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Mattress Firm Announces Second Fiscal Quarter Financial Results

The following table contains a reconciliation of our net income determined in accordance with U.S. GAAP to EBITDA and Adjusted EBITDA for the periods indicated (in thousands):

  Thirteen Weeks Ended     Twenty-Six Weeks Ended
August 2,   July 31, August 2,   July 31,
2011 2012 2011 2012
Net income $ 3,636 $ 10,085 $ 4,665 $ 19,821
Income tax expense 239 5,326 319 11,488
Interest income (1 ) - (3 ) (1 )
Interest expense 8,672 2,214 16,949 4,289
Depreciation and amortization 4,323 5,471 8,717 10,175
Intangible assets and other amortization   428     607     815     1,187  
EBITDA   17,297     23,703     31,462     46,959  
Loss on store closings and impairment of store assets (135 ) 54 39 71
Loss from debt extinguishment 1,873 - 1,873 -
Financial sponsor fees and expenses 102 51 192 51
Stock-based compensation 20 493 39 1,002
Vendor new store funds (a) 296 250 300 633
Acquisition related expenses (b) 29 5,893 108 7,049
Other (c)   557     (856 )   682     (764 )
Adjusted EBITDA $ 20,039   $ 29,588   $ 34,695   $ 55,001  
(a)   Adjustment to recognize vendor funds received upon the opening of a new store in the period opened, rather than over 36-months as presented in our financial statements, which is consistent with how management has historically reviewed its results of operations.
(b) Noncash effect included in net income related to purchase accounting adjustments made to inventories resulting from acquisitions and other acquisition-related cash costs included in net income, such as direct acquisition costs and costs related to training and integration of acquired businesses.
(c) Consists of various items that management excludes in reviewing the results of operations.
 

As Adjusted EPS and the other “As Adjusted” data provided in this press release are also considered non-GAAP financial measures. For more information, please refer to “Reported to Adjusted Statements of Operations Data” below.

 
MATTRESS FIRM HOLDING CORP.
Consolidated Balance Sheets
(In thousands, except share amounts)
   
January 31, July 31,
2012 2012

Assets

(unaudited)
Current assets:
Cash and cash equivalents $ 47,946 $ 6,188
Accounts receivable, net 18,607 24,632
Inventories 40,961 60,800
Deferred income taxes 12,574 10,982
Prepaid expenses and other current assets   12,054     16,227  
Total current assets 132,142 118,829
Property and equipment, net 95,674 120,132
Intangible assets, net 84,795 90,057
Goodwill 291,141 333,109
Debt issue costs and other, net   9,729     9,336  
Total assets $ 613,481   $ 671,463  

Liabilities and Stockholders' Equity

Current liabilities:
Notes payable and current maturities of long-term debt $ 2,414 $ 1,805
Accounts payable 42,396 52,055
Accrued liabilities 31,780 48,726
Customer deposits   6,294     8,703  
Total current liabilities 82,884 111,289
Long-term debt, net of current maturities 225,940 230,425
Deferred income taxes 31,045 27,726
Other noncurrent liabilities   49,353     56,941  
Total liabilities   389,222     426,381  
 
Stockholders' equity:

Common stock, $0.01 par value; 120,000,000 shares authorized; 33,768,828 shares issued and outstanding at January 31, 2012 and July 31, 2012

338 338
Additional paid-in capital 361,717 362,719
Accumulated deficit   (137,796 )   (117,975 )
Total stockholders' equity   224,259     245,082  
Total liabilities and stockholders' equity $ 613,481   $ 671,463  
 
 
MATTRESS FIRM HOLDING CORP.
Consolidated Statements of Operations
(In thousands, except share and per share amounts)
   
Thirteen Weeks Ended Twenty-Six Weeks Ended
August 2,  

% of

  July 31,   % of August 2,   % of   July 31,   % of
  2011   Sales 2012 Sales   2011   Sales   2012   Sales
Net sales $ 179,914 100 % $ 262,018 100 % $ 331,838 100 % $ 471,832 100 %
Cost of sales   109,281   60.7 %   159,854 61.0 %   205,227   61.8 %   287,126   60.9 %
Gross profit from retail operations 70,633 39.3 % 102,164 39.0 % 126,611 38.2 % 184,706 39.1 %
Franchise fees and royalty income   1,085   0.6 %   1,327 0.5 %   2,072   0.6 %   2,532   0.5 %
  71,718   39.9 %   103,491 39.5 %   128,683   38.8 %   187,238   39.7 %
Operating expenses:
Sales and marketing expenses 45,081 25.1 % 66,564 25.4 % 80,718 24.3 % 115,692 24.5 %
General and administrative expenses 12,353 6.9 % 19,248 7.3 % 24,123 7.3 % 35,878 7.6 %
Loss on store closings and impairment of store assets   (135 ) -0.1 %   54 0.0 %   39   0.0 %   71   0.0 %
Total operating expenses   57,299   31.8 %   85,866 32.8 %   104,880   31.6 %   151,641   32.1 %
Income from operations   14,419   8.0 %   17,625 6.7 %   23,803   7.2 %   35,597   7.5 %
Other expense (income):
Interest income (1 ) 0.0 % - 0.0 % (3 ) 0.0 % (1 ) 0.0 %
Interest expense 8,672 4.8 % 2,214 0.8 % 16,949 5.1 % 4,289 0.9 %
Loss from debt extinguishment   1,873   1.0 %   - 0.0 %   1,873   0.6 %   -   0.0 %
  10,544   5.9 %   2,214 0.8 %   18,819   5.7 %   4,288   0.9 %
Income before income taxes 3,875 2.2 % 15,411 5.9 % 4,984 1.5 % 31,309 6.6 %
Income tax expense   239   0.1 %   5,326 2.0 %   319   0.1 %   11,488   2.4 %
Net income $ 3,636   2.0 % $ 10,085 3.8 % $ 4,665   1.4 % $ 19,821   4.2 %
 
Basic net income per common share $ 0.16 $ 0.30 $ 0.21 $ 0.59
Diluted net income per common share $ 0.16 $ 0.30 $ 0.21 $ 0.59
 
Reconciliation of weighted-average shares outstanding:
Basic weighted average shares outstanding 22,399,952 33,768,828 22,399,952 33,768,828
Effect of dilutive securities:
Stock options - 70,588 - 97,350
Restricted shares   -     1,293   -     980  
Diluted weighted average shares outstanding   22,399,952     33,840,709   22,399,952     33,867,158  
 
 
MATTRESS FIRM HOLDING CORP.
Consolidated Statements of Cash Flows
(In thousands)
 
Twenty-Six Weeks Ended
August 2,   July 31,

Cash flows from operating activities:

  2011     2012  
Net income $ 4,665 $ 19,821

Adjustments to reconcile net income to cash flows provided by operating activities:

Depreciation and amortization 8,717 10,175
Interest expense accrued and paid-in-kind 12,505 -
Loan fee and other amortization 1,212 1,217
Loss from debt extinguishment 1,873 -
Deferred income tax expense - 4,261
Stock-based compensation 39 1,002
Loss (gain) on store closings and impairment of store assets (134 ) 71

Effects of changes in operating assets and liabilities, excluding business acquisitions:

Accounts receivable (1,481 ) (3,116 )
Inventories (4,908 ) (14,672 )
Prepaid expenses and other current assets 584 (1,354 )
Other assets (1,726 ) 391
Accounts payable 13,035 (245 )
Accrued liabilities 9,638 9,921
Customer deposits 2,846 850
Other noncurrent liabilities   1,890     1,774  
Net cash provided by operating activities   48,755     30,096  

Cash flows from investing activities:

Purchases of property and equipment (11,681 ) (31,667 )
Business acquisitions, net of cash acquired   (100 )   (43,984 )
Net cash used in investing activities   (11,781 )   (75,651 )

Cash flows from financing activities:

Proceeds from issuance of debt 40,198 15,000
Principal payments of debt (50,686 ) (11,203 )
Debt issuance costs   (1,273 )   -  
Net cash provided by (used in) used in financing activities   (11,761 )   3,797  
Net increase (decrease) in cash and cash equivalents 25,213 (41,758 )
Cash and cash equivalents, beginning of period   4,445     47,946  
Cash and cash equivalents, end of period $ 29,658   $ 6,188  
 
 
MATTRESS FIRM HOLDING CORP.
Reported to Adjusted Statements of Operations Data
(In thousands, except share and per share amounts)
 
Thirteen Weeks Ended
August 2, 2011   July 31, 2012
  Acquisition-  
Related
As Reported As Reported Costs (1) As Adjusted
Income from operations $ 14,419 $ 17,625 $ 5,893 $ 23,518
Other expense, net   10,544   2,214   -   2,214
Income before income taxes 3,875 15,411 5,893 21,304
Income tax expense (2)   239   5,326   1,763   7,089
Net income $ 3,636 $ 10,085 $ 4,130 $ 14,215
 
Basic net income per common share $ 0.16 $ 0.30 $ 0.12 $ 0.42
Diluted net income per common share $ 0.16 $ 0.30 $ 0.12 $ 0.42
 
Basic weighted average shares outstanding 22,399,952 33,768,828 33,768,828 33,768,828
Diluted weighted average shares outstanding 22,399,952 33,840,709 33,840,709 33,840,709
 
Twenty-Six Weeks Ended
August 2, 2011 July 31, 2012
Acquisition-
Related
As Reported As Reported Costs (1) As Adjusted
Income from operations $ 23,803 $ 35,597 $ 7,049 $ 42,646
Other expense, net   18,819   4,288   -   4,288
Income before income taxes 4,984 31,309 7,049 38,358
Income tax expense (2)   319   11,488   2,220   13,708
Net income $ 4,665 $ 19,821 $ 4,829 $ 24,650
 
Basic net income per common share $ 0.21 $ 0.59 $ 0.14 $ 0.73
Diluted net income per common share $ 0.21 $ 0.59 $ 0.14 $ 0.73
 
Basic weighted average shares outstanding 22,399,952 33,768,828 33,768,828 33,768,828
Diluted weighted average shares outstanding 22,399,952 33,867,158 33,867,158 33,867,158
 
(1) In April 2012, we announced the signing of a purchase agreement for all of the equity interests of MGHC Holding Corporation (Mattress Giant), including approximately 181 specialty retail stores. The acquisition closed on May 2, 2012. Acquisition-related costs, consisting of direct transaction costs and integration costs are included in the results of operations as incurred. During the thirteen and twenty-six weeks ended July 31, 2012, we incurred $5.9 million and $7.1 million of acquisition-related costs, respectively.
 
(2) Reflects effective income tax rate of 38.5% for 2012 and $0.3 million in foregone tax benefits on certain acquisition-related costs considered nondeductible.
 

Our "As Adjusted" data is considered a non-U.S. GAAP financial measure and is not in accordance with, or preferable to, "As Reported," or GAAP financial data. However, we are providing this information as we believe it facilitates year-over-year comparisons for investors and financial analysts.

 

About Mattress Firm

Houston-based Mattress Firm is one of the nation’s leading specialty bedding retailers, offering a broad selection of both traditional and specialty mattresses from leading manufacturers, including Sealy, Serta, Simmons, Stearns & Foster and Tempur-Pedic.

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