Leon's Furniture Limited - 2009 Second Quarter



    TORONTO, Aug. 11 /CNW/ - For the three months ended June 30, 2009, total
Leon's sales were $209,931,000 including $44,693,000 of franchise sales
($224,688,000 including $47,962,000 of franchise sales in 2008), a decrease of
6.6%. Net income was $8,620,000, 12 cents per common share ($11,618,000, 16
cents per common share in 2008), a decrease of 25% per common share.
    For the six months ended June 30, 2009, total Leon's sales were
$405,131,000 including $87,368,000 of franchise sales ($421,129,000 including
$89,826,000 of franchise sales in 2008), a decrease of 3.8% and net income was
$17,191,000, 24 cents per common share ($22,686,000, 32 cents per common share
in 2008), a decrease of 25% per common share. Results for 2008 include an
after tax gain on sale of land of $1,135,000 or 2 cents per common share.
    Similar to the first quarter 2009, we experienced lower sales and profits
in the second quarter 2009 when compared to the prior year. We continue
celebrating our 100th Anniversary with an active marketing campaign along with
providing good consumer value. At the same time we continue to put measures in
place to keep expenses in check. As a result, we believe we are well
positioned to take advantage of any improvements in general economic
conditions. In the second quarter 2009 we completed a major renovation to our
Laval showroom and warehouse followed by a successful grand re-opening. In
addition, July 2009 saw us open a new showroom store in downtown Toronto,
Ontario known as the "Roundhouse" and are pleased with its performance to
date.
    The Directors have declared a quarterly dividend of 7 cents per common
share payable on the 9th day of October 2009 to shareholders of record at the
close of business on the 9th day of September 2009. 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, 2009. Pursuant to the continued bid, the Company
intends, in the twelve months commencing September 10, 2009, to purchase up to
the lesser of 4.99% of its Common Shares outstanding on August 28, 2009, 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, 2008, the date on which Leon's current issuer bid
commenced, the Company has purchased 146,168 Common Shares at an average price
of $9.25 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
    -----------------------------------

                                                                        YEAR
                              MARCH 31   JUNE 30  SEPT. 30   DEC. 31   TOTAL
                              --------   -------  --------   -------   -----

    2009  -  Basic            12 cents  12 cents                       $0.24
          -  Fully Diluted    12 cents  12 cents                       $0.24

    2008  -  Basic            16 cents  16 cents  25 cents  33 cents   $0.90
          -  Fully Diluted    15 cents  16 cents  24 cents  32 cents   $0.87

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


    LEON'S FURNITURE LIMITED - MEUBLES LEON LTEE

    Mark J. Leon
    Chairman of the Board


    MANAGEMENT'S DISCUSSION AND ANALYSIS

    August 11, 2009
    

    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, 2009, MD&A for the year ended
December 31, 2008, the audited consolidated financial statements for the year
ended December 31, 2008 and the Company's Annual Information Form dated March
14, 2009.

    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 of Directors, the
financial statements and MD&A were approved.

    Introduction

    Leon's Furniture Limited has been in the furniture retail business for
100 years. The company's 36 corporate and 28 franchise stores can be found in
every province except British Columbia. Main product lines sold at retail
include furniture, appliances and electronics.

    Revenues and Expenses

    For the three months ended June 30, 2009, total Leon's sales were
$209,931,000 including $44,693,000 of franchise sales ($224,688,000 including
$47,962,000 of franchise sales in 2008), a decrease of 6.6%.
    Leon's corporate sales of $165,238,000 in the second quarter of 2009,
decreased by $11,488,000 or 6.5%, compared to the second quarter of 2008. The
decrease in sales in the second quarter compared to the prior year was the
result of a general economic slowdown that began in 2008 and has picked up
speed in 2009. In order to help offset declining consumer confidence, we
continued running a very active marketing campaign to coincide with the
Company's 100th Anniversary. Although same store corporate sales were down
6.5% compared to the prior year, based upon a competitive analysis of the
marketplace, we feel confident that we did increase market share.
    Leon's franchise sales of $44,693,000 in the second quarter of 2009
decreased by $3,269,000, or 6.8% compared to the second quarter of 2008. The
franchise sales decline is similar to the corporate sales decrease. The
economic slowdown has impacted all regions of the country.
    Our gross margin for the second quarter of 2009 of 38.06% has decreased
1.35% from the second quarter 2008. The decrease in the gross margin is mainly
attributed to the increased costs of imported furniture that were not entirely
passed onto consumers. In addition, we increased the levels of promotional
pricing in order to entice consumers to come into our stores in what has been
a weak retail economy.
    Net operating expenses of $50,264,000 were down $2,047,000 or 3.9% for
the second quarter of 2009 compared to the second quarter of 2008. Payroll and
commission costs were down 8.3% in the quarter compared to the prior year.
This decrease was mainly the result of a planned effort to reduce payroll
costs in response to our expectation of a slowdown in sales for 2009. As
previously stated, the Company created an enhanced marketing campaign to
celebrate the Company's 100th Anniversary. As a result, advertising expenses
increased by $1,039,000 or 13.0% for the second quarter compared to the prior
year. For the most part, all other operating costs as a percentage of sales
were down compared to the prior year second quarter as we continue to look at
ways of reducing operating expenses given the economic slowdown.
    As a result of the above, net income for the second quarter of 2009 was
$8,620,000, 12 cents per common share ($11,618,000, 16 cents per common share
in 2008), a decrease of 25% per common share.
    For the six months ended June 30, 2009, total Leon's sales were
$405,131,000 including $87,368,000 of franchise sales ($421,129,000 including
$89,826,000 of franchise sales in 2008), a decrease of 3.8% and net income was
$17,191,000, 24 cents per common share ($22,686,000, 32 cents per common share
in 2008), a decrease of 25% per common share. The first quarter 2008 includes
an after tax gain on sale of land of $1,135,000 or 2 cents per common share.

    
    Annual Financial Information

    ($ in thousands, except earnings
     per share and dividends)                   2008        2007        2006

    Net corporate sales                      740,376     637,456     591,286
    Leon franchise sales                     209,848     195,925     177,167

    Total Leon sales                         950,224     833,381     768,453

    Net income                                63,390      58,494      53,602
    Earnings per share
    Basic                                      $0.90       $0.83       $0.76
    Diluted                                    $0.87       $0.80       $0.73

    Total Assets                             513,408     475,226     439,639

    Common Share Dividends Declared            $0.38     $0.2725      $0.375
    Convertible, Non-Voting Shares
     Dividends Declared                        $0.14       $0.14      $0.125


    Liquidity and Financial Resources

    ($ in thousands, except dividends
     per share)


    Balances as at:                       June 30/09  Dec. 31/08  June 30/08
                                          ----------  ----------  ----------

    Cash, cash equivalents and
     marketable securities (including
     restricted marketable securities)       130,172     139,275     125,550
    Accounts receivable                       16,933      30,291      22,736
    Inventory                                 96,473      92,904      81,313
    Total assets                             502,517     513,408     475,886
    Working capital                          142,889     135,192     113,816



                                             Current       Prior       Prior
                                             Quarter     Quarter     Quarter
    For the 3 months ended                June 30/09  Mar. 31/09  Dec. 31/08
                                          ----------  ----------  ----------

    Cash flow from operations                 13,961      (3,166)     16,359
    Purchase of capital assets                 5,180       1,903       7,161
    Repurchase of capital stock                  384         707           -
    Dividends paid                             4,953       4,952       4,943

    Dividends paid per share                   $0.07       $0.07       $0.07
    

    Cash and marketable securities (including restricted marketable
securities) increased by $4,033,000 in the quarter mainly as the result of the
reduced investment in working capital balances.
    Marketable securities consist primarily of bonds with maturities not
exceeding 8 years with an interest rate range of 0.249% to 7.6% 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
$16,989,000.
    Inventory increased by $8,735,000 from the first quarter of 2009. The
increase is the result of lower sales and inventory being staged for our new
downtown Toronto store which opened in July 2009.
    Renovations are ongoing at our Barrie and Whitby, Ontario stores and are
scheduled to be completed by this Fall. A major renovation was completed at
our Laval, Quebec showroom and warehouse store with a successful grand
re-opening in the second quarter 2009. We have completed work on a new
downtown Toronto, Ontario showroom store known as the "Roundhouse" and the
store had a grand opening in July 2009. We are pleased with initial results
from this most recent store addition. All funding for new store projects and
renovations is scheduled to come from our existing cash resources.

    Common Shares

    At June 30, 2009, there were 70,692,758 common shares issued and
outstanding. During the second quarter of 2009, no (2008 - 23,450)
convertible, non-voting series 1998 shares and 39,316 (2008 - 97,930)
convertible, non-voting series 2002 shares were converted to common shares.
The Company repurchased 39,468 (2008 - 22,800) of its common shares on the
open market at an average cost of $9.70, 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, 2009, the Company repurchased
123,168 common shares at an average price of $8.82, no (2008 - 38,799)
convertible, non-voting series 1998 shares and 70,787 (2008 - 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)       25,948     1,254     6,301     6,036    12,357
    -------------------------------------------------------------------------
    Purchase obligations(2)      392       392         -         -         -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total contractual
     obligations              26,340     1,646     6,301     6,036    12,357
    -------------------------------------------------------------------------
    (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:

                                                   As at               As at
    ($ in thousands)                       June 30, 2009   December 31, 2008

    Authorized

    2,284,000 convertible, non-voting,
     series 2002 shares
    806,000 convertible, non-voting,
     series 2005 shares
    1,222,000 convertible, non-voting,
     series 2009 shares

    Issued

    1,097,358 series 2002 shares
     (2008 - 1,168,145)                           $7,887              $8,396
    689,513 series 2005 shares
     (2008 - 689,513)                              6,511               6,511
    1,207,000 series 2009 shares
     (2008 - 0)                                   10,683                   -
    Less employees share purchase loans          (24,698)            (14,622)
    -------------------------------------------------------------------------
    Redeemable share liability                       383                 285
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Under the terms of its Management Share Purchase Plan, the Company
advanced non-interest bearing loans to certain of its employees in 2002, 2005
and 2009 to allow them to acquire convertible, non-voting, series 2002 shares,
series 2005 shares and series 2009 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 2002, 2005
and 2009 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. The series 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 and 2009 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
and 2009 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 $7.19 per series 2002 share, $9.44 per
series 2005 share and $8.85 per series 2009 share. Dividends paid to holders
of series 2002 and 2005 shares of approximately $261,000 (2008 - $329,000)
have been used to reduce the respective shareholder loans.
    During the second quarter 2009, no convertible, non-voting, series 1998
shares were converted into common shares with a stated value of nil (2008 -
23,450 for a stated value of $103,000). For the six month period, no
convertible, non-voting, series 1998 shares were converted into common shares
with a stated value of nil (2008 - 38,799 for a stated value of $170,000).
    During the second quarter 2009, 39,316 convertible, non-voting series
2002 shares were converted into common shares with a stated value of $283,000
(2008 - 97,930 for a stated value of $704,000). For the six month period,
70,787 convertible non-voting series 2002 shares were converted into common
shares with a stated value of $509,000 (2008 - 208,403 for a stated value of
$1,498,000). During the quarter ended June 30, 2009, the Company did not
cancel any series shares (2008 - 38,454 in the amount of $363,000 for series
2005 shares).
    During the second quarter 2009, the Company issued 1,207,000 series 2009
shares for proceeds of $10,683,000. In addition, the Company advanced
non-interest bearing loans in the amount of $10,683,000 to certain of its
employees to acquire these shares.

    
    Quarterly Results (2009, 2008, 2007)

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

    -------------------------------------------------------------------------
                                          Quarter Ended       Quarter Ended
                                             June 30             March 31
    -------------------------------------------------------------------------
                                          2009      2008      2009      2008
    -------------------------------------------------------------------------
    Leon corporate sales               165,238   176,726   152,525   154,577
    -------------------------------------------------------------------------
    Leon franchise sales                44,693    47,962    42,675    41,864
    -------------------------------------------------------------------------
    Total Leon sales                   209,931   224,688   195,200   196,441
    -------------------------------------------------------------------------
    Net income per share                 $0.12     $0.16     $0.12     $0.16
    -------------------------------------------------------------------------
    Fully diluted per share              $0.12     $0.16     $0.12     $0.15
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
                                          Quarter Ended       Quarter Ended
                                           December 31         September 30
    -------------------------------------------------------------------------
                                          2008      2007      2008      2007
    -------------------------------------------------------------------------
    Leon corporate sales               206,088   185,922   202,985   165,791
    -------------------------------------------------------------------------
    Leon franchise sales                63,803    60,931    56,219    50,434
    -------------------------------------------------------------------------
    Total Leon sales                   269,891   246,853   259,204   216,225
    -------------------------------------------------------------------------
    Net income per share                 $0.33     $0.31     $0.25     $0.23
    -------------------------------------------------------------------------
    Fully diluted per share              $0.32     $0.30     $0.24     $0.22
    -------------------------------------------------------------------------
    

    Critical Accounting Policies and Estimates

    Our significant accounting policies are contained in Note 1 to the
consolidated financial statements for the year ended December 31, 2008.
Certain of these policies involve critical accounting estimates because they
require us to make particularly subjective or complex judgments about matters
that are inherently uncertain and because of the likelihood that materially
different amounts could be reported under different conditions or using
different assumptions.

    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
2009 have increased when compared to the same period for 2008. The cost
increase is a result of the extended promotional terms in 2009 to coincide
with the Company's 100th Anniversary.

    Inventories

    During the first quarter of 2008, the Company implemented Section 3031,
"Inventories" ("Section 3031"), which replaced Section 3030 of the same title.
Section 3031 establishes that inventories should be measured at the lower of
cost and net realizable value, with guidance on the determination of cost. The
Company measures inventories at the lower of cost, determined on a first-in,
first-out basis, and net realizable value.
    The Company estimates the net realizable value as the amount at which
inventories are expected to be sold by taking into account fluctuations of
retail prices due to prevailing market conditions. If required, inventories
are written down to net realizable value when the cost of inventories is
estimated to not be recoverable due to obsolescence, damage or declining
selling prices.
    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.
    The Company's inventory amount encompasses one category which is goods
purchased and held for resale in the ordinary course of business. The amount
of inventory recognized as an expense for the three and six month periods
ended June 30, 2009 was $100,009,000 and $190,160,000 (2008 - $106,663,000 and
$196,601,000) is presented within cost of sales on the consolidated statements
of income. There were inventory write-downs of $216,000 (2008 - $96,000)
recognized as an expense during the period ended June 30, 2009. As at June 30,
2009, the inventory markdown provision totalled $3,419,000 (2008 -
$3,841,000). There were no reversals of any write-down for the period ended
June 30, 2009. Furthermore none of the Company's inventory has been pledged as
security for any liabilities of the Company.

    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 2009 are $8,008,000 compared to $7,017,000 in 2008.
Warranty expenses deducted through costs of goods sold year to date for 2009
are $2,870,000 compared to $2,530,000 in 2008. 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 down 5.5% year to date for 2009
compared to 2008 which is in line with the decrease in franchise sales for the
six month period ended June 30, 2009.

    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.

    
    Changes in Accounting Policy

    Accounting Standards Implemented in 2009

    Section 3064 - Goodwill and Intangible Assets
    

    Effective January 1, 2009, the Company adopted the new CICA accounting
standard entitled, Section 3064 "Goodwill and Intangible Assets". Section 3064
establishes standards for the recognition, measurement, presentation and
disclosure of goodwill and intangible assets. The adoption of CICA 3064 had no
impact on the Company's consolidated financial statements.

    Credit Risk and Fair Value of Financial Assets and Financial Liabilities

    In January 2009, the CICA issued Emerging Issues Committee Abstract 173,
"Credit Risk and the Fair Value of Financial Assets and Financial Liabilities"
("EIC-173"), effective for interim and annual financial statements ending on
or after January 2009. EIC-173 provides further information on the
determination of the fair value of financial assets and financial liabilities
under Handbook Section 3855, "Financial Instruments - Recognition and
Measurement." It states that an entity's own credit and the credit risk of the
counterparty should be taken into account in determining the fair value of
financial assets and financial liabilities, including derivative instruments.
The adoption of this standard did not have any impact on the Company's results
of operations or financial position.

    
    Pending Changes to Accounting Policy

    International Financial Reporting Standards ("IFRS")
    

    In March 2009, the Accounting Standards Board ("AcSB") issued its
exposure draft "Adopting IFRS in Canada, II" which reconfirmed that publicly
accountable enterprises are required to adopt IFRS for fiscal years beginning
on or after January 1, 2011. Accordingly, the Company will be required to
adopt IFRS on January 1, 2011, including interim periods in fiscal 2011.
Comparative interim and annual information will be required for the year
ending December 31, 2010.
    To meet these requirements, the Company has launched an internal
initiative to govern the conversion process and is currently evaluating the
potential impact of the conversion to IFRS on its financial statements. At
this time, the impact on the Company's future financial position and results
of operations is not reasonably determinable or estimable. The Company expects
the transition to IFRS to impact accounting, financial reporting, internal
control over financial reporting, information systems and business processes.
    The Company is developing a formal project governance structure which
will include a steering committee to guide our IFRS conversion project
forward. During the quarter, the Company has also completed a diagnostic
impact assessment which involved a high level review of the major differences
between current Canadian GAAP and IFRS, as well as establishing an
implementation guideline. In accordance with this guideline the Company has
divided its convergence plan into the following two phases:

    
    Phase 1: Detailed Impact Analysis & Development Phase (currently in
    progress)
    Phase 2: Implementation Phase
    

    The effects of any Canadian GAAP to IFRS divergences noted during the
Company's diagnostic impact assessment have not been quantified. The Company
will continue to assess the impact of the transition to IFRS and to review all
of the proposed and ongoing projects of the International Accounting Standards
Board to determine their impact on the Company. Additionally, the Company will
continue to invest in training and resources throughout the transition period
to facilitate a timely conversion.

    Section 1582 - Business Combinations

    In January 2009, the CICA issued Section 1582, Business Combinations,
replacing Section 1581, Business Combinations. This section establishes the
standards for the accounting of business combinations, and states that all
assets and liabilities of an acquired business will be recorded at fair value
at the acquisition date. The standard also states that acquisition-related
costs will be expensed as incurred and that restructuring charges will be
expensed in the periods after the acquisition date. This new Section will be
applicable to financial statements relating to fiscal years beginning on or
after January 1, 2011. The Company is currently assessing the future impact of
this new standard on its financial statements.

    Section 1601 - Consolidated Financial Statements

    In January 2009, the CICA issued Section 1601, Consolidated Financial
Statements, which replaces the existing standards. This section establishes
the standards for preparing consolidated financial statements and is effective
for fiscal years beginning on or after January 1, 2011. The Company is
currently assessing the future impact of this new standard on its financial
statements.

    Disclosure Controls and Internal Control Over Financial Reporting

    Based on the evaluation of disclosure controls and procedures, the CEO
and the CFO have concluded that the Company's disclosure controls and
procedures were effective as at June 30, 2009.
    There have been no changes in the Company's internal control over
financial reporting during the period ended on June 30, 2009 that have
materially affected, or are reasonably likely to materially affect, its
internal control over financial reporting.

    Outlook

    Similar to a trend that began in the latter part of 2008, we saw a
decrease in same store sales from the prior year's quarter. At this point we
do not see any clear signs as to when we will see an economic turnaround.
However, we just opened a new store in the third quarter 2009 known as the
"Roundhouse" which should help reinforce sales for the balance of this year.
This will also be aided by a continuation of a robust marketing campaign to
coincide with celebrating the Company's 100th Anniversary. However, even with
these measures in place, growing sales and profits for the balance of this
year will be very challenging. Despite these concerns, our strong financial
position coupled with past experience in dealing with economic slowdowns
should allow us to look to the future with cautious optimism.

    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 of Directors, the financial statements and MD&A were
approved.

    Forward-Looking Statements

    This MD&A, in particular the section under the 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: a further slowdown 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 11th day of August, 2009.



    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)                                2009                2008
    -------------------------------------------------------------------------

    ASSETS
    Current
    Cash and cash equivalents                     31,600              39,483
    Marketable securities                         81,583              83,194
    Restricted marketable securities              16,989              16,598
    Accounts receivable                           16,933              30,291
    Income taxes recoverable                      10,450               2,037
    Inventory                                     96,473              92,904
    Future tax assets                                430                 270
    -------------------------------------------------------------------------
    Total current assets                         254,458             264,777
    Prepaid expenses                               1,580               1,490
    Goodwill                                      11,282              11,282
    Intangibles                                    4,563               4,875
    Other receivables                                334                 419
    Future tax assets                             11,003              10,752
    Property, plant & equipment net              219,297             219,813
    -------------------------------------------------------------------------
                                                 502,517             513,408
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Accounts payable and accrued liabilities      73,236              95,247
    Customers' deposits                           17,750              14,119
    Dividends payable                              4,949               4,952
    Deferred warranty plan revenue                15,634              15,267
    -------------------------------------------------------------------------
    Total current liabilities                    111,569             129,585
    Deferred warranty plan revenue                21,253              21,712
    Redeemable share liability                       383                 285
    Future tax liabilities                         9,195               8,468
    -------------------------------------------------------------------------
    Total liabilities                            142,400             160,050
    -------------------------------------------------------------------------

    Shareholders' equity
    Common shares                                 16,944              16,493
    Retained earnings                            345,216             338,960
    Accumulated other comprehensive income        (2,043)             (2,095)
    -------------------------------------------------------------------------
    Total shareholders' equity                   360,117             353,358
    -------------------------------------------------------------------------
                                                 502,517             513,408
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    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
                                          2009      2008      2009      2008

    Sales                              165,238   176,726   317,763   331,303
    Cost of sales                      102,343   107,077   194,785   199,609
    -------------------------------------------------------------------------
    Gross profit                        62,895    69,649   122,978   131,694
    -------------------------------------------------------------------------
    Operating expenses (income)
    Salaries and commissions            26,070    28,438    50,314    53,608
    Advertising                          9,047     8,008    18,200    16,349
    Rent and property taxes              2,757     2,778     5,601     5,755
    Amortization                         4,169     3,801     8,115     7,563
    Employee profit-sharing plan         1,030     1,150     1,867     1,973
    Other operating expenses            10,208    11,946    20,532    22,416
    Interest income                       (766)     (886)   (1,618)   (2,165)
    Other income                        (2,251)   (2,924)   (5,234)   (6,471)
    -------------------------------------------------------------------------
                                        50,264    52,311    97,777    99,028
    -------------------------------------------------------------------------
    Income before gain on sale of
     capital property and income
     taxes                              12,631    17,338    25,201    32,666
    Gain on sale of capital property         -         -         -     1,385
    -------------------------------------------------------------------------
    Income before income taxes          12,631    17,338    25,201    34,051
    Provision for income taxes           4,011     5,720     8,010    11,365
    -------------------------------------------------------------------------
    Net income for the period            8,620    11,618    17,191    22,686
    Retained earnings, beginning
     of the period                     341,910   311,207   338,960   307,068
    Dividends declared                  (4,949)  (12,021)   (9,902)  (16,978)
    Excess of cost of share
     repurchase over carrying value
     of related shares                    (365)     (270)   (1,033)   (2,242)
    -------------------------------------------------------------------------
    Retained earnings, end of period   345,216   310,534   345,216   310,534
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average number of common
     shares outstanding ('000's)
    Basic                               70,696    70,678    70,725    70,637
    Diluted                             71,831    72,081    71,739    72,099
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings per share
    Basic                                $0.12     $0.16     $0.24     $0.32
    Diluted                              $0.12     $0.16     $0.24     $0.31
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Dividends declared per share
    Common                               $0.07     $0.17     $0.14     $0.24
    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
                                                    2009    effect      2009

    Net income for the period                      8,620         -     8,620
    Other comprehensive income, net of tax
      Unrealized gains on available-for-sale
       financial assets arising during
       the period                                  1,145       199       946
      Reclassification adjustment for net gains
       and (losses) included in net income            84        14        70
      Change in unrealized gains on
       available-for-sale financial assets
       arising during the period                   1,229       213     1,016
                                                -----------------------------
    Comprehensive income for the period            9,849       213     9,636
                                                -----------------------------
                                                -----------------------------

                                                                  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 losses 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
                                                -----------------------------
                                                -----------------------------


    Six month period ended June 30th
    ($ in thousands)
                                                                  Net of tax
                                                               Tax
                                                    2009    effect      2009

    Net income for the period                     17,191              17,191
    Other comprehensive income, net of tax
      Unrealized gains on available-for-sale
       financial assets arising during
       the period                                     15         8         7
      Reclassification adjustment for net gains
       and (losses) included in net income            53         8        45
      Change in unrealized gains on
       available-for-sale financial assets
       arising during the period                      68        16        52
                                                -----------------------------
    Comprehensive income for the period           17,259        16    17,243
                                                -----------------------------
                                                -----------------------------

                                                                  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 losses 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
                                                -----------------------------
                                                -----------------------------



    Leon's Furniture Limited-Meubles Leon Ltee

                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (UNAUDITED)


    Period ended June 30th
    ($ in thousands)                      3 months ended      6 months ended
                                          2009      2008      2009      2008
    -------------------------------------------------------------------------

    OPERATING ACTIVITIES
    Net income for the period            8,620    11,618    17,191    22,686
    Add (deduct) items not involving
     a current cash payment
      Amortization of property,
       plant & equipment                 4,013     3,801     7,803     7,563
      Amortization of intangible
       assets                              156         -       312         -
      Amortization of deferred
       warranty revenue                 (4,030)   (3,528)   (8,008)   (7,017)
      Loss (gain) on sale of
       marketable securities               100      (144)      134      (712)
      Future tax expense                     2        65       300        66
      Gain on sale of property,
       plant & equipment                   (16)      (11)      (17)   (1,398)
      Cash received on warranty sales    3,880     4,110     7,916     7,802
    -------------------------------------------------------------------------
                                        12,725    15,911    25,631    28,990
    Net change in non-cash working
     capital balances related to
     operations                          1,236     7,045   (14,836)   (5,566)
    -------------------------------------------------------------------------
    Cash provided by operating
     activities                         13,961    22,956    10,795    23,424
    -------------------------------------------------------------------------

    INVESTING ACTIVITIES
    Purchase of property, plant
     & equipment                        (5,180)   (4,796)   (7,083)   (6,402)
    Proceeds on sale of property,
     plant & equipment                      20        38        22     2,463
    Purchase of marketable securities  (68,538)  (71,967) (118,838) (110,766)
    Proceeds on sale of marketable
     securities                         64,840    67,284   119,992   114,432
    Decrease in employee share
     purchase loans                        283       807       607     1,447
    Purchase of Appliance Canada Ltd.     (842)     (908)   (2,382)  (17,114)
    -------------------------------------------------------------------------
    Cash used in investing activities   (9,417)   (9,542)   (7,682)  (15,940)
    -------------------------------------------------------------------------

    FINANCING ACTIVITIES
    Dividends paid                      (4,953)  (12,023)   (9,905)  (17,302)
    Repurchase of common shares           (384)     (273)   (1,091)   (2,265)
    -------------------------------------------------------------------------
    Cash used in financing activities   (5,337)  (12,296)  (10,996)  (19,567)
    -------------------------------------------------------------------------
    Net (decrease) increase in cash
     and cash equivalents during
     the period                           (793)    1,118    (7,883)  (12,083)
    Cash and cash equivalents,
     beginning of period                32,393    12,498    39,483    25,699
    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                      31,600    13,616    31,600    13,616
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
    UNAUDITED

    1.  BASIS OF PREPARATION

    These unaudited interim consolidated financial statements have been
    prepared by management in accordance with Canadian generally accepted
    accounting principles ("GAAP") for interim financial statements. They do
    not include all of the disclosures required by Canadian generally
    accepted accounting principles for annual financial statements and
    accordingly, the interim financial information should be read in
    conjunction with the Company's annual consolidated financial statements.
    Except for the adoption of the accounting standards discussed in note
    2 below, the interim financial information has been prepared using the
    same accounting policies as set out in note 1 to the consolidated
    financial statements for the year ended December 31, 2008.

    2.  CHANGES IN ACCOUNTING POLICIES

    Accounting Standards Implemented in 2009

    Section 3064 - Goodwill and Intangible Assets

    Effective January 1, 2009, the Company adopted the new CICA accounting
    standard entitled, Section 3064 "Goodwill and Intangible Assets". Section
    3064 establishes standards for the recognition, measurement, presentation
    and disclosure of goodwill and intangible assets. The adoption of CICA
    3064 had no impact on the Company's consolidated financial statements.

    Credit Risk and Fair Value of Financial Assets and Financial Liabilities

    In January 2009, the CICA issued Emerging Issues Committee Abstract 173,
    "Credit Risk and the Fair Value of Financial Assets and Financial
    Liabilities" ("EIC-173"), effective for interim and annual financial
    statements ending on or after January 2009. EIC-173 provides further
    information on the determination of the fair value of financial assets
    and financial liabilities under Handbook Section 3855, "Financial
    Instruments - Recognition and Measurement." It states that an entity's
    own credit and the credit risk of the counterparty should be taken into
    account in determining the fair value of financial assets and financial
    liabilities, including derivative instruments. The adoption of this
    standard did not have any impact on the Company's results of operations
    or financial position.

    Pending Changes to Accounting Policy

    International Financial Reporting Standards ("IFRS")

    In March 2009, the Accounting Standards Board ("AcSB") issued its
    exposure draft "Adopting IFRS in Canada, II" which reconfirmed that
    publicly accountable enterprises are required to adopt IFRS for fiscal
    years beginning on or after January 1, 2011. Accordingly, the Company
    will be required to adopt IFRS on January 1, 2011, including interim
    periods in fiscal 2011. Comparative interim and annual information will
    be required for the year ending December 31, 2010.

    To meet these requirements, the Company has launched an internal
    initiative to govern the conversion process and is currently evaluating
    the potential impact of the conversion to IFRS on its financial
    statements. At this time, the impact on the Company's future financial
    position and results of operations is not reasonably determinable or
    estimable. The Company expects the transition to IFRS to impact
    accounting, financial reporting, internal control over financial
    reporting, information systems and business processes.

    The Company is developing a formal project governance structure which
    will include a steering committee to guide our IFRS conversion project
    forward. During the quarter, the Company has also completed a diagnostic
    impact assessment which involved a high level review of the major
    differences between current Canadian GAAP and IFRS, as well as
    establishing an implementation guideline. In accordance with this
    guideline the Company has divided its convergence plan into the following
    two phases:

        Phase 1: Detailed Impact Analysis & Development Phase (currently in
        progress)
        Phase 2: Implementation Phase

    The effects of any Canadian GAAP to IFRS divergences noted during the
    Company's diagnostic impact assessment have not been quantified. The
    Company will continue to assess the impact of the transition to IFRS and
    to review all of the proposed and ongoing projects of the International
    Accounting Standards Board to determine their impact on the Company.
    Additionally the Company will continue to invest in training and
    resources throughout the transition period to facilitate a timely
    conversion.

    Section 1582 - Business Combinations

    In January 2009, the CICA issued Section 1582, Business Combinations,
    replacing Section 1581, Business Combinations. This section establishes
    the standards for the accounting of business combinations, and states
    that all assets and liabilities of an acquired business will be recorded
    at fair value at the acquisition date. The standard also states that
    acquisition-related costs will be expensed as incurred and that
    restructuring charges will be expensed in the periods after the
    acquisition date. This new Section will be applicable to financial
    statements relating to fiscal years beginning on or after January 1,
    2011. The Company is currently assessing the future impact of this new
    standard on its financial statements.

    Section 1601 - Consolidated Financial Statements

    In January 2009, the CICA issued Section 1601, Consolidated Financial
    Statements, which replaces the existing standards. This section
    establishes the standards for preparing consolidated financial statements
    and is effective for fiscal years beginning on or after January 1, 2011.
    The Company is currently assessing the future impact of this new standard
    on its financial statements.

    3.  ACCUMULATED OTHER COMPREHENSIVE INCOME

    As at June 30, 2009 accumulated other comprehensive income was comprised
    of the unrealized losses on marketable securities of $2,462,000
    ($2,043,000 net of tax)

                                                    2009                2008

    Balance, beginning of period                $ (2,095)           $    917
    Changes in unrealized gains (losses)
     on available-for-sale financial
     assets arising during the period                 52              (1,406)

    Balance, end of period                      $ (2,043)           $   (489)

    4.  INCOME TAXES

    The Company's total cash payments for income taxes paid in the three
    month period ending June 30, 2009 were $8,064,000 (2008 - $8,172,000) and
    for the six month period were $16,684,000 (2008 - $18,752,000).

    5. SHARE CAPITAL

    During the quarter, 39,468 common shares were repurchased (2008 - 22,800)
    on the open market pursuant to the terms and conditions of Normal Course
    Issuer Bids at a net cost of approximately $384,000 (2008 - $273,000).
    For the six month period, the Company repurchased 123,168 (2008 -
    194,000) common shares at a net cost of approximately $1,091,000 (2008 -
    $2,265,000). 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
    $58,000 (2008 - $23,000). The excess net cost over the carrying value of
    the shares of approximately $1,033,000 (2008 - $2,242,200) has been
    recorded as a reduction in retained earnings.

    During the quarter ended June 30, 2009, no convertible, non-voting,
    series 1998 shares (2008 - 23,450) and 39,316 series 2002 shares (2008 -
    97,930) were converted to common shares with a stated value of
    approximately $nil and $282,000 (2008 - $103,000 and $704,000)
    respectively. For the six month period, no convertible, non-voting,
    series 1998 shares (2008 - 38,799) and 70,787 series 2002 shares (2008 -
    208,403) were converted to common shares with a stated value of
    approximately $nil and $509,000 (2008 - $170,000 and $1,498,000)
    respectively.

    During the second quarter 2009, the Company issued 1,207,000 series 2009
    shares for proceeds of $10,683,000. In addition, the Company advanced
    non-interest bearing loans in the amount of $10,683,000 to certain of its
    employees to acquire these shares.

    6.  CLASSIFICATION AND FAIR VALUE OF FINANCIAL INSTRUMENTS

    As June 30, 2009, the classification of the Company's financial
    instruments is as follows:

    June 30, 2009

                                                     Other
                                            Loans   Financ-
                                   Avail-     and      ial
                                    able   Receiv-  Liabil-
                       Held for      for    ables    ities    Total
                        Trading     Sale   (amort-  (amort-   Carry-
    Financial             (fair    (fair     ized     ized      ing     Fair
     Assets               value)   value)    cost)    cost)  Amount    Value
    Cash and cash
     equivalents         31,600        -        -        -   31,600   31,600
    Accounts
     receivable               -        -   16,933        -   16,933   16,933
    Marketable
     securities          81,583        -        -        -   81,583   81,583
    Restricted
     marketable
     securities          16,989        -        -        -   16,989   16,989
    Income taxes
     recoverable              -        -   10,450        -   10,450   10,450
    Other receivables         -        -      334        -      334      334

    Financial
     Liabilities
    Accounts payable
     and accrued
     liabilities              -        -        -   73,236   73,236   73,236
    Redeemable share
     liability                -        -        -      383      383      383



    December 31, 2008

                                                     Other
                                            Loans   Financ-
                                   Avail-     and      ial
                                    able   Receiv-  Liabil-
                       Held for      for    ables    ities    Total
                        Trading     Sale   (amort-  (amort-   Carry-
    Financial             (fair    (fair     ized     ized      ing     Fair
     Assets               value)   value)    cost)    cost)  Amount    Value
    Cash and cash
     equivalents         39,483        -        -        -   39,483   39,483
    Accounts
     receivable               -        -   30,291        -   30,291   30,291
    Marketable
     securities               -   83,194        -        -   83,194   83,194
    Restricted
     marketable
     securities               -   16,598        -        -   16,598   16,598
    Income taxes
     recoverable              -        -    2,037        -    2,037    2,037
    Other receivables         -        -      419        -      419      419

    Financial
     Liabilities
    Accounts payable
     and accrued
     liabilities              -        -        -   95,247   95,247   95,247
    Redeemable share
     liability                -        -        -      285      285      285


    RISK MANAGEMENT

    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 at this point in time, it has some credit risk
         associated to its accounts receivable as it relates to the Appliance
         Canada division. The majority of the Company's sales are paid
         through cash, credit card or third party finance. The Company relies
         on two third party credit suppliers to supply financing alternatives
         to our customers.

    ii)  Liquidity risk
         The Company has no outstanding debt and does not rely upon available
         credit facilities to finance operations or to finance committed
         capital expenditures. The portfolio of marketable securities
         consists primarily of Canadian and International bonds for which
         there is minimum exposure to U.S. financial companies affected by
         the credit crisis and corporate failures. There is no immediate need
         for cash from our investment portfolio.

         Working capital requirements are expected to increase. Terms with
         our suppliers are being reviewed and when there is an opportunity to
         increase the purchase discount, we are making the offer to secure
         the inventory supply.

    iii) Foreign currency risk
         The Company is exposed to foreign currency exchange rate risk. Some
         merchandise is paid for in U.S. 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 U.S. dollars.

    iv)  Market price risk
         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 relatively 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: Dominic Scarangella, tel: (416) 243-4073


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