Leon's Furniture Limited - 2010 First Quarter

TORONTO, May 12 /CNW/ - For the three months ended March 31, 2010, total Leon's sales were $201,119,000 including $42,328,000 of franchise sales ($195,200,000 including $42,675,000 of franchise sales in 2009), an increase of 3.0%. Net income for the first quarter 2010 was $11,970,000, 17 cents per common share ($8,571,000, 12 cents per common share in 2009), an increase of 41.7% per common share.

For the first quarter of 2010, we are very pleased to report higher sales and a significant improvement in profits when compared to the first quarter of 2009. Higher sales were aided by a general improvement in the economy along with a strong marketing and merchandising effort. The profit improvement was mainly the result of three key factors: higher sales compared to the prior year quarter; an improvement in our gross margin which was aided by the strengthening of the Canadian dollar and a more favorable product mix; and the continuation of improved productivity and expense controls that were initiated in the prior year.

Although we are very satisfied with the results of our first quarter, we believe that we must remain vigilant during 2010 in order to continue to improve the performance of our Company. We are announcing today that we plan to increase the pace of our expansion over the next five years with the goal of opening approximately 5 stores per year. This year, we have already begun construction on a new 73,000 sq. ft. facility in Thunder Bay, Ontario. We will soon begin construction on a new 84,000 sq. ft. building in Regina, Saskatchewan and just recently we signed a lease for a 76,000 sq. ft. premises in Guelph, Ontario to be completely renovated for opening in the summer next year. We plan to accomplish this increased expansion by building, leasing or acquiring stores. We also plan to continue renovation of our existing buildings with major renovations and additions to our Sault St. Marie and Sudbury stores this year.

As previously announced, we paid a quarterly 7 cents dividend on April 5, 2010. Today we are happy to announce that the Directors have declared a quarterly dividend of 7 cents per common share payable on the 5th day of July 2010 to shareholders of record at the close of business on the 4th day of June 2010. As of 2007, dividends paid by Leon's Furniture Limited are "eligible dividends" pursuant to the changes to the Income Tax Act under Bill C-28, Canada.

    
    EARNINGS PER SHARE FOR EACH QUARTER

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

    2010  -  Basic          17 cents                                   $0.17
          -  Fully Diluted  16 cents                                   $0.16

    2009  -  Basic          12 cents  12 cents  22 cents  34 cents     $0.80
          -  Fully Diluted  12 cents  12 cents  21 cents  33 cents     $0.78

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

LEON'S FURNITURE LIMITED

Mark J. Leon

Chairman of the Board

    
                     MANAGEMENT'S DISCUSSION AND ANALYSIS
    

May 12, 2010

Management's Discussion and Analysis should be read in conjunction with the unaudited consolidated interim financial statements of the Company for the three months ended March 31, 2010, Management's Discussion and Analysis for the year ended December 31, 2009, the audited consolidated financial statements for the year ended December 31, 2009 and the Company's Annual Information Form dated March 24, 2010.

Financial Statements Governance Practice

Leon's Furniture Limited's financial statements have been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP") and the amounts expressed are in Canadian dollars.

This MD&A is intended to provide readers with the information that management believes is required to gain an understanding of Leon's Furniture Limited's current results and to assess the Company's future prospects. Accordingly, sections of this report contain forward-looking statements that are based on current plans and expectations. These forward-looking statements are effected by risks and uncertainties that could have a material impact on future prospects. Readers are cautioned that actual events and results may vary.

The Audit Committee of the Board of Directors of Leon's Furniture Limited reviewed the Management's Discussion and Analysis ("MD&A") and the financial statements, and recommended that 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 over 100 years. The Company's 38 corporate and 28 franchise stores can be found in every province across Canada except British Columbia. Main product lines sold at retail include furniture, appliances and electronics.

Revenues and Expenses

For the three months ended March 31, 2010, total Leon's sales were $201,119,000 including $42,328,000 of franchise sales ($195,200,000 including $42,675,000 of franchise sales in 2009), an increase of 3.0%.

Leon's corporate sales of $158,791,000 in the first quarter of 2010, increased by $6,266,000, or 4.1%, compared to the first quarter of 2009. The increase in sales in the first quarter compared to the prior year reflected increased consumer confidence, as a result of the general improvement in the economy. Same store corporate sales increased by 3.2% compared to the prior year.

Leon's franchise sales of $42,328,000 in the first quarter of 2010, decreased by $347,000 or 0.8%, compared to the first quarter of 2009. The franchise division experienced a slight sales decrease in Eastern Canada, flat sales in Ontario and a small decrease in Western Canada.

Our gross margin for the first quarter 2010 of 41.1% has increased 1.7% from the first quarter 2009. We saw our product margin on imported products increase in the quarter mainly due to the appreciation of the Canadian dollar versus the US dollar, resulting in lower product costs. In addition, we experienced higher margins as a result of a more favorable product mix and a reduction in our sales finance expenses compared to the prior year first quarter.

Net operating expenses of $47,683,000 were up $170,000 or less than 1% for the first quarter 2010 compared to the first quarter 2009. Payroll and commission costs were up by 2.0% in the quarter compared to the prior year. The increase was mainly the result of higher commissions from increased sales in the quarter. Advertising expenses decreased by $1,563,000 or 17.1% for the first quarter compared to the prior year. During 2009, the Company celebrated its 100th Anniversary and as such supported this celebration with an enhanced marketing campaign to capitalize on this once-in-a-lifetime opportunity. All other operating costs in the quarter were comparable with the prior year first quarter.

As a result of the above, net income from operations for the first quarter 2010 was $11,970,000, 17 cents per common share ($8,571,000, 12 cents per common share in 2009), an increase of 41.7% per common share.

    
    Annual Financial Information

    ($ in thousands, except earnings per
     share and dividends)                       2009        2008        2007

    Net Corporate Sales                      703,180     740,376     637,456
    Leon Franchise Sales                     194,290     209,848     195,925

    Total Leon sales                         897,470     950,224     833,381

    Net Income                                56,864      63,390      58,494
    Earnings per Share
    Basic                                      $0.80       $0.90       $0.83
    Diluted                                    $0.78       $0.87       $0.80

    Total Assets                             529,156     513,408     475,226

    Common Share Dividends Declared            $0.48       $0.38     $0.2725
    Convertible, Non-Voting Shares
     Dividends Declared                        $0.14       $0.14       $0.14


    Liquidity and Financial Resources

    ($ in thousands, except dividends
     per share)                           Mar. 31/10  Dec. 31/09  Mar. 31/09

    Cash, cash equivalents, marketable
     securities and restricted
     marketable securities                   168,258     170,726     126,139
    Accounts receivable                       21,065      31,501      17,967
    Inventory                                 85,622      83,957      87,738
    Total assets                             515,653     529,156     485,867
    Working capital                          175,270     164,759     139,047


                                             Current       Prior       Prior
                                             Quarter     Quarter     Quarter
    For the 3 months ended                Mar. 31/10  Dec. 31/09  Mar. 31/09

    Cash flow provided by (used in)
     operations                                2,871      48,444      (3,166)
    Purchase of property, plant &
     equipment                                   398       1,480       1,903
    Repurchase of capital stock                    -       3,023         707
    Dividends paid                             4,938      19,111       4,952

    Dividends paid per share                   $0.07     $0.27*      $0.07

    * includes a special dividend of 20 cents per share paid Dec. 16, 2009.
    

Cash and cash equivalents decreased by $2,468,000 in the quarter mainly as a result of the reduction in trade payables from year end.

Marketable securities consist primarily of fixed income investments with maturities not exceeding ten years with an interest rate range of 0.25% to 7.75% and are stated at market value.

As part of the warranty reinsurance agreement entered into by a subsidiary, the Company has pledged assets and provided a letter of credit, which are part of the investment portfolio. The pledged assets and the letter of credit are for the benefit of the primary insurance company for the purposes of insuring customer product warranty sales. The assets are in the form of a trust with a financial institution amounting to $16,989,000 (December 31, 2009 - $18,088,000).

Inventory levels increased by $1,665,000 from the last quarter 2009 due to an anticipated increase in sales.

This year, we have already begun construction on a new 73,000 sq. ft. facility in Thunder Bay, Ontario. We will soon begin construction on a new 84,000 sq. ft. building in Regina, Saskatchewan and just recently we signed a lease for a 76,000 sq. ft. premises in Guelph, Ontario to be completely renovated for opening in the summer next year. We also plan to continue renovation of our existing buildings with major renovations and additions to our Sault St. Marie and Sudbury stores this year. At the present time, all funding for new store projects and renovations are scheduled to come from our existing cash resources.

Common Shares

At March 31, 2010 there were 70,535,194 common shares issued and outstanding. During the first quarter of 2010, 57,583 convertible, non-voting series 2002 shares were converted to common shares, and no common shares were repurchased by the Company, through a normal course issuer bid.

Commitments

    
    -------------------------------------------------------------------------
                             Payments Due by Period (in thousands)
                            -------------------------------------------------
                                     Less than       2-3       4-5     After
    Contractual Obligations    Total    1 year     Years     years   5 years
    -------------------------------------------------------------------------
    Operating Leases(1)       27,383     3,466     6,986     5,664    11,267
    -------------------------------------------------------------------------
    Purchase Obligations(2)    9,186     9,186         -         -         -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total Contractual
     Obligations              36,569    12,652     6,986     5,664    11,267
    -------------------------------------------------------------------------
    (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 one
        location in Canada.
    

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

    
                                                         As at         As at
                                                      March 31,  December 31,
    ($ in thousands)                                      2010          2009

    Authorized
    2,284,000 convertible, non-voting, series 2002
     shares
    806,000 convertible, non-voting, series 2005
     shares
    1,224,000 convertible, non-voting, series 2009
     shares

    Issued
    911,450 series 2002 shares (2009 - 969,033)          6,552         6,965
    689,513 series 2005 shares (2009 - 689,513)          6,511         6,511
    1,207,000 series 2009 shares (2009 - 1,207,000)     10,683        10,683

    Less employees share purchase loans                (23,505)      (23,776)
    -------------------------------------------------------------------------
    Redeemable share liability                           $ 241         $ 383
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

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, 2005 and 2009 shares of approximately $401,000 (2009 - $261,000) have been used to reduce the respective shareholder loans.

During the first quarter 2010, 57,583 convertible, non-voting, series 2002 shares were converted to common shares with a stated value of $414,000 (2009 - 31,471 series 2002 for a stated value of $226,000).

Quarterly Results (2010, 2009, 2008)

    
    Quarterly Income Statement ($000) - except per share data

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                                          Quarter Ended       Quarter Ended
                                             March 31           December 31
    -------------------------------------------------------------------------
                                          2010      2009      2009      2008
    -------------------------------------------------------------------------
    Leon's Corporate Sales             158,791   152,525   197,986   206,088
    -------------------------------------------------------------------------
    Leon's Franchise sale               42,328    42,675    57,679    63,803
    -------------------------------------------------------------------------
    Total Leon's sales                 201,119   195,200   255,665   269,891
    -------------------------------------------------------------------------
    Net Income Per Share                 $0.17     $0.12     $0.34     $0.33
    -------------------------------------------------------------------------
    Fully Diluted Per Share              $0.16     $0.12     $0.33     $0.32
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                          Quarter Ended       Quarter Ended
                                           September 30          June 30
    -------------------------------------------------------------------------
                                          2009      2008      2009      2008
    -------------------------------------------------------------------------
    Leon's Corporate Sales             187,431   202,985   165,238   176,726
    -------------------------------------------------------------------------
    Leon's Franchise sale               49,243    56,219    44,693    47,962
    -------------------------------------------------------------------------
    Total Leon's sales                 236,674   259,204   209,931   224,688
    -------------------------------------------------------------------------
    Net Income Per Share                 $0.22     $0.25     $0.12     $0.16
    -------------------------------------------------------------------------
    Fully Diluted Per Share              $0.21     $0.24     $0.12     $0.16
    -------------------------------------------------------------------------
    

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, 2009. 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 for the first quarter 2010 decreased when compared to the same period for 2009. Last year as part of our 100th Anniversary, we extended even more favourable financing offers to our customers.

Inventories

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 of $91,134,000 (2009 - $90,151,000) is presented within cost of sales on the consolidated statements of income. There were no inventory write-downs (2009 - $220,000) recognized as an expense during the period ended March 31, 2010. For the period ended March 31, 2010, the inventory markdown provision totalled $3,668,000 (2009 - $3,593,000). There were $171,000 (2009 - nil) of reversals of any write-down for the period ended March 31, 2010. 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 for the quarter 2010 are $4,105,000 compared to $3,978,000 in 2009. Warranty expenses deducted through costs of goods sold year to date 2010 are $1,376,000 compared to $1,399,000 in 2009. The warranty expenses over the prior period have remained relatively unchanged.

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 1.2% for the first quarter 2010 compared to 2009 which is in line with the decrease in franchise sales for the quarter.

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.

Pending Changes to Accounting Policies

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 International Financial Reporting Standards (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.

The Company's project and governance structure for its transition to IFRS, as detailed in prior MD&A disclosures, will remain in place throughout fiscal year 2010.

The Company is nearing completion of the detailed impact analysis and development phase of its conversion project for all standards that affect the transition. The Company will focus its effort throughout 2010 on the solution development and implementation phase of IFRS that will have an impact on the Company's financial statements. To date, the project is progressing according to plan.

At this time, the Company cannot quantify the impact of IFRS on its financial statements. The Company is still finalizing and will report throughout 2010 on its conclusions and accounting policy choices on the standards noted above. The Company has set an internal project milestone of preparing the first draft of the IFRS shell financial statements and note disclosures, in the summer of 2010. The Company expects to be in a position to disclose additional qualitative analysis on the impacts of the transition to IFRS along with the required quantitative information disclosure. While the Company believes it is doing a suitable level of analysis in selecting its IFRS accounting policies, actual quantitative results may reveal further impacts to the Company. Ongoing IASB projects, discussed below, may also present changes or adjustments to the opening balance sheet and quarterly financial statements.

The Company will be testing its ability to track IFRS adjustments throughout 2010 as well as implementing any modifications that are required to existing reports and possibly creating new reports to facilitate preparation of the increased note disclosure required by IFRS. At this time, the transition is expected to have minimal impact on the Company's information systems.

The IASB has several projects slated for completion in 2010 and 2011 that may impact the transition to IFRS and the financial statements of the Company. The Company continues to monitor the progress on these projects and their impact on the Company's transition to IFRS.

The transition to IFRS for the Company mainly affects the presentation and disclosure of its financial statements. It is expected that the Company's transaction-level controls will not be affected by the transition to IFRS in any material way. However, the transition to IFRS may lead to presentation and process changes to report more detailed information in the notes of the financial statements, but it is not currently expected to lead to many measurement or fundamental differences in the accounting processes used by the Company.

In general, IFRS requires more judgment with respect to various accounting treatments. As in the past under Canadian GAAP, entity and process level controls will be in place to ensure the Company is making the appropriate judgments and following the IFRS accounting policies selected. Furthermore, the Company's finance group continues to receive ongoing training to ensure they have the required understanding of IFRS.

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.

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 March 31, 2010.

There have been no changes in the Company's internal control over financial reporting during the period ended on March 31, 2010 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

Outlook

In the first quarter of 2010 we saw an improvement in same store sales from the prior year quarter which was aided by the general improvement in consumer confidence. As well, we have seen positive signs in relation to the Canadian economy. Looking forward, we do not know what the impact will be on consumer confidence and the economy as a result of the new HST measures that go into place July 1st in Ontario and the possibility of higher interest rates in the future. However, we plan to continue the year with a well planned robust marketing and merchandising campaign along with the continuation of strong controls over expenditures. Even with these measures in place, growing sales and profits for the balance of this year will be challenging. Our strong financial position coupled with our experience in adjusting to changing market conditions, allow us to look to the future with cautious optimism.

Forward-Looking Statements

This MD&A, in particular the section under heading "Outlook", includes forward-looking statements, which are not historic facts based on certain assumptions and reflect Leon's Furniture Limited's current expectations. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from current expectations. Some of the factors that can cause actual results to differ materially from current expectations are: a continuing slowdown in the Canadian economy; a further 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 7th day of May, 2010.

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

                         CONSOLIDATED BALANCE SHEETS
                                 (UNAUDITED)

                                                         As at         As at
                                                      March 31   December 31
    ($ in thousands)                                      2010          2009
    -------------------------------------------------------------------------

    ASSETS
    Current
    Cash and cash equivalents                           39,635        58,301
    Marketable securities                              111,634        94,337
    Restricted marketable securities                    16,989        18,088
    Accounts receivable                                 21,065        31,501
    Income taxes recoverable                             1,209             -
    Inventory                                           85,622        83,957
    Future tax assets                                      903         1,133
    -------------------------------------------------------------------------
    Total current assets                               277,057       287,317
    Prepaid expenses                                     1,603         1,560
    Goodwill                                            11,282        11,282
    Intangibles                                          5,404         5,334
    Future tax assets                                   11,521        11,465
    Property, plant & equipment net                    208,786       212,198
    -------------------------------------------------------------------------
                                                       515,653       529,156
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current
    Accounts payable and accrued liabilities            66,024        83,880
    Income taxes payable                                     -         1,958
    Customers' deposits                                 14,705        15,632
    Dividends payable                                    4,937         4,938
    Deferred warranty plan revenue                      16,121        16,150
    -------------------------------------------------------------------------
    Total current liabilities                          101,787       122,558
    Deferred warranty plan revenue                      22,096        22,248
    Redeemable share liability                             241           383
    Future tax liabilities                               9,073         8,829
    -------------------------------------------------------------------------
    Total liabilities                                  133,197       154,018
    -------------------------------------------------------------------------

    Shareholders' equity
    Common shares                                       18,117        17,704
    Retained earnings                                  364,609       357,576
    Accumulated other comprehensive income                (270)         (142)
    -------------------------------------------------------------------------
    Total shareholders' equity                         382,456       375,138
    -------------------------------------------------------------------------
                                                       515,653       529,156
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Leon's Furniture Limited-Meubles Leon Ltee

                    CONSOLIDATED STATEMENTS OF INCOME AND
                              RETAINED EARNINGS
                                 (UNAUDITED)

    Period ended March 31st                                         3 months
    ($ in thousands)                                                   ended
                                                          2010          2009

    Sales                                              158,791       152,525
    Cost of sales                                       93,498        92,442
    -------------------------------------------------------------------------
    Gross profit                                        65,293        60,083
    -------------------------------------------------------------------------
    Operating expenses (income)
    Salaries and commissions                            24,723        24,244
    Advertising                                          7,590         9,153
    Rent and property taxes                              3,488         2,844
    Amortization                                         3,968         3,946
    Employee profit-sharing plan                         1,162           837
    Other operating expenses                            10,323        10,324
    Interest income                                       (691)         (852)
    Other income                                        (2,880)       (2,983)
    -------------------------------------------------------------------------
                                                        47,683        47,513
    -------------------------------------------------------------------------
    Income before income taxes                          17,610        12,570
    Provision for income taxes                           5,640         3,999
    -------------------------------------------------------------------------
    Net income for the period                           11,970         8,571
    Retained earnings, beginning of the period         357,576       338,960
    Dividends declared                                  (4,937)       (4,953)
    Excess of cost of share repurchase over carrying
     value of related shares                                 -          (668)
    -------------------------------------------------------------------------
    Retained earnings, end of period                   364,609       341,910
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Weighted average number of common shares
     outstanding ('000's)
    Basic                                               70,514        70,729
    Diluted                                             73,343        71,871
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings per share
    Basic                                                $0.17         $0.12
    Diluted                                              $0.16         $0.12
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Dividends declared  per share
    Common                                               $0.07         $0.07
    Convertible, non-voting                                  -             -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Leon's Furniture Limited-Meubles Leon Ltee

               CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
                                 (UNAUDITED)

    Three month period ended March 31st
    ($ in thousands)

                                                                  Net of tax
                                                2010  Tax effect        2010
    -------------------------------------------------------------------------
    Net income for the period                 11,970           -      11,970
    -------------------------------------------------------------------------
    Other comprehensive income, net of tax
      Unrealized losses on available-for-sale
       financial assets arising during the
       period                                   (285)        (37)       (248)
      Reclassification adjustment for net
       gains and (losses) included in net
       income                                    141          21         120
    -------------------------------------------------------------------------
      Change in unrealized losses on
       available-for-sale financial assets
       arising during the period                (144)        (16)       (128)
    -------------------------------------------------------------------------
    Comprehensive income for the period       11,826         (16)     11,842
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                                                  Net of tax
                                                2009  Tax effect        2009
    -------------------------------------------------------------------------
    Net income for the period                  8,571           -       8,571
    -------------------------------------------------------------------------
    Other comprehensive income, net of tax
      Unrealized losses on available-for-sale
       financial assets arising during the
       period                                 (1,130)       (191)       (939)
      Reclassification adjustment for net
       gains and (losses) included in net
       income                                    (31)         (6)        (25)
    -------------------------------------------------------------------------
      Change in unrealized losses on
       available-for-sale financial assets
       arising during the period              (1,161)       (197)       (964)
    -------------------------------------------------------------------------
    Comprehensive income for the period        7,410        (197)      7,607
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Leon's Furniture Limited-Meubles Leon Ltee

                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (UNAUDITED)

    Period ended March 31st                                         3 months
    ($ in thousands)                                                   ended
                                                          2010          2009
    -------------------------------------------------------------------------

    OPERATING ACTIVITIES
    Net income for the period                           11,970         8,571
    Add (deduct) items not involving a current cash
     payment
      Amortization of property, plant & equipment        3,779         3,790
      Amortization of intangible assets                    189           156
      Amortization of deferred warranty revenue         (4,105)       (3,978)
      Loss (gain) on sale of marketable securities        (121)           34
      Future tax expense                                   434           298
      Gain on sale of property, plant & equipment           (4)           (1)
      Cash received on warranty sales                    3,924         4,036
    -------------------------------------------------------------------------
                                                        16,066        12,906
    Net change in non-cash working capital balances
     related to operations                             (13,195)      (16,072)
    -------------------------------------------------------------------------
    Cash provided by (used in) operating activities      2,871        (3,166)
    -------------------------------------------------------------------------

    INVESTING ACTIVITIES
    Purchase of property, plant & equipment               (398)       (1,903)
    Purchase of intangibles                               (259)            -
    Proceeds on sale of property, plant & equipment          8             2
    Purchase of marketable securities                  (72,735)      (30,300)
    Proceeds on sale of marketable securities           56,514        35,152
    Decrease(increase) in employee share purchase
     loans                                                 271           324
    Purchase of Appliance Canada Ltd.                        -        (1,540)
    -------------------------------------------------------------------------
    Cash (used in) provided by investing activities    (16,599)        1,735
    -------------------------------------------------------------------------

    FINANCING ACTIVITIES
    Dividends paid                                      (4,938)       (4,952)
    Repurchase of common shares                              -          (707)
    -------------------------------------------------------------------------
    Cash used in financing activities                   (4,938)       (5,659)
    -------------------------------------------------------------------------
    Net decrease in cash and cash equivalents during
     the period                                        (18,666)       (7,090)
    Cash and cash equivalents, beginning of period      58,301        39,483
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of period            39,635        32,393
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

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. 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, 2009.

2. PENDING CHANGES IN ACCOUNTING POLICIES

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 International Financial Reporting Standards (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. As part of its transition to IFRS, the Company has developed an implementation plan which includes an extensive analysis of accounting differences between Canadian GAAP and IFRS and the assessment of the expected impact of the accounting differences on its consolidated financial statements. The Company continues to assess the IFRS component evaluation for those areas of the consolidated financial statements that have identified accounting differences between Canadian GAAP and IFRS. As part of its IFRS implementation plan, the Company will continue to review the impact on its business activities, its disclosure and internal controls over financial reporting and its financial reporting systems.

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 March 31, 2010 accumulated other comprehensive income was comprised of the unrealized losses on marketable securities of $328,000 ($270,000 net of tax)

    
                                                          2010          2009

    Balance, beginning of period                        $ (142)     $ (2,095)
    Changes in unrealized (losses) gains on
     available-for-sale financial assets arising
     during the period                                    (128)         (964)
                                                     ----------    ----------

    Balance, end of period                              $ (270)     $ (3,059)
                                                     ------------------------
                                                     ------------------------
    

4. INCOME TAXES

The Company's total cash payments for income taxes paid in the three month period ending March 31, 2010 were $8,871,000 (2009 - $8,619,000).

5. SHARE CAPITAL

During the quarter, no common shares were repurchased (2009 - 83,700) on the open market pursuant to the terms and conditions of Normal Course Issuer Bids (2009 - net cost of approximately $707,000). 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 $39,000 in 2009. The excess net cost over the carrying value of the shares of approximately nil (2009 - $668,000) has been recorded as a reduction in retained earnings.

During the quarter ended March 31, 2010, 57,583 convertible non-voting series 2002 shares (2009 - 31,471) were converted into common shares with a stated value of approximately $414,000 (2009 - $226,000).

6. CLASSIFICATION AND FAIR VALUE OF FINANCIAL INSTRUMENTS

As at March 31, 2010, the classification of the Company's financial instruments is as follows:

    
    March 31, 2010

                                                   Other
                                         Loans     Finan-
                                           and      cial
                               Avail-   Receiv-   Liabil-
                  Held for      able     ables     ities
                   Trading  for Sale    (amort-   (amort-    Total
    Financial        (fair     (fair      ized      ized  Carrying      Fair
     Assets          value)    value)     cost)     cost)   Amount     Value
    Cash and cash
     equivalents    39,635         -         -         -    39,635    39,635
    Accounts
     receivable          -         -    21,065         -    21,065    21,065
    Marketable
     securities          -   111,634         -         -   111,634   111,634
    Restricted
     marketable
     securities          -    16,989         -         -    16,989    16,989
    Income taxes
     recoverable         -         -     1,209         -     1,209     1,209

    Financial
     Liabilities
    Accounts
     payable and
     accrued
     liabilities         -         -         -    66,024    66,024    66,024
    Redeemable
     share
     liability           -         -         -       241       241       241


    December 31, 2009

                                                   Other
                                         Loans     Finan-
                                           and      cial
                               Avail-   Receiv-   Liabil-
                  Held for      able     ables     ities
                   Trading  for Sale    (amort-   (amort-    Total
    Financial        (fair     (fair      ized      ized  Carrying      Fair
     Assets          value)    value)     cost)     cost)   Amount     Value
    Cash and cash
     equivalents    58,301         -         -         -    58,301    58,301
    Accounts
     receivable          -         -    31,501         -    31,501    31,501
    Marketable
     securities          -    94,337         -         -    94,337    94,337
    Restricted
     marketable
     securities          -    18,088         -         -    18,088    18,088

    Financial
     Liabilities
    Accounts
     payable and
     accrued
     liabilities         -         -         -    83,880    83,880    83,880
    Income taxes
     payable             -         -         -     1,958     1,958     1,958
    Redeemable
     share
     liability           -         -         -       383       383       383
    

The Company's fair value measurements of financial instruments within the fair value hierarchy, as at March 31, 2010 and December 31, 2009 consists primarily of investments valued using Level 1 inputs.

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 that is partly mitigated by the Company's credit
         management practices. 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. There is no
         immediate need for cash from our investment portfolio.

    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; and
    -   utilize working capital to negotiate favourable supplier agreements
        both in respect of early payment discounts and overall payment terms.
    

SOURCE Leon's Furniture Limited

For further information: For further information: Dominic Scarangella, Tel: (416) 243-4073


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