Leon's Furniture Limited - 2010 THIRD QUARTER

TORONTO, 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 31	JUNE 30	SEPT. 30	DEC. 31	YEAR TOTAL
2010	- -	Basic Fully Diluted	17¢ 16¢	17¢ 16¢	26¢ 25¢		$0.60 $0.57
2009	- -	Basic Fully Diluted	12¢ 12¢	12¢ 12¢	22¢ 21¢	34¢ 33¢	$0.80 $0.78
2008	- -	Basic Fully Diluted	16¢ 15¢	16¢ 16¢	25¢ 24¢	33¢ 32¢	$0.90 $0.87

LEON'S FURNITURE LIMITED - MEUBLES LEON LTEE

Mark J. Leon
Chairman of the Board

MANAGEMENT'S DISCUSSION AND ANALYSIS

Management'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 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 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 except British Columbia. Main product lines sold at retail include furniture, appliances and electronics.

Revenues and Expenses

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 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 and dividends)		2009		2008		2007
Net corporate sales		703,180		740,376		637,456
Leon'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		58,494
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)

Balances as at:	Sept 30/10	Dec. 31/09	Sept 30/09
Cash, cash equivalents and marketable securities (including restricted marketable securities)	182,260	170,726	145,761
Accounts receivable	20,627	31,501	19,659
Inventory	97,852	83,957	89,728
Total assets	543,238	529,156	507,075
Working capital	187,127	164,759	159,640

For the 3 months ended	Current Quarter Sept 30/10	Prior Quarter June 30/10	Prior Quarter Mar 31/10
Cash flow provided by (used in) operations	15,299	18,626	2,871
Purchase of property, plant & equipment	3,100	4,568	398
Repurchase of common shares	5,419	814	-
Dividends paid	4,936	4,937	4,953
Dividends paid per share	$0.07	$0.07	$0.07

Cash, 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 Shares

At 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 Obligations	Payments Due by Period
	Total	Less than 1 year	2-3 years	4-5 years	After 5 years
Operating Leases ^1	25,470	865	7,126	5,804	11,675
Purchase Obligations	11,849	11,849
Total Contractual Obligations	37,319	12,714	7,126	5,804	11,675

¹ 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, 2009
Authorized
2,284,000 convertible, non-voting, series 2002 shares
806,000 convertible, non-voting, series 2005 shares
1,222,000 convertible, non-voting, series 2009 shares
Issued
853,314 series 2002 shares (2009 - 969,033)	6,133			6,965
689,513 series 2005 shares (2009 - 689,513)	6,511			6,511
1,175,506 series 2009 shares (2009 - 1,207,000)	10,404			10,683
Less employees share purchase loans	(22,401)			(23,776)
Redeemable share liability	$      647			$     285

Under the terms of its Management Share Purchase Plan, the Company advanced non-interest bearing loans to certain of its employees in 2002, 2005 and 2009 to allow them to acquire convertible, non-voting, series 2002 shares, series 2005 shares and series 2009 shares, respectively, of the Company.  These loans are repayable through the application against the loans of any dividends on the shares, with any remaining balance repayable on the date the shares are converted to common shares.  Each issued and fully paid for series 2002, 2005 and 2009 share may be converted into one common share at any time after the fifth anniversary date of the issue of these shares and prior to the tenth anniversary of such issue.  The series 2002 shares may also be redeemed at the option of the holder or by the Company at any time after the fifth anniversary date of the issue of these shares and must be redeemed prior to the tenth anniversary of such issue. The series 2005 and 2009 shares are redeemable at the option of the holder for a period of one business day following the date of issue of such shares.  The Company has the option to redeem the series 2005 and 2009 shares at any time after the fifth anniversary date of the issue of these shares and must redeem prior to the tenth anniversary of such issue.  The redemption price is equal to the original issue price of the shares adjusted for subsequent subdivisions of shares plus accrued and unpaid dividends.  The purchase prices of the shares are $7.19 per series 2002 share, $9.44 per series 2005 share and $8.85 per series 2009 share.  Dividends paid to holders of series 2002, 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 Ended September 30		Quarter Ended June 30		Quarter Ended March 31		Quarter Ended December 31
	2010	2009	2010	2009	2010	2009	2009	2008
Leon Corporate Sales	179,500	187,431	166,784	165,238	158,791	152,525	197,986	206,088
Leon Franchise Sales	49,421	49,243	45,493	44,693	42,328	42,675	57,679	63,803
Total Leon sales	228,921	236,674	212,277	209,931	201,119	195,200	255,665	269,891
Net Income Per Share	$0.26	$0.22	$0.17	$0.12	$0.17	$0.12	$0.34	$0.33
Fully Diluted Per Share	$0.25	$0.21	$0.16	$0.12	$0.16	$0.12	$0.33	$0.32

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 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 100^th Anniversary. 

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 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 Revenue

Warranty revenues are deferred and taken into income on a straight-line basis over the life of the warranty period. Warranty revenues included in sales year to date for 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 Royalties

Leon's franchisees operate as independent owners. The Company charges the franchisee a royalty fee based primarily on a percentage of the franchisees' gross sales. This royalty income is recorded by the Company on an accrual basis under the heading "Other income" and is up 0.3% year to date for 2010 compared to 2009 which is in line with the increase in franchise sales for the year.

Volume Rebates

The Company receives vendor rebates on certain products based on the volume of purchases made during specified periods. The rebates are deducted from the inventory value of goods received and are recognized as a reduction of cost of goods sold as sales occur.

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, 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.

Standards	Difference from GAAP	Potential Impact
Presentation and disclosure	IFRS 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 adoption	IFRS 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 assets	IFRS 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:

Milestone	Deadline
Prepare IFRS Opening Balance Sheet as at January 1, 2010	In Progress. To be completed during Q4 of 2010
External auditors to conduct procedures on the Opening Balance Sheet	To be completed during Q4 of 2010
Finalize draft of first quarter 2010 financial statements including notes	In Progress. To be completed during Q4 of 2010

While 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 technology
The 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 procedures
As 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 expertise
Over 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 Activities
The transition to IFRS is currently having a minimal impact on Leon's operational activities.

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 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.

Outlook

During 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 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 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 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      President & Chief Executive Officer				Dominic Scarangella Vice President & Chief Financial Officer

Dated as of the 10^th day of November, 2010.

Leon's Furniture Limited-Meubles Leon Ltee Incorporated 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 equivalents	55,050		58,301
Marketable securities	107,824		94,337
Restricted marketable securities	19,386		18,088
Accounts receivable	20,627		31,501
Income taxes recoverable	2,470		-
Inventory	97,852		83,957
Future tax assets	400		1,133
Total current assets	303,609		287,317
Prepaid expenses	1,448		1,560
Goodwill	11,282		11,282
Intangibles	5,018		5,334
Future tax assets	11,383		11,465
Property, plant & equipment net	210,498		212,198
	543,238		529,156
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities	77,654		83,880
Income taxes payable	-		1,958
Customers' deposits	15,459		15,632
Dividends payable	6,308		4,938
Deferred warranty plan revenue	17,061		16,150
Total current liabilities	116,482		122,558
Deferred warranty plan revenue	20,924		22,248
Redeemable share liability	647		383
Future tax liabilities	9,078		8,829
Total liabilities	147,131		154,018
Shareholders' equity
Common shares	18,301		17,704
Retained earnings	377,319		357,576
Accumulated other comprehensive income	487		(142)
Total shareholders' equity	396,107		375,138
	543,238		529,156

Leon's Furniture Limited-Meubles Leon Ltee
CONSOLIDATED STATEMENTS OF INCOME AND
RETAINED EARNINGS
(UNAUDITED)
Period ended September 30th
($ in thousands)	3 months ended			9 months ended
	2010	2009		2010	2009
Sales	179,500	187,431		505,075	505,194
Cost of sales	106,564	113,299		300,249	308,084
Gross profit	72,936	74,132		204,826	197,110
Operating expenses (income)
Salaries and commissions	27,166	27,497		78,194	77,811
Advertising	7,246	7,392		21,722	25,592
Rent and property taxes	3,427	3,381		10,462	8,982
Amortization	4,053	4,293		11,996	12,408
Employee profit-sharing plan	1,097	960		3,471	2,827
Other operating expenses	9,677	10,274		30,487	30,806
Interest income	(789)	(751)		(2,143)	(2,369)
Other income	(2,832)	(1,875)		(8,081)	(7,109)
	49,045	51,171		146,108	148,948
Income before gain on sale of capital property and income taxes	23,891	22,961		58,718	48,162
Gain on sale of capital property	1,231	-		1,231	-
Income before income taxes	25,122	22,961		59,949	48,162
Provision for income taxes	7,041	7,318		18,025	15,328
Net income for the period	18,081	15,643		41,924	32,834
Retained earnings, beginning of the period	370,763	345,216		357,576	338,960
Dividends 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 period	377,319	355,519		377,319	355,519
Weighted average number of common shares outstanding ('000's)
Basic	70,330	70,687		70,455	70,666
Diluted	73,098	73,547		73,247	73,673
Earnings per share
Basic	$0.26	$0.22		$0.60	$0.46
Diluted	$0.25	$0.21		$0.57	$0.45
Dividends declared  per share
Common	$0.09	$0.07		$0.23	$0.21
Convertible, 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
	2010	2009	2010	2009
OPERATING ACTIVITIES
Net income for the period	18,081	15,643	41,924	32,834
Add (deduct) items not involving a current cash payment
Amortization of property, plant & equipment	3,854	4,104	11,419	11,939
Amortization of intangible assets	199	189	577	469
Amortization of deferred warranty revenue	(4,254)	(3,941)	(12,492)	(11,949)
Loss (gain) on sale of marketable securities	8	370	(156)	504
Future tax expense	289	179	948	479
Gain on sale of property, plant & equipment	(1,232)	(16)	(1,238)	(33)
Cash received on warranty sales	4,227	4,394	12,079	12,310
	21,172	20,922	53,061	46,553
Net change in non-cash working capital balances related to operations	(5,873)	768	(16,265)	(14,068)
Cash provided by operating activities	15,299	21,690	36,796	32,485
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 & equipment	2,102	26	2,113	48
Purchase of marketable securities	(172,435)	(2,847,355)	(371,023)	(266,193)
Proceeds on sale of marketable securities	157,363	2,847,019	357,140	267,011
Issuance of series 2009 redeemable share liability	-	-	-	10,683
Decrease (increase) in employee share purchase loans	682	705	1,095	(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)	5,481
Cash and cash equivalents, beginning of period	65,497	31,600	58,301	39,483
Cash and cash equivalents,end of period	55,050	44,964	55,050	44,964

Leon's Furniture Limited-Meubles Leon Ltee
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
Three month period ended September 30th
($ in thousands)
			Net of tax
	2010	Tax effect	2010
Net income for the period	18,081	-	18,081
Other comprehensive income, net of tax
Unrealized gains on available-for-sale financial assets arising during the period	2,020	303	1,717
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	1,647
Comprehensive income for the period	20,019	291	19,728
			Net of tax
	2009	Tax effect	2009
Net income for the period	15,643	-	15,643
Other comprehensive income, net of tax
Unrealized gains on available-for-sale financial assets arising during the period	2,295	377	1,918
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	1,886
Comprehensive income for the period	17,900	371	17,529
Nine month period ended September 30th
($ in thousands)
			Net of tax
	2010	Tax effect	2010
Net income for the period	41,924		41,924
Other comprehensive income, net of tax
Unrealized gains on available-for-sale financial assets arising during the period	754	117	637
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	629
Comprehensive income for the period	42,668	115	42,553
			Net of tax
	2009	Tax effect	2009
Net income for the period	32,834	-	32,834
Other comprehensive income, net of tax
Unrealized gains on available-for-sale financial assets arising during the period	2,310	385	1,925
Reclassification adjustment for net gains and (losses) included in net income	15	2	13
Change in unrealized gains on available-for-sale financial assets arising during the period	2,325	387	1,938
Comprehensive income for the period	35,159	387	34,772

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 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 INCOME

As 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 TAXES

The 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 CAPITAL

During 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 Instruments

As at June 30, 2010, the classification of the Company's financial instruments is as follows:

September 30, 2010

Financial Assets		Held for Trading (fair value)		Available for Sale (fair value)		Loans and Receivables (amortized cost)		Other Financial Liabilities (amortized cost)		Total Carrying Amount		Fair Value
Cash and cash equivalents		55,050		-		-		-		55,050		55,050
Accounts receivable		-		-		20,627		-		20,627		20,627
Marketable securities		-		107,824		-		-		107,824		107,824
Restricted marketable securities		-		19,386		-		-		19,386		19,386
Income taxes recoverable		-		-		2,338		-		2,338		2,338
Financial Liabilities
Accounts payable and accrued liabilities		-		-		-		77,654		77,654		77,654
Redeemable share liability		-		-		-		647		647		647

December 31, 2009

Financial Assets		Held for Trading (fair value)		Available for Sale (fair value)		Loans and Receivables (amortized cost)		Other Financial Liabilities (amortized cost)		Total Carrying Amount		Fair 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 September 30, 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.

For further information:

Dominic Scarangella, Tel: [phone]