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Select Comfort Reports Fourth-quarter And Full-year 2012 Results

Select Comfort purchased the business and assets of Comfortaire from mattress manufacturer, Park Place Corporation. Comfortaire is a privately held company with 2012 revenues of $10.5 million that manufactures and markets adjustable air-supported sleep systems. Founded in 1981, the company is headquartered in Greenville, S.C., and employs 24 professionals. Select Comfort will continue to operate the Comfortaire business through an independent subsidiary.

The company also committed $4.5 million for a minority equity investment in one of its strategic product-development partners. This investment complements the company’s current R&D capabilities and is associated with products scheduled to launch during the next 12-24 months.

Both transactions are being funded solely through the company’s internally generated cash reserves.

Conference Call InformationManagement will host its regularly scheduled conference call to discuss the company’s results at 5 p.m. EST (4 p.m. CST; 2 p.m. PST) today. To listen to the call, please dial (800) 593-9959 (international participants dial (517) 308-9340) and reference the passcode “Sleep.” To access the webcast, please visit the investor relations area of the Sleep Number website at http://www.sleepnumber.com/eng/aboutus/InvestorRelations.cfm. The webcast replay will remain available for approximately 60 days.

About Select Comfort CorporationSelect Comfort Corporation is leading the industry in delivering an unparalleled sleep experience by offering consumers high-quality, innovative and individualized sleep solutions and services, which include a complete line of SLEEP NUMBER ® beds and bedding. The company is the exclusive manufacturer, marketer, retailer and servicer of the revolutionary Sleep Number bed, which allows individuals to adjust the firmness and support of each side at the touch of a button. The company offers further personalization through its solutions-focused line of Sleep Number pillows, sheets and other bedding products. And as the only national specialty-mattress retailer, consumers can take advantage of an enhanced mattress-buying experience at one of more than 400 Sleep Number stores across the country, online at SleepNumber.com, or via phone at (800) Sleep Number or (800) 753-3768.

About Comfortaire CorporationHeadquartered in Greenville, S.C., Comfortaire has been delivering Individualized Sleep Experiences™ for over 30 years. The company started by inventing an air bed that provided an independently adjustable surface utilizing latex-cotton air chambers. While Comfortaire’s original product designs have been the industry standard for over 30 years, the company’s mission today is to continue developing innovative sleep solutions designed to provide the ultimate levels of individual sleep comfort. For additional information, visit the company’s website at Comfortaire.com.

About Park Place CorporationPark Place Corporation, founded in 1931 as Orders Mattress Company, is headquartered in Greenville, S.C., on a 40-acre campus in a Century 2000, state-of-the-art designed facility. Park Place has manufactured mattresses primarily under the Park Place, King Koil and Comfortaire brands. For more information, visit ParkPlaceCorp.com.

Forward-looking StatementsStatements used in this news release relating to future plans, events, financial results or performance are forward-looking statements subject to certain risks and uncertainties including, among others, such factors as general and industry economic trends; consumer confidence; the effectiveness of the company’s marketing messages; the efficiency of its advertising and promotional efforts; consumer acceptance of its products, product quality, innovation and brand image; availability of attractive and cost-effective consumer credit options; execution of the company’s retail store distribution strategy; the company’s dependence on significant suppliers, and its ability to maintain relationships with key suppliers, including several sole-source suppliers; the vulnerability of key suppliers to recessionary pressures, labor negotiations, liquidity concerns or other factors; rising commodity costs and other inflationary pressures; industry competition; the company’s ability to continue to improve its product line; warranty expenses; risks of pending and potentially unforeseen litigation; increasing government regulations, which have added or will add cost pressures and process changes to ensure compliance; the adequacy of the company’s management information systems to meet the evolving needs of its business and evolving regulatory standards applicable to data privacy and security; the company’s ability to attract and retain senior leadership and other key employees, including qualified sales professionals; and uncertainties arising from global events, such as terrorist attacks or a pandemic outbreak, or the threat of such events. Additional information concerning these and other risks and uncertainties is contained in the company’s filings with the Securities and Exchange Commission (SEC), including the 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 in this news release.

 
 

SELECT COMFORT CORPORATION

AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)
               
Three Months Ended
December 29, % of December 31, % of
2012 Net Sales 2011 Net Sales
 
Net sales $ 220,559 100.0 % $ 189,073 100.0 %
Cost of sales   80,612 36.5 %   70,095 37.1 %
Gross profit   139,947 63.5 %   118,978 62.9 %
Operating expenses:
Sales and marketing 102,062 46.3 % 82,778 43.8 %
General and administrative 16,532 7.5 % 15,032 8.0 %
Research and development 1,906 0.9 % 1,192 0.6 %
Asset impairment charges   33 0.0 %   6 0.0 %
Total operating expenses   120,533 54.6 %   99,008 52.4 %
Operating income 19,414 8.8 % 19,970 10.6 %
Other income, net   90 0.0 %   4 0.0 %
Income before income taxes 19,504 8.8 % 19,974 10.6 %
Income tax expense   7,009 3.2 %   4,604 2.4 %
Net income $ 12,495 5.7 % $ 15,370 8.1 %
 
Net income per share – basic $ 0.23 $ 0.28
 
Net income per share – diluted $ 0.22 $ 0.27
 
 
Reconciliation of weighted-average
shares outstanding:
Basic weighted-average shares outstanding 55,261 55,424
Effect of dilutive securities:
Options 1,050 873
Restricted shares   449   566
Diluted weighted-average shares outstanding   56,760   56,863
 
 
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share amounts)
               
Twelve Months Ended
December 29, % of December 31, % of
2012 Net Sales 2011 Net Sales
 
Net sales $ 934,978 100.0 % $ 743,203 100.0 %
Cost of sales   338,432 36.2 %   272,858   36.7 %
Gross profit   596,546 63.8 %   470,345   63.3 %
 
Operating expenses:
Sales and marketing 398,205 42.6 % 317,502 42.7 %
General and administrative 66,617 7.1 % 58,106 7.8 %
Research and development 6,194 0.7 % 4,175 0.6 %
CEO transition costs 5,595 0.6 % - 0.0 %
Asset impairment charges   148 0.0 %   109   0.0 %
Total operating expenses   476,759 51.0 %   379,892   51.1 %
Operating income 119,787 12.8 % 90,453 12.2 %
Other income (expense), net   218 0.0 %   (33 ) 0.0 %
Income before income taxes 120,005 12.8 % 90,420 12.2 %
Income tax expense   41,911 4.5 %   29,942   4.0 %
Net income $ 78,094 8.4 % $ 60,478   8.1 %
 
Net income per share – basic $ 1.41 $ 1.10  
 
Net income per share – diluted $ 1.37 $ 1.07  
 
 
Reconciliation of weighted-average
shares outstanding:
Basic weighted-average shares outstanding 55,516 55,081
Effect of dilutive securities:
Options 1,059 821
Restricted shares   501   530  
Diluted weighted-average shares outstanding   57,076   56,432  
 
 
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share amounts)
subject to reclassification
       
December 29, December 31,
2012 2011
Assets
Current assets:
Cash and cash equivalents $ 87,915 $ 116,255
Marketable debt securities – current 51,264 20,020
Accounts receivable, net of allowance for doubtful accounts
of $348 and $397, respectively 16,613 13,844
Inventories 35,564 24,851
Prepaid expenses 4,299 5,778
Deferred income taxes 5,401 4,443
Other current assets   9,522   6,004
Total current assets   210,578   191,195
 
Marketable debt securities – non-current 38,642 10,042
Property and equipment, net 79,356 43,850
Deferred income taxes 8,511 12,964
Other assets   4,934   4,606
Total assets $ 342,021 $ 262,657
 
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable $ 67,703 $ 50,141
Customer prepayments 15,194 13,529
Compensation and benefits 21,597 29,806
Taxes and withholding 9,282 9,883
Other current liabilities   19,285   15,691
Total current liabilities 133,061 119,050
 
Non-current liabilities:
Warranty liabilities 1,457 2,714
Other long-term liabilities   13,806   11,502
Total non-current liabilities   15,263   14,216
Total liabilities 148,324 133,266
 
Shareholders’ equity:
Undesignated preferred stock; 5,000 shares authorized,
no shares issued and outstanding - -
Common stock, $0.01 par value; 142,500 shares authorized,
55,903 and 56,397 shares issued and outstanding, respectively 559 564
Additional paid-in capital 33,923 47,701
Retained earnings 159,195 81,101
Accumulated other comprehensive income   20   25
Total shareholders’ equity   193,697   129,391
Total liabilities and shareholders’ equity $ 342,021 $ 262,657
 
 
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
subject to reclassification
       
Twelve Months Ended
December 29, December 31,
2012 2011
 
Cash flows from operating activities:
Net income $ 78,094 $ 60,478
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 20,401 13,543
Stock-based compensation 10,306 4,971
Net loss on disposals and impairments of assets 115 98
Excess tax benefits from stock-based compensation (6,446 ) (2,190 )
Deferred income taxes 3,499 2,839
Changes in operating assets and liabilities:
Accounts receivable (2,705 ) (3,935 )
Inventories (10,713 ) (5,204 )
Income taxes 4,299 4,445
Prepaid expenses and other assets (2,382 ) (1,976 )
Accounts payable 7,114 6,913
Customer prepayments 1,665 585
Accrued compensation and benefits (8,108 ) 5,167
Other taxes and withholding 765 1,944
Warranty liabilities (1,454 ) 566
Other accruals and liabilities   6,176     2,802  
Net cash provided by operating activities   100,626     91,046  
 
Cash flows from investing activities:
Purchases of property and equipment (51,593 ) (23,527 )
Proceeds from sales of property and equipment 45 11
Investments in marketable debt securities (86,803 ) (40,021 )
Proceeds from maturities of marketable debt securities 26,249 10,000
Increase in restricted cash   -     (2,650 )
Net cash used in investing activities   (112,102 )   (56,187 )
 
Cash flows from financing activities:
Net increase (decrease) in short-term borrowings 6,494 (795 )
Repurchases of common stock (34,892 ) (371 )
Proceeds from issuance of common stock 5,138 4,356
Excess tax benefits from stock-based compensation 6,446 2,190
Debt issuance costs   (50 )   -  
Net cash (used in) provided by financing activities   (16,864 )   5,380  
 
Net (decrease) increase in cash and cash equivalents (28,340 ) 40,239
Cash and cash equivalents, at beginning of period   116,255     76,016  
Cash and cash equivalents, at end of period $ 87,915   $ 116,255  
 
 
SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)
               
Three Months Ended Twelve Months Ended
December 29, December 31, December 29, December 31,
2012 2011 2012 2011
 
Percent of sales:
Retail 88.7 % 87.1 % 89.2 % 87.5 %
Direct and E-Commerce 7.8 % 9.3 % 7.5 % 8.7 %
Wholesale   3.5 %   3.6 %   3.3 %   3.8 %
Total   100.0 %   100.0 %   100.0 %   100.0 %
 
Sales growth rates:
Retail comparable-store sales 12 % 33 % 24 % 29 %
Direct and E-Commerce   (3 %)   14 %   9 %   (1 %)
Company-Controlled comparable sales change 11 % 31 % 23 % 26 %
Net new/(closed) stores   6 %   (1 %)   3 %   (1 %)
Total Company-Controlled Channel 17 % 30 % 26 % 25 %
Wholesale   13 %   (24 %)   10 %   (11 %)
Total   17 %   27 %   26 %   23 %
 
Stores open:
Beginning of period 394 374 381 386
Opened 20 10 57 19
Closed   (4 )   (3 )   (28 )   (24 )
End of period   410     381     410     381  
 
Other metrics:
Average sales per store ($ in 000's) 1 $ 2,164 $ 1,721
Average sales per square foot 1 $ 1,324 $ 1,135
Stores > $1 million net sales 1 98 % 93 %
Stores > $2 million net sales 1 49 % 24 %
Average net sales per mattress unit - Company Controlled Channel 2 $ 3,249 $ 2,809 $ 3,050 $ 2,694
 

1 Trailing twelve months for stores open at least one year.

2 Represents Company Controlled Channel total net sales divided by Company Controlled Channel mattress units. The previously reported metric "Average mattress sales per mattress unit - Company Controlled Channel" included only net sales from mattresses and mattress bases. Previously reported amounts have been reclassified to conform to the current-year presentation.

 
SELECT COMFORT CORPORATION AND SUBSIDIARIES
Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA)
(in thousands)
 

We define earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) as net income plus: income tax expense, interest expense, depreciation and amortization, stock-based compensation and asset impairments. Management believes Adjusted EBITDA is a useful indicator of our financial performance and our ability to generate cash flows from operations. Our definition of Adjusted EBITDA may not be comparable to similarly titled definitions used by other companies. The tables below reconcile Adjusted EBITDA, which is a non-GAAP financial measure, to comparable GAAP financial measures:

               
Three Months Ended Twelve Months Ended
December 29,     December 31, December 29,     December 31,
2012 2011 2012 2011
 
Net income $ 12,495 $ 15,370 $ 78,094 $ 60,478
Income tax expense 7,009 4,604 41,911 29,942
Interest expense 12 43 91 187
Depreciation and amortization 5,653 3,744 19,735 13,493
Stock-based compensation 737 1,297 10,306 4,971
Asset impairments   33   6   148   109
Adjusted EBITDA $ 25,939 $ 25,064 $ 150,285 $ 109,180
 

Note -

 

Our Adjusted EBITDA calculation is considered a non-GAAP financial measure and is not in accordance with, or preferable to, "as reported," or GAAP financial data. However, we are providing this information as we believe it facilitates analysis of the Company's financial performance by investors and financial analysts.

 

GAAP -

generally accepted accounting principles

 
 
SELECT COMFORT CORPORATION AND SUBSIDIARIES
Reported to Adjusted Statements of Operations Data Reconciliation
(in thousands, except per share amounts)
               
Twelve Months Ended
December 29, 2012 December 31, 2011
CEO
Transition
As Reported Costs (1) As Adjusted As Reported
Operating income $ 119,787 $ 5,595 $ 125,382 $ 90,453
Other income (expense), net   218       -       218   (33 )
 
Income before income taxes 120,005 5,595 125,600 90,420
Income tax expense (2)   41,911       1,941       43,852   29,942  
Net income $ 78,094     $ 3,654     $ 81,748 $ 60,478  
 
Net income per share –
Basic $ 1.41 $ 0.07 $ 1.47 $ 1.10
Diluted $ 1.37 $ 0.06 $ 1.43 $ 1.07
 
Basic Shares 55,516 55,516 55,516 55,081
Diluted Shares 57,076 57,076 57,076 56,432
 
(1)   In February 2012, we announced that William R. McLaughlin, then President and CEO, would retire from the Company effective June 1, 2012. In recognition of Mr. McLaughlin’s contributions, the Compensation Committee approved the modification of Mr. McLaughlin’s currently unvested stock awards. As a result of these modifications, we recorded incremental non-cash compensation of $5.6 million.
 
(2) Reflects effective income tax rate, before discrete adjustments, of 34.7% for 2012.
 
        Note -   Our "as adjusted" data is considered a non-GAAP financial measure and is not in accordance with, or preferable to, "as reported," or GAAP financial data. However, we are providing this information as we believe it facilitates year-over-year comparisons for investors and financial analysts.
 
GAAP - generally accepted accounting principles




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