ý
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the Fiscal Year Ended December 31, 2005
|
|
o
|
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
|
MINNESOTA
|
41-1597886
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
|
incorporation
or organization)
|
Identification
No.)
|
|
6105
Trenton Lane North
|
||
Minneapolis,
Minnesota
|
55442
|
|
(Address
of principal executive offices)
|
(Zip
code
)
|
Large
accelerated filer
ý
|
Accelerated
filer
o
|
Non-accelerated
filer
o
|
2
|
|||
2
|
|||
16
|
|||
26
|
|||
27
|
|||
28
|
|||
28
|
|||
29
|
|||
29
|
|||
30
|
|||
32
|
|||
39
|
|||
40
|
|||
58
|
|||
58
|
|||
58
|
|||
59
|
|||
59
|
|||
59
|
|||
59
|
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59
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59
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60
|
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60
|
• |
Retail
:
Represents more than 75% of our total net sales and more than 80%
of our
direct-to-consumer business. We ranked as the leading bed retailer
in the
U.S. according to the May 23, 2005 edition of
Furniture/Today
.
As of December 31, 2005, we operated 396 company-owned stores in
45
states;
|
• |
Direct
Marketing
:
Represents more than 10% of total net sales and almost 12% of our
direct-to-consumer business. Direct sales are conducted through
a
company-operated call center located in Minneapolis, Minnesota;
and
|
• |
e-Commerce
:
Represents approximately 5% of total net sales and slightly more
than 5%
of our direct-to-consumer business. In addition to purchasing a
Sleep
Number bed online, customers can purchase pillows, sheets, blankets,
bedding accessories, mattress pads and other bedding accessories
through
our Web site at
http://www.selectcomfort.com
.
|
• |
Retail
Partners
:
Since 2002, we have sold unique versions of our Sleep Number bed
through
relationships with selected home furnishing retailers and specialty
bedding retailers in the U.S. As of December 31, 2005, our
Personal
Preference
line of Sleep Number beds was available through 12 different retailers
offering our product in 308 retail stores in 20 states. In December
2005,
we expanded into Canada through a strategic alliance with Sleep Country
Canada;
|
• |
TV
Shopping
:
Since 2000, we have sold unique versions of our Sleep Number bed
on the
QVC shopping channel. The bed models available through QVC are currently
marketed under the names
Royal
and
Deluxe
;
and
|
• |
Hospitality
:
In 2004, we signed an agreement with Radisson Hotels and Resorts® to
provide a unique version of our Sleep Number bed into essentially
all of
Radisson’s hotel rooms in the U.S., Canada and the
Caribbean.
|
• |
Increasing
comparable store sales, primarily through our multi-media advertising
campaign, increasing units sold per store, and increasing average
revenue
per transaction;
|
• |
Increasing
our store base between 5% and 10% annually, as we continue to build
toward
our long-term goal of between 600 and 650 U.S. retail stores (we
plan to
add 40 to 45 net new retail stores in the U.S. in
2006);
|
• |
Expanding
our presence in the hospitality channel through our strategic relationship
with Radisson Hotels and Resorts®;
|
• |
Expanding
wholesale distribution selectively through home furniture retailers
and
specialty bedding retailers. In 2006, we expect to double the number
of
retail partners’ store locations from the 308 locations at the end of
fiscal 2005; and
|
• |
Executing
our planned roll-out to all 110 Sleep Country Canada retail
locations.
|
•
|
The
efficiency and effectiveness of our Sleep Number advertising campaign
and
other marketing programs in building product and brand awareness,
driving
traffic to our points of sale and increasing
sales;
|
•
|
The
level of consumer acceptance of our products, new product offerings
and
brand image;
|
•
|
Our
ability to execute our retail store distribution strategy, including
increasing sales and profitability through our existing stores,
securing
suitable and cost-effective locations for additional retail stores
and
cost-effectively closing under-performing store
locations;
|
•
|
Our
ability to hire, train, manage and retain qualified retail store
management and sales professionals;
|
•
|
Our
ability to secure and retain wholesale accounts on a profitable
basis and
to profitably manage growth in wholesale distribution, including
the
impact on our retail stores and other company-controlled distribution
channels;
|
•
|
The
success of our program with Radisson Hotels and Resorts in achieving
planned levels of placement of our beds with the hotels and resorts
and in
driving consumer awareness of our product and
brand;
|
•
|
Our
ability to continuously improve our products to offer new and enhanced
consumer benefits, better quality and reduced
costs;
|
•
|
Our
ability to maintain cost-effective sales, production and delivery
of our
products;
|
•
|
Our
ability to secure adequate sources of supply at reasonable cost,
especially considering our single sources of supply for some components
and just-in-time manufacturing processes, as well as potential
shortages
of commodities;
|
•
|
Our
ability to maintain sales volumes and profit margins and effectively
manage the effects of inflationary pressures caused by rising fuel
and
commodity costs as well as fluctuating currency rates and increasing
industry regulatory requirements, all of which could increase product
and
service costs;
|
•
|
Our
ability to successfully expand our home delivery, assembly and
mattress
removal capabilities on a cost-effective
basis;
|
•
|
Our
ability to secure quality services on a cost-effective basis from
third-party providers of delivery, assembly and mattress removal
services;
|
•
|
Our
ability to cost-effectively offer consumer credit options through
third
party credit providers;
|
•
|
The
level of competition in the mattress industry and our ability to
successfully identify and respond to emerging and competitive trends
in
the mattress industry;
|
•
|
General
economic conditions and consumer confidence;
and
|
•
|
Global
events, such as terrorist attacks or a pandemic outbreak, or the
threat of
such events.
|
•
|
Levels
of consumer awareness of our products, brand name and store
locations;
|
•
|
Levels
of consumer acceptance of our existing products, new product offerings
and
brand image;
|
•
|
The
efficiency and effectiveness of our Sleep Number advertising campaign
and
other marketing programs in building awareness of our products and
brand
name, in driving traffic to our store locations, and in motivating
consumers to purchase our products;
|
•
|
Consumer
shopping and mall traffic trends;
|
•
|
Higher
levels of sales in the first year of operations as each successive
class
of new stores is opened;
|
•
|
Comparable
store sales performance in prior
periods;
|
•
|
The
continuing maturation of our store base with increasing levels of
average
sales per store;
|
•
|
The
amount, timing and relative success of promotional events, advertising
expenditures, new product introductions and product line
extensions;
|
•
|
The
quality and tenure of store-level managers and sales
professionals;
|
•
|
The
level of competitive activity;
|
•
|
The
timing of new store openings and related
expenses;
|
•
|
The
growth of our other distribution channels, including in particular
the
wholesale distribution of our products through home furnishings and
specialty mattress retailers into markets with existing company-owned
retail stores;
|
•
|
Our
ability to offer effective consumer credit and other promotional
offerings;
|
•
|
Any
increases in return rates or warranty
claims;
|
•
|
Any
disruptions in third-party delivery services;
and
|
•
|
General
economic conditions and consumer
confidence.
|
•
|
Create
greater awareness of our products and brand
name;
|
•
|
Drive
consumer traffic to our points of distribution and to motivate consumers
to purchase our products;
|
•
|
Develop
new and effective creative messages that will resonate with
consumers;
|
•
|
Select
the right markets in which to advertise and the most effective and
efficient level of spending in each of our
markets;
|
•
|
Determine
the appropriate creative message and media mix for advertising
expenditures;
|
•
|
Effectively
manage advertising costs (including creative and media) in order
to
maintain acceptable costs per inquiry, costs per order and operating
margins; and
|
•
|
Convert
consumer inquiries into actual
orders.
|
•
|
The
ability of our personnel to adequately analyze and identify suitable
wholesale distribution partners and markets in which our retail
presence
is under-represented;
|
•
|
Our
ability to negotiate favorable distribution terms with our wholesale
distribution partners;
|
•
|
Our
ability and the ability of our wholesale distribution partners
to
adequately train, motivate and retain sales professionals who are
selling
our products;
|
•
|
Our
ability to adapt our distribution and other operational and management
systems to an expanded network of points of
sale;
|
•
|
Our
ability and the ability of our wholesale distribution partners
to attract
customers and generate sales sufficient to justify the expense
of
establishing the wholesale distribution relationship;
and
|
•
|
Our
ability to maintain sales growth in our company-controlled retail
stores
in markets in which wholesale distribution partners are
added.
|
•
|
Political
instability resulting in disruption of
trade;
|
•
|
Existing
or potential duties, tariffs or quotas that may limit the quantity
of
certain types of goods that may be imported into the United States
or
increase the cost of such goods;
|
•
|
Disruptions
in transportation that could be caused by a variety of factors
including
terrorist acts, shipping delays, foreign or domestic dock strikes,
customs
inspections or other factors;
|
•
|
Any
significant fluctuation in the value of the U.S. dollar against
foreign
currencies; and
|
•
|
Economic
uncertainties, including inflation.
|
State
|
Stores
|
State
|
Stores
|
|||||
Alabama
|
3
|
Nebraska
|
3
|
|||||
Arizona
|
9
|
Nevada
|
3
|
|||||
Arkansas
|
1
|
New
Hampshire
|
4
|
|||||
California
|
45
|
New
Jersey
|
12
|
|||||
Colorado
|
12
|
New
Mexico
|
2
|
|||||
Connecticut
|
7
|
New
York
|
14
|
|||||
Delaware
|
2
|
North
Carolina
|
10
|
|||||
Florida
|
24
|
North
Dakota
|
1
|
|||||
Georgia
|
11
|
Ohio
|
15
|
|||||
Idaho
|
1
|
Oklahoma
|
3
|
|||||
Illinois
|
19
|
Oregon
|
5
|
|||||
Indiana
|
9
|
Pennsylvania
|
18
|
|||||
Iowa
|
5
|
Rhode
Island
|
1
|
|||||
Kansas
|
4
|
South
Carolina
|
4
|
|||||
Kentucky
|
4
|
South
Dakota
|
2
|
|||||
Louisiana
|
3
|
Tennessee
|
11
|
|||||
Maine
|
2
|
Texas
|
29
|
|||||
Maryland
|
10
|
Utah
|
4
|
|||||
Massachusetts
|
9
|
Virginia
|
11
|
|||||
Michigan
|
11
|
Washington
|
13
|
|||||
Minnesota
|
15
|
West
Virginia
|
1
|
|||||
Missouri
|
13
|
Wisconsin
|
9
|
|||||
Montana
|
2
|
Fourth
Quarter
|
Third
Quarter
|
Second
Quarter
|
First
Quarter
|
||||||
Fiscal
2005
|
|
|
|
||||||
High
|
$
28.75
|
|
$
22.56
|
|
$
24.73
|
|
$
22.75
|
|
|
Low
|
$
17.32
|
$
18.42
|
$
18.18
|
$
16.59
|
|||||
Fiscal
2004
|
|||||||||
High
|
$
20.70
|
$
27.81
|
$
30.23
|
$
28.55
|
|||||
Low
|
$
14.75
|
$
13.14
|
$
22.09
|
$
21.40
|
Fiscal
Period
|
Total
Number of
Shares
including
Non-Qualified
(1)
|
Average
Price
Paid
per Share
|
Total
number
of
Shares
Purchased
as
Part
of
Publicly
Announced
Plans
or
Programs
(2)
|
Availability
|
|||||
October
2005
|
177,518
|
|
$
19.86
|
|
177,506
|
|
|
||
November
2005
|
—
|
|
$
-
|
|
—
|
|
|
||
December
2005
|
41
|
|
$
25.50
|
|
41
|
|
$
20,344,000
|
|
|
Total
|
177,559
|
|
$
19.86
|
|
177,547
|
|
|
|
Year
|
|||||||||||||||
2005
|
2004
|
2003
(1)
|
|
2002
|
2001
|
|||||||||||
Consolidated
Statements of Operations Data:
|
||||||||||||||||
Net
sales
|
$
|
691,066
|
$
|
557,639
|
$
|
458,489
|
$
|
335,795
|
$
|
261,687
|
||||||
Gross
profit
|
410,476
|
340,674
|
287,326
|
209,999
|
154,477
|
|||||||||||
Operating
expenses:
|
||||||||||||||||
Sales
and marketing
|
286,053
|
249,925
|
206,248
|
155,848
|
138,417
|
|||||||||||
General
and administrative
|
55,672
|
41,218
|
38,423
|
32,854
|
25,296
|
|||||||||||
Store
closings and asset impairments
|
162
|
-
|
71
|
233
|
1,366
|
|||||||||||
Operating
income (loss)
|
68,589
|
49,531
|
42,584
|
21,064
|
(10,602
|
)
|
||||||||||
Net
income (loss)
|
$
|
43,767
|
$
|
31,555
|
$
|
27,102
|
$
|
37,466
|
$
|
(12,066
|
)
|
|||||
Pro
forma net income (loss) (2)
|
n/a
|
n/a
|
n/a
|
$
|
11,969
|
$
|
(7,481
|
)
|
||||||||
Net
income (loss) per share:
|
||||||||||||||||
Basic
|
$
|
1.23
|
$
|
0.88
|
$
|
0.83
|
$
|
1.53
|
$
|
(0.66
|
)
|
|||||
Diluted
|
$
|
1.14
|
$
|
0.80
|
$
|
0.69
|
$
|
1.10
|
$
|
(0.66
|
)
|
|||||
Pro
forma (2)
|
n/a
|
n/a
|
n/a
|
$
|
0.36
|
$
|
(0.41
|
)
|
||||||||
Shares
used in calculation of net income (loss) per share:
|
||||||||||||||||
Basic
|
35,571
|
36,010
|
32,771
|
24,549
|
18,157
|
|||||||||||
Diluted
|
38,449
|
39,683
|
39,277
|
34,532
|
18,157
|
|||||||||||
Consolidated
Balance Sheet Data:
|
||||||||||||||||
Cash,
cash equivalents and marketable securities
|
$
|
112,087
|
$
|
91,743
|
$
|
75,118
|
$
|
40,824
|
$
|
16,375
|
||||||
Working
capital
|
10,158
|
23,479
|
54,315
|
27,064
|
(3,739
|
)
|
||||||||||
Total
assets
|
228,834
|
191,813
|
153,506
|
108,633
|
67,436
|
|||||||||||
Long-term
debt, less current maturities
|
-
|
-
|
-
|
2,991
|
17,109
|
|||||||||||
Total
shareholders' equity
|
121,347
|
114,344
|
92,201
|
54,024
|
5,937
|
|||||||||||
Selected
Operating Data:
|
||||||||||||||||
Stores
open at period-end (3)
|
396
|
370
|
344
|
322
|
328
|
|||||||||||
Stores
opened during period
|
40
|
31
|
27
|
15
|
11
|
|||||||||||
Stores
closed during period
|
14
|
5
|
5
|
21
|
16
|
|||||||||||
Average
net sales per store (000's) (4)
|
$
|
1,417
|
$
|
1,247
|
$
|
1,101
|
$
|
817
|
$
|
626
|
||||||
Percentage
of stores with more than $1.0 million in net sales (4)
|
77
|
%
|
64
|
%
|
49
|
%
|
24
|
%
|
10
|
%
|
||||||
Comparable
store sales increase (decrease) (5)
|
15
|
%
|
16
|
%
|
31
|
%
|
27
|
%
|
(4
|
)%
|
||||||
Average
square footage per store open during period (4)
|
1,121
|
1,032
|
990
|
972
|
941
|
|||||||||||
Net
sales per square foot (4)
|
$
|
1,264
|
$
|
1,208
|
$
|
1,113
|
$
|
841
|
$
|
666
|
||||||
Average
store age (in months at period end)
|
79
|
75
|
70
|
61
|
51
|
|||||||||||
Operating
free cash flow (000’s) (6)
|
$
|
61,658
|
$
|
31,083
|
$
|
30,839
|
$
|
28,342
|
$
|
(4,445
|
)
|
(1) | Fiscal year 2003 had 53 weeks. All other fiscal years presented had 52 weeks. |
(2) | Pro forma net income (loss) per share reflects the effect on net income from the recognition of an income tax benefit (provision) for years where a regular tax provision, at a rate of 38%, was not recorded. Generally accepted accounting principles (GAAP) did not allow us to reduce net income for income tax expense in 2002 or to provide an income tax benefit in 2001. Because we have recorded income tax expense in 2003, 2004 and 2005 and we expect to continue recording income tax in future periods, we believe pro forma net income (loss) per share provides a more meaningful comparison than GAAP net income (loss) per share for 2002 and 2001. |
|
2002
|
2001
|
|||||
GAAP
net income (loss)
|
$
|
37,466
|
$
|
(12,066
|
)
|
||
Effect
of:
|
|||||||
Income
tax (provision) benefit at 38% of income before tax
|
(7,501
|
)
|
4,585
|
||||
Restoration
of deferred tax asset
|
(17,996
|
)
|
-
|
||||
Pro
forma net income (loss)
|
$
|
11,969
|
$
|
(7,481
|
)
|
GAAP
net income (loss) per diluted share
|
$
|
1.10
|
$
|
(0.66
|
)
|
||
Effect
of:
|
|||||||
Income
tax (provision) benefit at 38% of income before tax
|
(0.22
|
)
|
0.25
|
||||
Restoration
of deferred tax asset
|
(0.52
|
)
|
-
|
||||
Pro
forma net income (loss) per diluted share
|
$
|
0.36
|
$
|
(0.41
|
)
|
(3)
|
Includes stores operated in leased departments within other retail stores (0, 13, 13, 13, and 22 at the end of 2005, 2004, 2003, 2002, and 2001, respectively). |
(4)
|
For stores open during the entire period indicated. |
(5)
|
Stores enter the comparable store calculation in the 13th full month of operation. Stores that have been remodeled or relocated within the same shopping center remain in the comparable store base. The number of comparable stores used to calculate such data was 354, 339, 316, 307, and 317 for 2005, 2004, 2003, 2002 and 2001, respectively. Our 2004 and 2003 comparable store sales increase reflects adjustments for an additional week of sales in 2003. Without adjusting for the additional week, comparable store sales would have been 14% for 2004 and 34% for 2003. |
(6)
|
Operating free cash flow (OFCF) is a key financial measure but should not be construed as an alternative to operating income or net cash provided by (used in) operating activities (as determined in accordance with GAAP). We believe that OFCF is a useful supplement to cash flow data in understanding cash flows generated from operations after reductions for capital expenditures. A reconciliation of net cash provided by (used in) operating activities to operating free cash flow for each of the fiscal years indicated is as follows: |
|
2005
|
2004
|
2003
|
2002
|
2001
|
|||||||||||
Net
cash provided by operating activities
|
$
|
87,498
|
$
|
52,482
|
$
|
49,203
|
$
|
36,144
|
$
|
414
|
||||||
Purchases
of property and equipment
|
(25,840
|
)
|
(21,399
|
)
|
(18,364
|
)
|
(7,802
|
)
|
(4,859
|
)
|
||||||
Operating
free cash flow (OFCF)
|
$
|
61,658
|
$
|
31,083
|
$
|
30,839
|
$
|
28,342
|
$
|
(4,445
|
)
|
2005
|
2004
|
2003
|
|||
Retail
|
76.7%
|
78.1%
|
78.5%
|
||
Direct
marketing
|
10.8%
|
11.5%
|
13.0%
|
||
E-commerce
|
5.0%
|
4.6%
|
4.3%
|
||
Wholesale
|
7.5%
|
5.8%
|
4.2%
|
||
Total
|
100.0%
|
100.0%
|
100.0%
|
2005
|
2004*
|
2003*
|
|||
Channel
increase
|
Channel
increase
|
Channel
increase
|
|||
Retail:
|
|||||
Comparable
store sales increase
|
15%
|
16%
|
31%
|
||
New/closed
stores, net
|
7%
|
8%
|
7%
|
||
Retail
total
|
22%
|
24%
|
38%
|
||
Direct
marketing
|
16%
|
10%
|
23%
|
||
E-commerce
|
35%
|
34%
|
35%
|
||
Wholesale
|
59%
|
73%
|
21%
|
2005
|
2004
|
2003
|
|||
Company-owned
retail stores:
|
|||||
Beginning
of year
|
370
|
344
|
322
|
||
Opened
|
40
|
31
|
27
|
||
Closed
|
(14)
|
(5)
|
(5)
|
||
End
of year
|
396
|
370
|
344
|
||
Retail
partner stores
|
308
|
89
|
77
|
2005
|
2004
|
2003
|
|||||||||||||||||||
$
|
|
%
of
Net
Sales
|
$
|
|
%
of
Net
Sales
|
$
|
|
%
of
Net
Sales
|
|
||||||||||||
Net
sales
|
$
|
691.1
|
100.0
|
%
|
$
|
557.6
|
100.0
|
%
|
$
|
458.5
|
100.0
|
%
|
|||||||||
Cost
of sales
|
280.6
|
40.6
|
217.0
|
38.9
|
171.2
|
37.3
|
|||||||||||||||
Gross
profit
|
410.5
|
59.4
|
340.6
|
61.1
|
287.3
|
62.7
|
|||||||||||||||
Operating
expenses:
|
|||||||||||||||||||||
Sales
and marketing
|
286.0
|
41.4
|
249.9
|
44.8
|
206.2
|
45.0
|
|||||||||||||||
General
and administrative
|
55.7
|
8.1
|
41.2
|
7.4
|
38.4
|
8.4
|
|||||||||||||||
Store
closings and asset impairments
|
0.2
|
0.0
|
0.0
|
0.0
|
0.1
|
0.0
|
|||||||||||||||
Total
operating expenses
|
341.9
|
49.5
|
291.1
|
52.2
|
244.7
|
53.4
|
|||||||||||||||
Operating
income
|
68.6
|
9.9
|
49.5
|
8.9
|
42.6
|
9.3
|
|||||||||||||||
Other
income (expense), net
|
2.2
|
0.3
|
1.4
|
0.3
|
0.4
|
0.1
|
|||||||||||||||
Income
before income taxes
|
70.8
|
10.2
|
50.9
|
9.2
|
43.0
|
9.4
|
|||||||||||||||
Income
tax expense
|
27.0
|
3.9
|
19.4
|
3.5
|
15.9
|
3.5
|
|||||||||||||||
Net
income
|
$
|
43.8
|
6.3
|
%
|
$
|
31.6
|
5.7
|
%
|
$
|
27.1
|
5.9
|
%
|
2005
|
2004
|
2003
|
||||||
Net
income per share:
|
||||||||
Basic
|
$
1.23
|
|
$
0.88
|
|
$
0.83
|
|
||
Diluted
|
1.14
|
|
0.80
|
|
0.69
|
|
||
Weighted-average
number of common shares:
|
||||||||
Basic
|
35.6
|
|
36.0
|
|
32.8
|
|
||
Diluted
|
38.4
|
|
39.7
|
|
39.3
|
|
|
Payments
Due by
Period
|
|||||||||||||||
|
Total
|
<
1 Year
|
1
–
3 Years
|
3
–
5 Years
|
>
5 Years
|
|||||||||||
Operating
leases
|
$
|
109,043
|
$
|
24,902
|
$
|
43,176
|
$
|
28,822
|
$
|
12,143
|
||||||
Inventory
purchase commitments
|
61,000
|
61,000
|
-
|
-
|
-
|
|||||||||||
Total
|
$
|
170,043
|
$
|
85,902
|
$
|
43,176
|
$
|
28,822
|
$
|
12,143
|
|
2005
|
2004
|
|||||
Assets
|
|||||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$
|
32,863
|
$
|
15,066
|
|||
Marketable
securities – current (note 2)
|
24,122
|
35,747
|
|||||
Accounts
receivable, net of allowance for doubtful
accounts
of $552 and $685, respectively
|
10,109
|
8,644
|
|||||
Inventories
(note 3)
|
21,982
|
20,481
|
|||||
Prepaid
expenses
|
9,841
|
7,375
|
|||||
Deferred
tax assets (note 8)
|
6,139
|
5,287
|
|||||
Total
current assets
|
105,056
|
92,600
|
|||||
Marketable
securities – non-current (note 2)
|
55,102
|
40,930
|
|||||
Property
and equipment, net (note 4)
|
53,866
|
43,911
|
|||||
Deferred
tax assets (note 8)
|
11,256
|
10,755
|
|||||
Other
assets
|
3,554
|
3,617
|
|||||
Total
assets
|
$
|
228,834
|
$
|
191,813
|
|||
Liabilities
and Shareholders’ Equity
|
|||||||
Current
liabilities:
|
|||||||
Accounts
payable
|
$
|
31,655
|
$
|
26,267
|
|||
Consumer
prepayments
|
14,718
|
9,368
|
|||||
Accruals:
|
|||||||
Sales
returns
|
5,403
|
5,038
|
|||||
Compensation
and benefits
|
24,839
|
13,913
|
|||||
Taxes
and withholding
|
9,624
|
6,392
|
|||||
Other
|
8,659
|
8,143
|
|||||
Total
current liabilities
|
94,898
|
69,121
|
|||||
Long-term
liabilities
|
12,589
|
8,348
|
|||||
Total
liabilities
|
107,487
|
77,469
|
|||||
Shareholders'
equity (notes 7 and 10):
|
|||||||
Undesignated
preferred stock; 5,000 shares authorized,
no
shares issued and outstanding
|
-
|
-
|
|||||
Common
stock, $0.01 par value; 95,000 shares authorized,
35,732
and 35,828 shares issued and outstanding, respectively
|
357
|
358
|
|||||
Additional
paid-in capital
|
60,426
|
95,548
|
|||||
Unearned
compensation
|
(3,393
|
)
|
(1,752
|
)
|
|||
Retained
earnings
|
63,957
|
20,190
|
|||||
Total
shareholders' equity
|
121,347
|
114,344
|
|||||
Commitments
and contingencies (notes 5 and 11):
|
|||||||
Total
liabilities and shareholders' equity
|
$
|
228,834
|
$
|
191,813
|
|
2005
|
2004
|
2003*
|
|||||||
Net
sales
|
$
|
691,066
|
$
|
557,639
|
$
|
458,489
|
||||
Cost
of sales
|
280,590
|
216,965
|
171,163
|
|||||||
Gross
profit
|
410,476
|
340,674
|
287,326
|
|||||||
Operating
expenses:
|
||||||||||
Sales
and marketing
|
286,053
|
249,925
|
206,248
|
|||||||
General
and administrative
|
55,672
|
41,218
|
38,423
|
|||||||
Store
closings and asset impairments
|
162
|
-
|
71
|
|||||||
Total
operating expenses
|
341,887
|
291,143
|
244,742
|
|||||||
Operating
income
|
68,589
|
49,531
|
42,584
|
|||||||
Other
income (expense):
|
||||||||||
Interest
income
|
2,174
|
1,414
|
612
|
|||||||
Interest
expense
|
-
|
-
|
(170
|
)
|
||||||
Other
income, net
|
2,174
|
1,414
|
442
|
|||||||
Income
before income taxes
|
70,763
|
50,945
|
43,026
|
|||||||
Income
tax expense (note 8)
|
26,996
|
19,390
|
15,924
|
|||||||
Net
income
|
$
|
43,767
|
$
|
31,555
|
$
|
27,102
|
||||
Basic
net income per share (note 9):
|
||||||||||
Net
income per share – basic
|
$
|
1.23
|
$
|
0.88
|
$
|
0.83
|
||||
Weighted
average common shares – basic
|
35,571
|
36,010
|
32,771
|
|||||||
Diluted
net income per share (note 9):
|
||||||||||
Net
income per share – diluted
|
$
|
1.14
|
$
|
0.80
|
$
|
0.69
|
||||
Weighted
average common shares – diluted
|
38,449
|
39,683
|
39,277
|
Common
Stock
|
Additional
Paid-In
|
Unearned
|
Retained
Earnings/
(Accumulated
|
||||||||||||||||
|
Shares
|
Amount
|
Capital
|
Compensation
|
Deficit)
|
|
Total
|
||||||||||||
Balance
at December 28, 2002
|
30,728
|
$
|
307
|
$
|
92,184
|
$
|
-
|
$
|
(38,467
|
)
|
$
|
54,024
|
|||||||
Exercise
of common stock options (note 7)
|
1,008
|
10
|
7,411
|
-
|
-
|
7,421
|
|||||||||||||
Exercise
of common stock warrants
|
3,232
|
32
|
405
|
-
|
-
|
437
|
|||||||||||||
Repurchase
of common stock
|
(200
|
)
|
(2
|
)
|
(1,832
|
)
|
-
|
-
|
(1,834
|
)
|
|||||||||
Conversion
of convertible debt
|
727
|
7
|
2,834
|
-
|
-
|
2,841
|
|||||||||||||
Issuance
of restricted stock (note 7)
|
102
|
2
|
950
|
(877
|
)
|
-
|
75
|
||||||||||||
Employee
stock purchases and 401(k) match (note 10)
|
173
|
2
|
2,133
|
-
|
-
|
2,135
|
|||||||||||||
Net
income
|
-
|
-
|
-
|
-
|
27,102
|
27,102
|
|||||||||||||
Balance
at January 3, 2004
|
35,770
|
358
|
104,085
|
(877
|
)
|
(11,365
|
)
|
92,201
|
|||||||||||
Exercise
of common stock options (note 7)
|
1,017
|
10
|
9,074
|
-
|
-
|
9,084
|
|||||||||||||
Exercise
of common stock warrants
|
35
|
-
|
5
|
-
|
-
|
5
|
|||||||||||||
Repurchase
of common stock
|
(1,138
|
)
|
(11
|
)
|
(20,842
|
)
|
-
|
-
|
(20,853
|
)
|
|||||||||
Issuance
of restricted stock (note 7)
|
52
|
-
|
1,280
|
(875
|
)
|
-
|
405
|
||||||||||||
Employee
stock purchases and 401(k) match (note 10)
|
92
|
1
|
1,946
|
-
|
-
|
1,947
|
|||||||||||||
Net
income
|
-
|
-
|
-
|
-
|
31,555
|
31,555
|
|||||||||||||
Balance
at January 1, 2005
|
35,828
|
358
|
95,548
|
(1,752
|
)
|
20,190
|
114,344
|
||||||||||||
Exercise
of common stock options (note 7)
|
972
|
9
|
10,731
|
-
|
-
|
10,740
|
|||||||||||||
Exercise
of common stock warrants
|
1,181
|
12
|
(3
|
)
|
-
|
-
|
9
|
||||||||||||
Repurchase
of common stock
|
(2,435
|
)
|
(24
|
)
|
(49,703
|
)
|
-
|
-
|
(49,727
|
)
|
|||||||||
Issuance
of restricted and performance stock (note 7)
|
104
|
1
|
2,433
|
(1,641
|
)
|
-
|
793
|
||||||||||||
Employee
stock purchases (note 10)
|
82
|
1
|
1,420
|
-
|
-
|
1,421
|
|||||||||||||
Net
income
|
-
|
-
|
-
|
-
|
43,767
|
43,767
|
|||||||||||||
Balance
at December 31, 2005
|
35,732
|
$
|
357
|
$
|
60,426
|
$
|
(3,393
|
)
|
$
|
63,957
|
$
|
121,347
|
|
2005
|
2004
|
2003
|
|||||||
Cash
flows from operating activities:
|
||||||||||
Net
income
|
$
|
43,767
|
$
|
31,555
|
$
|
27,102
|
||||
Adjustments
to reconcile net income to net cash
provided
by operating activities:
|
||||||||||
Depreciation
and amortization
|
15,747
|
13,643
|
11,145
|
|||||||
Amortization
of debt discount and deferred finance fees
|
-
|
-
|
130
|
|||||||
Non-cash
compensation
|
793
|
405
|
75
|
|||||||
Loss
on disposal and impairments of assets
|
172
|
11
|
96
|
|||||||
Tax
benefit from disqualifying option dispositions
|
3,758
|
4,641
|
4,413
|
|||||||
Deferred
tax (benefit) expense
|
(1,353
|
)
|
(4,032
|
)
|
5,599
|
|||||
Change
in operating assets and liabilities:
|
||||||||||
Accounts
receivable
|
(1,465
|
)
|
(1,821
|
)
|
(3,553
|
)
|
||||
Inventories
|
(1,501
|
)
|
(6,371
|
)
|
(5,130
|
)
|
||||
Prepaid
expenses
|
(2,466
|
)
|
(1,407
|
)
|
(501
|
)
|
||||
Other
assets
|
28
|
(306
|
)
|
129
|
||||||
Accounts
payable
|
5,388
|
9,765
|
(6
|
)
|
||||||
Consumer
prepayments
|
5,350
|
3,398
|
4,006
|
|||||||
Accrued
sales returns
|
365
|
1,569
|
288
|
|||||||
Accrued
compensation and benefits
|
10,926
|
(3,390
|
)
|
3,637
|
||||||
Accrued
taxes and withholding
|
3,232
|
2,731
|
882
|
|||||||
Other
accruals and liabilities
|
4,757
|
2,091
|
891
|
|||||||
Net
cash provided by operating activities
|
87,498
|
52,482
|
49,203
|
|||||||
Cash
flows from investing activities:
|
||||||||||
Purchases
of property and equipment
|
(25,840
|
)
|
(21,399
|
)
|
(18,364
|
)
|
||||
Investments
in marketable securities
|
(39,172
|
)
|
(72,540
|
)
|
(55,717
|
)
|
||||
Proceeds
from maturity of marketable securities
|
36,625
|
46,256
|
18,972
|
|||||||
Net
cash used in investing activities
|
(28,387
|
)
|
(47,683
|
)
|
(55,109
|
)
|
||||
Cash
flows from financing activities:
|
||||||||||
Principal
payments on long-term debt
|
-
|
-
|
(11
|
)
|
||||||
Repurchase
of common stock
|
(49,727
|
)
|
(20,853
|
)
|
(1,834
|
)
|
||||
Proceeds
from issuance of shares from option and warrant exercises
|
6,992
|
4,448
|
3,445
|
|||||||
Proceeds
from issuance of ESPP shares and other equity transactions
|
1,421
|
1,947
|
1,855
|
|||||||
Net
cash (used in) provided by financing activities
|
(41,314
|
)
|
(14,458
|
)
|
3,455
|
|||||
Increase
(decrease) in cash and cash equivalents
|
17,797
|
(9,659
|
)
|
(2,451
|
)
|
|||||
Cash
and cash equivalents, at beginning of year
|
15,066
|
24,725
|
27,176
|
|||||||
Cash
and cash equivalents, at end of year
|
$
|
32,863
|
$
|
15,066
|
$
|
24,725
|
||||
Supplemental
Disclosure of Cash Flow Information
|
||||||||||
Cash
paid during the year for:
|
||||||||||
Interest
|
$
|
-
|
$
|
-
|
$
|
39
|
||||
Income
taxes
|
22,563
|
16,842
|
5,917
|
|||||||
Non-cash
impact of conversion of debt to equity
|
-
|
-
|
3,121
|
|
2005
|
2004
|
2003
|
|||||||
Net
income, as reported
|
$
|
43,767
|
$
|
31,555
|
$
|
27,102
|
||||
Deduct:
Total stock-based employee compensation expense determined under
fair
value based method for all awards, net of related tax
effects
|
(3,902
|
)
|
(4,247
|
)
|
(2,591
|
)
|
||||
Pro
forma net income
|
$
|
39,865
|
$
|
27,308
|
$
|
24,511
|
||||
Net
income per share
|
||||||||||
Basic – as
reported
|
$
|
1.23
|
$
|
0.88
|
$
|
0.83
|
||||
Basic – pro
forma
|
1.12
|
0.76
|
0.75
|
|||||||
Diluted – as
reported
|
$
|
1.14
|
$
|
0.80
|
$
|
0.69
|
||||
Diluted – pro
forma
|
1.04
|
0.69
|
0.63
|
|
2005
|
2004
|
2003
|
|||||||||
Expected
dividend yield
|
0
|
%
|
0
|
%
|
0
|
%
|
||||||
Expected
stock price volatility
|
60
|
%
|
55
|
%
|
90
|
%
|
||||||
Risk-free
interest rate
|
4.0
|
%
|
2.0
|
%
|
2.0
|
%
|
||||||
Expected
life in years
|
5.0
|
3.6
|
3.6
|
|||||||||
Weighted-average
fair value at grant date
|
$
|
11.22
|
$
|
10.19
|
$
|
7.31
|
|
Balance
at
Beginning
of
Year
|
Additions
Charged
to
Costs
and
Expenses
|
Deductions
from
Reserves
|
Balance
at
End
of Year
|
|||||||||
2005
|
$
|
3,844
|
$
|
12,536
|
$
|
8,731
|
$
|
7,649
|
|||||
2004
|
4,262
|
7,839
|
8,257
|
3,844
|
|||||||||
2003
|
5,180
|
4,378
|
5,296
|
4,262
|
December 31,
2005
|
Effective
Interest
Rate
|
Amortized
Cost
|
Fair
Value
|
||||||||
Corporate
securities
|
2.0
|
% |
|
$
|
3,442
|
$
|
3,419
|
||||
U.S.
government agencies
|
2.4
|
19,075
|
18,788
|
||||||||
Municipal
securities
|
2.8
|
56,707
|
56,350
|
||||||||
$
|
79,224
|
$
|
78,557
|
January
1, 2005
|
Effective
Interest
Rate
|
Amortized
Cost
|
Fair
Value
|
||||||||
Corporate
securities
|
1.9
|
% |
|
$
|
5,621
|
$
|
5,547
|
||||
U.S.
government agencies
|
1.9
|
52,864
|
52,385
|
||||||||
Municipal
securities
|
2.1
|
18,192
|
18,135
|
||||||||
$
|
76,677
|
$
|
76,067
|
Amortized
Cost
|
Fair
Value
|
||||||
4 – 12 Months
|
$
|
24,122
|
$
|
23,906
|
|||
13 – 24
Months
|
27,282
|
26,961
|
|||||
25 – 36
Months
|
27,820
|
27,690
|
|||||
Total
|
$
|
79,224
|
$
|
78,557
|
|
December
31,
2005
|
January
3,
2004
|
|||||
Raw
materials
|
$
|
6,549
|
$
|
8,498
|
|||
Work
in progress
|
226
|
170
|
|||||
Finished
goods
|
15,207
|
11,813
|
|||||
$
|
21,982
|
$
|
20,481
|
|
December
31, 2005
|
January
1,
2005
|
|||||
Leasehold
improvements
|
$
|
63,536
|
$
|
54,133
|
|||
Office
furniture and equipment
|
3,580
|
3,664
|
|||||
Production
machinery, computer equipment and software
|
57,616
|
43,352
|
|||||
Less
Accumulated depreciation and amortization
|
(70,866
|
)
|
(57,238
|
)
|
|||
$
|
53,866
|
$
|
43,911
|
|
2005
|
2004
|
2003
|
|||||||
Minimum
rents
|
$
|
23,619
|
$
|
20,050
|
$
|
17,376
|
||||
Percentage
rents
|
8,246
|
6,112
|
5,036
|
|||||||
Total
|
$
|
31,865
|
$
|
26,162
|
$
|
22,412
|
||||
Equipment
rent
|
$
|
1,927
|
$
|
2,056
|
$
|
1,661
|
2006
|
$
|
24,902
|
||
2007
|
22,798
|
|||
2008
|
20,378
|
|||
2009
|
16,284
|
|||
2010
|
12,538
|
|||
Thereafter
|
12,143
|
|||
$
|
109,043
|
|
|
|
Shares
|
Weighted
Average
Exercise
Price
|
|||
Outstanding
at December 28, 2002 (including 2,981 shares exercisable)
|
|
5,320
|
$
|
5.09
|
|||
Granted
|
730
|
11.79
|
|||||
Exercised
|
(1,008
|
)
|
2.98
|
||||
Canceled
|
(53
|
)
|
6.07
|
||||
Outstanding
at January 3, 2004 (including 3,278 shares exercisable)
|
4,989
|
6.49
|
|||||
Granted
|
593
|
24.27
|
|||||
Exercised
|
(1,017
|
)
|
4.40
|
||||
Canceled
|
(60
|
)
|
15.05
|
||||
Outstanding
at January 1, 2005 (including 3,285 shares exercisable)
|
4,505
|
9.19
|
|||||
Granted
|
629
|
20.50
|
|||||
Exercised
|
(972
|
)
|
7.18
|
||||
Canceled
|
(115
|
)
|
19.73
|
||||
Outstanding
at December 31, 2005 (including 2,939 shares exercisable)
|
4,047
|
11.14
|
Options
Outstanding
|
Options
Exercisable
|
|||||||||||||||
Range
of Exercise Price
|
Shares
|
Average
Remaining
Contractual
Life
(years)
|
|
Weighted
Average
Exercise
Price
|
Shares
|
Weighted
Average
Exercise
Price
|
||||||||||
$0.56
–
2.75
|
1,011
|
5.68
|
$
|
1.79
|
1,011
|
$
|
1.79
|
|||||||||
2.76
–
7.50
|
980
|
4.20
|
5.56
|
980
|
5.56
|
|||||||||||
7.51
–
16.00
|
695
|
5.80
|
11.27
|
549
|
11.71
|
|||||||||||
16.01
–
20.75
|
612
|
8.56
|
19.43
|
103
|
18.12
|
|||||||||||
20.76
–
28.73
|
749
|
7.90
|
24.13
|
296
|
24.89
|
|||||||||||
$0.56
–
28.73
|
4,047
|
6.19
|
11.14
|
2,939
|
7.80
|
Warrant
Type
|
Exercise
Price
|
Warrants
Outstanding
|
Expiration
Date
|
|||||||
2001
Senior Secured Convertible Notes Financing
|
$
|
1.00
|
20
|
6/6/06
|
||||||
Other
warrants
|
1.20
–
3.21
|
34
|
6/6/06 –
3/27/07
|
|||||||
54
|
|
2005
|
2004
|
2003
|
|||||||
Current:
|
||||||||||
Federal
|
$
|
(23,785
|
)
|
$
|
(20,494
|
)
|
$
|
(8,749
|
)
|
|
State
|
(4,564
|
)
|
(2,928
|
)
|
(1,576
|
)
|
||||
(28,349
|
)
|
(23,422
|
)
|
(10,325
|
)
|
|||||
Deferred:
|
||||||||||
Federal
|
1,047
|
3,679
|
(5,512
|
)
|
||||||
State
|
306
|
353
|
(87
|
)
|
||||||
1,353
|
4,032
|
(5,599
|
)
|
|||||||
Income
tax expense
|
$
|
(26,996
|
)
|
$
|
(19,390
|
)
|
$
|
(15,924
|
)
|
|
2005
|
2004
|
2003
|
|||||||||
Statutory
federal income tax rate
|
35.0
|
% |
|
35.0
|
%
|
|
35.0
|
%
|
||||
State
income taxes, net of federal benefit
|
3.9
|
3.1
|
3.1
|
|||||||||
Other
|
(0.7
|
) |
|
(0.0
|
)
|
|
(1.1
|
)
|
||||
38.2
|
% |
|
38.1
|
% |
|
37.0
|
%
|
|
2005
|
2004
|
|||||
Deferred
tax assets:
|
|||||||
Current:
|
|||||||
Warranty
and returns reserves
|
$
|
3,268
|
$
|
2,730
|
|||
Accrued
compensation and benefits
|
2,713
|
2,082
|
|||||
Other
|
374
|
690
|
|||||
Long-term:
|
|||||||
Net
operating and capital loss carryforwards
|
797
|
845
|
|||||
Depreciation
|
6,010
|
7,075
|
|||||
Deferred
rent and lease incentives
|
2,807
|
2,523
|
|||||
Warranty
reserve
|
1,797
|
716
|
|||||
Other
|
289
|
41
|
|||||
Total
gross deferred tax assets
|
18,055
|
16,702
|
|||||
Valuation
allowance
|
(660
|
)
|
(660
|
)
|
|||
Total
net deferred tax assets
|
$
|
17,395
|
$
|
16,042
|
2005
|
2004
|
2003
|
||||||||
Net
income
|
$
|
43,767
|
$
|
31,555
|
$
|
27,102
|
||||
Convertible
debt
|
-
|
-
|
81
|
|||||||
Net
income plus assumed conversions
|
$
|
43,767
|
$
|
31,555
|
$
|
27,183
|
||||
Reconciliation
of weighted average shares outstanding:
|
||||||||||
Basic
weighted average shares outstanding
|
35,571
|
36,010
|
32,771
|
|||||||
Effect
of dilutive securities:
|
||||||||||
Options
|
1,681
|
2,186
|
2,823
|
|||||||
Warrants
|
998
|
1,339
|
3,331
|
|||||||
Restricted
shares
|
199
|
148
|
85
|
|||||||
Convertible
debt
|
-
|
-
|
267
|
|||||||
Diluted
weighted average shares outstanding
|
38,449
|
39,683
|
39,277
|
|||||||
Net
income per share – basic
|
$
|
1.23
|
$
|
0.88
|
$
|
0.83
|
||||
Net
income per share – diluted
|
|
1.14
|
|
0.80
|
|
0.69
|
2005
|
December
|
September
|
June
|
March
|
|||||||||
Net
sales
|
$
|
187,881
|
$
|
175,833
|
$
|
154,520
|
$
|
172,832
|
|||||
Gross
profit
|
114,097
|
104,792
|
89,490
|
102,097
|
|||||||||
Operating
income
|
24,625
|
18,135
|
12,181
|
13,648
|
|||||||||
Net
income
|
15,817
|
11,446
|
7,862
|
8,642
|
|||||||||
Net
income per share – diluted
|
0.42
|
0.30
|
0.20
|
0.22
|
2004
|
December
|
September
|
June
|
March
|
|||||||||
Net
sales
|
$
|
148,608
|
$
|
144,348
|
$
|
124,720
|
$
|
139,963
|
|||||
Gross
profit
|
90,744
|
86,982
|
76,914
|
86,034
|
|||||||||
Operating
income
|
16,148
|
12,706
|
9,059
|
11,618
|
|||||||||
Net
income
|
10,438
|
8,049
|
5,735
|
7,333
|
|||||||||
Net
income per share – diluted
|
0.27
|
0.20
|
0.14
|
0.18
|
1.
|
Select
Comfort Profit Sharing and 401(K) Plan
|
2.
|
Select
Comfort Executive Investment Plan
|
3.
|
Select
Comfort Executive and Key Employee Incentive Plan
|
4.
|
Select
Comfort Corporation 1999 Employee Stock Purchase Plan, as amended
and
restated
|
5.
|
Select Comfort Corporation 1990 Omnibus Stock Option Plan, as amended and restated |
6.
|
Select
Comfort Corporation 1997 Stock Incentive Plan, as amended and restated
|
7.
|
Form
of Incentive Stock Option Agreement under the 1990 and 1997 Stock
Plans
|
8.
|
Form of Performance Based Stock Option Agreement under the 1990 and 1997 Stock Plans |
9.
|
Select
Comfort Corporation 2004 Stock Incentive Plan
|
10.
|
Form
of Stock Option Award Agreement under the 2004 Stock Incentive
Plan
|
11.
|
Form
of Restricted Stock Award Agreement under the 2004 Stock Incentive
Plan
|
12.
|
Form
of Performance Stock Award Agreement under the 2004 Stock Incentive
Plan
|
13.
|
Summary
of Select Comfort Corporation Executive Tax and Financial Planning
Program
|
14.
|
Summary
of Executive Health Program
|
15.
|
Summary
of Select Comfort Corporation Non-Employee Director
Compensation
|
16.
|
Select
Comfort Corporation Non-Employee Director Equity Plan
|
17.
|
Employment
Letter from the Company to William R. McLaughlin
|
18.
|
Employment
Letter from the Company to J. Douglas Collier
|
19.
|
Employment
Letter from the Company to Mark A. Kimball
|
20.
|
Employment
Letter from the Company to Scott F. Peterson
|
21.
|
Employment
Letter from the Company to Kathryn V. Roedel
|
22.
|
Employment
Letter from the Company to Wendy L. Schoppert
|
23.
|
Employment
Letter from the Company to Keith C. Spurgeon
|
24.
|
Employment
Letter from the Company to Michael J.
Thyken
|
SELECT
COMFORT CORPORATION
|
|||
Dated:
March 14, 2006
|
By:
|
/s/
William R. McLaughlin
|
|
William
R. McLaughlin
|
|||
|
Chairman
and Chief Executive Officer
(principal
executive officer)
|
||
By:
|
/s/
James C. Raabe
|
||
James
C. Raabe
|
|||
|
Chief
Financial Officer
(principal
financial and accounting officer)
|
NAME
|
TITLE
|
DATE
|
|||
/s/
William R. McLaughlin
|
Chairman
of the Board
|
March
14, 2006
|
|||
William
R. McLaughlin
|
|||||
/s/
Thomas J. Albani
|
Director
|
March
14, 2006
|
|||
Thomas
J. Albani
|
|||||
/s/
Christine M. Day
|
Director
|
March
14, 2006
|
|||
Christine
M. Day
|
|||||
/s/
Stephen L. Gulis, Jr.
|
Director
|
March
14, 2006
|
|||
Stephen
L. Gulis, Jr.
|
|||||
/s/
Patrick A. Hopf
|
Director
|
March
14, 2006
|
|||
Patrick
A. Hopf
|
|||||
/s/
Christopher P. Kirchen
|
Director
|
March
14, 2006
|
|||
Christopher
P. Kirchen
|
|||||
/s/
David T. Kollat
|
Director
|
March
14, 2006
|
|||
David
T. Kollat
|
|||||
/s/
Brenda J. Lauderback
|
Director
|
March
14, 2006
|
|||
Brenda
J. Lauderback
|
|||||
/s/
Michael A. Peel
|
Director
|
March
14, 2006
|
|||
Michael
A. Peel
|
|||||
/s/
Ervin R. Shames
|
Director
|
March
14, 2006
|
|||
Ervin
R. Shames
|
|||||
/s/
Jean-Michel Valette
|
Director
|
March
14, 2006
|
|||
Jean-Michel
Valette
|
Exhibit
No.
|
Description
|
Method
Of Filing
|
|||
3.1
|
Restated
Articles of Incorporation of the Company, as amended
|
Incorporated
by reference to Exhibit 3.1 contained in Select Comfort’s Annual Report on
Form 10-K for the fiscal year ended January 1, 2000 (File No.
0-25121)
|
|||
3.2
|
Restated
Bylaws of the Company
|
Incorporated
by reference to Exhibit 3.2 contained in the Select Comfort’s Registration
Statement on Form S-1, as amended (Reg. No. 333-62793)
|
|||
10.1
|
Net
Lease Agreement dated December 3, 1993 between the Company and Opus
Corporation
|
Incorporated
by reference to Exhibit 10.1 contained in Select Comfort’s Registration
Statement on Form S-1, as amended (Reg. No. 333-62793)
|
|||
10.2
|
Amendment
of Lease dated August 10, 1994 between the Company and Opus
Corporation
|
Incorporated
by reference to Exhibit 10.2 contained in the Select Comfort’s
Registration Statement on Form S-1, as amended (Reg. No.
333-62793)
|
10.3
|
Second
Amendment to Lease dated May 10, 1995 between the Company and Rushmore
Plaza Partners Limited Partnership (successor to Opus
Corporation)
|
Incorporated
by reference to Exhibit 10.3 contained in Select Comfort’s Registration
Statement on Form S-1, as amended (Reg. No. 333-62793)
|
|||
10.4
|
Letter
Agreement dated as of October 5, 1995 between the Company and Rushmore
Plaza Partners Limited Partnership
|
Incorporated
by reference to Exhibit 10.4 contained in Select Comfort’s Registration
Statement on Form S-1, as amended (Reg. No. 333-62793)
|
|||
10.5
|
Third
Amendment of Lease, Assignment and Assumption of Lease and Consent
dated
as of January 1, 1996 among the Company, Rushmore Plaza Partners
Limited
Partnership and Select Comfort Direct Corporation
|
Incorporated
by reference to Exhibit 10.5 contained in Select Comfort’s Registration
Statement on Form S-1, as amended (Reg. No. 333-62793)
|
|||
10.6
|
Fourth
Amendment to Lease dated June 30, 2003 between Cabot Industrial
Properties, L.P. (successor to Rushmore Plaza Partners Limited
Partnership) and Select Comfort Direct Corporation
|
Incorporated
by reference to Exhibit 10.6 contained in Select Comfort’s Annual report
on Form 10-K for the fiscal year ended January 3, 2004 (File No.
0-25121)
|
|||
10.7
|
Lease
Agreement dated as of September 19, 2002 between the Company and
Blind
John, LLC (as successor to Frastacky (US) Properties Limited
Partnership)
|
Incorporated
by reference to Exhibit 10.6 contained in Select Comfort’s Annual Report
on Form 10-K for the fiscal year ended December 28, 2002 (File No.
0-25121)
|
Exhibit
No.
|
Description
|
Method
Of Filing
|
|||
10.8
|
Supply
Agreement dated October 18, 2002 between the Company and Supplier
(1)
|
Incorporated
by reference to Exhibit 10.7 contained in Select Comfort’s Annual Report
on Form 10-K for the fiscal year ended December 28, 2002 (File
No.
0-25121)
|
|||
10.9
|
Form
of Incentive Stock Option Agreement under the 1990 and 1997 Stock
Plans
|
Incorporated
by reference to Exhibit 10.16 contained in the Company’s Registration
Statement on Form S-1, as amended (Reg. No. 333-62793)
|
|||
10.10
|
Form
of Performance Based Stock Option Agreement under the 1990 and
1997 Stock
Plans
|
Incorporated
by reference to Exhibit 10.17 contained in Select Comfort’s Registration
Statement on Form S-1, as amended (Reg. No. 333-62793)
|
|||
10.11
|
Lease
Agreement dated September 30, 1998 between the Company and ProLogis
Development Services Incorporated
|
Incorporated
by reference to Exhibit 10.12 contained in Select Comfort’s Annual Report
on Form 10-K for the fiscal year ended December 28, 2002 (File
No.
0-25121)
|
|||
10.12
|
Select
Comfort Corporation 1999 Employee Stock Purchase Plan, as
Amended
|
Filed
herewith
|
|||
10.13
|
Select
Comfort Corporation 1990 Omnibus Stock Option Plan, as amended
and
restated
|
Incorporated
by reference to Exhibit 10.1 contained in Select Comfort’s Quarterly
Report on Form 10-Q for the quarter ended October 2, 1999 (File
No.
0-25121)
|
|||
10.14
|
Select
Comfort Corporation 1997 Stock Inventive Plan, as amended and
restated
|
Incorporated
by reference to Exhibit 10.8 contained in Select Comfort’s Quarterly
Report on Form 10-Q for the quarter ended June 30, 2001 (File
No.
0-25121)
|
|||
10.15
|
Employment
Letter from the Company to Mark A. Kimball
|
Incorporated
by reference to Exhibit 10.25 contained in Select Comfort’s Annual Report
on Form 10-K for the fiscal year ended January 1, 2000 (File
No.
0-25121)
|
|||
10.16
|
Executive
and Key Employee Incentive Plan
|
Incorporated
by reference to Exhibit 10.22 contained in Select Comfort’s Annual Report
on Form 10-K for the fiscal year ended December 30, 2000 (File
No.
0-25121)
|
|||
10.17
|
Employment
Letter from the Company to Kathryn V. Roedel
|
Filed
herewith
|
|||
10.18
|
Employment
Letter from the Company to Wendy L. Schoppert
|
Filed
herewith
|
Exhibit
No.
|
Description
|
Method
Of Filing
|
|||
10.19
|
Employment
Letter from the Company to William R. McLaughlin
|
Incorporated
by reference to Exhibit 10.1 contained in Select Comfort’s Quarterly
Report on Form 10-Q for the quarter ended April 1, 2000 (File No.
0-25121)
|
|||
10.20
|
Employment
Letter dated from the Company to Michael J. Thyken
|
Incorporated
by reference to Exhibit 10.24 contained in Select Comfort’s Annual Report
on Form 10-K for the fiscal year ended December 30, 2000 (File
No.
0-25121)
|
|||
10.21
|
Employment
Letter from the Company to Keith C. Spurgeon
|
Incorporated
by reference to Exhibit 10.1 contained in Select Comfort’s Quarterly
Report on Form 10-Q for the quarter ended March 30, 2002 (File
No.
0-25121)
|
|||
10.22
|
Employment
Letter from the Company to J. Douglas Collier
|
Filed
herewith
|
|||
10.23
|
Select
Comfort Executive Investment Plan
|
Incorporated
by reference to Exhibit 10.29 contained in Select Comfort’s Annual Report
on Form 10-K for the fiscal year ended December 28, 2002 (File
No.
0-25121)
|
|||
10.24
|
Credit
Agreement dated as of May 23, 2003 between the Company and Bank
of
America, N.A.
|
Incorporated
by reference to Exhibit 10.1 contained in Select Comfort’s Quarterly
Report on Form 10-Q for the quarter ended June 28, 2003 (File No.
0-25121)
|
|||
10.25
|
Employment
Letter from the Company to Scott F. Peterson
|
Incorporated
by reference to Exhibit 10.1 contained in Select Comfort’s Quarterly
Report on Form 10-Q for the quarter ended September 27, 2003 (File
No.
0-25121)
|
|||
10.26
|
Exclusive
Supplier Agreement between Radisson Hotels International, Inc.
and Select
Comfort Corporation (1)
|
Incorporated
by reference to Exhibit 10.1 contained in Select Comfort’s Quarterly
Report on Form 10-Q for the quarter ended July 3, 2004 (File No.
0-25121)
|
|||
10.27
|
Select
Comfort Corporation 2004 Stock Incentive Plan
|
Incorporated
by reference to Exhibit 10.1 contained in Select Comfort’s Quarterly
Report on Form 10-Q for the quarter ended July 3, 2004 (File No.
0-25121)
|
|||
10.28
|
Form
of Stock Option Award Agreement under the Select Comfort Corporation
2004
Stock Incentive Plan
|
Filed
herewith
|
Exhibit
No.
|
Description
|
Method
Of Filing
|
|||
10.29
|
Form
of Restricted Stock Award Agreement under the Select Comfort Corporation
2004 Stock Incentive Plan
|
Filed
herewith
|
|||
10.30
|
Form
of Performance Stock Award Agreement under the Select Comfort Corporation
2004 Stock Incentive Plan
|
Filed
herewith
|
|||
10.31
|
Select
Comfort Corporation Executive Tax and Financial Planning
Program
|
Incorporated
by reference to Exhibit 10.1 contained in Select Comfort’s Current Report
on Form 8-K filed January 3, 2005 (File No. 0-25121)
|
|||
10.32
|
Summary
of Non-Employee Director Compensation
|
Filed
herewith
|
|||
10.33
|
Select
Comfort Profit Sharing and 401(K) Plan – 2005
Restatement
|
Incorporated
by reference to Exhibit 10.1 contained in Select Comfort’s Current Report
on Form 8-K filed October 5, 2005 (File No.
0-25121)
|
|||
10.34
|
Non-Employee
Director Equity Plan
|
Filed
herewith
|
|||
10.35
|
Amended
and Restated Private Label Consumer Credit Card Program Agreement
dated as
of December 14, 2005 between GE Money Bank and Select Comfort Corporation
and Select Comfort Retail Corporation (2)
|
Incorporated
by reference to Exhibit 10.1 contained in Select Comfort’s Current Report
on Form 8-K filed December 20, 2005
|
|||
10.36 |
Summary
of Executive Health Program
|
Filed
herewith
|
|||
21.1
|
Subsidiaries
of the Company
|
Filed
herewith
|
|||
23.1
|
Consent
of Independent Registered Public Accounting Firm
|
Filed
herewith
|
|||
24.1
|
Power
of Attorney
|
Included
on signature page
|
|||
31.1
|
Certification
of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
Filed
herewith
|
|||
31.2
|
Certification
of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
|
Filed
herewith
|
|||
32.1
|
Certification
of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
Filed
herewith
|
|||
32.2
|
Certification
of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
|
Filed
herewith
|
(1) | Confidential treatment has been granted by the Securities and Exchange Commission with respect to designated portions contained within document. Such portions have been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, as amended. |
(2) | Confidential treatment has been requested with respect to designated portions contained within document. Such portions have been omitted and filed separately with the Securities and Exchange Commission pursuant to Rule 24b-2 of the Securities and Exchange Act of 1934, as amended. |
Description
|
Balance
at
Beginning
of
Period
|
Additions
Charged
to
Costs
and
Expenses
|
Deductions
From
Reserves
|
Balance
at End
of
Period
|
|||||||||
Allowance
for doubtful accounts
|
|||||||||||||
2005
|
$
|
685
|
$
|
444
|
$
|
577
|
$
|
552
|
|||||
2004
|
619
|
404
|
338
|
685
|
|||||||||
2003
|
340
|
391
|
112
|
619
|
|||||||||
Accrued
sales returns
|
|||||||||||||
2005
|
$
|
5,038
|
$
|
38,617
|
$
|
38,252
|
$
|
5,403
|
|||||
2004
|
3,469
|
37,297
|
35,728
|
5,038
|
|||||||||
2003
|
3,181
|
25,125
|
24,837
|
3,469
|
· |
Starting
bi-weekly salary of $9615.38. ($250,000 annualized).
You
will also be eligible for your next salary review in February,
2006.
|
· |
You
will be eligible to receive a one-time lump sum sign on bonus of
$50,000
(less applicable withholdings) within your first 2 weeks of
employment.
|
· |
You
will be eligible to participate in the company’s management bonus
plan.
Under the plan as established for 2005, you will be eligible for
a
targeted bonus of 55% of base compensation actually paid for the
year. The
actual bonus payment may range from 0% to 250% of the targeted bonus
level, depending on the performance of the Company. Your minimum
2005
bonus payment will be paid at full-year target(not pro-rated), with
upside
if the company exceeds plan. Your minimum 2006 bonus payment will
be paid
at 75% of target, with upside based on company performance versus
targets.
|
· |
You
will be granted options to purchase 75,000 shares of the Company’s common
stock at a fixed exercise price. The exercise price of these options
will
be the average of the high and low trading prices of the Company’s common
stock on the date of grant, which we expect to be the first day of
employment. These options will vest 25% per year on each of the first
4
anniversaries of the date of grant. You will be eligible for annual
equity
grants as part of our annual long-term incentive
plan.
|
· |
You
will also be granted 5000 restricted shares which will vest after
4
completed years of service. The grant price of these shares will
be the
average of the high and low trading prices of the Company’s common stock
on the day your employment begins.
|
· |
You
will be eligible for the company’s director level & above benefits as
part of your total compensation package. Please refer to the attached
summary of benefits for details.
|
· |
Reasonable
costs (travel, food, lodging, car rental, etc.) for the purpose of
finalizing a home purchase. We would expect this to include the cost
of a
pre-employment house hunting trip for you and your spouse; and an
additional house hunting trip for your spouse/family if necessary.
|
· |
Interim
temporary living for a period of up to 60 days if permanent residence
is
not available.
|
· |
Reasonable
number of trips back home while/if you are in interim
living.
|
· |
The
moving of your household goods and personal effects through a moving
company set up by Select Comfort.
|
· |
Real
estate fees associated with the sale of your home and other reimbursable
closing costs.
|
· |
Starting
bi-weekly salary of $8846.16. ($230,000 annualized).
You
will also be eligible for your next salary review in February, 2006.
|
· |
You
will be eligible to participate in the company’s management bonus
plan.
Under the plan as established for 2005, you will be eligible for
a minimum
target bonus payout of 55% of annual base pay (not pro-rated). Your
bonus
payment has upside leverage, up to 250%, to the extent to which the
company exceeds its bonus target.
|
· |
You
will be granted options to purchase 75,000 shares of the Company’s common
stock at a fixed exercise price. The exercise price of these options
will
be the average of the high and low trading prices of the Company’s common
stock on the date of grant, which we expect to be the first day of
employment. These options will vest 25% per year on each of the first
4
anniversaries of the date of grant. You will be eligible for annual
equity
grants as part of our annual long-term incentive
plan.
|
· |
You
will also be granted 5000 restricted shares which will vest after
4
completed years of service. The grant price of these shares will
be the
average of the high and low trading prices of the Company’s common stock
on the day your employment begins.
|
· |
You
will be eligible for the company’s director level benefits as part of your
total compensation package. Please refer to the attached summary
of
benefits for details. Actual benefits are defined in the individual
plan
documents. You will be eligible for 20 days paid time off annually,
plus
10 holidays.
|
· |
Starting
bi-weekly salary of $10,192.30. ($265,000 annualized).
You
will also be eligible for your next salary review in February, 2006.
|
· |
You
will be eligible to receive a one-time lump sum sign on bonus of
$20,000
(less applicable withholdings) within your first 30 days of
employment.
|
· |
You
will be eligible to participate in the company’s management bonus
plan.
Under the plan as established for 2005, you will be eligible for
a
targeted bonus of 55% of base compensation actually paid for the
year. The
actual bonus payment may range from 0% to 250% of the targeted bonus
level, depending on the performance of the Company. Your minimum
2005
bonus payment will be paid at target (pro-rated based on base salary
received during 2005), with upside if the company exceeds plan.
|
· |
You
will be granted options to purchase 75,000 shares of the Company’s common
stock at a fixed exercise price. The exercise price of these options
will
be the average of the high and low trading prices of the Company’s common
stock on the date of grant, which we expect to be the first day of
employment. These options will vest 25% per year on each of the first
4
anniversaries of the date of grant. You will be eligible for annual
equity
grants as part of our annual long-term incentive
plan.
|
· |
You
will also be granted 5000 restricted shares which will vest after
4
completed years of service. The grant price of these shares will
be the
average of the high and low trading prices of the Company’s common stock
on the day your employment begins.
|
· |
You
will be eligible for the company’s director level & above benefits as
part of your total compensation package. Please refer to the attached
summary of benefits for details.
|
· |
Reasonable
costs (travel, food, lodging, car rental, etc.) for the purpose of
finalizing a home purchase. We would expect this to include the cost
of a
pre-employment house hunting trip for you and your spouse; and an
additional house hunting trip for your spouse/family if necessary.
|
· |
Interim
temporary living for a period of up to 60 days if permanent residence
is
not available.
|
· |
Reasonable
number of trips back home while/if you are in interim
living.
|
· |
The
moving of your household goods and personal effects through a moving
company set up by Select Comfort.
|
· |
Real
estate fees associated with the sale of your home and other reimbursable
closing costs.
|
(Signature)
|
SELECT COMFORT CORPORATION | |
/s/
William
R. McLaughlin
|
|
William R. McLaughlin | |
Chairman and Chief Executive Officer |
By execution of this Agreement, the Grantee acknowledges having received a copy of the Plan. |
GRANTEE
|
(Signature) | |
(Name and Address)
|
|
Actual
2006 Net Operating Profit as a Percentage of
Planned
2006 Net Operating Profit
|
Factor
to Multiply Award Shares by to
Arrive
at Adjusted Award Shares
|
Greater
than 115% of Plan
|
1.50X
|
Greater
than 110% up to 115% of Plan
|
1.25X
|
Greater
than 90% up to 110% of Plan
|
1.00X
|
Greater
than 85% up to 90% of Plan
|
0.75X
|
Greater
than 75% up to 85% of Plan
|
0.50X
|
Up
to 75% of Plan
|
0.20X
|
SELECT COMFORT CORPORATION | |
/s/
William R.
McLaughlin
|
|
William R. McLaughlin | |
Chairman and Chief Executive Officer |
By execution of this Agreement, the Grantee acknowledges having received a copy of the Plan. | GRANTEE |
(Signature) | |
(Name and Address) | |
Name
of Subsidiary
|
Organized
under
the Laws of
|
Select
Comfort Retail Corporation
|
Minnesota
(USA)
|
Select
Comfort Direct Corporation
|
Minnesota
(USA)
|
Select
Comfort SC Corporation
|
Minnesota
(USA)
|
Select
Comfort Canada Holding Inc.
|
Minnesota
(USA)
|
selectcomfort.com
corporation
|
Minnesota
(USA)
|
Select
Comfort Wholesale Corporation
|
Minnesota
(USA)
|
Select
Comfort Canada ULC
|
Alberta,
Canada
|
/s/
William R. McLaughlin
|
|
William
R. McLaughlin
|
|
Chairman and
Chief Executive Officer
|
/s/
James C. Raabe
|
|
James
C. Raabe
|
|
Senior
Vice President and Chief Financial
Officer
|
/s/
William R. McLaughlin
|
|
William
R. McLaughlin
|
|
Chairman and
Chief Executive Officer
|
/s/
James C. Raabe
|
|
James
C. Raabe
|
|
Senior
Vice President and Chief Financial
Officer
|