The following excerpt is from the company's SEC filing.

Reported net sales of $368 million and EPS of $0.56

Reported record year-to-date operating cash flows of $145 million

Updated 2016 EPS outlook to $1.15 to $1.25 per share

MINNEAPOLIS

- (October 19, 2016) - Select Comfort Corporation (NASDAQ: SCSS) today reported third quarter 2016 results for the period ended October 1, 2016.

“We delivered record operating cash flows for the first nine months of the year as our operational improvements exceeded our expectations and offset the effects of a worsening consumer environment,” said Shelly Ibach, president and chief executive officer o f Select Comfort. “Our investments have strengthened our direct-to-consumer business model and we are making significant progress toward delivering a more convenient customer experience. We expect the digital capabilities we’re developing to succeed in the hyper-competitive digital marketplace.”  

Third Quarter Review

Net sales

were $368 million, including 7 percentage points of growth from stores opened in the last twelve months, offset by an 8% comparable sales decline

Gross profit rate

increased by 60 basis points to 63.1% of net sales

Earnings per diluted share

were $0.56, compared with $0.62 in the prior year’s quarter

Cash Flows and Balance Sheet Review

Generated $145 million in net cash from operating activities for the first nine months of 2016, compared with $132 million for the same period last year

Invested $39 million in capital expenditures and returned $95 million of cash to shareholders during the first nine months of 2016 compared with $61 million and $69 million, respectively, for the same period last year

Ended the quarter with $51 million of cash and securities and no borrowings under our revolving credit facility

Financial Outlook

The company updated its outlook for 2016 earnings per diluted share to $1.15 to $1.25 per share, compared with full-year 2015 earnings per diluted share of $0.97. The outlook assumes high single-digit sales growth for the full year. The outlook also assumes an 11% increase in store count in 2016 and capital expenditures of $65 million, compared with $86 million in 2015. Our outlook does not contemplate a further deterioration of the consumer spending environment.

Conference Call Information

Management will host its regularly scheduled conference call to discuss the company’s results at 5 p.m. EDT (4 p.m. CDT; 2 p.m. PDT) 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 2016 Results – Page

About Select Comfort Corporation

Nearly 30 years ago, Sleep Number transformed the mattress industry with the idea that ‘one size does

fit all’ when it comes to sleep. Today, the company is the leader in sleep innovation and ranked “Highest in Customer Satisfaction with Mattresses” in 2015 by J.D. Power. As the pioneer in biometric sleep monitoring and adjustability, Sleep Number is proving the connection between quality sleep and health and wellbeing. Dedicated to individualizing sleep experiences, the company’s more than 3,400 employees are improving lives with innovative sleep solutions. To find better quality sleep visit one of our more than 500 U.S. Sleep Number

stores or SleepNumber.com.

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 may 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, political unrest 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;

investorrelations@selectcomfort.com

Media Contact:

Susan Eich; (763) 551-6934;

Susan.Eich@selectcomfort.com

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Operations

(unaudited – in thousands, except per share amounts)

Three Months Ended

October 1,

Net Sales

October 3,

367,988

373,919

Cost of sales

135,645

140,283

232,343

233,636

Operating expenses:

Sales and marketing

158,024

156,899

General and administrative

28,278

27,817

Research and development

Total operating expenses

193,299

188,237

Operating income

39,044

45,399

Other (expense) income, net

Income before income taxes

38,789

45,477

Income tax expense

13,044

13,623

Net income

25,745

31,854

Net income per share – basic

Net income per share – diluted

Reconciliation of weighted-average shares outstanding:

Basic weighted-average shares outstanding

45,621

50,945

Dilutive effect of stock-based awards

Diluted weighted-average shares outstanding

46,350

51,701

Nine Months Ended

997,846

999,017

385,168

379,009

612,678

620,008

443,477

424,029

86,202

79,951

21,661

10,275

551,340

514,255

61,338

105,753

60,757

106,117

20,627

34,426

40,130

71,691

46,705

51,654

47,413

52,524

Consolidated Balance Sheets

(unaudited - in thousands, except per share amounts)

subject to reclassification

January 2,

Assets

Current assets:

Cash and cash equivalents

45,383

20,994

Marketable debt securities – current

Accounts receivable, net of allowance for doubtful accounts of $1,276 and $1,039, respectively

23,731

29,002

Inventories

70,609

86,600

Income taxes receivable

15,284

Prepaid expenses

11,983

10,207

Deferred income taxes

15,537

15,535

Other current assets

17,525

13,737

Total current assets

190,731

197,926

Non-current assets:

Marketable debt securities – non-current

Property and equipment, net

203,660

204,376

Goodwill and intangible assets, net

81,448

83,344

Other assets

27,156

19,197

Total assets

502,995

513,396

Liabilities and Shareholders’ Equity

Current liabilities:

Accounts payable

106,868

103,941

Customer prepayments

28,348

51,473

Accrued sales returns

18,038

20,562

Compensation and benefits

28,876

15,670

Taxes and withholding

33,234

Other current liabilities

29,552

23,447

Total current liabilities

244,916

224,949

Non-current liabilities:

11,837

12,499

Other long-term liabilities

69,730

53,609

Total non-current liabilities

81,567

66,108

Total liabilities

326,483

291,057

Shareholders’ equity:

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

Common stock, $0.01 par value; 142,500 shares authorized, 44,941 and 49,402 shares issued and outstanding, respectively

Additional paid-in capital

Retained earnings

176,063

221,859

Accumulated other comprehensive loss

Total shareholders’ equity

176,512

222,339

Total liabilities and shareholders’ equity

Consolidated Statements of Cash Flows

(unaudited – in thousands)

Cash flows from operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

42,555

33,694

Stock-based compensation

Net loss on disposals and impairments of assets

Excess tax benefits from stock-based compensation

(1,991

(5,633

Gain on sale of non-marketable equity securities

(6,891

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

(6,543

15,991

(24,120

30,386

13,433

Prepaid expenses and other assets

(3,458

(1,043

24,623

(23,125

(3,351

Accrued compensation and benefits

12,441

Other taxes and withholding

Other accruals and liabilities

10,527

19,293

Net cash provided by operating activities

145,261

131,587

Cash flows from investing activities:

Purchases of property and equipment

(38,769

(61,435

Proceeds from sales of property and equipment

Investments in marketable debt securities

(5,968

(29,299

Proceeds from marketable debt securities

15,090

101,087

Acquisition of business

(70,018

Proceeds from non-marketable equity securities

12,891

Net cash used in investing activities

(29,580

(46,733

Cash flows from financing activities:

Net increase in short-term borrowings

Repurchases of common stock

(96,410

(70,300

Proceeds from issuance of common stock

Debt issuance costs

Net cash used in financing activities

(91,292

(64,171

Net increase in cash and cash equivalents

24,389

20,683

Cash and cash equivalents, at beginning of period

51,995

Cash and cash equivalents, at end of period

72,678

Supplemental Financial Information

(unaudited)

Percent of sales:

Retail

Direct and E-Commerce

Wholesale/other

Sales change rates:

Retail comparable-store sales

Company-Controlled comparable sales change

Net opened/closed stores

Total Company-Controlled Channel

Stores open:

Beginning of period

Opened

Closed

End of period

Other metrics:

Average sales per store ($ in 000's)

Average sales per square foot

Stores > $1 million net sales

Stores > $2 million net sales

Average revenue per mattress unit

Trailing twelve months for stores open at least one year.

Represents Company-Controlled Channel total net sales divided by Company-Controlled Channel mattress units.

Fiscal 2014 included 53 weeks, as compared to 52 weeks in fiscal 2016 and 2015. 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 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:

Trailing-Twelve Months Ended

18,958

90,638

11,112

43,452

Interest expense

14,536

11,643

56,154

43,100

10,609

11,457

Asset impairments

55,260

60,306

97,605

189,353

Free Cash Flow

98,141

86,533

121,616

140,220

Subtract: Purchases of property and equipment

15,005

22,497

62,920

79,652

Free cash flow

83,136

64,036

58,696

60,568

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.

Calculation of Return on Invested Capital (ROIC)

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:

Net operating profit after taxes (NOPAT)

30,681

133,640

Add: Rent expense

64,994

63,078

Add: Interest income

Less: Depreciation on capitalized operating leases

(16,953

(15,809

Less: Income taxes

(29,805

(58,896

49,026

122,550

Average invested capital

Total equity

271,923

Less: Cash greater than target

Add: Long-term debt

Add: Capitalized operating lease obligations

519,952

504,624

Total invested capital at end of period

696,464

776,547

Average invested capital

714,956

710,701

Return on invested capital (ROIC)

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

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.

Reflects annual effective income tax rates, before discrete adjustments, of

for 2016 and 2015, respectively.

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

Long-term debt includes existing capital lease obligations, if applicable.

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.

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

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.

The above information was disclosed in a filing to the SEC. To see the filing, click here.

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Other recent filings from the company include the following:

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