Leon's Furniture Limited - 2008 second quarter



    TORONTO, Aug. 12 /CNW/ - For the three months ended June 30, 2008, total
Leon's sales were $224,688,000 including $47,962,000 of franchise sales
($190,437,000 including $43,437,000 of franchise sales in 2007), an increase
of 18%. Net income was $11,618,000, 16 cents per common share ($9,917,000,
14 cents per common share in 2007), an increase of 14.3% per common share.
    For the six months ended June 30, 2008, total Leon's sales were
$421,129,000 including $89,826,000 of franchise sales ($370,234,000 including
$84,491,000 of franchise sales in 2007), an increase of 13.7% and net income
was $22,686,000, 32 cents per common share ($20,710,000, 29 cents per common
share in 2007), an increase of 10.3% per common share.
    We are pleased that we were able to continue to improve our financial
results in the second quarter of 2008 compared to the prior year. Renovations
have been completed at our Nepean and London, Ontario stores which have just
commenced their grand re-openings. We have recently started significant
renovations to our Mississauga store which we plan to complete before the end
of the year. A major renovation to our Laval, Quebec showroom and warehouse
store is well on its way and is scheduled to be complete by the spring of
2009. Progress is continuing with a new downtown Toronto, Ontario store known
as the "Roundhouse" and we anticipate a grand opening in early 2009. We are
also pleased with the year-to-date performance of Appliance Canada which was
acquired effective January 1, 2008.
    The Directors have declared a quarterly dividend of 7 cents per common
share payable on the 9th day of October 2008 to shareholders of record at the
close of business on the 9th day of September 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.
    The Directors have also approved, subject to obtaining regulatory
approvals, the continuation of the Company's ongoing Normal Course Issuer Bid,
which expires on September 9, 2008. Pursuant to the continued bid, the Company
intends, in the twelve months commencing September 10, 2008, to purchase up to
the lesser of 4.99% of its Common Shares outstanding on August 28, 2008, and
the amount equal to 4.99% of its Common Shares outstanding on the date the
Toronto Stock Exchange accepts the notice of intention to make a normal course
issuer bid.
    Since September 10, 2007, the date on which Leon's current issuer bid
commenced, the Company has purchased 331,400 Common Shares at an average price
of $12.19 per share. The Company's Board of Directors believes that the
purchase of its common shares is an appropriate use of its corporate funds,
given its very strong liquidity position.

    
    EARNINGS PER SHARE FOR EACH QUARTER
    -----------------------------------

                            MARCH 31  JUNE 30  SEPT. 30  DEC. 31  YEAR TOTAL
                            --------  -------  --------  -------  ----------
    2008
      - Basic              16 cents  16 cents                          $0.32
      - Fully Diluted      15 cents  16 cents                          $0.31

    2007
      - Basic              15 cents  14 cents  23 cents  31 cents      $0.83
      - Fully Diluted      15 cents  13 cents  22 cents  30 cents      $0.80

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


    LEON'S FURNITURE LIMITED - MEUBLES LEON LTEE

    Mark J. Leon
    Chairman of the Board

    
                     MANAGEMENT'S DISCUSSION AND ANALYSIS
    

    August 12, 2008

    Management's Discussion and Analysis ("MD&A") should be read in
conjunction with the unaudited consolidated interim financial statements of
the Company for the six months ended June 30, 2008, MD&A for the year ended
December 31, 2007, the audited consolidated financial statements for the year
ended December 31, 2007 and the Company's Annual Information Form dated
March 14, 2008.

    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 will
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 29 franchise stores can be
found in every province across Canada. Main product lines sold at retail
include furniture, appliances and electronics.

    Revenues and Expenses

    For the three months ended June 30, 2008, total Leon's sales were
$224,688,000 including $47,962,000 of franchise sales ($190,437,000 including
$43,437,000 of franchise sales in 2007), an increase of 18%.
    Leon's corporate sales of $176,726,000 in the second quarter of 2008,
increased by $29,726,000 or 20.2%, compared to the second quarter of 2007. In
this quarter we experienced strong corporate sales growth across the country
with same store corporate sales being up 4.8% compared to the prior year. The
balance of the sales increase in the second quarter was the result of the
acquisition of Appliance Canada which took effect January 1, 2008.
    Leon's franchise sales of $47,962,000 in the second quarter of 2008,
increased by $4,525,000 or 10.4%, compared to the second quarter of 2007.
Regionally we saw strong franchise sales growth in Eastern and Central Canada,
with flat sales in Western Canada compared to the same quarter the prior year.
    Our gross margin for the second quarter of 2008 of 39.4% has decreased
1.9% from the second quarter 2007. The drop in gross margin was attributable
to Appliance Canada sales whose margins are substantially lower than a typical
Leon's store. Appliance Canada is involved in the wholesale of appliances to
the building and apartment trade, as well as some retail of high end
appliances to the public.
    Net operating expenses of $52,311,000 were up $6,831,000 or 15% for the
second quarter of 2008 compared to the second quarter of 2007. Payroll and
commission costs were up 16.5% in the quarter compared to the prior year. The
increase was the result of three key factors: the inclusion of
Appliance Canada effective January 1, 2008; higher payroll costs associated
with the increase in sales over the prior year and the continuation of a trend
started in 2007 where higher than normal wage cost increases continue in
Western Canada where they have experienced a labour shortage due to the boom
in the oil and gas industry. We saw advertising expenses increase by $168,000
or 2.1% for the second quarter compared to the prior year which is well within
budget. Other operating expenses were up 19.9% over the prior year's second
quarter. The increase in other operating expenses is consistent with the
increase in sales and the acquisition of Appliance Canada. Overall, operating
costs as a percentage of sales were down in the second quarter 2008 compared
to the prior year.
    As a result of the above, net income for the second quarter of 2008 was
$11,618,000, 16 cents per common share ($9,917,000, 14 cents per common share
in 2007), an increase of 14.3% per common share.
    For the six months ended June 30, 2008, total Leon's sales were
$421,129,000 including $89,826,000 of franchise sales ($370,234,000 including
$84,491,000 of franchise sales in 2007), an increase of 13.7% and net income
was $22,686,000, 32 cents per common share ($20,710,000, 29 cents per common
share in 2007), an increase of 10.3% per common share.

    
    Annual Financial Information

    ($ in thousands, except earnings
     per share and dividends)                   2007        2006        2005

    Net corporate sales                      637,456     591,286     547,744
    Leon franchise sales                     195,925     177,167     173,043

    Total Leon sales                         833,381     768,453     720,787

    Net income                                58,494      53,602      48,964
    Earnings per share
    Basic                                      $0.83       $0.76       $0.68
    Diluted                                    $0.80       $0.73       $0.65

    Total Assets                             475,226     438,997     381,702

    Common Share Dividends Declared          $0.2725      $0.375       $0.20
    Convertible, Non-Voting Shares
     Dividends Declared                        $0.14      $0.125       $0.10



    Liquidity and Financial Resources

    ($ in thousands, except dividends
     per share)

    Balances as at:                       June 30/08  Dec. 31/07  June 30/07
                                          ----------- ----------- -----------
    Cash and marketable securities
     (including restricted
     marketable securities)                  125,550     142,279     105,634
    Accounts receivable                       22,736      33,684      13,908
    Inventory                                 81,313      75,640      74,715
    Total assets                             475,886     475,226     419,651
    Working capital                          113,816     124,766      98,283



                                             Current       Prior       Prior
                                             Quarter     Quarter     Quarter
    For the 3 months ended                June 30/08  Mar. 31/08  Dec. 31/07
                                          ----------- ----------- -----------

    Cash flow from operations                 22,956         468      26,974
    Purchase of capital assets                 4,796       1,606       4,221
    Repurchase of capital stock                  273       1,992         434
    Dividends paid                            12,023       5,279       5,602

    Dividends paid per share                   $0.17       $0.07       $0.07
    

    Cash and marketable securities (including restricted marketable
securities) increased by $4,103,000 in the quarter mainly as the result of the
increase in net income, and reduced investment in working capital balances.
    Marketable securities consist primarily of bonds with maturities not
exceeding nine years with an interest rate range of 4.0% to 7.75% and are
stated at market value.
    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. The
assets are in the form of a trust with a financial institution amounting to
$16,584,000.
    Inventory decreased slightly by $684,000 from the first quarter of 2008.
Continued sales growth and a concentrated effort to maintain inventory levels
within the forecast were the main reasons for this decrease.
    Renovations have just been completed at our Nepean and London, Ontario
stores which have just commenced their grand re-openings this quarter. We have
recently started a significant renovation to our Mississauga store which we
plan to complete before the end of the year. A major renovation to our Laval,
Quebec showroom and warehouse store is well on its way and is scheduled to be
complete by the spring of 2009. As previously mentioned, progress is
continuing with a new downtown Toronto, Ontario store known as the
"Roundhouse" and we anticipate a grand opening in early 2009. All funding for
new store projects and renovations is scheduled to come from our existing cash
resources.

    Common Shares

    At June 30, 2008, there were 70,766,734 common shares issued and
outstanding. During the second quarter of 2008, 23,450 convertible, non-voting
series 1998 shares and 97,930 convertible, non-voting series 2002 shares were
converted to common shares. The Company repurchased 22,800 (2007 - nil) of its
common shares on the open market at an average cost of $11.99. Pursuant to the
terms and conditions of Normal Course issuer Bids, all shares repurchased by
the Company have been cancelled.
    For the six month period ending June 30, 2008, the Company repurchased
194,000 common shares at an average price of $11.68 and 38,799 convertible,
non-voting series 1998 shares and 208,403 convertible, non-voting series 2002
shares were converted to common shares.

    
    Commitments

    -------------------------------------------------------------------------
    ($ in thousands)           Payments Due by Period
                               ----------------------------------------------
                                     Less than       2-3       4-5     After
    Contractual Obligations    Total    1 year     years     years   5 years
    -------------------------------------------------------------------------
    Operating leases(1)       13,745       894     3,504     3,486     5,861
    -------------------------------------------------------------------------
    Purchase obligations(2)   12,469    12,469
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total contractual
     obligations              26,214    13,363     3,504     3,486     5,861
    -------------------------------------------------------------------------
    (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 two
        locations in Canada.

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


    ($ in thousands)                               As at               As at
                                           June 30, 2008   December 31, 2007

    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

    159,181 series 1998 shares
     (2007 - 197,980)                                700                 871
    1,189,169 series 2002 shares
     (2007 - 1,397,572)                            8,547              10,045
    745,694 series 2005 shares
     (2007 - 756,814)                              6,783               7,146
    Less employees share purchase loans          (15,743)            (17,882)
    -------------------------------------------------------------------------
    Redeemable share liability                       287                 180
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    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 to allow 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 must be redeemed 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 $329,000 (2007 - $365,000)
have been used to reduce the respective shareholder loans.
    During the second quarter 2008, 23,450 convertible, non-voting, series
1998 shares were converted into common shares with a stated value of $103,000
(2007 - 234,672 for a stated value of $1,032,000). For the six month period,
38,799 convertible, non-voting, series 1998 shares were converted into common
shares with a stated value of $170,000 (2007 - 363,496 for a stated value of
$1,599,000).
    During the second quarter 2008, 97,930 convertible, non-voting series
2002 shares were converted into common shares with a stated value of $704,000
(2007 - 22,516 for a stated value of $162,000). For the six month period,
208,403 convertible non-voting series 2002 shares were converted into common
shares with a stated value of $1,498,000 (2007 - nil). During the quarter
ended June 30, 2008, the Company cancelled 38,454 series 2005 shares (2007 -
nil) in the amount of $363,000.

    
    Quarterly Results (2008, 2007, 2006)

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

    -------------------------------------------------------------------------
                                          Quarter Ended       Quarter Ended
                                             June 30             March 31
    -------------------------------------------------------------------------
                                          2008      2007      2008      2007
    -------------------------------------------------------------------------
    Leon corporate sales               176,726   147,000  $154,577  $138,743
    -------------------------------------------------------------------------
    Leon franchise sales                47,962    43,437    41,864    41,054
    -------------------------------------------------------------------------
    Total Leon sales                   224,688   190,437   196,441   179,797
    -------------------------------------------------------------------------
    Net income per share                 $0.16     $0.14     $0.16     $0.15
    -------------------------------------------------------------------------
    Fully diluted per share              $0.16     $0.14     $0.15     $0.15
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                          Quarter Ended       Quarter Ended
                                           December 31         September 30
    -------------------------------------------------------------------------
                                          2007      2006      2007      2006
    -------------------------------------------------------------------------
    Leon corporate sales               185,922  $180,108   165,791  $157,132
    -------------------------------------------------------------------------
    Leon franchise sales                60,931    56,658    50,503   $46,500
    -------------------------------------------------------------------------
    Total Leon sales                   246,853   236,766   216,294  $203,632
    -------------------------------------------------------------------------
    Net income per share                 $0.31     $0.29     $0.23     $0.21
    -------------------------------------------------------------------------
    Fully diluted per share              $0.30     $0.28     $0.22     $0.20
    -------------------------------------------------------------------------
    

    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 year to date for
2008 are down slightly when compared to the same period for 2007. The cost
decrease is a result of the decrease in the prime lending rate.

    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 2008 are $7,017,000 compared to $6,360,000 in 2007.
Warranty expenses deducted through costs of goods sold year to date for 2008
are $2,530,000 compared to $2,113,000 in 2007. The cost of warranty repairs in
particular for electronics continues to increase but we anticipate it will
level off in the very near future.

    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 6.5% year to date for 2008
compared to 2007 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.

    Accounting Standards Implemented in 2008

    
    Capital Disclosures and Financial Instruments - Disclosure and
    Presentation
    

    In December 2006, the Canadian Institute of Chartered Accountants
("CICA") issued three new accounting standards: Section 1535,
"Capital Disclosures" ("Section 1535"), Section 3862, "Financial Instruments -
Disclosures" ("Section 3862") and Section 3863, "Financial Instruments -
Presentation" (Section 3863").
    Section 1535 establishes guidelines for the disclosure of information
regarding a company's capital and how it is managed. The adoption of Section
1535 did not have an impact on the Company's results of operations or
financial condition.
    Section 3862 and Section 3863 replaced Section 3861, "Financial
Instruments - Disclosure and Presentation". Section 3862 requires increased
disclosures regarding the risks associated with financial instruments and how
these risks are managed. Section 3863 carried forward standards for
presentation of financial instruments and provides additional guidance for the
classification of financial instruments, from the perspective of the issuer,
between liabilities and equity. Comparative information about the nature and
extent of risks arising from financial instruments is not required in the year
Section 3862 is adopted. The adoption of Section 3862 and Section 3863 did not
have an impact on the Company's results of operations or financial condition.

    Inventories

    During the first quarter of 2008, the Company also implemented
Section 3031, "Inventories" ("Section 3031"), which replaced Section 3030 of
the same title. Section 3031 provides guidance with respect to the
determination of cost and requires inventories to be measured at the lower of
cost and net realizable value. Costs such as storage costs and administrative
overhead that do not contribute to bringing inventories to their present
location and condition are specifically excluded from the cost of inventories
and expensed in the period incurred. Reversal of previous write-downs to net
realizable value when there is a subsequent increase in the value of
inventories is now required. The cost of the inventories should be based on a
first-in, first-out or a weighted average cost formula. Techniques used for
the measurement of cost of inventories, such as the retail method may be used
if the results approximate cost. The new standard also requires additional
disclosures including the accounting policies used in measuring inventories,
the carrying amount of the inventories, amounts recognized as an expense
during the period, write-downs and the amount of any reversal of any
write-downs recognized as a reduction in expenses. This new standard was
adopted by the Company for its fiscal year starting on January 1, 2008 and had
no impact on its financial position or results of operation.

    International Financial Reporting Standards ("IFRS")

    The Canadian Accounting Standards Board will require all public companies
to adopt IFRS for interim and annual financial statements relating to fiscal
years beginning on or after January 1, 2011. Companies will be required to
provide IFRS comparative information for the previous fiscal year. The
transition from Canadian GAAP to IFRS will be applicable for the Company for
the first quarter of 2011 when the Company will prepare both the current and
comparative financial information using IFRS. The Company expects the
transition to IFRS to impact financial reporting, business processes and
information systems. The Company will assess the impact of the transition to
IFRS and will continue to invest in training and resources throughout the
transition period to facilitate a timely conversion.

    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 damaged reserve
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 June 30, 2008.

    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 second quarter ended June 30, 2008, that have materially
affected or are reasonably likely to materially affect Leon's internal control
over financial reporting.

    Outlook

    In the second quarter we saw good sales growth compared to the prior
year. Although our sales continue to be strong, we are concerned about a
general slow down in the economy.

    Financial Statements Governance Practice

    Leon's Furniture Limited's financial statements have been prepared in
accordance with Canadian generally accepted accounting principles.
    The Audit Committee of the Board of Directors of Leon's Furniture Limited
reviewed the Management's Discussion and Analysis 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.

    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 on product from third
party suppliers. Given these risks and uncertainties, investors should not
place undue reliance on forward-looking statements as a prediction of actual
results.

    
                           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      Vice President & Chief Financial
    Officer                          Officer

    Dated as of the 12th day of August, 2008.


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


                         CONSOLIDATED BALANCE SHEETS
                                 (UNAUDITED)

                                                   As at               As at
                                                 June 30         December 31
    ($ in thousands)                                2008                2007
    -------------------------------------------------------------------------
    ASSETS
    Current
    Cash and cash equivalents                     13,616              25,699
    Marketable securities                         95,350             102,013
    Restricted marketable securities              16,584              14,567
    Accounts receivable                           22,736              33,684
    Income taxes recoverable                       4,652                   -
    Inventory                                     81,313              75,640
    -------------------------------------------------------------------------
    Total current assets                         234,251             251,603
    Prepaid expenses                               1,323               1,282
    Goodwill                                      16,782                   -
    Other receivables                                578                   -
    Future tax assets                             11,717              10,722
    Capital assets, net                          211,235             211,619
    -------------------------------------------------------------------------
                                                 475,886             475,226
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Accounts payable and accrued liabilities      84,820              92,051
    Income taxes payable                               -               2,137
    Customers' deposits                           18,185              13,533
    Dividends payable                              4,955               4,949
    Deferred warranty plan revenue                11,820              13,812
    Future tax liabilities                           655                 355
    -------------------------------------------------------------------------
    Total current liabilities                    120,435             126,837
    Deferred warranty plan revenue                21,901              19,124
    Redeemable share liability                       287                 180
    Future tax liabilities                         7,552               7,080
    -------------------------------------------------------------------------
    Total liabilities                            150,175             153,221
    -------------------------------------------------------------------------

    Shareholders' equity
    Common shares                                 15,666              14,020
    Retained earnings                            310,534             307,068
    Accumulated other comprehensive income          (489)                917
    -------------------------------------------------------------------------
    Total shareholders' equity                   325,711             322,005
    -------------------------------------------------------------------------
                                                 475,886             475,226
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Leon's Furniture Limited-Meubles Leon Ltee

                    CONSOLIDATED STATEMENTS OF INCOME AND
                              RETAINED EARNINGS
                                 (UNAUDITED)

     Period ended June 30th
     ($ in thousands)                     3 months ended      6 months ended
                                          2008      2007      2008      2007

    Sales                              176,726   147,000   331,303   285,743
    Cost of sales                      107,077    86,280   199,609   166,781
    -------------------------------------------------------------------------
    Gross profit                        69,649    60,720   131,694   118,962
    -------------------------------------------------------------------------
    Operating expenses (income)
    Salaries and commissions            28,438    24,410    53,608    47,727
    Advertising                          8,008     7,840    16,349    15,411
    Rent and property taxes              2,778     2,620     5,755     5,350
    Amortization                         3,801     3,367     7,563     6,744
    Employee profit-sharing plan         1,150     1,054     1,973     1,967
    Other operating expenses            11,946     9,147    22,416    18,750
    Interest income                       (886)     (978)   (2,165)   (2,229)
    Other income                        (2,924)   (1,980)   (6,471)   (5,719)
    -------------------------------------------------------------------------
                                        52,311    45,480    99,028    88,001
    -------------------------------------------------------------------------
    Income before gain on sale of
     capital property and income
     taxes                              17,338    15,240    32,666    30,961
    Gain on sale of  capital property        -         -     1,385       443
    -------------------------------------------------------------------------
    Income before income taxes          17,338    15,240    34,051    31,404
    Provision for income taxes           5,720     5,323    11,365    10,694
    -------------------------------------------------------------------------
    Net income for the period           11,618     9,917    22,686    20,710
    Retained earnings, beginning of
     the period                        311,207   279,075   307,068   276,037
    Dividends declared                 (12,021)   (4,966)  (16,978)   (9,929)
    Excess of cost of share repurchase
     over carrying value of
     related shares (note 5)              (270)        -    (2,242)   (2,792)
    -------------------------------------------------------------------------
    Retained earnings, end of period   310,534   284,026   310,534   284,026
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average number of common
     shares outstanding ('000's) (note 7)
    Basic                               70,678    70,772    70,637    70,788
    Diluted                             72,081    73,288    72,099    73,304
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings per share
    Basic                                $0.16     $0.14     $0.32     $0.29
    Diluted                              $0.16     $0.14     $0.31     $0.28
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Dividends declared per share
    Common                               $0.17   $0.0625     $0.24   $0.1250
    Convertible, non-voting                  -         -         -         -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Leon's Furniture Limited-Meubles Leon Ltee

               CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                                 (UNAUDITED)



    Three month period ended June 30th
    ($ in thousands)
                                                                  Net of tax
                                                               Tax
                                                    2008    effect      2008

    Net income for the period                     11,618         -    11,618
    Other comprehensive income, net of tax
      Unrealized  losses on available-for-sale
       financial assets arising during
       the period                                 (1,506)     (255)   (1,251)
      Reclassification adjustment for net
       gains and losses included in net income      (336)      (57)     (279)
      Change in unrealized  gains on
       available-for-sale financial assets
       arising during the period                  (1,842)     (312)   (1,530)
                                               ------------------------------
    Comprehensive income for the period            9,776      (312)   10,088
                                               ------------------------------
                                               ------------------------------

                                                                  Net of tax
                                                               Tax
                                                    2007    effect      2007

    Net income for the period                      9,917         -     9,917
    Other comprehensive income, net of tax
      Unrealized losses on available-for-sale
       financial assets arising during
       the period                                 (1,285)     (218)   (1,067)
      Reclassification adjustment for net
       gains and losses included in net income        60        10        50
      Change in unrealized (losses) on
       available-for-sale financial assets
       arising during the period                  (1,225)     (208)   (1,017)
                                               ------------------------------
    Comprehensive income for the period            8,692      (208)    8,900
                                               ------------------------------
                                               ------------------------------



    Six month period ended June 30th
    ($ in thousands)
                                                                  Net of tax
                                                               Tax
                                                    2008    effect      2008

    Net income for the period                     22,686              22,686
    Other comprehensive income, net of tax
      Unrealized  losses on available-for-sale
       financial assets arising during
       the period                                   (731)     (123)     (608)
      Reclassification adjustment for net
       gains and losses included in net income      (961)     (163)     (798)
      Change in unrealized  gains on
       available-for-sale financial assets
       arising during the period                  (1,692)     (286)   (1,406)
                                               ------------------------------
    Comprehensive income for the period           20,994      (286)   21,280
                                               ------------------------------
                                               ------------------------------


                                                                  Net of tax
                                                               Tax
                                                    2007    effect      2007

    Net income for the period                     20,710         -    20,710
    Other comprehensive income, net of tax
      Unrealized losses on available-for-sale
       financial assets arising during
       the period                                 (1,164)     (197)     (967)
      Reclassification adjustment for net
       gains and losses included in net income    (1,206)     (207)     (999)
      Change in unrealized (losses) on
       available-for-sale financial assets
       arising during the period                  (2,370)     (404)   (1,966)
                                               ------------------------------
    Comprehensive income for the period           18,340      (404)   18,744
                                               ------------------------------
                                               ------------------------------



    Leon's Furniture Limited-Meubles Leon Ltee

                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (UNAUDITED)



    Three month period ended March 31st
    ($ in thousands)                      3 months ended      6 months ended
                                          2008      2007      2008      2007
    -------------------------------------------------------------------------
    OPERATING ACTIVITIES
    Net income for the period           11,618     9,917    22,686    20,710
    Add (deduct) items not involving
     a current cash payment
      Amortization of capital assets     3,801     3,367     7,563     6,744
      Amortization of deferred
       warranty revenue                 (3,528)   (3,194)   (7,017)   (6,360)
      Loss (gain) on sale of marketable
       securities                         (144)      150      (712)   (1,132)
      Future tax expense                    65      (978)       66      (898)
      Loss (gain) on sale of capital
       assets                              (11)       18    (1,398)       18
      Cash received on warranty sales    4,110     3,488     7,802     6,877
    -------------------------------------------------------------------------
                                        15,911    12,768    28,990    25,959
    Net change in non-cash working
     capital balances related to
     operations                          7,045     5,385    (5,566)  (19,842)
    -------------------------------------------------------------------------
    Cash provided by operating
     activities                         22,956    18,153    23,424     6,117
    -------------------------------------------------------------------------

    INVESTING ACTIVITIES
    Purchase of capital assets          (4,796)   (4,331)   (6,402)  (12,158)
    Proceeds on sale of capital
     assets                                 38       161     2,463       181
    Purchase of marketable
     securities                        (71,967)  (23,791) (110,766)  (62,987)
    Proceeds on sale of marketable
     securities                         67,284    18,580   114,432    66,902
    Decrease in employee share
     purchase loans                        807     1,032     1,447     1,599
    Purchase of Appliance Canada          (908)        -   (17,114)        -
    -------------------------------------------------------------------------
    Cash used in investing activities   (9,542)   (8,349)  (15,940)   (6,463)
    -------------------------------------------------------------------------

    FINANCING ACTIVITIES
    Dividends paid                     (12,023)   (4,963)  (17,302)   (9,390)
    Repurchase of capital stock           (273)        -    (2,265)   (2,818)
    -------------------------------------------------------------------------
    Cash used in financing activities  (12,296)   (4,963)  (19,567)  (12,208)
    -------------------------------------------------------------------------
    Net increase (decrease) in cash
     and cash equivalents during the
     period                              1,118     4,841   (12,083)  (12,554)
    Cash and cash equivalents,
     beginning of period                12,498    10,777    25,699    28,172
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                      13,616    15,618    13,616    15,618
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------




    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, 2007.
    These interim consolidated financial statements were prepared following
    the same policies and standards as in the most recent annual consolidated
    financial statements, except as described in Note 2.

    2. ACCOUNTING STANDARDS IMPLEMENTED IN 2008

    Capital Disclosures and Financial Instruments - Disclosure and
    Presentation

    In December 2006, the Canadian Institute of Chartered Accountants
    ("CICA") issued three new accounting standards: Section 1535, "Capital
    Disclosures" ("Section 1535"), Section 3862, "Financial Instruments -
    Disclosures" ("Section 3862") and Section 3863, "Financial Instruments -
    Presentation" ("Section 3863").

    Section 1535 establishes guidelines for the disclosure of information
    regarding a company's capital and how it is managed. The adoption of
    Section 1535 did not have an impact on the Company's results of
    operations or financial condition.

    Section 3862 and Section 3863 replaced Section 3861, "Financial
    Instruments - Disclosure and Presentation". Section 3862 requires
    increased disclosures regarding the risks associated with financial
    instruments and how these risks are managed. Section 3863 carried forward
    standards for presentation of financial instruments and provides
    additional guidance for the classification of financial instruments, from
    the perspective of the issuer, between liabilities and equity.
    Comparative information about the nature and extent of risks arising from
    financial instruments is not required in the year Section 3862 is
    adopted. The adoption of Section 3862 and Section 3863 did not have an
    impact on the Company's results of operations or financial condition.

    Inventories

    During the first quarter of 2008, the Company also implemented Section
    3031, "Inventories" ("Section 3031"), which replaced Section 3030 of the
    same title. Section 3031 provides guidance with respect to the
    determination of cost and requires inventories to be measured at the
    lower of cost and net realizable value. Costs such as storage costs and
    administrative overhead that do not contribute to bringing inventories to
    their present location and condition are specifically excluded from the
    cost of inventories and expensed in the period incurred. Reversal of
    previous write-downs to net realizable value when there is a subsequent
    increase in the value of inventories is now required. The cost of the
    inventories should be based on a first-in, first-out or a weighted
    average cost formula. Techniques used for the measurement of cost of
    inventories, such as the retail method may be used if the results
    approximate cost. The new standard also requires additional disclosures
    including the accounting policies used in measuring inventories, the
    carrying amount of the inventories, amounts recognized as an expense
    during the period, write-downs and the amount of any reversal of any
    write-downs recognized as a reduction in expenses. This new standard was
    adopted by the Company for its fiscal year starting on January 1, 2008
    and had no impact on its financial position or results of operation.

    3. ACCUMULATED OTHER COMPREHENSIVE INCOME

    As at June 30, 2008 accumulated other comprehensive income was comprised
    of the unrealized loss on marketable securities of $594,000 ($489,000 net
    of tax)

                                                            2008        2007

    Balance, beginning of period                        $    917    $      -
    Cumulative impact of implementing new accounting
     standards (net of income taxes $491,000)                  -       2,392
    Changes in unrealized losses on available-for-sale
     financial assets arising during the period           (1,406)     (1,966)

    Balance, end of period                              $   (489)   $    426

    4. INCOME TAXES

    The Company's total cash payments for income taxes paid in the three
    month period ending June 30, 2008 were $8,172,000 (2007 - $7,448,000)
    and for the six month period were $18,752,000 (2007 - $17,859,000).

    5. COMMON SHARES

    During the quarter, 22,800 common shares were repurchased (2007 - nil) on
    the open market pursuant to the terms and conditions of Normal Course
    Issuer Bids at a net cost of approximately $273,000 (2007 - nil). For the
    six month period, the Company repurchased 194,000 (2007 - 222,800) common
    shares at a net cost of approximately $2,265,000 (2007 - $2,818,000). 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 $23,000 (2007 -
    $26,000) for the six month period. The excess net cost over the carrying
    value of the shares of approximately $2,242,000 (2007 - $2,792,000) has
    been recorded as a reduction in retained earnings.

    During the quarter ended June 30, 2008, 23,450 series 1998 shares (2007 -
    234,672) and 97,930 series 2002 shares (2007 - nil) were converted into
    common shares with a stated value of approximately $103,000 (2007 -
    $1,032,000) and $704,000 (2007 - nil) respectively. For the six month
    period 38,799 (2007 - 363,496) series 1998 shares and 208,403 (2007 -
    nil) series 2002 shares were converted in to common shares with a stated
    value of approximately $170,000 (2007 - $1,599,000) and $1,498,000 (2007
    - nil).

    During the quarter ended June 30, 2008, the Company cancelled 38,454
    series 2005 shares in the amount of $363,000 (2007 - 22,516 series 2002
    and 15,620 series 2005 for a stated value of $162,000 and $147,000
    respectively).

    6. CLASSIFICATION AND FAIR VALUE OF FINANCIAL INSTRUMENTS

    As at June 30, 2008, the classification of the Company's financial
    instruments is as follows:

    June 30, 2008



                                                     Other
                                                     Finan-
                                         Loans and    cial
                                   Avail-  Receiv- Liabili-
                           Held      able    ables     ties    Total
                    for Trading  for Sale (amorti- (amorti-   Carry-
    Financial             (fair    (fair      zed      zed      ing     Fair
     Assets               value)   value)    cost)    cost)  Amount    Value
    Cash and cash
     equivalents         13,616        -        -        -   13,616   13,616
    Accounts receivable       -        -   22,736        -   22,736   22,736
    Marketable securities     -   95,350        -        -   95,350   95,350
    Restricted marketable
     securities               -   16,584        -        -   16,584   16,584
    Income taxes recoverable  -        -    4,652        -    4,652    4,652
    Other receivables         -        -      578        -      578      578

    Financial Liabilities
    Accounts payable and
     accrued liabilities      -        -        -   84,820   84,820   84,820
    Income taxes payable      -        -        -        -        -        -
    Redeemable share
     liability                -        -        -      287      287      287


    December 31, 2007


                                                     Other
                                                     Finan-
                                         Loans and    cial
                                   Avail-  Receiv- Liabili-
                           Held      able    ables     ties    Total
                    for Trading  for Sale (amorti- (amorti-   Carry-
    Financial             (fair    (fair      zed      zed      ing     Fair
     Assets               value)   value)    cost)    cost)  Amount    Value
    Cash and cash
     equivalents         25,699        -        -        -   25,699   25,699
    Accounts receivable       -        -   33,684        -   33,684   33,684
    Marketable securities     -  102,013        -        -  102,013  102,013
    Restricted marketable
     securities               -   14,567        -        -   14,567   14,567
    Income taxes recoverable  -        -        -        -        -        -
    Other receivables         -        -        -        -        -        -

    Financial Liabilities
    Accounts payable and
     accrued liabilities      -        -        -   92,051   92,051   92,051
    Income taxes payable      -        -        -    2,137    2,137    2,137
    Redeemable share
     liability                -        -        -      180      180      180


    Risk of Management of Financial Instruments

    The Company is exposed to various risks associated with its financial
    instruments. These risks are summarized as credit risk, liquidity risk
    and market risk. The significant risks for the Company's financial
    instruments are:

    i)  Credit risk

    The Company believes it has no significant credit risk associated to its
    accounts receivable. The majority of the Company's sales are paid through
    cash, credit card or third party finance.

    ii) Liquidity risk

    The Company has no outstanding debt and the accounts payable and accrued
    liabilities are all current. As a result, the Company believes it has no
    significant liquidity risk.

    iii) Market risk

    The Company is exposed to foreign currency exchange rate risk. Some
    merchandise is paid for in United States dollars. The foreign currency
    cost is included in the inventory cost. The Company does not believe it
    has significant foreign currency risk with respect to its accounts
    payable in United States dollars.

    The Company is exposed to fluctuations in the market prices of its
    marketable securities that are classified as available for sale. Changes
    in the fair value of marketable securities are recorded, net of income
    taxes, in accumulated other comprehensive income (note 3). The risk is
    managed by ensuring a conservative asset allocation of bonds and
    equities.

    7. CAPITAL MANAGEMENT

    The Company defines capital as shareholders' equity. The Company's
    objectives when managing capital are to:
    -   ensure sufficient liquidity to support its financial obligations and
        execute its operating and strategic plans;
    -   maintain financial capacity and access to capital to support future
        development of the business while taking into consideration current
        and future industry, market and economic risks and conditions; and
    -   utilize short term funding sources to manage its working capital
        requirements.
    





For further information:

For further information: Mark J. Leon, Chairman of the Board, 45 Gordon
Mackay Road, P.O. Box 1100, Stn. "B", Weston, Ontario, M9L 2R8, Tel. (416)
243-7880, Fax (416) 243-7890


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