453
90,269
516,184
16,959
15,547
0.24
0.21
0.22
0.20
$
$
$
$
580,771
87,832
492,939
14,996
15,675
0.21
0.19
0.22
0.20
546,483
83,036
463,447
(4,712)
5,170
(0.07)
(0.07)
0.07
0.07
510,305
80,616
429,689
4,106
2,735
0.06
0.06
0.04
0.04
$
$
$
$
$
$
$
$
$
$
$
$
(1) Non-IFRS financial measure. Refer to section 2 in this MD&A for additional information.
5. FINANCIAL POSITION
($ in thousands)
Total assets
Total non-current liabilities
A S S E T S
Total assets at December 31, 2016 of $1,611,662,000 were
$28,199,000 higher than the $1,583,463,000 reported at
December 31, 2015. The principal components of this net
change are the following:
• $36,126,000 increase in cash and cash equivalents
• $10,310,000 increase in trade receivables
• $22,878,000 decrease in income taxes receivable
• $4,840,000 increase in inventory
• $7,718,000 decrease in property, plant and equipment
• $6,750,000 decrease in intangible assets
• $14,028,000 increase in restricted marketable securities
and available-for-sale financial assets
6. LIQUIDITY AND CAPITAL RESOURCES
December 31,
December 31,
December 31,
2016
2015
2014
$ 1,611,662
525,605
$
1,583,463
543,455
$
1,563,476
590,055
The increase is primarily the result of the increase in cash,
cash equivalents, restricted marketable securities and
available-for-sale financial assets offset by the net change in
cash and non-cash working capital primarily income taxes
receivable. As well, there was the decrease in property, plant
and equipment and intangibles as a result of the depreciation
and amortization being greater than the purchases of fixed
assets and intangibles.
N O N - C U R R E N T L I A B I L I T I E S
Non-current liabilities of $525,605,000 were $17,850,000
lower than the $543,455,000 reported at December 31, 2015.
The reduction is primarily tied to the Company further reducing
its loans and borrowings by an equivalent amount.
The following table provides a summarized statement of cash flows for the quarters and years ended December 31, 2016 and
December 31, 2015.
For the three months
ended December 31
For the years
ended December 31
Source (Use) of Cash ($ in thousands)
2016
2015
$ Increase
(Decrease)
2016
2015
$ Increase
(Decrease)
Cash provided by operating activities before changes in
non-cash working capital items
Changes in non-cash working capital items
Cash provided by operating activities
Investing activities
Financing activities
$
$
53,646
8,792
62,438
(12,882)
(26,514)
$
47,275
(20,600)
26,675
(9,508)
(36,492)
6,371
29,392
35,763
(3,374)
9,978
$
133,410
31,238
164,648
(38,307)
(90,215)
$
132,909
(74,426)
58,483
(24,509)
(72,015)
$
501
105,664
106,165
(13,798)
(18,200)
Increase (decrease) in cash and cash equivalents
$
23,042
$
(19,325)
$
42,367
$
36,126
$
(38,041)
$
74,167
Leon’s Furniture Limited | 2016 Annual Report
19
C A S H F L O W F R O M O P E R AT I N G A C T I V I T I E S
Cash from operating activities consist primarily of net income
adjusted for certain non-cash items, including depreciation and
amortization and the effect of changes in non-cash working capital
items, primarily receivables, inventories, deferred acquisition
costs, accounts payable, income taxes payable, customer deposits
and deferred rent liabilities and lease inducements.
In the fourth quarter of 2016, cash flow from operating activities
increased $35,763,000 compared to the prior year’s quarter. The
increase is the result of the change in non-cash working capital,
primarily as a result of the changes in inventory. Traditionally,
there is an increase of inventory during the fourth quarter to fulfil
sales orders; however, given the openings of a distribution centre
and nine new stores, inventory levels increased in the third
quarter of 2016 as opposed to the fourth quarter of 2016.
In fiscal 2016, cash provided by operating activities increased
$106,165,000 from fiscal 2015. The increase is the result of the
change in non-cash working capital, primarily as a result of the
changes and income taxes receivable.
C A S H U S E D I N I N V E S T I N G A C T I V I T I E S
Investing activities relate primarily to capital expenditures and
the purchase and sale of available-for-sale financial assets.
In the fourth quarter of 2016, cash used in investing activities
increased $3,374,000 compared to the prior year’s quarter. The
change is primarily the result of increased purchases of available-
for-sale financial assets net of proceeds on sale of available-for-
sale financial assets.
In fiscal 2016, cash used in investing activities increased by
$13,798,000 from fiscal 2015. The change is primarily the result
of increased purchases of available-for-sale financial assets net of
proceeds on sale of available-for-sale financial assets.
C A S H U S E D I N F I N A N C I N G A C T I V I T I E S
Financing activities consist primarily of cash used to pay dividends
and the loans and borrowings used to acquire The Brick.
In the fourth quarter of 2016, financing activities changed by
$9,978,000 compared to the prior year’s quarter. The change
relates to the reduction of the Company’s loans and borrowings.
In fiscal 2016, cash used in financing activities of $90,215,000
increased $18,200,000 from fiscal 2015. The change relates to the
increased repayment of the $20,000,000 of the term loan in 2016.
A D E Q U A C Y O F F I N A N C I A L R E S O U R C E S
At December 31, 2016, the Company’s current assets exceeded its
current liabilities by $120,563,000 and its cash and cash
equivalents, restricted marketable securities and available-for-sale
financial assets were $99,664,000 compared to $49,510,000 at
December 31, 2015. Under the Company’s Senior Secured Credit
Agreement, we had unused borrowing capacity of $49.5 million as
at the end of December 31, 2016 and $99.5 million as at the end
of December 31, 2015. The Company believes that its financing
resources together with its continuing profitable results from
operations will provide a sound liquidity and working capital
position throughout the next twelve months.
C O N T R A C T U A L C O M M I T M E N T S
($ in thousands)
Contractual Obligations
Long term debt
Operating leases(1)
Trade and other payables
Finance lease liabilities
$
Total
375,489
477,386
214,838
14,333
Payments Due by Period
Under
1 year
1–3 years
3–5 years
$
34,437 $
90,850
214,838
2,086
231,345 $
149,342
6,000 $
108,191
–
–
3,739
3,853
More than
5 years
103,707
129,003
–
4,655
Total Contractual Obligations
$
1,082,046
$
342,211 $
384,426 $
118,044 $
237,365
(1) The Company is obligated under operating leases to future minimum rental payments for various land and building sites across Canada.
7. OUTLOOK
9. RELATED PARTY TRANSACTIONS
With the expansion of nine new retail locations, and our expanded
web presence ecommerce, we expect to see continued growth
in sales for 2017. Along with the growth in sales, we intend to
maintain gross margins and continue to drive efficiencies.
At December 31, 2016, we had no transactions with related parties
as defined in IAS 24, Related Party Disclosures, except those
pertaining to transactions with key management personnel in the
ordinary course of their employment.
8. OUTSTANDING COMMON SHARES
10. CRITICAL ASSUMPTIONS
At December 31, 2016, there were 71,855,866 common shares
issued and outstanding. During the year ended December 31,
2016, 138,928 convertible, non-voting series 2009 shares and
312,989 convertible, non-voting series 2013 shares were converted
into common shares. For details on the Company’s commitments
related to its redeemable shares, please refer to Note 15 of the
2016 consolidated financial statements.
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
Management’s Discussion & Analysis
20
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.
E X T E N D E D W A R R A N T Y R E V E N U E R E C O G N I T I O N
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.
I N V E N T O R I E S
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.
I M PA I R M E N T O F AVA I L A B L E - F O R - S A L E F I N A N C I A L A S S E T S
A N D M A R K E TA B L E S E C U R I T I E S
The Company exercises judgment in the determination of whether
there are objective indicators of impairment with respect to its
available-for-sale financial assets and marketable securities.
This includes making judgments as to whether a potential
impairment is either significant or prolonged with respect to
equity securities held.
I M PA I R M E N T O F P R O P E R T Y, P L A N T A N D E Q U I P M E N T
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.
I M PA I R M E N T O F G O O D W I L L A N D I N TA N G I B L E A S S E T S
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.
P R O V I S I O N S
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.
Materiality
In preparing this MD&A and the information contained herein,
management considers the likelihood that a reasonable investor
would be influenced to buy or not buy, or to sell or hold
securities of the Company if such information were omitted or
misstated. This concept of materiality is consistent with the
notion of materiality applied to financial statements and
contained in IFRS.
Recent Accounting Pronouncements
A C C O U N T I N G S TA N D A R D S A N D A M E N D M E N T S I S S U E D
B U T N O T Y E T A D O P T E D
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.
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 (“IAS 17”); 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, 2018. Earlier adoption is
permitted. The Company has started the process of reviewing
contracts with customers and other areas of the standard
primarily the sale of non-financial assets such as property,
plant and equipment.
In January 2016, the IASB issued IFRS 16, Leases, which will
replace IAS 17. The new standard will be effective for fiscal
years beginning on or after January 1, 2019. Earlier application
is permitted. Under the new standard, all leases will be on the
balance sheet of lessees, except those that meet limited
exception criteria. As the Company has significant contractual
Leon’s Furniture Limited | 2016 Annual Report 21
obligations in the form of operating leases (note 25) under the
existing standard, there will be a material increase to both
assets and liabilities upon adoption of the new standard.
The Company is analyzing the new standard to determine its
impact on the Company’s consolidated financial statements.
A D O P T I O N O F N E W, R E V I S E D O R A M E N D E D
A C C O U N T I N G S TA N D A R D S
The Company has adopted the amended IFRS pronouncements
listed below as at January 1, 2016, in accordance with the
transitional provisions outlined in the respective standard.
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. As at January 1, 2016, the Company adopted the
amendments, and there was no impact on the 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. As at January 1, 2016, the Company adopted the
amendments, and there was no impact on the consolidated
financial statements.
IAS 1, Presentation of Financial Statements, was amended in
December 2014 to clarify guidance on materiality and aggregation,
the presentation of subtotals, the structure of financial statements
and the disclosure of accounting policies. The Amendment is
effective for years beginning on or after January 1, 2016. The
Company is analyzing the new standard to determine its impact,
if any, on the Company’s consolidated financial statements.
As at January 1, 2016, the Company adopted the amendments,
and there was no material impact on the consolidated
financial statements.
11. RISKS AND UNCERTAINTIES
Careful consideration should be given to the following risk factors.
These descriptions of risks are not the only ones facing the
Company. Additional risks and uncertainties not presently known
to Leon’s, or that the Company deems immaterial, may also impair
the operations of the Company. If any of such risks actually occur,
the business, financial condition, liquidity, and results of the
Company could be materially adversely affected.
Readers of this MD&A are also encouraged to refer to Leon’s
Annual Information Form (“AIF”) dated March 27, 2017 which
provides information on the risk factors facing the Company. The
March 27, 2017 AIF can be found online at www.sedar.com.
Sensitivity to General Economic Conditions
The household furniture, mattress, appliance and home
electronics retailing industry in Canada has historically been
subject to cyclical variations in the general economy and
to uncertainty regarding future economic prospects. The
Company’s sales are impacted by the health of the economy
in Canada as a whole, and in the regional markets in which
the Company operates.
The Company’s sales and financial results are subject to
numerous uncertainties, due to the last global economic crisis
in 2008. Although the economy responded positively with a
modest recovery in 2010 through to 2014, at present, the
outlook for the retailing industry continues to remain uncertain,
and weakness in sales or consumer confidence could continue
resulting in an increasingly challenging operating environment.
Maintaining Profitability & Managing Growth
There can be no assurance that the Company’s business and
growth strategy will enable it to sustain profitability in future
periods. The Company’s future operating results will depend
on a number of factors, including (i) the Company’s ability to
continue to successfully execute its strategic initiatives, (ii) the
level of competition in the household furniture, mattress,
appliance and home electronics retailing industry in the
markets in which the Company operates, (iii) the Company’s
ability to remain a low-cost retailer, (iv) the Company’s ability to
realize increased sales and greater levels of profitability through
its retail stores, (v) the effectiveness of the Company’s
marketing programs, (vi) the Company’s ability to successfully
identify and respond to changes in fashion trends and
consumer tastes in the household furniture, mattress, appliance
and home electronics retailing industry, (vii) the Company’s
ability to maintain cost effective delivery of its products, (viii)
the Company’s ability to hire, train, manage and retain qualified
retail store management and sales professionals, (ix) the
Company’s ability to continuously improve its service to achieve
new and enhanced customer benefits and better quality,
and (x) general economic conditions and consumer confidence.
Financial Condition of Commercial Sales
Customers & Franchisees
Through its commercial sales division, the Company sells
products and extends credit to high rise and condominium
builders who purchase large quantities of products. The
Company also sells products and extends credit to its
franchisees. Negative changes in the financial condition of a
significant commercial sales customer or a franchisee could
impact on the Company’s receivables and ultimately result in
the Company having to take a bad-debt write-off in excess of
allowance for bad debts. The occurrence of such an event
could have a material adverse effect on the Company’s
business, financial condition, liquidity and results of operations.
Competition
The household furniture, mattress, appliance and home
electronics retailing industry is highly competitive and highly
fragmented. The Company faces competition in all regions in
which its operations are located by existing stores that sell
similar products and also by stores that may be opened in the
future by existing or new competitors in such markets. The
Company competes directly with many different types of retail
stores that sell many of the products sold by the Company.
Such competitors include (i) department stores, (ii) specialty
stores (such as specialty electronics, appliance, or mattress
Management’s Discussion & Analysis 22
retailers), (iii) other national or regional chains offering household
furniture, mattresses, appliances and home electronics, and (iv)
other independent retailers, particularly those associated with
larger buying groups. The highly competitive nature of the industry
means the Company is constantly subject to the risk of losing
market share to its competitors. As a result, the Company may
not be able to maintain or to raise the prices of its products in
response to competitive pressures. In addition, the entrance of
additional competitors to the markets in which the Company
operates, particularly large furniture, appliance or electronics
retailers from the United States could increase the competitive
pressure on the Company and have a material adverse effect on
the Company’s market share. The actions and strategies of the
Company’s current and potential competitors could have a material
adverse effect on the Company’s business, financial condition,
liquidity and results of operations.
12. CONTROLS AND PROCEDURES
Disclosure Controls & Procedures
Management is responsible for establishing and maintaining
a system of disclosure controls and procedures to provide
reasonable assurance that all material information relating to the
Company is gathered and reported on a timely basis to senior
management, including the Chief Executive Officer and Chief
Financial Officer so that appropriate decisions can be made by
them regarding public disclosure. Based on the evaluation of
disclosure controls and procedures, the CEO and CFO have
concluded that the Company’s disclosure controls and procedures
were effective as at December 31, 2016.
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. As required
by National Instrument 52-109 (“NI 52-109”), management,
including the CEO and CFO, evaluated the design and operation
of the Company’s internal control over financial reporting as
defined in NI 52-109 as at December 31, 2016. In making this
assessment, the Company used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway
Commission in Internal Control-Integrated Framework (2013).
Based on this assessment, the CEO and the CFO concluded
that the Company maintained effective internal control over
financial reporting as of December 31, 2016.
Changes in Internal Controls 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, 2016 and
ended on December 31, 2016 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.
Leon’s Furniture Limited | 2016 Annual Report 23
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. 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
CEO
Dominic Scarangella
Executive Vice President and CFO
24
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, 2016 and 2015, 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 prepar-
ation and fair presentation of the consolidated financial state-
ments 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 account-
ing policies used and the reasonableness of accounting esti-
mates 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, 2016
and 2015, and its financial performance and its cash flows for
the years then ended in accordance with International Financial
Reporting Standards as issued by the International Accounting
Standards Board.
“Ernest & Young LLP”
Chartered Professional Accountants
Licensed Public Accountants
Toronto, Canada
February 23, 2017
Leon’s Furniture Limited | 2016 Annual Report CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Consolidated Financial Statements
25
As at
December 31
As at
December 31
2016
2015
$
$
43,985
16,600
39,079
128,142
2,042
308,801
7,643
775
7,859
18,691
22,960
117,832
24,920
303,961
8,329
473
$
547,067 $
505,025
8,225
13,128
315,500
17,984
311,464
390,120
8,174
6,214
13,093
323,218
18,496
318,214
390,120
9,083
$ 1,611,662 $ 1,583,463
$
214,838 $
5,468
12,641
117,990
1,421
7,183
39,839
25,000
2,124
206,076
5,343
7,266
112,446
1,954
7,141
49,380
50,000
–
$
426,504 $
439,606
214,436
93,520
10,474
105,289
503
11,380
90,003
237,357
92,628
11,895
95,775
880
8,858
96,062
$
952,109 $
983,061
$
39,184 $
7,089
613,426
(146)
34,389
7,089
558,526
398
$
659,553 $
600,402
$ 1,611,662 $ 1,583,463
($ 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]
Income taxes receivable
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
Loans and borrowings [NOTE 14]
Other liabilities
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 (loss) 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”
Mark J. Leon
Director
“Peter Eby”
Peter Eby
Director
26
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands)
Revenue [NOTE 17]
Cost of sales [NOTE 6]
Gross profit
Selling, general and administration expenses [NOTE 18]
Net finance costs [NOTE 19]
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
Year ended
December 31
2016
2015
$ 2,143,736 $
1,228,499
2,031,718
1,141,706
$
915,237 $
890,012
786,568
770,966
128,669
(14,481)
114,188
30,597
119,046
(17,627)
101,419
24,790
$
83,591 $
76,629
71,695,955
83,081,832
71,217,958
82,364,539
$
$
$
$
1.17
1.05
0.40
0.20
$
$
$
$
1.08
0.97
0.40
0.20
Leon’s Furniture Limited | 2016 Annual Report
Consolidated Financial Statements
27
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
($ in thousands)
Net income for the year
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 losses included in profit for the year
Change in unrealized losses on available-for-sale financial
assets arising during the year
Comprehensive income for the year
($ in thousands)
Net income for the year
Other comprehensive income, net of tax
Other comprehensive income to be reclassified to profit or loss in subsequent years:
Unrealized losses on available-for-sale financial assets arising during the year
Reclassification adjustment for net gains included in profit for the year
Change in unrealized losses on available-for-sale financial
assets arising during the year
2016
Tax effect
Year ended
December 31
Net of tax
2016
$
83,591 $
–
$
83,591
280
(946)
113
(235)
167
(711)
(666)
(122)
(544)
$
82,925 $
(122) $
83,047
2015
Tax effect
Year ended
December 31
Net of tax
2015
$
76,629 $
– $
76,629
(77)
5
(72)
(22)
1
(21)
(55)
4
(51)
Comprehensive income for the year
$
76,557 $
(21) $
76,578
The accompanying notes are an integral part of these consolidated financial statements.
28
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
($ in thousands)
As at December 31, 2015
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
Management share purchase plan [NOTE 15]
Total transactions with shareholders
Equity
component
of convertible
debentures
Accumulated
other
comprehensive
income (loss)
Common
shares
Retained
earnings
Total
7,089
$
34,389 $
398 $
558,526 $
600,402
–
–
–
–
–
–
–
–
–
–
4,795
4,795
–
83,591
83,591
(544)
(544)
–
83,591
(544)
83,047
–
–
–
(28,691)
–
(28,691)
(28,691)
4,795
(23,896)
As at December 31, 2016
$
7,089
$
39,184 $
(146) $
613,426 $
659,553
($ in thousands)
As at December 31, 2014
Comprehensive income
Net income for the year
Change in unrealized losses on available-for-sale
financial assets arising during the year
Total comprehensive loss
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
Retained
earnings
Total
$
7,089
$
31,169 $
449 $
510,398 $
549,105
–
–
–
–
–
–
–
–
–
–
3,220
3,220
–
76,629
76,629
(51)
(51)
–
–
–
–
76,629
(28,501)
–
(28,501)
(51)
76,578
(28,501)
3,220
(25,281)
As at December 31, 2015
$
7,089
$
34,389 $
398 $
558,526 $
600,402
The accompanying notes are an integral part of these consolidated financial statements.
Leon’s Furniture Limited | 2016 Annual Report
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
OPERATING ACTIVITIES
Net income for the year
Add (deduct) items not involving an outlay of cash
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 and investment properties
(Gain) loss 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
Consolidated Financial Statements
29
Year ended
December 31
Year ended
December 31
2016
2015
$
83,591 $
76,629
33,802
7,433
(59,118)
14,481
(4,945)
(28)
(897)
$
74,319 $
31,238
59,091
33,694
8,044
(55,180)
17,627
(5,317)
(1,072)
1,514
75,939
(74,426)
56,970
Cash provided by operating activities
$
164,648 $
58,483
INVESTING ACTIVITIES
Purchase of property, plant and equipment and investment properties [NOTES 8 & 9]
Purchase of intangible assets [NOTE 10]
Proceeds on sale of property, plant and equipment and investment properties
Purchase of available-for-sale financial assets
Proceeds on sale of available-for-sale financial assets
Interest received
Cash used in investing activities
FINANCING ACTIVITIES
Repayment of finance leases
Dividends paid
Decrease of employee loans-redeemable shares [NOTE 15]
Repayment of term loan [NOTE 14]
Finance costs paid
Interest paid
Cash used in 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.
(25,689)
(683)
145
(29,981)
16,184
1,717
(22,756)
(4,956)
4,464
(8,093)
5,524
1,308
$
(38,307) $
(24,509)
(1,884)
(28,649)
4,418
(50,000)
(775)
(13,325)
(1,936)
(28,465)
3,699
(30,000)
–
(15,313)
$
(90,215) $
(72,015)
36,126
7,859
(38,041)
45,900
$
43,985 $
7,859
30
NOTES TO THE
CONSOLIDATED
FINANCIAL STATEMENTS
Amounts in thousands of Canadian dollars, except share amounts and earning per share)
1. REPORTING ENTITY
Use of estimates and judgments
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.
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 23, 2017.
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 and the initial recognition of
assets acquired and liabilities assumed in business combinations,
which are measured at fair value.
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.
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.
Extended warranty 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.
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.
Leon’s Furniture Limited | 2016 Annual Report 31
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, King and State
Limited, Ablan Insurance Corporation, The Brick Ltd., The Brick
Warehouse LP, United Furniture Warehouse LP, First Oceans
Trading Corporation, and Trans Global Warranty Corporation.
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
The Company has two operating segments, Leon’s and The
Brick, both in the business of the sale of home furnishings,
mattresses, appliances and electronics in Canada. The
Company’s chief operating decision-maker, identified as
the Chief Executive Officer, monitors the results of operating
segments for the purpose of allocating resources and
assessing performance.
Leon’s and The Brick operating segments are aggregated
into a single reportable segment because they show a similar
long-term economic performance (gross margin), have
comparable products, customers and distribution channels,
operate in the same regulatory environment, and are steered
and monitored together.
Accordingly, there is no reportable segment information to
provide 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.
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
Notes to the Consolidated Financial Statements 32
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)
b)
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;
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.
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.
Leon’s Furniture Limited | 2016 Annual Report 33
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 Over the remaining lease term
30 to 50 years
3 to 30 years
5 to 20 years
5 years
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 selling, general and
administration 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.
T H E C O M PA N Y A S L E S S E E
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.
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 Over the remaining lease term
30 to 50 years
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
G O O D W I L L
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.
I N TA N G I B L E A S S E T S
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.
Notes to the Consolidated Financial Statements
34
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) 10 years
Non-compete agreement
Computer software
Favourable lease agreements
8 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.
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.
C U R R E N T I N C O M E TA X
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.
D E F E R R E D I N C O M E TA X
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.
Leon’s Furniture Limited | 2016 Annual Report
35
U N PA I D I N S U R A N C E C L A I M S
F R A N C H I S E O P E R AT I O N S
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.
U N PA I D W A R R A N T Y C L A I M S
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.
P R O D U C T R E T U R N S
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.
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:
S A L E O F G O O D S A N D R E L AT E D S E R V I C E S
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.
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.
I N S U R A N C E C O N T R A C T S A N D R E V E N U E
The Company issues insurance contracts through its
subsidiaries: Trans Global Insurance Company (“TGI”) and
Trans Global Life Insurance Company (“TGLI”).
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.
U N E A R N E D I N S U R A N C E R E V E N U E
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.
D E F E R R E D W A R R A N T Y P L A N R E V E N U E
Warranties, underwritten by the Company’s wholly owned
subsidiaries, are offered on all products sold by the Company
and franchisees to provide coverage that extends beyond the
Notes to the Consolidated Financial Statements 36
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.
D E F E R R E D A C Q U I S I T I O N C O S T S
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.
S A L E O F G I F T C A R D S
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.
R E N TA L I N C O M E O N I N V E S T M E N T P R O P E R T I E S
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.
4. ADOPTION OF ACCOUNTING STANDARDS
AND AMENDMENTS
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.
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 (“IAS 17”);
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,
2018. Earlier adoption is permitted. The Company has started
the process of reviewing contracts with customers and other
areas of the standard primarily the sale of non-financial assets
such as property, plant and equipment.
In January 2016, the IASB issued IFRS 16, Leases, which will
replace IAS 17. The new standard will be effective
for fiscal years beginning on or after January 1, 2019. Earlier
application is permitted. Under the new standard, all leases
will be on the balance sheet of lessees, except those that meet
limited exception criteria. As the Company has significant
contractual obligations in the form of operating leases (note 25)
under the existing standard, there will be a material increase to
both assets and liabilities upon adoption of the new standard.
The Company is analyzing the new standard to determine its
impact on the Company’s consolidated financial statements.
Leon’s Furniture Limited | 2016 Annual Report 37
Adoption of new, revised or amended accounting standards
5. CASH AND CASH EQUIVALENTS
The Company has adopted the amended IFRS pronouncements
listed below as at January 1, 2016, in accordance with the
transitional provisions outlined in the respective standard.
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. As at
January 1, 2016, the Company adopted the amendments, and
there was no impact on the 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. As at January 1, 2016, the Company adopted the
amendments, and there was no impact on the consolidated
financial statements.
IAS 1, Presentation of Financial Statements, was amended in
December 2014 to clarify guidance on materiality and
aggregation, the presentation of subtotals, the structure of
financial statements and the disclosure of accounting policies.
The Amendment is effective for years beginning on or after
January 1, 2016. The Company is analyzing the new standard
to determine its impact, if any, on the Company’s consolidated
financial statements. As at January 1, 2016, the Company
adopted the amendments, and there was no material impact
on the consolidated financial statements.
As at December 31,
2016
2015
Cash at bank and on hand
$
43,985
$
7,859
6. INVENTORIES
The amount of inventory recognized as an expense for the year
ended December 31, 2016 was $1,186,850 [2015 – $1,107,166],
which is presented within cost of sales in the consolidated
statements of income. There were $550 inventory write-downs
[2015 – $nil] recognized as an expense during 2016. There were
no inventory write-downs recognized in prior periods reversed
[2015 – $2,396].
As at December 31, 2016, the inventory mark-down provision
totalled $7,993 [2015 – $7,443].
7. DEFERRED ACQUISITION COSTS
Balance at December 31, 2014
Costs of new policies sold
Policy sales costs recognized
Balance at December 31, 2015
Cost of new policies sold
Policy sales costs recognized
$
$
16,050
10,070
(4,698)
21,422
5,360
(6,011)
Balance at December 31, 2016
$
20,771
Reported as:
Current
Non-current
Balance at December 31, 2015
Current
Non-current
$
$
8,329
13,093
21,422
7,643
13,128
Balance at December 31, 2016
$
20,771
Notes to the Consolidated Financial Statements
38
8. PROPERTY, PLANT AND EQUIPMENT
As at December 31, 2016:
Opening net book value
Additions
Disposals
Depreciation
Closing net book value
As at December 31, 2016:
Cost
Accumulated depreciation
Land
Buildings
Equipment
Vehicles
Building
Improvements
Leased
Property
Leased
Equipment
Total
$
$
85,051
1,203
–
–
86,254
$
110,996
523
–
(5,849)
105,670
$
41,818
9,279
(101)
(9,225)
41,771
$
14,738
8,816
(14)
(3,233)
20,307
60,066
5,595
(2)
(12,965)
52,694
$
9,516
–
–
(1,131)
8,385
$
1,033
273
–
(887)
$ 323,218
25,689
(117)
(33,290)
419
315,500
86,254
–
239,897
(134,227)
144,208
(102,437)
40,432
(20,125)
227,154
(174,460)
20,766
(12,381)
11,611
(11,192)
770,322
(454,822)
Net book value
$
86,254
$
105,670
$
41,771
$
20,307
$
52,694
$
8,385
$
419
$ 315,500
Land
Buildings
Equipment
Vehicles
Building
Improvements
Leased
Property
Leased
Equipment
Total
As at December 31, 2015:
Opening net book value
Additions
Disposals
Depreciation
Closing net book value
As at December 31, 2015:
Cost
Accumulated depreciation
$
84,133
944
(26)
–
85,051
85,051
–
$
$
116,722
416
(2)
(6,140)
110,996
$
41,904
9,055
(41)
(9,100)
41,818
$
$
8,379
8,591
(62)
(2,170)
14,738
70,370
3,440
–
(13,744)
60,066
$
10,647
–
–
(1,131)
9,516
1,897
–
–
(864)
1,033
$
334,052
22,446
(131)
(33,149)
323,218
239,374
(128,378)
147,333
(105,515)
36,766
(22,028)
224,492
(164,426)
20,766
(11,250)
11,338
(10,305)
765,120
(441,902)
Net book value
$
85,051
$
110,996
$
41,818
$
14,738
$
60,066
$
9,516
$
1,033
$
323,218
Included in the above balances as at December 31, 2016 are
assets not being amortized with a net book value of approximately
$437 [2015 – $1,464], being construction in progress. Also
included are fully depreciated assets still in use with a cost of
$178,949 [2015 – $146,768].
9. INVESTMENT PROPERTIES
As at December 31, 2016:
Opening net book value
Additions
Disposal
Depreciation
Closing net book value
As at December 31, 2016:
Cost
Accumulated depreciation
Net book value
As at December 31, 2015:
Opening net book value
Additions
Disposal
Depreciation
Closing net book value
As at December 31, 2015:
Cost
Accumulated depreciation
Net book value
Land
Buildings
Building
Improvements
Total
$
$
$
10,946
–
–
–
10,946
10,946
–
$
$
6,692
–
–
(435)
6,257
858
–
–
(77)
781
$
18,496
–
–
(512)
17,984
17,333
(11,076)
1,097
(316)
29,376
(11,392)
10,946
$
6,257
$
781
$
17,984
$
12,519
–
(1,573)
–
10,946
10,946
–
$
8,798
–
(1,625)
(481)
6,692
$
675
310
(63)
(64)
858
21,992
310
(3,261)
(545)
18,496
17,333
(10,641)
2,554
(1,696)
30,833
(12,337)
$
10,946
$
6,692
$
858
$
18,496
The estimated fair value of the investment properties portfolio
as at December 31, 2016 was approximately $44,800 [2015 –
$44,800]. This recurring fair value disclosure 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 $11,200. The remaining disclosed
fair value of $33,600 was compiled internally by
management based on available market evidence.
Leon’s Furniture Limited | 2016 Annual Report
10. INTANGIBLE ASSETS AND GOODWILL
Customer
relationships
Brand name
and franchise
agreement
Non-compete
agreement
Computer
software
Favourable
lease
agreements
Total
39
As at December 31, 2016:
Opening net book value
Additions
Amortization
$
3,281 $
–
(625)
266,500
–
$
(250)
Closing net book value
2,656
266,250
As at December 31, 2016:
Cost
Accumulated amortization
Net book value
As at December 31, 2015:
Opening net book value
Additions
Amortization
Closing net book value
As at December 31, 2015:
Cost
Accumulated amortization
$
$
– $
–
–
–
–
–
$
13,957
683
(3,520)
11,120
34,476 $ 318,214
683
(7,433)
–
(3,038)
31,438
311,464
24,002
(12,882)
46,049
(14,611)
345,551
(34,087)
7,000
(4,344)
268,500
(2,250)
2,656
$
266,250
$
– $
11,120 $
31,438 $
311,464
4,156 $
–
(875)
3,281
$
266,750
–
(250)
266,500
125 $
–
(125)
–
$
11,946
4,956
(2,945)
13,957
$
38,325
–
(3,849)
34,476
321,302
4,956
(8,044)
318,214
7,000
(3,719)
268,500
(2,000)
1,012
(1,012)
23,319
(9,362)
46,049
(11,573)
345,880
(27,666)
Net book value
$
3,281 $
266,500
$
– $
13,957 $
34,476 $
318,214
Amortization of intangible assets is included within selling, general and administration 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,
2016
2015
$
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 and without significant cost.
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.
The following table presents the details of the Company’s finite-life intangible assets:
Leon’s division brand name
Brick division customer relationships
Brick division favourable lease agreements
Computer software
As at December 31,
2016
$
250 $
2,656
31,438
11,120
2015
500
3,281
34,476
13,957
$
45,464
$
52,214
Notes to the Consolidated Financial Statements
40
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
Impairment tests
As at December 31,
2016
2015
$
11,282
378,838
$
11,282
378,838
$
390,120 $
390,120
The Company performed impairment tests of goodwill, brand and franchise agreements intangible as at December 31, 2016 and
December 31, 2015 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 value-in-use calculation as at December 31, 2016 and December 31, 2015 were as follows:
Growth rate
Pre-tax discount rate
2016
2.0%
8.9%
2015
2.0%
9.3%
The impairment tests performed resulted in no impairment of the goodwill as at December 31, 2016 and December 31, 2015.
11. TRADE AND OTHER PAYABLES
Trade payables
Other payables
12. PROVISIONS
Balance as at December 31, 2015
Provisions made during the year
Provisions used during the year
Balance as at December 31, 2016
As at December 31,
2016
2015
$
185,927 $
28,911
175,933
30,143
$
214,838 $
206,076
Unpaid
insurance
claims
Unpaid
warranty
claims
Product
returns
$
1,696
1,402
(1,573)
200 $
277
(198)
$
1,908
296
(179)
Other
1,539
100
–
$
1,525
$
279
$
2,025
$
1,639 $
$
$
Total
5,343
2,075
(1,950)
5,468
Unpaid insurance claims
Unpaid warranty 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.
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.
Leon’s Furniture Limited | 2016 Annual Report
41
13. FINANCE LEASE LIABILITIES
Leasing arrangements
The Company leases a distribution centre and vehicles under
a number of finance lease agreements. The lease term on the
distribution centre and vehicles do not exceed 20 years and
8 years, respectively. The Company’s obligations under finance
Finance lease liabilities
Finance lease liabilities are payable as follows:
leases are secured by the leased assets. The Company’s
distribution centre 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.
Less than one year
Between one and five years
More than five years
$
Reported as:
Current
Non-current
Future
Minimum
lease
payments
2,086
7,592
4,655
14,333
$
2016
Present value
of minimum
lease
payments
Future
Minimum
lease
payments
$
1,421 $
5,917
4,557
2,729 $
7,751
6,581
11,895
17,061
Interest
665
1,675
98
2,438
1,421
10,474
$
11,895
2015
Present value
of minimum
lease
payments
1,954
5,668
6,227
13,849
1,954
11,895
13,849
Interest
775 $
2,083
354
3,212
$
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 $93,520 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.
Carrying value of convertible debentures as at December 31, 2014
Accretion expense for the year ended December 31, 2015
Carrying value of convertible debentures as at December 31, 2015
Accretion expense for the year ended December 31, 2016
Carrying value of convertible debentures as at December 31, 2016
$
$
91,773
855
92,628
892
93,520
The effective interest rate for the convertible debentures is 4.2% and includes accretion expense and semi-annual coupon payments.
Notes to the Consolidated Financial Statements
42
Bank indebtedness
On January 31, 2013, a Senior Secured Credit Agreement
(“SSCA”) was obtained to fund the acquisition of The Brick. The
Company completed an amendment to the existing SSCA on
November 25, 2016. After giving effect to the amendment, the
total credit facility was reduced from $500,000 to $300,000, with
the term credit facility being reduced from $400,000 to $250,000
and the revolving credit facility being reduced from $100,000 to
$50,000. The revolving credit facility continues to include a swing-
line of $20,000. Under the terms of the SSCA, amounts borrowed
must be repaid in full by November 25, 2019. 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 $775 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 applic-
able margin. Currently, the Company has entered into a 32-day
BA with a cost of borrowing of 2.68% that was renewed on
December 30, 2016. The term credit facility is repayable in
yearly amounts of $25,000 commencing on December 31,
2017. The Company can prepay without penalty amounts out-
standing 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 and non-financial covenants related to the
credit facility.
As at December 31, 2016, the Company is in full compliance of
these financial and non-financial covenants.
15. REDEEMABLE SHARE LIABILITY
Authorized
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
880,000 convertible, non-voting, series 2015 shares
Issued and fully paid
480,088 series 2009 shares [December 31, 2015 – 619,016]
228,936 series 2012 shares [December 31, 2015 – 233,616]
1,093,783 series 2013 shares [December 31, 2015 – 1,406,772]
623,188 series 2014 shares [December 31, 2015 – 740,000]
795,000 series 2015 shares [December 31, 2015 – 880,000]
Less employee share purchase loans
As at December 31,
2016
2015
$
4,249 $
2,841
12,458
9,379
10,701
(39,125)
5,478
2,899
16,024
11,137
11,845
(46,503)
$
503
$
880
Under the terms of the Plan, the Company advanced non-interest
bearing loans to certain of its employees in 2009, 2012, 2013,
2014 and 2015 to allow them to acquire convertible, non-voting
series 2009 shares, series 2012 shares, series 2013, series 2014
shares and series 2015 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 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, series 2014 and 2015 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 2009, series 2012, series 2013, series 2014
and 2015 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 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, series 2014 and 2015 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 $8.85 per series 2009
share, $12.41 per series 2012 share, $11.39 per series 2013
share, $15.05 per series 2014 share and $13.46 per series
2015 share.
Dividends paid to holders of series 2009, 2012, 2013, 2014
and 2015 shares of approximately $598 [2015 – $676]
have been used to reduce the respective shareholder loans.
The preferred dividends are paid once a year during the
first quarter.
Leon’s Furniture Limited | 2016 Annual Report
During the year ended December 31, 2016, nil series 2005
shares [2015 – 251,080], 138,928 series 2009 shares
[2015 – 95,984] and 312,989 series 2013 shares [2015 – nil]
were converted into common shares with a stated value of
approximately $nil [2015 – $2,370], $1,229 [2015 – $850] and
$3,566 [2015 – $nil], respectively.
During the year ended December 31, 2016, the Company
cancelled 4,680 series 2012 shares [2015 – 14,280], 116,812
series 2014 shares [2015 – nil] and 85,000 series 2015 shares
16. COMMON SHARES
Authorized
Authorized – Unlimited common shares
Issued
71,855,866 common shares [2015 – 71,403,949]
43
[2015 – nil] in the amount of $58 [2015 – $177],
$1,758 [2015 – $nil] and $1,144 [2015 – $nil], 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.
As at December 31,
2016
2015
$
39,184 $
34,389
During the year ended December 31, 2016, nil series 2005 shares [2015 – 251,080], 138,928 series 2009 shares [2015 – 95,984] and
312,989 series 2013 shares [2015 – nil] were converted into common shares with a stated value of approximately $nil [2015 – $2,370],
$1,229 [2015 – $850] and $3,566 [2015 – $nil], respectively.
As at December 31, 2016, the dividends payable were $7,183 [$0.10 per share] and as at December 31, 2015 were $7,141
[$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
Salaries and benefits
Depreciation of property, plant and equipment and investment properties
Amortization of intangible assets
Operating lease payments
Years ended December 31,
2016
2015
$ 2,060,563 $ 1,953,221
20,233
45,378
11,461
1,425
23,748
47,771
10,193
1,461
$ 2,143,736
$
2,031,718
Years ended December 31,
2016
2015
$
$
$
$
358,505 $
$
$
94,044 $
33,802
7,433
350,166
33,694
8,044
91,945
Notes to the Consolidated Financial Statements
44
19. NET FINANCE COSTS
Interest expense on finance lease obligations
Interest expense on term credit facilities and revolving credit facilities
Interest expense on convertible debentures
Finance income
Total
20. INCOME TAX EXPENSE
Years ended December 31,
2016
2015
$
786 $
12,349
3,891
(2,545)
925
14,247
3,855
(1,400)
$
14,481
$
17,627
(a) The major components of income tax expense for the years ended December 31 are as follows:
Consolidated statements of income
2016
2015
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
(b) Reconciliation of the effective tax rates are as follows:
$
35,542
35,542
$
30,107
30,107
(4,945)
–
(4,945)
(5,317)
–
(5,317)
$
30,597
$
24,790
Income before income taxes
$
114,189
$
101,420
2016
2015
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 gain
Tax expense relating to deferred rate reductions
File/provided differences
Remeasurement of deferred tax asset for rate changes
Income exempt from tax
Other
Income tax expense reported in the consolidated
statements of income
30,510
26.72%
26,998
26.62%
725
(7)
66
(485)
(18)
(137)
(57)
0.63%
(0.00%)
0.06%
(0.42%)
(0.02%)
(0.12%)
(0.05%)
115
–
577
(620)
104
(438)
(1,946)
0.11%
0.00%
0.57%
(0.61%)
0.10%
(0.43%)
(1.91%)
$
30,597
26.80% $
24,790
24.45%
(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)
December 31,
2016
December 31,
2015
$
8,174
(90,003)
$
(81,829)
$
$
9,083
(96,062)
(86,979)
Leon’s Furniture Limited | 2016 Annual Report
45
(ii) Deferred income 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
Mark to market
Net deferred income tax expense – statements of income
Movement in convertible debenture
Net deferred income tax expense (benefit) – equity
Balance,
beginning
of year
$
1,524 $
(80)
2,668
(18,519)
(77,584)
1,632
3,692
–
79
2,308
(143)
(84,423)
(2,556)
(2,556)
2016
Consolidated
Balance,
end of year
1,781
354
962
(17,395)
(77,178)
2,125
3,170
–
58
6,274
576
$
Expense
(benefit)
257
434
(1,706)
1,124
406
493
(522)
–
(21)
3,761
719
4,945
(79,273)
–
–
(2,556)
(2,556)
$
Other
–
–
–
–
–
–
–
–
–
205
–
205
–
–
Total deferred income tax expense (benefit)
$
(86,979) $
205 $
4,945 $
(81,829)
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
Mark to market
Net deferred income tax expense – statements of income
Movement in convertible debenture
Net deferred income tax expense (benefit) – equity
Balance,
beginning
of year
$
1,285 $
(397)
4,528
(22,825)
(74,506)
1,095
4,110
(5,387)
104
2,451
(45)
(89,587)
(2,556)
(2,556)
2015
Consolidated
Balance,
end of year
1,524
(80)
2,668
(18,519)
(77,584)
1,632
3,692
–
79
2,308
(143)
(84,423)
(2,556)
(2,556)
Expense
(benefit)
239 $
317
(1,860)
4,306
(3,078)
537
(418)
5,387
(25)
11
(98)
5,318
–
–
$
Other
–
–
–
–
–
–
–
–
–
(154)
–
(154)
–
–
Total deferred income tax expense (benefit)
$
(92,143) $
(154) $
5,318
$
(86,979)
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 71,695,955 for the year ended
December 31, 2016 [2015 – 71,217,958]. 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
Years ended December 31,
2016
2015
$
83,591 $
86,924
76,629
79,899
71,695,955
71,217,958
11,385,877
11,146,581
83,081,832
82,364,539
$
$
1.17 $
1.05 $
1.08
0.97
Notes to the Consolidated Financial Statements
46
22. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
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.
As at December 31, 2016
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
Loans and borrowings
Convertible debentures
Redeemable share liability
Derivative instruments
Other liabilities
As at December 31, 2015
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
Loans and borrowings
Convertible debentures
Redeemable share liability
Measurement
Total Carrying
Amount
Fair Value
Fair Value
Hierarchy
Fair value $
Amortized cost
43,985
128,142
Fair value $
Fair value
Amortized cost
16,600
39,079
17,984
$
$
Amortized cost $
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
214,838 $
5,468
11,895
239,436
93,520
503
43,985
128,142
16,600
39,079
44,800
214,838
5,468
11,895
239,436
140,000
503
Level 1
Level 2
Level 1
Level 2
Level 3
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Fair value $
2,124
$
2,124
Level 2
Measurement
Total Carrying
Amount
Fair Value
Fair Value
Hierarchy
Fair value $
7,859 $
Amortized cost
117,832
Fair value $
Fair value
Amortized cost
18,691 $
22,960
18,496
7,859
117,832
18,691
22,960
44,800
Level 1
Level 2
Level 1
Level 2
Level 3
Fair value
$
539 $
539
Level 2
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Amortized cost
$
206,076 $
5,343
13,849
287,357
92,628
880
206,076
5,343
13,849
287,357
125,000
880
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, 2016, includes financial assets
of $60,585, $167,221 and $44,800 for Levels 1, 2 and 3,
respectively, and financial liabilities of $nil, $614,264 and $nil
for Levels 1, 2 and 3, respectively.
The carrying amounts of the Company’s trade receivables and
trade and other payables 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 inter-
est 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, 2016, the fair value of the convertible
debentures was determined using their closing quoted market
price (not in thousands of dollars) of $140.00 per $100.00 of
face value [2015 – $125.00 per $100.00 of face value]. For the
convertible debentures at December 31, 2016, 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
Leon’s Furniture Limited | 2016 Annual Report
47
inputs including interest rate curves, foreign exchange rates and
forward and spot prices for currencies.
The Company maintains a notional $100,000 [2015 – $100,000]
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 of foreign exchange contracts,
with maturities that do not exceed past the first quarter of 2018.
At December 31, 2016, a $2,124 unrealized loss was recorded
in other liabilities [2016 – $539 unrealized gain].
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).
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.
C R E D I T R I S K
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
2016
2015
$
$
43,985
16,600
39,079
128,142
7,859
18,691
22,960
117,832
$
227,806
$
167,342
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, 2016, 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
$128,142 as at December 31, 2016 [2015 – $117,832]. 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 $6,412 as at December 31, 2016 [2015 –
$4,827]. The Company’s provision for impairment of trade
receivables, established through ongoing monitoring of
individual customer accounts, was $2,539 as at December 31,
2016 [2015 – $1,959].
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.
Notes to the Consolidated Financial Statements
48
L I Q U I D I T Y R I S K
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 mis-
matches 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.
The following tables summarize the Company’s contractual maturity for its financial liabilities, including both principal and
interest payments:
As at December 31, 2016
Trade and other payables
Finance lease liabilities
Loans and borrowings
Convertible debentures
Redeemable share liability
As at December 31, 2015:
Trade and other payables
Finance lease liabilities
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
$
$ 214,838
11,895
239,436
93,520
503
214,838
14,333
256,782
118,707
503
$
$
$
214,838
2,086
31,437
3,000
–
–
3,739
225,345
6,000
–
$
–
3,853
–
6,000
–
–
4,655
–
103,707
503
$ 560,192
$
605,163
$
251,361
$
235,084
$
9,853
$
108,865
Carrying
Amount
Contractual
Cash Flows
Under
1 Year
1-3 Years
3-5 Years
More than 5
Years
Remaining term to maturity
$
$
206,076
13,849
287,357
92,628
880
$
206,076
17,061
300,311
121,707
880
$
206,076
2,729
58,480
3,000
–
$
–
3,933
241,831
6,000
–
$
–
3,818
–
6,000
–
–
6,581
–
106,707
880
$
600,790
$
646,035
$
270,285
$
251,764
$
9,818
$
114,168
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, 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 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 and convertible debentures due
to fluctuations in interest rates. Fair value risk related to the
finance lease liabilities 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.
( i ) I N T E R E S T R AT E S E N S I T I V I T Y A N A LY S I S
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, 2016,
the Company’s average indebtedness under the term credit
facility was $265,000 [2015 – $305,000] and under the
revolving credit facility was $7,500 [2015 – $10,500].
Accordingly, a change during the year ended December 31,
2016 of a one percentage point increase or decrease in
the applicable interest rate would have impacted the
Company’s net income by approximately $2,000
[2015 – $2,385].
Leon’s Furniture Limited | 2016 Annual Report
49
(b) Currency risk
(c) Other price 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.
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
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 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
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.
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 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, 2016, $49,531 is available to
draw on under our $50,000 revolving credit facility, as the
borrowing capacity is reduced by ordinary letters of credit of
$469 primarily with respect to buildings under construction
or being completed [2015 – $486].
Current portion of finance lease liabilities
Current portion of loans and borrowings
Convertible debentures
Finance lease liabilities
Loans and borrowings
Total shareholders’ equity
Total capital under management
As at December 31,
2016
2015
$
$
1,421
25,000
93,520
10,474
214,436
659,553
1,954
50,000
92,628
11,895
237,357
600,402
$ 1,004,404
$
994,236
Notes to the Consolidated Financial Statements
50
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, 2016.
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.
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, 2016, TGI’s Minimum Capital Test ratio was 494%
[2015 – 472%], which is in compliance with the requirements of
The Office of the Superintendent of Insurance of Alberta and the
Act. As at December 31, 2016 TGLI’s Minimum Continuing Capital
and Surplus Requirements ratio was 655% [2015 – 501%], 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 and trucks
under operating leases. Generally, the retail store 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
$
$
90,850
257,533
129,003
477,386
(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
$
$
1,974
4,266
4,395
10,635
(c) Pursuant to a reinsurance agreement relating to the
extended warranty sales, the Company has pledged
available-for-sale financial assets amounting to $16,600
[2015 – $18,691].
(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
(a) The net change in non-cash working capital balances
related to operations consists of the following:
Years ended December 31,
2016
2015
Trade receivables
Inventories
Other assets
Deferred acquisition costs
Trade and other payables
Provisions
Income taxes
payable/receivable
Customers’ deposits
Other liabilities
Deferred rent liabilities and
lease inducements
$
(10,310)
(4,840)
(2,011)
651
9,264
125
28,169
5,544
2,124
$
(5,661)
(37,333)
(22)
(5,372)
8,643
767
(52,253)
14,741
–
2,522
31,238
$
2,064
(74,426)
$
(b) Supplemental cash flow information:
Years ended December 31,
2016
2015
Income taxes paid
$
31,100
$
82,565
Leon’s Furniture Limited | 2016 Annual Report
51
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:
Years ended December 31,
2016
2015
Salaries and
other short-term
employee benefits
$
6,215
$
5,665
28. COMPARATIVE FINANCIAL STATEMENTS
The comparative consolidated financial statements have been
reclassified from statements previously presented to conform to
the presentation of the 2016 consolidated financial statements.
29. SUBSEQUENT EVENTS
On January 31, 2017, the Company completed a transaction with
The Beedie Development Group (“Beedie”) to purchase an
undivided 50% ownership interest in 23.49 acres of land in Delta,
British Columbia that is currently being developed by the Company
and Beedie into an approximately 434,000 square foot distribution
centre to be occupied by the Company in the second half of
fiscal year 2017. The Company will account for this transaction
as a joint operation.
Notes to the Consolidated Financial Statements
52
CORPOR ATE & SHAREHOLDER
INFORMATION
Officers
Mark J. Leon
Chairman of the Board
Terrence T. Leon
CEO
Edward F. Leon
President and COO
Dominic Scarangella
Executive Vice President and CFO
John A. Cooney
Vice President, Legal and
Corporate Secretary
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
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
Thursday, May 11, 2017 2:00PM
Old Mill Toronto
Humber Room
21 Old Mill Road
Toronto, Ontario
M8X 1G5
Leon’s Furniture Limited | 2016 Annual Report L
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Our customers can find everything we offer at
our stores and more, including the same high
standards for delivery, service and guaranteed
pricing, through our growing online stores.
leons.ca / brick.com / furniture.com