UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________________ to __________________.
COMMISSION FILE NO. 0-25121
--------------------
SELECT COMFORT PROFIT SHARING AND 401(k) PLAN
(Full title of the Plan)
SELECT COMFORT CORPORATION
(Name of the issuer of the securities held pursuant to the Plan)
6105 TRENTON LANE NORTH
MINNEAPOLIS, MINNESOTA, 55442
(Address of principal executive offices)
SELECT COMFORT PROFIT SHARING AND 401(k) PLAN
Index to Financial Statements and Exhibits
Item
Report of KPMG LLP, Independent Registered Public Accounting Firm
Statements of Net Assets Available for Benefits at December 31, 2003 and 2002
Statements of Changes in Net Assets Available for Benefits for the Years Ended
December 31, 2003 and 2002
Notes to Financial Statements
Supplemental Schedule of Assets (Held at End of Year) at December 31, 2003
Signature
Exhibit 23.1 - Consent of KPMG LLP, Independent Registered Public Accounting
Firm
Exhibits 99.1 and 99.2 - Certifications of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
SELECT COMFORT
PROFIT SHARING AND 401(k) PLAN
Financial Statements and Supplemental Schedule
December 31, 2003 and 2002
(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) 9
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, 2003 and 2002, 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 the 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, 2003 and 2002, 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 made 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 is presented for the purpose of additional analysis and is not a
required part of the basic financial statements, but is supplemental 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.
/s/KPMG LLP
Minneapolis, Minnesota
April 30, 2004
SELECT COMFORT
PROFIT SHARING AND 401(k) PLAN
Statements of Net Assets Available for Benefits
December 31, 2003 and 2002
2003 2002
---------------- ----------------
Assets:
Investments, at fair value $ 25,214,318 13,078,297
---------------- ----------------
Net assets available for benefits $ 25,214,318 13,078,297
================ ================
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, 2003 and 2002
2003 2002
---------------- ----------------
Additions:
Dividend and interest income $ 287,733 148,752
Net appreciation (depreciation) in fair value 8,433,559 679,256
---------------- ----------------
8,721,292 828,008
Less investment expenses 34,920 61,550
---------------- ----------------
Net investment income 8,686,372 766,458
Participant contributions 3,858,351 2,481,101
Employer contributions 1,042,456 544,495
Other -- 118,113
---------------- ----------------
Total additions 13,587,179 3,910,167
---------------- ----------------
Deductions:
Benefits paid 1,259,463 761,118
Surrender charges -- 118,113
Other 191,695 --
---------------- ----------------
Total deductions 1,451,158 879,231
---------------- ----------------
Net increase 12,136,021 3,030,936
Net assets available for benefits:
Beginning of year 13,078,297 10,047,361
---------------- ----------------
End of year $ 25,214,318 13,078,297
================ ================
See accompanying notes to financial statements.
3
SELECT COMFORT
PROFIT SHARING AND 401(k) PLAN
Notes to Financial Statements
December 31, 2003 and 2002
(1) DESCRIPTION OF PLAN
The following description of the Select Comfort (Company) Profit Sharing
and 401(k) Plan (Plan) provides only general information. Participants
should refer to the Plan agreement for a more complete description of the
Plan's provisions.
PLAN INCEPTION
The inception date of the Plan was January 1, 1994.
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 the commencement date of his or her employment provided the
employee is age twenty-one or older. A part-time employee is eligible
after completing one year of at least 1,000 hours of service and is age
twenty-one or older. The Plan is subject to the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA).
RECORDKEEPER AND CUSTODIAN
Effective November 9, 2002, the Plan assets were transferred to the
custody of Met Life Securities, Inc. (Met Life) and Financial
Administrative Services Corporation became the recordkeeper of the Plan.
CONTRIBUTIONS
Each year, participants may contribute a percentage of eligible earnings,
as defined in the Plan. From January 1, 2001 to March 31, 2002,
participants could contribute up to 15% of eligible earnings and, as of
April 1, 2002, up to 50% of eligible earnings. Participants may also
contribute amounts representing distributions from other qualified defined
benefit or contributions plans. Company contributions are determined at
the discretion of the Company's board of directors. Employer contributions
totaled $1,042,456 and $544,495 for the 2003 and 2002 plan years,
respectively.
PARTICIPANT ACCOUNTS
Each participant's account is credited with participant's contribution and
allocations of the Company's contribution and may be charged with an
allocation of administrative expenses. Allocations are based on
participant earnings or account balances, as defined. Forfeited balances
of terminated participants' nonvested accounts are used to reduce future
Company contributions and pay administrative expenses. The benefit to
which a participant is entitled is the benefit that can be provided from
the participant's vested account. The forfeiture balance as of December
31, 2003 and 2002 was $94,556 and $73,397, respectively.
VESTING
Participants are immediately vested in their contributions plus actual
earnings thereon. Vesting in the Company's discretionary contribution of
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.
4
(Continued)
SELECT COMFORT
PROFIT SHARING AND 401(k) PLAN
Notes to Financial Statements
December 31, 2003 and 2002
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 an account is invested. Loan terms range from 1-5 years or up to 10
years for the purchase of a primary residence. The loans are secured by
the balance in the participant's account and bear interest at a rate
commensurate with local prevailing rates plus two percentage points for
loans initiated from January 1, 2001 to November 8, 2002 and plus one
percentage point for loans initiated from November 9, 2002 to December 31,
2003. Equal installments of principal and interest are required not less
frequently than quarterly.
INVESTMENT OPTIONS
Upon enrollment in the Plan, participants may direct their contributions
in 1% increments into any one or more of the Plan Sponsor's pre-determined
investment options. Participants may modify their investment options
daily.
The following descriptions summarize the investment philosophy of the
various mutual funds offered through MetLife Securities, Inc., as outlined
in the fund literature.
MET LIFE GUARANTEED ASSET ACCOUNT - Fixed Interest Annuity backed by
MetLife General Account. Annuity funds are invested primarily in long-term
bonds, mortgage-backed securities, real estate, and corporate equities.
BLACKROCK GOVERNMENT INCOME PORTFOLIO - Funds are invested primarily in
highest rated government and agency bonds and mortgages guaranteed by the
U.S. Government.
PIONEER HIGH YIELD FUND - Funds are invested primarily in below investment
grade (high yield) debt securities and preferred stocks.
WASHINGTON MUTUAL INVESTORS FUND - Funds are invested primarily in common
stocks of larger, more established companies that meet listing
requirements of the New York Stock Exchange and have a strong record of
earnings and dividends.
THE GROWTH FUND OF AMERICA - Funds are invested in common stocks of
companies that the fund advisor believes offer superior opportunities for
growth of capital.
FRANKLIN CAPITAL GROWTH FUND - Funds are invested in common stocks of
companies of any size to provide capital appreciation first and current
income from dividends or interest second.
PIMCO SMALL-CAP VALUE FUND - Funds are invested in common stocks of
companies that the fund advisor believes are undervalued based on
below-average P/E ratios relative to the market and their respective
industry.
MANAGERS SPECIAL EQUITY FUND - Funds are invested in common and preferred
stocks of small- and mid-cap companies.
5
(Continued)
SELECT COMFORT
PROFIT SHARING AND 401(k) PLAN
Notes to Financial Statements
December 31, 2003 and 2002
EUROPACIFIC GROWTH FUND - Funds are invested in common stocks of companies
of all sizes based in Europe and the Pacific Rim.
HARRIS DIRECT SELF-DIRECTED BROKERAGE ACCOUNT - Offered as an investment
alternative within the 401(k) plan. This brokerage account gives the
participant access to over 8,000 stocks and fixed income securities and
more than 9,000 mutual funds.
SELECT COMFORT STOCK - Funds are invested in shares of common stock of the
Plan Sponsor.
PAYMENT BENEFITS
On termination of service due to death, disability, or retirement, or for
termination of service due to other reasons, a participant will receive a
lump-sum amount equal to the value of the participant's vested interest in
his or her account.
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 financial statements of the Plan are prepared under the accrual method
of accounting.
INVESTMENTS
The Plan's investments are stated at fair value. Shares of registered
investment companies are valued at the quoted net asset value of shares
held by the Plan at year-end. Shares of the Company common stock are
valued at the quoted market price.
Investment in guaranteed investment contracts are valued at contract
value, which approximates fair value. The contract with Met Life had a
crediting interest rate of 3.4%.
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
Benefits are recorded when paid.
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.
6
(Continued)
SELECT COMFORT
PROFIT SHARING AND 401(k) PLAN
Notes to Financial Statements
December 31, 2003 and 2002
RISKS AND UNCERTAINTIES
The Plan provides for investment in a variety of investments. Investments
in general are exposed to various risks, such as interest rate, credit,
and overall market volatility. Due to the level of risk associated with
certain investments, 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.
(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) TAX STATUS
The Internal Revenue Service has determined and informed the Company by a
letter dated November 24, 1999 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.
(5) INVESTMENTS
The following presents investments that represent 5% or more of the Plan's
net assets:
December 31, December 31,
2003 2002
------------- -------------
Insurance contract:
Met Life Guaranteed Asset Account $ 2,363,273 1,790,150
Mutual funds:
Black Rock Government Income Portfolio 1,198,123 1,252,206
Washington Mutual Investors Fund 2,658,098 1,724,566
The Growth Fund of America 2,831,987 1,672,178
PIMCO Small-Cap Value Fund 1,729,907 994,562
Managers Special Equity Fund 1,873,274 960,407
EuroPacific Growth Fund 1,662,983 873,045
Select Comfort common stock 9,331,557 3,251,678
7
(Continued)
SELECT COMFORT
PROFIT SHARING AND 401(k) PLAN
Notes to Financial Statements
December 31, 2003 and 2002
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
----------------------------
2003 2002
------------- -------------
Mutual funds $ 2,234,607 (1,417,705)
Select Comfort common stock 6,198,952 2,096,961
------------- -------------
$ 8,433,559 679,256
============= =============
(6) 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. The Custodian of the Plan, Met Life, and the Company are defined
as parties-in-interest with respect to the Plan. The Plan invests in
certain of their funds and investments issued by the Custodian and in
common stock of the Company. These transactions are exempt under Section
408(b) of ERISA and are not considered prohibited transactions.
8
SELECT COMFORT
PROFIT SHARING AND 401(k) PLAN
41-1597886-001
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)
December 31, 2003
DESCRIPTION OF CURRENT
Identity of issuer or borrower INVESTMENT VALUE
- ----------------------------------------- ----------------------------------------- ----------------
Met Life Guaranteed Asset Account* Fixed annuity $ 2,363,273
BlackRock Government Income Portfolio Mutual fund 1,198,123
Pioneer High Yield Fund Mutual fund 258,048
Washington Mutual Investors Fund Mutual fund 2,658,098
The Growth Fund of America Mutual fund 2,831,987
Franklin Capital Growth Fund Mutual fund 443,360
PIMCO Small-Cap Value Fund Mutual fund 1,729,907
Managers Special Equity Fund Mutual fund 1,873,274
EuroPacific Growth Fund Mutual fund 1,662,983
Harrisdirect Self-directed brokerage account 208,145
Select Comfort stock* Common stock 9,331,557
Participant loans* Loans secured by participant-vested
balance with interest rates of 5.00%
to 11.50% and maturing in 2004 to 2009 655,563
----------------
Total investments $ 25,214,318
================
* Party-in-interest.
See accompanying report of independent registered public accounting firm.
9
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
(Full Title of the Plan)
By: /s/Mark A. Kimball
---------------------------------------
Mark A. Kimball
Senior Vice President
Legal, General Counsel and Secretary
June 28, 2004