Sleep Number (SNBR) 11-K Annual report of employee stock purchases

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 11-K

(Mark One)

xANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Year Ended December 31, 2006

OR

oTRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to __________________.

Commission File No. 0-25121

____________________

A. Full title of the plan and the address of the plan, if different from that of the issuer named below:

SELECT COMFORT PROFIT SHARING AND 401(k) PLAN

B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:

SELECT COMFORT CORPORATION

6105 Trenton Lane North

Minneapolis, Minnesota 55442

SELECT COMFORT PROFIT SHARING AND 401(k) PLAN

Index to Financial Statements and Exhibit

Financial Statements:

Supplemental Schedule:

Exhibit:

23 – Consent of Independent Registered Public Accounting Firm

Note: All other schedules required by 29 CFR Section 2520.103-10 of the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974 have been omitted because they are not applicable.

SELECT COMFORT
PROFIT SHARING AND 401(k) PLAN

Financial Statements and Supplemental Schedule

December 31, 2006 and 2005

(With Report of Independent Registered Public Accounting Firm Thereon)

SELECT COMFORT

PROFIT SHARING AND 401(k) PLAN

Table of Contents

	Page
Report of Independent Registered Public Accounting Firm	1
Statements of Net Assets Available for Benefits	2
Statements of Changes in Net Assets Available for Benefits	3
Notes to Financial Statements	4
Supplementary Information -
Schedule H, Line 4i – Schedule of Assets (Held at End of Year)	10

Report of Independent Registered Public Accounting Firm

The Investment Committee

Select Comfort Profit Sharing and

401(k) Plan:

We have audited the accompanying statements of net assets available for benefits of the Select Comfort Profit Sharing and 401(k) Plan (the Plan) as of December 31, 2006 and 2005, and the related statements of changes in net assets available for benefits for the years then ended. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2006 and 2005, and the changes in its net assets available for benefits for the years then ended in conformity with U.S. generally accepted accounting principles.

Our audits were performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of assets (held at end of year) as of December 31, 2006 is presented for the purpose of additional analysis and is not a required part of the basic financial statements, but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This supplemental schedule is the responsibility of the Plan’s management. The supplemental schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole.

Minneapolis, Minnesota

June 26, 2007

SELECT COMFORT

PROFIT SHARING AND 401(k) PLAN

Statements of Net Assets Available for Benefits

December 31, 2006 and 2005

	2006		2005
Assets
Participant-directed investments at fair value:
Pooled separate accounts	$	30,722,334	$	22,524,580
Select Comfort Corporation common stock		6,703,637		8,704,881
Guaranteed income fund		5,874,994		4,343,444
Participant loans		1,204,608		1,054,804
Self-directed brokerage fund		189,138		189,841
Total investments		44,694,711		36,817,550
Receivables:
Participant contributions		174,576		134,826
Employer contributions		622,163		575,659
Total receivables		796,739		710,485
Net assets available for benefits	$	45,491,450	$	37,528,035

See accompanying notes to financial statements.

2

SELECT COMFORT

PROFIT SHARING AND 401(k) PLAN

Statements of Changes in Net Assets Available for Benefits

Years ended December 31, 2006 and 2005

	2006		2005
Additions to net assets attributed to:
Dividend and interest income	$	178,451	$	298,895
Net realized/unrealized appreciation in fair value		3,459,304		4,918,627
		3,637,755		5,217,522
Less investment expenses		7,502		20,550
Net investment income		3,630,253		5,196,972
Participant contributions		6,186,726		4,369,939
Employer contributions		2,791,719		2,627,158
Other		92,578		94,025
Total additions		12,701,276		12,288,094
Deductions from net assets attributed to:
Benefits paid to participants		4,737,861		4,164,366
Net increase		7,963,415		8,123,728
Net assets available for benefits:
Beginning of year		37,528,035		29,404,307
End of year	$	45,491,450	$	37,528,035

See accompanying notes to financial statements.

3

SELECT COMFORT

PROFIT SHARING AND 401(k) PLAN

Notes to Financial Statements

December 31, 2006 and 2005

(1) DESCRIPTION OF THE PLAN

The following brief description of the Select Comfort (the Company) Profit Sharing and 401(k) Plan (the Plan) provides only general information. Participants should refer to the Plan agreement for a more complete description of the Plan’s provisions.

General – The Plan is a defined contribution plan covering all employees. A full-time employee is eligible on the first day of the calendar month following 30 days of employment provided the employee is age 21 or older. A part-time employee is eligible after completing one year of at least 1,000 hours of service and is age 21 or older. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). The inception date of the Plan was January 1, 1994.

Recordkeeper and Custodian – Effective July 1, 2005, the Plan assets were transferred to the custody of The Prudential Insurance Company of America (Prudential) and Prudential became the recordkeeper, custodian and trustee of the Plan.

Contributions – Each year, participants may contribute a percentage of eligible earnings, as defined in the Plan. Participants can contribute up to 50% of eligible earnings. Participants may also contribute amounts representing distributions from other qualified defined benefit or contribution plans. Company contributions are determined at the discretion of the Company’s Board of Directors.

Participant Accounts – Individual accounts are maintained for each Plan participant. Each participant’s account is credited with the participant’s contribution, the Company’s matching contribution, and Plan earnings.

Vesting – Participants are immediately vested in their contributions plus actual earnings thereon. Vesting in the Company’s discretionary contribution to their accounts plus actual earnings thereon is based on years of service. Participants are vested 25% upon the completion of one year, 50% after two years, 75% after three years, and fully vested after completion of four years of service, or if they have reached normal retirement age of 65, die, or become disabled.

Forfeitures – Forfeited non-vested accounts are used to either reduce Company contributions or to pay administrative expenses. The balances of forfeited non-vested accounts at December 31, 2006 and 2005 were $224,811 and $121,967, respectively. Forfeitures of non-vested amounts were used to pay Plan expenses of $21,375 in 2006. In addition, forfeitures of non-vested amounts reduced 2006 Company contributions paid in 2007 by $100,000.

Participant Loans – Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50% of their vested account balance. Loans are made on a pro-rata basis from all investment funds in which a participant’s account is invested. Loan terms range from one to five years or up to 15 years for the purchase of a primary residence. The loans are secured by the balance in the participant’s account. Loans bear interest at the prime rate plus two percentage points for loans initiated from January 1, 2001 to November 8, 2002 or, plus one percentage point for loans initiated from November 9, 2002 to December 31, 2006. Principal and interest are paid ratably through payroll deductions not less frequently than quarterly.

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SELECT COMFORT

PROFIT SHARING AND 401(k) PLAN

Notes to Financial Statements

December 31, 2006 and 2005

Investment Options – Upon enrollment in the Plan, participants may direct their contributions in 1% increments into any of the nine investment funds, Company common stock or the Self-Directed Brokerage Account. Participants may modify their investment options daily.

The following descriptions summarize the investment philosophy of the various investment alternatives offered through Prudential as outlined in the fund literature:

Prudential Guaranteed Income Fund – Fixed-interest annuity backed by Prudential Retirement Insurance and Annuity Company’s general account. Funds are invested primarily in private placement bonds, intermediate-term bonds, and commercial mortgages.

Julius Baer International Equity Fund – Funds are invested primarily in foreign stock markets seeking long-term growth of capital.

Waddell & Reed Large Cap Growth Fund – Funds are invested primarily in equity and equity-related securities of large companies.

LSV Asset Management Large Cap Value Fund – Funds are invested primarily in equity and equity-related securities of large-sized companies, including common stocks, as well as securities convertible into common stocks.

Goldman Sachs Mid Cap Growth Fund – Funds are invested in common stocks of companies that the fund advisor believes offer long-term capital appreciation potential.

PIMCO Core Plus Bond Fund – Funds are invested in a diversified portfolio of fixed-income securities, consistent with preservation of capital.

Granahan Small Cap Growth Fund – Funds are invested in equity securities of small capitalization companies.

Munder Capital Small Cap Value Fund – Funds are invested in common stocks of small capitalization companies that are undervalued.

Oakmark Equity & Income Fund (Class I Shares) – Funds are invested in equity and fixed-income securities and seeks high current income, preservation and growth of capital.

Self-Directed Brokerage Account – This brokerage account gives the participant access to more than 8,000 mutual funds and any publicly traded stock with a share price greater than $5, with the exception of Select Comfort Corporation common stock.

Select Comfort Corporation Common Stock – Funds are invested in shares of common stock of the Plan Sponsor.

Payment of Benefits – On termination of service due to death, disability, or retirement, or for termination of service due to other reasons, a participant will generally receive a lump-sum amount equal to the value of the participant’s vested interest in his or her account, subject to certain Plan restrictions. Participants may also withdraw some or all of their account balances prior to termination, subject to certain Plan restrictions.

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SELECT COMFORT

PROFIT SHARING AND 401(k) PLAN

Notes to Financial Statements

December 31, 2006 and 2005

Plan Expenses – The Plan allows for recordkeeping fees, legal fees, trustee’s fees, and other reasonable costs of administering the Plan to be paid out of Plan assets.

(2) SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting – The accompanying financial statements of the Plan are prepared under the accrual method of accounting in accordance with U.S. generally accepted accounting principles.

Investment Valuation and Income Recognition – The Plan’s investments are stated at fair value. The fair value of participation units owned by the Plan in the pooled separate accounts are based on quoted redemption values on the last business day of the Plan year. Select Comfort common stock is valued at the quoted market price on the last business day of the Plan year. Insurance contracts are reported at fair value as determined by the issuer. Participant loans are valued at their outstanding balances, which approximate fair value.

Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.

Payment of Benefits – Benefit payments are recorded upon distribution.

Use of Estimates in the Preparation of Financial Statements – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of net assets available for benefits and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of change in net assets available for benefits during the reporting period. Actual results may differ from those estimates.

Risks and Uncertainties – The Plan provides for investment in the Company’s common stock, various participant investment options in funds and a self-directed brokerage option which enables participants to invest in any combination of investments. Investment securities are exposed to various risks, such as interest rate, credit, and overall market volatility. Due to the level of risk and uncertainty it is reasonably possible that changes in the values of the investments will occur in the near term and such changes could materially affect participants’ account balances and the amounts reported in the Statements of Net Assets Available for Benefits.

Concentration of Market Risk – At December 31, 2006 and 2005, approximately 15% and 23%, respectively, of the Plan’s net assets were invested in the common stock of the Company. The underlying value of the Company’s common stock is entirely dependent upon the performance of the Company and the market’s evaluation of such performance. It is at least reasonably possible that changes in the fair value of the Company’s common stock could materially affect participants’ account balances and the amounts reported in the Statements of Net Assets Available for Benefits and the Statements of Changes in Net Assets Available for Benefits.

6

SELECT COMFORT

PROFIT SHARING AND 401(k) PLAN

Notes to Financial Statements

December 31, 2006 and 2005

(3) PLAN TERMINATION

Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants will become 100% vested in their accounts.

(4) FEDERAL INCOME TAX STATUS

The Plan has received a favorable determination letter from the Internal Revenue Service dated January 19, 2005 indicating that the Plan is designed in accordance with applicable sections of the Internal Revenue Code (the IRC). Although the Plan has been amended since receiving the determination letter, the Plan Administrator believes that the Plan is designed and is currently being operated in compliance with the applicable requirements of the IRC. Therefore, no provisions for income taxes have been made.

(5) GROUP ANNUITY INSURANCE CONTRACT

The Prudential Guaranteed Income Fund (the Fund) offers a full guarantee on principal and interest by Prudential Retirement Insurance and Annuity Company (the Issuer), an affiliate of the trustee. As described in Financial Accounting Standards Board Staff Position, FSP AAG INV-1 and SOP 94-4-1, Reporting of Fully Benefit-Responsive Investment Contracts Held by Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined-Contribution Health and Welfare and Pension Plans (FSP), investment contracts held in a defined-contribution plan are required to be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the net assets available for benefits of a defined-contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under terms of the Plan.

The provisions of the FSP were effective for the Plan year ended December 31, 2006 and applied retrospectively to the Plan’s 2005 financial statements. The adoption of this standard did not have a material impact on the Plan’s financial statements because contract value approximates fair value in all periods presented. As defined by the FSP, the Fund qualifies as a fully benefit-responsive investment contract because it meets all of the following criteria:

a. The investment contract is effected directly between the Fund and the Issuer and prohibits the Fund from assigning or selling the contract or its proceeds to another party without the consent of the Issuer.

b. The contract Issuer is obligated to (i) repay principal and interest, or (ii) apply prospective crediting rate adjustments with an assurance the crediting rate will not be less than zero.

c. The terms of the investment contract require all permitted participant-initiated transactions with the Fund to occur at contract value with no conditions, limits, or restrictions. Permitted participant-initiated transactions are those transactions allowed by the underlying defined-contribution plan, such as withdrawals for benefits, loans, or transfers to other funds within the Plan.

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SELECT COMFORT

PROFIT SHARING AND 401(k) PLAN

Notes to Financial Statements

December 31, 2006 and 2005

d. An event that limits the ability of the Fund to transact at contract value with the Issuer (for example, premature termination of the contracts by the Fund, plant closings, plan termination, bankruptcy, mergers, and early retirement incentives) and that also limits the ability of the Fund to transact at contract value with the participants in the Fund must be probable of not occurring.

e. The Fund itself must allow participants reasonable access to their funds.

The interest crediting rate is determined semi-annually and during 2006 and 2005 resulted in an average annual yield earned and credited to participants of approximately 3.5% and 3.3%, respectively. The minimum crediting rate is 1.5%. The interest crediting rate is calculated based upon many factors, including current economic and market conditions, the general interest rate environment, and both the expected and actual experience of a reference portfolio within the Issuer’s general account.

There is no event that limits the ability of the Plan to transact at contract value with the Issuer. There are also no events and circumstances that would allow the Issuer to terminate the fully benefit-responsive group annuity insurance contract with the Plan and settle at an amount different from contract value.

(6) INVESTMENTS

The following presents investments that represent 5% or more of the Plan’s net assets:

	December 31
	2006		2005
Fully benefit-responsive investment contract:
Prudential Guaranteed Income Fund	$	5,874,994	$	4,343,444
Pooled separate accounts:
Julius Baer International Equity Fund		5,019,264		3,381,358
Waddell & Reed Large Cap Growth Fund		7,271,712		5,729,505
LSV Asset Management Large Cap Value Fund		6,841,492		4,634,859
PIMCO Core Plus Bond Fund		3,055,396		2,620,501
Granahan Small Cap Growth Fund		3,789,951		2,936,393
Munder Capital Small Cap Value Fund		3,745,846		3,109,903
Select Comfort Corporation common stock		6,703,637		8,704,881

The Plan’s investments (including gains and losses on investments bought and sold, as well as held, during the year) appreciated (depreciated) in value as follows:

	Year ended December 31
	2006			2005
Mutual funds	$	—		$	106,626
Self-directed brokerage		(384	)		(106,249	)
Pooled separate accounts		3,240,846			1,623,897
Select Comfort Corporation common stock		218,842			3,294,353
	$	3,459,304		$	4,918,627

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SELECT COMFORT

PROFIT SHARING AND 401(k) PLAN

Notes to Financial Statements

December 31, 2006 and 2005

(7) PARTY-IN-INTEREST TRANSACTIONS

Transactions resulting in plan assets being transferred to or used by a related party are prohibited under ERISA unless a specific exemption applies. Prudential, as custodian of the Plan, and the Company are defined as parties-in-interest with respect to the Plan. The Plan invests in certain investments issued by Prudential and in common stock of the Company. These transactions are exempt under Section 408(b) of ERISA and are not considered prohibited transactions.

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SELECT COMFORT

PROFIT SHARING AND 401(k) PLAN

Schedule H, Line 4i – Schedule of Assets (Held at End of Year)

December 31, 2006

Identity of issuer or borrower	Description of investment	Number of shares		Current value
Prudential Retirement Insurance and Annuity Company*	Prudential Guaranteed Income Fund	221,744	$	5,874,994
Prudential Insurance Co. Separate Account*	Julius Baer International Equity Fund	201,395		5,019,264
Prudential Insurance Co. Separate Account*	Waddell & Reed Large Cap Growth Fund	634,379		7,271,712
Prudential Insurance Co. Separate Account*	LSV Asset Management Large Cap Value Fund	336,827		6,841,492
Prudential Insurance Co. Separate Account*	Goldman Sachs Mid Cap Growth Fund	48,406		593,863
Prudential Insurance Co. Separate Account*	PIMCO Core Plus Bond Fund	246,012		3,055,396
Prudential Insurance Co. Separate Account*	Granahan Small Cap Growth Fund	281,482		3,789,951
Prudential Insurance Co. Separate Account*	Munder Capital Small Cap Value Fund	311,422		3,745,846
Prudential Insurance Co. Separate Account*	Oakmark Equity & Income Fund (Class I Shares)	13,569		404,810
Prudential Financial*	Self-Directed Brokerage Account	—		189,138
Select Comfort Corporation*	Common stock	385,488		6,703,637
Participant loans*	Loans secured by participant-vested balance with interest rates of 5.0% to 10.5% and maturing in 2007 to 2021	—		1,204,608
	Total investments		$	44,694,711

* Party-in-Interest.

See accompanying report of Independent Registered Public Accounting Firm.

10

SIGNATURE

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Plan Administrator has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized.

	SELECT COMFORT PROFIT SHARING AND 401(k) PLAN (Name of Plan)
Date:  June 28, 2007
	By:	/s/   Karen R. Richard
		Karen R. Richard Vice President, Compensation and Benefits Plan Administrator