10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2007

Commission File Number: 0-25121

____________________

SELECT COMFORT CORPORATION

(Exact name of registrant as specified in its charter)

Minnesota (State or other jurisdiction of incorporation or organization)	41-1597886 (I.R.S. Employer Identification No.)
6105 Trenton Lane North Minneapolis, Minnesota (Address of principal executive offices)	55442 (Zip code)

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      YES  x  NO  o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x Accelerated filer  o Non-accelerated filer  o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).

YES  o NO  x

As of July 27, 2007, 45,354,000 shares of Common Stock of the Registrant were outstanding.

SELECT COMFORT CORPORATION

AND SUBSIDIARIES

INDEX

PART I: FINANCIAL INFORMATION
Item 1.	Financial Statements	Page
	Consolidated Balance Sheets as of
	June 30, 2007 and December 30, 2006	3
	Consolidated Statements of Operations
	for the Three and Six Months ended
	June 30, 2007 and July 1, 2006	4
	Consolidated Statements of Cash Flows
	for the Six Months ended
	June 30, 2007 and July 1, 2006	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of
	Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	20
Item 4.	Controls and Procedures	20
PART II: OTHER INFORMATION
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3.	Defaults upon Senior Securities	22
Item 4.	Submission of Matters to a Vote of Security Holders	23
Item 5.	Other Information	24
Item 6.	Exhibits	24
SIGNATURES		25

PART I:   FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

SELECT COMFORT CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(unaudited – in thousands, except per share amounts)

	June 30, 2007			December  30, 2006
Assets
Current assets:
Cash and cash equivalents	$	9,830		$	8,819
Marketable debt securities – current		1,301			37,748
Accounts receivable, net of allowance for doubtful accounts of $795 and $529, respectively		12,170			12,164
Inventories		26,252			24,120
Prepaid expenses		16,573			10,227
Deferred income taxes		6,021			5,785
Other current assets		2,612			4,305
Total current assets		74,759			103,168
Marketable debt securities – non-current		1,575			43,608
Property and equipment, net		65,890			59,384
Deferred income taxes		20,476			19,275
Other assets		3,518			3,526
Total assets	$	166,218		$	228,961
Liabilities and Shareholders’ Equity
Current liabilities:
Borrowings under revolving credit facility	$	10,000		$	—
Accounts payable		51,124			46,061
Customer prepayments		9,590			9,552
Accruals:
Sales returns		4,246			3,907
Compensation and benefits		15,741			20,057
Taxes and withholding		4,146			5,053
Other current liabilities		11,483			12,901
Total current liabilities		106,330			97,531
Warranty liabilities		7,040			7,769
Other long-term liabilities		8,528			7,967
Total liabilities		121,898			113,267
Shareholders’ equity:
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding		—			—
Common stock, $0.01 par value; 142,500 shares authorized, 46,825 and 51,544 shares issued and outstanding, respectively		468			515
Additional paid-in capital		—			4,039
Retained earnings		43,889			111,140
Accumulated other comprehensive loss		(37	)		—
Total shareholders’ equity		44,320			115,694
Total liabilities and shareholders’ equity	$	166,218		$	228,961

See accompanying notes to consolidated financial statements.

3

SELECT COMFORT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

(unaudited – in thousands, except per share amounts)

	Three Months Ended				Six Months Ended
	June 30, 2007		July 1, 2006		June 30, 2007		July 1, 2006
Net sales	$	178,991	$	188,086	$	395,500	$	400,364
Cost of sales		69,464		74,444		151,805		159,200
Gross profit		109,527		113,642		243,695		241,164
Operating expenses:
Sales and marketing		86,756		78,627		184,894		170,382
General and administrative		16,611		17,518		34,230		34,250
Research and development		1,357		1,035		2,941		1,765
Total operating expenses		104,724		97,180		222,065		206,397
Operating income		4,803		16,462		21,630		34,767
Interest income, net		36		761		430		1,630
Income before income taxes		4,839		17,223		22,060		36,397
Income tax expense		1,927		6,482		8,471		13,922
Net income	$	2,912	$	10,741	$	13,589	$	22,475
Net income per share – basic	$	0.06	$	0.20	$	0.28	$	0.42
Weighted average shares – basic		47,980		53,405		48,848		53,418
Net income per share – diluted	$	0.06	$	0.19	$	0.27	$	0.40
Weighted average shares – diluted		49,858		56,245		50,833		56,396

See accompanying notes to consolidated financial statements.

4

SELECT COMFORT CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(unaudited – in thousands)

	Six Months Ended
	June 30, 2007			July 1, 2006
Cash flows from operating activities:
Net income	$	13,589		$	22,475
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		12,753			9,241
Stock-based compensation		4,067			3,972
Excess tax benefits from stock-based compensation		(1,284	)		(6,336	)
Changes in deferred income taxes		(1,437	)		(3,630	)
Other non-cash items affecting net income		300			6
Changes in operating assets and liabilities:
Accounts receivable		(6	)		(8,161	)
Inventories		(2,132	)		(3,200	)
Prepaid expenses and other assets		(3,037	)		269
Accounts payable		3,835			3,764
Customer prepayments		38			(5,184	)
Accrued sales returns		339			(870	)
Accrued compensation and benefits		(4,316	)		(3,935	)
Accrued taxes and withholding		(907	)		(5,261	)
Warranty liabilities		(959	)		3,401
Other accruals and liabilities		(959	)		543
Net cash provided by operating activities		19,884			7,094
Cash flows from investing activities:
Purchases of property and equipment		(19,285	)		(13,958	)
Investments in marketable debt securities		—			(28,718	)
Proceeds from sales and maturity of marketable debt securities		78,188			13,665
Net cash provided by (used in) investing activities		58,903			(29,011	)
Cash flows from financing activities:
Net increase (decrease) in short-term borrowings		9,927			(110	)
Repurchases of common stock		(92,662	)		(23,750	)
Proceeds from issuance of common stock		3,675			6,468
Excess tax benefits from stock-based compensation		1,284			6,336
Net cash used in financing activities		(77,776	)		(11,056	)
Increase (decrease) in cash and cash equivalents		1,011			(32,973	)
Cash and cash equivalents, at beginning of period		8,819			43,867
Cash and cash equivalents, at end of period	$	9,830		$	10,894

See accompanying notes to consolidated financial statements.

5

SELECT COMFORT CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(unaudited)

1.   Basis of Financial Statement Presentation

The consolidated financial statements as of and for the three and six months ended June 30, 2007 of Select Comfort Corporation and subsidiaries (“Select Comfort” or the “Company”) have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and reflect, in the opinion of management, all normal recurring adjustments necessary to present fairly the financial position of the Company as of June 30, 2007 and December 30, 2006 and the results of operations and cash flows for the periods presented. Our historical results of operations may not be indicative of the results that may be achieved for any future period.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These 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 30, 2006. Operating results for any quarterly period may not be indicative of operating results for the full-year. Certain prior-year amounts have been reclassified to conform to the current-year presentation.

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of sales and expenses during the reporting period. Actual results could differ from those estimates. Critical accounting policies consist of revenue recognition, sales returns, warranty liabilities, asset impairment charges and stock-based compensation.

2.   Marketable Debt Securities

Through December 30, 2006, we classified our marketable debt securities as “held-to-maturity” in accordance with Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” We historically valued our marketable debt securities at amortized cost based upon our intent and ability to hold these securities to maturity.

On March 23, 2007, all marketable debt securities carried at an amortized cost of $67.8 million with an unrealized net loss of $250,000 were transferred from “held-to-maturity” classification to “available-for-sale” classification. Investments classified as “available-for-sale” are carried at fair market value. The classification change was made to increase liquidity and fund our common stock repurchase program. Based on the change in classification, we reduced both the carrying value of our marketable debt securities and shareholders’ equity (accumulated other comprehensive loss) by $250,000 on the date the securities were transferred to “available-for-sale” classification.

During the three and six months ended June 30, 2007, marketable debt securities with a cost of $46.5 million and $62.8 million, respectively, were sold at a realized loss of $250,000 and $255,000, respectively. At June 30, 2007, $37,000 of unrealized net losses related to our marketable debt securities were included in accumulated other comprehensive loss on our consolidated balance sheet.

Available-for-sale securities are reported at fair value with net unrealized gains or losses reported, net-of-tax, within shareholders’ equity. If a decline in fair value of a marketable debt security is deemed by management to be other than temporary, the cost basis of the investment is written down to fair value, and the amount of the impairment is included in the determination of income. Realized gains and losses are recorded based on the specific identification method and average cost method, as appropriate, based upon the investment type.

6

Marketable debt securities are summarized as follows (in thousands):

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2007
Municipal securities	$	2,913	$	—	$	(37	)	$	2,876
December 30, 2006
U.S. government agencies	$	5,998			$	(23	)	$	5,975
Municipal securities		75,358				(279	)		75,079
Total marketable debt securities	$	81,356	$	—	$	(302	)	$	81,054

As of June 30, 2007, the contractual maturities were as follows (in thousands):

	Amortized Cost		Fair Value
0 – 12 Months	$	1,300	$	1,301
12 – 24 Months		1,613		1,575
Total marketable debt securities	$	2,913	$	2,876

3. Inventories

Inventories consist of the following (in thousands):

	June 30, 2007		December 30, 2006
Raw materials	$	6,382	$	6,576
Work in progress		211		111
Finished goods		19,659		17,433
Inventories	$	26,252	$	24,120

4.   Credit Agreement

In June 2006, the Company entered into a five-year Syndicated Credit Agreement (the “Credit Agreement”). The Credit Agreement provides for a $100 million senior unsecured revolving credit facility available to be used by the Company for general corporate purposes. Borrowings available under the credit facility can be increased by an additional amount up to $75 million.

Borrowings under the credit facility bear interest at a floating rate and may be maintained as base rate loans (tied to the prime rate or the federal funds rate plus 0.5%) or as Eurocurrency rate loans tied to LIBOR, plus a margin up to 1.0% depending on our leverage ratio, as defined. The Company is subject to certain financial covenants under the agreement principally consisting of maximum leverage and minimum interest coverage ratios. The Company was in full compliance with all covenants as of June 30, 2007. The Company had borrowings of $10 million outstanding against the credit facility as of June 30, 2007 and no outstanding borrowings as of December 30, 2006.

5.   Repurchases of Common Stock

We repurchased and retired 2,998,000 and 5,357,000 shares through open market purchases at a cost of $51.5 million and $94.3 million (based on trade dates), respectively, during the three and six months ended June 30, 2007. During the three and six months ended July 1, 2006, we repurchased and retired 234,000 and 1,007,000 shares through open market purchases at a cost of $5.3 million and $23.8 million (based on trade dates), respectively. As of June 30, 2007, the total availability under our share repurchase program was $244 million. There is no expiration date governing the period over which we can repurchase shares.

7

6.   Stock-Based Compensation

We compensate officers, directors and key employees with stock-based compensation under three plans approved by our shareholders in 1990, 1997 and 2004 and administered under the supervision of our Board of Directors. Stock-based compensation awards are generally granted annually during the first quarter. We have awarded stock options, employee stock purchase plan shares, performance shares and restricted stock under these plans. At June 30, 2007, a total of 1,517,000 shares were available for future grant under these plans. Stock-based compensation expense is determined based on the grant-date fair value and is recognized ratably over the vesting period of each grant, which is generally four years. Stock-based compensation expense for the three and six months ended June 30, 2007 was $1,995,000 and $4,067,000, respectively, and for the three and six months ended July 1, 2006 was $2,144,000 and $3,972,000, respectively.

7.   Interest Income, Net

Net interest income consists of the following (in thousands):

	Three Months Ended					Six Months Ended
	June 30, 2007			July 1, 2006		June 30, 2007			July 1, 2006
Interest income	$	338		$	761	$	961		$	1,630
Interest expense		(120	)		—		(344	)		—
Capitalized interest expense		68			—		68			—
Realized loss on sales of marketable debt securities		(250	)		—		(255	)		—
Interest income, net	$	36		$	761	$	430		$	1,630

8.   Comprehensive Income

Comprehensive income is computed as net income plus certain other items that are recorded directly to shareholders’ equity. Our comprehensive income reflects net income and unrealized losses on available-for-sale marketable debt securities. Comprehensive income was $3,104,000 and $13,552,000 for the three and six months ended June 30, 2007, respectively, and was $10,741,000 and $22,475,000 for the three and six months ended July 1, 2006, respectively.

9.   Net Income per Common Share

The following computations reconcile net income per share – basic with net income per share – diluted (in thousands, except per share amounts):

	Three Months Ended				Six Months Ended
	June 30, 2007		July 1, 2006		June 30, 2007		July 1, 2006
Net income	$	2,912	$	10,741	$	13,589	$	22,475
Reconciliation of weighted-average shares outstanding:
Basic weighted-average shares outstanding		47,980		53,405		48,848		53,418
Effect of dilutive securities:
Options		1,649		2,618		1,761		2,740
Warrants		—		25		—		51
Restricted shares		229		197		224		187
Diluted weighted-average shares outstanding		49,858		56,245		50,833		56,396
Net income per share – basic	$	0.06	$	0.20	$	0.28	$	0.42
Net income per share – diluted	$	0.06	$	0.19	$	0.27	$	0.40

8

Additional potentially dilutive securities of approximately 1,495,000 and 1,442,000 for the three and six month periods ended June 30, 2007, respectively, and approximately 949,000 and 952,000 for the three and six month periods ended July 1, 2006, respectively, have been excluded from diluted net income per share because these securities’ exercise prices were greater than the average market price of our common shares.

10.   Income Taxes

Effective December 31, 2006, we adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 and related interpretations define when benefits of tax positions in the financial statements are recognized and provides guidance on the derecognition, measurement and classification of income tax uncertainties, along with any related interest and penalties. The adoption of FIN 48 and related interpretations did not materially affect our consolidated financial statements and, as a result, we did not record any cumulative effect adjustment upon adoption.

As of the date of adoption, the total amount of unrecognized tax benefits for uncertain tax positions was approximately $252,000. The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was approximately $252,000. The unrecognized tax benefits have not changed materially since the date of adoption and are not expected to change materially within the next 12 months.

We classify interest and penalties on tax uncertainties as a component of income tax expense in our consolidated statements of operations. The total amount of interest and penalties recorded in liabilities as of the date of adoption were not significant. In addition, the total amount of interest and penalties recorded in our consolidated statements of operations during the three and six months ended June 30, 2007 and July 1, 2006 were not significant.

We file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. In the normal course of business, we are subject to examination by federal and state taxing authorities. We are no longer subject to federal income tax examinations for years prior to 2003. The Internal Revenue Service is currently examining our 2004 U.S. consolidated federal income tax return. This examination is anticipated to be completed during fiscal 2007. We are no longer subject to state income tax examinations for years prior to 2002. No states are currently examining any of our state income tax returns.

11.   Accounting Standards Issued and Not Yet Implemented

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS 157). SFAS 157 clarifies the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS 157 is effective for our 2008 fiscal year beginning December 30, 2007, with early adoption permitted. We are currently evaluating the potential impact of adopting SFAS 157 on our consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Liabilities – Including an Amendment of FASB Statement No. 115” (SFAS 159). SFAS 159 permits us to choose to measure certain financial assets and liabilities at fair value that are not currently required to be measured at fair value (the “Fair Value Option”). Election of the Fair Value Option is made on an instrument-by-instrument basis and is irrevocable. At the adoption date, unrealized gains and losses on financial assets and liabilities for which the Fair Value Option has been elected would be reported as a cumulative adjustment to beginning retained earnings. If we elect the Fair Value Option for certain financial assets and liabilities, we will report unrealized gains and losses due to changes in their fair value in earnings at each subsequent reporting date. SFAS 159 is effective for our 2008 fiscal year beginning December 30, 2007. We are currently evaluating the potential impact of adopting SFAS 159 on our consolidated financial statements.

9

12.   Commitments and Contingencies

We are involved in various legal proceedings arising in the ordinary course of business. In the opinion of management, any material losses that may occur from any currently pending matters are adequately covered by insurance or are provided for in the consolidated financial statements if the liability is probable and estimable in accordance with generally accepted accounting principles. The ultimate outcomes of these matters are not expected to have a material effect on our consolidated results of operations or financial position.

10

ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide a reader of our financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in six sections:

• Risk Factors

• Overview

• Results of Operations

• Liquidity and Capital Resources

• Off-Balance-Sheet Arrangements and Contractual Obligations

• Significant Accounting Policies

Risk Factors

The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included herein. This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by those that are not historical in nature, particularly those that use terminology such as “may,” “will,” “should,” “expects,” “anticipates,” “contemplates,” “estimates,” “believes,” “plans,” “projects,” “predicts,” “potential” or “continue” or the negative of these or similar terms. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections. Important factors known to us that could cause such material differences are identified and discussed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 30, 2006, which discussion is incorporated herein by reference. These important factors include, but are not limited to:

• Our ability to manage growth in the size and complexity of our business, which has placed, and will continue to place, significant strains on our management, operations, information systems and other resources;

• 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;

• The level of consumer acceptance of our products, new product offerings and brand image;

• Our ability to continuously improve our products to offer new and enhanced consumer benefits, better quality and reduced costs;

• The effectiveness of our marketing messages and the efficiency of our advertising expenditures and other marketing programs in building product and brand awareness, driving traffic to our points of sale and increasing sales;

• Our ability to execute our company-owned 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, motivate 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;

• Our ability to cost-effectively expand our distribution internationally;

• Our ability to cost-effectively maintain information systems, product designs, manufacturing and procurement processes and document retention processes to comply with federal flame retardancy standards applicable to mattresses, and mattress and foundation sets;

• 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 cost-effectively offer consumer credit options through third-party credit providers;

11

• The capability of our management information systems to continue to meet the requirements of our business and our ability to successfully implement our planned SAP-based enterprise-wide information technology architecture;

• General economic conditions and consumer confidence; and

• Global events, such as terrorist attacks or a pandemic outbreak, or the threat of such events.

We have no obligation to publicly update or revise any of the forward-looking statements contained in this quarterly report on Form 10-Q.

Overview

Business Overview

Select Comfort is the leading developer, manufacturer and marketer of premium-quality, adjustable-firmness beds. The air-chamber technology of our proprietary Sleep Number^® bed allows adjustable firmness on each side of the mattress and provides a sleep surface that is clinically proven to provide better sleep quality and greater relief of back pain compared to traditional mattress products. In addition, we market and sell accessories and other sleep related products which focus on providing personalized comfort to complement the Sleep Number bed and provide a better night’s sleep to the consumer.

We generate revenue by selling our products through four complementary distribution channels. Three of these channels: retail, direct marketing and e-commerce, are company-controlled and sell directly to consumers. Our wholesale channel sells to and through leading home furnishings retailers, specialty bedding retailers, the QVC shopping channel and to several end users such as Radisson Hotels and Resorts^®.

New Product Launch

We have recently upgraded our entire line of bed models which we believe represent the highest-quality, most technologically advanced beds we have ever produced. Our top-end 7000 and 9000 models were re-launched in mid-June. The new versions of our 3000, 4000 and 5000 models were introduced to all of our stores in late-July. All of our new models emphasize enhanced comfort-layer materials, and several feature advancements in temperature regulation.

Vision and Strategy

Our vision is to be the leading brand in the bedding industry, while improving people’s lives through better sleep. We have established long-term financial growth targets of 15% annual net sales growth or higher and annual earnings growth of 20% or higher.

As further outlined in our fiscal 2006 Form 10-K, we are executing against a defined growth strategy which focuses on the following key components:

• Building brand awareness to increase consumers’ knowledge of the unique benefits of our products;

• Expanding distribution through our company-owned stores and through our retail partner program, with a long-term goal of operating between 600 and 650 company-owned stores;

• Accelerating product innovation to lead the industry in innovative sleep products; and

• Leveraging our infrastructure in order to facilitate long-term profitable growth.

Outlook

On July 25, 2007, we announced results for the second quarter of fiscal 2007 and reiterated our revised full-year fiscal 2007 net sales and earnings outlook. This outlook included projected fiscal 2007 net sales of between $840 million and $860 million, and full-year earnings per diluted share of between $0.87 and $0.93. This guidance anticipates full-year net sales growth of between 4% and 7%, and full-year diluted earnings per share growth of between 2% and 9%. The guidance equates to projected net sales growth for the last six months of fiscal 2007 of between 10% and 15% and diluted earnings per share growth of between 33% and 47% compared with the last six months of the prior fiscal year. Our anticipated performance improvement for the last six months of fiscal 2007 is expected to be driven by new product introductions, improved execution of our sales and marketing strategies, and more consistent investment in media. In addition, we face easing comparable-store sales (fiscal 2006 third and fourth

12

quarter comparable-store sales changes were 7% and -9% respectively) and easing macroeconomic comparisons for the last six months of 2007. If the benefits from our growth initiatives take longer than expected, or if the macroeconomic environment further deteriorates, the lower end of our sales and earnings ranges could be pressured.

We anticipate increasing our retail store count by 40 net new retail stores, and relocating or expanding 30 or more stores in 2007. Our 2007 capital expenditures are expected to be approximately $50 million, compared to $31.1 million in 2006. The increase in capital expenditures is due to our expected implementation of SAP in the first half of fiscal year 2008, and leasehold improvements and furniture costs necessary to furnish our new corporate headquarters that we plan to move into in the fall of 2007.

Quarterly and Annual Results

Quarterly and annual operating results may fluctuate significantly as a result of a variety of factors, including increases or decreases in sales, the timing, amount and effectiveness of advertising expenditures, any changes in sales return rates or warranty experience, the timing of new store openings and related expenses, net sales contributed by new stores, the timing of promotional offerings, competitive factors, changes in commodity costs, any disruptions in supplies or third-party service providers, seasonality of retail sales, timing of QVC shows and wholesale sales, consumer confidence and general economic conditions. Furthermore, a substantial portion of our net sales is often realized in the last month of a quarter, due in part to our promotional schedule and commission structure. As a result, we may be unable to adjust spending in a timely manner, and our business, financial condition and operating results may be significantly harmed. Our historical results of operations may not be indicative of the results that may be achieved for any future period.

Highlights

Key financial highlights for the three months ended June 30, 2007 were as follows:

• Net income totaled $2.9 million, or $0.06 per diluted share, compared to $10.7 million or $0.19 per diluted share, for the same period one year ago.

• Net sales decreased 5% to $179.0 million, compared with $188.1 million for the same period one year ago, due to a 14% comparable-store sales decline for our company-owned retail stores and a decrease in direct channel sales, partially offset by sales from 48 net new company-owned retail stores opened in the past 12 months and sales growth in our e-commerce and wholesale distribution channels.

• Our gross profit rate for the second quarter of fiscal 2007 increased to 61.2% of net sales, compared to 60.4% of net sales for the same period last year. The gross profit rate increase was driven by reduced warranty costs compared with the prior year, continued efficiency gains in manufacturing and logistics, and a reduced product discount rate, partially offset by an increased percentage of sales from lower gross margin channels and products.

• Sales and marketing expenses increased to 48.5% of net sales for the second quarter of fiscal 2007, compared to 41.8% of net sales for the same period one year ago. The rate increase was driven by a higher number of stores, an increase in media spending and the deleveraging impact of a 14% comparable-store sales decrease.

• General and administrative expenses were 9.3% of net sales for the second quarter of fiscal 2007 which was consistent with the rate in the same period one year ago. Additional headcount to support ongoing growth of the business was offset by lower incentive-based compensation expense.

• Cash from operating activities totaled $19.9 million for the first six months of fiscal 2007, compared with $7.1 million for the same period one year ago.

• During the second quarter of fiscal 2007, we repurchased $51.5 million of common stock or 3.0 million shares (based on trade dates) and have repurchased $94.3 million or 5.4 million shares for the first six months of fiscal 2007. Second quarter and year-to-date earnings per diluted share included $0.01 and $0.03 of benefit, respectively, due to a lower share count.

13

Results of Operations

The following table sets forth, for the periods indicated, our results of operations expressed as dollars and percentages of net sales. Figures are in millions, except percentages and per share amounts. Amounts may not add due to rounding differences.

	Three Months Ended								Six Months Ended
	June 30, 2007				July 1, 2006				June 30, 2007				July 1, 2006
Net sales	$	179.0	100.0	%	$	188.1	100.0	%	$	395.5	100.0	%	$	400.4	100.0	%
Cost of sales		69.5	38.8	%		74.4	39.6	%		151.8	38.4	%		159.2	39.8	%
Gross profit		109.5	61.2	%		113.6	60.4	%		243.7	61.6	%		241.2	60.2	%
Operating expenses:
Sales and marketing		86.8	48.5	%		78.6	41.8	%		184.9	46.7	%		170.4	42.6	%
General and administrative		16.6	9.3	%		17.5	9.3	%		34.2	8.7	%		34.3	8.6	%
Research and development		1.4	0.8	%		1.0	0.6	%		2.9	0.7	%		1.8	0.4	%
Total operating expenses		104.7	58.5	%		97.2	51.7	%		222.1	56.1	%		206.4	51.6	%
Operating income		4.8	2.7	%		16.5	8.8	%		21.6	5.5	%		34.8	8.7	%
Interest income, net		0.0	0.0	%		0.8	0.4	%		0.4	0.1	%		1.6	0.4	%
Income before income taxes		4.8	2.7	%		17.2	9.2	%		22.1	5.6	%		36.4	9.1	%
Income tax expense		1.9	1.1	%		6.5	3.4	%		8.5	2.1	%		13.9	3.5	%
Net income	$	2.9	1.6	%	$	10.7	5.7	%	$	13.6	3.4	%	$	22.5	5.6	%
Net income per share:
Basic	$ 0.06				$ 0.20				$ 0.28				$ 0.42
Diluted	$ 0.06				$ 0.19				$ 0.27				$ 0.40
Weighted-average number of common shares:
Basic		48.0			53.4				48.8				53.4
Diluted		49.9			56.2				50.8				56.4

The percentage of our total net sales, by dollar volume, from each of our channels was as follows:

	Three Months Ended				Six Months Ended
	June 30, 2007		July 1, 2006		June 30, 2007		July 1, 2006
Percent of sales:
Retail	74.1	%	75.1	%	75.2	%	76.8	%
Direct	8.5	%	10.5	%	8.6	%	10.2	%
E-commerce	7.1	%	5.6	%	6.8	%	5.5	%
Wholesale	10.3	%	8.8	%	9.4	%	7.5	%
Total	100.0	%	100.0	%	100.0	%	100.0	%

The components of total sales growth, including comparable-store sales changes, were as follows:

	Three Months Ended				Six Months Ended
	June 30, 2007		July 1, 2006		June 30, 2007		July 1, 2006
Sales growth rates:
Comparable-store sales	(14	)%	16	%	(12	)%	17	%
Net new stores	8	%	9	%	9	%	8	%
Retail total	(6	)%	25	%	(3	)%	25	%
Direct	(23	)%	5	%	(17	)%	3	%
E-commerce	20	%	41	%	24	%	40	%
Wholesale	12	%	12	%	23	%	16	%
Total sales growth	(5	)%	22	%	(1	)%	23	%

14

The numbers of company-owned retail stores and independently owned and operated retail partner stores was as follows:

	Three Months Ended			Six Months Ended
	June 30, 2007		July 1, 2006	June 30, 2007		July 1, 2006
Company-owned retail stores:
Beginning of period	447		402	442		396
Opened	16		10	23		18
Closed	(3	)	—	(5	)	(2	)
End of period	460		412	460		412
Retail partner doors	752		608	752		608

Comparison of Three Months Ended June 30, 2007 with Three Months Ended July 1, 2006

Net sales

Net sales decreased 5% to $179.0 million for the three months ended June 30, 2007 compared with $188.1 million for the same period one year ago. The sales decrease was due to a 14% comparable-store sales decline in our company-owned retail stores and a decrease in direct channel sales, partially offset by sales from 48 net new company-owned retail stores opened in the past 12 months and sales growth in our e-commerce and wholesale distribution channels. Sales of mattress units decreased 4% overall compared to the same period one year ago, and the average selling price per bed (mattress sales only divided by mattress units) in our company-controlled channels was flat at $1,688, while sales of other product and services decreased by 2%.

The $9.1 million net sales decrease compared with the same period one year ago was comprised of the following: (i) an $8.7 million decrease in sales from our retail stores, comprised of a $19.8 million decrease from comparable-stores and an $11.1 million increase from new stores, net of stores closed and (ii) a $4.5 million decrease in direct marketing sales, partially offset by, (iii) a $2.1 million increase in e-commerce sales and (iv) a $2.0 million increase in wholesale sales.

Gross profit

The gross profit rate increased to 61.2% of net sales for the three months ended June 30, 2007 as compared with 60.4% for the same period one year ago. The gross profit rate benefited from a reduction in warranty costs per unit driven by lower defect rates and reduced costs per claim. The gross profit rate also benefited from improvements in sourcing, manufacturing productivity and our ongoing implementation of a hub-and-spoke logistics network which reduced our cost of sales. Increased use of promotional financing offers (which increased sales and marketing expenses) in lieu of product discounts, also contributed to the second quarter gross profit rate increase. These items were partially offset by an increase in the percentage of net sales from lower gross margin channels which reduced the gross profit rate by approximately 0.3 percentage points (ppt) and a shift in product mix to lower margin products which reduced the gross profit rate by approximately 0.2 ppt.

During the second quarter we completed the necessary modifications to our product line in order to comply with the new open flame fire retardancy (FR) standards which became effective for all products manufactured after July 1, 2007. These modifications added costs to our products and require more complicated manufacturing processes. During the second quarter we adopted a phased-in approach to converting our entire product line to the new FR standards. Approximately 42% of our second quarter mattress shipments were FR compliant. The use of FR compliant materials in manufacturing will now be a permanent part of our cost structure.

Sales and marketing expenses

Sales and marketing expenses for the three months ended June 30, 2007 increased 10% to $86.8 million, or 48.5% of net sales, compared with $78.6 million, or 41.8% of net sales, for the same period one year ago. The $8.2 million increase was primarily due to a higher number of stores, an increased use of promotional financing offers, and increased media spending. The 6.7 ppt sales and marketing expense rate increase was primarily due to the deleveraging impact of a 5% net sales decline and the $8.2 million expense increase compared with the same period one year ago. Total media spending increased 12% compared with the same period one year ago and was 2.1 ppt higher on a rate basis, including increased media spending related to our “You Can Cure Tired” marketing campaign, which has not met our expectations.

15

General and administrative expenses

General and administrative (G&A) expenses decreased 5% to $16.6 million for the three months ended June 30, 2007 compared with $17.5 million for the same period one year ago and remained flat as a percentage of net sales. The $0.9 million decrease in G&A expenses was comprised of a $2.2 million reduction in incentive-based compensation costs, partially offset by a $1.3 million increase in compensation and benefit costs as additional headcount were added to support the ongoing growth of the business.

Research and development expenses

Research and development (R&D) expenses increased to $1.4 million for the second quarter of fiscal 2007 compared with $1.0 million for the same period one year ago, and increased as a percentage of net sales to 0.8% from 0.6% for the comparable prior-year period. The $0.4 million increase in R&D expenses was the result of continued investment in new product innovation.

Interest income, net

Net interest income decreased $0.8 million for the three months ended June 30, 2007 compared with the same period one year ago. The decrease in net interest income was driven by lower average cash and investment balances compared with the same period one year ago, a $0.3 million increase in net realized losses on the sales of marketable debt securities, and increased interest expense under our revolving line of credit.

Income tax expense

Income tax expense decreased $4.6 million to $1.9 million for the three months ended June 30, 2007 compared with $6.5 million for the same period one year ago. The effective tax rate was 39.8% for the second quarter of fiscal 2007 and 37.6% for the same period one year ago. The second quarter of fiscal 2007 effective tax rate includes the impact of increasing our year-to-date effective tax rate to 38.4%, compared to the first quarter’s effective tax rate of 38.1%.

Comparison of Six Months Ended June 30, 2007 with Six Months Ended July 1, 2006

Net sales

Net sales for the first six months of fiscal 2007 decreased 1% to $395.5 million compared with $400.4 million for the same period one year ago. The sales decrease was driven by a 12% comparable-store sales decline in our company-owned retail stores and a decrease in direct channel sales, partially offset by sales from 48 net new company-owned retail stores opened in the past 12 months and sales growth in our e-commerce and wholesale distribution channels. Sales of mattress units were consistent with the prior year, while the total company average selling price declined 1%, primarily due to a higher percentage of wholesale sales as compared to the prior year. The average selling price per bed (mattress sales only divided by mattress units) in our company-controlled channels was essentially flat at $1,696, while sales of other product and services in our company-controlled channels decreased by 1%.

The $4.9 million net sales decrease compared with the prior year was comprised of the following: (i) a $10.1 million decrease in sales from our retail stores, comprised of a $37.6 million decrease from comparable-stores and a $27.5 million increase from new stores, net of stores closed and (ii) a $7.0 million decrease in direct marketing sales, partially offset by, (iii) a $7.0 million increase in wholesale sales and (iv) a $5.2 million increase in e-commerce sales.

Gross profit

The gross profit rate increased to 61.6% of net sales for the first six months of fiscal 2007 compared with 60.2% for the same period one year ago. The gross profit rate benefited from improvements in sourcing, manufacturing productivity and our ongoing implementation of a hub-and-spoke logistics network which reduced our cost of sales. The gross profit rate also benefited from the absence of a warranty accrual correction (to include freight costs) which occurred in the first six months of the prior fiscal year and ongoing reductions in warranty costs per unit. A shift in our promotional strategy to a greater use of promotional financing offers also contributed to the gross profit rate increase. These items were partially offset by an increase in the percentage of net sales from lower gross margin channels which reduced the gross profit rate by approximately 0.5 ppt and a shift in product mix to lower margin products which reduced the gross profit rate by approximately 0.3 ppt.

16

Sales and marketing expenses

Sales and marketing expenses for the six months ended June 30, 2007 increased to $184.9 million, or 46.7% of net sales, compared with $170.4 million, or 42.6% of net sales, for the same period one year ago. The $14.5 million expense increase was primarily due to operating costs associated with 48 net new stores opened in the past 12 months, an increased use of promotional financing offers and increased media spending. The 4.1 ppt sales and marketing expense rate increase was primarily due to the deleveraging impact of a 1% net sales decline and the $14.5 million expense increase compared with the same period one year ago. Total media spending increased 6% compared with the same period one year ago and was 1.0 ppt higher on a rate basis.

General and administrative expenses

General and administrative expenses were essentially flat at $34.2 million for the six months ended June 30, 2007 compared with $34.3 million for the same period one year ago and increased 0.1 ppt on a rate basis. G&A expenses were favorably impacted by a $3.6 million reduction in incentive-based compensation costs, partially offset by increased compensation and benefit costs as additional headcount were added to support ongoing business growth.

Research and development expenses

Research and development expenses increased 67% to $2.9 million for the first six months of fiscal 2007 compared with $1.8 million for the same period one year ago, and increased as a percentage of net sales to 0.7% from 0.4%. The dollar and percentage of net sales increases in R&D expenses were the result of continued investment in new product innovation.

Interest income, net

Net interest income decreased to $0.4 million for the six months ended June 30, 2007 compared with $1.6 million for the same period one year ago. The $1.2 million decrease in net interest income was driven by lower average cash and investment balances compared with the same period one year ago, increased interest expense under our revolving line of credit and a $0.3 million increase in net realized losses on the sales of marketable debt securities.

Income tax expense

Income tax expense decreased $5.5 million to $8.5 million for the six months ended June 30, 2007 compared with $13.9 million for the same period one year ago. The effective tax rate was 38.4% and 38.3% in 2007 and 2006, respectively. The 0.1 ppt increase in the effective tax rate was principally due to decreased interest income from tax exempt securities.

Liquidity and Capital Resources

The following table summarizes our cash, cash equivalents and marketable debt securities as of June 30, 2007 and December 30, 2006 ($ in millions):

	June 30, 2007		December 30, 2006
Cash and cash equivalents	$	9.8	$	8.8
Marketable debt securities – current		1.3		37.7
Marketable debt securities – non-current		1.6		43.6
Total cash, cash equivalents and marketable debt securities	$	12.7	$	90.2

The following table summarizes our cash flows for the six months ended June 30, 2007 and July 1, 2006 ($ in millions):

	Six Months Ended
	June 30, 2007			July 1, 2006
Total cash provided by (used in):
Operating activities	$	19.9		$	7.1
Investing activities		58.9			(29.0	)
Financing activities		(77.8	)		(11.1	)
Increase (decrease) in cash and cash equivalents	$	1.0		$	(33.0	)

17

As of June 30, 2007, we had cash, cash equivalents and marketable debt securities of $12.7 million compared to $90.2 million as of December 30, 2006. The $77.5 million decrease in cash, cash equivalents and marketable debt securities was primarily due to $92.7 million of common stock repurchases (based on settlement dates) and $19.3 million of capital expenditures, partially offset by $19.9 million of cash provided by operating activities.

Cash provided by operating activities for the six months ended June 30, 2007 and July 1, 2006 was $19.9 million and $7.1 million, respectively. The $12.8 million year-over-year increase in cash from operations was comprised of a $11.1 million increase in adjustments to reconcile net income to cash provided by operating activities, $10.5 million due to increased cash from changes in operating assets and liabilities, partially offset by an $8.9 million decline in net income. The year-over-year increase in adjustments to reconcile net income to cash provided by operating activities was the result of higher depreciation and amortization compared with the same period one year ago, and the reduced impact from deferred income taxes and excess tax benefits from stock based-compensation. The increased cash from changes in operating assets and liabilities was primarily due to a lower increase in accounts receivable (prior year had a greater impact from increased wholesale sales and timing of QVC shows), an increase in customer prepayments (timing of cash received on customer orders in advance of fulfillment), and a reduced use of cash related to accrued taxes and withholding (reduced payments related to prior year income tax liabilities), partially offset by a lower increase in warranty liabilities (reduced warranty costs per unit compared with the prior year) and an increase in prepaid expenses and other assets (timing of estimated income tax payments).

Net cash provided by investing activities was $58.9 million for the six months ended June 30, 2007 compared with net cash used in investing activities of $29.0 million for the same period one year ago. The $87.9 million increase in net cash provided by investing activities was principally due to $78.2 million of proceeds from the sales and maturity of marketable debt securities in the first six months of fiscal 2007, compared to $13.7 million for the same period one year ago. For the first six months of fiscal 2007, we invested $19.3 million in property and equipment, compared to $14.0 million for the same period one year ago. In both periods, our capital expenditures related primarily to new and remodeled retail stores and investments in information technology. For the first six months of 2007 we opened 23 new retail stores, while in the first six months of 2006 we opened 18 new retail stores.

Net cash used in financing activities increased to $77.8 million for the six months ended June 30, 2007, compared to $11.1 million for the same period one year ago. The $66.7 million increase in cash used in financing activities resulted from a $68.9 million year-over-year increase in common stock repurchases, $2.8 million in reduced proceeds from the issuance of common stock related to stock options and employee purchases, and a $5.1 million reduction in tax benefits from stock-based compensation, partially offset by $10.0 million of current-year borrowings under our revolving credit facility to fund stock repurchases. We may make additional purchases of our common stock from time-to-time, subject to market conditions and at prevailing market prices, through open market purchases. On April 20, 2007, our Board of Directors authorized the company to repurchase up to an additional $250 million of its common stock, providing a total of $290 million of repurchase authority. As of July 27, 2007, we had a total outstanding stock repurchase authorization remaining of $219 million. We may terminate or limit the stock repurchase program at any time.

Cash generated from operations and existing credit facilities should be a sufficient source of liquidity for the short- and long-term and should provide adequate funding for capital expenditures. In addition, our business model, which can operate with minimal working capital, does not require significant additional capital to fund operations and organic growth. In 2006, we obtained a $100 million bank revolving line of credit for general corporate purposes including the funding of any short-term cash needs or investment opportunities. This line of credit is a five-year senior unsecured revolving facility expiring June 2011. Borrowings under the credit facility bear interest at a floating rate and may be maintained as base rate loans (tied to the prime rate or the federal funds rate plus 0.5%) or as Eurocurrency rate loans tied to LIBOR, plus a margin up to 1.0% depending on our leverage ratio, as defined. We are subject to certain financial covenants under the agreement, principally consisting of interest coverage and leverage ratios. We have remained and expect to remain in full compliance with the financial covenants. As of June 30, 2007 we had $10.0 million outstanding under the revolving line of credit. We may incur additional borrowings during 2007 to repurchase our common stock at a rate that may exceed our available cash balances.

18

Off-Balance-Sheet Arrangements and Contractual Obligations

Other than operating leases, we do not have any off-balance-sheet financing. We do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships. As of June 30, 2007, we are not involved in any unconsolidated special purpose entity transactions.

There has been no material change in our contractual obligations since the end of fiscal 2006 other than the $10 million of borrowings outstanding against our credit facility as of June 30, 2007 as described in Note 4, Credit Agreement, of the Notes to our Consolidated Financial Statements. See our Annual Report on Form 10-K for the fiscal year ended December 30, 2006 for additional information regarding our contractual obligations.

Significant Accounting Policies

We describe our significant accounting policies in Note 1, Business and Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the fiscal year ended December 30, 2006. We discuss our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 30, 2006. There were no significant changes in our accounting policies since the end of fiscal 2006 other than the change in our marketable debt securities classification as described in Note 2 of the Notes to our Consolidated Financial Statements.

19

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Financial instruments that potentially subject us to concentrations of credit risk consist principally of investments. The counterparties to the agreements consist of government agencies and various major corporations of investment grade credit standing. We do not believe we are exposed to significant risk of non-performance by these counterparties because we limit the amount of credit exposure to any one financial institution and any one type of investment.

Changes in the overall level of interest rates affect income generated from our short- and long-term investments in cash, cash equivalents and marketable debt securities, as well as interest expense incurred from borrowings under our revolving credit facility. If overall interest rates were one percentage point different than current rates, the impact on our annual interest income and annual interest expense would be immaterial based on our short- and long-term investments and borrowings under our revolving credit facility as of June 30, 2007. We do not manage our investment or debt interest-rate volatility risk through the use of derivative instruments.

ITEM 4.    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), to allow timely decisions regarding required disclosure. We have established a Disclosure Committee, consisting of certain members of management, to assist in this evaluation. The Disclosure Committee meets on a regular quarterly basis, and as needed.

Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act), at June 30, 2007. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, at June 30, 2007, our disclosure controls and procedures were effective.

Changes in Internal Controls

There was no change in internal control over financial reporting during the fiscal quarter ended June 30, 2007, that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

20

PART II:   OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

We are involved in various legal proceedings arising in the ordinary course of business. In the opinion of management, any material losses that may occur from any currently pending matters are adequately covered by insurance or are provided for in the consolidated financial statements if the liability is probable and estimable in accordance with generally accepted accounting principles. The ultimate outcomes of these matters are not expected to have a material effect on our consolidated results of operations or financial position.

ITEM 1A.   RISK FACTORS

Our business, financial condition and operating results are subject to a number of risks and uncertainties, including both those that are specific to our business and others that affect all businesses operating in a global environment. Investors should carefully consider the information in this report under the heading, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and also the information under the heading, “Risk Factors” in our most recent Annual Report on Form 10-K. The risk factors discussed in the Annual Report on Form 10-K and in this Quarterly Report on Form 10-Q do not identify all risks that we face because our business operations could also be affected by additional risk factors that are not presently known to us or that we currently consider to be immaterial to our operations. There has been no material change in those risk factors since the date of our Annual Report on Form 10-K.

21

ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) – (b)	Not applicable.
(c)	Issuer Purchases of Equity Securities
	(in thousands, except per share amounts)

Fiscal Period	Total Number of Shares including Non-Qualified	Average Price Paid per Share	Total number of Shares Purchased as Part of Publicly Announced Plans or Programs (1)	Availability
April 2007	350	$17.68	350
May 2007	862	17.79	862
June 2007	1,786	16.78	1,786
Total	2,998	17.18	2,998	$244,378

(1) The Finance Committee of the Board of Directors reviews, on a quarterly basis, the authority granted as well as any repurchases under this program.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

Not applicable.

22

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Our Annual Meeting of Shareholders was held on May 15, 2007. The following individuals were elected as Directors of the Company at the Annual Meeting to serve for terms of three years expiring at the 2010 Annual Meeting of Shareholders or until their successors are elected and qualified. Shares voted in favor of these Directors and shares withheld were as follows:

Thomas J. Albani

Shares For	45,351,674
Shares Withheld	1,092,264

David T. Kollat

Shares For	45,413,048
Shares Withheld	1,030,890

William R. McLaughlin

Shares For	45,464,015
Shares Withheld	979,924

In addition to the Directors named above, the following Directors’ terms continued after the Annual Meeting and will expire at the Annual Meeting of Shareholders in the year indicated below:

Name	Term Expires
Christopher P. Kirchen	2008
Brenda J. Lauderback	2008
Michael A. Peel	2008
Jean-Michel Valette	2008
Christine M. Day	2009
Stephen L. Gulis, Jr.	2009
Ervin R. Shames	2009

Shareholders also approved the appointment of KPMG LLP, certified public accountants, as our independent auditors for the fiscal year ending December 29, 2007. Shares voted in favor and against this appointment were as follows:

Shares For	45,670,300
Shares Against	674,443

23

ITEM 5.   OTHER INFORMATION

Not applicable.

ITEM 6.   EXHIBITS

Exhibit Number	Description	Method of Filing
10.1	Amended and Restated Exclusive Supplier Agreement between Radisson Hotels International, Inc. and Select Comfort Corporation	Filed herewith
31.1	Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
31.2	Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
32.1	Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350	Filed herewith
32.2	Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350	Filed herewith

24

SIGNATURES

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

	SELECT COMFORT CORPORATION
	(Registrant)
Dated: August 8, 2007	By:	/s/   William R. McLaughlin
		William R. McLaughlin
		Chairman and Chief Executive Officer (principal executive officer)
	By:	/s/   James C. Raabe
		James C. Raabe
		Senior Vice President and Chief Financial Officer (principal financial and accounting officer)

25

EXHIBIT INDEX

Exhibit Number	Description	Method of Filing
10.1	Amended and Restated Exclusive Supplier Agreement between Radisson Hotels International, Inc. and Select Comfort Corporation	Filed herewith
31.1	Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
31.2	Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
32.1	Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350	Filed herewith
32.2	Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350	Filed herewith

26

EX-10.1

EXHIBIT 10.1
Final

AMENDED AND RESTATED

EXCLUSIVE SUPPLIER AGREEMENT

BETWEEN

RADISSON HOTELS INTERNATIONAL, INC.

&

SELECT COMFORT CORPORATION

Effective Date: June 28, 2007

ThisAmended and Restated Exclusive Supplier Agreement (the “Agreement”), dated June 28, 2007 amends and restates in its entirety that certain Exclusive Supplier Agreement dated May 21, 2004 (the “Effective Date”), by and between Select Comfort Corporation, a Minnesota corporation whose address for notice purposes is Attention: General Counsel, 6105 Trenton Lane North, Minneapolis, MN 55442 Fax No.: (763) 551-6888 (“Select Comfort”) and Radisson Hotels International, Inc., a Delaware corporation whose address for notice purposes is c/o Legal Department, 701 Carlson Parkway, Mail Stop 8256, Minneapolis, MN 55305 Fax No.: (763) 212-1080 (“Radisson”).

Recitals

A. Select Comfort is a developer, manufacturer and marketer of adjustable-firmness beds, selling a proprietary line of beds under the Sleep Number® brand that feature adjustable air chamber mattresses.

B. Radisson owns the Radisson Marks and the System, and owns, operates, or is a franchiser of the Hotels.

C. Radisson and Select Comfort entered into an Exclusive Supplier Agreement in May of 2004, as thereafter amended (“Original Agreement”).

D. In connection with the Original Agreement, Select Comfort designed and manufactured, and continues to manufacture, a Sleep Number bed exclusively for Radisson Hotels, which may be modified from time to time (the “Radisson Bed”).

E. Select Comfort has also developed, manufactured, offered for sale and sold a variety of other Sleep Number beds, which are distinct from the Radisson Bed, to other customers for use in the hotel and time share interval industry.

F. Radisson and Select Comfort desire to continue the relationship established by the Original Agreement and the parties now desire to amend and restate the Original Agreement in its entirety as set forth herein.

G. Terms used in this Agreement with initial capital letters shall have the meanings assigned to such terms in Section 15.26 hereof or the meanings otherwise assigned to such terms by this Agreement.

- 1 -

NOW THEREFORE, for good and adequate consideration, the receipt and sufficiency of which are hereby acknowledged and in consideration of the mutual obligations set forth below, the parties agree as follows:

ARTICLE 1 – TERM

1.1. Term of the Agreement

The term of this Agreement (the “Term”) shall commence on the Effective Date and continue until December 31, 2008, unless further extended as set forth below. Notwithstanding the foregoing, the provisions of Articles 7, 8, 12, 13, 14 and 15 hereof, and of Sections 4.1 and 4.2 hereof, shall survive the termination of this Agreement and will continue to govern the rights and obligations of the parties hereto indefinitely following the termination of this Agreement.

1.2 Extension of the Term to Coincide with the Term of the XXX Agreement

The Parties acknowledge that Select Comfort and XXX, have initiated discussions for the potential purchase and installation of beds in XXX hotels. In the event that Select Comfort and XXX elect to enter into an agreement for the purchase and installation of beds (“XXX Agreement”), then the Term of this Agreement shall be automatically extended to coincide with the term of the XXX Agreement, provided, however, that each calendar year of such extension shall be subject to achievement during the prior calendar year of minimum levels of net sales tracked to Radisson referrals, with such minimum level to be not less than XXX million in net sales during calendar year 2008 in order to extend the Term of this Agreement through the calendar year 2009, and such minimum level shall be adjusted each year thereafter as mutually agreed upon by the parties. In the event that the parties are unable to agree in writing upon an adjusted minimum level of referral sales at least sixty (60) days prior to the next calendar year for which an adjusted minimum level of referral sales is to be determined, then either party shall have the right to terminate this Agreement upon notice thereof to the other party to be effective as of the end of the last calendar year for which an agreed upon minimum level of referral sales has been determined and achieved. For example, in the event that the minimum level of referral sales has been achieved during 2008 in order to extend the Term through 2009, but the parties are unable to agree at least sixty (60) days prior to the end of 2008 upon a minimum level of referral sales to be achieved in 2009 in order to extend the Term through 2010, then either party shall have the right to terminate this Agreement effective as of the end of 2009. Radisson referrals shall be determined in accordance with Select Comfort’s then-current tracking mechanisms.

- 2 -

ARTICLE 2 - EXCLUSIVITY

2.1. Select Comfort Exclusivity

During the Term of this Agreement and as long as Select Comfort is not in material breach of this Agreement, Radisson agrees to (a) establish the installation of the Radisson Bed as a System Standard for all Hotels in the Radisson System and (b) to use its reasonable business efforts to enforce the installation of the Radisson Bed as a System Standard for Hotels in the Radisson System. The System Standard relating to the Radisson Bed as currently in effect is attached hereto as Exhibit 2.1 (“SNB Standard”). In the event that Radisson decides to revise the SNB Standard, Radisson agrees to give Select Comfort prior written notice of any such revision. In the event that Radisson decides to materially revise the SNB Standard, then the parties agree to discuss and renegotiate the terms of the exclusivity set forth in Section 2.2. In the event that the parties are unable to agree in writing upon revised terms of the exclusivity set forth in Section 2.2 within sixty (60) days following notice of any material revision of the SNB Standard, then Select Comfort shall have the right to terminate this Agreement upon notice thereof to Radisson to be effective as of the end of the last calendar year for which an agreed upon minimum level of referral sales as contemplated by Section 1.2 hereof has been determined and achieved. In the event Select Comfort fails to give notice of termination within the sixty (60) day period set forth above, then the Agreement will continue for the remainder of the Term.

Radisson’s reasonable business efforts to enforce the SNB Standard shall include, at a minimum, the following activities undertaken in good faith and designed to achieve enforcement of the installation of the Radisson Bed as a System Standard:

• Radisson will promote the Radisson Bed at all Annual Business Conferences for the Hotels in the Radisson System and in all similar meetings or similar opportunities with franchisees in the Radisson System;

• Radisson will strongly encourage adoption of the Radisson Bed by the Radisson Franchise Advisory Council, which advises the Radisson System regarding the adoption of new System Standards; and

• Radisson will establish a reasonable and enforceable timeline for new Hotels in the Radisson System to install the Radisson Bed and comply with the SNB Standard.

Select Comfort acknowledges that Radisson, as a franchisor of the System, does not directly control the purchasing activities of franchisee hotels and is subject to various Legal Requirements regarding substantial changes to the System. Accordingly, for purposes of this Agreement, Radisson does not guarantee the adoption by the Hotels of any specific percentage of Radisson Beds by any precise date. However, Radisson does represent and warrant that it will carry out the above-referenced plan and that it is authorized under applicable franchise agreements to establish the Radisson Bed as a System Standard for all hotel rooms in the Radisson System.

- 3 -

2.2. Radisson Exclusive National Partnership

During the periods described below and as long as Radisson is not in material breach of this Agreement, subject to the exceptions set forth below, Radisson will have the exclusive national partnership within the hotel and interval/timeshare industry as follows:

A.           Sales and Marketing in Hotel and Interval/Timeshare Industry.       Except as specifically provided in this Agreement, Select Comfort shall not sell any beds (including the Radisson Bed) to any Person for use in the hotel or interval/timeshare industry, for the Term of this Agreement (the “Exclusive National Partnership”). Notwithstanding the foregoing, Select Comfort may:

(i) Continue to service and sell bed products and services (specifically excluding the Radisson Bed) to Persons for use in the hotel or interval/timeshare industry to which Select Comfort has previously sold beds and who are identified on Exhibit 2.2A, attached hereto and made a part hereof;

(ii) Continue to service and sell bed products and services (except that any such sales shall specifically exclude the Radisson Bed) to Persons for use in any hotel or interval/timeshare property that was previously part of the Radisson System and which acquired beds pursuant to this Agreement or the Original Agreement while part of the Radisson System, regardless of the affiliation of any such hotel or interval/timeshare property with any other brand of hotel or interval/timeshare property, provided that during the Term of this Agreement Select Comfort shall not sell any additional beds to any such Person if and so long as any such Person becomes part of a chain of more than XXX separate properties operating under a common hotel or interval/timeshare name, and provided further that Select Comfort shall be permitted at any time to service any beds, including Radisson Beds, previously sold to any such Person pursuant to this Agreement;

(iii) Service and sell bed products and services (specifically excluding the Radisson Bed) to other independent hotel or interval/timeshare industry customers, so long as any such independent hotel or interval/timeshare industry customer as of the time of the initial sale does not consist of more than XXX separate properties operating under a common hotel or interval/timeshare name; and/or

(iv) Service and sell bed products and services (specifically excluding the Radisson Bed) to the Specified Interval/Timeshare Customers.

Notwithstanding the foregoing, the parties agree and acknowledge that Select Comfort may only sell the Radisson Bed to Persons currently operating a Hotel within the Radisson System and may not otherwise sell the Radisson Bed to any other Person for use in the hotel or interval/timeshare industry outside of the Radisson System for the Term of this Agreement.

- 4 -

B.          Sales and Marketing to Exceptional Category of Hotel and Interval/Timeshare Industry.           At any time during the Term of this Agreement, Carlson properties and/or cruise ships that compete in the Exceptional Category of the hotel or interval/timeshare industry may purchase and install Radisson Beds under the terms of this Agreement. On or after July 1, 2007, Select Comfort may service and sell bed products and services (specifically excluding the Radisson Bed), on a non-exclusive basis, to any Person in the Exceptional Category of the hotel or interval/timeshare industry. Select Comfort will offer to Carlson properties and/or cruise ships, on a non-exclusive basis, a similar program as Select Comfort may offer to other customers in the Exceptional Category, provided that the Carlson opportunity represents comparable volume potential for Select Comfort versus an alternative brand.

C.          Select Comfort’s Rights to Market to Permitted Properties.  Select Comfort shall be permitted to undertake any sales or marketing activities that it may determine to be reasonably necessary or appropriate in order to facilitate the sale of beds and related services (specifically excluding the Radisson Bed) to hotel or interval/timeshare industry customers to which it is permitted to sell any bed products and services consistent with the terms of Section 2.2A or Section 2.2B above (any such hotel or interval/timeshare property is referred to herein as a “Permitted Property”). Select Comfort will provide Radisson with prior notice of its planned sales or marketing activities in a reasonable level of detail (including without limitation planned participation in trade shows, planned advertising placements, planned product offerings to the hospitality industry and similar significant initiatives) and an opportunity for discussion of such planned sales and marketing activities during the periodic review meetings contemplated by Section 3.2.

D.          Permitted Properties’ Rights to Market the Sleep Number Bed.        Any Permitted Property that is currently or hereafter becomes a registered owner of Sleep Number beds may engage in any local advertising or in-hotel educational or promotional programs or advertising that it may determine in its sole discretion to be reasonably necessary or appropriate so long as such advertising does not infringe the intellectual property rights of Radisson. Radisson will be solely responsible for enforcement of its intellectual property rights. Select Comfort shall not have any responsibility with respect to the enforcement of Radisson’s intellectual property rights relative to any Permitted Property or otherwise.

Select Comfort shall not fund any local advertising with respect to or in conjunction with any Permitted Property located in any Designated Market Area (“DMA”) where there is a Hotel in the Radisson System. In addition, Select Comfort shall not fund any local advertising with respect to or in conjunction with any Permitted Property located in any DMA as to which Radisson has notified Select Comfort that there will be a Hotel in the Radisson System within such DMA. Notwithstanding the foregoing, however, Select Comfort shall not be restricted at any time from funding any local advertising with respect to or in conjunction with any Permitted Property located in the XXX.

Radisson understands and agrees that Select Comfort has no right or authority to impose limits on advertising or promotional practices of any Permitted Property.

- 5 -

Select Comfort will review with Radisson on at least a bi-annual basis, as a part of the periodic review meetings contemplated by Section 3.2 below, the status and direction of Select Comfort’s hospitality and interval/timeshare business.

ARTICLE 3 – MARKETING OBLIGATIONS AND PERIODIC REVIEW MEETINGS

3.1. Marketing Obligations

A. Commitment to Sustained Marketing Support.     Both parties are committed to providing sustained Marketing support for the promotion of the Bed Mark (as hereinafter defined) through the Term of this Agreement. The parties agree to continue to meet semi-monthly for planning and execution of Marketing activities to be funded by the Marketing Fund as defined below.

B. Marketing Fund.    To support the Marketing activities contemplated hereby, the parties will continue the Select Comfort/Radisson joint marketing fund (the “Marketing Fund”) with Select Comfort contributing to the Marketing Fund each year an amount equal to (a) XXX per Radisson Bed sold to a Hotel hereunder during such year and (b) XXX of net sales tracked to Radisson referrals during such year determined in accordance with Select Comfort’s current tracking mechanisms. The Marketing Fund shall be devoted to promoting the co-owned brand mark and other mutually beneficial Marketing activities. Spending from the Marketing Fund shall be controlled XXX by Select Comfort and XXX by Radisson, but all spending must be pre-approved by both parties at the semi-monthly planning and execution meetings.

C. Specific Marketing and Promotional Agreements.    During the Term of this Agreement, the parties agree that:

1.         Radisson will be the only hospitality partner named or identified in any permanent in-store signage at Select Comfort company-owned retail locations;

2.         Radisson will be the only hospitality partner named or identified in Select Comfort’s national advertising, including infomercials, national print advertising, national television tags and other national advertising vehicles;

3.         Radisson will have priority placement and identification on Select Comfort’s web site when listing hotel locations;

4.         Select Comfort and Radisson will jointly develop and execute in-room and in-hotel materials designed to educate Radisson guests on the use of the Radisson Bed at or similar to the parties’ prior commitment to this initiative;

5.         Select Comfort and Radisson will jointly develop and execute Select Comfort product offerings for Radisson guests via key card holders and other agreed upon vehicles.

- 6 -

The parties agree that any proprietary concepts or materials developed by Radisson, and any trademarks (registered or unregistered) that are owned or developed by Radisson, shall be for the exclusive use of Radisson Hotels in the hotel and/or interval timeshare industry and in no event will Select Comfort provide, authorize or permit any Permitted Property to use any such proprietary concepts or materials developed by Radisson, or any trademarks owned or developed by Radisson. Notwithstanding the foregoing, Radisson shall not have any claim of exclusivity within the hotel and/or interval timeshare industry with respect to concepts or materials as to which Select Comfort can demonstrate, through documentary evidence within its files, prior conceptualization or research or development activities.

3.2. Periodic Review Meetings

In an effort to keep both parties fully informed as to the status of any all aspects of this Agreement, and periodically throughout the year, representatives of Radisson and Select Comfort will meet and review the status of the program contemplated by this Agreement. Each such meeting will take Radisson’s and Select Comfort’s mutual objectives into account, and will be aimed at improving and re-evaluating the program if the parties deem it necessary. Additionally, the meetings will specifically address any warranty reports delivered pursuant to Section 6.2 hereof and the parties will endeavor to reasonably and mutually resolve any warranty issues in a fair and equitable manner. Quarterly review meetings will take place every quarter on or about January 1, April 1, July 1 and October 1 of each year through the term of this Agreement.

ARTICLE 4 – PRODUCT FEATURES, JOINT TRADEMARK RIGHTS AND OTHER INTELLECTUAL PROPERTY RIGHTS

4.1. Joint Trademark Rights

The Radisson Beds manufactured, sold and marketed pursuant to this Agreement will be manufactured, marketed and sold under the trade name and the logo and design specified on Exhibit 4.1 attached hereto and made a part hereof (the “Bed Marks”). The Bed Marks will be jointly owned by the parties hereto and will be used solely and exclusively for the purposes specified in this Agreement. The parties agree to cooperate in connection with any registration of the Bed Marks in order to fully recognize and protect the joint ownership of the Bed Marks contemplated by this Agreement. Any use of the Bed Mark, other than as expressly permitted under this Agreement, shall be an infringement of the non-user’s intellectual property rights. Notwithstanding the foregoing, each of the parties hereto will have the right to use any aspect of the Bed Marks that is currently used as, or as a part of, a trademark, trade name, service mark or similar mark owned and/or used by such party.

Nothing in this Agreement shall ever be construed as giving Select Comfort any right, title or interest in the Radisson Marks, or as giving Radisson any right, title or interest in the Select Comfort Marks, except to the extent that any such marks are incorporated in

- 7 -

the Bed Marks, which may be used in accordance with this Agreement, and except for such use as may be consistent with the prior written approval of the owner of the respective marks for purposes of the Marketing efforts contemplated by this Agreement. Upon termination or expiration of this Agreement, all use of the Bed Marks shall cease and any other permitted use of the Radisson Marks by Select Comfort or the Select Comfort Marks by Radisson shall cease.

4.2 Other Intellectual Property Rights

Except for the Bed Marks to be jointly owned and limited to use in accordance with the terms of this Agreement and except for the Radisson Marks, which shall remain the sole and exclusive property of Radisson, all other intellectual property rights of any kind or description related to the Radisson Beds or any other beds marketed or sold by Select Comfort, or their manufacture, marketing and sale, including without limitation any patents, patent applications, patentable features, designs or processes, trade secrets, trademarks, trade names, service marks or similar intellectual property rights of any kind or description shall remain the sole and exclusive property of Select Comfort.

4.3 Innovation and Development

From time to time, it is anticipated that Select Comfort will develop new technologies, product features, or enhancements (collectively, “Enhancements”). Select Comfort will keep Radisson informed of Enhancements during periodic meetings and will make any such Enhancement available to Radisson before or at the same time that any such Enhancement is made available in any other bed offered by Select Comfort to any other customer for use in the hotel and interval/timeshare industry and at pricing to be determined by Select Comfort.

ARTICLE 5 – PRODUCT PRICING AND PRODUCT ORDERS

5.1. Product Pricing

The pricing terms for the Radisson Bed are set forth in Exhibit 5.1 (“Radisson Pricing”) attached hereto and made a part hereof. The Radisson Pricing will be adjusted by Select Comfort to reflect any Enhancements accepted by Radisson at the pricing to be determined by Select Comfort in accordance with Section 4.3. Notwithstanding the foregoing, Select Comfort will offer to sell to Radisson any product sold by Select Comfort to any other customer for use in the hotel and interval/timeshare industry at the lowest price for which such product is offered by Select Comfort to such other customers.

5.2. Product Orders

All orders for Radisson Beds will be placed by the Hotels through Guest Supply, Inc. If Guest Supply, Inc. fails to adequately coordinate such orders on behalf of the Hotels, Radisson may, in its sole discretion: (1) identify a suitable replacement (which shall be

- 8 -

subject to Select Comfort’s reasonable approval); or (2) assume responsibility for the Hotels’ orders. Select Comfort will provide reasonable assistance to Guest Supply in the development of order guidelines to be used by the Hotels when placing orders. All orders shall allow for a minimum of sixty (60) days from the date of order to the date of delivery. Select Comfort also agrees that orders of Radisson Beds for the Hotels under this program will be processed on a priority basis versus any other bed orders that Select Comfort may receive from the Hotel or Interval/Timeshare Industry.

5.3. Moratorium on Delivery and Installation

Radisson acknowledges and agrees that Select Comfort shall not be obligated to deliver or install any Radisson Beds between November 15 of each year and January 1 of the following year without its prior written consent.

ARTICLE 6 – INSTALLATION, TRAINING, CUSTOMER SERVICE AND WARRANTY

6.1. Installation and Training

Select Comfort will provide installation services, and training to Hotel staff on installation and maintenance, in connection with the first twenty-four (24) Radisson Beds installed at each Hotel for the “Total” price set forth on Exhibit 5.1. After installation of the first 24 Radisson Beds at a Hotel, the Hotel will have the option to purchase installation services for the price set forth on Exhibit 5.1 or to install the Radisson Beds at the Hotel’s expense.

6.2 Customer Service and Warranty

Select Comfort will establish a toll-free customer service line for the benefit of both Hotel employees and guests. Select Comfort agrees to provide Radisson a monthly report summarizing calls received from Hotels, in order for the parties to proactively address common issues as they arise. Each Radisson Bed purchased by the Hotels during the Term of this Agreement will be covered by the warranty terms set forth on Exhibit 6.2 attached hereto and made a part hereof. Select Comfort also agrees to provide Radisson a monthly report summarizing all warranty-related “activity” by the Hotels, including specific Radisson Bed components replaced or repaired, and whether or not such activity was covered under the applicable warranty. Upon a sale of a Hotel with the Radisson Beds, or upon a Hotel leaving the Radisson System for any reason, the warranty will continue to be applicable for the remaining term of the warranty so long as the Radisson Beds remain in the Hotel.

- 9 -

ARTICLE 7 – PRODUCT LIABILITY AND LEGAL REQUIREMENTS

7.1. Product Liability

Select Comfort will indemnify, defend and hold harmless Radisson and its Affiliates against and from any claims for bodily injury or property damage caused by any defect in the design, materials or manufacturing of the Radisson Beds, or otherwise caused by any unreasonable risk or hazard presented by the Radisson Beds as used in the ordinary course and for the intended purposes (“Product Liability Claims”). While Product Liability Claims will ultimately not include any injury or damage caused by any abuse or misuse of the Radisson Beds not caused by Select Comfort or any injury or damage caused by the negligence or willful misconduct of Radisson, its Affiliates, the Hotels or the guests of the Hotels, Select Comfort upon notice by Radisson will be the “Indemnifying Party” as defined in Section 12.3 herein for any Product Liability Claim related to the Radisson Beds, unless it is reasonably apparent on the face of such claim that it is not a Product Liability Claim, or if not reasonably apparent, until such time as a court of competent jurisdiction determines that such a claim is not a Product Liability Claim.

7.2. Select Comfort’s Legal Responsibility

Select Comfort represents and warrants that each of the Radisson Beds sold and delivered hereunder, at the time of its sale and delivery, will be in full compliance with all Legal Requirements applicable to the sale and delivery of the Radisson Beds for the purposes intended by this Agreement, including flammability standards applicable to mattresses for commercial use in the country, state or province in which its Radisson Beds are installed. Select Comfort assumes no responsibility whatsoever for any Legal Requirements applicable to the ownership or operation of the hotel properties, including without limitation any applicable zoning, fire code or similar requirements of the jurisdictions in which the respective hotels are owned and operated.

7.3. Radisson’s and the Hotel’s Legal Responsibility

The Hotels will be solely responsible for the operation of their respective hotel properties in full compliance with all Legal Requirements applicable to the ownership and operation of hotel properties, including all applicable zoning, fire code and other similar requirements of the jurisdictions in which the respective hotels are owned and operated. Radisson assumes no duty to review, inspect or approve the Radisson Beds with respect to compliance with any Legal Requirements. Radisson’s inspections, reviews or approvals are solely for the purpose of determining compliance with its design standards and with respect to operational considerations, and presentation of the Radisson Marks. Radisson’s approval is not an assurance, representation or warranty: (i) that the Radisson Bed has been manufactured in accordance with Legal Requirements; or (ii) that all or any part of the Radisson Bed is safe, suitable, fit or proper for its intended use or purpose. This applies even though Radisson may have commented on any of these matters in connection with any inspections, reviews or approvals. Radisson is not responsible for compliance with, and

- 10 -

Select Comfort must not rely on any information Radisson provides with respect to the applicability of or compliance with, any Legal Requirements regarding the manufacturing, selling, installation or operation of the Radisson Beds.

ARTICLE 8 – OWNERSHIP OF CUSTOMER INFORMATION/DATABASES

8.1. Ownership of Customer Information

Each party acknowledges that the other’s proprietary databases are valuable assets of such other party’s enterprise. As such, nothing in this Agreement will affect the ownership of information on customers that already exists in each party’s databases currently, or which may be added in the future through other sources.

ARTICLE 9 – FORCE MAJEURE

9.1. Definition of Force Majeure

“Force Majeure” means any event or condition, not existing as of the date of signature of this Agreement, not reasonably foreseeable as of such date and not reasonably within the control of either party, which reasonably prevents in whole or in material part the performance by one of the parties of its obligations hereunder or which renders the performance of such obligations so difficult or costly as to make such performance commercially unreasonable. Without limiting the foregoing, the following will constitute events or conditions of Force Majeure: acts of State or governmental action (including specifically the failure of any government to grant any license, authorization or approval required for performance of this Agreement), riots, war, strikes, lockouts, prolonged shortage of energy supplies or utilities, epidemics, fire, flood, hurricane, typhoon, earthquake and explosion.

9.2. Notice

Upon giving notice to the other party, a party affected by an event of Force Majeure shall be released without any liability on its part from the performance of its obligations under this Agreement, except for the obligation to pay any amounts due and owing hereunder, but only to the extent and only for the period that its performance of such obligations is prevented by the event of Force Majeure. Such notice shall include a description of the nature of the event of Force Majeure, and its cause and possible consequences. The party claiming Force Majeure shall promptly notify the other party of the termination of such event. During the period the performance of one of the parties of its obligations under this Agreement has been suspended by reason of an event of Force Majeure, the other party may likewise suspend performance of all or part of its obligations, except for the obligation to pay amounts due and owing, to the extent commercially reasonable.

- 11 -

9.3. Confirmation

The party invoking Force Majeure shall provide to the other party with written confirmation of the existence of the circumstances constituting Force Majeure. Such evidence may consist of a statement or certificate of an appropriate governmental department or agency where available, or a statement describing in detail the facts claimed to constitute Force Majeure.

9.4. Suspension of Performance

If an event of Force Majeure occurring at any time after the execution of this Agreement prevents performance hereunder by either party and continues for more than six (6) consecutive months, either party shall have the right to terminate this agreement on written notice to the other without any liability hereunder, except the obligation to make payments due to such date.

ARTICLE 10 – TERMINATION

10.1. Termination

This Agreement may be terminated prior to its ending date for the following:

A.        By either party effective immediately upon notice to the other party in the event of the filing of a voluntary or involuntary bankruptcy petition by such other party, an assignment for the benefit of creditors by such other party, or the appointment of a receiver for such other party; or

B.        By either party, if the other party is in material breach of its obligations contained in this Agreement, and such breach is not cured to the reasonable satisfaction of the non-breaching party within a period of thirty (30) days after written notice setting out the breach in reasonable detail. If the material breach is such that it cannot reasonably be cured within thirty (30) days, then the non-breaching party may not terminate this Agreement as long as the party in breach begins the cure within thirty (30) days and proceeds diligently and in good faith to accomplish the cure. If such breach is not cured to the reasonable satisfaction of the non-breaching party within ninety (90) days after the initial written notice, the Agreement may be terminated.

ARTICLE 11 – INSURANCE

11.1. Policy Coverage and Amount

At no cost to Radisson, during the term of this Agreement, Select Comfort will maintain commercial general liability insurance (with products and completed operations coverage) on an occurrence basis with combined single-limit coverage for personal and bodily injury

- 12 -

and property damage of at least ten million dollars ($10,000,000) per occurrence. The policies must also provide for the following:

A.       “Radisson Hotels International, Inc. and its subsidiaries and its Affiliates” must be named as additional insureds; and

B.        Radisson must receive 30 days’ notice of any cancellation, non-renewal and material changes in the policy.

11.2. Qualifications and Evidence

Select Comfort will obtain all policies with companies having a Best Rating of A-V or better, or otherwise reasonably acceptable to Radisson. Select Comfort will provide Radisson with certificates of insurance acceptable to Radisson evidencing that the policies are in effect within 30 days of the date of this Agreement, and at least 10 days prior to the expiration of any policy.

11.3. Waiver of Subrogation and Release

Wherever Radisson cannot be named as an additional insured under any insurance coverage required pursuant to this Agreement, Select Comfort will require the insurance company to include in the policy that the insurance company has no right of subrogation against Radisson or their respective Affiliates.

The required policies are for Select Comfort’s, Radisson’s and its Affiliates’ benefit and protection. Radisson makes no warranty or representation that the policies are adequate for Select Comfort’s needs whatsoever. The insurance coverage required to be obtained by Select Comfort is the primary coverage for Select Comfort’s obligation to maintain the required insurance and is not limited in any way because of any insurance that Radisson or its Affiliates carries. Neither Select Comfort nor any of its insurance providers will deny coverage of any losses, whether by Select Comfort, Radisson or its Affiliates because of any insurance that Radisson or its Affiliates carry, and Select Comfort has no right to any additional coverage obtained by Radisson or its Affiliates.

ARTICLE 12 - INDEMNIFICATION; ATTORNEYS’ FEES

12.1. Indemnification by Select Comfort

Select Comfort agrees to indemnify and hold harmless Radisson and its Affiliates against and from, all Payments due to any Claim, brought by or on behalf of any Third Party or otherwise, with respect to:

A. Any breach by Select Comfort of its obligations under this Agreement; or

- 13 -

B. Any misrepresentation or breach of warranty by Select Comfort under this Agreement; or

C. Any Product Liability Claim.

Select Comfort’s obligations under this Section 12.1 do not apply to any Claim that is directly caused by Radisson’s or any of its Affiliates negligence or willful misconduct. For purposes of this Article, Radisson and its Affiliates includes their respective officers, directors, shareholders, managers, members, governors, employees, agents, Third Party contractors, successors and assigns.

12.2. Indemnification by Radisson

Radisson agrees to indemnify and hold harmless Select Comfort and its Affiliates against and from, all Payments due to any Claim, brought by or on behalf of any Third Party or other wise, with respect to:

A. Any breach by Radisson of its obligations under this Agreement; or

B. Any misrepresentation or breach of warranty by Radisson under this Agreement; or

C. Any claim asserted by any owner or operator of a Hotel in the Radisson System under any franchise or similar agreement between Radisson and any other party or under any applicable franchise, business opportunity or similar law or provision.

Radisson’s obligations under this Section 12.2 do not apply to any Claim that is directly caused by Select Comfort’s or any of its Affiliates negligence or willful misconduct. For purposes of this Article, Select Comfort and its Affiliates includes their respective officers, directors, shareholders, managers, members, governors, employees, agents, Third Party contractors, successors and assigns.

12.3. Notice and Opportunity to Defend

In the event that any party shall become entitled to indemnification under this Agreement, whether due to the assertion of a claim by any third party or otherwise, the party entitled to indemnification hereunder (the “Indemnified Party”) shall promptly notify the party responsible to provide indemnification hereunder (the “Indemnifying Party”) specifying in reasonable detail the facts underlying the claim for indemnification. The Indemnifying Party shall not be relieved of its responsibility to provide indemnification under this Agreement due to any failure of the Indemnified Party to provide timely notice of a claim for indemnification hereunder unless the delay in providing such notice shall have materially compromised the Indemnifying Party’s ability to fully and adequately defend the claim.

Within ten (10) business days following the receipt of a claim for indemnification from any Indemnified Party hereunder, the Indemnifying Party shall notify the Indemnified Party as to whether the Indemnifying Party will assume the defense of any third party claim underlying

- 14 -

the claim for indemnification hereunder. In the event that the Indemnifying Party assumes the defense of the claim, the Indemnifying Party shall be entitled to fully control the defense of the claim and to settle, negotiate or compromise the claim, so long as any such settlement or compromise does not result in any injunctive or similar non-monetary judgment against the Indemnified Party that has any ongoing effect and so long as the Indemnified Party is fully indemnified against any monetary judgment arising from such claim. Upon notice thereof to the Indemnifying Party, the Indemnified Party shall be entitled, at the expense of the Indemnified Party, to monitor and participate in the defense of the indemnified claim, subject to the control of the Indemnifying Party.

12.4. Survival

The indemnification and other obligations contained in this Article will continue in full force and effect subsequent to and notwithstanding the expiration or termination of this Agreement.

ARTICLE 13 – INJUNCTIVE RELIEF

13.1. Availability of Injunctive Relief

A breach of this Agreement by either Select Comfort or Radisson relating to any of the matters set out below may cause irreparable harm to Radisson or Select Comfort, as the case may be, for which monetary damages may be an inadequate remedy. Therefore, in such event, in addition to any other remedies Radisson or Select Comfort may have under this Agreement or at law or in equity, Radisson or Select Comfort may seek and obtain the entry of temporary or permanent injunctions and orders of specific performance enforcing the provisions of this Agreement with respect to: (i) the Radisson Marks, the Select Comfort Marks or the Bed Mark; (ii) the System; (iii) the obligations of Select Comfort or Radisson, as the case may be, upon termination or expiration of this Agreement; (iv) the unauthorized disclosure or threatened disclosure of proprietary or confidential information of either party; or (vi) any act or omission by either party or either party’s employees that: (a) constitutes a violation of any Legal Requirement; or (b) may impair the good will associated with the Radisson Marks, the Select Comfort Marks, the Bed Marks or the business enterprise of either of the parties hereto.

13.2. No Necessity for Posting of Bond

Unless required by the court granting any such injunctive relief, neither party shall be required to post a bond or other security with respect to obtaining injunctive relief under this Agreement.

- 15 -

ARTICLE 14 – CONFIDENTIALITY

14.1. Confidentiality

The parties agree that (i) the specific terms of this Agreement, (ii) all information as to source, quantity, and price of goods and services, and (iii) all information regarding either party’s products, business, customers, or methods of operation learned during the term of this Agreement or in anticipation of entering into this Agreement shall be maintained in confidence and not be released to any third party for any reason whatsoever other than: (i) pursuant to a validly issued subpoena from a court or governmental authority having jurisdiction over the party or pursuant to a discovery request made under the Federal Rules of Civil or Criminal Procedure or similar state court rules and to which the party is required to respond or as may be required to implement the terms of this Agreement; or (ii) as may be required by applicable rules of the Securities and Exchange Commission (the “SEC”) as reasonably determined by counsel to any party hereto with a class of securities registered under the Securities Exchange Act of 1934, subject, in each case, to reasonable notification to the other party prior to release of such information, in order to allow the other party an opportunity to oppose such court action or governmental authority or to participate in the process to seek confidential treatment of any information otherwise required to be filed under applicable SEC rules. All confidential and proprietary information, which the parties have obtained from each other, shall be returned upon the expiration or earlier termination of this Agreement. The provisions of this paragraph shall survive the expiration or earlier termination of this Agreement.

ARTICLE 15 – MISCELLANEOUS

15.1. Severability

All provisions of this Agreement are severable. If pursuant to the decision of any court having jurisdiction, any provisions, in whole or in part are not enforceable, the remainder of this Agreement will continue to be in full force and effect, and the applicable parts of the affected provisions are superceded and modified by such applicable law. If either party can establish that such modifications would constitute a material deviation from the general purpose and intent of this Agreement, either party may terminate this Agreement on not less than thirty (30) days’ notice. A valid termination pursuant to this Section is without liability by either party to the other party except for any causes of action a party has against the other for matters occurring up to and through the date of such termination.

15.2. Waiver

The failure, refusal or neglect of one party to require the other party to comply with any provision of this Agreement, in whole or in part, does not constitute a waiver by the former of its right to require full compliance with the same or different provisions in the future, regardless of the acceptance of payments or performance by the party seeking compliance.

- 16 -

15.3. Governing Law

The interpretation, validity and enforcement of this Agreement and the relationship between the parties is subject to and governed by the laws (statutory or otherwise) of the State of Minnesota without regard to its conflicts of laws provisions.

15.4. Venue and Jurisdiction

All Claims whatsoever, arising out of or related to this Agreement in any way, must be commenced, filed and litigated before a court of competent jurisdiction located in Hennepin County, Minnesota. Both parties submit to personal jurisdiction of the State and Federal courts in such county for such purpose.

15.5. Jury Waiver

Each party knowingly and voluntarily waives the right to a trial by jury in any litigation arising under, as a result of or in connection with this Agreement or any franchise or business opportunity laws.

15.6. Claims

Except for those Claims that are brought pursuant to the indemnification or insurance coverage required under Articles 10 and 11 hereof, upon expiration or termination of this Agreement, neither party will commence any cause of action related to or arising out of this Agreement, unless commenced within one year following the effective date of expiration or termination.

15.7. Entire Agreement

This Agreement, including the exhibits attached hereto and made a part hereof and any amendments hereto that are validly executed and delivered by each of the parties hereto, collectively constitutes the entire agreement between the parties with respect to the subject matter hereof, and this Agreement supersedes and terminates all prior agreements or understandings, either oral or in writing, between the parties hereto. Any representations, warranties, inducements, promises, understandings or agreements between the parties, which are not in writing and signed by the parties, are void and not enforceable.

15.8. Modifications

Oral modifications to this Agreement, including those by way of release, amendment, waiver or otherwise, are not valid or enforceable. The parties may modify this Agreement only by a written agreement signed by a duly authorized representative of each party.

- 17 -

15.9. Headings

The headings of the Articles and Sections of this Agreement are for convenience of reference only and do not define, limit or construe their contents.

15.10. Notices

Any notices required or permitted under this Agreement must be in writing and must be delivered either personally, by fax, by Certified United States Mail or by reliable expedited delivery companies including Federal Express, Airborne Express and DHL. Notices by fax are deemed delivered and received upon transmission with a confirmation of such transmission. Notices by Certified United States Mail are deemed delivered and received on the second business day immediately following the day on which the notice was given to the United States Postal Service. Notices by expedited delivery are deemed delivered and received on the business day immediately following the day on which the notice was given to the expedited delivery company. Information for notices is as indicated in the first paragraph of this Agreement.

15.11. Execution/Counterparts

The parties may sign more than one identical copy of this Agreement, each of which is an original. When parties sign different, but identical copies of this Agreement, the copies constitute one Agreement.

15.12. Attorneys’ Fees

All reasonable and necessary costs and expenses, including attorneys’ fees, incurred by Radisson or Select Comfort in enforcing any provisions of this Agreement, or in asserting or defending against any Claims brought by one party against the other party under this Agreement, whether through injunctive relief or otherwise, will be paid by the non-prevailing party to the prevailing party in such action.

15.13. Actions by Others

Where either party to this Agreement is prohibited by this Agreement from directly taking any action, or where action by either party to this Agreement would constitute a default, such party agrees that it will not encourage, authorize or permit any other Person, directly or indirectly or under its direct or indirect control to take such action.

15.14. Performance through Others

Either of the parties hereto may perform any or all of its obligations under this Agreement directly or through one or more of its wholly owned subsidiaries, provided however, that the assignment to or performance of any such obligations by any such subsidiary corporation will not relieve any party hereto of any of its primary responsibility under this Agreement. If any such obligations are performed by any such

- 18 -

subsidiary corporation, the right to such performance will still run directly to the other party to this Agreement.

15.15. Survival

The provisions of Articles 7, 8, 12, 13, 14 and 15 hereof, and of Sections 4.1 and 4.2 hereof, shall survive the termination of this Agreement and will continue to govern the rights and obligations of the parties hereto indefinitely following the termination of this Agreement.

15.16. Compliance with Laws

Notwithstanding any provision to the contrary, each party’s performance is subject to, and each party will comply with, all Legal Requirements, including those of all countries in which either party conducts business that prohibits unfair, fraudulent or corrupt business practices such as those that are comparable to the United States Foreign Corrupt Practices Act and the International Money Laundering Abatement and Anti-Terrorist Financing Act, otherwise known as the Patriot Act.

15.17. Time of the Essence

Time is of the essence in the performance of every provision of this Agreement.

15.18. Third Party Beneficiaries

This Agreement is for the sole benefit of the parties and is not for the benefit of any Third Parties.

15.19. Cumulative Rights

The remedies provided for in this Agreement are not exclusive. Either party is free to pursue such other remedies as may be available at law or in equity.

15.20. Use of Definitions/Terms

The use of another tense of the defined term, or its use as a noun, adjective or adverb, or otherwise, means the same as the defined term, modified by the context of the sentence in which it is used. All personal pronouns, whether used in the masculine, feminine or neuter gender, include all genders; the singular includes the plural and the plural includes the singular.

15.21. Copies

Photocopies and facsimiles of a signed original of this Agreement are fully binding and effective as originals.

- 19 -

15.22. Internal Policies

Each party’s internal policies and procedures, whether or not communicated to the other party, are intended for such first party’s use only, are not binding on such first party with respect to its relationship with the other party, and are not a part of or an amendment to this Agreement.

15.23. Exhibits

All exhibits attached to this Agreement are a part of it and fully incorporated into it.

15.24. Interpretation

Neither this Agreement nor any of its provisions is to be construed against or interpreted to the disadvantage of either party because a party drafted this Agreement or the provision.

15.25. Independent Contractor

Radisson and Select Comfort are each independent contractors. This Agreement does not create any relationship of joint venturers, partners, agents, servants, employees, fiduciaries or representatives of each other.

15.26. Definitions

The following definitions shall be used for purposes of this Agreement.

Affiliate. Any Person Controlled by, Controlling or under common Control with either party.

Claim. Any claim, challenge, demand, cause of action, lawsuit, dispute, controversy, investigation or administrative proceeding.

Control. The right or ability, directly or indirectly, to cause a Person to act in accordance with another Person’s instructions.

Exceptional Category. XXX

Governmental Authority. Any governmental entity, and any political or other subdivision of any governmental entity, and any agency, department, commission, board, bureau, court or instrumentality of any of them, which, at any time, has competent jurisdiction over aspect of this Agreement.

Hotel. A Radisson hotel operated in the United States, Canada or the Caribbean using the System pursuant to a written agreement with Radisson.

- 20 -

Legal Requirements. Any law, code, ordinance, order, decision, rule or regulation of any Governmental Authority.

Marketing. All activities related to marketing, sales, advertising, promotion and public relations with respect to the Hotels, the System, and the Radisson Beds pursuant to this Agreement, as more specifically identified on Exhibit 3.1 attached hereto and made a part hereof.

Payments. All payments of money, including those with respect to fines, penalties, taxes, losses, damages, costs and expenses, such as reasonable attorney fees, investigation expenses, court costs, deposition expenses, and travel and living expenses.

Person. Any natural person or legal entity, including trustees, representatives, administrators, heirs, executors, partnerships, corporations, limited liability companies, trusts, unincorporated organizations and governmental agencies, departments and branches.

Purchase.  Transmission of the property rights to the Radisson Beds from Select Comfort to the Hotels via sale, discount, negotiation, pledge, lien, issue or re-issue, or any other voluntary transaction creating an interest in the Radisson Beds, including contracts to purchase. In any event, the term “purchase” shall mean that the purchaser shall have fully paid for and taken delivery of the purchased goods.

Radisson Marks. The name Radisson® and the signature logo Radisson( with the brush stroke used in conformance with Radisson’s business system, and all other trademarks, service marks, trade names, copyrights, insignia, emblems, slogans, logos, commercial symbols, signs, trade dress (including interior and exterior building designs and specifications and the motif, decor, and color combinations), and all other visual identification, by which the Hotels are identified and publicized, including the good will associated with all of them.

Select Comfort Marks.  The trademarks Select Comfort® and Sleep Number® and all other trademarks, service marks, trade names, copyrights, insignia, emblems, slogans, logos, commercial symbols, signs, trade dress by which Select Comfort beds are identified and publicized, including the good will associated with all of them.

Specified Interval/Timeshare Customers. XXX

System. The Radisson Marks, and other distinctive elements developed and owned by, or made available by its Affiliates to, Radisson, and the systems made available to Radisson for the construction and operation of the Hotels and other hotels authorized to use the System, including all good will.

System Standard. Any element of the System that the Hotels are required to implement pursuant to the terms of any applicable franchise or similar agreement in place between Radisson and the Hotel owners and operators.

- 21 -

Third Party. Any Person, other than Radisson, Select Comfort and their respective Affiliates.

- 22 -

Executed as of the date set forth at the beginning of this Agreement.

RADISSON HOTELS INTERNATIONAL. INC.		SELECT COMFORT CORPORATION
By:	/s/ Nancy Johnson	By:	/s/ James C. Raabe
Name:	Nancy Johnson	Name:	James C. Raabe
Its:	Executive Vice President	Its:	CFO

- 23 -

Exhibit Index

Exhibit	Description
2.1	System Standard related to the Radisson Bed
2.2A	List of Hotels to which Select Comfort has previously sold beds
4.1	The Bed Mark and Logo
5.1	Product Pricing
6.2	Warranty Terms

- 24 -

EXHIBIT 2.1

Standards of Service & Operation

300 Hotel Operations

302D Guest Room Bed & Linens

Signature Standard

Radisson offers guests a superior sleep experience with the Sleep Number® Bed, an innovative and exclusive offering enabling guests to choose the firmness of their mattress. Complimented with a quality and stylized linen specification, the Sleep Number® Bed, offered exclusively at Radisson provides a distinct competitive advantage.   Sleep Number® Bed implementation Requirements for Hotels in the U.S., Canada, and the Caribbean:

(TABLE OMITTED)

(TEXT OMITTED)
©2007 Radisson®	-58-

Standards of Service & Operation

300 Hotel Operations

(TABLE OMITTED)

(TEXT OMITTED)

(TEXT OMITTED)
©2007 Radisson®	-59-

SNB WAIVER

Approved for 2007

(TEXT OMITTED)
(TABLE OMITTED)

EXHIBIT 2.2A

List of Hotels Select Comfort has previously sold beds

(TEXT OMITTED)

EXHIBIT 4.1

Graphic Identity and Brand Standards

The Partnership Logo

The logo represents the unique partnership between Radisson Hotels & Resorts ® and Select Comfort (The Sleep Number ® bed). It is a fusion of the strengths of two national brands that at once establishes the identity of our new initiative, and at the same time allows the integrity of each individual brand to remain intact. The mark consists of the Radisson logo joined to a modified Sleep Number^® bed logo by an extended green loop which emanates from the Radisson brush stroke. The configuration seen here is the only approved treatment of this new identity. Do not attempt to recreate this mark. Use only the provided artwork.

Colors

Being that this logo consists of two corporate identities, it is vital that the colors used in this mark are consistent with the prescribed colors of the two brands. The Radisson portion of the logo is Black (in the typography) and Radisson green in the brush stroke/oval outline. The Sleep Number ® bed portion is to be rendered in Sleep Number ® blue. With the exception of black & white usage, these are the only acceptable colors used.

Four-Color Radisson Green. 35% Cyan and 100% Yellow.   Spot-Color Radisson Green. MSP-78553 K/7K9^† Coated MSP-78651 K/7K9^† Uncoated   PMS 382.
Four-Color Sleep Number® Blue. 80% Cyan, 50% Magenta,
15% Yellow, and 0% Black.   Spot-Color Sleep Number® Blue. PMS 653.

Page 1 of 2 ©2004 Radisson^®

Graphic Identity and Brand Standards

The Logo – Usage/Safe Area

The combination of identities contained in this logo need to be protected from any outside graphic intrusions. We have established a boundary around the logo to preserve its integrity and to ensure that its impact will not be diminished by any extraneous imagery. The specified proportions are 15.0 units horizontally to 9.0 units vertically. Please keep all other visual elements clear of the safe area.

The Logo – Black and White

The preferred printed version

of this logo is four-color

process. If printing in one

color, black is the preferred

color. Below are examples of

black & white renderings.

Page 2 of 2 ©2004 Radisson^®

EXHIBIT 5.1

Final Project Liberty Pricing

6/25/2007

Size	Component	Price
Eastern King	Bed Set (Mattress & Foundation) (1)	XXX
	Installation (2)	XXX
	Freight(3)	XXX
	Total	XXX
Queen	Bed Set (Mattress & Foundation) (1)	XXX
	Installation (2)	XXX
	Freight(3)	XXX
	Total	XXX
Full (Single Chamber)	Bed Set (Mattress & Foundation) (1)	XXX
	Installation (2)	XXX
	Freight(3)	XXX
	Total	XXX

Notes:

(1) Including component costs required to meet higher CA consumer flammability requirements

(2) Installation - Once 24 beds per property have been installed & training delivered to Radisson employees then this becomes an option.

(3) Freight - Based on FTL qtys. Actual cost will vary based on qty ordered as follows:

FTL (72 beds) $XXX

¾ Truck (54 – 71 beds) $XXX

½ Truck (36 – 53 beds) $XXX

¼ Truck (18 – 35 beds) $XXX

LTL (1-17 beds) $XXX

(4) For years 2007 and 2008, Product Pricing will be adjusted as follows:

No more than XXX increase annually

Cost increases justified on the basis of market increases in key components as a % of bed cost:

Petroleum = XXX

Labor & Overhead = XXX

Rubber = XXX

Wood = XXX

Cotton/Fabric = XXX

Other = XXX

Price reviewed annually with Radisson prior to July 1st

Freight may increase with increases in Select Comfort's actual increase in cost, whether or not more than XXX annually.

EXHIBIT 6.2

Warranty Program

Sleep Number Bed - Made exclusively for Radisson

Pump (including control), Chamber & Foam Components

Warranty - 15 Year Prorated Warranty

Warranty 100% - 4 years

Free From Defects in Materials & Workmanship

Normal “Wear & Tear” Not Covered

11 years prorated: Pump, Chamber & Foam Components

Pump	Max % Increase	Price
*Years 1-4 =	NA	Covered at 100%
**Year 5 =	NA	XXX
Year 6 =	6%	XXX
Year 7 =	6%	XXX
Year 8 =	6%	XXX
Year 9 =	6%	XXX
Year 10 =	6%	XXX
Year 11 =	6%	XXX
Year 12 =	6%	XXX
Years 13 - 15 =		XXX
Chamber	Max % Increase	Price (for one chamber)
		King	Queen	Full XL(Single Chamber)	Double XL
*Years 1-4 =	NA	Covered at 100%	Covered at 100%	Covered at 100%	Covered at 100%
**Year 5 =	NA	XXX	XXX	XXX	XXX
Year 6 =	6%	XXX	XXX	XXX	XXX
Year 7 =	6%	XXX	XXX	XXX	XXX
Year 8 =	6%	XXX	XXX	XXX	XXX
Year 9 =	6%	XXX	XXX	XXX	XXX
Year 10 =	6%	XXX	XXX	XXX	XXX
Year 11 =	6%	XXX	XXX	XXX	XXX
Year 12 =	6%	XXX	XXX	XXX	XXX
Years 13 - 15 =		XXX	XXX	XXX	XXX
Foam Components	Max % Increase	Price (for one chamber)
Sidewalls		King	Queen	Full XL(Single Chamber)	Double XL
*Years 1-4 =	NA	Covered at 100%	Covered at 100%	Covered at 100%	Covered at 100%
**Year 5 =	NA	XXX	XXX	XXX	XXX
Year 6 =	6%	XXX	XXX	XXX	XXX
Year 7 =	6%	XXX	XXX	XXX	XXX
Year 8 =	6%	XXX	XXX	XXX	XXX
Year 9 =	6%	XXX	XXX	XXX	XXX
Year 10 =	6%	XXX	XXX	XXX	XXX
Year 11 =	6%	XXX	XXX	XXX	XXX
Year 12 =	6%	XXX	XXX	XXX	XXX
Years 13 - 15 =		XXX	XXX	XXX	XXX
Endwalls	Max % Increase	Price (for one chamber)
		King	Queen	Full XL(Single Chamber)	Double XL
*Years 1-4 =	NA	Covered at 100%	Covered at 100%	Covered at 100%	Covered at 100%
**Year 5 =	NA	XXX	XXX	XXX	XXX
Year 6 =	6%	XXX	XXX	XXX	XXX
Year 7 =	6%	XXX	XXX	XXX	XXX
Year 8 =	6%	XXX	XXX	XXX	XXX
Year 9 =	6%	XXX	XXX	XXX	XXX
Year 10 =	6%	XXX	XXX	XXX	XXX
Year 11 =	6%	XXX	XXX	XXX	XXX
Year 12 =	6%	XXX	XXX	XXX	XXX
Years 13 - 15 =		XXX	XXX	XXX	XXX

Basepad	Max % Increase	Price (for one chamber)
		King	Queen	Full XL(Single Chamber)	Double XL
*Years 1-4 =	NA	Covered at 100%	Covered at 100%	Covered at 100%	Covered at 100%
**Year 5 =	NA	XXX	XXX	XXX	XXX
Year 6 =	6%	XXX	XXX	XXX	XXX
Year 7 =	6%	XXX	XXX	XXX	XXX
Year 8 =	6%	XXX	XXX	XXX	XXX
Year 9 =	6%	XXX	XXX	XXX	XXX
Year 10 =	6%	XXX	XXX	XXX	XXX
Year 11 =	6%	XXX	XXX	XXX	XXX
Year 12 =	6%	XXX	XXX	XXX	XXX
Years 13 - 15 =		XXX	XXX	XXX	XXX
Centerwall	Max % Increase	Price (for one chamber)
		King	Queen	Full XL(Single Chamber)	Double XL
*Years 1-4 =	NA	Covered at 100%	Covered at 100%	NA	Covered at 100%
**Year 5 =	NA	XXX	XXX	NA	XXX
Year 6 =	6%	XXX	XXX	NA	XXX
Year 7 =	6%	XXX	XXX	NA	XXX
Year 8 =	6%	XXX	XXX	NA	XXX
Year 9 =	6%	XXX	XXX	NA	XXX
Year 10 =	6%	XXX	XXX	NA	XXX
Year 11 =	6%	XXX	XXX	NA	XXX
Year 12 =	6%	XXX	XXX	NA	XXX
Years 13 - 15 =		XXX	XXX	NA	XXX
Topperpad	Max % Increase	Price (for one chamber)
		King	Queen	Full XL(Single Chamber)	Double XL
*Years 1-4 =	NA	Covered at 100%	Covered at 100%	Covered at 100%	Covered at 100%
**Year 5 =	NA	XXX	XXX	XXX	XXX
Year 6 =	6%	XXX	XXX	XXX	XXX
Year 7 =	6%	XXX	XXX	XXX	XXX
Year 8 =	6%	XXX	XXX	XXX	XXX
Year 9 =	6%	XXX	XXX	XXX	XXX
Year 10 =	6%	XXX	XXX	XXX	XXX
Year 11 =	6%	XXX	XXX	XXX	XXX
Year 12 =	6%	XXX	XXX	XXX	XXX
Years 13 - 15 =		XXX	XXX	XXX	XXX

* Select Comfort pays freight back to property on 100% coverage warranty parts

** Customer will return Pumps & Chambers upon Select Comfort's request to use in product analysis. Select Comfort will pay freight on these types of returns.

PillowTop Cover:

Warranty - 180 Days 100%

Free From Defects in Materials & Workmanship

Normal "Wear & Tear" Not Covered

	Max % Increase	Price
		King	Queen	Full XL(Single Chamber)	Double XL
Cover
*Days 1-180	NA	Covered at 100%	Covered at 100%	Covered at 100%	Covered at 100%
***Year 5 =	NA	XXX	XXX	XXX	XXX
Year 6 =	6%	XXX	XXX	XXX	XXX
Year 7 =	6%	XXX	XXX	XXX	XXX
Year 8 =	6%	XXX	XXX	XXX	XXX
Year 9 =	6%	XXX	XXX	XXX	XXX
Year 10 =	6%	XXX	XXX	XXX	XXX
Year 11 =	6%	XXX	XXX	XXX	XXX
Year 12 =	6%	XXX	XXX	XXX	XXX
Years 13 - 15 =		XXX	XXX	XXX	XXX

* Select Comfort pays freight on cover back to property for first 180 days.

** After 180 days customer does not have to return covers to Select Comfort.

*** Property may purchase a cover at anytime through year 5 at $XXX (King/Queen/Full XL/Double XL) per cover

Note: Cover includes pillowtop cover and entire mattress casing

Foundation:

Warranty - 10 Years 100%

Free From Defects in Materials & Workmanship

Normal “Wear & Tear” Not Covered

Customer pays freight both ways on foundations.

EX-31.1

EX-31.2

Exhibit 31.2

Certification by Chief Financial Officer

I, James C. Raabe, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Select Comfort Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 8, 2007

/s/   James C. Raabe

James C. Raabe

Senior Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Select Comfort Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, William R. McLaughlin, Chairman and Chief Executive Officer of the Company, solely for the purposes of 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, does hereby certify, to his knowledge, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 8, 2007

/s/   William R. McLaughlin

William R. McLaughlin

Chairman and Chief Executive Officer

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. §1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Select Comfort Corporation (the “Company”) on Form 10-Q for the period ended June 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, James C. Raabe, Senior Vice President and Chief Financial Officer of the Company, solely for the purposes of 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, does hereby certify, to his knowledge, that:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 8, 2007

/s/   James C. Raabe

James C. Raabe

Senior Vice President and Chief Financial Officer

A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.