Sleep Country Reports Solid Second Quarter Results on Stronger Canadian Business



    TSX: Z.UN

    TORONTO, Aug. 6 /CNW/ - Sleep Country Canada Income Fund today reported a
9.4% increase in sales to $91.4 million in the second quarter of 2008 compared
to the same period in the previous year. For the second quarter of 2008, sales
growth in the Canadian business (operations under the Sleep Country Canada and
Dormez-vous banners excluding those of Sleep America) increased 12.9% over the
same period in 2007, including comparable store sales growth of 4.5%. Sales
under the Sleep America banner in Arizona decreased 3.5% due to continued weak
market conditions.
    For the six months ended June 30, 2008, sales rose 5.9% to $173.0 million
from $163.4 million. During this period, the Canadian business experienced
sales growth of 9.0% while the Sleep America banner experienced sales declines
of 3.1%.
    During the quarter, the Fund achieved growth in EBITDA of 2.0%. The
Canadian business achieved an increase in EBITDA of 13.4% during the quarter
on stronger sales results.
    "We rolled out our new initiative to sell more pillows across Canada in
the second quarter and are pleased with its early success and the fact that we
can now offer our customer's a complete sleep system," said Stephen Gunn
Chairman and Chief Executive Officer.
    "We continue to be pleased with the performance of both the Dormez-vous
and Saskatchewan regional expansions," said Christine Magee, President. "The
Dormez-vous team continues to execute well on all fronts and they are strong
contributors to the Canadian sales and EBITDA results. Our expansion into the
Saskatchewan market in early May with one distribution centre and four stores
has started well. We are pleased not only with the sales levels but by the
strong execution by the Saskatchewan regional team in their first few months
of operations."
    The Board of Trustees has approved a regular cash distribution of $0.1208
per unit for the month of August, to be paid on September 19, 2008 to
unitholders of record at the close of business on August 29, 2008.
    The second quarter MD&A and Financial Statements will be filed on Sedar
and posted on the Sleep Country Canada website for review within the next 24
hours.

    Sleep Country Canada Income Fund is the largest retailer of mattresses in
Canada with 133 corporate owned stores under the Sleep Country banner, and 27
stores in Quebec under the Dormez-vous banner. The Fund also owns Sleep
America, the largest mattress retailer in Arizona with 46 stores. Sleep
Country was again recognized as one of Canada's 50 Best Employers in 2008.
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.

    
    ((*))  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
    Consolidated Balance Sheets
    (expressed in thousands of Canadian dollars)

                                                       June 30,  December 31,
                                                         2008        2007
                                                          $            $
                                                     ------------------------
    Assets

    Current assets
    Cash and cash equivalents                            15,065       22,139
    Accounts receivable                                   7,488        7,879
    Inventories                                          23,129       19,684
    Prepaid expenses and deposits                         1,507        1,231
                                                     ------------------------
                                                         47,189       50,933
                                                     ------------------------
    Property and equipment                               24,514       22,440
    Other assets                                            626          773
    Intangible assets                                    72,618       72,392
    Goodwill                                            126,466      126,256
                                                     ------------------------
                                                        271,413      272,794
                                                     ------------------------
                                                     ------------------------

    Liabilities and Unitholders' Equity

    Current liabilities
    Accounts payable and accrued liabilities             27,685       29,017
    Customer deposits                                     9,159        8,418
    Distribution payable to unitholders                   1,643        1,643
    Current portion of long-term debt                        31          808
                                                     ------------------------
                                                         38,518       39,886
                                                     ------------------------

    Long-term debt                                       60,224       59,953
    Other liabilities                                     7,680        6,932
    Future income taxes                                  11,877       13,197
                                                     ------------------------
                                                        118,299      119,968
                                                     ------------------------
    Unitholders' Equity

    Capital contributions                               132,621      132,356
    Cumulative earnings                                 116,446      106,637
    Cumulative distributions                            (91,058)     (81,200)
    Cumulative dividends on Class A shares               (3,223)      (2,903)
    Accumulated other comprehensive loss                 (1,672)      (2,064)
                                                     ------------------------
                                                        153,114      152,826
                                                     ------------------------
                                                        271,413      272,794
                                                     ------------------------
                                                     ------------------------



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

                                        Three     Three      Six       Six
                                        months    months    months    months
                                        ended     ended     ended     ended
                                       June 30,  June 30,  June 30,  June 30,
                                         2008      2007      2008      2007
                                          $         $         $         $
                                       --------------------------------------
    Sales                               91,363    83,497   173,036   163,361
    Cost of sales                       69,643    62,651   133,393   123,734
                                       --------------------------------------
    Contribution margin                 21,720    20,846    39,643    39,627
                                       --------------------------------------
    General and administrative
     expenses                           13,094    12,393    25,276    23,653
                                       --------------------------------------
    Earnings before the under-noted:     8,626     8,453    14,367    15,974
                                       --------------------------------------
    Interest expense                       881       777     1,767     1,682
    Financing fees on long-term debt         -       145         -       145
    Depreciation and amortization        1,690     1,495     3,305     2,980
    Interest income and other, net         (46)     (100)     (425)     (124)
                                       --------------------------------------
    Earnings before income taxes         6,101     6,136     9,720    11,291
                                       --------------------------------------
    Provision for (recovery of) income
     taxes
      Current                            1,106       675     1,179     1,175
      Future                              (851)        2    (1,268)     (151)
                                       --------------------------------------
                                           255       677       (89)    1,024
                                       --------------------------------------
    Net earnings for the period          5,846     5,459     9,809    10,267
                                       --------------------------------------
    Basic earnings per unit            $  0.42   $  0.39   $  0.70   $  0.73

    Net earnings for the period          5,846     5,459     9,809    10,267
    Other comprehensive income (loss):
      Unrealized gain (loss) on
       translation of foreign
       operations                          (80)     (961)      392    (1,143)
                                       --------------------------------------
    Comprehensive income for the
     period                              5,766     4,498    10,201     9,124
                                       --------------------------------------



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

                                        Three     Three      Six       Six
                                        months    months    months    months
                                        ended     ended     ended     ended
                                       June 30,  June 30,  June 30,  June 30,
                                         2008      2007      2008      2007
                                          $         $         $         $
                                       --------------------------------------
    Cash provided by (used in)

    Operating activities

    Net earnings for the period          5,846     5,459     9,809    10,267
    Items not affecting cash
      Depreciation of property and
       equipment                         1,624     1,423     3,174     2,832
      Amortization of intangible
       assets                               66        72       131       148
      Amortization of deferred lease
       inducements                        (235)     (226)     (464)     (452)
      Other non-cash expenses              142       (15)      359       182
      Future income taxes                 (851)        2    (1,268)     (151)
                                       --------------------------------------
                                         6,592     6,715    11,741    12,826
    Changes in non-cash items related
     to operating activities             4,320     4,569    (2,674)     (554)
                                       --------------------------------------
                                        10,912    11,284     9,067    12,272
                                       --------------------------------------
    Investing activities

    Purchase of property and equipment  (3,006)   (3,147)   (5,188)   (3,756)
                                       --------------------------------------
                                        (3,006)   (3,147)   (5,188)   (3,756)
                                       --------------------------------------
    Financing activities

    Issuance of senior notes                 -    10,000         -    10,000
    Repayment of promissory notes         (781)        -      (781)   (4,330)
    Repayment of capital lease
     obligations                            (8)      (21)      (24)      (57)
    Dividends paid on Class A shares      (160)     (155)     (320)     (310)
    Distributions paid to unitholders   (4,929)   (4,761)   (9,858)   (9,522)
                                       --------------------------------------
                                        (5,878)    5,063   (10,983)   (4,219)
                                       --------------------------------------
    Exchange rate difference on cash
     and cash equivalents                   (7)      (82)       30      (107)
                                       --------------------------------------
    Increase (decrease) in cash and
     cash equivalents                    2,021    13,118    (7,074)    4,190
    Cash and cash equivalents, beginning
     of period                          13,044     5,560    22,139    14,488
                                       --------------------------------------
    Cash and cash equivalents, end of
     period                             15,065    18,678    15,065    18,678
                                       --------------------------------------
    Supplemental cash flow information

    Interest paid                        1,002       881     1,872     1,975
    Income taxes paid                      963     1,909     2,014     3,055

    Non-cash investing and financing
     activities

    Dividends payable included in
     accounts payable and accrued
     liabilities                            53        52        53        52
    Sleep America promissory notes           -    (2,131)        -    (2,131)
    

    %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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