Sleep Number (SNBR) 10-Q 27 Oct 17 2017 Q3 Quarterly report Financial data

Document and Entity Information

Document and Entity Information	9 Months Ended
	Sep. 30, 2017shares
Document and Entity Information [Abstract]
Entity Registrant Name	SELECT COMFORT CORP
Entity Central Index Key	827,187
Current Fiscal Year End Date	--12-30
Entity Filer Category	Large Accelerated Filer
Document Type	10-Q
Document Period End Date	Sep. 30, 2017
Document Fiscal Year Focus	2,017
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Common Stock, Shares Outstanding	39,819,000

Consolidated Balance Sheets

Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Current assets:
Cash and cash equivalents	$ 29,914	$ 11,609
Accounts receivable, net of allowance for doubtful accounts of $694 and $884, respectively	21,107	19,705
Inventories	79,217	75,026
Prepaid expenses	10,208	8,705
Other current assets	23,803	23,282
Total current assets	164,249	138,327
Non-current assets:
Property and equipment, net	206,690	208,367
Goodwill and intangible assets, net	78,133	80,817
Deferred income taxes	938	4,667
Other non-current assets	28,898	24,988
Total assets	478,908	457,166
Current liabilities:
Accounts payable	136,628	105,375
Customer prepayments	39,929	26,207
Accrued sales returns	18,448	15,222
Compensation and benefits	34,683	19,455
Taxes and withholding	24,041	23,430
Other current liabilities	44,708	35,628
Total current liabilities	298,437	225,317
Non-current liabilities:
Other non-current liabilities	76,174	71,529
Total liabilities	374,611	296,846
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, 39,819 and 43,569 shares issued and outstanding, respectively	398	436
Additional paid-in capital	0	0
Retained earnings	103,899	159,884
Total shareholders’ equity	104,297	160,320
Total liabilities and shareholders’ equity	$ 478,908	$ 457,166

Consolidated Balance Sheets (Pa

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Current assets:
Allowance for doubtful accounts	$ 694	$ 884
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)	39,819,000	43,569,000
Common stock, shares outstanding (in shares)	39,819,000	43,569,000

Consolidated Statements of Oper

Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Oct. 01, 2016	Sep. 30, 2017	Oct. 01, 2016
Income Statement [Abstract]
Net sales	$ 402,646	$ 367,988	$ 1,081,218	$ 997,846
Cost of sales	149,181	135,645	404,675	385,168
Gross profit	253,465	232,343	676,543	612,678
Operating expenses:
Sales and marketing	174,800	158,024	488,564	443,477
General and administrative	32,645	28,278	95,233	86,202
Research and development	6,991	6,997	20,950	21,661
Total operating expenses	214,436	193,299	604,747	551,340
Operating income	39,029	39,044	71,796	61,338
Other expense, net	(248)	(255)	(668)	(581)
Income before income taxes	38,781	38,789	71,128	60,757
Income tax expense	13,178	13,044	21,842	20,627
Net income	$ 25,603	$ 25,745	$ 49,286	$ 40,130
Basic net income per share:
Net income per share – basic	$ 0.63	$ 0.56	$ 1.18	$ 0.86
Weighted-average shares – basic	40,755,000	45,621,000	41,740,000	46,705,000
Diluted net income per share:
Net income per share – diluted	$ 0.62	$ 0.56	$ 1.16	$ 0.85
Weighted-average shares – diluted	41,515,000	46,350,000	42,559,000	47,413,000

Consolidated Statements of Comp

Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Oct. 01, 2016	Sep. 30, 2017	Oct. 01, 2016
Statement of Comprehensive Income [Abstract]
Net income	$ 25,603	$ 25,745	$ 49,286	$ 40,130
Other comprehensive income – unrealized gain on available-for-sale marketable debt securities, net of income tax	0	0	0	14
Comprehensive income	$ 25,603	$ 25,745	$ 49,286	$ 40,144

Consolidated Statement of Share

Consolidated Statement of Shareholders' Equity - 9 months ended Sep. 30, 2017 - USD ($) $ in Thousands	Total	Common Stock [Member]	Additional Paid-In Capital [Member]	Retained Earnings [Member]
Balance (in shares) at Dec. 31, 2016	43,569,000	43,569,000
Balance at Dec. 31, 2016	$ 160,320	$ 436	$ 0	$ 159,884
Net income	49,286			49,286
Exercise of common stock options (in shares)		212,000
Exercise of common stock options	3,040	$ 2	3,038	0
Stock-based compensation (in shares)		587,000
Stock-based compensation	11,809	$ 6	11,803	0
Repurchases of common stock (in shares)		(4,549,000)
Repurchases of common stock	$ (120,158)	$ (46)	(14,841)	(105,271)
Balance (in shares) at Sep. 30, 2017	39,819,000	39,819,000
Balance at Sep. 30, 2017	$ 104,297	$ 398	$ 0	$ 103,899

Consolidated Statements of Cash

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Oct. 01, 2016
Statement of Cash Flows [Abstract]
Net Cash Provided by (Used in) Investing Activities	$ (34,427)	$ (29,580)
Cash flows from operating activities:
Net income	49,286	40,130
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	46,000	42,555
Stock-based compensation	11,809	9,272
Net loss on disposals and impairments of assets	229	9
Excess tax benefits from stock-based compensation	0	(516)
Deferred income taxes	3,729	(673)
Changes in operating assets and liabilities:
Accounts receivable	(1,402)	5,271
Inventories	(4,191)	15,991
Income taxes	(147)	30,386
Prepaid expenses and other assets	(1,713)	(3,458)
Accounts payable	33,325	(1,043)
Customer prepayments	13,722	(23,125)
Accrued compensation and benefits	15,277	12,441
Other taxes and withholding	758	7,494
Other accruals and liabilities	9,372	10,527
Net cash provided by operating activities	176,054	145,261
Cash flows from investing activities:
Purchases of property and equipment	(37,613)	(38,769)
Decrease in restricted cash	3,150	0
Proceeds from sales of property and equipment	36	67
Proceeds from marketable debt securities	0	15,090
Investments in marketable debt securities	0	5,968
Cash flows from financing activities:
Repurchases of common stock	(120,158)	(96,410)
Net (decrease) increase in short-term borrowings	(6,194)	3,062
Proceeds from issuance of common stock	3,040	1,949
Debt issuance costs	(10)	(409)
Excess tax benefits from stock-based compensation	0	516
Net cash used in financing activities	(123,322)	(91,292)
Net increase in cash and cash equivalents	18,305	24,389
Cash and cash equivalents, at beginning of period	11,609	20,994
Cash and cash equivalents, at end of period	$ 29,914	$ 45,383

Basis of Presentation

Basis of Presentation	9 Months Ended
	Sep. 30, 2017
Accounting Policies [Abstract]
Basis of Presentation	Business and Summary of Significant Accounting Policies Business & Basis of Presentation We prepared the condensed consolidated financial statements as of and for the three and nine months ended September 30, 2017 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 September 30, 2017 and December 31, 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 December 31, 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 consolidated 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. Revenue Recognition At September 30, 2017 and December 31, 2016 , we had deferred revenue totaling $71 million and $61 million , of which $28 million and $21 million are included in other current liabilities, respectively, and $43 million and $40 million are included in other non-current liabilities, respectively, in our consolidated balance sheets. We also have related deferred costs totaling $41 million and $33 million , of which $16 million and $11 million are included in other current assets, respectively, and $25 million and $22 million are included in other non-current assets, respectively, in our consolidated balance sheets. The deferred revenue and costs are recognized over the product’s estimated life of four years . New Accounting Pronouncements Adopted In March 2016, the Financial Accounting Standards Board (FASB) issued new guidance on the accounting for, and disclosure of, stock-based compensation which we adopted effective January 1, 2017. The new guidance is intended to simplify several aspects of the accounting for stock-based compensation arrangements, including the income tax impact, forfeitures and classification on the statement of cash flows. Under the previous guidance, excess tax benefits and deficiencies were recognized in additional paid-in capital in the consolidated balance sheets. Upon adoption of the new guidance, these excess tax benefits or deficiencies are required to be recognized as discrete adjustments to income tax expense in the consolidated statements of operations on a prospective basis. During the three and nine months ended September 30, 2017 , excess tax benefits of $0.2 million and $1.4 million , respectively, were recognized as a reduction of income tax expense, rather than in additional paid-in capital. In addition, under the new guidance, excess income tax benefits from stock-based compensation arrangements are classified as an operating activity in the statement of cash flows rather than as a financing activity. This resulted in an increase to operating cash flows of $0.2 million and $2.3 million for the three and nine months ended September 30, 2017 , respectively. We elected to apply the new cash flow classification guidance prospectively. The prior-year statement of cash flows has not been adjusted. We have also elected to continue to estimate the number of stock-based awards expected to vest, as permitted by the new guidance, rather than electing to account for forfeitures as they occur. Not Yet Adopted In May 2014, the FASB issued a comprehensive new revenue recognition model that requires a company to recognize revenue in a manner that depicts 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 will be effective for us beginning January 1, 2018. Companies may use either a full retrospective or a modified retrospective approach to adopt this new guidance. When we adopt this new guidance, we expect to use the modified retrospective approach which will result in an adjustment to opening retained earnings, but would not restate prior periods' financial statements. Based on our analysis thus far, we believe the impact of adopting the new guidance will not be material to our consolidated financial statements. As interpretations of the new rules continue to evolve in the fourth quarter of fiscal 2017, we will monitor developments and will finalize our conclusions on our revenue recognition policy, disclosure requirements and changes that may be necessary to our internal controls over financial reporting. In February 2016, the FASB issued new guidance on accounting for leases that generally requires most leases to be recognized on the balance sheet. This new guidance is effective for reporting periods beginning after December 15, 2018. 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. This new guidance is effective for us beginning December 30, 2018.

Fair Value Measurements

Fair Value Measurements	9 Months Ended
	Sep. 30, 2017
Fair Value Disclosures [Abstract]
Fair Value Measurements	Fair Value Measurements At September 30, 2017 and December 31, 2016 , we had $3.4 million and $2.3 million , respectively, of debt and equity securities that fund our deferred compensation plan and are classified in other non-current assets. We also had corresponding deferred compensation plan liabilities of $3.4 million and $2.3 million at September 30, 2017 and December 31, 2016 , respectively, which are included in other non-current 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.

Inventories

Inventories	9 Months Ended
	Sep. 30, 2017
Inventory Disclosure [Abstract]
Inventories	Inventories Inventories consisted of the following (in thousands): September 30, December 31, Raw materials $ 4,292 $ 7,973 Work in progress 223 72 Finished goods 74,702 66,981 $ 79,217 $ 75,026

Goodwill and Intangible Assets

Goodwill and Intangible Assets	9 Months Ended
	Sep. 30, 2017
Goodwill and Intangible Assets Disclosure [Abstract]
Goodwill and Intangible Assets	Goodwill and Intangible Assets, Net Goodwill and Indefinite-Lived Intangible Assets Goodwill was $64.0 million at September 30, 2017 and December 31, 2016 . Indefinite-lived trade name/trademarks totaled $1.4 million at September 30, 2017 and December 31, 2016 . Definite-Lived Intangible Assets The following table provides the gross carrying amount and related accumulated amortization of our definite-lived intangible assets (in thousands): September 30, 2017 December 31, 2016 Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Developed technologies $ 18,851 $ 6,160 $ 18,851 $ 4,524 Customer relationships 2,413 2,413 2,413 1,365 Trade names/trademarks 101 101 101 101 $ 21,365 $ 8,674 $ 21,365 $ 5,990 Amortization expense for the three months ended September 30, 2017 and October 1, 2016 , was $0.5 million and $0.6 million , respectively. Amortization expense for the nine months ended September 30, 2017 and October 1, 2016 , was $2.7 million and $1.9 million , respectively.

Credit Agreement

Credit Agreement	9 Months Ended
	Sep. 30, 2017
Debt Disclosure [Abstract]
Debt	Credit Agreement In March 2017, we amended our revolving credit facility to increase our net aggregate availability from $150 million to $153 million . We maintained the accordion feature which allows us to increase the amount of the credit facility from $153 million to $200 million , subject to lenders' approval. There were no other changes to the credit agreement's terms and conditions. The credit facility is for general corporate purposes and is utilized to meet our seasonal working capital requirements. 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 September 30, 2017 , we had no outstanding borrowings and $3.15 million in outstanding letters of credit. Our borrowing capacity was $150 million . We were in compliance with all financial covenants.

Repurchase of Common Stock

Repurchase of Common Stock	9 Months Ended
	Sep. 30, 2017
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 Nine Months Ended September 30, October 1, September 30, October 1, Amount repurchased under Board-approved share repurchase program $ 40,000 $ 25,000 $ 115,000 $ 95,000 Amount repurchased in connection with the vesting of employee restricted stock grants 64 259 5,158 1,410 Total amount repurchased $ 40,064 $ 25,259 $ 120,158 $ 96,410 Effective as of October 1, 2017, our Board approved an increase in our total remaining share repurchase authorization to $500 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 stock 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	9 Months Ended
	Sep. 30, 2017
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Stock-Based Compensation	Stock-Based Compensation Expense Total stock-based compensation expense was as follows (in thousands): Three Months Ended Nine Months Ended September 30, October 1, September 30, October 1, Stock awards $ 3,339 $ 1,121 $ 10,059 $ 7,533 Stock options 594 545 1,750 1,739 Total stock-based compensation expense 3,933 1,666 11,809 9,272 Income tax benefit 1,314 556 3,968 3,180 Total stock-based compensation expense, net of tax $ 2,619 $ 1,110 $ 7,841 $ 6,092 In addition to the income tax benefit related to stock-based compensation expense in the table above, excess tax benefits of $0.2 million and $1.4 million were recognized as reductions of income tax expense during the three and nine months ended September 30, 2017 , respectively. There were no excess tax benefits recognized in income tax expense during the three and nine months ended October 1, 2016 . See Note 1, New Accounting Pronouncements , for additional discussion of new guidance on the accounting for, and disclosure of, stock-based compensation which we adopted effective January 1, 2017.

Profit Sharing and 401(k) Plan

Profit Sharing and 401(k) Plan	9 Months Ended
	Sep. 30, 2017
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 pay period, we may make a discretionary contribution equal to a percentage of the employee’s contribution. During the three months ended September 30, 2017 and October 1, 2016 , our contributions, net of forfeitures, were $1.4 million and $1.1 million , respectively. During the nine months ended September 30, 2017 and October 1, 2016 , our contributions, net of forfeitures, were $3.9 million and $3.4 million , respectively.

Other (Expense) Income, Net

Other (Expense) Income, Net	9 Months Ended
	Sep. 30, 2017
Other Income and Expenses [Abstract]
Other (Expense) Income, Net	Other Expense, Net Other expense, net, consisted of the following (in thousands): Three Months Ended Nine Months Ended September 30, October 1, September 30, October 1, Interest expense $ (278 ) $ (267 ) $ (748 ) $ (624 ) Interest income 30 12 80 43 Other expense, net $ (248 ) $ (255 ) $ (668 ) $ (581 )

Net Income Per Common Share

Net Income Per Common Share	9 Months Ended
	Sep. 30, 2017
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 Nine Months Ended September 30, October 1, September 30, October 1, Net income $ 25,603 $ 25,745 $ 49,286 $ 40,130 Reconciliation of weighted-average shares outstanding: Basic weighted-average shares outstanding 40,755 45,621 41,740 46,705 Dilutive effect of stock-based awards 760 729 819 708 Diluted weighted-average shares outstanding 41,515 46,350 42,559 47,413 Net income per share – basic $ 0.63 $ 0.56 $ 1.18 $ 0.86 Net income per share – diluted $ 0.62 $ 0.56 $ 1.16 $ 0.85 For the three and nine months ended September 30, 2017 and October 1, 2016 , anti-dilutive stock-based awards excluded from the diluted net income per share calculations were immaterial.

Commitments and Contingencies

Commitments and Contingencies	9 Months Ended
	Sep. 30, 2017
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): Nine Months Ended September 30, October 1, Balance at beginning of year $ 15,222 $ 20,562 Additions that reduce net sales 55,720 54,588 Deductions from reserves (52,494 ) (57,112 ) Balance at end of period $ 18,448 $ 18,038 Warranty Liabilities The activity in the accrued warranty liabilities account was as follows (in thousands): Nine Months Ended September 30, October 1, Balance at beginning of year $ 8,633 $ 10,028 Additions charged to costs and expenses for current-year sales 8,627 7,014 Deductions from reserves (6,625 ) (7,976 ) Changes in liability for pre-existing warranties during the current year, including expirations (708 ) (976 ) Balance at end of period $ 9,927 $ 8,090 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 January 12, 2015, Plaintiffs David and Katina Spade commenced a purported class action lawsuit in New Jersey state court against Select Comfort alleging that Select Comfort violated New Jersey consumer statutes by failing to provide to purchasing consumers certain disclosures required by the New Jersey Furniture Regulations. It is undisputed that plaintiffs suffered no actual damages or in any way relied upon or were impacted by the alleged omissions. Nonetheless, on behalf of a purported class of New Jersey purchasers of Select Comfort beds and bases, plaintiffs seek to recover a $100 statutory fine for each alleged omission, along with attorneys’ fees and costs. Select Comfort removed the case to the United States District Court for the District of New Jersey, which subsequently granted Select Comfort’s motion to dismiss. Plaintiffs appealed to the United States Court of Appeals for the Third Circuit, which has certified two questions of law to the New Jersey Supreme Court relating to whether plaintiffs who have suffered no actual injury may bring claims. The New Jersey Supreme Court has accepted the certified questions and oral arguments are expected to be heard in the near future. As the United States District Court for the District of New Jersey determined, we believe that the case is without merit and the order of dismissal should be affirmed.

Basis of Presentation (Policies

Basis of Presentation (Policies)	9 Months Ended
	Sep. 30, 2017
Accounting Policies [Abstract]
Business and Basis of Presentation, Policy	We prepared the condensed consolidated financial statements as of and for the three and nine months ended September 30, 2017 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 September 30, 2017 and December 31, 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 December 31, 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 consolidated 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.
Revenue Recognition, Deferred Revenue [Policy Text Block]	Revenue Recognition At September 30, 2017 and December 31, 2016 , we had deferred revenue totaling $71 million and $61 million , of which $28 million and $21 million are included in other current liabilities, respectively, and $43 million and $40 million are included in other non-current liabilities, respectively, in our consolidated balance sheets. We also have related deferred costs totaling $41 million and $33 million , of which $16 million and $11 million are included in other current assets, respectively, and $25 million and $22 million are included in other non-current assets, respectively, in our consolidated balance sheets. The deferred revenue and costs are recognized over the product’s estimated life of four years .
New Accounting Pronouncements, Policy	New Accounting Pronouncements Adopted In March 2016, the Financial Accounting Standards Board (FASB) issued new guidance on the accounting for, and disclosure of, stock-based compensation which we adopted effective January 1, 2017. The new guidance is intended to simplify several aspects of the accounting for stock-based compensation arrangements, including the income tax impact, forfeitures and classification on the statement of cash flows. Under the previous guidance, excess tax benefits and deficiencies were recognized in additional paid-in capital in the consolidated balance sheets. Upon adoption of the new guidance, these excess tax benefits or deficiencies are required to be recognized as discrete adjustments to income tax expense in the consolidated statements of operations on a prospective basis. During the three and nine months ended September 30, 2017 , excess tax benefits of $0.2 million and $1.4 million , respectively, were recognized as a reduction of income tax expense, rather than in additional paid-in capital. In addition, under the new guidance, excess income tax benefits from stock-based compensation arrangements are classified as an operating activity in the statement of cash flows rather than as a financing activity. This resulted in an increase to operating cash flows of $0.2 million and $2.3 million for the three and nine months ended September 30, 2017 , respectively. We elected to apply the new cash flow classification guidance prospectively. The prior-year statement of cash flows has not been adjusted. We have also elected to continue to estimate the number of stock-based awards expected to vest, as permitted by the new guidance, rather than electing to account for forfeitures as they occur. Not Yet Adopted In May 2014, the FASB issued a comprehensive new revenue recognition model that requires a company to recognize revenue in a manner that depicts 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 will be effective for us beginning January 1, 2018. Companies may use either a full retrospective or a modified retrospective approach to adopt this new guidance. When we adopt this new guidance, we expect to use the modified retrospective approach which will result in an adjustment to opening retained earnings, but would not restate prior periods' financial statements. Based on our analysis thus far, we believe the impact of adopting the new guidance will not be material to our consolidated financial statements. As interpretations of the new rules continue to evolve in the fourth quarter of fiscal 2017, we will monitor developments and will finalize our conclusions on our revenue recognition policy, disclosure requirements and changes that may be necessary to our internal controls over financial reporting. In February 2016, the FASB issued new guidance on accounting for leases that generally requires most leases to be recognized on the balance sheet. This new guidance is effective for reporting periods beginning after December 15, 2018. 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. This new guidance is effective for us beginning December 30, 2018.
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 stock 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 pay period, we may make a discretionary contribution equal to a percentage of the employee’s contribution.

Inventories (Tables)

Inventories (Tables)	9 Months Ended
	Sep. 30, 2017
Inventory Disclosure [Abstract]
Inventories	Inventories consisted of the following (in thousands): September 30, December 31, Raw materials $ 4,292 $ 7,973 Work in progress 223 72 Finished goods 74,702 66,981 $ 79,217 $ 75,026

Goodwill and Intangible Assets

Goodwill and Intangible Assets (Tables)	9 Months Ended
	Sep. 30, 2017
Finite-Lived Intangible Assets [Line Items]
Definite-Lived Intangible Assets	The following table provides the gross carrying amount and related accumulated amortization of our definite-lived intangible assets (in thousands): September 30, 2017 December 31, 2016 Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Developed technologies $ 18,851 $ 6,160 $ 18,851 $ 4,524 Customer relationships 2,413 2,413 2,413 1,365 Trade names/trademarks 101 101 101 101 $ 21,365 $ 8,674 $ 21,365 $ 5,990

Repurchase of Common Stock (Tab

Repurchase of Common Stock (Tables)	9 Months Ended
	Sep. 30, 2017
Repurchase of Common Stock [Abstract]
Repurchase of Common Stock	Repurchases of our common stock were as follows (in thousands): Three Months Ended Nine Months Ended September 30, October 1, September 30, October 1, Amount repurchased under Board-approved share repurchase program $ 40,000 $ 25,000 $ 115,000 $ 95,000 Amount repurchased in connection with the vesting of employee restricted stock grants 64 259 5,158 1,410 Total amount repurchased $ 40,064 $ 25,259 $ 120,158 $ 96,410

Stock-Based Compensation (Table

Stock-Based Compensation (Tables)	9 Months Ended
	Sep. 30, 2017
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Stock-Based Compensation	Total stock-based compensation expense was as follows (in thousands): Three Months Ended Nine Months Ended September 30, October 1, September 30, October 1, Stock awards $ 3,339 $ 1,121 $ 10,059 $ 7,533 Stock options 594 545 1,750 1,739 Total stock-based compensation expense 3,933 1,666 11,809 9,272 Income tax benefit 1,314 556 3,968 3,180 Total stock-based compensation expense, net of tax $ 2,619 $ 1,110 $ 7,841 $ 6,092

Other (Expense) Income, Net (Ta

Other (Expense) Income, Net (Tables)	9 Months Ended
	Sep. 30, 2017
Other Income and Expenses [Abstract]
Other (Expense) Income, Net	Other expense, net, consisted of the following (in thousands): Three Months Ended Nine Months Ended September 30, October 1, September 30, October 1, Interest expense $ (278 ) $ (267 ) $ (748 ) $ (624 ) Interest income 30 12 80 43 Other expense, net $ (248 ) $ (255 ) $ (668 ) $ (581 )

Net Income Per Common Share (Ta

Net Income Per Common Share (Tables)	9 Months Ended
	Sep. 30, 2017
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 Nine Months Ended September 30, October 1, September 30, October 1, Net income $ 25,603 $ 25,745 $ 49,286 $ 40,130 Reconciliation of weighted-average shares outstanding: Basic weighted-average shares outstanding 40,755 45,621 41,740 46,705 Dilutive effect of stock-based awards 760 729 819 708 Diluted weighted-average shares outstanding 41,515 46,350 42,559 47,413 Net income per share – basic $ 0.63 $ 0.56 $ 1.18 $ 0.86 Net income per share – diluted $ 0.62 $ 0.56 $ 1.16 $ 0.85

Commitments and Contingencies (

Commitments and Contingencies (Tables)	9 Months Ended
	Sep. 30, 2017
Commitments and Contingencies Disclosure [Abstract]
Sales Returns	The activity in the sales returns liability account was as follows (in thousands): Nine Months Ended September 30, October 1, Balance at beginning of year $ 15,222 $ 20,562 Additions that reduce net sales 55,720 54,588 Deductions from reserves (52,494 ) (57,112 ) Balance at end of period $ 18,448 $ 18,038
Warranty Liabilities	The activity in the accrued warranty liabilities account was as follows (in thousands): Nine Months Ended September 30, October 1, Balance at beginning of year $ 8,633 $ 10,028 Additions charged to costs and expenses for current-year sales 8,627 7,014 Deductions from reserves (6,625 ) (7,976 ) Changes in liability for pre-existing warranties during the current year, including expirations (708 ) (976 ) Balance at end of period $ 9,927 $ 8,090

Basis of Presentation Deferred

Basis of Presentation Deferred Revenue (Details) - USD ($) $ in Millions	9 Months Ended
	Sep. 30, 2017	Dec. 31, 2016
Deferred Revenue Arrangement [Line Items]
Deferred Revenue	$ 71	$ 61
Deferred Costs	41	33
Other Current Liabilities [Member]
Deferred Revenue Arrangement [Line Items]
Deferred Revenue, Current	28	21
Other Noncurrent Liabilities [Member]
Deferred Revenue Arrangement [Line Items]
Deferred Revenue, Noncurrent	43	40
Other Current Assets [Member]
Deferred Revenue Arrangement [Line Items]
Deferred Costs, Current	16	11
Other Noncurrent Assets [Member]
Deferred Revenue Arrangement [Line Items]
Deferred Costs, Noncurrent	$ 25	$ 22
SleepIQ [Member]
Deferred Revenue Arrangement [Line Items]
Product's Estimated Life	4 years

Basis of Presentation New Accou

Basis of Presentation New Accounting Pronouncements (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Oct. 01, 2016	Sep. 30, 2017	Oct. 01, 2016
New Accounting Pronouncements [Abstract]
Excess tax benefits, included in income tax expense	$ 0.2	$ 0	$ 1.4	$ 0
Excess Tax Benefit from Share-based Compensation		$ 0.2		$ 2.3

Fair Value Measurements (Detail

Fair Value Measurements (Details) - Recurring [Member] - Level 1 [Member] - USD ($) $ in Millions	Sep. 30, 2017	Dec. 31, 2016
Other Assets [Member] | Available-for-sale Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities assets funding the deferred compensation plan	$ 3.4	$ 2.3
Other Noncurrent Liabilities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Deferred compensation plan liability	$ 3.4	$ 2.3

Inventories (Details)

Inventories (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Inventory Disclosure [Abstract]
Raw materials	$ 4,292	$ 7,973
Work in progress	223	72
Finished goods	74,702	66,981
Inventories	$ 79,217	$ 75,026

Goodwill and Indefinite-Lived I

Goodwill and Indefinite-Lived Intangible Assets (Details) - USD ($) $ in Millions	Sep. 30, 2017	Dec. 31, 2016
Goodwill and Intangible Assets Disclosure [Abstract]
Goodwill	$ 64	$ 64
Trade Names [Member]
Indefinite-lived Intangible Assets [Line Items]
Indefinite-lived trade name/trademarks	$ 1.4	$ 1.4

Goodwill and Intangible Asset32

Goodwill and Intangible Assets Finite-Lived Intangible Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Assets	$ 21,365	$ 21,365
Finite-Lived Intangible Assets, Accumulated Amortization	8,674	5,990
Developed Technology Rights [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Assets	18,851	18,851
Finite-Lived Intangible Assets, Accumulated Amortization	6,160	4,524
Customer Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Assets	2,413	2,413
Finite-Lived Intangible Assets, Accumulated Amortization	2,413	1,365
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 Asset33

Goodwill and Intangible Assets Amortization Expense (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Oct. 01, 2016	Sep. 30, 2017	Oct. 01, 2016
Finite-Lived Intangible Assets [Line Items]
Amortization expense definite-lived intangible assets	$ 0.5	$ 0.6	$ 2.7	$ 1.9

Credit Agreement (Details)

Credit Agreement (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Mar. 31, 2017
Line of Credit Facility [Line Items]
Current borrowing capacity	$ 153,000	$ 150,000
Maximum Borrowing Capacity	$ 200,000
Expiration Date	Feb. 24, 2021
Letters of Credit Outstanding	$ 3,150
Remaining Borrowing Capacity	$ 150,000

Repurchase of Common Stock (Det

Repurchase of Common Stock (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Oct. 01, 2016	Sep. 30, 2017	Oct. 01, 2016	Oct. 01, 2017
Subsequent Event [Line Items]
Amount repurchased under Board-approved share repurchase program	$ 40,000	$ 25,000	$ 115,000	$ 95,000
Amount repurchased in connection with the vesting of employee restricted stock grants	64	259	5,158	1,410
Total amount repurchased	$ 40,064	$ 25,259	$ 120,158	$ 96,410
Subsequent Event [Member]
Subsequent Event [Line Items]
Stock Repurchase Program, Remaining Authorized Repurchase Amount					$ 500,000

Stock-Based Compensation (Detai

Stock-Based Compensation (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Oct. 01, 2016	Sep. 30, 2017	Oct. 01, 2016
Total stock-based compensation expense	$ 3,933	$ 1,666	$ 11,809	$ 9,272
Income tax benefit	1,314	556	3,968	3,180
Total stock-based compensation expense, net of tax	2,619	1,110	7,841	6,092
Excess tax benefits, included in income tax expense	200	0	$ 1,400	0
Document Period End Date			Sep. 30, 2017
Stock awards [Member]
Total stock-based compensation expense	3,339	1,121	$ 10,059	7,533
Stock Options [Member]
Total stock-based compensation expense	$ 594	$ 545	$ 1,750	$ 1,739

Profit Sharing and 401(k) Plan

Profit Sharing and 401(k) Plan (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Oct. 01, 2016	Sep. 30, 2017	Oct. 01, 2016
Defined Contribution Plan Disclosure [Line Items]
Employee compensation deferral (in hundredths)			50.00%
Employer Contributions	$ 1.4	$ 1.1	$ 3.9	$ 3.4

Other (Expense) Income, Net (De

Other (Expense) Income, Net (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Oct. 01, 2016	Sep. 30, 2017	Oct. 01, 2016
Other Income and Expenses [Abstract]
Interest expense	$ (278)	$ (267)	$ (748)	$ (624)
Interest income	30	12	80	43
Other expense, net	$ (248)	$ (255)	$ (668)	$ (581)

Net Income per Common Share (De

Net Income per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Oct. 01, 2016	Sep. 30, 2017	Oct. 01, 2016
Net Income per Common Share [Abstract]
Net income	$ 25,603	$ 25,745	$ 49,286	$ 40,130
Basic weighted-average shares outstanding	40,755,000	45,621,000	41,740,000	46,705,000
Dilutive effect of stock-based awards	760,000	729,000	819,000	708,000
Diluted weighted-average shares outstanding	41,515,000	46,350,000	42,559,000	47,413,000
Net income per share – basic (in USD per share)	$ 0.63	$ 0.56	$ 1.18	$ 0.86
Net income per share – diluted (in USD per share)	$ 0.62	$ 0.56	$ 1.16	$ 0.85

Commitments and Contingencies S

Commitments and Contingencies Sales Return Liability (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Oct. 01, 2016
Sales return liability [Roll Forward]
Balance at beginning of year	$ 15,222	$ 20,562
Additions that reduce net sales	55,720	54,588
Deductions from reserves	(52,494)	(57,112)
Balance at end of period	$ 18,448	$ 18,038

Commitments and Contingencies W

Commitments and Contingencies Warranty Liabilities (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Oct. 01, 2016
Warranty Liabilities [Roll Forward]
Balance at beginning of year	$ 8,633	$ 10,028
Additions charged to costs and expenses for current-year sales	8,627	7,014
Deductions from reserves	(6,625)	(7,976)
Changes in liability for pre-existing warranties during the current year, including expirations	(708)	(976)
Balance at end of period	$ 9,927	$ 8,090