Sleep Country Announces Sixth Distribution Increase and Strong Results in Q3 2007



    TSX: Z.UN

    TORONTO, Oct. 29 /CNW/ - Sleep Country Canada Income Fund today reported
a 7.1% increase in sales to $104.7 million in the third quarter of 2007 from
$97.8 million in the same period in the previous year. EBITDA(*) for the Fund
increased 7.7% to $16.0 million compared with $14.9 million in the third
quarter of 2006.
    For the nine months ended September 30, 2007, sales rose 13.1% to
$268.1 million from $237.0 million while EBITDA increased 10.4% to $32.0
million compared to the same period in 2006.
    Performance in the Fund's Canadian operations (under the Sleep Country
Canada and Dormez-vous banners) was solid with total sales growth of 9.7%,
including comparable store sales growth of 1.7%. The Canadian operations
achieved EBITDA growth of 13.8% over the same period in the prior year. This
is due to solid EBITDA performance from the Sleep Country banner coupled with
a positive EBITDA contribution from the Dormez-vous banner in the quarter.
    "We believe the mattress market continues to demonstrate an
uncharacteristic level of market weakness in 2007," said Stephen Gunn. "We
believe growth has been flat during the year compared with historic growth
rates of 5% to 6%. We are pleased that, even in such tough market conditions,
the Canadian business continues to deliver solid levels of sales and EBITDA
growth."
    Performance of the Fund's operations in Arizona under the Sleep America
banner continues to be impacted by weak market conditions. For the third
quarter of 2007, Sleep America experienced a total decrease in retail sales of
5.1%. This sales performance coupled with additional expenditures to improve
operations resulted in Sleep America's EBITDA declining $0.8 million in the
third quarter of 2007 compared with the same period in 2006.
    "Sleep America continues to operate in a challenging market environment
and there are no indications signalling the timing of improved conditions,"
said Christine Magee, President. "We continue to invest prudently in Sleep
America's people and operations. We believe this is the right strategy to
build a future growth platform for the Fund."
    The Board of Trustees approved an increase in cash distributions to
$1.45 per trust unit per year from the current annual rate of $1.40 per unit.
This is the sixth distribution increase since May, 2004, with the annual rate
growing by a total of 35%, from $1.075 to $1.45.
    "This increase reflects the solid performance this year by the Sleep
Country banner coupled with Dormez-vous's reaching positive EBITDA levels.
This increase is in line with our objective of delivering a steady, increasing
stream of distributions over time," said Stephen Gunn.
    The change will be effective for the distribution for the month of
November to be paid on December 20, 2007 to unitholders of record at the close
of business on November 30, 2007. The monthly distribution rate will rise to
$0.1208 per unit from $0.1167 per unit.

    (*) EBITDA refers to earnings before interest, taxes, depreciation and
amortization and other items. EBITDA is not a recognized measure under
Canadian generally accepted accounting principles (GAAP) and may not be
comparable to similar measures used by other companies. The Fund believes that
EBITDA is a useful financial metric as it represents a starting point in the
determination of free cash flow available for distribution to unitholders.
Investors should be cautioned, however, that EBITDA should not be construed as
an alternative to net earnings as determined in accordance with GAAP.

    ------------------

    Sleep Country Canada Income Fund is the largest retailer of mattresses in
Canada with 124 corporate owned stores in eight regional markets under the
Sleep Country banner, and 23 stores in Quebec under the Dormez-vous banner.
The Fund also owns Sleep America, the largest mattress retailer in Arizona
with 42 stores. Sleep Country was again recognized as one of Canada's 50 Best
Employers in 2006 and Sleep America was recognized as a top employer in
Arizona in 2005. Sleep Country Canada Income Fund is an open-ended limited
purpose trust that owns 100% of the voting securities of Sleep Country Canada
Inc. The Fund's units are listed on the Toronto Stock Exchange under the
symbol Z.UN.


    
    Sleep Country Canada Income Fund
    Consolidated Balance Sheets
    (expressed in thousands of Canadian dollars)
    -------------------------------------------------------------------------

                                                   September 30, December 31,
                                                       2007         2006
                                                         $            $
                                                  ---------------------------
                                                    (unaudited)   (audited)
    Assets

    Current assets
    Cash and cash equivalents                            32,161       14,488
    Accounts receivable                                   6,041        7,350
    Inventories                                          21,393       18,866
    Prepaid expenses and deposits                         1,367        1,307
                                                  ---------------------------
                                                         60,962       42,011
                                                  ---------------------------
    Property and equipment (note 5)                      21,606       21,150
    Other assets (note 6)                                   710        1,849
    Intangible assets (note 7)                           72,501       74,898
    Goodwill                                            127,656      131,488
                                                  ---------------------------
                                                        283,435      271,396
                                                  ---------------------------
                                                  ---------------------------
    Liabilities and Unitholders' Equity

    Current liabilities
    Accounts payable and accrued liabilities             38,625       32,868
    Customer deposits 8,986 8,110
    Distribution payable to unitholders (note 12)         1,587        1,587
    Current portion of long-term debt (note 8)            2,192        4,650
                                                  ---------------------------
                                                         51,390       47,215
                                                  ---------------------------

    Long-term debt (note 8)                              59,996       56,322
    Other liabilities (note 9)                            6,679        6,115
    Future income taxes                                  14,441       15,007
                                                  ---------------------------
                                                        132,506      124,659
                                                  ---------------------------
    Unitholders' Equity

    Capital contributions                               132,834      132,526
    Cumulative earnings                                  98,970       78,436
    Cumulative distributions                            (76,327)     (62,044)
    Cumulative dividends on Class A shares               (2,744)      (2,279)
    Accumulated other comprehensive income (loss)        (1,804)          98
                                                  ---------------------------
                                                        150,929      146,737
                                                  ---------------------------
                                                        283,435      271,396
                                                  ---------------------------
                                                  ---------------------------

    On behalf of the Trustees and the Board:

    (signed)                            (signed)
    -------------------------           ------------------------
    Stephen K. Gunn - Trustee           Scott Anderson - Trustee



    Sleep Country Canada Income Fund
    Consolidated Statements of Earnings and Comprehensive Income
    (unaudited)
    (expressed in thousands of Canadian dollars, except per unit amounts)
    -------------------------------------------------------------------------

                                  Three       Three       Nine        Nine
                                 months      months      months      months
                                  ended       ended       ended       ended
                               September   September   September   September
                                30, 2007    30, 2006    30, 2007    30, 2006
                                    $           $           $           $
                              -----------------------------------------------

    Sales                        104,725      97,757     268,086     237,036
    Cost of sales                 74,804      69,699     198,538     174,687
                              -----------------------------------------------
    Contribution margin           29,921      28,058      69,548      62,349
                              -----------------------------------------------
    General and
     administrative expenses      13,902      13,186      37,555      33,371
                              -----------------------------------------------
    Earnings before the
     under-noted:                 16,019      14,872      31,993      28,978
                              -----------------------------------------------
    Interest expense (note 8)        819         975       2,501       2,622
    Financing fees on long-term
     debt (note 8)                     -           -         145           -
    Depreciation and
     amortization                  1,496       1,448       4,476       4,336
    Other                           (387)       (273)       (511)       (665)
                              -----------------------------------------------
    Earnings before
     income taxes                 14,091      12,722      25,382      22,685
                              -----------------------------------------------
    Provision for (recovery of)
     income taxes (note 10)
      Current                      3,153       2,994       4,328       4,580
      Future                         (33)         78        (184)     (2,812)
                              -----------------------------------------------

                                   3,120       3,072       4,144       1,768
    Net earnings for the period   10,971       9,650      21,238      20,917
                              -----------------------------------------------

    Basic earnings per unit        $0.78       $0.69       $1.51       $1.49
                              -----------------------------------------------


                                  Three       Three       Nine        Nine
                                 months      months      months      months
                                  ended       ended       ended       ended
                               September   September   September   September
                                30, 2007    30, 2006    30, 2007    30, 2006
                                    $           $           $           $
                              -----------------------------------------------

    Net earnings for the period   10,971       9,650      21,238      20,917
    Other comprehensive income
     (loss):
    Unrealized income (loss)
     on translation of foreign
     operations                     (759)         10      (1,902)       (269)
                              -----------------------------------------------
    Comprehensive income for
     the period                   10,212       9,660      19,336      20,648
                              -----------------------------------------------



    Sleep Country Canada Income Fund
    Consolidated Statements of Cash Flows
    (unaudited)
    (expressed in thousands of Canadian dollars)
    -------------------------------------------------------------------------

                                  Three       Three       Nine        Nine
                                 months      months      months      months
                                  ended       ended       ended       ended
                               September   September   September   September
                                30, 2007    30, 2006    30, 2007    30, 2006
                                    $           $           $           $
                              -----------------------------------------------

    Cash provided by (used in)

    Operating activities
    Net earnings for the period   10,971       9,650      21,238      20,917
    Items not affecting cash
      Depreciation of property
       and equipment               1,428       1,374       4,260       3,718
      Amortization of
       intangible assets              68          74         216         618
      Amortization of deferred
       financing costs                 -          69           -         182
      Amortization of deferred
       lease inducements            (235)       (198)       (687)       (574)
      Other non-cash expenses        362         155         544         556
      Future income taxes            (33)         78        (184)     (2,812)
                              -----------------------------------------------
                                  12,561      11,202      25,387      22,605
    Changes in non-cash items
     related to operating
     activities (note 13)          7,048       9,662       6,494       6,438
                              -----------------------------------------------
                                  19,609      20,864      31,881      29,043
                              -----------------------------------------------
    Investing activities
    Acquisitions, net of cash
     acquired (note 2)                 -           -           -     (20,356)
    Purchase of property
     and equipment                (1,111)     (2,924)     (4,867)     (9,057)
                              -----------------------------------------------
                                  (1,111)     (2,924)     (4,867)    (29,413)
                              -----------------------------------------------
    Financing activities
    Issuance of senior notes           -           -      10,000      11,565
    Financing costs on
     senior notes                      -           -           -        (763)
    Repayment of promissory
     notes                             -           -      (4,330)          -
    Repayment of capital
     lease obligations               (16)        (83)        (73)       (174)
    Dividends paid on
     Class A shares                 (155)       (150)       (465)       (470)
    Distributions paid to
     unitholders                  (4,761)     (4,590)    (14,283)    (13,750)
                              -----------------------------------------------
                                  (4,932)     (4,823)     (9,151)     (3,592)
                              -----------------------------------------------
    Exchange rate difference
     on cash and cash
     equivalents                     (83)          2        (190)        (37)
                              -----------------------------------------------
    Increase (decrease) in cash
     and cash equivalents
                                  13,483      13,119      17,673      (3,999)
    Cash and cash equivalents,
     beginning of period          18,678      11,572      14,488      28,690
                              -----------------------------------------------
    Cash and cash equivalents,
     end of period                32,161      24,691      32,161      24,691
                              -----------------------------------------------
    Supplemental cash flow
     information
    Interest paid                    908         723       2,883       1,978
    Income taxes paid              1,451       1,113       4,506       3,490

    Non-cash investing and
     financing activities
    Dividends payable included
     in accounts payable and
     accrued liabilities              52          50          52          50
    Issuance of units on
     retraction of Class A shares      -           -           -         372
    Sleep America promissory
     notes (notes 2 and 8)             -           -      (2,131)      9,073
    

    %SEDAR: 00019107E




For further information:

For further information: Investor Inquiries: Stephen Gunn, Chairman and
Chief Executive Officer; Vicki Jones, Chief Financial Officer and Corporate
Secretary, Tel: (416) 242-4774, Fax: (416) 242-9644,
www.sleepcountry.ca/investor

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SLEEP COUNTRY CANADA INCOME FUND

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