Sleep Number (SNBR) 10-Q 1 Aug 16 2016 Q2 Quarterly report Financial data

Document and Entity Information

Document and Entity Information	6 Months Ended
	Jul. 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	Jul. 2, 2016
Document Fiscal Year Focus	2,016
Document Fiscal Period Focus	Q2
Amendment Flag	false
Entity Common Stock, Shares Outstanding	45,929,000

Consolidated Balance Sheets

Consolidated Balance Sheets - USD ($) $ in Thousands	Jul. 02, 2016	Jan. 02, 2016
Current assets:
Cash and cash equivalents	$ 2,401	$ 20,994
Marketable debt securities – current	0	6,567
Accounts receivable, net of allowance for doubtful accounts of $1,001 and $1,039, respectively	23,513	29,002
Inventories	73,696	86,600
Income taxes receivable	0	15,284
Prepaid expenses	16,415	10,207
Deferred income taxes	15,527	15,535
Other current assets	15,785	13,737
Total current assets	147,337	197,926
Non-current assets:
Marketable debt securities – non-current	0	8,553
Property and equipment, net	202,082	204,376
Goodwill and intangible assets, net	82,079	83,344
Other assets	23,244	19,197
Total assets	454,742	513,396
Current liabilities:
Borrowings under revolving credit facility	16,000	0
Accounts payable	85,814	103,941
Customer prepayments	24,588	51,473
Accrued sales returns	15,755	20,562
Compensation and benefits	25,683	15,670
Taxes and withholding	12,344	9,856
Other current liabilities	25,854	23,447
Total current liabilities	206,038	224,949
Non-current liabilities:
Deferred income taxes	13,485	12,499
Other long-term liabilities	61,412	53,609
Total liabilities	280,935	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, 45,929 and 49,402 shares issued and outstanding, respectively	459	494
Additional paid-in capital	0	0
Retained earnings	173,348	221,859
Accumulated other comprehensive loss	0	(14)
Total shareholders’ equity	173,807	222,339
Total liabilities and shareholders’ equity	$ 454,742	$ 513,396

Consolidated Balance Sheets (Pa

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Jul. 02, 2016	Jan. 02, 2016
Current assets:
Accounts receivable, net of allowance for doubtful accounts	$ 1,001	$ 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)	45,929,000	49,402,000
Common stock, shares outstanding (in shares)	45,929,000	49,402,000

Consolidated Statements of Oper

Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 02, 2016	Jul. 04, 2015	Jul. 02, 2016	Jul. 04, 2015
Income Statement [Abstract]
Net sales	$ 276,878	$ 275,289	$ 629,858	$ 625,098
Cost of sales	105,617	104,750	249,523	238,726
Gross profit	171,261	170,539	380,335	386,372
Operating expenses:
Sales and marketing	134,785	126,627	285,453	267,130
General and administrative	27,018	23,880	57,924	52,134
Research and development	7,062	3,403	14,664	6,754
Total operating expenses	168,865	153,910	358,041	326,018
Operating income	2,396	16,629	22,294	60,354
Other (expense) income, net	(229)	133	(326)	286
Income before income taxes	2,167	16,762	21,968	60,640
Income tax expense	751	5,724	7,583	20,803
Net income	$ 1,416	$ 11,038	$ 14,385	$ 39,837
Basic net income per share:
Net income per share – basic	$ 0.03	$ 0.21	$ 0.30	$ 0.77
Weighted-average shares – basic	46,394,000	51,672,000	47,247,000	52,009,000
Diluted net income per share:
Net income per share – diluted	$ 0.03	$ 0.21	$ 0.30	$ 0.75
Weighted-average shares – diluted	47,044,000	52,544,000	47,945,000	52,935,000

Consolidated Statements of Comp

Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 02, 2016	Jul. 04, 2015	Jul. 02, 2016	Jul. 04, 2015
Statement of Comprehensive Income [Abstract]
Net income	$ 1,416	$ 11,038	$ 14,385	$ 39,837
Other comprehensive (loss) income – unrealized (loss) gain on available-for-sale marketable debt securities, net of income tax	0	(20)	14	52
Comprehensive income	$ 1,416	$ 11,018	$ 14,399	$ 39,889

Consolidated Statement of Share

Consolidated Statement of Shareholders' Equity - 6 months ended Jul. 02, 2016 - USD ($) $ 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	49,402,000	49,402,000
Balance at Jan. 02, 2016	$ 222,339	$ 494	$ 0	$ 221,859	$ (14)
Net income	14,385	0	0	14,385	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)		148,000
Exercise of common stock options	1,623	$ 1	1,622	0	0
Tax effect from stock-based compensation	(794)	$ 0	(794)	0	0
Stock-based compensation (in shares)		5,000
Stock-based compensation	7,606	$ 0	7,606	0	0
Repurchases of common stock (in shares)		(3,626,000)
Repurchases of common stock	$ (71,366)	$ (36)	(8,434)	(62,896)	0
Balance (in shares) at Jul. 02, 2016	45,929,000	45,929,000
Balance at Jul. 02, 2016	$ 173,807	$ 459	$ 0	$ 173,348	$ 0

Consolidated Statements of Cash

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jul. 02, 2016	Jul. 04, 2015
Cash flows from operating activities:
Net income	$ 14,385	$ 39,837
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	27,960	21,903
Stock-based compensation	7,606	5,828
Net loss on disposals and impairments of assets	7	184
Excess tax benefits from stock-based compensation	(472)	(1,945)
Deferred income taxes	985	(4,515)
Changes in operating assets and liabilities:
Accounts receivable	5,489	(825)
Inventories	12,904	(14,842)
Income taxes	15,324	4,221
Prepaid expenses and other assets	(6,838)	(944)
Accounts payable	(15,282)	7,879
Customer prepayments	(26,885)	(3,066)
Accrued compensation and benefits	9,249	(8,121)
Other taxes and withholding	1,654	(2,622)
Other accruals and liabilities	1,034	2,082
Net Cash Provided by (Used in) Operating Activities	47,120	45,054
Cash flows from investing activities:
Purchases of property and equipment	(23,764)	(38,938)
Proceeds from marketable debt securities	15,090	41,932
Proceeds from sales of property and equipment	67	41
Investments in marketable debt securities	0	(19,306)
Net cash used in investing activities	(8,607)	(16,271)
Repurchases of common stock
Repurchases of common stock	(71,366)	(51,629)
Net increase (decrease) in short-term borrowings	12,574	(7,478)
Proceeds from issuance of common stock	1,623	2,458
Excess tax benefits from stock-based compensation	472	1,945
Debt issuance costs	(409)	0
Net cash used in financing activities	(57,106)	(54,704)
Cash and cash equivalents, at beginning of period	(18,593)	(25,921)
Cash and cash equivalents, at end of period	20,994	$ 51,995
Cash and cash equivalents, at end of period	$ 2,401

Basis of Presentation

Basis of Presentation	6 Months Ended
	Jul. 02, 2016
Accounting Policies [Abstract]
Basis of Presentation	Basis of Presentation We prepared the condensed consolidated financial statements as of and for the three and six months ended July 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 July 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. The adoption is not expected to have a material impact on our consolidated results of operations, cash flows or financial position. 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	6 Months Ended
	Jul. 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 July 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 July 2, 2016 and January 2, 2016 , we had $1.9 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 $1.9 million and $1.6 million at July 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	6 Months Ended
	Jul. 02, 2016
Investments [Abstract]
Investments	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 July 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 July 4, 2015 , we received proceeds of $25.6 million from marketable debt securities. There were no proceeds from marketable debt securities for the three months ended July 2, 2016. During the six months ended July 2, 2016 and July 4, 2015 , we received proceeds of $15.1 million and $41.8 million , respectively, from marketable debt securities.

Inventories

Inventories	6 Months Ended
	Jul. 02, 2016
Inventory Disclosure [Abstract]
Inventories	Inventories Inventories consisted of the following (in thousands): July 2, January 2, Raw materials $ 6,514 $ 9,349 Work in progress 47 48 Finished goods 67,135 77,203 $ 73,696 $ 86,600

Goodwill and Intangible Assets

Goodwill and Intangible Assets	6 Months Ended
	Jul. 02, 2016
Goodwill and Intangible Assets Disclosure [Abstract]
Goodwill and Intangible Assets	Goodwill and Intangible Assets Goodwill and Indefinite-Lived Intangible Assets At both July 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): July 2, 2016 January 2, 2016 Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Developed technologies $ 18,851 $ 3,435 $ 18,851 $ 2,342 Customer relationships 2,413 1,192 2,413 1,020 Trade names/trademarks 101 101 101 101 $ 21,365 $ 4,728 $ 21,365 $ 3,463 Amortization expense for the three months ended July 2, 2016 and July 4, 2015 , was $0.6 million and $0.2 million , respectively. Amortization expense for the six months ended July 2, 2016 and July 4, 2015 , was $1.3 million and $0.4 million , respectively.

Credit Agreement

Credit Agreement	6 Months Ended
	Jul. 02, 2016
Debt Disclosure [Abstract]
Debt	Credit Agreement Our revolving credit facility, as amended, has a net aggregate availability of $150 million . The credit facility is for general corporate purposes and is utilized to meet our seasonal working capital requirements. The credit facility contains an accordion feature that allows us to increase the amount of the available credit from $150 million up to $200 million , subject to Lenders' approval. The credit facility 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 July 2, 2016 , we had $16 million in outstanding borrowings and no outstanding letters of credit. We had additional borrowing capacity of $134 million and were in compliance with all financial covenants. As of July 2, 2016 , the weighted-average interest rate on borrowings outstanding under the credit facility was 2.6% .

Repurchase of Common Stock

Repurchase of Common Stock	6 Months Ended
	Jul. 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 Six Months Ended July 2, July 4, July 2, July 4, Amount repurchased under Board-approved share repurchase program $ 20,000 $ 30,019 $ 70,000 $ 50,026 Amount repurchased in connection with the vesting of employee restricted stock grants 125 1,135 1,366 1,603 Total amount repurchased $ 20,125 $ 31,154 $ 71,366 $ 51,629 Effective as of July 3, 2016, our Board approved an increase in our total remaining share repurchase authorization to $300 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	6 Months Ended
	Jul. 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 Six Months Ended July 2, July 4, July 2, July 4, Stock awards $ 3,261 $ 2,374 $ 6,412 $ 4,512 Stock options 579 672 1,194 1,316 Total stock-based compensation expense 3,840 3,046 7,606 5,828 Income tax benefit 1,325 1,038 2,624 2,005 Total stock-based compensation expense, net of tax $ 2,515 $ 2,008 $ 4,982 $ 3,823

Profit Sharing and 401(k) Plan

Profit Sharing and 401(k) Plan	6 Months Ended
	Jul. 02, 2016
Profit Sharing and 401 (k) Plan [Abstract]
Profit Sharing and 401(k) Plan	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 July 2, 2016 and July 4, 2015 , our contributions, net of forfeitures, were $1.0 million and $0.9 million , respectively. During the six months ended July 2, 2016 and July 4, 2015 , our contributions, net of forfeitures, were $2.3 million and $2.1 million , respectively.

Other (Expense) Income, Net

Other (Expense) Income, Net	6 Months Ended
	Jul. 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 Six Months Ended July 2, July 4, July 2, July 4, Interest expense $ (251 ) $ (10 ) $ (357 ) $ (20 ) Interest income 22 143 31 306 Other (expense) income, net $ (229 ) $ 133 $ (326 ) $ 286

Net Income Per Common Share

Net Income Per Common Share	6 Months Ended
	Jul. 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 Six Months Ended July 2, July 4, July 2, July 4, Net income $ 1,416 $ 11,038 $ 14,385 $ 39,837 Reconciliation of weighted-average shares outstanding: Basic weighted-average shares outstanding 46,394 51,672 47,247 52,009 Dilutive effect of stock-based awards 650 872 698 926 Diluted weighted-average shares outstanding 47,044 52,544 47,945 52,935 Net income per share – basic $ 0.03 $ 0.21 $ 0.30 $ 0.77 Net income per share – diluted $ 0.03 $ 0.21 $ 0.30 $ 0.75 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	6 Months Ended
	Jul. 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): Six Months Ended July 2, July 4, Balance at beginning of year $ 20,562 $ 15,262 Additions that reduce net sales 35,419 40,076 Deductions from reserves (40,226 ) (42,659 ) Balance at end of period $ 15,755 $ 12,679 Warranty Liabilities The activity in the accrued warranty liabilities account was as follows (in thousands): Six Months Ended July 2, July 4, Balance at beginning of year $ 10,028 $ 5,824 Additions charged to costs and expenses for current-year sales 6,601 4,869 Deductions from reserves (7,290 ) (4,177 ) Changes in liability for pre-existing warranties during the current year, including expirations (1,515 ) 421 Balance at end of period $ 7,824 $ 6,937 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 proceedings have 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 alleged that the price he paid for the pillow was not truly 50% off the price at which Sleep Number previously sold the pillow. Plaintiff asserted 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 sought 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 sought injunctive relief, damages, disgorgement and attorneys’ fees. On June 13, 2016, the Court dismissed the case without prejudice. On July 13, 2016, plaintiff filed a motion seeking leave to file an amended complaint. 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)	6 Months Ended
	Jul. 02, 2016
Accounting Policies [Abstract]
Business and Basis of Presentation, Policy	We prepared the condensed consolidated financial statements as of and for the three and six months ended July 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 July 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. The adoption is not expected to have a material impact on our consolidated results of operations, cash flows or financial position. 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)	6 Months Ended
	Jul. 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 July 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)	6 Months Ended
	Jul. 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 July 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)	6 Months Ended
	Jul. 02, 2016
Inventory Disclosure [Abstract]
Inventories	Inventories consisted of the following (in thousands): July 2, January 2, Raw materials $ 6,514 $ 9,349 Work in progress 47 48 Finished goods 67,135 77,203 $ 73,696 $ 86,600

Goodwill and Intangible Assets

Goodwill and Intangible Assets (Tables)	6 Months Ended
	Jul. 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): July 2, 2016 January 2, 2016 Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Developed technologies $ 18,851 $ 3,435 $ 18,851 $ 2,342 Customer relationships 2,413 1,192 2,413 1,020 Trade names/trademarks 101 101 101 101 $ 21,365 $ 4,728 $ 21,365 $ 3,463

Repurchase of Common Stock (Tab

Repurchase of Common Stock (Tables)	6 Months Ended
	Jul. 02, 2016
Repurchase of Common Stock [Abstract]
Repurchase of Common Stock	Repurchases of our common stock were as follows (in thousands): Three Months Ended Six Months Ended July 2, July 4, July 2, July 4, Amount repurchased under Board-approved share repurchase program $ 20,000 $ 30,019 $ 70,000 $ 50,026 Amount repurchased in connection with the vesting of employee restricted stock grants 125 1,135 1,366 1,603 Total amount repurchased $ 20,125 $ 31,154 $ 71,366 $ 51,629

Stock-Based Compensation (Table

Stock-Based Compensation (Tables)	6 Months Ended
	Jul. 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 Six Months Ended July 2, July 4, July 2, July 4, Stock awards $ 3,261 $ 2,374 $ 6,412 $ 4,512 Stock options 579 672 1,194 1,316 Total stock-based compensation expense 3,840 3,046 7,606 5,828 Income tax benefit 1,325 1,038 2,624 2,005 Total stock-based compensation expense, net of tax $ 2,515 $ 2,008 $ 4,982 $ 3,823

Other (Expense) Income, Net (Ta

Other (Expense) Income, Net (Tables)	6 Months Ended
	Jul. 02, 2016
Other Income and Expenses [Abstract]
Other (Expense) Income, Net	Other (expense) income, net, consisted of the following (in thousands): Three Months Ended Six Months Ended July 2, July 4, July 2, July 4, Interest expense $ (251 ) $ (10 ) $ (357 ) $ (20 ) Interest income 22 143 31 306 Other (expense) income, net $ (229 ) $ 133 $ (326 ) $ 286

Net Income Per Common Share (Ta

Net Income Per Common Share (Tables)	6 Months Ended
	Jul. 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 Six Months Ended July 2, July 4, July 2, July 4, Net income $ 1,416 $ 11,038 $ 14,385 $ 39,837 Reconciliation of weighted-average shares outstanding: Basic weighted-average shares outstanding 46,394 51,672 47,247 52,009 Dilutive effect of stock-based awards 650 872 698 926 Diluted weighted-average shares outstanding 47,044 52,544 47,945 52,935 Net income per share – basic $ 0.03 $ 0.21 $ 0.30 $ 0.77 Net income per share – diluted $ 0.03 $ 0.21 $ 0.30 $ 0.75

Commitments and Contingencies (

Commitments and Contingencies (Tables)	6 Months Ended
	Jul. 02, 2016
Commitments and Contingencies Disclosure [Abstract]
Sales Returns	The activity in the sales returns liability account was as follows (in thousands): Six Months Ended July 2, July 4, Balance at beginning of year $ 20,562 $ 15,262 Additions that reduce net sales 35,419 40,076 Deductions from reserves (40,226 ) (42,659 ) Balance at end of period $ 15,755 $ 12,679
Warranty Liabilities	The activity in the accrued warranty liabilities account was as follows (in thousands): Six Months Ended July 2, July 4, Balance at beginning of year $ 10,028 $ 5,824 Additions charged to costs and expenses for current-year sales 6,601 4,869 Deductions from reserves (7,290 ) (4,177 ) Changes in liability for pre-existing warranties during the current year, including expirations (1,515 ) 421 Balance at end of period $ 7,824 $ 6,937

Fair Value Measurements (Detail

Fair Value Measurements (Details) - Recurring [Member] - USD ($) $ in Thousands	Jul. 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	$ 1,900	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	$ 1,900	$ 1,600

Marketable Debt Securities (Det

Marketable Debt Securities (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 02, 2016	Jul. 04, 2015	Jul. 02, 2016	Jul. 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	$ 0	$ 25,600	$ 15,100	$ 41,800
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	Jul. 02, 2016	Jan. 02, 2016
Inventory Disclosure [Abstract]
Raw materials	$ 6,514	$ 9,349
Work in progress	47	48
Finished goods	67,135	77,203
Inventories	$ 73,696	$ 86,600

Goodwill and Intangible Asset33

Goodwill and Intangible Assets Goodwill and Indefinite-Lived Intangible Assets (Details) - USD ($) $ in Millions	Jul. 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	Jul. 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	4,728	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	3,435	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	1,192	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		6 Months Ended
	Jul. 02, 2016	Jul. 04, 2015	Jul. 02, 2016	Jul. 04, 2015
Finite-Lived Intangible Assets [Line Items]
Amortization expense definite-lived intangible assets	$ 0.6	$ 0.2	$ 1.3	$ 0.4

Credit Agreement (Details)

Credit Agreement (Details) - USD ($) $ in Thousands	6 Months Ended
	Jul. 02, 2016	Jan. 02, 2016
Line of Credit Facility [Line Items]
Current borrowing capacity	$ 150,000
Maximum Borrowing Capacity	$ 200,000
Line of Credit Facility, Expiration Date	Feb. 24, 2021
Borrowings under revolving credit facility	$ 16,000	$ 0
Line of Credit Facility, Remaining Borrowing Capacity	$ 134,000
Short-term Debt, Weighted Average Interest Rate	2.60%

Repurchase of Common Stock (Det

Repurchase of Common Stock (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 02, 2016	Jul. 04, 2015	Jul. 02, 2016	Jul. 04, 2015	Jul. 03, 2016
Repurchase of Common Stock [Abstract]
Amount repurchased under Board-approved share repurchase program	$ 20,000	$ 30,019	$ 70,000	$ 50,026
Stock repurchased through tax withholding on restricted stock	125	1,135	1,366	1,603
Total amount repurchased	$ 20,125	$ 31,154	$ 71,366	$ 51,629
Subsequent Event [Member]
Subsequent Event [Line Items]
Remaining Authorized Amount, Stock Repurchase Program					$ 300,000

Stock-Based Compensation (Detai

Stock-Based Compensation (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 02, 2016	Jul. 04, 2015	Jul. 02, 2016	Jul. 04, 2015
Total stock-based compensation expense	$ 3,840	$ 3,046	$ 7,606	$ 5,828
Income tax benefit	1,325	1,038	2,624	2,005
Total stock-based compensation expense, net of tax	2,515	2,008	4,982	3,823
Time-Based, Performance-Based and Market-Based Stock Awards [Member]
Total stock-based compensation expense	3,261	2,374	6,412	4,512
Stock Options [Member]
Total stock-based compensation expense	$ 579	$ 672	$ 1,194	$ 1,316

Profit Sharing and 401(k) Plan

Profit Sharing and 401(k) Plan (Details) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Jul. 02, 2016	Jul. 04, 2015	Jul. 02, 2016	Jul. 04, 2015
Defined Contribution Plan Disclosure [Line Items]
Employee compensation deferral (in hundredths)			50.00%
Employer contributions	$ 1	$ 0.9	$ 2.3	$ 2.1

Other (Expense) Income, Net (De

Other (Expense) Income, Net (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 02, 2016	Jul. 04, 2015	Jul. 02, 2016	Jul. 04, 2015
Other Income and Expenses [Abstract]
Interest expense	$ (251)	$ (10)	$ (357)	$ (20)
Interest income	22	143	31	306
Other (expense) income, net	$ (229)	$ 133	$ (326)	$ 286

Net Income per Common Share (De

Net Income per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jul. 02, 2016	Jul. 04, 2015	Jul. 02, 2016	Jul. 04, 2015
Net Income per Common Share [Abstract]
Net income	$ 1,416	$ 11,038	$ 14,385	$ 39,837
Basic weighted-average shares outstanding	46,394,000	51,672,000	47,247,000	52,009,000
Effect of dilutive securities	650,000	872,000	698,000	926,000
Diluted weighted-average shares outstanding	47,044,000	52,544,000	47,945,000	52,935,000
Net income per share – basic (in USD per share)	$ 0.03	$ 0.21	$ 0.30	$ 0.77
Net income per share – diluted (in USD per share)	$ 0.03	$ 0.21	$ 0.30	$ 0.75

Commitments and Contingencies S

Commitments and Contingencies Sales Return Liability (Details) - USD ($) $ in Thousands	6 Months Ended
	Jul. 02, 2016	Jul. 04, 2015
Sales return liability [Roll Forward]
Balance at beginning of year	$ 20,562	$ 15,262
Additions that reduce net sales	35,419	40,076
Deductions from reserves	(40,226)	(42,659)
Balance at end of period	$ 15,755	$ 12,679

Commitments and Contingencies W

Commitments and Contingencies Warranty Liabilities (Details) - USD ($) $ in Thousands	6 Months Ended
	Jul. 02, 2016	Jul. 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	6,601	4,869
Deductions from reserves	(7,290)	(4,177)
Changes in liability for pre-existing warranties during the current year, including expirations	(1,515)	421
Balance at end of period	$ 7,824	$ 6,937