Document and Entity Information
Document and Entity Information | 3 Months Ended |
Apr. 02, 2016shares | |
Document and Entity Information [Abstract] | |
Entity Registrant Name | SELECT COMFORT CORP |
Entity Central Index Key | 827,187 |
Current Fiscal Year End Date | --12-31 |
Entity Filer Category | Large Accelerated Filer |
Document Type | 10-Q |
Document Period End Date | Apr. 2, 2016 |
Document Fiscal Year Focus | 2,016 |
Document Fiscal Period Focus | Q1 |
Amendment Flag | false |
Entity Common Stock, Shares Outstanding | 46,686,000 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) $ in Thousands | Apr. 02, 2016 | Jan. 02, 2016 |
Current assets: | ||
Cash and cash equivalents | $ 29,520 | $ 20,994 |
Marketable debt securities – current | 0 | 6,567 |
Accounts receivable, net of allowance for doubtful accounts of $1,115 and $1,039, respectively | 20,186 | 29,002 |
Inventories | 80,967 | 86,600 |
Income Taxes Receivable, Current | 0 | 15,284 |
Prepaid expenses | 12,019 | 10,207 |
Deferred income taxes | 15,521 | 15,535 |
Other current assets | 14,116 | 13,737 |
Total current assets | 172,329 | 197,926 |
Non-current assets: | ||
Marketable debt securities – non-current | 0 | 8,553 |
Property and equipment, net | 203,500 | 204,376 |
Goodwill and intangible assets, net | 82,711 | 83,344 |
Other assets | 22,463 | 19,197 |
Total assets | 481,003 | 513,396 |
Current liabilities: | ||
Accounts payable | 96,608 | 103,941 |
Customer prepayments | 30,936 | 51,473 |
Accrued sales returns | 22,910 | 20,562 |
Compensation and benefits | 26,345 | 15,670 |
Taxes and withholding | 19,294 | 9,856 |
Other current liabilities | 24,124 | 23,447 |
Total current liabilities | 220,217 | 224,949 |
Non-current liabilities: | ||
Warranty liabilities | 4,907 | 4,942 |
Deferred Tax Liabilities, Net, Noncurrent | 14,116 | 12,499 |
Other long-term liabilities | 54,579 | 48,667 |
Total liabilities | 293,819 | 291,057 |
Shareholders’ equity: | ||
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding | 0 | 0 |
Common stock, $0.01 par value; 142,500 shares authorized, 46,686 and 49,402 shares issued and outstanding, respectively | 467 | 494 |
Additional paid-in capital | 0 | 0 |
Retained earnings | 186,717 | 221,859 |
Accumulated other comprehensive loss | 0 | (14) |
Total shareholders’ equity | 187,184 | 222,339 |
Total liabilities and shareholders’ equity | $ 481,003 | $ 513,396 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands | Apr. 02, 2016 | Jan. 02, 2016 |
Current assets: | ||
Accounts receivable, net of allowance for doubtful accounts | $ 1,115 | $ 1,039 |
Shareholders’ equity: | ||
Undesignated preferred stock, shares authorized (in shares) | 5,000,000 | 5,000,000 |
Undesignated preferred stock, shares issued (in shares) | 0 | 0 |
Undesignated preferred stock, shares outstanding (in shares) | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized (in shares) | 142,500,000 | 142,500,000 |
Common stock, shares issued (in shares) | 46,686,000 | 49,402,000 |
Common stock, shares outstanding (in shares) | 46,686,000 | 49,402,000 |
Consolidated Statements of Oper
Consolidated Statements of Operations - USD ($) $ in Thousands | 3 Months Ended | |
Apr. 02, 2016 | Apr. 04, 2015 | |
Income Statement [Abstract] | ||
Net sales | $ 352,980 | $ 349,809 |
Cost of sales | 143,906 | 133,976 |
Gross profit | 209,074 | 215,833 |
Operating expenses: | ||
Sales and marketing | 150,668 | 140,503 |
General and administrative | 30,906 | 28,254 |
Research and development | 7,602 | 3,351 |
Total operating expenses | 189,176 | 172,108 |
Operating income | 19,898 | 43,725 |
Other (expense) income, net | (97) | 153 |
Income before income taxes | 19,801 | 43,878 |
Income tax expense | 6,832 | 15,079 |
Net income | $ 12,969 | $ 28,799 |
Basic net income per share: | ||
Net income per share – basic (in USD per share) | $ 0.27 | $ 0.55 |
Weighted-average shares – basic (in shares) | 48,100,000 | 52,346,000 |
Diluted net income per share: | ||
Net income per share – diluted (in USD per share) | $ 0.27 | $ 0.54 |
Weighted-average shares – diluted (in shares) | 48,845,000 | 53,326,000 |
Consolidated Statements of Comp
Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands | 3 Months Ended | |
Apr. 02, 2016 | Apr. 04, 2015 | |
Statement of Comprehensive Income [Abstract] | ||
Net income | $ 12,969 | $ 28,799 |
Other comprehensive income – unrealized gain on available-for-sale marketable debt securities, net of income tax | 14 | 72 |
Comprehensive income | $ 12,983 | $ 28,871 |
Consolidated Statement of Share
Consolidated Statement of Shareholders' Equity - 3 months ended Apr. 02, 2016 - USD ($) shares in Thousands, $ in Thousands | Total | Common Stock [Member] | Additional Paid-In Capital [Member] | Retained Earnings [Member] | Accumulated Other Comprehensive Income (Loss) [Member] |
Balance (in shares) at Jan. 02, 2016 | 49,402 | 49,402 | |||
Balance at Jan. 02, 2016 | $ 222,339 | $ 494 | $ 0 | $ 221,859 | $ (14) |
Net income | 12,969 | 0 | 0 | 0 | |
Other comprehensive income: | |||||
Unrealized gain on available-for-sale marketable debt securities, net of tax | 14 | $ 0 | 0 | 0 | 14 |
Exercise of common stock options (in shares) | 0 | ||||
Exercise of common stock options | 6 | $ 0 | 6 | 0 | 0 |
Tax effect from stock-based compensation | (670) | $ 0 | (670) | 0 | 0 |
Stock-based compensation (in shares) | (12) | ||||
Stock-based compensation | 3,766 | $ 0 | 3,766 | 0 | 0 |
Repurchases of common stock (in shares) | (2,704) | ||||
Repurchases of common stock | $ (51,240) | $ (27) | $ (3,102) | $ (48,111) | $ 0 |
Balance (in shares) at Apr. 02, 2016 | 46,686 | ||||
Balance at Apr. 02, 2016 | $ 187,184 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) $ in Thousands | 3 Months Ended | |
Apr. 02, 2016 | Apr. 04, 2015 | |
Cash flows from operating activities: | ||
Net income | $ 12,969 | $ 28,799 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization | 13,854 | 10,783 |
Stock-based compensation | 3,766 | 2,782 |
Net loss on disposals and impairments of assets | 1 | 177 |
Excess tax benefits from stock-based compensation | (26) | (858) |
Deferred income taxes | 1,622 | (3,415) |
Changes in operating assets and liabilities: | ||
Accounts receivable | 8,816 | 1,780 |
Inventories | 5,633 | (2,469) |
Income taxes | 16,558 | 15,453 |
Prepaid expenses and other assets | (1,272) | (1,661) |
Accounts payable | (495) | 7,458 |
Customer prepayments | (20,537) | (2,591) |
Accrued compensation and benefits | 10,677 | (8,977) |
Other taxes and withholding | 7,493 | (58) |
Warranty liabilities | (261) | 900 |
Other accruals and liabilities | 5,183 | 761 |
Net Cash Provided by (Used in) Operating Activities | 63,981 | 48,864 |
Cash flows from investing activities: | ||
Proceeds from marketable debt securities | 15,090 | 16,244 |
Purchases of property and equipment | (12,289) | (17,796) |
Proceeds from sales of property and equipment | 14 | 33 |
Investments in marketable debt securities | 0 | (18,195) |
Net cash used in investing activities | 2,815 | (19,714) |
Repurchases of common stock | ||
Repurchases of common stock | (51,240) | (20,475) |
Net decrease in short-term borrowings | (6,661) | (16,530) |
Proceeds from issuance of common stock | 6 | 1,353 |
Excess tax benefits from stock-based compensation | 26 | 858 |
Debt issuance costs | (401) | 0 |
Net cash used in financing activities | (58,270) | (34,794) |
Cash and cash equivalents, at beginning of period | 8,526 | (5,644) |
Cash and cash equivalents, at end of period | 20,994 | 51,995 |
Cash and cash equivalents, at end of period | $ 29,520 | $ 46,351 |
Basis of Presentation
Basis of Presentation | 3 Months Ended |
Apr. 02, 2016 | |
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation We prepared the condensed consolidated financial statements as of and for the three months ended April 2, 2016 of Select Comfort Corporation and 100%-owned subsidiaries (Select Comfort or the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and they reflect, in the opinion of management, all normal recurring adjustments necessary to present fairly our financial position as of April 2, 2016 , and January 2, 2016 , and the consolidated results of operations and cash flows for the periods presented. Our historical and quarterly consolidated results of operations may not be indicative of the results that may be achieved for the full year or any future period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with our most recent audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended January 2, 2016 and other recent filings with the SEC. The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of sales, expenses and income taxes during the reporting period. Predicting future events is inherently an imprecise activity and, as such, requires the use of judgment. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates will be reflected in the financial statements in future periods. Our critical accounting policies consist of stock-based compensation, goodwill and indefinite-lived intangible assets, warranty liabilities and revenue recognition. The condensed consolidated financial statements include the accounts of Select Comfort Corporation and our 100%-owned subsidiaries. All significant intra-entity balances and transactions have been eliminated in consolidation. New Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (FASB) issued a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This new guidance was originally effective for fiscal years beginning after December 15, 2016 and early adoption was not permitted. In July 2015, the FASB deferred the effective date from fiscal years beginning after December 15, 2016 to fiscal years beginning after December 15, 2017 (including interim reporting periods within those fiscal years). Early adoption is permitted to the original effective date of fiscal years beginning after December 15, 2016 (including interim reporting periods within those fiscal years). Companies may use either a full retrospective or a modified retrospective approach to adopt this new guidance. We are evaluating the effect of the new standard on our consolidated financial statements and related disclosures, and have not yet selected a transition method. In November 2015, the FASB issued new guidance related to classification of deferred taxes. The new guidance requires that deferred tax liabilities and assets be classified as non-current on the balance sheet. It is effective for interim and annual periods beginning after December 15, 2016, but early adoption is permitted. We are evaluating the effect of the new standard on our consolidated financial statements and related disclosures, and have not yet selected a transition method. In February 2016, the FASB issued new guidance on accounting for leases and generally requires most leases to be recognized on the balance sheet. This new guidance is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. The provisions of this new guidance are to be applied using a modified retrospective approach, with elective reliefs, which requires application of the new guidance for all periods presented. We are evaluating the effect of the new standard on our consolidated financial statements and related disclosures. In March 2016, the FASB issued new guidance on the accounting for and disclosure of stock-based compensation. The new guidance is intended to simplify several aspects of the accounting for stock-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. This new guidance will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted. We are evaluating the effect of the new standard on our consolidated financial statements and related disclosures. |
Fair Value Measurements
Fair Value Measurements | 3 Months Ended |
Apr. 02, 2016 | |
Fair Value Disclosures [Abstract] | |
Fair Value Measurements | Fair Value Measurements The following table sets forth by level within the fair value hierarchy, our financial assets at January 2, 2016, that were accounted for at fair value on a recurring basis, according to the valuation techniques we used to determine their fair value (in thousands). At April 2, 2016, we did not hold any financial assets that required a fair value measurement on a recurring basis. January 2, 2016 Level 1 Level 2 Level 3 Total Marketable debt securities – current Municipal bonds $ — $ 4,055 $ — $ 4,055 Corporate bonds — 2,512 — 2,512 — 6,567 — 6,567 Marketable debt securities – non-current Corporate bonds — 5,001 — 5,001 U.S. Agency bonds — 2,496 — 2,496 Municipal bonds — 1,056 — 1,056 — 8,553 — 8,553 $ — $ 15,120 $ — $ 15,120 At April 2, 2016 and January 2, 2016 , we had $1.7 million and $1.6 million , respectively, of debt and equity securities that fund our deferred compensation plan and are classified in other assets. We also had corresponding deferred compensation plan liabilities of $1.7 million and $1.6 million at April 2, 2016 and January 2, 2016 , respectively, which are included in other long-term liabilities. The majority of the debt and equity securities are Level 1 as they trade with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. Unrealized gains/(losses) on the debt and equity securities offset those associated with the corresponding deferred compensation plan liabilities. |
Marketable Debt Securities
Marketable Debt Securities | 3 Months Ended |
Apr. 02, 2016 | |
Investments [Abstract] | |
Investments | The following table sets forth our investments in marketable debt securities at January 2, 2016 (in thousands). We did not hold any marketable debt securities at April 2, 2016. January 2, 2016 Amortized Cost Unrealized Gains Unrealized Losses Fair Value Corporate bonds $ 7,532 $ — $ (19 ) $ 7,513 Municipal bonds 5,114 — (3 ) 5,111 U.S. Agency bonds 2,497 — (1 ) 2,496 $ 15,143 $ — $ (23 ) $ 15,120 Maturities of marketable debt securities were as follows (in thousands): January 2, 2016 Amortized Cost Fair Value Marketable debt securities – current (due in less than one year) $ 6,575 $ 6,567 Marketable debt securities – non-current (due in one to two years) 8,568 8,553 $ 15,143 $ 15,120 During the three months ended April 2, 2016 and April 4, 2015 , we received proceeds of $15.1 million and $16.2 million , respectively, from marketable debt securities. |
Inventories
Inventories | 3 Months Ended |
Apr. 02, 2016 | |
Inventory Disclosure [Abstract] | |
Inventories | Inventories Inventories consisted of the following (in thousands): April 2, January 2, Raw materials $ 6,578 $ 9,349 Work in progress 47 48 Finished goods 74,342 77,203 $ 80,967 $ 86,600 |
Goodwill and Intangible Assets
Goodwill and Intangible Assets | 3 Months Ended |
Apr. 02, 2016 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Goodwill and Intangible Assets | Goodwill and Intangible Assets Goodwill and Indefinite-Lived Intangible Assets At both April 2, 2016 and January 2, 2016 , our condensed consolidated balance sheets included goodwill of $64.0 million and indefinite-lived trade name/trademarks of $1.4 million . Definite-Lived Intangible Assets The following table provides the gross carrying amount and related accumulated amortization of our definite-lived intangible assets (in thousands): April 2, 2016 January 2, 2016 Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Developed technologies $ 18,851 $ 2,889 $ 18,851 $ 2,342 Customer relationships 2,413 1,106 2,413 1,020 Trade names/trademarks 101 101 101 101 $ 21,365 $ 4,096 $ 21,365 $ 3,463 Amortization expense for the three months ended April 2, 2016 and April 4, 2015 , was $0.6 million and $0.2 million , respectively. |
Credit Agreement
Credit Agreement | 3 Months Ended |
Apr. 02, 2016 | |
Debt Disclosure [Abstract] | |
Debt | Credit Agreement Our revolving credit facility, as amended, (Credit Agreement) is for general corporate purposes with net aggregate availability of $150 million . The Credit Agreement contains an accordion feature that allows us to increase the amount of the credit facility from $150 million up to $200 million in total availability, subject to Lenders' approval. The Credit Agreement matures in February 2021 . The Credit Agreement provides the Lenders with a collateral security interest in substantially all of our assets and those of our subsidiaries and requires us to comply with, among other things, a maximum leverage ratio and a minimum interest coverage ratio. Under the terms of the Credit Agreement we pay a variable rate of interest and a commitment fee based on our leverage ratio. As of April 2, 2016 , we had no outstanding borrowings or letters of credit and we were in compliance with all financial covenants. |
Repurchase of Common Stock
Repurchase of Common Stock | 3 Months Ended |
Apr. 02, 2016 | |
Repurchase of Common Stock [Abstract] | |
Repurchase of Common Stock | Repurchase of Common Stock Repurchases of our common stock were as follows (in thousands): Three Months Ended April 2, April 4, Amount repurchased under Board-approved share repurchase program $ 50,000 $ 20,007 Amount repurchased in connection with the vesting of employee restricted stock grants 1,240 468 Total amount repurchased $ 51,240 $ 20,475 As of April 2, 2016 , the remaining share repurchase authorization under our Board-approved share repurchase plan was $87 million . There is no expiration date governing the period over which we can repurchase shares. Any repurchased shares are constructively retired and returned to an unissued status. The cost of share repurchases is first charged to additional paid-in capital. Once additional paid-in capital is reduced to zero, any additional amounts are charged to retained earnings. |
Stock-Based Compensation
Stock-Based Compensation | 3 Months Ended |
Apr. 02, 2016 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Stock-Based Compensation | Stock-Based Compensation Stock-based compensation expense consisted of the following (in thousands): Three Months Ended April 2, April 4, Stock options $ 615 $ 644 Stock awards 3,151 2,138 Total stock-based compensation expense 3,766 2,782 Income tax benefit 1,299 960 Total stock-based compensation expense, net of tax $ 2,467 $ 1,822 |
Profit Sharing and 401(k) Plan
Profit Sharing and 401(k) Plan | 3 Months Ended |
Apr. 02, 2016 | |
Profit Sharing and 401 (k) Plan [Abstract] | |
Profit Sharing and 401(k) Plan | Under our profit sharing and 401(k) plan, eligible employees may defer up to 50% of their compensation on a pre-tax basis, subject to Internal Revenue Service limitations. Each calendar quarter, we may make a discretionary contribution equal to a percentage of the employee’s contribution. During the three months ended April 2, 2016 and April 4, 2015 , our contributions, net of forfeitures, were $1.3 million and $1.2 million , respectively. |
Other (Expense) Income, Net
Other (Expense) Income, Net | 3 Months Ended |
Apr. 02, 2016 | |
Other Income and Expenses [Abstract] | |
Other (Expense) Income, Net | Other (Expense) Income, Net Other (expense) income, net, consisted of the following (in thousands): Three Months Ended April 2, April 4, Interest expense $ (106 ) $ (10 ) Interest income 9 163 Other (expense) income, net $ (97 ) $ 153 |
Net Income Per Common Share
Net Income Per Common Share | 3 Months Ended |
Apr. 02, 2016 | |
Earnings Per Share [Abstract] | |
Net Income per Common Share | Net Income per Common Share The components of basic and diluted net income per share were as follows (in thousands, except per share amounts): Three Months Ended April 2, April 4, Net income $ 12,969 $ 28,799 Reconciliation of weighted-average shares outstanding: Basic weighted-average shares outstanding 48,100 52,346 Dilutive effect of stock-based awards 745 980 Diluted weighted-average shares outstanding 48,845 53,326 Net income per share – basic $ 0.27 $ 0.55 Net income per share – diluted $ 0.27 $ 0.54 Anti-dilutive stock-based awards excluded from the calculations of diluted net income per share calculations were immaterial for the periods presented. |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
Apr. 02, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Commitments and Contingencies Sales Returns The activity in the sales returns liability account was as follows (in thousands): Three Months Ended April 2, April 4, Balance at beginning of year $ 20,562 $ 15,262 Additions that reduce net sales 23,636 23,077 Deductions from reserves (21,288 ) (23,174 ) Balance at end of period $ 22,910 $ 15,165 Warranty Liabilities The activity in the accrued warranty liabilities account was as follows (in thousands): Three Months Ended April 2, April 4, Balance at beginning of year $ 10,028 $ 5,824 Additions charged to costs and expenses for current-year sales 3,585 3,008 Deductions from reserves (3,272 ) (2,318 ) Changes in liability for pre-existing warranties during the current year, including expirations (574 ) 211 Balance at end of period $ 9,767 $ 6,725 Legal Proceedings We are involved from time to time in various legal proceedings arising in the ordinary course of our business, including primarily commercial, product liability, employment and intellectual property claims. In accordance with generally accepted accounting principles in the United States, we record a liability in our consolidated financial statements with respect to any of these matters when it is both probable that a liability has been incurred and the amount of the liability can be reasonably estimated. With respect to currently pending legal proceedings, we have not established an estimated range of reasonably possible additional losses either because we believe that we have valid defenses to claims asserted against us or the proceeding has not advanced to a stage of discovery that would enable us to establish an estimate. We currently do not expect the outcome of these matters to have a material effect on our consolidated results of operations, financial position or cash flows. Litigation, however, is inherently unpredictable, and it is possible that the ultimate outcome of one or more claims asserted against us could adversely impact our consolidated results of operations, financial position or cash flows. We expense legal costs as incurred. On December 4, 2015, Saeid Azimpour, a consumer, filed a purported class-action lawsuit in U.S. District Court in Minnesota alleging he was fraudulently induced to purchase a down alternative pillow at a Sleep Number store based on signage that indicated that the pillow was 50% off. Plaintiff alleges that the price he paid for the pillow was not truly 50% off the price at which Sleep Number previously sold the pillow. Plaintiff asserts 10 causes of action including consumer fraud, unlawful trade practices, deceptive trade practices under Minnesota law, violation of the Minnesota false advertising law, unjust enrichment, violation of the California unfair competition law, violation of the California false advertising law and violation of the California remedies act. Plaintiff seeks to represent all individuals who “purchased one or more items from the Company advertised or priced at a discount from the original retail price at any time between December 1, 2011 and present.” Plaintiff seeks injunctive relief, damages, disgorgement and attorneys’ fees. We believe the claims asserted in this lawsuit are without merit and we intend to vigorously defend this case. |
Basis of Presentation (Policies
Basis of Presentation (Policies) | 3 Months Ended |
Apr. 02, 2016 | |
Accounting Policies [Abstract] | |
Business and Basis of Presentation, Policy | We prepared the condensed consolidated financial statements as of and for the three months ended April 2, 2016 of Select Comfort Corporation and 100%-owned subsidiaries (Select Comfort or the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and they reflect, in the opinion of management, all normal recurring adjustments necessary to present fairly our financial position as of April 2, 2016 , and January 2, 2016 , and the consolidated results of operations and cash flows for the periods presented. Our historical and quarterly consolidated results of operations may not be indicative of the results that may be achieved for the full year or any future period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with our most recent audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended January 2, 2016 and other recent filings with the SEC. |
Use of Estimates, Policy | The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of sales, expenses and income taxes during the reporting period. Predicting future events is inherently an imprecise activity and, as such, requires the use of judgment. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates will be reflected in the financial statements in future periods. Our critical accounting policies consist of stock-based compensation, goodwill and indefinite-lived intangible assets, warranty liabilities and revenue recognition. |
Consolidation, Policy | The condensed consolidated financial statements include the accounts of Select Comfort Corporation and our 100%-owned subsidiaries. All significant intra-entity balances and transactions have been eliminated in consolidation. |
New Accounting Pronouncements, Policy | New Accounting Pronouncements In May 2014, the Financial Accounting Standards Board (FASB) issued a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This new guidance was originally effective for fiscal years beginning after December 15, 2016 and early adoption was not permitted. In July 2015, the FASB deferred the effective date from fiscal years beginning after December 15, 2016 to fiscal years beginning after December 15, 2017 (including interim reporting periods within those fiscal years). Early adoption is permitted to the original effective date of fiscal years beginning after December 15, 2016 (including interim reporting periods within those fiscal years). Companies may use either a full retrospective or a modified retrospective approach to adopt this new guidance. We are evaluating the effect of the new standard on our consolidated financial statements and related disclosures, and have not yet selected a transition method. In November 2015, the FASB issued new guidance related to classification of deferred taxes. The new guidance requires that deferred tax liabilities and assets be classified as non-current on the balance sheet. It is effective for interim and annual periods beginning after December 15, 2016, but early adoption is permitted. We are evaluating the effect of the new standard on our consolidated financial statements and related disclosures, and have not yet selected a transition method. In February 2016, the FASB issued new guidance on accounting for leases and generally requires most leases to be recognized on the balance sheet. This new guidance is effective for reporting periods beginning after December 15, 2018, with early adoption permitted. The provisions of this new guidance are to be applied using a modified retrospective approach, with elective reliefs, which requires application of the new guidance for all periods presented. We are evaluating the effect of the new standard on our consolidated financial statements and related disclosures. In March 2016, the FASB issued new guidance on the accounting for and disclosure of stock-based compensation. The new guidance is intended to simplify several aspects of the accounting for stock-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. This new guidance will be effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted. We are evaluating the effect of the new standard on our consolidated financial statements and related disclosures. |
Stockholders' Equity, Policy | There is no expiration date governing the period over which we can repurchase shares. Any repurchased shares are constructively retired and returned to an unissued status. The cost of share repurchases is first charged to additional paid-in capital. Once additional paid-in capital is reduced to zero, any additional amounts are charged to retained earnings. |
Profit Sharing and 401(k) Plan Policy | Under our profit sharing and 401(k) plan, eligible employees may defer up to 50% of their compensation on a pre-tax basis, subject to Internal Revenue Service limitations. Each calendar quarter, we may make a discretionary contribution equal to a percentage of the employee’s contribution. |
Fair Value Measurements (Tables
Fair Value Measurements (Tables) | 3 Months Ended |
Apr. 02, 2016 | |
Fair Value Disclosures [Abstract] | |
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis | The following table sets forth by level within the fair value hierarchy, our financial assets at January 2, 2016, that were accounted for at fair value on a recurring basis, according to the valuation techniques we used to determine their fair value (in thousands). At April 2, 2016, we did not hold any financial assets that required a fair value measurement on a recurring basis. January 2, 2016 Level 1 Level 2 Level 3 Total Marketable debt securities – current Municipal bonds $ — $ 4,055 $ — $ 4,055 Corporate bonds — 2,512 — 2,512 — 6,567 — 6,567 Marketable debt securities – non-current Corporate bonds — 5,001 — 5,001 U.S. Agency bonds — 2,496 — 2,496 Municipal bonds — 1,056 — 1,056 — 8,553 — 8,553 $ — $ 15,120 $ — $ 15,120 |
Marketable Debt Securities (Tab
Marketable Debt Securities (Tables) | 3 Months Ended |
Apr. 02, 2016 | |
Investments [Abstract] | |
Investments in marketable debt securities | The following table sets forth our investments in marketable debt securities at January 2, 2016 (in thousands). We did not hold any marketable debt securities at April 2, 2016. January 2, 2016 Amortized Cost Unrealized Gains Unrealized Losses Fair Value Corporate bonds $ 7,532 $ — $ (19 ) $ 7,513 Municipal bonds 5,114 — (3 ) 5,111 U.S. Agency bonds 2,497 — (1 ) 2,496 $ 15,143 $ — $ (23 ) $ 15,120 |
Maturities of marketable debt securities | Maturities of marketable debt securities were as follows (in thousands): January 2, 2016 Amortized Cost Fair Value Marketable debt securities – current (due in less than one year) $ 6,575 $ 6,567 Marketable debt securities – non-current (due in one to two years) 8,568 8,553 $ 15,143 $ 15,120 |
Inventories (Tables)
Inventories (Tables) | 3 Months Ended |
Apr. 02, 2016 | |
Inventory Disclosure [Abstract] | |
Inventories | Inventories consisted of the following (in thousands): April 2, January 2, Raw materials $ 6,578 $ 9,349 Work in progress 47 48 Finished goods 74,342 77,203 $ 80,967 $ 86,600 |
Goodwill and Intangible Assets
Goodwill and Intangible Assets (Tables) | 3 Months Ended |
Apr. 02, 2016 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Definite-Lived Intangible Assets | The following table provides the gross carrying amount and related accumulated amortization of our definite-lived intangible assets (in thousands): April 2, 2016 January 2, 2016 Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Developed technologies $ 18,851 $ 2,889 $ 18,851 $ 2,342 Customer relationships 2,413 1,106 2,413 1,020 Trade names/trademarks 101 101 101 101 $ 21,365 $ 4,096 $ 21,365 $ 3,463 |
Repurchase of Common Stock (Tab
Repurchase of Common Stock (Tables) | 3 Months Ended |
Apr. 02, 2016 | |
Repurchase of Common Stock [Abstract] | |
Repurchase of Common Stock | Repurchases of our common stock were as follows (in thousands): Three Months Ended April 2, April 4, Amount repurchased under Board-approved share repurchase program $ 50,000 $ 20,007 Amount repurchased in connection with the vesting of employee restricted stock grants 1,240 468 Total amount repurchased $ 51,240 $ 20,475 |
Stock-Based Compensation (Table
Stock-Based Compensation (Tables) | 3 Months Ended |
Apr. 02, 2016 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Stock-Based Compensation | Stock-based compensation expense consisted of the following (in thousands): Three Months Ended April 2, April 4, Stock options $ 615 $ 644 Stock awards 3,151 2,138 Total stock-based compensation expense 3,766 2,782 Income tax benefit 1,299 960 Total stock-based compensation expense, net of tax $ 2,467 $ 1,822 |
Other (Expense) Income, Net (Ta
Other (Expense) Income, Net (Tables) | 3 Months Ended |
Apr. 02, 2016 | |
Other Income and Expenses [Abstract] | |
Other (Expense) Income, Net | Other (expense) income, net, consisted of the following (in thousands): Three Months Ended April 2, April 4, Interest expense $ (106 ) $ (10 ) Interest income 9 163 Other (expense) income, net $ (97 ) $ 153 |
Net Income Per Common Share (Ta
Net Income Per Common Share (Tables) | 3 Months Ended |
Apr. 02, 2016 | |
Earnings Per Share [Abstract] | |
Net Income per Common Share | The components of basic and diluted net income per share were as follows (in thousands, except per share amounts): Three Months Ended April 2, April 4, Net income $ 12,969 $ 28,799 Reconciliation of weighted-average shares outstanding: Basic weighted-average shares outstanding 48,100 52,346 Dilutive effect of stock-based awards 745 980 Diluted weighted-average shares outstanding 48,845 53,326 Net income per share – basic $ 0.27 $ 0.55 Net income per share – diluted $ 0.27 $ 0.54 |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 3 Months Ended |
Apr. 02, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
Sales Returns | The activity in the sales returns liability account was as follows (in thousands): Three Months Ended April 2, April 4, Balance at beginning of year $ 20,562 $ 15,262 Additions that reduce net sales 23,636 23,077 Deductions from reserves (21,288 ) (23,174 ) Balance at end of period $ 22,910 $ 15,165 |
Warranty Liabilities | The activity in the accrued warranty liabilities account was as follows (in thousands): Three Months Ended April 2, April 4, Balance at beginning of year $ 10,028 $ 5,824 Additions charged to costs and expenses for current-year sales 3,585 3,008 Deductions from reserves (3,272 ) (2,318 ) Changes in liability for pre-existing warranties during the current year, including expirations (574 ) 211 Balance at end of period $ 9,767 $ 6,725 |
Fair Value Measurements (Detail
Fair Value Measurements (Details) - Recurring [Member] - USD ($) $ in Thousands | Apr. 02, 2016 | Jan. 02, 2016 |
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Marketable debt securities - current | $ 6,567 | |
Marketable debt securities - noncurrent | 8,553 | |
Marketable debt securities | 15,120 | |
Level 1 [Member] | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Marketable debt securities - current | 0 | |
Marketable debt securities - noncurrent | 0 | |
Marketable debt securities | 0 | |
Level 2 [Member] | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Marketable debt securities - current | 6,567 | |
Marketable debt securities - noncurrent | 8,553 | |
Marketable debt securities | 15,120 | |
Level 3 [Member] | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Marketable debt securities - current | 0 | |
Marketable debt securities - noncurrent | 0 | |
Marketable debt securities | 0 | |
Corporate bonds [Member] | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Marketable debt securities - current | 2,512 | |
Marketable debt securities - noncurrent | 5,001 | |
Corporate bonds [Member] | Level 1 [Member] | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Marketable debt securities - current | 0 | |
Marketable debt securities - noncurrent | 0 | |
Corporate bonds [Member] | Level 2 [Member] | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Marketable debt securities - current | 2,512 | |
Marketable debt securities - noncurrent | 5,001 | |
Corporate bonds [Member] | Level 3 [Member] | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Marketable debt securities - current | 0 | |
Marketable debt securities - noncurrent | 0 | |
U.S. Agency bonds [Member] | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Marketable debt securities - noncurrent | 2,496 | |
U.S. Agency bonds [Member] | Level 1 [Member] | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Marketable debt securities - noncurrent | 0 | |
U.S. Agency bonds [Member] | Level 2 [Member] | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Marketable debt securities - noncurrent | 2,496 | |
U.S. Agency bonds [Member] | Level 3 [Member] | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Marketable debt securities - noncurrent | 0 | |
Municipal bonds [Member] | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Marketable debt securities - current | 4,055 | |
Marketable debt securities - noncurrent | 1,056 | |
Municipal bonds [Member] | Level 1 [Member] | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Marketable debt securities - current | 0 | |
Marketable debt securities - noncurrent | 0 | |
Municipal bonds [Member] | Level 2 [Member] | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Marketable debt securities - current | 4,055 | |
Marketable debt securities - noncurrent | 1,056 | |
Municipal bonds [Member] | Level 3 [Member] | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Marketable debt securities - current | 0 | |
Marketable debt securities - noncurrent | 0 | |
Other Assets [Member] | Available-for-sale Securities [Member] | Level 1 [Member] | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Marketable securities assets funding the deferred compensation plan | $ 1,700 | 1,600 |
Other Noncurrent Liabilities [Member] | Level 1 [Member] | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Deferred compensation plan liability | $ 1,700 | $ 1,600 |
Marketable Debt Securities (Det
Marketable Debt Securities (Details) - USD ($) $ in Thousands | 3 Months Ended | ||
Apr. 02, 2016 | Apr. 04, 2015 | Jan. 02, 2016 | |
Investments of marketable debt securities [Abstract] | |||
Marketable debt securities Total Amortized Cost | $ 15,143 | ||
Unrealized gains | 0 | ||
Unrealized losses | (23) | ||
Fair value | 15,120 | ||
Amortized Cost [Abstract] | |||
Marketable debt securities - current (due in less than one year) | 6,575 | ||
Marketable debt securities - non-current (due in one to two years) | 8,568 | ||
Marketable debt securities Total Amortized Cost | 15,143 | ||
Fair Value [Abstract] | |||
Marketable debt securities - current (due in less than one year) | 6,567 | ||
Marketable debt securities - non-current (due in one to two years) | 8,553 | ||
Fair value | 15,120 | ||
Proceeds from marketable debt securities | $ 15,100 | $ 16,200 | |
Corporate bonds [Member] | |||
Investments of marketable debt securities [Abstract] | |||
Marketable debt securities Total Amortized Cost | 7,532 | ||
Unrealized gains | 0 | ||
Unrealized losses | (19) | ||
Fair value | 7,513 | ||
Amortized Cost [Abstract] | |||
Marketable debt securities Total Amortized Cost | 7,532 | ||
Fair Value [Abstract] | |||
Fair value | 7,513 | ||
Municipal bonds [Member] | |||
Investments of marketable debt securities [Abstract] | |||
Marketable debt securities Total Amortized Cost | 5,114 | ||
Unrealized gains | 0 | ||
Unrealized losses | (3) | ||
Fair value | 5,111 | ||
Amortized Cost [Abstract] | |||
Marketable debt securities Total Amortized Cost | 5,114 | ||
Fair Value [Abstract] | |||
Fair value | 5,111 | ||
U.S. Agency bonds [Member] | |||
Investments of marketable debt securities [Abstract] | |||
Marketable debt securities Total Amortized Cost | 2,497 | ||
Unrealized gains | 0 | ||
Unrealized losses | (1) | ||
Fair value | 2,496 | ||
Amortized Cost [Abstract] | |||
Marketable debt securities Total Amortized Cost | 2,497 | ||
Fair Value [Abstract] | |||
Fair value | $ 2,496 |
Inventories (Details)
Inventories (Details) - USD ($) $ in Thousands | Apr. 02, 2016 | Jan. 02, 2016 |
Inventory Disclosure [Abstract] | ||
Raw materials | $ 6,578 | $ 9,349 |
Work in progress | 47 | 48 |
Finished goods | 74,342 | 77,203 |
Inventories | $ 80,967 | $ 86,600 |
Goodwill and Intangible Asset33
Goodwill and Intangible Assets Goodwill and Indefinite-Lived Intangible Assets (Details) - USD ($) $ in Millions | Apr. 02, 2016 | Jan. 02, 2016 |
Goodwill [Line Items] | ||
Goodwill | $ 64 | $ 64 |
Trade Names [Member] | ||
Goodwill [Line Items] | ||
Indefinite-lived tradename/trademarks | $ 1.4 | $ 1.4 |
Goodwill and Intangible Asset34
Goodwill and Intangible Assets Finite-Lived Intangible Assets (Details) - USD ($) $ in Thousands | Apr. 02, 2016 | Jan. 02, 2016 |
Finite-Lived Intangible Assets [Line Items] | ||
Finite-Lived Intangible Assets | $ 21,365 | $ 21,365 |
Finite-Lived Intangible Assets, Accumulated Amortization | 4,096 | 3,463 |
Developed Technology Rights [Member] | ||
Finite-Lived Intangible Assets [Line Items] | ||
Finite-Lived Intangible Assets | 18,851 | 18,851 |
Finite-Lived Intangible Assets, Accumulated Amortization | 2,889 | 2,342 |
Customer Relationships [Member] | ||
Finite-Lived Intangible Assets [Line Items] | ||
Finite-Lived Intangible Assets | 2,413 | 2,413 |
Finite-Lived Intangible Assets, Accumulated Amortization | 1,106 | 1,020 |
Trademarks and Trade Names [Member] | ||
Finite-Lived Intangible Assets [Line Items] | ||
Finite-Lived Intangible Assets | 101 | 101 |
Finite-Lived Intangible Assets, Accumulated Amortization | $ 101 | $ 101 |
Goodwill and Intangible Asset35
Goodwill and Intangible Assets Amortization Expense (Details) - USD ($) $ in Millions | 3 Months Ended | |
Apr. 02, 2016 | Apr. 04, 2015 | |
Finite-Lived Intangible Assets [Line Items] | ||
Amortization expense definite-lived intangible assets | $ 0.6 | $ 0.2 |
Credit Agreement (Details)
Credit Agreement (Details) $ in Millions | 3 Months Ended |
Apr. 02, 2016USD ($) | |
Line of Credit Facility [Line Items] | |
Current borrowing capacity | $ 150 |
Maximum Borrowing Capacity | $ 200 |
Line of Credit Facility, Expiration Date | Feb. 24, 2021 |
Repurchase of Common Stock (Det
Repurchase of Common Stock (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Apr. 02, 2016 | Apr. 04, 2015 | |
Repurchase of Common Stock [Abstract] | ||
Amount repurchased under Board-approved share repurchase program | $ 50,000 | $ 20,007 |
Stock repurchased through tax withholding on restricted stock | 1,240 | 468 |
Total amount repurchased | 51,240 | $ 20,475 |
Remaining Authorized Amount, Stock Repurchase Program | $ 87,000 |
Stock-Based Compensation (Detai
Stock-Based Compensation (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Apr. 02, 2016 | Apr. 04, 2015 | |
Total stock-based compensation expense | $ 3,766 | $ 2,782 |
Income tax benefit | 1,299 | 960 |
Total stock-based compensation expense, net of tax | 2,467 | 1,822 |
Stock Options [Member] | ||
Total stock-based compensation expense | 615 | 644 |
Time-Based, Performance-Based and Market-Based Stock Awards [Member] | ||
Total stock-based compensation expense | $ 3,151 | $ 2,138 |
Profit Sharing and 401(k) Plan
Profit Sharing and 401(k) Plan (Details) - USD ($) $ in Millions | 3 Months Ended | |
Apr. 02, 2016 | Apr. 04, 2015 | |
Defined Contribution Plan Disclosure [Line Items] | ||
Employee compensation deferral (in hundredths) | 50.00% | |
Employer contributions | $ 1.3 | $ 1.2 |
Other (Expense) Income, Net (De
Other (Expense) Income, Net (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Apr. 02, 2016 | Apr. 04, 2015 | |
Other Income and Expenses [Abstract] | ||
Interest income | $ 9 | $ 163 |
Interest expense | (106) | (10) |
Other (expense) income, net | $ (97) | $ 153 |
Net Income per Common Share (De
Net Income per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | |
Apr. 02, 2016 | Apr. 04, 2015 | |
Net Income per Common Share [Abstract] | ||
Net income | $ 12,969 | $ 28,799 |
Basic weighted-average shares outstanding | 48,100,000 | 52,346,000 |
Effect of dilutive securities | 745,000 | 980,000 |
Diluted weighted-average shares outstanding | 48,845,000 | 53,326,000 |
Net income per share – basic (in USD per share) | $ 0.27 | $ 0.55 |
Net income per share – diluted (in USD per share) | $ 0.27 | $ 0.54 |
Commitments and Contingencies S
Commitments and Contingencies Sales Return Liability (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Apr. 02, 2016 | Apr. 04, 2015 | |
Sales return liability [Roll Forward] | ||
Balance at beginning of year | $ 20,562 | $ 15,262 |
Additions that reduce net sales | 23,636 | 23,077 |
Deductions from reserves | (21,288) | (23,174) |
Balance at end of period | $ 22,910 | $ 15,165 |
Commitments and Contingencies W
Commitments and Contingencies Warranty Liabilities (Details) - USD ($) $ in Thousands | 3 Months Ended | |
Apr. 02, 2016 | Apr. 04, 2015 | |
Warranty Liabilities [Roll Forward] | ||
Balance at beginning of year | $ 10,028 | $ 5,824 |
Additions charged to costs and expenses for current-year sales | 3,585 | 3,008 |
Deductions from reserves | (3,272) | (2,318) |
Changes in liability for pre-existing warranties during the current year, including expirations | (574) | 211 |
Balance at end of period | $ 9,767 | $ 6,725 |