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Press release from CNW Group

Leon's Furniture Limited - 2010 THIRD QUARTER

Wednesday, November 10, 2010

Leon's Furniture Limited - 2010 THIRD QUARTER13:39 EST Wednesday, November 10, 2010TORONTO, Nov. 10 /CNW/ - For the three months ended September 30, 2010, total Leon's sales were $228,921,000 including $49,421,000 of franchise sales ($236,674,000 including $49,243,000 franchise sales in 2009), a decrease of 3.3% from the third quarter 2009.  Net income was $18,081,000, 26¢ per common share ($15,643,000, 22¢ per common share in 2009), an increase of 18.2% per common share. The third quarter 2010 includes an after tax gain of $1,050,000 on sale of property (1.5¢ per common share).For the nine months ended September 30, 2010, total Leon's sales were $642,317,000 including $137,242,000 of franchise sales ($641,805,000 including $136,611,000 of franchise sales in 2009), an increase of 0.1% and net income was $41,924,000, 60¢ per common share ($32,834,000, 46¢ per common share in 2009), an increase of 30.4% per common share.Although our sales were lower in the third quarter 2010 compared to the prior year, we are pleased with the continued growth in profitability this year. We thank our Associates for all of their efforts this year in improving our productivity and keeping overall expenditures in check.Construction has been completed on a new 73,000 sq. ft. facility in Thunder Bay, Ontario which will open this week. Construction has begun on a new 84,000 sq. ft. building in Regina, Saskatchewan that is scheduled to be completed by late 2011. We have also committed to leases for a 76,000 sq. ft. store in Guelph, Ontario and a 46,700 sq. ft. store in Rosemère, Quebec. We anticipate the opening of these showrooms in the Fall of 2011. We plan major renovations to be complete by the end of next year at our Sault St. Marie and Sudbury stores. In addition, we recently had grand openings at two new franchises; Collingwood, Ontario and Fort Frances, Ontario. At the present time, all funding for new store projects and renovations is scheduled to come from our existing cash resources.The Directors have declared a quarterly dividend of 9¢ per common share payable on January 10, 2011 to shareholders of record at the close of business on December 10, 2010. In addition, the annual dividend on the convertible non-voting series shares of 18¢ will be payable on January 10, 2011 to the shareholders of record at the close of business on December 10, 2010. 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.For further information, please consult the Company's Management Discussion & Analysis dated November 10, 2010.EARNINGS PER SHARE FOR EACH QUARTER MARCH 31JUNE 30SEPT. 30DEC. 31YEAR TOTAL2010--BasicFully Diluted17¢16¢17¢16¢26¢25¢ $0.60$0.572009--BasicFully Diluted12¢12¢12¢12¢22¢21¢34¢33¢$0.80$0.782008--BasicFully Diluted16¢15¢16¢16¢25¢24¢33¢32¢$0.90$0.87LEON'S FURNITURE LIMITED - MEUBLES LEON LTEEMark J. LeonChairman of the BoardMANAGEMENT'S DISCUSSION AND ANALYSISManagement's Discussion and Analysis ("MD&A") should be read in conjunction with the unaudited consolidated interim financial statements of the Company for the three and nine months ended September 30, 2010, the MD&A 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 PracticeLeon'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 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.IntroductionLeon'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 except British Columbia. Main product lines sold at retail include furniture, appliances and electronics.Revenues and ExpensesFor the three months ended September 30, 2010, total Leon's sales were $228,921,000 including $49,421,000 of franchise sales ($236,674,000 including $49,243,000 of franchise sales in 2009), a decrease of 3.3% from the third quarter 2009.Leon's corporate sales of $179,500,000 in the third quarter of 2010, decreased by $7,931,000 or 4.2%, compared to the third quarter of 2009. The decrease in sales in the third quarter compared to the prior year was the result of a continuation of the uncertain economic climate. Same store corporate sales were down 4.2 % compared to the prior year. (Same store sales are calculated for stores that have been open at least 12 months).Leon's franchise sales of $49,421,000 in the third quarter of 2010, increased by $178,000 or 0.4%, compared to the third quarter of 2009.Our gross margin for the third quarter of 2010 of 40.63% has increased 1.08% from the third quarter 2009. Similar to the first half of 2010, we saw our product margin on imported goods increase in the quarter due to the appreciation of the Canadian dollar versus the US dollar which resulted in lower product costs. Higher margins were also experienced as a result of a more favorable product mix and a reduction in our sales finance expenses compared to the prior year third quarter.Net operating expenses of $49,045,000 were down $2,126,000 or 4.2% for the third quarter 2010 compared to the third quarter 2009. Payroll and commission costs were down 1.2% in the third quarter compared to the prior year. This decrease was mainly the result of lower commissions paid on lower sales in the quarter. Other income was up $957,000 or 51 % compared to the prior year.  This change was mainly the result of a gain on sale of investments year to date 2010, compared to a loss on sale of investments in the prior year. For the most part, all other operating expenses were basically flat as a percentage of sales compared to the prior year third quarter.As a result of the above, net income for the third quarter 2010 was $18,081,000, 26¢ per common share (as compared to $15,643,000, 22¢ per common share in 2009), an increase of 18.2% per common share. The third quarter 2010 includes an after tax gain on sale of property of 1.5¢ per common share.For the nine months ended September 30, 2010, total Leon's sales were $642,317,000 including $137,242,000 of franchise sales ($641,805,000 including $136,611,000 of franchise sales in 2009), an increase of 0.1% and net income was $41,924,000, 60¢ per common share ($32,834,000, 46¢ per common share in 2009), an increase of 30.4% per common share.Annual Financial Information($ in thousands, except earnings per share anddividends) 2009 2008 2007       Net corporate sales 703,180 740,376 637,456Leon's franchise sales 194,290 209,848 195,925       Total Leon's sales 897,470 950,224 833,381       Net income 56,864 63,390 58,494Earnings per share      Basic $0.80 $0.90 $0.83Diluted $0.78 $0.87 $0.80       Total Assets 529,156 513,408 475,226       Common Share Dividends Declared $0.48 $0.38 $0.2725Convertible, Non-Voting Shares Dividends Declared $0.14 $0.14 $0.14Liquidity and Financial Resources($ in thousands, except dividends per share)Balances as at: Sept 30/10Dec. 31/09Sept 30/09    Cash, cash equivalents and marketable securities(including restricted marketable securities)182,260170,726145,761Accounts receivable20,62731,50119,659Inventory 97,85283,95789,728Total assets 543,238529,156507,075Working capital 187,127164,759159,640For the 3 months endedCurrent QuarterSept 30/10Prior QuarterJune 30/10Prior QuarterMar 31/10    Cash flow provided by (used in) operations15,29918,6262,871Purchase of property, plant & equipment3,1004,568398Repurchase of common shares5,419814-Dividends paid4,9364,9374,953    Dividends paid per share $0.07$0.07$0.07Cash, cash equivalents and marketable securities (including restricted marketable securities) increased by $6,557,000 in the quarter mainly as a result of net income generated from operations and the proceeds on sale of property, plant and equipment.Marketable securities consist primarily of bonds with maturities not exceeding 10 years with an interest rate range of 3.5% to 6.65% 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 for the purposes of insuring customer product warranty sales.  The assets are in the form of a trust with a financial institution amounting to $19,386,000.Inventory increased $4,927,000 from the second quarter 2010.  The inventory increase will ensure we have merchandise in place for the seasonally higher sales that normally take place in the fourth quarter of the year.Construction has been completed on a new 73,000 sq. ft. facility in Thunder Bay, Ontario which will open this week. Construction has begun on a new 84,000 sq. ft. building in Regina, Saskatchewan that is scheduled to be completed by late 2011. We have also committed to leases for a 76,000 sq. ft. store in Guelph, Ontario and a 46,700 sq. ft. store in Rosemère, Quebec. We anticipate the opening of these showrooms in the Fall of 2011. We plan major renovations to be complete by the end of next year at our Sault St. Marie and Sudbury stores. In addition, we recently had grand openings at two new franchises; Collingwood, Ontario and Fort Frances, Ontario. At the present time, all funding for new store projects and renovations are scheduled to come from our existing cash resources.Common SharesAt September 30, 2010 there were 70,094,434 common shares issued and outstanding.  During the third quarter of 2010, 39,296 convertible non-voting series 2002 shares (2009 - 98,107) were converted into common shares. The Company repurchased 431,837 (2009 - 39,272) of its common shares in the open market at an average price of $12.55. Pursuant to the terms and conditions of Normal Course Issuer Bids, all shares repurchased by the Company have been cancelled.For the nine-month period ending September 30, 2010, the Company repurchased 498,896 (2009 - 162,440) common shares at an average price of $12.50 and 115,719 convertible, non-voting series 2002 shares (2009 - 168,894) were converted to common shares.Commitments($ in thousands)Contractual ObligationsPayments Due by PeriodTotalLess than1 year2-3years4-5yearsAfter5 years Operating Leases 125,4708657,1265,80411,675Purchase Obligations11,84911,849   Total Contractual Obligations37,31912,7147,1265,80411,6751 The Company is obligated under operating leases to future minimum annual rental payments for various land and building sites across Canada.In addition, the Company has commitments related to redeemable shares as follows:($ in thousands)                                                 As at September 30, 2010   As at December 31, 2009Authorized    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    853,314 series 2002 shares (2009 - 969,033) 6,133    6,965689,513 series 2005 shares (2009 - 689,513) 6,511   6,5111,175,506 series 2009 shares (2009 - 1,207,000) 10,404   10,683Less employees share purchase loans (22,401)   (23,776)Redeemable share liability $      647         $     285Under 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 third quarter of 2010, 39,296 convertible, non-voting series 2002 shares (2009 - 98,107) were converted into common shares with a stated value of $282,000 (2009 - $705,000). For the nine month period, 115,719 convertible, non-voting series 2002 shares (2009 - 168,894) were converted into common shares with a stated value of $832,000 (2009 - $1,214,000).During the three month period ended September 30, 2010, 31,494 convertible, non-voting series 2009 shares were cancelled (2009 - nil) in the amount of $279,000 (2009 - nil). For the nine month period, 31,494 convertible, non-voting series 2009 shares were cancelled (2009 - nil) in the amount of $279,000 (2009 - nil).Quarterly Results (2010, 2009, 2008)Quarterly Income Statement ($ in thousands, except earnings per share)   Quarter EndedSeptember 30Quarter EndedJune 30Quarter EndedMarch 31Quarter EndedDecember 31 20102009201020092010200920092008Leon Corporate Sales179,500187,431166,784165,238158,791152,525197,986206,088Leon Franchise Sales49,42149,24345,49344,69342,32842,67557,67963,803Total Leon sales228,921236,674212,277209,931201,119195,200255,665269,891Net IncomePer Share$0.26$0.22$0.17$0.12$0.17$0.12$0.34$0.33Fully DilutedPer Share$0.25$0.21$0.16$0.12$0.16$0.12$0.33$0.32Critical Accounting Policies and EstimatesOur 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 RecognitionSales 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 2010 have decreased when compared to the same period for 2009. The cost decrease is a result of fewer extended promotional terms offered in 2010. During 2009 extended promotional teams were offered to coincide with the Company's 100th Anniversary. InventoriesThe 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 nine month periods ended September 30, 2010 was $103,952,000 and $292,989,000 (2009- $110,555,000 and $300,715,000) which is presented within cost of sales on the consolidated statements of income.  There was no inventory write-downs (2009 - $23,000) recognized as an expense during the three months ended September 30, 2010. As at September 30, 2010, the inventory markdown provision totaled $3,862,000 (2009 - $3,832,000). There were $138,000 of reversals of write-downs (2009-nil) for the three months ended September 30, 2010.  Furthermore none of the Company's inventory has been pledged as security for any liabilities of the Company.Warranty RevenueWarranty 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 2010 are $12,492,000 compared to $11,949,000 in 2009. Warranty expenses deducted through costs of goods sold year to date 2010 are $4,439,000 compared to $4,609,000 in 2009. Warranty repair costs relating primarily to televisions have begun to decrease due to the replacement of these products with newer technologically advanced products.Franchise RoyaltiesLeon's franchisees operate as independent owners. The Company charges the franchisee a royalty fee based primarily on a percentage of the franchisees' gross sales. This royalty income is recorded by the Company on an accrual basis under the heading "Other income" and is up 0.3% year to date for 2010 compared to 2009 which is in line with the increase in franchise sales for the year.Volume RebatesThe 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 PoliciesInternational 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, as issued by the International Accounting Standards Board ("IASB"), 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 has commenced the process to transition from current Canadian GAAP to IFRS. As previously stated, we have established an internal project leader that is led by executive management and includes key participants from various areas of the Company as necessary to plan and achieve a smooth transition to IFRS. Periodic progress reporting to the audit committee on the status of the IFRS implementation has been ongoing since fiscal year 2009.The Company has mostly completed the detailed impact analysis phase of its conversion project for the standards that affect the transition to IFRS. The Company is currently focusing its efforts on the solutions development phase. To date, the project is progressing according to plan. The following table summarizes the key activities of the Company's IFRS conversion project:Key Activities Target Milestones Current Status Identify differences between IFRS and Canadian GAAP.Complete assessment of differences between IFRS and GAAP.Completed.Select accounting policy choices.Review and approval of policy decisions by Q3 2010.In progress. To be completed by Q4.Evaluate and select which IFRS 1 exemptions will be taken on transition to IFRS.Confirm selection of exemptions by Q2 2010.Completed (see section below).Prepare financial statements and note disclosures in compliance with IFRS.Management approval and audit committee review of preliminary pro forma financial statements and note disclosures during the second half of fiscal 2010.In progress.Quantify the effect of converting to IFRS.Quantification of the effect of the conversion by beginning of Q4 2010.In progress.Prepare first time adoption reconciliation required under IFRS 1.Reconciliation completed and approved by changeover date.Differences currently being quantified. Reconciliation to be developed during Q4 of 2010.Identify required changes to the financial system based on the implementation of IFRS.Complete a review of systems and process to address additional systems required to implement IFRS.Identification of changes required to the financial systems was preliminarily determined to be minimal.The Company has completed an extensive analysis of the IFRS component evaluation for those areas of the financial statements that have identified accounting differences between GAAP and IFRS.  The table below provides a brief summary of select IFRS that may impact Leon's, their differences from Canadian GAAP and their potential impact to the Company. The table is not comprehensive and does not include all of the differences from GAAP for the standards noted. Also, the table does not include all the standards that may require changes for the transition to IFRS. Ongoing work relating to other standards not presented in the table may possibly have a significant impact on the Company's consolidated financial statements.StandardsDifference from GAAPPotential ImpactPresentation and disclosureIFRS requires significantly more disclosure than GAAP for certain standards. In some cases, IFRS also requires different presentation on the balance sheet and income statement. In addition, a new statement entitled "Consolidated Statement of Changes in Equity" will be included upon the conversion to IFRS.This will be the most significant impact to the Company. The other differences and impacts noted throughout this table will cause measurement differences, but based on historical analysis and current future projections their impact on the operating profit is not expected to be significant. The increased disclosure requirements will necessitate adjustments to some current processes and the implementation of new financial reporting processes to ensure the appropriate data is collected for disclosure purposes.Property, plant and equipment (PP&E)Significant asset components must be depreciated separately. This accounting treatment is commonly referred to as componentization of PP&E.The annual amortization expense may change to reflect further componentization of the Company's PP&E. First-time adoptionIFRS contains explicit guidance on first-time adoption of IFRS. There are several elections available to ease the transition to IFRS and some mandatory exemptions from retrospective application of IFRS.The Company has selected the available elections the Company wishes to make and will apply them in preparing the opening balance sheet under IFRS.  The following elections will be made under IFRS 1:The Company has elected to use the exemption to carry forward our Canadian GAAP accounting of the Appliance Canada business acquisition.The Company does not elect to record property, plant and equipment at fair value on transition. The Company is accounting for these items at their historical cost.Impairment of assetsIFRS requires the assessment of asset impairment to be based on discounted future cash flows. IFRS allows the reversal of impairment losses, other than for goodwill and indefinite life intangible assets.At this point, the Company has not identified any impairment losses as at the transition date of January 1, 2010.The potential for impairment losses or reversals of previously recognized impairments on assets other than Goodwill as compared to Canadian GAAP will exist under IFRS. The potential for future asset impairments will increase for assets whose carrying amounts are currently supported by alternate valuation methods.The Company will continue to report throughout 2010 on its conclusions and accounting policy choices on the standards noted above.  The Company's external auditors are in process of completing their detailed review of the Company's accounting policy position papers during the second half of 2010.  During the fourth quarter of 2010 the IFRS conversion project will be focused on the milestones listed below:MilestoneDeadlinePrepare IFRS Opening Balance Sheet as at January 1, 2010In Progress. To be completed during Q4 of 2010External auditors to conduct procedures on the Opening Balance SheetTo be completed during Q4 of 2010Finalize draft of first quarter 2010 financial statements including notesIn Progress. To be completed during Q4 of 2010While the Company believes it has performed an appropriate level of analysis in selecting its IFRS accounting policies, actual quantitative results may reveal additional impacts to the Company that were not anticipated.  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 IASB's progress on these projects and their impact on the Company's transition to IFRS.Impact on information systems and technologyThe most significant information system challenge for the IFRS conversion is to ensure the Company has the ability to track its IFRS adjustments in the year of transition and that any new IFRS compliance reports can be produced to facilitate the preparation of IFRS financial statements. The Company is confident in its ability to track IFRS adjustments throughout 2010 to facilitate the preparation of the increased note disclosure required under IFRS. As of now, the transition is not expected to have a significant impact on the Company's other information systems.Impact on internal controls over financial reporting and disclosure controls and proceduresAs described further below, in accordance with its conversion plan the Company is continually reviewing its internal controls over financial reporting and its disclosure controls and procedures and will update these as required to ensure they are appropriate for reporting under IFRS.As noted, the transition to IFRS for the Company mainly affects the presentation and disclosure of its financial statements. This may lead to process changes in order to facilitate the reporting of more detailed information in the notes to 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.  Also, the Company has implemented controls over its IFRS adjustment process, which primarily includes review by qualified members of Leon's head office finance and accounting department.  The conversion to IFRS exposes the Company to control risks when there are new or modified processes. To address these risks the Company has been designing controls for areas where increased judgment is required.Financial reporting expertiseOver the past couple of years, the Company's key financial reporting managers have attended several IFRS training courses. The Company's IFRS project leader has also reviewed detailed technical accounting materials internally on the differences between GAAP and IFRS as they apply to the Company.Business ActivitiesThe transition to IFRS is currently having a minimal impact on Leon's operational activities.Disclosure Controls and Internal Control Over Financial ReportingBased 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 September 30, 2010.There have been no changes in the Company's internal control over financial reporting during the period ended September 30, 2010 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.OutlookDuring the third quarter of 2010, same store sales decreased from the prior year's quarter. We feel there were many factors that lead to this decrease in sales. We have seen lower consumer confidence as a result of the general slow down in the Canadian economy and the new HST measures that went into place in Ontario on July 1, 2010. This has also resulted in downward pressure on retail pricing, particularly with respect to electronics goods.  Given these external pressures we have planned an innovative marketing campaign and aggressive pricing to encourage customers to purchase from our stores. In addition, we plan to open a new store in Thunder Bay this November 2010. 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.Forward-Looking StatementsThis 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 sudden slow down in the Canadian economy; a further drop in consumer confidence and a 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.NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTSUnder 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     President & Chief Executive Officer      Dominic ScarangellaVice President & Chief Financial OfficerDated as of the 10th day of November, 2010.Leon's Furniture Limited-Meubles Leon LteeIncorporated under the laws of Ontario              CONSOLIDATED BALANCE SHEETS(UNAUDITED)     As at September 30 As at December 31($ in thousands)2010 2009    ASSETS   Current    Cash and cash equivalents55,050 58,301Marketable securities107,824 94,337Restricted marketable securities19,386 18,088Accounts receivable20,627 31,501Income taxes recoverable2,470 - Inventory97,852 83,957Future tax assets400 1,133Total current assets303,609 287,317Prepaid expenses1,448 1,560Goodwill11,282 11,282Intangibles5,018 5,334Future tax assets11,383 11,465Property, plant & equipment net210,498 212,198 543,238 529,156    LIABILITIES AND SHAREHOLDERS' EQUITY   Current    Accounts payable and accrued liabilities77,654 83,880Income taxes payable-  1,958Customers' deposits15,459 15,632Dividends payable6,308 4,938Deferred warranty plan revenue 17,061 16,150Total current liabilities116,482 122,558Deferred warranty plan revenue 20,924 22,248Redeemable share liability647 383Future tax liabilities9,078 8,829Total liabilities147,131 154,018    Shareholders' equity   Common shares18,301 17,704Retained earnings377,319 357,576Accumulated other comprehensive income487 (142)Total shareholders' equity396,107 375,138 543,238 529,156Leon's Furniture Limited-Meubles Leon Ltee                                               CONSOLIDATED STATEMENTS OF INCOME ANDRETAINED EARNINGS(UNAUDITED)Period ended September 30th     ($ in thousands)  3 months ended   9 months ended 20102009 20102009      Sales179,500187,431 505,075505,194Cost of sales106,564113,299 300,249308,084Gross profit72,93674,132 204,826197,110Operating expenses (income)     Salaries and commissions27,16627,497 78,19477,811Advertising7,2467,392 21,72225,592Rent and property taxes3,4273,381 10,4628,982Amortization4,0534,293 11,99612,408Employee profit-sharing plan1,097960 3,4712,827Other operating expenses9,67710,274 30,48730,806Interest income(789)(751) (2,143)(2,369)Other income(2,832)(1,875) (8,081)(7,109) 49,04551,171 146,108148,948Income before gain on sale of capital property and income taxes23,89122,961 58,71848,162Gain on sale of capital property1,231-  1,231- Income before income taxes25,12222,961 59,94948,162Provision for income taxes7,0417,318 18,02515,328Net income for the period18,08115,643 41,92432,834Retained earnings, beginning of the period370,763345,216 357,576338,960Dividends declared(6,309)(4,955) (16,182)(14,857)Excess of cost of share repurchase over carrying value of related shares (5,216) (385)   (5,999) (1,418)Retained earnings, end of period377,319355,519 377,319355,519Weighted average number of common shares outstanding ('000's)      Basic70,33070,687 70,45570,666Diluted73,09873,547 73,24773,673Earnings per share     Basic$0.26$0.22 $0.60$0.46Diluted$0.25$0.21 $0.57$0.45Dividends declared  per share     Common$0.09$0.07 $0.23$0.21Convertible, non-voting- -  - - Leon's Furniture Limited-Meubles Leon Ltee                             CONSOLIDATED STATEMENTS OF CASH FLOWS(UNAUDITED)     Period ended September 30th    ($ in thousands)  3 months ended  9 months ended 2010200920102009     OPERATING ACTIVITIES    Net income for the period18,08115,64341,92432,834Add (deduct) items not involving a current cash payment       Amortization of property, plant & equipment3,8544,10411,41911,939   Amortization of intangible assets199189577469   Amortization of deferred warranty revenue(4,254)(3,941)(12,492)(11,949)   Loss (gain) on sale of marketable securities         8370(156)504   Future tax expense289179948479   Gain on sale of property, plant & equipment(1,232)(16)(1,238)(33)   Cash received on warranty sales4,2274,39412,07912,310 21,17220,92253,06146,553Net change in non-cash working capital balances related to operations  (5,873)  768  (16,265)  (14,068)Cash provided by operating activities15,29921,69036,79632,485     INVESTING ACTIVITIES    Purchase of property, plant & equipment(3,100)(1,982)(8,066)(9,420)Purchase of intangibles(3)(355)(262)- Proceeds on sale of property, plant & equipment2,102262,11348Purchase of marketable securities(172,435)(2,847,355)(371,023)(266,193)Proceeds on sale of marketable securities157,3632,847,019357,140267,011Issuance of series 2009 redeemable share liability- - - 10,683Decrease (increase) in employee share purchase loans6827051,095(9,371)Purchase of Appliance Canada Ltd.- (1,032)- (3,414)Cash provided by (used in) investing activities(15,391)(2,974)(19,003)(10,656)     FINANCING ACTIVITIES    Dividends paid(4,936)(4,949)(14,811)(14,854)Repurchase of common shares(5,419)(403)(6,233)(1,494)Cash used in financing activities(10,355)(5,352)(21,044)(16,348)Net (decrease) increase in cash and cash equivalents during the period (10,447) 13,364 (3,251) 5,481Cash and cash equivalents, beginning of period65,49731,60058,30139,483Cash and cash equivalents,end of period55,05044,96455,05044,964Leon's Furniture Limited-Meubles Leon Ltee                               CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME(UNAUDITED)Three month period ended September 30th   ($ in thousands)      Net of tax 2010Tax effect2010    Net income for the period18,081- 18,081Other comprehensive income, net of tax      Unrealized gains on available-for-sale financial assets arising during the period2,0203031,717   Reclassification adjustment for net gains and (losses) included in net income(82)(12)(70)   Change in unrealized gains on available-for-sale financial assets arising during the period  1,938  291  1,647Comprehensive income for the period20,01929119,728       Net of tax 2009Tax effect2009    Net income for the period15,643- 15,643Other comprehensive income, net of tax      Unrealized gains on available-for-sale financial assets arising during the period2,2953771,918   Reclassification adjustment for net gains and (losses) included in net income(38)(6)(32)   Change in unrealized gains on available-for-sale financial assets arising during the period  2,257  371  1,886Comprehensive income for the period17,90037117,529    Nine month period ended September 30th   ($ in thousands)      Net of tax 2010Tax effect2010    Net income for the period41,924 41,924Other comprehensive income, net of tax      Unrealized gains on available-for-sale financial assets arising during the period754117637   Reclassification adjustment for net gains and (losses) included in net income(10)(2)(8)   Change in unrealized gains on available-for-sale financial assets arising during the period  744  115  629Comprehensive income for the period42,66811542,553           Net of tax 2009Tax effect2009    Net income for the period32,834- 32,834Other comprehensive income, net of tax      Unrealized gains on available-for-sale financial assets arising during the period2,3103851,925   Reclassification adjustment for net gains and (losses) included in net income15213   Change in unrealized gains on available-for-sale financial assets arising during the period  2,325  387  1,938Comprehensive income for the period35,15938734,772NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTSUNAUDITED1. BASIS OF PREPARATIONThese 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 POLICIESINTERNATIONAL 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 is in the process of transitioning its financial statement reporting, presentation and disclosure to IFRS in time to meet the January 1, 2011 deadline. The process will be ongoing as new standards and recommendations are issued by the International Accounting Standards Board and AcSB. Further details regarding the Company's transition to IFRS are included in the Company's September 30, 2010 Management's Discussion and Analysis filed on The System for Electronic Document Analysis and Retrieval ("SEDAR").3. ACCUMULATED OTHER COMPREHENSIVE INCOMEAs at September 30, 2010 accumulated other comprehensive income was comprised of the unrealized gains on marketable securities of $561,000 ($487,000 net of tax)  2010 2009     Balance, beginning of period         $    (142) $    (2,095)Changes in unrealized gains on available-for-sale       financial assets arising during the period 629 1,938     Balance, end of period $    487 $    (157)4. INCOME TAXESThe Company's total cash payments for income taxes paid in the three month period ending September 30, 2010 were  $6,223,000  (2009 - $3,800,000) and for the nine month period were $22,007,000 (2009 - $20,484,000).5. SHARE CAPITALDuring the quarter, 431,837 common shares were repurchased (2009 - 39,272) on the open market pursuant to the terms and conditions of the current Normal Course Issuer Bid at a net cost of approximately $5,419,000 (2009 - net cost of approximately $403,000).  For the nine month period, the Company repurchased 498,896 (2009 - 162,440) common shares at a net cost of approximately $6,233,000 (2009 - $1,494,000). 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 $203,000 (2009 - $18,000). The excess net cost over the carrying value of the shares of approximately $5,999,000 (2009 - $1,418,000) has been recorded as a reduction in retained earnings.During the quarter ended September 30, 2010, 39,296 convertible non-voting series 2002 shares (2009 - 98,107) were converted into common shares with a stated value of approximately $282,000 (2009 - $705,000). For the nine month period, 115,719 convertible non-voting series 2002 shares (2009 - 168,894) were converted to common shares with a stated value of approximately $832,000 (2009 - $1,214,000).6. Classification and Fair Value of Financial InstrumentsAs at June 30, 2010, the classification of the Company's financial instruments is as follows:September 30, 2010Financial Assets Held forTrading(fair value) Availablefor Sale(fair value) Loans andReceivables (amortized cost) Other Financial Liabilities (amortized cost) TotalCarryingAmount FairValueCash and cash equivalents 55,050 - - - 55,050 55,050Accounts receivable - - 20,627 - 20,627 20,627Marketable securities - 107,824 - - 107,824 107,824Restricted marketable securities - 19,386 - - 19,386 19,386Income taxes recoverable - - 2,338 - 2,338 2,338             Financial Liabilities            Accounts payable and accrued liabilities - - - 77,654 77,654 77,654Redeemable share liability - - - 647 647 647December 31, 2009Financial Assets Held for Trading(fair value) Available for Sale (fair value) Loans and Receivables (amortized cost) Other Financial Liabilities (amortized cost) TotalCarryingAmount FairValueCash and cash equivalents 58,301 - - - 58,301 58,301Accounts receivable - - 31,501 - 31,501 31,501Marketable securities - 94,337 - - 94,337 94,337Restricted marketable securities - 18,088 - - 18,088 18,088             Financial Liabilities            Accounts payable and accrued liabilities - - - 83,880 83,880 83,880Income taxes payable - - - 1,958 1,958 1,958Redeemable share liability - - - 383 383 383The Company's fair value measurements of financial instruments within the fair value hierarchy, as at September 30, 2010 and December 31, 2009 consists primarily of investments valued using Level 1 inputs.Risk managementThe 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 riskThe 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 riskThe 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 riskThe 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 riskThe 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 MANAGEMENTThe 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; andutilize working capital to negotiate favourable supplier agreements both in respect of early payment discounts and overall payment terms.For further information: Dominic Scarangella, Tel: 416.243.4073