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Form 8-K SELECT COMFORT CORP For: Nov 04

November 4, 2015 4:42 PM EST
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 4, 2015


SELECT COMFORT CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA
(State or other jurisdiction of incorporation or organization)
0-25121
41-1597886
(Commission File No.)
(IRS Employer Identification No.)


9800 59th Avenue North, Minneapolis, Minnesota 55442
(Address of principal executive offices)    (Zip Code)


(763) 551-7000
(Registrant's telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 
 



ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On November 4, 2015, Select Comfort Corporation issued a press release announcing results for the fiscal third quarter ended October 3, 2015. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS
(c)    Exhibits.
Exhibit 99.1    Press Release, dated November 4, 2015

SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


 
 
SELECT COMFORT CORPORATION
 
 
(Registrant)
 
 
 
 
Dated:
November 4, 2015
By:
/s/ Mark A. Kimball
 
 
 
Mark A. Kimball
 
 
Title:
Senior Vice President


INDEX TO EXHIBITS

The exhibit listed in this index is being furnished pursuant to Item 2.02 of Form 8-K and shall not be deemed “filed” for purposes of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any document filed under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except as otherwise expressly stated in any such filing.

Exhibit No.
Description of Exhibit
99.1
Press Release, dated November 4, 2015



Exhibit 99.1

FOR IMMEDIATE RELEASE
  
SELECT COMFORT ANNOUNCES THIRD QUARTER 2015 RESULTS
  
Third quarter net sales increased 16% to $374 million, including an 11% comparable sales increase
Third quarter EPS increased 41% to $0.62 per share
Year-to-date net sales increased 20% and EPS 51%
Company reiterates full-year 2015 guidance of $1.35 per share

MINNEAPOLIS - (Nov. 4, 2015) - Select Comfort Corporation (NASDAQ: SCSS) today reported results for the third quarter ended Oct. 3, 2015.
  
"Our third quarter and year-to-date sales and profitability demonstrate the strength of our consumer innovation strategy and business model, even as we take on large transformational initiatives," said Shelly Ibach, president and chief executive officer of Select Comfort. "We have implemented our new ERP system on time and on budget. As anticipated, the implementation has caused customer service and delivery disruptions, which we expect to be isolated to the fourth quarter. We look forward to the agility and efficiencies this system will enable for our customers and team. Our strategy and results remain on track and we are reaffirming our 2015 outlook of $1.35 per share.”
  
Third Quarter Statement of Operations Overview
Net sales increased 16% to $374 million, with comparable sales up 11%
Gross profit increased 18% to $234 million; gross margin increased to 62.5% (+110 basis points versus prior year)
Operating income increased 28% to $45 million, or 12.1% of net sales (+120 basis points versus prior year)
Earnings per diluted share grew 41% to $0.62
  
Cash Flow Review
Net cash provided by operating activities was $132 million for the first nine months of 2015
Capital expenditures for the first nine months of 2015 were $61 million
Share repurchases totaled $18.5 million (0.7 million shares) for the third quarter, compared with $10 million for the third quarter of last year
  
Financial Outlook
The company confirmed its guidance for 2015 earnings per diluted share of $1.35. The outlook remains as planned and assumes sales growth for the second-half of the year consistent with previous guidance of mid- to high-single-digit, adjusting for the extra week in the prior year’s fourth quarter. It assumes approximately 490 stores at year end, a 6% increase versus the prior year end. We continue to expect our full-year 2015 return on invested capital (ROIC) to be in the mid-teens, above our 10% weighted average cost of capital.
  
For reference, earnings for fourth quarter 2014 included $0.10 per diluted share of one-time benefits ($0.06 for the extra week and $0.04 for a legal settlement). Please refer to page 10 of this news release for supplemental financial information that summarizes discrete items impacting our outlook for the second-half of our fiscal year.
  
Conference Call Information
Management will host its regularly scheduled conference call to discuss the company’s results at 5 p.m. EST (4 p.m. CST; 2 p.m. PST) today. To listen to the call, please dial (800) 593-9959 (international participants dial (517) 308-9340) and reference the passcode “Sleep.” To access the webcast, please visit the investor relations area of the Sleep Number website at http://www.sleepnumber.com/eng/aboutus/InvestorRelations.cfm. The webcast replay will remain available for approximately 60 days.



Select Comfort Announces Third-quarter 2015 Results – Page 2 of 10

About Select Comfort Corporation
SLEEP NUMBER, a sleep innovation leader, delivers unparalleled sleep experiences by offering high-quality, innovative sleep products and services. The company is the exclusive designer, manufacturer, marketer, retailer and servicer of a complete line of Sleep Number® beds including our newest addition, the SleepIQ Kids™ bed. Only the Sleep Number bed offers SleepIQ® technology - proprietary sensor technology that works directly with the bed’s DualAir™ system to track and monitor each individual’s sleep. SleepIQ technology communicates how you slept and what adjustments you can make to optimize your sleep and improve your daily life. Sleep Number also offers a full line of exclusive sleep products including FlexFit™ adjustable bases and Sleep Number® pillows, sheets and other bedding products. Consumers also benefit from a unique, value-added retail experience at one of the more than 475 Sleep Number® stores across the country, online at SleepNumber.com, or via phone at (800) Sleep Number or (800) 753-3768.

Forward-looking Statements
Statements used in this news release relating to future plans, events, financial results or performance are forward-looking statements subject to certain risks and uncertainties including, among others, such factors as current and future general and industry economic trends and consumer confidence; the effectiveness of our marketing messages; the efficiency of our advertising and promotional efforts; our ability to execute our company-controlled distribution strategy; our ability to achieve and maintain acceptable levels of product and service quality, and acceptable product return and warranty claims rates; our ability to continue to improve and expand our product line; consumer acceptance of our products, product quality, innovation and brand image; industry competition, the emergence of additional competitive products, and the adequacy of our intellectual property rights to protect our products and brand from competitive or infringing activities; availability of attractive and cost-effective consumer credit options; pending and unforeseen litigation and the potential for adverse publicity associated with litigation; our “just-in-time” manufacturing processes with minimal levels of inventory, which may leave us vulnerable to shortages in supply; our dependence on significant suppliers and our ability to maintain relationships with key suppliers, including several sole-source suppliers; the vulnerability of key suppliers to recessionary pressures, labor negotiations, liquidity concerns or other factors; rising commodity costs and other inflationary pressures; risks inherent in global sourcing activities; risks of disruption in the operation of either of our two primary manufacturing facilities; increasing government regulations, which have added or will add cost pressures and process changes to ensure compliance; the adequacy of our management information systems to meet the evolving needs of our business and to protect sensitive data from potential cyber threats; the costs, distractions and potential disruptions to our business related to upgrading our management information systems; our ability to attract, retain and motivate qualified management, executive and other key employees, including qualified retail sales professionals and managers; and uncertainties arising from global events, such as terrorist attacks or a pandemic outbreak, or the threat of such events. Additional information concerning these and other risks and uncertainties is contained in the company’s filings with the Securities and Exchange Commission (SEC), including the Annual Report on Form 10-K, and other periodic reports filed with the SEC. The company has no obligation to publicly update or revise any of the forward-looking statements in this news release.
# # #

Investor Contact: Dave Schwantes; (763) 551-7498; [email protected]
Media Contact: Susan Eich; (763) 551-6934; [email protected]





Select Comfort Announces Third-quarter 2015 Results – Page 3 of 10

SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)

 
Three Months Ended
 
October 3,
2015
 
% of
Net Sales
 
September 27,
2014
 
% of
Net Sales
 
 
 
 
 
 
 
 
Net sales
$
373,919

 
100.0
%
 
$
323,366

 
100.0
%
Cost of sales
140,283

 
37.5
%
 
124,782

 
38.6
%
Gross profit
233,636

 
62.5
%
 
198,584

 
61.4
%
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 

 
 
Sales and marketing
156,899

 
42.0
%
 
137,863

 
42.6
%
General and administrative
27,817

 
7.4
%
 
23,022

 
7.1
%
Research and development
3,521

 
0.9
%
 
2,353

 
0.7
%
Total operating expenses
188,237

 
50.3
%
 
163,238

 
50.5
%
Operating income
45,399

 
12.1
%
 
35,346

 
10.9
%
Other income, net
78

 
0.0
%
 
96

 
0.0
%
Income before income taxes
45,477

 
12.2
%
 
35,442

 
11.0
%
Income tax expense
13,623

 
3.6
%
 
11,888

 
3.7
%
Net income
$
31,854

 
8.5
%
 
$
23,554

 
7.3
%
 
 
 
 
 
 
 
 
Net income per share – basic
$
0.63

 
 
 
$
0.44

 
 
 
 
 
 
 
 
 
 
Net income per share – diluted
$
0.62

 
 
 
$
0.44

 
 
 
 
 
 
 
 
 
 
Reconciliation of weighted-average shares outstanding:
 
 
 
 
 
 
 
Basic weighted-average shares outstanding
50,945

 
 
 
53,271

 
 
Dilutive effect of stock-based awards
756

 
 
 
700

 
 
Diluted weighted-average shares outstanding
51,701

 
 
 
53,971

 
 




Select Comfort Announces Third-quarter 2015 Results – Page 4 of 10

SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)

 
Nine Months Ended
 
October 3,
2015
 
% of
Net Sales
 
September 27,
2014
 
% of
Net Sales
 
 
 
 
 
 
 
 
Net sales
$
999,017

 
100.0
%
 
$
834,541

 
100.0
%
Cost of sales
379,009

 
37.9
%
 
322,177

 
38.6
%
Gross profit
620,008

 
62.1
%
 
512,364

 
61.4
%
 
 
 
 
 
 
 
 
Operating expenses:
 

 
 
 
 

 
 
Sales and marketing
424,029

 
42.4
%
 
369,597

 
44.3
%
General and administrative
79,951

 
8.0
%
 
63,183

 
7.6
%
Research and development
10,275

 
1.0
%
 
5,725

 
0.7
%
Total operating expenses
514,255

 
51.5
%
 
438,505

 
52.5
%
Operating income
105,753

 
10.6
%
 
73,859

 
8.9
%
Other income, net
364

 
0.0
%
 
276

 
0.0
%
Income before income taxes
106,117

 
10.6
%
 
74,135

 
8.9
%
Income tax expense
34,426

 
3.4
%
 
25,108

 
3.0
%
Net income
$
71,691

 
7.2
%
 
$
49,027

 
5.9
%
 
 
 
 
 
 
 
 
Net income per share – basic
$
1.39

 
 
 
$
0.91

 
 
 
 
 
 
 
 
 
 
Net income per share – diluted
$
1.36

 
 
 
$
0.90

 
 
 
 
 
 
 
 
 
 
Reconciliation of weighted-average shares outstanding:
 
 
 
 
 
 
 
Basic weighted-average shares outstanding
51,654

 
 
 
53,677

 
 
Dilutive effect of stock-based awards
870

 
 
 
681

 
 
Diluted weighted-average shares outstanding
52,524

 
 
 
54,358

 
 





Select Comfort Announces Third-quarter 2015 Results – Page 5 of 10

SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited – in thousands, except per share amounts)
subject to reclassification
 
October 3, 2015
 
January 3,
2015
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
72,678

 
$
51,995

Marketable debt securities – current
33,243

 
69,609

Accounts receivable, net of allowance for doubtful accounts of $750 and $739, respectively
26,286

 
19,693

Inventories
77,753

 
53,535

Prepaid expenses
14,815

 
17,792

Deferred income taxes
8,561

 
8,786

Other current assets
12,865

 
11,185

Total current assets
246,201

 
232,595

 
 
 
 
Non-current assets:
 

 
 
Marketable debt securities – non-current
8,581

 
44,441

Property and equipment, net
197,886

 
165,453

Goodwill and intangible assets, net
85,093

 
15,986

Deferred income taxes
10,219

 
3,433

Other assets
17,913

 
12,279

Total assets
$
565,893

 
$
474,187

 
 
 
 
Liabilities and Shareholders’ Equity
 

 
 
Current liabilities:
 

 
 
Accounts payable
$
115,330

 
$
84,197

Customer prepayments
25,387

 
28,726

Accrued sales returns
19,313

 
15,262

Compensation and benefits
32,960

 
33,066

Taxes and withholding
25,236

 
10,207

Other current liabilities
25,100

 
15,594

Total current liabilities
243,326

 
187,052

 
 
 
 
Non-current liabilities:
 

 
 
Warranty liabilities
5,143

 
2,722

Other long-term liabilities
45,501

 
27,506

Total non-current liabilities
50,644

 
30,228

Total liabilities
293,970

 
217,280

 
 
 
 
Shareholders’ equity:
 

 
 
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding

 

Common stock, $0.01 par value; 142,500 shares authorized, 50,646 and 52,798 shares issued and outstanding, respectively
506

 
528

Additional paid-in capital

 

Retained earnings
271,410

 
256,413

Accumulated other comprehensive income (loss)
7

 
(34
)
Total shareholders’ equity
271,923

 
256,907

Total liabilities and shareholders’ equity
$
565,893

 
$
474,187






Select Comfort Announces Third-quarter 2015 Results – Page 6 of 10

SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited - in thousands)
subject to reclassification
 
Nine Months Ended
 
October 3,
2015
 
September 27,
2014
Cash flows from operating activities:
 
 
 
Net income
$
71,691

 
$
49,027

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
33,694

 
29,579

Stock-based compensation
8,952

 
4,294

Net loss on disposals and impairments of assets
202

 
115

Excess tax benefits from stock-based compensation
(1,991
)
 
(754
)
Deferred income taxes
(5,633
)
 
(4,306
)
Gain on sale of non-marketable equity securities
(6,891
)
 

Changes in operating assets and liabilities, net of effect of acquisition:

 


Accounts receivable
(6,543
)
 
(14,195
)
Inventories
(24,120
)
 
(8,552
)
Income taxes
13,433

 
9,883

Prepaid expenses and other assets
4,756

 
(4,146
)
Accounts payable
24,623

 
27,359

Customer prepayments
(3,351
)
 
13,847

Accrued compensation and benefits
(97
)
 
17,318

Other taxes and withholding
3,569

 
4,484

Warranty liabilities
3,945

 
953

Other accruals and liabilities
15,348

 
10,929

Net cash provided by operating activities
131,587

 
135,835

 
 
 
 
Cash flows from investing activities:
 
 
 
Purchases of property and equipment
(61,435
)
 
(58,377
)
Proceeds from sales of property and equipment
41

 
5

Investments in marketable debt securities
(29,299
)
 
(58,403
)
Proceeds from marketable debt securities
101,087

 
38,237

Acquisition of business
(70,018
)
 

Proceeds from sale of non-marketable equity securities
12,891

 

Increase in restricted cash

 
(500
)
Net cash used in investing activities
(46,733
)
 
(79,038
)
 
 
 
 
Cash flows from financing activities:
 

 
 

Net increase (decrease) in short-term borrowings
2,119

 
(7,499
)
Repurchases of common stock
(70,300
)
 
(31,480
)
Proceeds from issuance of common stock
2,658

 
1,631

Excess tax benefits from stock-based compensation
1,991

 
754

Debt issuance costs
(639
)
 

Net cash used in financing activities
(64,171
)
 
(36,594
)
Net increase in cash and cash equivalents
20,683

 
20,203

Cash and cash equivalents, at beginning of period
51,995

 
58,223

Cash and cash equivalents, at end of period
$
72,678

 
$
78,426




Select Comfort Announces Third-quarter 2015 Results – Page 7 of 10

SELECT COMFORT CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)

 
Three Months Ended
 
Nine Months Ended
 
October 3,
2015
 
September 27,
2014
 
October 3,
2015
 
September 27,
2014
Percent of sales:
 
 
 
 
 
 
 
Retail
92.2
%
 
92.2
%
 
91.7
%
 
90.8
%
Direct and E-Commerce
5.2
%
 
5.8
%
 
5.7
%
 
6.1
%
Wholesale/other
2.6
%
 
2.0
%
 
2.6
%
 
3.1
%
Total
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
 
 
 
 
 
 
 
 
Sales change rates:
 
 
 
 
 
 
 
Retail comparable-store sales
12
%
 
16
%
 
15
%
 
9
%
Direct and E-Commerce
3
%
 
18
%
 
11
%
 
5
%
Company-Controlled comparable sales change
11
%
 
16
%
 
15
%
 
9
%
Net opened/closed stores
4
%
 
8
%
 
5
%
 
7
%
Total Company-Controlled Channel
15
%
 
24
%
 
20
%
 
16
%
Wholesale/other
51
%
 
(23
%)
 
2
%
 
(14
%)
Total
16
%
 
23
%
 
20
%
 
14
%
 
 
 
 
 
 
 
 
Stores open:
 
 
 
 
 
 
 
Beginning of period
467

 
451

 
463

 
440

Opened
11

 
13

 
24

 
46

Closed
(3
)
 
(4
)
 
(12
)
 
(26
)
End of period
475

 
460

 
475

 
460

 
 
 
 
 
 
 
 
Other metrics:
 
 
 
 
 
 
 
Average sales per store ($ in 000's) 1, 3
$
2,559

 
$
2,216

 
 
 
 
Average sales per square foot 1, 3
$
1,063

 
$
1,007

 
 
 
 
Stores > $1 million net sales 1, 3
100
%
 
98
%
 
 
 
 
Stores > $2 million net sales 1, 3
69
%
 
50
%
 
 
 
 
Average revenue per mattress unit 2
$
3,992

 
$
3,733

 
$
3,991

 
$
3,600

 
 
 
 
 
 
 
 
1 Trailing twelve months for stores open at least one year.
 
 
 
 
 
 
2 Represents Company-Controlled Channel total net sales divided by Company-Controlled Channel mattress units.
3 Fiscal 2014 included 53 weeks, as compared to 52 weeks in fiscal 2015 and 2013. The additional week in 2014 was in the fiscal fourth quarter. Company-Controlled comparable sales metrics have been adjusted to remove the estimated impact of the additional week on those metrics.





Select Comfort Announces Third-quarter 2015 Results – Page 8 of 10


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

We define earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") as net income plus: income tax expense, interest expense, depreciation and amortization, stock-based compensation and asset impairments. Management believes Adjusted EBITDA is a useful indicator of our financial performance and our ability to generate cash from operating activities. Our definition of Adjusted EBITDA may not be comparable to similarly titled definitions used by other companies. The table below reconciles Adjusted EBITDA, which is a non-GAAP financial measure, to the comparable GAAP financial measure:
 
Three Months Ended
 
Trailing-Twelve Months Ended
 
October 3,
2015
 
September 27,
2014
 
October 3,
2015
 
September 27,
2014
Net income
$
31,854

 
$
23,554

 
$
90,638

 
$
55,452

Income tax expense
13,623

 
11,888

 
43,452

 
28,418

Interest expense
44

 
10

 
87

 
40

Depreciation and amortization
11,643

 
10,125

 
43,100

 
37,095

Stock-based compensation
3,125

 
2,259

 
11,457

 
5,467

Asset impairments
17

 
28

 
619

 
153

Adjusted EBITDA
$
60,306

 
$
47,864

 
$
189,353

 
$
126,625




Free Cash Flow
(in thousands)
 
Three Months Ended
 
Trailing-Twelve Months Ended
 
October 3,
2015
 
September 27,
2014
 
October 3,
2015
 
September 27,
2014
Net cash provided by operating activities
$
86,533

 
$
86,257

 
$
140,220

 
$
133,858

Subtract: Purchases of property and equipment
22,497

 
18,611

 
79,652

 
77,368

Free cash flow
$
64,036

 
$
67,646

 
$
60,568

 
$
56,490



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

GAAP - generally accepted accounting principles in the U.S.




Select Comfort Announces Third-quarter 2015 Results – Page 9 of 10


SELECT COMFORT CORPORATION AND SUBSIDIARIES
Calculation of Return on Invested Capital (ROIC)
(in thousands)

ROIC is a financial measure we use to determine how efficiently we deploy our capital. It quantifies the return we earn on our invested capital. Management believes ROIC is also a useful metric for investors and financial analysts. We compute ROIC as outlined below. Our definition and calculation of ROIC may not be comparable to similarly titled definitions and calculations used by other companies. The tables below reconcile net operating profit after taxes (NOPAT) and total invested capital, which are non-GAAP financial measures, to the comparable GAAP financial measures:

 
 
Trailing-Twelve Months Ended
 
 
October 3,
2015
 
September 27,
2014
Net operating profit after taxes (NOPAT)
 
 
 
 
Operating income
 
$
133,640

 
$
83,514

Add: Rent expense 1
 
63,078

 
54,983

Add: Interest income
 
537

 
398

Less: Depreciation on capitalized operating leases 2
 
(15,809
)
 
(13,830
)
Less: Income taxes 3
 
(58,896
)
 
(42,501
)
NOPAT
 
$
122,550

 
$
82,564

 
 
 
 
 
Average invested capital
 
 
 
 
Total equity
 
$
271,923

 
$
249,032

Less: Cash greater than target 4
 

 
(47,881
)
Add: Long-term debt 5
 

 

Add: Capitalized operating lease obligations 6
 
504,624

 
439,864

Total invested capital at end of period
 
$
776,547

 
$
641,015

Average invested capital 7
 
$
710,701

 
$
617,599

Return on invested capital (ROIC) 8
 
17.2
%
 
13.4
%

1 Rent expense is added back to operating income to show the impact of owning versus leasing the related assets.

2 Depreciation is based on the average of the last five fiscal quarters' ending capitalized operating lease obligations (see note 6) for the respective reporting periods with an assumed thirty-year useful life. This is subtracted from operating income to illustrate the impact of owning versus leasing the related assets.

3 Reflects annual effective income tax rates, before discrete adjustments, of 32.5% and 34.0% for 2015 and 2014, respectively.

4 Cash greater than target is defined as cash, cash equivalents and marketable debt securities less customer prepayments in excess of $100 million.

5 Long-term debt includes existing capital lease obligations.

6 A multiple of eight times annual rent expense is used as an estimate of capitalizing our operating lease obligations.The methodology utilized aligns with the methodology of a nationally recognized credit rating agency.

7 Average invested capital represents the average of the last five fiscal quarters' ending invested capital balances.

8 ROIC equals NOPAT divided by average invested capital.

Note - Our ROIC calculation and data are considered non-GAAP financial measures and are not in accordance with, or preferable to, GAAP financial data. However, we are providing this information as we believe it facilitates analysis of the Company's financial performance by investors and financial analysts.

GAAP - generally accepted accounting principles in the U.S.



Select Comfort Announces Third-quarter 2015 Results – Page 10 of 10


SELECT COMFORT CORPORATION AND SUBSIDIARIES
Fiscal 2015 Outlook - Supplemental Information

 
 
 
 
 
 
 
 
 
 
 
 
 
Full-Year
2015 Outlook*
 
 
Second-Half
2015 Outlook*
 
Q3-2015
Actual
 
Q4-2015
Outlook
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$1.35
 
 
$0.60
 
$0.62
 
($0.02)
 
 
 
 
 
 
 
 
 
 
 
 
*As per outlook provided on July 22, 2015 and reiterated November 4, 2015
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Select discrete items of note (not all inclusive)
 
 
 
 
 
 
 
 
 
 
Net impact of BAM Labs acquisition1
 
 
 
 
$0.04
 
($0.04)
 
Accelerated shipments into Q3 from Q4 ($10M sales estimate)2
 
 
 
 
$0.04
 
($0.04)
 
 
 
 
 
 
 
 
 
 
 
 
Q4 inefficiencies (sales & costs) from systems cutover 3
 
($0.09)
 
 
($0.09)
 
 
($0.09)
 
ERP implementation data conversion and training costs4
 
($0.16)
 
 
($0.13)
 
($0.09)
 
($0.04)
 
Incremental information technology depreciation in G&A5
 
($0.04)
 
 
($0.04)
 
 
($0.04)
 
 
 
 
 
 
 
 
 
 
 
 

1 Includes Q3 reported gain on our minority equity investment in BAM Labs (~18% ownership of BAM Labs prior to the acquisition) based on the remeasured fair value less acquisition related expenses; Q4 estimated operating income impact of including BAM Labs financial results in our consolidated operating income and EPS, including amortization of acquired definite-lived intangible assets. Note: BAM Labs acquisition expected to be accretive to EPS in 2017

2 In advance of our ERP implementation, an estimated $10 million of sales were accelerated into Q3 from Q4

3 Estimated negative sales impact of $10 million to $12 million in Q4-2015 along with cost inefficiencies as processes are migrated to the new ERP system

4 Costs to convert data from our prior legacy systems to our new ERP system, and enterprise-wide training expenses related to the new ERP system

5 Includes incremental depreciation related to our new ERP system and other technology system enhancements




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