UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): FEBRUARY 20, 2001
SELECT COMFORT CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 0-25121 41-1597886
(State of Incorporation) (Commission File Number) (IRS Employer
Identification No.)
6105 TRENTON LANE NORTH
MINNEAPOLIS, MINNESOTA 55442
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (763) 551-7000
ITEM 9. REGULATION FD DISCLOSURE.
On February 20, 2001, the registrant issued a press release reporting
its results for the fourth quarter and fiscal year ended December 30, 2000, as
follows:
SELECT COMFORT CORPORATION
ANNOUNCES FOURTH QUARTER AND YEAR-END RESULTS
MINNEAPOLIS, MINN. (February 20, 2001) - Select Comfort Corporation (NASDAQ:
SCSS) announced results for the fourth quarter and year ended December 30, 2000.
For the fourth quarter of 2000, net sales were $64.1 million compared to $68.1
million for the fourth quarter of 1999. In line with its earlier release on
expected earnings for the fourth quarter of 2000, the company reported a net
loss of $4.0 million, or $.22 per share, compared to a net loss of $6.0 million,
or $.33 per share, for the fourth quarter of 1999. The results for both periods
reflect various special charges related to store asset write-downs, store
closings, severance costs, consulting fees or other events. After removing such
special charges, the net loss for the fourth quarter of 2000 would have been
$3.7 million, or $.20 per share, and the net loss for the fourth quarter of 1999
would have been $3.5 million, or $.19 per share. Comparable store sales for the
fourth quarter of 2000 increased by 1%, following a decrease of 3% for the
fourth quarter of 1999.
For the year ended December 30, 2000, net sales were $270.1 million compared
to $273.8 million in 1999. The company reported a net loss of $16.1 million, or
$.90 per share, for the year, compared with a net loss of $8.2 million, or $.45
per share, for 1999. After removing special charges, the net loss for 2000 would
have been $13.5 million, or $.75 per share, and the net loss for 1999 would have
been $4.9 million, or $.27 per share. Comparable store sales for the year
increased by 0.2%, following a prior year increase of 5%.
Jim Raabe, Select Comfort vice president and CFO, said, "Sales volume in the
fourth quarter reflects low mall traffic during the holiday season as well as
reduced advertising spending. Advertising spending was reduced after the first
quarter as the effectiveness of existing material was increasingly inefficient
and the company worked to develop new creative programs. The
2
disappointing volume trends have impacted both financial results and cash
reserves. We have adopted aggressive cash conservation measures as we have been
working to arrange financing to support working capital needs and growth
initiatives. Fourth quarter results also reflect early indications of cost
savings, which will increase in 2001 as implementation costs are completed."
Bill McLaughlin, Select Comfort president and CEO, said, "2000 was a
repositioning year. New management established a turn-around plan focused on
bringing costs in line with sales volumes and dramatically increasing consumer
awareness of our innovative product. The company was restructured to operate as
a single company, leveraging the strengths of its three established sales
channels (retail, direct and dot.com), and to capture the efficiencies and
leverage of an integrated marketing effort. Aggressive cost reduction measures
were taken across the company as non-core initiatives were terminated and other
operations were rightsized. Marketing efforts in the second half of 2000 focused
on repositioning the company's product, brand and marketing message around the
SLEEP NUMBER(R) bed. Tests of new channels of distribution designed to further
increase both awareness as well as the availability of our product to consumers
were successful.
"The objectives of our cost reduction efforts were to make our core bed
business profitable at 2000 sales volumes and to enable funding of bold new
awareness building programs. Actions taken since the beginning of 2000 are
expected to yield annual run-rate improvements of $15 million or more after
investing approximately $8 million back into awareness building marketing and
media programs. Specific run-rate improvements include:
o Savings from termination of non-core business initiatives, including
catalog, road show and event marketing, and expenses in 2000 related to
investment in the initial launch of the sofa sleeper product line and
relaunch of the company's web site;
o Manufacturing cost savings from shifting pump assembly from Minneapolis to
Salt Lake City;
o Selling expense savings from reducing our sales infrastructure by closing
our direct call center in South Carolina and 27 under-performing retail
stores, and by streamlining retail management and store staffing levels;
3
o Corporate general and administrative expense savings from reductions in
corporate staff and consolidating our two Minneapolis offices;
o Logistics cost savings from systems and packaging improvements to enable
shipping with Fed Ex as well as UPS;
o Product cost reductions with equal or superior quality and reduced returns;
and
o Promotional discount reductions through improved design and controls."
McLaughlin continued, "Lack of awareness of our revolutionary product and of
our brand has long been our number one barrier to growth. Our national unaided
awareness is less than 3% (versus 20% to 40% for the leading innerspring
competitors), and the demographics of our current customers skew older with an
emphasis on back pain. We set an objective to dramatically increase awareness of
the importance of sleep and of the ability of our product to provide a better
night's sleep. We plan to appeal to a broader consumer audience with the core
benefit of improved sleep. Our Sleep Number campaign meets these objectives and
is both entertaining and clearly directive to generate traffic to our stores.
This new campaign will be "shouted" on prime time TV and radio, not "whispered"
in late night and narrow-reach mediums as in the past. This campaign is being
rolled out regionally, using spot media purchases, to balance investment and
financial performance objectives.
"Early test results from the Sleep Number campaign are very encouraging with
traffic in stores doubling the previous trend. It is too early to read the
impact on conversion or sales, but our past experience indicates that media
driven inquiries convert at significantly higher rates than casual walk by
traffic. Awareness of the Sleep Number brand is quickly rivaling awareness of
the Select Comfort name in initial markets," said McLaughlin.
The company also reported that it has completed the integration of the
operations of SleepTec, the innovator of the company's sofa sleeper product, and
plans to launch the 2001 models of the Sofa Sleepaire Collection in the third
quarter of 2001. "We have identified and are implementing significant
improvements to this product line," said McLaughlin. "This product delivers on
our mission of improving people's lives by providing the best possible night's
sleep as well as other consumer benefits not available with any other sofa
sleeper."
4
McLaughlin noted, "While well aware of our challenges, we are proud of our
progress and committed to doing what is necessary to give our Sleep Number
campaign the time in the market that it requires. 2000 was a year of
repositioning; 2001 is our year to regain profitability and growth. We feel we
are well positioned to succeed:
o Our product and technology are the best in the industry and quality is
better than ever.
o Awareness has been our number one barrier to growth and we now believe we
have a solution.
o We have an experienced and committed team of employees and management. We
have completed the transition in marketing leadership from Ted Atkinson to
Noel Schenker. We will shortly be transitioning sales leadership from Ron
Mayle to the very capable sales channel leaders that have been developed.
Ron will be leaving Select Comfort in the second quarter to seek an
opportunity with broader general management responsibilities.
o Cost reductions are in place and systems and process improvements are being
implemented that will lead to further savings.
o Our re-energized R&D and product development efforts are fueling further
cost improvements and providing exciting expansion potential."
Founded in 1987, Select Comfort Corporation is the leader in sleep solutions
technology, holding 24 U.S. issued or pending patents for its products. The
company designs, manufactures and markets a line of mattresses with adjustable
firmness, as well as foundations and sleep accessories. Select Comfort's
products are sold through three channels: i) 330 retail stores located
nationwide, including 25 leased departments in Bed Bath & Beyond stores, ii)
Select Comfort's national direct sales operations, and iii) on the Internet at
www.selectcomfort.com.
Select Comfort will hold a conference call to discuss its fourth quarter
and year-end results on Wednesday, Feb. 21 at 10:00 a.m. Central Time. A
simultaneous webcast of the call will be available in the Investor Relations
section of www.selectcomfort.com. A digital replay of the conference call will
be accessible beginning at approximately 12:00 p.m. Central Time on Wednesday,
Feb. 21, through 5:00 p.m. Central Time on Friday, Feb. 23, 2001. To access the
replay, please call 888-568-0906 from anywhere in the U. S. International
callers may dial
5
402-998-1583. An archived replay of the conference call may
also be accessed after approximately 12:30 p.m. Central Time on Wednesday, Feb.
21 at www.selectcomfort.com.
Statements used in this press release that relate to future plans, events,
financial results or performance are forward-looking statements as defined under
the Private Securities Litigation Reform Act of 1995. Actual plans, events,
results and performance may differ materially from those anticipated as a result
of certain risks and uncertainties, including but not limited to:
o The company's ability to create product and brand name awareness.
o The efficiency and effectiveness of the company's marketing and
advertising.
o The ability of the company to effectively and efficiently pursue new
channels of distribution.
o The performance of the company's existing and new stores.
o The ability of the company to realize the benefits of cost saving
initiatives.
o The levels of consumer acceptance of the company's product lines.
o The ability of the company to continuously improve its existing product
lines and introduce new products.
o The ability of the company to efficiently implement nationwide home
delivery and assembly.
o The ability of the company to secure debt or equity financing to support
working capital needs and growth initiatives.
o Economic trends and consumer confidence.
o Industry competition.
o The risks and uncertainties detailed from time to time in the company's
filings with the SEC, including the company's Annual Report on Form 10-K
and other periodic reports filed with the SEC.
The company has no obligation to publicly update or revise any of the
forward-looking statements that may be in this news release.
6
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
DECEMBER 30, 2000 AND JANUARY 1, 2000
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED TWELVE MONTHS ENDED
----------------------- ----------------------
2000 1999 2000 1999
----------- ----------- ---------- ----------
Net sales $ 64,075 $ 68,104 $ 270,077 $ 273,767
Cost of sales 25,021 24,054 98,924 95,107
----------- ----------- ---------- ----------
Gross margin 39,054 44,050 171,153 178,660
----------- ----------- ---------- -----------
Operating expenses:
Sales and marketing 38,506 42,049 165,960 162,742
General and administrative 6,925 10,536 29,211 29,213
Store closings/asset impairments 528 1,404 1,952 1,498
----------- ----------- ---------- ----------
Total operating expenses 45,959 53,989 197,123 193,453
----------- ----------- ---------- ----------
Operating income (6,905) (9,939) (25,970) (14,793)
----------- ----------- ---------- ----------
Other income (expense):
Interest income 145 460 1,082 1,956
Interest expense (20) (8) (26) (69)
Equity in loss of affiliate - - (642) -
Other, net 14 (104) (66) (116)
----------- ----------- ---------- ----------
Other income, net 139 348 348 1,771
----------- ----------- ---------- ----------
Net loss before income tax benefit (6,766) (9,591) (25,622) (13,022)
Income tax benefit (2,779) (3,549) (9,480) (4,818)
----------- ----------- ---------- ----------
Net loss $ (3,987) $ (6,042) $(16,142) $ (8,204)
=========== =========== ========== ==========
Net loss per share - diluted $ (0.22) $ (0.33) $ (0.90) $ (0.45)
=========== =========== ========== ==========
Weighted average shares - diluted 17,949 18,155 17,848 18,300
=========== =========== ========== ==========
7
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 30, 2000, AND JANUARY 1, 2000
(IN THOUSANDS)
ASSETS 2000 1999
---------- -----------
Current assets:
Cash and cash equivalents $ 1,498 $ 7,441
Marketable securities 3,950 20,129
Accounts receivable, net of allowance for
doubtful accounts of $264, and $305, respectively 2,693 1,056
Inventories 11,083 11,451
Prepaid expenses 4,741 4,821
Income taxes - 2,579
Deferred tax assets 6,445 6,639
---------- -----------
Total current assets 30,410 54,116
---------- -----------
Property and equipment, net 37,063 34,823
Deferred tax assets 13,789 4,248
Other assets 3,644 2,176
---------- -----------
Total assets $ 84,906 $ 95,363
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 38 $ 51
Accounts payable 17,271 15,911
Accruals:
Sales returns 5,284 5,880
Warranty costs 7,181 5,841
Compensation, taxes and benefits 6,238 6,678
Other 5,291 5,285
---------- -----------
Total current liabilities 41,303 39,646
Long-term debt, less current maturities 2,322 36
Other liabilities 3,609 2,809
---------- -----------
Total liabilities 47,234 42,491
---------- -----------
Shareholders' equity:
Undesignated preferred stock; 5,000,000 shares
authorized, no shares issued and outstanding - -
Common stock, $.01 par value; 95,000,000 shares
authorized, 17,962,689 and 17,713,247 shares
issued and outstanding, respectively 180 177
Additional paid-in capital 79,452 78,513
Accumulated deficit (41,960) (25,818)
---------- -----------
Total shareholders' equity 37,672 52,872
---------- -----------
Total liabilities and shareholders' equity $ 84,906 $ 95,363
========== ===========
8
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
DECEMBER 30, 2000 AND JANUARY 1, 2000
(IN THOUSANDS)
2000 1999
---------- ----------
Cash flows from operating activities:
Net income (loss) $(16,142) $ (8,204)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 8,409 6,695
Loss on disposal of assets and impaired assets 2,167 1,297
Deferred tax assets (9,336) (4,999)
Change in operating assets and liabilities:
Accounts receivable, net (1,637) 9,568
Inventories 640 (1,315)
Prepaid expenses 80 (773)
Income taxes 2,579 (3,227)
Accounts payable 1,360 3,832
Accrued sales returns (596) (141)
Accrued warranty costs 1,340 1,355
Accrued compensation, taxes and benefits (173) 1,835
Other accrued liabilities (312) 724
Other assets 535 147
Other liabilities 800 863
---------- ----------
Net cash provided by (used in) operating activities (10,286) 7,657
---------- ----------
Cash flows used in investing activities:
Purchases of property and equipment (12,084) (13,663)
Investment in marketable securities 16,179 (20,129)
Investment in affiliate (400) (2,000)
---------- ----------
Net cash provided by (used in) investing activities 3,695 (35,792)
---------- ----------
Cash flows from financing activities:
Principal payments on debt (16) (872)
Repurchase of common stock - (12,692)
Proceeds from issuance of common stock 664 3,579
---------- ----------
Net cash provided by (used in) financing activities 649 (9,985)
---------- ----------
Increase (decrease) in cash and cash equivalents (5,943) (38,120)
Cash and cash equivalents, at beginning of year 7,441 45,561
---------- ----------
Cash and cash equivalents, at end of year $ 1,498 $ 7,441
========== ==========
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SELECT COMFORT CORPORATION
(Registrant)
Dated: February 21, 2001 By /s/ Mark A. Kimball
------------------------------------
Title: Senior Vice President
------------------------------------
10