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): JULY 15, 2002
SELECT COMFORT CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 0-25121 41-1597886
(State of Incorporation) (Commission File (IRS Employer
Number) Identification No.)
6105 TRENTON LANE NORTH
MINNEAPOLIS, MINNESOTA 55442
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (763) 551-7000
ITEM 9. REGULATION FD DISCLOSURE.
On July 15, 2002, the registrant issued a press release, as follows:
FOR IMMEDIATE RELEASE CONTACT: Mark Kimball (763) 551-7070
Select Comfort Corporation
SELECT COMFORT CORPORATION
ANNOUNCES FOURTH CONSECUTIVE PROFITABLE QUARTER
SECOND QUARTER NET SALES RISE 23 PERCENT TO $77 MILLION;
NET INCOME IN SECOND QUARTER IS $2.6 MILLION, OR 8 CENTS PER SHARE
MINNEAPOLIS, MINN. (July 15, 2002) - Select Comfort Corporation (NASDAQ:
SCSS) today announced results for the second quarter ended June 29, 2002. The
company reported its fourth consecutive quarterly profit with net income of $2.6
million, or $0.08 per diluted share ($0.05 pro forma after tax earnings per
diluted share*), and net sales of $77.3 million, 23 percent higher than net
sales for second quarter of 2001. A comparison of key operating results for the
second quarters of 2002 and 2001 are as follows (in millions, except per-share
amounts):
2nd Quarter
-----------
2002 2001
---- ----
Net sales $77.3 $62.7
Operating income (loss) 3.0 (3.2)
Net income (loss) 2.6 (3.5)
Earnings (loss) per diluted share $0.08 ($0.19)
Pro forma after tax earnings (loss)
per diluted share* $0.05 ($0.12)
Cash and marketable securities $26.0 $ 8.8
Comparable store sales + 21% - 4%
Stores open at end of period 321 327
"Select Comfort's robust second quarter results mark not only four
consecutive quarters of profitability, but also notably strong sales during what
is traditionally a sluggish quarter in the retail and mattress industries," said
Bill McLaughlin, president and chief executive officer. "We are pleased with the
progress and performance of our growth strategies, including our Sleep Number(R)
advertising campaign, selling improvement, distribution expansion, and
accelerated product innovation, all factors we expect to positively contribute
into the second half of the year."
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The company's second quarter highlights included:
- -------------------------------------------------
o STRENGTHENED FINANCIAL POSITION
- Eliminated $11 million in long-term debt and $880,000 in annual
interest expense through the conversion of notes into 11 million
shares of common stock.
o INCREASED BRAND AND PRODUCT AWARENESS
- Increased spending on national television advertising by 43 percent
over second quarter 2001.
- Grew local media spending by 19 percent over second quarter 2001.
o EXPANDED DISTRIBUTION
- Achieved double-digit sales growth across all channels:
2nd Quarter
-----------
% of Total Sales 2002 vs. 2001
---------------- -------------
Retail Sales 73% +21%
Direct Marketing 15% +22%
E-Commerce 5% +82%
Wholesale and QVC 7% +24%
- Began offering Sleep Number(R) beds at 38 Sleep Train(R) stores across
Northern California.
- Partnered with Winnebago Industries to begin offering the Sleep
Number(R) bed in selected 2003 Winnebago models.
- Continued partnership with QVC, maintaining strong sales performance
realized in 2001.
o ACCELERATED PRODUCT INNOVATION
- Introduced the Sleep Number(R) 3000 Pillowtop bed.
- Re-launched the Sleep Number(R) 4000 bed with a digital remote and
other enhancements.
- Completed a successful test launch of adjustable foundations.
o CONTINUED COST CONTROL
- Gross margin improved to 68.1%.
- Operating margin improved to 3.9%.
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A comparison of key operating results for the six months ended June 29,
2002 and the comparable period of 2001 are as follows (in millions, except
per-share amounts):
Six Months
----------
2002 2001
---- ----
Net sales $158.5 $128.2
Operating income (loss) 6.4 (12.9)
Net income (loss) 5.8 (13.4)
Earnings (loss) per diluted share $ 0.19 ($0.74)
Pro forma after tax earnings (loss)
per diluted share* $ 0.12 ($0.46)
Comparable store sales + 19% - 5%
Earnings before interest, taxes, depreciation and amortization for the
first six months of 2002 were $10.9 million, an improvement of $18.5 million
over prior year.
The company's initiatives for third and fourth quarter include:
o INCREASING BRAND AND PRODUCT AWARENESS
- Extending heavier advertising in three of the nation's leading media
markets -- San Francisco, Sacramento and Phoenix.
- Expanding national and local media spending by over 50% compared to
2001.
o EXPANDING DISTRIBUTION
- Opening 11 new retail stores and closing three retail stores.
- Remodeling and relocating nine retail stores
- Offering Sleep Number(R) beds at 13 Sleep America stores in Phoenix
beginning in July.
o ACCELERATING PRODUCT INNOVATION AND SERVICE LEVELS
- Introducing adjustable foundation nationally.
- Expanding home delivery to 20 additional markets across the U.S. by
the end of third quarter.
Outlook for the second half of 2002
- -----------------------------------
As a result of recent sales trends, operating results and future
expectations, the company is updating its guidance for the remainder of 2002.
The company expects double-digit sales
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growth to continue into the second half of the year, although the rate of growth
will likely moderate from the year-to-date pace as the company laps the 2001
introduction of its new advertising campaign and other growth initiatives.
Assuming continued performance of advertising and growth programs, no
significant changes to the U.S. economic recovery or mattress industry growth
rates, or competitive reaction to the company's recent success, estimated
performance ranges are expected to be:
3rd Quarter 4th Quarter 2002 | Prior Year
----------- ----------- ---- | ----------
Net sales (millions) $72 -- $78 $75 -- $83 $305 -- $319 | $262
Earnings per diluted share $0.04 -- $0.08 $0.12 -- $0.16 $0.35 -- $0.43 | ($0.66)
Pro forma after tax |
earnings per diluted share* $0.02 -- $0.05 $0.07 -- $0.10 $0.22 -- $0.27 | ($0.41)
Stores open at end of period 322 330 | 327
Third quarter earnings guidance reflects increased advertising levels to
support awareness building and distribution expansion. This stepped-up level of
advertising, designed to contribute to long-term sales growth rates, will result
in lower earnings than would normally be expected at forecasted third quarter
sales levels.
Select Comfort will hold a conference call to discuss its second quarter
results on Tuesday, July 16, 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 1:00 p.m. Central Time on Tuesday, July
16, through 5:00 p.m. Central Time on Tuesday, July 23, 2002. To access the
replay, please call 800-642-1687 from anywhere in the U. S. International
callers may dial 706-645-9291. The passcode for the replay is 4839807. An
archived replay of the conference call may also be accessed after approximately
12:30 p.m. Central Time on Tuesday, July 16 at WWW.SELECTCOMFORT.COM.
Founded in 1987, Select Comfort Corporation is the leader in sleep
solutions technology, holding 27 U.S. issued or pending patents for its
products. The company designs, manufactures and markets the adjustable- firmness
SLEEP NUMBER(R) bed, as well as foundations and sleep accessories. Select
Comfort's products are sold through its 320 retail stores located nationwide,
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including 20 leased departments in Bed Bath & Beyond stores; through its
national direct marketing operations; and on the Internet at
WWW.SELECTCOMFORT.COM.
Statements used in this press release that relate to future plans, events,
financial results or performance are forward-looking statements that are subject
to certain risks and uncertainties including, among others, such factors as
general and industry economic trends, consumer confidence, effectiveness of our
advertising and promotional efforts, acceptance of our products and sleep
technology, industry competition, our dependence on significant suppliers,
including United Parcel Service (UPS) for delivery of our sleep systems and
Conseco Finance for extension of consumer credit, and the vulnerability of any
such suppliers to recessionary pressures, labor negotiations, liquidity concerns
or other factors as well as the risk factors listed 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.
*NET INCOME DOES NOT REFLECT INCOME TAXES BECAUSE OF THE COMPANY'S $34
MILLION OF NET OPERATING LOSS CARRYFORWARDS FOR FEDERAL INCOME TAX PURPOSES. PRO
FORMA RESULTS REDUCE REPORTED EARNINGS BY AN ESTIMATED EFFECTIVE INCOME TAX RATE
OF 38 PERCENT.
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SELECT COMFORT CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------------ ------------------------------------
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
2002 2001 2002 2001
----------------- ----------------- ----------------- -----------------
Net sales $ 77,281 $ 62,742 $158,476 $128,198
Cost of sales 24,677 22,428 51,071 46,039
----------------- ----------------- ----------------- -----------------
Gross margin 52,604 40,314 107,405 82,159
----------------- ----------------- ----------------- -----------------
Operating expenses:
Sales and marketing 41,437 37,394 85,608 81,568
General and administrative 8,026 5,954 15,235 12,967
Store closings and asset impairments 157 142 209 488
----------------- ----------------- ----------------- -----------------
Total operating expenses 49,620 43,490 101,052 95,023
----------------- ----------------- ----------------- -----------------
Operating income (loss) 2,984 (3,176) 6,353 (12,864)
----------------- ----------------- ----------------- -----------------
Other income (expense):
Interest income 37 40 104 115
Interest expense (537) (254) (1,123) (352)
Other, net 79 (140) 125 (142)
----------------- ----------------- ----------------- -----------------
Other income (expense), net (421) (354) (894) (379)
----------------- ----------------- ----------------- -----------------
Income (loss) before income taxes 2,563 (3,530) 5,459 (13,243)
Income tax (benefit) expense - - (348) 115
----------------- ----------------- ----------------- -----------------
Net income (loss) $ 2,563 $ (3,530) $ 5,807 $(13,358)
================= ================= ================= =================
Net income (loss) per share - basic $ 0.13 $ (0.19) $ 0.31 $ (0.74)
================= ================= ================= =================
Weighted average shares - basic 19,690 18,119 19,038 18,087
================= ================= ================= =================
Net income (loss) per share - diluted $ 0.08 $ (0.19) $ 0.19 $ (0.74)
================= ================= ================= =================
Weighted average shares - diluted 34,415 18,119 33,848 18,087
================= ================= ================= =================
RECONCILIATION OF EPS INFORMATION:
Net income (loss) $ 2,563 $ (3,530) $ 5,807 $(13,358)
Add: Interest expense on convertible debt 254 - 563 -
----------------- ----------------- ----------------- -----------------
Net income (loss) attributable to common
shareholders $ 2,817 $ (3,530) $ 6,370 $(13,358)
================= ================= ================= =================
Weighted average shares outstanding 19,690 18,119 19,038 18,087
Effect of dilutive securities:
Options 1,904 - 1,629 -
Warrants 2,964 - 2,752 -
Convertible debt 9,857 - 10,429 -
----------------- ----------------- ----------------- -----------------
Dilutive weighted average shares
outstanding 34,415 18,119 33,848 18,087
================= ================= ================= =================
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SELECT COMFORT CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
JUNE 29, DECEMBER 29,
2002 2001
----------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 15,356 $ 16,375
Marketable securities 10,639 -
Accounts receivable, net of allowance for doubtful accounts
of $311 and $311, respectively 2,704 2,623
Inventories 10,967 8,086
Prepaid expenses 4,174 3,588
----------------- -----------------
Total current assets 43,840 30,672
Property and equipment, net 29,231 30,882
Other assets 3,839 5,882
----------------- -----------------
Total assets $ 76,910 $ 67,436
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 13 $ 28
Accounts payable 15,426 15,216
Accruals:
Sales returns 3,510 3,624
Compensation and benefits 8,792 7,179
Taxes and withholding 2,311 3,032
Other 8,387 5,332
----------------- -----------------
Total current liabilities 38,439 34,411
Long-term debt, less current maturities 7,266 17,109
Accrued warranty costs 4,744 5,030
Other liabilities 4,104 4,114
----------------- -----------------
Total liabilities 54,553 60,664
----------------- -----------------
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,
29,583,826 and 18,302,307 shares issued and outstanding,
respectively 296 183
Additional paid-in capital 91,352 81,687
Accumulated deficit (69,291) (75,098)
----------------- -----------------
Total shareholders' equity 22,357 6,772
----------------- -----------------
Total liabilities and shareholders' equity $ 76,910 $ 67,436
================= =================
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SELECT COMFORT CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
-------------------------------------
JUNE 29, JUNE 30,
2002 2001
----------------- -----------------
Cash flows from operating activities:
Net income (loss) $ 5,807 $(13,358)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,701 4,994
Loss on disposal of assets and impaired assets 216 496
Change in operating assets and liabilities:
Accounts receivable, net (81) 681
Inventories (2,881) 2,130
Prepaid expenses (586) 90
Other assets 1,347 (75)
Accounts payable 210 1,743
Accrued sales returns (114) (666)
Accrued compensation and benefits 1,613 (277)
Accrued taxes and withholding (721) (345)
Other accrued liabilities 3,127 (545)
Accrued warranty costs (358) (25)
Other liabilities (10) 397
----------------- -----------------
Net cash provided by (used in) operating activities 12,270 (4,760)
----------------- -----------------
Cash flows from investing activities:
Purchases of property and equipment (2,916) (2,367)
(Investment in) sales of marketable securities (10,639) 3,950
----------------- -----------------
Net cash (used in) provided by investing activities (13,555) 1,583
----------------- -----------------
Cash flows from financing activities:
Principal payments on debt (20) (18)
Proceeds from issuance of common stock 286 191
Net proceeds from issuance of long-term debt - 10,354
----------------- -----------------
Net cash provided by financing activities 266 10,527
----------------- -----------------
Increase in cash and cash equivalents (1,019) 7,350
Cash and cash equivalents, at beginning of period 16,375 1,498
----------------- -----------------
Cash and cash equivalents, at end of period $ 15,356 $ 8,848
================= =================
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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: July 15, 2002 By /S/ MARK A. KIMBALL
-----------------------------------------
Title: SENIOR VICE PRESIDENT
-------------------------------------
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