UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended July 3, 2004
COMMISSION FILE NO. 0-25121
-------------------------
SELECT COMFORT CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1597886
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6105 TRENTON LANE NORTH
MINNEAPOLIS, MINNESOTA 55442
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (763) 551-7000
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES[X] NO[ ]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
YES[X] NO[ ]
As of July 3, 2004, 36,671,441 shares of Common Stock of the Registrant were
outstanding.
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
INDEX
PAGE NO.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
July 3, 2004 and January 3, 2004.................................... 3
Consolidated Statements of Operations
for the Three Months and Six Months ended
July 3, 2004 and June 28, 2003...................................... 4
Consolidated Statements of Cash Flows
for the Six Months ended
July 3, 2004 and June 28, 2003...................................... 5
Notes to Consolidated Financial Statements.......................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....................... 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......... 16
Item 4. Disclosure Controls and Procedures.................................. 16
PART II: OTHER INFORMATION
Item 1. Legal Proceedings................................................. 17
Item 2. Changes in Securities and Use of Proceeds......................... 17
Item 3. Defaults Upon Senior Securities................................... 17
Item 4. Submission of Matters to a Vote of Security Holders............... 18
Item 5. Other Information................................................. 18
Item 6. Exhibits and Reports on Form 8-K.................................. 19
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SELECT COMFORT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
JULY 3, JANUARY 3,
2004 2004
------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 29,167 $ 24,725
Marketable securities - current (note 2) 14,127 49,322
Accounts receivable, net of allowance for doubtful
accounts of $704 and $619 9,133 6,823
Inventories (note 3) 14,312 12,381
Prepaid expenses 7,776 5,244
Deferred tax assets 6,672 6,039
------------- --------------
Total current assets 81,187 104,534
Marketable securities - non-current (note 2) 44,778 1,071
Property and equipment, net 40,114 36,134
Deferred tax assets 6,298 5,620
Other assets 3,650 3,343
------------- --------------
Total assets $ 176,027 $150,702
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 21,962 $ 14,773
Consumer prepayments 6,952 5,970
Accruals:
Sales returns 4,053 3,469
Compensation and benefits 11,918 16,579
Taxes and withholding 3,095 3,661
Other 5,379 6,110
------------- --------------
Total current liabilities 53,359 50,562
Accrued warranty costs 1,905 2,557
Other liabilities 5,174 4,821
------------- --------------
Total liabilities 60,438 57,940
------------- --------------
Shareholders' equity (notes 4 and 5):
Undesignated preferred stock; 5,000,000 shares authorized,
no shares issued and outstanding - -
Common stock, $.01 par value; 95,000,000 shares authorized,
36,671,441 and 35,769,606 shares issued and outstanding, 367 358
respectively
Additional paid-in capital 114,742 104,085
Unearned compensation (1,974) (877)
Retained earnings (accumulated deficit) 2,454 (10,804)
------------- --------------
Total shareholders' equity 115,589 92,762
------------- --------------
Total liabilities and shareholders' equity $ 176,027 $150,702
============= ==============
See accompanying notes to consolidated financial statements.
3
SELECT COMFORT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- -----------------------------
JULY 3, JUNE 28, JULY 3, JUNE 28,
2004 2003 2004 2003
------------- ------------- -------------- --------------
Net sales $124,720 $101,993 $264,683 $203,951
Cost of sales 47,806 38,920 101,735 76,977
------------- ------------- -------------- --------------
Gross profit 76,914 63,073 162,948 126,974
------------- ------------- -------------- --------------
Operating expenses:
Sales and marketing 57,638 46,284 121,358 95,201
General and administrative 10,050 9,209 20,684 17,510
Store closings and asset impairments - (15) - 59
------------- ------------- -------------- --------------
Total operating expenses 67,688 55,478 142,042 112,770
------------- ------------- -------------- --------------
Operating income 9,226 7,595 20,906 14,204
------------- ------------- -------------- --------------
Other income (expense):
Interest income 340 137 652 250
Interest expense - (53) - (141)
Other, net - - - 24
------------- ------------- -------------- --------------
Other income (expense), net 340 84 652 133
------------- ------------- -------------- --------------
Income before income taxes 9,556 7,679 21,558 14,337
Income tax expense 3,683 2,918 8,300 5,448
------------- ------------- -------------- --------------
Net income $ 5,883 $ 4,761 $ 13,258 $ 8,889
============= ============= ============== ==============
Net income per share (note 4) - basic $ 0.16 $ 0.15 $ 0.37 $ 0.28
============= ============= ============== ==============
Weighted average shares - basic 36,547 32,018 36,304 31,449
============= ============= ============== ==============
Net income per share (note 4) - diluted $ 0.15 $ 0.12 $ 0.33 $ 0.23
============= ============= ============== ==============
Weighted average shares - diluted 40,236 38,778 40,101 38,492
============= ============= ============== ==============
See accompanying notes to consolidated financial statements.
4
SELECT COMFORT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
-----------------------------
JULY 3, JUNE 28,
2004 2003
-------------- --------------
Cash flows from operating activities:
Net income $ 13,258 $ 8,889
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,741 5,155
Amortization of debt discount and deferred finance - 130
fees
Non-cash compensation 183 30
Loss on disposal of assets and impaired assets - 59
Deferred tax (benefit) expense (1,311) 4,806
Change in operating assets and liabilities:
Accounts receivable, net (2,310) (2,900)
Inventories (1,931) (1,866)
Prepaid expenses (2,532) 424
Other assets (324) (10)
Accounts payable 7,189 4,147
Accrued sales returns 584 174
Accrued compensation and benefits (4,661) (3,152)
Accrued taxes and withholding 4,177 (233)
Consumer prepayments 982 2,417
Other accruals and liabilities (1,030) 227
-------------- --------------
Net cash provided by operating activities 19,015 18,297
-------------- --------------
Cash flows from investing activities:
Purchases of property and equipment (10,704) (10,313)
Investments in marketable securities (54,768) (17,706)
Proceeds from maturity of marketable securities 46,256 14,717
-------------- --------------
Net cash used in investing activities (19,216) (13,302)
-------------- --------------
Cash flows from financing activities:
Principal payments on debt - (11)
Repurchase of common stock (240) (1,834)
Proceeds from issuance of common stock 4,883 2,376
-------------- --------------
Net cash provided by financing activities 4,643 531
-------------- --------------
Increase in cash and cash equivalents 4,442 5,526
Cash and cash equivalents, at beginning of period 24,725 27,176
-------------- --------------
Cash and cash equivalents, at end of period $ 29,167 $ 32,702
============== ==============
See accompanying notes to consolidated financial statements.
5
SELECT COMFORT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements for the three months and six months ended
July 3, 2004 of Select Comfort Corporation and subsidiaries ("Select Comfort" or
the "Company"), have been prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission and reflect,
in the opinion of management, all normal recurring adjustments necessary to
present fairly the financial position of the Company as of July 3, 2004 and
January 3, 2004 and the results of operations and cash flows for the periods
presented.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to such
rules and regulations, although management believes the disclosures are adequate
to make the information presented not misleading. These consolidated financial
statements should be read in conjunction with the Company's most recent audited
consolidated financial statements and related notes included in the Company's
Annual Report to Shareholders and its Form 10-K for the fiscal year ended
January 3, 2004. Operating results for the Company on a quarterly basis may not
be indicative of operating results for the full year.
No additional new accounting pronouncements have been issued that are expected
to have a material effect on the Company's financial results.
(2) MARKETABLE SECURITIES
The Company invests its cash in highly liquid debt instruments issued by the US
government and related agencies, municipalities and in corporate notes and
commercial paper issued by companies with investment grade ratings. The
Company's investments have an original maturity of up to 36 months with an
average time to maturity of 18 months as of July 3, 2004. Investments with an
original maturity of less than 90 days are classified as cash equivalents.
Investments with an original maturity of greater than 90 days are classified as
marketable securities. Marketable securities with a remaining maturity of
greater than one year are classified as long-term. The Company's marketable
securities are classified as held-to-maturity and are carried at amortized cost.
Marketable securities held at July 3, 2004 carried an amortized cost of $44.8
million and a fair value of $44.3 million.
(3) INVENTORIES
Inventories consist of the following (in thousands):
JULY 3, JANUARY 3,
2004 2004
-------------- --------------
Raw materials $ 3,795 $ 3,715
Work in progress 122 123
Finished goods 10,395 8,543
-------------- --------------
$14,312 $12,381
============== ==============
6
SELECT COMFORT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) NET INCOME PER COMMON SHARE
The following computations reconcile reported net income with net income
available to common shareholders per share-basic and diluted (in thousands,
except per share amounts):
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------- ------------------------------
WEIGHTED PER WEIGHTED PER
JULY 3, 2004 NET AVERAGE SHARE NET AVERAGE SHARE
------------ INCOME SHARES AMOUNT INCOME SHARES AMOUNT
---------- --------- ---------- ---------- --------- ---------
Net income $ 5,883 $ 13,258
BASIC EPS
Net income available to common 5,883 36,547 $ 0.16 13,258 36,304 $ 0.37
shareholders
========== =========
EFFECT OF DILUTIVE SECURITIES
Options - 2,334 - 2,427
Common stock warrants - 1,355 - 1,370
---------- --------- ---------- ---------
DILUTED EPS
Net income available to common
shareholders $ 5,883 40,236 $ 0.15 $ 13,258 40,101 $ 0.33
plus assumed conversions
========== ========= ========== ========== ========= =========
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------- ------------------------------
WEIGHTED PER WEIGHTED PER
JUNE 28, 2003 NET AVERAGE SHARE NET AVERAGE SHARE
------------- INCOME SHARES AMOUNT INCOME SHARES AMOUNT
---------- --------- ---------- ---------- --------- ----------
Net income $ 4,761 $ 8,889
BASIC EPS
Net income available to common 4,761 32,018 $ 0.15 8,889 31,449 $ 0.28
shareholders
========== =========
EFFECT OF DILUTIVE SECURITIES
Options - 2,613 - 2,481
Common stock warrants - 3,787 - 4,019
Convertible debt 27 360 81 543
---------- --------- --------- ----------
DILUTED EPS
Net income available to common
shareholders $ 4,788 38,778 $ 0.12 $ 8,970 38,492 $ 0.23
plus assumed conversions
========== ========= ========== ========= ========== =========
Additional potentially dilutive securities totaling 28,000 and 54,000 for the
three- and six-month periods ended July 3, 2004 and 643,000 and 631,000 for the
three- and six-month periods ended June 28, 2003, have been excluded from
diluted EPS because these securities' exercise price was greater than the
average market price of the Company's common shares.
(5) STOCK AND STOCK OPTION INCENTIVES
The Company uses the intrinsic value method of accounting for stock options.
Under this method no compensation cost has been recognized in the consolidated
financial statements for employee stock option grants or the discount feature of
the Company's employee stock purchase plan.
7
SELECT COMFORT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options and employee stock purchase plan under an
alternative accounting method, the Company's net income would have been adjusted
as outlined below (in thousands, except per share amounts):
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------- --------------------------
JULY 3, JUNE 28, JULY 3, JUNE 28,
2004 2003 2004 2003
------------- ------------- ------------ -------------
Net income, as reported $ 5,883 $ 4,761 $13,258 $ 8,889
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (760) (729) (1,434) (1,376)
------------- ------------- ------------ -------------
Pro forma net income $ 5,123 $ 4,032 $11,824 $ 7,513
============= ============= ============ =============
Income per share
Basic - as reported $ 0.16 $ 0.15 $ 0.37 $ 0.28
Basic - pro forma $ 0.14 $ 0.13 $ 0.33 $ 0.24
Diluted - as reported $ 0.15 $ 0.12 $ 0.33 $ 0.23
Diluted - pro forma $ 0.13 $ 0.10 $ 0.29 $ 0.20
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions:
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------- ---------------------------
JULY 3, JUNE 28, JULY 3, JUNE 28,
2004 2003 2004 2003
------------- ------------- ------------- -------------
Expected dividend yield.................... 0% 0% 0% 0%
Expected stock price volatility............ 55% 90% 55% 90%
Risk-free interest rate.................... 2.0% 2.0% 2.0% 2.0%
Expected life in years..................... 3.6 3.6 3.6 3.6
Weighted-average fair value at grant date.. $10.22 $9.13 $10.41 $6.04
The Company issued restricted stock awards to certain employees in conjunction
with its stock-based compensation plan. The shares vest between five and ten
years from the date of issuance based on continued employment. Compensation
expense related to restricted stock awards is based upon the market price at
date of grant and is charged to earnings on a straight-line basis over the
vesting period. 153,500 shares of restricted stock were outstanding as of July
3, 2004. Total compensation expense related to restricted stock was $183,000 and
$30,000 for the six month period ended July 3, 2004 and June 28, 2003,
respectively.
(6) LITIGATION
On August 13, 2003, a lawsuit was filed against the Company in Superior Court of
the State of California, County of Ventura. The suit was subsequently amended on
September 18, 2003. This suit was filed by two former store managers alleging
misclassification of employment position and seeking class certification. The
complaint seeks judgment for unpaid overtime compensation alleged to exceed
$1.0 million, together with related penalties, restitution, attorneys' fees and
costs. We are investigating the allegations in the complaint and intend to
vigorously defend this litigation. As this case is in the early stages of
discovery, the financial impact to the Company, if any, cannot be predicted.
The Company is involved in various other claims and legal actions arising in the
ordinary course of business. In the opinion of management, any losses that may
occur from these other matters are adequately covered by insurance or are
provided for in the consolidated financial statements and the ultimate outcome
of these other matters will not have a material effect on the consolidated
financial position or results of operations of the Company.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES THERETO INCLUDED HEREIN. THIS
QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. YOU CAN
IDENTIFY FORWARD-LOOKING STATEMENTS BY THOSE THAT ARE NOT HISTORICAL IN NATURE,
PARTICULARLY THOSE THAT USE TERMINOLOGY SUCH AS "MAY," "WILL," "SHOULD,"
"EXPECTS," "ANTICIPATES," "CONTEMPLATES," "ESTIMATES," "BELIEVES," "PLANS,"
"PROJECTS," "PREDICTS," "POTENTIAL" OR "CONTINUE" OR THE NEGATIVE OF THESE OR
SIMILAR TERMS. THESE STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S
HISTORICAL EXPERIENCE AND ITS PRESENT EXPECTATIONS OR PROJECTIONS. IMPORTANT
FACTORS KNOWN TO SELECT COMFORT THAT COULD CAUSE SUCH MATERIAL DIFFERENCES ARE
IDENTIFIED AND DISCUSSED IN PART I, ITEM 1 OF OUR ANNUAL REPORT ON FORM 10-K FOR
THE FISCAL YEAR ENDED JANUARY 3, 2004, WHICH DISCUSSION IS INCORPORATED HEREIN
BY REFERENCE. THESE IMPORTANT FACTORS INCLUDE:
o GENERAL AND INDUSTRY ECONOMIC TRENDS,
o UNCERTAINTIES ARISING FROM DOMESTIC AND GLOBAL EVENTS,
o CONSUMER CONFIDENCE AND SPENDING,
o THE EFFECTIVENESS AND EFFICIENCY OF OUR ADVERTISING AND PROMOTIONAL
EFFORTS,
o ADVERTISING RATES AND THE VOLATILITY OF ADVERTISING RATES DURING THE
OLYMPIC GAMES AND ELECTION SEASON,
o CONSUMER ACCEPTANCE OF OUR PRODUCTS AND SLEEP TECHNOLOGY,
o INDUSTRY COMPETITION,
o OUR ABILITY TO SECURE SUITABLE RETAIL LOCATIONS,
o WARRANTY EXPENSES,
o CALIFORNIA WAGE AND HOUR LITIGATION,
o OUR DEPENDENCE ON SIGNIFICANT SUPPLIERS OR SINGLE SOURCES OF SUPPLY,
o THE VULNERABILITY OF ANY SUPPLIERS TO RECESSIONARY PRESSURES, LIQUIDITY
CONCERNS OR OTHER FACTORS,
o GOVERNMENTAL REGULATION, INCLUDING ANTICIPATED FUTURE REGULATION OF DIRECT
MARKETING TELEPHONE SOLICITATIONS AND BEDDING FLAMMABILITY STANDARDS,
o INFLATION OF COMMODITY OR DELIVERY COSTS, AND
o RISKS AND UNCERTAINTIES DETAILED FROM TIME TO TIME IN THE COMPANY'S FILINGS
WITH THE SEC, INCLUDING THE COMPANY'S ANNUAL REPORT ON FORM 10-K AND OTHER
PERIODIC REPORTS FILED WITH THE SEC.
THE COMPANY HAS NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY OF THE
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS QUARTERLY REPORT ON FORM 10-Q.
OVERVIEW AND CRITICAL ACCOUNTING POLICIES
Select Comfort(R) is the leading developer, manufacturer and marketer of
premium-quality, adjustable-firmness beds. The air-chamber technology of our
proprietary Sleep Number bed allows adjustable firmness on each side of the
mattress and provides a sleep surface that is clinically proven to provide
better sleep quality and greater relief of back pain compared to traditional
mattress products. In addition we market and sell accessories and other sleep
related products which focus on providing personalized comfort to complement the
Sleep Number bed and provide a better night's sleep to the consumer.
We generate revenue by selling our products through four complementary
distribution channels. Three of these channels: retail, direct marketing and
e-commerce, are company-controlled and sell directly to consumers. Our wholesale
channel sells to leading home furnishings retailers, specialty bedding retailers
and the QVC shopping channel.
The proportion of our total net sales, by dollar volume, from each of our
channels is summarized as follows:
Three Months Ended Six Months Ended
------------------- -------------------
7/3/04 6/28/03 7/3/04 6/28/03
--------- --------- --------- ---------
Stores 77% 77% 77% 78%
Direct Call Center 12% 13% 12% 13%
E-commerce 5% 4% 5% 4%
Wholesale 6% 6% 6% 5%
9
The growth rates of each distribution channel are as follows:
Three Months Ended Six Months Ended
------------------- -------------------
7/3/04 6/28/03 7/3/04 6/28/03
Channel Channel Channel Channel
inc(dec) inc(dec) inc(dec) inc(dec)
--------- --------- --------- ---------
Retail:
Comparable store sales 14% 34% 20% 32%
New/closed stores, net 8% 4% 8% 3%
---- ---- ---- ----
Retail total 22% 38% 28% 35%
Direct marketing 13% 17% 20% 15%
E-commerce 32% 23% 43% 26%
Wholesale 34% 6% 75% (8)%
The number of company-operated retail locations is summarized as follows:
Three Months Ended Six Months Ended
------------------- -------------------
7/3/04 6/28/03 7/3/04 6/28/03
--------- --------- --------- ---------
Beginning of period 351 323 344 322
Opened 12 10 21 12
Closed (3) (1) (5) (2)
--------- --------- --------- ---------
End of period 360 332 360 332
========= ========= ========= =========
We anticipate opening 9 new retail stores during the remainder of 2004. We do
not anticipate closing any additional stores in 2004. However the term of our
agreement with Bed, Bath & Beyond, representing 13 stores in leased departments,
expires August 31, 2004 and we are currently evaluating the extension of this
arrangement. These stores represented less than 2% of revenue in 2003.
Our growth plans are centered on increasing the awareness of our products and
stores through expansion of media, increasing distribution - primarily through
new retail store openings, and expanding and improving our product lines. Our
primary market consists of consumers in the U.S. domestic market.
On May 21, 2004, we entered into an agreement with Radisson Hotels. We expect
revenue over the contract term of $40 million to $60 million with ultimate
revenues dependent upon order volumes from individual Radisson franchisees.
While we expect margins from these incremental sales to be in the single digits,
we believe the added exposure to consumers provides an opportunity for
additional incremental sales through our existing higher margin channels.
In August 2004 a local Minneapolis news story reported the potential for mold
formation within our mattresses. Consumer response to these reports could impact
future sales trends and warranty costs. Our response to customer calls resulting
from this story has increased our warranty costs by approximately $60,000 to
date. Historically, warranty claims associated with mold have affected less than
1% of our customer base annually at an annual cost of less than $200,000. While
we believe our warranty reserves are adequate to address this issue, we will
continue to monitor claims activity and make future adjustments to our warranty
reserves, if appropriate.
Increases in sales, along with controlling costs, have provided significant
improvement to operating income and operating margin over the past several
years. The majority of operating margin improvement has been generated through
leverage in selling expenses (increased sales through the existing store base)
and leverage of our existing infrastructure (general and administrative
expenses). We expect any future improvements in operating margin to be derived
from similar sources. Our target is to sustain sales growth rates of 15% to 25%
and sustain earnings growth rates of approximately 30%.
10
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the Company's results
of operations expressed as dollars and percentages of net sales. Figures are in
millions except per share amounts.
THREE MONTHS ENDED SIX MONTHS ENDED
--------------------------------- --------------------------------
JULY 3, 2004 JUNE 28, 2003 JULY 3, 2004 JUNE 28, 2003
---------------- ---------------- --------------- ---------------
Net sales $124.7 100.0% $102.0 100.0% $264.7 100.0% $204.0 100.0%
Cost of sales 47.8 38.3% 38.9 38.2% 101.7 38.4% 77.0 37.7%
------- ------- ------- -------- ------- ------- ------- -------
Gross profit 76.9 61.7% 63.1 61.8% 162.9 61.6% 127.0 62.3%
------- ------- ------- -------- ------- ------- ------- -------
Operating expenses:
Sales and marketing 57.6 46.2% 46.3 45.4% 121.4 45.9% 95.2 46.7%
General and administrative 10.0 8.1% 9.2 9.0% 20.7 7.8% 17.5 8.6%
Store closings and asset impairments 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.1 0.0%
------- ------- ------- -------- ------- ------- ------- -------
Total operating expenses 67.7 54.3% 55.5 54.4% 142.0 53.7% 112.8 55.3%
------- ------- ------- -------- ------- ------- ------- -------
Operating income 9.2 7.4% 7.6 7.4% 20.9 7.9% 14.2 7.0%
Other income (expense), net 0.3 0.3% 0.1 0.1% 0.7 0.2% 0.1 0.1%
------- ------- ------- -------- ------- ------- ------- -------
Income before income taxes 9.6 7.7% 7.7 7.5% 21.6 8.1% 14.3 7.1%
Income tax expense 3.7 3.0% 2.9 2.8% 8.3 3.1% 5.4 2.7%
------- ------- ------- -------- ------- ------- ------- -------
Net income 5.9 4.7% $ 4.8 4.7% $ 13.3 5.0% $ 8.9 4.4%
======= ======= ======= ======== ======= ======= ======= =======
Net income per share:
Basic $ 0.16 $ 0.15 $ 0.37 $ 0.28
Diluted $ 0.15 $ 0.12 $ 0.33 $ 0.23
Weighted-average number of common shares:
Basic 36.5 32.0 36.3 31.4
Diluted 40.2 38.8 40.1 38.5
NET SALES
We record revenue at the time product is shipped to our customer, except when
beds are delivered and set up by our home delivery employees, in which case
revenue is recorded at the time the bed is delivered and set up in the home. We
reduce sales at the time revenue is recognized for estimated returns. This
estimate is based on historical return rates, which are reasonably consistent
from period to period. If actual returns vary from expected rates, revenue in
future periods is adjusted, which could have a material adverse effect on future
results of operations. Historically we have not experienced material adjustments
to the financial statements due to changes to these estimates.
COST OF SALES
Cost of sales includes costs associated with purchasing materials, manufacturing
costs and costs to deliver our products to our customers. Cost of sales also
includes estimated costs to service warranty claims of customers. This estimate
is based on historical claim rates during the warranty period. Because this
estimate covers an extended period of time, a revision of estimated claim rates
could result in a significant adjustment of estimated future costs of fulfilling
warranty commitments. An increase in estimated claim rates could have a material
adverse effect on future results of operations. Historically we have not
experienced material adjustments to the financial statements due to changes to
these estimates.
GROSS PROFIT
Our gross profit margin is dependent on a number of factors and may fluctuate
from quarter to quarter. These factors include the mix of products sold, the
level at which we offer promotional discounts to purchase our products, the cost
of materials, delivery and manufacturing and the mix of sales between wholesale
and company-controlled distribution channels. Sales of products manufactured by
third parties, such as accessories and our adjustable foundation, generate lower
gross margins, Similarly, sales directly to consumers through company-controlled
channels generally generate higher gross margins than sales through our
wholesale channels because we capture both the manufacturer's and retailer's
margin.
11
SALES AND MARKETING EXPENSES
Sales and marketing expenses include advertising and media production, other
marketing and selling materials such as brochures, videos, customer mailings and
in-store signage, sales compensation, store occupancy costs and customer
service. We expense all store opening and advertising costs as incurred, except
for production costs and advance payments, which are deferred and expensed from
the time the advertisement is first run. Advertising expense was $18.8 million
and $40.3 million for the three and six months ended July 3, 2004 as compared to
$12.7 million and $27.3 million for the three and six months ended June 28,
2003. Future advertising expenditures will depend on the effectiveness and
efficiency of the advertising in creating awareness of our products and brand
name, generating consumer inquiries and driving consumer traffic to our points
of sale.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses include costs associated with management of
functional areas, including information technology, human resources, finance,
sales and marketing administration, investor relations, risk management and
research and development. Costs include salaries, bonus and benefits,
information hardware, software and maintenance, office facilities, insurance,
shareholder relations costs and other overhead.
STORE CLOSINGS AND ASSET IMPAIRMENTS
Store closing and asset impairment expenses include charges made against
operating expenses for store related or other capital assets that have been
written-off when a store is underperforming and generating negative cash flows.
We evaluate our long-lived assets, including leaseholds and fixtures in existing
stores and stores expected to be remodeled, based on expected cash flows through
the remainder of the lease term after considering the potential impact of
planned operational improvements and marketing programs. Expected cash flows may
not be realized, which could cause long-lived assets to become impaired in
future periods and could have a material adverse effect on future results of
operations. Store assets are written off when we believe these costs will not be
recovered through future operations.
QUARTERLY AND ANNUAL RESULTS
Quarterly and annual operating results may fluctuate significantly as a result
of a variety of factors, including increases or decreases in comparable store
sales, the timing, amount and effectiveness of advertising expenditures, any
changes in sales return rates or warranty experience, the timing of new store
openings and related expenses, net sales contributed by new stores, competitive
factors, any disruptions in supplies or third-party service providers and
general economic conditions, seasonality of sales and timing of QVC shows and
wholesale sales and consumer confidence. Furthermore, a substantial portion of
net sales is often realized in the last month of a quarter, due in part to our
promotional schedule and commission structure. As a result, we may be unable to
adjust spending in a timely manner, and our business, financial condition and
operating results may be significantly harmed. Our historical results of
operations may not be indicative of the results that may be achieved for any
future period.
COMPARISON OF THREE MONTHS ENDED JULY 3, 2004 WITH THREE MONTHS
ENDED JUNE 28, 2003
NET SALES
Net sales increased 22% to $124.7 million for the three months ended July 3,
2004 from $102.0 million for the three months ended June 28, 2003, due to a 10%
increase in mattress unit sales and higher average selling prices. The average
selling price per bed set in our company controlled channels was $1,867, an
increase of approximately 13% over second quarter last year. The higher average
selling price resulted primarily from growth in unit sales at higher price
points and a decline in unit sales at lower price points. The increase in
mattress unit sales was driven predominately by sales from new stores and by
sales to wholesale partners while the growth rate of units within same stores
slowed in comparison to prior periods.
The increase in net sales by sales channel was attributable to (i) a $17.6
million increase in sales from our retail stores, including an increase in
comparable store sales of $10.8 million and an increase of $6.8 million from new
stores, net of stores closed, (ii) a $1.8 million increase in direct marketing
sales, (iii) a $1.4 million increase in sales through the Company's e-commerce
channel and (iv) a $2.0 million increase in sales from the Company's wholesale
channel.
GROSS PROFIT
Gross profit decreased to 61.7% for the three months ended July 3, 2004 from
61.8% for the three months ended June 28, 2003, primarily due to increases in
gross margins resulting from sales of higher priced bed models, offset by
decreases in gross margin attributable to increased sales of adjustable
foundations, increased utilization of our home delivery services and channel
mix.
12
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased 24% to $57.6 million for the three months
ended July 3, 2004 from $46.3 million for the three months ended June 28, 2003
and increased as a percentage of net sales to 46.2% from 45.4% for the
comparable prior-year period. The $11.3 million increase was primarily due to
additional media investments, sales-based incentive compensation, and increased
occupancy costs. The increase as a percentage of net sales was comprised
primarily of a 2.6 percentage point (ppt) increase in media investments offset
by a 1.8 ppt leverage of fixed costs (occupancy, base sales compensation and
certain marketing expenses) over higher sales. With additional sales growth, we
expect sales and marketing expenses as a percentage of net sales to decline as
we achieve greater leverage from our base sales compensation and occupancy costs
while reinvesting some of these leverage benefits into higher levels of media
investments and training.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative (G&A) expenses increased 9% to $10.0 million for the
three months ended July 3, 2004 from $9.2 million for the three months ended
June 28, 2003 but decreased as a percentage of net sales to 8.1% from 9.0% for
the prior-year period. The dollar increase in G&A was comprised primarily of
increased compensation and benefits expenses related to additional headcount and
from additional depreciation from infrastructure investments. We expect G&A
growth rates to continue to be lower than the rate of sales growth due to
leveraging the fixed component of G&A expenses across a higher sales base.
OTHER INCOME (EXPENSE), NET
Other income (expense) increased $256,000 to $340,000 for the three months ended
July 3, 2004 from $84,000 for the three months ended June 28, 2003. The
improvement is primarily due to increased interest income reflecting higher
balances of invested cash.
INCOME TAX EXPENSE
Income tax expense increased $0.8 million to $3.7 million for the three months
ended July 3, 2004 from $2.9 million for the three months ended June 28, 2003.
The effective tax rate was 38.5% in 2004 and 38.0% in 2003.
COMPARISON OF SIX MONTHS ENDED JULY 3, 2004 WITH SIX MONTHS ENDED JUNE 28, 2003
NET SALES
Net sales increased 30% to $264.7 million for the six months ended July 3, 2004
from $204.0 million for the six months ended June 28, 2003, due to a 17%
increase in mattress unit sales and higher average selling prices. The average
selling price per bed set in our company controlled channels was $1,839, an
increase of approximately 14% over the six month average selling price last
year. The higher average selling price resulted primarily from growth in unit
sales at higher price points and a decline in unit sales at lower price points.
The increase in mattress unit sales was driven predominately by sales from new
stores, and by sales to QVC and other wholesale partners while the growth rate
of units within same stores slowed in comparison to prior periods.
The increase in net sales by sales channel was attributable to (i) a $44.5
million increase in sales from our retail stores, including an increase in
comparable store sales of $30.7 million and an increase of $13.8 million from
new stores, net of stores closed, (ii) a $5.6 million increase in direct
marketing sales, (iii) a $3.6 million increase in sales through the Company's
e-commerce channel and (iv) a $7.1 million increase in sales from the Company's
wholesale channel.
GROSS PROFIT
Gross profit decreased to 61.6% for the six months ended July 3, 2004 from 62.3%
for the six months ended June 28, 2003, primarily due to increases in gross
margins resulting from sales of higher priced bed models, offset by decreases in
gross margin attributable to increased sales of adjustable foundations, channel
mix, and increased utilization of our home delivery services.
SALES AND MARKETING EXPENSES
Sales and marketing expenses increased 28% to $121.4 million for the six months
ended July 3, 2004 from $95.2 million for the six months ended June 28, 2003 and
decreased as a percentage of net sales to 45.9% from 46.7% for the comparable
prior-year period. The $26.2 million increase was primarily due to additional
media investments, sales-based incentive compensation, and increased occupancy
costs. The decrease as a percentage of net sales was comprised primarily of a
1.9 percentage point (ppt) increase in media investments offset by a 2.7 ppt
leverage of fixed costs (occupancy, base sales compensation and certain
marketing expenses) over higher sales.
13
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative (G&A) expenses increased 18% to $20.7 million for the
six months ended July 3, 2004 from $17.5 million for the six months ended June
28, 2003 but decreased as a percentage of net sales to 7.8% from 8.6% for the
prior-year period. The dollar increase in G&A was comprised primarily of
increased compensation and benefits expenses related to additional headcount and
from additional depreciation from infrastructure investments.
STORE CLOSINGS AND ASSET IMPAIRMENT EXPENSES
Store closing and asset impairment expense decreased from a $59,000 expense for
the six months ended June 28, 2003 to $0 for the six months ended July 3, 2004.
In 2003, the entire $59,000 expense represents impairments related to store
closures.
OTHER INCOME (EXPENSE), NET
Other income (expense) increased $519,000 to $652,000 for the six months ended
July 3, 2004 from $133,000 for the six months ended June 28, 2003. The
improvement is primarily due to increased interest income reflecting higher
balances of invested cash.
INCOME TAX EXPENSE
Income tax expense increased $2.9 million to $8.3 million for the six months
ended July 3, 2004 from $5.4 million for the six months ended June 28, 2003. The
effective tax rate was 38.5% in 2004 and 38.0% in 2003.
LIQUIDITY AND CAPITAL RESOURCES
As of July 3, 2004, we had cash and marketable securities of $88.1 million,
$43.3 million classified as a current asset. As of January 3, 2004, cash and
marketable securities totaled $75.1 million, $74.0 million classified as
current. Net working capital totaled $27.8 million as of July 3, 2004 compared
to $54.0 million for 2003. The decrease in net working capital was due to a
shift to longer-term investments which are reported as non-current assets. The
$13.0 million improvement in cash balances was the result of generating $8.3
million of operating free cash flow ($19.0 million of cash provided by operating
activities, reduced by $10.7 million of capital expenditures) and $4.6 million
of cash provided by financing activities. Cash from financing activities was
primarily comprised of cash received from option and warrant exercises and
shares purchased by employees as part of an employee share purchase program,
offset by purchases of stock made by us as part of our ongoing common stock
repurchase program. We expect to continue to generate positive cash flows from
operations in the future, while not anticipating any significant additional
working capital requirements due to our advantaged business model which requires
low levels of inventory and other working capital assets.
We generated cash from operations for the six months ended July 3, 2004 and June
28, 2003 of $19.0 million and $18.3 million, respectively. The $0.7 million
year-to-year improvement in cash from operations resulted primarily from
improved operating income in 2004 largely offset by increases in income taxes
paid, reflecting the utilization of substantially all net operating loss
carryforwards ("NOLs") in 2003.
Capital expenditures amounted to $10.7 million for the six months ended July 3,
2004, compared to $10.3 million for the six months ended June 28, 2003. In both
periods our capital expenditures related primarily to new and remodeled retail
stores and investments in information technology. The majority of the year over
year increase in capital expenditures relates to investments in retail stores.
In the first half of 2004 we opened 21 retail stores, while in the first half of
2003 we opened 12 stores. We anticipate opening 9 additional stores in 2004
while completing the marquee and design upgrade of approximately 130 stores by
the end of the third quarter. We will fund the investment in new and upgraded
stores with cash on hand and cash generated from operations. We expect our new
stores to be cash flow positive within the first 12 months of operation and, as
a result, do not anticipate a negative effect on net cash provided by
operations.
Net cash provided by financing activities totaled $4.6 million for the six
months ended July 3, 2004, compared to $0.5 million for the six months ended
June 28, 2003. The $4.1 million increase in cash from financing activities was
comprised of an increase of $2.5 million received for exercises of stock options
and warrants and for employee purchases of common stock and a $1.6 million
decrease in purchases of common stock by us under our board-authorized common
stock repurchase program. During the third quarter of 2004 (through August 10,
2001)we used approximately $14.6 million dollars for the repurchase of shares
under this program. Additional purchases of Select Comfort stock may be made
from time-to-time, subject to market conditions and at prevailing market prices,
through open market purchases. Repurchased shares will be retired and may be
reissued in the future for general corporate or other purposes. We may terminate
or limit the stock repurchase program at any time.
14
Management believes that cash generated from operations will be a sufficient
source of liquidity for the short- and long- term and should provide adequate
capital for capital expenditures and common stock repurchases, if any. In
addition, our advantaged business model, which can operate with minimal working
capital, does not require significant additional capital to fund operations. In
2003 we obtained a $15 million bank revolving line of credit to provide
additional cash flexibility in the case of unexpected significant external or
internal developments. The line of credit is a three-year senior secured
revolving facility. The interest rate on borrowings is calculated using LIBOR
plus 1.50% to 2.25% with the incremental rate dependent on our leverage ratio,
as defined by the lender. We are subject to certain financial covenants under
the agreement, principally consisting of minimum liquidity requirements, working
capital and leverage ratios. We have remained in full compliance with the
financial covenants from the date the agreement was originated. We currently
have no borrowings outstanding under this credit agreement.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions. Predicting future events is inherently an imprecise
activity and as such requires the use of judgment. Actual results may vary from
estimates in amounts that may be material to the financial statements. The
accounting policies discussed below are considered critical because changes to
certain judgments and assumptions inherent in these policies could materially
affect the financial statements.
Our critical accounting policies relate to revenue recognition, accrued sales
returns, accrued warranty costs and impairment of long-lived assets and
long-lived assets to be disposed of by us.
In certain instances, accounting principles generally accepted in the United
States of America allow for the selection of alternative accounting methods. Our
significant policy that involves the selection of an alternative method is
accounting for stock options.
STOCK-BASED COMPENSATION
Two alternative methods exist for accounting for stock options: the intrinsic
value method and the fair value method. We use the intrinsic value method of
accounting for stock options, and accordingly, no compensation expense has been
recognized in the financial statements for options granted to employees, or for
the discount feature of our employee stock purchase plan.
REVENUE RECOGNITION
We record revenue at the time product is shipped to our customer, except when
beds are delivered and set up by our home delivery employees, in which case
revenue is recorded at the time the bed is delivered and set up in the home.
ACCRUED SALES RETURNS
We reduce sales at the time revenue is recognized for estimated returns. This
estimate is based on historical return rates, which are reasonably consistent
from period to period. If actual returns vary from expected rates, revenue in
future periods is adjusted, which could have a material adverse effect on future
results of operations.
ACCRUED WARRANTY COSTS
The estimated costs to service warranty claims of customers is included in cost
of sales. This estimate is based on historical claim rates during the warranty
period. Because this estimate covers an extended period of time, a revision of
estimated claim rates could result in a significant adjustment of estimated
future costs of fulfilling warranty commitments. An increase in estimated claim
rates could have a material adverse effect on future results of operations.
STORE CLOSING AND ASSET IMPAIRMENT EXPENSES
We evaluate our long-lived assets, including leaseholds and fixtures in existing
stores, based on expected cash flows through the remainder of the lease term
after considering the potential impact of planned operational improvements and
marketing programs. Expected cash flows may not be realized, which could cause
15
long-lived assets to become impaired in future periods and could have a material
adverse effect on future results of operations. Store assets are written off
when we believe these costs will not be recovered through future operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of investments. The counterparties to our
investments consist of government agencies and various major corporations of
investment-grade credit standing. The Company does not believe there is
significant risk of non-performance by these counterparties because the Company
limits the amount of credit exposure to any one financial institution and any
one type of investment.
In addition, our investments carry fixed interest rates which, in an increasing
interest rate environment, would result in unrealized losses in our investment
portfolio. The Company limits this interest rate risk by designating this
portfolio as "held-to-maturity" and by managing the short-term liquidity needs
of the business by matching investment duration to liquidity needs.
ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we conducted an evaluation,
under the supervision and with the participation of our President and Chief
Executive Officer, and our Senior Vice President and Chief Financial Officer, of
our disclosure controls and procedures. Based on this evaluation, these officers
concluded that our disclosure controls and procedures are effective in
recording, processing, summarizing and reporting information necessary to
satisfy our disclosure obligations under the Securities Exchange Act of 1934.
16
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 13, 2003, a lawsuit was filed against the Company in Superior Court of
the State of California, County of Ventura. The suit was subsequently amended on
September 18, 2003. This suit was filed by two former store managers alleging
misclassification of employment position and seeking class certification. The
complaint seeks judgment for unpaid overtime compensation alleged to exceed
$1.0 million, together with related penalties, restitution, attorneys' fees and
costs. We are investigating the allegations in the complaint and intend to
vigorously defend this litigation. As this case is in the early stages of
discovery, the financial impact to the Company, if any, cannot be predicted.
The Company is involved in various other claims and legal actions arising in the
ordinary course of business. In the opinion of management, any losses that may
occur from these other matters are adequately covered by insurance or are
provided for in the consolidated financial statements and the ultimate outcome
of these other matters will not have a material effect on the consolidated
financial position or results of operations of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) - (d) Not applicable.
(e) Registrant Purchases of Equity Securities
(c) Total
Number (d) Maximum
of Shares Number (or
(or Units) Approximate
Purchased as Dollar Value) of
(a) Total Part of shares (or Units)
Number of (b) Average Publicly that May Yet Be
Shares (or Price Paid Announced Purchased Under
Units) per Share Plans or the Plans or
Period Purchased(1) (or Unit) Programs (2) Programs
-------------------- ------------- ------------ ------------- ---------------
April 4, 2004 -
May 1, 2004 177 $28.23 - $14,991,000
May 2, 2004 -
May 29, 2004 457 20.15 - 16,464,000
May 30, 2004 -
July 3, 2004 161 17.66 - 15,344,000
-------------
Total 795 $21.44 -
(1) Includes 795 shares acquired in open market transactions by the
administrator of the Company's non-qualified deferred compensation plan
in order to accommodate investment elections of plan participants.
(2) In February 2003, the Company announced that the Board of Directors
had authorized the use of up to $12.5 million for the repurchase of
shares of the Company's common stock. This authorization was
subsequently modified to allow for the use of a formula specified
amount based on certain minimum cash levels, for the repurchase of
shares. The Audit Committee of the Board of Directors reviews, on a
quarterly basis, the authority granted as well as any repurchases under
this program. This authorization is currently not subject to
expiration.
During the period from July 4, 2004 through August 10, 2004, the
Company repurchased approximately 793,000 shares at a total cost of
approximately $14.6 million.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Our Annual Meeting of Shareholders was held on May 20, 2004. The
following individuals were elected as Directors of the Company at the
Annual Meeting to serve for terms of three years expiring at the 2007
Annual Meeting of Shareholders or until their successors are elected and
qualified. Shares voted in favor of these Directors and shares withheld
were as follows:
Thomas J. Albani
Shares For 32,030,677
Shares Withheld 2,169,274
David T. Kollat
Shares For 33,067,008
Shares Withheld 1,132,943
William R. McLaughlin
Shares For 33,472,862
Shares Withheld 727,089
In addition to the Directors named above, the following Directors' terms
continued after the Annual Meeting and will expire at the Annual Meeting
of Shareholders in the year indicated below:
Term
Name Expires
Christopher P. Kirchen 2005
Brenda J. Lauderback 2005
Michael A. Peel 2005
Jean-Michel Valette 2005
Patrick A. Hopf 2006
Trudy A. Rautio 2006
Ervin R. Shames 2006
Shareholders approved the adoption of the 2004 Stock Incentive Plan.
Shares voted in favor and against the plan were as follows:
Shares For 20,254,407
Shares Against 8,789,706
Shareholders also approved the appointment of KPMG LLP, certified
public accountants, as independent auditors for the fiscal year ending
January 1, 2005. Shares voted in favor and against this appointment
were as follows:
Shares For 33,485,767
Shares Against 147,126
ITEM 5. OTHER INFORMATION
Not applicable.
18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
EXHIBIT
NUMBER DESCRIPTION
10.1 Exclusive Supplier Agreement between Radisson Hotels
International, Inc. and Select Comfort Corporation.*
10.2 Select Comfort Corporation 2004 Stock Incentive Plan.
31.1 Certification of CEO pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of CFO pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of CEO pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350.
32.2 Certification of CFO pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350.
*Portions of this Exhibit have been omitted pursuant to a request
for confidential treatment.
(b) REPORTS ON FORM 8-K
During the quarter ended July 3, 2004, Current Reports on Form
8-K consisted of the following:
(i) Current Report furnished under Item 12 of Form 8-K on April
9, 2004, announcing preliminary sales for the first quarter
ended April 3, 2004.
(ii) Current Report furnished under Item 12 of Form 8-K on April
20, 2004, announcing results for the first quarter ended
April 3, 2004 and earnings guidance for second quarter 2004.
(iii)Current Report furnished under Item 7 and 9 of Form 8-K on
May 11, 2004, providing slides that were presented at an
analyst day on May 10, 2004.
(iv) Current Report furnished under Item 9 of Form 8-K on May 21,
2004, announcing election of president and chief executive
officer to the additional position of chairman of the board
and announcing results of the annual shareholder meeting
held May 20, 2004.
(v) Current Report furnished under Item 9 of Form 8-K on May 25,
2004, announcing exclusive brand agreement with Carlson
Hotels Worldwide.
19
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SELECT COMFORT CORPORATION
/s/ William R. McLaughlin
-------------------------------------
August 11, 2004 William R. McLaughlin
President and Chief Executive Officer
(principal executive officer)
/s/ James C. Raabe
-------------------------------------
James C. Raabe
Senior Vice President and Chief
Finacial Officer
(principal financial and accounting
officer)
20
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
10.1 Exclusive Supplier Agreement between Radisson
Hotels International, Inc. and Select Comfort
Corporation.*
10.2 Select Comfort Corporation 2004 Stock Incentive
Plan.
31.1 Certification of CEO pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
31.2 Certification of CFO pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
32.1 Certification of CEO pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350.
32.2 Certification of CFO pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350.
*Portions of this Exhibit have been omitted pursuant to a request
for confidential treatment.
21