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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