Delivering Today, Scaling for Tomorrow 2024 Annual Report Leon’s Furniture Limited 14 15 16 17 18 19 20 21 22 23 24 Delivering Today Leon’s Furniture Limited (“LFL Group”) is dedicated to delivering reliable and sustainable returns for our shareholders, while continuously scaling and growing to meet our customers’ needs. Table of Contents CEO’s Message 2 The LFL Group Ecosystem 6 Unmatched Scale 7 End-to-End Retail Value Chain 8 A National Leader Serving Canadians Across the Country 9 Strengthening the Core through Innovation 10 Scaling for Future Growth 11 Investing in Our People and Communities 12 Our Environmental Commitment 13 Management Team 14 Five-Year Review 15 MD&A 16 Consolidated Financial Statements 30 1. Adjusted earnings before interest, income taxes, depreciation and amortization, mark-to-market adjustment due to the changes in the fair value of the Company’s financial derivative instruments and any non-recurring charges to income (“Adjusted EBITDA”) is a non-IFRS financial measure used by the Company 2. Adjusted Diluted Earnings Per Share (Non-IFRS measure) 10 Year Revenue ($ millions) Earnings Per Common Share² $2,499 14 15 16 17 18 19 20 21 22 23 24 $2,008 $2,032 $2,144 $2,215 $2,241 $2,283 $2,220 $2,513 $2,518 $2,455 $2.20 $0.96 1 Leon’s Furniture Limited Annual Report 2024 Scaling for Tomorrow LFL Group helps Canadians furnish their homes through a complete ecosystem of trusted brands and services. The LFL Group team celebrates the opening of the new Shared Services Distribution Centre, which will also serve as head office for The Brick and Trans Global Insurance, in Edmonton, Alberta. 2 Annual Report 2024 Leon’s Furniture Limited d e l i v e r i n g t o d a y CEO’s Message LFL Group once again demonstrated an ability to deliver sustainable returns in 2024 in the face of macroeconomic challenges. Strong sales momentum in the front half of the year was enough to overcome industry-wide shipping delays in the back half to deliver solid revenue growth for the year and grow our overall market share. I believe our resilience is due in large part to our unique portfolio of trusted brands and complementary businesses that combined with great people deliver a differentiated end-to-end customer experience. Ten-Year Revenue Growth Ten-Year Earnings per Share Growth Michael J. Walsh President and CEO LFL Group 24 % 129 % 3 Leon’s Furniture Limited Annual Report 2024 2024 IN REVIEW Total systemwide sales increased by 1.3% to $3.0 billion in 2024, while revenue grew by 1.8% to $2.5 billion. Performance was solid across all our business lines. Of particular note, our core furniture category grew 2.3%, significantly outperforming the broader North American furniture segment. Our commercial appliance divisions delivered a record sales year demonstrating growth across all key markets. Our warranty and insurance divisions continued to grow. Our results should be viewed in the context of constrained consumer spending on discretionary big-ticket items across North America, following several years of inflation and elevated interest rates. The promotional environment became increasingly more intense as competitors looked to provide more value through aggressive discounting to gain share. A number of additional operating challenges surfaced mid-year. Most notably, an increase in global freight prices due to geo-political disruptions and labour challenges led to shipping delays and ultimately to lower sales, as we made the decision to preserve margins by avoiding the higher spot market costs. We also saw a postal strike in the fourth quarter that affected our marketing program during the important winter holiday season. As a result, we reported higher year-over-year sales growth in the first half of the year, with softer performance in the second half. Full-year growth and profitability metrics demonstrate that our team managed through these conditions quite successfully in 2024. We prioritized gross margin, which increased to 44.39%. Our overall net income grew approximately $15 million and our adjusted normalized earnings per share was up 5.4%. We generated another year of strong operating cash flow and ended 2024 with $513 million of liquidity, having repaid another $20 million of debt during the year. THE LFL GROUP ECOSYSTEM An important contributor to our consistent returns is the ecosystem of diversified businesses we have built. Many people still believe the company is synonymous with our three retail banners, Leon’s, The Brick and Appliance Canada. To be sure, our retail stores are at the heart of the business – but there is much more to LFL Group. We describe the Company as comprising three main pillars. The Real Estate pillar holds 50 properties totalling 430 acres. Financial Services includes insurance products sold at more than 8,000 locations and warranties held by over 2 million customers. The Retail Plus pillar is multi-faceted, with growing commercial and wholesale units, digital channels that draw approximately 65 million visits annually, the country’s largest network of after-sales service technicians, and one of the largest last-mile delivery networks. Plus, there are the nearly 300 retail stores from coast to coast. Collectively, this ecosystem represents an end-to- end retail value chain that provides unique value to our customers, differentiates us within our sector, and creates scale. Each of these businesses generates a profit and is pursuing a distinct growth strategy. Should one unit experience a slower period, others can still thrive. Naturally, the entire portfolio is supported by our IT infrastructure and, most importantly, our people. The expertise and dedication of our associates drives our operational success at every level. We are proud to be a destination employer that has been attracting great talent from other leading retailers to complement our longstanding tradition of developing people internally. To be sure, our retail stores are at the heart of the business— but there is much more to LFL Group. 4 Annual Report 2024 Leon’s Furniture Limited Total system-wide sales ($ billions) $3.01 44.39% $154 Gross profit (%) Net income ($ millions) s c a l i n g f o r t o m o r r o w STRATEGIC FLEXIBILITY A growing portfolio of cash generating businesses puts us in an enviable strategic position. We have the financial capacity to invest in any and all of them, as well as other opportunities, and the flexibility to pursue only the most attractive options. Major investments in recent years have included a significant upgrade of our distribution network, highlighted by the combined distribution centre and headquarters for The Brick that we opened at the start of 2025 in Edmonton. Our centralized distribution model creates efficiency company-wide, improves the customer experience and supports the growth of our retail banners. Our national scale and market leadership make us an attractive partner for a range of organizations. Partnerships have helped drive revenue in our after-sales service, warranty, insurance and distribution. On the real estate side, we have been collaborating with partners to develop several of our properties, helping to surface value embedded in our asset base. There is further opportunity to unlock value by establishing a Real Estate Investment Trust to hold a portion of our assets. We are monitoring the equity markets to determine the appropriate timing for such a transaction. We are always pleased to be in a position to return surplus cash to shareholders. In the past five years we have returned over $700 million of capital in the form of dividends and share repurchases. In August 2024, the Board of Directors once again decided to increase the regular quarterly dividend by $0.02 to $0.20 per common share. At all times, we allocate capital prudently and with a view to long-term value creation. This mindset is ingrained at LFL Group, in large part because of our origins as a family-owned business. OUTLOOK In 2025, our principal objective continues to be to increase our market share and profitability, and we are confident we have the right strategies in place to achieve these results. We remain committed to effectively managing costs and carefully navigating any macroeconomic challenges that may arise. We will continue to invest in our business to give customers even more compelling reasons to trust us with their purchases. I would like to thank our Board of Directors and our associates across the Company for their hard work and dedication. Thanks also to our shareholders, suppliers, partners and customers for their continued support. Michael J. Walsh President & Chief Executive Officer LFL Group 19 20 21 22 23 24 $2.73 $2.70 $3.06 $3.05 $2.97 19 20 21 22 23 24 43.73 % 44.32 % 44.10 % 44.06 % 44.13 % 19 20 21 22 23 24 $107 $163 $207 $179 $139 “Michael J. Walsh” 5 Leon’s Furniture Limited Annual Report 2024 Delivering Today, Scaling for Tomorrow LFL Group is proud to own some of the most trusted brands in the Canadian home furnishing and appliance space. Our portfolio of businesses has enabled us to deliver reliable and sustainable returns to our shareholders while building the national scale that offers superior value for our customers. 6 Annual Report 2024 Leon’s Furniture Limited The LFL Group Ecosystem is a diverse portfolio of businesses that support and complement our core retail operations, along with the partners and customers who benefit from it. RETAIL PLUS The full range of operations that enable us to be a successful retailer, encompassing our retail stores and Ecommerce sites, as well as our distribution, after-sales service, wholesale and commercial capabilities. FINANCIAL SERVICES Insurance and warranty services for customers who wish to be protected from hardship due to unforeseen events, and financing to help with their purchases. REAL ESTATE The portfolio of 50 properties we own across Canada, on which many of our stores and other facilities reside. Most people know LFL Group as Canada’s preeminent retailer of furniture, appliances, electronics and mattresses, with nearly 300 locations nationwide and six Ecommerce sites. We established a number of capabilities and assets over the years to support our retail operations. LFL Group sources product globally, distributes it across the country, offers warranty and insurance options, and provides after-sales service to customers’ homes. We have also amassed a valuable portfolio of real estate holdings. Those supporting capabilities have now matured into cash-generating businesses that have the capacity to service not just our own operations, but those of third parties. We have attracted partners and customers eager to take advantage of our scale to help meet their own business needs. The LFL Group Ecosystem deepens our relationships with customers, diversifies our revenue streams, expands our addressable market, and generates more sustainable returns for our shareholders. THREE PILLARS OF OUR BUSINESS We have attracted partners and customers eager to take advantage of our scale to help meet their own business needs. d e l i v e r i n g t o d a y The LFL Group Ecosystem 7 Leon’s Furniture Limited Annual Report 2024 LFL Group’s national reach is unmatched in the Canadian home furnishing and appliances space. We have achieved success across our portfolio of businesses. Retail 299 retail stores 7,800 associates Home Service 775 home service technicians 150,000 home visits annually Insurance 1 M+ policies sold 8,000 storefronts selling our offering Digital 6 Ecommerce sites 65 M customer visits annually Distribution 15 M units moved 1 M delivery stops annually Commercial $370+ M of builder sales Real Estate 5.5 M square feet 430 acres Wholesale 13,000 containers imported annually Warranty 2+ M customers 40% purchase warranty s c a l i n g f o r t o m o r r o w Unmatched Scale End-to-End Retail Value Chain d e l i v e r i n g t o d a y 8 Annual Report 2024 Leon’s Furniture Limited The LFL Group Ecosystem spans the full retail value chain from product sourcing and design through to retail sales and after-sales service. Our end-to-end offering is a point of differentiation that enables us to offer unique value to customers and meet their needs throughout the product life cycle. GLOBAL SOURCING & PRODUCT DESIGN We source products globally, engaging manufacturers directly to provide private label merchandize that offers the best value for our customers. RETAIL With 299 retail locations spanning every province and six eCommerce sites, we offer a true omnichannel shopping experience. INSURANCE & WARRANTY We offer insurance coverage on outstanding balances, and extended warranties for repair and replacement. DISTRIBUTION Our warehousing, fulfillment and last-mile delivery capabilities forms one of Canada’s largest distribution networks. AFTER-SALES SERVICE Our network of trained home service technicians provide in-home furniture, electronics and appliance installation 9 Leon’s Furniture Limited Annual Report 2024 LEON’S 85 THE BRICK MATTRESS STORE 20 APPLIANCE CANADA 5 THE BRICK OUTLET 6 THE BRICK 183 6 Nova Scotia 3 4 1 New Brunswick 5 4 Quebec 17 10 1 Prince Edward Island 1 1 Newfoundland & Labrador 1 3 Legend The Brick Leon’s The Brick Mattress Store The Brick Outlet Appliance Canada Distribution Centre Yukon 1 Northwest Territories 1 British Columbia 35 6 1 Alberta 42 5 7 3 2 Saskatchewan 12 3 1 Manitoba 7 3 1 Ontario 58 44 13 5 1 1 Stores Nationwide eCommerce sites Distribution centres 299 6 l f l g r o u p a t - a- g l a n c e A National Leader Serving Canadians Across the Country s c a l i n g f o r t o m o r r o w Strengthening the Core through Innovation 10 Annual Report 2024 Leon’s Furniture Limited LFL Group’s commitment to innovation has been critical to our ongoing success. Most visibly, customers who shop from home can browse the full catalogue and obtain instant credit approvals, while visitors to our stores will find their experience enhanced by video walls, touchscreen kiosks and QR codes that point to additional product details. Our investment in innovation starts with the products themselves, and extends to technology that improves the efficiency of the business. SOFA SELECT CUSTOM FURNITURE We launched the “Sofa Select” custom-order upholstery program in 2024. This collection of stylish designs is built in Canada and marketed exclusively at Leon’s under our L2 brand. There are six unique styles available in 36 curated fabric combinations, allowing for over 1,000 design possibilities. Each model is available as a sofa, loveseat or chair. All six models and all 36 fabrics are available at the same price, providing a simplified process and exceptional value to our customers. Sofa Select is attracting new customers, adding incremental sales growth and supporting the Canadian manufacturing sector. ADVANCED TECHNOLOGY MATTRESS DESIGN The Brick worked closely with leading mattress manufacturers Sealy and Beautyrest to develop exclusive mattresses with advanced features for comfort and support. New covers include cooling properties, antibacterial fabrics and Tencel fiber for moisture-wicking. Enhanced gel foams improve cooling and contouring, while high-density gel foam provides targeted support. Advanced pocket coil designs include triple-tempered copper-plated coils for durability, and some brands feature multiple intertwined coils for extra strength. These innovations ensure better sleep quality and long-lasting comfort, while helping to further cement The Brick’s position as a destination in the mattress category. AUTONOMOUS TECHNOLOGY LFL Group’s investment in our distribution network includes innovative technologies that help us operate efficiently. Working with Cypher Robotics, which modernizes warehouse operations through autonomous technologies, we recently introduced an autonomous mobile robot (AMR) equipped with a tethered drone. The AMR enables inventory management while providing real-time data to existing warehouse management systems. Cypher’s solution aims to eliminate labour-intensive manual cycle counts, improve inventory accuracy, ensure timely replenishment to avoid stockouts and overstocking, increase equipment availability, centralize inventory exception resolution processes, and improve labour attrition. The AMR operates during non-business hours before autonomously returning to its charging station, maximizing coverage and delivering a significant return on investment. 11 Leon’s Furniture Limited Annual Report 2024 We regularly reinvest capital across our portfolio of businesses, targeting selected organic growth opportunities and strengthening our capacity to expand operations. d e l i v e r i n g t o d a y Scaling for Future Growth 01. LFL DISTRIBUTION CENTRE AND HEADQUARTERS FOR THE BRICK IN EDMONTON In January 2025, we opened a 500,000 square foot facility in Edmonton that will serve as an LFL Group Shared Services Distribution Centre (DC) as well as headquarters for The Brick and Trans Global Insurance. The new DC will enhance product availability and shipping times throughout the region while adding capacity for growth. Equipped with advanced technology, our shared services DCs can handle inventory from Leon’s and The Brick as well as third parties who wish to take advantage of our national capacity. 02. THE BRICK COMMERCIAL CENTRE The Brick Commercial/Midnorthern Appliance team operates commercial design centres in six provinces serving the builder and property management communities. We provide an elevated customer experience through sales consultation, procurement, delivery and installation services. We recently opened a 5,000 square foot design centre showroom in Halifax, featuring lifestyle vignettes that showcase the appliance merchandise in real world environments. Customers will discover a wide range of luxury products from top European brands to everyday household name brands from North America. All design centres utilize the nationwide LFL Group distribution network, equipping them to handle builder projects of any scale, from single family homes to multi-unit developments. Our ability to offer national services to commercial customers provides a solid platform for continued growth across Canada. 01 02 03 03. INSURANCE INNOVATION Our insurance subsidiary, Trans Global Insurance (TGI), has been actively growing its market share through new products and partnerships. TGI has cultivated a successful third-party distribution channel, doubling the number of active distributors in 2024. The company also entered new industries and products important to Canadians today, including sports and recreation insurance and rent payment protection. In addition to protecting its customers from the unforeseen, TGI added new unique benefits and coverages, including financially rewarding customers when they celebrate positive milestones in the lives of their family members. These initiatives led to a record number of insured customers and record profits in 2024. 12 Annual Report 2024 Leon’s Furniture Limited Our core values at LFL Group include supporting the communities where we operate, and developing our talented team of associates across the country. EMPLOYEE TRAINING PROGRAM We are committed to providing our associates with the tools and resources they need to build successful and fulfilling careers. The Leon’s Knowledge Management System and partnership with Udemy Business offers unlimited access to courses ranging from personal development to leadership training. In 2024, The Brick University online hub added nearly 50 new courses, saw over 200 team members participate in management training programs, and generated 3.9 million total page views. CHILDREN’S MIRACLE NETWORK The Brick’s signature charity initiative, Care to Share Day, is a one-day campaign where we pledge to donate a portion of our sales to support Children’s Miracle Network. In 2024, our team’s efforts resulted in a remarkable 40% year-over- year increase in fundraising, raising more than $500,000. Other fundraising events brought the total contribution for the year to $3.3 million. Since 2014, The Brick has helped raise more than $17 million for the Children’s Miracle Network, benefiting children’s hospitals, medical research and community awareness. LEON’S LEAF PROGRAM We launched the Leon’s Leaf Program in 2023 as an in-store initiative to support Tree Canada’s efforts in replenishing forests affected by recent wildfires. Customers had the option to donate at checkout, with Leon’s matching contributions. The program raised a total of $100,000 in 2024. 31,241 trees have been planted so far through the Leon’s Leaf Program. TALENT MANAGEMENT The success of our operations is driven by our team. In recent years we have added senior personnel from leading companies across the retail sector. The injection of new ideas serves as a complement to our longstanding tradition of cultivating and promoting talent from within the organization. Nearly one in five of our employees has been with us for over 20 years. s c a l i n g f o r t o m o r r o w Investing in Our People and Communities LFL Group strives to minimize our environmental impact by implementing sustainable practices throughout our operations. e n v i r o n m e n t a l , s o c i a l a n d g o v e r n a n c e Our Environmental Commitment 13 Leon’s Furniture Limited Annual Report 2024 25 % Percentage of truck fleet at BC distribution centre that is electric 25,365 Metric tonnes of CO₂e greenhouse gas emissions avoided 96,426 Mature trees preserved WASTE MANAGEMENT AND RECYCLING We continue to emphasize recycling of cardboard, plastics and Styrofoam, utilizing equipment in place at our DCs and transporting materials there where practical. 85 % Total diversion rate 13,611 Cubic yards of landfill air space conserved 14,064,421 Kw-hours of electricity saved 22.65 M Gallons of water saved 14 Annual Report 2024 Leon’s Furniture Limited LFL Group is led by a mix of veterans with decades of experience within the Company, and more recent additions who add perspectives gained from external organizations. Michael J. Walsh president and ceo of lfl group Mike was promoted to the Chief Executive Officer in 2021. He became President & COO in 2020 after serving for five years as President of Leon’s Furniture Division. Mike is a seasoned executive with over 30 years of retail experience. Prior to joining the Company, he served as Vice President of Operations at Canadian Tire Corporation. Darci Walker divisional president of the brick Darci first joined The Brick in 1982. Over the course of her career, she has held several operational roles spanning franchise stores, customer care, distribution, IT, and most recently Vice President of Operations. Darci was promoted to President of The Brick in January 2024. Victor Diab cfo of lfl group Victor was appointed Chief Financial Officer in June 2024. Prior to this role, he was Vice President of Finance at LFL where both his financial and strategic leadership was instrumental in bringing meaningful change. Before joining LFL, Victor served as CFO of Freshii and held increasingly senior positions at Canadian Tire Corporation. Lewis Leon divisional president of leon’s Lewis joined the Company full-time in 2005 within the Marketing department and was most recently in the role of Associate Vice President of Marketing for the Leon’s Furniture Division. He was promoted to President of Leon’s Furniture Division in May 2023. l e a d e r s h i p Management Team 15 Leon’s Furniture Limited Annual Report 2024 Income Statistics ($ in thousands, except amounts per share) 2024 2023 2022 2021 2020 2019 Revenue $ 2,498,545 $ 2,454,789 $ 2,517,659 $ 2,512,670 $ 2,220,180 $ 2,283,411 Cost of Sales 1,389,337 1,371,612 1,408,226 1,404,446 1,236,258 1,284,826 Gross Profit $ 1,109,208 $ 1,083,177 $ 1,109,433 $ 1,108,224 $ 983,922 $ 998,585 Operating Expenses 904,627 900,699 873,212 831,845 773,437 855,539 Income before income taxes 204,581 182,478 236,221 276,379 210,485 143,046 Provision for income taxes 50,913 43,623 56,792 69,221 47,235 36,117 Net Income $ 153,668 $ 138,855 $ 179,429 $ 207,158 $ 163,250 $ 106,929 Common shares outstanding (‘000s) 68,142 67,963 67,512 77,623 79,799 77,595 Earnings per common share $ 2.26 $ 2.04 $ 2.66 $ 2.67 $ 2.05 $ 1.38 Percent annual change in sales 1.8% (2.5%) 0.2% 13.2% (2.8%) 3.3% Net income as a percentage of sales 6.2% 5.7% 7.1% 8.2% 7.4% 4.7% Dividend declared $ 51,793 $ 44,863 $ 43,238 $ 146,092 $ 69,977 $ 43,445 Balance Sheet Statistics ($ in thousands, except amounts per share) 2024 2023 2022 2021 2020 2019 Shareholders’ equity $ 1,141,150 $ 1,028,524 $ 928,885 $ 791,193 $ 1,016,003 $ 915,764 Total assets 2,340,686 2,221,839 2,193,643 2,453,133 2,418,589 2,146,461 Purchase of capital assets 59,132 42,103 26,798 14,896 43,493 32,931 Working capital1 279,688 212,975 258,714 (34,455) 161,286 100,206 Shareholders’ equity per common share2 16.75 15.13 13.76 14.01 13.03 11.80 Common share price range on the Toronto Stock Exchange High $ 30.20 $ 23.85 $ 22.84 $ 26.30 $ 21.68 $ 17.29 Low $ 18.86 $ 16.56 $ 15.00 $ 20.09 $ 10.25 $ 14.01 1. 2021 excludes the amount of $90,000, comprised of loans and borrowings due to the classification from non-current liabilities to current liabilities as at December 31. 2. For year-on-year comparability, 2021 excludes the substantial issuer bid and special dividends. 2020 excludes special dividends. 20 $ 2,220,180 19 $ 2,283,411 $ 2,512,670 $ 2,517,659 $ 2,454,789 $ 2,498,545 21 22 23 24 20 $ 163,250 19 $ 106,929 $ 207,158 $ 179,429 $ 138,855 $ 153,668 21 22 23 24 20 $ 13.03 19 $ 11.80 $ 14.01 $ 13.76 $ 15.13 $ 16.75 21 22 23 24 REVENUE ($ in thousands) NET INCOME ($ in thousands) SHAREHOLDERS’ EQUITY ($ per share) s c a l i n g f o r t o m o r r o w Six-Year Review Management’s Discussion and Analysis f o r t h e y e a r e n d e d d e c e m b e r 3 1 , 2 0 2 4 1. Preface..................................................................................................................................17 2. Business Overview........................................................................................................17 3. Results of Operations..................................................................................................18 4. Store Network.................................................................................................................22 5. Summary of Consolidated Quarterly Results..............................................22 6. Financial Position..........................................................................................................22 7. Liquidity and Capital Resources..........................................................................23 8. Outlook................................................................................................................................24 9. Outstanding Common Shares..............................................................................24 10. Related Party Transactions......................................................................................24 11. Critical Assumptions...................................................................................................25 12. Risks and Uncertainties.............................................................................................27 13. Controls and Procedures.........................................................................................28 14. Non-IFRS and Supplementary Financial Measures................................28 16 Annual Report 2024 Leon’s Furniture Limited 1. Preface The following Management’s Discussion and Analysis (“MD&A”) is prepared as at Tuesday, February 25, 2025 and is based on the consolidated financial position and operating results of Leon’s Furniture Limited/Meubles Leon Ltée (the “Company”) as of December 31, 2024 and for the years ended December 31, 2024 and 2023. It should be read in conjunction with the fiscal year 2024 consolidated financial statements and the notes thereto. For additional detail and information relating to the Company, readers are referred to the fiscal 2024 quarterly financial statements and corresponding MD&As which are published separately and available at www.sedar.ca. CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS 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. This MD&A, and in particular the section under heading “Outlook”, includes forward-looking statements, which are based on certain assumptions and reflect Leon’s Furniture Limited’s current plans and expectations. These forward-looking statements are subject to a number of risks and uncertainties that could cause actual results and future prospects to differ materially from current expectations. Some of the factors that can cause actual results to differ materially from current expectations are: a drop in consumer confidence; dependency on product from third party suppliers, further changes to the Canadian bank lending rates; tariffs and other external economic changes; and further fluctuations of the Canadian dollar versus the US dollar. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Readers of this report are cautioned that actual events and results may vary. FINANCIAL STATEMENTS GOVERNANCE PRACTICE The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The amounts expressed are in Canadian dollars (“C$”). Per share amounts are calculated using the weighted average number of shares outstanding before and after considering the potential dilutive effects of the convertible debentures and the relevant management share purchase plans for the applicable period. The Audit Committee of the Board of Directors of Leon’s Furniture Limited reviewed the MD&A and the consolidated financial statements, and recommended that the Board of Directors approve them. Following review by the full Board, the fiscal year 2024 consolidated financial statements and MD&A were approved on Tuesday, February 25, 2025. 2. Business Overview Leon’s Furniture Limited is the largest network of home furniture, appliances, electronics, and mattress stores in Canada. Our retail banners include: Leon’s; The Brick; Brick Outlet and The Brick Mattress Store. As well, The Brick’s Midnorthern Appliance banner alongside with the Appliance Canada banner, makes the Company the country’s largest commercial retailer of appliances to builders, developers, hotels and property management companies. Finally, the Company operates six ecommerce sites: leons.ca, thebrick.com, furniture.ca, midnorthern.com, transglobalservices.com and applicancecanada.com. The Company’s repair service division, Trans Global Services (“TGS”), provides household furniture, electronics and appliance repair services to its customers. TGS has contracts to support several manufacturer’s warranty service work in addition to servicing a number of individual programs offered by other dealers. This division also performs work for products sold with extended warranties and is an integral part of the retail offering. These extended warranties, underwritten by the Company’s wholly-owned subsidiaries are offered on appliances, electronics and furniture to provide coverage that extends beyond the manufacturer’s warranty period by up to five years. The warranty contracts provide both repair and replacement service depending upon the nature of the warranty claim. The Company’s wholly-owned subsidiaries Trans Global Insurance Company (“TGI”) and its sister company, Trans Global Life Insurance Company (“TGLI”) also offer credit insurance on the customer’s outstanding financing balances and third party customer balances. This credit insurance coverage includes life, dismemberment, disability, critical illness, and involuntary unemployment. These credit insurance policies are underwritten by TGI and TGLI as they are licensed as insurance companies in all Canadian provinces and territories. The Company has foreign operations in Asia and the Caribbean, through its wholly-owned subsidiaries First Oceans Trading Corporation and King & State Limited, respectively. These operations relate to the Company’s import and quality control program for sourcing products from Asia for resale in Canada through its retail operations, and the retail banners that sell their extended warranties on appliances and electronics to their customers, respectively. 17 Leon’s Furniture Limited Annual Report 2024 Management’s Discussion and Analysis 3. Results of Operations SUMMARY FINANCIAL HIGHLIGHTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2024 AND DECEMBER 31, 2023 For the Three months ended (C$ in millions except %, share and per share amounts) December 31, 2024 December 31, 2023 $ Increase (Decrease) % Increase (Decrease) Total system-wide sales (1) 806.2 832.5 (26.3) (3.2%) Franchise sales (1) 139.5 145.6 (6.1) (4.2%) Revenue 666.7 686.9 (20.2) (2.9%) Cost of sales 361.0 378.2 (17.2) (4.5%) Gross profit 305.7 308.7 (3.0) (1.0%) Gross profit margin as a percentage of revenue 45.85% 44.94% Selling, general and administrative expenses (2) 235.9 239.6 (3.7) (1.5%) SG&A as a percentage of revenue 35.38% 34.88% Other income (3) (23.4) – (23.4) 100.0% Income before net finance costs and income tax expense 93.2 69.1 24.1 34.9% Net finance costs (2.9) (4.2) 1.3 (31.0%) Income before income taxes 90.3 64.9 25.4 39.1% Income tax expense 22.9 16.0 6.9 43.1% Adjusted net income (1) 67.4 48.9 18.5 37.8% Adjusted net income as a percentage of revenue (1) 10.11% 7.12% After-tax mark-to-market (gain) loss on financial derivative instruments (1) (0.5) 2.7 (3.2) (118.5%) Net income 67.9 46.2 21.7 47.0% Basic weighted average number of common shares 68,190,953 68,031,796 Basic earnings per share $0.99 $0.68 $0.31 45.6% Adjusted basic earnings per share (1) $0.99 $0.72 $0.27 37.5% Diluted weighted average number of common shares 68,646,871 68,646,892 Diluted earnings per share $0.99 $0.68 $0.31 45.6% Adjusted diluted earnings per share (1) $0.98 $0.72 $0.26 36.1% Common share dividends declared $0.20 $0.18 $0.02 11.1% Convertible, non-voting shares dividends declared $0.36 $0.32 $0.04 12.5% 1. Non-IFRS financial measure. Refer to section 14 in this MD&A for additional information. 2. Selling, general and administrative expenses (“SG&A”). 3. Gain on settlement – please see note 20 of the consolidated financial statements for further detail. SAME STORE SALES (1) For the Three months ended (C$ in millions, except %) December 31, 2024 December 31, 2023 $ Decrease % Decrease Same store sales (1) 652.2 673.6 (21.4) (3.2%) 1. Supplementary financial measure. Refer to section 14 in this MD&A for additional information. 18 Annual Report 2024 Leon’s Furniture Limited Management’s Discussion and Analysis REVENUE For the quarter ended December 31, 2024, revenue totalled $666.7 million compared to $686.9 million in the fourth quarter of 2023, a decrease of $20.2 million or 2.9%. The decline was primarily driven by lower furniture inventory due to ongoing offshore shipping delays, reduced electronics sales related to weaker consumer discretionary spending, and the Canada Post strike’s impact on promotional flyer distribution before Black Friday and Boxing Day. These declines were partially offset by growth in our commercial sales channel. SAME STORE SALES (1) Same store sales in the quarter decreased by 3.2% compared to the fourth quarter of 2023, driven by factors discussed in the revenue section. GROSS PROFIT In the quarter ending December 31, 2024, our gross profit margin was 45.85%, an increase of 91 basis points compared to the fourth quarter of 2023. This was driven by pricing and promotional optimizations in furniture and appliances, partially offset by a decline in electronics margins. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (“SG&A”) The Company’s SG&A as a percentage of revenue for the fourth quarter of 2024 was 35.38% compared to 34.88% for the fourth quarter 2023, an increase of 50 basis points. The Company’s SG&A as a percentage of revenue for the current quarter increased primarily due to lower year- over-year sales and the resulting deleveraging on fixed costs, timing of variable compensation expenses, stewardship recycling fees, and higher professional fees. These increases were partially offset by point-of-sale retailing financing charges as interest rates decreased. ADJUSTED NET INCOME (2) AND ADJUSTED DILUTED EARNINGS PER SHARE (2) Adjusted net income in the current quarter totaled $67.4 million, which represents an increase of $18.5 million over the prior year quarter. The improvement was driven by a one-time $23.4 million pre-tax net favorable settlement related to a breach of contract legal dispute with CURO Group Holdings Corp (“CURO”). The Company had an agreement with CURO to underwrite insurance for their credit products commencing in 2024. After undergoing voluntary bankruptcy proceedings to restructure their business, CURO elected to not proceed with the agreement which ultimately resulted in a legal settlement in favor of the Company to recover the future profit potential of the agreement. Normalizing for this one- time gain, adjusted net income increased $1.1 million or 2.2% over the prior year quarter. Adjusted diluted earnings per share in the fourth quarter of 2024 was $0.98, an increase of 36.1% over the prior year quarter. Normalizing for this one-time gain, adjusted diluted earnings per share increased $0.02 or 2.2% over the prior year quarter. NET INCOME AND DILUTED EARNINGS PER SHARE Net income for the fourth quarter of 2024 was $67.9 million, or $0.99 per diluted earnings per share compared to the net income of $46.2 million in the prior year’s quarter, or $0.68 per diluted earnings per share. 1. Supplementary financial measure. Refer to section 14 in this MD&A for additional information. 2. Non-IFRS financial measure. Refer to section 14 in this MD&A for additional information. 19 Leon’s Furniture Limited Annual Report 2024 Management’s Discussion and Analysis SUMMARY FINANCIAL HIGHLIGHTS FOR THE YEAR ENDED DECEMBER 31, 2024, 2023 AND 2022 For the Year ended Year ended (C$ in millions except %, share and per share amounts) 2024 2023 $ Increase (Decrease) % Increase (Decrease) 2023 2022 $ Increase (Decrease) % Increase (Decrease) Total system-wide sales (1) 3,005.9 2,967.5 38.4 1.3% 2,967.5 3,053.0 (85.5) (2.8%) Franchise sales (1) 507.4 512.7 (5.3) (1.0%) 512.7 535.3 (22.6) (4.2%) Revenue 2,498.5 2,454.8 43.7 1.8% 2,454.8 2,517.7 (62.9) (2.5%) Cost of sales 1,389.3 1,371.6 17.7 1.3% 1,371.6 1,408.2 (36.6) (2.6%) Gross profit 1,109.2 1,083.2 26.0 2.4% 1,083.2 1,109.4 (26.2) (2.4%) Gross profit margin as a percentage of revenue 44.39% 44.13% 44.13% 44.06% Selling, general and administrative expenses (2) 917.4 897.7 19.7 2.2% 897.7 854.7 43.0 5.0% SG&A as a percentage of revenue 36.72% 36.57% 36.57% 33.95% Other income (3) (23.4) (20.0) (3.4) 17.0% (20.0) – (20.0) 100.0% Income before net finance costs and income tax expense 215.2 205.5 9.7 4.7% 205.5 254.7 (49.2) (19.3%) Net finance costs (14.4) (19.5) 5.1 (26.2%) (19.5) (21.5) (2.0) (9.3%) Income before income taxes 200.8 186.0 14.8 8.0% 186.0 233.2 (47.2) (20.2%) Income tax expense 49.9 44.5 5.4 12.1% 44.5 56.0 (11.5) (20.5%) Adjusted net income (1) 150.9 141.5 9.4 6.6% 141.5 177.2 (35.7) (20.2%) Adjusted net income as a percentage of revenue (1) 6.04% 5.76% 5.76% 7.04% After-tax mark-to-market (gain) loss on financial derivative instruments (1) (2.8) 2.6 (5.4) (207.7%) 2.6 (2.2) 4.8 218.2% Net income 153.7 138.9 14.8 10.7% 138.9 179.4 (40.5) (22.6%) Basic weighted average number of common shares 68,142,458 67,962,903 67,962,903 65,512,284 Basic earnings per share $2.26 $2.04 $0.22 10.8% $2.04 $2.66 $(0.62) (23.3%) Adjusted basic earnings per share (1) $2.21 $2.08 $0.13 6.3% $2.08 $2.62 $(0.54) (20.6%) Diluted weighted average number of common shares 68,646,568 68,654,322 68,654,322 68,164,937 Diluted earnings per share $2.24 $2.02 $0.22 10.9% $2.02 $2.64 $(0.62) (23.5%) Adjusted diluted earnings per share (1) $2.20 $2.06 $0.14 6.8% $2.06 $2.60 $(0.54) (20.8%) Common share dividends declared $0.76 $0.66 $0.10 15.2% $0.66 $0.64 $0.02 3.1% Convertible, non-voting shares dividends declared $0.36 $0.32 $0.04 12.5% $0.32 $0.32 $– 0.0% 1. Non-IFRS financial measure. Refer to section 14 in this MD&A for additional information. 2. Selling, general and administrative expenses (“SG&A”). 3. Gain on settlement – please see note 20 of the consolidated financial statements for further detail. SAME STORE SALES (1) For the Year ended (C$ in millions, except %) December 31, 2024 December 31, 2023 $ Increase % Increase Same store sales (1) 2,437.0 2,400.9 36.1 1.5% 1. Supplementary financial measure. Refer to section 14 in this MD&A for additional information. 20 Annual Report 2024 Leon’s Furniture Limited Management’s Discussion and Analysis REVENUE For the year ended December 31, 2024, revenue was $2,498.5 million compared to $2,454.8 million in the prior year, an increase of $43.7 million or 1.8%. The increase in revenue was driven by strong furniture and appliance sales, partially offset by lower electronics sales. The furniture category grew 2.3% due to strength in the first half of the year, partially offset by industry-wide overseas shipping challenges that reduced furniture inventory levels during the second half of the year. SAME STORE SALES (1) Same store corporate sales increased by 1.5% or $36.1 million compared to the year ended December 31, 2023 driven by the factors discussed in the revenue section above. GROSS PROFIT Gross profit margin increased by 26 basis points from 44.13% for the year ended December 31, 2023 to 44.39% in the year ended December 31, 2024. The gross margin percentage increase was driven by higher furniture margin rates and a greater mix of furniture sales. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES SG&A as a percentage of revenue for the year ended December 31, 2024 increased to 36.72%, 15 basis points higher than the 36.57% in the prior year. SG&A as a percentage of revenue increased primarily due to minimum wage increases, stewardship recycling fees, professional fees, and other inflationary pressures. ADJUSTED NET INCOME (2) AND ADJUSTED DILUTED EARNINGS PER SHARE (2) Adjusted net income for the year ended December 31, 2024 totaled $150.9 million, an increase of $9.4 million or 6.6% over the prior year. The improvement was driven by a one-time $23.4 million pre-tax net favorable settlement related to a breach of contract legal dispute with CURO. The Company had an agreement with CURO to underwrite insurance for their credit products commencing in 2024. After undergoing voluntary bankruptcy proceedings to restructure their business, CURO elected to not proceed with the agreement which ultimately resulted in a legal settlement in favor of the Company to recover the future profit potential of the agreement. During 2023, point of sale financing partner FLX Holding Corp (“Flexiti”) was acquired by Questrade Financial Group Inc. from CURO. Leon’s Furniture Limited entered into an amended agreement with Flexiti, and the Company received a $20 million one-time pre-tax payment to settle the value of warrant rights negotiated as part of the original agreement with CURO. Normalizing for the one-time gains in both years, adjusted net income increased $6.8 million or 5.4% over the prior year driven by sales and gross margin rate increase. Adjusted diluted earnings per share for the Company increased to $2.20 compared to $2.06 in the year ended December 31, 2023, an increase of $0.14 per share. Normalizing for the one-time gain in both years, adjusted diluted earnings per share increased $0.10 or 5.4% over the prior year. NET INCOME AND DILUTED EARNINGS PER SHARE Including the mark-to-market impact of the Company’s financial derivatives, net income for the year ended December 31, 2024 was $153.7 million, or $2.24 per diluted earnings per share (net income of $138.9 million, $2.02 per diluted earnings per share in 2023). 1. Supplementary financial measure. Refer to section 14 in this MD&A for additional information. 2. Non-IFRS financial measure. Refer to section 14 in this MD&A for additional information. 21 Leon’s Furniture Limited Annual Report 2024 Management’s Discussion and Analysis 4. Store Network The Company has 299 retail stores in Canada at December 31, 2024. The following table illustrates the Company’s store count continuity from December 31, 2023 to December 31, 2024 by retail banner: Banner Number of stores as at December 31, 2023 Opened Closed Number of stores as at December 31, 2024 Corporate Stores Leon’s 52 – – 52 Appliance Canada 5 – – 5 The Brick (1) 118 – – 118 The Brick Mattress Store 21 – (1) 20 Brick Outlet 6 – – 6 Corporate Subtotal 202 – (1) 201 Franchise Stores Leon’s 35 1 (3) 33 The Brick 66 – (1) 65 Franchise Subtotal 101 1 (4) 98 Total Corporate & Franchise Stores 303 1 (5) 299 1. Includes the Midnorthern Appliance banner. The Company continues to reposition store locations in markets that allow its divisions to expand their market share and support existing locations. 5. Summary of Consolidated Quarterly Results The table below highlights the variability of quarterly results and the impact of seasonality on the Company’s results. The Company’s profitability is typically lower in the first half of the year, since retail sales are traditionally higher in the third and fourth quarters. For the quarter ended December 31 September 30 June 30 March 31 (C$ in millions except per share amounts) 2024 2023 2024 2023 2024 2023 2024 2023 Total system-wide sales (1) 806.2 832.5 779.9 791.7 742.1 717.6 677.7 625.6 Franchise sales (1) 139.5 145.6 128.0 130.7 124.4 123.8 115.4 112.6 Revenue 666.7 686.9 651.9 661.0 617.7 593.8 562.3 513.0 Net income 67.9 46.2 36.9 52.3 30.2 27.4 18.8 12.9 Adjusted net income (1) 67.4 48.9 37.2 51.7 29.9 28.0 16.4 12.9 Basic earnings per share $0.99 $0.68 $0.54 $0.77 $0.44 $0.40 $0.28 $0.19 Diluted earnings per share $0.99 $0.68 $0.54 $0.76 $0.44 $0.40 $0.27 $0.19 Adjusted basic earnings per share (1) $0.99 $0.72 $0.55 $0.76 $0.44 $0.41 $0.24 $0.19 Adjusted diluted earnings per share (1) $0.98 $0.72 $0.54 $0.75 $0.44 $0.41 $0.24 $0.19 1. Non-IFRS financial measure. Refer to section 14 in this MD&A for additional information. 6. Financial Position As at (C$ in millions) December 31, 2024 December 31, 2023 Total assets 2,340.7 2,221.8 Total non-current liabilities 543.0 571.2 ASSETS Total assets at December 31, 2024 of $2,340.7 million were $118.9 million higher than the $2,221.8 million reported at December 31, 2023. The movement was driven by increases in cash and cash equivalents, debt and equity securities, offset by decreases in trade receivables and inventory. 22 Annual Report 2024 Leon’s Furniture Limited Management’s Discussion and Analysis NON-CURRENT LIABILITIES Non-current liabilities of $543.0 million were $28.2 million lower than the $571.2 million reported at December 31, 2023. This is primarily a result of a decrease in the term loan of $20.0 million, and a decrease in the long-term portion of lease liabilities of $12.9 million. Long-term debt and lease liabilities are discussed further in notes 14 and 13, respectively, of the consolidated financial statements. NET DEBT The table below reflects the Company’s net cash balances, excluding its lease liabilities and restricted marketable securities as at December 31, 2024. As at (C$ in millions) December 31, 2024 December 31, 2023 $ Change Term debt 80.0 100.0 (20.0) Less: cash, cash equivalents, debt and equity instruments 325.4 187.1 138.3 Net cash/(debt) balance (1) 245.4 87.1 158.3 1. Non-IFRS financial measure. Refer to section 14 in this MD&A for additional information. At December 31, 2024, the Company’s total net cash balance, excluding its lease liabilities is $245.4 million. The change in the net debt position is primarily driven by an increase in cash and cash equivalents of $108.5 million. This increase in cash was mostly generated by changes in operating capital due to an increase in customer deposits and collection of trade receivables. Additionally, the term loan has decreased by $20 million. 7. Liquidity and Capital Resources LIQUIDITY RISK MANAGEMENT The purpose of liquidity risk management is to maintain sufficient amounts of cash and cash equivalents, and authorized credit facilities, to fulfill obligations associated with financial liabilities. To manage liquidity risk, the Company prepares budgets and cash forecasts, and monitors its performance against these. Management also monitors cash and working capital efficiency given current sales levels and seasonal variability. The Company measures and monitors liquidity risk by regularly evaluating its cash inflows and outflows under expected conditions through cash flow reporting such that it anticipates certain funding mismatches and ensures the cash management of the business within certain tolerable levels. These cash flow forecasts are reviewed on a weekly basis by management. The Company mitigates liquidity risk through continuous monitoring of its credit facilities and the diversification of its funding sources, both in the short term as well as the long term. As at December 31, 2024, unrestricted liquidity is $513.2 million comprised of cash and cash equivalents, debt and equity instruments and its undrawn revolving credit facility. CONSOLIDATED CASH FLOW MOVEMENTS The following table provides a summarized statement of cash flows for the three months and year ended December 31, 2024 and December 31, 2023: For the Three months ended (C$ in millions) December 31, 2024 December 31, 2023 $ Increase (Decrease) Cash provided by operating activities 133.4 82.1 51.3 Cash provided by (used in) investing activities (18.3) 10.2 (28.5) Cash used in financing activities (48.9) (97.9) 49.0 Increase (decrease) in cash and cash equivalents 66.2 (5.6) 71.8 For the Year ended (C$ in millions) December 31, 2024 December 31, 2023 $ Increase (Decrease) Cash provided by operating activities 345.0 253.3 91.7 Cash used in investing activities (67.9) (5.4) (62.5) Cash used in financing activities (168.6) (280.3) 111.7 Increase (decrease) in cash and cash equivalents 108.5 (32.4) 140.9 23 Leon’s Furniture Limited Annual Report 2024 Management’s Discussion and Analysis Q4 2024 Year-to-Date Operating Activities $51.3 million change $91.7 million change The increase is primarily driven by changes in working capital related to trade receivables and customer deposits, offset by inventory. The increase is mainly due to timing of inventory purchases, increase in customer deposits, timing of credit based point-of-sale transaction settlements and offset by trade and other payables. Investing Activities $28.5 million change $62.5 million change The decrease is due to a reduction in proceeds on sale of debt and equity instruments. The decrease is due to increased investment related to the new Edmonton DC and office development and one-time proceeds received in the prior year on settlement of warrant. Financing Activities $49.0 million change $111.7 million change The increase is primarily due to the movement of long-term debt repayments. The increase is primarily due to the movement of long-term debt repayments as the Company repaid $100 million more in 2023. ADEQUACY OF FINANCIAL RESOURCES At December 31, 2024, the Company’s current assets exceeded its current liabilities by $279.7 million and its cash and cash equivalents, restricted marketable securities, and debt and equity instruments were $325.4 million compared to $187.6 million at December 31, 2023. At December 31, 2024, $187.7 million is available to draw on under the Company’s $200 million revolving credit facility as the borrowing capacity has been reduced by ordinary letters of credit of $8.5 million and utilizing $3.8 million of the revolving credit facility. The Company believes that its existing financing resources together with cash flow provided from its current operations and its expanded revolving credit facility will provide a sound liquidity and working capital position throughout the next twelve months. CONTRACTUAL OBLIGATIONS As at December 31, 2024 (C$ in millions) Payments Due by Period Contractual obligations Total 2025 2026 2027 2028 2029 2030 & Beyond Long-term debt 84.8 11.0 73.8 – – – – Lease payments 414.2 95.8 58.8 57.5 54.9 52.5 94.7 Total contractual obligations 499.0 106.8 132.6 57.5 54.9 52.5 94.7 8. Outlook Given the Company’s strong and continuously improving financial position, our principal objective is to increase our market share and profitability. We remain focused on our commitment to effectively manage our costs but to also continuously invest in digital innovation that we believe will drive more customers to both our online eCommerce sites and our 299 store locations across Canada. 9. Outstanding Common Shares At December 31, 2024, there were 68,191,725 common shares issued and outstanding. During the year ended December 31, 2024, 2,184 series 2012 shares, 69,724 series 2013 shares, 36,389 series 2014 shares and 51,400 series 2015 shares were converted into common shares. For details on the Company’s commitments related to its redeemable share liability please refer to Note 15 of the consolidated financial statements. During the year ended December 31, 2024, no common shares were purchased or cancelled. 10. Related Party Transactions For the year ended December 31, 2024, we had no transactions with related parties as defined in IAS 24, Related Party Disclosures, except those pertaining to transactions with key management personnel in the ordinary course of their employment. 24 Annual Report 2024 Leon’s Furniture Limited Management’s Discussion and Analysis 11. Critical Assumptions USE OF ESTIMATES AND JUDGMENTS Management has exercised judgment in the process of applying the Company’s accounting policies. The preparation of consolidated financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the consolidated statements of financial position dates and the reported amounts of revenue and expenses during the reporting period. Estimates and other judgments are continuously evaluated and are based on management’s experience and other factors, including expectations about future events that are believed to be reasonable under the circumstances. Actual results could differ from those estimates. The following discusses the most significant accounting judgments and estimates that the Company has made in the preparation of the consolidated financial statements. Consolidation and classification of joint arrangements Assessing the Company’s ability to control or influence the relevant financial and operating policies of another entity may, depending on the facts and circumstances, require the exercise of significant judgment to determine whether the Company controls, jointly controls or exercises significant influence over the entity performing the work. This assessment of control impacts how the operations of these entities are reported in the Company’s consolidated financial statements (i.e, consolidation, equity investment or proportional share). The classification of these entities as a subsidiary, joint operation, joint venture, associate or financial instrument requires judgment by management to analyze the various indicators that determine whether control exists. In particular, when assessing whether a joint arrangement should be classified as either a joint operation or a joint venture, management considers the contractual rights and obligations, voting shares, share of board members and the legal structure of the joint arrangement. Subject to reviewing and assessing all the facts and circumstances of each joint arrangement, joint arrangements contracted through agreements and general partnerships would generally be classified as joint operations whereas joint arrangements contracted through corporations would be classified as joint ventures. The application of different judgments when assessing control or the classification of joint arrangements could result in materially different presentations in the consolidated financial statements. Extended warranty revenue recognition The Company offers extended warranties on certain merchandise. Management has applied judgment in determining the basis upon and period over which to recognize deferred warranty revenue. Inventories 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 sales prices. Reserves for slow-moving and damaged inventory are deducted in the Company’s valuation of inventories. Management has estimated the amount of reserve for slow-moving inventory based on the Company’s historical retail experience. Impairment of debt instruments The Company exercises judgment in the determination of whether there are objective indicators of impairment with respect to its debt instruments. The Company’s review is based on an expected credit loss (“ECL”) approach that employs an analysis of historical data, economic indicators and any past or future events that may influence the recoverability of the debt instruments held. Impairment of property, plant and equipment and right-of-use assets The Company exercises judgment in the determination of cash-generating units (“CGUs”) for purposes of assessing any impairment of property, plant and equipment and right-of-use assets, as well as in determining whether there are indicators of impairment present. Should indicators of impairment be present, management estimates the recoverable amount of the relevant CGU. This estimation requires assumptions about future cash flows, margins and discount rates. Impairment of goodwill and intangible assets The Company tests goodwill and indefinite-life intangible assets at least annually and reviews other long-lived intangible assets for any indication that the asset might be impaired. Significant judgments are required in determining the CGUs or groups of CGUs for purposes of assessing impairment. Significant judgments are also required in determining whether to allocate goodwill to CGUs or groups of CGUs. When performing impairment tests, the Company estimates the recoverable amount of the CGUs or groups of CGUs to which goodwill and indefinite-life intangible assets have been allocated using a discounted cash flow model that requires assumptions about future cash flows, margins and discount rates. Provisions The Company exercises judgment in the determination of recognizing a provision. The Company recognizes a provision when it has a present legal or constructive obligation as a result of a past event and a reliable estimate of the obligation can be made. Significant judgments are required to be made in determining the probable outflow of resources that will be required to settle the obligation. Leases Management exercises judgment in the process of applying IFRS 16, Leases (“IFRS 16”) and determining the appropriate lease term on a lease-by- lease basis. Management considers many factors including any events that create an economic incentive to exercise a renewal option including store performance, expected future performance and past business practice. Renewal options are only included if management is reasonably certain that the option will be renewed. 25 Leon’s Furniture Limited Annual Report 2024 Management’s Discussion and Analysis Materiality In preparing this MD&A and the information contained herein, management considers the likelihood that a reasonable investor’s decision would be influenced to buy or not buy, or to sell or hold securities of the Company if such information were omitted, misstated or obscured in any way. This concept of materiality is consistent with the notion of materiality applied to financial statements and contained in IFRS. RECENT ACCOUNTING PRONOUNCEMENTS Adoption of new accounting standards Amendments to IAS 1, Presentation of Financial Statements The amendments to IAS 1 provide a more general approach to the classification of liabilities based on the contractual arrangements in place at the reporting date. The amendments clarify that the classification of liabilities as current or noncurrent should be based on rights that are in existence at the end of the reporting period and align the wording in all affected paragraphs to refer to the right to defer settlement by at least twelve months and make explicit that only rights in place at the end of the reporting period should affect the classification of a liability. The amendments are effective for annual reporting periods beginning on or after January 1, 2024 and are to be applied retrospectively. The adoption of this standard did not have a material impact on the consolidated financial statements. Amendments to IAS 12, IASB issued International Tax Reform – Pillar Two Model Rules In May 2023, IASB issued International Tax Reform – Pillar Two Model Rule with regards to disclosure requirements for affected entities, including information about an entity’s exposure to Pillar Two income taxes and current tax expense related to Pillar Two income taxes. Pillar Two legislation has been enacted or substantively enacted in certain jurisdictions in which the Company operates. The Company has performed an assessment of the Company’s potential exposure to Pillar Two income taxes and determined that there was no material impact. This assessment is based on the most recent information available regarding the financial performance of the constituent entities in the Company. Accounting standards and amendments issued but not yet adopted Amendments to IAS 21, The Effects of Changes in Foreign Exchange Rates In August 2023, the IASB issued amendments to IAS 21 – The Effects of Changes in Foreign Exchange Rates in relation to Lack of Exchangeability. The amendments require entities to apply a consistent approach in assessing whether a currency can be exchanged into another currency, and in determining the exchange rate to use and the disclosures to provide when it cannot. These amendments are effective for annual reporting periods beginning on or after January 1, 2025, with early adoption permitted. The adoption of this standard will not have a material impact on the consolidated financial statements. IFRS 18, Presentation and Disclosure in Financial Statements (“IFRS 18”) The IASB issued IFRS 18 “Presentation and Disclosure in the Financial Statements” (“IFRS 18”), which sets out requirements and guidance on presentation and disclosure in financial statements, including: • Presentation in income statement of income and expenses within five defined categories: operating, investing, financing, income taxes, and discontinued operations • Presentation in the income statements of new defined subtotals for operating profit and profit before financing and income taxes • Enhanced guidance on aggregation and disaggregation of information and whether to provide information in the financial statements or in the notes • Disclosure of specified expenses by nature • Disclosure of explanations of management-defined performance measures IFRS 18 will replace IAS 1 “Presentation of Financial Statements” but carries forward many requirements from IAS 1 without any change. The standard is effective for the annual reporting periods beginning on or after January 1, 2027, with early application permitted. The Company is currently assessing the impact of this new standard on its consolidated financial statements. Amendments to IFRS 9 and IFRS 7, Classification and Measurement of Financial Instruments In May 2024, the IASB issued amendments to IFRS 9, Financial Instruments, and IFRS 7, Financial Instruments: Disclosures, relating to the classification and measurement requirements of financial instruments recognized within those standards. These amendments include, among others: • Clarify that a financial liability is to be derecognized on the ‘settlement date’ and introduces an accounting policy to derecognize financial liabilities settled through an electronic payment system before settlement date if certain conditions are met; and • Require additional disclosures for financial assets and liabilities with contractual terms that reference a contingent event and equity instruments classified at fair value through other comprehensive income. These amendments will be effective for annual periods beginning on or after January 1, 2026, and will be applied retrospectively with an adjustment to opening retained earnings. Prior periods will not be required to be restated and can only be restated without using hindsight. The Company does not expect any material impacts from these amendments on its consolidated financial statements. 26 Annual Report 2024 Leon’s Furniture Limited Management’s Discussion and Analysis 12. Risks and Uncertainties Careful consideration should be given to the following risk factors. These descriptions of risks are not the only ones facing the Company. Additional risks and uncertainties not presently known to Leon’s, or that the Company deems immaterial, may also impair the operations of the Company. If any of such risks actually occur, the business, financial condition, liquidity, and results of operations of the Company could be materially adversely affected. Readers of this MD&A are also encouraged to refer to Leon’s Annual Information Form (“AIF”) dated February 25, 2025, which provides information on the risk factors facing the Company. The February 25, 2025 AIF can be found online at www.sedar.com. SENSITIVITY TO GENERAL ECONOMIC CONDITIONS The household furniture, mattress, appliance and home electronics retailing industry in Canada has historically been subject to cyclical variations in the general economy and to uncertainty regarding future economic prospects. The Company’s sales are impacted by the health of the economy in Canada as a whole, and in the regional markets in which the Company operates. The Company’s sales and financial results are subject to numerous uncertainties. Weakness in sales or consumer confidence could result in an increasingly challenging operating environment. MAINTAINING PROFITABILITY & MANAGING GROWTH There can be no assurance that the Company’s business and growth strategy will enable it to sustain profitability in future periods. The Company’s future operating results will depend on a number of factors, including (i) the Company’s ability to continue to successfully execute its strategic initiatives, (ii) the level of competition in the household furniture, mattress, appliance and home electronics retailing industry in the markets in which the Company operates, (iii) the Company’s ability to remain a low-cost retailer, including the effective management of its supply chain, (iv) the Company’s ability to realize increased sales and greater levels of profitability through its retail stores, (v) the effectiveness of the Company’s marketing programs, (vi) the Company’s ability to successfully identify and respond to changes in fashion trends and consumer tastes in the household furniture, mattress, appliance and home electronics retailing industry, (vii) the Company’s ability to maintain cost effective delivery of its products, (viii) the Company’s ability to hire, train, manage and retain qualified retail store management and sales professionals, (ix) the Company’s ability to continuously improve its service to achieve new and enhanced customer benefits and better quality, and (x) general economic conditions and consumer confidence, and (xi) the Company’s ability to manage tariffs and other external economic changes with which it may be faced. FOREIGN EXCHANGE RISK The Company has hedged a portion of near-term forecasted USD purchases to minimize the impacts of adverse changes in foreign exchange rates. However, there can be no assurance that these measures will fully mitigate this risk, and sustained changes in foreign exchange rates may impact purchasing costs over time. FINANCIAL CONDITION OF COMMERCIAL SALES CUSTOMERS & FRANCHISEES Through its commercial sales division, the Company sells products and extends credit to high-rise and condominium builders who purchase large quantities of products. The Company also sells products and extends credit to its franchisees. Negative changes in the financial condition of a significant commercial sales customer or a franchisee could impact on the Company’s receivables and ultimately result in the Company having to take a bad-debt write-off in excess of allowance for bad debts. The occurrence of such an event could have a material adverse effect on the Company’s business, financial condition, liquidity and results of operations. COMPETITION The household furniture, mattress, appliance and home electronics retailing industry is highly competitive and highly fragmented. The Company faces competition in all regions in which its operations are located by existing stores that sell similar products and also by stores that may be opened in the future by existing or new competitors in such markets. The Company competes directly with many different types of retail stores that sell many of the products sold by the Company. Such competitors include (i) department stores, (ii) specialty stores (such as specialty electronics, appliance, or mattress retailers), (iii) other national or regional chains offering household furniture, mattresses, appliances and home electronics, and (iv) other independent retailers, particularly those associated with larger buying groups. The highly competitive nature of the industry means the Company is constantly subject to the risk of losing market share to its competitors. As a result, the Company may not be able to maintain or to raise the prices of its products in response to competitive pressures. In addition, the entrance of additional competitors to the markets in which the Company operates, particularly large furniture, appliance or electronics retailers from the United States could increase the competitive pressure on the Company and have a material adverse effect on the Company’s market share. The actions and strategies of the Company’s current and potential competitors could have a material adverse effect on the Company’s business, financial condition, liquidity and results of operations. 27 Leon’s Furniture Limited Annual Report 2024 Management’s Discussion and Analysis 13. Controls and Procedures DISCLOSURE CONTROLS & PROCEDURES Management is responsible for establishing and maintaining a system of disclosure controls and procedures to provide reasonable assurance that all material information relating to the Company is gathered and reported on a timely basis to senior management, including the Chief Executive Officer and Chief Financial Officer so that appropriate decisions can be made by them regarding public disclosure. Based on the evaluation of disclosure controls and procedures, the CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective as at December 31, 2024. INTERNAL CONTROLS OVER FINANCIAL REPORTING Management is also responsible for establishing and maintaining disclosure controls and procedures and internal controls over financial reporting for the Company. The control framework used in the design of disclosure controls and procedures and internal control over financial reporting is based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013). Management, including the CEO and CFO, does not expect that the Company’s disclosure controls or internal controls over financial reporting will prevent or detect all errors and all fraud or will be effective under all potential future conditions. A control system is subject to inherent limitations and, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives will be met. As required by the National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim filings (“NI 52-109”), the Company’s CEO and CFO evaluated the effectiveness of internal controls over financial reporting under their supervision and concluded that the controls and procedures are effective. During the year ended December 31, 2024, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting. 14. Non-IFRS and Supplementary Financial Measures NON-IFRS FINANCIAL MEASURES The Company uses financial measures that do not have standardized meaning under IFRS and may not be comparable to similar measures presented by other entities. The Company calculates the non-IFRS financial measures by adjusting certain IFRS measures for specific items the Company believes are significant, but not reflective of underlying operations in the period, as detailed below: Non-IFRS Measure IFRS Measure Adjusted net income Net income Adjusted income before income taxes Income before income taxes Adjusted earnings per share – basic Earnings per share – basic Adjusted earnings per share – diluted Earnings per share – diluted Adjusted EBITDA Net income Adjusted Net Income Leon’s calculates comparable measures by excluding the effect of changes in fair value of derivative instruments, related to the net effect of USD-denominated forward contracts. The Company uses derivative instruments to manage its financial risk in accordance with the Company’s corporate treasury policy. Management believes excluding from income the effect of these mark-to-market valuations and changes thereto, until settlement, better aligns the intent and financial effect of these contracts with the underlying cash flows. The following is a reconciliation of reported net income to adjusted net income, basic and diluted earnings per share to adjusted basic and diluted earnings per share: For the Three months ended Year ended (C$ in millions except per share amounts) December 31, 2024 December 31, 2023 December 31, 2024 December 31, 2023 Net income 67.9 46.2 153.7 138.9 After-tax mark-to-market (gain) loss on financial derivative instruments (0.5) 2.7 (2.8) 2.6 Adjusted net income 67.4 48.9 150.9 141.5 Basic earnings per share $0.99 $0.68 $2.26 $2.04 Diluted earnings per share $0.99 $0.68 $2.24 $2.02 Adjusted basic earnings per share $0.99 $0.72 $2.21 $2.08 Adjusted diluted earnings per share $0.98 $0.72 $2.20 $2.06 28 Annual Report 2024 Leon’s Furniture Limited Management’s Discussion and Analysis Adjusted EBITDA Adjusted earnings before interest, income taxes, depreciation and amortization, mark-to-market adjustment due to the changes in the fair value of the Company’s financial derivative instruments and any non-recurring charges to income (“Adjusted EBITDA”) is a non-IFRS financial measure used by the Company. The Company considers adjusted EBITDA to be an effective measure of profitability on an operational basis and is commonly regarded as an indirect measure of operating cash flow, a significant indicator of success for many businesses. The Company’s Adjusted EBITDA may not be comparable to the Adjusted EBITDA measure of other companies, but in management’s view appropriately reflects Leon’s specific financial condition. This measure is not intended to replace net income, which, as determined in accordance with IFRS, is an indicator of operating performance. The following is a reconciliation of reported net income to adjusted EBITDA: For the Three months ended Year ended (C$ in millions) December 31, 2024 December 31, 2023 December 31, 2024 December 31, 2023 Net income 67.9 46.2 153.7 138.9 Income tax expense 23.2 15.1 50.9 43.6 Net finance costs 2.9 4.2 14.4 19.5 Depreciation and amortization 26.6 27.0 106.6 107.8 Gain on settlement (23.4) – (23.4) (20.0) Mark-to-market (gain) loss on financial derivative instruments (0.7) 3.6 (3.8) 3.5 Adjusted EBITDA 96.5 96.1 298.4 293.3 Total System Wide Sales Total system wide sales refer to the aggregation of revenue recognized in the Company’s consolidated financial statements plus the franchise sales occurring at franchise stores to their customers which are not included in the revenue figure presented in the Company’s consolidated financial statements. Total system wide sales is not a measure recognized by IFRS and does not have a standardized meaning prescribed by IFRS, but it is a key indicator used by the Company to measure performance against prior period results. Therefore, total system wide sales as discussed in this MD&A may not be comparable to similar measures presented by other issuers. We believe that disclosing this measure is meaningful to investors because it serves as an indicator of the strength of the Company’s overall store network, which ultimately impacts financial performance. Franchise Sales Franchise sales figures refer to sales occurring at franchise stores to their customers which are not included in the revenue figures presented in the Company’s consolidated financial statements, or in the same store sales figures in this MD&A. Franchise sales is not a measure recognized by IFRS, and does not have a standardized meaning prescribed by IFRS, but it is a key indicator used by the Company to measure performance against prior period results. Therefore, franchise sales as discussed in this MD&A may not be comparable to similar measures presented by other issuers. Once again, we believe that disclosing this measure is meaningful to investors because it serves as an indicator of the strength of the Company’s brands, which ultimately impacts financial performance. Net Debt Net debt is calculated as the principal amount of the term loan less cash, cash equivalents and debt and equity instruments. Net debt is a non- IFRS financial measure used by the Company. The Company considers net debt to be an effective measure of the overall debt position and borrowing capacity available to the Company. SUPPLEMENTARY FINANCIAL MEASURES The Company uses supplementary financial measures to disclose financial measures that are not (a) presented in the consolidated financial statements and (b) is, or is intended to be, disclosed periodically to depict the historical or expected future financial performance, financial position or cash flow, that is not a non-IFRS financial measure as detailed above. Same Store Sales Same store sales are defined as sales generated by stores, both in store and through online transactions, that have been open for more than 12 months on a fiscal basis. Same store sales as discussed in this MD&A may not be comparable to similar measures presented by other issuers, however this measure is commonly used in the retail industry. We believe that disclosing this measure is meaningful to investors because it enables them to better understand the level of growth of our business. 29 Leon’s Furniture Limited Annual Report 2024 Management’s Discussion and Analysis Consolidated Financial Statements f o r t h e y e a r e n d e d d e c e m b e r 3 1 , 2 0 2 4 Management’s Responsibility for Financial Reporting.....................................................................................................................................................................................................31 Independent Auditor’s Report.........................................................................................................................................................................................................................................................32 Consolidated Financial Statements Consolidated Statements of Financial Position...................................................................................................................................................................................................................35 Consolidated Statements of Income..........................................................................................................................................................................................................................................36 Consolidated Statements of Comprehensive Income.....................................................................................................................................................................................................36 Consolidated Statements of Changes in Shareholders’ Equity ................................................................................................................................................................................. 37 Consolidated Statements of Cash Flows.................................................................................................................................................................................................................................38 Notes to the Consolidated Financial Statements 1. Reporting Entity....................................................................................................39 2. Basis of Presentation.........................................................................................39 3. Summary of Material Accounting Policies............................................41 4. Adoption of Accounting Standards and Amendments...............48 5. Cash and Cash Equivalents...........................................................................49 6. Inventories................................................................................................................49 7. Deferred Acquisition Costs............................................................................49 8. Property, Plant and Equipment and Right-Of-Use Assets.........50 9. Investment Properties.......................................................................................51 10. Intangible Assets and Goodwill...................................................................52 11. Trade and Other Payables...............................................................................53 12. Provisions..................................................................................................................53 13. Leases.........................................................................................................................54 14. Long-term Debt...................................................................................................55 15. Management Share Purchase Plan...........................................................55 16. Common Shares................................................................................................... 57 17. Revenue..................................................................................................................... 57 18. Expenses by Nature............................................................................................58 19. Net Finance Costs...............................................................................................58 20. Other Income.........................................................................................................58 21. Income Tax Expense...........................................................................................59 22. Earnings Per Share............................................................................................. 60 23. Financial Instruments.........................................................................................61 24. Insurance Contract Risk...................................................................................64 25. Capital Management.........................................................................................65 26. Commitments and Contingencies...........................................................65 27. Consolidated Statements of Cash Flows..............................................66 28. Related Party Transactions.............................................................................67 29. Comparative Financial Information..........................................................67 30 Annual Report 2024 Leon’s Furniture Limited Management’s Responsibility for Financial Reporting The accompanying consolidated financial statements are the responsibility of management and have been approved by the Board of Directors. The accompanying consolidated financial statements have been prepared by management in accordance with International Financial Reporting Standards. Financial statements are not precise since they include certain amounts based upon estimates and judgments. When alternative methods exist, management has chosen those it deems to be the most appropriate in the circumstances. Leon’s Furniture Limited/Meubles Leon Ltée (“Leon’s” or the “Company”) maintains systems of internal accounting and administrative controls, consistent with reasonable costs. Such systems are designed to provide reasonable assurance that the financial information is relevant and reliable and that Leon’s assets are appropriately accounted for and adequately safeguarded. The Board of Directors is responsible for ensuring that management fulfils its responsibilities for financial reporting and is ultimately responsible for reviewing and approving the financial statements. The Board carries out this responsibility through its Audit Committee. The Audit Committee is appointed by the Board and reviews these consolidated financial statements; considers the report of the external auditors; assesses the adequacy of the internal controls of the Company; examines the fees and expenses for audit services; and recommends to the Board the independent auditors for appointment by the shareholders. The Committee reports its findings to the Board of Directors for consideration when approving these consolidated financial statements for issuance to the shareholders. These consolidated financial statements have been audited by Ernst & Young LLP, the external auditors, in accordance with Canadian generally accepted auditing standards on behalf of the shareholders. Ernst & Young has full and free access to the Audit Committee. Mike Walsh President and CEO Victor Diab CFO 31 Leon’s Furniture Limited Annual Report 2024 Management’s Responsibility for Financial Reporting "Michael J. Walsh" "Victor Diab" Independent Auditor’s Report To the Shareholders of Leon’s Furniture Limited/Meubles Leon Ltée OPINION We have audited the consolidated financial statements of Leon’s Furniture Limited/Meubles Leon Ltée and its subsidiaries (the “Group”), which comprise the consolidated statements of financial position as at December 31, 2024 and 2023, and the consolidated statements of income, consolidated statements of comprehensive income, consolidated statements of changes in shareholders’ equity and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements, including material accounting policy information. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects the consolidated financial position of the Group as at December 31, 2024 and 2023, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards (IFRS). BASIS FOR OPINION We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. KEY AUDIT MATTER Key audit matters are those matters that, in our professional judgment, were of most significance in the audit of the consolidated financial statements of the current period. These matters were addressed in the context of the audit of the consolidated financial statements as a whole, and in forming the auditor’s opinion thereon, and we do not provide a separate opinion on these matters. For the matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report, including in relation to this matter. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matter below, provide the basis for our audit opinion on the accompanying consolidated financial statements. Key audit matter How our audit addressed the key audit matter Valuation of Goodwill and Indefinite Life intangibles related to The Brick acquisition Goodwill and indefinite-life intangible assets arising from the 2013 acquisition of the Brick represent $379 million and $266 million, respectively as of December 31, 2024. The indefinite-life intangible assets are comprised of brand name and franchise agreements. As disclosed in Note 10 of the consolidated financial statements, the Group allocated these assets to the Brick division (a group of cash generating units (“CGUs”)) and assesses at least annually, or at any time if an indicator of impairment exists, whether there has been an impairment loss in the carrying value of these assets. When performing impairment tests, the Group estimates the recoverable amount of the group of CGUs to which goodwill and indefinite-life intangible assets have been allocated using a discounted cash flow model. Auditing management’s annual goodwill and indefinite-life intangibles impairment test was complex, as considerable management judgement was required due to the significant measurement uncertainty related to determining the recoverable amount of the Brick division. Significant assumptions included revenue growth rate, earnings margins and pre-tax discount rate, which are affected by expectations about future market and economic conditions. To test the estimated recoverable amount of the Brick division, our audit procedures included, among others, assessing valuation methodology and evaluating significant assumptions and the accuracy of underlying data used by management in its analysis. With the assistance of our valuation specialists, we evaluated the Group’s model and certain significant assumptions, including the pre-tax discount rate. We assessed the selection and application of the pre- tax discount rate by evaluating the inputs and mathematical accuracy of the calculation with the assistance of our valuation specialists. We assessed the historical accuracy of management’s estimates on cash flow projections, revenue growth rate and earnings margins by comparing management’s past projections to actual and historical performance. We also compared the revenue growth rate to current industry trends to assess the reasonableness of the revenue growth rate used by management in its analysis. We performed sensitivity analysis on significant assumptions, including the pre-tax discount rate, to evaluate changes in the recoverable amount of the Brick division that would result from changes in the assumptions. 32 Annual Report 2024 Leon’s Furniture Limited Independent Auditor’s Report OTHER INFORMATION Management is responsible for the other information. The other information comprises: • Management’s Discussion and Analysis • The information, other than the consolidated financial statements and our auditor’s report thereon, in the Annual Report Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information, and in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. We obtained Management’s Discussion and Analysis prior to the date of this auditor’s report. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor’s report. We have nothing to report in this regard. The Annual Report is expected to be made available to us after the date of the auditor’s report. If based on the work we will perform on this other information, we conclude there is a material misstatement of other information, we are required to report that fact to those charged with governance. RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE CONSOLIDATED FINANCIAL STATEMENTS Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s financial reporting process. AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure, and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Plan and perform the group audit to obtain sufficient appropriate audit evidence regarding the financial information of the entities or business units within the Group as a basis for forming an opinion on the consolidated financial statements. We are responsible for the direction, supervision and review of the work performed for the purposes of the group audit. We remain solely responsible for our audit opinion. 33 Leon’s Furniture Limited Annual Report 2024 Independent Auditor’s Report We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor’s report is Laura Sluce. Toronto, Canada Chartered Professional Accountants February 25, 2025 Licensed Public Accountants 34 Annual Report 2024 Leon’s Furniture Limited Independent Auditor’s Report Consolidated Statements of Financial Position As at (C$ in thousands) Notes December 31, 2024 December 31, 2023 Assets Current assets Cash and cash equivalents 5 191,238 82,744 Restricted marketable securities – 414 Debt securities 99,139 73,718 Equity securities 35,030 30,685 Trade receivables 23 185,975 197,759 Income taxes recoverable 21 1,458 7,174 Inventories 6 395,491 416,596 Deferred acquisition costs 7 13,721 13,353 Prepaid expenses and other assets 12,617 12,612 Derivative assets 23 1,545 - Total current assets 936,214 835,055 Non-current assets Deferred acquisition costs 7 22,778 22,632 Loan receivable 15 15,546 19,669 Property, plant and equipment and right-of-use assets 8 674,676 651,764 Investment properties 9 13,724 14,090 Intangible assets 10 270,689 271,213 Goodwill 10 390,120 390,120 Deferred income tax assets 21 16,939 17,296 Total non-current assets 1,404,472 1,386,784 Total assets 2,340,686 2,221,839 Liabilities Current liabilities Trade and other payables 11 298,226 282,937 Current portion of provisions 12 8,237 9,736 Income taxes payable 21 1,493 3,694 Customers’ deposits 17 177,233 160,346 Current portion of lease liabilities 13 79,690 75,127 Dividends payable 16 13,639 12,246 Current portion of deferred warranty plan and insurance revenue 17 70,508 68,229 Current portion of long-term debt 14 7,500 7,500 Derivative liabilities 23 – 2,265 Total current liabilities 656,526 622,080 Non-current liabilities Long-term debt 14 72,500 92,500 Lease liabilities 13 265,860 278,798 Deferred warranty plan and insurance revenue 17 112,987 111,178 Provisions 12 24,351 20,360 Deferred income tax liabilities 21 67,312 68,399 Total non-current liabilities 543,010 571,235 Total liabilities 1,199,536 1,193,315 Shareholders’ equity Common shares 16 167,231 164,875 Retained earnings 960,471 856,891 Accumulated other comprehensive income 13,448 6,758 Total shareholders’ equity 1,141,150 1,028,524 Total liabilities and shareholders’ equity 2,340,686 2,221,839 The accompanying notes are an integral part of these consolidated financial statements. On Behalf of the Board: Terrence T. Leon Director Mary Ann Leon Director 35 Leon’s Furniture Limited Annual Report 2024 Consolidated Financial Statements "Terence T. Leon" "Mary Ann Leon" Consolidated Statements of Income For the Year ended (C$ in thousands except share and per share amounts) Notes December 31, 2024 December 31, 2023 Revenue 17 2,498,545 2,454,789 Cost of sales 6 1,389,337 1,371,612 Gross profit 1,109,208 1,083,177 Selling, general and administrative expenses 917,371 897,708 Other income 20 (27,181) (16,467) Net finance costs 19 14,437 19,458 Net income before income tax 204,581 182,478 Income tax expense 21 50,913 43,623 Net income for the year 153,668 138,855 Weighted average number of common shares outstanding 22 Basic 68,142,458 67,962,903 Diluted 68,646,568 68,654,322 Earnings per share 22 Basic $2.26 $2.04 Diluted $2.24 $2.02 Dividends declared per share Common $0.76 $0.66 Convertible, non-voting $0.36 $0.32 The accompanying notes are an integral part of these consolidated financial statements. Consolidated Statements of Comprehensive Income For the Year ended (C$ in thousands) December 31, 2024 December 31, 2023 Net income for the year 153,668 138,855 Other comprehensive income (loss) Item that may be reclassified subsequently to profit or loss: Gain on debt instruments arising during the year 2,218 2,465 Reclassification adjustment for gain (loss) on disposal of debt instruments 2 (249) Item that will not be reclassified to profit or loss: Gain on equity instruments arising during the year 4,754 1,294 Income tax expense on the above (284) (102) Other comprehensive income for the year 6,690 3,408 Comprehensive income for the year 160,358 142,263 The accompanying notes are an integral part of these consolidated financial statements. 36 Annual Report 2024 Leon’s Furniture Limited Consolidated Financial Statements Consolidated Statements of Changes in Shareholders’ Equity (C$ in thousands) Common shares Accumulated other comprehensive income Retained earnings Total As at December 31, 2023 164,875 6,758 856,891 1,028,524 Comprehensive income Net income for the year – – 153,668 153,668 Other comprehensive income for the year – 6,690 – 6,690 Total comprehensive income – 6,690 153,668 160,358 Transactions with shareholders Dividends declared – – (51,793) (51,793) Management share purchase plan [note 15] 2,061 – – 2,061 Share repurchase commitment 295 – 1,705 2,000 Total transactions with shareholders 2,356 – (50,088) (47,732) As at December 31, 2024 167,231 13,448 960,471 1,141,150 (C$ in thousands) Common shares Accumulated other comprehensive income Retained earnings Total As at December 31, 2022 162,636 3,350 762,899 928,885 Comprehensive income Net income for the year – – 138,855 138,855 Other comprehensive income for the year – 3,408 – 3,408 Total comprehensive income – 3,408 138,855 142,263 Transactions with shareholders Dividends declared – – (44,863) (44,863) Management share purchase plan [note 15] 2,239 – – 2,239 Total transactions with shareholders 2,239 – (44,863) (42,624) As at December 31, 2023 164,875 6,758 856,891 1,028,524 The accompanying notes are an integral part of these consolidated financial statements. 37 Leon’s Furniture Limited Annual Report 2024 Consolidated Financial Statements Consolidated Statements of Cash Flows For the Year ended (C$ in thousands) Notes December 31, 2024 December 31, 2023 Operating activities Net income before income tax 204,581 182,478 Add (deduct) items not involving an outlay of cash: Depreciation of property, plant and equipment, right-of-use assets and investment properties 105,442 106,739 Amortization of intangible assets 1,197 1,052 Amortization of deferred warranty plan revenue 17 (68,702) (63,333) Amortization of deferred insurance revenue 17 (25,201) (24,408) Amortization of premium (115) (117) Net finance costs 14,437 19,458 Gain on sale of property, plant and equipment and investment properties (1,103) (85) Gain on settlement 20 (23,371) (20,000) (Gain)/loss on derivatives 20 (3,810) 3,533 (Gain)/loss on sale of marketable securities (2) 249 Gain on management share purchase plan (1,359) (1,067) 201,994 204,499 Change in operating working capital 27 93,395 (2,630) Cash received on warranty plan sales 72,790 71,319 Cash received on insurance sales 25,201 24,408 Income taxes paid (48,413) (44,283) Cash provided by operating activities 344,967 253,313 Investing activities Purchase of property, plant and equipment 8 (59,132) (42,103) Purchase of intangible assets 10 (673) (2,524) Proceeds on sale of property, plant and equipment and investment properties 1,364 118 Purchase of debt and equity instruments (45,137) (44,501) Proceeds on sale of debt and equity instruments 22,873 54,304 Repayment of loan receivable 5,739 1,746 Proceeds on settlement of warrant 20 – 20,000 Interest received 7,091 7,512 Cash used in investing activities (67,875) (5,448) Financing activities Payment of lease liabilities 13 (77,492) (76,518) Dividends paid (50,400) (43,475) Decrease of employee loans-redeemable shares 2,061 2,239 Repayment of long-term debt 14 (30,000) (134,375) Issuance of long-term debt 14 10,000 – Interest paid (22,767) (28,119) Cash used in financing activities (168,598) (280,248) Net increase (decrease) in cash and cash equivalents during the year 108,494 (32,383) Cash and cash equivalents, beginning of year 82,744 115,127 Cash and cash equivalents, end of year 191,238 82,744 The accompanying notes are an integral part of these consolidated financial statements. 38 Annual Report 2024 Leon’s Furniture Limited Consolidated Financial Statements 1. Reporting Entity Leon’s Furniture Limited (“Leon’s” or the “Company”) was incorporated by the Articles of Incorporation under the Business Corporations Act on February 28, 1969. Leon’s is a retailer of home furnishings, mattresses, appliances and electronics across Canada. Leon’s is a public company listed on the Toronto Stock Exchange (TSX – LNF) and is incorporated and domiciled in Canada. The address of the Company’s head office and registered office is 45 Gordon Mackay Road, Toronto, Ontario, M9N 3X3. The Company’s business is seasonal in nature. Retail sales are traditionally higher in the third and fourth quarters. 2. Basis of Presentation STATEMENT OF COMPLIANCE These consolidated financial statements of the Company are prepared in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). These consolidated financial statements were approved by the Board of Directors for issuance on Tuesday, February 25, 2025. BASIS OF MEASUREMENT The consolidated financial statements have been prepared under the historical cost convention, except for investments, debt and equity instruments, derivative instruments and the initial recognition of assets acquired and liabilities assumed in business combinations, which are measured at fair value. FUNCTIONAL AND PRESENTATION CURRENCY Items included in the consolidated financial statements are measured using the currency of the primary economic environment in which the Company operates (the functional currency). These consolidated financial statements are presented in Canadian dollars, which is the Company’s functional and presentation currency and is also the functional currency of each of the Company’s subsidiaries. USE OF ESTIMATES AND JUDGMENTS Management has exercised judgment in the process of applying the Company’s accounting policies. The preparation of consolidated financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the consolidated statements of financial position dates and the reported amounts of revenue and expenses during the reporting period. Estimates and other judgments are continuously evaluated and are based on management’s experience and other factors, including expectations about future events that are believed to be reasonable under the circumstances. Actual results could differ from those estimates. The following discusses the most significant accounting judgments and estimates that the Company has made in the preparation of the consolidated financial statements. Notes to the Consolidated Financial Statements f o r t h e y e a r s e n d e d d e c e m b e r 3 1 , 2 0 2 4 a n d 2 0 23 a m o u n t s i n t h o u s a n d s o f c a n a d i a n d o l l a r s , e x c e p t s h a r e a m o u n t s a n d e a r n i n g s p e r s h a r e 39 Leon’s Furniture Limited Annual Report 2024 39 Annual Report 2024 Leons Furniture Limited Consolidation and classification of joint arrangements Assessing the Company’s ability to control or influence the relevant financial and operating policies of another entity may, depending on the facts and circumstances, require the exercise of significant judgment to determine whether the Company controls, jointly controls or exercises significant influence over the entity performing the work. This assessment of control impacts how the operations of these entities are reported in the Company’s consolidated financial statements (i.e, consolidation, equity investment or proportional share). The classification of these entities as a subsidiary, joint operation, joint venture, associate or financial instrument requires judgment by management to analyze the various indicators that determine whether control exists. In particular, when assessing whether a joint arrangement should be classified as either a joint operation or a joint venture, management considers the contractual rights and obligations, voting shares, share of board members and the legal structure of the joint arrangement. Subject to reviewing and assessing all the facts and circumstances of each joint arrangement, joint arrangements contracted through agreements and general partnerships would generally be classified as joint operations whereas joint arrangements contracted through corporations would be classified as joint ventures. The application of different judgments when assessing control or the classification of joint arrangements could result in materially different presentations in the consolidated financial statements. Extended warranty revenue recognition The Company offers extended warranties on certain merchandise. Management has applied judgment in determining the basis upon and period over which to recognize deferred warranty revenue. Inventories 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 sales prices. Reserves for slow-moving and damaged inventory are deducted in the Company’s valuation of inventories. Management has estimated the amount of reserve for slow-moving inventory based on the Company’s historical retail experience. Impairment of debt instruments The Company exercises judgment in the determination of whether there are objective indicators of impairment with respect to its debt instruments. The Company’s review is based on an expected credit loss (“ECL”) approach that employs an analysis of historical data, economic indicators and any past or future events that may influence the recoverability of the debt instruments held. Impairment of property, plant and equipment and right-of-use assets The Company exercises judgment in the determination of cash-generating units (“CGUs”) for purposes of assessing any impairment of property, plant and equipment and right-of-use assets, as well as in determining whether there are indicators of impairment present. Should indicators of impairment be present, management estimates the recoverable amount of the relevant CGU. This estimation requires assumptions about future cash flows, margins and discount rates. Impairment of goodwill and intangible assets The Company tests goodwill and indefinite-life intangible assets at least annually and reviews other long-lived intangible assets for any indication that the asset might be impaired. Significant judgments are required in determining the CGUs or groups of CGUs for purposes of assessing impairment. Significant judgments are also required in determining whether to allocate goodwill to CGUs or groups of CGUs. When performing impairment tests, the Company estimates the recoverable amount of the CGUs or groups of CGUs to which goodwill and indefinite-life intangible assets have been allocated using a discounted cash flow model that requires assumptions about future cash flows, margins and discount rates. Provisions The Company exercises judgment in the determination of recognizing a provision. The Company recognizes a provision when it has a present legal or constructive obligation as a result of a past event and a reliable estimate of the obligation can be made. Significant judgments are required to be made in determining the probable outflow of resources that will be required to settle the obligation. Leases Management exercises judgment in the process of applying IFRS 16, Leases (“IFRS 16”) and determining the appropriate lease term on a lease-by- lease basis. Management considers many factors including any events that create an economic incentive to exercise a renewal option including store performance, expected future performance and past business practice. Renewal options are only included if management is reasonably certain that the option will be renewed. 40 Annual Report 2024 Leon’s Furniture Limited Notes to the Consolidated Financial Statements 3. Summary of Material Accounting Policies The material accounting policies used in the preparation of these consolidated financial statements are summarized below. These accounting policies conform, in all material aspects, to IFRS. BASIS OF CONSOLIDATION The financial statements consolidate the accounts of Leon’s Furniture Limited and its wholly owned subsidiaries: Murlee Holdings Limited, Leon Holdings (1967) Limited, King and State Limited, Ablan Insurance Corporation, The Brick Ltd., The Brick Warehouse LP, The Brick GP Ltd., United Furniture Warehouse LP, United Furniture GP Ltd., First Oceans Trading Corporation, First Oceans Hong Kong Limited, First Oceans Shanghai Limited, Trans Global Warranty Corporation, Trans Global Life Insurance Company (“TGLI”) and Trans Global Insurance Company (“TGI”). Subsidiaries are all those entities over which the Company has control. Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The existence and effect of potential voting rights that are currently exercisable or convertible and rights arising from other contractual arrangements are considered when assessing whether the Company controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company and de-consolidated from the date that control ceases. The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the elements of control. All inter-company transactions and balances have been appropriately eliminated. BUSINESS COMBINATIONS The Company applies the acquisition method in accounting for business combinations. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at the acquisition date fair value. Transaction costs that the Company incurs in connection with a business combination are expensed in the period in which they are incurred. SEGMENT REPORTING The Company has two operating segments, Leon’s and The Brick, both in the business of the sale of home furnishings, mattresses, appliances and electronics in Canada. The Company’s chief operating decision maker, identified as the Chief Executive Officer, monitors the results of operating segments for the purpose of allocating resources and assessing performance. Leon’s and The Brick operating segments are aggregated into a single reportable segment because they show a similar long-term economic performance (gross margin), have comparable products, customers and distribution channels, operate in the same regulatory environment, and are steered and monitored together. Accordingly, there is no reportable segment information to provide in these consolidated financial statements. FOREIGN CURRENCY TRANSLATION Foreign currency transactions are translated into the respective functional currency of the Company’s subsidiaries using the exchange rate at the dates of the transactions. Merchandise imported from the United States and Southeast Asia, paid for in U.S. dollars, is recorded at its equivalent Canadian dollar value upon receipt when control passes. U.S. dollar trade payables are translated at the year-end exchange rate. The Company is subject to gains and losses due to fluctuations in the U.S. dollar. Foreign exchange gains and losses resulting from translation of U.S. dollar accounts payable are included in the consolidated statements of income within cost of sales. Any foreign exchange gains and losses on monetary debt and equity instruments are recognized in the consolidated statements of income, and other changes in the carrying amounts are recognized in other comprehensive income. For debt and equity instruments that are not monetary items, the gain or loss that is recognized in other comprehensive income includes any related foreign exchange component. FINANCIAL INSTRUMENTS Fair value measurement The Company measures certain financial instruments at fair value upon initial recognition, and at each consolidated statement of financial position date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability or, in the absence of a principal market, in the most advantageous market for the asset or liability that is accessible. The fair value of an asset or liability is measured using the assumptions that market participants would use, assuming that market participants act in their economic best interest. Financial assets and liabilities A financial asset or liability is recognized if the Company becomes a party to the contractual provisions of the asset or liability. A financial asset or liability is recognized initially (at settlement date) at its fair value plus, in the case of a financial asset or liability not at fair value through profit or loss (“FVTPL”), transaction costs that are directly attributable to the acquisition or issue of the instrument. Financial assets and liabilities carried at FVTPL are initially recognized at fair value and transaction costs are expensed in the consolidated statements of income. After initial recognition, financial assets are measured at amortized cost or fair value. Where assets are measured at fair value, gains and losses are either recognized entirely in profit or loss (“FVTPL”) or recognized in other comprehensive income (“FVOCI”). 41 Leon’s Furniture Limited Annual Report 2024 Notes to the Consolidated Financial Statements The Company classifies its financial assets and liabilities according to their characteristics and management’s choices and intentions related thereto for the purposes of ongoing measurement. Classifications that the Company has used for financial assets include: a) FVOCI – non-derivative financial assets that are either designated in this category or not classified in any other category and include marketable securities, which consist primarily of quoted bonds, equities and debentures. These assets are measured at fair value with the changes in FVOCI, and specifically for equity instruments, with no reclassification of gains or losses to profit and loss on derecognition; b) Amortized cost – non-derivative financial assets with fixed or determinable payments. This includes trade receivables, and these are recorded at amortized cost with gains and losses recognized in profit or loss in the period that the asset is no longer recognized or becomes impaired; and c) FVTPL – financial assets, which are classified as FVTPL. Classifications that the Company has used for financial liabilities include: a) Amortized cost – non-derivative financial liabilities, including long-term debt, measured at amortized cost with gains and losses recognized in profit or loss in the period that the liability is no longer recognized; and b) FVTPL – financial liabilities, which are classified as FVTPL. Financial assets are derecognized if the Company’s contractual rights to the cash flows from the financial asset expire or if the Company transfers the financial asset to another party without retaining control or substantially all of the risks and rewards of ownership of the asset. Financial liabilities are derecognized once they are extinguished (i.e., when the obligation in the contract is either discharged or cancelled or expires). Impairment of financial assets In accordance with IFRS 9, Financial Instruments (“IFRS 9”), the Company applies the expected credit loss model. The impairment model applies to debt instruments measured at amortized cost or at FVOCI, as well as trade receivables, lease receivables, contracts assets (as defined in IFRS 15, Revenue from Contracts with Customers (“IFRS 15”)), and loan commitments and financial guarantee contracts that are not at FVTPL. It requires a credit loss to be reflected in profit and loss immediately after an asset or receivable is acquired and subsequent changes in expected credit losses at each reporting date reflecting the change in credit risk. The Company applies the simplified approach for trade receivables and calculates expected credit losses based on lifetime expected credit losses. DERIVATIVE INSTRUMENTS Financial derivative instruments in the form of interest rate swaps and foreign exchange forwards are recorded at fair value on the consolidated statements of financial position. Fair values are based on quoted market prices where available from active markets, otherwise fair values are estimated using valuation methodologies, primarily discounted cash flows taking into account external market inputs. Derivative instruments are recorded in current or non-current assets and liabilities based on their remaining terms to maturity. All changes in fair value of the derivative instruments are recorded in profit or loss. CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash on hand, balances with banks and short-term market investments with a remaining term to maturity of less than 90 days from the date of purchase. TRADE RECEIVABLES Trade receivables are amounts due for goods sold in the ordinary course of business. If collection is expected in one year or less, they are classified as current assets. Otherwise, they are presented as non-current assets. Trade receivables are initially recognized at fair value and subsequently measured at amortized cost using the effective interest rate method, less provision for impairment. INVENTORIES Inventories are valued at the lower of cost, determined on a first-in, first-out basis, and net realizable value. 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 sales upon sale of the goods. Incentives received for a direct reimbursement of costs incurred to sell the vendor’s products, such as marketing and advertising funds, are recorded as a reduction of those related costs in the consolidated statements of income, provided certain conditions are met. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are initially recorded at cost. Historical cost includes expenditures that are directly attributable to the acquisition of items. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the asset will flow to the Company and the cost can be measured reliably. When significant parts of an item of property, plant and equipment are required to be replaced at intervals, the Company derecognizes the replaced part and recognizes the new part with its own associated useful life and depreciation. Normal repair and maintenance expenditures are expensed as incurred. 42 Annual Report 2024 Leon’s Furniture Limited Notes to the Consolidated Financial Statements Land and construction in progress are not depreciated. Depreciation on other assets is provided over the estimated useful lives of the assets using the following annual rates: Buildings 30 to 50 years Equipment 3 to 30 years Vehicles 5 to 20 years Building improvements Over the remaining lease term The Company allocates the amount initially recognized in respect of an item of property, plant and equipment to its significant parts and depreciates separately each such part. Residual values, method of depreciation and useful lives of items of property, plant and equipment are reviewed annually by the Company and adjusted, if appropriate. Gains and losses on disposal of property, plant and equipment are determined by comparing the proceeds with the carrying amount of the asset and are included as part of selling, general and administration expenses in the consolidated statements of income. LEASES The Company as lessee The Company determines whether a contract is or contains a lease at inception of the contract. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. (i) Right-of-use assets The Company recognizes a right-of-use asset and a lease liability based on the present value of future lease payments when the lessor makes the leased asset available for use by the Company. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of property, plant and equipment. Right-of-use assets are subject to impairment. (ii) Lease liabilities The Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term, discounted using the interest rate implicit in the lease. The lease payments include fixed payments (including in-substance fixed payments), variable payments that depend on an index or a rate, renewal options that are reasonably certain to be exercised less any lease incentives receivable. Variable lease payments that do not depend on an index or rate are recognized as an expense in the period in which the event that triggers the payment occurs. In addition, the carrying amount of lease payments is remeasured if there is a modification, a change in the lease term or a change in the in-substance fixed lease payments. The Company has elected to apply the practical expedient to not separate the lease component and its associated non-lease component. Management exercises judgment in the process of applying IFRS 16 and determining the appropriate lease term on a lease-by-lease basis. Management considers many factors including any events that create an economic incentive to exercise a renewal option including store performance, expected future performance and past business practice. Renewal options are only included if management is reasonably certain that the option will be renewed. As most of the Company’s operating lease contracts do not provide the implicit interest rate, nor can the implicit interest rate be readily determined, the Company uses its incremental borrowing rate as the discount rate for determining the present value of lease payments. The Company’s incremental borrowing rate for a lease is the rate that the Company would pay to borrow an amount necessary to obtain an asset of a similar value to the right-of-use asset on a collateralized basis over a similar term. (iii) Short-term leases and leases of low-value assets The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases of property, plant and equipment that have a lease term of 12 months or less and leases of low-value assets (e.g, laptop computers). The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term. The Company as a lessor At the inception of the lease, the Company classifies each lease as either an operating lease or a finance lease. A lease is a finance lease if it transfers substantially all the risks and rewards of the underlying asset to the lessee; otherwise, the lease is an operating lease. Rental income from operating leases is recognized on a straight-line basis over the lease term. INVESTMENT PROPERTIES Assets that are held for long-term rental yields or for capital appreciation or both, and that are not occupied by either the Company or any of its subsidiaries, are classified as investment properties. Investment properties are measured initially at cost, including related transaction costs. Subsequent to initial recognition, investment properties are carried at cost and depreciated over the estimated useful lives of the properties: Buildings 30 to 50 years Building improvements Over the remaining lease term 43 Leon’s Furniture Limited Annual Report 2024 Notes to the Consolidated Financial Statements Land held by the Company and classified as investment property is not depreciated. Subsequent expenditures on investment properties are capitalized to the properties’ carrying amount only when it is probable that future economic benefits associated with the expenditures will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance costs are expensed when incurred. When part of an investment property is replaced, the carrying amount of the replaced part is derecognized. If an investment property becomes owner occupied, it is reclassified as property, plant and equipment. GOODWILL AND INTANGIBLE ASSETS Goodwill Goodwill is the residual amount that results when the purchase price of an acquired business exceeds the sum of the amounts allocated to the tangible and intangible assets acquired, less liabilities assumed, based on their fair value. Goodwill is assigned at the date of the business acquisition. The Company assesses at least annually, or at any time if an indicator of impairment exists, whether there has been an impairment loss in the carrying value of goodwill and it is carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Goodwill is allocated to CGUs or groups of CGUs that are expected to benefit from the business combination for the purpose of impairment testing. A group of CGUs represents the lowest level within the Company at which goodwill is monitored for internal management purposes. Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and the related expenditure is reflected in profit or loss in the period in which the expenditure is incurred. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful lives as follows: Customer relationships 8 years Non-compete agreement 8 years Computer software 3 to 7 years IMPAIRMENT OF NON-FINANCIAL ASSETS The Company considers at each reporting date whether there is an indication that an asset may be impaired. If impairment indicators are found to be present, or when annual impairment testing for an asset is required, the non-financial assets are assessed for impairment. Impairment losses are recognized immediately in income to the extent an asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. In assessing value in use, estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. Goodwill and indefinite-life intangible assets are tested annually in the fourth quarter of the year, or when circumstances indicate that the carrying value may be impaired. The assessment of recoverable amount for goodwill and indefinite-life intangible assets involves assumptions about future conditions for the economy, capital markets, and specifically, the retail sector. As such, the assessment is subject to a significant degree of measurement uncertainty. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generate cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets. For the Company, store-related CGUs are defined as individual stores or regional groups of stores within a geographic market. For the Company’s corporate assets that do not generate separate cash inflows, the recoverable amount is determined for the CGU to which the corporate asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are allocated to an individual CGU; otherwise, they are allocated to the smallest group of CGUs for which a reasonable and consistent allocation basis can be identified. Impairment losses recognized in respect of CGUs are allocated to reduce the carrying amounts of the assets in the CGUs on a pro rata basis. Impairment losses recognized in prior periods are assessed at each reporting date for any indication that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount and the reversal is recognized in income. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. INCOME TAXES The Company computes an income tax expense. However, actual amounts of income tax expense only become final upon filing and acceptance of the tax return by the relevant taxation authorities, which occurs subsequent to the issuance of the annual consolidated financial statements. Additionally, estimation of income taxes includes evaluating the recoverability of deferred income tax assets based on an assessment of the ability to use the underlying future tax deductions before they expire against future taxable income. The assessment is based on existing tax laws and estimates of future taxable income. To the extent that estimates differ from the final tax return, income would be affected in a subsequent period. 44 Annual Report 2024 Leon’s Furniture Limited Notes to the Consolidated Financial Statements Income tax expense for the period comprises current and deferred income tax. Income tax is recognized in the consolidated statements of income, except to the extent it relates to items recognized in other comprehensive income or directly in equity, in which case the related tax is recognized in equity. Levies other than income taxes, such as taxes on real estate, are included in occupancy expenses. Current income tax Current income tax expense is based on the results of the year as adjusted for items that are not taxable or not deductible. Current income tax is calculated using tax rates and laws that were substantively enacted at the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated statements of financial position. Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted by the consolidated statements of financial position dates and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current income tax assets against current income tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority where there is an intention to settle the balances on a net basis. TRADE AND OTHER PAYABLES Trade and other payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade and other payables are classified as current liabilities if payment is due within one year or less. PROVISIONS Provisions are recognized only in those circumstances where the Company has a present legal or constructive obligation as a result of a past event, when it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the obligation. Liability for incurred claims The Company estimates the liability for incurred claims as the fulfilment cash flows related to incurred claims, both reported and unreported, that have occurred on or before the statement of financial position date. These fulfilment cash flows include adjustment expenses and an estimate of the future settlement of claims. The liability for incurred claims is actuarially determined on an annual basis using assumptions of loss emergence, payment rates, interest, and expected expenses associated with the adjustment and payment of such claims. The fulfilment cash flows incorporate, in an unbiased way, all reasonable and supportable information available without undue cost or effort about the amount, timing and uncertainty of those future cash flows, they reflect current estimates from the perspective of the Company and include an explicit adjustment for non-financial risk (the risk adjustment). The Company does not adjust the future cash flows for the time value of money or the effect of financial risk on the measurement of the liability for incurred claims which are expected to be paid within one year of being incurred. As this liability for incurred claims is an estimate, the amount of actual claims may differ from the recorded amount. The liability for incurred claims is derecognized when the obligation to pay a claim no longer exists. Unpaid warranty claims Warranty repairs related to warranty plans sold separately are recorded as claims expense at the time the customer reports a claim. For these warranties, a provision for unpaid warranty claims is established for unpaid reported claims. The Company also provides a standard warranty for certain products. For these warranties, a provision for warranty claims is recognized when the underlying products are sold. The amount of the provision is estimated using historical experience and may differ from actual claims paid. Product returns The Company has a return policy allowing customers to return merchandise if not satisfied within certain time frames. The provision for product returns is based on sales recognized prior to the year-end. The amount of the provision is estimated using historical experience and actual experience subsequent to the year-end and may differ from the actual returns made. LONG-TERM DEBT Long-term debt is classified as current when the Company expects to settle the debt in its normal operating cycle or the Company does not have the right to defer settlement by at least twelve months based on the rights that existed as at the date of the consolidated statements of financial position. 45 Leon’s Furniture Limited Annual Report 2024 Notes to the Consolidated Financial Statements SHARE CAPITAL Common shares are classified as equity. Incremental costs directly attributable to the issuance of new shares are shown in equity as a deduction, net of income tax, from the proceeds. REVENUE Revenue recognition IFRS 15 provides a single, principles-based, five-step model that will apply to all contracts with customers with limited exceptions. Under IFRS 15, revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. In addition to the above general principles, the Company applies the following specific revenue recognition policies: Sale of goods and related services Revenue from the sale of goods and related services is recognized either when the customer picks up the merchandise ordered or when merchandise is delivered to the customer’s home and the performance obligation has been satisfied. Any payments received in advance of delivery are deferred and recorded as customers’ deposits. Revenue is shown net of sales tax. The Company records a provision for sales returns and price guarantees based on historical experience and actual experience each quarter. Franchise operations Leon’s franchisees operate principally as independent owners. The Company charges each franchisee a royalty fee based on a percentage of the franchisee’s gross revenue. The Company supplies inventory for amounts representing landed cost plus a mark-up. The royalty income and sales to franchises are recorded by the Company on a monthly basis once the sale occurs and the performance obligations have been satisfied. Insurance contracts and revenue The Company issues insurance contracts through its subsidiaries: TGI and TGLI. The Company provides credit insurance on balances that arise from customers’ use of their private label financing card. The Company provides group coverage for losses as discussed in Note 24, thereby providing protection to many customers who do not carry other similar insurance policies. Insurance contracts are accounted for under IFRS 17 Insurance Contracts. Insurance contracts are contracts under which the Company has accepted significant risk, other than financial risk, from another party (the “policyholders”) by agreeing to compensate the policyholders on the occurrence of a specified uncertain future event (the “insured event”) that adversely affects the policyholders. Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its term, even if the insurance risk reduces significantly during this period, unless all rights and obligations are extinguished or expire. Investment contracts can, however, be reclassified as insurance contracts after inception if insurance risk becomes significant. Under IFRS 17, the Company’s insurance contracts issued are all eligible to be measured by applying the Premium Allocation Approach (“PAA”). The PAA is a simplified measurement model that can be applied to insurance contracts with coverage periods of one year or less, or where the measurement for liability for remaining coverage does not differ materially from applying the General Measurement Model (“GMM”). The Company applies the PAA measurement model to all eligible insurance contracts that it issues. The Company holds contracts that have coverage periods of one year or less, or where the difference in liability for remaining coverage between GMM and PAA does not materially differ. Premiums on insurance contracts are recognized as revenue over the term of the policies in accordance with the pattern of insurance service provided under the contract. Deferred insurance revenue Deferred insurance revenue is a component of the liability for remaining coverage, which reflects premiums received less deferred insurance acquisition cash flows and less amounts recognized in revenue for insurance services provided. At each reporting period date, the insurance revenue received by the Company in regard to the unexpired portion of policies in force is deferred as unearned insurance revenue. Any amount of unearned insurance revenue is included in the consolidated statements of financial position within deferred warranty plan and insurance revenue. Deferred insurance revenue is calculated based on assumptions of loss emergence, payment rates, interest, and expected expenses associated with the adjustment and payment of claims. Deferred insurance revenue is derecognized when the obligation to pay a claim expires, is discharged or is cancelled in accordance with the pattern of insurance service provided under the contract. Deferred warranty plan revenue Warranties, underwritten by the Company’s wholly owned subsidiaries, are offered on furniture, appliances and electronic products sold by the Company and franchisees to provide coverage that extends beyond the manufacturer’s warranty period by up to five years. Warranties are sold to customers when they make their original purchase and take effect immediately. The warranty contracts provide both repair and replacement services depending upon the nature of the warranty claim. The Company’s extended warranty plan revenues are deferred at the time of sale and are recognized as revenue over the weighted average term of the warranty plan on a straight-line basis. 46 Annual Report 2024 Leon’s Furniture Limited Notes to the Consolidated Financial Statements Deferred acquisition costs Acquisition costs comprise commissions, premium taxes and other expenses that relate directly to the writing or renewing of warranty and insurance contracts and are considered costs to obtain the contract. These costs are deferred only to the extent that they are expected to be recovered from unearned premiums and are amortized over the period in which the revenue from the policies is earned. All other acquisition costs are recognized as an expense when incurred. For deferred insurance acquisition cashflows, these are a component of the liability for remaining coverage. Costs incurred on warranty plan sales, including sales commissions and premium taxes, are recorded as deferred acquisition costs. These costs are amortized to income in the same pattern as revenue from warranty plan sales is recognized. Changes in the expected pattern of consumption are accounted for by changing the amortization period and are treated as a change in an accounting estimate. Deferred acquisition costs are derecognized when the related contracts are either settled or disposed of. Rental income on investment properties Rental income arising on investment properties is accounted for on a straight-line basis over the lease term and is presented within revenue. STORE PRE-OPENING COSTS Store pre-opening costs are expensed as incurred. BORROWING COSTS Borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that the Company incurs in connection with the borrowing of funds. EARNINGS PER SHARE Basic earnings per share have been calculated using the weighted average number of common shares outstanding during the year. Diluted earnings per share are calculated using the “if converted” method. The dividends declared on the redeemable share liability under the Company’s Management Share Purchase Plan (“MSPP”) are included in net income for the year. The redeemable shares convertible under the Plan are included in the calculation of diluted number of common shares to the extent the redemption price was less than the average annual market price of the Company’s common shares. JOINT ARRANGEMENTS Under IFRS 11, Joint Arrangements (“IFRS 11”), a joint arrangement is a contractual arrangement wherein two or more parties have joint control. Joint control is the contractually agreed sharing of control of an arrangement when the strategic, financial and operating decisions relating to the arrangement require the unanimous consent of the parties sharing control. Investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each party. Refer to Note 2 for significant judgments affecting the classification of joint arrangements as either joint operations or joint ventures. The parties to a joint operation have rights to the assets, and obligations for the liabilities, relating to the arrangement whereas joint ventures have rights to the net assets of the arrangement. In accordance with IFRS 11, the Company accounts for joint operations by recognizing its share of any assets held jointly and any liabilities incurred jointly, along with its share of the revenue from the sale of the output by the joint operation, and its expenses, including its share of any expenses incurred jointly. Joint ventures are accounted for using the equity method of accounting in accordance with IAS 28, Investments in Associates and Joint Ventures (“IAS 28”). Under the equity method of accounting, the Company’s investments in joint ventures and associates are carried at cost and adjusted for post-acquisition changes in the net assets of the investment. Profit or loss reflects the Company’s share of the results of these investments. Distributions received from an investee reduce the carrying amount of the investment. The consolidated statements of comprehensive income also include the Company’s share of any amounts recognized by joint ventures and associates in other comprehensive income (OCI). Where there has been a change recognized directly in the equity of the joint venture or associate, the Company recognizes its share of that change in equity. The financial statements of the joint ventures and associates are generally prepared for the same reporting period as the Company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist in the underlying records of the joint venture and/or associate. Adjustments are made in the consolidated financial statements to eliminate the Company’s share of unrealized gains and losses on transactions between the Company and its joint ventures and associates. In transactions with joint operations where the Company contributes or sells assets to a joint operation, the Company recognizes only that portion of the gain or loss that is attributable to the interests of the other parties. Where the Company purchases assets from a joint operation, the Company does not recognize its share of the profit or loss of the joint operation from the transaction until it resells the assets to an independent party. The Company adjusts joint operation financial statement amounts, if required, to reflect consistent accounting policies. ASSOCIATES Entities in which the Company has significant influence, and which are neither subsidiaries, nor joint arrangements, are accounted for using the equity method of accounting in accordance with IAS 28. This method of accounting is described in the previous section Joint Arrangements. The Company discontinues the use of the equity method from the date on which it ceases to have significant influence, and from that date accounts for the investment in accordance with IFRS 9, (its initial costs are the carrying amount of the associate on that date), provided the investment does not then qualify as a subsidiary or a joint arrangement. 47 Leon’s Furniture Limited Annual Report 2024 Notes to the Consolidated Financial Statements 4. Adoption of Accounting Standards and Amendments ADOPTION OF NEW ACCOUNTING STANDARDS Amendments to IAS 1, Presentation of Financial Statements The amendments to IAS 1 provide a more general approach to the classification of liabilities based on the contractual arrangements in place at the reporting date. The amendments clarify that the classification of liabilities as current or non-current should be based on rights that are in existence at the end of the reporting period and align the wording in all affected paragraphs to refer to the right to defer settlement by at least twelve months and make explicit that only rights in place at the end of the reporting period should affect the classification of a liability. The amendments are effective for annual reporting periods beginning on or after January 1, 2024 and are to be applied retrospectively. The adoption of this standard did not have a material impact on the consolidated financial statements. Amendments to IAS 12, IASB issued International Tax Reform – Pillar Two Model Rules In May 2023, IASB issued International Tax Reform – Pillar Two Model Rule with regards to disclosure requirements for affected entities, including information about an entity’s exposure to Pillar Two income taxes and current tax expense related to Pillar Two income taxes. Pillar Two legislation has been enacted or substantively enacted in certain jurisdictions in which the Company operates. The Company has performed an assessment of the Company’s potential exposure to Pillar Two income taxes and determined that there was no material impact. This assessment is based on the most recent information available regarding the financial performance of the constituent entities in the Company. ACCOUNTING STANDARDS AND AMENDMENTS ISSUED BUT NOT YET ADOPTED Amendments to IAS 21, The Effects of Changes in Foreign Exchange Rates In August 2023, the IASB issued amendments to IAS 21 – The Effects of Changes in Foreign Exchange Rates in relation to Lack of Exchangeability. The amendments require entities to apply a consistent approach in assessing whether a currency can be exchanged into another currency, and in determining the exchange rate to use and the disclosures to provide when it cannot. These amendments are effective for annual reporting periods beginning on or after January 1, 2025, with early adoption permitted. The adoption of this standard will not have a material impact on the consolidated financial statements. IFRS 18, Presentation and Disclosure in Financial Statements (“IFRS 18”) The IASB issued IFRS 18 “Presentation and Disclosure in the Financial Statements” (“IFRS 18”), which sets out requirements and guidance on presentation and disclosure in financial statements, including: • Presentation in income statement of income and expenses within five defined categories: operating, investing, financing, income taxes, and discontinued operations • Presentation in the income statements of new defined subtotals for operating profit and profit before financing and income taxes • Enhanced guidance on aggregation and disaggregation of information and whether to provide information in the financial statements or in the notes • Disclosure of specified expenses by nature • Disclosure of explanations of management-defined performance measures IFRS 18 will replace IAS 1 “Presentation of Financial Statements” but carries forward many requirements from IAS 1 without any change. The standard is effective for the annual reporting periods beginning on or after January 1, 2027, with early application permitted. The Company is currently assessing the impact of this new standard on its consolidated financial statements. Amendments to IFRS 9 and IFRS 7: Classification and Measurement of Financial Instruments In May 2024, the IASB issued amendments to IFRS 9, Financial Instruments, and IFRS 7, Financial Instruments: Disclosures, relating to the classification and measurement requirements of financial instruments recognized within those standards. These amendments include, among others: • Clarify that a financial liability is to be derecognized on the ‘settlement date’ and introduces an accounting policy to derecognize financial liabilities settled through an electronic payment system before settlement date if certain conditions are met; and • Require additional disclosures for financial assets and liabilities with contractual terms that reference a contingent event and equity instruments classified at fair value through other comprehensive income. These amendments will be effective for annual periods beginning on or after January 1, 2026 and will be applied retrospectively with an adjustment to opening retained earnings. Prior periods will not be required to be restated and can only be restated without using hindsight. The Company does not expect material impacts from these amendments on its consolidated financial statements. 48 Annual Report 2024 Leon’s Furniture Limited Notes to the Consolidated Financial Statements 5. Cash and Cash Equivalents As at (C$ in thousands) December 31, 2024 December 31, 2023 Cash and cash equivalents 191,238 82,744 6. Inventories The amount of inventory recognized as an expense for the year ended December 31, 2024 was $1,327,430 (2023 - $1,311,170), which is presented within cost of sales in the consolidated statements of income. There were $525 in inventory write-downs recognized for the year ended December 31, 2024 (inventory write down reversals recognized for the year ended December 31, 2023 - $744). As at December 31, 2024, the inventory markdown provision totaled $7,353 (2023 - $6,829). 7. Deferred Acquisition Costs (C$ in thousands) December 31, 2024 December 31, 2023 Balance as at January 1 35,985 34,287 Costs of new policies sold 14,632 14,712 Policy sales costs recognized (14,118) (13,014) Balance as at December 31 36,499 35,985 Reported as: Current 13,721 13,353 Non-current 22,778 22,632 Balance as at December 31 36,499 35,985 49 Leon’s Furniture Limited Annual Report 2024 Notes to the Consolidated Financial Statements 8. Property, Plant and Equipment and Right-Of-Use Assets (C$ in thousands) Land Buildings Equipment Vehicles Building improvements Leased property Leased equipment Total Cost Balance as at December 31, 2023 111,304 313,658 190,520 71,809 249,576 686,196 2,232 1,625,295 Additions 220 32,126 14,537 7,103 7,005 67,824 – 128,815 Disposals (183) – (563) (1,249) (1,995) (2,063) (104) (6,157) Balance as at December 31, 2024 111,341 345,784 204,494 77,663 254,586 751,957 2,128 1,747,953 Accumulated depreciation Balance as at December 31, 2023 – 182,831 146,326 50,269 218,537 374,103 1,465 973,531 Depreciation – 8,580 7,687 4,640 7,572 76,262 324 105,065 Disposals – – (542) (1,140) (1,991) (1,542) (104) (5,319) Balance as at December 31, 2024 – 191,411 153,471 53,769 224,118 448,823 1,685 1,073,277 Net book value as at December 31, 2024 111,341 154,373 51,023 23,894 30,468 303,134 443 674,676 (C$ in thousands) Land Buildings Equipment Vehicles Building improvements Leased property Leased equipment Total Cost Balance as at December 31, 2022 111,304 292,365 187,814 65,664 249,753 581,316 2,292 1,490,508 Additions – 21,293 9,260 6,735 6,138 106,265 – 149,691 Disposals – – (6,554) (590) (6,315) (1,385) (60) (14,904) Balance as at December 31, 2023 111,304 313,658 190,520 71,809 249,576 686,196 2,232 1,625,295 Accumulated depreciation Balance as at December 31, 2022 – 174,870 144,874 45,990 215,770 299,338 1,201 882,043 Depreciation – 7,961 7,978 4,868 9,078 76,150 324 106,359 Disposals – – (6,526) (589) (6,311) (1,385) (60) (14,871) Balance as at December 31, 2023 – 182,831 146,326 50,269 218,537 374,103 1,465 973,531 Net book value as at December 31, 2023 111,304 130,827 44,194 21,540 31,039 312,093 767 651,764 Included in the above balances as at December 31, 2024, are assets not being amortized with a net book value of approximately $12,467 (2023 - $27,558) being construction in progress. Depreciation of property, plant and equipment is included within selling, general and administration expenses on the consolidated statements of income. 50 Annual Report 2024 Leon’s Furniture Limited Notes to the Consolidated Financial Statements 9. Investment Properties (C$ in thousands) Land Buildings Building improvements Total Cost Balance as at December 31, 2023 10,646 15,396 953 26,995 Additions – – 11 11 Balance as at December 31, 2024 10,646 15,396 964 27,006 Accumulated depreciation Balance as at December 31, 2023 – 12,254 651 12,905 Depreciation – 331 46 377 Balance as at December 31, 2024 – 12,585 697 13,282 Net book value as at December 31, 2024 10,646 2,811 267 13,724 (C$ in thousands) Land Buildings Building improvements Total Cost Balance as at December 31, 2022 10,646 15,396 953 26,995 Balance as at December 31, 2023 10,646 15,396 953 26,995 Accumulated depreciation Balance as at December 31, 2022 – 11,924 601 12,525 Depreciation – 330 50 380 Balance as at December 31, 2023 – 12,254 651 12,905 Net book value as at December 31, 2023 10,646 3,142 302 14,090 The estimated fair value of the investment properties portfolio as at December 31, 2024, was approximately $40,400 (2023 - $40,500). This recurring fair value disclosure is categorized within Level 3 of the fair value hierarchy (Note 23 for definition of levels). This was compiled internally by management based on available market evidence. 51 Leon’s Furniture Limited Annual Report 2024 Notes to the Consolidated Financial Statements 10. Intangible Assets and Goodwill (C$ in thousands) Customer relationships, brand name and franchise agreements Computer software Total Cost Balance as at December 31, 2023 275,500 20,872 296,372 Additions – 673 673 Disposals – (1,327) (1,327) Balance as at December 31, 2024 275,500 20,218 295,718 Accumulated amortization Balance as at December 31, 2023 9,500 15,659 25,159 Amortization – 1,197 1,197 Disposals – (1,327) (1,327) Balance as at December 31, 2024 9,500 15,529 25,029 Net book value as at December 31, 2024 266,000 4,689 270,689 (C$ in thousands) Customer relationships, brand name and franchise agreements Computer software Total Cost Balance as at December 31, 2022 275,500 18,348 293,848 Additions – 2,524 2,524 Balance as at December 31, 2023 275,500 20,872 296,372 Accumulated amortization Balance as at December 31, 2022 9,500 14,607 24,107 Amortization – 1,052 1,052 Balance as at December 31, 2023 9,500 15,659 25,159 Net book value as at December 31, 2023 266,000 5,213 271,213 Amortization of intangible assets is included within selling, general and administrative expenses on the consolidated statements of income. The following table presents the details of the Company’s indefinite-life intangible assets: As at (C$ in thousands) December 31, 2024 December 31, 2023 The Brick brand name (allocated to The Brick division) 245,000 245,000 The Brick franchise agreements (allocated to The Brick division) 21,000 21,000 Total 266,000 266,000 The Company currently has no plans to change The Brick store banners and expects these assets to generate cash flows over an indefinite future period. Therefore, these intangible assets are considered to have indefinite useful lives for accounting purposes. The Brick franchise agreements have expiry dates with options to renew. The Company’s intention is to renew these agreements at each renewal date indefinitely. The Company expects the franchise agreements and franchise locations will generate cash flows over an indefinite future period. Therefore, these assets are also considered to have indefinite useful lives. The following table presents the details of the Company’s finite-life intangible assets: As at (C$ in thousands) December 31, 2024 December 31, 2023 Computer software 4,689 5,213 Total 4,689 5,213 For the purpose of the annual impairment testing, goodwill is allocated to the following CGU groups, which are the groups expected to benefit from the synergies of the business combinations and to which the goodwill is monitored by the Company: As at (C$ in thousands) December 31, 2024 December 31, 2023 Appliance Canada (included within Leon’s division) 11,282 11,282 The Brick division 378,838 378,838 Total 390,120 390,120 52 Annual Report 2024 Leon’s Furniture Limited Notes to the Consolidated Financial Statements IMPAIRMENT TESTS The Company performed impairment tests of goodwill, brand and franchise agreements intangible assets as at December 31, 2024 and 2023 in accordance with the accounting policy as described in Note 3. The recoverable amount of the CGUs was determined based on value-in-use calculations. These calculations used cash flow projections based on financial budgets approved by management covering a one-year period. Cash flows beyond the one-year period are extrapolated using the estimated growth rates stated below. The key assumptions used for the value-in-use calculation as at December 31, 2024 and 2023 were as follows: As at December 31, 2024 December 31, 2023 Growth rate 2.0% 2.0% Pre-tax discount rate 12.9% 11.9% The impairment tests performed resulted in no impairment of the goodwill and indefinite-life intangible assets as at December 31, 2024 and December 31, 2023. 11. Trade and Other Payables As at (C$ in thousands) December 31, 2024 December 31, 2023 Trade payables 161,492 151,648 Other payables 136,734 131,289 Total 298,226 282,937 12. Provisions (C$ in thousands) Unpaid insurance claims Warranties Other Total Balance as at January 1, 2024 578 25,757 3,761 30,096 Provisions made during the year 535 8,496 357 9,388 Provisions used during the year (425) (5,998) (383) (6,806) Unused provisions reversed – (90) – (90) Balance as at December 31, 2024 688 28,165 3,735 32,588 LIABILITY FOR INCURRED CLAIMS The Company estimates the liability for incurred claims as the fulfilment cash flows related to incurred claims, both reported and unreported, that have occurred on or before the statement of financial position date. These fulfilment cash flows include adjustment expenses and an estimate of the future settlement of claims. The liability for incurred claims is actuarially determined on an annual basis using assumptions of loss emergence, payment rates, interest, and expected expenses associated with the adjustment and payment of such claims. The fulfilment cash flows incorporate, in an unbiased way, all reasonable and supportable information available without undue cost or effort about the amount, timing and uncertainty of those future cash flows, they reflect current estimates from the perspective of the Company and include an explicit adjustment for non-financial risk (the risk adjustment). The Company does not adjust the future cash flows for the time value of money or the effect of financial risk on the measurement of the liability for incurred claims which are expected to be paid within one year of being incurred. As this liability for incurred claims is an estimate, the amount of actual claims may differ from the recorded amount. The liability for incurred claims is derecognized when the obligation to pay a claim no longer exists. WARRANTIES The provision for warranties represents the Company’s estimate of amounts the Company expects to incur regarding its warranty protection plans. The Company’s warranty protection plans allow customers that did not make a claim during the term of their warranty the opportunity to obtain merchandise credit in an amount equal to the price paid for the plan. The provision recognized represents the estimated amounts necessary to settle future warranty redemption amounts subject to the terms of the plan, historical information and management judgment. 53 Leon’s Furniture Limited Annual Report 2024 Notes to the Consolidated Financial Statements 13. Leases COMPANY AS A LESSEE Leasing arrangements The Company leases various items of real estate property, vehicles and equipment used in its operations. The lease terms are generally between 5 and 15 years. There are some leases with renewal options that are included when management is reasonably certain they will be exercised. Management uses significant judgment in determining whether these extensions are reasonably certain to be exercised. Lease liabilities Carrying amounts of lease liabilities are as follows: (C$ in thousands) December 31, 2024 December 31, 2023 Balance, beginning of period 353,925 322,855 Additions 69,694 107,588 Disposals (577) – Interest 17,070 16,669 Payments (94,562) (93,187) Balance, end of period 345,550 353,925 Reported as: Current 79,690 75,127 Non-current 265,860 278,798 Total 345,550 353,925 For the year ended December 31, 2024, the Company recognized rent expenses from short-term leases, leases of low-value assets and variable lease payments of $3,071, $3,156, and $42,084, respectively (2023 - $3,476, $2,801, and $40,946, respectively). COMPANY AS A LESSOR Lease revenue receivable The Company has entered into operating leases on its investment property portfolio consisting of certain land and building properties. These leases generally have terms between 5 and 15 years. Future minimum rentals receivable under non-cancellable operating leases are as follows: (C$ in thousands) Total No later than 1 year 1,639 Later than 1 year and no later than 5 years 4,658 Later than 5 years 2,233 Total 8,530 54 Annual Report 2024 Leon’s Furniture Limited Notes to the Consolidated Financial Statements 14. Long-term Debt BANK INDEBTEDNESS On June 28, 2024, the Company completed an amending agreement number two to its existing Senior Secured Credit Agreement (“SSCA”). Under this amendment, the Company’s total credit facility was adjusted to $286,250. Out of the total amount, $86,250 was related to its term loan and the remaining $200,000 is attributable to the Company’s revolving credit facility. The amount borrowed under this amendment must be repaid in full by May 31, 2026. The Company has drawn $3,750 under the revolving credit facility and has $76,250 outstanding for its term loan as at December 31, 2024. In addition, the Company adopted the Canadian Overnight Repo Rate Average (“CORRA”) as the new base reference rate, given the discontinuation of the Canadian Dollar Offered Rate (“CDOR”). Bank indebtedness bears interest based on Canadian prime rate, Secured Overnight Financing Rate (“SOFR”) and Bankers’ Acceptance (“BA”) rates plus an applicable standby fee on undrawn amounts. The Company has the ability to choose the type of advance required. Interest is based on the market rate plus an applicable margin. The term credit facility is repayable in the annual amounts of $7,500, with the remainder due on maturity. Currently, the Company has entered into a 31-day Bankers’s Acceptance with a cost of borrowing of 4.44% that was renewed on December 31, 2024. The Company can prepay without penalty amounts outstanding under the facilities at any time. The agreement includes a general security agreement which constitutes a lien on all property of the Company. In addition to this, there are financial covenants related to the credit facility. As at December 31, 2024, the Company is in full compliance of these financial and non-financial covenants. 15. Management Share Purchase Plan EMPLOYEE BENEFIT PLAN Members of senior management participate in the Company’s Management Share Purchase Plan (“MSPP”). Under the terms of the MSPP, the Company advanced non-interest bearing loans to certain of its employees in 2018 and 2022 to allow them to acquire common shares of the Company. Participation in the MSPP is voluntary. The common shares purchased under the MSPP are held in trust by a trustee for the benefit of the employee until the later of three years from the date of issue and the date the related loan to acquire the shares is repaid in full. While such shares are held in trust, any dividends paid on these common shares are credited against the related loan. During 2018, a total of 1,188,873 of the 2018 series of common shares were issued under the 2018 MSPP to senior management employees at $15.30 per share. The Company recognized a loan receivable in the amount of $13,191 (recognized at fair value) and a deferred compensation expense receivable of $2,315. The common shares issued of $15,506 are shown within common shares on the consolidated statements of financial position. During 2022, a total of 903,013 of the 2022 series of common shares were issued under the 2022 MSPP to senior management employees at $17.29 per share. The Company recognized a loan receivable in the amount of $11,274 (recognized at fair value) and a deferred compensation expense of $1,517. The common shares issued of $12,791 are shown within common shares on the consolidated statements of financial position. LOAN RECEIVABLE As at (C$ in thousands) December 31, 2024 December 31, 2023 Balance, beginning of period 19,669 20,348 Fair value adjustment 1,616 1,067 Forfeiture (997) – Dividends paid (1,002) (1,045) Loan repayment (3,740) (701) Balance, end of period 15,546 19,669 DEFERRED COMPENSATION EXPENSE December 31, 2024 December 31, 2023 Balance, beginning of period 2,435 2,811 Compensation expense (463) (376) Balance, end of period 1,972 2,435 55 Leon’s Furniture Limited Annual Report 2024 Notes to the Consolidated Financial Statements REDEEMABLE SHARE LIABILITY As at (C$ in thousands) December 31, 2024 December 31, 2023 Authorized 306,500 convertible, non-voting, series 2012 shares 1,485,000 convertible, non-voting, series 2013 shares 740,000 convertible, non-voting, series 2014 shares 880,000 convertible, non-voting, series 2015 shares Issued and fully paid 43,929 series 2012 shares (December 31, 2023 - 46,113) 545 572 162,357 series 2013 shares (December 31, 2023 - 232,081) 1,849 2,644 96,498 series 2014 shares (December 31, 2023 - 132,887) 1,453 2,000 152,362 series 2015 shares (December 31, 2023 - 203,762) 2,051 2,743 Less employee share purchase loans (5,891) (7,952) Total 7 7 Under the terms of the Plan, the Company advanced non-interest bearing loans to certain of its employees in 2012, 2013, 2014 and 2015 to allow them to acquire convertible, non-voting series 2012 shares, series 2013 shares, series 2014 shares and series 2015 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 2012 shares 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 thirteenth anniversary of such issue. Each issued and fully paid for series 2013, series 2014 and series 2015 shares may be converted into one common share at any time after the third anniversary date of the issue of these shares and prior to the thirteenth anniversary of such issue. The series 2012, series 2013, series 2014 and series 2015 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 2012 shares at any time after the fifth anniversary date of the issue of these shares and must redeem them prior to the thirteenth anniversary of such issue. The Company has the option to redeem the series 2013, series 2014 and series 2015 shares at any time after the third anniversary date of the issue of these shares and must redeem them prior to the thirteenth 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 $12.41 per series 2012 share, $11.39 per series 2013 share, $15.05 per series 2014 share and $13.46 per series 2015 share. Dividends paid to holders of series 2012, 2013, 2014 and 2015 shares of approximately $164 (2023 - $197) have been used to reduce the respective shareholder loans. The preferred dividends are paid once a year during the first quarter. During the year ended December 31, 2024, 2,184 series 2012 shares, 69,724 series 2013 shares, 36,389 series 2014 shares and 51,400 series 2015 shares (year ended December 31, 2023 - 9,859 series 2012 shares, 55,892 series 2013 shares, 42,299 series 2014 shares and 62,689 series 2015 shares) were converted into common shares with a stated value of approximately $27, $794, $548 and $692, respectively (year ended December 31, 2023 - $122, $637, $636, and $844, respectively). During the year ended December 31, 2024, the Company did not cancel any shares from any of the series of shares (year ended December 31, 2023 - no shares were cancelled in any of the series of shares). Employee share purchase loans have been netted against the redeemable share liability, as the Company has the legally enforceable right of set- off and the positive intent to settle on a net basis. This balance is included under trade and other payables on the consolidated statements of financial position. 56 Annual Report 2024 Leon’s Furniture Limited Notes to the Consolidated Financial Statements 16. Common Shares As at (C$ in thousands) December 31, 2024 December 31, 2023 Authorized - Unlimited common shares Issued 68,191,725 common shares (2023 - 68,032,028) 167,231 164,875 For redeemable shares converted into common shares during the year, please see Note 15. As at December 31, 2024 and 2023, dividends payable were $13,639 ($0.20 per share) and $12,246 ($0.18 per share), respectively. 17. Revenue (a) Disaggregation of revenue For the Year ended (C$ in thousands) December 31, 2024 December 31, 2023 Sales of goods by corporate stores 2,369,212 2,332,273 Income from franchise operations 33,297 33,061 Extended warranty revenue 68,702 63,333 Insurance sales revenue 25,201 24,408 Rental income from investment property 2,133 1,714 Total 2,498,545 2,454,789 (b) Customers’ deposits For the Year ended (C$ in thousands) December 31, 2024 December 31, 2023 Opening balance as at January 1 160,346 175,847 Revenue recognized that was included in the customers’ deposit balance at the beginning of the year (145,508) (153,428) (c) Deferred warranty plan and insurance revenue For the Year ended (C$ in thousands) December 31, 2024 December 31, 2023 Opening balance as at January 1 179,407 171,421 Revenue recognized that was included in the deferred warranty and insurance balance at the beginning of the year (93,903) (87,741) Recognition of deferred warranty and insurance during the year 97,991 95,727 Total 183,495 179,407 Reported as: Current 70,508 68,229 Non-current 112,987 111,178 Total 183,495 179,407 57 Leon’s Furniture Limited Annual Report 2024 Notes to the Consolidated Financial Statements 18. Expenses by Nature For the Year ended (C$ in thousands) December 31, 2024 December 31, 2023 Salaries and benefits 447,249 432,937 Depreciation of property, plant and equipment, right-of-use assets and investment properties 105,442 106,739 Amortization of intangible assets 1,197 1,052 Occupancy expenses 105,860 102,408 19. Net Finance Costs For the Year ended (C$ in thousands) December 31, 2024 December 31, 2023 Interest expense on lease obligations 17,070 16,669 Interest expense on term credit facilities and revolving credit facilities 6,073 11,511 Finance income (8,706) (8,722) Total 14,437 19,458 20. Other Income For the Year ended (C$ in thousands) December 31, 2024 December 31, 2023 Gain on settlement (1) (23,371) (20,000) Change in fair value of derivative instruments (3,810) 3,533 Total (27,181) (16,467) 1. During 2024, the Company recognized a $23.4 million pre-tax net favorable settlement related to a breach of contract legal dispute with CURO Group Holdings Corp (“CURO”). The Company had an agreement with CURO to underwrite insurance for their credit products commencing in 2024. After undergoing bankruptcy proceedings, CURO elected to not proceed with the agreement which ultimately resulted in a legal settlement in favor of the Company to recover the future profit potential of the agreement. During 2023, point of sale financing partner FLX Holding Corp (“Flexiti”) was acquired by Questrade Financial Group Inc. from CURO. Leon’s Furniture Limited entered into an amended agreement with Flexiti, and the Company received a $20 million one-time payment to settle the value of warrant rights negotiated as part of the original agreement with CURO. 58 Annual Report 2024 Leon’s Furniture Limited Notes to the Consolidated Financial Statements 21. Income Tax Expense (a) The major components of income tax expense are as follows: For the Year ended (C$ in thousands) December 31, 2024 December 31, 2023 Consolidated statements of income Current income tax expense: Based on taxable income of the current year 51,840 46,652 Deferred income tax expense: Origination and reversal of temporary differences (927) (3,029) Income tax expense reported in the consolidated statements of income 50,913 43,623 (b) Reconciliation of the effective tax rates are as follows: For the Year ended (C$ in thousands, except %) December 31, 2024 December 31, 2023 Income before income taxes 204,581 182,478 Income tax expense based on statutory tax rate 53,723 26.26% 47,919 26.26% Increase (decrease) in income taxes resulting from non-taxable items or adjustments of prior year taxes: Non-deductible items 233 0.11% 250 0.14% Remeasurement of deferred income tax asset for rate changes (94) (0.05%) (24) (0.01%) Income exempt from tax (38) (0.02%) (124) (0.07%) Prior year adjustments (370) (0.18%) (61) (0.03%) Other (2,541) (1.24%) (4,337) (2.38%) Income tax expense reported in the consolidated statements of income 50,913 24.89% 43,623 23.91% (c) Deferred income tax balances and reconciliation are as follows: (i) Deferred income tax relates to the following: As at (C$ in thousands) December 31, 2024 December 31, 2023 Deferred income tax assets (liabilities) Deferred tax income assets 16,939 17,296 Deferred tax income liabilities (67,312) (68,399) Total deferred income tax liabilities (50,373) (51,103) (ii) Deferred income tax movements are as follows: As at December 31, 2024 (C$ in thousands) Balance, beginning of year Other Expense (benefit) Balance, end of year Deferred warranty plan (98) – – (98) Deferred financing fees (42) – 3 (39) Deferred acquisition costs (315) – 3 (312) Property, plant and equipment (75,251) – 10,162 (65,089) Intangible assets (76,610) – (166) (76,776) Lease liabilities 72,133 – (9,889) 62,244 Other 28,415 (196) 1,814 30,033 Mark to market 665 – (1,001) (336) Total deferred income tax expense (benefit) (51,103) (196) 926 (50,373) 59 Leon’s Furniture Limited Annual Report 2024 Notes to the Consolidated Financial Statements As at December 31, 2023 (C$ in thousands) Balance, beginning of year Other Expense (benefit) Balance, end of year Deferred warranty plan (98) – – (98) Deferred financing fees (39) – (3) (42) Deferred acquisition costs (321) – 6 (315) Property, plant and equipment (67,877) – (7,374) (75,251) Intangible assets (76,462) – (148) (76,610) Lease liabilities 63,855 – 8,278 72,133 Other 27,204 (131) 1,342 28,415 Mark to market (263) – 928 665 Total deferred income tax expense (benefit) (54,001) (131) 3,029 (51,103) 22. Earnings Per Share Earnings per share are calculated using the weighted average number of common shares outstanding. The following table reconciles the net income for the period and the number of shares for the basic and diluted earnings per share calculations: For the Year ended (C$ in thousands except share and per share amounts) December 31, 2024 December 31, 2023 Net income for the period for basic earnings per share 153,668 138,855 Net income for the period for diluted earnings per share 153,792 139,004 Weighted average number of common shares outstanding 68,142,458 67,962,903 Dilutive effect 504,110 691,419 Dilutive weighted average number of common shares outstanding 68,646,568 68,654,322 Basic earnings per share $2.26 $2.04 Diluted earnings per share $2.24 $2.02 60 Annual Report 2024 Leon’s Furniture Limited Notes to the Consolidated Financial Statements 23. Financial Instruments CLASSIFICATION OF FINANCIAL INSTRUMENTS AND FAIR VALUE The classification of the Company’s financial instruments, as well as their carrying amounts and fair values, are disclosed in the tables below. As at December 31, 2024 (C$ in thousands) Classification and measurement Total carrying amount Fair value Fair value hierarchy Financial assets Cash and cash equivalents Amortized cost 191,238 191,238 Level 1 Trade receivables Amortized cost 185,975 185,975 Level 2 Equity securities FVOCI 35,030 35,030 Level 1 Debt securities FVOCI 99,039 99,039 Level 1 Debt securities FVTPL 100 100 Level 2 Loan receivable FVTPL 15,546 15,546 Level 2 Derivative assets FVTPL 1,545 1,545 Level 2 Financial liabilities Trade and other payables Amortized cost 298,226 298,226 Level 2 Long-term debt Amortized cost 80,000 80,000 Level 2 As at December 31, 2023 (C$ in thousands) Classification and measurement Total carrying amount Fair value Fair value hierarchy Financial assets Cash and cash equivalents Amortized cost 82,744 82,744 Level 1 Trade receivables Amortized cost 197,759 197,759 Level 2 Restricted marketable securities FVOCI 414 414 Level 1 Equity securities FVOCI 30,685 30,685 Level 1 Debt securities FVOCI 73,618 73,618 Level 1 Debt securities FVTPL 100 100 Level 2 Loan receivable FVTPL 19,669 19,669 Level 2 Financial liabilities Trade and other payables Amortized cost 282,937 282,937 Level 2 Long-term debt Amortized cost 100,000 100,000 Level 2 Derivative liabilities FVTPL 2,265 2,265 Level 2 The fair value hierarchy of financial instruments measured at fair value, as at December 31, 2024 includes financial assets of $325,307, $203,166 and $nil for Levels 1, 2 and 3 respectively, and financial liabilities of $nil, $378,226 and $nil for Levels 1, 2 and 3, respectively. The carrying amounts of the Company’s trade receivables, and trade and other payables approximate their fair values due to their short-term nature. The carrying amounts of the Company’s long-term debt approximate their fair values since they bear interest at rates comparable to market rates at the end of the reporting period. The fair values of debt and equity instruments that are traded in active markets are determined by reference to their quoted closing price or dealer price quotations at the reporting date. For financial instruments that are not traded in active markets, the Company determines fair values using a combination of discounted cash flow models and comparison to similar instruments for which market observable prices exist. The fair values of derivative assets and liabilities are estimated using industry standard valuation models. Where applicable, these models project future cash flows and discount the future amounts to a present value using market-based observable inputs including interest rate curves, foreign exchange rates and forward and spot prices for currencies. The Company maintains financial derivatives, which comprise of foreign exchange forwards, with maturities that do not exceed past December 2026. As at December 31, 2024, the fair value of derivative assets is $1,545 (2023 - $2,265 derivative liabilities). Fair values of financial instruments reflect the credit risk of the Company and counterparties when appropriate. 61 Leon’s Furniture Limited Annual Report 2024 Notes to the Consolidated Financial Statements FAIR VALUE HIERARCHY The Company uses a fair value hierarchy to categorize the inputs used to measure the fair value of financial assets and financial liabilities, the levels of which are as follows: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). Level 3: Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs). FINANCIAL RISK MANAGEMENT The Company’s activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk (including interest rate risk, currency risk and other price risk). Risk management is carried out by the Company by identifying and evaluating the financial risks inherent within its operations. The Company’s overall risk management activities seek to minimize potential adverse effects on the Company’s financial performance. CREDIT RISK Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company limits its exposure to counterparty credit risk by transacting only with highly rated financial institutions and other counterparties and by managing within specific limits for credit exposure and term to maturity. The Company’s financial instrument portfolio is spread across financial institutions, provincial and federal governments and, to a lesser extent, corporate issuers that are dual rated and have a credit rating in the “A” category or better. The following table summarizes the Company’s maximum exposure to credit risk related to financial instruments. The maximum credit exposure is the carrying value of the asset, net of any allowances for impairment. As at Carrying amount (C$ in thousands) December 31, 2024 December 31, 2023 Cash and cash equivalents 191,238 82,744 Restricted marketable securities – 414 Debt securities 99,139 73,718 Trade receivables 185,975 197,759 Total 476,352 354,635 Generally, the carrying amount on the consolidated statements of financial position of the Company’s financial assets exposed to credit risk represents the Company’s maximum exposure to credit risk. No additional credit risk disclosure is provided, unless the maximum potential loss exposure to credit risk for certain financial assets differs significantly from their carrying amount. The Company’s main credit risk exposure is from its trade receivables. For the Company, trade receivables are comprised principally of amounts related to its commercial sales, to its franchise operations and to its vendor rebate programs. The debt securities balance is comprised of over 80 diversified investments, including both government and corporate bonds that bear interest at rates ranging from 0.6% to 6.3%. The debt securities are short-term instruments that are liquid in nature. For commercial trade and other receivables, credit risk is mitigated through customer agreements specifying payment terms and credit limits. For franchise trade receivables, personal guarantees are obtained. As well, liens are placed against the goods and the Company may repossess goods for non-payment. Credit risk is also limited due to the large number of customers and their dispersion across geographic areas and market sectors (i.e., retail, commercial and franchise). Accordingly, the Company believes it has no significant concentrations of credit risk related to trade receivables. The Company’s trade receivables totalled $185,975 as at December 31, 2024, (2023 - $197,759). The amount of trade receivables that the Company has determined to be past due (which is defined as a balance that is more than 90 days past due) is $8,712 as at December 31, 2024 (2023 - $8,865). IFRS 9 requires that a forward-looking ECL model be followed. The guidance allows for a simplified approach for assets, including trade receivables, that do not contain a significant financing component. This does not require the tracking of changes in credit risk but requires recognition of lifetime ECLs at all times. The Company’s ECL based on the total receivables, past due invoices, historical data and future analysis was $1,373 as at December 31, 2024 (2023 - $1,334). IFRS 9 provides a low credit risk simplified approach for certain financial instruments if they are deemed to be a low credit risk. Based on the Company’s portfolio, historical trends and future looking analyst predictions, it was concluded that the low credit risk simplification could be used as debt investments have a low risk of default and the Company has a strong capacity to meet its contractual cash flow obligations in the near future. The majority of the Company’s retail sales are funded through cash, traditional credit cards and private label credit cards carried on a non- recourse basis by third parties. Accordingly, fluctuations in the availability and cost of credit may have an impact on the Company’s retail sales and profitability. The Company manages credit risk for its cash and cash equivalents by maintaining bank accounts with major Canadian banks and investing only in highly rated Canadian and U.S. securities that are traded on active markets and are capable of prompt liquidation. 62 Annual Report 2024 Leon’s Furniture Limited Notes to the Consolidated Financial Statements LIQUIDITY RISK Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The purpose of liquidity risk management is to maintain sufficient amounts of cash and cash equivalents and authorized credit facilities, to fulfill obligations associated with financial liabilities. To manage liquidity risk, the Company prepares budgets and cash forecasts and monitors its performance against these. Management also monitors cash and working capital efficiency given current sales levels and seasonal variability. The Company measures and monitors liquidity risk by regularly evaluating its cash inflows and outflows under expected conditions through cash flow reporting such that it anticipates certain funding mismatches and ensures the cash management of the business is within certain tolerable levels. These cash flow forecasts are reviewed on a weekly basis by management. The Company mitigates liquidity risk through continuous monitoring of its credit facilities and the diversification of its funding sources, both in the short term as well as the long term. As at December 31, 2024, unrestricted liquidity was $513,151, comprising cash and cash equivalents, debt and equity instruments and its undrawn revolving credit facility. The following tables summarize the Company’s contractual maturity for its financial liabilities and includes both principal and interest payments for the Company’s long-term debt: Payments due by period (C$ in thousands) Carrying amount Contractual cash flows 2025 2026 2027 2028 2029 2030 & beyond As at December 31, 2024 Trade and other payables 298,226 298,226 298,226 – – – – – Lease liabilities 345,550 414,229 95,799 58,838 57,498 54,879 52,466 94,749 Long-term debt 80,000 84,732 10,981 73,751 – – – – Total 723,776 797,187 405,006 132,589 57,498 54,879 52,466 94,749 Payments due by period (C$ in thousands) Carrying amount Contractual cash flows 2024 2025 2026 2027 2028 2029 & beyond As at December 31, 2023 Trade and other payables 282,937 282,937 282,937 – – – – – Lease liabilities 353,925 408,582 91,201 64,742 63,395 62,029 59,412 67,803 Long-term debt 100,000 108,858 12,402 96,456 – – – – Total 736,862 800,377 386,540 161,198 63,395 62,029 59,412 67,803 The contractual cash flows have been included in the tables above based on the contractual arrangements that exist at the reporting date and do not factor in any assumptions for early repayment. The amount and timing of actual payments may be materially different. Contractual cash flows presented in the above maturity analysis table for lease liabilities and long-term debt include principal repayments, interest payments, and other related cash payments. As the carrying amounts of these liabilities are measured at amortized cost, the future contractual cash flows do not agree to the carrying amounts. The Company’s credit facilities are further discussed in Note 14. 63 Leon’s Furniture Limited Annual Report 2024 Notes to the Consolidated Financial Statements MARKET RISK Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: interest rate risk, currency risk and other price risk. (a) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to cash flow risk on the term credit facility and the revolving credit facility, and to fair value risk on the lease liabilities due to fluctuations in interest rates. Fair value risk related to the lease liabilities impacts disclosure only as these items are carried at amortized cost on the consolidated statements of financial position. As well, the Company’s revenues depend, in part, on supplying financing alternatives to its customers through third-party credit providers. The terms of these financing alternatives are affected by changes in interest rates. Therefore, interest rate fluctuations may impact the Company’s financing costs for retail sales financed using these alternatives and may also impact the Company’s revenue where customers’ buying decisions are impacted by their ability or desire to use these financing alternatives. (i) Interest rate sensitivity analysis The Company’s net income is sensitive to the impact of a change in interest rates on the average indebtedness under the term credit facility and the revolving credit facility during the year. For the year ended December 31, 2024, the Company’s long-term debt was $80,000 (2023 - $100,000). Accordingly, a change during the year ended December 31, 2024 of a one percentage point increase or decrease in the applicable interest rate would have impacted the Company’s net income by approximately $592 (2023 - $740). (b) Currency risk The Company is exposed to foreign currency fluctuations since certain merchandise is paid for in U.S. dollars. This risk is offset to the extent that foreign currency costs are included in product costs when setting retail prices. Accordingly, the Company does not believe it has significant foreign currency risk with respect to its inventory purchases made in U.S. dollars. (c) Other price risk The Company is exposed to fluctuations in the market prices of its portfolio of debt securities. Changes in the fair value of these financial assets are recorded, net of income taxes, in accumulated other comprehensive income as it relates to unrecognized gains and losses. The risk is managed by the Company and its investment managers by ensuring a conservative asset allocation. 24. Insurance Contract Risk Certain subsidiaries of the Company are responsible for the insurance business and monitoring and managing the financial risks related to the Company’s insurance operations. This is done through internal risk assessment reporting and by compliance with regulatory requirements. TGLI provides group insurance coverage for life, accident and sickness covering personal credit card debt; and group coverage for life, accident and sickness covering other personal short-term debt. TGI provides group coverage for loss of income and property covering personal credit card debt; group coverage for loss of income and property covering other personal short-term debt, and four and five-year term commercial property coverage. The principal risks faced under insurance contracts are that (i) the actual claims and benefit payments or the timing thereof, differ from expectations. This risk is influenced by the frequency of claims, severity of claims, actual benefits paid and subsequent development of claims; (ii) the risk of loss arising from expense experience being different than expected; and (iii) the risk arising due to policyholder experiences (lapses) being different than expected. The Company’s objective with respect to this risk is to ensure that sufficient reserves are available to cover these liabilities. The overall risk of the insurance operations is managed by diversifying across a large portfolio of insurance contracts and establishing maximum benefit limits per claim types that the policy holder is entitled to. The Company, therefore, has a defined maximum exposure, which enables it to effectively manage the overall risk. 64 Annual Report 2024 Leon’s Furniture Limited Notes to the Consolidated Financial Statements 25. Capital Management 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 favorable supplier agreements both in respect of early payment discounts and overall payment terms. The capital structure currently includes debt and equity securities, lease liabilities, term credit facility and borrowing capacity available under the revolving credit facilities (Note 14). As at December 31, 2024, $187,742 is available to draw on under our $200,000 revolving credit facility, as the borrowing capacity is reduced by ordinary letters of credit of $8,508 (2023 - $6,943) and utilizing $3,750 of the revolving credit facility. As at (C$ in thousands) December 31, 2024 December 31, 2023 Current portion of lease liabilities 79,690 75,127 Current portion of long-term debt 7,500 7,500 Lease liabilities 265,860 278,798 Long-term debt 72,500 92,500 Total shareholders’ equity 1,141,150 1,028,524 Total capital under management 1,566,700 1,482,449 The Board of Directors reviews and approves any material transactions out of the ordinary course of business, including proposals on acquisitions or other major investments or divestitures, as well as annual operating budgets. Based on the Company’s borrowing capacity available and expected cash flow from operating activities, management believes that the Company has sufficient funds available to meet its liquidity requirements at any point in time. However, if cash from operating activities is lower than expected or capital costs for projects exceed current estimates or if the Company incurs major unanticipated expenses, it may be required to seek additional capital. The Company is not subject to any externally imposed capital requirements, other than with respect to its insurance subsidiaries. RESTRICTION ON THE DISTRIBUTION OF CAPITAL FROM TRANS GLOBAL INSURANCE COMPANY AND TRANS GLOBAL LIFE INSURANCE COMPANY For purposes of regulatory requirements for TGI and TGLI, capital is considered to be equivalent to their respective statement of financial position equity. Regulatory requirements stipulate that TGI must maintain minimum capital of at least $3,000 and TGLI must maintain minimum capital of at least $5,000. In addition, the Company is subject to the regulatory capital requirements defined by The Office of the Superintendent of Insurance of Alberta and the Insurance Act of Alberta (the “Insurance Act”). Notwithstanding that a company may meet the supervisory target standard, The Office of the Superintendent of Insurance of Alberta may direct a company to increase its capital under the Insurance Act. As at December 31, 2024, TGI’s Minimum Capital Test ratio was 420% (2023 - 388%), which is in compliance with the requirements of The Office of the Superintendent of Insurance of Alberta and the Insurance Act. For TGLI, the Life Insurance Capital Adequacy Test (“LICAT”) replaced the Minimum Continuing Capital and Surplus Requirements (“MCCSR”) effective January 1, 2018. As at December 31, 2024, TGLI’s LICAT ratio was 432% (2023 - LICAT 388%), which is in compliance with the requirements of The Office of the Superintendent of Insurance of Alberta and the Insurance Act. 26. Commitments and Contingencies (a) Pursuant to a reinsurance agreement relating to the extended warranty sales, the Company has pledged debt instruments amounting to $0 (2023 - $414). (b) In the normal course of operations, the Company is party to a number of lawsuits, claims and contingencies. Accruals are made in instances where it is probable that liabilities have been incurred and where such liabilities can be reasonably estimated. Although it is possible that liabilities may be incurred in instances for which no accruals have been made, the Company does not believe that the ultimate outcome of these matters will have a material impact on its financial position. 65 Leon’s Furniture Limited Annual Report 2024 Notes to the Consolidated Financial Statements 27. Consolidated Statements of Cash Flows (a) The net change in operating working capital balances consist of the following: For the Year ended (C$ in thousands) December 31, 2024 December 31, 2023 Trade receivables 35,155 (17,277) Inventories 21,105 (5,984) Prepaid expenses and other assets (468) (5) Trade and other payables 18,738 34,233 Customers’ deposits 16,887 (15,501) Provisions 2,492 3,602 Deferred acquisition costs (514) (1,698) Total 93,395 (2,630) (b) Changes in liabilities arising from financing activities comprise the following: (C$ in thousands) Leases Long-term debt Balance as at January 1, 2024 353,925 100,000 Cash changes: Long-term debt issuance – 10,000 Lease obligation repayment (94,562) – Long-term debt repayment – (30,000) Non-cash changes: Additions 69,694 – Disposals (577) Interest 17,070 – Balance as at December 31, 2024 345,550 80,000 (C$ in thousands) Leases Long-term debt Balance as at January 1, 2023 322,855 234,375 Cash changes: Lease obligation repayment (93,187) – Long-term debt repayment – (134,375) Non-cash changes: Additions 107,588 – Interest 16,669 – Balance as at December 31, 2023 353,925 100,000 66 Annual Report 2024 Leon’s Furniture Limited Notes to the Consolidated Financial Statements 28. Related Party Transactions Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation. The Company has a 50% ownership interest in a joint operation “Beedie/Leon’s Delta-Link Joint Venture.” This joint operation developed land into a 432,000 square foot distribution centre, which the Company occupies in Delta, British Columbia. The Company has a 50% ownership interest in a joint operation “North 170/Leon’s Furniture Limited Joint Venture.” This joint operation developed land into a 497,379 square foot distribution centre and corporate office (Brick Subsidiary), which the Company occupies in Edmonton, Alberta. KEY MANAGEMENT COMPENSATION Key management includes the five senior executives of the Company. The compensation expense paid to key management for employee services during each year is shown below: For the Year ended (C$ in thousands) December 31, 2024 December 31, 2023 Salaries and other employee benefits 6,003 5,828 29. Comparative Financial Information The comparative consolidated financial statements have been reclassified from statements previously presented to conform to the presentation of the December 31, 2024 consolidated financial statements. 67 Leon’s Furniture Limited Annual Report 2024 Notes to the Consolidated Financial Statements Corporate & Shareholder Information Board of Directors Terrence T. Leon Toronto, ON Lewis M. Leon Toronto, ON Edward F. Leon King City, ON Joseph M. Leon II Ridgeway, ON Alan J. Lenczner Founding Partner in Lenczner Slaght Toronto, ON Mary Ann Leon Financial Executive Toronto, ON Frank Gagliano Vice Chairman, St. Joseph Communications, Toronto, ON Hon. Lisa Raitt, P.C. Vice Chair, CIBC Global Investment Banking Milton, ON Officers Terrence T. Leon Chairman of the Board Edward F. Leon Vice Chairman Michael J. Walsh President and CEO Victor Diab CFO John A. Cooney Vice President, Legal and Corporate Secretary Corporate Office 45 Gordon Mackay Road Toronto, Ontario M9N 3X3 (416) 243-7880 Auditors Ernst & Young LLP Toronto Registrar and Transfer Agent TSX Trust Company (Canada) Listing Leon’s Furniture Limited common shares are listed on the Toronto Stock Exchange Ticker Symbol is LNF Annual Meeting Thursday, May 8, 2025, 2:00pm Fairmont Royal York 100 Front Street West Toronto, Ontario 68 Annual Report 2024 Leon’s Furniture Limited Designed by Craib Design & Communications www.craib.com Printed in Canada Whether they choose to shop in-store or online, Canadians know and trust our brands for their furniture, appliances, electronics, and mattress needs. LEONS leonsfurniture leonsfurniture leonsfurniture THE BRICK brickwarehouse TheBrick thebrick APPLIANCE CANADA appliancecanada ApplianceCanada FURNITURE.CA furniture.ca furnituredotca LFLGROUP.CA leons.ca thebrick.com appliancecanada.com midnorthern.com furniture.ca transglobalservice.com transglobalinsurance.ca