Document and Entity Information
Document and Entity Information | 9 Months Ended |
Sep. 30, 2017shares | |
Document and Entity Information [Abstract] | |
Entity Registrant Name | SELECT COMFORT CORP |
Entity Central Index Key | 827,187 |
Current Fiscal Year End Date | --12-30 |
Entity Filer Category | Large Accelerated Filer |
Document Type | 10-Q |
Document Period End Date | Sep. 30, 2017 |
Document Fiscal Year Focus | 2,017 |
Document Fiscal Period Focus | Q3 |
Amendment Flag | false |
Entity Common Stock, Shares Outstanding | 39,819,000 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) $ in Thousands | Sep. 30, 2017 | Dec. 31, 2016 |
Current assets: | ||
Cash and cash equivalents | $ 29,914 | $ 11,609 |
Accounts receivable, net of allowance for doubtful accounts of $694 and $884, respectively | 21,107 | 19,705 |
Inventories | 79,217 | 75,026 |
Prepaid expenses | 10,208 | 8,705 |
Other current assets | 23,803 | 23,282 |
Total current assets | 164,249 | 138,327 |
Non-current assets: | ||
Property and equipment, net | 206,690 | 208,367 |
Goodwill and intangible assets, net | 78,133 | 80,817 |
Deferred income taxes | 938 | 4,667 |
Other non-current assets | 28,898 | 24,988 |
Total assets | 478,908 | 457,166 |
Current liabilities: | ||
Accounts payable | 136,628 | 105,375 |
Customer prepayments | 39,929 | 26,207 |
Accrued sales returns | 18,448 | 15,222 |
Compensation and benefits | 34,683 | 19,455 |
Taxes and withholding | 24,041 | 23,430 |
Other current liabilities | 44,708 | 35,628 |
Total current liabilities | 298,437 | 225,317 |
Non-current liabilities: | ||
Other non-current liabilities | 76,174 | 71,529 |
Total liabilities | 374,611 | 296,846 |
Shareholders’ equity: | ||
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding | 0 | 0 |
Common stock, $0.01 par value; 142,500 shares authorized, 39,819 and 43,569 shares issued and outstanding, respectively | 398 | 436 |
Additional paid-in capital | 0 | 0 |
Retained earnings | 103,899 | 159,884 |
Total shareholders’ equity | 104,297 | 160,320 |
Total liabilities and shareholders’ equity | $ 478,908 | $ 457,166 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands | Sep. 30, 2017 | Dec. 31, 2016 |
Current assets: | ||
Allowance for doubtful accounts | $ 694 | $ 884 |
Shareholders’ equity: | ||
Undesignated preferred stock, shares authorized (in shares) | 5,000,000 | 5,000,000 |
Undesignated preferred stock, shares issued (in shares) | 0 | 0 |
Undesignated preferred stock, shares outstanding (in shares) | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized (in shares) | 142,500,000 | 142,500,000 |
Common stock, shares issued (in shares) | 39,819,000 | 43,569,000 |
Common stock, shares outstanding (in shares) | 39,819,000 | 43,569,000 |
Consolidated Statements of Oper
Consolidated Statements of Operations - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Oct. 01, 2016 | Sep. 30, 2017 | Oct. 01, 2016 | |
Income Statement [Abstract] | ||||
Net sales | $ 402,646 | $ 367,988 | $ 1,081,218 | $ 997,846 |
Cost of sales | 149,181 | 135,645 | 404,675 | 385,168 |
Gross profit | 253,465 | 232,343 | 676,543 | 612,678 |
Operating expenses: | ||||
Sales and marketing | 174,800 | 158,024 | 488,564 | 443,477 |
General and administrative | 32,645 | 28,278 | 95,233 | 86,202 |
Research and development | 6,991 | 6,997 | 20,950 | 21,661 |
Total operating expenses | 214,436 | 193,299 | 604,747 | 551,340 |
Operating income | 39,029 | 39,044 | 71,796 | 61,338 |
Other expense, net | (248) | (255) | (668) | (581) |
Income before income taxes | 38,781 | 38,789 | 71,128 | 60,757 |
Income tax expense | 13,178 | 13,044 | 21,842 | 20,627 |
Net income | $ 25,603 | $ 25,745 | $ 49,286 | $ 40,130 |
Basic net income per share: | ||||
Net income per share – basic | $ 0.63 | $ 0.56 | $ 1.18 | $ 0.86 |
Weighted-average shares – basic | 40,755,000 | 45,621,000 | 41,740,000 | 46,705,000 |
Diluted net income per share: | ||||
Net income per share – diluted | $ 0.62 | $ 0.56 | $ 1.16 | $ 0.85 |
Weighted-average shares – diluted | 41,515,000 | 46,350,000 | 42,559,000 | 47,413,000 |
Consolidated Statements of Comp
Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Oct. 01, 2016 | Sep. 30, 2017 | Oct. 01, 2016 | |
Statement of Comprehensive Income [Abstract] | ||||
Net income | $ 25,603 | $ 25,745 | $ 49,286 | $ 40,130 |
Other comprehensive income – unrealized gain on available-for-sale marketable debt securities, net of income tax | 0 | 0 | 0 | 14 |
Comprehensive income | $ 25,603 | $ 25,745 | $ 49,286 | $ 40,144 |
Consolidated Statement of Share
Consolidated Statement of Shareholders' Equity - 9 months ended Sep. 30, 2017 - USD ($) $ in Thousands | Total | Common Stock [Member] | Additional Paid-In Capital [Member] | Retained Earnings [Member] |
Balance (in shares) at Dec. 31, 2016 | 43,569,000 | 43,569,000 | ||
Balance at Dec. 31, 2016 | $ 160,320 | $ 436 | $ 0 | $ 159,884 |
Net income | 49,286 | 49,286 | ||
Exercise of common stock options (in shares) | 212,000 | |||
Exercise of common stock options | 3,040 | $ 2 | 3,038 | 0 |
Stock-based compensation (in shares) | 587,000 | |||
Stock-based compensation | 11,809 | $ 6 | 11,803 | 0 |
Repurchases of common stock (in shares) | (4,549,000) | |||
Repurchases of common stock | $ (120,158) | $ (46) | (14,841) | (105,271) |
Balance (in shares) at Sep. 30, 2017 | 39,819,000 | 39,819,000 | ||
Balance at Sep. 30, 2017 | $ 104,297 | $ 398 | $ 0 | $ 103,899 |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2017 | Oct. 01, 2016 | |
Statement of Cash Flows [Abstract] | ||
Net Cash Provided by (Used in) Investing Activities | $ (34,427) | $ (29,580) |
Cash flows from operating activities: | ||
Net income | 49,286 | 40,130 |
Adjustments to reconcile net income to net cash provided by operating activities: | ||
Depreciation and amortization | 46,000 | 42,555 |
Stock-based compensation | 11,809 | 9,272 |
Net loss on disposals and impairments of assets | 229 | 9 |
Excess tax benefits from stock-based compensation | 0 | (516) |
Deferred income taxes | 3,729 | (673) |
Changes in operating assets and liabilities: | ||
Accounts receivable | (1,402) | 5,271 |
Inventories | (4,191) | 15,991 |
Income taxes | (147) | 30,386 |
Prepaid expenses and other assets | (1,713) | (3,458) |
Accounts payable | 33,325 | (1,043) |
Customer prepayments | 13,722 | (23,125) |
Accrued compensation and benefits | 15,277 | 12,441 |
Other taxes and withholding | 758 | 7,494 |
Other accruals and liabilities | 9,372 | 10,527 |
Net cash provided by operating activities | 176,054 | 145,261 |
Cash flows from investing activities: | ||
Purchases of property and equipment | (37,613) | (38,769) |
Decrease in restricted cash | 3,150 | 0 |
Proceeds from sales of property and equipment | 36 | 67 |
Proceeds from marketable debt securities | 0 | 15,090 |
Investments in marketable debt securities | 0 | 5,968 |
Cash flows from financing activities: | ||
Repurchases of common stock | (120,158) | (96,410) |
Net (decrease) increase in short-term borrowings | (6,194) | 3,062 |
Proceeds from issuance of common stock | 3,040 | 1,949 |
Debt issuance costs | (10) | (409) |
Excess tax benefits from stock-based compensation | 0 | 516 |
Net cash used in financing activities | (123,322) | (91,292) |
Net increase in cash and cash equivalents | 18,305 | 24,389 |
Cash and cash equivalents, at beginning of period | 11,609 | 20,994 |
Cash and cash equivalents, at end of period | $ 29,914 | $ 45,383 |
Basis of Presentation
Basis of Presentation | 9 Months Ended |
Sep. 30, 2017 | |
Accounting Policies [Abstract] | |
Basis of Presentation | Business and Summary of Significant Accounting Policies Business & Basis of Presentation We prepared the condensed consolidated financial statements as of and for the three and nine months ended September 30, 2017 of Select Comfort Corporation and 100%-owned subsidiaries (Select Comfort or the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and they reflect, in the opinion of management, all normal recurring adjustments necessary to present fairly our financial position as of September 30, 2017 and December 31, 2016 , and the consolidated results of operations and cash flows for the periods presented. Our historical and quarterly consolidated results of operations may not be indicative of the results that may be achieved for the full year or any future period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with our most recent audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and other recent filings with the SEC. The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of sales, expenses and income taxes during the reporting period. Predicting future events is inherently an imprecise activity and, as such, requires the use of judgment. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates will be reflected in the consolidated financial statements in future periods. Our critical accounting policies consist of stock-based compensation, goodwill and indefinite-lived intangible assets, warranty liabilities and revenue recognition. The condensed consolidated financial statements include the accounts of Select Comfort Corporation and our 100%-owned subsidiaries. All significant intra-entity balances and transactions have been eliminated in consolidation. Revenue Recognition At September 30, 2017 and December 31, 2016 , we had deferred revenue totaling $71 million and $61 million , of which $28 million and $21 million are included in other current liabilities, respectively, and $43 million and $40 million are included in other non-current liabilities, respectively, in our consolidated balance sheets. We also have related deferred costs totaling $41 million and $33 million , of which $16 million and $11 million are included in other current assets, respectively, and $25 million and $22 million are included in other non-current assets, respectively, in our consolidated balance sheets. The deferred revenue and costs are recognized over the product’s estimated life of four years . New Accounting Pronouncements Adopted In March 2016, the Financial Accounting Standards Board (FASB) issued new guidance on the accounting for, and disclosure of, stock-based compensation which we adopted effective January 1, 2017. The new guidance is intended to simplify several aspects of the accounting for stock-based compensation arrangements, including the income tax impact, forfeitures and classification on the statement of cash flows. Under the previous guidance, excess tax benefits and deficiencies were recognized in additional paid-in capital in the consolidated balance sheets. Upon adoption of the new guidance, these excess tax benefits or deficiencies are required to be recognized as discrete adjustments to income tax expense in the consolidated statements of operations on a prospective basis. During the three and nine months ended September 30, 2017 , excess tax benefits of $0.2 million and $1.4 million , respectively, were recognized as a reduction of income tax expense, rather than in additional paid-in capital. In addition, under the new guidance, excess income tax benefits from stock-based compensation arrangements are classified as an operating activity in the statement of cash flows rather than as a financing activity. This resulted in an increase to operating cash flows of $0.2 million and $2.3 million for the three and nine months ended September 30, 2017 , respectively. We elected to apply the new cash flow classification guidance prospectively. The prior-year statement of cash flows has not been adjusted. We have also elected to continue to estimate the number of stock-based awards expected to vest, as permitted by the new guidance, rather than electing to account for forfeitures as they occur. Not Yet Adopted In May 2014, the FASB issued a comprehensive new revenue recognition model that requires a company to recognize revenue in a manner that depicts the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This new guidance will be effective for us beginning January 1, 2018. Companies may use either a full retrospective or a modified retrospective approach to adopt this new guidance. When we adopt this new guidance, we expect to use the modified retrospective approach which will result in an adjustment to opening retained earnings, but would not restate prior periods' financial statements. Based on our analysis thus far, we believe the impact of adopting the new guidance will not be material to our consolidated financial statements. As interpretations of the new rules continue to evolve in the fourth quarter of fiscal 2017, we will monitor developments and will finalize our conclusions on our revenue recognition policy, disclosure requirements and changes that may be necessary to our internal controls over financial reporting. In February 2016, the FASB issued new guidance on accounting for leases that generally requires most leases to be recognized on the balance sheet. This new guidance is effective for reporting periods beginning after December 15, 2018. The provisions of this new guidance are to be applied using a modified retrospective approach, with elective reliefs, which requires application of the new guidance for all periods presented. We are evaluating the effect of the new standard on our consolidated financial statements and related disclosures. This new guidance is effective for us beginning December 30, 2018. |
Fair Value Measurements
Fair Value Measurements | 9 Months Ended |
Sep. 30, 2017 | |
Fair Value Disclosures [Abstract] | |
Fair Value Measurements | Fair Value Measurements At September 30, 2017 and December 31, 2016 , we had $3.4 million and $2.3 million , respectively, of debt and equity securities that fund our deferred compensation plan and are classified in other non-current assets. We also had corresponding deferred compensation plan liabilities of $3.4 million and $2.3 million at September 30, 2017 and December 31, 2016 , respectively, which are included in other non-current liabilities. The majority of the debt and equity securities are Level 1 as they trade with sufficient frequency and volume to enable us to obtain pricing information on an ongoing basis. Unrealized gains/(losses) on the debt and equity securities offset those associated with the corresponding deferred compensation plan liabilities. |
Inventories
Inventories | 9 Months Ended |
Sep. 30, 2017 | |
Inventory Disclosure [Abstract] | |
Inventories | Inventories Inventories consisted of the following (in thousands): September 30, December 31, Raw materials $ 4,292 $ 7,973 Work in progress 223 72 Finished goods 74,702 66,981 $ 79,217 $ 75,026 |
Goodwill and Intangible Assets
Goodwill and Intangible Assets | 9 Months Ended |
Sep. 30, 2017 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Goodwill and Intangible Assets | Goodwill and Intangible Assets, Net Goodwill and Indefinite-Lived Intangible Assets Goodwill was $64.0 million at September 30, 2017 and December 31, 2016 . Indefinite-lived trade name/trademarks totaled $1.4 million at September 30, 2017 and December 31, 2016 . Definite-Lived Intangible Assets The following table provides the gross carrying amount and related accumulated amortization of our definite-lived intangible assets (in thousands): September 30, 2017 December 31, 2016 Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Developed technologies $ 18,851 $ 6,160 $ 18,851 $ 4,524 Customer relationships 2,413 2,413 2,413 1,365 Trade names/trademarks 101 101 101 101 $ 21,365 $ 8,674 $ 21,365 $ 5,990 Amortization expense for the three months ended September 30, 2017 and October 1, 2016 , was $0.5 million and $0.6 million , respectively. Amortization expense for the nine months ended September 30, 2017 and October 1, 2016 , was $2.7 million and $1.9 million , respectively. |
Credit Agreement
Credit Agreement | 9 Months Ended |
Sep. 30, 2017 | |
Debt Disclosure [Abstract] | |
Debt | Credit Agreement In March 2017, we amended our revolving credit facility to increase our net aggregate availability from $150 million to $153 million . We maintained the accordion feature which allows us to increase the amount of the credit facility from $153 million to $200 million , subject to lenders' approval. There were no other changes to the credit agreement's terms and conditions. The credit facility is for general corporate purposes and is utilized to meet our seasonal working capital requirements. The credit facility matures in February 2021 . The credit agreement provides the lenders with a collateral security interest in substantially all of our assets and those of our subsidiaries and requires us to comply with, among other things, a maximum leverage ratio and a minimum interest coverage ratio. Under the terms of the credit agreement we pay a variable rate of interest and a commitment fee based on our leverage ratio. As of September 30, 2017 , we had no outstanding borrowings and $3.15 million in outstanding letters of credit. Our borrowing capacity was $150 million . We were in compliance with all financial covenants. |
Repurchase of Common Stock
Repurchase of Common Stock | 9 Months Ended |
Sep. 30, 2017 | |
Repurchase of Common Stock [Abstract] | |
Repurchase of Common Stock | Repurchase of Common Stock Repurchases of our common stock were as follows (in thousands): Three Months Ended Nine Months Ended September 30, October 1, September 30, October 1, Amount repurchased under Board-approved share repurchase program $ 40,000 $ 25,000 $ 115,000 $ 95,000 Amount repurchased in connection with the vesting of employee restricted stock grants 64 259 5,158 1,410 Total amount repurchased $ 40,064 $ 25,259 $ 120,158 $ 96,410 Effective as of October 1, 2017, our Board approved an increase in our total remaining share repurchase authorization to $500 million . There is no expiration date governing the period over which we can repurchase shares. Any repurchased shares are constructively retired and returned to an unissued status. The cost of stock repurchases is first charged to additional paid-in capital. Once additional paid-in capital is reduced to zero, any additional amounts are charged to retained earnings. |
Stock-Based Compensation
Stock-Based Compensation | 9 Months Ended |
Sep. 30, 2017 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Stock-Based Compensation | Stock-Based Compensation Expense Total stock-based compensation expense was as follows (in thousands): Three Months Ended Nine Months Ended September 30, October 1, September 30, October 1, Stock awards $ 3,339 $ 1,121 $ 10,059 $ 7,533 Stock options 594 545 1,750 1,739 Total stock-based compensation expense 3,933 1,666 11,809 9,272 Income tax benefit 1,314 556 3,968 3,180 Total stock-based compensation expense, net of tax $ 2,619 $ 1,110 $ 7,841 $ 6,092 In addition to the income tax benefit related to stock-based compensation expense in the table above, excess tax benefits of $0.2 million and $1.4 million were recognized as reductions of income tax expense during the three and nine months ended September 30, 2017 , respectively. There were no excess tax benefits recognized in income tax expense during the three and nine months ended October 1, 2016 . See Note 1, New Accounting Pronouncements , for additional discussion of new guidance on the accounting for, and disclosure of, stock-based compensation which we adopted effective January 1, 2017. |
Profit Sharing and 401(k) Plan
Profit Sharing and 401(k) Plan | 9 Months Ended |
Sep. 30, 2017 | |
Profit Sharing and 401 (k) Plan [Abstract] | |
Profit Sharing and 401(k) Plan | Profit Sharing and 401(k) Plan Under our profit sharing and 401(k) plan, eligible employees may defer up to 50% of their compensation on a pre-tax basis, subject to Internal Revenue Service limitations. Each pay period, we may make a discretionary contribution equal to a percentage of the employee’s contribution. During the three months ended September 30, 2017 and October 1, 2016 , our contributions, net of forfeitures, were $1.4 million and $1.1 million , respectively. During the nine months ended September 30, 2017 and October 1, 2016 , our contributions, net of forfeitures, were $3.9 million and $3.4 million , respectively. |
Other (Expense) Income, Net
Other (Expense) Income, Net | 9 Months Ended |
Sep. 30, 2017 | |
Other Income and Expenses [Abstract] | |
Other (Expense) Income, Net | Other Expense, Net Other expense, net, consisted of the following (in thousands): Three Months Ended Nine Months Ended September 30, October 1, September 30, October 1, Interest expense $ (278 ) $ (267 ) $ (748 ) $ (624 ) Interest income 30 12 80 43 Other expense, net $ (248 ) $ (255 ) $ (668 ) $ (581 ) |
Net Income Per Common Share
Net Income Per Common Share | 9 Months Ended |
Sep. 30, 2017 | |
Earnings Per Share [Abstract] | |
Net Income per Common Share | Net Income per Common Share The components of basic and diluted net income per share were as follows (in thousands, except per share amounts): Three Months Ended Nine Months Ended September 30, October 1, September 30, October 1, Net income $ 25,603 $ 25,745 $ 49,286 $ 40,130 Reconciliation of weighted-average shares outstanding: Basic weighted-average shares outstanding 40,755 45,621 41,740 46,705 Dilutive effect of stock-based awards 760 729 819 708 Diluted weighted-average shares outstanding 41,515 46,350 42,559 47,413 Net income per share – basic $ 0.63 $ 0.56 $ 1.18 $ 0.86 Net income per share – diluted $ 0.62 $ 0.56 $ 1.16 $ 0.85 For the three and nine months ended September 30, 2017 and October 1, 2016 , anti-dilutive stock-based awards excluded from the diluted net income per share calculations were immaterial. |
Commitments and Contingencies
Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Commitments and Contingencies Sales Returns The activity in the sales returns liability account was as follows (in thousands): Nine Months Ended September 30, October 1, Balance at beginning of year $ 15,222 $ 20,562 Additions that reduce net sales 55,720 54,588 Deductions from reserves (52,494 ) (57,112 ) Balance at end of period $ 18,448 $ 18,038 Warranty Liabilities The activity in the accrued warranty liabilities account was as follows (in thousands): Nine Months Ended September 30, October 1, Balance at beginning of year $ 8,633 $ 10,028 Additions charged to costs and expenses for current-year sales 8,627 7,014 Deductions from reserves (6,625 ) (7,976 ) Changes in liability for pre-existing warranties during the current year, including expirations (708 ) (976 ) Balance at end of period $ 9,927 $ 8,090 Legal Proceedings We are involved from time to time in various legal proceedings arising in the ordinary course of our business, including primarily commercial, product liability, employment and intellectual property claims. In accordance with generally accepted accounting principles in the United States, we record a liability in our consolidated financial statements with respect to any of these matters when it is both probable that a liability has been incurred and the amount of the liability can be reasonably estimated. With respect to currently pending legal proceedings, we have not established an estimated range of reasonably possible additional losses either because we believe that we have valid defenses to claims asserted against us or the proceeding has not advanced to a stage of discovery that would enable us to establish an estimate. We currently do not expect the outcome of these matters to have a material effect on our consolidated results of operations, financial position or cash flows. Litigation, however, is inherently unpredictable, and it is possible that the ultimate outcome of one or more claims asserted against us could adversely impact our consolidated results of operations, financial position or cash flows. We expense legal costs as incurred. On January 12, 2015, Plaintiffs David and Katina Spade commenced a purported class action lawsuit in New Jersey state court against Select Comfort alleging that Select Comfort violated New Jersey consumer statutes by failing to provide to purchasing consumers certain disclosures required by the New Jersey Furniture Regulations. It is undisputed that plaintiffs suffered no actual damages or in any way relied upon or were impacted by the alleged omissions. Nonetheless, on behalf of a purported class of New Jersey purchasers of Select Comfort beds and bases, plaintiffs seek to recover a $100 statutory fine for each alleged omission, along with attorneys’ fees and costs. Select Comfort removed the case to the United States District Court for the District of New Jersey, which subsequently granted Select Comfort’s motion to dismiss. Plaintiffs appealed to the United States Court of Appeals for the Third Circuit, which has certified two questions of law to the New Jersey Supreme Court relating to whether plaintiffs who have suffered no actual injury may bring claims. The New Jersey Supreme Court has accepted the certified questions and oral arguments are expected to be heard in the near future. As the United States District Court for the District of New Jersey determined, we believe that the case is without merit and the order of dismissal should be affirmed. |
Basis of Presentation (Policies
Basis of Presentation (Policies) | 9 Months Ended |
Sep. 30, 2017 | |
Accounting Policies [Abstract] | |
Business and Basis of Presentation, Policy | We prepared the condensed consolidated financial statements as of and for the three and nine months ended September 30, 2017 of Select Comfort Corporation and 100%-owned subsidiaries (Select Comfort or the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and they reflect, in the opinion of management, all normal recurring adjustments necessary to present fairly our financial position as of September 30, 2017 and December 31, 2016 , and the consolidated results of operations and cash flows for the periods presented. Our historical and quarterly consolidated results of operations may not be indicative of the results that may be achieved for the full year or any future period. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with our most recent audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 and other recent filings with the SEC. |
Use of Estimates, Policy | The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of sales, expenses and income taxes during the reporting period. Predicting future events is inherently an imprecise activity and, as such, requires the use of judgment. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in these estimates will be reflected in the consolidated financial statements in future periods. Our critical accounting policies consist of stock-based compensation, goodwill and indefinite-lived intangible assets, warranty liabilities and revenue recognition. |
Consolidation, Policy | The condensed consolidated financial statements include the accounts of Select Comfort Corporation and our 100%-owned subsidiaries. All significant intra-entity balances and transactions have been eliminated in consolidation. |
Revenue Recognition, Deferred Revenue [Policy Text Block] | Revenue Recognition At September 30, 2017 and December 31, 2016 , we had deferred revenue totaling $71 million and $61 million , of which $28 million and $21 million are included in other current liabilities, respectively, and $43 million and $40 million are included in other non-current liabilities, respectively, in our consolidated balance sheets. We also have related deferred costs totaling $41 million and $33 million , of which $16 million and $11 million are included in other current assets, respectively, and $25 million and $22 million are included in other non-current assets, respectively, in our consolidated balance sheets. The deferred revenue and costs are recognized over the product’s estimated life of four years . |
New Accounting Pronouncements, Policy | New Accounting Pronouncements Adopted In March 2016, the Financial Accounting Standards Board (FASB) issued new guidance on the accounting for, and disclosure of, stock-based compensation which we adopted effective January 1, 2017. The new guidance is intended to simplify several aspects of the accounting for stock-based compensation arrangements, including the income tax impact, forfeitures and classification on the statement of cash flows. Under the previous guidance, excess tax benefits and deficiencies were recognized in additional paid-in capital in the consolidated balance sheets. Upon adoption of the new guidance, these excess tax benefits or deficiencies are required to be recognized as discrete adjustments to income tax expense in the consolidated statements of operations on a prospective basis. During the three and nine months ended September 30, 2017 , excess tax benefits of $0.2 million and $1.4 million , respectively, were recognized as a reduction of income tax expense, rather than in additional paid-in capital. In addition, under the new guidance, excess income tax benefits from stock-based compensation arrangements are classified as an operating activity in the statement of cash flows rather than as a financing activity. This resulted in an increase to operating cash flows of $0.2 million and $2.3 million for the three and nine months ended September 30, 2017 , respectively. We elected to apply the new cash flow classification guidance prospectively. The prior-year statement of cash flows has not been adjusted. We have also elected to continue to estimate the number of stock-based awards expected to vest, as permitted by the new guidance, rather than electing to account for forfeitures as they occur. Not Yet Adopted In May 2014, the FASB issued a comprehensive new revenue recognition model that requires a company to recognize revenue in a manner that depicts the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This new guidance will be effective for us beginning January 1, 2018. Companies may use either a full retrospective or a modified retrospective approach to adopt this new guidance. When we adopt this new guidance, we expect to use the modified retrospective approach which will result in an adjustment to opening retained earnings, but would not restate prior periods' financial statements. Based on our analysis thus far, we believe the impact of adopting the new guidance will not be material to our consolidated financial statements. As interpretations of the new rules continue to evolve in the fourth quarter of fiscal 2017, we will monitor developments and will finalize our conclusions on our revenue recognition policy, disclosure requirements and changes that may be necessary to our internal controls over financial reporting. In February 2016, the FASB issued new guidance on accounting for leases that generally requires most leases to be recognized on the balance sheet. This new guidance is effective for reporting periods beginning after December 15, 2018. The provisions of this new guidance are to be applied using a modified retrospective approach, with elective reliefs, which requires application of the new guidance for all periods presented. We are evaluating the effect of the new standard on our consolidated financial statements and related disclosures. This new guidance is effective for us beginning December 30, 2018. |
Stockholders' Equity, Policy | There is no expiration date governing the period over which we can repurchase shares. Any repurchased shares are constructively retired and returned to an unissued status. The cost of stock repurchases is first charged to additional paid-in capital. Once additional paid-in capital is reduced to zero, any additional amounts are charged to retained earnings. |
Profit Sharing and 401(k) Plan Policy | Under our profit sharing and 401(k) plan, eligible employees may defer up to 50% of their compensation on a pre-tax basis, subject to Internal Revenue Service limitations. Each pay period, we may make a discretionary contribution equal to a percentage of the employee’s contribution. |
Inventories (Tables)
Inventories (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Inventory Disclosure [Abstract] | |
Inventories | Inventories consisted of the following (in thousands): September 30, December 31, Raw materials $ 4,292 $ 7,973 Work in progress 223 72 Finished goods 74,702 66,981 $ 79,217 $ 75,026 |
Goodwill and Intangible Assets
Goodwill and Intangible Assets (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Finite-Lived Intangible Assets [Line Items] | |
Definite-Lived Intangible Assets | The following table provides the gross carrying amount and related accumulated amortization of our definite-lived intangible assets (in thousands): September 30, 2017 December 31, 2016 Gross Carrying Amount Accumulated Amortization Gross Carrying Amount Accumulated Amortization Developed technologies $ 18,851 $ 6,160 $ 18,851 $ 4,524 Customer relationships 2,413 2,413 2,413 1,365 Trade names/trademarks 101 101 101 101 $ 21,365 $ 8,674 $ 21,365 $ 5,990 |
Repurchase of Common Stock (Tab
Repurchase of Common Stock (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Repurchase of Common Stock [Abstract] | |
Repurchase of Common Stock | Repurchases of our common stock were as follows (in thousands): Three Months Ended Nine Months Ended September 30, October 1, September 30, October 1, Amount repurchased under Board-approved share repurchase program $ 40,000 $ 25,000 $ 115,000 $ 95,000 Amount repurchased in connection with the vesting of employee restricted stock grants 64 259 5,158 1,410 Total amount repurchased $ 40,064 $ 25,259 $ 120,158 $ 96,410 |
Stock-Based Compensation (Table
Stock-Based Compensation (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Stock-Based Compensation | Total stock-based compensation expense was as follows (in thousands): Three Months Ended Nine Months Ended September 30, October 1, September 30, October 1, Stock awards $ 3,339 $ 1,121 $ 10,059 $ 7,533 Stock options 594 545 1,750 1,739 Total stock-based compensation expense 3,933 1,666 11,809 9,272 Income tax benefit 1,314 556 3,968 3,180 Total stock-based compensation expense, net of tax $ 2,619 $ 1,110 $ 7,841 $ 6,092 |
Other (Expense) Income, Net (Ta
Other (Expense) Income, Net (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Other Income and Expenses [Abstract] | |
Other (Expense) Income, Net | Other expense, net, consisted of the following (in thousands): Three Months Ended Nine Months Ended September 30, October 1, September 30, October 1, Interest expense $ (278 ) $ (267 ) $ (748 ) $ (624 ) Interest income 30 12 80 43 Other expense, net $ (248 ) $ (255 ) $ (668 ) $ (581 ) |
Net Income Per Common Share (Ta
Net Income Per Common Share (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Earnings Per Share [Abstract] | |
Net Income per Common Share | The components of basic and diluted net income per share were as follows (in thousands, except per share amounts): Three Months Ended Nine Months Ended September 30, October 1, September 30, October 1, Net income $ 25,603 $ 25,745 $ 49,286 $ 40,130 Reconciliation of weighted-average shares outstanding: Basic weighted-average shares outstanding 40,755 45,621 41,740 46,705 Dilutive effect of stock-based awards 760 729 819 708 Diluted weighted-average shares outstanding 41,515 46,350 42,559 47,413 Net income per share – basic $ 0.63 $ 0.56 $ 1.18 $ 0.86 Net income per share – diluted $ 0.62 $ 0.56 $ 1.16 $ 0.85 |
Commitments and Contingencies (
Commitments and Contingencies (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
Sales Returns | The activity in the sales returns liability account was as follows (in thousands): Nine Months Ended September 30, October 1, Balance at beginning of year $ 15,222 $ 20,562 Additions that reduce net sales 55,720 54,588 Deductions from reserves (52,494 ) (57,112 ) Balance at end of period $ 18,448 $ 18,038 |
Warranty Liabilities | The activity in the accrued warranty liabilities account was as follows (in thousands): Nine Months Ended September 30, October 1, Balance at beginning of year $ 8,633 $ 10,028 Additions charged to costs and expenses for current-year sales 8,627 7,014 Deductions from reserves (6,625 ) (7,976 ) Changes in liability for pre-existing warranties during the current year, including expirations (708 ) (976 ) Balance at end of period $ 9,927 $ 8,090 |
Basis of Presentation Deferred
Basis of Presentation Deferred Revenue (Details) - USD ($) $ in Millions | 9 Months Ended | |
Sep. 30, 2017 | Dec. 31, 2016 | |
Deferred Revenue Arrangement [Line Items] | ||
Deferred Revenue | $ 71 | $ 61 |
Deferred Costs | 41 | 33 |
Other Current Liabilities [Member] | ||
Deferred Revenue Arrangement [Line Items] | ||
Deferred Revenue, Current | 28 | 21 |
Other Noncurrent Liabilities [Member] | ||
Deferred Revenue Arrangement [Line Items] | ||
Deferred Revenue, Noncurrent | 43 | 40 |
Other Current Assets [Member] | ||
Deferred Revenue Arrangement [Line Items] | ||
Deferred Costs, Current | 16 | 11 |
Other Noncurrent Assets [Member] | ||
Deferred Revenue Arrangement [Line Items] | ||
Deferred Costs, Noncurrent | $ 25 | $ 22 |
SleepIQ [Member] | ||
Deferred Revenue Arrangement [Line Items] | ||
Product's Estimated Life | 4 years |
Basis of Presentation New Accou
Basis of Presentation New Accounting Pronouncements (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Oct. 01, 2016 | Sep. 30, 2017 | Oct. 01, 2016 | |
New Accounting Pronouncements [Abstract] | ||||
Excess tax benefits, included in income tax expense | $ 0.2 | $ 0 | $ 1.4 | $ 0 |
Excess Tax Benefit from Share-based Compensation | $ 0.2 | $ 2.3 |
Fair Value Measurements (Detail
Fair Value Measurements (Details) - Recurring [Member] - Level 1 [Member] - USD ($) $ in Millions | Sep. 30, 2017 | Dec. 31, 2016 |
Other Assets [Member] | Available-for-sale Securities [Member] | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Marketable securities assets funding the deferred compensation plan | $ 3.4 | $ 2.3 |
Other Noncurrent Liabilities [Member] | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Deferred compensation plan liability | $ 3.4 | $ 2.3 |
Inventories (Details)
Inventories (Details) - USD ($) $ in Thousands | Sep. 30, 2017 | Dec. 31, 2016 |
Inventory Disclosure [Abstract] | ||
Raw materials | $ 4,292 | $ 7,973 |
Work in progress | 223 | 72 |
Finished goods | 74,702 | 66,981 |
Inventories | $ 79,217 | $ 75,026 |
Goodwill and Indefinite-Lived I
Goodwill and Indefinite-Lived Intangible Assets (Details) - USD ($) $ in Millions | Sep. 30, 2017 | Dec. 31, 2016 |
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Goodwill | $ 64 | $ 64 |
Trade Names [Member] | ||
Indefinite-lived Intangible Assets [Line Items] | ||
Indefinite-lived trade name/trademarks | $ 1.4 | $ 1.4 |
Goodwill and Intangible Asset32
Goodwill and Intangible Assets Finite-Lived Intangible Assets (Details) - USD ($) $ in Thousands | Sep. 30, 2017 | Dec. 31, 2016 |
Finite-Lived Intangible Assets [Line Items] | ||
Finite-Lived Intangible Assets | $ 21,365 | $ 21,365 |
Finite-Lived Intangible Assets, Accumulated Amortization | 8,674 | 5,990 |
Developed Technology Rights [Member] | ||
Finite-Lived Intangible Assets [Line Items] | ||
Finite-Lived Intangible Assets | 18,851 | 18,851 |
Finite-Lived Intangible Assets, Accumulated Amortization | 6,160 | 4,524 |
Customer Relationships [Member] | ||
Finite-Lived Intangible Assets [Line Items] | ||
Finite-Lived Intangible Assets | 2,413 | 2,413 |
Finite-Lived Intangible Assets, Accumulated Amortization | 2,413 | 1,365 |
Trademarks and Trade Names [Member] | ||
Finite-Lived Intangible Assets [Line Items] | ||
Finite-Lived Intangible Assets | 101 | 101 |
Finite-Lived Intangible Assets, Accumulated Amortization | $ 101 | $ 101 |
Goodwill and Intangible Asset33
Goodwill and Intangible Assets Amortization Expense (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Oct. 01, 2016 | Sep. 30, 2017 | Oct. 01, 2016 | |
Finite-Lived Intangible Assets [Line Items] | ||||
Amortization expense definite-lived intangible assets | $ 0.5 | $ 0.6 | $ 2.7 | $ 1.9 |
Credit Agreement (Details)
Credit Agreement (Details) - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2017 | Mar. 31, 2017 | |
Line of Credit Facility [Line Items] | ||
Current borrowing capacity | $ 153,000 | $ 150,000 |
Maximum Borrowing Capacity | $ 200,000 | |
Expiration Date | Feb. 24, 2021 | |
Letters of Credit Outstanding | $ 3,150 | |
Remaining Borrowing Capacity | $ 150,000 |
Repurchase of Common Stock (Det
Repurchase of Common Stock (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2017 | Oct. 01, 2016 | Sep. 30, 2017 | Oct. 01, 2016 | Oct. 01, 2017 | |
Subsequent Event [Line Items] | |||||
Amount repurchased under Board-approved share repurchase program | $ 40,000 | $ 25,000 | $ 115,000 | $ 95,000 | |
Amount repurchased in connection with the vesting of employee restricted stock grants | 64 | 259 | 5,158 | 1,410 | |
Total amount repurchased | $ 40,064 | $ 25,259 | $ 120,158 | $ 96,410 | |
Subsequent Event [Member] | |||||
Subsequent Event [Line Items] | |||||
Stock Repurchase Program, Remaining Authorized Repurchase Amount | $ 500,000 |
Stock-Based Compensation (Detai
Stock-Based Compensation (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Oct. 01, 2016 | Sep. 30, 2017 | Oct. 01, 2016 | |
Total stock-based compensation expense | $ 3,933 | $ 1,666 | $ 11,809 | $ 9,272 |
Income tax benefit | 1,314 | 556 | 3,968 | 3,180 |
Total stock-based compensation expense, net of tax | 2,619 | 1,110 | 7,841 | 6,092 |
Excess tax benefits, included in income tax expense | 200 | 0 | $ 1,400 | 0 |
Document Period End Date | Sep. 30, 2017 | |||
Stock awards [Member] | ||||
Total stock-based compensation expense | 3,339 | 1,121 | $ 10,059 | 7,533 |
Stock Options [Member] | ||||
Total stock-based compensation expense | $ 594 | $ 545 | $ 1,750 | $ 1,739 |
Profit Sharing and 401(k) Plan
Profit Sharing and 401(k) Plan (Details) - USD ($) $ in Millions | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Oct. 01, 2016 | Sep. 30, 2017 | Oct. 01, 2016 | |
Defined Contribution Plan Disclosure [Line Items] | ||||
Employee compensation deferral (in hundredths) | 50.00% | |||
Employer Contributions | $ 1.4 | $ 1.1 | $ 3.9 | $ 3.4 |
Other (Expense) Income, Net (De
Other (Expense) Income, Net (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Oct. 01, 2016 | Sep. 30, 2017 | Oct. 01, 2016 | |
Other Income and Expenses [Abstract] | ||||
Interest expense | $ (278) | $ (267) | $ (748) | $ (624) |
Interest income | 30 | 12 | 80 | 43 |
Other expense, net | $ (248) | $ (255) | $ (668) | $ (581) |
Net Income per Common Share (De
Net Income per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Oct. 01, 2016 | Sep. 30, 2017 | Oct. 01, 2016 | |
Net Income per Common Share [Abstract] | ||||
Net income | $ 25,603 | $ 25,745 | $ 49,286 | $ 40,130 |
Basic weighted-average shares outstanding | 40,755,000 | 45,621,000 | 41,740,000 | 46,705,000 |
Dilutive effect of stock-based awards | 760,000 | 729,000 | 819,000 | 708,000 |
Diluted weighted-average shares outstanding | 41,515,000 | 46,350,000 | 42,559,000 | 47,413,000 |
Net income per share – basic (in USD per share) | $ 0.63 | $ 0.56 | $ 1.18 | $ 0.86 |
Net income per share – diluted (in USD per share) | $ 0.62 | $ 0.56 | $ 1.16 | $ 0.85 |
Commitments and Contingencies S
Commitments and Contingencies Sales Return Liability (Details) - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2017 | Oct. 01, 2016 | |
Sales return liability [Roll Forward] | ||
Balance at beginning of year | $ 15,222 | $ 20,562 |
Additions that reduce net sales | 55,720 | 54,588 |
Deductions from reserves | (52,494) | (57,112) |
Balance at end of period | $ 18,448 | $ 18,038 |
Commitments and Contingencies W
Commitments and Contingencies Warranty Liabilities (Details) - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2017 | Oct. 01, 2016 | |
Warranty Liabilities [Roll Forward] | ||
Balance at beginning of year | $ 8,633 | $ 10,028 |
Additions charged to costs and expenses for current-year sales | 8,627 | 7,014 |
Deductions from reserves | (6,625) | (7,976) |
Changes in liability for pre-existing warranties during the current year, including expirations | (708) | (976) |
Balance at end of period | $ 9,927 | $ 8,090 |