Leon's Furniture Limited - 2007 Third Quarter



    TORONTO, Nov. 14 /CNW/ - For the three months ended September 30, 2007,
total Leon's sales were $216,225,000 including $50,434,000 of franchise sales
($203,632,000 including $46,500,000 franchise sales in 2006), an increase of
6.2%. Net income was $16,174,000, 23 cents per common share ($14,886,000,
21 cents per common share in 2006), an increase of 9.5% per common share.
    For the nine months ended September 30, 2007, total Leon's sales were
$586,459,000 including $134,925,000 of franchise sales ($531,687,000 including
$120,509,000 of franchise sales in 2006), an increase of 10.3% and net income
was $36,884,000, 52 cents per common share ($32,890,000, 47 cents per common
share in 2006), an increase of 10.6% per common share. The first quarter of
2006 includes a net after tax gain from sale of property of $1,500,000 or
2 cents per common share.
    Although sales did not increase at the same pace as the first half of the
year, overall we are pleased that we continued to improve our financial
results in the third quarter of 2007. We just completed a successful grand
opening of a new showroom and warehouse in Longueuil, Quebec and renovations
are substantially complete at existing stores in Calgary, Alberta and
Kitchener, Ontario. As well, we have purchased land for a new showroom and
warehouse in Thunder Bay, Ontario with construction anticipated to commence in
the spring of 2008. Land has also been secured in North Calgary for a new
showroom and warehouse.
    We continue to proceed with finalizing the purchase of Appliance Canada
Ltd. whose annual sales average close to $100,000,000 a year. This purchase
will give us a significant entry into the wholesale distribution of major home
appliances to the building and apartment trade, and entry into selling high
end appliances to the public. We anticipate the successful purchase of this
company by the end of this year.
    The Directors have declared a quarterly dividend of 7 cents per common
share payable on the 10th day of January 2008 to shareholders of record at the
close of business on the 10th day of December 2007. In addition, the annual
dividend on the convertible non-voting series shares of 14 cents, will be
payable on January 10th, 2008 to the shareholders of record at the close of
business on December 10th, 2008. As stated in our press release dated February
20, 2007, as of 2006, dividends paid by Leon's Furniture Limited are "eligible
dividends" and for further clarification, all future dividends are eligible
dividends unless otherwise stated.
    All earnings per share amounts in this Press Release have been restated
to reflect the four-for-one subdivision of common shares effective June 27,
2007.

    
    EARNINGS PER SHARE FOR EACH QUARTER
    -----------------------------------
                                                                        YEAR
                                                                        ----
                          MARCH 31    JUNE 30   SEPT. 30    DEC. 31    TOTAL
                          --------    -------   --------    -------    -----


    2007 - Basic          15 cents   14 cents   23 cents               $0.52
         - Fully Diluted  15 cents   13 cents   22 cents               $0.50

    2006 - Basic          14 cents   12 cents   21 cents   29 cents    $0.76
         - Fully Diluted  14 cents   11 cents   20 cents   28 cents    $0.73

    2005 - Basic          10 cents   11 cents   19 cents   28 cents    $0.68
         - Fully Diluted  10 cents   11 cents   18 cents   26 cents    $0.65


    LEON'S FURNITURE LIMITED - MEUBLES LEON LTEE

    Anthony T. Leon
    Chairman Emeritus



                     MANAGEMENT'S DISCUSSION AND ANALYSIS

    November 14, 2007
    

    Management's Discussion and Analysis ("MD&A) should be read in
conjunction with the unaudited consolidated interim financial statements of
the Company for the nine months ended September 30, 2007, MD&A for the year
ended December 31, 2006, the audited consolidated financial statements for the
year ended December 31, 2006 and the Company's Annual Information Form dated
March 23, 2007.

    Financial Statements Governance Practice

    Leon's Furniture Limited's financial statements have been prepared in
accordance with Canadian Generally Accepted Accounting Principles and the
amounts expressed are in Canadian dollars.
    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.
Accordingly, sections of this report contain forward-looking statements that
are based on current plans and expectations. These forward-looking statements
are effected by risks and uncertainties that could have a material impact on
future prospects. Readers are cautioned that actual events and results may
vary.
    The Audit Committee of the Board of Directors of Leon's Furniture Limited
reviewed the MD&A and the financial statements, and recommended the Board of
Directors approve them. Following review by the full Board, the financial
statements and MD&A were approved.

    Introduction

    Leon's Furniture Limited has been in the furniture retail business for
close to 100 years. The company's 35 corporate and 28 franchise stores can be
found across Canada. Main product lines sold at retail include furniture,
appliances and electronics.

    Share Split

    All common share data and earnings per share amounts for all periods
presented in this MD&A have been restated to reflect the four-for-one
subdivision of common shares effective June 27, 2007.

    Revenues and Expenses

    For the three months ended September 30, 2007, total Leon's sales were
$216,225,000 including $50,434,000 of franchise sales ($203,632,000 including
$46,500,000 of franchise sales in 2006), an increase of 6.2%.
    Leon's corporate sales of $165,791,000 in the third quarter of 2007,
increased by $8,659,000 or 5.5%, compared to the third quarter of 2006. Part
of our increase in sales was related to our new store and warehouse locations
in Saskatoon, Saskatchewan opened in November 2006 and Newmarket, Ontario
opened in March 2007. All regions had increased sales in the quarter with
Western Canada showing the most improvement. Same store corporate sales were
up 1.5 % in the third quarter compared to the same quarter in 2006.
    Leon's franchise sales of $50,434,000 in the third quarter of 2007,
increased by $3,934,000, or 8.5% store for store, compared to the third
quarter of 2006. We saw good growth in all regions of Canada.
    Our gross margin of 41.9% for the third quarter 2007 increased marginally
from the third quarter 2006.
    Net operating expenses of $44,503,000 were up $1,885,000 or 4.4% for the
third quarter 2007 compared to the third quarter 2006. Payroll and commission
costs were up 7.5% in the third quarter compared to the prior year. These
costs were in line with the increase in sales of 5.5% for the quarter as well
as higher payroll costs related to new store operations in 2007. We saw
advertising expenses decrease by $524,000 or 7.2% for the third quarter
compared to the prior year. A large portion of the decrease in advertising
dollars was due to fewer grand openings in the quarter compared to the prior
year. Overall, operating expenses were up by 4.4% over the prior year which is
well in line with the increase in sales in the third quarter 2007 and as a
percentage of sales fell below prior year levels.
    As a result of the above, net income for the third quarter 2007 was
$16,174,000, 23 cents per common share (as compared to $14,886,000, 21 cents
per common share in 2006), an increase of 9.5% per common share.
    For the nine months ended September 30, 2007, total Leon's sales were
$586,459,000 including $134,925,000 of franchise sales ($531,687,000 including
$120,509,000 of franchise sales in 2006), an increase of 10.3% and net income
was $36,884,000, 52 cents per common share ($32,890,000, 47 cents per common
share in 2006), an increase of 10.6% per common share.

    Annual Financial Information

    
    ($ in thousands, except earnings
     per share and dividends)                   2006        2005        2004

    Net corporate sales                      591,286     547,744     504,591
    Leon franchise sales                     177,167     173,043     165,252

    Total Leon sales                         768,453     720,787     669,843

    Net income                                53,602      48,964      46,104
    Earnings per share
    Basic                                      $ .76       $ .68       $ .62
    Diluted                                    $ .73       $ .65       $ .60

    Total Assets                             438,997     381,702     370,931

    Common Share Dividends Declared           $0.375       $0.20      $0.185
    Convertible, Non-Voting Shares
     Dividends Declared                       $0.125       $0.10       $0.10



    Liquidity and Financial Resources

    ($ in thousands, except dividends
     per share)

    Balances as at:                       Sept 30/07   Dec 31/06  Sept 30/06
                                          ----------- ----------- -----------

    Cash and marketable securities           124,645     120,227     103,225
    Accounts receivable                       15,366      26,319      13,579
    Inventory                                 71,787      74,733      76,852
    Total assets                             437,364     438,997     404,670
    Net working capital                      106,358      94,288      84,166


                                             Current       Prior       Prior
                                             Quarter     Quarter     Quarter
    For the 3 Months Ended                Sept 30/07  June 30/07  March 31/07
                                          ----------- ----------- -----------

    Cash flow from operations                 35,442      18,153     (12,036)
    Purchase of capital assets                (7,025)     (4,331)     (7,827)
    Repurchase of capital stock               (4,454)          -      (2,818)
    Dividends paid                            (4,679)     (4,963)     (4,427)

    Dividends paid per share                   $0.07     $0.0625     $0.0625
    

    Cash investments and marketable securities increased by $19,011,000 in
the quarter. In the third quarter of 2007, $7,025,000 of the Company's
financial resources were used for the acquisition of land and buildings.
    Marketable securities consist primarily of bonds with maturities not
exceeding eight years with an interest rate range of 4.09% to 7.6% and are
stated at market value. The Company does not own any asset backed commercial
paper in its portfolio.
    As part of the warranty reinsurance agreement with a subsidiary, the
Company has pledged assets, which are part of the investment portfolio. The
pledged assets are for the benefit of the primary insurance company for the
purposes of insuring customer product warranty sales. The assets are in the
form of a trust with a financial institution amounting to $13,380,000
    Inventory decreased by $2,928,000 from the second quarter 2007. The
decrease in inventory is mainly attributable to higher sales in the quarter
and some delays in receiving foreign products.
    The cash provided by operating activities of $35,442,000 is principally
the result of the net changes in non-cash working capital balances.
    Construction was completed on the new warehouse and showroom in
Longueuil, Quebec (71,000 sq. ft.) in the third quarter 2007 which was
followed by a successful grand opening in early October 2007. In addition,
major renovations were substantially completed in the third quarter at our
Kitchener, Ontario and Calgary, Alberta stores. As well, we purchased a parcel
of land in Thunder Bay, Ontario with the anticipation of construction to
commence in Spring 2008 for a new showroom and warehouse. Land has also been
secured in North Calgary for a new showroom and warehouse. We continue to seek
new sites for expansion in Ontario and Western Canada.
    We continue to proceed with finalizing the purchase of Appliance Canada
Ltd. whose annual sales average close to $100,000,000 a year. This purchase
will give us a significant entry into the wholesale distribution of major home
appliances to the building and apartment trade, and entry into selling high
end appliances to the public. We anticipate the successful purchase of this
company by the end of this year.
    At the present time all funding for all new store projects, renovations,
and the proposed acquisition of Appliance Canada are scheduled to come from
our existing cash resources.

    Common Shares

    All common share data and earnings per share amounts for all periods
presented in this MD&A have been restated to reflect the four-for-one
subdivision of common shares effective June 27, 2007.
    At September 30, 2007 there were 70,617,008 common shares issued and
outstanding. During the third quarter of 2007, 342,800 common shares were
repurchased by the Company at an average price of $12.99 and
20,844 convertible, non-voting series 1998 shares were converted to common
shares.
    For the nine-month period ending September 30, 2007, the Company
repurchased 565,600 common shares at an average price of $12.86 and
384,340 convertible, non-voting series 1998 were converted to common shares.
In addition, 38,136 convertible, non voting series 2002 and 2005 shares were
cancelled.

    Commitments

    
    -------------------------------------------------------------------------
    ($ in thousands)          Payments Due by Period
                              -----------------------------------------------
                                         Less
                                         than                          After
    Contractual Obligations    Total    1 year  2-3 years  4-5 years  5 years
    -------------------------------------------------------------------------
    Operating Leases (1)       9,834      302     1,786      1,661     6,085
    -------------------------------------------------------------------------
    Purchase Obligations(2)      662      662         -          -         -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total Contractual
     Obligations              10,496      964     1,786      1,661     6,085
    -------------------------------------------------------------------------

    (1) The Company is obligated under operating leases to future minimum
        annual rental payments for various land and building sites across
        Canada.
    (2) The estimated cost to complete construction in progress at three
        locations in Canada.

    In addition, the Company has commitments related to redeemable shares as
follows:

                                                   As at               As at
    ($ in thousands)                  September 30, 2007   December 31, 2006

    Authorized

    1,400,000 convertible, non-voting,
     series 1998 shares
    2,284,000 convertible, non-voting,
     series 2002 shares
    806,000 convertible, non-voting,
     series 2005 shares

    Issued

    225,388 series 1998 shares
     (2006 - 609,728)                           $    992          $    2,683
    1,500,688 series 2002 shares
     (2006 - 1,523,204)                           10,786              10,948
    768,528 series 2005 shares
     (2006 - 784,148)                              7,257               7,404
    Less employees share purchase loans          (18,116)            (20,404)
    -------------------------------------------------------------------------
    Redeemable share liability                  $    919          $      631
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Under the terms of its Management Share Purchase Plan, the Company
advanced non-interest bearing loans to certain of its employees in 1998, 2002
and 2005 allowing them to acquire convertible, non-voting, series 1998 shares,
series 2002 shares and series 2005 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 1998, 2002
and 2005 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 series 1998 and 2002 shares may also be
redeemed at the option of the holder or by the Company at any time after the
fifth anniversary date of the issue of these shares and prior to the tenth
anniversary of such issue. The series 2005 shares are redeemable at the option
of the holder for a period of one business day following the date of issue of
such shares. The Company has the option to redeem the series 2005 shares at
any time after the fifth anniversary date of the issue of these shares and
must redeem 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 $4.40 per series 1998 share, $7.19 per series 2002 share and
$9.44 per series 2005 share.
    Dividends paid to holders of series 1998, 2002, 2005 shares of
approximately $364,000 (2006 - $309,000) have been used to reduce the
respective shareholder loans.
    During the third quarter 2007, 20,844 convertible, non-voting, series
1998 shares were converted into common shares with a stated value of $92,000
(2006 - 10,200 for a stated value of $45,000). For the nine month period,
384,340 convertible, non-voting, series 1998 shares were converted into common
shares with a stated value of $1,691,000 (2006 - 126,852 for a stated value of
$558,000).
    During the period no convertible, non-voting series 2002 shares were
cancelled. (2006 - 7,644 series 2002 shares for a stated value of $55,000).

    
    Quarterly Results (2007, 2006, 2005)

    Quarterly Income Statement ($ in thousands, except earnings per share)

    -------------------------------------------------------------------------
                                   Quarter Ended           Quarter Ended
                                    September 30              June 30
    -------------------------------------------------------------------------
                                  2007        2006        2007        2006
    -------------------------------------------------------------------------
    Leon Corporate Sales         165,791     157,132     147,000     134,028
    -------------------------------------------------------------------------
    Leon Franchise Sales          50,434      46,500      43,437      39,054
    -------------------------------------------------------------------------
    Total Leon sales             216,225     203,632     190,437     173,082
    -------------------------------------------------------------------------
    Net Income Per Share           $0.23       $0.21       $0.14       $0.12
    -------------------------------------------------------------------------
    Fully Diluted Per Share        $0.22       $0.20       $0.14       $0.11
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                   Quarter Ended           Quarter Ended
                                      March 31              December 31
    -------------------------------------------------------------------------
                                  2007        2006        2006        2005
    -------------------------------------------------------------------------
    Leon Corporate Sales         138,743     120,018     180,108     170,244
    -------------------------------------------------------------------------
    Leon Franchise Sales          41,054      34,955      56,658      54,535
    -------------------------------------------------------------------------
    Total Leon sales             179,797     154,973     236,766     224,779
    -------------------------------------------------------------------------
    Net Income Per Share           $0.15       $0.14       $0.29       $0.28
    -------------------------------------------------------------------------
    Fully Diluted Per Share        $0.14       $0.14       $0.28       $0.26
    -------------------------------------------------------------------------
    

    Revenue Recognition

    Sales are recognized as revenue for accounting purposes upon the customer
either picking up the merchandise or when merchandise is delivered to the
customers' home.
    The Company offers customers the option to finance purchases through
various third party financing companies. In situations where a customer elects
to take advantage of delayed payment terms, the costs of financing these sales
are deducted from sales. Finance costs deducted from sales for the third
quarter 2007 were down slightly when compared to the same period for 2006.

    Warranty Revenue

    Warranty revenues are deferred and taken into income on a straight-line
basis over the life of the warranty period. Warranty revenues included in
sales year to date for 2007 are $9,957,000 compared to $8,395,000 in 2006.
Warranty expenses deducted through costs of goods sold year to date 2007 are
$3,317,000 compared to $2,549,000 in 2006.

    Franchise Royalties

    Leon's franchisees operate as independent owners. The Company charges the
franchisee a royalty fee based primarily on a percentage of the franchisees
gross sales. This royalty income is recorded by the Company on an accrual
basis under the heading "Other income" and is up 11.5% year to date for 2007
compared to 2006 which is in line with the increase in franchise sales for the
year.

    Volume Rebates

    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 goods sold as sales occur.

    Change in Accounting Policy

    In 2005, The Canadian Institute of Chartered Accountants ("CICA") issued
Handbook Section 3855, Financial Instruments - Recognition and Measurement;
Handbook Section 3861, Financial Instruments - Disclosure and Presentation;
Handbook Section 3865, Hedges, and Handbook Section 1530, Comprehensive
Income. The new standards are effective for the Company's interim and annual
financial statements commencing January 1, 2007.
    A new statement entitled "Unaudited Interim Consolidated Statement of
Comprehensive Income" was added to the Company's unaudited interim
consolidated financial statements and includes net income, as well as the
components of other comprehensive income. Accumulated other comprehensive
income forms part of shareholders' equity.
    As provided under the standards, the adoption of these recommendations
was done retroactively without restatement of prior period consolidated
financial statements. Under the new standards, all of our financial assets and
financial liabilities are classified as held for trading, held to maturity
investments, loans and receivables, or available-for-sale financial assets and
other financial liabilities. Held for trading financial instruments, which
include cash and cash equivalents, are measured at fair value and all gains
and losses are included in net income in the period in which they arise. Loans
and receivables, which include accounts receivable and long-term receivables,
accounts payable, accrued salaries and wages and certain other accrued
liabilities are recorded at amortized cost using the effective interest
method. Available-for-sale financial assets, which include marketable
securities, are recorded at their fair value. Unrealized holding gains and
losses are excluded from net income and are included in other comprehensive
income until such gains or losses are realized or an other than temporary
impairment is determined to have occurred. The quoted bid price was used to
estimate the fair value of the financial instruments at the balance sheet
date.
    As a result of adopting these new standards, the Company has written up
the marketable securities to their fair values and recorded a non-cash pre-tax
credit of $2,883,000 ($2,392,000 net of tax) for the change in accounting for
financial assets classified as available-for-sale. This has been recorded as a
transition adjustment in opening accumulated other comprehensive income on
January 1, 2007.
    As at September 30, 2007, accumulated other comprehensive income was
comprised of the unrealized gain on marketable securities of $940,000
($776,000 net of tax).

    Accounting Estimates

    Reserves for slow moving and damaged inventory are deducted in our
evaluation of inventories. The reserve for slow moving inventory is based on
many years of historic retail experience. The reserve is calculated by
analyzing all inventory on hand older than one year. Damaged inventory is
coded as such and placed in specific locations. The amount of reserve for
damaged inventory is determined by specific product categories.

    Disclosure Controls and Procedures

    Leon's management evaluated the effectiveness of the design of its
disclosure controls and procedures, as defined under Multilateral Instrument
52-109. The evaluation was performed under the supervision of Leon's Chief
Executive Officer ("CEO") and Chief Financial Officer ("CFO").
    Disclosure controls and procedures are designed to provide reasonable
assurance that information required to be disclosed in reports filed with
Canadian securities regulatory authorities are recorded, summarized and
reported in a timely fashion. The disclosure controls and procedures are
designed to ensure that information required to be disclosed by Leon's in such
reports is then accumulated and communicated to the CEO and the CFO, as
appropriate, to allow timely decisions regarding required disclosure.
    Based on the evaluation of disclosure controls and procedures, the CEO
and CFO have concluded that the Company's disclosure controls and procedures
are effective as at September 30, 2007.

    Internal Control Over Financial Reporting

    Leon's management, under the supervision of the CEO and the CFO, has
designed internal controls over financial reporting, as defined under
Multilateral Instrument 52-109.
    The purpose of internal controls over financial reporting is to provide
reasonable assurance regarding the reliability of financial reporting, in
accordance with GAAP, focusing in particular on controls over information
contained in the annual and interim financial statements. The internal
controls are not expected to prevent and detect all misstatements due to error
or fraud.
    There have been no changes in Leon's internal controls over financial
reporting during the third quarter ended September 30, 2007, that have
materially affected or are reasonably likely to materially affect Leon's
internal control over financial reporting.

    Outlook

    During the first three quarters of 2007 we saw an improvement in consumer
spending which enabled us to increase sales and profits over the comparable
period for the prior year. As of late we have seen some signs of a slow down
in consumer spending and as such we expect the final quarter of 2007 to show a
moderation in sales growth as compared to last year. Despite these concerns,
our Company's strong financial position, combined with our constant effort to
improve productivity allow us to continue to look forward to the future with
cautious optimism.

    Forward-Looking Statements

    This MD&A, in particular the section under heading "Outlook", includes
forward-looking statements, which are not historic facts, based on certain
assumptions and reflect Leon's Furniture Limited's current expectations. These
forward-looking statements are subject to a number of risks and uncertainties
that could cause actual results to differ materially from current
expectations. Some of the factors that can cause actual results to differ
materially from current expectations are: sudden slow down in the Canadian
economy; drop in consumer confidence and dependency of product from third
party suppliers. Given these risks and uncertainties, investors should not
place undue reliance on forward-looking statements as a prediction of actual
results.

    
                           Leon's Furniture Limited
                           P.O. Box 1100, Stn. "B"
                                 Weston, ON
                                   M9L 2R8
                  Phone: (416) 243-4073 Fax: (416) 243-7890


    NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS

    Under National Instrument 51-102, Part 4, subsection 4.3(3)(a), if an
auditor has not performed a review of the interim financial statements, they
must be accompanied by a notice indicating that the financial statements have
not been reviewed by an auditor.
    The accompanying unaudited interim financial statements of the company
have been prepared by and are the responsibility of the company's management.
    No auditor has performed a review of these financial statements.


    -----------------------------------    --------------------------------
    Terrence T. Leon                       Dominic Scarangella
    President & Chief Executive Officer    Vice President & Chief Financial
                                           Officer

    Dated as of the 14th day of November, 2007.



    Leon's Furniture Limited-Meubles Leon Ltee
    Incorporated under the laws of Ontario

                         CONSOLIDATED BALANCE SHEETS
                                 (UNAUDITED)

                                                          As at        As at
                                                   September 30  December 31
    ($ in thousands)                                       2007         2006

    ASSETS
    Current
    Cash and cash equivalents                            21,703       28,172
    Marketable securities                               102,942       92,055
    Accounts receivable                                  15,366       26,319
    Inventory                                            71,787       74,733
    Income taxes recoverable                                790            -
    -------------------------------------------------------------------------
    Total current assets                                212,588      221,279
    Future tax assets                                    11,849       10,652
    Capital assets, net                                 212,927      207,066
    -------------------------------------------------------------------------
                                                        437,364      438,997
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Accounts payable and accrued liabilities             75,534       94,023
    Income taxes payable                                      -        2,963
    Customers' deposits                                  13,525       12,887
    Dividends payable                                     4,950        4,427
    Deferred warranty plan revenue                       11,445       12,487
    Future tax liabilities                                  776          204
    -------------------------------------------------------------------------
    Total current liabilities                           106,230      126,991
    Deferred warranty plan revenue                       20,252       18,216
    Redeemable share liability                              919          631
    Future tax liabilities                                5,188        5,584
    -------------------------------------------------------------------------
    Total liabilities                                   132,589      151,422
    -------------------------------------------------------------------------

    Shareholders' equity
    Common shares (note 5)                               13,162       11,538
    Retained earnings                                   290,837      276,037
    Accumulated other comprehensive income
     (notes 2 and 3)                                        776            -
    -------------------------------------------------------------------------
    Total shareholders' equity                          304,775      287,575
    -------------------------------------------------------------------------
                                                        437,364      438,997
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Leon's Furniture Limited-Meubles Leon Ltee

                    CONSOLIDATED STATEMENTS OF INCOME AND
                              RETAINED EARNINGS
                                 (UNAUDITED)

    Period ended September 30th
    ($ in thousands)                    3 months ended        9 months ended
                                       2007       2006       2007       2006

    Sales                           165,791    157,132    451,534    411,178
    Cost of sales                    96,321     91,658    263,102    239,799
    -------------------------------------------------------------------------
    Gross profit                     69,470     65,474    188,432    171,379
    -------------------------------------------------------------------------
    Operating expenses (income)
    Salaries and commissions         24,709     22,995     72,436     64,898
    Advertising                       6,764      7,288     22,175     22,481
    Rent and property taxes           2,581      2,552      7,931      7,847
    Amortization                      3,557      3,465     10,301      9,878
    Employee profit-sharing plan        888        822      2,855      2,470
    Other operating expenses          9,161      9,199     27,911     25,532
    Interest income                  (1,213)      (970)    (3,442)    (2,842)
    Other income                     (1,944)    (2,733)    (7,663)    (6,829)
    -------------------------------------------------------------------------
                                     44,503     42,618    132,504    123,435
    -------------------------------------------------------------------------
    Income before gain on sale of
     capital property and income
     taxes                           24,967     22,856     55,928     47,944
    Gain on sale of capital
     property                             -          -        443      2,010
    -------------------------------------------------------------------------
    Income before income taxes       24,967     22,856     56,371     49,954
    Provision for income taxes        8,793      7,970     19,487     17,064
    -------------------------------------------------------------------------
    Net income for the period        16,174     14,886     36,884     32,890
    Retained earnings, beginning
     of the period                  284,026    249,700    276,037    249,470
    Dividends declared               (4,950)    (4,427)   (14,879)   (22,127)
    Excess of cost of share
     repurchase over carrying
     value of related shares
     (note 5)                        (4,413)         -     (7,205)       (74)
    -------------------------------------------------------------------------
    Retained earnings, end of
     period                         290,837    260,159    290,837    260,159
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average number of
     common shares outstanding
     ('000's) (note 7)
    Basic                            70,871     70,824     70,810     70,730
    Diluted                          73,366     73,744     73,305     73,712
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings per share
    Basic                             $0.23      $0.21      $0.52      $0.47
    Diluted                           $0.22      $0.20      $0.50      $0.45
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Leon's Furniture Limited-Meubles Leon Ltee

               CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                                 (UNAUDITED)

    Three month period ended September 30th
    ($ in thousands)

                                                        3 months    9 months
                                                           ended       ended
                                                            2007        2007

    Net income for the period                             16,174      36,884
                                                        ---------   ---------
    Other comprehensive income, net of tax
      Unrealized (losses) gains on available-for-sale
       financial assets arising during the period            579        (388)
      Reclassification adjustment for net gains
       included in net income                               (229)     (1,228)
                                                        ---------   ---------
      Change in unrealized gains (losses) on
       available-for-sale financial assets arising
       during the period                                     350      (1,616)
                                                        ---------   ---------
    Comprehensive income for the period                   16,524      35,268
                                                        ---------   ---------
                                                        ---------   ---------



    Leon's Furniture Limited-Meubles Leon Ltee

                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (UNAUDITED)

    Three month period ended
     September 30th
    ($ in thousands)                    3 months ended        9 months ended
                                       2007       2006       2007       2006

    OPERATING ACTIVITIES
    Net income for the period        16,174     14,886     36,884     32,890
    Add (deduct) items not
     involving a current cash
     payment
      Amortization of capital
       assets                         3,557      3,465     10,301      9,878
      Amortization of deferred
       warranty plan revenue         (3,597)    (2,368)    (9,957)    (8,395)
      Loss (gain) on sale of
       marketable securities            570         (7)      (562)        (6)
      Future tax expense               (290)      (193)    (1,188)      (610)
      Loss (gain) on sale of
       capital assets                     3        (12)        21     (2,016)
    Cash received on warranty
     plan sales                       4,075      4,091     10,952     10,249
    -------------------------------------------------------------------------
                                     20,492     19,862     46,451     41,990
    Net change in non-cash
     working capital balances
     related to operations           14,950     10,821     (4,892)    10,901
    -------------------------------------------------------------------------
    Cash provided by operating
     activities                      35,442     30,683     41,559     52,891
    -------------------------------------------------------------------------

    INVESTING ACTIVITIES
    Purchase of capital assets       (7,025)   (11,933)   (19,183)   (26,697)
    Proceeds on sale of capital
     assets                               6         14        187      2,129
    Purchase of marketable
     securities                     (54,933)   (56,117)  (117,920)  (114,738)
    Proceeds on sale of
     marketable securities           41,636     35,730    108,538     96,000
    Decrease in employee share
     purchase loans                      92         45      1,691        485
    -------------------------------------------------------------------------
    Cash used in investing
     activities                     (20,224)   (32,261)   (26,687)   (42,821)
    -------------------------------------------------------------------------

    FINANCING ACTIVITIES
    Dividends paid                   (4,679)    (4,426)   (14,069)   (21,235)
    Repurchase of common shares      (4,454)         -     (7,272)       (74)
    -------------------------------------------------------------------------
    Cash used in financing
     activities                      (9,133)    (4,426)   (21,341)   (21,309)
    -------------------------------------------------------------------------

    Net increase (decrease) in
     cash and cash equivalents
     during the period                6,085     (6,004)    (6,469)   (11,239)
    Cash and cash equivalents,
     beginning of period             15,618     15,357     28,172     20,592
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                   21,703      9,353     21,703      9,353
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
    UNAUDITED

    1.  BASIS OF PREPARATION

    The Company prepares its financial statements in accordance with
    accounting principles generally accepted in Canada. The disclosures
    contained in these unaudited interim consolidated financial statements do
    not include all requirements of generally accepted accounting principles
    for annual financial statements. The unaudited interim consolidated
    financial statements should be read in conjunction with the annual
    consolidated financial statements for the year ended December 31, 2006.
    These interim consolidated financial statements were prepared following
    the same policies and standards as in the most recent annual
    consolidated financial statements with the exception of the adoption of
    the new accounting policies described in Note 2.

    2.  CHANGE IN ACCOUNTING POLICY

    In 2005, The Canadian Institute of Chartered Accountants ("CICA") issued
    Handbook Section 3855, Financial Instruments - Recognition and
    Measurement; Handbook Section 3861, Financial Instruments - Disclosure
    and Presentation; Handbook Section 3865, Hedges, and Handbook Section
    1530, Comprehensive Income. The new standards are effective for the
    Company's interim and annual financial statements commencing January 1,
    2007.

    A new statement entitled "Unaudited Interim Consolidated Statement of
    Comprehensive Income" was added to the Company's unaudited interim
    consolidated financial statements and includes net income, as well as the
    components of other comprehensive income. Accumulated other comprehensive
    income forms part of shareholders' equity.

    As provided under the standards, the adoption of these recommendations
    was done retroactively without restatement of prior period consolidated
    financial statements. Under the new standards, all of our financial
    assets and financial liabilities are classified as held for trading, held
    to maturity investments, loans and receivables, or available-for-sale
    financial assets and other financial liabilities. Held for trading
    financial instruments, which include cash and cash equivalents, are
    measured at fair value and all gains and losses are included in net
    income in the period in which they arise. Loans and receivables, which
    include accounts receivable and long-term receivables, accounts payable,
    accrued salaries and wages and certain other accrued liabilities are
    recorded at amortized cost using the effective interest method.
    Available-for-sale financial assets, which include marketable securities
    are recorded at their fair value. Unrealized holding gains and losses are
    excluded from net income and are included in other comprehensive income
    until such gains or losses are realized or an other than temporary
    impairment is determined to have occurred. The quoted bid price was used
    to estimate the fair value of the financial instruments at the balance
    sheet date.

    As a result of adopting these new standards, the Company has written up
    the marketable securities to their fair values and recorded a unrealized
    pre-tax gain of $2,883,000 ($2,392,000 net of tax) for the change in
    accounting for financial assets classified as available-for-sale. This
    has been recorded as a transition adjustment in opening accumulated other
    comprehensive income on January 1, 2007.

    3.  ACCUMULATED OTHER COMPREHENSIVE INCOME

    As at September 30, 2007, accumulated other comprehensive income was
    comprised of the unrealized gain on marketable securities of $940,000
    ($776,000 net of tax).

    4.  INCOME TAXES

    The Company's total cash payments for income taxes paid in the three
    month period ending September 30, 2007 were $7,208,000 (2006 -
    $2,936,000) and for the nine month period were $25,067,000 (2006 -
    $17,856,000).

    5.  COMMON SHARES

    During the period, 342,800 common shares were repurchased (2006 - nil) on
    the open market pursuant to the terms and conditions of Normal Course
    Issuer Bids at a net cost of approximately $4,454,000 (2006 - nil). For
    the nine month period, the Company repurchased 565,600 (2006 - 7,200)
    common shares at a net cost of approximately $7,272,000 (2006 - $74,000).
    All shares repurchased by the Company pursuant to its Normal Course
    Issuer Bids have been cancelled. The repurchase of common shares resulted
    in a reduction of share capital in the amount of approximately $41,000
    (2006 - nil) for the three month period and $67,000 (2006 - $1,000) for
    the nine month period. During the period, excess net cost over the
    carrying value of the shares of approximately $4,413,000 (2006 - nil) has
    been recorded as a reduction in retained earnings. For the nine month
    period, the excess net cost over the carrying value of the shares of
    approximately $7,205,000 (2006 - $73,000) has been recorded as a
    reduction in retained earnings.

    During the quarter ended September 30, 2007, 20,844 convertible, non-
    voting, series 1998 shares (2006 - 10,200) were converted into common
    shares with a stated value of approximately $92,000 (2006 - $45,000). For
    the nine month period 384,340 convertible, non-voting, series 1998
    shares (2006 - 126,852) were converted into common shares with a stated
    value of approximately $1,691,000 (2006 - $558,000)

    6.  COMPARATIVE FINANCIAL STATEMENTS

    The comparative financial statements have been reclassified from
    statements previously presented to conform to the presentation of the
    2007 financial statements.

    7.  SHARE SPLIT

    All common share data and earnings per share amounts in these
    consolidated financial statements have been restated to reflect the four-
    for-one subdivision of common shares effective June 27,2007.
    





For further information:

For further information: Terrence Leon, (416) 243-4073


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