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 4, 2003
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 February 4, 2003, the registrant issued a press release, as follows:
FOR IMMEDIATE RELEASE CONTACT: Mark Kimball (763) 551-7070
Select Comfort Corporation
mark.kimball@selectcomfort.com
SELECT COMFORT CORPORATION REPORTS
RECORD FOURTH QUARTER AND FULL-YEAR RESULTS
2002 REVENUES UP 28 PERCENT, Q4 SAME STORE SALES UP 38 PERCENT,
COMPANY ANNOUNCES Q1 GUIDANCE
MINNEAPOLIS, MINN. (February 4, 2003) - Select Comfort Corporation (NASDAQ:
SCSS), the nation's leading bed retailer and creator of the Sleep Number(R) bed,
today announced results for the fourth quarter and year ended December 28, 2002.
The company reported its sixth consecutive quarterly profit with pro forma
(after tax) net income of $5.3 million, or $0.15 per fully diluted share,
compared with net income of $0.03 per share pro forma (after tax) in fourth
quarter 2001. Fourth quarter 2002 net sales were $92.3 million, 33 percent
higher than fourth quarter 2001 net sales of $69.3 million. For the full 2002
fiscal year, the Company reported pro forma (after tax) earnings of $12.2
million or $.37 per share on net sales of $335.8 million. Cash and marketable
securities balances at year end were $40.8 million, and the company has no
interest-bearing debt.
Under Generally Accepted Accounting Principles (GAAP), the company's fourth
quarter reported earnings were $7.7 million or $.21 per share and 2002 earnings
were $37.1 million or $1.09 per share. A full reconciliation of pro forma
results versus GAAP results is included later in this release.
A comparison of key operating results for the fourth quarters and full
years of 2002 and 2001 are as follows (in millions, except per-share amounts):
Q4 TWELVE MONTHS
-- | -------------
2002 2001 | 2002 2001
---- ---- | ---- ----
|
Net sales $92.3 $69.3 | $335.8 $261.7
Operating income $ 8.8 $ 1.7 | $ 21.0 $(10.6)
Pro forma after tax net income $ 5.3 $ 0.6 | $ 12.2 $ (7.5)
Pro forma after tax earnings per diluted share $0.15 $0.03 | $ 0.37 $(0.41)
Reported net income (loss) $ 7.7 $ 1.1 | $ 37.1 $(12.1)
Reported earnings (loss) per diluted share $0.21 $0.04 | $ 1.09 $(0.66)
Comparable store sales + 38% + 1% | + 27% - 4%
|
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"We are energized by the performance and momentum of Select Comfort and the
strong sales of our innovative Sleep Number(R) bed," said Bill McLaughlin,
president and chief executive officer. "Throughout 2002, our revenues
consistently grew more than 20 percent over prior year, and in the fourth
quarter, our revenue growth exceeded 30 percent. Profit growth was even
stronger, with margin acceleration outpacing volume growth - a reflection of our
advantaged cost structure."
"As positive as 2002 was for Select Comfort, the real opportunity lies
ahead," McLaughlin continued. "Our national brand awareness remains below five
percent - although we have proven we can achieve 20 percent awareness in key
markets. We are working to rapidly increase our national brand awareness through
expansion of our highly successful Sleep Number(R) advertising campaign.
Combined with retail store expansion, continued product innovation and leverage
of our unique financial model, I'm confident 2003 will be another
record-breaking year for Select Comfort."
Select Comfort plans to continue to invest in growth and profit in 2003.
Key initiatives will continue to follow the company's four strategic priorities:
o Increase brand and product awareness
- Increase advertising investment by 25 percent or more, expanding
Sleep Number(R) national advertising to increase national brand
awareness
- Expand the local Sleep Number(R) advertising campaign into four
new markets, for a total of 20 markets, representing
approximately 46 percent of Select Comfort's retail revenue.
- Double the radio personality endorsement advertising program,
adding 65 new local radio personalities in 65 markets
o Expand profitable distribution
- Open 20-30 new stores
- Remodel approximately 100 stores
o Continue to provide product news and improvements
- Extend rollout of adjustable foundation to 166 additional stores in Q1
- Launch Grand King bed in first quarter
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o Strengthen financial position
- Continue disciplined cost management to improve operating margins
- Leverage just-in-time inventory and make-to-order bed production
- Upgrade our Oracle enterprise information systems to support future
growth and productivity.
GUIDANCE
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 for first quarter 2003 are expected to be:
FIRST QUARTER
-------------
2003 2002
---- ----
Net sales (millions) $92 -- $96 $81.2
Earnings per diluted share $0.07 -- $0.09 $0.06(1)
Stores open at end of period 323 322
Estimated fully diluted 37.5 33.0
shares (millions)
(1)Pro forma (after tax) earnings. Reported earnings of $.11/share exclude
income tax expense.
Based on strong sales trends through the first five weeks of the first
quarter, the Company's management is highly confident it will meet its
previously announced earnings range of $.44 to $.48 per share for fiscal 2003.
The Company's management has presented its earnings on a pro forma after
tax basis to improve comparability with future period earnings expectations.
Generally Accepted Accounting Principles (GAAP) did not allow the Company to
reduce its earnings for income tax expense in fiscal 2002. However, GAAP will
require that the Company's earnings be reduced for income taxes in future years.
In addition, the Company excluded from 2002 pro forma after tax earnings the
non-cash charges associated with early repayment of its $5 million senior debt
in 2002. The Company has no remaining debt which could result in similar
non-cash charges in future periods.
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Select Comfort will hold a conference call to discuss its fourth quarter
results on February 4, 2003, 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 February 4,
2003, through 5:00 p.m. Central Time on February 11, 2003. 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 7458994. An archived replay of
the conference call may also be accessed after approximately 12:30 p.m. Central
Time on February 4, 2003 at WWW.SELECTCOMFORT.COM.
Founded in 1987, Select Comfort Corporation is the nation's leading bed
retailer (2), holding 27 U.S. issued or pending patents for its personalized
sleep products. The company designs, manufactures and markets a line of
adjustable-firmness mattresses featuring air-chamber technology, branded the
Sleep Number(R) bed, as well as foundations and sleep accessories. Select
Comfort's products are sold through its 321 retail stores located nationwide,
including leased departments in 13 Bed Bath & Beyond stores; through selected
bedding retailers; 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, uncertainties arising from the possibility
of war and other global events, consumer confidence, effectiveness of our
advertising and promotional efforts, acceptance of our products and sleep
technology, industry competition, our dependence on significant suppliers,
including Conseco Finance for extension of consumer credit, and the
vulnerability of any suppliers to recessionary pressures, labor negotiations,
liquidity concerns or other factors, risks inherent in conversion of enterprise
information systems, 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.
5
The company has no obligation to publicly update or revise any of the
forward-looking statements that may be in this news release.
(2) Top 25 Bedding Retailers, FURNITURE TODAY, August 12, 2002
6
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED (UNAUDITED) TWELVE MONTHS ENDED
------------------------------ ------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 28, DECEMBER 29,
2002 2001 2002 2001
-------------- -------------- -------------- --------------
Net sales $ 92,263 $ 69,341 $ 335,795 $ 261,687
Cost of sales (1) 34,584 26,965 125,796 107,210
-------------- -------------- -------------- --------------
Gross margin 57,679 42,376 209,999 154,477
-------------- -------------- -------------- --------------
Operating expenses:
Sales and marketing (1) 40,309 32,815 155,890 138,417
General and administrative 8,534 6,584 32,854 24,836
Store closings and asset impairments - 1,318 233 1,826
-------------- -------------- -------------- --------------
Total operating expenses 48,843 40,717 188,977 165,079
-------------- -------------- -------------- --------------
Operating income (loss) 8,836 1,659 21,022 (10,602)
-------------- -------------- -------------- --------------
Other income (expense), net (268) (709) (1,282) (1,464)
-------------- -------------- -------------- --------------
Income (loss) before income taxes 8,568 950 19,740 (12,066)
Income tax expense (benefit) 477 (115) (17,762) -
-------------- -------------- -------------- --------------
Income (loss) before extraordinary loss 8,091 1,065 37,502 (12,066)
Extraordinary loss from early
extinguishment of debt, net of tax (380) - (380) -
-------------- -------------- -------------- --------------
Net income (loss) $ 7,711 $ 1,065 $ 37,122 $ (12,066)
============== ============== ============== ==============
Net income (loss) per share - basic $ 0.25 $ 0.06 $ 1.51 $ (0.66)
============== ============== ============== ==============
Weighted average shares - basic 30,488 18,274 24,549 18,157
============== ============== ============== ==============
Net income (loss) per share - diluted $ 0.21 $ 0.04 $ 1.09 $ (0.66)
============== ============== ============== ==============
Weighted average shares - diluted 36,635 30,869 34,532 18,157
============== ============== ============== ==============
CONSOLIDATED STATEMENTS OF OPERATIONS
EXPRESSED AS A PERCENTAGE OF NET SALES:
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 37.5% 38.9% 37.5% 41.0%
-------------- -------------- -------------- --------------
Gross margin 62.5% 61.1% 62.5% 59.0%
-------------- -------------- -------------- --------------
Operating expenses
Sales and marketing 43.7% 47.3% 46.4% 52.9%
General and administrative 9.2% 9.5% 9.8% 9.5%
Store closings & asset impairments - 1.9% 0.1% 0.7%
-------------- -------------- -------------- --------------
Total operating expenses 52.9% 58.7% 56.3% 63.1%
-------------- -------------- -------------- --------------
Operating income 9.6% 2.4% 6.3% (4.1%)
Net income 8.4% 1.5% 11.1% (4.6%)
(1) Note: In the fourth quarter 2002 the Company elected to reclassify from
sales and marketing expense to costs of sales the costs associated with delivery
of its products. As a result of this change in presentation, cost of sales
increased and selling and marketing expenses decreased by equivalent amounts
outlined below:
o Three months ended: December 28, 2002 - $6.0 million, December 29,
2001 - $4.1 million
o Twelve months ended: December 28 2002 - $20.6 million, December 29,
2001 - $17.1 million
This change in classification does not affect operating income or net income.
For information on the affect of this reclassification on prior quarters please
go to the investor relations section of the Company's website at
www.selectcomfort.com.
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SELECT COMFORT CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
DECEMBER 28, DECEMBER 29,
2002 2001
-------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 27,176 $ 16,375
Marketable securities - current 12,146 -
Accounts receivable, net of allowance for doubtful
accounts of $340 and $311, respectively 3,270 2,623
Inventories 8,980 8,086
Prepaid expenses 5,467 3,588
Deferred tax assets 12,955 -
-------------- --------------
Total current assets 69,994 30,672
Marketable securities - non-current 1,502 -
Property and equipment, net 28,977 30,882
Deferred tax assets 4,352 -
Other assets 3,506 5,882
-------------- --------------
Total assets $ 108,331 $ 67,436
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 11 $ 28
Accounts payable 16,508 15,216
Accruals:
Sales returns 3,181 3,624
Compensation and benefits 13,666 7,179
Taxes and withholding 2,779 3,032
Consumer prepayments 1,964 1,263
Other 5,120 4,069
-------------- --------------
Total current liabilities 43,229 34,411
Long-term debt, less current maturities 2,991 17,109
Accrued warranty costs 3,626 5,030
Other liabilities 3,970 4,114
-------------- --------------
Total liabilities 53,816 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, 30,727,101 and 18,302,307 shares issued
and outstanding, respectively 307 183
Additional paid-in capital 92,184 81,687
Accumulated deficit (37,976) (75,098)
-------------- --------------
Total shareholders' equity 54,515 6,772
-------------- --------------
Total liabilities and shareholders' equity $ 108,331 $ 67,436
============== ==============
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SELECT COMFORT CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
TWELVE MONTHS ENDED
-------------------------------
DECEMBER 28, DECEMBER 29,
2002 2001
-------------- --------------
Cash flows from operating activities:
Net income (loss) $ 37,122 $ (12,066)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 10,473 10,082
Loss on disposal of assets and impaired assets 548 1,687
Deferred tax assets (17,307) -
Change in operating assets and liabilities:
Accounts receivable, net (647) 70
Inventories (894) 2,926
Prepaid expenses (1,879) 2,023
Other assets 1,441 (2,244)
Accounts payable 1,292 (2,055)
Accrued compensation and benefits 6,487 1,154
Other accruals and liabilities (492) (1,163)
-------------- --------------
Net cash provided by operating activities 36,144 414
-------------- --------------
Cash flows from investing activities:
Purchases of property and equipment (7,802) (4,859)
Investments in marketable securities (24,780) -
Proceeds from maturity of marketable securities 11,132 3,950
-------------- --------------
Net cash used in investing activities (21,450) (909)
-------------- --------------
Cash flows from financing activities:
Principal payments on debt (5,022) (38)
Proceeds from issuance of common stock 1,129 370
Net proceeds from issuance of long-term debt - 15,040
-------------- --------------
Net cash (used in) provided by financing activities (3,893) 15,372
-------------- --------------
Increase in cash and cash equivalents 10,801 14,877
Cash and cash equivalents, at beginning of period 16,375 1,498
-------------- --------------
Cash and cash equivalents, at end of period $ 27,176 $ 16,375
============== ==============
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SELECT COMFORT CORPORATION
AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
SELECT COMFORT PRO FORMA NET INCOME RECONCILIATION
Pro forma net income reflects the company's net income before:
o one-time, non-operating, non-cash addition to earnings of $17.9
million which reflects the expected tax benefits from net operating
loss carryforwards and other deferred tax assets
o one-time, non-operating, non-cash decrease to earnings of $614,000
($380,000 after tax) which reflects the write off of certain costs
associated with the early repayment of $5 million senior debt and,
o estimated income taxes utilizing an effective tax rate of 38 percent.
I. Three Months II. YTD Ended
----------------------------- -----------------------------
DEC. 28, 2002 DEC. 28, 2002 DEC. 28, 2002 DEC. 28, 2002
PRO FORMA GAAP PRO FORMA GAAP
------------- ------------- ------------- -------------
RECONCILIATION OF PRO FORMA NET INCOME TO
NET INCOME UNDER GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (GAAP):
Income before income taxes $ 8,568 $ 8,568 $ 19,740 $ 19,740
Income taxes - pro forma at 38% (3,256) (477) (7,501) (477)
Restoration of deferred tax assets - income tax benefit - - - $ 18,239
Extraordinary loss, from early
extinguishment of debt, net of tax - (380) - (380)
------------- ------------- ------------- -------------
Net Income $ 5,312 $ 7,711 $ 12,239 $ 37,122
------------- ------------- ------------- -------------
EARNINGS PER SHARE INFORMATION
III. Three Months IV. Twelve Months Ended
----------------------------- -----------------------------
DEC. 28, 2002 DEC. 29, 2001 DEC. 28, 2002 DEC. 29, 2001
------------- ------------- ------------- -------------
RECONCILIATION OF GAAP EPS INFORMATION:
Net income (loss) $ 7,711 $ 1,065 $ 37,122 $(12,066)
Add: Interest expense on convertible debt 54 310 563 -
------------- ------------- ------------- -------------
Net income (loss) attributable to common shareholders $ 7,765 $ 1,375 $ 37,685 $(12,066)
============= ============= ============= =============
Weighted average shares outstanding 30,488 18,274 24,549 18,157
Effect of dilutive securities:
Options 2,629 507 1,884 -
Warrants 2,792 1,088 2,885 -
Convertible debt 727 11,000 5,214 -
------------- ------------- ------------- -------------
Dilutive weighted average shares outstanding 36,636 30,869 34,532 18,157
============= ============= ============= =============
Diluted earnings per share $ .21 $ .04 $ 1.09 $ (.66)
============= ============= ============= =============
V. Three Months VI. Twelve Months Ended
----------------------------- -----------------------------
DEC. 28, 2002 DEC. 29, 2001 DEC. 28, 2002 DEC. 29, 2001
------------- ------------- ------------- -------------
RECONCILIATION OF GAAP DILUTED EARNINGS
PER SHARE TO PRO FORMA DILUTED EARNINGS PER SHARE:
GAAP diluted earnings per share $ .21 $ .04 $ 1.09 $ (.66)
Effect of:
Income taxes at 38% (.08) (.01) (.22) .25
Extraordinary item .02 - .02 -
Restoration of deferred tax assets - - (.52) -
------------- ------------- ------------- -------------
Pro forma diluted earnings per share $ .15 $ .03 $ .37 $ (.41)
------------- ------------- ------------- -------------
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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: February 4, 2003 By: /s/ Mark A. Kimball
---------------------------------------
Title: Senior Vice President
------------------------------------
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